CRYSTAL vs.

BANK OF THE PHILIPPINE ISLANDS

G.R. No. 172428 November 28, 2008

J. TINGA

Facts: On 28 March 1978, spouses Crystal obtained a P300, 000.00 loan in behalf of the Cebu Contractors Consortium Co. (CCCC) from
the BPI-Butuan. The loan was secured by a chattel mortgage on heavy equipment and machinery of CCCC. On the same date, the spouses
executed in favor of BPI-Butuan a Continuing Suretyship where they bound themselves as surety of CCCC in the aggregate principal sum
of not exceeding P300, 000.00. Thereafter, or on 29 March 1979, Raymundo Crystal executed a promissory note for the amount of P300,
000.00, also in favor of BPI-Butuan. Sometime in August 1979, CCCC renewed a previous loan, this time from BPI, Cebu City branch (BPI-
Cebu City). However, CCCC had no real property to offer as security for the loan; hence, the spouses executed a real estate mortgage over
their own real property. They executed another real estate mortgage over the same lot in favor of BPI-Cebu City, to secure an additional
loan of P20,000.00 of CCCC. CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu City when they became due. CCCC, as well as
the spouses, failed to pay their obligations despite demands. Thus, BPI resorted to the foreclosure of the chattel mortgage and the real
estate mortgage. The foreclosure sale on the chattel mortgage was initially stalled and done. BPI filed a complaint for sum of money
against CCCC and the spouses before the Regional Trial Court, seeking to recover the deficiency of the loan of CCCC and the spouses with
BPI-Butuan Before the Court, petitioners who are the heirs of the spouses argue that the failure of the spouses to pay the BPI-Cebu City
loan of P120,000.00 was due to BPI’s illegal refusal to accept payment for the loan unless the P300,000.00 loan from BPI-Butuan would
also be paid. Consequently, in view of BPI’s unjust refusal to accept payment of the BPI-Cebu City loan, the loan obligation of the spouses
was extinguished, petitioners contend.

Issues: Whether or not the obligation of the spouses is extinguished

Whether or not BPI is entitled to moral damages

Held: No, the obligation is not yet extinguished. Under Art. 1236 of the Civil Code, the creditor is not bound to accept payment or
performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. The
Court sees no stipulation in the promissory note which states that a third person may fulfill the spouses’ obligation. Thus, it is clear that
the spouses alone bear responsibility for the same. A solidary obligation is one in which each of the debtors is liable for the entire
obligation, and each of the creditors is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. A liability
is solidary "only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires."24
Thus, when the obligor undertakes to be "jointly and severally" liable, it means that the obligation is solidary. More importantly, the
promissory note, wherein the spouses undertook to be solidarily liable for the principal loan, partakes the nature of a suretyship and
therefore is an additional security for the loan.

No, they are not entitled to moral damages. BPI is not entitled to moral damages. 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 Court of Appeals found BPI as "being famous and having gained its familiarity and respect
not only in the Philippines but also in the whole world because of its good will and good reputation must protect and defend the same
against any unwarranted suit such as the case at bench. Obviously, an artificial person like herein appellant corporation cannot
experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are
basis of moral damages. A corporation may have good reputation which, if besmirched may also be a ground for the award of moral
damages. Indeed, while the Court may allow the grant of moral damages to corporations, it is not automatically granted; there must still
be proof of the existence of the factual basis of the damage and its causal relation to the defendant’s acts. This is so because moral
damages, though incapable of pecuniary estimation, 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.
ABS-CBN Broadcasting Corporation vs Court of Appeals

February 4, 2013

301 SCRA 572 – Business Organization – Corporation Law – Delegation of Corporate Powers – Moral Damages
In 1992, ABS-CBN Broadcasting Corporation, through its vice president Charo Santos-Concio, requested Viva Production, Inc. to allow
ABS-CBN to air at least 14 films produced by Viva. Pursuant to this request, a meeting was held between Viva’s representative (Vicente
Del Rosario) and ABS-CBN’s Eugenio Lopez (General Manager) and Santos-Concio was held on April 2, 1992. During the meeting Del
Rosario proposed a film package which will allow ABS-CBN to air 104 Viva films for P60 million. Later, Santos-Concio, in a letter to Del
Rosario, proposed a counterproposal of 53 films (including the 14 films initially requested) for P35 million. Del Rosario presented the
counter offer to Viva’s Board of Directors but the Board rejected the counter offer. Several negotiations were subsequently made but on
April 29, 1992, Viva made an agreement with Republic Broadcasting Corporation (referred to as RBS – or GMA 7) which gave exclusive
rights to RBS to air 104 Viva films including the 14 films initially requested by ABS-CBN.
ABS-CBN now filed a complaint for specific performance against Viva as it alleged that there is already a perfected contract between Viva
and ABS-CBN in the April 2, 1992 meeting. Lopez testified that Del Rosario agreed to the counterproposal and he (Lopez) even put the
agreement in a napkin which was signed and given to Del Rosario. ABS-CBN also filed an injunction against RBS to enjoin the latter from
airing the films. The injunction was granted. RBS now filed a countersuit with a prayer for moral damages as it claimed that its reputation
was debased when they failed to air the shows that they promised to their viewers. RBS relied on the ruling in People vs Manero and
Mambulao Lumber vs PNB which states that a corporation may recover moral damages if it “has a good reputation that is debased,
resulting in social humiliation”. The trial court ruled in favor of Viva and RBS. The Court of Appeals affirmed the trial court.
ISSUE:
1. Whether or not a contract was perfected in the April 2, 1992 meeting between the representatives of the two corporations.
2. Whether or not a corporation, like RBS, is entitled to an award of moral damages upon grounds of debased reputation.
HELD:
1. No. There is no proof that a contract was perfected in the said meeting. Lopez’ testimony about the contract being written in a napkin
is not corroborated because the napkin was never produced in court. Further, there is no meeting of the minds because Del Rosario’s
offer was of 104 films for P60 million was not accepted. And that the alleged counter-offer made by Lopez on the same day was not also
accepted because there’s no proof of such. The counter offer can only be deemed to have been made days after the April 2 meeting when
Santos-Concio sent a letter to Del Rosario containing the counter-offer. Regardless, there was no showing that Del Rosario accepted. But
even if he did accept, such acceptance will not bloom into a perfected contract because Del Rosario has no authority to do so.
As a rule, corporate powers, such as the power; to enter into contracts; are exercised by the Board of Directors. But this power may be
delegated to a corporate committee, a corporate officer or corporate manager. Such a delegation must be clear and specific. In the case at
bar, there was no such delegation to Del Rosario. The fact that he has to present the counteroffer to the Board of Directors of Viva is proof
that the contract must be accepted first by the Viva’s Board. Hence, even if Del Rosario accepted the counter-offer, it did not result to a
contract because it will not bind Viva sans authorization.
2. No. The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence
only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience physical suffering and mental
anguish, which call be experienced only by one having a nervous system. No moral damages can be awarded to a juridical person. The
statement in the case of People vs Manero and Mambulao Lumber vs PNB is a mere obiter dictum hence it is not binding as a
jurisprudence.
Narra Nickel Mining vs Redmont

