CORPORATE POWERS Cases
loss may be suffered by the Bureau of Posts by reason of any act of
G.R. No. L-18062 February 28, 1963
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,vs. ACOJE MINING
COMPANY, INC., defendant-appellant.
Facts: On May 17, 1948, the Acoje Mining Company, Inc. wrote the Director
of Posts requesting the opening of a post, telegraph and money order offices
at its mining camp at Sta. Cruz, Zambales, to service its employees and their
families that were living in said camp. Acting on the request, the Director of
Posts wrote in reply stating that if aside from free quarters the company
would provide for all essential equipment and assign a responsible employee
to perform the duties of a postmaster without compensation from his office
until such time as funds therefor may be available, he would agree to put up
the offices requested. On April 11, 1949, the Director of Posts again wrote a
letter to the company stating among other things that "In cases where a post
office will be opened under circumstances similar to the present, it is the
policy of this office to have the company assume direct responsibility for
whatever pecuniary loss may be suffered by the Bureau of Posts“, thereby
suggesting that are solution be adopted by the board of directors of the
company expressing conformity to the above condition relative to the
responsibility to be assumed by it in the event a post office branch is opened
as requested. The post office branch was opened at the camp on October
13, 1949 with one postmaster. However, he suddenly disappeared. The
company found out that the account of the postmaster had a shortage of P13
867. The several demands made upon the company for the payment of the
shortage in line with the liability it has assumed having failed, the government
commenced the present action on September 10, 1954before the Court of
First Instance of Manila. The company in its answer denied liability for said
amount contending that the resolution of the board of directors is ultra vires.
Issue: Whether or not the resolution adopted was an ultra vires act.
Ruling: No. It should be noted that the opening of a post office branch at the
mining camp of Appellant Corporation was undertaken because of a request
submitted by it to promote the convenience and benefit of its employees. The
idea did not come from the government, and the Director of Posts was
prevailed upon to agree to the request only after studying the necessity for its
establishment and after imposing upon the company certain requirements.
Thus, after the company had signified its willingness to comply with the
requirement of the government that it furnish free quarters and all the
essential equipment that may be necessary for the operation of the office
including the assignment of an employee who will perform the duties of a
postmaster, the Director of Posts agreed to the opening of the post office
stating that the company assume direct responsibility for whatever pecuniary
dishonesty, carelessness or negligence on the part of the employee of the
company who is assigned to take charge of the post office,
117 Phil. 379
BAUTISTA ANGELO, J.:
On May 17, 1948, the Acoje Mining Company, Inc. wrote the Director of
Posts requesting the opening of a post, telegraph and money order offices at
its mining camp at Sta. Cruz, Zambales, to service its employees and their
families that were living in said camp. Acting on the request, the Director of
Posts wrote in reply stating that if aside from free quarters the company
would provide for all essential equipment and assign a responsible employee
to perform the duties of a postmaster without compensation from his office
until such time as funds therefor may be available he would agree to put up
the offices requested. The company in turn replied signifying its willingness to
comply with all the requirements outlined in the letter of the Director of Posts
requesting at the same time that it for furnished with the necessary forms for
the early establishment of a post office branch.
On April 1, 1949, the Director of Posts again wrote a letter to the company
stating among other things that "In cases where a post office will be opened
under circumstances similar to the present, it is the policy of this office to
have the company assume direct responsibility for whatever pecuniary loss
may be suffered by the Bureau of Posts by reason of any act of dishonesty,
carelessness or negligence on the part of the employee of the company who
is assigned to take charge of the post office," thereby suggesting that a
resolution be adopted by the board of directors of the company expressing
conformity to the above condition relative to the responsibility to be assumed
by it in the event a post office branch is opened as requested. On September
2, 1949, the company informed the Director of Posts of the passage by its
board of directors of a resolution of the following tenor: "That the requirement
of the Bureau of Posts that the Companj should accept full responsibility for
all cash received by the Postmaster be complied with, and that a copy of this
resolution be forwarded to the Bureau of Posts." The letter further states that
the company feels that that resolution fulfills the last condition imposed by
the Director of Posts and that, therefore, it would request that an inspector be
sent to the camp for the purpose of acquainting the postmaster with the
details of the operation of the branch office.
The post office branch was opened at the camp on October 13, 1949 with
one Hilario M. Sanchez as postmaster. He is an employee of the company.
On May 11, 1954, the postmaster went on a three-day leave but never
returned. The company immediately informed the officials of the Manila post
office and the provincial auditor of Zambales of Sanchez' disappearance;
with the result that the accounts of the postmaster were checked and a
shortage was found in the amount of P13,867.24.
The several demands made upon the company for the payment of the
shortage in line with the liability it has assumed having failed, the government
commenced the present action on September 10, 1954 before the Court of
First Instance of Manila seeking to recover the amount of P13,867.24. The
company in its answer denied liability for said amount contending that the
resolution of the board of directors, wherein it assumed responsibility for the
act of the postmaster is ultra vires, and in any event its liability under said
resolution is only that of a guarantor who answers only after the exhaustion
of the properties of the principal, aside from the fact that the loss claimed by
the plaintiff is not supported by the office record.
After trial, the court a quo found that of the amount claimed by plaintiff
totalling P13,867.24, only the sum of P9,515.25 was supported by the
evidence, and so it rendered judgment for the plaintiff only for the amount
last mentioned. The court rejected the contention that the resolution adopted
by the company is ultra vires and that the obligation it has assumed is merely
that of a guarantor. Defendant took the present appeal.
The contention that the resolution adopted by the company dated August 31,
1949 is ultra vires in the sense that it has no authority to act on a matter
which may render the company liable as a guarantor has no factual or legal
basis. In the first place, it should be noted that the opening of a post office
branch at the mining camp of appellant corporation was undertaken because
of a request submitted by it to promote the convenience and benefit of its
employees. The idea did not come from the government, and the Director of
Posts was prevailed upon to agree to the request only after studying the
necessity for its establishment and after imposing upon the company certain
requirements intended to safeguard and protect the interest of the
government. Thus, after, the company had signified its willingness to comply
with the requirement of the government that it furnish free quarters and all
the essential equipment that may be necessary for the operation of the office
including the assignment, of an employee who will perform the duties of a
postmaster, the Director of Posts agreed to the opening of the post office
stating that "In cases where a post Office will be opened under
circumstances similar to the present, it is the policy of this office to have the
company assume direct responsibility for whatever pecuniary loss may be
suffered by the Bureau of Posts by reason of any act of dishonesty,
carelessness or negligence on the part of the employee of the company who
is assigned to take charge of the post office," and accepting this condition the
Company, thru its board of directors, adopted forthwith a resolution of the
following tenor: "That the requirement of the Bureau of Posts that the
company should accept full responsibility for all cash received by the
Postmaster, be complied with, and that a copy of this resolution be forwarded
to the Bureau of Posts." On the basis of the foregoing facts, it is evident that
the company cannot now be heard to complain that it is not liable for the
irregularity committed by its employee upon the technical plea that the
resolution approved by its board of directors ultra vires. The least that can be
said is that it cannot now go back, on its plighted word on the ground of
estoppel.
The claim that the resolution adopted by the board of directors of appellant
company is an ultra vires act cannot also be entertained it appearing that the
same covers a subject which concerns the benefit, convenience and welfare
of its employees and their families. While as a rule an ultra vires act is one
committed outside the object for which a corporation is created as defined by
the law of its organization and therefore beyond the powers conferred upon it
by law (19 C.J.S., Section 965, p. 419), there are however certain corporate
acts that may be performed outside of the scope of the powers expressly
conferred if they are necessary to promote fee interest or welfare of the
corporation. Thus, it has been held that "although not expressly authorized to
do so a corporation may become a surety where the particular transaction is
reasonably necessary or proper to the conduct of its business,[1] and here it
is undisputed that the establishment of the local post office is a reasonable
and proper adjunct to the conduct of the business of appellant company.
Indeed, such post office is a vital improvement in the living condition of its
employees and laborers who came to settle in its mining camp which is far
removed from the postal facilities or means of communication accorded to
people living in a city or municipality.
Even assuming arguendo that the resolution in question constitutes an ultra
vires act, the same however is not void for it was approved not in
contravention of law, customs, public order or public policy. The term ultra
vires should be distinguished from an illegal act for the former is merely
voidable which may be enforced by performance, ratification, or estoppel,
while the latter is void and cannot be validated.[2] It being merely voidable,
an ultra vires act can be enforced or validated if there are equitable grounds
for taking such action. Here it is fair that the resolution be upheld at least on
the ground of estoppel. On this point, the authorities are overwhelming:
"The weight of authority in the state courts is to the effect that a transaction
which is merely, ultra vires and not malum in se or malum prohibitum is, if
performed by one party, not void as between the parties to all intents and
purposes, and that an action may be brought directly, on the transaction and
relief had according to its terms." (19 C.J.S., Section 976, p. 432, citing
Nettles vs. Rhett, C.C.A.S.C, 94 F. 2d, reversing, D.C., 20 F. Supp. 48.) .
"This rule is based on the consideration that as between private corporations,
one party cannot receive the benefits which are embraced in total
performance of a contract made with it by another party and then set up the
invalidity of the transaction as a defense." (London & Lancashire Indemnity
'Co. of America vs. Fairbanks Steam Shovel Co., 147 N.E. 329, 332, 112
Ohio St. 136.).
"The defense of ultra vires rests on violation of trust or duty toward
stockholders and should not be entertained where its allowance will do
greater wrong to innocent parties dealing with corporation.
"The acceptance of benefits arising from the performance by the other party
may give rise to all estoppel precluding repudiation of the transaction." (19
CJ.S., Section 976, p. 433.)
"The current of modern authorities favors the rule that where the ultra vires
transaction has been executed by the other party and the corporation has
received the benefit of it, the law interposes an estoppel, and will not permit
the validity of the transaction or contract to be questioned, and this is
especially true where there nothing in the circumstances to put the other
party to the transaction on notice that the corporation has exceeded its
powers in entering into it and has in so doing overstepped the line of
corporate ( privileges." (19 CJ.S., Section 977, pp. 435-437, citing Williams
vs. Peoples Building & Loan Ass'n. 97 S.W. 2d 930, 193 Ark. 118, Hays vs.
Galion Gas Light Co., 29 Ohio St. 330.)
Neither can we entertain the claim of appellant that its liability is only that of a
guarantor. On this point, we agree with the following comment of the court a
quo "A mere reading of the resolution of the Board of Directors dated August
31, 1949, upon which the plaintiff based its claim would show that the
responsibility of the defendant company is not just that of a guarantor. Notice
that the phraseology and the terms employed are so clear and sweeping and
that the defendant assumed 'full responsibility for all cash received by the
Postmaster.' Here the responsibility of the defendant is not just that of a
guarantor. It is clearly that of a principal. "
Wherefore, the decision appealed from is affirmed.
Bengzon, C, J., Padilla, Concepcion, Reyes, J.B.L., Barrera, Parades, Dizon,
Regala, and Makalintal, JJ., concur.
Carlos vs Mindoro Sugar Co. (1932)
February 14, 2013 markerwins Corporation Law, Mercantile Lawcorpo, merc
Facts: This is an action to recover from the defendants the value of four
bonds with due and unpaid interest thereon, issued by the Mindoro Sugar
Company and placed in trust with the Philippine Trust Company. Mindoro
Sugar Company is a corporation constituted in accordance with the laws of
the country. According to its articles of incorporation one of its principal
purposes was to acquire and exercise the franchise granted by Act No. 2720
to George H. Fairchild, to substitute the organized corporation. Philippine
Trust Company is another domestic corporation its principal purpose, then,
as its name indicates, is to engage in the trust business. The board of
directors of the Philippine Trust Company, adopted a resolution authorizing
its president, among other things, to purchase the bonds in the Mindoro
Sugar Company that was about to issue, and to resell them, with or without
the guarantee of said trust corporation, at a price not less than par, and to
guarantee to the Philippine National Bank the payment of the indebtedness
to said bank by the Mindoro Sugar Company. Pursuance of this resolution,
the Mindoro Sugar Company executed in favor of the Philippine Trust
Company the deed of trust transferring all of its property to it in consideration
of the bonds it had issued. Philippine Trust Company sold thirteen bonds, to
Ramon Diaz. The Philippine Trust Company paid the appellant, upon
presentation of the coupons, the stipulated interest from the date of their
maturity then it stopped payments; and thenceforth it alleged that it did not
deem itself bound to pay such interest or to redeem the obligation because
the guarantee given for the bonds was illegal and void.
Issue: WON PTC has the power to guarantee and does this act constitute an
ultra vires act?
Held: No. It is not ultra vires for a corporation to enter into contracts of
guaranty or suretyship where it does so in the legitimate furtherance of its
purposes and business. And it is well settled that where a corporation
acquires commercial paper or bonds in the legitimate transaction of its
business it may sell them, and in furtherance of such a sale it may, in order
to make them the more readily marketable, indorse or guarantee their
payment.
Whenever a corporation has the power to take and dispose of the securities
of another corporation, of whatsoever kind, it may, for the purpose of giving
them a marketable quality, guarantee their payment, even though the amount
involved in the guaranty may subject the corporation to liabilities in excess of
the limit of indebtedness which it is authorized to incur. A corporation which
has power by its charter to issue its own bonds has power to guarantee the
bonds of another corporation, which has been taken in payment of a debt
due to it, and which it sells or transfers in payment of its own debt, the
guaranty being given to enable it to dispose of the bond to better advantage.
And so guaranties of payment of bonds taken by a loan and trust company in
the ordinary course of its business, made in connection with their sale, are
not ultra vires, and are binding.
When a contract is not on its face necessarily beyond the scope of the power
of the corporation by which it was made, it will, in the absence of proof to the
contrary, be presumed to be valid.
The Government of the Philippine Islands vs. El Hogar Filipino
G.R. No. L-26649 July 13, 1917
FACTS: The Philippine Commission enacted Act No. 1459, also known as
the Corporation Law, on March 1, 1906. El Hogar Filipino, organized in 1911
under the laws of the Philippine Islands, was the first corporation organized
under Sec. 171-190 Act No. 1459, devoted to the subject of building and loan
associations, their organization and administration. In the said law, the
capital of the corporation was not permitted to exceed P3M, but Act No. 2092
amended the statute, permitting capitalization to the amount of ten millions.
El Hogar took advantage of the amendment of Act No. 1459 and amended its
AOI as a result thereof, stating that the amount of capital must not exceed
what has been stated in Act No. 2092. This resulted to El Hogar having 5,826
shareholders, 125,750 shares with paid-up value of P8.7M. The corporation
paid P7.16M to its withdrawing stockholders.
The Government of the Philippine Islands filed an action against El Hogar
due to the alleged illegal holding title to real property for a period exceeding
five (5) years after the same was bought in a foreclosure sale. Sec. 13(5) of
the Corporation Law states that corporations must dispose of real estate
obtained within 5 years from receiving the title. The Philippine Government
also prays that El Hogar be excluded from all corporate rights and privileges
and effecting a final dissolution of said corporation.
It appears from the records that El Hogar was the holder of a recorded
mortgage on the San Clemente land as security for a P24K loan to El Hogar.
However, shareholders and borrowers defaulted in payment so El Hogar
foreclosed the mortgage and purchased the land during the auction sale. A
deed of conveyance in favor of El Hogar was executed and sent to the
Register of Deeds of Tralac with a request that the certificate of title be
cancelled and a new one be issued in favor of El Hogar from the Register of
Deeds of Tarlac. However, no reply was received. El Hogar filed a complaint
with the Chief of the General Land Registration Office. The certificate of title
to the San Clemente land was received by El Hogar and a board resolution
authorizing Benzon to find a buyer was issued. Alcantara, the buyer of the
land, was given extension of time to make payment but defaulted so the
contract treated rescinded. Efforts were made to find another buyer.
Respondent acquired title in December 1920 until the property was finally
sold to Felipa Alberto in July 1926. The interval exceeded 5 years but the
period did not commence to run until May 7, 1921 when the register of deeds
delivered the new certificate of title. It has been held that a purchaser of land
registered under the Torrens system cannot acquire the status of an innocent
purchaser for value unless the vendor is able to place the owner’s duplicate
in his hands showing the title to be in the vendor. During the period before
May 1921, El Hogar was not in a position to pass an indefeasible title to any
purchaser. Therefore, El Hogar cannot be held accountable for this delay
which was not due to its fault. Likewise, the period from March 25, 1926 to
April 20, 1926 must not be part of the five-year period because this was the
period where respondent was under the obligation to sell the property to
Alcantara prior to the contract’s rescission due to Alcantara’s non-payment.
Another circumstance causing the delay is the fact that El Hogar purchased
the property in the full amount of the loan made by the former owner which is
nearly P24K when it was subsequently found that the property was not
salable and later sold for P6K notwithstanding El Hogar’s efforts to find a
purchaser upon better terms.
ISSUE: Whether the acts of respondent corporation merit its dissolution or
deprivation of its corporate franchise and to exclude it from all corporate
rights and privileges
HELD: SUSTAINED only as to administering of real property not owned by it
and when permitted by contract.
Causes of action:
1) Alleged illegal holding of real property for a period exceeding five
years from receipt of title-Cause of delay is not respondent’s fault
2) That respondent is owning and holding a business lot with the
structure thereon in excess of its reasonable requirements and in
contravention of Sec. 13(5) of Corpo. Law- WITHOUT MERIT
Every corporation has the power to purchase, hold and lease such real
property as the transaction would of the lawful business may reasonably and
necessarily require.
3) That respondent is engaged in activities foreign to the purposes for
which the corporation was created and not reasonably necessary to its
legitimate ends-VALID
The administration of property, payment of real estate taxes, causing
necessary repairs, managing real properties of non-borrowing shareholders
is more befitting to the business of a real estate agent or a trust company
than a building and loan association.
4) That the by-laws of the association stating that, “the board of
directors by the vote of an absolute majority of its members is empowered to
cancel shares and to return the balance to the owner by reason of their
conduct or any other motive or liquidation” is in direct conflict with Sec. 187 of
the Corporation Law which provides that the board of directors shall not have
the power to force the surrender and withdrawal of unmatured stock except
in case of liquidation or forfeiture of stock for delinquency-WITHOUT MERIT
There is no provision of law making it a misdemeanor to incorporate an
invalid provision in the by-laws of a corporation; and if there were such, the
hazards incident to corporate effort would be largely increased.
5) Art. 61 of El Hogar’s by-laws which states that “ attendance in person
or by proxy by shareholders owning one-half plus one of the shareholders
shall be necessary to constitute a quorum for the election of directors” is
contrary to Sec. 31 of the Corpo Law which provides that owners of the
majority of the subscribed capital stock entitled to vote must be present either
in person or by proxy at all elections of directors- WITHOUT MERIT
No fault can be imputed to the corporation on account of the failure of the
shareholders to attend the annual meetings and their non-attendance in
meetings is doubtless to be interpreted in part as expressing their satisfaction
of the way in which things have been conducted. Mere failure of a
corporation to elect officers does not terminate the terms of existing officers
nor dissolve the corporation. The general rule is to allow the officer to
holdover until his successor is duly qualified.
6) That the directors of El Hogar, instead of receiving nominal pay or
serving without pay, have been receiving large compensation, varying in
amount from time to time, out of respondents’ profits- WITHOUT MERIT
With the growth of the corporation, the amount paid as compensation to the
directors has increased beyond what would probably be necessary is a
matter that cannot be corrected in this action. Nor can it properly be made a
basis for depriving respondent of its franchise or enjoining it from compliance
with the provisions of its own by-laws. If a mistake has been made, the
remedy is to lie rather in publicity and competition.
7) That the promoter and organizer of El Hogar was Mr. Antonio Melian
and that in the early stages of the organization of the association, the board
of directors authorized the association to make a contract with him and that
the royalty given to him as founder is “unconscionable, excessive and out of
proportion to the services rendered”-NOT SUSTAINED
The mere fact that compensation is in excess of what may be considered
appropriate is not a proper consideration for the court to resolve. That El
Hogar is in contact with its promoter did not affect the association’s legal
character. The court is of the opinion that the traditional respect for the
sanctity of the contract obligation should prevail over the radical and
innovating tendencies.
8) That Art. 70 of El Hogar’s by-laws, requiring persons elected as
board of directors to be holders of shares of the paid up value of P5,000
which shall be held as security, is objectionable since a poor member or
wage earner cannot serve as a director irrespective of other qualifications-
NOT SUSTAINED
Corpo. Law expressly gives the power to the corporation to provide in its by-
laws for the qualification of its directors and the requirement of security from
them for the proper discharge of the duties of their pffice in the manner
prescribed in Art. 70 is highly prudent and in conformity with good practice.
9) That respondent abused its franchise in issuing “special” shares
alleged to be illegal and inconsistent with the plan and purposes of building
and loan associations- WITHOUT MERIT
The said special shares are generally known as advance payment shares
which were evidently created for the purpose of meeting the condition
caused by the prepayment of dues that is permitted. Sec. 178 of Corpo Law
allows payment of dues or interest to be paid in advance but the corporation
shall not allow interest on advance payment grater than 6% per annum nor
for a period longer than one year. The amount is satisfied by applying a
portion of the shareholder’s participation in the annual earnings.The mission
of special shares does not involve any violation of the principle that the
shares must be sold at par.
10) That in making purchases at foreclosure sales constituting as
security for 54 of the loans, El Hogar bids the full amount after deducting the
withdrawal value, alleged to be pusuing a policy of depreciating at the rate of
10 percent per annum, the value of the real properties it acquired and that
this rate is excessive-UNSUSTAINABLE
The board of directors possess discretion in this matter. There is no provision
of law prohibiting the association from writing off a reasonable amount for
depreciation on its assets for the purpose of determining its real profits. Art.
74 of its by-laws expressly authorizes the board of directors to determine
each year the amount to be written down upon the expenses for the
installation and the property of the corporation. The court cannot control the
discretion of the board of directors about an administrative matter as to which
they have no legitimate power of action.
11) That respondent maintains excessive reserve funds-UNFOUNDED
The function of this fund is to insure stockholders against losses. When the
reserves become excessive, the remedy is in the hands of the Legislature.
No prudent person would be inclined to take a policy in a
company which had so improvidently conducted its affairs that it only
retained a fund barely sufficient to pay its present liabilities and therefore was
in a condition where any change by the reduction of interest upon or
depreciation in the value of securities or increase of mortality would render it
insolvent and subject to be placed in the hands of a receiver.
12) That the board of directors has settled upon the unlawful policy of
paying a straight annual dividend of 10 percent per centum regardless of
losses suffered and profits made by the corporation, in contravention with the
requirements of Sec. 188 of the Corpo law- UNFOUNDED
As provided in the previous cause of action, the profits and losses shall be
determined by the board of directors and this means that they shall exercise
the usual discretion of good businessmen in allocating a portion of the annual
profits to purposes needful of the welfare of the association. The law
contemplates distribution of earnings and losses after legitimate obligations
have been met.
13) That El Hogar has made loans to the knowledge of its officers which
were intended to be used by the borrowers for other purposes than the
building of homes and no attempt has been made to control the borrowers
with respect to the use made of the borrowed funds- UNFOUNDED
There is no statute expressly declaring that loans may be made by these
associations SOLELY for the purpose of building homes. The building of
himes in Sec. 171 of Corpo Law is only one among several ends which
building and loan associations are designed to promote and Sec. 181
authorizes the board of directors of the association to fix the premium to be
charged.
14) That the loans made by defendant for purposes other than building or
acquiring homes have been extended in extremely large amounts and to
wealthy persons and large companies- WITHOUT MERIT
The question of whether the making of large loans constitutes a misuser of
the franchise as would justify the court in depriving the association of its
corporate life is a matter confided to the discretion of the board of directors.
The law states no limit as to the size of the loans to be made by the
association. Resort should be had to the legislature because it is not a matter
amenable to judicial control
15) That when the franchise expires, supposing the corporation is not
reorganized, upon final liquidation of the corporation, a reserve fund may
exist which is out of all proportion to the requirements that may fall upon it in
the liquidation of the company-NO MERIT
This matter may be left to the discretion of the board of directors or to
legislative action if it should be deemed expedient to require the gradual
suppression of reserve funds as the time for dissolution approaches. It is no
matter for judicial interference and much less could the resumption of the
franchise be justified on this ground.
16) That various outstanding loans have been made by the respondent to
corporations and partnerships and such entities subscribed to respondents’
shares for the sole purpose of obtaining such loans-NO MERIT
Sec. 173 of Corpo Law declares that “any person” may become a
stockholder in building and loan associations. The phrase ANY PERSON
does not prevent a finding that the phrase may not be taken in its proper and
broad sense of either a natural or artificial person.
17) That in disposing real estate purchased by it, some of the properties
were sold on credit and the persons and entities to which it was sold are not
members nor shareholders nor were they made members or shareholders,
contrary to the provision of Corpo Law requiring requiring loans to be
stockholders only- NOT SUSTAINED
The law does not prescribe that the property must be sold for cash or that the
purchaser shall be a shareholder in the corporation. Such sales can be made
upon the terms and conditions approved by the parties.
Respondent is enjoined in the future from administering real property not
owned by itself, except as may be permitted to it by contract when a
borrowing shareholder defaults in his obligation. In all other respects, the
complaint is DISMISSED.
252 Phil. 747
CORTES, J.:
National Power Corporation vs Vera
Petitioner, National Power Corporation (NPC), seeks to annul the order of
respondent judge dated June 8, 1988 issuing a writ of preliminary injunction
which enjoined NPC from further undertaking stevedoring and arrastre
services in its pier located at the Batangas Coal-Fired Thermal Power Plant
at Calaca, Batangas and directing it either to enter into a contract for
stevedoring and arrastre services or to conduct a public bidding therefor.
Private respondent was also allowed to continue stevedoring and arrastre
services at the pier.
The instant petition arose from a complaint for prohibition and mandamus
with damages filed by private respondent against NPC and Philippine Porte
Authority (PPA), wherein private respondent alleged that NPC had acted in
bad faith and with grave abuse of discretion in not renewing its Contract for
Stevedoring Services for Coal-Handling Operations at NPC's plant, and in
taking over its stevedoring services.
Soon after the filing of private respondent's complaint, respondent judge
issued a restraining order against NPC enjoining the latter from undertaking
stevedoring services at its pier. Consequently, NPC filed an "Urgent Motion"
to dissolve the restraining order, asserting, inter alia: (1) that by virtue of
Presidential Decree No. 1818, respondent judge had no jurisdiction to issue
the order; and (2) that private respondent, whose contract with NPC had
expired prior to the commencement of the suit, failed to establish a cause of
action for a writ of preliminary injunction.
Respondent judge issued the assailed Order denying NPC's motion and
issuing a writ of preliminary injunction, after finding that NPC was not
empowered by its Charter, Republic Act No. 6395, as amended, to engage in
stevedoring and arrastre services. Hence, the instant petition.
