PART II

NATURE AND ATTRIBUTES OF A CORPORATION

Smith Bell & Co., vs. Natividad 19

Bataan Shipyard & Engineering Co. vs. PCGG 21

PNB vs. Court of Appeals 22

Philippine Commercial International Bank vs. Court of Appeals 24

Sia vs. Court of Appeals 26

Mambulao Lumber Co. vs. Philippine National Bank 27

Solid Homes, Inc. vs. Court of Appeals 29

Asset Privatization Trust vs. Court of Appeals 31

ABS-CBN Broadcasting Corp. vs. Court of Appeals 33

Cometa vs. Court of Appeals 35

Roman Catholic Apostolic Administrator of Davao, Inc. vs. The Land 36

Registration Commission and the Register of Deeds

Register of Deeds of Rizal vs. Ung Sui Si Temple 38

People vs. Quasha 39

Tatad vs. Garcia, Jr. 40

PLDT vs. National Telecommunications Commission 41

Filipinas Compania de Seguros vs. Christern, Huenefeld & Co., Inc. 43

Palting vs. San Jose Petroleum Inc. 45

 SMITH, BELL & COMPANY (LTD.), vs.
JOAQUIN NATIVIDAD
G.R. No. 15574. September 17, 1919, Malcolm, J.

Doctrine:
The due process clause is universal in its application to all persons without regard to any
differences of race, color, or nationality. Private corporations, likewise, are "persons"
within the scope of the guaranty insofar as their property is concerned

Facts:
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of
the Philippine Islands. A majority of its stockholders are British subjects. It is the owner
of a motor vessel known as the Bato built for it in the Philippine Islands in 1916, of
more than fifteen tons gross The Bato was brought to Cebu in the present year for the
purpose of transporting plaintiff's merchandise between ports in the Islands. Application
(Certificate of Philippine Regitry) was made at Cebu, the home port of the vessel, to the
Collector of Customs for a certificate of Philippine registry. The Collector refused to
issue the certificate, giving as his reason that all the stockholders of Smith, Bell & Co.,
Ltd., were not citizens either of the United States or of the Philippine Islands under Act
No. 2761 which provides:
SEC. 1172. Certificate of Philippine register. — Upon registration of a
vessel of domestic ownership, and of more than fifteen tons gross, a
certificate of Philippine register shall be issued for it. If the vessel is
of domestic ownership and of fifteen tons gross or less, the taking of
the certificate of Philippine register shall be optional with the owner.
SEC. 1176. Investigation into character of vessel. — No application for a
certificate of Philippine register shall be approved until the collector of
customs is satisfied from an inspection of the vessel that it is engaged
or destined to be engaged in legitimate trade and that it is of domestic
ownership as such ownership is defined in section eleven hundred and
seventy-two of this Code.

Counsel says that Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal
protection of the laws because it, in effect, prohibits the corporation from owning
vessels, and because classification of corporations based on the citizenship of one or
more of their stockholders is capricious, and that Act No. 2761 deprives the corporation
of its properly without due process of law because by the passage of the law company
was automatically deprived of every beneficial attribute of ownership in the Bato and left
with the naked title to a boat it could not use.

Issue:
Whether the legislature through Act no. 2761 can deny registry of vessel with
foreign stockholders.

Ruling:

YES. We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation
having alien stockholders, is entitled to the protection afforded by the due-process of
law and equal protection of the laws clause of the Philippine Bill of Rights, nevertheless,

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Act No. 2761 of the Philippine Legislature, in denying to corporations such as Smith,
Bell &. Co. Ltd., the right to register vessels in the Philippines coastwise trade, does not
belong to that vicious species of class legislation which must always be condemned, but
does fall within authorized exceptions, notably, within the purview of the police power,
and so does not offend against the constitutional provision.

The guaranties of the Fourteenth Amendment and so of the first paragraph of the
Philippine Bill of Rights, are universal in their application to all person within the
territorial jurisdiction, without regard to any differences of race, color, or nationality.
The word "person" includes aliens. Private corporations, likewise, are "persons" within
the scope of the guaranties in so far as their property is concerned. Classification with
the end in view of providing diversity of treatment may be made among corporations,
but must be based upon some reasonable ground and not be a mere arbitrary selection.

To justify that portion of Act no. 2761 which permits corporations or companies
to obtain a certificate of Philippine registry only on condition that they be composed
wholly of citizens of the Philippine Islands or of the United States or both, as not
infringing Philippine Organic Law, it must be done under some one of the exceptions.

One of the exceptions to the general rule, most persistent and far reaching in
influence is, broad and comprehensive as it is, nor any other amendment, "was designed
to interfere with the power of the State, sometimes termed its `police power,' to
prescribe regulations to promote the health, peace, morals, education, and good order of
the people, and legislate so as to increase the industries of the State, develop its
resources and add to its wealth and prosperity. From the very necessities of society,
legislation of a special character, having these objects in view, must often be had in
certain districts. This is the same police power which the United States Supreme Court
say "extends to so dealing with the conditions which exist in the state as to bring out of
them the greatest welfare in of its people." For quite similar reasons, none of the
provision of the Philippine Organic Law could have had the effect of denying to the
Government of the Philippine Islands, acting through its Legislature, the right to
exercise that most essential, insistent, and illimitable of powers, the sovereign police
power, in the promotion of the general welfare and the public interest.

Without any subterfuge, the apparent purpose of the Philippine Legislature is

seen to be to enact an anti-alien shipping act. The ultimate purpose of the Legislature is
to encourage Philippine ship-building.

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 BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO) vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT1987
G.R. No. 75885. May 27, 1987. Narvasa, J.

Doctrine:
It is elementary that the right against self-incrimination has no application to juridical
persons.

Facts:
This case arose from a sequestration order issued by the PCGG under authority
given by the president. Such sequestration order was sent and received by petitioner.
Pursuant to this sequestration orders, take over orders were also issued to protect
public interest and to prevent the disposal or dissipation of business enterprises and
properties taken over by the government of the Marcos Administration or by entities or
persons close to former President Marcos, until the transactions leading to such
acquisition by the latter can be disposed of by the appropriate authorities. However,
among other facts, the petitioner questions the exercise of PCGGs right of ownership
and management when it terminated several contracts without the consent of both
parties, to enter contracts, and to operate its quarry business, and especially its right of
vote during stockholders’ meetings.

Issue: Whether or not PCGG may vote in stockholders’ meetings.

Ruling:
YES. PCGG may properly exercise the prerogative to vote sequestered stock of
corporations, granted to it by the President of the Philippines through a Memorandum
dated June 26, 1986. That Memorandum authorizes the PCGG, pending the outcome of
proceedings to determine the ownership of sequestered shares of stock, to vote such
shares of stock as it may have sequestered in corporations at all stockholders' meetings
called for the election of directors, declaration of dividends, amendment of the Articles
of Incorporation, etc. Moreover, in the case at bar, there was adequate justification to
vote the incumbent directors out of office and elect others in their stead because the
evidence showed prima facie that the former were just tools of President Marcos and
were no longer owners of any stock in the firm, if they ever were at all.

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 PHILIPPINE NATIONAL BANK vs.
THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC.
G.R. No. L-27155 May 18, 1978, Antonio, J.
Doctrine:
A corporation is civilly liable in the same manner as natural persons for torts, because
generally speaking, the rules governing the liability of a principal or master for a tort
committed by an agent or servant are the same whether the principal or master be a
natural person or a corporation, and whether the servant or agent be a natural or
artificial person. That a principal or master is liable for every tort which he expressly
directs or authorizes, is just as true of a corporation as a natural person.