Case Digest GR 185590, Apr 21 2014

Facts:

Redmont is a domestic corporation interested in the mining and exploration of some areas in Palawan. Upon learning that those areas

were covered by MPSA applications of other three (allegedly Filipino) corporations – Narra, Tesoro, and MacArthur, it filed a petition

before the Panel of Arbitrators of DENR seeking to deny their permits on the ground that these corporations are in reality foreign-

owned. MBMI, a 100% Canadian corporation, owns 40% of the shares of PLMC (which owns 5,997 shares of Narra), 40% of the shares of

MMC (which owns 5,997 shares of McArthur) and 40% of the shares of SLMC (which, in turn, owns 5,997 shares of Tesoro).

Aside from the MPSA, the three corporations also applied for FTAA with the Office of the President. In their answer, they countered that

(1) the liberal Control Test must be used in determining the nationality of a corporation as based on Sec 3 of the Foreign Investment Act

– which as they claimed admits of corporate layering schemes, and that (2) the nationality question is no longer material because of their

subsequent application for FTAA.

Commercial / Political Law

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Issue 1: W/N the Grandfather Rule must be applied in this case

Yes. It is the intention of the framers of the Constitution to apply the Grandfather Rule in cases where corporate layering is present.

First, as a rule in statutory construction, when there is conflict between the Constitution and a statute, the Constitution will prevail. In

this instance, specifically pertaining to the provisions under Art. XII of the Constitution on National Economy and Patrimony, Sec. 3 of the

FIA will have no place of application. Corporate layering is admittedly allowed by the FIA, but if it is used to circumvent the Constitution

and other pertinent laws, then it becomes illegal.

Second, under the SEC Rule1 and DOJ Opinion2 , the Grandfather Rule must be applied when the 60-40 Filipino-foreign equity ownership

is in doubt. Doubt is present in the Filipino equity ownership of Narra, Tesoro, and MacArthur since their common investor, the 100%

Canadian-owned corporation – MBMI, funded them.

Under the Grandfather Rule, it is not enough that the corporation does have the required 60% Filipino stockholdings at face value. To

determine the percentage of the ultimate Filipino ownership, it must first be traced to the level of the investing corporation and added to

the shares directly owned in the investee corporation. Applying this rule, it turns out that the Canadian corporation owns more than

60% of the equity interests of Narra, Tesoro and MacArthur. Hence, the latter are disqualified to participate in the exploration,

development and utilization of the Philippine’s natural resources.

1 DOJ Opinion No. 020 Series of 2005 (paragraph 7)

2 SEC Opinion May 13, 1990

Remedial Law
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Issue 2: W/N the case has become moot as a result of the MPSA conversion to FTAA

No. There are certain exceptions to “mootness” principle and the mere raising of an issue of “mootness” will not deter the courts from

trying a case when there is a valid reason to do so.

The SC noted that a grave violation of the Constitution is being committed by a foreign corporation through a myriad of corporate

layering under different, allegedly, Filipino corporations. The intricate corporate layering utilized by the Canadian company, MBMI, is of

exceptional character and involves paramount public interest since it undeniably affects the exploitation of our Country’s natural

resources. The corresponding actions of petitioners during the lifetime and existence of the instant case raise questions as what

principle is to be applied to cases with similar issues. No definite ruling on such principle has been pronounced by the Court; hence, the

disposition of the issues or errors in the instant case will serve as a guide to the bench, the bar and the public. Finally, the instant case is

capable of repetition yet evading review, since the Canadian company, MBMI, can keep on utilizing dummy Filipino corporations through

various schemes of corporate layering and conversion of applications to skirt the constitutional prohibition against foreign mining in

Philippine soil.