G.R. No.

108670 September 21, 1994

LBC EXPRESS, INC., petitioner,

vs.
THE COURT OF APPEALS, ADOLFO M. CARLOTO, and RURAL BANK OF
LABASON, INC., respondents.

Emmanuel D. Agustin for petitioner.

Bernardo P. Concha for private respondents.

PUNO, J.:

In this Petition for Review on Certiorari, petitioner LBC questions the

decision 1 of respondent Court of Appeals affirming the judgment of the
Regional Trial Court of Dipolog City, Branch 8, awarding moral and exemplary
damages, reimbursement of P32,000.00, and costs of suit; but deleting the
amount of attorney's fees.

Private respondent Adolfo Carloto, incumbent President-Manager of private

respondent Rural Bank of Labason, alleged that on November 12, 1984, he was in
Cebu City transacting business with the Central Bank Regional Office. He was
instructed to proceed to Manila on or before November 21, 1984 to follow-up
the Rural Bank's plan of payment of rediscounting obligations with Central
Bank's main office in Manila. 2 He then purchased a round trip plane ticket to
Manila. He also phoned his sister Elsie Carloto-Concha to send him ONE
THOUSAND PESOS (P1,000.00) for his pocket money in going to Manila and
some rediscounting papers thru petitioner's LBC Office at Dipolog City. 3

On November 16, 1984, Mrs. Concha thru her clerk, Adelina Antigo consigned
thru LBC Dipolog Branch the pertinent documents and the sum of ONE
THOUSAND PESOS (P1,000.00) to respondent Carloto at No. 2 Greyhound
Subdivision, Kinasangan, Pardo, Cebu City. This was evidenced by LBC Air Cargo,
Inc., Cashpack Delivery Receipt No. 34805.

On November 17, 1984, the documents arrived without the cashpack.

Respondent Carloto made personal follow-ups on that same day, and also on
November 19 and 20, 1984 at LBC's office in Cebu but petitioner failed to
deliver to him the cashpack.
Consequently, respondent Carloto said he was compelled to go to Dipolog City on
November 24, 1984 to claim the money at LBC's office. His effort was once
more in vain. On November 27, 1984, he went back to Cebu City at LBC's office.
He was, however, advised that the money has been returned to LBC's office in
Dipolog City upon shipper's request. Again, he demanded for the ONE
THOUSAND PESOS (P1,000.00) and refund of FORTY-NINE PESOS (P49.00)
LBC revenue charges. He received the money only on December 15, 1984 less
the revenue charges.

Respondent Carloto claimed that because of the delay in the transmittal of the
cashpack, he failed to submit the rediscounting documents to Central Bank on
time. As a consequence, his rural bank was made to pay the Central Bank
THIRTY-TWO THOUSAND PESOS (P32,000.00) as penalty interest. 4 He
allegedly suffered embarrassment and humiliation.

Petitioner LBC, on the other hand, alleged that the cashpack was forwarded via
PAL to LBC Cebu City branch on November 22, 1984. 5 On the same day, it was
delivered at respondent Carloto's residence at No. 2 Greyhound Subdivision,
Kinasangan, Pardo, Cebu City. However, he was not around to receive it. The
delivery man served instead a claim notice to insure he would personally receive
the money. This was annotated on Cashpack Delivery Receipt No. 342805.
Notwithstanding the said notice, respondent Carloto did not claim the cashpack
at LBC Cebu. On November 23, 1984, it was returned to the shipper, Elsie
Carloto-Concha at Dipolog City.

Claiming that petitioner LBC wantonly and recklessly disregarded its obligation,
respondent Carloto instituted an action for Damages Arising from Non-
performance of Obligation docketed as Civil Case No. 3679 before the Regional
Trial Court of Dipolog City on January 4, 1985. On June 25, 1988, an amended
complaint was filed where respondent rural bank joined as one of the plaintiffs
and prayed for the reimbursement of THIRTY-TWO THOUSAND PESOS
(P32,000.00).

After hearing, the trial court rendered its decision, the dispositive portion of
which reads:

WHEREFORE, judgment is hereby rendered:

1. Ordering the defendant LBC Air Cargo, Inc. to pay unto plaintiff
Adolfo M. Carloto and Rural Bank of Labason, Inc., moral damages
in the amount of P10,000.00; exemplary damages in the amount of
 P5,000.00; attorney's fees in the amount of P3,000.00 and
litigation expenses of P1,000.00;

2. Sentencing defendant LBC Air Cargo, Inc., to reimburse plaintiff

Rural Bank of Labason, Inc. the sum of P32,000.00 which the latter
paid as penalty interest to the Central Bank of the Philippines as
penalty interest for failure to rediscount its due bills on time
arising from the defendant's failure to deliver the cashpack, with
legal interest computed from the date of filing of this case; and

3. Ordering defendant to pay the costs of these proceedings.

6
SO ORDERED.

On appeal, respondent court modified the judgment by deleting the award of

attorney's fees. Petitioner's Motion for Reconsideration was denied in a
Resolution dated January 11, 1993.

Hence, this petition raising the following questions, to wit:

1. Whether or not respondent Rural Bank of Labason Inc., being an artificial

person should be awarded moral damages.

2. Whether or not the award of THIRTY-TWO THOUSAND PESOS

(P32,000.00) was made with grave abuse of discretion.

3. Whether or not the respondent Court of Appeals gravely abused its

discretion in affirming the trial court's decision ordering petitioner LBC to pay
moral and exemplary damages despite performance of its obligation.

We find merit in the petition.

The respondent court erred in awarding moral damages to the Rural Bank of
Labason, Inc., an artificial person.

Moral damages are granted in recompense for physical suffering, mental

anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar injury. 7 A corporation, being an artificial
person and having existence only in legal contemplation, has no feelings, no
emotions, no senses; therefore, it cannot experience physical suffering and
mental anguish. 8 Mental suffering can be experienced only by one having a
nervous system and it flows from real ills, sorrows, and griefs of life 9 — all of
which cannot be suffered by respondent bank as an artificial person.
We can neither sustain the award of moral damages in favor of the private
respondents. The right to recover moral damages is based on equity. Moral
damages are recoverable only if the case falls under Article 2219 of the Civil
Code in relation to Article 21. 10 Part of conventional wisdom is that he who
comes to court to demand equity, must come with clean hands.

In the case at bench, respondent Carloto is not without fault. He was fully
aware that his rural bank's obligation would mature on November 21, 1984 and
his bank has set aside cash for these bills payable. 11 He was all set to go to
Manila to settle this obligation. He has received the documents necessary for
the approval of their rediscounting application with the Central Bank. He has
also received the plane ticket to go to Manila. Nevertheless, he did not
immediately proceed to Manila but instead tarried for days allegedly claiming
his ONE THOUSAND PESOS (P1,000.00) pocket money. Due to his delayed trip,
he failed to submit the rediscounting papers to the Central Bank on time and his
bank was penalized THIRTY-TWO THOUSAND PESOS (P32,000.00) for failure
to pay its obligation on its due date. The undue importance given by respondent
Carloto to his ONE THOUSAND PESOS (P1,000.00) pocket money is
inexplicable for it was not indispensable for him to follow up his bank's
rediscounting application with Central Bank. According to said respondent, he
needed the money to "invite people for a snack or dinner." 12 The attitude of
said respondent speaks ill of his ways of business dealings and cannot be
countenanced by this Court. Verily, it will be revolting to our sense of ethics to
use it as basis for awarding damages in favor of private respondent Carloto and
the Rural Bank of Labason, Inc.

We also hold that respondents failed to show that petitioner LBC's late delivery
of the cashpack was motivated by personal malice or bad faith, whether
intentional or thru gross negligence. In fact, it was proved during the trial that
the cashpack was consigned on November 16, 1984, a Friday. It was sent to Cebu
on November 19, 1984, the next business day. Considering this circumstance,
petitioner cannot be charged with gross neglect of duty. Bad faith under the
law can not be presumed; it must be established by clearer and convincing
evidence. 13Again, the unbroken jurisprudence is that in breach of contract
cases where the defendant is not shown to have acted fraudulently or in bad
faith, liability for damages is limited to the natural and probable consequences
of the branch of the obligation which the parties had foreseen or could
reasonable have foreseen. The damages, however, will not include liability for
moral damages. 14

Prescinding from these premises, the award of exemplary damages made by the
respondent court would have no legal leg to support itself. Under Article 2232
of the Civil Code, in a contractual or quasi-contractual relationship, exemplary
damages may be awarded only if the defendant had acted in "a wanton,
fraudulent, reckless, oppressive, or malevolent manner." The established facts
of not so warrant the characterization of the action of petitioner LBC.

IN VIEW WHEREOF, the Decision of the respondent court dated September

30, 1992 is REVERSED and SET ASIDE; and the Complaint in Civil Case No.
3679 is ordered DISMISSED. No costs.

SO ORDERED.

G.R. No. 128690 January 21, 1999

ABS-CBN BROADCASTING CORPORATION, petitioner,

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

DAVIDE, JR., CJ.:

In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp.

(hereafter ABS-CBN) seeks to reverse and set aside the decision 1 of 31
October 1996 and the resolution 2 of 10 March 1997 of the Court of Appeals in
CA-G.R. CV No. 44125. The former affirmed with modification the decision 3 of
28 April 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in
Civil Case No. Q-92-12309. The latter denied the motion to reconsider the
decision of 31 October 1996.

The antecedents, as found by the RTC and adopted by the Court of Appeals, are
as follows:

In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement

(Exh. "A") whereby Viva gave ABS-CBN an exclusive right to
exhibit some Viva films. Sometime in December 1991, in accordance
with paragraph 2.4 [sic] of said agreement stating that —.

1.4 ABS-CBN shall have the right of first refusal to the next
twenty-four (24) Viva films for TV telecast under such terms as
may be agreed upon by the parties hereto, provided, however, that
such right shall be exercised by ABS-CBN from the actual offer in
writing.

Viva, through defendant Del Rosario, offered ABS-CBN, through

its vice-president Charo Santos-Concio, a list of three(3) film
packages (36 title) from which ABS-CBN may exercise its right of
first refusal under the afore-said agreement (Exhs. "1" par, 2, "2,"
"2-A'' and "2-B"-Viva). ABS-CBN, however through Mrs. Concio,
"can tick off only ten (10) titles" (from the list) "we can purchase"
(Exh. "3" - Viva) and therefore did not accept said list (TSN, June
8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the
subject of the case at bar except the film ''Maging Sino Ka Man."

For further enlightenment, this rejection letter dated January 06,

1992 (Exh "3" - Viva) is hereby quoted:

6 January 1992

Dear Vic,

This is not a very formal business letter I am writing to you as I

would like to express my difficulty in recommending the purchase
of the three film packages you are offering ABS-CBN.

From among the three packages I can only tick off 10 titles we can
purchase. Please see attached. I hope you will understand my
position. Most of the action pictures in the list do not have big
action stars in the cast. They are not for primetime. In line with
this I wish to mention that I have not scheduled for telecast
several action pictures in out very first contract because of the
cheap production value of these movies as well as the lack of big
action stars. As a film producer, I am sure you understand what I
am trying to say as Viva produces only big action pictures.

In fact, I would like to request two (2) additional runs for these
movies as I can only schedule them in our non-primetime slots. We
have to cover the amount that was paid for these movies because
as you very well know that non-primetime advertising rates are
very low. These are the unaired titles in the first contract.

1. Kontra Persa [sic].

2. Raider Platoon.
3. Underground guerillas

4. Tiger Command

5. Boy de Sabog

6. Lady Commando

7. Batang Matadero

8. Rebelyon

I hope you will consider this request of mine.

The other dramatic films have been offered to us before and have
been rejected because of the ruling of MTRCB to have them aired
at 9:00 p.m. due to their very adult themes.

As for the 10 titles I have choosen [sic] from the 3 packages

please consider including all the other Viva movies produced last
year. I have quite an attractive offer to make.

Thanking you and with my warmest regards.

(Si
gne
d)

Ch
aro
Sa
nto
s-
Co
nci
o

On February 27, 1992, defendant Del Rosario approached ABS-

CBN's Ms. Concio, with a list consisting of 52 original movie titles
(i.e. not yet aired on television) including the 14 titles subject of
the present case, as well as 104 re-runs (previously aired on
television) from which ABS-CBN may choose another 52 titles, as a
total of 156 titles, proposing to sell to ABS-CBN airing rights over
this package of 52 originals and 52 re-runs for P60,000,000.00 of
which P30,000,000.00 will be in cash and P30,000,000.00 worth of
television spots (Exh. "4" to "4-C" Viva; "9" -Viva).

On April 2, 1992, defendant Del Rosario and ABS-CBN general

manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant
in Quezon City to discuss the package proposal of Viva. What
transpired in that lunch meeting is the subject of conflicting
versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly
agreed that ABS-CRN was granted exclusive film rights to
fourteen (14) films for a total consideration of P36 million; that he
allegedly put this agreement as to the price and number of films in
a "napkin'' and signed it and gave it to Mr. Del Rosario (Exh. D;
TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand, Del
Rosario denied having made any agreement with Lopez regarding
the 14 Viva films; denied the existence of a napkin in which Lopez
wrote something; and insisted that what he and Lopez discussed at
the lunch meeting was Viva's film package offer of 104 films (52
originals and 52 re-runs) for a total price of P60 million. Mr. Lopez
promising [sic]to make a counter proposal which came in the form
of a proposal contract Annex "C" of the complaint (Exh. "1"·- Viva;
Exh. "C" - ABS-CBN).

On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS
Senior vice-president for Finance discussed the terms and
conditions of Viva's offer to sell the 104 films, after the rejection
of the same package by ABS-CBN.

On April 07, 1992, defendant Del Rosario received through his

secretary, a handwritten note from Ms. Concio, (Exh. "5" - Viva),
which reads: "Here's the draft of the contract. I hope you find
everything in order," to which was attached a draft exhibition
agreement (Exh. "C''- ABS-CBN; Exh. "9" - Viva, p. 3) a counter-
proposal covering 53 films, 52 of which came from the list sent by
defendant Del Rosario and one film was added by Ms. Concio, for a
consideration of P35 million. Exhibit "C" provides that ABS-CBN is
granted films right to 53 films and contains a right of first refusal
to "1992 Viva Films." The said counter proposal was however
rejected by Viva's Board of Directors [in the] evening of the same
day, April 7, 1992, as Viva would not sell anything less than the
package of 104 films for P60 million pesos (Exh. "9" - Viva), and
such rejection was relayed to Ms. Concio.
 On April 29, 1992, after the rejection of ABS-CBN and following
several negotiations and meetings defendant Del Rosario and Viva's
President Teresita Cruz, in consideration of P60 million, signed a
letter of agreement dated April 24, 1992. granting RBS the
exclusive right to air 104 Viva-produced and/or acquired films
(Exh. "7-A" - RBS; Exh. "4" - RBS) including the fourteen (14) films
subject of the present case. 4

On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific
performance with a prayer for a writ of preliminary injunction and/or temporary
restraining order against private respondents Republic Broadcasting
Corporation 5 (hereafter RBS ), Viva Production (hereafter VIVA), and Vicente
Del Rosario. The complaint was docketed as Civil Case No. Q-92-12309.

On 27 May 1992, RTC issued a temporary restraining order 6 enjoining private

respondents from proceeding with the airing, broadcasting, and televising of the
fourteen VIVA films subject of the controversy, starting with the film Maging
Sino Ka Man, which was scheduled to be shown on private respondents RBS'
channel 7 at seven o'clock in the evening of said date.

On 17 June 1992, after appropriate proceedings, the RTC issued an

order 7 directing the issuance of a writ of preliminary injunction upon ABS-
CBN's posting of P35 million bond. ABS-CBN moved for the reduction of the
bond, 8 while private respondents moved for reconsideration of the order and
offered to put up a counterbound. 9

In the meantime, private respondents filed separate answers with

counterclaim. 10 RBS also set up a cross-claim against VIVA..

On 3 August 1992, the RTC issued an order 11 dissolving the writ of preliminary
injunction upon the posting by RBS of a P30 million counterbond to answer for
whatever damages ABS-CBN might suffer by virtue of such dissolution.
However, it reduced petitioner's injunction bond to P15 million as a condition
precedent for the reinstatement of the writ of preliminary injunction should
private respondents be unable to post a counterbond.

At the pre-trial 12 on 6 August 1992, the parties, upon suggestion of the court,
agreed to explore the possibility of an amicable settlement. In the meantime,
RBS prayed for and was granted reasonable time within which to put up a P30
million counterbond in the event that no settlement would be reached.
As the parties failed to enter into an amicable settlement RBS posted on 1
October 1992 a counterbond, which the RTC approved in its Order of 15
October 1992. 13

14
On 19 October 1992, ABS-CBN filed a motion for reconsideration of the 3
August and 15 October 1992 Orders, which RBS opposed. 15

16
On 29 October 1992, the RTC conducted a pre-trial.

Pending resolution of its motion for reconsideration, ABS-CBN filed with the
Court of Appeals a petition 17challenging the RTC's Orders of 3 August and 15
October 1992 and praying for the issuance of a writ of preliminary injunction to
enjoin the RTC from enforcing said orders. The case was docketed as CA-G.R.
SP No. 29300.

On 3 November 1992, the Court of Appeals issued a temporary restraining

order 18 to enjoin the airing, broadcasting, and televising of any or all of the
films involved in the controversy.

On 18 December 1992, the Court of Appeals promulgated a

decision 19 dismissing the petition in CA -G.R. No. 29300 for being premature.
ABS-CBN challenged the dismissal in a petition for review filed with this Court
on 19 January 1993, which was docketed as G.R. No. 108363.

In the meantime the RTC received the evidence for the parties in Civil Case No.
Q-192-1209. Thereafter, on 28 April 1993, it rendered a decision 20 in favor of
RBS and VIVA and against ABS-CBN disposing as follows:

WHEREFORE, under cool reflection and prescinding from the

foregoing, judgments is rendered in favor of defendants and
against the plaintiff.

(1) The complaint is hereby dismissed;

(2) Plaintiff ABS-CBN is ordered to pay defendant

RBS the following:

a) P107,727.00, the amount of premium

paid by RBS to the surety which issued
defendant RBS's bond to lift the
injunction;
 b) P191,843.00 for the amount of print
advertisement for "Maging Sino Ka Man"
in various newspapers;

c) Attorney's fees in the amount of P1

million;

d) P5 million as and by way of moral

damages;

e) P5 million as and by way of exemplary

damages;

(3) For defendant VIVA, plaintiff ABS-CBN is

ordered to pay P212,000.00 by way of reasonable
attorney's fees.

(4) The cross-claim of defendant RBS against

defendant VIVA is dismissed.

(5) Plaintiff to pay the costs.

According to the RTC, there was no meeting of minds on the price and terms of
the offer. The alleged agreement between Lopez III and Del Rosario was
subject to the approval of the VIVA Board of Directors, and said agreement
was disapproved during the meeting of the Board on 7 April 1992. Hence, there
was no basis for ABS-CBN's demand that VIVA signed the 1992 Film Exhibition
Agreement. Furthermore, the right of first refusal under the 1990 Film
Exhibition Agreement had previously been exercised per Ms. Concio's letter to
Del Rosario ticking off ten titles acceptable to them, which would have made
the 1992 agreement an entirely new contract.

On 21 June 1993, this Court denied 21 ABS-CBN's petition for review in G.R. No.
108363, as no reversible error was committed by the Court of Appeals in its
challenged decision and the case had "become moot and academic in view of the
dismissal of the main action by the court a quo in its decision" of 28 April 1993.

Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals

claiming that there was a perfected contract between ABS-CBN and VIVA
granting ABS-CBN the exclusive right to exhibit the subject films. Private
respondents VIVA and Del Rosario also appealed seeking moral and exemplary
damages and additional attorney's fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC
that the contract between ABS-CBN and VIVA had not been perfected, absent
the approval by the VIVA Board of Directors of whatever Del Rosario, it's
agent, might have agreed with Lopez III. The appellate court did not even
believe ABS-CBN's evidence that Lopez III actually wrote down such an
agreement on a "napkin," as the same was never produced in court. It likewise
rejected ABS-CBN's insistence on its right of first refusal and ratiocinated as
follows:

As regards the matter of right of first refusal, it may be true that

a Film Exhibition Agreement was entered into between Appellant
ABS-CBN and appellant VIVA under Exhibit "A" in 1990, and that
parag. 1.4 thereof provides:

1.4 ABS-CBN shall have the right of first refusal to

the next twenty-four (24) VIVA films for TV telecast
under such terms as may be agreed upon by the
parties hereto, provided, however, that such right
shall be exercised by ABS-CBN within a period of
fifteen (15) days from the actual offer in writing
(Records, p. 14).

[H]owever, it is very clear that said right of first refusal in favor

of ABS-CBN shall still be subject to such terms as may be agreed
upon by the parties thereto, and that the said right shall be
exercised by ABS-CBN within fifteen (15) days from the actual
offer in writing.

Said parag. 1.4 of the agreement Exhibit "A" on the right of first
refusal did not fix the price of the film right to the twenty-four
(24) films, nor did it specify the terms thereof. The same are still
left to be agreed upon by the parties.

In the instant case, ABS-CBN's letter of rejection Exhibit 3

(Records, p. 89) stated that it can only tick off ten (10) films, and
the draft contract Exhibit "C" accepted only fourteen (14) films,
while parag. 1.4 of Exhibit "A'' speaks of the next twenty-four
(24) films.

The offer of V1VA was sometime in December 1991 (Exhibits 2, 2-

A. 2-B; Records, pp. 86-88; Decision, p. 11, Records, p. 1150), when
the first list of VIVA films was sent by Mr. Del Rosario to ABS-
 CBN. The Vice President of ABS-CBN, Ms. Charo Santos-Concio,
sent a letter dated January 6, 1992 (Exhibit 3, Records, p. 89)
where ABS-CBN exercised its right of refusal by rejecting the
offer of VIVA.. As aptly observed by the trial court, with the said
letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its
right of first refusal. And even if We reckon the fifteen (15) day
period from February 27, 1992 (Exhibit 4 to 4-C) when another list
was sent to ABS-CBN after the letter of Mrs. Concio, still the
fifteen (15) day period within which ABS-CBN shall exercise its
right of first refusal has already expired. 22

Accordingly, respondent court sustained the award of actual damages consisting

in the cost of print advertisements and the premium payments for the
counterbond, there being adequate proof of the pecuniary loss which RBS had
suffered as a result of the filing of the complaint by ABS-CBN. As to the award
of moral damages, the Court of Appeals found reasonable basis therefor,
holding that RBS's reputation was debased by the filing of the complaint in Civil
Case No. Q-92-12309 and by the non-showing of the film "Maging Sino Ka Man."
Respondent court also held that exemplary damages were correctly imposed by
way of example or correction for the public good in view of the filing of the
complaint despite petitioner's knowledge that the contract with VIVA had not
been perfected, It also upheld the award of attorney's fees, reasoning that
with ABS-CBN's act of instituting Civil Case No, Q-92-1209, RBS was
"unnecessarily forced to litigate." The appellate court, however, reduced the
awards of moral damages to P2 million, exemplary damages to P2 million, and
attorney's fees to P500, 000.00.

On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's
appeal because it was "RBS and not VIVA which was actually prejudiced when
the complaint was filed by ABS-CBN."

Its motion for reconsideration having been denied, ABS-CBN filed the petition
in this case, contending that the Court of Appeals gravely erred in

. . . RULING THAT THERE WAS NO PERFECTED CONTRACT

BETWEEN PETITIONER AND PRIVATE RESPONDENT VIVA
NOTWITHSTANDING PREPONDERANCE OF EVIDENCE
ADDUCED BY PETITIONER TO THE CONTRARY.

II
 . . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES
IN FAVOR OF PRIVATE RESPONDENT RBS.

III

. . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN

FAVOR OF PRIVATE RESPONDENT RBS.

IV

. . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS.