On June 15, 1988, the Court issued a temporary restraining order. After
private respondent filed its comment to the petition, and petitioner filed its
reply, the Court considered the issues joined and the case submitted for
decision.
After a careful study of the various allegations and issues raised in the
pleadings, the Court finds merit in the petition. Indeed, the assailed Order
suffers from infirmities which must be rectified by the grant of a writ of
certiorari in favor of the petitioner.
A. Firstly, respondent judge acted without jurisdiction when he issued the
writ of preliminary injunction against NPC.
Presidential Decree No. 1818 explicitly provides:
SECTION 1. No court in the Philippines shall have jurisdiction to issue any
restraining order, preliminary injunction, or preliminary mandatory injunction
in any case, dispute, or controversy involving an infrastructure project, or a
mining, fishery, forest or other natural resource development project of the
government, or any public utility operated by the government, including
among others public utilities for the transport of the goods or commodities,
stevedoring and arrastre contracts, to prohibit any person or persons, entity
or government official from proceeding with, or continuing the execution or
implementation of any such project, or the operation of such public utility, or
pursuing any lawful activity necessary for such execution, implementation or
operation.
Undeniably, NPC is a public utility, created under special legislation,
engaged in the generation and distribution of electric power and energy. It,
therefore, enjoys the protective mantle of the above decree.
Moreover, respondent judge's finding that NPC is not empowered by its
Charter to undertake stevedoring services in its pier is erroneous.
To carry out the national policy of total electrification of the country,
specifically the development of hydroelectric generation of power and the
production of electricity from nuclear, geothermal and other sources to meet
the needs of industrial development and dispersal and the needs of rural
electrification [Secs. 1 and 2, Rep. Act No. 6395, as amended], the NPC was
created and empowered not only to construct, operate and maintain power
plants, reservoirs, transmission lines, and other works, but also:
xxx xxx xxx
. . . To exercise such powers and do such things as may be reasonably
necessary to carry out the business and purposes for which it was organized,
or which, from time to time, may be declared by the Board to be necessary,
useful, incidental or auxiliary to accomplish said purpose, . . . [Sec. 3 (1) of
Rep. Act No. 6395, as amended.]
In determining whether or not an NPC act falls within the purview of the
above provision, the Court must decide whether or not a logical and
necessary relation exists between the act questioned and the corporate
purpose expressed in the NPC charter. For if that act is one which is lawful
in itself and not otherwise prohibited, and is done for the purpose of serving
corporate ends, and reasonably contributes to the promotion of those ends in
a substantial and not in a remote and fanciful sense, it may be fairly
considered within the corporation's charter powers [Montelibano v. Bacolod-
Murcia Milling Co., Inc., G.R. No. L-15092, May 18, 1962, 5 SCRA 36.]
This Court is guided by jurisprudence in the application of the above
standard. In the 1963 case of Republic of the Philippines v. Acoje Mining
Company Inc. [G.R. No. L-18062, February 28, 1963, 7 SCRA 361] the Court
affirmed the rule that a corporation is not restricted to the exercise of powers
expressly conferred upon it by its charter, but has the power to do what is
reasonably necessary or proper to promote the interest or welfare of the
corporation. Thus, the Court, finding that a "post office is a vital improvement
in the living condition of its employees and laborers who came to settle in its
mining camp which is far removed from the postal facilities or means of
communication accorded to people living in a city or municipality" [Id., at p.
365], held that respondent mining corporation was empowered to operate
and maintain postal facilities servicing its employees and their families at its
mining camp in Sta. Cruz, Zambales despite absence of a provision in the
company's charter authorizing the former to do so.
The Court in the case of Teresa Electric &, Power Co., Inc. v. Public Service
Commission and Filipinas Cement Corporation [G.R. No. L-21804,
September 25, 1967, 21 SCRA 198] in interpreting a provision found in
respondent corporation's articles of incorporation authorizing the corporation
to perform any and all acts connected with the business of manufacturing
portland cement or arising therefrom or incidental thereto, concluded that the
corporation must be deemed authorized to operate and maintain an electric
power plant exclusively for its own use in connection with the operation of its
cement factory in a remote barrio. The Court found that the operation of
such plant was necessarily connected with the business of manufacturing
cement.
In the instant case, it is an undisputed fact that the pier located at Calaca,
Batangas, which is owned by NPC, receives the various shipments of coal
which is used exclusively to fuel the Batangas Coal-Fired Thermal Power
Plant of the NPC for the generation of electric power. The stevedoring
services which involve the unloading of the coal shipments onto the NPC pier
for its eventual conveyance to the power plant are incidental and
indispensable to the operation of the plant. The Court holds that NPC is
empowered under its Charter to undertake such services, it being reasonably
necessary to the operation and maintenance of the power plant.
B. Secondly, the assailed Order was issued in grave abuse of discretion,
considering: (1) that private respondent had failed to establish a right to the
issuance of a writ of preliminary injunction; and (2) that the court cannot
direct the exercise of a corporate prerogative.
Before a writ of preliminary injunction may be issued, there must be a clear
showing by the complainant that there exists a right to be protected and that
the acts against which the writ is to be directed are violative of the said right
[Araneta v. Gatmaitan, 101 Phil. 328 (1957); Buayan Cattle Co., Inc. v.
Quintillan, G.R. No. L-26970, March 19, 1984, 128 SCRA 276.]
In the instant case, it is an undisputed fact that private respondent's contract
for stevedoring services with NPC had already expired. Admittedly, there is
no existing contractual relationship between the parties. Moreover, private
respondent's PPA permit for cargo handling services at the NPC Calaca pier
had expired as well. On the other hand, NPC, which was under no legal
obligation to renew the contract for stevedoring services with private
respondent, was granted authority by the PPA to provide cargo handling
services in its pier. Consequently, there was no right of private respondent
that needed to be protected or preserved by a writ of preliminary injunction.
Furthermore, respondent judge's directive ordering NPC to enter into a
contract for stevedoring and arrastre services or to conduct a public bidding
therefor amounted to a writ of mandamus. But it is a settled rule that
mandamus will lie only to compel the performance of a ministerial duty; it
does not lie to require anyone to fulfill contractual obligations or compel a
course of conduct, nor to control or review the exercise of discretion [Sy Ha
v. Galang, G.R. No. L-18513, April 27, 1963, 7 SCRA 797; Aprueba, et al. v.
Ganzon, G. R. No. L-20867. September 3, 1966, 18 SCRA 8; Avenue
Arrastre & Stevedoring Corporation v. Commissioner of Customs, et al.,
G.R. No. L-44674, February 28, 1983, 120 SCRA 878; Tangonan v. Pano,
G.R. No. L-45157, June 27, 1985, 137 SCRA 245.] As for back as 1910, in
the case of Tabigue v. Duvall [16 Phil. 324], the Court laid the fundamental
principle governing the issuance of a writ of mandamus that the duties to be
enforced thereby must be such as are clearly and peremptorily enjoined by
law or by reason of official station.
Whether NPC will enter into a contract for stevedoring and arrastre services
to handle its coal shipments to its pier, or undertake the services itself, is
entirely and exclusively within its corporate discretion. It does not involve a
duty the performance of which is enjoined by law. Thus, the courts cannot
direct the NPC in the exercise of this prerogative.
WHEREFORE, in view of the foregoing, the Court having considered the
Petition, private respondent's Comment, and the Reply thereto, Resolved to
GRANT the petition. The respondent Judge's Order dated June 8, 1988 is
SET ASIDE and the temporary restraining order issued by the Court on June
15, 1988 is made PERMANENT.
SO ORDERED.
Madrigal & Company v. Zamora (G.R. No. L-48237)
Date: June 4, 2016
Facts:
Respondent Madrigal Central Office Employees Union sought for the renewal
of their CBA with petitioner as well as an increase in their wage, allowance
and other benefits. Petitioner however requested deferment in the
negotiations and later on reduced its authorized capitalization on two
occasions. Respondent Union commenced a complaint for unfair labor
practice and illegal lockout against petitioner. Petitioner alleges it sustained
operational losses and further, that whatever profits it earned is in the nature
of dividends which cannot be disposed to meet employees’ economic
demands. Petitioner motions for reconsideration and appeal proved futile.
Issue:
Whether or not the dividends earned by petitioners can be used to satisfy the
employees’ claims.
Ruling: YES.
We agree with the National Labor Relations Commission that “[t]he dividends
received by the company are corporate earnings arising from corporate
investment.” Indeed, as found by the Commission, the petitioner had entered
such earnings in its financial statements as profits, which it would not have
done if they were not in fact profits.
Moreover, it is incorrect to say that such profits — in the form of dividends —
are beyond the reach of the petitioner’s creditors since the petitioner had
received them as compensation for its management services in favor of the
companies it managed as a shareholder thereof. As such shareholder, the
dividends paid to it were its own money, which may then be available for
wage increments. It is not a case of a corporation distributing dividends in
favor of its stockholders, in which case, such dividends would be the
absolute property of the stockholders and hence, out of reach by creditors of
the corporation. Here, the petitioner was acting as stockholder itself, and in
that case, the right to a share in such dividends, by way of salary increases,
may not be denied its employees.
Pirovano V. De La Rama Steamship Co., Inc (1954)
G.R. No. L-5377. December 29, 1954
Lessons Applicable: Ratification of Ultra Vires Acts (Corporate law)
FACTS:
Enrico Pirovano, president of the defendant company, managed the
companyuntil it became a multi-million corporation by the time Pirovano was
executed by the Japanese during the occupation.
BOD Resolution: Out of the proceeds, the sum of P400,000 be set aside for
equal division among the 4 minor children, convertible into shares of stock of
the De la Rama Steamship Company, at par and, for that purpose, that the
present registered stockholders of the corporation be requested to waive
their preemptive right to 4,000 shares of the unissued stock of the company
in order to enable each of the 4 minor heirs to obtain 1,000 shares at par
if the Pirovano children would given shares of stock, the voting strength of
the 5 daughters of Don Esteban would be adversely affected - Mrs. Pirovano
would have a voting power twice that of her sisters
Lourdes de la Rama wrote secretary of the corporation, Atty. Marcial
Lichauco, asking him to cancel the waiver she supposedly gave of her pre-
emptive rights.
The company ammended the resolution turning it into a loan with 5% interest
payable when the obligation can be met
The company revoked its donation of the life premium proceeds since it is
not in compliance with the SEC
Minor children of the late Enrico represented by their mother and judicial
guardian demanded the payment of the credit due them as of December 31,
1951, amounting to P564,980.89
RTC: contract or donation is not ultra vires
ISSUE: W/N corporation donation of the proceeds of insurance policies is an
ultra vires act
HELD:
NO. valid and binding remunerative donation
That which is made to a person in consideration of his merits or for services
rendered to the donor, provided they do not constitute recoverable debts, or
that in which a burden less than the value of the thing given is imposed upon
the donee, is also a donation." (Art. 619, old Civil Code)
In donations made to a person for services rendered to the donor, the
donor's will is moved by acts which directly benefit him. The motivating cause
is gratitude, acknowledgment of a favor, a desire to compensate. (Sinco and
Capistrano, The Civil Code, Vol. 1, p. 676; Manresa, 5th ed., pp. 72-73.)
donation has reached the stage of perfection which is valid and binding upon
the corporation and as such cannot be rescinded unless there is exists legal
grounds for doing so.
donation was embodied in a resolution duly approved by the Board of
Directors on January 6, 1947
July 25, 1949: BOD approved the proposal of Mrs. Pirovano to buy the house
at New Rochelle, New York, owned by a subsidiary of the corporation at the
costs of S75,000
2 reasons given for the rescission of donation in the resolution of the
corporation adopted on March 8, 1951 - valid and legal as to justify the
rescission
corporation failed to comply with the conditions to which the above donation
was made subject
in the opinion of the Securities and Exchange Commission said donation is
ultra vires
articles of incorporation contain:
To invest and deal with the moneys of the company and immediately
required, in such manner as from time to time may be determined.
To aid in any other manner any person, association, or corporation of which
any obligation or in which any interest is held by this corporation or in the
affairs or prosperity of which this corporation has a lawful interest.
By ratification the infirmity of the corporate act has been obliterated thereby
making it perfectly valid and enforceable. This is specially so if the donation
is not merely executory but executed and consummated and no creditors are
prejudice, or if there are creditors affected, the latter has expressly given
their confirmity
ESTEFANIA R. VDA. DE PIROVANO, PLAINTIFF AND APPELLANT, VS.
DE LA RAMA STEAMSHIP CO., INC., DEFENDANT AND APPELLEE.
DECISION
PADILLA, J.:
Plaintiff seeks to recover from the defendant the sum of P221,975.45, the
balance of the amount of dividends at P100 per share, declared by
Resolution No. 50-127 of 29 December 1950, to which she is entitled as the
registered owner of 3,424 shares of stock in the defendant corporation, after
deducting the sum of P120,424.55 she had withdrawn or received from the
defendant for advances made to her after the death of the late Esteban de la
Rama, 20 per cent of the sum sought to be recovered for attorney's fees and
expenses of litigation by way of damages, and costs.
Answering the complaint, the defendant avers that although the plaintiff is
entitled to the dividends claimed in the complaint, yet she is indebted to the
defendant as of 29 December 1950 in the sum of P444,202.52, and that by
reason of the unnecessary commencement of the suit, the defendant
suffered damages in the sum of P100,000. Upon the foregoing allegations
the defendant asks for the dismissal of the complaint and prays that
judgment be rendered condemning the plaintiff to pay the amount of
damages it has suffered and costs.
After hearing, the Court dismissed both the complaint and the counterclaim
without pronouncement as to costs. The plaintiff has appealed.
Appellant's theory is that the cash advances to her in the United States
during the Pacific War for her personal expenses and for the support and
education of her children were assumed by Esteban de la Rama, as set forth
in his letter dated 5 May 1947 (Exhibit B) to the appellee and the Hijos de I.
de la Rama & Co., Inc., consented to and approved by both corporations.
She claims that the advances made to her by the appellee were debited
against the account of Hijos de I. de la Rama & Co., Inc., another corporation
practically owned by Esteban de la Rama; that the only sum the appellee
corporation may deduct from the amount of dividends to which she is entitled
is P120,424.55 which she received after the death of her father Esteban de
la Rama and was not assumed by him; and that as a matter of fact in special
proceedings No. 401 of the Court of First Instance of Iloilo for the
administration and settlement of the estate of the late Esteban de la Rama,
the Hijos de I. de la Rama & Co., Inc., filed a claim charging the estate with
the aforesaid advances for expenses of the appellant and of her children
which had been assumed by the deceased in his lifetime, a claim which,
although reduced to P26,000 as per Ballentyne schedule of monetary value,
was approved by the Court of First Instance of Iloilo on 27 September 1950,
and the executor of the estate of the late Esteban de la Rama was directed
to pay the claim thus allowed (Exhibit O).
The appellee resists appellant's claim upon the ground that the assumption
by Esteban de la Rama of the total sum of withdrawals by the appellant for
her expenses and of her children was never consented to by the appellee
and hence not binding upon it; and that the accounting method by which the
withdrawals were charged against the Hijos de I. de la Rama & Co., Inc. was
to circumvent the prohibition imposed upon the appellee to declare
dividends, agreed upon in the deed of trust executed by the appellee and the
National Development Company, a prohibition which lasted from 26 February
1940 to 23 September 1949 (Exhibit 7).
There is no dispute that the appellant is the registered owner of 3,424 shares
of stock in the appellee corporation; that on 29 December 1950 the appellee
by Resolution No. 50-127 declared a dividend of F100 for each share of
stock; that the appellee further resolved that the personal accounts of the
stockholders of the De la Rama Steamship Co., Inc., which include that of
the appellant in the sum of P444,202.52 set up in the books of De la Rama
Steamship Co., Inc. against the Hijos de I. de la Rama & Co., Inc., be
credited to the account of the last named corporation and debited to
accounts receivable from the stockholders; and that from the amount of
dividends, the personal account of each and every stockholder be deducted
(Exhibit A-l).
The determination of the controversy hinges on whether the assumption
made by the late Esteban de la Rama in his lifetime of all the advances made
by the appellee to the appellant was binding upon it. There is no doubt that
because of the prohibition agreed upon in the deed of trust to the effect that
no dividends could be declared by the appellee during the period of time
already stated, advances to the stockholders would constitute a violation of
section 12 of the deed of trust. For that reason it was made to appear that
such advances were made to the Hijos de I. de la Rama & Co., Inc. and
debited the same against the latter in the books of the appellee, and in the
books of the Hijos de I. de la Rama & Co., Inc. the said advances were
debited against the individual stockholders, the stockholders of both
corporations being the same. The pivotal point is whether the assumption by
Esteban de la Rama of the advances made to the appellant by the appellee,
as stated in his letter of 5 May 1947, was consented to by the appellee to
constitute a novation. Express consent by the creditor is necessary to
substitute another for the debtor.[1] Such consent does not appear to have
been given by the board of directors of the appellee. Corporate acts of a
corporation must appear in its books or records. No such consent appears in
the bcoks or records of the appellee.
The appellant does not dispute the total sum of her withdrawals which is
P444,202.52 as claimed by the appellee.
Aside from the letter of 5 May 1947 of Esteban de la Rama, the appellant
relies upon the financial statements and books of the appellee where the
withdrawals by the appellant were entered in the account of Hijos de I. de la
Rama & Co., Inc. or transferred to the account of Esteban de la Rama. The
entries on the withdrawals by the appellant entered in the account of Hijos de
I. de la Rama & Co., Inc. or transferred to the account of Esteban de la Rama
have already been explained satisfactorily. They were done so in order to
circumvent the prohibition referred to above. As a matter of fact the
withdrawals made by the appellant were made by her and not by the Hijos de
I. de la Rama & Co., Inc. Nor is there any evidence that those advances were
used by the Hijos de I. de la Rama & Co., Inc.
As to the inclusion of the withdrawals made by the appellant in the claim of
the Hijos de I. de la Rama & Co., Inc. filed against the estate of the late
Esteban de la Rama in special proceedings No. 401 of the probate court of
iloilo and allowed by the court although in a reduced amount, suffice it to say
that such act of the Hijos de I. de la Rama & Co., Inc. cannot and does not
bind the appellee. Its appearance in the probate court was by order of that
court of 19 June 1950 (Exhibit M), and in its pleading the appellee disclaimed
any interest in the claim filed by the Hijos de I. de la Rama & Co., Inc. against
the estate of the late Esteban de la Rama (Exhibit N).
Resolution No. 50-127 of the board of directors of the appellee of 29
December 1950, whereby a cash dividend of P2,000,000 was declared in
favor of stockholders of record as of 1 December 1950, or at the rate of F100
per share, subject to the conditions already stated, does not suffer from any
legal infirmity. The segregation from the account of Hijos de I. de la Rama &
Co., Inc. and the setting up in the books of the De la Rama Steamship Co.,
Inc. of withdrawals made by the stockholders of the appellee as accounts
receivable due from said stockholders was even suggested by the President
of Hiijos de I. de la Rama & Co., Inc. in a letter dated 9 April 1945, addressed
to the De la Rama Steamship Co., Inc. (Exhibit A-l)
There is no room for the application of the pari delicto principle to the instant
case, because the appellee corporation and the Hijos de I. de la Rama &
Co., Inc. have committed no crime or violation of law, but a violation of
section 12 of the deed of trust by the appellee corporation which gave rise to
a cause of action by the National Development Company, the injured party,
against the appellee corporation. However, the National Development
Company chose not to avail itself of its right.
The appellant must answer for the personal advances made to her by the
appellee corporation and the latter may set off the total sum of such
advances against the amount of dividends to which she is entitled.
For the foregoing considerations, the judgment appealed from is affirmed,
without pronouncement as to costs.
Paras, C. J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Conception,
Reyes, J. B. L., Endencia, and Felix, JJ., concur.
Judgment affirmed.
G.R. No. L-37331 March 18, 1933
FRED M. HARDEN, J.D. HIGHSMITH, and JOHN C. HART, in their own
behalf and in that all other stockholders of the Balatoc Mining Company, etc.,
plaintiffs-appellants,
vs.
BENGUET CONSOLIDATED MINING COMPANY, BALATOC MINING
COMPANY, H. E. RENZ, JOHN W. JAUSSERMANN, and A. W. BEAM,
defendants-appellees.
Gibbs and McDonough and Roman Ozaeta for appellants.
DeWitt, Perkins and Brady for appellees.
Ross, Lawrence and Selph for appellee Balatoc Mining Company.
STREET, J.:
This action was originally instituted in the Court of First Instance of the City of
Manila by F. M. Harden, acting in his own behalf and that of all other
stockholders of the Balatoc Mining Co. who might join in the action and
contribute to the expense of the suit. With the plaintiff Harden two others, J.
D. Highsmith and John C. Hart, subsequently associated themselves. The
defendants are the Benguet Consolidated Mining Co., the Balatoc Mining
Co., H. E. Renz, John W. Haussermann, and A. W. Beam. The principal
purpose of the original action was to annul a certificate covering 600,000
shares of the stock of the Balatoc Mining Co., which have been issued to the
Benguet Consolidated Mining Co., and to secure to the Balatoc Mining Co.,
the restoration of a large sum of money alleged to have been unlawfully
collected by the Benguet Consolidated Mining Co., with legal interest, after
deduction therefrom of the amount expended by the latter company under a
contract between the two companies, bearing date of March 9, 1927. The
complaint was afterwards amended so as to include a prayer for the
annulment of this contract. Shortly prior to the institution of this lawsuit, the
Benguet Consolidated Mining Co., transferred to H. E. Renz, as trustee, the
certificate for 600,000 shares of the Balatoc Mining Co. which constitute the
principal subject matter of the action. This was done apparently to facilitate
the splitting up to the shares in the course of the sale or distribution. To
prevent this the plaintiffs, upon filing their original complaint, procured a
preliminary injunction restraining the defendants, their agents and servants,
from selling, assigning or transferring the 600,000 shares of the Balatoc
Mining Co., or any part thereof, and from removing said shares from the
Philippine Islands. This explains the connection of Renz with the case. The
other individual defendants are made merely as officials of the Benguet
Consolidated Mining Co. Upon hearing the cause the trial court dismissed
the complaint and dissolved the preliminary injunction, with costs against the
plaintiffs. From this judgment the plaintiffs appealed.
The facts which have given rise this lawsuit are simple, as the financial
interests involve are immense. Briefly told these facts are as follows: The
Benguet Consolidated Mining Co. was organized in June, 1903, as a
sociedad anonima in conformity with the provisions of Spanish law; while the
Balatoc Mining Co. was organized in December 1925, as a corporation, in
conformity with the provisions of the Corporation Law (Act No. 1459). Both
entities were organized for the purpose of engaging in the mining of gold in
the Philippine Islands, and their respective properties are located only a few
miles apart in the subprovince of Benguet. The capital stock of the Balatoc
Mining Co. consists of one million shares of the par value of one peso (P1)
each.
When the Balatoc Mining Co. was first organized the properties acquired by it
were largely undeveloped; and the original stockholders were unable to
supply the means needed for profitable operation. For this reason, the board
of directors of the corporation ordered a suspension of all work, effective July
31, 1926. In November of the same year a general meeting of the company's
stockholders appointed a committee for the purpose of interesting outside
capital in the mine. Under the authority of this resolution the committee
approached A. W. Beam, then president and general manager of the
Benguet Company, to secure the capital necessary to the development of the
Balatoc property. As a result of the negotiations thus begun, a contract,
formally authorized by the management of both companies, was executed on
March 9, 1927, the principal features of which were that the Benguet
Company was to proceed with the development and construct a milling plant
for the Balatoc mine, of a capacity of 100 tons of ore per day, and with an
extraction of at least 85 per cent of the gold content. The Benguet Company
also agreed to erect an appropriate power plant, with the aerial tramlines and
such other surface buildings as might be needed to operate the mine. In
return for this it was agreed that the Benguet Company should receive from
the treasurer of the Balatoc Company shares of a par value of P600,000, in
payment for the first P600,000 be thus advanced to it by the Benguet
Company.
The performance of this contract was speedily begun, and by May 31, 1929,
the Benguet Company had spent upon the development the sum of
P1,417,952.15. In compensation for this work a certificate for six hundred
thousand shares of the stock of the Balatoc Company has been delivered to
the Benguet Company, and the excess value of the work in the amount of
P817,952.15 has been returned to the Benguet Company in cash. Meanwhile
dividends of the Balatoc Company have been enriching its stockholders, and
at the time of the filing of the complaint the value of its shares had increased
in the market from a nominal valuation to more than eleven pesos per share.
While the Benguet Company was pouring its million and a half into the
Balatoc property, the arrangements made between the two companies
appear to have been viewed by the plaintiff Harden with complacency, he
being the owner of many thousands of the shares of the Balatoc Company.
But as soon as the success of the development had become apparent, he
began this litigation in which he has been joined by two others of the eighty
shareholders of the Balatoc Company.
Briefly, the legal point upon which the action is planted is that it is unlawful for
the Benguet Company to hold any interest in a mining corporation and that
the contract by which the interest here in question was acquired must be
annulled, with the consequent obliteration of the certificate issued to the
Benguet Company and the corresponding enrichment of the shareholders of
the Balatoc Company.
When the Philippine Islands passed to the sovereignty of the United States,
in the attention of the Philippine Commission was early drawn to the fact that
there is no entity in Spanish law exactly corresponding to the notion of the
corporation in English and American law; and in the Philippine Bill, approved
July 1, 1902, the Congress of the United States inserted certain provisions,
under the head of Franchises, which were intended to control the lawmaking
power in the Philippine Islands in the matter of granting of franchises,
privileges and concessions. These provisions are found in section 74 and 75
of the Act. The provisions of section 74 have been superseded by section 28
of the Act of Congress of August 29, 1916, but in section 75 there is a
provision referring to mining corporations, which still remains the law, as
amended. This provisions, in its original form, reads as follows: "... it shall be
unlawful for any member of a corporation engaged in agriculture or mining
and for any corporation organized for any purpose except irrigation to be in
any wise interested in any other corporation engaged in agriculture or in
mining."
Under the guidance of this and certain other provisions thus enacted by
Congress, the Philippine Commission entered upon the enactment of a
general law authorizing the creation of corporations in the Philippine Islands.
This rather elaborate piece of legislation is embodied in what is called our
Corporation Law (Act No. 1459 of the Philippine Commission). The evident
purpose of the commission was to introduce the American corporation into
the Philippine Islands as the standard commercial entity and to hasten the
day when the sociedad anonima of the Spanish law would be obsolete. That
statute is a sort of codification of American corporate law.
For the purposes general description only, it may be stated that the sociedad
anonima is something very much like the English joint stock company, with
features resembling those of both the partnership is shown in the fact that
sociedad, the generic component of its name in Spanish, is the same word
that is used in that language to designate other forms of partnership, and in
its organization it is constructed along the same general lines as the ordinary
partnership. It is therefore not surprising that for purposes of loose translation
the expression sociedad anonima has not infrequently the other hand, the
affinity of this entity to the American corporation has not escaped notice, and
the expression sociedad anonima is now generally translated by the word
corporation. But when the word corporation is used in the sense of sociedad
anonima and close discrimination is necessary, it should be associated with
the Spanish expression sociedad anonima either in a parenthesis or
connected by the word "or". This latter device was adopted in sections 75
and 191 of the Corporation Law.
