1. G.R. No. 126204, Nov. 20, 2001 NATIONAL POWER CORPORATION v.

PHILIPP BROTHERS
OCEANIC, INC
FACTS:
May 14, 1987: National Power Corporation (NAPOCOR) issued invitations to bid for the supply and
delivery of 120,000 metric tons of imported coal for its Batangas Coal-Fired Thermal Power Plant of
which Philipp Brothers Oceanic, Inc. (PHIBRO) bidded and was accepted.
July 10, 1987: PHIBRO told NAPOCOR that disputes might soon plague Australia that will seriously
hamper its ability to supply coal
July 23 to July 31, 1987: PHIBRO informed NAPOCOR that unless a "strike-free" clause is
incorporated in the charter party or the contract of carriage shipowners are unwilling to load their
cargo. In order to hasten the transfer of coal, they should share the burden of the "strike-free"
clause but NAPOCOR refused.
November 17, 1987: PHIBRO effected its first shipment which was suppose to be on the 30th dat
after receipt of the letter of credit of which it received on August 6, 1987.
October 1987: NAPOCOR once more advertised for the delivery of coal to its Calaca thermal plant of
which PHIBRO applied but was rejected since it was not able to satisfy the demand for damages on
its delay.
PHIBRO filed for damages in the RTC alleging that the rejection was tainted with malice and bad
faith
RTC DECISION:
Favored PHIBRO. Ordering NAPCOR to reinstate PHIBRO as accredited bidder, to pay $864,000
actual damages, $100,000 moral damages, $50,000 exemplary damages, $73,231.91
reimbursement for expenses, cost of litigation and attorney's fees, cost of suit and dismissed
counterclaim of NAPOCOR.
CA DECISION:
Affirmed in toto. "Strikes" are undoubtedly included in the force majeure clause of the Bidding
Terms and Specifications
ISSUE: W/N PHIBRO is entitled to damages?
HELD:
NO. Modified actual, moral and exemplary damages, reimbursement for expenses, cost of litigation
and attorney's fees, and costs of suit, is DELETED.
Since there is no evidence to prove bad faith and arbitrariness on the part of the petitioners in
evaluating the bids, we rule that the private respondents are not entitled to damages representing
lost profits.
NAPOCOR's act of disapproving PHIBRO's application for pre-qualification to bid was without any
intent to injure or a purposive motive to perpetrate damage. Apparently, NAPOCOR acted on the
strong conviction that PHIBRO had a "seriously-impaired" track record.
The circumstances under which NAPOCOR disapproved PHIBRO's pre-qualification to bid do not
show an intention to cause damage to the latter. The measure it adopted was one of self-protection.
Consequently, we cannot penalize NAPOCOR for the course of action it took. NAPOCOR cannot be
made liable for actual, moral and exemplary damages.
Corollarily, in awarding to PHIBRO actual damages in the amount of $864,000, the Regional Trial
Court computed what could have been the profits of PHIBRO had NAPOCOR allowed it to participate
in the subsequent public bidding. - Erroneous
Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but
must actually be proven with reasonable degree of certainty, premised upon competent proof or best
evidence obtainable of the actual amount thereof.
Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar
injury. A corporation, being an artificial person and having existence only in legal contemplation,
has no feelings, no emotions, no senses; therefore, it cannot experience physical suffering and
mental anguish. Mental suffering can be experienced only by one having a nervous system and it
flows from real ills, sorrows, and griefs of life
A winning party may be awarded attorney's fees only in case plaintiff's action or defendant's stand
is so untenable as to amount to gross and evident bad faith - none here

2. FILIPINAS BROADCASTING NETWORK, INC. v. AGO MEDICAL AND EDUCATIONAL CENTERBICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO
FACTS:
Expos is a radio documentary program hosted by Carmelo Mel Rima (Rima) and Hermogenes Jun
Alegre (Alegre).
Expos is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc.
(FBNI).
Expos is heard over Legazpi City, the Albay municipalities and other Bicol areas.
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints
from students, teachers and parents against Ago Medical and Educational Center-Bicol Christian
College
of
Medicine
(AMEC)
and
its administrators. Claiming that the broadcasts were
defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs College of Medicine, filed a complaint
for damages against FBNI, Rima and Alegre on 27 February 1990.
The complaint further alleged that AMEC is a reputable learning institution.
With the supposed expose, FBNI, Rima and Alegre transmitted malicious imputations,
and as such, destroyed plaintiffs (AMEC and Ago) reputation.
AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence in the
selection and supervision of its employees, particularly Rima and Alegre.
TC Decision:
Finding FBNI and Alegre liable for libel except Rima. In holding FBNI liable for libel, the trial court
found that FBNI failed to exercise diligence in the selection and supervision of its employees.
CA DECISION:
Affirmed the trial courts judgment with modification. The appellate court made Rima solidarily liable
with FBNI and Alegre.
ISSUE:
1. Whether or not the broadcasts are libelous.
2. Whether or not AMEC is entitled to moral damages.
3. Whether or not the award of attorneys fees is proper.
RULING:
1. A libel is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or
any act or omission, condition, status, or circumstance tending to cause the dishonor, discredit, or
contempt of a natural or juridical person, or to blacken the memory of one who is dead.
Every defamatory imputation is presumed malicious. Rima and Alegre failed to show adequately
their good intention and justifiable motive in airing the supposed gripes of the students.
2. FBNI contends that AMEC is not entitled to moral damages because it is a corporation.
A juridical person is generally not entitled to moral damages because, unlike a natural
person,
it
cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety,
mental anguish or moral shock. The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al. to justify
the award of moral damages. However, the Courts statement in Mambulao that a corporation may have a
good reputation which, if besmirched, may also be a ground for the award of moral damages is an obiter
dictum.
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 of the Civil Code.
This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any
other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or
juridical person.
Therefore, a juridical person such as a corporation can validly complain for libel or any other form of
defamation and claim for moral damages.
Moreover, where the broadcast is libelous per se, the law implies damages. In such a case,
evidence of an honest mistake or the want of character or reputation of the party libeled goes only
in mitigation of damages.
Neither in such a case is the plaintiff required to introduce evidence of actual damages as a
condition precedent
to the recovery of some damages. In this case, the broadcasts are libelous per se.

Thus, AMEC is entitled to moral damages. However, we find the award of P300,000 moral damages
unreasonable. The record shows that even though the broadcasts were libelous per se, AMEC has not
suffered any substantial or material damage to its reputation. Therefore, we reduce the award of moral
damages from P300,000 to P150,000.
3. The award of attorneys fees is not proper.
AMEC failed to justify satisfactorily its claim for attorneys fees. AMEC did not adduce evidence to
warrant the award of attorneys fees. Moreover, both the trial and appellate courts failed to
explicitly state in their respective decisions the rationale for the award of attorneys fees.

