Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

155650 July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. COURT OF APPEALS, CITY OF PARAA UE, CITY MAYOR OF PARAA UE, SANGGUNIANG PANGLUNGSO! NG PARAA UE, CITY ASSESSOR OF PARAA UE, "#$ CITY TREASURER OF PARAA UE, respondents. DECISI CARPIO, J.% T&' A#(')'$'#(* Petitioner Manila International Airport Authorit! "MIAA# operates the Nino! A$uino International Airport "NAIA# Co%ple& in Para'a$ue Cit! under E&ecutive rder No. ()*, other+ise ,no+n as the Revised Charter of the Manila International Airport Authority "-MIAA Charter-#. E&ecutive rder No. ()* +as issued on ./ 0ul! /(1* b! then President 2erdinand E. Marcos. Subse$uentl!, E&ecutive rder Nos. ()(/ and .(1. a%ended the MIAA Charter. As operator of the international airport, MIAA ad%inisters the land, i%prove%ents and e$uip%ent +ithin the NAIA Co%ple&. 3he MIAA Charter transferred to MIAA appro&i%atel! 4)) hectares of land,* includin5 the run+a!s and buildin5s "-Airport 6ands and Buildin5s-# then under the Bureau of Air 3ransportation.7 3he MIAA Charter further provides that no portion of the land transferred to MIAA shall be disposed of throu5h sale or an! other %ode unless specificall! approved b! the President of the Philippines.8 n ./ March /((9, the ffice of the :overn%ent Corporate Counsel " :CC# issued pinion No. )4/. 3he :CC opined that the 6ocal :overn%ent Code of /((/ +ithdre+ the e&e%ption fro% real estate ta& 5ranted to MIAA under Section ./ of the MIAA Charter. 3hus, MIAA ne5otiated +ith respondent Cit! of Para'a$ue to pa! the real estate ta& i%posed b! the Cit!. MIAA then paid so%e of the real estate ta& alread! due. n .1 0une .))/, MIAA received 2inal Notices of Real Estate 3a& Delin$uenc! fro% the Cit! of Para'a$ue for the ta&able !ears /((. to .))/. MIAA;s real estate ta& delin$uenc! is bro,en do+n as follo+s<
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n /9 0ul! .))/, the Cit! of Para'a$ue, throu5h its Cit! 3reasurer, issued notices of lev! and +arrants of lev! on the Airport 6ands and Buildin5s. 3he Ma!or of the Cit! of Para'a$ue threatened to sell at public auction the Airport 6ands and Buildin5s should MIAA fail to pa! the real estate ta& delin$uenc!. MIAA thus sou5ht a clarification of :CC pinion No. )4/. n ( Au5ust .))/, the :CC issued pinion No. /79 clarif!in5 :CC pinion No. )4/. 3he :CC pointed out that Section .)4 of the 6ocal :overn%ent Code re$uires persons e&e%pt fro% real estate ta& to sho+ proof of e&e%ption. 3he :CC opined that Section ./ of the MIAA Charter is the proof that MIAA is e&e%pt fro% real estate ta&. n / ctober .))/, MIAA filed +ith the Court of Appeals an ori5inal petition for prohibition and inCunction, +ith pra!er for preli%inar! inCunction or te%porar! restrainin5 order. 3he petition sou5ht to restrain the Cit! of Para'a$ue fro% i%posin5 real estate ta& on, lev!in5 a5ainst, and auctionin5 for public sale the Airport 6ands and Buildin5s. 3he petition +as doc,eted as CA@ :.R. SP No. 44191. n 8 ctober .))/, the Court of Appeals dis%issed the petition because MIAA filed it be!ond the 4)@da! re5le%entar! period. 3he Court of Appeals also denied on .9 Septe%ber .)). MIAA;s %otion for reconsideration and supple%ental %otion for reconsideration. Dence, MIAA filed on 8 Dece%ber .)). the present petition for revie+.9 Mean+hile, in 0anuar! .))*, the Cit! of Para'a$ue posted notices of auction sale at the Baran5a! Dalls of Baran5a!s EitaleF, Sto. Ni'o, and 3a%bo, Para'a$ue Cit!G in the public %ar,et of Baran5a! 6a DuertaG and in the %ain lobb! of the Para'a$ue Cit! Dall. 3he Cit! of Para'a$ue published the notices in the * and /) 0anuar! .))* issues of the Philippine Daily Inquirer, a ne+spaper of 5eneral circulation in the Philippines. 3he notices announced the public auction sale of the Airport 6ands and Buildin5s to the hi5hest bidder on 9 2ebruar! .))*, /)<)) a.%., at the 6e5islative Session Dall Buildin5 of Para'a$ue Cit!. A da! before the public auction, or on 4 2ebruar! .))*, at 8</) p.%., MIAA filed before this Court an ?r5ent Ex-Parte and Reiterator! Motion for the Issuance of a 3e%porar! Restrainin5 rder. 3he %otion sou5ht to restrain respondents H the Cit! of Para'a$ue, Cit! Ma!or of

Para'a$ue, Sangguniang Panglungsod n5 Para'a$ue, Cit! 3reasurer of Para'a$ue, and the Cit! Assessor of Para'a$ue "-respondents-# H fro% auctionin5 the Airport 6ands and Buildin5s. n 9 2ebruar! .))*, this Court issued a te%porar! restrainin5 order "3R # effective i%%ediatel!. 3he Court ordered respondents to cease and desist fro% sellin5 at public auction the Airport 6ands and Buildin5s. Respondents received the 3R on the sa%e da! that the Court issued it. Do+ever, respondents received the 3R onl! at /<.8 p.%. or three hours after the conclusion of the public auction. n /) 2ebruar! .))*, this Court issued a Resolution confir%in5 nunc pro tunc the 3R . n .( March .))8, the Court heard the parties in oral ar5u%ents. In co%pliance +ith the directive issued durin5 the hearin5, MIAA, respondent Cit! of Para'a$ue, and the Solicitor :eneral subse$uentl! sub%itted their respective Me%oranda. MIAA ad%its that the MIAA Charter has placed the title to the Airport 6ands and Buildin5s in the na%e of MIAA. Do+ever, MIAA points out that it cannot clai% o+nership over these properties since the real o+ner of the Airport 6ands and Buildin5s is the Republic of the Philippines. 3he MIAA Charter %andates MIAA to devote the Airport 6ands and Buildin5s for the benefit of the 5eneral public. Since the Airport 6ands and Buildin5s are devoted to public use and public service, the o+nership of these properties re%ains +ith the State. 3he Airport 6ands and Buildin5s are thus inalienable and are not subCect to real estate ta& b! local 5overn%ents. MIAA also points out that Section ./ of the MIAA Charter specificall! e&e%pts MIAA fro% the pa!%ent of real estate ta&. MIAA insists that it is also e&e%pt fro% real estate ta& under Section .*7 of the 6ocal :overn%ent Code because the Airport 6ands and Buildin5s are o+ned b! the Republic. 3o Custif! the e&e%ption, MIAA invo,es the principle that the 5overn%ent cannot ta& itself. MIAA points out that the reason for ta& e&e%ption of public propert! is that its ta&ation +ould not inure to an! public advanta5e, since in such a case the ta& debtor is also the ta& creditor. Respondents invo,e Section /(* of the 6ocal :overn%ent Code, +hich '+,-'**ly ./(&$-'. the ta& e&e%ption privile5es of -0o1'-#2'#(3o.#'$ "#$3)o#(-oll'$ )o-,o-"(/o#*upon the effectivit! of the 6ocal :overn%ent Code. Respondents also ar5ue that a basic rule of statutor! construction is that the e&press %ention of one person, thin5, or act e&cludes all others. An international airport is not a%on5 the e&ceptions %entioned in Section /(* of the 6ocal :overn%ent Code. 3hus, respondents assert that MIAA cannot clai% that the Airport 6ands and Buildin5s are e&e%pt fro% real estate ta&. Respondents also cite the rulin5 of this Court in Mactan International Airport v. Marcos1 +here +e held that the 6ocal :overn%ent Code has +ithdra+n the e&e%ption fro% real estate ta& 5ranted to international airports. Respondents further ar5ue that since MIAA has alread! paid so%e of the real estate ta& assess%ents, it is no+ estopped fro% clai%in5 that the Airport 6ands and Buildin5s are e&e%pt fro% real estate ta&. T&' I**u' 3his petition raises the threshold issue of +hether the Airport 6ands and Buildin5s of MIAA are e&e%pt fro% real estate ta& under e&istin5 la+s. If so e&e%pt, then the real estate ta&

assess%ents issued b! the Cit! of Para'a$ue, and all proceedin5s ta,en pursuant to such assess%ents, are void. In such event, the other issues raised in this petition beco%e %oot. T&' Cou-(4* Rul/#0 Ie rule that MIAA;s Airport 6ands and Buildin5s are e&e%pt fro% real estate ta& i%posed b! local 5overn%ents. irst, MIAA is not a 5overn%ent@o+ned or controlled corporation but an /#*(-u2'#("l/(y of the National :overn%ent and thus e&e%pt fro% local ta&ation. Second, the real properties of MIAA are o.#'$ 5y (&' R',u5l/) of the Philippines and thus e&e%pt fro% real estate ta&. 1. MIAA /* No( " Go1'-#2'#(3O.#'$ o- Co#(-oll'$ Co-,o-"(/o# Respondents ar5ue that MIAA, bein5 a 5overn%ent@o+ned or controlled corporation, is not e&e%pt fro% real estate ta&. Respondents clai% that the deletion of the phrase -an! 5overn%ent@o+ned or controlled so e&e%pt b! its charter- in Section .*7"e# of the 6ocal :overn%ent Code +ithdre+ the real estate ta& e&e%ption of 5overn%ent@o+ned or controlled corporations. 3he deleted phrase appeared in Section 7)"a# of the /(97 Real Propert! 3a& Code enu%eratin5 the entities e&e%pt fro% real estate ta&. 3here is no dispute that a 5overn%ent@o+ned or controlled corporation is not e&e%pt fro% real estate ta&. Do+ever, MIAA is not a 5overn%ent@o+ned or controlled corporation. Section ."/*# of the Introductor! Provisions of the Ad%inistrative Code of /(19 defines a 5overn%ent@o+ned or controlled corporation as follo+s<
SEC. .. !eneral "er#s Defined. J & & & & "/*# !overn#ent-o$ned or controlled corporation refers to an! a5enc! o-0"#/6'$ "* " *(o)7 o- #o#3*(o)7 )o-,o-"(/o#, vested +ith functions relatin5 to public needs +hether 5overn%ental or proprietar! in nature, and o+ned b! the :overn%ent directl! or throu5h its instru%entalities either +holl!, or, +here applicable as in the case of stoc, corporations, to the e&tent of at least fift!@one "8/# percent of its capital stoc,< & & &. "E%phasis supplied#

A 5overn%ent@o+ned or controlled corporation %ust be -o-0"#/6'$ "* " *(o)7 o- #o#3*(o)7 )o-,o-"(/o#.- MIAA is not or5aniFed as a stoc, or non@stoc, corporation. MIAA is not a stoc, corporation because it has #o )",/("l *(o)7 $/1/$'$ /#(o *&"-'*. MIAA has no stoc,holders or votin5 shares. Section /) of the MIAA Charter(provides<
SEC3I N /). Capital. H 3he capital of the Authorit! to be contributed b! the National :overn%ent shall be increased fro% 3+o and ne@half Billion "P.,8)),))),))).))# Pesos to 3en Billion "P/),))),))),))).))# Pesos to consist of< "a# 3he value of fi&ed assets includin5 airport facilities, run+a!s and e$uip%ent and such other properties, %ovable and i%%ovableK,L +hich %a! be contributed b! the National :overn%ent or transferred b! it fro% an! of its a5encies, the valuation of +hich shall be deter%ined Cointl! +ith the Depart%ent of Bud5et and Mana5e%ent and the Co%%ission on Audit on the date of such contribution or transfer after %a,in5 due allo+ances for depreciation and other deductions ta,in5 into account the loans and other liabilities of the Authorit! at the ti%e of the ta,eover of the assets and other propertiesG

"b# 3hat the a%ount of P4)8 %illion as of Dece%ber */, /(14 representin5 about sevent! percentu% "9)M# of the unre%itted share of the National :overn%ent fro% /(1* to /(14 to be re%itted to the National 3reasur! as provided for in Section // of E. . No. ()* as a%ended, shall be converted into the e$uit! of the National :overn%ent in the Authorit!. 3hereafter, the :overn%ent contribution to the capital of the Authorit! shall be provided in the :eneral Appropriations Act.

Clearl!, under its Charter, MIAA does not have capital stoc, that is divided into shares. Section * of the Corporation Code/) defines a stoc, corporation as one +hose -)",/("l *(o)7 /* $/1/$'$ /#(o *&"-'* "#$ + + + "u(&o-/6'$ (o $/*(-/5u(' (o (&' &ol$'-* o8 *u)& *&"-'* $/1/$'#$* + + +.- MIAA has capital but it is not divided into shares of stoc,. MIAA has no stoc,holders or votin5 shares. Dence, MIAA is not a stoc, corporation. MIAA is also not a non@stoc, corporation because it has no %e%bers. Section 19 of the Corporation Code defines a non@stoc, corporation as -one +here no part of its inco%e is distributable as dividends to its %e%bers, trustees or officers.- A non@stoc, corporation %ust have %e%bers. Even if +e assu%e that the :overn%ent is considered as the sole %e%ber of MIAA, this +ill not %a,e MIAA a non@stoc, corporation. Non@stoc, corporations cannot distribute an! part of their inco%e to their %e%bers. Section // of the MIAA Charter %andates MIAA to re%it .)M of its annual 5ross operatin5 inco%e to the National 3reasur!.// 3his prevents MIAA fro% $ualif!in5 as a non@stoc, corporation. Section 11 of the Corporation Code provides that non@stoc, corporations are -or5aniFed for charitable, reli5ious, educational, professional, cultural, recreational, fraternal, literar!, scientific, social, civil service, or si%ilar purposes, li,e trade, industr!, a5riculture and li,e cha%bers.MIAA is not or5aniFed for an! of these purposes. MIAA, a public utilit!, is or5aniFed to operate an international and do%estic airport for public use. Since MIAA is neither a stoc, nor a non@stoc, corporation, MIAA does not $ualif! as a 5overn%ent@o+ned or controlled corporation. Ihat then is the le5al status of MIAA +ithin the National :overn%entN MIAA is a 0o1'-#2'#( /#*(-u2'#("l/(y vested +ith corporate po+ers to perfor% efficientl! its 5overn%ental functions. MIAA is li,e an! other 5overn%ent instru%entalit!, the onl! difference is that MIAA is vested +ith corporate po+ers. Section ."/)# of the Introductor! Provisions of the Ad%inistrative Code defines a 5overn%ent -/#*(-u2'#("l/(y- as follo+s<
SEC. .. !eneral "er#s Defined. JJ & & & & "/)# Instru#entality refers to an! a5enc! of the National :overn%ent, not inte5rated +ithin the depart%ent fra%e+or,, vested +ith special functions or Curisdiction b! la+, '#$o.'$ ./(& *o2' /8 #o( "ll )o-,o-"(' ,o.'-*, ad%inisterin5 special funds, and enCo!in5 operational autono%!, usuall! throu5h a charter. & & & "E%phasis supplied#

Ihen the la+ vests in a 5overn%ent instru%entalit! corporate po+ers, the instru%entalit! does not beco%e a corporation. ?nless the 5overn%ent instru%entalit! is or5aniFed as a stoc, or non@stoc, corporation, it re%ains a 5overn%ent instru%entalit! e&ercisin5 not onl! 5overn%ental but also corporate po+ers. 3hus, MIAA e&ercises the 5overn%ental po+ers of e%inent do%ain,/. police authorit!/* and the lev!in5 of fees and char5es./7 At the sa%e ti%e, MIAA

e&ercises -all the po+ers of a corporation under the Corporation 6a+, insofar as these po+ers are not inconsistent +ith the provisions of this E&ecutive rder.-/8 6i,e+ise, +hen the la+ %a,es a 5overn%ent instru%entalit! o,'-"(/o#"lly "u(o#o2ou*, the instru%entalit! re%ains part of the National :overn%ent %achiner! althou5h not inte5rated +ith the depart%ent fra%e+or,. 3he MIAA Charter e&pressl! states that transfor%in5 MIAA into a -separate and autono%ous bod!-/4 +ill %a,e its operation %ore -financiall! viable.-/9 Man! 5overn%ent instru%entalities are vested +ith corporate po+ers but the! do not beco%e stoc, or non@stoc, corporations, +hich is a necessar! condition before an a5enc! or instru%entalit! is dee%ed a 5overn%ent@o+ned or controlled corporation. E&a%ples are the Mactan International Airport Authorit!, the Philippine Ports Authorit!, the ?niversit! of the Philippines and %ang&o Sentral ng Pilipinas. All these 5overn%ent instru%entalities e&ercise corporate po+ers but the! are not or5aniFed as stoc, or non@stoc, corporations as re$uired b! Section ."/*# of the Introductor! Provisions of the Ad%inistrative Code. 3hese 5overn%ent instru%entalities are so%eti%es loosel! called 5overn%ent corporate entities. Do+ever, the! are not 5overn%ent@o+ned or controlled corporations in the strict sense as understood under the Ad%inistrative Code, +hich is the 5overnin5 la+ definin5 the le5al relationship and status of 5overn%ent entities. A 5overn%ent /#*(-u2'#("l/(y li,e MIAA falls under Section /**"o# of the 6ocal :overn%ent Code, +hich states<
SEC. /**. Co##on 'i#itations on the "axing Po$ers of 'ocal !overn#ent (nits . J U#l'** o(&'-./*' ,-o1/$'$ &'-'/#, (&' '+'-)/*' o8 (&' ("+/#0 ,o.'-* o8 ,-o1/#)'*, )/(/'*, 2u#/)/,"l/(/'*, "#$ 5"-"#0"y* *&"ll #o( '+('#$ (o (&' l'1y o8 (&' 8ollo./#0< &&&& "o# T"+'*, 8''* o- )&"-0'* o8 "#y 7/#$ o# (&' N"(/o#"l Go1'-#2'#(, /(* "0'#)/'* "#$ /#*(-u2'#("l/(/'* and local 5overn%ent units."E%phasis and underscorin5 supplied#

Section /**"o# reco5niFes the basic principle that local 5overn%ents cannot ta& the national 5overn%ent, +hich historicall! %erel! dele5ated to local 5overn%ents the po+er to ta&. Ihile the /(19 Constitution no+ includes ta&ation as one of the po+ers of local 5overn%ents, local 5overn%ents %a! onl! e&ercise such po+er -subCect to such 5uidelines and li%itations as the Con5ress %a! provide.-/1 Ihen local 5overn%ents invo,e the po+er to ta& on national 5overn%ent instru%entalities, such po+er is construed strictl! a5ainst local 5overn%ents. 3he rule is that a ta& is never presu%ed and there %ust be clear lan5ua5e in the la+ i%posin5 the ta&. An! doubt +hether a person, article or activit! is ta&able is resolved a5ainst ta&ation. 3his rule applies +ith 5reater force +hen local 5overn%ents see, to ta& national 5overn%ent instru%entalities. Another rule is that a ta& e&e%ption is strictl! construed a5ainst the ta&pa!er clai%in5 the e&e%ption. Do+ever, +hen Con5ress 5rants an e&e%ption to a national 5overn%ent instru%entalit! fro% local ta&ation, such e&e%ption is construed liberall! in favor of the national 5overn%ent instru%entalit!. As this Court declared in Maceda v. Macaraig, Jr.<

3he reason for the rule does not appl! in the case of e&e%ptions runnin5 to the benefit of the 5overn%ent itself or its a5encies. In such case the practical effect of an e&e%ption is %erel! to reduce the a%ount of %one! that has to be handled b! 5overn%ent in the course of its operations. 2or these reasons, provisions 5rantin5 e&e%ptions to 5overn%ent a5encies %a! be construed liberall!, in favor of non ta&@liabilit! of such a5encies. /(

3here is, %oreover, no point in national and local 5overn%ents ta&in5 each other, unless a sound and co%pellin5 polic! re$uires such transfer of public funds fro% one 5overn%ent poc,et to another. 3here is also no reason for local 5overn%ents to ta& national 5overn%ent instru%entalities for renderin5 essential public services to inhabitants of local 5overn%ents. T&' o#ly '+)',(/o# /* .&'# (&' l'0/*l"(u-' )l'"-ly /#('#$'$ (o ("+ 0o1'-#2'#( /#*(-u2'#("l/(/'* 8o- (&' $'l/1'-y o8 '**'#(/"l ,u5l/) *'-1/)'* 8o- *ou#$ "#$ )o2,'ll/#0 ,ol/)y )o#*/$'-"(/o#*. 3here %ust be e&press lan5ua5e in the la+ e%po+erin5 local 5overn%ents to ta& national 5overn%ent instru%entalities. An! doubt +hether such po+er e&ists is resolved a5ainst local 5overn%ents. 3hus, Section /** of the 6ocal :overn%ent Code states that -u#l'** o(&'-./*' ,-o1/$'$- in the Code, local 5overn%ents cannot ta& national 5overn%ent instru%entalities. As this Court held in Basco v. Philippine Amusements and Gaming Corporation<
3he states have no po+er b! ta&ation or other+ise, to retard, i%pede, burden or in an! %anner control the operation of constitutional la+s enacted b! Con5ress to carr! into e&ecution the po+ers vested in the federal 5overn%ent. "MC Culloch v. Mar!land, 7 Iheat */4, 7 6 Ed. 89(# 3his doctrine e%anates fro% the -supre%ac!- of the National :overn%ent over local 5overn%ents. -0ustice Dol%es, spea,in5 for the Supre%e Court, %ade reference to the entire absence of po+er on the part of the States to touch, in that +a! "ta&ation# at least, the instru%entalities of the ?nited States "0ohnson v. Mar!land, .87 ?S 8/# and it can be a5reed that no state or political su)division can regulate a federal instru#entality in such a $ay as to prevent it fro# consu##ating its federal responsi)ilities* or even to seriously )urden it in the acco#plish#ent of the# ."Antieau, Modern Constitutional 6a+, Eol. ., p. /7), e%phasis supplied# ther+ise, %ere creatures of the State can defeat National policies thru e&ter%ination of +hat local authorities %a! perceive to be undesirable activities or enterprise usin5 the po+er to ta& as -a tool for re5ulation- "?.S. v. SancheF, *7) ?S 7.#. 3he po+er to ta& +hich +as called b! 0ustice Marshall as the -po+er to destro!- "Mc Culloch v. Mar!land, supra# cannot be allo+ed to defeat an instru%entalit! or creation of the ver! entit! +hich has the inherent po+er to +ield it. .)

2. A/-,o-( L"#$* "#$ 9u/l$/#0* o8 MIAA "-' O.#'$ 5y (&' R',u5l/) ". A/-,o-( L"#$* "#$ 9u/l$/#0* "-' o8 Pu5l/) !o2/#/o# 3he Airport 6ands and Buildin5s of MIAA are propert! of ,u5l/) $o2/#/o# "#$ (&'-'8o-' o.#'$ 5y (&' S("(' o- (&' R',u5l/) o8 (&' P&/l/,,/#'*. 3he Civil Code provides<

AR3IC6E 7/(. Propert! is either of public do%inion or of private o+nership. AR3IC6E 7.). T&' 8ollo./#0 (&/#0* "-' ,-o,'-(y o8 ,u5l/) $o2/#/o#< "/# T&o*' /#('#$'$ 8o- ,u5l/) u*', *u)& "* -o"$*, )"#"l*, -/1'-*, (o--'#(*, ,o-(* "#$ 5-/$0'* )o#*(-u)('$ 5y (&' S("(', ban,s, shores, roadsteads, and others of si%ilar characterG ".# 3hose +hich belon5 to the State, +ithout bein5 for public use, and are intended for so%e public service or for the develop%ent of the national +ealth. "E%phasis supplied# AR3IC6E 7./. All other propert! of the State, +hich is not of the character stated in the precedin5 article, is patri%onial propert!. AR3IC6E 7... Propert! of public do%inion, +hen no lon5er intended for public use or for public service, shall for% part of the patri%onial propert! of the State.

No one can dispute that properties of public do%inion %entioned in Article 7.) of the Civil Code, li,e --o"$*, )"#"l*, -/1'-*, (o--'#(*, ,o-(* "#$ 5-/$0'* )o#*(-u)('$ 5y (&' S("(',- are o+ned b! the State. T&' ('-2 :,o-(*: /#)lu$'* *'",o-(* "#$ "/-,o-(*. 3he MIAA Airport 6ands and Buildin5s constitute a -,o-(- constructed b! the State. ?nder Article 7.) of the Civil Code, the MIAA Airport 6ands and Buildin5s are properties of public do%inion and thus o+ned b! the State or the Republic of the Philippines. 3he Airport 6ands and Buildin5s are devoted to public use because the! are u*'$ 5y (&' ,u5l/) 8o- /#('-#"(/o#"l "#$ $o2'*(/) (-"1'l "#$ (-"#*,o-("(/o#. 3he fact that the MIAA collects ter%inal fees and other char5es fro% the public does not re%ove the character of the Airport 6ands and Buildin5s as properties for public use. 3he operation b! the 5overn%ent of a toll+a! does not chan5e the character of the road as one for public use. So%eone %ust pa! for the %aintenance of the road, either the public indirectl! throu5h the ta&es the! pa! the 5overn%ent, or onl! those a%on5 the public +ho actuall! use the road throu5h the toll fees the! pa! upon usin5 the road. 3he toll+a! s!ste% is even a %ore efficient and e$uitable %anner of ta&in5 the public for the %aintenance of public roads. 3he char5in5 of fees to the public does not deter%ine the character of the propert! +hether it is of public do%inion or not. Article 7.) of the Civil Code defines propert! of public do%inion as one -intended for public use.- Even if the 5overn%ent collects toll fees, the road is still -intended for public use- if an!one can use the road under the sa%e ter%s and conditions as the rest of the public. 3he char5in5 of fees, the li%itation on the ,ind of vehicles that can use the road, the speed restrictions and other conditions for the use of the road do not affect the public character of the road. 3he ter%inal fees MIAA char5es to passen5ers, as +ell as the landin5 fees MIAA char5es to airlines, constitute the bul, of the inco%e that %aintains the operations of MIAA. 3he collection of such fees does not chan5e the character of MIAA as an airport for public use. Such fees are often ter%ed user;s ta&. 3his %eans ta&in5 those a%on5 the public +ho actuall! use a public facilit! instead of ta&in5 all the public includin5 those +ho never use the particular public facilit!. A user;s ta& is %ore e$uitable H a principle of ta&ation %andated in the /(19 Constitution../

3he Airport 6ands and Buildin5s of MIAA, +hich its Charter calls the -principal airport of the Philippines for both international and do%estic air traffic,-.. are properties of public do%inion because the! are intended for public use. A* ,-o,'-(/'* o8 ,u5l/) $o2/#/o#, (&'y /#$/*,u("5ly 5'lo#0 (o (&' S("(' o- (&' R',u5l/) o8 (&' P&/l/,,/#'*. 5. A/-,o-( L"#$* "#$ 9u/l$/#0* "-' Ou(*/$' (&' Co22'-)' o8 M"# 3he Airport 6ands and Buildin5s of MIAA are devoted to public use and thus are properties of public do%inion. A* ,-o,'-(/'* o8 ,u5l/) $o2/#/o#, (&' A/-,o-( L"#$* "#$ 9u/l$/#0* "-' ou(*/$' (&' )o22'-)' o8 2"#. 3he Court has ruled repeatedl! that properties of public do%inion are outside the co%%erce of %an. As earl! as /(/8, this Court alread! ruled in Municipality of Cavite v. Ro as that properties devoted to public use are outside the co%%erce of %an, thus<
Accordin5 to article *77 of the Civil Code< -Propert! for public use in provinces and in to+ns co%prises the provincial and to+n roads, the s$uares, streets, fountains, and public +aters, the pro%enades, and public +or,s of 5eneral service supported b! said to+ns or provinces.3he said PlaFa Soledad bein5 a pro%enade for public use, the %unicipal council of Cavite could not in /()9 +ithdra+ or e&clude fro% public use a portion thereof in order to lease it for the sole benefit of the defendant Dilaria RoCas. In leasin5 a portion of said plaFa or public place to the defendant for private use the plaintiff %unicipalit! e&ceeded its authorit! in the e&ercise of its po+ers b! e&ecutin5 a contract over a thin5 of +hich it could not dispose, nor is it e%po+ered so to do. 3he Civil Code, article /.9/, prescribes that ever!thin5 +hich is not outside the co%%erce of %an %a! be the obCect of a contract, and plaFas and streets are ou(*/$' o8 (&/* )o22'-)', as +as decided b! the supre%e court of Spain in its decision of 2ebruar! /., /1(8, +hich sa!s< -Co22u#"l (&/#0* (&"( )"##o( 5' *ol$ 5')"u*' (&'y "-' 5y (&'/- 1'-y #"(u-' ou(*/$' o8 )o22'-)' "-' (&o*' 8o- ,u5l/) u*', *u)& "* (&' ,l"6"*, *(-''(*, )o22o# l"#$*, -/1'-*, 8ou#("/#*, '().- "E%phasis supplied# .*

A5ain in !spiritu v. Municipal Council, the Court declared that properties of public do%inion are outside the co%%erce of %an<
&&& 3o+n plaFas are ,-o,'-(/'* o8 ,u5l/) $o2/#/o#, to be devoted to public use and to be %ade available to the public in 5eneral. 3he! are ou(*/$' (&' )o22'-)' o8 2"# and cannot be disposed of or even leased b! the %unicipalit! to private parties. Ihile in case of +ar or durin5 an e%er5enc!, to+n plaFas %a! be occupied te%poraril! b! private individuals, as +as done and as +as tolerated b! the Municipalit! of PoForrubio, +hen the e%er5enc! has ceased, said te%porar! occupation or use %ust also cease, and the to+n officials should see to it that the to+n plaFas should ever be ,ept open to the public and free fro% encu%brances or ille5al private constructions. .7 "E%phasis supplied#

3he Court has also ruled that propert! of public do%inion, bein5 outside the co%%erce of %an, cannot be the subCect of an auction sale..8 Properties of public do%inion, bein5 for public use, are not subCect to lev!, encu%brance or disposition throu5h public or private sale. An! encu%brance, lev! on e&ecution or auction sale of an! propert! of public do%inion is void for bein5 contrar! to public polic!. Essential public services +ill stop if properties of public do%inion are subCect to encu%brances, foreclosures and

auction sale. 3his +ill happen if the Cit! of Para'a$ue can foreclose and co%pel the auction sale of the 4))@hectare run+a! of the MIAA for non@pa!%ent of real estate ta&. Before MIAA can encu%ber.4 the Airport 6ands and Buildin5s, the President %ust first ./(&$-". 8-o2 ,u5l/) u*' the Airport 6ands and Buildin5s. Sections 1* and 11 of the Public 6and 6a+ or Co%%on+ealth Act No. /7/, +hich -re%ains to this da! the e&istin5 5eneral la+ 5overnin5 the classification and disposition of lands of the public do%ain other than ti%ber and %ineral lands,-.9 provide<
SEC3I N 1*. ?pon the reco%%endation of the Secretar! of A5riculture and Natural Resources, the President %a! desi5nate b! procla%ation an! tract or tracts of land of the public do%ain as reservations for the use of the Republic of the Philippines or of an! of its branches, or of the inhabitants thereof, in accordance +ith re5ulations prescribed for this purposes, or for $uasi@public uses or purposes +hen the public interest re$uires it, includin5 reservations for hi5h+a!s, ri5hts of +a! for railroads, h!draulic po+er sites, irri5ation s!ste%s, co%%unal pastures or le$uas co%%unales, public par,s, public $uarries, public fishponds, +or,in5 %en;s villa5e and other i%prove%ents for the public benefit. SEC3I N 11. T&' (-")( o- (-")(* o8 l"#$ -'*'-1'$ u#$'- (&' ,-o1/*/o#* o8 S')(/o# '/0&(y3(&-'' *&"ll 5' #o#3"l/'#"5l' "#$ *&"ll #o( 5' *u5;')( (o o))u,"(/o#, '#(-y, *"l', l'"*', o- o(&'- $/*,o*/(/o# u#(/l "0"/# $')l"-'$ "l/'#"5l' u#$'- (&' ,-o1/*/o#* o8 (&/* A)( o- 5y ,-o)l"2"(/o# o8 (&' P-'*/$'#( . "E%phasis and underscorin5 supplied#

3hus, unless the President issues a procla%ation +ithdra+in5 the Airport 6ands and Buildin5s fro% public use, these properties re%ain properties of public do%inion and are /#"l/'#"5l'. Since the Airport 6ands and Buildin5s are inalienable in their present status as properties of public do%inion, the! are not subCect to lev! on e&ecution or foreclosure sale. As lon5 as the Airport 6ands and Buildin5s are reserved for public use, their o+nership re%ains +ith the State or the Republic of the Philippines. 3he authorit! of the President to reserve lands of the public do%ain for public use, and to +ithdra+ such public use, is reiterated in Section /7, Chapter 7, 3itle I, Boo, III of the Ad%inistrative Code of /(19, +hich states<
SEC. /7. Po$er to Reserve 'ands of the Pu)lic and Private Do#ain of the !overn#ent . H "/# T&' P-'*/$'#( *&"ll &"1' (&' ,o.'- (o -'*'-1' 8o- *'((l'2'#( o- ,u5l/) u*', "#$ 8o*,')/8/) ,u5l/) ,u-,o*'*, "#y o8 (&' l"#$* o8 (&' ,u5l/) $o2"/#, (&' u*' o8 .&/)& /* #o( o(&'-./*' $/-')('$ 5y l".. T&' -'*'-1'$ l"#$ *&"ll (&'-'"8('- -'2"/# *u5;')( (o (&' *,')/8/) ,u5l/) ,u-,o*' /#$/)"('$ u#(/l o(&'-./*' ,-o1/$'$ 5y l". o- ,-o)l"2"(/o#G & & & &. "E%phasis supplied#

3here is no $uestion, therefore, that unless the Airport 6ands and Buildin5s are +ithdra+n b! la+ or presidential procla%ation fro% public use, the! are properties of public do%inion, o+ned b! the Republic and outside the co%%erce of %an. ). MIAA /* " M'-' T-u*('' o8 (&' R',u5l/)

MIAA is %erel! holdin5 title to the Airport 6ands and Buildin5s in trust for the Republic. Section 71, Chapter /., Boo, I of (&' A$2/#/*(-"(/1' Co$' "llo.* /#*(-u2'#("l/(/'* l/7' MIAA (o &ol$ (/(l' (o -'"l ,-o,'-(/'* o.#'$ 5y (&' R',u5l/), thus<
SEC. 71. +fficial Authori,ed to Convey Real Property . H Ihenever real propert! of the :overn%ent is authoriFed b! la+ to be conve!ed, the deed of conve!ance shall be e&ecuted in behalf of the 5overn%ent b! the follo+in5< "/# 2or propert! belon5in5 to and titled in the na%e of the Republic of the Philippines, b! the President, unless the authorit! therefor is e&pressl! vested b! la+ in another officer. ".# Fo- ,-o,'-(y 5'lo#0/#0 (o (&' R',u5l/) o8 (&' P&/l/,,/#'* 5u( (/(l'$ /# (&' #"2' o8 "#y ,ol/(/)"l *u5$/1/*/o# o- o8 "#y )o-,o-"(' "0'#)y o- /#*(-u2'#("l/(y , b! the e&ecutive head of the a5enc! or instru%entalit!. "E%phasis supplied#

In MIAA;s case, its status as a %ere trustee of the Airport 6ands and Buildin5s is clearer because even its e&ecutive head cannot si5n the deed of conve!ance on behalf of the Republic. nl! the President of the Republic can si5n such deed of conve!ance..1 $. T-"#*8'- (o MIAA ."* M'"#( (o I2,l'2'#( " R'o-0"#/6"(/o# 3he MIAA Charter, +hich is a la+, transferred to MIAA the title to the Airport 6ands and Buildin5s fro% the Bureau of Air 3ransportation of the Depart%ent of 3ransportation and Co%%unications. 3he MIAA Charter provides<
SEC3I N *. Creation of the Manila International Airport Authority . H & & & & T&' l"#$ .&'-' (&' A/-,o-( /* ,-'*'#(ly lo)"('$ "* .'ll "* (&' *u--ou#$/#0 l"#$ "-'" o8 ",,-o+/2"('ly */+ &u#$-'$ &')("-'*, "-' &'-'5y (-"#*8'--'$, )o#1'y'$ "#$ "**/0#'$ (o (&' o.#'-*&/, "#$ "$2/#/*(-"(/o# o8 (&' Au(&o-/(y, *u5;')( (o '+/*(/#0 -/0&(*, /8 "#y. 3he Bureau of 6ands and other appropriate 5overn%ent a5encies shall underta,e an actual surve! of the area transferred +ithin one !ear fro% the pro%ul5ation of this E&ecutive rder and the correspondin5 title to be issued in the na%e of the Authorit!. A#y ,o-(/o# (&'-'o8 *&"ll #o( 5' $/*,o*'$ (&-ou0& *"l' o- (&-ou0& "#y o(&'- 2o$' u#l'** *,')/8/)"lly ",,-o1'$ 5y (&' P-'*/$'#( o8 (&' P&/l/,,/#'*. "E%phasis supplied# SEC3I N ... "ransfer of Existing acilities and Intangi)le Assets. H All e&istin5 ,u5l/) "/-,o-( 8")/l/(/'*, -u#."y*, l"#$*, 5u/l$/#0* "#$ o(&'- ,-o,'-(y, %ovable or i%%ovable, belon5in5 to the Airport, and all assets, po+ers, ri5hts, interests and privile5es 5'lo#0/#0 (o (&' 9u-'"u o8 A/- T-"#*,o-("(/o# relatin5 to airport +or,s or air operations, includin5 all e$uip%ent +hich are necessar! for the operation of crash fire and rescue facilities, are hereb! transferred to the Authorit!. "E%phasis supplied# SEC3I N .8. A)olition of the Manila International Airport as a Division in the %ureau of Air "ransportation and "ransitory Provisions . H 3he Manila International Airport includin5 the Manila Do%estic Airport as a division under the Bureau of Air 3ransportation is hereb! abolished. & & & &.

3he MIAA Charter transferred the Airport 6ands and Buildin5s to MIAA +ithout the Republic receivin5 cash, pro%issor! notes or even stoc, since MIAA is not a stoc, corporation. 3he +hereas clauses of the MIAA Charter e&plain the rationale for the transfer of the Airport 6ands and Buildin5s to MIAA, thus<
IDEREAS, the Manila International Airport as the principal airport of the Philippines for both international and do%estic air traffic, is re$uired to provide standards of airport acco%%odation and service co%parable +ith the best airports in the +orldG IDEREAS, do%estic and other ter%inals, 5eneral aviation and other facilities, have to be up5raded to %eet the current and future air traffic and other de%ands of aviation in Metro ManilaG IDEREAS, a %ana5e%ent and or5aniFation stud! has indicated that (&' o5;')(/1'* o8 ,-o1/$/#0 &/0& *("#$"-$* o8 "))o22o$"(/o# "#$ *'-1/)' ./(&/# (&' )o#('+( o8 " 8/#"#)/"lly 1/"5l' o,'-"(/o#, ./ll 5'*( 5' ")&/'1'$ 5y " *',"-"(' "#$ "u(o#o2ou* 5o$yG and IDEREAS, under Presidential Decree No. /7/4, as a%ended b! Presidential Decree No. /99., the President of the Philippines is 5iven continuin5 authorit! (o -'o-0"#/6' (&' N"(/o#"l Go1'-#2'#(, .&/)& "u(&o-/(y /#)lu$'* (&' )-'"(/o# o8 #'. '#(/(/'*, "0'#)/'* "#$ /#*(-u2'#("l/(/'* o8 (&' Go1'-#2'#(K.L "E%phasis supplied#

3he transfer of the Airport 6ands and Buildin5s fro% the Bureau of Air 3ransportation to MIAA +as not %eant to transfer beneficial o+nership of these assets fro% the Republic to MIAA. 3he purpose +as %erel! to -'o-0"#/6' " $/1/*/o# /# (&' 9u-'"u o8 A/- T-"#*,o-("(/o# /#(o " *',"-"(' "#$ "u(o#o2ou* 5o$y. 3he Republic re%ains the beneficial o+ner of the Airport 6ands and Buildin5s. MIAA itself is o+ned solel! b! the Republic. No part! clai%s an! o+nership ri5hts over MIAA;s assets adverse to the Republic. 3he MIAA Charter e&pressl! provides that the Airport 6ands and Buildin5s -*&"ll #o( 5' $/*,o*'$ (&-ou0& *"l' o- (&-ou0& "#y o(&'- 2o$' u#l'** *,')/8/)"lly ",,-o1'$ 5y (&' P-'*/$'#( o8 (&' P&/l/,,/#'*.- 3his onl! %eans that the Republic retained the beneficial o+nership of the Airport 6ands and Buildin5s because under Article 7.1 of the Civil Code, onl! the -o+ner has the ri5ht to & & & dispose of a thin5.- Since MIAA cannot dispose of the Airport 6ands and Buildin5s, MIAA does not o+n the Airport 6ands and Buildin5s. At an! ti%e, the President can transfer bac, to the Republic title to the Airport 6ands and Buildin5s +ithout the Republic pa!in5 MIAA an! consideration. ?nder Section * of the MIAA Charter, the President is the onl! one +ho can authoriFe the sale or disposition of the Airport 6ands and Buildin5s. 3his onl! confir%s that the Airport 6ands and Buildin5s belon5 to the Republic. '. R'"l P-o,'-(y O.#'$ 5y (&' R',u5l/) /* No( T"+"5l' Section .*7"a# of the 6ocal :overn%ent Code e&e%pts fro% real estate ta& an! -KrLeal propert! o+ned b! the Republic of the Philippines.- Section .*7"a# provides<

SEC. .*7. Exe#ptions fro# Real Property "ax. H T&' 8ollo./#0 "-' '+'2,('$ 8-o2 ,"y2'#( o8 (&' -'"l ,-o,'-(y ("+< "a# R'"l ,-o,'-(y o.#'$ 5y (&' R',u5l/) o8 (&' P&/l/,,/#'* o- "#y o8 /(* ,ol/(/)"l *u5$/1/*/o#* '+)',( .&'# (&' 5'#'8/)/"l u*' (&'-'o8 &"* 5''# 0-"#('$, 8o)o#*/$'-"(/o# o- o(&'-./*', (o " ("+"5l' ,'-*o#G & & &. "E%phasis supplied#

3his e&e%ption should be read in relation +ith Section /**"o# of the sa%e Code, +hich prohibits local 5overn%ents fro% i%posin5 -KtLa&es, fees or char5es of an! ,ind on the National :overn%ent, its a5encies and/#*(-u2'#("l/(/'* & & &.- 3he real properties o+ned b! the Republic are titled either in the na%e of the Republic itself or in the na%e of a5encies or instru%entalities of the National :overn%ent. 3he Ad%inistrative Code allo+s real propert! o+ned b! the Republic to be titled in the na%e of a5encies or instru%entalities of the national 5overn%ent. Such real properties re%ain o+ned b! the Republic and continue to be e&e%pt fro% real estate ta&. 3he Republic %a! 5rant the beneficial use of its real propert! to an a5enc! or instru%entalit! of the national 5overn%ent. 3his happens +hen title of the real propert! is transferred to an a5enc! or instru%entalit! even as the Republic re%ains the o+ner of the real propert!. Such arran5e%ent does not result in the loss of the ta& e&e%ption. Section .*7"a# of the 6ocal :overn%ent Code states that real propert! o+ned b! the Republic loses its ta& e&e%ption onl! if the -beneficial use thereof has been 5ranted, for consideration or other+ise, to a ("+"5l' ,'-*o#.- MIAA, as a 5overn%ent instru%entalit!, is not a ta&able person under Section /**"o# of the 6ocal :overn%ent Code. 3hus, even if +e assu%e that the Republic has 5ranted to MIAA the beneficial use of the Airport 6ands and Buildin5s, such fact does not %a,e these real properties subCect to real estate ta&. Do+ever, portions of the Airport 6ands and Buildin5s that MIAA leases to private entities are not e&e%pt fro% real estate ta&. 2or e&a%ple, the land area occupied b! han5ars that MIAA leases to private corporations is subCect to real estate ta&. In such a case, MIAA has 5ranted the beneficial use of such land area for a consideration to a("+"5l' ,'-*o# and therefore such land area is subCect to real estate ta&. In "ung Center of the Philippines v. #ue$on City, the Court ruled<
Accordin5l!, +e hold that the portions of the land leased to private entities as +ell as those parts of the hospital leased to private individuals are not e&e%pt fro% such ta&es. n the other hand, the portions of the land occupied b! the hospital and portions of the hospital used for its patients, +hether pa!in5 or non@pa!in5, are e&e%pt fro% real propert! ta&es. .(

<. R'8u("(/o# o8 A-0u2'#(* o8 M/#o-/(y 3he %inorit! asserts that the MIAA is not e&e%pt fro% real estate ta& because Section /(* of the 6ocal :overn%ent Code of /((/ +ithdre+ the ta& e&e%ption of -"ll ,'-*o#*, .&'(&'#"(u-"l o- ;u-/$/)"l- upon the effectivit! of the Code. Section /(* provides<
SEC. /(*. -ithdra$al of "ax Exe#ption Privileges J U#l'** o(&'-./*' ,-o1/$'$ /# (&/* Co$', ta& e&e%ptions or incentives 5ranted to, or ,-'*'#(ly '#;oy'$ 5y "ll ,'-*o#*, .&'(&'- #"(u-"l o- ;u-/$/)"l, includin5 5overn%ent@o+ned or controlled corporations,

e&cept local +ater districts, cooperatives dul! re5istered under R.A. No. 4(*1, non@stoc, and non@profit hospitals and educational institutions are hereb! +ithdra+n upon effectivit! of this Code. "E%phasis supplied#

3he %inorit! states that MIAA is indisputabl! a ;u-/$/)"l ,'-*o#. 3he %inorit! ar5ues that since the 6ocal :overn%ent Code +ithdre+ the ta& e&e%ption of "ll ;u-/$/)"l ,'-*o#*, then MIAA is not e&e%pt fro% real estate ta&. 3hus, the %inorit! declares<
I( /* '1/$'#( 8-o2 (&' =uo('$ ,-o1/*/o#* o8 (&' Lo)"l Go1'-#2'#( Co$' (&"( (&' ./(&$-".# '+'2,(/o#* 8-o2 -'"l(y ("+ )o1'- #o( ;u*( GOCC*, 5u( "ll ,'-*o#* . 3o repeat, the provisions la! do+n the e&plicit proposition that the +ithdra+al of realt! ta& e&e%ption applies to all persons. 3he reference to or the inclusion of : CCs is onl! clarificator! or illustrative of the e&plicit provision. T&' ('-2 :All ,'-*o#*: '#)o2,"**'* (&' (.o )l"**'* o8 ,'-*o#* -')o0#/6'$ u#$'ou- l".*, #"(u-"l "#$ ;u-/$/)"l ,'-*o#*. O51/ou*ly, MIAA /* #o( " #"(u-"l ,'-*o#. T&u*, (&' $'('-2/#"(/1' ('*( /* #o( ;u*( .&'(&'- MIAA /* " GOCC, 5u( .&'(&'- MIAA /* " ;u-/$/)"l ,'-*o# "( "ll. "E%phasis and underscorin5 in the ori5inal#

3he %inorit! posits that the -deter%inative test- +hether MIAA is e&e%pt fro% local ta&ation is its status H +hether MIAA is a Curidical person or not. 3he %inorit! also insists that -Sections /(* and .*7 %a! be e&a%ined in isolation fro% Section /**"o# to ascertain MIAA;s clai% of e&e%ption.3he ar5u%ent of the %inorit! is fatall! fla+ed. Section /(* of the 6ocal :overn%ent Code e&pressl! +ithdre+ the ta& e&e%ption of all Curidical persons ->u?#l'** o(&'-./*' ,-o1/$'$ /# (&/* Co$'.- No+, Section /**"o# of the 6ocal :overn%ent Code '+,-'**ly ,-o1/$'* o(&'-./*', specificall! ,-o&/5/(/#0 local 5overn%ents fro% i%posin5 an! ,ind of ta& on national 5overn%ent instru%entalities. Section /**"o# states<
SEC. /**. Co##on 'i#itations on the "axing Po$ers of 'ocal !overn#ent (nits . J ?nless other+ise provided herein, the e&ercise of the ta&in5 po+ers of provinces, cities, %unicipalities, and baran5a!s shall not e&tend to the lev! of the follo+in5< &&&& "o# 3a&es, fees or char5es of an! ,inds on the National :overn%ent, its a5encies and instru%entalities, and local 5overn%ent units. "E%phasis and underscorin5 supplied#

B! e&press %andate of the 6ocal :overn%ent Code, local 5overn%ents cannot i%pose an! ,ind of ta& on national 5overn%ent instru%entalities li,e the MIAA. 6ocal 5overn%ents are devoid of po+er to ta& the national 5overn%ent, its a5encies and instru%entalities. 3he ta&in5 po+ers of local 5overn%ents do not e&tend to the national 5overn%ent, its a5encies and instru%entalities, -KuLnless other+ise provided in this Code- as stated in the savin5 clause of Section /**. 3he savin5 clause refers to Section .*7"a# on the e&ception to the e&e%ption fro% real estate ta& of real propert! o+ned b! the Republic. 3he %inorit!, ho+ever, theoriFes that unless e&e%pted in Section /(* itself, all Curidical persons are subCect to ta& b! local 5overn%ents. 3he %inorit! insists that the Curidical persons e&e%pt

fro% local ta&ation are li%ited to the three classes of entities specificall! enu%erated as e&e%pt in Section /(*. 3hus, the %inorit! states<
& & & ?nder Section /(*, the e&e%ption is li%ited to "a# local +ater districtsG "b# cooperatives dul! re5istered under Republic Act No. 4(*1G and "c# non@stoc, and non@profit hospitals and educational institutions. It +ould be belaborin5 the obvious +h! the MIAA does not fall +ithin an! of the e&e%pt entities under Section /(*. "E%phasis supplied#

3he %inorit!;s theor! directl! contradicts and co%pletel! ne5ates Section /**"o# of the 6ocal :overn%ent Code. 3his theor! +ill result in 5ross absurdities. It +ill %a,e the national 5overn%ent, +hich itself is a Curidical person, subCect to ta& b! local 5overn%ents since the national 5overn%ent is not included in the enu%eration of e&e%pt entities in Section /(*. ?nder this theor!, local 5overn%ents can i%pose an! ,ind of local ta&, and not onl! real estate ta&, on the national 5overn%ent. ?nder the %inorit!;s theor!, %an! national 5overn%ent instru%entalities +ith Curidical personalities +ill also be subCect to an! ,ind of local ta&, and not onl! real estate ta&. So%e of the national 5overn%ent instru%entalities vested b! la+ +ith Curidical personalities are< Ban5,o Sentral n5 Pilipinas,*) Philippine Rice Research Institute,*/6a5una 6a,e Develop%ent Authorit!,*. 2isheries Develop%ent Authorit!,** Bases Conversion Develop%ent Authorit!,*7Philippine Ports Authorit!,*8 Ca5a!an de ro Port Authorit!,*4 San 2ernando Port Authorit!,*9 Cebu Port Authorit!,*1 and Philippine National Rail+a!s.*( 3he %inorit!;s theor! violates Section /**"o# of the 6ocal :overn%ent Code +hich e&pressl! prohibits local 5overn%ents fro% i%posin5 an! ,ind of ta& on national 5overn%ent instru%entalities. Section /**"o# does not distin5uish bet+een national 5overn%ent instru%entalities +ith or +ithout Curidical personalities. Ihere the la+ does not distin5uish, courts should not distin5uish. 3hus, Section /**"o# applies to all national 5overn%ent instru%entalities, +ith or +ithout Curidical personalities. 3he deter%inative test +hether MIAA is e&e%pt fro% local ta&ation is not +hether MIAA is a Curidical person, but +hether it is a national 5overn%ent instru%entalit! under Section /**"o# of the 6ocal :overn%ent Code. Section /**"o# is the specific provision of la+ prohibitin5 local 5overn%ents fro% i%posin5 an! ,ind of ta& on the national 5overn%ent, its a5encies and instru%entalities. Section /** of the 6ocal :overn%ent Code starts +ith the savin5 clause -KuLnless other+ise provided in this Code.- 3his %eans that unless the 6ocal :overn%ent Code 5rants an e&press authoriFation, local 5overn%ents have no po+er to ta& the national 5overn%ent, its a5encies and instru%entalities. Clearl!, the rule is local 5overn%ents have no po+er to ta& the national 5overn%ent, its a5encies and instru%entalities. As an e&ception to this rule, local 5overn%ents %a! ta& the national 5overn%ent, its a5encies and instru%entalities onl! if the 6ocal :overn%ent Code e&pressl! so provides. 3he savin5 clause in Section /** refers to the e&ception to the e&e%ption in Section .*7"a# of the Code, +hich %a,es the national 5overn%ent subCect to real estate ta& +hen it 5ives the beneficial use of its real properties to a ta&able entit!. Section .*7"a# of the 6ocal :overn%ent Code provides<
SEC. .*7. E&e%ptions fro% Real Propert! 3a& J 3he follo+in5 are e&e%pted fro% pa!%ent of the real propert! ta&<

"a# Real propert! o+ned b! the Republic of the Philippines or an! of its political subdivisions e&cept +hen the beneficial use thereof has been 5ranted, for consideration or other+ise, to a ta&able person. & & &. "E%phasis supplied#

?nder Section .*7"a#, real propert! o+ned b! the Republic is e&e%pt fro% real estate ta&. 3he e&ception to this e&e%ption is +hen the 5overn%ent 5ives the beneficial use of the real propert! to a ta&able entit!. 3he e&ception to the e&e%ption in Section .*7"a# is the onl! instance +hen the national 5overn%ent, its a5encies and instru%entalities are subCect to an! ,ind of ta& b! local 5overn%ents. 3he e&ception to the e&e%ption applies onl! to real estate ta& and not to an! other ta&. 3he Custification for the e&ception to the e&e%ption is that the real propert!, althou5h o+ned b! the Republic, is not devoted to public use or public service but devoted to the private 5ain of a ta&able person. 3he %inorit! also ar5ues that since Section /** precedes Section /(* and .*7 of the 6ocal :overn%ent Code, the later provisions prevail over Section /**. 3hus, the %inorit! asserts<
& & & Moreover, se$uentiall! Section /** antecedes Section /(* and .*7. 2ollo+in5 an accepted rule of construction, in case of conflict the subse$uent provisions should prevail. 3herefore, MIAA, as a Curidical person, is subCect to real propert! ta&es, the 5eneral e&e%ptions attachin5 to instru%entalities under Section /**"o# of the 6ocal :overn%ent Code bein5 $ualified b! Sections /(* and .*7 of the sa%e la+. "E%phasis supplied#

3he %inorit! assu%es that there is an irreconcilable conflict bet+een Section /** on one hand, and Sections /(* and .*7 on the other. No one has ur5ed that there is such a conflict, %uch less has an! one presenteda persuasive ar5u%ent that there is such a conflict. 3he %inorit!;s assu%ption of an irreconcilable conflict in the statutor! provisions is an e5re5ious error for t+o reasons. 2irst, there is no conflict +hatsoever bet+een Sections /** and /(* because Section /(* e&pressl! ad%its its subordination to other provisions of the Code +hen Section /(* states -KuLnless other+ise provided in this Code.- B! its o+n +ords, Section /(* ad%its the superiorit! of other provisions of the 6ocal :overn%ent Code that li%it the e&ercise of the ta&in5 po+er in Section /(*. Ihen a provision of la+ 5rants a po+er but +ithholds such po+er on certain %atters, there is no conflict bet+een the 5rant of po+er and the +ithholdin5 of po+er. 3he 5rantee of the po+er si%pl! cannot e&ercise the po+er on %atters +ithheld fro% its po+er. Second, Section /** is entitled -Co%%on 6i%itations on the 3a&in5 Po+ers of 6ocal :overn%ent ?nits.- Section /** li%its the 5rant to local 5overn%ents of the po+er to ta&, and not %erel! the e&ercise of a dele5ated po+er to ta&. Section /** states that the ta&in5 po+ers of local 5overn%ents -shall not e&tend to the lev!- of an! ,ind of ta& on the national 5overn%ent, its a5encies and instru%entalities. 3here is no clearer li%itation on the ta&in5 po+er than this. Since Section /** prescribes the -co%%on li%itations- on the ta&in5 po+ers of local 5overn%ents, Section /** lo5icall! prevails over Section /(* +hich 5rants local 5overn%ents such ta&in5 po+ers. B! their ver! %eanin5 and purpose, the -co%%on li%itations- on the ta&in5

po+er prevail over the 5rant or e&ercise of the ta&in5 po+er. If the ta&in5 po+er of local 5overn%ents in Section /(* prevails over the li%itations on such ta&in5 po+er in Section /**, then local 5overn%ents can i%pose an! ,ind of ta& on the national 5overn%ent, its a5encies and instru%entalities H a 5ross absurdit!. 6ocal 5overn%ents have no po+er to ta& the national 5overn%ent, its a5encies and instru%entalities, e&cept as other+ise provided in the 6ocal :overn%ent Code pursuant to the savin5 clause in Section /** statin5 -KuLnless other+ise provided in this Code.- 3his e&ception H +hich is an e&ception to the e&e%ption of the Republic fro% real estate ta& i%posed b! local 5overn%ents H refers to Section .*7"a# of the Code. 3he e&ception to the e&e%ption in Section .*7"a# subCects real propert! o+ned b! the Republic, +hether titled in the na%e of the national 5overn%ent, its a5encies or instru%entalities, to real estate ta& if the beneficial use of such propert! is 5iven to a ta&able entit!. 3he %inorit! also clai%s that the definition in the Ad%inistrative Code of the phrase -5overn%ent@o+ned or controlled corporation- is not controllin5. 3he %inorit! points out that Section . of the Introductor! Provisions of the Ad%inistrative Code ad%its that its definitions are not controllin5 +hen it provides<
SEC. .. :eneral 3er%s Defined. H ?nless the specific +ords of the te&t, or the conte&t as a +hole, or a particular statute, shall re$uire a different %eanin5< &&&&

3he %inorit! then concludes that reliance on the Ad%inistrative Code definition is -fla+ed.3he %inorit!;s ar5u%ent is a non se$uitur. 3rue, Section . of the Ad%inistrative Code reco5niFes that a statute %a! re$uire a different %eanin5 than that defined in the Ad%inistrative Code. Do+ever, this does not auto%aticall! %ean that the definition in the Ad%inistrative Code does not appl! to the 6ocal :overn%ent Code. Section . of the Ad%inistrative Code clearl! states that -unless the specific +ords & & & of a particular statute shall re$uire a different %eanin5,- the definition in Section . of the Ad%inistrative Code shall appl!. 3hus, unless there is specific lan5ua5e in the 6ocal :overn%ent Code definin5 the phrase -5overn%ent@o+ned or controlled corporation- differentl! fro% the definition in the Ad%inistrative Code, the definition in the Ad%inistrative Code prevails. 3he %inorit! does not point to an! provision in the 6ocal :overn%ent Code definin5 the phrase -5overn%ent@o+ned or controlled corporation- differentl! fro% the definition in the Ad%inistrative Code. Indeed, there is none. 3he 6ocal :overn%ent Code is silent on the definition of the phrase -5overn%ent@o+ned or controlled corporation.- 3he Ad%inistrative Code, ho+ever, e&pressl! defines the phrase -5overn%ent@o+ned or controlled corporation.- 3he inescapable conclusion is that the Ad%inistrative Code definition of the phrase -5overn%ent@o+ned or controlled corporation- applies to the 6ocal :overn%ent Code. 3he third +hereas clause of the Ad%inistrative Code states that the Code -incorporates in a unified docu%ent the %aCor structural, functional and procedural principles and rules of 5overnance.- 3hus, the Ad%inistrative Code is the 5overnin5 la+ definin5 the status and relationship of 5overn%ent depart%ents, bureaus, offices, a5encies and instru%entalities. ?nless a statute e&pressl! provides for a different status and relationship for a specific 5overn%ent unit or entit!, the provisions of the Ad%inistrative Code prevail.

3he %inorit! also contends that the phrase -5overn%ent@o+ned or controlled corporationshould appl! onl! to corporations or5aniFed under the Corporation Code, the 5eneral incorporation la+, and not to corporations created b! special charters. 3he %inorit! sees no reason +h! 5overn%ent corporations +ith special charters should have a capital stoc,. 3hus, the %inorit! declares<
I sub%it that the definition of -5overn%ent@o+ned or controlled corporations- under the Ad%inistrative Code refer to those corporations o+ned b! the 5overn%ent or its instru%entalities +hich are created not b! le5islative enact%ent, but for%ed and or5aniFed under the Corporation Code throu5h re5istration +ith the Securities and E&chan5e Co%%ission. In short, these are : CCs +ithout ori5inal charters. &&&& It %i5ht as +ell be +orth pointin5 out that there is no point in re$uirin5 a capital structure for : CCs +hose full o+nership is li%ited b! its charter to the State or Republic. Such : CCs are not e%po+ered to declare dividends or alienate their capital shares.

