14

Filipinas Broadcasting Network Inc. vs. Ago Medical and Educational Center-Bicol Christian

College of Medicine (AMEC-BCCM) [GR 141994, 17 January 2005]

Carpio (J): 4 concur

Facts:

“Exposé” is a radio documentary program hosted by Carmelo ‘Mel’ Rima (“Rima”) and Hermogenes

‘Jun’ Alegre (“Alegre”). Exposé is aired every morning over DZRC-AM which is owned by Filipinas

Broadcasting Network, Inc. (“FBNI”). “Exposé” is heard over Legazpi City, the Albay municipalities and

Commercial Law - Corporation Law, 2005 (

17

Narratives (Berne Guerrero)

other Bicol areas. 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 AMEC’s College of Medicine, filed a complaint for damages

against FBNI, Rima and Alegre on 27 February 1990.

The complaint further alleged that AMEC is a reputable

learning institution. With the supposed exposés, 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

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 on FBNI’s 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 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 Rima’s only participation was when he agreed with Alegre’s exposé. The trial court found Rima’s

statement within the “bounds of freedom of speech, expression, and of the press.” 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 court’s judgment with modification. The appellate court

made Rima solidarily liable with FBNI and Alegre. The appellate court denied Ago’s claim for damages and

attorney’s fees because the broadcasts were directed against AMEC, and not against her. FBNI, Rima and

Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000

Resolution. Hence, FBNI filed the petition for review.

Issue:

Whether 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 Court of Appeals cites Mambulao Lumber Co. v. PNB, et al. to justify the award of moral

damages. However, the Court’s 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, AMEC’s 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. 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. In this case, the broadcasts are libelous per se.

Thus, AMEC is entitled to moral damages. However, the Court found the award of P300,000 moral damages

unreasonable. The record shows that even though the broadcasts were libelous per se, AMEC has not suffered

Commercial Law - Corporation Law, 2005 (

18

Narratives (Berne Guerrero)

any substantial or material damage to its reputation. Therefore, the Court reduced the award of moral damages

from P300,000 to P150,000

Ren Transport Corp. and/or Reynaldo Pazcoguin III Vs. National Labor Relations Commission, et al./Samahang
Manggagawa sa REN Transport-Association of Democratic Labor Associations (SMART-ADLO) represented by Nestor
Fulminar Vs. REN Transport Corp. and/or Reynaldo Pazcoguin III

, G.R. No. 188020/G.R. No. 188252. June 27, 2016. SERENO,

CJ

FACTS: Samahan ng Manggagawa sa Ren Transport (SMART) is a registered union with a CBA with Ren Transport Corp.
(Ren Transport) set to expire on Deceber 31, 2004. The 60-

day freedom period of the CBA passed without a challenge to SMART’s

majority status as bargaining agent. Subsequently, two members of SMART wrote to DOLE-NCR informing the latter
office that a majority of the members of SMART had decided to disaffiliate from their mother federation to from another
union, Ren Transport Employees Association (RTEA) and SMART contested the same. Duringg the pendency of the
disaffiliation dispute, Ren Transport stopped the remittance to SMART of the union dues as provided under the CBA.
Further, Ren Transport voluntarily recognized RTEA as the sole and exclusive bargaining agent of their company. ISSUE\S:
(1)Did Ren Transport commit acts of unfair labor practice? (2) Did Ren Transport interfere w

ith the exercise of the employees’ right to self

-organize? RULING: (1) YES. Violation of the duty to bargain collectively is an unfair labor practice under Article 258(g)
of the Labor Code. Ren Transport had a duty to bargain collectively with SMART. Under Article 263 in relation to Article
267 of the Labor Code, it is during the freedom period

at the last 60 days before the expiration of the CBA

when another union may challenge the majority status of the bargaining agent through the filing of a petition for a
certification election. In the present case, no petition for certification election challenging the majority status of SMART
was filed during the freedom period, SMART therefore remained the exclusive bargaining agent of the rank-and-file
employees. (2) YES. The Labor Arbiter found that the failure to remit the union dues to SMART and the voluntary
recognition of RTEA were clear indications of interference with the

