Narra Nickel Mining and Development Corp.

vs Redmont Consolidated Mines Corporation

G.R. No. 195580 April 21, 2014

Facts: 

 respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation organized and existing under
Philippine laws, took interest in mining and exploring certain areas of the province of Palawan. After inquiring with the
(DENR), it learned that the areas where it wanted to undertake exploration and mining activities where already covered
by Mineral Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.

 Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an application for an
MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau (MGB

 Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and Patricia Louise Mining
& Development Corporation (PLMDC) which previously filed an application for an MPSA

 On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate petitions for
the denial of petitioners’ applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12. In
the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and
controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a
considerable stockholder of petitioners, it was the driving force behind petitioners’ filing of the MPSAs over the areas
covered by applications since it knows that it can only participate in mining activities through corporations which are
deemed Filipino citizens. Redmont argued that given that petitioners’ capital stocks were mostly owned by MBMI, they
were likewise disqualified from engaging in mining activities through MPSAs, which are reserved only for Filipino
citizens.
 
Issue: Whether or not the petitioner corporations are Filipino and can validly be issued MPSA and  EP.
 
Held: No. The SEC Rules provide for the manner of calculating the Filipino interest in a corporation for purposes,
among others, of determining compliance with nationality requirements (the ‘Investee Corporation’). Such manner of
computation is necessary since the shares in the Investee Corporation may be owned both by individual stockholders
(‘Investing Individuals’) and by corporations and partnerships (‘Investing Corporation’). The said rules thus provide for
the determination of nationality depending on the ownership of the Investee Corporation and, in certain instances, the
Investing Corporation.
 
Under the SEC Rules, there are two cases in determining the nationality of the Investee Corporation. The first case is
the ‘liberal rule’, later coined by the SEC as the Control Test in its 30 May 1990 Opinion, and pertains to the portion in
said Paragraph 7 of the 1967 SEC Rules which states, ‘(s)hares belonging to corporations or partnerships at least 60%
of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality.’ Under the liberal
Control Test, there is no need to further trace the ownership of the 60% (or more) Filipino stockholdings of the
Investing Corporation since a corporation which is at least 60% Filipino-owned is considered as Filipino.
 
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said Paragraph 7 of the
1967 SEC Rules which states, “but if the percentage of Filipino ownership in the corporation or partnership is less than
60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality.” Under
the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and the Investee
Corporation must be traced (i.e., “grandfathered”) to determine the total percentage of Filipino ownership. Moreover,
the ultimate Filipino ownership of the shares must first be traced to the level of the Investing Corporation and added to
the shares directly owned in the Investee Corporation.
 
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC Rule
applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture
corporation with Filipino and foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in other
joint venture corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the
60-40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will not apply.
BERNA et al vs. JOVENCIO F. CINCO et al, G.R. Nos. 163356-57

Facts:

 Makati Sports Club (MSC) is a domestic corporation duly organized and existing under
Philippine laws for the primary purpose of establishing, maintaining, and providing social,
cultural, recreational and athletic . activities among its members.
 Petitioners were among the Members of the Board of Directors and Officers of the corporation whose
terms were to expire either in 1998 or 1999
 Alarmed with the rumored anomalies in handling the corporate funds, the MSC Oversight Committee
(MSCOC), composed of the past presidents of the club, demanded from the Bernas Group, who were
then incumbent officers of the corporation, to resign from their respective positions to pave the way for
the election of new set of officers.  
4

 stockholders of the corporation representing at least 100 shares who sought the assistance of the
MSCOC to call for a special stockholders meeting for the purpose of removing the sitting officers and
electing new ones.  
5

 Pursuant to such request, the MSCOC called a Special Stockholders' Meeting and sent out notices  to 6

all stockholders and members stating therein the time, place and purpose of the meeting.
 For failure of the Bernas Group to secure an injunction before the Securities Commission (SEC), the
meeting proceeded wherein BERNAS GROUP were removed from office and new set of officer
(CINCO group) were elected.
 Bernas Group initiated an action seeking for the nullification of the 17 December 1997 Special
Stockholders Meeting on the ground that it was improperly called. According to them “Secretary and
not with the MSCOC which functions merely as an oversight body and is not vested with the power to
call corporate meetings.”
  Cinco Group reasoned that Section 25  of the MSC by-laws merely authorized the Corporate
8

Secretary to issue notices of meetings and nowhere does it state that such authority solely belongs to
him. It was further asseverated by the Cinco Group that it would be useless to course the request to
call a meeting thru the Corporate Secretary because he repeatedly refused to call a special
stockholders' meeting despite demands and even "filed a suit to restrain the holding of a special
meeting.9

 SEC ruled that the Special Stockholders' Meeting and the Annual Stockholders' Meeting conducted on
20 April 1998 and 19 April 1999 are invalid. The SICD likewise nullified the expulsion of Bernas from
the corporation and the sale of his share at the public auction.

Issue:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE 17
DECEMBER 1997 SPECIAL STOCKHOLDERS' MEETING IS INVALID; AND

Ruling:

Textually, only the President and the Board of Directors are authorized by the by-laws to call a special meeting.
In cases where the person authorized to call a meeting refuses, fails or neglects to call a meeting, then the
stockholders representing at least 100 shares, upon written request, may file a petition to call a special
stockholder's meeting.

