7 G.R. No.

125469 October 27, 1997

PHILIPPINE STOCK EXCHANGE, INC. vs. CA, SEC and PALI

SEC - the government agency, under the direct general supervision of the Office of the President, with the immense task of enforcing the
Revised Securities Act, and all other duties assigned to it by pertinent laws.
-has supervision of all corporations, partnerships or associations, who are grantees of primary franchise and/or a license or permit
issued by the government to operate in the Philippines.
Petition for Review on Certiorari -> petitioner assails the resolution of CA which affirmed the decision of SEC ordering the petitioner PSE to
allow the private respondent PALI to be listed in its stock market, thus paving the way for the public offering of PALI's shares.
FACTS:
PALI - Puerto Azul Land, Inc.; a domestic real estate corporation
PALI sought to offer its shares to the public in order to raise funds allegedly to develop its properties and pay its loans with several
banking institutions.
PALI was issued a Permit to Sell its shares to the public by SEC
PALI sought to course the trading of its shares through the PSE to facilitate the trading of its shares among investors
The Board of Governors of the PSE received a letter from the heirs of Ferdinand E. Marcos, claiming that the late President Marcos
was the legal and beneficial owner of certain properties forming part of the Puerto Azul Beach Hotel and Resort Complex which PALI
claims to be among its assets and that the Ternate Development Corporation, which is among the stockholders of PALI, likewise
appears to have been held and continue to be held in trust by one Rebecco Panlilio for then President Marcos and now, effectively
for his estate, and requested PALI's application to be deferred.
PALI -> the properties forming part of the Puerto Azul Beach Hotel and Resort Complex were not claimed by PALI as its assets.
o the resort is actually owned by Fantasia Filipina Resort, Inc. and the Puerto Azul Country Club, entities distinct from PALI.
o Ternate Development Corporation owns only 1.20% of PALI.
Marcoses -> their claim is not confined to the facilities forming part of the Puerto Azul Hotel and Resort Complex, thereby implying
that they are also asserting legal and beneficial ownership of other properties titled under the name of PALI.
PSE wrote Chairman Magtanggol Gunigundo of PCGG requesting for comments on the letters of the PALI and the Marcoses.
PSE was informed that the Marcoses received a TRO by Executive Judge of the RTC of Pasig City in Civil Case No. 65561on the same
date, enjoining the Marcoses from "further impeding, obstructing, delaying or interfering in any manner by or any means with the
consideration, processing and approval by the PSE of the initial public offering of PALI."
The Board of Governors of the PSE rejected PALI's application, citing the existence of serious claims, issues and circumstances
surrounding PALI's ownership over its assets that adversely affect the suitability of listing PALI's shares in the stock exchange.
PALI requested SEC to review the PSE's action on PALI's listing application and institute such measures as are just and proper under
the circumstances.
SEC reversed PSE's decision
PSE filed an MR which was denied by the Commission. PALI is hereby ordered to amend its registration statements filed with the
Commission to incorporate the full disclosure of these material facts and information.
PSE filed with CA -> a Petition for Review (with Application for Writ of Preliminary Injunction and Temporary Restraining Order)
CA dismissed PSE's Petition for Review.
CA -> SEC had both jurisdiction and authority to look into the decision of the petitioner PSE, pursuant to Section 3 3 of the Revised
Securities Act in relation to Section 6(j) and 6(m) 4 of P.D. No. 902-A, and Section 38(b)5 of the Revised Securities Act, and for the
purpose of ensuring fair administration of the exchange. Both as a corporation and as a stock exchange, the petitioner is subject to
public respondent's jurisdiction, regulation and control considering that the petitioner is a stock exchange whose business is
impressed with public interest.
-> PALI complied with all the requirements for public listing, affirming the SEC's ruling that PSE has acted in an arbitrary and
abusive manner in disapproving the application of PALI for listing of its shares.
->argument: PALI properties belong to the Military/Naval Reservation -> PALI properties are now titled. A property loses its
public character the moment it is covered by a title. The titles have long been settled by a final judgment; and the final decree
having been registered, they can no longer be re-opened considering that the one year period has already passed. ->the
determination of what standard to apply in allowing PALI's application for listing (discretion method or the system of public
disclosure -> should be addressed to the SEC -> the government agency that exercises both supervisory and regulatory authority
over all corporations.
PSE -> CA erred that SEC had authority to order PSE to list the shares of PALI in the stock exchange. Under PD No. 902-A, the powers
of the SEC over stock exchanges are more limited as compared to its authority over ordinary corporations. The powers of the SEC
over stock exchanges under the Revised Securities Act are specifically enumerated, and these do not include the power to reverse
the decisions of the stock exchange -> in accord with the "business judgment rule" -> the SEC and the courts are barred from
intruding into business judgments of corporations, when the same are made in good faith; precludes the reversal of the decision of
the PSE to deny PALI's listing application, absent a showing of bad faith on the part of the PSE -> under the listing rules of the PSE, to
which PALI had previously agreed to comply, the PSE retains the discretion to accept/reject applications for listing.
->SEC has no jurisdiction over sequestered corporations, nor with corporations whose properties are under sequestration ->
Republic of the Philippines vs. Sadiganbayan -> the properties of PALI, which were derived from the Ternate Development
Corporation (TDC) and the Monte del Sol Development Corporation (MSDC). are under sequestration by the PCGG, and subject
of forfeiture proceedings in the Sandiganbayan -> this categorically declares that the assets of these corporations were
sequestered by the PCGG on March 10, 1986 and April 4, 1988.
->CA's sanction that PALI's ownership over its properties can no longer be questioned, since certificates of title have been issued
to PALI and more than one year has since lapsed, is erroneous and ignores well settled jurisprudence on land titles -> a
certificate of title issued under the Torrens System is a conclusive evidence of ownership is not an absolute rule and admits
certain exceptions. Forest lands/military reservations are non-alienable -> when a title covers them, such title is void.
->SEC's and CAs reliance on the alleged policy of "full disclosure" to uphold the listing of PALI's shares with the PSE, in the
absence of a clear mandate for the effectivity of such policy -> PALI did not comply with the listing rules and disclosure
requirements -> PALI's documents contained misrepresentations and misleading statements, and concealed material
information -> the sequestration of PALI's properties and they form part of military/naval/forest reservations were not reflected
in PALI's application.
Hence, this Petition by the PSE.

ISSUE: What is the theory of enterprise entity?

HELD: A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and with a distinct legal
personality. In organizing itself as a collective body, it waives no constitutional immunities and perquisites appropriate to such a body. As
to its corporate and management decisions, therefore, the state will generally not interfere with the same. Questions of policy and of
management are left to the honest decision of the officers and directors of a corporation, and the courts are without authority to
substitute their judgment for the judgment of the board of directors. The board is the business manager of the corporation, and so long as
it acts in good faith, its orders are not reviewable by the courts.
NOTE:
Section 9 of the Revised Securities Act sets forth the possible Grounds for the Rejection of the registration of a security:
The Commission may reject a registration statement and refuse to issue a permit to sell the securities included in such
registration statement if it finds that
 (1) The registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue statement
of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein
not misleading; or
(2) The issuer or registrant
(i) is not solvent or not in sound financial condition;
(ii) has violated or has not complied with the provisions of this Act, or the rules promulgated pursuant thereto, or
any order of the Commission;
(iii) has failed to comply with any of the applicable requirements and conditions that the Commission may, in the
public interest and for the protection of investors, impose before the security can be registered;
(iv) has been engaged or is engaged or is about to engage in fraudulent transaction;
(v) is in any way dishonest or is not of good repute; or
(vi) does not conduct its business in accordance with law or is engaged in a business that is illegal or contrary to
government rules and regulations.
(3) The enterprise or the business of the issuer is not shown to be sound or to be based on sound business principles;
(4) An officer, member of the board of directors, or principal stockholder of the issuer is disqualified to be such officer, director
or principal stockholder; or
(5) The issuer or registrant has not shown to the satisfaction of the Commission that the sale of its security would not work to
the prejudice of the public interest or as a fraud upon the purchasers or investors. (Emphasis Ours)

The Court finds that PALI, on nos. 1 and 5, has failed to support the propriety of the issue of its shares with unfailing clarity, thereby
lending support to the conclusion that the PSE acted correctly in refusing the listing of PALI in its stock exchange. This does not discount
the effectivity of whatever method the SEC chooses in setting the standard for public offerings of corporations wishing to do so. But SEC
must recognize and implement the mandate of the law, particularly the Revised Securities Act, the provisions of which cannot be
amended/supplanted by mere administrative issuance.

PSE has acted with justified circumspection, discounting any imputation of arbitrariness and whimsical animation on its part. Its action in
refusing to allow the listing of PALI in the stock exchange is justified by the law and by the circumstances attendant to this case.

13 G.R. No. 84197 July 28, 1989

PIONEER INSURANCE & SURETY CORPORATION vs. CA, BORMAHECO, CONSTANCIO M. MAGLANA and JACOB S. LIM
G.R. No. 84157 July 28, 1989
JACOB S. LIM vs.CA, PIONEER, BORMAHECO, FRANCISCO and MODESTO CERVANTES and CONSTANCIO MAGLANA

The subject matter of these consolidated petitions is the decision of the Court of Appeals which modified the decision of CFI Manila. The
plaintiffs complaint (petitioner in G.R. No. 84197) against all defendants (respondents in G.R. No. 84197) was dismissed but in all other
respects the trial court's decision was affirmed.
FACTS:
Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator of SAL (a single
proprietorship).
May 17, 1965, at Tokyo, Japan - Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract for the sale
and purchase of 2 DC-3A Type aircrafts and 1 set of necessary spare parts for the total agreed price of US $109,000.00 to be
paid in installments. One DC-3 Aircraft with Registry No. PIC-718, arrived in Manila on June 7, 1965 while the other aircraft,
arrived in Manila on July 18,1965.
May 22, 1965 Pioneer (petitioner in G.R. No. 84197) as surety executed and issued its Surety Bond No. 6639 in favor of JDA,
in behalf of its principal, Lim, for the balance price of the aircrafts and spare parts.
It appears that Bormaheco, Cervanteses and Constancio Maglana (respondents in both petitions) contributed some funds used
in the purchase of the above aircrafts and spare parts. The funds were supposed to be their contributions to a new corporation
proposed by Lim to expand his airline business. They executed 2 separate indemnity agreements in favor of Pioneer, one
signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. The indemnity agreements
stipulated that the indemnitors principally agree and bind themselves jointly and severally to indemnify and hold and save
harmless Pioneer from and against any/all damages, losses, costs, damages, taxes, penalties, charges and expenses of
whatever kind and nature which Pioneer may incur in consequence of having become surety upon the bond/note and to pay,
reimburse and make good to Pioneer, its successors and assigns, all sums and amounts of money which it or its representatives
should or may pay or cause to be paid or become liable to pay on them of whatever kind and nature.
June 10, 1965 - Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattel mortgage
as security for the latter's suretyship in favor of the former. It was stipulated therein that Lim transfer and convey to the surety
the two aircrafts. The deed was duly registered with the Office of the Register of Deeds of the City of Manila and with the Civil
Aeronautics Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law ( RA No. 776), respectively.
Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. Pioneer paid a
total sum of P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff of Davao City. The
Cervanteses and Maglana filed a third party claim alleging that they are co-owners of the aircrafts,
July 19, 1966 - Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment against
Lim and respondents, the Cervanteses, Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were not privies to
the contracts signed by Lim and, by way of counterclaim, sought for damages for being exposed to litigation and for recovery
of the sums of money they advanced to Lim for the purchase of the aircrafts in question.
After trial, Lim was held liable to pay Pioneer but dismissed Pioneer's complaint against all other defendants.
CA modified the trial court's decision in that the plaintiffs complaint against all the defendants was dismissed. In all other
respects the trial court's decision was affirmed.

ISSUE: Can the failure of respondents Bormaheco, Sps Cervantes & Maglana to form a corporation result at least in the formation of a de
facto partnership?

HELD:

Merits of G.R. No. 84157:

Petitioner Jacob S. Lim:

What legal rules govern the relationship among co-investors whose agreement was to do business through the corporate
vehicle but who failed to incorporate the entity in which they had chosen to invest?
How are the losses to be treated in situations where their contributions to the intended 'corporation' were invested not
through the corporate form?

Court believed these ?s were resolved erroneously by CA.

They are premised on the petitioner's theory -> as a result of the failure of respondents Bormaheco, Spouses Cervantes, Constancio
Maglana and petitioner Lim to incorporate -> a de facto partnership among them was created, and consequently all must share in the
losses and/or gains of the venture in proportion to their contribution.

Petitioner questions the CA's findings ordering him to reimburse certain amounts given by the respondents to the petitioner as their
contributions to the intended corporation.
Principles:
While it has been held that as between themselves the rights of the stockholders in a defectively incorporated association
should be governed by the supposed charter and the laws of the state relating thereto and not by the rules governing partners,
it is ordinarily held that persons who attempt, but fail, to form a corporation and who carry on business under the corporate
name occupy the position of partners inter se. Thus, where persons associate themselves together under articles to purchase
property to carry on a business, and their organization is so defective as to come short of creating a corporation within the
statute, they become in legal effect partners inter se, and their rights as members of the company to the property acquired by
the company will be recognized. So, where certain persons associated themselves as a corporation for the development of land
for irrigation purposes, and each conveyed land to the corporation, and two of them contracted to pay a third the difference in
the proportionate value of the land conveyed by him, and no stock was ever issued in the corporation, it was treated as a
trustee for the associates in an action between them for an accounting, and its capital stock was treated as partnership assets,
sold, and the proceeds distributed among them in proportion to the value of the property contributed by each. However, such
a relation does not necessarily exist, for ordinarily persons cannot be made to assume the relation of partners, as between
themselves, when their purpose is that no partnership shall exist, and it should be implied only when necessary to do justice
between the parties; thus, one who takes no part except to subscribe for stock in a proposed corporation which is never legally
formed does not become a partner with other subscribers who engage in business under the name of the pretended
corporation, so as to be liable as such in an action for settlement of the alleged partnership and contribution. A partnership
relation between certain stockholders and other stockholders, who were also directors, will not be implied in the absence of an
agreement, so as to make the former liable to contribute for payment of debts illegally contracted by the latter.

Petitioner was declared non-suited for his failure to appear during the pretrial despite notification. He denied having received any amount
from respondents Bormaheco, the Cervanteses and Maglana. Lower courts found through Exhibit 58, that the petitioner received the
amount of P151K representing the participation of Bormaheco and Atty. Constancio B. Maglana in the ownership of the subject airplanes
and spare parts. Maglana gave P75K to petitioner Jacob Lim thru the Cervanteses.

Clear -> petitioner never had the intention to form a corporation with the respondents despite his representations to them. This gives
credence to the cross-claims of the respondents -> they were induced and lured by the petitioner to make contributions to a proposed
corporation which was never formed because the petitioner reneged on their agreement.

Maglana alleged in his cross-claim:

... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to expand his airline business. Lim was
to procure two DC-3's from Japan and secure the necessary certificates of public convenience and necessity as well as the
required permits for the operation thereof. Maglana sometime in May 1965, gave Cervantes his share of P75K for delivery to
Lim which Cervantes did and Lim acknowledged receipt thereof. Cervantes, likewise, delivered his share of the undertaking.
Lim in an undertaking sometime on or about August 9, 1965, promised to incorporate his airline in accordance with their
agreement and proceeded to acquire the planes on his own account. Since then up to the filing of this answer, Lim has refused,
failed and still refuses to set up the corporation or return the money of Maglana.

while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim, cross-claim and third party complaint:
Sometime in April 1965, defendant Lim lured and induced the answering defendants to purchase two airplanes and spare parts
from Japan which the latter considered as their lawful contribution and participation in the proposed corporation to be known
as SAL. Arrangements and negotiations were undertaken by defendant Lim. Down payments were advanced by defendants
Bormaheco and the Cervanteses and Constancio Maglana (Exh. E- 1). Contrary to the agreement among the defendants,
defendant Lim in connivance with the plaintiff, signed and executed the alleged chattel mortgage and surety bond agreement
in his personal capacity as the alleged proprietor of the SAL. The answering defendants learned for the first time of this trickery
and misrepresentation of the other, Jacob Lim, when the herein plaintiff chattel mortgage (sic) allegedly executed by
defendant Lim, thereby forcing them to file an adverse claim in the form of third party claim. Notwithstanding repeated oral
demands made by defendants Bormaheco and Cervanteses, to defendant Lim, to surrender the possession of the two planes
and their accessories and or return the amount advanced by the former amounting to an aggregate sum of P 178+K as
evidenced by a statement of accounts, the latter ignored, omitted and refused to comply with them.

Applying the principles of law to the facts of the case -> no de facto partnership was created among the parties which would entitle the
petitioner to a reimbursement of the supposed losses of the proposed corporation. Petitioner was acting on his own and not in behalf of
his other would-be incorporators in transacting the sale of the airplanes and spare parts.

WHEREFORE, the instant petitions are DISMISSED. The questioned decision of CA is AFFIRMED.

19 G.R. No. L-2880 December 4, 1906

FRANK S. BOURNS vs. D. M. CARMAN, ET AL.
FACTS:
Plaintiff seeks to recover the sum of $437.50 -> balance due on a contract for the sawing of lumber for the lumber yard of Lo-
Chim-Lim.
The contract was entered into by the said Lo-Chim-Lim, acting as in his own name with the plaintiff, and it appears that Lo-
Chim-Lim personally agreed to pay for the work himself.
Plaintiff brought this action against Lo-Chim-Lim and his codefendants jointly, alleging that, at the time the contract was made,
they were joint proprietors and operators of the said lumber yard engaged in the purchase and sale of lumber under the name
and style of Lo-Chim-Lim -> they were partners of Lo-Chim-Lim in the said lumber-yard business.
Trial court dismissed the action as to the defendants D. M. Carman and Fulgencio Tan-Tongco on the ground that they were
not the partners of Lo-Chim-Lim, and rendered judgment against the other defendants for the amount claimed in the
complaint with costs of proceedings.
Vicente Palanca and Go-Tauco moved for a new trial, and brought the case to this court by bill of exceptions.
Trial court: "That Lo-Chim-Lim had a certain lumber yard in Calle Lemery of the city of Manila, and that he was the manager of
the same, having ordered the plaintiff to do some work for him at his sawmill in the city of Manila; and that Vicente Palanca
was his partner, and had an interest in the said business as well as in the profits and losses thereof . . .," and that Go-Tuaco
received part of the earnings of the lumber yard in the management of which he was interested.
Trial court found that "Lo-Chim-Lim, Vicente Palanca, Go-Tuaco had a lumber yard in Calle Lemmery of the city of Manila in the
year 1904, and participated in the profits and losses of business and that Lo-Chim-Lim was managing partner of the said lumber
yard" -> coparticipants with Lo-Chim-Lim in the business in question.
ISSUE: What is the real legal nature of the participation which the appellants had in Lo-Chim-Lim's lumber yard, and consequently their
liability toward the plaintiff, in connection with the transaction which gave rise to the present suit?

HELD: The alleged partnership between Lo-Chim-Lim and the appellants was formed by verbal agreement only. No evidence that the said
agreement was reduced to writing, or that it was ever recorded in a public instrument.

The partnership had no corporate name. The plaintiff himself alleges in his complaint that the partnership was engaged in business under
the name and style of Lo-Chim-Lim only (name of one of the defendants). It does not appear that there was any mutual agreement
between the parties, and if there were any, it has not been shown what the agreement was. It seems that the business was conducted by
Lo-Chim-Lim in his own name, although he gave to the appellants a share which has been shown with certainty. The contracts made with
the plaintiff were made by Lo-Chim-Lim individually in his own name, and there is no evidence that the partnership contracted in any
other form. The Court found this partnership as a partnership of cuentas en participacion. It is nothing but a simple business conducted
by Lo-Chim-Lim exclusively, in his own name, the names of other persons interested in the profits and losses of the business nowhere
appearing. A partnership constituted in such a manner, the existence of which was only known to those who had an interest in the same,
being no mutual agreements between the partners and without a corporate name indicating to the public in some way that there were
other people besides the one who ostensibly managed and conducted the business, is exactly the accidental partnership of cuentas en
participacion defined in article 239 of the Code of Commerce.

Those who contract with the person under whose name the business of such partnership of cuentas en participacion is conducted, shall
have only a right of action against such person and not against the other persons interested, and the latter shall have no right of action
against the third person who contracted with the manager unless such manager formally transfers his right to them. (Art 242 of the code
Of Commerce.)

Therefore the plaintiff has no right to demand from the appellants the payment of the amount claimed in the complaint, as Lo-Chim-Lim
was the only one who contracted with him. The action of the plaintiff lacks a legal foundation and should be accordingly dismissed.

The judgment appealed from was reversed and the appellants were absolved of the complaint without express provisions as to the costs
of both instances.

25 G.R. No. L-27155 May 18, 1978

PNB vs. CA, RITA GUECO TAPNIO, CECILIO GUECO and PHILAMGEN

Certiorari to review the decision of CA which affirmed the judgment of CFI ordering P, as third-party defendant, to pay R Rita Gueco
Tapnio, as third-party plaintiff, the sum of P2K+ plus 12% interest per annum from September 19, 1957 until the same is fully paid,
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 Philamgen (Philippine American General Insurance Co., Inc.) in full satisfaction of the judgment rendered
against Rita Gueco Tapnio in favor of the former; plus attorney's fees for Rita Gueco Tapnio and costs.

The basic action is the complaint filed by Philamgen as surety against Rita Gueco Tapnio and Cecilio Gueco, for the recovery of the sum of
2K+ paid by Philamgen to PNB on behalf of Rs Tapnio & Gueco, pursuant to an indemnity agreement. P Bank was made third-party
defendant by Tapnio & Gueco on the theory that their failure to pay the debt was due to the fault/negligence of P.
FACTS:
Plaintiff executed its Bond with defendant Rita Gueco Tapnio as principal, in favor of PNB 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 PNB, both defendants executed the indemnity agreement. 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.
The original amount of the bond was for P4K; but the amount was later reduced to P2K.
It is not disputed that defendant Rita Gueco Tapnio was indebted to the bank in the sum of P2K, plus accumulated interests
unpaid, which she failed to pay despite demands. The Bank wrote a letter of demand to plaintiff; 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 .
Plaintiff made several demands, both verbal and written, upon defendants but to no avail.
Defendant Rita Gueco Tapnio admitted all. She claims 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-Nazon whereby she had leased to the latter her unused export sugar quota for the 1956-1957
agricultural year, consisting of 1K 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. This lease agreement 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 Nazon 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.

RTC:
Mrs. Tapnio had an export sugar quota of 1K 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 -> contract of lease of sugar allotment.
At the time of the agreement, Mrs. Tapnio was indebted to PNB San Fernando, Pampanga -> crop loan -> 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, a planter
harvest less sugar than her quota, so her excess quota is utilized by another who pays her for its use.
Since the quota was mortgaged to P.N.B., the contract of lease had to be approved by said Bank. The latter required the parties
to raise the consideration of P2.80 per picul (total of P2,800.00) informing them that "the minimum lease rental acceptable to
the Bank, is P2.80 per picul." Mr. Tuazon (thru letter) informed the manager that he was agreeable to raising the consideration
to P2.80 per picul & that he was ready to pay said amount as the funds were in his folder which was kept in the bank -> 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

When the branch manager of PNB San Fernando recommended the approval of the contract of lease at the price of P2.80 per
picul concurred in by the VP of said Bank, the BODs required that the amount be raised to 13.00 per picul.

Tuazon asked for a reconsideration thereof. The board did not act upon it.
 Tuazon informed the Bank that he was no longer interested to continue the deal (lease of sugar quota allotment in favor of
defendant Rita Gueco Tapnio).

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 failure of the negotiation for the lease of the sugar quota allocation of Rita Gueco Tapnio to Tuazon was due to the fault
and unreasonableness of the directors of the PNB -> the refusal on the part of the bank to approve the lease at the rate of
P2.80 per picul which 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. This 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.

Its MR of the decision of CA was denied.

P contends that CA erred that

(1) the rescission of the lease contract of the 1,000 piculs of sugar quota allocation of respondent Rita Gueco Tapnio by Jacobo C. Tuazon
was due to the unjustified refusal of P to approve said lease contract, and its unreasonable insistence on the rental price of P3.00 instead
of P2.80 per picul; and
(2) based on the statistics of sugar price and prices of sugar quota in the possession of the P, the latter's BODs correctly fixed the rental of
price per picul of 1,000 piculs of sugar quota leased by respondent Rita Gueco Tapnio to Jacobo C. Tuazon at P3.00 per picul.

P -> as an assignee of the sugar quota of Tapnio, it has the right, both under its own Charter and under the Corporation Law, to safeguard
and protect its rights and interests under the deed of assignment, which include the right to approve or disapprove the said lease of sugar
quota and in the exercise of that authority, its

BODs had authority to determine and fix the rental price per picul of the sugar quota subject of the lease between private respondents
and Jacobo C. Tuazon. It argued further that both under its Charter and the Corporation Law, P, acting thru its BODs, has the perfect right
to adopt a policy with respect to fixing of rental prices of export sugar quota allocations, and in fixing the rentals at P3.00 per picul, it did
not act arbitrarily since the said Board was guided by statistics of sugar price and prices of sugar quotas prevailing at the time. Since the
fixing of the rental of the sugar quota is a function lodged with petitioner's BODs and is a matter of policy, the respondent CA could not
substitute its own judgment for that of said BODs, which acted in good faith, making as its basis therefore the prevailing market price as
shown by statistics which were then in their possession.

P -> shall suffer a great injustice because as a creditor -> be deprived of a just claim against its debtor (respondent Rita Gueco Tapnio) as it
would be required to return to respondent Philamgen the sum of P2,379.71+interest, which amount had been previously paid to
petitioner by said insurance company in behalf of the principal debtor (Rita Gueco Tapnio) and without recourse against her.

Hence, the present petition.

ISSUE: W/N petitioner is liable for the damage caused.

HELD:

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. 3 There was no proof that there was any other person at that time willing to lease the sugar quota
allotment of PRs 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 does not necessarily mean that there are always ready takers of said price. " The unreasonableness of the position
adopted by the P's BODs 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 P to have rejected the lease agreement because of a measly sum of P200.00.

While P 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 PRs, that degree of care, precaution and
vigilance which the circumstances justly demand in approving or disapproving the lease of said sugar quota.

Law -> 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,

This P failed to do. Certainly, it knew that the agricultural year was about to expire, that by its disapproval of the lease PRs 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, P is consequently liable for the damages caused on private respondents.

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."
-> 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 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."

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby AFFIRMED.
31 G.R. No. L-19190 November 29, 1922
THE PEOPLE OF THE PHILIPPINE ISLANDS vs. VENANCIO CONCEPCION

FACTS:

Venancio Concepcion (then President of PNB) by telegrams and a letter of confirmation to the manager of PNB Aparri, authorized an
extension of credit in favor of "Puno y Concepcion, S. en C." in the amount of P300K as per memorandum order of President Concepcion
limiting the discretional power of the local manager at Aparri, Cagayan, to grant loans and discount negotiable documents to P5K, which
could be increased to P10K. The only security required consisting of 6 demand notes. The notes, with the interest, were taken up and paid
by July 17, 1919.

"Puno y Concepcion, S. en C." was a co-partnership capitalized at P100,000: Anacleto Concepcion P5k; Clara Vda. de Concepcion, P5k;
Miguel S. Concepcion, P20k (administrator of the company); Clemente Puno, P20k; and Rosario San Agustin, "casada con Gral. Venancio
Concepcion," P50k.

Venancio Concepcion was charged in CFI Cagayan with a violation of section 35 of Act No. 2747. He was found guilty and sentenced to
imprisonment for 1 year & 6 months, to pay a fine of P3,000, with subsidiary imprisonment in case of insolvency, and the costs.

Section 35 of Act No. 2747 (effective on February 20, 1918): "The National Bank shall not, directly or indirectly, grant loans to any of the
members of the board of directors of the bank nor to agents of the branch banks."

Section 49: "Any person who shall violate any of the provisions of this Act shall be punished by a fine not to exceed 10K pesos, or by
imprisonment not to exceed 5 years, or by both such fine and imprisonment."

These 2 sections were in effect in 1919 when the alleged unlawful acts took place, but were repealed by Act No. 2938, approved on
January 30, 1921.

ISSUES & HELD:

I. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the
Philippine National Bank, a "loan" within the meaning of section 35 of Act No. 2747?

Counsel -> documents of record -> no proof that authority to make a loan was given, but only concession of a credit.
Counsel is correct -> exhibits -> speak of a "credito" (credit) & not of a " prestamo" (loan).
"credit" of an individual -> his ability to borrow money by virtue of the confidence or trust reposed by a lender that he will pay what he
may promise. (Donnell vs. Jones [1848], 13 Ala., 490; Bouvier's Law Dictionary.)
"loan" -> delivery by one party & the receipt by the other party of a given sum of money, upon an agreement (express or implied) to repay
the sum loaned, with/without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.)
concession of a "credit" -> involves the granting of "loans" up to the limit of the amount fixed in the "credit,"

II. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C.," by Venancio Concepcion, President of the
Philippine National Bank, a "loan" or a "discount"?

Counsel -> while section 35 of Act No. 2747 prohibits the granting of a "loan," it does not prohibit what is commonly known as a
"discount."

H. Parker Willis (then President of the National Bank) -> inquired of the Insular Auditor whether section 37 of Act No. 2612 was intended
to apply to discounts as well as to loans.

Ruling of the Acting Insular Auditor -> said section referred to loans alone, and placed no restriction upon discount transactions.

Discounts are favored by bankers because of their liquid nature, growing, as they do, out of an actual, live, transaction.

To discount a paper is only a mode of loaning money, with these distinctions: (1) In a discount, interest is deducted in advance, while in a
loan, interest is taken at the expiration of a credit; (2) a discount is always on double-name paper; a loan is generally on single-name
paper.

As ruled by the Insular Auditor -> the law covers loans and not discounts, yet the conclusion is inevitable that the demand notes signed by
the firm "Puno y Concepcion, S. en C." were not discount paper but were mere evidences of indebtedness, because (1) interest was not
deducted from the face of the notes, but was paid when the notes fell due; and (2) they were single-name and not double-name paper.
Same facts in the Binalbagan Estate case. It was declared that the operations constituted a loan and not a discount.

III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the
Philippine National Bank, an "indirect loan" within the meaning of section 35 of Act No. 2747?

Counsel -> a loan to the partnership "Puno y Concepcion, S. en C." ->not an "indirect loan" -> recalled that the wife of the defendant held
1/2 of the capital of this partnership.

In the interpretation and construction of statutes, the primary rule is to ascertain and give effect to the intention of the Legislature. In this
instance, the purpose of the Legislature is plainly to erect a wall of safety against temptation for a director of the bank. The prohibition
against indirect loans is a recognition of the familiar maxim that no man may serve two masters that where personal interest clashes
with fidelity to duty, the latter almost always suffers. If it is shown that the husband is financially interested in the success/ failure of his
wife's business venture, a loan to partnership of which the wife of a director is a member, falls within the prohibition.

Various provisions of the Civil Code -> conjugal partnership. (Articles 1315, 1393, 1401, 1407, 1408, and 1412 can be specially noted.)

A loan to a partnership of which the wife of a director of a bank is a member, is an indirect loan to such director.
That it was the intention of the Legislature to prohibit exactly such an occurrence is shown by the acknowledged fact that in this instance
the defendant was tempted to mingle his personal and family affairs with his official duties, and to permit the loan P300,000 to a
partnership of no established reputation and without asking for collateral security.

Lester and Wife vs. Howard Bank: what then was the purpose of the law when it declared that no director or officer should borrow of the
bank, and "if any director," etc., "shall be convicted," etc., "of directly or indirectly violating this section he shall be punished by fine and
imprisonment?" We say to protect the stockholders, depositors and creditors of the bank, against the temptation to which the directors
and officers might be exposed, and the power which as such they must necessarily possess in the control and management of the bank,
and the legislature unwilling to rely upon the implied understanding that in assuming this relation they would not acquire any interest
hostile or adverse to the most exact and faithful discharge of duty, declared in express terms that they should not borrow, etc., of the
bank.
People vs. Knapp (Binalbagan Estate decision): the statute forbade the loan to his copartnership firm as well as to himself directly. The
loan was made indirectly to him through his firm.

IV. Could Venancio Concepcion, President of PNB, be convicted of a violation of section 35 of Act No. 2747 in relation with section 49 of
the same Act, when these portions of Act No. 2747 were repealed by Act No. 2938, prior to the finding of the information and the
rendition of the judgment?

Section 49 of Act No. 2747, in relation to section 35 of the same Act, provides a punishment for any person who shall violate any of the
provisions of the Act. It is conteded by the appellant, that the repeal of these sections of Act No. 2747 by Act No. 2938 has served to take
away the basis for criminal prosecution.

Court: where an Act of the Legislature which penalizes an offense, such repeals a former Act which penalized the same offense, such
repeal does not have the effect of thereafter depriving the courts of jurisdiction to try, convict, and sentenced offenders charged with
violations of the old law.

V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the
Philippine National Bank, in violation of section 35 of Act No. 2747, penalized by this law?

Counsel -> since the prohibition contained in section 35 of Act No. 2747 is on the bank, and since section 49 of said Act provides a
punishment on a person violating any provisions of the same, and imposing imprisonment as a part of the penalty -> the prohibition
contained in said section 35 is without penal sanction.

Answer: when the corporation itself is forbidden to do an act, the prohibition extends to the board of directors, and to each director
separately and individually. (People vs. Concepcion, supra.)

VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine National Bank, in extending the credit of P300,000 to
the copartnership "Puno y Concepcion, S. en C." constitute a legal defense?

Counsel ->if defendant committed the acts of which he was convicted, it was because he was misled by rulings coming from the Insular
Auditor. Since the loans made to the copartnership "Puno y Concepcion, S. en C." have been paid, no loss has been suffered by PNB.

Under the statute which the defendant has violated, criminal intent is not necessarily material. The doing of the inhibited act, inhibited on
account of public policy and public interest, constitutes the crime. The acts of President of PNB do not fall within the purview of the
rulings of the Insular Auditor, even conceding that such rulings have controlling effect.

Morse (Banks and Banking, section 125): It is fraud for directors to secure by means of their trust, and advantage not common to the
other stockholders. The law will not allow private profit from a trust, and will not listen to any proof of honest intent.

JUDGMENT
No reversible error was committed in the trial of this case, and that the defendant has been proved guilty beyond a reasonable doubt of
the crime charged in the information. The penalty imposed by the trial judge falls within the limits of the punitive provisions of the law.
Judgment is affirmed.

37 G.R. No. 103576 August 22, 1996

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC vs. CA, BPI and REGIONAL SHERIFF OF CALOOCAN CITY

Petition for review on certiorari

Core Issue: Would it be valid and effective to have a clause in a chattel mortgage that purports to likewise extend its coverage to
obligations yet to be contracted or incurred?

FACTS:

Petitioner Chua Pac, the president and general manager of co-petitioner "Acme Shoe, Rubber & Plastic Corporation," executed a chattel
mortgage in favor of private respondent Producers Bank of the Philippines. The mortgage stood by way of security for petitioner's
corporate loan of three million pesos (P3,000,000.00).

A provision in the chattel mortgage agreement was to this effect

(c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly perform the full obligation or obligations
above-stated according to the terms thereof, then this mortgage shall be null and void. . . .

In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of the former note, as an
extension thereof, or as a new loan, or is given any other kind of accommodations such as overdrafts, letters of credit,
acceptances and bills of exchange, releases of import shipments on Trust Receipts, etc., this mortgage shall also stand as
security for the payment of the said promissory note or notes and/or accommodations without the necessity of executing a
new contract and this mortgage shall have the same force and effect as if the said promissory note or notes and/or
 accommodations were existing on the date thereof. This mortgage shall also stand as security for said obligations and any and
all other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such obligations have
been contracted before, during or after the constitution of this mortgage. 1

In due time, the loan 3M was paid by petitioner corporation. Subsequently, in 1981, it obtained from respondent bank additional financial
accommodations totalling P2.7M. These borrowings were on due date also fully paid.

The bank yet again extended to petitioner corporation a loan of 1M pesos covered by 4 promissory notes for P250,000.00 each. Due to
financial constraints, the loan was not settled at maturity. Respondent bank thereupon applied for an extra judicial foreclosure of the
chattel mortgage, herein before cited, with the Sheriff of Caloocan City, prompting petitioner corporation to forthwith file an action for
injunction, with damages and a prayer for a writ of preliminary injunction, before RTC Caloocan City. Ultimately, the court dismissed the
complaint and ordered the foreclosure of the chattel mortgage. It held petitioner corporation bound by the stipulations of the chattel
mortgage.

Petitioner corporation appealed to CA which affirmed "in all respects" the decision of the court a quo. The MR was denied.

In the chattel mortgage here involved, the only obligation specified in the chattel mortgage contract was the P3M loan which petitioner
corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligation automatically rendered the
chattel mortgage void or terminated.

Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al.: . . . A mortgage that contains a stipulation in regard to future advances
in the credit will take effect only from the date the same are made and not from the date of the mortgage. 15

The significance of the ruling to the instant problem would be that since the 1978 chattel mortgage had ceased to exist coincidentally with
the full payment of the P3M loan, there no longer was any chattel mortgage that could cover the new loans that were concluded
thereafter.

HELD:

We find no merit in petitioner corporation's other prayer that the case should be remanded to the trial court for a specific finding on the
amount of damages it has sustained "as a result of the unlawful action taken by respondent bank against it." This prayer is not reflected
in its complaint which has merely asked for the amount of P3M by way of moral damages. 18

LBC Express, Inc. vs. Court of Appeals:

Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. A corporation, being
an artificial person and having existence only in legal contemplation, has no feelings, no emotions, no senses;
therefore, it cannot experience physical suffering and mental anguish. Mental suffering can be experienced only by
one having a nervous system and it flows from real ills, sorrows, and griefs of life all of which cannot be suffered
by respondent bank as an artificial person. 20

While Chua Pac is included in the case, the complaint clearly states that he has merely been so named as a party
in representation of petitioner corporation.

WHEREFORE, the questioned decisions of the appellate court and the lower court are set aside without prejudice to the appropriate legal
recourse by private respondent as may still be warranted as an unsecured creditor. No costs.

43 G.R. No. L-19891 July 31, 1964

J.R.S. BUSINESS CORPORATION, J.R. DA SILVA and A.J. BELTRAN
vs.
IMPERIAL INSURANCE, INC., MACARIO M. OFILADA, Sheriff of Manila and
HON. AGUSTIN MONTESA, Judge of the Court of First Instance of Manila
FACTS:
->Petitioner J. R. Da Silva, is the President of the J.R.S., an establishment duly franchised by the Congress, to conduct a messenger and
delivery express service. Respondent Imperial presented with CFI Manila a complaint for sum of money against JRS.
->Parties entered into a Compromise Agreement, assisted by their respective counsels, the pertinent portions of which recite:
1) WHEREAS, the DEFENDANTS admit and confess their joint and solidary indebtedness to the PLAINTIFF in the full sum of
P61,172.32, itemized (see full text).
2) WHEREAS, the DEFENDANTS bind themselves, jointly and severally, and hereby promise to pay their aforementioned
obligation to the PLAINTIFF at its business address at 301-305 Banquero St., (Ground Floor), Regina Building, Escolta, Manila,
within 60 days from March 16, 1962 or on or before May 14, 1962;
3) WHEREAS, in the event the DEFENDANTS FAIL to pay in full the total amount of P61,172.32, for any reason whatsoever, on
May 14, 1962, the PLAINTIFF shall be entitled, as a matter of right, to move for the execution of the decision to be rendered in
the above-entitled case by this Honorable Court based on this COMPROMISE AGREEMENT.
->Lower court rendered judgment embodying the contents of the said compromise agreement
->One day after the date fixed in the compromise agreement, within which the judgment debt would be paid, but was not, respondent
Imperial filed a "Motion for the Insurance of a Writ of Execution".
->A Writ of Execution was issued by respondent Sheriff of Manila and Notices of Sale were sent out for the auction of the personal
properties of the petitioner J.R.S..
->A Notice of Sale of the "whole capital stocks of the defendants JRS Business Corporation, the business name, right of operation, the
whole assets, furnitures and equipments, the total liabilities, and Net Worth, books of accounts, etc., etc." of the petitioner corporation
was, handed down.
->Petitioner -> an "Urgent Petition for Postponement of Auction Sale and for Release of Levy on the Business Name and Right to Operate
of Defendant JRS Business Corporation", stating that petitioners were busy negotiating for a loan with which to pay the judgment debt;
that the judgment was for money only and plaintiff (respondent Insurance Company) was not authorized to take over and appropriate for
its own use, the business name of the defendants; that the right to operate under the franchise, was not transferable and could not be
considered a personal or immovable, property, subject to levy and sale.
->A Supplemental Motion for Release of Execution, was filed by counsel of petitioner JRS Business Corporation, claiming that the capital
stocks thereof, could not be levied upon and sold under execution.
Petitioner -> "Very Urgent Motion for Postponement of Public Auction Sale and for Ruling on Motion for Release of Levy on the Business
Name, Right to Operate and Capital Stocks of JRS Business Corporation" -> petitioners alleged that the loan they had applied for, was to be
secured within the next 10 days, and they would be able to discharge the judgment debt.
->The auction sale was set.
->Respondents opposed the said motion and the lower court denied the motion for postponement of the auction sale.
In the sale -> premises of JRS -> all the properties of said corporation contained in the Notices of Sale were bought by respondent
Imperial, for P10,000.00, which was the highest bid offered.
Immediately after, respondent Insurance Company took possession of the properties and started running the affairs and operating the
business of the JRS Business Corporation.
Hence, the present appeal.

ISSUE: Whether the business name or trade name, franchise (right to operate) and capital stocks of the petitioner are properties or
property rights which could be the subject of levy, execution and sale.

The corporation law, on forced sale of franchises, provides

Any franchise granted to a corporation to collect tolls or to occupy, enjoy, or use public property or any portion of the public
domain or any right of way over public property or the public domain, and any rights and privileges acquired under such
franchise may be levied upon and sold under execution, together with the property necessary for the enjoyment, the exercise
of the powers, and the receipt of the proceeds of such franchise or right of way, in the same manner and with like effect as any
other property to satisfy any judgment against the corporation: Provided, That the sale of the franchise or right of way and the
property necessary for the enjoyment, the exercise of the powers, and the receipt of the proceeds of said franchise or right of
way is especially decreed and ordered in the judgment: And provided, further, That the sale shall not become effective until
confirmed by the court after due notice. (Sec. 56, Corporation Law.)

Gulf Refining Co. v. Cleveland Trust Co. meaning of the word "franchise" in the statute.
"A franchise is a special privilege conferred by governmental authority, and which does not belong to citizens of the
country generally as a matter of common right. ... Its meaning depends more or less upon the connection in which
the word is employed and the property and corporation to which it is applied. It may have different significations.
"xxx franchises xxx are divisible into (1) corporate or general franchises; and (2) special or secondary franchises. The
former is the franchise to exist as a corporation, while the latter are certain rights and privileges conferred upon
existing corporations, such as the right to use the streets of a municipality to lay pipes or tracks, erect poles or string
wires."
The primary franchise of a corporation, the right to exist as such, is vested "in the individuals who compose the corporation and
not in the corporation itself" and cannot be conveyed in the absence of a legislative authority so to do , but the specify or
secondary franchises of a corporation are vested in the corporation and may ordinarily be conveyed or mortgaged under a
general power granted to a corporation to dispose of its property, except such special or secondary franchises as are charged
with a public use.

The right to operate a messenger and express delivery service, by virtue of a legislative enactment, is admittedly a secondary franchise
(R.A. No. 3260, entitled "An Act granting the JRS Business Corporation a franchise to conduct a messenger and express service)" and, as
such, under our corporation law, is subject to levy and sale on execution together and including all the property necessary for the
enjoyment thereof. The law indicates the procedure under which the same (secondary franchise and the properties necessary for its
enjoyment) may be sold under execution. Said franchise can be sold under execution, when such sale is especially decreed and ordered in
the judgment and it becomes effective only when the sale is confirmed by the Court after due notice (Sec. 56, Corp. Law). The
compromise agreement and the judgment based thereon, do not contain any special decree/order making the franchise answerable for
the judgment debt. The same thing may be stated with respect to petitioner's trade name or business name and its capital stock.
Incidentally, the trade name or business name corresponds to the initials of the President of the petitioner corporation and there can be
no serious dispute regarding the fact that a trade name or business name and capital stock are necessarily included in the enjoyment of
the franchise. Like that of a franchise, that property necessary for the enjoyment of said franchise, can only be sold to satisfy a judgment
debt if the decision especially so provides. No such directive appears in the decision. Moreover, a trade name or business name cannot be
sold separately from the franchise, and the capital stock of the petitioner corporation or any other corporation represents the interest
and is the property of stockholders in the corporation, who can only be deprived thereof in the manner provided by law.

Therefore, the inclusion of the franchise, the trade name and/or business name and the capital stock of the petitioner corporation, in the
sale of the properties of the JRS Business Corporation, have no justification. The sale of the properties of petitioner corporation is set
aside, in so far as it authorizes the levy and sale of its franchise, trade name and capital stocks.

49 [G.R. No. 127181. September 4, 2001]

LAND BANK OF THE PHILIPPINES vs.CA, ECO MANAGEMENT CORPORATION and EMMANUEL C. OATE

This petition for review on certiorari seeks to reverse and set aside the decision of public respondent denying petitioners motion for
reconsideration.]

FACTS:
On various dates in 1980, appellant LBP extended a series of credit accommodations to appellee ECO, using the trust funds of the
Philippine Virginia Tobacco Administration (PVTA) in the aggregate amount of P26,109,000.00. The proceeds of the credit
accommodations were received on behalf of ECO by appellee Oate.
On the respective maturity dates of the loans, ECO failed to pay the same. Oral and written demands were made, but ECO was
unable to pay. ECO claims that the company was in financial difficulty for it was unable to collect its investments with companies
which were affected by the financial crisis brought about by the Dewey Dee scandal.
ECO proposed and submitted to LBP a Plan of Payment whereby the former would set up a financing company which would absorb
the loan obligations. It was proposed that LBP would participate in the scheme through the conversion of P9M which was part of the
total loan, into equity.
LBP informed ECO of the action taken by the formers Trust Committee concerning the Plan of Payment which reads in part, as
follows:
xxx
Please be informed that the Banks Trust Committee has deliberated on the plan of payment during its meetings on November 6,
1981 and February 23, 1982. The Committee arrived at a decision that you may proceed with your Plan of Payment provided Land
Bank shall not participate in the undertaking in any manner whatsoever.
In view thereof, may we advise you to make necessary revision in the proposed Plan of Payment and submit the same to us as soon
as possible.
ECO submitted to LBP a Revised Plan of Payment deleting the latters participation in the proposed financing company. The Trust
Committee deliberated on the Revised Plan of Payment and resolved to reject it. LBP then sent a letter to the PVTA for the latters
comments. The letter stated that if LBP did not hear from PVTA within 5 days from the latters receipt of the letter, such silence
would be construed to be an approval of LBPs intention to file suit against ECO and its corporate officers. PVTA did not respond to
the letter.
Landbank filed a complaint for Collection of Sum of Money against ECO and Emmanuel C. Oate before RTC Manila.
 After trial, a judgment was rendered in favor of LBP; however, appellee Oate was absolved from personal liability for insufficiency of
evidence.
Dissatisfied, both parties filed their respective MRs. LBP claimed that there was an error in computation in the amounts to be paid &
questioned the dismissal of the case with regard to Oate. Then, ECO questioned its being held liable for the amount of the loan.
Trial court rendered an Amended Decision.
The CA affirmed in toto the amended decision of the trial court.]
Petitioner filed an MR which was denied.
Hence, this present petition.
Petitioner -> Oate and ECO should be treated as one, for the particular purpose of holding respondent Oate liable for the loans
incurred by corporate respondent ECO from Land Bank.
->said corporation was formed ostensibly to allow Oate to acquire loans from Land Bank which he used for his personal
advantage.
->(1) Oate owns the majority of the interest holdings in respondent corporation, specifically during the crucial time when
appellees applied for and obtained the loan from LANDBANK, sometime in September to November, 1980. (2) TECO stands for
the initials of Emmanuel C. Oate, which is the logical, sensible and concrete explanation for the name ECO, in the absence of
evidence to the contrary. (3) Oate has always referred to himself as the debtor, not merely as an officer or a representative of
respondent corporation. (4) Oate personally paid P1M taken from trust accounts in his name. (5) Oate made a personal
offering to pay his personal obligation. (6) Oate controlled respondent corporation by simultaneously holding 2 corporate
positions, viz., as Chairman and as treasurer, beginning from the time of respondent corporations incorporation and
continuously thereafter without benefit of election. (7) Respondent corporation had not held any meeting of the stockholders
or of the BODs, as shown by the fact that no proceeding of such corporate activities was filed with or borne by the record of
SEC. The only corporate with SEC were the following: Articles of Incorporation, Treasurers Affidavit, Undertaking to Change
Corporate Name, Statement of Assets and Liabilities.
PRs -> Oates only participation in the transaction between petitioner and respondent ECO was his execution of the loan agreements
and promissory notes as Chairman of the corporations Board of Directors. There was nothing in the loan agreement nor in the
promissory notes which would indicate that Oate was binding himself jointly and severally with ECO.
-> deny that ECO stands for Emmanuel C. Oate.
-> Oate is no longer a majority stockholder of ECO and that the payment by a third person of the debt of another is allowed
under the Civil Code.
->no fraud and/or bad faith in the transactions between them and Land Bank. Hence, private respondents conclude, there is no
legal ground to pierce the veil of respondent corporations personality.

ISSUES:
(1) whether or not the corporate veil of ECO Management Corporation should be pierced; and
(2) whether or not Emmanuel C. Oate should be held jointly and severally liable with ECO Management Corporation for the loans incurred
from Land Bank.

HELD:
a)
CA had found that petitioners evidence was not sufficient to justify the piercing of ECOs corporate personality. Petitioner contended
otherwise. It is basic that where what is being questioned is the sufficiency of evidence, it is a question of fact. Even if we regard these
matters as tendering an issue of law, we still find no reason to reverse the findings of CA.

A corporation, upon coming into existence, is invested by law with a personality separate and distinct from those persons composing it as
well as from any other legal entity to which it may be related. By this attribute, a stockholder may not, generally, be made to answer for
acts or liabilities of the said corporation, and vice versa. This separate and distinct personality is merely a fiction created by law for
convenience and to promote the ends of justice. So it may not be used/invoked for ends subversive to the policy and purpose behind its
creation] or which could not have been intended by law to which it owes its being. This is particularly true when the fiction is used to
defeat public convenience, justify wrong, protect fraud, defend crime, confuse legitimate legal or judicial issues, perpetrate deception or
otherwise circumvent the law. This is likewise true where the corporate entity is being used as an alter ego, adjunct, or business conduit
for the sole benefit of the stockholders or of another corporate entity. In all these cases, the notion of corporate entity will be pierced or
disregarded with reference to the particular transaction involved.

b)
The burden is on petitioner to prove that the corporation and its stockholders are using the personality of the corporation as a means to
perpetrate fraud and/or escape a liability and responsibility demanded by law. In order to disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and convincingly established. In the absence of any malice or bad faith, a stockholder or an
officer of a corporation cannot be made personally liable for corporate liabilities.

The mere fact that Oate owned the majority of the shares of ECO is not a ground to conclude that Oate and ECO is one and the
same. Mere ownership by a single stockholder of all or nearly all of the capital stock of a corporation is not by itself sufficient reason for
disregarding the fiction of separate corporate personalities.] Neither is the fact that the name ECO represents the first three letters of
Oates name sufficient reason to pierce the veil. Even if it did, it does not mean that the said corporation is merely a dummy of Oate. A
corporation may assume any name provided it is lawful. There is nothing illegal in a corporation acquiring the name or as in this case, the
initials of one of its shareholders.

That respondent corporation in this case was being used as a mere alter ego of Oate to obtain the loans had not been shown. Bad faith or
fraud on the part of ECO and Oate was not also shown. As CA observed, if shareholders of ECO meant to defraud petitioner, then they
could have just easily absconded instead of going out of their way to propose Plans of Payment. Likewise, Oate volunteered to pay a
portion of the corporations debt. This offer demonstrated good faith on his part to ease the debt of the corporation of which he was a
part. It is understandable that a shareholder would want to help his corporation and in the process, assure that his stakes in the said
corporation are secured. In this case, it was established that the P1 Million did not come solely from Oate. It was taken from a trust
account which was owned by Oate and other investors. It was likewise proved that the P1 Million was a loan granted by Oate and his co-
depositors to alleviate the plight of ECO. This circumstance should not be construed as an admission that he was really the debtor and not
ECO.

In sum, we agree with CAs conclusion that the evidence presented by the petitioner does not suffice to hold respondent Oate personally
liable for the debt of co-respondent ECO. No reversible error could be attributed to respondent courts decision and resolution which
petitioner assails.

WHEREFORE, the petition is DENIED for lack of merit. The decision and resolution of the Court of Appeals are AFFIRMED. Costs against
petitioner.

55 G.R. No. L-18216 October 30, 1962

STOCKHOLDERS OF F. GUANZON & SONS, INC. vs ROD MANILA

FACTS:
 5 stockholders of the F. Guanzon and Sons, Inc. executed a certificate of liquidation of the assets of the corporation reciting
that by virtue of a resolution of the stockholders adopted on dissolving the corporation, they have distributed among
themselves in proportion to their shareholdings, as liquidating dividends, the assets of said corporation, including real
properties located in Manila.
The certificate of liquidation, when presented to ROD Manila, was denied registration on 7 grounds, of which the following
were disputed by the stockholders:
3. The number of parcels not certified to in the acknowledgment;
5. P430.50 Reg. fees need be paid;
6. P940.45 documentary stamps need be attached to the document;
7. The judgment of the Court approving the dissolution and directing the disposition of the assets of the corporation need be
presented (Rules of Court, Rule 104, Sec. 3).
Commissioner of Land Registration overruled ground No. 7 and sustained requirements Nos. 3, 5 and 6.
The stockholders interposed the present appeal.

ISSUE: Whether the certificate of liquidation (involves a distribution of the corporates assets) represents a transfer of said assets from
the corporation to the stockholders? In substance, a transfer/conveyance

HELD:

As correctly stated by the Commissioner of Land Registration -> the propriety or impropriety of the three grounds on which the denial of
the registration of the certificate of liquidation was predicated hinges on whether or not that certificate merely involves a distribution of
the corporation's assets or should be considered a transfer or conveyance.

Appellants -> certificate of liquidation is not a conveyance or transfer but merely a distribution of the assets of the corporation which has
ceased to exist for having been dissolved. This is apparent in the minutes for dissolution attached to the document. Not being a
conveyance, the certificate need not contain a statement of the number of parcel of land involved in the distribution in the
acknowledgment appearing therein. Hence the amount of documentary stamps to be affixed thereon should only be P0.30 and not
P940.45, as required by the register of deeds. Neither is it correct to require appellants to pay the amount of P430.50 as registration fee.

Commissioner of Land Registration -> concurred w/ ROD -> the certificate of liquidation, though it involves a distribution of the
corporation's assets, represents a transfer of said assets from the corporation to the stockholders. Hence, in substance it is a transfer or
conveyance.

SC -> agree with the opinion of these two officials (Comm of Land Reg & ROD).

A corporation is a juridical person distinct from the members composing it. Properties registered in the name of the corporation are
owned by it as an entity separate and distinct from its members. While shares of stock constitute personal property they do not represent
property of the corporation. The corporation has property of its own which consists chiefly of real estate. A share of stock only typifies an
aliquot part of the corporation's property, or the right to share in its proceeds to that extent when distributed according to law and
equity, but its holder is not the owner of any part of the capital of the corporation. Nor is he entitled to the possession of any definite
portion of its property or assets. The stockholder is not a co-owner or tenant in common of the corporate property.

The act of liquidation made by the stockholders of the F. Guanzon and Sons, Inc. of the latter's assets is not and cannot be considered a
partition of community property, but rather a transfer or conveyance of the title of its assets to the individual stockholders. Since the
purpose of the liquidation, as well as the distribution of the assets of the corporation, is to transfer their title from the corporation to the
stockholders in proportion to their shareholdings, that transfer cannot be effected without the corresponding deed of conveyance from
the corporation to the stockholders. It is fair and logical to consider the certificate of liquidation as one in the nature of a transfer or
conveyance.

WHEREFORE, we affirm the resolution appealed from, with costs against appellants.

61 A.M. No. P-01-1464 March 13, 2001

(Formerly OCA IPI. No. 99-730-P)
SALVADOR O. BOOC vs. MALAYO B. BANTUAS, SHERIFF IV, RTC ILIGAN CITY

FACTS:
An affidavit-complaint was filed before the OCA by Booc charging Bantuas, Sheriff IV of RTC Iligan City with Gross Ignorance of the
Law and Grave Abuse of Authority relative to Civil Case: "Felipe G. Javier, Jr. vs. Rufino Booc."
Complainant is the President of Five Star Marketing Corporation. Respondent Sheriff Bantuas, pursuant to a Writ of Execution issued
in said Civil Case filed a Notice of Levy with the ROD Iligan City over a parcel of land owned by Five Star. He alleged that respondent
sheriff, at the instance of plaintiff, former Judge Felipe Javier, proceeded to file the Notice of Levy despite respondent sheriff's
knowledge that the property is owned by the corporation which was not a party to the civil case.
The corporation through the complainant reiterated to respondent sheriff that it was the owner of the property and Rufino Booc
had no share or interest in the corporation. Hence, the corporation demanded that respondent sheriff cancel the notice of levy,
otherwise the corporation would take the appropriate legal steps to protect its interest.
Respondent sheriff did not heed the corporation's demand even if the corporation received a "Notice of Sale on Execution of Real
Property," covering the subject property. He scheduled the public auction. Consequently, the corporation was compelled to file an
action for Quieting of Title with the RTC Iligan City.
Respondent sheriff said that he filed a Notice of Levy with ROD Iligan City on the share, rights, interest and participation of Rufino
Booc in the parcel of land owned by Five Star. He claimed that Rufino Booc is the owner of around 200 shares of stock in said
corporation according to a document issued by SEC. He stressed that the levy was made on the share, rights and/or interest and
participation which Rufino Booc, as President and stockholder, may have in the parcel of land owned by Five Star. Claiming that he
was only acting pursuant to his duties as sheriff respondent citing Section 15, Rule 39 of the Rules of Court which states that x x x
The officer must enforce an execution of a money judgment by levying on all the property, real and personal of every name and
nature whatsoever, and which may be disposed of for value of the judgment debtor not exempt from execution. Real property
stocks, shares, debts, credits, and other personal property, or any interest in either real or personal property, may be levied upon in
like manner and with like effect as under a writ of execution.
Respondent sheriff said that while complainant Salvador Booc made a demand for the cancellation of levy made, the former deemed
it wise to have the judgment satisfied in accordance with Section 39 of the Rules of Court. He added that the trial court (where the
case for Quieting of Title filed by the corporation was pending) ordered the auction sale of the shares of stock of Rufino Booc. The
corporation allegedly never questioned said order of the RTC.
Respondent sheriff averred that the corporation is merely a dummy of Rufino Booc and his brother Sheikding Booc. He submitted as
an exhibit an affidavit executed by Sheikding Booc wherein the latter admitted that when Judge Felipe Javier won in the civil case
against Rufino Booc, the latter simulated a transfer of his shares of stock in Five Star Marketing Corporation so that the property
may not be levied upon.
 Complainant belied the latter's allegation that the corporation never questioned the auction sale. He averred that the trial court
issued a restraining order which was withdrawn after plaintiff's counsel manifested that the respondent sheriff would only auction
Rufino Booc's shares of stock in the corporation and not the subject property.
OCA -> found respondent sheriff liable for the charges filed against him, stating that the latter acted in bad faith when he auctioned
the subject property even if Judge Mangotara had already warned him that the public auction should pertain only to shares of stock
owned by Rufino Booc in Five Star. Respondent sheriff proceeded to auction the subject property -> recommended that the sheriff
be fined 10k.

ISSUE: Whether Booc is liable being a corporate officer.

HELD:
RECORDS -> respondent sheriff, in filing a notice of levy on the subject property as well as in the certificate of sale, did not fail to mention
that what was being levied upon and sold was whatever shares, rights, interests and participation Rufino Booc, as president and
stockholder in Five Star Marketing Corporation may have on subject property. Respondent sheriff overstepped his authority when he
disregarded the distinct and separate personality of the corporation from that of Rufino Booc as stockholder of the corporation by levying
on the property of the corporation. Respondent sheriff should not have made the levy based on mere conjecture that since Rufino Booc
is a stockholder and officer of the corporation, then he might have an interest or share in the subject property.

A corporation is clothed with a personality separate and distinct from that of its stockholders. It may not be held liable for the personal
indebtedness of its stockholders.

Del Rosario vs. Bascar, Jr. -> we imposed the fine of P5,000.00 on respondent sheriff Bascar for "allocating unto himself the power of the
court to 'pierce the veil of corporate entity' and improvidently assuming that since complainant Esperanza del Rosario is the treasurer of
Miradel Development Corporation, they are one and the same." We reiterated the principle that the mere fact that one is a president of
the corporation does not render the property he owns or possesses the property of the corporation since the president, as an individual,
and the corporation are separate entities.

Respondent Sheriff Bantuas has clearly acted beyond his authority when he levied the property of Five Star Marketing Corporation. The
fact that respondent sheriff, in levying said property, had stated in the notice of levy as well as in the certificate of sale that what was
being levied upon and sold was whatever rights, shares interest and/or participation Rufino Booc, as stockholder and president in the
corporation, may have on the subject property, shows that respondent sheriff's conduct was impelled partly by ignorance of Corporation
Law and partly by mere overzealousness to comply with his duties and not by bad faith or blatant disregard of the trial court's order.

WHEREFORE, respondent Malayo B. Bantuas, Sheriff IV of RTC of Iligan City, Branch 3, is hereby FINED in the sum of P5K with the
STERN WARNING that a repetition of the same or similar acts in the future will be dealt with more severely.