In drafting the Corporation Law the Philippine Commission inserted bodily, in
subsection (5) of section 13 of that Act (No. 1459) the words which we have
already quoted from section 75 of the Act of Congress of July 1, 1902
(Philippine Bill); and it is of course obvious that whatever meaning originally
attached to this provision in the Act of Congress, the same significance
should be attached to it in section 13 of our Corporation Law.
As it was the intention of our lawmakers to stimulate the introduction of the
American Corporation into Philippine law in the place of the sociedad
anonima, it was necessary to make certain adjustments resulting from the
continued co-existence, for a time, of the two forms of commercial entities.
Accordingly, in section 75 of the Corporation Law, a provision is found
making the sociedad anonima subject to the provisions of the Corporation
Law "so far as such provisions may be applicable", and giving to the
sociedades anonimas previously created in the Islands the option to continue
business as such or to reform and organize under the provisions of the
Corporation Law. Again, in section 191 of the Corporation Law, the Code of
Commerce is repealed in so far as it relates to sociedades anonimas. The
purpose of the commission in repealing this part of the Code of Commerce
was to compel commercial entities thereafter organized to incorporate under
the Corporation Law, unless they should prefer to adopt some form or other
of the partnership. To this provision was added another to the effect that
existing sociedades anonimas, which elected to continue their business as
such, instead of reforming and reorganizing under the Corporation Law,
should continue to be governed by the laws that were in force prior to the
passage of this Act "in relation to their organization and method of
transacting business and to the rights of members thereof as between
themselves, but their relations to the public and public officials shall be
governed by the provisions of this Act."
As already observed, the provision above quoted from section 75 of the Act
Congress of July 1, 1902 (Philippine Bill), generally prohibiting corporations
engaged in mining and members of such from being interested in any other
corporation engaged in mining, was amended by section 7 of Act No. 3518 of
the Philippine Legislature, approved by Congress March 1, 1929. The
change in the law effected by this amendment was in the direction of
liberalization. Thus, the inhibition contained in the original provision against
members of a corporation engaged in agriculture or mining from being
interested in other corporations engaged in agriculture or in mining was so
modified as merely to prohibit any such member from holding more than
fifteen per centum of the outstanding capital stock of another such
corporation. Moreover, the explicit prohibition against the holding by any
corporation (except for irrigation) of an interest in any other corporation
engaged in agriculture or in mining was so modified as to limit the restriction
to corporations organized for the purpose of engaging in agriculture or in
mining.
As originally drawn, our Corporation Law (Act No. 1459) did not contain any
appropriate clause directly penalizing the act of a corporation, a member of a
corporation , in acquiring an interest contrary to paragraph (5) of section 13
of the Act. The Philippine Legislature undertook to remedy this situation in
section 3 of Act No. 2792 of the Philippine Legislature, approved on February
18, 1919, but this provision was declared invalid by this court in Government
of the Philippine Islands vs. El Hogar Filipino (50 Phil., 399), for lack of an
adequate title to the Act. Subsequently the Legislature reenacted
substantially the same penal provision in section 21 of Act No. 3518, under a
title sufficiently broad to comprehend the subject matter. This part of Act No.
3518 became effective upon approval by the Governor-General, on
December 3, 1928, and it was therefore in full force when the contract now in
question was made.
This provision was inserted as a new section in the Corporation Law, forming
section 1990 (A) of said Act as it now stands. Omitting the proviso, which
seems not to be pertinent to the present controversy, said provision reads as
follows:
SEC. 190 (A). Penalties. — The violation of any of the provisions of this Act
and its amendments not otherwise penalized therein, shall be punished by a
fine of not more than five thousand pesos and by imprisonment for not more
than five years, in the discretion of the court. If the violation is committed by a
corporation, the same shall, upon such violation being proved, be dissolved
by quo warranto proceedings instituted by the Attorney-General or by any
provincial fiscal by order of said Attorney-General: . . . .
Upon a survey of the facts sketched above it is obvious that there are two
fundamental questions involved in this controversy. The first is whether the
plaintiffs can maintain an action based upon the violation of law supposedly
committed by the Benguet Company in this case. The second is whether,
assuming the first question to be answered in the affirmative, the Benguet
Company, which was organized as a sociedad anonima, is a corporation
within the meaning of the language used by the Congress of the United
States, and later by the Philippine Legislature, prohibiting a mining
corporation from becoming interested in another mining corporation. It is
obvious that, if the first question be answered in the negative, it will be
unnecessary to consider the second question in this lawsuit.
Upon the first point it is at once obvious that the provision referred to was
adopted by the lawmakers with a sole view to the public policy that should
control in the granting of mining rights. Furthermore, the penalties imposed in
what is now section 190 (A) of the Corporation Law for the violation of the
prohibition in question are of such nature that they can be enforced only by a
criminal prosecution or by an action of quo warranto. But these proceedings
can be maintained only by the Attorney-General in representation of the
Government.
What room then is left for the private action which the plaintiffs seek to assert
in this case? The defendant Benguet Company has committed no civil wrong
against the plaintiffs, and if a public wrong has been committed, the directors
of the Balatoc Company, and the plaintiff Harden himself, were the active
inducers of the commission of that wrong. The contract, supposing it to have
been unlawful in fact, has been performed on both sides, by the building of
the Balatoc plant by the Benguet Company and the delivery to the latter of
the certificate of 600,000 shares of the Balatoc Company. There is no
possibility of really undoing what has been done. Nobody would suggest the
demolition of the mill. The Balatoc Company is secure in the possession of
that improvement, and talk about putting the parties in status quo ante by
restoring the consideration with interest, while the Balatoc Company remains
in possession of what it obtained by the use of that money, does not quite
meet the case. Also, to mulct the Benguet Company in many millions of
dollars in favor of individuals who have not the slightest equitable right to that
money in a proposition to which no court can give a ready assent.
The most plausible presentation of the case of the plaintiffs proceeds on the
assumption that only one of the contracting parties has been guilty of a
misdemeanor, namely, the Benguet Company, and that the other party, the
Balatoc Company, is wholly innocent to participation in that wrong. The
plaintiffs would then have us apply the second paragraph of article 1305 of
the Civil Code which declares that an innocent party to an illegal contract
may recover anything he may have given, while he is not bound to fulfill any
promise he may have made. But, supposing that the first hurdle can be
safely vaulted, the general remedy supplied in article 1305 of the Civil Code
cannot be invoked where an adequate special remedy is supplied in a
special law. It has been so held by this court in Go Chioco vs. Martinez (45
Phil., 256, 280), where we refused to apply that article to a case of nullity
arising upon a usurious loan. The reason given for the decision on this point
was that the Usury Act, as amended, contains all the provisions necessary
for the effectuation of its purposes, with the result that the remedy given in
article 1305 of the Civil Code is unnecessary. Much more is that idea
applicable to the situation now before us, where the special provisions give
ample remedies for the enforcement of the law by action in the name of the
Government, and where no civil wrong has been done to the party here
seeking redress.
The view of the case presented above rest upon considerations arising upon
our own statutes; and it would seem to be unnecessary to ransack the
American decisions for analogies pertinent to the case. We may observe,
however, that the situation involved is not unlike that which has frequently
arisen in the United States under provisions of the National Bank Act
prohibiting banks organized under that law from holding real property. It has
been uniformly held that a trust deed or mortgaged conveying property of this
kind to a bank, by way of security, is valid until the transaction is assailed in a
direct proceeding instituted by the Government against the bank, and the
illegality of such tenure supplies no basis for an action by the former private
owner, or his creditor, to annul the conveyance. (National Bank vs.
Matthews, 98 U. S., 621; Kerfoot vs. Farmers & M. Bank, 218 U. S., 281.)
Other analogies point in the same direction. (South & Ala. R. Ginniss vs. B. &
M. Consol. etc. Mining Co., 29 Mont., 428; Holmes & Griggs Mfg. Co. vs.
Holmes & Wessell Metal Co., 127 N. Y., 252; Oelbermann vs. N. Y. & N. R.
Co., 77 Hun., 332.)
Most suggestive perhaps of all the cases in Compañia Azucarera de Carolina
vs. Registrar (19 Porto Rico, 143), for the reason that this case arose under a
provision of the Foraker Act, a law analogous to our Philippine Bill. It appears
that the registrar had refused to register two deeds in favor of the Compañia
Azucarera on the ground that the land thereby conveyed was in excess of
the area permitted by law to the company. The Porto Rican court reversed
the ruling of the registrar and ordered the registration of the deeds, saying:
Thus it may be seen that a corporation limited by the law or by its charter has
until the State acts every power and capacity that any other individual
capable of acquiring lands, possesses. The corporation may exercise every
act of ownership over such lands; it may sue in ejectment or unlawful
detainer and it may demand specific performance. It has an absolute title
against all the world except the State after a proper proceeding is begun in a
court of law. ... The Attorney General is the exclusive officer in whom is
confided the right to initiate proceedings for escheat or attack the right of a
corporation to hold land.
Having shown that the plaintiffs in this case have no right of action against
the Benguet Company for the infraction of law supposed to have been
committed, we forego cny discussion of the further question whether a
sociedad anonima created under Spanish law, such as the Benguet
Company, is a corporation within the meaning of the prohibitory provision
already so many times mentioned. That important question should, in our
opinion, be left until it is raised in an action brought by the Government.
The judgment which is the subject of his appeal will therefore be affirmed,
and it is so ordered, with costs against the appellants.
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.
Bache v Ruiz
(Corporation Law; Corporate Powers)
Facts:

On 24 February 1970, respondent Misael Vera, Commissioner of Internal
Revenue, wrote a letter addressed to respondent Judge Vicencio Ruiz
requesting the issuance of a search warrant against petitioners for violation
of the National Internal Revenue Code and authorizing respondent de Leon
to make and file the application for the same.
In the afternoon of the following day, de Leon and his witness, Arturo
Logronio, went to the CFI of Rizal and brought the necessary documents for
the application for search warrant. The Clerk of Court took first their
depositions because Judge Ruiz was still conducting a hearing. But after the
session, Judge Ruiz was able to take Logronio’s oath and signed the
application. Thus, the issuance of Search Warrant No. 2-M-70.
Three days after, which was on a Saturday, the BIR agents served the
search warrant at petitioner’s corporate office in Ayala, Makati. Petitioners’
lawyers protested the search on the ground that no formal complaint,
transcript or testimony was attached. The agents nevertheless proceeded
with the search and yielded 6 boxes of documents.
On 03 March 1970, petitioners filed a petition with the CFI of Rizal praying
that the search warrant be quashed and be considered null and void. But
respondent Judge dismissed the petition. Consequently, the BIR made tax
assessments against petitioners based on the seized documents. Hence, this
present petition.
ISSUE: Whether or not petitioners may object against search and seizure?
RULING: YES.
Among others, the issue that a corporation is not entitled to protection
against unreasonable search and seizures is being raised in this case.
The Court ruled that although it is of the opinion that an officer of a
corporation which is charged with a violation of a statute of the state of its
creation, nevertheless, they do not wish to be understood as holding a
corporation not entitled to immunity against unreasonable search and
seizures. After all, a corporation is an association of individuals under an
assumed name and with a distinct legal entity. In organizing itself as a
collective body, it waives no constitutional immunities appropriate to such
body. Its property cannot be taken without compensation. It can only be
proceeded against by due process of law, and is protected under the 4th
amendment against unlawful discrimination.
In addition, the Court states, citing the case of Stonehill v. Diokno, the imlied
recognition on the right of a corporation to object against unreasonable
search and seizures, to wit:
“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 may not validly invoke object to the
use as evidence against them of the documents, papers and things seized
from the offices and premises of the corporation, since such right belongs
exclusively to the corporations, the whom the seized effects belong, and may
not be invoked by the corporate officers in proceedings against them in their
individual capacity.”
Mambulao Lumber Co. vs PNB
TOPIC: (Entitlement to moral damages)
GR L-22973
30 January 1968
FACTS: Petitioner (P) applied for industrial loan and granted by Respondent
bank (R). To secure payment of loan, P mortgaged a parcel of land together
with various sawmill equipment, rolling units and other fixed assets situated
therein.
P failed to pay the amortization and the amounts released to and received by
it. Repeated demands were made but upon inspection it was found that P
stopped operation. R sent a letter to R sheriff of Camarines Norte requesting
him to take possession of the parcel of land and the chattels and to sell them
at public auction. R sheriff issued corresponding notice of extrajudicial sale
and sent copy to P.
P sent a bank draft for to PNB allegedly full settlement of the obligation after
the application of the sum representing the proceeds of the foreclosure sale
of the parcel of land. P averred that the foreclosure of chattel mortgage is no
longer needed for being fully paid and that it could not be legally effected at a
place other than City of Manila, the place agreed and stipulated in their
contract.
R’s counsel wrote to P that the remitted amount was not enough for its
liability to which should be added the expenses for guarding the mortgaged
of chattels, attorney’s fees and expenses of the sale. Notwithstanding, the
foreclosure of both land and the chattels were held.
ISSUE: Whether P is entitled to moral damages.
DECISION: No. Even if the R bank and R sheriff committed several
infractions/errors, to wit:
R sheriff’s actual work performed should be compensated pursuant to Sec 4
of Act 3135, which is the governing law for extrajudicial foreclosure and not
Sec 7 of Rule 130, which is applicable for judicial foreclosure;
Atty’s fees was found to be excessive and unconscionable;
Foreclosure should be conducted in the City of Manila, as agreed in the
contract. Ergo, R is guilty of conversion when he sells under the mortgage
but not in accordance with its terms; and
The amount of sale of the chattels is spurious/ grossly unfair to P.
However, P’s claim for moral damages seems to have no legal or factual
basis. Obviously, an artificial person like herein P 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 a good reputation which, if besmirched,
may also be a ground for the award of moral damages. The same cannot be
considered under the facts of this case, however, not only because it is
admitted that herein appellant had already ceased in its business operation
at the time of the foreclosure sale of the chattels, but also for the reason that
whatever adverse effects of the foreclosure sale of the chattels could have
upon its reputation or business standing would undoubtedly be the same
whether the sale was conducted at Jose Panganiban, Camarines Norte, or in
Manila which is the place agreed upon by the parties in the mortgage
contract.
But for the wrongful acts of herein R bank and the R sheriff of
Camarines Norte in proceeding with the sale in utter disregard of the
agreement to have the chattels sold in Manila as provided for in the
mortgage contract, to which their attentions were timely called by herein
appellant, and in disposing of the chattels in gross for the miserable amount
of P4,200.00, herein appellant should be awarded exemplary damages in the
sum of P10,000.00.
LBC Air Cargo, Inc., et. al. vs. CA
G.R. No. 101683. 23 February 1995.
Petition for review of a decision of the CA reversing that of the RTC and
holding LBC and Tano liable.
Vitug, J.:
Facts: At about 11:30 am of 15 Nov 1987, Rogelio Monterola was traveling
on board his Suzuki motorcycle towards Mangaggoy on the right lane along a
dusty road in Bislig, Surigao del Sur. At about the same time, a cargo van of
LBC, driven by petitioner herein, Tano, Jr., was coming from the opposite
direction on its way to Bislig Airport. When Tano was approaching the airport
entrance on his left, he saw two vehicles racing against each other from the
opposite direction. Tano stopped the van and waited for the 2 vehicles to
pass by. The dust made the visibility extremely bad. Instead of waiting Tano
started to make a sharp left turn and when he was about to reach the center
of the right lane, the motorcycle driven by Monterola suddenly emerged from
the dust and smashed head-on against the LBC van. Monterola died.
Issue:WON the negligence of Monterola is the proximate cause of the
accident.
Ruling: The proximate cause of the accident was the negligence of petitioner
Tano, who, despite poor visibility, hastily executed a left turn w/o waiting for
the dust to settle.
Petitioners poorly invoke the doctrine of "last clear chance." In the instant
case, the victim was travelling along the lane where he was rightl supposd to
be. The incident occured in an instant. No apreciable time had elapsed that
could have afforded the victim a last clear opportunity to avoid the collision.
However, the deceased was contributorily negligent in evidently speeding.
The SC agrees w the CA that there was contributory negligence on the
victim's part that warrants a mitigation of petitioner's liability for damages.
[G.R. No. 128690. January 21, 1999]
ABS-CBN BROADCASTING CORPORATION, petitioners, vs.
HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING
CORP., VIVA PRODUCTIONS, INC., and VICENTE DEL ROSARIO,
respondents.
DECISION
DAVIDE, JR., C.J.:
In this petition for review on certiorari, petitioners ABS-CBN Broadcasting
Corp. (hereinafter ABS-CBN) seeks to reverse and set aside the decision[1]
of 31 October 1996 and the resolution[2] of 10 March 1997 of the Court of
Appeals in CA-G.R. CV No. 44125. The former affirmed with modification the
decision[3] of 28 April 1993 of the Regional Trial Court (RTC) of Quezon City,
Branch 80, in Civil Case No. Q-12309. The latter denied the motion to
reconsider the decision of 31 October 1996.
The antecedents, as found by the RTC and adopted by the Court of Appeals,
are as follows:
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement (Exh. A)
whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva films.
Sometime in December 1991, in accordance with paragraph 2.4 [sic] of said
agreement stating that-
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24)
Viva films for TV telecast under such terms as may be agreed upon by the
parties hereto, provided, however, that such right shall be exercised by ABS-
CBN from the actual offer in writing.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-
president Charo Santos-Concio, a list of three (3) film packages (36 title)
from which ABS-CBN may exercise its right of first refusal under the afore-
said agreement (Exhs. 1 par. 2, 2, 2-A and 2-B Viva). ABS-CBN, however
through Mrs. Concio, can tick off only ten (10) titles (from the list) we can
purchase (Exh. 3 Viva) and therefore did not accept said list (TSN, June 8,
1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the
case at bar except the film Maging Sino Ka Man.
For further enlightenment, this rejection letter dated January 06, 1992 (Exh 3
Viva) is hereby quoted:
6 January 1992
Dear Vic,
This is not a very formal business letter I am writing to you as I would like to
express my difficulty in recommending the purchase of the three film
packages you are offering ABS-CBN.
From among the three packages I can only tick off 10 titles we can purchase.
Please see attached. I hope you will understand my position. Most of the
action pictures in the list do not have big action stars in the cast. They are not
for primetime. In line with this I wish to mention that I have not scheduled for
telecast several action pictures in our very first contract because of the cheap
production value of these movies as well as the lack of big action stars. As a
film producer, I am sure you understand what I am trying to say as Viva
produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies as I
can only schedule them in out non-primetime slots. We have to cover the
amount that was paid for these movies because as you very well know that
non-primetime advertising rates are very low. These are the unaired titles in
the first contract.
1. Kontra Persa [sic]
2. Raider Platoon
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and have been
rejected because of the ruling of MTRCB to have them aired at 9:00 p.m. due
to their very adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages please consider
including all the other Viva movies produced last year, I have quite an
attractive offer to make.
Thanking you and with my warmest regards.
(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms.
Concio, with a list consisting of 52 original movie titles (i.e., not yet aired on
television) including the 14 titles subject of the present case, as well as 104
re-runs (previously aired on television) from which ABS-CBN may choose
another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing
rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of
which P30,000,000.00 will be in cash and P30,000,000.00 worth of television
spots (Exh. 4 to 4-C Viva; 9 Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBNs general manager,
Eugenio Lopez III, met at the Tamarind Grill Restaurant in Quezon City to
discuss the package proposal of VIVA. What transpired in that lunch meeting
is the subject of conflicting versions. Mr. Lopez testified that he and Mr. Del
Rosario allegedly agreed that ABS-CBN was granted exclusive film rights to
fourteen (14) films for a total consideration of P36 million; that he allegedly
put this agreement as to the price and number of films in a napkin and signed
it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8,
1992). On the other hand. Del Rosario denied having made any agreement
with Lopez regarding the 14 Viva films; denied the existence of a napkin in
which Lopez wrote something; and insisted that what he and Lopez
discussed at the lunch meeting was Vivas film package offer of 104 films (52
originals and 52 re-runs) for a total price of P60 million. Mr. Lopez promising
[sic]to make a counter proposal which came in the form of a proposal
contract Annex C of the complaint (Exh. 1 Viva; Exh C ABS-CBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-
president for Finance discussed the terms and conditions of Vivas offer to
sell the 104 films, after the rejection of the same package by ABS-CBN.
On April 07, 1992, defendant Del Rosario received through his secretary , a
handwritten note from Ms. Concio, (Exh. 5 Viva), which reads: Heres the
draft of the contract. I hope you find everything in order, to which was
attached a draft exhibition agreement (Exh. C ABS-CBN; Exh. 9 Viva p. 3) a
counter-proposal covering 53 films, 52 of which came from the list sent by
defendant Del Rosario and one film was added by Ms. Concio, for a
consideration of P35 million. Exhibit C provides that ABS-CBN is granted film
rights to 53 films and contains a right of first refusal to 1992 Viva Films. The
said counter proposal was however rejected by Vivas Board of Directors [in
the] evening of the same day, April 7, 1992, as Viva would not sell anything
less than the package of 104 films for P60 million pesos (Exh. 9 Viva), and
such rejection was relayed to Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several
negotiations and meetings defendant Del Rosario and Vivas President
Teresita Cruz, in consideration of P60 million, signed a letter of agreement
dated April 24, 1992, granting RBS the exclusive right to air 104 Viva-
produced and/or acquired films (Exh. 7-A - RBS; Exh. 4 RBS) including the
fourteen (14) films subject of the present case.[4]
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific
performance with a prayer for a writ of preliminary injunction and/or
temporary restraining order against private respondents Republic
Broadcasting Corporation[5] (hereafter RBS), Viva Production (hereafter
VIVA), and Vicente del Rosario. The complaint was docketed as Civil Case
No. Q-92-12309.
On 28 May 1992, the RTC issued a temporary restraining order[6] enjoining
private respondents from proceeding with the airing, broadcasting, and
televising of the fourteen VIVA films subject of the controversy, starting with
the film Maging Sino Ka Man, which was scheduled to be shown on private
respondent RBS channel 7 at seven oclock in the evening of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an order[7]
directing the issuance of a writ of preliminary injunction upon ABS-CBNs
posting of a P35 million bond. ABS-CBN moved for the reduction of the
bond,[8] while private respondents moved for reconsideration of the order
and offered to put up a counterbond.[9]
In the meantime, private respondents filed separate answer with
counterclaim.[10] RBS also set up a cross-claim against VIVA.
On 3 August 1992, the RTC issued an order[11] dissolving the writ of
preliminary injunction upon the posting by RBS of a P30 million counterbond
to answer for whatever damages ABS-CBN might suffer by virtue of such
dissolution. However, it reduced petitioners injunction bond to P15 million as
a condition precedent for the reinstatement of the writ of preliminary
injunction should private respondents be unable to post a counterbond.
At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the
court, agreed to explore the possibility of an amicable settlement. In the
meantime, RBS prayed for and was granted reasonable time within which to
put up a P30 million counterbond in the event that no settlement would be
reached.
As the parties failed to enter into an amicable settlement, RBS posted on 1
October 1992 a counterbond, which the RTC approved in its Order of 15
October 1992.[13]
On 19 October 1992, ABS-CBN filed a motion for reconsideration[14] of the 3
August and 15 October 1992 Orders, which RBS opposed.[15]
On 29 October, the RTC conducted a pre-trial.[16]
Pending resolution of its motion for reconsideration, ABS-CBN filed with the
Court of Appeals a petition[17] challenging the RTCs Order of 3 August and
15 October 1992 and praying for the issuance of a writ of preliminary
injunction to enjoin the RTC from enforcing said orders. The case was
docketed as CA-G.R. SP No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary restraining
order[18] to enjoin the airing, broadcasting, and televising of any or all of the
films involved in the controversy.

On 18 December 1992, the Court of Appeals promulgated a decision[19]
dismissing the petition in CA-G.R. SP No. 29300 for being premature. ABS-
CBN challenged the dismissal in a petition for review filed with this Court on
19 January 1993, which was docketed s G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case
No. Q-92-12309. Thereafter, on 28 April 1993, it rendered a decision[20] in
favor of RBS and VIVA and against ABS-CBN disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing,
judgment is rendered in favor of defendants and against the plaintiff.
(1) The complaint is hereby dismissed;
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00 the amount of premium paid by RBS to the surety which
issued defendants RBSs bond to lift the injunction;
b) P191,843.00 for the amount of print advertisement for Maging Sino Ka
Man in various newspapers;
c) Attorneys fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For the defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00
by way of reasonable attorneys fees.
(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms
of the offer. The alleged agreement between Lopez III and Del Rosario was
subject to the approval of the VIVA Board of Directors, and said agreement
was disapproved during the meeting of the Board on 7 April 1992. Hence,
there was no basis for ABS-CBNs demand that VIVA signed the 1992 Film
Exhibition Agreement. Furthermore, the right of first refusal under the 1990
Film Exhibition Agreement had previously been exercised per Ms. Concios
letter to Del Rosario ticking off ten titles acceptable to them, which would
have made the 1992 agreement an entirely new contract.
On 21 June 1993, this Court denied[21] ABS-CBNs petition for review in G.R.
No. 108363, as no reversible error was committed by the Court of Appeals in
its challenged decision and the case had become moot and academic in view
of the dismissal of the main action by the court a quo in its decision of 28
April 1993.
Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of Appeals
claiming that there was a perfected contract between ABS-CBN and VIVA
granting ABS-CBN the exclusive right to exhibit the subject films. Private
respondents VIVA and Del Rosario also appealed seeking moral and
exemplary damages and additional attorneys fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC
that the contract between ABS-CBN and VIVA had not been perfected,
absent the approval by the VIVA Board of Directors of whatever Del Rosario,
its agent, might have agreed with Lopez III. The appellate court did not even
believe ABS-CBNs evidence that Lopez III actually wrote down such an
agreement on a napkin, as the same was never produced in court. It likewise
rejected ABS-CBNs insistence on its right of first refusal and ratiocinated as
follows:
As regards the matter of right of first refusal, it may be true that a Film
Exhibition Agreement was entered into between Appellant ABS-CBN and
appellant VIVA under Exhibit A in 1990 and that parag. 1.4 thereof provides:
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24)
VIVA films for TV telecast under such terms as may be agreed upon by the
parties hereto, provided, however, that such right shall be exercised by ABS-
CBN within a period of fifteen (15) days from the actual offer in writing
(Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN
shall still be subjected to such terms as may be agreed upon by the parties
thereto, and that the said right shall be exercised by ABS-CBN within fifteen
(15) days from the actual offer in writing.
Said parag. 1.4 of the agreement Exhibit A on the right of first refusal did not
fix the price of the film right to the twenty-four (24) films, nor did it specify the
terms thereof. The same are still left to be agreed upon by the parties.
