1.

MANILA INTERNATIONAL AIRPORT AUTHORITY VS CA

FACTS: Petitioner) operates the Ninoy Aquino International Airport (NAIA) Complex in
Paraaque City under Executive Order No. 903, otherwise known as the Revised Charter of the
Manila International Airport Authority ("MIAA Charter"). MIAA administers the land,
improvements and equipment within the NAIA Complex. The MIAA Charter transferred to MIAA
approximately 600 hectares of land, including the runways and buildings ("Airport Lands and
Buildings") then under the Bureau of Air Transportation.
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion
No. 061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption
from real estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA
negotiated with respondent City of Paraaque to pay the real estate tax imposed by the City.
MIAA then paid some of the real estate tax already due.
On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and
warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque
threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the
real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061. The
OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real
estate tax. On 1 October 2001, MIAA filed with the Court of Appeals an original petition for
prohibition and injunction, with prayer for preliminary injunction or temporary restraining order.
The petition sought to restrain the City of Paraaque from imposing real estate tax on, levying
against, and auctioning for public sale the Airport Lands and Buildings.
ISSUE: whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under
existing laws.
HELD: YES. First, MIAA is not a government-owned or controlled corporation but an
instrumentality of the National Government and thus exempt from local taxation. Second,
the real properties of MIAA are owned by the Republic of the Philippines and thus
exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
There is no dispute that a government-owned or controlled corporation is not exempt from real
estate tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13)
of the Introductory Provisions of the Administrative Code of 1987 defines a government-owned
or controlled corporation as follows:
SEC. 2. General Terms Defined. x x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or
non-stock corporation, vested with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock corporations, to the extent of at least
fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized as a stock or nonstock corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is
not a stock corporation because it has no capital stock divided into shares. MIAA has no
stockholders or voting shares. Section 10 of the MIAA Charter provides:

SECTION 10. Capital. The capital of the Authority to be contributed by the National
Government shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesos to
Ten Billion (P10,000,000,000.00) Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways and equipment and such other
properties, movable and immovable[,] which may be contributed by the National Government or
transferred by it from any of its agencies, the valuation of which shall be determined jointly with
the Department of Budget and Management and the Commission on Audit on the date of such
contribution or transfer after making due allowances for depreciation and other deductions
taking into account the loans and other liabilities of the Authority at the time of the takeover of
the assets and other properties;
(b) That the amount of P605 million as of December 31, 1986 representing about seventy
percentum (70%) of the unremitted share of the National Government from 1983 to 1986 to be
remitted to the National Treasury as provided for in Section 11 of E. O. No. 903 as amended,
shall be converted into the equity of the National Government in the Authority. Thereafter, the
Government contribution to the capital of the Authority shall be provided in the General
Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital stock is
divided into shares and x x x authorized to distribute to the holders of such shares dividends x x
x." MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or
voting shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or officers." A non-stock corporation must
have members. Even if we assume that the Government is considered as the sole member of
MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute
any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to
remit 20% of its annual gross operating income to the National Treasury.11 This prevents MIAA
from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are "organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific,
social, civil service, or similar purposes, like trade, industry, agriculture and like chambers."
MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate
an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
government-owned or controlled corporation. What then is the legal status of MIAA within the
National Government?
MIAA is a government instrumentality vested with corporate powers to perform
efficiently its governmental functions. MIAA is like any other government instrumentality, the
only difference is that MIAA is vested with corporate powers. Section 2(10) of the Introductory
Provisions of the Administrative Code defines a government "instrumentality" as follows:
SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some
if not all corporate powers, administering special funds, and enjoying operational autonomy,
usually through a charter. x x x (Emphasis supplied)
When the law vests in a government instrumentality corporate powers, the instrumentality does
not become a corporation. Unless the government instrumentality is organized as a stock or
non-stock corporation, it remains a government instrumentality exercising not only governmental
but also corporate powers. Thus, MIAA exercises the governmental powers of eminent
domain,12 police authority13 and the levying of fees and charges.14 At the same time, MIAA
exercises "all the powers of a corporation under the Corporation Law, insofar as these powers
are not inconsistent with the provisions of this Executive Order."
Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with
the department framework. The MIAA Charter expressly states that transforming MIAA into a
"separate and autonomous body"16 will make its operation more "financially viable."

2. G.R. No. 58168 December 19, 1989, CONCEPCION MAGSAYSAY-LABRADOR vs. THE
COURT OF APPEALS
FERNAN, C.J.:
FACTS: Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the
late Senator Genaro Magsaysay, brought an action against Subic Land Corporation (SUBIC),
Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales for the
cancellation of a title covering a parcel of land registered in the name of Subic. She alleged that
the said property is their conjugal property and that her husband, without her consent, caused
the annotation on the back of its title the sale of the same to Subic and a mortgage by Subic to
Filmanbank.
During the pendency of the case, the petitioners, sisters of the late senator, filed a
motion for intervention on the ground that their brother conveyed to them of his shareholdings
in Subic and as assignees of around 41 % of the total outstanding shares of such stocks of
Subic, they have a substantial and legal interest in the subject matter of litigation.
Both the trial and appellate courts denied the motion for intervention, and ruled that
petitioners have no legal interest whatsoever in the matter in litigation because Subic has a
personality separate and distinct from its stockholders. Hence, the instant recourse.
ISSUE: Whether or not petitioners have the right to intervene in the action brought against
Subic?
HELD: NO. Petitioners motion for intervention was properly denied. The interest which entitles
a person to intervene in a suit between other parties must be in the matter in litigation and of
such direct and immediate character that the intervenor will either gain or lose by the direct legal
operation and effect of the judgment. In the case at bar, petitioners interest is indirect,
contingent, and purely inchoate of a right in the management of the corporation and to share in
the profits thereof and in the properties and assets thereof on dissolution, after payment of the
corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of the
corporation, it does not vest the owner thereof with any legal right or title to any of the property,
his interest in the corporate property being equitable or beneficial in nature. Shareholders are in
no legal sense the owners of corporate property, which is owned by the corporation as a distinct
legal person.