Facts:

Rita Tapnio owes PNB an amount of P2,000.00. The amount is secured by her
sugar crops about to be harvested including her export quota allocation worth 1,000
piculs. The said export quota was later dealt by Tapnio to a certain Jacobo Tuazon at
P2.50 per picul or a total of P2,500. Since the subject of the deal is mortgaged with
PNB, the latter has to approve it. The branch manager of PNB recommended that the
price should be at P2.80 per picul which was the prevailing minimum amount allowable.

Tapnio and Tuazon agreed to the said amount. And so the bank manager
recommended the agreement to the vice president of PNB. The vice president in turn
recommended it to the board of directors of PNB. However, the Board of Directors
wanted to raise the price to P3.00 per picul. This Tuazon does not want hence he backed
out from the agreement. This resulted to Tapnio not being able to realize profit and at
the same time rendered her unable to pay her P2,000.00 crop loan which would have
been covered by her agreement with Tuazon.

Eventually, Tapnio was sued by her other creditors and Tapnio filed a third party
complaint against PNB where she alleged that her failure to pay her debts was because
of PNB’s negligence and unreasonableness.

Issue: Whether or not the contention of Tapnio is correct.

Ruling:
YES. In this type of transaction, time is of the essence considering that Tapnio’s
sugar quota for said year needs to be utilized ASAP otherwise her allotment may be
assigned to someone else, and if she can’t use it, she won’t be able to export her crops. It
is unreasonable for PNB’s board of directors to disallow the agreement between Tapnio
and Tuazon because of the mere difference of 0.20 in the agreed price rate.

What makes it more unreasonable is the fact that the P2.80 was recommended
both by the bank manager and PNB’s VP yet it was disapproved by the board. Further,
the P2.80 per picul rate is the minimum allowable rate pursuant to prevailing market
trends that time. This unreasonable stand reflects PNB’s lack of the reasonable degree
of care and vigilance in attending to the matter. PNB is therefore negligent.

Page | 22
 A corporation is civilly liable in the same manner as natural persons for torts,
because “generally speaking, the rules governing the liability of a principal or master for
a tort committed by an agent or servant are the same whether the principal or master be
a natural person or a corporation, and whether the servant or agent be a natural or
artificial person. All of the authorities agree that a principal or master is liable for every
tort which it expressly directs or authorizes, and this is just as true of a corporation as
of a natural person, a corporation is liable, therefore, whenever a tortious act is
committed by an officer or agent under express direction or authority from the
stockholders or members acting as a body, or, generally, from the directors as the
governing body.”

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 PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR
BANK OF ASIA AND AMERICA) vs. COURT OF APPEALS and FORD
PHILIPPINES, INC. and CITIBANK, N.A.
G.R. No. 121413 January 29, 2001, Quisumbing, J.

Doctrine:
As a general rule, a banking corporation is liable for the wrongful or tortuous acts and
declarations of its officers or agents within the course and scope of their employment. A bank will
be held liable for the negligence of its officers or agents when acting within the course and scope
of their employment, even as regards that species of tort of which malice is an essential element. In
this case, we find a situation where the PCIBank appears also to be the victim of the scheme
hatched by a syndicate in which its own management employees had participated.

Facts:
There are three cases consolidated here: G.R. No. 121413 (PCIB vs CA and Ford
and Citibank), G.R. No. 121479 (Ford vs CA and Citibank and PCIB), and G.R. No.
128604 (Ford vs Citibank and PCIB and CA). G.R. No. 121413/G.R. No. 121479.

In October 1977, Ford Philippines drew a Citibank check in the amount of

P4,746,114.41 in favor of the Commissioner of the Internal Revenue (CIR). The check
represents Ford’s tax payment for the third quarter of 1977. On the face of the check
was written “Payee’s account only” which means that the check cannot be encashed and
can only be deposited with the CIR’s savings account (which is with Metrobank). The
said check was however presented to PCIB and PCIB accepted the same. PCIB then
indorsed the check for clearing to Citibank. Citibank cleared the check and paid PCIB
P4,746,114.41. CIR later informed Ford that it never received the tax payment.

An investigation ensued and it was discovered that Ford’s accountant Godofredo

Rivera, when the check was deposited with PCIB, recalled the check since there was
allegedly an error in the computation of the tax to be paid. PCIB, as instructed by
Rivera, replaced the check with two of its manager’s checks.

It was further discovered that Rivera was actually a member of a syndicate and
the manager’s checks were subsequently deposited with the Pacific Banking
Corporation by other members of the syndicate. Thereafter, Rivera and the other
members became fugitives of justice.

G.R. No. 128604

In July 1978 and in April 1979, Ford drew two checks in the amounts of
P5,851,706.37 and P6,311,591.73 respectively. Both checks are again for tax payments.
Both checks are for “Payee’s account only” or for the CIR’s bank savings account only
with Metrobank. Again, these checks never reached the CIR.

In an investigation, it was found that these checks were embezzled by the same
syndicate to which Rivera was a member. It was established that an employee of PCIB,
also a member of the syndicate, created a PCIB account under a fictitious name upon
which the two checks, through high end manipulation, were deposited. PCIB
unwittingly endorsed the checks to Citibank which the latter cleared. Upon clearing, the
amount was withdrawn from the fictitious account by syndicate members.

Page | 24
Issue: What are the liabilities of each party?

Ruling:

G.R. No. 121413/G.R. No. 121479

PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a collecting
bank has been negligent in verifying the authority of Rivera to negotiate the check. It
failed to ascertain whether or not Rivera can validly recall the check and have them be
replaced with PCIB’s manager’s checks as in fact, Ford has no knowledge and did not
authorize such. A bank (in this case PCIB) which cashes a check drawn upon another
bank (in this case Citibank), without requiring proof as to the identity of persons
presenting it, or making inquiries with regard to them, cannot hold the proceeds against
the drawee when the proceeds of the checks were afterwards diverted to the hands of a
third party. Hence, PCIB is liable for the amount of the embezzled check.

G.R. No. 128604

PCIB and Citibank are liable for the amount of the checks on a 50-50 basis.

As a general rule, a bank is liable for the negligent or tortuous act of its
employees within the course and apparent scope of their employment or authority.
Hence, PCIB is liable for the fraudulent act of its employee who set up the savings
account under a fictitious name.

Citibank is likewise liable because it was negligent in the performance of its

obligations with respect to its agreement with Ford. The checks which were drawn
against Ford’s account with Citibank clearly states that they are payable to the CIR
only yet Citibank delivered said payments to PCIB. Citibank however argues that the
checks were indorsed by PCIB to Citibank and that the latter has nothing to do but to
pay it. The Supreme Court cited Section 62 of the Negotiable Instruments Law which
mandates the Citibank, as an acceptor of the checks, to engage in paying the checks
according to the tenor of the acceptance which is to deliver the payment to the “payee’s
account only”.

However, the Supreme Court ruled that in the consolidated cases, that PCIB and
Citibank are not the only negligent parties. Ford is also negligent for failing to examine
its passbook in a timely manner which could have avoided further loss. But this
negligence is not the proximate cause of the loss but is merely contributory.
Nevertheless, this mitigates the liability of PCIB and Citibank hence the rate of interest,
with which PCIB and Citibank is to pay Ford, is lowered from 12% to 6% per annum.

Page | 25
 JOSE O. SIA vs. PEOPLE OF THE PHILIPPINES AND
TORRE DE ORO DEVELOPMENT CORPORATION
G.R. No. L-30896 April 28, 1983, De Castro, J.

Doctrine:
A corporation is an artificial person, an abstract being. If the defense theory is followed
unscrupulously legions would form corporations to commit swindle right and left where
nobody could be convicted, for it would be futile and ridiculous to convict an abstract
being that cannot be pinched and confined in jail like a natural, living person, hence the
result of the defense theory would be hopeless chose in business and finance. It is
completely untenable.