In the instant case, there is no dispute that the 17 December 1997 Special Stockholders' Meeting was called
neither by the President nor by the Board of Directors but by the MSCOC. While the MSCOC, nowhere in the
by-laws does it state that it is authorized to exercise corporate powers, such as the power to call a special
meeting, solely vested by law and the MSC by-laws on the President or the Board of Directors.

 nowhere in the Corporation Code or in the MSC by-laws can it be gathered that the Oversight Committee is
authorized to step in wherever there is breach of fiduciary duty and call a special meeting for the purpose of
removing the existing officers and electing their replacements even if such call was made upon the request of
shareholders. needless to say, the MSCOC is neither ·empowered by law nor the MSC by-laws to
call a meeting and the subsequent ratification made by the stockholders did not cure the
substantive infirmity, the defect having set in at the time the void act was done. The defect goes
into the very authority of the persons who made the call form the meeting. It is apt to recall that
illegal acts of a corporation which contemplate the doing of an act which is contrary to law,
morals or public order, or contravenes some rules of public policy or public duty are, like similar
transactions between individuals, void. They cannot serve as basis for a court action, nor
acquire validity by performance, ratification or estoppel. The same principle can apply in the
present case. The void election in special stockholders meeting
cannot be ratified by the subsequent Annual Stockholders' Meeting.

A distinction should be made between corporate acts or contracts which are illegal and
those which are merely ultra vires. The former contemplates the doing of an act which are
contrary to law, morals or public policy or public duty, and are, like similar transactions between
individuals, void: They cannot serve as basis of a court action nor acquire validity by
performance, ratification or estoppel. Mere ultra vires acts, on the other hand, or those which
are not illegal or void ab initio, but are not merely within the scope of the articles of
incorporation, are merely voidable and may become binding and enforceable when ratified by
the stockholders. The Special Stockholders' Meeting belongs to the category of the latter, that
is, it is void ab initio and cannot be validated.

Consequently, such Special Stockholders' Meeting called by the Oversight Committee cannot
have any legal effect. The removal of the Bernas Group, as well as the election of the Cinco
Group, effected by the assembly in that improperly called meeting is void, and since the Cinco
Group has no legal right to sit in the board, their subsequent acts of expelling Bernas from the
club and the selling of his shares. at the public auction, are likewise invalid. Cinco Group cannot
claim that if was left without recourse after the Corporate Secretary previously refused to heed
its
demand to call a special stockholders' meeting. If it be true that the Corporate Secretary refused
to call a meeting despite fervent demand from the MSCOC, the remedy of the stockholders
would
have been to file a petition to the SEC to direct him to call a meeting by giving proper notice
required under the Code. To rule otherwise would open the floodgates to abuse where any
stockholder, who consider himself aggrieved by certain corporate actions, could call a special
stockholders' meeting for the purpose of removing the sitting officers in direct violation of the
rules pertaining to the call of meeting laid down in the [Link] corporation has the
inherent power to adopt by-laws for its internal government, and to regulate the conduct and
prescribe the rights and duties of its members towards itself and among themselves in reference
to the management of its affairs. The by-laws of a corporation are its own private laws which
substantially have the same effect as the laws of the corporation. They are in effect written into
the charter. In this sense they become part of the fundamental law of the corporation with
which the corporation and its directors and officers must comply. The general rule is that
a corporation, through its board of directors, should act in the manner and within the
formalities, if any, prescribed in its charter or by the general law. Thus, directors must
act as a body in a meeting called pursuant to the law or the corporation's by-laws,
otherwise, any action taken therein may be questioned by the objecting director or
shareholder.
We hold that Special Stockholders' Meeting is null and void and produces no effect; the
resolution expelling the Bernas Group from the corporation and authorizing the sale of Bernas'
shares at the public auction is likewise null and void. The subsequent Annual Stockholders' are
valid and binding except the ratification of the removal of the Bernas Group and the sale of
Bernas' shares at the public auction effected by the body during the said meetings. The
expulsion of the Bernas Group and the subsequent auction of Bernas' shares are void from the
very beginning and therefore the ratifications effected during the subsequent meetings cannot
be sustained. A void act cannot be the subject of ratification.

MAGALLANES WATERCRAFT ASSOCIATION, v. MARGARITO C. AUGUIS AND BASNIG

Facts:
 Petitioner Magallanes Watercraft Association, Inc. (MWAI) is a local association of
motorized banca owners and operators ferrying cargoes and passengers from Magallanes,
Agusan del Norte, to Butuan City and back.
 Respondents Margarito C. Auguis (Auguis) and Dioscoro C. Basnig (Basnig) were
members and officers of MWAI - vice-president and secretary, respectively.
 he Board of Trustees (Board) of MWAI passed Resolution No. 1, Series of 2003, and
thereafter issued Memorandum No. 001 suspending the rights and privileges of Auguis
and Basnig as members of the association for thirty (30) days for their refusal to pay
their membership dues and berthing fees because of their pending oral complaint and
demand for financial audit of the association funds. Auguis had an accumulated unpaid
obligation of P4,059.00 while Basnig had P7,552.00.4
 In spite of the suspension of their privileges as members, Auguis and Basnig still failed to
settle their obligations with MWAI
 Rtc/CA: The CA noted that neither MWAI's Articles of Incorporation nor its By-
7
Laws  contained any provision that expressly and/or impliedly vested power or authority
upon its Board to recommend the imposition of disciplinary sanctions on its delinquent
officers and/or members. It further noted that MWAI lacked the authority to suspend the
right of the respondents to operate their bancas, which was granted through a Certificate
of Public Convenience. The appellate court pointed out that the Maritime Industry
Authority (MARINA) expressly reminded MWAI that it was the sole government agency
which had the authority to suspend, cancel and'or revoke the franchise of the two. The
CA explained that the suspension of their berthing privileges resulted in the failure of the
latter to operate their bancas—contrary to the express reminder of the MARINA. Hence,
the CA concluded that MWAI acted beyond the scope of its powers when it suspended the
rights of Auguis and Basnig as members of MWAI to berth on the seaport of Magallanes
and operate their bancas.
 MWAI:  it was NOT guilty of an ultra vires act when it suspended respondents' berthing
rights because its by-laws obliged Auguis and Basnig as members to: (1) obey and
comply with the bylaws, rules and regulations that may be promulgated by the
association from time to time; and (2) to pay its membership dues and other
assessments. Thus, MWAI argues that respondents cannot claim either actual or
temperate damages because the suspension of their rights and privileges was anchored
on its by-laws.

