1.Yon Mitori vs Union Bank, GR 225538, Oct.

14, 2020

[ G.R. No. 225538, October 14, 2020 ]

YON MITORI INTERNATIONAL INDUSTRIES,* PETITIONER, VS. UNION
BANK OF THE PHILIPPINES, RESPONDENT.
DECISION
CAGUIOA, J:
The Case
This is a Petition for Review on Certiorari1 (Petition) filed under Rule 45 of the Rules of
Court assailing the February 3, 2016 Decision2 (assailed Decision) and July 5, 2016
Resolution3 (assailed Resolution) rendered by the Court of Appeals (CA), Eleventh
Division in CA-G.R. CV No. 102802.
The assailed Decision and Resolution affirmed, with modification, the February 24, 2014
Decision4 and May 19, 2014 Order5 issued by the Regional Trial Court (RTC) of Pasig
City, Branch 166, in Civil Case No. 71670.
The RTC granted the Complaint for Sum of Money filed by Union Bank of the Philippines
(Union Bank) against Rodriguez Ong Tan (Tan), the registered owner and operator of Yon
Mitori International Industries (Yon Mitori).
The Facts
The CA summarized the facts as follows:
 [Tan], doing business under the name and style of [Yon Mitori], is a
depositor, maintaining Current Account No. 027-03-000181-8, [with]
the Commonwealth, Quezon City branch of [Union Bank].

 On November 12, 2007, Tan deposited in said Union Bank account, the
amount of P420,000.00 through Bank of the Philippine Islands (BPI)
Check No. 0180724 [(BPI Check)]. x x x[The BPI Check was drawn
against the account of Angli Lumber & Hardware, Inc.7 (Angli Lumber),
one of Tan's alleged clients.]8

 [The BPI Check was entered in Tan's bank record thereby increasing his
balance to P513,700.60 from his previous deposit of P93,700.60.9 

 In the morning of November 14, 2007, Tan withdrew from the said
account the amount of P480,000.00. Later that day, the BPI Check
was returned to Union Bank as the account against which it was
drawn had been closed.

 It was then that Union Bank discovered that Tan's account had been
mistakenly credited. Thus, the branch manager of Union Bank's
Commonwealth, Quezon City branch immediately called Tan to recover
the funds mistakenly released. However, Tan refused to return the
funds, claiming that the BPI Check proceeded from a valid transaction
between Angli Lumber and Yon Mitori.
  During the course of its investigation, Union Bank discovered that Tan
previously deposited five BPI checks drawn by Angli Lumber against the
same BPI account, and that these five checks were all previously
dishonored.

 Thereafter, on November 20, 2007, Union Bank [through the bank

manager of its Commonwealth branch,sent Tan a letter demanding
reimbursement of the amount of P420,000.00, by reason of the fact that
[the] "(f)unds against said deposit was inadvertently allowed due to
technical error on the system prior to actual return of your check deposit
which was not yet clear on withdrawal date," it appearing that [the BPI
Check] was dishonored by BPI for being drawn against a closed
account. Tan refused to return the said amount.

 Union Bank then debited the available balance reflected in [Tan's]

account amounting to P34,700.60 and thereafter instituted [a Complaint
for Sum of Money (Complaint)] before the RTC, for the recovery of [the
remaining balance amounting to] P385,299.40 plus consequential
damages.14
RTC Proceedings
 In its Complaint, Union Bank alleged that the value of the BPI
Check had been inadvertently credited to Tan's account due to a
technical error in its system.
 For his part, Tan alleged that the BPI Check had been given to him
for value in the course of business.
- Tan claimed that he should not be faulted for withdrawing the
value of said check from his account since Union Bank made
the corresponding funds available by updating his account to
reflect his new balance.
- After ascertaining that the value of the BPI Check had been
credited, Tan withdrew P480,000.00 from his account to pay
one of his suppliers.
- Tan further argued that Union Bank wrongfully and unlawfully
deducted the amount of P34,700.60 from his account.17
RTC Ruling:
The RTC ruled in favor of Union Bank.
The RTC found all the requisites for the application of solutio indebiti under
Article 2154 of the Civil Code present. It held that since Union Bank
mistakenly released the amount of P480,000.00 in favor of Tan without being
obligated to do so, Tan must be ordered to return said amount to preclude
unjust enrichment at Union Bank's expense.
Further, the RTC ruled that under Article 1980 of the Civil Code, "fixed,
savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning [simple] loan." By reason of the erroneous
payment made in Tan's favor, Tan and Union Bank became mutual debtors
and creditors of each other. This gave rise to Union Bank's right to set-off the
erroneous payment made against Tan's remaining deposit, consistent with the
principle of legal compensation under the Civil Code.
Finally, the RTC held that Union Bank should be awarded attorney's fees and
cost of suit since it was compelled to litigate due to Tan's unjustified refusal to
return the funds mistakenly released to him.21
Aggrieved, Tan filed a motion for reconsideration which the RTC denied in its
Order dated May 19, 2014.The RTC held that "[although [Union Bank may
have been] negligent when it paid to [Tan] the face value of the check as alleged
by [Tan],"23 Tan is still liable to return the funds mistakenly released to him
since Union Bank was under no obligation to release these funds in his
favor.24
CA Proceedings
 Tan filed an appeal via Rule 41 and named Yon Mitori as co-
appellant.Therein, Tan maintained that the proximate cause of Union
Bank's loss is its own gross negligence.2
CA Ruling:
Foremost, the CA stressed that the fact of dishonor of the BPI Check for the
reason "Account Closed" is undisputed. On this basis, the CA affirmed the
RTC's findings and held that Tan would be unjustly enriched at Union Bank's
expense if he were permitted to derive benefit from the funds erroneously
credited to his account.28 As well, the CA upheld the application of legal
compensation in the case.
Subsequently, Tan filed a Motion for Reconsideration,still with Yon Mitori as co-
appellant. Tan argued that the uniform findings of the RTC and CA with respect to
Union Bank's negligence serves as sufficient basis to hold the latter solely liable for its
loss.3Tan also averred that the principle of solutio indebiti applies only in cases where
the claimant unduly delivers something because of mistake, and not when such
delivery results from the claimant's negligence, as in this case.35
 On July 5, 2016, the CA issued the assailed Resolution denying said
Motion for Reconsideration for lack of merit.36 Tan received a copy of the
assailed Resolution on July 11, 2016.37
 Subsequently, Tan's counsel filed a "Motion for Additional Time to File
Appeal"(Motion for Time) before the Court, praying for an additional
period of thirty (30) days from July 26, 2016, or until August 25, 2016 to
file a petition for review.
 On August 25, 2016, Tan's counsel filed this Petition. Notably, the
Petition names Yon Mitori as sole petitioner even as it describes
Yon Mitori as "a single proprietorship duly registered under
Philippine law, owned and operated by [Tan]."
 On November 9, 2016, the Court issued a Resolution granting the Motion
for Time and directing Union Bank to file its comment on the Petition
within ten (10) days from notice.
  In compliance with the Court's Resolution, Union Bank filed its
Comment on April 17, 2017, to which a Reply had been filed.
 The Petition maintains that the proximate cause of Union Bank's loss is
its own gross negligence. Thus, it is barred from recovering damages
under Article 2179 of the Civil Code.
 In addition, the Petition reiterates that Union Bank's gross negligence
also precludes the application of solutio indebiti in this case as there can
be no reimbursement under this principle if payment is made as a result
of one's negligence.4T
 he Petition relies on the Court's ruling in Philippine National Bank v.
Cheah Chee Chong47 (PNB v. Cheah) where the Court held that under
the principle of solutio indebiti, no recovery is due "if the mistake done
is one of gross negligence."Fina
 lly, the Petition contends that as collecting agent, Union Bank is
responsible for losses arising from its own negligence pursuant to Article
1909 of the Civil Code. Thus, the Petition argues that Article 1909
should be applied to hold Union Bank solely liable for its own loss, based
on the Court's ruling in Metropolitan Bank and Trust Company v. Court
of Appeals49 (Metrobank v. CA).
Issue
The sole issue for the Court's resolution is whether the CA erred when it
affirmed the RTC Decision directing Tan to return the value of the BPI
Check with legal interest.
The Court's Ruling
The Petition is denied for lack of merit.
Yon Mitori has no separate juridical personality.
1. Before delving into the substantive issues, the Court must emphasize
that as a general rule, every civil action must be prosecuted, or
defended in the name of the real party in interest, that is, the party
who stands to be benefited or injured by the judgment in the suit, or
the party entitled to the avails of the suit.

In turn, Section 1, Rule 3 of the 1997 Rules of Court provides that

only natural and juridical persons or entities authorized by law
may be parties in a civil action. A single proprietorship
is not considered a separate juridical person under the Civil Code.

The Petition was filed solely in the name of Yon Mitori. As a single
proprietorship, Yon Mitori has no juridical personality
separate and distinct from its owner and operator Tan.
Accordingly, the Petition should have been filed in Tan's name, the
latter being the real party in interest who possesses the legal
standing to file this Petition.
Nevertheless, the Court permits the substitution of Tan as
petitioner herein in the interest of justice, pursuant to Section 4,
Rule 10 of the 1997 Rules of Court:

SEC. 4. Formal Amendments. — A defect in the designation of the

parties and other clearly clerical or typographical errors may be
summarily corrected by the court at any stage of the action, at its
initiative or on motion, provided no prejudice is caused thereby to
the adverse party. (Emphasis supplied)

In Juasing Hardware v. Mendoza53 (Juasing), the Court held that

the filing of a civil action in the name of a single proprietorship is
merely a formal, and not a substantial defect. Substitution of the
party in such cases would not constitute a change in the identity
of the parties, and would not cause any prejudice on the adverse
party, thus:

Contrary to the ruling of respondent Judge, the defect of the

complaint in the instant case is merely formal, not substantial.
Substitution of the party plaintiff would not constitute a change in
the identity of the parties. No unfairness or surprise to private
respondent Dolla, defendant in the court a quo, would result by
allowing the amendment, the purpose of which is merely to
conform to procedural rules or to correct a technical error.54

In Juasing, the Court ruled that the lower court erred in not
allowing the amendment of the complaint filed therein to correct
the designation of the party plaintiff, for while the complaint
named the sole proprietorship "Juasing Hardware" as plaintiff, the
allegations therein show that said complaint was actually brought
by its owner.

This Petition warrants the same course of action. As

in Juasing, no prejudice will result from Yon Mitori's
substitution in this case. Tan has been consistently named as
owner and operator of Yon Mitori throughout the proceedings
below. Moreover, the fact that this Petition was filed in furtherance
of Tan's interests is apparent from the allegations in the pleadings
filed before the Court and accordingly furnished to Union Bank.

Tan is bound to return the proceeds of the dishonored BPI Check

based on the principle of unjust enrichment.

Tan's testimony confirms that he was fully aware that Angli

Lumber's account with BPI had been closed. So he could not have
 expected that the BPI Check in question would be honored. Stated
differently, he was cognizant of the BPI Check's impending
dishonor at the time he withdrew its proceeds from his Union Bank
account. That Tan withdrew the proceeds of the BPI Check soon
after discovering that the corresponding funds had been credited to
his account despite his knowledge that the account from which the
BPI Check was issued had been closed for some time smacks of
bad faith if not fraud. Tan's refusal to return the funds despite
Union Bank's repeated demands is reprehensible.

2. Tayag vs Benguet Consolidated, Nov. 29, 1968*

FERNANDO, J.:

Confronted by an obstinate and adamant refusal of the domiciliary administrator, the

County Trust Company of New York, United States of America, of the estate of the
deceased Idonah Slade Perkins, who died in New York City on March 27, 1960, to
surrender to the ancillary administrator in the Philippines the stock certificates owned by
her in a Philippine corporation, Benguet Consolidated, Inc., to satisfy the legitimate claims
of local creditors, the lower court, then presided by the Honorable Arsenio Santos, now
retired, issued on May 18, 1964, an order of this tenor: "After considering the motion of
the ancillary administrator, dated February 11, 1964, as well as the opposition filed by
the Benguet Consolidated, Inc., the Court hereby (1) considers as lost for all purposes in
connection with the administration and liquidation of the Philippine estate of Idonah
Slade Perkins the stock certificates covering the 33,002 shares of stock standing in her
name in the books of the Benguet Consolidated, Inc., (2) orders said certificates cancelled,
and (3) directs said corporation to issue new certificates in lieu thereof, the same to be
delivered by said corporation to either the incumbent ancillary administrator or to the
Probate Division of this Court."

From such an order, an appeal was taken to this Court not by the domiciliary
administrator, the County Trust Company of New York, but by the Philippine
corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper.
The order challenged represents a response and expresses a policy, to paraphrase
Frankfurter, arising out of a specific problem, addressed to the attainment of specific
ends by the use of specific remedies, with full and ample support from legal doctrines of
weight and significance.

The facts will explain why.

 As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah

Slade Perkins, who died on March 27, 1960 in New York City, left
among others, two stock certificates covering 33,002 shares of appellant,
the certificates being in the possession of the County Trust
Company of New York, which as noted, is the domiciliary
administrator of the estate of the deceased
 Then came this portion of the appellant’s brief: "On August 12, 1960,
Prospero Sanidad instituted ancillary administration proceedings in
 the Court of First Instance of Manila; Lazaro A. Marquez was appointed
ancillary administrator; and on January 22, 1963, he was substituted
by the appellee Renato D. Tayag.
 A dispute arose between the domiciliary administrator in New York and
the ancillary administrator in the Philippines as to which of them was
entitled to the possession of the stock certificates in question.
 On January 27, 1964, the Court of First Instance of Manila ordered the
domiciliary administrator, County Trust Company, to `produce and
deposit’ them with the ancillary administrator or with the Clerk of Court.
 The domiciliary administrator did not comply with the order, and on
February 11, 1964, the ancillary administrator petitioned the court to
"issue an order declaring the certificate or certificates of stocks covering
the 33,002 shares issued in the name of Idonah Slade Perkins by
Benguet Consolidated, Inc. be declared [or] considered as lost."
 It is to be noted further that appellant Benguet Consolidated, Inc. admits
that "it is immaterial" as far as it is concerned as to "who is entitled to
the possession of the stock certificates in question; appellant opposed the
petition of the ancillary administrator because the said stock certificates
are in existence, they are today in the possession of the domiciliary
administrator, the County Trust Company, in New York, U.S.A.. . . ."
 It is its view, therefore, that under the circumstances, the stock
certificates cannot be declared or considered as lost. Moreover, it would
allege that there was a failure to observe certain requirements of its by-
laws before new stock certificates could be issued. Hence, its appeal.

SC RULING

 As was made clear at the outset of this opinion, the appeal lacks merit.

1. Appellant Benguet Consolidated, Inc. would seek to bolster the above

contention by its invoking one of the provisions of its by-laws which
would set forth the procedure to be followed in case of a lost, stolen or
destroyed stock certificate; it would stress that in the event of a
contest or the pendency of an action regarding ownership of
such certificate or certificates of stock allegedly lost, stolen or
destroyed, the issuance of a new certificate or certificates
would await the "final decision by [a] court regarding the
ownership [thereof]."