3. G.R. No. 172428, HERMAN C. CRYSTAL, LAMBERTO C. CRYSTAL v. BPI

FACTS:
Sps. Raymundo and Desamparados Crystal obtained a P300,000.00 loan in behalf of the Cebu
Contractors Consortium Co. (CCCC) from the BPI-Butuan. It was secured by a chattel mortgage on
heavy equipment and machinery of CCCC.
On the same date, the spouses executed in favor of BPI-Butuan a Continuing Suretyship where
they bound themselves as surety of CCCC in the aggregate principal sum of not exceeding
P300,000.00. Then, Raymundo Crystal executed a promissory note for the amount of P300,000.00,
also in favor of BPI-Butuan.
Meanwhile, CCCC renewed a previous loan BPI-Cebu City. Renewal was evidenced by a promissory
not signed by the spouses in their personal capacities and as managing partners of CCCC.
The promissory note states that the spouses are jointly and severally liable with CCCC. It appears that
before the original loan could be granted, BPI-Cebu City required CCCC to put up a security.
CCCC had no real property to offer as security for the loan; hence, the spouses executed a real
estate mortgage over their own real property. They executed another real estate mortgage over the
same lot in favor of BPI-Cebu City, to secure an additional loan of P20,000.00 of CCCC.
CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu City when they became due. CCCC, as
well as the spouses, failed to pay their obligations despite demands.
Thus, BPI resorted to the foreclosure of the chattel mortgage and the real estate mortgage.
The foreclosure sale on the chattel mortgage was initially stalled with the issuance of a restraining order
against BPI. However, following BPIs compliance with the necessary requisites of extrajudicial foreclosure,
the foreclosure sale on the chattel mortgage was consummated with the proceeds amounting to
P240,000.00 applied to the loan from BPI-Butuan which had then reached P707,393.90.
Meanwhile, Insular Bank of Asia and America (IBAA), through its Vice-President for Legal and
Corporate Affairs, offered to buy the lot subject of the two (2) real estate mortgages and to pay
directly the spouses indebtedness in exchange for the release of the mortgages. BPI rejected IBAAs
offer to pay.
BPI filed a complaint for sum of money against CCCC and the spouses before the RTC Butuan,
seeking to recover the deficiency of the loan of CCCC and the spouses with BPI-Butuan.
TC ruled favor of BPI. Pursuant to the decision, BPI instituted extrajudicial foreclosure of the spouses
mortgaged property.
Sps. filed an action for Injunction With Damages, With A Prayer For A Restraining Order and/ or Writ
of Preliminary Injunction, claimed that the foreclosure of the real estate mortgages is illegal
because BPI should have exhausted CCCCs properties first, stressing that they are mere guarantors
of the renewed loans.
They also prayed that they be awarded moral and exemplary damages, attorneys fees, litigation
expenses and cost of suit.
Subsequently, the spouses filed an amended complaint, additionally alleging that CCCC had opened
and maintained a foreign currency savings account (FCSA-197) with bpi, Makati branch (BPI-Makati),
and that said FCSA was used as security for a P450,000.00 loan also extended by BPI-Makati. The
P450,000.00 loan was allegedly paid, and thereafter the spouses demanded the return of the FCSA
passbook. BPI rejected the demand; thus, the spouses were unable to withdraw from the said
account to pay for their other obligations to BPI.
The trial court dismissed the spouses complaint and ordered them to pay moral and exemplary
damages and attorneys fees to BPI.

It ruled that since the spouses agreed to bind themselves jointly and severally, they are solidarily
liable for the loans; hence, BPI can validly foreclose the two real estate mortgages. Moreover, being
guarantors-mortgagors, the spouses are not entitled to the benefit of exhaustion.
Appealed to CA. Dismissed. Moved for reconsideration. Denied. Hence this petition.
ISSUE:
WON BPI as a Corporation is entitled to a Moral damage?
RULING:
Moral damages are meant to compensate the claimant for any physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation
and similar injuries unjustly caused.
Such damages, to be recoverable, must be the proximate result of a wrongful act or omission the
factual basis for which is satisfactorily established by the aggrieved party.
There being no wrongful or unjust act on the part of BPI in demanding payment from them and in
seeking the foreclosure of the chattel and real estate mortgages, there is no lawful basis for award
of damages in favor of the spouses.
Neither is BPI entitled to moral damages.
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or
moral shock. Indeed, while the Court may allow the grant of moral damages to corporations, it is not
automatically granted; there must still be proof of the existence of the factual basis of the damage and its
causal relation to the defendants acts.
This is so because moral damages, though incapable of pecuniary estimation, are in the category of
an award designed to compensate the claimant for actual injury suffered and not to impose a
penalty on the wrongdoer.
The spouses complaint against BPI proved to be unfounded, but it does not automatically entitle BPI
to moral damages.
Although the institution of a clearly unfounded civil suit can at times be a legal justification for an
award of attorney's fees, such filing, however, has almost invariably been held not to be a ground
for an award of moral damages.
The rationale for the rule is that the law could not have meant to impose a penalty on the right to
litigate. Otherwise, moral damages must every time be awarded in favor of the prevailing
defendant against an unsuccessful plaintiff.
BPI may have been inconvenienced by the suit, but we do not see how it could have possibly
suffered besmirched reputation on account of the single suit alone. Hence, the award of moral
damages should be deleted. The awards of exemplary damages and attorneys fees, however, are
proper.
Exemplary damages, on the other hand, are imposed by way of example or correction for the public
good, when the party to a contract acts in a wanton, fraudulent, oppressive or malevolent manner,
while attorneys fees are allowed when exemplary damages are awarded and when the party to a
suit is compelled to incur expenses to protect his interest.
The spouses instituted their complaint against BPI notwithstanding the fact that they were the ones
who failed to pay their obligations. Consequently, BPI was forced to litigate and defend its interest.
For these reasons, BPI is entitled to the awards of exemplary damages and attorneys fees.

4. INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., vs. CA, HENRI KAHN,
PHILIPPINE FOOTBALL FEDERATION
FACTS:
On June 30, 1989, petitioner International Express Travel and Tours Services Inc., through its
managing director, wrote a letter to the Philippine Football Federation through its President Henri
Kahn, wherein the former offered its services as a travel agency to the latter.
The offer was accepted. Petitioner secured the airline tickets for the trips of the athletes and
officials of the Federation to the South East Asian Games in Kuala Lumpur as well as various other
trips to the Peoples Republic of China and Brisbane.
The total cost of the tickets amounted to Php449,654.83. For the tickets received, the Federation
made two partial payments, both in September of 1989 in the total amount of Php176,467.50.
On October 4, 1989, petitioner wrote the Federation, through the private respondent a demand
letter requesting for the amount of Php265,844.33.
On October 30, 1989, the Federation, through the project gintong alay, paid the amount of
Php31,603.
On December 27, 1989, Henri Kahn issued a personal check in the amount of Php50,000 as partial
payment for the outstanding balance of the Federation.
Thereafter, no further payments were made despite repeated demands. Hence, this petition.
ISSUE:
WON private respondent can be made personally liable for the liabilities of the Philippines Football
Federation.
RULING:
Yes. A voluntary unincorporated association, like defendant Federation has no power to enter into,
or to ratify a contract.
The contract entered into by its officers or agents on behalf of such association is binding or, as
enforceable against it.
The officers or agents are themselves personally liable.
In attempting to prove the juridical existence of the Federation, Henri Kahn attached to his motion
for reconsideration before the trial court a copy of the constitution and by-laws of the Philippine
Football Federation.
Unfortunately, the same does not prove that said Federation has indeed been recognized and
accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and
Sports Development.
Accordingly, we rule that the Philippine Football Federation is not a national sports association
within the purview of the aforementioned laws and does not have corporate existence of its own.
Thus being said, it follows that private respondent Henri Kahn should be liable for the unpaid
obligations of the unincorporated Philippine Football Federation.
It is a settled principle in corporation law that any person acting or purporting to act on behalf of
the corporation which has no valid existence assumed such privileges and becomes personally
liable for contract entered into or for other acts performed as such agent.