ISSUE: WN the suspension of respondents' rights as members for their failure to settle
membership dues was an ultra vires act.

Ruling: NO.

Section 45 of the Corporation Code provides for the powers possessed by a corporation, to
wit: chanRoblesvirtualLawlibrary

Sec. 45. Ultra vires acts of corporations. - No corporation under this Code shall possess or
exercise any corporate powers except those conferred by this Code or by its articles of
incorporation and except such as are necessary or incidental to the exercise of the powers so
conferred. cralawred

From a reading of the said provision, it is clear that a corporation has: (1) express powers, which
are bestowed upon by law or its articles of incorporation; and (2) necessary or incidental powers
to the exercise of those expressly conferred. An act which cannot fall under a corporation's
express or necessary or incidental powers is an ultra vires act.

The Court disagrees.

Under Section 3(a) and Section 3(c) Article V of MWAI's By-Laws, its members are bound "[t]o
obey and comply with the by-laws, rules and regulations that may be promulgated by the
association from time to time" and "[t]o pay membership dues and other assessments of the
association."13  Thus, the respondents were obligated to pay the membership dues of which they
were delinquent. MWAI could not be faulted in suspending the rights and privileges of its
delinquent members.

The fact alone that neither the articles of incorporation nor the bylaws of MWAI granted its Board
the authority to discipline members does not make the suspension of the rights and privileges of
the respondents ultra vires.  

In  National Power Corporation v. Vera,14  the Court stressed that an act might be considered
within corporate powers, even if it was not among the express powers, if the same served the
corporate ends.

Montelibano, et al. v. Bacolod-Murcia Milling Co., In ; The test to be applied is whether the act in
question is in direct and immediate furtherance of the corporation's business, fairly incident to
the express powers and reasonably necessary to their exercise.  If so, the corporation has the
power to do it; otherwise, not. cralawred

MWAI can properly impose sanctions on Auguis and Basnig for being delinquent members
considering that the payment of membership dues enables MWAI to discharge its duties and
functions enumerated under its charter. Moreover, respondents were obligated by the by-laws of
the association to pay said dues. The suspension of their rights and privileges is not an ultra
vires act as it is reasonably necessary or proper in order to further the interest and welfare of
MWAI. Also, the imposition of the temporary ban on the use of MWAI's berthing facilities until
Auguis and Basnig have paid their outstanding obligations was a reasonable measure that the
former could undertake to ensure the prompt payment of its membership dues. 15  Otherwise,
MWAI will be rendered inutile as it will have no means of ensuring that its members will promptly
settle their obligations.
 HYATT ELEVATOR VS GOLDSTAR
(VENUE)

FACTS:

 Petitioner [herein Respondent] Goldstar Elevator Philippines, Inc. (GOLDSTAR for

brevity) is a domestic corporation primarily engaged in the business of
marketing, distributing, selling, importing, installing, and maintaining elevators
and escalators, with address at 6th Floor, Jacinta II Building, 64 EDSA,
Guadalupe, Makati City.

 on the other hand, private respondent [herein petitioner] Hyatt Elevators and
Escalators Company (HYATT for brevity) is a domestic corporation similarly
engaged in the business of selling, installing and maintaining/servicing elevators,
escalators and parking equipment, with address at the 6th Floor, Dao I
Condominium, Salcedo St., Legaspi Village, Makati, as stated in its Articles of
Incorporation.
 HYATT filed a Complaint for unfair trade practices and damages under Articles 19, 20
and 21 of the Civil Code of the Philippines against LG Industrial Systems Co. Ltd. (LGISC) and
LG International Corporation (LGIC), alleging Hyatt was appointed by them as exclusive
distributor of LG elevators and escalators in the Philippines under a 'Distributorship Agreement';
LGISC, made a proposal to change the exclusive distributorship agency to that of a joint venture
partnership; various meetings were conducted in utmost bad faith and with malevolent
intentions by LG until it terminated the Exclusive Distributorship Agreement. Hyatt suffered
damages. LGISC and LGIC filed a Motion to Dismiss raising the following grounds: (1) lack of
jurisdiction over the persons of defendants, summons not having been served on its resident
agent; (2) improper venue; and (3) failure to state a cause of action.

