Digested Jurisprudence In Corporation Law.docx

SMITH, BELL & COMPANY (LTD.) vs. JOAQUIN NATIVIDAD, Collector of Customs of the port of Cebu Facts: Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands. A majority of its stockholders are British subjects. It is the owner of a motor vessel known as the Bato. Application 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. The instant action is the result. Counsel says that Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection of the laws because it, in effect, prohibits the corporation from owning vessels, and because classification of corporations based on the citizenship of one or more of their stockholders is capricious, and that Act No. 2761 deprives the corporation of its properly without due process of law because by the passage of the law company was automatically deprived of every beneficial attribute of ownership in the Bato and left with the naked title to a boat it could not use . Issue: Whether the Government of the Philippine Islands, through its Legislature, can deny the registry of vessels in its coastwise trade to corporations having alien stockholders. Ruling: Yes. The Supreme Court held that the Philippine Legislature Act No. 2761, which deny to foreigners the right to a certificate of Philippine registry is valid and constitutional. 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 fall within authorized exceptions, notably, within the purview of the police power, and so does not offend against the constitutional provision. The ultimate purpose of the Legislature is to encourage Philippine ship-building. The Philippine Legislature made up entirely of Filipinos, representing the mandate of the Filipino people and the guardian of their rights, acting under practically autonomous powers, and imbued with a strong sense of Philippinism, has desired for these Islands safety from foreign interlopers, the use of the common property exclusively by its citizens and the citizens of the United States, and protection for the common good of the people. HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK, petitioners, vs. HON. JOSE W. DIOKNO,et.al Facts: Forty-two (42) search warrants were issued at different dates against petitioners and the corporations of which they were officers. Peace officers were directed to search the persons of the petitioners and/or their premises of their offices, warehouses and/or residences. 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 were to be seized. Petitioner contends that the issued search warrants were null and void as having contravened the Constitution and the Rules of Court for, among others, it did not describe the documents, books and things to be seized PARTICULARLY. Issue: Whether or not the search warrant has been validly issued. Whether or not the seized articles may be admitted in court.

Held:

The authority of the warrants in question may be split in two major groups: (a) those found and seized in the offices of the corporations; and (b) those found and seized in the residences of the petitioners. The petitioners have no cause of action against the contested warrants on the first major group. This is because corporations have their respective personalities, separate and distinct from the personality of their officers, directors and stockholders. The legality of a seizure can be contested only by the party whose rights have been impaired, the objection to an unlawful search and seizure purely being personal cannot be availed by third parties. As to the second major group, two important questions need be settled: (1) whether the search warrants in question, and the searches and seizures made under authority thereof, are valid or not; and (2) if the answer is no, whether said documents, papers and things may be used in evidence against petitioners. The Constitution protects the rights of the people from unreasonable searches and seizure. Two points must be stressed in connection to this constitutional mandate: (1) no warrant shall be issued except if based upon probable cause determined personally by the judge by the manner set in the provision; and (2) the warrant shall describe the things to be seized with particularly. In the present case, no specific offense has been alleged in the warrant’s application. The averments of the offenses committed were abstract and therefore, would make it impossible for judges to determine the existence of probable cause. Such impossibility of such determination naturally hinders the issuance of a valid search warrant. The Constitution also requires the things to be seized described with particularity. This is to eliminate general warrants. The Court held that the warrants issued for the search of three residences of petitioners are null and void. Bache & Co Inc vs. Ruiz Facts: On 24 February 1970, Misael P. Vera, Commissioner of Internal Revenue, wrote a letter addressed to Judge Vivencio M. Ruiz requesting the issuance of a search warrant against Bache & Co. (Phil.), Inc. and Frederick E. Seggerman for violation of Section 46(a) of the National Internal Revenue Code (NIRC), in relation to all other pertinent provisions thereof, particularly Sections 53, 72, 73, 208 and 209, and authorizing Revenue Examiner Rodolfo de Leon to make and file the application for search warrant which was attached to the letter. In the afternoon of the following day, De Leon and his witness, Arturo Logronio, went to the Court of First Instance (CFI) of Rizal. They brought with them the following papers: Vera’s letter-request; an application for search warrant already filled up but still unsigned by De Leon; an affidavit of Logronio subscribed before De Leon; a deposition in printed form of Logronio already accomplished and signed by him but not yet subscribed; and a search warrant already accomplished but still unsigned by Judge. At that time the Judge was hearing a certain case; so, by means of a note, he instructed his Deputy Clerk of Court to take the depositions of De Leon and Logronio. After the session had adjourned, the Judge was informed that the depositions had already been taken. The stenographer, upon request of the Judge, read to him her stenographic notes; and thereafter, the Judge asked Logronio to take the oath and warned him that if his deposition was found to be false and without legal basis, he could be charged for perjury. The Judge signed de Leon’s application for search warrant and Logronio’s deposition. Search Warrant 2-M-70 was then signed by Judge and accordingly issued. 3 days later (a Saturday), the BIR agents served the search warrant to the corporation and Seggerman at the offices of the corporation on Ayala Avenue, Makati, Rizal. The corporation’s lawyers protested the search on the ground that no formal complaint or transcript of testimony was attached to the warrant. The agents nevertheless proceeded with their search which yielded 6 boxes of documents.