employees’ right to self

-ogranization

People vs. Andre Marti G.R. No. 81561, January 18, 1991 193 SCRA 57 (1991)
Fact: In 1987, the appellant informed Anita Reyes that he was sending the packages to a friend in Zurich, Switzerland.
Appellant filled up the contract necessary for the transaction, writing therein his name, passport number, the date of
shipment and the name and address of the consignee, namely, “WALTER FIERZ, Mattacketr II, 8052 Zurich, Switzerland”
Anita Reyes then asked the appellant if she could examine and inspect the packages. Appellant, however, refused, assuring
her that the packages simply contained books, cigars, and gloves and were gifts to his friend in Zurich. In view of
appellant’s representation, Anita Reyes no longer insisted on inspecting the packages. Before delivery of appellant’s box to
the Bureau of Customs and/or Bureau of Posts, Mr. Job Reyes (proprietor) and husband of Anita (Reyes), following
standard operating procedure, opened the boxes for final inspection. When he opened appellant’s box, a peculiar odor
emitted therefrom. His curiousity aroused, He made an opening on one of the cellophane wrappers and took several grams
of the contents thereof. Job Reyes forthwith prepared a letter reporting the shipment to the NBI and requesting a laboratory
examination of the samples he extracted from the cellophane wrapper. He brought the letter and a sample of appellant’s
shipment to the Narcotics Section of the NBI and informed the them that the rest of the shipment was still in his office.
Therefore, Job Reyes and three NBI agents, and a photographer, went to the Reyes’ office at Ermita. The package which
allegedly contained books was likewise opened by Job Reyes. He discovered that the package contained bricks or cake-like
dried marijuana leaves. The package which allegedly contained tabacalera cigars was also opened. It turned out that dried
marijuana leaves were neatly stocked underneath the cigars. The NBI agents made an inventory and took charge of the box
and of the contents thereof, after signing a “Receipt” acknowledging custody of the said effects . Thereafter, an Information
was filed against appellant for violation of RA 6425, otherwise known as the Dangerous Drugs Act.
Issue: Whether the search and seizure committed by the private individual inviolate the constitutional right of the accused
against unlawful searches and seizures?
Held: No, The constitutional proscription against unlawful searches and seizures therefore applies as a restraint directed
only against the government and its agencies tasked with the enforcement of the law. Thus, it could only be invoked against
the State to whom the restraint against arbitrary and unreasonable exercise of power is imposed. Corolarilly, alleged
violations against unreasonable search and seizure may only be invoked against the State by an individual unjustly traduced
by the exercise of sovereign authority. To agree with appellant that an act of a private individual in violation of the Bill of
Rights should also be construed as an act of the State would result in serious legal complications and an absurd
interpretation of the constitution. That the Bill of Rights embodied in the Constitution is not meant to be invoked against
acts of private individuals finds support in the deliberations of the Constitutional Commission. True, the liberties guaranteed
by the fundamental law of the land must always be subject to protection.

Stonehill vs Diokno
20 SCRA 383
Facts:
Respondents herein secured a total of 42 search warrants against petitioners herein and/or the corporations of which they
were officers, to search “books of accounts, financial records, vouchers, correspondence, receipts, ledgers, journals,
portfolios, credit journals, typewriters, and other documents and/or papers showing all business transactions including
disbursements receipts, balance sheets and profit and loss statements and Bobbins (cigarette wrappers),” as “the subject of
the offense; stolen or embezzled and proceeds or fruits of the offense,” or “used or intended to be used as the means of
committing the offense,” which is described in the applications adverted to above as “violation of Central Bank Laws, Tariff
and Customs Laws, Internal Revenue (Code) and the Revised Penal Code.”
The petitioner contended that the search warrants are null and void as their issuance violated the Constitution and the Rules
of Court for being general warrants.
The documents, papers, and things seized under the alleged authority of the warrants in question may be split into two (2)
major groups, namely: (a) those found and seized in the offices of the aforementioned corporations, and (b) those found and
seized in the residences of petitioners herein.
Issue: Whether petitioners can validly assail the search warrant against the corporation.
Held: No.
As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the contested
warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have their respective
personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or
of the interest of each of them in said corporations, and whatever the offices they hold therein may be. Indeed, it is well
settled that the legality of a seizure can be contested only by the party whose rights have been impaired thereby, and that the
objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties. Consequently,
petitioners herein may not validly object to the use in evidence against them of the documents, papers and things seized
from the offices and premises of the corporations adverted to above, since the right to object to the admission of said papers
in evidence belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the
corporate officers in proceedings against them in their individual capacity.

Acebedo Optical Co. vs. Court of Appeals, G.R. No. 100152, March 31, 2000

Title of the Case: Acebedo Optical Co. vs. Court of Appeals

Nature: Petition for review under Rule 45 of the Rules of Court seeking to nullify the dismissal by the Court of Appeals of
the original petition for certiorari
Keywords: Optical shop, Business Permit

Petitioner: Acebedo Optical Company, Inc.