5. INDUSTRIAL REFRACTORIES CORPORATION OF THE PHILIPPINES v. CA, SEC and

REFRACTORIES CORPORATION OF THE PHILIPPINES
FACTS:
Respondent Refractories Corporation of the Philippines (RCP) is a corporation duly organized on
October 13, 1976. On June 22, 1977, it registered its corporate and business name with the Bureau
of Domestic Trade.
Petitioner IRCP was incorporated on August 23, 1979 originally under the name "Synclaire
Manufacturing Corporation". It amended its Articles of Incorporation on August 23, 1985 to change
its corporate name to "Industrial Refractories Corp. of the Philippines".
Both companies are the only local suppliers of monolithic gunning mix.
Respondent RCP then filed a petition with the Securities and Exchange Commission to compel
petitioner IRCP to change its corporate name.
The SEC rendered judgment in favor of respondent RCP.
Petitioner appealed to the SEC En Banc. The SEC En Banc modified the appealed decision and the
petitioner was ordered to delete or drop from its corporate name only the word "Refractories".
Petitioner IRCP filed a petition for review on certiorari to the CA and the appellate court upheld the
jurisdiction of the SEC over the case and ruled that the corporate names of petitioner IRCP and
respondent RCP are confusingly or deceptively similar, and that respondent RCP has established its
prior right to use the word "Refractories" as its corporate name.
Petitioner then filed a petition for review on certiorari
ISSUE:
WON SEC has jurisdiction over the case at hand?
RULING:
YES. The jurisdiction of the SEC is not merely confined to the adjudicative functions provided in
Section 5 of P.D. 902-A, as amended.
By express mandate, it has absolute jurisdiction, supervision and control over all corporations. It
also exercises regulatory and administrative powers to implement and enforce the Corporation
Code, one of which is Section 18.
Pursuant thereto, the Revised Guidelines in the Approval of Corporate and Partnership Names
specifically requires that:
1) a corporate name shall not be identical, misleading or confusingly similar to one already registered by
another corporation with the Commission; and
2) if the proposed name is similar to the name of a registered firm, the proposed name must contain at
least one distinctive word different from the name of the company already registered.
As regards the first requisite, it has been held that the right to the exclusive use of a corporate
name with freedom from infringement by similarity is determined by priority of adoption.

In this case, respondent RCP was incorporated on October 13, 1976 and since then has been using
the corporate name Refractories Corp. of the Philippines. Meanwhile, petitioner was incorporated on
August 23, 1979 originally under the name Synclaire Manufacturing Corporation.
It only started using the name Industrial Refractories Corp. of the Philippines when it amended its
Articles of Incorporation on August 23, 1985, or nine (9) years after respondent RCP started using
its name. Thus, being the prior registrant, respondent RCP has acquired the right to use the word
Refractories as part of its corporate name.
Anent the second requisite, in determining the existence of confusing similarity in corporate names,
the test is whether the similarity is such as to mislead a person using ordinary care and
discrimination and the Court must look to the record as well as the names themselves.
Petitioners corporate name is Industrial Refractories Corp. of the Phils., while respondents is
Refractories Corp. of the Phils. Obviously, both names contain the identical words Refractories,
Corporation and Philippines. The only word that distinguishes petitioner from respondent RCP is the
word Industrial which merely identifies a corporations general field of activities or operations. We
need not linger on these two corporate names to conclude that they are patently similar that even
with reasonable care and observation, confusion might arise.
It must be noted that both cater to the same clientele, i.e. the steel industry. In fact, the SEC found
that there were instances when different steel companies were actually confused between the two,
especially since they also have similar product packaging.
Such findings are accorded not only great respect but even finality, and are binding upon this Court,
unless it is shown that it had arbitrarily disregarded or misapprehended evidence before it to such
an extent as to compel a contrary conclusion had such evidence been properly appreciated.
And even without such proof of actual confusion between the two corporate names, it suffices that
confusion is probable or likely to occur.
WHEREFORE, the instant petition for review on certiorari is hereby DENIED for lack of merit.

6. G.R. No. L-45911 April 11, 1979, JOHN GOKONGWEI, JR. vs. SEC
FACTS:
Petitioner, stockholder of San Miguel Corp. filed a petition with the SEC for the declaration of nullity
of the by-laws etc. against the majority members of the BOD and San Miguel.
It is stated in the by-laws that the amendment or modification of the by-laws may only be delegated
to the BODs upon an affirmative vote of stockholders representing not less than 2/3 of the
subscribed and paid up capital stock of the corporation, which 2/3 could have been computed on
the basis of the capitalization at the time of the amendment.
Petitioner contends that the amendment was based on the 1961 authorization, the Board acted
without authority and in usurpation of the power of the stockholders n amending the by-laws in
1976.
He also contends that the 1961 authorization was already used in 1962 and 1963. He also contends
that the amendment deprived him of his right to vote and be voted upon as a stockholder (because
it disqualified competitors from nomination and election in the BOD of SMC), thus the amended bylaws were null and void. While this was pending, the corporation called for a stockholders meeting
for the ratification of the amendment to the by-laws.
This prompted petitioner to seek for summary judgment. This was denied by the SEC. In another
case filed by petitioner, he alleged that the corporation had been using corporate funds in other
corps and businesses outside the primary purpose clause of the corporation in violation of the
Corporation Code.
ISSUE:
WON the amendments were valid?
RULING:
The validity and reasonableness of a by-law is purely a question of law. Whether the by-law is in
conflict with the law of the land, or with the charter of the corporation or is in legal sense
unreasonable and therefore unlawful is a question of law.
However, this is limited where the reasonableness of a by-law is a mere matter of judgment, and
one upon which reasonable minds must necessarily differ, a court would not be warranted in
substituting its judgment instead of the judgment of those who are authorized to make by-laws and
who have exercised authority. The Court held that a corporation has authority prescribed by law to
prescribe the qualifications of directors.

It has the inherent power to adopt by-laws for its internal government, and to regulate the conduct
and prescribe the rights and duties of its members towards itself and among themselves in
reference to the management of its affairs.
A corporation, under the Corporation law, may prescribe in its by-laws the qualifications, duties and
compensation of directors, officers, and employees.
Any person who buys stock in a corporation does so with the knowledge that its affairs are
dominated by a majority of the stockholders and he impliedly contracts that the will of the majority
shall govern in all matters within the limits of the acts of incorporation and lawfully enacted by-laws
and not forbidden by law. Any corporation may amend its by-laws by the owners of the majority of
the subscribed stock.
It cannot thus be said that petitioner has the vested right, as a stock holder, to be elected director,
in the face of the fact that the law at the time such stockholder's right was acquired contained the
prescription that the corporate charter and the by-laws shall be subject to amendment, alteration
and modification.
A Director stands in a fiduciary relation to the corporation and its shareholders, which is
characterized as a trust relationship. An amendment to the corporate by-laws which renders a
stockholder ineligible to be director, if he be also director in a corporation whose business is in
competition with that of the other corporation, has been sustained as valid.
This is based upon the principle that where the director is employed in the service of a rival
company, he cannot serve both, but must betray one or the other.
The amendment in this case serves to advance the benefit of the corporation and is good.
Corporate officers are also not permitted to use their position of trust and confidence to further
their private needs, and the act done in furtherance of private needs is deemed to be for the
benefit of the corporation. This is called the doctrine of corporate opportunity.