In the instant case, ABS-CBNs letter of rejection Exhibit 3 (Records, p. 89)
stated that it can only tick off ten (10) films, and the draft contract Exhibit C
accepted only fourteen (14) films, while parag. 1.4 of Exhibit A speaks of the
next twenty-four (24) films.
The offer of VIVA was sometime in December 1991, (Exhibits 2, 2-A, 2-B;
Records, pp. 86-88; Decision, p. 11, Records, p. 1150), when the first list of
VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice President of
ABS-CBN, Mrs. Charo Santos-Concio, sent a letter dated January 6, 1992
(Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by
rejecting the offer of VIVA. As aptly observed by the trial court, with the said
letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first
refusal. And even if We reckon the fifteen (15) day period from February 27,
1992 (Exhibit 4 to 4-C) when another list was sent to ABS-CBN after the
letter of Mrs. Concio, still the fifteen (15) day period within which ABS-CBN
shall exercise its right of first refusal has already expired.[22]
Accordingly, respondent court sustained the award factual damages
consisting in the cost of print advertisements and the premium payments for
the counterbond, there being adequate proof of the pecuniary loss which
RBS has suffered as a result of the filing of the complaint by ABS-CBN. As to
the award of moral damages, the Court of Appeals found reasonable basis
therefor, holding that RBSs reputation was debased by the filing of the
complaint in Civil Case No. Q-92-12309 and by the non-showing of the film
Maging Sino Ka Man. Respondent court also held that exemplary damages
were correctly imposed by way of example or correction for the public good
in view of the filing of the complaint despite petitioners knowledge that the
contract with VIVA had not been perfected. It also upheld the award of
attorneys fees, reasoning that with ABS-CBNs act of instituting Civil Case
No. Q-92-12309, RBS was unnecessarily forced to litigate. The appellate
court, however, reduced the awards of moral damages to P 2 million,
exemplary damages to P2 million, and attorneys fees to P500,000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del
Rosarios appeal because it was RBS and not VIVA which was actually
prejudiced when the complaint was filed by ABS-CBN.
Its motion for reconsideration having been denied, ABS-CBN filed the petition
in this case, contending that the Court of Appeals gravely erred in
I regards the cost of print advertisements, RBS had not convincingly
RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN
PETITIONER AND PRIVATE RESPONDENT VIVA NOTWITHSTANDING
PREPONFERANCE OF EVIDENCE ADDUCED BY PETITIONER TO THE
CONTRARY.
II
IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF
PRIVATE RESPONDENT RBS.
III
IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF
PRIVATE RESPONDENT RBS.
IV
IN AWARDING ATORNEYS FEES OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over
twenty-four titles under the 1990 Film Exhibition Agreement, as it had chosen
only ten titles from the first list. It insists that we give credence to Lopezs
testimony that he and Del Rosario met at the Tamarind Grill Restaurant,
discussed the terms and conditions of the second list (the 1992 Film
Exhibition Agreement) and upon agreement thereon, wrote the same on a
paper napkin. It also asserts that the contract has already been effective, as
the elements thereof, namely, consent, object, and consideration were
established. It then concludes that the Court of Appeals pronouncements
were not supported by law and jurisprudence, as per our decision of 1
December 1995 in Limketkai Sons Milling, Inc. v. Court of Appeals,[23] which
cited Toyota Shaw, Inc. v. Court of Appeals;[24] Ang Yu Asuncion v. Court of
Appeals,[25] and Villonco Realty Company v. Bormaheco, Inc.[26]
Anent the actual damages awarded to RBS, ABS-CBN disavows liability
therefor. RBS spent for the premium on the counterbond of its own volition in
order to negate the injunction issued by the trial court after the parties had
ventilated their respective positions during the hearings for the purpose. The
filing of the counterbond was an option available to RBS, but it can hardly be
argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS
had another available option, i.e., move for the dissolution of the injunction;
or if it was determined to put up a counterbond, it could have presented a
cash bond. Furthermore under Article 2203 of the Civil Code, the party
suffering loss injury is also required to exercise the diligence of a good father
of a family to minimize the damages resulting from the act or omission. As
established that this was a loss attributable to the non-showing of Maging
Sino Ka Man; on the contrary, it was brought out during trial that with or
without the case or injunction, RBS would have spent such an amount to
generate interest in the film.
ABS-CBN further contends that there was no other clear basis for the awards
of moral and exemplary damages. The controversy involving ABS-CBN and
RBS did not in any way originate from business transaction between them.
The claims for such damages did not arise from any contractual dealings or
from specific acts committed by ABS-CBN against RBS that may be
characterized as wanton, fraudulent, or reckless; they arose by virtue only of
the filing of the complaint. An award of moral and exemplary damages is not
warranted where the record is bereft of any proof that a party acted
maliciously or in bad faith in filing an action.[27] In any case, free resort to
courts for redress of wrongs is a matter of public policy. The law recognizes
the right of every one to sue for that which he honestly believes to be his
right without fear of standing trial for damages where by lack of sufficient
evidence, legal technicalities, or a different interpretation of the laws on the
matter, the case would lose ground.[28] One who, makes use of his own
legal right does no injury.[29] If damage results from filing of the complaint, it
is damnum absque injuria.[30] Besides, moral damages are generally not
awarded in favor of a juridical person, unless it enjoys a good reputation that
was debased by the offending party resulting in social humiliation.[31]
As regards the award of attorneys fees, ABS-CBN maintains that the same
had no factual, legal, or equitable justification. In sustaining the trial courts
award, the Court of Appeals acted in clear disregard of the doctrine laid down
in Buan v. Camaganacan[32] that the text of the decision should state the
reason why attorneys fees are being awarded; otherwise, the award should
be disallowed. Besides, no bad faith has been imputed on, much less proved
as having been committed by, ABS-CBN. It has been held that where no
sufficient showing of bad faith would be reflected in a partys persistence in a
case other than an erroneous conviction of the righteousness of his cause,
attorneys fees shall not be recovered as cost.[33]
On the other hand, RBS asserts that there was no perfected contract
between ABS-CBN and VIVA absent meeting of minds between them
regarding the object and consideration of the alleged contract. It affirms that
ABS-CBNs claim of a right of first refusal was correctly rejected by the trial
court. RBS insists the premium it had paid for the counterbond constituted a
pecuniary loss upon which it may recover. It was obliged to put up the
counterbond due to the injunction procured by ABS-CBN. Since the trial court
found that ABS-CBN had no cause of action or valid claim against RBS and,
therefore not entitled to the writ of injunction, RBS could recover from ABS-
CBN the premium paid on the counterbond. Contrary to the claim of ABS-
CBN, the cash bond would prove to be more expensive, as the loss would be
equivalent to the cost of money RBS would forego in case the P30 million
came from its funds or was borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the
cancelled showing of the film Maging Sino Ka Man because the print
advertisements were out to announce the showing on a particular day and
hour on Channel 7, i.e., in its entirety at one time, not as series to be shown
on a periodic basis. Hence, the print advertisements were good and relevant
for the particular date of showing, and since the film could not be shown on
that particular date and hour because of the injunction, the expenses for the
advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed
the case and secured injunctions purely for the purpose of harassing and
prejudicing RBS. Pursuant then to Articles 19 and 21 of the Civil Code, ABS-
CBN must be held liable for such damages. Citing Tolentino,[34] damages
may be awarded in cases of abuse of rights even if the done is not illicit, and
there is abuse of rights where a plaintiff institutes an action purely for the
purpose of harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and exemplary
damages, private respondent RBS cited People v. Manero,[35] where it was
stated that such entity may recover moral and exemplary damages if it has a
good reputation that is debased resulting in social humiliation. It then
ratiocinates; thus:
There can be no doubt that RBS reputation has been debased by ABS-CBNs
acts in this case. When RBS was not able to fulfill its commitment to the
viewing public to show the film Maging Sino Ka Man on the scheduled dates
and times (and on two occasions that RBS advertised), it suffered serious
embarrassment and social humiliation. When the showing was cancelled,
irate viewers called up RBS offices and subjected RBS to verbal abuse
(Announce kayo ng announce, hindi ninyo naman ilalabas, nanloloko yata
kayo) (Exh. 3-RBS, par.3). This alone was not something RBS brought upon
itself. It was exactly what ABS-CBN had planted to happen.
The amount of moral and exemplary damages cannot be said to be
excessive. Two reasons justify the amount of the award.
The first is that the humiliation suffered by RBS, is national in extent. RBS
operations as a broadcasting company is [sic] nationwide. Its clientele, like
that of ABS-CBN, consists of those who own and watch television. It is not an
exaggeration to state, and it is a matter of judicial notice that almost every
other person in the country watches television. The humiliation suffered by
RBS is multiplied by the number of televiewers who had anticipated the
showing of the film, Maging Sino Ka Man on May 28 and November 3, 1992
but did not see it owing to the cancellation. Added to this are the advertisers
who had placed commercial spots for the telecast and to whom RBS had a
commitment in consideration of the placement to show the film in the dates
and times specified.
The second is that it is a competitor that caused RBS suffer the humiliation.
The humiliation and injury are far greater in degree when caused by an entity
whose ultimate business objective is to lure customers (viewers in this case)
away from the competition.[36]

For their part, VIVA and Vicente del Rosario contend that the findings of fact
of the trial court and the Court of Appeals do not support ABS-CBNs claim
that there was a perfected contract. Such factual findings can no longer be
disturbed in this petition for review under Rule 45, as only questions of law
can be raised, not questions of fact. On the issue of damages and attorneys
fees, they adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected
contract between VIVA and ABS-CBN, and (2) whether RBS is entitled to
damages and attorneys fees. It may be noted that that award of attorneys
fees of P212,000 in favor of VIVA is not assigned as another error.
I changes in the terms of the offer and yet be a binding acceptance as long as
The first issue should be resolved against ABS-CBN. A contract is a meeting
of minds between two persons whereby one binds himself to give something
or render some service to another[37] for a consideration. There is no
contract unless the following requisites concur: (1) consent of the contracting
parties; (2) object certain which is the subject of the contract; and (3) cause
of the obligation, which is established.[38] A contract undergoes three
stages:
(a) preparation, conception, or generation, which is the period of negotiation
and bargaining, ending at the moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties
come to agree on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the
terms agreed upon in the contract.[39]
Contracts that are consensual in nature are perfected upon mere meeting of
the minds. Once there is concurrence between the offer and the acceptance
upon the subject matter, consideration, and terms of payment a contract is
produced. The offer must be certain. To convert the offer into a contract, the
acceptance must be absolute and must not qualify the terms of the offer; it
must be plain, unequivocal, unconditional, and without variance of any sort
from the proposal. A qualified acceptance, or one that involves a new
proposal, constitutes a counter-offer and is a rejection of the original offer.
Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to generate consent
because any modification or variation from the terms of the offer annuls the
offer.[40]
When Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN at the Tamarind
Grill on 2 April 1992 to discuss the package of films, said package of 104
VIVA films was VIVAs offer to ABS-CBN to enter into a new Film Exhibition
Agreement. But ABS-CBN, sent through Ms. Concio, counter-proposal in the
form a draft contract proposing exhibition of 53 films for a consideration of
P35 million. This counter-proposal could be nothing less than the counter-
offer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill
Restaurant. Clearly, there was no acceptance of VIVAs offer, for it was met
by a counter-offer which substantially varied the terms of the offer.
ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of Appeals[41]
and Villonco Realty Company v. Bormaheco, Inc.,[42] is misplaced. In these
cases, it was held that an acceptance may contain a request for certain
it is clear that the meaning of the acceptance is positively and unequivocally
to accept the offer, whether such request is granted or not. This ruling was,
however, reversed in the resolution of 29 March 1996,[43] which ruled that
the acceptance of an offer must be unqualified and absolute, i.e., it must be
identical in all respects with that of the offer so as to produce consent or
meetings of the minds.
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the
revised counter-offer were not material but merely clarificatory of what had
previously been agreed upon. It cited the statement in Stuart v. Franklin Life
Insurance Co.[44] that a vendors change in a phrase of the offer to purchase,
which change does not essentially change the terms of the offer, does not
amount to a rejection of the offer and the tender of a counter-offer.[45]
However, when any of the elements of the contract is modified upon
acceptance, such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer
hence, they underwent period of bargaining. ABS-CBN then formalized its
counter-proposals or counter-offer in a draft contract. VIVA through its Board
of Directors, rejected such counter-offer. Even if it be conceded arguendo
that Del Rosario had accepted the counter-offer, the acceptance did not bind
VIVA, as there was no proof whatsoever that Del Rosario had the specific
authority to do so.
Under the Corporation Code,[46] unless otherwise provided by said Code,
corporate powers, such as the power to enter into contracts, are exercised by
the Board of Directors. However, the Board may delegate such powers to
either an executive committee or officials or contracted managers. The
delegation, except for the executive committee, must be for specific
purposes.[47] Delegation to officers makes the latter agents of the
corporation; accordingly, the general rules of agency as to the binding effects
of their acts would apply.[48] For such officers to be deemed fully clothed by
the corporation to exercise a power of the Board, the latter must specially
authorize them to do so. that Del Rosario did not have the authority to accept
ABS-CBNs counter-offer was best evidenced by his submission of the draft
contract to VIVAs Board of Directors for the latters approval. In any event,
there was between Del Rosario and Lopez III no meeting of minds. The
following findings of the trial court are instructive:
A number of considerations militate against ABS-CBNs claim that a contract
was perfected at that lunch meeting on April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill
referred to the price and the number of films, which he wrote on a napkin.
However, Exhibit C contains numerous provisions which were not discussed
at the Tamarind Grill, if Lopez testimony was to be believed nor could they
have been physically written on a napkin. There was even doubt as to
whether it was a paper napkin or cloth napkin. In short what were written in
Exhibit C were not discussed, and therefore could not have been agreed
upon, by the parties. How then could this court compel the parties to sign
Exhibit C when the provisions thereof were not previously agreed upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the subject
matter of the contract was 14 films. The complaint in fact prays for delivery of
14 films. But Exhibit C mentions 53 films as its subject matter. Which is
which? If Exhibit C reflected the true intent of the parties, then ABS-CBNs
claim for 14 films in its complaint is false or if what it alleged in the complaint
is true, then Exhibit C did not reflect what was agreed upon by the parties.
This underscores the fact that there was no meeting of the minds as to the
subject matter of the contract, so as to preclude perfection thereof. For
settled is the rule that there can be no contract where there is no object
certain which is its subject matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh.
D) States:
We were able to reach an agreement. VIVA gave us the exclusive license to
show these fourteen (14) films, and we agreed to pay Viva the amount of
P16,050,000.00 as well as grant Viva commercial slots worth
P19,950,000.00. We had already earmarked this P16,050,000.00.
which gives a total consideration of P36 million (P19,951,000.00 plus
P16,050,000.00 equals P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q What was written in this napkin?
A The total price, the breakdown the known Viva movies, the 7 blockbuster
movies and the other 7 Viva movies because the price was broken down
accordingly. The none [sic] Viva and the seven other Viva movies and the
sharing between the cash portion and the concerned spot portion in the total
amount of P35 million pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-CBNs
claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted
Exhibit C to Mr. Del Rosario with a handwritten note, describing said Exhibit
C as a draft. (Exh. 5 Viva; tsn pp. 23-24, June 08, 1992). The said draft has a
well defined meaning.
Since Exhibit C is only a draft, or a tentative, provisional or preparatory
writing prepared for discussion, the terms and conditions thereof could not
have been previously agreed upon by ABS-CBN and Viva. Exhibit C could
not therefore legally bind Viva, not having agreed thereto. In fact, Ms. Concio
admitted that the terms and conditions embodied in Exhibit C were prepared
by ABS-CBNs lawyers and there was no discussion on said terms and
conditions.
As the parties had not yet discussed the proposed terms and conditions in
Exhibit C, and there was no evidence whatsoever that Viva agreed to the
terms and conditions thereof, said document cannot be a binding contract.
The fact that Viva refused to sign Exhibit C reveals only two [sic] well that it
did not agree on its terms and conditions, and this court has no authority to
compel Viva to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed
upon at the Tamarind Grill was only provisional, in the sense that it was
subject to approval by the Board of Directors of Viva. He testified:
Q Now, Mr. Witness, and after that Tamarinf meeting the second meeting
wherein you claimed that you have the meeting of the minds between you
and Mr. Vic del Rosario, what happened?
A Vic Del Rosario was supposed to call us up and tell us specifically the
result of the discussion with the Board of Directors.
Q And you are referring to the so-called agreement which you wrote in [sic] a
piece of paper?
A Yes, sir.
Q So, he was going to forward that to the board of Directors for approval?
A Yes, sir (Tsn, pp. 42-43, June 8, 1992)
Q Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del
Rosario had no authority to bind Viva to a contract with ABS-CBN until and
unless its Board of Directors approved it. The complaint, in fact, alleges that
Mr. Del Rosario is the Executive Producer of defendant Viva which is a
corporation. (par. 2, complaint). As a mere agent of Viva, Del Rosario could
not bind Viva unless what he did is ratified by its Directors. (Vicente
vs.Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634).
As a mere agent, recognized as such by plaintiff, Del Rosario could not be
held liable jointly and severally with Viva and his inclusion as party defendant
has no legal basis. (Salonga vs. Warner Barnes [sic],COLTA, 88 Phil. 125;
Salmon vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear
admissions that what was supposed to have been agreed upon at the
Tamarind Grill between Mr. Lopez and Del Rosario was not a binding
agreement. It is as it should be because corporate power to enter into a
contract is lodged in the Board of Directors. (Sec. 23, Corporation Code).
Without such board approval by the Viva board, whatever agreement Lopez
and Del Rosario arrived at could not ripen into a valid binding upon Viva (Yao
Ka Sin Trading vs. Court of Appeals, 209 SCRA 763). The evidence adduced
shows that the Board of Directors of Viva rejected Exhibit C and insisted that
the film package for 104 films be maintained (Exh. 7-1 Cica).[49]
The contention that ABS-CBN had yet to fully exercise its right of first refusal
over twenty-four films under the 1990 Film Exhibition Agreement and that the
meeting between Lopez and Del Rosario was a continuation of said previous
contract is untenable. As observed by the trial court, ABS-CBNs right of first
refusal had already been exercised when Ms. Concio wrote to Viva ticking off
ten films. Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this letter
was sent, was for an entirely different package. Ms. Concio herself admitted
on cross-examination to having used or exercised the right of first refusal.
She stated that the list was not acceptable and was indeed not accepted by
ABS-CBN, (Tsn, June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted
that the right of first refusal may have been already exercised by Ms. Concio
(as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself knew and
understand [sic] that ABS-CBN has lost its right of first refusal when his list of
36 titles were rejected (Tsn, June 9, 1992, pp. 10-11).[50]
II
However, we find for ABS-CBN on the issue of damages. We shall first take
up actual damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the
specific law on actual or compensatory damages. Except as provided by law
or by stipulation, one is entitled to compensation for actual damages only for
such pecuniary loss suffered by him as he has duly proved.[51] The
indemnification shall comprehend not only the value of the loss suffered, but
also that of the profits that the obligee failed to obtain.[52] In contracts and
quasi-contracts the damages which may be awarded are dependent on
whether the obligor acted with good faith or otherwise. In case of good faith,
the damages recoverable are those which are the natural and probable
consequences of the breach of the obligation and which the parties have
foreseen or could have reasonably foreseen at the time of the constitution of
the obligation. If the obligor acted with fraud, bad faith, malice, or wanton
attitude, he shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation.[53] In crimes and quasi-
delicts, the defendants shall be liable for all damages which are the natural
and probable consequences of the act or omission complained of, whether or
not such damages have been foreseen or could have reasonably been
foreseen by the defendant.[54]
Actual damages may likewise be recovered for loss or impairment of earning
capacity in cases of temporary or permanent personal injury, or for injury to
the plaintiffs business standing or commercial credit.[55]
The claim of RBS for actual damages did not arise from contract, quasi-
contract, delict, or quasi-delict. It arose from the fact of filing of the complaint
despite ABS-CBNs alleged knowledge of lack of cause of action. Thus
paragraph 12 of RBSs Answer with Counterclaim and Cross-claim under the
heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of
action against RBS. As a result thereof, RBS suffered actual damages in the
amount of P6,621,195.32.[56]
Needless to state the award of actual damages cannot be comprehended
under the above law on actual damages. RBS could only probably take
refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows:
ART. 19. Every person must, in the exercise of hid rights and in the
performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith.
ART. 20. Every person who, contrary to law, wilfully or negligently causes
damage to another shall indemnify the latter for the same.
ART. 21. Any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.
It may further be observed that in cases where a writ of preliminary injunction
is issued, the damages which the defendant may suffer by reason of the writ
are recoverable from the injunctive bond.[57] In this case, ABS-CBN had not
yet filed the required bond; as a matter of fact, it asked for reduction of the
bond and even went to the Court of Appeals to challenge the order on the
matter. Clearly then, it was not necessary for RBS to file a counterbond.
Hence, ABS-CBN cannot be held responsible for the premium RBS paid for
the counterbond.
Neither could ABS-CBN be liable for the print advertisements for Maging
Sino Ka Man for lack of sufficient legal basis. The RTC issued a temporary
restraining order and later, a writ of preliminary injunction on the basis of its
determination that there existed sufficient ground for the issuance thereof.
Notably, the RTC did not dissolve the injunction on the ground of lack of legal
and factual basis, but because of the plea of RBS that it be allowed to put up
a counterbond.
As regards attorneys fees, the law is clear that in the absence of stipulation,
attorneys fees may be recovered as actual or compensatory damages under
any of the circumstances provided for in Article 2208 of the Civil Code.[58]
The general rule is that attorneys fees cannot be recovered as part of
damages because of the policy that no premium should be placed on the
right to litigate.[59] They are not to be awarded every time a party wins a suit.
The power of the court t award attorneys fees under Article 2208 demands
factual, legal, and equitable justification.[60] Even when a claimant is
compelled to litigate with third persons or to incur expenses to protect his
rights, still attorneys fees may not be awarded where no sufficient showing of
bad faith could be reflected in a partys persistence in a case other than an
erroneous conviction of the righteousness of his cause.[61]
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of
the Civil Code. Article 2217 thereof defines what are included in moral
damages, while Article 2219 enumerates the cases where they may be
recovered. Article 2220 provides that moral damages may be recovered in
breaches of contract where the defendant acted fraudulently or in bad faith.
RBSs claim for moral damages could possibly fall only under item (10) of
Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and
35.
Moral damages are in the category of an award designed to compensate the
claimant for actual injury suffered and not to impose a penalty on the
wrongdoer.[62] The award is not meant to enrich the complainant at the
expense of the defendant, but to enable the injured party to obtain means,
diversion, or amusements that will serve to obviate the moral suffering he
has undergone. It is aimed at the restoration, within the limits of the possible,
of the spiritual status quo ante, and should be proportionate to the suffering
inflicted.[63] Trial courts must then guard against the award of exorbitant
damages; they should exercise balanced restrained and measured objectivity
to avoid suspicion that it was due to passion, prejudice, or corruption or the
part of the trial court.[64]
The award of moral damages cannot be granted in favor of a corporation
because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses. It cannot,
therefore, experience physical suffering and mental anguish, which can be
experienced only by one having a nervous system.[65] The statement in
People v. Manero[66] and Mambulao Lumber Co. v. PNB[67] that a
corporation may recover moral damages if it has a good reputation that is
debased, resulting in social humiliation is an obiter dictum. On this score
alone the award for damages must be set aside, since RBS is a corporation.
The basic law on exemplary damages is Section 5 Chapter 3, Title XVIII,
Book IV of the Civil Code. These are imposed by way of example or
correction for the public good, in addition to moral, temperate, liquidated, or
compensatory damages.[68] They are recoverable in criminal cases as part
of the civil liability when the crime was committed with one or more
aggravating circumstances;[69] in quasi-delicts, if the defendant acted with
gross negligence;[70] and in contracts and quasi-contracts, if the defendant
acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner.[71]
It may be reiterated that the claim of RBS against ABS-CBN is not based on
contract, quasi-contract, delict, or quasi-delict. Hence, the claims for moral
and exemplary damages can only be based on Articles 19, 20, and 21 of the
Civil Code.
The elements of abuse of right under Article 19 are the following: (1) the
existence of a legal right or duty, (2) which is exercised in bad faith, and (3)
for the sole intent of prejudicing or injuring another. Article 20 speaks of the
general sanction for all provisions of law which do not especially provide for
their own sanction; while Article 21 deals with acts contra bonus mores, and
has the following elements: (1) there is an act which is legal, (2) but which is
contrary to morals, good custom, public order, or public policy, and (3) and it
is done with intent to injure.[72]
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21.
Malice or bad faith implies a conscious and intentional design to do a
wrongful act for a dishonest purpose or moral obliquity.[73] Such must be
substantiated by evidence.[74]
There is no adequate proof that ABS-CBN was inspired by malice or bad
faith. It was honestly convinced of the merits of its cause after it had
undergone serious negotiations culminating in its formal submission of a draft
contract. Settled is the rule that the adverse result of an action does not per
se make the action wrongful and subject the actor to damages, for the law
could not have meant impose a penalty on the right to litigate. If damages
result from a persons exercise of a right, it is damnum absque injuria.[75]
WHEREFORE, the instant petition is GRANTED. The challenged decision of
the Court of Appeals in CA-G.R. CV No. 44125 is hereby REVERSED except
as to unappealed award of attorneys fees in favor of VIVA Productions, Inc.
No pronouncement as to costs.
SO ORDERED.
Filipinas Broadcasting vs. Ago Medical Center
GRN 141994 January 17, 2005
Carpio, J.:
FACTS:
Rima & Alegre were host of FBNI radio program “Expose”. Respondent Ago
was the owner of the Medical & Educational center, subject of the radio
program “Expose”. AMEC claimed that the broadcasts were defamatory and
owner Ago and school AMEC claimed for damages. The complaint further
alleged that AMEC is a reputable learning institution. With the supposed
expose, FBNI, Rima and Alegre “transmitted malicious imputations and as
such, destroyed plaintiff’s reputation. FBNI was included as defendant for
allegedly failing to exercise due diligence in the selection and supervision of
its employees. The trial court found Rima’s statements to be within the
bounds of freedom of speech and ruled that the broadcast was libelous. It
ordered the defendants Alegre and FBNI to pay AMEC 300k for moral
damages.”
ISSUE:
Whether or not AMEC is entitled to moral damages.
RULING:
A juridical person is generally not entitled to moral damages because, unlike
a natural person, it cannot experience physical suffering or such sentiments
as wounded feelings, serious anxiety, mental anguish or moral shock.
Nevertheless, AMEC’s claim, or moral damages fall under item 7 of Art –
2219 of the NCC.