Such reliance is misplaced.

In the first place, there is no such occasion to apply such a by-law. It

is admitted that the foreign domiciliary administrator did not
appeal from the order now in question. Moreover, there is likewise
 the express admission of appellant that as far as it is concerned, "it is
immaterial . . . who is entitled to the possession of the stock
certificates . . ." Even if such were not the case, it would be a legal
absurdity to impart to such a provision conclusiveness and finality.

Assuming that a contrariety exists between the above by-law and

the command of a court decree, the latter is to be followed.

It is understandable, as Cardozo pointed out, that the Constitution

overrides a statute, to which, however, the judiciary must yield
deference, when appropriately invoked and deemed applicable. It
would be most highly unorthodox, however, if a corporate by-law
would be accorded such a high estate in the jural order that a court
must not only take note of it but yield to its alleged controlling force.

The fear of appellant of a contingent liability with which it could be

saddled unless the appealed order be set aside for its inconsistency
with one of its by-laws does not impress us. Its obedience to a lawful
court order certainly constitutes a valid defense, assuming that such
apprehension of a possible court action against it could possibly
materialize. Thus far, nothing in the circumstances as they have
developed gives substance to such a fear. Gossamer possibilities of a
future prejudice to appellant do not suffice to nullify the lawful
exercise of judicial authority.

2. What is more the view adopted by appellant Benguet

Consolidated, Inc. is fraught with implications at war with the
basic postulates of corporate theory.

We start with the undeniable premise that, "a corporation is an

artificial being created by operation of law . . ."

It owes its life to the state, its birth being purely dependent on
its will. As Berle so aptly stated: "Classically, a corporation was
conceived as an artificial person, owing its existence through creation
by a sovereign power.

As a matter of fact, the statutory language employed owes much to

Chief Justice Marshall, who in the Dartmouth College decision,
defined a corporation precisely as "an artificial being invisible,
intangible, and existing only in contemplation of law."
 The well-known authority Fletcher could summarize the matter thus:
"A corporation is not in fact and in reality a person, but the law
treats it as though it were a person by process of fiction, or by
regarding it as an artificial person distinct and separate from
its individual stockholders.. It owes its existence to law. It is an
artificial person created by law for certain specific purposes, the
extent of whose existence, powers and liberties is fixed by its charter."

Dean Pound’s terse summary, a juristic person, resulting from an

association of human beings granted legal personality by the state,
puts the matter neatly. 2

There is thus a rejection of Gierke’s genosssenchaft theory, the basic

theme of which to quote from Friedmann, "is the reality of the
group as a social and legal entity, independent of state
recognition and concession."

A corporation as known to Philippine jurisprudence is a creature

without any existence until it has received the imprimatur of the state
acting according to law. It is logically inconceivable therefore that it
will have rights and privileges of a higher priority than that of its
creator. More than that, it cannot legitimately refuse to yield
obedience to acts of its state organs, certainly not excluding the
judiciary, whenever called upon to do so.

As a matter of fact, a corporation once it comes into being, following

American law still of persuasive authority in our jurisdiction, comes
more often within the ken of the judiciary than the other two
coordinate branches. It institutes the appropriate Court Action to
enforce its rights. Correlatively, it is not immune from judicial
control in those instances, where a duty under the law as
ascertained in an appropriate legal proceeding is cast upon it.

To assert that it can choose which court order to follow and

which to disregard is to confer upon it not autonomy which may
be conceded but license which cannot be tolerated. It is to argue
that it may, when so minded, overrule the state, the source of its very
existence; it is to contend that what any of its governmental organs
may lawfully require could be ignored at will. So extravagant a claim
cannot possibly merit approval.

3. Stradcom vs Orpilla, July 2, 2018*

DECISION
TIJAM, J.:
Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court filed
by petitioners Stradcom Corporation (Stradcom) and Jose A. Chua (Chua) (collectively
referred to as petitioners), assailing the Decision 1 dated September 28, 2012 and
Resolution2  dated April 17, 2013 of the Court of Appeals (CA) in CA-G.R. SP No. 91150,
which reversed the National Labor Relations Commission (NLRC) Decision 3 dated July
30, 2004 and Resolution4dated April 20, 2005 and reinstated the Labor Arbiter's (LA's)
ruling  dated September 30, 2003. 
The Procedural and Factual Antecedents
 The Version of Respondent Joyce Anabelle L. Orpilla

 On November 15, 2001, Joyce Anabelle L. Orpilla (respondent) was employed by

Stradcom as Human Resources Administration Department (HRAD) Head,
under a probationary status for six months, with a monthly salary of
P60,000. Her duties included administrative and training matters.
 On January 2, 2003, Chua, the President and Chief Executive Officer (CEO) of
Stradcom, issued a Memorandum addressed to the Chief Operating Officer
(COO), Ramon G. Reyes (Reyes), and Chief Financial Officer (CPO), Raul C.
Pagdanganan (Pagdanganan), announcing the reorganization of the HRAD.

 The pertinent portions of the memorandum provides: 

1. The Training Section of the Department shall be spinned off and will form part of the
Business Operations. x x x (The Training Section shall be called Human Resources
Training and Development).
xxxx
2. Under the said reorganization, new sections shall be reporting to the following:

The Human Resources Training and Development shall be reporting to Mr. Ramon G.
Reyes, COO.
1) The Personnel and Administration shall be reporting to Mr. Raul Pagdangan, CFO.
2) Ms. Joyce Anabelle L. Orpilla and the Training Section will be reporting
directly to the COO. x x x9
 After the turn-over of the documents and equipment of HRAD, respondent
inquired from Chua as to her status in the light of the said reorganization.
Chua, on the other hand, replied that the management has lost its trust
and confidence in her and it would be better if she resigned.
 Respondent protested the resignation and insisted that if there were charges
against her, she was open for formal investigation.
 Chua, however, was not able to come up with any charges.
 On January 9, 2003, a meeting was held wherein, Atty. Eric Gene Pilapil (Atty.
Pilapil), the Chief Legal Officer (CLO) offered a settlement to respondent in
exchange for her employment, otherwise, respondent would have to undergo
the burden of litigation in pursuing the retention of her employment.
o Atty. Pilapil set another meeting on January 13, 2003 with respondent,
and told her to take a leave in the meantime to think about the
settlement offer. Atty. Pilapil also assured respondent that she would
continue to receive her salary.
 On January 13, 2003, per advice of Atty. Pilapil, respondent reported for work
but the guards refused her entry and advised her to take a leave of absence. 13
 Respondent claimed that she was informed by Accounting Manager, Mr. Arnold
C. Ocampo, that her January 15, 2003 salary was already deposited in her
bank account which included the proportionate 13th month pay for the year
2003 and was her last and final pay.
 After such, respondent no longer received any kind of payment from petitioners.
 Respondent claimed that she was constructively dismissed on January 2,
2003 and turned into an actual dismissal on January 15, 2003, when she
received her last pay.15
 On June 29, 2003, respondent filed a complaint for constructive dismissal with
monetary claims of backwages, attorney's fees and damages.

 The Version of Petitioners Stradcom Corporation and Jose A. Chua

 On November 15, 2001, respondent was employed by Stradcom as HRAD Head,

a managerial position with a monthly salary of P60,000.
 As HRAD Head, respondent's duties and responsibilities included
administration and personnel, and training matters.
 Sometime in December 2002, Pagdanganan gave instructions to respondent to
commence preparations for Stradcom's 2002 Christmas party. Chua also gave
instructions to respondent to include the Land Registration Systems, Inc.
(Lares) officers and employees, an affiliate of Stradcom in the Christmas party,
to foster camaraderie and working relations between the two companies. 19
 Contrary to Chua's instruction, respondent then called a staff lunch meeting for
Stradcom's 2002 Christmas party, wherein respondent conveyed her intention
of easing out Lares' employees from the party.
 Later, it had come to Stradcom's attention that respondent was not comfortable
with the idea to include Lares in the Christmas party, as respondent appeared
evasive on the queries about the event made by Ms. May Marcelo, the Head
Personnel and Administration of Lares.
 This matter was brought to the attention of Chua, who decided to strip
respondent of any responsibility in organizing the Christmas party and
transferred the same to another committee. As part of the turnover, respondent
furnished the committee with a copy of the initial budget which included the
catering services from G&W Catering Services at P250 per head.
 On December 16, 2002, Ms. Rowena Q. Samson (Samson) and Mr. Saturnino S.
Galgana (Galgana), members of the new Christmas party committee went to see
Mrs. Myrna G. Sese (Sese), the proprietress of the G&W Catering Services.
 They were surprised to find out that the price of the food was actually P200 per
head and not P250 per head as represented by respondent. Suspicious
about the correct pricing, Samson and Galgana reported the matter to the
Stradcom's management. Stradcom began its investigation and interviewed
some employees regarding the conduct of respondent.
 After the investigation, Stradcom also discovered that respondent required her
staff to prepare presentation/training materials/manuals using company
resources for purposes not related to the affairs of the company, on overtime
and on Sundays.
 Subsequently, Pagdanganan called for a conference with respondent, and
discussed respondent's non-inclusion of Lares in Stradcom's Christmas party,
the overpricing of the food, and her moonlighting. Respondent made a bare
denial.
  On January 3, 2003, Chua notified his employees about the reorganization of
the HRAD and the Business Operations Department. 
 On the same date and as part of routine procedure, respondent turned-over the
necessary documents and equipment.
 Respondent reported to Reyes, her new immediate superior and secured the
latter's approval for her leave of absence on the dates of January 3 in the
afternoon up to January 6, 2003, due to personal reasons.
 Reyes approved her leave.
 However, before respondent's scheduled leave, she approached Chua to discuss
the reorganization and her previous conference with Pagdanganan regarding
her said infractions.
 Chua told respondent that the management has lost its trust and confidence in
her due to her willful disobedience in excluding the employees of Lares in the
Stradcom's Christmas party and for willful breach of trust in connection with
the canvassing of the caterer.
 Respondent explained her side and asked Chua for his advice. Chua replied
that considering her position is one that requires the trust and confidence
of the management, it would be difficult to force herself on the
management. Thus, respondent conveyed her willingness to resign. In view
of this, Stradcom's officers agreed that any formal investigation on respondent
was unnecessary in view of her willingness to resign.
 However, on January 7, 2003, respondent reported for work and suprisedly
informed Stradcom that she would not resign.
 When Chua found out about the respondent's retraction of her statement to
resign, he instructed Atty. Pilapil to talk things through with respondent.
 On January 9, 2003, Atty. Pilapil invited respondent for dinner outside the
company premises. Respondent was given another chance regarding her said
infractions. Respondent then requested for four days leave to think things
through and Atty. Pilapil adhered to request and assured her that she will
receive her pay while on leave.
 They likewise agreed that they would meet again on January 13, 2003, outside
the office to discuss respondent's final decision.
 Petitioners were shocked when they found out that respondent had filed a
complaint for constructive dismissal with monetary claims of backwages,
attorney's fees and damages on January 29, 2003. 34
 Petitioners contended that the dismissal of respondent was for just cause on
the ground of loss of trust and confidence and the same was in
compliance with the due process requirements. 
 Petitioners further contended that the acts that caused the loss of trust and
confidence of the petitioners in the respondent were her mishandling of
Stradcom's 2002 Christmas party, dishonesty in preparing the budget thereof,
misrepresentation in her application for employment, and using company
personnel and resources for purposes not beneficial to the interest of
Stradcom.36
The Ruling of the LA
 On September 30, 2003, the LA rendered a Decision, which ruled that
respondent was illegally dismissed and Chua is solidarily liable with
Stradcom for the payment of the monetary awards to
 respondent.Aggrieved, petitioners seasonably filed a memorandum of appeal
before the NLRC. 
The Ruling of the NLRC
 On July 30, 2004, the NLRC issued its Decision. It partially granted the appeal
filed by petitioners and modified the Decision of the LA. The NLRC ruled that
respondent was validly dismissed on the ground of loss and trust confidence,
due to her mishandling of the 2002 budget for the Christmas party. The NLRC
awarded respondent her unpaid salary for the period of January 16 to April 16,
2003, the date when she was formally advised of her disengagement from
service. Attorney's fees were also awarded. 39 The decretal portion of the NLRC
Decision thus, reads:
Respondent sought to reconsider the above-mentioned Decision but it was denied by
the NLRC in its Resolution dated April 20, 2005, for lack of merit. 
Dismayed, respondent filed a petition for review on certiorari under Rule 65
with the CA. 
The Ruling of the CA
 On September 28, 2012, the CA reversed and set aside the NLRC and ruled that
respondent was illegally dismissed.Petitioners promptly filed a Motion for
Reconsideration but it was denied by the CA in its Resolution dated April 17,
2013.Hence, the present petition. 
The pivotal issue for Our resolution is whether or not respondent was validly
dismissed from employment on the ground of loss of trust and confidence.  
The Court's Ruling
The petition is meritorious.  .
The solidary liability of Chua as a corporate officer is not proper and must
be recalled
It is well-settled that a corporation has its own legal personality separate and distinct
from those of its stockholders, directors or officers. Absence of any evidence that a
corporate officer and/or director has exceeded their authority, or their acts are tainted
with malice or bad faith, they cannot be held personally liable for their official acts.
Here, there was neither any proof that Chua acted without or in excess of his
authority nor was motivated by personal ill-will towards respondent to be solidarily
liable with the company. We quote with affirmation the NLRC's pronouncement, viz: 
Finally, on the issue of whether or not the Labor Arbiter committed manifest error in
ordering appellant Chua solidarily liable with appellant corporation, we have to rule in
the affirmative. Appellant Chua cannot be made solidarily liable with appellant
corporation for any award in favor of appellee. Appellant corporation is separate and
distinct from Appellant Chua.x x x x Appellant Chua's acts were official acts, done in his
capacity as an officer of appellant corporation on its behalf. There is no showing of any
act, or that he acted without or in excess of his authority or was motivated by personal ill-
will toward appellee. Stated simply, appellant Chua was merely doing his job. In fact, he
even tried to save appelle from undue embarrassment.

The Linden Suites vs Meridien, GR 211969, Oct. 4, 2021* (J, Hernando)

Home
HERNANDO, J.:

Assailed in this Petition for Review on  Certiorari1 are the July 18, 2013 Decision2 and
the March 31, 2014 Resoiution3 of the Court of Appeals (CA) in CA-G.R. SP No. 121311.

The CA affirmed the February 18, 2011 Order 4of the Regional Trial Court (RTC) denying
petitioner Linden Suites Inc.'s (petitioner) Urgent Motion to Examine Judgment Obligor.

The Antecedent Facts:

 The Linden Suites Inc (petitioner) filed on November 18. 2005 a complaint6 for
damages against respondent Meridien Far East Properties, Inc. (respondent)
before the RTC, Branch 70 of Pasig City,7 which was docketed as Civil Case No.
69023.

 Petitioner averred that while doing excavation works for the construction of the
Linden Suites in Ortigas, Pasig City, it discovered that the concrete retaining
wall of the adjacent building, One Magnificent Mile (OMM), owned by
respondent, had encroached on its property line.