7. G.R. No. 75875 December 15, 1989, WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM and CHARLES CHAMSAY vs. SANITARY WARES MANUFACTURING
CORPORATOIN
This was the case where there were essentially two groups of shareholders in the company: one composed of Filipinos, and
the other group of foreign investors. There was an increase in the latters shares in the company so they wanted a
proportionate increase in their nominees to the companys Board of Directors.
HOLDING: Although a corporation cannot enter into a partnership, it can nevertheless engage in a joint venture with
others. In this case, taking into consideration their intent and history, the parties formed a joint venture and not a
corporation. This becomes relevant because it implies that the argument of ASI (the foreign investors), having been based
on the Corporation Code, will not apply.
A joint venture has been generally understood to mean an organization formed for some temporary purpose. It is
distinguished mainly from a partnership in that the latter contemplates a general business with some continuity while the
former is formed for the execution of a single transaction.

PEOPLES AIRCARGO AND WAREHOUSING CO. INC., petitioner, vs. COURT OF APPEALS and STEFANI SAO,
respondents.
DECISION
PANGANIBAN, J.:
Contracts entered into by a corporate president without express prior board approval bind the corporation,
when such officers apparent authority is established and when these contracts are ratified by the
corporation.

The Case
This principle is stressed by the Court in rejecting the Petition for Review of the February 28, 1994 Decision
and the October 28, 1994 Resolution of the Court of Appeals in CA-GR CV No. 30670.
In a collection case[1] filed by Stefani Sao against Peoples Aircargo and Warehousing Co., Inc., the Regional
Trial Court (RTC) of Pasay City, Branch 110, rendered a Decision[2] dated October 26, 1990, the dispositive
portion of which reads:[3]
WHEREFORE, in light of all the foregoing, judgment is hereby rendered, ordering [petitioner] to pay [private
respondent] the amount of sixty thousand (P60,000.00) pesos representing payment of [private
respondents] services in preparing the manual of operations and in the conduct of a seminar for
[petitioner]. The Counterclaim is hereby dismissed.
Aggrieved by what he considered a minuscule award of P60,000, private respondent appealed to the Court
of Appeals[4] (CA) which, in its Decision promulgated February 28, 1994, granted his prayer for P400,000,
as follows:[5]
WHEREFORE, PREMISES CONSIDERED, the appealed judgment is hereby MODIFIED in that [petitioner] is
ordered to pay [private respondent] the amount of four hundred thousand pesos (P400,000.00)
representing payment of [private respondents] services in preparing the manual of operations and in the
conduct of a seminar for [petitioner].
As no new ground was raised by petitioner, reconsideration of the above-mentioned Decision was denied in
the Resolution promulgated on October 28, 1994.
The Facts
Petitioner is a domestic corporation, which was organized in the middle of 1986 to operate a customs
bonded warehouse at the old Manila International Airport in Pasay City.[6]
To obtain a license for the corporation from the Bureau of Customs, Antonio Punsalan Jr., the corporation
president, solicited a proposal from private respondent for the preparation of a feasibility study.[7] Private
respondent submitted a letter-proposal dated October 17, 1986 (First Contract hereafter) to Punsalan,
which is reproduced hereunder:[8]
Dear Mr. Punsalan:
With reference to your request for professional engineering consultancy services for your proposed MIA
Warehousing Project may we offer the following outputs and the corresponding rate and terms of
agreement:
====================================
Project Feasibility Study consisting of
Market Study
Technical Study
Financial Feasibility Study
Preparation of pertinent documentation requirements for the application
=====================================================
The above services will be provided for a fee of [p]esos 350,000.00 payable according to the following
schedule:
=====================================================

Fifty percent (50%) .upon confirmation of the agreement

Twenty-five percent (25%)..15 days after the confirmation of the agreement
Twenty-five percent (25%)..upon submission of the specified outputs
The outputs will be completed and submitted within 30 days upon confirmation of the agreement and
receipt by us of the first fifty percent payment.
--------------------------------------------------------------------------------------------Thank you.
Yours truly, CONFORME:
(S)STEFANI C. SAO (S)ANTONIO C. PUNSALAN, JR.
(T)STEFANI C. SAO (T)ANTONIO C. PUNSALAN, JR.
Consultant for President, PAIRCARGO
Industrial Engineering
Initially, Cheng Yong, the majority stockholder of petitioner, objected to private respondents offer, as
another company priced a similar proposal at only P15,000.[9] However, Punsalan preferred private
respondents services because of the latters membership in the task force, which was supervising the
transition of the Bureau of Customs from the Marcos government to the Aquino administration.[10]
On October 17, 1986, petitioner, through Punsalan, sent private respondent a letter, confirming their
agreement as follows:
Dear Mr. Sao:
With regard to the services offered by your company in your letter dated 13 October 1986, for the
preparation of the necessary study and documentations to support our Application for Authority to Operate
a public Customs Bonded Warehouse located at the old MIA Compound in Pasay City, please be informed
that our company is willing to hire your services and will pay the amount of THREE HUNDRED FIFTY
THOUSAND PESOS (P350,000.00) as follows:
P100,000.00 - upon signing of the agreement;
150,000.00 - on or before October 31, 1986, with the favorable Recommendation of the CBW on our
application.
100,000.00 - upon receipt of the study in final form.
Very truly yours,
(S)ANTONIO C. PUNSALAN
(T)ANTONIO C. PUNSALAN
President
CONFORME & RECEIVED from PAIRCARGO, the
amount of ONE HUNDRED THOUSAND PESOS
(P100,000.00), this 17th day of October,
1986 as 1st installment payment of the

service agreement dated October 13, 1986.

(S)STEFANI C. SAO
(T)STEFANI C. SAO
Accordingly, private respondent prepared a feasibility study for petitioner which eventually paid him the
balance of the contract price, although not according to the schedule agreed upon.[11]
On December 4, 1986, upon Punsalans request, private respondent sent petitioner another letter-proposal
(Second Contract hereafter), which reads:
Peoples Air Cargo & Warehousing Co., Inc.
Old MIA Compound, Metro Manila
Attention: Mr. ANTONIO PUN[S]ALAN, JR.
President
Dear Mr. Pun[s]alan:
This is to formalize our proposal for consultancy services to your company the scope of which is defined in
the attached service description.
The total service you have decided to avail xxx would be available upon signing of the conforme below and
would come [in] the amount of FOUR HUNDRED THOUSAND PESOS (P400,000.00) payable at the schedule
defined as follows (with the balance covered by post-dated cheques):
Downpayment upon signing conforme . . . P80,000.00
15 January 1987 . . . . . . . . . . . . . 53,333.00
30 January 1987 . . . . . . . . . . . . . 53,333.00
15 February 1987 . . . . . . . . . . . . . 53,333.00
28 February 1987 . . . . . . . . . . . . . 53,333.00
15 March1987 . . . . . . . . . . . . . 53,333.00
30 March 1987 . . . . . . . . . . . . . 53,333.00
With this package, you are assured of the highest service quality as our performance record shows we
always deliver no less.
Thank you very much.
Yours truly,
(S)STEFANI C. SAO
(T)STEFANI C. SAO
Industrial Engineering Consultant
CONFORME:
(S)ANTONIO C. PUNSALAN JR.