3he contention of the %inorit! is seriousl! fla+ed. It is not in accord +ith the Constitution and e&istin5 le5islations. It +ill also result in 5ross absurdities. 2irst, the Ad%inistrative Code definition of the phrase -5overn%ent@o+ned or controlled corporation- does not distin5uish bet+een one incorporated under the Corporation Code or under a special charter. Ihere the la+ does not distin5uish, courts should not distin5uish. Second, Con5ress has created throu5h special charters several 5overn%ent@o+ned corporations or5aniFed as stoc, corporations. Pri%e e&a%ples are the 6and Ban, of the Philippines and the Develop%ent Ban, of the Philippines. 3he special charter7) of the 6and Ban, of the Philippines provides<
SEC3I N 1/. Capital. H 3he authoriFed capital stoc, of the Ban, shall be nine billion pesos, divided into seven hundred and ei5ht! %illion co%%on shares +ith a par value of ten pesos each, +hich shall be full! subscribed b! the :overn%ent, and one hundred and t+ent! %illion preferred shares +ith a par value of ten pesos each, +hich shall be issued in accordance +ith the provisions of Sections sevent!@seven and ei5ht!@three of this Code. "E%phasis supplied#

6i,e+ise, the special charter7/ of the Develop%ent Ban, of the Philippines provides<
SEC3I N 9. AuthoriFed Capital Stoc, J Par value. H 3he capital stoc, of the Ban, shall be 2ive Billion Pesos to be divided into 2ift! Million co%%on shares +ith par value of P/)) per share. 3hese shares are available for subscription b! the National :overn%ent. ?pon the effectivit! of this Charter, the National :overn%ent shall subscribe to 3+ent!@2ive Million co%%on shares of stoc, +orth 3+o Billion 2ive Dundred Million +hich shall be dee%ed paid for b! the :overn%ent +ith the net asset values of the Ban, re%ainin5 after the transfer of assets and liabilities as provided in Section *) hereof. "E%phasis supplied#

ther 5overn%ent@o+ned corporations or5aniFed as stoc, corporations under their special charters are the Philippine Crop Insurance Corporation,7. Philippine International 3radin5 Corporation,7* and the Philippine National Ban,77 before it +as reor5aniFed as a stoc, corporation under the Corporation Code. All these 5overn%ent@o+ned corporations or5aniFed

under special charters as stoc, corporations are subCect to real estate ta& on real properties o+ned b! the%. 3o rule that the! are not 5overn%ent@o+ned or controlled corporations because the! are not re5istered +ith the Securities and E&chan5e Co%%ission +ould re%ove the% fro% the reach of Section .*7 of the 6ocal :overn%ent Code, thus e&e%ptin5 the% fro% real estate ta&. 3hird, the 5overn%ent@o+ned or controlled corporations created throu5h special charters are those that %eet the t+o conditions prescribed in Section /4, Article =II of the Constitution. 3he first condition is that the 5overn%ent@o+ned or controlled corporation %ust be established for the co%%on 5ood. 3he second condition is that the 5overn%ent@o+ned or controlled corporation %ust %eet the test of econo%ic viabilit!. Section /4, Article =II of the /(19 Constitution provides<
SEC. /4. 3he Con5ress shall not, e&cept b! 5eneral la+, provide for the for%ation, or5aniFation, or re5ulation of private corporations. :overn%ent@o+ned or controlled corporations %a! be created or established b! special charters in the interest of the co%%on 5ood and subCect to the test of econo%ic viabilit!. "E%phasis and underscorin5 supplied#

3he Constitution e&pressl! authoriFes the le5islature to create -5overn%ent@o+ned or controlled corporations- throu5h special charters onl! if these entities are re$uired to %eet the t+in conditions of co%%on 5ood and econo%ic viabilit!. In other +ords, Con5ress has no po+er to create 5overn%ent@o+ned or controlled corporations +ith special charters unless the! are %ade to co%pl! +ith the t+o conditions of co%%on 5ood and econo%ic viabilit!. 3he test of econo%ic viabilit! applies onl! to 5overn%ent@o+ned or controlled corporations that perfor% econo%ic or co%%ercial activities and need to co%pete in the %ar,et place. Bein5 essentiall! econo%ic vehicles of the State for the co%%on 5ood H %eanin5 for econo%ic develop%ent purposes H these 5overn%ent@o+ned or controlled corporations +ith special charters are usuall! or5aniFed as stoc, corporations Cust li,e ordinar! private corporations. In contrast, 5overn%ent instru%entalities vested +ith corporate po+ers and perfor%in5 5overn%ental or public functions need not %eet the test of econo%ic viabilit!. 3hese instru%entalities perfor% essential public services for the co%%on 5ood, services that ever! %odern State %ust provide its citiFens. 3hese instru%entalities need not be econo%icall! viable since the 5overn%ent %a! even subsidiFe their entire operations. 3hese instru%entalities are not the -5overn%ent@o+ned or controlled corporations- referred to in Section /4, Article =II of the /(19 Constitution. 3hus, the Constitution i%poses no li%itation +hen the le5islature creates 5overn%ent instru%entalities vested +ith corporate po+ers but perfor%in5 essential 5overn%ental or public functions. Con5ress has plenar! authorit! to create 5overn%ent instru%entalities vested +ith corporate po+ers provided these instru%entalities perfor% essential 5overn%ent functions or public services. Do+ever, +hen the le5islature creates throu5h special charters corporations that perfor% econo%ic or co%%ercial activities, such entities H ,no+n as -5overn%ent@o+ned or controlled corporations- H %ust %eet the test of econo%ic viabilit! because the! co%pete in the %ar,et place. 3his is the situation of the 6and Ban, of the Philippines and the Develop%ent Ban, of the Philippines and si%ilar 5overn%ent@o+ned or controlled corporations, +hich derive their inco%e to %eet operatin5 e&penses solel! fro% co%%ercial transactions in co%petition +ith the private sector. 3he intent of the Constitution is to prevent the creation of 5overn%ent@o+ned or

controlled corporations that cannot survive on their o+n in the %ar,et place and thus %erel! drain the public coffers. Co%%issioner Blas 2. ple, proponent of the test of econo%ic viabilit!, e&plained to the Constitutional Co%%ission the purpose of this test, as follo+s<
MR. P6E< Mada% President, the reason for this concern is reall! that +hen the 5overn%ent creates a corporation, there is a sense in +hich this corporation beco%es e&e%pt fro% the test of econo%ic perfor%ance. Ie ,no+ +hat happened in the past. If a 5overn%ent corporation loses, then it %a,es its clai% upon the ta&pa!ers; %one! throu5h ne+ e$uit! infusions fro% the 5overn%ent and +hat is al+a!s invo,ed is the co%%on 5ood. 3hat is the reason +h! this !ear, out of a bud5et of P//8 billion for the entire 5overn%ent, about P.1 billion of this +ill 5o into e$uit! infusions to support a fe+ 5overn%ent financial institutions. And this is all ta&pa!ers; %one! +hich could have been relocated to a5rarian refor%, to social services li,e health and education, to au5%ent the salaries of 5rossl! underpaid public e%plo!ees. And !et this is all 5oin5 do+n the drain. 3herefore, +hen +e insert the phrase -EC N MIC EIABI6I3>- to5ether +ith the -co%%on 5ood,- this beco%es a restraint on future enthusiasts for state capitalis% to e&cuse the%selves fro% the responsibilit! of %eetin5 the %ar,et test so that the! beco%e viable. And so, Mada% President, I reiterate, for the co%%ittee;s consideration and I a% 5lad that I a% Coined in this proposal b! Co%%issioner 2oF, the insertion of the standard of -EC N MIC EIABI6I3> R 3DE EC N MIC 3ES3,- to5ether +ith the co%%on 5ood. 78

2ather 0oa$uin :. Bernas, a leadin5 %e%ber of the Constitutional Co%%ission, e&plains in his te&tboo, 3he /(19 Constitution of the Republic of the Philippines< A Co%%entar!<
3he second sentence +as added b! the /(14 Constitutional Co%%ission. 3he si5nificant addition, ho+ever, is the phrase -in the interest of the co%%on 5ood and subCect to the test of econo%ic viabilit!.- 3he addition includes the ideas that the! %ust sho+ capacit! to function efficientl! in business and that the! should not 5o into activities +hich the private sector can do better. Moreover, econo%ic viabilit! is %ore than financial viabilit! but also includes capabilit! to %a,e profit and 5enerate benefits not $uantifiable in financial ter%s.74 "E%phasis supplied#

Clearl!, the test of econo%ic viabilit! does not appl! to 5overn%ent entities vested +ith corporate po+ers and perfor%in5 essential public services. 3he State is obli5ated to render essential public services re5ardless of the econo%ic viabilit! of providin5 such service. 3he non@ econo%ic viabilit! of renderin5 such essential public service does not e&cuse the State fro% +ithholdin5 such essential services fro% the public. Do+ever, 5overn%ent@o+ned or controlled corporations +ith special charters, or5aniFed essentiall! for econo%ic or co%%ercial obCectives, %ust %eet the test of econo%ic viabilit!. 3hese are the 5overn%ent@o+ned or controlled corporations that are usuall! or5aniFed under their special charters as stoc, corporations, li,e the 6and Ban, of the Philippines and the Develop%ent Ban, of the Philippines. 3hese are the 5overn%ent@o+ned or controlled corporations, alon5 +ith 5overn%ent@o+ned or controlled corporations or5aniFed under the Corporation Code, that fall under the definition of -5overn%ent@o+ned or controlled corporations- in Section ."/)# of the Ad%inistrative Code.

3he MIAA need not %eet the test of econo%ic viabilit! because the le5islature did not create MIAA to co%pete in the %ar,et place. MIAA does not co%pete in the %ar,et place because there is no co%petin5 international airport operated b! the private sector. MIAA perfor%s an essential public service as the pri%ar! do%estic and international airport of the Philippines. 3he operation of an international airport re$uires the presence of personnel fro% the follo+in5 5overn%ent a5encies<
/. 3he Bureau of I%%i5ration and Deportation, to docu%ent the arrival and departure of passen5ers, screenin5 out those +ithout visas or travel docu%ents, or those +ith hold departure ordersG .. 3he Bureau of Custo%s, to collect i%port duties or enforce the ban on prohibited i%portationsG *. 3he $uarantine office of the Depart%ent of Dealth, to enforce health %easures a5ainst the spread of infectious diseases into the countr!G 7. 3he Depart%ent of A5riculture, to enforce %easures a5ainst the spread of plant and ani%al diseases into the countr!G 8. 3he Aviation Securit! Co%%and of the Philippine National Police, to prevent the entr! of terrorists and the escape of cri%inals, as +ell as to secure the airport pre%ises fro% terrorist attac, or seiFureG 4. 3he Air 3raffic ffice of the Depart%ent of 3ransportation and Co%%unications, to authoriFe aircraft to enter or leave Philippine airspace, as +ell as to land on, or ta,e off fro%, the airportG and 9. 3he MIAA, to provide the proper pre%ises H such as run+a! and buildin5s H for the 5overn%ent personnel, passen5ers, and airlines, and to %ana5e the airport operations.

All these a5encies of 5overn%ent perfor% 5overn%ent functions essential to the operation of an international airport. MIAA perfor%s an essential public service that ever! %odern State %ust provide its citiFens. MIAA derives its revenues principall! fro% the %andator! fees and char5es MIAA i%poses on passen5ers and airlines. 3he ter%inal fees that MIAA char5es ever! passen5er are re5ulator! or ad%inistrative fees79 and not inco%e fro% co%%ercial transactions. MIAA falls under the definition of a 5overn%ent instru%entalit! under Section ."/)# of the Introductor! Provisions of the Ad%inistrative Code, +hich provides<
SEC. .. :eneral 3er%s Defined. J & & & & "/)# Instru%entalit! refers to an! a5enc! of the National :overn%ent, not inte5rated +ithin the depart%ent fra%e+or,, vested +ith special functions or Curisdiction b! la+, endo+ed +ith so%e if not all corporate po+ers, ad%inisterin5 special funds, and enCo!in5 operational autono%!, usuall! throu5h a charter. & & & "E%phasis supplied#

3he fact alone that MIAA is endo+ed +ith corporate po+ers does not %a,e MIAA a 5overn%ent@o+ned or controlled corporation. Iithout a chan5e in its capital structure, MIAA re%ains a 5overn%ent instru%entalit! under Section ."/)# of the Introductor! Provisions of the Ad%inistrative Code. More i%portantl!, as lon5 as MIAA renders essential public services, it need not co%pl! +ith the test of econo%ic viabilit!. 3hus, MIAA is outside the scope of the phrase -5overn%ent@o+ned or controlled corporations- under Section /4, Article =II of the /(19 Constitution. 3he %inorit! belittles the use in the 6ocal :overn%ent Code of the phrase -5overn%ent@o+ned or controlled corporation- as %erel! -clarificator! or illustrative.- 3his is fatal. 3he /(19 Constitution prescribes e&plicit conditions for the creation of -5overn%ent@o+ned or controlled corporations.- 3he Ad%inistrative Code defines +hat constitutes a -5overn%ent@o+ned or controlled corporation.- 3o belittle this phrase as -clarificator! or illustrative- is 5rave error. 3o su%%ariFe, MIAA is not a 5overn%ent@o+ned or controlled corporation under Section ."/*# of the Introductor! Provisions of the Ad%inistrative Code because it is not or5aniFed as a stoc, or non@stoc, corporation. Neither is MIAA a 5overn%ent@o+ned or controlled corporation under Section /4, Article =II of the /(19 Constitution because MIAA is not re$uired to %eet the test of econo%ic viabilit!. MIAA is a 5overn%ent instru%entalit! vested +ith corporate po+ers and perfor%in5 essential public services pursuant to Section ."/)# of the Introductor! Provisions of the Ad%inistrative Code. As a 5overn%ent instru%entalit!, MIAA is not subCect to an! ,ind of ta& b! local 5overn%ents under Section /**"o# of the 6ocal :overn%ent Code. 3he e&ception to the e&e%ption in Section .*7"a# does not appl! to MIAA because MIAA is not a ta&able entit! under the 6ocal :overn%ent Code. Such e&ception applies onl! if the beneficial use of real propert! o+ned b! the Republic is 5iven to a ta&able entit!. 2inall!, the Airport 6ands and Buildin5s of MIAA are properties devoted to public use and thus are properties of public do%inion. Properties of public do%inion are o+ned b! the State or the Republic. Article 7.) of the Civil Code provides<
Art. 7.). 3he follo+in5 thin5s are propert! of public do%inion< "/# 3hose intended for public use, such as roads, canals, rivers, torrents, ports and brid5es constructed b! the State, ban,s, shores, roadsteads, and others of si%ilar characterG ".# 3hose +hich belon5 to the State, +ithout bein5 for public use, and are intended for so%e public service or for the develop%ent of the national +ealth. "E%phasis supplied#

3he ter% -ports & & & constructed b! the State- includes airports and seaports. 3he Airport 6ands and Buildin5s of MIAA are intended for public use, and at the ver! least intended for public service. Ihether intended for public use or public service, the Airport 6ands and Buildin5s are properties of public do%inion. As properties of public do%inion, the Airport 6ands and Buildin5s are o+ned b! the Republic and thus e&e%pt fro% real estate ta& under Section .*7"a# of the 6ocal :overn%ent Code. 7. Conclusion ?nder Section ."/)# and "/*# of the Introductor! Provisions of the Ad%inistrative Code, +hich 5overns the le5al relation and status of 5overn%ent units, a5encies and offices +ithin the entire 5overn%ent %achiner!, MIAA is a 5overn%ent instru%entalit! and not a 5overn%ent@o+ned or

controlled corporation. ?nder Section /**"o# of the 6ocal :overn%ent Code, MIAA as a 5overn%ent instru%entalit! is not a ta&able person because it is not subCect to -KtLa&es, fees or char5es of an! ,ind- b! local 5overn%ents. 3he onl! e&ception is +hen MIAA leases its real propert! to a -ta&able person- as provided in Section .*7"a# of the 6ocal :overn%ent Code, in +hich case the specific real propert! leased beco%es subCect to real estate ta&. 3hus, onl! portions of the Airport 6ands and Buildin5s leased to ta&able persons li,e private parties are subCect to real estate ta& b! the Cit! of Para'a$ue. ?nder Article 7.) of the Civil Code, the Airport 6ands and Buildin5s of MIAA, bein5 devoted to public use, are properties of public do%inion and thus o+ned b! the State or the Republic of the Philippines. Article 7.) specificall! %entions -ports & & & constructed b! the State,- +hich includes public airports and seaports, as properties of public do%inion and o+ned b! the Republic. As properties of public do%inion o+ned b! the Republic, there is no doubt +hatsoever that the Airport 6ands and Buildin5s are e&pressl! e&e%pt fro% real estate ta& under Section .*7"a# of the 6ocal :overn%ent Code. 3his Court has also repeatedl! ruled that properties of public do%inion are not subCect to e&ecution or foreclosure sale. @HEREFORE, +e GRANT the petition. Ie SET ASI!E the assailed Resolutions of the Court of Appeals of 8 ctober .))/ and .9 Septe%ber .)). in CA@:.R. SP No. 44191. Ie !ECLARE the Airport 6ands and Buildin5s of the Manila International Airport Authorit! EAEMPT fro% the real estate ta& i%posed b! the Cit! of Para'a$ue. Ie declare BOI! all the real estate ta& assess%ents, includin5 the final notices of real estate ta& delin$uencies, issued b! the Cit! of Para'a$ue on the Airport 6ands and Buildin5s of the Manila International Airport Authorit!, e&cept for the portions that the Manila International Airport Authorit! has leased to private parties. Ie also declare BOI! the assailed auction sale, and all its effects, of the Airport 6ands and Buildin5s of the Manila International Airport Authorit!. No costs. SO OR!ERE!. Pangani)an* C./.* Puno* 0uisu#)ing* 1nares-Santiago* Sandoval-!utierre,* Austria-Martine,* Corona* Carpio Morales* Calle2o* Sr.* A,cuna* "inga* Chico-3a,ario* !arcia* 4elasco* /r.* /./.* concur.

Republic of the Philippines SUPREME COURT Manila 3DIRD DIEISI N

G.R. No. 5C16C !')'25'- 1D, 1DCD CONCEPCION MAGSAYSAY3LA9RA!OR, SOLE!A! MAGSAYSAY3CA9RERA, LUISA MAGSAYSAY3CORPUE, "**/*('$ 5' &'- &u*5"#$, !-. Jo*' Co-,u6, FELICI!A! P. MAGSAYSAY, "#$ MERCE!ES MAGSAYSAY3!IAE, petitioners, vs.

THE COURT OF APPEALS "#$ A!ELAI!A RO!RIGUEE3MAGSAYSAY, S,')/"l A$2/#/*(-"(-/+ o8 (&' E*("(' o8 (&' l"(' G'#"-o F. M"0*"y*"y respondents.

FERNAN, C.J.%

In this petition for revie+ on certiorari, petitioners see, to reverse and set aside K/L the decision of the Court of Appeals dated 0ul! l*, /(1/, 1 affir%in5 that of the Court of 2irst Instance of Oa%bales and lon5apo Cit! +hich denied petitioners; %otion to intervene in an annul%ent suit filed b! herein private respondent, and K.L its resolution dated Septe%ber 9, /(1/, den!in5 their %otion for reconsideration.
Petitioners are raisin5 a purel! le5al $uestionG +hether or not respondent Court of Appeals correctl! denied their %otion for intervention. 3he facts are not controverted. n 2ebruar! (, /(9(, Adelaida Rodri5ueF@Ma5sa!sa!, +ido+ and special ad%inistrati& of the estate of the late Senator :enaro Ma5sa!sa!, brou5ht before the then Court of 2irst Instance of lon5apo an action a5ainst Arte%io Pan5aniban, Subic 6and Corporation "S?BIC#, 2ilipinas Manufacturer;s Ban, "2I6MANBANP# and the Re5ister of Deeds of Oa%bales. In her co%plaint, she alle5ed that in /(81, she and her husband ac$uired, thru conCu5al funds, a parcel of land +ith i%prove%ents, ,no+n as -Pe$uena Island-, covered b! 3C3 No. *.81G that after the death of her husband, she discovered KaL an annotation at the bac, of 3C3 No. *.81 that -the land +as ac$uired b! her husband fro% his separate capitalG- KbL the re5istration of a Deed of Assi5n%ent dated 0une .8, /(94 purportedl! e&ecuted b! the late Senator in favor of S?BIC, as a result of +hich 3C3 No. *.81 +as cancelled and 3C3 No. ..7*/ issued in the na%e of S?BICG and KcL the re5istration of Deed of Mort5a5e dated April .1, /(99 in the a%ount of P .,9)),))).)) e&ecuted b! S?BIC in favor of 2I6MANBANPG that the fore5oin5 acts +ere void and done in an atte%pt to defraud the conCu5al partnership considerin5 that the land is conCu5al, her %arital consent to the annotation on 3C3 No. *.81 +as not obtained, the chan5e %ade b! the Re5ister of Deeds of the titleholders +as effected +ithout the approval of the Co%%issioner of 6and Re5istration and that the late Senator did not e&ecute the purported Deed of Assi5n%ent or his consent thereto, if obtained, +as secured b! %ista,e, violence and inti%idation. She further alle5ed that the assi5n%ent in favor of S?BIC +as +ithout consideration and conse$uentl! null and void. She pra!ed that the Deed of Assi5n%ent and the Deed of Mort5a5e be annulled and that the Re5ister of Deeds be ordered to cancel 3C3 No. ..7*/ and to issue a ne+ title in her favor. n March 9, /(9(, herein petitioners, sisters of the late senator, filed a %otion for intervention on the 5round that on 0une .), /(91, their brother conve!ed to the% one@half "/Q. # of his shareholdin5s in S?BIC or a total of 7/4,844.4 shares and as assi5nees of around 7/ M of the total outstandin5 shares of such stoc,s of S?BIC, the! have a substantial and le5al interest in the subCect %atter of liti5ation and that the! have a le5al interest in the success of the suit +ith respect to S?BIC. n 0ul! .4, /(9(, the court denied the %otion for intervention, and ruled that petitioners have no le5al interest +hatsoever in the %atter in liti5ation and their bein5 alle5ed assi5nees or transferees of certain shares in S?BIC cannot le5all! entitle the% to intervene because S?BIC has a personalit! separate and distinct fro% its stoc,holders.

n appeal, respondent Court of Appeals found no factual or le5al Custification to disturb the findin5s of the lo+er court. 3he appellate court further stated that +hatever clai%s the petitioners have a5ainst the late Senator or a5ainst S?BIC for that %atter can be ventilated in a separate proceedin5, such that +ith the denial of the %otion for intervention, the! are not left +ithout an! re%ed! or Cudicial relief under e&istin5 la+. Petitioners; %otion for reconsideration +as denied. Dence, the instant recourse.

Petitioners anchor their ri5ht to intervene on the purported assi5n%ent %ade b! the late Senator of a certain portion of his shareholdin5s to the% as evidenced b! a Deed of Sale dated 0une .), /(91. 2 Such transfer, petitioners posit, clothes the% +ith an interest, protected b! la+, in the %atter of liti5ation. Invo,in5 the principle enunciated in the case of PNB v. Phil. Ee5. il Co., 7( Phil. 189,14. R 18* "/(.9#, <petitioners stron5l! ar5ue that their o+nership of 7/.44M of the entire outstandin5 capital stoc, of S?BIC entitles the% to a si5nificant vote in the corporate affairsG that the! are affected b! the action of the +ido+ of their late brother for it concerns the onl! tan5ible asset of the corporation and that it appears that the! are %ore vitall! interested in the outco%e of the case than S?BIC. Eie+ed in the li5ht of Section ., Rule /. of the Revised Rules of Court, this Court affir%s the respondent court;s holdin5 that petitioners herein have no le5al interest in the subCect %atter in liti5ation so as to entitle the% to intervene in the proceedin5s belo+. In the case of Bata%a 2ar%ers; Cooperative Mar,etin5 Association, Inc. v. Rosal, F +e held< -As clearl! stated in Section . of Rule /. of the Rules of Court, to be per%itted to intervene in a pendin5 action, the part! %ust have a le5al interest in the %atter in liti5ation, or in the success of either of the parties or an interest a5ainst both, or he %ust be so situated as to be adversel! affected b! a distribution or other disposition of the propert! in the custod! of the court or an officer thereof .3o allo+ intervention, KaL it %ust be sho+n that the %ovant has le5al interest in the %atter in liti5ation, or other+ise $ualifiedG and KbL consideration %ust be 5iven as to +hether the adCudication of the ri5hts of the ori5inal parties %a! be dela!ed or preCudiced, or +hether the intervenor;s ri5hts %a! be protected in a separate proceedin5 or not. Both re$uire%ents %ust concur as the first is not %ore i%portant than the second. 5 3he interest +hich entitles a person to intervene in a suit bet+een other parties %ust be in the %atter in liti5ation and of such direct and i%%ediate character that the intervenor +ill either 5ain or lose b! the direct le5al operation and effect of the Cud5%ent. ther+ise, if persons not parties of the action could be allo+ed to intervene, proceedin5s +ill beco%e unnecessaril! co%plicated, e&pensive and inter%inable. And this is not the polic! of the la+. 6 3he +ords -an interest in the subCect- %ean a direct interest in the cause of action as pleaded, and +hich +ould put the intervenor in a le5al position to liti5ate a fact alle5ed in the co%plaint, +ithout the establish%ent of +hich plaintiff could not recover. G
Dere, the interest, if it e&ists at all, of petitioners@%ovants is indirect, contin5ent, re%ote, conCectural, conse$uential and collateral. At the ver! least, their interest is purel! inchoate, or in sheer e&pectanc! of a ri5ht in the %ana5e%ent of the corporation and to share in the profits thereof and in the properties and assets thereof on dissolution, after pa!%ent of the corporate debts and obli5ations.

Ihile a share of stoc, represents a proportionate or ali$uot interest in the propert! of the corporation, it does not vest the o+ner thereof +ith an! le5al ri5ht or title to an! of the propert!, his interest in the corporate propert! bein5 e$uitable or beneficial in nature. Shareholders are in no le5al sense the o+ners of corporate propert!, +hich is o+ned b! the corporation as a distinct le5al person. C
Petitioners further contend that the availabilit! of other re%edies, as declared b! the Court of appeals, is totall! i%%aterial to the availabilit! of the re%ed! of intervention.

Ie cannot 5ive credit to such aver%ent. As earlier stated, that the %ovant;s interest %a! be protected in a separate proceedin5 is a factor to be considered in allo+in5 or disallo+in5 a %otion for intervention. It is si5nificant to note at this Cuncture that as per records, there are four pendin5 cases involvin5 the parties herein, enu%erated as follo+s< K/L Special Proceedin5s No. /../.. before the C2I of Manila, Branch ==II, entitled -Concepcion Ma5sa!sa!@6abrador, et al. v. Subic 6and Corp., et al.-, involvin5 the validit! of the transfer b! the late :enaro Ma5sa!sa! of one@half of his shareholdin5s in Subic 6and CorporationG K.L Civil Case No. .899@) before the C2I of Oa%bales, Branch III, -Adelaida Rodri5ueF@Ma5sa!sa! v. Pan5aniban, etc.G Concepcion 6abrador, et al. Intervenors-, see,in5 to annul the purported Deed of Assi5n%ent in favor of S?BIC and its annotation at the bac, of 3C3 No. *.81 in the na%e of respondent;s deceased husbandG K*L SEC Case No. ))/99), filed b! respondent pra!in5, a%on5 other thin5s that she be declared in her capacit! as the survivin5 spouse and ad%inistratri& of the estate of :enaro Ma5sa!sa! as the sole subscriber and stoc,holder of S?BIC. 3here, petitioners, b! %otion, sou5ht to intervene. 3heir %otion to reconsider the denial of their %otion to intervene +as 5rantedG K7L SP No. S@.49*( before the C2I of RiFal, Branch IE, petitioners herein filin5 a contin5ent clai% pursuant to Section 8, Rule 14, Revised Rules of Court. D Petitioners; interests are no doubt a%pl! protected in these cases. Neither do +e lend credence to petitioners; ar5u%ent that the! are %ore interested in the outco%e of the case than the corporation@assi5nee, o+in5 to the fact that the latter is +illin5 to co%pro%ise +ith +ido+@respondent and since a co%pro%ise involves the 5ivin5 of reciprocal concessions, the onl! conceivable concession the corporation %a! 5ive is a total or partial relin$uish%ent of the corporate assets. 10
Such clai% all the %ore bolsters the contin5ent nature of petitioners; interest in the subCect of liti5ation.

3he factual findin5s of the trial court are clear on this point. 3he petitioners cannot clai% the ri5ht to intervene on the stren5th of the transfer of shares alle5edl! e&ecuted b! the late Senator. 3he corporation did not ,eep boo,s and records. 11 Perforce, no transfer +as ever recorded, %uch less effected as to preCudice third parties. 3he transfer %ust be re5istered in the boo,s of the corporation to affect third persons. 3he la+ on corporations is e&plicit. Section 4* of the Corporation Code provides, thus< -No transfer, ho+ever, shall be valid, e&cept as bet+een the parties, until the transfer is recorded in the boo,s of the corporation sho+in5 the na%es of the parties to the transaction, the date of the transfer, the nu%ber of the certificate or certificates and the nu%ber of shares transferred.And even assu%in5 ar5uendo that there +as a valid transfer, petitioners are nonetheless barred fro% intervenin5 inas%uch as their ri5hts can be ventilated and a%pl! protected in another proceedin5.

IDERE2 RE, the instant petition is hereb! DENIED. Costs a5ainst petitioners. S RDERED.

!utierre,* /r.* %idin and Corte5s* //.* concur. eliciano* /.* is on leave.

Republic of the Philippines SUPREME COURT Manila SEC ND DIEISI N

G.R. No. L3<1061 Au0u*( 1G, 1DG6 SULO NG 9AYAN INC., plaintiff@appellant, vs. GREGORIO ARANETA, INC., PARA!ISE FARMS, INC., NATIONAL @ATER@ORHS I SE@ERAGE AUTHORITY, HACIEN!A CARETAS, INC, "#$ REGISTER OF !EE!S OF 9ULACAN, defendants@appellees. 6ill 7 Associates 'a$ +ffices for appellant. Araneta* Mendo,a 7 Papa for appellee !regorio Araneta* Inc. Carlos* Madarang* Car)allo 7 4alde, for Paradise ar#s* Inc. 'eopoldo M. A)ellera* Arsenio /. Magpale 7 Raul !. %ernardo* +ffice of the !overn#ent Corporate Counsel for appellee 3ational -ater$or&s 7 Se$erage Authority. Candido !. del Rosario for appellee 6acienda Caretas* Inc.

ANTONIO, J.%
3he issue posed in this appeal is +hether or not plaintiff corporation "non@ stoc, %a! institute an action in behalf of its individual %e%bers for the recover! of certain parcels of land alle5edl! o+ned b! said %e%bersG for the nullification of the transfer certificates of title issued in favor of defendants appellees coverin5 the aforesaid parcels of landG for a declaration of -plaintiff;s %e%bers as absolute o+ners of the propert!- and the issuance of the correspondin5 certificate of titleG and for da%a5es.

n April .4, /(44, plaintiff@appellant Sulo n5 Ba!an, Inc. filed an accion de revindicacion +ith the Court of 2irst Instance of Bulacan, 2ifth 0udicial District, EalenFuela, Bulacan, a5ainst defendants@appellees to recover the o+nership and possession of a lar5e tract of land in San 0ose del Monte, Bulacan, containin5 an area of .9,(1.,.8) s$uare %eters, %ore or less, re5istered under the 3orrens S!ste% in the na%e of defendants@appellees; predecessors@in@

interest. 1 3he co%plaint, as a%ended on 0une /*, /(44, specificall! alle5ed that plaintiff is a corporation or5aniFed and e&istin5 under the la+s of the Philippines, +ith its principal office and place of business at San 0ose del Monte, BulacanG that its %e%bership is co%posed of natural persons residin5 at San 0ose del Monte, BulacanG that the %e%bers of the plaintiff corporation, throu5h the%selves and their predecessors@in@interest, had pioneered in the clearin5 of the fore@ %entioned tract of land, cultivated the sa%e since the Spanish re5i%e and continuousl! possessed the said propert! openl! and public under concept of o+nership adverse a5ainst the +hole +orldG that defendant@appellee :re5orio Araneta, Inc., so%eti%e in the !ear /(81, throu5h force and inti%idation, eCected the %e%bers of the plaintiff corporation fro their possession of the afore%entioned vast tract of landG that upon investi5ation conducted b! the %e%bers and officers of plaintiff corporation, the! found out for the first ti%e in the !ear /(4/ that the land in $uestion -had been either fraudelentl! or erroneousl! included, b! direct or constructive fraud, in ri5inal Certificate of 3itle No. 744 of the 6and of Records of the province of Bulacan-, issued on Ma! //, /(/4, +hich title is fictitious, non@e&istent and devoid of le5al efficac! due to the fact that -no ori5inal surve! nor plan +hatsoever- appears to have been sub%itted as a basis thereof and that the Court of 2irst Instance of Bulacan +hich issued the decree of re5istration did not ac$uire Curisdiction over the land re5istration case because no notice of such proceedin5 +as 5iven to the %e%bers of the plaintiff corporation +ho +ere then in actual possession of said propertiesG that as a conse$uence of the nullit! of the ori5inal title, all subse$uent titles derived therefro%, such as 3ransfer Certificate of 3itle No. 7()* issued in favor of :re5orio Araneta and Car%en Oara5oFa, +hich +as subse$uentl! cancelled b! 3ransfer Certificate of 3itle No. 989* in the na%e of :re5orio Araneta, Inc., 3ransfer Certificate of 3itle No. 7(11 issued in the na%e of, the National Iater+or,s R Se+era5e Authorit! "NISA#, 3ransfer Certificate of 3itle No. 7(14 issued in the na%e of Dacienda Caretas, Inc., and another transfer certificate of title in the na%e of Paradise 2ar%s, Inc., are therefore void. Plaintiff@appellant conse$uentl! pra!ed "/# that ri5inal Certificate of 3itle No. 744, as +ell as all transfer certificates of title issued and derived therefro%, be nullifiedG ".# that -plaintiff;s %e%bers- be declared as absolute o+ners in co%%on of said propert! and that the correspondin5 certificate of title be issued to plaintiffG and "*# that defendant@appellee :re5orio Araneta, Inc. be ordered to pa! to plaintiff the da%a5es therein specified.
n Septe%ber ., /(44, defendant@appellee :re5orio Araneta, Inc. filed a %otion to dis%iss the a%ended co%plaint on the 5rounds that "/# the co%plaint states no cause of actionG and ".# the cause of action, if an!, is barred b! prescription and laches. Paradise 2ar%s, Inc. and Dacienda Caretas, Inc. filed %otions to dis%iss based on the sa%e 5rounds. Appellee National Iater+or,s R Se+era5e Authorit! did not file an! %otion to dis%iss. Do+ever, it pleaded in its ans+er as special and affir%ative defenses lac, of cause of action b! the plaintiff@appellant and the barrin5 of such action b! prescription and laches. Durin5 the pendenc! of the %otion to dis%iss, plaintiff@appellant filed a %otion, dated ctober 9, /(44, pra!in5 that the case be transferred to another branch of the Court of 2irst Instance sittin5 at Malolos, Bulacan, Accordin5 to defendants@appellees, the! +ere not furnished a cop! of said %otion, hence, on ctober /7, /(44, the lo+er court issued an rder re$uirin5 plaintiff@appellant to furnish the appellees cop! of said %otion, hence, on ctober /7, /(44, defendant@appellant;s %otion dated ctober 9, /(44 and, conse$uentl!, pra!ed that the said %otion be denied for lac, of notice and for failure of the plaintiff@appellant to co%pl! +ith the rder of ctober /7, /(44. Si%ilarl!, defendant@ appellee paradise 2ar%s, Inc. filed, on Dece%ber ., /(44, a %anifestation infor%ation the court that it also did not receive a cop! of the afore@%entioned of appellant. n 0anuar! .7, /(49, the trial court issued an rder dis%issin5 the a%ended co%plaint.

n 2ebruar! /7, /(49, appellant filed a %otion to reconsider the rder of dis%issal on the 5rounds that the court had no Curisdiction to issue the rder of dis%issal, because its re$uest for the transfer of the case fro% the EalenFuela Branch of the Court of 2irst Instance to the Malolos Branch of the said court has been approved b! the Depart%ent of 0usticeG that the co%plaint states a sufficient cause of action because the subCect %atter of the controvers! in one of co%%on interest to the %e%bers of the corporation +ho are so nu%erous that the present co%plaint should be treated as a class suitG and that the action is not barred b! the statute of li%itations because "a# an action for the reconve!ance of propert! re5istered throu5h fraud does not prescribe, and "b# an action to i%pu5n a void Cud5%ent %a! be brou5ht an! ti%e. 3his %otion +as denied b! the trial court in its rder dated 2ebruar! .., /(49. 2ro% the afore@%entioned rder of dis%issal and the rder den!in5 its %otion for reconsideration, plaintiff@appellant appealed to the Court of Appeals. n Septe%ber *, /(4(, the Court of Appeals, upon findin5 that no $uestion of fact +as involved in the appeal but onl! $uestions of la+ and Curisdiction, certified this case to this Court for resolution of the le5al issues involved in the controvers!. I Appellant contends, as a first assi5n%ent of error, that the trial court acted +ithout authorit! and Curisdiction in dis%issin5 the a%ended co%plaint +hen the Secretar! of 0ustice had alread! approved the transfer of the case to an! one of the t+o branches of the Court of 2irst Instance of Malolos, Bulacan.

Appellant confuses the Curisdiction of a court and the venue of cases +ith the assi5n%ent of cases in the different branches of the sa%e Court of 2irst Instance. 0urisdiction i%plies the po+er of the court to decide a case, +hile venue the place of action. 3here is no $uestion that respondent court has Curisdiction over the case. 3he venue of actions in the Court of 2irst Instance is prescribed in Section ., Rule 7 of the Revised Rules of Court. 3he la!in5 of venue is not left to the caprice of plaintiff, but %ust be in accordance +ith the aforesaid provision of the rules. 2 3he %ere fact that a re$uest for the transfer of a case to another branch of the sa%e court has been approved b! the Secretar! of 0ustice does not divest the court ori5inall! ta,in5 co5niFance thereof of its Curisdiction, %uch less does it chan5e the venue of the action. As correctl! observed b! the trial court, the indorse%ent of the ?ndersecretar! of 0ustice did not order the transfer of the case to the Malolos Branch of the Bulacan Court of 2irst Instance, but onl! -authoriFed- it for the reason 5iven b! plaintiff;s counsel that the transfer +ould be convenient for the parties. 3he trial court is not +ithout po+er to either 5rant or den! the %otion, especiall! in the li5ht of a stron5 opposition thereto filed b! the defendant. Ie hold that the court a quo acted +ithin its authorit! in den!in5 the %otion for the transfer the case to Malolos not+ithstandin5 the authoriFation- of the sa%e b! the Secretar! of 0ustice.
II 6et us no+ consider the substantive aspect of the rder of dis%issal.

In dis%issin5 the a%ended co%plaint, the court a quo said<

3he issue of lac, of cause of action raised in the %otions to dis%iss refer to the lac, of personalit! of plaintiff to file the instant action. Essentiall!, the ter% ;cause of action; is co%posed of t+o ele%ents< "/# the ri5ht of the plaintiff and ".# the violation of such ri5ht b! the defendant. "Moran, Eol. /, p. ///#. 2or these reasons, the rules re$uire that ever! action %ust be prosecuted and defended in the na%e of the real part! in interest and that

all persons havin5 an interest in the subCect of the action and in obtainin5 the relief de%anded shall be Coined as plaintiffs "Sec. ., Rule *#. In the a%ended co%plaint, the people +hose ri5hts +ere alle5ed to have been violated b! bein5 deprived and dispossessed of their land are the %e%bers of the corporation and not the corporation itself. 3he corporation has a separate. and distinct personalit! fro% its %e%bers, and this is not a %ere technicalit! but a %atter of substantive la+. 3here is no alle5ation that the %e%bers have assi5ned their ri5hts to the corporation or an! sho+in5 that the corporation has in an! +a! or %anner succeeded to such ri5hts. 3he corporation evidentl! did not have an! ri5hts violated b! the defendants for +hich it could see, redress. Even if the Court should find a5ainst the defendants, therefore, the plaintiff corporation +ould not be entitled to the reliefs pra!ed for, +hich are recoveries of o+nership and possession of the land, issuance of the correspondin5 title in its na%e, and pa!%ent of da%a5es. Neither can such reliefs be a+arded to the %e%bers alle5edl! deprived of their land, since the! are not parties to the suit. It appearin5 clearl! that the action has not been filed in the na%es of the real parties in interest, the co%plaint %ust be dis%issed on the 5round of lac, of cause of action. <

Eie+ed in the li5ht of e&istin5 la+ and Curisprudence, Ie find that the trial court correctl! dis%issed the a%ended co%plaint.

It is a doctrine +ell@established and obtains both at la+ and in e$uit! that a corporation is a distinct le5al entit! to be considered as separate and apart fro% the individual stoc,holders or %e%bers +ho co%pose it, and is not affected b! the personal ri5hts, obli5ations and transactions of its stoc,holders or %e%bers. F 3he propert! of the corporation is its propert! and not that of the stoc,holders, as o+ners, althou5h the! have e$uities in it. Properties re5istered in the na%e of the corporation are o+ned b! it as an entit! separate and distinct fro% its %e%bers. 5 Conversel!, a corporation ordinaril! has no interest in the individual propert! of its stoc,holders unless transferred to the corporation, -even in the case of a one@%an corporation. 6 3he %ere fact that one is president of a corporation does not render the propert! +hich he o+ns or possesses the propert! of the corporation, since the president, as individual, and the corporation are separate si%ilarities. G Si%ilarl!, stoc,holders in a corporation en5a5ed in bu!in5 and dealin5 in real estate +hose certificates of stoc, entitled the holder thereof to an allot%ent in the distribution of the land of the corporation upon surrender of their stoc, certificates +ere considered not to have such le5al or e$uitable title or interest in the land, as +ould support a suit for title, especiall! a5ainst parties other than the corporation. C It %ust be noted, ho+ever, that the Curidical personalit! of the corporation, as separate and distinct fro% the persons co%posin5 it, is but a le5al fiction introduced for the purpose of convenience and to subserve the ends of Custice. D 3his separate personalit! of the corporation %a! be disre5arded, or the veil of corporate fiction pierced, in cases +here it is used as a cloa, or cover for fraud or ille5alit!, or to +or, @an inCustice, or +here necessar! to achieve e$uit!. 10 3hus, +hen -the notion of le5al entit! is used to defeat public convenience, Custif! +ron5, protect fraud, or defend cri%e, ... the la+ +ill re5ard the corporation as an association of persons, or in the case of t+o corporations, %er5e the% into one, the one bein5 %erel! re5arded as part or instru%entalit! of the other. 11 3he sa%e is true +here a corporation is a du%%! and serves no business purpose and is intended onl! as a blind, or an alter e5o or business conduit for the sole benefit of the stoc,holders. 12 3his doctrine of disre5ardin5 the distinct personalit! of the corporation has been applied b! the courts in those cases +hen the corporate entit! is used for the evasion of ta&es 1< or +hen the veil of corporate fiction is used to confuse le5iti%ate issue of e%plo!er@e%plo!ee relationship, 1F or +hen necessar! for the protection of creditors, in +hich case the veil of corporate fiction %a! be pierced and the funds of the corporation %a! be

5arnished to satisf! the debts of a principal stoc,holder. 15 3he aforecited principle is resorted to b! the courts as a %easure protection for third parties to prevent fraud, ille5alit! or inCustice. 16
It has not been clai%ed that the %e%bers have assi5ned or transferred +hatever ri5hts the! %a! have on the land in $uestion to the plaintiff corporation. Absent an! sho+in5 of interest, therefore, a corporation, li,e plaintiff@appellant herein, has no personalit! to brin5 an action for and in behalf of its stoc,holders or %e%bers for the purpose of recoverin5 propert! +hich belon5s to said stoc,holders or %e%bers in their personal capacities.

It is funda%ental that there cannot be a cause of action ;+ithout an antecedent pri%ar! le5al ri5ht conferred; b! la+ upon a person. 1G Evidentl!, there can be no +ron5 +ithout a correspondin5 ri5ht, and no breach of dut! b! one person +ithout a correspondin5 ri5ht belon5in5 to so%e other person. 1C 3hus, the essential ele%ents of a cause of action are le5al ri5ht of the plaintiff, correlative obli5ation of the defendant, an act or o%ission of the defendant in violation of the aforesaid le5al ri5ht. 1D Clearl!, no ri5ht of action e&ists in favor of plaintiff corporation, for as sho+n heretofore it does not have an! interest in the subCect %atter of the case +hich is %aterial and, direct so as to entitle it to file the suit as a real part! in interest.
III Appellant %aintains, ho+ever, that the a%ended co%plaint %a! be treated as a class suit, pursuant to Section /. of Rule * of the Revised Rules of Court.

In order that a class suit %a! prosper, the follo+in5 re$uisites %ust be present< "/# that the subCect %atter of the controvers! is one of co%%on or 5eneral interest to %an! personsG and ".# that the parties are so nu%erous that it is i%practicable to brin5 the% all before the court. 20 ?nder the first re$uisite, the person +ho sues %ust have an interest in the controvers!, co%%on +ith those for +ho% he sues, and there %ust be that unit! of interest bet+een hi% and all such other persons +hich +ould entitle the% to %aintain the action if suit +as brou5ht b! the% Cointl!. 21 As to +hat constitutes co%%on interest in the subCect %atter of the controvers!, it has been e&plained in Scott v. Donald 22 thus<
3he interest that +ill allo+ parties to Coin in a bill of co%plaint, or that +ill enable the court to dispense +ith the presence of all the parties, +hen nu%erous, e&cept a deter%inate nu%ber, is not onl! an interest in the $uestion, )ut one in co##on in the su)2ect Matter of the suit8 ... a co%%unit! of interest 5ro+in5 out of the nature and condition of the ri5ht in disputeG for, althou5h there %a! not be an! privit! bet+een the nu%erous parties, there is a co##on title out of +hich the $uestion arises, and +hich lies at the foundation of the proceedin5s ... KhereL the onl! %atter in co%%on a%on5 the plaintiffs, or bet+een the% and the defendants, is an interest in the Suestion involved +hich alone cannot la! a foundation for the Coinder of parties. 3here is scarcel! a suit at la+, or in e$uit! +hich settles a Principle or applies a principle to a 5iven state of facts, or in +hich a 5eneral statute is interpreted, that does not involved a Suestion in +hich other parties are interested. ... "E%phasis supplied #

Dere, there is onl! one part! plaintiff, and the plaintiff corporation does not even have an interest in the subCect %atter of the controvers!, and cannot, therefore, represent its %e%bers or

stoc,holders +ho clai% to o+n in their individual capacities o+nership of the said propert!. Moreover, as correctl! stated b! the appellees, a class suit does not lie in actions for the recover! of propert! +here several persons clai% Partnership of their respective portions of the propert!, as each one could alle5ed and prove his respective ri5ht in a different +a! for each portion of the land, so that the! cannot all be held to have Identical title throu5h ac$uisition prescription. 2<
Davin5 sho+n that no cause of action in favor of the plaintiff e&ists and that the action in the lo+er court cannot be considered as a class suit, it +ould be unnecessar! and an Idle e&ercise for this Court to resolve the re%ainin5 issue of +hether or not the plaintiffs action for reconve!ance of real propert! based upon constructive or i%plied trust had alread! prescribed. ACC RDIN:6>, the instant appeal is hereb! DISMISSED +ith costs a5ainst the plaintiff@appellant. ernando* C./.* %arredo* Aquino and Concepcion* /r.* //.* concur.

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. G5CC5 M"y 2G, 1DCG 9ATAAN SHIPYAR! I ENGINEERING CO., INC. J9ASECOK, petitioner, vs. PRESI!ENTIAL COMMISSION ON GOO! GOBERNMENT, CHAIRMAN JOBITO SALONGA, COMMISSIONER MARY CONCEPCION 9AUTISTA, COMMISSIONER RAMON !IAE, COMMISSIONER RAUL R. !AEA, COMMISSIONER UINTIN S. !OROMAL, CAPT. JORGE 9. SIACUNCO, '( "l.,respondents. Apostol* %ernas* !u#aru* +na and Associates for petitioner. 4icente !. Sison for intervenor A.". A)esa#is.

NARBASA, J.%
Challen5ed in this special civil action of certiorari and prohibition b! a private corporation ,no+n as the Bataan Ship!ard and En5ineerin5 Co., Inc. are< "/# E&ecutive rders Nu%bered / and ., pro%ul5ated b! President CoraFon C. A$uino on 2ebruar! .1, /(14 and March /., /(14, respectivel!, and ".# the se$uestration, ta,eover, and other orders issued, and acts done, in accordance +ith said e&ecutive orders b! the Presidential Co%%ission on :ood :overn%ent andQor its Co%%issioners and a5ents, affectin5 said corporation. /. "he Sequestration* "a&eover* and +ther +rders Co#plained of a. "he %asic Sequestration +rder

3he se$uestration order +hich, in the vie+ of the petitioner corporation, initiated all its %iser! +as issued on April /7, /(14 b! Co%%issioner Mar! Concepcion Bautista. It +as addressed to three of the a5ents of the Co%%ission, hereafter si%pl! referred to as PC::. It reads as follo+s< RE< SES?ES3RA3I N RDER

B! virtue of the po+ers vested in the Presidential Co%%ission on :ood :overn%ent, b! authorit! of the President of the Philippines, !ou are hereb! directed to se$uester the follo+in5 co%panies. /. Bataan Ship!ard and En5ineerin5 Co., Inc. "En5ineerin5 Island Ship!ard and Mariveles Ship!ard# .. Baseco Suarr! *. Philippine 0ai@Alai Corporation 7. 2idelit! Mana5e%ent Co., Inc. 8. Ro%son Realt!, Inc. 4. 3rident Mana5e%ent Co. 9. Ne+ 3rident Mana5e%ent 1. Ba! 3ransport (. And all affiliate co%panies of Alfredo -BeCo- Ro%ualdeF >ou are hereb! ordered< /. 3o i%ple%ent this se$uestration order +ith a %ini%u% disruption of these co%panies; business activities. .. 3o ensure the continuit! of these co%panies as 5oin5 concerns, the care and %aintenance of these assets until such ti%e that the ffice of the President throu5h the Co%%ission on :ood :overn%ent should decide other+ise. *. 3o report to the Co%%ission on :ood :overn%ent periodicall!.
2urther, !ou are authoriFed to re$uest for Militar!QSecurit! Support fro% the Militar!QPolice authorities, and such other acts essential to the achieve%ent of this se$uestration order. 1

b. +rder for Production of Docu#ents n the stren5th of the above se$uestration order, Mr. 0ose M. Balde, actin5 for the PC::, addressed a letter dated April /1, /(14 to the President and other officers of petitioner fir%, reiteratin5 an earlier re$uest for the production of certain docu%ents, to +it<

/. Stoc, 3ransfer Boo, .. 6e5al docu%ents, such as< ../. Articles of Incorporation .... B!@6a+s ..*. Minutes of the Annual Stoc,holders Meetin5 fro% /(9* to /(14 ..7. Minutes of the Re5ular and Special Meetin5s of the Board of Directors fro% /(9* to /(14 ..8. Minutes of the E&ecutive Co%%ittee Meetin5s fro% /(9* to /(14 ..4. E&istin5 contracts +ith suppliersQcontractorsQothers. *. >earl! list of stoc,holders +ith their correspondin5 shareQstoc,holdin5s fro% /(9* to /(14 dul! certified b! the Corporate Secretar!. 7. Audited 2inancial State%ents such as Balance Sheet, Profit R 6oss and others fro% /(9* to Dece%ber */, /(18. 8. Monthl! 2inancial State%ents for the current !ear up to March */, /(14. 4. Consolidated Cash Position Reports fro% 0anuar! to April /8, /(14. 9. Inventor! listin5s of assets up dated up to March */, /(14. 1. ?pdated schedule of Accounts Receivable and Accounts Pa!able. (. Co%plete list of depositor! ban,s for all funds +ith the authoriFed si5natories for +ithdra+als thereof.
/). Schedule of co%pan! invest%ents and place%ents.
2

3he letter closed +ith the +arnin5 that if the docu%ents +ere not sub%itted +ithin five da!s, the officers +ould be cited for -conte%pt in pursuance +ith Presidential E&ecutive rder Nos. / and ..c. +rders Re Engineer Island "/# "er#ination of Contract for Security Services

A third order assailed b! petitioner corporation, hereafter referred to si%pl! as BASEC , is that issued on April ./, /(14 b! a Capt. 2lordelino B. Oabala, a %e%ber of the tas, force assi5ned to carr! out the basic se$uestration order. De sent a letter to BASEC ;s Eice@President for 2inance, < ter%inatin5 the contract for securit! services +ithin the En5ineer Island co%pound bet+een BASEC and -Anchor and 2AIRIA>S- and -other civilian securit! a5encies,CAPC M %ilitar! personnel havin5 alread! been assi5ned to the area,

".# Change of Mode of Pay#ent of Entry Charges

n 0ul! /8, /(14, the sa%e Capt. Oabala issued a Me%orandu% addressed to -3ruc, +ners and Contractors,- particularl! a -Mr. Budd! ndivilla National Marine Corporation,- advisin5 of the a%end%ent in part of their contracts +ith BASEC in the sense that the stipulated char5es for use of the BASEC road net+or, +ere %ade pa!able -upon entr! and not an!%ore subCect to %onthl! billin5 as +as ori5inall! a5reed upon.- F
d. A)orted Contract for I#prove#ent of -harf at Engineer Island

n 0ul! (, /(14, a PC:: fiscal a5ent, S. Beren5uer, entered into a contract in behalf of BASEC +ith Delta%arine Inte5rated Port Services, Inc., in virtue of +hich the latter undertoo, to introduce i%prove%ents costin5 appro&i%atel! P./),))).)) on the BASEC +harf at En5ineer Island, alle5edl! then in poor condition, avo+edl! to -opti%iFe its utiliFation and in return %a&i%iFe the revenue +hich +ould flo+ into the 5overn%ent coffers,- in consideration of Delta%arine;s bein5 5ranted -priorit! in usin5 the i%proved portion of the +harf ahead of an!bod!- and e&e%ption -fro% the pa!%ent of an! char5es for the use of +harf includin5 the area +here it %a! install its ba55in5 e$uip%ents- -until the i%prove%ent re%ains in a condition suitable for port operations.- 5 It see%s ho+ever that this contract +as never consu%%ated. Capt. 0or5e B. Siacunco, -Dead@ "PC::# BASEC Mana5e%ent 3ea%,- advised Delta%arine b! letter dated 0ul! *), /(14 that -the ne+ %ana5e%ent is not in a position to honor the said contract- and thus -+hatever i%prove%ents A A "%a! be introduced# shall be dee%ed unauthoriFed A A and shall be at A A "Delta%arine;s# o+n ris,.- 6
e. +rder for +peration of Sesi#an Roc& 0uarry* Mariveles* %ataan

B! rder dated 0une .), /(14, Co%%issioner Mar! Bautista first directed a PC:: a5ent, Ma!or Melba . Buenaventura, -to plan and i%ple%ent pro5ress to+ards %a&i%iFin5 the continuous operation of the BASEC Sesi%an Roc, Suarr! A A b! conventional %ethodsG- but after+ards, Co%%issioner Bautista, in representation of the PC::, authoriFed another part!, A.3. Abesa%is, to operate the $uarr!, located at Mariveles, Bataan, an a5ree%ent to this effect havin5 been e&ecuted b! the% on Septe%ber /9, /(14. G
f. +rder to Dispose of Scrap* etc.

B! another rder of Co%%issioner Bautista, this ti%e dated 0une .4, /(14, Ma!or Buenaventura +as also -authoriFed to clean and beautif! the Co%pan!;s co%pound,- and in this connection, to dispose of or sell -%etal scraps- and other %aterials, e$uip%ent and %achineries no lon5er usable, subCect to specified 5uidelines and safe5uards includin5 audit and verification. C
5. "he "A9E+4ER +rder

B! letter dated 0ul! /7, /(14, Co%%issioner Ra%on A. DiaF decreed the provisional ta,eover b! the PC:: of BASEC , -the Philippine Doc,!ard Corporation and all their affiliated co%panies.- D DiaF invo,ed the provisions of Section * "c# of E&ecutive rder No. /, e%po+erin5 the Co%%ission H
A A 3o provisionall! ta,eover in the public interest or to prevent its disposal or dissipation, business enterprises and properties ta,en over b! the 5overn%ent of the

Marcos Ad%inistration or b! entities or persons close to for%er President Marcos, until the transactions leadin5 to such ac$uisition b! the latter can be disposed of b! the appropriate authorities. A %ana5e%ent tea% +as desi5nated to i%ple%ent the order, headed b! Capt. Siacunco, and +as 5iven the follo+in5 po+ers< /. Conducts all aspects of operation of the subCect co%paniesG .. Installs ,e! officers, hires and ter%inates personnel as necessar!G *. Enters into contracts related to %ana5e%ent and operation of the co%paniesG 7. Ensures that the assets of the co%panies are not dissipated and used effectivel! and efficientl!G revenues are dul! accounted forG and disburses funds onl! as %a! be necessar!G 8. Does actions includin5 a%on5 others, see,in5 of %ilitar! support as %a! be necessar!, that +ill ensure co%pliance to this orderG 4. Dolds itself full! accountable to the Presidential Co%%ission on :ood :overn%ent on all aspects related to this ta,e@over order. h. "er#ination of Services of %ASEC+ +fficers

3hereafter, Capt. Siacunco, sent letters to Dilario M. RuiF, Manuel S. MendoFa, Moises M. EaldeF, :ilberto Pasi%anero, and Benito R. Cuesta I, advisin5 of the ter%ination of their services b! the PC::. 10
.. Petitioner5s Plea and Postulates It is the fore5oin5 specific orders and acts of the PC:: and its %e%bers and a5ents +hich, to repeat, petitioner BASEC +ould have this Court nullif!. More particularl!, BASEC pra!s that this Court@ /# declare unconstitutional and void E&ecutive rders Nu%bered / and .G

.# annul the se$uestration order dated April@ /7, /(14, and all other orders subse$uentl! issued and acts done on the basis thereof, inclusive of the ta,eover order of 0ul! /7, /(14 and the ter%ination of the services of the BASEC e&ecutives. 11
a. Re Executive +rders 3o. : and ;* and the Sequestration and "a&eover +rders

Ihile BASEC concedes that <sequestration $ithout resorting to 2udicial action* #ight )e #ade $ithin the context of Executive +rders 3os. : and ; )efore March ;=* :>?@ +hen the 2reedo% Constitution +as pro%ul5ated, under the principle that the la+ pro%ul5ated b! the ruler under a revolutionar! re5i%e is the la+ of the land, it ceased to )e accepta)le +hen the sa%e ruler opted to pro%ul5ate the 2reedo% Constitution on March .8, /(14 +herein under Section I of the sa%e, Article IE "Bill of Ri5hts# of the /(9* Constitution +as adopted providin5, a%on5

others, that -No person shall be deprived of life, libert! and propert! +ithout due process of la+.- "Const., Art. I E, Sec. /#.- 12 It declares that its obCection to the constitutionalit! of the E&ecutive rders -as +ell as the Se$uestration rder A A and 3a,eover rder A A issued purportedl! under the authorit! of said E&ecutive rders, rests on four funda%ental considerations< irst* no notice and hearin5 +as accorded A A "it# before its properties and business +ere ta,en overG Second* the PC:: is not a court, but a purel! investi5ative a5enc! and therefore not co%petent to act as prosecutor and Cud5e in the sa%e causeG "hird* there is nothin5 in the issuances +hich envisions an! proceedin5, process or re%ed! b! +hich petitioner %a! e&peditiousl! challen5e the validit! of the ta,eover after the sa%e has been effectedG and ourthly* bein5 directed a5ainst specified persons, and in disre5ard of the constitutional presu%ption of innocence and 5eneral rules and procedures, the! constitute a Bill of Attainder.- 1<
b. Re +rder to Produce Docu#ents

It ar5ues that the order to produce corporate records fro% /(9* to /(14, +hich it has apparentl! alread! co%plied +ith, +as issued +ithout court authorit! and infrin5ed its constitutional ri5ht a5ainst self@incri%ination, and unreasonable search and seiFure. 1F
c. Re PC!!5s Exercise of Right of +$nership and Manage#ent BASEC further contends that the PC:: had undul! interfered +ith its ri5ht of do%inion and %ana5e%ent of its business affairs b! H

/# ter%inatin5 its contract for securit! services +ith 2air+a!s R Anchor, +ithout the consent and a5ainst the +ill of the contractin5 partiesG and a%endin5 the %ode of pa!%ent of entr! fees stipulated in its 6ease Contract +ith National Stevedorin5 R 6i5htera5e Corporation, these acts bein5 in violation of the non@i%pair%ent clause of the constitutionG 15 .# allo+in5 PC:: A5ent Silverio Beren5uer to enter into an -ano%alous contract- +ith Delta%arine Inte5rated Port Services, Inc., 5ivin5 the latter free use of BASEC pre%isesG

16

*# authoriFin5 PC:: A5ent, Ma!or Melba Buenaventura, to %ana5e and operate its roc, $uarr! at Sesi%an, MarivelesG 1G 7# authoriFin5 the sa%e %a!or to sell or dispose of its %etal scrap, e$uip%ent, %achiner! and other %aterialsG 1C
8# authoriFin5 the ta,eover of BASEC , Philippine Doc,!ard Corporation, and all their affiliated co%paniesG

4# ter%inatin5 the services of BASEC e&ecutives< President Dilario M. RuiFG EEP Manuel S. MendoFaG :M Moises M. EaldeFG 2inance M5r. :ilberto Pasi%aneroG 6e5al Dept. M5r. Benito R. Cuesta IG 1D 9# plannin5 to elect its o+n Board of DirectorsG 20 1# allo+in5 +illin5l! or un+illin5l! its personnel to ta,e, steal, carr! a+a! fro% petitioner;s pre%ises at Mariveles A A rolls of cable +ires, +orth P4)),))).)) on Ma! //, /(14G 21

(# allo+in5 -indiscri%inate di55in5s- at En5ineer Island to retrieve 5old bars supposed to have been buried therein. 22
*. Doubts, Misconceptions re5ardin5 Se$uestration, 2reeFe and 3a,eover rders

Man! %isconceptions and %uch doubt about the %atter of se$uestration, ta,eover and freeFe orders have been en5endered b! %isapprehension, or inco%plete co%prehension if not indeed do+nri5ht i5norance of the la+ 5overnin5 these re%edies. It is needful that these %isconceptions and doubts be dispelled so that uninfor%ed and useless debates about the% %a! be avoided, and ar5u%ents tainted b sophistr! or intellectual dishonest! be $uic,l! e&posed and discarded. 3o+ards this end, this opinion +ill essa! an e&position of the la+ on the %atter. In the process %an! of the obCections raised b! BASEC +ill be dealt +ith. 7. 3he :overnin5 6a+ a. Procla#ation 3o. A

3he i%pu5ned e&ecutive orders are avo+edl! %eant to carr! out the e&plicit co%%and of the Provisional Constitution, ordained b! Procla%ation No. *, 2< that the President@in the e&ercise of le5islative po+er +hich she +as authoriFed to continue to +ield -"until a le5islature is elected and convened under a ne+ Constitution- H -shall 5ive priorit! to %easures to achieve the %andate of the people,- a%on5 others to BrCecover ill-gotten properties a#assed )y the leaders and supporters of the previous regi#e and protect the interest of the people through orders of sequestration or free,ing of assets or accounts.< 2F
b. Executive +rder 3o. :

E&ecutive rder No. / stresses the -ur5ent need to recover all ill@5otten +ealth,- and postulates that -vast resources of the 5overn%ent have been a%assed b! for%er President 2erdinand E. Marcos, his i%%ediate fa%il!, relatives, and close associates both here and abroad.- 25 ?pon these pre%ises, the Presidential Co%%ission on :ood :overn%ent +as created, 26 -char5ed +ith the tas, of assistin5 the President in re5ard to "certain specified# %atters,- a%on5 +hich +as precisel!@
A A 3he recover! of all in@5otten +ealth accu%ulated b! for%er President 2erdinand E. Marcos, his i%%ediate fa%il!, relatives, subordinates and close associates, +hether located in the Philippines or abroad, includin5 the ta&eover or sequestration of all business enterprises and entities o+ned or controlled b! the%, durin5 his ad%inistration, directl! or throu5h no%inees, b! ta,in5 undue advanta5e of their public office andQor usin5 their po+ers, authorit!, influence, connections or relationship. 2G

In relation to the ta&eover or sequestration that it +as authoriFed to underta,e in the fulfill%ent of its %ission, the PC:: +as 5ranted -po+er and authorit!- to do the follo+in5 particular acts, to +it< /. "o sequester or place or cause to )e placed under its control or possession an! buildin5 or office +herein an! ill@5otten +ealth or properties %a! be found, and an! records pertainin5 thereto, in order to prevent their destruction, conceal%ent or disappearance +hich +ould frustrate or ha%per the investi5ation or other+ise prevent the Co%%ission fro% acco%plishin5 its tas,.