3. Sulo ng Bayan vs. Araneta [GR L-31061, 17 August 1976]

Facts:
On 26 April 1966, Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of
First Instance
of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against Gregorio Araneta Inc. (GAI),
Paradise Farms Inc., National Waterworks & Sewerage Authority (NAWASA), Hacienda Caretas
Inc., and the Register of Deeds of Bulacan to recover the ownership and possession of a large
tract of land in San Jose del Monte, Bulacan, containing an area of 27,982,250 sq. ms., more or
less, registered under the Torrens System in the name of GAI, et. al.'s predecessors-in-interest
(who are members of the corporation).
On 2 September 1966,GAI filed a motion to dismiss the amended complaint on the
grounds that (1) the complaint states no cause of action; and (2) the cause of action, if any, is
barred by prescription and laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed
motions to dismiss based on the same grounds. NAWASA did not file any motion to dismiss.
However, it pleaded in its answer as special and affirmative defenses lack of cause of action by
Sulo ng Bayan Inc. and the barring of such action by prescription and laches. On 24 January
1967, the trial court issued an Order dismissing the (amended) complaint. On 14 February
1967, Sulo ng Bayan filed a motion to reconsider the Order of dismissal, arguing among others
that the complaint states a sufficient cause of action because the subject matter of the
controversy in one of common interest to the members of the corporation who are so numerous
that the present complaint should be treated as a class suit. The motion was denied by the trial
court in its Order dated 22 February 1967.
Sulo ng Bayan appealed to the Court of Appeals.
On 3 September 1969, the Court of Appeals, upon finding that no question of fact was
involved in the appeal but only questions of law and jurisdiction, certified the case to the
Supreme Court for resolution of the legal issues involved in the controversy.
Issue: Whether the corporation (non-stock) may institute an action in behalf of its individual
members for
the recovery of certain parcels of land allegedly owned by said members, among others.
Held: It is a doctrine well-established and obtains both at law and in equity that a corporation is
a distinct legal entity to be considered as separate and apart from the individual stockholders or
members who compose it, and is not affected by the personal rights, obligations and
transactions of its stockholders or members. The property of the corporation is its property and
not that of the stockholders, as owners, although they have equities in it. Properties registered
in the name of the corporation are owned by it as an entity separate and distinct from its
members.
Conversely, a corporation ordinarily has no interest in the individual property of its
stockholders unless transferred to the corporation, "even in the case of a one-man corporation."
The mere fact that one is president of a corporation does not render the property which he owns
or possesses the property of the corporation, since the president, as individual, and the
corporation are separate similarities. Similarly, stockholders in a corporation engaged in buying
and dealing in real estate whose certificates of stock entitled the holder thereof to an allotment
in the distribution of the land of the corporation upon surrender of their stock certificates were
considered not to have such legal or equitable title or interest in the land, as would support a
suit for title, especially against parties other than the corporation.
It must be noted, however, that the juridical personality of the corporation, as separate and
distinct from the persons composing it, is but a legal fiction introduced for the purpose of

convenience and to subserve the ends of justice. This separate personality of the corporation
may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak
or cover for fraud or illegality, or to work -an injustice, or where necessary to achieve equity. It
has not been claimed that the members have assigned or transferred whatever rights they may
have on the land in question to the corporation. Absent any showing of interest, therefore, a
corporation, has no personality to bring an action for and in behalf of its stockholders or
members for the purpose of recovering property which belongs to said stockholders or members
in their personal capacities.

4. BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO) vs. PRESIDENTIAL

COMMISSION ON GOOD GOVERNMENT
NARVASA, J.:
FACTS: Challenged in this special civil action of certiorari and prohibition by a private
corporation known as the Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders
Numbered 1 and 2, promulgated by President Corazon C. Aquino on February 28, 1986 and
March 12, 1986, respectively, and (2) the sequestration, takeover, and other orders issued, and
acts done, in accordance with said executive orders by the Presidential Commission on Good
Government.
The sequestration order which, in the view of the petitioner corporation, initiated all its misery
was issued on April 14, 1986 by Commissioner Mary Concepcion Bautista.
On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG,
addressed a letter dated April 18, 1986 to the President and other officers of petitioner firm,
reiterating an earlier request for the production of certain documents.
The letter closed with the warning that if the documents were not submitted within five days, the
officers would be cited for "contempt.
A third order assailed by petitioner corporation, is that issued on April 21, 1986 by a Capt.
Flordelino B. Zabala, to BASECO's Vice-President for Finance, 3 terminating the contract for
security services within the Engineer Island compound between BASECO and civilian security
agencies.
By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover
by the PCGG of BASECO,. Diaz invoked the provisions of Section 3 (c) of Executive Order No.
1, empowering the Commission
* * To provisionally takeover in the public interest or to prevent its disposal or
dissipation, business enterprises and properties taken over by the government of
the Marcos Administration or by entities or persons close to former President
Marcos, until the transactions leading to such acquisition by the latter can be
disposed of by the appropriate authorities.
A management team was designated to implement the order, headed by Capt. Siacunco.
While BASECO concedes that "sequestration without resorting to judicial action, might be made
within the context of Executive Orders Nos. 1 and 2 before March 25, 1986 when the Freedom
Constitution was promulgated, it ceased to be acceptable when the same ruler opted to
promulgate the Freedom Constitution wherein "No person shall be deprived of life, liberty and
property without due process of law."
It argues that the order to produce corporate records from 1973 to 1986, which it has apparently
already complied with, was issued without court authority and infringed its constitutional right
against self-incrimination, and unreasonable search and seizure.

