corporation in order that the corporation may get the benefit of the suit and may not bring
a subsequent suit against the same defendants
MAMBULAO LUMBER COMPANY V. PNB (G.R. NO. L-22973)
Facts:
Petitioner Mambulao Lumber applied for an industrial loan with herein respondent PNB and was approved with its real estate, machinery
and equipments as collateral. PNB released the approved loan but petitioner failed to pay and was later discovered to have already stopped
in its operation. PNB then moved for the foreclosure and sale of the mortgaged properties. The properties were sold and petitioner sent a
bank draft to PNB to settle the balance of the obligation. PNB however alleges that a remaining balance stands and a foreclosure sale would
still be held unless petitioner remits said amount. The foreclosure sale proceeded and petitioner’s properties were taken out of its
compound. Petitioner filed actions before the court and claims among others, moral damages.
Issue:
Whether or not petitioner corporation, who has already ceased its operation, may claim for moral damages.
Ruling: NO.
Herein appellant’s claim for moral damages, however, seems to have no legal or factual basis. Obviously, an artificial person like herein
appellant corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social
humiliation which are basis of moral damages. A corporation may have a good reputation which, if besmirched, may also be a ground for the
award of moral damages. The same cannot be considered under the facts of this case, however, not only because it is admitted that herein
appellant had already ceased in its business operation at the time of the foreclosure sale of the chattels, but also for the reason that
whatever adverse effects of the foreclosure sale of the chattels could have upon its reputation or business standing would undoubtedly be
the same whether the sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is the place agreed upon by the parties
in the mortgage contract.
ASSET PRIVATIZATION VS CA (300 SCRA 579)
Asset Privatization Trust vs Court of Appeals
300 SCRA 579 [GR No. 121171 December 29, 1998]
Facts: The development, exploration and utilization of the mineral deposits in the Surigao Mineral Reservation have been authorized by the
Republic Act No. 1528, as amended by Republic Act No. 2077 and Republic Act No. 4167, by virtue of which laws, a memorandum of
agreement was drawn on July 3, 1968, whereby the Republic of the Philippines thru the Surigao Mineral Reservation Board, granted MMIC
the exclusive right to explore, develop and exploit nickel, cobalt, and other minerals in the Surigao Mineral Reservation. MMIC is a domestic
corporation engaged in mining with respondent Jesus S. Cabarrus Sr. as president and among its original stockholders. The Philippine
government undertook to support the financing of MMIC by purchase of MMIC debenture bonds and extension of guarantees. Further, from
the DBP and/or the government financing institutions to subscribe in MMIC and issue guarantee/s of foreign loans or deferred payment
arrangements secured from the US Eximbank, Asian Development Bank (ADB), Kobe steel of amount not exceeding US$100 million. On July
13, 1981, MMIC, PNB, and DBP executed a mortgage trust agreement whereby MMIC as mortgagor, agreed to constitute a mortgage in favor
of PNB and DBP as mortgages, over all MMIC assets; subject of real estate and chattel mortgage executed by the mortgagor, and additional
assets described and identified, including assets of whatever kind, nature or description, which the mortgagor may acquire whether in
substitution of, in replenishment or in addition thereto. Due to the unsettled obligations, a financial restructuring plan (FRP) was suggested,
however not finalized. The obligations matured and the mortgage was foreclosed. The foreclosed assets were sold to PNB as the lone bidder
and were assigned to the newly formed corporations namely Nonoc Mining Corporation, Maricalum Mining and Industrial Corporation and
Island Cement Corporation. In 1986, these assets were transferred to the asset privatization trust. On February 28, 1985, Jesus S. Cabarrus
Sr. together with the other stockholders of MMIC, filed a derivative suit against DBP and PNB before the RTC of Makati branch 62, for
annulment of foreclosures, specific performance and damages. The suit docketed as civil case no. 9900, prayed that the court: 1.) Annul the
foreclosures, restore the foreclosed assets to MMIC, and require the banks to account for their use and operation in the interim; 2.) Direct
the banks to honor and perform their commitments under the alleged FRP; 3.) Pay moral and exemplary damages, attorney’s fees, litigation
expenses and costs. A compromise and arbitration agreement was entered by the parties to which committee awarded damages in favor of
Cabarrus.
Issue: Whether or not the award granted to Cabarrus was proper.
Held: No. Civil case no. 9900 filed before the RTC being a derivative suit, MMIC should have been impleaded as a party. It was not joined as a
part plaintiff or party defendant at any stage before of the proceedings as it is, the award for damages to MMIC, which was not party before
the arbitration committee is a complete nullity.
Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while the stockholder filing suit for the
corporation’s behalf is only a nominal party. The corporation should be included s a party in the suit.
An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or
vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real part in interest.
It is a condition sine qua non that the corporation be impleaded as a party because – not only is the corporation an indispensable party, but
it is also the present rule that it must be served with process. The reason given is that the judgement must be made binding upon the
for the same cause of action. In other words the corporation must be joined as a party because it is its cause of action that is being litigated
and because judgement must be a res judicata against it.
The reasons given for not allowing direct individual suit are:
1. That the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in the case of Evangelista vs Santos that
the “Stockholders may not directly claim those damages for themselves for that would result in the appropriation by, and the
distribution among them of part of the corporate assets before the
2. The universally recognized doctrine that a stockholder in a corporation has no title legal or equitable to the corporate property;
that both of these are in the corporation itself for the benefit of the stockholders. In other words, to allow shareholders to sue
separately would conflict with the separate corporate entity principle.
3. dissolution of the corporation and the liquidation of its debts and liabilities, something which cannot be legally done in view of
section 16 of the corporation law.
4. The filing of such suits would conflict with the duty of the management to sue for the protection of all concerned;
5. It would produce wasteful multiplicity of suits; and
6. It would involve confusion in ascertaining the effect of partial recovery by an individual on the damages recoverable by the
corporation for the same act.
Abscbn vs ca
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.