ABS-CBN claims that it had yet to fully exercise its right of first refusal over
twenty-four titles under the 1990 Film Exhibition Agreement, as it had chosen
only ten titles from the first list. It insists that we give credence to Lopez's
testimony that he and Del Rosario met at the Tamarind Grill Restaurant,
discussed the terms and conditions of the second list (the 1992 Film Exhibition
Agreement) and upon agreement thereon, wrote the same on a paper napkin. It
also asserts that the contract has already been effective, as the elements
thereof, namely, consent, object, and consideration were established. It then
concludes that the Court of Appeals' pronouncements were not supported by law
and jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons
Milling, Inc. v. Court of Appeals, 23 which cited Toyota Shaw, Inc. v. Court of
Appeals, 24 Ang Yu Asuncion v. Court of Appeals, 25 and Villonco Realty Company
v. Bormaheco. Inc. 26

Anent the actual damages awarded to RBS, ABS-CBN disavows liability

therefor. RBS spent for the premium on the counterbond of its own volition in
order to negate the injunction issued by the trial court after the parties had
ventilated their respective positions during the hearings for the purpose. The
filing of the counterbond was an option available to RBS, but it can hardly be
argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS had
another available option, i.e., move for the dissolution or the injunction; or if it
was determined to put up a counterbond, it could have presented a cash bond.
Furthermore under Article 2203 of the Civil Code, the party suffering loss or
injury is also required to exercise the diligence of a good father of a family to
minimize the damages resulting from the act or omission. As regards the cost of
print advertisements, RBS had not convincingly established that this was a loss
attributable to the non showing "Maging Sino Ka Man"; on the contrary, it was
brought out during trial that with or without the case or the injunction, RBS
would have spent such an amount to generate interest in the film.
ABS-CBN further contends that there was no clear basis for the awards of
moral and exemplary damages. The controversy involving ABS-CBN and RBS did
not in any way originate from business transaction between them. The claims for
such damages did not arise from any contractual dealings or from specific acts
committed by ABS-CBN against RBS that may be characterized as wanton,
fraudulent, or reckless; they arose by virtue only of the filing of the complaint,
An award of moral and exemplary damages is not warranted where the record is
bereft of any proof that a party acted maliciously or in bad faith in filing an
action. 27 In any case, free resort to courts for redress of wrongs is a matter
of public policy. The law recognizes the right of every one to sue for that which
he honestly believes to be his right without fear of standing trial for damages
where by lack of sufficient evidence, legal technicalities, or a different
interpretation of the laws on the matter, the case would lose ground. 28 One who
makes use of his own legal right does no injury. 29 If damage results front the
filing of the complaint, it is damnum absque injuria. 30 Besides, moral damages
are generally not awarded in favor of a juridical person, unless it enjoys a good
reputation that was debased by the offending party resulting in social
humiliation. 31

As regards the award of attorney's fees, ABS-CBN maintains that the same
had no factual, legal, or equitable justification. In sustaining the trial court's
award, the Court of Appeals acted in clear disregard of the doctrines laid down
in Buan v. Camaganacan 32 that the text of the decision should state the reason
why attorney's fees are being awarded; otherwise, the award should be
disallowed. Besides, no bad faith has been imputed on, much less proved as
having been committed by, ABS-CBN. It has been held that "where no sufficient
showing of bad faith would be reflected in a party' s persistence in a case other
than an erroneous conviction of the righteousness of his cause, attorney's fees
shall not be recovered as cost." 33

On the other hand, RBS asserts that there was no perfected contract between
ABS-CBN and VIVA absent any meeting of minds between them regarding the
object and consideration of the alleged contract. It affirms that the ABS-
CBN's claim of a right of first refusal was correctly rejected by the trial court.
RBS insist the premium it had paid for the counterbond constituted a pecuniary
loss upon which it may recover. It was obliged to put up the counterbound due to
the injunction procured by ABS-CBN. Since the trial court found that ABS-CBN
had no cause of action or valid claim against RBS and, therefore not entitled to
the writ of injunction, RBS could recover from ABS-CBN the premium paid on
the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove
to be more expensive, as the loss would be equivalent to the cost of money RBS
would forego in case the P30 million came from its funds or was borrowed from
banks.

RBS likewise asserts that it was entitled to the cost of advertisements for the
cancelled showing of the film "Maging Sino Ka Man" because the print
advertisements were put out to announce the showing on a particular day and
hour on Channel 7, i.e., in its entirety at one time, not a series to be shown on a
periodic basis. Hence, the print advertisement were good and relevant for the
particular date showing, and since the film could not be shown on that particular
date and hour because of the injunction, the expenses for the advertisements
had gone to waste.

As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the
case and secured injunctions purely for the purpose of harassing and prejudicing
RBS. Pursuant then to Article 19 and 21 of the Civil Code, ABS-CBN must be
held liable for such damages. Citing Tolentino, 34 damages may be awarded in
cases of abuse of rights even if the act done is not illicit and there is abuse of
rights were plaintiff institutes and action purely for the purpose of harassing or
prejudicing the defendant.

In support of its stand that a juridical entity can recover moral and exemplary
damages, private respondents RBS cited People v. Manero, 35 where it was
stated that such entity may recover moral and exemplary damages if it has a
good reputation that is debased resulting in social humiliation. it then
ratiocinates; thus:

There can be no doubt that RBS' reputation has been debased by

ABS-CBN's acts in this case. When RBS was not able to fulfill its
commitment to the viewing public to show the film "Maging Sino Ka
Man" on the scheduled dates and times (and on two occasions that
RBS advertised), it suffered serious embarrassment and social
humiliation. When the showing was canceled, late viewers called up
RBS' offices and subjected RBS to verbal abuse ("Announce kayo
nang announce, hindi ninyo naman ilalabas," "nanloloko yata kayo")
(Exh. 3-RBS, par. 3). This alone was not something RBS brought
upon itself. it was exactly what ABS-CBN had planned to happen.

The amount of moral and exemplary damages cannot be said to be

excessive. Two reasons justify the amount of the award.

The first is that the humiliation suffered by RBS is national

extent. RBS operations as a broadcasting company is [sic]
 nationwide. Its clientele, like that of ABS-CBN, consists of those
who own and watch television. It is not an exaggeration to state,
and it is a matter of judicial notice that almost every other person
in the country watches television. The humiliation suffered by RBS
is multiplied by the number of televiewers who had anticipated the
showing of the film "Maging Sino Ka Man" on May 28 and November
3, 1992 but did not see it owing to the cancellation. Added to this
are the advertisers who had placed commercial spots for the
telecast and to whom RBS had a commitment in consideration of
the placement to show the film in the dates and times specified.

The second is that it is a competitor that caused RBS to suffer

the humiliation. The humiliation and injury are far greater in
degree when caused by an entity whose ultimate business objective
is to lure customers (viewers in this case) away from the
competition. 36

For their part, VIVA and Vicente del Rosario contend that the findings of fact
of the trial court and the Court of Appeals do not support ABS-CBN's claim
that there was a perfected contract. Such factual findings can no longer be
disturbed in this petition for review under Rule 45, as only questions of law can
be raised, not questions of fact. On the issue of damages and attorneys fees,
they adopted the arguments of RBS.

The key issues for our consideration are (1) whether there was a perfected
contract between VIVA and ABS-CBN, and (2) whether RBS is entitled to
damages and attorney's fees. It may be noted that the award of attorney's
fees of P212,000 in favor of VIVA is not assigned as another error.

I.

The first issue should be resolved against ABS-CBN. A contract is a meeting of

minds between two persons whereby one binds himself to give something or to
render some service to another 37 for a consideration. there is no contract
unless the following requisites concur: (1) consent of the contracting parties; (2)
object certain which is the subject of the contract; and (3) cause of the
obligation, which is established. 38 A contract undergoes three stages:

(a) preparation, conception, or generation, which is the period of

negotiation and bargaining, ending at the moment of agreement of
the parties;
 (b) perfection or birth of the contract, which is the moment when
the parties come to agree on the terms of the contract; and

(c) consummation or death, which is the fulfillment or performance

of the terms agreed upon in the contract. 39

Contracts that are consensual in nature are perfected upon mere meeting of the
minds, Once there is concurrence between the offer and the acceptance upon
the subject matter, consideration, and terms of payment a contract is
produced. The offer must be certain. To convert the offer into a contract, the
acceptance must be absolute and must not qualify the terms of the offer; it
must be plain, unequivocal, unconditional, and without variance of any sort from
the proposal. A qualified acceptance, or one that involves a new proposal,
constitutes a counter-offer and is a rejection of the original offer.
Consequently, when something is desired which is not exactly what is proposed
in the offer, such acceptance is not sufficient to generate consent because any
modification or variation from the terms of the offer annuls the offer. 40

When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the
Tamarind Grill on 2 April 1992 to discuss the package of films, said package of
104 VIVA films was VIVA's offer to ABS-CBN to enter into a new Film
Exhibition Agreement. But ABS-CBN, sent, through Ms. Concio, a counter-
proposal in the form of a draft contract proposing exhibition of 53 films for a
consideration of P35 million. This counter-proposal could be nothing less than
the counter-offer of Mr. Lopez during his conference with Del Rosario at
Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA's offer,
for it was met by a counter-offer which substantially varied the terms of the
offer.

ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of

Appeals 41 and Villonco Realty Company v. Bormaheco, Inc., 42 is misplaced. In
these cases, it was held that an acceptance may contain a request for certain
changes in the terms of the offer and yet be a binding acceptance as long as "it
is clear that the meaning of the acceptance is positively and unequivocally to
accept the offer, whether such request is granted or not." This ruling was,
however, reversed in the resolution of 29 March 1996, 43 which ruled that the
acceptance of all offer must be unqualified and absolute, i.e., it "must be
identical in all respects with that of the offer so as to produce consent or
meeting of the minds."

On the other hand, in Villonco, cited in Limketkai, the alleged changes in the
revised counter-offer were not material but merely clarificatory of what had
previously been agreed upon. It cited the statement in Stuart v. Franklin Life
Insurance Co. 44 that "a vendor's change in a phrase of the offer to purchase,
which change does not essentially change the terms of the offer, does not
amount to a rejection of the offer and the tender of a counter-
offer." 45However, when any of the elements of the contract is modified upon
acceptance, such alteration amounts to a counter-offer.

In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's offer.

Hence, they underwent a period of bargaining. ABS-CBN then formalized its
counter-proposals or counter-offer in a draft contract, VIVA through its Board
of Directors, rejected such counter-offer, Even if it be
conceded arguendo that Del Rosario had accepted the counter-offer, the
acceptance did not bind VIVA, as there was no proof whatsoever that Del
Rosario had the specific authority to do so.

Under Corporation Code, 46 unless otherwise provided by said Code, corporate

powers, such as the power; to enter into contracts; are exercised by the Board
of Directors. However, the Board may delegate such powers to either an
executive committee or officials or contracted managers. The delegation,
except for the executive committee, must be for specific
purposes, 47 Delegation to officers makes the latter agents of the corporation;
accordingly, the general rules of agency as to the bindings effects of their acts
would
apply. 48 For such officers to be deemed fully clothed by the corporation to
exercise a power of the Board, the latter must specially authorize them to do
so. That Del Rosario did not have the authority to accept ABS-CBN's counter-
offer was best evidenced by his submission of the draft contract to VIVA's
Board of Directors for the latter's approval. In any event, there was between
Del Rosario and Lopez III no meeting of minds. The following findings of the
trial court are instructive:

A number of considerations militate against ABS-CBN's claim that

a contract was perfected at that lunch meeting on April 02, 1992
at the Tamarind Grill.

FIRST, Mr. Lopez claimed that what was agreed upon at the
Tamarind Grill referred to the price and the number of films,
which he wrote on a napkin. However, Exhibit "C" contains numerous
provisions which, were not discussed at the Tamarind Grill, if Lopez
testimony was to be believed nor could they have been physically
written on a napkin. There was even doubt as to whether it was a
paper napkin or a cloth napkin. In short what were written in
Exhibit "C'' were not discussed, and therefore could not have been
agreed upon, by the parties. How then could this court compel the
parties to sign Exhibit "C" when the provisions thereof were not
previously agreed upon?

SECOND, Mr. Lopez claimed that what was agreed upon as the
subject matter of the contract was 14 films. The complaint in fact
prays for delivery of 14 films. But Exhibit "C" mentions 53 films as
its subject matter. Which is which If Exhibits "C" reflected the
true intent of the parties, then ABS-CBN's claim for 14 films in its
complaint is false or if what it alleged in the complaint is true, then
Exhibit "C" did not reflect what was agreed upon by the parties.
This underscores the fact that there was no meeting of the minds
as to the subject matter of the contracts, so as to preclude
perfection thereof. For settled is the rule that there can be no
contract where there is no object which is its subject matter (Art.
1318, NCC).

THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit

testimony (Exh. "D") states:

We were able to reach an agreement. VIVA gave us

the exclusive license to show these fourteen (14)
films, and we agreed to pay Viva the amount of
P16,050,000.00 as well as grant Viva commercial slots
worth P19,950,000.00. We had already earmarked this
P16, 050,000.00.

which gives a total consideration of P36 million (P19,950,000.00

plus P16,050,000.00. equals P36,000,000.00).

On cross-examination Mr. Lopez testified:

Q. What was written in this napkin?

A. The total price, the breakdown the known Viva

movies, the 7 blockbuster movies and the other 7 Viva
movies because the price was broken down accordingly.
The none [sic] Viva and the seven other Viva movies
and the sharing between the cash portion and the
concerned spot portion in the total amount of P35
million pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-
CBN's claim.

FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she

transmitted Exhibit "C" to Mr. Del Rosario with a handwritten note,
describing said Exhibit "C" as a "draft." (Exh. "5" - Viva; tsn pp. 23-
24 June 08, 1992). The said draft has a well defined meaning.

Since Exhibit "C" is only a draft, or a tentative, provisional or

preparatory writing prepared for discussion, the terms and
conditions thereof could not have been previously agreed upon by
ABS-CBN and Viva Exhibit "C'' could not therefore legally bind
Viva, not having agreed thereto. In fact, Ms. Concio admitted that
the terms and conditions embodied in Exhibit "C" were prepared by
ABS-CBN's lawyers and there was no discussion on said terms and
conditions. . . .

As the parties had not yet discussed the proposed terms and
conditions in Exhibit "C," and there was no evidence whatsoever
that Viva agreed to the terms and conditions thereof, said
document cannot be a binding contract. The fact that Viva refused
to sign Exhibit "C" reveals only two [sic] well that it did not agree
on its terms and conditions, and this court has no authority to
compel Viva to agree thereto.

FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del
Rosario agreed upon at the Tamarind Grill was only provisional, in
the sense that it was subject to approval by the Board of
Directors of Viva. He testified:

Q. Now, Mr. Witness, and after that Tamarind

meeting ... the second meeting wherein you claimed
that you have the meeting of the minds between you
and Mr. Vic del Rosario, what happened?

A. Vic Del Rosario was supposed to call us up and tell

us specifically the result of the discussion with the
Board of Directors.

Q. And you are referring to the so-called agreement

which you wrote in [sic] a piece of paper?

A. Yes, sir.
 Q. So, he was going to forward that to the board of
Directors for approval?

A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992)

Q. Did Mr. Del Rosario tell you that he will submit it to

his Board for approval?

A. Yes, sir. (Tsn, p. 69, June 8, 1992).

The above testimony of Mr. Lopez shows beyond doubt that he

knew Mr. Del Rosario had no authority to bind Viva to a contract
with ABS-CBN until and unless its Board of Directors approved it.
The complaint, in fact, alleges that Mr. Del Rosario "is the
Executive Producer of defendant Viva" which "is a corporation."
(par. 2, complaint). As a mere agent of Viva, Del Rosario could not
bind Viva unless what he did is ratified by its Board of Directors.
(Vicente vs. Geraldez, 52 SCRA 210; Arnold vs. Willets and
Paterson, 44 Phil. 634). As a mere agent, recognized as such by
plaintiff, Del Rosario could not be held liable jointly and severally
with Viva and his inclusion as party defendant has no legal basis.
(Salonga vs. Warner Barner [sic] , COLTA , 88 Phil. 125; Salmon vs.
Tan, 36 Phil. 556).

The testimony of Mr. Lopez and the allegations in the complaint are
clear admissions that what was supposed to have been agreed upon
at the Tamarind Grill between Mr. Lopez and Del Rosario was not a
binding agreement. It is as it should be because corporate power to
enter into a contract is lodged in the Board of Directors. (Sec. 23,
Corporation Code). Without such board approval by the Viva board,
whatever agreement Lopez and Del Rosario arrived at could not
ripen into a valid contract binding upon Viva (Yao Ka Sin Trading
vs. Court of Appeals, 209 SCRA 763). The evidence adduced shows
that the Board of Directors of Viva rejected Exhibit "C" and
insisted that the film package for 140 films be maintained (Exh.
"7-1" - Viva ). 49

The contention that ABS-CBN had yet to fully exercise its right of first refusal
over twenty-four films under the 1990 Film Exhibition Agreement and that the
meeting between Lopez and Del Rosario was a continuation of said previous
contract is untenable. As observed by the trial court, ABS-CBN right of first
refusal had already been exercised when Ms. Concio wrote to VIVA ticking off
ten films, Thus:

[T]he subsequent negotiation with ABS-CBN two (2) months after

this letter was sent, was for an entirely different package. Ms.
Concio herself admitted on cross-examination to having used or
exercised the right of first refusal. She stated that the list was
not acceptable and was indeed not accepted by ABS-CBN, (TSN,
June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the
right of the first refusal may have been already exercised by Ms.
Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario
himself knew and understand [sic] that ABS-CBN has lost its rights
of the first refusal when his list of 36 titles were rejected (Tsn,
June 9, 1992, pp. 10-11) 50

II

However, we find for ABS-CBN on the issue of damages. We shall first take up
actual damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific
law on actual or compensatory damages. Except as provided by law or by
stipulation, one is entitled to compensation for actual damages only for such
pecuniary loss suffered by him as he has duly proved. 51 The indemnification
shall comprehend not only the value of the loss suffered, but also that of the
profits that the obligee failed to obtain. 52 In contracts and quasi-contracts the
damages which may be awarded are dependent on whether the obligor acted
with good faith or otherwise, It case of good faith, the damages recoverable
are those which are the natural and probable consequences of the breach of the
obligation and which the parties have foreseen or could have reasonably
foreseen at the time of the constitution of the obligation. If the obligor acted
with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all
damages which may be reasonably attributed to the non-performance of the
obligation. 53 In crimes and quasi-delicts, the defendant shall be liable for all
damages which are the natural and probable consequences of the act or omission
complained of, whether or not such damages has been foreseen or could have
reasonably been foreseen by the defendant. 54

Actual damages may likewise be recovered for loss or impairment of earning

capacity in cases of temporary or permanent personal injury, or for injury to
the plaintiff's business standing or commercial credit. 55

The claim of RBS for actual damages did not arise from contract, quasi-
contract, delict, or quasi-delict. It arose from the fact of filing of the
complaint despite ABS-CBN's alleged knowledge of lack of cause of action. Thus
paragraph 12 of RBS's Answer with Counterclaim and Cross-claim under the
heading COUNTERCLAIM specifically alleges:

12. ABS-CBN filed the complaint knowing fully well that it has no
cause of action RBS. As a result thereof, RBS suffered actual
damages in the amount of P6,621,195.32. 56

Needless to state the award of actual damages cannot be comprehended under

the above law on actual damages. RBS could only probably take refuge under
Articles 19, 20, and 21 of the Civil Code, which read as follows:

Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith.

Art. 20. Every person who, contrary to law, wilfully or negligently

causes damage to another, shall indemnify the latter for tile same.

Art. 21. Any person who wilfully causes loss or injury to another in
a manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage.

It may further be observed that in cases where a writ of preliminary injunction

is issued, the damages which the defendant may suffer by reason of the writ
are recoverable from the injunctive bond. 57 In this case, ABS-CBN had not yet
filed the required bond; as a matter of fact, it asked for reduction of the bond
and even went to the Court of Appeals to challenge the order on the matter,
Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-
CBN cannot be held responsible for the premium RBS paid for the counterbond.

Neither could ABS-CBN be liable for the print advertisements for "Maging Sino
Ka Man" for lack of sufficient legal basis. The RTC issued a temporary
restraining order and later, a writ of preliminary injunction on the basis of its
determination that there existed sufficient ground for the issuance thereof.
Notably, the RTC did not dissolve the injunction on the ground of lack of legal
and factual basis, but because of the plea of RBS that it be allowed to put up a
counterbond.

As regards attorney's fees, the law is clear that in the absence of stipulation,
attorney's fees may be recovered as actual or compensatory damages under any
of the circumstances provided for in Article 2208 of the Civil Code. 58
The general rule is that attorney's fees cannot be recovered as part of
damages because of the policy that no premium should be placed on the right to
litigate. 59 They are not to be awarded every time a party wins a suit. The power
of the court to award attorney's fees under Article 2208 demands factual,
legal, and equitable justification. 60 Even when claimant is compelled to litigate
with third persons or to incur expenses to protect his rights, still attorney's
fees may not be awarded where no sufficient showing of bad faith could be
reflected in a party's persistence in a case other than erroneous conviction of
the righteousness of his cause. 61

As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of

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

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

Moral damages are in the category of an award designed to compensate the

claimant for actual injury suffered. and not to impose a penalty on the
wrongdoer. 62 The award is not meant to enrich the complainant at the expense
of the defendant, but to enable the injured party to obtain means, diversion, or
amusements that will serve to obviate then moral suffering he has undergone. It
is aimed at the restoration, within the limits of the possible, of the
spiritual status quo ante, and should be proportionate to the suffering
inflicted. 63 Trial courts must then guard against the award of exorbitant
damages; they should exercise balanced restrained and measured objectivity to
avoid suspicion that it was due to passion, prejudice, or corruption on the part
of the trial court. 64

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. 65 The statement in People
v. Manero 66 and Mambulao Lumber Co. v. PNB 67 that a corporation may recover
moral damages if it "has a good reputation that is debased, resulting in social
humiliation" is an obiter dictum. On this score alone the award for damages must
be set aside, since RBS is a corporation.
The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book
IV of the Civil Code. These are imposed by way of example or correction for the
public good, in addition to moral, temperate, liquidated or compensatory
damages. 68 They are recoverable in criminal cases as part of the civil liability
when the crime was committed with one or more aggravating circumstances; 69 in
quasi-contracts, if the defendant acted with gross negligence; 70 and in
contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner. 71

It may be reiterated that the claim of RBS against ABS-CBN is not based on
contract, quasi-contract, delict, or quasi-delict, Hence, the claims for moral and
exemplary damages can only be based on Articles 19, 20, and 21 of the Civil
Code.

The elements of abuse of right under Article 19 are the following: (1) the
existence of a legal right or duty, (2) which is exercised in bad faith, and (3)
for the sole intent of prejudicing or injuring another. Article 20 speaks of the
general sanction for all other provisions of law which do not especially provide
for their own sanction; while Article 21 deals with acts contra bonus mores, and
has the following elements; (1) there is an act which is legal, (2) but which is
contrary to morals, good custom, public order, or public policy, and (3) and it is
done with intent to injure. 72

Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice
or bad faith implies a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity. 73 Such must be substantiated by
evidence. 74

There is no adequate proof that ABS-CBN was inspired by malice or bad faith.
It was honestly convinced of the merits of its cause after it had undergone
serious negotiations culminating in its formal submission of a draft contract.
Settled is the rule that the adverse result of an action does not per se make
the action wrongful and subject the actor to damages, for the law could not
have meant to impose a penalty on the right to litigate. If damages result from
a person's exercise of a right, it is damnum absque injuria. 75

WHEREFORE, the instant petition is GRANTED. The challenged decision of the

Court of Appeals in CA-G.R. CV No, 44125 is hereby REVERSED except as to
unappealed award of attorney's fees in favor of VIVA Productions,
Inc.1âwphi1.nêt

No pronouncement as to costs.
SO ORDERED.

