FIRST DIVISION

G.R. No. 126297

January 31, 2007

PROFESSIONAL SERVICES, INC., Petitioner,

vs.
NATIVIDAD and ENRIQUE AGANA, Respondents.
x-----------------------x
G.R. No. 126467

January 31, 2007

NATIVIDAD (Substituted by her children MARCELINO AGANA III, ENRIQUE

AGANA, JR., EMMA AGANA ANDAYA, JESUS AGANA, and RAYMUND AGANA)
and ENRIQUE AGANA, Petitioners,
vs.
JUAN FUENTES, Respondent.
x- - - - - - - - - - - - - - - - - - - -- - - - x
G.R. No. 127590

On April 4, 1984, Natividad Agana was rushed to the Medical City General Hospital (Medical
City Hospital) because of difficulty of bowel movement and bloody anal discharge. After a
series of medical examinations, Dr. Miguel Ampil, petitioner in G.R. No. 127590, diagnosed
her to be suffering from "cancer of the sigmoid."
On April 11, 1984, Dr. Ampil, assisted by the medical staff4 of the Medical City Hospital,
performed an anterior resection surgery on Natividad. He found that the malignancy in her
sigmoid area had spread on her left ovary, necessitating the removal of certain portions of it.
Thus, Dr. Ampil obtained the consent of Natividads husband, Enrique Agana, to permit Dr.
Juan Fuentes, respondent in G.R. No. 126467, to perform hysterectomy on her.
After Dr. Fuentes had completed the hysterectomy, Dr. Ampil took over, completed the
operation and closed the incision.
However, the operation appeared to be flawed. In the corresponding Record of Operation
dated April 11, 1984, the attending nurses entered these remarks:
"sponge count lacking 2
"announced to surgeon searched (sic) done but to no avail continue for closure."

January 31, 2007

MIGUEL AMPIL, Petitioner,

vs.
NATIVIDAD AGANA and ENRIQUE AGANA, Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Hospitals, having undertaken one of mankinds most important and delicate endeavors, must
assume the grave responsibility of pursuing it with appropriate care. The care and service
dispensed through this high trust, however technical, complex and esoteric its character may
be, must meet standards of responsibility commensurate with the undertaking to preserve and
protect the health, and indeed, the very lives of those placed in the hospitals keeping. 1
Assailed in these three consolidated petitions for review on certiorari is the Court of Appeals
Decision2 dated September 6, 1996 in CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198
affirming with modification the Decision3 dated March 17, 1993 of the Regional Trial Court
(RTC), Branch 96, Quezon City in Civil Case No. Q-43322 and nullifying its Order dated
September 21, 1993.
The facts, as culled from the records, are:

On April 24, 1984, Natividad was released from the hospital. Her hospital and medical bills,
including the doctors fees, amounted to P60,000.00.
After a couple of days, Natividad complained of excruciating pain in her anal region. She
consulted both Dr. Ampil and Dr. Fuentes about it. They told her that the pain was the natural
consequence of the surgery. Dr. Ampil then recommended that she consult an oncologist to
examine the cancerous nodes which were not removed during the operation.
On May 9, 1984, Natividad, accompanied by her husband, went to the United States to seek
further treatment. After four months of consultations and laboratory examinations, Natividad
was told she was free of cancer. Hence, she was advised to return to the Philippines.
On August 31, 1984, Natividad flew back to the Philippines, still suffering from pains. Two
weeks thereafter, her daughter found a piece of gauze protruding from her vagina. Upon being
informed about it, Dr. Ampil proceeded to her house where he managed to extract by hand a
piece of gauze measuring 1.5 inches in width. He then assured her that the pains would soon
vanish.
Dr. Ampils assurance did not come true. Instead, the pains intensified, prompting Natividad to
seek treatment at the Polymedic General Hospital. While confined there, Dr. Ramon Gutierrez
detected the presence of another foreign object in her vagina -- a foul-smelling gauze
measuring 1.5 inches in width which badly infected her vaginal vault. A recto-vaginal fistula
had formed in her reproductive organs which forced stool to excrete through the vagina.
Another surgical operation was needed to remedy the damage. Thus, in October 1984,
Natividad underwent another surgery.

On November 12, 1984, Natividad and her husband filed with the RTC, Branch 96, Quezon
City a complaint for damages against the Professional Services, Inc. (PSI), owner of the
Medical City Hospital, Dr. Ampil, and Dr. Fuentes, docketed as Civil Case No. Q-43322. They
alleged that the latter are liable for negligence for leaving two pieces of gauze inside
Natividads body and malpractice for concealing their acts of negligence.
Meanwhile, Enrique Agana also filed with the Professional Regulation Commission (PRC) an
administrative complaint for gross negligence and malpractice against Dr. Ampil and Dr.
Fuentes, docketed as Administrative Case No. 1690. The PRC Board of Medicine heard the
case only with respect to Dr. Fuentes because it failed to acquire jurisdiction over Dr. Ampil
who was then in the United States.
On February 16, 1986, pending the outcome of the above cases, Natividad died and was duly
substituted by her above-named children (the Aganas).
On March 17, 1993, the RTC rendered its Decision in favor of the Aganas, finding PSI, Dr.
Ampil and Dr. Fuentes liable for negligence and malpractice, the decretal part of which reads:
WHEREFORE, judgment is hereby rendered for the plaintiffs ordering the defendants
PROFESSIONAL SERVICES, INC., DR. MIGUEL AMPIL and DR. JUAN FUENTES to pay
to the plaintiffs, jointly and severally, except in respect of the award for exemplary damages
and the interest thereon which are the liabilities of defendants Dr. Ampil and Dr. Fuentes only,
as follows:
1. As actual damages, the following amounts:
a. The equivalent in Philippine Currency of the total of US$19,900.00 at
the rate of P21.60-US$1.00, as reimbursement of actual expenses incurred
in the United States of America;
b. The sum of P4,800.00 as travel taxes of plaintiffs and their physician
daughter;
c. The total sum of P45,802.50, representing the cost of hospitalization at
Polymedic Hospital, medical fees, and cost of the saline solution;
2. As moral damages, the sum of P2,000,000.00;
3. As exemplary damages, the sum of P300,000.00;

SO ORDERED.
Aggrieved, PSI, Dr. Fuentes and Dr. Ampil interposed an appeal to the Court of Appeals,
docketed as CA-G.R. CV No. 42062.
Incidentally, on April 3, 1993, the Aganas filed with the RTC a motion for a partial execution
of its Decision, which was granted in an Order dated May 11, 1993. Thereafter, the sheriff
levied upon certain properties of Dr. Ampil and sold them for P451,275.00 and delivered the
amount to the Aganas.
Following their receipt of the money, the Aganas entered into an agreement with PSI and Dr.
Fuentes to indefinitely suspend any further execution of the RTC Decision. However, not long
thereafter, the Aganas again filed a motion for an alias writ of execution against the properties
of PSI and Dr. Fuentes. On September 21, 1993, the RTC granted the motion and issued the
corresponding writ, prompting Dr. Fuentes to file with the Court of Appeals a petition for
certiorari and prohibition, with prayer for preliminary injunction, docketed as CA-G.R. SP No.
32198. During its pendency, the Court of Appeals issued a Resolution5 dated October 29, 1993
granting Dr. Fuentes prayer for injunctive relief.
On January 24, 1994, CA-G.R. SP No. 32198 was consolidated with CA-G.R. CV No. 42062.
Meanwhile, on January 23, 1995, the PRC Board of Medicine rendered its Decision 6 in
Administrative Case No. 1690 dismissing the case against Dr. Fuentes. The Board held that the
prosecution failed to show that Dr. Fuentes was the one who left the two pieces of gauze inside
Natividads body; and that he concealed such fact from Natividad.
On September 6, 1996, the Court of Appeals rendered its Decision jointly disposing of CAG.R. CV No. 42062 and CA-G.R. SP No. 32198, thus:
WHEREFORE, except for the modification that the case against defendant-appellant Dr. Juan
Fuentes is hereby DISMISSED, and with the pronouncement that defendant-appellant Dr.
Miguel Ampil is liable to reimburse defendant-appellant Professional Services, Inc., whatever
amount the latter will pay or had paid to the plaintiffs-appellees, the decision appealed from is
hereby AFFIRMED and the instant appeal DISMISSED.
Concomitant with the above, the petition for certiorari and prohibition filed by herein
defendant-appellant Dr. Juan Fuentes in CA-G.R. SP No. 32198 is hereby GRANTED and the
challenged order of the respondent judge dated September 21, 1993, as well as the alias writ of
execution issued pursuant thereto are hereby NULLIFIED and SET ASIDE. The bond posted
by the petitioner in connection with the writ of preliminary injunction issued by this Court on
November 29, 1993 is hereby cancelled.

4. As attorneys fees, the sum of P250,000.00;

Costs against defendants-appellants Dr. Miguel Ampil and Professional Services, Inc.
5. Legal interest on items 1 (a), (b), and (c); 2; and 3 hereinabove, from date of filing
of the complaint until full payment; and
6. Costs of suit.

SO ORDERED.
Only Dr. Ampil filed a motion for reconsideration, but it was denied in a Resolution 7 dated
December 19, 1996.

Hence, the instant consolidated petitions.

In G.R. No. 126297, PSI alleged in its petition that the Court of Appeals erred in holding that:
(1) it is estopped from raising the defense that Dr. Ampil is not its employee; (2) it is solidarily
liable with Dr. Ampil; and (3) it is not entitled to its counterclaim against the Aganas. PSI
contends that Dr. Ampil is not its employee, but a mere consultant or independent contractor.
As such, he alone should answer for his negligence.
In G.R. No. 126467, the Aganas maintain that the Court of Appeals erred in finding that Dr.
Fuentes is not guilty of negligence or medical malpractice, invoking the doctrine of res ipsa
loquitur. They contend that the pieces of gauze are prima facie proofs that the operating
surgeons have been negligent.
Finally, in G.R. No. 127590, Dr. Ampil asserts that the Court of Appeals erred in finding him
liable for negligence and malpractice sans evidence that he left the two pieces of gauze in
Natividads vagina. He pointed to other probable causes, such as: (1) it was Dr. Fuentes who
used gauzes in performing the hysterectomy; (2) the attending nurses failure to properly count
the gauzes used during surgery; and (3) the medical intervention of the American doctors who
examined Natividad in the United States of America.
For our resolution are these three vital issues: first, whether the Court of Appeals erred in
holding Dr. Ampil liable for negligence and malpractice; second, whether the Court of Appeals
erred in absolving Dr. Fuentes of any liability; and third, whether PSI may be held solidarily
liable for the negligence of Dr. Ampil.
I - G.R. No. 127590
Whether the Court of Appeals Erred in Holding Dr. Ampil
Liable for Negligence and Malpractice.
Dr. Ampil, in an attempt to absolve himself, gears the Courts attention to other possible
causes of Natividads detriment. He argues that the Court should not discount either of the
following possibilities: first, Dr. Fuentes left the gauzes in Natividads body after performing
hysterectomy; second, the attending nurses erred in counting the gauzes; and third, the
American doctors were the ones who placed the gauzes in Natividads body.
Dr. Ampils arguments are purely conjectural and without basis. Records show that he did not
present any evidence to prove that the American doctors were the ones who put or left the
gauzes in Natividads body. Neither did he submit evidence to rebut the correctness of the
record of operation, particularly the number of gauzes used. As to the alleged negligence of
Dr. Fuentes, we are mindful that Dr. Ampil examined his (Dr. Fuentes) work and found it in
order.
The glaring truth is that all the major circumstances, taken together, as specified by the Court
of Appeals, directly point to Dr. Ampil as the negligent party, thus:

First, it is not disputed that the surgeons used gauzes as sponges to control the
bleeding of the patient during the surgical operation.
Second, immediately after the operation, the nurses who assisted in the surgery
noted in their report that the sponge count (was) lacking 2; that such anomaly was
announced to surgeon and that a search was done but to no avail prompting Dr.
Ampil to continue for closure x x x.
Third, after the operation, two (2) gauzes were extracted from the same spot of the
body of Mrs. Agana where the surgery was performed.
An operation requiring the placing of sponges in the incision is not complete until the sponges
are properly removed, and it is settled that the leaving of sponges or other foreign substances
in the wound after the incision has been closed is at least prima facie negligence by the
operating surgeon.8 To put it simply, such act is considered so inconsistent with due care as to
raise an inference of negligence. There are even legions of authorities to the effect that such
act is negligence per se.9
Of course, the Court is not blind to the reality that there are times when danger to a patients
life precludes a surgeon from further searching missing sponges or foreign objects left in the
body. But this does not leave him free from any obligation. Even if it has been shown that a
surgeon was required by the urgent necessities of the case to leave a sponge in his patients
abdomen, because of the dangers attendant upon delay, still, it is his legal duty to so inform his
patient within a reasonable time thereafter by advising her of what he had been compelled to
do. This is in order that she might seek relief from the effects of the foreign object left in her
body as her condition might permit. The ruling in Smith v. Zeagler 10 is explicit, thus:
The removal of all sponges used is part of a surgical operation, and when a physician or
surgeon fails to remove a sponge he has placed in his patients body that should be removed as
part of the operation, he thereby leaves his operation uncompleted and creates a new condition
which imposes upon him the legal duty of calling the new condition to his patients attention,
and endeavoring with the means he has at hand to minimize and avoid untoward results likely
to ensue therefrom.
Here, Dr. Ampil did not inform Natividad about the missing two pieces of gauze. Worse, he
even misled her that the pain she was experiencing was the ordinary consequence of her
operation. Had he been more candid, Natividad could have taken the immediate and
appropriate medical remedy to remove the gauzes from her body. To our mind, what was
initially an act of negligence by Dr. Ampil has ripened into a deliberate wrongful act of
deceiving his patient.
This is a clear case of medical malpractice or more appropriately, medical negligence. To
successfully pursue this kind of case, a patient must only prove that a health care provider
either failed to do something which a reasonably prudent health care provider would have
done, or that he did something that a reasonably prudent provider would not have done; and
that failure or action caused injury to the patient. 11 Simply put, the elements are duty, breach,
injury and proximate causation. Dr, Ampil, as the lead surgeon, had the duty to remove all
foreign objects, such as gauzes, from Natividads body before closure of the incision. When he
failed to do so, it was his duty to inform Natividad about it. Dr. Ampil breached both duties.

Such breach caused injury to Natividad, necessitating her further examination by American
doctors and another surgery. That Dr. Ampils negligence is the proximate cause 12 of
Natividads injury could be traced from his act of closing the incision despite the information
given by the attending nurses that two pieces of gauze were still missing. That they were later
on extracted from Natividads vagina established the causal link between Dr. Ampils
negligence and the injury. And what further aggravated such injury was his deliberate
concealment of the missing gauzes from the knowledge of Natividad and her family.
II - G.R. No. 126467
Whether the Court of Appeals Erred in Absolving
Dr. Fuentes of any Liability
The Aganas assailed the dismissal by the trial court of the case against Dr. Fuentes on the
ground that it is contrary to the doctrine of res ipsa loquitur. According to them, the fact that
the two pieces of gauze were left inside Natividads body is a prima facie evidence of Dr.
Fuentes negligence.
We are not convinced.
Literally, res ipsa loquitur means "the thing speaks for itself." It is the rule that the fact of the
occurrence of an injury, taken with the surrounding circumstances, may permit an inference or
raise a presumption of negligence, or make out a plaintiffs prima facie case, and present a
question of fact for defendant to meet with an explanation. 13 Stated differently, where the thing
which caused the injury, without the fault of the injured, is under the exclusive control of the
defendant and the injury is such that it should not have occurred if he, having such control
used proper care, it affords reasonable evidence, in the absence of explanation that the injury
arose from the defendants want of care, and the burden of proof is shifted to him to establish
that he has observed due care and diligence. 14
From the foregoing statements of the rule, the requisites for the applicability of the doctrine of
res ipsa loquitur are: (1) the occurrence of an injury; (2) the thing which caused the injury was
under the control and management of the defendant; (3) the occurrence was such that in the
ordinary course of things, would not have happened if those who had control or management
used proper care; and (4) the absence of explanation by the defendant. Of the foregoing
requisites, the most instrumental is the "control and management of the thing which caused the
injury."15
We find the element of "control and management of the thing which caused the injury" to be
wanting. Hence, the doctrine of res ipsa loquitur will not lie.
It was duly established that Dr. Ampil was the lead surgeon during the operation of Natividad.
He requested the assistance of Dr. Fuentes only to perform hysterectomy when he (Dr. Ampil)
found that the malignancy in her sigmoid area had spread to her left ovary. Dr. Fuentes
performed the surgery and thereafter reported and showed his work to Dr. Ampil. The latter
examined it and finding everything to be in order, allowed Dr. Fuentes to leave the operating
room. Dr. Ampil then resumed operating on Natividad. He was about to finish the procedure

when the attending nurses informed him that two pieces of gauze were missing. A "diligent
search" was conducted, but the misplaced gauzes were not found. Dr. Ampil then directed that
the incision be closed. During this entire period, Dr. Fuentes was no longer in the operating
room and had, in fact, left the hospital.
Under the "Captain of the Ship" rule, the operating surgeon is the person in complete charge of
the surgery room and all personnel connected with the operation. Their duty is to obey his
orders.16 As stated before, Dr. Ampil was the lead surgeon. In other words, he was the "Captain
of the Ship." That he discharged such role is evident from his following conduct: (1) calling
Dr. Fuentes to perform a hysterectomy; (2) examining the work of Dr. Fuentes and finding it in
order; (3) granting Dr. Fuentes permission to leave; and (4) ordering the closure of the
incision. To our mind, it was this act of ordering the closure of the incision notwithstanding
that two pieces of gauze remained unaccounted for, that caused injury to Natividads body.
Clearly, the control and management of the thing which caused the injury was in the hands of
Dr. Ampil, not Dr. Fuentes.
In this jurisdiction, res ipsa loquitur is not a rule of substantive law, hence, does not per se
create or constitute an independent or separate ground of liability, being a mere evidentiary
rule.17 In other words, mere invocation and application of the doctrine does not dispense with
the requirement of proof of negligence. Here, the negligence was proven to have been
committed by Dr. Ampil and not by Dr. Fuentes.
III - G.R. No. 126297
Whether PSI Is Liable for the Negligence of Dr. Ampil
The third issue necessitates a glimpse at the historical development of hospitals and the
resulting theories concerning their liability for the negligence of physicians.
Until the mid-nineteenth century, hospitals were generally charitable institutions, providing
medical services to the lowest classes of society, without regard for a patients ability to
pay.18 Those who could afford medical treatment were usually treated at home by their
doctors.19 However, the days of house calls and philanthropic health care are over. The modern
health care industry continues to distance itself from its charitable past and has experienced a
significant conversion from a not-for-profit health care to for-profit hospital businesses.
Consequently, significant changes in health law have accompanied the business-related
changes in the hospital industry. One important legal change is an increase in hospital liability
for medical malpractice. Many courts now allow claims for hospital vicarious liability under
the theories of respondeat superior, apparent authority, ostensible authority, or agency by
estoppel. 20
In this jurisdiction, the statute governing liability for negligent acts is Article 2176 of the Civil
Code, which reads:
Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no preexisting contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.

A derivative of this provision is Article 2180, the rule governing vicarious liability under the
doctrine of respondeat superior, thus:
ART. 2180. The obligation imposed by Article 2176 is demandable not only for ones own acts
or omissions, but also for those of persons for whom one is responsible.
x x x

x x x

The owners and managers of an establishment or enterprise are likewise responsible for
damages caused by their employees in the service of the branches in which the latter are
employed or on the occasion of their functions.
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks even though the former are not engaged in any
business or industry.
x x x

x x x

The responsibility treated of in this article shall cease when the persons herein mentioned
prove that they observed all the diligence of a good father of a family to prevent damage.
A prominent civilist commented that professionals engaged by an employer, such as
physicians, dentists, and pharmacists, are not "employees" under this article because the
manner in which they perform their work is not within the control of the latter (employer). In
other words, professionals are considered personally liable for the fault or negligence they
commit in the discharge of their duties, and their employer cannot be held liable for such fault
or negligence. In the context of the present case, "a hospital cannot be held liable for the fault
or negligence of a physician or surgeon in the treatment or operation of patients." 21
The foregoing view is grounded on the traditional notion that the professional status and the
very nature of the physicians calling preclude him from being classed as an agent or
employee of a hospital, whenever he acts in a professional capacity.22 It has been said that
medical practice strictly involves highly developed and specialized knowledge, 23 such that
physicians are generally free to exercise their own skill and judgment in rendering medical
services sans interference.24 Hence, when a doctor practices medicine in a hospital setting, the
hospital and its employees are deemed to subserve him in his ministrations to the patient and
his actions are of his own responsibility.25
The case of Schloendorff v. Society of New York Hospital26 was then considered an authority
for this view. The "Schloendorff doctrine" regards a physician, even if employed by a hospital,
as an independent contractor because of the skill he exercises and the lack of control exerted
over his work. Under this doctrine, hospitals are exempt from the application of the respondeat
superior principle for fault or negligence committed by physicians in the discharge of their
profession.
However, the efficacy of the foregoing doctrine has weakened with the significant
developments in medical care. Courts came to realize that modern hospitals are increasingly
taking active role in supplying and regulating medical care to patients. No longer were a

hospitals functions limited to furnishing room, food, facilities for treatment and operation,
and attendants for its patients. Thus, in Bing v. Thunig,27 the New York Court of Appeals
deviated from the Schloendorff doctrine, noting that modern hospitals actually do far more
than provide facilities for treatment. Rather, they regularly employ, on a salaried basis, a large
staff of physicians, interns, nurses, administrative and manual workers. They charge patients
for medical care and treatment, even collecting for such services through legal action, if
necessary. The court then concluded that there is no reason to exempt hospitals from the
universal rule of respondeat superior.
In our shores, the nature of the relationship between the hospital and the physicians is rendered
inconsequential in view of our categorical pronouncement in Ramos v. Court of Appeals 28 that
for purposes of apportioning responsibility in medical negligence cases, an employeremployee relationship in effect exists between hospitals and their attending and visiting
physicians. This Court held:
"We now discuss the responsibility of the hospital in this particular incident. The unique
practice (among private hospitals) of filling up specialist staff with attending and visiting
"consultants," who are allegedly not hospital employees, presents problems in apportioning
responsibility for negligence in medical malpractice cases. However, the difficulty is more
apparent than real.
In the first place, hospitals exercise significant control in the hiring and firing of consultants
and in the conduct of their work within the hospital premises. Doctors who apply for
consultant slots, visiting or attending, are required to submit proof of completion of
residency, their educational qualifications, generally, evidence of accreditation by the
appropriate board (diplomate), evidence of fellowship in most cases, and references. These
requirements are carefully scrutinized by members of the hospital administration or by a
review committee set up by the hospital who either accept or reject the application. x x x.
After a physician is accepted, either as a visiting or attending consultant, he is normally
required to attend clinico-pathological conferences, conduct bedside rounds for clerks, interns
and residents, moderate grand rounds and patient audits and perform other tasks and
responsibilities, for the privilege of being able to maintain a clinic in the hospital, and/or for
the privilege of admitting patients into the hospital. In addition to these, the physicians
performance as a specialist is generally evaluated by a peer review committee on the basis of
mortality and morbidity statistics, and feedback from patients, nurses, interns and residents. A
consultant remiss in his duties, or a consultant who regularly falls short of the minimum
standards acceptable to the hospital or its peer review committee, is normally politely
terminated.
In other words, private hospitals, hire, fire and exercise real control over their attending and
visiting consultant staff. While consultants are not, technically employees, x x x, the control
exercised, the hiring, and the right to terminate consultants all fulfill the important hallmarks
of an employer-employee relationship, with the exception of the payment of wages. In
assessing whether such a relationship in fact exists, the control test is determining.
Accordingly, on the basis of the foregoing, we rule that for the purpose of allocating
responsibility in medical negligence cases, an employer-employee relationship in effect exists
between hospitals and their attending and visiting physicians. "

But the Ramos pronouncement is not our only basis in sustaining PSIs liability. Its liability is
also anchored upon the agency principle of apparent authority or agency by estoppel and the
doctrine of corporate negligence which have gained acceptance in the determination of a
hospitals liability for negligent acts of health professionals. The present case serves as a
perfect platform to test the applicability of these doctrines, thus, enriching our jurisprudence.
Apparent authority, or what is sometimes referred to as the "holding
out" theory, or doctrine of ostensible agency or agency by estoppel, 29 has its origin from the
law of agency. It imposes liability, not as the result of the reality of a contractual relationship,
but rather because of the actions of a principal or an employer in somehow misleading the
public into believing that the relationship or the authority exists. 30 The concept is essentially
one of estoppel and has been explained in this manner:
"The principal is bound by the acts of his agent with the apparent authority which he
knowingly permits the agent to assume, or which he holds the agent out to the public as
possessing. The question in every case is whether the principal has by his voluntary act placed
the agent in such a situation that a person of ordinary prudence, conversant with business
usages and the nature of the particular business, is justified in presuming that such agent has
authority to perform the particular act in question. 31
The applicability of apparent authority in the field of hospital liability was upheld long time
ago in Irving v. Doctor Hospital of Lake Worth, Inc.32 There, it was explicitly stated that "there
does not appear to be any rational basis for excluding the concept of apparent authority from
the field of hospital liability." Thus, in cases where it can be shown that a hospital, by its
actions, has held out a particular physician as its agent and/or employee and that a patient has
accepted treatment from that physician in the reasonable belief that it is being rendered in
behalf of the hospital, then the hospital will be liable for the physicians negligence.
Our jurisdiction recognizes the concept of an agency by implication or estoppel. Article 1869
of the Civil Code reads:
ART. 1869. Agency may be express, or implied from the acts of the principal, from his silence
or lack of action, or his failure to repudiate the agency, knowing that another person is acting
on his behalf without authority.
In this case, PSI publicly displays in the lobby of the Medical City Hospital the names and
specializations of the physicians associated or accredited by it, including those of Dr. Ampil
and Dr. Fuentes. We concur with the Court of Appeals conclusion that it "is now estopped
from passing all the blame to the physicians whose names it proudly paraded in the public
directory leading the public to believe that it vouched for their skill and competence." Indeed,
PSIs act is tantamount to holding out to the public that Medical City Hospital, through its
accredited physicians, offers quality health care services. By accrediting Dr. Ampil and Dr.
Fuentes and publicly advertising their qualifications, the hospital created the impression that
they were its agents, authorized to perform medical or surgical services for its patients. As
expected, these patients, Natividad being one of them, accepted the services on the reasonable
belief that such were being rendered by the hospital or its employees, agents, or servants. The
trial court correctly pointed out:

x x x regardless of the education and status in life of the patient, he ought not be burdened
with the defense of absence of employer-employee relationship between the hospital and the
independent physician whose name and competence are certainly certified to the general
public by the hospitals act of listing him and his specialty in its lobby directory, as in the case
herein. The high costs of todays medical and health care should at least exact on the hospital
greater, if not broader, legal responsibility for the conduct of treatment and surgery within its
facility by its accredited physician or surgeon, regardless of whether he is independent or
employed."33
The wisdom of the foregoing ratiocination is easy to discern. Corporate entities, like PSI, are
capable of acting only through other individuals, such as physicians. If these accredited
physicians do their job well, the hospital succeeds in its mission of offering quality medical
services and thus profits financially. Logically, where negligence mars the quality of its
services, the hospital should not be allowed to escape liability for the acts of its ostensible
agents.
We now proceed to the doctrine of corporate negligence or corporate responsibility.
One allegation in the complaint in Civil Case No. Q-43332 for negligence and malpractice is
that PSI as owner, operator and manager of Medical City Hospital, "did not perform the
necessary supervision nor exercise diligent efforts in the supervision of Drs. Ampil and
Fuentes and its nursing staff, resident doctors, and medical interns who assisted Drs. Ampil
and Fuentes in the performance of their duties as surgeons."34 Premised on the doctrine of
corporate negligence, the trial court held that PSI is directly liable for such breach of duty.
We agree with the trial court.
Recent years have seen the doctrine of corporate negligence as the judicial answer to the
problem of allocating hospitals liability for the negligent acts of health practitioners, absent
facts to support the application of respondeat superior or apparent authority. Its formulation
proceeds from the judiciarys acknowledgment that in these modern times, the duty of
providing quality medical service is no longer the sole prerogative and responsibility of the
physician. The modern hospitals have changed structure. Hospitals now tend to organize a
highly professional medical staff whose competence and performance need to be monitored by
the hospitals commensurate with their inherent responsibility to provide quality medical care. 35
The doctrine has its genesis in Darling v. Charleston Community Hospital. 36 There, the
Supreme Court of Illinois held that "the jury could have found a hospital negligent, inter alia,
in failing to have a sufficient number of trained nurses attending the patient; failing to require
a consultation with or examination by members of the hospital staff; and failing to review the
treatment rendered to the patient." On the basis of Darling, other jurisdictions held that a
hospitals corporate negligence extends to permitting a physician known to be incompetent to
practice at the hospital.37 With the passage of time, more duties were expected from hospitals,
among them: (1) the use of reasonable care in the maintenance of safe and adequate facilities
and equipment; (2) the selection and retention of competent physicians; (3) the overseeing or
supervision of all persons who practice medicine within its walls; and (4) the formulation,
adoption and enforcement of adequate rules and policies that ensure quality care for its
patients.38 Thus, in Tucson Medical Center, Inc. v. Misevich, 39 it was held that a hospital,
following the doctrine of corporate responsibility, has the duty to see that it meets the

standards of responsibilities for the care of patients. Such duty includes the proper supervision
of the members of its medical staff. And in Bost v. Riley,40 the court concluded that a patient
who enters a hospital does so with the reasonable expectation that it will attempt to cure him.
The hospital accordingly has the duty to make a reasonable effort to monitor and oversee the
treatment prescribed and administered by the physicians practicing in its premises.
In the present case, it was duly established that PSI operates the Medical City Hospital for the
purpose and under the concept of providing comprehensive medical services to the public.
Accordingly, it has the duty to exercise reasonable care to protect from harm all patients
admitted into its facility for medical treatment. Unfortunately, PSI failed to perform such duty.
The findings of the trial court are convincing, thus:
x x x PSIs liability is traceable to its failure to conduct an investigation of the matter reported
in the nota bene of the count nurse. Such failure established PSIs part in the dark conspiracy
of silence and concealment about the gauzes. Ethical considerations, if not also legal, dictated
the holding of an immediate inquiry into the events, if not for the benefit of the patient to
whom the duty is primarily owed, then in the interest of arriving at the truth. The Court cannot
accept that the medical and the healing professions, through their members like defendant
surgeons, and their institutions like PSIs hospital facility, can callously turn their backs on and
disregard even a mere probability of mistake or negligence by refusing or failing to investigate
a report of such seriousness as the one in Natividads case.
It is worthy to note that Dr. Ampil and Dr. Fuentes operated on Natividad with the assistance
of the Medical City Hospitals staff, composed of resident doctors, nurses, and interns. As
such, it is reasonable to conclude that PSI, as the operator of the hospital, has actual or
constructive knowledge of the procedures carried out, particularly the report of the attending
nurses that the two pieces of gauze were missing. In Fridena v. Evans, 41 it was held that a
corporation is bound by the knowledge acquired by or notice given to its agents or officers
within the scope of their authority and in reference to a matter to which their authority
extends. This means that the knowledge of any of the staff of Medical City Hospital
constitutes knowledge of PSI. Now, the failure of PSI, despite the attending nurses report, to
investigate and inform Natividad regarding the missing gauzes amounts to callous negligence.
Not only did PSI breach its duties to oversee or supervise all persons who practice medicine
within its walls, it also failed to take an active step in fixing the negligence committed. This
renders PSI, not only vicariously liable for the negligence of Dr. Ampil under Article 2180 of
the Civil Code, but also directly liable for its own negligence under Article 2176. In Fridena,
the Supreme Court of Arizona held:
x x x In recent years, however, the duty of care owed to the patient by the hospital has
expanded. The emerging trend is to hold the hospital responsible where the hospital has failed
to monitor and review medical services being provided within its walls. See Kahn Hospital
Malpractice Prevention, 27 De Paul . Rev. 23 (1977).
Among the cases indicative of the emerging trend is Purcell v. Zimbelman, 18 Ariz. App.
75,500 P. 2d 335 (1972). In Purcell, the hospital argued that it could not be held liable for the
malpractice of a medical practitioner because he was an independent contractor within the
hospital. The Court of Appeals pointed out that the hospital had created a professional staff
whose competence and performance was to be monitored and reviewed by the governing body
of the hospital, and the court held that a hospital would be negligent where it had knowledge

or reason to believe that a doctor using the facilities was employing a method of treatment or
care which fell below the recognized standard of care.
Subsequent to the Purcell decision, the Arizona Court of Appeals held that a hospital has
certain inherent responsibilities regarding the quality of medical care furnished to patients
within its walls and it must meet the standards of responsibility commensurate with this
undertaking. Beeck v. Tucson General Hospital, 18 Ariz. App. 165, 500 P. 2d 1153 (1972).
This court has confirmed the rulings of the Court of Appeals that a hospital has the duty of
supervising the competence of the doctors on its staff. x x x.
x

x x

In the amended complaint, the plaintiffs did plead that the operation was performed at the
hospital with its knowledge, aid, and assistance, and that the negligence of the defendants was
the proximate cause of the patients injuries. We find that such general allegations of
negligence, along with the evidence produced at the trial of this case, are sufficient to support
the hospitals liability based on the theory of negligent supervision."
Anent the corollary issue of whether PSI is solidarily liable with Dr. Ampil for damages, let it
be emphasized that PSI, apart from a general denial of its responsibility, failed to adduce
evidence showing that it exercised the diligence of a good father of a family in the
accreditation and supervision of the latter. In neglecting to offer such proof, PSI failed to
discharge its burden under the last paragraph of Article 2180 cited earlier, and, therefore, must
be adjudged solidarily liable with Dr. Ampil. Moreover, as we have discussed, PSI is also
directly liable to the Aganas.
One final word. Once a physician undertakes the treatment and care of a patient, the law
imposes on him certain obligations. In order to escape liability, he must possess that
reasonable degree of learning, skill and experience required by his profession. At the same
time, he must apply reasonable care and diligence in the exercise of his skill and the
application of his knowledge, and exert his best judgment.
WHEREFORE, we DENY all the petitions and AFFIRM the challenged Decision of the Court
of Appeals in CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198.
Costs against petitioners PSI and Dr. Miguel Ampil.
SO ORDERED.

FIRST DIVISION
G.R. No. 171182

August 23, 2012

UNIVERSITY OF THE PHILIPPINES, JOSE V. ABUEVA, RAUL P. DE GUZMAN,

RUBEN P. ASPIRAS, EMMANUEL P. BELLO, WILFREDO P. DAVID, CASIANO S.

ABRIGO, and JOSEFINA R. LICUANAN,Petitioners,

vs.
HON. AGUSTIN S. DIZON, his capacity as Presiding Judge of the Regional Trial Court
of Quezon City, Branch 80, STERN BUILDERS, INC., and SERVILLANO DELA
CRUZ, Respondents.

Wherefore, in the light of the foregoing, judgment is hereby rendered in favor of the plaintiff
and against the defendants ordering the latter to pay plaintiff, jointly and severally, the
following, to wit:
1. P 503,462.74 amount of the third billing, additional accomplished work
and retention money

DECISION
2. P 5,716,729.00 in actual damages
BERSAMIN, J.:
3. P 10,000,000.00 in moral damages
Trial judges should not immediately issue writs of execution or garnishment against the
Government or any of its subdivisions, agencies and instrumentalities to enforce money
judgments.1 They should bear in mind that the primary jurisdiction to examine, audit and settle
all claims of any sort due from the Government or any of its subdivisions, agencies and
instrumentalities pertains to the Commission on Audit (COA) pursuant to Presidential Decree
No. 1445 (Government Auditing Code of the Philippines).

4. P 150,000.00 and P 1,500.00 per appearance as attorneys fees; and

5. Costs of suit.
SO ORDERED.

The Case
On appeal by the University of the Philippines and its then incumbent officials (collectively,
the UP) is the decision promulgated on September 16, 2005,2 whereby the Court of Appeals
(CA) upheld the order of the Regional Trial Court (RTC), Branch 80, in Quezon City that
directed the garnishment of public funds amounting to P16,370,191.74 belonging to the UP to
satisfy the writ of execution issued to enforce the already final and executory judgment against
the UP.
Antecedents
On August 30, 1990, the UP, through its then President Jose V. Abueva, entered into a General
Construction Agreement with respondent Stern Builders Corporation (Stern Builders),
represented by its President and General Manager Servillano dela Cruz, for the construction of
the extension building and the renovation of the College of Arts and Sciences Building in the
campus of the University of the Philippines in Los Baos (UPLB). 3
In the course of the implementation of the contract, Stern Builders submitted three progress
billings corresponding to the work accomplished, but the UP paid only two of the billings. The
third billing worth P273,729.47 was not paid due to its disallowance by the Commission on
Audit (COA). Despite the lifting of the disallowance, the UP failed to pay the billing,
prompting Stern Builders and dela Cruz to sue the UP and its co-respondent officials to collect
the unpaid billing and to recover various damages. The suit, entitled Stern Builders
Corporation and Servillano R. Dela Cruz v. University of the Philippines Systems, Jose V.
Abueva, Raul P. de Guzman, Ruben P. Aspiras, Emmanuel P. Bello, Wilfredo P. David,
Casiano S. Abrigo, and Josefina R. Licuanan,was docketed as Civil Case No. Q-93-14971 of
the Regional Trial Court in Quezon City (RTC).4
After trial, on November 28, 2001, the RTC rendered its decision in favor of the
plaintiffs,5 viz:

Following the RTCs denial of its motion for reconsideration on May 7, 2002, 6 the UP filed a
notice of appeal on June 3, 2002.7 Stern Builders and dela Cruz opposed the notice of appeal
on the ground of its filing being belated, and moved for the execution of the decision. The UP
countered that the notice of appeal was filed within the reglementary period because the UPs
Office of Legal Affairs (OLS) in Diliman, Quezon City received the order of denial only on
May 31, 2002. On September 26, 2002, the RTC denied due course to the notice of appeal for
having been filed out of time and granted the private respondents motion for execution. 8
The RTC issued the writ of execution on October 4, 2002, 9 and the sheriff of the RTC served
the writ of execution and notice of demand upon the UP, through its counsel, on October 9,
2002.10 The UP filed an urgent motion to reconsider the order dated September 26, 2002, to
quash the writ of execution dated October 4, 2002, and to restrain the proceedings. 11 However,
the RTC denied the urgent motion on April 1, 2003.12
On June 24, 2003, the UP assailed the denial of due course to its appeal through a petition
for certiorari in the Court of Appeals (CA), docketed as CA-G.R. No. 77395. 13
On February 24, 2004, the CA dismissed the petition for certiorari upon finding that the UPs
notice of appeal had been filed late,14 stating:
Records clearly show that petitioners received a copy of the Decision dated November 28,
2001 and January 7, 2002, thus, they had until January 22, 2002 within which to file their
appeal. On January 16, 2002 or after the lapse of nine (9) days, petitioners through their
counsel Atty. Nolasco filed a Motion for Reconsideration of the aforesaid decision, hence,
pursuant to the rules, petitioners still had six (6) remaining days to file their appeal. As
admitted by the petitioners in their petition (Rollo, p. 25), Atty. Nolasco received a copy of the
Order denying their motion for reconsideration on May 17, 2002, thus, petitioners still has
until May 23, 2002 (the remaining six (6) days) within which to file their appeal. Obviously,
petitioners were not able to file their Notice of Appeal on May 23, 2002 as it was only filed on
June 3, 2002.

In view of the said circumstances, We are of the belief and so holds that the Notice of Appeal
filed by the petitioners was really filed out of time, the same having been filed seventeen (17)
days late of the reglementary period. By reason of which, the decision dated November 28,
2001 had already become final and executory. "Settled is the rule that the perfection of an
appeal in the manner and within the period permitted by law is not only mandatory but
jurisdictional, and failure to perfect that appeal renders the challenged judgment final and
executory. This is not an empty procedural rule but is grounded on fundamental considerations
of public policy and sound practice." (Rams Studio and Photographic Equipment, Inc. vs.
Court of Appeals, 346 SCRA 691, 696). Indeed, Atty. Nolasco received the order of denial of
the Motion for Reconsideration on May 17, 2002 but filed a Notice of Appeal only on June 3,
3003. As such, the decision of the lower court ipso facto became final when no appeal was
perfected after the lapse of the reglementary period. This procedural caveat cannot be trifled
with, not even by the High Court.15
The UP sought a reconsideration, but the CA denied the UPs motion for reconsideration on
April 19, 2004.16
On May 11, 2004, the UP appealed to the Court by petition for review on certiorari (G.R. No.
163501).
On June 23, 2004, the Court denied the petition for review.17 The UP moved for the
reconsideration of the denial of its petition for review on August 29, 2004, 18 but the Court
denied the motion on October 6, 2004.19 The denial became final and executory on November
12, 2004.20
In the meanwhile that the UP was exhausting the available remedies to overturn the denial of
due course to the appeal and the issuance of the writ of execution, Stern Builders and dela
Cruz filed in the RTC their motions for execution despite their previous motion having already
been granted and despite the writ of execution having already issued. On June 11, 2003, the
RTC granted another motion for execution filed on May 9, 2003 (although the RTC had
already issued the writ of execution on October 4, 2002). 21
On June 23, 2003 and July 25, 2003, respectively, the sheriff served notices of garnishment on
the UPs depository banks, namely: Land Bank of the Philippines (Buendia Branch) and the
Development Bank of the Philippines (DBP), Commonwealth Branch. 22 The UP assailed the
garnishment through an urgent motion to quash the notices of garnishment; 23 and a motion to
quash the writ of execution dated May 9, 2003.24
On their part, Stern Builders and dela Cruz filed their ex parte motion for issuance of a release
order.25

On January 12, 2004, Stern Builders and dela Cruz again sought the release of the garnished
funds.28 Despite the UPs opposition,29 the RTC granted the motion to release the garnished
funds on March 16, 2004.30 On April 20, 2004, however, the RTC held in abeyance the
enforcement of the writs of execution issued on October 4, 2002 and June 3, 2003 and all the
ensuing notices of garnishment, citing Section 4, Rule 52, Rules of Court, which provided that
the pendency of a timely motion for reconsideration stayed the execution of the judgment. 31
On December 21, 2004, the RTC, through respondent Judge Agustin S. Dizon, authorized the
release of the garnished funds of the UP,32 to wit:
WHEREFORE, premises considered, there being no more legal impediment for the release of
the garnished amount in satisfaction of the judgment award in the instant case, let the amount
garnished be immediately released by the Development Bank of the Philippines,
Commonwealth Branch, Quezon City in favor of the plaintiff.
SO ORDERED.
The UP was served on January 3, 2005 with the order of December 21, 2004 directing DBP to
release the garnished funds.33
On January 6, 2005, Stern Builders and dela Cruz moved to cite DBP in direct contempt of
court for its non-compliance with the order of release. 34
Thereupon, on January 10, 2005, the UP brought a petition for certiorari in the CA to
challenge the jurisdiction of the RTC in issuing the order of December 21, 2004 (CA-G.R. CV
No. 88125).35 Aside from raising the denial of due process, the UP averred that the RTC
committed grave abuse of discretion amounting to lack or excess of jurisdiction in ruling that
there was no longer any legal impediment to the release of the garnished funds. The UP argued
that government funds and properties could not be seized by virtue of writs of execution or
garnishment, as held in Department of Agriculture v. National Labor Relations
Commission,36 and citing Section 84 of Presidential Decree No. 1445 to the effect that
"revenue funds shall not be paid out of any public treasury or depository except in pursuance
of an appropriation law or other specific statutory authority;" and that the order of garnishment
clashed with the ruling in University of the Philippines Board of Regents v. Ligot-Telan 37 to
the effect that the funds belonging to the UP were public funds.
On January 19, 2005, the CA issued a temporary restraining order (TRO) upon application by
the UP.38

On October 14, 2003, the RTC denied the UPs urgent motion to quash, and granted Stern
Builders and dela Cruzs ex parte motion for issuance of a release order.26

On March 22, 2005, Stern Builders and dela Cruz filed in the RTC their amended motion for
sheriffs assistance to implement the release order dated December 21, 2004, stating that the
60-day period of the TRO of the CA had already lapsed. 39 The UP opposed the amended
motion and countered that the implementation of the release order be suspended. 40

The UP moved for the reconsideration of the order of October 14, 2003, but the RTC denied
the motion on November 7, 2003.27

On May 3, 2005, the RTC granted the amended motion for sheriffs assistance and directed the
sheriff to proceed to the DBP to receive the check in satisfaction of the judgment. 41
The UP sought the reconsideration of the order of May 3, 2005. 42

On May 16, 2005, DBP filed a motion to consign the check representing the judgment award
and to dismiss the motion to cite its officials in contempt of court. 43
On May 23, 2005, the UP presented a motion to withhold the release of the payment of the
judgment award.44
On July 8, 2005, the RTC resolved all the pending matters, 45 noting that the DBP had already
delivered to the sheriff Managers Check No. 811941 for P 16,370,191.74 representing the
garnished funds payable to the order of Stern Builders and dela Cruz as its compliance with
the RTCs order dated December 21, 2004.46 However, the RTC directed in the same order that
Stern Builders and dela Cruz should not encash the check or withdraw its amount pending the
final resolution of the UPs petition for certiorari, to wit: 47
To enable the money represented in the check in question (No. 00008119411) to earn interest
during the pendency of the defendant University of the Philippines application for a writ of
injunction with the Court of Appeals the same may now be deposited by the plaintiff at the
garnishee Bank (Development Bank of the Philippines), the disposition of the amount
represented therein being subject to the final outcome of the case of the University of the
Philippines et al., vs. Hon. Agustin S. Dizon et al., (CA G.R. 88125) before the Court of
Appeals.
Let it be stated herein that the plaintiff is not authorized to encash and withdraw the amount
represented in the check in question and enjoy the same in the fashion of an owner during the
pendency of the case between the parties before the Court of Appeals which may or may not
be resolved in plaintiffs favor.
With the end in view of seeing to it that the check in question is deposited by the plaintiff at
the Development Bank of the Philippines (garnishee bank), Branch Sheriff Herlan Velasco is
directed to accompany and/or escort the plaintiff in making the deposit of the check in
question.
SO ORDERED.
On September 16, 2005, the CA promulgated its assailed decision dismissing the UPs petition
for certiorari, ruling that the UP had been given ample opportunity to contest the motion to
direct the DBP to deposit the check in the name of Stern Builders and dela Cruz; and that the
garnished funds could be the proper subject of garnishment because they had been already
earmarked for the project, with the UP holding the funds only in a fiduciary capacity, 48 viz:
Petitioners next argue that the UP funds may not be seized for execution or garnishment to
satisfy the judgment award. Citing Department of Agriculture vs. NLRC, University of the
Philippines Board of Regents vs. Hon. Ligot-Telan, petitioners contend that UP deposits at
Land Bank and the Development Bank of the Philippines, being government funds, may not
be released absent an appropriations bill from Congress.
The argument is specious. UP entered into a contract with private respondents for the
expansion and renovation of the Arts and Sciences Building of its campus in Los Baos,
Laguna. Decidedly, there was already an appropriations earmarked for the said project. The

said funds are retained by UP, in a fiduciary capacity, pending completion of the construction
project.
We agree with the trial Court [sic] observation on this score:
"4. Executive Order No. 109 (Directing all National Government Agencies
to Revert Certain Accounts Payable to the Cumulative Result of
Operations of the National Government and for Other Purposes) Section 9.
Reversion of Accounts Payable, provides that, all 1995 and prior years
documented accounts payable and all undocumented accounts regardless
of the year they were incurred shall be reverted to the Cumulative Result
of Operations of the National Government (CROU). This shall apply to
accounts payable of all funds, except fiduciary funds, as long as the
purpose for which the funds were created have not been accomplished and
accounts payable under foreign assisted projects for the duration of the
said project. In this regard, the Department of Budget and Management
issued Joint-Circular No. 99-6 4.0 (4.3) Procedural Guidelines which
provides that all accounts payable that reverted to the CROU may be
considered for payment upon determination thru administrative process, of
the existence, validity and legality of the claim. Thus, the allegation of the
defendants that considering no appropriation for the payment of any
amount awarded to plaintiffs appellee the funds of defendant-appellants
may not be seized pursuant to a writ of execution issued by the regular
court is misplaced. Surely when the defendants and the plaintiff entered
into the General Construction of Agreement there is an amount already
allocated by the latter for the said project which is no longer subject of
future appropriation."49
After the CA denied their motion for reconsideration on December 23, 2005, the petitioners
appealed by petition for review.
Matters Arising During the Pendency of the Petition
On January 30, 2006, Judge Dizon of the RTC (Branch 80) denied Stern Builders and dela
Cruzs motion to withdraw the deposit, in consideration of the UPs intention to appeal to the
CA,50 stating:
Since it appears that the defendants are intending to file a petition for review of the Court of
Appeals resolution in CA-G.R. No. 88125 within the reglementary period of fifteen (15) days
from receipt of resolution, the Court agrees with the defendants stand that the granting of
plaintiffs subject motion is premature.
Let it be stated that what the Court meant by its Order dated July 8, 2005 which states in part
that the "disposition of the amount represented therein being subject to the final outcome of
the case of the University of the Philippines, et. al., vs. Hon. Agustin S. Dizon et al., (CA G.R.
No. 88125 before the Court of Appeals) is that the judgment or resolution of said court has to
be final and executory, for if the same will still be elevated to the Supreme Court, it will not
attain finality yet until the highest court has rendered its own final judgment or resolution. 51

However, on January 22, 2007, the UP filed an Urgent Application for A Temporary
Restraining Order and/or A Writ of Preliminary Injunction,52 averring that on January 3, 2007,
Judge Maria Theresa dela Torre-Yadao (who had meanwhile replaced Judge Dizon upon the
latters appointment to the CA) had issued another order allowing Stern Builders and dela
Cruz to withdraw the deposit,53 to wit:
It bears stressing that defendants liability for the payment of the judgment obligation has
become indubitable due to the final and executory nature of the Decision dated November 28,
2001. Insofar as the payment of the [sic] judgment obligation is concerned, the Court believes
that there is nothing more the defendant can do to escape liability. It is observed that there is
nothing more the defendant can do to escape liability. It is observed that defendant U.P.
System had already exhausted all its legal remedies to overturn, set aside or modify the
decision (dated November 28, 2001( rendered against it. The way the Court sees it, defendant
U.P. Systems petition before the Supreme Court concerns only with the manner by which said
judgment award should be satisfied. It has nothing to do with the legality or propriety thereof,
although it prays for the deletion of [sic] reduction of the award of moral damages.
It must be emphasized that this Courts finding, i.e., that there was sufficient appropriation
earmarked for the project, was upheld by the Court of Appeals in its decision dated September
16, 2005. Being a finding of fact, the Supreme Court will, ordinarily, not disturb the same was
said Court is not a trier of fact. Such being the case, defendants arguments that there was no
sufficient appropriation for the payment of the judgment obligation must fail.
While it is true that the former Presiding Judge of this Court in its Order dated January 30,
2006 had stated that:
Let it be stated that what the Court meant by its Order dated July 8, 2005 which states in part
that the "disposition of the amount represented therein being subject to the final outcome of
the case of the University of the Philippines, et. al., vs. Hon. Agustin S. Dizon et al., (CA G.R.
No. 88125 before the Court of Appeals) is that the judgment or resolution of said court has to
be final and executory, for if the same will still be elevated to the Supreme Court, it will not
attain finality yet until the highest court has rendered its own final judgment or resolution.
it should be noted that neither the Court of Appeals nor the Supreme Court issued a
preliminary injunction enjoining the release or withdrawal of the garnished amount. In fact, in
its present petition for review before the Supreme Court, U.P. System has not prayed for the
issuance of a writ of preliminary injunction. Thus, the Court doubts whether such writ is
forthcoming.
The Court honestly believes that if defendants petition assailing the Order of this Court dated
December 31, 2004 granting the motion for the release of the garnished amount was
meritorious, the Court of Appeals would have issued a writ of injunction enjoining the same.
Instead, said appellate court not only refused to issue a wit of preliminary injunction prayed
for by U.P. System but denied the petition, as well. 54
The UP contended that Judge Yadao thereby effectively reversed the January 30, 2006 order of
Judge Dizon disallowing the withdrawal of the garnished amount until after the decision in the
case would have become final and executory.

Although the Court issued a TRO on January 24, 2007 to enjoin Judge Yadao and all persons
acting pursuant to her authority from enforcing her order of January 3, 2007, 55 it appears that
on January 16, 2007, or prior to the issuance of the TRO, she had already directed the DBP to
forthwith release the garnished amount to Stern Builders and dela Cruz; 56 and that DBP had
forthwith complied with the order on January 17, 2007 upon the sheriffs service of the order
of Judge Yadao.57
These intervening developments impelled the UP to file in this Court a supplemental petition
on January 26, 2007,58 alleging that the RTC (Judge Yadao) gravely erred in ordering the
immediate release of the garnished amount despite the pendency of the petition for review in
this Court.
The UP filed a second supplemental petition59 after the RTC (Judge Yadao) denied the UPs
motion for the redeposit of the withdrawn amount on April 10, 2007, 60 to wit:
This resolves defendant U.P. Systems Urgent Motion to Redeposit Judgment Award praying
that plaintiffs be directed to redeposit the judgment award to DBP pursuant to the Temporary
Restraining Order issued by the Supreme Court. Plaintiffs opposed the motion and countered
that the Temporary Restraining Order issued by the Supreme Court has become moot and
academic considering that the act sought to be restrained by it has already been performed.
They also alleged that the redeposit of the judgment award was no longer feasible as they have
already spent the same.
It bears stressing, if only to set the record straight, that this Court did not in its Order dated
January 3, 2007 (the implementation of which was restrained by the Supreme Court in its
Resolution dated January 24, 2002) direct that that garnished amount "be deposited with the
garnishee bank (Development Bank of the Philippines)". In the first place, there was no need
to order DBP to make such deposit, as the garnished amount was already deposited in the
account of plaintiffs with the DBP as early as May 13, 2005. What the Court granted in its
Order dated January 3, 2007 was plaintiffs motion to allow the release of said deposit. It must
be recalled that the Court found plaintiffs motion meritorious and, at that time, there was no
restraining order or preliminary injunction from either the Court of Appeals or the Supreme
Court which could have enjoined the release of plaintiffs deposit. The Court also took into
account the following factors:
a) the Decision in this case had long been final and executory after it was
rendered on November 28, 2001;
b) the propriety of the dismissal of U.P. Systems appeal was upheld by the
Supreme Court;
c) a writ of execution had been issued;
d) defendant U.P. Systems deposit with DBP was garnished pursuant to a
lawful writ of execution issued by the Court; and
e) the garnished amount had already been turned over to the plaintiffs and
deposited in their account with DBP.

The garnished amount, as discussed in the Order dated January 16, 2007, was already owned
by the plaintiffs, having been delivered to them by the Deputy Sheriff of this Court pursuant to
par. (c), Section 9, Rule 39 of the 1997 Rules of Civil Procedure. Moreover, the judgment
obligation has already been fully satisfied as per Report of the Deputy Sheriff.
Anent the Temporary Restraining Order issued by the Supreme Court, the same has become
functus oficio, having been issued after the garnished amount had been released to the
plaintiffs. The judgment debt was released to the plaintiffs on January 17, 2007, while the
Temporary Restraining Order issued by the Supreme Court was received by this Court on
February 2, 2007. At the time of the issuance of the Restraining Order, the act sought to be
restrained had already been done, thereby rendering the said Order ineffectual.
After a careful and thorough study of the arguments advanced by the parties, the Court is of
the considered opinion that there is no legal basis to grant defendant U.P. Systems motion to
redeposit the judgment amount. Granting said motion is not only contrary to law, but it will
also render this Courts final executory judgment nugatory. Litigation must end and terminate
sometime and somewhere, and it is essential to an effective administration of justice that once
a judgment has become final the issue or cause involved therein should be laid to rest. This
doctrine of finality of judgment is grounded on fundamental considerations of public policy
and sound practice. In fact, nothing is more settled in law than that once a judgment attains
finality it thereby becomes immutable and unalterable. It may no longer be modified in any
respect, even if the modification is meant to correct what is perceived to be an erroneous
conclusion of fact or law, and regardless of whether the modification is attempted to be made
by the court rendering it or by the highest court of the land.
WHEREFORE, premises considered, finding defendant U.P. Systems Urgent Motion to
Redeposit Judgment Award devoid of merit, the same is hereby DENIED.
SO ORDERED.
Issues
The UP now submits that:
I
THE COURT OF APPEALS COMMITTED GRAVE ERROR IN DISMISSING THE
PETITION, ALLOWING IN EFFECT THE GARNISHMENT OF UP FUNDS, WHEN IT
RULED THAT FUNDS HAVE ALREADY BEEN EARMARKED FOR THE
CONSTRUCTION PROJECT; AND THUS, THERE IS NO NEED FOR FURTHER
APPROPRIATIONS.
II
THE COURT OF APPEALS COMMITTED GRAVE ERROR IN ALLOWING
GARNISHMENT OF A STATE UNIVERSITYS FUNDS IN VIOLATION OF ARTICLE
XIV, SECTION 5(5) OF THE CONSTITUTION.

III
IN THE ALTERNATIVE, THE UNIVERSITY INVOKES EQUITY AND THE REVIEW
POWERS OF THIS HONORABLE COURT TO MODIFY, IF NOT TOTALLY DELETE
THE AWARD OF P 10 MILLION AS MORAL DAMAGES TO RESPONDENTS.
IV
THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING THE
IMMEDIATE RELEASE OF THE JUDGMENT AWARD IN ITS ORDER DATED 3
JANUARY 2007 ON THE GROUND OF EQUITY AND JUDICIAL COURTESY.
V
THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING THE
IMMEDIATE RELEASE OF THE JUDGMENT AWARD IN ITS ORDER DATED 16
JANUARY 2007 ON THE GROUND THAT PETITIONER UNIVERSITY STILL HAS A
PENDING MOTION FOR RECONSIDERATION OF THE ORDER DATED 3 JANUARY
2007.
VI
THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN NOT ORDERING THE
REDEPOSIT OF THE GARNISHED AMOUNT TO THE DBP IN VIOLATION OF THE
CLEAR LANGUAGE OF THE SUPREME COURT RESOLUTION DATED 24 JANUARY
2007.
The UP argues that the amount earmarked for the construction project had been purposely set
aside only for the aborted project and did not include incidental matters like the awards of
actual damages, moral damages and attorneys fees. In support of its argument, the UP cited
Article 12.2 of the General Construction Agreement, which stipulated that no deductions
would be allowed for the payment of claims, damages, losses and expenses, including
attorneys fees, in case of any litigation arising out of the performance of the work. The UP
insists that the CA decision was inconsistent with the rulings in Commissioner of Public
Highways v. San Diego61 and Department of Agriculture v. NLRC62 to the effect that
government funds and properties could not be seized under writs of execution or garnishment
to satisfy judgment awards.
Furthermore, the UP contends that the CA contravened Section 5, Article XIV of the
Constitution by allowing the garnishment of UP funds, because the garnishment resulted in a
substantial reduction of the UPs limited budget allocated for the remuneration, job
satisfaction and fulfillment of the best available teachers; that Judge Yadao should have
exhibited judicial courtesy towards the Court due to the pendency of the UPs petition for
review; and that she should have also desisted from declaring that the TRO issued by this
Court had become functus officio.