(T)PAIRCARGO CO. INC.

During the trial, the lower court observed that the Second Contract bore, at the lower right portion of the
letter, the following notations in pencil:
1. Operations Manual
2. Seminar/workshop for your employees
P400,000 - package deal
50% upon completion of seminar/workshop
50% upon approval by the Commissioner
The Manual has already been approved by the Commissioner but payment has not yet been made."
The lower left corner of the letter also contained the following notations:
1st letter - 4 Dec. 1986
2nd letter - 15 June 1987 with
Hinanakit.
On January 10, 1987, Andy Villaceren, vice president of petitioner, received the operations manual
prepared by private respondent.[12] Petitioner submitted said operations manual to the Bureau of Customs
in connection with the formers application to operate a bonded warehouse; thereafter, in May 1987, the
Bureau issued to it a license to operate, enabling it to become one of the three public customs bonded
warehouses at the international airport.[13] Private respondent also conducted, in the third week of
January 1987 in the warehouse of petitioner, a three-day training seminar for the latters employees.[14]
On March 25, 1987, private respondent joined the Bureau of Customs as special assistant to then
Commissioner Alex Padilla, a position he held until he became technical assistant to then Commissioner
Miriam Defensor-Santiago on March 7, 1988.[15] Meanwhile, Punsalan sold his shares in petitionercorporation and resigned as its president in 1987.[16]
On February 9, 1988, private respondent filed a collection suit against petitioner. He alleged that he had
prepared an operations manual for petitioner, conducted a seminar-workshop for its employees and
delivered to it a computer program; but that, despite demand, petitioner refused to pay him for his
services.
Petitioner, in its answer, denied that private respondent had prepared an operations manual and a
computer program or conducted a seminar-workshop for its employees. It further alleged that the letteragreement was signed by Punsalan without authority, in collusion with [private respondent] in order to
unlawfully get some money from [petitioner], and despite his knowledge that a group of employees of the
company had been commissioned by the board of directors to prepare an operations manual.[17]
The trial court declared the Second Contract unenforceable or simulated. However, since private
respondent had actually prepared the operations manual and conducted a training seminar for petitioner
and its employees, the trial court awarded P60,000 to the former, on the ground that no one should be
unjustly enriched at the expense of another (Article 2142, Civil Code). The trial court determined the
amount in light of the evidence presented by defendant on the usual charges made by a leading
consultancy firm on similar services.[18]
The Ruling of the Court of Appeals
To Respondent Court, the pivotal issue of private respondents appeal was the enforceability of the Second
Contract. It noted that petitioner did not appeal the Decision of the trial court, implying that it had agreed
to pay the P60,000 award. If the contract was valid and enforceable, then petitioner should be held liable
for the full amount stated therein, not P60,000 as held by the lower court.

Rejecting the finding of the trial court that the December 4, 1986 contract was simulated or unenforceable,
the CA ruled in favor of its validity and enforceability. According to the Court of Appeals, the evidence on
record shows that the president of petitioner-corporation had entered into the First Contract, which was
similar to the Second Contract. Thus, petitioner had clothed its president with apparent authority to enter
into the disputed agreement. As it had also become the practice of the petitioner-corporation to allow its
president to negotiate and execute contracts necessary to secure its license as a customs bonded
warehouse without prior board approval, the board itself, by its acts and through acquiescence, practically
laid aside the normal requirement of prior express approval. The Second Contract was declared valid and
binding on the petitioner, which was held liable to private respondent in the full amount of P400,000.
Disagreeing with the CA, petitioner lodged this petition before us.[19]
The Issues
Instead of alleging reversible errors, petitioner imputes grave abuse of discretion to the Court of Appeals,
viz.:[20]
I. xxx [I]n ruling that the subject letter-agreement for services was binding on the corporation simply
because it was entered into by its president[;]
II. xxx [I]n ruling that the subject letter-agreement for services was binding on the corporation
notwithstanding the lack of any board authority since it was the purported practice to allow the president
to enter into contracts of said nature (citing one previous instance of a similar contract)[;] and
III. xxx [I]n ruling that the subject letter-agreement for services was a valid contract and not merely
simulated."
The Court will overlook the lapse of petitioner in alleging grave abuse of discretion as its ground for
seeking a reversal of the assailed Decision. Although the Rules of Court specify reversible errors as
grounds for a petition for review under Rule 45, the Court will lay aside for the nonce this procedural lapse
and consider the allegations of grave abuse as statements of reversible errors of law.
Petitioner does not contest its liability; it merely disputes the amount of such accountability. Hence, the
resolution of this petition rests on the sole issue of the enforceability and validity of the Second Contract,
more specifically: (1) whether the president of the petitioner-corporation had apparent authority to bind
petitioner to the Second Contract; and (2) whether the said contract was valid and not merely simulated.
The Courts Ruling
The petition is not meritorious.
First Issue: Apparent Authority of a Corporate President
Petitioner argues that the disputed contract is unenforceable, because Punsalan, its president, was not
authorized by its board of directors to enter into said contract.
The general rule is that, in the absence of authority from the board of directors, no person, not even its
officers, can validly bind a corporation.[21] A corporation is a juridical person, separate and distinct from
its stockholders and members, having xxx powers, attributes and properties expressly authorized by law or
incident to its existence.[22]
Being a juridical entity, a corporation may act through its board of directors, which exercises almost all
corporate powers, lays down all corporate business policies and is responsible for the efficiency of
management,[23] as provided in Section 23 of the Corporation Code of the Philippines:
SEC. 23. The Board of Directors or Trustees. -- Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of directors or trustees x x x.