This provision expressly authorizes the recovery of moral damages in cases
of libel, slander or any other form of defamation. Art 2219 (7) does not qualify
whether the plaintiff is a natural or juridical person. Therefore, a juridical
person such as a corporation can validly complain for libel or any other form
of defamation and claim for moral damages. Moreover, where the broadcast
is libelous per se, the law implied damages. In such a case, evidence of an
honest mistake or the want of character or reputation of the party libeled
goes only in mitigation of damages. In this case, the broadcasts are libelous
per se. thus, AMEC is entitled to moral damages. However, we find the
award P500,000 moral damages unreasonable. The record shows that even
though the broadcasts were libelous, per se, AMEC has not suffered any
substantial or material damage to its reputation. Therefore, we reduce the
award of moral damages to P150k.
JOIN TORT FEASORS are all the persons who command, instigate,
promote, encourage, advice countenance, cooperate in, aid or abet the
commission of a tort, as who approve of it after it is done, for its benefit.
CONTROL AND MANAGEMENT OF THE CORPORATION
G.R. No. 11897 September 24, 1918
J. F. RAMIREZ, plaintiff-appellee,
vs.
THE ORIENTALIST CO., and RAMON J. FERNANDEZ, defendants-
appellants.
Jose Moreno Lacalle for appellant Fernandez.
Sanz, Opisso & Luzuriaga for appellant "The Orientalist Co."
No appearance for appellee.

STREET, J.:
The Orientalist Company is a corporation, duly organized under the laws of
the Philippine Islands, and in 1913 and 1914, the time of the occurrences
which gave rise to this lawsuit, was engaged in the business of maintaining
and conducting a theatre in the city of Manila for the exhibition of
cinematographic films. Under the articles of incorporation the company is
authorized to manufacture, buy, or otherwise obtain all accessories
necessary for conducting such a business. The plaintiff J. F. Ramirez was, at
the same time, a resident of the city of Paris, France, and was engaged in
the business of marketing films for a manufacturer or manufacturers, there
engaged in the production or distribution of cinematographic material. In this
enterprise the plaintiff was represented in the city of Manila by his son, Jose
Ramirez.
In the month of July, 1913, certain of the directors of the Orientalist
Company, in Manila, became apprised of the fact that the plaintiff in Paris
had control of the agencies for two different marks of films, namely, the
"Eclair Films" and the "Milano Films;" and negotiations were begun with said
officials of the Orientalist Company by Jose Ramirez, as agent of the plaintiff,
for the purpose of placing the exclusive agency of these films in the hands of
the Orientalist Company. The defendant Ramon J. Fernandez, one of the
directors of the Orientalist Company and also its treasure, was chiefly active
in this matter, being moved by the suggestions and representations of
Vicente Ocampo, manage of the Oriental Theater, to the effect that the
securing of the said films was necessary to the success of the corporation.
Near the end of July of the year aforesaid, Jose Ramirez, as representative
of his father, placed in the hands of Ramon J. Fernandez an offer, dated July
4, 1913, stating detail the terms upon which the plaintiff would undertake to
supply from Paris the aforesaid films. This officer was declared to be good
until the end of July; and as only about for the Orientalist Company to act on
the matter speedily, if it desired to take advantage of said offer. Accordingly,
Ramon J. Fernandez, on July 30, had an informal conference with all the
members of the company's board of directors except one, and with approval
of those with whom he had communicated, addressed a letter to Jose
Ramirez, in Manila, accepting the offer contained in the memorandum of July
4th for the exclusive agency of the Eclair films. A few days later, on August 5,
he addressed another letter couched in the same terms, likewise accepting
the office of the exclusive agency for the Milano Films.
The memorandum offer contained a statement of the price at which the films
would be sold, the quantity which the representative of each was required to
take and information concerning the manner and intervals of time for the
respective shipments. The expenses of packing, transportation and other
incidentals were to be at the cost of the purchaser. There was added a
clause in which J. F. Ramirez described his function in such transactions as
that of a commission agent and stated that he would see to the prompt
shipment of the films, would pay the manufacturer, and take care that the
films were insured — his commission for such services being fixed at 5 per
cent.
What we consider to be the most portion of the two letters of acceptance
written by R. J. Fernandez to Jose Ramirez is in the following terms:
We willingly accepted the officer under the terms communicated by your
father in his letter dated at Paris on July 4th of the present year.
These communications were signed in the following form, in which it will be
noted the separate signature of R. J. Fernandez, as an individual, is placed
somewhat below and to the left of the signature of the Orientalist Company
as singed by R. J. Fernandez, in the capacity of treasurer:
THE ORIENTALIST COMPANY,
By R. J. FERNANDEZ,
Treasurer,
R. J. FERNANDEZ.
Both of these letters also contained a request that Jose Ramirez should at
once telegraph to his father in Paris that his offer had been accepted by the
Orientalist Company and instruct him to make a contract with the film
companies, according to the tenor of the offer, and in the capacity of
attorney-in-fact for the Orientalist Company. The idea behind the latter
suggestion apparently was that the contract for the films would have to be
made directly between the film-producing companies and the Orientalist
Company; and it seemed convenient, in order to save time, that the
Orientalist Company should clothed J. F. Ramirez with full authority as its
attorney-in-fact. This idea was never given effect; and so far as the record
shows, J. F. Ramirez himself procured the films upon his own responsibility,
as he indicated in the officer of July 4 that he would do, with the result that
the only contracting parties in this case are J. F. Ramirez of the one part, and
the Orientalist Company, with Ramon J. Fernandez of the other.
In due time the films began to arrive in Manila, a draft for the cost and
expenses incident to each shipment being attached to the proper bill of
lading. It appears that the Orientalist Company was without funds to meet
these obligations and the first few drafts were dealt with in the following
manner: The drafts, upon presented through the bank, were accepted in the
name of the Orientalist Company by its president B. Hernandez, and were
taken up by the latter with his own funds. As the drafts had thus been paid by
B. Hernandez, the films which had been procured by he payment of said
drafts were treated by him as his own property; and they in fact never came
into the actual possession of the Orientalist Company as owner at all, though
it is true Hernandez rented the films to the Orientalist Company and they
were exhibited by it in the Oriental Theater under an arrangement which was
made between him and the theater's manager.
During the period between February 27, 1914, and April 30, 1914, there
arrived in the city of Manila several remittances of films from Paris, and it is
these shipments which have given occasion for the present action. All of the
drafts accompanying these films were drawn, as on former occasions, upon
the Orientalist Company; and all were accepted in the name of B.
Hernandez, except the last, which was accepted by B. Hernandez
individually. None of the drafts thus accepted were taken up by the drawee or
by B. Hernandez when they fell due; and it was finally necessary for the
plaintiff himself to take them up as dishonored by non-payment.
Thereupon this action was instituted by the plaintiff on May 19, 1914, against
the Orientalist Company, and Ramon J. Fernandez. As the films which
accompanied the dishonored were liable to deteriorate, the court, upon
application of the plaintiff, and apparently without opposition on the part of
the defendants, appointed a receiver who took charge of the films and sold
them. The amount realized from this sale was applied to the satisfaction of
the plaintiff's claim and was accordingly delivered to him in part payment
thereof. At trial judgment was given for the balance due to the plaintiff,
namely P6,018.93, with interest from May 19, 1914, the date of the institution
of the action. In the judgment of the trial court the Orientalist Company was
declared to be a principal debtor and Ramon J. Fernandez was declared to
be liable subsidiarily as guarantor. From this judgment both of the parties
defendant appealed.
In this Court neither of the parties appellant make any question with respect
to the right of the plaintiff to recover from somebody the amount awarded by
the lower court; but each of the defendants insists the other is liable for the
whole. It results that the real contention upon this appeal is between the two
defendants.
It is stated in the brief of the appellant Ramon J. Fernandez and the
statement is not challenged by the Orientalist Company that the judgment
has already been executed as against the company is exclusively and
primarily liable the entire indebtedness, the question as to the liability of
Ramon J. Fernandez would be academic. But if the latter is liable as principal
obligor for the whole or any part of the debt, it will be necessary to modify the
judgment in order to adjust the rights of the defendants in accordance with
such finding.
It will be noted that the action is primarily founded upon the liability created
by the letters dated July 30th and August 5, 1913, in connection with the
plaintiff's offer of July 4, 1913; and both of the letters mentioned are copied
into the complaint as the foundation of the action. The action is not based
upon the dishonored drafts which were accepted by B. Hernandez in the
name of the Orientalist Company; and although these drafts, as well as the
last draft, which was accepted by B. Hernandez individually, have been
introduced in evidence, this was evidently done for the purpose of proving
the amount of damages which the plaintiff was entitled to recover.
In the discussion which is to follow we shall consider, first, the question of the
liability of the corporation upon the contracts contained in the letters of July
30 and August 5, 1913, and, secondly the question of the liability of Ramon
J. Fernandez, based upon his personal signature to the same documents.
As to the liability of the corporation a preliminary point of importance arises
upon the pleadings. The action, as already stated, is based upon documents
purporting to be signed by the Orientalist Company, and copies of the
documents are set out in the complaint. It was therefore incumbent upon the
corporation, if it desired to question the authority of Fernandez to bind it, to
deny the due execution of said contracts under oath, as prescribed in section
103 of the Code of Civil procedure. Said section, in the part pertinent to the
situation now under consideration, reads as follows:
When an action is brought upon a written instrument and the complaint
contains or has annexed or has annexed a copy of such instrument, the
genuineness and due execution of the instrument shall be deemed admitted,
unless specifically denied under oath in the answer.
No sworn answer denying the genuineness and due execution of the
contracts in question or questioning the authority of Ramon J. Fernandez to
bind the Orientalist Company was filed in this case; but evidence was
admitted without objection from the plaintiff, tending to show that Ramon J.
Fernandez had no such authority. This evidence consisted of extracts from
the minutes of the proceedings of the company's board of directors and also
of extracts from the minutes of the proceedings of the company's
stockholders, showing that the making of this contract had been under
consideration in both bodies and that the authority to make the same had
been withheld by the stockholders. It therefore becomes necessary for us to
consider whether the administration resulting from the failure of the
defendant company to deny the execution of the contracts under oath is
binding upon it for all purposes of this lawsuit, or whether such failure should
be considered a mere irregularity of procedure which was waived when the
evidence referred to was admitted without objection from the plaintiff. The
proper solution of this problem makes it necessary to consider carefully the
principle underlying the provision above quoted.

That the situation was one in which an answer under oath denying the
authority of the agent should have been interposed, supposing that the
company desired to contest this point, is not open to question. In the case of
Merchant vs. International Banking Corporation, (6 Phil. Rep., 314), it
appeared that one Brown has signed the name of the defendant bank as
guarantor of a promissory note. The bank was sued upon this guaranty and
at the hearing attempted to prove that Brown had no authority to bind the
bank by such contract. It was held that buy failing to deny the contract under
oath, the bank had admitted the genuineness and due execution thereof, and
that this admission extended not only to the authenticity of the signature of
Brown but also to his authority. Said Justice Willard: "The failure of the
defendant to deny the genuineness and due execution of this guaranty under
oath was an admission not only of the signature of Brown, but also his
authority to make the contract in behalf of the defendant and of the power the
contract in behalf of the defendant and of the power of the defendant to enter
into such a contract.
The rule thus stated is in entire accord with the doctrine prevailing in the
United States, as will be seen by reference to the following, among other
authorities:
The case of Barrett Mining Co. vs. Tappan (2 Colo., 124) was an action
against a mining corporation upon an appeal bond. The name of the
company had been affixed to the obligation by an agent, and no sufficient
affidavit was filed by the corporation questioning its signature or the authority
of the agent to bind the company. It was held that the plaintiff did not have to
prove the due execution of the bond and that the corporation as to be taken
as admitting the authority of the agent to make the signature. Among other
things the court said: "But it is said that the authority of Barrett to execute the
bond is distinguishable from the signing and, although the signature must be
denied under oath, the authority of the agent need not be. Upon this we
observe that the statute manifestly refers to the legal effect of the signature,
rather than the manual act of singing. If the name of the obligor, in a bond, is
subscribed by one in his presence, and by his direction, the effect is the
same as if his name should be signed with his own hand, and under such
circumstances we do not doubt that the obligor must deny his signature
under oath, in order to put the obligee to proof of the fact. Quit facit per aliam
facit per se, and when the name is signed by one thereunto authorized, it is
as much as the signature of the principal as if written with his own hand.
Therefore, if the principal would deny the authority of the agent, as the
validity of the signature is thereby directly attacked, the denial must be under
oath.
In Union Dry Company vs. Reid (26 Ga., 107), an action was brought upon a
promissory note purporting to have been given by on A. B., as the treasurer
of the defendant company. Said the court: "Under the Judiciary Act of 1799,
requiring the defendant to deny on oath an instrument of writing, upon which
he is sued, the plea in this case should have been verified.
If the person who signed this note for the company, and upon which they are
sued, was not authorized to make it, let them say so upon oath, and the onus
is then on the plaintiff to overcome the plea."
It should be noted that the provision contained in section 103 of our Code of
Civil Procedure is embodied in some form or other in the statutes of probably
all of the American States, and it is not by any means peculiar to the laws of
California, though it appears to have been taken immediately from the
statutes of that State. (Secs. 447, 448, California Code of Civil Procedure.)
There is really a broader question here involved than that which relates
merely to the formality of verifying the answer with an affidavit. This question
arises from the circumstance that the answer of the corporation does not in
any was challenge the authority of Ramon J. Fernandez to bind it by the
contracts in question and does not set forth, as a special defense, any such
lack of authority in him. Upon well-established principles of pleading lack of
authority in an officer of a corporation to bind it by a contract executed by him
in its name is a defense which should be specially pleaded — and this quite
apart from the requirement, contained in section 103, that the answer setting
up such defense should be verified by oath. But is should not here escape
observation that section 103 also requires — in denial contemplated in that
section shall be specific. An attack on the instrument in general terms is
insufficient, even though the answer is under oath. (Songco vs. Sellner, 37
Phil. Rep., 254.)
In the first edition of a well-known treatise on the laws of corporations we find
the following proposition:
If an action is brought against a corporation upon a contract alleged to be its
contract, if it desires to set up the defense that the contract was executed by
one not authorized as its agent, it must plead non est factum. (Thompson on
Corporations, 1st ed., vol. 6, sec. 7631.)
Again, says the same author:
A corporation can not avail itself of the defense that it had no power to enter
into the obligation to enforce which the suit is brought, unless it pleads that
defense. This principle applies equally where the defendant intends to
challenge the power of its officer or agent to execute in its behalf the contract
upon which the action brought and where it intends to defend on the ground
of total want of power in the corporation to make such a contract. (Opus citat.
sec. 7619.)

In Simon vs. Calfee (80 Ark., 65), it was said:
Though the power of the officers of a business corporation to issue
negotiable paper in its name is not presumed, such corporation can not avail
itself of a want of power in its officers to bind it unless the defense was made
on such ground.
The rule has been applied where the question was whether corporate officer,
having admitted power to make a contract, had in the particular instance
exceeded that authority, (Merill vs. Consumers' Coal Co., 114 N.Y., 216);
and it has been held that where the answer in a suit against a corporation on
its note relies simply on the want of power of the corporation to issue notes,
the defendant can not afterwards object that the plaintiff has not shown that
the officer executing the note were empowered to do so. (Smith vs. Eureka
Flour Mills Co., 6 Cal., 1.)
The reason for the rule enunciated in the foregoing authorities will, we think,
be readily appreciated. In dealing with corporations the public at large is
bound to rely to a large extent upon outward appearances. If a man is found
acting for a corporation with the external indicia of authority, any person, not
having notice of want of authority, may usually rely upon those appearances;
and if it be found that the directors had permitted the agent to exercise that
authority and thereby held him out as a person competent to bind the
corporation, or had acquiesced in a contract and retained the benefit
supposed to have been conferred by it, the corporation will be bound,
notwithstanding the actual authority may never have been granted. The
public is not supposed nor required to know the transactions which happen
around the table where the corporate board of directors or the stockholders
are from time to time convoked. Whether a particular officer actually
possesses the authority which he assumes to exercise is frequently known to
very few, and the proof of it usually is not readily accessible to the stranger
who deals with the corporation on the faith of the ostensible authority
exercised by some of the corporate officers. It is therefore reasonable, in a
case where an officer of a corporation has made a contract in its name, that
the corporation should be required, if it denies his authority, to state such
defense in its answer. By this means the plaintiff is apprised of the fact that
the agent's authority is contested; and he is given an opportunity to adduce
evidence showing either that the authority existed or that the contract was
ratified and approved.
We are of the opinion that the failure of the defendant corporation to make
any issue in its answer with regard to the authority of Ramon J. Fernandez to
bind it, and particularly its failure to deny specifically under oath the
genuineness and due execution of the contracts sued upon, have the effect
of elimination the question of his authority from the case, considered as a
matter of mere pleading. The statute (sec. 103) plainly says that if a written
instrument, the foundation of the suit, is not denied upon oath, it shall be
deemed to be admitted. It is familiar doctrine that an admission made in a
pleading can not be controverted by the party making such admission; and
all proof submitted by him contrary thereto or inconsistent therewith should
simply be ignored by the court, whether objection is interposed by the
opposite party or not. We can see no reason why a constructive admission,
created by the express words of the statute, should be considered to have
less effect than any other admission.
The parties to an action are required to submit their respective contentions to
the court in their complaint and answer. These documents supply the
materials which the court must use in order to discover the points of
contention between the parties; and where the statute says that the due
execution of a document which supplies the foundation of an action is to be
taken as admitted unless denied under oath, the failure of the defendant to
make such denial must be taken to operate as a conclusive admission, so
long as the pleadings remain that form.
It is true that it is declared in section 109 of the Code of Civil Procedure that
immaterial variances between the allegations of a pleading and the proof
shall be disregarded and the facts shall be found according to the evidence.
The same section, however, recognizes the necessity for an amendment of
the pleadings. And judgment must be in conformity with the case made in
conformity with the case made in the pleadings and established by the proof,
and relief can not be granted that is substantially inconsistent with either. A
party can no more succeed upon a case proved but not alleged than upon a
case alleged but nor proved. This rule of course operates with like effect
upon both parties, and applies equality to the defendants special defense as
to the plaintiffs cause of action.
Of course this Court, under section 109 of the Code of Civil Procedure, has
authority even now to permit the answer of the defendant to be amended;
and if we believed that the interests of justice so required, we would either
exercise that authority or remand the cause for a new trial in court below. As
will appear further on in this opinion, however, we think that the interests of
justice will best be promoted by deciding the case, without more ado, upon
the issues presented in the record as it now stands.
That we may not appear to have overlooked the matter, we will observe that
two cases are cited from California in which the Supreme Court of the State
has held that where a release is pleaded by way of defense and evidence
tending to destroy its effect is introduced without objection, the circumstance
that it was not denied under oath is immaterial. In the earlier of these cases,
Crowley, vs. Railroad Co. (60 Cal., 628), an action was brought against a
railroad company to recover damages for the death of the plaintiff's minor
son, alleged to have been killed by the negligence of the defendant. The
defendant company pleaded by way of defense a release purporting to be
signed by the plaintiff, and in its answer inserted a copy of the release. The
execution of the release was not denied under oath; but at the trial evidence
was submitted on behalf of the plaintiff tending to show that at the time he
signed the release, he was incompetent by reason of drunkenness to bind
himself thereby. It was held that inasmuch as this evidence had been
submitted by the plaintiff without objection, it was proper for the court to
consider it. We do not question the propriety of that decision, especially as
the issue had been passed upon by a jury; but we believe that the decision
would have been more soundly planted if it had been said that the incapacity
of the plaintiff, due to his drunken condition, was a matter which did not
involve either the genuineness or due execution of the release. Like the
defenses of fraud, coercion, imbecility, and mistake, it was a matter which
could be proved under the general issue and did not have to be set up in a
sworn reply. (Cf. Moore vs. Copp, 119 Cal., 429, 432, 433.) A somewhat
similar explanation can, we think, be given of the case of Clark vs. Child in
which the rule declared in the earlier case was followed. With respect to both
decisions which we merely observe that upon point of procedure which they
are supposed to maintain, the reasoning of the court is in our opinion
unconvincing.
We shall now consider the liability of the defendant company on the merits
just as if that liability had been properly put in issue by a specific answer
under oath denying the authority of Fernandez go to bind it. Upon this
question it must at the outset be premised that Ramon J. Fernandez, as
treasurer, had no independent authority to bind the company by signing its
name to the letters in question. It is declared by signing its name to the
letters in question. It is declared in section 28 of the Corporation Law that
corporate power shall be exercised, and all corporate business conducted by
the board of directors; and this principle is recognized in the by-laws of the
corporation in question which contain a provision declaring that the power to
make contracts shall be vested in the board of directors. It is true that it is
also declared in the same by-laws that the president shall have the power,
and it shall be his duty, to sign contract; but this has reference rather to the
formality of reducing to proper form the contract which are authorized by the
board and is not intended to confer an independent power to make contract
binding on the corporation.
The fact that the power to make corporate contract is thus vested in the
board of directors does not signify that a formal vote of the board must
always be taken before contractual liability can be fixed upon a corporation;
for the board can create liability, like an individual, by other means than by a
formal expression of its will. In this connection the case of Robert Gair Co.
vs. Columbia Rice Packing Co. (124 La., 194) is instructive. If there appeared
that the secretary of the defendant corporation had signed an obligation on
its behalf binding it as guarantor of the performance of an important contract
upon which the name of another corporation appeared as principal. The
defendant company set up by way of defense that is secretary had no
authority to bind it by such an engagement. The court found that the guaranty
was given with the knowledge and consent of the president and directors,
and that this consent of the president and directors, and that this consent
was given with as much observance of formality as was customary in the
transaction of the business of the company. It was held that, so far as the
authority of the secretary was concerned, the contract was binding. In
discussing this point, the court quoted with approval the following language
form one of its prior decisions:
The authority of the subordinate agent of a corporation often depends upon
the course of dealings which the company or its director have sanctioned. It
may be established sometimes without reference to official record of the
proceedings of the board, by proof of the usage which the company had
permitted to grow up in business, and of the acquiescence of the board
charged with the duty of supervising and controlling the company's business.
It appears in evidence, in the case now before us, that on July 30, the date
upon which the letter accepting the offer of the Eclair films was dispatched
the board of directors of the Orientalist Company convened in special
session in the office of Ramon J. Fernandez at the request of the latter.
There were present the four members, including the president, who had
already signified their consent to the making of the contract. At this meeting,
as appears from the minutes, Fernandez informed the board of the offer
which had been received from the plaintiff with reference to the importation of
films. The minutes add that terms of this offer were approved; but at the
suggestion of Fernandez it was decided to call a special meeting of the
stockholders to consider the matter and definite action was postponed.
The stockholders meeting was convoked upon September 18, 1913, upon
which occasion Fernandez informed those present of the offer in question
and of the terms upon which the films could be procured. He estimated that
the company would have to make an outlay of about P5,500 per month, if the
offer for the two films should be accepted by it.
The following extracts from the minutes of this meeting are here pertinent:
Mr. Fernandez informed the stockholders that, in view of the urgency of the
matter and for the purpose of avoiding that other importers should get ahead
of the corporation in this regard, he and Messrs. B. Hernandez, Leon
Monroy, and Dr. Papa met for the purpose of considering the acceptance of
the offer together with the responsibilities attached thereto, made to the
corporation by the film manufacturers of Eclair and Milano of Paris and Italy
respectively, inasmuch as the first shipment of films was then expected to
arrive.
At the same time he informed the said stockholders that he had already
made arrangements with respect to renting said films after they have been
once exhibited in the Cine Oriental, and that the corporation could very well
meet the expenditure involved and net a certain profit, but that, if we could
enter into a contract with about nine cinematographs, big gains would be
obtained through such a step.
The possibility that the corporation might not see fit to authorize the contract,
or might for lack of funds be unable to make the necessary outlay, was
foreseen; and in such contingency the stockholders were informed, that the
four gentlemen above mentioned (Hernandez, Fernandez, Monroy, and
Papa) "would continue importing said films at their own account and risk, and
shall be entitled only to a compensation of 10 per cent of their outlay in
importing the films, said payment to be made in shares of said corporation,
inasmuch as the corporation is lacking available funds for the purpose, and
also because there are 88 shares of stock remaining still unsold."
In view of this statement, the stockholders adopted a resolution to the effect
that the agencies of the Eclair and Milano films should be accepted, if the
corporation could obtain the money with which to meet the expenditure
involved, and to this end appointed a committee to apply to the bank for a
credit. The evidence shows that an attempt was made, on behalf of the
corporation, to obtain a credit of P10,000 from the Bank of the Philippine
Islands for the purpose indicated, but the bank declined to grant his credit.
Thereafter another special meeting of the shareholders of the defendant
corporation was called at which the failure of their committee to obtain a
credit from the bank was made known. A resolution was thereupon passed to
the effect that the company should pay to Hernandez, Fernandez, Monroy,
and Papa an amount equal to 10 per cent of their outlay in importing the
films, said payment to be made in shares of the company in accordance with
the suggestion made at the previous meeting. At the time this meeting was
held three shipment of the films had already been received in Manila.
We believe it is a fair inference from the recitals of the minutes of the
stockholders meeting of September 18, and especially from the first
paragraph above quoted, that this body was then cognizant that the officer
had already been accepted in the name of the Orientalist Company and that
the films which were then expected to arrive were being imported by virtue of
such acceptance. Certainly four members of the board of directors there
present were aware of this fact, as the letter accepting the offer had been
sent with their knowledge and consent. In view of this circumstance, a certain
doubt arises whether they meant to utilize the financial assistance of the four
so-called importers in order that the corporation might bet the benefit of the
contract for the films, just as it would have utilized the credit of the bank if
such credit had been extended. If such was the intention of the stockholders
their action amounted to a virtual, though indirect, approval of the contract. It
is not however, necessary to found the judgment on this interpretation of the
stockholders proceedings, inasmuch as we think for reasons presently to be
stated, that the corporation is bound, and we will here assume that in the end
the contract were not approved by the stockholders.
It will be observed that Ramon J. Fernandez was the particular officer and
member of the board of directors who was most active in the effort to secure
the films for the corporation. The negotiations were conducted by him with
the knowledge and consent of other members of the board; and the contract
was made with their prior approval. As appears from the papers in this
record, Fernandez was the person to who keeping was confided the printed
stationery bearing the official style of the corporation, as well as rubber
stencil with which the name of the corporation could be signed to documents
bearing its name.
Ignoring now, for a moment, the transactions of the stockholders, and
reverting to the proceedings of the board of directors of the Orientalist
Company, we find that upon October 27, 1913, after Fernandez had
departed from the Philippine Islands, to be absent for many months, said
board adopted a resolution conferring the following among other powers on
Vicente Ocampo, the manager of the Oriental theater, namely:
(1) To rent a box for the films in the "Kneeler Building."
(4) To be in charge of the films and of the renting of the same.
(5) To advertise in the different newspapers that we are importing films
to be exhibited in the Cine Oriental.