Lastly, the UP states that the awards of actual damages of P 5,716,729.00 and moral damages
of P 10 million should be reduced, if not entirely deleted, due to its being unconscionable,
inequitable and detrimental to public service.
In contrast, Stern Builders and dela Cruz aver that the petition for review was fatally defective
for its failure to mention the other cases upon the same issues pending between the parties
(i.e., CA-G.R. No. 77395 and G.R No. 163501); that the UP was evidently resorting to forum
shopping, and to delaying the satisfaction of the final judgment by the filing of its petition for
review; that the ruling in Commissioner of Public Works v. San Diego had no application
because there was an appropriation for the project; that the UP retained the funds allotted for
the project only in a fiduciary capacity; that the contract price had been meanwhile adjusted
to P 22,338,553.25, an amount already more than sufficient to cover the judgment award; that
the UPs prayer to reduce or delete the award of damages had no factual basis, because they
had been gravely wronged, had been deprived of their source of income, and had suffered
untold miseries, discomfort, humiliation and sleepless years; that dela Cruz had even been
constrained to sell his house, his equipment and the implements of his trade, and together with
his family had been forced to live miserably because of the wrongful actuations of the UP; and
that the RTC correctly declared the Courts TRO to be already functus officio by reason of the
withdrawal of the garnished amount from the DBP.
The decisive issues to be considered and passed upon are, therefore:
(a) whether the funds of the UP were the proper subject of garnishment in order to satisfy the
judgment award; and (b) whether the UPs prayer for the deletion of the awards of actual
damages of P 5,716,729.00, moral damages of P 10,000,000.00 and attorneys fees
of P 150,000.00 plus P 1,500.00 per appearance could be granted despite the finality of the
judgment of the RTC.
Ruling
The petition for review is meritorious.
I.
UPs funds, being government funds,
are not subject to garnishment
The UP was founded on June 18, 1908 through Act 1870 to provide advanced instruction in
literature, philosophy, the sciences, and arts, and to give professional and technical training to
deserving students.63 Despite its establishment as a body corporate, 64 the UP remains to be a
"chartered institution"65 performing a legitimate government function. It is an institution of
higher learning, not a corporation established for profit and declaring any dividends. 66 In
enacting Republic Act No. 9500 (The University of the Philippines Charter of 2008), Congress
has declared the UP as the national university67 "dedicated to the search for truth and
knowledge as well as the development of future leaders."68
69

Irrefragably, the UP is a government instrumentality, performing the States constitutional

mandate of promoting quality and accessible education. 70 As a government instrumentality, the
UP administers special funds sourced from the fees and income enumerated under Act No.
1870 and Section 1 of Executive Order No. 714,71 and from the yearly appropriations, to

achieve the purposes laid down by Section 2 of Act 1870, as expanded in Republic Act No.
9500.72 All the funds going into the possession of the UP, including any interest accruing from
the deposit of such funds in any banking institution, constitute a "special trust fund," the
disbursement of which should always be aligned with the UPs mission and purpose, 73 and
should always be subject to auditing by the COA.74
Presidential Decree No. 1445 defines a "trust fund" as a fund that officially comes in the
possession of an agency of the government or of a public officer as trustee, agent or
administrator, or that is received for the fulfillment of some obligation. 75 A trust fund may be
utilized only for the "specific purpose for which the trust was created or the funds received." 76
The funds of the UP are government funds that are public in character. They include the
income accruing from the use of real property ceded to the UP that may be spent only for the
attainment of its institutional objectives. 77Hence, the funds subject of this action could not be
validly made the subject of the RTCs writ of execution or garnishment. The adverse judgment
rendered against the UP in a suit to which it had impliedly consented was not immediately
enforceable by execution against the UP,78 because suability of the State did not necessarily
mean its liability.79
A marked distinction exists between suability of the State and its liability. As the Court
succinctly stated in Municipality of San Fernando, La Union v. Firme: 80
A distinction should first be made between suability and liability. "Suability depends on the
consent of the state to be sued, liability on the applicable law and the established facts. The
circumstance that a state is suable does not necessarily mean that it is liable; on the other hand,
it can never be held liable if it does not first consent to be sued. Liability is not conceded by
the mere fact that the state has allowed itself to be sued. When the state does waive its
sovereign immunity, it is only giving the plaintiff the chance to prove, if it can, that the
defendant is liable.
Also, in Republic v. Villasor,81 where the issuance of an alias writ of execution directed against
the funds of the Armed Forces of the Philippines to satisfy a final and executory judgment was
nullified, the Court said:
xxx The universal rule that where the State gives its consent to be sued by private parties
either by general or special law, it may limit claimants action "only up to the completion of
proceedings anterior to the stage of execution" and that the power of the Courts ends when the
judgment is rendered, since government funds and properties may not be seized under writs of
execution or garnishment to satisfy such judgments, is based on obvious considerations of
public policy. Disbursements of public funds must be covered by the corresponding
appropriation as required by law. The functions and public services rendered by the State
cannot be allowed to be paralyzed or disrupted by the diversion of public funds from their
legitimate and specific objects, as appropriated by law.
The UP correctly submits here that the garnishment of its funds to satisfy the judgment awards
of actual and moral damages (including attorneys fees) was not validly made if there was no
special appropriation by Congress to cover the liability. It was, therefore, legally unwarranted
for the CA to agree with the RTCs holding in the order issued on April 1, 2003 that no
appropriation by Congress to allocate and set aside the payment of the judgment awards was

necessary because "there (were) already an appropriations (sic) earmarked for the said
project."82The CA and the RTC thereby unjustifiably ignored the legal restriction imposed on
the trust funds of the Government and its agencies and instrumentalities to be used exclusively
to fulfill the purposes for which the trusts were created or for which the funds were received
except upon express authorization by Congress or by the head of a government agency in
control of the funds, and subject to pertinent budgetary laws, rules and regulations. 83
Indeed, an appropriation by Congress was required before the judgment that rendered the UP
liable for moral and actual damages (including attorneys fees) would be satisfied considering
that such monetary liabilities were not covered by the "appropriations earmarked for the said
project." The Constitution strictly mandated that "(n)o money shall be paid out of the Treasury
except in pursuance of an appropriation made by law."84
II
COA must adjudicate private respondents claim
before execution should proceed
The execution of the monetary judgment against the UP was within the primary jurisdiction of
the COA. This was expressly provided in Section 26 of Presidential Decree No. 1445, to wit:
Section 26. General jurisdiction. - The authority and powers of the Commission shall extend
to and comprehend all matters relating to auditing procedures, systems and controls, the
keeping of the general accounts of the Government, the preservation of vouchers pertaining
thereto for a period of ten years, the examination and inspection of the books, records, and
papers relating to those accounts; and the audit and settlement of the accounts of all persons
respecting funds or property received or held by them in an accountable capacity, as well as
the examination, audit, and settlement of all debts and claims of any sort due from or owing to
the Government or any of its subdivisions, agencies and instrumentalities. The said
jurisdiction extends to all government-owned or controlled corporations, including their
subsidiaries, and other self-governing boards, commissions, or agencies of the Government,
and as herein prescribed, including non governmental entities subsidized by the government,
those funded by donations through the government, those required to pay levies or government
share, and those for which the government has put up a counterpart fund or those partly
funded by the government.
It was of no moment that a final and executory decision already validated the claim against the
UP. The settlement of the monetary claim was still subject to the primary jurisdiction of the
COA despite the final decision of the RTC having already validated the claim. 85 As such, Stern
Builders and dela Cruz as the claimants had no alternative except to first seek the approval of
the COA of their monetary claim.
On its part, the RTC should have exercised utmost caution, prudence and judiciousness in
dealing with the motions for execution against the UP and the garnishment of the UPs funds.
The RTC had no authority to direct the immediate withdrawal of any portion of the garnished
funds from the depository banks of the UP. By eschewing utmost caution, prudence and
judiciousness in dealing with the execution and garnishment, and by authorizing the
withdrawal of the garnished funds of the UP, the RTC acted beyond its jurisdiction, and all its
orders and issuances thereon were void and of no legal effect, specifically: (a) the order Judge
Yadao issued on January 3, 2007 allowing Stern Builders and dela Cruz to withdraw the

deposited garnished amount; (b) the order Judge Yadao issued on January 16, 2007 directing
DBP to forthwith release the garnish amount to Stern Builders and dela Cruz; (c) the sheriffs
report of January 17, 2007 manifesting the full satisfaction of the writ of execution; and (d) the
order of April 10, 2007 deying the UPs motion for the redeposit of the withdrawn amount.
Hence, such orders and issuances should be struck down without exception.
Nothing extenuated Judge Yadaos successive violations of Presidential Decree No. 1445. She
was aware of Presidential Decree No. 1445, considering that the Court circulated to all judges
its Administrative Circular No. 10-2000,86 issued on October 25, 2000, enjoining them "to
observe utmost caution, prudence and judiciousness in the issuance of writs of execution to
satisfy money judgments against government agencies and local government units" precisely
in order to prevent the circumvention of Presidential Decree No. 1445, as well as of the rules
and procedures of the COA, to wit:
In order to prevent possible circumvention of the rules and procedures of the
Commission on Audit, judges are hereby enjoined to observe utmost caution, prudence
and judiciousness in the issuance of writs of execution to satisfy money judgments
against government agencies and local government units.
Judges should bear in mind that in Commissioner of Public Highways v. San Diego (31 SCRA
617, 625 1970), this Court explicitly stated:
"The universal rule that where the State gives its consent to be sued by private parties either by
general or special law, it may limit claimants action only up to the completion of proceedings
anterior to the stage of execution and that the power of the Court ends when the judgment is
rendered, since government funds and properties may not be seized under writs of execution
or garnishment to satisfy such judgments, is based on obvious considerations of public policy.
Disbursements of public funds must be covered by the corresponding appropriation as
required by law. The functions and public services rendered by the State cannot be allowed to
be paralyzed or disrupted by the diversion of public funds from their legitimate and specific
objects, as appropriated by law.
Moreover, it is settled jurisprudence that upon determination of State liability, the
prosecution, enforcement or satisfaction thereof must still be pursued in accordance with
the rules and procedures laid down in P.D. No. 1445, otherwise known as the
Government Auditing Code of the Philippines (Department of Agriculture v. NLRC, 227
SCRA 693, 701-02 1993 citing Republic vs. Villasor, 54 SCRA 84 1973). All money claims
against the Government must first be filed with the Commission on Audit which must act
upon it within sixty days. Rejection of the claim will authorize the claimant to elevate the
matter to the Supreme Court on certiorari and in effect, sue the State thereby (P.D. 1445,
Sections 49-50).
However, notwithstanding the rule that government properties are not subject to levy and
execution unless otherwise provided for by statute (Republic v. Palacio, 23 SCRA 899 1968;
Commissioner of Public Highways v. San Diego, supra) or municipal ordinance (Municipality
of Makati v. Court of Appeals, 190 SCRA 206 1990), the Court has, in various instances,
distinguished between government funds and properties for public use and those not held for
public use. Thus, in Viuda de Tan Toco v. Municipal Council of Iloilo (49 Phil 52 1926, the
Court ruled that "where property of a municipal or other public corporation is sought to be

subjected to execution to satisfy judgments recovered against such corporation, the question as
to whether such property is leviable or not is to be determined by the usage and purposes for
which it is held." The following can be culled from Viuda de Tan Toco v. Municipal Council of
Iloilo:
1. Properties held for public uses and generally everything held for governmental
purposes are not subject to levy and sale under execution against such corporation. The
same rule applies to funds in the hands of a public officer and taxes due to a municipal
corporation.
2. Where a municipal corporation owns in its proprietary capacity, as distinguished from its
public or government capacity, property not used or used for a public purpose but for quasiprivate purposes, it is the general rule that such property may be seized and sold under
execution against the corporation.
3. Property held for public purposes is not subject to execution merely because it is
temporarily used for private purposes. If the public use is wholly abandoned, such property
becomes subject to execution.
This Administrative Circular shall take effect immediately and the Court Administrator shall
see to it that it is faithfully implemented.
Although Judge Yadao pointed out that neither the CA nor the Court had issued as of then any
writ of preliminary injunction to enjoin the release or withdrawal of the garnished amount, she
did not need any writ of injunction from a superior court to compel her obedience to the law.
The Court is disturbed that an experienced judge like her should look at public laws like
Presidential Decree No. 1445 dismissively instead of loyally following and unquestioningly
implementing them. That she did so turned her court into an oppressive bastion of mindless
tyranny instead of having it as a true haven for the seekers of justice like the UP.
III
Period of appeal did not start without effective
service of decision upon counsel of record;
Fresh-period rule announced in
Neypes v. Court of Appeals
can be given retroactive application
The UP next pleads that the Court gives due course to its petition for review in the name of
equity in order to reverse or modify the adverse judgment against it despite its finality. At
stake in the UPs plea for equity was the return of the amount of P 16,370,191.74 illegally
garnished from its trust funds. Obstructing the plea is the finality of the judgment based on the
supposed tardiness of UPs appeal, which the RTC declared on September 26, 2002. The CA
upheld the declaration of finality on February 24, 2004, and the Court itself denied the UPs
petition for review on that issue on May 11, 2004 (G.R. No. 163501). The denial became final
on November 12, 2004.
It is true that a decision that has attained finality becomes immutable and unalterable, and
cannot be modified in any respect,87 even if the modification is meant to correct erroneous
conclusions of fact and law, and whether the modification is made by the court that rendered it

or by this Court as the highest court of the land.88 Public policy dictates that once a judgment
becomes final, executory and unappealable, the prevailing party should not be deprived of the
fruits of victory by some subterfuge devised by the losing party. Unjustified delay in the
enforcement of such judgment sets at naught the role and purpose of the courts to resolve
justiciable controversies with finality.89 Indeed, all litigations must at some time end, even at
the risk of occasional errors.
But the doctrine of immutability of a final judgment has not been absolute, and has admitted
several exceptions, among them: (a) the correction of clerical errors; (b) the so-called nunc pro
tunc entries that cause no prejudice to any party; (c) void judgments; and (d) whenever
circumstances transpire after the finality of the decision that render its execution unjust and
inequitable.90 Moreover, in Heirs of Maura So v. Obliosca,91 we stated that despite the absence
of the preceding circumstances, the Court is not precluded from brushing aside procedural
norms if only to serve the higher interests of justice and equity. Also, in Gumaru v. Quirino
State College,92 the Court nullified the proceedings and the writ of execution issued by the
RTC for the reason that respondent state college had not been represented in the litigation by
the Office of the Solicitor General.
We rule that the UPs plea for equity warrants the Courts exercise of the exceptional power to
disregard the declaration of finality of the judgment of the RTC for being in clear violation of
the UPs right to due process.
Both the CA and the RTC found the filing on June 3, 2002 by the UP of the notice of appeal to
be tardy. They based their finding on the fact that only six days remained of the UPs
reglementary 15-day period within which to file the notice of appeal because the UP had filed
a motion for reconsideration on January 16, 2002 vis--vis the RTCs decision the UP received
on January 7, 2002; and that because the denial of the motion for reconsideration had been
served upon Atty. Felimon D. Nolasco of the UPLB Legal Office on May 17, 2002, the UP
had only until May 23, 2002 within which to file the notice of appeal.
The UP counters that the service of the denial of the motion for reconsideration upon Atty.
Nolasco was defective considering that its counsel of record was not Atty. Nolasco of the
UPLB Legal Office but the OLS in Diliman, Quezon City; and that the period of appeal
should be reckoned from May 31, 2002, the date when the OLS received the order. The UP
submits that the filing of the notice of appeal on June 3, 2002 was well within the
reglementary period to appeal.
We agree with the submission of the UP.
Firstly, the service of the denial of the motion for reconsideration upon Atty. Nolasco of the
UPLB Legal Office was invalid and ineffectual because he was admittedly not the counsel of
record of the UP. The rule is that it is on the counsel and not the client that the service should
be made.93
That counsel was the OLS in Diliman, Quezon City, which was served with the denial only on
May 31, 2002. As such, the running of the remaining period of six days resumed only on June
1, 2002,94 rendering the filing of the UPs notice of appeal on June 3, 2002 timely and well
within the remaining days of the UPs period to appeal.

Verily, the service of the denial of the motion for reconsideration could only be validly made
upon the OLS in Diliman, and no other. The fact that Atty. Nolasco was in the employ of the
UP at the UPLB Legal Office did not render the service upon him effective. It is settled that
where a party has appeared by counsel, service must be made upon such counsel. 95 Service on
the party or the partys employee is not effective because such notice is not notice in
law.96 This is clear enough from Section 2, second paragraph, of Rule 13, Rules of Court,
which explicitly states that: "If any party has appeared by counsel, service upon him shall be
made upon his counsel or one of them, unless service upon the party himself is ordered by the
court. Where one counsel appears for several parties, he shall only be entitled to one copy of
any paper served upon him by the opposite side." As such, the period to appeal resumed only
on June 1, 2002, the date following the service on May 31, 2002 upon the OLS in Diliman of
the copy of the decision of the RTC, not from the date when the UP was notified. 97
Accordingly, the declaration of finality of the judgment of the RTC, being devoid of factual
and legal bases, is set aside.
Secondly, even assuming that the service upon Atty. Nolasco was valid and effective, such that
the remaining period for the UP to take a timely appeal would end by May 23, 2002, it would
still not be correct to find that the judgment of the RTC became final and immutable thereafter
due to the notice of appeal being filed too late on June 3, 2002.
In so declaring the judgment of the RTC as final against the UP, the CA and the RTC applied
the rule contained in the second paragraph of Section 3, Rule 41 of the Rules of Court to the
effect that the filing of a motion for reconsideration interrupted the running of the period for
filing the appeal; and that the period resumed upon notice of the denial of the motion for
reconsideration. For that reason, the CA and the RTC might not be taken to task for strictly
adhering to the rule then prevailing.
However, equity calls for the retroactive application in the UPs favor of the fresh-period rule
that the Court first announced in mid-September of 2005 through its ruling in Neypes v. Court
of Appeals,98 viz:
To standardize the appeal periods provided in the Rules and to afford litigants fair opportunity
to appeal their cases, the Court deems it practical to allow a fresh period of 15 days within
which to file the notice of appeal in the Regional Trial Court, counted from receipt of the order
dismissing a motion for a new trial or motion for reconsideration.
The retroactive application of the fresh-period rule, a procedural law that aims "to regiment or
make the appeal period uniform, to be counted from receipt of the order denying the motion
for new trial, motion for reconsideration (whether full or partial) or any final order or
resolution,"99 is impervious to any serious challenge. This is because there are no vested rights
in rules of procedure.100 A law or regulation is procedural when it prescribes rules and forms of
procedure in order that courts may be able to administer justice. 101 It does not come within the
legal conception of a retroactive law, or is not subject of the general rule prohibiting the
retroactive operation of statues, but is given retroactive effect in actions pending and
undetermined at the time of its passage without violating any right of a person who may feel
that he is adversely affected.

We have further said that a procedural rule that is amended for the benefit of litigants in
furtherance of the administration of justice shall be retroactively applied to likewise favor
actions then pending, as equity delights in equality.102 We may even relax stringent procedural
rules in order to serve substantial justice and in the exercise of this Courts equity
jurisdiction.103 Equity jurisdiction aims to do complete justice in cases where a court of law is
unable to adapt its judgments to the special circumstances of a case because of the inflexibility
of its statutory or legal jurisdiction.104
It is cogent to add in this regard that to deny the benefit of the fresh-period rule to the UP
would amount to injustice and absurdity injustice, because the judgment in question was
issued on November 28, 2001 as compared to the judgment in Neypes that was rendered in
1998; absurdity, because parties receiving notices of judgment and final orders issued in the
year 1998 would enjoy the benefit of the fresh-period rule but the later rulings of the lower
courts like that herein would not.105
Consequently, even if the reckoning started from May 17, 2002, when Atty. Nolasco received
the denial, the UPs filing on June 3, 2002 of the notice of appeal was not tardy within the
context of the fresh-period rule. For the UP, the fresh period of 15-days counted from service
of the denial of the motion for reconsideration would end on June 1, 2002, which was a
Saturday. Hence, the UP had until the next working day, or June 3, 2002, a Monday, within
which to appeal, conformably with Section 1 of Rule 22, Rules of Court, which holds that: "If
the last day of the period, as thus computed, falls on a Saturday, a Sunday, or a legal holiday in
the place where the court sits, the time shall not run until the next working day."
IV
Awards of monetary damages,
being devoid of factual and legal bases,
did not attain finality and should be deleted
Section 14 of Article VIII of the Constitution prescribes that express findings of fact and of
law should be made in the decision rendered by any court, to wit:
Section 14. No decision shall be rendered by any court without expressing therein clearly and
distinctly the facts and the law on which it is based.
No petition for review or motion for reconsideration of a decision of the court shall be refused
due course or denied without stating the legal basis therefor.
Implementing the constitutional provision in civil actions is Section 1 of Rule 36, Rules of
Court, viz:
Section 1. Rendition of judgments and final orders. A judgment or final order determining
the merits of the case shall be in writing personally and directly prepared by the judge, stating
clearly and distinctly the facts and the law on which it is based, signed by him, and filed with
the clerk of the court. (1a)
The Constitution and the Rules of Court apparently delineate two main essential parts of a
judgment, namely: the body and the decretal portion. Although the latter is the controlling

part,106 the importance of the former is not to be lightly regarded because it is there where the
court clearly and distinctly states its findings of fact and of law on which the decision is based.
To state it differently, one without the other is ineffectual and useless. The omission of either
inevitably results in a judgment that violates the letter and the spirit of the Constitution and the
Rules of Court.
The term findings of fact that must be found in the body of the decision refers to statements of
fact, not to conclusions of law.107 Unlike in pleadings where ultimate facts alone need to be
stated, the Constitution and the Rules of Court require not only that a decision should state the
ultimate facts but also that it should specify the supporting evidentiary facts, for they are what
are called the findings of fact.
The importance of the findings of fact and of law cannot be overstated. The reason and
purpose of the Constitution and the Rules of Court in that regard are obviously to inform the
parties why they win or lose, and what their rights and obligations are. Only thereby is the
demand of due process met as to the parties. As Justice Isagani A. Cruz explained in Nicos
Industrial Corporation v. Court of Appeals:108
It is a requirement of due process that the parties to a litigation be informed of how it was
decided, with an explanation of the factual and legal reasons that led to the conclusions of the
court. The court cannot simply say that judgment is rendered in favor of X and against Y and
just leave it at that without any justification whatsoever for its action. The losing party is
entitled to know why he lost, so he may appeal to a higher court, if permitted, should he
believe that the decision should be reversed. A decision that does not clearly and distinctly
state the facts and the law on which it is based leaves the parties in the dark as to how it was
reached and is especially prejudicial to the losing party, who is unable to pinpoint the possible
errors of the court for review by a higher tribunal.
Here, the decision of the RTC justified the grant of actual and moral damages, and attorneys
fees in the following terse manner, viz:
xxx The Court is not unmindful that due to defendants unjustified refusal to pay their
outstanding obligation to plaintiff, the same suffered losses and incurred expenses as he was
forced to re-mortgage his house and lot located in Quezon City to Metrobank (Exh. "CC") and
BPI Bank just to pay its monetary obligations in the form of interest and penalties incurred in
the course of the construction of the subject project. 109
The statement that "due to defendants unjustified refusal to pay their outstanding obligation to
plaintiff, the same suffered losses and incurred expenses as he was forced to re-mortgage his
house and lot located in Quezon City to Metrobank (Exh. "CC") and BPI Bank just to pay its
monetary obligations in the form of interest and penalties incurred in the course of the
construction of the subject project" was only a conclusion of fact and law that did not comply
with the constitutional and statutory prescription. The statement specified no detailed expenses
or losses constituting the P 5,716,729.00 actual damages sustained by Stern Builders in
relation to the construction project or to other pecuniary hardships. The omission of such
expenses or losses directly indicated that Stern Builders did not prove them at all, which then
contravened Article 2199, Civil Code, the statutory basis for the award of actual damages,
which entitled a person to an adequate compensation only for such pecuniary loss suffered by
him as he has duly proved. As such, the actual damages allowed by the RTC, being bereft of

factual support, were speculative and whimsical. Without the clear and distinct findings of fact
and law, the award amounted only to an ipse dixit on the part of the RTC, 110 and did not attain
finality.
There was also no clear and distinct statement of the factual and legal support for the award of
moral damages in the substantial amount of P 10,000,000.00. The award was thus also
speculative and whimsical. Like the actual damages, the moral damages constituted another
judicial ipse dixit, the inevitable consequence of which was to render the award of moral
damages incapable of attaining finality. In addition, the grant of moral damages in that manner
contravened the law that permitted the recovery of moral damages as the means to assuage
"physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and similar injury."111 The contravention of the law
was manifest considering that Stern Builders, as an artificial person, was incapable of
experiencing pain and moral sufferings.112 Assuming that in granting the substantial amount
of P 10,000,000.00 as moral damages, the RTC might have had in mind that dela Cruz had
himself suffered mental anguish and anxiety. If that was the case, then the RTC obviously
disregarded his separate and distinct personality from that of Stern Builders. 113 Moreover, his
moral and emotional sufferings as the President of Stern Builders were not the sufferings of
Stern Builders. Lastly, the RTC violated the basic principle that moral damages were not
intended to enrich the plaintiff at the expense of the defendant, but to restore the plaintiff to his
status quo ante as much as possible. Taken together, therefore, all these considerations exposed
the substantial amount of P 10,000,000.00 allowed as moral damages not only to be factually
baseless and legally indefensible, but also to be unconscionable, inequitable and unreasonable.
Like the actual and moral damages, the P 150,000.00, plus P 1,500.00 per appearance, granted
as attorneys fees were factually unwarranted and devoid of legal basis. The general rule is that
a successful litigant cannot recover attorneys fees as part of the damages to be assessed
against the losing party because of the policy that no premium should be placed on the right to
litigate.114 Prior to the effectivity of the present Civil Code, indeed, such fees could be
recovered only when there was a stipulation to that effect. It was only under the present Civil
Code that the right to collect attorneys fees in the cases mentioned in Article 2208 115 of the
Civil Code came to be recognized.116 Nonetheless, with attorneys fees being allowed in the
concept of actual damages,117 their amounts must be factually and legally justified in the body
of the decision and not stated for the first time in the decretal portion. 118 Stating the amounts
only in the dispositive portion of the judgment is not enough;119 a rendition of the factual and
legal justifications for them must also be laid out in the body of the decision. 120
That the attorneys fees granted to the private respondents did not satisfy the foregoing
requirement suffices for the Court to undo them.121 The grant was ineffectual for being
contrary to law and public policy, it being clear that the express findings of fact and law were
intended to bring the case within the exception and thereby justify the award of the attorneys
fees. Devoid of such express findings, the award was a conclusion without a premise, its basis
being improperly left to speculation and conjecture. 122
Nonetheless, the absence of findings of fact and of any statement of the law and jurisprudence
on which the awards of actual and moral damages, as well as of attorneys fees, were based
was a fatal flaw that invalidated the decision of the RTC only as to such awards. As the Court
declared in Velarde v. Social Justice Society,123 the failure to comply with the constitutional
requirement for a clear and distinct statement of the supporting facts and law "is a grave abuse
of discretion amounting to lack or excess of jurisdiction" and that "(d)ecisions or orders issued

in careless disregard of the constitutional mandate are a patent nullity and must be struck
down as void."124 The other item granted by the RTC (i.e., P 503,462.74) shall stand, subject to
the action of the COA as stated herein.

In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement (Exh. A) whereby Viva
gave ABS-CBN an exclusive right to exhibit some Viva films. Sometime in December 1991,
in accordance with paragraph 2.4 [sic] of said agreement stating that-

WHEREFORE, the Court GRANTS the petition for review on

certiorari; REVERSES and SETS ASIDE the decision of the Court of Appeals under
review; ANNULS the orders for the garnishment of the funds of the University of the
Philippines and for the release of the garnished amount to Stern Builders Corporation and
Servillano dela Cruz; and DELETES from the decision of the Regional Trial Court dated
November 28, 2001 for being void only the awards of actual damages of P 5,716,729.00,
moral damages of P 10,000,000.00, and attorney's fees of P150,000.00, plus P 1,500.00 per
appearance, in favor of Stern Builders Corporation and Servillano dela Cruz.

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for
TV telecast under such terms as may be agreed upon by the parties hereto, provided, however,
that such right shall be exercised by ABS-CBN from the actual offer in writing.

The Court ORDERS Stem Builders Corporation and Servillano dela Cruz to redeposit the
amount of P16,370,191.74 within 10 days from receipt of this decision.
Costs of suit to be paid by the private respondents.

Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo
Santos-Concio, a list of three (3) film packages (36 title) from which ABS-CBN may exercise
its right of first refusal under the afore-said agreement (Exhs. 1 par. 2, 2, 2-A and 2-B
Viva). ABS-CBN, however through Mrs. Concio, can tick off only ten (10) titles (from the
list) we can purchase (Exh. 3 Viva) and therefore did not accept said list (TSN, June 8, 1992,
pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the case at bar except the
film Maging Sino Ka Man.
For further enlightenment, this rejection letter dated January 06, 1992 (Exh 3 Viva) is hereby
quoted:

SO ORDERED.
6 January 1992
Dear Vic,
FIRST DIVISION
This is not a very formal business letter I am writing to you as I would like to express my
difficulty in recommending the purchase of the three film packages you are offering ABSCBN.
[G.R. No. 128690. January 21, 1999]

ABS-CBN BROADCASTING CORPORATION, petitioners, vs. HONORABLE COURT

OF
APPEALS,
REPUBLIC
BROADCASTING
CORP.,
VIVA
PRODUCTIONS, INC., and VICENTE DEL ROSARIO, respondents.
DECISION
DAVIDE, JR., C.J.:
In this petition for review on certiorari, petitioners ABS-CBN Broadcasting Corp.
(hereinafter ABS-CBN) seeks to reverse and set aside the decision [1] of 31 October 1996 and
the resolution[2] of 10 March 1997 of the Court of Appeals in CA-G.R. CV No. 44125. The
former affirmed with modification the decision[3] of 28 April 1993 of the Regional Trial Court
(RTC) of Quezon City, Branch 80, in Civil Case No. Q-12309. The latter denied the motion to
reconsider the decision of 31 October 1996.
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as
follows:

From among the three packages I can only tick off 10 titles we can purchase. Please see
attached. I hope you will understand my position. Most of the action pictures in the list do not
have big action stars in the cast. They are not for primetime. In line with this I wish to mention
that I have not scheduled for telecast several action pictures in our very first contract because
of the cheap production value of these movies as well as the lack of big action stars. As a film
producer, I am sure you understand what I am trying to say as Viva produces only big action
pictures.
In fact, I would like to request two (2) additional runs for these movies as I can only schedule
them in out non-primetime slots. We have to cover the amount that was paid for these movies
because as you very well know that non-primetime advertising rates are very low. These are
the unaired titles in the first contract.
1. Kontra Persa [sic]
2. Raider Platoon
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. lady Commando
7. Batang Matadero
8. Rebelyon

I hope you will consider this request of mine.

The other dramatic films have been offered to us before and have been rejected because of the
ruling of MTRCB to have them aired at 9:00 p.m. due to their very adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the
other Viva movies produced last year, I have quite an attractive offer to make.
Thanking you and with my warmest regards.
(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms. Concio, with a list
consisting of 52 original movie titles (i.e., not yet aired on television) including the 14 titles
subject of the present case, as well as 104 re-runs (previously aired on television) from which
ABS-CBN may choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN
airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of
which P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots (Exh. 4 to
4-C Viva; 9 Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBNs general manager, Eugenio Lopez III,
met at the Tamarind Grill Restaurant in Quezon City to discuss the package proposal of
VIVA. What transpired in that lunch meeting is the subject of conflicting versions. Mr. Lopez
testified that he and Mr. Del Rosario allegedly agreed that ABS-CBN was granted exclusive
film rights to fourteen (14) films for a total consideration of P36 million; that he allegedly put
this agreement as to the price and number of films in a napkin and signed it and gave it to Mr.
Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992).On the other hand. Del Rosario
denied having made any agreement with Lopez regarding the 14 Viva films; denied the
existence of a napkin in which Lopez wrote something; and insisted that what he and Lopez
discussed at the lunch meeting was Vivas film package offer of 104 films (52 originals and 52
re-runs) for a total price of P60 million. Mr. Lopez promising [sic]to make a counter proposal
which came in the form of a proposal contract Annex C of the complaint (Exh. 1 Viva; Exh C
ABS-CBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for
Finance discussed the terms and conditions of Vivas offer to sell the 104 films, after the
rejection of the same package by ABS-CBN.
On April 07, 1992, defendant Del Rosario received through his secretary , a handwritten note
from Ms. Concio, (Exh. 5 Viva), which reads: Heres the draft of the contract. I hope you find
everything in order, to which was attached a draft exhibition agreement (Exh. C ABS-CBN;
Exh. 9 Viva p. 3) a counter-proposal covering 53 films, 52 of which came from the list sent by
defendant Del Rosario and one film was added by Ms. Concio, for a consideration of P35
million. Exhibit C provides that ABS-CBN is granted film rights to 53 films and contains a
right of first refusal to 1992 Viva Films. The said counter proposal was however rejected by
Vivas Board of Directors [in the] evening of the same day, April 7, 1992, as Viva would not
sell anything less than the package of 104 films for P60 million pesos (Exh. 9 Viva), and such
rejection was relayed to Ms. Concio.

On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and
meetings defendant Del Rosario and Vivas President Teresita Cruz, in consideration of P60
million, signed a letter of agreement dated April 24, 1992, granting RBS the exclusive right to
air 104 Viva-produced and/or acquired films (Exh. 7-A - RBS; Exh. 4 RBS) including the
fourteen (14) films subject of the present case. [4]
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance
with a prayer for a writ of preliminary injunction and/or temporary restraining order against
private respondents Republic Broadcasting Corporation [5] (hereafter RBS), Viva Production
(hereafter VIVA), and Vicente del Rosario. The complaint was docketed as Civil Case No. Q92-12309.
On 28 May 1992, the RTC issued a temporary restraining order [6] enjoining private
respondents from proceeding with the airing, broadcasting, and televising of the fourteen
VIVA films subject of the controversy, starting with the film Maging Sino Ka Man, which was
scheduled to be shown on private respondent RBS channel 7 at seven oclock in the evening of
said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an order [7] directing the
issuance of a writ of preliminary injunction upon ABS-CBNs posting of a P35 million
bond. ABS-CBN moved for the reduction of the bond, [8] while private respondents moved for
reconsideration of the order and offered to put up a counterbond. [9]
In the meantime, private respondents filed separate answer with counterclaim. [10] RBS
also set up a cross-claim against VIVA.
On 3 August 1992, the RTC issued an order [11] dissolving the writ of preliminary
injunction upon the posting by RBS of a P30 million counterbond to answer for whatever
damages ABS-CBN might suffer by virtue of such dissolution. However, it reduced petitioners
injunction bond to P15 million as a condition precedent for the reinstatement of the writ of
preliminary injunction should private respondents be unable to post a counterbond.
At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the court, agreed to
explore the possibility of an amicable settlement. In the meantime, RBS prayed for and was
granted reasonable time within which to put up a P30 million counterbond in the event that no
settlement would be reached.
As the parties failed to enter into an amicable settlement, RBS posted on 1 October 1992
a counterbond, which the RTC approved in its Order of 15 October 1992. [13]
On 19 October 1992, ABS-CBN filed a motion for reconsideration [14] of the 3 August
and 15 October 1992 Orders, which RBS opposed.[15]
On 29 October, the RTC conducted a pre-trial.[16]
Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of
Appeals a petition[17] challenging the RTCs Order of 3 August and 15 October 1992 and
praying for the issuance of a writ of preliminary injunction to enjoin the RTC from enforcing
said orders. The case was docketed as CA-G.R. SP No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary restraining order [18] to
enjoin the airing, broadcasting, and televising of any or all of the films involved in the
controversy.

On 18 December 1992, the Court of Appeals promulgated a decision [19] dismissing the
petition in CA-G.R. SP No. 29300 for being premature. ABS-CBN challenged the dismissal in
a petition for review filed with this Court on 19 January 1993, which was docketed s G.R. No.
108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-9212309. Thereafter, on 28 April 1993, it rendered a decision [20] in favor of RBS and VIVA and
against ABS-CBN disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is
rendered in favor of defendants and against the plaintiff.
(1) The complaint is hereby dismissed;
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00 the amount of premium paid by RBS to the surety which
issued defendants RBSs bond to lift the injunction;
b) P191,843.00 for the amount of print advertisement for Maging Sino
Ka Man in various newspapers;
c) Attorneys fees in the amount of P1 million;
d) P5 million as and by way of moral damages;

In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the
contract between ABS-CBN and VIVA had not been perfected, absent the approval by the
VIVA Board of Directors of whatever Del Rosario, its agent, might have agreed with Lopez
III. The appellate court did not even believe ABS-CBNs evidence that Lopez III actually wrote
down such an agreement on a napkin, as the same was never produced in court. It likewise
rejected ABS-CBNs insistence on its right of first refusal and ratiocinated as follows:
As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement
was entered into between Appellant ABS-CBN and appellant VIVA under Exhibit A in 1990
and that parag. 1.4 thereof provides:
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for
TV telecast under such terms as may be agreed upon by the parties hereto, provided, however,
that such right shall be exercised by ABS-CBN within a period of fifteen (15) days from the
actual offer in writing (Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be
subjected to such terms as may be agreed upon by the parties thereto, and that the said right
shall be exercised by ABS-CBN within fifteen (15) days from the actual offer in writing.
Said parag. 1.4 of the agreement Exhibit A on the right of first refusal did not fix the price of
the film right to the twenty-four (24) films, nor did it specify the terms thereof. The same are
still left to be agreed upon by the parties.

e) P5 million as and by way of exemplary damages;

(3) For the defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by
way of reasonable attorneys fees.

In the instant case, ABS-CBNs letter of rejection Exhibit 3 (Records, p. 89) stated that it can
only tick off ten (10) films, and the draft contract Exhibit C accepted only fourteen (14) films,
while parag. 1.4 of Exhibit A speaks of the next twenty-four (24) films.

(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.

(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms of the
offer. The alleged agreement between Lopez III and Del Rosario was subject to the approval
of the VIVA Board of Directors, and said agreement was disapproved during the meeting of
the Board on 7 April 1992. Hence, there was no basis for ABS-CBNs demand that VIVA
signed the 1992 Film Exhibition Agreement.Furthermore, the right of first refusal under the
1990 Film Exhibition Agreement had previously been exercised per Ms. Concios letter to Del
Rosario ticking off ten titles acceptable to them, which would have made the 1992 agreement
an entirely new contract.
On 21 June 1993, this Court denied[21] ABS-CBNs petition for review in G.R. No.
108363, as no reversible error was committed by the Court of Appeals in its challenged
decision and the case had become moot and academic in view of the dismissal of the main
action by the court a quo in its decision of 28 April 1993.
Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of Appeals claiming
that there was a perfected contract between ABS-CBN and VIVA granting ABS-CBN the
exclusive right to exhibit the subject films. Private respondents VIVA and Del Rosario also
appealed seeking moral and exemplary damages and additional attorneys fees.

The offer of VIVA was sometime in December 1991, (Exhibits 2, 2-A, 2-B; Records, pp. 8688; Decision, p. 11, Records, p. 1150), when the first list of VIVA films was sent by Mr. Del
Rosario to ABS-CBN. The Vice President of ABS-CBN, Mrs. Charo Santos-Concio, sent a
letter dated January 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of
refusal by rejecting the offer of VIVA. As aptly observed by the trial court, with the said letter
of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first refusal. And even if We
reckon the fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C) when another list
was sent to ABS-CBN after the letter of Mrs. Concio, still the fifteen (15) day period within
which ABS-CBN shall exercise its right of first refusal has already expired. [22]
Accordingly, respondent court sustained the award factual damages consisting in the
cost of print advertisements and the premium payments for the counterbond, there being
adequate proof of the pecuniary loss which RBS has suffered as a result of the filing of the
complaint by ABS-CBN. As to the award of moral damages, the Court of Appeals found
reasonable basis therefor, holding that RBSs reputation was debased by the filing of the
complaint in Civil Case No. Q-92-12309 and by the non-showing of the film Maging Sino Ka
Man. Respondent court also held that exemplary damages were correctly imposed by way of
example or correction for the public good in view of the filing of the complaint despite
petitioners knowledge that the contract with VIVA had not been perfected. It also upheld the
award of attorneys fees, reasoning that with ABS-CBNs act of instituting Civil Case No. Q-9212309, RBS was unnecessarily forced to litigate. The appellate court, however, reduced the

awards of moral damages to P 2 million, exemplary damages to P2 million, and attorneys fees
to P500,000.00.

was brought out during trial that with or without the case or injunction, RBS would have spent
such an amount to generate interest in the film.

On the other hand, respondent Court of Appeals denied VIVA and Del Rosarios appeal
because it was RBS and not VIVA which was actually prejudiced when the complaint was
filed by ABS-CBN.

ABS-CBN further contends that there was no other clear basis for the awards of moral
and exemplary damages. The controversy involving ABS-CBN and RBS did not in any way
originate from business transaction between them. The claims for such damages did not arise
from any contractual dealings or from specific acts committed by ABS-CBN against RBS that
may be characterized as wanton, fraudulent, or reckless; they arose by virtue only of the filing
of the complaint. An award of moral and exemplary damages is not warranted where the
record is bereft of any proof that a party acted maliciously or in bad faith in filing an action.
[27]
In any case, free resort to courts for redress of wrongs is a matter of public policy. The law
recognizes the right of every one to sue for that which he honestly believes to be his right
without fear of standing trial for damages where by lack of sufficient evidence, legal
technicalities, or a different interpretation of the laws on the matter, the case would lose
ground.[28]One who, makes use of his own legal right does no injury.[29] If damage results from
filing of the complaint, it is damnum absque injuria.[30] Besides, moral damages are generally
not awarded in favor of a juridical person, unless it enjoys a good reputation that was debased
by the offending party resulting in social humiliation. [31]

Its motion for reconsideration having been denied, ABS-CBN filed the petition in this
case, contending that the Court of Appeals gravely erred in
I
RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN
PETITIONER
AND
PRIVATE
RESPONDENT
VIVA
NOTWITHSTANDING PREPONFERANCE OF EVIDENCE ADDUCED
BY PETITIONER TO THE CONTRARY.
II
IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR
OF PRIVATE RESPONDENT RBS.
III
IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF
PRIVATE RESPONDENT RBS.
IV
IN AWARDING ATORNEYS FEES OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twentyfour titles under the 1990 Film Exhibition Agreement, as it had chosen only ten titles from the
first list. It insists that we give credence to Lopezs testimony that he and Del Rosario met at
the Tamarind Grill Restaurant, discussed the terms and conditions of the second list (the 1992
Film Exhibition Agreement) and upon agreement thereon, wrote the same on a paper napkin. It
also asserts that the contract has already been effective, as the elements thereof, namely,
consent, object, and consideration were established. It then concludes that the Court of
Appeals pronouncements were not supported by law and jurisprudence, as per our decision of
1 December 1995 in Limketkai Sons Milling, Inc. v. Court of Appeals, [23] which cited Toyota
Shaw, Inc. v. Court of Appeals; [24] Ang Yu Asuncion v. Court of Appeals,[25] and Villonco
Realty Company v. Bormaheco, Inc.[26]
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS
spent for the premium on the counterbond of its own volition in order to negate the injunction
issued by the trial court after the parties had ventilated their respective positions during the
hearings for the purpose. The filing of the counterbond was an option available to RBS, but it
can hardly be argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS had
another available option, i.e., move for the dissolution of the injunction; or if it was
determined to put up a counterbond, it could have presented a cash bond. Furthermore under
Article 2203 of the Civil Code, the party suffering loss injury is also required to exercise the
diligence of a good father of a family to minimize the damages resulting from the act or
omission. As regards the cost of print advertisements, RBS had not convincingly established
that this was a loss attributable to the non-showing of Maging Sino Ka Man; on the contrary, it

As regards the award of attorneys fees, ABS-CBN maintains that the same had no
factual, legal, or equitable justification. In sustaining the trial courts award, the Court of
Appeals acted in clear disregard of the doctrine laid down in Buan v. Camaganacan[32] that the
text of the decision should state the reason why attorneys fees are being awarded; otherwise,
the award should be disallowed. Besides, no bad faith has been imputed on, much less proved
as having been committed by, ABS-CBN. It has been held that where no sufficient showing of
bad faith would be reflected in a partys persistence in a case other than an erroneous
conviction of the righteousness of his cause, attorneys fees shall not be recovered as cost. [33]
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN
and VIVA absent meeting of minds between them regarding the object and consideration of
the alleged contract. It affirms that ABS-CBNs claim of a right of first refusal was correctly
rejected by the trial court. RBS insists the premium it had paid for the counterbond constituted
a pecuniary loss upon which it may recover. It was obliged to put up the counterbond due to
the injunction procured by ABS-CBN. Since the trial court found that ABS-CBN had no cause
of action or valid claim against RBS and, therefore not entitled to the writ of injunction, RBS
could recover from ABS-CBN the premium paid on the counterbond. Contrary to the claim of
ABS-CBN, the cash bond would prove to be more expensive, as the loss would be equivalent
to the cost of money RBS would forego in case the P30 million came from its funds or was
borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled
showing of the film Maging Sino Ka Man because the print advertisements were out to
announce the showing on a particular day and hour on Channel 7, i.e., in its entirety at one
time, not as series to be shown on a periodic basis. Hence, the print advertisements were good
and relevant for the particular date of showing, and since the film could not be shown on that
particular date and hour because of the injunction, the expenses for the advertisements had
gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and
secured injunctions purely for the purpose of harassing and prejudicing RBS. Pursuant then to
Articles 19 and 21 of the Civil Code, ABS-CBN must be held liable for such
damages. Citing Tolentino,[34] damages may be awarded in cases of abuse of rights even if the

done is not illicit, and there is abuse of rights where a plaintiff institutes an action purely for
the purpose of harassing or prejudicing the defendant.

consent of the contracting parties; (2) object certain which is the subject of the contract; and
(3) cause of the obligation, which is established. [38] A contract undergoes three stages:

In support of its stand that a juridical entity can recover moral and exemplary damages,
private respondent RBS cited People v. Manero, [35] where it was stated that such entity may
recover moral and exemplary damages if it has a good reputation that is debased resulting in
social humiliation. It then ratiocinates; thus:

(a) preparation, conception, or generation, which is the period of negotiation and

bargaining, ending at the moment of agreement of the parties;

There can be no doubt that RBS reputation has been debased by ABS-CBNs acts in this
case. When RBS was not able to fulfill its commitment to the viewing public to show the film
Maging Sino Ka Man on the scheduled dates and times (and on two occasions that RBS
advertised), it suffered serious embarrassment and social humiliation. When the showing was
cancelled, irate viewers called up RBS offices and subjected RBS to verbal abuse (Announce
kayo ng announce, hindi ninyo naman ilalabas, nanloloko yata kayo) (Exh. 3-RBS,
par.3). This alone was not something RBS brought upon itself. It was exactly what ABS-CBN
had planted to happen.

(c) consummation or death, which is the fulfillment or performance of the terms

agreed upon in the contract.[39]

The amount of moral and exemplary damages cannot be said to be excessive. Two reasons
justify the amount of the award.
The first is that the humiliation suffered by RBS, is national in extent. RBS operations as a
broadcasting company is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of
those who own and watch television. It is not an exaggeration to state, and it is a matter of
judicial notice that almost every other person in the country watches television. The
humiliation suffered by RBS is multiplied by the number of televiewers who had anticipated
the showing of the film, Maging Sino Ka Man on May 28 and November 3, 1992 but did not
see it owing to the cancellation. Added to this are the advertisers who had placed commercial
spots for the telecast and to whom RBS had a commitment in consideration of the placement
to show the film in the dates and times specified.
The second is that it is a competitor that caused RBS suffer the humiliation. The humiliation
and injury are far greater in degree when caused by an entity whose ultimate business
objective is to lure customers (viewers in this case) away from the competition. [36]
For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial
court and the Court of Appeals do not support ABS-CBNs claim that there was a perfected
contract. Such factual findings can no longer be disturbed in this petition for review under
Rule 45, as only questions of law can be raised, not questions of fact. On the issue of damages
and attorneys fees, they adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract
between VIVA and ABS-CBN, and (2) whether RBS is entitled to damages and attorneys
fees. It may be noted that that award of attorneys fees of P212,000 in favor of VIVA is not
assigned as another error.
I
The first issue should be resolved against ABS-CBN. A contract is a meeting of minds
between two persons whereby one binds himself to give something or render some service to
another[37] for a consideration. There is no contract unless the following requisites concur: (1)

(b) perfection or birth of the contract, which is the moment when the parties come
to agree on the terms of the contract; and

Contracts that are consensual in nature are perfected upon mere meeting of the
minds. Once there is concurrence between the offer and the acceptance upon the subject
matter, consideration, and terms of payment a contract is produced. The offer must be
certain. To convert the offer into a contract, the acceptance must be absolute and must not
qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without
variance of any sort from the proposal. A qualified acceptance, or one that involves a new
proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently,
when something is desired which is not exactly what is proposed in the offer, such acceptance
is not sufficient to generate consent because any modification or variation from the terms of
the offer annuls the offer.[40]
When Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN at the Tamarind Grill on 2
April 1992 to discuss the package of films, said package of 104 VIVA films was VIVAs offer
to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-CBN, sent through Ms.
Concio, counter-proposal in the form a draft contract proposing exhibition of 53 films for a
consideration of P35 million. This counter-proposal could be nothing less than the counteroffer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill
Restaurant. Clearly, there was no acceptance of VIVAs offer, for it was met by a counter-offer
which substantially varied the terms of the offer.
ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of Appeals [41] and Villonco
Realty Company v. Bormaheco, Inc.,[42] is misplaced. In these cases, it was held that an
acceptance may contain a request for certain changes in the terms of the offer and yet be a
binding acceptance as long as it is clear that the meaning of the acceptance is positively and
unequivocally to accept the offer, whether such request is granted or not. This ruling was,
however, reversed in the resolution of 29 March 1996, [43] which ruled that the acceptance of an
offer must be unqualified and absolute, i.e., it must be identical in all respects with that of the
offer so as to produce consent or meetings of the minds.
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised
counter-offer were not material but merely clarificatory of what had previously been agreed
upon. It cited the statement in Stuart v. Franklin Life Insurance Co.[44] that a vendors change in
a phrase of the offer to purchase, which change does not essentially change the terms of the
offer, does not amount to a rejection of the offer and the tender of a counter-offer. [45] However,
when any of the elements of the contract is modified upon acceptance, such alteration amounts
to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer hence,
they underwent period of bargaining. ABS-CBN then formalized its counter-proposals or
counter-offer in a draft contract. VIVA through its Board of Directors, rejected such counteroffer. Even if it be conceded arguendo that Del Rosario had accepted the counter-offer, the

acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the
specific authority to do so.
Under the Corporation Code, [46] unless otherwise provided by said Code, corporate
powers, such as the power to enter into contracts, are exercised by the Board of
Directors. However, the Board may delegate such powers to either an executive committee or
officials or contracted managers. The delegation, except for the executive committee, must be
for specific purposes.[47] Delegation to officers makes the latter agents of the corporation;
accordingly, the general rules of agency as to the binding effects of their acts would apply.
[48]
For such officers to be deemed fully clothed by the corporation to exercise a power of the
Board, the latter must specially authorize them to do so. that Del Rosario did not have the
authority to accept ABS-CBNs counter-offer was best evidenced by his submission of the draft
contract to VIVAs Board of Directors for the latters approval. In any event, there was between
Del Rosario and Lopez III no meeting of minds. The following findings of the trial court are
instructive:
A number of considerations militate against ABS-CBNs claim that a contract was perfected at
that lunch meeting on April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the
price and the number of films, which he wrote on a napkin. However, Exhibit C
contains numerous provisions which were not discussed at the Tamarind Grill, if Lopez
testimony was to be believed nor could they have been physically written on a napkin. There
was even doubt as to whether it was a paper napkin or cloth napkin. In short what were written
in Exhibit C were not discussed, and therefore could not have been agreed upon, by the
parties. How then could this court compel the parties to sign Exhibit C when the provisions
thereof were not previously agreed upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract
was 14 films. The complaint in fact prays for delivery of 14 films. But Exhibit C mentions 53
films as its subject matter. Which is which? If Exhibit C reflected the true intent of the parties,
then ABS-CBNs claim for 14 films in its complaint is false or if what it alleged in the
complaint is true, then Exhibit C did not reflect what was agreed upon by the parties. This
underscores the fact that there was no meeting of the minds as to the subject matter of the
contract, so as to preclude perfection thereof. For settled is the rule that there can be no
contract where there is no object certain which is its subject matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. D) States:

A The total price, the breakdown the known Viva movies, the 7 blockbuster movies and
the other 7 Viva movies because the price was broken down accordingly. The none
[sic] Viva and the seven other Viva movies and the sharing between the cash portion
and the concerned spot portion in the total amount of P35 million pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-CBNs claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit C to Mr.
Del Rosario with a handwritten note, describing said Exhibit C as a draft. (Exh. 5 Viva; tsn pp.
23-24, June 08, 1992). The said draft has a well defined meaning.
Since Exhibit C is only a draft, or a tentative, provisional or preparatory writing prepared for
discussion, the terms and conditions thereof could not have been previously agreed upon by
ABS-CBN and Viva.Exhibit C could not therefore legally bind Viva, not having agreed
thereto. In fact, Ms. Concio admitted that the terms and conditions embodied in Exhibit C
were prepared by ABS-CBNs lawyers and there was no discussion on said terms and
conditions.
As the parties had not yet discussed the proposed terms and conditions in Exhibit C, and there
was no evidence whatsoever that Viva agreed to the terms and conditions thereof, said
document cannot be a binding contract. The fact that Viva refused to sign Exhibit C reveals
only two [sic] well that it did not agree on its terms and conditions, and this court has no
authority to compel Viva to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the
Tamarind Grill was only provisional, in the sense that it was subject to approval by the Board
of Directors of Viva. He testified:
Q Now, Mr. Witness, and after that Tamarinf meeting the second meeting wherein you
claimed that you have the meeting of the minds between you and Mr. Vic del
Rosario, what happened?
A Vic Del Rosario was supposed to call us up and tell us specifically the result of the
discussion with the Board of Directors.
Q And you are referring to the so-called agreement which you wrote in [sic] a piece of
paper?
A Yes, sir.

We were able to reach an agreement. VIVA gave us the exclusive license to show these
fourteen (14) films, and we agreed to pay Viva the amount of P16,050,000.00 as well as grant
Viva commercial slots worth P19,950,000.00. We had already earmarked this P16,050,000.00.
which gives a total consideration of P36 million (P19,951,000.00 plus P16,050,000.00
equals P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q What was written in this napkin?

Q So, he was going to forward that to the board of Directors for approval?
A Yes, sir (Tsn, pp. 42-43, June 8, 1992)
Q Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no
authority to bind Viva to a contract with ABS-CBN until and unless its Board of Directors
approved it. The complaint, in fact, alleges that Mr. Del Rosario is the Executive Producer of

defendant Viva which is a corporation. (par. 2, complaint). As a mere agent of Viva, Del
Rosario could not bind Viva unless what he did is ratified by its Directors. (Vicente
vs.Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere agent,
recognized as such by plaintiff, Del Rosario could not be held liable jointly and severally with
Viva and his inclusion as party defendant has no legal basis. (Salonga vs. Warner Barnes
[sic],COLTA, 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that
what was supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and
Del Rosario was not a binding agreement. It is as it should be because corporate power to
enter into a contract is lodged in the Board of Directors. (Sec. 23, Corporation Code). Without
such board approval by the Viva board, whatever agreement Lopez and Del Rosario arrived at
could not ripen into a valid binding upon Viva (Yao Ka Sin Trading vs. Court of Appeals, 209
SCRA 763). The evidence adduced shows that the Board of Directors of Viva rejected Exhibit
C and insisted that the film package for 104 films be maintained (Exh. 7-1 Cica). [49]

Actual damages may likewise be recovered for loss or impairment of earning capacity in
cases of temporary or permanent personal injury, or for injury to the plaintiffs business
standing or commercial credit.[55]
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict,
or quasi-delict. It arose from the fact of filing of the complaint despite ABS-CBNs alleged
knowledge of lack of cause of action. Thus paragraph 12 of RBSs Answer with Counterclaim
and Cross-claim under the heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action
against RBS. As a result thereof, RBS suffered actual damages in the amount
of P6,621,195.32.[56]
Needless to state the award of actual damages cannot be comprehended under the above law
on actual damages. RBS could only probably take refuge under Articles 19, 20, and 21 of the
Civil Code, which read as follows:

The contention that ABS-CBN had yet to fully exercise its right of first refusal over
twenty-four films under the 1990 Film Exhibition Agreement and that the meeting between
Lopez and Del Rosario was a continuation of said previous contract is untenable. As observed
by the trial court, ABS-CBNs right of first refusal had already been exercised when Ms.
Concio wrote to Viva ticking off ten films.Thus:

ART. 19. Every person must, in the exercise of hid rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and good faith.

[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent,
was for an entirely different package. Ms. Concio herself admitted on cross-examination
to having used or exercised the right of first refusal. She stated that the list was not
acceptable and was indeed not accepted by ABS-CBN, (Tsn, June 8, 1992, pp. 810). Even Mr. Lopez himself admitted that the right of first refusal may have been
already exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del
Rosario himself knew and understand [sic] that ABS-CBN has lost its right of first
refusal when his list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-11). [50]

ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary
to morals, good customs or public policy shall compensate the latter for the damage.

II
However, we find for ABS-CBN on the issue of damages. We shall first take up actual
damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or
compensatory damages.Except as provided by law or by stipulation, one is entitled to
compensation for actual damages only for such pecuniary loss suffered by him as he has duly
proved.[51] The indemnification shall comprehend not only the value of the loss suffered, but
also that of the profits that the obligee failed to obtain. [52] In contracts and quasi-contracts the
damages which may be awarded are dependent on whether the obligor acted with good faith or
otherwise. In case of good faith, the damages recoverable are those which are the natural and
probable consequences of the breach of the obligation and which the parties have foreseen or
could have reasonably foreseen at the time of the constitution of the obligation. If the obligor
acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all damages
which may be reasonably attributed to the non-performance of the obligation. [53] In crimes and
quasi-delicts, the defendants shall be liable for all damages which are the natural and probable
consequences of the act or omission complained of, whether or not such damages have been
foreseen or could have reasonably been foreseen by the defendant. [54]

ART. 20. Every person who, contrary to law, wilfully or negligently causes damage to another
shall indemnify the latter for the same.

It may further be observed that in cases where a writ of preliminary injunction is issued,
the damages which the defendant may suffer by reason of the writ are recoverable from the
injunctive bond.[57] In this case, ABS-CBN had not yet filed the required bond; as a matter of
fact, it asked for reduction of the bond and even went to the Court of Appeals to challenge the
order on the matter. Clearly then, it was not necessary for RBS to file a counterbond. Hence,
ABS-CBN cannot be held responsible for the premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for Maging Sino Ka Man
for lack of sufficient legal basis. The RTC issued a temporary restraining order and later, a writ
of preliminary injunction on the basis of its determination that there existed sufficient ground
for the issuance thereof. Notably, the RTC did not dissolve the injunction on the ground of
lack of legal and factual basis, but because of the plea of RBS that it be allowed to put up a
counterbond.
As regards attorneys fees, the law is clear that in the absence of stipulation, attorneys
fees may be recovered as actual or compensatory damages under any of the circumstances
provided for in Article 2208 of the Civil Code.[58]
The general rule is that attorneys fees cannot be recovered as part of damages because of
the policy that no premium should be placed on the right to litigate. [59] They are not to be
awarded every time a party wins a suit. The power of the court t award attorneys fees under
Article 2208 demands factual, legal, and equitable justification. [60] Even when a claimant is
compelled to litigate with third persons or to incur expenses to protect his rights, still attorneys
fees may not be awarded where no sufficient showing of bad faith could be reflected in a
partys persistence in a case other than an erroneous conviction of the righteousness of his
cause.[61]

As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil
Code. Article 2217 thereof defines what are included in moral damages, while Article 2219
enumerates the cases where they may be recovered. Article 2220 provides that moral damages
may be recovered in breaches of contract where the defendant acted fraudulently or in bad
faith. RBSs claim for moral damages could possibly fall only under item (10) of Article 2219,
thereof which reads:

There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was
honestly convinced of the merits of its cause after it had undergone serious negotiations
culminating in its formal submission of a draft contract. Settled is the rule that the adverse
result of an action does not per se make the action wrongful and subject the actor to damages,
for the law could not have meant impose a penalty on the right to litigate. If damages result
from a persons exercise of a right, it is damnum absque injuria.[75]

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.

WHEREFORE, the instant petition is GRANTED. The challenged decision of the

Court of Appeals in CA-G.R. CV No. 44125 is hereby REVERSED except as to unappealed
award of attorneys fees in favor of VIVA Productions, Inc.

Moral damages are in the category of an award designed to compensate the claimant for
actual injury suffered and not to impose a penalty on the wrongdoer.[62] The award is not meant
to enrich the complainant at the expense of the defendant, but to enable the injured party to
obtain means, diversion, or amusements that will serve to obviate the moral suffering he has
undergone. It is aimed at the restoration, within the limits of the possible, of the
spiritual status quo ante, and should be proportionate to the suffering inflicted. [63] Trial courts
must then guard against the award of exorbitant damages; they should exercise balanced
restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or
corruption or the part of the trial court.[64]
The award of moral damages cannot be granted in favor of a corporation because, being
an artificial person and having existence only in legal contemplation, it has no feelings, no
emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish,
which can be experienced only by one having a nervous system. [65] The statement in People v.
Manero[66] and Mambulao Lumber Co. v. PNB[67] that a corporation may recover moral
damages if it has a good reputation that is debased, resulting in social humiliation is an obiter
dictum. On this score alone the award for damages must be set aside, since RBS is a
corporation.

No pronouncement as to costs.
SO ORDERED.

EN BANC
G.R. No. 75885 May 27, 1987
BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO
SALONGA, COMMISSIONER MARY CONCEPCION BAUTISTA, COMMISSIONER
RAMON DIAZ, COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S.
DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents.

The basic law on exemplary damages is Section 5 Chapter 3, Title XVIII, Book IV of
the Civil Code. These are imposed by way of example or correction for the public good, in
addition to moral, temperate, liquidated, or compensatory damages. [68] They are recoverable in
criminal cases as part of the civil liability when the crime was committed with one or more
aggravating circumstances;[69] in quasi-delicts, if the defendant acted with gross negligence;
[70]
and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.[71]

Apostol, Bernas, Gumaru, Ona and Associates for petitioner.

It may be reiterated that the claim of RBS against ABS-CBN is not based on contract,
quasi-contract, delict, or quasi-delict. Hence, the claims for moral and exemplary damages can
only be based on Articles 19, 20, and 21 of the Civil Code.

NARVASA, J.:

The elements of abuse of right under Article 19 are the following: (1) the existence of a
legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing
or injuring another.Article 20 speaks of the general sanction for all provisions of law which do
not especially provide for their own sanction; while Article 21 deals with acts contra bonus
mores, and has the following elements: (1) there is an act which is legal, (2) but which is
contrary to morals, good custom, public order, or public policy, and (3) and it is done with
intent to injure.[72]
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad
faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or
moral obliquity.[73]Such must be substantiated by evidence.[74]

Vicente G. Sison for intervenor A.T. Abesamis.

Challenged in this special civil action of certiorari and prohibition by a private corporation
known as the Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered
1 and 2, promulgated by President Corazon C. Aquino on February 28, 1986 and March 12,
1986, respectively, and (2) the sequestration, takeover, and other orders issued, and acts done,
in accordance with said executive orders by the Presidential Commission on Good
Government and/or its Commissioners and agents, affecting said corporation.
1. The Sequestration, Takeover, and Other Orders Complained of
a. The Basic Sequestration Order
The sequestration order which, in the view of the petitioner corporation, initiated all its misery
was issued on April 14, 1986 by Commissioner Mary Concepcion Bautista. It was addressed

to three of the agents of the Commission, hereafter simply referred to as PCGG. It reads as
follows:

On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG,
addressed a letter dated April 18, 1986 to the President and other officers of petitioner firm,
reiterating an earlier request for the production of certain documents, to wit:

RE: SEQUESTRATION ORDER

1. Stock Transfer Book
By virtue of the powers vested in the Presidential Commission on Good
Government, by authority of the President of the Philippines, you are
hereby directed to sequester the following companies.

2. Legal documents, such as:

2.1. Articles of Incorporation

1. Bataan Shipyard and Engineering Co., Inc.

(Engineering Island Shipyard and Mariveles Shipyard)
2. Baseco Quarry

2.2. By-Laws
2.3. Minutes of the Annual Stockholders Meeting from
1973 to 1986

3. Philippine Jai-Alai Corporation

4. Fidelity Management Co., Inc.
5. Romson Realty, Inc.

2.4. Minutes of the Regular and Special Meetings of

the Board of Directors from 1973 to 1986
2.5. Minutes of the Executive Committee Meetings
from 1973 to 1986

6. Trident Management Co.

7. New Trident Management
8. Bay Transport
9. And all affiliate companies of Alfredo "Bejo"
Romualdez
You are hereby ordered:
1. To implement this sequestration order with a minimum disruption of
these companies' business activities.
2. To ensure the continuity of these companies as going concerns, the care
and maintenance of these assets until such time that the Office of the
President through the Commission on Good Government should decide
otherwise.
3. To report to the Commission on Good Government periodically.
Further, you are authorized to request for Military/Security Support from
the Military/Police authorities, and such other acts essential to the
achievement of this sequestration order. 1
b. Order for Production of Documents

2.6. Existing contracts with

suppliers/contractors/others.
3. Yearly list of stockholders with their corresponding share/stockholdings
from 1973 to 1986 duly certified by the Corporate Secretary.
4. Audited Financial Statements such as Balance Sheet, Profit & Loss and
others from 1973 to December 31, 1985.
5. Monthly Financial Statements for the current year up to March 31,
1986.
6. Consolidated Cash Position Reports from January to April 15, 1986.
7. Inventory listings of assets up dated up to March 31, 1986.
8. Updated schedule of Accounts Receivable and Accounts Payable.
9. Complete list of depository banks for all funds with the authorized
signatories for withdrawals thereof.
10. Schedule of company investments and placements. 2

The letter closed with the warning that if the documents were not submitted within five days,
the officers would be cited for "contempt in pursuance with Presidential Executive Order Nos.
1 and 2."
c. Orders Re Engineer Island
(1) Termination of Contract for Security Services
A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is
that issued on April 21, 1986 by a Capt. Flordelino B. Zabala, a member of the task force
assigned to carry out the basic sequestration order. He sent a letter to BASECO's VicePresident for Finance, 3 terminating the contract for security services within the Engineer
Island compound between BASECO and "Anchor and FAIRWAYS" and "other civilian
security agencies," CAPCOM military personnel having already been assigned to the area,
(2) Change of Mode of Payment of Entry Charges
On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners
and Contractors," particularly a "Mr. Buddy Ondivilla National Marine Corporation," advising
of the amendment in part of their contracts with BASECO in the sense that the stipulated
charges for use of the BASECO road network were made payable "upon entry and not
anymore subject to monthly billing as was originally agreed upon." 4

f. Order to Dispose of Scrap, etc.