[G.R. No. 141994. January 17, 2005]

FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO

MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE
OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents.

D E C I S I O N
CARPIO, J.:

The Case

This petition for review[1] assails the 4 January 1999 Decision[2] and 26
January 2000 Resolution of the Court of Appeals in CA-G.R. CV No. 40151. The
Court of Appeals affirmed with modification the 14 December 1992 Decision[3] of
the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The
Court of Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters
Hermogenes Alegre and Carmelo Rima liable for libel and ordered them to
solidarily pay Ago Medical and Educational Center-Bicol Christian College of
Medicine moral damages, attorneys fees and costs of suit.

The Antecedents

Expos is a radio documentary[4] program hosted by Carmelo Mel Rima (Rima)

and Hermogenes Jun Alegre (Alegre).[5] Expos is aired every morning over DZRC-
AM which is owned by Filipinas Broadcasting Network, Inc. (FBNI). Expos is heard
over Legazpi City, the Albay municipalities and other Bicol areas.[6]
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various
alleged complaints from students, teachers and parents against Ago Medical and
Educational Center-Bicol Christian College of Medicine (AMEC) and its
administrators. Claiming that the broadcasts were defamatory, AMEC and
Angelita Ago (Ago), as Dean of AMECs College of Medicine, filed a complaint for
damages[7] against FBNI, Rima and Alegre on 27 February 1990. Quoted are
portions of the allegedly libelous broadcasts:
JUN ALEGRE:

Let us begin with the less burdensome: if you have children taking medical
course at AMEC-BCCM, advise them to pass all subjects because if they
fail in any subject they will repeat their year level, taking up all subjects
including those they have passed already. Several students had approached
me stating that they had consulted with the DECS which told them that there is
no such regulation. If [there] is no such regulation why is AMEC doing the same?

xxx

Second: Earlier AMEC students in Physical Therapy had complained that the
course is not recognized by DECS. xxx

Third: Students are required to take and pay for the subject even if the
subject does not have an instructor - such greed for money on the part of
AMECs administration. Take the subject Anatomy: students would pay for the
subject upon enrolment because it is offered by the school. However there
would be no instructor for such subject. Students would be informed that
course would be moved to a later date because the school is still searching for
the appropriate instructor.

xxx

It is a public knowledge that the Ago Medical and Educational Center has
survived and has been surviving for the past few years since its inception
because of funds support from foreign foundations. If you will take a look at
the AMEC premises youll find out that the names of the buildings there are
foreign soundings. There is a McDonald Hall. Why not Jose Rizal or Bonifacio
Hall? That is a very concrete and undeniable evidence that the support of
foreign foundations for AMEC is substantial, isnt it? With the report which is
the basis of the expose in DZRC today, it would be very easy for detractors and
enemies of the Ago family to stop the flow of support of foreign foundations
who assist the medical school on the basis of the latters purpose. But if the
purpose of the institution (AMEC) is to deceive students at cross purpose with
its reason for being it is possible for these foreign foundations to lift or
suspend their donations temporarily.[8]

xxx

On the other hand, the administrators of AMEC-BCCM, AMEC Science High

School and the AMEC-Institute of Mass Communication in their effort to
minimize expenses in terms of salary are absorbing or continues to accept
rejects. For example how many teachers in AMEC are former teachers of
Aquinas University but were removed because of immorality? Does it mean that
the present administration of AMEC have the total definite moral foundation
from catholic administrator of Aquinas University. I will prove to you my
friends, that AMEC is a dumping ground, garbage, not merely of moral and
physical misfits. Probably they only qualify in terms of intellect. The Dean of
Student Affairs of AMEC is Justita Lola, as the family name implies. She is too
old to work, being an old woman. Is the AMEC administration exploiting the very
[e]nterprising or compromising and undemanding Lola? Could it be that AMEC is
just patiently making use of Dean Justita Lola were if she is very old. As in
atmospheric situation zero visibility the plane cannot land, meaning she is very
old, low pay follows. By the way, Dean Justita Lola is also the chairman of the
committee on scholarship in AMEC. She had retired from Bicol University a long
time ago but AMEC has patiently made use of her.

xxx

MEL RIMA:

xxx My friends based on the expose, AMEC is a dumping ground for moral and
physically misfit people. What does this mean? Immoral and physically misfits as
teachers.

May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this,
that your are no longer fit to teach. You are too old. As an aviation, your case is
zero visibility. Dont insist.

xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the
scholarship committee at that. The reason is practical cost saving in salaries,
because an old person is not fastidious, so long as she has money to buy the
ingredient of beetle juice. The elderly can get by thats why she (Lola) was taken
in as Dean.

xxx

xxx On our end our task is to attend to the interests of students. It is likely
that the students would be influenced by evil. When they become members of
society outside of campus will be liabilities rather than assets. What do you
expect from a doctor who while studying at AMEC is so much burdened with
unreasonable imposition? What do you expect from a student who aside from
peculiar problems because not all students are rich in their struggle to improve
their social status are even more burdened with false regulations.
xxx[9] (Emphasis supplied)

The complaint further alleged that AMEC is a reputable learning institution.

With the supposed exposs, FBNI, Rima and Alegre transmitted malicious
imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation. AMEC
and Ago included FBNI as defendant for allegedly failing to exercise due diligence
in the selection and supervision of its employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed
an Answer[10] alleging that the broadcasts against AMEC were fair and true.
FBNI, Rima and Alegre claimed that they were plainly impelled by a sense of public
duty to report the goings-on in AMEC, [which is] an institution imbued with public
interest.
Thereafter, trial ensued. During the presentation of the evidence for the
defense, Atty. Edmundo Cea, collaborating counsel of Atty. Lozares, filed a
Motion to Dismiss[11] on FBNIs behalf. The trial court denied the motion to
dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised
due diligence in the selection and supervision of Rima and Alegre. FBNI claimed
that before hiring a broadcaster, the broadcaster should (1) file an application;
(2) be interviewed; and (3) undergo an apprenticeship and training program after
passing the interview. FBNI likewise claimed that it always reminds its
broadcasters to observe truth, fairness and objectivity in their broadcasts and
to refrain from using libelous and indecent language. Moreover, FBNI requires all
broadcasters to pass the Kapisanan ng mga Brodkaster sa Pilipinas (KBP)
accreditation test and to secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision[12] finding FBNI
and Alegre liable for libel except Rima. The trial court held that the broadcasts
are libelous per se. The trial court rejected the broadcasters claim that their
utterances were the result of straight reporting because it had no factual basis.
The broadcasters did not even verify their reports before airing them to show
good faith. In holding FBNI liable for libel, the trial court found that FBNI failed
to exercise diligence in the selection and supervision of its employees.

In absolving Rima from the charge, the trial court ruled that Rimas only
participation was when he agreed with Alegres expos. The trial court found Rimas
statement within the bounds of freedom of speech, expression, and of the press.
The dispositive portion of the decision reads:

WHEREFORE, premises considered, this court finds for the

plaintiff. Considering the degree of damages caused by the controversial
utterances, which are not found by this court to be really very serious and
damaging, and there being no showing that indeed the enrollment of
plaintiff school dropped, defendants Hermogenes Jun Alegre, Jr. and Filipinas
Broadcasting Network (owner of the radio station DZRC), are hereby jointly and
severally ordered to pay plaintiff Ago Medical and Educational Center-Bicol
Christian College of Medicine (AMEC-BCCM) the amount of P300,000.00 moral
damages, plus P30,000.00 reimbursement of attorneys fees, and to pay the
costs of suit.

SO ORDERED. [13] (Emphasis supplied)

Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago,
on the other, appealed the decision to the Court of Appeals. The Court of Appeals
affirmed the trial courts judgment with modification. The appellate court made
Rima solidarily liable with FBNI and Alegre. The appellate court denied Agos claim
for damages and attorneys fees because the broadcasts were directed against
AMEC, and not against her. The dispositive portion of the Court of Appeals
decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the

modification that broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with
FBN[I] and Hermo[g]enes Alegre.

SO ORDERED.[14]

FBNI, Rima and Alegre filed a motion for reconsideration which the Court of
Appeals denied in its 26 January 2000 Resolution.

Hence, FBNI filed this petition.[15]

The Ruling of the Court of Appeals

The Court of Appeals upheld the trial courts ruling that the questioned
broadcasts are libelous per se and that FBNI, Rima and Alegre failed to overcome
the legal presumption of malice. The Court of Appeals found Rima and Alegres
claim that they were actuated by their moral and social duty to inform the public
of the students gripes as insufficient to justify the utterance of the defamatory
remarks.

Finding no factual basis for the imputations against AMECs administrators,

the Court of Appeals ruled that the broadcasts were made with reckless
disregard as to whether they were true or false. The appellate court pointed out
that FBNI, Rima and Alegre failed to present in court any of the students who
allegedly complained against AMEC. Rima and Alegre merely gave a single name
when asked to identify the students. According to the Court of Appeals, these
circumstances cast doubt on the veracity of the broadcasters claim that they
were impelled by their moral and social duty to inform the public about the
students gripes.
The Court of Appeals found Rima also liable for libel since he remarked that
(1) AMEC-BCCM is a dumping ground for morally and physically misfit teachers;
(2) AMEC obtained the services of Dean Justita Lola to minimize expenses on its
employees salaries; and (3) AMEC burdened the students with unreasonable
imposition and false regulations.[16]
The Court of Appeals held that FBNI failed to exercise due diligence in the
selection and supervision of its employees for allowing Rima and Alegre to make
the radio broadcasts without the proper KBP accreditation. The Court of Appeals
denied Agos claim for damages and attorneys fees because the libelous remarks
were directed against AMEC, and not against her. The Court of Appeals adjudged
FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages, attorneys
fees and costs of suit.

Issues

FBNI raises the following issues for resolution:

I. WHETHER THE BROADCASTS ARE LIBELOUS;

II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;

III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and

IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE

FOR PAYMENT OF MORAL DAMAGES, ATTORNEYS FEES AND
COSTS OF SUIT.

The Courts Ruling

We deny the petition.

This is a civil action for damages as a result of the allegedly defamatory
remarks of Rima and Alegre against AMEC.[17] While AMEC did not point out
clearly the legal basis for its complaint, a reading of the complaint reveals that
AMECs cause of action is based on Articles 30 and 33 of the Civil Code. Article
30[18] authorizes a separate civil action to recover civil liability arising from a
criminal offense. On the other hand, Article 33[19] particularly provides that the
injured party may bring a separate civil action for damages in cases of
defamation, fraud, and physical injuries. AMEC also invokes Article 19[20] of the
Civil Code to justify its claim for damages. AMEC cites Articles 2176[21] and
2180[22] of the Civil Code to hold FBNI solidarily liable with Rima and Alegre.

I.
Whether the broadcasts are libelous

A libel[23] is a public and malicious imputation of a crime, or of a vice or defect,

real or imaginary, or any act or omission, condition, status, or circumstance
tending to cause the dishonor, discredit, or contempt of a natural or juridical
person, or to blacken the memory of one who is dead.[24]
There is no question that the broadcasts were made public and imputed to
AMEC defects or circumstances tending to cause it dishonor, discredit and
contempt. Rima and Alegres remarks such as greed for money on the part of
AMECs administrators; AMEC is a dumping ground, garbage of xxx moral and
physical misfits; and AMEC students who graduate will be liabilities rather than
assets of the society are libelous per se. Taken as a whole, the broadcasts
suggest that AMEC is a money-making institution where physically and morally
unfit teachers abound.

However, FBNI contends that the broadcasts are not malicious. FBNI claims
that Rima and Alegre were plainly impelled by their civic duty to air the students
gripes. FBNI alleges that there is no evidence that ill will or spite motivated Rima
and Alegre in making the broadcasts. FBNI further points out that Rima and
Alegre exerted efforts to obtain AMECs side and gave Ago the opportunity to
defend AMEC and its administrators. FBNI concludes that since there is no
malice, there is no libel.
FBNIs contentions are untenable.

Every defamatory imputation is presumed malicious.[25] Rima and Alegre failed

to show adequately their good intention and justifiable motive in airing the
supposed gripes of the students. As hosts of a documentary or public affairs
program, Rima and Alegre should have presented the public issues free
from inaccurate and misleading information.[26] Hearing the students alleged
complaints a month before the expos,[27] they had sufficient time to verify their
sources and information. However, Rima and Alegre hardly made a thorough
investigation of the students alleged gripes. Neither did they inquire about nor
confirm the purported irregularities in AMEC from the Department of Education,
Culture and Sports. Alegre testified that he merely went to AMEC to verify his
report from an alleged AMEC official who refused to disclose any information.
Alegre simply relied on the words of the students because they were many and
not because there is proof that what they are saying is true.[28] This plainly shows
Rima and Alegres reckless disregard of whether their report was true or not.
Contrary to FBNIs claim, the broadcasts were not the result of straight
reporting. Significantly, some courts in the United States apply the privilege of
neutral reportage in libel cases involving matters of public interest or public
figures. Under this privilege, a republisher who accurately and disinterestedly
reports certain defamatory statements made against public figures is shielded
from liability, regardless of the republishers subjective awareness of the truth
or falsity of the accusation.[29] Rima and Alegre cannot invoke the privilege of
neutral reportage because unfounded comments abound in the broadcasts.
Moreover, there is no existing controversy involving AMEC when the broadcasts
were made. The privilege of neutral reportage applies where the defamed person
is a public figure who is involved in an existing controversy, and a party to that
controversy makes the defamatory statement.[30]

However, FBNI argues vigorously that malice in law does not apply to this
case. Citing Borjal v. Court of Appeals,[31] FBNI contends that the broadcasts
fall within the coverage of qualifiedly privileged communications for being
commentaries on matters of public interest. Such being the case, AMEC should
prove malice in fact or actual malice. Since AMEC allegedly failed to prove actual
malice, there is no libel.
FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the
doctrine of fair comment, thus:

[F]air commentaries on matters of public interest are privileged and constitute

a valid defense in an action for libel or slander. The doctrine of fair comment
means that while in general every discreditable imputation publicly made is
deemed false, because every man is presumed innocent until his guilt is judicially
proved, and every false imputation is deemed malicious, nevertheless, when the
discreditable imputation is directed against a public person in his public
capacity, it is not necessarily actionable. In order that such discreditable
imputation to a public official may be actionable, it must either be a false
allegation of fact or a comment based on a false supposition. If the
comment is an expression of opinion, based on established facts, then it is
immaterial that the opinion happens to be mistaken, as long as it might
reasonably be inferred from the facts.[32] (Emphasis supplied)

True, AMEC is a private learning institution whose business of educating

students is genuinely imbued with public interest. The welfare of the youth in
general and AMECs students in particular is a matter which the public has the
right to know. Thus, similar to the newspaper articles in Borjal, the subject
broadcasts dealt with matters of public interest. However, unlike in Borjal, the
questioned broadcasts are not based on established facts. The record supports
the following findings of the trial court:

xxx Although defendants claim that they were motivated by consistent reports
of students and parents against plaintiff, yet, defendants have not presented in
court, nor even gave name of a single student who made the complaint to them,
much less present written complaint or petition to that effect. To accept this
defense of defendants is too dangerous because it could easily give license to
the media to malign people and establishments based on flimsy excuses that
there were reports to them although they could not satisfactorily establish it.
Such laxity would encourage careless and irresponsible broadcasting which is
inimical to public interests.

Secondly, there is reason to believe that defendant radio broadcasters,

contrary to the mandates of their duties, did not verify and analyze the truth
of the reports before they aired it, in order to prove that they are in good
faith.

Alegre contended that plaintiff school had no permit and is not accredited to
offer Physical Therapy courses. Yet, plaintiff produced a certificate coming
from DECS that as of Sept. 22, 1987 or more than 2 years before the
controversial broadcast, accreditation to offer Physical Therapy course had
already been given the plaintiff, which certificate is signed by no less than the
Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh. C-
rebuttal). Defendants could have easily known this were they careful enough to
verify. And yet, defendants were very categorical and sounded too positive
when they made the erroneous report that plaintiff had no permit to offer
Physical Therapy courses which they were offering.

The allegation that plaintiff was getting tremendous aids from foreign
foundations like Mcdonald Foundation prove not to be true also. The truth is
there is no Mcdonald Foundation existing. Although a big building of plaintiff
school was given the name Mcdonald building, that was only in order to honor the
first missionary in Bicol of plaintiffs religion, as explained by Dr. Lita Ago.
Contrary to the claim of defendants over the air, not a single centavo appears
to be received by plaintiff school from the aforementioned McDonald
Foundation which does not exist.
Defendants did not even also bother to prove their claim, though denied by Dra.
Ago, that when medical students fail in one subject, they are made to repeat all
the other subject[s], even those they have already passed, nor their claim that
the school charges laboratory fees even if there are no laboratories in the
school. No evidence was presented to prove the bases for these claims, at least
in order to give semblance of good faith.

As for the allegation that plaintiff is the dumping ground for misfits, and
immoral teachers, defendant[s] singled out Dean Justita Lola who is said to be
so old, with zero visibility already. Dean Lola testified in court last Jan. 21,
1991, and was found to be 75 years old. xxx Even older people prove to be
effective teachers like Supreme Court Justices who are still very much in
demand as law professors in their late years. Counsel for defendants is past 75
but is found by this court to be still very sharp and effective. So is plaintiffs
counsel.

Dr. Lola was observed by this court not to be physically decrepit yet, nor
mentally infirmed, but is still alert and docile.

The contention that plaintiffs graduates become liabilities rather than assets
of our society is a mere conclusion. Being from the place himself, this court is
aware that majority of the medical graduates of plaintiffs pass the board
examination easily and become prosperous and responsible professionals.[33]

Had the comments been an expression of opinion based on established facts,

it is immaterial that the opinion happens to be mistaken, as long as it might
reasonably be inferred from the facts.[34] However, the comments of Rima and
Alegre were not backed up by facts. Therefore, the broadcasts are not privileged
and remain libelous per se.

The broadcasts also violate the Radio Code[35] of the Kapisanan ng mga
Brodkaster sa Pilipinas, Ink. (Radio Code). Item I(B) of the Radio Code provides:

B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES

1. x x x

4. Public affairs program shall present public issues free

from personal bias, prejudice and inaccurate and misleading
information. x x x Furthermore, the station shall strive to present
balanced discussion of issues. x x x.

xxx
 7. The station shall be responsible at all times in the supervision of public
affairs, public issues and commentary programs so that they
conform to the provisions and standards of this code.

8. It shall be the responsibility of the newscaster, commentator, host and

announcer to protect public interest, general welfare and good order
in the presentation of public affairs and public issues.[36](Emphasis
supplied)

The broadcasts fail to meet the standards prescribed in the Radio Code,
which lays down the code of ethical conduct governing practitioners in the radio
broadcast industry. The Radio Code is a voluntary code of conduct imposed by the
radio broadcast industry on its own members. The Radio Code is a public warranty
by the radio broadcast industry that radio broadcast practitioners are subject
to a code by which their conduct are measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast
practitioners live up to the code of conduct of their profession, just like other
professionals. A professional code of conduct provides the standards for
determining whether a person has acted justly, honestly and with good faith in
the exercise of his rights and performance of his duties as required by Article
19[37] of the Civil Code. A professional code of conduct also provides the
standards for determining whether a person who willfully causes loss or injury to
another has acted in a manner contrary to morals or good customs under Article
21[38] of the Civil Code.
II.
Whether AMEC is entitled to moral damages

FBNI contends that AMEC is not entitled to moral damages because it is a

corporation.[39]

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.[40] The Court of
Appeals cites Mambulao Lumber Co. v. PNB, et al.[41] to justify the award of
moral damages. However, the Courts statement in Mambulao that a corporation
may have a good reputation which, if besmirched, may also be a ground for the
award of moral damages is an obiter dictum.[42]

Nevertheless, AMECs claim for moral damages falls under item 7 of Article
2219[43] of the Civil Code. This provision expressly authorizes the recovery of
moral damages in cases of libel, slander or any other form of defamation. Article
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.[44]
Moreover, where the broadcast is libelous per se, the law implies
damages.[45] 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.[46] Neither in such a case is the plaintiff required to introduce evidence
of actual damages as a condition precedent to the recovery of some
damages.[47] In this case, the broadcasts are libelous per se. Thus, AMEC is
entitled to moral damages.
However, we find the award of P300,000 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 from P300,000 to P150,000.

III.
Whether the award of attorneys fees is proper

FBNI contends that since AMEC is not entitled to moral damages, there is no
basis for the award of attorneys fees. FBNI adds that the instant case does not
fall under the enumeration in Article 2208[48] of the Civil Code.
The award of attorneys fees is not proper because AMEC failed to justify
satisfactorily its claim for attorneys fees. AMEC did not adduce evidence to
warrant the award of attorneys fees. Moreover, both the trial and appellate
courts failed to explicitly state in their respective decisions the rationale for the
award of attorneys fees.[49] In Inter-Asia Investment Industries, Inc. v. Court
of Appeals,[50] we held that:

[I]t is an accepted doctrine that the award thereof as an item of damages is

the exception rather than the rule, and counsels fees are not to be awarded
every time a party wins a suit. The power of the court to award attorneys
fees under Article 2208 of the Civil Code demands factual, legal and
equitable justification, without which the award is a conclusion without a
premise, its basis being improperly left to speculation and conjecture. In all
events, the court must explicitly state in the text of the decision, and not only
in the decretal portion thereof, the legal reason for the award of attorneys
fees.[51](Emphasis supplied)

While it mentioned about the award of attorneys fees by stating that it lies
within the discretion of the court and depends upon the circumstances of each
case, the Court of Appeals failed to point out any circumstance to justify the
award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre
for moral damages, attorneys fees
and costs of suit

FBNI contends that it is not solidarily liable with Rima and Alegre for the
payment of damages and attorneys fees because it exercised due diligence in the
selection and supervision of its employees, particularly Rima and Alegre. FBNI
maintains that its broadcasters, including Rima and Alegre, undergo a very
regimented process before they are allowed to go on air. Those who apply for
broadcaster are subjected to interviews, examinations and an apprenticeship
program.

FBNI further argues that Alegres age and lack of training are irrelevant to
his competence as a broadcaster. FBNI points out that the minor deficiencies in
the KBP accreditation of Rima and Alegre do not in any way prove that FBNI did
not exercise the diligence of a good father of a family in selecting and supervising
them. Rimas accreditation lapsed due to his non-payment of the KBP annual fees
while Alegres accreditation card was delayed allegedly for reasons attributable
to the KBP Manila Office. FBNI claims that membership in the KBP is merely
voluntary and not required by any law or government regulation.
FBNIs arguments do not persuade us.