.. "o provisionally ta&e over in the public interest or to prevent the disposal or dissipation, business enterprises and properties ta,en over b! the 5overn%ent of the Marcos Ad%inistration or b! entities or persons close to for%er President Marcos, until the transactions leadin5 to such ac$uisition b! the latter can be disposed of b! the appropriate authorities.
*. "o en2oin or restrain any actual or threatened co##ission of acts b! an! person or entit! that %a! render %oot and acade%ic, or frustrate or other+ise %a,e ineffectual the efforts of the Co%%ission to carr! out its tas, under this order. 2C

So that it %i5ht ascertain the facts 5er%ane to its obCectives, it +as 5ranted po+er to conduct investi5ationsG re$uire sub%ission of evidence b! subpoenae ad testificandu# and duces tecu#8 ad%inister oathsG punish for conte%pt. 2D It +as 5iven po+er also to pro%ul5ate such rules and re5ulations as %a! be necessar! to carr! out the purposes of A A "its creation#. <0
c. Executive +rder 3o. ; E&ecutive rder No. . 5ives additional and %ore specific data and directions respectin5 -the recover! of ill@5otten properties a%assed b! the leaders and supporters of the previous re5i%e.- It declares that< /# A A the !overn#ent of the Philippines is in possession of evidence sho$ing that there are assets and properties purportedl! pertainin5 to for%er 2erdinand E. Marcos, andQor his +ife Mrs. I%elda Ro%ualdeF Marcos, their close relatives, subordinates, business associates, du%%ies, a5ents or no%inees +hich had been or +ere ac$uired b! the% directl! or indirectl!, throu5h or as a result of the i%proper or ille5al use of funds or properties o+ned b! the 5overn%ent of the Philippines or an! of its branches, instru%entalities, enterprises, ban,s or financial institutions, or b! ta,in5 undue advanta5e of their office, authorit!, influence, connections or relationship, resultin5 in their unCust enrich%ent and causin5 5rave da%a5e and preCudice to the 2ilipino people and the Republic of the Philippines<- and
.# A A said assets and properties are in the for% of ban, accounts, deposits, trust accounts, shares of stoc,s, buildin5s, shoppin5 centers, condo%iniu%s, %ansions, residences, estates, and other ,inds of real and personal properties in the Philippines and in various countries of the +orld.- <1

?pon these pre%ises, the President@ /# fro,e -all assets and properties in the Philippines in +hich for%er President Marcos andQor his +ife, Mrs. I%elda Ro%ualdeF Marcos, their close relatives, subordinates, business associates, du%%ies, a5ents, or no%inees have an! interest or participationG .# prohi)ited for%er President 2erdinand Marcos andQor his +ife A A, their close relatives, subordinates, business associates, duties, a5ents, or no%inees fro% transferring* conveying* encu#)ering* concealing or dissipating said assets or properties in the Philippines and abroad, pendin5 the outco%e of appropriate proceedin5s in the Philippines to deter%ine +hether an! such assets or properties +ere ac$uired b! the% throu5h or as a result of i%proper or ille5al use of or the conversion of funds belon5in5 to the :overn%ent of the Philippines or an! of its branches, instru%entalities, enterprises, ban,s or financial institutions, or b! ta,in5

undue advanta5e of their official position, authorit!, relationship, connection or influence to unCustl! enrich the%selves at the e&pense and to the 5rave da%a5e and preCudice of the 2ilipino people and the Republic of the PhilippinesG *# prohi)ited -an! person fro% transferring* conveying* encu#)ering or other$ise depleting or concealing such assets and properties or fro% assistin5 or ta,in5 part in their transfer, encu%brance, conceal%ent or dissipation under pain of such penalties as are prescribed b! la+G- and
7# required -all persons in the Philippines holdin5 such assets or properties, +hether located in the Philippines or abroad, in their na%es as no%inees, a5ents or trustees, to %a,e full disclosure of the sa%e to the Co%%ission on :ood :overn%ent +ithin thirt! "*)# da!s fro% publication of A "the# E&ecutive rder, A A. <2

d. Executive +rder 3o. :D

A third e&ecutive order is relevant< E&ecutive rder No. /7, << b! +hich the PC:: is e%po+ered, -+ith the assistance of the ffice of the Solicitor :eneral and other 5overn%ent a5encies, A A to file and prosecute all cases investigated )y it A A as %a! be +arranted b! its findin5s.- <F All such cases, +hether civil or cri%inal, are to be filed -+ith the Sandigan)ayan +hich shall have e&clusive and ori5inal Curisdiction thereof.- <5 E&ecutive rder No. /7 also pertinentl! provides that civil suits for restitution, reparation of da%a5es, or inde%nification for conse$uential da%a5es, forfeiture proceedin5s provided for under Republic Act No. /*9(, or an! other civil actions under the Civil Code or other e&istin5 la+s, in connection +ith A A "said E&ecutive rders Nu%bered / and .# %a! be filed separatel! fro% and proceed independentl! of an! cri%inal proceedin5s and %a! be proved b! a preponderance of evidenceG- and that, %oreover, the -technical rules of procedure and evidence shall not be strictl! applied toA A "said#civil cases.- <6
8. Conte%plated Situations 3he situations envisa5ed and sou5ht to be 5overned are self@evident, these bein5<
/# that -"i#ll@5otten properties "+ere# a%assed b! the leaders and supporters of the previous re5i%e-G <G a# %ore particularl!, that ill@5otten +ealth "+as# accu%ulated b! for%er President 2erdinand E. Marcos, his i%%ediate fa%il!, relatives, subordinates and close associates, A A located in the Philippines or abroad, A A "and# business enterprises and entities "ca%e to be# o+ned or controlled b! the%, durin5 A A "the Marcos# ad%inistration, directl! or throu5h no%inees, b! ta,in5 undue advanta5e of their public office andQor usin5 their po+ers, authorit!, influence, Connections or relationshipG <C b# other+ise stated, that -there are assets and properties purportedl! pertainin5 to for%er President 2erdinand E. Marcos, andQor his +ife Mrs. I%elda Ro%ualdeF Marcos, their close relatives, subordinates, business associates, du%%ies, a5ents or no%inees +hich had been or +ere ac$uired b! the% directl! or indirectl!, throu5h or as a result of the i%proper or ille5al use of funds or properties o+ned b! the :overn%ent of the Philippines or an! of its branches, instru%entalities, enterprises, ban,s or financial institutions, or b! ta,in5 undue advanta5e of their office, authorit!, influence, connections or relationship, resultin5 in their unCust enrich%ent and causin5 5rave da%a5e and preCudice to the 2ilipino people and the Republic of the Philippines-G <D

c# that -said assets and properties are in the for% of ban, accounts. deposits, trust. accounts, shares of stoc,s, buildin5s, shoppin5 centers, condo%iniu%s, %ansions, residences, estates, and other ,inds of real and personal properties in the Philippines and in various countries of the +orldG- F0 and .# that certain -business enterprises and properties "+ere# ta,en over b! the 5overn%ent of the Marcos Ad%inistration or b! entities or persons close to for%er President Marcos. F1

4. :overn%ent;s Ri5ht and Dut! to Recover All Ill@5otten Iealth 3here can be no debate about the validit! and e%inent propriet! of the :overn%ent;s plan -to recover all ill@5otten +ealth.Neither can there be an! debate about the proposition that assu%in5 the above described factual pre%ises of the E&ecutive rders and Procla%ation No. * to be true, to be de%onstrable b! co%petent evidence, the recover! fro% Marcos, his fa%il! and his do%inions of the assets and properties involved, is not onl! a ri5ht but a dut! on the part of :overn%ent. But ho+ever plain and valid that ri5ht and dut! %a! be, still a balance %ust be sou5ht +ith the e$uall! co%pellin5 necessit! that a proper respect be accorded and ade$uate protection assured, the funda%ental ri5hts of private propert! and free enterprise +hich are dee%ed pillars of a free societ! such as ours, and to +hich all %e%bers of that societ! %a! +ithout e&ception la! clai%.
A A De%ocrac!, as a +a! of life enshrined in the Constitution, e%braces as its necessar! co%ponents freedo% of conscience, freedo% of e&pression, and freedo% in the pursuit of happiness. Along $ith these freedo#s are included econo#ic freedo# and freedo# of enterprise +ithin reasonable bounds and under proper control. A A Evincin5 %uch concern for the protection of propert!, the Constitution distinctl! reco5niFes the preferred position +hich real estate has occupied in la+ for a5es. Property is )ound up $ith every aspect of social life in a de#ocracy as de#ocracy is conceived in the Constitution. 3he Constitution realiFes the indispensable role +hich propert!, o+ned in reasonable $uantities and used le5iti%atel!, pla!s in the sti%ulation to econo%ic effort and the for%ation and 5ro+th of a solid social %iddle class that is said to be the bul+ar, of de%ocrac! and the bac,bone of ever! pro5ressive and happ! countr!. F2

a. 3eed of Evidentiary Su)stantiation in Proper Suit Conse$uentl!, the factual pre%ises of the E&ecutive rders cannot si%pl! be assu%ed. 3he! +ill have to be dul! established b! ade$uate proof in each case, in a proper Cudicial proceedin5, so that the recover! of the ill@5otten +ealth %a! be validl! and properl! adCud5ed and consu%%atedG althou5h there are so%e +ho %aintain that the fact@that an i%%ense fortune, and -vast resources of the 5overn%ent have been a%assed b! for%er President 2erdinand E. Marcos, his i%%ediate fa%il!, relatives, and close associates both here and abroad,- and the! have resorted to all sorts of clever sche%es and %anipulations to dis5uise and hide their illicit ac$uisitions@is +ithin the real% of Cudicial notice, bein5 of so e&tensive notoriet! as to dispense +ith proof thereof, Be this as it %a!, the re$uire%ent of evidentiar! substantiation has been e&pressl! ac,no+led5ed, and the procedure to be follo+ed e&plicitl! laid do+n, in E&ecutive rder No. /7. b. 3eed of Provisional Measures to Collect and Conserve Assets Pending Suits

Nor %a! it be 5ainsaid that pendin5 the institution of the suits for the recover! of such -ill@5otten +ealth- as the evidence at hand %a! reveal, there is an obvious and i%perative need for preli%inar!, provisional %easures to prevent the conceal%ent, disappearance, destruction, dissipation, or loss of the assets and properties subCect of the suits, or to restrain or foil acts that %a! render %oot and acade%ic, or effectivel! ha%per, dela!, or ne5ate efforts to recover the sa%e. 9. Provisional Re%edies Prescribed b! 6a+ 3o ans+er this need, the la+ has prescribed three "*# provisional re%edies. 3hese are< "/# se$uestrationG ".# freeFe ordersG and "*# provisional ta,eover.

Se$uestration and freeFin5 are re%edies applicable 5enerall! to unearthed instances of -ill@ 5otten +ealth.- 3he re%ed! of -provisional ta,eover- is peculiar to cases +here -business enterprises and properties "+ere# ta,en over b! the 5overn%ent of the Marcos Ad%inistration or b! entities or persons close to for%er President Marcos.-F<
a. Sequestration

B! the clear ter%s of the la+, the po+er of the PC:: to sequester property clai%ed to be -ill@ 5otten- %eans to place or cause to be placed under its possession or control said propert!, or an! buildin5 or office +herein an! such propert! and an! records pertainin5 thereto %a! be found, includin5 -business enterprises and entities,-@for the purpose of preventin5 the destruction, conceal%ent or dissipation of, and other+ise conservin5 and preservin5, the sa%e@ until it can be deter%ined, throu5h appropriate Cudicial proceedin5s, +hether the propert! +as in truth +ill@ 5otten,- i.e., ac$uired throu5h or as a result of i%proper or ille5al use of or the conversion of funds belon5in5 to the :overn%ent or an! of its branches, instru%entalities, enterprises, ban,s or financial institutions, or b! ta,in5 undue advanta5e of official position, authorit! relationship, connection or influence, resultin5 in unCust enrich%ent of the ostensible o+ner and 5rave da%a5e and preCudice to the State. FF And this, too, is the sense in +hich the ter% is co%%onl! understood in other Curisdictions. F5
b. < ree,e +rder<

A -freeFe order- prohibits the person havin5 possession or control of propert! alle5ed to constitute -ill@5otten +ealth- -fro% transferrin5, conve!in5, encu%berin5 or other+ise depletin5 or concealin5 such propert!, or fro% assistin5 or ta,in5 part in its transfer, encu%brance, conceal%ent, or dissipation.- F6 In other +ords, it co%%ands the possessor to hold the propert! and conserve it subCect to the orders and disposition of the authorit! decreein5 such freeFin5. In this sense, it is a,in to a 5arnish%ent b! +hich the possessor or ostensible o+ner of propert! is enCoined not to deliver, transfer, or other+ise dispose of an! effects or credits in his possession or control, and thus beco%es in a sense an involuntar! depositar! thereof. FG
c. Provisional "a&eover

In providin5 for the re%ed! of -provisional ta,eover,- the la+ ac,no+led5es the apparent distinction bet+een -ill 5otten- -business enterprises and entities- "5oin5 concerns, businesses in actual operation#, 5enerall!, as to +hich the re%ed! of se$uestration applies, it bein5 necessaril! inferred that the re%ed! entails no interference, or the least possible interference +ith the actual %ana5e%ent and operations thereofG and -business enterprises +hich +ere ta&en over )y the govern#ent govern#ent of the Marcos Ad#inistration or )y entities or

persons close to hi#*< in particular, as to +hich a -provisional ta,eover- is authoriFed, -in the public interest or to prevent disposal or dissipation of the enterprises.- FC Such a -provisional ta,eover- i%ports so%ethin5 %ore than se$uestration or freeFin5, %ore than the placin5 of the business under ph!sical possession and control, albeit +ithout or +ith the least possible interference +ith the %ana5e%ent and carr!in5 on of the business itself. In a -provisional ta,eover,- +hat is ta,en into custod! is not onl! the ph!sical assets of the business enterprise or entit!, but the business operation as +ell. It is in fine the assu%ption of control not onl! over thin5s, but over operations or on@ 5oin5 activities. But, to repeat, such a -provisional ta,eover- is allo+ed onl! as re5ards -business enterprises A A ta&en over )y the govern#ent of the Marcos Ad#inistration or )y entities or persons close to for#er President Marcos.<
d. 3o Divest#ent of "itle +ver Property Sei,ed It %a! perhaps be +ell at this point to stress once a5ain the provisional, contin5ent character of the re%edies Cust described. Indeed the la+ plainl! $ualifies the re%ed! of ta,e@over b! the adCective, -provisional.- 3hese re%edies %a! be resorted to onl! for a particular e&i5enc!< to prevent in the public interest the disappearance or dissipation of propert! or business, and conserve it pendin5 adCud5%ent in appropriate proceedin5s of the pri%ar! issue of +hether or not the ac$uisition of title or other ri5ht thereto b! the apparent o+ner +as attended b! so%e vitiatin5 ano%al!. None of the re%edies is %eant to deprive the o+ner or possessor of his title or an! ri5ht to the propert! se$uestered, froFen or ta,en over and vest it in the se$uesterin5 a5enc!, the :overn%ent or other person. 3his can be done onl! for the causes and b! the processes laid do+n b! la+.

3hat this is the sense in +hich the po+er to se$uester, freeFe or provisionall! ta,e over is to be understood and e&ercised, the lan5ua5e of the e&ecutive orders in $uestion leaves no doubt. E&ecutive rder No. / declares that the se$uestration of propert! the ac$uisition of +hich is suspect shall last <until the transactions leading to such acquisition A A can )e disposed of )y the appropriate authorities.< FD E&ecutive rder No. . declares that the assets or properties therein %entioned shall re%ain froFen <pending the outco#e of appropriate proceedings in the Philippines to deter#ine $hether any such assets or properties $ere acquired< )y illegal #eans. E&ecutive rder No. /7 %a,es clear that Cudicial proceedin5s are essential for the resolution of the basic issue of +hether or not particular assets are -ill@5otten,- and resultant recover! thereof b! the :overn%ent is +arranted.
e. State of Sei,ure 3ot "o %e Indefinitely Maintained8 "he Constitutional Co##and

3here is thus no cause for the apprehension voiced b! BASEC 50 that se$uestration, freeFin5 or provisional ta,eover is desi5ned to be an end in itself, that it is the device throu5h +hich persons %a! be deprived of their propert! branded as -ill@5otten,- that it is intended to brin5 about a per%anent, rather than a passin5, transitional state of affairs. 3hat this is not so is $uite e&plicitl! declared b! the 5overnin5 rules. Be this as it %a!, the /(19 Constitution should alla! an! lin5erin5 fears about the duration of these provisional re%edies. Section .4 of its 3ransitor! Provisions, 51 la!s do+n the relevant rule in plain ter%s, apart fro% e&tendin5 ratification or confir%ation "althou5h not reall! necessar!# to the institution b! presidential fiat of the re%ed! of se$uestration and freeFe orders<
SEC. .4. 3he authorit! to issue se$uestration or freeFe orders under Procla%ation No. * dated March .8, /(14 in relation to the recover! of ill@5otten +ealth sha5 re%ain operative for not %ore than eighteen #onths after the ratification of this

Constitution. Do+ever, in the national interest, as certified b! the President, the Congress #ay extend said period. A se$uestration or freeFe order shall be issued onl! upon sho+in5 of a pri#a facie case. 3he order and the list of the se$uestered or froFen properties shall forth+ith be re5istered +ith the proper court. 2or orders issued before the ratification of this Constitution, the correspondin5 Cudicial action or proceedin5 shall be filed +ithin si& %onths fro% its ratification. 2or those issued after such ratification, the Cudicial action or proceedin5 shall be co%%enced +ithin six #onths fro% the issuance thereof.
3he se$uestration or freeFe order is dee%ed auto%aticall! lifted if no Cudicial action or proceedin5 is co%%enced as herein provided. 52

f. 9inship to Attach#ent Receivership

As thus described, se$uestration, freeFin5 and provisional ta,eover are a,in to the provisional re%ed! of preli%inar! attach%ent, or receivership. 5< B! attach%ent, a sheriff seiFes propert! of a defendant in a civil suit so that it %a! stand as securit! for the satisfaction of an! Cud5%ent that %a! be obtained, and not disposed of, or dissipated, or lost intentionall! or other+ise, pendin5 the action. 5F B! receivership, propert!, real or personal, +hich is subCect of liti5ation, is placed in the possession and control of a receiver appointed b! the Court, +ho shall conserve it pendin5 final deter%ination of the title or ri5ht of possession over it. 55 All these re%edies H se$uestration, freeFin5, provisional, ta,eover, attach%ent and receivership H are provisional, te%porar!, desi5ned for@particular e&i5encies, attended b! no character of per%anenc! or finalit!, and al+a!s subCect to the control of the issuin5 court or a5enc!.
5. Re#edies* 3on-/udicial

Parentheticall!, that +rits of se$uestration or freeFe or ta,eover orders are not issued b! a court is of no %o%ent. 3he Solicitor :eneral dra+s attention to the +rit of distraint and lev! +hich since /(*4 the Co%%issioner of Internal Revenue has been b! la+ authoriFed to issue a5ainst propert! of a delin$uent ta&pa!er. 56 BASEC itself declares that it has not %anifested -a ri5id insistence on se$uestration as a purel! Cudicial re%ed! A A "as it feels# that the la+ should not be ossified to a point that %a,es it insensitive to chan5e.- Ihat it insists on, +hat it pronounces to be its -un!ieldin5 position, is that an! chan5e in procedure, or the institution of a ne+ one, should confor% to due process and the other prescriptions of the Bill of Ri5hts of the Constitution.- 5G It is, to be sure, a proposition on +hich there can be no disa5ree%ent.
h. +rders May Issue Ex Parte

6i,e the re%ed! of preli%inar! attach%ent and receivership, as +ell as deliver! of personal propert! in replevinsuits, se$uestration and provisional ta,eover +rits %a! issue ex parte. 5C And as in preli%inar! attach%ent, receivership, and deliver! of personalit!, no obCection of an! si5nificance %a! be raised to the ex parte issuance of an order of se$uestration, freeFin5 or ta,eover, 5iven its funda%ental character of te%porariness or conditionalit!G and ta,in5 account speciall! of the constitutionall! e&pressed -%andate of the people to recover ill@5otten properties a%assed b! the leaders and supporters of the previous re5i%e and protect the interest of the peopleG- 5D as +ell as the obvious need to avoid alertin5 suspected possessors of -ill@5otten +ealth- and thereb! cause that disappearance or loss of propert! precisel! sou5ht to be prevented, and the fact, Cust as self@evident, that -an! transfer, disposition, conceal%ent or

disappearance of said assets and properties +ould frustrate, obstruct or ha%per the efforts of the :overn%ent- at the Cust recover! thereof. 60
1. Requisites for 4alidity

Ihat is indispensable is that, a5ain as in the case of attach%ent and receivership, there e&ist a pri%a facie factual foundation, at least, for the se$uestration, freeFe or ta,eover order, and ade$uate and fair opportunit! to contest it and endeavor to cause its ne5ation or nullification. 61
Both are assured under the e&ecutive orders in $uestion and the rules and re5ulations pro%ul5ated b! the PC::. a. Pri#a acie Evidence as %asis for +rders

E&ecutive rder No. /7 enCoins that there be -due re5ard to the re$uire%ents of fairness and due process.- 62E&ecutive rder No. . declares that +ith respect to clai%s on alle5edl! -ill@ 5otten- assets and properties, -it is the position of the ne+ de%ocratic 5overn%ent that President Marcos A A "and other parties affected# be afforded fair opportunit! to contest these clai%s before appropriate Philippine authorities.- 6< Section 9 of the Co%%ission;s Rules and Re5ulations provides that se$uestration or freeFe "and ta,eover# orders issue upon the authorit! of at least t+o co%%issioners, based on the affir#ation or co#plaint of an interested party* or #otu proprio +hen the Co%%ission has reasonable 5rounds to believe that the issuance thereof is +arranted. 6F A si%ilar re$uire%ent is no+ found in Section .4, Art. =EIII of the /(19 Constitution, +hich re$uires that a -se$uestration or freeFe order shall be issued onl! upon sho+in5 of a pri#a facie case.- 65
b. +pportunity to Contest And Sections 8 and 4 of the sa%e Rules and Re5ulations la! do+n the procedure b! +hich a part! %a! see, to set aside a +rit of se$uestration or freeFe order, viF< SEC3I N 8. -ho #ay contend.@3he person a5ainst +ho% a +rit of se$uestration or freeFe or hold order is directed %a! re$uest the liftin5 thereof in +ritin5, either personall! or throu5h counsel +ithin five "8# da!s fro% receipt of the +rit or order, or in the case of a hold order, fro% date of ,no+led5e thereof. SEC3I N 4. Procedure for revie$ of $rit or order.@After due hearin5 or %otu proprio for 5ood cause sho+n, the Co%%ission %a! lift the +rit or order unconditionall! or subCect to such conditions as it %a! dee% necessar!, ta,in5 into consideration the evidence and the circu%stance of the case. 3he resolution of the co%%ission %a! be appealed b! the part! concerned to the ffice of the President of the Philippines +ithin fifteen "/8# da!s fro% receipt thereof.

Parentheticall!, even if the re$uire%ent for a pri#a facie sho+in5 of -ill@ 5otten +ealth- +ere not e&pressl! i%posed b! so%e rule or re5ulation as a condition to +arrant the se$uestration or freeFin5 of propert! conte%plated in the e&ecutive orders in $uestion, it +ould nevertheless be e&i5ible in this Curisdiction in +hich the Rule of 6a+ prevails and official acts +hich are devoid of rational basis in fact or la+, or are +hi%sical and capricious, are conde%ned and struc, do+n. 66
(. Constitutional Sanction of Re%edies

If an! doubt should still persist in the face of the fore5oin5 considerations as to the validit! and propriet! of se$uestration, freeFe and ta,eover orders, it should be dispelled b! the fact that these particular re%edies and the authorit! of the PC:: to issue the% have received constitutional approbation and sanction. As alread! %entioned, the Provisional or -2reedo%Constitution reco5niFes the po+er and dut! of the President to enact -%easures to achieve the %andate of the people to A A A "recover ill@ 5otten properties a%assed b! the leaders and supporters of the previous re5i%e and protect the interest of the people throu5h orders of sequestration or free,ing of assets or accounts.< And as also alread! adverted to, Section .4, Article =EIII of the /(19 Constitution6G treats of, and ratifies the -authorit! to issue se$uestration or freeFe orders under Procla%ation No. * dated March .8, /(14.3he institution of these provisional re%edies is also pre%ised upon the State;s inherent police po+er, re5arded, as t lie po+er of pro%otin5 the public +elfare b! restrainin5 and re5ulatin5 the use of libert! and propert!,- 6C and as -the %ost essential, insistent and illi%itable of po+ers A A in the pro%otion of 5eneral +elfare and the public interest,- 6D and said to be co@e&tensive +ith self@ protection and A A not inaptl! ter%ed "also# the;la+ of overrulin5 necessit!.- - G0
/). PC!! not a </udge<8 !eneral unctions

It should also b! no+ be reasonabl! evident fro% +hat has thus far been said that the PC:: is not, and +as never intended to act as, a Cud5e. Its 5eneral function is to conduct investi5ations in order to collect evidenceestablishin5 instances of -ill@5otten +ealthG- issue sequestration* and such orders as %a! be +arranted b! the evidence thus collected and as %a! be necessar! to preserve and conserve the assets of +hich it ta,es custod! and control and prevent their disappearance, loss or dissipationG and eventuall! file and prosecute in the proper court of co%petent Curisdiction all cases investi5ated b! it as %a! be +arranted b! its findin5s. It does not tr! and decide, or hear and deter%ine, or adCudicate +ith an! character of finalit! or co%pulsion, cases involvin5 the essential issue of +hether or not propert! should be forfeited and transferred to the State because -ill@5otten- +ithin the %eanin5 of the Constitution and the e&ecutive orders. 3his function is reserved to the desi5nated court, in this case, the Sandi5anba!an. G1 3here can therefore be no serious re5ard accorded to the accusation, leveled b! BASEC , G2 that the PC:: pla!s the perfidious role of prosecutor and Cud5e at the sa%e ti%e.
//. acts Preclude !rant of Relief to Petitioner ?pon these pre%ises and reasoned conclusions, and upon the facts disclosed b! the record, hereafter to be discussed, the petition cannot succeed. 3he +rits of certiorari and prohibition pra!ed for +ill not be issued. 3he facts sho+ that the corporation ,no+n as BASEC +as o+ned or controlled b! President Marcos -durin5 his ad%inistration, throu5h no%inees, b! ta,in5 undue advanta5e of his public office andQor usin5 his po+ers, authorit!, or influence, - and that it +as b! and throu5h the sa%e %eans, that BASEC had ta,en over the business andQor assets of the National Ship!ard and En5ineerin5 Co., Inc., and other 5overn%ent@o+ned or controlled entities. /.. +rgani,ation and Stoc& Distri)ution of %ASEC+

BASEC describes itself in its petition as -a shiprepair and shipbuildin5 co%pan! A A incorporated as a do%estic private corporation A A "on Au5. *), /(9.# b! a consortiu% of 2ilipino

shipo+ners and shippin5 e&ecutives. Its %ain office is at En5ineer Island, Port Area, Manila, +here its En5ineer Island Ship!ard is housed, and its %ain ship!ard is located at Mariveles Bataan.- G< Its Articles of Incorporation disclose that its authoriFed capital stoc, is P4),))),))).)) divided into 4),))) shares, of +hich /.,))) shares +ith a value of P/.,))),))).)) have been subscribed, and on said subscription, the a55re5ate su% of P*,)*8,))).)) has been paid b! the incorporators. GF3he sa%e articles Identif! the incorporators, nu%berin5 fifteen "/8#, as follo+s< "/# 0ose A. RoCas, ".# Anthon! P. 6ee, "*# Eduardo 3. Marcelo, "7# 0ose P. 2ernandeF, "8# :eneroso 3anseco, "4# E%ilio 3. >ap, "9# Antonio M. EFpeleta, "1# Oacarias A%ante, "(# Severino de la CruF, "/)# 0ose 2rancisco, "//# Dioscoro Papa, "/.# ctavio Posadas, "/*# Manuel S. MendoFa, "/7# Ma5ili+ 3orres, and "/8# Rodolfo 3orres. B! /(14, ho+ever, of these fifteen "/8# incorporators, si& "4# had ceased to be stoc,holders, na%el!< "/# :eneroso 3anseco, ".# Antonio EFpeleta, "*# Oacarias A%ante, "7# ctavio Posadas, "8# Ma5ili+ 3orres, and "4# Rodolfo 3orres. As of this !ear, /(14, there +ere t+ent! ".)# stoc,holders listed in BASEC ;s Stoc, and 3ransfer Boo,. G5 3heir na%es and the nu%ber of shares respectivel! held b! the% are as follo+s<
/. 0ose A. RoCas

/,.71 shares /,.71 shares .,8)1 shares /,.71 shares /.1 shares (4 shares /,.71 shares *. shares 1 shares 48,11. shares 9,7/. shares /,.7) shares 1 shares 1 shares

.. Severino :. de la CruF *. E%ilio 3. >ap 7. 0ose 2ernandeF 8. 0ose 2rancisco 4. Manuel S. MendoFa 9. Anthon! P. 6ee 1. Dilario M. RuiF (. Constante 6. 2ari'as /). 2idelit! Mana5e%ent, Inc. //. 3rident Mana5e%ent /.. ?nited Phil. 6ines /*. Renato M. 3anseco /7. 2idel Eentura

/8. Metro Ba! Dr!doc, /4. Manuel 0acela /9. 0onathan :. 6u /1. 0ose 0. 3anchanco /(. Dioscoro Papa .). Ed+ard 3. Marcelo 3 3A6

/*4,*9) shares / share / share / share /.1 shares 7 shares ./1,1/( shares.

/* Acquisition of 3ASSC+ )y %ASEC+

Barel! si& %onths after its incorporation, BASEC ac$uired fro% National Ship!ard R Steel Corporation, or NASSC , a 5overn%ent@o+ned or controlled corporation, the latter;s ship!ard at Mariveles, Bataan, ,no+n as the Bataan National Ship!ard "BNS#, and H e&cept for NASSC ;s En5ineer Island Shops and certain e$uip%ent of the BNS, consi5ned for future ne5otiation H all its structures, buildin5s, shops, $uarters, houses, plants, e$uip%ent and facilities, in stoc, or in transit. 3his it did in virtue of a -Contract of Purchase and Sale +ith Chattel Mort5a5e- e&ecuted on 2ebruar! /*, /(9*. 3he price +as P8.,))),))).)). As partial pa!%ent thereof, BASEC delivered to NASSC a cash bond of P//,7)),))).)), convertible into cash +ithin t+ent!@four ".7# hours fro% co%pletion of the inventor! underta,en pursuant to the contract. 3he balance of P7/,4)),))).)), +ith interest at seven percent "9M# per annu%, co%pounded se%i@annuall!, +as stipulated to be paid in e$ual se%i@annual install%ents over a ter% of nine "(# !ears, pa!%ent to co%%ence after a 5race period of t+o ".# !ears fro% date of turnover of the ship!ard to BASEC . G6
/7. Su)sequent Reduction of Price8 Intervention of Marcos

?naccountabl!, the price of P8.,))),))).)) +as reduced b! %ore than one@half, to P.7,*//,88).)), about ei5ht "1# %onths later. A docu%ent to this effect +as e&ecuted on ctober (, /(9*, entitled -Me%orandu% A5ree%ent,- and +as si5ned for NASSC b! Arturo Pacificador, as Presidin5 fficer of the Board of Directors, and David R. Ines, as :eneral Mana5er. GG 3his a5ree%ent bore, at the top ri5ht corner of the first pa5e, the +ord -APPR EED- in the hand+ritin5 of President Marcos* follo+ed b! his usual full si5nature. 3he docu%ent recited that a do+n pa!%ent of P8,14.,*/).)) had been %ade b! BASEC , and the balance of P/(,77(,.7).)) +as pa!able in e$ual se%i@annual install%ents over nine "(# !ears after a 5race period of t+o ".# !ears, +ith interest at 9M per annu%.
/8. Acquisition of AEE 6ectares fro# Export Processing Fone Authority

n ctober /, /(97, BASEC ac$uired three hundred "*))# hectares of land in Mariveles fro% the E&port Processin5 Oone Authorit! for the price of P/),)79,(7).)) of +hich, as set out in the docu%ent of sale, P.,))).))).)) +as paid upon its e&ecution, and the balance stipulated to be pa!able in install%ents. GC
/4. Acquisition of +ther Assets of 3ASSC+8 Intervention of Marcos

So%e nine %onths after+ards, or on 0ul! /8, /(98, to be precise, BASEC , a5ain +ith the intervention of President Marcos, ac$uired o+nership of the rest of the assets of NASSC +hich had not been included in the first t+o ".# purchase docu%ents. 3his +as acco%plished b! a deed entitled -Contract of Purchase and Sale,- GD+hich, li,e the Me%orandu% of A5ree%ent dated ctober (, /(9* supra also bore at the upper ri5ht@hand corner of its first pa5e, the hand+ritten notation of President Marcos readin5, -APPR EED, 0ul! .(, /(9*,- and underneath it, his usual full si5nature. 3ransferred to BASEC +ere NASSC ;s -o+nership and all its titles, ri5hts and interests over all e$uip%ent and facilities includin5 structures, buildin5s, shops, $uarters, houses, plants and e&pendable or se%i@e&pendable assets, located at the En5ineer Island, ,no+n as the En5ineer Island Shops, includin5 all the e$uip%ent of the Bataan National Ship!ards "BNS# +hich +ere e&cluded fro% the sale of NBS to BASEC but retained b! BASEC and all other selected e$uip%ent and %achineries of NASSC at 0. Pan5aniban S%eltin5 Plant.- In the sa%e deed, NASSC co%%itted itself to cooperate +ith BASEC for the ac$uisition fro% the National :overn%ent or other appropriate :overn%ent entit! of En5ineer Island. Consideration for the sale +as set at P8,))),))).))G a do+n pa!%ent of P/,))),))).)) appears to have been %ade, and the balance +as stipulated to be paid at 9M interest per annu% in e$ual se%i annual install%ents over a ter% of nine "(# !ears, to co%%ence after a 5race period of t+o ".# !ears. Mr. Arturo Pacificador a5ain si5ned for NASSC , to5ether +ith the 5eneral %ana5er, Mr. David R. Ines.
/9. 'oans +)tained

It further appears that on Ma! .9, /(98 BASEC obtained a loan fro% the NDC, ta,en fro% -the last available 0apanese +ar da%a5e fund of T/(,))),))).)),- to pa! for -0apanese %ade heav! e$uip%ent "brand ne+#.- C0 n Septe%ber *, /(98, it 5ot another loan also fro% the NDC in the a%ount of P*),))),))).)) Bid.C. And on 0anuar! .1, /(94, it 5ot still another loan, this ti%e fro% the :SIS, in the su% of P/.,7)),))).)). C1 3he clai% has been %ade that not a sin5le centavo has been paid on these loans. C2
/1. Reports to President Marcos

In Septe%ber, /(99, t+o ".# reports +ere sub%itted to President Marcos re5ardin5 BASEC . 3he first +as contained in a letter dated Septe%ber 8, /(99 of Dilario M. RuiF, BASEC president. C< 3he second +as e%bodied in a confidential %e%orandu% dated Septe%ber /4, /(99 of Capt. A.3. Ro%ualdeF. CF 3he! further disclose the fine hand of Marcos in the affairs of BASEC , and that of a Ro%ualdeF, a relative b! affinit!.
a. %ASEC+ President5s Report

In his letter of Septe%ber 8, /(99, BASEC President RuiF reported to Marcos that there had been -no orders or de%ands for ship construction- for so%e ti%e and e&pressed the fear that if that state of affairs persisted, BASEC +ould not be able to pa! its debts to the :overn%ent, +hich at the ti%e stood at the not inconsiderable a%ount of P/48,187,))).)). C5 De su55ested

that, to -save the situation,- there be a <spin-off "of their# shipbuildin5 activities +hich shall be handled e&clusivel! b! an entirel! ne+ corporation to be createdG- and to+ards this end, he infor%ed Marcos that BASEC +as H
A A invitin5 NDC and 6?S3EEEC to participate b! convertin5 the NDC shipbuildin5 loan to BASEC a%ountin5 to P*7/./48M and assu%in5 and convertin5 a portion of BASEC ;s shipbuildin5 loans fro% REPAC M a%ountin5 to P8...M or a total of P1*.*48M as NDC;s e$uit! contribution in the ne+ corporation. 6?S3EEEC +ill participate b! absorbin5 and convertin5 a portion of the REPAC M loan of Ba! Ship!ard and Dr!doc,, Inc., a%ountin5 to P*..8*1M. C6

b. Ro#ualde,5 Report Capt. A.3. Ro%ualdeF; report to the President +as sub%itted eleven "//# da!s later. It opened +ith the follo+in5 caption< MEM RAND?M< 2 R < 3he President S?B0EC3< An Evaluation and Re-assess#ent of a Perfor#ance of a Mission 2R M< Capt. A.3. Ro%ualdeF. 6i,e RuiF, Ro%ualdeF +rote that BASEC faced 5reat difficulties in %eetin5 its loan obli5ations due chiefl! to the fact that -orders to build ships as e&pected A A did not %aterialiFe.De advised that five stoc,holders had <$aived andGor assigned their holdings in)lan&*< these bein5< "/# 0ose A. RoCas, ".# Severino de la CruF, "*# Rodolfo 3orres, "7# Ma5ili+ 3orres, and "8# Anthon! P. 6ee. Pointin5 out that -Mr. Ma5ili+ 3orres A A is alread! dead and Mr. 0ose A. RoCas had a %aCor heart attac,,- he %ade the follo+in5 $uite revealin5, and it %a! be added, $uite c!nical and indurate reco%%endation, to +it< A A "that# their replace%ents "be effected# so +e can re5ister their na%es in the stoc, boo, prior to the i%ple%entation of your instructions to pass a board resolution to le5aliFe the transfers under SEC re5ulationsG .. B! 5ettin5 their replace%ents, the fa#ilies cannot question us later on8 and
*. -e $ill o$e no further favors fro# the#.
CG

De also trans%itted to Marcos, to5ether +ith the report, the follo+in5 docu%ents< CC
/. Stoc& certificates indorsed and assigned in )lan& $ith assign#ents and $aivers8
&'

.. 3he articles of incorporation, the a%ended articles, and the b!@la+s of BASEC G *. Deed of Sales, +herein NASSC sold to BASEC -En5ineer Island-, Port Area, ManilaG four "7# parcels of land in

7. 3ransfer Certificate of 3itle No. /.71.. in the na%e of BASEC , coverin5 -En5ineer Island-G 8. Contract dated ctober (, /(9*, bet+een NASSC e$uip%ent at Mariveles, BataanG 4. Contract dated 0ul! /4, /(98, bet+een NASSC e$uip%ent at En5ineer Island, Port Area ManilaG and BASEC re@structure and

and BASEC

re@structure and

9. Contract dated ctober /, /(97, bet+een EPOA and BASEC land at Mariveles, BataanG 1. 6ist of BASEC ;s fi&ed assetsG

re *)) hectares of

(. 6oan A5ree%ent dated Septe%ber *, /(98, BASEC ;s loan fro% NDC of P*),))),))).))G /). BASEC @REPAC M A5ree%ent dated Ma! .9, /(98G
//. :SIS loan to BASEC dated 0anuar! .1, /(94 of P/.,7)),))).)) for the housin5 facilities for BASEC ;s ran,@and@file e%plo!ees. D0

Capt. Ro%ualdeF also reco%%ended that BASEC ;s loans be restructured -until such period +hen BASEC +ill have enou5h orders for ships in order for the co%pan! to %eet loan obli5ations,- and that H
An '+I #ay )e issued to 5overn%ent a5encies usin5 floatin5 e$uip%ent, that a lin,a5e sche%e be applied to a certain percent of BASEC ;s net profit as part of BASEC ;s a%ortiFation pa!%ents to #a&e it 2ustifia)le for you* Sir. D1

It is note+orth! that Capt. A.3. Ro%ualdeF does not appear to be a stoc,holder or officer of BASEC , !et he has presented a report on BASEC to President Marcos, and his report de%onstrates inti%ate fa%iliarit! +ith the fir%;s affairs and proble%s. /(. Marcos5 Response to Reports President Marcos lost no ti%e in actin5 on his subordinates; reco%%endations, particularl! as re5ards the -spin@off- and the -lin,a5e sche%e- relative to -BASEC ;s a%ortiFation pa!%ents.a. Instructions re <Spin-+ff< ?nder date of Septe%ber .1, /(99, he addressed a Me%orandu% to Secretar! :eroni%o Eelasco of the Philippine National il Co%pan! and Chair%an Constante 2ari'as of the National Develop%ent Co%pan!, directin5 the% -to participate in the for%ation of a ne+ corporation resultin5 fro% the spin-off of the ship)uilding co#ponent of BASEC alon5 the follo+in5 5uidelines< a. E$uit! participation of 5overn%ent shall be throu5h 6?S3EEEC and NDC in the a%ount of P//8,()*,))) consistin5 of the follo+in5 o)ligations of %ASEC+ $hich are here)y authori,ed to )e converted to equity of the said ne+ corporation, to +it< /. NDC P1*,148,))) "P*/./48M loan R P8...M Reparation#

.. 6?S3EEEC

P*.,8*1,))) "Reparation#

b. E$uit! participation of 5overn%ent shall be in the for% of non@ votin5 shares.

or i##ediate co#pliance. D2

Mr. Marcos; 5uidelines +ere pro%ptl! co%plied +ith b! his subordinates. 3+ent!@t+o "..# da!s after receivin5 their president;s %e%orandu%, Messrs. Dilario M. RuiF, Constante 6. 2ari'as and :eroni%o O. Eelasco, in representation of their respective corporations, e&ecuted a PRE@ INC RP RA3I N A:REEMEN3 dated ctober .), /(99. D< In it, the! undertoo, to for% a shipbuildin5 corporation to be ,no+n as -PDI6@ASIA SDIPB?I6DIN: C RP RA3I N,- to brin5 to realiFation their president;s instructions. It +ould see% that the ne+ corporation ulti%atel! for%ed +as actuall! na%ed -Philippine Doc,!ard Corporation "PDC#.- DF
b. 'etter of Instructions 3o. @HE Mr. Marcos did not for5et Capt. Ro%ualdeF; reco%%endation for a letter of instructions. n 2ebruar! /7, /(91, he issued 6etter of Instructions No. 49) addressed to the Reparations Co%%ission REPAC M the Philippine National il Co%pan! "PN C#, the 6uFon Stevedorin5 Co%pan! "6?S3EEEC #, and the National Develop%ent Co%pan! "NDC#. Ihat is co%%anded therein is su%%ariFed b! the Solicitor :eneral, +ith pith! and not inaccurate observations as to the effects thereof "in italics#, as follo+s< A A /# the shipbuildin5 e$uip%ent procured b! BASEC throu5h reparations be transferred to NDC subCect to rei%burse%ent b! NDC to BASEC "of# the a%ount of s alle5edl! representin5 the handlin5 and incidental e&penses incurred b! BASEC in the installation of said e$uip%ent Bso instead of 3DC getting paid on its loan to %ASEC+* it $as #ade to pay %ASEC+ instead the a#ount of P:?.;?=MC8 .# the shipbuildin5 e$uip%ent procured fro% reparations throu5h EPOA, no+ in the possession of BASEC and BSDI "Ba! Ship!ard R Dr!doc,in5, Inc.# be transferred to 6?S3EEEC throu5h PN CG and *# the shipbuildin5 e$uip%ent "thus# transferred be invested b! 6?S3EEEC , actin5 throu5h PN C and NDC, as the 5overn%ent;s e$uit! participation in a shipbuildin5 corporation to be established in partnership +ith the private sector. &&& &&& &&&
And so, throu5h a si%ple letter of instruction and %e%orandu%, BASEC ;s loan obli5ation to NDC and REPAC M A A in the total a%ount of P1*.*48M and BSD;s REPAC M loan of P*..7*1M +ere +iped out and converted into non@votin5 preferred shares. D5

.). Evidence of Marcos5 +$nership of %ASEC+ It cannot therefore be 5ainsaid that, in the conte&t of the proceedin5s at bar, the actualit! of the control b! President Marcos of BASEC has been sufficientl! sho+n.

ther evidence sub%itted to the Court b! the Solicitor :eneral proves that President Marcos not onl! exercised control over BASEC , but also that he actually o$ns +ell ni5h one hundred percent of its outstandin5 stoc,.

It +ill be recalled that accordin5 to petitioner@ itself, as of April .*, /(14, there +ere ./1,1/( shares of stoc, outstandin5, ostensibl! o+ned b! t+ent! ".)# stoc,holders. D6 2our of these t+ent! are Curidical persons< "/#Metro %ay Drydoc&* recorded as holdin5 /*4,*9) sharesG ".# idelity Manage#ent* Inc.* 48,11. sharesG "*#"rident Manage#ent* 9,7/. sharesG and "7# ?nited Phil. 6ines, /,.7) shares. 3he first three corporations, a%on5 the%selves, o+n an a55re5ate of .)(,447 shares of BASEC stoc,, or (8.1.M of the outstandin5 stoc,. No+, the Solicitor :eneral has dra+n the Court;s attention to the intri5uin5 circu%stance that found in Malacanan5 shortl! after the sudden fli5ht of President Marcos, +ere certificates correspondin5 to %ore thanninety-five percent B>=IC of all the outstandin5 shares of stoc, of BASEC , endorsed in blan,, to5ether +ith deeds of assi5n%ent of practicall! all the outstandin5 shares of stoc, of the three "*# corporations above %entioned "+hich hold >=.?;I of all BASEC stoc,#, si5ned b! the o+ners thereof althou5h not notariFed. DG
More specificall!, found in Malacanan5 "and no+ in the custod! of the PC::# +ere< /# the deeds of assi5n%ent of all @EE outstanding shares of idelity Manage#ent Inc. J +hich supposedl! o+ns as aforesaid 48,11. shares of BASEC stoc,G .# the deeds of assi5n%ent of ;*D>>*>>= of the ;*=EE*EEE outstanding shares of Metro %ay Drydoc& Corporation J +hich alle5edl! o+ns /*4,*9) shares of BASEC stoc,G
*# the deeds of assi5n%ent of ?EE outstanding shares of "rident Manage#ent Co.* Inc. H +hich alle5edl! o+ns 9,7/. shares of BASEC stoc,, assi5ned in blan,G DC and 7# stoc, certificates correspondin5 to ;EH*H;= out of the ;:?*?:> outstanding shares of %ASEC+ stoc&8 that is, all but 8 M H all endorsed in blan,. DD

Ihile the petitioner;s counsel +as $uic, to dispute this asserted fact, assurin5 this Court that the BASEC stoc,holders +ere still in possession of their respective stoc, certificates and had -never endorsed A A the% in blan, or to an!one else,- 100 that denial is e&posed b! his o+n prior and subse$uent recorded state%ents as a %ere 5esture of defiance rather than a verifiable factual declaration. B! resolution dated Septe%ber .8, /(14, this Court 5ranted BASEC ;s counsel a period of /) da!s -to S?BMI3,as underta&en )y hi#* A A the certificates of stoc, issued to the stoc,holders of A A BASEC as of April .*, /(14, as listed in Anne& ;P; of the petition.; 101 Counsel thereafter %oved for e&tensionG and in his %otion dated ctober ., /(14, he declared inter alia that -said certificates of stoc, are in the possession of third parties, a%on5 +ho% bein5 the respondents the%selves A A and petitioner is still endeavoring to secure copies thereof fro% the%.- 102 n the sa%e da! he filed another %otion pra!in5 that he be allo+ed -to secure copies of the Certificates of Stoc, in the na%e of Metro Ba! Dr!doc,, Inc., and of all other Certificates, of Stoc, of petitioner;s stoc,holders in possession of respondents.- 10<

In a Manifestation dated ctober /), /(14,, 10F the Solicitor :eneral not unreasonabl! ar5ued that counsel;s aforestated %otion to secure copies of the stoc, certificates -confir%s the fact that stoc,holders of petitioner corporation are not in possession of A A "their# certificates of stoc,,- and the reason, accordin5 to hi%, +as -that (8M of said shares A A have been endorsed in blan, and found in Malaca'an5 after the for%er President and his fa%il! fled the countr!.- 3o this %anifestation BASEC ;s counsel replied on Nove%ber 8, /(14, as alread! %entioned, Stubbornl! insistin5 that the fir%;s stoc,holders had not reall! assi5ned their stoc,. 105 In vie+ of the parties; conflictin5 declarations, this Court resolved on Nove%ber .9, /(14 a%on5 other thin5s -to re$uire A A the petitioner A A to deposit upon proper receipt +ith Cler, of Court 0uanito RanCo the originals of the stoc& certificates alle5ed to be in its possession or accessible to it, %entioned and described in Anne& ;P; of its petition, "and other pleadin5s# A A +ithin ten "/)# da!s fro% notice.- 106 In a %otion filed on Dece%ber 8, /(14, 10GBASEC ;s counsel %ade the state%ent, $uite surprisin5 in the pre%ises, that -it +ill ne5otiate +ith the o+ners "of the BASEC stoc, in $uestion# to allo+ petitioner to borro+ fro% the%, if available, the certificates referred to- but that -it needs a %ore sufficient ti%e therefor- "sic#. BASEC ;s counsel ho+ever eventuall! had to confess inabilit! to produce the ori5inals of the stoc, certificates, puttin5 up the feeble e&cuse that +hile he had -re$uested the stoc,holders to allo+ A A "hi%# to borro+ said certificates, A A so%e of A A "the%# clai%ed that the! had delivered the certificates to third parties b! +a! of pled5e andQor to secure perfor%ance of obli5ations, +hile others alle5edl! have entrusted the% to third parties in vie+ of last national e%er5enc!.- 10C De has convenientl! o%itted, nor has he offered to 5ive the details of the transactions adverted to b! hi%, or to e&plain +h! he had not i%pressed on the supposed stoc,holders the pri%ordial i%portance of convincin5 this Court of their present custod! of the ori5inals of the stoc,, or if he had done so, +h! the stoc,holders are un+illin5 to a5ree to so%e sort of arran5e%ent so that the ori5inals of their certificates %i5ht at the ver! least be e&hibited to the Court. ?nder the circu%stances, the Court can onl! conclude that he could not 5et the ori5inals fro% the stoc,holders for the si%ple reason that, as the Solicitor :eneral %aintains, said stoc,holders in truth no lon5er have the% in their possession, these havin5 alread! been assi5ned in blan, to then President Marcos.
./. acts /ustify Issuance of Sequestration and "a&eover +rders

In the li5ht of the affir%ative sho+in5 b! the :overn%ent that, pri#a facie at least, the stoc,holders and directors of BASEC as of April, /(14 10D +ere %ere -du%%ies,- no%inees or alter egos of President MarcosG at an! rate, that the! are no lon5er o+ners of an! shares of stoc, in the corporation, the conclusion cannot be avoided that said stoc,holders and directors have no basis and no standin5 +hatever to cause the filin5 and prosecution of the instant proceedin5G and to 5rant relief to BASEC , as pra!ed for in the petition, +ould in effect be to restore the assets, properties and business se$uestered and ta,en over b! the PC:: to persons +ho are -du%%ies,- no%inees or alter egos of the for%er president.
2ro% the standpoint of the PC::, the facts herein stated at so%e len5th do indeed sho+ that the private corporation ,no+n as BASEC +as -o+ned or controlled b! for%er President 2erdinand E. Marcos A A durin5 his ad%inistration, A A throu5h no%inees, b! ta,in5 advanta5e of A A "his# public office andQor usin5 A A "his# po+ers, authorit!, influence A A,- and that NASSC and other propert! of the 5overn%ent had been ta,en over b! BASEC G and the situation Custified the se$uestration as +ell as the provisional ta,eover of the corporation in the public interest, in accordance +ith the ter%s of E&ecutive rders No. / and ., pendin5 the filin5 of the re$uisite actions +ith the Sandi5anba!an to cause divest%ent of title thereto fro% Marcos, and its adCudication in favor of the Republic pursuant to E&ecutive rder No. /7.

As alread! earlier stated, this Court a5rees that this assess%ent of the facts is correctG accordin5l!, it sustains the acts of se$uestration and ta,eover b! the PC:: as bein5 in accord +ith the la+, and, in vie+ of +hat has thus far been set out in this opinion, pronounces to be +ithout %erit the theor! that said acts, and the e&ecutive orders pursuant to +hich the! +ere done, are fatall! defective in not accordin5 to the parties affected prior notice and hearin5, or an ade$uate re%ed! to i%pu5n, set aside or other+ise obtain relief therefro%, or that the PC:: had acted as prosecutor and Cud5e at the sa%e ti%e. ... Executive +rders 3ot a %ill of Attainder

Neither +ill this Court sustain the theor! that the e&ecutive orders in $uestion are a bill of attainder. 110 -A bill of attainder is a le5islative act +hich inflicts punish%ent +ithout Cudicial trial.- 111 -Its essence is the substitution of a le5islative for a Cudicial deter%ination of 5uilt.- 112
In the first place, nothin5 in the e&ecutive orders can be reasonabl! construed as a deter%ination or declaration of 5uilt. n the contrar!, the e&ecutive orders, inclusive of E&ecutive rder No. /7, %a,e it perfectl! clear that an! Cud5%ent of 5uilt in the a%assin5 or ac$uisition of -ill@5otten +ealth- is to be handed do+n b! a Cudicial tribunal, in this case, the Sandigan)ayan* upon co%plaint filed and prosecuted b! the PC::. In the second place, no punish%ent is inflicted b! the e&ecutive orders, as the %erest 5lance at their provisions +ill i%%ediatel! %a,e apparent. In no sense, therefore, %a! the e&ecutive orders be re5arded as a bill of attainder. .*. 3o 4iolation of Right against Self-Incri#ination and (nreasona)le Searches and Sei,ures BASEC also contends that its ri5ht a5ainst self incri%ination and unreasonable searches and seiFures had been trans5ressed b! the rder of April /1, /(14 +hich re$uired it -to produce corporate records fro% /(9* to /(14 under pain of conte%pt of the Co%%ission if it fails to do so.3he order +as issued upon the authorit! of Section * "e# of E&ecutive rder No. /, treatin5 of the PC::;s po+er to -issue subpoenas re$uirin5 A A the production of such boo,s, papers, contracts, records, state%ents of accounts and other docu%ents as %a! be %aterial to the investi5ation conducted b! the Co%%ission, - and para5raph "*#, E&ecutive rder No. . dealin5 +ith its po+er to -re$uire all persons in the Philippines holdin5 A A "alle5ed -ill@5otten-# assets or properties, +hether located in the Philippines or abroad, in their na%es as no%inees, a5ents or trustees, to %a,e full disclosure of the sa%e A A.- 3he contention lac,s %erit. It is ele%entar! that the ri5ht a5ainst self@incri%ination has no application to Curidical persons.
Ihile an individual %a! la+full! refuse to ans+er incri%inatin5 $uestions unless protected b! an i%%unit! statute, it does not follo+ that a corporation, vested +ith special privile5es and franchises, %a! refuse to sho+ its hand +hen char5ed +ith an abuse ofsuchprivile5es A A 11<

Relevant Curisprudence is also cited b! the Solicitor :eneral. 11F

A A corporations are not entitled to all of the constitutional protections +hich private individuals have. A A "hey are not at all $ithin the privilege against selfincri#ination* althou5h this court %ore than once has said that the privile5e runs ver! closel! +ith the 7th A%end%ent;s Search and SeiFure provisions. It is also settled that an officer of the co#pany cannot refuse to produce its records in its possession upon the plea that they $ill either incri#inate hi# or #ay incri#inate it.< " ,laho%a Press Publishin5 Co. v. Iallin5, *.9 ?.S. /14G e%phasis, the Solicitor :eneral;s#.

A A 3he corporation is a creature of the state. It is presu%ed to be incorporated for the benefit of the public. It received certain special privile5es and franchises, and holds the% subCect to the la+s of the state and the li%itations of its charter. Its po+ers are li%ited b! la+. It can %a,e no contract not authoriFed b! its charter. Its ri5hts to act as a corporation are onl! preserved to it so lon5 as it obe!s the la+s of its creation. 3here is a reserve ri5ht in the le5islature to investi5ate its contracts and find out +hether it has e&ceeded its po+ers. It +ould be a stran5e ano%al! to hold that a state, havin5 chartered a corporation to %a,e use of certain franchises, could not, in the e&ercise of soverei5nt!, in$uire ho+ these franchises had been e%plo!ed, and +hether the! had been abused, and de%and the production of the corporate boo,s and papers for that purpose. 3he defense a%ounts to this, that an officer of the corporation +hich is char5ed +ith a cri%inal violation of the statute %a! plead the cri%inalit! of such corporation as a refusal to produce its boo,s. 3o state this proposition is to ans+er it. -hile an individual #ay la$fully refuse to ans$er incri#inating questions unless protected )y an i##unity statute* it does not follo$ that a corporation* vested $ith special privileges and franchises #ay refuse to sho$ its hand $hen charged $ith an a)use of such privileges. "Iilson v. ?nited States, 88 6a+ Ed., 99/, 91) Ke%phasis, the Solicitor :eneral;sL# At an! rate, E&ecutive rder No. /7@A, a%endin5 Section 7 of E&ecutive rder No. /7 assures protection to individuals re$uired to produce evidence before the PC:: a5ainst an! possible violation of his ri5ht a5ainst self@incri%ination. It 5ives the% i%%unit! fro% prosecution on the basis of testi%on! or infor%ation he is co%pelled to present. As a%ended, said Section 7 no+ provides that H &&& &&& &&& 3he +itness %a! not refuse to co%pl! +ith the order on the basis of his privile5e a5ainst self@incri%inationG but no testi%on! or other infor%ation co%pelled under the order "or an! infor%ation directl! or indirectl! derived fro% such testi%on!, or other infor%ation# %a! be used a5ainst the +itness in an! cri%inal case, e&cept a prosecution for perCur!, 5ivin5 a false state%ent, or other+ise failin5 to co%pl! +ith the order. 3he constitutional safe5uard a5ainst unreasonable searches and seiFures finds no application to the case at bar either. 3here has been no search underta,en b! an! a5ent or representative of the PC::, and of course no seiFure on the occasion thereof. .7. Scope and Extent of Po$ers of the PC!! ne other $uestion re%ains to be disposed of, that respectin5 the scope and e&tent of the po+ers that %a! be +ielded b! the PC:: +ith re5ard to the properties or businesses placed under se$uestration or provisionall! ta,en over. bviousl!, it is not a $uestion to +hich an ans+er can be easil! 5iven, %uch less one +hich +ill suffice for ever! conceivable situation. a. PC!! May 3ot Exercise Acts of +$nership ne thin5 is certain, and should be stated at the outset< the PC!! cannot exercise acts of do#inion over propert! se$uestered, froFen or provisionall! ta,en over. AS alread! earlier stressed +ith no little insistence, the act of se$uestrationG freeFin5 or provisional ta,eover of propert! does not i%port or brin5 about a divest%ent of title over said propert!G does not %a,e the PC:: the o+ner thereof. In relation to the propert! se$uestered, froFen or provisionall! ta,en over, the PC!! is a

conservator* not an o$ner. 3herefore, it can not perfor% acts of strict o+nershipG and this is speciall! true in the situations conte%plated b! the se$uestration rules +here, unli,e cases of receivership, for e&a%ple, no court e&ercises effective supervision or can upon due application and hearin5, 5rant authorit! for the perfor%ance of acts of do%inion. E$uall! evident is that the resort to the provisional re%edies in $uestion should entail the least possible interference +ith business operations or activities so that, in the event that the accusation of the business enterprise bein5 -ill 5otten- be not proven, it %a! be returned to its ri5htful o+ner as far as possible in the sa%e condition as it +as at the ti%e of se$uestration. b. PC!! 6as +nly Po$ers of Ad#inistration

3he PC:: %a! thus e&ercise onl! po+ers of ad%inistration over the propert! or business se$uestered or provisionall! ta,en over, %uch li,e a court@appointed receiver, 115 such as to brin5 and defend actions in its o+n na%eG receive rentsG collect debts dueG pa! outstandin5 debtsG and 5enerall! do such other acts and thin5s as %a! be necessar! to fulfill its %ission as conservator and ad%inistrator. In this conte&t, it %a! in addition enCoin or restrain an! actual or threatened co%%ission of acts b! an! person or entit! that %a! render %oot and acade%ic, or frustrate or other+ise %a,e ineffectual its efforts to carr! out its tas,G punish for direct or indirect conte%pt in accordance +ith the Rules of CourtG and see, and secure the assistance of an! office, a5enc! or instru%entalit! of the 5overn%ent. 116 In the case of se$uestered businesses 5enerall! "i.e., 5oin5 concerns, businesses in current operation#, as in the case of se$uestered obCects, its essential role, as alread! discussed, is that of conservator, careta,er, -+atchdo5- or overseer. It is not that of %ana5er, or innovator, %uch less an o+ner.
c. Po$ers over %usiness Enterprises "a&en +ver )y Marcos or Entities or Persons Close to hi#8 'i#itations "hereon

No+, in the special instance of a business enterprise sho+n b! evidence to have been -ta,en over b! the 5overn%ent of the Marcos Ad%inistration or b! entities or persons close to for%er President Marcos,- 11G the PC:: is 5iven po+er and authorit!, as alread! adverted to, to -provisionall! ta,e "it# over in the public interest or to prevent A A "its# disposal or dissipationGand since the ter% is obviousl! e%plo!ed in reference to 5oin5 concerns, or business enterprises in operation, so%ethin5 %ore than %ere ph!sical custod! is connotedG the PC:: %a! in this case e&ercise so%e %easure of control in the operation, runnin5, or %ana5e%ent of the business itself. But even in this special situation, the intrusion into %ana5e%ent should be restricted to the %ini%u% de5ree necessar! to acco%plish the le5islative +ill, +hich is -to prevent the disposal or dissipation- of the business enterprise. 3here should be no hast!, indiscri%inate, unreasoned replace%ent or substitution of %ana5e%ent officials or chan5e of policies, particularl! in respect of viable establish%ents. In fact, such a replace%ent or substitution should be avoided if at all possible, and underta,en onl! +hen Custified b! de%onstrabl! tenable 5rounds and in line +ith the stated obCectives of the PC::. And it 5oes +ithout sa!in5 that +here replace%ent of %ana5e%ent officers %a! be called for, the 5reatest prudence, circu%spection, care and attention @ should acco%pan! that underta,in5 to the end that trul! co%petent, e&perienced and honest %ana5ers %a! be recruited. 3here should be no role to be pla!ed in this area b! ran, a%ateurs, no %atter ho+ +en %eanin5. 3he road to hell, it has been said, is paved +ith 5ood intentions. 3he business is not to be e&peri%ented or pla!ed around +ith, not run into the 5round, not driven to ban,ruptc!, not fleeced, not ruined. Si5ht should never be lost si5ht of the ulti%ate obCective of the +hole e&ercise, +hich is to turn over the business to the Republic, once Cudiciall! established to be -ill@5otten.- Reason dictates that it

is onl! under these conditions and circu%stances that the supervision, ad%inistration and control of business enterprises provisionall! ta,en over %a! le5iti%atel! be e&ercised.
d. 4oting of Sequestered Stoc&8 Conditions "herefor So, too, it is +ithin the para%eters of these conditions and circu%stances that the PC:: %a! properl! e&ercise the prero5ative to vote se$uestered stoc, of corporations, 5ranted to it b! the President of the Philippines throu5h a Me%orandu% dated 0une .4, /(14. 3hat Me%orandu% authoriFes the PC::, -pendin5 the outco%e of proceedin5s to deter%ine the o+nership of A A "se$uestered# shares of stoc,,- -to vote such shares of stoc, as it %a! have se$uestered in corporations at all stoc,holders; %eetin5s called for the election of directors, declaration of dividends, a%end%ent of the Articles of Incorporation, etc.- 3he Me%orandu% should be construed in such a %anner as to be consistent +ith, and not contradictor! of the E&ecutive rders earlier pro%ul5ated on the sa%e %atter. 3here should be no e&ercise of the ri5ht to vote si%pl! because the ri5ht e&ists, or because the stoc,s se$uestered constitute the controllin5 or a substantial part of the corporate votin5 po+er. 3he stoc, is not to be voted to replace directors, or revise the articles or b!@la+s, or other+ise brin5 about substantial chan5es in polic!, pro5ra% or practice of the corporation e&cept for de%onstrabl! +ei5ht! and defensible 5rounds, and al+a!s in the conte&t of the stated purposes of se$uestration or provisional ta,eover, i.e., to prevent the dispersion or undue disposal of the corporate assets. Directors are not to be voted out si%pl! because the po+er to do so e&ists. Substitution of directors is not to be done +ithout reason or rh!%e, should indeed be shunned if at an possible, and underta,en onl! +hen essential to prevent disappearance or +asta5e of corporate propert!, and al+a!s under such circu%stances as assure that the replace%ents are trul! possessed of co%petence, e&perience and probit!.