By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor
Buenaventura was also "authorized to clean and beautify the Company's compound," and in
this connection, to dispose of or sell "metal scraps" and other materials, equipment and
machineries no longer usable, subject to specified guidelines and safeguards including audit
and verification. 8
g. The TAKEOVER Order
By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover
by the PCGG of BASECO, "the Philippine Dockyard Corporation and all their affiliated
companies." 9 Diaz invoked the provisions of Section 3 (c) of Executive Order No. 1,
empowering the Commission
* * To provisionally takeover in the public interest or to prevent its
disposal or dissipation, business enterprises and properties taken over by
the government of the Marcos Administration or by entities or persons
close to former President Marcos, until the transactions leading to such
acquisition by the latter can be disposed of by the appropriate authorities.
A management team was designated to implement the order, headed by Capt. Siacunco, and
was given the following powers:

d. Aborted Contract for Improvement of Wharf at Engineer Island

1. Conducts all aspects of operation of the subject companies;
On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of
BASECO with Deltamarine Integrated Port Services, Inc., in virtue of which the latter
undertook to introduce improvements costing approximately P210,000.00 on the BASECO
wharf at Engineer Island, allegedly then in poor condition, avowedly to "optimize its
utilization and in return maximize the revenue which would flow into the government coffers,"
in consideration of Deltamarine's being granted "priority in using the improved portion of the
wharf ahead of anybody" and exemption "from the payment of any charges for the use of
wharf including the area where it may install its bagging equipments" "until the improvement
remains in a condition suitable for port operations." 5 It seems however that this contract was
never consummated. Capt. Jorge B. Siacunco, "Head- (PCGG) BASECO Management Team,"
advised Deltamarine by letter dated July 30, 1986 that "the new management is not in a
position to honor the said contract" and thus "whatever improvements * * (may be introduced)
shall be deemed unauthorized * * and shall be at * * (Deltamarine's) own risk." 6
e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan
By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent,
Mayor Melba O. Buenaventura, "to plan and implement progress towards maximizing the
continuous operation of the BASECO Sesiman Rock Quarry * * by conventional methods;"
but afterwards, Commissioner Bautista, in representation of the PCGG, authorized another
party, A.T. Abesamis, to operate the quarry, located at Mariveles, Bataan, an agreement to this
effect having been executed by them on September 17, 1986. 7

2. Installs key officers, hires and terminates personnel as necessary;

3. Enters into contracts related to management and operation of the
companies;
4. Ensures that the assets of the companies are not dissipated and used
effectively and efficiently; revenues are duly accounted for; and disburses
funds only as may be necessary;
5. Does actions including among others, seeking of military support as
may be necessary, that will ensure compliance to this order;
6. Holds itself fully accountable to the Presidential Commission on Good
Government on all aspects related to this take-over order.
h. Termination of Services of BASECO Officers
Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M.
Valdez, Gilberto Pasimanero, and Benito R. Cuesta I, advising of the termination of their
services by the PCGG. 10

2. Petitioner's Plea and Postulates

It is the foregoing specific orders and acts of the PCGG and its members and agents which, to
repeat, petitioner BASECO would have this Court nullify. More particularly, BASECO prays
that this Court1) declare unconstitutional and void Executive Orders Numbered 1 and 2;
2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued
and acts done on the basis thereof, inclusive of the takeover order of July 14, 1986 and the
termination of the services of the BASECO executives. 11
a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover
Orders
While BASECO concedes that "sequestration without resorting to judicial action, might be
made within the context of Executive Orders Nos. 1 and 2 before March 25, 1986 when the
Freedom Constitution was promulgated, under the principle that the law promulgated by the
ruler under a revolutionary regime is the law of the land, it ceased to be acceptable when the
same ruler opted to promulgate the Freedom Constitution on March 25, 1986 wherein under
Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was adopted
providing, among others, that "No person shall be deprived of life, liberty and property
without due process of law." (Const., Art. I V, Sec. 1)." 12
It declares that its objection to the constitutionality of the Executive Orders "as well as the
Sequestration Order * * and Takeover Order * * issued purportedly under the authority of said
Executive Orders, rests on four fundamental considerations: First, no notice and hearing was
accorded * * (it) before its properties and business were taken over; Second, the PCGG is not a
court, but a purely investigative agency and therefore not competent to act as prosecutor and
judge in the same cause; Third, there is nothing in the issuances which envisions any
proceeding, process or remedy by which petitioner may expeditiously challenge the validity of
the takeover after the same has been effected; and Fourthly, being directed against specified
persons, and in disregard of the constitutional presumption of innocence and general rules and
procedures, they constitute a Bill of Attainder." 13
b. Re Order to Produce Documents
It argues that the order to produce corporate records from 1973 to 1986, which it has
apparently already complied with, was issued without court authority and infringed its
constitutional right against self-incrimination, and unreasonable search and seizure. 14

fees stipulated in its Lease Contract with National Stevedoring & Lighterage Corporation,
these acts being in violation of the non-impairment clause of the constitution; 15
2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with
Deltamarine Integrated Port Services, Inc., giving the latter free use of BASECO premises; 16
3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock
quarry at Sesiman, Mariveles; 17
4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and
other materials; 18
5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their
affiliated companies;
6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S.
Mendoza; GM Moises M. Valdez; Finance Mgr. Gilberto Pasimanero; Legal Dept. Mgr.
Benito R. Cuesta I; 19
7) planning to elect its own Board of Directors; 20
8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's
premises at Mariveles * * rolls of cable wires, worth P600,000.00 on May 11, 1986; 21
9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have
been buried therein. 22
3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders
Many misconceptions and much doubt about the matter of sequestration, takeover and freeze
orders have been engendered by misapprehension, or incomplete comprehension if not indeed
downright ignorance of the law governing these remedies. It is needful that these
misconceptions and doubts be dispelled so that uninformed and useless debates about them
may be avoided, and arguments tainted b sophistry or intellectual dishonesty be quickly
exposed and discarded. Towards this end, this opinion will essay an exposition of the law on
the matter. In the process many of the objections raised by BASECO will be dealt with.
4. The Governing Law
a. Proclamation No. 3

c. Re PCGG's Exercise of Right of Ownership and Management

BASECO further contends that the PCGG had unduly interfered with its right of dominion and
management of its business affairs by
1) terminating its contract for security services with Fairways & Anchor, without the consent
and against the will of the contracting parties; and amending the mode of payment of entry

The impugned executive orders are avowedly meant to carry out the explicit command of the
Provisional Constitution, ordained by Proclamation No. 3, 23 that the President-in the exercise
of legislative power which she was authorized to continue to wield "(until a legislature is
elected and convened under a new Constitution" "shall give priority to measures to achieve
the mandate of the people," among others to (r)ecover ill-gotten properties amassed by the

leaders and supporters of the previous regime and protect the interest of the people through
orders of sequestration or freezing of assets or accounts." 24

Executive Order No. 2 gives additional and more specific data and directions respecting "the
recovery of ill-gotten properties amassed by the leaders and supporters of the previous
regime." It declares that:

b. Executive Order No. 1

Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and
postulates that "vast resources of the government have been amassed by former President
Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and
abroad." 25 Upon these premises, the Presidential Commission on Good Government was
created, 26 "charged with the task of assisting the President in regard to (certain specified)
matters," among which was precisely* * The recovery of all in-gotten wealth accumulated by former President
Ferdinand E. Marcos, his immediate family, relatives, subordinates and
close associates, whether located in the Philippines or abroad, including
the takeover or sequestration of all business enterprises and entities owned
or controlled by them, during his administration, directly or through
nominees, by taking undue advantage of their public office and/or using
their powers, authority, influence, connections or relationship. 27
In relation to the takeover or sequestration that it was authorized to undertake in the
fulfillment of its mission, the PCGG was granted "power and authority" to do the following
particular acts, to wit:
1. To sequester or place or cause to be placed under its control or
possession any building or office wherein any ill-gotten wealth or
properties may be found, and any records pertaining thereto, in order to
prevent their destruction, concealment or disappearance which would
frustrate or hamper the investigation or otherwise prevent the Commission
from accomplishing its task.
2. To provisionally take over in the public interest or to prevent the
disposal or dissipation, business enterprises and properties taken over by
the government of the Marcos Administration or by entities or persons
close to former President Marcos, until the transactions leading to such
acquisition by the latter can be disposed of by the appropriate authorities.
3. To enjoin or restrain any actual or threatened commission of acts by
any person or entity that may render moot and academic, or frustrate or
otherwise make ineffectual the efforts of the Commission to carry out its
task under this order. 28
So that it might ascertain the facts germane to its objectives, it was granted power to conduct
investigations; require submission of evidence by subpoenae ad testificandum and duces
tecum; administer oaths; punish for contempt. 29 It was given power also to promulgate such
rules and regulations as may be necessary to carry out the purposes of * * (its creation). 30
c. Executive Order No. 2

1) * * the Government of the Philippines is in possession of evidence

showing that there are assets and properties purportedly pertaining to
former Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez
Marcos, their close relatives, subordinates, business associates, dummies,
agents or nominees which had been or were acquired by them directly or
indirectly, through or as a result of the improper or illegal use of funds or
properties owned by the government of the Philippines or any of its
branches, instrumentalities, enterprises, banks or financial institutions, or
by taking undue advantage of their office, authority, influence,
connections or relationship, resulting in their unjust enrichment and
causing grave damage and prejudice to the Filipino people and the
Republic of the Philippines:" and
2) * * said assets and properties are in the form of bank accounts, deposits,
trust accounts, shares of stocks, buildings, shopping centers,
condominiums, mansions, residences, estates, and other kinds of real and
personal properties in the Philippines and in various countries of the
world." 31
Upon these premises, the President1) froze "all assets and properties in the Philippines in which former
President Marcos and/or his wife, Mrs. Imelda Romualdez Marcos, their
close relatives, subordinates, business associates, dummies, agents, or
nominees have any interest or participation;
2) prohibited former President Ferdinand Marcos and/or his wife * *, their
close relatives, subordinates, business associates, duties, agents, or
nominees from transferring, conveying, encumbering, concealing or
dissipating said assets or properties in the Philippines and abroad, pending
the outcome of appropriate proceedings in the Philippines to determine
whether any such assets or properties were acquired by them through or as
a result of improper or illegal use of or the conversion of funds belonging
to the Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking
undue advantage of their official position, authority, relationship,
connection or influence to unjustly enrich themselves at the expense and
to the grave damage and prejudice of the Filipino people and the Republic
of the Philippines;
3) prohibited "any person from transferring, conveying, encumbering or
otherwise depleting or concealing such assets and properties or from
assisting or taking part in their transfer, encumbrance, concealment or
dissipation under pain of such penalties as are prescribed by law;" and

4) required "all persons in the Philippines holding such assets or

properties, whether located in the Philippines or abroad, in their names as
nominees, agents or trustees, to make full disclosure of the same to the
Commission on Good Government within thirty (30) days from
publication of * (the) Executive Order, * *. 32
d. Executive Order No. 14
A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG is
empowered, "with the assistance of the Office of the Solicitor General and other government
agencies, * * to file and prosecute all cases investigated by it * * as may be warranted by its
findings." 34 All such cases, whether civil or criminal, are to be filed "with
the Sandiganbayanwhich shall have exclusive and original jurisdiction thereof." 35 Executive
Order No. 14 also pertinently provides that civil suits for restitution, reparation of damages, or
indemnification for consequential damages, forfeiture proceedings provided for under
Republic Act No. 1379, or any other civil actions under the Civil Code or other existing laws,
in connection with * * (said Executive Orders Numbered 1 and 2) may be filed separately
from and proceed independently of any criminal proceedings and may be proved by a
preponderance of evidence;" and that, moreover, the "technical rules of procedure and
evidence shall not be strictly applied to* * (said)civil cases." 36
5. Contemplated Situations
The situations envisaged and sought to be governed are self-evident, these being:
1) that "(i)ll-gotten properties (were) amassed by the leaders and
supporters of the previous regime";37
a) more particularly, that ill-gotten wealth (was) accumulated by former
President Ferdinand E. Marcos, his immediate family, relatives,
subordinates and close associates, * * located in the Philippines or abroad,
* * (and) business enterprises and entities (came to be) owned or
controlled by them, during * * (the Marcos) administration, directly or
through nominees, by taking undue advantage of their public office and/or
using their powers, authority, influence, Connections or relationship; 38
b) otherwise stated, that "there are assets and properties purportedly
pertaining to former President Ferdinand E. Marcos, and/or his wife Mrs.
Imelda Romualdez Marcos, their close relatives, subordinates, business
associates, dummies, agents or nominees which had been or were acquired
by them directly or indirectly, through or as a result of the improper or
illegal use of funds or properties owned by the Government of the
Philippines or any of its branches, instrumentalities, enterprises, banks or
financial institutions, or by taking undue advantage of their office,
authority, influence, connections or relationship, resulting in their unjust
enrichment and causing grave damage and prejudice to the Filipino people
and the Republic of the Philippines"; 39

c) that "said assets and properties are in the form of bank accounts.
deposits, trust. accounts, shares of stocks, buildings, shopping centers,
condominiums, mansions, residences, estates, and other kinds of real and
personal properties in the Philippines and in various countries of the
world;" 40 and
2) that certain "business enterprises and properties (were) taken over by
the government of the Marcos Administration or by entities or persons
close to former President Marcos. 41
6. Government's Right and Duty to Recover All Ill-gotten Wealth
There can be no debate about the validity and eminent propriety of the Government's plan "to
recover all ill-gotten wealth."
Neither can there be any debate about the proposition that assuming the above described
factual premises of the Executive Orders and Proclamation No. 3 to be true, to be
demonstrable by competent evidence, the recovery from Marcos, his family and his dominions
of the assets and properties involved, is not only a right but a duty on the part of Government.
But however plain and valid that right and duty may be, still a balance must be sought with the
equally compelling necessity that a proper respect be accorded and adequate protection
assured, the fundamental rights of private property and free enterprise which are deemed
pillars of a free society such as ours, and to which all members of that society may without
exception lay claim.
* * Democracy, as a way of life enshrined in the Constitution, embraces as
its necessary components freedom of conscience, freedom of expression,
and freedom in the pursuit of happiness. Along with these freedoms are
included economic freedom and freedom of enterprise within reasonable
bounds and under proper control. * * Evincing much concern for the
protection of property, the Constitution distinctly recognizes the preferred
position which real estate has occupied in law for ages. Property is bound
up with every aspect of social life in a democracy as democracy is
conceived in the Constitution. The Constitution realizes the indispensable
role which property, owned in reasonable quantities and used legitimately,
plays in the stimulation to economic effort and the formation and growth
of a solid social middle class that is said to be the bulwark of democracy
and the backbone of every progressive and happy country. 42
a. Need of Evidentiary Substantiation in Proper Suit
Consequently, the factual premises of the Executive Orders cannot simply be assumed. They
will have to be duly established by adequate proof in each case, in a proper judicial
proceeding, so that the recovery of the ill-gotten wealth may be validly and properly adjudged
and consummated; although there are some who maintain that the fact-that an immense
fortune, and "vast resources of the government have been amassed by former President
Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and
abroad," and they have resorted to all sorts of clever schemes and manipulations to disguise

and hide their illicit acquisitions-is within the realm of judicial notice, being of so extensive
notoriety as to dispense with proof thereof, Be this as it may, the requirement of evidentiary
substantiation has been expressly acknowledged, and the procedure to be followed explicitly
laid down, in Executive Order No. 14.

ostensible owner of property is enjoined not to deliver, transfer, or otherwise dispose of any
effects or credits in his possession or control, and thus becomes in a sense an involuntary
depositary thereof. 47
c. Provisional Takeover

b. Need of Provisional Measures to Collect and Conserve Assets Pending

Suits
Nor may it be gainsaid that pending the institution of the suits for the recovery of such "illgotten wealth" as the evidence at hand may reveal, there is an obvious and imperative need for
preliminary, provisional measures to prevent the concealment, disappearance, destruction,
dissipation, or loss of the assets and properties subject of the suits, or to restrain or foil acts
that may render moot and academic, or effectively hamper, delay, or negate efforts to recover
the same.
7. Provisional Remedies Prescribed by Law
To answer this need, the law has prescribed three (3) provisional remedies. These are: (1)
sequestration; (2) freeze orders; and (3) provisional takeover.
Sequestration and freezing are remedies applicable generally to unearthed instances of "illgotten wealth." The remedy of "provisional takeover" is peculiar to cases where "business
enterprises and properties (were) taken over by the government of the Marcos Administration
or by entities or persons close to former President Marcos."43
a. Sequestration
By the clear terms of the law, the power of the PCGG to sequester property claimed to be "illgotten" means to place or cause to be placed under its possession or control said property, or
any building or office wherein any such property and any records pertaining thereto may be
found, including "business enterprises and entities,"-for the purpose of preventing the
destruction, concealment or dissipation of, and otherwise conserving and preserving, the sameuntil it can be determined, through appropriate judicial proceedings, whether the property was
in truth will- gotten," i.e., acquired through or as a result of improper or illegal use of or the
conversion of funds belonging to the Government or any of its branches, instrumentalities,
enterprises, banks or financial institutions, or by taking undue advantage of official position,
authority relationship, connection or influence, resulting in unjust enrichment of the ostensible
owner and grave damage and prejudice to the State. 44 And this, too, is the sense in which the
term is commonly understood in other jurisdictions. 45
b. "Freeze Order"
A "freeze order" prohibits the person having possession or control of property alleged to
constitute "ill-gotten wealth" "from transferring, conveying, encumbering or otherwise
depleting or concealing such property, or from assisting or taking part in its transfer,
encumbrance, concealment, or dissipation." 46 In other words, it commands the possessor to
hold the property and conserve it subject to the orders and disposition of the authority
decreeing such freezing. In this sense, it is akin to a garnishment by which the possessor or

In providing for the remedy of "provisional takeover," the law acknowledges the apparent
distinction between "ill gotten" "business enterprises and entities" (going concerns, businesses
in actual operation), generally, as to which the remedy of sequestration applies, it being
necessarily inferred that the remedy entails no interference, or the least possible interference
with the actual management and operations thereof; and "business enterprises which
were taken over by the government government of the Marcos Administration or by entities or
persons close to him," in particular, as to which a "provisional takeover" is authorized, "in the
public interest or to prevent disposal or dissipation of the enterprises." 48 Such a "provisional
takeover" imports something more than sequestration or freezing, more than the placing of the
business under physical possession and control, albeit without or with the least possible
interference with the management and carrying on of the business itself. In a "provisional
takeover," what is taken into custody is not only the physical assets of the business enterprise
or entity, but the business operation as well. It is in fine the assumption of control not only
over things, but over operations or on- going activities. But, to repeat, such a "provisional
takeover" is allowed only as regards "business enterprises * * taken over by the government of
the Marcos Administration or by entities or persons close to former President Marcos."
d. No Divestment of Title Over Property Seized
It may perhaps be well at this point to stress once again the provisional, contingent character
of the remedies just described. Indeed the law plainly qualifies the remedy of take-over by the
adjective, "provisional." These remedies may be resorted to only for a particular exigency: to
prevent in the public interest the disappearance or dissipation of property or business, and
conserve it pending adjudgment in appropriate proceedings of the primary issue of whether or
not the acquisition of title or other right thereto by the apparent owner was attended by some
vitiating anomaly. None of the remedies is meant to deprive the owner or possessor of his title
or any right to the property sequestered, frozen or taken over and vest it in the sequestering
agency, the Government or other person. This can be done only for the causes and by the
processes laid down by law.
That this is the sense in which the power to sequester, freeze or provisionally take over is to be
understood and exercised, the language of the executive orders in question leaves no doubt.
Executive Order No. 1 declares that the sequestration of property the acquisition of which is
suspect shall last "until the transactions leading to such acquisition * * can be disposed of by
the appropriate authorities." 49 Executive Order No. 2 declares that the assets or properties
therein mentioned shall remain frozen "pending the outcome of appropriate proceedings in the
Philippines to determine whether any such assets or properties were acquired" by illegal
means. Executive Order No. 14 makes clear that judicial proceedings are essential for the
resolution of the basic issue of whether or not particular assets are "ill-gotten," and resultant
recovery thereof by the Government is warranted.
e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional
Command

There is thus no cause for the apprehension voiced by BASECO 50 that sequestration, freezing
or provisional takeover is designed to be an end in itself, that it is the device through which
persons may be deprived of their property branded as "ill-gotten," that it is intended to bring
about a permanent, rather than a passing, transitional state of affairs. That this is not so is quite
explicitly declared by the governing rules.
Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of
these provisional remedies. Section 26 of its Transitory Provisions, 51 lays down the relevant
rule in plain terms, apart from extending ratification or confirmation (although not really
necessary) to the institution by presidential fiat of the remedy of sequestration and freeze
orders:
SEC. 26. The authority to issue sequestration or freeze orders under
Proclamation No. 3 dated March 25, 1986 in relation to the recovery of illgotten wealth shag remain operative for not more than eighteen
months after the ratification of this Constitution. However, in the national
interest, as certified by the President, the Congress may extend said period.
A sequestration or freeze order shall be issued only upon showing of
a prima facie case. The order and the list of the sequestered or frozen
properties shall forthwith be registered with the proper court. For orders
issued before the ratification of this Constitution, the corresponding
judicial action or proceeding shall be filed within six months from its
ratification. For those issued after such ratification, the judicial action or
proceeding shall be commenced within six months from the issuance
thereof.
The sequestration or freeze order is deemed automatically lifted if no
judicial action or proceeding is commenced as herein provided. 52

"a rigid insistence on sequestration as a purely judicial remedy * * (as it feels) that the law
should not be ossified to a point that makes it insensitive to change." What it insists on, what it
pronounces to be its "unyielding position, is that any change in procedure, or the institution of
a new one, should conform to due process and the other prescriptions of the Bill of Rights of
the Constitution." 57 It is, to be sure, a proposition on which there can be no disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and receivership, as well as delivery of personal
property in replevinsuits, sequestration and provisional takeover writs may issue ex
parte. 58 And as in preliminary attachment, receivership, and delivery of personality, no
objection of any significance may be raised to the ex parte issuance of an order of
sequestration, freezing or takeover, given its fundamental character of temporariness or
conditionality; and taking account specially of the constitutionally expressed "mandate of the
people to recover ill-gotten properties amassed by the leaders and supporters of the previous
regime and protect the interest of the people;" 59 as well as the obvious need to avoid alerting
suspected possessors of "ill-gotten wealth" and thereby cause that disappearance or loss of
property precisely sought to be prevented, and the fact, just as self-evident, that "any transfer,
disposition, concealment or disappearance of said assets and properties would frustrate,
obstruct or hamper the efforts of the Government" at the just recovery thereof. 60
8. Requisites for Validity
What is indispensable is that, again as in the case of attachment and receivership, there exist a
prima facie factual foundation, at least, for the sequestration, freeze or takeover order, and
adequate and fair opportunity to contest it and endeavor to cause its negation or
nullification. 61
Both are assured under the executive orders in question and the rules and regulations
promulgated by the PCGG.

f. Kinship to Attachment Receivership

a. Prima Facie Evidence as Basis for Orders
As thus described, sequestration, freezing and provisional takeover are akin to the provisional
remedy of preliminary attachment, or receivership. 53 By attachment, a sheriff seizes property
of a defendant in a civil suit so that it may stand as security for the satisfaction of any
judgment that may be obtained, and not disposed of, or dissipated, or lost intentionally or
otherwise, pending the action. 54 By receivership, property, real or personal, which is subject of
litigation, is placed in the possession and control of a receiver appointed by the Court, who
shall conserve it pending final determination of the title or right of possession over it. 55 All
these remedies sequestration, freezing, provisional, takeover, attachment and receivership
are provisional, temporary, designed for-particular exigencies, attended by no character of
permanency or finality, and always subject to the control of the issuing court or agency.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a
court is of no moment. The Solicitor General draws attention to the writ of distraint and levy
which since 1936 the Commissioner of Internal Revenue has been by law authorized to issue
against property of a delinquent taxpayer. 56 BASECO itself declares that it has not manifested

Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and
due process." 62Executive Order No. 2 declares that with respect to claims on allegedly "illgotten" assets and properties, "it is the position of the new democratic government that
President Marcos * * (and other parties affected) be afforded fair opportunity to contest these
claims before appropriate Philippine authorities." 63 Section 7 of the Commission's Rules and
Regulations provides that sequestration or freeze (and takeover) orders issue upon the
authority of at least two commissioners, based on the affirmation or complaint of an interested
party, or motu proprio when the Commission has reasonable grounds to believe that the
issuance thereof is warranted. 64 A similar requirement is now found in Section 26, Art. XVIII
of the 1987 Constitution, which requires that a "sequestration or freeze order shall be issued
only upon showing of a prima facie case."65
b. Opportunity to Contest

And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a
party may seek to set aside a writ of sequestration or freeze order, viz:
SECTION 5. Who may contend.-The person against whom a writ of
sequestration or freeze or hold order is directed may request the lifting
thereof in writing, either personally or through counsel within five (5)
days from receipt of the writ or order, or in the case of a hold order, from
date of knowledge thereof.
SECTION 6. Procedure for review of writ or order.-After due hearing or
motu proprio for good cause shown, the Commission may lift the writ or
order unconditionally or subject to such conditions as it may deem
necessary, taking into consideration the evidence and the circumstance of
the case. The resolution of the commission may be appealed by the party
concerned to the Office of the President of the Philippines within fifteen
(15) days from receipt thereof.

and such orders as may be warranted by the evidence thus collected and as may be necessary
to preserve and conserve the assets of which it takes custody and control and prevent their
disappearance, loss or dissipation; and eventually file and prosecute in the proper court of
competent jurisdiction all cases investigated by it as may be warranted by its findings. It does
not try and decide, or hear and determine, or adjudicate with any character of finality or
compulsion, cases involving the essential issue of whether or not property should be forfeited
and transferred to the State because "ill-gotten" within the meaning of the Constitution and the
executive orders. This function is reserved to the designated court, in this case, the
Sandiganbayan. 71 There can therefore be no serious regard accorded to the accusation, leveled
by BASECO, 72 that the PCGG plays the perfidious role of prosecutor and judge at the same
time.
11. Facts Preclude Grant of Relief to Petitioner
Upon these premises and reasoned conclusions, and upon the facts disclosed by the record,
hereafter to be discussed, the petition cannot succeed. The writs of certiorari and prohibition
prayed for will not be issued.

Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth" were
not expressly imposed by some rule or regulation as a condition to warrant the sequestration or
freezing of property contemplated in the executive orders in question, it would nevertheless be
exigible in this jurisdiction in which the Rule of Law prevails and official acts which are
devoid of rational basis in fact or law, or are whimsical and capricious, are condemned and
struck down. 66

The facts show that the corporation known as BASECO was owned or controlled by President
Marcos "during his administration, through nominees, by taking undue advantage of his public
office and/or using his powers, authority, or influence, " and that it was by and through the
same means, that BASECO had taken over the business and/or assets of the National Shipyard
and Engineering Co., Inc., and other government-owned or controlled entities.

9. Constitutional Sanction of Remedies

12. Organization and Stock Distribution of BASECO

If any doubt should still persist in the face of the foregoing considerations as to the validity
and propriety of sequestration, freeze and takeover orders, it should be dispelled by the fact
that these particular remedies and the authority of the PCGG to issue them have received
constitutional approbation and sanction. As already mentioned, the Provisional or "Freedom"
Constitution recognizes the power and duty of the President to enact "measures to achieve the
mandate of the people to * * * (recover ill- gotten properties amassed by the leaders and
supporters of the previous regime and protect the interest of the people through orders of
sequestration or freezing of assets or accounts." And as also already adverted to, Section 26,
Article XVIII of the 1987 Constitution67 treats of, and ratifies the "authority to issue
sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986."

BASECO describes itself in its petition as "a shiprepair and shipbuilding company * *
incorporated as a domestic private corporation * * (on Aug. 30, 1972) by a consortium of
Filipino shipowners and shipping executives. Its main office is at Engineer Island, Port Area,
Manila, where its Engineer Island Shipyard is housed, and its main shipyard is located at
Mariveles Bataan." 73 Its Articles of Incorporation disclose that its authorized capital stock is
P60,000,000.00 divided into 60,000 shares, of which 12,000 shares with a value of
P12,000,000.00 have been subscribed, and on said subscription, the aggregate sum of
P3,035,000.00 has been paid by the incorporators. 74 The same articles Identify the
incorporators, numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee, (3)
Eduardo T. Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7)
Antonio M. Ezpeleta, (8) Zacarias Amante, (9) Severino de la Cruz, (10) Jose Francisco, (11)
Dioscoro Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza, (14) Magiliw Torres, and (15)
Rodolfo Torres.

The institution of these provisional remedies is also premised upon the State's inherent police
power, regarded, as t lie power of promoting the public welfare by restraining and regulating
the use of liberty and property," 68 and as "the most essential, insistent and illimitable of
powers * * in the promotion of general welfare and the public interest," 69and said to be coextensive with self-protection and * * not inaptly termed (also) the'law of overruling
necessity." " 70
10. PCGG not a "Judge"; General Functions
It should also by now be reasonably evident from what has thus far been said that the PCGG is
not, and was never intended to act as, a judge. Its general function is to conduct investigations
in order to collect evidenceestablishing instances of "ill-gotten wealth;" issue sequestration,

By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be stockholders,
namely: (1) Generoso Tanseco, (2) Antonio Ezpeleta, (3) Zacarias Amante, (4) Octavio
Posadas, (5) Magiliw Torres, and (6) Rodolfo Torres. As of this year, 1986, there were twenty
(20) stockholders listed in BASECO's Stock and Transfer Book. 75 Their names and the
number of shares respectively held by them are as follows:

1. Jose A. Rojas

1,248 shares

11. Trident
Management

7,412 shares

12. United Phil. Lines

1,240 shares

2. Severino G. de la
Cruz

1,248 shares

3. Emilio T. Yap

2,508 shares

13. Renato M. Tanseco

8 shares

4. Jose Fernandez

1,248 shares

14. Fidel Ventura

8 shares

5. Jose Francisco

128 shares

15. Metro Bay

Drydock

136,370 shares

6. Manuel S. Mendoza

96 shares

16. Manuel Jacela

1 share

7. Anthony P. Lee

1,248 shares

17. Jonathan G. Lu

1 share

8. Hilario M. Ruiz

32 shares

18. Jose J. Tanchanco

1 share

9. Constante L. Farias

8 shares

19. Dioscoro Papa

128 shares

10. Fidelity
Management, Inc.

65,882 shares

20. Edward T. Marcelo

4 shares

TOTAL

218,819 shares.

13 Acquisition of NASSCO by BASECO

Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel
Corporation, or NASSCO, a government-owned or controlled corporation, the latter's shipyard
at Mariveles, Bataan, known as the Bataan National Shipyard (BNS), and except for
NASSCO's Engineer Island Shops and certain equipment of the BNS, consigned for future
negotiation all its structures, buildings, shops, quarters, houses, plants, equipment and
facilities, in stock or in transit. This it did in virtue of a "Contract of Purchase and Sale with
Chattel Mortgage" executed on February 13, 1973. The price was P52,000,000.00. As partial
payment thereof, BASECO delivered to NASSCO a cash bond of P11,400,000.00, convertible
into cash within twenty-four (24) hours from completion of the inventory undertaken pursuant
to the contract. The balance of P41,600,000.00, with interest at seven percent (7%) per annum,
compounded semi-annually, was stipulated to be paid in equal semi-annual installments over a
term of nine (9) years, payment to commence after a grace period of two (2) years from date
of turnover of the shipyard to BASECO. 76

and underneath it, his usual full signature. Transferred to BASECO were NASSCO's
"ownership and all its titles, rights and interests over all equipment and facilities including
structures, buildings, shops, quarters, houses, plants and expendable or semi-expendable
assets, located at the Engineer Island, known as the Engineer Island Shops, including all the
equipment of the Bataan National Shipyards (BNS) which were excluded from the sale of
NBS to BASECO but retained by BASECO and all other selected equipment and machineries
of NASSCO at J. Panganiban Smelting Plant." In the same deed, NASSCO committed itself to
cooperate with BASECO for the acquisition from the National Government or other
appropriate Government entity of Engineer Island. Consideration for the sale was set at
P5,000,000.00; a down payment of P1,000,000.00 appears to have been made, and the balance
was stipulated to be paid at 7% interest per annum in equal semi annual installments over a
term of nine (9) years, to commence after a grace period of two (2) years. Mr. Arturo
Pacificador again signed for NASSCO, together with the general manager, Mr. David R. Ines.
17. Loans Obtained
It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken from
"the last available Japanese war damage fund of $19,000,000.00," to pay for "Japanese made
heavy equipment (brand new)." 80On September 3, 1975, it got another loan also from the
NDC in the amount of P30,000,000.00 (id.). And on January 28, 1976, it got still another loan,
this time from the GSIS, in the sum of P12,400,000.00. 81 The claim has been made that not a
single centavo has been paid on these loans. 82

14. Subsequent Reduction of Price; Intervention of Marcos

18. Reports to President Marcos
Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to
P24,311,550.00, about eight (8) months later. A document to this effect was executed on
October 9, 1973, entitled "Memorandum Agreement," and was signed for NASSCO by Arturo
Pacificador, as Presiding Officer of the Board of Directors, and David R. Ines, as General
Manager. 77 This agreement bore, at the top right corner of the first page, the word
"APPROVED" in the handwriting of President Marcos, followed by his usual full signature.
The document recited that a down payment of P5,862,310.00 had been made by BASECO,
and the balance of P19,449,240.00 was payable in equal semi-annual installments over nine
(9) years after a grace period of two (2) years, with interest at 7% per annum.
15. Acquisition of 300 Hectares from Export Processing Zone Authority
On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles
from the Export Processing Zone Authority for the price of P10,047,940.00 of which, as set
out in the document of sale, P2,000.000.00 was paid upon its execution, and the balance
stipulated to be payable in installments. 78
16. Acquisition of Other Assets of NASSCO; Intervention of Marcos
Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the
intervention of President Marcos, acquired ownership of the rest of the assets of NASSCO
which had not been included in the first two (2) purchase documents. This was accomplished
by a deed entitled "Contract of Purchase and Sale," 79which, like the Memorandum of
Agreement dated October 9, 1973 supra also bore at the upper right-hand corner of its first
page, the handwritten notation of President Marcos reading, "APPROVED, July 29, 1973,"

In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO.
The first was contained in a letter dated September 5, 1977 of Hilario M. Ruiz, BASECO
president. 83 The second was embodied in a confidential memorandum dated September 16,
1977 of Capt. A.T. Romualdez. 84 They further disclose the fine hand of Marcos in the affairs
of BASECO, and that of a Romualdez, a relative by affinity.
a. BASECO President's Report
In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that there had
been "no orders or demands for ship construction" for some time and expressed the fear that if
that state of affairs persisted, BASECO would not be able to pay its debts to the Government,
which at the time stood at the not inconsiderable amount of P165,854,000.00. 85 He suggested
that, to "save the situation," there be a "spin-off (of their) shipbuilding activities which shall be
handled exclusively by an entirely new corporation to be created;" and towards this end, he
informed Marcos that BASECO was
* * inviting NDC and LUSTEVECO to participate by converting the NDC
shipbuilding loan to BASECO amounting to P341.165M and assuming
and converting a portion of BASECO's shipbuilding loans from
REPACOM amounting to P52.2M or a total of P83.365M as NDC's equity
contribution in the new corporation. LUSTEVECO will participate by
absorbing and converting a portion of the REPACOM loan of Bay
Shipyard and Drydock, Inc., amounting to P32.538M. 86

b. Romualdez' Report

5. Contract dated October 9, 1973, between NASSCO and BASECO restructure and equipment at Mariveles, Bataan;

Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It opened
with the following caption:

6. Contract dated July 16, 1975, between NASSCO and BASECO restructure and equipment at Engineer Island, Port Area Manila;

MEMORANDUM:
7. Contract dated October 1, 1974, between EPZA and BASECO re 300
hectares of land at Mariveles, Bataan;

FOR : The President

SUBJECT: An Evaluation and Re-assessment of a Performance of a
Mission

8. List of BASECO's fixed assets;

9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC
of P30,000,000.00;

FROM: Capt. A.T. Romualdez.

Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan
obligations due chiefly to the fact that "orders to build ships as expected * * did not
materialize."
He advised that five stockholders had "waived and/or assigned their holdings inblank," these
being: (1) Jose A. Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and
(5) Anthony P. Lee. Pointing out that "Mr. Magiliw Torres * * is already dead and Mr. Jose A.
Rojas had a major heart attack," he made the following quite revealing, and it may be added,
quite cynical and indurate recommendation, to wit:
* * (that) their replacements (be effected) so we can register their names in
the stock book prior to the implementation of your instructions to pass a
board resolution to legalize the transfers under SEC regulations;
2. By getting their replacements, the families cannot question us later
on; and

10. BASECO-REPACOM Agreement dated May 27, 1975;

11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for
the housing facilities for BASECO's rank-and-file employees. 90
Capt. Romualdez also recommended that BASECO's loans be restructured "until such period
when BASECO will have enough orders for ships in order for the company to meet loan
obligations," and that
An LOI may be issued to government agencies using floating equipment,
that a linkage scheme be applied to a certain percent of BASECO's net
profit as part of BASECO's amortization payments tomake it justifiable
for you, Sir. 91
It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer of
BASECO, yet he has presented a report on BASECO to President Marcos, and his report
demonstrates intimate familiarity with the firm's affairs and problems.

3. We will owe no further favors from them. 87

19. Marcos' Response to Reports
He also transmitted to Marcos, together with the report, the following documents:

88

1. Stock certificates indorsed and assigned in blank with assignments and

waivers; 89
2. The articles of incorporation, the amended articles, and the by-laws of
BASECO;
3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of
land in "Engineer Island", Port Area, Manila;
4. Transfer Certificate of Title No. 124822 in the name of BASECO,
covering "Engineer Island";

President Marcos lost no time in acting on his subordinates' recommendations, particularly as

regards the "spin-off" and the "linkage scheme" relative to "BASECO's amortization
payments."
a. Instructions re "Spin-Off"
Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo
Velasco of the Philippine National Oil Company and Chairman Constante Farias of the
National Development Company, directing them "to participate in the formation of a new
corporation resulting from the spin-off of the shipbuilding component of BASECO along the
following guidelines:

a. Equity participation of government shall be through LUSTEVECO and

NDC in the amount of P115,903,000 consisting of the
following obligations of BASECO which are hereby authorized to be
converted to equity of the said new corporation, to wit:
1. NDC P83,865,000 (P31.165M loan & P52.2M
Reparation)

And so, through a simple letter of instruction and memorandum,

BASECO's loan obligation to NDC and REPACOM * * in the total
amount of P83.365M and BSD's REPACOM loan of P32.438M were
wiped out and converted into non-voting preferred shares. 95
20. Evidence of Marcos'
Ownership of BASECO

2. LUSTEVECO P32,538,000 (Reparation)

b. Equity participation of government shall be in the form of non- voting
shares.
For immediate compliance. 92
Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22)
days after receiving their president's memorandum, Messrs. Hilario M. Ruiz, Constante L.
Farias and Geronimo Z. Velasco, in representation of their respective corporations, executed
a PRE-INCORPORATION AGREEMENT dated October 20, 1977. 93 In it, they undertook to
form a shipbuilding corporation to be known as "PHIL-ASIA SHIPBUILDING
CORPORATION," to bring to realization their president's instructions. It would seem that the
new corporation ultimately formed was actually named "Philippine Dockyard Corporation
(PDC)." 94
b. Letter of Instructions No. 670
Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On
February 14, 1978, he issued Letter of Instructions No. 670 addressed to the Reparations
Commission REPACOM the Philippine National Oil Company (PNOC), the Luzon
Stevedoring Company (LUSTEVECO), and the National Development Company (NDC).
What is commanded therein is summarized by the Solicitor General, with pithy and not
inaccurate observations as to the effects thereof (in italics), as follows:
* * 1) the shipbuilding equipment procured by BASECO through
reparations be transferred to NDC subject to reimbursement by NDC to
BASECO (of) the amount of s allegedly representing the handling and
incidental expenses incurred by BASECO in the installation of said
equipment (so instead of NDC getting paid on its loan to BASECO, it was
made to pay BASECO instead the amount of P18.285M); 2) the
shipbuilding equipment procured from reparations through EPZA, now in
the possession of BASECO and BSDI (Bay Shipyard & Drydocking, Inc.)
be transferred to LUSTEVECO through PNOC; and 3) the shipbuilding
equipment (thus) transferred be invested by LUSTEVECO, acting through
PNOC and NDC, as the government's equity participation in a
shipbuilding corporation to be established in partnership with the private
sector.
xxx xxx xxx

It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the
control by President Marcos of BASECO has been sufficiently shown.
Other evidence submitted to the Court by the Solicitor General proves that President Marcos
not only exercised control over BASECO, but also that he actually owns well nigh one
hundred percent of its outstanding stock.
It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819
shares of stock outstanding, ostensibly owned by twenty (20) stockholders. 96 Four of these
twenty are juridical persons: (1) Metro Bay Drydock, recorded as holding 136,370 shares;
(2) Fidelity Management, Inc., 65,882 shares; (3) Trident Management,7,412 shares; and (4)
United Phil. Lines, 1,240 shares. The first three corporations, among themselves, own an
aggregate of 209,664 shares of BASECO stock, or 95.82% of the outstanding stock.
Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that
found in Malacanang shortly after the sudden flight of President Marcos, were certificates
corresponding to more thanninety-five percent (95%) of all the outstanding shares of stock of
BASECO, endorsed in blank, together with deeds of assignment of practically all the
outstanding shares of stock of the three (3) corporations above mentioned (which
hold 95.82% of all BASECO stock), signed by the owners thereof although not notarized. 97
More specifically, found in Malacanang (and now in the custody of the PCGG) were:
1) the deeds of assignment of all 600 outstanding shares of Fidelity
Management Inc. which supposedly owns as aforesaid 65,882 shares of
BASECO stock;
2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding
shares of Metro Bay Drydock Corporation which allegedly owns
136,370 shares of BASECO stock;
3) the deeds of assignment of 800 outstanding shares of Trident
Management Co., Inc. which allegedly owns 7,412 shares of BASECO
stock, assigned in blank; 98 and
4) stock certificates corresponding to 207,725 out of the 218,819
outstanding shares of BASECO stock; that is, all but 5 % all endorsed
in blank. 99

While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that
the BASECO stockholders were still in possession of their respective stock certificates and
had "never endorsed * * them in blank or to anyone else," 100 that denial is exposed by his
own prior and subsequent recorded statements as a mere gesture of defiance rather than a
verifiable factual declaration.
By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of 10
days "to SUBMIT,as undertaken by him, * * the certificates of stock issued to the stockholders
of * * BASECO as of April 23, 1986, as listed in Annex 'P' of the petition.' 101 Counsel
thereafter moved for extension; and in his motion dated October 2, 1986, he declared inter
alia that "said certificates of stock are in the possession of third parties, among whom being
the respondents themselves * * and petitioner is still endeavoring to secure copies thereof
from them." 102 On the same day he filed another motion praying that he be allowed
"to secure copies of the Certificates of Stock in the name of Metro Bay Drydock, Inc., and of
all other Certificates, of Stock of petitioner's stockholders in possession of respondents." 103
In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably argued
that counsel's aforestated motion to secure copies of the stock certificates "confirms the fact
that stockholders of petitioner corporation are not in possession of * * (their) certificates of
stock," and the reason, according to him, was "that 95% of said shares * * have been endorsed
in blank and found in Malacaang after the former President and his family fled the country."
To this manifestation BASECO's counsel replied on November 5, 1986, as already mentioned,
Stubbornly insisting that the firm's stockholders had not really assigned their stock. 105
In view of the parties' conflicting declarations, this Court resolved on November 27, 1986
among other things "to require * * the petitioner * * to deposit upon proper receipt with Clerk
of Court Juanito Ranjo the originals of the stock certificates alleged to be in its possession or
accessible to it, mentioned and described in Annex 'P' of its petition, (and other pleadings) * *
within ten (10) days from notice." 106 In a motion filed on December 5, 1986, 107 BASECO's
counsel made the statement, quite surprising in the premises, that "it will negotiate with the
owners (of the BASECO stock in question) to allow petitioner to borrow from them, if
available, the certificates referred to" but that "it needs a more sufficient time therefor" (sic).
BASECO's counsel however eventually had to confess inability to produce the originals of the
stock certificates, putting up the feeble excuse that while he had "requested the stockholders to
allow * * (him) to borrow said certificates, * * some of * * (them) claimed that they had
delivered the certificates to third parties by way of pledge and/or to secure performance of
obligations, while others allegedly have entrusted them to third parties in view of last national
emergency." 108 He has conveniently omitted, nor has he offered to give the details of the
transactions adverted to by him, or to explain why he had not impressed on the supposed
stockholders the primordial importance of convincing this Court of their present custody of the
originals of the stock, or if he had done so, why the stockholders are unwilling to agree to
some sort of arrangement so that the originals of their certificates might at the very least be
exhibited to the Court. Under the circumstances, the Court can only conclude that he could not
get the originals from the stockholders for the simple reason that, as the Solicitor General
maintains, said stockholders in truth no longer have them in their possession, these having
already been assigned in blank to then President Marcos.
21. Facts Justify Issuance of Sequestration and Takeover Orders

In the light of the affirmative showing by the Government that, prima facie at least, the
stockholders and directors of BASECO as of April, 1986 109 were mere "dummies,"
nominees or alter egos of President Marcos; at any rate, that they are no longer owners of any
shares of stock in the corporation, the conclusion cannot be avoided that said stockholders and
directors have no basis and no standing whatever to cause the filing and prosecution of the
instant proceeding; and to grant relief to BASECO, as prayed for in the petition, would in
effect be to restore the assets, properties and business sequestered and taken over by the
PCGG to persons who are "dummies," nominees or alter egos of the former president.
From the standpoint of the PCGG, the facts herein stated at some length do indeed show that
the private corporation known as BASECO was "owned or controlled by former President
Ferdinand E. Marcos * * during his administration, * * through nominees, by taking advantage
of * * (his) public office and/or using * * (his) powers, authority, influence * *," and that
NASSCO and other property of the government had been taken over by BASECO; and the
situation justified the sequestration as well as the provisional takeover of the corporation in the
public interest, in accordance with the terms of Executive Orders No. 1 and 2, pending the
filing of the requisite actions with the Sandiganbayan to cause divestment of title thereto from
Marcos, and its adjudication in favor of the Republic pursuant to Executive Order No. 14.
As already earlier stated, this Court agrees that this assessment of the facts is correct;
accordingly, it sustains the acts of sequestration and takeover by the PCGG as being in accord
with the law, and, in view of what has thus far been set out in this opinion, pronounces to be
without merit the theory that said acts, and the executive orders pursuant to which they were
done, are fatally defective in not according to the parties affected prior notice and hearing, or
an adequate remedy to impugn, set aside or otherwise obtain relief therefrom, or that the
PCGG had acted as prosecutor and judge at the same time.
22. Executive Orders Not a Bill of Attainder
Neither will this Court sustain the theory that the executive orders in question are a bill of
attainder. 110 "A bill of attainder is a legislative act which inflicts punishment without judicial
trial." 111 "Its essence is the substitution of a legislative for a judicial determination of
guilt." 112
In the first place, nothing in the executive orders can be reasonably construed as a
determination or declaration of guilt. On the contrary, the executive orders, inclusive of
Executive Order No. 14, make it perfectly clear that any judgment of guilt in the amassing or
acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal, in this case,
the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In the second place,
no punishment is inflicted by the executive orders, as the merest glance at their provisions will
immediately make apparent. In no sense, therefore, may the executive orders be regarded as a
bill of attainder.
23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures
BASECO also contends that its right against self incrimination and unreasonable searches and
seizures had been transgressed by the Order of April 18, 1986 which required it "to produce
corporate records from 1973 to 1986 under pain of contempt of the Commission if it fails to
do so." The order was issued upon the authority of Section 3 (e) of Executive Order No. 1,

treating of the PCGG's power to "issue subpoenas requiring * * the production of such books,
papers, contracts, records, statements of accounts and other documents as may be material to
the investigation conducted by the Commission, " and paragraph (3), Executive Order No. 2
dealing with its power to "require all persons in the Philippines holding * * (alleged "illgotten") assets or properties, whether located in the Philippines or abroad, in their names as
nominees, agents or trustees, to make full disclosure of the same * *." The contention lacks
merit.
It is elementary that the right against self-incrimination has no application to juridical persons.
While an individual may lawfully refuse to answer incriminating questions
unless protected by an immunity statute, it does not follow that a
corporation, vested with special privileges and franchises, may refuse to
show its hand when charged with an abuse ofsuchprivileges * * 113
Relevant jurisprudence is also cited by the Solicitor General. 114
* * corporations are not entitled to all of the constitutional protections
which private individuals have. * * They are not at all within the privilege
against self-incrimination, although this court more than once has said that
the privilege runs very closely with the 4th Amendment's Search and
Seizure provisions. It is also settled that an officer of the company cannot
refuse to produce its records in its possession upon the plea that they will
either incriminate him or may incriminate it." (Oklahoma Press Publishing
Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's).
* * The corporation is a creature of the state. It is presumed to be
incorporated for the benefit of the public. It received certain special
privileges and franchises, and holds them subject to the laws of the state
and the limitations of its charter. Its powers are limited by law. It can make
no contract not authorized by its charter. Its rights to act as a corporation
are only preserved to it so long as it obeys the laws of its creation. There is
a reserve right in the legislature to investigate its contracts and find out
whether it has exceeded its powers. It would be a strange anomaly to hold
that a state, having chartered a corporation to make use of certain
franchises, could not, in the exercise of sovereignty, inquire how these
franchises had been employed, and whether they had been abused, and
demand the production of the corporate books and papers for that purpose.
The defense amounts to this, that an officer of the corporation which is
charged with a criminal violation of the statute may plead the criminality
of such corporation as a refusal to produce its books. To state this
proposition is to answer it. While an individual may lawfully refuse to
answer incriminating questions unless protected by an immunity statute, it
does not follow that a corporation, vested with special privileges and
franchises may refuse to show its hand when charged with an abuse of
such privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis,
the Solicitor General's])

At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14
assures protection to individuals required to produce evidence before the PCGG against any
possible violation of his right against self-incrimination. It gives them immunity from
prosecution on the basis of testimony or information he is compelled to present. As amended,
said Section 4 now provides that
xxx xxx xxx
The witness may not refuse to comply with the order on the basis of his
privilege against self-incrimination; but no testimony or other information
compelled under the order (or any information directly or indirectly
derived from such testimony, or other information) may be used against
the witness in any criminal case, except a prosecution for perjury, giving a
false statement, or otherwise failing to comply with the order.
The constitutional safeguard against unreasonable searches and seizures finds no application
to the case at bar either. There has been no search undertaken by any agent or representative of
the PCGG, and of course no seizure on the occasion thereof.
24. Scope and Extent of Powers of the PCGG
One other question remains to be disposed of, that respecting the scope and extent of the
powers that may be wielded by the PCGG with regard to the properties or businesses placed
under sequestration or provisionally taken over. Obviously, it is not a question to which an
answer can be easily given, much less one which will suffice for every conceivable situation.
a. PCGG May Not Exercise Acts of Ownership
One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of
dominion over property sequestered, frozen or provisionally taken over. AS already earlier
stressed with no little insistence, the act of sequestration; freezing or provisional takeover of
property does not import or bring about a divestment of title over said property; does not make
the PCGG the owner thereof. In relation to the property sequestered, frozen or provisionally
taken over, the PCGG is a conservator, not an owner. Therefore, it can not perform acts of
strict ownership; and this is specially true in the situations contemplated by the sequestration
rules where, unlike cases of receivership, for example, no court exercises effective supervision
or can upon due application and hearing, grant authority for the performance of acts of
dominion.
Equally evident is that the resort to the provisional remedies in question should entail the least
possible interference with business operations or activities so that, in the event that the
accusation of the business enterprise being "ill gotten" be not proven, it may be returned to its
rightful owner as far as possible in the same condition as it was at the time of sequestration.
b. PCGG Has Only Powers of Administration
The PCGG may thus exercise only powers of administration over the property or business
sequestered or provisionally taken over, much like a court-appointed receiver, 115 such as to

bring and defend actions in its own name; receive rents; collect debts due; pay outstanding
debts; and generally do such other acts and things as may be necessary to fulfill its mission as
conservator and administrator. In this context, it may in addition enjoin or restrain any actual
or threatened commission of acts by any person or entity that may render moot and academic,
or frustrate or otherwise make ineffectual its efforts to carry out its task; punish for direct or
indirect contempt in accordance with the Rules of Court; and seek and secure the assistance of
any office, agency or instrumentality of the government. 116 In the case of sequestered
businesses generally (i.e., going concerns, businesses in current operation), as in the case of
sequestered objects, its essential role, as already discussed, is that of conservator, caretaker,
"watchdog" or overseer. It is not that of manager, or innovator, much less an owner.
c. Powers over Business Enterprises Taken Over by Marcos or Entities or
Persons Close to him; Limitations Thereon
Now, in the special instance of a business enterprise shown by evidence to have been "taken
over by the government of the Marcos Administration or by entities or persons close to former
President Marcos," 117 the PCGG is given power and authority, as already adverted to, to
"provisionally take (it) over in the public interest or to prevent * * (its) disposal or
dissipation;" and since the term is obviously employed in reference to going concerns, or
business enterprises in operation, something more than mere physical custody is connoted; the
PCGG may in this case exercise some measure of control in the operation, running, or
management of the business itself. But even in this special situation, the intrusion into
management should be restricted to the minimum degree necessary to accomplish the
legislative will, which is "to prevent the disposal or dissipation" of the business enterprise.
There should be no hasty, indiscriminate, unreasoned replacement or substitution of
management officials or change of policies, particularly in respect of viable establishments. In
fact, such a replacement or substitution should be avoided if at all possible, and undertaken
only when justified by demonstrably tenable grounds and in line with the stated objectives of
the PCGG. And it goes without saying that where replacement of management officers may be
called for, the greatest prudence, circumspection, care and attention - should accompany that
undertaking to the end that truly competent, experienced and honest managers may be
recruited. There should be no role to be played in this area by rank amateurs, no matter how
wen meaning. The road to hell, it has been said, is paved with good intentions. The business is
not to be experimented or played around with, not run into the ground, not driven to
bankruptcy, not fleeced, not ruined. Sight should never be lost sight of the ultimate objective
of the whole exercise, which is to turn over the business to the Republic, once judicially
established to be "ill-gotten." Reason dictates that it is only under these conditions and
circumstances that the supervision, administration and control of business enterprises
provisionally taken over may legitimately be exercised.
d. Voting of Sequestered Stock; Conditions Therefor
So, too, it is within the parameters of these conditions and circumstances that the PCGG may
properly exercise the prerogative to vote sequestered stock of corporations, granted to it by the
President of the Philippines through a Memorandum dated June 26, 1986. That Memorandum
authorizes the PCGG, "pending the outcome of proceedings to determine the ownership of * *
(sequestered) shares of stock," "to vote such shares of stock as it may have sequestered in
corporations at all stockholders' meetings called for the election of directors, declaration of
dividends, amendment of the Articles of Incorporation, etc." The Memorandum should be
construed in such a manner as to be consistent with, and not contradictory of the Executive

Orders earlier promulgated on the same matter. There should be no exercise of the right to vote
simply because the right exists, or because the stocks sequestered constitute the controlling or
a substantial part of the corporate voting power. The stock is not to be voted to replace
directors, or revise the articles or by-laws, or otherwise bring about substantial changes in
policy, program or practice of the corporation except for demonstrably weighty and defensible
grounds, and always in the context of the stated purposes of sequestration or provisional
takeover, i.e., to prevent the dispersion or undue disposal of the corporate assets. Directors are
not to be voted out simply because the power to do so exists. Substitution of directors is not to
be done without reason or rhyme, should indeed be shunned if at an possible, and undertaken
only when essential to prevent disappearance or wastage of corporate property, and always
under such circumstances as assure that the replacements are truly possessed of competence,
experience and probity.
In the case at bar, there was adequate justification to vote the incumbent directors out of office
and elect others in their stead because the evidence showed prima facie that the former were
just tools of President Marcos and were no longer owners of any stock in the firm, if they ever
were at all. This is why, in its Resolution of October 28, 1986; 118 this Court declared that
Petitioner has failed to make out a case of grave abuse or excess of
jurisdiction in respondents' calling and holding of a stockholders' meeting
for the election of directors as authorized by the Memorandum of the
President * * (to the PCGG) dated June 26, 1986, particularly, where as in
this case, the government can, through its designated directors, properly
exercise control and management over what appear to be properties and
assets owned and belonging to the government itself and over which the
persons who appear in this case on behalf of BASECO have failed to show
any right or even any shareholding in said corporation.
It must however be emphasized that the conduct of the PCGG nominees in the BASECO
Board in the management of the company's affairs should henceforth be guided and governed
by the norms herein laid down. They should never for a moment allow themselves to forget
that they are conservators, not owners of the business; they are fiduciaries, trustees, of whom
the highest degree of diligence and rectitude is, in the premises, required.
25. No Sufficient Showing of Other Irregularities
As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and
the execution of certain contracts, inclusive of the termination of the employment of some of
its executives, 119 this Court cannot, in the present state of the evidence on record, pass upon
them. It is not necessary to do so. The issues arising therefrom may and will be left for initial
determination in the appropriate action. But the Court will state that absent any showing of
any important cause therefor, it will not normally substitute its judgment for that of the PCGG
in these individual transactions. It is clear however, that as things now stand, the petitioner
cannot be said to have established the correctness of its submission that the acts of the PCGG
in question were done without or in excess of its powers, or with grave abuse of discretion.
WHEREFORE, the petition is dismissed. The temporary restraining order issued on October
14, 1986 is lifted.

Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.

punish for direct or indirect contempt in accordance with the Rules of Court; and seek and
secure the assistance of any office, agency or instrumentality of the government. In the case of
sequestered businesses generally (i.e. going concerns, business in current operation), as in the
case of sequestered objects, its essential role, as already discussed, is that of conservator,
caretaker, 'watchdog' or overseer. It is not that of manager, or innovator, much less an
owner." 5

Separate Opinions

Now, the case at bar involves one where the third and most encompassing and rarely invoked
of provisional remedies, 6 the provisional takeover of the Baseco properties and business
operations has been availed of by the PCGG, simply because the evidence on hand, not
only prima facie but convincingly with substantial and documentary evidence of record
establishes that the corporation known as petitioner BASECO "was owned or controlled by
President Marcos 'during his administration, through nominees, by taking undue advantage of
his public office and/or using his powers, authority, or influence;' and that it was by and
through the same means, that BASECO had taken over the business and/or assets of the
[government-owned] National Shipyard and Engineering Co., Inc., and other governmentowned or controlled entities." The documentary evidence shows that petitioner BASECO (read
Ferdinand E. Marcos) in successive transactions all directed and approved by the former
President-in an orgy of what according to the PCGG's then chairman, Jovito Salonga, in his
statement before the 1986 Constitutional Commission, "Mr. Ople once called 'organized
pillage' "-gobbled up the government corporation National Shipyard & Steel Corporation
NASSCO its shipyard at Mariveles, 300 hectares of land in Mariveles from the Export
Processing Zone Authority, Engineer Island itself in Manila and its complex of equipment and
facilities including structures, buildings, shops, quarters, houses, plants and expendable or
semi-expendable assets and obtained huge loans of $19,000,000.00 from the last available
Japanese war damage fund, P30,000,000.00 from the NDC and P12,400,000.00 from the
GSIS. The sordid details are set forth in detail in Paragraphs 1 1 to 20 of the main opinion.
They include confidential reports from then BASECO president Hilario M. Ruiz and the
deposed President's brother-in- law, then Captain (later Commodore) Alfredo Romualdez, who
although not on record as an officer or stockholder of BASECO reported directly to the
deposed President on its affairs and made the recommendations, all approved by the latter, for
the gobbling up by BASECO of all the choice government assets and properties.