The basis of the present action is a tort. Joint tort feasors are jointly and
severally liable for the tort which they commit.[52] Joint tort feasors are all the
persons who command, instigate, promote, encourage, advise, countenance,
cooperate in, aid or abet the commission of a tort, or who approve of it after it
is done, if done for their benefit.[53] Thus, AMEC correctly anchored its cause of
action against FBNI on Articles 2176 and 2180 of the Civil Code.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily
liable to pay for damages arising from the libelous broadcasts. As stated by the
Court of Appeals, recovery for defamatory statements published by radio or
television may be had from the owner of the station, a licensee, the operator of
the station, or a person who procures, or participates in, the making of the
defamatory statements.[54] An employer and employee are solidarily liable for a
defamatory statement by the employee within the course and scope of his or her
employment, at least when the employer authorizes or ratifies the
defamation.[55] In this case, Rima and Alegre were clearly performing their
official duties as hosts of FBNIs radio program Expos when they aired the
broadcasts. FBNI neither alleged nor proved that Rima and Alegre went beyond
the scope of their work at that time. There was likewise no showing that FBNI
did not authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due
diligence in the selection and supervision of its employees, particularly Rima and
Alegre. FBNI merely showed that it exercised diligence in the selection of its
broadcasters without introducing any evidence to prove that it observed the same
diligence in the supervision of Rima and Alegre. FBNI did not show how it
exercised diligence in supervising its broadcasters. FBNIs alleged constant
reminder to its broadcasters to observe truth, fairness and objectivity and to
refrain from using libelous and indecent language is not enough to prove due
diligence in the supervision of its broadcasters. Adequate training of the
broadcasters on the industrys code of conduct, sufficient information on libel
laws, and continuous evaluation of the broadcasters performance are but a few
of the many ways of showing diligence in the supervision of broadcasters.
FBNI claims that it has taken all the precaution in the selection of Rima and
Alegre as broadcasters, bearing in mind their qualifications. However, no clear
and convincing evidence shows that Rima and Alegre underwent FBNIs regimented
process of application. Furthermore, FBNI admits that Rima and Alegre had
deficiencies in their KBP accreditation,[56] which is one of FBNIs requirements
before it hires a broadcaster. Significantly, membership in the KBP, while
voluntary, indicates the broadcasters strong commitment to observe the
broadcast industrys rules and regulations. Clearly, these circumstances show
FBNIs lack of diligence in selecting and supervising Rima and Alegre. Hence, FBNI
is solidarily liable to pay damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4
January 1999 and Resolution of 26 January 2000 of the Court of Appeals in CA-
G.R. CV No. 40151 with the MODIFICATION that the award of moral damages is
reduced from P300,000 to P150,000 and the award of attorneys fees is deleted.
Costs against petitioner.

SO ORDERED.

G.R. No. L-35262 March 15, 1930

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellant,

vs.
TAN BOON KONG, defendant-appellee.
Attorney-General Jaranilla for appellant.
Alejandro de Aboitiz Pinaga for appellee.

OSTRAND, J.:

This is an appeal from an order of the Judge of the Twenty-third Judicial

District sustaining to demurrer to an information charging the defendant Tan
Boon Kong with the violation of section 1458 of Act No. 2711 as amended. The
information reads as follows:

That on and during the four quarters of the year 1924, in the municipality
of Iloilo, Province of Iloilo, Philippine Islands, the said accused, as
corporation organized under the laws of the Philippine Islands and
engaged in the purchase and the sale of sugar, "bayon," coprax, and other
native products and as such object to the payment of internal-revenue
taxes upon its sales, did then and there voluntarily, illegally, and criminally
declare in 1924 for the purpose of taxation only the sum of
P2,352,761.94, when in truth and in fact, and the accused well knew that
the total gross sales of said corporation during that year amounted to
P2543,303.44, thereby failing to declare for the purpose of taxation the
amount of P190,541.50, and voluntarily and illegally not paying the
Government as internal-revenue percentage taxes the sum of P2,960.12,
corresponding to 1½ per cent of said undeclared sales.

The question to be decided is whether the information sets forth facts

rendering the defendant, as manager of the corporation liable criminally under
section 2723 of Act No. 2711 for violation of section 1458 of the same act for
the benefit of said corporation. Section 1458 and 2723 read as follows:

SEC. 1458. Payment of percentage taxes — Quarterly reports of

earnings. — The percentage taxes on business shall be payable at the end
of each calendar quarter in the amount lawfully due on the business
transacted during each quarter; and it shall be on the duty of every
person conducting a business subject to such tax, within the same period
as is allowed for the payment of the quarterly installments of the fixed
taxes without penalty, to make a true and complete return of the amount
of the receipts or earnings of his business during the preceeding quarter
and pay the tax due thereon. . . . (Act No. 2711.)

SEC. 2723. Failure to make true return of receipts and sales. — Any
person who, being required by law to make a return of the amount of his
receipts, sales, or business, shall fail or neglect to make such return
 within the time required, shall be punished by a fine not exceeding two
thousand pesos or by imprisonment for a term not exceeding one year, or
both.

And any such person who shall make a false or fraudulent return shall be
punished by a fine not exceeding ten thousand pesos or by imprisonment
for a term not exceeding two years, or both. (Act No. 2711.)

Apparently, the court below based the appealed ruling on the ground that the
offense charged must be regarded as committed by the corporation and not by
its officials or agents. This view is in direct conflict with the great weight of
authority. a corporation can act only through its officers and agent s, and where
the business itself involves a violation of the law, the correct rule is that all who
participate in it are liable (Grall and Ostrand's Case, 103 Va., 855, and
authorities there cited.)

In case of State vs. Burnam (17 Wash., 199), the court went so far as to hold
that the manager of a diary corporation was criminally liable for the violation of
a statute by the corporation through he was not present when the offense was
committed.

In the present case the information or complaint alleges that he defendant was
the manager of a corporation which was engaged in business as a merchant, and
as such manager, he made a false return, for purposes of taxation, of the total
amount of sale made by said false return constitutes a violation of law, the
defendant, as the author of the illegal act, must necessarily answer for its
consequences, provided that the allegation are proven.

The ruling of the court below sustaining the demurrer to the complaint is
therefore reversed, and the case will be returned to said court for further
proceedings not inconsistent with our view as hereinafter stated. Without
costs. So ordered.

Johnson, Malcolm, Villamor, Johns, Romualdez and Villa-Real, JJ., concur.

MANUEL C. ESPIRITU, JR., AUDIE G.R. No. 170891

LLONA, FREIDA F. ESPIRITU,

CARLO F. ESPIRITU, RAFAEL F.
ESPIRITU, ROLANDO M. MIRABUNA,
HERMILYN A. MIRABUNA, KIM
ROLAND A. MIRABUNA, KAYE
ANN A. MIRABUNA, KEN RYAN A.
MIRABUNA, JUANITO P. DE
CASTRO, GERONIMA A. ALMONITE
and MANUEL C. DEE, who are the
officers and directors of BICOL GAS
REFILLING PLANT CORPORATION,
Petitioners, Present:
Carpio, J., Chairperson,
- versus - Leonardo-De Castro,

Brion,

Del Castillo, and

Abad, JJ.

PETRON CORPORATION and

CARMEN J. DOLOIRAS, doing

business under the name KRISTINA Promulgated:

PATRICIA ENTERPRISES,

Respondents. November 24, 2009

x ----------------------------------------------------------------------------------------
x

DECISION

ABAD, J.:

This case is about the offense or offenses that arise from the reloading of the
liquefied petroleum gas cylinder container of one brand with the liquefied
petroleum gas of another brand.
 The Facts and the Case

Respondent Petron Corporation (Petron) sold and distributed liquefied

petroleum gas (LPG) in cylinder tanks that carried its trademark
Gasul.[1] Respondent Carmen J. Doloiras owned and operated Kristina Patricia
Enterprises (KPE), the exclusive distributor of Gasul LPGs in the whole of
Sorsogon.[2] Jose Nelson Doloiras (Jose) served as KPEs manager.

Bicol Gas Refilling Plant Corporation (Bicol Gas) was also in the business of
selling and distributing LPGs in Sorsogon but theirs carried the trademark Bicol
Savers Gas.Petitioner Audie Llona managed Bicol Gas.

In the course of trade and competition, any given distributor of LPGs at

times acquired possession of LPG cylinder tanks belonging to other distributors
operating in the same area. They called these captured cylinders. According to
Jose, KPEs manager, in April 2001 Bicol Gas agreed with KPE for the swapping of
captured cylinders since one distributor could not refill captured cylinders with
its own brand of LPG. At one time, in the course of implementing this
arrangement, KPEs Jose visited the Bicol Gas refilling plant. While there, he
noticed several Gasul tanks in Bicol Gas possession. He requested a swap but
Audie Llona of Bicol Gas replied that he first needed to ask the permission of the
Bicol Gas owners. That permission was given and they had a swap involving around
30 Gasul tanks held by Bicol Gas in exchange for assorted tanks held by KPE.

KPEs Jose noticed, however, that Bicol Gas still had a number of Gasul
tanks in its yard. He offered to make a swap for these but Llona declined, saying
the Bicol Gas owners wanted to send those tanks to Batangas. Later Bicol Gas told
Jose that it had no more Gasul tanks left in its possession. Jose observed on
almost a daily basis, however, that Bicol Gas trucks which plied the streets of the
province carried a load of Gasul tanks. He noted that KPEs volume of sales
dropped significantly from June to July 2001.
 On August 4, 2001 KPEs Jose saw a particular Bicol Gas truck on
the Maharlika Highway. While the truck carried mostly Bicol Savers LPG tanks, it
had on it one unsealed 50-kg Gasul tank and one 50-kg Shellane tank. Jose
followed the truck and when it stopped at a store, he asked the driver, Jun
Leorena, and the Bicol Gas sales representative, Jerome Misal, about the Gasul
tank in their truck. They said it was empty but, when Jose turned open its valve,
he noted that it was not. Misal and Leorena then admitted that the Gasul and
Shellane tanks on their truck belonged to a customer who had them filled up by
Bicol Gas. Misal then mentioned that his manager was a certain Rolly Mirabena.

Because of the above incident, KPE filed a complaint[3] for violations of

Republic Act (R.A.) 623 (illegally filling up registered cylinder tanks), as amended,
and Sections 155 (infringement of trade marks) and 169.1 (unfair competition) of
the Intellectual Property Code (R.A. 8293). The complaint charged the following:
Jerome Misal, Jun Leorena, Rolly Mirabena, Audie Llona, and several John and
Jane Does, described as the directors, officers, and stockholders of Bicol
Gas. These directors, officers, and stockholders were eventually identified
during the preliminary investigation.

Subsequently, the provincial prosecutor ruled that there was probable

cause only for violation of R.A. 623 (unlawfully filling up registered tanks) and
that only the four Bicol Gas employees, Mirabena, Misal, Leorena, and petitioner
Llona, could be charged. The charge against the other petitioners who were the
stockholders and directors of the company was dismissed.

Dissatisfied, Petron and KPE filed a petition for review with the Office of
the Regional State Prosecutor, Region V, which initially denied the petition but
partially granted it on motion for reconsideration. The Office of the Regional
State Prosecutor ordered the filing of additional informations against the four
employees of Bicol Gas for unfair competition. It ruled, however, that no case for
trademark infringement was present. The Secretary of Justice denied the appeal
of Petron and KPE and their motion for reconsideration.

Undaunted, Petron and KPE filed a special civil action for certiorari with
the Court of Appeals[4] but the Bicol Gas employees and stockholders concerned
opposed it, assailing the inadequacy in its certificate of non-forum shopping, given
that only Atty. Joel Angelo C. Cruz signed it on behalf of Petron. In its
Decision[5] dated October 17, 2005, the Court of Appeals ruled, however, that
Atty. Cruzs certification constituted sufficient compliance. As to the substantive
aspect of the case, the Court of Appeals reversed the Secretary of Justices
ruling. It held that unfair competition does not necessarily absorb trademark
infringement. Consequently, the court ordered the filing of additional charges of
trademark infringement against the concerned Bicol Gas employees as well.

Since the Bicol Gas employees presumably acted under the direct order
and control of its owners, the Court of Appeals also ordered the inclusion of the
stockholders of Bicol Gas in the various charges, bringing to 16 the number of
persons to be charged, now including petitioners Manuel C. Espiritu, Jr., Freida F.
Espiritu, Carlo F. Espiritu, Rafael F. Espiritu, Rolando M. Mirabuna, Hermilyn A.
Mirabuna, Kim Roland A. Mirabuna, Kaye Ann A. Mirabuna, Ken Ryan A. Mirabuna,
Juanito P. de Castro, Geronima A. Almonite, and Manuel C. Dee (together with
Audie Llona), collectively, petitioners Espiritu, et al. The court denied the motion
for reconsideration of these employees and stockholders in its Resolution dated
January 6, 2006, hence, the present petition for review[6] before this Court.

The Issues Presented

The petition presents the following issues:

1. Whether or not the certificate of non-forum shopping that

accompanied the petition filed with the Court of Appeals, signed only
by Atty. Cruz on behalf of Petron, complied with what the rules
require;

2. Whether or not the facts of the case warranted the filing

of charges against the Bicol Gas people for:
 a) Filling up the LPG tanks registered to another
manufacturer without the latters consent in violation
of R.A. 623, as amended;

b) Trademark infringement consisting in Bicol

Gas use of a trademark that is confusingly similar to
Petrons registered Gasul trademark in violation of
section 155 also of R.A. 8293; and

c) Unfair competition consisting in passing off

Bicol Gas-produced LPGs for Petron-produced Gasul
LPG in violation of Section 168.3 of R.A. 8293.

The Courts Rulings

First. Petitioners Espiritu, et al. point out that the certificate of non-
forum shopping that respondents KPE and Petron attached to the petition they
filed with the Court of Appeals was inadequate, having been signed only by Petron,
through Atty. Cruz.

But, while procedural requirements such as that of submittal of a

certificate of non-forum shopping cannot be totally disregarded, they may be
deemed substantially complied with under justifiable circumstances.[7] One of
these circumstances is where the petitioners filed a collective action in which
they share a common interest in its subject matter or raise a common cause of
action. In such a case, the certification by one of the petitioners may be deemed
sufficient.[8]

Here, KPE and Petron shared a common cause of action against petitioners
Espiritu, et al., namely, the violation of their proprietary rights with respect to
the use of Gasul tanks and trademark. Furthermore, Atty. Cruz said in his
certification that he was executing it for and on behalf of the Corporation, and
co-petitioner Carmen J. Doloiras.[9] Thus, the object of the requirement to ensure
that a party takes no recourse to multiple forums was substantially
achieved. Besides, the failure of KPE to sign the certificate of non-forum
shopping does not render the petition defective with respect to Petron which
signed it through Atty. Cruz.[10] The Court of Appeals, therefore, acted correctly
in giving due course to the petition before it.

Second. The Court of Appeals held that under the facts of the case, there
is probable cause that petitioners Espiritu, et al. committed all three crimes: (a)
illegally filling up an LPG tank registered to Petron without the latters consent in
violation of R.A. 623, as amended; (b) trademark infringement which consists in
Bicol Gas use of a trademark that is confusingly similar to Petrons registered
Gasul trademark in violation of Section 155 of R.A. 8293; and (c) unfair
competition which consists in petitioners Espiritu, et al. passing off Bicol Gas-
produced LPGs for Petron-produced Gasul LPG in violation of Section 168.3 of R.A.
8293.

Here, the complaint adduced at the preliminary investigation shows that

the one 50-kg Petron Gasul LPG tank found on the Bicol Gas truck belonged to [a
Bicol Gas] customer who had the same filled up by BICOL GAS.[11] In other words,
the customer had that one Gasul LPG tank brought to Bicol Gas for refilling and
the latter obliged.

R.A. 623, as amended,[12] punishes any person who, without the written
consent of the manufacturer or seller of gases contained in duly registered steel
cylinders or tanks, fills the steel cylinder or tank, for the purpose of sale, disposal
or trafficking, other than the purpose for which the manufacturer or seller
registered the same. This was what happened in this case, assuming the
allegations of KPEs manager to be true. Bicol Gas employees filled up with their
firms gas the tank registered to Petron and bearing its mark without the latters
written authority. Consequently, they may be prosecuted for that offense.

But, as for the crime of trademark infringement, Section 155 of R.A. 8293
(in relation to Section 170[13]) provides that it is committed by any person who
shall, without the consent of the owner of the registered mark:
 1. Use in commerce any reproduction, counterfeit, copy or
colorable imitation of a registered mark or the same container or a
dominant feature thereof in connection with the sale, offering for
sale, distribution, advertising of any goods or services including
other preparatory steps necessary to carry out the sale of any goods
or services on or in connection with which such use is likely to cause
confusion, or to cause mistake, or to deceive; or

2. Reproduce, counterfeit, copy or colorably imitate a

registered mark or a dominant feature thereof and apply such
reproduction, counterfeit, copy or colorable imitation to labels,
signs, prints, packages, wrappers, receptacles or advertisements
intended to be used in commerce upon or in connection with the sale,
offering for sale, distribution, or advertising of goods or services on
or in connection with which such use is likely to cause confusion, or
to cause mistake, or to deceive.

KPE and Petron have to show that the alleged infringer, the responsible
officers and staff of Bicol Gas, used Petrons Gasul trademark or a confusingly
similar trademark on Bicol Gas tanks with intent to deceive the public and defraud
its competitor as to what it is selling.[14] Examples of this would be the acts of an
underground shoe manufacturer in Malabon producing Nike branded rubber shoes
or the acts of a local shirt company with no connection to La Coste, producing and
selling shirts that bear the stitched logos of an open-jawed alligator.

Here, however, the allegations in the complaint do not show that Bicol Gas
painted on its own tanks Petrons Gasul trademark or a confusingly similar version
of the same to deceive its customers and cheat Petron. Indeed, in this case, the
one tank bearing the mark of Petron Gasul found in a truck full of Bicol Gas tanks
was a genuine Petron Gasul tank, more of a captured cylinder belonging to
competition. No proof has been shown that Bicol Gas has gone into the business
of distributing imitation Petron Gasul LPGs.

As to the charge of unfair competition, Section 168.3 (a) of R.A. 8293 (also
in relation to Section 170) describes the acts constituting the offense as follows:
 168.3. In particular, and without in any way limiting the scope
of protection against unfair competition, the following shall be
deemed guilty of unfair competition:

(a) Any person, who is selling his goods and gives

them the general appearance of goods of another
manufacturer or dealer, either as to the goods
themselves or in the wrapping of the packages in which
they are contained, or the devices or words thereon, or
in any other feature of their appearance, which would
be likely to influence purchasers to believe that the
goods offered are those of a manufacturer or dealer,
other than the actual manufacturer or dealer, or who
otherwise clothes the goods with such appearance as
shall deceive the public and defraud another of his
legitimate trade, or any subsequent vendor of such
goods or any agent of any vendor engaged in selling such
goods with a like purpose;

Essentially, what the law punishes is the act of giving ones goods the
general appearance of the goods of another, which would likely mislead the buyer
into believing that such goods belong to the latter. Examples of this would be the
act of manufacturing or selling shirts bearing the logo of an alligator, similar in
design to the open-jawed alligator in La Coste shirts, except that the jaw of the
alligator in the former is closed, or the act of a producer or seller of tea bags
with red tags showing the shadow of a black dog when his competitor is producing
or selling popular tea bags with red tags showing the shadow of a black cat.

Here, there is no showing that Bicol Gas has been giving its LPG tanks the
general appearance of the tanks of Petrons Gasul. As already stated, the truckfull
of Bicol Gas tanks that the KPE manager arrested on a road in Sorsogon just
happened to have mixed up with them one authentic Gasul tank that belonged to
Petron.
 The only point left is the question of the liability of the stockholders and
members of the board of directors of Bicol Gas with respect to the charge of
unlawfully filling up a steel cylinder or tank that belonged to Petron. The Court of
Appeals ruled that they should be charged along with the Bicol Gas employees
who were pointed to as directly involved in overt acts constituting the offense.

Bicol Gas is a corporation. As such, it is an entity separate and distinct

from the persons of its officers, directors, and stockholders. It has been held,
however, that corporate officers or employees, through whose act, default or
omission the corporation commits a crime, may themselves be individually held
answerable for the crime.[15]

Jose claimed in his affidavit that, when he negotiated the swapping of

captured cylinders with Bicol Gas, its manager, petitioner Audie Llona, claimed
that he would be consulting with the owners of Bicol Gas about it. Subsequently,
Bicol Gas declined the offer to swap cylinders for the reason that the owners
wanted to send their captured cylinders to Batangas. The Court of Appeals seized
on this as evidence that the employees of Bicol Gas acted under the direct orders
of its owners and that the owners of Bicol Gas have full control of the operations
of the business.[16]

The owners of a corporate organization are its stockholders and they are
to be distinguished from its directors and officers. The petitioners here, with
the exception of Audie Llona, are being charged in their capacities as
stockholders of Bicol Gas. But the Court of Appeals forgets that in a corporation,
the management of its business is generally vested in its board of directors, not
its stockholders.[17] Stockholders are basically investors in a corporation. They do
not have a hand in running the day-to-day business operations of the corporation
unless they are at the same time directors or officers of the corporation. Before
a stockholder may be held criminally liable for acts committed by the corporation,
therefore, it must be shown that he had knowledge of the criminal act committed
in the name of the corporation and that he took part in the same or gave his
consent to its commission, whether by action or inaction.
 The finding of the Court of Appeals that the employees could not have
committed the crimes without the consent, [abetment], permission, or
participation of the owners of Bicol Gas[18] is a sweeping speculation especially
since, as demonstrated above, what was involved was just one Petron Gasul tank
found in a truck filled with Bicol Gas tanks.Although the KPE manager heard
petitioner Llona say that he was going to consult the owners of Bicol Gas regarding
the offer to swap additional captured cylinders, no indication was given as to
which Bicol Gas stockholders Llona consulted. It would be unfair to charge all the
stockholders involved, some of whom were proved to be minors.[19] No evidence
was presented establishing the names of the stockholders who were charged with
running the operations of Bicol Gas. The complaint even failed to allege who among
the stockholders sat in the board of directors of the company or served as its
officers.

The Court of Appeals of course specifically mentioned petitioner

stockholder Manuel C. Espiritu, Jr. as the registered owner of the truck that the
KPE manager brought to the police for investigation because that truck carried a
tank of Petron Gasul. But the act that R.A. 623 punishes is the unlawful filling up
of registered tanks of another. It does not punish the act of transporting such
tanks. And the complaint did not allege that the truck owner connived with those
responsible for filling up that Gasul tank with Bicol Gas LPG.

WHEREFORE, the Court REVERSES and SETS ASIDE the Decision of the
Court of Appeals in CA-G.R. SP 87711 dated October 17, 2005 as well as its
Resolution dated January 6, 2006, the Resolutions of the Secretary of Justice
dated March 11, 2004 and August 31, 2004, and the Order of the Office of the
Regional State Prosecutor, Region V, dated February 19, 2003. The
Court REINSTATES the Resolution of the Office of the Provincial Prosecutor of
Sorsogon in I.S. 2001-9231 (inadvertently referred in the Resolution itself as
I.S. 2001-9234), dated February 26, 2002. The names of petitioners Manuel C.
Espiritu, Jr., Freida F. Espititu, Carlo F. Espiritu, Rafael F. Espiritu, Rolando M.
Mirabuna, Hermilyn A. Mirabuna, Kim Roland A. Mirabuna, Kaye Ann A. Mirabuna,
Ken Ryan A. Mirabuna, Juanito P. De Castro, Geronima A. Almonite and Manuel C.
Dee are ORDERED excluded from the charge.

SO ORDERED.
G.R. No. L-19190 November 29, 1922

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,

vs.
VENANCIO CONCEPCION, defendant-appellant.

Recaredo Ma. Calvo for appellant.

Attorney-General Villa-Real for appellee.

MALCOLM, J.:

By telegrams and a letter of confirmation to the manager of the Aparri branch

of the Philippine National Bank, Venancio Concepcion, President of the Philippine
National Bank, between April 10, 1919, and May 7, 1919, authorized an extension
of credit in favor of "Puno y Concepcion, S. en C." in the amount of P300,000.
This special authorization was essential in view of the memorandum order of
President Concepcion dated May 17, 1918, limiting the discretional power of the
local manager at Aparri, Cagayan, to grant loans and discount negotiable
documents to P5,000, which, in certain cases, could be increased to P10,000.
Pursuant to this authorization, credit aggregating P300,000, was granted the
firm of "Puno y Concepcion, S. en C.," the only security required consisting of six
demand notes. The notes, together with the interest, were taken up and paid by
July 17, 1919.

"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000.

Anacleto Concepcion contributed P5,000; Clara Vda. de Concepcion, P5,000;
Miguel S. Concepcion, P20,000; Clemente Puno, P20,000; and Rosario San
Agustin, "casada con Gral. Venancio Concepcion," P50,000. Member Miguel S.
Concepcion was the administrator of the company.