 Petitioner then informed respondent about the encroachment which, in

turn, immediately instructed its workers to remove the same.

 However, respondent's workers were unable to finish it and a substantial part

still needed to be removed.

 Petitioner was consequently compelled to hire a contractor to complete the

demolition. It then demanded payment of the cost of the additional works
it conducted in the amount of P3,980,468.50, but respondent refused,
which led to the filing of the complaint.

RTC Ruling

The RTC, in its Decision8 dated November 18, 2005, adjudged respondent liable for the cost of the
demolition, actual and compensatory damages, and attorney's fees

CA Ruling

The CA affirmed the RTC's Decision but modified it by deleting the award of actual and compensatory
damages.10]

SC Ruling
In turn, this Court affirmed the CA Decision in a Resolution dated August 27, 2008, there being no
reversible error in the assailed judgment. Respondent's subsequent motion for reconsideration 12 was
denied by this Court, thus, an Entry of Judgment was subsequently issued on January 23, 2009. 13

Considering that the RTC Decision had already attained finality, petitioner filed a motion for issuance
of a writ of execution14 before the RTC, which it granted in its Order15 dated August 6, 2009.

 Thereafter, on April 5 and 14, 2010, Sheriff Marco A. Boco attempted to serve
the writ on respondent in its office address in Makati City but failed.
  Petitioner then advised the sheriff to serve the writ to respondent at 2/F, Soho
Central Condominium located in Mandaluyong City, its registered address
in its 2006 General Information Sheet (GIS) that was filed before the
Securities and Exchange Commission (SEC).
 On June 3, 2010, Sheriff Boco proceeded to the said condominium to serve the
writ. However, Atty. Rufo B. Baculi (Atty. Baculi), the Legal and
Administrative Officer of Meridien East Realty and Development
Corporation (MERDC), informed him that it was Meridien Development
Group, Inc. (MDGI), not respondent, which owned the office in the said address.
Atty. Baculi showed a GIS issued by the SEC as proof that the occupant of the
said address was indeed MDGI. As a result, Sheriff Boco returned the writ
unserved as per Sheriffs Return dated June 18, 2010.
 Petitioner observed that the 2006 GIS of respondent and 2009 GIS of MERDC
stated the same officers, to wit: (a) Jose E.B. Antonio as Chairman; (b) Ricardo
P. Cueva as Chief Executive Officer; (c) Rafael G. Yaptinchay as President; (d)
Benito A. Obra, Jr. as Vice-President and President; (e) Efrenilo C. Cayanga as
Corporate Secretary; and (f) Ma. Melinda A. Zuniga as Assistant Corporate
Secretary. The officers were likewise shareholders of both corporations and had
similar residential addresses.
 Thus, on November 8, 2010, petitioner filed an Urgent Motion to Examine
Judgment Obligo before RTC of Pasig City, the same trial court which rendered
the final judgment.
o It prayed that respondent's officers be directed to appear before the court
for an examination of the income and properties owned by respondent for
the satisfaction of the RTC Decision.
o Petitioner also sought the grant by the trial court of other reliefs as are just
and equitable.
 Respondent, on the other hand, argued for the dismissal of the motion alleging
that the persons sought to be examined are not the judgment obligors in the
RTC Decision.
o It also claimed that their examination is a violation of the doctrine of
separate corporate personality.
o Respondent further asserted that the officers cannot be required to appear
before RTC Pasig City as they reside in Makati City, where respondent's
office sits. 
 
Ruling of the Regional Trial Court:

 RTC denied petitioner's motion and ruled that respondent's officers cannot be
subjected to an examination as they do not reside in its territorial jurisdiction.
 Further, to call upon the officers to ascertain the properties and income of
respondent for purposes of satisfying the execution of the final judgment would
be violative of the doctrine of separate juridical entity. 
 Petitioner sought a reconsideration20 but the RTC denied it in an Order21 dated
July 8, 2011. Hence, it filed a Petition for Certiorari22 before the CA arguing that
the RTC gravely abused its discretion amounting to lack and/or excess of
jurisdiction in issuing the assailed Orders.

Ruling of the Court of Appeals:

  In its assailed July 18, 2013 Decision,23 the CA dismissed the petition for lack
of grave abuse of discretion on the part of the RTC. It held that under Section
36, Rule 39 of the Rules of Court, a judgment obligor cannot be compelled to
appear before a court or commissioner outside the province or city in
which he or she resides or is found.
 Applying the said provision, the CA ruled that since respondent's principal
business address is in Makati City, it is clearly not within the trial court's
territorial jurisdiction. Hence, the RTC of Pasig City cannot compel its officers to
appear before the said trial court for an examination or before an appointed
commissioner.
 Petitioner's motion for reconsideration was subsequently denied by the CA in its
Resolution25 dated March 31, 2014.

Hence, this Petition tor Review on Certiorari.

Issue

May the RTC, as the court that rendered judgment on petitioner's complaint, examine
respondent's officers?
Our Ruling

The petition is impressed with merit. 

The RTC's error in judgment is tantamount to grave abuse of discretion amounting to

lack or excess of jurisdiction.

The doctrine of separate juridical personality is inapplicable in the case at

bench.

 To recall, one of the grounds for the denial by the RTC of petitioner's motion for
examination is that the examination of respondent's officers would constitute a
violation of the doctrine of separate juridical personality. The trial court held
that the doctrine applies even if the officers would be examined for the
sole purpose of ascertaining respondent's properties and income.
 The Court finds the trial court's pronouncement misplaced.

The doctrine of separate juridical personality provides that a corporation has a

legal personality separate and distinct from those individuals acting for and in
its behalf and, in general, from those comprising it.

Any obligation incurred by the corporation, acting through its directors, officers
and employees, is therefore its sole liability.
This legal fiction may only be disregarded if it is used as a means to
perpetrate fraud or an illegal act, or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, or to confuse
legitimate issues.

The well-settled doctrine is inapplicable in the case at bench. Petitioner wanted

 the officers to be examined not for the purpose of passing unto them the
liability of respondent as its judgment obligor.

In fact, it never averred in the motion any intention to make the officers liable
for respondent's obligation due to the latter's purported attempts to evade the
execution of the final judgment. What is clear therein is that the sole
objective of the examination of the officers was to ascertain the
properties and income of respondent which can be subjected for
execution in order to satisfy the final judgment and nothing else.

In sum, the Court finds that the CA committed reversible error in finding that
the RTC did not gravely abuse its discretion when it denied petitioner's motion
to examine respondent's officers.

RUBEN SAW, DIONISIO SAW, LINA S. CHUA, LUCILA S. RUSTE AND EVELYN SAW vs.
Court of Appeals G.R. No. 90580. April 8, 1991.*

CRUZ, J.:

 A collection suit with preliminary attachment was filed by

Equitable Banking Corporation against Freeman, Inc. and Saw
Chiao Lian, its President and General Manager.
 The petitioners moved to intervene, alleging that (1) the loan
transactions between Saw Chiao Lian and Equitable Banking Corp.
were not approved by the stockholders representing at least 2/3 of
corporate capital; (2) Saw Chiao Lian had no authority to contract
such loans; and (3) there was collusion between the officials of
Freeman, Inc. and Equitable Banking Corp. in securing the loans.
 The motion to intervene was denied, and the petitioners
appealed to the Court of Appeals.
 Meanwhile, Equitable and Saw Chiao Lian entered into a
compromise agreement which they submitted to and was approved
by the lower court.
 But because it was not complied with, Equitable secured a writ of
execution, and two lots owned by Freeman, Inc. were levied upon
and sold at public auction to Freeman Management and
Development Corp.
 The Court of Appeals sustained the denial of the petitioners’
motion for intervention, holding that “the compromise agreement
between Freeman, Inc., through its President, and Equitable
Banking Corp. will not necessarily prejudice petitioners whose
rights to corporate assets are at most inchoate, prior to the
dissolution of Freeman, Inc. x x x. And intervention under Sec.
2, Rule 12 of the Revised Rules of Court is proper only when
 one’s right is actual, material, direct and immediate and not
simply contingent or expectant.”
 It also ruled against the petitioners’ argument that because they
had already filed a notice of appeal, the trial judge had lost
jurisdiction over the case and could no longer issue the writ of
execution.

 The petitioners are now before this Court, contending that:

The Honorable Court of Appeals erred in holding that the

petitioners cannot intervene in Civil Case No. 88-44404
because their rights as stockholders of Freeman are merely
inchoate and not actual, material, direct and immediate prior
to the dissolution of the corporation;

 The petitioners base their right to intervene for the protection of their
interests as stockholders on Everett v. Asia Banking Corp.,2 where it
was held:
The well-known rule that shareholders cannot ordinarily sue
in equity to redress wrongs done to the corporation, but that
the action must be brought by the Board of Directors, x x x
has its exceptions. [If] the corporation [were] under the
complete control of the principal defendants, x x x it is obvious
that a demand upon the Board of Directors to institute action
and prosecute the same effectively would have been useless,
and the law does not require litigants to perform useless acts.

 Equitable demurs, contending that the collection suit against

Freeman, Inc, and Saw Chiao Lian is essentially in personam and, as
an action against defendants in their personal capacities, will not
prejudice the petitioners as stockholders of the corporation.
The Everett case is not applicable because it involved an
action filed by the minority stockholders where the board of
directors refused to bring an action in behalf of the
corporation. In the case at bar, it was Freeman, Inc. that was
being sued by the creditor bank.

Equitable also argues that the subject matter of the

intervention falls properly within the original and
exclusive jurisdiction of the Securities and Exchange
Commission under P.D. No. 902-A

In fact, at the time the motion for intervention was filed,

there was pending between Freeman, Inc. and the petitioners
SEC Case No. 03577 entitled “Dissolution, Accounting,
 Cancellation of Certificate of Registration with Restraining
Order or Preliminary Injunction and Appointment of
Receiver.” It also avers in its Comment that the intervention
of the petitioners could have only caused delay and prejudice
to the principal parties.

The Court’s Ruling:

 After examining the issues and arguments of the parties, the Court
finds that the respondent court committed no reversible error in
sustaining the denial by the trial court of the petitioners’ motion for
intervention.
 In the case of Magsaysay-Labrador v. Court of Appeals, we ruled as
follows:
Viewed in the light of Section 2, Rule 12 of the Revised Rules
of Court, this Court affirms the respondent court’s holding that
petitioners herein have no legal interest in the subject matter
in litigation so as to entitle them to intervene in the
proceedings below.

In the case of Batama Farmers’ Cooperative Marketing

Association, Inc. v. Rosal, we held: “As clearly stated in
Section 2 of Rule 12 of the Rules of Court,to be permitted to
intervene in a pending action, the party must have a legal
interest in the matter in litigation, or in the success of
either of the parties or an interest against both, or he
must be so situated as to be adversely affected by a
distribution or other disposition of the property in the
custody of the court or an officer thereof.”

 To allow intervention, [a] it must be shown that the movant has legal
interest in the matter in litigation, or otherwise qualified; and [b]
consideration must be given as to whether the adjudication of the rights
of the original parties may be delayed or prejudiced, or whether the
intervenor’s rights may be protected in a separate proceeding or not.
Both requirements must concur as the first is not more important than
the second.
 The interest which entitles a person to intervene in a suit between other
parties must be in the matter in litigation and of such direct and
immediate character that the intervenor will either gain or lose by the
direct legal operation and effect of the judgment. Otherwise, if persons
not parties of the action could be allowed to intervene, proceedings will
become unnecessarily complicated, expensive and interminable. And this
is not the policy of the law.
  The words “an interest in the subject” mean a direct interest in the cause
of action as pleaded, and which would put the intervenor in a legal
position to litigate a fact alleged in the complaint, without the
establishment of which plaintiff could not recover.
 Here, the interest, if it exists at all, of petitioners-movants is indirect,
contingent, remote, conjectural, consequential and collateral. At the
very least, their interest is purely inchoate, or in sheer expectancy of a
right in the management of the corporation and to share in the profits
thereof and in the properties and assets thereof on dissolution, after
payment of the corporate debts and obligations.
 While a share of stock represents a proportionate or aliquot interest in
the property of the corporation, it does not vest the owner thereof
with any legal right or title to any of the property, his interest in
the corporate property being equitable or beneficial in nature.
Shareholders are in no legal sense the owners of corporate property,
which is owned by the corporation as a distinct legal person.

De Borja vs. Vazquez

[No. 48930.  February 23, 1944]

1.Corporations; Officers' Personal Liability on Contracts.—It is well known

that a corporation is an artificial being invested by law with a personality of its
own, separate and distinct from that of its stockholders and from that of its
officers who manage and run its affairs. The mere fact that its personality is
owing to a legal fiction and that it necessarily has to act thru its agents, does
not make the latter personally liable on a contract duly entered into, or for an
act lawfully performed, by them for and in its behalf. The legal fiction by which
the personality of a corporation is created is a practical reality and necessity.
Without it no corporate entities may exist and no corporate business may be
transacted. Such legal fiction may be disregarded only when an attempt is
made to use it as a cloak to hide an unlawful or fraudulent purpose. No such
thing has been alleged or proven in this case. It has not been alleged nor even
intimated that Vazquez personally benefited by the contract of sale in question
and that he is merely invoking the legal fiction to avoid personal liability.
Neither is it contended that he entered into said contract for the corporation in
bad faith and with intent to defraud the plaintiff. We find no legal and factual
basis upon which to hold him liable on the contract either principally or
subsidiarily.

Ozaeta,  J.:

This action was commenced in the Court of First Instance of Manila by Francisco
de Borja against Antonio Vazquez and Fernando Busuego to recover from them
jointly and severally the total sum of P4,702.70 upon three alleged causes of
action, to wit:

 First, that in or about the month of January, 1932, the defendants

jointly and severally obligated themselves to sell to the plaintiff 4,000
cavans of palay at P2.10 per cavan, to be delivered during the month of
February, 1932, the said defendants having subsequently received
from the plaintiff in virtue of said agreement the sum of P8,400;
o that the defendants delivered to the plaintiff during the months of
February, March, and April, 1932, only 2,488 cavans of palay of
the value of P5,224.80 and refused to deliver the balance of
1,512 cavans of the value of P3,175.20 notwithstanding repeated
demands.
o Second, that because of defendants' refusal to deliver to the
plaintiff the said 1,512 cavans of palay within the period above
mentioned, the plaintiff suffered damages in the sum of P1,000.
o And, third, that on account of the agreement above mentioned the
plaintiff delivered to the defendants 4,000 empty sacks, of
which they returned to the plaintiff only 2,490 and refused to
deliver to the plaintiff the balance of 1,510 sacks or to pay their
value amounting to P377.50; and that on account of such refusal
the plaintiff suffered damages in the sum of P150.
 The defendant Antonio Vazquez answered the complaint, denying having
entered into the contract mentioned in the first cause of action in his
own individual and personal capacity, either solely or together with his
codefendant Fernando Busuego, and alleging that the agreement for the
purchase of 4,000 cavans of palay and the payment of the price of
P8,400 were made by the plaintiff with and to the Natividad-Vazquez
Sabani Development Co., Inc., a corporation organized and existing
under the laws of the Philippines, of which the defendant Antonio
Vazquez was the acting manager at the time the transaction took place.
o By way of counterclaim, the said defendant alleged that he suffered
damages in the sum of P1,000 on account of the filing of this
action against him by the plaintiff with full knowledge that the said
defendant had nothing to do whatever with any and all of the
transactions mentioned in the complaint in his own individual and
personal capacity.