TEEHANKEE, CJ., concurring:

I fully concur with the masterly opinion of Mr. Justice Narvasa. In the process of disposing of
the issues raised by petitioner BASECO in the case at bar, it comprehensively discusses the
laws and principles governing the Presidential Commission on Good Government (PCGG)
and defines the scope and extent of its powers in the discharge of its monumental task of
recovering the "ill-gotten wealth, accumulated by former President Ferdinand E. Marcos, his
immediate family, relatives, subordinates and close associates, whether located in the
Philippines or abroad (and) business enterprises and entities owned or controlled by them
during I . . .(the Marcos) administration, directly or through nominees, by taking undue
advantage of their public office and/or using their powers, authority, influence, connections or
relationship." 1
The Court is unanimous insofar as the judgment at bar upholds the imperative need of
recovering the ill-gotten properties amassed by the previous regime, which "deserves the
fullest support of the judiciary and all sectors of society." 2 To quote the pungent language of
Mr. Justice Cruz, "(T)here is no question that all lawful efforts should be taken to recover the
tremendous wealth plundered from the people by the past regime in the most execrable
thievery perpetrated in all history. No right-thinking Filipino can quarrel with this necessary
objective, and on this score I am happy to concur with the ponencia." 3
The Court is likewise unanimous in its judgment dismissing the petition to declare
unconstitutional and void Executive Orders Nos. 1 and 2 to annul the sequestration order of
April 14, 1986. For indeed, the 1987 Constitution overwhelmingly adopted by the people at
the February 2, 1987 plebiscite expressly recognized in Article XVIII, section 26 thereof 4 the
vital functions of respondent PCGG to achieve the mandate of the people to recover such illgotten wealth and properties as ordained by Proclamation No. 3 promulgated on March 25,
1986.
The Court is likewise unanimous as to the general rule set forth in the main opinion that "the
PCGG cannot exercise acts of dominion over property sequestered, frozen or provisionally
taken over" and "(T)he PCGG may thus exercise only powers of administration over the
property or business sequestered or provisionally taken over, much like a court-appointed
receiver, such as to bring and defend actions in its own name; receive rents; collect debts due;
pay outstanding debts; and generally do such other acts and things as may be necessary to
fulfill its mission as conservator and administrator. In this context, it may in addition enjoin or
restrain any actual or threatened commission of acts by any person or entity that may render
moot and academic, or frustrate or otherwise make ineffectual its efforts to carry out its task;

All this evidence has been placed of record in the case at bar. And petitioner has had all the
time and opportunity to refute it, submittals to the contrary notwithstanding, but has dismally
failed to do so. To cite one glaring instance: as stated in the main opinion, the evidence
submitted to this Court by the Solicitor General "proves that President Marcos not only
exercised control over BASECO, but also that he actually owns well nigh one hundred percent
of its outstanding stock." It cites the fact that three corporations, evidently front or dummy
corporations, among twenty shareholders, in name, of BASECO, namely Metro Bay Drydock,
Fidelity Management, Inc. and Trident Management hold 209,664 shares or 95.82%, of
BASECO's outstanding stock. Now, the Solicitor General points out further than BASECO
certificates "corresponding to more than ninety-five percent (95%) of all the outstanding
shares of stock of BASECO, endorsed in blank, together with deeds of assignment of
practically all the outstanding shares of stock of the three (3) corporations above mentioned
(which hold 95.82% of all BASECO stock), signed by the owners thereof although not
notarized" 7 were found in Malacaang shortly after the deposed President's sudden flight from
the country on the night of February 25, 1986. Thus, the main opinion's unavoidable
conclusion that "(W)hile the petitioner's counsel was quick to dispute this asserted fact,
assuring this Court that the BASECO stockholders were still in possession of their respective
stock certificates and had 'never endorsed * * * them in blank or to anyone else,' that denial is

exposed by his own prior and subsequent recorded statements as a mere gesture of defiance
rattler than a verifiable factual declaration . . . . Under the circumstances, the Court can only
conclude that he could not get the originals from the stockholders for the simple reason that as
the Solicitor General maintains, said stockholders in truth no longer have them in their
possession, these having already been assigned in blank to President Marcos." 8
With this strong unrebutted evidence of record in this Court, Justice Melencio-Herrera, joined
by Justice Feliciano, expressly concurs with the main opinion upholding the commission's
take-over, stating that "(I) have no objection to according the right to vote sequestered stock in
case of a takeover of business actually belonging to the government or whose capitalization
comes from public funds but which, somehow, landed in the hands of private persons, as in the
case of BASECO." They merely qualify their concurrence with the injunction that such
takeovers be exercised with "caution and prudence" pending the determination of "the true and
real ownership" of the sequestered shares. Suffice it to say in this regard that each case has to
be judged from the pertinent facts and circumstances and that the main opinion emphasizes
sufficiently that it is only in the special instances specified in the governing laws grounded on
the superior national interest and welfare and the practical necessity of preserving the property
and preventing its loss or disposition that the provisional remedy of provisional take-over is
exercised.
Here, according to the dissenting opinion, "the PCGG concludes that sequestered property is
ill-gotten wealth and proceeds to exercise acts of ownership over said properties . . . . and adds
that "the fact of ownership must be established in a proper suit before a court of justice"-which
this Court has preempted with its finding that "in the context of the proceedings at bar, the
actuality of the control by President Marcos of BASECO has been sufficiently shown."
But BASECO who has instituted this action to set aside the sequestration and take-over orders
of respondent commission has chosen to raise these very issues in this Court. We cannot
ostrich-like hide our head in the sand and say that it has not yet been established in the proper
court that what the PCGG has taken over here aregovernment properties, as a matter of record
and public notice and knowledge, like the NASSCO, its Engineer Island and Mariveles
Shipyard and entire complex, which have been pillaged and placed in the name of the dummy
or front company named BASECO but from all the documentary evidence of record shown by
its street certificates all found in Malacanang should in reality read "Ferdinand E. Marcos"
and/or his brother-in-law. Such take-over can in no way be termed "lawless usurpation," for
the government does not commit any act of usurpation in taking over its own properties that
have been channeled to dummies, who are called upon to prove in the proper court action what
they have failed to do in this Court, that they have lawfully acquired ownership of said
properties, contrary to the documentary evidence of record, which they must likewise explain
away. This Court, in the exercise of its jurisdiction on certiorari and as the guardian of the
Constitution and protector of the people's basic constitutional rights, has entertained many
petitions on the part of parties claiming to be adversely affected by sequestration and other
orders of the PCGG, This Court set the criterion that such orders should issue only upon
showing of a prima facie case, which criterion was adopted in the 1987 Constitution. The
Court's judgment cannot be faulted if much more than a prima facie has been shown in this
case, which the faceless figures claiming to represent BASECO have failed to refute or
disprove despite all the opportunity to do so.
The record plainly shows that petitioner BASECO which is but a mere shell to mask its real
owner did not and could not explain how and why they received such favored and preferred

treatment with tailored Letters of Instruction and handwritten personal approval of the deposed
President that handed it on a silver platter the whole complex and properties of NASSCO and
Engineer Island and the Mariveles Shipyard.
It certainly would be the height of absurdity and helplessness if this government could not
here and now take over the possession and custody of its very own properties and assets that
had been stolen from it and which it had pledged to recover for the benefit and in the greater
interest of the Filipino people, whom the past regime had saddled with a huge $27-billion
foreign debt that has since ballooned to $28.5-billion.
Thus, the main opinion correctly concludes that "(I)n the light of the affirmative showing by
the Government that,prima facie at least, the stockholders and directors of BASECO as of
April, 1986 were mere 'dummies,' nominees or alter egos of President Marcos; at any rate, that
they are no longer owners of any shares of stock in the corporation, the conclusion cannot be
avoided that said stockholders and directors have no basis and no standing whatever to cause
the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed
for in the petition, would in effect be to restore the assets, properties and business sequestered
and taken over by the PCGG to persons who are 'dummies' nominees or alter egos of
the former President." 9
And Justice Padilla in his separate concurrence "called a spade a spade," citing the street
certificates representing 95 % of BASECO's outstanding stock found in Malacaang after Mr.
Marcos' hasty flight in February, 1986 and the extent of the control he exercised over policy
decisions affecting BASECO and concluding that "Consequently, even ahead of judicial
proceedings, I am convinced that the Republic of the Philippines, thru the PCGG, has the right
and even the duty to take over full control and supervision of BASECO."
Indeed, the provisional remedies available to respondent commission are rooted in the police
power of the State, the most pervasive and the least limitable of the powers of Government
since it represents "the power of sovereignty, the power to govern men and things within the
limits of its domain." 10 Police power has been defined as the power inherent in the State "to
prescribe regulations to promote the health, morals, education, good order or safety, and
general welfare of the people." 11Police power rests upon public necessity and upon the right
of the State and of the public to self-protection. 12 "Salus populi suprema est lex" or "the
welfare of the people is the Supreme Law." 13 For this reason, it is co-extensive with the
necessities of the case and the safeguards of public interest. 14Its scope expands and contracts
with changing needs. 15 "It may be said in a general way that the police power extends to all
the great public needs. It may be put forth in aid of what is sanctioned by usage, or held by the
prevailing morality or strong and preponderant opinion to be greatly and immediately
necessary to the public welfare." 16 That the public interest or the general welfare is subserved
by sequestering the purported ill-gotten assets and properties and taking over stolen properties
of the government channeled to dummy or front companies is stating the obvious. The
recovery of these ill-gotten assets and properties would greatly aid our financially crippled
government and hasten our national economic recovery, not to mention the fact that they
rightfully belong to the people. While as a measure of self-protection, if, in the interest of
general welfare, police power may be exercised to protect citizens and their businesses in
financial and economic matters, it may similarly be exercised to protect the government itself
against potential financial loss and the possible disruption of governmental
functions. 17 Police power as the power of self-protection on the part of the community bears
the same relation to the community that the principle of self-defense bears to the

individual. 18 Truly, it may be said that even more than self- defense, the recovery of ill-gotten
wealth and of the government's own properties involves the material and moral survival of the
nation, marked as the past regime was by the obliteration of any line between private funds
and the public treasury and abuse of unlimited power and elimination of any accountability in
public office, as the evidence of record amply shows.
It should be mentioned that the tracking down of the deposed President's actual ownership of
the BASECO shares was fortuitously facilitated by the recovery of the street certificates in
Malacaang after his hasty flight from the country last year. This is not generally the case.
For example, in the ongoing case filed by the government to recover from the Marcoses
valuable real estate holdings in New York and the Lindenmere estate in Long Island, former
PCGG chairman Jovito Salonga has revealed that their names "do not appear on any title to
the property. Every building in New York is titled in the name of a Netherlands Antilles
corporation, which in turn is purportedly owned by three Panamanian corporations, with
bearer shares. This means that the shares of this corporation can change hands any time, since
they can be transferred, under the law of Panama, without previous registration on the books
of the corporation. One of the first documents that we discovered shortly after the February
revolution was a declaration of trust handwritten by Mr. Joseph Bernstein on April 4, 1982 on
a Manila Peninsula Hotel stationery stating that he would act as a trustee for the benefit of
President Ferdinand Marcos and would act solely pursuant to the instructions of Marcos with
respect to the Crown Building in New York." 19
This is just to stress the difficulties of the tasks confronting respondent PCGG, which
nevertheless has so far commendably produced unprecedented positive results. As stated by
then chairman Salonga:
PCGG has turned over to the Office of the President around 2 billion
pesos in cash, free of any lien. It has also delivered to the President-as a
result of a compromise settlement-around 200 land titles involving vast
tracks of land in Metro Manila, Rizal, Laguna, Cavite, and Bataan, worth
several billion pesos. These lands are now available for low-cost housing
projects for the benefit of the poor and the dispossessed amongst our
people.
In the legal custody of the Commission as a result of sequestration
proceedings, are expensive jewelry amounting to 310 million pesos, 42
aircraft amounting to 718 million pesos, vessels amounting to 748 million
pesos, and shares of stock amounting to around 215 million pesos.
But, as I said, the bulk of the ill-gotten wealth is located abroad, not in the
Philippines. Through the efforts of the PCGG, we have caused the freezing
or sequestration of properties, deposits, and securities probably worth
many billions of pesos in New York, New Jersey, Hawaii, California, and
more importantly-in Switzerland. Due to favorable developments in
Switzerland, we may expect, according to our Swiss lawyers, the first
deliveries of the Swiss deposits in the foreseeable future, perhaps in less
than a year's time. In New York, PCGG through its lawyers who render
their services free of cost to the Philippine government, succeeded in

getting injunctive relief against Mr. and Mrs. Marcos and their nominees
and agents. There is now an offer for settlement that is being studied and
explored by our lawyers there.
If we succeed in recovering not an (since this is impossible) but a
substantial part of the ill-gotten wealth here and in various countries of the
world something the revolutionary governments of China, Ethiopia,
Iran and Nicaragua were not able to accomplish at all with respect to
properties outside their territorial boundaries the Presidential
Commission on Good Government, which has undertaken the difficult and
thankless task of trying to undo what had been done so secretly and
effectively in the last twenty years, shall have more than justified its
existence. 20
The misdeeds of some PCGG volunteers and personnel cited in the dissenting opinion do not
detract at an from the PCGG's accomplishments, just as no one would do away with
newspapers because of some undesirable elements. The point is that all such misdeeds have
been subject to public exposure and as stated in the dissent itself, the erring PCGG
representatives have been forthwith dismissed and replaced.
The magnitude of the tasks that confront respondent PCGG with its limited resources and staff
support and volunteers should be appreciated, together with the assistance that foreign
governments and lawyers have spontaneously given the commission.
A word about the PCGG's firing of the BASECO lawyers who filed the present petition
challenging its questioned orders, filing a motion to withdraw the petition, after it had put in
eight of its representatives as directors of the BASECO board of directors. This was entirely
proper and in accordance with the Court's Resolution of October 28, 1986, which denied
BASECO's motion for the issuance of a restraining order against such take-over and declared
that "the government can, through its designated directors, properly exercise control and
management over what appear to be properties and assets owned and belonging to the
government itself and over which the persons who appear in this case on behalf of BASECO
have failed to show any eight or even any shareholding in said corporation." In other words,
these dummies or fronts cannot seek to question the government's right to recover the very
properties and assets that have been stolen from it by using the very same stolen properties and
funds derived therefrom. If they wish to pursue their own empty claim, they must do it on their
own, after first establishing that they indeed have a lawful right and/or shareholding in
BASECO.
Under the 1987 Constitution, the PCGG is called upon to file the judicial proceedings for
forfeiture and recovery of the sequestered or frozen properties covered by its orders issued
before the ratification of the Constitution on February 2, 1987, within six months from such
ratification, or by August 2, 1987. (For those orders issued after such ratification, the judicial
action or proceeding must be commenced within six months from the issuance thereof.) The
PCGG has not really been given much time, considering the magnitude of its tasks. It is
entitled to some forbearance, in availing of the maximum time granted it for the filing of the
corresponding judicial action with the Sandiganbayan.
PADILLA, J., concurring:

The majority opinion penned by Mr. Justice Narvasa maintains and upholds the valid
distinction between acts of conservation and preservation of assets and acts of ownership.
Sequestration, freeze and temporary take-over encompass the first type of acts. They do not
include the second type of acts which are reserved only to the rightful owner of the assets or
business sequestered or temporarily taken over.
The removal and election of members of the board of directors of a corporate enterprise is, to
me, a clear act of ownership on the part of the shareholders of the corporation. Under ordinary
circumstances, I would deny the PCGG the authority to change and elect the members of
BASECO's Board of Directors. However, under the facts as disclosed by the records, it
appears that the certificates of stock representing about ninety-five (95%) per cent of the total
ownership in BASECO's capital stock were found endorsed in blank in Malacanang
(presumably in the possession and control of Mr. Marcos) at the time he and his family fled in
February 1986. This circumstance let alone the extent of the control Mr. Marcos exercised,
while in power, over policy decisions affecting BASECO, entirely satisfies my mind that
BASECO was owned and controlled by Mr. Marcos. This is calling a spade a spade. I am also
entirely satisfied in my mind that Mr. Marcos could not have acquired the ownership of
BASECO out of his lawfully-gotten wealth.
Consequently, even ahead of judicial proceedings, I am convinced that the Republic of the
Philippines, through the PCGG, has the right and even the duty to take-over full control and
supervision of BASECO.

I consider it imperative that sequestration measures be buttressed by judicial proceedings the

soonest possible in order to settle the matter of ownership of sequestered shares and to
determine whether or not they are legally owned by the stockholders of record or are "illgotten wealth" subject to forfeiture in favor of the State. Sequestration alone, being actually an
ancillary remedy to a principal action, should not be made the basis for the exercise of acts of
dominion for an indefinite period of time.
Sequestration is an extraordinary, harsh, and severe remedy. It should be confined to its lawful
parameters and exercised, with due regard, in the words of its enabling laws, to the
requirements of fairness, due process (Executive Order No. 14, palay 7, 1986), and Justice
(Executive Order No. 2, March 12, 1986).
Feliciano, J., concur.

GUTIERREZ, JR., J., concurring and dissenting:

I concur, in part, in the erudite opinion penned for the Court by my distinguished colleague
Mr. Justice Andres R. Narvasa. I agree insofar as it states the principles which must govern
PCGG sequestrations and emphasizes the limitations in the exercise of its broad grant of
powers.

MELENCIO-HERRERA, J., concurring:

I would like to qualify my concurrence in so far as the voting of sequestered stork is
concerned.
The voting of sequestered stock is, to my mind, an exercise of an attribute of ownership. It
goes beyond the purpose of a writ of sequestration, which is essentially to preserve the
property in litigation (Article 2005, Civil Code). Sequestration is in the nature of a judicial
deposit (ibid.).
I have no objection to according the right to vote sequestered stock in case of a take-over of
business actually belonging to the government or whose capitalization comes from public
funds but which, somehow, landed in the hands of private persons, as in the case of BASECO.
To my mind, however, caution and prudence should be exercised in the case of sequestered
shares of an on-going private business enterprise, specially the sensitive ones, since the true
and real ownership of said shares is yet to be determined and proven more conclusively by the
Courts.
It would be more in keeping with legal norms if forfeiture proceedings provided for under
Republic Act No. 1379 be filed in Court and the PCGG seek judicial appointment as a receiver
or administrator, in which case, it would be empowered to vote sequestered shares under its
custody (Section 55, Corporation Code). Thereby, the assets in litigation are brought within
the Court's jurisdiction and the presence of an impartial Judge, as a requisite of due process, is
assured. For, even in its historical context, sequestration is a judicial matter that is best handled
by the Courts.

I concur in the general propositions embodied in or implied from the majority opinion, among
them:
(1) The efforts of Government to recover ill-gotten properties amassed by the previous regime
deserve the fullest support of the judiciary and all sectors of society. I believe, however, that a
nation professing adherence to the rule of law and fealty to democratic processes must adopt
ways and means which are always within the bounds of lawfully granted authority and which
meet the tests of due process and other Bill of Rights protections.
(2) Sequestration is intended to prevent the destruction, concealment, or dissipation of illgotten wealth. The object is conservation and preservation. Any exercise of power beyond
these objectives is lawless usurpation.
(3) The PCGG exercises only such powers as are granted by law and not proscribed by the
Constitution. The remedies it enforces are provisional and contingent. Whether or not
sequestered property is indeed ill-gotten must be-determined by a court of justice. The PCGG
has absolutely no power to divest title over sequestered property or to act as if its findings are
final.
(4) The PCGG does not own sequestered property. It cannot and must not exercise acts of
ownership. To quote the majority opinion, "one thing is certain ..., the PCGG cannot exercise
acts of dominion."

(5) The provisional takeover in a sequestration should not be indefinitely maintained. It is the
duty of the PCGG to immediately file appropriate criminal or civil cases once the evidence has
been gathered.
It is the difference between what the Court says and what the PCGG does which constrains me
to dissent. Even as the Court emphasizes principles of due process and fair play, it has
unfortunately validated ultra vires acts violative of those very same principles. While we stress
the rules which must govern the PCGG in the exercise of its powers, the Court has failed to
stop or check acts which go beyond the power of sequestration given by law to the PCGG.
We are all agreed in the Court that the PCGG is not a judge. It is an investigator and
prosecutor. Sequestration is only a preliminary or ancillary remedy. There must be a principal
and independent suit filed in court to establish the true ownership of sequestered properties.
The factual premise that a sequestered property was ill-gotten by former President Marcos, his
family, relatives, subordinates, and close associates cannot be assumed. The fact of ownership
must be established in a proper suit before a court of justice.
But what has the Court, in effect, ruled?
Pages 21 to 33 of the majority opinion are dedicated to a statement of facts which conclusively
and indubitably shows that BASECO is owned by President Marcos-and that it was acquired
and vastly enlarged by the former President's taking undue advantage of his public office and
using his powers, authority, or influence.
There has been no court hearing, no trial, and no presentation of evidence. All that we have is
what the PCGG has given us. The petitioner has not even been allowed to see the evidence,
much less refute it.
What the PCGG has gathered in the course of its seizures and investigations may be gospel
truth. However, that truth must be properly established in a trial court, not unilaterally
determined by the PCGG or declared by this Court in a special proceeding which only asks us
to set aside or enjoin an illegal exercise of power. After this decision, there is nothing more for
a trial court to ascertain. Certainly, no lower court would dare to arrive at findings contrary to
this Court's conclusions, no matter how insistent we may be in labelling such conclusions
as"prima facie." To me, this is the basic flaw in PCGG procedures that the Court is, today,
unwittingly legitimating. Even before the institution of a court case, the PCGG concludes that
sequestered property is ill-gotten wealth and proceeds to exercise acts of ownership over said
properties. It treats sequestered property as its own even before the oppositor-owners have
been divested of their titles.
The Court declares that a state of seizure is not to be indefinitely maintained. This means that
court proceedings to either forfeit the sequestered properties or clear the names and titles of
the petitioners must be filed as soon as possible.
This case is a good example of disregard or avoidance of this requirement. With the kind of
evidence which the PCGG professes to possess, the forfeiture case could have been filed
simultaneously with the issuance of sequestration orders or shortly thereafter.

And yet, the records show that the PCGG appears to concentrate more on the means rather
than the ends, in running the BASECO, taking over the board of directors and management,
getting rid of security guards, disposing of scrap, entering into new contracts and otherwise
behaving as if it were already the owner. At this late date and with all the evidence PCGG
claims to have, no court case has been filed.
Among the interesting items elicited during the oral arguments or found in the records of this
petition are:
(1) Upon sequestering BASECO, some PCGG personnel lost no time in digging up paved
premises with jack hammers in a frantic search for buried gold bars.
(2) Two top PCGG volunteers charged each other with stealing properties under their custody.
The PCGG had to step in, dismiss the erring representatives, and replace them with new ones.
(3) The petitioner claims that the lower bid of a rock quarry operator was accepted even as a
higher and more favorable bid was offered. When the questionable deal was brought to our
attention, the awardee allegedly raised his bid to the level of the better offer. The successful
bidder later submitted a comment in intervention explaining his side. Whoever is telling the
truth, the fact remains that multi-million peso contracts involving the operations of
sequestered companies should be entered into under the supervision of a court, not freely
executed by the PCGG even when the petitioner-owners question the propriety and integrity of
those transactions.
(4) The PCGG replaced eight out of eleven members of the BASECO board of directors with
its own men. Upon taking over full control of the corporation, the newly installed board
reversed the efforts of the former owners to protect their interests. The new board fired the
BASECO lawyers who instituted the instant petition. It then filed a motion to withdraw this
very same petition we are now deciding. In other words, the "new owners" did not want the
Supreme Court to continue poking into the legality of their acts. They moved to abort the
petition filed with us.
Any suspicion of impropriety would have been avoided if the PCGG had filed the required
court proceedings and exercised its acts of management and control under court supervision.
The requirements of due process would have been met.
One other matter I wish to discuss in this separate opinion is PCGG's selection of eight out of
the eleven members of the BASECO board of directors.
The election of the members of a board of directors is distinctly and unqualifiedly an act of
ownership. When stockholders of a corporation elect or remove members of a board of
directors, they exercise their right of ownership in the company they own, By no stretch of the
imagination can the revamp of a board of directors be considered as a mere act of conserving
assets or preventing the dissipation of sequestered assets. The broad powers of a sequestrator
are more than enough to protect sequestered assets. There is no need and no legal basis to
reach out further and exercise ultimate acts of ownership.

Under the powers which PCGG has assumed and wields, it can amend the articles and by-laws
of a sequestered corporation, decrease the capital stock, or sell substantially all corporate
assets without any effective check from the owners not yet divested of their titles or from a
court of justice. The PCGG is tasked to preserve assets but when it exercises the acts of an
owner, it could also very well destroy. I hope that the case of the Philippine Daily Express, a
major newspaper closed by the PCGG, is an isolated example. Otherwise, banks,
merchandizing firms, investment institutions, and other sensitive businesses will find
themselves in a similar quandary.

PCGG is merely an administrator whose authority is limited to preventing the sequestered

properties from being dissipated or clandestinely transferred.
The court action prescribed in the Constitution is not inadequate and is available to the PCGG.
The advantage of this remedy is that, unlike the ad libitum measures now being take it
is authorized and at the same time alsolimited by the fundamental law. I see no reason why it
should not now be employed by the PCGG, to remove all doubts regarding the legality of its
acts and all suspicions concerning its motives.

I join the PCGG and all right thinking Filipinos in condemning the totalitarian acts which
made possible the accumulation of ill-gotten wealth. I, however, dissent when authoritarian
and ultra vires methods are used to recover that stolen wealth. One wrong cannot be corrected
by the employment of another wrong.
I, therefore, vote to grant the petition. Pending the filing of an appropriate case in court, the
PCGG must be enjoined from exercising any and all acts of ownership over the sequestered
firm.

Separate Opinions

Bidin and Cortes, JJ., concur and dissent.

I fully concur with the masterly opinion of Mr. Justice Narvasa. In the process of disposing of
the issues raised by petitioner BASECO in the case at bar, it comprehensively discusses the
laws and principles governing the Presidential Commission on Good Government (PCGG)
and defines the scope and extent of its powers in the discharge of its monumental task of
recovering the "ill-gotten wealth, accumulated by former President Ferdinand E. Marcos, his
immediate family, relatives, subordinates and close associates, whether located in the
Philippines or abroad (and) business enterprises and entities owned or controlled by them
during I . . .(the Marcos) administration, directly or through nominees, by taking undue
advantage of their public office and/or using their powers, authority, influence, connections or
relationship." 1

CRUZ, J., dissenting:

My brother Narvasa has written a truly outstanding decision that bespeaks a penetrating and
analytical mind and a masterly grasp of the serious problem we are asked to resolve. He
deserves and I offer him my sincere admiration.
There is no question that all lawful efforts should be taken to recover the tremendous wealth
plundered from the people by the past regime in the most execrable thievery perpetrated in all
history. No right-thinking Filipino can quarrel with this necessary objective, and on this score I
am happy to concur with the ponencia.
But for all my full agreement with the basic thesis of the majority, I regret I find myself unable
to support its conclusions in favor Of the respondent PCGG. My view is that these conclusions
clash with the implacable principles of the free society. foremost among which is due process.
This demands our reverent regard.
Due process protects the life, liberty and property of every person, whoever he may be. Even
the most despicable criminal is entitled to this protection. Granting this distinction to Marcos,
we are still not justified in depriving him of this guaranty on the mere justification that he
appears to own the BASECO shares.
I am convinced and so submit that the PCGG cannot at this time take over the BASECO
without any court order and exercise thereover acts of ownership without court supervision.
Voting the shares is an act of ownership. Reorganizing the board of directors is an act of
ownership. Such acts are clearly unauthorized. As the majority opinion itself stresses, the

TEEHANKEE, CJ., concurring:

The Court is unanimous insofar as the judgment at bar upholds the imperative need of
recovering the ill-gotten properties amassed by the previous regime, which "deserves the
fullest support of the judiciary and all sectors of society." 2 To quote the pungent language of
Mr. Justice Cruz, "(T)here is no question that all lawful efforts should be taken to recover the
tremendous wealth plundered from the people by the past regime in the most execrable
thievery perpetrated in all history. No right-thinking Filipino can quarrel with this necessary
objective, and on this score I am happy to concur with the ponencia." 3
The Court is likewise unanimous in its judgment dismissing the petition to declare
unconstitutional and void Executive Orders Nos. 1 and 2 to annul the sequestration order of
April 14, 1986. For indeed, the 1987 Constitution overwhelmingly adopted by the people at
the February 2, 1987 plebiscite expressly recognized in Article XVIII, section 26 thereof 4 the
vital functions of respondent PCGG to achieve the mandate of the people to recover such illgotten wealth and properties as ordained by Proclamation No. 3 promulgated on March 25,
1986.
The Court is likewise unanimous as to the general rule set forth in the main opinion that "the
PCGG cannot exercise acts of dominion over property sequestered, frozen or provisionally
taken over" and "(T)he PCGG may thus exercise only powers of administration over the
property or business sequestered or provisionally taken over, much like a court-appointed

receiver, such as to bring and defend actions in its own name; receive rents; collect debts due;
pay outstanding debts; and generally do such other acts and things as may be necessary to
fulfill its mission as conservator and administrator. In this context, it may in addition enjoin or
restrain any actual or threatened commission of acts by any person or entity that may render
moot and academic, or frustrate or otherwise make ineffectual its efforts to carry out its task;
punish for direct or indirect contempt in accordance with the Rules of Court; and seek and
secure the assistance of any office, agency or instrumentality of the government. In the case of
sequestered businesses generally (i.e. going concerns, business in current operation), as in the
case of sequestered objects, its essential role, as already discussed, is that of conservator,
caretaker, 'watchdog' or overseer. It is not that of manager, or innovator, much less an
owner." 5
Now, the case at bar involves one where the third and most encompassing and rarely invoked
of provisional remedies, 6 the provisional takeover of the Baseco properties and business
operations has been availed of by the PCGG, simply because the evidence on hand, not
only prima facie but convincingly with substantial and documentary evidence of record
establishes that the corporation known as petitioner BASECO "was owned or controlled by
President Marcos 'during his administration, through nominees, by taking undue advantage of
his public office and/or using his powers, authority, or influence;' and that it was by and
through the same means, that BASECO had taken over the business and/or assets of the
[government-owned] National Shipyard and Engineering Co., Inc., and other governmentowned or controlled entities." The documentary evidence shows that petitioner BASECO (read
Ferdinand E. Marcos) in successive transactions all directed and approved by the former
President-in an orgy of what according to the PCGG's then chairman, Jovito Salonga, in his
statement before the 1986 Constitutional Commission, "Mr. Ople once called 'organized
pillage' "-gobbled up the government corporation National Shipyard & Steel Corporation
NASSCO its shipyard at Mariveles, 300 hectares of land in Mariveles from the Export
Processing Zone Authority, Engineer Island itself in Manila and its complex of equipment and
facilities including structures, buildings, shops, quarters, houses, plants and expendable or
semi-expendable assets and obtained huge loans of $19,000,000.00 from the last available
Japanese war damage fund, P30,000,000.00 from the NDC and P12,400,000.00 from the
GSIS. The sordid details are set forth in detail in Paragraphs 1 1 to 20 of the main opinion.
They include confidential reports from then BASECO president Hilario M. Ruiz and the
deposed President's brother-in- law, then Captain (later Commodore) Alfredo Romualdez, who
although not on record as an officer or stockholder of BASECO reported directly to the
deposed President on its affairs and made the recommendations, all approved by the latter, for
the gobbling up by BASECO of all the choice government assets and properties.
All this evidence has been placed of record in the case at bar. And petitioner has had all the
time and opportunity to refute it, submittals to the contrary notwithstanding, but has dismally
failed to do so. To cite one glaring instance: as stated in the main opinion, the evidence
submitted to this Court by the Solicitor General "proves that President Marcos not only
exercised control over BASECO, but also that he actually owns well nigh one hundred percent
of its outstanding stock." It cites the fact that three corporations, evidently front or dummy
corporations, among twenty shareholders, in name, of BASECO, namely Metro Bay Drydock,
Fidelity Management, Inc. and Trident Management hold 209,664 shares or 95.82%, of
BASECO's outstanding stock. Now, the Solicitor General points out further than BASECO
certificates "corresponding to more than ninety-five percent (95%) of all the outstanding
shares of stock of BASECO, endorsed in blank, together with deeds of assignment of
practically all the outstanding shares of stock of the three (3) corporations above mentioned
(which hold 95.82% of all BASECO stock), signed by the owners thereof although not

notarized" 7 were found in Malacaang shortly after the deposed President's sudden flight from
the country on the night of February 25, 1986. Thus, the main opinion's unavoidable
conclusion that "(W)hile the petitioner's counsel was quick to dispute this asserted fact,
assuring this Court that the BASECO stockholders were still in possession of their respective
stock certificates and had 'never endorsed * * * them in blank or to anyone else,' that denial is
exposed by his own prior and subsequent recorded statements as a mere gesture of defiance
rattler than a verifiable factual declaration . . . . Under the circumstances, the Court can only
conclude that he could not get the originals from the stockholders for the simple reason that as
the Solicitor General maintains, said stockholders in truth no longer have them in their
possession, these having already been assigned in blank to President Marcos." 8
With this strong unrebutted evidence of record in this Court, Justice Melencio-Herrera, joined
by Justice Feliciano, expressly concurs with the main opinion upholding the commission's
take-over, stating that "(I) have no objection to according the right to vote sequestered stock in
case of a takeover of business actually belonging to the government or whose capitalization
comes from public funds but which, somehow, landed in the hands of private persons, as in the
case of BASECO." They merely qualify their concurrence with the injunction that such
takeovers be exercised with "caution and prudence" pending the determination of "the true and
real ownership" of the sequestered shares. Suffice it to say in this regard that each case has to
be judged from the pertinent facts and circumstances and that the main opinion emphasizes
sufficiently that it is only in the special instances specified in the governing laws grounded on
the superior national interest and welfare and the practical necessity of preserving the property
and preventing its loss or disposition that the provisional remedy of provisional take-over is
exercised.
Here, according to the dissenting opinion, "the PCGG concludes that sequestered property is
ill-gotten wealth and proceeds to exercise acts of ownership over said properties . . . . and adds
that "the fact of ownership must be established in a proper suit before a court of justice"-which
this Court has preempted with its finding that "in the context of the proceedings at bar, the
actuality of the control by President Marcos of BASECO has been sufficiently shown."
But BASECO who has instituted this action to set aside the sequestration and take-over orders
of respondent commission has chosen to raise these very issues in this Court. We cannot
ostrich-like hide our head in the sand and say that it has not yet been established in the proper
court that what the PCGG has taken over here aregovernment properties, as a matter of record
and public notice and knowledge, like the NASSCO, its Engineer Island and Mariveles
Shipyard and entire complex, which have been pillaged and placed in the name of the dummy
or front company named BASECO but from all the documentary evidence of record shown by
its street certificates all found in Malacanang should in reality read "Ferdinand E. Marcos"
and/or his brother-in-law. Such take-over can in no way be termed "lawless usurpation," for
the government does not commit any act of usurpation in taking over its own properties that
have been channeled to dummies, who are called upon to prove in the proper court action what
they have failed to do in this Court, that they have lawfully acquired ownership of said
properties, contrary to the documentary evidence of record, which they must likewise explain
away. This Court, in the exercise of its jurisdiction on certiorari and as the guardian of the
Constitution and protector of the people's basic constitutional rights, has entertained many
petitions on the part of parties claiming to be adversely affected by sequestration and other
orders of the PCGG, This Court set the criterion that such orders should issue only upon
showing of a prima facie case, which criterion was adopted in the 1987 Constitution. The
Court's judgment cannot be faulted if much more than a prima facie has been shown in this

case, which the faceless figures claiming to represent BASECO have failed to refute or
disprove despite all the opportunity to do so.
The record plainly shows that petitioner BASECO which is but a mere shell to mask its real
owner did not and could not explain how and why they received such favored and preferred
treatment with tailored Letters of Instruction and handwritten personal approval of the deposed
President that handed it on a silver platter the whole complex and properties of NASSCO and
Engineer Island and the Mariveles Shipyard.
It certainly would be the height of absurdity and helplessness if this government could not
here and now take over the possession and custody of its very own properties and assets that
had been stolen from it and which it had pledged to recover for the benefit and in the greater
interest of the Filipino people, whom the past regime had saddled with a huge $27-billion
foreign debt that has since ballooned to $28.5-billion.
Thus, the main opinion correctly concludes that "(I)n the light of the affirmative showing by
the Government that,prima facie at least, the stockholders and directors of BASECO as of
April, 1986 were mere 'dummies,' nominees or alter egos of President Marcos; at any rate, that
they are no longer owners of any shares of stock in the corporation, the conclusion cannot be
avoided that said stockholders and directors have no basis and no standing whatever to cause
the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed
for in the petition, would in effect be to restore the assets, properties and business sequestered
and taken over by the PCGG to persons who are 'dummies' nominees or alter egos of
the former President." 9
And Justice Padilla in his separate concurrence "called a spade a spade," citing the street
certificates representing 95 % of BASECO's outstanding stock found in Malacaang after Mr.
Marcos' hasty flight in February, 1986 and the extent of the control he exercised over policy
decisions affecting BASECO and concluding that "Consequently, even ahead of judicial
proceedings, I am convinced that the Republic of the Philippines, thru the PCGG, has the right
and even the duty to take over full control and supervision of BASECO."
Indeed, the provisional remedies available to respondent commission are rooted in the police
power of the State, the most pervasive and the least limitable of the powers of Government
since it represents "the power of sovereignty, the power to govern men and things within the
limits of its domain." 10 Police power has been defined as the power inherent in the State "to
prescribe regulations to promote the health, morals, education, good order or safety, and
general welfare of the people." 11Police power rests upon public necessity and upon the right
of the State and of the public to self-protection. 12 "Salus populi suprema est lex" or "the
welfare of the people is the Supreme Law." 13 For this reason, it is co-extensive with the
necessities of the case and the safeguards of public interest. 14Its scope expands and contracts
with changing needs. 15 "It may be said in a general way that the police power extends to all
the great public needs. It may be put forth in aid of what is sanctioned by usage, or held by the
prevailing morality or strong and preponderant opinion to be greatly and immediately
necessary to the public welfare." 16 That the public interest or the general welfare is subserved
by sequestering the purported ill-gotten assets and properties and taking over stolen properties
of the government channeled to dummy or front companies is stating the obvious. The
recovery of these ill-gotten assets and properties would greatly aid our financially crippled
government and hasten our national economic recovery, not to mention the fact that they
rightfully belong to the people. While as a measure of self-protection, if, in the interest of

general welfare, police power may be exercised to protect citizens and their businesses in
financial and economic matters, it may similarly be exercised to protect the government itself
against potential financial loss and the possible disruption of governmental
functions. 17 Police power as the power of self-protection on the part of the community bears
the same relation to the community that the principle of self-defense bears to the
individual. 18 Truly, it may be said that even more than self- defense, the recovery of ill-gotten
wealth and of the government's own properties involves the material and moral survival of the
nation, marked as the past regime was by the obliteration of any line between private funds
and the public treasury and abuse of unlimited power and elimination of any accountability in
public office, as the evidence of record amply shows.
It should be mentioned that the tracking down of the deposed President's actual ownership of
the BASECO shares was fortuitously facilitated by the recovery of the street certificates in
Malacaang after his hasty flight from the country last year. This is not generally the case.
For example, in the ongoing case filed by the government to recover from the Marcoses
valuable real estate holdings in New York and the Lindenmere estate in Long Island, former
PCGG chairman Jovito Salonga has revealed that their names "do not appear on any title to
the property. Every building in New York is titled in the name of a Netherlands Antilles
corporation, which in turn is purportedly owned by three Panamanian corporations, with
bearer shares. This means that the shares of this corporation can change hands any time, since
they can be transferred, under the law of Panama, without previous registration on the books
of the corporation. One of the first documents that we discovered shortly after the February
revolution was a declaration of trust handwritten by Mr. Joseph Bernstein on April 4, 1982 on
a Manila Peninsula Hotel stationery stating that he would act as a trustee for the benefit of
President Ferdinand Marcos and would act solely pursuant to the instructions of Marcos with
respect to the Crown Building in New York." 19
This is just to stress the difficulties of the tasks confronting respondent PCGG, which
nevertheless has so far commendably produced unprecedented positive results. As stated by
then chairman Salonga:
PCGG has turned over to the Office of the President around 2 billion
pesos in cash, free of any lien. It has also delivered to the President-as a
result of a compromise settlement-around 200 land titles involving vast
tracks of land in Metro Manila, Rizal, Laguna, Cavite, and Bataan, worth
several billion pesos. These lands are now available for low-cost housing
projects for the benefit of the poor and the dispossessed amongst our
people.
In the legal custody of the Commission as a result of sequestration
proceedings, are expensive jewelry amounting to 310 million pesos, 42
aircraft amounting to 718 million pesos, vessels amounting to 748 million
pesos, and shares of stock amounting to around 215 million pesos.
But, as I said, the bulk of the ill-gotten wealth is located abroad, not in the
Philippines. Through the efforts of the PCGG, we have caused the freezing
or sequestration of properties, deposits, and securities probably worth
many billions of pesos in New York, New Jersey, Hawaii, California, and

more importantly-in Switzerland. Due to favorable developments in

Switzerland, we may expect, according to our Swiss lawyers, the first
deliveries of the Swiss deposits in the foreseeable future, perhaps in less
than a year's time. In New York, PCGG through its lawyers who render
their services free of cost to the Philippine government, succeeded in
getting injunctive relief against Mr. and Mrs. Marcos and their nominees
and agents. There is now an offer for settlement that is being studied and
explored by our lawyers there.
If we succeed in recovering not an (since this is impossible) but a
substantial part of the ill-gotten wealth here and in various countries of the
world-something the revolutionary governments of China, Ethiopia, Iran
and Nicaragua were not able to accomplish at all with respect to properties
outside their territorial boundaries-the Presidential Commission on Good
Government, which has undertaken the difficult and thankless task of
trying to undo what had been done so secretly and effectively in the last
twenty years, shall have more than justified its existence. 20

entitled to some forbearance, in availing of the maximum time granted it for the filing of the
corresponding judicial action with the Sandiganbayan.
PADILLA, J., concurring:
The majority opinion penned by Mr. Justice Narvasa maintains and upholds the valid
distinction between acts of conservation and preservation of assets and acts of ownership.
Sequestration, freeze and temporary take-over encompass the first type of acts. They do not
include the second type of acts which are reserved only to the rightful owner of the assets or
business sequestered or temporarily taken over.

The misdeeds of some PCGG volunteers and personnel cited in the dissenting opinion do not
detract at an from the PCGG's accomplishments, just as no one would do away with
newspapers because of some undesirable elements. The point is that all such misdeeds have
been subject to public exposure and as stated in the dissent itself, the erring PCGG
representatives have been forthwith dismissed and replaced.

The removal and election of members of the board of directors of a corporate enterprise is, to
me, a clear act of ownership on the part of the shareholders of the corporation. Under ordinary
circumstances, I would deny the PCGG the authority to change and elect the members of
BASECO's Board of Directors. However, under the facts as disclosed by the records, it
appears that the certificates of stock representing about ninety-five (95%) per cent of the total
ownership in BASECO's capital stock were found endorsed in blank in Malacanang
(presumably in the possession and control of Mr. Marcos) at the time he and his family fled in
February 1986. This circumstance let alone the extent of the control Mr. Marcos exercised,
while in power, over policy decisions affecting BASECO, entirely satisfies my mind that
BASECO was owned and controlled by Mr. Marcos. This is calling a spade a spade. I am also
entirely satisfied in my mind that Mr. Marcos could not have acquired the ownership of
BASECO out of his lawfully-gotten wealth.

The magnitude of the tasks that confront respondent PCGG with its limited resources and staff
support and volunteers should be appreciated, together with the assistance that foreign
governments and lawyers have spontaneously given the commission.

Consequently, even ahead of judicial proceedings, I am convinced that the Republic of the
Philippines, through the PCGG, has the right and even the duty to take-over full control and
supervision of BASECO.

A word about the PCGG's firing of the BASECO lawyers who filed the present petition
challenging its questioned orders, filing a motion to withdraw the petition, after it had put in
eight of its representatives as directors of the BASECO board of directors. This was entirely
proper and in accordance with the Court's Resolution of October 28, 1986, which denied
BASECO's motion for the issuance of a restraining order against such take-over and declared
that "the government can, through its designated directors, properly exercise control and
management over what appear to be properties and assets owned and belonging to the
government itself and over which the persons who appear in this case on behalf of BASECO
have failed to show any eight or even any shareholding in said corporation." In other words,
these dummies or fronts cannot seek to question the government's right to recover the very
properties and assets that have been stolen from it by using the very same stolen properties and
funds derived therefrom. If they wish to pursue their own empty claim, they must do it on their
own, after first establishing that they indeed have a lawful right and/or shareholding in
BASECO.

MELENCIO-HERRERA, J., concurring:

Under the 1987 Constitution, the PCGG is called upon to file the judicial proceedings for
forfeiture and recovery of the sequestered or frozen properties covered by its orders issued
before the ratification of the Constitution on February 2, 1987, within six months from such
ratification, or by August 2, 1987. (For those orders issued after such ratification, the judicial
action or proceeding must be commenced within six months from the issuance thereof.) The
PCGG has not really been given much time, considering the magnitude of its tasks. It is

I would like to qualify my concurrence in so far as the voting of sequestered stork is

concerned.
The voting of sequestered stock is, to my mind, an exercise of an attribute of ownership. It
goes beyond the purpose of a writ of sequestration, which is essentially to preserve the
property in litigation (Article 2005, Civil Code). Sequestration is in the nature of a judicial
deposit (ibid.).
I have no objection to according the right to vote sequestered stock in case of a take-over of
business actually belonging to the government or whose capitalization comes from public
funds but which, somehow, landed in the hands of private persons, as in the case of BASECO.
To my mind, however, caution and prudence should be exercised in the case of sequestered
shares of an on-going private business enterprise, specially the sensitive ones, since the true
and real ownership of said shares is yet to be determined and proven more conclusively by the
Courts.
It would be more in keeping with legal norms if forfeiture proceedings provided for under
Republic Act No. 1379 be filed in Court and the PCGG seek judicial appointment as a receiver

or administrator, in which case, it would be empowered to vote sequestered shares under its
custody (Section 55, Corporation Code). Thereby, the assets in litigation are brought within
the Court's jurisdiction and the presence of an impartial Judge, as a requisite of due process, is
assured. For, even in its historical context, sequestration is a judicial matter that is best handled
by the Courts.
I consider it imperative that sequestration measures be buttressed by judicial proceedings the
soonest possible in order to settle the matter of ownership of sequestered shares and to
determine whether or not they are legally owned by the stockholders of record or are "illgotten wealth" subject to forfeiture in favor of the State. Sequestration alone, being actually an
ancillary remedy to a principal action, should not be made the basis for the exercise of acts of
dominion for an indefinite period of time.
Sequestration is an extraordinary, harsh, and severe remedy. It should be confined to its lawful
parameters and exercised, with due regard, in the words of its enabling laws, to the
requirements of fairness, due process (Executive Order No. 14, palay 7, 1986), and Justice
(Executive Order No. 2, March 12, 1986).
Feliciano, J., concur.

(4) The PCGG does not own sequestered property. It cannot and must not exercise acts of
ownership. To quote the majority opinion, "one thing is certain ..., the PCGG cannot exercise
acts of dominion."
(5) The provisional takeover in a sequestration should not be indefinitely maintained. It is the
duty of the PCGG to immediately file appropriate criminal or civil cases once the evidence has
been gathered.
It is the difference between what the Court says and what the PCGG does which constrains me
to dissent. Even as the Court emphasizes principles of due process and fair play, it has
unfortunately validated ultra vires acts violative of those very same principles. While we stress
the rules which must govern the PCGG in the exercise of its powers, the Court has failed to
stop or check acts which go beyond the power of sequestration given by law to the PCGG.
We are all agreed in the Court that the PCGG is not a judge. It is an investigator and
prosecutor. Sequestration is only a preliminary or ancillary remedy. There must be a principal
and independent suit filed in court to establish the true ownership of sequestered properties.
The factual premise that a sequestered property was ill-gotten by former President Marcos, his
family, relatives, subordinates, and close associates cannot be assumed. The fact of ownership
must be established in a proper suit before a court of justice.
But what has the Court, in effect, ruled?

GUTIERREZ, JR., J., concurring and dissenting:

I concur, in part, in the erudite opinion penned for the Court by my distinguished colleague
Mr. Justice Andres R. Narvasa. I agree insofar as it states the principles which must govern
PCGG sequestrations and emphasizes the limitations in the exercise of its broad grant of
powers.
I concur in the general propositions embodied in or implied from the majority opinion, among
them:
(1) The efforts of Government to recover ill-gotten properties amassed by the previous regime
deserve the fullest support of the judiciary and all sectors of society. I believe, however, that a
nation professing adherence to the rule of law and fealty to democratic processes must adopt
ways and means which are always within the bounds of lawfully granted authority and which
meet the tests of due process and other Bill of Rights protections.
(2) Sequestration is intended to prevent the destruction, concealment, or dissipation of illgotten wealth. The object is conservation and preservation. Any exercise of power beyond
these objectives is lawless usurpation.
(3) The PCGG exercises only such powers as are granted by law and not proscribed by the
Constitution. The remedies it enforces are provisional and contingent. Whether or not
sequestered property is indeed ill-gotten must be-determined by a court of justice. The PCGG
has absolutely no power to divest title over sequestered property or to act as if its findings are
final.

Pages 21 to 33 of the majority opinion are dedicated to a statement of facts which conclusively
and indubitably shows that BASECO is owned by President Marcos-and that it was acquired
and vastly enlarged by the former President's taking undue advantage of his public office and
using his powers, authority, or influence.
There has been no court hearing, no trial, and no presentation of evidence. All that we have is
what the PCGG has given us. The petitioner has not even been allowed to see the evidence,
much less refute it.
What the PCGG has gathered in the course of its seizures and investigations may be gospel
truth. However, that truth must be properly established in a trial court, not unilaterally
determined by the PCGG or declared by this Court in a special proceeding which only asks us
to set aside or enjoin an illegal exercise of power. After this decision, there is nothing more for
a trial court to ascertain. Certainly, no lower court would dare to arrive at findings contrary to
this Court's conclusions, no matter how insistent we may be in labelling such conclusions
as"prima facie." To me, this is the basic flaw in PCGG procedures that the Court is, today,
unwittingly legitimating. Even before the institution of a court case, the PCGG concludes that
sequestered property is ill-gotten wealth and proceeds to exercise acts of ownership over said
properties. It treats sequestered property as its own even before the oppositor-owners have
been divested of their titles.
The Court declares that a state of seizure is not to be indefinitely maintained. This means that
court proceedings to either forfeit the sequestered properties or clear the names and titles of
the petitioners must be filed as soon as possible.

This case is a good example of disregard or avoidance of this requirement. With the kind of
evidence which the PCGG professes to possess, the forfeiture case could have been filed
simultaneously with the issuance of sequestration orders or shortly thereafter.
And yet, the records show that the PCGG appears to concentrate more on the means rather
than the ends, in running the BASECO, taking over the board of directors and management,
getting rid of security guards, disposing of scrap, entering into new contracts and otherwise
behaving as if it were already the owner. At this late date and with all the evidence PCGG
claims to have, no court case has been filed.
Among the interesting items elicited during the oral arguments or found in the records of this
petition are:
(1) Upon sequestering BASECO, some PCGG personnel lost no time in digging up paved
premises with jack hammers in a frantic search for buried gold bars.
(2) Two top PCGG volunteers charged each other with stealing properties under their custody.
The PCGG had to step in, dismiss the erring representatives, and replace them with new ones.
(3) The petitioner claims that the lower bid of a rock quarry operator was accepted even as a
higher and more favorable bid was offered. When the questionable deal was brought to our
attention, the awardee allegedly raised his bid to the level of the better offer. The successful
bidder later submitted a comment in intervention explaining his side. Whoever is telling the
truth, the fact remains that multi-million peso contracts involving the operations of
sequestered companies should be entered into under the supervision of a court, not freely
executed by the PCGG even when the petitioner-owners question the propriety and integrity of
those transactions.
(4) The PCGG replaced eight out of eleven members of the BASECO board of directors with
its own men. Upon taking over full control of the corporation, the newly installed board
reversed the efforts of the former owners to protect their interests. The new board fired the
BASECO lawyers who instituted the instant petition. It then filed a motion to withdraw this
very same petition we are now deciding. In other words, the "new owners" did not want the
Supreme Court to continue poking into the legality of their acts. They moved to abort the
petition filed with us.
Any suspicion of impropriety would have been avoided if the PCGG had filed the required
court proceedings and exercised its acts of management and control under court supervision.
The requirements of due process would have been met.
One other matter I wish to discuss in this separate opinion is PCGG's selection of eight out of
the eleven members of the BASECO board of directors.
The election of the members of a board of directors is distinctly and unqualifiedly an act of
ownership. When stockholders of a corporation elect or remove members of a board of
directors, they exercise their right of ownership in the company they own, By no stretch of the
imagination can the revamp of a board of directors be considered as a mere act of conserving
assets or preventing the dissipation of sequestered assets. The broad powers of a sequestrator

are more than enough to protect sequestered assets. There is no need and no legal basis to
reach out further and exercise ultimate acts of ownership.
Under the powers which PCGG has assumed and wields, it can amend the articles and by-laws
of a sequestered corporation, decrease the capital stock, or sell substantially all corporate
assets without any effective check from the owners not yet divested of their titles or from a
court of justice. The PCGG is tasked to preserve assets but when it exercises the acts of an
owner, it could also very well destroy. I hope that the case of the Philippine Daily Express, a
major newspaper closed by the PCGG, is an isolated example. Otherwise, banks,
merchandizing firms, investment institutions, and other sensitive businesses will find
themselves in a similar quandary.
I join the PCGG and all right thinking Filipinos in condemning the totalitarian acts which
made possible the accumulation of ill-gotten wealth. I, however, dissent when authoritarian
and ultra vires methods are used to recover that stolen wealth. One wrong cannot be corrected
by the employment of another wrong.
I, therefore, vote to grant the petition. Pending the filing of an appropriate case in court, the
PCGG must be enjoined from exercising any and all acts of ownership over the sequestered
firm.
Bidin and Cortes, JJ., concur and dissent.

CRUZ, J., dissenting:

My brother Narvasa has written a truly outstanding decision that bespeaks a penetrating and
analytical mind and a masterly grasp of the serious problem we are asked to resolve. He
deserves and I offer him my sincere admiration.
There is no question that all lawful efforts should be taken to recover the tremendous wealth
plundered from the people by the past regime in the most execrable thievery perpetrated in all
history. No right-thinking Filipino can quarrel with this necessary objective, and on this score I
am happy to concur with the ponencia.
But for all my full agreement with the basic thesis of the majority, I regret I find myself unable
to support its conclusions in favor Of the respondent PCGG. My view is that these conclusions
clash with the implacable principles of the free society. foremost among which is due process.
This demands our reverent regard.
Due process protects the life, liberty and property of every person, whoever he may be. Even
the most despicable criminal is entitled to this protection. Granting this distinction to Marcos,
we are still not justified in depriving him of this guaranty on the mere justification that he
appears to own the BASECO shares.
I am convinced and so submit that the PCGG cannot at this time take over the BASECO
without any court order and exercise thereover acts of ownership without court supervision.

Voting the shares is an act of ownership. Reorganizing the board of directors is an act of
ownership. Such acts are clearly unauthorized. As the majority opinion itself stresses, the
PCGG is merely an administrator whose authority is limited to preventing the sequestered
properties from being dissipated or clandestinely transferred.
The court action prescribed in the Constitution is not inadequate and is available to the PCGG.
The advantage of this remedy is that, unlike the ad libitum measures now being take it
is authorized and at the same time alsolimited by the fundamental law. I see no reason why it
should not now be employed by the PCGG, to remove all doubts regarding the legality of its
acts and all suspicions concerning its motives.
EN BANC
[G.R. No. L-32409. February 27, 1971.]
BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, v. HON.
JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA, in his capacity as Commissioner of
Internal Revenue, ARTURO LOGRONIO, RODOLFO DE LEON, GAVINO
VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO, JOHN DOE, JOHN DOE,
JOHN DOE, and JOHN DOE, Respondents.
San Juan, Africa, Gonzales & San Agustin, for Petitioners.
Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin V . Bautista,
Solicitor Pedro A. Ramirez and Special Attorney Jaime M. Maza for Respondents.

DECISION

VILLAMOR, J.:

This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of
preliminary mandatory and prohibitory injunction. In their petition Bache & Co. (Phil.), Inc., a
corporation duly organized and existing under the laws of the Philippines, and its President,
Frederick E. Seggerman, pray this Court to declare null and void Search Warrant No. 2-M-70
issued by respondent Judge on February 25, 1970; to order respondents to desist from
enforcing the same and/or keeping the documents, papers and effects seized by virtue thereof,
as well as from enforcing the tax assessments on petitioner corporation alleged by petitioners
to have been made on the basis of the said documents, papers and effects, and to order the
return of the latter to petitioners. We gave due course to the petition but did not issue the writ
of preliminary injunction prayed for therein.
The pertinent facts of this case, as gathered from record, are as follows:chanrob1es virtual 1aw
library
On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a
letter addressed to respondent Judge Vivencio M. Ruiz requesting the issuance of a search
warrant against petitioners for violation of Section 46(a) of the National Internal Revenue

Code, in relation to all other pertinent provisions thereof, particularly Sections 53, 72, 73, 208
and 209, and authorizing Revenue Examiner Rodolfo de Leon, one of herein respondents, to
make and file the application for search warrant which was attached to the letter.
In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness,
respondent Arturo Logronio, went to the Court of First Instance of Rizal. They brought with
them the following papers: respondent Veras aforesaid letter-request; an application for search
warrant already filled up but still unsigned by respondent De Leon; an affidavit of respondent
Logronio subscribed before respondent De Leon; a deposition in printed form of respondent
Logronio already accomplished and signed by him but not yet subscribed; and a search
warrant already accomplished but still unsigned by respondent Judge.
At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed
his Deputy Clerk of Court to take the depositions of respondents De Leon and Logronio. After
the session had adjourned, respondent Judge was informed that the depositions had already
been taken. The stenographer, upon request of respondent Judge, read to him her stenographic
notes; and thereafter, respondent Judge asked respondent Logronio to take the oath and warned
him that if his deposition was found to be false and without legal basis, he could be charged
for perjury. Respondent Judge signed respondent de Leons application for search warrant and
respondent Logronios deposition, Search Warrant No. 2-M-70 was then sign by respondent
Judge and accordingly issued.
Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the
search warrant petitioners at the offices of petitioner corporation on Ayala Avenue, Makati,
Rizal. Petitioners lawyers protested the search on the ground that no formal complaint or
transcript of testimony was attached to the warrant. The agents nevertheless proceeded with
their search which yielded six boxes of documents.
On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal praying
that the search warrant be quashed, dissolved or recalled, that preliminary prohibitory and
mandatory writs of injunction be issued, that the search warrant be declared null and void, and
that the respondents be ordered to pay petitioners, jointly and severally, damages and
attorneys fees. On March 18, 1970, the respondents, thru the Solicitor General, filed an
answer to the petition. After hearing, the court, presided over by respondent Judge, issued on
July 29, 1970, an order dismissing the petition for dissolution of the search warrant. In the
meantime, or on April 16, 1970, the Bureau of Internal Revenue made tax assessments on
petitioner corporation in the total sum of P2,594,729.97, partly, if not entirely, based on the
documents thus seized. Petitioners came to this Court.
The petition should be granted for the following reasons:chanrob1es virtual 1aw library
1. Respondent Judge failed to personally examine the complainant and his witness.
The pertinent provisions of the Constitution of the Philippines and of the Revised Rules of
Court are:jgc:chanrobles.com.ph
"(3) The right of the people to be secure in their persons, houses, papers and effects against
unreasonable searches and seizures shall not be violated, and no warrants shall issue but upon
probable cause, to be determined by the judge after examination under oath or affirmation of
the complainant and the witnesses he may produce, and particularly describing the place to be
searched, and the persons or things to be seized." (Art. III, Sec. 1, Constitution.)

"SEC. 3. Requisites for issuing search warrant. A search warrant shall not issue but upon
probable cause in connection with one specific offense to be determined by the judge or justice
of the peace after examination under oath or affirmation of the complainant and the witnesses
he may produce, and particularly describing the place to be searched and the persons or things
to be seized.
"No search warrant shall issue for more than one specific offense.
"SEC. 4. Examination of the applicant. The judge or justice of the peace must, before
issuing the warrant, personally examine on oath or affirmation the complainant and any
witnesses he may produce and take their depositions in writing, and attach them to the record,
in addition to any affidavits presented to him." (Rule 126, Revised Rules of Court.)
The examination of the complainant and the witnesses he may produce, required by Art. III,
Sec. 1, par. 3, of the Constitution, and by Secs. 3 and 4, Rule 126 of the Revised Rules of
Court, should be conducted by the judge himself and not by others. The phrase "which shall be
determined by the judge after examination under oath or affirmation of the complainant and
the witnesses he may produce," appearing in the said constitutional provision, was introduced
by Delegate Francisco as an amendment to the draft submitted by the Sub-Committee of
Seven. The following discussion in the Constitutional Convention (Laurel, Proceedings of the
Philippine Constitutional Convention, Vol. III, pp. 755-757) is
enlightening:jgc:chanrobles.com.ph
"SR. ORENSE. Vamos a dejar compaero los piropos y vamos al grano.
En los casos de una necesidad de actuar inmediatamente para que no se frusten los fines de la
justicia mediante el registro inmediato y la incautacion del cuerpo del delito, no cree Su
Seoria que causaria cierta demora el procedimiento apuntado en su enmienda en tal forma
que podria frustrar los fines de la justicia o si Su Seoria encuentra un remedio para esto casos
con el fin de compaginar los fines de la justicia con los derechos del individuo en su persona,
bienes etcetera, etcetera.
"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su Seoria pregunta por
la siguiente razon: el que solicita un mandamiento de registro tiene que hacerlo por escrito y
ese escrito no aparecer en la Mesa del Juez sin que alguien vaya el juez a presentar ese escrito
o peticion de sucuestro. Esa persona que presenta el registro puede ser el mismo denunciante o
alguna persona que solicita dicho mandamiento de registro. Ahora toda la enmienda en esos
casos consiste en que haya peticion de registro y el juez no se atendra solamente a sea peticion
sino que el juez examiner a ese denunciante y si tiene testigos tambin examiner a los testigos.
"SR. ORENSE. No cree Su Seoria que el tomar le declaracion de ese denunciante por escrito
siempre requeriria algun tiempo?.

"MR. LAUREL. . . . The reason why we are in favor of this amendment is because we are
incorporating in our constitution something of a fundamental character. Now, before a judge
could issue a search warrant, he must be under the obligation to examine personally under oath
the complainant and if he has any witness, the witnesses that he may produce . . ."cralaw
virtua1aw library
The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is more emphatic and
candid, for it requires the judge, before issuing a search warrant, to "personally examine on
oath or affirmation the complainant and any witnesses he may produce . . ."cralaw virtua1aw
library
Personal examination by the judge of the complainant and his witnesses is necessary to enable
him to determine the existence or non-existence of a probable cause, pursuant to Art. III, Sec.
1, par. 3, of the Constitution, and Sec. 3, Rule 126 of the Revised Rules of Court, both of
which prohibit the issuance of warrants except "upon probable cause." The determination of
whether or not a probable cause exists calls for the exercise of judgment after a judicial
appraisal of facts and should not be allowed to be delegated in the absence of any rule to the
contrary.
In the case at bar, no personal examination at all was conducted by respondent Judge of the
complainant (respondent De Leon) and his witness (respondent Logronio). While it is true that
the complainants application for search warrant and the witness printed-form deposition were
subscribed and sworn to before respondent Judge, the latter did not ask either of the two any
question the answer to which could possibly be the basis for determining whether or not there
was probable cause against herein petitioners. Indeed, the participants seem to have attached
so little significance to the matter that notes of the proceedings before respondent Judge were
not even taken. At this juncture it may be well to recall the salient facts. The transcript of
stenographic notes (pp. 61-76, April 1, 1970, Annex J-2 of the Petition) taken at the hearing of
this case in the court below shows that per instruction of respondent Judge, Mr. Eleodoro V.
Gonzales, Special Deputy Clerk of Court, took the depositions of the complainant and his
witness, and that stenographic notes thereof were taken by Mrs. Gaspar. At that time
respondent Judge was at the sala hearing a case. After respondent Judge was through with the
hearing, Deputy Clerk Gonzales, stenographer Gaspar, complainant De Leon and witness
Logronio went to respondent Judges chamber and informed the Judge that they had finished
the depositions. Respondent Judge then requested the stenographer to read to him her
stenographic notes. Special Deputy Clerk Gonzales testified as follows:jgc:chanrobles.com.ph
"A And after finishing reading the stenographic notes, the Honorable Judge requested or
instructed them, requested Mr. Logronio to raise his hand and warned him if his deposition
will be found to be false and without legal basis, he can be charged criminally for perjury. The
Honorable Court told Mr. Logronio whether he affirms the facts contained in his deposition
and the affidavit executed before Mr. Rodolfo de Leon.
"Q And thereafter?

"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado minimizamos en todo
lo posible las vejaciones injustas con la expedicion arbitraria de los mandamientos de registro.
Creo que entre dos males debemos escoger. el menor.

"A And thereafter, he signed the deposition of Mr. Logronio.

"Q Who is this he?

"A The Honorable Judge.

"Q The deposition or the affidavit?

Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross value of
output removed, or to pay the tax due thereon.

"A The affidavit, Your Honor."cralaw virtua1aw library

Thereafter, respondent Judge signed the search warrant.
The participation of respondent Judge in the proceedings which led to the issuance of Search
Warrant No. 2-M-70 was thus limited to listening to the stenographers readings of her notes,
to a few words of warning against the commission of perjury, and to administering the oath to
the complainant and his witness. This cannot be consider a personal examination. If there was
an examination at all of the complainant and his witness, it was the one conducted by the
Deputy Clerk of Court. But, as stated, the Constitution and the rules require a personal
examination by the judge. It was precisely on account of the intention of the delegates to the
Constitutional Convention to make it a duty of the issuing judge to personally examine the
complainant and his witnesses that the question of how much time would be consumed by the
judge in examining them came up before the Convention, as can be seen from the record of the
proceedings quoted above. The reading of the stenographic notes to respondent Judge did not
constitute sufficient compliance with the constitutional mandate and the rule; for by that
manner respondent Judge did not have the opportunity to observe the demeanor of the
complainant and his witness, and to propound initial and follow-up questions which the
judicial mind, on account of its training, was in the best position to conceive. These were
important in arriving at a sound inference on the all-important question of whether or not there
was probable cause.
2. The search warrant was issued for more than one specific offense.
Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of the National Internal
Revenue Code in relation to all other pertinent provisions thereof particularly Secs. 53, 72, 73,
208 and 209." The question is: Was the said search warrant issued "in connection with one
specific offense," as required by Sec. 3, Rule 126?

The search warrant in question was issued for at least four distinct offenses under the Tax
Code. The first is the violation of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax
returns), which are interrelated. The second is the violation of Sec. 53 (withholding of income
taxes at source). The third is the violation of Sec. 208 (unlawful pursuit of business or
occupation); and the fourth is the violation of Sec. 209 (failure to make a return of receipts,
sales, business or gross value of output actually removed or to pay the tax due thereon). Even
in their classification the six above-mentioned provisions are embraced in two different titles:
Secs. 46(a), 53, 72 and 73 are under Title II (Income Tax); while Secs. 208 and 209 are under
Title V (Privilege Tax on Business and Occupation).
Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550, June 19, 1967 (20 SCRA
383), is not applicable, because there the search warrants were issued for "violation of Central
Bank Laws, Internal Revenue (Code) and Revised Penal Code;" whereas, here Search Warrant
No 2-M-70 was issued for violation of only one code, i.e., the National Internal Revenue
Code. The distinction more apparent than real, because it was precisely on account of the
Stonehill incident, which occurred sometime before the present Rules of Court took effect on
January 1, 1964, that this Court amended the former rule by inserting therein the phrase "in
connection with one specific offense," and adding the sentence "No search warrant shall issue
for more than one specific offense," in what is now Sec. 3, Rule 126. Thus we said in
Stonehill:jgc:chanrobles.com.ph
"Such is the seriousness of the irregularities committed in connection with the disputed search
warrants, that this Court deemed it fit to amend Section 3 of Rule 122 of the former Rules of
Court that a search warrant shall not issue but upon probable cause in connection with one
specific offense. Not satisfied with this qualification, the Court added thereto a paragraph,
directing that no search warrant shall issue for more than one specific offense."
3. The search warrant does not particularly describe the things to be seized.