Facts:
Petitioner, Jose O. Sia, was the president and general manager of Metal
Manufacturing of the Philippines (MEMAP). He was convicted of estafa for his failure
to return the cold rolled steel sheets or account for the proceeds of those which were
sold, to Continental Bank, herein complainant. Petitioner contended that he cannot be
made liable for the crime charged as he only acted for and in behalf of MEMAP as its
president.

Issue: Whether petitioner could be held liable for estafa.

Ruling:

The Court ruled in the negative. The case of People vs. Tan Boon Kong (54 Phil.
607) provides for the general principle that for crimes committed by a corporation, the
responsible officers thereof would personally bear the criminal liability as a corporation
is an artificial person, an abstract being. However, the Court ruled that such principle is
not applicable in this case because the act alleged to be a crime is not in the performance
of an act directly ordained by law to be performed by the corporation.

The act is imposed by agreement of parties, as a practice observed in the usual

pursuit of a business or a commercial transaction. The offense may arise, if at all, from
the peculiar terms and condition agreed upon by the parties to the transaction, not by
direct provision of the law.

In the absence of an express provision of law making the petitioner liable for the
criminal offense committed by the corporation of which he is a president as in fact there
is no such provisions in the Revised Penal Code under which petitioner is being
prosecuted, the existence of a criminal liability on his part may not be said to be beyond
any doubt.

In all criminal prosecutions, the existence of criminal liability for which the
accused is made answerable must be clear and certain. Further, the civil liability
imposed by the trust receipt is exclusively on the Metal Company.

Speaking of such liability alone, the petitioner was never intended to be equally
liable as the corporation. Without being made so liable personally as the corporation is,
there would then be no basis for holding him criminally liable, for any violation of the
trust receipt.
MAMBULAO LUMBER COMPANY vs. PHILIPPINE NATIONAL BANK

Page | 26
 and ANACLETO HERALDO Deputy Prov’l Sheriff of Camarines Norte
G.R. No.L-22973.January 30, 1968, Angeles, J.

Doctrine:
A corporation is an artificial being cannot experience physical sufferings, mental anguish,
fright, serious anxiety, wounded feelings, moral shock or social humiliation which is basis
or moral damages. However, the corporation may have good reputation which, if
besmirched, may also be a ground for the award of moral damages.

Facts:
Plaintiff applied for an industrial loan of P155, 000.00 with the PNB and the
former offered real estate, machinery, logging and transportation equipment as
collaterals. The application was approved for a loan of P100, 000.00 only. To secure the
payment of the loan, the plaintiff mortgaged to defendant PNB a parcel of land, together
with the buildings and improvements existing thereon, situated in the province of
Camarines Norte, and covered by TCT No. 381 of the land records of said province, as
well as various sawmill equipment, rolling unit and other fixed assets of the plaintiff, all
situated in its compound in the aforementioned municipality.

PNB released from the approved loan the sum of P27, 500.00, for which the
plaintiff signed a promissory note wherein it promised to pay to the PNB. PNB made
another release of P15, 500.00 as part of the approved loan granted to the plaintiff and
so on the said date, the latter executed another promissory note. Plaintiff failed to pay
the amortization on the amounts released to and received by it. Repeated demands were
made upon the plaintiff to pay its obligation but it failed or otherwise refused to do so.
Upon inspection and verification made by employees of the PNB, it was found that the
plaintiff had already stopped operation.

PNB initiated steps to have the properties extrajudicially foreclosed. The

Plaintiff opposed. The foreclosure sale of the parcel of land, together with the buildings
and improvements thereon, was held and the said property was sold to the PNB for the
sum of P56, 908.00, subject to the right of the plaintiff to redeem the same within a
period of one year. PNB sold the properties to Mariano Bundok. The Security guard of
the properties refused to let PNB’s successor in interest to retrieve properties inside the
premises of the property bought by them.

RTC sentenced the Mambulao Lumber Company to pay to the defendant PNB.
Mambulao therefore appealed.

Issue: Whether or not a corporation can be awarded moral damages.

Ruling:
NO. An artificial person like herein appellant-corporation cannot experience
physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral
shock or social humiliation which is basis or moral damages.

A Corporation may have a good reputation 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

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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 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 appellee bank and the deputy 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. The circumstances of the case also
warrant the award of P3, 000.00 as attorney's fees for herein appellant.

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 SOLID HOMES vs. CA, STATE FINANCE CENTER,
INC & REGISTER OF DEEDS FOR RIZAL
G.R. No. 117501, July 8, 1997, Panganiban, J.

Doctrine:
Moral damages are granted in recompense for physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation,
and similar injury. A corporation, being an artificial person and having existence only in
legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience
physical suffering and mental anguish. Mental suffering can be experienced only by one
having a nervous system and it flows from real ills, sorrows, and griefs of life—all of
which cannot be suffered by respondent bank as an artificial person.

Facts:
On June 4, 1979, Solid Homes executed in favour of State Financing a Real Estate
Mortgage on its properties in order to secure the payment of a loan of P10,000,000.00
which the former obtained from the latter. A year after, Solid Homes applied for and
was granted an additional loan of P1,511,270.03 by State Financing, and to secure its
payment, Solid Homes executed the Amendment to Real Estate Mortgage dated June 4,
1980 Sometime thereafter, Solid Homes obtained additional credits and financing
facilities from State Financing in the sum of P1,499,811,97, and to secure its payment,
Solid Homes executed in favor of State Financing the Amendment to Real Estate
Mortgage dated March 5, 1982 whereby the mortgage executed on its properties on
June 4, 1979 was again amended.

When the loan obligations abovementioned became due and payable, State
Financing made repeated demands upon Solid Homes for the payment thereof, but the
latter failed to do so. So, on December 16, 1982, State Financing filed a petition for
extrajudicial foreclosure of the mortgages abovementioned with the Provincial Sheriff of
Rizal, who, in pursuance of the petition, issued a Notice of Sheriff's Sale dated February
4, 1983 whereby the mortgaged properties of Solid Homes and the improvements
existing thereon, were set for public auction sale on March 7, 1983 in order to satisfy
the full amount of Solid Homes' mortgage indebtedness, the interest thereon, and the
fees and expenses incidental to the foreclosure proceedings.

Before the scheduled public auction sale . . . , the mortgagor Solid Homes made
representations and induced State Financing to forego with the foreclosure of the real
estate mortgages referred to above. By reason thereof, State Financing agreed to
suspend the foreclosure of the mortgaged properties subject to the terms and conditions
they agreed upon, and in pursuance of their said agreement, they executed a document
entitled MEMORANDUM OF AGREEMENT/DACION EN PAGO.

However, Solid Homes failed to comply with such agreement. So, pursuant to the
Dacion en Pago agreement, the properties of Solid Homes were now transferred and
registered in the name of State Financing. Later, Solid Homes filed an action against
State Financing seeking the annulment of said Memorandum and the consequent
reinstatement of the mortgages over the same properties. The trial court held that the
Memorandum of Agreement/Dacion En Pago executed by the parties was valid and
binding.

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 Both parties appealed from the trial court's decision. Solid Homes raised a lone
question contesting the denial of its claim for damages. Such damages allegedly resulted
from the bad faith and malice of State Financing in deliberately failing to annotate Solid
Homes' right to repurchase the subject properties in the former's consolidated titles
thereto. As a result of the non-annotation, Solid Homes claimed to have been prevented
from generating funds from prospective buyers to enable it to comply with the
Agreement and to redeem the subject properties. Solid Homes among others is claiming
for payment of moral damages.