BASECO further contends that the PCGG had unduly interfered with its right of dominion and
management of its business affairs.
ISSUE: Whether BASECO may properly invoke Right against Self-Incrimination
RULING: No Violation of Right against Self-Incrimination and Unreasonable Searches and
Seizures
It is elementary that the right against self-incrimination has no application to juridical persons.
While an individual may lawfully refuse to answer incriminating questions unless
protected by an immunity statute, it does not follow that a corporation, vested
with special privileges and franchises, may refuse to show its hand when
charged with an abuse of such privileges.
The corporation is a creature of the state. It is presumed to be incorporated for
the benefit of the public. It received certain special privileges and franchises, and
holds them subject to the laws of the state and the limitations of its charter. Its
powers are limited by law. It can make no contract not authorized by its charter.
Its rights to act as a corporation are only preserved to it so long as it obeys the
laws of its creation. There is a reserve right in the legislature to investigate its
contracts and find out whether it has exceeded its powers. It would be a strange
anomaly to hold that a state, having chartered a corporation to make use of
certain franchises, could not, in the exercise of sovereignty, inquire how these
franchises had been employed, and whether they had been abused, and demand
the production of the corporate books and papers for that purpose. The defense
amounts to this, that an officer of the corporation which is charged with a criminal
violation of the statute may plead the criminality of such corporation as a refusal
to produce its books. To state this proposition is to answer it. While an individual
may lawfully refuse to answer incriminating questions unless protected by an
immunity statute, it does not follow that a corporation, vested with special
privileges and franchises may refuse to show its hand when charged with an
abuse of such privileges.
The constitutional safeguard against unreasonable searches and seizures finds no application
to the case at bar either. There has been no search undertaken by any agent or representative
of the PCGG, and of course no seizure on the occasion thereof.

5. LUXURIA HOMES VS CA
FACTS: Petitioner Aida M. Posadas and her two (2) minor children co-owned a 1.6 hectare
property in Sucat, Muntinlupa, which was occupied by squatters. Petitioner Posadas entered
into negotiations with private respondent Jaime T. Bravo regarding the development of the said
property into a residential subdivision. Meanwhile, some seven (7) months later, on December
11, 1989, petitioner, through a Deed of Assignment, assigned the said property to petitioner
Luxuria Homes, Inc., purportedly for organizational and tax avoidance purposes. Respondent
Bravo signed as one of the witnesses to the execution of the Deed of Assignment and the
Articles of Incorporation of petitioner Luxuria Homes, Inc.
Sometime in 1992, the harmonious and congenial relationship of petitioner Posadas and
respondent Bravo turned sour when the former supposedly could not accept the management
contracts to develop the 1.6 hectare property. Respondent Bravo demanded payment for
services rendered in connection with the development of the land. In his statement of account
dated 21 August 1991 respondent demanded the payment of P1,708,489.00 for various
services rendered, i.e., relocation of squatters, preparation of the architectural design and site
development plan, survey and fencing.
Petitioner Posadas refused to pay the amount demanded. Thus, in September 1992, private
respondents James Builder Construction and Jaime T. Bravo instituted a complaint for specific
performance before the trial court against petitioners Posadas and Luxuria Homes, Inc.
ISSUE: WON petitioner Luxuria Homes, Inc., can be held liable to private respondents for the
transactions supposedly entered into between petitioner Posadas and private respondents.
HELD: NO. We easily glean from the record that private respondents sent demand letters on 21
August 1991 and 14 September 1991, or more than a year and a half after the execution of the
Deed of Assignment on 11 December 1989, and the issuance of the Articles of Incorporation of
petitioner Luxuria Homes on 26 January 1990. And, the transfer was made at the time the
relationship between petitioner Posadas and private respondents was supposedly very
pleasant. In fact the Deed of Assignment dated 11 December 1989 and the Articles of
Incorporation of Luxuria Homes, Inc., issued 26 January 1990 were both signed by respondent
Bravo himself as witness. It cannot be said then that the incorporation of petitioner
Luxuria Homes and the eventual transfer of the subject property to it were in fraud of
private respondent as such were done with the full knowledge of respondent Bravo
himself.
Besides petitioner Posadas is not the majority stockholder of petitioner Luxuria Homes, Inc., as
erroneously stated by the lower court. The Articles of Incorporation of petitioner Luxuria Homes,
Inc., clearly show that petitioner Posadas owns approximately 33% only of the capital stock.
Hence petitioner Posadas cannot be considered as an alter ego of petitioner Luxuria Homes,
Inc.
To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly
and convincingly established. It cannot be presumed. This is elementary. Thus in BayerRoxas v. Court of Appeals,[17] we said that the separate personality of the corporation may
be disregarded only when the corporation is used as a cloak or cover for fraud or
illegality, or to work injustice, or where necessary for the protection of the creditors.

Obviously in the instant case, private respondents failed to show proof that petitioner Posadas
acted in bad faith. Consequently since private respondents failed to show that petitioner Luxuria
Homes, Inc., was a party to any of the supposed transactions, not even to the agreement to
negotiate with and relocate the squatters, it cannot be held liable, nay jointly and in solidum, to
pay private respondents. In this case since it was petitioner Aida M. Posadas who contracted
respondent Bravo to render the subject services, only she is liable to pay the amounts adjudged
herein.

6. [G.R. No. 108734. May 29, 1996]