To arrive at the correct answer it is essential to examine closely the provisions of the Tax Code
referred to above. Thus we find the following:chanrob1es virtual 1aw library

The documents, papers and effects sought to be seized are described in Search Warrant No. 2M-70 in this manner:jgc:chanrobles.com.ph

Sec. 46(a) requires the filing of income tax returns by corporations.

Sec. 53 requires the withholding of income taxes at source.
Sec. 72 imposes surcharges for failure to render income tax returns and for rendering false and
fraudulent returns.
Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to supply the
information required under the Tax Code.
Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks, compounds, or manufactures
any article subject to a specific tax, without having paid the privilege tax therefore, or who
aids or abets in the conduct of illicit distilling, rectifying, compounding, or illicit manufacture
of any article subject to specific tax . . .," and provides that in the case of a corporation,
partnership, or association, the official and/or employee who caused the violation shall be
responsible.

"Unregistered and private books of accounts (ledgers, journals, columnars, receipts and
disbursements books, customers ledgers); receipts for payments received; certificates of stocks
and securities; contracts, promissory notes and deeds of sale; telex and coded messages;
business communications, accounting and business records; checks and check stubs; records
of bank deposits and withdrawals; and records of foreign remittances, covering the years 1966
to 1970."cralaw virtua1aw library
The description does not meet the requirement in Art III, Sec. 1, of the Constitution, and of
Sec. 3, Rule 126 of the Revised Rules of Court, that the warrant should particularly describe
the things to be seized.
In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto Concepcion,
said:jgc:chanrobles.com.ph
"The grave violation of the Constitution made in the application for the contested search
warrants was compounded by the description therein made of the effects to be searched for

and seized, to wit:chanrob1es virtual 1aw library

Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers,
portfolios, credit journals, typewriters, and other documents and/or paper showing all business
transactions including disbursement receipts, balance sheets and related profit and loss
statements.
"Thus, the warrants authorized the search for and seizure of records pertaining to all business
transactions of petitioners herein, regardless of whether the transactions were legal or illegal.
The warrants sanctioned the seizure of all records of the petitioners and the aforementioned
corporations, whatever their nature, thus openly contravening the explicit command of our Bill
of Rights that the things to be seized be particularly described as well as tending to
defeat its major objective: the elimination of general warrants."cralaw virtua1aw library
While the term "all business transactions" does not appear in Search Warrant No. 2-M-70, the
said warrant nevertheless tends to defeat the major objective of the Bill of Rights, i.e., the
elimination of general warrants, for the language used therein is so all-embracing as to include
all conceivable records of petitioner corporation, which, if seized, could possibly render its
business inoperative.
In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court had occasion to
explain the purpose of the requirement that the warrant should particularly describe the place
to be searched and the things to be seized, to wit:jgc:chanrobles.com.ph
". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) specifically require that
a search warrant should particularly describe the place to be searched and the things to be
seized. The evident purpose and intent of this requirement is to limit the things to be seized to
those, and only those, particularly described in the search warrant to leave the officers of
the law with no discretion regarding what articles they shall seize, to the end that
unreasonable searches and seizures may not be made, that abuses may not be committed.
That this is the correct interpretation of this constitutional provision is borne out by American
authorities."cralaw virtua1aw library
The purpose as thus explained could, surely and effectively, be defeated under the search
warrant issued in this case.
A search warrant may be said to particularly describe the things to be seized when the
description therein is as specific as the circumstances will ordinarily allow (People v. Rubio;
57 Phil. 384); or when the description expresses a conclusion of fact not of law by
which the warrant officer may be guided in making the search and seizure (idem., dissent of
Abad Santos, J.,); or when the things described are limited to those which bear direct relation
to the offense for which the warrant is being issued (Sec. 2, Rule 126, Revised Rules of
Court). The herein search warrant does not conform to any of the foregoing tests. If the articles
desired to be seized have any direct relation to an offense committed, the applicant must
necessarily have some evidence, other than those articles, to prove the said offense; and the
articles subject of search and seizure should come in handy merely to strengthen such
evidence. In this event, the description contained in the herein disputed warrant should have
mentioned, at least, the dates, amounts, persons, and other pertinent data regarding the receipts
of payments, certificates of stocks and securities, contracts, promissory notes, deeds of sale,
messages and communications, checks, bank deposits and withdrawals, records of foreign
remittances, among others, enumerated in the warrant.

Respondents contend that certiorari does not lie because petitioners failed to file a motion for
reconsideration of respondent Judges order of July 29, 1970. The contention is without merit.
In the first place, when the questions raised before this Court are the same as those which were
squarely raised in and passed upon by the court below, the filing of a motion for
reconsideration in said court before certiorari can be instituted in this Court is no longer a
prerequisite. (Pajo, etc., Et. Al. v. Ago, Et Al., 108 Phil., 905). In the second place, the rule
requiring the filing of a motion for reconsideration before an application for a writ
of certiorari can be entertained was never intended to be applied without considering the
circumstances. (Matutina v. Buslon, Et Al., 109 Phil., 140.) In the case at bar time is of the
essence in view of the tax assessments sought to be enforced by respondent officers of the
Bureau of Internal Revenue against petitioner corporation, On account of which immediate
and more direct action becomes necessary. (Matute v. Court of Appeals, Et Al., 26 SCRA 768.)
Lastly, the rule does not apply where, as in this case, the deprivation of petitioners
fundamental right to due process taints the proceeding against them in the court below not
only with irregularity but also with nullity. (Matute v. Court of Appeals, Et Al., supra.)
It is next contended by respondents that a corporation is not entitled to protection against
unreasonable search and seizures. Again, we find no merit in the contention.
"Although, for the reasons above stated, we are of the opinion that an officer of a corporation
which is charged with a violation of a statute of the state of its creation, or of an act of
Congress passed in the exercise of its constitutional powers, cannot refuse to produce the
books and papers of such corporation, we do not wish to be understood as holding that a
corporation is not entitled to immunity, under the 4th Amendment, against unreasonable
searches and seizures. A corporation is, after all, but an association of individuals under an
assumed name and with a distinct legal entity. In organizing itself as a collective body it
waives no constitutional immunities appropriate to such body. Its property cannot be taken
without compensation. It can only be proceeded against by due process of law, and is
protected, under the 14th Amendment, against unlawful discrimination . . ." (Hale v. Henkel,
201 U.S. 43, 50 L. ed. 652.)
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different
rule applied to a corporation, the ground that it was not privileged from producing its books
and papers. But the rights of a corporation against unlawful search and seizure are to be
protected even if the same result might have been achieved in a lawful way." (Silverthorne
Lumber Company, Et. Al. v. United States of America, 251 U.S. 385, 64 L. ed. 319.)
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a
corporation to object against unreasonable searches and seizures, thus:jgc:chanrobles.com.ph
"As regards the first group, we hold that petitioners herein have no cause of action to assail the
legality of the contested warrants and of the seizures made in pursuance thereof, for the simple
reason that said corporations have their respective personalities, separate and distinct from the
personality of herein petitioners, regardless of the amount of shares of stock or the interest of
each of them in said corporations, whatever, the offices they hold therein may be. Indeed, it is
well settled that the legality of a seizure can be contested only by the party whose rights have
been impaired thereby, and that the objection to an unlawful search and seizure is purely
personal and cannot be availed of by third parties. Consequently, petitioners herein may not
validly object to the use in evidence against them of the documents, papers and things seized
from the offices and premises of the corporations adverted to above, since the right to object to

the admission of said papers in evidence belongs exclusively to the corporations, to whom the
seized effects belong, and may not be invoked by the corporate officers in proceedings against
them in their individual capacity . . ."cralaw virtua1aw library
In the Stonehill case only the officers of the various corporations in whose offices documents,
papers and effects were searched and seized were the petitioners. In the case at bar, the
corporation to whom the seized documents belong, and whose rights have thereby been
impaired, is itself a petitioner. On that score, petitioner corporation here stands on a different
footing from the corporations in Stonehill.
The tax assessments referred to earlier in this opinion were, if not entirely as claimed by
petitioners at least partly as in effect admitted by respondents based on the
documents seized by virtue of Search Warrant No. 2-M-70. Furthermore, the fact that the
assessments were made some one and one-half months after the search and seizure on
February 25, 1970, is a strong indication that the documents thus seized served as basis for the
assessments. Those assessments should therefore not be enforced.
PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70
issued by respondent Judge is declared null and void; respondents are permanently enjoined
from enforcing the said search warrant; the documents, papers and effects seized thereunder
are ordered to be returned to petitioners; and respondent officials the Bureau of Internal
Revenue and their representatives are permanently enjoined from enforcing the assessments
mentioned in Annex "G" of the present petition, as well as other assessments based on the
documents, papers and effects seized under the search warrant herein nullified, and from using
the same against petitioners in any criminal or other proceeding. No pronouncement as to
costs.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee and Makasiar, JJ.,
concur.
Reyes, J.B.L., J., concurs with Mr. Justice Barredo.
Castro, J., concurs in the result.

Business and Occupation can hardly be absorbed in a charge of alleged violation of Section
46(a), which merely requires the filing of income tax returns by corporations, so as to
constitute with it a single offense. I perceive here the danger that the result of the search
applied for may be used as basis not only for a charge of violating Section 46(a) but also and
separately of Section 53, 208 and 209. Of course, it is to be admitted that Sections 72 and 73,
also mentioned in the application, are really directly related to Section 46(a) because Section
72 provides for surcharges for failure to render, returns and for rendering false and fraudulent
returns and Section 73 refers to the penalty for failure to file returns or to pay the
corresponding tax. Taken together, they constitute one single offense penalized under Section
73. I am not and cannot be in favor of any scheme which amounts to an indirect means of
achieving that which not allowed to be done directly. By merely saying that a party is being
charged with violation of one section of the code in relation to a number of other sections
thereof which in truth have no clear or direct bearing with the first is to me condemnable
because it is no less than a shotgun device which trenches on the basic liberties intended to be
protected by the unequivocal limitations imposed by the Constitution and the Rules of Court
on the privilege to secure a search warrant with the aggravating circumstance of being coupled
with an attempt to mislead the judge before whom the application for its issuance is presented.
I cannot close this brief concurrence without expressing my vehement disapproval of the
action taken by respondent internal revenue authorities in using the documents and papers
secured during the search, the legality of which was pending resolution by the court, as basis
of an assessment, no matter how highly motivated such action might have been. This smacks
of lack of respect, if not contempt for the court and is certainly intolerable. At the very least, it
appears as an attempt to render the court proceedings moot and academic, and dealing as this
case does with constitutionally protected rights which are part and parcel of the basic concepts
of individual liberty and democracy, the government agents should have been the first ones to
refrain from trying to make a farce of these court proceedings. Indeed, it is to be regretted that
the government agents and the court have acted irregularly, for it is highly doubtful if it would
be consistent with the sacredness of the rights herein found to have been violated to permit the
filing of another application which complies with the constitutional requirements above
discussed and the making of another search upon the return of the papers and documents now
in their illegal possession. This could be an instance wherein taxes properly due the State will
probably remain unassessed and unpaid only because the ones in charge of the execution of
the laws did not know how to respect basic constitutional rights and liberties.

Separate Opinions
EN BANC
BARREDO, J., concurring:chanrob1es virtual 1aw library
I concur.
I agree with the ruling that the search warrants in question violates the specific injunction of
Section 3, Rule 126 that "No search warrant shall issue for more than one specific offense."
There is no question in my mind that, as very clearly pointed out by Mr. Justice Villamor, the
phrase "for violation of Section 46 (a) of the National Internal Revenue Code in relation to all
other pertinent provisions thereof, particularly Sections 53, 72, 73, 208 and 209" refers to
more than one specific offense, considering that the violation of Section 53 which refers to
withholding of income taxes at the sources, Section 208 which punishes pursuit of business or
occupation without payment of the corresponding specific or privilege taxes, and Section 209
which penalizes failure to make a return of receipts sales, business or gross value output
actually removed or to pay the taxes thereon in connection with Title V on Privilege Taxes on

G.R. No. L-19550

June 19, 1967

HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL

BECK, petitioners,
vs.
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE
LUKBAN, in his capacity as Acting Director, National Bureau of Investigation;
SPECIAL PROSECUTORS PEDRO D. CENZON, EFREN I. PLANA and MANUEL
VILLAREAL, JR. and ASST. FISCAL MANASES G. REYES; JUDGE AMADO
ROAN, Municipal Court of Manila; JUDGE ROMAN CANSINO, Municipal Court of
Manila; JUDGE HERMOGENES CALUAG, Court of First Instance of Rizal-Quezon

City Branch, and JUDGE DAMIAN JIMENEZ, Municipal Court of Quezon

City, respondents.

Rules of Court, the documents, papers, things and cash moneys seized or confiscated under the
search warrants in question.

Paredes, Poblador, Cruz and Nazareno and Meer, Meer and Meer and Juan T. David for
petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico P. de
Castro, Assistant Solicitor General Frine C. Zaballero, Solicitor Camilo D. Quiason and
Solicitor C. Padua for respondents.

In their answer, respondents-prosecutors alleged, 6 (1) that the contested search warrants are
valid and have been issued in accordance with law; (2) that the defects of said warrants, if any,
were cured by petitioners' consent; and (3) that, in any event, the effects seized are admissible
in evidence against herein petitioners, regardless of the alleged illegality of the
aforementioned searches and seizures.

CONCEPCION, C.J.:

On March 22, 1962, this Court issued the writ of preliminary injunction prayed for in the
petition. However, by resolution dated June 29, 1962, the writ was partially lifted or dissolved,
insofar as the papers, documents and things seized from the offices of the corporations above
mentioned are concerned; but, the injunction was maintained as regards the papers, documents
and things found and seized in the residences of petitioners herein. 7

Upon application of the officers of the government named on the margin 1 hereinafter
referred to as Respondents-Prosecutors several judges 2 hereinafter referred to as
Respondents-Judges issued, on different dates,3 a total of 42 search warrants against
petitioners herein4 and/or the corporations of which they were officers,5 directed to the any
peace officer, to search the persons above-named and/or the premises of their offices,
warehouses and/or residences, and to seize and take possession of the following personal
property to wit:
Books of accounts, financial records, vouchers, correspondence, receipts, ledgers,
journals, portfolios, credit journals, typewriters, and other documents and/or papers
showing all business transactions including disbursements receipts, balance sheets
and profit and loss statements and Bobbins (cigarette wrappers).
as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense," or
"used or intended to be used as the means of committing the offense," which is described in
the applications adverted to above as "violation of Central Bank Laws, Tariff and Customs
Laws, Internal Revenue (Code) and the Revised Penal Code."
Alleging that the aforementioned search warrants are null and void, as contravening the
Constitution and the Rules of Court because, inter alia: (1) they do not describe with
particularity the documents, books and things to be seized; (2) cash money, not mentioned in
the warrants, were actually seized; (3) the warrants were issued to fish evidence against the
aforementioned petitioners in deportation cases filed against them; (4) the searches and
seizures were made in an illegal manner; and (5) the documents, papers and cash money
seized were not delivered to the courts that issued the warrants, to be disposed of in
accordance with law on March 20, 1962, said petitioners filed with the Supreme Court this
original action for certiorari, prohibition, mandamus and injunction, and prayed that, pending
final disposition of the present case, a writ of preliminary injunction be issued restraining
Respondents-Prosecutors, their agents and /or representatives from using the effects seized as
aforementioned or any copies thereof, in the deportation cases already adverted to, and that, in
due course, thereafter, decision be rendered quashing the contested search warrants and
declaring the same null and void, and commanding the respondents, their agents or
representatives to return to petitioners herein, in accordance with Section 3, Rule 67, of the

Thus, the documents, papers, and things seized under the alleged authority of the warrants in
question may be split into two (2) major groups, namely: (a) those found and seized in the
offices of the aforementioned corporations, and (b) those found and seized in the residences of
petitioners herein.
As regards the first group, we hold that petitioners herein have no cause of action to assail the
legality of the contested warrants and of the seizures made in pursuance thereof, for the simple
reason that said corporations have their respective personalities, separate and distinct from the
personality of herein petitioners, regardless of the amount of shares of stock or of the interest
of each of them in said corporations, and whatever the offices they hold therein may
be.8 Indeed, it is well settled that the legality of a seizure can be contested only by the party
whose rights have been impaired thereby,9 and that the objection to an unlawful search and
seizure is purely personal and cannot be availed of by third parties. 10 Consequently,
petitioners herein may not validly object to the use in evidence against them of the documents,
papers and things seized from the offices and premises of the corporations adverted to above,
since the right to object to the admission of said papers in evidence belongsexclusively to the
corporations, to whom the seized effects belong, and may not be invoked by the corporate
officers in proceedings against them in their individual capacity. 11 Indeed, it has been held:
. . . that the Government's action in gaining possession of papers belonging to
the corporation did not relate to nor did it affect the personal defendants. If these
papers were unlawfully seized and thereby the constitutional rights of or any one
were invaded, they were the rights of the corporation and not the rights of the other
defendants. Next, it is clear that a question of the lawfulness of a seizure can be
raised only by one whose rights have been invaded. Certainly, such a seizure, if
unlawful, could not affect the constitutional rights of defendants whose property had
not been seized or the privacy of whose homes had not been disturbed; nor could
they claim for themselves the benefits of the Fourth Amendment, when its violation,
if any, was with reference to the rights of another. Remus vs. United

States (C.C.A.)291 F. 501, 511. It follows, therefore, that the question of the
admissibility of the evidence based on an alleged unlawful search and seizure
does not extend to the personal defendants but embraces only the corporation whose
property was taken. . . . (A Guckenheimer & Bros. Co. vs. United States, [1925] 3 F.
2d. 786, 789, Emphasis supplied.)
With respect to the documents, papers and things seized in the residences of petitioners herein,
the aforementioned resolution of June 29, 1962, lifted the writ of preliminary injunction
previously issued by this Court,12 thereby, in effect, restraining herein RespondentsProsecutors from using them in evidence against petitioners herein.
In connection with said documents, papers and things, two (2) important questions need be
settled, namely: (1) whether the search warrants in question, and the searches and seizures
made under the authority thereof, are valid or not, and (2) if the answer to the preceding
question is in the negative, whether said documents, papers and things may be used in
evidence against petitioners herein.1wph1.t
Petitioners maintain that the aforementioned search warrants are in the nature of general
warrants and that accordingly, the seizures effected upon the authority there of are null and
void. In this connection, the Constitution13 provides:
The right of the people to be secure in their persons, houses, papers, and effects
against unreasonable searches and seizures shall not be violated, and no warrants
shall issue but upon probable cause, to be determined by the judge after examination
under oath or affirmation of the complainant and the witnesses he may produce, and
particularly describing the place to be searched, and the persons or things to be
seized.
Two points must be stressed in connection with this constitutional mandate, namely: (1) that
no warrant shall issue but upon probable cause, to be determined by the judge in the manner
set forth in said provision; and (2) that the warrant shall particularly describe the things to be
seized.
None of these requirements has been complied with in the contested warrants. Indeed, the
same were issued upon applications stating that the natural and juridical person therein named
had committed a "violation of Central Ban Laws, Tariff and Customs Laws, Internal Revenue
(Code) and Revised Penal Code." In other words, nospecific offense had been alleged in said
applications. The averments thereof with respect to the offense committed were abstract. As a
consequence, it was impossible for the judges who issued the warrants to have found the
existence of probable cause, for the same presupposes the introduction of competent proof that
the party against whom it is sought has performed particular acts, or
committed specific omissions, violating a given provision of our criminal laws. As a matter of
fact, the applications involved in this case do not allege any specific acts performed by herein
petitioners. It would be the legal heresy, of the highest order, to convict anybody of a

"violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and
Revised Penal Code," as alleged in the aforementioned applications without reference to
any determinate provision of said laws or
To uphold the validity of the warrants in question would be to wipe out completely one of the
most fundamental rights guaranteed in our Constitution, for it would place the sanctity of the
domicile and the privacy of communication and correspondence at the mercy of the whims
caprice or passion of peace officers. This is precisely the evil sought to be remedied by the
constitutional provision above quoted to outlaw the so-called general warrants. It is not
difficult to imagine what would happen, in times of keen political strife, when the party in
power feels that the minority is likely to wrest it, even though by legal means.
Such is the seriousness of the irregularities committed in connection with the disputed search
warrants, that this Court deemed it fit to amend Section 3 of Rule 122 of the former Rules of
Court 14 by providing in its counterpart, under the Revised Rules of Court 15 that "a search
warrant shall not issue but upon probable cause in connection with one specific offense." Not
satisfied with this qualification, the Court added thereto a paragraph, directing that "no search
warrant shall issue for more than one specific offense."
The grave violation of the Constitution made in the application for the contested search
warrants was compounded by the description therein made of the effects to be searched for
and seized, to wit:
Books of accounts, financial records, vouchers, journals, correspondence, receipts,
ledgers, portfolios, credit journals, typewriters, and other documents and/or papers
showing all business transactions including disbursement receipts, balance sheets
and related profit and loss statements.
Thus, the warrants authorized the search for and seizure of records pertaining to all business
transactions of petitioners herein, regardless of whether the transactions were legal or illegal.
The warrants sanctioned the seizure of all records of the petitioners and the aforementioned
corporations, whatever their nature, thus openly contravening the explicit command of our Bill
of Rights that the things to be seized be particularly described as well as tending to
defeat its major objective: the elimination of general warrants.
Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-Prosecutors maintain
that, even if the searches and seizures under consideration were unconstitutional, the
documents, papers and things thus seized are admissible in evidence against petitioners herein.
Upon mature deliberation, however, we are unanimously of the opinion that the position taken
in the Moncado case must be abandoned. Said position was in line with the American common
law rule, that the criminal should not be allowed to go free merely "because the constable has
blundered," 16 upon the theory that the constitutional prohibition against unreasonable searches
and seizures is protected by means other than the exclusion of evidence unlawfully
obtained, 17 such as the common-law action for damages against the searching officer, against

the party who procured the issuance of the search warrant and against those assisting in the
execution of an illegal search, their criminal punishment, resistance, without liability to an
unlawful seizure, and such other legal remedies as may be provided by other laws.
However, most common law jurisdictions have already given up this approach and eventually
adopted the exclusionary rule, realizing that this is the only practical means of enforcing the
constitutional injunction against unreasonable searches and seizures. In the language of Judge
Learned Hand:
As we understand it, the reason for the exclusion of evidence competent as such,
which has been unlawfully acquired, is that exclusion is the only practical way of
enforcing the constitutional privilege. In earlier times the action of trespass against
the offending official may have been protection enough; but that is true no longer.
Only in case the prosecution which itself controls the seizing officials, knows that it
cannot profit by their wrong will that wrong be repressed.18
In fact, over thirty (30) years before, the Federal Supreme Court had already declared:
If letters and private documents can thus be seized and held and used in evidence
against a citizen accused of an offense, the protection of the 4th Amendment,
declaring his rights to be secure against such searches and seizures, is of no value,
and, so far as those thus placed are concerned, might as well be stricken from the
Constitution. The efforts of the courts and their officials to bring the guilty to
punishment, praiseworthy as they are, are not to be aided by the sacrifice of those
great principles established by years of endeavor and suffering which have resulted
in their embodiment in the fundamental law of the land.19
This view was, not only reiterated, but, also, broadened in subsequent decisions on the same
Federal Court. 20After reviewing previous decisions thereon, said Court held, in Mapp vs.
Ohio (supra.):
. . . Today we once again examine the Wolf's constitutional documentation of the
right of privacy free from unreasonable state intrusion, and after its dozen years on
our books, are led by it to close the only courtroom door remaining open to evidence
secured by official lawlessness in flagrant abuse of that basic right, reserved to all
persons as a specific guarantee against that very same unlawful conduct. We hold
that all evidence obtained by searches and seizures in violation of the Constitution
is, by that same authority, inadmissible in a State.
Since the Fourth Amendment's right of privacy has been declared enforceable
against the States through the Due Process Clause of the Fourteenth, it is enforceable
against them by the same sanction of exclusion as it used against the Federal
Government. Were it otherwise, then just as without the Weeks rule the assurance
against unreasonable federal searches and seizures would be "a form of words,"

valueless and underserving of mention in a perpetual charter of inestimable human

liberties, so too, without that rule the freedom from state invasions of privacy would
be so ephemeral and so neatly severed from its conceptual nexus with the freedom
from all brutish means of coercing evidence as not to permit this Court's high regard
as a freedom "implicit in the concept of ordered liberty." At the time that the Court
held in Wolf that the amendment was applicable to the States through the Due
Process Clause, the cases of this Court as we have seen, had steadfastly held that as
to federal officers the Fourth Amendment included the exclusion of the evidence
seized in violation of its provisions. Even Wolf "stoutly adhered" to that proposition.
The right to when conceded operatively enforceable against the States, was not
susceptible of destruction by avulsion of the sanction upon which its protection and
enjoyment had always been deemed dependent under the Boyd, Weeks and
Silverthorne Cases. Therefore, in extending the substantive protections of due
process to all constitutionally unreasonable searches state or federal it was
logically and constitutionally necessarily that the exclusion doctrine an essential
part of the right to privacy be also insisted upon as an essential ingredient of the
right newly recognized by the Wolf Case. In short, the admission of the new
constitutional Right by Wolf could not tolerate denial of its most important
constitutional privilege, namely, the exclusion of the evidence which an accused had
been forced to give by reason of the unlawful seizure. To hold otherwise is to grant
the right but in reality to withhold its privilege and enjoyment. Only last year the
Court itself recognized that the purpose of the exclusionary rule to "is to deter to
compel respect for the constitutional guaranty in the only effectively available way
by removing the incentive to disregard it" . . . .
The ignoble shortcut to conviction left open to the State tends to destroy the entire
system of constitutional restraints on which the liberties of the people rest. Having
once recognized that the right to privacy embodied in the Fourth Amendment is
enforceable against the States, and that the right to be secure against rude invasions
of privacy by state officers is, therefore constitutional in origin, we can no longer
permit that right to remain an empty promise. Because it is enforceable in the same
manner and to like effect as other basic rights secured by its Due Process Clause, we
can no longer permit it to be revocable at the whim of any police officer who, in the
name of law enforcement itself, chooses to suspend its enjoyment. Our decision,
founded on reason and truth, gives to the individual no more than that which the
Constitution guarantees him to the police officer no less than that to which honest
law enforcement is entitled, and, to the courts, that judicial integrity so necessary in
the true administration of justice. (emphasis ours.)
Indeed, the non-exclusionary rule is contrary, not only to the letter, but also, to the spirit of the
constitutional injunction against unreasonable searches and seizures. To be sure, if the
applicant for a search warrant has competent evidence to establish probable cause of the
commission of a given crime by the party against whom the warrant is intended, then there is
no reason why the applicant should not comply with the requirements of the fundamental law.

Upon the other hand, if he has no such competent evidence, then it is not possible for the
Judge to find that there is probable cause, and, hence, no justification for the issuance of the
warrant. The only possible explanation (not justification) for its issuance is the necessity
of fishing evidence of the commission of a crime. But, then, this fishing expedition is
indicative of the absence of evidence to establish a probable cause.
Moreover, the theory that the criminal prosecution of those who secure an illegal search
warrant and/or make unreasonable searches or seizures would suffice to protect the
constitutional guarantee under consideration, overlooks the fact that violations thereof are, in
general, committed By agents of the party in power, for, certainly, those belonging to the
minority could not possibly abuse a power they do not have. Regardless of the handicap under
which the minority usually but, understandably finds itself in prosecuting agents of the
majority, one must not lose sight of the fact that the psychological and moral effect of the
possibility 21 of securing their conviction, is watered down by the pardoning power of the party
for whose benefit the illegality had been committed.

We hold, therefore, that the doctrine adopted in the Moncado case must be, as it is hereby,
abandoned; that the warrants for the search of three (3) residences of herein petitioners, as
specified in the Resolution of June 29, 1962, are null and void; that the searches and seizures
therein made are illegal; that the writ of preliminary injunction heretofore issued, in
connection with the documents, papers and other effects thus seized in said residences of
herein petitioners is hereby made permanent; that the writs prayed for are granted, insofar as
the documents, papers and other effects so seized in the aforementioned residences are
concerned; that the aforementioned motion for Reconsideration and Amendment should be, as
it is hereby, denied; and that the petition herein is dismissed and the writs prayed for denied, as
regards the documents, papers and other effects seized in the twenty-nine (29) places, offices
and other premises enumerated in the same Resolution, without special pronouncement as to
costs.
It is so ordered.
Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.

In their Motion for Reconsideration and Amendment of the Resolution of this Court dated
June 29, 1962, petitioners allege that Rooms Nos. 81 and 91 of Carmen Apartments, House
No. 2008, Dewey Boulevard, House No. 1436, Colorado Street, and Room No. 304 of the
Army-Navy Club, should be included among the premises considered in said Resolution as
residences of herein petitioners, Harry S. Stonehill, Robert P. Brook, John J. Brooks and Karl
Beck, respectively, and that, furthermore, the records, papers and other effects seized in the
offices of the corporations above referred to include personal belongings of said petitioners
and other effects under their exclusive possession and control, for the exclusion of which they
have a standing under the latest rulings of the federal courts of federal courts of the United
States. 22
We note, however, that petitioners' theory, regarding their alleged possession of and control
over the aforementioned records, papers and effects, and the alleged "personal" nature thereof,
has Been Advanced, notin their petition or amended petition herein, but in the Motion for
Reconsideration and Amendment of the Resolution of June 29, 1962. In other words, said
theory would appear to be readjustment of that followed in said petitions, to suit the approach
intimated in the Resolution sought to be reconsidered and amended. Then, too, some of the
affidavits or copies of alleged affidavits attached to said motion for reconsideration, or
submitted in support thereof, contain either inconsistent allegations, or allegations inconsistent
with the theory now advanced by petitioners herein.
Upon the other hand, we are not satisfied that the allegations of said petitions said motion for
reconsideration, and the contents of the aforementioned affidavits and other papers submitted
in support of said motion, have sufficiently established the facts or conditions contemplated in
the cases relied upon by the petitioners; to warrant application of the views therein expressed,
should we agree thereto. At any rate, we do not deem it necessary to express our opinion
thereon, it being best to leave the matter open for determination in appropriate cases in the
future.

CASTRO, J., concurring and dissenting:

From my analysis of the opinion written by Chief Justice Roberto Concepcion and from the
import of the deliberations of the Court on this case, I gather the following distinct
conclusions:
1. All the search warrants served by the National Bureau of Investigation in this case
are general warrants and are therefore proscribed by, and in violation of, paragraph 3
of section 1 of Article III (Bill of Rights) of the Constitution;
2. All the searches and seizures conducted under the authority of the said search
warrants were consequently illegal;
3. The non-exclusionary rule enunciated in Moncado vs. People, 80 Phil. 1, should
be, and is declared, abandoned;
4. The search warrants served at the three residences of the petitioners
are expressly declared null and void the searches and seizures therein made
are expressly declared illegal; and the writ of preliminary injunction heretofore
issued against the use of the documents, papers and effect seized in the said
residences is made permanent; and
5. Reasoning that the petitioners have not in their pleadings satisfactorily
demonstrated that they have legal standing to move for the suppression of the
documents, papers and effects seized in the places other than the three residences
adverted to above, the opinion written by the Chief

Justice refrains from expresslydeclaring as null and void the such warrants served at
such other places and as illegal the searches and seizures made therein, and leaves
"the matter open for determination in appropriate cases in the future."
It is precisely the position taken by the Chief Justice summarized in the immediately preceding
paragraph (numbered 5) with which I am not in accord.
I do not share his reluctance or unwillingness to expressly declare, at this time, the nullity of
the search warrants served at places other than the three residences, and the illegibility of the
searches and seizures conducted under the authority thereof. In my view even the exacerbating
passions and prejudices inordinately generated by the environmental political and moral
developments of this case should not deter this Court from forthrightly laying down the law
not only for this case but as well for future cases and future generations. All the search
warrants, without exception, in this case are admittedly general, blanket and roving warrants
and are therefore admittedly and indisputably outlawed by the Constitution; and the searches
and seizures made were therefore unlawful. That the petitioners, let us assume in gratia
argumente, have no legal standing to ask for the suppression of the papers, things and effects
seized from places other than their residences, to my mind, cannot in any manner affect, alter
or otherwise modify the intrinsic nullity of the search warrants and the intrinsic illegality of
the searches and seizures made thereunder. Whether or not the petitioners possess legal
standing the said warrants are void and remain void, and the searches and seizures were illegal
and remain illegal. No inference can be drawn from the words of the Constitution that "legal
standing" or the lack of it is a determinant of the nullity or validity of a search warrant or of
the lawfulness or illegality of a search or seizure.
On the question of legal standing, I am of the conviction that, upon the pleadings submitted to
this Court the petitioners have the requisite legal standing to move for the suppression and
return of the documents, papers and effects that were seized from places other than their
family residences.
Our constitutional provision on searches and seizures was derived almost verbatim from the
Fourth Amendment to the United States Constitution. In the many years of judicial
construction and interpretation of the said constitutional provision, our courts have invariably
regarded as doctrinal the pronouncement made on the Fourth Amendment by federal courts,
especially the Federal Supreme Court and the Federal Circuit Courts of Appeals.
The U.S. doctrines and pertinent cases on standing to move for the suppression or return of
documents, papers and effects which are the fruits of an unlawful search and seizure, may be
summarized as follows; (a) ownership of documents, papers and effects gives "standing;" (b)
ownership and/or control or possession actual or constructive of premises searched
gives "standing"; and (c) the "aggrieved person" doctrine where the search warrant and the
sworn application for search warrant are "primarily" directed solely and exclusively against
the "aggrieved person," gives "standing."

An examination of the search warrants in this case will readily show that, excepting three, all
were directed against the petitioners personally. In some of them, the petitioners were named
personally, followed by the designation, "the President and/or General Manager" of the
particular corporation. The three warrants excepted named three corporate defendants. But the
"office/house/warehouse/premises" mentioned in the said three warrants were also the same
"office/house/warehouse/premises" declared to be owned by or under the control of the
petitioners in all the other search warrants directed against the petitioners and/or "the President
and/or General Manager" of the particular corporation. (see pages 5-24 of Petitioners' Reply of
April 2, 1962). The searches and seizures were to be made, and were actually made, in the
"office/house/warehouse/premises" owned by or under the control of the petitioners.
Ownership of matters seized gives "standing."
Ownership of the properties seized alone entitles the petitioners to bring a motion to return and
suppress, and gives them standing as persons aggrieved by an unlawful search and seizure
regardless of their location at the time of seizure. Jones vs. United States, 362 U.S. 257, 261
(1960) (narcotics stored in the apartment of a friend of the defendant); Henzel vs. United
States, 296 F. 2d. 650, 652-53 (5th Cir. 1961), (personal and corporate papers of corporation of
which the defendant was president), United States vs. Jeffers, 342 U.S. 48 (1951) (narcotics
seized in an apartment not belonging to the defendant); Pielow vs. United States, 8 F. 2d 492,
493 (9th Cir. 1925) (books seized from the defendant's sister but belonging to the defendant);
Cf. Villano vs. United States, 310 F. 2d 680, 683 (10th Cir. 1962) (papers seized in desk
neither owned by nor in exclusive possession of the defendant).
In a very recent case (decided by the U.S. Supreme Court on December 12, 1966), it was held
that under the constitutional provision against unlawful searches and seizures, a person places
himself or his property within a constitutionally protected area, be it his home or his office, his
hotel room or his automobile:
Where the argument falls is in its misapprehension of the fundamental nature and
scope of Fourth Amendment protection. What the Fourth Amendment protects is the
security a man relies upon when heplaces himself or his property within a
constitutionally protected area, be it his home or his office, his hotel room or his
automobile. There he is protected from unwarranted governmental intrusion. And
when he puts some thing in his filing cabinet, in his desk drawer, or in his pocket, he
has the right to know it will be secure from an unreasonable search or an
unreasonable seizure. So it was that the Fourth Amendment could not tolerate the
warrantless search of the hotel room in Jeffers, the purloining of the petitioner's
private papers in Gouled, or the surreptitious electronic surveilance in Silverman.
Countless other cases which have come to this Court over the years have involved a
myriad of differing factual contexts in which the protections of the Fourth
Amendment have been appropriately invoked. No doubt, the future will bring
countless others. By nothing we say here do we either foresee or foreclose factual
situations to which the Fourth Amendment may be applicable. (Hoffa vs. U.S., 87 S.

Ct. 408 (December 12, 1966). See also U.S. vs. Jeffers, 342 U.S. 48, 72 S. Ct. 93
(November 13, 1951). (Emphasis supplied).
Control of premises searched gives "standing."
Independent of ownership or other personal interest in the records and documents seized, the
petitioners have standing to move for return and suppression by virtue of their proprietary or
leasehold interest in many of the premises searched. These proprietary and leasehold interests
have been sufficiently set forth in their motion for reconsideration and need not be recounted
here, except to emphasize that the petitioners paid rent, directly or indirectly, for practically all
the premises searched (Room 91, 84 Carmen Apts; Room 304, Army & Navy Club; Premises
2008, Dewey Boulevard; 1436 Colorado Street); maintained personal offices within the
corporate offices (IBMC, USTC); had made improvements or furnished such offices; or had
paid for the filing cabinets in which the papers were stored (Room 204, Army & Navy Club);
and individually, or through their respective spouses, owned the controlling stock of the
corporations involved. The petitioners' proprietary interest in most, if not all, of the premises
searched therefore independently gives them standing to move for the return and suppression
of the books, papers and affects seized therefrom.
In Jones vs. United States, supra, the U.S. Supreme Court delineated the nature and extent of
the interest in the searched premises necessary to maintain a motion to suppress. After
reviewing what it considered to be the unduly technical standard of the then prevailing circuit
court decisions, the Supreme Court said (362 U.S. 266):
We do not lightly depart from this course of decisions by the lower courts. We are
persuaded, however, that it is unnecessarily and ill-advised to import into the law
surrounding the constitutional right to be free from unreasonable searches and
seizures subtle distinctions, developed and refined by the common law in evolving
the body of private property law which, more than almost any other branch of law,
has been shaped by distinctions whose validity is largely historical. Even in the area
from which they derive, due consideration has led to the discarding of those
distinctions in the homeland of the common law. See Occupiers' Liability Act, 1957,
5 and 6 Eliz. 2, c. 31, carrying out Law Reform Committee, Third Report, Cmd.
9305. Distinctions such as those between "lessee", "licensee," "invitee," "guest,"
often only of gossamer strength, ought not be determinative in fashioning
procedures ultimately referable to constitutional safeguards. See also Chapman vs.
United States, 354 U.S. 610, 616-17 (1961).
It has never been held that a person with requisite interest in the premises searched must own
the property seized in order to have standing in a motion to return and suppress. In Alioto vs.
United States, 216 F. Supp. 48 (1963), a Bookkeeper for several corporations from whose
apartment the corporate records were seized successfully moved for their return. In United
States vs. Antonelli, Fireworks Co., 53 F. Supp. 870, 873 (W D. N. Y. 1943), the corporation's

president successfully moved for the return and suppression is to him of both personal and
corporate documents seized from his home during the course of an illegal search:
The lawful possession by Antonelli of documents and property, "either his own or
the corporation's was entitled to protection against unreasonable search and seizure.
Under the circumstances in the case at bar, the search and seizure were unreasonable
and unlawful. The motion for the return of seized article and the suppression of the
evidence so obtained should be granted. (Emphasis supplied).
Time was when only a person who had property in interest in either the place searched or the
articles seize had the necessary standing to invoke the protection of the exclusionary rule. But
in MacDonald vs. Unite States, 335 U.S. 461 (1948), Justice Robert Jackson joined by Justice
Felix Frankfurter, advanced the view that "even a guest may expect the shelter of the rooftree
he is under against criminal intrusion." This view finally became the official view of the U.S.
Supreme Court and was articulated in United States vs. Jeffers, 432 U.S 48 (1951). Nine years
later, in 1960, in Jones vs. Unite States, 362 U.S. 257, 267, the U.S. Supreme Court went a
step further. Jones was a mere guest in the apartment unlawfully searched but the Court
nonetheless declared that the exclusionary rule protected him as well. The concept of "person
aggrieved by an unlawful search and seizure" was enlarged to include "anyone legitimately on
premise where the search occurs."
Shortly after the U.S. Supreme Court's Jones decision the U.S. Court of Appeals for the Fifth
Circuit held that the defendant organizer, sole stockholder and president of a corporation had
standing in a mail fraud prosecution against him to demand the return and suppression of
corporate property. Henzel vs. United States, 296 F 2d 650, 652 (5th Cir. 1961), supra. The
court conclude that the defendant had standing on two independent grounds:First he had a
sufficient interest in the property seized, and second he had an adequate interest in the
premises searched (just like in the case at bar). A postal inspector had unlawfully searched the
corporation' premises and had seized most of the corporation's book and records. Looking
to Jones, the court observed:
Jones clearly tells us, therefore, what is not required qualify one as a "person
aggrieved by an unlawful search and seizure." It tells us that appellant should not
have been precluded from objecting to the Postal Inspector's search and seizure of
the corporation's books and records merely because the appellant did not show
ownership or possession of the books and records or a substantial possessory interest
in the invade premises . . . (Henzel vs. United States, 296 F. 2d at 651). .
Henzel was soon followed by Villano vs. United States, 310 F. 2d 680, 683, (10th Cir. 1962).
In Villano, police officers seized two notebooks from a desk in the defendant's place of
employment; the defendant did not claim ownership of either; he asserted that several
employees (including himself) used the notebooks. The Court held that the employee had a
protected interest and that there also was an invasion of privacy.
Both Henzel andVillano considered also the fact that the search and seizure were "directed at"

the moving defendant. Henzel vs. United States, 296 F. 2d at 682; Villano vs. United States,
310 F. 2d at 683.
In a case in which an attorney closed his law office, placed his files in storage and went to
Puerto Rico, the Court of Appeals for the Eighth Circuit recognized his standing to move to
quash as unreasonable search and seizure under the Fourth Amendment of the U.S.
Constitution a grand jury subpoena duces tecum directed to the custodian of his files. The
Government contended that the petitioner had no standing because the books and papers were
physically in the possession of the custodian, and because the subpoena was directed against
the custodian. The court rejected the contention, holding that
Schwimmer legally had such possession, control and unrelinquished personal rights
in the books and papers as not to enable the question of unreasonable search and
seizure to be escaped through the mere procedural device of compelling a third-party
naked possessor to produce and deliver them. Schwimmer vs. United States, 232 F.
2d 855, 861 (8th Cir. 1956).
Aggrieved person doctrine where the search warrant s primarily directed against said person
gives "standing."
The latest United States decision squarely in point is United States vs. Birrell, 242 F. Supp.
191 (1965, U.S.D.C. S.D.N.Y.). The defendant had stored with an attorney certain files and
papers, which attorney, by the name of Dunn, was not, at the time of the seizing of the records,
Birrell's attorney. * Dunn, in turn, had stored most of the records at his home in the country
and on a farm which, according to Dunn's affidavit, was under his (Dunn's) "control and
management." The papers turned out to be private, personal and business papers together with
corporate books and records of certain unnamed corporations in which Birrell did not even
claim ownership. (All of these type records were seized in the case at bar). Nevertheless, the
search in Birrell was held invalid by the court which held that even though Birrell did not own
the premises where the records were stored, he had "standing" to move for the return of all the
papers and properties seized. The court, relying on Jones vs. U.S.,supra; U.S. vs. Antonelli
Fireworks Co., 53 F. Supp. 870, Aff'd 155 F. 2d 631: Henzel vs. U.S., supra; andSchwimmer
vs. U.S., supra, pointed out that
It is overwhelmingly established that the searches here in question were directed
solely and exclusively against Birrell. The only person suggested in the papers as
having violated the law was Birrell. The first search warrant described the records as
having been used "in committing a violation of Title 18, United States Code, Section
1341, by the use of the mails by one Lowell M. Birrell, . . ." The second search
warrant was captioned: "United States of America vs. Lowell M. Birrell. (p. 198)
Possession (actual or constructive), no less than ownership, gives standing to move
to suppress. Such was the rule even before Jones. (p. 199)

If, as thus indicated Birrell had at least constructive possession of the records stored
with Dunn, it matters not whether he had any interest in the premises searched. See
also Jeffers v. United States, 88 U.S. Appl. D.C. 58, 187 F. 2d 498 (1950), affirmed
432 U.S. 48, 72 S. Ct. 93, 96 L. Ed. 459 (1951).
The ruling in the Birrell case was reaffirmed on motion for reargument; the United States did
not appeal from this decision. The factual situation in Birrell is strikingly similar to the case of
the present petitioners; as in Birrell, many personal and corporate papers were seized from
premises not petitioners' family residences; as in Birrell, the searches were "PRIMARILY
DIRECTED SOLETY AND EXCLUSIVELY" against the petitioners. Still both types of
documents were suppressed in Birrell because of the illegal search. In the case at bar, the
petitioners connection with the premises raided is much closer than in Birrell.
Thus, the petitioners have full standing to move for the quashing of all the warrants regardless
whether these were directed against residences in the narrow sense of the word, as long as the
documents were personal papers of the petitioners or (to the extent that they were corporate
papers) were held by them in a personal capacity or under their personal control.
Prescinding a from the foregoing, this Court, at all events, should order the return to the
petitioners all personaland private papers and effects seized, no matter where these were
seized, whether from their residences or corporate offices or any other place or places.
The uncontradicted sworn statements of the petitioners in their, various pleadings submitted to
this Court indisputably show that amongst the things seized from the corporate offices and
other places were personal and private papers and effects belonging to the petitioners.
If there should be any categorization of the documents, papers and things which where the
objects of the unlawful searches and seizures, I submit that the grouping should be:
(a) personal or private papers of the petitioners were they were unlawfully seized, be it their
family residences offices, warehouses and/or premises owned and/or possessed (actually or
constructively) by them as shown in all the search and in the sworn applications filed in
securing the void search warrants and (b) purely corporate papers belonging to corporations.
Under such categorization or grouping, the determination of which unlawfully seized papers,
documents and things arepersonal/private of the petitioners or purely corporate papers will
have to be left to the lower courts which issued the void search warrants in ultimately effecting
the suppression and/or return of the said documents.
And as unequivocally indicated by the authorities above cited, the petitioners likewise have
clear legal standing to move for the suppression of purely corporate papers as "President
and/or General Manager" of the corporations involved as specifically mentioned in the void
search warrants.
Finally, I must articulate my persuasion that although the cases cited in my disquisition were
criminal prosecutions, the great clauses of the constitutional proscription on illegal searches

and seizures do not withhold the mantle of their protection from cases not criminal in origin or
nature.

Calorized Lance Pipes

FIRST DIVISION
G. R. No. 164317

February 6, 2006

1824

11-28-80

02-26-81

P707,879.71

One Lot High Fired

Refractory Tundish
Bricks

1798

11-21-80

02-19-81

P835,526.25

5 cases spare parts for

CCM

1808

11-21-80

02-19-81

P370,332.52

200 pcs. ingot moulds

2042

01-30-81

04-30-81

P469,669.29

High Fired Refractory

Nozzle Bricks

1801

11-21-80

02-19-81

P2,001,715.17

1857

12-09-80

03-09-81

79.9425 M/T "SDK"

Brand Synthetic
Graphite Electrode

1895

12-17-80

03-17-81

P67,652.04

Spare parts for

Spectrophotometer

3,000 pcs. (15 bundles)

1911

12-22-80

03-20-81

P91,497.85

50 pcs. Ingot moulds

ALFREDO CHING, Petitioner,

vs.
THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOSVILLAVERT, JUDGE EDGARDO SUDIAM of the Regional Trial Court, Manila,
Branch 52; RIZAL COMMERCIAL BANKING CORP. and THE PEOPLE OF THE
PHILIPPINES, Respondents.
DECISION
CALLEJO, SR., J.:
1

Before the Court is a petition for review on certiorari of the Decision of the Court of Appeals
(CA) in CA-G.R. SP No. 57169 dismissing the petition for certiorari, prohibition and
mandamus filed by petitioner Alfredo Ching, and its Resolution 2 dated June 28, 2004 denying
the motion for reconsideration thereof.
Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI).
Sometime in September to October 1980, PBMI, through petitioner, applied with the Rizal
Commercial Banking Corporation (respondent bank) for the issuance of commercial letters of
credit to finance its importation of assorted goods. 3
Respondent bank approved the application, and irrevocable letters of credit were issued in
favor of petitioner. The goods were purchased and delivered in trust to PBMI. Petitioner
signed 13 trust receipts4 as surety, acknowledging delivery of the following goods:

T/R
Nos.

Date
Granted

Maturity
Date

Principal

1845

12-05-80

03-05-81

P1,596,470.05

1853

12-08-80

03-06-81

P198,150.67

Description of Goods

P197,843.61

Synthetic Graphite
Electrode [with]
tapered pitch filed
nipples

3,000 pcs. (15 bundles

calorized lance pipes
[)]

This time, respondent bank filed a motion for reconsideration, which, however, was denied on
February 24, 1988.9 The RTC, for its part, granted the Motion to Quash the Informations filed
by petitioner on the ground that the material allegations therein did not amount to estafa. 10

2041

01-30-81

04-30-81

P91,456.97

50 pcs. Ingot moulds

2099

02-10-81

05-11-81

P66,162.26

8 pcs. Kubota Rolls for

rolling mills

2100

02-10-81

05-12-81

P210,748.00

Spare parts for

Lacolaboratory
Equipment5

Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority
to sell but not by way of conditional sale, pledge or otherwise; and in case such goods were
sold, to turn over the proceeds thereof as soon as received, to apply against the relative
acceptances and payment of other indebtedness to respondent bank. In case the goods
remained unsold within the specified period, the goods were to be returned to respondent bank
without any need of demand. Thus, said "goods, manufactured products or proceeds thereof,
whether in the form of money or bills, receivables, or accounts separate and capable of
identification" were respondent banks property.
When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to
return their value amounting to P6,940,280.66 despite demands. Thus, the bank filed a
criminal complaint for estafa6 against petitioner in the Office of the City Prosecutor of Manila.
After the requisite preliminary investigation, the City Prosecutor found probable cause estafa
under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to Presidential Decree
(P.D.) No. 115, otherwise known as the Trust Receipts Law. Thirteen (13) Informations were
filed against the petitioner before the Regional Trial Court (RTC) of Manila. The cases were
docketed as Criminal Cases No. 86-42169 to 86-42181, raffled to Branch 31 of said court.
Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The
appeal was dismissed in a Resolution7 dated March 17, 1987, and petitioner moved for its
reconsideration. On December 23, 1987, the Minister of Justice granted the motion, thus
reversing the previous resolution finding probable cause against petitioner.8 The City
Prosecutor was ordered to move for the withdrawal of the Informations.

In the meantime, the Court rendered judgment in Allied Banking Corporation v.

Ordoez,11 holding that the penal provision of P.D. No. 115 encompasses any act violative of
an obligation covered by the trust receipt; it is not limited to transactions involving goods
which are to be sold (retailed), reshipped, stored or processed as a component of a product
ultimately sold. The Court also ruled that "the non-payment of the amount covered by a trust
receipt is an act violative of the obligation of the entrustee to pay." 12
On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against
petitioner before the Office of the City Prosecutor of Manila. The case was docketed as I.S.
No. 95B-07614.
Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that there
was no probable cause to charge petitioner with violating P.D. No. 115, as petitioners liability
was only civil, not criminal, having signed the trust receipts as surety.13 Respondent bank
appealed the resolution to the Department of Justice (DOJ) via petition for review, alleging
that the City Prosecutor erred in ruling:
1. That there is no evidence to show that respondent participated in the
misappropriation of the goods subject of the trust receipts;
2. That the respondent is a mere surety of the trust receipts; and
3. That the liability of the respondent is only civil in nature. 14
On July 13, 1999, the Secretary of Justice issued Resolution No. 25015 granting the petition
and reversing the assailed resolution of the City Prosecutor. According to the Justice Secretary,
the petitioner, as Senior Vice-President of PBMI, executed the 13 trust receipts and as such,
was the one responsible for the offense. Thus, the execution of said receipts is enough to indict
the petitioner as the official responsible for violation of P.D. No. 115. The Justice Secretary
also declared that petitioner could not contend that P.D. No. 115 covers only goods ultimately
destined for sale, as this issue had already been settled in Allied Banking Corporation v.
Ordoez,16where the Court ruled that P.D. No. 115 is "not limited to transactions in goods
which are to be sold (retailed), reshipped, stored or processed as a component of a product
ultimately sold but covers failure to turn over the proceeds of the sale of entrusted goods, or to
return said goods if unsold or not otherwise disposed of in accordance with the terms of the
trust receipts."
The Justice Secretary further stated that the respondent bound himself under the terms of the
trust receipts not only as a corporate official of PBMI but also as its surety; hence, he could be
proceeded against in two (2) ways: first, as surety as determined by the Supreme Court in its
decision in Rizal Commercial Banking Corporation v. Court of Appeals; 17 and second, as the
corporate official responsible for the offense under P.D. No. 115, via criminal prosecution.
Moreover, P.D. No. 115 explicitly allows the prosecution of corporate officers "without
prejudice to the civil liabilities arising from the criminal offense." Thus, according to the
Justice Secretary, following Rizal Commercial Banking Corporation, the civil liability

imposed is clearly separate and distinct from the criminal liability of the accused under P.D.
No. 115.
Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13
Informations against petitioner for violation of P.D. No. 115 before the RTC of Manila. The
cases were docketed as Criminal Cases No. 99-178596 to 99-178608 and consolidated for trial
before Branch 52 of said court. Petitioner filed a motion for reconsideration, which the
Secretary of Justice denied in a Resolution18 dated January 17, 2000.
Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing
the resolutions of the Secretary of Justice on the following grounds:
1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN
FACT, ARE ACTING OPPRESSIVELY AGAINST ALFREDO CHING WHEN
THEY ALLOWED HIS PROSECUTION DESPITE THE FACT THAT NO
EVIDENCE HAD BEEN PRESENTED TO PROVE HIS PARTICIPATION IN
THE ALLEGED TRANSACTIONS.
2. THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN
GRAVE ABUSE OF DISCRETION AND IN EXCESS OF HIS JURISDICTION
WHEN THEY CONTINUED PROSECUTION OF THE PETITIONER DESPITE
THE LENGTH OF TIME INCURRED IN THE TERMINATION OF THE
PRELIMINARY INVESTIGATION THAT SHOULD JUSTIFY THE DISMISSAL
OF THE INSTANT CASE.
3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY
PROSECUTOR ACTED IN GRAVE ABUSE OF DISCRETION AMOUNTING TO
AN EXCESS OF JURISDICTION WHEN THEY CONTINUED THE
PROSECUTION OF THE PETITIONER DESPITE LACK OF SUFFICIENT
BASIS.19
In his petition, petitioner incorporated a certification stating that "as far as this Petition is
concerned, no action or proceeding in the Supreme Court, the Court of Appeals or different
divisions thereof, or any tribunal or agency. It is finally certified that if the affiant should learn
that a similar action or proceeding has been filed or is pending before the Supreme Court, the
Court of Appeals, or different divisions thereof, of any other tribunal or agency, it hereby
undertakes to notify this Honorable Court within five (5) days from such notice."20

B.
THERE IS NO MERIT IN PETITIONERS CONTENTION THAT EXCESSIVE
DELAY HAS MARRED THE CONDUCT OF THE PRELIMINARY
INVESTIGATION OF THE CASE, JUSTIFYING ITS DISMISSAL.
C.
THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORARI, PROHIBITION
AND MANDAMUS IS NOT THE PROPER MODE OF REVIEW FROM THE
RESOLUTION OF THE DEPARTMENT OF JUSTICE. THE PRESENT
PETITION MUST THEREFORE BE DISMISSED.21
On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and on
procedural grounds. On the procedural issue, it ruled that (a) the certification of non-forum
shopping executed by petitioner and incorporated in the petition was defective for failure to
comply with the first two of the three-fold undertakings prescribed in Rule 7, Section 5 of the
Revised Rules of Civil Procedure; and (b) the petition for certiorari, prohibition and
mandamus was not the proper remedy of the petitioner.
On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of
Justice were correctly issued for the following reasons: (a) petitioner, being the Senior VicePresident of PBMI and the signatory to the trust receipts, is criminally liable for violation of
P.D. No. 115; (b) the issue raised by the petitioner, on whether he violated P.D. No. 115 by his
actuations, had already been resolved and laid to rest in Allied Bank Corporation v.
Ordoez;22 and (c) petitioner was estopped from raising the
City Prosecutors delay in the final disposition of the preliminary investigation because he
failed to do so in the DOJ.
Thus, petitioner filed the instant petition, alleging that:
I
THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON
THE GROUND THAT THE CERTIFICATION OF NON-FORUM SHOPPING
INCORPORATED THEREIN WAS DEFECTIVE.

In its Comment on the petition, the Office of the Solicitor General alleged that II
A.
THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT
PETITIONER ALFREDO CHING IS THE OFFICER RESPONSIBLE FOR THE
OFFENSE CHARGED AND THAT THE ACTS OF PETITIONER FALL WITHIN
THE AMBIT OF VIOLATION OF P.D. [No.] 115 IN RELATION TO ARTICLE
315, PAR. 1(B) OF THE REVISED PENAL CODE.

THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE

ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WAS COMMITTED BY THE SECRETARY OF JUSTICE IN
COMING OUT WITH THE ASSAILED RESOLUTIONS.23
The Court will delve into and resolve the issues seriatim.

The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He
claims that the rules of procedure should be used to promote, not frustrate, substantial justice.
He insists that the Rules of Court should be construed liberally especially when, as in this
case, his substantial rights are adversely affected; hence, the deficiency in his certification of
non-forum shopping should not result in the dismissal of his petition.

Indubitably, the first paragraph of petitioners certification is incomplete and unintelligible.

Petitioner failed to certify that he "had not heretofore commenced any other action involving
the same issues in the Supreme Court, the Court of Appeals or the different divisions thereof
or any other tribunal or agency" as required by paragraph 4, Section 3, Rule 46 of the Revised
Rules of Court.

The Office of the Solicitor General (OSG) takes the opposite view, and asserts that
indubitably, the certificate of non-forum shopping incorporated in the petition before the CA is
defective because it failed to disclose essential facts about pending actions concerning similar
issues and parties. It asserts that petitioners failure to comply with the Rules of Court is fatal
to his petition. The OSG cited Section 2, Rule 42, as well as the ruling of this Court in Melo v.
Court of Appeals.24

We agree with petitioners contention that the certification is designed to promote and
facilitate the orderly administration of justice, and therefore, should not be interpreted with
absolute literalness. In his works on the Revised Rules of Civil Procedure, former Supreme
Court Justice Florenz Regalado states that, with respect to the contents of the certification
which the pleader may prepare, the rule of substantial compliance may be availed
of.27 However, there must be a special circumstance or compelling reason which makes the
strict application of the requirement clearly unjustified. The instant petition has not alleged
any such extraneous circumstance. Moreover, as worded, the certification cannot even be
regarded as substantial compliance with the procedural requirement. Thus, the CA was not
informed whether, aside from the petition before it, petitioner had commenced any other
action involving the same issues in other tribunals.

We agree with the ruling of the CA that the certification of non-forum shopping petitioner
incorporated in his petition before the appellate court is defective. The certification reads:
It is further certified that as far as this Petition is concerned, no action or proceeding in the
Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or agency.
It is finally certified that if the affiant should learn that a similar action or proceeding has been
filed or is pending before the Supreme Court, the Court of Appeals, or different divisions
thereof, of any other tribunal or agency, it hereby undertakes to notify this Honorable Court
within five (5) days from such notice.25
Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition
should be accompanied by a sworn certification of non-forum shopping, as provided in the
third paragraph of Section 3, Rule 46 of said Rules. The latter provision reads in part:
SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. The
petition shall contain the full names and actual addresses of all the petitioners and respondents,
a concise statement of the matters involved, the factual background of the case and the
grounds relied upon for the relief prayed for.
xxx
The petitioner shall also submit together with the petition a sworn certification that he has not
theretofore commenced any other action involving the same issues in the Supreme Court, the
Court of Appeals or different divisions thereof, or any other tribunal or agency; if there is such
other action or proceeding, he must state the status of the same; and if he should thereafter
learn that a similar action or proceeding has been filed or is pending before the Supreme
Court, the Court of Appeals, or different divisions thereof, or any other tribunal or agency, he
undertakes to promptly inform the aforesaid courts and other tribunal or agency thereof within
five (5) days therefrom. xxx
Compliance with the certification against forum shopping is separate from and independent of
the avoidance of forum shopping itself. The requirement is mandatory. The failure of the
petitioner to comply with the foregoing requirement shall be sufficient ground for the
dismissal of the petition without prejudice, unless otherwise provided. 26

On the merits of the petition, the CA ruled that the petitioner failed to establish that the
Secretary of Justice committed grave abuse of discretion in finding probable cause against the
petitioner for violation of estafa under Article 315, paragraph 1(b) of the Revised Penal Code,
in relation to P.D. No. 115. Thus, the appellate court ratiocinated:
Be that as it may, even on the merits, the arguments advanced in support of the petition are not
persuasive enough to justify the desired conclusion that respondent Secretary of Justice
gravely abused its discretion in coming out with his assailed Resolutions. Petitioner posits
that, except for his being the Senior Vice-President of the PBMI, there is no iota of evidence
that he was a participes crimines in violating the trust receipts sued upon; and that his liability,
if at all, is purely civil because he signed the said trust receipts merely as a xxx surety and not
as the entrustee. These assertions are, however, too dull that they cannot even just dent the
findings of the respondent Secretary, viz:
"x x x it is apropos to quote section 13 of PD 115 which states in part, viz:
xxx If the violation or offense is committed by a corporation, partnership, association or other
judicial entities, the penalty provided for in this Decree shall be imposed upon the directors,
officers, employees or other officials or persons therein responsible for the offense, without
prejudice to the civil liabilities arising from the criminal offense.
"There is no dispute that it was the respondent, who as senior vice-president of PBM, executed
the thirteen (13) trust receipts. As such, the law points to him as the official responsible for the
offense. Since a corporation cannot be proceeded against criminally because it cannot commit
crime in which personal violence or malicious intent is required, criminal action is limited to
the corporate agents guilty of an act amounting to a crime and never against the corporation
itself (West Coast Life Ins. Co. vs. Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303).
Thus, the execution by respondent of said receipts is enough to indict him as the official
responsible for violation of PD 115.

"Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which
are ultimately destined for sale and not goods, like those imported by PBM, for use in
manufacture. This issue has already been settled in the Allied Banking Corporation case,
supra, where he was also a party, when the Supreme Court ruled that PD 115 is not limited to
transactions in goods which are to be sold (retailed), reshipped, stored or processed as a
component or a product ultimately sold but covers failure to turn over the proceeds of the
sale of entrusted goods, or to return said goods if unsold or disposed of in accordance with the
terms of the trust receipts.
"In regard to the other assigned errors, we note that the respondent bound himself under the
terms of the trust receipts not only as a corporate official of PBM but also as its surety. It is
evident that these are two (2) capacities which do not exclude the other. Logically, he can be
proceeded against in two (2) ways: first, as surety as determined by the Supreme Court in its
decision in RCBC vs. Court of Appeals, 178 SCRA 739; and, secondly, as the corporate
official responsible for the offense under PD 115, the present case is an appropriate remedy
under our penal law.
"Moreover, PD 115 explicitly allows the prosecution of corporate officers without prejudice
to the civil liabilities arising from the criminal offense thus, the civil liability imposed on
respondent in RCBC vs. Court of Appeals case is clearly separate and distinct from his
criminal liability under PD 115."28
Petitioner asserts that the appellate courts ruling is erroneous because (a) the transaction
between PBMI and respondent bank is not a trust receipt transaction; (b) he entered into the
transaction and was sued in his capacity as PBMI Senior Vice-President; (c) he never received
the goods as an entrustee for PBMI, hence, could not have committed any dishonesty or
abused the confidence of respondent bank; and (d) PBMI acquired the goods and used the
same in operating its machineries and equipment and not for resale.
The OSG, for its part, submits a contrary view, to wit:
34. Petitioner further claims that he is not a person responsible for the offense allegedly
because "[b]eing charged as the Senior Vice-President of Philippine Blooming Mills (PBM),
petitioner cannot be held criminally liable as the transactions sued upon were clearly entered
into in his capacity as an officer of the corporation" and that [h]e never received the goods as
an entrustee for PBM as he never had or took possession of the goods nor did he commit
dishonesty nor "abuse of confidence in transacting with RCBC." Such argument is bereft of
merit.
35. Petitioners being a Senior Vice-President of the Philippine Blooming Mills does not
exculpate him from any liability. Petitioners responsibility as the corporate official of PBM
who received the goods in trust is premised on Section 13 of P.D. No. 115, which provides:
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of
the goods, documents or instruments covered by a trust receipt to the extent of the amount
owing to the entruster or as appears in the trust receipt or to return said goods, documents or
instruments if they were not sold or disposed of in accordance with the terms of the trust
receipt shall constitute the crime of estafa, punishable under the provisions of Article Three
hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and

fifteen, as amended, otherwise known as the Revised Penal Code. If the violation or offense is
committed by a corporation, partnership, association or other juridical entities, the penalty
provided for in this Decree shall be imposed upon the directors, officers, employees or other
officials or persons therein responsible for the offense, without prejudice to the civil liabilities
arising from the criminal offense. (Emphasis supplied)
36. Petitioner having participated in the negotiations for the trust receipts and having received
the goods for PBM, it was inevitable that the petitioner is the proper corporate officer to be
proceeded against by virtue of the PBMs violation of P.D. No. 115. 29
The ruling of the CA is correct.
In Mendoza-Arce v. Office of the Ombudsman (Visayas), 30 this Court held that the acts of a
quasi-judicial officer may be assailed by the aggrieved party via a petition for certiorari and
enjoined (a) when necessary to afford adequate protection to the constitutional rights of the
accused; (b) when necessary for the orderly administration of justice; (c) when the acts of the
officer are without or in excess of authority; (d) where the charges are manifestly false and
motivated by the lust for vengeance; and (e) when there is clearly no prima facie case against
the accused.31 The Court also declared that, if the officer conducting a preliminary
investigation (in that case, the Office of the Ombudsman) acts without or in excess of his
authority and resolves to file an Information despite the absence of probable cause, such act
may be nullified by a writ of certiorari.32
Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure, 33 the Information
shall be prepared by the Investigating Prosecutor against the respondent only if he or she finds
probable cause to hold such respondent for trial. The Investigating Prosecutor acts without or
in excess of his authority under the Rule if the Information is filed against the respondent
despite absence of evidence showing probable cause therefor.34 If the Secretary of Justice
reverses the Resolution of the Investigating Prosecutor who found no probable cause to hold
the respondent for trial, and orders such prosecutor to file the Information despite the absence
of probable cause, the Secretary of Justice acts contrary to law, without authority and/or in
excess of authority. Such resolution may likewise be nullified in a petition for certiorari under
Rule 65 of the Revised Rules of Civil Procedure.35
A preliminary investigation, designed to secure the respondent against hasty, malicious and
oppressive prosecution, is an inquiry to determine whether (a) a crime has been committed;
and (b) whether there is probable cause to believe that the accused is guilty thereof. It is a
means of discovering the person or persons who may be reasonably charged with a crime.
Probable cause need not be based on clear and convincing evidence of guilt, as the
investigating officer acts upon probable cause of reasonable belief. Probable cause implies
probability of guilt and requires more than bare suspicion but less than evidence which would
justify a conviction. A finding of probable cause needs only to rest on evidence showing that
more likely than not, a crime has been committed by the suspect. 36
However, while probable cause should be determined in a summary manner, there is a need to
examine the evidence with care to prevent material damage to a potential accuseds
constitutional right to liberty and the guarantees of freedom and fair play37 and to protect the
State from the burden of unnecessary expenses in prosecuting alleged offenses and holding
trials arising from false, fraudulent or groundless charges. 38

In this case, petitioner failed to establish that the Secretary of Justice committed grave abuse
of discretion in issuing the assailed resolutions. Indeed, he acted in accord with law and the
evidence.

entruster; (5) return the goods, documents or instruments in the event of non-sale or upon
demand of the entruster; and (6) observe all other terms and conditions of the trust receipt not
contrary to the provisions of the decree.40

Section 4 of P.D. No. 115 defines a trust receipt transaction, thus:

The entruster shall be entitled to the proceeds from the sale of the goods, documents or
instruments released under a trust receipt to the entrustee to the extent of the amount owing to
the entruster or as appears in the trust receipt, or to the return of the goods, documents or
instruments in case of non-sale, and to the enforcement of all other rights conferred on him in
the trust receipt; provided, such are not contrary to the provisions of the document. 41

Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the
meaning of this Decree, is any transaction by and between a person referred to in this Decree
as the entruster, and another person referred to in this Decree as entrustee, whereby the
entruster, who owns or holds absolute title or security interests over certain specified goods,
documents or instruments, releases the same to the possession of the entrustee upon the latters
execution and delivery to the entruster of a signed document called a "trust receipt" wherein
the entrustee binds himself to hold the designated goods, documents or instruments in trust for
the entruster and to sell or otherwise dispose of the goods, documents or instruments with the
obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing
to the entruster or as appears in the trust receipt or the goods, documents or instruments
themselves if they are unsold or not otherwise disposed of, in accordance with the terms and
conditions specified in the trust receipt, or for other purposes substantially equivalent to any of
the following:
1. In case of goods or documents, (a) to sell the goods or procure their sale; or (b) to
manufacture or process the goods with the purpose of ultimate sale; Provided, That,
in the case of goods delivered under trust receipt for the purpose of manufacturing or
processing before its ultimate sale, the entruster shall retain its title over the goods
whether in its original or processed form until the entrustee has complied fully with
his obligation under the trust receipt; or (c) to load, unload, ship or otherwise deal
with them in a manner preliminary or necessary to their sale; or
2. In the case of instruments a) to sell or procure their sale or exchange; or b) to
deliver them to a principal; or c) to effect the consummation of some transactions
involving delivery to a depository or register; or d) to effect their presentation,
collection or renewal.
The sale of goods, documents or instruments by a person in the business of selling goods,
documents or instruments for profit who, at the outset of the transaction, has, as against the
buyer, general property rights in such goods, documents or instruments, or who sells the same
to the buyer on credit, retaining title or other interest as security for the payment of the
purchase price, does not constitute a trust receipt transaction and is outside the purview and
coverage of this Decree.
An entrustee is one having or taking possession of goods, documents or instruments under a
trust receipt transaction, and any successor in interest of such person for the purpose of
payment specified in the trust receipt agreement. 39 The entrustee is obliged to: (1) hold the
goods, documents or instruments in trust for the entruster and shall dispose of them strictly in
accordance with the terms and conditions of the trust receipt; (2) receive the proceeds in trust
for the entruster and turn over the same to the entruster to the extent of the amount owing to
the entruster or as appears on the trust receipt; (3) insure the goods for their total value against
loss from fire, theft, pilferage or other casualties; (4) keep said goods or proceeds thereof
whether in money or whatever form, separate and capable of identification as property of the

In the case at bar, the transaction between petitioner and respondent bank falls under the trust
receipt transactions envisaged in P.D. No. 115. Respondent bank imported the goods and
entrusted the same to PBMI under the trust receipts signed by petitioner, as entrustee, with the
bank as entruster. The agreement was as follows:
And in consideration thereof, I/we hereby agree to hold said goods in trust for the said BANK
as its property with liberty to sell the same within ____days from the date of the execution of
this Trust Receipt and for the Banks account, but without authority to make any other
disposition whatsoever of the said goods or any part thereof (or the proceeds) either by way of
conditional sale, pledge or otherwise.
I/we agree to keep the said goods insured to their full value against loss from fire, theft,
pilferage or other casualties as directed by the BANK, the sum insured to be payable in case of
loss to the BANK, with the understanding that the BANK is, not to be chargeable with the
storage premium or insurance or any other expenses incurred on said goods.
In case of sale, I/we further agree to turn over the proceeds thereof as soon as received to the
BANK, to apply against the relative acceptances (as described above) and for the payment of
any other indebtedness of mine/ours to the BANK. In case of non-sale within the period
specified herein, I/we agree to return the goods under this Trust Receipt to the BANK without
any need of demand.
I/we agree to keep the said goods, manufactured products or proceeds thereof, whether in the
form of money or bills, receivables, or accounts separate and capable of identification as
property of the BANK.42
It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of
public policy, the failure of person to turn over the proceeds of the sale of the goods covered
by a trust receipt or to return said goods, if not sold, is a public nuisance to be abated by the
imposition of penal sanctions.43
The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions
involving goods procured as a component of a product ultimately sold has been resolved in the
affirmative in Allied Banking Corporation v. Ordoez. 44 The law applies to goods used by the
entrustee in the operation of its machineries and equipment. The non-payment of the amount
covered by the trust receipts or the non-return of the goods covered by the receipts, if not sold
or otherwise not disposed of, violate the entrustees obligation to pay the amount or to return
the goods to the entruster.

In Colinares v. Court of Appeals,45 the Court declared that there are two possible situations in a
trust receipt transaction. The first is covered by the provision which refers to money received
under the obligation involving the duty to deliver it (entregarla) to the owner of the
merchandise sold. The second is covered by the provision which refers to merchandise
received under the obligation to return it (devolvera) to the owner.46 Thus, failure of the
entrustee to turn over the proceeds of the sale of the goods covered by the trust receipts to the
entruster or to return said goods if they were not disposed of in accordance with the terms of
the trust receipt is a crime under P.D. No. 115, without need of proving intent to defraud. The
law punishes dishonesty and abuse of confidence in the handling of money or goods to the
prejudice of the entruster, regardless of whether the latter is the owner or not. A mere failure to
deliver the proceeds of the sale of the goods, if not sold, constitutes a criminal offense that
causes prejudice, not only to another, but more to the public interest. 47
The Court rules that although petitioner signed the trust receipts merely as Senior VicePresident of PBMI and had no physical possession of the goods, he cannot avoid prosecution
for violation of P.D. No. 115.
The penalty clause of the law, Section 13 of P.D. No. 115 reads:
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of
the goods, documents or instruments covered by a trust receipt to the extent of the amount
owing to the entruster or as appears in the trust receipt or to return said goods, documents or
instruments if they were not sold or disposed of in accordance with the terms of the trust
receipt shall constitute the crime of estafa, punishable under the provisions of Article Three
hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and
fifteen, as amended, otherwise known as the Revised Penal Code.1wphi1 If the violation or
offense is committed by a corporation, partnership, association or other juridical entities, the
penalty provided for in this Decree shall be imposed upon the directors, officers, employees or
other officials or persons therein responsible for the offense, without prejudice to the civil
liabilities arising from the criminal offense.
The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under
paragraph 1(b), Article 315 of the Revised Penal Code, or estafa with abuse of confidence. It
may be committed by a corporation or other juridical entity or by natural persons. However,
the penalty for the crime is imprisonment for the periods provided in said Article 315, which
reads:
ARTICLE 315. Swindling (estafa). Any person who shall defraud another by any of the
means mentioned hereinbelow shall be punished by:
1st. The penalty of prision correccional in its maximum period to prision mayor in
its minimum period, if the amount of the fraud is over 12,000 pesos but does not
exceed 22,000 pesos; and if such amount exceeds the latter sum, the penalty
provided in this paragraph shall be imposed in its maximum period, adding one year
for each additional 10,000 pesos; but the total penalty which may be imposed shall
not exceed twenty years. In such cases, and in connection with the accessory
penalties which may be imposed and for the purpose of the other provisions of this
Code, the penalty shall be termed prision mayor or reclusion temporal, as the case
may be;

2nd. The penalty of prision correccional in its minimum and medium periods, if the
amount of the fraud is over 6,000 pesos but does not exceed 12,000 pesos;
3rd. The penalty of arresto mayor in its maximum period to prision correccional in
its minimum period, if such amount is over 200 pesos but does not exceed 6,000
pesos; and
4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed
200 pesos, provided that in the four cases mentioned, the fraud be committed by any of the
following means; xxx
Though the entrustee is a corporation, nevertheless, the law specifically makes the officers,
employees or other officers or persons responsible for the offense, without prejudice to the
civil liabilities of such corporation and/or board of directors, officers, or other officials or
employees responsible for the offense. The rationale is that such officers or employees are
vested with the authority and responsibility to devise means necessary to ensure compliance
with the law and, if they fail to do so, are held criminally accountable; thus, they have a
responsible share in the violations of the law.48
If the crime is committed by a corporation or other juridical entity, the directors, officers,
employees or other officers thereof responsible for the offense shall be charged and penalized
for the crime, precisely because of the nature of the crime and the penalty therefor. A
corporation cannot be arrested and imprisoned; hence, cannot be penalized for a crime
punishable by imprisonment.49 However, a corporation may be charged and prosecuted for a
crime if the imposable penalty is fine. Even if the statute prescribes both fine and
imprisonment as penalty, a corporation may be prosecuted and, if found guilty, may be fined. 50
A crime is the doing of that which the penal code forbids to be done, or omitting to do what it
commands. A necessary part of the definition of every crime is the designation of the author of
the crime upon whom the penalty is to be inflicted. When a criminal statute designates an act
of a corporation or a crime and prescribes punishment therefor, it creates a criminal offense
which, otherwise, would not exist and such can be committed only by the corporation. But
when a penal statute does not expressly apply to corporations, it does not create an offense for
which a corporation may be punished. On the other hand, if the State, by statute, defines a
crime that may be committed by a corporation but prescribes the penalty therefor to be
suffered by the officers, directors, or employees of such corporation or other persons
responsible for the offense, only such individuals will suffer such penalty.51 Corporate officers
or employees, through whose act, default or omission the corporation commits a crime, are
themselves individually guilty of the crime.52
The principle applies whether or not the crime requires the consciousness of wrongdoing. It
applies to those corporate agents who themselves commit the crime and to those, who, by
virtue of their managerial positions or other similar relation to the corporation, could be
deemed responsible for its commission, if by virtue of their relationship to the corporation,
they had the power to prevent the act.53 Moreover, all parties active in promoting a crime,
whether agents or not, are principals.54 Whether such officers or employees are benefited by
their delictual acts is not a touchstone of their criminal liability. Benefit is not an operative
fact.

In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the
cloak of the separate corporate personality of PBMI. In the words of Chief Justice Earl
Warren, a corporate officer cannot protect himself behind a corporation where he is the actual,
present and efficient actor.55

Petitioners are stockholders of Omni Gas Corporation (Omni) as per Omnis General
Information Sheet[6] (GIS) dated March 6, 2004 submitted to the Securities and Exchange
Commission (SEC). Omni is in the business of trading and refilling of Liquefied Petroleum

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs
against the petitioner.

Gas (LPG) cylinders and holds Pasig City Mayors Permit No. RET-04-001256 dated February
3, 2004.

SO ORDERED.
FIRST DIVISION

The case all started when Joaquin Guevara Adarlo & Caoile Law Offices (JGAC
Law Offices) sent a letter dated March 22, 2004 [7] to the NBI requesting, on behalf of their

ARNEL U. TY, MARIE ANTONETTE TY, JASON

ONG, WILLY DY, and ALVIN TY,
Petitioners,
- versus NBI SUPERVISING AGENT MARVIN E. DE JEMIL,
PETRON GASUL DEALERS ASSOCIATION, and
TOTALGAZ DEALERS ASSOCIATION,
Respondents.

G.R. No. 182147

clients Shellane Dealers Association, Inc., Petron Gasul Dealers Association, Inc., and

Present:

Totalgaz Dealers Association, Inc., for the surveillance, investigation, and apprehension of

CORONA, C.J., Chairperson,

VELASCO, JR.,
LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.

persons or establishments in Pasig City that are engaged in alleged illegal trading of petroleum

Promulgated:
December 15, 2010
x-----------------------------------------------------------------------------------------x

products and underfilling of branded LPG cylinders in violation ofBatas Pambansa Blg. (BP)
33,[8] as amended by Presidential Decree No. (PD) 1865. [9]

Earlier, the JGAC Law Offices was furnished by several petroleum producers/brand
owners their respective certifications on the dealers/plants authorized to refill their respective
branded LPG cylinders, to wit: (1) On October 3, 2003, Pilipinas Shell Petroleum Corporation

DECISION
VELASCO, JR., J.:

(Pilipinas Shell) issued a certification [10] of the list of entities duly authorized to
refill Shellane LPG cylinders; (2) on December 4, 2003, Petron Corporation (Petron) issued a

The Case

certification[11] of their dealers in Luzon, Visayas, and Mindanao authorized to refill Petron
Gasul LPG cylinders; and (3) on January 5, 2004, Total (Philippines) Corporation (Total)

In this Petition for Review on Certiorari under Rule 45, petitioners seek the reversal
of the Decision[1] dated September 28, 2007 of the Court of Appeals (CA) in CA-G.R. SP No.

issued two certifications[12] of the refilling stations and plants authorized to refill
their Totalgaz and Superkalan Gaz LPG cylinders.

98054, which reversed and set aside the Resolutions dated October 9, 2006 [2] and December
14, 2006[3] of the Secretary of Justice, and reinstated the November 7, 2005 Joint

Agents De Jemil and Kawada attested to conducting surveillance of Omni in the

Resolution[4] of the Office of the Chief State Prosecutor. Petitioners assail also the CA

months of March and April 2004 and doing a test-buy on April 15, 2004. They brought eight

Resolution[5] dated March 14, 2008, denying their motion for reconsideration.

branded LPG cylinders of Shellane, Petron Gasul, Totalgaz, and Superkalan Gaz to Omni for

The Facts

refilling. The branded LPG cylinders were refilled, for which the National Bureau of
Investigation (NBI) agents paid PhP 1,582 as evidenced by Sales Invoice No. 90040 [13] issued
by Omni on April 15, 2004. The refilled LPG cylinders were without LPG valve seals and one

of the cylinders was actually underfilled, as found by LPG Inspector Noel N. Navio of the
Liquefied Petroleum Gas Industry Association (LPGIA) who inspected the eight branded LPG
cylinders on April 23, 2004 which were properly marked by the NBI after the test-buy.

On November 7, 2005, the 3rd Assistant City Prosecutor Leandro C. Catalo of

Manila issued a Joint Resolution, [26] later approved by the Chief State Prosecutor Jovencito R.
Zuo upon the recommendation of the Head of the Task Force on Anti-Intellectual Property

The NBIs test-buy yielded positive results for violations of BP 33, Section 2(a) in

Piracy (TFAIPP), Assistant Chief State Prosecutor Leah C. Tanodra-Armamento, finding

relation to Secs. 3(c) and 4, i.e., refilling branded LPG cylinders without authority; and Sec.

probable cause to charge petitioners with violations of pertinent sections of BP 33, as

2(c) in relation to Sec. 4, i.e., underdelivery or underfilling of LPG cylinders. Thus, on April

amended, resolving as follows:

28, 2004, Agent De Jemil filed an Application for Search Warrant (With Request for
Temporary Custody of the Seized Items) [14] before the Regional Trial Court (RTC)
in Pasig City, attaching, among others, his affidavit [15] and the affidavit of Edgardo C. Kawada,
[16]

an NBI confidential agent.

WHEREFORE, premises considered, it is hereby recommended

that two (2) Informations for violations of Section 2 [a] (illegal trading in
petroleum and/or petroleum products) and Section 2 [c] (underfilling of
LPG cylinders), both of Batas Pambansa Bilang 33, as amended, be filed
against respondents [herein petitioners] ARNEL TY, MARIE
ANTONETTE TY, JASON ONG, WILLY DY and ALVIN TY.[27]

On the same day of the filing of the application for search warrants on April 28,
2004, the RTC, Branch 167 in Pasig City issued Search Warrants No. 2624[17] and 2625.[18] The

Assistant City Prosecutor Catalo found the existence of probable cause based on the

NBI served the warrants the next day or on April 29, 2004 resulting in the seizure of several

evidence submitted by Agent De Jemil establishing the fact that Omni is not an authorized

items from Omnis premises duly itemized in the NBIs Receipt/Inventory of Property/Item

refiller of Shellane, Petron Gasul, Totalgaz and Superkalan Gaz LPG cylinders. Debunking

Seized.[19] On May 25, 2004, Agent De Jemil filed his Consolidated Return of Search Warrants

petitioners contention that the branded LPG cylinders are already owned by consumers who

with Ex-Parte Motion to Retain Custody of the Seized Items [20]before the RTC Pasig City.

are free to do with them as they please, the law is clear that the stamped markings on the LPG
cylinders show who are the real owners thereof and they cannot be refilled sans authority from

Subsequently, Agent De Jemil filed before the Department of Justice (DOJ) his
Complaint-Affidavits against petitioners for: (1) Violation of Section 2(a), in relation to

Pilipinas Shell, Petron or Total, as the case may be. On the underfilling of one LPG cylinder,
the findings of LPG Inspector Navio of the LPGIA were uncontroverted by petitioners.

Sections 3(c) and 4, of B.P. Blg. 33, as amended by P.D. 1865;[21] and (2) Violation of Section
2(c), in relation to Section 4, of B.P. Blg. 33, as amended by P.D. 1865,[22]docketed as I.S. Nos.
2004-616 and 2004-618, respectively.

During the preliminary investigation, petitioners submitted their Joint CounterAffidavit,[23] which was replied[24] to by Agent De Jemil with a corresponding rejoinder [25] from
petitioners.
The Ruling of the Office of the Chief State Prosecutor
in I.S. No. 2004-616 and I.S. No. 2004-618

Petitioners motion for reconsideration, [28] was denied through a Resolution[29] by the
Office of the Chief State Prosecutor issued on May 3, 2006.

In time, petitioners appealed to the Office of the Secretary of Justice. [30]

The Ruling of the DOJ Secretary
in I.S. No. 2004-616 and I.S. No. 2004-618

On October 9, 2006, the Office of the Secretary of Justice issued a

Resolution

[31]

reversing and setting aside the November 7, 2005 Joint Resolution of the Office

of the Secretary of Justice of probable cause is entitled to respect owing to the exercise of his
prerogative to prosecute or not.

of the Chief State Prosecutor, the dispositive portion of which reads:

On August 31, 2007, Petron filed a Motion to Intervene and to Admit Attached
WHEREFORE, the assailed resolution is hereby REVERSED
and SET ASIDE. The Chief State Prosecutor is directed to cause the
withdrawal of the informations for violations of Sections 2(a) and 2(c) of
B.P. Blg. 33, as amended by P.D. 1865, against respondents Arnel Ty, Mari
Antonette Ty, Jason Ong, Willy Dy and Alvin Ty and report the action
taken within ten (10) days from receipt hereof.

Petition-in-Intervention[37] and Petition-in-Intervention[38] before the CA in CA-G.R. SP No.

98054. And much earlier, the Nationwide Association of Consumers, Inc. (NACI) also filed a
similar motion.

SO ORDERED.[32]

On
Decision

The Office of the Secretary of Justice viewed, first, that the underfilling of one of
the eight LPG cylinders was an isolated incident and cannot give rise to a conclusion of

[39]

September

28,

2007,

the

appellate

court

rendered

the

assailed

revoking the resolutions of the Office of the Secretary of Justice and reinstated the

November 7, 2005 Joint Resolution of the Office of the Chief State Prosecutor.
The fallo reads:

underfilling, as the phenomenon may have been caused by human error, oversight or technical
error. Being an isolated case, it ruled that there was no showing of a clear pattern of deliberate
underfilling. Second, on the alleged violation of refilling branded LPG cylinders sans written
authority, it found no sufficient basis to hold petitioners responsible for violation of Sec. 2 (c)
of BP 33, as amended, since there was no proof that the branded LPG cylinders seized from

WHEREFORE, the instant petition is GRANTED. The

assailed resolutions dated October 9, 2006 and December 14, 2006 are
hereby REVERSED and SET
ASIDE. The
Joint
Resolution
dated November 7, 2005 of the Office of the Chief State Prosecutor
finding probable cause against private respondents Arnel Ty, Marie
Antonette Ty, Jason Ong, Willy Dy, and Alvin Ty is
hereby REINSTATED.

Omni belong to another company or firm, holding that the simple fact that the LPG cylinders

SO ORDERED.[40]

with markings or stamps of other petroleum producers cannot by itself prove ownership by
said firms or companies as the consumers who take them to Omni fully owned them having
purchased or acquired them beforehand.

Citing Sec. 1 (1) and (3) of BP 33, as amended, which provide for the presumption
of underfilling, the CA held that the actual underfilling of an LPG cylinder falls under the

Agent De Jemil moved but was denied reconsideration [33] through another
Resolution[34] dated December 14, 2006 prompting him to repair to the CA via a petition for

prohibition of the law which does not require for the underfilling to be substantial and
deliberate.

certiorari[35] under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No. 98054.
Moreover, the CA found strong probable violation of refilling of another companys
The Ruling of the CA

or firms cylinders without such companys or firms written authorization under Sec. 3 (c) of BP
33, as amended. The CA relied on the affidavits of Agents De Jemil and Kawada, the

The Office of the Solicitor General (OSG), in its Comment [36] on Agent De Jemils

certifications from various LPG producers that Omni is not authorized to refill their branded

appeal, sought the dismissal of the latters petition viewing that the determination by the Office

LPG cylinders, the results of the test-buy operation as attested to by the NBI agents and

confirmed by the examination of LPG Inspector Navio of the LPGIA, the letter-opinion [41] of

The foregoing issues can be summarized into two core issues: first, whether

the Department of Energy (DOE) to Pilipinas Shell confirming that branded LPG cylinders are

probable cause exists against petitioners for violations of Sec. 2 (a) and (c) of BP 33, as

properties of the companies whose stamp markings appear thereon, and Department Circular

amended; and second, whether petitioners can be held liable therefor. We, however, will tackle

No. 2000-05-007

[42]

of the DOE on the required stamps or markings by the manufacturers of

LPG cylinders.

at the outset the sole procedural issue raised: the propriety of the petition for certiorari under
Rule 65 availed of by public respondent Agent De Jemil to assail the resolutions of the Office
of the Secretary of Justice.

After granting the appeal of Agent De Jemil, however, the motions to intervene filed
by Petron and NACI were simply noted by the appellate court.

Petrons Comment-in-Intervention

Petitioners motion for reconsideration was rebuffed by the CA through the equally
assailed March 14, 2008 Resolution.[43]

On April 14, 2009, Petron entered its appearance by filing a Motion for Leave to
Intervene and to Admit Comment-in-Intervention [45] and its Comment-in-Intervention [To
petition for Review on Certiorari dated 13 May 2008].[46] It asserted vested interest in the

Thus, the instant petition.

seizure of several Gasul LPG cylinders and the right to prosecute petitioners for unauthorized
refilling
The Issues

I. WHETHER OR NOT RESPONDENTS WERE ENTITLED TO THE

SPECIAL CIVIL ACTION OF CERTIORARI IN THE COURT
OF APPEALS.
II. WHETHER OR NOT UNDER THE CIRCUMSTANCES THERE
WAS PROBABLE CAUSE TO BELIEVE THAT PETITIONERS
VIOLATED SECTION 2(A) OF BATAS PAMBANSA BLG. 33,
AS AMENDED.

of

its

branded

LPG

cylinders

by

Omni. Petitioners

duly

filed

their

Comment/Opposition[47] to Petrons motion to intervene. It is clear, however, that Petron has

substantial interest to protect in so far as its business relative to the sale and refilling of Petron
Gasul LPG cylinders is concerned, and therefore its intervention in the instant case is proper.

The Courts Ruling

We partially grant the petition.

III. WHETHER OR NOT UNDER THE CIRCUMSTANCES THERE

WAS PROBABLE CAUSE TO BELIEVE THAT PETITIONERS
VIOLATED SECTION 2(C) OF BATAS PAMBANSA BLG. 33,
AS AMENDED.
IV. WHETHER OR NOT PETITIONERS CAN BE HELD LIABLE
UNDER BATAS PAMBANSA BLG. 33, AS AMENDED, FOR
BEING MERE DIRECTORS, NOT ACTUALLY IN CHARGE
OF THE MANAGEMENT OF THE BUSINESS AFFAIRS OF
THE CORPORATION.[44]

Procedural Issue: Petition for Certiorari under Rule 65 Proper

Petitioners raise the sole procedural issue of the propriety of the legal remedy
availed of by public respondent Agent De Jemil. They strongly maintain that the Office of the

Secretary of Justice properly assumed jurisdiction and did not gravely abuse its discretion in
its determination of lack of probable causethe exercise thereof being its sole prerogativewhich,

x x x [T]he findings of the Justice Secretary may be reviewed

through a petition for certiorari under Rule 65 based on the allegation
that he acted with grave abuse of discretion.This remedy is available to
the aggrieved party.[53] (Emphasis supplied.)

they lament, the appellate court did not accord proper latitude. Besides, they assail the nonexhaustion of administrative remedies when Agent De Jemil immediately resorted to court
action through a special civil action for certiorari under Rule 65 before the CA without first
appealing the resolutions of the Office of the Secretary of Justice to the Office of the President
(OP).

It is thus clear that Agent De Jemil, the aggrieved party in the assailed resolutions of
the Office of the Secretary of Justice, availed of and pursued the proper legal remedy of a
judicial review through a petition for certiorari under Rule 65 in assailing the latters finding of
lack of probable cause on the ground of grave abuse of discretion.

We cannot agree with petitioners.

For one, while it is the consistent principle in this jurisdiction that the determination
of probable cause is a function that belongs to the public prosecutor [48] and, ultimately, to the
Secretary of Justice, who may direct the filing of the corresponding information or move for
the dismissal of the case;[49] such determination is subject to judicial review where it is
established that grave abuse of discretion tainted the determination.

For another, there is no question that the Secretary of Justice is an alter ego of the
President who may opt to exercise or not to exercise his or her power of review over the
formers determination in criminal investigation cases. As aptly noted by Agent De Jemil, the
determination of probable cause by the Secretary of Justice is, under the doctrine of qualified
political agency, presumably that of the Chief Executive unless disapproved or reprobated by
the latter.
Chan v. Secretary of Justice [50] delineated the proper remedy from the determination
of the Secretary of Justice. Therein, the Court, after expounding on the policy of noninterference in the determination of the existence of probable cause absent any showing of
arbitrariness on the part of the public prosecutor and the Secretary of Justice, however,
concluded, citing Alcaraz v. Gonzalez[51] and Preferred Home Specialties, Inc. v. Court of
Appeals,[52] that an aggrieved party from the resolution of the Secretary of Justice may directly
resort to judicial review on the ground of grave abuse of discretion, thus:

First Core Issue: Existence of Probable Cause

Petitioners contend that there is no probable cause that Omni violated Sec. 2 (a), in
relation to Secs. 3 (c) and 4 of BP 33, as amended, prohibiting the refilling of another
companys or firms LPG cylinders without its written authorization. First, the branded LPG
cylinders seized were not traded by Omni as its representative annotated in the NBI receipt of
seized items that the filled LPG cylinders came from customers trucks and the empty ones
were taken from the warehouse or swapping section of the refilling plant and not from the
refilling section. Second, the branded LPG cylinders are owned by end-user customers and not
by the major petroleum companies, i.e., Petron, Pilipinas Shell and Total. And even granting
arguendo that Omni is selling these LPG cylinders, still there cannot be a prima facie case of
violation since there is no proof that the refilled branded LPG cylinders are owned by another
company or firm.

Third, granting that Petron, Total and Pilipinas Shell still own their respective
branded LPG cylinders already sold to consumers, still such fact will not bind third persons,
like Omni, who is not privy to the agreement between the buying consumers and said major
petroleum companies. Thus, a subsequent transfer by the customers of Petron, Total and
Pilipinas Shell of the duly marked or stamped LPG cylinders through swapping, for example,
will effectively transfer ownership of the LPG cylinders to the transferee, like Omni.

Fourth, LPG cylinder exchange or swapping is a common industry practice that the

Third. Belying petitioners contention, the seized items during the service of the

DOE recognizes. They point to a series of meetings conducted by the DOE for

search warrants tend to show that Omni illegally refilled branded LPG cylinders without

institutionalizing the validity of swapping of all and any kind of LPG cylinders among the

authority.

industry players. The meetings resulted in a draft Memorandum of Agreement (MOA) which
unfortunately was not signed due to the withdrawal of petroleum major players Petron, Total
and Pilipinas Shell. Nonetheless, the non-signing of the MOA does not diminish the fact of the
recognized industry practice of cylinder exchange or swapping. Relying on Republic Act No.
(RA) 8479,

[54]

petitioners maintain that said law promotes and encourages the entry of new

participants in the petroleum industry such as Omni. And in furtherance of this mandate is the
valid practice of cylinder exchange or swapping in the LPG industry.

We are not persuaded by petitioners strained rationalizations.

Probable violation of Sec. 2 (a) of BP 33, amended

On April 29, 2004, the NBI agents who served the search warrants on Omni seized
the following:
Quantity/Unit Description
7 LPG cylinders Totalgaz, 11.0 kg [filled]
1 LPG cylinder Petron Gasul, 11.0 kg [filled]
1 LPG cylinder Shellane, 11.0 kg [filled]
29 LPG cylinders Superkalan Gaz, 2.7 kg [empty]
17 LPG cylinders Petron Gasul, 11.0 kg [emptly]
8 LPG cylinders Marked as Omnigas with Shell emboss,
11.0 kg [empty]
5 LPG cylinders Marked as Omnigas with Totalgaz emboss,
11.0 kg [empty]
23 LPG cylinders Shellane, 11.0 kg [empty]
3 LPG cylinders Marked as Omnigas with Gasul emboss,
11.0 kg [empty]
21 LPG cylinders Totalgaz, 11.0 kg [empty]
The foregoing list is embodied in the NBIs Receipt/Inventory of Property/Item
Seized[55] signed by NBI Agent Edwin J. Roble who served and implemented the search

First. The test-buy conducted on April 15, 2004 by the NBI agents, as attested to by

warrants. And a copy thereof was duly received by Atty. Allan U. Ty, representative of Omni,

their respective affidavits, tends to show that Omni illegally refilled the eight branded LPG

who signed the same under protest and made the annotation at the bottom part thereon: The

cylinders for PhP 1,582. This is a clear violation of Sec. 2 (a), in relation to Secs. 3 (c) and 4

above items/cylinders were taken at customers trucks and the empty cylinders taken at the

of BP 33, as amended. It must be noted that the criminal complaints, as clearly shown in the

warehouse (swapping section) of the company.[56]

complaint-affidavits of Agent De Jemil, are not based solely on the seized items pursuant to
the search warrants but also on the test-buy earlier conducted by the NBI agents.

Even considering that the filled LPG cylinders were indeed already loaded on
customers trucks when confiscated, yet the fact that these refilled LPG cylinders consisting of

Second. The written certifications from Pilipinas Shell, Petron and Total show that

nine branded LPG cylinders, specifically Totalgaz, Petron Gasul and Shellane, tends to show

Omni has no written authority to refill LPG cylinders, embossed, marked or

that Omni indeed refilled these branded LPG cylinders without authorization from Total,

stampedShellane, Petron Gasul, Totalgaz and Superkalan Gaz. In fact, petitioners neither

Petron and Pilipinas Shell. Such a fact is bolstered by the test-buy conducted by Agent De

dispute this nor claim that Omni has authority to refill these branded LPG cylinders.

Jemil and NBI confidential agent Kawada: Omnis unauthorized refilling of branded LPG

cylinders, contrary to Sec. 2 (a) in relation to Sec. 3 (c) of BP 33, as amended. Said provisos
provide:

Similarly, in the instant case, the fact that Omni refilled various branded LPG
cylinders even if owned by its customers but without authority from brand owners Petron,
Pilipinas Shell and Total shows palpable violation of BP 33, as amended. As aptly noted by the

Sec. 2.
penalized:
(a)

Prohibited Acts.The following acts are prohibited and

Illegal trading in petroleum and/or petroleum products;

Court in Yao, Sr. v. People, only the duly authorized dealers and refillers ofShellane, Petron
Gasul and, by extension, Total may refill these branded LPG cylinders. Our laws sought to
deter the pernicious practices of unscrupulous businessmen.

xxxx
Sec. 3. Definition of terms.For the purpose of this Act, the
following terms shall be construed to mean:

Fourth. The issue of ownership of the seized branded LPG cylinders is irrelevant
and hence need no belaboring. BP 33, as amended, does not require ownership of the branded

Illegal trading in petroleum and/or petroleum products

LPG cylinders as a condition sine qua non for the commission of offenses involving petroleum

xxxx

and petroleum products. Verily, the offense of refilling a branded LPG cylinder without the

(c) Refilling of liquefied petroleum gas cylinders without authority from

said Bureau, or refilling of another companys or firms cylinders
without such companys or firms written authorization; (Emphasis
supplied.)

written consent of the brand owner constitutes the offense regardless of the buyer or possessor
of the branded LPG cylinder.

After all, once a consumer buys a branded LPG cylinder from the brand owner or its
As petitioners strongly argue, even if the branded LPG cylinders were indeed owned
by customers, such fact does not authorize Omni to refill these branded LPG cylinders without
written authorization from the brand owners Pilipinas Shell, Petron and Total. In Yao, Sr. v.
People,[57] a case involving criminal infringement of property rights under Sec. 155 of RA
8293,[58] in affirming the courts a quos determination of the presence of probable cause, this
Court held that from Sec. 155.1[59] of RA 8293 can be gleaned that mere unauthorized use of a
container bearing a registered trademark in connection with the sale, distribution or

authorized dealer, said consumer is practically free to do what he pleases with the branded
LPG cylinder. He can simply store the cylinder once it is empty or he can even destroy it since
he has paid a deposit for it which answers for the loss or cost of the empty branded LPG
cylinder. Given such fact, what the law manifestly prohibits is the refilling of a branded LPG
cylinder by a refiller who has no written authority from the brand owner. Apropos, a refiller
cannot and ought not to refill branded LPG cylinders if it has no written authority from the
brand owner.

advertising of goods or services which is likely to cause confusion, mistake or deception

among the buyers/consumers can be considered as trademark infringement. [60] The Court
affirmed

the

presence

of

infringement

involving

theunauthorized

sale of Gasul and Shellane LPG cylinders and the unauthorized refilling of the same by
Masagana Gas Corporation as duly attested to and witnessed by NBI agents who conducted
the surveillance and test-buys.

Besides, persuasive are the opinions and pronouncements by the DOE: brand owners
are deemed owners of their duly embossed, stamped and marked LPG cylinders even if these
are possessed by customers or consumers. The Court recognizes this right pursuant to our
laws, i.e., Intellectual Property Code of the Philippines. Thus the issuance by the DOE
Circular No. 2000-05-007,[61] the letter-opinion[62] dated December 9, 2004 of then DOE
Secretary Vincent S. Perez addressed to Pilipinas Shell, the June 6, 2007 letter [63] of then DOE
Secretary Raphael P.M. Lotilla to the LPGIA, and DOE Department Circular No. 2007-10-

0007[64] on LPG Cylinder Ownership and Obligations Related Thereto issued on October 13,

the investigating officer acts upon reasonable beliefprobable cause implies probability of guilt

2007 by DOE Secretary Angelo T. Reyes.

and requires more than bare suspicion but less than evidence which would justify a conviction.
[67]

Fifth. The ownership of the seized branded LPG cylinders, allegedly owned by
Omni customers as petitioners adamantly profess, is of no consequence.

The law does not require that the property to be seized should be owned by the
person against whom the search warrants is directed. Ownership, therefore, is of no
consequence, and it is sufficient that the person against whom the warrant is directed has
control or possession of the property sought to be seized. [65] Petitioners cannot deny that the
seized LPG cylinders were in the possession of Omni, found as they were inside the Omni
compound.

Probable violation of Sec. 2 (c) of BP 33, as amended

Anent the alleged violation of Sec. 2 (c) in relation to Sec. 4 of BP 33, as amended,
petitioners strongly argue that there is no probable cause for said violation based upon an
underfilling of a lone cylinder of the eight branded LPG cylinders refilled during the testbuy. Besides, they point out that there was no finding of underfilling in any of the filled LPG
cylinders seized during the service of the search warrants. Citing DOEs Bureau of Energy
Utilization Circular No. 85-3-348, they maintain that some deviation is allowed from the exact
filled weight. Considering the fact that an isolated underfilling happened in so many LPG

In fine, we also note that among those seized by the NBI are 16 LPG cylinders
bearing the embossed brand names of Shellane, Gasul and Totalgaz but were marked as

cylinders filled, petitioners are of the view that such is due to human or equipment error and
does not in any way constitute deliberate underfilling within the contemplation of the law.

Omnigas. Evidently, this pernicious practice of tampering or changing the appearance of a

branded LPG cylinder to look like another brand violates the brand owners property rights
as infringement under Sec. 155.1 of RA 8293. Moreover, tampering of LPG cylinders is a
mode of perpetrating the criminal offenses under BP 33, as amended, and clearly enunciated
under DOE Circular No. 2000-06-010 which provided penalties on a per cylinder basis for
each violation.

Foregoing considered, in the backdrop of the quantum of evidence required to

Moreover, petitioners cast aspersion on the report and findings of LPG Inspector
Navio of the LPGIA by assailing his independence for being a representative of the major
petroleum companies and that the inspection he conducted was made without the presence of
any DOE representative or any independent body having technical expertise in determining
LPG cylinder underfilling beyond the authorized quantity.

Again, we are not persuaded.

support a finding of probable cause, we agree with the appellate court and the Office of the
Chief State Prosecutor, which conducted the preliminary investigation, that there exists
probable cause for the violation of Sec. 2 (a) in relation to Sec. 3 (c) of BP 33, as
amended. Probable cause has been defined as the existence of such facts and circumstances as
would excite belief in a reasonable mind, acting on the facts within the knowledge of the
prosecutor, that the person charged was guilty of the crime for which he was prosecuted.
[66]

After all, probable cause need not be based on clear and convincing evidence of guilt, as

Contrary to petitioners arguments, a single underfilling constitutes an offense under

BP 33, as amended by PD 1865, which clearly criminalizes these offenses. In Perez v. LPG
Refillers Association of the Philippines, Inc.,[68] the Court affirmed the validity of DOE
Circular No. 2000-06-010 which provided penalties on a per cylinder basis for each
violation, thus:

B.P. Blg. 33, as amended, criminalizes illegal trading,

adulteration, underfilling, hoarding, and overpricing of petroleum
products. Under this general description of what constitutes criminal acts
involving petroleum products, the Circular merely lists the various modes
by which the said criminal acts may be perpetrated, namely: no price
display board, no weighing scale, no tare weight or incorrect tare weight
markings, no
authorized
LPG
seal,
no
trade
name,
unbranded LPG cylinders, no serial number, no distinguishing color, no
embossed
identifying
markings
on
cylinder, underfilling LPG cylinders, tampering LPG cylinders,
and
unauthorized decanting of LPG cylinders. These specific acts and
omissions are obviously within the contemplation of the law, which seeks
to curb the pernicious practices of some petroleum merchants.
[69]
(Emphasis supplied.)

Moreover, in denying the motion for reconsideration of the LPG Refillers

Association of the Philippines, Inc., the Court upheld the basis of said DOE Circular No.
2000-06-010 on the imposition of penalties on a per cylinder basis, thus:
Respondents position is untenable. The Circular is not
confiscatory in providing penalties on a per cylinder basis. Those penalties
do not exceed the ceiling prescribed in Section 4 of B.P. Blg. 33, as
amended, which penalizes any person who commits any act [t]herein
prohibited. Thus, violation on a per cylinder basis falls within the
phrase any act as mandated in Section 4.To provide the same penalty for
one who violates a prohibited act in B.P. Blg. 33, as amended, regardless
of the number of cylinders involved would result in an indiscriminate,
oppressive and impractical operation of B.P. Blg. 33, as amended. The
equal protection clause demands that all persons subject to such
legislation shall be treated alike, under like circumstances and
conditions, both in the privileges conferred and in the liabilities imposed.
[70]

The Court made it clear that a violation, like underfilling, on a per cylinder basis
falls within the phrase of any act as mandated under Sec. 4 of BP 33, as amended.Ineluctably,
the underfilling of one LPG cylinder constitutes a clear violation of BP 33, as amended. The
finding of underfilling by LPG Inspector Navio of the LPGIA, as aptly noted by Manila
Assistant City Prosecutor Catalo who conducted the preliminary investigation, was indeed not
controverted by petitioners.

On the issue of manifest bias and partiality, suffice it to say that aside from the
allegation by petitioners, they have not shown that LPG Inspector Navio is neither an expert
nor qualified to determine underfilling. Besides, it must be noted that the inspection by LPG
Inspector Navio was conducted in the presence of NBI agents on April 23, 2004 who attested
to that fact through their affidavits. Moreover, no rules require and petitioners have not cited
any that the inspection be conducted in the presence of DOE representatives.

Second Core Issue: Petitioners Liability for Violations

Sec. 4 of BP 33, as amended, provides for the penalties and persons who are
criminally liable, thus:
Sec. 4. Penalties. Any person who commits any act herein prohibited
shall, upon conviction, be punished with a fine of not less than twenty
thousand pesos (P20,000) but not more than fifty thousand
pesos (P50,000), or imprisonment of at least two (2) years but not more
than five (5) years, or both, in the discretion of the court. In cases of
second and subsequent conviction under this Act, the penalty shall be both
fine and imprisonment as provided herein. Furthermore, the petroleum
and/or petroleum products, subject matter of the illegal trading,
adulteration, shortselling, hoarding, overpricing or misuse, shall be
forfeited in favor of the Government: Provided, That if the petroleum
and/or petroleum products have already been delivered and paid for, the
offended party shall be indemnified twice the amount paid, and if the
seller who has not yet delivered has been fully paid, the price received
shall be returned to the buyer with an additional amount equivalent to such
price; and in addition, if the offender is an oil company, marketer,
distributor, refiller, dealer, sub-dealer and other retail outlets, or hauler, the
cancellation of his license.
Trials of cases arising from this Act shall be terminated within thirty (30)
days after arraignment.
When the offender is a corporation, partnership, or other juridical person,
the president, the general manager, managing partner, or such
other officer charged with the management of the business affairs
thereof, or employee responsible for the violation shall be criminally
liable; in case the offender is an alien, he shall be subject to deportation
after serving the sentence.
If the offender is a government official or employee, he shall be
perpetually disqualified from office. (Emphasis supplied.)

It is undisputed that petitioners are members of the board of directors of Omni at the
Relying on the third paragraph of the above statutory proviso, petitioners argue that
they cannot be held liable for any perceived violations of BP 33, as amended, since they are
mere directors of Omni who are not in charge of the management of its business
affairs. Reasoning that criminal liability is personal, liability attaches to a person from his
personal act or omission but not from the criminal act or negligence of another. Since Sec. 4 of
BP 33, as amended, clearly provides and enumerates who are criminally liable, which do not
include members of the board of directors of a corporation, petitioners, as mere members of
the board of directors who are not in charge of Omnis business affairs, maintain that they
cannot be held liable for any perceived violations of BP 33, as amended. To bolster their
position, they attest to being full-time employees of various firms as shown by the Certificates
of Employment[71] they submitted tending to show that they are neither involved in the day-today business of Omni nor managing it. Consequently, they posit that even if BP 33, as

time pertinent. There can be no quibble that the enumeration of persons who may be held
liable for corporate violators of BP 33, as amended, excludes the members of the board of
directors. This stands to reason for the board of directors of a corporation is generally a policy
making body. Even if the corporate powers of a corporation are reposed in the board of
directors under the first paragraph of Sec. 23 [72] of the Corporation Code, it is of common
knowledge and practice that the board of directors is not directly engaged or charged with the
running of the recurring business affairs of the corporation.Depending on the powers granted
to them by the Articles of Incorporation, the members of the board generally do not concern
themselves with the day-to-day affairs of the corporation, except those corporate officers who
are charged with running the business of the corporation and are concomitantly members of
the board, like the President. Section 25[73] of the Corporation Code requires the president of a
corporation to be also a member of the board of directors.

amended, had been violated by Omni they cannot be held criminally liable thereof not being in
any way connected with the commission of the alleged violations, and, consequently, the
criminal complaints filed against them based solely on their being members of the board of
directors as per the GIS submitted by Omni to SEC are grossly discriminatory.

Thus, the application of the legal maxim expressio unius est exclusio alterius, which
means the mention of one thing implies the exclusion of another thing not mentioned.If a
statute enumerates the thing upon which it is to operate, everything else must necessarily and
by implication be excluded from its operation and effect. [74] The fourth officer in the

On this point, we agree with petitioners except as to petitioner Arnel U. Ty who is

indisputably the President of Omni.

enumerated list is the catch-all such other officer charged with the management of the business
affairs of the corporation or juridical entity which is a factual issue which must be alleged and
supported by evidence.

It may be noted that Sec. 4 above enumerates the persons who may be held liable for
violations of the law, viz: (1) the president, (2) general manager, (3) managing partner, (4)
such other officer charged with the management of the business affairs of the corporation or
juridical entity, or (5) the employee responsible for such violation. A common thread of the
first four enumerated officers is the fact that they manage the business affairs of the
corporation or juridical entity. In short, they are operating officers of a business concern, while

A scrutiny of the GIS reveals that among the petitioners who are members of the
board of directors are the following who are likewise elected as corporate officers of Omni: (1)
Petitioner Arnel U. Ty (Arnel) as President; (2) petitioner Mari Antonette Ty as Treasurer; and
(3) petitioner Jason Ong as Corporate Secretary. Sec. 4 of BP 33, as amended, clearly
indicated firstly the president of a corporation or juridical entity to be criminally liable for
violations of BP 33, as amended.

the last in the list is self-explanatory.

Evidently, petitioner Arnel, as President, who manages the business affairs of Omni,
can be held liable for probable violations by Omni of BP 33, as amended. The fact that

petitioner Arnel is ostensibly the operations manager of Multi-Gas Corporation, a family

BOY SCOUTS OF THE PHILIPPINES,

G.R. No. 177131

owned business, does not deter him from managing Omni as well. It is well-settled that where
the language of the law is clear and unequivocal, it must be taken to mean exactly what it says.
[75]

Petitioner,

As to the other petitioners, unless otherwise shown that they are situated under the catch-all

Present:

such other officer charged with the management of the business affairs, they may not be held
liable under BP 33, as amended, for probable violations.Consequently, with the exception of
CORONA, C.J.,

petitioner Arnel, the charges against other petitioners must perforce be dismissed or dropped.

CARPIO,

WHEREFORE, premises considered, we PARTIALLY GRANT the instant

petition. Accordingly, the assailed September 28, 2007 Decision and March 14, 2008
Resolution

of

the

Court

of

Appeals

in

CA-G.R.

SP

No.

CARPIO MORALES,

98054

are AFFIRMED with MODIFICATION that petitioners Mari Antonette Ty, Jason Ong,

VELASCO, JR.,

Willy Dy and Alvin Ty are excluded from the two Informations charging probable violations
NACHURA,

of Batas Pambansa Bilang 33, as amended. The Joint Resolution dated November 7, 2005 of
the Office of the Chief State Prosecutor is modified accordingly.

LEONARDO-DE CASTRO,
BRION,

No pronouncement as to costs.
- versus -

PERALTA,
BERSAMIN,

EN BANC

DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ,
MENDOZA, and
SERENO, JJ.

Promulgated:

The jurisdiction of the Commission on Audit (COA) over the Boy Scouts of
June 7, 2011

COMMISSION ON AUDIT,

the Philippines (BSP) is the subject matter of this controversy that reached
us via petition for prohibition[1] filed by the BSP under Rule 65 of the 1997

Respondent.

Rules of Court. In this petition, the BSP seeks that the COA be prohibited
from

implementing

its

June

18,

2002Decision,[2] its

February

21,

2007 Resolution,[3] as well as all other issuances arising therefrom, and

that all of the foregoing be rendered null and void. [4]

Antecedent Facts and

Background of the Case

This case arose when the COA issued Resolution No. 99-011[5] on
August 19, 1999 (the COA Resolution), with the subject Defining the
Commissions policy with respect to the audit of the Boy Scouts of the
Philippines. In its whereas clauses, the COA Resolution stated that the BSP
x--------------------------------------------------x

was created as a public corporation under Commonwealth Act No. 111, as

amended by Presidential Decree No. 460 and Republic Act No. 7278; that
in Boy Scouts of the Philippines v. National Labor Relations Commission,
[6]

DECISION

the Supreme Court ruled that the BSP, as constituted under its charter,

was a government-controlled corporation within the meaning of Article

IX(B)(2)(1) of the Constitution; and that the BSP is appropriately regarded
as a government instrumentality under the 1987 Administrative Code.
[7]

LEONARDO-DE CASTRO, J.:

The COA Resolution also cited its constitutional mandate under Section

2(1), Article IX (D). Finally, the COA Resolution reads:

It is the position of the BSP, with all due respect, that it is not
subject to the Commissions jurisdiction on the following
grounds:

NOW THEREFORE, in consideration of the foregoing

premises, the COMMISSION PROPER HAS RESOLVED, AS IT
DOES HEREBY RESOLVE, to conduct an annual financial
audit of the Boy Scouts of the Philippines in
accordance
with generally
accepted
auditing
standards, and express an opinion on whether the
financial statements which include the Balance Sheet, the
Income Statement and the Statement of Cash Flows
present fairly its financial position and results of
operations.

1.

We reckon that the ruling in the case of Boy Scouts of

the Philippines vs. National Labor Relations Commission,
et al. (G.R. No. 80767) classifying the BSP as a
government-controlled corporation is anchored on the
substantial Government participation in the National
Executive Board of the BSP. It is to be noted that the case
was decided when the BSP Charter is defined by
Commonwealth Act No. 111 as amended by Presidential
Decree 460.

xxxx
However, may we humbly refer you to Republic Act No.
7278 which amended the BSPs charter after the cited
case was decided. The most salient of all amendments in
RA No. 7278 is the alteration of the composition of the
National Executive Board of the BSP.

BE IT RESOLVED FURTHERMORE, that for purposes

of audit supervision, the Boy Scouts of the Philippines
shall
be
classified
among
the
government
corporations belonging to the Educational, Social,
Scientific, Civic and Research Sector under the
Corporate Audit Office I, to be audited, similar to the
subsidiary corporations, by employing the team audit
approach.[8] (Emphases supplied.)

The

BSP

sought

reconsideration

of

the

COA

Resolution

in

The said RA virtually eliminated the substantial

government participation in the National Executive Board
by removing: (i) the President of the Philippines and
executive secretaries, with the exception of the Secretary
of Education, as members thereof; and (ii) the
appointment and confirmation power of the President of
the Philippines, as Chief Scout, over the members of the
said Board.

a letter[9] dated November 26, 1999 signed by the BSP National President
Jejomar C. Binay, who is now the Vice President of the Republic, wherein he
wrote:

The BSP believes that the cited case has been superseded
by RA 7278. Thereby weakening the cases conclusion that
the BSP is a government-controlled corporation (sic). The
1987 Administrative Code itself, of which the BSP vs.
NLRC relied on for some terms, defines governmentowned and controlled corporations as agencies organized

as stock or non-stock corporations which the BSP, under

its present charter, is not.

Also, the Government, like in other GOCCs, does not have

funds invested in the BSP. What RA 7278 only provides is
that the Government or any of its subdivisions, branches,
offices, agencies and instrumentalities can from time to
time donate and contribute funds to the BSP.

Government including a department, bureau, office,

instrumentality,
government-owned
or
controlled
corporation or local government or distinct unit therein.

Under the above definition, the BSP is neither a unit of the

Government; a department which refers to an executive
department as created by law (Section 2[7] of the
Administrative Code); nor a bureau which refers to any
principal subdivision or unit of any department (Section
2[8], Administrative Code).[10]

xxxx

Subsequently, requests for reconsideration of the COA Resolution

Also the BSP respectfully believes that the BSP is not
appropriately regarded as a government instrumentality
under the 1987 Administrative Code as stated in the COA
resolution. As defined by Section 2(10) of the said code,
instrumentality refers to any agency of the National
Government, not integrated within the department
framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy, usually through a charter.

were also made separately by Robert P. Valdellon, Regional Scout Director,

Western Visayas Region, Iloilo City and Eugenio F. Capreso, Council Scout
Executive of Calbayog City.[11]

In a letter[12] dated July 3, 2000, Director Crescencio S. Sunico,

Corporate Audit Officer (CAO) I of the COA, furnished the BSP with a copy
of the Memorandum[13]dated June 20, 2000 of Atty. Santos M. Alquizalas,

The BSP is not an entity administering special funds. It is

not even included in the DECS National Budget. x x x

the COA General Counsel. In said Memorandum, the COA General Counsel
opined that Republic Act No. 7278 did not supersede the Courts ruling
in Boy Scouts of the Philippines v. National Labor Relations Commission,
even though said law eliminated the substantial government participation

It may be argued also that the BSP is not an agency of the

Government. The 1987 Administrative Code, merely
referred the BSP as an attached agency of the DECS as
distinguished from an actual line agency of departments
that are included in the National Budget. The BSP believes
that an attached agency is different from an agency.
Agency, as defined in Section 2(4) of the Administrative
Code, is defined as any of the various units of the

in the selection of members of the National Executive Board of the BSP. The
Memorandum further provides:

Analysis of the said case disclosed that the substantial

government participation is only one (1) of the three (3)
grounds relied upon by the Court in the resolution of the
case. Other considerations include the character of the
BSPs purposes and functions which has a public aspect
and the statutory designation of the BSP as a public
corporation. These grounds have not been deleted by R.A.
No. 7278. On the contrary, these were strengthened as
evidenced by the amendment made relative to BSPs
purposes stated in Section 3 of R.A. No. 7278.

On the argument that BSP is not appropriately

regarded as a government instrumentality and agency of
the government, such has already been answered and
clarified. The Supreme Court has elucidated this matter in
the BSP case when it declared that BSP is regarded as,
both a government-controlled corporation with an original
charter and as an instrumentality of the Government.
Likewise, it is not disputed that the Administrative Code of
1987 designated the BSP as one of the attached agencies
of DECS. Being an attached agency, however, it does not
change its nature as a government-controlled corporation
with original charter and, necessarily, subject to COA audit
jurisdiction. Besides, Section 2(1), Article IX-D of the
Constitution provides that COA shall have the power,
authority, and duty to examine, audit and settle all
accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held
in trust by, or pertaining to, the Government, or any of its
subdivisions, agencies or instrumentalities, including
government-owned or controlled corporations with original
charters.[14]

In view of the points clarified by said Memorandum

upholding COA Resolution No. 99-011, we have to comply
with the provisions of the latter, among which is to conduct
an annual financial audit of the Boy Scouts of the
Philippines.[15]

In a letter dated November 20, 2000 signed by Director Amorsonia

B. Escarda, CAO I, the COA informed the BSP that a preliminary survey of
its organizational structure, operations and accounting system/records
shall be conducted on November 21 to 22, 2000. [16]

Upon the BSPs request, the audit was deferred for thirty (30) days.
The BSP then filed a Petition for Review with Prayer for Preliminary
Injunction and/or Temporary Restraining Order before the COA. This
was denied by the COA in its questioned Decision, which held that the BSP
is under its audit jurisdiction. The BSP moved for reconsideration but this
was likewise denied under its questioned Resolution. [17]

This led to the filing by the BSP of this petition for prohibition with
preliminary injunction and temporary restraining order against the COA.
Based on the Memorandum of the COA General Counsel, Director
Sunico wrote:
The Issue

synonymous to holding that the BSP is a government corporation or entity

subject to audit by the COA. [19]
As stated earlier, the sole issue to be resolved in this case is
whether the BSP falls under the COAs audit jurisdiction.
The BSP contends that Republic Act No. 7278 introduced crucial
amendments to its charter; hence, the findings of the Court in Boy Scouts
of the Philippines v. National Labor Relations Commission are no longer
valid as the government has ceased to play a controlling influence in
it. The BSP claims that the pronouncements of the Court therein must be
taken only within the context of that case; that the Court had categorically
found that its assets were acquired from the Boy Scouts of America and not
The

Parties

Respective

Arguments

from the Philippine government, and that its operations are financed
chiefly from membership dues of the Boy Scouts themselves as well as
from property rentals; and that the BSP may correctly be characterized as
non-governmental, and hence, beyond the audit jurisdiction of the COA. It
further claims that the designation by the Court of the BSP as a

The BSP contends that Boy Scouts of the Philippines v. National

government agency or instrumentality is mere obiter dictum.[20]

Labor Relations Commission is inapplicable for purposes of determining the

audit jurisdiction of the COA as the issue therein was the jurisdiction of the
National Labor Relations Commission over a case for illegal dismissal and
unfair labor practice filed by certain BSP employees.[18]

The BSP maintains that the provisions of Republic Act No. 7278
suggest that governance of BSP has come to be overwhelmingly a private
affair or nature, with government participation restricted to the seat of the
Secretary of Education, Culture and Sports. [21] It cites Philippine Airlines Inc.

While the BSP concedes that its functions do relate to those that
the government might otherwise completely assume on its own, it avers
that this alone was not determinative of the COAs audit jurisdiction over
it. The BSP further avers that the Court in Boy Scouts of the Philippines v.
National Labor Relations Commission simply stated x x x that in respect of
functions, the BSP is akin to a public corporation but this was not

v. Commission on Audit[22] wherein the Court declared that, PAL, having

ceased to be a government-owned or controlled corporation is no longer
under the audit jurisdiction of the COA.[23] Claiming that the amendments
introduced by Republic Act No. 7278 constituted a supervening event that
changed the BSPs

corporate identity in the same way that the

governments privatization program changed PALs, the BSP makes the case
that the government no longer has control over it; thus, the COA cannot
use the Boy Scouts of the Philippines v. National Labor Relations
Commission as its basis for the exercise of its jurisdiction and the issuance
of COA Resolution No. 99-011.[24] The BSP further claims as follows:

To summarize its other arguments, the BSP contends that it is not a

government-owned

or

controlled

corporation;

neither

is

it

instrumentality, agency, or subdivision of the government.

It is not far-fetched, in fact, to concede that BSPs funds

and assets are private in character. Unlike ordinary public
corporations, such as provinces, cities, and municipalities, or
government-owned and controlled corporations, such as Land
Bank of the Philippines and the Development Bank of the
Philippines, the assets and funds of BSP are not derived from
any government grant. For its operations, BSP is not
dependent in any way on any government appropriation; as a
matter of fact, it has not even been included in any
appropriations for the government. To be sure, COA has not
alleged, in its Resolution No. 99-011 or in the Memorandum of
its General Counsel, that BSP received, receives or continues
to receive assets and funds from any agency of the
government. The foregoing simply point to the private nature
of the funds and assets of petitioner BSP.

xxxx

As stated in petitioners third argument, BSPs assets

and funds were never acquired from the government. Its
operations are not in any way financed by the government, as
BSP has never been included in any appropriations act for the
government. Neither has the government invested funds with
BSP. BSP, has not been, at any time, a user of government
property or funds; nor have properties of the government been
held in trust by BSP. This is precisely the reason why, until this
time, the COA has not attempted to subject BSP to its audit
jurisdiction. x x x.[25]

In its Comment,[26] the COA argues as follows:

1.

The BSP is a public corporation created under

Commonwealth Act No. 111 dated October 31, 1936,
and whose functions relate to the fostering of public
virtues of citizenship and patriotism and the general
improvement of the moral spirit and fiber of the youth.
The manner of creation and the purpose for which the
BSP was created indubitably prove that it is a
government agency.

2.

Being a government agency, the funds and property

owned or held in trust by the BSP are subject to the
audit authority of respondent Commission on Audit
pursuant to Section 2 (1), Article IX-D of the 1987
Constitution.

3.

Republic Act No. 7278 did not change the character

of the BSP as a government-owned or controlled
corporation and government instrumentality.[27]

an

The COA maintains that the functions of the BSP that include, among

reasons why the VFP is a public corporation is that its charter, Republic Act

others, the teaching to the youth of patriotism, courage, self-reliance, and

No. 2640, designates it as one. Furthermore, the COA quotes the Court as

kindred virtues, are undeniably sovereign functions enshrined under the

saying in that case:

Constitution and discussed by the Court in Boy Scouts of the Philippines v.