On the facts recounted, Venancio Concepcion, as President of the Philippine

National Bank and as member of the board of directors of this bank, was
charged in the Court of First Instance of Cagayan with a violation of section 35
of Act No. 2747. He was found guilty by the Honorable Enrique V. Filamor,
Judge of First Instance, and was sentenced to imprisonment for one year and
six months, to pay a fine of P3,000, with subsidiary imprisonment in case of
insolvency, and the costs.
Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to
which reference must hereafter repeatedly be made, reads as follows: "The
National Bank shall not, directly or indirectly, grant loans to any of the members
of the board of directors of the bank nor to agents of the branch banks."
Section 49 of the same Act provides: "Any person who shall violate any of the
provisions of this Act shall be punished by a fine not to exceed ten thousand
pesos, or by imprisonment not to exceed five years, or by both such fine and
imprisonment." These two sections were in effect in 1919 when the alleged
unlawful acts took place, but were repealed by Act No. 2938, approved on
January 30, 1921.

Counsel for the defense assign ten errors as having been committed by the trial
court. These errors they have argued adroitly and exhaustively in their printed
brief, and again in oral argument. Attorney-General Villa-Real, in an
exceptionally accurate and comprehensive brief, answers the proposition of
appellant one by one.

The question presented are reduced to their simplest elements in the opinion
which follows:

I. Was the granting of a credit of P300,000 to the copartnership "Puno y

Concepcion, S. en C." by Venancio Concepcion, President of the Philippine
National Bank, a "loan" within the meaning of section 35 of Act No. 2747?

Counsel argue that the documents of record do not prove that authority to
make a loan was given, but only show the concession of a credit. In this
statement of fact, counsel is correct, for the exhibits in question speak of a
"credito" (credit) and not of a " prestamo" (loan).

The "credit" of an individual means his ability to borrow money by virtue of the
confidence or trust reposed by a lender that he will pay what he may promise.
(Donnell vs. Jones [1848], 13 Ala., 490; Bouvier's Law Dictionary.) A "loan"
means the delivery by one party and the receipt by the other party of a given
sum of money, upon an agreement, express or implied, to repay the sum loaned,
with or without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The
concession of a "credit" necessarily involves the granting of "loans" up to the
limit of the amount fixed in the "credit,"

II. Was the granting of a credit of P300,000 to the copartnership "Puno y

Concepcion, S. en C.," by Venancio Concepcion, President of the Philippine
National Bank, a "loan" or a "discount"?
Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a
"loan," it does not prohibit what is commonly known as a "discount."

In a letter dated August 7, 1916, H. Parker Willis, then President of the

National Bank, inquired of the Insular Auditor whether section 37 of Act No.
2612 was intended to apply to discounts as well as to loans. The ruling of the
Acting Insular Auditor, dated August 11, 1916, was to the effect that said
section referred to loans alone, and placed no restriction upon discount
transactions. It becomes material, therefore, to discover the distinction
between a "loan" and a "discount," and to ascertain if the instant transaction
comes under the first or the latter denomination.

Discounts are favored by bankers because of their liquid nature, growing, as

they do, out of an actual, live, transaction. But in its last analysis, to discount a
paper is only a mode of loaning money, with, however, these distinctions: (1) In a
discount, interest is deducted in advance, while in a loan, interest is taken at the
expiration of a credit; (2) a discount is always on double-name paper; a loan is
generally on single-name paper.

Conceding, without deciding, that, as ruled by the Insular Auditor, the law
covers loans and not discounts, yet the conclusion is inevitable that the demand
notes signed by the firm "Puno y Concepcion, S. en C." were not discount paper
but were mere evidences of indebtedness, because (1) interest was not
deducted from the face of the notes, but was paid when the notes fell due; and
(2) they were single-name and not double-name paper.

The facts of the instant case having relation to this phase of the argument are
not essentially different from the facts in the Binalbagan Estate case. Just as
there it was declared that the operations constituted a loan and not a discount,
so should we here lay down the same ruling.

III. Was the granting of a credit of P300,000 to the copartnership, "Puno y

Concepcion, S. en C." by Venancio Concepcion, President of the Philippine
National Bank, an "indirect loan" within the meaning of section 35 of Act No.
2747?

Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was
not an "indirect loan." In this connection, it should be recalled that the wife of
the defendant held one-half of the capital of this partnership.

In the interpretation and construction of statutes, the primary rule is to

ascertain and give effect to the intention of the Legislature. In this instance,
the purpose of the Legislature is plainly to erect a wall of safety against
temptation for a director of the bank. The prohibition against indirect loans is a
recognition of the familiar maxim that no man may serve two masters — that
where personal interest clashes with fidelity to duty the latter almost always
suffers. If, therefore, it is shown that the husband is financially interested in
the success or failure of his wife's business venture, a loan to partnership of
which the wife of a director is a member, falls within the prohibition.

Various provisions of the Civil serve to establish the familiar relationship called
a conjugal partnership. (Articles 1315, 1393, 1401, 1407, 1408, and 1412 can be
specially noted.) A loan, therefore, to a partnership of which the wife of a
director of a bank is a member, is an indirect loan to such director.

That it was the intention of the Legislature to prohibit exactly such an

occurrence is shown by the acknowledged fact that in this instance the
defendant was tempted to mingle his personal and family affairs with his
official duties, and to permit the loan P300,000 to a partnership of no
established reputation and without asking for collateral security.

In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am.
Rep., 211), the Supreme Court of Maryland said:

What then was the purpose of the law when it declared that no director
or officer should borrow of the bank, and "if any director," etc., "shall be
convicted," etc., "of directly or indirectly violating this section he shall be
punished by fine and imprisonment?" We say to protect the stockholders,
depositors and creditors of the bank, against the temptation to which the
directors and officers might be exposed, and the power which as such
they must necessarily possess in the control and management of the bank,
and the legislature unwilling to rely upon the implied understanding that in
assuming this relation they would not acquire any interest hostile or
adverse to the most exact and faithful discharge of duty, declared in
express terms that they should not borrow, etc., of the bank.

In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the
Binalbagan Estate decision, it was said:

We are of opinion the statute forbade the loan to his copartnership firm
as well as to himself directly. The loan was made indirectly to him through
his firm.
IV. Could Venancio Concepcion, President of the Philippine National Bank, be
convicted of a violation of section 35 of Act No. 2747 in relation with section
49 of the same Act, when these portions of Act No. 2747 were repealed by Act
No. 2938, prior to the finding of the information and the rendition of the
judgment?

As noted along toward the beginning of this opinion, section 49 of Act No. 2747,
in relation to section 35 of the same Act, provides a punishment for any person
who shall violate any of the provisions of the Act. It is contended, however, by
the appellant, that the repeal of these sections of Act No. 2747 by Act No.
2938 has served to take away the basis for criminal prosecution.

This same question has been previously submitted and has received an answer
adverse to such contention in the cases of United Stated vs. Cuna ([1908], 12
Phil., 241); People vs. Concepcion ([1922], 43 Phil., 653); and Ong Chang Wing and
Kwong Fok vs. United States ([1910], 218 U. S., 272; 40 Phil., 1046). In other
words, it has been the holding, and it must again be the holding, that where an
Act of the Legislature which penalizes an offense, such repeals a former Act
which penalized the same offense, such repeal does not have the effect of
thereafter depriving the courts of jurisdiction to try, convict, and sentenced
offenders charged with violations of the old law.

V. Was the granting of a credit of P300,000 to the copartnership "Puno y

Concepcion, S. en C." by Venancio Concepcion, President of the Philippine
National Bank, in violation of section 35 of Act No. 2747, penalized by this law?

Counsel argue that since the prohibition contained in section 35 of Act No.
2747 is on the bank, and since section 49 of said Act provides a punishment not
on the bank when it violates any provisions of the law, but on a person violating
any provisions of the same, and imposing imprisonment as a part of the penalty,
the prohibition contained in said section 35 is without penal sanction.lawph!l.net

The answer is that when the corporation itself is forbidden to do an act, the
prohibition extends to the board of directors, and to each director separately
and individually. (People vs. Concepcion, supra.)

VI. Does the alleged good faith of Venancio Concepcion, President of the
Philippine National Bank, in extending the credit of P300,000 to the
copartnership "Puno y Concepcion, S. en C." constitute a legal defense?

Counsel argue that if defendant committed the acts of which he was convicted,
it was because he was misled by rulings coming from the Insular Auditor. It is
furthermore stated that since the loans made to the copartnership "Puno y
Concepcion, S. en C." have been paid, no loss has been suffered by the Philippine
National Bank.

Neither argument, even if conceded to be true, is conclusive. Under the statute

which the defendant has violated, criminal intent is not necessarily material.
The doing of the inhibited act, inhibited on account of public policy and public
interest, constitutes the crime. And, in this instance, as previously
demonstrated, the acts of the President of the Philippine National Bank do not
fall within the purview of the rulings of the Insular Auditor, even conceding
that such rulings have controlling effect.

Morse, in his work, Banks and Banking, section 125, says:

It is fraud for directors to secure by means of their trust, and

advantage not common to the other stockholders. The law will not allow
private profit from a trust, and will not listen to any proof of honest
intent.

JUDGMENT

On a review of the evidence of record, with reference to the decision of the

trial court, and the errors assigned by the appellant, and with reference to
previous decisions of this court on the same subject, we are irresistibly led to
the conclusion that no reversible error was committed in the trial of this case,
and that the defendant has been proved guilty beyond a reasonable doubt of
the crime charged in the information. The penalty imposed by the trial judge
falls within the limits of the punitive provisions of the law.

Judgment is affirmed, with the costs of this instance against the appellant. So
ordered.

G.R. No. L-30896 April 28, 1983

JOSE O. SIA, petitioner,

vs.
THE PEOPLE OF THE PHILIPPINES, respondent.

DE CASTRO, J.:
Petition for review of the decision of the Court of Appeals affirming the
decision of the Court of First Instance of Manila convicting the appellant of
estafa, under an information which reads:

That in, about or during the period comprised' between July 24,
1963 and December 31, 1963, both dates inclusive, in the City of
Manila, Philippines, the said accused did then and there willfully,
unlawfully and feloniously defraud the Continental Bank, a banking
institution duly organized and doing business in the City of Manila,
in the following manner, to wit: the said accused, in his capacity as
president and general manager of the Metal Manufacturing of the
Philippines, Inc. (MEMAP) and on behalf of said company, obtained
delivery of 150 M/T Cold Rolled Steel Sheets valued at P 71,023.60
under a trust receipt agreement under L/C No. 63/109, which cold
rolled steel sheets were consigned to the Continental Bank, under
the express obligation on the part of said accused of holding the
said steel sheets in trust and selling them and turning over the
proceeds of the sale to the Continental Bank; but the said accused,
once in possession of the said goods, far from complying with his
aforesaid obligation and despite demands made upon him to do so,
with intent to defraud, failed and refused to return the said cold
rolled sheets or account for the proceeds thereof, if sold, which
the said accused willfully, unlawfully and feloniously
misappropriated, misapplied and converted to his own personal use
and benefit, to the damage and prejudice of the said Continental
Bank in the total amount of P146,818.68, that is the balance
including the interest after deducting the sum of P28,736.47
deposited by the said accused with the bank as marginal deposit
and forfeited by the said from the value of the said goods, in the
said sum of P71,023.60. (Original Records, p. 1).

In reviewing the evidence, the Court of Appeals came up with the following
findings of facts which the Solicitor General alleges should be conclusive upon
this Court:

There is no debate on certain antecedents: Accused Jose 0. Sia

sometime prior to 24 May, 1963, was General Manager of the Metal
Manufacturing Company of the Philippines, Inc. engaged in the
manufacture of steel office equipment; on 31 May, 1963, because
his company was in need of raw materials to be imported from
abroad, he applied for a letter of credit to import steel sheets
from Mitsui Bussan Kaisha, Ltd. of Tokyo, Japan, the application
 being directed to the Continental Bank, herein complainant, Exhibit
B and his application having been approved, the letter of credit was
opened on 5 June, 1963 in the amount of $18,300, Exhibit D; and
the goods arrived sometime in July, 1963 according to accused
himself, tsn. II:7; now from here on there is some debate on the
evidence; according to Complainant Bank, there was permitted
delivery of the steel sheets only upon execution of a trust receipt,
Exhibit A; while according to the accused, the goods were
delivered to him sometime before he executed that trust receipt
in fact they had already been converted into steel office
equipment by the time he signed said trust receipt, tsn. II:8; but
there is no question - and this is not debated - that the bill of
exchange issued for the purpose of collecting the unpaid account
thereon having fallen due (see Exh. B) neither accused nor his
company having made payment thereon notwithstanding demands,
Exh. C and C-1, dated 17 and 27 December, 1963, and the accounts
having reached the sum in pesos of P46,818.68 after deducting his
deposit valued at P28,736.47; that was the reason why upon
complaint by Continental Bank, the Fiscal filed the information
after preliminary investigation as has been said on 22 October,
1964. (Rollo [CA], pp. 103- 104).

The first issue raised, which in effect combines the first three errors assigned,
is whether petitioner Jose O. Sia, having only acted for and in behalf of the
Metal Manufacturing Company of the Philippines (Metal Company, for short) as
President thereof in dealing with the complainant, the Continental Bank, (Bank
for short) he may be liable for the crime charged.

In discussing this question, petitioner proceeds, in the meantime, on the

assumption that the acts imputed to him would constitute the crime of estafa,
which he also disputes, but seeks to avoid liability on his theory that the Bank
knew all along that petitioner was dealing with him only as an officer of the
Metal Company which was the true and actual applicant for the letter of credit
(Exhibit B) and which, accordingly, assumed sole obligation under the trust
receipt (Exhibit A). In disputing the theory of petitioner, the Solicitor General
relies on the general principle that when a corporation commits an act which
would constitute a punishable offense under the law, it is the responsible
officers thereof, acting for the corporation, who would be punished for the
crime, The Court of Appeals has subscribed to this view when it quoted
approvingly from the decision of the trial court the following:
 A corporation is an artificial person, an abstract being. If the
defense theory is followed unscrupulously legions would form
corporations to commit swindle right and left where nobody could
be convicted, for it would be futile and ridiculous to convict an
abstract being that can not be pinched and confined in jail like a
natural, living person, hence the result of the defense theory would
be hopeless chose in business and finance. It is completely
untenable. (Rollo [CA], p. 108.)

The above-quoted observation of the trial court would seem to be merely

restating a general principle that for crimes committed by a corporation, the
responsible officers thereof would personally bear the criminal liability. (People
vs. Tan Boon Kong, 54 Phil. 607. See also Tolentino, Commercial Laws of the
Philippines, p. 625, citing cases.)

The case cited by the Court of Appeals in support of its stand-Tan Boon Kong
case, supra-may however not be squarely applicable to the instant case in that
the corporation was directly required by law to do an act in a given manner, and
the same law makes the person who fails to perform the act in the prescribed
manner expressly liable criminally. The performance of the act is an obligation
directly imposed by the law on the corporation. Since it is a responsible officer
or officers of the corporation who actually perform the act for the corporation,
they must of necessity be the ones to assume the criminal liability; otherwise
this liability as created by the law would be illusory, and the deterrent effect
of the law, negated.

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

The next question is whether the violation of a trust receipt constitutes estafa
under Art. 315 (1-[2]) of the Revised Penal Code, as also raised by the
petitioner. We now entertain grave doubts, in the light of the promulgation of
P.D. 115 providing for the regulation of trust receipts transaction, which is a
very comprehensive piece of legislation, and includes an express provision that if
the violation or offense 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 civil liabilities arising
from the criminal offense. The question that suggests itself is, therefore,
whether the provisions of the Revised Penal Code, Article 315, par. 1 (b) are not
adequate to justify the punishment of the act made punishable by P.D. 115, that
the necessity was felt for the promulgation of the decree. To answer this
question, it is imperative to make an indepth analysis of the conditions usually
embodied in a trust receipt to best their legal sufficiency to constitute the
basis for holding the violation of said conditions as estafa under Article 315 of
the Revised Penal Code which P.D. 115 now seeks to punish expressly.

As executed, the trust receipt in question reads:

I/WE HEREBY AGREE TO HOLD SAID GOODS IN TRUST FOR

THE SAID BANK as its property with liberty to sell the same for
its account but without authority to make any other disposition
whatsoever of the said goods or any part thereof (or the proceeds
thereof) either way of conditional sale, pledge or otherwise;

In case of sale I/we further agree to hand the proceeds as soon as

received to the BANK to apply against the relative acceptance (as
described above) and for the payment of any other indebtedness
of mine/ours to CONTINENTAL BANK. (Original Records, p. 108)

One view is to consider the transaction as merely that of a security of a loan,

and that the trust element is but and inherent feature of the security aspect
of the arrangement where the goods are placed in the possession of the
"entrustee," to use the term used in P.D. 115, violation of the element of trust
not being intended to be in the same concept as how it is understood in the
criminal sense. The other view is that the bank as the owner and "entrustor"
delivers the goods to the "entrustee, " with the authority to sell the goods, but
with the obligation to give the proceeds to the "entrustor" or return the goods
themselves if not sold, a trust being thus created in the full sense as
contemplated by Art. 315, par. 1 (b).

We consider the view that the trust receipt arrangement gives rise only to civil
liability as the more feasible, before the promulgation of P.D. 115. The
transaction being contractual, the intent of the parties should govern. Since the
trust receipt has, by its nature, to be executed upon the arrival of the goods
imported, and acquires legal standing as such receipt only upon acceptance by
the "entrustee," the trust receipt transaction itself, the antecedent acts
consisting of the application of the L/C, the approval of the L/C and the making
of the marginal deposit and the effective importation of the goods, all through
the efforts of the importer who has to find his supplier, arrange for the
payment and shipment of the imported goods-all these circumstances would
negate any intent of subjecting the importer to criminal prosecution, which
could possibly give rise to a case of imprisonment for non-payment of a debt.
The parties, therefore, are deemed to have consciously entered into a purely
commercial transaction that could give rise only to civil liability, never to
subject the "entrustee" to criminal prosecution. Unlike, for instance, when
several pieces of jewelry are received by a person from the owner for sale on
commission, and the former misappropriates for his personal use and benefit,
either the jewelries or the proceeds of the sale, instead of returning them to
the owner as is his obligation, the bank is not in the same concept as the jewelry
owner with full power of disposition of the goods, which the bank does not have,
for the bank has previously extended a loan which the L/C represents to the
importer, and by that loan, the importer should be the real owner of the goods.
If under the trust receipt the bank is made to appear as the owner, it was but
an artificial expedient, more of a legal fiction than fact, for if it were really so,
it could dispose of the goods in any manner it wants, which it cannot do, just to
give consistency with the purpose of the trust receipt of giving a stronger
security for the loan obtained by the importer. To consider the bank as the true
owner from the inception of the transaction would be to disregard the loan
feature thereof, a feature totally absent in the case of the transaction
between the jewel-owner and his agent.

Consequently, if only from the fact that the trust receipt transaction is
susceptible to two reasonable interpretation, one as giving rise only to civil
liability for the violation of the condition thereof, and the other, as generating
also criminal liability, the former should be adopted as more favorable to the
supposed offender. (Duran vs. CA, L-39758, May 7, 1976, 71 SCRA 68; People vs.
Parayno, L-24804, July 5, 1968, 24 SCRA 3; People vs. Abendan, L-1481, January
28,1949,82 Phil. 711; People vs. Bautista, L-1502, May 24, 1948, 81 Phil. 78;
People vs. Abana, L-39, February 1, 1946, 76 Phil. 1.)

There is, moreover, one circumstance appearing on record, the significance of

which should be properly evaluated. As stated in petitioner's brief (page 2), not
denied by the People, "before the Continental Bank approved the application for
a letter of credit (Exhibit 'D'), subsequently covered by the trust receipt, the
Continental Bank examined the financial capabilities of the applicant, Metal
Manufacturing Company of the Philippines because that was the bank's standard
procedure (Testimony of Mr. Ernesto Garlit, Asst. Manager of the Foreign
Department, Continental Bank, t.s.n., August 30, 1965). The Continental Bank did
not examine the financial capabilities of herein petitioner, Jose O. Sia, in
connection with the same letter of credit. (Ibid). " From this fact, it would
appear as positively established that the intention of the parties in entering
into the "trust receipt" agreement is merely to afford a stronger security for
the loan evidenced by the letter of credit, may be not as an ordinary pledge as
observed in P.N.B. vs. Viuda e Hijos de Angel Jose, et al., 63 Phil. 814, citing In
re Dunlap C (206 Fed. 726) but neither as a transaction falling under Article
315-1 (b) of the Revised Penal Code giving rise to criminal liability, as previously
explained and demonstrated.

It is worthy of note that the civil liability imposed by the trust receipt is
exclusively on the Metal Company. Speaking of such liability alone, as one arising
from the contract, as distinguished from the civil liability arising out of a crime,
the petitioner was never intended to be equally liable as the corporation.
Without being made so liable personally as the corporation is, there would then
be no basis for holding him criminally liable, for any violation of the trust
receipt. This is made clearly so upon consideration of the fact that in the
violation of the trust agreement and in the absence of positive evidence to the
contrary, only the corporation benefited, not the petitioner personally, yet, the
allegation of the information is to effect that the misappropriation or
conversion was for the personal use and benefit of the petitioner, with respect
to which there is variance between the allegation and the evidence.

It is also worthy of note that while the trust receipt speaks of authority to sell,
the fact is undisputed that the imported goods were to be manufactured into
finished products first before they could be sold, as the Bank had full
knowledge of. This fact is, however, not embodied in the trust agreement, thus
impressing on the trust receipt vagueness and ambiguity which should not be the
basis for criminal prosecution, in the event of a violation of the terms of the
trust receipt. Again, P.D. 115 has express provision relative to the "manufacture
or process of the good with the purpose of ultimate sale," as a distinct condition
from that of "to sell the goods or procure their sale" (Section 4, (1). Note that
what is embodied in the receipt in question is the sale of imported goods, the
manufacture thereof not having been mentioned. The requirement in criminal
prosecution, that there must be strict harmony, not variance, between the
allegation and the evidence, may therefore, not be said to have been satisfied in
the instance case.

FOR ALL THE FOREGOING, We reverse the decision of the Court of Appeals
and hereby acquit the petitioner, with costs de oficio.

SO ORDERED.

Concepcion, Jr., Guerrero, Vasquez, Relova and Gutierrez, JJ., concur.

Fernando, CJ., Escolin, Plana, Abad Santos, JJ., concur in the result.

Separate Opinions

TEEHANKEE, J., concurring:

In concur. Petitioner personally cannot be charged and convicted for the crime
of estafa for failure of the corporation (MEMAP) represented by him as
president and general manager to pay "the balance of P46,818.68 .... including
the interest after deducting the sum of P28,736.47" which sum, according to
the very information, it was "deposited by the said accused with the
[Continental] bank as marginal deposit and forfeited by the said bank from the
value of said goods, in the said sum of P 71,023.60" representing the value of
the cold rolled steel sheets imported by the corporation with the bank's
financing under its letter of credit and released to the importer corporation
under trust receipt in favor of the bank.

All these acts were corporate acts with the accused duly representing the
corporation as its president and general manager: the application for bank
financing, the deposit (which was from corporate funds, and not a deposit made
by the petitioner, as wrongly alleged in the information), the receipt of the
steel sheets, then manufactured into finished products (which could not
technically be done under the terms of the trust receipt required by the bank,
under which the very sheets were supposed to be sold by the corporation) and
the non-payment of the credit extended by the bank. There is not the slightest
evidence nor intimation that these corporate acts were unauthorized or that
petitioner personally had committed any fraud or deceit in connection therewith
or that he had personally been responsible for or benefited from the
corporation's failure to pay the bank the balance due under the trust receipt.