RTC Ruling:

The trial court rendered judgment ordering the defendant Antonio Vazquez to
pay to the plaintiff the sum of P3,175.20 plus the sum of P377.50, with legal
interest on both sums, and absolving the defendant Fernando Busuego
(treasurer of the corporation) from the complaint and the plaintiff from the
defendant Antonio Vazquez' counterclaim.
CA Ruling:

Upon appeal to the Court of Appeals, the latter modified that judgment by
reducing it to the total sum of P3,314.78, with legal interest thereon and the
costs. But by a subsequent resolution upon the defendant's motion for
reconsideration, the Court of Appeals set aside its judgment and ordered
that the case be remanded to the court of origin for further proceedings.
The defendant Vazquez, not being agreeable to that result, filed the present
petition for certiorari (G. R. No. 48930) to review and reverse the judgment of
the Court of Appeals; and the plaintiff Francisco de Borja, excepting to the
resolution of the Court of Appeals whereby its original judgment was set aside
and the case was ordered remanded to the court of origin for further
proceedings, filed a cross-petition for certiorari (G. R. No. 48931) to maintain
the original judgment of the Court of Appeals.

"Upon consideration of the motion of the attorney for the plaintiff-appellee in

case CA-G.R. No. 8676, Francisco de Borja vs. Antonio Vazquez et al., praying,
for the reasons therein given, that the resolution of December 22, 1942, be
reconsidered: Considering that said resolution remanding the case to the lower
court is for the benefit of the plaintiff-appellee to afford him opportunity to
refute the contention of the defendant-appellant Antonio Vazquez, motion
denied."

The action is on a contract, and the only issue pleaded and tried is whether the
plaintiff entered into the contract with the defendant AntQnio Vazquez in his
personal capacity or as manager of the Natividad-Vazquez Sabani Development
Co., Inc. The Court of Appeals found that according to the preponderance of
the evidence "the sale made by Antonio Vazquez in favor of Francisco de
Borja of 4,000 cavans of
palay was in his capacity as acting president and manager of the
corporation Natividad-Vazquez Sabani Development Co., Inc." That finding
of fact is final and, it resolving the only issue involved, should be determinative
of the result.

SC Ruling;

The Court of Appeals doubly erred in ordering that the cause be remanded to
the court of origin for further trial to determine whether the corporation had
sufficient stock of palay at the time appellant sold 1,500 cavans of palay to
Kwong Ah Phoy.
First, if that point was material to the issue, it should have been proven during
the trial; and the statement of the court that it had not been sufficiently
discussed and proven was no justification for ordering a new trial, which, by
the way, neither party had solicited but against which, on the contrary, both
parties now vehemently protest. Second, the point is, in any event, beside the
issue, and this we shall now discuss in connection with the original judgment
of the Court of Appeals which the plaintiff cross-petitioner seeks to maintain.

The action being on a contract, and it appearing from the preponderance of the
evidence that the party liable on the contract is the Natividad-Vazquez Sabani
Development Co., Inc., which is not a party herein, the complaint should
have been dismissed. Counsel for the plaintiff, in his brief as respondent,
argues that altho by the preponderance of the evidence the trial court and the
Court of Appeals found that Vazquez celebrated the contract in his capacity as
acting president of the corporation and altho it was the latter, thru Vazquez,
with which the plaintiff had contracted and which, thru Vazquez, had received
the sum of P8,400 from Borja, and altho that was true from the point of view of
a legal fiction, "ello no impide que también sea verdad lo alegado en la
demanda de que la persona de Vázquez fué la que contrató con Borja y que la
misma persona de Vazquez fué quien recibió la suma de P8,400." But such
argument is invalid and insufficient to show that the president of the
corporation is personally liable on the contract duly and law fully entered
into by him in its behalf.

It is well known that a corporation is an artificial being invested by law with a

personality of its own, separate and distinct from that of its stockholders and
from that of its officers who manage and run its affairs. The mere fact that its
personality is owing to a legal fiction and that it necessarily has to act thru its
agents, does not make the latter personally liable on a contract duly entered
into, or for an act lawfully performed, by them for and in its behalf. The legal
fiction by which the personality of a corporation is created is a practical reality
and necessity. Without it no corporate entities may exist and no corporate
business may be transacted. Such legal fiction may be disregarded only when
an attempt is made to use it as a cloak to hide an unlawful or fraudulent
purpose. No such thing has been alleged or proven in this case. It has not been
alleged nor even intimated that Vazquez personally benefited by the contract of
sale in question and that he is merely invoking the legal fiction to avoid
personal liability. Neither is it contended that he entered into said contract for
the corporation in bad faith and with intent to defraud the plaintiff. We find no
legal and factual basis upon which to hold him liable on the contract either
principally or subsidiarily.

The trial court found him guilty of negligence in the performance of the
contract and held him personally liable on that account. On the other hand,
the Court of Appeals found that he ""Not only did he act negligently, but also
through fault on his part, for which, in accordance with articles 1102, 1103
and 1902 of the Civil Code, he must be subsidiarily responsible for the
payment of the amount object of the claim."

We think both the trial court and the Court of Appeals erred in law in so
holding. They have manifestly failed to distinguish a contractual from an
extracontractual obligation, or an obligation arising from contract from an
obligation arising from culpa aquiliana. The fault and negligence referred to in
articles 1101-1104 of the Civil Code are those incidental to the fulfilment or
nonfulfilment of a contractual obligation; while the fault or negligence referred
to in article 1902 is the culpa aquiliana of the civil law, homologous but not
identical to tort of the common law, which gives rise to an obligation
independently of any contract. (Cf. Manila R. R. Co. vs. Cia. Trasatlantica, 38
Phil., 875, 887-890; Cangco vs. Manila R. R. Co., 38 Phil., 768.) The fact that
the corporation, acting thru Vazquez as its manager, was guilty of negligence in
the fulfilment of the contract, did not make Vazquez principally or even sub-
sidiarily liable for such negligence. Since it was the corporation's contract, its
nonfulfilment, whether due to negligence or fault or to any other cause, made
the corporation and not its agent liable.

On the other hand, if independently of the contract Vazquez by his fault or

negligence caused damage to the plaintiff, he would be liable to the latter under
article 1902 of the Civil Code. But then the plaintiff's cause of action should be
based on culpa aquiliana and not on the contract alleged in his complaint
herein; and Vazquez' liability would be principal and not merely subsidiary, as
the Court of Appeals has erroneously held. No such cause of action was alleged
in the complaint or tried by express or implied consent of the parties by virtue
of section 4 of Rule 17. Hence the trial court had no jurisdiction over the issue
and could not adjudicate upon it. (Reyes vs. Diaz, G. R. No. 48754.)
Consequently it was error for the Court of Appeals to remand the case to the
trial court to try and decide such issue.

Stonehill vs. Diokno

No. L-19550. June 19, 1967.
HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK,
petitioners, vs. HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF
JUSTICE; JOSE LUKBAN, in his capacity as Acting Director, National Bureau of
Investigation; SPECIAL PROSECUTORS PEDRO D. CENZON, EFREN I. PLANA and
MANUEL VILLAREAL, JR., and ASST. FISCAL MANASES G. REYES; JUDGE AMADO
ROAN, Municipal Court of Manila; JUDGE ROMAN CANSINO, Municipal Court of
Manila; JUDGE HERMOGENES CALUAG, Court of First Instance of Rizal-Quezon
City Branch and JUDGE DAMIAN JIMENEZ, Municipal Court of Quezon City,
respondents.
Constitutional Law; Search warrants; Corporations; Only party affected
may contest legality of seizure effected by search warrants.—Officers of
certain corporations, from which documents, papers and things were seized by
means of search warrants, have no cause of action to assail the legality of the
seizures because said corporations have personalities distinct and separate
from those of said officers. The legality of a seizure can be contested only by the
party whose rights have been impaired thereby. The objection to an unlawful
search is purely personal and cannot be availed of by third parties.

Evidence: When illegally seized evidence is admissible.—Officers of certain

corporations cannot validly object to the use in evidence against them of the
documents, papers and things seized from the offices and premises of the
corporations since the right to object to their admission in evidence belongs
exclusively to the corporations, to which the seized effects belong, and may not
be invoked by the corporate officers in proceedings against them in their
individual capacity.

General search warrants.—Search warrants, issued upon applications stating

that the natural and juridical persons therein named had committed a
violation of Central Bank laws, tariff and customs laws, Tax Code and Revised
Penal Code do not satisfy the constitutional requirements because no specific
offense had been alleged in said applications. It was impossible for the judges,
who issued the warrants, to have found the existence of probable cause, which
presupposes the introduction of competent proof that the party against whom
it is sought has performed particular acts or committed specific omissions in
violation of a specific penal provision.

Why general warrants are outlawed.—General search warrants are outlawed

because they place the sanctity of the domicile and the privacy of
communication and correspondence at the mercy of the whims, caprice or
passion of peace officers.
l
CASTRO, J., concurring and dissenting:

Constitutional Law; Search and Seizure; Lack of standard of petitioners

cannot affect illegality of search and seizure.— That the petitioners have no
legal standing to ask for the suppression of the papers, things, and effects
seized from places other than their residences, cannot in any manner affect,
alter, or otherwise modify the intrinsic nullity of the search warrants and the
intrinsic illegality of the searches and seizures made thereunder. Whether or
not petitioners possess legal standing, the said warrants are void and remain
void, and the searches and seizures were illegal and remain illegal. No
inference can be drawn from the words of the Constitution that "legal
standing", or the lack of it, is a determinant of the nullity or validity of a Search
warrant or of the lawfulness or illegality of a search or seizure.
ORIGINAL ACTION in the Supreme Court. Certiorari, prohibition. mandamus and
injunction.

The facts are stated in the opinion of the Court.

Paredes, Poblador, Cruz & Nazareno and Meer, Meer & Meer and Juan T. David for
petitioners.
Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico P. de Castro, Assistant
Solicitor General Frine C. Zaballero, Solicitor Camilo D, Quiason and Solicitor C. Padua for
respondents.

CONCEPCION, C.J.:

 Upon application of the officers of the government named on the margin

—hereinafter referred to as Respondents-Prosecutors—several judges—
hereinafter referred to as Respondents-Judges—issued, on different
dates,a total of 42 search warrants against petitioners herein and/or
the corporations of which they were officers, directed to any peace
officer, to search the persons above-named and/ or the premises of their
offices, warehouses and/or residences, and to seize and take possession
of the following personal property to wit:
- "Books of accounts,
- financial records,
- vouchers,
- correspondence,
- receipts,
- ledgers,
- journals,
- portfolios,
- credit journals,
- typewriters, and
- other documents and/or papers showing all business
transactions including disbursements receipts, balance sheets
and profit and loss statements and Bobbins (cigarette
wrappers)." as "the subject of the offense; stolen or embezzled
and proceeds or fruits of the offense," or "used or intended to be
used as the means of committing the offense," which is
described in the applications adverted to above as
"violation of Central Bank Laws, Tariff and Customs Laws,
Internal Revenue (Code) and the Revised Penal Code."
 Alleging that the aforementioned search warrants are null and void, as
contravening the Constitution and the Rules of Court—because, inter
alia:
1. they do not describe with particularity the documents, books and
things to be seized;
 2. cash money, not mentioned in the warrants, were actually seized;
3. the warrants were issued to fish evidence against the
aforementioned petitioners in deportation cases filed against them;
4. the searches and seizures were made in an illegal manner; and
5. the documents, papers and cash money seized were not delivered
to the courts that issued the warrants, to be disposed of in
accordance with law—on March 20, 1962,

said petitioners filed with the Supreme Court this original action
for certiorari, prohibition, mandamus and injunction, and prayed
that, pending final disposition of the present case, a writ of
preliminary injunction be issued restraining
RespondentsProsecutors, their agents and/or representatives from
using the effects seized as aforementioned, or any copies thereof,
in the deportation cases already adverted to, and that, in due
course, thereafter, decision be rendered quashing the contested
search warrants and declaring the same null and void, and
commanding the respondents, their agents or representatives to
return to petitioners herein, in accordance with Section 3,
Rule 67, of the Rules of Court, the documents, papers, things
and cash moneys seized or confiscated under the search
warrants in question.

 In their answer, respondents-prosecutors alleged

1. that the contested search warrants are valid and have been issued in
accordance with law;
2. that the defects of said warrants, if any, were cured by petitioners'
consent; and
3. that, in any event, the effects seized are admissible in evidence
against herein petitioners, regardless of the alleged illegality of the
aforementioned searches and seizures.

 On March 22, 1962, this Court issued the writ of preliminary injunction
prayed for in the petition. However, by resolution dated June 29,
1962. the writ was partially lifted or dissolved, insofar as the papers,
documents and things seized from the offices of the corporations
above mentioned are concerned; but, the injunction was maintained as
regards the papers, documents and things found and seized in the
residences of petitioners herein.
 Thus, the documents, papers, and things seized under the alleged
authority of the warrants in question may be split into two (2) major
groups, namely: (a) those found and seized in the off ices of the
aforementioned corporations, and (b) those found and seized in the
residences of petitioners herein.
SC Ruling:

As regards the first group, we hold that petitioners herein have no cause of
action to assail the legality of the contested warrants and of the seizures made
in pursuance thereof, for the simple reason that said corporations have
preliminary injunction issued by us in this case against the use of the papers,
documents and things from the following premises: (1) The office of the U.S.
Tobacco Corp. at the Ledesma Bldg., Arzobispo St., Manila; (2) 932 Gonzales,
Ermita, Manila; (3) office at Atlanta St. bounded by Chicago, 15th & 14th Sts.,
Port Area, Manila; (4) 527 Rosario St, Mla.; (5) Atlas Cement Corp. and/or Atlas
Development Corp., Magsaysay Bldg., San Luis, Ermita, Mla.; (6) 205 13th St.,
Port Area, Mla.; (7) No. 224 San Vicente St, Mla.; (8) Warehouse No. 2 at
Chicago & 23rd Sts., Mla.; (9) Warehouse at 23rd St., between Muelle de San
Francisco & Boston, Port Area, Mla.; (10) Investment Inc., 24th St. & Boston;
(11) IBMC, Magsaysay Bldg., San Luis, Mla.; (12) General Agricultural Corp.,
Magsaysay Bldg., San Luis, Manila; (13) American Asiatic Oil Corp., Magsaysay
Bldg., San Luis, Manila; (14) Room 91, Carmen Apts., Dewey Blvd., Manila;
(15) Warehouse Railroad St. between 17 & 12 Sts., Port Area, Manila; (16) Rm.
304, Army & Navy Club, Manila, South Blvd.; (17) Warehouse Annex Bldg.,
18th St., Port Area, Manila; (18) Rm. 81 Carmen Apts., Dewey Blvd., Manila;
(19) Holiday Hills, Inc., Trinity Bldg,, San Luis, Manila; (20) No. 2008 Dewey
Blvd.; (21) Premises of 24th St. & Boston, Port Area, Manila; (22) Republic
Glass Corp., Trinity Bldg., San Luis. Manila; (23) IBMC, 2nd Floor, Trinity
Bldg., San Luis, Manila; (24) IBMC, 2nd Flr., Gochangco Blg., 610 San Luis,
Manila; (25) United Housing Corp., Trinity Bldg., San Luis, Manila; (26)
Republic Real Estate Corp., Trinity Bldg., San Luis, Manila; (27) 1437 Colorado
St., Malate, Manila; (28) Phil. Tobacco Flue-Curing, Magsaysay Bldg., San Luis,
Manila and (29) 14 Baldwin St., Sta. Cruz, Manila, in the hearing of
Deportation Cases Nos. R-953 and 955 against petitioners, before the
Deportation Board, is hereby lifted. The preliminary injunction shall continue
as to the papers, documents and things found in the other premises namely: in
those of the residences of petitioners, as follows: (1) 13 Narra Road, Forbes
Park, Makati, Rizal; (2) 15 Narra Road, Forbes Park, Makati, Rizal; and (3) 8
Urdaneta Avenue, Urdaneta Village, Makati, Rizal." their respective
personalities, separate and distinct from the personality of herein petitioners,
regardless of the amount of shares of stock or of the interest of each of them in
said corporations, and whatever the offices they hold therein may be.