Issue: Whether or not Solid Homes is entitled to moral damages.

Ruling:

NO. Neither can moral damages be awarded to petitioner. Time and again, we
have held that a corporation — being an artificial person which has no feelings,
emotions or senses, and which cannot experience physical suffering or mental anguish
— is not entitled to moral damages.

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 ASSET PRIVATIZATION TRUST vs COURT OF APPEALS
GR NO. 121171 December 29, 1998 300 SCRA 579

Doctrine:
Moral damages include besmirched reputation which a corporation may possibly suffer

Facts:
The development, exploration and utilization of the mineral deposits in the
Surigao Mineral Reservation have been authorized by the Republic Act No. 1528, as
amended by Republic Act No. 2077 and Republic Act No. 4167, by virtue of which laws,
a memorandum of agreement was drawn on July 3, 1968, whereby the Republic of the
Philippines thru the Surigao Mineral Reservation Board, granted MMIC the exclusive
right to explore, develop and exploit nickel, cobalt, and other minerals in the Surigao
Mineral Reservation. MMIC is a domestic corporation engaged in mining with
respondent Jesus S. Cabarrus Sr. as president and among its original stockholders.

The Philippine government undertook to support the financing of MMIC by

purchase of MMIC debenture bonds and extension of guarantees. Further, from the
DBP and/or the government financing institutions to subscribe in MMIC and issue
guarantee/s of foreign loans or deferred payment arrangements secured from the US
Eximbank, Asian Development Bank (ADB), Kobe steel of amount not exceeding
US$100 million. On July 13, 1981, MMIC, PNB, and DBP executed a mortgage trust
agreement whereby MMIC as mortgagor, agreed to constitute a mortgage in favor of
PNB and DBP as mortgages, over all MMIC assets; subject of real estate and chattel
mortgage executed by the mortgagor, and additional assets described and identified,
including assets of whatever kind, nature or description, which the mortgagor may
acquire whether in substitution of, in replenishment or in addition thereto. Due to the
unsettled obligations, a financial restructuring plan (FRP) was suggested, however not
finalized. The obligations matured and the mortgage was foreclosed.

The foreclosed assets were sold to PNB as the lone bidder and were assigned to
the newly formed corporations namely Nonoc Mining Corporation, Maricalum Mining
and Industrial Corporation and Island Cement Corporation. In 1986, these assets were
transferred to the asset privatization trust. On February 28, 1985, Jesus S. Cabarrus Sr.
together with the other stockholders of MMIC, filed a derivative suit against DBP and
PNB before the RTC of Makati branch 62, for annulment of foreclosures, specific
performance and damages. The suit docketed as civil case no. 9900, prayed that the
court: 1.) Annul the foreclosures, restore the foreclosed assets to MMIC, and require the
banks to account for their use and operation in the interim; 2.) Direct the banks to honor
and perform their commitments under the alleged FRP; 3.) Pay moral and exemplary
damages, attorney’s fees, litigation expenses and costs. A compromise and arbitration
agreement was entered by the parties to which committee awarded damages in favor of
Cabarrus.

Issue: Whether or not the award granted to Cabarrus was proper.

Held:
NO. Civil case no. 9900 filed before the RTC being a derivative suit, MMIC
should have been impleaded as a party. It was not joined as a part plaintiff or party
defendant at any stage before of the proceedings as it is, the award for damages to
MMIC, which was not party before the arbitration committee is a complete nullity.

Page | 31
 Settled is the doctrine that in a derivative suit, the corporation is the real party in
interest while the stockholder filing suit for the corporation’s behalf is only a nominal
party. The corporation should be included a party in the suit.

An individual stockholder is permitted to institute a derivative suit on behalf of

the corporation wherein he holds stock in order to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold
the control of the corporation. In such actions, the suing stockholder is regarded as a
nominal party, with the corporation as the real part in interest.

It is a condition sine qua non that the corporation be impleaded as a party because
– not only is the corporation an indispensable party, but it is also the present rule that it
must be served with process. The reason given is that the judgement must be made
binding upon the corporation in order that the corporation may get the benefit of the
suit and may not bring a subsequent suit against the same defendants for the same cause
of action. In other words the corporation must be joined as a party because it is its cause
of action that is being litigated and because judgement must be a res judicata against it.

The reasons given for not allowing direct individual suit are:
1. That the prior rights of the creditors may be prejudiced. Thus, our
Supreme Court held in the case of Evangelista vs Santos that the
“Stockholders may not directly claim those damages for themselves
for that would result in the appropriation by, and the distribution
among them of part of the corporate assets before the
2. The universally recognized doctrine that a stockholder in a
corporation has no title legal or equitable to the corporate property;
that both of these are in the corporation itself for the benefit of the
stockholders. In other words, to allow shareholders to sue separately
would conflict with the separate corporate entity principle.
3. dissolution of the corporation and the liquidation of its debts and
liabilities, something which cannot be legally done in view of section
16 of the corporation law.
4. The filing of such suits would conflict with the duty of the
management to sue for the protection of all concerned;
5. It would produce wasteful multiplicity of suits; and
6. It would involve confusion in ascertaining the effect of partial
recovery by an individual on the damages recoverable by the
corporation for the same act.

Page | 32
 ABS-CBN BROADCASTING CORPORATION vs.
HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP,
VIVA PRODUCTION, INC., and VICENTE DEL ROSARIO,
G.R. No. 128690 January 21, 1999

Doctrine:
The possible basis of recovery of a corporation for damages would be under Articles 19,
20 and 21 of the Civil Code, but which requires a clear proof of malice or bad faith.

Facts:
In 1992, ABS-CBN Broadcasting Corporation, through its vice president Charo
Santos-Concio, requested Viva Production, Inc. to allow ABS-CBN to air at least 14
films produced by Viva. Pursuant to this request, a meeting was held between Viva’s
representative (Vicente Del Rosario) and ABS-CBN’s Eugenio Lopez (General
Manager) and Santos-Concio was held on April 2, 1992. During the meeting Del
Rosario proposed a film package which will allow ABS-CBN to air 104 Viva films for
P60 million. Later, Santos-Concio, in a letter to Del Rosario, proposed a
counterproposal of 53 films (including the 14 films initially requested) for P35 million.
Del Rosario presented the counter offer to Viva’s Board of Directors but the Board
rejected the counter offer. Several negotiations were subsequently made but on April 29,
1992, Viva made an agreement with Republic Broadcasting Corporation (referred to as
RBS – or GMA 7) which gave exclusive rights to RBS to air 104 Viva films including
the 14 films initially requested by ABS-CBN.

ABS-CBN now filed a complaint for specific performance against Viva as it alleged
that there is already a perfected contract between Viva and ABS-CBN in the April 2,
1992 meeting. Lopez testified that Del Rosario agreed to the counterproposal and he
(Lopez) even put the agreement in a napkin which was signed and given to Del Rosario.
ABS-CBN also filed an injunction against RBS to enjoin the latter from airing the films.
The injunction was granted. RBS now filed a countersuit with a prayer for moral
damages as it claimed that its reputation was debased when they failed to air the shows
that they promised to their viewers. RBS relied on the ruling in People vs Manero and
Mambulao Lumber vs PNB which states that a corporation may recover moral damages
if it “has a good reputation that is debased, resulting in social humiliation”. The trial
court ruled in favor of Viva and RBS. The Court of Appeals affirmed the trial court.

Issues:
1) Whether or not a contract was perfected in the April 2, 1992 meeting between
the representatives of the two corporations.

2) Whether or not a corporation, like RBS, is entitled to an award of moral

damages upon grounds of debased reputation.