On 3 March 1970, the corporation and Seggerman filed a petition with the Court of First Instance (CFI) of Rizal praying that the search warrant be quashed, dissolved or recalled, that preliminary prohibitory and mandatory writs of injunction be issued, that the search warrant be declared null and void, and that Vera, Logronio, de Leon, et. al., be ordered to pay the corporation and Seggerman, jointly and severally, damages and attorney’s fees. After hearing and on 29 July 1970, the court issued an order dismissing the petition for dissolution of the search warrant. In the meantime, or on 16 April 1970, the Bureau of Internal Revenue made tax assessments on the corporation in the total sum of P2,594,729.97, partly, if not entirely, based on the documents thus seized. The corporation and Seggerman filed an action for certiorari, prohibition, and mandamus. Issue: Whether the corporation has the right to contest the legality of the seizure of documents from its office. Held: 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. In Stonehill, et al. vs. Diokno, et al. (GR L-19550, 19 June 1967; 20 SCRA 383) the Supreme Court impliedly recognized the right of a corporation to object against unreasonable searches and seizures; holding that the corporations have their respective personalities, separate and distinct from the personality of the corporate officers, 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; and that the corporate officers therefore 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, 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. The distinction between the Stonehill case and the present case is that: in the former case, only the officers of the various corporations in whose offices documents, papers and effects were searched and seized were the petitioners; while in the latter, the corporation to whom the seized documents belong, and whose rights have thereby been impaired, is itself a petitioner. On that score, the corporation herein stands on a different footing from the corporations in Stonehill. Moreover, herein, the search warrant was void inasmuch as First, there was no personal examination conducted by the Judge of the complainant (De Leon) and his witness (Logronio). The Judge did not ask either of the two any question the answer to which could possibly be the basis for determining whether or not there was probable cause against Bache & Co. and Seggerman. The participation of the Judge in the proceedings which led to the issuance of Search Warrant 2-M-70 was thus limited to listening to the stenographer’s readings of her notes, to a few words of warning against the commission of perjury, and to administering the oath to the complainant and his witness. This cannot be consider a personal examination. Second, the search warrant was issued for more than one specific offense. The search warrant was issued for at least 4 distinct offenses under the Tax Code. The first is the violation of Section 46(a), Section 72 and Section 73 (the filing of income tax returns), which are interrelated. The second is the violation of Section 53 (withholding of income taxes at source). The third is the violation of Section 208 (unlawful pursuit of business or occupation); and the fourth is the violation of Section 209 (failure to make a return of receipts, sales, business or gross value of output actually removed or to pay the tax due thereon). Even in their classification the 6 provisions are embraced in 2 different titles: Sections 46(a), 53, 72 and 73 are under Title II (Income Tax); while Sections 208 and 209 are under Title V (Privilege Tax on Business and Occupation). Lastly, the search warrant does not particularly describe the things to be seized. Search Warrant No. 2-M-70 tends to defeat the major objective of the Bill of Rights, i.e., the elimination of general warrants, for the language used

therein is so all-embracing as to include all conceivable records of the corporation, which, if seized, could possibly render its business inoperative. Thus, Search Warrant 2-M-70 is null and void. PNB vs CA Facts: Lim deposited in his PCIB account a GSIS check drawn against PNB. Following standard banking procedures, the check was sent to petitioner for clearing, which did not return said check the next day, or at any other time, but retained it and paid its amount to the PCIB, as well as debited it against the account of the GSIS in the PNB, subsequently, or on January 31, 1962, upon demand from the GSIS, said sum of P57,415.00 was recredited to the latter's account, for the reason that the signatures of its officers on the check were forged; and that, thereupon, or on February 2, 1962, the PNB demanded from the PCIB the refund of said sum, which the PCIB refused to do. Hence, the present action against the PCIB, which was dismissed by the Court of First Instance of Manila, whose decision was, in turn, affirmed by the Court of Appeals. Issue: Whether or not PCIB is guilty of negligence. Ruling: The Supreme Court held that PCIB is negligent but PNB had also been negligent with the particularity that it had been guilty of a greater degree of negligence because it had a previous and formal notice from GSIS that the check had been lost, with the request that payment be stopped. It is a well-settled maxim of law and equity that when one of two (2) innocent persons must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong. By not returning the check to the PCIB, by thereby indicating that the PNB had found nothing wrong with the check and would honor the same, and by actually paying its amount to the PCIB, the PNB induced the latter, not only to believe that the check was genuine and good in every respect, but, also, to pay its amount to Augusto Lim. In other words, the PNB was the primary or proximate cause of the loss, and, hence, may not recover from the PCIB. Espiritu vs Petron Facts : Petron Corporation sold and distributed LPG in cylinder tanks that carried its trademark “GASUL” and Carmen Dolorias owned and operated Kristina Patricia Enterprises, the exclusive distributor of Gasul LPG in the whole Sorsogon. On the hand, Bicol Gas was also in the business of selling and distributing LPG in Sorsogon but theirs carried the trademark “Bicol Savers Gas”. In the course of trade and competition, any given distributor of LPGs at times acquired possession of LPG cylinder tanks belonging to other distributors operating in the same area. They called these “captured cylinders.” What KPE is doing is that they swap the cylinder tanks with Bicol Gas involving 30 tanks of Gasul with the permission of the Bicol Gas owners. While doing such transaction, KPE’s Manager noticed that Bicol Gas still has a number of Gasul tanks in its yard. It requested that those tanks be returned. But the latter refused because those tanks will be sent to Batangas. However, during the day to day delivery of Bicol Gas in the town of Sorsogon, KPE’s Manager noticed that the truck carrying mostly of Bicol Savers LPG tanks has one unsealed 50-kg Gasul and one 50-kg Shellane tank. When Jose, KPE’s Manager, inquired, the driver said that it was empty but when it was checked, it was not. As a result, Petron and KPE filed a complaint for violation of RA 623 (illegally filing up registered cylinder tanks) , section 155 (infringement of trademarks) and section 169.1 (unfair competition) of the Intellectual Property Code. Issue:

In 1992, ABS-CBN Broadcasting Corporation, through its vice president Charo Santos-Concio, requested Viva Production, Inc. to allow ABS-CBN to air at least 14 films produced by Viva. Pursuant to this request, a meeting was held between Viva’s representative (Vicente Del Rosario) and ABS-CBN’s Eugenio Lopez (General Manager) and Santos-Concio was held on April 2, 1992. During the meeting Del Rosario proposed a film package which will allow ABS-CBN to air 104 Viva films for P60 million. Later, Santos-Concio, in a letter to Del Rosario, proposed a counterproposal of 53 films (including the 14 films initially requested) for P35 million. Del Rosario presented the counter offer to Viva’s Board of Directors but the Board rejected the counter offer. Several negotiations were subsequently made but on April 29, 1992, Viva made an agreement with Republic Broadcasting Corporation (referred to as RBS – or GMA 7) which gave exclusive rights to RBS to air 104 Viva films including the 14 films initially requested by ABS-CBN. ABS-CBN now filed a complaint for specific performance against Viva as it alleged that there is already a perfected contract between Viva and ABS-CBN in the April 2, 1992 meeting. Lopez testified that Del Rosario agreed to the counterproposal and he (Lopez) even put the agreement in a napkin which was signed and given to Del Rosario. ABS-CBN also filed an injunction against RBS to enjoin the latter from airing the films. The injunction was granted. RBS now filed a countersuit with a prayer for moral damages as it claimed that its reputation was debased when they failed to air the shows that they promised to their viewers. RBS relied on the ruling in People vs Manero and Mambulao Lumber vs PNB which states that a corporation may recover moral damages if it “has a good reputation that is debased, resulting in social humiliation”. The trial court ruled in favor of Viva and RBS. The Court of Appeals affirmed the trial court. ISSUE: 1. Whether or not a contract was perfected in the April 2, 1992 meeting between the representatives of the two corporations. 2. Whether or not a corporation, like RBS, is entitled to an award of moral damages upon grounds of debased reputation. HELD: 1. No. There is no proof that a contract was perfected in the said meeting. Lopez’ testimony about the contract being written in a napkin is not corroborated because the napkin was never produced in court. Further, there is no meeting of the minds because Del Rosario’s offer was of 104 films for P60 million was not accepted. And that the alleged counter-offer made by Lopez on the same day was not also accepted because there’s no proof of such. The counter offer can only be deemed to have been made days after the April 2 meeting when Santos-Concio sent a letter to Del Rosario containing the counter-offer. Regardless, there was no showing that Del Rosario accepted. But even if he did accept, such acceptance will not bloom into a perfected contract because Del Rosario has no authority to do so. As a rule, corporate powers, such as the power; to enter into contracts; are exercised by the Board of Directors. But this power may be delegated to a corporate committee, a corporate officer or corporate manager. Such a delegation must be clear and specific. In the case at bar, there was no such delegation to Del Rosario. The fact that he has to present the counteroffer to the Board of Directors of Viva is proof that the contract must be accepted first by the Viva’s Board. Hence, even if Del Rosario accepted the counter-offer, it did not result to a contract because it will not bind Viva sans authorization. 2. No. The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience physical suffering and mental anguish, which call be experienced only by one having a nervous system. No moral damages can be awarded to a juridical person. The statement in the case of People vs Manero and Mambulao Lumber vs PNB is a mere obiter dictum hence it is not binding as a jurisprudence.