CONCEPT BUILDERS, INC., vs. THE NATIONAL LABOR RELATIONS COMMISSION
HERMOSISIMA, JR., J.:
FACTS: Petitioner Concept Builders, Inc., a domestic corporation, is engaged in the
construction business. Private respondents were employed by said company as laborers,
carpenters and riggers. They filed a complaint for illegal dismissal against the petitioner after the
latter terminated theirs services even before the completion of the project in which they were
hired. The Labor Arbiter and NLRC decided in favour of the employees. To execute such
decision, a Motion for the Issuance of a Break-Open Order was filed by the private respondents
to enable the sheriff to levy on the personal properties of petitioner. It was opposed to by Dennis
Cuyegkeng, alleging that the properties to be levied were owned not by petitioner, but by Hydro
Pipes Philippines, Inc., (HPPI).
The Labor Arbiter denied the Motion but the NLRC issued the break-open order after a
finding that HPPI and petitioner were owned by the same incorporator stockholders and that the
latter only temporarily suspended its business operations in order to evade its legal obligations
to the laborers. The doctrine of piercing the corporate veil is applicable in this case.
Petitioner contended that the said doctrine is inapplicable, in the absence of any
showing that it created HPPI in order to evade its liability to private respondents. It also
contends that HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a
business which is distinct and separate from petitioners construction business. Hence, it is of
no consequence that petitioner and HPPI shared the same premises, the same President and
the same set of officers and subscribers.
ISSUE: Whether or not the doctrine of piercing the corporate veil is applicable in the instant
case?
HELD: YES. It is a fundamental principle of corporation law that a corporation is an entity
separate and distinct from its stockholders and from other corporations to which it may be
connected. But, if this separate and distinct personality of a corporation is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the
labor laws, this separate personality of the corporation may be disregarded.
This is true likewise when the corporation is merely an adjunct, a business conduit or an
alter ego of another corporation. Under the instrumentality rule, Where one corporation is so
organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality
or adjunct of the other, the fiction of the corporate entity of the instrumentality may be
disregarded.
In the case at bar, while petitioner claimed that it ceased its business operations on April
29, 1986, on the same day, HPPI an Information sheet stating that its office address is the same
as that of the petitioner. Both information sheets were filed by the same Virgilio O. Casino as the
corporate secretary of both corporations. Both corporations had the same president, the same
board of directors, the same corporate officers, and substantially the same subscribers.
Clearly, petitioner ceased its business operations in order to evade the payment to private
respondents of backwages and to bar their reinstatement to their former positions. HPPI is

obviously a business conduit of petitioner corporation and its emergence was skillfully
orchestrated to avoid the financial liability that already attached to petitioner corporation.
7. Villa Rey Transit vs. Ferrer [GR L-23893, 29 October 1968]
Facts:
Jose Villarama was an operator of a bus transportation pursuant to two certificates of
public convenience granted him by the Public Service Commission (PSC). Later, he sold the
certificates to the Pangasinan Transportation Company, Inc. (Pantranco) with the condition that
the seller (Villarama) "shall not for a period of 10 years, apply for any TPU service identical or
competing with the buyer.
"Barely three months thereafter, a corporation called Villa Rey Transit, Inc. (the
Corporation) was organized with a capital stock of P500,000.00 divided into 5,000 shares of the
par value of P100.00 each;P200,000.00 was the subscribed stock; Natividad Villarama (wife of
Jose Villarama) was one of the incorporators, and she subscribed for P1,000.00; the balance of
P199,000.00 was subscribed by the brother and sister-in-law of Jose Villarama; of the
subscribed capital stock, P105,000.00 was paid to the treasurer of the corporation, Natividad. In
less than a month after its registration with the SEC, the Corporation bought five certificates of
public convenience and 49 buses from one Valentin Fernando.
Later, the Sheriff of Manila levied on 2 of the 5 certificates , in favor of Eusebio Ferrer,
judgment creditor, against Fernando, judgment debtor. A public sale was conducted. Ferrer was
the highest bidder. Ferrer sold the two certificates to Pantranco. The Corporation filed a
complaint against Ferrer, Pantranco and the PSC for the annulment of the sheriff's sale.
Pantranco, on its part, filed a third-party complaint against Villarama, alleging that Villarama
and/or the Corporation was disqualified from operating the two certificates in question by virtue
of the previous agreement. The trial court declared null and void the sheriff's sale of two
certificates of public convenience in favor of Ferrer and the subsequent sale thereof by the latter
to Pantranco and declaring Villa Rey Transit, Inc., to be the lawful owner of the said certificates
of public convenience. Pantranco disputes the correctness of the decision insofar as it holds
that Villa Rey Transit, Inc.(Corporation) is a distinct and separate entity from Villarama. Ferrer,
for his part, challenges the decision insofar as it holds that the sheriff's sale is null and void
ISSUE: Whether the stipulation, "SHALL NOT FOR A PERIOD OF 10 YEARS FROM THE
DATE OF THIS SALE, APPLY FOR ANY TPU SERVICE IDENTICAL OR COMPETING WITH
THE BUYER" in the contract between Villarama and Pantranco, binds the Corporation (the Villa
Rey Transit, Inc.).
Held: Villarama supplied the organization expenses and the assets of the Corporation, such as
trucks and equipment; there was no actual payment by the original subscribers of the amounts
of P95,000.00 and P100,000.00 as appearing in the books; Villarama made use of the money of
the Corporation and deposited them to his private accounts; and the Corporation paid his
personal accounts. Villarama himself admitted that he mingled the corporate funds with his own
money. These circumstances are strong persuasive evidence showing that Villarama has been
too much involved in the affairs of the Corporation to altogether negative the claim that he was
only a part-time general manager.
They show beyond doubt that the Corporation is his alter ego. The interference of
Villarama in the complex affairs of the corporation, and particularly its finances, are much too
inconsistent with the ends and purposes of the Corporation law, which, precisely, seeks to
separate personal responsibilities from corporate undertakings. It is the very essence of

incorporation that the acts and conduct of the corporation be carried out in its own corporate
name because it has its own personality.
The doctrine that a corporation is a legal entity distinct and separate from the members
and stockholders who compose it is recognized and respected in all cases which are within
reason and the law. When the fiction is urged as a means of perpetrating a fraud or an illegal
act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the
veil with which the law covers and isolates the corporation from the members or stockholders
who compose it will be lifted to allow for its consideration merely as an aggregation of
individuals. Hence, the Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that the
restrictive clause in the contract entered into by the latter and Pantranco is also enforceable and
binding against the said Corporation. For the rule is that a seller or promisor may not make use
of a corporate entity as a means of evading the obligation of his covenant. Where the
Corporation is substantially the alter ego of the covenantor to the restrictive agreement, it can
be enjoined from competing with the covenantee.