Respondent: The Honorable Court of Appeals
Facts: Petitioner applied with the Office of the City Mayor of Iligan for a business permit. After consideration of petitioner's
application and the opposition interposed thereto by local optometrists, respondent City Mayor issued Business Permit No.
5342 subject to the following conditions: (1) Since it is a corporation, Acebedo cannot put up an optical clinic but only a
commercial store; (2) It cannot examine and/or prescribe reading and similar optical glasses for patients, because these are
functions of optical clinics; (3) It cannot sell reading and similar eyeglasses without a prescription having first been made by
an independent optometrist or independent optical clinic. Acebedo can only sell directly to the public, without need of a
prescription, Ray-Ban and similar eyeglasses; (4) It cannot advertise optical lenses and eyeglasses, but can advertise Ray-
Ban and similar glasses and frames; (5) It is allowed to grind lenses but only upon the prescription of an independent
optometrist.

On December 5, 1988, private respondent Samahan ng Optometrist Sa Pilipinas (SOPI lodged a complaint against the
petitioner alleging that Acebedo had violated the conditions set forth in its business permit and requesting the cancellation
and/or revocation of such permit. On July 19, 1989, the City Mayor sent petitioner a Notice of Resolution and Cancellation
of Business Permit effective as of said date and giving petitioner three (3) months to wind up its affairs.

Issue: Whether the City Mayor has the authority to impose special conditions, as a valid exercise of police power, in the
grant of business permits

Ratio: Police power as an inherent attribute of sovereignty is the power to prescribe regulations to promote the health,
morals, peace, education, good order or safety and general welfare of the people. It is essentially regulatory in nature and
the power to issue licenses or grant business permits, if exercised for a regulatory and not revenue-raising purpose, is within
the ambit of this power. The authority of city mayors to issue or grant licenses and business permits is beyond cavil.
However, the power to grant or issue licenses or business permits must always be exercised in accordance with law, with
utmost observance of the rights of all concerned to due process and equal protection of the law.

In the case under consideration, the business permit granted by respondent City Mayor to petitioner was burdened with
several conditions. Petitioner agrees with the holding by the Court of Appeals that respondent City Mayor acted beyond his
authority in imposing such special conditions in its permit as the same have no basis in the law or ordinance. Public
respondents and private respondent SOPI are one in saying that the imposition of said special conditions is well within the
authority of the City Mayor as a valid exercise of police power.

The issuance of business licenses and permits by a municipality or city is essentially regulatory in nature. The authority,
which devolved upon local government units to issue or grant such licenses or permits, is essentially in the exercise of the
police power of the State within the contemplation of the general welfare clause of the Local Government Code.

What is sought by petitioner from respondent City Mayor is a permit to engage in the business of running an optical shop. It
does not purport to seek a license to engage in the practice of optometry. The objective of the imposition of subject
conditions on petitioner's business permit could be attained by requiring the optometrists in petitioner's employ to produce a
valid certificate of registration as optometrist, from the Board of Examiners in Optometry. A business permit is issued
primarily to regulate the conduct of business and the City Mayor cannot, through the issuance of such permit, regulate the
practice of a profession. Such a function is within the exclusive domain of the administrative agency specifically
empowered by law to supervise the profession, in this case the Professional Regulations Commission and the Board of
Examiners in Optometry.

Ruling: WHEREFORE, the petition is GRANTED; the Decision of the Court of Appeals in CA-GR SP No. 22995
REVERSED: and the respondent City Mayor is hereby ordered to reissue petitioner's business permit in accordance with
law and with this disposition. No pronouncement as to costs.

Doctrine: The scope of police power has been held to be so comprehensive as to encompass almost all matters affecting the
health, safety, peace, order, morals, comfort and convenience of the community. Police power is essentially regulatory in
nature and the power to issue licenses or grant business permits, if exercised for a regulatory and not revenue-raising
purpose, is within the ambit of this power.

Requisites

1 - LAWFUL SUBJECT: The interests of the public generally, as distinguished from those of a particular class, require
the exercise of the police power

2 - LAWFUL MEANS: The means employed are reasonably necessary for the accomplishment of the purpose and not
unduly oppressive upon individuals

ARNOLD VS. WILLITS & PATTERSON 44 PHIL 634 (1923)

1916. The Firm Willits & Patterson in San Francisco entered into a contract with Arnold whereby Arnold was to be
employed for a period of five years as the agent of

the firm here in the PI to operate an oil mill for which he was to receive a minimum salary of $200/mth, a 1% brokerage fee
from all purchases and sales of

merchandise, and half of the profits of the oil business and other businesses. provided if the business was at a loss, Arnold
would receive $400/mth.