 HYATT filed a motion for leave of court to amend the complaint, alleging that
subsequent to the filing of the complaint, it learned that LGISC transferred all its
organization, assets and goodwill, with Otis Elevator Company of the USA, to LG Otis
and that GOLDSTAR was being utilized by LG OTIS and LGIC in perpetrating their
unlawful and unjustified acts against HYATT. GOLDSTAR was additionally impleaded as
a party-defendant.
 GOLDSTAR filed a MTD the amended complaint, raising that: (1) the venue was
improperly laid, as neither HYATT nor defendants reside in Mandaluyong City, where the
original case was filed; and (2) failure to state a cause of action against [respondent],
since the amended complaint fails to allege with certainty what specific ultimate acts
Goldstar performed in violation of Hyatt's rights.
 Court denied MTD.
 CA ruled that the trial court had committed palpable error amounting to grave abuse of
discretion when the latter denied respondent's Motion to Dismiss. The appellate court
held that the venue was clearly improper, because none of the litigants "resided" in
Mandaluyong City, where the case was filed. According to CA, since Makati was the
principal place of business of both respondent and petitioner, as stated in the latter's
AOI, that place was controlling for purposes of determining the proper venue.
Issue: WON the venue was improper as ruled by CA?

Ruling: No. Since both parties to this case are corporations, there is a need to clarify the
meaning of "residence." The law recognizes two types of persons: (1) natural and (2) juridical.
Corporations come under the latter in accordance with Article 44(3) of the Civil Code. 8

Residence is the permanent home - - the place to which, whenever absent for business or
pleasure, one intends to return.9 Residence is vital when dealing with venue.10 A corporation,
however, has no residence in the same sense in which this term is applied to a natural person.
This is precisely the reason why the Court in Young Auto Supply Company v. Court of
Appeals11 ruled that "for practical purposes, a corporation is in a metaphysical sense a resident
of the place where its principal office is located as stated in the articles of incorporation."12 Even
before this ruling, it has already been established that the residence of a corporation is the place
where its principal office is established.13

Under Section 14(3) of the Corporation Code, the place where the principal office of the
corporation is to be located is one of the required contents of the articles of incorporation, which
shall be filed with the Securities and Exchange Commission (SEC). In the present case, there is
no question as to the residence of respondent. What needs to be examined is that of petitioner.
Admittedly,16 the latter's principal place of business is Makati, as indicated in its Articles of
Incorporation. Since the principal place of business of a corporation determines its residence or
domicile, then the place indicated in petitioner's articles of incorporation becomes controlling in
determining the venue for this case. Jurisprudence has settled that the place where the principal
office of a corporation is located, as stated in the articles, indeed establishes its residence.
Makati Office was still the place indicated in its Articles of Incorporation

note: bare allegations of petitioner that it had closed its Makati office and relocated to
Mandaluyong City, and that respondent was well aware of those circumstances.
Assuming arguendo that they transacted business with each other in the Mandaluyong office of
petitioner, the fact remains that, in law, the latter's residence was still the place indicated in its
Articles of Incorporation. 

ABSCBN VS CA
(DAMAGES)
FACTS:

 On April 2, 1992, defendant Del Rosario and ABS-CBN general manager, Eugenio Lopez III, met at
the Tamarind Grill Restaurant in Quezon City to discuss the package proposal of Viva. What transpired
in that lunch meeting is the subject of conflicting versions.
 Mr. Lopez testified that he and Mr. Del Rosario allegedly agreed that ABS-CRN was granted exclusive
film rights to fourteen (14) films for a total consideration of P36 million; that he allegedly put this
agreement as to the price and number of films in a "napkin'' and signed it and gave it to Mr. Del
Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992).
 On the other hand, Del Rosario denied having made any agreement with Lopez regarding the 14 Viva
films; denied the existence of a napkin in which Lopez wrote something; and insisted that what he and
Lopez discussed at the lunch meeting was Viva's film package offer of 104 films (52 originals and 52
re-runs) for a total price of P60 million. Mr. Lopez promising [sic]to make a counter proposal which
came in the form of a proposal contract Annex "C" of the complaint.
 On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance
discussed the terms and conditions of Viva's offer to sell the 104 films, after the rejection of the same
package by ABS-CBN.
 On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten note from Ms.
Concio, Draft of the contract ,an exhibition agreement a counter-proposal covering 53 films
  On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings
defendant Del Rosario and Viva's President Teresita Cruz, in consideration of P60 million, signed a
letter of agreement dated April 24, 1992. granting RBS the exclusive right to air 104 Viva-produced
and/or acquired films (Exh. "7-A" - RBS; Exh. "4" - RBS) including the fourteen (14) films subject of the
present case.
 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   (hereafter RBS ), Viva Production (hereafter VIVA), and Vicente Del
5

Rosario.
 RTC issued an order directing the issuance of a writ of preliminary injunction upon ABS-
CBN's posting of P35 million bond. ABS-CBN moved for the reduction of the bond, 8
while private respondents moved for reconsideration of the order and offered to put up a
counterbound. 9
 In the meantime, private respondents filed separate answers with counterclaim. RBS
also set up a cross-claim against VIVA. RTC denied the orders but CA eventually issued
TRO to enjoin the airing, broadcasting, and televising of any or all of the films involved in
the controversy.
 Simultaneously, RTC rendered a decision in favor of RBS and VIVA and against ABS-
CBN. Plaintiff ABS-CBN is ordered to pay defendant RBS among others P5 million as
and by way of moral damage. 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 board meeting. Hence, no basis for ABS-CBN's demand
that VIVA signed the 1992 Film Exhibition Agreement. Furthermore, the right of first
refusal under the 1990 Film Exhibition Agreement had previously been exercised per
Ms. Concio's letter to Del Rosario ticking off ten titles acceptable to them, which would
have made the 1992 agreement an entirely new contract. Private respondents VIVA
and Del Rosario also appealed in CA seeking moral and exemplary damages and additional
attorney's fees.
 As to the award of moral damages, the Court of Appeals found reasonable basis
therefor, holding that RBS's reputation was debased by the filing of the civil complaint
and by the non-showing of the film "Maging Sino Ka Man." CA reduced the awards of
moral damages to P2 million.
 Respondent court also held that exemplary damages were correctly imposed by way of example or
correction for the public good in view of the filing of the complaint despite petitioner's knowledge that
the contract with VIVA had not been perfected, It also upheld the award of attorney's fees, reasoning
that with ABS-CBN's act of instituting Civil Case No, Q-92-1209, RBS was "unnecessarily forced to
litigate." The appellate court, however, reduced the awards of moral damages to P2 million, exemplary
damages to P2 million, and attorney's fees to P500, 000.00.