Rulings:

1) NO. There is no proof that a contract was perfected in the said meeting. Lopez’
testimony about the contract being written in a napkin is not corroborated
because the napkin was never produced in court. Further, there is no meeting of
the minds because Del Rosario’s offer was of 104 films for P60 million was not
accepted. And that the alleged counter-offer made by Lopez on the same day was
not also accepted because there’s no proof of such. The counter offer can only be

Page | 33
 deemed to have been made days after the April 2 meeting when Santos-Concio
sent a letter to Del Rosario containing the counter-offer. Regardless, there was
no showing that Del Rosario accepted. But even if he did accept, such acceptance
will not bloom into a perfected contract because Del Rosario has no authority to
do so.

As a rule, corporate powers, such as the power; to enter into contracts; are
exercised by the Board of Directors. But this power may be delegated to a corporate
committee, a corporate officer or corporate manager. Such a delegation must be clear
and specific. In the case at bar, there was no such delegation to Del Rosario. The fact
that he has to present the counteroffer to the Board of Directors of Viva is proof that the
contract must be accepted first by the Viva’s Board. Hence, even if Del Rosario accepted
the counter-offer, it did not result to a contract because it will not bind Viva sans
authorization.

2) NO. The award of moral damages cannot be granted in favor of a corporation

because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses, It cannot, therefore,
experience physical suffering and mental anguish, which call be experienced only
by one having a nervous system. No moral damages can be awarded to a
juridical person. The statement in the case of People vs Manero and Mambulao
Lumber vs PNB is a mere obiter dictum hence it is not binding as a
jurisprudence.

Page | 34
 REYNALDO T. COMETA and STATE INVESTMENT TRUST,
INC., petitioners, vs. COURT OF APPEALS, HON.GEORGE MACLI-ING, in his
capacity as Presiding Judge, Regional Trial Court, Quezon City Branch 100,
REYNALDO S. GUEVARA and HONEYCOMB BUILDERS, INC.
G.R. No. 124062 January 21, 1999

Doctrine:
While it is true that a criminal case can only be filed against the officers of a corporation
and not against the corporation itself, it does not follow from this, however, that the
corporation cannot be a real-party-in-interest for the purpose of bringing a civil action
for malicious prosecution for the damages incurred by the corporation for the criminal
proceedings brought against its officer.

Facts:
Reynaldo Cometa is the president of State Investment Trust, Inc. (SITI), a
lending firm. Reynaldo Guevara is the president of Honeycomb Builders, Inc. (HBI), a
real estate developer. Guevara is also the chairman of the board of Guevent Industrial
Development Corp., (GIDC). GIDC took out a loan from SITI and secured the loan by
mortgaging some of its properties to SITI. GIDC defaulted in paying and so SITI
foreclosed the mortgaged assets. GIDC later sued SITI as it alleged that the foreclosure
was irregular. While the case was pending, the parties entered into a compromise
agreement where GIDC accepted HBI’s offer to purchase the mortgaged assets. But
SITI did not approve of said proposal.

GIDC then filed a request for clarification with the trial court and the latter
directed SITI to accept the proposal. Meanwhile, HBI filed a request with the HLURB
asking the latter to grant them the right to develop the mortgaged assets. HBI
submitted an affidavit allegedly signed by Cometa. The affidavit purported that Cometa
and SITI is not opposing HBI’s petition with the HLURB. Cometa assailed the affidavit
as it was apparently forged as proven by an NBI investigation. Subsequently, Cometa
filed a criminal action for falsification of public document against Guevara. The
prosecutor initially did not file the information as he finds no cause of action but the
then DOJ Secretary (Drilon) directed the fiscal to file an information against Guevara.

The case was dismissed. In turn, Guevara filed a civil case for malicious
prosecution against Cometa. Guevara, in his complaint, included HBI as a co-plaintiff.

Issue: Whether or not HBI is appropriately added as a co-plaintiff.

Ruling:
YES. It is true that a criminal case can only be filed against the officers of a
corporation and not against the corporation itself. But it does not follow that the
corporation cannot be a real-party-in-interest for the purpose of bringing a civil action
for malicious prosecution. As pointed out by the trial judge, and as affirmed by the
Court of Appeals, the allegation by Cometa that Guevara has no cause of action with
HBI not being a real party in interest is a matter of defense which can only be decisively
determined in a full blown trial.

Page | 35
 ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO, INC. vs.
THE LAND REGISTRATION COMMISSION AND THE REGISTER OF
DEEDS OF DAVAO CITY,
G.R. NO. L-8451, DECEMBER 20,1957

Doctrine:
The donation of land to an unincorporated religious organization, whose trustees are
foreigners, cannot be allowed registration for being violation of the constitutional
prohibition and it would not be violation of the freedom of religion clause. The fact that
the religious association “has no capital stock does not suffice to escape the constitutional
inhibition, since it is admitted that its members are of foreign nationality.

Facts:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of
Davao, executed a deed of sale of a parcel of land located in the same city covered by
Transfer Certificate No. 2263, in favor of the Roman Catholic Apostolic Administrator
of Davao Inc.,(RCADI) is corporation sole organized and existing in accordance with
Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent.
Registry of Deeds Davao (RD) required RCADI to submit affidavit declaring that 60%
of its members were Filipino Citizens. As the RD entertained some doubts as to the
registerability of the deed of sale, the matter was referred to the Land Registration
Commissioner (LRC) en consulta for resolution. LRC hold that pursuant to provisions of
sections 1 and 5 of Article XII of the Philippine Constitution, RCADI is not qualified to
acquire land in the Philippines in the absence of proof that at leat 60% of the capital,
properties or assets of the RCADI is actually owned or controlled by Filipino citizens.
LRC also denied the registration of the Deed of Sale in the absence of proof of
compliance with such requisite. RCADI’s Motion for Reconsideration was denied.
Aggrieved, the latter filed a petition for mandamus.

Issue:
Whether or not the Universal Roman Catholic Apostolic Church in the
Philippines, or better still, the corporation sole named the Roman Catholic
Apostolic Administrator of Davao, Inc., is qualified to acquire private
agricultural lands in the Philippines pursuant to the provisions of Article XIII of
the Constitution.

Ruling:
RCADI is qualified. While it is true and We have to concede that in the
profession of their faith, the Roman Pontiff is the supreme head; that in the religious
matters, in the exercise of their belief, the Catholic congregation of the faithful
throughout the world seeks the guidance and direction of their Spiritual Father in the
Vatican, yet it cannot be said that there is a merger of personalities resultant therein.
Neither can it be said that the political and civil rights of the faithful, inherent or
acquired under the laws of their country, are affected by that relationship with the Pope.
The fact that the Roman Catholic Church in almost every country springs from that
society that saw its beginning in Europe and the fact that the clergy of this faith derive
their authorities and receive orders from the Holy See do not give or bestow the
citizenship of the Pope upon these branches.

Page | 36
 Citizenship is a political right which cannot be acquired by a sort of “radiation”.
We have to realize that although there is a fraternity among all the catholic countries
and the dioceses therein all over the globe, the universality that the word “catholic”
implies, merely characterize their faith, a uniformity in the practice and the
interpretation of their dogma and in the exercise of their belief, but certainly they are
separate and independent from one another in jurisdiction, governed by different laws
under which they are incorporated, and entirely independent on the others in the
management and ownership of their temporalities.

To allow theory that the Roman Catholic Churches all over the world follow the
citizenship of their Supreme Head, the Pontifical Father, would lead to the absurdity of
finding the citizens of a country who embrace the Catholic faith and become members of
that religious society, likewise citizens of the Vatican or of Italy. And this is more so if
We consider that the Pope himself may be an Italian or national of any other country of
the world. The same thing be said with regard to the nationality or citizenship of the
corporation sole created under the laws of the Philippines, which is not altered by the
change of citizenship of the incumbent bishops or head of said corporation sole.