8. FRANCISCO MOTORS CORPORATION, petitioner, vs. COURT OF APPEALS and

SPOUSES GREGORIO and LIBRADA MANUEL, respondents.
DECISION
QUISUMBING, J.:
FACTS: Francisco Motors filed a complaint[2] against Spouses Manuel to the balance of the
jeep body purchased by the Manuels from petitioner; the unpaid balance on the cost of repair of
the vehicle; and cost of suit and attorneys fees.[3] Private respondents interposed a
counterclaim for unpaid legal services by Gregorio Manuel which was not paid by the
incorporators, directors and officers of the petitioner.
Gregorio Manuel alleged as an affirmative defense that, while he was petitioners Assistant
Legal Officer, he represented members of the Francisco family in the intestate estate
proceedings of the late Benita Trinidad. However, even after the termination of the
proceedings, his services were not paid. Said family members, he said, were also
incorporators, directors and officers of petitioner.

Private respondents maintain both trial and appellate courts found that respondent Gregorio
Manuel was employed as assistant legal officer of petitioner corporation, and that his services
were solicited by the incorporators, directors and members to handle and represent them in
Special Proceedings concerning the Intestate Estate of the late Benita Trinidad. They assert
that the members of petitioner corporation took advantage of their positions by not
compensating respondent Gregorio Manuel after the termination of the estate proceedings
despite his repeated demands for payment of his services. They cite findings of the appellate
court that support piercing the veil of corporate identity in this particular case.

ISSUE: Whether the Doctrine of Piercing the Veil of Corporate Entity applies.

RULING: NO. Basic in corporation law is the principle that a corporation has a separate
personality distinct from its stockholders and from other corporations to which it may be
connected.[18] However, under the doctrine of piercing the veil of corporate entity, the
corporations separate juridical personality may be disregarded, when the corporate identity is
used to defeat public convenience, justify wrong, protect fraud, or defend crime. Also, where
the corporation is a mere alter ego or business conduit of a person, or where the corporation is
so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation, then its distinct personality
may be ignored.
The doctrine of piercing the corporate veil has no relevant application here. The
rationale behind piercing a corporations identity in a given case is to remove the barrier
between the corporation from the persons comprising it to thwart the fraudulent and
illegal schemes of those who use the corporate personality as a shield for undertaking
certain proscribed activities. However, in the case at bar, instead of holding certain
individuals or persons responsible for an alleged corporate act, the situation has been
reversed. It is the petitioner as a corporation which is being ordered to answer for the
personal liability of certain individual directors, officers and incorporators

concerned. Hence, it appears to us that the doctrine has been turned upside down
because of its erroneous invocation. Note that according to private respondent Gregorio
Manuel his services were solicited as counsel for members of the Francisco family to represent
them in the intestate proceedings over Benita Trinidads estate. These estate proceedings did
not involve any business of petitioner.
Note also that he sought to collect legal fees not just from certain Francisco family
members but also from petitioner corporation on the claims that its management had requested
his services and he acceded thereto as an employee of petitioner from whom it could be
deduced he was also receiving a salary. His move to recover unpaid legal fees through a
counterclaim against Francisco Motors Corporation, to offset the unpaid balance of the
purchase and repair of a jeep body could only result from an obvious misapprehension that
petitioners corporate assets could be used to answer for the liabilities of its individual directors,
officers, and incorporators. Such result if permitted could easily prejudice the corporation, its
own creditors, and even other stockholders; hence, clearly inequitous to petitioner.
Considering the nature of the legal services involved, whatever obligation said
incorporators, directors and officers of the corporation had incurred, it was incurred in their
personal capacity. When directors and officers of a corporation are unable to compensate a
party for a personal obligation, it is far-fetched to allege that the corporation is perpetuating
fraud or promoting injustice, and be thereby held liable therefor by piercing its corporate veil.
The personality of the corporation and those of its incorporators, directors and
officers in their personal capacities ought to be kept separate in this case. The claim for
legal fees against the concerned individual incorporators, officers and directors could
not be properly directed against the corporation without violating basic principles
governing corporations. Moreover, every action including a counterclaim must be
prosecuted or defended in the name of the real party in interest.[20] It is plainly an error to
lay the claim for legal fees of private respondent Gregorio Manuel at the door of
petitioner (FMC) rather than individual members of the Francisco family.

9. TIMES TRANSPORTATION COMPANY, INC., petitioner, vs. SANTOS SOTELO

FACTS: Petitioner Times Transportation Company, Inc. (Times) is a corporation engaged in the
business of land transportation. Prior to its closure in 1997, the Times Employees Union (TEU)
was formed and issued a certificate of union registration. Times challenged the legitimacy of
TEU by filing a petition for the cancellation of its union registration.
TEU held a strike in response to Times alleged attempt to form a rival union and its dismissal of
the employees identified to be active union members. In a certification election, TEU was
certified as the sole and exclusive collective bargaining agent in Times. Consequently, TEUs
president wrote the management of Times and requested for collective bargaining. Times
refused on the ground that the decision of the Med-Arbiter upholding the validity of the
certification election was not yet final and executory. TEU filed a Notice of Strike on August 8,
1997. In the meantime, Times management implemented a retrenchment program and notices
of retrenchment dated September 16, 1997 were sent to some of its employees, including the
respondents herein, informing them of their retrenchment effective 30 days thereafter.
TEU held a strike vote on grounds of unfair labor practice on the part of Times. For alleged
participation in what it deemed was an illegal strike, Times terminated all the 123 striking
employees. In the meantime, by December 12, 1997, Mencorp Transport Systems, Inc.
(Mencorp) had acquired ownership over Times Certificates of Public Convenience and a
number of its bus units by virtue of several deeds of sale.Mencorp is controlled and operated by
Mrs. Virginia Mendoza, daughter of Santiago Rondaris, the majority stockholder of Times. The
NLRC rendered a decision in the cases certified to it by the DOLE, saying that respondents first
strike is LEGAL; its second strike is ILLEGAL.
ISSUE: WON the Honorable Court a quo, in applying wholesale the doctrine of piercing the veil
of corporate fiction and finding Times co-petitioners liable for the formers obligations, resolved
the matter in a manner contradictory to existing applicable laws and dispositions of this
Honorable Court, and departed from the accepted and usual course of judicial proceedings with
regard to admitting evidence to sustain the application of such principle.
HELD: NO. We have held that piercing the corporate veil is warranted only in cases when the
separate legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, such that in the case of two corporations, the law will regard the corporations as merged
into one.27 It may be allowed only if the following elements concur: (1) controlnot mere
stock control, but complete dominationnot only of finances, but of policy and business
practice in respect to the transaction attacked; (2) such control must have been used to
commit a fraud or a wrong to perpetuate the violation of a statutory or other positive
legal duty, or a dishonest and an unjust act in contravention of a legal right; and (3) the
said control and breach of duty must have proximately caused the injury or unjust loss
complained of.
The following findings of the Labor Arbiter, which were cited and affirmed by the Court of
Appeals, have not been refuted by Times, to wit:
1. The sale was transferred to a corporation controlled by V. Mendoza, the daughter of
respondent S. Rondaris of [Times] where she is/was also a director, as proven by the articles of
incorporation of [Mencorp];