Issue: Won RBS entitled to moral damages:

Ruling:

ABS-CBN further contends that there was no clear basis for the awards of moral and exemplary damages.
The controversy involving ABS-CBN and RBS did not in any way originate from business transaction
between them. The claims for such damages did not arise from any contractual dealings or from specific
acts committed by ABS-CBN against RBS that may be characterized as wanton, fraudulent, or reckless;
they arose by virtue only of the filing of the complaint, An award of moral and exemplary damages is not
warranted where the record is bereft of any proof that a party acted maliciously or in bad faith in filing an
action.  If damage results front the filing of the complaint, it is  damnum absque injuria.   Besides, moral
30

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.
 As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured
injunctions purely for the purpose of harassing and prejudicing RBS. Pursuant then to Article 19 and 21 of
the Civil Code, ABS-CBN must be held liable for such damages. Citing Tolentino,  damages may be
34

awarded in cases of abuse of rights even if the act done is not illicit and there is abuse of rights were
plaintiff institutes and action purely for the purpose of harassing or prejudicing the defendant. When RBS
was not able to fulfill its commitment to the viewing public to show the film "Maging Sino Ka Man" on the
scheduled dates and times (and on two occasions that RBS advertised), it suffered serious embarrassment
and social humiliation. When the showing was canceled, late viewers called up RBS' offices and subjected
RBS to verbal abuse ("Announce kayo nang announce, hindi ninyo naman ilalabas," "nanloloko yata kayo")
(Exh. 3-RBS, par. 3). This alone was not something RBS brought upon itself. it was exactly what ABS-CBN
had planned to happen.

MORAL DAMAGES

As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof
defines what are included in moral damages, while Article 2219 enumerates the cases where they may be
recovered, Article 2220 provides that moral damages may be recovered in breaches of contract where the
defendant acted fraudulently or in bad faith. RBS's claim for moral damages could possibly fall only under item
(10) of Article 2219, thereof which reads:

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

Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered.
and not to impose a penalty on the wrongdoer.  The award is not meant to enrich the complainant at the
62

expense of the defendant, but to enable the injured party to obtain means, diversion, or amusements that will
serve to obviate then moral suffering he has undergone. It is aimed at the restoration, within the limits of the
possible, of the spiritual status quo ante, and should be proportionate to the suffering inflicted.  Trial courts
63

must then guard against the award of exorbitant damages; they should exercise balanced restrained and
measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the part of the
trial court. 
64

The award of moral damages cannot be granted in favor of a corporation because, being an artificial person
and having existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot,
therefore, experience physical suffering and mental anguish, which call be experienced only by one having a
nervous system.   The statement in People v. Manero   and Mambulao Lumber Co.  v. PNB   that a
65 66 67

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.

EXEMPLARY DAMAGES

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.   They are recoverable in criminal cases as part of the civil liability when the crime
68

was committed with one or more aggravating circumstances;   in quasi-contracts, if the defendant acted with
69

gross negligence;   and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent,
70

reckless, oppressive, or malevolent manner. 71

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

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

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

substantiated by evidence.  74

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

ISSUE: IS THERE MEETING OF MINDS?

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

FILIPINAS BROADCASTING NETWORK vs. AGO MEDICAL AND EDUCATIONAL

CENTERBICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM)

FACTS:
 "Exposé" is a radio documentary4 program hosted by Carmelo ‘Mel’ Rima ("Rima") and Hermogenes
‘Jun’ Alegre ("Alegre").5 Exposé is aired every morning over DZRC-AM which is owned by Filipinas
Broadcasting Network, Inc. ("FBNI"). "Exposé" is heard over Legazpi City, the Albay municipalities and
other Bicol areas.

 In 1989, Rima and Alegre, as hosts of Expose radio documentary program of Filipinas,
exposed various alleged complaints from students, teachers and parents against Ago Medical
and Educational Center-Bicol Christian College of Medicine ("AMEC") and its administrators.

 Claiming that the broadcasts were defamatory, AMEC and Angelita Ago ("Ago"), as
Dean of
AMEC’s College of Medicine, filed a complaint for damages7 against FBNI, Rima and Alegre on
27 February 1990. LIBELOUS CLAIMS: if you have children taking medical course at
AMECBCCM, advise them to pass all subjects because if they fail in any subject they will
repeat their year level, taking up all subjects including those they have passed already,
Earlier AMEC students in Physical Therapy had complained that the course is not
recognized by DECS, Students are required to take and pay for the subject even if the
subject does not have an instructor - such greed for money on the part of AMEC’s
administration.
 The trial court rendered a Decision finding FBNI and Alegre liable for libel except Rima.
The trial court heldthat the broadcasts are libelous per se. It rejected the broadcasters’
claim that their utterances were the result of straight reporting because it had no factual
basis. The broadcasters did not even verify their reports before airing them to show good
faith. In holding FBNI liable for libel, the trial court found that FBNI failed to exercise
diligence in the selection and supervision of its employees. In absolving Rima from the
charge, the trial court ruled that Rima’s only participation was when he agreed with Alegre’s
 exposé. The trial court found Rima’s statement within the "bounds of freedom of speech,
expression, and of the press." Among others, DZRC was ordered to pay plaintiff Ago
₱300,000.00 moral damages. CA upheld the trial court’s ruling.