(6) Not to deliver any film for rent without first receiving the rental
therefor or the guaranty for the payment thereof.
(7) To buy a book and cards for indexing the names of the films.
(10) Upon the motion of Mr. Ocampo, it was decided to give ample
powers to the Hon. R. Acuña to enter into agreements with cinematograph
proprietors in the provinces for the purpose of renting films from us.
It thus appears that the board of directors, before the financial inability of the
corporation to proceed with the project was revealed, had already recognized
the contract as being in existence and had proceeded to take the steps
necessary to utilize the films. Particularly suggestive is the direction given at
this meeting for the publication of announcements in the newspapers to the
effect that the company was engaged in importing films. In the light of all the
circumstances of the case, we are of the opinion that the contracts in
question were thus inferentially approved by the company's board of
directors and that the company is bound unless the subsequent failure of the
stockholders to approve said contracts had the effect of abrogating the
liability thus created.
Both upon principle and authority it is clear that the action of the
stockholders, whatever its character, must be ignored. The functions of the
stockholders of a corporation are, it must be remembered, of a limited nature.
The theory of a corporation is that the stockholders may have all the profits
but shall turn over the complete management of the enterprise to their
representatives and agents, called directors. Accordingly, there is little for the
stockholders to do beyond electing directors, making by-laws, and exercising
certain other special powers defined by-law. In conformity with this idea it is
settled that contract between a corporation and third person must be made
by the director and not by the stockholders. The corporation, in such matters,
is represented by the former and not by the latter. (Cook on Corporations,
sixth ed., secs. 708, 709.) This conclusion is entirely accordant with the
provisions of section 28 of our Corporation Law already referred to. It results
that where a meeting of the stockholders is called for the purpose of passing
on the propriety of making a corporate contract, its resolutions are at most
advisory and not in any wise binding on the board.
In passing upon the liability of a corporation in cases of this kind it is always
well to keep in mind the situation as it presents itself to the third party with
whom the contract is made. Naturally he can have little or no information as
to what occurs in corporate meetings; and he must necessarily rely upon the
external manifestations of corporate consent. The integrity of commercial
transactions can only be maintained by holding the corporation strictly to the
liability fixed upon it by its agents in accordance with law, and we would be
sorry to announce a doctrine which would permit the property of a man in the
city of Paris to be whisked out of his hands and carried into a remote quarter
of the earth without recourse against the corporations whose name and
authority had been used in the manner disclosed in this case. As already
observed, it is familiar doctrine that if a corporation knowingly permits one of
its officer, or any other agent, to do acts within the scope of an apparent
authority, and thus hold him out to the public as possessing power to do
those acts, the corporation will as against any one who has in good faith
dealt with the corporation through such agent, be estopped from denying his
authority; and where it is said "if the corporation permits" this means the
same as "if the thing is permitted by the directing power of the corporation."
It being determined that the corporation is bound by the contract in question,
it remains to consider the character of the liability assumed by R. J.
Fernandez, in affixing his personal signature to said contract. The question
here is whether Fernandez is liable jointly with the Orientalists Company as a
principal obligor, or whether his liability is that of a guarantor merely.
As appears upon the face of the contracts, the signature of Fernandez, in his
individual capacity, is not in line with the signature of the Orientalist
Company, but is set off to the left of the company's signature and somewhat
who sign contracts in some capacity other than that of principal obligor to
place their signature alone would justify a court in holding that Fernandez
here took upon himself the responsibility of a guarantor rather than that of a
principal obligor. We do, however, think, that the form in which the contract is
signed raises a doubt as to what the real intention was; and we feel justified,
in looking to the evidence to discover that intention. In this connection it is
entirely clear, from the testimony of both Ramirez and Ramon J. Fernandez,
that the responsibility of the latter was intended to be that of guarantor. There
is, to be sure, a certain difference between these witnesses as to the nature
of this guaranty, inasmuch as Fernandez would have us believe that his
name was signed as a guaranty that the contract would be approved by the
corporation, while Ramirez says that the name was put on the contract for
the purpose of guaranteeing, not the approval of the contract, but its
performance. We are convinced that the latter was the real intention of the
contracting parties.
We are not unmindful of the force of that rule of law which declares that oral
evidence is admissible to show the character in which the signature was
affixed. This conclusion is perhaps supported by the language of the second
paragraph of article 1281 of the Civil Code, which declares that if the words
of a contract should appear contrary to the evident intention of the parties,
the intention shall prevail. But the conclusion reached is, we think, deducible
from the general principle that in case of ambiguity parol evidence is
admissible to show the intention of the contracting parties.
It should be stated in conclusion that as the issues in this case have been
framed, the only question presented to this court is: To what extent are the
signatory parties to the contract liable to the plaintiff J. F. Ramirez? No
contentious issue is raised directly between the defendants, the Orientalist
Company and Ramon H. Fernandez; nor does the present the present action
involve any question as to the undertaking of Fernandez and his three
associates to effect the importation of the films upon their own account and
risk. Whether they may be bound to hold the company harmless is a matter
upon which we express no opinion.
The judgment appealed from is affirmed, with costs equally against the two
appellant. So ordered.
Ramirez vs Orientalist Co. (1918)
February 14, 2013 markerwins Corporation Law, Mercantile Lawcorpo, merc
Facts: Orientalist Company was engaged in the business of maintaining and
conducting a theatre in the city of Manila for the exhibition of
cinematographic films. engaged in the business of marketing films for a
manufacturer or manufacturers, there engaged in the production or
distribution of cinematographic material. In this enterprise the plaintiff was
represented in the city of Manila by his son, Jose Ramirez. The directors of
the Orientalist Company became apprised of the fact that the plaintiff in Paris
had control of the agencies for two different marks of films, namely, the
“Eclair Films” and the “Milano Films;” and negotiations were begun with said
officials of the Orientalist Company by Jose Ramirez, as agent of the plaintiff.
The defendant Ramon J. Fernandez, one of the directors of the Orientalist
Company and also its treasure, was chiefly active in this matter. Ramon J.
Fernandez had an informal conference with all the members of the
company’s board of directors except one, and with approval of those with
whom he had communicated, addressed a letter to Jose Ramirez, in Manila,
accepting the offer contained in the memorandum the exclusive agency of
the Eclair films and Milano films. In due time the films began to arrive in
Manila, it appears that the Orientalist Company was without funds to meet
these obligations. Action was instituted by the plaintiff to Orientalist
Company, and Ramon J. Fernandez for sum of money.
Issue: WON the Orientalist Co. is liable for the acts of its treasurer,
Fernandez?
Held: Yes. It will be observed that Ramon J. Fernandez was the particular
officer and member of the board of directors who was most active in the
effort to secure the films for the corporation. The negotiations were
conducted by him with the knowledge and consent of other members of the
board; and the contract was made with their prior approval. In the light of all
the circumstances of the case, we are of the opinion that the contracts in
question were thus inferentially approved by the company’s board of
directors and that the company is bound unless the subsequent failure of the
stockholders to approve said contracts had the effect of abrogating the
liability thus created.
G.R. No. L-32991 June 29, 1972
SALVADOR P. LOPEZ, President of the University of the Philippines;
BOARD OF REGENTS, University of the Philippines; and OSEAS DEL
ROSARIO, Officer-in-Charge, College of Education, University of the
Philippines, petitioners,
vs.
HON. VICENTE ERICTA, Judge of the Court of First Instance of Rizal,
Branch XVIII (Quezon City), and DR. CONSUELO S. BLANCO, respondents.
Office of the Solicitor General Felix Q. Antonio, Assistant Solicitor General
Jaime M. Lantin and Special Counsel Jose Espinosa for petitioners.
Sison, Dominguez & Magno for respondents.
MAKALINTAL, J.:p
This case presents the question of whether or not respondent Dr. Consuelo
S. Blanco was duly elected Dean of the College of Education, University of
the Philippines, in the meeting of the Board of Regents on July 9, 1970, at
which her ad interim appointment by University President Salvador P. Lopez,
one of the petitioners here, was submitted for consideration.
The question was originally ventilated in a petition for certiorari filed by Dr.
Blanco in the Court of First Instance of Quezon City, presided by respondent
Judge Vicente Ericta, who decided the question affirmatively on December 3,
1970. The dispositive portion of the decision was amended three days later,
or on December 6, to read as follows:
WHEREFORE, the Court renders judgment:
(1) Declaring petitioner, CONSUELO S. BLANCO, the duly elected
Dean of the College of Education, University of the Philippines, and as such
entitled to occupy the position with a three-year term of office from May 1,
1970 to April 30, 1973;
(2) Declaring null and void the appointment of respondent Oseas A. del
Rosario as Officer-in-Charge of the College of Education, University of the
Philippines; and
(3) Issuing a permanent injunction (a) commanding respondent Oseas
A. del Rosario to desist from further exercising the functions and duties
pertaining to the Office of the Dean of the College of Education, University of
the Philippines, and (b) commanding respondent Board of Regents from
further proceeding in the matter of the appointment or election of another
person as Dean of said college.
xxx xxx xxx
The case is before this Court on appeal by certiorari taken by the President
and the Board of Regents of the University and by Oseas A. del Rosario,
respondents below, the last as officer-in-charge appointed to discharge the
duties and functions of the office of Dean of the College of Education.1 The
petition for review was filed on January 5, 1971. On January 11, 1971 this
Court, pursuant to its resolution of January 7, issued a writ of preliminary
injunction to stop the immediate execution of the judgment appealed from, as
ordered by respondent Judge.
The facts and circumstances surrounding the ad interim appointment of Dr.
Consuelo S. Blanco and the action taken thereon by the Board of Regents
have a material bearing on the question at issue. The first such appointment
was extended on April 27, 1970, "effective May 1, 1970 until April 30, 1971,
unless sooner terminated and subject to the appproval of the Board of
Regents and to pertinent University regulations." Pursuant thereto Dr. Blanco
assumed office as ad interim Dean on May 1, 1970.
The only provisions of the U.P. Charter (Act No. 1870) which may have a
bearing on the question at issue read as follows:
SEC. 7. A quorum of the Board of Regents shall consist a majority of all the
members holding office at the time the meeting of the Board is called. All
processes against the Board of Regents shall be served on the president or
secretary thereof.
SEC. 10. The body of instructors of each college shall constitute its faculty,
and as presiding officer of each faculty, there shall be a dean elected from
the members of such faculty by the Board of Regents on nomination by the
President of the University.
Article 78 of the Revised Code of the University provides:
Art. 78. For each college or school, there shall be a Dean or Director who
shall be elected by the Board of Regents from the members of the faculty of
the University unit concerned, on nomination by the President of the
University.
The Board of Regents met on May 26, 1970, and President Lopez submitted
to it the ad interim appointment of Dr. Blanco for reconsideration. The
minutes of that meeting disclose that "the Board voted to defer action on the
matter in view of the objections cited by Regent Kalaw (Senator Eva Estrada
Kalaw) based on the petition against the appointment, addressed to the
Board, from a majority of the faculty and from a number of alumni ..." The
"deferment for further study" having been approved, the matter was referred
to the Committee on Personnel, which was thereupon reconstituted with the
following composition: Regent Ambrosio F. Tangco, chairman; Regent Pio
Pedrosa and Regent Liceria B. Soriano, members. The opinion was then
expressed by the Chairman of the Board that in view of its decision to defer
action, Dr. Blanco's appointment had lapsed, but (on the President's query)
that there should be no objection to another ad interim appointment in favor
of Dr. Blanco pending final action by the Board.
Accordingly, on the same day, May 26, 1970, President Lopez extended
another ad interim appointment to her, effective from May 26, 1970 to April
30, 1971, with the same conditions as the first, namely, "unless sooner
terminated, and subject to the approval of the Board of Regents and to
pertinent University regulations."
The next meeting of the Board of Regents was held on July 9, 1970. The
minutes show:
xxx xxx xxx
2. Deanship of the College, the President having issued an ad interim
appointment for Dr. Consuelo Blanco as Dean effective May 26, 1970:
Note: The Personnel Committee, to which this case was referred,
recommended that the Board request the President of the University to
review his nomination for the Deanship of the College of Education in the
light of the testimonies received and discussions held during the Commitee's
meeting on June 4 and June 11, 1970 on this matter.
Chairman Tangco asked that the documents received by the Committee on
the matter be entered in the official record, the same attached hereto as
Appendix "A" pages 57 to 179.
Board action: Following some discussion on what Regent Tangco
explained to be the rationale or intention (i.e., that the President would
discuss with Dr. Consuelo S. Blanco a proposal to withdraw her appointment
as Dean) behind the wording of the Personnel Committee's recommendation
and in view of some uncertainty over whether the Board would be acting
upon the recommendation as "diplomatically" stated in the agenda or as
really intended according to Regent Tangco's explanation, the Personnel
Committee withdrew its recommendation as stated in the Agenda. The
Chairman took a roll-call vote on the appointment of Dr. Blanco as Dean. The
Chairman having ruled that Dr. Blanco had not obtained the necessary
number of votes, the Board agreed to expunge the result of the voting, and,
on motion of Regent Agbayani duly seconded, suspended action on the ad
interim appointment of Dr. Blanco. The Chair stated that this decision of the
Board would in effect render the case subject to further thinking and give the
Board more time on the question of the deanship the of the College of
Education, and, since the Board had not taken action on the appointment of
Dr. Blanco either adversely or favorably, her ad interim appointment as Dean
effective May 26, 1970 terminated as of July 9, 1970.

The roll-call voting on which the Chairman of the Board of Regents based his
ruling aforesaid gave the following results: five (5) votes in favor of Dr.
Blanco's ad interim appointment, three (3) votes against, and four (4)
abstentions — all the twelve constituting the total membership of the Board
of the time.2 The next day, July 10, 1970, Dr. Blanco addressed a letter to
the Board requesting "a reconsideration of the interpretation made by the
Board as to the legal effect of the vote of five in favor, three against and four
abstentions on my ad interim appointment." On August 18, 1970 Dr. Blanco
wrote the President of the University, protesting the appointment of Oseas A.
del Rosario as Officer-in-Charge of the College of Education. Neither
communication having elicited any official reply, Dr. Blanco went to the Court
of First Instance of Quezon City on a petition for certiorari and prohibition
with preliminary injunction, the decision wherein is the subject of the present
appeal.
Considerable arguments have been adduced by the parties on the legal
effect and implications of the 5-3-4 vote of the Board of Regents. Authorities,
mostly judicial precedents in the American jurisdictions, are cited in support
of either side of the belabored question as to whether an abstention should
be counted as an affirmative or as a negative vote or a particular proposition
that is being voted on. Thus it is submitted, on the part of the petitioners, that
if the abstentions were considered as affirmative votes a situation might arise
wherein a nominee (for the office of Dean as in this case) is elected by only
one affirmative vote with eleven members of the Board abstaining; and, on
the part of the respondent, that according to the prevailing view "an
abstention vote should be recorded in the affirmative on the theory that
refusal to vote indicates acquiescence in the action of those who vote;" ...
that "the silence of the members present, but abstaining, is construed to be
acquiescence so far as any construction is necessary." A logician could
make a creditable case for either proposition. It does seem absurd that a
minority — even only one — of the twelve members of the Board of Regents
who are present could elect a Dean just because the others abstain. On the
other hand, there is no lack of logic either in saying that a majority vote of
those voting will be sufficient to decide an issue on the ground that if
construction is at all necessary the silence of the members who abstain
should be construed as an indication of acquiescence in the action of those
who vote affirmatively. This apparent dichotomy, indeed, accounts for the
conflict in the American court decisions, from which both parties here have
drawn extensively in support of their respective positions.
In the present case, however, this Court does not find itself confronted with
an ineluctable choice between the two legal theories. It should be noted that
an abstention, according to the respondents' citations, is counted as an
affirmative vote insofar as it may be construed as an acquiescence in the
action of those who vote affirmatively. This manner of counting is obviously
based on what is deemed to be a presumption as to the intent of the one
abstaining, namely, to acquiesce in the action of those who vote affirmatively,
but which presumption, being merely prima facie, would not hold in the face
of clear evidence to the contrary. It is pertinent, therefore, to inquire into the
facts and circumstances which attended the voting by the members of the
Board of Regents on the ad interim appointment of Dr. Blanco in order to
determine whether or not such a construction would govern. The transcript of
the proceedings in the meeting of July 9, 1970 show the following statements
by the Regents who participated in the discussion:
Regent Tangco: Mr. Chairman, I would like to put on record that this
statement here is a compromise statement. The Committee, after hearing the
testimonies and going over the materials presented to the Committee, was in
favor of recommending to the Board that the nomination of Professor Blanco
cannot be accepted by the Board, but it was felt that it should be presented in
a more diplomatic way to avoid any embarrassment on the part of both the
appointee and the President. And so means were studied as to how it could
be done and it was felt that it could be done in such a way that the appointee
could request relief from the appointment, that it would be the best to save
embarrassment all around. And so the final decision was to ask the President
to review the matter, but with the understanding that he will talk this over with
Dean Blanco and for the appointment to be withdrawn. So actually although
this statement here is not in that light, again that is the decision of the
Committee. Inasmuch as apparently either the meaning of the decision was
not made clear or maybe was not understood very well, I would like to put
that on the record.
Regent Kalaw: I would like to take note of the comments of Dr. Tangco here
on a previous agreement. I understand that while the Committee
recommended the disapproval of the appointment of Dr. Blanco, the
Committee felt that it was more tactful and diplomatic to present the motion
to this level but premised by the findings of the Committee that the President
would make an agreement with Dean Blanco to make a withdrawal ... .
Regent Tangco: Mr. Chairman, I wish to just make a correction that the
decision was to ask the President for her to request relief and not to consult. I
want to put that on record now. It was only that we wanted to avoid anything
on this on the record of the Board to save embarrassment. But inasmuch as
that statement has been made, I want to make it of record that the
agreement was for the President to ask her to submit or better ask her to the
withdrawal.
Regent Pedrosa: Mr. Chairman, in order to cut this matter once and
for all, may I suggest that the members of the Committee inhibit themselves
from voting in this matter. I don't think it would affect the majority vote or
whatever the rest of the members of the Board decide.

Regent Tangco: Mr. Chairman, I was going to inhibit myself from the start.
Regent Pedrosa: And I am inhibiting myself . We are only two
members now; Dr. Soriano is not here, so that we leave the votation on this
matter to the other members of the Board.
Regent Kalaw: Mr. Chairman, what is the votation for?
Chairman: The question before this Board is the Comittee
recommendation. Incidentally, if the Board accepts the Committee
recommendation it is also a lack of confirmation of the ad interim
appointment of Dean Blanco ... .
Chairman: Yes, I am saying, Mr. Regent, there is a ruling that this
Board will have to act on the Committee recommendation presented here,
unless the Committee withdraws this recommendation.
Regent Tangco: The Committee is so doing, Mr. Chairman.
Chairman: The Committee will widthdraw this recommendation, in
which case the issue is simply we only have to act on the issue of to confirm
or not to confirm the ad interim appointment issued to Dr. Blanco.
xxx xxx xxx
Chairman: The Committee is withdrawing this recommendation.

xxx xxx xxx
Chairman: There is only one more question before this Board to discuss
fully, I believe. The question is, the Chairman asks the Board to vote on the
Committee action in the form of a recommendation as presented in the
Agenda. Regent Tangco, the Chairman of that Committee, says that this is
merely a polite cover, a diplomatic cover, according to Regent Kalaw, for the
reaction of the Committee, and Regent Tangco requests that we act not on
the Committee recommendation in this form as presented in the Agenda but
in terms of the gentleman's agreement.
Regent Silva: Per se, as it is written. But I think the Committee, if I get it
right, is actually putting a recommendation for non-confirmation.
Regent Kalaw: Since the Committee is withdrawing the recomendation and
the Board would act on it per se, I think Regent Silva is right. (Emphasis
supplied)
The voting which followed shows the following result:
Affirmative votes:

Chairman: In brief, Regent Tangco informs the Board of the action that Regent Fonacier
the Committee was to request the President to call Dr. Blanco and prevail " Escobar
upon her to withdraw. " Barican
" Lopez
Regent Escobar: On what basis? " Agbayani

Regent Tangco: On the testimonies presented to us and also to avoid further Negative votes:
embarrassment on the part of the appointee. The decision of the Committee
was to ask Dean Blanco because there will be too much embarrassment Regent Kalaw
which I think is not going to gain any matter one way or the other. " Silva
" Corpuz
Chairman: We have to make a ruling. I think that we cannot act on the
gentlemen's agreement because we do not have that gentlemen's agreement Abstentions:
before us.
Regent Tangco
Regent Pedrosa: Mr. Chairman, may I interrupt you. In view of the fact " Leocadio (Substituting for Regent Soriano)
that I have announced that I would desist from participating in the Board and " Pedrosa
Regent Tangco has done likewise then I presume the President will not also " Virata
participate. Why doesn't the Board proceed to the decision of whether ...
Regent Leonides Virata, who was not a member of the Personnel
Committee, made the following explanation before casting his vote:
A. I abstain, but I want to say this. There must be some other way of
solving this problem. I am at sea in this, because although I have been
reading all these documents here, but a decision is being asked now that I
am not ready myself.
After the result of the voting was known the Board Chairman Secretary
Corpuz, announced that "the vote is not a majority ... (and that) there is no
ruling in the Code of the University on the counting of votes and the
treatment of abstention."
What transpired immediately afterwards appears in the transcript of the
proceedings, as follows:
Regent Agbayani: Mr. Chairman, could I ask for another one minute recess?
(ONE-MINUTE RECESS AT THIS POINT)
Chairman: The meeting is resumed. Mr. Regent? (Addressing Regent
Agbayani)
Regent Agbayani: Mr. Chairman, I move that we do not proceed with the
action now on this matter.
Chairman: To suspend in effect the action of the Board?
Regent Agbayani: The result brings us back to the previous status, that no
action has been taken.
Chairman: There is a motion to suspend action; that is to say, to
suspend the voting of the Board on this matter with the effect, first, to return
the case to its original status — to render the case subject to further thinking
— and second, that the Board has not confirmed the appointment. The
appointment, in other words, will be good from May 26 up to today.
Regent Agbayani: Mr. Chairman, the Board did not confirm exactly. It cannot
be said that the Board confirmed or did not confirm, but the appointment
terminates. The ad interim appointment terminates when the Board meets,
just like in Congress, where the ad interim appointment is good only up to the
first day of the session.
Chairman: So in effect, suspending action on this matter now, the Board
in effect gives itself time to study the question not of Dean Blanco but the
question of the deanship of the College, and the Board has not taken action
on the confirmation either adversely or favorably, but that the ad interim
appointment has terminated today.
Regent Escobar: Mr. Chairman, does it mean that all the deliberations
regarding to this matter should be erased from the record? Because the
record of the voting is there.
Chairman: Well, it follows.
Regent Escobar: It follows suit, because we are now asking for a
reconsideration of any deliberations to the effect that if there was a voting it
should be banned from appearing in the record.
Regent Silva: We have made statements here today.
Chairman: The record of the voting, which is incomplete by the way
because there was no circulation to consider, will not appear in the record.
Regent Silva: The result of the votes; the deliberations regarding this
matter.
Regent Agbayani: I have no objection.
Chairman: The record of the voting will not appear. Any objection to the
motion for reconsideration? No objection, approved.
From the foregoing record of the meeting of the Board of Regents it is very
clear: (1) that the Personnel Committee, to which the matter of Dr. Blanco's
appointment had been referred for study, was for recommending that it be
rejected; (2) that, however, the rejection should be done in a diplomatic way
"to avoid any embarrassment on the part of both the appointee and the
President;" and (3) that the "final decision" of the committee was to ask the
President of the University to talk to Dr. Blanco "for the appointment to be
withdrawn." That decision, as announced by Regent Tangco, Chairman of
the Personnel Committee, was restated and clarified by Regent Kalaw, and
then reiterated first by Regent Tangco and then by the Chairman. On that
note Regent Pedrosa suggested that the members of the Personnel
Committee, as well as the President, should inhibit themselves from voting.
When the matter was actually submitted to a vote, however, the definition of
the issue became somewhat equivocal. Regent Tangco announced that the
committee was withdrawing its recommendation, whereupon the Chairman
stated that the issue was "to confirm or not to confirm the ad interim
appointment issued to Dr. Blanco." This was then followed by a remark from
Regent Silva that the withdrawal by the committee referred to the
recommendation " per se, as it is written," but that the committee, he thought,
was "actually putting a recommendation for non-confirmation." Regent Kalaw
thereupon expressed her concurrence with Regent Silva's opinion.
The votes of abstention, viewed in their setting, can in no way be construed
as votes for confirmation of the appointment. There can be no doubt
whatsoever as to the decision and recommendation of the three members of
the Personnel Committee: it was for rejection of the appointment. If the
committee opted to withdraw the recommendation it was on the
understanding (also referred to in the record as gentlemen's agreement) that
the President would talk to Dr. Blanco for the purpose of having her
appointment withdrawn in order to save them from embarrassment. No
inference can be drawn from this that the members of the Personnel
Committee, by their abstention, intended to acquiesce in the action taken by
those who voted affirmatively. Neither, for that matter, can such inference be
drawn from the abstention that he was abstaining because he was not then
ready to make a decision.
All arguments on the legal question of how an abstention should be treated,
all authorities cited in support of one or the other position, become academic
and purposeless in the face of the fact that respondent Dr. Blanco was
clearly not the choice of a majority of the members of the Board of Regents,
as unequivocally demonstrated by the transcript of the proceedings. This fact
cannot be ignored simply because the Chairman, in submitting the question
to the actual vote, did not frame it as accurately as the preceding discussion
called for, such that two of the Regents present (Silva and Kalaw) had to
make some kind of clarification.
In any event, in the same meeting of July 9, 1970, before it adjourned, the
Board of Regents resolved, without a vote of dissent, to cancel the action
which had been taken, including the result of the voting, and "to return the
case to its original status — to render the case subject to further thinking." In
effect, as announced by the Chairman, "the Board has not acted on the
confirmation either adversely or favorably, but that the ad interim
appointment has terminated." Indeed the formal decision of the Board was
that all deliberations on the matter should not appear in the record. And it
cannot be seriously argued that the Board had no authority to do what it did:
the meeting had not yet been adjourned, the subject of the deliberations had
not yet been closed, and as in the case of any deliberative body the Board
had the right to reconsider its action. No title to the office of Dean of the
College of Education had yet vested in respondent Blanco at the time of such
reconsideration.
One of the prayers of Dr. Blanco in her petition below is that she be declared
duly elected as Dean of the College of Education and, as such, legally
entitled to the said position with a 3-year tenure of office as provided in the
Revised Code of the University of the Philippines (Art. 79, Ch. 6, Title Two).