In the case at bar, there +as ade$uate Custification to vote the incu%bent directors out of office and elect others in their stead because the evidence sho+ed pri#a facie that the for%er +ere Cust tools of President Marcos and +ere no lon5er o+ners of an! stoc, in the fir%, if the! ever +ere at all. 3his is +h!, in its Resolution of ctober .1, /(14G 11C this Court declared that H
Petitioner has failed to %a,e out a case of 5rave abuse or e&cess of Curisdiction in respondents; callin5 and holdin5 of a stoc,holders; %eetin5 for the election of directors as authoriFed b! the Me%orandu% of the President A A "to the PC::# dated 0une .4, /(14, particularl!, +here as in this case, the 5overn%ent can, throu5h its desi5nated directors, properl! e&ercise control and %ana5e%ent over +hat appear to be properties and assets o+ned and belon5in5 to the 5overn%ent itself and over +hich the persons +ho appear in this case on behalf of BASEC have failed to sho+ an! ri5ht or even an! shareholdin5 in said corporation. It %ust ho+ever be e%phasiFed that the conduct of the PC:: no%inees in the BASEC Board in the %ana5e%ent of the co%pan!;s affairs should henceforth be 5uided and 5overned b! the nor%s herein laid do+n. 3he! should never for a %o%ent allo+ the%selves to for5et that the! are conservators, not o+ners of the businessG the! are fiduciaries, trustees, of +ho% the hi5hest de5ree of dili5ence and rectitude is, in the pre%ises, re$uired. .8. 3o Sufficient Sho$ing of +ther Irregularities

As to the other irre5ularities co%plained of b! BASEC , i.e., the cancellation or revision, and the e&ecution of certain contracts, inclusive of the ter%ination of the e%plo!%ent of so%e of its e&ecutives, 11D this Court cannot, in the present state of the evidence on record, pass upon the%. It is not necessar! to do so. 3he issues arisin5 therefro% %a! and +ill be left for initial

deter%ination in the appropriate action. But the Court +ill state that absent an! sho+in5 of an! i%portant cause therefor, it +ill not nor%all! substitute its Cud5%ent for that of the PC:: in these individual transactions. It is clear ho+ever, that as thin5s no+ stand, the petitioner cannot be said to have established the correctness of its sub%ission that the acts of the PC:: in $uestion +ere done +ithout or in e&cess of its po+ers, or +ith 5rave abuse of discretion.
IDERE2 RE, the petition is dis%issed. 3he te%porar! restrainin5 order issued on /(14 is lifted. 1ap* ernan* Paras* !ancayco and Sar#iento* //.* concur. ctober /7,

FIRST DIVISION

[G.R. No. 125986. January 28, 1999]

LUXURIA HOMES, IN ., an!"or AI#A M. $OSA#AS, petitioners, vs. HONORA%LE OUR& O' A$$EALS, JAMES %UIL#ER ONS&RU &ION an!"or JAIME &. %RA(O, respondents. #E
MAR&INE), J.*

ISION

This petition for review assails the decision of the respondent Court of Appeals dated March 1 ! 1""#!$1% which affir&ed with &odification the 'ud(&ent of default rendered )* the Re(ional Trial Court of Muntinlupa! +ranch ,-#! in Civil Case No. ",/, ", (rantin( all the reliefs pra*ed for in the co&plaint of private respondent 0a&es +uilder Construction and1or 0ai&e T. +ravo. As culled fro& the record! the facts are as follows2 3etitioner Aida M. 3osadas and her two 4,5 &inor children co/owned a 1.# hectare propert* in Sucat! Muntinlupa! which was occupied )* s6uatters. 3etitioner 3osadas entered into ne(otiations with private respondent 0ai&e T. +ravo re(ardin( the develop&ent of the said propert* into a residential su)division. On Ma* 7! 1"8"! she authori9ed private respondent to ne(otiate with the s6uatters to leave the said propert*. :ith a written authori9ation! respondent +ravo )uc;led down to wor; and started ne(otiations with the s6uatters. Meanwhile! so&e seven 4-5 &onths later! on Dece&)er 11! 1"8"! petitioner 3osadas and her two 4,5 children! throu(h a Deed of Assi(n&ent! assi(ned the said propert* to petitioner <u=uria >o&es! Inc.! purportedl* for or(ani9ational and ta= avoidance purposes. Respondent +ravo si(ned as one of the witnesses to the e=ecution of the Deed of Assi(n&ent and the Articles of Incorporation of petitioner <u=uria >o&es! Inc.

Then so&eti&e in 1"",! the har&onious and con(enial relationship of petitioner 3osadas and respondent +ravo turned sour when the for&er supposedl* could not accept the &ana(e&ent contracts to develop the 1.# hectare propert* into a residential su)division! the latter was proposin(. In retaliation! respondent +ravo de&anded pa*&ent for services rendered in connection with the develop&ent of the land. In his state&ent of account dated ,1 Au(ust 1""1$,% respondent de&anded the pa*&ent of 31!-?8!@8".?? for various services rendered! i.e.! relocation of s6uatters! preparation of the architectural desi(n and site develop&ent plan! surve* and fencin(. 3etitioner 3osadas refused to pa* the a&ount de&anded. Thus! in Septe&)er 1"",! private respondents 0a&es +uilder Construction and 0ai&e T. +ravo instituted a co&plaint for specific perfor&ance )efore the trial court a(ainst petitioners 3osadas and <u=uria >o&es! Inc. 3rivate respondents alle(ed therein that petitioner 3osadas as;ed the& to clear the su)'ect parcel of land of s6uatters for a fee of31!1??!???.?? for which the* were partiall* paid the a&ount of 3@#1! 11. ?! leavin( a )alance of 3#78!@88. ?. The* were also supposedl* as;ed to prepare a site develop&ent plan and an architectural desi(n for a contract price of 3@ ?!???.?? for which the* were partiall* paid the a&ount of 3, !???.??! leavin( a )alance of 3@, !???.??. And in anticipation of the si(nin( of the land develop&ent contract! the* had to construct a )un;house and warehouse on the propert* which a&ounted to 37??!???.??! and a hollow )loc;s factor* for 3#?!???.??. 3rivate respondents also clai&ed that petitioner 3osadas a(reed that private respondents will develop the land into a first class su)division thru a &ana(e&ent contract and that petitioner 3osadas is un'ustl* refusin( to co&pl* with her o)li(ation to finali9e the said &ana(e&ent contract. The pra*er in the co&plaint of the private respondents )efore the trial court reads as follows2

A:>BRBFORB! pre&ises considered! it is respectfull* pra*ed of this >onora)le Court that after hearin(1trial 'ud(&ent )e rendered orderin( defendant to2 a5 Co&pl* with its o)li(ation to deliver1finali9e Mana(e&ent Contract of its land in Sucat! Muntinlupa! Metro Manila and to pa* plaintiff its )alance in the a&ount of 31!-?8!@8".??C )5 3a* plaintiff &oral and e=e&plar* da&a(es in the a&ount of 3 ??!???.??C c5 3a* plaintiff actual da&a(es in the a&ount of 3 ??!???.?? 4+un;house1warehouse D 37??!???.??! >ollow/)loc; factor* D 3#?!???.??! lu&)er! ce&ent! etc.! 31,?!???.??! (uard D 3,?!???.??5C d5 3a* plaintiff attorne*Es fee of 3 ?!??? plus 3-?? per appearance in court and F of that which &a* )e awarded )* the court to plaintiff re its &onetar* clai&sC e5 3a* cost of this suit.G$7%
On Septe&)er ,-! 1""7! the trial court declared petitioner 3osadas in default and allowed the private respondents to present their evidence ex-parte. On March 8! 1""@! it ordered

petitioner 3osadas! 'ointl* and in solidu& with petitioner <u=uria >o&es! Inc.! to pa* private respondents as follows2

A1. = = = the )alance of the pa*&ent for the various services perfor&ed )* 3laintiff with respect to the land covered )* TCT NO. 1#-8" previousl* No. 1 8,"? in the total a&ount of 31!-?8!@8".??. ,. = = = actual da&a(es incurred for the construction of the warehouses1)un;s! and for the &aterials used in the total su& of 31! ??!???.??. 7. Moral and e=e&plar* da&a(es of 3 ??!???.??. @. Attorne*Es fee of 3 ?!???.??. . And cost of this proceedin(s. Defendant Aida 3osadas as the Representative of the Corporation <u=uria >o&es! Incorporated! is further directed to e=ecute the &ana(e&ent contract she co&&itted to do! also in consideration of the various underta;in(s that 3laintiff rendered for her.G $@%
A((rieved )* the aforecited decision! petitioners appealed to respondent Court of Appeals! which! as aforestated! affir&ed with &odification the decision of the trial court. The appellate court deleted the award of &oral da&a(es on the (round that respondent 0a&es +uilder Construction is a corporation and hence could not e=perience ph*sical sufferin( and &ental an(uish. It also reduced the award of e=e&plar* da&a(es. The dispositive portion of the decision reads2

A:>BRBFORB! the decision appealed fro& is here)* AFFIRMBD with the &odification that the award of &oral da&a(es is ordered deleted and the award of e=e&plar* da&a(es to the plaintiffs/appellee should onl* )e in the a&ount of FIFTH T>OISAND 43 ?!???.??5 3BSOS.G$ %
3etitionersE &otion for reconsideration was denied! pro&ptin( the filin( of this petition for review )efore this Court. On 0anuar* 1 ! 1""-! the Third Division of this Court denied due course to this petition for failin( to show convincin(l* an* reversi)le error on the part of the Court of Appeals. This Court however deleted the (rant of e=e&plar* da&a(es and attorne*Es fees. The Court also reduced the trial courtEs award of actual da&a(es fro& 31! ??!???.?? to 3 ??!???.?? reasonin( that the (rant should not e=ceed the a&ount pra*ed for in the co&plaint. In the pra*er in the co&plaint respondents as;ed for actual da&a(es in the a&ount of 3 ??!???.?? onl*. Still feelin( a((rieved with the resolution of this Court! petitioners filed a &otion for reconsideration. On March 1-! 1""-! this Court found &erit in the petitionersE &otion for reconsideration and reinstated this petition for review.

Fro& their petition for review and &otion for reconsideration )efore this Court! we now s*nthesi9e the issues as follows2
1. :ere private respondents a)le to present ex-parte sufficient evidence to su)stantiate the alle(ations in their co&plaint and entitle the& to their pra*ersJ ,. Can petitioner <u=uria >o&es! Inc.! )e held lia)le to private respondents for the transactions supposedl* entered into )etween petitioner 3osadas and private respondentsJ 7. Can petitioners )e co&pelled to enter into a &ana(e&ent contract with private respondentsJ

3etitioners who were declared in default assert that the private respondents who presented their evidence ex-parte nonetheless utterl* failed to su)stantiate the alle(ations in their co&plaint and as such cannot )e entitled to the reliefs pra*ed for. A perusal of the record shows that petitioner 3osadas contracted respondents +ravo to render various services for the initial develop&ent of the propert* as shown )* vouchers evidencin( pa*&ents &ade )* petitioner 3osadas to respondents +ravo for s6uatter relocation! architectural desi(n! surve* and fencin(. Respondents prepared the architectural desi(n! site develop&ent plan and surve* in connection with petitioner 3osadasE application with the >ousin( and <and Re(ulator* +oard 4><RI+5 for the issuance of the Develop&ent 3er&it! 3reli&inar* Approval and <ocational Clearance.$#% 3etitioner )enefited fro& said services as the Develop&ent 3er&it and the <ocational Clearance were eventuall* issued )* the ><IR+ in her favor. 3etitioner 3osadas is therefore lia)le to pa* for these services rendered )* respondents. The contract price for the surve* of the land is 31@?!???.??. 3etitioner &ade partial pa*&ents totalin( 317?!???.?? leavin( a pa*a)le )alance of 31?!???.??. In his testi&on*!$-% he alle(ed that the a(reed price for the preparation of the site develop&ent plan is 3 ??!???.?? and that the preparation of the architectural desi(ns is for 3@ ?!???! or a total of3" ?!???.?? for the two contracts. In his co&plaint however! respondent +ravo alle(ed that he was as;ed Ato prepare the site develop&ent plan and the architectural desi(ns = = = for a contract price of3@ ?!???.?? = = =.G$8% The discrepanc* or inconsistenc* was never reconciled and clarified. :e reiterate that we cannot award an a&ount hi(her than what was clai&ed in the co&plaint. Conse6uentl* for the preparation of )oth the architectural desi(n and site develop&ent plan! respondent is entitled to the a&ount of 3@ ?!???.?? less partial pa*&ents &ade in the a&ount of 3, !???.??. In Policarpio v. RTC of Quezon City!$"% it was held that a court is )ereft of 'urisdiction to award! in a 'ud(&ent )* default! a relief other than that specificall* pra*ed for in the co&plaint. As re(ards the contracts for the e'ect&ent of s6uatters and fencin(! we )elieve however that respondents failed to show proof that the* actuall* fulfilled their co&&it&ents therein. Aside fro& the )are testi&on* of respondent +ravo! no other evidence was presented to show that all the s6uatter were e'ected fro& the propert*. Respondent +ravo failed to show how &an* shanties or structures were actuall* occup*in( the propert* )efore he entered the sa&e! to serve as )asis for concludin( whether the tas; was finished or not. >is testi&on* alone that he successfull* ne(otiated for the e'ect&ent of all the s6uatters fro& the propert* will not suffice.

<i;ewise! in the case of fencin(! there is no proof that it was acco&plished as alle(ed. Respondent +ravo clai&s that he finished si=t* percent 4#?F5 of the fencin( pro'ect )ut he failed to present evidence showin( the area sou(ht to )e fenced and the actual area fenced )* hi&. :e therefore have no )asis to deter&inin( the veracit* respondentEs alle(ations. :e cannot assu&e that the said services rendered for it will )e unfair to re6uire petitioner to pa* the full a&ount clai&ed in case the respondents o)li(ations were not co&pletel* fulfilled. For respondentsE failure to show proof of acco&plish&ent of the aforesaid services! their clai&s cannot )e (ranted. In P.T. Cerna Corp. v. Court of Appeals!$1?% we ruled that in civil cases! the )urden of proof rests upon the part* who! as deter&ined )* the pleadin(s or the nature of the case! asserts the affir&ative of an issue. In this case the )urden lies on the co&plainant! who is dut* )ound to prove the alle(ations in the co&plaint. As this Court has held! he who alle(es a fact has the )urden of provin( it and A MBRB A<<BKATION IS NOT BVIDBNCB. And the rules do not chan(e even if the defendant is declared in default. In the leadin( case of Lopez v. Mendezona!$11% this Court ruled that after entr* of 'ud(&ent in default a(ainst a defendant who has neither appeared nor answered! and )efore final 'ud(&ent in favor of the plaintiff! the latter &ust esta)lish )* co&petent evidence all the &aterial alle(ations of his co&plaint upon which he )ases his pra*er for relief. In De los Santos v. De la Cruz L$1,% this Court declared that a 'ud(&ent )* default a(ainst a defendant does not i&pl* a waiver of ri(hts e=cept that of )ein( heard and of presentin( evidence in his favor. It does not i&pl* ad&ission )* the defendant of the facts and causes of action of the plaintiff! )ecause the codal section re6uires the latter to adduce his evidence in support of his alle(ations as an indispensa)le condition )efore final 'ud(&ent could )e (iven in his favor. Nor could it )e interpreted as an ad&ission )* the defendant that the plaintiffEs causes of action finds support in the law or that the latter is entitled to the relief pra*ed for. :e e=plained the rule in 'ud(&ents )* default in Pascua v. lorendo!$17% where we said that nowhere is it stated that the co&plainants are auto&aticall* entitled to the relief pra*ed for! once the defendants are declared in default. Favora)le relief can )e (ranted onl* after the court has ascertained that the evidence offered and the facts proven )* the presentin( part* warrant the (rant of the sa&e. Otherwise it would )e &eanin(less to re6uire presentation of evidence if ever*ti&e the other part* is declared in default! a decision would auto&aticall* )e rendered in favor of the non/defaultin( part* and e=actl* accordin( to the tenor of his pra*er. In Li! Tan"u v. Ra!olete$1@% we ela)orated and said that a defaulted defendant is not actuall* thrown out of court. The rules see to it that an* 'ud(&ent a(ainst hi& &ust )e in accordance with law. The evidence to support the plaintiffEs cause is! of course! presented in his a)sence! )ut the court is not supposed to ad&it that which is )asicall* inco&petent. Althou(h the defendant would not )e in a position to o)'ect! ele&entar* 'ustice re6uires that onl* le(al evidence should )e considered a(ainst hi&. If the evidence presented should not )e sufficient to 'ustif* a 'ud(&ent for the plaintiff! the co&plaint &ust )e dis&issed. And if an unfavora)le 'ud(&ent should )e 'ustifia)le! it cannot e=ceed the a&ount or )e different in ;ind fro& what is pra*ed for in the co&plaint. The pra*er for actual da&a(es in the a&ount of 3 ??!???.??! supposedl* for the )un;house1warehouse! hollow/)loc; factor*! lu&)er! ce&ent! (uard! etc.! which the trial court (ranted and even increased to 31! ??!???.??! and which this Court would have ri(htl* reduced to the a&ount pra*ed for in the co&plaint! was not esta)lished! as shown upon further review of the record. No receipts or vouchers were presented )* private respondents to show that the*

actuall* spent the a&ount. In Salas v. Court of Appeals !$1 % we said that the )urden of proof of the da&a(es suffered is on the part* clai&in( the sa&e. It his dut* to present evidence to support his clai& for actual da&a(es. If he failed to do so! he has onl* hi&self to )la&e if no award for actual da&a(es is handed down. In fine! as we declared in P#$C S"ippin% & Transport Corp. v. Court of Appeals !$1#% )asic is the rule that to recover actual da&a(es! the a&ount of loss &ust not onl* )e capa)le of proof )ut &ust actuall* )e proven with reasona)le de(ree of certaint*! pre&ised upon co&petent proof or )est evidence o)taina)le of the actual a&ount thereof. :e (o to the second issue of whether <u=uria >o&es! Inc.! was a part* to the transactions entered into )* petitioner 3osadas and private respondents and thus could )e held 'ointl* and severall* with petitioner 3osadas. 3rivate respondents contend that petitioner 3osadas surreptitiousl* for&ed <u=uria >o&es! Inc.! and transferred the su)'ect parcel of land to it to evade pa*&ent and defraud creditors! includin( private respondents. This alle(ation does not find support in the evidence on record. On the contrar* we hold that respondents Court of Appeals co&&itted a reversi)le error when it upheld the factual findin( of the trial court that petitionersE lia)ilit* was a((ravated )* the fact that <u=uria >o&es! Inc.! was for&ed )* petitioner 3osadas after de&and for pa*&ent had )een &ade! evidentl* for her to evade pa*&ent of her o)li(ation! there)* showin( that the transfer of her propert* to <u=uria >o&es! Inc.! was in fraud of creditors. :e easil* (lean fro& the record that private respondents sent de&and letters on ,1 Au(ust 1""1 and 1@ Septe&)er 1""1! or &ore than a *ear and a half after the e=ecution of the Deed of Assi(n&ent on 11 Dece&)er 1"8"! and the issuance of the Articles of Incorporation of petitioner <u=uria >o&es on ,# 0anuar* 1""?. And! the transfer was &ade at the ti&e the relationship )etween petitioner 3osadas and private respondents was supposedl* ver* pleasant. In fact the Deed of Assi(n&ent dated 11 Dece&)er 1"8" and the Articles of Incorporation of <u=uria >o&es! Inc.! issued ,# 0anuar* 1""? were )oth si(ned )* respondent +ravo hi&self as witness. It cannot )e said then that the incorporation of petitioner <u=uria >o&es and the eventual transfer of the su)'ect propert* to it were in fraud of private respondent as such were done with the full ;nowled(e of respondent +ravo hi&self. +esides petitioner 3osadas is not the &a'orit* stoc;holder of petitioner <u=uria >o&es! Inc.! as erroneousl* stated )* the lower court. The Articles of Incorporation of petitioner <u=uria >o&es! Inc.! clearl* show that petitioner 3osadas owns appro=i&atel* 77F onl* of the capital stoc;. >ence petitioner 3osadas cannot )e considered as an alter e(o of petitioner <u=uria >o&es! Inc. To disre(ard the separate 'uridical personalit* of a corporation! the wron(doin( &ust )e clearl* and convincin(l* esta)lished. It cannot )e presu&ed. This is ele&entar*. Thus in 'ayer(Ro)as v. Court of Appeals!$1-% we said that the separate personalit* of the corporation &a* )e disre(arded onl* when the corporation is used as a cloa; or cover for fraud or ille(alit*! or to wor; in'ustice! or where necessar* for the protection of the creditors. Accordin(l* in Del Rosario v. #LRC!$18% where the 3hilsa International 3lace&ent and Services Corp. was or(ani9ed and re(istered with the 3OBA in 1"81! several *ears )efore the co&plainant was filed a case in 1"8 ! we held that this cannot i&pl* fraud.

O)viousl* in the instant case! private respondents failed to show proof that petitioner 3osadas acted in )ad faith. Conse6uentl* since private respondents failed to show that petitioner <u=uria >o&es! Inc.! was a part* to an* of the supposed transactions! not even to the a(ree&ent to ne(otiate with and relocate the s6uatters! it cannot )e held lia)le! na* 'ointl* and in solidu&! to pa* private respondents. In this case since it was petitioner Aida M. 3osadas who contracted respondent +ravo to render the su)'ect services! onl* she is lia)le to pa* the a&ounts ad'ud(ed herein. :e now resolved the third and final issue. 3rivate respondents ur(e the court to co&pel petitioners to e=ecute a &ana(e&ent contract with the& on the )asis of the authori9ation letter dated Ma* 7! 1"8". The full te=t of B=h ADG reads2

AI here)* certif* that we have dul* authori9ed the )earer! Bn(ineer +ravo to ne(otiate! in our )ehalf! the e'ect&ent of s6uatters fro& our propert* of 1.# hectares! &ore or less! in Sucat! Muntinlupa. This authorit* is e=tended to hi& as the representatives of the Mana(ers! under our a(ree&ent for the& to underta;e the develop&ent of said area and the construction of housin( units intended to convert the land into a first class su)division.G
The aforecited docu&ent is nothin( &ore than a Ato/who&/it/&a*/concernG authori9ation letter to ne(otiate with the s6uatters. Althou(h it appears that there was an a(ree&ent for the develop&ent of the area! there is no showin( that sa&e was never perfected and finali9ed. 3rivate respondents presented in evidence onl* drafts of a proposed &ana(e&ent contract with petitionerEs handwritten &ar(inal notes )ut the &ana(e&ent contract was not put in its final for&. The reason wh* there was no final uncorrected draft was )ecause the parties could not a(ree on the stipulations of said contract! which even the private respondents ad&itted as found )* the trial court.$1"% As a conse6uence the &ana(e&ent drafts su)&itted )* the private respondents should at )est )e considered as &ere unaccepted offers. :e find no co(ent reason! considerin( that the parties no lon(er are in a har&onious relationship! for the e=ecution of a contract to develop a su)division. It is funda&ental that there can )e no contract in the true sense in the a)sence of the ele&ent of a(ree&ent! or of &utual assent of the parties. To co&pel petitioner 3osadas! whether as representatives of petitioners <u=uria >o&es or in her personal capacit*! to e=ecute a &ana(e&ent contract under the ter&s and conditions of private respondents would )e to violate the principle of consensualit* of contracts. In P"ilippine #ational *an+ v. Court of Appeals ! $,?% we held that if the assent is wantin( on the part of one who contracts! his act has no &ore efficac* than if it had )een done under duress or )* a person of unsound &ind. In orderin( petitioner 3osadas to e=ecute a &ana(e&ent contract with private respondents! the trial court in effect is puttin( her under duress. The parties are )ound to fulfill the stipulations in a contract onl* upon its perfection. At an*ti&e prior to the perfection of a contract! unaccepted offers and proposals re&ain as such and cannot )e considered as )indin( co&&it&entsC hence not de&anda)le. +HERE'ORE! the petition is 3ARTIA<<H KRANTBD. The assailed decision dated March 1 ! 1""#! of respondent >onora)le Court of Appeals and its Resolution dated Au(ust 1,! 1""#! are MODIFIBD orderin( 3BTITIONBR AIDA M. 3OSADAS to pa* 3RIVATB

RBS3ONDBNTS the a&ount of 3@7 !???.?? as )alance for the preparation of the architectural desi(n! site develop&ent plan and surve*. All other clai&s of respondents are here)* DBNIBD for lac; of &erit. SO OR#ERE# Melo, Kapunan, and Pardo, JJ., concur. Davide, Jr., C.J. (Chairman), no part for&er counsel of a part*.

2IRS3 DIEISI N

>G.R. No. 10CG<F. M"y 2D, 1DD6?

CONCEPT 9UIL!ERS, INC., petitioner, vs. THE NATIONAL LA9OR RELATIONS COMMISSION, JF/-*( !/1/*/o#KL "#$ No-5'-(o M"-"5', Ro$ol8o R"=u'l, C-/*(o5"l R/'0o, M"#u'l G/ll'0o, P"l)-o#/o G/$u)o*, P'$-o A5o/0"-, No-5'-(o Co2'#$"$o-, Ro0'llo S"lu(, E2/l/o G"-)/", J-., M"-/"#o R/o, P"ul/#" 9"*'", A/8-'$o Al5'-", P"=u/(o S"lu(, !o2/#0o Gu"-/#o, Ro2'o G"l1', !o2/#"$o- S"5/#", F'l/,' R"$/"#", G"1/#o Su"l/5/o, Mo-'#o E*)"-'*, F'-$/#"#$ To--'*, F'l/,' 9"*/l"#, "#$ Ru5'# Ro5"lo*, respondents. !ECISION
HERMOSISIMA, JR., J.%

3he corporate %as, %a! be lifted and the corporate veil %a! be pierced +hen a corporation is Cust but the alter e5o of a person or of another corporation. Ihere bad5es of fraud e&istG +here public convenience is defeatedG +here a +ron5 is sou5ht to be Custified thereb!, the corporate fiction or the notion of le5al entit! should co%e to nau5ht. 3he la+ in these instances +ill re5ard the corporation as a %ere association of persons and, in case of t+o corporations, %er5e the% into one. 3hus, +here a sister corporation is used as a shield to evade a corporationUs subsidiar! liabilit! for da%a5es, the corporation %a! not be heard to sa! that it has a personalit! separate and distinct fro% the other corporation. 3he piercin5 of the corporate veil co%es into pla!.

3his special civil action ostensibl! raises the $uestion of +hether the National 6abor Relations Co%%ission co%%itted 5rave abuse of discretion +hen it issued a Vbrea,@open orderW to the sheriff to be enforced a5ainst personal propert! found in the pre%ises of petitionerUs sister co%pan!. Petitioner Concept Builders, Inc., a do%estic corporation, +ith principal office at A== Ma!san Road, EalenFuela, Metro Manila, is en5a5ed in the construction business. Private respondents +ere e%plo!ed b! said co%pan! as laborers, carpenters and ri55ers. n Nove%ber, /(1/, private respondents +ere served individual +ritten notices of ter%ination of e%plo!%ent b! petitioner, effective on Nove%ber *), /(1/. It +as stated in the individual notices that their contracts of e%plo!%ent had e&pired and the proCect in +hich the! +ere hired had been co%pleted. Public respondent found it to be, the fact, ho+ever, that at the ti%e of the ter%ination of private respondentUs e%plo!%ent, the proCect in +hich the! +ere hired had not !et been finished and co%pleted. Petitioner had to en5a5e the services of sub@contractors +hose +or,ers perfor%ed the functions of private respondents. A55rieved, private respondents filed a co%plaint for ille5al dis%issal, unfair labor practice and non@pa!%ent of their le5al holida! pa!, overti%e pa! and thirteenth@%onth pa! a5ainst petitioner. n Dece%ber /(, /(17, the 6abor Arbiter rendered Cud5%ent orderin5 petitioner to reinstate private respondents and to pa! the% bac, +a5es e$uivalent to one !ear or three hundred +or,in5 da!s.
/

n Nove%ber .9, :>?=* the National 6abor Relations Co%%ission "N6RC# dis%issed the %otion for reconsideration filed b! petitioner on the 5round that the said decision had alread! beco%e final and e&ecutor!.
.

n ctober /4, /(14, the N6RC Research and Infor%ation Depart%ent %ade the findin5 that private respondentsU bac,+a5es a%ounted to P/((,1)).)).
*

n ctober .(, /(14, the 6abor Arbiter issued a +rit of e&ecution directin5 the sheriff to e&ecute the Decision, dated Dece%ber /(, /(17. 3he +rit +as partiall! satisfied throu5h 5arnish%ent of su%s fro% petitionerUs debtor, the Metropolitan Iater+or,s and Se+era5e Authorit!, in the a%ount of P1/,*18.*7. Said a%ount +as turned over to the cashier of the N6RC. n 2ebruar! /, /(1(, an Alias Irit of E&ecution +as issued b! the 6abor Arbiter directin5 the sheriff to collect fro% herein petitioner the su% of

P//9,7/7.94, representin5 the balance of the Cud5%ent a+ard, and to reinstate private respondents to their for%er positions. n 0ul! /*, /(1(, the sheriff issued a report statin5 that he tried to serve the alias +rit of e&ecution on petitioner throu5h the securit! 5uard on dut! but the service +as refused on the 5round that petitioner no lon5er occupied the pre%ises. n Septe%ber .4, /(14, upon %otion of private respondents, the 6abor Arbiter issued a second alias +rit of e&ecution. 3he said +rit had not been enforced b! the special sheriff because, as stated in his pro5ress report, dated Nove%ber ., /(1(< 1. All the e&plo*ees inside petitionerEs pre&ises at 355 Ma*san Road! Valen9uela! Metro Manila! clai&ed that the* were e&plo*ees of >*dro 3ipes 3hilippines! Inc. 4>33I5 and not )* respondentC ,. <ev* was &ade upon personal properties he found in the pre&isesC 7. Securit* (uards with hi(h/powered (uns prevented hi& fro& re&ovin( the properties he had levied upon.
@

3he said special sheriff reco%%ended that a Vbrea,@open orderW be issued to enable hi% to enter petitionerUs pre%ises so that he could proceed +ith the public auction sale of the aforesaid personal properties on Nove%ber 9, /(1(. n Nove%ber 4, /(1(, a certain Dennis Cu!e5,en5 filed a third@part! clai% +ith the 6abor Arbiter alle5in5 that the properties sou5ht to be levied upon b! the sheriff +ere o+ned b! D!dro "Phils.#, Inc. "DPPI# of +hich he is the Eice@President. n Nove%ber .*, /(1(, private respondents filed a VMotion for Issuance of a Brea,@ pen rder,W alle5in5 that DPPI and petitioner corporation +ere o+ned b! the sa%e incorporatorX stoc,holders. 3he! also alle5ed that petitioner te%poraril! suspended its business operations in order to evade its le5al obli5ations to the% and that private respondents +ere +illin5 to post an inde%nit! bond to ans+er for an! da%a5es +hich petitioner and DPPI %a! suffer because of the issuance of the brea,@open order. In support of their clai% a5ainst DPPI, private respondents presented dul! certified copies of the :eneral Infor%ations Sheet, dated Ma! /8, /(19, sub%itted b! petitioner to the Securities and E&chan5e Co%%ission "SEC# and the :eneral Infor%ation Sheet, dated Ma! :=* /(19, sub%itted b! DPPI to the Securities and E&chan5e Co%%ission.

3he :eneral Infor%ation Sheet sub%itted b! the petitioner/ revealed the follo+in5< A1. +rea;down of Su)scri)ed Capital

Na&e of Stoc;holder A&ount Su)scri)ed >33I Antonio :. <i& Dennis S. Cu*e(;en( Blisa C. <i& Teodulo R. Dino Vir(ilio O. Casino ,. +oard of Directors Chair&an Me&)er Me&)er Me&)er Me&)er 3#!"""! ??.?? ,!"??!???.?? 7??.?? 1??!???.?? 1??.?? 1??.??

Antonio :. <i& Dennis S. Cu*e(;en( Blisa C. <i& Teodulo R. Dino Vir(ilio O. Casino 7. Corporate Officers

Antonio :. <i& Dennis S. Cu*e(;en( Blisa ?. <i& Vir(ilio O. Casino @. 3rincipal Office

3resident Assistant to the 3resident Treasurer Corporate Secretar*

Ma*san Road

Valen9uela! Metro Manila.G n the other hand, the :eneral Infor%ation Sheet of DPPI revealed the follo+in5< A1. +rea;down of Su)scri)ed Capital

Na&e of Stoc;holder A&ount Su)scri)ed Antonio :. <i& Blisa C. <i& A:< Tradin( Dennis S. Cu*e(;en( Teodulo R. Dino Vir(ilio O. Casino ,. +oard of Directors Chair&an Me&)er Me&)er Me&)er Me&)er 3@??!???.?? -!-??.?? @ !???.?? @?!1??.?? 1??.?? 1??.??

Antonio :. <i& Blisa C. <i& Dennis S. Cu*e(;en( Vir(ilio O. Casino Teodulo R. Dino 7. Corporate Officers Antonio :. <i& Dennis S. Cu*e(;en( Blisa O. <i&

3resident Assistant to the 3resident Treasurer

Vir(ilio O. Casino @. 3rincipal Office 7

Corporate Secretar*

Ma*san Road! Valen9uela! Metro Manila.G

n 2ebruar! /, /((), DPPI filed an pposition to private respondentsU %otion for issuance of a brea,@open order, contendin5 that DPPI is a corporation +hich is separate and distinct fro% petitioner. DPPI also alle5ed that the t+o corporations are en5a5ed in t+o different ,inds of businesses, i.e., DPPI is a %anufacturin5 fir% +hile petitioner +as then en5a5ed in construction. n March ., /((), the 6abor Arbiter issued an respondentsU %otion for brea,@open order. rder +hich denied private

Private respondents then appealed to the N6RC. n April .*, /((., the N6RC set aside the order of the 6abor Arbiter, issued a brea,@open order and directed private respondents to file a bond. 3hereafter, it directed the sheriff to proceed +ith the auction sale of the properties alread! levied upon. It dis%issed the third@part! clai% for lac, of %erit. Petitioner %oved for reconsideration but the %otion +as denied b! the N6RC in a Resolution, dated Dece%ber *, /((.. Dence, the resort to the present petition. Petitioner alle5es that the N6RC co%%itted 5rave abuse of discretion +hen it ordered the e&ecution of its decision despite a third@part! clai% on the levied propert!. Petitioner further contends, that the doctrine of piercin5 the corporate veil should not have been applied, in this case, in the absence of an! sho+in5 that it created DPPI in order to evade its liabilit! to private respondents. It also contends that DPPI is en5a5ed in the %anufacture and sale of steel, concrete and iron pipes, a business +hich is distinct and separate fro% petitionerUs construction business. Dence, it is of no conse$uence that petitioner and DPPI shared the sa%e pre%ises, the sa%e President and the sa%e set of officers and subscribers.
9

Ie find petitionerUs contention to be un%eritorious. It is a funda%ental principle of corporation la+ that a corporation is an entit! separate and distinct fro% its stoc,holders and fro% other corporations to +hich it %a! be connected. But, this separate and distinct personalit! of a corporation is %erel! a fiction created b! la+ for convenience and to pro%ote Custice. So, +hen the notion of separate Curidical personalit! is used to defeat
1 (

public convenience, Custif! +ron5, protect fraud or defend cri%e, or is used as a device to defeat the labor la+s, this separate personalit! of the corporation %a! be disre5arded or the veil of corporate fiction pierced. 3his is true li,e+ise +hen the corporation is %erel! an adCunct, a business conduit or an alter e5o of another corporation.
/) // /.

3he conditions under +hich the Curidical entit! %a! be disre5arded var! accordin5 to the peculiar facts and circu%stances of each case. No hard and fast rule can be accuratel! laid do+n, but certainl!, there are so%e probative factors of identit! that +ill Custif! the application of the doctrine of piercin5 the corporate veil, to +it< A1. ,. 7. @. Stoc; ownership )* one or co&&on ownership of )oth corporations. Identit* of directors and officers. The &anner of ;eepin( corporate )oo;s and records. Methods of conductin( the )usiness.G
17

3he SEC en banc e&plained the Vinstru%entalit! ruleW +hich the courts have applied in disre5ardin5 the separate Curidical personalit! of corporations as follo+s< Where one orporation i! !o or"ani#ed and ontrolled and it! a$$air! are ondu ted !o that it i!, in $a t, a mere in!trumentalit% or ad&un t o$ the other, the $i tion o$ the orporate entit% o$ the 'in!trumentalit%( ma% )e di!re"arded. *he ontrol ne e!!ar% to invo+e the rule i! not ma&orit% or even omplete !to + ontrol )ut !u h domination o$ $inan e!, poli ie! and pra ti e! that the ontrolled orporation ha!, !o to !pea+, no !eparate mind, ,ill or exi!ten e o$ it! o,n, and i! )ut a onduit $or it! prin ipal. -t mu!t )e +ept in mind that the ontrol mu!t )e !ho,n to have )een exer i!ed at the time the a t! omplained o$ too+ pla e. Moreover, the ontrol and )rea h o$ dut% mu!t proximatel% au!e the in&ur% or un&u!t lo!! $or ,hi h the omplaint i! made.. 3he test in deter%inin5 the applicabilit! of the doctrine of piercin5 the veil of corporate fiction is as follo+s< /. Control, not mere ma&orit% or omplete !to + ontrol, )ut omplete domination, not onl% o$ $inan e! )ut o$ poli % and )u!ine!! pra ti e in re!pe t to the tran!a tion atta +ed !o that the orporate entit% a! to thi! tran!a tion had at the time no !eparate mind, ,ill or exi!ten e o$ it! o,n0

1. 2u h ontrol mu!t have )een u!ed )% the de$endant to ommit $raud or ,ron", to perpetuate the violation o$ a !tatutor% or other po!itive le"al dut%, or di!hone!t and un&u!t a t in ontravention o$ plainti$$(! le"al ri"ht!0 and 3. *he a$ore!aid ontrol and )rea h o$ dut% mu!t proximatel% au!e the in&ur% or un&u!t lo!! omplained o$. *he a)!en e o$ an% one o$ the!e element! prevent! 'pier in" the orporate veil. ' in appl%in" the 'in!trumentalit%( or 'alter e"o( do trine, the ourt! are on erned ,ith realit% and not $orm, ,ith ho, the orporation operated and the individual de$endant(! relation!hip to that operation.
1@

3hus, the $uestion of +hether a corporation is a %ere alter e5o, a %ere sheet or paper corporation, a sha% or a subterfu5e is purel! one of fact.
/8

In this case, the N6RC noted that, +hile petitioner clai%ed that it ceased its business operations on April .(, /(14, it filed an Infor%ation Sheet +ith the Securities and E&chan5e Co%%ission on Ma! /8, /(19, statin5 that its office address is at A== Ma!san Road, EalenFuela, Metro Manila. n the other hand, DPPI, the third@part! clai%ant, sub%itted on the sa%e da!, a si%ilar infor%ation sheet statin5 that its office address is at A== Ma!san Road, EalenFuela, Metro Manila. 2urther%ore, the N6RC stated that< 3oth in$ormation !heet! ,ere $iled )% the !ame 4ir"ilio 5. Ca!ino a! the orporate !e retar% o$ )oth orporation!. -t ,ould al!o not )e ami!! to note that )oth orporation! had the !amepre!ident, the !ame )oard o$ dire tor!, the !ame orporate o$$i er!, and !u)!tantiall% the !ame !u)! ri)er!. 6rom the $ore"oin", it appear! that, amon" other thin"!, the re!pondent (herein petitioner) and the third-part% laimant !hared the !ame addre!! and7or premi!e!. 8nder thi! ir um!tan e!, (!i ) it annot )e !aid that the propert% levied upon )% the !heri$$ ,ere not o$ re!pondent!.
1#

Clearl!, petitioner ceased its business operations in order to evade the pa!%ent to private respondents of bac,+a5es and to bar their reinstate%ent to their for%er positions. DPPI is obviousl! a business conduit of petitioner corporation and its e%er5ence +as s,illfull! orchestrated to avoid the financial liabilit! that alread! attached to petitioner corporation. 3he facts in this case are analo5ous to Claparols v. Court of Industrial Relations +here +e had the occasion to rule<
/9

9e!pondent ourt(! $indin"! that indeed the Claparol! 2teel and :ail Plant, ,hi h ea!ed operation o$ June 3;, /<5=, ,a! 28CC>>D>D )% the Claparol! 2teel Corporation e$$e tive the next da%, Jul% /, /<5=, up to De em)er =, /<?1, ,hen the latter $inall% ea!ed to operate, ,ere not di!puted )% petitioner. it i! ver% lear that the latter orporation ,a! a ontinuation and !u e!!or o$ the $ir!t entit% x x x. 3oth prede e!!or! and !u e!!or ,ere o,ned and ontrolled )% petitioner >duardo Claparol! and there ,a! no )rea+ in the !u e!!ion and ontinuit% o$ the !ame )u!ine!!. *hi! 'avoidin"-the-lia)ilit%( ! heme i! ver% patent, on!iderin" that <;@ o$ the !u)! ri)ed !hare! o$ !to + o$ the Claparol! 2teel Corporation (the !e ond orporation) ,a! o,ned )% re!pondent x x x Claparol! him!el$, and all the a!!et! o$ the di!!olved Claparol! 2teel and :ail Plant ,ere turned over to the emer"in" Claparol! 2teel Corporation. It is ver! obvious that the second corporation see,s the protective shield of a corporate fiction +hose veil in the present case could, and should, be pierced as it +as deliberatel! and %aliciousl! desi5ned to evade its financial obli5ation to its e%plo!ees.W In vie+ of the failure of the sheriff, in the case at bar, to effect a lev! upon the propert! subCect of the e&ecution, private respondents had no other recourse but to appl! for a brea,@open order after the third@part! clai% of DPPI +as dis%issed for lac, of %erit b! the N6RC. 3his is in consonance +ith Section *, Rule EII of the N6RC Manual of E&ecution of 0ud5%ent +hich provides that< 2hould the lo!in" part%, hi! a"ent or repre!entative, re$u!e or prohi)it the 2heri$$ or hi! repre!entative entr% to the pla e ,here the propert% !u)&e t o$ exe ution i! lo ated or +ept, the &ud"ment reditor ma% appl% to the Commi!!ion or Aa)or Br)iter on erned $or a )rea+-open order.. 2urther%ore, our perusal of the records sho+s that the t+in re$uire%ents of due notice and hearin5 +ere co%plied +ith. Petitioner and the third@part! clai%ant +ere 5iven the opportunit! to sub%it evidence in support of their clai%. Dence, the N6RC did not co%%it an! 5rave abuse of discretion +hen it affir%ed the brea,@open order issued b! the 6abor Arbiter. 2inall!, +e do not find an! reason to disturb the rule that factual findin5s of $uasi@Cudicial a5encies supported b! substantial evidence are bindin5 on this Court and are entitled to 5reat respect, in the absence of sho+in5 of 5rave abuse of a discretion.
/1

@HEREFORE, the petition is DISMISSED and the assailed resolutions of the N6RC, dated April .*, /((. and Dece%ber *, /((., are A22IRMED. SO OR!ERE!. Padilla BChair#anC* %ellosillo* 4itug* and 9apunan* //.* concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L32<CD< O)(o5'- 2D, 1D6C

BILLA REY TRANSIT, INC., plaintiff@appellant, vs. EUSE9IO E. FERRER, PANGASINAN TRANSPORTATION CO., INC. "#$ PU9LIC SERBICE COMMISSION,defendants. EUSE9IO E. FERRER "#$ PANGASINAN TRANSPORTATION CO., INC., defendants@ appellants. PANGASINAN TRANSPORTATION CO., INC., third@part! plaintiff@appellant, vs. JOSE M. BILLARAMA, third@part! defendant@appellee. Chuidian 'a$ +ffice for plaintiff-appellant. %eng,on* Farraga 7 4illegas for defendant-appellant G third-party plaintiff-appellant. 'aurea 7 Pison for third-party defendant-appellee. ANGELES, J.% 3his is a tri@part! appeal fro% the decision of the Court of 2irst Instance of Manila, Civil Case No. 7/178, declarin5 null and void the sheriff;s sale of t$o certificates of public convenience in favor of defendant Eusebio E. 2errer and the subse$uent sale thereof b! the latter to defendant Pan5asinan 3ransportation Co., Inc.G declarin5 the plaintiff Eilla Re! 3ransit, Inc., to be the la+ful o+ner of the said certificates of public convenienceG and orderin5 the private defendants, Cointl! and severall!, to pa! to the plaintiff, the su% of P8,))).)) as and for attorne!;s fees. 3he case a5ainst the PSC +as dis%issed. 3he rather ra%ified circu%stances of the instant case can best be understood b! a chronolo5ical narration of the essential facts, to +it< Prior to /(8(, 0ose M. Eillara%a +as an operator of a bus transportation, under the business na%e of Eilla Re! 3ransit, pursuant to certificates of public convenience 5ranted hi% b! the Public Service Co%%ission "PSC, for short# in Cases Nos. 77./* and /)748/, +hich authoriFed hi% to operate a total of thirt!@t+o "*.# units on various routes or lines fro% Pan5asinan to

Manila, and vice@versa. n 0anuar! 1, /(8(, he sold the afore%entioned t+o certificates of public convenience to the Pan5asinan 3ransportation Co%pan!, Inc. "other+ise ,no+n as Pantranco#, for P*8),))).)) +ith the condition, a%on5 others, that the seller "Eillara%a# -shall not for a period of /) !ears fro% the date of this sale, appl! for an! 3P? service identical or co%petin5 +ith the bu!er.Barel! three %onths thereafter, or on March 4, /(8(< a corporation called Eilla Re! 3ransit, Inc. "+hich shall be referred to hereafter as the Corporation# +as or5aniFed +ith a capital stoc, of P8)),))).)) divided into 8,))) shares of the par value of P/)).)) eachG P.)),))).)) +as the subscribed stoc,G Natividad R. Eillara%a "+ife of 0ose M. Eillara%a# +as one of the incorporators, and she subscribed for P/,))).))G the balance of P/((,))).)) +as subscribed b! the brother and sister@in@la+ of 0ose M. Eillara%aG of the subscribed capital stoc,, P/)8,))).)) +as paid to the treasurer of the corporation, +ho +as Natividad R. Eillara%a. In less than a %onth after its re5istration +ith the Securities and E&chan5e Co%%ission "March /), /(8(#, the Corporation, on April 9, /(8(, bou5ht five certificates of public convenience, fort!@ nine buses, tools and e$uip%ent fro% one Ealentin 2ernando, for the su% of P.7(,))).)), of +hich P/)),))).)) +as paid upon the si5nin5 of the contractG P8),))).)) +as pa!able upon the final approval of the sale b! the PSCG P7(,8)).)) one !ear after the final approval of the saleG and the balance of P8),))).)) -shall be paid b! the B?>ER to the different suppliers of the SE66ER.3he ver! sa%e da! that the afore%entioned contract of sale +as e&ecuted, the parties thereto i%%ediatel! applied +ith the PSC for its approval, +ith a pra!er for the issuance of a provisional authorit! in favor of the vendee Corporation to operate the service therein involved./ n Ma! /(, /(8(, the PSC 5ranted the provisional per%it pra!ed for, upon the condition that -it %a! be %odified or revo,ed b! the Co%%ission at an! ti%e, shall be subCect to +hatever action that %a! be ta,en on the basic application and shall be valid onl! durin5 the pendenc! of said application.- Before the PSC could ta,e final action on said application for approval of sale, ho+ever, the Sheriff of Manila, on 0ul! 9, /(8(, levied on t$o of the five certificates of pu)lic convenience involved therein, na%el!, those issued under PSC cases Nos. 8(7(7 and 4*91), pursuant to a +rit of e&ecution issued b! the Court of 2irst Instance of Pan5asinan in Civil Case No. /*9(1, in favor of Eusebio 2errer, plaintiff, Cud5%ent creditor, a5ainst Ealentin 2ernando, defendant, Cud5%ent debtor. 3he Sheriff %ade and entered the lev! in the records of the PSC. n 0ul! /4, /(8(, a public sale +as conducted b! the Sheriff of the said t$o certificates of public convenience. 2errer +as the hi5hest bidder, and a certificate of sale +as issued in his na%e. 3hereafter, 2errer sold the t$o certificates of public convenience to Pantranco, and Cointl! sub%itted for approval their correspondin5 contract of sale to the PSC.. Pantranco therein pra!ed that it be authoriFed provisionall! to operate the service involved in the said t$o certificates. 3he applications for approval of sale, filed before the PSC, b! 2ernando and the Corporation, Case No. /.7)89, and that of 2errer and Pantranco, Case No. /.4.91, +ere scheduled for a Coint hearin5. In the %eanti%e, to +it, on 0ul! .., /(8(, the PSC issued an order disposin5 that durin5 the pendenc! of the cases and before a final resolution on the aforesaid applications, the Pantranco shall be the one to operate provisionall! the service under the t$o certificates e%braced in the contract bet+een 2errer and Pantranco. 3he Corporation too, issue +ith this particular rulin5 of the PSC and elevated the %atter to the Supre%e Court,* +hich decreed, after

deliberation, that until the issue on the o+nership of the disputed certificates shall have been finall! settled b! the proper court, the Corporation should be the one to operate the lines provisionall!. n Nove%ber 7, /(8(, the Corporation filed in the Court of 2irst Instance of Manila, a co%plaint for the annul%ent of the sheriff;s sale of the aforesaid t$o certificates of public convenience "PSC Cases Nos. 8(7(7 and 4*91)# in favor of the defendant 2errer, and the subse$uent sale thereof b! the latter to Pantranco, a5ainst 2errer, Pantranco and the PSC. 3he plaintiff Corporation pra!ed therein that all the orders of the PSC relative to the parties; dispute over the said certificates be annulled. In separate ans+ers, the defendants 2errer and Pantranco averred that the plaintiff Corporation had no valid title to the certificates in $uestion because the contract pursuant to +hich it ac$uired the% fro% 2ernando +as subCect to a suspensive condition H the approval of the PSC H +hich has not !et been fulfilled, and, therefore, the Sheriff;s lev! and the conse$uent sale at public auction of the certificates referred to, as +ell as the sale of the sa%e b! 2errer to Pantranco, +ere valid and re5ular, and vested unto Pantranco, a superior ri5ht thereto. Pantranco, on its part, filed a third@part! co%plaint a5ainst 0ose M. Eillara%a, alle5in5 that Eillara%a and the Corporation, are one and the sa%eG that Eillara%a andQor the Corporation +as dis$ualified fro% operatin5 the t+o certificates in $uestion b! virtue of the afore%entioned a5ree%ent bet+een said Eillara%a and Pantranco, +hich stipulated that Eillara%a -shall not for a period of /) !ears fro% the date of this sale, appl! for an! 3P? service identical or co%petin5 +ith the bu!er.?pon the Coinder of the issues in both the co%plaint and third@part! co%plaint, the case +as tried, and thereafter decision +as rendered in the ter%s, as above stated. As stated at the be5innin5, all the parties involved have appealed fro% the decision. 3he! sub%itted a Coint record on appeal. Pantranco disputes the correctness of the decision insofar as it holds that Eilla Re! 3ransit, Inc. "Corporation# is a distinct and separate entit! fro% 0ose M. Eillara%aG that the restriction clause in the contract of 0anuar! 1, /(8( bet+een Pantranco and Eillara%a is null and voidG that the Sheriff;s sale of 0ul! /4, /(8(, is li,e+ise null and voidG and the failure to a+ard da%a5es in its favor and a5ainst Eillara%a. 2errer, for his part, challen5es the decision insofar as it holds that the sheriff;s sale is null and voidG and the sale of the t$o certificates in $uestion b! Ealentin 2ernando to the Corporation, is valid. De also assails the a+ard of P8,))).)) as attorne!;s fees in favor of the Corporation, and the failure to a+ard %oral da%a5es to hi% as pra!ed for in his counterclai%. 3he Corporation, on the other hand, pra!s for a revie+ of that portion of the decision a+ardin5 onl! P8,))).)) as attorne!;s fees, and insistin5 that it is entitled to an a+ard of P/)),))).)) b! +a! of e&e%plar! da%a5es. After a careful stud! of the facts obtainin5 in the case, the vital issues to be resolved are< "/# Does the stipulation bet+een Eillara%a and Pantranco, as contained in the deed of sale, that the for%er -SDA66 N 3 2 R A PERI D 2 /) >EARS 2R M 3DE DA3E 2 3DIS SA6E, APP6> 2 R AN> 3P? SEREICE IDEN3ICA6 R C MPE3IN: II3D 3DE B?>ER,- appl! to

ne+ lines onl! or does it include e&istin5 linesNG ".# Assu%in5 that said stipulation covers all ,inds of lines, is such stipulation valid and enforceableNG "*# In the affir%ative, that said stipulation is valid, did it bind the CorporationN 2or convenience, Ie propose to discuss the fore5oin5 issues b! startin5 +ith the last proposition. 3he evidence has disclosed that Eillara%a, albeit +as not an incorporator or stoc,holder of the Corporation, alle5in5 that he did not beco%e such, because he did not have sufficient funds to invest, his +ife, ho+ever, +as an incorporator +ith the least subscribed nu%ber of shares, and +as elected treasurer of the Corporation. 3he finances of the Corporation +hich, under all concepts in the la+, are supposed to be under the control and ad%inistration of the treasurer ,eepin5 the% as trust fund for the Corporation, +ere, nonetheless, %anipulated and disbursed as if the! +ere the private funds of Eillara%a, in such a +a! and e&tent that Eillara%a appeared to be the actual o+ner@treasurer of the business +ithout re5ard to the ri5hts of the stoc,holders. 3he follo+in5 testi%on! of Eillara%a,7 to5ether +ith the other evidence on record, attests to that effect<
S. Doctor, I +ant to 5o bac, a5ain to the incorporation of the Eilla Re! 3ransit, Inc. >ou heard the testi%on! presented here b! the ban, re5ardin5 the initial openin5 deposit of NE D?NDRED 2IEE 3D ?SAND PES S, of +hich a%ount Ei5ht!@2ive 3housand Pesos +as a chec, dra+n b! !ourself personall!. In the direct e&a%ination !ou told the Court that the reason !ou dre+ a chec, for Ei5ht!@2ive 3housand Pesos +as because !ou and !our +ife, or !our +ife, had spent the %one! of the stoc,holders 5iven to her for incorporation. Iill !ou please tell the Donorable Court if !ou ,ne+ at the ti%e !our +ife +as spendin5 the %one! to pa! debts, !ou personall! ,ne+ she +as spendin5 the %one! of the incorporatorsN A. >ou ,no+ %! %one! and %! +ife;s %one! are one. Ie never tal, about those thin5s.

S. Doctor, !our ans+er then is that since !our %one! and !our +ife;s %one! are one %one! and !ou did not ,no+ +hen !our +ife +as pa!in5 debts +ith the incorporator;s %one!N A. Because so%eti%es she uses %! %one!, and so%eti%es the %one! 5iven to her she 5ives to %e and I deposit the %one!. S. Actuall!, aside fro% !our +ife, !ou +ere also the custodian of so%e of the incorporators here, in the be5innin5N A. Not necessaril!, the! 5ive to %! +ife and +hen %! +ife hands to %e I did not ,no+ it belon5ed to the incorporators. S. It supposes then !our +ife 5ives !ou so%e of the %one! received b! her in her capacit! as treasurer of the corporationN A. S. A. Ma!be. Ihat did !ou do +ith the %one!, deposit in a re5ular accountN Deposit in %! account.

S. A.

f all the %one! 5iven to !our +ife, she did not receive an! chec,N I do not re%e%ber.

S. Is it usual for !ou, Doctor, to be 5iven 2ift! 3housand Pesos +ithout even as,in5 +hat is thisN

&&&
0?D:E< Refor% the $uestion.

&&&

&&&

S. 3he subscription of !our brother@in@la+, Mr. Re!es, is 2ift!@3+o 3housand Pesos, did !our +ife 5ive !ou 2ift!@t+o 3housand PesosN A. I have testified before that so%eti%es %! +ife 5ives %e %one! and I do not ,no+ e&actl! for +hat.

3he evidence further sho+s that the initial cash capitaliFation of the corporation of P/)8,))).)) +as %ostl! financed b! Eillara%a. f the P/)8,))).)) deposited in the 2irst National Cit! Ban, of Ne+ >or,, representin5 the initial paid@up capital of the Corporation, P18,))).)) +as covered b! Eillara%a;s personal chec,. 3he deposit slip for the said a%ount of P/)8,))).)) +as ad%itted in evidence as E&h. .*, +hich sho+s on its face that P.),))).)) +as paid in cash and P18,))).)) thereof +as covered b! Chec, No. 2@8).9/ of the 2irst National Cit! Ban, of Ne+ >or,. 3he testi%onies of Alfonso Sancho8 and 0oa$uin A%ansec,4 both e%plo!ees of said ban,, have proved that the dra+er of the chec, +as 0ose Eillara%a hi%self. Another +itness, Celso Rivera, accountant of the Corporation, testified that +hile in the boo,s of the corporation there appears an entr! that the treasurer received P(8,))).)) as second install%ent of the paid@in subscriptions, and, subse$uentl!, also P/)),))).)) as the first install%ent of the offer for second subscriptions +orth P.)),))).)) fro% the ori5inal subscribers, !et Eillara%a directed hi% "Rivera# to %a,e vouchers li$uidatin5 the su%s.9 3hus, it +as %ade to appear that the P(8,))).)) +as delivered to Eillara%a in pa!%ent for e$uip%ent purchased fro% hi%, and the P/)),))).)) +as loaned as advances to the stoc,holders. 3he said accountant, ho+ever, testified that he +as not a+are of an! a%ount of %one! that had actuall! passed hands a%on5 the parties involved,1 and actuall! the onl! %one! of the corporation +as the P/)8,))).)) covered b! the deposit slip E&h. .*, of +hich as %entioned above, P18,))).)) +as paid b! Eillara%a;s personal chec,. 2urther, the evidence sho+s that +hen the Corporation +as in its initial %onths of operation, Eillara%a purchased and paid +ith his personal chec,s 2ord truc,s for the Corporation. E&hibits .) and ./ disclose that the said purchases +ere paid b! Philippine Ban, of Co%%erce Chec,s Nos. ((.4/1@B and ((*4./@B, respectivel!. 3hese chec,s have been sufficientl! established b! 2austo Abad, Assistant Accountant of Manila 3radin5 R Suppl! Co., fro% +hich the truc,s +ere purchased( and Aristedes Solano, an e%plo!ee of the Philippine Ban, of Co%%erce,/) as havin5 been dra+n b! Eillara%a. E&hibits 4 to /( and E&h. .., +hich are photostatic copies of led5er entries and vouchers sho+in5 that Eillara%a had co@%in5led his personal funds and transactions +ith those %ade in the na%e of the Corporation, are ver! illu%inatin5 evidence. Eillara%a has assailed the ad%issibilit! of these e&hibits, contendin5 that no evidentiar! value +hatsoever should be 5iven

to the% since -the! +ere %erel! photostatic copies of the ori5inals, the best evidence bein5 the ori5inals the%selves.- Accordin5 to hi%, at the ti%e Pantranco offered the said e&hibits, it +as the %ost li,el! possessor of the ori5inals thereof because the! +ere stolen fro% the files of the Corporation and onl! Pantranco +as able to produce the alle5ed photostat copies thereof. Section 8 of Rule /*) of the Rules of Court provides for the re$uisites for the ad%issibilit! of secondar! evidence +hen the ori5inal is in the custod! of the adverse part!, thus< "/# opponent;s possession of the ori5inalG ".# reasonable notice to opponent to produce the ori5inalG "*# satisfactor! proof of its e&istenceG and "7# failure or refusal of opponent to produce the ori5inal in court.// Eillara%a has practicall! ad%itted the second and fourth re$uisites./. As to the third, he ad%itted their previous e&istence in the files of the Corporation and also that he had seen so%e of the%./* Re5ardin5 the first ele%ent, Eillara%a;s theor! is that since even at the ti%e of the issuance of the su)poena duces tecu#, the ori5inals +ere alread! %issin5, therefore, the Corporation +as no lon5er in possession of the sa%e. Do+ever, it is not necessar! for a part! see,in5 to introduce secondar! evidence to sho+ that the ori5inal is in the actual possession of his adversar!. It is enou5h that the circu%stances are such as to indicate that the +ritin5 is in his possession or under his control. Neither is it re$uired that the part! entitled to the custod! of the instru%ent should, on bein5 notified to produce it, ad%it havin5 it in his possession./7 Dence, secondar! evidence is ad%issible +here he denies havin5 it in his possession. 3he part! callin5 for such evidence %a! introduce a cop! thereof as in the case of loss. 2or, a%on5 the e&ceptions to the best evidence rule is -+hen the ori5inal has been lost, destro!ed, or cannot be produced in court.-/8 3he ori5inals of the vouchers in $uestion %ust be dee%ed to have been lost, as even the Corporation ad%its such loss. Eie+ed upon this li5ht, there can be no doubt as to the ad%issibilit! in evidence of E&hibits 4 to /( and ... 3a,in5 account of the fore5oin5 evidence, to5ether +ith Celso Rivera;s testi%on!,/4 it +ould appear that< Eillara%a supplied the or5aniFation e&penses and the assets of the Corporation, such as truc,s and e$uip%entG/9there +as no actual pa!%ent b! the ori5inal subscribers of the a%ounts of P(8,))).)) and P/)),))).)) as appearin5 in the boo,sG/1 Eillara%a %ade use of the %one! of the Corporation and deposited the% to his private accountsG/( and the Corporation paid his personal accounts..) Eillara%a hi%self ad%itted that he %in5led the corporate funds +ith his o+n %one!../ De also ad%itted that 5asoline purchases of the Corporation +ere %ade in his na%e.. because -he had e&istin5 account +ith Stanvac +hich +as properl! secured and he +anted the Corporation to benefit fro% the rebates that he received.-.* 3he fore5oin5 circu%stances are stron5 persuasive evidence sho+in5 that Eillara%a has been too %uch involved in the affairs of the Corporation to alto5ether ne5ative the clai% that he +as onl! a part@ti%e 5eneral %ana5er. 3he! sho+ be!ond doubt that the Corporation is his alter ego. It is si5nificant that not a sin5le one of the acts enu%erated above as proof of Eillara%a;s oneness +ith the Corporation has been denied b! hi%. n the contrar!, he has ad%itted the% +ith offered e&cuses. Eillara%a has ad%itted, for instance, havin5 paid P18,))).)) of the initial capital of the Corporation +ith the la%e e&cuse that -his +ife had re$uested hi% to rei%burse the a%ount entrusted to her b! the incorporators and +hich she had used to pa! the obli5ations of Dr. Eillara%a "her husband# incurred +hile he +as still the o+ner of Eilla Re! 3ransit, a sin5le

proprietorship.- But +ith his ad%ission that he had received P*8),))).)) fro% Pantranco for the sale of the t$o certificates and one unit,.7 it beco%es difficult to accept Eillara%a;s e&planation that he and his +ife, after consultation,.8 spent the %one! of their relatives "the stoc,holders# +hen the! +ere supposed to have their o+n %one!. Even if Pantranco paid the P*8),))).)) in chec, to hi%, as clai%ed, it could have been eas! for Eillara%a to have deposited said chec, in his account and issued his o+n chec, to pa! his obli5ations. And there is no evidence adduced that the said a%ount of P*8),))).)) +as all spent or +as insufficient to settle his prior obli5ations in his business, and in the li5ht of the stipulation in the deed of sale bet+een Eillara%a and Pantranco that P8),))).)) of the sellin5 price +as ear%ar,ed for the pa!%ents of accounts due to his creditors, the e&cuse appears unbelievable. n his havin5 paid for purchases b! the Corporation of truc,s fro% the Manila 3radin5 R Suppl! Co. +ith his personal chec,s, his reason +as that he +as onl! sharin5 +ith the Corporation his credit +ith so%e co%panies. And his %ain reason for %in5lin5 his funds +ith that of the Corporation and for the latter;s pa!in5 his private bills is that it +ould be %ore convenient that he ,ept the %one! to be used in pa!in5 the re5istration fees on ti%e, and since he had loaned %one! to the Corporation, this +ould be set off b! the latter;s pa!in5 his bills. Eillara%a ad%itted, ho+ever, that the corporate funds in his possession +ere not onl! for re5istration fees but for other i%portant obli5ations +hich +ere not specified..4 Indeed, +hile Eillara%a +as not the 3reasurer of the Corporation but +as, alle5edl!, onl! a part@ ti%e %ana5er,.9he ad%itted not onl! havin5 held the corporate %one! but that he advanced and lent funds for the Corporation, and !et there +as no Board Resolution allo+in5 it..1 Eillara%a;s e&planation on the %atter of his involve%ent +ith the corporate affairs of the Corporation onl! renders %ore credible Pantranco;s clai% that his control over the corporation, especiall! in the %ana5e%ent and disposition of its funds, +as so e&tensive and inti%ate that it is i%possible to se5re5ate and identif! +hich %one! belon5ed to +ho%. 3he interference of Eillara%a in the co%ple& affairs of the corporation, and particularl! its finances, are %uch too inconsistent +ith the ends and purposes of the Corporation la+, +hich, precisel!, see,s to separate personal responsibilities fro% corporate underta,in5s. It is the ver! essence of incorporation that the acts and conduct of the corporation be carried out in its o+n corporate na%e because it has its o+n personalit!. 3he doctrine that a corporation is a le5al entit! distinct and separate fro% the %e%bers and stoc,holders +ho co%pose it is reco5niFed and respected in all cases +hich are +ithin reason and the la+..( Ihen the fiction is ur5ed as a %eans of perpetratin5 a fraud or an ille5al act or as a vehicle for the evasion of an e&istin5 obli5ation, the circu%vention of statutes, the achieve%ent or perfection of a %onopol! or 5enerall! the perpetration of ,naver! or cri%e,*) the veil +ith +hich the la+ covers and isolates the corporation fro% the %e%bers or stoc,holders +ho co%pose it +ill be lifted to allo+ for its consideration %erel! as an a55re5ation of individuals. ?pon the fore5oin5 considerations, Ie are of the opinion, and so hold, that the preponderance of evidence have sho+n that the Eilla Re! 3ransit, Inc. is an alter ego of 0ose M. Eillara%a, and that the restrictive clause in the contract entered into b! the latter and Pantranco is also enforceable and bindin5 a5ainst the said Corporation. 2or the rule is that a seller or pro%isor %a! not %a,e use of a corporate entit! as a %eans of evadin5 the obli5ation of his covenant.*/ Ihere the Corporation is substantiall! the alter ego of the covenantor to the restrictive a5ree%ent, it can be enCoined fro% co%petin5 +ith the covenantee.*.