2. All of the stockholders/incorporators of [Mencorp]: Reynaldo M. Mendoza, Virginia R.

Mendoza, Vernon Gerard R. Mendoza, Vivian Charity R. Mendoza, Vevey Rosario R. Mendoza
are all relatives of respondent S. Rondaris;
3. The timing of the sale evidently was to negate the employees/complainants/members right to
organization as it was effected when their union (TEU) was just organized/requesting [Times] to
bargain;

5. [Mencorp] never obtained a franchise since its supposed incorporation in 10 May 1994 but at
present, all the buses of [Times] are already being run/operated by respondent [Mencorp], the
franchise of [Times] having been transferred to it.
The sale of Times franchise as well as most of its bus units to a company owned by Rondaris
daughter and family members, right in the middle of a labor dispute, is highly suspicious. It is
evident that the transaction was made in order to remove Times remaining assets from the
reach of any judgment that may be rendered in the unfair labor practice cases filed against it.

10. YAO vs. PEOPLE OF THE PHILIPPINES

CHICO-NAZARIO, J.
FACTS:
Petitioners are incorporators and officers of MASAGANA GAS CORPORATION (MASAGANA),
an entity engaged in the refilling, sale and distribution of LPG products. A search and seizure
were conducted by NBI officials in its premises for alleged violation of the Intellectual Property
Code, particularly for producing and selling LPG products using steel cylinders bearing the
trademarks of Gasul by Petron and Shellane by Pilipinas Shell, without authority and in
violation of the rights of the said entities.
MASAGANA, as third party claimant, filed with the RTC a Motion for the Return of Motor
Compressor and LPG Refilling Machine. It claimed that it is the owner of the said items seized
by the NBI officers and that these items were used in the operation of its legitimate business.
The RTC denied the Motion ruling that the petitioners, to whom the warrant was issued, are the
stockholders of MASAGANA and they conduct their business through the same juridical entity.
The veil of corporate fiction cannot be used by the Yaos as a refuge from liability. On appeal,
the CA affirmed the decision of the RTC.
Hence, this petition was filed with MASAGANA claiming that since there is no action for
infringement filed against MASAGANA, it is only fair that the seized articles be returned to it, the
lawful owner MASAGANA being an entity distinct and separate from the petitionerincorporators.
ISSUE: Whether or not the doctrine of separate entity is applicable in the case at bar?
HELD: NO. It is an elementary and fundamental principle of corporation law that a corporation is
an entity separate and distinct from its stockholders, directors or officers. However, when the
notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, the law will regard the corporation as an association of persons, that is, liability will attach
personally or directly to the officers and stockholders; or in the case of two corporations merge
them into one. This non-recognition is sometimes referred to as the doctrine of piercing the veil
of corporate entity or disregarding the fiction of corporate entity.
In the case at bar, petitioners, as directors/officers of MASAGANA, are utilizing the latter in
violating the intellectual property rights of Petron and Pilipinas Shell. Thus, petitioners
collectively and MASAGANA should be considered as one and the same person for liability
purposes. Consequently, MASAGANAs third party claim serves no refuge for petitioners.
Assuming arguendo that MASAGANA has a personality separate from that of the petitioners,
the effect will still be the same. The law does not require that the property to be seized should
be owned by the person against whom the search warrants is directed. It is sufficient that the
person against whom the warrant is directed has control or possession of the property sought to
be seized.

11. Seventh Day Adventist Conference Church of Southern Philippines vs. North Eastern
Mindanao Mission of Seventh Day Adventist, Inc.
FACTS:
Spouses Felix Cosio and his wife Felisa donated a parcel of land to South Philippine
[Union] Mission of Seventh Day Adventist Church, and was received by Liberato Rayos, an
elder of the Seventh Day Adventist Church, on behalf of the donee. However, twenty one years
later, the spouses sold the same land to the Seventh Day Adventist Church of Northeastern
Mindanao Mission.A TCT was later issued in the name of respondent North Eastern Mindanao
Mission.
Claiming to be the alleged donees successors-in-interest, petitioners filed a case for
cancellation of title, quieting of ownership and possession, declaratory relief and reconveyance
with prayer for preliminary injunction and damages against respondents. Respondents, on the
other hand, argued that at the time of the donation, petitioners predecessors -in-interest has no
juridical personality to accept the donation because it was not yet incorporated. Moreover,
petitioners were not members of the local church then hence, the donation could not have been
made
particularly
to
them.
ISSUE:

Whether

or

not

the

donation

made

to

SDA-SPUM

Bayugon

was

valid

HELD: No. Donation is an act of liberality whereby a person disposes gratuitously of a thing or
right in favor of another person who accepts it. The donation could not have been made in favor
of an entity yet inexistent at the time it was made. Nor could it have been accepted as there was
yet no one to accept it.
The deed of donation was not in favor of any informal group of SDA members but a
supposed SPUM-SDA Bayugan (the local church) which, at the time, had neither juridical
personality nor capacity to accept such gift.
Declaring themselves a de facto corporation, petitioners allege that they should benefit
from the donation.
But there are stringent requirements before one can qualify as a de facto corporation:
(a) the existence of a valid law under which it may be incorporated;
(b) an attempt in good faith to incorporate; andcralawlibrary
(c) assumption of corporate powers.
While there existed the old Corporation Law (Act 1459), a law under which SPUM-SDA
Bayugan could have been organized, there is no proof that there was an attempt to incorporate
at that time.
The filing of articles of incorporation and the issuance of the certificate of incorporation
are essential for the existence of a de facto corporation. We have held that an organization not
registered with the Securities and Exchange Commission (SEC) cannot be considered a
corporation in any concept, not even as a corporation de facto.13 Petitioners themselves
admitted that at the time of the donation, they were not registered with the SEC, nor did they
even attempt to organize14 to comply with legal requirements.
Corporate existence begins only from the moment a certificate of incorporation is issued.
No such certificate was ever issued to petitioners or their supposed predecessor-in-interest at
the time of the donation. Petitioners obviously could not have claimed succession to an entity
that never came to exist. Neither could the principle of separate juridical personality apply since
there was never any corporation to speak of. And, as already stated, some of the

representatives of petitioner Seventh Day Adventist Conference Church of Southern Philippines,

Inc. were not even members of the local church then, thus, they could not even claim that the
donation was particularly for them.

12.

LIM TONG LIM, petitioner,

INC., respondent.

vs. PHILIPPINE

FISHING

GEAR

INDUSTRIES,

DECISION
PANGANIBAN, J.:
FACTS: On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao
entered into a Contract for the purchase of fishing nets of various sizes from the Philippine
Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a
business venture with Petitioner Lim Tong Lim, who however was not a signatory to the
agreement
The buyers, however, failed to pay for the fishing nets and the floats; hence, private
respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer
for a writ of preliminary attachment. The suit was brought against the three in their capacities as
general partners, on the allegation that Ocean Quest Fishing Corporation was a nonexistent
corporation as shown by a Certification from the Securities and Exchange Commission. [5] The
lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the
fishing nets.
The trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was
entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly
liable to pay respondent.[8]
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
The CA held that petitioner was a partner of Chua and Yao in a fishing business and may
thus be held liable as a such for the fishing nets and floats purchased by and for the use of the
partnership.
ISSUE: whether petitioner should be held jointly[18] liable with Chua and Yao.
RULING: YES. Corporation by Estoppel
Section 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing
it to be without authority to do so shall be liable as general partners for all debts, liabilities and
damages incurred or arising as a result thereof: Provided however, That when any such
ostensible corporation is sued on any transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use as a defense its lack of corporate
personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist
performance thereof on the ground that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a
party may be estopped from denying its corporate existence. The reason behind this
doctrine is obvious - an unincorporated association has no personality and would be
incompetent to act and appropriate for itself the power and attributes of a corporation as
provided by law; it cannot create agents or confer authority on another to act in its behalf; thus,
those who act or purport to act as its representatives or agents do so without authority and at
their own risk. The doctrine of corporation by estoppel may apply to the alleged

corporation and to a third party. In the first instance, an unincorporated association,

which represented itself to be a corporation, will be estopped from denying its corporate
capacity in a suit against it by a third person who relied in good faith on such
representation. It cannot allege lack of personality to be sued to evade its responsibility
for a contract it entered into and by virtue of which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated,
nonetheless treated it as a corporation and received benefits from it, may be barred from
denying its corporate existence in a suit brought against the alleged corporation. In such
case, all those who benefited from the transaction made by the ostensible corporation, despite
knowledge of its legal defects, may be held liable for contracts they impliedly assented to or
took advantage of.
Philippine Fishing Gear Industries, is entitled to be paid for the nets it
sold. Unquestionably, petitioner benefited from the use of the nets found inside F/B
Lourdes, the boat which has earlier been proven to be an asset of the partnership
Although it was never legally formed for unknown reasons, this fact alone does not preclude
the liabilities of the three as contracting parties in representation of it. Clearly, under the law on
estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be
without valid existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract entered into by
persons with whom he previously had an existing relationship, he is deemed to be part of
said association and is covered by the scope of the doctrine of corporation by estoppel

13. INTERNATIONAL TRAVEL AND TOUR SERVICES, INC VS CA

FACTS: Petitioner, through its managing director, wrote a letter to the Philippine Football
Federation (Federation), through its president private respondent Henri Kahn, wherein the
former offered its services as a travel agency to the latter. The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to
the South East Asian Games in Kuala Lumpur and other trips to the People's Republic of China
and Brisbane. The total cost of the tickets amounted to P449,654.83. The Federation made two
partial payments, in the total amount of P176,467.50. Petitioner wrote the Federation, through
the private respondent a demand letter requesting for the amount of P265,894.33. On 27
December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial
payment for the outstanding balance of the Federation.Thereafter, no further payments were
made despite repeated demands.
Petitioner sued Henri Kahn in his personal capacity and as President of the Federation and
impleaded the Federation as an alternative defendant. Petitioner sought to hold Henri Kahn
liable for the unpaid balance for the tickets purchased by the Federation on the ground that
Henri Kahn allegedly guaranteed the said obligationHenri Kahn, while not denying the allegation
that the Federation owed the amount P207,524.20, representing the unpaid balance for the
plane tickets, he averred that the petitioner has no cause of action against him either in his
personal capacity or in his official capacity as president of the Federation. He maintained that he
did not guarantee payment but merely acted as an agent of the Federation which has a
separate and distinct juridical personality.
ISSUE: WON THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAD
DEALT WITH THE PHILIPPINE FOOTBALL FEDERATION (PFF) AS A CORPORATE ENTITY
AND IN NOT HOLDING THAT PRIVATE RESPONDENT HENRI KAHN WAS THE ONE WHO
REPRESENTED THE PFF AS HAVING A CORPORATE PERSONALITY.
HELD: YES. It is a basic postulate that before a corporation may acquire juridical personality,
the State must give its consent either in the form of a special law or a general enabling act. We
cannot agree with the view of the appellate court and the private respondent that the Philippine
Football Federation came into existence upon the passage of these laws. Nowhere can it be
found in R.A. 3135 or P.D. 604 any provision creating the Philippine Football Federation. These
laws merely recognized the existence of national sports associations and provided the manner
by which these entities may acquire juridical personality.
Clearly the above cited provisions require that before an entity may be considered as a national
sports association, such entity must be recognized by the accrediting organization, the
Philippine Amateur Athletic Federation under R.A. 3135, and the Department of Youth and
Sports Development under P.D. 604. This fact of recognition, however, Henri Kahn failed to
substantiate. In attempting to prove the juridical existence of the Federation, Henri Kahn
attached to his motion for reconsideration before the trial court a copy of the constitution and bylaws of the Philippine Football Federation. Unfortunately, the same does not prove that said
Federation has indeed been recognized and accredited by either the Philippine Amateur Athletic
Federation or the Department of Youth and Sports Development. Accordingly, we rule that the
Philippine Football Federation is not a national sports association within the purview of the
aforementioned laws and does not have corporate existence of its own.
Thus being said, it follows that private respondent Henry Kahn should be held liable for
the unpaid obligations of the unincorporated Philippine Football Federation. It is a settled