Issue: WHETHER AMEC IS ENTITLED TO MORAL DAMAGES

Ruling: yes

FBNI contends that AMEC is not entitled to moral damages because it is a corporation. 39

A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or
moral shock.40 The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.41 to justify the award of moral
damages. However, the Court’s statement in Mambulao that "a corporation may have a good reputation which,
if besmirched, may also be a ground for the award of moral damages" is an obiter dictum.42

Nevertheless, AMEC’s claim for moral damages falls under item 7 of Article 2219 43 of the Civil Code. This
provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of
defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a
juridical person such as a corporation can validly complain for libel or any other form of defamation and claim
for moral damages.44

Moreover, where the broadcast is libelous per se, the law implies damages.45 In such a case, evidence of an
honest mistake or the want of character or reputation of the party libeled goes only in mitigation of
damages.46 Neither in such a case is the plaintiff required to introduce evidence of actual damages as a
condition precedent to the recovery of some damages. 47 In this case, the broadcasts are libelous per se. Thus,
AMEC is entitled to moral damages.

LIBEL

A libel23 is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or
omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural
or juridical person, or to blacken the memory of one who is dead. 24

There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances
tending to cause it dishonor, discredit and contempt. Rima and Alegre’s remarks such as "greed for money on
the part of AMEC’s administrators"; "AMEC is a dumping ground, garbage of xxx moral and physical misfits";
and AMEC students who graduate "will be liabilities rather than assets" of the society are libelous per se.
Taken as a whole, the broadcasts suggest that AMEC is a money-making institution where physically and
morally unfit teachers abound.

Every defamatory imputation is presumed malicious.25 Rima and Alegre failed to show adequately their good
intention and justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or
public affairs program, Rima and Alegre should have presented the public issues "free from inaccurate and
misleading information."26 Hearing the students’ alleged complaints a month before the exposé, 27 they had
sufficient time to verify their sources and information. However, Rima and Alegre hardly made a thorough
investigation of the students’ alleged gripes. Neither did they inquire about nor confirm the purported
irregularities in AMEC from the Department of Education, Culture and Sports. Alegre testified that he merely
went to AMEC to verify his report from an alleged AMEC official who refused to disclose any information.
Alegre simply relied on the words of the students "because they were many and not because there is proof that
what they are saying is true."28 This plainly shows Rima and Alegre’s reckless disregard of whether their report
was true or not.

Calubad vs. Ricarcen Development Corp.

DOCTRINE OF APPARENT AUTHORITY
FACTS:
 Respondent Ricarcen Development Corporation (Ricarcen) was a domestic corporation
engaged in renting out real estate. Ricarcen was a family corporation.
 Marilyn R. Soliman (Marilyn) was its president from 2001 to August 2003. The other
members of the board of directors during that time were her family members
 On October 15, 2001, Marilyn, acting on Ricarcen's behalf as its president, took out a
4MILLION loan from Calubad. This loan was secured by a real estate mortgage over
Ricarcen's Quezon City property covered by TCT No. RT-84937 (166018), as evidenced
by a Deed of Real Estate Mortgage.
 On December 6, 2001, Ricarcen, through Marilyn, and Calubad amended and increased
the loan to P5,000,000.00 in the Amendment of Deed of Mortgage (Additional Loan of
P1,000,000.00),13 with the same property used as security and under the same terms
and conditions as those of the original Deed of Real Estate Mortgage.
 On May 8, 2002, Ricarcen, again acting through Marilyn, took out an additional loan of
2,000,000.00 from Calubad, as evidenced by the executed Second Amendment of Deed
of Mortgage (Additional Loan of P2,000,000.00)
 To prove her authority to execute the three (3) mortgage contracts in Ricarcen's behalf,
Marilyn presented Calubad with a Board Resolution dated October 15, 2001. 15 This
Resolution empowered her to borrow money and use the Quezon City property covered
by TCT No. RT-84937 (166018) as collateral for the loans. Marilyn also presented two (2)
Secretary's Certificates dated December 6, 200116 and May 8, 2002,17 executed by
Marilyn's sister and Ricarcen's corporate secretary, Elizabeth.
 Sometime in 2003, after Ricarcen failed to pay its loan, Calubad initiated extrajudicial
foreclosure proceedings on the real estate mortgage. The auction sale was set on March
19, 2003.18
 Calubad was the highest bidder during the scheduled auction sale; thus, on March 27,
2003, he was issued a Certificate of Sale.
 Ricarcen claimed that it only learned of Marilyn's transactions with Calubad sometime in
July 2003.21
 Upon confirming that the Quezon City property had indeed been mortgaged, foreclosed,
and sold to Calubad as a result of Marilyn's actions, Ricarcen's board of directors removed
her as president and appointed Josefelix as its new president. Josefelix was also
authorized to initiate the necessary court actions to protect Ricarcen's interests over the
Quezon City property
 Ricarcen claimed that it never authorized its former president Marilyn to obtain loans
from Calubad or use the Quezon City property as collateral for the loans
 Calubad asserted that he exercised the necessary diligence required under the
circumstances by requiring Marilyn to submit the necessary documents to prove her
authority from Ricarcen. Calubad likewise argued that even if Ricarcen did not authorize
Marilyn, it was already estopped from denying her authority since the loan proceeds had
been released and Ricarcen had benefited from them.