3he Corporation contends that even on the supposition that Eilla Re! 3ransit, Inc. and Eillara%a are one and the sa%e, the restrictive clause in the contract bet+een Eillara%a and Pantranco does not include the purchase of e&istin5 lines but it onl! applies to application for the ne+ lines. 3he clause in dispute reads thus<
"7# 3he SE66ER shall not, for a period of ten "/)# !ears fro% the date of this sale apply for any "P( service identical or co#peting $ith the %(1ER. "E%phasis supplied#

As Ie read the disputed clause, it is evident fro% the conte&t thereof that the intention of the parties +as to eli%inate the seller as a co%petitor of the bu!er for ten !ears alon5 the lines of operation covered b! the certificates of public convenience subCect of their transaction. 3he +ord -appl!- as broadl! used has for fra%e of reference, a service b! the seller on lines or routes that +ould co%pete +ith the bu!er alon5 the routes ac$uired b! the latter. In this Curisdiction, prior authoriFation is needed before an!one can operate a 3P? service,**+hether the service consists in a ne+ line or an old one ac$uired fro% a previous operator. 3he clear intention of the parties +as to prevent the seller fro% conductin5 an! co%petitive line for /) !ears since, an!+a!, he has bound hi%self not to appl! for authoriFation to operate alon5 such lines for the duration of such period.*7 If the prohibition is to be applied onl! to the ac$uisition of ne+ certificates of public convenience thru an application +ith the Public Service Co%%ission, this +ould, in effect, allo+ the seller Cust the sa%e to co%pete +ith the bu!er as lon5 as his authorit! to operate is onl! ac$uired thru transfer or sale fro% a previous operator, thus defeatin5 the intention of the parties. 2or +hat +ould prevent the seller, under the circu%stances, fro% havin5 a representative or du%%! appl! in the latter;s na%e and then later on transferrin5 the sa%e b! sale to the sellerN Since stipulations in a contract is the la+ bet+een the contractin5 parties,
Ever! person %ust, in the e&ercise of his ri5hts and in the perfor%ance of his duties, act +ith Custice, 5ive ever!one his due, and observe honest! and 5ood faith. "Art. /(, Ne+ Civil Code.#

Ie are not i%pressed of Eillara%a;s contention that the re@+ordin5 of the t+o previous drafts of the contract of sale bet+een Eillara%a and Pantranco is si5nificant in that as it no+ appears, the parties intended to effect the least restriction. Ie are persuaded, after an e&a%ination of the supposed drafts, that the scope of the final stipulation, +hile not as lon5 and proli& as those in the drafts, is Cust as broad and co%prehensive. At %ost, it can be said that the re@+ordin5 +as done %erel! for brevit! and si%plicit!. 3he evident intention behind the restriction +as to eli%inate the sellers as a co%petitor, and this %ust be, considerin5 such factors as the 5ood +ill*8 that the seller had alread! 5ained fro% the ridin5 public and his adeptness and proficienc! in the trade. n this %atter, Corbin, an authorit! on Contracts has this to sa!.*4
Ihen one bu!s the business of another as a 5oin5 concern, he usuall! +ishes to ,eep it 5oin5G he +ishes to 5et the location, the buildin5, the stoc, in trade, and the custo%ers. De +ishes to step into the seller;s shoes and to enCo! the sa%e business relations +ith other %en. De is +illin5 to pa! %uch %ore if he can 5et the -5ood +ill- of the business, %eanin5 b! this the 5ood +ill of the custo%ers, that the! %a! continue to tread the old footpath to his door and %aintain +ith hi% the business relations enCo!ed b! the seller.

... In order to be +ell assured of this, he obtains and pa!s for the seller;s pro%ise not to reopen business in co%petition +ith the business sold.

As to +hether or not such a stipulation in restraint of trade is valid, our Curisprudence on the %atter*9sa!s<
3he la+ concernin5 contracts +hich tend to restrain business or trade has 5one throu5h a lon5 series of chan5es fro% ti%e to ti%e +ith the chan5in5 condition of trade and co%%erce. Iith triflin5 e&ceptions, said chan5es have been a continuous develop%ent of a 5eneral rule. 3he earl! cases sho+ plainl! a disposition to avoid and annul all contract +hich prohibited or restrained an! one fro% usin5 a la+ful trade -at an! ti%e or at an! place,- as bein5 a5ainst the benefit of the state. 'ater* ho$ever* the rule )eca#e $ell esta)lished that if the restraint $as li#ited to <a certain ti#e< and $ithin <a certain place*< such contracts $ere valid and not <against the )enefit of the state.< 'ater cases* and $e thin& the rule is no$ $ell esta)lished* have held that a contract in restraint of trade is valid providing there is a li#itation upon either ti#e or place. A contract, ho+ever, +hich restrains a %an fro% enterin5 into business or trade +ithout either a li%itation as to ti%e or place, +ill be held invalid. 3he public +elfare of course %ust al+a!s be considered and if it be not involved and the restraint upon one part! is not 5reater than protection to the other re$uires, contracts li,e the one +e are discussin5 +ill be sustained. 3he 5eneral tendenc!, +e believe, of %odern authorit!, is to %a,e the test +hether the restraint is reasonabl! necessar! for the protection of the contractin5 parties. If the contract is reasonabl! necessar! to protect the interest of the parties, it +ill be upheld. "E%phasis supplied.#

Anal!Fin5 the characteristics of the $uestioned stipulation, Ie find that althou5h it is in the nature of an a5ree%ent suppressin5 co%petition, it is, ho+ever, %erel! ancillar! or incidental to the %ain a5ree%ent +hich is that of sale. 3he suppression or restraint is onl! partial or li%ited< first, in scope, it refers onl! to application for 3P? b! the seller in co%petition +ith the lines sold to the bu!erG second, in duration, it is onl! for ten "/)# !earsG and third, $ith respect to situs or territory, the restraint is onl! alon5 the lines covered b! the certificates sold. In vie+ of these li%itations, coupled +ith the consideration of P*8),))).)) for Cust t$o certificates of public convenience, and considerin5, further%ore, that the disputed stipulation is onl! incidental to a %ain a5ree%ent, the sa%e is reasonable and it is not har%ful nor obno&ious to public service.*1 It does not appear that the ulti%ate result of the clause or stipulation +ould be to leave solel! to Pantranco the ri5ht to operate alon5 the lines in $uestion, thereb! establishin5 %onopol! or predo%inance appro&i%atin5 thereto. Ie believe the %ain purpose of the restraint +as to protect for a li%ited ti%e the business of the bu!er. Indeed, the evils of %onopol! are farfetched here. 3here can be no dan5er of price controls or deterioration of the service because of the close supervision of the Public Service Co%%ission.*( 3his Court had stated lon5 a5o,7)that -+hen one devotes his propert! to a use in +hich the public has an interest, he virtuall! 5rants to the public an interest in that use and sub%its it to such public use under reasonable rules and re5ulations to be fi&ed b! the Public ?tilit! Co%%ission.Re5ardin5 that aspect of the clause that it is %erel! ancillar! or incidental to a la+ful a5ree%ent, the underl!in5 reason sustainin5 its validit! is +ell e&plained in *4 A%. 0ur. 8*9@8*(, to +it<

... Nu%erous authorities hold that a covenant +hich is incidental to the sale and transfer of a trade or business, and +hich purports to bind the seller not to en5a5e in the sa%e business in co%petition +ith the purchaser, is la+ful and enforceable. Ihile such covenants are desi5ned to prevent co%petition on the part of the seller, it is ordinaril! neither their purpose nor effect to stifle co%petition 5enerall! in the localit!, nor to prevent it at all in a +a! or to an e&tent inCurious to the public. 3he business in the hands of the purchaser is carried on Cust as it +as in the hands of the sellerG the for%er %erel! ta,es the place of the latterG the co%%odities of the trade are as open to the public as the! +ere beforeG the sa%e co%petition e&ists as e&isted beforeG there is the sa%e e%plo!%ent furnished to others after as beforeG the profits of the business 5o as the! did before to s+ell the su% of public +ealthG the public has the sa%e opportunities of purchasin5, if it is a %ercantile businessG and production is not lessened if it is a %anufacturin5 plant.

3he reliance b! the lo+er court on tile case of Red 'ine "ransportation Co. v. %achrach7/ and findin5 that the stipulation is ille5al and void see%s %isplaced. In the said Red 'ine case, the a5ree%ent therein sou5ht to be enforced +as virtuall! a division of territor! bet+een t+o operators, each co%pan! i%posin5 upon itself an obli5ation not to operate in an! territor! covered b! the routes of the other. Restraints of this t!pe, a%on5 co%%on carriers have al+a!s been covered b! the 5eneral rule invalidatin5 a5ree%ents in restraint of trade. 7. Neither are the other cases relied upon b! the plaintiff@appellee applicable to the instant case. In Pa#panga %us Co.* Inc. v. Enrique,,7*the underta,in5 of the applicant therein not to appl! for the liftin5 of restrictions i%posed on his certificates of public convenience +as not an ancillar! or incidental a5ree%ent. 3he restraint +as the principal obCective. n the other hand, in Red 'ine "ransportation Co.* Inc. v. !on,aga,77 the restraint there in $uestion not to as, for e&tension of the line, or trips, or increase of e$uip%ent H +as not an a5ree%ent bet+een the parties but a condition i%posed in the certificate of public convenience itself. ?pon the fore5oin5 considerations, ur conclusion is that the stipulation prohibitin5 Eillara%a for a period of /) !ears to -appl!- for 3P? service alon5 the lines covered b! the certificates of public convenience sold b! hi% to Pantranco is valid and reasonable. Davin5 arrived at this conclusion, and considerin5 that the preponderance of the evidence have sho+n that Eilla Re! 3ransit, Inc. is itself the alter ego of Eillara%a, Ie hold, as pra!ed for in Pantranco;s third part! co%plaint, that the said Corporation should, until the e&piration of the /@!ear period above%entioned, be enCoined fro% operatin5 the line subCect of the prohibition. 3o avoid an! %isunderstandin5, it is here to be e%phasiFed that the /)@!ear prohibition upon Eillara%a is not a5ainst his application for, or purchase of, certificates of public convenience, but %erel! the operation of 3P? alon5 the lines covered b! the certificates sold b! hi% to Pantranco. Conse$uentl!, the sale bet+een 2ernando and the Corporation is valid, such that the ri5htful o+nership of the disputed certificates still belon5s to the plaintiff bein5 the prior purchaser in 5ood faith and for value thereof. In vie+ of the ancient rule of caveat e#ptorprevailin5 in this Curisdiction, +hat +as ac$uired b! 2errer in the sheriff;s sale +as onl! the ri5ht +hich 2ernando, Cud5%ent debtor, had in the certificates of public convenience on the da! of the sale.78 Accordin5l!, b! the -Notice of 6ev! ?pon Personalt!- the Co%%issioner of Public Service +as notified that -b! virtue of an rder of E&ecution issued b! the Court of 2irst Instance of Pan5asinan, the ri5hts, interests, or participation +hich the defendant, EA6EN3IN A. 2ERNAND H in the above entitled case %a! have in the follo+in5 realt!Qpersonalt! is attached or levied upon, to +it< 3he ri5hts, interests and participation on the Certificates of

Public Convenience issued to Ealentin A. 2ernando, in Cases Nos. 8(7(7, etc. ... 6ines H Manila to 6in5a!en, Da5upan, etc. vice versa.- Such notice of lev! onl! sho+s that 2errer, the vendee at auction of said certificates, %erel! stepped into the shoes of the Cud5%ent debtor. f the sa%e principle is the provision of Article /877 of the Civil Code, that -If the sa%e thin5 should have been sold to different vendees, the o+nership shall be transferred to the person +ho %a! have first ta,en possession thereof in 5ood faith, if it should be %ovable propert!.3here is no %erit in Pantranco and 2errer;s theor! that the sale of the certificates of public convenience in $uestion, bet+een the Corporation and 2ernando, +as not consu%%ated, it bein5 onl! a conditional sale subCect to the suspensive condition of its approval b! the Public Service Co%%ission. Ihile section .)"5# of the Public Service Act provides that -subCect to established li%itation and e&ceptions and savin5 provisions to the contrar!, it shall be unla+ful for an! public service or for the o+ner, lessee or operator thereof, +ithout the approval and authoriFation of the Co%%ission previousl! had ... to sell, alienate, %ort5a5e, encu%ber or lease its propert!, franchise, certificates, privile5es, or ri5hts or an! part thereof, ...,- the sa%e section also provides<
... Provided, ho$ever, 3hat nothin5 herein contained shall be construed to prevent the transaction fro% bein5 ne5otiated or co%pleted before its approval or to prevent the sale, alienation, or lease b! an! public service of an! of its propert! in the ordinar! course of its business.

It is clear, therefore, that the re$uisite approval of the PSC is not a condition precedent for the validit! and consu%%ation of the sale. Anent the $uestion of da%a5es alle5edl! suffered b! the parties, each of the appellants has its or his o+n version to alle5e. Eilla Re! 3ransit, Inc. clai%s that b! virtue of the -tortious acts- of defendants "Pantranco and 2errer# in ac$uirin5 the certificates of public convenience in $uestion, despite constructive and actual ,no+led5e on their part of a prior sale e&ecuted b! 2ernando in favor of the said corporation, +hich necessitated the latter to file the action to annul the sheriff;s sale to 2errer and the subse$uent transfer to Pantranco, it is entitled to collect actual and co%pensator! da%a5es, and attorne!;s fees in the a%ount of P.8,))).)). 3he evidence on record, ho+ever, does not clearl! sho+ that said defendants acted in bad faith in their ac$uisition of the certificates in $uestion. 3he! believed that because the bill of sale has !et to be approved b! the Public Service Co%%ission, the transaction +as not a consu%%ated sale, and, therefore, the title to or o+nership of the certificates +as still +ith the seller. 3he a+ard b! the lo+er court of attorne!;s fees of P8,))).)) in favor of Eilla Re! 3ransit, Inc. is, therefore, +ithout basis and should be set aside. Eusebio 2errer;s char5e that b! reason of the filin5 of the action to annul the sheriff;s sale, he had suffered and should be a+arded %oral, e&e%plar! da%a5es and attorne!;s fees, cannot be entertained, in vie+ of the conclusion herein reached that the sale b! 2ernando to the Corporation +as valid. Pantranco, on the other hand, Custifies its clai% for da%a5es +ith the alle5ation that +hen it purchased EiIlara%a;s business for P*8),))).)), it intended to build up the traffic alon5 the lines covered b! the certificates but it +as rot afforded an opportunit! to do so since barel! three %onths had elapsed +hen the contract +as violated b! Eillara%a operatin5 alon5 the sa%e

lines in the na%e of Eilla Re! 3ransit, Inc. It is further clai%ed b! Pantranco that the underhanded %anner in +hich Eillara%a violated the contract is pertinent in establishin5 punitive or %oral da%a5es. Its contention as to the proper %easure of da%a5es is that it should be the purchase price of P*8),))).)) that it paid to Eillara%a. Ihile Ie are full! in accord +ith Pantranco;s clai% of entitle%ent to da%a5es it suffered as a result of Eillara%a;s breach of his contract +ith it, the record does not sufficientl! suppl! the necessar! evidentiar! %aterials upon +hich to base the a+ard and there is need for further proceedin5s in the lo+er court to ascertain the proper a%ount. PREMISES C NSIDERED, the Cud5%ent appealed fro% is hereb! %odified as follo+s< /. 3he sale of the t$o certificates of public convenience in $uestion b! Ealentin 2ernando to Eilla Re! 3ransit, Inc. is declared preferred over that %ade b! the Sheriff at public auction of the aforesaid certificate of public convenience in favor of Eusebio 2errerG .. Reversed, insofar as it dis%isses the third@part! co%plaint filed b! Pan5asinan 3ransportation Co. a5ainst 0ose M. Eillara%a, holdin5 that Eilla Re! 3ransit, Inc. is an entit! distinct and separate fro% the personalit! of 0ose M. Eillara%a, and insofar as it a+ards the su% of P8,))).)) as attorne!;s fees in favor of Eilla Re! 3ransit, Inc.G *. 3he case is re%anded to the trial court for the reception of evidence in consonance +ith the above findin5s as re5ards the a%ount of da%a5es suffered b! PantrancoG and 7. n e$uitable considerations, +ithout costs. So ordered.

Concepcion* C. /.* Reyes* /.%.'.* Di,on* Ma&alintal* Castro and ernando* //.* concur. Sanche, and Capistrano* //.* too, no part. Faldivar* /.* is on leave.

SBCOND DIVISION

[G.R. No. 1,,812. Jun- 25, 1999]

'RAN IS O MO&ORS OR$ORA&ION, petitioner, vs. OUR& O' A$$EALS an! S$OUSES GREGORIO an! LI%RA#A MANUEL, respondents. #E
.UISUM%ING, J.*

ISION

This petition for review on ertiorari! under Rule @ of the Rules of Court! see;s to annul the decision$1% of the Court of Appeals in C.A. K.R. CV No. 1??1@ affir&in( the decision

rendered )* +ranch 17 ! Re(ional Trial Court of Ma;ati! Metro Manila. The procedural antecedents of this petition are as follows2 On 0anuar* ,7! 1"8 ! petitioner filed a co&plaint $,% a(ainst private respondents to recover three thousand four hundred twelve and si= centavos 437!@1,.?#5! representin( the )alance of the 'eep )od* purchased )* the Manuels fro& petitionerC an additional su& of twent* thousand four hundred fift*/four and ei(ht* centavos 43,?!@ @.8?5 representin( the unpaid )alance on the cost of repair of the vehicleC and si= thousand pesos 43#!???.??5 for cost of suit and attorne*Es fees. $7% To the ori(inal )alance on the price of 'eep )od* were added the costs of repair. $@% In their answer! private respondents interposed a counterclai& for unpaid le(al services )* Kre(orio Manuel in the a&ount of fift* thousand pesos 43 ?!???5 which was not paid )* the incorporators! directors and officers of the petitioner. The trial court decided the case on 0une ,#! 1"8 ! in favor of petitioner in re(ard to the petitionerEs clai& for &one*! )ut also allowed the counter/ clai& of private respondents. +oth parties appealed. On April 1 ! 1""1! the Court of Appeals sustained the trial courtEs decision.$ % >ence! the present petition. For our review in particular is the propriet* of the per&issive counterclai& which private respondents filed to(ether with their answer to petitionerEs co&plaint for a su& of &one*. 3rivate respondent Kre(orio Manuel alle(ed as an affir&ative defense that! while he was petitionerEs Assistant <e(al Officer! he represented &e&)ers of the Francisco fa&il* in the intestate estate proceedin(s of the late +enita Trinidad. >owever! even after the ter&ination of the proceedin(s! his services were not paid. Said fa&il* &e&)ers! he said! were also incorporators! directors and officers of petitioner. >ence to counter petitionerEs collection suit! he filed a per&issive counterclai& for the unpaid attorne*Es fees.$#% For failure of petitioner to answer the counterclai&! the trial court declared petitioner in default on this score! and evidence ex-parte was presented on the counterclai&. The trial court ruled in favor of private respondents and found that Kre(orio Manuel indeed rendered le(al services to the Francisco fa&il* in Special 3roceedin(s Nu&)er -8?7/ AIn the Matter of Intestate Bstate of +enita TrinidadG. Said court also found that his le(al services were not co&pensated despite repeated de&ands! and thus ordered petitioner to pa* hi& the a&ount of fift* thousand 43 ?!???.??5 pesos.$-% Dissatisfied with the trial courtEs order! petitioner elevated the &atter to the Court of Appeals! posin( the followin( issues2
/I.

:>BT>BR OR NOT T>B DBCISION RBNDBRBD +H T>B <O:BR COIRT IS NI<< AND VOID AS IT NBVBR ACMIIRBD 0IRISDICTION OVBR T>B 3BRSON OF T>B DBFBNDANT.
II.

:>BT>BR OR NOT 3<AINTIFF/A33B<<ANT NOT +BINK A RBA< 3ARTH IN T>B A<<BKBD 3BRMISSIVB COINTBRC<AIM S>OI<D +B >B<D <IA+<B TO T>B C<AIM OF DBFBNDANT/A33B<<BBS.
III.

:>BT>BR OR NOT T>BRB IS FAI<IRB ON T>B 3ART OF 3<AINTIFF/ A33B<<ANT TO ANS:BR T>B A<<BKBD 3BRMISSIVB COINTBRC<AIM.G $8%
3etitioner contended that the trial court did not ac6uire 'urisdiction over it )ecause no su&&ons was validl* served on it to(ether with the cop* of the answer containin( the per&issive counterclai&. Further! petitioner 6uestions the propriet* of its )ein( &ade part* to the case )ecause it was not the real part* in interest )ut the individual &e&)ers of the Francisco fa&il* concerned with the intestate case. In its assailed decision now )efore us for review! respondent Court of Appeals held that a counterclai& &ust )e answered in ten 41?5 da*s! pursuant to Section @! Rule 11! of the 9ule! o$ CourtC and nowhere does it state in the Rules that a part* still needed to )e su&&oned anew if a counterclai& was set up a(ainst hi&. Failure to serve su&&ons! said respondent court! did not effectivel* ne(ate trial courtEs 'urisdiction over petitioner in the &atter of the counterclai&. It li;ewise pointed out that there was no reason for petitioner to )e e=cused fro& answerin( the counterclai&. Court records showed that its for&er counsel! Nicanor K. Alvare9! received the cop* of the answer with counterclai& two 4,5 da*s prior to his withdrawal as counsel for petitioner. Moreover when petitionerEs new counsel! 0ose N. A6uino! entered his appearance! three 475 da*s still re&ained within the period to file an answer to the counterclai&. >avin( failed to answer! petitioner was correctl* considered in default )* the trial court. $"%Bven assu&in( that the trial court ac6uired no 'urisdiction over petitioner! respondent court also said! )ut havin( filed a &otion for reconsideration see;in( relief fro& the said order of default! petitioner wase!topped fro& further 6uestionin( the trial courtEs 'urisdiction.$1?% On the 6uestion of its lia)ilit* for attorne*Es fees owin( to private respondent Kre(orio Manuel! petitioner ar(ued that )ein( a corporation! it should not )e held lia)le therefor )ecause these fees were owed )* the incorporators! directors and officers of the corporation in their personal capacit* as heirs of +enita Trinidad. 3etitioner stressed that the personalit* of the corporation! vis/N/vis the individual persons who hired the services of private respondent! is separate and distinct!$11% hence! the lia)ilit* of said individuals did not )eco&e an o)li(ation char(ea)le a(ainst petitioner. Nevertheless! on the fore(oin( issue! the Court of Appeals ruled as follows2

A>owever! this distinct and separate personalit* is &erel* a fiction created )* law for convenience and to pro&ote 'ustice. Accordin(l*! this separate personalit* of the corporation &a* )e disre(arded! or the veil of corporate fiction pierced! in cases where it is used as a cloa; or cover for found 4sic5 ille(alit*! or to wor; an in'ustice! or where necessar* to achieve e6uit* or when necessar* for the protection of creditors. 4Sulo n( +a*an! Inc. v!. Araneta! Inc.! -, SCRA 7@-5 Corporations are co&posed of natural persons and the le(al fiction of a separate corporate personalit* is not a shield for the co&&ission of in'ustice and ine6uit*. 4Che&ple= 3hilippines! Inc. vs. 3a&atian! - SCRA @?85 AIn the instant case! evidence shows that the plaintiff/appellant Francisco Motors Corporation is co&posed of the heirs of the late +enita Trinidad as directors and

incorporators for who& defendant Kre(orio Manuel rendered le(al services in the intestate estate case of their deceased &other. Considerin( the aforestated principles and circu&stances esta)lished in this case! e6uit* and 'ustice de&ands plaintiff/ appellantEs veil of corporate identit* should )e pierced and the defendant )e co&pensated for le(al services rendered to the heirs! who are directors of the plaintiff/ appellant corporation.G$1,%
Now )efore us! petitioner assi(ns the followin( errors2
/I.

T>B COIRT OF A33BA<S BRRBD IN A33<HINK T>B DOCTRINB OF 3IBRCINK T>B VBI< OF COR3ORATB BNTITH.
II.

T>B COIRT OF A33BA<S BRRBD IN AFFIRMINK T>AT T>BRB :AS 0IRISDICTION OVBR 3BTITIONBR :IT> RBS3BCT TO T>B COINTBRC<AIM.G$17%
3etitioner su)&its that respondent court should not have resorted to piercin( the veil of corporate fiction )ecause the transaction concerned onl* respondent Kre(orio Manuel and the heirs of the late +enita Trinidad. Accordin( to petitioner! there was no cause of action )* said respondent a(ainst petitionerC personal concerns of the heirs should )e distin(uished fro& those involvin( corporate affairs. 3etitioner further contends that the present case does not fall a&on( the instances wherein the courts &a* loo; )e*ond the distinct personalit* of a corporation. Accordin( to petitioner! the services for which respondent Kre(orio Manuel see;s to collect fees fro& petitioner are personal in nature. >ence! it avers the heirs should have )een sued in their personal capacit*! and not involve the corporation.$1@% :ith re(ard to the per&issive counterclai&! petitioner also insists that there was no proper service of the answer containin( the per&issive counterclai&. It clai&s that the counterclai& is a separate case which can onl* )e properl* served upon the opposin( part* throu(h su&&ons. Further petitioner states that )* nature! a per&issive counterclai& is one which does not arise out of nor is necessaril* connected with the su)'ect of the opposin( part*Es clai&. 3etitioner avers that since there was no service of su&&ons upon it with re(ard to the counterclai&! then the court did not ac6uire 'urisdiction over petitioner. Since a counterclai& is considered an action independent fro& the answer! accordin( to petitioner! then in effect there should )e two si&ultaneous actions )etween the sa&e parties2 each part* is at the sa&e ti&e )oth plaintiff and defendant with respect to the other!$1 % re6uirin( in each case separate su&&onses. In their Co&&ent! private respondents focus on the two 6uestions raised )* petitioner. The* defend the propriet* of piercin( the veil of corporate fiction! )ut den* the necessit* of servin( separate su&&onses on petitioner in re(ard to their per&issive counterclai& contained in the answer.

3rivate respondents &aintain )oth trial and appellate courts found that respondent Kre(orio Manuel was e&plo*ed as assistant le(al officer of petitioner corporation! and that his services were solicited )* the incorporators! directors and &e&)ers to handle and represent the& in Special 3roceedin(s No. -8?7! concernin( the Intestate Bstate of the late +enita Trinidad. The* assert that the &e&)ers of petitioner corporation too; advanta(e of their positions )* not co&pensatin( respondent Kre(orio Manuel after the ter&ination of the estate proceedin(s despite his repeated de&ands for pa*&ent of his services. The* cite findin(s of the appellate court that support piercin( the veil of corporate identit* in this particular case. The* assert that the corporate veil &a* )e disre(arded when it is used to defeat pu)lic convenience! 'ustif* wron(! protect fraud! and defend cri&e. It &a* also )e pierced! accordin( to the&! where the corporate entit* is )ein( used as an alter e(o! ad'unct! or )usiness conduit for the sole )enefit of the stoc;holders or of another corporate entit*. In these instances! the* aver! the corporation should )e treated &erel* as an association of individual persons.$1#% 3rivate respondents dispute petitionerEs clai& that its ri(ht to due process was violated when respondentsE counterclai& was (ranted due course! althou(h no su&&ons was served upon it. The* clai& that no provision in the Rules of Court re6uires service of su&&ons upon a defendant in a counterclai&. 3rivate respondents ar(ue that when the petitioner filed its co&plaint )efore the trial court it voluntaril* su)&itted itself to the 'urisdiction of the court. As a conse6uence! the issuance of su&&ons on it was no lon(er necessar*. 3rivate respondents sa* the* served a cop* of their answer with affir&ative defenses and counterclai& on petitionerEs for&er counsel! Nicanor K. Alvare9. :hile petitioner would have the Court )elieve that respondents served said cop* upon Alvare9 after he had withdrawn his appearance as counsel for the petitioner! private respondents assert that this contention is utterl* )aseless. Records disclose that the answer was received two 4,5 da*s )efore the for&er counsel for petitioner withdrew his appearance! accordin( to private respondents. The* &aintain that the present petition is )ut a for& of dilator* appeal! to set off petitionerEs o)li(ations to the respondents )* runnin( up &ore interest it could recover fro& the&. 3rivate respondents therefore clai& da&a(es a(ainst petitioner.$1-% To resolve the issues in this case! we &ust first deter&ine the propriet* of piercin( the veil of corporate fiction. +asic in corporation law is the principle that a corporation has a separate personalit* distinct fro& its stoc;holders and fro& other corporations to which it &a* )e connected. $18% >owever! under the doctrine of piercin( the veil of corporate entit*! the corporationEs separate 'uridical personalit* &a* )e disre(arded! for e=a&ple! when the corporate identit* is used to defeat pu)lic convenience! 'ustif* wron(! protect fraud! or defend cri&e. Also! where the corporation is a &ere alter e(o or )usiness conduit of a person! or where the corporation is so or(ani9ed and controlled and its affairs are so conducted as to &a;e it &erel* an instru&entalit*! a(enc*! conduit or ad'unct of another corporation! then its distinct personalit* &a* )e i(nored. $1"% In these circu&stances! the courts will treat the corporation as a &ere a((rupation of persons and the lia)ilit* will directl* attach to the&. The le(al fiction of a separate corporate personalit* in those cited instances! for reasons of pu)lic polic* and in the interest of 'ustice! will )e 'ustifia)l* set aside. In our view! however! (iven the facts and circu&stances of this case! the doctrine of piercin( the corporate veil has no relevant application here. Respondent court erred in per&ittin( the trial

courtEs resort to this doctrine. The rationale )ehind piercin( a corporationEs identit* in a (iven case is to re&ove the )arrier )etween the corporation fro& the persons co&prisin( it to thwart the fraudulent and ille(al sche&es of those who use the corporate personalit* as a shield for underta;in( certain proscri)ed activities. >owever! in the case at )ar! instead of holdin( certain individuals or persons responsi)le for an alle(ed corporate act! the situation has )een reversed. It is the petitioner as a corporation which is )ein( ordered to answer for the personal lia)ilit* of certain individual directors! officers and incorporators concerned. >ence! it appears to us that the doctrine has )een turned upside down )ecause of its erroneous invocation. Note that accordin( to private respondent Kre(orio Manuel his services were solicited as counsel for &e&)ers of the Francisco fa&il* to represent the& in the intestate proceedin(s over +enita TrinidadEs estate. These estate proceedin(s did not involve an* )usiness of petitioner. Note also that he sou(ht to collect le(al fees not 'ust fro& certain Francisco fa&il* &e&)ers )ut also fro& petitioner corporation on the clai&s that its &ana(e&ent had re6uested his services and he acceded thereto as an e&plo*ee of petitioner fro& who& it could )e deduced he was also receivin( a salar*. >is &ove to recover unpaid le(al fees throu(h a counterclai& a(ainst Francisco Motors Corporation! to offset the unpaid )alance of the purchase and repair of a 'eep )od* could onl* result fro& an o)vious &isapprehension that petitionerEs corporate assets could )e used to answer for the lia)ilities of its individual directors! officers! and incorporators. Such result if per&itted could easil* pre'udice the corporation! its own creditors! and even other stoc;holdersC hence! clearl* ine6uitous to petitioner. Further&ore! considerin( the nature of the le(al services involved! whatever o)li(ation said incorporators! directors and officers of the corporation had incurred! it was incurred in their personal capacit*. :hen directors and officers of a corporation are una)le to co&pensate a part* for a personal o)li(ation! it is far/fetched to alle(e that the corporation is perpetuatin( fraud or pro&otin( in'ustice! and )e there)* held lia)le therefor )* piercin( its corporate veil. :hile there are no hard and fast rules on disre(ardin( separate corporate identit*! we &ust alwa*s )e &indful of its function and purpose. A court should )e careful in assessin( the &ilieu where the doctrine of piercin( the corporate veil &a* )e applied. Otherwise an in'ustice! althou(h unintended! &a* result fro& its erroneous application. The personalit* of the corporation and those of its incorporators! directors and officers in their personal capacities ou(ht to )e ;ept separate in this case. The clai& for le(al fees a(ainst the concerned individual incorporators! officers and directors could not )e properl* directed a(ainst the corporation without violatin( )asic principles (overnin( corporations. Moreover! ever* action Oincludin( a counterclai& O &ust )e prosecuted or defended in the na&e of the real part* in interest.$,?% It is plainl* an error to la* the clai& for le(al fees of private respondent Kre(orio Manuel at the door of petitioner 4FMC5 rather than individual &e&)ers of the Francisco fa&il*. >owever! with re(ard to the procedural issue raised )* petitionerEs alle(ation! that it needed to )e su&&oned anew in order for the court to ac6uire 'urisdiction over it! we a(ree with respondent courtEs view to the contrar*. Section @! Rule 11 of the 9ule! o$ Court provides that a counterclai& or cross/clai& &ust )e answered within ten 41?5 da*s fro& service. Nothin( in the Rules of Court sa*s that su&&ons should first )e served on the defendant )efore an answer to counterclai& &ust )e &ade. The purpose of a su&&ons is to ena)le the court to ac6uire 'urisdiction over the person of the defendant. Althou(h a counterclai& is treated as an entirel*

distinct and independent action! the defendant in the counterclai&! )ein( the plaintiff in the ori(inal co&plaint! has alread* su)&itted to the 'urisdiction of the court. Followin( Rule "! Section 7 of the 1""- 9ule! o$ Civil Pro edure!$,1% if a defendant 4herein petitioner5 fails to answer the counterclai&! then upon &otion of plaintiff! the defendant &a* )e declared in default. This is what happened to petitioner in this case! and this Court finds no procedural error in the disposition of the appellate court on this particular issue. Moreover! as noted )* the respondent court! when petitioner filed its &otion see;in( to set aside the order of default! in effect it su)&itted itself to the 'urisdiction of the court. As well said )* respondent court2

AFurther on the lac; of 'urisdiction as raised )* plaintiff/appellant$!% $t%he records show that upon its re6uest! plaintiff/appellant was (ranted ti&e to file a &otion for reconsideration of the disputed decision. 3laintiff/appellant did file its &otion for reconsideration to set aside the order of default and the 'ud(&ent rendered on the counterclai&. AThus! even if the court ac6uired no 'urisdiction over plaintiff/appellant on the counterclai&! as it vi(orousl* insists! plaintiff/appellant is considered to have su)&itted to the courtEs 'urisdiction when it filed the &otion for reconsideration see;in( relief fro& the court. 4Soriano vs. 3alacio! 1, SCRA @@-5. A part* is estopped fro& assailin( the 'urisdiction of a court after voluntaril* su)&ittin( hi&self to its 'urisdiction. 4Te'ones vs. Kironella! 1 " SCRA 1??5. Bstoppel is a )ar a(ainst an* clai&s of lac; of 'urisdiction. 4+alais vs. +alais! 1 " SCRA 7-5.G$,,%
+HERE'ORE! the petition is here)* KRANTBD and the assailed decision is here)* RBVBRSBD insofar onl* as it held Francisco Motors Corporation lia)le for the le(al o)li(ation owin( to private respondent Kre(orio ManuelC )ut this decision is without pre'udice to his filin( the proper suit a(ainst the concerned &e&)ers of the Francisco fa&il* in their personal capacit*. No pronounce&ent as to costs. SO OR#ERE#. 3ello!illo, (Chairman), Puno, Mendo#a, and 3uena, JJ., concur.

2IRS3 DIEISI N

>G.R. No. 16<GC6. F'5-u"-y 16, 2005?

TIMES TRANSPORTATION COMPANY, INC., petitioner, vs. SANTOS SOTELO, CONRA!O 9. SALONGA, SAMSON C. SOLIBEN, 9IENBENI!O F. MALANA, JR., JOBITO B. ALCAUSIN, EFREN A.

RAMOS, RO!RIGO P. CA9USAO, JR., E!GAR G. PONCE, RONAL! ALLAN PARINAS, RO!EL PALO, REYNAL!O R. RAGUCOS, MARIO T. TOLE!O, 9ERNAR!INO PA!UA, !OMINGO P. 9ILAN, ARNEL BALLE!ORES, RAMON RETUTA, JR., PANTALEON TA9ANGIN, AL9ERTO PAN!O, BIRGILIO E. O9AR, EULOGIO !. !IGA, SR., !ANIEL LLA!O, RONILO 9ALTAEAR, MARITO PAN!O, LEOPOL!O FUNTILA, GERRY 9. CARRI!O, @ILLIAM A. TA9UCOL, ANTONIO L. RAMOS, SR., PA9LO P. PA!RE, HENRY 9. GANIR, TEOTIMO R. RE UILMAN, CIPRIANO ULPIN!O, ROGER 9A9I!A, SAMUEL PERALTA, 9ONIFACIO TUMALIP, E!GAR A9LOG, EFREN A9ELLA, RO!RIGO RA9OY, RENATO SILBA, GEORGE PERALTA, RONILO 9AR9OSA, JULIAN 9UENAFE, FLORENCIO CARIO, 9ERNIE TUM9AGA, RO!RIGO CA9AERO, ELMER TAMO, LEOPOL!O NANA, NELIE 9OSE, !EMETRIO HERRERA, RO!OLFO A9ELLA, ALBIN ELEFANTE, RE!ENTOR GARCIA, JERRY PALACPAC, JOSE PAET, ARTHUR I9EA, ELIEER 9ORJA, E!MUN!O ASPIRAS, JOSE B. PESCA!OR, @ILLIAM GARCIA, ERNESTO P. MANGULA9NAN, 9ENJAMIN 9. 9LAEA, JOSELITO P. CACA9ELOS, LEON R. GALANTA, JR., MARIANO P. TEJA!A, PE!RITO C. ORTIE, JR., NESTOR E. 9ALCITA, FLOR 9UR9ANO, HERNAN!O A. PIMENTEL, ALEA A. GOMEE, ARNAL!O P. 9OSE, NAPOLEON 9AL!ERAS, CARLINO B. RULLO!A, JR., RAN!Y R. AMO!O, CORNELIO R. RAGUINI, RO9ERT CERIA, JUANITO U. UGAL!E, AL9ERTO PAJO, ALFRE!O BALOROSO, RUFINO A!RIATICO, 9ARTOLOME C. E!ROSOLAN, JR., REYNANTE A. ALCAIN, NOELITO SUSA "#$ BICENTE NABA, respondents. !ECISION
YNARES3SANTIAGO, J.%

3his petition for revie+ on certiorari assails the decision of the Court of Appeals dated 0anuar! *), .))7 in CA@:.R. SP No. 98.(/, K/L +hich set aside the decision and resolution of the National 6abor Relations Co%%ission, and its resolution dated Ma! .7, .))7K.L den!in5 reconsideration thereof. Petitioner 3i%es 3ransportation Co%pan!, Inc. "3i%es# is a corporation en5a5ed in the business of land transportation. Prior to its closure in /((9, the 3i%es E%plo!ees ?nion "3E?# +as for%ed and issued a certificate of

union re5istration. 3i%es challen5ed the le5iti%ac! of 3E? b! filin5 a petition for the cancellation of its union re5istration. n March *, /((9, 3E? held a stri,e in response to 3i%esU alle5ed atte%pt to for% a rival union and its dis%issal of the e%plo!ees identified to be active union %e%bers. ?pon petition b! 3i%es, then 6abor Secretar!, and no+ Associate 0ustice of this Court, 6eonardo A. Suisu%bin5, assu%ed Curisdiction over the case and referred the %atter to the N6RC for co%pulsor! arbitration. 3he case +as doc,eted as N6RC NCR CC@)))/*7@(9. A return@ to@+or, order +as li,e+ise issued on March /), /((9. In a certification election held on 0ul! /, /((9, 3E? +as certified as the sole and e&clusive collective bar5ainin5 a5ent in 3i%es. Conse$uentl!, 3E?Us president +rote the %ana5e%ent of 3i%es and re$uested for collective bar5ainin5. 3i%es refused on the 5round that the decision of the Med@Arbiter upholdin5 the validit! of the certification election +as not !et final and e&ecutor!. 3E? filed a Notice of Stri,e on Au5ust 1, /((9. Another conciliationQ%ediation proceedin5 +as conducted for the purpose of settlin5 the bre+in5 dispute. In the %eanti%e, 3i%esU %ana5e%ent i%ple%ented a retrench%ent pro5ra% and notices of retrench%ent dated Septe%ber /4, /((9 +ere sent to so%e of its e%plo!ees, includin5 the respondents herein, infor%in5 the% of their retrench%ent effective *) da!s thereafter. n ctober /9, /((9, 3E? held a stri,e vote on 5rounds of unfair labor practice on the part of 3i%es. 2or alle5ed participation in +hat it dee%ed +as an ille5al stri,e, 3i%es ter%inated all the /.* stri,in5 e%plo!ees b! virtue of t+o notices dated ctober .4, /((9 and Nove%ber .7, /((9.K*L n Nove%ber /9, /((9, then D 6E Secretar! Suisu%bin5 issued the second return@to@+or, order certif!in5 the dispute to the N6RC. Ihile the stri,e +as ended, the e%plo!ees +ere no lon5er ad%itted bac, to +or,. In the %eanti%e, b! Dece%ber /., /((9, Mencorp 3ransport S!ste%s, Inc. "Mencorp# had ac$uired o+nership over 3i%esU Certificates of Public Convenience and a nu%ber of its bus units b! virtue of several deeds of sale. K7L Mencorp is controlled and operated b! Mrs. Eir5inia MendoFa, dau5hter of Santia5o Rondaris, the %aCorit! stoc,holder of 3i%es. n Ma! ./, /((1, the N6RC rendered a decisionK8L in the cases certified to it b! the D 6E, the dispositive portion of +hich read< :>BRBFORB! the respondentsE first stri;e! conducted fro& March 7! 1""- to March 1,! 1""-! is here)* declared <BKA<C its second stri;e! which co&&enced on Octo)er

1-! 1""-! is here)* declared I<<BKA<. Conse6uentl*! those P ,7 persons who participated in the ille(al stri;e P are dee&ed to have lost their e&plo*&ent status and were therefore validl* dis&issed fro& e&plo*&ent2 P The respondentsE AMotion to I&plead Mencorp Transport S*ste&s! Inc. and1or Vir(inia Mendo9a and1or Santia(o RondarisG is here)* DBNIBD for lac; of &erit. SO ORDBRBD.K4L 3i%es and 3E? both appealed the decision of the N6RC, +hich the Court of Appeals affir%ed on Nove%ber /9, .))).K9L ?pon denial of its %otion for reconsideration, 3i%es filed a petition for revie+ on certiorari,K1L doc,eted as :.R. Nos. /718))@)/, no+ pendin5 +ith the 3hird Division of this Court. 3E? li,e+ise appealed but its petition +as denied due course. In /((1, and after the closure of 3i%es, the retrenched e%plo!ees, includin5 practicall! all the respondents herein, filed cases for ille5al dis%issal, %one! clai%s and unfair labor practices a5ainst 3i%es before the Re5ional Arbitration Branch in San 2ernando Cit!, 6a ?nion. 3i%es filed a Motion to Dis%iss but on ctober *), /((1, the arbitration branch ordered the archivin5 of the cases pendin5 resolution of :.R. Nos. /718))@)/.K(L 3he dis%issed e%plo!ees did not interpose an appeal fro% said rder. Instead, the! +ithdre+ their co%plaints +ith leave of court and filed a ne+ set of cases before the National Capital Re5ion Arbitration Branch. 3his ti%e, the! i%pleaded Mencorp and the Spouses Re!naldo and Eir5inia MendoFa. 3i%es sou5ht the dis%issal of these cases on the 5round of litis pendencia and foru% shoppin5. n 0anuar! */, .))., 6abor Arbiter Renaldo . DernandeF rendered a decision statin5< :>BRBFORB! pre&ises considered! 'ud(&ent is here)* entered FINDINK that the dis&issals of co&plainants! e=cludin( the e=pun(ed ones! )* respondent Ti&es Transit 4sic5 Co&pan*! Inc. effected! participated in! authori9ed or ratified )* respondent Santia(o Rondaris constituted the prohi)ited act of unfair la)or practice under Article ,@84a5 and 4e5 of the <a)or Code! as a&ended and hence! ille(al and that the sale of said respondent co&pan* to respondents Mencorp Transport S*ste&s Co&pan* 4sic5! Inc. and1or Vir(inia Mendo9a and Re*naldo Mendo9a was si&ulated and1or effected in )ad faith! ORDBRINK2 1. respondents Ti&es Transit 4sic5 Co&pan*! Inc. and Santia(o Rondaris as the officer ad&inistrativel* held lia)le of the unfair la)or practice herein to CBASB AND DBSIST therefore 4sic5C

,. respondents Ti&es Transit 4sic5 Co&pan*! Inc. and1or Santia(o Rondaris and Mencorp Transport S*ste&s Co&pan*! Inc. and1or Vir(inia Mendo9a and Re*naldo Mendo9a to cause the reinstate&ent therein of co&plainants to their for&er positions without loss of seniorit* ri(hts and )enefits and to pa* 'ointl* and severall* said co&plainants full )ac; wa(es rec;oned fro& their respective dates of ille(al dis&issal as a)ove/indicated! until actuall* reinstated or in lieu of such reinstate&ent! at the option of said co&plainants! pa*&ent of their separation pa* of one 415 &onth pa* per *ear of service! rec;oned fro& their date of hire as a)ove/indicated! until actual pa*&ent and1or finalit* of this decisionC 7. and finall* for respondents Ti&es Transit 4sic5 Co&pan*! Inc. and1or Santia(o Rondaris to pa* 'ointl* and severall* said co&plainants as &oral and e=e&plar* da&a(es the co&)ined a&ount of 3- !???.?? and F of the total award as attorne*Es fees. All other clai&s of co&plainants are dis&issed for lac; of &erit. P. SO ORDBRBD.K/)L 3he %onetar! a+ard a%ounted to P7*,*79,*7/.4(. n March 7, .))., 3i%es, Mencorp and the Spouses MendoFa sub%itted their respective %e%orandu% of appeal to the N6RC +ith %otions to reduce the bond. Mencorp posted a P8 %illion bond issued b! Securit! Pacific Assurance Corp. "SPAC#. n April *), .))., the N6RC issued an order disposin5 of the said %otion, thus< :>BRBFORB! pre&ises considered! the Ir(ent Motion for Reduction of +ond is denied for lac; of &erit. Respondents are here)* ordered to co&plete the )ond e6uivalent to the &onetar* award in the <a)or Ar)iterEs Decision! within an une=tendi)le period of ten 41?5 da*s fro& receipt hereof! otherwise! the appeal shall )e dis&issed for non/perfection thereof. SO ORDBRBD.K//L n Ma! /1, .))., 3i%es %oved to reconsider said order ar5uin5 %ainl! that it did not have sufficient funds to put up the re$uired bond. n 0ul! .4, .))., Mencorp and the Spouses MendoFa posted an additional P/) %illion appeal bond. 3hus far, the total a%ount of bond posted +as P/8 %illion. n Au5ust 9, .))., the N6RC 5ranted the Motion for Reduction of Bond and approved the P/) %illion additional appeal bond.K/.L

n Septe%ber /9, .))., the N6RC rendered its decision, statin5< :>BRBFORB! the fore(oin( pre&ises dul* considered! the decision appealed fro& is here)* VACATBD. The records of these consolidated cases are here)* ordered RBMANDBD to the Ar)itration +ranch of ori(in for disposition and for the conduct of appropriate proceedin(s for a decision to )e rendered with dispatch. SO ORDBRBD.K/*L Reconsideration thereof +as denied b! the N6RC on ctober *), .)).. 3hus, the respondents appealed to the Court of Appeals b! +a! of a petition for certiorari, attributin5 5rave abuse of discretion on the N6RC for< "/# not dis%issin5 the appeals of 3i%es, Mencorp and the Spouses MendoFa despite their failure to post the re$uired bondG ".# re%andin5 the case for further proceedin5s despite the sufficienc! of the evidence presented b! the partiesG "*# not sustainin5 the labor arbiterUs rulin5 that the! +ere ille5all! dis%issedG "7# not affir%in5 the labor arbiterUs rulin5 that there +as no litis pendenciaG and "8# not rulin5 that 3i%es and Mencorp are one and the sa%e entit!. n 0anuar! *), .))7, the Court of Appeals rendered the decision no+ assailed in this petition, the decretal portion of +hich states< :>BRBFORB! )ased on the fore(oin(! the instant petition is here)* KRANTBD. The assailed Decision and Resolution of the N<RC are here)* SBT ASIDB. The Decision of the <a)or Ar)iter dated 0anuar* 71! ,??, is here)* RBINSTATBD. SO ORDBRBD.K/7L 3i%es, Mencorp and the Spouses MendoFa filed Motions for Reconsideration, +hich +ere denied in a resolution pro%ul5ated on Ma! .7, .))7. Dence, this petition for revie+ based on the follo+in5 5rounds<
I. Petitioner respectfull! %aintains that the Donorable Court a $uo, in not dis%issin5 the co%plaints a5ainst the petitioner on the 5round of lis pendens, decided the %atter in a +a! not in accord +ith e&istin5 la+s and applicable decisions of this Donorable Court. II. Petitioner, further, respectfull! %aintains that the Donorable Court a $uo, in deter%inin5 that herein petitioners hitherto lost their ri5ht to appeal to the N6RC on account of their purported failure to post an ade$uate appeal bond, radicall! departed fro% the accepted and usual course of Cudicial proceedin5s, not to %ention resolved said issue in a %anner and fashion antithetical to e&istin5 Curisprudence. III. Petitioner, further%ore, respectfull! %aintains that the Donorable Court a $uo, in appl!in5 +holesale the doctrine of piercin5 the veil of corporate fiction and findin5 3i%esU co@petitioners liable for the for%erUs obli5ations, resolved the %atter in a

%anner contradictor! to e&istin5 applicable la+s and dispositions of this Donorable Court, and departed fro% the accepted and usual course of Cudicial proceedin5s +ith re5ard to ad%ittin5 evidence to sustain the application of such principle.K/8L

3he petition lac,s %erit. As to the first issue, 3i%es ar5ues that there e&ists an identit! of issues, ri5hts asserted, relief sou5ht and causes of action bet+een the present case and the one concernin5 the le5alit! of the second stri,e, +hich is no+ pendin5 +ith the 3hird Division of this Court. As such, the Court of Appeals erred in not dis%issin5 the case at bar on the 5round of litis pendencia. 'itis pendencia as a 5round for dis%issal of an action refers to that situation +herein another action is pendin5 bet+een the sa%e parties for the sa%e cause of action and the second action beco%es unnecessar! and ve&atious.K/4L Ie a5ree +ith the findin5s of the Court of Appeals that there is no litis pendencia as the t+o cases involve dissi%ilar causes of action. 3he first case, no+ pendin5 +ith the 3hird Division, pertains to the alle5ed error of the N6RC in not upholdin5 the dis%issal of all the stri,in5 e%plo!ees "not onl! of the .* stri,ers so declared to have lost their e%plo!%ent# in spite of the latterUs rulin5 that the second stri,e +as ille5al. None of the respondents herein +ere a%on5 those dee%ed ter%inated b! virtue of the N6RC decision. In the instant case, the issue is the validit! of the retrench%ent i%ple%ented b! 3i%es prior to the second stri&e and the subse$uent dis%issal of the stri,in5 e%plo!ees. As such, there can be no $uestion that respondents +ere still e%plo!ees of 3i%es +hen the! +ere retrenched. In short, the outco%e of this case does not hin5e on the le5alit! of the second stri,e or the validit! of the dis%issal of the stri,in5 e%plo!ees, +hich issues are !et to be resolved in :.R. Nos. /718))@)/. Conse$uentl!, litis pendencia does not arise. Anent the issue on +hether 3i%es perfected its appeal to the N6RC, the ri5ht to appeal is a statutor! ri5ht and one +ho see,s to avail of the ri5ht %ust co%pl! +ith the statute or rules. 3he rules for perfectin5 an appeal %ust be strictl! follo+ed as the! are considered indispensable interdictions a5ainst needless dela!s and for orderl! dischar5e of Cudicial business.K/9L Section *"a#, Rule EI of the N6RC Rules of Procedure outlines the re$uisites for perfectin5 an appeal, to +it< SBCTION 7. 9eCui!ite! $or Per$e tion o$ Bppeal. O a5 The Appeal shall )e filed within the re(le&entar* period as provided in Section 1 of this Rule and shall )e under oath with proof of pa*&ent of the re6uired appeal fee and the postin( of a cash or suret* )ond as provided in Section # of this RuleC shall )e acco&panied )* &e&orandu& of appeal which shall state the (rounds relied upon and the ar(u&ents

in support thereofC the relief pra*ed for and a state&ent of the date when the appellant received the appealed decision! order or award and proof of service on the other part* of such appeal. B mere noti e o$ appeal ,ithout ompl%in" ,ith the other reCui!ite! a$ore!tated !hall not !top the runnin" o$ the period $or per$e tin" an appeal. 4B&phasis supplied5 Article ..* of the 6abor Code provides that in case of a Cud5%ent involvin5 a %onetar! a+ard, an appeal b! the e%plo!er %a! be perfected onl! upon the postin5 of a cash or suret! bond issued b! a reputable bondin5 co%pan! dul! accredited b! the N6RC in the a%ount e$uivalent to the %onetar! a+ard in the Cud5%ent appealed fro%. 3he perfection of an appeal in the %anner and +ithin the period prescribed b! la+ is not onl! %andator! but also Curisdictional, and failure to perfect an appeal has the effect of %a,in5 the Cud5%ent final and e&ecutor!.K/1L Do+ever, in several cases, +e have rela&ed the rules re5ardin5 the appeal bond especiall! +here it %ust necessaril! !ield to the broader interest of substantial Custice. K/(L 3he Rules of Procedure of the N6RC allo+s for the reduction of the appeal bond upon %otion of the appellant and on %eritorious 5rounds.K.)L It is re$uired ho+ever that such %otion is filed +ithin the re5le%entar! period to appeal. 3he records reveal that 3i%es, Mencorp and the Spouses MendoFaUs %otion to reduce the bond +as denied and the N6RC ordered the% to post the re$uired a%ount $ithin an unextendi)le period of ten B:EC days . K./L Do+ever, instead of co%pl!in5 +ith the directive, 3i%es filed another %otion for reconsideration of the order of denial. Several +ee,s later, Mencorp posted an additional bond, +hich +as still less than the re$uired a%ount. 3hree "*# %onths after the filin5 of the %otion for reconsideration, the N6RC reversed its previous order and 5ranted the %otion for reduction of bond. Ie a5ree +ith the Court of Appeals that the fore5oin5 constitutes 5rave abuse of discretion on the part of the N6RC. B! dela!in5 the resolution of 3i%esU %otion for reconsideration, it has unnecessaril! prolon5ed the period of appeal. Ie have held that to e&tend the period of appeal is to prolon5 the resolution of the case, a circu%stance +hich +ould 5ive the e%plo!er the opportunit! to +ear out the ener5! and %ea5er resources of the +or,ers to the point that the! +ould be constrained to 5ive up for less than +hat the! deserve in la+.K..L 3he N6RC is +ell to ta,e notice of our pronounce%ent in Santos v. 4elarde<K.*L The Court is aware that the N<RC is not )ound )* the technical rules of procedure and is allowed to )e li)eral in the interpretation of rules in decidin( la)or

cases. Do,ever, !u h li)eralit% !hould not )e applied in the in!tant a!e a! it ,ould render $utile the ver% purpo!e $or ,hi h the prin iple o$ li)eralit% i! adopted . P Fro& the decision of the <a)or Ar)iter! it too; the N<RC four &onths to rule on the A&otionG for e=e&ption to pa* )ond and another four &onths to decide the &erits of the case. This Court has repeatedl* ruled that dela* in the settle&ent of la)or cases cannot )e countenanced. Not onl* does it involve the survival of an e&plo*ee and his loved ones who are dependent on hi&P! it also wears down the &ea(er resources of the wor;ers...K.7L 4B&phasis supplied5 3he N6RCUs reversal of its previous order of denial lac,s basis. In the first %otion, Mencorp and Spouses MendoFa %oved for the reduction of the appeal bond on the 5round that the co%putation of the %onetar! a+ard +as hi5hl! suspicious and ano%alous. In their %otion for reconsideration of the N6RCUs denial, Mencorp and the Spouses MendoFa cited financial difficulties in co%pletin5 the appeal bond. Neither 5round is +ell@ta,en. 3i%es and Mencorp failed to substantiate their alle5ations of errors in the co%putation of the %onetar! a+ard. 3he! %erel! asserted VinaccuraciesW +ithout specif!in5 +hich aspect of the co%putation +as inaccurate. If 3i%es and Mencorp trul! believed that there +ere errors in the co%putation, the! could have presented their o+n co%putation for co%parison. As to the clai% of financial difficulties, suffice it to sa! that the la+ does not re$uire outri5ht pa!%ent of the total %onetar! a+ard, but onl! the postin5 of a bond to ensure that the a+ard +ill be eventuall! paid should the appeal fail. Ihat 3i%es has to pa! is a %oderate and reasonable su% for the pre%iu% for such bond. K.8L 3he i%pression thus created +as that 3i%es, Mencorp and the Spouses MendoFa +ere clearl! circu%ventin5, if not alto5ether dod5in5, the rules on the postin5 of appeal bonds. n the propriet! of the piercin5 of the corporate veil, 3i%es clai%s that Vto dra5 Mencorp, KSpousesL MendoFa and Rondaris into the picture on the purported 5round that a fictitious sale of 3i%esU assets in their favor +as consu%%ated +ith the end in vie+ of frustratin5 the ends of Custice and for purposes of evadin5 co%pliance +ith the Cud5%ent is Y the hei5ht of Cudicial arro5ance.WK.4L 3he Court of Appeals believes other+ise and rec,ons that 3i%es and Mencorp failed to adduce evidence to refute alle5ations of collusion bet+een the%. Ie have held that piercin5 the corporate veil is +arranted onl! in cases +hen the separate le5al entit! is used to defeat public convenience, Custif! +ron5, protect fraud, or defend cri%e, such that in the case of t+o corporations, the la+ +ill re5ard the corporations as %er5ed into one. K.9L It %a! be allo+ed onl! if the follo+in5 ele%ents concur< "/# controlHnot %ere stoc,

control, but co%plete do%inationHnot onl! of finances, but of polic! and business practice in respect to the transaction attac,edG ".# such control %ust have been used to co%%it a fraud or a +ron5 to perpetuate the violation of a statutor! or other positive le5al dut!, or a dishonest and an unCust act in contravention of a le5al ri5htG and "*# the said control and breach of dut! %ust have pro&i%atel! caused the inCur! or unCust loss co%plained of.K.1L 3he follo+in5 findin5s of the 6abor Arbiter, +hich +ere cited and affir%ed b! the Court of Appeals, have not been refuted b! 3i%es, to +it<
/. 3he sale +as transferred to a corporation controlled b! E. MendoFa, the dau5hter of respondent S. Rondaris of K3i%esL +here she isQ+as also a director, as proven b! the articles of incorporation of KMencorpLG .. All of the stoc,holdersQincorporators of KMencorpL< Re!naldo M. MendoFa, Eir5inia R. MendoFa, Eernon :erard R. MendoFa, Eivian Charit! R. MendoFa, Eeve! Rosario R. MendoFa are all relatives of respondent S. RondarisG *. 3he ti%in5 of the sale evidentl! +as to ne5ate the e%plo!eesQco%plainantsQ%e%bersU ri5ht to or5aniFation as it +as effected +hen their union "3E?# +as Cust or5aniFedQre$uestin5 K3i%esL to bar5ainG

P
8. KMencorpL never obtained a franchise since its supposed incorporation in /) Ma! /((7 but at present, all the buses of K3i%esL are alread! bein5 runQoperated b! respondent KMencorpL, the franchise of K3i%esL havin5 been transferred to it.K.(L

Ie uphold the findin5s of the labor arbiter and the Court of Appeals. 3he sale of 3i%esU franchise as +ell as %ost of its bus units to a co%pan! o+ned b! RondarisU dau5hter and fa%il! %e%bers, ri5ht in the %iddle of a labor dispute, is hi5hl! suspicious. It is evident that the transaction +as %ade in order to re%ove 3i%esU re%ainin5 assets fro% the reach of an! Cud5%ent that %a! be rendered in the unfair labor practice cases filed a5ainst it. @HEREFORE, pre%ises considered, the petition is DENIED. 3he decision of the Court of Appeals in CA@:.R. SP No. 98.(/ dated 0anuar! *), .))7 and its resolution dated Ma! .7, .))7, are hereb! A22IRMED in toto. SO OR!ERE!. Davide* /r.* C./.* BChair#anC* Carpio* and A,cuna* //.* concur. 0uisu#)ing* /.* no part, due prior action in D 6E. &HIR# #I(ISION

+ILLIAM . 0AO, SR., LUISA . 0AO, RI HAR#

G.R. No. 1681,6

. 0AO, +ILLIAM . 0AO JR., an! ROGER . 0AO! 3etitioners, -ver!u! E

3resent2 HNARBS/SANTIAKO! Chairperson! AISTRIA/MARTINBQ! C>ICO/NAQARIO! and NAC>IRA! JJ.