We must therefore, declare that although a branch of the Universal Roman

Catholic Apostolic Church, every Roman Catholic Church in different countries, if it
exercises its mission and is lawfully incorporated in accordance with the laws of the
country where it is located, is considered an entity or person with all the rights and
privileges granted to such artificial being under the laws of that country, separate and
distinct from the personality of the Roman Pontiff or the Holy See, without prejudice to
its religious relations with the latter which are governed by the Canon Law or their
rules and regulations.

It has been shown before that: (1) the corporation sole, unlike the ordinary
corporations which are formed by no less than 5 incorporators, is composed of only one
persons, usually the head or bishop of the diocese, a unit which is not subject to
expansion for the purpose of determining any percentage whatsoever; (2) the
corporation sole is only the administrator and not the owner of the temporalities located
in the territory comprised by said corporation sole; (3) such temporalities are
administered for and on behalf of the faithful residing in the diocese or territory of the
corporation sole; and (4) the latter, as such, has no nationality and the citizenship of the
incumbent Ordinary has nothing to do with the operation, management or
administration of the corporation sole, nor effects the citizenship of the faithful
connected with their respective dioceses or corporation sole.

In view of these peculiarities of the corporation sole, it would seem obvious that
when the specific provision of the Constitution invoked by respondent Commissioner
(section 1, Art. XIII), was under consideration, the framers of the same did not have in
mind or overlooked this particular form of corporation. If this were so, as the facts and
circumstances already indicated tend to prove it to be so, then the inescapable
conclusion would be that this requirement of at least 60 per cent of Filipino capital was
never intended to apply to corporations sole, and the existence or not a vested right
becomes unquestionably immaterial.

Page | 37
 REGISTER OF DEEDS OF RIZAL vs. UNG SUI SI TEMPLE
G.R. No. L-6776. May 21, 1955 97 Phil 58, 1955

Doctrine:
The purpose of the sixty per centum requirement is obviously to ensure that corporations
or associations allowed to acquire agricultural land or to exploit natural resources shall
be controlled by Filipinos; and the spirit of the Constitution demands that in the absence
of capital stock, the controlling membership should be composed of Filipino citizens.

Facts:
The nature of this action is that of an ordinary appeal with defendant claiming: (1)
that the acquisition of the land in question, for religious purposes, is authorized and
permitted by Act No. 271 of the old Philippine Commission, and (2) that the refusal of
the Register of Deeds violates the freedom of religion clause of the Constitution.

The Register of Deeds for the province of Rizal refused to accept for record a deed
of donation executed in due form on January 22, 1953, by Jesus Dy, a Filipino citizen,
conveying a parcel of residential land, in Caloocan, Rizal, known as lot No. 2, block 48-
D, PSD-4212, G.L.R.O. Record No. 11267, in favor of the unregistered religious
organization "Ung Siu Si Temple", operating through three trustees all of Chinese
nationality. The donation was duly accepted by Yu Juan, of Chinese nationality, founder
and deaconess of the Temple, acting in representation and in behalf of the latter and its
trustees. The refusal of the Registrar was elevated en Consulta to the IVth Branch of
the Court of First Instance of Manila.

Upon finding out that the trustees of Ung Sui Si Temple were all Chinese citizens,
the Register of Deeds of Rizal refused to accept for record a deed of donation by Filipino
Jesus Dy, conveying a parcel of residential land in favor of said unregistered religious
organization.

Issue:
Whether a deed of donation of a parcel of land executed in favor of a religious
organization whose founder, trustees and administrator are Chinese citizens
should be registered or not.

Ruling:
NO. The Constitution makes no exception in favor of religious associations. A
deed of donation of a parcel of land executed by a Filipino citizen in favor of a religious
organization, whose founder, trustees and administrator are non-Filipinos, can not be
admitted for registration.

The registration of the donation of land to an unincorporated religious

organization, whose trustees are foreigners, would violate the constitutional prohibition
and the refusal would not be in violation of the freedom of religion clause. The fact that
the appellant religious organization has no capital stock does not suffice to escape the
Constitutional inhibition, since it is admitted that its members are of foreign
nationality… the spirit of the Constitution demands that in the absence of capital stock,
the controlling membership should be composed of Filipino citizens.

Page | 38
 PEOPLE OF THE PHILIPPINES vs. WILLIAM H. QUASHA
G.R. No. L-6055, June 12, 1953, REYES, J.

Doctrine:
The Constitution does not prohibit the mere formation of a public utility corporation
without the required proportion of Filipino capital. What it does prohibit is the granting
of a franchise or other form of authorization for the operation of a public utility to a
corporation already in existence but without the requisite proportion of Filipino capital.

Facts:
William H. Quasha, a member of the Philippine bar, committed a crime of
falsification of a public and commercial document for causing it to appear that Arsenio
Baylon, a Filipino citizen, had subscribed to and was the owner of 60.005% of the
subscribed capital stock of Pacific Airways Corp. (Pacific) when in reality the money
paid belongs to an American citizen whose name did not appear in the Article of
Incorporation to circumvent the constitutional mandate that no corporation shall be
authorized to operate as a public utility in the Philippines unless 60% of its capital stock
is owned by Filipinos. Under the Articles of Incorporation, the primary purpose of
Pacific is to carry on the business of a common carrier by air, land or water. The lower
court found Quasha guilty, and ruled that Baylon was a mere trustee of the shares.
Hence, this appeal.

Issue:
For a corporation to be entitled to operate a public utility, is it necessary that it
be organized with 60% of its capital owned by Filipinos from the start?

Ruling:
NO. For a corporation to be entitled to operate a public utility, it is not
necessary that it be organized with 60% of its capital owned by Filipinos from the start.
A corporation formed with capital that is entirely alien may subsequently change the
nationality of its capital through transfer of shares to Filipino citizens. Conversely, a
corporation originally formed with Filipino capital may subsequently change the
national status of said capital through transfer of shares to foreigners.

What need is there then for a corporation that intends to operate a public utility
to have, at the time of its formation, 60% of its capital owned by Filipinos alone? That
condition may anytime be attained thru the necessary transfer of stocks. The moment
for determining whether a corporation is entitled to operate as a public utility is when it
applies for a franchise, certificate, or any other form of authorization for that purpose.
And that can be done after the corporation has already come into being and not while it
is still being formed. And at that moment, the corporation must show that it has
complied not only with the requirement of the Constitution as to the nationality of its
capital, but also with the requirements of the Civil Aviation Law if it is a common
carrier by air, the Revised Administrative Code if it is a common carrier by water, and
the Public Service Law if it is a common carrier by land or other kind of public service.

Page | 39
 FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON
v. HON. JESUS B. GARCIA, JR. and EDSA LRT CORPORATION, LTD.
G.R. No. 114222, April 6, 1995, Quiason, J.

Doctrine:
There is no prohibition against a foreign corporation to own facilities used for a public
utility.