Indeed, it is well settled that the legality of a seizure can be contested

only by the party whose rights have been impaired thereby, and that the
objection to an unlawful search and seizure is purely personal and cannot be
availed of by third parties. Consequently, petitioners herein may not validly
object to the use in evidence against them of the documents, papers and
things seized from the offices and premises of the corporations adverted
to above, since the right to object to the admission of said papers in
evidence belongs exclusively to the corporations, to whom the seized
effects belong, and may not be invoked by the corporate officers in
proceedings against them in their individual capacity.11 Indeed, it has been
held:
"x x x that the Government's action in gaining possession of papers belonging
to the corporation did not relate to nor did it affect the personal defendants. If
these papers were unlawfully seized and thereby the constitutional rights of or
any one were invaded, they were the rights of the corporation and not the
rights of the other defendants,

Next, it is clear that a question of the lawfulness of a seizure can be raised only
by one whose rights have been invaded. Certainly, such a seizure, if unlawful,
could not affect the constitutional rights of defendants whose property had not
been seized or the privacy of whose homes had not been disturbed; nor could
they claim for them-selves the benefits of the Fourth Amendment, when its
violation, if any, was with reference to the rights of another. Remus vs. United
States (C.C.A.) 291 F. 501, 511. It follows, therefore, that the question of the
admissibility of the evidence based on an alleged unlawful search and seizure
does not extend to the personal defendants but embraces only the corporation
whose property was taken. x x x." (A. Guckenheimer & Bros. Co. vs United.
States, [1925] 3 F. 2d. 786, 789, Italics supplied.)

[No. 42780. January 17, 1936]

MANILA GAS CORPORATION, plaintiff and appellant, vs. THE COLLECTOR OF
INTERNAL REVENUE, defendant and appellee.

DUE PROCESS OF LAW; SITUS.—No state may tax anything not within its
jurisdiction without violating the due process clause of the constitution. The
taxing power of a state does not extend beyond its territorial limits, but within
such limits it may tax persons, property, income, or business.

If an interest in property is taxed, the situs of either the property or interest

must be found within the state. If an income is taxed, the recipient thereof
must have a domicile within the state or the property or business out of which
the income issues must be situated within the state so that the income may be
said to have a situs therein.

CASE AT BAR.—Held: That the Collector of Internal Revenue was justified in

withholding income taxes on dividends and interest on bonds and other
indebtedness paid by a resident Corporation to non-resident corporations.

APPEAL from a judgment of the Court of First Instance of Manila. Sison,

J.
The facts are stated in the opinion of the court.
DeWitt, Perkins & Ponce Enrile for appellant.
Solicitor-General Hilado for appellee.

MALCOLM, J.:

This is an action brought by the Manila Gas Corporation against the Collector of
Internal Revenue for the recovery of P56,757.37, which the plaintiff was required
by the defendant to deduct and withhold from the various sums paid by
it to foreign corporations as dividends and interest on bonds and other
indebtedness and which the plaintiff paid under protest. On the trial court
dismissing the complaint, with costs, the plaintiff appealed assigning as the
principal errors alleged to have been committed the following:

1. The trial court erred in holding that the dividends paid by the plaintiff
corporation were subject to income tax in the hands of its stockholders,
because to impose the tax thereon would be to impose a tax on the
plaintiff, in violation of the terms of its franchise, and would,
moreover, be oppressive and inequitable

2. The trial court erred in not holding that the interest on bonds and
other indebtedness of the plaintiff corporation, paid by it outside of the
Philippine Islands to corporations not residing therein, were not, on the
part of the recipients thereof, income from Philippine sources, and hence
not subject to Philippine income tax."

The facts, as stated by the appellant and as accepted by the appellee, may
be summarized as follows:

 The plaintiff is a corporation organized under the laws of the Philippine

Islands.
 It operates a gas plant in the City of Manila and f urnishes gas service to
the people of the metropolis and surrounding municipalities by virtue of
a franchise granted to it by the Philippine Government. Associated with
the plaintiff are the Islands Gas and Electric Company domiciled in New
York, United States, and the General Finance Company domiciled in
Zurich, Switzerland.
 Neither of these last mentioned corporations is resident in the
Philippines.
 For the years 1930, 1931, and 1932, dividends in the sum of
P1,348,847.50 were paid by the plaintiff to the Islands Gas and Electric
Company in the capacity of stockholders upon which withholding income
taxes were paid to the defendant totalling P40,460.03
 For the same years interest on bonds in the sum of P411,600 was paid
by the plaintiff to the Islands Gas and Electric Company upon which
 with-holding income taxes were paid to the defendant totalling P12,348.
Finally for the stated time period, interest on other indebtedness in the
sum of P131,644.90 was paid by the plaintiff to the Islands Gas and
Electric Company and the General Finance Company respectively upon
which withholding income taxes were paid to the defendant totalling
P3,949.34.
 Some uncertainty existing regarding the place of payment, we will not go
into this factor of the case at this point, except to remark that the bonds
and other tokens of indebtedness are not to be found in the record.
However, Exhibits E, F, and G, certified correct by the treasurer of
the Manila Gas Corporation, purport to prove that the place of
payment was the United States and Switzerland.

SC Ruling

The appeal naturaly divides into two subjects, one covered by the first
assigned error, and the other by the second assigned error. We will discuss
these subjects and errors in order.

1. Appellant first contends that the dividends paid by it to its stockholders,

the Islands Gas and Electric Company, were not subject to tax because
to impose a tax thereon would be to do so on the plaintiff corporation, in
violation of the terms of its franchise and would, moreover, be oppressive
and inequitable. This argument is predicated on the constitutional
provision that no law impairing the obligation of contracts shall be
enacted. The particular portion of the franchise which is invoked
provides:
"The grantee shall annually on the fifth day of January of each year pay to the
City of Manila and the municipalities in the Province of Rizal in which gas is
sold, two and onehalf per centum of the gross receipts within said city and
municipalities, respectively, during the preceding year. Said payment shall be
in lieu of all taxes, Insular, provincial and municipal, except taxes on the real
estate, buildings, plant, machinery, and other personal property belonging to
the grantee."

The trial judge was of the opinion that the instant case was
governed by our previous decision in the case of Philippine
Telephone and Telegraph Co. vs. Collector of Internal Revenue
([1933], 58 Phil., 639). In this view we concur. It is true that the tax
exemption provision relating to the Manila Gas Corporation hereinbefore
quoted differs in phraseology from the tax exemption provision to be
found in the franchise of the Telephone and Telegraph Company, but the
ratio decidendi of the two cases is substantially the same.
 As there held and as now confirmed, a corporation has a personality
distinct from that of its stockholders, enabling the taxing power to
reach the latter when they receive dividends from the corporation.
It must be considered as settled in this jurisdiction that dividends of a
domestic corporation, which are paid and delivered in cash to foreign
corporations as stockholders, are subject to the payment of the income
tax, the exemption clause in the charter of the corporation
notwithstanding.

For the foregoing reasons, we are led to sustain the decision of the trial
court and to overrule appellant's first assigned error.

2. In support of its second assignment of error, appellant contends that, as

the Islands Gas and Electric Company and the General Finance
Company are domiciled in the United States and Switzerland
respectively, and as the interest on the bonds and other indebtedness
earned by said corporations has been paid in their respective domiciles,
this is not income from Philippine sources within the meaning of the
Philippine Income Tax Law. Citing sections 10 (a) and 13 (e) of Act No.
2833, the Income Tax Law, appellant asserts that their applicability has
been squarely determined by decisions of this court in the cases of
Manila Railroad Co. vs. Collector of Internal Revenue (No. 31196,
promulgated December 2, 1929, not reported), and Philippine Railway
Co. vs. Posadas (No. 38766, promulgated October 30, 1933 [58 Phil.,
968]), wherein it was held that interest paid to non-resident individuals
or corporations is not income from Philippine sources, and hence not
subject to the Philippine income tax.
The SolicitorGeneral answers with the observation that the cited
decisions interpreted the Income Tax Law before it was amended by Act
No. 3761 to cover the interest on bonds and other obligations or
securities paid "within or without the Philippine Islands." Appellant
rebuts this argument by "assuming, for the sake of the argument, that by
the amendment introduced to section 13 of Act No. 2833 by Act No. 3761
the Legislature intended that interest received by non-residents is to be
considered income from Philippine sources and so is subject to tax," but
with the necessary sequel that the amendatory statute is invalid and
unconstitutional as being beyond the power of the Legislature to enact.

The approved doctrine is that no state may tax anything not within its
jurisdiction without violating the due process clause of the constitution.
The taxing power of a state does not extend beyond its territorial limits,
but within such limits it may tax persons, property, income, or business.
If an interest in property is taxed, the situs of either the property or
interest must be f ound within the state. If an income is taxed, the
recipient thereof must have a domicile within the state or the property or
 business out of which the income issues must be situated within the
state so that the income may be said to have a situs therein. Personal
property may be separated from its owner, and he may be taxed on its
account at the place where the property is although it is not the place of
his own domicile and even though he is not a citizen or resident of the
state which imposes the tax. But debts owing by corporations are
obligations of the debtors, and only possess value in the hands of
the creditors. (Farmers Loan Co. vs. Minnesota [1930], 280 U. S., 204;
Union Refrigerator Transit Co. vs. Kentucky [1905], 199 U.. S., 194;
State Tax on Foreignheld Bonds [1873], 15 Wall., 300; Buck vs. Beach
[1907], 206 U. S., 392; State ex rel Manitowoc Gas Co. vs. Wis. Tax
Comm. [1915], 161 Wis., 111; United States Revenue Act of 1932, sec.
143.)

These views concerning situs for taxation purposes apply as well

to an organized, unincorporated territory or to a Commonwealth
having the status of the Philippines.

Pushing to one side that portion of Act No. 3761 which permits taxation
of interest on bonds and other indebtedness paid without the Philippine
Islands, the question is if the income was derived from sources within
the Philippine Islands.

In the judgment of the majority of the court, the question should be

answered in the affirmative. The Manila Gas Corporation operates its
business entirely within the Philippines. Its earnings, therefore, come
from local sources. The place of material delivery of the interest to the
foreign corporations paid out of the revenue of the domestic corporation
is of no particular moment. The place of payment even if conceded to be
outside of the country cannot alter the fact that the income was derived
from the Philippines. The word "source" conveys only one idea, that
of origin, and the origin of the income was the Philippines.

In synthesis, therefore, we hold that conditions have not been provided

which justify the court in passing on the constitutional question
suggested; that the f acts while somewhat obscure differ from the facts to
be found in the cases relied upon, and that the Collector of Internal
Revenue was justified in withholding income taxes on interest on bonds
and other indebtedness paid to non-resident corporations because this
income was received from sources within the Philippine Islands as
authorized by the Income Tax Law. For the foregoing reasons, the second
assigned error will be overruled.

Philippine National Bank vs. Court of Appeals No. L-27155. May 18, 1978.*
 PHILIPPINE NATIONAL BANK, petitioner, vs. THE COURT OF
APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE
PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC.,
respondents.

Torts; Corporation Law; Corporations can be liable in same manner as

natural persons, for tort.—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 he expressly directs or authorizes, and this is just as true of a
corporation as of a natural person.

PETITION for certiorari to review the decision of the Court of Appeals.

ANTONIO, J.:

Certiorari to review the decision of the Court of Appeals which affirmed the judgment of the Court
of First Instance of Manila in Civil Case No. 34185, ordering petitioner, as third-party defendant,
to pay respondent Rita Gueco Tapnio, as third-party plaintiff, the sum of P2,379.71, plus 12%
interest per annum from September 19, 1957 until the same is fully paid, P200.00 attorney’s fees
and costs, the same amounts which Rita Gueco Tapnio was ordered to pay the Philippine
American General Insurance Co., Inc., to be paid directly to the Philippine American General
Insurance Co., Inc. in full satisfaction of the judgment rendered against Rita Gueco Tapnio in
favor of the former; plus P500.00 attorney’s fees for Rita Gueco Tapnio and costs. The basic
action is the complaint filed by Philamgen (Philippine American General Insurance Co.,
Inc.) as surety against Rita Gueco Tapnio and Cecilio Gueco, for the recovery of the sum
of P2,379.71 paid by Philamgen to the Philippine National Bank on behalf of
respondents Tapnio and Gueco, pursuant to an indemnity agreement. Petitioner Bank
was made third-party defendant by Tapnio and Gueco on the theory that their failure to pay the
debt was due to the fault or negligence of petitioner.

