Asset Privatization Trust v Court of Appeals, 300 SCRA 579 (1998)

Facts:

MMIC, PNB and DBP executed a Mortgage Trust Agreementwhereby MMIC, as mortgagor, agreed to constitute a
mortgage in favor or PNB and DBP as mortgagees, over all MMIC's assets. Article IV of the Mortgage Trust Agreement
provides for Events of Default, which expressly includes the event that the MORTGAGOR shall fail to pay any amount
secured by this Mortgage Trust Agreement when due. In various requests for advances/remittances of loans if huge
amounts, Deeds of Undertaking, Promissory Notes, Loan Documents, Deeds of Real Estate Mortgages, MMIC invariably
committed to pay either on demand or under certain terms the loans and accommodations secured from or guaranteed
by both DBP and PNB. Because of the tremendous loans obtained, a financial restructuring plan (FRP) designed to
reduce MMIC's interest expense through debt conversion to equity was drafted SGV, however, it was never adopted.
The various loans and advances made by DBP and PNB to MMIC had become overdue and since any restructuring
program relative to the loans was no longer feasible, and in compliance with the directive of Presidential Decree No.
385, DBP and PNB as mortgagees of MMIC assets, decided to exercise their right to extrajudicially foreclose the
mortgages in accordance with the Mortgage Trust Agreement. The assets were eventually transferred to APT. SHs of
MMIC thereafter filed a derivative suit against DBP and PNB praying that the foreclosure be annulled, that the FRP be
followed and damages. In arbitration proceedings, MMIC obtained a favorable decision. Court of Appeals denied due
course and dismissed the petition for certiorari.

Issue: Whether or not theMMIC is entitled to moral damages.

Ruling: NO.
As a rule, a corporation exercises its powers, including the power to enter into contracts, through its board of
directors. While a corporation may appoint agents to enter into a contract in its behalf, the agent should not exceed
his authority. In the case at bar, there was no showing that the representatives of PNB and DBP in MMIC even had the
requisite authority to enter into a debt-for-equity swap. And if they had such authority, there was no showing that the
banks, through their board of directors, had ratified the FRP.

Further, how the MMIC could be entitled to a big amount of moral damages when its credit reputation was not exactly
something to be considered sound and wholesome. Under Article 2217 of the Civil Code, moral damages include
besmirched reputation which a corporation may possibly suffer. A corporation whose overdue and unpaid debts to the
Government alone reached a tremendous amount of P22 Billion Pesos cannot certainly have a solid business reputation
to brag about.

Moral damages 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 award is not meant to enrich the complainant at the expense of the
defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate the
moral suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status
quo ante, and should be proportionate to the suffering inflicted. . . 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 can be
experienced only by one having a nervous system. The statement in People v. Manero [218 SCRA 85 (1993)] and
Mambulao Lumber Co. v. PNB [130 Phil. 366 (1968)], that a corporation may recover moral damages if it “has a good
reputation that is debased, resulting in social humiliation” is an obiter dictum. . . The possible basis of recover of a
corporation would be under Articles 19, 20 and 21 of the Civil Code, but which requires a clear proof of malice or bad
faith.