Facts:
In 1989, the government planned to build a railway transit line along EDSA. No
bidding was made but certain corporations were invited to prequalify. The only
corporation to qualify was the EDSA LRT Consortium which was obviously formed for
this particular undertaking. An agreement was then made between the government,
through the Department of Transportation and Communication (DOTC), and EDSA
LRT Consortium. The agreement was based on the Build-Operate-Transfer scheme
provided for by law (RA 6957, amended by RA 7718). Under the agreement, EDSA
LRT Consortium shall build the facilities, i.e., railways, and shall supply the train cabs.
Every phase that is completed shall be turned over to the DOTC and the latter shall pay
rent for the same for 25 years. By the end of 25 years, it was projected that the
government shall have fully paid EDSA LRT Consortium. Thereafter, EDSA LRT
Consortium shall sell the facilities to the government for $1.00. However, Senators
Francisco Tatad, John Osmeña, and Rodolfo Biazon opposed the implementation of said
agreement as they averred that EDSA LRT Consortium is a foreign corporation as it
was organized under Hongkong laws; that as such, it cannot own a public utility such as
the EDSA railway transit because this falls under the nationalized areas of
activities. The petition was filed against Jesus Garcia, Jr. in his capacity as DOTC
Secretary.

Issue: Whether or not the petition shall prosper.

Ruling:
NO. The Supreme Court made a clarification. The SC ruled that EDSA LRT
Consortium, under the agreement, does not and will not become the owner of a public
utility hence, the question of its nationality is misplaced. It is true that a foreign
corporation cannot own a public utility but in this case what EDSA LRT Consortium
will be owning are the facilities that it will be building for the EDSA railway project.
There is no prohibition against a foreign corporation to own facilities used for a public
utility.

Further, it cannot be said that EDSA LRT Consortium will be the one operating
the public utility for it will be DOTC that will operate the railway transit. DOTC will
be the one exacting fees from the people for the use of the railway and from the
proceeds, it shall be paying the rent due to EDSA LRT Consortium. All that EDSA
LRT Consortium has to do is to build the facilities and receive rent from the use thereof
by the government for 25 years – it will not operate the railway transit.

Although EDSA LRT Consortium is a corporation formed for the purpose of

building a public utility it does not automatically mean that it is operating a public
utility. The moment for determining the requisite Filipino nationality is when the entity
applies for a franchise, certificate or any other form of authorization for that purpose.

Page | 40
 PHILIPPINE LONG DISTANCE TELEPHONE CO. [PLDT] v. NATIONAL
TELECOMMUNICATIONS COMMISSION AND CELLCOM, INC.
G.R. No. 88404, October 18, 1990, Melencio-Herrera, J.

Doctrine:
Since stockholders own the shares of stock, they may dispose of the same as they see fit.
They may not, however, transfer or assign the property of a corporation, like its franchise.
In other words, even if the original stockholders had transferred their shares to another
group of shareholders, the franchise granted to the corporation subsists as long as the
corporation, as an entity, continues to exist. The franchise is not thereby invalidated by
the transfer of the shares.

Facts:
On 22 June 1958, RA 2090 was enacted granting Felix Alberto & Co. (later
ETCI) a franchise to establish radio stations for domestic and transoceanic
telecommunications. On 13 May 1987, ETCI filed an application with the NTC for the
issuance of a certificate of public convenience and necessity to operate, etc. a Cellular
Mobile Telephone System and an alpha numeric paging system in Metro Manila and in
the Southern Luzon regions, with a prayer for provisional authority to operate within
Metro Manila. PLDT filed an opposition with a motion to dismiss.

NTC overruled PLDT’s opposition and declared RA 2090 should be liberally

construed so as to include the operation of a cellular mobile telephone service as part of
services of the franchise. NTC granted ETCI provisional authority to install, operate,
and maintain a cellular mobile telephone service initially in Metro Manila subject to the
terms and conditions set forth in its order, including an interconnection agreement to
be entered with PLDT. The petitioner filed a motion to set aside order which was
denied by the NTC. PLDT challenged the NTC orders before the Supreme Court.

Issues:
1) Whether the provisional authority was properly granted.
2) Whether ETCI’s franchise includes operation of cellular mobile telephone
system (CMTS).
3) Whether or not PLDT’s petition should prosper.

Held:
1) YES. The provisional authority granted by the NTC (which is the regulatory
agency of the National Government over all telecommunications entities) has a
definite expiry period of 18 months unless sooner renewed; may be revoked,
amended or revised by the NTC; covers one of four phases; limited to Metro Manila
only; and does not authorize the installation and operation of an alphanumeric
paging system. It was further issued after due hearing, with PLDT attending and
granted after a prima facie showing that ETCI had the necessary legal, financial and
technical capabilities; and that public interest, convenience and necessity so
demanded. Provisional authority would be meaningless if the grantee were not
allowed to operate, as its lifetime is limited and may be revoked by the NTC at any
time in accordance with law.

2) YES. The NTC construed the technical term “radiotelephony” liberally as to include
the operation of a cellular mobile telephone system. The construction given by an
administrative agency possessed of the necessary special knowledge, expertise and

Page | 41
 experience and deserves great weight and respect. It can only be set aside by judicial
intervention on proof of gross abuse of discretion, fraud or error of law.

3) NO. A franchise is a property right and cannot be revoked or forfeited without due
process of law. The determination of the right to the exercise of a franchise, or
whether the right to enjoy such privilege has been forfeited by non-user, is more
properly the subject of the prerogative writ of quo warranto. Further, for any
violation of the franchise, it should be the government who should be filing a quo
warranto proceeding because it was the government who granted it in the first
place.

The transfer of more than 40% of the shares of stocks is not tantamount to a
transfer of franchise. There is a distinction here. There is no need to obtain
authorization of Congress for the mere transfer of shares of stocks. Shareholders can
transfer their shares to anyone. The only limitation is that if the transfer involves
more than 40% of the corporation’s stocks, it should be approved by the NTC. The
transfer in this case was shown to have been approved by the NTC. What requires
authorization from Congress is the transfer of franchise; and the person who shall
obtain the authorization is the grantee (ETCI). A distinction should be made
between shares of stock, which are owned by stockholders, the sale of which requires
only NTC approval, and the franchise itself which is owned by the corporation as
the grantee thereof, the sale or transfer of which requires Congressional sanction.
Since stockholders own the shares of stock, they may dispose of the same as they see
fit. They may not, however, transfer or assign the property of a corporation, like its
franchise. In other words, even if the original stockholders had transferred their
shares to another group of shareholders, the franchise granted to the corporation
subsists as long as the corporation, as an entity, continues to exist. The franchise is
not thereby invalidated by the transfer of the shares. A corporation has a personality
separate and distinct from that of each stockholder. It has the right of continuity or
perpetual succession.

Page | 42
 FILIPINAS COMPAÑIA DE SEGUROS v. CHRISTERN, HUENEFELD & CO., INC.
G.R. No. L-2294, May 25, 1951

Doctrine:
The nationality of a private corporation is determined by the character or citizenship of
its controlling stockholders. Where majority of the stockholders of a corporation were
German subjects, the corporation became an enemy corporation upon the outbreak of the
war between the United States and Germany.

Facts:
Christern obtained from Filipinas a fire insurance policy of P1000,000, covering
merchandise contained in a building located at Binondo. During the Japanese military
occupation, the building and insured merchandise were burned. The respondent its
claim under the policy. The total loss suffered by the respondent was fixed at P92,650.

The petitioner refused to pay the claim on the ground that the policy in favor of
the respondent had ceased to be in force on the date the U.S. declared war on Germany
with the respondent Corporation being controlled by German subjects and the
petitioner being a company under American jurisdiction (though organized by
Philippine laws) when the policy was issued on October 1, 1941. The petitioner,
however, paid to the respondent the sum of P92,650 on April 19, 1943 under orders
from the military government. The insurer filed for a suit to recover the sum. The
contention was that the policy ceased to be effective because of the outbreak of the war
and that the payment made by the petitioner to the respondent corporation during the
Japanese military occupation was under pressure.

The tiral and the appellate courts dismissed the action. The Court of
Appeals claimed that a corporation is a citizen of the country or state by and under the
laws of which it was created or organized. Hence this appeal.