In the recent case of People vs. Cuevo, G. R. No. L-27607, decided by the Court
on May 7, 1981, the Court, for lack of necessary votes, affirmed the dismissal
of the same charge of estafa, for non-payment of the debt evidenced by the
trust receipt, by the trial court presided by Judge Ruperto Kapunan, Jr. who
ruled that "the holder of a trust receipt who disposed of the goods covered
thereby and in violation of its terms, failed to deliver to the bank the proceeds
of the sale as payment of the debt secured by the trust receipt" incurs only
civil and not criminal liability for non-payment of the debt thus incurred. I
reiterate my separate opinion therein supporting the more liberal interpretation
that the trust receipt transaction "gives rise only to civil liability on the part of
the offender" and holding that the very definition of a trust receipt, to wit," '
(A) trust receipt is considered as a security transaction intended to aid in
financing importers and retail dealers who do not have sufficient funds or
resources to finance the importation or purchase of merchandise, and who may
not be able to acquire credit except through utilization, as collateral, of the
merchandise imported or purchased' (53 Am. Jr. 961, cited in Samo vs.
People, 115 Phil. 346, 349), sustains the lower court's rationale in dismissing the
information that the contract covered by a trust receipt is merely a secured
loan. The goods imported by the small importer and retail dealer through the
bank's financing remain of their own property and risk and the old capitalist
orientation of putting them in jail for estafa for non-payment of the secured
loan (granted after they had been fully investigated by the bank as good credit
risks) through the fiction of the trust receipt device should no longer be
permitted in this day and age." **

The charge in the case at bar against petitioner-accused must accordingly be

dismissed.

MELENCIO-HERRERA, J., concurring and dissenting:

I dissent in so far as the Decision states that violation of the terms of a trust
receipt does not constitute Estafa under Art. 315, par. 1 (b) of the Revised
Penal Code, for being contrary to the rulings in People vs. Yu Chai Ho, 53 Phil.
874 (1928); PNB vs. Arrozal, 103 Phil. 213 (1958), and Samo vs. People, 5 SCRA
355 (1962).

I concur in so far as the Decision holds that petitioner should not be held liable
for the crime of Estafa considering that in the cases above enumerated, the
persons who executed the trust receipts acted in their own individual capacities
unlike in this case where petitioner acted for and on behalf of the Metal
Manufacturing Company, as its General Manager, and was presumably authorized
to do so. This Court has not as yet laid down a ruling on the criminal liability of a
corporation officer signing a trust receipt on behalf of the corporation, a trust
receipt being essentially a financing transaction. It was only upon the
promulgation of PD 115 on January 29, 1973 that responsible directors,
officers, employees or other officials of a corporation, partnership, associations
or other juridical entities are made expressly responsible for violation of the
terms of a trust receipt agreement committed by said corporation, partnership,
association or other juridical entities.

Makasiar, J., dissent. The C.A. decision should be affirmed.

Aquino, J., dissent. I vote for the affirmance of the judgement of the C.A.

Separate Opinions

TEEHANKEE, J., concurring:

In concur. Petitioner personally cannot be charged and convicted for the crime
of estafa for failure of the corporation (MEMAP) represented by him as
president and general manager to pay "the balance of P 46,818.68 .... including
the interest after deducting the sum of P 28,736.47" which sum, according to
the very information, it was "deposited by the said accused with the
[Continental] bank as marginal deposit and forfeited by the said bank from the
value of said goods, in the said sum of P 71,023.60" representing the value of
the cold rolled steel sheets imported by the corporation with the bank's
financing under its letter of credit and released to the importer corporation
under trust receipt in favor of the bank.

All these acts were corporate acts with the accused duly representing the
corporation as its president and general manager: the application for bank
financing, the deposit (which was from corporate funds, and not a deposit made
by the petitioner, as wrongly alleged in the information), the receipt of the
steel sheets, then manufactured into finished products (which could not
technically be done under the terms of the trust receipt required by the bank,
under which the very sheets were supposed to be sold by the corporation) and
the non-payment of the credit extended by the bank. There is not the slightest
evidence nor intimation that these corporate acts were unauthorized or that
petitioner personally had committed any fraud or deceit in connection therewith
or that he had personally been responsible for or benefited from the
corporation's failure to pay the bank the balance due under the trust receipt.

In the recent case of People vs. Cuevo, G. R. No. L-27607, decided by the Court
on May 7, 1981, the Court, for lack of necessary votes, affirmed the dismissal
of the same charge of estafa, for non-payment of the debt evidenced by the
trust receipt, by the trial court presided by Judge Ruperto Kapunan, Jr. who
ruled that "the holder of a trust receipt who disposed of the goods covered
thereby and in violation of its terms, failed to deliver to the bank the proceeds
of the sale as payment of the debt secured by the trust receipt" incurs only
civil and not criminal liability for non-payment of the debt thus incurred. I
reiterate my separate opinion therein supporting the more liberal interpretation
that the trust receipt transaction "gives rise only to civil liability on the part of
the offender" and holding that the very definition of a trust receipt, to wit," '
(A) trust receipt is considered as a security transaction intended to aid in
financing importers and retail dealers who do not have sufficient funds or
resources to finance the importation or purchase of merchandise, and who may
not be able to acquire credit except through utilization, as collateral, of the
merchandise imported or purchased' (53 Am. Jr. 961, cited in Samo vs. People,
115 Phil. 346, 349), sustains the lower court's rationale in dismissing the
information that the contract covered by a trust receipt is merely a secured
loan. The goods imported by the small importer and retail dealer through the
bank's financing remain of their own property and risk and the old capitalist
orientation of putting them in jail for estafa for non-payment of the secured
loan (granted after they had been fully investigated by the bank as good credit
risks) through the fiction of the trust receipt device should no longer be
permitted in this day and age."*
The charge in the case at bar against petitioner-accused must accordingly be
dismissed.

MELENCIO-HERRERA, J., concurring and dissenting:

I dissent in so far as the Decision states that violation of the terms of a trust
receipt does not constitute Estafa under Art. 315, par. 1 (b) of the Revised
Penal Code, for being contrary to the rulings in People vs. Yu Chai Ho, 53 Phil.
874 (1928); PNB vs. Arrozal, 103 Phil. 213 (1958), and Samo vs. People, 5 SCRA
355 (1962).

I concur in so far as the Decision holds that petitioner should not be held liable
for the crime of Estafa considering that in the cases above enumerated, the
persons who executed the trust receipts acted in their own individual capacities
unlike in this case where petitioner acted for and on behalf of the Metal
Manufacturing Company, as its General Manager, and was presumably authorized
to do so. This Court has not as yet laid down a ruling on the criminal liability of a
corporation officer signing a trust receipt on behalf of the corporation, a trust
receipt being essentially a financing transaction. It was only upon the
promulgation of PD 115 on January 29, 1973 that responsible directors,
officers, employees or other officials of a corporation, partnership, associations
or other juridical entities are made expressly responsible for violation of the
terms of a trust receipt agreement committed by said corporation, partnership,
association or other juridical entities.

Makasiar, J., dissent.

Aquino, J., dissent.

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

PHILIPPINE NATIONAL BANK, petitioner,

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

Medina, Locsin, Coruña, & Sumbillo for petitioner.

Manuel Lim & Associates for private respondents.

ANTONIO, J.:

Certiorari to review the decision of the Court of Appeals which affirmed the
judgment of the Court of First Instance of Manila in Civil Case No. 34185,
ordering petitioner, as third-party defendant, to pay respondent Rita Gueco
Tapnio, as third-party plaintiff, the sum of P2,379.71, plus 12% interest per
annum from September 19, 1957 until the same is fully paid, P200.00 attorney's
fees and costs, the same amounts which Rita Gueco Tapnio was ordered to pay
the Philippine American General Insurance Co., Inc., to be paid directly to the
Philippine American General Insurance Co., Inc. in full satisfaction of the
judgment rendered against Rita Gueco Tapnio in favor of the former; plus
P500.00 attorney's fees for Rita Gueco Tapnio and costs. The basic action is
the complaint filed by Philamgen (Philippine American General Insurance Co.,
Inc.) as surety against Rita Gueco Tapnio and Cecilio Gueco, for the recovery of
the sum of P2,379.71 paid by Philamgen to the Philippine National Bank on behalf
of respondents Tapnio and Gueco, pursuant to an indemnity agreement.
Petitioner Bank was made third-party defendant by Tapnio and Gueco on the
theory that their failure to pay the debt was due to the fault or negligence of
petitioner.

The facts as found by the respondent Court of Appeals, in affirming the

decision of the Court of First Instance of Manila, are quoted hereunder:

Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco

Tapnio as principal, in favor of the Philippine National Bank Branch
at San Fernando, Pampanga, to guarantee the payment of
defendant Rita Gueco Tapnio's account with said Bank. In turn, to
guarantee the payment of whatever amount the bonding company
would pay to the Philippine National Bank, both defendants
executed the indemnity agreement, Exh. B. Under the terms and
conditions of this indemnity agreement, whatever amount the
plaintiff would pay would earn interest at the rate of 12% per
annum, plus attorney's fees in the amount of 15 % of the whole
amount due in case of court litigation.

The original amount of the bond was for P4,000.00; but the amount
was later reduced to P2,000.00.

It is not disputed that defendant Rita Gueco Tapnio was indebted

to the bank in the sum of P2,000.00, plus accumulated interests
unpaid, which she failed to pay despite demands. The Bank wrote a
letter of demand to plaintiff, as per Exh. C; whereupon, plaintiff
paid the bank on September 18, 1957, the full amount due and
owing in the sum of P2,379.91, for and on account of defendant
Rita Gueco's obligation (Exhs. D and D-1).

Plaintiff, in turn, made several demands, both verbal and written,

upon defendants (Exhs. E and F), but to no avail.

Defendant Rita Gueco Tapnio admitted all the foregoing facts. She
claims, however, when demand was made upon her by plaintiff for
her to pay her debt to the Bank, that she told the Plaintiff that
she did not consider herself to be indebted to the Bank at all
because she had an agreement with one Jacobo-Nazon whereby she
had leased to the latter her unused export sugar quota for the
1956-1957 agricultural year, consisting of 1,000 piculs at the rate
of P2.80 per picul, or for a total of P2,800.00, which was already in
excess of her obligation guaranteed by plaintiff's bond, Exh. A.
This lease agreement, according to her, was with the knowledge of
the bank. But the Bank has placed obstacles to the consummation
of the lease, and the delay caused by said obstacles forced 'Nazon
to rescind the lease contract. Thus, Rita Gueco Tapnio filed her
third-party complaint against the Bank to recover from the latter
any and all sums of money which may be adjudged against her and in
favor of the plaitiff plus moral damages, attorney's fees and costs.

Insofar as the contentions of the parties herein are concerned, we

quote with approval the following findings of the lower court based
on the evidence presented at the trial of the case:

It has been established during the trial that Mrs.

Tapnio had an export sugar quota of 1,000 piculs for
the agricultural year 1956-1957 which she did not
need. She agreed to allow Mr. Jacobo C. Tuazon to use
said quota for the consideration of P2,500.00 (Exh.
"4"-Gueco). This agreement was called a contract of
lease of sugar allotment.

At the time of the agreement, Mrs. Tapnio was

indebted to the Philippine National Bank at San
Fernando, Pampanga. Her indebtedness was known as a
crop loan and was secured by a mortgage on her
standing crop including her sugar quota allocation for
the agricultural year corresponding to said standing
crop. This arrangement was necessary in order that
when Mrs. Tapnio harvests, the P.N.B., having a lien on
the crop, may effectively enforce collection against
her. Her sugar cannot be exported without sugar
quota allotment Sometimes, however, a planter
harvest less sugar than her quota, so her excess quota
is utilized by another who pays her for its use. This is
the arrangement entered into between Mrs. Tapnio
and Mr. Tuazon regarding the former's excess quota
for 1956-1957 (Exh. "4"-Gueco).

Since the quota was mortgaged to the P.N.B., the

contract of lease had to be approved by said Bank,
The same was submitted to the branch manager at
San Fernando, Pampanga. The latter required the
parties to raise the consideration of P2.80 per picul or
a total of P2,800.00 (Exh. "2-Gueco") informing them
that "the minimum lease rental acceptable to the
Bank, is P2.80 per picul." In a letter addressed to the
branch manager on August 10, 1956, Mr. Tuazon
informed the manager that he was agreeable to raising
the consideration to P2.80 per picul. He further
informed the manager that he was ready to pay said
amount as the funds were in his folder which was kept
in the bank.

Explaining the meaning of Tuazon's statement as to

the funds, it was stated by him that he had an
approved loan from the bank but he had not yet
utilized it as he was intending to use it to pay for the
quota. Hence, when he said the amount needed to pay
Mrs. Tapnio was in his folder which was in the bank, he
meant and the manager understood and knew he had
an approved loan available to be used in payment of
the quota. In said Exh. "6-Gueco", Tuazon also
informed the manager that he would want for a notice
from the manager as to the time when the bank
needed the money so that Tuazon could sign the
corresponding promissory note.
Further Consideration of the evidence discloses that when the
branch manager of the Philippine National Bank at San Fernando
recommended the approval of the contract of lease at the price of
P2.80 per picul (Exh. 1 1-Bank), whose recommendation was
concurred in by the Vice-president of said Bank, J. V.
Buenaventura, the board of directors required that the amount be
raised to 13.00 per picul. This act of the board of directors was
communicated to Tuazon, who in turn asked for a reconsideration
thereof. On November 19, 1956, the branch manager submitted
Tuazon's request for reconsideration to the board of directors
with another recommendation for the approval of the lease at
P2.80 per picul, but the board returned the recommendation
unacted upon, considering that the current price prevailing at the
time was P3.00 per picul (Exh. 9-Bank).

The parties were notified of the refusal on the part of the board
of directors of the Bank to grant the motion for reconsideration.
The matter stood as it was until February 22, 1957, when Tuazon
wrote a letter (Exh. 10-Bank informing the Bank that he was no
longer interested to continue the deal, referring to the lease of
sugar quota allotment in favor of defendant Rita Gueco Tapnio. The
result is that the latter lost the sum of P2,800.00 which she
should have received from Tuazon and which she could have paid
the Bank to cancel off her indebtedness,

The court below held, and in this holding we concur that failure of
the negotiation for the lease of the sugar quota allocation of Rita
Gueco Tapnio to Tuazon was due to the fault of the directors of
the Philippine National Bank, The refusal on the part of the bank to
approve the lease at the rate of P2.80 per picul which, as stated
above, would have enabled Rita Gueco Tapnio to realize the amount
of P2,800.00 which was more than sufficient to pay off her
indebtedness to the Bank, and its insistence on the rental price of
P3.00 per picul thus unnecessarily increasing the value by only a
difference of P200.00. inevitably brought about the rescission of
the lease contract to the damage and prejudice of Rita Gueco
Tapnio in the aforesaid sum of P2,800.00. The unreasonableness of
the position adopted by the board of directors of the Philippine
National Bank in refusing to approve the lease at the rate of P2.80
per picul and insisting on the rate of P3.00 per picul, if only to
increase the retail value by only P200.00 is shown by the fact that
all the accounts of Rita Gueco Tapnio with the Bank were secured
 by chattel mortgage on standing crops, assignment of leasehold
rights and interests on her properties, and surety bonds, aside
from the fact that from Exh. 8-Bank, it appears that she was
offering to execute a real estate mortgage in favor of the Bank to
replace the surety bond This statement is further bolstered by
the fact that Rita Gueco Tapnio apparently had the means to pay
her obligation fact that she has been granted several value of
almost P80,000.00 for the agricultural years from 1952 to 56. 1

Its motion for the reconsideration of the decision of the Court of Appeals
having been denied, petitioner filed the present petition.

The petitioner contends that the Court of Appeals erred:

(1) In finding that the rescission of the lease contract of the 1,000 piculs of
sugar quota allocation of respondent Rita Gueco Tapnio by Jacobo C. Tuazon was
due to the unjustified refusal of petitioner to approve said lease contract, and
its unreasonable insistence on the rental price of P3.00 instead of P2.80 per
picul; and

(2) In not holding that based on the statistics of sugar price and prices of sugar
quota in the possession of the petitioner, the latter's Board of Directors
correctly fixed the rental of price per picul of 1,000 piculs of sugar quota
leased by respondent Rita Gueco Tapnio to Jacobo C. Tuazon at P3.00 per picul.

Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the
right, both under its own Charter and under the Corporation Law, to safeguard
and protect its rights and interests under the deed of assignment, which include
the right to approve or disapprove the said lease of sugar quota and in the
exercise of that authority, its

Board of Directors necessarily had authority to determine and fix the rental
price per picul of the sugar quota subject of the lease between private
respondents and Jacobo C. Tuazon. It argued further that both under its
Charter and the Corporation Law, petitioner, acting thru its Board of Directors,
has the perfect right to adopt a policy with respect to fixing of rental prices of
export sugar quota allocations, and in fixing the rentals at P3.00 per picul, it did
not act arbitrarily since the said Board was guided by statistics of sugar price
and prices of sugar quotas prevailing at the time. Since the fixing of the rental
of the sugar quota is a function lodged with petitioner's Board of Directors and
is a matter of policy, the respondent Court of Appeals could not substitute its
own judgment for that of said Board of Directors, which acted in good faith,
making as its basis therefore the prevailing market price as shown by statistics
which were then in their possession.

Finally, petitioner emphasized that under the appealed judgment, it shall suffer
a great injustice because as a creditor, it shall be deprived of a just claim
against its debtor (respondent Rita Gueco Tapnio) as it would be required to
return to respondent Philamgen the sum of P2,379.71, plus interest, which
amount had been previously paid to petitioner by said insurance company in
behalf of the principal debtor, herein respondent Rita Gueco Tapnio, and
without recourse against respondent Rita Gueco Tapnio.

We must advert to the rule that this Court's appellate jurisdiction in

proceedings of this nature is limited to reviewing only errors of law, accepting
as conclusive the factual fin dings of the Court of Appeals upon its own
assessment of the evidence. 2

The contract of lease of sugar quota allotment at P2.50 per picul between Rita
Gueco Tapnio and Jacobo C. Tuazon was executed on April 17, 1956. This
contract was submitted to the Branch Manager of the Philippine National Bank
at San Fernando, Pampanga. This arrangement was necessary because Tapnio's
indebtedness to petitioner was secured by a mortgage on her standing crop
including her sugar quota allocation for the agricultural year corresponding to
said standing crop. The latter required the parties to raise the consideration to
P2.80 per picul, the minimum lease rental acceptable to the Bank, or a total of
P2,800.00. Tuazon informed the Branch Manager, thru a letter dated August 10,
1956, that he was agreeable to raising the consideration to P2.80 per picul. He
further informed the manager that he was ready to pay the said sum of
P2,800.00 as the funds were in his folder which was kept in the said Bank. This
referred to the approved loan of Tuazon from the Bank which he intended to
use in paying for the use of the sugar quota. The Branch Manager submitted the
contract of lease of sugar quota allocation to the Head Office on September 7,
1956, with a recommendation for approval, which recommendation was
concurred in by the Vice-President of the Bank, Mr. J. V. Buenaventura. This
notwithstanding, the Board of Directors of petitioner required that the
consideration be raised to P3.00 per picul.

Tuazon, after being informed of the action of the Board of Directors, asked for
a reconsideration thereof. On November 19, 1956, the Branch Manager
submitted the request for reconsideration and again recommended the approval
of the lease at P2.80 per picul, but the Board returned the recommendation
unacted, stating that the current price prevailing at that time was P3.00 per
picul.
On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no
longer interested in continuing the lease of sugar quota allotment. The crop year
1956-1957 ended and Mrs. Tapnio failed to utilize her sugar quota, resulting in
her loss in the sum of P2,800.00 which she should have received had the lease in
favor of Tuazon been implemented.

It has been clearly shown that when the Branch Manager of petitioner required
the parties to raise the consideration of the lease from P2.50 to P2.80 per
picul, or a total of P2,800-00, they readily agreed. Hence, in his letter to the
Branch Manager of the Bank on August 10, 1956, Tuazon informed him that the
minimum lease rental of P2.80 per picul was acceptable to him and that he even
offered to use the loan secured by him from petitioner to pay in full the sum of
P2,800.00 which was the total consideration of the lease. This arrangement was
not only satisfactory to the Branch Manager but it was also approves by Vice-
President J. V. Buenaventura of the PNB. Under that arrangement, Rita Gueco
Tapnio could have realized the amount of P2,800.00, which was more than
enough to pay the balance of her indebtedness to the Bank which was secured
by the bond of Philamgen.

There is no question that Tapnio's failure to utilize her sugar quota for the crop
year 1956-1957 was due to the disapproval of the lease by the Board of
Directors of petitioner. The issue, therefore, is whether or not petitioner is
liable for the damage caused.

As observed by the trial court, time is of the essence in the approval of the
lease of sugar quota allotments, since the same must be utilized during the
milling season, because any allotment which is not filled during such milling
season may be reallocated by the Sugar Quota Administration to other holders
of allotments. 3 There was no proof that there was any other person at that
time willing to lease the sugar quota allotment of private respondents for a
price higher than P2.80 per picul. "The fact that there were isolated
transactions wherein the consideration for the lease was P3.00 a picul",
according to the trial court, "does not necessarily mean that there are always
ready takers of said price. " The unreasonableness of the position adopted by
the petitioner's Board of Directors is shown by the fact that the difference
between the amount of P2.80 per picul offered by Tuazon and the P3.00 per
picul demanded by the Board amounted only to a total sum of P200.00.
Considering that all the accounts of Rita Gueco Tapnio with the Bank were
secured by chattel mortgage on standing crops, assignment of leasehold rights
and interests on her properties, and surety bonds and that she had apparently
"the means to pay her obligation to the Bank, as shown by the fact that she has
been granted several sugar crop loans of the total value of almost P80,000.00
for the agricultural years from 1952 to 1956", there was no reasonable basis
for the Board of Directors of petitioner to have rejected the lease agreement
because of a measly sum of P200.00.

While petitioner had the ultimate authority of approving or disapproving the

proposed lease since the quota was mortgaged to the Bank, the latter certainly
cannot escape its responsibility of observing, for the protection of the interest
of private respondents, that degree of care, precaution and vigilance which the
circumstances justly demand in approving or disapproving the lease of said sugar
quota. The law makes it imperative that every person "must in the exercise of
his rights and in the performance of his duties, act with justice, give everyone
his due, and observe honesty and good faith, 4 This petitioner failed to do.
Certainly, it knew that the agricultural year was about to expire, that by its
disapproval of the lease private respondents would be unable to utilize the sugar
quota in question. In failing to observe the reasonable degree of care and
vigilance which the surrounding circumstances reasonably impose, petitioner is
consequently liable for the damages caused on private respondents. Under
Article 21 of the New Civil Code, "any person who wilfully causes loss or injury
to another in a manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage." The afore-cited provisions on
human relations were intended to expand the concept of torts in this
jurisdiction by granting adequate legal remedy for the untold number of moral
wrongs which is impossible for human foresight to specifically provide in the
statutes. 5

A corporation is civilly liable in the same manner as natural persons for torts,
because "generally speaking, the rules governing the liability of a principal or
master for a tort committed by an agent or servant are the same whether the
principal or master be a natural person or a corporation, and whether the
servant or agent be a natural or artificial person. All of the authorities agree
that a principal or master is liable for every tort which he expressly directs or
authorizes, and this is just as true of a corporation as of a natural person, A
corporation is liable, therefore, whenever a tortious act is committed by an
officer or agent under express direction or authority from the stockholders or
members acting as a body, or, generally, from the directors as the governing
body." 6

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is

hereby AFFIRMED.

Fernando, Aquino, Concepcion, Jr., and Santos, JJ., concur.

Separate Opinions

BARREDO, J., concurring:

concurs on the basis of Article 19 of the Civil Code, or at least, of equity. He

reserves his opinion on the matter of torts relied upon in the main opinion.

Separate Opinions

BARREDO, J., concurring:

concurs on the basis of Article 19 of the Civil Code, or at least, of equity. He

reserves his opinion on the matter of torts relied upon in the main opinion.

McArthur v. Times Printing Co., Supreme Court of Minnesota, 51 N.W. 216

(1892)

Nimrocks and others were promoters of a corporation to publish a newspaper, and

contracted with plaintiff to be advertising solicitor for one year after the
company was formed. The corporation after formation never formally adopted
the contract, although all the stockholders, directors, and officers of the
corporation knew of the contract and didn't object, but instead retained plaintiff
as an employee. Is a corporation liable for promoters' contracts to which the
corporation implicitly accepts?