Under this provision, the power and the responsibility to decide whether the corporation should enter into
a contract that will bind the corporation is lodged in the board, subject to the articles of incorporation,
bylaws, or relevant provisions of law.[24] 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 officers, committees or agents. The authority of such 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, viz.: [25]
A corporate officer or agent may represent and bind the corporation in transactions with third persons to
the extent that [the] authority to do so has been conferred upon him, and this includes powers which have
been intentionally conferred, and also such powers as, in the usual course of the particular business, are
incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and
usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation
has caused persons dealing with the officer or agent to believe that it has conferred.
Accordingly, the appellate court ruled in this case that the authority to act for and to bind a corporation
may be presumed from acts of recognition in other instances, wherein the power was in fact exercised
without any objection from its board or shareholders. Petitioner had previously allowed its president to
enter into the First Contract with private respondent without a board resolution expressly authorizing him;
thus, it had clothed its president with apparent authority to execute the subject contract.
Petitioner rebuts, arguing that a single isolated agreement prior to the subject contract does not constitute
corporate practice, which Webster defines as frequent or customary action. It cites Board of Liquidators v.
Kalaw,[26] in which the practice of NACOCO allowing its general manager to negotiate and execute
contract in its copra trading activities for and on its behalf, without prior board approval, was inferred from
sixty contracts not one, as in the present case -- previously entered into by the corporation without such
board resolution.
Petitioners argument is not persuasive. Apparent authority is derived not merely from practice. Its
existence 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; or (2) the acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, whether within or beyond the scope of his ordinary powers.[27] It requires presentation
of evidence of similar act(s) executed either in its favor or in favor of other parties.[28] It is not the
quantity of similar acts which establishes apparent authority, but the vesting of a corporate officer with the
power to bind the corporation.
In the case at bar, petitioner, through its president Antonio Punsalan Jr., entered into the First Contract
without first securing board approval. Despite such lack of board approval, petitioner did not object to or
repudiate said contract, thus clothing its president with the power to bind the corporation. The grant of
apparent authority to Punsalan is evident in the testimony of Yong -- senior vice president, treasurer and
major stockholder of petitioner. Testifying on the First Contract, he said:[29]
A: Mr. [Punsalan] told me that he prefer[s] Mr. Sao because Mr. Sao is very influential with the Collector of
Customs[s]. Because the Collector of Custom[s] will be the one to approve our project study and I objected
to that, sir. And I said it [was an exorbitant] price. And Mr. Punsalan he is the [p]resident, so he [gets] his
way.
Q: And so did the company eventually pay this P350,000.00 to Mr. Sao?
A: Yes, sir.
The First Contract was consummated, implemented and paid without a hitch.
Hence, private respondent should not be faulted for believing that Punsalans conformity to the contract in
dispute was also binding on petitioner. It is familiar doctrine that if a corporation knowingly permits one of
its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to the
public as possessing the power to do those acts; and thus, the corporation will, as against anyone who has
in good faith dealt with it through such agent, be estopped from denying the agents authority.[30]

Furthermore, private respondent prepared an operations manual and conducted a seminar for the
employees of petitioner in accordance with their contract. Petitioner accepted the operations manual,
submitted it to the Bureau of Customs and allowed the seminar for its employees. As a result of its
aforementioned actions, petitioner was given by the Bureau of Customs a license to operate a bonded
warehouse. Granting arguendo then that the Second Contract was outside the usual powers of the
president, petitioners ratification of said contract and acceptance of benefits have made it binding,
nonetheless. The enforceability of contracts under Article 1403(2) is ratified by the acceptance of benefits
under them under Article 1405.
Inasmuch as a corporate president is often given general supervision and control over corporate
operations, the strict rule that said officer has no inherent power to act for the corporation is slowly giving
way to the realization that such officer has certain limited powers in the transaction of the usual and
ordinary business of the corporation.[31] In the absence of a charter or bylaw provision to the contrary, the
president is presumed to have the authority to act within the domain of the general objectives of its
business and within the scope of his or her usual duties.[32]
Hence, it has been held in other jurisdictions that the president of a corporation possesses the power to
enter into a contract for the corporation, when the conduct on the part of both the president and the
corporation [shows] that he had been in the habit of acting in similar matters on behalf of the company
and that the company had authorized him so to act and had recognized, approved and ratified his former
and similar actions.[33] Furthermore, a party dealing with the president of a corporation is entitled to
assume that he has the authority to enter, on behalf of the corporation, into contracts that are within the
scope of the powers of said corporation and that do not violate any statute or rule on public policy.[34]
Second Issue: Alleged Simulation of the First Contract
As an alternative position, petitioner seeks to pare down its liabilities by limiting its exposure from
P400,000 to only P60,000, the amount awarded by the RTC. Petitioner capitalizes on the badges of fraud
cited by the trial court in declaring said contract either simulated or unenforceable, viz.:
xxx The October 1986 transaction with [private respondent] involved P350,000. The same was embodied
in a letter which bore therein not only the conformity of [petitioners] then President Punsalan but also drew
a letter-confirmation from the latter for, indeed, he was clothed with authority to enter into the contract
after the same was brought to the attention and consideration of [petitioner]. Not only that, a [down
payment] was made. In the alleged agreement of December 4, 1986 subject of the present case, the
amount is even bigger-P400,000.00. Yet, the alleged letter-agreement drew no letter of confirmation. And
no [down payment] and postdated checks were given. Until the filing of the present case in February 1988,
no written demand for payment was sent to [petitioner]. [Private respondents] claim that he sent one in
writing, and one was sent by his counsel who manifested that [h]e was looking for a copy in [his] files fails
in light of his failure to present any such copy. These and the following considerations, to wit:
1) Despite the fact that no [down payment] and/or postdated checks [partial payments] (as purportedly
stipulated in the alleged contract) [was given, private respondent] went ahead with the services[;]
2) [There was a delay in the filing of the present suit, more than a year after [private respondent] allegedly
completed his services or eight months after the alleged last verbal demand for payment made on
Punsalan in June 1987;
3) Does not Punsalans writing allegedly in June 1987 on the alleged letter-agreement of your employees[,]
when it should have been our employees, as he was then still connected with [petitioner], indicate that the
letter-agreement was signed by Punsalan when he was no longer connected with [petitioner] or, as claimed
by [petitioner], that Punsalan signed it without [petitioners] authority and must have been done in
collusion with plaintiff in order to unlawfully get some money from [petitioner]?
4) If, as [private respondent] claims, the letter was returned by Punsalan after affixing thereon his
conformity, how come xxx when Punsalan allegedly visited [private respondent] in his office at the Bureau
of Customs, in June 1987, Punsalan brought (again?) the letter (with the pencil [notation] at the left bottom
portion allegedly already written)?
5) How come xxx [private respondent] did not even keep a copy of the alleged service contract allegedly
attached to the letter-agreement?