&HE $EO$LE O' &HE $HILI$$INES, $E&RON OR$ORA&ION an! $ILI$INAS SHELL $E&ROLEUM OR$., an! 3ro&ul(ated2 234 $r2n526a7, SHELL IN&8L $E&ROLEUM O. L&#., 0une 1"! ,??Respondents. = / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /= #E C>ICO/NAQARIO! J.2 In this 3etition for Review on Certiorari$1% under Rule @ of the Rules of Court! petitioners :illia& C. Hao! Sr.! <uisa C. Hao! Richard C. Hao! :illia& C.Hao! 0r.! and Ro(er C. Hao pra* for the reversal of the Decision dated 7? Septe&)er ,??@!$,% and Resolution dated 1 0une ,?? ! of the Court of Appeals in CA K.R. S3 No. -", #!$7% affir&in( the two Orders! )oth dated 0une ,??7! of the Re(ional Trial Court 4RTC5! +ranch 1-! Cavite Cit*! relative to Search :arrants No. ,/,??7 and No. 7/,??7.$@% In the said Orders! the RTC denied the petitionersE Motion to Muash Search :arrant$ % and Motion for the Return of the Motor Co&pressor and<i6uified 3etroleu& Kas 4<3K5 Refillin( Machine.$#% The followin( are the facts2 ISION

3etitioners are incorporators and officers of MASAKANA KAS COR3ORATION 4MASAKANA5! an entit* en(a(ed in the refillin(! sale and distri)ution of <3K products. 3rivate respondents 3etron Corporation 43etron5 and 3ilipinas Shell 3etroleu& Corporation 43ilipinas Shell5 are two of the lar(est )ul; suppliers and producers of <3K in the 3hilippines. Their <3K products are sold under the &ar;s AKASI<G and AS>B<<ANB!G respectivel*. 3etron is the re(istered owner in the3hilippines of the trade&ar;s KASI< and KASI< c*linders used for its <3K products. It is the sole entit* in the 3hilippines authori9ed to allow refillers and distri)utors to refill! use! sell! and distri)ute KASI< <3K containers! products and its trade&ar;s. 3ilipinas Shell! on the other hand! is the authori9ed user in the3hilippines of the tradena&e! trade&ar;s! s*&)ols! or desi(ns of its principal! Shell International 3etroleu& Co&pan* <i&ited 4Shell International5! includin( the &ar;s S>B<<ANB and S>B<< device in connection with the production! sale and distri)ution of S>B<<ANB <3Ks. It is the onl* corporation in the 3hilippines authori9ed to allow refillers and distri)utors to refill! use! sell and distri)ute S>B<<ANB <3K containers and products.$-% On 7 April ,??7! National +ureau of Investi(ation 4N+I5 a(ent Ritche N. O)lanca 4O)lanca5 filed two applications for search warrant with the RTC! +ranch 1-!Cavite Cit*! a(ainst petitioners and other occupants of the MASAKANA co&pound located at KovernorEs Drive! +aran(a* <apidario! Trece Martires! Cavite Cit*! for alle(ed violation of Section 1 ! in relation to Section 1-? of Repu)lic Act No. 8,"7! otherwise ;nown as AThe Intellectual 3ropert* Code of the 3hilippines.G $8% The two applications for search warrant unifor&l* alle(ed that per infor&ation! )elief! and personal verification of O)lanca! the petitioners are actuall* producin(! sellin(! offerin( for sale and1or distri)utin( <3K products usin( steel c*linders owned )*! and )earin( the tradena&es! trade&ar;s! and devices of 3etron and 3ilipinas Shell! without authorit* and in violation of the ri(hts of the said entities. In his two separate affidavits$"% attached to the two applications for search warrant! O)lanca alle(ed2
1. $That% on 11 Fe)ruar* ,??7! the National +ureau of Investi(ation 4AN+IG5 received a letter/co&plaint fro&

Att*. +ienvenido I. So&era 0r. of Villara9a and An(an(co! on )ehalf of a&on( others! $3etron Corporation 43BTRON5% and 3ilipinas Shell 3etroleu& Corporation 43S3C5! the authori9ed representative of Shell International 3etroleu& Co&pan* <i&ited 4AShell InternationalG5! re6uestin( assistance in the investi(ation and! if warranted! apprehension and prosecution of certain persons and1or esta)lish&ents suspected of violatin( the intellectual propert* ri(hts $of 3BTRON% and of 3S3C and Shell International. ,. $That% on the )asis of the letter/co&plaint! I! to(ether with A(ent An(elo Qar9oso! was assi(ned as the N+I a(ent on the case. 7. $That% prior to conductin( the investi(ation on the reported ille(al activities! he reviewed the certificates of trade&ar; re(istrations issued in favor of $3BTRON%! 3S3C and Shell International as well as other docu&ents and other evidence o)tained )* the investi(ative a(enc* authori9ed )* $3BTRON%! 3S3C and Shell International to investi(ate and cause the investi(ation of persons and esta)lish&ents violatin( the ri(hts of $3BTRON%! 3S3C and Shell International! represented )* Mr. +erna)e C. Ala'ar. Certified copies of the fore(oin( trade&ar; re(istrations are attached hereto as Anne=es AAG to A2BG. @. $That% a&on( the esta)lish&ents alle(ed to )e unlawfull* refillin( and unlawfull* sellin( and distri)utin( $Kasul <3K and% Shellane products is Masa(ana Kas Corporation 4AMASAKANAG5. +ased on Securities and B=chan(e Co&&ission Records! MASAKANA has its principal office address at "-- Ra&a(on( Street! San Antonio Villa(e! Ma;ati! MetroManila. The incorporators and directors of MASAKANA are :illia& C. Hao! Sr.! <uisa C. Hao! Richard C. Hao! :illia& C. Hao! 0r.! and Ro(er C. Hao. = = =. . I confir&ed that MASAKANA is not authori9ed to use $3BTRON and% Shellane <3K c*linders and its trade&ar;s and tradena&es or to )e refillers or distri)utors of $3BTRON and% Shellane <3KEs. #. KovernorEs I went to MASAKANAEs refillin( station located at

Drive! +aran(a* <apidario! Trece Martires Cit* 4sic5! Cavite to investi(ate its activities. I confir&ed that MASAKANA is indeed en(a(ed in the unauthori9ed refillin(! sale and1or distri)ution of $Kasul and% Shellane <3K c*linders. I found out that MASAKANA deliver* truc;s with 3late Nos. IMN/"-1! 3BQ/#1,! :TB/ ,-! SAM/ "-? and :FC/#?7 co&in( in and out of the refillin( plant located at the afore&entioned address contained &ulti/)rand <3K c*linders includin( $Kasul and% Shellane. = = =. -. $That% on 17 Fe)ruar* ,??7! I conducted a test/)u* acco&panied )* Mr. +erna)e C. Ala'ar. After as;in( the purpose of our visit! MASAKANAEs (uard allowed us to enter the MASAKANA refillin( plant to purchase KASI< and S>B<<ANB <3Ks. = = =. :e were issued an order slip which we presented to the cashierEs office located near the refillin( station. After pa*in( the a&ount = = = coverin( the cost of the c*linders and their contents! the* were issued Cash Invoice No. #,1? dated Fe)ruar* 17! ,??7. :e were! thereafter! assisted )* the plant attendant in choosin( e&pt* KASI< and S>B<<ANB 11 ;(. c*linders! = = = were )rou(ht to the refillin( station $and filled in their presence.% I noticed that no valve seals were placed on the c*linders. $That% while inside the refillin( plant doin( the test/)u*! I noticed that stoc;piles of &ulti/)randed c*linders includin( KASI< and S>B<<ANB c*linders were stored near the refillin( station. I also noticed that the total land area of the refillin( plant is a)out -!??? to 1?!??? s6uare &eters. At the corner ri(ht side of the co&pound i&&ediatel* upon enterin( the (ate is a covered area where the &aintenance of the c*linders is ta;in( place. <ocated at the )ac; ri(ht corner of the co&pound are two stora(e tan;s while at the left side also at the corner portion is another stora(e tan;. Several &eters and frontin( the said stora(e tan; is where the refillin( station and the office are located. It is also in this stora(e tan; where the elevated )lue water tan; depictin( MASAKANA COR3. is located. A)out eleven 4115 refillin( pu&ps and stoc; piles of &ulti/)randed c*linders includin( Shellane and KASI< are stored in the refillin( station. At the left side of the entrance (ate is the (uard house with s&all door for the pedestrians and at the ri(ht is a )lue steel (ate used for inco&in( and out(oin( vehicles.

8. $That% on ,- Fe)ruar* ,??7! I conducted another test/ )u* acco&panied )* Mr. +erna)e C. Ala'ar. = = = After choosin( the c*linders! we were issued an order slip which we presented to the cashier. Ipon pa*&ent! Cash Invoice No. #7"8 was issued coverin( the cost of )oth KASI< and S>B<<ANB <3K c*linders and their contents. = = = +othc*linders were refilled in our presence and no valve seals were placed on the c*linders.

Copies of the photo(raphs of the deliver* truc;s! <3K c*linders and re(istration papers were also attached to the afore&entioned affidavits.$1?% +erna)e C. Ala'ar 4Ala'ar5! owner of A)le Research and Consultin( Services Inc.! was hired )* 3etron and 3ilipinas Shell to assist the& in carr*in( out their +rand 3rotection 3ro(ra&. Ala'ar acco&panied O)lanca durin( the surveillance of and test/)u*s at the refillin( plant of MASAKANA. >e also e=ecuted two separate affidavits corro)oratin( the state&ents of O)lanca. These were anne=ed to the two applications for search warrant.$11% After conductin( the preli&inar* e=a&ination on O)lanca and Ala'ar! and upon reviewin( their sworn affidavits and other attached docu&ents! 0ud(e MelchorM.C. Sadan( 40ud(e Sadan(5! 3residin( 0ud(e of the RTC! +ranch 1-! Cavite Cit*! found pro)a)le cause and correspondin(l* issued Search :arrants No. ,/,??7 and No. 7/,??7.$1,% The search warrants co&&anded an* peace officer to &a;e an i&&ediate search of the MASAKANA co&pound and to sei9e the followin( ite&s2 Inder Search :arrant No. ,/,??72
a. B&pt*1filled <3K c*linder tan;s1containers! )earin( the tradena&e AS>B<<ANBG! AS>B<<G 4Device5 of 3ilipinas Shell 3etroleu& Corporation and the trade&ar;s and other devices owned )* Shell International 3etroleu& Co&pan*! <td.C Machiner* and1or e6uip&ent )ein( used or intended to )e used for the purpose of ille(all* refillin( <3K c*linders )elon(in( to 3ilipinas Shell 3etroleu& Corporation )earin( the

).

latterEstradena&e as well as the &ar;s )elon(in( to Shell International 3etroleu& Co&pan*! <td.! enu&erated hereunder2 1. ,. 7. @. . #. -. c. +ul;1+ullet <3K stora(e tan;sC Co&pressor1s 4for pneu&atic refillin( s*ste&5C <3K h*draulic pu&p1sC <3K refillin( heads1hoses and appurtenances or <3K fillin( asse&)l*C <3K pipeline (ate valve or )all valve and handles and leversC <3K wei(hin( scalesC and Seals si&ulatin( the shell trade&ar;.

Sales invoices! led(ers! 'ournals! official receipts! purchase orders! and all other )oo;s of accounts! inventories and docu&ents pertainin( to the production! sale and1or distri)ution of the aforesaid (oods1products. Deliver* truc; )earin( 3late Nos. :TB/ ,-! SAM/"-? and :FC/#?7! haulin( truc;s! and1or other deliver* truc;s or vehicles or conve*ances )ein( used or intended to )e used for the purpose of sellin( and1or distri)utin( the a)ove/&entioned counterfeit products.

d.

Inder Search :arrant No. 7/,??72

a. B&pt*1filled <3K c*linder tan;s1containers! )earin( 3etron CorporationEs 43etron5 tradena&e and its tradena&e AKASI<G and other devices owned and1or used e=clusivel* )*3etronC Machiner* and1or e6uip&ent )ein( used or intended to )e used for the purpose of ille(all* refillin( <3K c*linders )elon(in( to 3etron enu&erated hereunderC 1. ,. 7. @. . +ul;1+ullet <3K stora(e tan;sC Co&pressor1s 4for pneu&atic fillin( s*ste&5C <3K h*draulic pu&p1sC <3K fillin( heads1hoses and appurtenances or <3K fillin( asse&)l*C <3K pipeline (ate valve or )all valve and handles leversC

).

#. -. c.

<3K wei(hin( scalesC and Seals )earin( the 3etron &ar;C

Sales invoices! led(ers! 'ournals! official receipts! purchase orders! and all other )oo;s of accounts! inventories and docu&ents pertainin( to the production! sale and1or distri)ution of the aforesaid (oods1productsC and Deliver* truc;s )earin( 3late Nos. IMN/"-1! 3BQ/#1, and :FC/#?7! haulin( truc;s! and1or other deliver* truc;s or vehicles or conve*ances )ein( used for the purpose of sellin( and1or distri)utin( the a)ove/&entioned counterfeit products.

d.

Ipon the issuance of the said search warrants! O)lanca and several N+I operatives i&&ediatel* proceeded to the MASAKANA co&pound and served the search warrants on petitioners.$17% After searchin( the pre&ises of MASAKANA! the followin( articles descri)ed in Search :arrant No. ,/,??7 were sei9ed2
a. Thirt*/ei(ht 4785 filled 11 ;(. <3K c*linders! )earin( the tradena&e of 3ilipinas Shell 3etroleu& Corporation and the trade&ar;s and other devices owned )* Shell International 3etroleu& Co&pan*! <td.C Thirt*/nine 47"5 e&pt* 11 ;(. <3K c*linders! )earin( the tradena&e of 3ilipinas Shell 3etroleu& Corporation and the trade&ar;s and other devices owned )* Shell International 3etroleu& Co&pan*! <td.C Bi(ht 485 filled ? ;(. <3K c*linders! )earin( the tradena&e of 3ilipinas Shell 3etroleu& Corporation and the trade&ar;s and other devices owned )* Shell International 3etroleu& Co&pan*! <td.C Three 475 e&pt* ? ;(. <3K c*linders! )earin( the tradena&e of 3ilipinas Shell 3etroleu& Corporation and the trade&ar;s and other devices owned )* Shell International 3etroleu& Co&pan*! <td.C

).

c.

d.

e.

One 415 set of &otor co&pressor for fillin( s*ste&.

3ursuant to Search :arrant No. 7/,??7! the followin( articles were also sei9ed2
a. Si= 4#5 filled 11 ;(. <3K c*linders without seal! )earin( 3etronEs tradena&e and its trade&ar; AKASI<G and other devices owned and1or used e=clusivel* )* 3etronC Si=t*/three 4#75 e&pt* 11 ;(. <3K c*linders! )earin( 3etronEs tradena&e and its trade&ar; AKASI<G and other devices owned and1or used e=clusivel* )* 3etronC Seven 4-5 ta&pered 11 ;(. <3K c*linders! )earin( 3etronEs tradena&e and its trade&ar; AKASI<G and other devices owned and1or used e=clusivel* )* 3etronC Five 4 5 ta&pered ? ;(. <3K c*linders! )earin( 3etronEs tradena&e and its trade&ar; AKASI<G and other devices owned and1or used e=clusivel* )* 3etron with ta&pered AKASI<G lo(oC One 415 set of &otor co&pressor for fillin( s*ste&C and One 415 set of <3K refillin( &achine.

).

c.

d.

e. f.

On ,, April ,??7! petitioners filed with the RTC a Motion to Muash Search :arrants No. ,/,??7 and No. 7/,??7$1@% on the followin( (rounds2
1. There is no pro)a)le cause for the issuance of the search warrant and the conditions for the issuance of a search warrant were not co&plied withC Applicant N+I A(ent Ritchie N. O)lanca and his witness +erna)e C. Ala'ar do not have an* authorit* to appl* for a search warrant. Further&ore! the* co&&itted

,.

per'ur* when the* alle(ed in their sworn state&ents that the* conducted a test/)u* on two occasionsC 7. The place to )e searched was not specified in the Search :arrant as the place has an area of 1?!??? s6uare &eters 4one hectare5 &ore or less! for which reason the place to )e searched &ust )e indicated with particularit*C The search warrant is characteri9ed as a (eneral warrant as the ite&s to )e sei9ed as &entioned in the search warrant are )ein( used in the conduct of the lawful )usiness of respondents and the sa&e are not )ein( used in refillin( Shellane and Kasul <3Ks.

@.

On 7? April ,??7! MASAKANA! as third part* clai&ant! filed with the RTC a Motion for the Return of Motor Co&pressor and <3K Refillin( Machine. $1 % It clai&ed that it is the owner of the said &otor co&pressor and <3K refillin( &achineC that these ite&s were used in the operation of its le(iti&ate )usinessC and that their sei9ure will 'eopardi9e its )usiness interests. On 0une ,??7! the RTC issued two Orders! one of which denied the petitionersE Motion to Muash Search :arrants No. ,/,??7 and No. 7/,??7! and the other one also denied the Motion for the Return of Motor Co&pressor and <3K Refillin( Machine of MASAKANA! for lac; of &erit.$1#% :ith respect to the Order den*in( the petitionersE &otion to 6uash Search :arrants No. ,/,??7 and No. 7/,??7! the RTC held that )ased on the testi&onies of O)lanca and Ala'ar! as well as the docu&entar* evidence consistin( of receipts! photo(raphs! intellectual propert* and corporate re(istration papers! there is pro)a)le cause to )elieve that petitioners are en(a(ed in the )usiness of refillin( or usin( c*linders which )ear the trade&ar;s or devices of 3etron and 3ilipinas Shell in the place sou(ht to )e searched and that such activit* is pro)a)l* in violation of Section 1 in relation to Section 1-? of Repu)lic Act No. 8,"7. It also ruled that O)lanca and Ala'ar had personal ;nowled(e of the acts co&plained of since the* were the ones who &onitored the activities of and

conducted test/)u*s on MASAKANAC that the search warrants in 6uestion are not (eneral warrants )ecause the co&pound searched are solel* used and occupied )* MASAKANA! and as such! there was no need to particulari9e the areas within the co&pound that would )e searchedC and that the ite&s to )e sei9ed in the su)'ect search warrants were sufficientl* descri)ed with particularit* as the sa&e was li&ited to c*linder tan;s )earin( the trade&ar;s KASI< and S>B<<ANB. As re(ards the Order den*in( the &otion of MASAKANA for the return of its &otor co&pressor and <3K refillin( &achine! the RTC resolved that MASAKANA cannot )e considered a third part* clai&ant whose ri(hts were violated as a result of the sei9ure since the evidence disclosed that petitioners are stoc;holders of MASAKANA and that the* conduct their )usiness throu(h the sa&e 'uridical entit*. It &aintained that to rule otherwise would result in the &isapplication and de)ase&ent of the veil of corporate fiction. It also stated that the veil of corporate fiction cannot )e used as a refu(e fro& lia)ilit*. Further! the RTC ratiocinated that ownership )* another person or entit* of the sei9ed ite&s is not a (round to order its returnC that in sei9ures pursuant to a search warrant! what is i&portant is that the sei9ed ite&s were used or intended to )e used as &eans of co&&ittin( the offense co&plained ofC that )* its ver* nature! the properties sou(ht to )e returned in the instant case appear to )e related to and intended for the ille(al activit* for which the search warrants were applied forC and that the ite&s sei9ed are instru&ents of an offense. 3etitioners filed Motions for Reconsideration of the assailed Orders! $1-% )ut these were denied )* the RTC in its Order dated ,1 0ul* ,??7 for lac; of co&pellin( reasons.$18% Su)se6uentl*! petitioners appealed the two Orders of the RTC to the Court of Appeals via a special civil action for ertiorari under Rule # of the Rules of Court.$1"% On 7? Septe&)er ,??@! the Court of Appeals pro&ul(ated its Decision affir&in( the Orders of the RTC.$,?% It adopted in essence the )ases and reasons of the RTC in its two Orders. The decretal portion thereof reads2

+ased on the fore(oin(! this Court finds no reason to distur) the assailed Orders of the respondent 'ud(e. Krave a)use of discretion has not )een proven to e=ist in this case. :>BRBFORB! the petition is here)* D-2M-22>D for lac; of &erit. The assailed orders )oth dated 0une ! ,??7 are here)* AFFIRMBD.

3etitioners filed a Motion for Reconsideration $,1% of the Decision of the Court of Appeals! )ut this was denied in its Resolution dated 1 0une ,?? for lac; of &erit.$,,% 3etitioners filed the instant petition on the followin( (rounds2

I. T>B >ONORA+<B COIRT OF A33BA<S BRRBD IN RI<INK T>AT T>B 3RBSIDINK 0IDKB OF RTC CAVITB CITH >AD SIFFICIBNT +ASIS IN DBC<ARINK T>B BSISTBNCB OF 3RO+A+<B CAISBC II. T>B >ONORA+<B COIRT OF A33BA<S BRRBD IN RI<INK T>AT N+I AKBNT 4RITC>IB O+<ANCA5 CAN A33<H FOR T>B SBARC> :ARRANTS NOT>:IT>STANDINK >IS <ACR OF AIT>ORITHC III. T>B >ONORA+<B COIRT OF A33BA<S BRRBD IN RI<INK T>AT T>B RBMIIRBMBNT OF KIVINK A 3ARTICI<AR DBSCRI3TION OF T>B 3<ACB TO +B SBARC>BD :AS COM3<IBD :IT>C IV.

T>B >ONORA+<B COIRT OF A33BA<S BRRBD IN RI<INK T>AT T>B A33<ICATIONS AND T>B SBARC> :ARRANTS T>BMSB<VBS S>O: NO AM+IKIITH OF T>B ITBMS TO +B SBIQBDC V. T>B >ONORA+<B COIRT OF A33BA<S BRRBD IN RI<INK T>AT T>B COM3<AINT IS DIRBCTBD AKAINST MASAKANA KAS COR3ORATION! ACTINK T>ROIK> ITS OFFICBRS AND DIRBCTORS! >BNCB MASAKANA KAS COR3ORATION MAH NOT +B CONSIDBRBD AS T>IRD 3ARTH C<AIMANT :>OSB RIK>TS :BRB VIO<ATBD AS A RBSI<T OF T>B SBIQIRB. $,7%

Apropos the first issue! petitioners alle(e that O)lanca and Ala'ar had no personal ;nowled(e of the &atters on which the* testifiedC that O)lanca and Ala'ar lied to 0ud(e Sadan( when the* stated under oath that the* were the ones who conducted the test/)u*s on two different occasionsC that the truth of the &atter is thatO)lanca and Ala'ar never &ade the purchases personall*C that the transactions were underta;en )* other persons na&el*! Ni;;o 0avier and K. Villanueva as shown in the Bntr*1B=it Slips of MASAKANAC and that even if it were true that O)lanca and Ala'ar as;ed Ni;;o 0avier and K. Villanueva to conduct the test/)u*s! the infor&ation rela*ed )* the latter two to the for&er was &ere hearsa*.$,@% 3etitioners also contend that if O)lanca and Ala'ar had indeed used different na&es in purchasin( the <3K c*linders! the* should have &entioned it in their applications for search warrants and in their testi&onies durin( the preli&inar* e=a&inationC that it was onl* after the petitioners had su)&itted to the RTC the entr*1e=it slips showin( different personalities who &ade the purchases that O)lanca and Ala'ar e=plained that the* had to use different na&es in order to avoid detectionC thatAla'ar is not connected with either of the private respondentsC that Ala'ar was not in a position to infor& the RTC as to the distin(uishin( trade&ar;s of S>B<<ANB and KASI<C that O)lanca was not also co&petent to testif* on the &ar;s alle(edl* infrin(ed )* petitionersC that 0ud(e Sadan( failed to as; pro)in( 6uestions on the distin(uishin( &ar;s of S>B<<ANB and KASI<C

that the findin(s of the +rand 3rotection Co&&ittee of 3ilipinas Shell were not su)&itted nor presented to the RTCC that althou(h 0ud(e Sadan( e=a&ined O)lanca and Ala'ar! the for&er did not as; e=haustive 6uestionsC and that the 6uestions 0ud(e Sadan( as;ed were &erel* rehash of the contents of the affidavits of O)lanca and Ala'ar.$, % These contentions are devoid of &erit. Article III! Section ,! of the present Constitution states the re6uire&ents )efore a search warrant &a* )e validl* issued! to wit2
Section ,. The ri(ht of the people to )e secure in their persons! houses! papers! and effects a(ainst unreasona)le searches and sei9ures of whatever nature and for an* purpose shall )e inviola)le! and no 4-ar59 :arran3 or warrant of arrest 49a77 244u- -;5-63 u6on 6ro<a<75au4- 3o <- !-3-r=2n-! 6-r4ona77y <y 39- >u!?- a@3-r -;a=2na32on un!-r oa39 or a@@2r=a32on o@ 39- 5o=67a2nan3 an! 39- :23n-44-4 9=ay 6ro!u5-, an! 6ar325u7ar7y !-45r2<2n? 39- 67a5- 3o <- 4-ar59-! an! 39- 6-r4on4 or 392n?4 3o <- 4-2A-!. B-=69a4244u6672-!C.

Section @ of Rule 1,# of the Revised Rules on Cri&inal 3rocedure! provides with &ore particularit* the re6uisites in issuin( a search warrant! vi#2
SBC. @. 9eCui!ite! $or i!!uin" !ear h ,arrant . D A search warrant shall not issue e=cept upon pro)a)le cause in connection with one specific offense to )e deter&ined personall* )* the 'ud(e after e=a&ination under oath or affir&ation of the co&plainant and the witnesses he &a* produce! and particularl* descri)in( the place to )e searched and the thin(s to )e sei9ed which &a* )e an*where in the 3hilippines.

Accordin( to the fore(oin( provisions! a search warrant can )e issued onl* upon a findin( of pro)a)le cause. 3ro)a)le cause for search warrant &eans such facts and circu&stances which would lead a reasona)l* discreet and prudent &an to )elieve that an offense has )een co&&itted and that the o)'ects sou(ht in connection with the offense are in the place to )e searched.$,#%

The facts and circu&stances )ein( referred thereto pertain to facts! data or infor&ation personall* ;nown to the applicant and the witnesses he &a* present. $,-% The applicant or his witnesses &ust have personal ;nowled(e of the circu&stances surroundin( the co&&ission of the offense )ein( co&plained of. ARelia)le infor&ationG is insufficient. Mere affidavits are not enou(h! and the 'ud(e &ust depose in writin( the co&plainant and his witnesses.$,8% Section 1 of Repu)lic Act No. 8,"7 identifies the acts constitutin( trade&ar; infrin(e&ent! thus2
SBC. 1 . 9emedie!0 -n$rin"ement. D An* person who shall! without the consent of the owner of the re(istered &ar;2 1 .1. Ise in co&&erce an* reproduction! counterfeit! cop*! or colora)le i&itation of a re(istered &ar; or the sa&e container or a do&inant feature thereof in connection with the sale! offerin( for sale! distri)ution! advertisin( of an* (oods or services includin( other preparator* steps necessar* to carr* out the sale of an* (oods or services on or in connection with which such use is li;el* to cause confusion! or to cause &ista;e! or to deceiveC or 1 .,. Reproduce! counterfeit! cop* or colora)l* i&itate a re(istered &ar; or a do&inant feature thereof and appl* such reproduction! counterfeit! cop* or colora)le i&itation to la)els! si(ns! prints! pac;a(es! wrappers! receptacles or advertise&ents intended to )e used in co&&erce upon or in connection with the sale! offerin( for sale! distri)ution! or advertisin( of (oods or services on or in connection with which such use is li;el* to cause confusion! or to cause &ista;e! or to deceive! shall )e lia)le in a civil action for infrin(e&ent )* the re(istrant for the re&edies hereinafter set forth2 Provided, That the infrin(e&ent ta;es place at the &o&ent an* of the acts stated in Su)section 1 .1 or this su)section are co&&itted re(ardless of whether there is actual sale of (oods or services usin( the infrin(in( &aterial.

As can )e (leaned in Section 1 .1! &ere unauthori9ed use of a container )earin( a re(istered trade&ar; in connection with the sale! distri)ution or advertisin( of (oods or services which is li+el% to cause confusion! &ista;e or

deception a&on( the )u*ers1consu&ers can )e considered as trade&ar; infrin(e&ent. In his sworn affidavits!$,"% O)lanca stated that )efore conductin( an investi(ation on the alle(ed ille(al activities of MASAKANA! he reviewed the certificates of trade&ar; re(istrations issued )* the 3hilippine Intellectual 3ropert* Office in favor of 3etron and 3ilipinas ShellC that he confir&ed fro& 3etron and 3ilipinas Shell that MASAKANA is not authori9ed to sell! use! refill or distri)ute KASI< and S>B<<ANB <3K c*linder containersC that he and Ala'ar &onitored the activities of MASAKANA in its refillin( plant station located within its co&pound at KovernorEs Drive! +aran(a* <apidario! Trece Martires! Cavite Cit*C that! usin( different na&es! the* conducted two test/)u*s therein where the* purchased <3K c*linders )earin( the trade&ar;s KASI< and S>B<<ANBC that the said KASI< and S>B<<ANB <3K c*linders were refilled in their presence )* the MASAKANA e&plo*eesC that while the* were inside the MASAKANA co&pound! he noticed stoc; piles of &ulti/)randed c*linders includin( KASI< and S>B<<ANB <3K c*lindersC and that the* o)served deliver* truc;s loaded with KASI< and S>B<<ANB <3K c*linders co&in( in and out of the MASAKANA co&pound and &a;in( deliveries to various retail outlets. These alle(ations were corro)orated )* Ala'ar in his separate affidavits. In support of the fore(oin( state&ents! O)lanca also su)&itted the followin( docu&entar* and o)'ect evidence2
1. ,. 7. @. Certified true cop* of the Certificate of Re(istration No. @@?@# for AS>B<< 4DBVICB5G in the na&e of Shell InternationalC Certified true cop* of the Certificate of Re(istration No. @1-8" for AS>B<< 4DBVICB5E in the na&e of Shell InternationalC Certified true cop* of the Certificate of Re(istration No. 7- , for AS>B<< 4DBVICB5 in the na&e of Shell InternationalC Certified true cop* of the Certificate of Re(istration No. R/,817 for AS>B<<G in the na&e of Shell InternationalC

. #. -.

Certified true cop* of the Certificate of Re(istration No. 71@@7 for AS>B<<ANBG in the na&e of Shell InternationalC Certified true cop* of the Certificate of Re(istration No. -"@ for the &ar; AKASI<G in the na&e of 3etronC Certified true cop* of the Certificate of Re(istration No. C/1@for AKASI< CH<INDBR CONTAININK <IMIBFIBD 3BTRO<BIM KASG in the na&e of 3etronC Certified true cop* of the Certificate of Re(istration No. #1",? for the &ar; AKASI< AND DBVICBG in the na&e of 3etronC Certified true cop* of the Articles of Incorporation of Masa(anaC Certified true cop* of the +*/laws of Masa(anaC Certified true cop* of the latest Keneral Infor&ation Sheet of Masa(ana on file with the Securities and B=chan(e Co&&issionC 3ictures of deliver* truc;s co&in( in and out of Masa(ana while it delivered Kasul and Shellane <3KC Cash Invoice No. #,1? dated 17 Fe)ruar* ,??7 issued )* Masa(ana for the Kasul and Shellane <3K purchased )* A(ent O)lanca and witness Ala'arC 3ictures of the Shellane and Kasul <3KEEs covered )* Cash Invoice No. #,1? purchased fro& Masa(ana )* A(ent O)lanca and witness Ala'arC Cash Invoice No. #7"8 dated ,- Fe)ruar* ,??7 issued )* Masa(ana for the Kasul and Shellane <3K purchased )* A(ent O)lanca and witness Ala'arC and 3ictures of the Shellane and Kasul <3KEs covered )* Cash Invoice No. #7"8 purchased fro& Masa(ana )* A(ent O)lanca and witness Ala'ar.$7?%

8. ". 1?. 11.

1,. 17.

1@.

1 .

1#.

B=tant fro& the fore(oin( testi&onial! docu&entar* and o)'ect evidence is that O)lanca and Ala'ar have personal ;nowled(e of the fact that petitioners! throu(h MASAKANA! have )een usin( the <3K c*linders )earin( the &ar;s KASI< and S>B<<ANB without per&ission fro& 3etron and 3ilipinas Shell! a pro)a)le cause for trade&ar; infrin(e&ent. +oth O)lanca and Ala'ar were clear and insistent that the* were the ver* sa&e persons who &onitored the activities of MASAKANAC that the* conducted test/)u*s thereonC and that in order to avoid suspicion! the* used different na&es durin( the test/)u*s. The* also personall* witnessed the refillin( of <3K c*linders )earin( the &ar;s KASI< and S>B<<ANB inside the MASAKANA refillin( plant station and the deliveries of these refilled containers to so&e outlets usin( &ini/truc;s. Indeed! the aforesaid facts and circu&stances are sufficient to esta)lish pro)a)le cause. It should )e )orne in &ind that the deter&ination of pro)a)le cause does not call for the application of the rules and standards of proof that a 'ud(&ent of conviction re6uires after trial on the &erits. As the ter& i&plies! Apro)a)le causeG is concerned with pro)a)ilit*! not a)solute or even &oral certaint*. The standards of 'ud(&ent are those of a reasona)l* prudent &an! not the e=actin( cali)rations of a 'ud(e after a full )lown trial.$71% The fact that O)lanca and Ala'ar used different na&es in the purchase receipts do not ne(ate personal ;nowled(e on their part. It is a co&&on practice of the law enforcers such as N+I a(ents durin( covert investi(ations to use different na&es in order to conceal their true identities. This is reasona)le and understanda)le so as not to endan(er the life of the undercover a(ents and to facilitate the lawful arrest or apprehension of suspected violators of the law. 3etitionersE contention that O)lanca and Ala'ar should have &entioned the fact that the* used different na&es in their respective affidavits and durin( the preli&inar* e=a&ination is puerile. The ar(u&ent is too vacuous to &erit serious consideration. There is nothin( in the provisions of law concernin( the issuance of a search warrant which directl* or indirectl* &andates that the applicant of the search warrant or his witnesses should state in their affidavits the fact that the* used different na&es while conductin( undercover investi(ations! or to divul(e such fact durin( the preli&inar* e=a&ination. In the li(ht of other &ore &aterial facts which needed to )e esta)lished for a findin( of pro)a)le cause! it is not

difficult to )elieve that O)lanca and Ala'ar failed to &ention that the* used aliases in enterin( the MASAKANA co&pound due to &ere oversi(ht. It cannot )e (ainfull* said that O)lanca and Ala'ar are not co&petent to testif* on the trade&ar;s infrin(ed )* the petitioners. As earlier discussed! O)lancadeclared under oath that )efore conductin( an investi(ation on the alle(ed ille(al activities of MASAKANA! he reviewed the certificates of trade&ar; re(istrations issued )* the 3hilippine Intellectual 3ropert* Office in favor of 3etron and 3ilipinas Shell. These certifications of trade&ar; re(istrations were attached )* O)lanca in his applications for the search warrants. Ala'ar! on the other hand! wor;s as a private investi(ator and! in fact! owns a private investi(ation and research1consultation fir&. >is fir& was hired and authori9ed! pursuant to the +rand 3rotection 3ro(ra& of 3etron and 3ilipinas Shell! to verif* reports that MASAKANA is involved in the ille(al sale and refill of KASI< and S>B<<ANB <3K c*linders.$7,% As part of the 'o)! he studied and fa&iliari9ed hi&self with the re(istered trade&ar;s of KASI< and S>B<<ANB! and the distinct features of the <3K c*linders )earin( the sa&e trade&ar;s )efore conductin( surveillance and test/)u*s on MASAKANA. $77% >e also su)&itted to O)lanca several copies of the sa&e re(istered trade&ar; re(istrations and acco&panied O)lanca durin( the surveillance and test/)u*s. As to whether the for& and &anner of 6uestionin( &ade )* 0ud(e Sadan( co&plies with the re6uire&ents of law! Section of Rule 1,# of the Revised Rules on Cri&inal 3rocedure! prescri)es the rules in the e=a&ination of the co&plainant and his witnesses when appl*in( for search warrant! to wit2
SE . 5. >xamination o$ omplainant0 re ord./ The 'ud(e &ust! )efore issuin( the warrant! personall* e=a&ine in the for& of searchin( 6uestions and answers! in writin( under oath! the co&plainant and the witnesses he &a* produce on facts personall* ;nown to the& and attach to the record their sworn state&ents! to(ether with the affidavits su)&itted.

The searchin( 6uestions propounded to the applicant and the witnesses depend lar(el* on the discretion of the 'ud(e. Althou(h there is no hard/andDfast rule (overnin( how a 'ud(e should conduct his investi(ation! it is a=io&atic that

the e=a&ination &ust )e pro)in( and e=haustive! not &erel* routinar*! (eneral! peripheral! perfunctor* or pro $orma. The 'ud(e &ust not si&pl* rehash the contents of the affidavit )ut &ust &a;e his own in6uir* on the intent and 'ustification of the application.$7@% After perusin( the Transcript of Steno(raphic Notes of the preli&inar* e=a&ination! we found the 6uestions of 0ud(e Sadan( to )e sufficientl* pro)in(! not at all superficial and perfunctor*. $7 % The testi&onies of O)lanca and Ala'ar were consistent with each other and their narration of facts was credi)le. As correctl* found )* the Court of Appeals2
This Court is li;ewise not convinced that respondent 0ud(e failed to as; pro)in( 6uestions in his deter&ination of the e=istence of pro)a)le cause. This Court has thorou(hl* e=a&ined the Transcript of Steno(raphic Notes ta;en durin( the investi(ation conducted )* the respondent 0ud(e and found that respondent 0ud(e len(thil* in6uired into the circu&stances of the case. For instance! he re6uired the N+I a(ent to confir& the contents of his affidavit! in6uired as to where the Atest/)u*sG were conducted and )* who&! verified whether 3S3C and 3BTRON have re(istered trade&ar;s or tradena&es! re6uired the N+I witness to e=plain how the Atest/)u*sG were conducted and to descri)e the <3K c*linders purchased fro& Masa(ana Kas Corporation! in6uired wh* the applications for Search :arrant were filed in Cavite Cit* considerin( that Masa(ana Kas Corporation was located in Trece Martires! Cavite! in6uired whether the N+I A(ent has a s;etch of the place and if there was an* distin(uishin( si(n to identif* the place to )e searched! and in6uired a)out their alle(ed tailin( and &onitorin( of the deliver* truc;s. = = =.$7#%

Since pro)a)le cause is dependent lar(el* on the opinion and findin(s of the 'ud(e who conducted the e=a&ination and who had the opportunit* to 6uestion the applicant and his witnesses! the findin(s of the 'ud(e deserves (reat wei(ht. The reviewin( court can overturn such findin(s onl* upon proof that the 'ud(e disre(arded the facts )efore hi& or i(nored the clear dictates of reason. $7-% :e find no co&pellin( reason to distur) 0ud(e Sadan(Es findin(s herein.

Anent the second issue! petitioners ar(ue that 0ud(e Sadan( failed to re6uire O)lanca to show his authorit* to appl* for search warrantsC that O)lanca is a &e&)er of the Anti/Or(ani9ed Cri&e and not that of the Intellectual 3ropert* Division of the N+IC that all co&plaints for infrin(e&ent should )e investi(ated )* the Intellectual 3ropert* Division of the N+IC that it is hi(hl* irre(ular that an a(ent not assi(ned to the Intellectual 3ropert* Division would appl* for a search warrant and without authorit* fro& the N+I DirectorC that the alle(ed letter/ co&plaint of Att*. +ienvenido So&era! 0r. of Villara9a and An(an(co <aw Office was not produced in courtC that 0ud(e Sadan( did not re6uire O)lanca to produce the alle(ed letter/co&plaint which is &aterial and relevant to the deter&ination of the e=istence of pro)a)le causeC and that 3etron and 3ilipinas Shell! )ein( two different corporations! should have issued a )oard resolution authori9in( the Villara9a and An(an(co <aw Office to appl* for search warrant in their )ehalf.
$78%

:e re'ect these protestations. The authorit* of O)lanca to appl* for the search warrants in 6uestion is clearl* discussed and e=plained in his affidavit! vi#2
$That% on 11 Fe)ruar* ,??7! the National +ureau of Investi(ation 4N+I5 received a letter/co&plaint fro& Att*. +ienvenido I. So&era! 0r. of Villara9a and An(an(co! on )ehalf of a&on( others! 3etron Corporation 43BTRON5 $and 3ilipinas Shell 3etroleu& Corporation 43S3C5! the authori9ed representative of Shell International 3etroleu& Co&pan* <i&ited 4S>B<< INTBRNATIONA<5% re6uestin( assistance in the investi(ation and! if warranted! apprehension and prosecution of certain persons and1or esta)lish&ents suspected of violatin( the intellectual propert* ri(hts of 3BTRON $and of 3S3C and Shell International.% 11. $That% on the )asis of the letter/co&plaint! I! to(ether with A(ent An(elo Qar9oso! was assi(ned as the N+I a(ent on the case. $7"%

The fact that O)lanca is a &e&)er of the Anti/Or(ani9ed Cri&e Division and not that of the Intellectual 3ropert* Division does not a)ro(ate his authorit* to appl* for search warrant. As aptl* stated )* the RTC and the Court of Appeals!

there is nothin( in the provisions on search warrant under Rule 1,# of the Revised Rules on Cri&inal 3rocedure! which specificall* co&&ands that the applicant law enforcer &ust )e a &e&)er of a division that is assi(ned or related to the su)'ect cri&e or offense )efore the application for search warrant &a* )e acted upon. The petitioners did not also cite an* law! rule or re(ulation &andatin( such re6uire&ent. At &ost! petitioners &a* onl* )e referrin( to the ad&inistrative or(ani9ation and1or internal rule or practice of the N+I. >owever! not onl* did petitioners failed to esta)lish the e=istence thereof! )ut the* also did not prove that such ad&inistrative or(ani9ation and1or internal rule or practice are inviola)le. Neither is the presentation of the letter/co&plaint of Att*. So&era and )oard resolutions fro& 3etron and 3ilipinas Shell re6uired or necessar* in deter&inin( pro)a)le cause. As heretofore discussed! the affidavits of O)lanca and Ala'ar! coupled with the o)'ect and docu&entar* evidence the* presented! are sufficient to esta)lish pro)a)le cause. It can also )e presu&ed that O)lanca! as an N+I a(ent! is a pu)lic officer who had re(ularl* perfor&ed his official dut*.$@?% >e would not have initiated an investi(ation on MASAKANA without a proper co&plaint. Further&ore! Att*. So&era did not step up to den* his letter/co&plaint. Re(ardin( the third issue! petitioners posit that the applications for search warrants of O)lanca did not specif* the particular area to )e searched! hence! (ivin( the raidin( tea& wide latitude in deter&inin( what areas the* can search. The* aver that the search warrants were (eneral warrants! and are therefore violative of the Constitution. 3etitioners also assert that since the MASAKANA co&pound is a)out 1?!???.?? s6uare &eters with several structures erected on the lot! the search warrants should have defined the areas to )e searched. The lon( standin( rule is that a description of the place to )e searched is sufficient if the officer with the warrant can! with reasona)le effort! ascertain and identif* the place intended and distin(uish it fro& other places in the co&&unit*. An* desi(nation or description ;nown to the localit* that points out the place to the e=clusion of all others! and on in6uir* leads the officers unerrin(l* to it! satisfies the constitutional re6uire&ent.$@1%

Moreover! in the deter&ination of whether a search warrant descri)es the pre&ises to )e searched with sufficient particularit*! it has )een held that the e=ecutin( officerEs prior ;nowled(e as to the place intended in the warrant is relevant. This would see& to )e especiall* true where the e=ecutin( officer is the affiant on whose affidavit the warrant had )een issued! and when he ;nows that the 'ud(e who issued the warrant intended the co&pound descri)ed in the affidavit.$@,% The search warrants in 6uestion co&&anded an* peace officer to &a;e an i&&ediate search on MASAKANA co&pound located at KovernorEs Drive!+aran(a* <apidario! Trece Martires! Cavite Cit*. It appears that the raidin( tea& had ascertained and reached MASAKANA co&pound without difficult* since MASAKANA does not have an* other offices1plants in Trece Martires! Cavite Cit*. Moreover! O)lanca! who was with the raidin( tea&! was alread* fa&iliar with the MASAKANA co&pound as he and Ala'ar had &onitored and conducted test/)u*s thereat. Bven if there are several structures inside the MASAKANA co&pound! there was no need to particulari9e the areas to )e searched )ecause! as correctl* stated )* 3etron and 3ilipinas Shell! these structures constitute the essential and necessar* co&ponents of the petitionersE )usiness and cannot )e treated separatel* as the* for& part of one entire co&pound. The co&pound is owned and used solel* )* MASAKANA. :hat the case law &erel* re6uires is that! the place to )e searched can )e distin(uished in relation to the other places in the co&&unit*. Indu)ita)l*! this re6uisite was co&plied with in the instant case. As to the fourth issue! petitioners asseverate that the search warrants did not indicate with particularit* the ite&s to )e sei9ed since the search warrants &erel* descri)ed the ite&s to )e sei9ed as <3K c*linders )earin( the trade&ar;s KASI< and S>B<<ANB without specif*in( their si9es. A search warrant &a* )e said to particularl* descri)e the thin(s to )e sei9ed when the description therein is as specific as the circu&stances will ordinaril* allowC or when the description e=presses a conclusion of fact not of law )* which the warrant officer &a* )e (uided in &a;in( the search and sei9ureC or when the thin(s descri)ed are li&ited to those which )ear direct relation to the offense for which the warrant is )ein( issued.$@7%

:hile it is true that the propert* to )e sei9ed under a warrant &ust )e particularl* descri)ed therein and no other propert* can )e ta;en thereunder! *et the description is re6uired to )e specific onl* in so far as the circu&stances will ordinaril* allow. The law does not re6uire that the thin(s to )e sei9ed &ust )e descri)ed in precise and &inute details as to leave no roo& for dou)t on the part of the searchin( authoritiesC otherwise it would )e virtuall* i&possi)le for the applicants to o)tain a search warrant as the* would not ;now e=actl* what ;ind of thin(s the* are loo;in( for. Once descri)ed! however! the articles su)'ect of the search and sei9ure need not )e so invariant as to re6uire a)solute concordance! in our view! )etween those sei9ed and those descri)ed in the warrant. Su)stantial si&ilarit* of those articles descri)ed as a class or specie would suffice.$@@% Measured a(ainst this standard! we find that the ite&s to )e sei9ed under the search warrants in 6uestion were sufficientl* descri)ed with particularit*. The articles to )e confiscated were restricted to the followin(2 415 <3K c*linders )earin( the trade&ar;s KASI< and S>B<<ANBC 4,5 Machines and e6uip&ents used or intended to )e used in the ille(al refillin( of KASI< and S>B<<ANB c*linders. These &achines were also specificall* enu&erated and listed in the search warrantsC 475 Docu&ents which pertain onl* to the production! sale and distri)ution of the KASI< and S>B<<ANB <3K c*lindersC and 4@5 Deliver* truc;s )earin( 3late Nos. :TB/ ,-! SAM/"-? and :FC/#?7! haulin( truc;s! and1or other deliver* truc;s or vehicles or conve*ances )ein( used or intended to )e used for the purpose of sellin( and1or distri)utin( KASI< and S>B<<ANB <3K c*linders.$@ % Additionall*! since the descri)ed ite&s are clearl* li&ited onl* to those which )ear direct relation to the offense! i.e.! violation of section 1 of Repu)lic Act No. 8,"7! for which the warrant was issued! the re6uire&ent of particularit* of description is satisfied. Kiven the fore(oin(! the indication of the accurate si9es of the KASI< and S>B<<ANB <3K c*linders or tan;s would )e unnecessar*. Finall*! petitioners clai& that MASAKANA has the ri(ht to intervene and to &ove for the return of the sei9ed ite&sC that the ite&s sei9ed )* the raidin( tea&

were )ein( used in the le(iti&ate )usiness of MASAKANAC that the raidin( tea& had no ri(ht to sei9e the& under the (uise that the sa&e were )ein( used in refillin( KASI< and S>B<<ANB <3K c*lindersC and that there )ein( no action for infrin(e&ent filed a(ainst the& and1or MASAKANA fro& the sei9ure of the ite&s up to the present! it is onl* fair that the sei9ed articles )e returned to the lawful owner in accordance with Section ,? of A.M. No. ?,/1/?#/SC. It is an ele&entar* and funda&ental principle of corporation law that a corporation is an entit* separate and distinct fro& its stoc;holders! directors or officers. >owever! when the notion of le(al entit* is used to defeat pu)lic convenience! 'ustif* wron(! protect fraud! or defend cri&e! the law will re(ard the corporation as an association of persons! or in the case of two corporations &er(e the& into one.$@#% In other words! the law will not reco(ni9e the separate corporate e=istence if the corporation is )ein( used pursuant to the fore(oin( unlawful o)'ectives. This non/reco(nition is so&eti&es referred to as the doctrine of piercin( the veil of corporate entit* or disre(ardin( the fiction of corporate entit*. :here the separate corporate entit* is disre(arded! the corporation will )e treated &erel* as an association of persons and the stoc;holders or &e&)ers will )e considered as the corporation! that is! lia)ilit* will attach personall* or directl* to the officers and stoc;holders.$@-% As we now find! the petitioners! as directors1officers of MASAKANA! are utili9in( the latter in violatin( the intellectual propert* ri(hts of 3etron and 3ilipinasShell. Thus! petitioners collectivel* and MASAKANA should )e considered as one and the sa&e person for lia)ilit* purposes. Conse6uentl*! MASAKANAEs third part* clai& serves no refu(e for petitioners. Bven if we were to sustain the separate personalit* of MASAKANA fro& that of the petitioners! the effect will )e the sa&e. The law does not re6uire that the propert* to )e sei9ed should )e owned )* the person a(ainst who& the search warrants is directed. Ownership! therefore! is of no conse6uence! and it is sufficient that the person a(ainst who& the warrant is directed has control or possession of the propert* sou(ht to )e sei9ed. $@8% >ence! even if! as petitioners clai&ed! the properties sei9ed )elon( to MASAKANA as a separate entit*! their sei9ure pursuant to the search warrants is still valid.

Further! it is apparent that the &otor co&pressor! <3K refillin( &achine and the KASI< and S>B<< <3K c*linders sei9ed were the orpu! deli ti! the )od* or su)stance of the cri&e! or the evidence of the co&&ission of trade&ar; infrin(e&ent. These were the ver* instru&ents used or intended to )e used )* the petitioners in trade&ar; infrin(e&ent. It is possi)le that! if returned to MASAKANA! these ite&s will )e used a(ain in violatin( the intellectual propert* ri(hts of 3etron and 3ilipinasShell.$@"% Thus! the RTC was 'ustified in den*in( the petitionersE &otion for their return so as to prevent the petitioners and1or MASAKANA fro& usin( the& a(ain in trade&ar; infrin(e&ent. 3etitionersE reliance on Section ,? of A.M. No. ?,/1/?#/SC!$ ?% is not tena)le. As correctl* o)served )* the Solicitor Keneral! A.M. ?,/1/?#/SC is not applica)le in the present case )ecause it (overns onl* searches and sei9ures in civil actions for infrin(e&ent of intellectual propert* ri(hts.$ 1% The offense co&plained of herein is for cri&inal violation of Section 1 in relation to Section 1-? $ ,% of Repu)lic Act No. 8,"7. +HERE'ORE! the petition is #ENIE#. The Decision and Resolution of the Court of Appeals in CA/K.R. S3 No. -", #! dated 7? Septe&)er ,??@ and 1 0une ,?? ! respectivel*! are here)* A''IRME#. Costs a(ainst petitioners. SO OR#ERE#. MINI&A (. HI ODNA)ARIO Associate 0ustice

Republic of the Philippines SUPREME COURT Manila SEC ND DIEISI N G.R. No. 150F16 July 21, 2006

SEBENTH !AY A!BENTIST CONFERENCE CHURCH OF SOUTHERN PHILIPPINES, INC., "#$Mo- -',-'*'#('$ 5y MANASSEH C. ARRANGUEE, 9RIGI!O P. GULAY, FRANCISCO M.

LUCENARA, !IONICES O. TIPGOS, LORESTO C. MURILLON, ISRAEL C. NINAL, GEORGE G. SOMOSOT, JESSIE T. OR9ISO, LORETO PAEL "#$ JOEL 9ACU9AS, petitioners, vs. NORTHEASTERN MIN!ANAO MISSION OF SEBENTH !AY A!BENTIST, INC., "#$Mo-',-'*'#('$ 5y JOSUE A. LAYON, @EN!ELL M. SERRANO, FLORANTE P. TY "#$ JETHRO CALAHAT "#$Mo- SEBENTH !AY A!BENTIST CHURCH >OF? NORTHEASTERN MIN!ANAO MISSION,A Respondents. DECISI CORONA, J.% 3his petition for revie+ on certiorari assails the Court of Appeals "CA# decision/ and resolution. in CA@:.R. CE No. 7/(44 affir%in5, +ith %odification, the decision of the Re5ional 3rial Court "R3C# of Ba!u5an, A5usan del Sur, Branch 9 in Civil Case No. 4*. 3his case involves a /,)4( s$. %. lot covered b! 3ransfer Certificate of 3itle "3C3# No. 7741 in Ba!u5an, A5usan del Sur ori5inall! o+ned b! 2eli& Cosio and his +ife, 2elisa Cu!sona. n April ./, /(8(, the spouses Cosio donated the land to the South Philippine ?nion Mission of Seventh Da! Adventist Church of Ba!u5an EsperanFa, A5usan "SP?M@SDA Ba!u5an#.* Part of the deed of donation read< PN I A66 MEN B> 3DESE PRESEN3S< 3hat +e 2eli& CosioK,L 7( !ears of a5eK,L and 2elisa Cu!sonaK,L 7) !ears of a5e, KhLusband and +ife, both are citiFenKsL of the Philippines, and residentKsL +ith post office address in the Barrio of Ba!u5an, Municipalit! of EsperanFa, Province of A5usan, Philippines, do hereb! 5rant, conve! and forever $uit clai% b! +a! of Donation or 5ift unto the South Philippine K?nionL Mission of Seventh Da! Adventist Church of Ba!u5an, EsperanFa, A5usan, all the ri5hts, title, interest, clai% and de%and both at la+ and as +ell in possession as in e&pectanc! of in and to all the place of land and portion situated in the Barrio of Ba!u5an, Municipalit! of EsperanFa, Province of A5usan, Philippines, %ore particularl! and bounded as follo+s, to +it< /. a parcel of land for Church Site purposes onl!. .. situated Kin Barrio Ba!u5an, EsperanFaL. *. Area< *) %eters +ide and *) %eters len5th or ()) s$uare %eters. 7. 6ot No. 1..@Pls@..8. Do%estead Application No. E@*49)7, 3itle No. P@.18. 8. Bounded Areas North b! National Di5h Ia!G East b! Bricio :eronaG South b! Serapio AbiCaron and Iest b! 2eliF Cosio &&&. 7 3he donation +as alle5edl! accepted b! one 6iberato Ra!os, an elder of the Seventh Da! Adventist Church, on behalf of the donee. N

3+ent!@one !ears later, ho+ever, on 2ebruar! .1, /(1), the sa%e parcel of land +as sold b! the spouses Cosio to the Seventh Da! Adventist Church of Northeastern Mindanao Mission "SDA@NEMM#.8 3C3 No. 7741 +as thereafter issued in the na%e of SDA@NEMM.4 Clai%in5 to be the alle5ed doneeUs successors@in@interest, petitioners asserted o+nership over the propert!. 3his +as opposed b! respondents +ho ar5ued that at the ti%e of the donation, SP?M@SDA Ba!u5an could not le5all! be a donee because, not havin5 been incorporated !et, it had no Curidical personalit!. Neither +ere petitioners %e%bers of the local church then, hence, the donation could not have been %ade particularl! to the%. n Septe%ber .1, /(19, petitioners filed a case, doc,eted as Civil Case No. 4* "a suit for cancellation of title, $uietin5 of o+nership and possession, declarator! relief and reconve!ance +ith pra!er for preli%inar! inCunction and da%a5es#, in the R3C of Ba!u5an, A5usan del Sur. After trial, the trial court rendered a decision9 on Nove%ber .), /((. upholdin5 the sale in favor of respondents. n appeal, the CA affir%ed the R3C decision but deleted the a+ard of %oral da%a5es and attorne!Us fees.1PetitionersU %otion for reconsideration +as li,e+ise denied. 3hus, this petition. 3he issue in this petition is si%ple< should SDA@NEMMUs o+nership of the lot covered b! 3C3 No. 7741 be upheldN( Ie ans+er in the affir%ative. 3he controvers! bet+een petitioners and respondents involves t+o supposed transfers of the lot previousl! o+ned b! the spouses Cosio< "/# a donation to petitionersU alle5ed predecessors@in@ interest in /(8( and ".# a sale to respondents in /(1). Donation is undeniabl! one of the %odes of ac$uirin5 o+nership of real propert!. 6i,e+ise, o+nership of a propert! %a! be transferred b! tradition as a conse$uence of a sale. Petitioners contend that the appellate court should not have ruled on the validit! of the donation since it +as not a%on5 the issues raised on appeal. 3his is not correct because an appeal 5enerall! opens the entire case for revie+. Ie a5ree +ith the appellate court that the alle5ed donation to petitioners +as void. Donation is an act of liberalit! +hereb! a person disposes 5ratuitousl! of a thin5 or ri5ht in favor of another person +ho accepts it. 3he donation could not have been %ade in favor of an entit! !et ine&istent at the ti%e it +as %ade. Nor could it have been accepted as there +as !et no one to accept it. 3he deed of donation +as not in favor of an! infor%al 5roup of SDA %e%bers but a supposed SP?M@SDA Ba!u5an "the local church# +hich, at the ti%e, had neither Curidical personalit! nor capacit! to accept such 5ift. Declarin5 the%selves a de facto corporation, petitioners alle5e that the! should benefit fro% the donation.

But there are strin5ent re$uire%ents before one can $ualif! as a de facto corporation< "a# the e&istence of a valid la+ under +hich it %a! be incorporatedG "b# an atte%pt in 5ood faith to incorporateG and "c# assu%ption of corporate po+ers./) Ihile there e&isted the old Corporation 6a+ "Act /78(#,// a la+ under +hich SP?M@SDA Ba!u5an could have been or5aniFed, there is no proof that there +as an atte%pt to incorporate at that ti%e. 3he filin5 of articles of incorporation and the issuance of the certificate of incorporation are essential for the e&istence of a de facto corporation./. Ie have held that an or5aniFation not re5istered +ith the Securities and E&chan5e Co%%ission "SEC# cannot be considered a corporation in an! concept, not even as a corporation de facto./* Petitioners the%selves ad%itted that at the ti%e of the donation, the! +ere not re5istered +ith the SEC, nor did the! even atte%pt to or5aniFe/7 to co%pl! +ith le5al re$uire%ents. Corporate e&istence be5ins onl! fro% the %o%ent a certificate of incorporation is issued. No such certificate +as ever issued to petitioners or their supposed predecessor@in@interest at the ti%e of the donation. Petitioners obviousl! could not have clai%ed succession to an entit! that never ca%e to e&ist. Neither could the principle of separate Curidical personalit! appl! since there +as never an! corporation/8 to spea, of. And, as alread! stated, so%e of the representatives of petitioner Seventh Da! Adventist Conference Church of Southern Philippines, Inc. +ere not even %e%bers of the local church then, thus, the! could not even clai% that the donation +as particularl! for the%./4 -3he de facto doctrine thus effects a co%pro%ise bet+een t+o conflictin5 public interestKsLHthe one opposed to an unauthoriFed assu%ption of corporate privile5esG the other in favor of doin5 Custice to the parties and of establishin5 a 5eneral assurance of securit! in business dealin5 +ith corporations.-/9 :enerall!, the doctrine e&ists to protect the public dealin5 +ith supposed corporate entities, not to favor the defective or non@e&istent corporation./1 In vie+ of the fore5oin5, petitionersU ar5u%ents anchored on their supposed de facto status hold no +ater. Ie are convinced that there +as no donation to petitioners or their supposed predecessor@in@interest. n the other hand, there is sufficient basis to affir% the title of SDA@NEMM. 3he factual findin5s of the trial court in this re5ard +ere not convincin5l! disputed. 3his Court is not a trier of facts. nl! $uestions of la+ are the proper subCect of a petition for revie+ on certiorari./( Sustainin5 the validit! of respondentsU title as +ell as their ri5ht of o+nership over the propert!, the trial court stated< KILhen 2eli& Cosio +as sho+n the Absolute Deed of Sale durin5 the hearin5 &&& he ac,no+led5ed that the sa%e +as his &&& but that it +as not his intention to sell the controverted

propert! because he had previousl! donated the sa%e lot to the South Philippine ?nion Mission of SDA Church of Ba!u5an@EsperanFa. Cosio avouched that had it been his intend%ent to sell, he +ould not have disposed of it for a %ere P.,))).)) in t+o install%ents but for P8),))).)) or P4),))).)). Accordin5 to hi%, the P.,))).)) +as not a consideration of the sale but onl! a for% of help e&tended. A (&o-ou0& "#"ly*/* "#$ ,'-u*"l, #o#'(&'l'**, o8 (&' !''$ o8 A5*olu(' S"l' $/*)lo*'$ (&"( /( &"* (&' '**'#(/"l -'=u/*/('* o8 )o#(-")(* ,u-*u"#( (o +++ A-(/)l' 1<1C o8 (&' C/1/l Co$', e&cept that the consideration of P.,))).)) is so%e+hat insufficient for a K/,)4(@s$uare %eterL land. Iould then this inade$uac! of the consideration render the contract invalidN Article /*88 of the Civil Code provides< E&cept in cases specified b! la+, lesion or inade$uac! of cause shall not invalidate a contract, unless there has been fraud, %ista,e or undue influence. No '1/$'#)' >o8 8-"u$, 2/*("7' o- u#$u' /#8lu'#)'? ."* "$$u)'$ 5y >,'(/(/o#'-*?. &&& Iell@entrenched is the rule that " C'-(/8/)"(' o8 T/(l' /* 0'#'-"lly " )o#)lu*/1' '1/$'#)' o8 >o.#'-*&/,? o8 (&' l"#$. 3here is that stron5 and solid presu%ption that titles +ere le5all! issued and that the! are valid. It is irrevocable and indefeasible and the dut! of the Court is to see to it that the title is %aintained and respected unless challen5ed in a direct proceedin5. &&& 3he title shall be received as evidence in all the Courts and shall be conclusive as to all %atters contained therein. K3his action +as instituted al%ost seven !ears after the certificate of title in respondentsU na%e +as issued in /(1).L.) Accordin5 to Art. /799 of the Civil Code, the o+nership of the thin5 sold shall be transferred to the vendee upon the actual or constructive deliver! thereof. n this, the noted author Arturo 3olentino had this to sa!< 3he e&ecution of KaL public instru%ent &&& transfers the o+nership fro% the vendor to the vendee +ho %a! thereafter e&ercise the ri5hts of an o+ner over the sa%e./ Dere, transfer of o+nership fro% the spouses Cosio to SDA@NEMM +as %ade upon constructive deliver! of the propert! on 2ebruar! .1, /(1) +hen the sale +as %ade throu5h a public instru%ent... 3C3 No. 7741 +as thereafter issued and it re%ains in the na%e of SDA@ NEMM. @HEREFORE, the petition is hereb! !ENIE!. Costs a5ainst petitioners. SO OR!ERE!. Puno* Chairperson* Sandoval-!utierre,* A,cuna* !arcia* /./.* concur.