principal in corporation law that any person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such privileges and becomes
personally liable for contract entered into or for other acts performed as such agent.[14]
As president of the Federation, Henri Kahn is presumed to have known about the
corporate existence or non-existence of the Federation.

14. FILIPINAS BROADCASTING NETWORK, INC., vs. AGO MEDICAL AND EDUCATIONAL
CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and
ANGELITA F. AGO
CARPIO, J.:
FACTS: In their radio documentary program Expos, radio hosts Carmelo Mel Rima (Rima)
and Hermogenes Jun Alegre (Alegre) exposed various alleged complaints from students,
teachers and parents against respondent AMEC and its administrators. Expos is owned by
Filipinas Broadcasting Network, Inc. (FBNI). AMEC and Angelita Ago (Ago), as Dean of
AMECs College of Medicine, filed a complaint for damages against FBNI, Rima and Alegre,
claiming that the broadcasts were defamatory and libelous.
The trial court found the broadcasts to be libelous and ordered Alegre and FBNI to
indemnify AMEC in the amount of P300,000.00 moral damages, plus P30,000.00 as attorneys
fees.
On appeal, the CA affirmed the judgment with modifications. It made Rima solidarily
liable with FBNI and Alegre. Hence, FBNI filed this petition. FBNI contends that AMEC is not
entitled to moral damages because it is a corporation.
ISSUE: Whether or not AMEC is entitled to moral damages?
HELD: 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. 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.
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 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.
Moreover, where the broadcast is libelous per se, the law implies damages. In such a case,
evidence of an honest mistake or the want of character or reputation of the party libeled goes
only in mitigation of damages. In this case, the broadcasts are libelous per se. Thus, AMEC is
entitled to moral damages.
However, the award of P300,000 moral damages unreasonable. AMEC has not suffered
any substantial or material damage to its reputation. Therefore, the award of moral damages is
reduced from P300,000 to P150,000.

15. Coastal Pacific Trading, Inc. vs. Southern Rolling Mills Co. G.R. No. 118692 July 28,
2006
FACTS:
Southern Rolling Mills was renamed into Visayan Integrated Steel Corp (VISCO). On
Dec. 11, 1961-VISCO obtained a loan from DBP amounting to P836,000. It was secured by a
Real Estate Mortgage covering VISCO's 3 parcels of land including the machinery and
equipments therein. Second Loan: VISCO entered a Loan Agreement with respondent banks (
referred as "Consortium") to finance its importation for various raw materials. VISCO executed a
second mortgage over the previous properties mentioned, however they were unrecorded
VISCO was unable to pay its second mortgage with the consortium, which resulted in the latter
acquiring 90% of the equity of VISCO giving the Consortium the control and management of
VISCO.
Despite the acquisition, VISCO still remained indebted to the Consortium. Transaction to
Coastal: Between 1964 to 1965, VISCO entered a processing agreement with Coastal wherein
Coastal delivered 3,000 metric tons of hot rolled steel coils which VISCO would process into
block iron sheets. However, VISCO was only able to return 1,600 metric tons of those sheets.
On the loan to DBP: To pay its first mortgage with DBP, VISCO sold 2 of its generators to
FILMAG Phils, Inc. DBP executed a Deed of Assignment of the mortgage in favor of the
consortium. The Consortium foreclosed the mortgage and was the highest bidder in an auction
sale of VISCO's properties. The Consortium later sold the properties in favor of National Steel
Corporation. Coastal files a civil action for Annulment or Rescission of Sale, Damages with
Preliminary Injunction. Coastal imputes bad faith on the action of the Consortium, the latter
being able to sell the properties of VISCO despite the attachment of the properties, placing them
beyond the reach of VISCO's other creditors. The lower court ruled in favor of VISCO, declaring
the sale valid and legal. The CA affirmed this.
ISSUES: 1. Whether the consortium disposed VISCO's assets in fraud of creditors?
2. Whether petitioner is entitled to moral damages?
HELD:
1. Yes. What the consortium did was to pay to them the proceeds from the sale of the
generator sets which in turn they used to pay DBP. Due to the Deed of Assignment
issued by DBP, the respondent banks recovered what they remitted to DBP & it allowed
the Consortium to acquire DBP's primary lien on the mortgaged properties. Allowing
them as unsecured creditors ( as the mortgage was unrecorded) to foreclose on the
assets of the corporation without regard to inferior claims.
2. No. As a rule, a corporation is not entitled to moral damages because, not being a
natural person, it cannot experience physical suffering or sentiments like wounded
feelings, serious anxiety, mental anguish and moral shock. The only exception to this
rule is when the corporation has a good reputation that is debased, resulting in its
humiliation in the business realm. In the present case, the records do not show any
evidence that the name or reputation of petitioner has been sullied as a result of the
Consortium's fraudulent acts. Accordingly, moral damages are not warranted. Petitioner
was able to recover exemplary damages.