Later, Patterson retired and Willits acquired all interests of the business.

Willits organized a new Corp in San Francisco which took over and acquired all assets of the Firm Willits & Patterson.
Willits was the owner of all the capital stock.

New corp had the same name.

After, Willits, organized a new Corporation here in the PI to take over all the business and assets of the firm here in the PI.
Willits was the owner of all the capital

stock.

Later, there was dispute with regard to the construction of the contract as a result,a new contract in the form of a letter was
entered into. Willits signed this.

The statements of account showed that 106K was due and owing to Arnold.

W&P Corp was in financial trouble and all assets were turned over to a creditor’s committee.

1922. Arnold filed this complaint to recover 106K from W&P.

W&P argues that the 2nd contract was signed without authority. And as counterclaim alleged that Arnold took 30K from the
Corp but only 19.1K was due to him thus

he owed 10.1K to W&P.

CFI ordered Arnold to return the 10.1K.

SC reverses. Arnold entitled to 68K plus half of 75K, representing PNs.

Both Corp’s organized by Willits were a One Man Corporation. After the 2nd contract was signed it was recognized by
Willits that Arnold’s services were to be

performed by its terms and there never was any dispute between Arnold and Willits.

Although a new corp was created, the new corp dealt with and treated Arnold as its agent in the same manner as the
previous corp had, thus the new corp is bound by

the contract which the old firm made.

In fact, the 2nd contract protected Willits from a larger claim, which the accountant said, would be over 160K.

Where a stock of a corporation is owned by one person whereby the corp functions only for the benefit of such individual
owner, the corp and the individual should be

deemed to be the same.

Thus the corp is bound by the contract

International Express Travel vs CA (343 SCRA 674)

International Express Travel And Tour Services Inc. vs Court of Appeals
343 SCRA 674 [GR No. 119002 October 19, 2000]
Facts: On June 30, 1989, petitioner International Express Travel and Tours Services Inc., through its managing director,
wrote a letter to the Philippine Football Federation through its President 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 as well as various other trips to the People’s
Republic of China and Brisbane. The total cost of the tickets amounted to Php449,654.83. For the tickets received, the
Federation made two partial payments, both in September of 1989 in the total amount of Php176,467.50. On October 4,
1989, petitioner wrote the Federation, through the private respondent a demand letter requesting for the amount of
Php265,844.33. On October 30, 1989, the Federation, through the project gintong alay, paid the amount of Php31,603. On
December 27, 1989, Henri Kahn issued a personal check in the amount of Php50,000 as partial payment for the outstanding
balance of the Federation. Thereafter, no further payments were made despite repeated demands. Hence, this petition.
Issue: Whether or not private respondent can be made personally liable for the liabilities of the Philippines Football
Federation.
Held: Yes. A voluntary unincorporated association, like defendant Federation has no power to enter into, or to ratify a
contract. The contract entered into by its officers or agents on behalf of such association is binding or, as enforceable
against it. The officers or agents are themselves personally liable.
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 by-laws 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 Henri Kahn should be liable for the unpaid obligations of the
unincorporated Philippine Football Federation. It is a settled principle in corporation law that any person acting or
purporting to act on behalf of the corporation which has no valid existence assumed such privileges and becomes personally
liable for contract entered into or for other acts performed as such agent.
RNOLD VS. WILLITS & PATTERSON 44 PHIL 634 (1923)

1916. The Firm Willits & Patterson in San Francisco entered into a contract with Arnold whereby Arnold was to be
employed for a period of five years as the agent of

the firm here in the PI to operate an oil mill for which he was to receive a minimum salary of $200/mth, a 1% brokerage fee
from all purchases and sales of

merchandise, and half of the profits of the oil business and other businesses. provided if the business was at a loss, Arnold
would receive $400/mth.

Later, Patterson retired and Willits acquired all interests of the business.

Willits organized a new Corp in San Francisco which took over and acquired all assets of the Firm Willits & Patterson.
Willits was the owner of all the capital stock.

New corp had the same name.

After, Willits, organized a new Corporation here in the PI to take over all the business and assets of the firm here in the PI.
Willits was the owner of all the capital

stock.

Later, there was dispute with regard to the construction of the contract as a result,a new contract in the form of a letter was
entered into. Willits signed this.

The statements of account showed that 106K was due and owing to Arnold.