 spouses Marilyn and Napoleon Soliman denied any knowledge of or participation in the
allegedly falsified documents and claimed that the falsification was perpetrated by their
broker, Nena leo, and Calubad's broker, a certain Malou, without their permission.
 RTC held that Marilyn failed to present a special power of attorney as evidence of her
authority from Ricarcen. The lack of a special power of attorney should have been
enough for Calubad to be put on guard and to require further evidence of Marilyn's
authority from Ricarcen. It ruled that the Board Resolution and Secretary's Certificates,
which were supposedly executed by Ricarcen's Board of Directors, had been unmasked
to be merely fabricated. Atty. William S. Merginio, who purportedly notarized the Board
 Resolution and Secretary's Certificates, denied that he notarized those documents since
they did not appear in his notarial register.
 CA affirmed the Regional Trial Court Decision. The Court of Appeals emphasized that
the rule onthe presumption of validity of a notarized board resolution and of a secretary's
certificate is not absolute and may be validly overcome by contrary evidence.

ISSUE: WN, Ricarcen Development Corporation is estopped from denying or disowning the
authority of Marilyn R. Soliman, its former President, from entering into a contract of loan and
mortgage with Calubad.

RULING:
Yes. When a corporation intentionally or negligently clothes its agent with apparent
authority to act in its behalf, it is estopped from denying its agent's apparent authority as to
innocent third parties who dealt with this agent in good faith. Law and jurisprudence recognize
actual authority and apparent authority as the two (2) types of authorities conferred upon a
corporate officer or agent in dealing with third persons. Actual authority can either be express
or implied. Express actual authority refers to the power delegated to the agent by the
corporation, while an agent's implied authority can be measured by his or her prior acts which
have been ratified by the corporation or whose benefits have been accepted by the corporation.
On the other hand, apparent authority is based on the principle of estoppel. The Civil Code
provides in Article 1431. Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as against the person
relying thereon.

the doctrine of apparent authority provides that even if no actual authority has been
conferred on an agent, his or her acts, as long as they are within his or her apparent scope of
authority, bind the principal. However, the principal's liability is limited to third persons who are
reasonably led to believe that the agent was authorized to act for the principal due to the
principal's conduct. Apparent authority is determined by the acts of the principal and not by the
acts of the agent.84 Thus, it is incumbent upon Calubad to prove how Ricarcen's acts led him to
believe that Marilyn was duly authorized to represent it. As the former president of Ricarcen, it
was within Marilyn's scope of authority to act for and enter into contracts in Ricarcen's behalf.
Her broad authority from Ricarcen can be seen with how the corporate secretary entrusted her
with blank yet signed sheets of paper to be used at her discretion. She also had possession of
the owner's duplicate copy of the land title covering the property mortgaged to Calubad, further
proving her authority from Ricarcen.

Calubad could not be faulted for continuing to transact with Marilyn, even agreeing to give out
additional loans, because Ricarcen clearly clothed her with apparent authority. Likewise, it
reasonably appeared that Ricarcen's officers knew of the mortgage contracts entered into by
Marilyn in Ricarcen's behalf as proven by the issued Banco De Oro checks as payments for the
monthly interest and the principal loan.

Ricarcen claimed that it never granted Marilyn authority to transact with Calubad or use the
Quezon City property as collateral for the loans, but its actuations say otherwise. It appears as if
Ricarcen and its officers gravely erred in putting too much trust in Marilyn. However, Calubad,
as an innocent third party dealing in good faith with Marilyn, should not be made to suffer
because of Ricarcen's negligence in conducting its own business affairs.

Citystate Savings Bank vs Robles, GR 227990

Facts:
 Rolando Robles (Robles) was employed by petitioner, Citystate Savings Bank, as its
manager in Baliuag, Bulacan branch.
 Robles persuaded Teresita Tobias (Tobias), a meat vendor in Baliuag Public Market, to
open an account with the petitioner and place her money in some high interest rate
mechanism. Tobias agreed to the offer of Robles. He then made another offer for Tobias
to sign up with petitioner’s back-to-back scheme which is only offered to petitioner’s most
valued clients. Under the scheme, the depositors authorize the bank to use their bank
deposits and invest the same in different business ventures that yield high interest.
Robles allegedly promised that the interest previously earned by Tobias would be
doubled and assured her that he will do all the paper work. Lured by the offer, Tobias
agreed and invested a total of 1.8M through Robles. However, Robles failed to remit the
interests earned as scheduled. Upon inquiry to Robles’ siblings, they disclosed that Robles
appropriated the money for his personal use.

 Tobias then filed a complaint for sum of money and damages against Robles and the
[Link] RTC ruled in favor of Tobias and ordered Robles to pay actual, moral and
exemplary damages. Upon appeal, The CA modified the ruling and made the petitioner
jointly and solidarily liable. Hence, the present petition filed questioning the ruling of the
CA in making them jointly and solidarily liable.

Issue:
Whether or not Citystate Savings Bank (petitioner) should be held liable for acts made by
its branch manager, Robles?