Held Yes. A corporation is not bound to a contract made by promoters before the
company's organization, but the corporation can adopt a contract as if it were
making the contract originally: by acceptance by the board of directors. The
contract must be one the corporation would have made and one for which the
agents of the corporation would have express or implied authority to make. Here
the plaintiff's employment contract was inferred from acts and/or acquiescence
on the part of the corporation.

Does the statute of frauds make the contract void because its performance was
to be completed more than a year from the date the promoters created it?

Held No. Such a theory assumes ratification under a theory of agency.

Ratification is not appropriate, because it creates the contract at a time in which
the corporation did not exist. In reality, the time of the start of the contract
was when the corporation adopted the contract, after the formation of the
corporation, which allowed less than a year for fulfillment of performance.

G.R. No. L-43350 December 23, 1937

CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff-appellant,

vs.
TEODORO SANDIKO, defendant-appellee.

Arsenio P. Dizon for appellant.

Sumulong, Lavides and Sumulong for appellee.

LAUREL, J.:

This is an appeal from a judgment of the Court of First Instance of Manila

absolving the defendant from the plaintiff's complaint.

Manuel Tabora is the registered owner of four parcels of land situated in the
barrio of Linao, town of Aparri, Province of Cagayan, as evidenced by transfer
certificate of title No. 217 of the land records of Cagayan, a copy of which is in
evidence as Exhibit 1. To guarantee the payment of a loan in the sum of P8,000,
Manuel Tabora, on August 14, 1929, executed in favor of the Philippine National
Bank a first mortgage on the four parcels of land above-mentioned. A second
mortgage in favor of the same bank was in April of 1930 executed by Tabora
over the same lands to guarantee the payment of another loan amounting to
P7,000. A third mortgage on the same lands was executed on April 16, 1930 in
favor of Severina Buzon to whom Tabora was indebted in the sum of P2,9000.
These mortgages were registered and annotations thereof appear at the back
of transfer certificate of title No. 217.

On May 31, 1930, Tabora executed a public document entitled "Escritura de

Transpaso de Propiedad Inmueble" (Exhibit A) by virtue of which the four
parcels of land owned by him was sold to the plaintiff company, said to under
process of incorporation, in consideration of one peso (P1) subject to the
mortgages in favor of the Philippine National Bank and Severina Buzon and, to
the condition that the certificate of title to said lands shall not be transferred
to the name of the plaintiff company until the latter has fully and completely
paid Tabora's indebtedness to the Philippine National Bank.

The plaintiff company filed its article incorporation with the Bureau of
Commerce and Industry on October 22, 1930 (Exhibit 2). A year later, on
October 28, 1931, the board of directors of said company adopted a resolution
(Exhibit G) authorizing its president, Jose Ventura, to sell the four parcels of
lands in question to Teodoro Sandiko for P42,000. Exhibits B, C and D were
thereafter made and executed. Exhibit B is a deed of sale executed before a
notary public by the terms of which the plaintiff sold ceded and transferred to
the defendant all its right, titles, and interest in and to the four parcels of land
described in transfer certificate in turn obligated himself to shoulder the
three mortgages hereinbefore referred to. Exhibit C is a promisory note for
P25,300. drawn by the defendant in favor of the plaintiff, payable after one
year from the date thereof. Exhibit D is a deed of mortgage executed before a
notary public in accordance with which the four parcels of land were given a
security for the payment of the promissory note, Exhibit C. All these three
instrument were dated February 15, 1932.

The defendant having failed to pay the sum stated in the promissory note,
plaintiff, on January 25, 1934, brought this action in the Court of First
Instance of Manila praying that judgment be rendered against the defendant
for the sum of P25,300, with interest at legal rate from the date of the filing
of the complaint, and the costs of the suits. After trial, the court below, on
December 18, 1934, rendered judgment absolving the defendant, with costs
against the plaintiff. Plaintiff presented a motion for new trial on January 14,
1935, which motion was denied by the trial court on January 19 of the same
year. After due exception and notice, plaintiff has appealed to this court and
makes an assignment of various errors.

In dismissing the complaint against the defendant, the court below, reached the
conclusion that Exhibit B is invalid because of vice in consent and repugnancy to
law. While we do not agree with this conclusion, we have however voted to
affirm the judgment appealed from the reasons which we shall presently state.

The transfer made by Tabora to the Cagayan fishing Development Co., Inc.,
plaintiff herein, was affected on May 31, 1930 (Exhibit A) and the actual
incorporation of said company was affected later on October 22, 1930 (Exhibit
2). In other words, the transfer was made almost five months before the
incorporation of the company. Unquestionably, a duly organized corporation has
the power to purchase and hold such real property as the purposes for which
such corporation was formed may permit and for this purpose may enter into
such contracts as may be necessary (sec. 13, pars. 5 and 9, and sec. 14, Act No.
1459). But before a corporation may be said to be lawfully organized, many
things have to be done. Among other things, the law requires the filing of
articles of incorporation (secs. 6 et seq., Act. No. 1459). Although there is a
presumption that all the requirements of law have been complied with (sec. 334,
par. 31 Code of Civil Procedure), in the case before us it can not be denied that
the plaintiff was not yet incorporated when it entered into a contract of sale,
Exhibit A. The contract itself referred to the plaintiff as "una sociedad en vias
de incorporacion." It was not even a de facto corporation at the time. Not being
in legal existence then, it did not possess juridical capacity to enter into the
contract.

Corporations are creatures of the law, and can only come into existence in
the manner prescribed by law. As has already been stated, general law
authorizing the formation of corporations are general offers to any
persons who may bring themselves within their provisions; and if
conditions precedent are prescribed in the statute, or certain acts are
required to be done, they are terms of the offer, and must be complied
with substantially before legal corporate existence can be acquired. (14 C.
J., sec. 111, p. 118.)

That a corporation should have a full and complete organization and

existence as an entity before it can enter into any kind of a contract or
transact any business, would seem to be self evident. . . . A corporation,
until organized, has no being, franchises or faculties. Nor do those
engaged in bringing it into being have any power to bind it by contract,
unless so authorized by the charter there is not a corporation nor does it
possess franchise or faculties for it or others to exercise, until it
acquires a complete existence. (Gent vs. Manufacturers and Merchant's
Mutual Insurance Company, 107 Ill., 652, 658.)
Boiled down to its naked reality, the contract here (Exhibit A) was entered into
not between Manuel Tabora and a non-existent corporation but between the
Manuel Tabora as owner of the four parcels of lands on the one hand and the
same Manuel Tabora, his wife and others, as mere promoters of a corporations
on the other hand. For reasons that are self-evident, these promoters could not
have acted as agent for a projected corporation since that which no legal
existence could have no agent. A corporation, until organized, has no life and
therefore no faculties. It is, as it were, a child in ventre sa mere. This is not
saying that under no circumstances may the acts of promoters of a corporation
be ratified by the corporation if and when subsequently organized. There are,
of course, exceptions (Fletcher Cyc. of Corps., permanent edition, 1931, vol. I,
secs. 207 et seq.), but under the peculiar facts and circumstances of the
present case we decline to extend the doctrine of ratification which would
result in the commission of injustice or fraud to the candid and
unwary.(Massachusetts rule, Abbott vs. Hapgood, 150 Mass., 248; 22 N. E. 907,
908; 5 L. R. A., 586; 15 Am. St. Rep., 193; citing English cases; Koppel vs.
Massachusetts Brick Co., 192 Mass., 223; 78 N. E., 128; Holyoke Envelope Co.,
vs. U. S. Envelope Co., 182 Mass., 171; 65 N. E., 54.) It should be observed that
Manuel Tabora was the registered owner of the four parcels of land, which he
succeeded in mortgaging to the Philippine National Bank so that he might have
the necessary funds with which to convert and develop them into fishery. He
appeared to have met with financial reverses. He formed a corporation
composed of himself, his wife, and a few others. From the articles of
incorporation, Exhibit 2, it appears that out of the P48,700, amount of capital
stock subscribed, P45,000 was subscribed by Manuel Tabora himself and P500
by his wife, Rufina Q. de Tabora; and out of the P43,300, amount paid on
subscription, P42,100 is made to appear as paid by Tabora and P200 by his wife.
Both Tabora and His wife were directors and the latter was treasurer as well.
In fact, to this day, the lands remain inscribed in Tabora's name. The defendant
always regarded Tabora as the owner of the lands. He dealt with Tabora
directly. Jose Ventura, president of the plaintiff corporation, intervened only to
sign the contract, Exhibit B, in behalf of the plaintiff. Even the Philippine
National Bank, mortgagee of the four parcels of land, always treated Tabora as
the owner of the same. (See Exhibits E and F.) Two civil suits (Nos. 1931 and
38641) were brought against Tabora in the Court of First Instance of Manila
and in both cases a writ of attachment against the four parcels of land was
issued. The Philippine National Bank threatened to foreclose its mortgages.
Tabora approached the defendant Sandiko and succeeded in the making him sign
Exhibits B, C, and D and in making him, among other things, assume the payment
of Tabora's indebtedness to the Philippine National Bank. The promisory note,
Exhibit C, was made payable to the plaintiff company so that it may not
attached by Tabora's creditors, two of whom had obtained writs of attachment
against the four parcels of land.

If the plaintiff corporation could not and did not acquire the four parcels of
land here involved, it follows that it did not possess any resultant right to
dispose of them by sale to the defendant, Teodoro Sandiko.

Some of the members of this court are also of the opinion that the transfer
from Manuel Tabora to the Cagayan Fishing Development Company, Inc., which
transfer is evidenced by Exhibit A, was subject to a condition precedent
(condicion suspensiva), namely, the payment of the mortgage debt of said
Tabora to the Philippine National Bank, and that this condition not having been
complied with by the Cagayan Fishing Development Company, Inc., the transfer
was ineffective. (Art. 1114, Civil Code; Wise & Co. vs. Kelly and Lim, 37 Phil., 696;
Manresa, vol. 8, p. 141.) However, having arrived at the conclusion that the
transfer by Manuel Tabora to the Cagayan Fishing Development Company, Inc.
was null because at the time it was affected the corporation was non-existent,
we deem it unnecessary to discuss this point.lawphil.net

The decision of the lower court is accordingly affirmed, with costs against the
appellant. So Ordered.

BUILDERS DUNTILE CO. (C) v. DUNN MFG. CO. (TP)

1) P (Samuels) received some ads from DUNN MFG. CO. (TP) showing that
its ‘duntiles’ were fireproof and cheaper.

2) After some correspondence, DUNN MFG. CO. (TP) sent its agent to
Paducah to talk to (Samuels).

3) (Samuels) told the agent that he was organizing a C to manufacture these

‘duntiles’.

4) Samuels and agent went to see 1 or 2 of the other promoters.

5) Samuels preferred to organize the C and then make the contract for the
machinery.

6) Agent wished that Samuel to order the machinery then go ahead w/ the C
afterwards.

7) 23 April- After talking w/ the other Ps in the city P (Samuels) signed the
contract ordering “machinery for making a hollow building tile” from Dunn Mfg.
Co. (TP).

8) The contract contained a provision: “Dunn Mfg. Co. (TP) agreed to furnish,
free of charge, an experienced service man for a period of 5 days to insure proper
installation and instruct your force.”

9) 6 June- machinery reached Paducah

June 16- Dunn Mfg. Co. (TP) sends person 1 to set up the machinery

10) June 20- AOI were filed by P and associates

11) Capital stock fixed at $10,000.

12) P (Samuels) has paid out or assumed to pay $5,100 for the machinery and
other expenses.

13) C stocks for this amount was ordered issued by P (Samuels).

14) Machinery was making value-less tiles.

15) Dunn Mfg. Co. (TP) sends P2 to fix it. P1 actually set-up machinery
wrongly and gave wrong formula.

16) C (Builders Duntile Co.) sues TP (Dunn Mfg. Co.) to recover on written
contract signed by P (Samuels).

HELD:

C can sue on the contract. Though there was no formal assignment of the contract
to it, C acts were an adoption of the contract no less than a formal resolution to
this effect.

It was the only person having any real interest in the due performance of the
contract, and is the proper party to recover for its breach.

To hold otherwise would be to leave a wrong w/o a remedy.

1. It was clearly understood between P (Samuels) and the other promoters

and agent of the TP (Dunn Mfg. Co. ) that the Contract was made on
behalf of the C w/c they proposed to perform.

2. The Incorporators at once took charge of the plant w/c had been bought
for it and gave Samuels stock to the amount of his expenditures.

3. P was one of the promoters and had no intention the machinery for himself.

G.R. No. L-20993 September 28, 1968

RIZAL LIGHT & ICE CO., INC., petitioner,

vs.
THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC SERVICE
COMMISSION, respondents.
----------------------------

G.R. No. L-21221 September 28, 1968

RIZAL LIGHT & ICE CO., INC., petitioner,

vs.
THE PUBLIC SERVICE COMMISSION and MORONG ELECTRIC CO.,
INC., respondents.

Amado A. Amador, Jr. for petitioner.

Atilano C. Bautista and Pompeyo F. Olivas for respondents.

ZALDIVAR, J.:

These two cases, being interrelated, are decided together.

Case G.R. No. L-20993 is a petition of the Rizal Light & Ice Co., Inc. to review
and set aside the orders of respondent Public Service Commission, 1 dated
August 20, 1962, and February 15, 1963, in PSC Case No. 39716, cancelling and
revoking the certificate of public convenience and necessity and forfeiting the
franchise of said petitioner. In the same petition, the petitioner prayed for the
issuance of a writ of preliminary injunction ex parte suspending the effectivity
of said orders and/or enjoining respondents Commission and/or Municipality of
Morong, Rizal, from enforcing in any way the cancellation and revocation of
petitioner's franchise and certificate of public convenience during the pendency
of this appeal. By resolution of March 12, 1963, this Court denied the petition
for injunction, for lack of merit.

Case G. R. L-21221 is likewise a petition of the Rizal Light & Ice Co., Inc. to
review and set aside the decision of the Commission dated March 13, 1963 in
PSC Case No. 62-5143 granting a certificate of public convenience and necessity
to respondent Morong Electric Co., Inc. 2 to operate an electric light, heat and
power service in the municipality of Morong, Rizal. In the petition Rizal Light &
Ice Co., Inc. also prayed for the issuance of a writ of preliminary injunction ex
parte suspending the effectivity of said decision. Per resolution of this Court,
dated May 6, 1963, said petition for injunction was denied.

The facts, as they appear in the records of both cases, are as follows:

Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation with business
address at Morong, Rizal. On August 15, 1949, it was granted by the Commission
a certificate of public convenience and necessity for the installation, operation
and maintenance of an electric light, heat and power service in the municipality
of Morong, Rizal.

In an order dated December 19, 1956, the Commission required the petitioner
to appear before it on February 18, 1957 to show cause why it should not be
penalized for violation of the conditions of its certificate of public convenience
and the regulations of the Commission, and for failure to comply with the
directives to raise its service voltage and maintain them within the limits
prescribed in the Revised Order No. 1 of the Commission, and to acquire and
install a kilowattmeter to indcate the load in kilowatts at any particular time of
the generating unit. 3

For failure of the petitioner to appear at the hearing on February 18, 1957, the
Commission ordered the cancellation and revocation of petitioner's certificate
of public convenience and necessity and the forfeiture of its franchise.
Petitioner moved for reconsideration of said order on the ground that its
manager, Juan D. Francisco, was not aware of said hearing. Respondent
municipality opposed the motion alleging that petitioner has not rendered
efficient and satisfactory service and has not complied with the requirements
of the Commission for the improvement of its service. The motion was set for
hearing and Mr. Pedro S. Talavera, Chief, Industrial Division of the Commission,
was authorized to conduct the hearing for the reception of the evidence of the
parties. 4

Finding that the failure of the petitioner to appear at the hearing set for
February 18, 1957 — the sole basis of the revocation of petitioner's certificate
— was really due to the illness of its manager, Juan D. Francisco, the
Commission set aside its order of revocation. Respondent municipality moved for
reconsideration of this order of reinstatement of the certificate, but the
motion was denied.

In a petition dated June 25, 1958, filed in the same case, respondent
municipality formally asked the Commission to revoke petitioner's certificate of
public convenience and to forfeit its franchise on the ground, among other
things, that it failed to comply with the conditions of said certificate and
franchise. Said petition was set for hearing jointly with the order to show
cause. The hearings had been postponed several times.

Meanwhile, inspections had been made of petitioner's electric plant and

installations by the engineers of the Commission, as follows: April 15, 1958 by
Engineer Antonio M. Alli; September 18, 1959, July 12-13, 1960, and June 21-24,
1961, by Engineer Meliton S. Martinez. The inspection on June 21-24, 1961 was
made upon the request of the petitioner who manifested during the hearing on
December 15, 1960 that improvements have been made on its service since the
inspection on July 12-13, 1960, and that, on the basis of the inspection report to
be submitted, it would agree to the submission of the case for decision without
further hearing.

When the case was called for hearing on July 5, 1961, petitioner failed to
appear. Respondent municipality was then allowed to present its documentary
evidence, and thereafter the case was submitted for decision.

On July 7, 1961, petitioner filed a motion to reopen the case upon the ground
that it had not been furnished with a copy of the report of the June 21-24,
1961 inspection for it to reply as previously agreed. In an order dated August
25, 1961, petitioner was granted a period of ten (10) days within which to submit
its written reply to said inspection report, on condition that should it fail to do
so within the said period the case would be considered submitted for decision.
Petitioner failed to file the reply. In consonance with the order of August 25,
1961, therefore, the Commission proceeded to decide the case. On July 29,
1962 petitioner's electric plant was burned.

In its decision, dated August 20, 1962, the Commission, on the basis of the
inspection reports of its aforenamed engineers, found that the petitioner had
failed to comply with the directives contained in its letters dated May 21, 1954
and September 4, 1954, and had violated the conditions of its certificate of
public convenience as well as the rules and regulations of the Commission. The
Commission concluded that the petitioner "cannot render the efficient,
adequate and satisfactory electric service required by its certificate and that
it is against public interest to allow it to continue its operation." Accordingly, it
ordered the cancellation and revocation of petitioner's certificate of public
convenience and the forfeiture of its franchise.

On September 18, 1962, petitioner moved for reconsideration of the decision,

alleging that before its electric plant was burned on July 29, 1962, its service
was greatly improved and that it had still existing investment which the
Commission should protect. But eight days before said motion for
reconsideration was filed, or on September 10, 1962, Morong Electric, having
been granted a municipal franchise on May 6, 1962 by respondent municipality to
install, operate and maintain an electric heat, light and power service in said
municipality — approved by the Provincial Board of Rizal on August 31, 1962 —
filed with the Commission an application for a certificate of public convenience
and necessity for said service. Said application was entitled "Morong Electric
Co., Inc., Applicant", and docketed as Case No. 62-5143.

Petitioner opposed in writing the application of Morong Electric, alleging among

other things, that it is a holder of a certificate of public convenience to operate
an electric light, heat and power service in the same municipality of Morong,
Rizal, and that the approval of said application would not promote public
convenience, but would only cause ruinous and wasteful competition. Although
the opposition is dated October 6, 1962, it was actually received by the
Commission on November 8, 1962, or twenty four days after the order of
general default was issued in open court when the application was first called
for hearing on October 15, 1962. On November 12, 1962, however, the
petitioner filed a motion to lift said order of default. But before said motion
could be resolved, petitioner filed another motion, dated January 4, 1963, this
time asking for the dismissal of the application upon the ground that applicant
Morong Electric had no legal personality when it filed its application on
September 10, 1962, because its certificate of incorporation was issued by the
Securities and Exchange Commission only on October 17, 1962. This motion to
dismiss was denied by the Commission in a formal order issued on January 17,
1963 on the premise that applicant Morong Electric was a de facto corporation.
Consequently, the case was heard on the merits and both parties presented
their respective evidence. On the basis of the evidence adduced, the
Commission, in its decision dated March 13, 1963, found that there was an
absence of electric service in the municipality of Morong and that applicant
Morong Electric, a Filipino-owned corporation duly organized and existing under
the laws of the Philippines, has the financial capacity to maintain said service.
These circumstances, considered together with the denial of the motion for
reconsideration filed by petitioner in Case No. 39715 on February, 15, 1963,
such that as far as the Commission was concerned the certificate of the
petitioner was already declared revoked and cancelled, the Commission approved
the application of Morong Electric and ordered the issuance in its favor of the
corresponding certificate of public convenience and necessity.1awphîl.nèt

On March 8, 1963, petitioner filed with this Court a petition to review the
decision in Case No. 39715 (now G. R. No. L-20993). Then on April 26, 1963,
petitioner also filed a petition to review the decision in Case No. 62-5143 (now
G. R. No. L-21221).

In questioning the decision of the Commission in Case No. 39715, petitioner

contends: (1) that the Commission acted without or in excess of its jurisdiction
when it delegated the hearing of the case and the reception of evidence to Mr.
Pedro S. Talavera who is not allowed by law to hear the same; (2) that the
cancellation of petitioner's certificate of public convenience was unwarranted
because no sufficient evidence was adduced against the petitioner and that
petitioner was not able to present evidence in its defense; (3) that the
Commission failed to give protection to petitioner's investment; and (4) that the
Commission erred in imposing the extreme penalty of revocation of the
certificate.

In questioning the decision in Case No. 62-5143, petitioner contends: (1) that
the Commission erred in denying petitioner's motion to dismiss and proceeding
with the hearing of the application of the Morong Electric; (2) that the
Commission erred in granting Morong Electric a certificate of public
convenience and necessity since it is not financially capable to render the
service; (3) that the Commission erred when it made findings of facts that are
not supported by the evidence adduced by the parties at the trial; and (4) that
the Commission erred when it did not give to petitioner protection to its
investment — a reiteration of the third assignment of error in the other
case.1awphîl.nèt

We shall now discuss the appeals in these two cases separately.

G.R. No. L-20993

1. Under the first assignment of error, petitioner contends that while Mr. Pedro
S. Talavera, who conducted the hearings of the case below, is a division chief,
he is not a lawyer. As such, under Section 32 of Commonwealth Act No. 146, as
amended, the Commission should not have delegated to him the authority to
conduct the hearings for the reception of evidence of the parties.

We find that, really, Mr. Talavera is not a lawyer. 5 Under the second paragraph
of Section 32 of Commonwealth Act No. 146, as amended, 6 the Commission can
only authorize a division chief to hear and investigate a case filed before it if
he is a lawyer. However, the petitioner is raising this question for the first time
in this appeal. The record discloses that petitioner never made any objection to
the authority of Mr. Talavera to hear the case and to receive the evidence of
the parties. On the contrary, we find that petitioner had appeared and
submitted evidence at the hearings conducted by Mr. Talavera, particularly the
hearings relative to the motion for reconsideration of the order of February 18,
1957 cancelling and revoking its certificate. We also find that, through counsel,
petitioner had entered into agreements with Mr. Talavera, as hearing officer,
and the counsel for respondent municipality, regarding procedure in order to
abbreviate the proceedings. 7 It is only after the decision in the case turned out
to be adverse to it that petitioner questioned the proceedings held before Mr.
Talavera.

This Court in several cases has ruled that objection to the delegation of
authority to hear a case filed before the Commission and to receive the
evidence in connection therewith is a procedural, not a jurisdictional point, and
is waived by failure to interpose timely the objection and the case had been
decided by the Commission. 8 Since petitioner has never raised any objection to
the authority of Mr. Talavera before the Commission, it should be deemed to
have waived such procedural defect, and consonant with the precedents on the
matter, petitioner's claim that the Commission acted without or in excess of
jurisdiction in so authorizing Mr. Talavera should be dismissed. 9

2. Anent the second assigned error, the gist of petitioner's contention is that
the evidence — consisting of inspection reports — upon which the Commission
based its decision is insufficient and untrustworthy in that (1) the authors of
said reports had not been put to test by way of cross-examination; (2) the
reports constitute only one side of the picture as petitioner was not able to
present evidence in its defense; (3) judicial notice was not taken of the
testimony of Mr. Harry B. Bernardino, former mayor of respondent municipality,
in PSC Case No. 625143 (the other case, G. R. No. L-21221) to the effect that
the petitioner had improved its service before its electric power plant was
burned on July 29, 1962 — which testimony contradicts the inspection reports;
and (4) the Commission acted both as prosecutor and judge — passing judgment
over the very same evidence presented by it as prosecutor — a situation "not
conducive to the arrival at just and equitable decisions."