6) Was not the letter-agreement a mere draft, it bearing the corrections made by Punsalan of his name (the
letter n is inserted before the last letter o in Antonio) and of the spelling of his family name (Punsalan, not
Punzalan)?
7) Why was not Punsalan impleaded in the case?
The issue of whether the contract is simulated or real is factual in nature, and the Court eschews factual
examination in a petition for review under Rule 45 of the Rules of Court.[35] This rule, however, admits of
exceptions, one of which is a conflict between the factual findings of the lower and of the appellate
courts[36] as in the case at bar.
After judicious deliberation, the Court agrees with the appellate court that the alleged badges of fraud
mentioned earlier have not affected in any manner the perfection of the Second Contract or proved the
alleged simulation thereof. First, the lack of payment (whether down, partial or full payment), even after
completion of private respondents obligations, imports only a defect in the performance of the contract on
the part of petitioner. Second, the delay in the filing of action was not fatal to private respondents cause.
Despite the lapse of one year after private respondent completed his services or eight months after the
alleged last demand for payment in June 1987, the action was still filed within the allowable period,
considering that an action based on a written contract prescribes only after ten years from the time the
right of action accrues.[37] Third, a misspelling in the contract does not establish vitiation of consent,
cause or object of the contract. Fourth, a confirmation letter is not an essential element of a contract;
neither is it necessary to perfect one. Fifth, private respondents failure to implead the corporate president
does not establish collusion between them. Petitioner could have easily filed a third-party claim against
Punsalan if it believed that it had recourse against the latter. Lastly, the mere fact that the contract price
was six times the alleged going rate does not invalidate it.[38] In short, these badges do not establish
simulation of said contract.
A fictitious and simulated agreement lacks consent which is essential to a valid and enforceable contract.
[39] A contract is simulated if the parties do not intend to be bound at all (absolutely simulated),[40] or if
the parties conceal their true agreement (relatively simulated).[41] In the case at bar, petitioner received
from private respondent a letter-offer containing the terms of the former, including a stipulation of the
consideration for the latters services. Punsalans conformity, as well as the receipt and use of the
operations manual, shows petitioners consent to or, at the very least, ratification of the contract. To repeat,
petitioner even submitted the manual to the Bureau of Customs and allowed private respondent to
conduct the seminar for its employees. Private respondent heard no objection from the petitioner, until he
claimed payment for the services he had rendered.
Contemporaneous and subsequent acts are also principal factors in the determination of the will of the
contracting parties.[42] The circumstances outlined above do not establish any intention to simulate the
contract in dispute. On the contrary, the legal presumption is always on the validity of contracts. A
corporation, by accepting benefits of a transaction entered into without authority, has ratified the
agreement and is, therefore, bound by it.[43]
WHEREFORE, the petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.

G.R. No. 160273

January 18, 2008

CEBU COUNTRY CLUB, INC., SABINO R. DAPAT, RUBEN D. ALMENDRAS, JULIUS Z. NERI, DOUGLAS L. LUYM,
CESAR T. LIBI, RAMONTITO* E. GARCIA and JOSE B. SALA, petitioners,
vs.
RICARDO F. ELIZAGAQUE, respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:

For our resolution is the instant Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the Decision1 dated January 31, 2003 and Resolution dated October 2,
2003 of the Court of Appeals in CA-G.R. CV No. 71506.
The facts are:
Cebu Country Club, Inc. (CCCI), petitioner, is a domestic corporation operating as a non-profit and nonstock private membership club, having its principal place of business in Banilad, Cebu City. Petitioners
herein are members of its Board of Directors.
Sometime in 1987, San Miguel Corporation, a special company proprietary member of CCCI, designated
respondent Ricardo F. Elizagaque, its Senior Vice President and Operations Manager for the Visayas and
Mindanao, as a special non-proprietary member. The designation was thereafter approved by the CCCIs
Board of Directors.
In 1996, respondent filed with CCCI an application for proprietary membership. The application was
indorsed by CCCIs two (2) proprietary members, namely: Edmundo T. Misa and Silvano Ludo.
As the price of a proprietary share was around the P5 million range, Benito Unchuan, then president of
CCCI, offered to sell respondent a share for only P3.5 million. Respondent, however, purchased the share of
a certain Dr. Butalid for only P3 million. Consequently, on September 6, 1996, CCCI issued Proprietary
Ownership Certificate No. 1446 to respondent.
During the meetings dated April 4, 1997 and May 30, 1997 of the CCCI Board of Directors, action on
respondents application for proprietary membership was deferred. In another Board meeting held on July
30, 1997, respondents application was voted upon. Subsequently, or on August 1, 1997, respondent
received a letter from Julius Z. Neri, CCCIs corporate secretary, informing him that the Board disapproved
his application for proprietary membership.
On August 6, 1997, Edmundo T. Misa, on behalf of respondent, wrote CCCI a letter of reconsideration. As
CCCI did not answer, respondent, on October 7, 1997, wrote another letter of reconsideration. Still, CCCI
kept silent. On November 5, 1997, respondent again sent CCCI a letter inquiring whether any member of
the Board objected to his application. Again, CCCI did not reply.
Consequently, on December 23, 1998, respondent filed with the Regional Trial Court (RTC), Branch 71,
Pasig City a complaint for damages against petitioners, docketed as Civil Case No. 67190.
After trial, the RTC rendered its Decision dated February 14, 2001 in favor of respondent, thus:
WHEREFORE, judgment is hereby rendered in favor of plaintiff:
1. Ordering defendants to pay, jointly and severally, plaintiff the amount of P2,340,000.00 as actual or
compensatory damages.
2. Ordering defendants to pay, jointly and severally, plaintiff the amount of P5,000,000.00 as moral
damages.
3. Ordering defendants to pay, jointly and severally, plaintiff the amount of P1,000,000.00 as exemplary
damages.
4. Ordering defendants to pay, jointly and severally, plaintiff the amount of P1,000,000.00 as and by way
of attorneys fees and P80,000.00 as litigation expenses.
5. Costs of suit.
Counterclaims are hereby DISMISSED for lack of merit.
SO ORDERED.2
On appeal by petitioners, the Court of Appeals, in its Decision dated January 31, 2003, affirmed the trial
courts Decision with modification, thus:

WHEREFORE, premises considered, the assailed Decision dated February 14, 2001 of the Regional Trial
Court, Branch 71, Pasig City in Civil Case No. 67190 is hereby AFFIRMED with MODIFICATION as follows:
1. Ordering defendants-appellants to pay, jointly and severally, plaintiff-appellee the amount of
P2,000,000.00 as moral damages;
2. Ordering defendants-appellants to pay, jointly and severally, plaintiff-appellee the amount of
P1,000,000.00 as exemplary damages;
3. Ordering defendants-appellants to pay, jointly and severally, plaintiff-appellee the mount of P500,000.00
as attorneys fees and P50,000.00 as litigation expenses; and
4. Costs of the suit.
The counterclaims are DISMISSED for lack of merit.
SO ORDERED.3
On March 3, 2003, petitioners filed a motion for reconsideration and motion for leave to set the motion for
oral arguments. In its Resolution4 dated October 2, 2003, the appellate court denied the motions for lack
of merit.
Hence, the present petition.
The issue for our resolution is whether in disapproving respondents application for proprietary
membership with CCCI, petitioners are liable to respondent for damages, and if so, whether their liability is
joint and several.
Petitioners contend, inter alia, that the Court of Appeals erred in awarding exorbitant damages to
respondent despite the lack of evidence that they acted in bad faith in disapproving the latters
application; and in disregarding their defense of damnum absque injuria.
For his part, respondent maintains that the petition lacks merit, hence, should be denied.
CCCIs Articles of Incorporation provide in part:
SEVENTH: That this is a non-stock corporation and membership therein as well as the right of participation
in its assets shall be limited to qualified persons who are duly accredited owners of Proprietary Ownership
Certificates issued by the corporation in accordance with its By-Laws.
Corollary, Section 3, Article 1 of CCCIs Amended By-Laws provides:
SECTION 3. HOW MEMBERS ARE ELECTED The procedure for the admission of new members of the Club
shall be as follows:
(a) Any proprietary member, seconded by another voting proprietary member, shall submit to the
Secretary a written proposal for the admission of a candidate to the "Eligible-for-Membership List";
(b) Such proposal shall be posted by the Secretary for a period of thirty (30) days on the Club bulletin
board during which time any member may interpose objections to the admission of the applicant by
communicating the same to the Board of Directors;
(c) After the expiration of the aforesaid thirty (30) days, if no objections have been filed or if there are, the
Board considers the objections unmeritorious, the candidate shall be qualified for inclusion in the "Eligiblefor-Membership List";
(d) Once included in the "Eligible-for-Membership List" and after the candidate shall have acquired in his
name a valid POC duly recorded in the books of the corporation as his own, he shall become a Proprietary
Member, upon a non-refundable admission fee of P1,000.00, provided that admission fees will only be
collected once from any person.