Issue: Whether the policy in question became null and void upon the declaration of war.

Ruling:
YES. The majority of the stockholders of the respondent corporation were
German subjects. The respondent became an enemy corporation upon the outbreak of
the war. The control test has been adopted.

Measures of blocking foreign funds, the so called freezing regulations, and other
administrative practice in the treatment of foreign-owned property in the United States
allowed to large degree the determination of enemy interest in domestic corporations
and thus the application of the control test.

The property of all foreign interest was placed within the reach of the vesting
power (of the Alien Property Custodian) not to appropriate friendly or neutral assets
but to reach enemy interest which masqueraded under those innocent fronts. The power
of seizure and vesting was extended to all property of any foreign country or national so
that no innocent appearing device could become a Trojan horse.

The Philippine Insurance Law states that “anyone except a public enemy may be
insured.” It stands to reason that an insurance policy ceases to be allowable as soon as

Page | 43
an insured becomes a public enemy. All individuals therefore, who compose the
belligerent powers, exist, as to each other, in a state of utter exclusion, and are public
enemies.

The respondent having become an enemy corporation on December 10, 1941, the
insurance policy issued in its favor on October 1, 1941, by the petitioner had ceased to
be valid and enforceable, and since the insured goods were burned after December 10,
1941, and during the war, the respondent was not entitled to any indemnity under said
policy from the petitioner. The premium must be returned for the sake of justice.

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 PEDRO R. PALTING vs. SAN JOSE PETROLEUM INC.
G.R. No. L-14441, December 17, 1966, Barrera, J.

Doctrine:
To what extent must the word "indirectly" be carried? Must we trace the ownership or
control of these various corporations ad infinitum for the purpose of determining whether
the Filipino ownership-control-requirement is satisfied? The grandfather rule must only
be applied upto a reasonable level/extent.

Facts:
On September 7, 1956, San Jose Petroleum (SJP) filed with the Philippine
Securities and Exchange Commission (SEC) a sworn registration statement, for the
registration and licensing for sale in the Philippines Voting Trust Certificates
representing 2,000,000 shares of its capital stock of a par value of $0.35 a share, at P1.00
per share.

It was alleged that the entire proceeds of the sale of said securities will be devoted
or used exclusively to finance the operations of San Jose Oil Company, Inc. (Domestic
Mining Oil Company). It was an express condition of the sale that every purchaser of
the securities shall not receive a stock certificate, but a registered or bearer-voting-trust
certificate from the voting trustees James L. Buckley and Austin G.E. Taylor.

On June 20, 1958, SJP amended Statement increasing 2,000,000 to 5,000,000, at a

reduced offering price of from P1.00 to P0.70 per share. Pedro R. Palting together with
other investors in the share of SJP filed with the SEC an opposing the registration and
licensing of the securities on the grounds that:
1. tie-up between the issuer, SJP, a Panamanian corp. and San Jose Oil (SJO), a
domestic corporation, violates the Constitution of the Philippines, the
Corporation Law and the Petroleum Act of 1949
2. issuer has not been licensed to transact business in the Philippines
3. sale of the shares of the issuer is fraudulent, and works or tends to work a
fraud upon Philippine purchasers
4. issuer as an enterprise, as well as its business, is based upon unsound
business principles

Issue:
Whether the “tie-up” violates the Constitution, the Corporation Law and the
Petroleum Act of 1949.

Ruling:
YES. The meat of the controversy is the "tie-up" between SAN JOSE OIL on the
one hand, and SAN JOSE PETROLEUM and its associates, on the other. The
relationship of these corporations involved or affected in this case is admitted and
established through the papers and documents which are parts of the records: SAN
JOSE OIL, is a domestic mining corporation, 90% of the outstanding capital stock of
which is owned by SAN JOSE PETROLEUM, a foreign (Panamanian) corporation, the
majority interest of which is owned by OIL INVESTMENTS, Inc., another foreign
(Panamanian) company. This latter corporation in turn is wholly (100%) owned by
PANTEPEC OIL COMPANY, C.A., and PANCOASTAL PETROLEUM COMPANY,
C.A., both organized and existing under the laws of Venezuela.

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 As of September 30, 1956, there were 9,976 stockholders of PANCOASTAL
PETROLEUM found in 49 American states, holding 3,476,988 shares of stock;
whereas, as of November 30, 1956, PANTEPEC OIL COMPANY was said to have
3,077,916 shares held by 12,373 stockholders scattered in 49 American states.

In the two lists of stockholders, there is no indication of the citizenship of these

stockholders, or of the total number of authorized stocks of each corporation, for the
purpose of determining the corresponding percentage of these listed stockholders in
relation to the respective capital stock of said corporation. The privilege to utilize,
exploit, and develop the natural resources of this country was granted, by Article XIII
of the Constitution, to Filipino citizens or to corporations or associations 60% of the
capital of which is owned by such citizens. With the Parity Amendment to the
Constitution, the same right was extended to citizens of the United States and business
enterprises owned or controlled directly or indirectly, by citizens of the United States.

There could be no serious doubt as to the meaning of the word "citizens" used in
the Constitution. The right was granted to 2 types of persons: natural persons (Filipino
or American citizens) and juridical persons (corporations 60% of which capital is owned
by Filipinos and business enterprises owned or controlled directly or indirectly, by
citizens of the United States). In American law, "citizen" has been defined as "one who,
under the constitution and laws of the United States, has a right to vote for
representatives in congress and other public officers, and who is qualified to fill offices
in the gift of the people.

These concepts clarified, is SAN JOSE PETROLEUM an American business

enterprise entitled to parity rights in the Philippines? The answer must be in the
negative, for the following reasons:
1. It is not owned or controlled directly by citizens of the United States,
because it is owned and controlled by a corporation, the OIL
INVESTMENTS, another foreign (Panamanian) corporation.
2. Neither can it be said that it is indirectly owned and controlled by
American citizens through the OIL INVESTMENTS, for this latter
corporation is in turn owned and controlled, not by citizens of the United
States, but still by two foreign (Venezuelan) corporations, the PANTEPEC
OIL COMPANY and PANCOASTAL PETROLEUM.

Although it is claimed that these two last corporations are owned and controlled
respectively by 12,373 and 9,979 stockholders residing in the different American states,
there is no showing in the certification furnished by respondent that the stockholders of
PANCOASTAL or those of them holding the controlling stock, are citizens of the
United States.

Granting that these individual stockholders are American citizens, it is yet

necessary to establish that the different states of which they are citizens, allow Filipino
citizens or corporations or associations owned or controlled by Filipino citizens, to
engage in the exploitation, etc. of the natural resources of these states. Respondent has
presented no proof to this effect. But even if the requirements mentioned in the two
immediately preceding paragraphs are satisfied, nevertheless to hold that the set-up
disclosed in this case, with a long chain of intervening foreign corporations, comes
within the purview of the Parity Amendment regarding business enterprises indirectly
owned or controlled by citizens of the United States, is to unduly stretch and strain the
language and intent of the law.

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 For, to what extent must the word "indirectly" be carried? Must we trace the
ownership or control of these various corporations ad infinitum for the purpose of
determining whether the American ownership-control-requirement is satisfied? Add to
this the admitted fact that the shares of stock of the PANTEPEC and PANCOASTAL
which are allegedly owned or controlled directly by citizens of the United States, are
traded in the stock exchange in New York, and you have a situation where it becomes a
practical impossibility to determine at any given time, the citizenship of the controlling
stock required by the law.

SAN JOSE PETROLEUM, as presently constituted, is not a business enterprise

that is authorized to exercise the parity privileges under the Parity Ordinance, the
Laurel-Langley Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is,
consequently, illegal.

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