W&P Corp was in financial trouble and all assets were turned over to a creditor’s committee.

1922. Arnold filed this complaint to recover 106K from W&P.

W&P argues that the 2nd contract was signed without authority. And as counterclaim alleged that Arnold took 30K from the
Corp but only 19.1K was due to him thus

he owed 10.1K to W&P.

CFI ordered Arnold to return the 10.1K.

SC reverses. Arnold entitled to 68K plus half of 75K, representing PNs.

Both Corp’s organized by Willits were a One Man Corporation. After the 2nd contract was signed it was recognized by
Willits that Arnold’s services were to be

performed by its terms and there never was any dispute between Arnold and Willits.
Although a new corp was created, the new corp dealt with and treated Arnold as its agent in the same manner as the
previous corp had, thus the new corp is bound by

the contract which the old firm made.

In fact, the 2nd contract protected Willits from a larger claim, which the accountant said, would be over 160K.

Where a stock of a corporation is owned by one person whereby the corp functions only for the benefit of such individual
owner, the corp and the individual should be

deemed to be the same.

Thus the corp is bound by the contract

PSE vs CA (281 SCRA 232)

Philippine Stock Exchange Inc. vs Court of Appeals
281 SCRA 232 [GR No. 125469 October 27, 1997]
Facts: The Puerto Azul Land Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to the public in
order to raise funds allegedly to develop its properties and pay its loans with several banking institutions. In January, 1995,
PALI was issued a permit to sell its shares to the public by the Securities and Exchange Commission (SEC). To facilitate
the trading of its shares among investors, PALI sought to course the trading of its shares through the Philippine Stock
Exchange Inc. (PSEi), for which purpose it filed with the said stock exchange an application to list its shares, with
supporting documents attached pending the approval of the PALI’s listing application, a letter was received by PSE from
the heirs of Ferdinand Marcos to which the latter claims to be the legal and beneficial owner of some of the properties
forming part of PALI’s assets. As a result, PSE denied PALI’s application which caused the latter to file a complaint before
the SEC. The SEC issued an order to PSE to grant listing application of PALI on the ground that PALI have certificate of
title over its assets and properties and that PALI have complied with all the requirements to enlist with PSE.
Issue: Whether or not the denial of PALI’s application is proper.
Held: Yes. This is in accord with the “Business Judgement Rule” whereby the SEC and the courts are barred from intruding
into business judgements of corporations, when the same are made in good faith. The same rule precludes the reversal of the
decision of the PSE, to which PALI had previously agreed to comply, the PSE retains the discretion to accept of reject
applications for listing. Thus, even if an issuer has complied with the PSE listing rules and requirements, PSE retains the
discretion to accept or reject the issuer’s listing application if the PSE determines that the listing shall not serve the interests
of the investing public.
It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed with the markings of a
corporate entity, it functions as the primary channel through which the vessels of capital trade ply. The PSEi’s relevance to
the continued operation and filtration of the securities transaction in the country gives it a distinct color of importance such
that government intervention in its affairs becomes justified, if not necessarily. Indeed, as the only operational stock
exchange in the country today, the PSE enjoys monopoly of securities transactions, and as such it yields a monopoly of
securities transactions, and as such, it yields an immerse influence upon the country’s economy.
The SEC’s power to look into the subject ruling of the PSE, therefore, may be implied from or be considered as necessary
or incidental to the carrying out of the SEC’s express power to insure fair dealing in securities traded upon a stock exchange
or to ensure the fair administration of such exchange. It is likewise, observed that the principal function of the SEC is the
supervision and control over corporations, partnerships and associations with the end in view that investment in these
entities may be encouraged and protected and their activities for the promotion of economic development.
A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and with a distinct
legal personality. In organizing itself as a collective body, it waives no constitutional immunities and requisites appropriate
to such a body as to its corporate and management decisions, therefore, the state will generally not interfere with the same.
Questions of policy and management are left to the honest decision of the officers and directors of a corporation, and the
courts are without authority to substitute their judgements for the judgement of the board of directors. The board is the
business manager of the corporation and so long as it acts in good faith, its orders are not reviewable by the courts.
In matters of application for listing in the market the SEC may exercise such power only if the PSE’s judgement is attended
by bad faith.
The petitioner was in the right when it refused application of PALI, for a contrary ruling was not to the best interest of the
general public.

G.R. No. 108670

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.

SO ORDERED."[6]

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 clear and convincing evidence.[13] Again, 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 breach of the obligation which the parties had foreseen or could reasonably 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 do 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.