Obviously this prayer is not in order inasmuch as she has not been elected to
said position. On the other hand, Dr. Blanco does not ask that she be
recognized as Dean by virtue of her ad interim appointment dated May 26,
1970, effective up to April 30, 1971. Aside from the fact that the point has
become moot, since the tenure has expired, it is seriously to be doubted
whether such an appointment is authorized under the law and regulations. It
should be noted that both under the Charter (See. 10) and under the Revised
Code of the University (Art. 78) the Dean of a college is elected by the Board
of Regents on nomination by the President of the University. In other words
the President's function is only to nominate, not to extend an appointment,
even if only ad interim; and the power of the Board of Regents is not merely
to confirm, but to elect or appoint. At any rate the ad interim appointment
extended to Dr. Blanco on May 26, 1970, although made effective until April
30, 1971, was subject to the following condition: "unless sooner terminated
and subject to the approval of the Board of Regents." The Board, as has
been shown, not only did not elect Dr. Blanco in its meeting of July 9, 1970,
but declared the appointment terminated as of that day.
WHEREFORE, the decision appealed from is reversed and set aside; the
petition of respondent Consuelo S. Blanco for certiorari and prohibition
before respondent Court is ordered dismissed; and the writ of preliminary
injunctton issued by this Court is made permanent, without pronouncement
as to costs.
Concepcion, C.J., Zaldivar, Castro, Fernando, Teehankee and Makasiar, JJ.,
concur
Lopez vs Ericta (1972)
February 14, 2013 markerwins Corporation Law, Mercantile Lawcorpo, merc
Facts: The case is about the ad interim appointment of the Dean of the
College of Education in the UP. Pursuant thereto Dr. Blanco assumed office
as ad interim Dean on May 1, 1970. The Board of Regents met and
President Lopez submitted to it the ad interim appointment of Dr. Blanco for
reconsideration. The Board voted to defer action on the matter in view of the
objections cited by Regent Kalaw based on the petition against the
appointment, addressed to the Board, from a majority of the faculty and from
a number of alumni. President Lopez extended another ad interim
appointment to her with the same conditions as the first, namely, “unless
sooner terminated, and subject to the approval of the Board of Regents and
to pertinent University regulations. Then, the election was held. The roll-call
voting on which the Chairman of the Board of Regents based his ruling
aforesaid gave the following results: five (5) votes in favor of Dr. Blanco’s ad
interim appointment, three (3) votes against, and four (4) abstentions — all
the twelve constituting the total membership of the Board of the time. The
next day Dr. Blanco addressed a letter to the Board requesting “a
reconsideration of the interpretation made by the Board as to the legal effect
of the vote of five in favor, three against and four abstentions on my ad
interim appointment. Dr. Blanco wrote the President of the University,
protesting the appointment of Oseas A. del Rosario as Officer-in-Charge of
the College of Education. Neither communication having elicited any official
reply, Dr. Blanco went to the Court of First Instance of Quezon City.
Issue: What is the legal effect of abstention in the board meetings?
Held: In case of abstention in board meeting on vote taken on any issue, the
general rule is that the abstention is counted in favour of the issue that won a
majority vote; since their act of abstention, the abstaining directors are
deemed to abide the rule of majority.
EXPERTRAVEL & TOURS, INC., petitioner,
vs.
COURT OF APPEALS and KOREAN AIRLINES, respondent.
G.R. No. 152392 May 26, 2005
FACTS:
Korean Airlines (KAL) is a corporation established and registered in the
Republic of South Korea and licensed to do business in the Philippines. Its
general manager in the Philippines is Suk Kyoo Kim, while its appointed
counsel was Atty. Mario Aguinaldo and his law firm.
On September 6, 1999, KAL, through Atty. Aguinaldo, filed a Complaint in
RTC for the collection of the principal amount etc. against Expertravel and
Tours, Inc. (ETI). Where the latter sought for the dismissal of the case,
however, private respondent filed the verification and certification against
forum shopping was signed by Atty. Aguinaldo, who indicated therein that he
was the resident agent and legal counsel of KAL and had caused the
preparation of the complaint where He claimed that he had been authorized
to file the complaint through a resolution of the KAL Board of Directors
approved during a special meeting held on June 25, 1999. KAL also
contended that Atty. Aguinaldo was its resident agent and was registered as
such with the Securities and Exchange Commission (SEC). It was further
alleged that Atty. Aguinaldo was also the corporate secretary of KAL,
showing that he was the lawyer of KAL.
The petitioner on the other hand, maintains that the RTC cannot take judicial
notice of the said teleconference without prior hearing, nor any motion
therefore. Finally, KAL submitted on March 6, 2000 an Affidavit of even date,
executed by its general manager Suk Kyoo Kim, alleging that the board of
directors conducted a special teleconference on June 25, 1999, which he
and Atty. Aguinaldo attended. It was also averred that in that same
teleconference, the board of directors approved a resolution authorizing Atty.
Aguinaldo to execute the certificate of non-forum shopping and to file the
complaint. Suk Kyoo Kim also alleged, however, that the corporation had no
written copy of the aforesaid resolution.
But, the petitioner pointed out that there are no rulings on the matter of
teleconferencing as a means of conducting meetings of board of directors for
purposes of passing a resolution; until and after teleconferencing is
recognized as a legitimate means of gathering a quorum of board of
directors, such cannot be taken judicial notice of by the court. The RTC and
CA dismiss the petition, hence this appeal.
ISSUE: Whether or not teleconferencing is a valid means of holding its
corporate meetings.
HELD:
No. In this age of modern technology, the courts may take judicial notice that
business transactions may be made by individuals through teleconferencing.
Teleconferencing is interactive group communication (three or more people
in two or more locations) through an electronic medium. In general terms,
teleconferencing can bring people together under one roof even though they
are separated by hundreds of miles.
A teleconference represents a unique alternative to face-to-face (FTF)
meetings. It was first introduced in the 1960’s with American Telephone and
Telegraph’s Picture phone. At that time, however, no demand existed for the
new technology. Travel costs were reasonable and consumers were
unwilling to pay the monthly service charge for using the picture phone,
which was regarded as more of a novelty than as an actual means for
everyday communication. In time, people found it advantageous to hold
teleconferencing in the course of business and corporate governance,
because of the money saved.
In the Philippines, teleconferencing and videoconferencing of members of
board of directors of private corporations is a reality, in light of Republic Act
No. 8792. The Securities and Exchange Commission issued SEC
Memorandum Circular No. 15, on November 30, 2001, providing the
guidelines to be complied with related to such conferences. Thus, the Court
agrees with the RTC that persons in the Philippines may have a
teleconference with a group of persons in South Korea relating to business
transactions or corporate governance.
Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim participated
in a teleconference along with the respondent’s Board of Directors, the Court
is not convinced that one was conducted; even if there had been one, the
Court is not inclined to believe that a board resolution was duly passed
specifically authorizing Atty. Aguinaldo to file the complaint and execute the
required certification against forum shopping.
Petition Granted.
CITIBANK, N.A. V CA
G.R. No. 61508 | March 17, 1999 | J. Purisima
FACTS:
1. In consideration for a loan with Citibank, N.A. (formerly First National City
Bank), private respondent Douglas Anama executed a promissory note to
pay the plaintiff bank the sum of P418,000.00 in sixty (60) equal successive
monthly installments.
2. To secure payment of the loan, Anama also constituted a Chattel
Mortgage in favor of petitioner, on various machineries and equipment.
3. However, for failure and refusal of the private respondent to pay the
monthly installments despite repeated demands, petitioner filed a verified
complaint against Anama in the Manila CFI for the collection of his unpaid
balance, for the delivery and possession of the chattels covered preparatory
to the foreclosure.
4. Anama submitted his Answer with Counterclaim, denying the material
averments of the complaint, and averring, inter alia that the remedy of
replevin was improper and the writ of seizure should be vacated.
5. The trial court, upon proof of default of the private respondent in the
payment of the said loan, issued an Order of Replevin. Despite the issuance
of the said order however, actual delivery of possession did not take place
because of negotiations for an amicable settlement. A pre-trial conference
was held and the petitioner then took over private respondent’s business as
receiver. But when settlement failed, the lower court tried the case on the
merits.
7. Petitioner presented a Motion for the Issuance of an Alias Writ of Seizure,
ordering the sheriff to seize and dispose of the properties involved.
8. Private respondent opposed the motion claiming, among others, (1) that
Citibank’s P400,000 replevin bond to answer for damages was grossly
inadequate; (2) that he was never in default to justify the seizure; xxx (4) that
his supposed obligations with Citibank were fully secured and his mortgaged
properties are more than sufficient to secure payment thereof; xxx
9. The trial court issued an Order granting the Motion for Alias Writ of
Seizure. Private respondent moved for reconsideration of the aforesaid order
but the same was denied. As a consequence, the sheriff seized subject
properties, dismantled and removed them from the premises where they
were installed, delivered them to petitioner’s possession and advertised them
for sale at public auction.
10. Private respondent filed with the CA a Petition for Certiorari and
Prohibition with Injunction. Finding that the trial court acted with grave abuse
of discretion amounting to excess or lack of jurisdiction in issuing the
assailed resolutions, the CA granted the petition, holding that the provisions
of the Rules of Court on Replevin and Receivership have not been complied
with, in that (1) there was no Affidavit of Merit accompanying the Complaint
for Replevin; (2) the bond posted by Citibank was insufficient; and (3) there
was non-compliance with the requirement of a receiver’s bond and oath of
office. Hence the present petition for certiorari with TRO by Citibank.
ISSUE:
1. W/N CA erred in finding that the issuance of writ of replevin was improper
2. W/N CA erred in finding that the complaint did not comply with the
requirements of an affidavit of merit
3. W/N CA erred in finding that the bond posted by petitioner is insufficient
4. W/N CA erred in finding that petitioner did not comply with Section 5, Rule
59
HELD:
1. No. (See highlighted ruling.)
2. Qualified yes. While petitioner is correct insofar as it contends that
substantial compliance with the affidavit requirement may be permissible
pursuant to Section 2, Rule 60 of the ROC, petitioner’s complaint does
notallege all the facts that should be set forth in an affidavit of merit.
The Court held that the absence of an affidavit of merit is not fatal where the
petition itself, which is under oath, recites the following facts constitutive of
the grounds for the petition: (1) that plaintiff owns the property particularly
describing the same, or that he is entitled to its possession; (2) wrongful
detention by defendant of said property; (3) that the property is not taken by
virtue of a tax assessment or fine pursuant to law or seized under execution
or attachment or, if it is so seized, that it is exempt from such seizure; and
the (4) the actual value of the property.
Although the complaint alleges that petitioner is entitled to the possession of
subject properties by virtue of the chattel mortgage executed by the private
respondent, upon the latter’s default on its obligation, and the defendant’s
alleged “wrongful detention” of the same, the said complaint does not state
that subject properties were not taken by virtue of a tax assessment or fine
imposed pursuant to law or seized under execution or attachment or, if they
were so seized, that they are exempt from such seizure. Then too, petitioner
stated the value of subject properties at a “probable value of P200,000.00,
more or less”.
Although respondent’s defense of lack of affidavit of merit is meritorious,
procedurally, such a defense is unfortunately no longer available for failure to
plead the same in the Answer as required by the omnibus motion rule.
3.Yes. ROC requires the plaintiff to “give a bond, executed to the defendant
in double the value of the property as stated in the affidavit x x x .” Since the
valuation made by the petitioner has been disputed by the respondent, the
lower court should have determined first the actual value of the properties. It
was thus an error for the said court to approve the bond, which was based
merely on the probable value of the properties. A replevin bond is intended to
answer for damages and to indemnify the defendant against any loss that he
may suffer by reason of its being compelled to surrender the possession of
the disputed property pending trial of the action.
The remedies provided under Section 5, Rule 60, are alternative remedies.
Conformably, a defendant in a replevin suit may demand the return of
possession of the property replevined by filing a redelivery bond executed to
the plaintiff in double the value of the property as stated in the plaintiff’s
affidavit within the period specified in Sections 5 and 6. Alternatively, “the
defendant may object to the sufficiency of the plaintiff’s bond, or of the surety
or sureties thereon;” but if he does so, “he cannot require the return of the
property” by posting a counter-bond pursuant to Sections 5 and 6. The
private respondent did not opt to cause redelivery of the properties to him by
filing a counter-bond precisely because he objected to the sufficiency of the
bond posted by plaintiff. Therefore, he need not file a counter-bond or
redelivery bond.
4. No. CA found that the requirements of Section 5, Rule 59 on receivership
were not complied with by the petitioner, particularly the filing or posting of a
bond and the taking of an oath. However, the old Rules of Court which was in
effect at the time this case was still at trial stage, a bond for the appointment
of a receiver was not generally required of the applicant, except when the
application was made ex parte. CA was right in finding a defect in such
assumption of receivership in that the requirement of taking an oath has not
been complied with.
– For erroneously issuing the alias writ of seizure without inquiring into the
sufficiency of the replevin bond and for allowing petitioner to assume
receivership without the requisite oath, the Court of Appeals aptly held that
the trial court acted with grave abuse of discretion in dealing with the
situation. Under the Revised Rules of Court, the property seized under a writ
of replevin is not to be delivered immediately to the plaintiff. This is because
a possessor has every right to be respected in its possession and may not be
deprived of it without due process. Petition DISMISSED.
NOTE:
– Actual value (or actual market value) means “the price which an article
would command in the ordinary course of business, that is to say, when
offered for sale by one willing to sell, but not under compulsion to sell, and
purchased by another who is willing to buy, but under no obligation to
purchase it”.
BOYER – ROXAS VS. COURT OF APPEALS
211 SCRA 470 (1992)
FACTS OF THE CASE
When Eugenia V. Roxas died, her heirs formed a corporation under the
name and style of Heirs of Eugenia V. Roxas, Inc. using her estate as the
capital of the corporation, the private respondent herein. It was primarily
engaged in agriculture business, however it amended its purpose to enable it
to engage in resort and restaurant business. Petitioners are stockholders of
the corporation and two of the heirs of Eugenia. By tolerance, they were
allowed to occupy some of the properties of the corporation as their
residence. However, the board of directors of the corporation passed a
resolution evicting the petitioners from the property of the corporation
because the same will be needed for expansion.
At the RTC, private respondent presented its evidence averring that the
subject premises are owned by the corporation. Petitioners failed to present
their evidence due to alleged negligence of their counsel. RTC handed a
decision in favor of private respondent.
Petitioners appealed to the Court of Appeals but the latter denied the petition
and affirmed the ruling of the RTC. Hence, they appealed to the Supreme
Court. In their appeal, petitioners argues that the CA made a mistake in
upholding the decision of the RTC, and that their occupancy of the subject
premises should be respected because they own an aliquot part of the
corporation as stockholders, and that the veil of corporate fiction must be
pierced by virtue thereof.
ISSUE
1. Whether petitioner’s contention were correct as regards the piercing of the
corporate veil.
2. Whether petitioners were correct in their contention that they should be
respected as regards their occupancy since they own an aliquot part of the
corporation.
RULING
1.Petitioner’s contention to pierce the veil of corporate fiction is untenable. As
aptly held by the court: “..The separate personality of a corporation may
ONLY be disregarded when the corporation is used as a cloak or cover for
fraud or illegality, or to work injustice, or when necessary to achieve equity or
when necessary for the protection of creditors.”
2. As regards petitioners contention that they should be respected on their
occupancy by virtue of an aliquot part they own on the corporation as
stockholders, it also fails to hold water. The court held that “properties owned
by a corporation are owned by it as an entity separate and distinct from its
members. While shares of stocks are personal property, they do not
represent property of the corporation. A share of stock only typifies an aliquot
part of the corporation’s property, or the right to share in its proceeds to that
extent when distributed according to law and equity, but its holder is not the
owner of any part of the capital of the corporation. Nor is he entitled to the
possession of any definite portion of its property or assets. The holder is not
a co-owner or a tenant in common of the corporate property.”
G.R. No. 103372 June 22, 1992
EPG CONSTRUCTION COMPANY, INC., and EMMANUEL P. DE
GUZMAN, petitioner,
vs.
HONARABLE COURT OF APPEALS (17th Division), ( Republic of the
Philippines), UNIVERSITY OF THE PHILIPPINES, respondents.
CRUZ, J.:
Petitioner EPG Construction Co., Inc. and the University of the Philippines,
herein private respondent, entered into a contract for the construction of the
UP Law Library Building for the stipulated price of P7,545,000.00. The
agreement included the following provision:
ARTICLE XI
GUARANTEE
CONTRACTOR guarantees that the work completed under the contract and
any change order, thereto, shall be in accordance with the plans and
specification prepared by ARCHITECT, and shall conform to the specific
requirements, performances, and capacities required by the contract, and
shall be free from imperfect workmanship or materials. CONTRACTOR shall
repair at his own cost and expenses for a period of one (1) year from date of
substantial completion and acceptance of the work by the OWNER, all the
work covered under the contract and change orders that may prove defective
except maintenance works. The CONTRACTOR shall be liable in
accordance with Art. 1723 of the Civil Code in case, within 15 years from
completion of the project, the building collapses on account of defects in the
construction or the use of materials of inferior quality furnished by him or due
to any violation of the terms of contract.
Upon its completion, the building was formally turned over by EPG to the
private respondent. UP issued a certification of acceptance dated January
13, 1983, reading as follows:
This is to certify that the General Construction Work of the College of Law
Library Annex Building, University of the Philippines, Diliman, Quezon City,
has been satisfactorily completed as per plans and specifications as of
January 11, 1983 without any defects whatsoever and therefore accepted.
Release of the 10% retention is hereby recommended in favor of EPG
Construction, Inc.
Sometime in July, 1983, the private respondent complained to the petitioner
that 6 air-conditioning units on the third floor of the building were not cooling
properly. After inspection of the equipment, EPG agreed to shoulder the
expenses for their repair, including labor and materials, in the amount of
P38.000.00.
For whatever reason, the repair was never undertaken. UP repeated its
complaints to EPG, which again sent its representatives to assess the
defects. Finally, it made UP a written offer to repair the system for
P194,000.00.
UP insisted that EPG was obligated to repair the defects at its own expense
under the guarantee provision in their contract. EPG demurred. UP then
contracted with another company, which repaired the defects for
P190,000.00.
The private respondent subsequently demanded from EPG reimbursement of
the said amount plus an equal sum as liquidated damages. When the
demand was rejected, UP sued EPG and its president, Emmanuel P. de
Guzman, in the Regional Trial Court of Quezon City. De Guzman moved to
dismiss the complaint as to him for lack of a cause of action, but the motion
was denied.
After trial, judgment was rendered by Judge Antonio P. Solano requiring both
defendants jointly and severally to pay the plaintiff P190,000.00 as actual
damages, P50,000.00 as liquidated damages, P10,000.00 as attorney's fees,
and costs.
The petitioners appealed to the Court of Appeals, which sustained the trial
court. 1 They then came to this Court to fault the respondent court for not
holding that: 1) UP was estopped by its certificate of acceptance from
imputing liability to EPG for the defects; 2) the defects were due to force
majeure or fortuitous event; and 3) Emmanuel de Guzman has a separate
personality from that of EPG Construction Co., Inc.
The petitioners argue that by issuing the certificate of acceptance, UP waived
the guarantee provision and is now estopped from invoking it. The argument
is absurd. All UP certified to was that the building was in good condition at
the time it was turned over to it on January 13, 1983. It did not thereby
relieve the petitioners of liability for any defect that might arise or be
discovered later during the one-year period of the guarantee. Any other
interpretation would make the guarantee provision useless to begin with as it
would have automatically become functus officio with the turn-over of the
construction.
The petitioners bolster their argument by quoting Article 1719 of the Civil
Code thus, "Acceptance of the work by the employer relieves the contractor
of liability . . . " and stopping there. The Article reads in full as follows:
Art. 1719. Acceptance of the work by the employer relieves the
contractor of liability for any defect in the work, unless:
(1) The defect is hidden and the employer is not, by his special
knowledge, expected to recognize the same; or
(2) The employer expressly reserves his rights against the contractor by
reason of the defect.
The exceptions were omitted by the petitioners for obvious reasons. The
defects complained against were hidden and the employer was not expected
to recognize them at the time the work was accepted. Moreover, there was
an express reservation by UP of its right to hold the contractor liable for the
defects during a period of one year.
The petitioners' contention that the defects were caused by force majeure or
fortuitous event as a result of the frequent brown-outs in Metro Manila is not
meritorious. The Court is not prepared to accept that the recurrent power cut-
offs can be classified as force majeure or a fortuitous event, We agree that
the real cause of the problem, according to the petitioners' own
subcontractor, was poor workmanship, as discovered upon inspection of the
cooling system, Among the detects noted were improper interlocking of the
entire electrical system in all the six units; wrong specification of the time
delay relay, also in all the six units; incorrect wiring connections on the oil
pressure switches; improper setting of the Hi and Lo pressure switches; and
many missing parts like bolts and screws of panels, and the compressor
terminal insulation, and the terminal screws of a circuit breaker. 2
Curiously, it has not been shown that the cooling system in buildings within
the same area have been similarly damaged by the power cut-offs. The
brown-outs have become an intolerable annoyance, but they cannot excuse
all contractual irregularities, including the petitioners' shortcomings.
The petitioners also claim that the breakdown of the cooling system was
caused by the failure of UP to do maintenance work thereon. We do not see
how mere maintenance work could have corrected the above-mentioned
defects. At any rate, whether the repairs in the air-conditioning system can
be considered mere maintenance work is a factual issue. The resolution
thereof by the lower courts is binding upon this Court in the absence of a
clear showing that it comes under the accepted exceptions to the rule. There
is no such showing here.
The final point of the petition is that Emmanuel P. de Guzman has a separate
legal personality from EPG Construction Co., Inc. and should not be held
solidarity liable with it. He stresses that the acts of the company are its own
responsibility and there is no reason why any liability arising from such acts
should be ascribed to him. Thus:
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. 3
The trial court did not explain why Emmanuel de Guzman was held solidarity
liable with EPG Construction Co., Inc., and neither did the respondent court
when it affirmed the appealed decision, In its Comment on the present
petition, UP also did not refute the petitioners' argument and simply passed
upon it sub silentio although the matter was squarely raised and discussed in
the petition.
Notably, when Emmanuel de Guzman moved to dismiss the complaint as to
him, UP said in its opposition to the motion that it was suing him "in his
official capacity and not in his personal capacity." His inclusion as President
of the company was therefore superfluous, as De Guzman correctly
contended, because his acts as such were corporate acts imputable to EPG
itself as his principal. It is settled that;
A corporation is invested by law with a personality separate and distinct from
those of the persons composing it as well as from that of any other entity to
which it may be related. Mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of a corporation is
not of itself sufficient ground for disregarding the separate corporate
personality. The general manager of a corporation therefore should not be
made personally answerable for the payment of the employee's backwages
unless he had acted maliciously or in bad faith in terminating the services of
the employee. 4
The exception noted is where the official "had acted maliciously or in bad
faith," in which event he may be made personally liable for his own act. That
exception is not applicable in the case at bar, because it has not been proved
that De Guzman acted maliciously or in bad faith when, as President of EPG,
he sought to protect its interests and resisted UP's claims. Whatever damage
was caused to UP as a result of his acts is the sole responsibility of EPG
even though De Guzman was its principal officer and controlling stockholder.
In sum, we hold that the lower court did not err in holding EPG liable for the
repair of the air-conditioning system at its expense pursuant to the guarantee
provision in the construction contract with UP. However, Emmanuel de
Guzman is not solidarily liable with it, having acted on its behalf within the
scope of his authority and without any demonstrated malice or bad faith.
WHEREFORE, the appealed decision is AFFIRMED but with the modification
that EPG Construction Co., Inc. shall be solely liable for the damages
awarded in favor of the University of the Philippines. It is so ordered.
Griño-Aquino, Medialdea and Bellosillo, JJ., concur.
G.R. No. 89070 May 18, 1992
BENGUET ELECTRlC COOPERATIVE, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, PETER COSALAN and
BOARD OF DIRECTORS OF BENGUET ELECTRIC COOPERATIVE, INC.,
* respondents.
Raymundo W. Celino for respondent Peter Cosalan.
Reenan Orate for respondent Board of Directors of BENECO.
FELICIANO, J.:
Private respondent Peter Cosalan was the General Manager of Petitioner
Benguet Electric Cooperative, Inc. ("Beneco"), having been elected as such
by the Board of Directors of Beneco, with the approval of the National
Electrification Administrator, Mr. Pedro Dumol, effective 16 October 1982.
On 3 November 1982, respondent Cosalan received Audit Memorandum No.
1 issued by the Commission on Audit ("COA"). This Memorandum noted that
cash advances received by officers and employees of petitioner Beneco in
the amount of P129,618.48 had been virtually written off in the books of
Beneco. In the Audit Memorandum, the COA directed petitioner Beneco to
secure the approval of the National Electrification Administration ("NEA")
before writing off or condoning those cash advances, and recommended the
adoption of remedial measures.
On 12 November 1982, COA issued another Memorandum — Audit
Memorandum No. 2 –– addressed to respondent Peter Cosalan, inviting
attention to the fact that the audit of per diems and allowances received by
officials and members of the Board of Directors of Beneco showed
substantial inconsistencies with the directives of the NEA. The Audit
Memorandum once again directed the taking of immediate action in
conformity with existing NEA regulations.
On 19 May 1983, petitioner Beneco received the COA Audit Report on the
financial status and operations of Beneco for the eight (8) month period
ended 30 September 1982. This Audit Report noted and enumerated
irregularities in the utilization of funds amounting to P37 Million released by
NEA to Beneco, and recommended that appropriate remedial action be
taken.
Having been made aware of the serious financial condition of Beneco and
what appeared to be mismanagement, respondent Cosalan initiated
implementation of the remedial measures recommended by the COA. The
respondent members of the Board of Beneco reacted by adopting a series of
resolutions during the period from 23 June to 24 July 1984. These Board
Resolutions abolished the housing allowance of respondent Cosalan;
reduced his salary and his representation and commutable allowances;
directed him to hold in abeyance all pending personnel disciplinary actions;
and struck his name out as a principal signatory to transactions of petitioner
Beneco.
During the period from 28 July to 25 September 1984, the respondent
Beneco Board members adopted another series of resolutions which resulted
in the ouster of respondent Cosalan as General Manager of Beneco and his
exclusion from performance of his regular duties as such, as well as the
withholding of his salary and allowances. These resolutions were as follows:
1. Resolution No. 91-4 dated 28 July 1984:
. . . that the services of Peter M. Cosalan as General Manager of BENECO is
terminated upon approval of the National Electrification Administration;
2. Resolution No. 151-84 dated September 15, 1984;
. . . that Peter M. Cosalan is hereby suspended from his position as General
Manager of the Benguet Electric Cooperative, Inc. (BENECO) effective as of
the start of the office hours on September 24, 1984, until a final decision has
been reached by the NEA on his dismissal;
. . . that GM Cosalan's suspension from office shall remain in full force and
effect until such suspension is sooner lifted, revoked or rescinded by the
Board of Directors; that all monies due him are withheld until cleared;
3. Resolution No. 176-84 dated September 25, 1984;
. . . that Resolution No. 151-84, dated September 15, 1984 stands as
preventive suspension for GM Peter M. Cosalan. 1
Respondent Cosalan nevertheless continued to work as General Manager of
Beneco, in the belief that he could be suspended or removed only by duly
authorized officials of NEA, in accordance with provisions of P.D. No, 269, as
amended by P.D. No. 1645 (the statute creating the NEA, providing for its
capitalization, powers and functions and organization), the loan agreement
between NEA and petitioner Beneco 2 and the NEA Memorandum of 2 July
1980. 3 Accordingly, on 5 October and 10 November 1984, respondent
Cosalan requested petitioner Beneco to release the compensation due him.