The facts as found by the respondent Court of Appeals, in affirming the

decision of the Court of First Instance of Manila, are quoted hereunder:
 “Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco Tapnio
as principal, in favor of the Philippine National Bank Branch at San
Fernando, Pampanga, to guarantee the payment of defendant Rita Gueco
Tapnio’s account with said Bank.
 In turn, to guarantee the payment of whatever amount the bonding
company would pay to the Philippine National Bank, both defendants
executed the indemnity agreement, Exh. B.
o Under the terms and conditions of this indemnity agreement,
whatever amount the plaintiff would pay would earn interest at the
rate of 12% per annum, plus attorney’s fees in the amount of 15%
of the whole amount due in case of court litigation.
 o “The original amount of the bond was for P4,000.00; hut the
amount was later reduced to P2,000.00.
o “It is not disputed that defendant Rita Gueco Tapnio was indebted
to the bank in the sum of P2,000.00, plus accumulated interests
unpaid, which she failed to pay despite demands.
 The Bank wrote a letter of demand to plaintiff, as per Exh. C; whereupon,
plaintiff paid the bank on September 18, 1957, the full amount due and
owing in the sum of P2,379.91, for and on account of defendant Rita
Gueco’s obligation (Exhs. D and D-1).
o “Plaintiff, in turn, made several demands, both verbal and written,
upon defendants (Exhs. E and F), but to no avail.
 “Defendant Rita Gueco Tapnio admitted all the foregoing facts.
o She claims, however, when demand was made upon her by
plaintiff for her to pay her debt to the Bank, that she told the
plaintiff that she did not consider herself to be indebted to the
Bank at all because she had an agreement with one Jacobo
Tuazon whereby she had leased to the latter her unused export
sugar quota for the 1956-1957 agricultural year, consisting of
1,000 piculs at the rate of P2.80 per picul, or for a total of
P2,800.00, which was already in excess of her obligation
guaranteed by plaintiff’s bond, Exh. A. This lease agreement,
according to her, was with the knowledge of the bank. But the
Bank has placed obstacles to the consummation of the lease,
and the delay caused by said obstacles forced Tuazon to
rescind the lease contract. Thus, Rita Gueco Tapnio filed her
third-party complaint against the Bank to recover from the latter
any and all sums of money which may be adjudged against her
and in favor of the plaintiff, plus moral damages, attorney’s fees
and costs.

“Insofar as the contentions of the parties herein are concerned, we quote

with approval the following findings of the lower court based on the
evidence presented at the trial of the case:
 ‘It has been established during the trial that Mrs. Tapnio had an export
sugar quota of 1,000 piculs for the agricultural year 1956-1957 which
she did not need. She agreed to allow Mr. Jacobo C. Tuazon to use said
quota for the consideration of P2,500.00 (Exh. “4”-Gueco).
 This agreement was called a contract of lease of sugar allotment. ‘At the
time of the agreement, Mrs. Tapnio was indebted to the Philippine
National Bank at San Fernando, Pampanga. Her indebtedness was
known as a crop loan and was secured by a mortgage on her standing
crop including her sugar quota allocation for the agricultural year
corresponding to said standing crop.
 This arrangement was necessary in order that when Mrs. Tapnio
harvests, the P.N.B., having a lien on the crop, may effectively enforce
collection against her.
 Her sugar cannot be exported without sugar quota allotment.
Sometimes, however, a planter harvest less sugar than her quota, so her
excess quota is utilized by another who pays her for its use.
 This is the arrangement entered into between Mrs. Tapnio and Mr.
Tuazon regarding the former’s excess quota for 1956-1957 (Exh. “4”-
Gueco).
 ‘Since the quota was mortgaged to the P.N.B., the contract of lease had to
be approved by said Bank. The same was submitted to the branch
manager at San Fernando, Pampanga. The latter required the parties to
raise the consideration of P2.80 per picul or a total of P2,800.00 (Exh.
“2-Gueco”) informing them that “the minimum lease rental acceptable to
the Bank, is P2.80 per picul.”
 In a letter addressed to the branch manager on August 10, 1956, Mr.
Tuazon informed the manager that he was agreeable to raising the
consideration to P2.80 per picul. He further informed the manager that
he was ready to pay said amount as the funds were in his folder which
was kept in the bank.
 ‘Explaining the meaning of Tuazon’s statement as to the funds, it was
stated by him that he had an approved loan from the bank but he had
not yet utilized it as he was intending to use it to pay for the quota.
Hence, when he said the amount needed to pay Mrs. Tapnio was in his
folder which was in the bank, he meant and the manager understood
and knew he had an approved loan available to be used in payment of
the quota.
 In said Exh. “6-Gueco”, Tuazon also informed the manager that he would
want for a notice from the manager as to the time when the bank needed
the money so that Tuazon could sign the corresponding promissory note.’
 “Further consideration of the evidence discloses that when the branch
manager of the Philippine National Bank at San Fernando recommended
the approval of the contract of lease at the price of P2.80 per picul (Exh.
11-Bank), whose recommendation was concurred in by the Vice-
president of said Bank, J. V. Buenaventura, the board of directors
required that the amount be raised to P3.00 per picul.
 This act of the board of directors was communicated to Tuazon, who in
turn asked for a reconsideration thereof. On November 19, 1956, the
branch manager submitted Tuazon’s request for reconsideration to the
board of directors with another recommendation for the approval of the
lease at P2.80 per picul, but the board returned the recommendation
unacted upon, considering that the current price prevailing at the time
was P3.00 per picul (Exh. 9-Bank). “The parties were notified of the
refusal on the part of the board of directors of the Bank to grant the
motion for reconsideration. The matter stood as it was until February 22,
 1957, when Tuazon wrote a letter (Exh. 10-Bank) informing the Bank
that he was no longer interested to continue the deal, referring to the
lease of sugar quota allotment in favor of defendant Rita Gueco Tapnio.
The result is that the latter lost the sum of P2,800.00 which she should
have received from Tuazon and which she could have paid the Bank to
cancel off her indebtedness.
 “The court below held, and in this holding we concur, that failure of the
negotiation for the lease of the sugar quota allocation of Rita Gueco
Tapnio to Tuazon was due to the fault of the directors of the
Philippine National Bank. The refusal on the part of the bank to
approve the lease at the rate of P2.80 per picul which, as stated above,
would have enabled Rita Gueco Tapnio to realize the amount of
P2,800.00 which was more than sufficient to pay off her indebtedness to
the Bank, and its insistence on the rental price of P3.00 per picul thus
unnecessarily increasing the value by only a difference of P200.00,
inevitably brought about the rescission of the lease contract to the
damage and prejudice of Rita Gueco Tapnio in the aforesaid sum of
P2,800.00.
 The unreasonableness of the position adopted by the board of directors
of the Philippine National Bank in refusing to approve the lease at the
rate of P2.80 per picul and insisting on the rate of P3.00 per picul, if only
to increase the retail value by only P200.00 is shown by the fact that all
the accounts of Rita Gueco Tapnio with the Bank were secured by chattel
mortgage on standing crops, assignment of leasehold rights and interests
on her properties, and surety bonds, aside from the fact that from Exh.
8-Bank, it appears that she was offering to execute a real estate
mortgage in favor of the Bank to replace the surety bond, This statement
is further bolstered by the fact that Rita Gueco Tapnio apparently had
the means to pay her obligation to the Bank, as shown by the fact that
she has been granted several sugar crop loans of the total value of
almost P80,000.00 for the agricultural years from 1952 to 1956.”
 Its motion for the reconsideration of the decision of the Court of Appeals
having been denied, petitioner filed the present petition.

SC Ruling
The contract of lease of sugar quota allotment at P2.50 per picul between Rita
Gueco Tapnio and Jacobo C. Tuazon was executed on April 17, 1956. This
contract was submitted to the Branch Manager of the Philippine National Bank
at San Fernando, Pampanga. This arrangement was necessary because
Tapnio’s indebtedness to petitioner was secured by a mortgage on her standing
crop including her sugar quota allocation for the agricultural year
corresponding to said standing crop. The latter required the parties to raise the
consideration to P2.80 per picul, the minimum lease rental acceptable to the
Bank, or a total of P2,800.00. Tuazon informed the Branch Manager, thru a
letter dated August 10, 1956, that he was agreeable to raising the
consideration to P2.80 per picul. He further informed the manager that he was
ready to pay the said sum of P2,800.00 as the funds were in his folder which
was kept in the said Bank. This referred to the approved loan of Tuazon from
the Bank which he intended to use in paying for the use of the sugar quota.
The Branch Manager submitted the contract of lease of sugar quota allocation
to the Head Office on September 7, 1956, with a recommendation for approval,
which recommendation was concurred in by the Vice-President of the Bank,
Mr. J. V. Buenaventura. This notwithstanding, the Board of Directors of
petitioner required that the consideration be raised to P3.00 per picul.

Tuazon, after being informed of the action of the Board of Directors, asked for a
reconsideration thereof. On November 19, 1956, the Branch Manager
submitted the request for reconsideration and again recommended the
approval of the lease at P2.80 per picul, but the Board returned the
recommendation unacted, stating that the current price prevailing at that time
was P3.00 per picul.

On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was
no longer interested in continuing the lease of sugar quota allotment. The crop
year 1956-1957 ended and Mrs. Tapnio failed to utilize her sugar quota,
resulting in her loss in the sum of P2,800.00 which she should have received
had the lease in favor of Tuazon been implemented.

It has been clearly shown that when the Branch Manager of petitioner required
the parties to raise the consideration of the lease from P2.50 to P2.80 per picul,
or a total of P2,800.00, they readily agreed. Hence, in his letter to the Branch
Manager of the Bank on August 10, 1956, Tuazon informed him that the
minimum lease rental of P2.80 per picul was acceptable to him and that he
even offered to use the loan secured by him from petitioner to pay in full the
sum of P2,800.00 which was the total consideration of the lease. This
arrangement was not only satisfactory to the Branch Manager but it was also
approved by Vice-President J. V. Buenaventura of the PNB. Under that
arrangement, Rita Gueco Tapnio could have realized the amount of
P2,800.00, which was more than enough to pay the balance of her
indebtedness to the Bank which was secured by the bond of Philamgen.

There is no question that Tapnio’s failure to utilize her sugar quota for the crop
year 1956-1957 was due to the disapproval of the lease by the Board of
Directors of petitioner. The issue, therefore, is whether or not petitioner is
liable for the damage caused.

As observed by the trial court, time is of the essence in the approval of the
lease of sugar quota allotments, since the same must be utilized during the
milling season, because any allotment which is not filled during such milling
season may be reallocated by the Sugar Quota Administration to other holders
of allotments.

There was no proof that there was any other person at that time willing to lease
the sugar quota allotment of private respondents for a price higher than P2.80
per picul. “The fact that there were isolated transactions wherein the
consideration for the lease was P3.00 a picul”, according to the trial
court, “does not necessarily mean that there are always ready takers of
said price.” The unreasonableness of the position adopted by the petitioner’s
Board of Directors is shown by the fact that the difference between the amount
of P2.80 per picul offered by Tuazon and the P3.00 per picul demanded by the
Board amounted only to a total sum of P200.00. Considering that all the
accounts of Rita Gueco Tapnio with the Bank were secured by chattel mortgage
on standing crops, assignment of leasehold rights and interests on her
properties, and surety bonds and that she had apparently “the means to pay
her obligation to the Bank, as shown by the fact that she has been granted
several sugar crop loans of the total value of almost P80,000.00 for the
agricultural years from 1952 to 1956”, there was no reasonable basis for the
Board of Directors of petitioner to have rejected the lease agreement because of
a measly sum of P200.00.

While petitioner had the ultimate authority of approving or disapproving the

proposed lease since the quota was mortgaged to the Bank, the latter certainly
cannot escape its responsibility of observing, for the protection of the interest
of private respondents, that degree of care, precaution and vigilance which the
circumstances justly demand in approving or disapproving the lease of said
sugar quota. The law makes it imperative that every person “must in the
exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.”4 This petitioner failed
to do. Certainly, it knew that the agricultural year was about to expire, that by
its disapproval of the lease private respondents would be unable to utilize the
sugar quota in question. In failing to observe the reasonable degree of care and
vigilance which the surrounding circumstances reasonably impose, petitioner
is consequently liable for the damages caused on private respondents. Under
Article 21 of the New Civil Code, “any person who wilfully causes loss or injury
to another in a manner that is contrary to morals, good customs or public
policy shall compensate the latter for the damage.” The afore cited provisions on
human relations were intended to expand the concept of torts in this jurisdiction
by granting adequate legal remedy for the untold number of moral wrongs which
is impossible for human foresight to specifically provide in the statutes.
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 he 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.”6

Manila Electric Company vs. T.E.A.M. Electronics Corporation G.R. No.

131723. December 13, 2007.*

MANILA ELECTRIC COMPANY, petitioners, vs. T.E.A.M. ELECTRONICS CORPORATION,

TECHNOLOGY ELECTRONICS ASSEMBLY and MANAGEMENT PACIFIC CORPORATION; and
ULTRA ELECTRONICS INSTRUMENTS, INC., respondents.

Corporation Law; As a rule, a corporation is not entitled to moral

damages because, not being a natural person, it cannot experience
physical suffering or sentiments like wounded feelings, serious anxiety,
mental anguish and moral shock, the only exception to this rule is when
the corporation has a reputation that is debased, resulting in its
humiliation in the business realm.—We, however, deem it proper to delete
the award of moral damages. TEC’s claim was premised allegedly on the
damage to its goodwill and reputation. As a rule, a corporation is not entitled to
moral damages because, not being a natural person, it cannot experience
physical suffering or sentiments like wounded feelings, serious anxiety, mental
anguish and moral shock. The only exception to this rule is when the
corporation has a reputation that is debased, resulting in its humiliation
in the business realm. But in such a case, it is imperative for the claimant to
present proof to justify the award. It is essential to prove the existence of the
factual basis of the damage and its causal relation to petitioner’s acts. In the
present case, the records are bereft of any evidence that the name or
reputation of TEC/TPC has been debased as a result of petitioner’s acts.
Besides, the trial court simply awarded moral damages in the dispositive
portion of its decision without stating the basis thereof.

PETITION for review on certiorari of the decision and resolution of the

Court of Appeals.

The facts are stated in the opinion of the Court.

Florentino & Esmaquel Law Office for petitioner.
Antonio R. Bautista & Partners for respondents.
Bienvenido D. Comia for Ultra Electronics Instrument.

NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal
of the Decision of the Court of Appeals (CA) dated June 18, 1997 and its Resolution2 dated
December 3, 1997 in CA-G.R. CV No. 40282 denying the appeal filed by petitioner Manila Electric
Company.

The facts of the case, as culled from the records, are as follows:

 Respondent T.E.A.M. Electronics Corporation (TEC) was formerly known

as NS Electronics (Philippines), Inc. before 1982 and National Semi-
Conductors (Phils.) before 1988. TEC is wholly owned by respondent
Technology Electronics As-Manila Electric Company vs. T.E.A.M.
Electronics Corporation Assembly and Management Pacific Corporation
(TPC).
 On the other hand, petitioner Manila Electric Company (Meralco) is a
utility company supplying electricity in the Metro Manila area.
 Petitioner and NS Electronics (Philippines), Inc., the predecessor-in-
interest of respondent TEC, were parties to two separate contracts
denominated as Agreements for the Sale of Electric Energy under the
following account numbers: 09341-1322-163 and 09341-1812-13.
o Under the aforesaid agreements, petitioner undertook to supply
TEC’s building known as Dyna Craft International Manila (DCIM)
located at Electronics Avenue, Food Terminal Complex, Taguig,
Metro Manila, with electric power.
 Another contract was entered into for the supply of electric power to
TEC’s NS Building under Account No. 19389-0900-10.
 In September 1986, TEC, under its former name National Semi-
Conductors (Phils.) entered into a Contract of Lease with respondent
Ultra Electronics Industries, Inc. (Ultra) for the use of the former’s
DCIM building for a period of five years or until September 1991. Ultra
was, however, ejected from the premises on February 12, 1988 by virtue
of a court order, for repeated violation of the terms and conditions of the
lease contract.
 On September 28, 1987, a team of petitioner’s inspectors conducted a
surprise inspection of the electric meters installed at the DCIM
building, witnessed by Ultra’s representative, Mr. Willie Abangan. The
two meters covered by account numbers 09341-1322-16 and 09341-
1812-13, were found to be allegedly tampered with and did not register
the actual power consumption in the building. The results of the
inspection were reflected in the Service Inspection Reports prepared by
the team.
 In a letter dated November 25, 1987, petitioner informed TEC of the
results of the inspection and demanded from the latter the payment of
P7,040,401 representing its unregistered consumption from
February 10, 1986 until September 28, 1987, as a result of the
alleged tampering of the meters.
 TEC received the letters on January 7, 1988. Since Ultra was in
possession of the subject building during the covered period, TEC’s
Managing Director, Mr. Bobby Tan, referred the demand letter to
Ultra which, in turn, informed TEC that its Executive Vice-President
had met with petitioner’s representative. Ultra further intimated that
assuming that there was tampering of the meters, petitioner’s
assessment was excessive.
 For failure of TEC to pay the differential billing, petitioner disconnected
the electricity supply to the DCIM building on April 29, 1988.
 TEC demanded from petitioner the reconnection of electrical service,
claiming that it had nothing to do with the alleged tampering but the
latter refused to heed the demand.
 Hence, TEC filed a complaint on May 27, 1988 before the Energy
Regulatory Board (ERB) praying that electric power be restored to
the DCIM building.
 The ERB immediately ordered the reconnection of the service but
petitioner complied with it only on October 12, 1988 after TEC paid
P1,000,000.00, under protest.
 The complaint before the ERB was later withdrawn as the parties deemed
it best to have the issues threshed out in the regular courts. Prior to the
reconnection, or on June 7,1988, petitioner conducted a scheduled
inspection of the questioned meters and found them to have been
tampered anew.
 Meanwhile, on April 25, 1988, petitioner conducted another inspection,
this time, in TEC’s NS Building. The inspection allegedly revealed that
the electric meters were not registering the correct power consumption.
 Petitioner, thus, sent a letter dated June 18, 1988 demanding payment
of P280,813.72 representing the differential billing.
 TEC denied petitioner’s allegations and claim in a letter dated June 29,
1988.
 Petitioner, thus, sent TEC another letter demanding payment of the
aforesaid amount, with a warning that the electric service would be
disconnected in case of continued refusal to pay the differential billing.
 To avert the impending disconnection of electrical service, TEC paid the
above amount, under protest.

The case in RTC

On January 13, 1989, TEC and TPC filed a complaint for damages against
petitioner and Ultra before the Regional Trial Court (RTC) of Pasig. The case
was raffled to Branch 162 and was docketed as Civil Case No. 56851.

 Upon the filing of the parties’ answer to the complaint, pre-trial was
scheduled. At the pre-trial, the parties agreed to limit the issues, as
follows:
 1. Whether or not the defendant Meralco is liable for the plaintiffs’
disconnection of electric service at DCIM Building.
2. Whether or not the plaintiff is liable for (sic) the defendant for the
differential billings in the amount of P7,040,401.01.
3. Whether or not the plaintiff is liable to defendant for exemplary
damages.19

RTC Ruling

For failure of the parties to reach an amicable settlement, trial on the merits
ensued. On June 17, 1992, the trial court rendered a Decision in favor of
respondents TEC and TPC, and against respondent Ultra and petitioner.
The pertinent portion of the decision reads:
“WHEREFORE, judgment is hereby rendered in this case in favor of the
plaintiffs and against the defendants as follows:
(1) Ordering both defendants Meralco and ULTRA Electronics Instruments, Inc. to jointly and
severally reimburse plaintiff TEC actual damages in the amount of ONE MILLION PESOS with
legal rate of interest from the date of the filing of this case on January 19, 1989 until the said
amount shall have been fully paid;
(2) Ordering defendant Meralco to pay to plaintiff TEC the amount of P280,813.72 as actual
damages with legal rate of interest also from January 19, 1989;
(3) Ordering defendant Meralco to pay to plaintiff TPC the amount of P150,000.00 as actual
damages with interest at legal rate from January 19, 1989;
(4) Condemning defendant Meralco to pay both plaintiffs moral damages in the amount
pf P500,000.00;
(5) Condemning defendant Meralco to pay both plaintiffs corrective and/or exemplary damages
in the amount of P200,000.00;
(6) Ordering defendant Meralco to pay attorney’s fees in the amount of P200,000.00
Costs against defendant Meralco.
SO ORDERED.”

The trial court found the evidence of petitioner insufficient to prove that
TEC was guilty of tampering the meter installations. The deformed
condition of the meter seal and the existence of an opening in the wire duct
leading to the transformer vault did not, in themselves, prove the alleged
tampering, especially since access to the transformer was given only to
petitioner’s employees.

The sudden drop in TEC’s (or Ul-tra’s) electric consumption did not, per se,
show meter tampering. The delay in the sending of notice of the results of the
inspection was likewise viewed by the court as evidence of inefficiency and
arbitrariness on the part of petitioner.

More importantly, petitioner’s act of disconnecting the DCIM build-ing’s electric

supply constituted bad faith and thus makes it liable for damages.
The court further denied petitioner’s claim of differential billing primarily on
the ground of equitable negligence.

Considering that TEC and TPC paid P1,000,000.00 to avert the disconnection
of electric power; and because Ultra manifested to settle the claims of
petitioner, the court imposed solidary liability on both Ultra and petitioner for
the payment of the P1,000,000.00.

CA Ruling
Ultra and petitioner appealed to the CA which affirmed the RTC decision, with
a modification of the amount of actual damages and interest thereon. The
dispositive portion of the CA decision dated June 18, 1997, states:
“WHEREFORE, this Court renders judgment affirming in toto the Decision
rendered by the trial court with the slight modification that the interest at legal
rate shall be computed from January 13, 1989 and that Meralco shall pay
plaintiff T.E.A.M. Electronics Corporation and Technology Electronics Assembly
and Management Pacific Corporation the sum of P150,000.00 per month for
five (5) months for actual damages incurred when it was compelled to lease a
generator set with interest at the legal rate from the above-stated date.

The appellate court agreed with the RTC’s conclusion. In addition, it

considered petitioner negligent for failing to discover the alleged defects
in the electric meters; in belatedly notifying TEC and TPC of the results of
the inspection; and in disconnecting the electric power without prior notice.

SC Ruling:

The petition must fail.

Contrary to petitioner’s claim that there was a drastic and unexplainable drop
in TEC’s electric consumption during the affected period, the Pattern of TEC’s
Electrical Consumption shows that the sudden drop is not peculiar to the said
period. Noteworthy is the observation of the RTC in this wise:

“In fact, in Account No. 09341-1812-13 (heretofore referred as Account/Meter

No. 2), as evidenced by Exhibits “35” and “35-A,” there was likewise a sudden
drop of electrical consumption from the year 1984 which recorded an average
141,300 kwh/month to 1985 which recorded an average kwh/month at 87,600
or a difference-drop of 53,700 kwh/month; from 1985’s 87,600 recorded
consumption, the same dropped to 18,600 kwh/month or a difference-drop of
69,000 kwh/month. Surely, a drop of 53,700 could be equally categorized as a
sudden drop amounting to 69,000 which, incidentally, the Meralco claimed as
“unexplainable. x x x.”29
The witnesses for petitioner who testified on the alleged tampering of the
electric meters, declared that tampering is committed by consumers to prevent
the meter from registering the correct amount of electric consumption, and
result in a reduced monthly electric bill, while continuing to enjoy the same
power supply. Only the registration of actual electric energy consumption, not
the supply of electricity, is affected when a meter is tampered with. The
witnesses claimed that after the inspection, the tampered electric meters were
corrected, so that they would register the correct consumption of TEC.
Logically, then, after the correction of the allegedly tampered meters, the
customer’s registered consumption would go up.

In this case, the period claimed to have been affected by the tampered electric
meters is from February 1986 until September 1987. Based on petitioner’s
Billing Record (for the DCIM building), TEC’s monthly electric consumption on
Account No. 9341-1322-16 was between 4,500 and 27,000 kWh. Account No.
9341-1812-13 showed a monthly consumption between 9,600 and 34,200
kWh. It is interesting to note that,after correction of the allegedly tampered
meters, TEC’s monthly electric consumption from October 1987 to February
1988 (the last month that Ultra occupied the DCIM building) was between
8,700 and 24,300 kWh in its first account, and 16,200 to 46,800 kWh on the
second account.
Even more revealing is the fact that TEC’s meters registered 9,300 kWh and
19,200 kWh consumption on the first and second accounts, respectively, a
month prior to the inspection. On the first month after the meters were
corrected, TEC’s electric consumption registered at 9,300 kWh and 22,200
kWh on the respective accounts.

These figures clearly show that there was no palpably drastic difference
between the consumption before and after the inspection, casting a cloud of
doubt over petitioner’s claim of meter-tampering.

Indeed, Ultra’s explanation that the corporation was losing; thus, it had lesser
consumption of electric power appear to be the more plausible reason for the
drop in electric consumption.

Petitioner likewise claimed that when the subject meters were again inspected
on June 7, 1988, they were found to have been tampered anew. The Court
notes that prior to the inspection, TEC was informed about it; and months
before the inspection, there was an unsettled controversy between TEC and
petitioner, brought about by the disconnection of electric power and the non-
payment of differential billing. We are more disposed to accept the trial court’s
conclusion that it is hard to believe that a customer previously apprehended
for tampered meters and assessed P7 million would further jeopardize itself in
the eyes of petitioner.
If it is true that there was evidence of tampering found on September 28, 1987
and again on June 7, 1988, the better view would be that the defective meters
were not actually corrected after the first inspection.

If so, then Manila Electric Company v. Macro Textile Mills Corporation would
apply, where we said that we cannot sanction a situation wherein the defects in
the electric meter are allowed to continue indefinitely until suddenly, the public
utilities demand payment for the unrecorded electricity utilized when they could
have remedied the situation immediately. Petitioner’s failure to do so may
encourage neglect of public utilities to the detriment of the consuming public.
Corollarily, it must be underscored that petitioner has the imperative duty to
make a reasonable and proper inspection of its apparatus and equipment to
ensure that they do not malfunction, and the due diligence to discover and
repair defects therein. Failure to perform such duties constitutes negligence.
By reason of said negligence, public utilities run the risk of forfeiting amounts
originally due from their cus-tomers.
As to the alleged tampering of the electric meter in TEC’s NS building, suffice it
to state that the allegation was not proven, considering that the meters therein
were enclosed in a metal cabinet the metal seal of which was unbroken, with
petitioner having sole access to the said meters.
In view of the negative finding on the alleged tampering of electric meters on
TEC’s DCIM and NS buildings, petitioner’s claim of differential billing was
correctly denied by the trial and appellate courts. With greater reason,
therefore, could petitioner not exercise the right of immediate disconnection.

Petitioner, in the instant case, resorted to the remedy of disconnection without

prior notice. While it is true that petitioner sent a demand letter to TEC for the
payment of differential billing, it did not include any notice that the electric
supply would be disconnected. In fine, petitioner abused the remedies
granted to it under P.D. 401 and Revised General Order No. 1 by
outrightly depriving TEC of electrical services without first notifying it of
the impending disconnection. Accordingly, the CA did not err in affirming
the RTC decision.

As to the damages awarded by the CA, we deem it proper to modify the same.

 Actual damages are compensation for an injury that will put the injured
party in the position where it was before the injury. They pertain to such
injuries or losses that are actually sustained and susceptible of
measurement. Except as provided by law or by stipulation, a party is
entitled to adequate compensation only for such pecuniary loss as is
duly proven. Basic is the rule that to recover actual damages, not only
must the amount of loss be capable of proof; it must also be actually
 proven with a reasonable degree of certainty, premised upon competent
proof or the best evidence obtainable.

Respondent TEC sufficiently established, and petitioner in fact admitted,

that the former paid P1,000,000.00 and P280,813.72 under protest, the
amounts representing a portion of the latter’s claim of differential billing.
With the finding that no tampering was committed and, thus, no
differential billing due, the aforesaid amounts should be returned by
petitioner, with interest, as ordered by the Court of Appeals and
pursuant to the guidelines set forth by the Court.

However, despite the appellate court’s conclusion that no tampering was

committed, it held Ultra solidarily liable with petitioner for
P1,000,000.00, only because the former, as occupant of the
building, promised to settle the claims of the latter. This ruling is
erroneous. Ultra’s promise was conditioned upon the finding of defect or
tampering of the meters. It did not acknowledge any culpability and
liability, and absent any tampered meter, it is absurd to make the lawful
occupant liable. It was petitioner who received the P1 million; thus,
it alone should be held liable for the return of the amount.

TEC also sufficiently established its claim for the reimbursement of the
amount paid as rentals for the generator set it was constrained to rent by
reason of the illegal disconnection of electrical service. The official
receipts and purchase orders submitted by TEC as evidence sufficiently
show that such rentals were indeed made. However, the amount of
P150,000.00 per month for five months, awarded by the CA, is excessive.
Instead, a total sum of P150,000.00, as found by the RTC, is proper.
 As to the payment of exemplary damages and attorney’s fees, we find no
cogent reason to disturb the same. Exemplary damages are imposed by
way of example or correction for the public good in addition to moral,
temperate, liquidated, or compensatory damages. In this case, to serve as
an example—that before a disconnection of electrical supply can be
effected by a public utility, the requisites of law must be complied with—
we affirm the award of P200,000.00 as exemplary damages. With the
award of exemplary damages, the award of attorney’s fees is likewise
proper, pursuant to Article 220848 of the Civil Code. It is obvious that
TEC needed the services of a lawyer to argue its cause through three
levels of the judicial hierarchy. Thus, the award of P200,000.00 is in
order.

 We, however, deem it proper to delete the award of moral damages.
TEC’s claim was premised allegedly on the damage to its goodwill and
reputation. As a rule, a corporation is not entitled to moral damages
because, not being a natural person, it cannot experience physical
 suffering or sentiments like wounded feelings, serious anxiety, mental
anguish and moral shock. The only exception to this rule is when the
corporation has a reputation that is debased, resulting in its
humiliation in the business realm. But in such a case, it is imperative
for the claimant to present proof to justify the award. It is essential to
prove the existence of the factual basis of the damage and its causal
relation to petitioner’s acts.In the present case, the records are bereft of
any evidence that the name or reputation of TEC/TPC has been debased
as a result of petitioner’s acts. Besides, the trial court simply awarded
moral damages in the dispositive portion of its decision without stating
the basis thereof.

ETERNAL GARDENS MEMORIAL PARK CORP., PETITIONER, VS.

KATHERINE JUNETTE B. PERLAS, KATHRYN JACQUELYN F. BOISER,
AND SPOUSES CLAUDIO AND ROSITA BONIFACIO, RESPONDENTS.

DECISION

DELOS SANTOS, J.:

Facts

 Petitioner Eternal Gardens Memorial Park Corporation (Eternal Gardens) is

an entity engaged in developing memorial parks and offers an array of
memorial care products and services.
 Respondents Katherine Junette B. Perlas (Katherine) and Kathryn
Jacquelyn F. Boiser (Kathryn; collectively, Boiser siblings) are two (2) of
the five (5) children of Narciso C. Boiser (Narciso) and Zenaida F. Boiser
(Zenaida).

 During her lifetime, Zenaida purchased from Eternal Gardens 24

burial lots (subject property) covered by Certificate of Ownership No.
55953 issued on June 7, 1985. Zenaida died on September 13, 1999.
Sometime in 2000, Boiser siblings found out that the subject property
were sold to spouses Claudio and Rosita Bonifacio (Spouses Bonifacio)
by Kathryn's former live-in partner, Michael Magpantay (Magpantay).

 This prompted the filing of a Complaint for nullification of contract

by Boiser siblings against Magpantay, Spouses Bonifacio, and
Eternal Gardens before the Regional Trial Court (RTC) of Caloocan City,
Branch 131, docketed as Civil Case No. C-20192.

 In their complaint, Boiser siblings averred that shortly after their

mother's death, Kathryn instructed Magpantay to inquire from Eternal
 Gardens the status of the subject property. She was then informed by
Magpantay that Zenaida had sold the subject property to a person who
further sold them to another.

 Upon conducting their own investigation with the employees of Eternal

Gardens, Boiser siblings learned that the subject property were sold by
Zenaida to Magpantay in February 2000.

 The latter then sold the lots to Spouses Bonifacio. Boiser siblings made
several attempts to communicate with Eternal Gardens to clarify the
situation and requested to furnish them the documents evidencing the
sale, but to no avail.

 Boiser siblings contended that Zenaida could have not sold the subject
property to Magpantay in 2000 because she was already dead at the time
of the transaction. They also alleged that Eternal Gardens conspired
with Magpantay given the circumstances.

 In its Answer, Eternal Gardens asseverated that Boiser siblings had no

cause of action against it as Kathryn herself, together with Magpantay,
submitted the Affidavit of Loss with an Undertaking purported to be
signed by Zenaida stating that the title to the subject property was lost.

 It also claimed that Kathryn had knowledge of the Deed of Assignment

covering the subject property executed in favor of Magpantay. Eternal
Gardens denied that it conspired with Magpantay and instead avowed
that Magpantay and Kathryn were actively following-up the release of
the new title in the name of Magpantay. Upon its release, it was
Kathryn who received the same and signed the receipt. Finally, Eternal
Gardens insisted that the documents submitted to it being all public
documents, it is not duty-bound to inquire beyond what are stated
therein. Its duty to issue a certificate of ownership, according to it,
becomes ministerial upon submission of the requirements for a valid
transfer.

 Meanwhile, the other compulsory heirs of Zenaida, namely: Kathleen Kay

F. Boiser, Kathreen Jennifer F. Boiser-Santiago (Kathreen), Kirk John F.
Boiser, and Narciso, then filed a motion for intervention. The motion was
denied for failure to append the complaint-in-intervention. However, the
RTC allowed them to file their motion with the corresponding pleadings.
Only Kathreen and her father Narciso (collectively, intervenors), however,
re-filed the motion with the attached complaint-in-intervention, which
was granted and admitted by the RTC.13
  For their part, Spouses Bonifacio filed their Answer with Counterclaim
and Cross Claim contending that they are the absolute owners and
buyers in good faith of the subject property as evidenced by a Certificate
of Ownership No. 24095. They asseverated that in April 2000, Magpantay
executed a Deed of Assignment in their favor transferring his rights over
Lots 1-24, Section E, Block 28, Family Estate, Eternal Love-FE, then
covered by Certificate of Ownership No. 240071registered under
Magpantay's name. Upon full payment of the purchase price of the
subject property, Noli Balbin (Balbin) and Leandro Resoles (Resoles),
employees of Eternal Gardens, issued an Acknowledgment Receipt. A
certificate of ownership was subsequently issued in their names.

 In its Answer to Cross-Claim, Eternal Gardens denied the allegations of

bad faith and conspiracy with Magpantay, pinning down Magpantay and
Kathryn ultimately as the conspirators.

 Upon motion of both intervenors and Spouses Bonifacio, Magpantay

was declared in default.

 In their Cross-Claim (against Kathryn), intervenors prayed that Kathryn

be ordered to pay the amount equivalent to the amount of the subject
property, damages, and attorney's fees, in case it is proven that she
conspired with Magpantay.

 In her defense, Kathryn denied any involvement in the transaction

entered by Magpantay and claimed to have no knowledge of the same.

 On January 18, 2006, Branch 131 was designated as a family court,

thus the case was re-raffled to Branch 122. Pre-trial and trial thereafter
ensued. During the pendency of the case, Narciso died.26

RTC Ruling

The RTC, in its Decision dated June 13, 2013, held Eternal Gardens
liable to return the amount paid by Spouses Bonifacio less the value of the lot
actually used as burial site for their grandchild. It brushed aside Eternal
Gardens' claim that it did not authorize or know the participation of its
employees in the transaction between Magpantay and Spouses
Bonifacio. By issuing a certificate of ownership in favor of Spouses Bonifacio,
the RTC ruled that Eternal Gardens ratified its employees' actions. It further
pointed out that Kathryn's alleged participation in the transfer of the subject
property in favor of Magpantay is insufficient to free Eternal Gardens from its
obligation arising from the acts of its employees.

The dispositive portion reads:

WHEREFORE, and in view of our disquisitions above, the Court resolves to:

1.) DECLARE as NULL AND VOID the Deed of Assignment between Zenaida Boiser in favor of
Michael Magpantay dated February 22, 2000;

2.) CANCEL Eternal Gardens Memorial Park Corporation Certificate of Ownership No. 24007
issued under the name of Michael Magpantay and Eternal Gardens Memorial Park Corporation
Certificate of Ownership No. 24095 issued in the name of Claudio and Rosita Bonifacio and
REINSTATE Eternal Gardens Memorial Park Corporation Certificate of Ownership No. 5595
issued under the name of Zenaida F. Boiser; and

3.) DIRECT the defendant Eternal Gardens Memorial Park Corporation to return to Spouses
Rosita and Claudio Bonifacio Two Million Two Hundred Thousand Pesos (Php2,200,000.00),
deducting therefrom the amount/value of the lot where their grandchild was buried;

4.) DIRECT the defendant Michael Magpantay to pay plaintiffs and intervenor heirs of Zenaida
Boiser the amount of One Hundred Thousand Pesos (Php 100,000.00) as moral and exemplary
damages, and DIRECT the defendant Michael Magpantay to pay Spouses Rosita and Claudio
Bonifacio and Eternal Gardens moral and exemplary damages in the amount of One Hundred
Thousand Pesos (Php 100,000.00).

In so far as litigation expenses are concerned, prudence dictates that each party shall bear their
respective expenses.

SO ORDERED.29

Aggrieved, Eternal Gardens appealed with the Court of Appeals (CA).

CA Ruling

The CA, in its Decision dated August 25, 2017, partially granted the
appeal.

The CA agreed with the RTC's finding that the deed of assignment did not
transfer any right to Magpantay as it was executed after the death of Zenaida.
It, however, opined that Spouses Bonifacio cannot be faulted when they relied
on the certificate of ownership registered in the name of Magpantay as it did
not contain any defect on its face which would warrant to investigate on the
seller's ownership.

Thus, the CA upheld the ruling of the RTC on Eternal Gardens' liability to
return the amount paid by Spouses Bonifacio after deducting the value of the
lot used to bury their grandchild. It, however, also found Magpantay and
Kathryn solidarity liable with Eternal Gardens as their participation was
indispensable for the subsequent transaction involving Spouses Bonifacio. The
CA disposed the case as follows:

WHEREFORE, premises considered, the Appeal is partially granted. The

Decision dated June 13, 2013 rendered by Regional Trial Court, Branch 122,
Caloocan City in Civil Case No. C-20192 is AFFIRMED WITH MODIFICATIONS,
to wit:

1 The Deed of Assignment between Zenaida Boiser in favor of Michael

Magpantay dated February 22, 2000 is declared NULL and VOID;

2 The defendant-appellant Eternal Gardens Memorial Park Corporation is

ordered to CANCEL Certificate of Ownership No. 24007 issued under the name
of Michael Magpantay, and Certificate of Ownership No. 24095 issued in the
name of Claudio and Rosita Bonifacio[;]

3 The defendant-appellant Eternal Gardens Memorial Park Corporation is

ordered to REISSUE Certificate of Ownership under the name of Zenaida F.
Boiser for the burial lots excluding the lot where the grandchild of spouses
Bonifacio was buried;

4 Defendant-appellant Eternal Gardens Memorial Park Corporation is ordered

to ISSUE a Certificate of Ownership to Spouses Claudio and Rosita Bonifacio
covering the burial lot of their grandchild;

5 Defendant-appellant Eternal Gardens Memorial Park Corporation, Michael

Magpantay, and Kathryn Jacquelyn Boiser are SOLIDARILY ordered to
RETURN to Spouses Rosita and Claudio Bonifacio Two Million Two Hundred
Thousand Pesos (Php 2,200,000.00), deducting therefrom the amount/value of
the lot where spouses Bonifacio's grandchild was buried;

6 The defendant-appellant Eternal Gardens, Michael Magpantay, and Kathryn

Jacquelyn Boiser are SOLIDARILY ordered to PAY to plaintiff-appellee
Katherine Junette B. Perlas and intervenor Kathreen Jennifer Boiser-Santiago,
the value of the burial lot where the grandchild of Spouses Claudio and Rosita
Bonifacio was buried;

7 Defendant-appellant Eternal Gardens, Michael Magpantay, and Kathryn

Jacquelyn Boiser are SOLIDARILY ordered to PAY plaintiff-appellee Katherine
Junette B. Perlas and intervenor Kathreen Jennifer Boiser-Santiago the
amount of Fifty Thousand Pesos (Php 50,000.00) as moral damages and Fifty
Thousand Pesos (Php 50,000.00) as exemplary damages, and SOLIDARILY PAY
Spouses Rosita and Claudio Bonifacio damages in the amount of One Hundred
Thousand Pesos (Php 100,000.00).

Eternal Gardens filed its Motion for Reconsideration, but same was denied in
the assailed Resolution33 dated December 12, 2017.
SC Ruling:

Thus, Eternal Gardens filed the present Petition for Review on Certiorari

 Eternal Gardens disowned the acts of its employees, Balbin and

Resoles, for being ultra vires because as its employees, they were
only authorized to act within the scope of their duties. It stated that
Balbin's task as Assistant Operations Manager was to oversee the
operations of the memorial park and did not include the selling of
memorial lots as the said duties belong to Eternal Gardens' sales agents.
Thus, it argued that in selling the privately-owned memorial lots, they
already exceeded their authority and became personally liable for their
actions. As such, the doctrine of apparent authority is inapplicable.

- Eternal Gardens further contended that it would be a height of

injustice to return to Spouses Bonifacio the amount of
P2,200,000.00 less the amount of the used burial lot,
considering that it was Balbin and Resoles who received the
payment upon issuing a falsified acknowledgment receipt of
Eternal Gardens
- Lastly, Eternal Gardens insisted that Kathryn and Magpantay
should be made liable to pay moral damages as their acts of
falsifying the deed of assignment and affidavit of loss defrauded
Eternal Gardens in issuing a certificate of ownership in favor of
Magpantay. It added that they were also liable to pay exemplary
damages, attorney's fees, and litigation costs on the ground that
it was compelled to litigate and to incur expenses to protect its
interest.

 In their Comment/Opposition, Boiser siblings asserted that Eternal

Gardens is liable to return the amount paid by Spouses Bonifacio for its
failure to exercise prudence in processing the transfer of ownership
of the subject property from Zenaida to Magpantay and from the
latter to Spouses Bonifacio. Whether the transaction that caused the
transfer was sanctioned by the corporation does not matter because,
according to them, Eternal Gardens as the employer is answerable for
the adverse consequence of the acts of its employees.

The Court's Ruling

The petition has no merit.

Notably, the issues raised by Eternal Gardens in this case are factual.
The existence of an agency, whether or not an agency was created,
whether Balbin and Resoles were authorized by Eternal Gardens to act as its
agent relative to the sale of the subject property, whether they acted within the
bounds of their apparent authority, and whether Eternal Gardens is estopped to
deny the apparent authority of its agents, are questions of fact to be resolved on
the basis of the evidence on record.
Essentially, Eternal Gardens imputes error on the part of the CA in
holding it solidarity liable with Magpantay and Kathryn to pay the monetary
award and damages to Spouses Bonifacio, Katherine, and Kathreen.
Eternal Gardens reiterated in its Reply that it is not liable because
Balbin and Resoles acted beyond the authority given to them by becoming
agents of Magpantay in selling the subject property to Spouses Bonifacio.
Eternal Gardens even cited Article 1897 of the Civil Code, which provides:

Art. 1897. The agent who acts as such is not personally liable to the
party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party sufficient
notice of his powers.

It should be emphasized that the principle of agency, specifically Article

1897, finds no application in this case. As correctly found by the CA, Balbin
and Resoles were not authorized to sell the subject property in the name of
Magpantay. A special power of attorney is required before an agent can
enter into any contract on behalf of the principal where the ownership of
an immovable is transmitted or acquired either gratuitously or for a
valuable consideration. Here, there was none. Both the RTC and the CA found
that no such authority was given by Magpantay to sell the subject lots to
Spouses Bonifacio.

This notwithstanding, Eternal Gardens still cannot be absolved from

liability to Spouses Bonifacio. It can no longer deny the authority of its
employees, Balbin and Resoles, in transacting with Spouses Bonifacio under
the doctrine of apparent authority. In Engineering Geoscience, Inc. v.
Philippine Savings Bank,47 the Court explained:

Under this doctrine, 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. Furthermore, the principal's liability 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
actually given.48

In this case, as aptly concluded by the CA, by issuing the certificate of

ownership to Spouses Bonifacio, Eternal Gardens acknowledged the authority
of its employees to transact business on its behalf. It can no longer renege on
its duty when it knowingly accepted the documents accomplished by its own
employees.

On the claim for payment of moral and exemplary damages, attorney's fees,
and costs of suit, the matter has already been sufficiently discussed by the CA
in this wise:

Generally, corporations are not entitled to moral damages. However, an

exception would be in cases of violation of Articles 19, 20 and 21 of the Civil
Code. Furthermore, the claim for damages under Article 21 must satisfy the
following requisites:

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. It is done with intent to injure.

The acts perpetrated by Kathryn and Magpantay were illegal as falsification of

public documents is a crime punishable under the Revised Penal Code.

For failing to satisfy the requisites to be entitled to claim under Article 21 of the
Civil Code, the Court is constrained to rule that Eternal Gardens is not entitled
to moral damages.