Settled is the rule that in reviewing the decision of the Public Service
Commission this Court is not required to examine the proof de novo and
determine for itself whether or not the preponderance of evidence really
justifies the decision. The only function of this Court is to determine whether
or not there is evidence before the Commission upon which its decision might
reasonably be based. This Court will not substitute its discretion for that of the
Commission on questions of fact and will not interfere in the latter's decision
unless it clearly appears that there is no evidence to support it. 10 Inasmuch as
the only function of this Court in reviewing the decision of the Commission is to
determine whether there is sufficient evidence before the Commission upon
which its decision can reasonably be based, as it is not required to examine the
proof de novo, the evidence that should be made the basis of this Court's
determination should be only those presented in this case before the
Commission. What then was the evidence presented before the Commission and
made the basis of its decision subject of the present appeal? As stated earlier,
the Commission based its decision on the inspection reports submitted by its
engineers who conducted the inspection of petitioner's electric service upon
orders of the Commission. 11 Said inspection reports specify in detail the
deficiencies incurred, and violations committed, by the petitioner resulting in
the inadequacy of its service. We consider that said reports are sufficient to
serve reasonably as bases of the decision in question. It should be emphasized,
in this connection that said reports, are not mere documentary proofs
presented for the consideration of the Commission, but are the results of the
Commission's own observations and investigations which it can rightfully take
into consideration, 12 particularly in this case where the petitioner had not
presented any evidence in its defense, and speaking of petitioner's failure to
present evidence, as well as its failure to cross-examine the authors of the
inspection reports, petitioner should not complain because it had waived not only
its right to cross-examine but also its right to present evidence. Quoted
hereunder are the pertinent portions of the transcripts of the proceedings
where the petitioner, through counsel, manifested in clear language said waiver
and its decision to abide by the last inspection report of Engineer Martinez:

Proceedings of December 15, 1960

COMMISSION:

It appears at the last hearing of this case on September 23, 1960, that an
engineer of this Commission has been ordered to make an inspection of all
electric services in the province of Rizal and on that date the engineer of this
Commission is still undertaking that inspection and it appears that the said
engineer had actually made that inspection on July 12 and 13, 1960. The
engineer has submitted his report on November 18, 1960 which is attached to
the records of this case.

ATTY. LUQUE (Councel for Petitioner):

... (W)e respectfully state that while the report is, as I see it attached to the
records, clear and very thorough, it was made sometime July of this year and I
understand from the respondent that there is some improvement since this
report was made ... we respectfully request that an up-to-date inspection be
made ... . An inspector of this Commission can be sent to the plant and
considering that the engineer of this Commission, Engineer Meliton Martinez, is
very acquainted to the points involved we pray that his report will be used by us
for the reason that he is a technical man and he knows well as he has done a
good job and I think our proposition would expedite the matter. We sincerely
believe that the inspection report will be the best evidence to decide this
matter.

xxx xxx xxx

ATTY. LUQUE:

... This is a very important matter and to show the good faith of respondent in
this case we will not even cross-examine the engineer when he makes a new
report. We will agree to the findings and, your honor please, considering as we
have manifested before that Engineer Martinez is an experienced engineer of
this Commission and the points reported by Engineer Martinez on the situation
of the plant now will prevent the necessity of having a hearing, of us bringing
new evidence and complainant bringing new evidence. ... .

xxx xxx xxx

COMMISSION (to Atty. Luque):

Q Does the Commission understand from the counsel for applicant

that if the motion is granted he will submit this order to show cause for
decision without any further hearing and the decision will be based on the
report of the engineer of this Commission?

A We respectfully reply in this manner that we be allowed or be

given an opportunity just to read the report and 99%, we will agree that
the report will be the basis of that decision. We just want to find out the
contents of the report, however, we request that we be furnished with a
copy of the report before the hearing so that we will just make a
manifestation that we will agree.

COMMISSION (to Atty. Luque):

Q In order to prevent the delay of the disposition of this case the

Commission will allow counsel for the applicant to submit his written reply
to the report that the engineer of this Commission. Will he submit this
case without further hearing upon the receipt of that written reply?

A Yes, your honor.

Proceedings of August 25, 1961

ATTY. LUQUE (Counsel for petitioner):

In order to avoid any delay in the consideration of this case we are respectfully
move (sic) that instead of our witnesses testifying under oath that we will
submit a written reply under oath together with the memorandum within fifteen
(15) days and we will furnish a copy and upon our submission of said written
reply under oath and memorandum we consider this case submitted. This
suggestion is to abbreviate the necessity of presenting witnesses here which
may prolong the resolution of this case.

ATTY. OLIVAS (Counsel for respondent municipality):

I object on the ground that there is no resolution by this Commission on the

action to reopen the case and second this case has been closed.

ATTY. LUQUE:

With regard to the testimony on the ground for opposition we respectfully

submit to this Commission our motion to submit a written reply together with a
memorandum. Also as stated to expedite the case and to avoid further hearing
we will just submit our written reply. According to our records we are furnished
with a copy of the report of July 17, 1961. We submit your honor.

xxx xxx xxx

COMMISSION:

To give applicant a chance to have a day in court the Commission grants the
request of applicant that it be given 10 days within which to submit a written
reply on the report of the engineer of the Commission who inspected the
electric service, in the municipality of Morong, Rizal, and after the submission
of the said written reply within 10 days from today this case will be considered
submitted for decision.

The above-quoted manifestation of counsel for the petitioner, specifically the

statement referring to the inspection report of Engineer Martinez as the "best
evidence to decide this matter," can serve as an argument against petitioner's
claim that the Commision should have taken into consideration the testimony of
Mr. Bernardino. But the primary reasons why the Commission could not have
taken judicial cognizance of said testimony are: first, it is not a proper subject
of judicial notice, as it is not a "known" fact — that is, well established and
authoritatively settled, without qualification and contention; 13 second, it was
given in a subsequent and distinct case after the petitioner's motion for
reconsideration was heard by the Commission en banc and submitted for
decision, 14 and third, it was not brought to the attention of the Commission in
this case through an appropriate pleading. 15

Regarding the contention of petitioner that the Commission had acted both as
prosecutor and judge, it should be considered that there are two matters that
had to be decided in this case, namely, the order to show cause dated December
19, 1956, and the petition or complaint by respondent municipality dated June
25, 1958. Both matters were heard jointly, and the record shows that
respondent municipality had been allowed to present its evidence to
substantiate its complaint. It can not be said, therefore, that in this case the
Commission had acted as prosecutor and judge. But even assuming, for the sake
of argument, that there was a commingling of the prosecuting and investigating
functions, this exercise of dual function is authorized by Section 17(a) of
Commonwealth Act No. 146, as amended, under which the Commission has power
"to investigate, upon its own initiative or upon complaint in writing, any matter
concerning any public service as regards matters under its jurisdiction; to,
require any public service to furnish safe, adequate, and proper service as the
public interest may require and warrant; to enforce compliance with any
standard, rule, regulation, order or other requirement of this Act or of the
Commission ... ." Thus, in the case of Collector of Internal Revenue vs. Estate of
F. P. Buan, L-11438, July 31, 1958, this Court held that the power of the
Commission to cancel and revoke a certificate of public convenience and
necessity may be exercised by it even without a formal charge filed by any
interested party, with the only limitation that the holder of the certificate
should be given his day in court.

It may not be amiss to add that when prosecuting and investigating duties are
delegated by statute to an administrative body, as in the case of the Public
Service Commission, said body may take steps it believes appropriate for the
proper exercise of said duties, particularly in the manner of informing itself
whether there is probable violation of the law and/or its rules and regulations.
It may initiate an investigation, file a complaint, and then try the charge as
preferred. So long as the respondent is given a day in court, there can be no
denial of due process, and objections to said procedure cannot be sustained.

3. In its third assignment of error, petitioner invokes the "protection-of-

investment rule" enunciated by this Court in Batangas Transportation Co. vs.
Orlanes 16 in this wise:

The Government having taken over the control and supervision of all
public utilities, so long as an operator under a prior license complies with
the terms and conditions of his license and reasonable rules and
 regulations for its operation and meets the reasonable demands of the
public, it is the duty of the Commission to protect rather than to destroy
his investment by the granting of the second license to another person
for the same thing over the same route of travel. The granting of such a
license does not serve its convenience or promote the interests of the
public.

The above-quoted rule, however, is not absolute, for nobody has exclusive right
to secure a franchise or a certificate of public convenience. 17 Where, as in the
present case, it has been shown by ample evidence that the petitioner, despite
ample time and opportunity given to it by the Commission, had failed to render
adequate, sufficient and satisfactory service and had violated the important
conditions of its certificate as well as the directives and the rules and
regulations of the Commission, the rule cannot apply. To apply that rule
unqualifiedly is to encourage violation or disregard of the terms and conditions
of the certificate and the Commission's directives and regulations, and would
close the door to other applicants who could establish, operate and provide
adequate, efficient and satisfactory service for the benefit and convenience of
the inhabitants. It should be emphasized that the paramount consideration
should always be the public interest and public convenience. The duty of the
Commission to protect investment of a public utility operator refers only to
operators of good standing — those who comply with the laws, rules and
regulations — and not to operators who are unconcerned with the public interest
and whose investments have failed or deteriorated because of their own fault. 18

4. The last assignment of error assails the propriety of the penalty imposed by
the Commission on the petitioner — that is, the revocation of the certificate
and the forfeiture of the franchise. Petitioner contends that the imposition of
a fine would have been sufficient, as had been done by the Commission in cases
of a similar nature.

It should be observed that Section 16(n) of Commonwealth Act No. 146, as

amended, confers upon the Commission ample power and discretion to order the
cancellation and revocation of any certificate of public convenience issued to an
operator who has violated, or has willfully and contumaciously refused to comply
with, any order, rule or regulation of the Commission or any provision of law.
What matters is that there is evidence to support the action of the Commission.
In the instant case, as shown by the evidence, the contumacious refusal of the
petitioner since 1954 to comply with the directives, rules and regulations of the
Commission, its violation of the conditions of its certificate and its incapability
to comply with its commitment as shown by its inadequate service, were the
circumstances that warranted the action of the Commission in not merely
imposing a fine but in revoking altogether petitioner's certificate. To allow
petitioner to continue its operation would be to sacrifice public interest and
convenience in favor of private interest.

A grant of a certificate of public convenience confers no property rights

but is a mere license or privilege, and such privilege is forfeited when the
grantee fails to comply with his commitments behind which lies the
paramount interest of the public, for public necessity cannot be made to
wait, nor sacrificed for private convenience. (Collector of Internal
Revenue v. Estate of F. P. Buan, et al., L-11438 and Santiago Sambrano, et
al. v. PSC, et al., L-11439 & L-11542-46, July 31, 1958)

(T)he Public Service Commission, ... has the power to specify and define
the terms and conditions upon which the public utility shall be operated,
and to make reasonable rules and regulations for its operation and the
compensation which the utility shall receive for its services to the public,
and for any failure to comply with such rules and regulations or the
violation of any of the terms and conditions for which the license was
granted, the Commission has ample power to enforce the provisions of the
license or even to revoke it, for any failure or neglect to comply with any
of its terms and provisions. (Batangas Trans. Co. v. Orlanes, 52 Phil. 455,
460; emphasis supplied)

Presumably, the petitioner has in mind Section 21 of Commonwealth Act No. 146,
as amended, which provides that a public utility operator violating or failing to
comply with the terms and conditions of any certificate, or any orders,
decisions or regulations of the Commission, shall be subject to a fine and that
the Commission is authorized and empowered to impose such fine, after due
notice and hearing. It should be noted, however, that the last sentence of said
section states that the remedy provided therein "shall not be a bar to, or
affect any other remedy provided in this Act but shall be cumulative and
additional to such remedy or remedies." In other words, the imposition of a fine
may only be one of the remedies which the Commission may resort to, in its
discretion. But that remedy is not exclusive of, or has preference over, the
other remedies. And this Court will not substitute its discretion for that of the
Commission, as long as there is evidence to support the exercise of that
discretion by the Commission.

G. R. No. L-21221

Coming now to the other case, let it be stated at the outset that before any
certificate may be granted, authorizing the operation of a public service, three
requisites must be complied with, namely: (1) the applicant must be a citizen of
the Philippines or of the United States, or a corporation or co-partnership,
association or joint-stock company constituted and organized under the laws of
the Philippines, sixty per centum at least of the stock or paid-up capital of
which belongs entirely to citizens of the Philippines or of the United
States; 19 (2) the applicant must be financially capable of undertaking the
proposed service and meeting the responsibilities incident to its
operation; 20 and (3) the applicant must prove that the operation of the public
service proposed and the authorization to do business will promote the public
interest in a proper and suitable manner. 21

As stated earlier, in the decision appealed from, the Commission found that
Morong Electric is a corporation duly organized and existing under the laws of
the Philippines, the stockholders of which are Filipino citizens, that it is
financially capable of operating an electric light, heat and power service, and
that at the time the decision was rendered there was absence of electric
service in Morong, Rizal. While the petitioner does not dispute the need of an
electric service in Morong, Rizal, 22 it claims, in effect, that Morong Electric
should not have been granted the certificate of public convenience and
necessity because (1) it did not have a corporate personality at the time it was
granted a franchise and when it applied for said certificate; (2) it is not
financially capable of undertaking an electric service, and (3) petitioner was
rendering efficient service before its electric plant was burned, and therefore,
being a prior operator its investment should be protected and no new party
should be granted a franchise and certificate of public convenience and
necessity to operate an electric service in the same locality.

1. The bulk of petitioner's arguments assailing the personality of Morong

Electric dwells on the proposition that since a franchise is a contract, 23 at least
two competent parties are necessary to the execution thereof, and parties are
not competent except when they are in being. Hence, it is contended that until a
corporation has come into being, in this jurisdiction, by the issuance of a
certificate of incorporation by the Securities and Exchange Commission (SEC) it
cannot enter into any contract as a corporation. The certificate of incorporation
of the Morong Electric was issued by the SEC on October 17, 1962, so only from
that date, not before, did it acquire juridical personality and legal existence.
Petitioner concludes that the franchise granted to Morong Electric on May 6,
1962 when it was not yet in esse is null and void and cannot be the subject of
the Commission's consideration. On the other hand, Morong Electric argues, and
to which argument the Commission agrees, that it was a de facto corporation at
the time the franchise was granted and, as such, it was not incapacitated to
enter into any contract or to apply for and accept a franchise. Not having been
incapacitated, Morong Electric maintains that the franchise granted to it is
valid and the approval or disapproval thereof can be properly determined by the
Commission.

Petitioner's contention that Morong Electric did not yet have a legal personality
on May 6, 1962 when a municipal franchise was granted to it is correct. The
juridical personality and legal existence of Morong Electric began only on
October 17, 1962 when its certificate of incorporation was issued by the
SEC. 24 Before that date, or pending the issuance of said certificate of
incorporation, the incorporators cannot be considered as de
facto corporation. 25 But the fact that Morong Electric had no corporate
existence on the day the franchise was granted in its name does not render the
franchise invalid, because later Morong Electric obtained its certificate of
incorporation and then accepted the franchise in accordance with the terms and
conditions thereof. This view is sustained by eminent American authorities.
Thus, McQuiuin says:

The fact that a company is not completely incorporated at the time the
grant is made to it by a municipality to use the streets does not, in most
jurisdictions, affect the validity of the grant. But such grant cannot take
effect until the corporation is organized. And in Illinois it has been
decided that the ordinance granting the franchise may be presented
before the corporation grantee is fully organized, where the organization
is completed before the passage and acceptance. (McQuillin, Municipal
Corporations, 3rd Ed., Vol. 12, Chap. 34, Sec. 34.21)

Fletcher says:

While a franchise cannot take effect until the grantee corporation is

organized, the franchise may, nevertheless, be applied for before the
company is fully organized.

A grant of a street franchise is valid although the corporation is not

created until afterwards. (Fletcher, Cyclopedia Corp. Permanent Edition,
Rev. Vol. 6-A, Sec. 2881)

And Thompson gives the reason for the rule:

(I)n the matter of the secondary franchise the authorities are numerous
in support of the proposition that an ordinance granting a privilege to a
corporation is not void because the beneficiary of the ordinance is not
fully organized at the time of the introduction of the ordinance. It is
 enough that organization is complete prior to the passage and acceptance
of the ordinance. The reason is that a privilege of this character is a
mere license to the corporation until it accepts the grant and complies
with its terms and conditions. (Thompson on Corporations, Vol. 4, 3rd Ed.,
Sec. 2929) 26

The incorporation of Morong Electric on October 17, 1962 and its acceptance of
the franchise as shown by its action in prosecuting the application filed with the
Commission for the approval of said franchise, not only perfected a contract
between the respondent municipality and Morong Electric but also cured the
deficiency pointed out by the petitioner in the application of Morong EIectric.
Thus, the Commission did not err in denying petitioner's motion to dismiss said
application and in proceeding to hear the same. The efficacy of the franchise,
however, arose only upon its approval by the Commission on March 13, 1963. The
reason is that —

Under Act No. 667, as amended by Act No. 1022, a municipal council has
the power to grant electric franchises, subject to the approval of the
provincial board and the President. However, under Section 16(b) of
Commonwealth Act No. 146, as amended, the Public Service Commission is
empowered "to approve, subject to constitutional limitations any
franchise or privilege granted under the provisions of Act No. 667, as
amended by Act No. 1022, by any political subdivision of the Philippines
when, in the judgment of the Commission, such franchise or privilege will
properly conserve the public interests and the Commission shall in so
approving impose such conditions as to construction, equipment,
maintenance, service, or operation as the public interests and convenience
may reasonably require, and to issue certificates of public convenience
and necessity when such is required or provided by any law or franchise."
Thus, the efficacy of a municipal electric franchise arises, therefore,
only after the approval of the Public Service Commission. (Almendras vs.
Ramos, 90 Phil. 231) .

The conclusion herein reached regarding the validity of the franchise granted
to Morong Electric is not incompatible with the holding of this Court in Cagayan
Fishing Development Co., Inc. vs. Teodoro Sandiko 27upon which the petitioner
leans heavily in support of its position. In said case this Court held that a
corporation should have a full and complete organization and existence as an
entity before it can enter into any kind of a contract or transact any business.
It should be pointed out, however, that this Court did not say in that case that
the rule is absolute or that under no circumstances may the acts of promoters
of a corporation be ratified or accepted by the corporation if and when
subsequently organized. Of course, there are exceptions. It will be noted that
American courts generally hold that a contract made by the promoters of a
corporation on its behalf may be adopted, accepted or ratified by the
corporation when organized. 28

2. The validity of the franchise and the corporate personality of Morong

Electric to accept the same having been shown, the next question to be resolved
is whether said company has the financial qualification to operate an electric
light, heat and power service. Petitioner challenges the financial capability of
Morong Electric, by pointing out the inconsistencies in the testimony of Mr.
Jose P. Ingal, president of said company, regarding its assets and the amount of
its initial investment for the electric plant. In this connection it should be
stated that on the basis of the evidence presented on the matter, the
Commission has found the Morong Electric to be "financially qualified to install,
maintain and operate the proposed electric light, heat and power service." This
is essentially a factual determination which, in a number of cases, this Court has
said it will not disturb unless patently unsupported by evidence. An examination
of the record of this case readily shows that the testimony of Mr. Ingal and the
documents he presented to establish the financial capability of Morong Electric
provide reasonable grounds for the above finding of the Commission.

It is now a very well-settled rule in this jurisdiction that the findings and
conclusions of fact made by the Public Service Commission, after weighing
the evidence adduced by the parties in a public service case, will not be
disturbed by the Supreme Court unless those findings and conclusions
appear not to be reasonably supported by evidence. (La Mallorca and
Pampanga Bus Co. vs. Mercado, L-19120, November 29, 1965)

For purposes of appeal, what is decisive is that said testimonial evidence

provides reasonable support for the Public Service Commission's findings
of financial capacity on the part of applicants, rendering such findings
beyond our power to disturb. (Del Pilar Transit vs. Silva, L-21547, July 15,
1966)

It may be worthwhile to mention in this connection that per inspection report

dated January 20, 1964 29 of Mr. Meliton Martinez of the Commission, who
inspected the electric service of Morong on January 15-16, 1964, Morong
Electric "is serving electric service to the entire area covered by its approved
plan and has constructed its line in accordance with the plans and specifications
approved by the Commission." By reason thereof, it was recommended that the
requests of Morong Electric (1) for the withdrawal of its deposit in the amount
of P1,000.00 with the Treasurer of the Philippines, and (2) for the approval of
Resolution No. 160 of the Municipal Council of Morong, Rizal, exempting the
operator from making the additional P9,000.00 deposit mentioned in its petition,
dated September 16, 1963, be granted. This report removes any doubt as to the
financial capability of Morong Electric to operate and maintain an electric light,
heat and power service.

3. With the financial qualification of Morong Electric beyond doubt, the

remaining question to be resolved is whether, or not, the findings of fact of the
Commission regarding petitioner's service are supported by evidence. It is the
contention of the petitioner that the Commission made some findings of fact
prejudicial to its position but which do not find support from the evidence
presented in this case. Specifically, petitioner refers to the statements or
findings that its service had "turned from bad to worse," that it miserably
failed to comply with the oft-repeated promises to bring about the needed
improvement, that its equipment is unserviceable, and that it has no longer any
plant site and, therefore, has discredited itself. Petitioner further states that
such statements are not only devoid of evidentiary support but contrary to the
testimony of its witness, Mr. Harry Bernardino, who testified that petitioner
was rendering efficient and satisfactory service before its electric plant was
burned on July 29, 1962.

On the face of the decision appealed from, it is obvious that the Commission in
describing the kind of service petitioner was rendering before its certificate
was ordered revoked and cancelled, took judicial notice of the records of the
previous case (PSC Case No. 39715) where the quality of petitioner's service
had been squarely put in issue. It will be noted that the findings of the
Commission were made notwithstanding the fact that the aforementioned
testimony of Mr. Bernardino had been emphasized and pointed out in
petitioner's Memorandum to the Commission. 30 The implication is simple: that as
between the testimony of Mr. Bernardino and the inspection reports of the
engineers of the Commission, which served as the basis of the revocation order,
the Commission gave credence to the latter. Naturally, whatever conclusion or
finding of fact that the Commission arrived at regarding the quality of
petitioner's service are not borne out by the evidence presented in this case
but by evidence in the previous case. 31 In this connection, we repeat, the
conclusion, arrived at by the Commission after weighing the conflicting evidence
in the two related cases, is a conclusion of fact which this Court will not disturb.

And it has been held time and again that where the Commission has
reached a conclusion of fact after weighing the conflicting evidence, that
conclusion must be respected, and the Supreme Court will not interfere
unless it clearly appears that there is no evidence to support the decision
 of the Commission. (La Mallorca and Pampanga Bus Co., Inc. vs. Mercado,
L-19120, November 29, 1965 citing Pangasinan Trans. Co., Inc. vs. Dela
Cruz, 96 Phil. 278)

For that matter, petitioner's pretension that it has a prior right to the
operation of an electric service in Morong, Rizal, is not tenable; and its plea for
protection of its investment, as in the previous case, cannot be entertained.

WHEREFORE, the two decisions of the Public Service Commission, appealed

from, should be, as they are hereby affirmed, with costs in the two cases
against petitioner Rizal Light & Ice Co., Inc. It is so ordered.