T>IRD DIVISION

[G.R. No. 116EE8. NoF-=<-r 1, 1999]

LIM

&ONG LIM, petitioner, vs. $HILI$$INE IN#US&RIES, IN ., respondent. #E ISION

'ISHING

GEAR

$ANGANI%AN, J.*

A partnership &a* )e dee&ed to e=ist a&on( parties who a(ree to )orrow &one* to pursue a )usiness and to divide the profits or losses that &a* arise therefro&! even if it is shown that the* have not contri)uted an* capital of their own to a Tco&&on fund.T Their contri)ution &a* )e in the for& of credit or industr*! not necessaril* cash or fi=ed assets. +ein( partners! the* are all lia)le for de)ts incurred )* or on )ehalf of the partnership. The lia)ilit* for a contract entered into on )ehalf of an unincorporated association or ostensi)le corporation &a* lie in a person who &a* not have directl* transacted on its )ehalf! )ut reaped )enefits fro& that contract.
&9- a4-

In the 3etition for Review on Certiorari )efore us! <i& Ton( <i& assails the Nove&)er ,#! 1""8 Decision of the Court of Appeals in CA/KR CV @1@--!$1% which disposed as follows2 A:>BRBFORB! $there )ein(% no reversi)le error in the appealed decision! the sa&e is here)* affir&ed.G$,% The decretal portion of the Mue9on Cit* Re(ional Trial Court 4RTC5 rulin(! which was affir&ed )* the CA! reads as follows2

A:>BRBFORB! the Court rules2 1. That plaintiff is entitled to the writ of preli&inar* attach&ent issued )* this Court on Septe&)er ,?! 1""?C ,. That defendants are 'ointl* lia)le to plaintiff for the followin( a&ounts! su)'ect to the &odifications as hereinafter &ade )* reason of the special and uni6ue facts and circu&stances and the proceedin(s that transpired durin( the trial of this caseC

a. 3 7,!?@ .?? representin( $the% unpaid purchase price of the fishin( nets covered )* the A(ree&ent plus 3#8!???.?? representin( the unpaid price of the floats not covered )* said A(ree&entC ). 1,F interest per annu& counted fro& date of plaintiffEs invoices and co&puted on their respective a&ounts as follows2 i. Accrued interest of 3-7!,,1.?? on Invoice No. 1@@?- for 378 !7--.8? dated Fe)ruar* "! 1""?C ii. Accrued interest of 3,-!"?@.?, on Invoice No. 1@@17 for 31@#!8#8.?? dated Fe)ruar* 17! 1""?C iii. Accrued interest of 31,!",?.?? on Invoice No. 1@@,# for 3#8!???.?? dated Fe)ruar* 1"! 1""?C c. 3 ?!???.?? as and for attorne*Es fees! plus 38! ??.?? representin( 3 ??.?? per appearance in courtC d. 3# !???.?? representin( 3 !???.?? &onthl* rental for stora(e char(es on the nets counted fro& Septe&)er ,?! 1""? 4date of attach&ent5 to Septe&)er 1,! 1""1 4date of auction sale5C e. Cost of suit. A:ith respect to the 'oint lia)ilit* of defendants for the principal o)li(ation or for the unpaid price of nets and floats in the a&ount of 3 7,!?@ .?? and 3#8!???.??! respectivel*! or for the total a&ount of3#??!?@ .??! this Court noted that these ite&s were attached to (uarantee an* 'ud(&ent that &a* )e rendered in favor of the plaintiff )ut! upon a(ree&ent of the parties! and! to avoid further deterioration of the nets durin( the pendenc* of this case! it was ordered sold at pu)lic auction for not less than 3"??!???.?? for which the plaintiff was the sole and winnin( )idder. The proceeds of the sale paid for )* plaintiff was deposited in court. In effect! the a&ount of 3"??!???.?? replaced the attached propert* as a (uarant* for an* 'ud(&ent that plaintiff &a* )e a)le to secure in this case with the ownership and possession of the nets and floats awarded and delivered )* the sheriff to plaintiff as the hi(hest )idder in the pu)lic auction sale. It has also )een noted that ownership of the nets $was% retained )* the plaintiff until full pa*&ent $was% &ade as stipulated in the invoicesC hence! in effect! the plaintiff attached its own properties. It $was% for this reason also that this Court earlier ordered the attach&ent )ond filed )* plaintiff to (uarant* da&a(es to defendants to )e cancelled and for the 3"??!???.?? cash )idded and paid for )* plaintiff to serve as its )ond in favor of defendants.

AFro& the fore(oin(! it would appear therefore that whatever 'ud(&ent the plaintiff &a* )e entitled to in this case will have to )e satisfied fro& the a&ount of 3"??!???.?? as this a&ount replaced the attached nets and floats. Considerin(! however! that the total 'ud(&ent o)li(ation as co&puted a)ove would a&ount to onl* 38@?!,1#.",! it would )e ine6uita)le! unfair and un'ust to award the e=cess to the defendants who are not entitled to da&a(es and who did not put up a sin(le centavo to raise the a&ount of 3"??!???.?? aside fro& the fact that the* are not the owners of the nets and floats. For this reason! the defendants are here)* relieved fro& an* and all lia)ilities arisin( fro& the &onetar* 'ud(&ent o)li(ation enu&erated a)ove and for plaintiff to retain possession and ownership of the nets and floats and for the rei&)urse&ent of the 3"??!???.?? deposited )* it with the Cler; of Court.
SO ORDBRBD.G $7%
&9- 'a534

On )ehalf of TOcean Muest Fishin( Corporation!T Antonio Chua and 3eter Hao entered into a Contract dated Fe)ruar* -! 1""?! for the purchase of fishin( nets of various si9es fro& the 3hilippine Fishin( Kear Industries! Inc. 4herein respondent5. The* clai&ed that the* were en(a(ed in a )usiness venture with 3etitioner <i& Ton( <i&! who however was not a si(nator* to the a(ree&ent. The total price of the nets a&ounted to 3 7,!?@ . Four hundred pieces of floats worth 3#8!??? were also sold to the Corporation.$@% The )u*ers! however! failed to pa* for the fishin( nets and the floatsC hence! private respondent filed a collection suit a(ainst Chua! Hao and 3etitioner <i& Ton( <i& with a pra*er for a writ of preli&inar* attach&ent. The suit was )rou(ht a(ainst the three in their capacities as (eneral partners! on the alle(ation that AOcean Muest Fishin( CorporationG was a none=istent corporation as shown )* a Certification fro& the Securities and B=chan(e Co&&ission. $ % On Septe&)er ,?! 1""?! the lower court issued a :rit of 3reli&inar* Attach&ent! which the sheriff enforced )* attachin( the fishin( nets on )oard 673 Aourde! which was then doc;ed at the Fisheries 3ort! Navotas! Metro Manila. Instead of answerin( the Co&plaint! Chua filed a Manifestation ad&ittin( his lia)ilit* and re6uestin( a reasona)le ti&e within which to pa*. >e also turned over to respondent so&e of the nets which were in his possession. 3eter Hao filed an Answer! after which he was dee&ed to have waived his ri(ht to cross/e=a&ine witnesses and to present evidence on his )ehalf! )ecause of his failure to appear in su)se6uent hearin(s. <i& Ton( <i&! on the other hand! filed an Answer with Counterclai& and Crossclai& and &oved for the liftin( of the :rit of Attach&ent. $#% The trial court &aintained the :rit! and upon &otion of private respondent! ordered the sale of the fishin( nets at a pu)lic auction. 3hilippine Fishin( Kear Industries won the )iddin( and deposited with the said court the sales proceeds of 3"??!???.$-% On Nove&)er 18! 1"",! the trial court rendered its Decision! rulin( that 3hilippine Fishin( Kear Industries was entitled to the :rit of Attach&ent and that Chua! Hao and <i&! as (eneral partners! were 'ointl* lia)le to pa* respondent.$8%

The trial court ruled that a partnership a&on( <i&! Chua and Hao e=isted )ased 415 on the testi&onies of the witnesses presented and 4,5 on a Co&pro&ise A(ree&ent e=ecuted )* the three$"% in Civil Case No. 1@",/MN which Chua and Hao had )rou(ht a(ainst <i& in the RTC of Mala)on! +ranch -,! for 4a5 a declaration of nullit* of co&&ercial docu&entsC 4)5 a refor&ation of contractsC 4c5 a declaration of ownership of fishin( )oatsC 4d5 an in'unction and 4e5 da&a(es. $1?% The Co&pro&ise A(ree&ent provided2

Aa5 That the parties plaintiffs U <i& Ton( <i& a(ree to have the four 4@5 vessels sold in the a&ount of 3 !- ?!???.?? includin( the fishin( net. This 3 !- ?!???.?? shall )e applied as full pa*&ent for37!, ?!???.?? in favor of 0< >oldin(s Corporation and1or <i& Ton( <i&C A)5 If the four 4@5 vessel$s% and the fishin( net will )e sold at a hi(her price than 3 !- ?!???.?? whatever will )e the e=cess will )e divided into 72 117 <i& Ton( <i&C 117 Antonio ChuaC 117 3eter HaoC
Ac5 If the proceeds of the sale the vessels will )e less than 3 !- ?!???.?? whatever the deficienc* shall )e shouldered and paid to 0< >oldin( Corporation )* 117 <i& Ton( <i&C 117 Antonio ChuaC 117 3eter Hao.G$11% The trial court noted that the Co&pro&ise A(ree&ent was silent as to the nature of their o)li(ations! )ut that 'oint lia)ilit* could )e presu&ed fro& the e6ual distri)ution of the profit and loss.$1,% <i& appealed to the Court of Appeals 4CA5 which! as alread* stated! affir&ed the RTC. Rulin( of the Court of Appeals In affir&in( the trial court! the CA held that petitioner was a partner of Chua and Hao in a fishin( )usiness and &a* thus )e held lia)le as a such for the fishin( nets and floats purchased )* and for the use of the partnership. The appellate court ruled2 AThe evidence esta)lishes that all the defendants includin( herein appellant <i& Ton( <i& undertoo; a partnership for a specific underta;in(! that is for co&&ercial fishin( = = =. O)viousl*! the ulti&ate underta;in( of the defendants was to divide the profits a&on( the&selves which is what a partnership essentiall* is = = =. +* a contract of partnership! two or &ore persons )ind the&selves to contri)ute &one*! propert* or industr* to a co&&on fund with the intention of dividin( the profits a&on( the&selves 4Article 1-#-! New Civil Code5.G$17% >ence! petitioner )rou(ht this recourse )efore this Court.$1@%
&9- I44u-4

In his 3etition and Me&orandu&! <i& as;s this Court to reverse the assailed Decision on the followin( (rounds2

AI T>B COIRT OF A33BA<S BRRBD IN >O<DINK! +ASBD ON A COM3ROMISB AKRBBMBNT T>AT C>IA! HAO AND 3BTITIONBR <IM BNTBRBD INTO IN A SB3ARATB CASB! T>AT A 3ARTNBRS>I3 AKRBBMBNT BSISTBD AMONK T>BM. AII SINCB IT :AS ON<H C>IA :>O RB3RBSBNTBD T>AT >B :AS ACTINK FOR OCBAN MIBST FIS>INK COR3ORATION :>BN >B +OIK>T T>B NBTS FROM 3>I<I33INB FIS>INK! T>B COIRT OF A33BA<S :AS IN0ISTIFIBD IN IM3ITINK <IA+I<ITH TO 3BTITIONBR <IM AS :B<<. AIII T>B TRIA< COIRT IM3RO3BR<H ORDBRBD T>B SBIQIRB AND ATTAC>MBNT OF 3BTITIONBR <IMES KOODS.G
In deter&inin( whether petitioner &a* )e held lia)le for the fishin( nets and floats purchased fro& respondent! the Court &ust resolve this ;e* issue2 whether )* their acts! <i&! Chua and Hao could )e dee&ed to have entered into a partnership.
&924 our384 Ru72n?

The 3etition is devoid of &erit.

'2r43 an! S-5on! I44u-4* -)istence of a Partners"ip and Petitioner.s Lia*ility

In ar(uin( that he should not )e held lia)le for the e6uip&ent purchased fro& respondent! petitioner controverts the CA findin( that a partnership e=isted )etween hi&! 3eter Hao and Antonio Chua. >e asserts that the CA )ased its findin( on the Co&pro&ise A(ree&ent alone. Further&ore! he disclai&s an* direct participation in the purchase of the nets! alle(in( that the ne(otiations were conducted )* Chua and Hao onl*! and that he has not even &et the representatives of the respondent co&pan*. 3etitioner further ar(ues that he was a lessor! not a partner! of Chua and Hao! for the TContract of <easeT dated Fe)ruar* 1! 1""?! showed that he had &erel* leased to the two the &ain asset of the purported partnership // the fishin( )oat 673 Aourde!. The lease was for si= &onths! with a &onthl* rental of 37-! ?? plus , percent of the (ross catch of the )oat. :e are not persuaded )* the ar(u&ents of petitioner. The facts as found )* the two lower courts clearl* showed that there e=isted a partnership a&on( Chua! Hao and hi&! pursuant to Article 1-#- of the Civil Code which provides2

AArticle 1-#- / +* the contract of partnership! two or &ore persons )ind the&selves to contri)ute &one*! propert*! or industr* to a co&&on fund! with the intention of dividin( the profits a&on( the&selves.G

Specificall*! )oth lower courts ruled that a partnership a&on( the three e=isted )ased on the followin( factual findin(s2$1 %

415 That 3etitioner <i& Ton( <i& re6uested 3eter Hao who was en(a(ed in co&&ercial fishin( to 'oin hi&! while Antonio Chua was alread* HaoEs partnerC 4,5 That after convenin( for a few ti&es! <i& Chua! and Hao ver)all* a(reed to ac6uire two fishin( )oats! the 63 Aourde! and the 63 :el!on for the su& of 37.7 &illionC 475 That the* )orrowed 37., &illion fro& 0esus <i&! )rother of 3etitioner <i& Ton( <i&! to finance the venture. 4@5 That the* )ou(ht the )oats fro& CMF Fishin( Corporation! which e=ecuted a Deed of Sale over these two 4,5 )oats in favor of 3etitioner <i& Ton( <i& onl* to serve as securit* for the loan e=tended )* 0esus <i&C 4 5 That <i&! Chua and Hao a(reed that the refur)ishin( ! re/e6uippin(! repairin(! dr* doc;in( and other e=penses for the )oats would )e shouldered )* Chua and HaoC 4#5 That )ecause of the Aunavaila)ilit* of funds!G 0esus <i& a(ain e=tended a loan to the partnership in the a&ount of 31 &illion secured )* a chec;! )ecause of which! Hao and Chua entrusted the ownership papers of two other )oats! ChuaEs 63 Aad% Bnne Mel and HaoEs 63 *ra % to <i& Ton( <i&. 4-5 That in pursuance of the )usiness a(ree&ent! 3eter Hao and Antonio Chua )ou(ht nets fro& Respondent 3hilippine Fishin( Kear! in )ehalf of TOcean Muest Fishin( Corporation!T their purported )usiness na&e. 485 That su)se6uentl*! Civil Case No. 1@",/MN was filed in the Mala)on RTC! +ranch -, )* Antonio Chua and 3eter Hao a(ainst <i& Ton( <i& for 4a5 declaration of nullit* of co&&ercial docu&entsC 4)5 refor&ation of contractsC 4c5 declaration of ownership of fishin( )oatsC 4@5 in'unctionC and 4e5 da&a(es. 4"5 That the case was a&ica)l* settled throu(h a Co&pro&ise A(ree&ent e=ecuted )etween the parties/liti(ants the ter&s of which are alread* enu&erated a)ove.
Fro& the factual findin(s of )oth lower courts! it is clear that Chua! Hao and <i& had decided to en(a(e in a fishin( )usiness! which the* started )* )u*in( )oats worth 37.7 &illion! financed )* a loan secured fro& 0esus <i& who was petitionerEs )rother. In their Co&pro&ise A(ree&ent! the* su)se6uentl* revealed their intention to pa* the loan with the proceeds of the sale of the )oats! and to divide e6uall* a&on( the& the e=cess or loss. These )oats! the purchase and the repair of which were financed with )orrowed &one*! fell under the ter& Aco&&on fundG

under Article 1-#-. The contri)ution to such fund need not )e cash or fi=ed assetsC it could )e an intan(i)le li;e credit or industr*. That the parties a(reed that an* loss or profit fro& the sale and operation of the )oats would )e divided e6uall* a&on( the& also shows that the* had indeed for&ed a partnership. Moreover! it is clear that the partnership e=tended not onl* to the purchase of the )oat! )ut also to that of the nets and the floats. The fishin( nets and the floats! )oth essential to fishin(! were o)viousl* ac6uired in furtherance of their )usiness. It would have )een inconceiva)le for <i& to involve hi&self so &uch in )u*in( the )oat )ut not in the ac6uisition of the aforesaid e6uip&ent! without which the )usiness could not have proceeded. Kiven the precedin( facts! it is clear that there was! a&on( petitioner! Chua and Hao! a partnership en(a(ed in the fishin( )usiness. The* purchased the )oats! which constituted the &ain assets of the partnership! and the* a(reed that the proceeds fro& the sales and operations thereof would )e divided a&on( the&. :e stress that under Rule @ ! a petition for review li;e the present case should involve onl* 6uestions of law. Thus! the fore(oin( factual findin(s of the RTC and the CA are )indin( on this Court! a)sent an* co(ent proof that the present action is e&)raced )* one of the e=ceptions to the rule.$1#% In assailin( the factual findin(s of the two lower courts! petitioner effectivel* (oes )e*ond the )ounds of a petition for review under Rule @ .
Co!pro!ise A%ree!ent #ot t"e Sole 'asis of Partners"ip

3etitioner ar(ues that the appellate courtEs sole )asis for assu&in( the e=istence of a partnership was the Co&pro&ise A(ree&ent. >e also clai&s that the settle&ent was entered into onl* to end the dispute a&on( the&! )ut not to ad'udicate their pree=istin( ri(hts and o)li(ations. >is ar(u&ents are )aseless. *he B"reement ,a! )ut an em)odiment o$ the relation!hip extant amon" the partie! prior to it! exe ution. A proper ad'udication of clai&antsE ri(hts &andates that courts &ust review and thorou(hl* appraise all relevant facts. +oth lower courts have done so and have found! correctl*! a pree=istin( partnership a&on( the parties. In i&pl*in( that the lower courts have decided on the )asis of one piece of docu&ent alone! petitioner fails to appreciate that the CA and the RTC delved into the histor* of the docu&ent and e=plored all the possi)le conse6uential co&)inations in har&on* with law! lo(ic and fairness. Veril*! the two lower courtsE factual findin(s &entioned a)ove nullified petitionerEs ar(u&ent that the e=istence of a partnership was )ased onl* on the Co&pro&ise A(ree&ent.
Petitioner /as a Partner, #ot a Lessor

:e are not convinced )* petitionerEs ar(u&ent that he was &erel* the lessor of the )oats to Chua and Hao! not a partner in the fishin( venture. >is ar(u&ent alle(edl* finds support in the Contract of <ease and the re(istration papers showin( that he was the owner of the )oats! includin( 673 Aourde! where the nets were found.

>is alle(ation defies lo(ic. In effect! he would li;e this Court to )elieve that he consented to the sale of hi! o,n )oats to pa* a de)t of Chua and Fao! with the e=cess of the proceeds to )e divided a&on( the three o$ them. No lessor would do what petitioner did. Indeed! his consent to the sale proved that there was a pree=istin( partnership a&on( all three. Veril*! as found )* the lower courts! petitioner entered into a )usiness a(ree&ent with Chua and Hao! in which de)ts were underta;en in order to finance the ac6uisition and the up(radin( of the vessels which would )e used in their fishin( )usiness. The sale of the )oats! as well as the division a&on( the three of the )alance re&ainin( after the pa*&ent of their loans! proves )e*ond cavil that 673 Aourde!! thou(h re(istered in his na&e! was not his own propert* )ut an asset of the partnership. It is not unco&&on to re(ister the properties ac6uired fro& a loan in the na&e of the person the lender trusts! who in this case is the petitioner hi&self. After all! he is the )rother of the creditor! 0esus <i&. :e stress that it is unreasona)le D indeed! it is a)surd // for petitioner to sell his propert* to pa* a de)t he did not incur! if the relationship a&on( the three of the& was &erel* that of lessor/ lessee! instead of partners.
Corporation *y -stoppel

3etitioner ar(ues that under the doctrine of corporation )* estoppel! lia)ilit* can )e i&puted onl* to Chua and Hao! and not to hi&. A(ain! we disa(ree. Section ,1 of the Corporation Code of the 3hilippines provides2

ASec. ,1. Corporation )% e!toppel. / All persons who assu&e to act as a corporation ;nowin( it to )e without authorit* to do so shall )e lia)le as (eneral partners for all de)ts! lia)ilities and da&a(es incurred or arisin( as a result thereof2 Provided ho,ever, That when an* such ostensi)le corporation is sued on an* transaction entered )* it as a corporation or on an* tort co&&itted )* it as such! it shall not )e allowed to use as a defense its lac; of corporate personalit*. AOne who assu&es an o)li(ation to an ostensi)le corporation as such! cannot resist perfor&ance thereof on the (round that there was in fact no corporation.G
Thus! even if the ostensi)le corporate entit* is proven to )e le(all* none=istent! a part* &a* )e estopped fro& den*in( its corporate e=istence. AThe reason )ehind this doctrine is o)vious / an unincorporated association has no personalit* and would )e inco&petent to act and appropriate for itself the power and attri)utes of a corporation as provided )* lawC it cannot create a(ents or confer authorit* on another to act in its )ehalfC thus! those who act or purport to act as its representatives or a(ents do so without authorit* and at their own ris;. And as it is an ele&entar* principle of law that a person who acts as an a(ent without authorit* or without a principal is hi&self re(arded as the principal! possessed of all the ri(ht and su)'ect to all the lia)ilities of a principal! a person actin( or purportin( to act on )ehalf of a corporation which has

no valid e=istence assu&es such privile(es and o)li(ations and )eco&es personall* lia)le for contracts entered into or for other acts perfor&ed as such a(ent.G$1-% The doctrine of corporation )* estoppel &a* appl* to the alle(ed corporation and to a third part*. In the first instance! an unincorporated association! which represented itself to )e a corporation! will )e estopped fro& den*in( its corporate capacit* in a suit a(ainst it )* a third person who relied in (ood faith on such representation. It cannot alle(e lac; of personalit* to )e sued to evade its responsi)ilit* for a contract it entered into and )* virtue of which it received advanta(es and )enefits. On the other hand! a third part% ,ho, +no,in" an a!!o iation to )e unin orporated, nonethele!! treated it a! a orporation and re eived )ene$it! $rom it, ma% )e )arred $rom den%in" it! orporate exi!ten e in a !uit )rou"ht a"ain!t the alle"ed orporation. In such case! all those who )enefited fro& the transaction &ade )* the ostensi)le corporation! despite ;nowled(e of its le(al defects! &a* )e held lia)le for contracts the* i&pliedl* assented to or too; advanta(e of. There is no dispute that the respondent! 3hilippine Fishin( Kear Industries! is entitled to )e paid for the nets it sold. The onl* 6uestion here is whether petitioner should )e held 'ointl*$18% lia)le with Chua and Hao. 3etitioner contests such lia)ilit*! insistin( that onl* those who dealt in the na&e of the ostensi)le corporation should )e held lia)le. Since his na&e does not appear on an* of the contracts and since he never directl* transacted with the respondent corporation! er(o! he cannot )e held lia)le. In6uestiona)l*! petitioner )enefited fro& the use of the nets found inside 673 Aourde!, the )oat which has earlier )een proven to )e an asset of the partnership. >e in fact 6uestions the attach&ent of the nets! )ecause the :rit has effectivel* stopped his use of the fishin( vessel. It is difficult to disa(ree with the RTC and the CA that <i&! Chua and Hao decided to for& a corporation. Althou(h it was never le(all* for&ed for un;nown reasons! this fact alone does not preclude the lia)ilities of the three as contractin( parties in representation of it. Clearl*! under the law on estoppel! those actin( on )ehalf of a corporation and those )enefited )* it! ;nowin( it to )e without valid e=istence! are held lia)le as (eneral partners. Technicall*! it is true that petitioner did not dire tl% a t on )ehalf of the corporation. Do,ever, havin" reaped the )ene$it! o$ the ontra t entered into )% per!on! ,ith ,hom he previou!l% had an exi!tin" relation!hip, he i! deemed to )e part o$ !aid a!!o iation and i! overed )% the ! ope o$ the do trine o$ orporation )% e!toppel. :e reiterate the rulin( of the Court in Blon!o v. 4illamor2$1"%

AA liti(ation is not a (a&e of technicalities in which one! &ore deepl* schooled and s;illed in the su)tle art of &ove&ent and position ! entraps and destro*s the other. It is! rather! a contest in which each contendin( part* full* and fairl* la*s )efore the court the facts in issue and then! )rushin( aside as wholl* trivial and indecisive all i&perfections of for& and technicalities of procedure! as;s that 'ustice )e done upon the &erits. <awsuits! unli;e duels! are not to )e won )* a rapierEs thrust. Technicalit*! when it deserts its proper office as an aid to 'ustice and )eco&es

its (reat hindrance and chief ene&*! deserves scant consideration fro& courts. There should )e no vested ri(hts in technicalities.G
&92r! I44u-* 0alidity of Attac"!ent

Finall*! petitioner clai&s that the :rit of Attach&ent was i&properl* issued a(ainst the nets. :e a(ree with the Court of Appeals that this issue is now &oot and acade&ic. As previousl* discussed! 673 Aourde! was an asset of the partnership and that it was placed in the na&e of petitioner! onl* to assure pa*&ent of the de)t he and his partners owed. The nets and the floats were specificall* &anufactured and tailor/&ade accordin( to their own desi(n! and were )ou(ht and used in the fishin( venture the* a(reed upon. >ence! the issuance of the :rit to assure the pa*&ent of the price stipulated in the invoices is proper. +esides! )* specific a(ree&ent! ownership of the nets re&ained with Respondent 3hilippine Fishin( Kear! until full pa*&ent thereof. +HERE'ORE! the 3etition is D>:->D and the assailed Decision B66-9M>D. Costs a(ainst petitioner. SO OR#ERE#. Melo, (Chairman), Puri!ima, and Gon#a"a-9e%e!, JJ., concur. 4itu", J., 3ls. see concurrin( opinion.

2IRS3 DIEISI N

>G.R. No. 11D002. O)(o5'- 1D, 2000?

INTERNATIONAL EAPRESS TRABEL I TOUR SERBICES, INC., petitioner, vs. HON. COURT OF APPEALS, HENRI HAHN, PHILIPPINE FOOT9ALL FE!ERATION, respondents. !ECISION
HAPUNAN, J.%

n 0une *) /(1(, petitioner International E&press 3ravel and 3our Services, Inc., throu5h its %ana5in5 director, +rote a letter to the Philippine 2ootball 2ederation "2ederation#, throu5h its president private respondent Denri Pahn, +herein the for%er offered its services as a travel a5enc! to the latter.K/L 3he offer +as accepted.

Petitioner secured the airline tic,ets for the trips of the athletes and officials of the 2ederation to the South East Asian :a%es in Puala 6u%pur as +ell as various other trips to the People;s Republic of China and Brisbane. 3he total cost of the tic,ets a%ounted to P77(,487.1*. 2or the tic,ets received, the 2ederation %ade t+o partial pa!%ents, both in Septe%ber of /(1(, in the total a%ount of P/94,749.8).K.L n 7 ctober /(1(, petitioner +rote the 2ederation, throu5h the private respondent a de%and letter re$uestin5 for the a%ount of P.48,1(7.**.K*L n *) ctober /(1(, the 2ederation, throu5h the ProCect :inton5 Ala!, paid the a%ount of P*/,4)*.)).K7L n .9 Dece%ber /(1(, Denri Pahn issued a personal chec, in the a%ount of P8),))) as partial pa!%ent for the outstandin5 balance of the 2ederation. K8L 3hereafter, no further pa!%ents +ere %ade despite repeated de%ands. 3his pro%pted petitioner to file a civil case before the Re5ional 3rial Court of Manila. Petitioner sued Denri Pahn in his personal capacit! and as President of the 2ederation and i%pleaded the 2ederation as an alternative defendant. Petitioner sou5ht to hold Denri Pahn liable for the unpaid balance for the tic,ets purchased b! the 2ederation on the 5round that Denri Pahn alle5edl! 5uaranteed the said obli5ation.K4L Denri Pahn filed his ans+er +ith counterclai%. Ihile not den!in5 the alle5ation that the 2ederation o+ed the a%ount P.)9,8.7..), representin5 the unpaid balance for the plane tic,ets, he averred that the petitioner has no cause of action a5ainst hi% either in his personal capacit! or in his official capacit! as president of the 2ederation. De %aintained that he did not 5uarantee pa!%ent but %erel! acted as an a5ent of the 2ederation +hich has a separate and distinct Curidical personalit!.K9L n the other hand, the 2ederation failed to file its ans+er, hence, +as declared in default b! the trial court.K1L In due course, the trial court rendered Cud5%ent and ruled in favor of the petitioner and declared Denri Pahn personall! liable for the unpaid obli5ation of the 2ederation. In arrivin5 at the said rulin5, the trial court rationaliFed< Defendant >enri Rahn would have )een correct in his contentions had it )een dul* esta)lished that defendant Federation is a corporation. The trou)le! however! is that neither the plaintiff nor the defendant >enri Rahn has adduced an* evidence provin( the corporate e=istence of the defendant Federation. In para(raph , of its co&plaint! plaintiff asserted that TDefendant 3hilippine Foot)all Federation is a sports association ===.T This has not )een denied )* defendant >enri Rahn in his Answer.

+ein( the 3resident of defendant Federation! its corporate e=istence is within the personal ;nowled(e of defendant >enri Rahn. >e could have easil* denied specificall* the assertion of the plaintiff that it is a &ere sports association! if it were a do&estic corporation. +ut he did not. &&& A voluntar* unincorporated association! li;e defendant Federation has no power to enter into! or to ratif*! a contract. The contract entered into )* its officers or a(ents on )ehalf of such association is not )indin( on! or enforcea)le a(ainst it. The officers or a(ents are the&selves personall* lia)le. & & &K(L 3he dispositive portion of the trial court;s decision reads< :>BRBFORB! 'ud(&ent is rendered orderin( defendant >enri Rahn to pa* the plaintiff the principal su& of 3,?-! ,@.,?! plus the interest thereon at the le(al rate co&puted fro& 0ul* ! 1""?! the date the co&plaint was filed! until the principal o)li(ation is full* li6uidatedC and another su& of 31 !???.?? for attorne*Vs fees. The co&plaint of the plaintiff a(ainst the 3hilippine Foot)all Federation and the counterclai&s of the defendant >enri Rahn are here)* dis&issed. :ith the costs a(ainst defendant >enri Rahn. $1?% nl! Denri Pahn elevated the above decision to the Court of Appeals. n ./ Dece%ber /((7, the respondent court rendered a decision reversin5 the trial court, the decretal portion of said decision reads< :>BRBFORB! pre&ises considered! the 'ud(&ent appealed fro& is here)* RBVBRSBD and SBT ASIDB and another one is rendered dis&issin( the co&plaint a(ainst defendant >enri S. Rahn.$11% In findin5 for Denri Pahn, the Court of Appeals reco5niFed the Curidical e&istence of the 2ederation. It rationaliFed that since petitioner failed to prove that Denri Pahn 5uaranteed the obli5ation of the 2ederation, he should not be held liable for the sa%e as said entit! has a separate and distinct personalit! fro% its officers. Petitioner filed a %otion for reconsideration and as an alternative pra!er pleaded that the 2ederation be held liable for the unpaid obli5ation. 3he sa%e

+as denied b! the appellate court in its resolution of 1 2ebruar! /((8, +here it stated that< As to the alternative pra*er for the Modification of the Decision )* e=pressl* declarin( in the dispositive portion thereof the 3hilippine Foot)all Federation 43FF5 as lia)le for the unpaid o)li(ation! it should )e re&e&)ered that the trial court dis&issed the co&plaint a(ainst the 3hilippine Foot)all Federation! and the plaintiff did not appeal fro& this decision. >ence! the 3hilippine Foot)all Federation is not a part* to this appeal and conse6uentl*! no 'ud(&ent &a* )e pronounced )* this Court a(ainst the 3FF without violatin( the due process clause! let alone the fact that the 'ud(&ent dis&issin( the co&plaint a(ainst it! had alread* )eco&e final )* virtue of the plaintiffVs failure to appeal therefro&. The alternative pra*er is therefore si&ilarl* DBNIBD.$1,% Petitioner no+ see,s recourse to this Court and alle5es that the respondent court co%%itted the follo+in5 assi5ned errors<K/*L
A. 3DE D N RAB6E C ?R3 2 APPEA6S ERRED IN D 6DIN: 3DA3 PE3I3I NER DAD DEA63 II3D 3DE PDI6IPPINE 2 3BA66 2EDERA3I N "P22# AS A C RP RA3E EN3I3> AND IN N 3 D 6DIN: 3DA3 PRIEA3E RESP NDEN3 DENRI PADN IAS 3DE NE ID REPRESEN3ED 3DE P22 AS DAEIN: A C RP RA3E PERS NA6I3>. B. 3DE D N RAB6E C ?R3 2 APPEA6S ERRED IN N 3 D 6DIN: PRIEA3E RESP NDEN3 DENRI PADN PERS NA66> 6IAB6E 2 R 3DE B6I:A3I N 2 3DE ?NINC RP RA3ED P22, DAEIN: NE: 3IA3ED II3D PE3I3I NER AND C N3RAC3ED 3DE B6I:A3I N IN BEDA62 2 3DE P22, MADE A PAR3IA6 PA>MEN3 AND ASS?RED PE3I3I NER 2 2?66> SE336IN: 3DE B6I:A3I N. C. ASS?MIN: AR:?END 3DA3 PRIEA3E RESP NDEN3 PADN IS N 3 PERS NA66> 6IAB6E, 3DE D N RAB6E C ?R3 2 APPEA6S ERRED IN N 3 E=PRESS6> DEC6ARIN: IN I3S DECISI N 3DA3 3DE P22 IS S 6E6> 6IAB6E 2 R 3DE B6I:A3I N.

3he resolution of the case at bar hin5es on the deter%ination of the e&istence of the Philippine 2ootball 2ederation as a Curidical person. In the assailed decision, the appellate court reco5niFed the e&istence of the 2ederation. In support of this, the CA cited Republic Act */*8, other+ise ,no+n as the Revised Charter of the Philippine A%ateur Athletic 2ederation, and Presidential Decree No. 4)7 as the la+s fro% +hich said 2ederation derives its e&istence. As correctl! observed b! the appellate court, both R.A. */*8 and P.D. No. 4)7 reco5niFed the Curidical e&istence of national sports associations. 3his %a! be 5leaned fro% the po+ers and functions 5ranted to these associations. Section /7 of R.A. */*8 provides<

SBC. 1@. 6un tion!, po,er! and dutie! o$ B!!o iation!. / The National SportsV Association shall have the followin( functions! powers and duties2 1. To adopt a constitution and )*/laws for their internal or(ani9ation and (overn&entC ,. To raise funds )* donations! )enefits! and other &eans for their purposes. 7. To purchase! sell! lease or otherwise encu&)er propert* )oth real and personal! for the acco&plish&ent of their purposeC @. To affiliate with international or re(ional sportsV Associations after due consultation with the e=ecutive co&&itteeC &&& 17. To perfor& such other acts as &a* )e necessar* for the proper acco&plish&ent of their purposes and not inconsistent with this Act. Section 1 of P.D. 4)7, 5rants si%ilar functions to these sports associations< SBC. 8. 6un tion!, Po,er!, and Dutie! o$ :ational 2port! B!!o iation . / The National sports associations shall have the followin( functions! powers! and duties2 1. Adopt a Constitution and +*/<aws for their internal or(ani9ation and (overn&ent which shall )e su)&itted to the Depart&ent and an* a&end&ent thereto shall ta;e effect upon approval )* the Depart&ent2 Provided! ho,ever, That no tea&! school! clu)! or(ani9ation! or entit* shall )e ad&itted as a votin( &e&)er of an association unless #? per cent of the athletes co&posin( said tea&! school! clu)! or(ani9ation! or entit* are Filipino citi9ensC ,. Raise funds )* donations! )enefits! and other &eans for their purpose su)'ect to the approval of the Depart&entC 7. 3urchase! sell! lease! or otherwise encu&)er propert*! )oth real and personal! for the acco&plish&ent of their purposeC @. Conduct local! interport! and international co&petitions! other than the Ol*&pic and Asian Ka&es! for the pro&otion of their sportC . Affiliate with international or re(ional sports associations after due consultation with the Depart&entC

&&& 17. 3erfor& such other functions as &a* )e provided )* law. 3he above po+ers and functions 5ranted to national sports associations clearl! indicate that these entities %a! ac$uire a Curidical personalit!. 3he po+er to purchase, sell, lease and encu%ber propert! are acts +hich %a! onl! be done b! persons, +hether natural or artificial, +ith Curidical capacit!. Do+ever, +hile +e a5ree +ith the appellate court that national sports associations %a! be accorded corporate status, such does not auto%aticall! ta,e place b! the %ere passa5e of these la+s. It is a basic postulate that before a corporation %a! ac$uire Curidical personalit!, the State %ust 5ive its consent either in the for% of a special la+ or a 5eneral enablin5 act. Ie cannot a5ree +ith the vie+ of the appellate court and the private respondent that the Philippine 2ootball 2ederation ca%e into e&istence upon the passa5e of these la+s. No+here can it be found in R.A. */*8 or P.D. 4)7 an! provision creatin5 the Philippine 2ootball 2ederation. 3hese la+s %erel! reco5niFed the e&istence of national sports associations and provided the %anner b! +hich these entities %a! ac$uire Curidical personalit!. Section // of R.A. */*8 provides< SBC. 11. :ational 2port!H B!!o iation0 or"ani#ation and re o"nition. / A National Association shall )e or(ani9ed for each individual sports in the 3hilippines in the &anner hereinafter provided to constitute the 3hilippine A&ateur Athletic Federation. Applications for reco(nition as a National SportsV Association shall )e filed with the e=ecutive co&&ittee to(ether with! a&on( others! a cop* of the constitution and )*/ laws and a list of the &e&)ers of the proposed association! and a filin( fee of ten pesos. The B=ecutive Co&&ittee shall (ive the reco(nition applied for if it is satisfied that said association will pro&ote the purposes of this Act and particularl* section three thereof. No application shall )e held pendin( for &ore than three &onths after the filin( thereof without an* action havin( )een ta;en thereon )* the e=ecutive co&&ittee. Should the application )e re'ected! the reasons for such re'ection shall )e clearl* stated in a written co&&unication to the applicant. Failure to specif* the reasons for the re'ection shall not affect the application which shall )e considered as unacted upon2 Provided, ho,ever, That until the e=ecutive co&&ittee herein provided shall have )een for&ed! applications for reco(nition shall )e passed upon )* the dul* elected &e&)ers of the present e=ecutive co&&ittee of the 3hilippine A&ateur Athletic Federation. The said e=ecutive co&&ittee shall )e dissolved upon the or(ani9ation of the e=ecutive co&&ittee herein provided I Provided, $urther, That the

functionin( e=ecutive co&&ittee is char(ed with the responsi)ilit* of seein( to it that the National SportsV Associations are for&ed and or(ani9ed within si= &onths fro& and after the passa(e of this Act. Section 9 of P.D. 4)7, si%ilarl! provides< SBC. -. :ational 2port! B!!o iation!. / Application for accreditation or reco(nition as a national sports association for each individual sport in the 3hilippines shall )e filed with the Depart&ent to(ether with! a&on( others! a cop* of the Constitution and +*/ <aws and a list of the &e&)ers of the proposed association. The Depart&ent shall (ive the reco(nition applied for if it is satisfied that the national sports association to )e or(ani9ed will pro&ote the o)'ectives of this Decree and has su)stantiall* co&plied with the rules and re(ulations of the Depart&ent2 Provided, That the Depart&ent &a* withdraw accreditation or reco(nition for violation of this Decree and such rules and re(ulations for&ulated )* it. The Depart&ent shall supervise the national sports association2 Provided, That the latter shall have e=clusive technical control over the develop&ent and pro&otion of the particular sport for which the* are or(ani9ed. Clearl! the above cited provisions re$uire that before an entit! %a! be considered as a national sports association, such entit! %ust be reco5niFed b! the accreditin5 or5aniFation, the Philippine A%ateur Athletic 2ederation under R.A. */*8, and the Depart%ent of >outh and Sports Develop%ent under P.D. 4)7. 3his fact of reco5nition, ho+ever, Denri Pahn failed to substantiate. In atte%ptin5 to prove the Curidical e&istence of the 2ederation, Denri Pahn attached to his %otion for reconsideration before the trial court a cop! of the constitution and b!@la+s of the Philippine 2ootball 2ederation. ?nfortunatel!, the sa%e does not prove that said 2ederation has indeed been reco5niFed and accredited b! either the Philippine A%ateur Athletic 2ederation or the Depart%ent of >outh and Sports Develop%ent. Accordin5l!, +e rule that the Philippine 2ootball 2ederation is not a national sports association +ithin the purvie+ of the afore%entioned la+s and does not have corporate e&istence of its o+n. 3hus bein5 said, it follo+s that private respondent Denr! Pahn should be held liable for the unpaid obli5ations of the unincorporated Philippine 2ootball 2ederation. It is a settled principal in corporation la+ that an! person actin5 or purportin5 to act on behalf of a corporation +hich has no valid e&istence assu%es such privile5es and beco%es personall! liable for contract entered

into or for other acts perfor%ed as such a5ent. K/7L As president of the 2ederation, Denri Pahn is presu%ed to have ,no+n about the corporate e&istence or non@e&istence of the 2ederation. Ie cannot subscribe to the position ta,en b! the appellate court that even assu%in5 that the 2ederation +as defectivel! incorporated, the petitioner cannot den! the corporate e&istence of the 2ederation because it had contracted and dealt +ith the 2ederation in such a %anner as to reco5niFe and in effect ad%it its e&istence. K/8L 3he doctrine of corporation b! estoppel is %ista,enl! applied b! the respondent court to the petitioner. 3he application of the doctrine applies to a third part! onl! +hen he tries to escape liabilit! on a contract fro% +hich he has benefited on the irrelevant 5round of defective incorporation. K/4L In the case at bar, the petitioner is not tr!in5 to escape liabilit! fro% the contract but rather is the one clai%in5 fro% the contract. @HEREFORE, the decision appealed fro% is REEERSED and SE3 ASIDE. 3he decision of the Re5ional 3rial Court of Manila, Branch *8, in Civil Case No. ()@8*8(8 is hereb! REINS3A3ED. SO OR!ERE!. Davide* /r.* //.* concur. C./.* BChair#anC* Puno* Pardo* and 1nares-Santiago*

2IRS3 DIEISI N

>G.R. No. 1F1DDF. J"#u"-y 1G, 2005?

FILIPINAS 9ROA!CASTING NET@ORH, INC., petitioner, vs. AGO ME!ICAL AN! E!UCATIONAL CENTER39ICOL CHRISTIAN COLLEGE OF ME!ICINE, JAMEC39CCMK "#$ ANGELITA F. AGO, respondents. !ECISION
CARPIO, J.%

T&' C"*'

3his petition for revie+K/L assails the 7 0anuar! /((( DecisionK.L and .4 0anuar! .))) Resolution of the Court of Appeals in CA@:.R. CE No. 7)/8/. 3he Court of Appeals affir%ed +ith %odification the /7 Dece%ber /((. DecisionK*L of the Re5ional 3rial Court of 6e5aFpi Cit!, Branch /), in Civil Case No. 1.*4. 3he Court of Appeals held 2ilipinas Broadcastin5 Net+or,, Inc. and its broadcasters Der%o5enes Ale5re and Car%elo Ri%a liable for libel and ordered the% to solidaril! pa! A5o Medical and Educational Center@Bicol Christian Colle5e of Medicine %oral da%a5es, attorne!Us fees and costs of suit. T&' A#(')'$'#(* VE&posZW is a radio docu%entar!K7L pro5ra% hosted b! Car%elo [MelU Ri%a "VRi%aW# and Der%o5enes [0unU Ale5re "VAle5reW#.K8L E&posZ is aired ever! %ornin5 over DORC@AM +hich is o+ned b! 2ilipinas Broadcastin5 Net+or,, Inc. "V2BNIW#. VE&posZW is heard over 6e5aFpi Cit!, the Alba! %unicipalities and other Bicol areas.K4L In the %ornin5 of /7 and /8 Dece%ber /(1(, Ri%a and Ale5re e&posed various alle5ed co%plaints fro% students, teachers and parents a5ainst A5o Medical and Educational Center@Bicol Christian Colle5e of Medicine "VAMECW# and its ad%inistrators. Clai%in5 that the broadcasts +ere defa%ator!, AMEC and An5elita A5o "VA5oW#, as Dean of AMECUs Colle5e of Medicine, filed a co%plaint for da%a5esK9L a5ainst 2BNI, Ri%a and Ale5re on .9 2ebruar! /((). Suoted are portions of the alle5edl! libelous broadcasts< JUN ALEGRE2 <et us )e(in with the less )urdenso&e2 2@ you 9aF- 5927!r-n 3aG2n? =-!25a7 5our4a3 AME D% M, a!F24- 39-= 3o 6a44 a77 4u<>-534 <-5au4- 2@ 39-y @a27 2n any 4u<>-53 39-y :277 r-6-a3 39-2r y-ar 7-F-7, 3aG2n? u6 a77 4u<>-534 2n57u!2n? 39o439-y 9aF- 6a44-! a7r-a!y. Several students had approached &e statin( that the* had consulted with the DBCS which told the& that there is no such re(ulation. If $there% is no such re(ulation wh* is AMBC doin( the sa&eJ === Second2 Ear72-r AME 43u!-n34 2n $9y425a7 &9-ra6y 9a! 5o=67a2n-! 39a3 395our4- 24 no3 r-5o?n2A-! <y #E S. ===

Third2 S3u!-n34 ar- r-Hu2r-! 3o 3aG- an! 6ay @or 39- 4u<>-53 -F-n 2@ 39- 4u<>-53 !o-4 no3 9aF- an 2n43ru53or D 4u59 ?r--! @or =on-y on 39- 6ar3 o@ AME 84 a!=2n243ra32on. Ta;e the su)'ect Anato&*2 students would pa* for the su)'ect upon enrol&ent )ecause it is offered )* the school. >owever there would )e no instructor for such su)'ect. Students would )e infor&ed that course would )e &oved to a later date )ecause the school is still searchin( for the appropriate instructor. === It is a pu)lic ;nowled(e that the A(o Medical and Bducational Center has survived and has )een survivin( for the past few *ears since its inception )ecause of funds support fro& forei(n foundations. If *ou will ta;e a loo; at the AMBC pre&ises *ouEll find out that the na&es of the )uildin(s there are forei(n soundin(s. There is a McDonald >all. :h* not 0ose Ri9al or +onifacio >allJ That is a ver* concrete and undenia)le evidence that the support of forei(n foundations for AMBC is su)stantial! isnEt itJ :ith the report which is the )asis of the e=pose in DQRC toda*! it would )e ver* eas* for detractors and ene&ies of the A(o fa&il* to stop the flow of support of forei(n foundations who assist the &edical school on the )asis of the latterEs purpose. +ut if the purpose of the institution 4AMBC5 is to deceive students at cross purpose with its reason for )ein( it is possi)le for these forei(n foundations to lift or suspend their donations te&poraril*.K1L === On 39- o39-r 9an!, 39- a!=2n243ra3or4 o@ AME D% M, AME S52-n5- H2?9 S59oo7 an! 39- AME DIn4323u3- o@ Ma44 o==un25a32on 2n 39-2r -@@or3 3o =2n2=2A- -;6-n4-4 2n 3-r=4 o@ 4a7ary ar- a<4or<2n? or 5on32nu-4 3o a55-63 /r->-534I. For e=a&ple how &an* teachers in AMBC are for&er teachers of A6uinas Iniversit* )ut were re&oved )ecause of i&&oralit*J Does it &ean that the present ad&inistration of AMBC have the total definite &oral foundation fro& catholic ad&inistrator of A6uinas Iniversit*. I will prove to *ou &* friends! that AME 24 a !u=62n? ?roun!, ?ar<a?-, no3 =-r-7y o@ =ora7 an! 69y425a7 =24@234 . 3ro)a)l* the* onl* 6ualif* in ter&s of intellect. The Dean of Student Affairs of AMBC is 0ustita <ola! as the fa&il* na&e i&plies. She is too old to wor;! )ein( an old wo&an. Is the AMBC ad&inistration e=ploitin( the ver* $e%nterprisin( or co&pro&isin( and unde&andin( <olaJ Could it )e that AMBC is 'ust patientl* &a;in( use of Dean 0ustita <ola were if she is ver* old. As in at&ospheric situation D 9ero visi)ilit* D the plane cannot land! &eanin( she is ver* old! low pa* follows. +* the wa*! Dean 0ustita <ola is also the chair&an of the co&&ittee on scholarship in AMBC. She had retired fro& +icol Iniversit* a lon( ti&e a(o )ut AMBC has patientl* &ade use of her.

=== MEL RIMA* === M* friends )ased on the e=pose! AMBC is a du&pin( (round for &oral and ph*sicall* &isfit people. :hat does this &eanJ I&&oral and ph*sicall* &isfits as teachers. Ma* I sa* IE& sorr* to Dean 0ustita <ola. +ut this is the truth. The truth is this! that *our are no lon(er fit to teach. Hou are too old. As an aviation! *our case is 9ero visi)ilit*. DonEt insist. === :h* did AMBC still a)sor) her as a teacher! a dean! and chair&an of the scholarship co&&ittee at that. The reason is practical cost savin( in salaries! )ecause an old person is not fastidious! so lon( as she has &one* to )u* the in(redient of )eetle 'uice. The elderl* can (et )* D thatEs wh* she 4<ola5 was ta;en in as Dean. === === On our end our tas; is to attend to the interests of students. It is li;el* that the students would )e influenced )* evil. +9-n 39-y <-5o=- =-=<-r4 o@ 4o52-3y ou342!- o@ 5a=6u4 :277 <- 72a<27232-4 ra39-r 39an a44-34. :hat do *ou e=pect fro& a doctor who while stud*in( at AMBC is so &uch )urdened with unreasona)le i&positionJ :hat do *ou e=pect fro& a student who aside fro& peculiar pro)le&s D )ecause not all students are rich D in their stru((le to i&prove their social status are even &ore )urdened with false re(ulations. === K(L 4B&phasis supplied5 3he co%plaint further alle5ed that AMEC is a reputable learnin5 institution. Iith the supposed e&posZs, 2BNI, Ri%a and Ale5re Vtrans%itted %alicious i%putations, and as such, destro!ed plaintiffsU "AMEC and A5o# reputation.W AMEC and A5o included 2BNI as defendant for alle5edl! failin5 to e&ercise due dili5ence in the selection and supervision of its e%plo!ees, particularl! Ri%a and Ale5re. n /1 0une /((), 2BNI, Ri%a and Ale5re, throu5h Att!. RoFil 6oFares, filed an Ans+erK/)L alle5in5 that the broadcasts a5ainst AMEC +ere fair and true. 2BNI, Ri%a and Ale5re clai%ed that the! +ere plainl! i%pelled b! a sense of public dut! to report the V5oin5s@on in AMEC, K+hich isL an institution i%bued +ith public interest.W 3hereafter, trial ensued. Durin5 the presentation of the evidence for the defense, Att!. Ed%undo Cea, collaboratin5 counsel of Att!. 6oFares, filed a Motion to Dis%issK//L on 2BNIUs behalf. 3he trial court denied the %otion to

dis%iss. Conse$uentl!, 2BNI filed a separate Ans+er clai%in5 that it e&ercised due dili5ence in the selection and supervision of Ri%a and Ale5re. 2BNI clai%ed that before hirin5 a broadcaster, the broadcaster should "/# file an applicationG ".# be intervie+edG and "*# under5o an apprenticeship and trainin5 pro5ra% after passin5 the intervie+. 2BNI li,e+ise clai%ed that it al+a!s re%inds its broadcasters to Vobserve truth, fairness and obCectivit! in their broadcasts and to refrain fro% usin5 libelous and indecent lan5ua5e.W Moreover, 2BNI re$uires all broadcasters to pass the 9apisanan ng #ga %rod&aster sa Pilipinas "VPBPW# accreditation test and to secure a PBP per%it. n /7 Dece%ber /((., the trial court rendered a DecisionK/.L findin5 2BNI and Ale5re liable for libel e&cept Ri%a. 3he trial court held that the broadcasts are libelous per se. 3he trial court reCected the broadcastersU clai% that their utterances +ere the result of strai5ht reportin5 because it had no factual basis. 3he broadcasters did not even verif! their reports before airin5 the% to sho+ 5ood faith. In holdin5 2BNI liable for libel, the trial court found that 2BNI failed to e&ercise dili5ence in the selection and supervision of its e%plo!ees. In absolvin5 Ri%a fro% the char5e, the trial court ruled that Ri%aUs onl! participation +as +hen he a5reed +ith Ale5reUs e&posZ. 3he trial court found Ri%aUs state%ent +ithin the Vbounds of freedo% of speech, e&pression, and of the press.W 3he dispositive portion of the decision reads< :>BRBFORB! pre&ises considered! this court finds for the plaintiff. on42!-r2n? 39- !-?r-- o@ !a=a?-4 5au4-! <y 39- 5on3roF-r42a7 u33-ran5-4, :9259 ar- no3 @oun! <y 3924 5our3 3o <- r-a77y F-ry 4-r2ou4 an! !a=a?2n?, an! 39-r- <-2n? no 49o:2n? 39a3 2n!--! 39- -nro77=-n3 o@ 67a2n32@@ 459oo7 !ro66-!, defendants >er&o(enes A0unG Ale(re! 0r. and Filipinas +roadcastin( Networ; 4owner of the radio station DQRC5! are here)* 'ointl* and severall* ordered to pa* plaintiff A(o Medical and Bducational Center/+icol Christian Colle(e of Medicine 4AMBC/ +CCM5 the a&ount of 37??!???.?? &oral da&a(es! plus 37?!???.?? rei&)urse&ent of attorne*Es fees! and to pa* the costs of suit. SO ORDBRBD. K/*L 4B&phasis supplied5 Both parties, na%el!, 2BNI, Ri%a and Ale5re, on one hand, and AMEC and A5o, on the other, appealed the decision to the Court of Appeals. 3he Court of Appeals affir%ed the trial courtUs Cud5%ent +ith %odification. 3he appellate court %ade Ri%a solidaril! liable +ith 2BNI and Ale5re. 3he appellate court denied A5oUs clai% for da%a5es and attorne!Us fees because the broadcasts +ere directed a5ainst AMEC, and not a5ainst her. 3he dispositive portion of the Court of AppealsU decision reads<

+HERE'ORE! the decision appealed fro& is here)* A''IRME#! su)'ect to the &odification that )roadcaster Mel Ri&a is SOLI#ARIL0 A#JU#GE# lia)le with F+N$I% and >er&o$(%enes Ale(re. SO OR#ERE#.K/7L 2BNI, Ri%a and Ale5re filed a %otion for reconsideration +hich the Court of Appeals denied in its .4 0anuar! .))) Resolution. Dence, 2BNI filed this petition.K/8L T&' Rul/#0 o8 (&' Cou-( o8 A,,'"l* 3he Court of Appeals upheld the trial courtUs rulin5 that the $uestioned broadcasts are libelous per se and that 2BNI, Ri%a and Ale5re failed to overco%e the le5al presu%ption of %alice. 3he Court of Appeals found Ri%a and Ale5reUs clai% that the! +ere actuated b! their %oral and social dut! to infor% the public of the studentsU 5ripes as insufficient to Custif! the utterance of the defa%ator! re%ar,s. 2indin5 no factual basis for the i%putations a5ainst AMECUs ad%inistrators, the Court of Appeals ruled that the broadcasts +ere %ade V+ith rec,less disre5ard as to +hether the! +ere true or false.W 3he appellate court pointed out that 2BNI, Ri%a and Ale5re failed to present in court an! of the students +ho alle5edl! co%plained a5ainst AMEC. Ri%a and Ale5re %erel! 5ave a sin5le na%e +hen as,ed to identif! the students. Accordin5 to the Court of Appeals, these circu%stances cast doubt on the veracit! of the broadcastersU clai% that the! +ere Vi%pelled b! their %oral and social dut! to infor% the public about the studentsU 5ripes.W 3he Court of Appeals found Ri%a also liable for libel since he re%ar,ed that V"/# AMEC@BCCM is a du%pin5 5round for %orall! and ph!sicall! %isfit teachersG ".# AMEC obtained the services of Dean 0ustita 6ola to %ini%iFe e&penses on its e%plo!eesU salariesG and "*# AMEC burdened the students +ith unreasonable i%position and false re5ulations.WK/4L 3he Court of Appeals held that 2BNI failed to e&ercise due dili5ence in the selection and supervision of its e%plo!ees for allo+in5 Ri%a and Ale5re to %a,e the radio broadcasts +ithout the proper PBP accreditation. 3he Court of Appeals denied A5oUs clai% for da%a5es and attorne!Us fees because the libelous re%ar,s +ere directed a5ainst AMEC, and not a5ainst her. 3he Court of Appeals adCud5ed 2BNI, Ri%a and Ale5re solidaril! liable to pa! AMEC %oral da%a5es, attorne!Us fees and costs of suit.

I**u'* 2BNI raises the follo+in5 issues for resolution< I. II. III. IV. :>BT>BR T>B +ROADCASTS ARB <I+B<OISC :>BT>BR AMBC IS BNTIT<BD TO MORA< DAMAKBSC :>BT>BR T>B A:ARD OF ATTORNBHES FBBS IS 3RO3BRC and :>BT>BR F+NI IS SO<IDARI<H <IA+<B :IT> RIMA AND A<BKRB FOR 3AHMBNT OF MORA< DAMAKBS! ATTORNBHES FBBS AND COSTS OF SIIT. (he Court)s Ruling Ie den! the petition. 3his is a civil action for da%a5es as a result of the alle5edl! defa%ator! re%ar,s of Ri%a and Ale5re a5ainst AMEC.K/9L Ihile AMEC did not point out clearl! the le5al basis for its co%plaint, a readin5 of the co%plaint reveals that AMECUs cause of action is based on Articles *) and ** of the Civil Code. Article *)K/1L authoriFes a separate civil action to recover civil liabilit! arisin5 fro% a cri%inal offense. n the other hand, Article **K/(L particularl! provides that the inCured part! %a! brin5 a separate civil action for da%a5es in cases of defa%ation, fraud, and ph!sical inCuries. AMEC also invo,es Article /(K.)L of the Civil Code to Custif! its clai% for da%a5es. AMEC cites Articles ./94K./L and ./1)K..L of the Civil Code to hold 2BNI solidaril! liable +ith Ri%a and Ale5re. 1. *hether the +roadcasts are li+elous A libelK.*L is a public and %alicious i%putation of a cri%e, or of a vice or defect, real or i%a5inar!, or an! act or o%ission, condition, status, or circu%stance tendin5 to cause the dishonor, discredit, or conte%pt of a natural or Curidical person, or to blac,en the %e%or! of one +ho is dead.K.7L 3here is no $uestion that the broadcasts +ere %ade public and i%puted to AMEC defects or circu%stances tendin5 to cause it dishonor, discredit and conte%pt. Ri%a and Ale5reUs re%ar,s such as V5reed for %one! on the part

of AMECUs ad%inistratorsWG VAMEC is a du%pin5 5round, 5arba5e of &&& %oral and ph!sical %isfitsWG and AMEC students +ho 5raduate V+ill be liabilities rather than assetsW of the societ! are libelous per se. 3a,en as a +hole, the broadcasts su55est that AMEC is a %one!@%a,in5 institution +here ph!sicall! and %orall! unfit teachers abound. Do+ever, 2BNI contends that the broadcasts are not %alicious. 2BNI clai%s that Ri%a and Ale5re +ere plainl! i%pelled b! their civic dut! to air the studentsU 5ripes. 2BNI alle5es that there is no evidence that ill +ill or spite %otivated Ri%a and Ale5re in %a,in5 the broadcasts. 2BNI further points out that Ri%a and Ale5re e&erted efforts to obtain AMECUs side and 5ave A5o the opportunit! to defend AMEC and its ad%inistrators. 2BNI concludes that since there is no %alice, there is no libel. 2BNIUs contentions are untenable. Ever! defa%ator! i%putation is presu%ed %alicious.K.8L Ri%a and Ale5re failed to sho+ ade$uatel! their 5ood intention and Custifiable %otive in airin5 the supposed 5ripes of the students. As hosts of a docu%entar! or public affairs pro5ra%, Ri%a and Ale5re should have presented the public issues Vfree fro% inaccurate and %isleadin5 infor%ation.WK.4LDearin5 the studentsU alle5ed co%plaints a %onth before the e&posZ,K.9L the! had sufficient ti%e to verif! their sources and infor%ation. Do+ever, Ri%a and Ale5re hardl! %ade a thorou5h investi5ation of the studentsU alle5ed 5ripes. Neither did the! in$uire about nor confir% the purported irre5ularities in AMEC fro% the Depart%ent of Education, Culture and Sports. Ale5re testified that he %erel! +ent to AMEC to verif! his report fro% an alle5ed AMEC official +ho refused to disclose an! infor%ation. Ale5re si%pl! relied on the +ords of the students Vbecause the! +ere %an! and not because there is proof that +hat the! are sa!in5 is true.WK.1L 3his plainl! sho+s Ri%a and Ale5reUs rec,less disre5ard of +hether their report +as true or not. Contrar! to 2BNIUs clai%, the broadcasts +ere not Vthe result of strai5ht reportin5.W Si5nificantl!, so%e courts in the ?nited States appl! the privile5e of Vneutral reporta5eW in libel cases involvin5 %atters of public interest or public fi5ures. ?nder this privile5e, a republisher +ho accurately and disinterestedl! reports certain defa%ator! state%ents %ade a5ainst public fi5ures is shielded fro% liabilit!, re5ardless of the republisherUs subCective a+areness of the truth or falsit! of the accusation.K.(L Ri%a and Ale5re cannot invo,e the privile5e of neutral reporta5e because unfounded co%%ents abound in the broadcasts. Moreover, there is no e&istin5 controvers! involvin5 AMEC +hen the broadcasts +ere %ade. 3he privile5e of neutral reporta5e applies +here the

defa%ed person is a public fi5ure +ho is involved in an e&istin5 controvers!, and a part! to that controvers! %a,es the defa%ator! state%ent.K*)L Do+ever, 2BNI ar5ues vi5orousl! that %alice in la+ does not appl! to this case. Citin5 Bor al v. Court of Appeals,K*/L 2BNI contends that the broadcasts Vfall +ithin the covera5e of $ualifiedl! privile5ed co%%unicationsW for bein5 co%%entaries on %atters of public interest. Such bein5 the case, AMEC should prove %alice in fact or actual %alice. Since AMEC alle5edl! failed to prove actual %alice, there is no libel. 2BNIUs reliance on Bor al is %isplaced. In Bor al, the Court elucidated on the Vdoctrine of fair co%%ent,W thus< $F%air co&&entaries on &atters of pu)lic interest are privile(ed and constitute a valid defense in an action for li)el or slander. The doctrine of fair co&&ent &eans that while in (eneral ever* discredita)le i&putation pu)licl* &ade is dee&ed false! )ecause ever* &an is presu&ed innocent until his (uilt is 'udiciall* proved! and ever* false i&putation is dee&ed &alicious! nevertheless! when the discredita)le i&putation is directed a(ainst a pu)lic person in his pu)lic capacit*! it is not necessaril* actiona)le. In or!-r 39a3 4u59 !245r-!23a<7- 2=6u3a32on 3o a 6u<725 o@@252a7 =ay <a532ona<7-, 23 =u43 -239-r <- a @a74- a77-?a32on o@ @a53 or a 5o==-n3 <a4-! on a @a74- 4u66o4232on. I@ 39- 5o==-n3 24 an -;6r-442on o@ o62n2on, <a4-! on -43a<7249-! @a534, then it is i&&aterial that the opinion happens to )e &ista;en! as lon( as it &i(ht reasona)l* )e inferred fro& the facts. K*.L 4B&phasis supplied5 3rue, AMEC is a private learnin5 institution +hose business of educatin5 students is V5enuinel! i%bued +ith public interest.W 3he +elfare of the !outh in 5eneral and AMECUs students in particular is a %atter +hich the public has the ri5ht to ,no+. 3hus, si%ilar to the ne+spaper articles in Bor al, the subCect broadcasts dealt +ith %atters of public interest. Do+ever, unli,e in Bor al, the $uestioned broadcasts are #o( based on '*("5l/*&'$ 8")(*. 3he record supports the follo+in5 findin5s of the trial court< === Althou(h defendants clai& that the* were &otivated )* consistent reports of students and parents a(ainst plaintiff! *et! defendants have not presented in court! nor even (ave na&e of a sin(le student who &ade the co&plaint to the&! &uch less present written co&plaint or petition to that effect. To accept this defense of defendants is too dan(erous )ecause it could easil* (ive license to the &edia to &ali(n people and esta)lish&ents )ased on fli&s* e=cuses that there were reports to the& althou(h the* could not satisfactoril* esta)lish it. Such la=it* would encoura(e careless and irresponsi)le )roadcastin( which is ini&ical to pu)lic interests.