On March 1, 1978, Section 3(c) was amended to read as follows:

(c) After the expiration of the aforesaid thirty (30) days, the Board may, by unanimous vote of all directors
present at a regular or special meeting, approve the inclusion of the candidate in the "Eligible-forMembership List".
As shown by the records, the Board adopted a secret balloting known as the "black ball system" of voting
wherein each member will drop a ball in the ballot box. A white ball represents conformity to the admission
of an applicant, while a black ball means disapproval. Pursuant to Section 3(c), as amended, cited above, a
unanimous vote of the directors is required. When respondents application for proprietary membership
was voted upon during the Board meeting on July 30, 1997, the ballot box contained one (1) black ball.
Thus, for lack of unanimity, his application was disapproved.
Obviously, the CCCI Board of Directors, under its Articles of Incorporation, has the right to approve or
disapprove an application for proprietary membership. But such right should not be exercised arbitrarily.
Articles 19 and 21 of the Civil Code on the Chapter on Human Relations provide restrictions, thus:
Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith.
Article 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.
In GF Equity, Inc. v. Valenzona,5 we expounded Article 19 and correlated it with Article 21, thus:
This article, known to contain what is commonly referred to as the principle of abuse of rights, sets certain
standards which must be observed not only in the exercise of one's rights but also in the performance of
one's duties. These standards are the following: to act with justice; to give everyone his due; and to
observe honesty and good faith. The law, therefore, recognizes a primordial limitation on all rights; that in
their exercise, the norms of human conduct set forth in Article 19 must be observed. A right, though by
itself legal because recognized or granted by law as such, may nevertheless become the source of some
illegality. When a right is exercised in a manner which does not conform with the norms enshrined in Article
19 and results in damage to another, a legal wrong is thereby committed for which the wrongdoer must be
held responsible. But while Article 19 lays down a rule of conduct for the government of human relations
and for the maintenance of social order, it does not provide a remedy for its violation. Generally, an action
for damages under either Article 20 or Article 21 would be proper. (Emphasis in the original)
In rejecting respondents application for proprietary membership, we find that petitioners violated the rules
governing human relations, the basic principles to be observed for the rightful relationship between human
beings and for the stability of social order. The trial court and the Court of Appeals aptly held that
petitioners committed fraud and evident bad faith in disapproving respondents applications. This is
contrary to morals, good custom or public policy. Hence, petitioners are liable for damages pursuant to
Article 19 in relation to Article 21 of the same Code.
It bears stressing that the amendment to Section 3(c) of CCCIs Amended By-Laws requiring the unanimous
vote of the directors present at a special or regular meeting was not printed on the application form
respondent filled and submitted to CCCI. What was printed thereon was the original provision of Section
3(c) which was silent on the required number of votes needed for admission of an applicant as a
proprietary member.
Petitioners explained that the amendment was not printed on the application form due to economic
reasons. We find this excuse flimsy and unconvincing. Such amendment, aside from being extremely
significant, was introduced way back in 1978 or almost twenty (20) years before respondent filed his
application. We cannot fathom why such a prestigious and exclusive golf country club, like the CCCI, whose
members are all affluent, did not have enough money to cause the printing of an updated application form.
It is thus clear that respondent was left groping in the dark wondering why his application was
disapproved. He was not even informed that a unanimous vote of the Board members was required. When
he sent a letter for reconsideration and an inquiry whether there was an objection to his application,
petitioners apparently ignored him. Certainly, respondent did not deserve this kind of treatment. Having

been designated by San Miguel Corporation as a special non-proprietary member of CCCI, he should have
been treated by petitioners with courtesy and civility. At the very least, they should have informed him why
his application was disapproved.
The exercise of a right, though legal by itself, must nonetheless be in accordance with the proper norm.
When the right is exercised arbitrarily, unjustly or excessively and results in damage to another, a legal
wrong is committed for which the wrongdoer must be held responsible.6 It bears reiterating that the trial
court and the Court of Appeals held that petitioners disapproval of respondents application is
characterized by bad faith.
As to petitioners reliance on the principle of damnum absque injuria or damage without injury, suffice it to
state that the same is misplaced. In Amonoy v. Gutierrez,7 we held that this principle does not apply when
there is an abuse of a persons right, as in this case.
As to the appellate courts award to respondent of moral damages, we find the same in order. Under Article
2219 of the New Civil Code, moral damages may be recovered, among others, in acts and actions referred
to in Article 21. We believe respondents testimony that he suffered mental anguish, social humiliation and
wounded feelings as a result of the arbitrary denial of his application. However, the amount of
P2,000,000.00 is excessive. While there is no hard-and-fast rule in determining what would be a fair and
reasonable amount of moral damages, the same should not be palpably and scandalously excessive. Moral
damages are not intended to impose a penalty to the wrongdoer, neither to enrich the claimant at the
expense of the defendant.8 Taking into consideration the attending circumstances here, we hold that an
award to respondent of P50,000.00, instead of P2,000,000.00, as moral damages is reasonable.
Anent the award of exemplary damages, Article 2229 allows it by way of example or correction for the
public good. Nonetheless, since exemplary damages are imposed not to enrich one party or impoverish
another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions,9
we reduce the amount from P1,000,000.00 to P25,000.00 only.
On the matter of attorneys fees and litigation expenses, Article 2208 of the same Code provides, among
others, that attorneys fees and expenses of litigation may be recovered in cases when exemplary
damages are awarded and where the court deems it just and equitable that attorneys fees and expenses
of litigation should be recovered, as in this case. In any event, however, such award must be reasonable,
just and equitable. Thus, we reduce the amount of attorneys fees (P500,000.00) and litigation expenses
(P50,000.00) to P50,000.00 and P25,000.00, respectively.
Lastly, petitioners argument that they could not be held jointly and severally liable for damages because
only one (1) voted for the disapproval of respondents application lacks merit.
Section 31 of the Corporation Code provides:
SEC. 31. Liability of directors, trustees or officers. Directors or trustees who willfully and knowingly vote
for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith
in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their
duty as such directors, or trustees shall be liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and other persons. (Emphasis ours)
WHEREFORE, we DENY the petition. The challenged Decision and Resolution of the Court of Appeals in CAG.R. CV No. 71506 are AFFIRMED with modification in the sense that (a) the award of moral damages is
reduced from P2,000,000.00 to P50,000.00; (b) the award of exemplary damages is reduced from
P1,000,000.00 to P25,000.00; and (c) the award of attorneys fees and litigation expenses is reduced from
P500,000.00 and P50,000.00 to P50,000.00 and P25,000.00, respectively.
Costs against petitioners.
SO ORDERED.