Held:

YES. Citystate Savings Bank may be held liable for the acts of its branch manager Robles,
following the Doctrine of Apparent Authority.

The doctrine of apparent authority or what is sometimes referred to as the “holding out” theory, or the
doctrine of ostensible agency, imposes liability, not “as the result of the reality of a contractual
relationship, but rather because of the actions of a principal or an employer in somehow
misleading the public into believing that the relationship or the authority exists.

the liability of a bank to third persons for acts done by its agents or employees is limited to the
consequences of the latter’s acts which it has ratified, or those that resulted in performance of
acts within the scope of actual or apparent authority it has vested.

The evidence on record sufficiently established that Robles as branch manager was ‘clothed’ or
‘held out’ as having the power to enter into the subject agreements with the respondents. The
existence of apparent or implied authority is measured by previous acts that have been ratified
or approved or where the accruing benefits have been accepted by the principal. It may also be
established by proof of the course of business, usages and practices of the bank; or knowledge
that the bank or its officials have, or is presumed to have of its responsible officers’ acts regarding
bank branch affairs.

In the case at bar, before the alleged back-to-back scheme was entered by Tobias, Robles has
consistently held himself out as the representative of the petitioner in which all their transactions
were valid and in order. Consequently, petitioner is estopped from denying Robles’ authority. As the
employer of Robles, petitioner is solidarity liable to the respondents for damages caused by the
acts of the former, pursuant to Article 1911 of the Civil Code.50

Banate vs Philippine CountrysideRural Bank (PCRB), GR 163825,

(Doctrine of Apparent Authority)

Facts:
 Spouses Maglasang obtained a loan (subject loan) from PCRB in the amount of PHP
1,070,000.00. To secure the payment of the subject loan, they executed a real estate mortgage
over their property including the house constructed thereon (subject property). Aside from the
subject loan, they also obtained two other loans from PCRB secured by mortgages on their
other properties.
 Thereafter, Spouses Maglasang talked to PCRB’s Branch Manager, Pancrasio Mondigo, and
requested the latter to release the subject property from the mortgage since the two
other loans were adequately secured by other mortgages. Mondigo verbally agreed to
their request but required the full payment of the subject loan first before the subject
property is released. Spouses Maglasang then sold the subject property to Violeta
Banate and in turn, the purchase price was used to pay subject loan. Banate and
 Spouses Maglasang then requested the PCRB to release the subject property from the
mortgage but PCRB refused contending that there is a cross collateral stipulation in the
mortgage deed stating that full payment of the THREE loans is necessary before any of
the mortgages could be released.
 Spouses Maglasang and Banate then filed with the RTC an action for specific
performance against PCRB.
 RTC ruled in favor of Spouses Maglasang and Banate but upon appeal, it was
reversed by the CA. Hence, the present petition contending that their agreement with Mondigo
as Branch Manager of PCRB novated the deed of mortgage thereby superseding the cross-
collateral stipulation.

Issue: Whether or not the act of Mondigo in altering the Deed of Mortgage binds PCRB?

Held:
NO. Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. The power and the responsibility to
decide whether the corporation should enter into a contract that will bind the corporation are
lodged in the board, subject to the articles of incorporation, by-laws, or relevant provisions of
law. In the absence of authority from the board of directors, no person, not even its officers, can
validly bind a corporation.

Under the doctrine of apparent authority, acts and contracts of the agent, as are within the
apparent scope of the authority conferred on him, although no actual authority to do such acts
or to make such contracts has been conferred, bind the principal. The principal’s liability, however, is
limited only to third persons who have been led reasonably to believe by the conduct of the
principal that such actual authority exists, although none was given. In other words, apparent
authority is determined only by the acts of the principal and not by the acts of the agent.
In the present case, there is no showing that PCRB, as supposed principal, has “clothed” or
“held out” its branch manager as having the power to enter into an agreement, as claimed by petitioners.
No proof of the course of business, usages and practices of the bank about, or knowledge that
the board had or is presumed to have of, its responsible officers’ acts regarding bank branch affairs,
was ever adduced to establish the branch manager’s apparent authority to verbally alter the terms of
mortgage contracts. Neither was there any allegation, much less proof, that PCRB ratified
Mondigo’s act or is estopped to make a contrary claim.

Notes:

nature of the cross-collateral stipulation in the mortgage contract. As a general rule, a mortgage liability is
usually limited to the amount mentioned in the contract. However, the amounts named as consideration in a
contract of mortgage do not limit the amount for which the mortgage may stand as security if, from the four
corners of the instrument, the intent to secure future and other indebtedness can be gathered. This
stipulation is valid and binding between the parties and is known as the "blanket mortgage clause" (also
known as the "dragnet clause)."12 cralaw

In the present case, the mortgage contract indisputably provides that the subject properties serve as
security, not only for the payment of the subject loan, but also for "such other loans or advances already
obtained, or still to be obtained." The cross-collateral stipulation in the mortgage contract between the
parties is thus simply a variety of a dragnet clause. After agreeing to such stipulation, the petitioners cannot
insist that the subject properties be released from mortgage since the security covers not only the subject
loan but the two other loans as well.

The petitioners, however, claim that their agreement with Mondigo must be deemed to have novated the
mortgage contract. They posit that the full payment of the subject loan extinguished their obligation arising
from the mortgage contract, including the stipulated cross-collateral provision. Consequently, consistent
with their theory of a novated agreement, the petitioners maintain that it devolves upon PCRB to execute
the corresponding Deed of Release of Mortgage.