Secondl*! there is reason to )elieve that defendant radio )roadcasters! contrar* to the &andates of their duties! did not verif* and anal*9e the truth of the reports )efore the* aired it! in order to prove that the* are in (ood faith. Ale(re contended that plaintiff school had no per&it and is not accredited to offer 3h*sical Therap* courses. Het! plaintiff produced a certificate co&in( fro& DBCS that as of Sept. ,,! 1"8- or &ore than , *ears )efore the controversial )roadcast! accreditation to offer 3h*sical Therap* course had alread* )een (iven the plaintiff! which certificate is si(ned )* no less than the Secretar* of Bducation and Culture herself! <ourdes R. Muisu&)in( 4B=h. C/re)uttal5. Defendants could have easil* ;nown this were the* careful enou(h to verif*. And *et! defendants were ver* cate(orical and sounded too positive when the* &ade the erroneous report that plaintiff had no per&it to offer 3h*sical Therap* courses which the* were offerin(. The alle(ation that plaintiff was (ettin( tre&endous aids fro& forei(n foundations li;e Mcdonald Foundation prove not to )e true also. The truth is there is no Mcdonald Foundation e=istin(. Althou(h a )i( )uildin( of plaintiff school was (iven the na&e Mcdonald )uildin(! that was onl* in order to honor the first &issionar* in +icol of plaintiffsE reli(ion! as e=plained )* Dr. <ita A(o. Contrar* to the clai& of defendants over the air! not a sin(le centavo appears to )e received )* plaintiff school fro& the afore&entioned McDonald Foundation which does not e=ist. Defendants did not even also )other to prove their clai&! thou(h denied )* Dra. A(o! that when &edical students fail in one su)'ect! the* are &ade to repeat all the other su)'ect$s%! even those the* have alread* passed! nor their clai& that the school char(es la)orator* fees even if there are no la)oratories in the school. No evidence was presented to prove the )ases for these clai&s! at least in order to (ive se&)lance of (ood faith. As for the alle(ation that plaintiff is the du&pin( (round for &isfits! and i&&oral teachers! defendant$s% sin(led out Dean 0ustita <ola who is said to )e so old! with 9ero visi)ilit* alread*. Dean <ola testified in court last 0an. ,1! 1""1! and was found to )e - *ears old. === Bven older people prove to )e effective teachers li;e Supre&e Court 0ustices who are still ver* &uch in de&and as law professors in their late *ears. Counsel for defendants is past - )ut is found )* this court to )e still ver* sharp and effective. So is plaintiffsE counsel. Dr. <ola was o)served )* this court not to )e ph*sicall* decrepit *et! nor &entall* infir&ed! )ut is still alert and docile. The contention that plaintiffsE (raduates )eco&e lia)ilities rather than assets of our societ* is a &ere conclusion. +ein( fro& the place hi&self! this court is aware that

&a'orit* of the &edical (raduates of plaintiffs pass the )oard e=a&ination easil* and )eco&e prosperous and responsi)le professionals. K**L Dad the co%%ents been an e&pression of opinion based on established facts, it is i%%aterial that the opinion happens to be %ista,en, as lon5 as it %i5ht reasonabl! be inferred fro% the facts.K*7L Do+ever, the co%%ents of Ri%a and Ale5re +ere not bac,ed up b! facts. 3herefore, the broadcasts are not privile5ed and re%ain libelous per se. 3he broadcasts also violate the Radio CodeK*8L of the 9apisanan ng #ga %rod&aster sa Pilipinas* In&. "VRadio CodeW#. Ite% I"B# of the Radio Code provides< %. $U%LI A''AIRS, $U%LI ISSUES AN# OMMEN&ARIES 1. @. === $u<725 a@@a2r4 6ro?ra= 49a77 6r-4-n3 6u<725 244u-4 @r-- @ro= personal )ias! pre'udice and 2na55ura3- an! =247-a!2n? 2n@or=a32on. = = = Further&ore! the station shall strive to present )alanced discussion of issues. = = =.

=== -. The station shall )e responsi)le at all ti&es in the supervision of pu)lic affairs! pu)lic issues and co&&entar* pro(ra&s so that the* confor& to the provisions and standards of this code. It shall )e the responsi)ilit* of the newscaster! co&&entator! host and announcer to protect pu)lic interest! (eneral welfare and (ood order in the presentation of pu)lic affairs and pu)lic issues. K*4L 4B&phasis supplied5

8.

3he broadcasts fail to %eet the standards prescribed in the Radio Code, +hich la!s do+n the code of ethical conduct 5overnin5 practitioners in the radio broadcast industr!. 3he Radio Code is a voluntar! code of conduct i%posed b! the radio broadcast industr! on its o+n %e%bers. 3he Radio Code is a public +arrant! b! the radio broadcast industr! that radio broadcast practitioners are subCect to a code b! +hich their conduct are %easured for lapses, liabilit! and sanctions. 3he public has a ri5ht to e&pect and de%and that radio broadcast practitioners live up to the code of conduct of their profession, Cust li,e other professionals. A professional code of conduct provides the standards for

deter%inin5 +hether a person has acted Custl!, honestl! and +ith 5ood faith in the e&ercise of his ri5hts and perfor%ance of his duties as re$uired b! Article /(K*9L of the Civil Code. A professional code of conduct also provides the standards for deter%inin5 +hether a person +ho +illfull! causes loss or inCur! to another has acted in a %anner contrar! to %orals or 5ood custo%s under Article ./K*1L of the Civil Code. 11. *hether AM!C is entitled to moral damages 2BNI contends that AMEC is not entitled to %oral da%a5es because it is a corporation.K*(L A Curidical person is 5enerall! not entitled to %oral da%a5es because, unli,e a natural person, it cannot e&perience ph!sical sufferin5 or such senti%ents as +ounded feelin5s, serious an&iet!, %ental an5uish or %oral shoc,.K7)L 3he Court of Appeals cites Mam+ulao "um+er Co. v. P,B, et al . K7/L to Custif! the a+ard of %oral da%a5es. Do+ever, the CourtUs state%ent in Mam+ulao that Va corporation %a! have a 5ood reputation +hich, if bes%irched, %a! also be a 5round for the a+ard of %oral da%a5esW is an o)iter dictu#.K7.L Nevertheless, AMECUs clai% for %oral da%a5es falls under ite% 9 of Article ../(K7*L of the Civil Code. 3his provision e&pressl! authoriFes the recover! of %oral da%a5es in cases of libel, slander or an! other for% of defa%ation. Article ../("9# does not $ualif! +hether the plaintiff is a natural or Curidical person. 3herefore, a Curidical person such as a corporation can validl! co%plain for libel or an! other for% of defa%ation and clai% for %oral da%a5es.K77L Moreover, +here the broadcast is libelous per se, the la+ i%plies da%a5es.K78L In such a case, evidence of an honest %ista,e or the +ant of character or reputation of the part! libeled 5oes onl! in %iti5ation of da%a5es. K74L Neither in such a case is the plaintiff re$uired to introduce evidence of actual da%a5es as a condition precedent to the recover! of so%e da%a5es. K79L In this case, the broadcasts are libelous per se. 3hus, AMEC is entitled to %oral da%a5es. Do+ever, +e find the a+ard of P*)),))) %oral da%a5es unreasonable. 3he record sho+s that even thou5h the broadcasts +ere libelous per se, AMEC has not suffered an! substantial or %aterial da%a5e to its reputation. 3herefore, +e reduce the a+ard of %oral da%a5es fro% P*)),))) to P/8),))).

III. *hether the a-ard of attorney)s fees is proper 2BNI contends that since AMEC is not entitled to %oral da%a5es, there is no basis for the a+ard of attorne!Us fees. 2BNI adds that the instant case does not fall under the enu%eration in Article ..)1K71L of the Civil Code. 3he a+ard of attorne!Us fees is not proper because AMEC failed to Custif! satisfactoril! its clai% for attorne!Us fees. AMEC did not adduce evidence to +arrant the a+ard of attorne!Us fees. Moreover, both the trial and appellate courts failed to e&plicitl! state in their respective decisions the rationale for the a+ard of attorne!Us fees.K7(L In Inter.Asia Investment Industries, Inc. v. Court of Appeals,K8)L +e held that< $I%t is an accepted doctrine that the award thereof as an ite& of da&a(es is the e=ception rather than the rule! and counselEs fees are not to )e awarded ever* ti&e a part* wins a suit. &9- 6o:-r o@ 39- 5our3 3o a:ar! a33orn-y84 @--4 un!-r Ar325722,8 o@ 39- 2F27 o!- !-=an!4 @a53ua7, 7-?a7 an! -Hu23a<7- >u432@25a32on, :239ou3 :9259 39- a:ar! 24 a 5on57u42on :239ou3 a 6r-=24-, 234 <a424 <-2n? 2=6ro6-r7y 7-@3 3o 46-5u7a32on an! 5on>-53ur-. In all events! the court &ust e=plicitl* state in the te=t of the decision! and not onl* in the decretal portion thereof! the le(al reason for the award of attorne*Es fees.K8/L 4B&phasis supplied5 Ihile it %entioned about the a+ard of attorne!Us fees b! statin5 that it Vlies +ithin the discretion of the court and depends upon the circu%stances of each case,W the Court of Appeals failed to point out an! circu%stance to Custif! the a+ard. 10. *hether /B,I is solidarily lia+le -ith Rima and Alegre for moral damages, attorney)s fees and costs of suit 2BNI contends that it is not solidaril! liable +ith Ri%a and Ale5re for the pa!%ent of da%a5es and attorne!Us fees because it e&ercised due dili5ence in the selection and supervision of its e%plo!ees, particularl! Ri%a and Ale5re. 2BNI %aintains that its broadcasters, includin5 Ri%a and Ale5re, under5o a Vver! re5i%ented processW before the! are allo+ed to 5o on air. V3hose +ho appl! for broadcaster are subCected to intervie+s, e&a%inations and an apprenticeship pro5ra%.W

2BNI further ar5ues that Ale5reUs a5e and lac, of trainin5 are irrelevant to his co%petence as a broadcaster. 2BNI points out that the V%inor deficiencies in the PBP accreditation of Ri%a and Ale5re do not in an! +a! prove that 2BNI did not e&ercise the dili5ence of a 5ood father of a fa%il! in selectin5 and supervisin5 the%.W Ri%aUs accreditation lapsed due to his non@ pa!%ent of the PBP annual fees +hile Ale5reUs accreditation card +as dela!ed alle5edl! for reasons attributable to the PBP Manila ffice. 2BNI clai%s that %e%bership in the PBP is %erel! voluntar! and not re$uired b! an! la+ or 5overn%ent re5ulation. 2BNIUs ar5u%ents do not persuade us. 3he basis of the present action is a tort. 0oint tort feasors are Cointl! and severall! liable for the tort +hich the! co%%it. K8.L 0oint tort feasors are all the persons +ho co%%and, insti5ate, pro%ote, encoura5e, advise, countenance, cooperate in, aid or abet the co%%ission of a tort, or +ho approve of it after it is done, if done for their benefit.K8*L 3hus, AMEC correctl! anchored its cause of action a5ainst 2BNI on Articles ./94 and ./1) of the Civil Code. As operator of DORC@AM and e%plo!er of Ri%a and Ale5re, 2BNI is solidaril! liable to pa! for da%a5es arisin5 fro% the libelous broadcasts. As stated b! the Court of Appeals, Vrecover! for defa%ator! state%ents published b! radio or television %a! be had fro% the o.#'- o8 (&' *("(/o#, a licensee, (&' o,'-"(o- o8 (&' *("(/o#, or a person +ho procures, or participates in, the %a,in5 of the defa%ator! state%ents.W K87L An e%plo!er and e%plo!ee are solidaril! liable for a defa%ator! state%ent b! the e%plo!ee +ithin the course and scope of his or her e%plo!%ent, at least +hen the e%plo!er authoriFes or ratifies the defa%ation.K88L In this case, Ri%a and Ale5re +ere clearl! perfor%in5 their official duties as hosts of 2BNIUs radio pro5ra% E&posZ +hen the! aired the broadcasts. 2BNI neither alle5ed nor proved that Ri%a and Ale5re +ent be!ond the scope of their +or, at that ti%e. 3here +as li,e+ise no sho+in5 that 2BNI did not authoriFe and ratif! the defa%ator! broadcasts. Moreover, there is insufficient evidence on record that 2BNI e&ercised due dili5ence in the *'l')(/o# and *u,'-1/*/o# of its e%plo!ees, particularl! Ri%a and Ale5re. 2BNI %erel! sho+ed that it e&ercised dili5ence in the *'l')(/o# of its broadcasters +ithout introducin5 an! evidence to prove that it observed the sa%e dili5ence in the *u,'-1/*/o# of Ri%a and Ale5re. 2BNI did not sho+ ho+ it e&ercised dili5ence in supervisin5 its broadcasters. 2BNIUs alle5ed constant re%inder to its broadcasters to Vobserve truth, fairness and obCectivit! and to refrain fro% usin5 libelous and indecent lan5ua5eW is not enou5h to prove due dili5ence in the supervision of its

broadcasters. Ade$uate trainin5 of the broadcasters on the industr!Us code of conduct, sufficient infor%ation on libel la+s, and continuous evaluation of the broadcastersU perfor%ance are but a fe+ of the %an! +a!s of sho+in5 dili5ence in the supervision of broadcasters. 2BNI clai%s that it Vhas ta,en all the precaution in the *'l')(/o# of Ri%a and Ale5re as broadcasters, bearin5 in %ind their $ualifications.W Do+ever, no clear and convincin5 evidence sho+s that Ri%a and Ale5re under+ent 2BNIUs Vre5i%ented processW of application. 2urther%ore, 2BNI ad%its that Ri%a and Ale5re had deficiencies in their PBP accreditation, K84L +hich is one of 2BNIUs re$uire%ents before it hires a broadcaster. Si5nificantl!, %e%bership in the PBP, +hile voluntar!, indicates the broadcasterUs stron5 co%%it%ent to observe the broadcast industr!Us rules and re5ulations. Clearl!, these circu%stances sho+ 2BNIUs lac, of dili5ence in selectin5 and supervisin5 Ri%a and Ale5re. Dence, 2BNI is solidaril! liable to pa! da%a5es to5ether +ith Ri%a and Ale5re. @HEREFORE, +e DEN> the instant petition. Ie A22IRM the Decision of 7 0anuar! /((( and Resolution of .4 0anuar! .))) of the Court of Appeals in CA@:.R. CE No. 7)/8/ +ith the M DI2ICA3I N that the a+ard of %oral da%a5es is reduced fro% P*)),))) to P/8),))) and the a+ard of attorne!Us fees is deleted. Costs a5ainst petitioner. SO OR!ERE!. Davide* /r.* C./.* BChair#anC* 0uisu#)ing* 1nares-Santiago, and A,cuna* //.* concur.

Republic of the Philippines SUPREME COURT Manila 2IRS3 DIEISI N G.R. No. 11C6D2 July 2C, 2006

COASTAL PACIFIC TRA!ING, INC., petitioner, vs. SOUTHERN ROLLING MILLS, CO., INC. J#o. 7#o.# "* B/*"y"# I#('0-"('$ S(''l Co-,o-"(/o#K, FAR EAST 9ANH I TRUST COMPANY, PHILIPPINE COMMERCIAL IN!USTRIAL/ 9ANH, E UITA9LE 9ANHING CORPORATION, PRU!ENTIAL 9ANH, 9OAR! OF TRUSTEES3CONSORTIUM OF 9ANHS3BISCO, UNITE! COCONUT PLANTERS 9ANH, CITYTRUST 9ANHING CORPORATION, ASSOCIATE! 9ANH, INSULAR 9ANH OF ASIA AN! AMERICA, INTERNATIONAL CORPORATE 9ANH, COMMER3CIAL 9ANH OF

MANILA, 9ANH OF THE PHILIPPINE ISLAN!S, NATIONAL STEEL CORPORA3TION, THE PROBINCIAL SHERIFF OF 9OHOL, "#$ !EPUTY SHERIFF JOBITO !IGAL,. respondents. DECISI PANGANI9AN, C.J.% Directors o+e lo!alt! and fidelit! to the corporation the! serve and to its creditors. Ihen these directors sit on the board as representatives of shareholders +ho are also %aCor creditors, the! cannot be allo+ed to use their offices to secure undue advanta5e for those shareholders, in fraud of other creditors +ho do not have a si%ilar representation in the board of directors. T&' C"*' Before us is a Petition for Revie+* under Rule 78 of the Rules of Court, assailin5 the Septe%ber .9, /((7 Decision7 and the 0anuar! 8, /((8 Resolution8 of the Court of Appeals "CA# in CA@:R CE No. *(*18. 3he challen5ed Decision disposed as follo+s<
-IDERE2 RE, the decision of the Re5ional 3rial Court is hereb! A22IRMED in toto.- 4

3he challen5ed Resolution denied reconsideration. T&' F")(* Respondent Southern Rollin5 Mills Co., Inc. +as or5aniFed in /(8( for the purpose of en5a5in5 in a steel processin5 business. It +as later rena%ed Eisa!an Inte5rated Steel Corporation "EISC #.9 n Dece%ber //, /(4/, EISC obtained a loan fro% the Develop%ent Ban, of the Philippines "DBP# in the a%ount of P1*4,))). 3his loan +as secured b! a dul! recorded Real Estate Mort5a5e over EISC ;s three "*# parcels of land, includin5 all the %achineries and e$uip%ent found there.1 n Au5ust /8, /(4*, EISC entered into a 6oan A5ree%ent( +ith respondent ban,s "later referred to as -Consortiu%-/)# for the a%ount of ?ST8,994,/14.9/ or P./,978,9)9.*4 "at the then prevailin5 e&chan5e rate# to finance its i%portation of various ra+ %aterials. 3o secure the full and faithful perfor%ance of its obli5ation, EISC e&ecuted on Au5ust *, /(48, a second %ort5a5e// over the sa%e land, %achineries and e$uip%ent in favor of respondent ban,s. 3his second %ort5a5e re%ained unrecorded./. EISC eventuall! defaulted in the perfor%ance of its obli5ation to respondent ban,s. 3his pro%pted the Consortiu% to file on 0anuar! .4, /(44, Civil Case No. /17/, +hich +as a Petition for 2oreclosure of Mort5a5e +ith Petition for Receivership./* 3his case +as eventuall! dis%issed for failure to prosecute./7 After+ards, ne5otiations +ere conducted bet+een EISC and respondent ban,s for the conversion of the unpaid loan into e$uit! in the corporation./8 Eicente :arcia, vice@president of EISC and of 2ar East Ban, and 3rust Co%pan! "2EB3C#,/4 testified that so%eti%e in /(44, the creditor ban,s +ere 5iven %ana5e%ent of and control over EISC ./9 In ti%e,/1 in order to

reor5aniFe it, its principal creditors a5reed to 5roup the%selves into a creditors; consortiu%./( As a result of the reor5aniFed corporate structure of EISC , respondent ban,s ac$uired %ore than () percent of its e$uit!. Not+ithstandin5 this conversion, it re%ained indebted to the Consortiu% in the a%ount of P/4,/.*,(/1.)...) Mean+hile fro% /(47 to /(48, EISC also entered into a processin5 a5ree%ent +ith Petitioner Coastal Pacific 3radin5, Inc. "-Coastal-#. Pursuant to that a5ree%ent, petitioner delivered *,))) %etric tons of hot rolled steel coils to EISC for processin5 into bloc, iron sheets. Contrar! to their a5ree%ent, the latter +as able to process and deliver to petitioner onl! /,4)) %etric tons of those sheets. Dence, a total of /,7)) %etric tons of hot rolled steel coils re%ained unaccounted for../ 3he fact that petitioner +as a%on5 the %aCor creditors of EISC +as reco5niFed b! the latter;s vice@president, Eicente :arcia... Indeed, on ctober (, /(9), it for+arded to petitioner a proposal for a Co%pro%ise A5ree%ent..* Subse$uent develop%ents indicate, ho+ever, that the parties did not arrive at a co%pro%ise. 3+o !ears later, on ctober .), /(9., :arcia +rote Arturo P. Sa%onte, representative of 2EB3C.7 and director of EISC ,.8 a letter that reads as follo+s<
-In the li5ht of recent develop%ent on IISMI and Elirol +hich +ere ta,en over b! the 5overn%ent, I su55est that +e ta,e certain precautionar! %easures to protect the interests of the Consortiu% of Ban,s. ne such step %a! be to insure the safet! of the une&pended funds of EISC fro% an! contin5encies in the future. As of no+ EISC ;s account +ith the 2ar East Ban, is in the na%e of B ARD 2 3R?S3EES EISC C NS R3I?M 2 BANPS. It %a! be better to eli%inate the ter% EISC and Cust call the account B ARD 2 3R?S3EES C NS R3I?M 2 BANPS.-.4

Accordin5 to a notation on this letter, an 2EB3C assistant cashier na%ed Silverio dul! co%plied +ith the above re$uest..9 Indeed, events +ould later reveal that the ban, held a deposit account in the na%e of the -Board of 3rustees@Consortiu% of Ban,s.-.1 n Septe%ber .), /(97, respondent ban,s held a luncheon %eetin5.( in the 2EB3C Boardroo% to discuss ho+ the! +ould address the insistent de%ands of the DBP for EISC to settle its obli5ations. 0ose B. 2ernandeF, 0r., EISC ;s then chair%an and concurrent 2EB3C President,*) e&pressed his apprehension that either the DBP or the 5overn%ent +ould soon pursue e&tra@Cudicial foreclosure a5ainst EISC . In this re5ard, 2ernandeF infor%ed the %e%bers of the Consortiu% that he had received letter@ offers fro% t+o corporations that +ere interested in purchasin5 EISC ;s 5enerator sets.*/ After deliberatin5 on the %atter, the %e%bers decided to approve the sale of these t+o 5enerator sets to 2il%a5 "Phil.#, Inc. It +as also a5reed that the proceeds of the sale +ould be used to pa! EISC ;s indebtedness to DBP and to secure the release of the first %ort5a5e.*. 3he Consortiu% a5reed +ith 2il%a5 on the follo+in5 pa!%ent procedure<
-3he pa!%ent procedure +ill be as follo+s< 2il%a5 pa!s to EISC G EISC pa!s the Consortiu%G and then the Consortiu% pa!s the DBP +ith the arran5e%ent that the Consortiu% subro5ates to the ri5hts of the DBP as first %ort5a5ee to the EISC plant. 3he Consortiu% further a5reed to call a %eetin5 of the EISC board of directors for the purpose of considerin5 and for%all! approvin5 the proposed sale of the . 5enerators to 2il%a5.- **

Accordin5l!, on ctober 7, /(97, the EISC board of directors had a %eetin5 in the 2EB3C Boardroo%.*7 3he board +as as,ed to decide ho+ EISC +ould settle its debt to DBP< +hether b! as,in5 the Consortiu% to put up the necessar! a%ount or b! acceptin5 2il%a5;s offer to purchase EISC ;s 5enerator sets.*8 3he latter option +as unani%ousl! chosen*4 in a Resolution +orded as follo+s<
-RES 6EED, 3hat the offer of 2il%a5 "Philippines# Inc. in their letters of Dece%ber /7, /(9* and March /(, /(97 to purchase t+o ".# units of 5enerator sets, includin5 standard accessories, of EISC is hereb! accepted under the follo+in5 ter%s and conditions< &&& &&& &&&

-.. 3he price for the t+o ".# 5enerator sets is PES S< NE MI66I N 2IEE D?NDRED 2I23> 3D ?SAND 2IEE D?NDRED SEEEN3> 3I N6> "P/,88),89.# & & & and shall be pa!able upon si5nin5 of a letter@a5ree%ent and +hich shall be later for%aliFed into a Deed of Sale. 3he a%ount, ho+ever, shall be held b! the depositar! ban, of EISC , 2ar East Ban, and 3rust Co%pan!, in escro+ and shall be at EISC ;s disposal upon the si5nin5 of 2il%a5 of the receiptQs of deliver! of the said t+o ".# 5enerator sets. &&& &&& &&&

-2?R3DER RES 6EED, 3hat the sales proceeds of PES S< NE MI66I N 2IEE D?NDRED 2I23> 3D ?SAND 2IEE D?NDRED SEEEN3> 3I N6> "P/,88),89.# shall be utiliFed to pa! the liabilit! of EISC +ith the Develop%ent Ban, of the Philippines.- *9

3he sale of the 5enerator sets to 2il%a5 too, place and, accordin5 to the testi%on! of :arcia, the proceeds +ere deposited +ith 2EB3C in a special account held in trust for the Consortiu%.*1 A !ear after, on Ma! .., /(98, petitioner filed +ith the Pasi5 Re5ional 3rial Court "R3C# a Co%plaint*( for Recover! of Propert! and Da%a5es +ith Preli%inar! InCunction and Attach%ent.7) Petitioner;s alle5ation +as that EISC had fraudulentl! %isapplied or converted the finished steel sheets entrusted to it.7/ n 0une *, /(98, 0ud5e Pedro A. Revilla issued a Irit of Preli%inar! Attach%ent over its properties that +ere not e&e%pt fro% e&ecution.7. In co%pliance +ith the Irit, Sheriff Andres R. Bonifacio atte%pted to 5arnish the account of EISC in 2EB3C,7*+hich denied holdin5 that account. Instead, the ban, ad%itted that +hat it had +as a deposit account in the na%e of the Board of 3rustees@Consortiu% of Ban,s, particularl! Account No. .79(@/.77 2EB3C reported to Sheriff Bonifacio that it had instructed its accountin5 depart%ent to hold the account, -subCect to the prior liens or ri5hts in favor of K2EB3CL and other entities.-78 Ihile petitioner;s case +as pendin5, EISC ;s vice@president ":arcia# and director "Arturo Sa%onte# re$uested fro% 2EB3C a cash advance of P/,*7.,484.11 for the full settle%ent of EISC ;s account +ith DBP.74 n 0une .(, /(94, 2EB3C co%plied b! issuin5 Chec, No. 2E.*(.7( for P/,*7.,484.11, pa!able to -KDBPL for KtheL account of EISC .-79 n even date, DBP e&ecuted a Deed of Assi5n%ent of Mort5a5e Ri5hts Interest and Participation71 in favor of Respondent Consortiu% of Ban,s. 3he deed stated that, in consideration of the pa!%ent %ade, all of DBP;s ri5hts under the %ort5a5e a5ree%ent +ith EISC +ere bein5 transferred and conve!ed to the Consortiu%.7( 3hus did the latter obtain DBP;s recorded pri%ar! lien over the real and chattel properties of EISC .

n Septe%ber .*, /(1), the Consortiu% filed a Petition for E&tra@0udicial 2oreclosure +ith the ffice of the Provincial Sheriff of Bohol.8) 3he Notice of E&traCudicial 2oreclosure of Mort5a5e, published in the %ohol 3e$s$ee& on ctober /), /(1), announced that the auction sale +as scheduled for Nove%ber //, /(1).8/ n Nove%ber *, /(1), Southern Industrial ProCects, Inc. "SIP#, +hich +as a Cud5%ent creditor8. of EISC , filed Civil Case No. **1*. It +as a Co%plaint8* for Declaration of Nullit! of the Mort5a5e and InCunction to Restrain the Consortiu% fro% Proceedin5 +ith the Auction Sale. SIP ar5ued that DBP had actuall! been paid b! EISC +ith the proceeds fro% the sale of the 5enerator sets. Dence, the %ort5a5e in favor of that ban, had been e&tin5uished b! the pa!%ent and could not have been assi5ned to the Consortiu%.87 A te%porar! restrainin5 order a5ainst the latter +as thus successfull! obtainedG the provincial sheriff could not proceed +ith the auction sale of the %ort5a5ed assets.88 But SIP;s victor! +as short@lived. n March ., /(17, Civil Case No. **1* +as decided in favor of the Consortiu%.84 0ud5e Andre+ S. Na%ocatcat ruled thus<
-3he evidence of the plaintiff is onl! anchored on the fact that the deed of assi5n%ent e&ecuted b! the DBP in favor of the defendant ban,s is an act +hich +ould defraud creditors. It is the thin,in5 of the court that the pa!%ent of defendant ban,s to DBP of EISC ;s loan and the e&ecution of the DBP of the deed of assi5n%ent of credit and ri5hts to the defendant ban,s is in accordance +ith Article /*). and /*)* of the Ne+ Civil Code, and said transaction is not to defraud creditors because the defendant ban,s are also creditors of EISC .-89

n 0une /7, /(18, this Decision +as affir%ed b! the Inter%ediate Appellate Court in CA@:R No. )*9/(. 81 3he auction sale of EISC ;s %ort5a5ed properties too, place on March /(, /(18 and the Consortiu% e%er5ed as the hi5hest bidder.8( 3he Certificate of Sale4) in its favor +as re5istered on Ma! .., /(18.4/ n 0une .9, /(18, EISC e&ecuted throu5h Eicente :arcia, a Deed of Assi5n%ent of Ri5ht of Rede%ption4. in favor of the National Steel Corporation "NSC#, in consideration of P/)),))). 4* n the sa%e da!, the Consortiu% sold the foreclosed real and personal properties of EISC to the NSC.47 n Au5ust /4, /(18, petitioner filed a5ainst respondents Civil Case No. *(.(, +hich +as a Co%plaint for Annul%ent or Rescission of Sale, Da%a5es +ith Preli%inar! InCunction.48 Coastal alle5ed that, despite the Irit of Attach%ent issued in its favor in the still pendin5 Civil Case No. ./.9., the Consortiu% had sold the properties to NSC. 2urther, despite the attach%ent of the properties, the Consortiu% +as alle5edl! able to sell and place the% be!ond the reach of EISC ;s other creditors.44 3hus i%putin5 bad faith to respondent ban,s; actions, petitioner said that the sale +as intended to defraud EISC ;s other creditors. Petitioner further contended that the assi5n%ent in favor of the Consortiu% +as fraudulent, because DBP had been paid +ith the proceeds fro% the sale of the 5enerator sets o+ned b! EISC , and not +ith the Consortiu%;s o+n funds.49 Petitioner offered as proof the %inutes of the %eetin541 in +hich the transaction +as decided. Respondent Consortiu% countered that the %inutes +ould in fact readil! disclose that the intention of its %e%bers +as to appl! the

proceeds to a partial pa!%ent to DBP.4( Respondent insisted that it used its o+n funds to pa! the ban,.9) n Au5ust .), /(18, a te%porar! restrainin5 order "3R #9/ +as issued b! 0ud5e Mercedes :oFo@Dadole a5ainst EISC , enCoinin5 it fro% proceedin5 +ith the re%oval or disposal of its propertiesG the e&ecution andQor consu%%ation of the foreclosure saleG and the sale of the foreclosed properties to NSC. n Septe%ber 4, /(18, the trial court issued an rder re$uirin5 the Consortiu% to post a bond of P.8 %illion in favor of Coastal for da%a5es that petitioner %a! suffer fro% the liftin5 of the 3R . 3he bond filed +as then approved b! the R3C in its rder of Septe%ber /*, /(18.9. n Dece%ber /8, /(14, Civil Case No. ./.9. +as finall! decided b! 0ud5e Nicolas P. 6apena, 0r., in favor of Coastal.9* EISC +as ordered to pa! petitioner the su% of P18/,*/4./( +ith interest at the le5al rate, plus attorne!;s fees of P8),))).)) and costs.97 Coastal filed a Motion for E&ecution,98 but the Cud5%ent has re%ained unsatisfied to date. n 0anuar! 8, /((., a Decision94 on Civil Case No. *(.( +as rendered as follo+s<
-IDERE2 RE, this Court hereb! renders Cud5%ent in favor of the defendants and a5ainst the plaintiff Coastal Pacific 3radin5, Inc. B> IA> 2 3DE MAIN C MP6AIN3, to +it< -/. Declarin5 the e&traCudicial foreclosure sale conducted b! the sheriff and the correspondin5 certificate of sale e&ecuted b! the defendant sheriffs on March /8, /(18 relative to the real properties of the defendant SRMQEISC of Cortes, Bohol, Philippines, +hich +ere re5istered in the Re5ister of Deeds of Bohol, on Ma! .., /(18 and the 3ransfer of Assi5n%ent to the defendant National Steel Corporation of an! or part of the foreclosed properties arisin5 fro% the e&traCudicial foreclosure sale as valid and le5alG -.. rderin5 the plaintiff Coastal Pacific 3radin5 Inc. to pa! the defendant Consortiu% of Ban,sK,L Southern Rollin5 Mills, Co., Inc., 2ar East Ban, R 3rust Co%pan!, Philippine Co%%ercial Industrial Ban,, E$uitable Ban,in5 Corporation, Prudential Ban,, Board of 3rustees@Consortiu% of Ban,s@ KEISC L, ?nited Coconut Planters Ban,, Cit! 3rust Ban,in5 Corporation, Associated Ban,, Insular Ban, of Asia and A%erica, International Corporate Ban,, Co%%ercial Ban, of Manila, Ban, of the Philippine Islands and the National Steel Corporation in the instant case the a%ount of 2IEE D?NDRED 3D ?SAND PES S "P8)),))).))# representin5 da%a5esG -*. rderin5 the plaintiff 3he "sic# Coastal Pacific 3radin5 Inc. to pa! the defendants the a%ount of 2I23EEN 3D ?SAND PES S "P/8,))).))# representin5 attorne!;s feesG -7. Dis%issin5 the A%ended Co%plaint of the plaintiffG -8. -B> IA> rderin5 the plaintiff to pa! the costG AND 2 CR SS C6AIM IN3ERP SED

-B> 3DE DE2ENDAN3 National Steel Corporation a5ainst the Consortiu% of Ban,s and SRMQEISC , the sa%e is dis%issed for lac, of %erit, +ithout pronounce%ent as to cost.- 99

Insistin5 that the trial court erred in holdin5 that it had failed to prove its case b! preponderance of evidence, Coastal filed an appeal +ith the CA. Alle5edl!, the purported insufficienc! of proof +as based on the sole 5round that petitioner did not file an obCection +hen the properties +ere sold on e&ecution. It contended that the court a quo had arrived at this erroneous conclusion b! rel!in5 on inapplicable Curisprudence.91 Additionall!, Coastal ar5ued that the trial court had erred in not annullin5 the foreclosure proceedin5s and sale for bein5 fictitious and done to defraud petitioner as EISC ;s creditor. Supposedl!, the DBP %ort5a5e had alread! been e&tin5uished b! pa!%entG thus, the ban, could not have assi5ned the contract to the Consortiu%.9( Petitioner also pra!ed for the annul%ent of the sale in favor of NSC on the 5round that the latter +as a part! to the fraudulent foreclosure and, hence, not a bu!er in 5ood faith.1) Rul/#0 o8 (&' Cou-( o8 A,,'"l* At the outset, the CA stressed that the validit! of the Consortiu%;s %ort5a5e, foreclosure, and assi5n%ents had alread! been upheld in CA@:R CE No. )*9/(, entitled Southern Industrial Pro2ects v. (nited Coconut Planters %an&1/ Citin5 4alencia v. R"C of 0ue,on City* %r. >E1. and 4da. de Cru,o v. Carriaga,1* the CA e&plained that the absolute identit! of parties +as not necessar! for the application of res 2udicata. All that +as re$uired +as a shared identit! of interests, as sho+n b! the identit! of reliefs sou5ht b! one person in a prior case and b! another in a subse$uent case. Ihile Coastal +as not a part! to Southern Industrial Pro2ects, it should nevertheless be bound b! that Decision, because it had raised substantiall! the sa%e clai% and cause of action as SIP, accordin5 to the appellate court. 3he CA held that the basic reliefs sou5ht b! Coastal and SIP +ere substantiall! the sa%e< the nullification of the Deed of Assi5n%ent in favor of the Consortiu%, the foreclosure sale, and the subse$uent sale to NSC. Because this identit! of reliefs sou5ht sho+ed an identit! of interests, the CA concluded that it need not rule on those issues.17 As to the issue that the DBP %ort5a5e had been e&tin5uished b! pa!%ent, the CA $uoted its earlier Decision inSouthern Industrial Pro2ects<
-3he evidence sho+s that the proceeds of the sale of the t+o 5eneratin5 sets +ere applied b! defendants@appellees in the pa!%ent of the outstandin5 obli5ation of EISC . It appears that said proceeds +ere deposited in the ban, account of the consortiu% of creditors to avoid it bein5 5arnished b! the creditors not+ithstandin5 the set@off, EISC +as still indebted to the defendants@appellees. -3he evidence & & & sho+s that upon EISC ;s re$uest for KcashL advance, the 2ar East Ban,s "sic# and 3rust Co., the %ana5er of the consortiu% of creditors, issued 2EB3C chec, No. .*(.7( on 0une .(, /(94 in the a%ount of P/,*7.,484.41 pa!able to the DBP to pa! off its loan to the latter. &&& &&& &&&

-& & &. A public docu%ent celebrated +ith all the le5al for%alities under the safe5uard of notarial certificate is evidence a5ainst a part!, and a hi5h de5ree KofL proof is necessar! to

overco%e the le5al presu%ption that the recital is true. 3he biased and interested testi%on! of one of the parties to such instru%ent +ho atte%pts to var! or repudiate +hat it purports to be, cannot overco%e the evidentiar! force of +hat is recited in the docu%ent.- 18

3he appellate court also reCected petitioner;s contention that the Consortiu%;s Petition for E&traCudicial 2oreclosure +as alread! barred b! the earlier resort to a Cudicial foreclosure. 3he CA clarified that in filin5 a Petition for 0udicial 2oreclosure, the Consortiu% had pursued its ri5ht as Cunior encu%brancer. n the other hand, the Consortiu% filed a Petition for E&traCudicial 2oreclosure as a first encu%brancer b! virtue of DBP;s assi5n%ent in its favor.14 3he CA also reCected petitioner;s theor! of e&tin5uish%ent of obli5ation b! %er5er. It observed that the %er5er could not have possibl! ta,en place, because respondent ban,s and EISC +ere not creditors and debtors in their o+n ri5ht.19 Petitioner;s Motion for Reconsideration,11 +hich +as received b! the CA on Nove%ber /8, /((7,1( +as denied for lac, of %erit. Dence, this Petition.() I**u'* Petitioner raises the follo+in5 issues for our consideration<
-I -Respondent Court of Appeals, see%in5l! to avoid the irrefutable evidence of fraud and collusion practised b! KrespondentsL a5ainst KPetitionerL Coastal, erroneousl! sustained the trial court;s holdin5 that the present case is barred b! res Cudicata because of the previous decision in the case of Southern Industrial Pro2ects* Inc.* vs. (nited Coconut Planters %an& , CA@:.R. No. )*9/(, considerin5 that the ele%ents that call for the application of this rule are not present in the case at bar, and the e&ceptions allo+ed b! this Donorable Supre%e Court are not applicable here for variance or distinction in facts and issues, & & &<- (/ -II -Respondent Court of Appeals further erred in not annullin5 the Deed of Assi5n%ent of the DBP %ort5a5e & & &, the e&traCudicial foreclosure proceedin5s of the t+o %ort5a5es & & &, and the separate sale of the land and %achineries as real and personal properties b! the foreclosin5 ban,s to NSC, as +ell as the assi5n%ent or +aiver of SRMQEisco;s le5al ri5ht of rede%ption over the foreclosed properties, for bein5 fraudulentl! e&ecuted throu5h collusion a%on5 the KrespondentsL and in fraud of SRMQEisco;s creditor, KPetitionerL Coastal, & & &G- (.

Stripped of nonessentials, the t+o issues %a! be restated as follo+s<

/. Ihether the present action is barred b! res 2udicata .. Ihether respondents disposed of EISC ;s assets in fraud of the creditors

T&' Cou-(4* Rul/#0

3he Petition is %eritorious. F/-*( I**u'% Res udicata 3he CA cited 4alencia v. R"C of 0ue,on City(* to support the findin5 that SIP and Coastal +ere substantiall! the sa%e parties. Ie distin5uish. In 4alencia, the plaintiff@intervenor in the first case, Cari'o, clai%ed 6ot 7 based on an alle5ed purchase of Ealencia;s -s$uatter;s ri5hts- over the propert!. 3he trial court dis%issed the clai% and held that no such purchase ever too, place.(7 It also held that, on the assu%ption that a sale had ta,en place, the sale +as null and void for bein5 contrar! to the pertinent housin5 la+. It also found that all current occupants of 6ot 7 +ere ille5al s$uattersG thus, it ordered their eCect%ent. Ihen this first case attained finalit!, Carino;s dau5hter, Catba5an, filed another suit a5ainst Ealencia. Catba5an challen5ed the applicabilit! of the eCect%ent rder issued to herG as an occupant of the lot, she +as alle5edl! not a part! to the first case. Der Petition +as denied for lac, of %erit.(8 3he e&ecution of the Decision in the first case +as a5ain forestalled +hen 6lanes, Cari'o;s sister@in@la+ +ho +as another occupant of 6ot 7, filed another suit a5ainst the sa%e respondent. 6i,e Cari'o, 6lanes insisted on havin5 purchased the subCect lot fro% Ealencia.(4 3his Court ruled that the suit +as barred b! res 2udicata. 3here +as a substantial identit! of parties, because the ri5ht clai%ed b! both Cari'o and 6lanes +ere based on each one;s alle5ed purchase of Ealencia;s -s$uatter;s ri5hts.-(9 In the first case, sales of -s$uatter;s ri5hts- +ere alread! cate5oricall! declared null and void for bein5 contrar! to la+. 3hus, 6lanes; ad%ission that she had purchased Ealencia;s -s$uatter;s ri5hts- placed her in the sa%e cate5or! as Cari'o. 3he purchase could not be treated differentl!, because the final and e&ecutor! Decision held that all purchases of -s$uatter;s ri5hts"re5ardless of $ho the purchasers +ere# +ere null and void.(1 2urther, the earlier rulin5 held that -the present occupants are ille5al s$uatters.- 3hat rulin5 included 6lanes, +ho +as ad%ittedl! one of the occupants.(( Si%pl! put, she and Ealencia +ere considered identical parties for purposes of res 2udicata, because the! +ere obviousl! liti5atin5 under the sa%e void title and capacit! as vendees of -s$uatter;s ri5hts- and as occupants of 6ot 7. Moreover, +e held in 4alencia that 6lanes; suit +as %erel! a clear atte%pt to prevent or dela! the e&ecution of the Cud5%ent in the first case, +hich had beco%e final b! reason of the three affir%ances b! this Court. 3he pattern to obstruct the e&ecution of the first Cud5%ent +as obvious< after Cari'o lost the first case, her dau5hter filed a second one. Ihen the dau5hter lost the second, the dau5hter@in@la+ filed a third case. It %a! be observed that the three successive plaintiffs +ere all occupants of the sa%e propert! and belon5ed to the sa%e fa%il!G this fact +as also indicative of their privit!. :iven this bac,5round, it beco%es clear that the findin5 of a substantial identit! of parties in 4alencia +as based on its peculiar factual circu%stances, +hich are different fro% those in the present case.

?nli,e 6lanes, Coastal is not assertin5 a ri5ht that has been cate5oricall! declared null and void in a prior case. In fact, its ri5ht based on the processin5 a5ree%ent +as upheld in Civil Case No. ./.9.. Clearl!, Coastal cannot be treated in the sa%e %anner as 6lanes. 3he CA erred in appl!in5 Southern Industrial Pro2ects v. (nited Coconut Planters %an&/)) as a bar b! res 2udicata +ith respect to the present case. 2or this principle to appl!, the follo+in5 ele%ents %ust concur< a# the for%er Cud5%ent +as finalG b# the court that rendered it had Curisdiction over the subCect %atter and the partiesG c# the Cud5%ent +as based on the %eritsG and, d# bet+een the first and the second actions, there is an identit! of parties, subCect %atters, and causes of action./)/ It is a&io%atic that res 2udicata does not re$uire an absolute, but onl! a substantial, identit! of parties. 3here is a substantial identit! +hen there is privit! bet+een the t+o parties or the! are successors@in@interest b! title subse$uent to the co%%ence%ent of the action, liti5atin5 for the sa%e thin5, under the sa%e title, and in the sa%e capacit!./). Petitioner +as not actin5 in the sa%e capacit! as SIP +hen it filed Civil Case No. **1*, +hich eventuall! beca%e AC@:R CE No. )*9/(. It brou5ht this latter action as a creditor under a processin5 a5ree%ent +ith EISC G on the other hand, the latter +as sued b! SIP, based on an alle5ed breach of their %ana5e%ent contract. Eer! clearl!, their ri5hts +ere entirel! distinct and separate fro% each other. In no %anner +ere these t+o creditors privies of each other. 3he causes of action in the t+o Co%plaints +ere also different. Causes of action arise fro% violations of ri5hts. A sin5le ri5ht %a! be violated b! several acts or o%issions, in +hich case the plaintiff has onl! one cause of action. 6i,e+ise, a sin5le act or o%ission %a! violate several ri5hts at the sa%e ti%e, as +hen the act constitutes a violation of separate and distinct le5al obli5ations./)* 3he violation of each of these separate rights is a separate cause of action in itself./)7 Dence, althou5h these causes of action arise fro% the sa%e state of facts, the! are distinct and independent and %a! be liti5ated separatel!G recover! on one is not a bar to subse$uent actions on the others./)8 In the present case, the ri5ht of SIP "arisin5 fro% its %ana5e%ent contract +ith EISC # is totall! distinct and separate fro% the ri5ht of Coastal "arisin5 fro% its processin5 contract +ith EISC #. SIP and Coastal are assertin5 distinct ri5hts arisin5 fro% different le5al obli5ations of the debtor corporation. 3hus, EISC ;s violation of those separate ri5hts has 5iven rise to separate causes of action. 3he confusion in the resolution of the issue of identit! of parties occurred, because the t+o creditors +ere assailin5 the sa%e transactions of EISC on the sa%e 5rounds. Since the t+o cases the! filed presented si%ilar le5al issues, the appellate court held that its rulin5 in AC@:R CE No. )*9/( +as also applicable to the instant case. Co%%on but palpable is this %isconception of the doctrine of res 2udicata. Persons do not beco%e privies b! the %ere fact that the! are interested in the sa%e $uestion or in provin5 the sa%e set of facts, or that one person is interested in the result of a liti5ation involvin5 the other. Dence, several creditors of one debtor cannot be considered as identical parties for the purpose of assailin5 the acts of the debtor. 3he! have distinct credits, ri5hts, and interests, such that the failure of one to recover should not preclude the other creditors fro% also pursuin5 their le5al re%edies.

2urther, petitioner, +hich +as not a part! to Southern Industrial Pro2ects "their causes of action bein5 separate and distinct#, did not have the opportunit! to be heard in that case, %uch less to present its o+n evidence. 3hus, to bind petitioner to the Decision in that case +ould clearl! violate its ri5hts to due process. As a separate part!, it has the ri5ht to have its ar5u%ents and evidence evaluated on their o+n %erits. S')o#$ I**u'% /raud of Creditors Ie no+ co%e to the heart of the Petition. Coastal alle5es that the assi5n%ent of %ort5a5e, the e&traCudicial foreclosure proceedin5s, and the sale of the properties of EISC should all be rescinded on the 5round that the! +ere done to defraud the latter;s creditors. 3he CA found no %erit in petitioner;s ar5u%ents. It ruled that the assi5n%ent confor%ed to the re$uire%ents of la+G that the consideration for the assi5n%ent had alle5edl! been 5iven b! 2EB3CG and that, hence, the Consortiu% had a ri5ht to foreclose on the %ort5a5ed properties. B! focusin5 on the innate validit! of these Contracts, the CA totall! overloo,ed the issue of fraud as a 5round for rescission. Ele%entar! is the principle that the validit! of a contract does not preclude its rescission. ?nder Articles /*1) and /*1/ "*# of the Civil Code, contracts that are other+ise valid bet+een the contractin5 parties %a! nonetheless be subse$uentl! rescinded b! reason of inCur! to third persons, li,e creditors./)4 In fact, rescission i%plies that there is a contract that, +hile initiall! valid, produces a lesion or pecuniar! da%a5e to so%eone./)9 3hus, +hen the CA confined itself to the issue of the validit! of these contracts, it did not at all address the heart of petitioner;s cause of action< +hether these transactions had been underta,en b! the Consortiu% to defraud EISC ;s other creditors. 3here is %ore than a preponderance of evidence sho+in5 the Consortiu%;s deliberate plan to defraud EISC ;s other creditors. Consortium Ban0s as 1irectors It +ill be recalled that Respondent Consortiu% too, over %ana5e%ent and control of EISC b! ac$uirin5 () percent of the latter;s e$uit!. 3hus, ( out of the /) directors of the corporation +ere all officials of the Consortiu%,/)1 +hich %a! thus be said to have effectivel! occupied andQor controlled the board. Si5nificantl!, no+here in the records can +e find an! denial b! respondent of this alle5ation b! petitioner./)( As directors of EISC , the officials of the Consortiu% +ere in a position of trustG thus, the! o+ed it a dut! of lo!alt!. 3his trust relationship spran5 fro% the fact that the! had control and 5uidance over its corporate affairs and propert!.//) 3heir dut! +as %ore strin5ent +hen it beca%e insolvent or +ithout sufficient assets to %eet its outstandin5 obli5ations that arose. Because the! +ere dee%ed trustees of the creditors in those instances, the! should have %ana5ed the corporation;s assets +ith strict regard for the creditors; interests. Ihen these directors beca%e corporate creditors in their o+n ri5ht, the! should not have per%itted the%selves to secure an! undue advanta5e over other creditors./// In the instant case, the Consortiu% %iserabl! failed to observe its dut! of fidelit! to+ards EISC and its creditors. 1uty of the Consortium Ban0s to 2I3C45s Creditors

Recall that as earl! as /(44, the Consortiu%, throu5h its directors on the board of EISC , had alread! assu%ed %ana5e%ent and control over the latter. Dence, +hen EISC reco5niFed its outstandin5 liabilit! to petitioner in /(9) and offered a Co%pro%ise A5ree%ent,//. respondent ban,s +ere alread! at the hel% of the debtor corporation. 3he %e%bers of the Consortiu%, therefore, cannot den! that the! +ere a+are of those clai%s a5ainst the corporation. Nonetheless, the! did not adopt an! %easure to protect petitioner;s credit. Suite the opposite, the! even too, steps to hide EISC ;s une&pended funds. :arcia;s /(9. letter to Sa%onte un%ista,abl! reveals that the! ,ept those funds in an account na%ed -Board of 3rustees EISC Consortiu% of Ban,s.- 3his fact alone sho+s an effort to hide, +ith the evident intent to ,eep, those funds for the%selves. 3he letter even sa!s that, for the protection of the Consortiu%, the na%e -EISC - should be eli%inated entirel!, so that the account na%e +ould read -Board of 3rustees Consortiu% of Ban,s.- Clearl!, this particular %ove +as found to be necessar! to avoid a ta,eover b! the 5overn%ent, +hich +as also a creditor of EISC .//* 3his e&press intent of the latter, under the direction and for the benefit of the Consortiu%, corroborated petitioner;s contention that respondent ban,s had defrauded EISC ;s creditors. Assignment of Mortgage in /avor of the Consortium Ban0s 3he assi5n%ent of %ort5a5e in favor of the Consortiu% also bears the ear%ar,s of fraud. Initiall!, respondent ban,s had a5reed that EISC should sell t+o of its 5enerator sets, so that the proceeds could be utiliFed to pa! DBP. 3his plan +as direct, si%ple, and +ould e&tin5uish the encu%brance in favor of the ban,. 3hen, $uite surprisin5l!, the Consortiu% set do+n the follo+in5 pa!%ent procedure< 2il%a5 +ould pa! EISC G the latter +ould pay the Consortiu#, +hich +ould pa! DBPG and the Consortiu% +ould then subro5ate DBP to the latter;s ri5hts as first %ort5a5ee. ne is then led to as,< if the intention +as to pa! DBPG fro% the sales proceeds of the 5enerator sets, +h! did the %one! have to pass throu5h the Consortiu%N 3he ans+er lies in the nature of respondent;s %ort5a5e. It +ill be recalled that this %ort5a5e re%ained unrecorded and not le5all! bindin5 on the other creditors.//7 3hus, if DBP had been directl! paid b! EISC , the latter could have freed up its properties to the satisfaction of all its other creditors. 3his procedure +ould have been fair to all, but it +as not follo+ed b! the Consortiu%. Instead, the proceeds fro% the sale of the 5enerator sets +ere first paid to respondent ban,s, +hich used the %one! to pa! DBP. 3he last step in the pa!%ent procedure e&plains the reason for this preferred thou5h roundabout %anner of pa!%ent. 3his final step entitled the Consortiu% to obtain DBP;s pri%ar! lien throu5h an assi5n%ent b! allo+in5 it to pa! EISC ;s loan to the ban,, +ithout incurrin5 additional e&penses. In the end, b! collectin5 the %one! fro% EISC , respondent ban,s recovered +hat the! had ostensibl! re%itted to DBP. Moreover, the pri%ar! lien that respondent ban,s ac$uired allo+ed the%, as unsecured creditors of EISC , to foreclose on the assets of the corporation +ithout re5ard to its inferior clai%s. It +as a clever ruse that +ould have +or,ed, +ere it not done b! creditors +ho +ere dut!@bound, as directors, not to ta,e clever advanta5e of other creditors.

3o be sure, there +as undue advanta5e. 3he pa!%ent sche%e devised b! the Consortiu% continued the efficac! of the pri%ar! lien, this ti%e in its favor, to the detri%ent of the other creditors. Ihen one considers its ,no+led5e that EISC ;s assets %i5ht not be enou5h to %eet its obli5ations to several creditors,//8 the intention to defraud the other creditors is even %ore stri,in5. 2raud is present +hen the debtor ,no+s that its actions +ould cause inCur!.//4 3he assi5n%ent in favor of the Consortiu% +as a rescissible contract for havin5 been underta,en in fraud of creditors.//9 Article /*18 of the Civil Code provides for the effect of rescission, as follo+s<
-Rescission creates the obli5ation to return the thin5s +hich +ere the obCect of the contract, to5ether +ith their fruits, and the price +ith its interestG conse$uentl!, it can be carried out onl! +hen he +ho de%ands rescission can return +hatever he %a! be obli5ed to restore. -Neither shall rescission ta,e place +hen the thin5s +hich are the obCect of the contract are le5all! in the possession of third persons +ho did not act in bad faith. -In this case, inde%nit! for da%a5es %a! be de%anded fro% the person causin5 the loss.-

Indeed, %utual restitution is re$uired in all cases involvin5 rescission. But +hen it is no lon5er possible to return the obCect of the contract, an inde%nit! for da%a5es operates as restitution. 3he i%portant consideration is that the inde%nit! for da%a5es should restore to the inCured part! +hat +as lost. In the case at bar, it is no lon5er possible to order the return of EISC ;s properties. 3he! have alread! been sold to the NSC, +hich has not been sho+n to have acted in bad faith. 3he part! alle5in5 bad faith %ust establish it b! co%petent proof. Sans that proof, purchasers are dee%ed to be in 5ood faith, and their interest in the subCect propert! %ust not be disturbed. Purchasers in 5ood faith are those +ho bu! the propert! of another +ithout notice that so%e other person has a ri5ht to or interest in the propert!G and +ho pa! the full and fair price for it at the ti%e of the purchase, or before the! 5et notice of so%e other persons; clai% of interest in the propert!.//1 In the present case, petitioner failed to dischar5e its burden of provin5 bad faith on the part of NSC. 3here is insufficient evidence on record that the latter participated in the desi5n to defraud EISC ;s creditors. 3o NSC, petitioner i%putes fraud fro% the sole fact that the for%er +as alle5edl! a+are that its vendor, the Consortiu%, had ta,en control over EISC includin5 the corporation;s assets.//( Ie cannot appreciate ho+ ,no+led5e of the ta,eover +ould necessaril! i%plicate an!one in the Consortiu%;s fraudulent desi5ns. Besides, NSC +as not sho+n to be priv! to the infor%ation that EISC had no other assets to satisf! other creditors; respective clai%s. 3he ri5ht of an innocent purchaser for value %ust be respected and protected, even if its vendors obtained their title throu5h fraud./.) Pursuant to this principle, the re%ed! of the defrauded creditor is to sue for da%a5es a5ainst those +ho caused or e%plo!ed the fraud. Dence, petitioner is entitled to da%a5es fro% the Consortiu%. A-ard of 1amages

It is essential that for da%a5es to be a+arded, a clai%ant %ust satisfactoril! prove durin5 the trial that the! have a factual basis, and that the defendant;s acts have a causal connection to the%././ 3hus, the $uestion of da%a5es should nor%all! call for a re%and of the case to the lo+er court for further proceedin5s. Considerin5, ho+ever, the len5th of ti%e that petitioner;s Cust clai% has been th+arted, +e find it in the best interest of substantial Custice to decide the issue of da%a5es no+ on the basis of the available records. A re%and for further proceedin5s +ould onl! result in a needless dela!. :oin5 over the records of the case, +e find that petitioner has a final and e&ecutor! Cud5%ent in its favor in Civil Case No. ./.9.. 3he Cud5%ent in that case reads as follo+s<
-IDERE2 RE, Cud5%ent is hereb! rendered in favor of the plaintiffs orderin5 defendant EISC QSRM to pa! the plaintiffs the su% of P18/,*/4./( +ith interest thereon at the le5al rate fro% the filin5 of this co%plaint, plus attorne!;s fees of P8),))).)) and to pa! the costs.-/..

3he fore5oin5 is the Cud5%ent credit that petitioner cannot enforce a5ainst EISC because of Respondent Consortiu%;s fraudulent disposition of the corporation;s assets. In other +ords, the above a%ounts define the e&tent of the actual da%a5e suffered b! Coastal and the a%ount that respondent has to restore pursuant to Article /*18. n the basis of the findin5 of fraud, the a+ard of e&e%plar! da%a5es is in order, to serve as a +arnin5 to other creditors not to abuse their ri5hts. ?nder Article ...( of the Civil Code, e&e%plar! or corrective da%a5es are i%posed b! +a! of e&a%ple or correction for the public 5ood. B! their nature, e&e%plar! da%a5es should be i%posed in an a%ount sufficient and effective to deter possible future si%ilar acts b! respondent ban,s. 3he court finds the a%ount of P.8),))) sufficient in the instant case. As a rule, a corporation is not entitled to %oral da%a5es because, not bein5 a natural person, it cannot e&perience ph!sical sufferin5 or senti%ents li,e +ounded feelin5s, serious an&iet!, %ental an5uish and %oral shoc,./.* 3he onl! e&ception to this rule is +hen the corporation has a 5ood reputation that is debased, resultin5 in its hu%iliation in the business real%./.7 In the present case, the records do not sho+ an! evidence that the na%e or reputation of petitioner has been sullied as a result of the Consortiu%;s fraudulent acts. Accordin5l!, %oral da%a5es are not +arranted. IDERE2 RE, the Petition is GRA,(!1. 3he assailed Decision of the Court of Appeals dated Septe%ber .9, /((7, and its Resolution dated 0anuar! 8, /((8, are hereb! R!2!R3!1 and 3!( A3I1!. Respondent Consortiu% of Ban,s is ordered to PA> Petitioner Coastal Pacific 3radin5, Inc., the su% adCud5ed b! the Re5ional 3rial Court of Pasi5, Branch /49, in Civil Case No. ./.9. entitled Coastal Pacific "rading* elix de la Costa* and Aurora del %anco v. 4isayan Integrated Corporation, to +it< -& & & the su% of P18/,*/4./( +ith interest thereon at the le5al rate fro% the filin5 of KtheL KCLo%plaint, plus attorne!;s fees of P8),))) and & & & the costs.- Respondent Consortiu% of Ban,s is further ordered to pa! petitioner e&e%plar! da%a5es in the a%ount ofP.8),))). S RDERED.

1nares-Santiago* Austria-Martine,* Calle2o* Sr.* Chico-3a,ario* /./.* concur.