Beneco, acting through respondent Board members, denied the written
request of respondent Cosalan.
Respondent Cosalan then filed a complaint with the National Labor Relations
Commission ("NLRC") on 5 December 1984 against respondent members of
the Beneco Board, challenging the legality of the Board resolutions which
ordered his suspension and termination from the service and demanding
payment of his salaries and allowances. On 18 February 1985, Cosalan
amended his complaint to implead petitioner Beneco and respondent Board
members, the latter in their respective dual capacities as Directors and as
private individuals.
In the course of the proceedings before the Labor Arbiter, Cosalan filed a
motion for reinstatement which, although opposed by petitioner Beneco, was
granted on 23 October 1987 by Labor Arbiter Amado T. Adquilen. Petitioner
Beneco complied with the Labor Arbiter's order on 28 October 1987 through
Resolution No. 10-90.
On 5 April 1988, the Labor Arbiter rendered a decision (a) confirming
Cosalan's reinstatement; (b) ordering payment to Cosalan of his backwages
and allowances by petitioner Beneco and respondent Board members, jointly
and severally, for a period of three (3) years without deduction or
qualification, amounting to P344,000.00; and (3) ordering the individual
Board members to pay, jointly and severally, to Cosalan moral damages of
P50,000.00 plus attorney's fees of ten percent (10%) of the wages and
allowances awarded him.
Respondent Board members appealed to the NLRC, and there filed a
Memorandum on Appeal. Petitioner Beneco did not appeal, but moved to
dismiss the appeal filed by respondent Board members and for execution of
judgment. By this time, petitioner Beneco had a new set of directors.
In a decision dated 21 November 1988, public respondent NLRC modified
the award rendered by the Labor Arbiter by declaring that petitioner Beneco
alone, and not respondent Board members, was liable for respondent
Cosalan's backwages and allowances, and by ruling that there was no legal
basis for the award of moral damages and attorney's fees made by the Labor
Arbiter.

Beneco, through its new set of directors, moved for reconsideration of the
NLRC decision, but without success.
In the present Petition for Certiorari, Beneco's principal contentions are two-
fold: first, that the NLRC had acted with grave abuse of discretion in
accepting and giving due course to respondent Board members' appeal
although such appeal had been filed out of time; and second, that the NLRC
had acted with grave abuse of discretion amounting to lack of jurisdiction in
holding petitioner alone liable for payment of the backwages and allowances
due to Cosalan and releasing respondent Board members from liability
therefor.
We consider that petitioner's first contention is meritorious. There is no
dispute about the fact that the respondent Beneco Board members received
the decision of the labor Arbiter on 21 April 1988. Accordingly, and because
1 May 1988 was a legal holiday, they had only up to 2 May 1988 within which
to perfect their appeal by filing their memorandum on appeal. It is also not
disputed that the respondent Board members' memorandum on appeal was
posted by registered mail on 3 May 1988 and received by the NLRC the
following day. 4 Clearly, the memorandum on appeal was filed out of time.
Respondent Board members, however, insist that their Memorandum on
Appeal was filed on time because it was delivered for mailing on 1 May 1988
to the Garcia Communications Company, a licensed private letter carrier.
The Board members in effect contend that the date of delivery to Garcia
Communications was the date of filing of their appeal memorandum.
Respondent Board member's contention runs counter to the established rule
that transmission through a private carrier or letter-forwarder –– instead of
the Philippine Post Office –– is not a recognized mode of filing pleadings. 5
The established rule is that the date of delivery of pleadings to a private
letter-forwarding agency is not to be considered as the date of filing thereof in
court, and that in such cases, the date of actual receipt by the court, and not
the date of delivery to the private carrier, is deemed the date of filing of that
pleading. 6
There, was, therefore, no reason grounded upon substantial justice and the
prevention of serious miscarriage of justice that might have justified the
NLRC in disregarding the ten-day reglementary period for perfection of an
appeal by the respondent Board members. Accordingly, the applicable rule
was that the ten-day reglementary period to perfect an appeal is mandatory
and jurisdictional in nature, that failure to file an appeal within the
reglementary period renders the assailed decision final and executory and no
longer subject to review. 7 The respondent Board members had thus lost
their right to appeal from the decision of the Labor Arbiter and the NLRC
should have forthwith dismissed their appeal memorandum.
There is another and more compelling reason why the respondent Board
members' appeal should have been dismissed forthwith: that appeal was
quite bereft of merit. Both the Labor Arbiter and the NLRC had found that the
indefinite suspension and termination of services imposed by the respondent
Board members upon petitioner Cosalan was illegal. That illegality flowed,
firstly, from the fact that the suspension of Cosalan was continued long after
expiration of the period of thirty (30) days, which is the maximum period of
preventive suspension that could be lawfully imposed under Section 4, Rule
XIV of the Omnibus Rules Implementing the Labor Code. Secondly, Cosalan
had been deprived of procedural due process by the respondent Board
members. He was never informed of the charges raised against him and was
given no opportunity to meet those charges and present his side of whatever
dispute existed; he was kept totally in the dark as to the reason or reasons
why he had been suspended and effectively dismissed from the service of
Beneco Thirdly, respondent Board members failed to adduce any cause
which could reasonably be regarded as lawful cause for the suspension and
dismissal of respondent Cosalan from his position as General Manager of
Beneco. Cosalan was, in other words, denied due process both procedural
and substantive. Fourthly, respondent Board members failed to obtain the
prior approval of the NEA of their suspension now dismissal of Cosalan,
which prior approval was required, inter alia, under the subsisting loan
agreement between the NEA and Beneco. The requisite NEA approval was
subsequently sought by the respondent Board members; no NEA approval
was granted.
In reversing the decision of the Labor Arbiter declaring petitioner Beneco and
respondent Board members solidarily liable for the salary, allowances,
damages and attorney's fees awarded to respondent Cosalan, the NLRC
said:
. . . A perusal of the records show that the members of the Board never acted
in their individual capacities. They were acting as a Board passing
resolutions affecting their general manager. If these resolutions and resultant
acts transgressed the law, to then BENECO for which the Board was acting
in behalf should bear responsibility. The records do not disclose that the
individual Board members were motivated by malice or bad faith, rather, it
reveals an intramural power play gone awry and misapprehension of its own
rules and regulations. For this reason, the decision holding the individual
board members jointly and severally liable with BENECO for Cosalan's
backwages is untenable. The same goes for the award of damages which
does not have the proverbial leg to stand on.
The Labor Arbiter below should have heeded his own observation in his
decision —
Respondent BENECO as an artificial person could not have, by itself, done
anything to prevent it. But because the former have acted while in office and
in the course of their official functions as directors of BENECO, . . .
Thus, the decision of the Labor Arbiter should be modified conformably with
all the foregoing holding BENECO solely liable for backwages and releasing
the appellant board members from any individual liabilities. 8 (Emphasis
supplied)
The applicable general rule is clear enough. The Board members and
officers of a corporation who purport to act for and in behalf of the
corporation, keep within the lawful scope of their authority in so acting, and
act in good faith, do not become liable, whether civilly or otherwise, for the
consequences of their acts, Those acts, when they are such a nature and are
done under such circumstances, are properly attributed to the corporation
alone and no personal liability is incurred by such officers and Board
members. 9
The major difficulty with the conclusion reached by the NLRC is that the
NLRC clearly overlooked or disregarded the circumstances under which
respondent Board members had in fact acted in the instant case. As noted
earlier, the respondent Board members responded to the efforts of Cosalan
to take seriously and implement the Audit Memoranda issued by the COA
explicitly addressed to the petitioner Beneco, first by stripping Cosalan of the
privileges and perquisites attached to his position as General Manager, then
by suspending indefinitely and finally dismissing Cosalan from such position.
As also noted earlier, respondent Board members offered no suggestion at
all of any just or lawful cause that could sustain the suspension and dismissal
of Cosalan. They obviously wanted to get rid of Cosalan and so acted, in the
words of the NLRC itself, "with indecent haste" in removing him from his
position and denying him substantive and procedural due process. Thus, the
record showed strong indications that respondent Board members had
illegally suspended and dismissed Cosalan precisely because he was trying
to remedy the financial irregularities and violations of NEA regulations which
the COA had brought to the attention of Beneco. The conclusion reached by
the NLRC that "the records do not disclose that the individual Board
members were motivated by malice or bad faith" flew in the face of the
evidence of record. At the very least, a strong presumption had arisen, which
it was incumbent upon respondent Board members to disprove, that they had
acted in reprisal against respondent Cosalan and in an effort to suppress
knowledge about and remedial measures against the financial irregularities
the COA Audits had unearthed. That burden respondent Board members did
not discharge.
The Solicitor General has urged that respondent Board members may be
held liable for damages under the foregoing circumstance under Section 31
of the Corporation Code which reads as follows:
Sec. 31. Liability of directors, trustees or officers. — Directors or
trustees who willfully and knowingly vote for or assent to patently unlawful
acts of the corporation or who are guilty of gross negligence or bad faith in
directing the affairs of the corporation or acquire any personal or pecuniary
interest in conflict with their duty as such directors or trustees shall be jointly
liable and severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons . . . (Emphasis
supplied)
We agree with the Solicitor General, firstly, that Section 31 of the Corporation
Code is applicable in respect of Beneco and other electric cooperatives
similarly situated. Section 4 of the Corporation Code renders the provisions
of that Code applicable in a supplementary manner to all corporations,
including those with special or individual charters so long as those provisions
are not inconsistent with such charters. We find no provision in P.D. No. 269,
as amended, that would exclude expressly or by necessary implication the
applicability of Section 31 of the Corporation Code in respect of members of
the boards of directors of electric cooperatives. Indeed, P.D. No. 269
expressly describes these cooperatives as "corporations:"
Sec. 15. Organization and Purpose. — Cooperative non-stock, non-
profit membership corporations may be organized, and electric cooperative
corporations heretofore formed or registered under the Philippine non-
Agricultural Co-operative Act may as hereinafter provided be converted,
under this Decree for the purpose of supplying, and of promoting and
encouraging-the fullest use of, service on an area coverage basis at the
lowest cost consistent with sound economy and the prudent management of
the business of such corporations. 10 (Emphasis supplied)
We agree with the Solicitor General, secondly, that respondent Board
members were guilty of "gross negligence or bad faith in directing the affairs
of the corporation" in enacting the series of resolutions noted earlier
indefinitely suspending and dismissing respondent Cosalan from the position
of General Manager of Beneco. Respondent Board members, in doing so,
acted belong the scope of their authority as such Board members. The
dismissal of an officer or employee in bad faith, without lawful cause and
without procedural due process, is an act that is contra legem. It cannot be
supposed that members of boards of directors derive any authority to violate
the express mandates of law or the clear legal rights of their officers and
employees by simply purporting to act for the corporation they control.
We believe and so hold, further, that not only are Beneco and respondent
Board members properly held solidarily liable for the awards made by the
Labor Arbiter, but also that petitioner Beneco which was controlled by and
which could act only through respondent Board members, has a right to be
reimbursed for any amounts that Beneco may be compelled to pay to
respondent Cosalan. Such right of reimbursement is essential if the innocent
members of Beneco are not to be penalized for the acts of respondent Board
members which were both done in bad faith and ultra vires. The liability-
generating acts here are the personal and individual acts of respondent
Board members, and are not properly attributed to Beneco itself.
WHEREFORE, the Petition for Certiorari is GIVEN DUE COURSE, the
comment filed by respondent Board members is TREATED as their answer,
and the decision of the National Labor Relations Commission dated 21
November 1988 in NLRC Case No. RAB-1-0313-84 is hereby SET ASIDE
and the decision dated 5 April 1988 of Labor Arbiter Amado T. Adquilen
hereby REINSTATED in toto. In addition, respondent Board members are
hereby ORDERED to reimburse petitioner Beneco any amounts that it may
be compelled to pay to respondent Cosalan by virtue of the decision of Labor
Arbiter Amado T. Adquilen. No pronouncement as to costs.
SO ORDERED.
Woodchild Holdings v. Roxas Electric
G.R. No. 140667, August 12, 2004
Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)
(Topic: Doctrine of Piercing the Veil of Corporate Fiction)
FACTS:
The respondent Roxas Electric and Construction Company, Inc. (RECCI),
formerly the Roxas Electric and Construction Company, was the owner of
two parcels of land. A portion of one Lot which abutted the other Lot was a
dirt road accessing to the Sumulong Highway, Antipolo, Rizal.
At a special meeting on May 17, 1991, the respondent's Board of Directors
approved a resolution authorizing the corporation, through its president,
Roberto B. Roxas, to sell the Lots, at a price and under such terms and
conditions which he deemed most reasonable and advantageous to the
corporation; and to execute, sign and deliver the pertinent sales documents
and receive the proceeds of the sale for and on behalf of the company.
Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy the Lot on which it
planned to construct its warehouse building, and a portion of the adjoining
lot, so that its 45-foot container van would be able to readily enter or leave
the property.
On September 5, 1991, a Deed of Absolute Sale in favor of WHI was issued,
under which the Lot was sold for P5,000,000, receipt of which was
acknowledged by Roxas under the following terms and conditions:
The Vendor agree (sic), as it hereby agrees and binds itself to give Vendee
the beneficial use of and a right of way from Sumulong Highway to the
property herein conveyed consists of 25 square meters wide to be used as
the latter's egress from and ingress to and an additional 25 square meters in
the corner of Lot No. 491-A-3-B-1, as turning and/or maneuvering area for
Vendee's vehicles.
The Vendor agrees that in the event that the right of way is insufficient for the
Vendee's use (ex entry of a 45-foot container) the Vendor agrees to sell
additional square meters from its current adjacent property to allow the
Vendee full access and full use of the property.
the respondent posits that Roxas was not so authorized under the May 17,
1991 Resolution of its Board of Directors to impose a burden or to grant a
right of way in favor of the petitioner on Lot No. 491-A-3-B-1, much less
convey a portion thereof to the petitioner. Hence, the respondent was not
bound by such provisions contained in the deed of absolute sale.
ISSUE:
Whether or not the respondent is bound by the provisions in the deed of
absolute sale granting to the petitioner beneficial use and a right of way over
a portion of Lot accessing to the Sumulong Highway and granting the option
to the petitioner to buy a portion thereof, and, if so, whether such agreement
is enforceable against the respondent?
HELD:
No.
Generally, the acts of the corporate officers within the scope of their authority
are binding on the corporation. However, under Article 1910 of the New Civil
Code, acts done by such officers beyond the scope of their authority cannot
bind the corporation unless it has ratified such acts expressly or tacitly, or is
estopped from denying them.
Thus, contracts entered into by corporate officers beyond the scope of
authority are unenforceable against the corporation unless ratified by the
corporation.
Evidently, Roxas was not specifically authorized under the said resolution to
grant a right of way in favor of the petitioner on a portion of Lot No. 491-A-3-
B-1 or to agree to sell to the petitioner a portion thereof. The authority of
Roxas, under the resolution, to sell Lot No. 491-A-3-B-2 covered by TCT No.
78086 did not include the authority to sell a portion of the adjacent lot, Lot
No. 491-A-3-B-1, or to create or convey real rights thereon. Neither may such
authority be implied from the authority granted to Roxas to sell Lot No. 491-
A-3-B-2 to the petitioner "on such terms and conditions which he deems
most reasonable and advantageous."
The general rule is that the power of attorney must be pursued within legal
strictures, and the agent can neither go beyond it; nor beside it. The act done
must be legally identical with that authorized to be done.30 In sum, then, the
consent of the respondent to the assailed provisions in the deed of absolute
sale was not obtained; hence, the assailed provisions are not binding on it.
There can be no apparent authority of an agent without acts or conduct on
the part of the principal and such acts or conduct of the principal must have
been known and relied upon in good faith and as a result of the exercise of
reasonable prudence by a third person as claimant and such must have
produced a change of position to its detriment.
The apparent power of an agent is to be determined by the acts of the
principal and not by the acts of the agent.
EN BANC
G.R. No. L-22450 December 3, 1924
YU CHUCK, MACK YUENG, and DING MOON, plaintiffs-appellees,
vs.
"KONG LI PO," defendant-appellant.
J. W. Ferrier for appellant.
G. E. Cam
pbell for appellees.
OSTRAND, J.:
The defendant is a domestic corporation organized in accordance with the
laws of the Philippine Islands and engaged in the publication of a Chinese
newspaper styled Kong Li Po. Its articles of incorporation and by-laws are in
the usual form and provide for a board of directors and for other officers
among them a president whose duty it is to "sign all contracts and other
instruments of writing." No special provision is made for a business or
general manager.
Sometime during the year 1919 one C. C. Chen or T. C. Chen was appointed
general business manager of the newspaper. During the month of December
of that year he entered into an agreement with the plaintiffs by which the
latter bound themselves to do the necessary printing for the newspaper for
the sum of P580 per month as alleged in the complaint. Under this
agreement the plaintiffs worked for the defendant from January 1, 1920, until
January 31, 1921, when they were discharged by the new manager, Tan
Tian Hong, who had been appointed in the meantime, C. C. Chen having left
for China. The letter of dismissal stated no special reasons for the discharge
of the plaintiffs.
The plaintiffs thereupon brought the present action alleging, among other
things, in the complaint that their contract of employment was for a term of
three years from the first day of January, 1920; that in the case of their
discharge by the defendant without just cause before the expiration of the
term of the contract, they were to receive full pay for the remaining portion of
the term; that they had been so discharged without just cause and therefore
asked judgment for damages in the sum of P20,880.
In its amended answer the defendant denies generally and specifically the
allegations of the complaint and sets up five special defenses and
counterclaims. The first of these is to the effect that C. C. Chen, the person
whose name appears to have been signed to the contract of employment
was not authorized by the defendant to execute such a contract in its behalf.
The second special defense and counterclaim is to the effect that during the
month of January, 1921, the plaintiffs purposely delayed the issuance of
defendant's newspaper on three separate and distinct occasions causing
damage and injury to the defendant in the amount of P300. Under the third
special defense and counterclaim it is alleged that the plaintiffs failed,
neglected, and refused to prepare extra pages for the January 1, 1921, issue
of the defendant's newspaper and thus compelled the defendant to secure
the preparation of said extra pages by other persons at a cost of P110. In the
fourth special defense and counterclaim the defendant alleged that the
plaintiffs neglected and failed to correct errors in advertisements appearing in
defendant's newspaper, although their attention was specifically called to
such errors and they were requested to make the corrections, as a result of
which certain advertisers withdrew their patronage from the paper and
refused to pay for the advertisements, thus causing a loss to the defendant of
P160.50. For its fifth special defense and counterclaim the defendant alleged
that the plaintiffs neglected and refused to do certain job printing such
neglect and refusal causing injury and damage to the defendant in the sum of
P150.

At the trial of the case the plaintiffs presented in evidence Exhibit A which
purports to be a contract between Chen and the plaintiffs and which provides
that in the event the plaintiffs should be discharged without cause before the
expirations of the term of three years from January 1, 1920, they would be
given full pay for the unexpired portion of the term "even if the said paper has
to fall into bankruptcy." The contract is signed by the plaintiffs and also bears
the signature "C. C. Chen, manager of Kong Li Po." The authenticity of the
latter signature is questioned by the defendant, but the court below found
that the evidence upon this point preponderate in favor of the plaintiffs and
there appears to be no sufficient reason to disturb this finding.
The trial court further found that the contract had been impliedly ratified by
the defendant and rendered judgment in favor of the plaintiffs for the sum of
P13,340, with interest from the date of the filing of the complaint and the
costs. From this judgment the defendant appeals to this court and makes
eighteen assignments of error. The fourth and seventeenth assignments
relate to defendant's special defense and counterclaims; the sum and
substance of the other assignments is that the contract on which the action is
based was not signed by C. C. Chen; that, in any event, C. C. Chen had no
power or authority to bind the defendant corporation by such contract; and
that there was no ratification of the contract by the corporation.
Before entering upon a discussion of the questions raised by the
assignments of error, we may draw attention to a matter which as not been
mentioned either by counsel or by the court below, but which, to prevent
misunderstanding, should be briefly explained: It is averred in the complaint
that it is accompanied by a copy of the contract between the parties (Exhibit
A) which copy, by the terms of the complaint, is made a part thereof. The
copy is not set forth in the bill of exceptions and aside from said avernment,
there is no indication that the copy actually accompanied the complaint, but
an examination of the record of the case in the Court of First Instance shows
that a translation of the contract was attached to the complaint and served
upon the defendant. As this translation may be considered a copy and as the
defendant failed to deny its authenticity under oath, it will perhaps be said
that under section 103 of the Code of Civil Procedure the omission to so
deny it constitutes an admission of the genuineness and due execution of the
document as well as of the agent's authority to bind the defendant. (Merchant
vs. International Banking Corporation, 6 Phil., 314.)
In ordinary circumstances that would be true. But this case appears to have
been tried upon the theory that the rule did not apply; at least, it was wholly
overlooked or disregarded by both parties. The plaintiffs at the beginning of
the trial presented a number of witnesses to prove the due execution of the
document as well as the agent's authority; no objections were made to the
defendant's evidence in refutation and no exceptions taken; and the matter is
not mentioned in the decision of the trial court.
The object of the rule is "to relieve a party of the trouble and expense of
proving in the first instance an alleged fact, the existence or nonexistence of
which is necessarily within the knowledge of the adverse party, and of the
necessity (to his opponent's case) of establishing which such adverse party
is notified by his opponent's pleading." (Nery Lim-Chingco vs. Terariray, 5
Phil., at p. 124.)lawphi1.net
The plaintiff may, of course, waive the rule and that is what he must be
considered to have done in the present case by introducing evidence as to
the execution of the document and failing to object to the defendant's
evidence in refutation; all this evidence is now competent and the case must
be decided thereupon. Moreover, the question as to the applicability of the
rule is not even suggested in the briefs and is not properly this court. In these
circumstances it would, indeed, be grossly unfair to the defendant if this court
should take up the question on its own motion and make it decisive of the
case, and such is not the law. Nothing of what has here been said is in
conflict with former decisions of this court; it will be found upon examination
that in all cases where the applicability of the rule has been sustained the
party invoking it has relied on it in the court below and conducted his case
accordingly.
The principal question presented by the assignments of error is whether
Chen had the power to bind the corporation by a contract of the character
indicated. It is conceded that he had no express authority to do so, but the
evidence is conclusive that he, at the time the contract was entered into, was
in effect the general business manager of the newspaper Kong Li Po and
that he, as such, had charge of the printing of the paper, and the plaintiff
maintain that he, as such general business manager, had implied authority to
employ them on the terms stated and that the defendant corporation is bound
by his action. The general rule is that the power to bind a corporation by
contract lies with its board of directors or trustees, but this power may either
expressly or impliedly be delegated to other officers or agents of the
corporation, and it is well settled that except where the authority of employing
servants and agent is expressly vested in the board of directors or trustees,
an officer or agent who has general control and management of the
corporation's business, or a specific part thereof, may bind the corporation by
the employment of such agent and employees as are usual and necessary in
the conduct of such business. But the contracts of employment must be
reasonable. (14a C. J., 431.)
In regard to the length of the term of employment, Corpus Juris says:
In the absence of express limitations, a manager has authority to hire an To Whom It May Concern: Announcement is hereby given that thereafter all
employee for such a period as is customary or proper under the contracts, agreements and receipts are considered to be null and void unless
circumstances, such as for a year, for the season, or for two season. But duly signed by T. C. Chen, General Manager of this paper.
unless he is either expressly authorized, or held out as having such authority,
he cannot make a contract of employment for a long future period, such as (Sgd.) CHEN YOU MAN
for three years, although the contract is not rendered invalid by the mere fact General Manager of this paper
that the employment extends beyond the term of the manager's own
employment. . . . (14a C. J., 431.)
(The evidence shows that Chen You Man and T. C. Chen is one and the
From what has been said, there can be no doubt that Chen, as general same person.)
manager of the Kong Li Po, had implied authority to bind the defendant
corporation by a reasonable and usual contract of employment with the His Honor evidently overestimated the importance of this notice. It was
plaintiffs, but we do not think that the contract here in question can be so published nearly a month after the contract in question is alleged to have
considered. Not only is the term of employment unusually long, but the been entered into and can therefore not have been one of the circumstances
conditions are otherwise so onerous to the defendant that the possibility of which led the plaintiffs to think that Chen had authority to make the contract.
the corporation being thrown into insolvency thereby is expressly It may further be observed that the notice confers no special powers, but is,
contemplated in the same contract. This fact in itself was, in our opinion, in effect, only an assertion by Chen that he would recognize no contracts,
sufficient to put the plaintiffs upon inquiry as to the extent of the business agreements, and receipts not duty signed by him. It may be presumed that
manager's authority; they had not the rights to presume that he or any other the contracts, agreements, and receipts were such as were ordinarily made
single officer or employee of the corporation had implied authority to enter in the course of the business of managing the newspaper. There is no
into a contract of employment which might bring about its ruin. evidence to show that the notice was ever brought to the attention of the
officers of the defendant corporation.
Neither do we think that the contention that the corporation impliedly ratified
the contract is supported by the evidence. The contention is based principally The defendant's counterclaims have not been sufficiently established by the
on the fact that Te Kim Hua, the president of the corporation for the year evidence.
1920, admitted on the witness stand that he saw the plaintiffs work as
printers in the office of the newspaper. He denied, however, any knowledge The judgment appealed from is reversed and the defendant corporation is
of the existence of the contract and asserted that it was never presented absolved from the complaint. No costs will be allowed. So ordered.
neither to him nor to the board of directors. Before a contract can be ratified
knowledge of its existence must, of course, be brought home to the parties Johns, Avanceña and Romualdez, JJ., concur.
who have authority to ratify it or circumstances must be shown from which
such knowledge may be presumed. No such knowledge or circumstances
have been shown here. That the president of the corporation saw the
plaintiffs working in its office is of little significance; there were other printers
working there at that time and as the president had nothing to do with their
employment, it was hardly to be expected that be would inquire into the
terms of their contracts. Moreover, a ratification by him would have been of
no avail; in order to validate a contract, a ratification by the board of directors
was necessary. The fact that the president was required by the by-laws to
sign the documents evidencing contracts of the corporation, does not mean
that he had power to make the contracts.

In his decision his Honor, the learned judge of the court below appears to
have placed some weight on a notice inserted in the January 14th issue of
the Kong Li Po by T. C. Chen and which, in translation, reads as follows: