CORPORATION LAW CASE DIGESTAtty. IgnacioSan Sebastian College of Law RecoletosPrepared by: PAULINO, OYOS, BAGUAL, RADOVAN, BONCAY

1. Tayag v Benguet Consolidated 26 SCRA 242Facts: 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.2 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 domiciary 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.Issue: Whether or not the order of the lower court is proper and should be followed by the BCI (appellant)Ruling: The view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at war with the basic postulates of corporate theory, "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." A corporation as known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the state 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.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.WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First Instance, dated May 18, 1964, is affirmed.

2. Stonehill v Diokno 20 SCRA 383Facts:Respondents-Judges issued, on different dates, 42 search warrants against petitioners herein and/or the corporations of which they were officers, directed to the 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."The 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.Issue: Whether the petitioners have cause of action to question the validity of search warrant.Ruling: The documents, papers, and things seized under the alleged authority of the warrants in question may be split into two (2) major groups, namely: (a) those found and seized in the offices of the aforementioned corporations, and (b) those found and seized in the residences of petitioners herein.As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have their respective personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or of the interest of each of them in said corporations, and whatever the offices they hold therein may be. Indeed, it is well settled that the legality of a seizure can be contested only by the party whose rights have been impaired thereby, and that the objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties. Consequently, petitioners herein may not validly object to the use in evidence against them of the documents, papers and things seized from the offices and premises of the corporations adverted to above, since the right to object to the admission of said papers in evidence belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in proceedings against them in their individual capacity. Indeed, it has been held:. . . 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 themselves 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. . . . (A Guckenheimer & Bros. Co. vs. United States, [1925] 3 F. 2d. 786, 789, Emphasis supplied.)

3. Bache & Co., Inc. v Ruiz 37 SCRA 823Facts:On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a letter addressed to respondent Judge Vivencio M. Ruiz requesting the issuance of a search warrant against petitioners for violation of Section 46(a) of the National Internal Revenue Code, in relation to all other pertinent provisions thereof, particularly Sections 53, 72, 73, 208 and 209, and authorizing Revenue Examiner Rodolfo de Leon, one of herein respondents, to make and file the application for search warrant which was attached to the letter.In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness, respondent Arturo Logronio, went to the Court of First Instance of Rizal. They brought with them the following papers: respondent Veras aforesaid letter-request; an application for search warrant already filled up but still unsigned by respondent De Leon; an affidavit of respondent Logronio subscribed before respondent De Leon; a deposition in printed form of respondent Logronio already accomplished and signed by him but not yet subscribed; and a search warrant already accomplished but still unsigned by respondent Judge.At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed his Deputy Clerk of Court to take the depositions of respondents De Leon and Logronio. After the session had adjourned, respondent Judge was informed that the depositions had already been takenRespondent Judge signed respondent de Leons application for search warrant and respondent Logronios deposition, Search Warrant No. 2-M-70 was then sign by respondent Judge and accordingly issued.It is contended by respondents that a corporation is not entitled to protection against unreasonable search and seizures.Issue: Whether or not Corporations are not entitled protection against unreasonable search and seizureRuling:We find no merit in the contention."Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is charged with a violation of a statute of the state of its creation, or of an act of Congress passed in the exercise of its constitutional powers, cannot refuse to produce the books and papers of such corporation, we do not wish to be understood as holding that a corporation is not entitled to immunity, under the 4th Amendment, against unreasonable searches and seizures. A corporation is, after all, but an association of individuals under an assumed name and with a distinct legal entity. In organizing itself as a collective body it waives no constitutional immunities appropriate to such body. Its property cannot be taken without compensation. It can only be proceeded against by due process of law, and is protected, under the 14th Amendment, against unlawful discrimination . . ." In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a corporation to object against unreasonable searches and seizures, thus:"As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have their respective personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or the interest of each of them in said corporations, 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...In the Stonehill case only the officers of the various corporations in whose offices documents, papers and effects were searched and seized were the petitioners. In the case at bar, the corporation to whom the seized documents belong, and whose rights have thereby been impaired, is itself a petitioner. On that score, petitioner corporation here stands on a different footing from the corporations in Stonehill.The tax assessments referred to earlier in this opinion were, if not entirely as claimed by petitioners at least partly as in effect admitted by respondents based on the documents seized by virtue of Search Warrant No. 2-M-70. Furthermore, the fact that the assessments were made some one and one-half months after the search and seizure on February 25, 1970, is a strong indication that the documents thus seized served as basis for the assessments. Those assessments should therefore not be enforced.

PREMISES CONSIDERED, the petition is granted.4. Bataan Shipyard & Engineering Co., Inc. v PCGG 150 SCRA 181Facts:Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by President Corazon C. Aquino on February 28,1986 and March 12, 1986, respectively ( for the recovery of ill-gotten wealth acquired by the Marcoses), and (2) the sequestration, takeover, and other orders issued, and acts done, in accordance with said executive orders by the Presidential Commission on Good Government and/or its Commissioners and agents, affecting said corporation. The sequestration order issued on April 14, 1986 was addressed to three ofthe agents of the Commission, ordering them to sequester several companies among which is Bataan Shipyard and Engineering Co., Inc. On the strength of the above sequestration order, several letters were sent to BASECO among which is that from Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated April 18, 1986 to the President and other officers of petitioner firm, reiterating an earlier request for the production ofcertain documents. The letter closed with the warning that if the documents were not submitted within five days, the officers would be cited for "contempt in pursuance with Presidential Executive Order Nos. 1 and 2." BASECO contends that its right against selfincrimination and unreasonable searches and seizures had beentransgressed by the Order of April 18, 1986which required it "to produce corporate recordsfrom 1973 to 1986 under pain of contempt of the Commission if it fails to do so." BASECO prays that the Court 1)declare unconstitutional and void Executive Orders Numbered 1 and 2; 2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts done on the basis thereof, inclusive of the takeover order of July 14, 1986 and the termination of the services of the BASECO executivesIssue: Whether there is a violation of the right against self incrimination of BASECORuling: No. There is no violation of Right against Self-Incrimination and Unreasonable Searches and SeizuresIt is elementary that the right against self-incrimination has no application to juridical persons.While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an abuse of such privilegesRelevant jurisprudence is also cited by the Solicitor General. * * corporations are not entitled to all of the constitutional protections which private individuals have. * * They are not at all within the privilege against self-incrimination, although this court more than once has said that the privilege runs very closely with the 4th Amendment's Search and Seizure provisions. It is also settled that an officer of the company cannot refuse to produce its records in its possession upon the plea that they will either incriminate him or may incriminate it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's).

* * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the laws of its creation. There is a reserve right in the legislature to investigate its contracts and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the corporate books and papers for that purpose. The defense amounts to this, that an officer of the corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a refusal to produce its books. To state this proposition is to answer it. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises may refuse to show its hand when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the Solicitor General's])At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to individuals required to produce evidence before the PCGG against any possible violation of his right against self-incrimination. It gives them immunity from prosecution on the basis of testimony or information he is compelled to present. As amended, said Section 4 now provides that xxx xxx xxxThe witness may not refuse to comply with the order on the basis of his privilege against self-incrimination; but no testimony or other information compelled under the order (or any information directly or indirectly derived from such testimony, or other information) may be used against the witness in any criminal case, except a prosecution for perjury, giving a false statement, or otherwise failing to comply with the order.The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either. There has been no search undertaken by any agent or representative of the PCGG, and of course no seizure on the occasion thereof.WHEREFORE, the petition is dismissed.

5. SMITH, BELL & COMPANY (LTD.),v JOAQUIN NATIVIDAD 40 PHIL 136Facts:Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands. A majority of its stockholders are British subjects. It is the owner of a motor vessel known as theBatobuilt for it in the Philippine Islands in 1916, of more than fifteen tons gross TheBatowas brought to Cebu in the present year for the purpose of transporting plaintiff's merchandise between ports in the Islands. Application (Certificate of Philippine Regitry) was made at Cebu, the home port of the vessel, to the Collector of Customs for a certificate of Philippine registry. The Collector refused to issue the certificate, giving as his reason that all the stockholders of Smith, Bell & Co., Ltd., were not citizens either of the United States or of the Philippine Islands under Act No. 2761 which provides:SEC.1172. Certificate of Philippine register. Upon registration of a vessel of domestic ownership, and of more than fifteen tons gross, a certificate of Philippine register shall be issued for it. If the vessel is of domestic ownership and of fifteen tons gross or less, the taking of the certificate of Philippine register shall be optional with the owner.SEC. 1176.Investigation into character of vessel. No application for a certificate of Philippine register shall be approved until the collector of customs is satisfiedfrom an inspection of the vessel that it is engaged or destined to be engaged in legitimate trade andthat it is of domestic ownership as such ownership is defined in section eleven hundred and seventy-two of this Code.Counsel says that Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection of the laws because it, in effect, prohibits the corporation from owning vessels, and because classification of corporations based on the citizenship of one or more of their stockholders is capricious, and that Act No. 2761 deprives the corporation of its properly without due process of law because by the passage of the law company was automatically deprived of every beneficial attribute of ownership in theBatoand left with the naked title to a boat it could not use.Issue: Whether the legislature through Act no. 2761 can deny registry of vessel with foreign stockholders.Ruling: Yes. We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having alien stockholders, is entitled to the protection afforded by the due-process of law and equal protection of the laws clause of the Philippine Bill of Rights, nevertheless, Act No. 2761 of the Philippine Legislature, in denying to corporations such as Smith, Bell &. Co. Ltd., the right to register vessels in the Philippines coastwise trade, does not belong to that vicious species of class legislation which must always be condemned, but does fall within authorized exceptions, notably, within the purview of the police power, and so does not offend against the constitutional provision.The guaranties of the Fourteenth Amendment and so of the first paragraph of the Philippine Bill of Rights, are universal in their application to all person within the territorial jurisdiction, without regard to any differences of race, color, or nationality. The word "person" includes aliens. Private corporations, likewise, are "persons" within the scope of the guaranties in so far as their property is concerned. Classification with the end in view of providing diversity of treatment may be made among corporations, but must be based upon some reasonable ground and not be a mere arbitrary selection.A literal application of general principles to the facts before us would, of course, cause the inevitable deduction that Act No. 2761 is unconstitutional by reason of its denial to a corporation, some of whole members are foreigners, of the equal protection of the laws. To justify that portion of Act no. 2761 which permits corporations or companies to obtain a certificate of Philippine registry only on condition that they be composed wholly of citizens of the Philippine Islands or of the United States or both, as not infringing Philippine Organic Law, it must be done under some one of the exceptions.One of the exceptions to the general rule, most persistent and far reaching in influence is, broad and comprehensive as it is, nor any other amendment, "was designed to interfere with the power of the State, sometimes termed its `police power,' to prescribe regulations to promote the health, peace, morals, education, and good order of the people, and legislate so as to increase the industries of the State, develop its resources and add to its wealth and prosperity. From the very necessities of society, legislation of a special character, having these objects in view, must often be had in certain districts. This is the same police power which the United States Supreme Court say "extends to so dealing with the conditions which exist in the state as to bring out of them the greatest welfare in of its people." For quite similar reasons, none of the provision of the Philippine Organic Law could could have had the effect of denying to the Government of the Philippine Islands, acting through its Legislature, the right to exercise that most essential, insistent, and illimitable of powers, the sovereign police power, in the promotion of the general welfare and the public interest. Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to be to enact an anti-alien shipping act. The ultimate purpose of the Legislature is to encourage Philippine ship-building.

6. Monfort Hermanos Agricultural Development Corporation v Monfort IIIFacts: Monfort Hermanos Agricultural Development Corporation, a domestic private corporation, is the registered owner of a farm, fishpond and sugar cane plantation known as Haciendas San Antonio II, Marapara, Pinanoag and Tinampa-an, all situated in Cadiz City.It also owns one unit of motor vehicle and two units of tractors. The same allowed Ramon H. Monfort, its Executive Vice President, to breed and maintain fighting cocks in his personal capacity at Hacienda San Antonio.In 1997, the group of Antonio Monfort III, through force and intimidation, allegedly took possession of the 4 Haciendas, the produce thereon and the motor vehicle and tractors, as well as the fighting cocks of Ramon H. Monfort.The Corporation, represented by its President, Ma. Antonia M. Salvatierra, and Ramon H. Monfort, in his personal capacity, filed against the group of Antonio Monfort III, a complaintfor delivery of motor vehicle, tractors and 378 fighting cocks, with prayer for injunction and damagesThe group of Antonio Monfort III filed a motion to dismiss contending,inter alia, that Ma. Antonia M. Salvatierra has no capacity to sue on behalf of the Corporation because theMarch 31, 1997Board Resolutionauthorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to represent the Corporation is void as the purported Members of the Board who passed the same were not validly elected officers of the Corporation.Issue: Whether Ma. Antonia M. Salvatierra has the legal capacity to sue on behalf of the CorporationRuling: No. Salvatierra has no legal capacity to sue on behalf of the Corporation.A corporation has no power except those expressly conferred on it by the Corporation Code and those that are implied or incidental to its existence.In turn, a corporation exercises said powers through its board of directors and/or its duly authorized officers and agents.Thus, it has been observed that the power of a corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers.In turn, physical acts of the corporation, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate by-laws or by a specific act of the board of directors.Corollary thereto, corporations are required under Section 26 of the Corporation Code to submit to the SEC within thirty (30) days after the election a GENERAL INFORMATION SHEET the names, nationalities and residences of the elected directors, trustees and officers of the Corporation.In order to keep stockholders and the public transacting business with domestic corporations properly informed of their organizational operational status.In the instant case, the names of the last four (4) signatories to the said Board Resolution do not appear in the 1996 General Information Sheet submitted by the Corporation with the SEC. There is thus a doubt as to whether Paul M. Monfort, Yvete M. Benedicto, Jaqueline M. Yusay and Ester S. Monfort, were indeed duly elected Members of the Board legally constituted to bring suit in behalf of the Corporation.In the case at bar, the fact that four of the six Members of the Board listed in the 1996 General Information Sheet are already dead at the time the March 31, 1997 Board Resolution was issued, does not automatically make the four signatories (i.e., Paul M. Monfort, Yvete M. Benedicto, Jaqueline M. Yusay and Ester S. Monfort) to the said Board Resolution (whose name do not appear in the 1996 General Information Sheet) as among the incumbent Members of the Board.This is because it was not established that they were duly elected to replace the said deceased Board Members. To correct the alleged error in the General Information Sheet, the retained accountant of the Corporation informed the SEC in itsNovember 11, 1998letter that the non-inclusion of the lawfully elected directors in the 1996 General Information Sheet was attributable to its oversight and not the fault of the Corporation. This belated attempt, however, did not erase the doubt as to whether an election was indeed held.As previously stated, a corporation is mandated to inform the SEC of the names and the change in the composition of its officers and board of directors within 30 days after election if one was held, or 15 days after the death, resignation or cessation of office of any of its director, trustee or officer if any of them died, resigned or in any manner, ceased to hold office.This, the Corporation failed to do.The alleged election of the directors and officers who signed the March 31, 1997 Board Resolution was held onOctober 16, 1996, but the SEC was informed thereof more than two years later, or onNovember 11, 1998.The 4 Directors appearing in the 1996 General Information Sheet died between the years 1984 1987, but the records do not show if such demise was reported to the SEC. DENIED

7. Megan Sugar Corp. V RTC 650 SCRA 100Facts: OnJuly 23, 1993, respondent New Frontier Sugar Corporation (NFSC) obtained a loan from respondent Equitable PCI Bank (EPCIB).Said loan was secured by a real estate mortgage over NFSCs land consisting of ninety-two (92) hectares located inPassiCity,Iloilo, and a chattel mortgage over NFSCs sugar mill.OnNovember 17, 2000, because of liquidity problems and continued indebtedness to EPCIB, NFSC entered into a Memorandum of Agreement[4](MOA) with Central Iloilo Milling Corporation (CIMICO), whereby the latter agreed to take-over the operation and management of the NFSC raw sugar factory and facilities for the period covering crop years 2000 to 2003. OnApril 19, 2002, NFSC filed a compliant for specific performance and collection]against CIMICO for the latters failure to pay its obligations under the MOA.In response, CIMICO filed with the Regional Trial Court (RTC) of Dumangas,Iloilo, Branch 68, a case against NFSC for sum of money and/or breach of contract.The case was docketed as Civil Case No. 02-243.OnMay 10, 2002, because of NFSCs failure to pay its debt, EPCIB instituted extra-judicial foreclosure proceedings over NFSCs land and sugar mill. During public auction, EPCIB was the sole bidder and was thus able to buy the entire property and consolidate the titles in its name.EPCIB then employed the services of Philippine Industrial Security Agency (PISA) to help it in its effort to secure the land and the sugar mill.OnOctober 3, 2002, CIMICO and petitioner Megan Sugar Corporation (MEGAN) entered into a MOAwhereby MEGAN assumed CIMICOs rights, interests and obligations over the property.As a result of the foregoing undertaking, MEGAN started operating the sugar mill onNovember 18, 2002.OnNovember 22, 2002, Passi Iloilo Sugar Central, Inc. (Passi Sugar) filed with the RTC a Motion for Intervention claiming to be the vendee of EPCIB. Passi Sugar claimed that it had entered into a Contract to Sell[9]with EPCIB after the latter foreclosed NFSCs land and sugar mill.OnNovember 29, 2002, during the hearing on the motion for intervention, Atty. Reuben Mikhail Sabig (Atty. Sabig) appeared before the RTC and entered his appearance as counsel for MEGAN.Several counsels objected to Atty. Sabigs appearance since MEGAN was not a party to the proceedings; however, Atty. Sabig explained to the court that MEGAN had purchased the interest of CIMICO and manifested that his statements would bind MEGAN.Aggrieved by the orders issued by the RTC, MEGAN filed before the CA a petition forcertiorari,datedMarch 5, 2003. In said petition, MEGAN argued mainly on two points;first, that the RTC erred when it determined that MEGAN was subrogated to the obligations of CIMICO and;second, that the RTC had no jurisdiction over MEGAN.In denying MEGANs petition, the CA ruled that since Atty. Sabig had actively participated before the RTC, MEGAN was already estopped from assailing the RTCs jurisdiction.MEGAN points out that its board of directors did not issue a resolution authorizing Atty. Sabig to represent the corporation before the RTC.It contends that Atty. Sabig was an unauthorized agent and as such his actions should not bind the corporation. In addition, MEGAN argues that the counsels of the different parties were aware of Atty. Sabigs lack of authority because he declared in court that he was still in the process of taking over the case and that his voluntary appearance was just for the hearing of the motion for intervention of Passi Sugar.Both EPCIB and NFSC, however, claim that MEGAN is already estopped from assailing the authority of Atty. Sabig. They contend that Atty. Sabig had actively participated in the proceedings before the RTC and had even filed a number of motions asking for affirmative relief.They also point out that Jose Concha (Concha), who was a member of the Board of Directors of MEGAN, accompanied Atty. Sabig during the hearing.Lastly, EPCIB and NFSC contend that all the motions, pleadings and court orders were sent to the office of MEGAN; yet, despite the same, MEGAN never repudiated the authority of Atty. Sabig.Issue: Whether the MEGAN is bound by the representation of Atty. Sabig.Ruling: Yes.The Court agrees with the finding of the CA that MEGAN is already estopped from assailing the jurisdiction of the RTC.Based on the events and circumstances surrounding the issuance of the assailed orders, this Court rules that MEGAN is estopped from assailing both the authority of Atty. Sabig and the jurisdiction of the RTC. While it is true, as claimed by MEGAN, that Atty. Sabig said in court that he was only appearing for the hearing of Passi Sugars motion for intervention and not for the case itself, his subsequent acts, coupled with MEGANs inaction and negligence to repudiate his authority, effectively bars MEGAN from assailing the validity of the RTC proceedings under the principle of estoppel.MEGAN can no longer deny the authority of Atty. Sabig as they have already clothed him with apparent authority to act in their behalf. It must be remembered that when Atty. Sabig entered his appearance, he was accompanied by Concha, MEGANs director and general manager.Concha himself attended several court hearings, and onDecember 17, 2002, even sent a letterto the RTC asking for the status of the case. A corporation may be held in estoppel from denying as against innocent third persons the authority of its officers or agents who have been clothed by it with ostensible or apparent authority. Atty. Sabig may not have been armed with a board resolution, but the appearance of Concha made the parties assume that MEGAN had knowledge of Atty. Sabigs actions and, thus, clothed Atty. Sabig with apparent authority such that the parties were made to believe that the proper person and entity to address was Atty. Sabig.Apparent authority, or what is sometimes referred to as the "holding out" theory, or doctrine of ostensible agency, imposes liability,not as the result of the reality of a contractual relationship, but rather because of the actions of a principal or an employer in somehow misleading the public into believing that the relationship or the authority exists.One of the instances of estoppel is when the principal has clothed the agent with indicia of authority as to lead a reasonably prudent person to believe that the agent actually has such authority.With the case of MEGAN, it had all the opportunity to repudiate the authority of Atty. Sabig since all motions, pleadings and court orders were sent to MEGANs office. However, MEGAN never questioned the acts of Atty. Sabig and even took time and effort to forward all the court documents to him.The rule is that the active participation of the party against whom the action was brought, coupled with his failure to object to the jurisdiction of the court or administrative body where the action is pending, is tantamount to an invocation of that jurisdiction and a willingness to abide by the resolution of the case and will bar said party from later on impugning the court or bodys jurisdiction.Based on the preceding discussion, this Court holds that MEGANs challenge to Atty. Sabigs authority and the RTCs jurisdiction was a mere afterthought after having received an unfavorable decision from the RTC.Certainly, it would be unjust and inequitable to the other parties if this Court were to grant such a belated jurisdictional challenge.WHEREFORE, premises considered, the petition isDENIED.

8. Banate v Philippine Countryside Rural Bank (Liloan Cebu) 625 SCRA 21 Facts: On July 22, 1997, petitioner spouses Rosendo Maglasang and Patrocinia Monilar (spouses Maglasang) obtained a loan (subject loan) from PCRB forP1,070,000.00. The subject loan was evidenced by a promissory note and was payable on January 18, 1998. To secure the payment of the subject loan, the spouses Maglasang executed, in favor of PCRB a real estate mortgage over their property, Lot 12868-H-3-C,6including the house constructed thereon (collectively referred to as subject properties), owned by petitioners Mary Melgrid and Bonifacio Cortel (spouses Cortel), the spouses Maglasangs daughter and son-in-law, respectively. Aside from the subject loan, the spouses Maglasang obtained two other loans from PCRB which were covered by separate promissory notes7and secured by mortgages on their other properties.Sometime in November 1997 (before the subject loan became due), the spouses Maglasang and the spouses Cortel asked PCRBs permission to sell the subject properties. They likewise requested that the subject properties be released from the mortgage since the two other loans were adequately secured by the other mortgages. The spouses Maglasang and the spouses Cortel claimed that the PCRB, acting through its Branch Manager, Pancrasio Mondigo, verbally agreed to their request but required first the full payment of the subject loan. The spouses Maglasang and the spouses Cortel thereafter sold to petitioner Violeta Banate the subject properties forP1,750,000.00. The spouses Magsalang and the spouses Cortel used the amount to pay the subject loan with PCRB. After settling the subject loan, PCRB gave the owners duplicate certificate of title of Lot 12868-H-3-C to Banate, who was able to secure a new title in her name. The title, however, carried the mortgage lien in favor of PCRB, prompting the petitioners to request from PCRB a Deed of Release of Mortgage. As PCRB refused to comply with the petitioners request, the petitioners instituted an action for specific performance before the RTC to compel PCRB to execute the release deed.PCRB considered Banate as a buyer in bad faith as she was fully aware of the existing mortgage in its favor when she purchased the subject properties from the spouses Maglasang and the spouses Cortel. It explained that it allowed the release of the owners duplicate certificate of title to Banate only to enable her to annotate the sale. PCRB claimed that the release of the title should not indicate the corresponding release of the subject properties from the mortgage constituted thereon.After trial, the RTC ruled in favor of the petitioners. It noted that the petitioners, as "necessitous men," could not have bargained on equal footing with PCRB in executing the mortgage, and concluded that it was a contract of adhesion. Therefore, any obscurity in the mortgage contract should not benefit PCRB.The RTC observed that the official receipt issued by PCRB stated that the amount owed by the spouses Maglasang under the subject loan was only aboutP1.2 million; that Mary Melgrid Cortel paid the subject loan using the check which Banate issued as payment of the purchase price; and that PCRB authorized the release of the title further indicated that the subject loan had already been settled. Since the subject loan had been fully paid, the RTC considered the petitioners as rightfully entitled to a deed of release of mortgage, pursuant to the verbal agreement that the petitioners made with PCRBs branch manager, Mondigo. Thus, the RTC ordered PCRB to execute a deed of release of mortgage over the subject properties, and to pay the petitioners moral damages and attorneys fees.On appeal, the CA reversed the RTCs decision. The CA did not consider as valid the petitioners new agreement with Mondigo, which would novate the original mortgage contract containing the cross-collateral stipulation. It ruled that Mondigo cannot orally amend the mortgage contract between PCRB, and the spouses Maglasang and the spouses Cortel; therefore, the claimed commitment allowing the release of the mortgage on the subject properties cannot bind PCRB. Since the cross-collateral stipulation in the mortgage contract (requiring full settlement of all three loans before the release of any of the mortgages) is clear, the parties must faithfully comply with its terms. Issue: Whether PCRB is bound by the Commitment of its Branch Manager Mondigo under the doctrine of apparent authority.Ruling: No.Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. The power and the responsibility to decide whether the corporation should enter into a contract that will bind the corporation are lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions of law. In the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation.However, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and powers to its officers, committees or agents. The authority of these individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from the board, either expressly or impliedly by habit, custom or acquiescence in the general course of business.17The authority of a corporate officer or agent in dealing with third persons may be actual or apparent. Actual authority is either express or implied. The extent of an agents express authority is to be measured by the power delegated to him by the corporation, while the extent of his implied authority is measured by his prior acts which have been ratified or approved, or their benefits accepted by his principal.The doctrine of "apparent authority," on the other hand, with special reference to banks, had long been recognized in this jurisdiction. The existence of apparent authority may be ascertained through:1) the general manner in which the corporation holds out an officer or agent as having the power to act, or in other words, the apparent authority to act in general, with which it clothes him; or2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers.Accordingly, the authority to act for and to bind a corporation may be presumed from acts of recognition in other instances when the power was exercised without any objection from its board or shareholders.Under the doctrine of apparent authority, acts and contracts of the agent, as are within the apparent scope of the authority conferred on him, although no actual authority to do such acts or to make such contracts has been conferred, bind the principal. The principals liability, however, is limited only to third persons who have been led reasonably to believeby the conduct of the principalthat such actual authority exists, although none was given. In other words, apparent authority is determined only by the acts of the principal and not by the acts of the agent. There can be no apparent authority of an agent without acts or conduct on the part of the principal; such acts or conduct must have been known and relied upon in good faith as a result of the exercise of reasonable prudence by a third party as claimant, and such acts or conduct must have produced a change of position to the third partys detriment. In the present case, the decision of the trial court was utterly silent on the manner by which PCRB, as supposed principal, has "clothed" or "held out" its branch manager as having the power to enter into an agreement, as claimed by petitioners. No proof of the course of business, usages and practices of the bank about, or knowledge that the board had or is presumed to have of, its responsible officers acts regarding bank branch affairs, was ever adduced to establish the branch managers apparent authority to verbally alter the terms of mortgage contracts.3Neither was there any allegation, much less proof, that PCRB ratified Mondigos act or is estopped to make a contrary claim.Further, we would be unduly stretching the doctrine of apparent authority were we to consider the power to undo or nullify solemn agreements validly entered into as within the doctrines ambit. Although a branch manager, within his field and as to third persons, is the general agent and is in general charge of the corporation, with apparent authority commensurate with the ordinary business entrusted him and the usual course and conduct thereof,yet the power to modify or nullify corporate contracts remains generally in the board of directors.Being a mere branch manager alone is insufficient to support the conclusion that Mondigo has been clothed with "apparent authority" to verbally alter terms of written contracts, especially when viewed against the telling circumstances of this case: the unequivocal provision in the mortgage contract; PCRBs vigorous denial that any agreement to release the mortgage was ever entered into by it; and, the fact that the purported agreement was not even reduced into writing considering its legal effects on the parties interests. To put it simply, the burden of proving the authority of Mondigo to alter or novate the mortgage contract has not been established.It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of the agents authority, and in case either is controverted, the burden of proof is upon them to establish it.As parties to the mortgage contract, the petitioners are expected to abide by its terms. The subsequent purported agreement is of no moment, and cannot prejudice PCRB, as it is beyond Mondigos actual or apparent authority, as above discussed.WHEREFORE, we DENY the petitioners petition for review on certiorari for lack of merit

9. Prudential Bank vs AbosoloFacts: Leonor Valenzuela-Rosales inherited two parcels of land situated in Palanan, Sta. Cruz, Laguna (the properties), registered as Original Certificates of Title Nos. RO-527 and RO-528. After she passed away, her heirs executed on June 14, 1993 a Special Power of Attorney (SPA) in favor of Liwayway Abasolo (respondent) empowering her to sell the properties.[2]Sometime in 1995, Corazon Marasigan (Corazon) wanted to buy the properties which were being sold for P2,448,960, but as she had no available cash, she broached the idea of first mortgaging the properties to petitioner Prudential Bank and Trust Company (PBTC), the proceeds of which would be paid directly to respondent. Respondent agreed to the proposal.On Corazon and respondents consultation with PBTCs Head Office, its employee, Norberto Mendiola (Mendiola), allegedly advised respondent to issue an authorization for Corazon to mortgage the properties, and for her (respondent) to act as one of the co-makers so that the proceeds could be released to both of them. To guarantee the payment of the property, Corazon executed on August 25, 1995 a Promissory Note for P2,448,960 in favor of respondent. By respondents claim, in October 1995, Mendiola advised her to transfer the properties first to Corazon for the immediate processing of Corazons loan application with assurance that the proceeds thereof would be paid directly to her (respondent), and the obligation would be reflected in a bank guarantee.

Heeding Mendiolas advice, respondent executed a Deed of Absolute Sale over the properties in favor of Corazon following which or on December 4, 1995, Transfer Certificates of Title Nos. 164159 and 164160 were issued in the name of Corazon. Corazons application for a loan with PBTCs Tondo Branch was approved on December 1995. She thereupon executed a real estate mortgage covering the properties to secure the payment of the loan. In the absence of a written request for a bank guarantee, the PBTC released the proceeds of the loan to Corazon. Respondent later got wind of the approval of Corazons loan application and the release of its proceeds to Corazon who, despite repeated demands, failed to pay the purchase price of the properties. Respondent eventually accepted from Corazon partial payment in kind consisting of one owner type jeepney and four passenger jeepneys,[3] plus installment payments, which, by the trial courts computation, totaled P665,000. In view of Corazons failure to fully pay the purchase price, respondent filed a complaint for collection of sum of money and annulment of sale and mortgage with damages, against Corazon and PBTC (hereafter petitioner), before the Regional Trial Court (RTC) of Sta. Cruz, Laguna.[4] In her Answer,[5] Corazon denied that there was an agreement that the proceeds of the loan would be paid directly to respondent. And she claimed that the vehicles represented full payment of the properties, and had in fact overpaid P76,040. By Decision of March 12, 2004,[9] Branch 91 of the Sta. Cruz, Laguna RTC rendered judgment in favor of respondent and against Corazon who was made directly liable to respondent, and against petitioner who was made subsidiarily liable in the event that Corazon fails to pay. Further, Liwayway would not have executed the deed of sale in favor of Corazon had Norberto Mendiola did not promise and guarantee that the proceeds of the loan would be directly paid to her. Based on ordinary human experience, she would not have readily transferred the title over the subject lots had there been no strong and reliable guarantee. In this case, what caused her to transfer title is the promise and guarantee made by Norberto Mendiola that the proceeds of the loan would be directly paid to her. [11] (emphasis underscoring supplied) On appeal, the Court of Appeals by Decision of January 14, 2008[12], affirmed the trial courts decision with modification on the amount of the balance of the purchase price which was reduced from P1,783,960 to P1,753,960. Issue:

The only issue petitioner raises is whether it is subsidiarily liable. Held:

The petition is meritorious. In the absence of a lender-borrower relationship between petitioner and Liwayway, there is no inherent obligation of petitioner to release the proceeds of the loan to her. To a banking institution, well-defined lending policies and sound lending practices are essential to perform its lending function effectively and minimize the risk inherent in any extension of credit. In order to identify and monitor loans that a bank has extended, a system of documentation is necessary. Under this fold falls the issuance by a bank of a guarantee which is essentially a promise to repay the liabilities of a debtor, in this case Corazon. It would be contrary to established banking practice if Mendiola issued a bank guarantee, even if no request to that effect was made.The principle of relativity of contracts in Article 1311 of the Civil Code supports petitioners cause: Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. xxxxxxxxxxx The contracting parties must have clearly and deliberately conferred a favor upon a third person.

For Liwayway to prove her claim against petitioner, a clear and deliberate act of conferring a favor upon her must be present. A written request would have sufficed to prove this, given the nature of a banking business, not to mention the amount involved. Since it has not been established that petitioner had an obligation to Liwayway, there is no breach to speak of. Liwayways claim should only be directed against Corazon. Petitioner cannot thus be held subisidiarily liable. The trial Courts reliance on the doctrine of apparent authority that the principal, in this case petitioner, is liable for the obligations contracted by its agent, in this case Mendiola, does not lie. Prudential Bank v. Court of Appeals[15] instructs: [A] banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetuate fraud upon his principal or some person, for his own ultimate benefit.[16] (underscoring supplied) The onus probandi that attempt to commit fraud attended petitioners employee Mendiolas acts and that he abused his authority lies on Liwayway. She, however, failed to discharge the onus. It bears noting that Mendiola was not privy to the approval or disallowance of Corazons application for a loan nor that he would benefit by the approval thereof. Aside from Liwayways bare allegations, evidence is wanting to show that there was collusion between Corazon and Mendiola to defraud her. Even in Liwayways Complaint, the allegation of fraud is specifically directed against Corazon.[17] WHEREFORE, the Decision of January 14, 2008 of the Court of Appeals, in so far as it holds petitioner, Prudential Bank and Trust Company (now Bank of the Philippine Islands), subsidiary liable in case its co-defendant Corazon Marasigan, who did not appeal the trial courts decision, fails to pay the judgment debt, isREVERSED and SET ASIDE. The complaint against petitioner is accordingly DISMISSED.

10. PREMIERE DEVELOPMENT BANK, petitioner, vs.COURT OF APPEALS, PANACOR MARKETING CORPORATION and ARIZONA TRANSPORT CORPORATION,respondents.Facts: The undisputed facts show that on or about October 1994, Panacor Marketing Corporation (Panacor for brevity), a newly formed corporation, acquired an exclusive distributorship of products manufactured by Colgate Palmolive Philippines, Inc. (Colgate for short). To meet the capital requirements of the exclusive distributorship, which required an initial inventory level of P7.5 million, Panacor applied for a loan of P4.1 million with Premiere Development Bank. After an extensive study of Panacors creditworthiness, Premiere Bank rejected the loan application and suggested that its affiliate company, Arizona Transport Corporation (Arizona for short),3 should instead apply for the loan on condition that the proceeds thereof shall be made available to Panacor. Eventually, Panacor was granted a P4.1 million credit line as evidenced by a Credit Line Agreement.4 As suggested, Arizona, which was an existing loan client, applied for and was granted a loan of P6.1 million, P3.4 million of which would be used to pay-off its existing loan accounts and the remaining P2.7 million as credit line of Panacor. As security for the P6.1 million loan, Arizona, represented by its Chief Executive Officer Pedro Panaligan and spouses Pedro and Marietta Panaligan in their personal capacities, executed a Real Estate Mortgage against a parcel of land covered by TCT No. T-3475 as per Entry No. 49507 dated October 2, 1995.5Since the P2.7 million released by Premiere Bank fell short of the P4.1 million credit line which was previously approved, Panacor negotiated for a take-out loan with Iba Finance Corporation (hereinafter referred to as Iba-Finance) in the sum of P10 million, P7.5 million of which will be released outright in order to take-out the loan from Premiere Bank and the balance of P2.5 million (to complete the needed capital of P4.1 million with Colgate) to be released after the cancellation by Premiere of the collateral mortgage on the property covered by TCT No. T-3475. Pursuant to the said take-out agreement, Iba-Finance was authorized to pay Premiere Bank the prior existing loan obligations of Arizona in an amount not to exceed P6 million.On October 5, 1995, Iba-Finance sent a letter to Ms. Arlene R. Martillano, officer-in-charge of Premiere Banks San Juan Branch, informing her of the approved loan in favor of Panacor and Arizona, and requesting for the release of TCT No. T-3475. Martillano, after reading the letter, affixed her signature of conformity thereto and sent the original copy to Premiere Banks legal office. On October 12, 1995, Premiere Bank sent a letter-reply7 to Iba-Finance, informing the latter of its refusal to turn over the requested documents on the ground that Arizona had existing unpaid loan obligations and that it was the banks policy to require full payment of all outstanding loan obligations prior to the release of mortgage documents. Thereafter, Premiere Bank issued to Iba-Finance a Final Statement of Account8 showing Arizonas total loan indebtedness. On October 19, 1995, Panacor and Arizona executed in favor of Iba-Finance a promissory note in the amount of 7.5 million. Thereafter, Iba-Finance paid to Premiere Bank the amount of P6,235,754.79 representing the full outstanding loan account of Arizona. Despite such payment, Premiere Bank still refused to release the requested mortgage documents specifically, the owners duplicate copy of TCT No. T-3475.9On November 2, 1995, Panacor requested Iba-Finance for the immediate approval and release of the remaining P2.5 million loan to meet the required monthly purchases from Colgate. Iba-Finance explained however, that the processing of the P2.5 million loan application was conditioned, among others, on the submission of the owners duplicate copy of TCT No. 3475 and the cancellation by Premiere Bank of Arizonas mortgage. Occasioned by Premiere Banks adamant refusal to release the mortgage cancellation document, Panacor failed to generate the required capital to meet its distribution and sales targets. On December 7, 1995, Colgate informed Panacor of its decision to terminate their distribution agreement.On March 13, 1996, Panacor and Arizona filed a complaint for specific performance and damages against Premiere Bank before the Regional Trial Court of Pasig City. On June 11, 1996, Iba-Finance filed a complaint-in-intervention praying that judgment be rendered ordering Premiere Bank to pay damages in its favor.On May 26, 1998, the trial court rendered a decision in favor of Panacor and Iba-FinancePremiere Bank appealed to the Court of Appeals contending that the trial court erred in finding, inter alia, that it had maliciously downgraded the credit-line of Panacor from P4.1 million to P2.7 million.In the meantime, a compromise agreement was entered into between Iba-Finance and Premiere Bank whereby the latter agreed to return without interest the amount of P6,235,754.79 which Iba-Finance earlier remitted to Premiere Bank to pay off the unpaid loans of Arizona. On March 11, 1999, the compromise agreement was approved.On June 18, 2003, a decision was rendered by the Court of Appeals which affirmed with modification the decision of the trial court.Issue: Whether the issues should have been resolved based on the compromise agreement, and if it were, WON its resolution should be limited to resolving the issue on the alleged bad faithHeld:Firstly, Premiere Bank argues that considering the compromise agreement it entered with Iba-Finance, the Court of Appeals should have ruled only on the issue of its alleged bad faith in downgrading Panacors credit line. It further contends that the Court of Appeals should have refrained from making any adverse pronouncement on the refusal of Premiere Bank to recognize the take-out and its subsequent failure to release the cancellation of the mortgage because they were rendered fait accompli by the compromise agreement.We are not persuaded.In a letter-agreement12 dated October 5, 1995, Iba-Finance informed Premiere Bank of its approval of Panacors loan application in the amount of P10 million to be secured by a real estate mortgage over a parcel of land covered by TCT No. T-3475. It was agreed that Premiere Bank shall entrust to Iba-Finance the owners duplicate copy of TCT No. T-3475 in order to register its mortgage, after which Iba-Finance shall pay off Arizonas outstanding indebtedness. Accordingly, Iba-Finance remitted P6,235,754.79 to Premiere Bank on the understanding that said amount represented the full payment of Arizonas loan obligations. Despite performance by Iba-Finance of its end of the bargain, Premiere Bank refused to deliver the mortgage document. As a consequence, Iba-Finance failed to release the remaining P2.5 million loan it earlier pledged to Panacor, which finally led to the revocation of its distributorship agreement with Colgate.Undeniably, the not-so-forthright conduct of Premiere Bank in its dealings with respondent corporations caused damage to Panacor and Iba-Finance. It is error for Premiere Bank to assume that the compromise agreement it entered with Iba-Finance extinguished all direct and collateral incidents to the aborted take-out such that it also cancelled its obligations to Panacor. The unjustified refusal by Premiere Bank to release the mortgage document prompted Iba-Finance to withhold the release of the P2.5 million earmarked for Panacor which eventually terminated the distributorship agreement. Both Iba-Finance and Panacor, which are two separate and distinct juridical entities, suffered damages due to the fault of Premiere Bank. Hence, it should be held liable to each of them.Neither can Premiere Bank rely on the puerile excuse that it was the banks policy not to release the mortgage cancellation prior to the settlement of outstanding loan obligations. Needless to say, the Final Statement of Account dated October 17, 1995 showing in no uncertain terms Arizonas outstanding indebtedness, which was subsequently paid by Iba-Finance, was the full payment of Arizonas loan obligations. Equity demands that a party cannot disown it previous declaration to the prejudice of the other party who relied reasonably and justifiably on such declaration.Premiere Bank avers that the appellate courts reliance on the credit line agreement as the basis of bad faith on its part was inadmissible or self-serving for not being duly notarized, being unsigned in all of its left margins, and undated. According to Premiere Bank, the irregularities in the execution of the credit line agreement bolsters the theory that the same was the product of manipulation orchestrated by respondent corporations through undue influence and pressure exerted by its officers on Martillano.Premiere Banks posture deserves scant consideration. As found by the lower court, there are sufficient indicia that demonstrate that the alleged unjust pressure exerted on Martillano was more imagined than real. In her testimony, Martillano claims that she was persuaded and coaxed by Caday of Iba-Finance and Panaligan of Panacor to sign the letter. It was she who provided Iba-Finance with the Final Statement of Account and accepted its payment without objection or qualification. These acts show that she was vested by Premiere Bank with sufficient authority to enter into the said transactions.If a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be estopped to deny that the apparent authority is real as to innocent third persons dealing in good faith with such officers or agents.17 As testified to by Martillano, after she received a copy of the credit line agreement and affixed her signature in conformity thereto, she forwarded the same to the legal department of the Bank at its Head Office. Despite its knowledge, Premiere Bank failed to disaffirm the contract. When the officers or agents of a corporation exceed their powers in entering into contracts or doing other acts, the corporation, when it has knowledge thereof, must promptly disaffirm the contract or act and allow the other party or third persons to act in the belief that it was authorized or has been ratified. If it acquiesces, with knowledge of the facts, or fails to disaffirm, ratification will be implied or else it will be estopped to deny ratification.18WHEREFORE, the petition is DENIED. The Decision dated June 18, 2003 of the Court of Appeals in CA-G.R. CV No. 60750, ordering Premiere Bank to pay Panacor Marketing Corporation P500,000.00 as exemplary damages, P100,000.00 as attorneys fees, and costs, is AFFIRMED, with the MODIFICATION that the award of P4,520,000.00 as actual damages is DELETED for lack of factual basis. In lieu thereof, Premiere Bank is ordered to pay Panacor P200,000.00 as temperate damages.SO ORDERED.

11. PHILIPPINE NATIONAL BANK, Petitioner, vs.MERELO B. AZNAR; MATIAS B. AZNAR III; JOSE L. AZNAR (deceased), represented by his heirs; RAMON A. BARCENILLA; ROSARIO T. BARCENILLA; JOSE B. ENAD (deceased), represented by his heirs; and RICARDO GABUYA (deceased), represented by his heirs, Respondents.x - - - - - - - - - - - - - - - - - - - - - - -xG.R. No. 172021MERELO B. AZNAR and MATIAS B. AZNAR III, Petitioners, vs.PHILIPPINE NATIONAL BANK, Respondent.Facts:In 1958, RISCO ceased operation due to business reverses. In plaintiffs desire to rehabilitate RISCO, they contributed a total amount of P212,720.00 which was used in the purchase of the three (3) parcels of land described as follows:"A parcel of land (Lot No. 3597 of the Talisay-Minglanilla Estate, G.L.R.O. Record No. 3732) situated in the Municipality of Talisay, Province of Cebu, Island of Cebu covered by Transfer Certificate of Title No. 8921 in the name of Rural Insurance & Surety Co., Inc.";"A parcel of land (Lot 7380 of the Talisay Minglanilla Estate, G.L.R.O. Record No. 3732), situated in the Municipality of Talisay, Province of Cebu, Island of Cebu covered by Transfer Certificate of Title No. 8922 in the name of Rural Insurance & Surety Co., Inc." and"A parcel of land (Lot 1323 of the subdivision plan Psd-No. 5988), situated in the District of Lahug, City of Cebu, Island of Cebu covered by Transfer Certificate of Title No. 24576 in the name of Rural Insurance & Surety Co., Inc."After the purchase of the above lots, titles were issued in the name of RISCO. The amount contributed by plaintiffs constituted as liens and encumbrances on the aforementioned properties as annotated in the titles of said lots. Such annotation was made pursuant to the Minutes of the Special Meeting of the Board of Directors of RISCO (hereinafter referred to as the "Minutes") on March 14, 1961, pertinent portion of which states:x x x x3. The President then explained that in a special meeting of the stockholders previously called for the purpose of putting up certain amount of P212,720.00 for the rehabilitation of the Company, the following stockholders contributed the amounts indicated opposite their names:CONTRIBUTED SURPLUSMERELO B. AZNARP50,000.00

MATIAS B. AZNAR50,000.00

JOSE L. AZNAR27,720.00

RAMON A. BARCENILLA25,000.00

ROSARIO T. BARCENILLA25,000.00

JOSE B. ENAD17,500.00

RICARDO GABUYA17,500.00

212,720.00

x x x xAnd that the respective contributions above-mentioned shall constitute as their lien or interest on the property described above, if and when said property are titled in the name of RURAL INSURANCE & SURETY CO., INC., subject to registration as their adverse claim in pursuance of the Provisions of Land Registration Act, (Act No. 496, as amended) until such time their respective contributions are refunded to them completely.x x x x"Thereafter, various subsequent annotations were made on the same titles, including the Notice of Attachment and Writ of Execution both dated August 3, 1962 in favor of herein defendant PNB.As a result, a Certificate of Sale was issued in favor of Philippine National Bank, being the lone and highest bidder of the three (3) parcels of land. Thereafter, a Final Deed of Sale dated May 27, 1991 in favor of the Philippine National Bank was also issued and Transfer Certificate of Title No. 24576 for Lot 1328-C (corrected to 1323-C) was cancelled and a new certificate of title, TCT 119848 was issued in the name of PNB on August 26, 1991.This prompted plaintiffs-appellees to file the instant complaint seeking the quieting of their supposed title to the subject properties, declaratory relief, cancellation of TCT and reconveyance with temporary restraining order and preliminary injunction. Plaintiffs alleged that the subsequent annotations on the titles are subject to the prior annotation of their liens and encumbrances. Plaintiffs further contended that the subsequent writs and processes annotated on the titles are all null and void for want of valid service upon RISCO and on them, as stockholders. They argued that the Final Deed of Sale and TCT No. 119848 are null and void as these were issued only after 28 years and that any right which PNB may have over the properties had long become stale.Defendant PNB on the other hand countered that plaintiffs have no right of action for quieting of title since the order of the court directing the issuance of titles to PNB had already become final and executory and their validity cannot be attacked except in a direct proceeding for their annulment. Defendant further asserted that plaintiffs, as mere stockholders of RISCO do not have any legal or equitable right over the properties of the corporation. PNB posited that even if plaintiffs monetary lien had not expired, their only recourse was to require the reimbursement or refund of their contribution.51awphi1The trial court rendered the November 18, 1998 Decision, which ruled against PNB on the basis that there was an express trust created over the subject properties whereby RISCO was the trustee and the stockholders, Aznar, et al., were the beneficiaries or the cestui que trust. PNB appealed the adverse ruling to the Court of Appeals which, in its September 29, 2005 Decision, set aside the judgment of the trial court. Although the Court of Appeals agreed with the trial court that a judgment on the pleadings was proper, the appellate court opined that the monetary contributions made by Aznar, et al., to RISCO can only be characterized as a loan secured by a lien on the subject lots, rather than an express trust. Thus, it directed PNB to pay Aznar, et al., the amount of their contributions plus legal interest from the time of acquisition of the property until finality of judgment.lawphilIssues:THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT OF RESPONDENTS TO REFUND OR REPAYMENT OF THEIR CONTRIBUTIONS HAD NOT PRESCRIBED AND/OR THAT THE MINUTES OF THE SPECIAL MEETING OF THE BOARD OF DIRECTORS OF RISCO CONSTITUTED AS AN EFFECTIVE ADVERSE CLAIM.WON THERE WAS RES JUDICATA AND LACK OF CAUSE OF ACTION AS ALLEGED On the other hand, Aznar, et al.s petition, docketed as G.R. No. 172021, raised the following issue:THE COURT OF APPEALS ERRED IN CONCLUDING THAT THE CONTRIBUTIONS MADE BY THE STOCKHOLDERS OF RISCO WERE MERELY A LOAN SECURED BY THEIR LIEN OVER THE PROPERTIES, SUBJECT TO REIMBURSEMENT OR REFUND, RATHER THAN AN EXPRESS TRUST.HELD:A thorough and comprehensive scrutiny of the records would reveal that this case should be dismissed because Aznar, et al., have no title to quiet over the subject properties and their true cause of action is already barred by prescription.At the outset, the Court agrees with the Court of Appeals that the agreement contained in the Minutes of the Special Meeting of the RISCO Board of Directors held on March 14, 1961 was a loan by the therein named stockholders to RISCO.Careful perusal of the Minutes relied upon by plaintiffs-appellees in their claim, showed that their contributions shall constitute as "lien or interest on the property" if and when said properties are titled in the name of RISCO, subject to registration of their adverse claim under the Land Registration Act, until such time their respective contributions are refunded to them completely.It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control. When the language of the contract is explicit leaving no doubt as to the intention of the drafters thereof, the courts may not read into it any other intention that would contradict its plain import.The term lien as used in the Minutes is defined as "a discharge on property usually for the payment of some debt or obligation. A lien is a qualified right or a proprietary interest which may be exercised over the property of another. It is a right which the law gives to have a debt satisfied out of a particular thing. It signifies a legal claim or charge on property; whether real or personal, as a collateral or security for the payment of some debt or obligation." Hence, from the use of the word "lien" in the Minutes, We find that the money contributed by plaintiffs-appellees was in the nature of a loan, secured by their liens and interests duly annotated on the titles. The annotation of their lien serves only as collateral and does not in any way vest ownership of property to plaintiffs.20(Emphases supplied.)We are not persuaded by the contention of Aznar, et al., that the language of the subject Minutes created an express trust.Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in another. It is a fiduciary relationship that obliges the trustee to deal with the property for the benefit of the beneficiary. Trust relations between parties may either be express or implied. An express trust is created by the intention of the trustor or of the parties. An implied trust comes into being by operation of law.21Express trusts, sometimes referred to as direct trusts, are intentionally created by the direct and positive acts of the settlor or the trustor - by some writing, deed, or will or oral declaration. It is created not necessarily by some written words, but by the direct and positive acts of the parties.22 This is in consonance with Article 1444 of the Civil Code, which states that "[n]o particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended."In other words, the creation of an express trust must be manifested with reasonable certainty and cannot be inferred from loose and vague declarations or from ambiguous circumstances susceptible of other interpretations.23No such reasonable certitude in the creation of an express trust obtains in the case at bar. In fact, a careful scrutiny of the plain and ordinary meaning of the terms used in the Minutes does not offer any indication that the parties thereto intended that Aznar, et al., become beneficiaries under an express trust and that RISCO serve as trustor.Indeed, we find that Aznar, et al., have no right to ask for the quieting of title of the properties at issue because they have no legal and/or equitable rights over the properties that are derived from the previous registered owner which is RISCO, the pertinent provision of the law is Section 2 of the Corporation Code (Batas Pambansa Blg. 68), which states that "[a] corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence."As a consequence thereof, a corporation has a personality separate and distinct from those of its stockholders and other corporations to which it may be connected.24 Thus, we had previously ruled in Magsaysay-Labrador v. Court of Appeals25 that the interest of the stockholders over the properties of the corporation is merely inchoate and therefore does not entitle them to intervene in litigation involving corporate property, to wit: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.26In the case at bar, there is no allegation, much less any proof, that the corporate existence of RISCO has ceased and the corporate property has been liquidated and distributed to the stockholders. The records only indicate that, as per Securities and Exchange Commission (SEC) Certification27 dated June 18, 1997, the SEC merely suspended RISCOs Certificate of Registration beginning on September 5, 1988 due to its non-submission of SEC required reports and its failure to operate for a continuous period of at least five years.Verily, Aznar, et al., who are stockholders of RISCO, cannot claim ownership over the properties at issue in this case on the strength of the Minutes which, at most, is merely evidence of a loan agreement between them and the company. There is no indication or even a suggestion that the ownership of said properties were transferred to them which would require no less that the said properties be registered under their names. For this reason, the complaint should be dismissed since Aznar, et al., have no cause to seek a quieting of title over the subject properties.At most, what Aznar, et al., had was merely a right to be repaid the amount loaned to RISCO. Unfortunately, the right to seek repayment or reimbursement of their contributions used to purchase the subject properties is already barred by prescription.WHEREFORE, the petition of Aznar, et al., in G.R. No. 172021 is DENIED for lack of merit. The petition of PNB in G.R. No. 171805 is GRANTED. The Complaint, docketed as Civil Case No. CEB-21511, filed by Aznar, et al., is hereby DISMISSED. No costs.SO ORDERED.12. NDC

13. BOY SCOUTS OF THE PHILIPPINES, Petitioner, vs.COMMISSION ON AUDIT, Respondent.FACTS: This case arose when the COA issued Resolution No. 99-0115 on August 19, 1999 ("the COA Resolution"), with the subject "Defining the Commissions policy with respect to the audit of the Boy Scouts of the Philippines." In its whereas clauses, the COA Resolution stated that the BSP was created as a public corporation under Commonwealth Act No. 111, as amended by Presidential Decree No. 460 and Republic Act No. 7278; that in Boy Scouts of the Philippines v. National Labor Relations Commission,6 the Supreme Court ruled that the BSP, as constituted under its charter, was a "government-controlled corporation within the meaning of Article IX(B)(2)(1) of the Constitution"; and that "the BSP is appropriately regarded as a government instrumentality under the 1987 Administrative Code."7 The COA Resolution also cited its constitutional mandate under Section 2(1), Article IX (D). It reads:

BE IT RESOLVED FURTHERMORE, that for purposes of audit supervision, the Boy Scouts of the Philippines shall be classified among the government corporations belonging to the Educational, Social, Scientific, Civic and Research Sector under the Corporate Audit Office I, to be audited, similar to the subsidiary corporations, by employing the team audit approach.8 (Emphases supplied.)

The BSP sought reconsideration of the COA Resolution in a letter9 dated November 26, 1999 signed by the BSP National President Jejomar C. Binay, who is now the Vice President of the Republic, partly stating:

It may be argued also that the BSP is not an "agency" of the Government. The 1987 Administrative Code, merely referred the BSP as an "attached agency" of the DECS as distinguished from an actual line agency of departments that are included in the National Budget. The BSP believes that an "attached agency" is different from an "agency." Agency, as defined in Section 2(4) of the Administrative Code, is defined as any of the various units of the Government including a department, bureau, office, instrumentality, government-owned or controlled corporation or local government or distinct unit therein.Under the above definition, the BSP is neither a unit of the Government; a department which refers to an executive department as created by law (Section 2[7] of the Administrative Code); nor a bureau which refers to any principal subdivision or unit of any department (Section 2[8], Administrative Code).

In a letter12 dated July 3, 2000, Director Crescencio S. Sunico, Corporate Audit Officer (CAO) I of the COA, furnished the BSP with a copy of the Memorandum13 dated June 20, 2000 of Atty. Santos M. Alquizalas, the COA General Counsel. In said Memorandum, the COA General Counsel opined that Republic Act No. 7278 did not supersede the Courts ruling in Boy Scouts of the Philippines v. National Labor Relations Commission, even though said law eliminated the substantial government participation in the selection of members of the National Executive Board of the BSP. The Memorandum further provides:Analysis of the said case disclosed that the substantial government participation is only one (1) of the three (3) grounds relied upon by the Court in the resolution of the case. Other considerations include the character of the BSPs purposes and functions which has a public aspect and the statutory designation of the BSP as a "public corporation". These grounds have not been deleted by R.A. No. 7278. On the contrary, these were strengthened as evidenced by the amendment made relative to BSPs purposes stated in Section 3 of R.A. No. 7278.On the argument that BSP is not appropriately regarded as "a government instrumentality" and "agency" of the government, such has already been answered and clarified. The Supreme Court has elucidated this matter in the BSP case when it declared that BSP is regarded as, both a "government-controlled corporation with an original charter" and as an "instrumentality" of the Government. Likewise, it is not disputed that the Administrative Code of 1987 designated the BSP as one of the attached agencies of DECS. Being an attached agency, however, it does not change its nature as a government-controlled corporation with original charter and, necessarily, subject to COA audit jurisdiction. Besides, Section 2(1), Article IX-D of the Constitution provides that COA shall have the power, authority, and duty to examine, audit and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies or instrumentalities, including government-owned or controlled corporations with original charters.14Based on the Memorandum of the COA General Counsel, Director Sunico wrote:In view of the points clarified by said Memorandum upholding COA Resolution No. 99-011, we have to comply with the provisions of the latter, among which is to conduct an annual financial audit of the Boy Scouts of the Philippines.15

Issue:As stated earlier, the sole issue to be resolved in this case is whether the BSP falls under the COAs audit jurisdiction.Held:To summarize its other arguments, the BSP contends that it is not a government-owned or controlled corporation; neither is it an instrumentality, agency, or subdivision of the government.In its Comment,26 the COA argues as follows:1. The BSP is a public corporation created under Commonwealth Act No. 111 dated October 31, 1936, and whose functions relate to the fostering of public virtues of citizenship and patriotism and the general improvement of the moral spirit and fiber of the youth. The manner of creation and the purpose for which the BSP was created indubitably prove that it is a government agency.2. Being a government agency, the funds and property owned or held in trust by the BSP are subject to the audit authority of respondent Commission on Audit pursuant to Section 2 (1), Article IX-D of the 1987 Constitution.3. Republic Act No. 7278 did not change the character of the BSP as a government-owned or controlled corporation and government instrumentality.27The COA maintains that the functions of the BSP that include, among others, the teaching to the youth of patriotism, courage, self-reliance, and kindred virtues, are undeniably sovereign functions enshrined under the Constitution and discussed by the Court in Boy Scouts of the Philippines v. National Labor Relations Commission. The COA contends that any attempt to classify the BSP as a private corporation would be incomprehensible since no less than the law which created it had designated it as a public corporation and its statutory mandate embraces performance of sovereign functions.28

The Ruling of the CourtAfter looking at the legislative history of its amended charter and carefully studying the applicable laws and the arguments of both parties, we find that the BSP is a public corporation and its funds are subject to the COAs audit jurisdiction.The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936), entitled "An Act to Create a Public Corporation to be Known as the Boy Scouts of the Philippines, and to Define its Powers and Purposes" created the BSP as a "public corporation" to serve the following public interest or purpose.Subsequently, on March 24, 1992, Republic Act No. 7278 further amended Commonwealth Act No. 111 "by strengthening the volunteer and democratic character" of the BSP and reducing government representation in its governing body, as follows:Section 1. Sections 2 and 3 of Commonwealth Act. No. 111, as amended, is hereby amended to read as follows:"Sec. 2. The said corporation shall have the powers of perpetual succession, to sue and be sued; to enter into contracts; to acquire, own, lease, convey and dispose of such real and personal estate, land grants, rights and choses in action as shall be necessary for corporate purposes, and to accept and receive funds, real and personal property by gift, devise, bequest or other means, to conduct fund-raising activities; to adopt and use a seal, and the same to alter and destroy; to have offices and conduct its business and affairs in Metropolitan Manila and in the regions, provinces, cities, municipalities, and barangays of the Philippines, to make and adopt by-laws, rules and regulations not inconsistent with this Act and the laws of the Philippines, and generally to do all such acts and things, including the establishment of regulations for the election of associates and successors, as may be necessary to carry into effect the provisions of this Act and promote the purposes of said corporation: Provided, That said corporation shall have no power to issue certificates of stock or to declare or pay dividends, its objectives and purposes being solely of benevolent character and not for pecuniary profit of its members.

The BSP as a Public Corporation under Par. 2, Art. 2 of the Civil CodeThere are three classes of juridical persons under Article 44 of the Civil Code and the BSP, as presently constituted under Republic Act No. 7278, falls under the second classification. Article 44 reads:Art. 44. The following are juridical persons:(1) The State and its political subdivisions;(2) Other corporations, institutions and entities for public interest or purpose created by law; their personality begins as soon as they have been constituted according to law;(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical personality, separate and distinct from that of each shareholder, partner or member. (Emphases supplied.)The BSP, which is a corporation created for a public interest or purpose, is subject to the law creating it under Article 45 of the Civil Code, which provides:Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are governed by the laws creating or recognizing them.Private corporations are regulated by laws of general application on the subject.Partnerships and associations for private interest or purpose are governed by the provisions of this Code concerning partnerships. (Emphasis and underscoring supplied.)The purpose of the BSP as stated in its amended charter shows