National Labor Relations Commission. The COA contends that any attempt
to classify the BSP as a private corporation would be incomprehensible
since no less than the law which created it had designated it as a public
corporation and its statutory mandate embraces performance of sovereign
functions.[28]

The COA claims that the only reason why the BSP employees fell
within the scope of the Civil Service Commission even before the 1987

In several cases, we have dealt with the issue of

whether certain specific activities can be classified as
sovereign functions. These cases, which deal with activities
not immediately apparent to be sovereign functions, upheld
the public sovereign nature of operations needed either to
promote social justice or to stimulate patriotic sentiments and
love of country.

xxxx

Constitution was the fact that it was a government-owned or controlled

corporation; that as an attached agency of the Department of Education,
Culture and Sports (DECS), the BSP is an agency of the government; and
that the BSP is a chartered institution under Section 1(12) of the Revised
Administrative Code of 1987, embraced under the term government
instrumentality.[29]

The COA concludes that being a government agency, the funds

and property owned or held by the BSP are subject to the audit authority of
the COA pursuant to Section 2(1), Article IX (D) of the 1987 Constitution.

In support of its arguments, the COA cites The Veterans Federation

of the Philippines (VFP) v. Reyes,[30] wherein the Court held that among the

Petitioner claims that its funds are not public funds

because no budgetary appropriations or government funds
have been released to the VFP directly or indirectly from the
DBM, and because VFP funds come from membership dues
and lease rentals earned from administering government lands
reserved for the VFP.

The fact that no budgetary appropriations have been

released to the VFP does not prove that it is a private
corporation. The DBM indeed did not see it fit to propose
budgetary appropriations to the VFP, having itself believed
that the VFP is a private corporation. If the DBM, however, is
mistaken as to its conclusion regarding the nature of VFP's
incorporation, its previous assertions will not prevent future
budgetary appropriations to the VFP. The erroneous application
of the law by public officers does not bar a subsequent correct
application of the law.[31] (Citations omitted.)

the parties to file, within a period of twenty (20) days from receipt of said
The COA points out that the government is not precluded by law
from extending financial support to the BSP and adding to its funds, and
that as a government instrumentality which continues to perform a vital

Resolution,

their

respective

comments

on

the

issue

of

whether

Commonwealth Act No. 111, as amended by Republic Act No. 7278, is

constitutional.

function imbued with public interest and reflective of the governments

policy to stimulate patriotic sentiments and love of country, the BSPs funds
from whatever source are public funds, and can be used solely for public
purpose in pursuance of the provisions of Republic Act No. [7278].

[32]

In compliance with the Courts resolution, the parties filed their

respective Comments.

The COA claims that the fact that it has not yet audited the BSPs
funds may not bar the subsequent exercise of its audit jurisdiction.

In its Comment[35] dated October 22, 2010, the COA argues that
the constitutionality of Commonwealth Act No. 111, as amended, is not
determinative of the resolution of the present controversy on the COAs
audit jurisdiction over petitioner, and in fact, the controversy may be

The BSP filed its Reply[33] on August 29, 2007 maintaining that its
statutory designation as a public corporation and the public character of its
purpose and functions are not determinative of the COAs audit jurisdiction;
reiterating its stand that Boy Scouts of the Philippines v. National Labor
Relations Commission is not applicable anymore because the aspect of
government ownership and control has been removed by Republic Act No.
7278; and concluding that the funds and property that it either owned or
held in trust are not public funds and are not subject to the COAs audit
jurisdiction.

may be made, as set forth in Commissioner of Internal Revenue v. Court of

Tax Appeals,[36] have not been fully met. [37] Moreover, the COA maintains
that behind every law lies the presumption of constitutionality. [38] The COA
likewise argues that contrary to the BSPs position, repeal of a law by
implication is not favored.[39] Lastly, the COA claims that there was no
violation of Section 16, Article XII of the 1987 Constitution with the creation
or declaration of the BSP as a government corporation. CitingPhilippine
Society for the Prevention of Cruelty to Animals v. Commission on Audit,
[40]

Thereafter, considering the BSPs claim that it is a private

corporation, this Court, in a Resolution

resolved on other grounds; thus, the requisites before a judicial inquiry

[34]

dated July 20, 2010, required

the COA further alleges:

The true criterion, therefore, to determine whether a

corporation is public or private is found in the totality of the
relation of the corporation to the State. If the corporation is

created by the State as the latters own agency or

instrumentality to help it in carrying out its governmental
functions, then that corporation is considered public;
otherwise, it is private. x x x.[41]

responsibility, courage, self-reliance, discipline and kindred

virtues, and moral values, preparing them to become model
citizens and outstanding leaders of the country.[44]

The BSP reiterates its stand that the public character of its purpose
and functions do not place it within the ambit of the audit jurisdiction of
For its part, in its Comment[42] filed on December 3, 2010, the BSP

the COA as it lacks the government ownership or control that the

submits that its charter, Commonwealth Act No. 111, as amended by

Constitution requires before an entity may be subject of said jurisdiction.

Republic Act No. 7278, is constitutional as it does not violate Section 16,

[45]

It avers that it merely stated in its Reply that the withdrawal of

Article XII of the Constitution. The BSP alleges that while [it] is not a public

government control is akin to privatization, but it does not necessarily

corporation within the purview of COAs audit jurisdiction, neither is it a

mean that petitioner is a private corporation. [46] The BSP claims that it has

private corporation created by special law falling within the ambit of the

a unique characteristic which neither classifies it as a purely public nor a

constitutional prohibition x x x.[43] The BSP further alleges:

purely private corporation;[47] that it is not a quasi-public corporation; and

that it may belong to a different class altogether.[48]

Petitioners purpose is embodied in Section 3 of C.A. No.

111, as amended by Section 1 of R.A. No. 7278, thus:
The BSP claims that assuming arguendo that it is a private
corporation, its creation is not contrary to the purpose of Section 16, Article
xxxx

XII of the Constitution; and that the evil sought to be avoided by said
provision is inexistent in the enactment of the BSPs charter, [49] as, (i) it was
not created for any pecuniary purpose; (ii) those who will primarily benefit

A reading of the foregoing provision shows that

petitioner was created to advance the interest of the youth,
specifically of young boys, and to mold them into becoming
good citizens. Ultimately, the creation of petitioner redounds
to the benefit, not only of those boys, but of the public good or
welfare. Hence, it can be said that petitioners purpose and
functions are more of a public rather than a private character.
Petitioner caters to all boys who wish to join the organization
without any distinction. It does not limit its membership to a
particular class of boys. Petitioners members are trained in
scoutcraft and taught patriotism, civic consciousness and

from its creation are not its officers but its entire membership consisting of
boys being trained in scoutcraft all over the country; (iii) it caters to all
boys who wish to join the organization without any distinction; and (iv) it
does not limit its membership to a particular class or group of boys. Thus,
the enactment of its charter confers no special privilege to particular
individuals, families, or groups; nor does it bring about the danger of
granting undue favors to certain groups to the prejudice of others or of the

interest of the country, which are the evils sought to be prevented by the
constitutional provision involved. [50]

themselves and others, to train them in scoutcraft, and to

inculcate in them patriotism, civic consciousness and
responsibility, courage, self-reliance, discipline and kindred
virtues, and moral values, using the method which are in
common use by boy scouts.

Finally, the BSP states that the presumption of constitutionality of a

legislative enactment prevails absent any clear showing of its repugnancy
to the Constitution.[51]
Presidential Decree No. 460, approved on May 17, 1974, amended
Commonwealth Act No. 111 and provided substantial changes in the BSP organizational
The Ruling of the Court

structure. Pertinent provisions are quoted below:

Section II. Section 5 of the said Act is also amended to read as

follows:
After looking at the legislative history of its amended charter and
carefully studying the applicable laws and the arguments of both parties,
we find that the BSP is a public corporation and its funds are subject to the
COAs audit jurisdiction.

The BSP Charter (Commonwealth Act No. 111, approved on

October 31, 1936), entitled An Act to Create a Public Corporation to be
Known as the Boy Scouts of the Philippines, and to Define its Powers and
Purposes created the BSP as a public corporation to serve the following
public interest or purpose:

Sec. 3. The purpose of this corporation shall be to

promote through organization and cooperation with other
agencies, the ability of boys to do useful things for

The governing body of the said corporation shall consist of a

National Executive Board composed of (a) the President of the Philippines
or his representative; (b) the charter and life members of the Boy Scouts of
the Philippines; (c) the Chairman of the Board of Trustees of the
Philippine Scouting Foundation; (d) the Regional Chairman of the Scout
Regions of the Philippines; (e) the Secretary of Education and Culture, the
Secretary of Social Welfare, the Secretary of National Defense, the
Secretary of Labor, the Secretary of Finance, the Secretary of Youth and
Sports, and the Secretary of Local Government and Community
Development; (f) an equal number of individuals from the private sector;
(g) the National President of the Girl Scouts of the Philippines; (h) one
Scout of Senior age from each Scout Region to represent the boy
membership; and (i) three representatives of the cultural minorities.
Except for the Regional Chairman who shall be elected by the Regional
Scout Councils during their annual meetings, and the Scouts of their
respective regions, all members of the National Executive Board shall be
either by appointment or cooption, subject to ratification and confirmation
by the Chief Scout, who shall be the Head of State. Vacancies in the
Executive Board shall be filled by a majority vote of the remaining
members, subject to ratification and confirmation by the Chief Scout. The
by-laws may prescribe the number of members of the National Executive
Board necessary to constitute a quorum of the board, which number may

be less than a majority of the whole number of the board. The National
Executive Board shall have power to make and to amend the by-laws, and,
by a two-thirds vote of the whole board at a meeting called for this
purpose, may authorize and cause to be executed mortgages and liens
upon the property of the corporation.

scoutcraft, and to inculcate in them patriotism, civic consciousness

and responsibility, courage, self-reliance, discipline and kindred
virtues, and moral values, using the method which are in common use
by boy scouts."

Sec. 2. Section 4 of Commonwealth Act No. 111, as amended, is

hereby repealed and in lieu thereof, Section 4 shall read as follows:
Subsequently, on March 24, 1992, Republic Act No. 7278 further amended
Commonwealth Act No. 111 by strengthening the volunteer and democratic character of the
BSP and reducing government representation in its governing body, as follows:

Section 1. Sections 2 and 3 of Commonwealth Act. No. 111, as

amended, is hereby amended to read as follows:

"Sec. 2. The said corporation shall have the powers of perpetual

succession, to sue and be sued; to enter into contracts; to acquire, own,
lease, convey and dispose of such real and personal estate, land grants,
rights and choses in action as shall be necessary for corporate purposes,
and to accept and receive funds, real and personal property by gift, devise,
bequest or other means, to conduct fund-raising activities; to adopt and use
a seal, and the same to alter and destroy; to have offices and conduct its
business and affairs in Metropolitan Manila and in the regions, provinces,
cities, municipalities, and barangays of the Philippines, to make and adopt
by-laws, rules and regulations not inconsistent with this Act and the laws
of the Philippines, and generally to do all such acts and things, including
the establishment of regulations for the election of associates and
successors, as may be necessary to carry into effect the provisions of this
Act and promote the purposes of said corporation: Provided, That said
corporation shall have no power to issue certificates of stock or to declare
or pay dividends, its objectives and purposes being solely of benevolent
character and not for pecuniary profit of its members.

"Sec. 4. The President of the Philippines shall be the Chief

Scout of the Boy Scouts of the Philippines."

Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act No. 111, as

amended, are hereby amended to read as follows:

"Sec. 5. The governing body of the said corporation shall

consist of a National Executive Board, the members of which shall be
Filipino citizens of good moral character. The Board shall be composed
of the following:

"(a) One (1) charter member of the Boy Scouts of the

Philippines who shall be elected by the members of the National Council
at its meeting called for this purpose;

"(b) The regional chairmen of the scout regions who shall be

elected by the representatives of all the local scout councils of the region
during its meeting called for this purpose: Provided, That a candidate for
regional chairman need not be the chairman of a local scout council;

"(c) The Secretary of Education, Culture and Sports;

"Sec. 3. The purpose of this corporation shall be to promote
through organization and cooperation with other agencies, the ability
of boys to do useful things for themselves and others, to train them in

"(d) The National President of the Girl Scouts of the

Philippines;

There are three classes of juridical persons under Article 44 of the Civil Code and
the BSP, as presently constituted under Republic Act No. 7278, falls under the second
classification. Article 44 reads:

"(e) One (1) senior scout, each from Luzon, Visayas and
Mindanao areas, to be elected by the senior scout delegates of the local
scout councils to the scout youth forums in their respective areas, in its
meeting called for this purpose, to represent the boy scout membership;

"(f) Twelve (12) regular members to be elected by the members

of the National Council in its meeting called for this purpose;

"(g) At least ten (10) but not more than fifteen (15) additional
members from the private sector who shall be elected by the members of
the National Executive Board referred to in the immediately preceding
paragraphs (a), (b), (c), (d), (e) and (f) at the organizational meeting of the
newly reconstituted National Executive Board which shall be held
immediately after the meeting of the National Council wherein the twelve
(12) regular members and the one (1) charter member were elected.

xxxx

Art. 44. The following are juridical persons:

(1) The State and its political subdivisions;

(2) Other corporations, institutions and entities for public
interest or purpose created by law; their personality begins as soon as
they have been constituted according to law;
(3) Corporations, partnerships and associations for private
interest or purpose to which the law grants a juridical personality,
separate and distinct from that of each shareholder, partner or member.
(Emphases supplied.)

The BSP, which is a corporation created for a public interest or purpose, is subject to
the law creating it under Article 45 of the Civil Code, which provides:

"Sec. 8. Any donation or contribution which from time to time

may be made to the Boy Scouts of the Philippines by the Government or
any of its subdivisions, branches, offices, agencies or instrumentalities or
by a foreign government or by private, entities and individuals shall be
expended by the National Executive Board in pursuance of this Act.

Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the

preceding article are governed by the laws creating or recognizing
them.
Private corporations are regulated by laws of general application
on the subject.

The BSP as a Public Corporation under

Par. 2, Art. 2 of the Civil Code

Partnerships and associations for private interest or purpose are

governed by the provisions of this Code concerning partnerships.
(Emphasis and underscoring supplied.)

The purpose of the BSP as stated in its amended charter shows

that it was created in order to implement a State policy declared in Article

as an attached agency of the DECS under Executive Order No. 292, or

the Administrative Code of 1987, which states:

II, Section 13 of the Constitution, which reads:

TITLE VI EDUCATION, CULTURE AND SPORTS

ARTICLE II - DECLARATION OF PRINCIPLES AND STATE
POLICIES
Section 13. The State recognizes the vital role of
the youth in nation-building and shall promote and protect
their physical, moral, spiritual, intellectual, and social wellbeing. It shall inculcate in the youth patriotism and
nationalism, and encourage their involvement in public and
civic affairs.

Chapter 8 Attached Agencies

SEC.
20. Attached
Agencies. The
following
agencies are hereby attached to the Department:

xxxx
Evidently, the BSP, which was created by a special law to serve a
public purpose in pursuit of a constitutional mandate, comes within the
class of public corporations defined by paragraph 2, Article 44 of the Civil

(12) Boy Scouts of the Philippines;

Code and governed by the law which creates it, pursuant to Article 45 of
the same Code.

(13) Girl Scouts of the Philippines.

The BSPs Classification

Under the Administrative
Code of 1987
The administrative relationship of an attached agency to the
department is defined in the Administrative Code of 1987 as follows:

The public, rather than private, character of the BSP is recognized

by the fact that, along with the Girl Scouts of the Philippines, it is classified

BOOK IV

THE EXECUTIVE BRANCH

As an attached agency, the BSP enjoys operational autonomy, as long as

policy and program coordination is achieved by having at least one

Chapter 7 ADMINISTRATIVE RELATIONSHIP

representative of government in its governing board, which in the

case of the BSP is the DECS Secretary. In this sense, the BSP is not under
government control or supervision and control. Still this characteristic does

SEC. 38. Definition of Administrative Relationship.

Unless otherwise expressly stated in the Code or in other
laws defining the special relationships of particular
agencies, administrative relationships shall be categorized
and defined as follows:

xxxx

(3) Attachment. (a) This refers to the lateral

relationship between the department or its equivalent and
the attached agency or corporation for purposes of
policy and program coordination. The coordination
may be accomplished by having the department
represented in the governing board of the attached
agency or corporation, either as chairman or as a
member, with or without voting rights, if this is
permitted by the charter; having the attached
corporation or agency comply with a system of periodic
reporting which shall reflect the progress of programs and
projects; and having the department or its equivalent
provide general policies through its representative in the
board, which shall serve as the framework for the internal
policies of the attached corporation or agency. (Emphasis
ours.)

not make the attached chartered agency a private corporation covered by

the constitutional proscription in question.

Art. XII, Sec. 16 of the Constitution refers

to private corporations created by
government
for
proprietary
or
economic/business purposes

At the outset, it should be noted that the provision of Section 16 in issue is found
in Article XII of the Constitution, entitled National Economy and Patrimony. Section 1 of
Article XII is quoted as follows:

SECTION 1. The goals of the national economy are a more

equitable distribution of opportunities, income, and wealth; a sustained
increase in the amount of goods and services produced by the nation for
the benefit of the people; and an expanding productivity as the key to
raising the quality of life for all, especially the underprivileged.

The State shall promote industrialization and full employment

based on sound agricultural development and agrarian reform, through
industries that make full and efficient use of human and natural resources,
and which are competitive in both domestic and foreign markets.

However, the State shall protect Filipino enterprises against unfair foreign
competition and trade practices.

It may be gleaned from the above discussion that Article XII, Section 16 bans the
creation of private corporations by special law. The said constitutional provision should not
be construed so as to prohibit the creation of public corporations or a corporate agency or

In the pursuit of these goals, all sectors of the economy and all
regions of the country shall be given optimum opportunity to develop.
Private enterprises, including corporations, cooperatives, and similar
collective organizations, shall be encouraged to broaden the base of their
ownership.

instrumentality of the government intended to serve a public interest or purpose, which should
not be measured on the basis of economic viability, but according to the public interest or
purpose it serves as envisioned by paragraph (2), of Article 44 of the Civil Code and the
pertinent provisions of the Administrative Code of 1987.

The scope and coverage of Section 16, Article XII of the Constitution can be seen
from the aforementioned declaration of state policies and goals which pertains tonational
economy and patrimony and the interests of the people in economic development.

The BSP is a Public Corporation

Not Subject to the Test of
Government
Ownership
or
Control and Economic Viability

Section 16, Article XII deals with the formation, organization, or regulation of
private corporations,[52] which should be done through a general law enacted by Congress,
provides for an exception, that is: if the corporation is government owned or controlled; its
creation is in the interest of the common good; and it meets the test of economic viability. The
rationale behind Article XII, Section 16 of the 1987 Constitution was explained in Feliciano v.
Commission on Audit,[53] in the following manner:
The Constitution emphatically prohibits the creation of private
corporations except by a general law applicable to all citizens. The
purpose of this constitutional provision is to ban private corporations
created by special charters, which historically gave certain
individuals, families or groups special privileges denied to other
citizens.[54] (Emphasis added.)

The BSP is a public corporation or a government agency or

instrumentality with juridical personality, which does not fall within the
constitutional prohibition in Article XII, Section 16, notwithstanding the
amendments to its charter. Not all corporations, which are not government
owned or controlled, are ipso facto to be considered private corporations
as there exists another distinct class of corporations or chartered
institutions which are otherwise known as public corporations. These
corporations are treated by law as agencies or instrumentalities of the
government which are not subject to the tests of ownership or control and
economic viability but to different criteria relating to their public
purposes/interests or constitutional policies and objectives and their
administrative relationship to the government or any of its Departments or
Offices.

Classification of Corporations
Under Section 16, Article XII of
the Constitution on National
Economy and Patrimony

Note that in Boy Scouts of the Philippines v. National Labor Relations

Commission, the BSP, under its former charter, was regarded as both a government owned or
controlled corporation with original charter and a public corporation. The said case pertinently
stated:

The dissenting opinion of Associate Justice Antonio T. Carpio, citing a line of

cases, insists that the Constitution recognizes only two classes of
corporations: private corporations under a general law, and governmentowned or controlled corporations created by special charters.

We strongly disagree. Section 16, Article XII should not be

construed so as to prohibit Congress from creating public corporations. In
fact, Congress has enacted numerous laws creating public corporations or
government

agencies

or

instrumentalities

vested

with

corporate

powers. Moreover, Section 16, Article XII, which relates to National

While the BSP may be seen to be a mixed type of entity,

combining aspects of both public and private entities, we believe that
considering the character of its purposes and its functions, the statutory
designation of the BSP as "a public corporation" and the substantial
participation of the Government in the selection of members of the
National Executive Board of the BSP, the BSP, as presently constituted
under its charter, is a government-controlled corporation within the
meaning of Article IX (B) (2) (1) of the Constitution.

We are fortified in this conclusion when we note that the

Administrative Code of 1987 designates the BSP as one of the attached
agencies of the Department of Education, Culture and Sports ("DECS").
An "agency of the Government" is defined as referring to any of the
various units of the Government including a department, bureau, office,
instrumentality, government-owned or -controlled corporation, or local
government or distinct unit therein. "Government instrumentality" is in
turn defined in the 1987 Administrative Code in the following manner:

Economy and Patrimony, could not have tied the hands of Congress in
creating public corporations to serve any of the constitutional policies or
objectives.
In his dissent, Justice Carpio contends that this ponente introduces
a totally different species of corporation, which is neither a private
corporation nor a government owned or controlled corporation and, in so
doing, is missing the fact that the BSP, which was created as a non-stock,

Instrumentality - refers to any agency of the

National Government, not integrated within the
department framework, vested with special functions
or jurisdiction by law,endowed with some if not all
corporate powers, administering special funds, and
enjoying operational autonomy usually through a
charter. This term includes regulatory agencies,
chartered institutions and government-owned or
controlled corporations.

non-profit corporation, can only be either a private corporation or a

government owned or controlled corporation.
The same Code describes a "chartered institution" in the
following terms:

Chartered institution - refers to any agency

organized or operating under a special charter, and
vested by law with functions relating to specific
constitutional policies or objectives. This term
includes the state universities and colleges, and the
monetary authority of the State.

(10) "Instrumentality" refers to any agency of the

National
Government,
not
integrated
within
the
department framework, vested with special functions or
jurisdiction by law, endowed with some if not all
corporate
powers, administering
special
funds,
and enjoying operational autonomy, usually through
a charter. This term includes regulatory agencies,
chartered institutions and government-owned or controlled
corporations.

We believe that the BSP is appropriately regarded as "a

government instrumentality" under the 1987 Administrative Code.
xxxx
It thus appears that the BSP may be regarded as both a
"government controlled corporation with an original charter" and as
an "instrumentality" of the Government within the meaning of
Article IX (B) (2) (1) of the Constitution. x x x.[55] (Emphases supplied.)

(12) "Chartered institution" refers to any agency

organized or operating under a special charter, and vested
by law with functions relating to specific constitutional
policies or objectives. This term includes the state
universities and colleges and the monetary authority of the
State.

The existence of public or government corporate or juridical

entities or chartered institutions by legislative fiat distinct from private
corporations and government owned or controlled corporation is best
exemplified by the 1987 Administrative Code cited above, which we quote
in part:

Sec. 2. General Terms Defined. Unless the specific

words of the text, or the context as a whole, or a particular
statute, shall require a different meaning:

xxxx

(13)
"Government-owned
or
controlled
corporation" refers to any agency organized as a stock or
non-stock corporation, vested with functions relating to
public needs whethergovernmental or proprietary in
nature, and owned by the Government directly or through
its instrumentalities either wholly, or, where applicable as
in the case of stock corporations, to the extent of at least
fifty-one (51) per cent of its capital stock: Provided, That
government-owned or controlled corporations may
be further categorized by the Department of the
Budget, the Civil Service Commission, and the
Commission on Audit for purposes of the exercise
and discharge of their respective powers, functions
and
responsibilities
with
respect
to
such
corporations.

Assuming for the sake of argument that the BSP ceases to be owned or controlled by

However, a review of the Record of the 1986 Constitutional Convention reveals the

the government because of reduction of the number of representatives of the government in

intent of the framers of the highest law of our land to distinguish between government

the BSP Board, it does not follow that it also ceases to be a government instrumentality as it

corporations performing governmental functions and corporations involved in business

still retains all the characteristics of the latter as an attached agency of the DECS under the

or proprietary functions:

Administrative Code. Vesting corporate powers to an attached agency or instrumentality of the

government is not constitutionally prohibited and is allowed by the above-mentioned

THE PRESIDENT. Commissioner Foz is recognized.

provisions of the Civil Code and the 1987 Administrative Code.

MR. FOZ. Madam President, I support the proposal to insert
ECONOMIC VIABILITY as one of the grounds for organizing
government corporations. x x x.
Economic
Viability
and
Ownership and Control Tests
Inapplicable
to
Public
Corporations

MR. OPLE. Madam President, the reason for this concern is

really that when the government creates a corporation, there is a sense in
which this corporation becomes exempt from the test of economic
performance. We know what happened in the past. If a government
corporation loses, then it makes its claim upon the taxpayers money
through new equity infusions from the government and what is always
invoked is the common good. x x x

As presently constituted, the BSP still remains an instrumentality of the national

government. It is a public corporation created by law for a public purpose, attached to the
DECS pursuant to its Charter and the Administrative Code of 1987. It is not a private
corporation which is required to be owned or controlled by the government and be

Therefore, when we insert the phrase ECONOMIC VIABILITY

together with the common good, this becomes a restraint on future
enthusiasts for state capitalism to excuse themselves from the
responsibility of meeting the market test so that they become viable. x x x.

economically viable to justify its existence under a special law.

xxxx

THE PRESIDENT. Commissioner Quesada is recognized.

The dissent of Justice Carpio also submits that by recognizing a new class of public
corporation(s) created by special charter that will not be subject to the test of economic
viability, the constitutional provision will be circumvented.

MS. QUESADA. Madam President, may we be clarified by the

committee on what is meant by economic viability?

THE PRESIDENT. Please proceed.

MR. MONSOD. Economic viability normally is determined by

cost-benefit ratio that takes into consideration all benefits, including
economic external as well as internal benefits. These are what they call
externalities in economics, so that these are not strictly financial criteria.
Economic viability involves what we call economic returns or benefits of
the country that are not quantifiable in financial terms. x x x.

xxxx

MS. QUESADA. So, would this particular formulation now

really limit the entry of government corporations into activities engaged in
by corporations?

corporations, very few of which have succeeded, and many of which are
now earmarked by the Presidential Reorganization Commission for
liquidation because they failed the economic test. x x x.

xxxx

MS. QUESADA. But would not the Commissioner say that the
reason why many of the government-owned or controlled corporations
failed to come up with the economic test is due to the management of
these corporations, and not the idea itself of government corporations? It is
a problem of efficiency and effectiveness of management of these
corporations which could be remedied, not by eliminating government
corporations or the idea of getting into state-owned corporations, but
improving management which our technocrats should be able to do, given
the training and the experience.

MR. OPLE. That is part of the economic viability, Madam

President.
MR. MONSOD. Yes, because it is also consistent with the
economic philosophy that this Commission approved that there
should be minimum government participation and intervention in the
economy.

MS. QUESDA. Sometimes this Commission would just refer to

Congress to provide the particular requirements when the government
would get into corporations. But this time around, we specifically
mentioned economic viability. x x x.

MR. VILLEGAS. Commissioner Ople will restate the reason for

his introducing that amendment.

MR. OPLE. I am obliged to repeat what I said earlier in moving

for this particular amendment jointly with Commissioner Foz. During the
past three decades, there had been a proliferation of government

MS. QUESADA. So, is the Commissioner saying then that the

Filipinos will benefit more if these government-controlled corporations
were given to private hands, and that there will be more goods and
services that will be affordable and within the reach of the ordinary
citizens?

MR. OPLE. Yes. There is nothing here, Madam President,

that will prevent the formation of a government corporation in
accordance with a special charter given by Congress. However, we are
raising the standard a little bit so that, in the future, corporations
established by the government will meet the test of the common good
but within that framework we should also build a certain standard of
economic viability.

xxxx

Thus, the test of economic viability clearly does not apply to public corporations dealing with
THE PRESIDENT. Commissioner Padilla is recognized.

governmental functions, to which category the BSP belongs. The discussion above conveys
the constitutional intent not to apply this constitutional ban on the creation of public

MR. PADILLA. This is an inquiry to the committee. With regard

to corporations created by a special charter for government-owned or
controlled corporations, will these be in the pioneer fields or in places
where the private enterprise does not or cannot enter? Or is this so general
that these government corporations can compete with private corporations
organized under a general law?

corporations where the economic viability test would be irrelevant. The said test would only
apply if the corporation is engaged in some economic activity or business function for the
government.

It is undisputed that the BSP performs functions that are impressed with public interest. In
MR. MONSOD. Madam President, x x x. There are two types
of government corporations those that are involved in performing
governmental functions, like garbage disposal, Manila waterworks, and
so on; and those government corporations that are involved in business
functions. As we said earlier, there are two criteria that should be
followed for corporations that want to go into business. First is for
government corporations to first prove that they can be efficient in the
areas of their proper functions. This is one of the problems now because
they go into all kinds of activities but are not even efficient in their proper
functions. Secondly, they should not go into activities that the private
sector can do better.

MR. PADILLA. There is no question about corporations

performing governmental functions or functions that are impressed
with public interest. But the question is with regard to matters that
are covered, perhaps not exhaustively, by private enterprise. It seems
that under this provision the only qualification is economic viability and
common good, but shall government, through government-controlled
corporations, compete with private enterprise?

MR. MONSOD. No, Madam President. As we said, the

government should not engage in activities that private enterprise is
engaged in and can do better. x x x. [56] (Emphases supplied.)

fact, during the consideration of the Senate Bill that eventually became Republic Act No.
7278, which amended the BSP Charter, one of the bills sponsors, Senator Joey Lina, described
the BSP as follows:

Senator Lina. Yes, I can only think of two organizations

involving the masses of our youth, Mr. President, that should be given this
kind of a privilege the Boy Scouts of the Philippines and the Girl Scouts of
the Philippines. Outside of these two groups, I do not think there are other
groups similarly situated.

The Boy Scouts of the Philippines has a long history of

providing value formation to our young, and considering how huge
the population of the young people is, at this point in time, and also
considering the importance of having an organization such as this that
will inculcate moral uprightness among the young people, and further
considering that the development of these young people at that tender
age of seven to sixteen is vital in the development of the country
producing good citizens, I believe that we can make an exception of the
Boy Scouting movement of the Philippines from this general prohibition
against providing tax exemption and privileges.[57]

Furthermore, this Court cannot agree with the dissenting opinion which equates the changes
introduced by Republic Act No. 7278 to the BSP Charter as clear manifestation of the intent of
Congress to return the BSP to the private sector. It was not the intent of Congress in enacting
Republic Act No. 7278 to give up all interests in this basic youth organization, which has been
its partner in forming responsible citizens for decades.

In fact, as may be seen in the deliberation of the House Bills that eventually resulted to
Republic Act No. 7278, Congress worked closely with the BSP to rejuvenate the organization,
to bring it back to its former glory reached under its original charter, Commonwealth Act No.
111, and to correct the perceived ills introduced by the amendments to its Charter under
Presidential Decree No. 460. The BSP suffered from low morale and decrease in number
because the Secretaries of the different departments in government who were too busy to
attend the meetings of the BSPs National Executive Board (the Board) sent representatives
who, as it turned out, changed from meeting to meeting. Thus, the Scouting Councils
established in the provinces and cities were not in touch with what was happening on the
national level, but they were left to implement what was decided by the Board. [58]

another
been
beneficiaries
of
the
Scouting
Movement. And so, it is along this line, Mr. Chairman, that
we would like to have the early approval of this measure if
only to pay back what we owe much to the Scouting
Movement. Now, going to the meat of the matter, Mr.
Chairman, if I may just the Scouting Movement was
enacted into law in October 31, 1936 under
Commonwealth Act No. 111. x x x [W]e were
acknowledged as the third biggest scouting organization in
the world x x x. And to our mind, Mr. Chairman, this erratic
growth and this decrease in membership [number] is
because of the bad policy measures that were enunciated
with the enactment or promulgation by the President
before of Presidential Decree No. 460 which we feel is the
culprit of the ills that is flagging the Boy Scout Movement
today. And so, this is specifically what we are attacking, Mr.
Chairman, the disenfranchisement of the National Council
in the election of the national board. x x x. And so, this is
what we would like to be appraised of by the officers of the
Boy [Scouts] of the Philippines whom we are also confident,
have the best interest of the Boy Scout Movement at heart
and it is in this spirit, Mr. Chairman, that we see no
impediment towards working together, the Boy Scout of
the Philippines officers working together with the House of
Representatives in coming out with a measure that will put
back the vigor and enthusiasm of the Boy Scout
Movement. x x x.[59] (Emphasis ours.)

A portion of the legislators discussion is quoted below to clearly show their intent:

HON. DEL MAR. x x x I need not mention to you

the value and the tremendous good that the Boy
Scout Movement has done not only for the youth in
particular but for the country in general. And that is
why, if we look around, our past and present
national leaders, prominent men in the various
fields of endeavor, public servants in government
offices, and civic leaders in the communities all over
the land, and not only in our country but all over the
world many if not most of them have at one time or

The following is another excerpt from the discussion on the House version of the
bill, in the Committee on Government Enterprises:

HON. AQUINO: x x x Well, obviously, the two bills as well as

the previous laws that have created the Boy Scouts of the Philippines did
not provide for any direct government support by way of appropriation
from the national budget to support the activities of this organization. The
point here is, and at the same time they have been subjected to a

governmental intervention, which to their mind has been inimical to the

objectives and to the institution per se, that is why they are seeking
legislative fiat to restore back the original mandate that they had under
Commonwealth Act 111. Such having been the experience in the hands
of government, meaning, there has been negative interference on their
part and inasmuch as their mandate is coming from a legislative fiat,
then shouldnt it be, this rhetorical question, shouldnt it be better for
this organization to seek a mandate from, lets say, the government the
Corporation Code of the Philippines and register with the SEC as
non-profit non-stock corporation so that government intervention
could be very very minimal. Maybe thats a rhetorical question, they may
or they may not answer, ano. I dont know what would be the benefit of a
charter or a mandate being provided for by way of legislation versus a
registration with the SEC under the Corporation Code of the Philippines
inasmuch as they dont get anything from the government anyway insofar
as direct funding. In fact, the only thing that they got from government
was intervention in their affairs. Maybe we can solicit some commentary
comments from the resource persons. Incidentally, dont take that as an
objection, Im not objecting. Im all for the objectives of these two bills. It
just occurred to me that since you have had very bad experience in the
hands of government and you will always be open to such possible
intervention even in the future as long as you have a legislative mandate or
your mandate or your charter coming from legislative action.

xxxx

HON. AQUINO: Well, that I think would be a problem that will

not be exclusive to corporations registered with the SEC because even if
you are government corporation, court action may be taken against you in
other judicial bodies because the SEC is simply another quasi-judicial
body. But, I think, the first point would be very interesting, the first
point that you raised. In effect, what you are saying is that with the
legislative mandate creating your charter, in effect, you have been
given some sort of a franchise with this movement.

MR. ESCUDERO: Yes.

HON. AQUINO: Exclusive franchise of that movement?
MR. ESCUDERO: Yes.
HON. AQUINO: Well, thats very well taken so I will
proceed with other issues, Mr. Chairman. x x x.
[60]
(Emphases added.)

Therefore, even though the amended BSP charter did away with
most of the governmental presence in the BSP Board, this was done to

MR. ESCUDERO: Mr. Chairman, there may be a

disadvantage if the Boy Scouts of the Philippines will be required to
register with the SEC. If we are registered with the SEC, there could be a
danger of proliferation of scout organization. Anybody can organize and
then register with the SEC. If there will be a proliferation of this, then the
organization will lose control of the entire organization. Another
disadvantage, Mr. Chairman, anybody can file a complaint in the SEC
against the Boy Scouts of the Philippines and the SEC may suspend the
operation or freeze the assets of the organization and hamper the operation
of the organization. I dont know, Mr. Chairman, how you look at it but
there could be a danger for anybody filing a complaint against the
organization in the SEC and the SEC might suspend the registration
permit of the organization and we will not be able to operate.

more strongly promote the BSPs objectives, which were not supported
under Presidential Decree No. 460. The BSP objectives, as pointed out
earlier, are consistent with the public purpose of the promotion of the
well-being of the youth, the future leaders of the country. The amendments
were not done with the view of changing the character of the BSP into a
privatized

corporation.The

BSP

remains

an

agency

attached

to

department of the government, the DECS, and it was not at all stripped of
its public character.

The ownership and control test is likewise irrelevant for a public

Thus, when it comes to the exercise of the power of judicial review, the

corporation like the BSP. To reiterate, the relationship of the BSP, an

constitutional issue should be the very lis mota, or threshold issue, of the

attached agency, to the government, through the DECS, is defined in the

case, and that it should be raised by either of the parties. These

Revised Administrative Code of 1987. The BSP meets the minimum

requirements would be ignored under the dissents rather overreaching

statutory requirement of an attached government agency as the DECS

view of how this case should have been decided. True, it was the Court that

Secretary sits at the BSP Board ex officio, thus facilitating the policy and

asked the parties to comment, but the Court cannot be the one to raise a

program coordination between the BSP and the DECS.

constitutional issue. Thus, the Court chooses to once more exhibit restraint

Requisites for Declaration of

Unconstitutionality Not Met in
this Case

in the exercise of its power to pass upon the validity of a law.

Re: the COAs Jurisdiction

The dissenting opinion of Justice Carpio improperly raised the issue of

unconstitutionality of certain provisions of the BSP Charter. Even if the
parties were asked to Comment on the validity of the BSP charter by the
Court, this alone does not comply with the requisites for judicial review,
which were clearly set forth in a recent case:

When questions of constitutional significance are

raised, the Court can exercise its power of judicial review
only if the following requisites are present: (1) the
existence of an actual and appropriate case; (2) the
existence of personal and substantial interest on
the part of the party raising the constitutional
question; (3) recourse to judicial review is made at
the earliest opportunity; and (4) the constitutional
question is the lis mota of the case.[61] (Emphasis
added.)

Regarding the COAs jurisdiction over the BSP, Section 8 of its amended charter
allows the BSP to receive contributions or donations from the government. Section 8 reads:
Section 8. Any donation or contribution which from time to
time may be made to the Boy Scouts of the Philippines by the
Government or any of its subdivisions, branches, offices, agencies or
instrumentalities shall be expended by the Executive Board in
pursuance of this Act.

The sources of funds to maintain the BSP were identified before the House
Committee on Government Enterprises while the bill was being deliberated, and the pertinent
portion of the discussion is quoted below:

MR. ESCUDERO. Yes, Mr. Chairman. The question is the

sources of funds of the organization. First, Mr. Chairman, the Boy Scouts
of the Philippines do not receive annual allotment from the government.
The organization has to raise its own funds through fund drives and fund

campaigns or fund raising activities. Aside from this, we have some

revenue producing projects in the organization that gives us funds to
support the operation. x x x From time to time, Mr. Chairman, when we
have special activities we request for assistance or financial assistance
from government agencies, from private business and corporations, but
this is only during special activities that the Boy Scouts of the Philippines
would conduct during the year. Otherwise, we have to raise our own funds
to support the organization.[62]

would be difficult if the Boy Scouts is registered as a private corporation

with the Securities and Exchange Commission. Government bodies would
be estopped from making donations to the Boy Scouts, which at present is
not the case because there is the Boy Scouts charter, this Commonwealth
Act 111 as amended by PD 463.

xxxx
HON. AMATONG: Mr. Chairman, in connection with that.

The nature of the funds of the BSP and the COAs audit jurisdiction were likewise

THE CHAIRMAN: Yeah, Gentleman from Zamboanga.

brought up in said congressional deliberations, to wit:

HON. AQUINO: x x x Insofar as this organization being a government

created organization, in fact, a government corporation classified as such,
are your funds or your finances subjected to the COA audit?

HON. AMATONG: There is no auditing being made because theres

no money put in the organization, but how about donated funds to this
organization? What are the remedies of the donors of how will they know
how their money are being spent?

MR. ESCUDERO: May I answer, Mr. Chairman?

MR. ESCUDERO: Mr. Chairman, we are not. Our funds is not subjected.
We dont fall under the jurisdiction of the COA.
HON. AQUINO: All right, but before were you?

THE CHAIRMAN: Yes, gentleman.

MR. ESCUDERO: No, Mr. Chairman.

MR. JESUS: May I? As historical backgrounder, Commonwealth Act 111
was written by then Secretary Jorge Vargas and before and up to the
middle of the Martial Law years, the BSP was receiving a subsidy in the
form of an annual a one draw from the Sweepstakes. And, this was the
case also with the Girl Scouts at the Anti-TB, but then this was and the
Boy Scouts then because of this funding partly from government was
being subjected to audit in the contributions being made in the part of
the Sweepstakes. But this was removed later during the Martial Law
years with the creation of the Human Settlements Commission. So the
situation right now is that the Boy Scouts does not receive any funding
from government, but then in the case of the local councils and this
legislative charter, so to speak, enables the local councils even the national
headquarters in view of the provisions in the existing law to receive
donations from the government or any of its instrumentalities, which

MR. ESCUDERO: The Boy Scouts of the Philippines has an external

auditor and by the charter we are required to submit a financial report at
the end of each year to the National Executive Board. So all the funds
donated or otherwise is accounted for at the end of the year by our external
auditor. In this case the SGV.[63]

Historically, therefore, the BSP had been subjected to government audit in so far as
public funds had been infused thereto. However, this practice should not preclude the exercise

of the audit jurisdiction of COA, clearly set forth under the Constitution, which pertinently
provides:

G.R. No. 191109

July 18, 2012

REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE

RECLAMATION AUTHORITY (PRA),Petitioner,
vs.
CITY OF PARANAQUE, Respondent.
DECISION
Section 2. (1) The Commission on Audit shall have the power,
authority, and duty to examine, audit, and settle all accounts
pertaining to the revenue and receipts of, and expenditures or uses of
funds and property, owned or held in trust by, or pertaining to,
the Government, or any of its subdivisions, agencies, or
instrumentalities, including government-owned and controlled
corporations with original charters, and on a post-audit basis: (a)
constitutional bodies, commissions and offices that have been granted
fiscal autonomy under this Constitution; (b) autonomous state colleges and
universities; (c) other government-owned or controlled corporations with
original charters and their subsidiaries; and (d) such non-governmental
entities receiving subsidy or equity, directly or indirectly, from or through
the Government, which are required by law of the granting institution to
submit to such audit as a condition of subsidy or equity. x x x. [64]

MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure,
on pure questions of law, assailing the January 8, 2010 Order1 of the Regional Trial Court,
Branch 195, Parafiaque City (RTC), which ruled that petitioner Philippine Reclamation
Authority (PRA) is a government-owned and controlled corporation (GOCC), a taxable entity,
and, therefore, . not exempt from payment of real property taxes. The pertinent portion of the
said order reads:
In view of the finding of this court that petitioner is not exempt from payment of real property
taxes, respondent Paraaque City Treasurer Liberato M. Carabeo did not act xxx without or in
excess of jurisdiction, or with grave abuse of discretion amounting to lack or in excess of
jurisdiction in issuing the warrants of levy on the subject properties.
WHEREFORE, the instant petition is dismissed. The Motion for Leave to File and Admit
Attached Supplemental Petition is denied and the supplemental petition attached thereto is not
admitted.

Since the BSP, under its amended charter, continues to be a public corporation or a
government instrumentality, we come to the inevitable conclusion that it is subject to the
exercise by the COA of its audit jurisdiction in the manner consistent with the provisions of

The Public Estates Authority (PEA) is a government corporation created by virtue of

Presidential Decree (P.D.) No. 1084 (Creating the Public Estates Authority, Defining its
Powers and Functions, Providing Funds Therefor and For Other Purposes) which took effect
on February 4,

the BSP Charter.

WHEREFORE, premises

considered,

the

is DISMISSED.

instant

petition

for

prohibition

1977 to provide a coordinated, economical and efficient reclamation of lands, and the
administration and operation of lands belonging to, managed and/or operated by, the
government with the object of maximizing their utilization and hastening their development
consistent with public interest.
On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued by then President
Ferdinand Marcos, PEA was designated as the agency primarily responsible for integrating,
directing and coordinating all reclamation projects for and on behalf of the National
Government.

SO ORDERED.
THIRD DIVISION

On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380
transforming PEA into PRA, which shall perform all the powers and functions of the PEA
relating to reclamation activities.

that the tax exemption claimed by PRA under E.O. No. 654 had already been expressly
repealed by R.A. No. 7160 and that PRA failed to comply with the procedural requirements in
Section 206 thereof.

By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas
of Manila Bay, including those located in Paraaque City, and was issued Original Certificates
of Title (OCT Nos. 180, 202, 206, 207, 289, 557, and 559) and Transfer Certificates of Title
(TCT Nos. 104628, 7312, 7309, 7311, 9685, and 9686) over the reclaimed lands.

Not in conformity, PRA filed this petition for certiorari assailing the January 8, 2010 RTC
Order based on the following GROUNDS

On February 19, 2003, then Paraaque City Treasurer Liberato M. Carabeo (Carabeo) issued
Warrants of Levy on PRAs reclaimed properties (Central Business Park and Barangay San
Dionisio) located in Paraaque City based on the assessment for delinquent real property taxes
made by then Paraaque City Assessor Soledad Medina Cue for tax years 2001 and 2002.

THE TRIAL COURT GRAVELY ERRED IN FINDING THAT PETITIONER IS LIABLE TO

PAY REAL PROPERTY TAX ON THE SUBJECT RECLAIMED LANDS CONSIDERING

On March 26, 2003, PRA filed a petition for prohibition with prayer for temporary restraining
order (TRO) and/or writ of preliminary injunction against Carabeo before the RTC.
On April 3, 2003, after due hearing, the RTC issued an order denying PRAs petition for the
issuance of a temporary restraining order.
On April 4, 2003, PRA sent a letter to Carabeo requesting the latter not to proceed with the
public auction of the subject reclaimed properties on April 7, 2003. In response, Carabeo sent
a letter stating that the public auction could not be deferred because the RTC had already
denied PRAs TRO application.
On April 25, 2003, the RTC denied PRAs prayer for the issuance of a writ of preliminary
injunction for being moot and academic considering that the auction sale of the subject
properties on April 7, 2003 had already been consummated.
On August 3, 2009, after an exchange of several pleadings and the failure of both parties to
arrive at a compromise agreement, PRA filed a Motion for Leave to File and Admit Attached
Supplemental Petition which sought to declare as null and void the assessment for real
property taxes, the levy based on the said assessment, the public auction sale conducted on
April 7, 2003, and the Certificates of Sale issued pursuant to the auction sale.
On January 8, 2010, the RTC rendered its decision dismissing PRAs petition. In ruling that
PRA was not exempt from payment of real property taxes, the RTC reasoned out that it was a
GOCC under Section 3 of P.D. No. 1084. It was organized as a stock corporation because it
had an authorized capital stock divided into no par value shares. In fact, PRA admitted its
corporate personality and that said properties were registered in its name as shown by the
certificates of title. Therefore, as a GOCC, local tax exemption is withdrawn by virtue of
Section 193 of Republic Act (R.A.) No. 7160 Local Government Code (LGC) which was the
prevailing law in 2001 and 2002 with respect to real property taxation. The RTC also ruled

THAT PETITIONER IS AN INCORPORATED INSTRUMENTALITY OF THE NATIONAL

GOVERNMENT AND IS, THEREFORE, EXEMPT FROM PAYMENT OF REAL
PROPERTY TAX UNDER SECTIONS 234(A) AND 133(O) OF REPUBLIC ACT 7160 OR
THE LOCAL GOVERNMENT CODE VIS--VIS MANILA INTERNATIONAL AIRPORT
AUTHORITY V. COURT OF APPEALS.
II
THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT
RECLAIMED LANDS ARE PART OF THE PUBLIC DOMAIN AND, HENCE, EXEMPT
FROM REAL PROPERTY TAX.
PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions of the
Administrative Code. Neither is it a GOCC under Section 16, Article XII of the 1987
Constitution because it is not required to meet the test of economic viability. Instead, PRA is a
government instrumentality vested with corporate powers and performing an essential public
service pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code.
Although it has a capital stock divided into shares, it is not authorized to distribute dividends
and allotment of surplus and profits to its stockholders. Therefore, it may not be classified as a
stock corporation because it lacks the second requisite of a stock corporation which is the
distribution of dividends and allotment of surplus and profits to the stockholders.
It insists that it may not be classified as a non-stock corporation because it has no members
and it is not organized for charitable, religious, educational, professional, cultural, recreational,
fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry,
agriculture and like chambers as provided in Section 88 of the Corporation Code.
Moreover, PRA points out that it was not created to compete in the market place as there was
no competing reclamation company operated by the private sector. Also, while PRA is vested
with corporate powers under P.D. No. 1084, such circumstance does not make it a corporation
but merely an incorporated instrumentality and that the mere fact that an incorporated

instrumentality of the National Government holds title to real property does not make said
instrumentality a GOCC. Section 48, Chapter 12, Book I of the Administrative Code of 1987
recognizes a scenario where a piece of land owned by the Republic is titled in the name of a
department, agency or instrumentality.

proprietary in nature, and owned by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock corporations, to the extent of at least
fifty-one
(51) percent of its capital stock: x x x.

Thus, PRA insists that, as an incorporated instrumentality of the National Government, it is

exempt from payment of real property tax except when the beneficial use of the real property
is granted to a taxable person. PRA claims that based on Section 133(o) of the LGC, local
governments cannot tax the national government which delegate to local governments the
power to tax.
It explains that reclaimed lands are part of the public domain, owned by the State, thus,
exempt from the payment of real estate taxes. Reclaimed lands retain their inherent potential
as areas for public use or public service. While the subject reclaimed lands are still in its
hands, these lands remain public lands and form part of the public domain. Hence, the
assessment of real property taxes made on said lands, as well as the levy thereon, and the
public sale thereof on April 7, 2003, including the issuance of the certificates of sale in favor
of the respondent Paraaque City, are invalid and of no force and effect.
On the other hand, the City of Paraaque (respondent) argues that PRA since its creation
consistently represented itself to be a GOCC. PRAs very own charter (P.D. No. 1084)
declared it to be a GOCC and that it has entered into several thousands of contracts where it
represented itself to be a GOCC. In fact, PRA admitted in its original and amended petitions
and pre-trial brief filed with the RTC of Paraaque City that it was a GOCC.
Respondent further argues that PRA is a stock corporation with an authorized capital stock
divided into 3 million no par value shares, out of which 2 million shares have been subscribed
and fully paid up. Section 193 of the LGC of 1991 has withdrawn tax exemption privileges
granted to or presently enjoyed by all persons, whether natural or juridical, including GOCCs.
Hence, since PRA is a GOCC, it is not exempt from the payment of real property tax.
THE COURTS RULING
The Court finds merit in the petition.
Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a
GOCC as follows:
SEC. 2. General Terms Defined. x x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or
non-stock corporation, vested with functions relating to public needs whether governmental or

On the other hand, Section 2(10) of the Introductory Provisions of the Administrative Code
defines a government "instrumentality" as follows:
SEC. 2. General Terms Defined. x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within
the department framework, vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. x x x
From the above definitions, it is clear that a GOCC must be "organized as a stock or non-stock
corporation" while an instrumentality is vested by law with corporate powers. Likewise, when
the law makes a government instrumentality operationally autonomous, the instrumentality
remains part of the National Government machinery although not integrated with the
department framework.
When the law vests in a government instrumentality corporate powers, the instrumentality
does not necessarily become a corporation. Unless the government instrumentality is
organized as a stock or non-stock corporation, it remains a government instrumentality
exercising not only governmental but also corporate powers.
Many government instrumentalities are vested with corporate powers but they do not become
stock or non-stock corporations, which is a necessary condition before an agency or
instrumentality is deemed a GOCC. Examples are the Mactan International Airport Authority,
the Philippine Ports Authority, the University of the Philippines, and Bangko Sentral ng
Pilipinas. All these government instrumentalities exercise corporate powers but they are not
organized as stock or non-stock corporations as required by Section 2(13) of the Introductory
Provisions of the Administrative Code. These government instrumentalities are sometimes
loosely called government corporate entities. They are not, however, GOCCs in the strict sense
as understood under the Administrative Code, which is the governing law defining the legal
relationship and status of government entities. 2
Correlatively, Section 3 of the Corporation Code defines a stock corporation as one whose
"capital stock is divided into shares and x x x authorized to distribute to the holders of such
shares dividends x x x." Section 87 thereof defines a non-stock corporation as "one where no
part of its income is distributable as dividends to its members, trustees or officers." Further,
Section 88 provides that non-stock corporations are "organized for charitable, religious,

educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil

service, or similar purposes, like trade, industry, agriculture and like chambers."
Two requisites must concur before one may be classified as a stock corporation, namely: (1)
that it has capital stock divided into shares; and (2) that it is authorized to distribute dividends
and allotments of surplus and profits to its stockholders. If only one requisite is present, it
cannot be properly classified as a stock corporation. As for non-stock corporations, they must
have members and must not distribute any part of their income to said members. 3
In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock
corporation. It cannot be considered as a stock corporation because although it has a capital
stock divided into no par value shares as provided in Section 74 of P.D. No. 1084, it is not
authorized to distribute dividends, surplus allotments or profits to stockholders. There is no
provision whatsoever in P.D. No. 1084 or in any of the subsequent executive issuances
pertaining to PRA, particularly, E.O. No. 525,5 E.O. No. 6546 and EO No. 7987 that authorizes
PRA to distribute dividends, surplus allotments or profits to its stockholders.

Section 2. Declaration of policy. It is the declared policy of the State to provide for a
coordinated, economical and efficient reclamation of lands, and the administration and
operation of lands belonging to, managed and/or operated by the government, with the object
of maximizing their utilization and hastening their development consistent with the public
interest.
Section 4. Purposes. The Authority is hereby created for the following purposes:
(a) To reclaim land, including foreshore and submerged areas, by dredging, filling or
other means, or to acquire reclaimed land;
(b) To develop, improve, acquire, administer, deal in, subdivide, dispose, lease and
sell any and all kinds of lands, buildings, estates and other forms of real property,
owned, managed, controlled and/or operated by the government.
(c) To provide for, operate or administer such services as may be necessary for the
efficient, economical and beneficial utilization of the above properties.

PRA cannot be considered a non-stock corporation either because it does not have members. A
non-stock corporation must have members.8 Moreover, it was not organized for any of the
purposes mentioned in Section 88 of the Corporation Code. Specifically, it was created to
manage all government reclamation projects.

The twin requirement of common good and economic viability was lengthily discussed in the
case of Manila International Airport Authority v. Court of Appeals, 9 the pertinent portion of
which reads:

Furthermore, there is another reason why the PRA cannot be classified as a GOCC. Section
16, Article XII of the 1987 Constitution provides as follows:

Third, the government-owned or controlled corporations created through special charters are
those that meet the two conditions prescribed in Section 16, Article XII of the Constitution.

Section 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the common
good and subject to the test of economic viability.

The first condition is that the government-owned or controlled corporation must be established
for the common good. The second condition is that the government-owned or controlled
corporation must meet the test of economic viability. Section 16, Article XII of the 1987
Constitution provides:

The fundamental provision above authorizes Congress to create GOCCs through special
charters on two conditions: 1) the GOCC must be established for the common good; and 2) the
GOCC must meet the test of economic viability. In this case, PRA may have passed the first
condition of common good but failed the second one - economic viability. Undoubtedly, the
purpose behind the creation of PRA was not for economic or commercial activities. Neither
was it created to compete in the market place considering that there were no other competing
reclamation companies being operated by the private sector. As mentioned earlier, PRA was
created essentially to perform a public service considering that it was primarily responsible for
a coordinated, economical and efficient reclamation, administration and operation of lands
belonging to the government with the object of maximizing their utilization and hastening
their development consistent with the public interest. Sections 2 and 4 of P.D. No. 1084 reads,
as follows:

SEC. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the common
good and subject to the test of economic viability.
The Constitution expressly authorizes the legislature to create "government-owned or
controlled corporations" through special charters only if these entities are required to meet the
twin conditions of common good and economic viability. In other words, Congress has no
power to create government-owned or controlled corporations with special charters unless
they are made to comply with the two conditions of common good and economic viability.
The test of economic viability applies only to government-owned or controlled corporations
that perform economic or commercial activities and need to compete in the market place.
Being essentially economic vehicles of the State for the common good meaning for

economic development purposes these government-owned or controlled corporations with

special charters are usually organized as stock corporations just like ordinary private
corporations.
In contrast, government instrumentalities vested with corporate powers and performing
governmental or public functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the common good, services that every
modern State must provide its citizens. These instrumentalities need not be economically
viable since the government may even subsidize their entire operations. These
instrumentalities are not the "government-owned or controlled corporations" referred to in
Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental or
public functions. Congress has plenary authority to create government instrumentalities vested
with corporate powers provided these instrumentalities perform essential government
functions or public services. However, when the legislature creates through special charters
corporations that perform economic or commercial activities, such entities known as
"government-owned or controlled corporations" must meet the test of economic viability
because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of the
Philippines and similar government-owned or controlled corporations, which derive their
incometo meet operating expenses solely from commercial transactions in competition with
the private sector. The intent of the Constitution is to prevent the creation of governmentowned or controlled corporations that cannot survive on their own in the market place and thus
merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the government
creates a corporation, there is a sense in which this corporation becomes exempt from the test
of economic performance. We know what happened in the past. If a government corporation
loses, then it makes its claim upon the taxpayers' money through new equity infusions from
the government and what is always invoked is the common good. That is the reason why this
year, out of a budget of P115 billion for the entire government, about P28 billion of this will
go into equity infusions to support a few government financial institutions. And this is all
taxpayers' money which could have been relocated to agrarian reform, to social services like
health and education, to augment the salaries of grossly underpaid public employees. And yet
this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common
good," this becomes a restraint on future enthusiasts for state capitalism to excuse themselves

from the responsibility of meeting the market test so that they become viable. And so, Madam
President, I reiterate, for the committee's consideration and I am glad that I am joined in this
proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY
OR THE ECONOMIC TEST," together with the common good.1wphi1
Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his
textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission. The significant
addition, however, is the phrase "in the interest of the common good and subject to the test of
economic viability." The addition includes the ideas that they must show capacity to function
efficiently in business and that they should not go into activities which the private sector can
do better. Moreover, economic viability is more than financial viability but also includes
capability to make profit and generate benefits not quantifiable in financial terms.
Clearly, the test of economic viability does not apply to government entities vested with
corporate powers and performing essential public services. The State is obligated to render
essential public services regardless of the economic viability of providing such service. The
non-economic viability of rendering such essential public service does not excuse the State
from withholding such essential services from the public.
However, government-owned or controlled corporations with special charters, organized
essentially for economic or commercial objectives, must meet the test of economic viability.
These are the government-owned or controlled corporations that are usually organized under
their special charters as stock corporations, like the Land Bank of the Philippines and the
Development Bank of the Philippines. These are the government-owned or controlled
corporations, along with government-owned or controlled corporations organized under the
Corporation Code, that fall under the definition of "government-owned or controlled
corporations" in Section 2(10) of the Administrative Code. [Emphases supplied]
This Court is convinced that PRA is not a GOCC either under Section 2(3) of the Introductory
Provisions of the Administrative Code or under Section 16, Article XII of the 1987
Constitution. The facts, the evidence on record and jurisprudence on the issue support the
position that PRA was not organized either as a stock or a non-stock corporation. Neither was
it created by Congress to operate commercially and compete in the private market. Instead,
PRA is a government instrumentality vested with corporate powers and performing an
essential public service pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. Being an incorporated government instrumentality, it is exempt from
payment of real property tax.
Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands managed
by PRA. On the other hand, Section 234(a) of the LGC, in relation to its Section 133(o),
exempts PRA from paying realty taxes and protects it from the taxing powers of local
government units.

Sections 234(a) and 133(o) of the LGC provide, as follows:

SEC. 234. Exemptions from Real Property Tax The following are exempted from payment
of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person.
xxxx
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units. [Emphasis supplied]
It is clear from Section 234 that real property owned by the Republic of the Philippines (the
Republic) is exempt from real property tax unless the beneficial use thereof has been granted
to a taxable person. In this case, there is no proof that PRA granted the beneficial use of the
subject reclaimed lands to a taxable entity. There is no showing on record either that PRA
leased the subject reclaimed properties to a private taxable entity.
This exemption should be read in relation to Section 133(o) of the same Code, which prohibits
local governments from imposing "taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities x x x." The Administrative Code allows real
property owned by the Republic to be titled in the name of agencies or instrumentalities of the
national government. Such real properties remain owned by the Republic and continue to be
exempt from real estate tax.
Indeed, the Republic grants the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when the title of the real property is
transferred to an agency or instrumentality even as the Republic remains the owner of the real
property. Such arrangement does not result in the loss of the tax exemption, unless "the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." 10
The rationale behind Section 133(o) has also been explained in the case of the Manila
International Airport Authority,11 to wit:

Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While
the 1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power "subject to such guidelines and limitations as the
Congress may provide."
When local governments invoke the power to tax on national government instrumentalities,
such power is construed strictly against local governments. The rule is that a tax is never
presumed and there must be clear language in the law imposing the tax. Any doubt whether a
person, article or activity is taxable is resolved against taxation. This rule applies with greater
force when local governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the
national government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely to
reduce the amount of money that has to be handled by government in the course of its
operations. For these reasons, provisions granting exemptions to government agencies may be
construed liberally, in favor of non tax-liability of such agencies.
There is, moreover, no point in national and local governments taxing each other, unless a
sound and compelling policy requires such transfer of public funds from one government
pocket to another.
There is also no reason for local governments to tax national government instrumentalities for
rendering essential public services to inhabitants of local governments. The only exception is
when the legislature clearly intended to tax government instrumentalities for the delivery of
essential public services for sound and compelling policy considerations. There must be
express language in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in
the Code, local governments cannot tax national government instrumentalities. As this Court
held in Basco v. Philippine Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede, burden or in any manner
control the operation of constitutional laws enacted by Congress to carry into execution the
powers vested in the federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed.
579)

This doctrine emanates from the "supremacy" of the National Government over local
governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of
power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of
the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or
political subdivision can regulate a federal instrumentality in such a way as to prevent it from
consummating its federal responsibilities, or even to seriously burden it in the accomplishment
of them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what
local authorities may perceive to be undesirable activities or enterprise using the power to tax
as "a tool for regulation." (U.S. v. Sanchez, 340 US 42)
The power to tax which was called by Justice Marshall as the "power to destroy" (McCulloch
v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very
entity which has the inherent power to wield it. [Emphases supplied]
The Court agrees with PRA that the subject reclaimed lands are still part of the public domain,
owned by the State and, therefore, exempt from payment of real estate taxes.
Section 2, Article XII of the 1987 Constitution reads in part, as follows:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and
other natural resources are owned by the State. With the exception of agricultural lands, all
other natural resources shall not be alienated. The exploration, development, and utilization of
natural resources shall be under the full control and supervision of the State. The State may
directly undertake such activities, or it may enter into co-production, joint venture, or
production-sharing agreements with Filipino citizens, or corporations or associations at least
60 per centum of whose capital is owned by such citizens. Such agreements may be for a
period not exceeding twenty-five years, renewable for not more than twenty-five years, and
under such terms and conditions as may provided by law. In cases of water rights for
irrigation, water supply, fisheries, or industrial uses other than the development of waterpower,
beneficial use may be the measure and limit of the grant.
Similarly, Article 420 of the Civil Code enumerates properties belonging to the State:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;

(2) Those which belong to the State, without being for public use, and are intended
for some public service or for the development of the national wealth. [Emphases
supplied]
Here, the subject lands are reclaimed lands, specifically portions of the foreshore and offshore
areas of Manila Bay. As such, these lands remain public lands and form part of the public
domain. In the case of Chavez v. Public Estates Authority and AMARI Coastal Development
Corporation,12 the Court held that foreshore and submerged areas irrefutably belonged to the
public domain and were inalienable unless reclaimed, classified as alienable lands open to
disposition and further declared no longer needed for public service. The fact that alienable
lands of the public domain were transferred to the PEA (now PRA) and issued land patents or
certificates of title in PEAs name did not automatically make such lands private. This Court
also held therein that reclaimed lands retained their inherent potential as areas for public use or
public service.
As the central implementing agency tasked to undertake reclamation projects nationwide, with
authority to sell reclaimed lands, PEA took the place of DENR as the government agency
charged with leasing or selling reclaimed lands of the public domain. The reclaimed lands
being leased or sold by PEA are not private lands, in the same manner that DENR, when it
disposes of other alienable lands, does not dispose of private lands but alienable lands of the
public domain. Only when qualified private parties acquire these lands will the lands become
private lands. In the hands of the government agency tasked and authorized to dispose of
alienable of disposable lands of the public domain, these lands are still public, not private
lands.
Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public domain"
as well as "any and all kinds of lands." PEA can hold both lands of the public domain and
private lands. Thus, the mere fact that alienable lands of the public domain like the Freedom
Islands are transferred to PEA and issued land patents or certificates of title in PEA's name
does not automatically make such lands private. 13
Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of the Administrative
Code of 1987, thus:
SEC 14. Power to Reserve Lands of the Public and Private Dominion of the Government.(1)The President shall have the power to reserve for settlement or public use, and for specific
public purposes, any of the lands of the public domain, the use of which is not otherwise
directed by law. The reserved land shall thereafter remain subject to the specific public
purpose indicated until otherwise provided by law or proclamation.
Reclaimed lands such as the subject lands in issue are reserved lands for public use. They are
properties of public dominion. The ownership of such lands remains with the State unless they
are withdrawn by law or presidential proclamation from public use.

Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas of
Manila Bay are part of the "lands of the public domain, waters x x x and other natural
resources" and consequently "owned by the State." As such, foreshore and submerged areas
"shall not be alienated," unless they are classified as "agricultural lands" of the public domain.
The mere reclamation of these areas by PEA does not convert these inalienable natural
resources of the State into alienable or disposable lands of the public domain. There must be a
law or presidential proclamation officially classifying these reclaimed lands as alienable or
disposable and open to disposition or concession. Moreover, these reclaimed lands cannot be
classified as alienable or disposable if the law has reserved them for some public or quasipublic use.
As the Court has repeatedly ruled, properties of public dominion are not subject to execution
or foreclosure sale.14 Thus, the assessment, levy and foreclosure made on the subject reclaimed
lands by respondent, as well as the issuances of certificates of title in favor of respondent, are
without basis.
WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of the Regional Trial
Court, Branch 195, Paraaque City, is REVERSED and SET ASIDE. All reclaimed properties
owned by the Philippine Reclamation Authority are hereby declared EXEMPT from real estate
taxes. All real estate tax assessments, including the final notices of real estate tax
delinquencies, issued by the City of Paraaque on the subject reclaimed properties; the
assailed auction sale, dated April 7, 2003; and the Certificates of Sale subsequently issued by
the Paraaque City Treasurer in favor of the City of Paraaque, are all declared VOID.
SO ORDERED.

The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from
the government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and
short orders to its members and their guests. The bar-restaurant was a necessary incident to
the operation of the club and its golf-course. The club is operated mainly with funds derived
from membership fees and dues. Whatever profits it had, were used to defray its overhead
expenses and to improve its golf-course. In 1951. as a result of a capital surplus, arising from
the re-valuation of its real properties, the value or price of which increased, the Club declared
stock dividends; but no actual cash dividends were distributed to the stockholders. In 1952, a
BIR agent discovered that the Club has never paid percentage tax on the gross receipts of its
bar and restaurant, although it secured B-4, B-9(a) and B-7 licenses. In a letter dated
December 22, 1852, the Collector of Internal Revenue assessed against and demanded from
the Club, the following sums:
As percentage tax on its gross receipts
during the tax years 1946 to 1951
Surcharge therein

EN BANC
G.R. No. L-12719

As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, for short), is a
civic corporation organized under the laws of the Philippines with an original authorized
capital stock of P22,000.00, which was subsequently increased to P200,000.00, among others,
to it "proporcionar, operar, y mantener un campo de golf, tenis, gimnesio (gymnasiums), juego
de bolos (bowling alleys), mesas de billar y pool, y toda clase de juegos no prohibidos por
leyes generales y ordenanzas generales; y desarollar y cultivar deportes de toda clase y
denominacion cualquiera para el recreo y entrenamiento saludable de sus miembros y
accionistas" (sec. 2, Escritura de Incorporacion del Club Filipino, Inc. Exh. A). Neither in the
articles or by-laws is there a provision relative to dividends and their distribution, although it
is covenanted that upon its dissolution, the Club's remaining assets, after paying debts, shall be
donated to a charitable Philippine Institution in Cebu (Art. 27, Estatutos del Club, Exh. A-a.).

May 31, 1962

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
THE CLUB FILIPINO, INC. DE CEBU, respondent.
Office of the Solicitor General for petitioner.
V. Jaime and L. E. Petilla for respondent.
PAREDES, J.:
This is a petition to review the decision of the Court of Tax Appeals, reversing the decision of
the Collector of Internal Revenue, assessing against and demanding from the "Club Filipino,
Inc. de Cebu", the sum of P12,068.84 as fixed and percentage taxes, surcharge and
compromise penalty, allegedly due from it as a keeper of bar and restaurant.

P9,599.07
2,399.77

As fixed tax for the years 1946 to 1952

Compromise penalty
The Club wrote the Collector, requesting for the cancellation of the assessment. The request
having been denied, the Club filed the instant petition for review.
The dominant issues involved in this case are twofold:
1. Whether the respondent Club is liable for the payment of the sum of 12,068.84, as fixed and
percentage taxes and surcharges prescribed in sections 182, 183 and 191 of the Tax Code,
under which the assessment was made, in connection with the operation of its bar and
restaurant, during the periods mentioned above; and
2. Whether it is liable for the payment of the sum of P500.00 as compromise penalty.
Section 182, of the Tax Code states, "Unless otherwise provided, every person engaging in a
business on which the percentage tax is imposed shall pay in full a fixed annual tax of ten
pesos for each calendar year or fraction thereof in which such person shall engage in said

70.00
500.00

business." Section 183 provides in general that "the percentage taxes on business shall be
payable at the end of each calendar quarter in the amount lawfully due on the business
transacted during each quarter; etc." And section 191, same Tax Code, provides "Percentage
tax . . . Keepers of restaurants, refreshment parlors and other eating places shall pay a tax
three per centum, and keepers of bar and cafes where wines or liquors are served five per
centum of their gross receipts . . .". It has been held that the liability for fixed and percentage
taxes, as provided by these sections, does not ipso factoattach by mere reason of the operation
of a bar and restaurant. For the liability to attach, the operator thereof must be engaged in the
business as a barkeeper and restaurateur. The plain and ordinary meaning of business is
restricted to activities or affairs where profit is the purpose or livelihood is the motive, and the
term business when used without qualification, should be construed in its plain and ordinary
meaning, restricted to activities for profitor livelihood (The Coll. of Int. Rev. v. Manila Lodge
No. 761 of the BPOE [Manila Elks Club] & Court of Tax Appeals, G.R. No. L-11176, June 29,
1959, giving full definitions of the word "business"; Coll. of Int. Rev. v. Sweeney, et al.
[International Club of Iloilo, Inc.], G.R. No. L-12178, Aug. 21, 1959, the facts of which are
similar to the ones at bar; Manila Polo Club v. B. L. Meer, etc., No. L-10854, Jan. 27, 1960).

Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a
capital stock divided into shares and (2) an authority to distribute to the holders of such shares,
dividends or allotments of the surplus profits on the basis of the shares held (sec. 3, Act No.
1459). In the case at bar, nowhere in its articles of incorporation or by-laws could be found an
authority for the distribution of its dividends or surplus profits. Strictly speaking, it cannot,
therefore, be considered a stock corporation, within the contemplation of the corporation law.
A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, nonprofit, nonstock organizations, unless the intent to the contrary is manifest and patent"
(Collector v. BPOE Elks Club, et al., supra), which is not the case in the present appeal.
Having arrived at the conclusion that respondent Club is not engaged in the business as an
operator of a bar and restaurant, and therefore, not liable for fixed and percentage taxes, it
follows that it is not liable for any penalty, much less of a compromise penalty.
WHEREFORE, the decision appealed from is affirmed without costs.

Having found as a fact that the Club was organized to develop and cultivate sports of all class
and denomination, for the healthful recreation and entertainment of its stockholders and
members; that upon its dissolution, its remaining assets, after paying debts, shall be donated to
a charitable Philippine Institution in Cebu; that it is operated mainly with funds derived from
membership fees and dues; that the Club's bar and restaurant catered only to its members and
their guests; that there was in fact no cash dividend distribution to its stockholders and that
whatever was derived on retail from its bar and restaurant was used to defray its overall
overhead expenses and to improve its golf-course (cost-plus-expenses-basis), it stands to
reason that the Club is not engaged in the business of an operator of bar and restaurant (same
authorities, cited above).
It is conceded that the Club derived profit from the operation of its bar and restaurant, but such
fact does not necessarily convert it into a profit-making enterprise. The bar and restaurant are
necessary adjuncts of the Club to foster its purposes and the profits derived therefrom are
necessarily incidental to the primary object of developing and cultivating sports for the
healthful recreation and entertainment of the stockholders and members. That a Club makes
some profit, does not make it a profit-making Club. As has been remarked a club should
always strive, whenever possible, to have surplus (Jesus Sacred Heart College v. Collector of
Int. Rev., G.R. No. L-6807, May 24, 1954; Collector of Int. Rev. v. Sinco Educational Corp.,
G.R. No. L-9276, Oct. 23, 1956).1wph1.t
It is claimed that unlike the two cases just cited (supra), which are non-stock, the appellee
Club is a stock corporation. This is unmeritorious. The facts that the capital stock of the
respondent Club is divided into shares, does not detract from the finding of the trial court that
it is not engaged in the business of operator of bar and restaurant. What is determinative of
whether or not the Club is engaged in such business is its object or purpose, as stated in its
articles and by-laws. It is a familiar rule that the actual purpose is not controlled by the
corporate form or by the commercial aspect of the business prosecuted, but may be shown by
extrinsic evidence, including the by-laws and the method of operation. From the extrinsic
evidence adduced, the Tax Court concluded that the Club is not engaged in the business as a
barkeeper and restaurateur.

EN BANC

DANTE V. LIBAN, REYNALDO M. BERNARDO

and SALVADOR M. VIARI,
Petitioners,

- versus -

RICHARD J. GORDON,
Respondent.
PHILIPPINE NATIONAL RED CROSS,
Intervenor.

G. R. No. 175352
Present:

on August 27, 2009 by movant-intervenor Philippine National Red Cross (PNRC), and the
latters Manifestation and Motion to Admit Attached Position Paper [3] filed on December

CORONA, C.J.,
CARPIO,
CARPIO MORALES,
VELASCO, JR.,
NACHURA,
LEONARDO-DE CASTRO,
BRION,
PERALTA,
BERSAMIN,
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ,
MENDOZA, and
SERENO, JJ.

23, 2009.

Promulgated:

Commission if it wants to be a private corporation. [6] The dispositive portion of the Decision

January 18, 2011

In the Decision,[4] the Court held that respondent did not forfeit his seat in the
Senate when he accepted the chairmanship of the PNRC Board of Governors, as the office of
the PNRC Chairman is not a government office or an office in a government-owned or
controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987
Constitution.[5] The Decision, however, further declared void the PNRC Charter insofar as it
creates the PNRC as a private corporation and consequently ruled that the PNRC should
incorporate under the Corporation Code and register with the Securities and Exchange

reads as follows:
WHEREFORE, we declare that the office of the Chairman of
the Philippine National Red Cross is not a government office or an office
in a government-owned or controlled corporation for purposes of the
prohibition in Section 13, Article VI of the 1987 Constitution. We also
declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the
Charter of the Philippine National Red Cross, or Republic Act No. 95, as
amended by Presidential Decree Nos. 1264 and 1643, are VOID because
they create the PNRC as a private corporation or grant it corporate powers.
[7]

In his Motion for Clarification and/or for Reconsideration, respondent raises the following
grounds: (1) as the issue of constitutionality of Republic Act (R.A.) No. 95 was not raised by

x--------------------------------------------------x

the parties, the Court went beyond the case in deciding such issue; and (2) as the Court
RESOLUTION

decided that Petitioners did not have standing to file the instant Petition, the pronouncement of
the Court on the validity of R.A. No. 95 should be considered obiter.[8]

LEONARDO-DE CASTRO, J.:

Respondent argues that the validity of R.A. No. 95 was a non-issue; therefore, it was
[1]

This resolves the Motion for Clarification and/or for Reconsideration filed on August 10,

unnecessary for the Court to decide on that question. Respondent cites Laurel v. Garcia,

2009 by respondent Richard J. Gordon (respondent) of the Decisionpromulgated by this

[9]

[2]

Court on July 15, 2009 (the Decision), the Motion for Partial Reconsideration filed

wherein the Court said that it will not pass upon a constitutional question although properly

presented by the record if the case can be disposed of on some other ground and goes on to

claim that since this Court, in the Decision, disposed of the petition on some other

After a thorough study of the arguments and points raised by the respondent as well as those

ground, i.e., lack of standing of petitioners, there was no need for it to delve into the validity

of movant-intervenor in their respective motions, we have reconsidered our pronouncements

of R.A. No. 95, and the rest of the judgment should be deemed obiter.

in our Decision dated July 15, 2009 with regard to the nature of the PNRC and the
constitutionality of some provisions of the PNRC Charter, R.A. No. 95, as amended.

In its Motion for Partial Reconsideration, PNRC prays that the Court sustain the
constitutionality of its Charter on the following grounds:

As correctly pointed out in respondents Motion, the issue of constitutionality of R.A. No. 95
was not raised by the parties, and was not among the issues defined in the body of the

A.

THE
ASSAILED
DECISION
DECLARING
UNCONSTITUTIONAL REPUBLIC ACT NO. 95 AS
AMENDED DEPRIVED INTERVENOR PNRC OF ITS
CONSTITUTIONAL RIGHT TO DUE PROCESS.

Decision; thus, it was not the very lis mota of the case. We have reiterated the rule as to when
the Court will consider the issue of constitutionality in Alvarez v. PICOP Resources, Inc.,
[12]

1.

INTERVENOR PNRC WAS NEVER A PARTY TO THE

INSTANT CONTROVERSY.

2.

THE CONSTITUTIONALITY OF REPUBLIC ACT NO. 95,

AS AMENDED WAS NEVER AN ISSUE IN THIS CASE.

B.

THE CURRENT CHARTER OF PNRC IS PRESIDENTIAL

DECREE NO. 1264 AND NOT REPUBLIC ACT NO. 95.
PRESIDENTIAL DECREE NO. 1264 WAS NOT A CREATION OF
CONGRESS.

C.

PNRCS STRUCTURE IS SUI GENERIS; IT IS A CLASS OF ITS

OWN. WHILE IT IS PERFORMING HUMANITARIAN
FUNCTIONS AS AN AUXILIARY TO GOVERNMENT, IT IS A
NEUTRAL ENTITY SEPARATE AND INDEPENDENT OF
GOVERNMENT CONTROL, YET IT DOES NOT QUALIFY AS
STRICTLY PRIVATE IN CHARACTER.

thus:
This Court will not touch the issue of unconstitutionality unless it is
the very lis mota. It is a well-established rule that a court should not
pass upon a constitutional question and decide a law to be
unconstitutional or invalid, unless such question is raised by the
parties and that when it is raised, if the record also presents some other
ground upon which the court may [rest] its judgment, that course will be
adopted and the constitutional question will be left for consideration until
such question will be unavoidable.[13]

Under the rule quoted above, therefore, this Court should not have declared void certain
sections of R.A. No. 95, as amended by Presidential Decree (P.D.) Nos. 1264 and 1643, the
PNRC Charter. Instead, the Court should have exercised judicial restraint on this matter,
especially since there was some other ground upon which the Court could have based its

In his Comment and Manifestation[10] filed on November 9, 2009, respondent

judgment. Furthermore, the PNRC, the entity most adversely affected by this declaration of

manifests: (1) that he agrees with the position taken by the PNRC in its Motion for Partial

unconstitutionality, which was not even originally a party to this case, was being compelled, as

Reconsideration dated August 27, 2009; and (2) as of the writing of said Comment and

a consequence of the Decision, to suddenly reorganize and incorporate under the Corporation

Manifestation, there was pending before the Congress of the Philippines a proposed bill

Code, after more than sixty (60) years of existence in this country.

entitled An Act Recognizing the PNRC as an Independent, Autonomous, Non-Governmental

Organization Auxiliary to the Authorities of the Republic of the Philippines in the

Its existence as a chartered corporation remained unchallenged on ground of

Humanitarian Field, to be Known as The Philippine Red Cross. [11]

unconstitutionality notwithstanding that R.A. No. 95 was enacted on March 22, 1947 during
the effectivity of the 1935 Constitution, which provided for a proscription against the creation
of private corporations by special law, to wit:

Red Cross Convention). By that action the Philippines indicated its desire to participate with
SEC. 7. The Congress shall not, except by general law, provide
for the formation, organization, or regulation of private corporations,
unless such corporations are owned and controlled by the Government or
any subdivision or instrumentality thereof. (Art. XIV, 1935 Constitution.)

the nations of the world in mitigating the suffering caused by war and to establish in the
Philippines a voluntary organization for that purpose and like other volunteer organizations
established in other countries which have ratified the Geneva Conventions, to promote the

Similar provisions are found in Article XIV, Section 4 of the 1973 Constitution and Article

health and welfare of the people in peace and in war.[14]

XII, Section 16 of the 1987 Constitution. The latter reads:

The provisions of R.A. No. 95, as amended by R.A. Nos. 855 and 6373, and further
SECTION 16. The Congress shall not, except by general law,
provide for the formation, organization, or regulation of private
corporations. Government-owned or controlled corporations may be
created or established by special charters in the interest of the common
good and subject to the test of economic viability.

Since its enactment, the PNRC Charter was amended several times, particularly on June 11,
1953, August 16, 1971, December 15, 1977, and October 1, 1979, by virtue of R.A. No. 855,
R.A. No. 6373, P.D. No. 1264, and P.D. No. 1643, respectively. The passage of several laws
relating to the PNRCs corporate existence notwithstanding the effectivity of the constitutional
proscription on the creation of private corporations by law, is a recognition that the PNRC is

amended by P.D. Nos. 1264 and 1643, show the historical background and legal basis of the
creation of the PNRC by legislative fiat, as a voluntary organization impressed with public
interest. Pertinently R.A. No. 95, as amended by P.D. 1264, provides:
WHEREAS, during the meeting in Geneva, Switzerland, on 22
August 1894, the nations of the world unanimously agreed to diminish
within their power the evils inherent in war;
WHEREAS, more than one hundred forty nations of the world
have ratified or adhered to the Geneva Conventions of August 12, 1949 for
the Amelioration of the Condition of the Wounded and Sick of Armed
Forces in the Field and at Sea, The Prisoners of War, and The Civilian
Population in Time of War referred to in this Charter as the Geneva
Conventions;

not strictly in the nature of a private corporation contemplated by the aforesaid constitutional
ban.

A closer look at the nature of the PNRC would show that there is none like it not just
in terms of structure, but also in terms of history, public service and official status accorded to
it by the State and the international community. There is merit in PNRCs contention that its
structure is sui generis.

The PNRC succeeded the chapter of the American Red Cross which was in
existence in the Philippines since 1917. It was created by an Act of Congress after the
Republic of the Philippines became an independent nation on July 6, 1946 and proclaimed on

WHEREAS, the Republic of the Philippines became an

independent nation on July 4, 1946, and proclaimed on February 14,
1947 its adherence to the Geneva Conventions of 1929, and by the
action, indicated its desire to participate with the nations of the world
in mitigating the suffering caused by war and to establish in the
Philippines a voluntary organization for that purpose as contemplated
by the Geneva Conventions;
WHEREAS, there existed in the Philippines since 1917 a
chapter of the American National Red Cross which was terminated in view
of the independence of the Philippines; and
WHEREAS, the volunteer organizations established in other
countries which have ratified or adhered to the Geneva Conventions assist
in promoting the health and welfare of their people in peace and in
war, and through their mutual assistance and cooperation directly and
through their international organizations promote better understanding and
sympathy among the people of the world;

February 14, 1947 its adherence to the Convention of Geneva of July 29, 1929 for the
Amelioration of the Condition of the Wounded and Sick of Armies in the Field (the Geneva

NOW, THEREFORE, I, FERDINAND E. MARCOS, President

of the Philippines, by virtue of the powers vested in me by the

Constitution as Commander-in-Chief of all the Armed Forces of the

Philippines and pursuant to Proclamation No. 1081 dated September 21,
1972, and General Order No. 1 dated September 22, 1972, do hereby
decree and order that Republic Act No. 95, Charter of the Philippine
National Red Cross (PNRC) as amended by Republic Acts No. 855 and
6373, be further amended as follows:
Section 1. There is hereby created in the Republic of the
Philippines a body corporate and politic to be the voluntary
organization officially designated to assist the Republic of the
Philippines in discharging the obligations set forth in the Geneva
Conventions and to perform such other duties as are inherent upon a
national Red Cross Society. The national headquarters of this
Corporation shall be located in Metropolitan Manila. (Emphasis
supplied.)

The significant public service rendered by the PNRC can be gleaned from Section 3

(f) To devise such means as to make every citizen and/or

resident of the Philippines a member of the Red Cross.

The PNRC is one of the National Red Cross and Red Crescent Societies, which,
together with the International Committee of the Red Cross (ICRC) and the IFRC and RCS,
make up the International Red Cross and Red Crescent Movement (the Movement). They
constitute a worldwide humanitarian movement, whose mission is:
[T]o prevent and alleviate human suffering wherever it may be found, to
protect life and health and ensure respect for the human being, in
particular in times of armed conflict and other emergencies, to work for
the prevention of disease and for the promotion of health and social
welfare, to encourage voluntary service and a constant readiness to give
help by the members of the Movement, and a universal sense of solidarity
towards all those in need of its protection and assistance. [15]

of its Charter, which provides:

Section 3. That the purposes of this Corporation shall be as
follows:
(a) To provide volunteer aid to the sick and wounded of armed
forces in time of war, in accordance with the spirit of and under the
conditions prescribed by the Geneva Conventions to which the Republic
of the Philippines proclaimed its adherence;
(b) For the purposes mentioned in the preceding sub-section, to
perform all duties devolving upon the Corporation as a result of the
adherence of the Republic of the Philippines to the said Convention;
(c) To act in matters of voluntary relief and in accordance with
the authorities of the armed forces as a medium of communication
between people of the Republic of the Philippines and their Armed Forces,
in time of peace and in time of war, and to act in such matters between
similar national societies of other governments and the Governments and
people and the Armed Forces of the Republic of the Philippines;
(d) To establish and maintain a system of national and
international relief in time of peace and in time of war and apply the same
in meeting and emergency needs caused by typhoons, flood, fires,
earthquakes, and other natural disasters and to devise and carry on
measures for minimizing the suffering caused by such disasters;
(e) To devise and promote such other services in time of peace
and in time of war as may be found desirable in improving the health,
safety and welfare of the Filipino people;

The PNRC works closely with the ICRC and has been involved in humanitarian
activities in the Philippines since 1982. Among others, these activities in the country include:

1.

Giving protection and assistance to civilians displaced or otherwise affected by

armed clashes between the government and armed opposition groups, primarily
in Mindanao;

2.

Working to minimize the effects of armed hostilities and violence on the

population;

3.

Visiting detainees; and

4.

Promoting awareness of international humanitarian law in the public and

private sectors.[16]

National Societies such as the PNRC act as auxiliaries to the public authorities of
their own countries in the humanitarian field and provide a range of services including disaster
relief and health and social programmes.

The International Federation of Red Cross (IFRC) and Red Crescent Societies
[17]

(RCS) Position Paper,

x x x No other organization has a duty to be its governments

humanitarian partner while remaining independent.[18] (Emphases
ours.)

submitted by the PNRC, is instructive with regard to the elements of

the specific nature of the National Societies such as the PNRC, to wit:
National Societies, such as the Philippine National Red Cross
and its sister Red Cross and Red Crescent Societies, have certain
specificities deriving from the 1949 Geneva Convention and the Statutes
of the International Red Cross and Red Crescent Movement (the
Movement). They are also guided by the seven Fundamental Principles of
the Red Cross and Red Crescent Movement: Humanity, Impartiality,
Neutrality, Independence, Voluntary Service, Unity and Universality.
A National Society partakes of a sui generis character. It is a
protected component of the Red Cross movement under Articles 24 and 26
of the First Geneva Convention, especially in times of armed
conflict. These provisions require that the staff of a National Society shall
be respected and protected in all circumstances. Such protection is not
ordinarily afforded by an international treaty to ordinary private entities or
even non-governmental organisations (NGOs). This sui generis character
is also emphasized by the Fourth Geneva Convention which holds that an
Occupying Power cannot require any change in the personnel or structure
of a National Society. National societies are therefore organizations
that are directly regulated by international humanitarian law, in
contrast to other ordinary private entities, including NGOs.
xxxx
In addition, National Societies are not only officially recognized
by their public authorities as voluntary aid societies, auxiliary to the public
authorities in the humanitarian field, but also benefit from recognition at
the International level. This is considered to be an element distinguishing
National Societies from other organisations (mainly NGOs) and other
forms of humanitarian response.
x x x. No other organisation belongs to a world-wide Movement
in which all Societies have equal status and share equal responsibilities
and duties in helping each other. This is considered to be the essence of
the Fundamental Principle of Universality.

It is in recognition of this sui generis character of the PNRC that R.A. No. 95 has remained
valid and effective from the time of its enactment in March 22, 1947 under the 1935
Constitution and during the effectivity of the 1973 Constitution and the 1987 Constitution.

The PNRC Charter and its amendatory laws have not been questioned or challenged
on constitutional grounds, not even in this case before the Court now.

In the Decision, the Court, citing Feliciano v. Commission on Audit,[19] explained that the
purpose of the constitutional provision prohibiting Congress from creating private
corporations was to prevent the granting of special privileges to certain individuals, families,
or groups, which were denied to other groups. Based on the above discussion, it can be seen
that the PNRC Charter does not come within the spirit of this constitutional provision, as it
does not grant special privileges to a particular individual, family, or group, but creates an
entity that strives to serve the common good.

Furthermore, a strict and mechanical interpretation of Article XII, Section 16 of the 1987
Constitution will hinder the State in adopting measures that will serve the public good or
national interest. It should be noted that a special law, R.A. No. 9520, the Philippine
Cooperative Code of 2008, and not the general corporation code, vests corporate power and
capacities upon cooperatives which are private corporations, in order to implement the States

Furthermore, the National Societies are considered to

be auxiliaries to the public authorities in the humanitarian field. x x x.
The auxiliary status of [a] Red Cross Society means that it is at
one and the same time a private institution and a public service
organization because the very nature of its work implies cooperation
with the authorities, a link with the State. In carrying out their major
functions, Red Cross Societies give their humanitarian support to official
bodies, in general having larger resources than the Societies, working
towards comparable ends in a given sector.

avowed policy.
In the Decision of July 15, 2009, the Court recognized the public service rendered
by the PNRC as the governments partner in the observance of its international commitments,
to wit:

The PNRC is a non-profit, donor-funded, voluntary, humanitarian

organization, whose mission is to bring timely, effective, and
compassionate humanitarian assistance for the most vulnerable without
consideration of nationality, race, religion, gender, social status, or
political affiliation. The PNRC provides six major services: Blood
Services, Disaster Management, Safety Services, Community Health and
Nursing, Social Services and Voluntary Service.
The Republic of the Philippines, adhering to the Geneva
Conventions, established the PNRC as a voluntary organization for the
purpose contemplated in the Geneva Convention of 27 July 1929. x x x.
[20]
(Citations omitted.)

purpose freely chosen or accepted as part of the service that National Societies through its
volunteers and/or members render to the Community.[23]

The PNRC, as a National Society of the International Red Cross and Red Crescent
Movement, can neither be classified as an instrumentality of the State, so as not to lose its
character of neutrality as well as its independence, nor strictly as a private corporation since it
is regulated by international humanitarian law and is treated as an auxiliary of the State.[24]

So must this Court recognize too the countrys adherence to the Geneva

Based on the above, the sui generis status of the PNRC is now sufficiently

Convention and respect the unique status of the PNRC in consonance with its treaty

established. Although it is neither a subdivision, agency, or instrumentality of the government,

obligations. The Geneva Convention has the force and effect of law. [21] Under the

nor a government-owned or -controlled corporation or a subsidiary thereof, as succinctly

Constitution, the Philippines adopts the generally accepted principles of international law as

explained in the Decision of July 15, 2009, so much so that respondent, under the Decision,

part of the law of the land. [22] This constitutional provision must be reconciled and harmonized

was correctly allowed to hold his position as Chairman thereof concurrently while he served as

with Article XII, Section 16 of the Constitution, instead of using the latter to negate the

a Senator, such a conclusion does not ipso facto imply that the PNRC is a private corporation

former.

within the contemplation of the provision of the Constitution, that must be organized under the
Corporation Code. As correctly mentioned by Justice Roberto A. Abad, the sui
By requiring the PNRC to organize under the Corporation Code just like any other

private corporation, the Decision of July 15, 2009 lost sight of the PNRCs special status under

generis character of PNRC requires us to approach controversies involving the PNRC on a

case-to-case basis.

international humanitarian law and as an auxiliary of the State, designated to assist it in

discharging its obligations under the Geneva Conventions. Although the PNRC is called to be

In sum, the PNRC enjoys a special status as an important ally and auxiliary of the

independent under its Fundamental Principles, it interprets such independence as inclusive of

government in the humanitarian field in accordance with its commitments under international

its duty to be the governments humanitarian partner. To be recognized in the International

law. This Court cannot all of a sudden refuse to recognize its existence, especially since the

Committee, the PNRC must have an autonomous status, and carry out its humanitarian

issue of the constitutionality of the PNRC Charter was never raised by the parties. It bears

mission in a neutral and impartial manner.

emphasizing that the PNRC has responded to almost all national disasters since 1947, and is
widely known to provide a substantial portion of the countrys blood requirements. Its

However, in accordance with the Fundamental Principle of Voluntary Service of

humanitarian work is unparalleled. The Court should not shake its existence to the core in an

National Societies of the Movement, the PNRC must be distinguished from private and profit-

untimely and drastic manner that would not only have negative consequences to those who

making entities. It is the main characteristic of National Societies that they are not inspired by

depend on it in times of disaster and armed hostilities but also have adverse effects on the

the desire for financial gain but by individual commitment and devotion to a humanitarian

image of the Philippines in the international community. The sections of the PNRC Charter
that were declared void must therefore stay.

WHEREFORE, premises considered, respondent Richard J. Gordons Motion for

Clarification and/or for Reconsideration and movant-intervenor PNRCs Motion for Partial
Reconsideration of the Decision in G.R.

No.

175352 dated

July

15,

L. AZNAR (deceased), represented by his heirs;

RAMON
A.
BARCENILLA;
ROSARIO
T.
BARCENILLA; JOSE B. ENAD (deceased), represented
by his heirs; and RICARDO GABUYA (deceased),
represented by his heirs,

2009

are GRANTED. The constitutionality of R.A. No. 95, as amended, the charter of the
Philippine National Red Cross, was not raised by the parties as an issue and should not have

Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - x

been passed upon by this Court. The structure of the PNRC is sui generis being neither strictly
private nor public in nature. R.A. No. 95 remains valid and constitutional in its entirety. The

MERELO B. AZNAR and MATIAS B. AZNAR

III,

dispositive portion of the Decision should therefore be MODIFIEDby deleting the second
Petitioners,

sentence, to now read as follows:

WHEREFORE, we declare that the office of the Chairman of
the Philippine National Red Cross is not a government office or an office
in a government-owned or controlled corporation for purposes of the
prohibition in Section 13, Article VI of the 1987 Constitution.
SO ORDERED.

FIRST DIVISION

- versus -

G.R. No. 172021

Present:
PHILIPPINE NATIONAL BANK,
Petitioner,

G.R. No. 171805

CORONA, C.J.,

- versus -

PHILIPPINE NATIONAL BANK,

Chairperson,

Respondent.

VELASCO, JR.,
LEONARDO-DE CASTRO,
PERALTA,* and

MERELO B. AZNAR; MATIAS B. AZNAR III; JOSE

PEREZ, JJ.

Promulgated:

May 30, 2011

the Board of Directors[4] (Minutes) of the defunct Rural Insurance and Surety Company, Inc.
(RISCO) duly annotated on the titles of three parcels of land, plus legal interests from the time
of PNBs acquisition of the subject properties until the finality of the judgment but dismissing
all other claims of Aznar, et al. On the other hand, the March 6, 2006 Resolution of the Court
of Appeals denied the Motion for Reconsideration subsequently filed by each party.
The facts of this case, as stated in the Decision dated September 29, 2005 of the
Court of Appeals, are as follows:

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

In 1958, RISCO ceased operation due to business reverses. In

plaintiffs desire to rehabilitate RISCO, they contributed a total amount
of P212,720.00 which was used in the purchase of the three (3) parcels of
land described as follows:

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court are two petitions for review on certiorari under Rule 45 of the
Rules of Court both seeking to annul and set aside the Decision [1] dated September 29, 2005 as
well as the Resolution[2] dated March 6, 2006 of the Court of Appeals in CA-G.R. CV No.
75744, entitled Merelo B. Aznar, Matias B. Aznar III, Jose L. Aznar (deceased) represented by
his heirs, Ramon A. Barcenilla (deceased) represented by his heirs, Rosario T. Barcenilla,
Jose B. Enad (deceased) represented by his heirs, and Ricardo Gabuya (deceased) represented
by his heirs v. Philippine National Bank, Jose Garrido and Register of Deeds of Cebu
City. The September 29, 2005 Decision of the Court of Appeals set aside the Decision [3] dated
November 18, 1998 of the Regional Trial Court (RTC) of Cebu City, Branch 17, in Civil Case
No. CEB-21511. Furthermore, it ordered the Philippine National Bank (PNB) to pay Merelo
B. Aznar; Matias B. Aznar III; Jose L. Aznar (deceased), represented by his heirs; Ramon A.
Barcenilla (deceased), represented by his heirs; Rosario T. Barcenilla; Jose B. Enad
(deceased), represented by his heirs; and Ricardo Gabuya (deceased), represented by his
heirs (Aznar, et al.), the amount of their lien based on the Minutes of the Special Meeting of

A parcel of land (Lot No. 3597 of the

Talisay-Minglanilla Estate, G.L.R.O. Record No.
3732)
situated
in
the Municipality of Talisay, Province of Cebu, Island o
f Cebu.
xxx
containing
an
area
of
SEVENTY[-]EIGHT THOUSAND ONE HUNDRED
EIGHTY[-]FIVE SQUARE METERS (78,185) more
or less. x x x covered by Transfer Certificate of Title
No. 8921 in the name of Rural Insurance & Surety
Co., Inc.;

A parcel of land (Lot 7380 of the Talisay

Minglanilla Estate, G.L.R.O. Record No. 3732),
situated
in
the Municipality of Talisay, Province of Cebu, Island
of Cebu. xxx containing an area of THREE
HUNDRED TWENTY[-]NINE THOUSAND FIVE
HUNDRED FORTY[-]SEVEN SQUARE METERS
(329,547), more or less. xxx covered by Transfer
Certificate of Title No. 8922 in the name of Rural
Insurance & Surety Co., Inc. and

A parcel of land (Lot 1323 of the

subdivision plan Psd-No. 5988), situated in the
District of Lahug, City of Cebu, Island of Cebu. xxx
containing an area of FIFTY[-]FIVE THOUSAND SI
X HUNDRED FIFTY[-]THREE (55,653) SQUARE
METERS, more or less. covered by Transfer
Certificate of Title No. 24576 in the name of Rural
Insurance & Surety Co., Inc.

JOSE B. ENAD

17,500.00

RICARDO GABUYA

17,500.00
212,720.00

xxxx

And that the respective contributions abovementioned shall constitute as their lien or interest on
the property described above, if and when said
property are titled in the name of RURAL
INSURANCE & SURETY CO., INC., subject to
registration as their adverse claim in pursuance of the
Provisions of Land Registration Act, (Act No. 496, as
amended) until such time their respective
contributions are refunded to them completely.

After the purchase of the above lots, titles were issued in the
name of RISCO. The amount contributed by plaintiffs constituted as liens
and encumbrances on the aforementioned properties as annotated in the
titles of said lots. Such annotation was made pursuant to the Minutes of
the Special Meeting of the Board of Directors of RISCO (hereinafter
referred to as the Minutes) on March 14, 1961, pertinent portion of which
states:

xxxx
xxxx
3. The President then explained that in a
special meeting of the stockholders previously called
for the purpose of putting up certain amount
of P212,720.00 for the rehabilitation of the Company,
the following stockholders contributed the amounts
indicated opposite their names:

Thereafter, various subsequent annotations were made on the

same titles, including the Notice of Attachment and Writ of Execution both
dated August 3, 1962 in favor of herein defendant PNB, to wit:

On TCT No. 8921 for Lot 3597:

CONTRIBUTED SURPLUS

MERELO B. AZNAR

P50,000.00

MATIAS B. AZNAR

50,000.00

JOSE L. AZNAR

27,720.00

RAMON A. BARCENILLA

25,000.00

ROSARIO T. BARCENILLA

25,000.00

Entry No. 7416-V-4-D.B. Notice of Attachment By the

Provincial Sheriff of Cebu, Civil Case No. 47725,
Court of First Instance of Manila, entitled Philippine
National Bank, Plaintiff, versus Iluminada Gonzales,
et al., Defendants, attaching all rights, interest and
participation of the defendant Iluminada Gonzales and
Rural Insurance & Surety Co., Inc. of the two parcels
of land covered by T.C.T. Nos. 8921, Attachment No.
330 and 185.

annum from July 20, 1959, in connection with Civil

Case Nos. IV-74065, 73929, 74613 annotated above.
Date of Instrument August 3, 1962.
Date of Inscription August 3, 1962, 3:00 P.M.
File No. T-8921
Date of the Instrument August 11, 1962.
Entry No. 7417-V-4-D.B. Writ of Execution By the
Court of First Instance of Manila, commanding the
Provincial Sheriff of Cebu, of the lands and buildings
of the defendants, to make the sum of Seventy[-]One
Thousand Three Hundred Pesos (P71,300.00) plus
interest etc., in connection with Civil Case No. 47725,
File No. T-8021.

Date of the Inscription August 16, 1962,

2:50 P.M.

On TCT No. 8922 for Lot 7380:

(Same as the annotations on TCT 8921)

Date of Instrument July 21, 1962.

Date of Inscription August 3, 1962, 3:00 P.M.

On TCT No. 24576 for Lot 1328 (Corrected to Lot

1323-c per court order):

Entry No. 7512-V-4-D.B. Notice of Attachment By the

Provincial Sheriff of Cebu, Civil Case Nos. IV-74065,
73929, 74129, 72818, in the Municipal Court of the
City ofManila, entitled Jose Garrido, Plaintiff, versus
Rural Insurance & Surety Co., Inc., et als.,
Defendants, attaching all rights, interests and
participation of the defendants, to the parcels of land
covered by T.C.T. Nos. 8921 & 8922 Attachment No.
186, File No. T-8921.

Entry No. 1660-V-7-D.B. Notice of Attachment by the

Provincial Sheriff of Cebu, Civil Case No. 47725,
Court of First Instance of Manila, entitled Philippine
National Bank, Plaintiff, versus, Iluminada Gonzales,
et al., Defendants, attaching all rights, interest, and
participation of the defendants Iluminada Gonzales
and Rural Insurance & Surety Co., Inc. of the parcel of
land herein described.
Attachment No. 330 & 185.

Date of the Instrument August 16, 1962.

Date of Inscription August 16, 1962, 2:50 P.M.

Date of Instrument August 3, 1962.

Date of Inscription August 3, 1962, 3:00 P.M.

Entry No. 7513-V-4-D.B. Writ of Execution By the

Municipal Court of the City of Manila, commanding
the Provincial Sheriff of Cebu, of the lands and
buildings of the defendants, to make the sum of Three
Thousand Pesos (P3,000.00), with interest at 12% per

Entry No. 1661-V-7-D.B. Writ of Execution by the

Court of First Instance of Manila commanding the
Provincial Sheriff of Cebu, of the lands and buildings
of the defendants to make the sum of Seventy[-]One

Thousand Three Hundred Pesos (P71,300.00), plus

interest, etc., in connection with Civil Case No. 47725.
File No. T-8921.
Date of the Instrument July 21, 1962.
Date of the Inscription August 3, 1962 3:00 P.M.

Entry No. 1861-V-7-D.B. - Notice of Attachment By

the Provincial Sheriff of Cebu, Civil Case Nos. IV74065, 73929, 74129, 72613 & 72871, in the
Municipal Court of the City of Manila, entitled Jose
Garrido, Plaintiff, versus Rural Insurance & Surety
Co., Inc., et als., Defendants, attaching all rights,
interest and participation of the defendants, to the
parcel of land herein described.
Attachment No. 186.
File No. T-8921.
Date of the Instrument August 16, 1962.

As a result, a Certificate of Sale was issued in favor of

Philippine National Bank, being the lone and highest bidder of the three
(3) parcels of land known as Lot Nos. 3597 and 7380, covered by T.C.T.
Nos. 8921 and 8922, respectively, both situated at Talisay, Cebu, and Lot
No. 1328-C covered by T.C.T. No. 24576 situated at Cebu City, for the
amount of Thirty-One Thousand Four Hundred Thirty Pesos (P31,430.00).
Thereafter, a Final Deed of Sale dated May 27, 1991 in favor of the
Philippine National Bank was also issued and Transfer Certificate of Title
No. 24576 for Lot 1328-C (corrected to 1323-C) was cancelled and a new
certificate of title, TCT 119848 was issued in the name of PNB on August
26, 1991.

This prompted plaintiffs-appellees to file the instant complaint

seeking the quieting of their supposed title to the subject properties,
declaratory relief, cancellation of TCT and reconveyance with temporary
restraining order and preliminary injunction. Plaintiffs alleged that the
subsequent annotations on the titles are subject to the prior annotation of
their liens and encumbrances. Plaintiffs further contended that the
subsequent writs and processes annotated on the titles are all null and void
for want of valid service upon RISCO and on them, as stockholders. They
argued that the Final Deed of Sale and TCT No. 119848 are null and void
as these were issued only after 28 years and that any right which PNB may
have over the properties had long become stale.

Date of the Instription August 16, 1962 2:50 P.M.

Entry No. 1862-V-7-D.B. Writ of Execution by the

Municipal Court of Manila, commanding the
Provincial Sheriff of Cebu, of the lands and buildings
of the Defendants, to make the sum of Three
Thousand Pesos (P3,000.00), with interest at 12% per
annum from July 20, 1959, in connection with Civil
Case Nos. IV-74065, 73929, 74129, 72613 & 72871
annotated above.

Defendant PNB on the other hand countered that plaintiffs have

no right of action for quieting of title since the order of the court directing
the issuance of titles to PNB had already become final and executory and
their validity cannot be attacked except in a direct proceeding for their
annulment. Defendant further asserted that plaintiffs, as mere stockholders
of RISCO do not have any legal or equitable right over the properties of
the corporation. PNB posited that even if plaintiffs monetary lien had not
expired, their only recourse was to require the reimbursement or refund of
their contribution.[5]

File No. T-8921.

Date of the Instrument August 11, 1962.
Date of the Inscription August 16, 1962 at 2:50 P.M.

Aznar, et al., filed a Manifestation and Motion for Judgment on the Pleadings [6] on October 5,
1998. Thus, the trial court rendered the November 18, 1998 Decision, which ruled against

PNB on the basis that there was an express trust created over the subject properties whereby

e)

Directing Philippine National Bank to reconvey TCT No. 119848 in favor

of the plaintiffs.[7]

RISCO was the trustee and the stockholders, Aznar, et al., were the beneficiaries or the cestui
que trust. The dispositive portion of the said ruling reads:

WHEREFORE, judgment is hereby rendered as follows:

PNB appealed the adverse ruling to the Court of Appeals which, in its September 29,
2005 Decision, set aside the judgment of the trial court. Although the Court of Appeals agreed

a)

Declaring the Minutes of the Special Meeting of the Board of Directors of

RISCO approved on March 14, 1961 (Annex E, Complaint) annotated on
the titles to subject properties on May 15, 1962 as an express trust
whereby RISCO was a mere trustee and the above-mentioned stockholders
as beneficiaries being the true and lawful owners of Lots 3597, 7380 and
1323;

with the trial court that a judgment on the pleadings was proper, the appellate court opined
that the monetary contributions made by Aznar, et al., to RISCO can only be characterized as a
loan secured by a lien on the subject lots, rather than an express trust. Thus, it directed PNB to
pay Aznar, et al., the amount of their contributions plus legal interest from the time of
acquisition of the property until finality of judgment. The dispositive portion of the decision
reads:

b)

c)

d)

Declaring all the subsequent annotations of court writs and processes, to

wit: Entry No. 7416-V-4-D.B., 7417-V-4-D.B., 7512-V-4-D.B., and 7513V-4-D.B. in TCT No. 8921 for Lot 3597 and TCT No. 8922 for Lot 7380;
Entry No. 1660-V-7-D.B., Entry No. 1661-V-7-D.B., Entry No. 1861-V-7D.B., Entry No. 1862-V-7-D.B., Entry No. 4329-V-7-D.B., Entry No.
3761-V-7-D.B. and Entry No. 26522 v. 34, D.B. on TCT No. 24576 for
Lot 1323-C, and all other subsequent annotations thereon in favor of third
persons, as null and void;

Directing the Register of Deeds of the Province of Cebu and/or the

Register of Deeds of Cebu City, as the case may be, to cancel all these
annotations mentioned in paragraph b) above the titles;

WHEREFORE, premises considered, the assailed Judgment is

hereby SET ASIDE.

A new judgment is rendered ordering Philippine National Bank

to pay plaintiffs-appellees the amount of their lien based on the Minutes of
the Special Meeting of the Board of Directorsduly annotated on the titles,
plus legal interests from the time of appellants acquisition of the subject
properties until the finality of this judgment.

All other claims of the plaintiffs-appellees are hereby

DISMISSED.[8]

Directing the Register of Deeds of the Province of Cebu to cancel and/or

annul TCTs Nos. 8921 and 8922 in the name of RISCO, and to issue
another titles in the names of the plaintiffs; and
Both parties moved for reconsideration but these were denied by the Court of
Appeals. Hence, each party filed with this Court their respective petitions for review

oncertiorari under Rule 45 of the Rules of Court, which were consolidated in a

On the other hand, Aznar, et al.s petition, docketed as G.R. No. 172021, raised the
following issue:

Resolution[9] dated October 2, 2006.

In PNBs petition, docketed as G.R. No. 171805, the following assignment of errors
were raised:

THE COURT OF APPEALS ERRED IN CONCLUDING THAT THE

CONTRIBUTIONS MADE BY THE STOCKHOLDERS OF RISCO
WERE MERELY A LOAN SECURED BY THEIR LIEN OVER THE
PROPERTIES, SUBJECT TO REIMBURSEMENT OR REFUND,
RATHER THAN AN EXPRESS TRUST.[11]

Anent the first issue raised in G.R. No. 171805, PNB argues that a judgment on the
pleadings was not proper because its Answer,[12] which it filed during the trial court

THE COURT OF APPEALS ERRED IN AFFIRMING THE FINDINGS

OF THE TRIAL COURT THAT A JUDGMENT ON THE PLEADINGS
WAS WARRANTED DESPITE THE EXISTENCE OF GENUINE
ISSUES OF FACTS ALLEGED IN PETITIONER PNBS ANSWER.

proceedings of this case, tendered genuine issues of fact since it did not only deny material
allegations in Aznar, et al.s Complaint[13] but also set up special and affirmative
defenses. Furthermore, PNB maintains that, by virtue of the trial courts judgment on the
pleadings, it was denied its right to present evidence and, therefore, it was denied due process.

II
The contention is meritorious.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT THE RIGHT OF RESPONDENTS TO REFUND OR
REPAYMENT OF THEIR CONTRIBUTIONS HAD NOT PRESCRIBED
AND/OR THAT THE MINUTES OF THE SPECIAL MEETING OF THE
BOARD OF DIRECTORS OF RISCO CONSTITUTED AS AN
EFFECTIVE ADVERSE CLAIM.

The legal basis for rendering a judgment on the pleadings can be found in Section 1,
Rule 34 of the Rules of Court which states that [w]here an answer fails to tender an issue, or
otherwise admits the material allegations of the adverse partys pleading, the court may, on
motion of that party, direct judgment on such pleading. x x x.

III

THE COURT OF APPEALS ERRED IN NOT CONSIDERING THE

DISMISSAL OF THE COMPLAINT ON GROUNDS OF RES
JUDICATA AND LACK OF CAUSE OF ACTION ALLEGED BY
PETITIONER IN ITS ANSWER.[10]

Judgment on the pleadings is, therefore, based exclusively upon the allegations
appearing in the pleadings of the parties and the annexes, if any, without consideration of any
evidence aliunde.[14] However, when it appears that not all the material allegations of the
complaint were admitted in the answer for some of them were either denied or disputed, and

the defendant has set up certain special defenses which, if proven, would have the effect of
nullifying plaintiffs main cause of action, judgment on the pleadings cannot be rendered. [15]
However, a careful reading of Aznar, et al.s Complaint and of PNBs Answer would
reveal that both parties raised several claims and defenses, respectively, other than what was
In the case at bar, the Court of Appeals justified the trial courts resort to a judgment
on the pleadings in the following manner:
Perusal of the complaint, particularly, Paragraph 7 thereof
reveals:
7. That in their desire to rehabilitate RISCO,
the above-named stockholders contributed a total
amount of PhP212,720.00 which was used in the
purchase of the above-described parcels of land, which
amount constituted liens and encumbrances on subject
properties in favor of the above-named stockholders as
annotated in the titles adverted to above, pursuant to
the Minutes of the Special Meeting of the Board of
Directors of RISCO approved on March 14, 1961, a
copy of which is hereto attached as Annex E.

On the other hand, defendant in its Answer, admitted the aforequoted

allegation with the qualification that the amount put up by the
stockholders was used as part payment for the properties. Defendant
further averred that plaintiffs liens and encumbrances annotated on the
titles issued to RISCO constituted as loan from the stockholders to pay
part of the purchase price of the properties and was a personal obligation
of RISCO and was thus not a claim adverse to the ownership rights of the
corporation. With these averments, We do not find error on the part of the
trial court in rendering a judgment on the pleadings. For one, the
qualification made by defendant in its answer is not sufficient to
controvert the allegations raised in the complaint. As to defendants
contention that the money contributed by plaintiffs was in fact a loan from
the stockholders, reference can be made to the Minutes of the Special
Meeting of the Board of Directors, from which plaintiffs-appellees
anchored their complaint, in order to ascertain the true nature of their
claim over the properties. Thus, the issues raised by the parties can be
resolved on the basis of their respective pleadings and the annexes
attached thereto and do not require further presentation of
evidence aliunde.[16]

cited by the Court of Appeals, which requires the presentation of evidence for resolution, to
wit:
Complaint (Aznar, et al.)

Answer (PNB)

11. That these subsequent annotations on the titles of the

properties in question are subject to the prior annotation of
liens and encumbrances of the above-named stockholders
per Entry No. 458-V-7-D.B. inscribed on TCT No. 24576
on May 15, 1962 and per Entry No. 6966-V-4-D.B. on
TCT No. 8921 and TCT No. 8922 on May 15, 1962;

10) Par. 11 is denied as the loan from the

pay part of the purchase price of the p
personal obligation of RISCO and was t
adverse to the ownership rights of the corp

12. That these writs and processes annotated on the titles

are all null and void for total want of valid service upon
RISCO and the above-named stockholders considering
that as early as sometime in 1958, RISCO ceased
operations as earlier stated, and as early as May 15, 1962,
the liens and encumbrances of the above-named
stockholders were annotated in the titles of subject
properties;

11) Par. 12 is denied as in fact notice to R

sent to its last known address at Plaza Goi

13. That more particularly, the Final Deed of Sale (Annex

G) and TCT No. 119848 are null and void as these were
issued only after 28 years and 5 months (in the case of the
Final Deed of Sale) and 28 years, 6 months and 29 days
(in the case of TCT 119848) from the invalid auction sale
on December 27, 1962, hence, any right, if any, which
PNB had over subject properties had long become stale;

12) Par. 13 is denied for no law requires t

sale to be executed immediately after
redemption period. Moreover, another cou
jurisdiction has already ruled that PNB w
final deed of sale;

14. That plaintiffs continue to have possession of subject

properties and of their corresponding titles, but they never
received any process concerning the petition filed by PNB
to have TCT 24576 over Lot 1323-C surrendered and/or
cancelled;

13) Par. 14 is denied as plaintiffs are

possession of the land and if they were,
was as trustee for the creditors of RISCO l

15. That there is a cloud created on the aforementioned

titles of RISCO by reason of the annotate writs, processes
and proceedings caused by Jose Garrido and PNB which

14) Par. 15 is denied as the court orde

issuance of titles to PNB in lieu of TCT
8922 are valid judgments which cannot b

were apparently valid or effective, but which are in truth

and in fact invalid and ineffective, and prejudicial to said
titles and to the rights of the plaintiffs, which should be
removed and the titles quieted.[17]

collateral proceeding like the instant case.

At the outset, the Court agrees with the Court of Appeals that the agreement

contained in the Minutes of the Special Meeting of the RISCO Board of Directors held on
March 14, 1961 was a loan by the therein named stockholders to RISCO. We quote with
approval the following discussion from the Court of Appeals Decision dated September 29,
2005:

Furthermore, apart from refuting the aforecited material allegations made by

Aznar, et al., PNB also indicated in its Answer the special and affirmative defenses of (a)
prescription; (b) res judicata; (c) Aznar, et al., having no right of action for quieting of title;
(d) Aznar, et al.s lien being ineffective and not binding to PNB; and (e) Aznar, et al.s having
no personality to file the suit.[19]

From the foregoing, it is indubitably clear that it was error for the trial court to
render a judgment on the pleadings and, in effect, resulted in a denial of due process on the
part of PNB because it was denied its right to present evidence. A remand of this case would
ordinarily be the appropriate course of action. However, in the interest of justice and in order

Careful perusal of the Minutes relied upon by plaintiffsappellees in their claim, showed that their contributions shall constitute as
lien or interest on the property if and when said properties are titled in the
name of RISCO, subject to registration of their adverse claim under the
Land Registration Act, until such time their respective contributions are
refunded to them completely.

It is a cardinal rule in the interpretation of contracts that if the

terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulation shall control.
When the language of the contract is explicit leaving no doubt as to the
intention of the drafters thereof, the courts may not read into it any other
intention that would contradict its plain import.

to expedite the resolution of this case which was filed with the trial court way back in 1998,
the Court finds it proper to already resolve the present controversy in light of the existence of
legal grounds that would dispose of the case at bar without necessity of presentation of further
evidence on the other disputed factual claims and defenses of the parties.

A thorough and comprehensive scrutiny of the records would reveal that this case
should be dismissed because Aznar, et al., have no title to quiet over the subject properties and
their true cause of action is already barred by prescription.

The term lien as used in the Minutes is defined as a discharge

on property usually for the payment of some debt or obligation. A lien is a
qualified right or a proprietary interest which may be exercised over the
property of another. It is a right which the law gives to have a debt
satisfied out of a particular thing. It signifies a legal claim or charge on
property; whether real or personal, as a collateral or security for the
payment of some debt or obligation. Hence, from the use of the word lien
in the Minutes, We find that the money contributed by plaintiffs-appellees
was in the nature of a loan, secured by their liens and interests duly
annotated on the titles. The annotation of their lien serves only as
collateral and does not in any way vest ownership of property to plaintiffs.
[20]
(Emphases supplied.)

We are not persuaded by the contention of Aznar, et al., that the language of the
subject Minutes created an express trust.

Indeed, we find that Aznar, et al., have no right to ask for the quieting of title of the
properties at issue because they have no legal and/or equitable rights over the properties that
are derived from the previous registered owner which is RISCO, the pertinent provision of the
law is Section 2 of the Corporation Code (Batas Pambansa Blg. 68), which states that [a]

Trust is the right to the beneficial enjoyment of property, the legal title to which is

corporation is an artificial being created by operation of law, having the right of succession

vested in another. It is a fiduciary relationship that obliges the trustee to deal with the property

and the powers, attributes and properties expressly authorized by law or incident to its

for the benefit of the beneficiary. Trust relations between parties may either be express or

existence.

implied. An express trust is created by the intention of the trustor or of the parties. An implied
trust comes into being by operation of law.[21]
As a consequence thereof, a corporation has a personality separate and distinct from
those of its stockholders and other corporations to which it may be connected. [24]Thus, we had
Express trusts, sometimes referred to as direct trusts, are intentionally created by the

previously ruled in Magsaysay-Labrador v. Court of Appeals[25] that the interest of the

direct and positive acts of the settlor or the trustor - by some writing, deed, or will or oral

stockholders over the properties of the corporation is merely inchoate and therefore does not

declaration. It is created not necessarily by some written words, but by the direct and positive

entitle them to intervene in litigation involving corporate property, to wit:

acts of the parties.[22] This is in consonance with Article 1444 of the Civil Code, which states
that [n]o particular words are required for the creation of an express trust, it being sufficient
that a trust is clearly intended.

In other words, the creation of an express trust must be manifested with reasonable

Here, the interest, if it exists at all, of petitioners-movants is

indirect, contingent, remote, conjectural, consequential and collateral. At
the very least, their interest is purely inchoate, or in sheer expectancy of a
right in the management of the corporation and to share in the profits
thereof and in the properties and assets thereof on dissolution, after
payment of the corporate debts and obligations.

certainty and cannot be inferred from loose and vague declarations or from ambiguous
circumstances susceptible of other interpretations. [23]
No such reasonable certitude in the creation of an express trust obtains in the case at
bar. In fact, a careful scrutiny of the plain and ordinary meaning of the terms used in the
Minutes does not offer any indication that the parties thereto intended that Aznar, et al.,
become beneficiaries under an express trust and that RISCO serve as trustor.

While a share of stock represents a proportionate or aliquot

interest in the property of the corporation, it does not vest the owner
thereof with any legal right or title to any of the property, his interest in the
corporate property being equitable or beneficial in nature. Shareholders
are in no legal sense the owners of corporate property, which is owned by
the corporation as a distinct legal person.[26]

In the case at bar, there is no allegation, much less any proof, that the corporate
existence of RISCO has ceased and the corporate property has been liquidated and distributed
to the stockholders. The records only indicate that, as per Securities and Exchange
Commission (SEC) Certification[27] dated June 18, 1997, the SEC merely suspended RISCOs
Certificate of Registration beginning on September 5, 1988 due to its non-submission of SEC

Defenses and objections not pleaded either in a motion to

dismiss or in the answer are deemed waived. However, when it appears
from the pleadings or the evidence on record that the court has no
jurisdiction over the subject matter, that there is another action pending
between the same parties for the same cause, or that the action is barred by
a prior judgment or by statute of limitations, the court shall dismiss the
claim. (Emphasis supplied.)

required reports and its failure to operate for a continuous period of at least five years.
Verily, Aznar, et al., who are stockholders of RISCO, cannot claim ownership over
the properties at issue in this case on the strength of the Minutes which, at most, is merely

In Feliciano v. Canoza,[28] we held:

evidence of a loan agreement between them and the company. There is no indication or even a
suggestion that the ownership of said properties were transferred to them which would require
no less that the said properties be registered under their names. For this reason, the complaint
should be dismissed since Aznar, et al., have no cause to seek a quieting of title over the
subject properties.

At most, what Aznar, et al., had was merely a right to be repaid the amount loaned to
RISCO. Unfortunately, the right to seek repayment or reimbursement of their contributions
used to purchase the subject properties is already barred by prescription.

We have ruled that trial courts have authority and discretion to dismiss an
action on the ground of prescription when the parties pleadings or other
facts on record show it to be indeed time-barred x x x; and it may do so on
the basis of a motion to dismiss, or an answer which sets up such ground
as an affirmative defense; or even if the ground is alleged after judgment
on the merits, as in a motion for reconsideration; or even if the defense has
not been asserted at all, as where no statement thereof is found in the
pleadings, or where a defendant has been declared in default. What is
essential only, to repeat, is that the facts demonstrating the lapse of
the prescriptive period, be otherwise sufficiently and satisfactorily
apparent on the record; either in the averments of the plaintiffs
complaint, or otherwise established by the evidence.[29] (Emphasis
supplied.)

Section 1, Rule 9 of the Rules of Court provides that when it appears from the
pleadings or the evidence on record that the action is already barred by the statute of
limitations, the court shall dismiss the claim, to wit:

The pertinent Civil Code provision on prescription which is applicable to the issue at
hand is Article 1144(1), to wit:

The following actions must be brought within ten years from the
time the right of action accrues:

1.

Upon a written contract;

2.

Upon an obligation created by law;

3.

Upon a judgment. (Emphasis supplied.)

Applied to the case at bar, the Minutes which was approved on March 14, 1961 is
considered as a written contract between Aznar, et al., and RISCO for the reimbursement of
the contributions of the former. As such, the former had a period of ten (10) years from 1961
within which to enforce the said written contract. However, it does not appear that Aznar, et
al., filed any action for reimbursement or refund of their contributions against RISCO or even
against PNB. Instead the suit that Aznar, et al., brought before the trial court only on January
28, 1998 was one to quiet title over the properties purchased by RISCO with their

Moreover, in Nielson & Co., Inc. v. Lepanto Consolidated Mining Co.,[30] we held that the term

contributions. It is unmistakable that their right of action to claim for refund or payment of

written contract includes the minutes of the meeting of the board of directors of a corporation,

their contributions had long prescribed. Thus, it was reversible error for the Court of Appeals

which minutes were adopted by the parties although not signed by them, to wit:

to order PNB to pay Aznar, et al., the amount of their liens based on the Minutes with legal
interests from the time of PNBs acquisition of the subject properties.

Coming now to the question of prescription raised by defendant Lepanto,

it is contended by the latter that the period to be considered for the
prescription of the claim regarding participation in the profits is only four
years, because the modification of the sharing embodied in the
management contract is merely verbal, no written document to that effect
having been presented. This contention is untenable. The modification
appears in the minutes of the special meeting of the Board of Directors of
Lepanto held on August 21, 1940, it having been made upon the authority
of its President, and in said minutes the terms of modification had been
specified. This is sufficient to have the agreement considered, for the
purpose of applying the statute of limitations, as a written contract even if
the minutes were not signed by the parties (3 A.L.R., 2d, p. 831). It has
been held that a writing containing the terms of a contract if adopted by
two persons may constitute a contract in writing even if the same is not
signed by either of the parties (3 A.L.R., 2d, pp. 812-813). Another
authority says that an unsigned agreement the terms of which are
embodied in a document unconditionally accepted by both parties is a
written contract (Corbin on Contracts, Vol. I, p. 85). [31]

In view of the foregoing, it is unnecessary for the Court to pass upon the other issues
raised by the parties.

WHEREFORE, the petition of Aznar, et al., in G.R. No. 172021 is DENIED for
lack of merit. The petition of PNB in G.R. No. 171805 is GRANTED. The Complaint,
docketed as Civil Case No. CEB-21511, filed by Aznar, et al., is hereby DISMISSED. No
costs.

SO ORDERED.

EN BANC
G.R. No. 176579

June 28, 2011

WILSON P. GAMBOA, Petitioner,

The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long

Distance Telephone Company (PLDT), are as follows:1

vs.
On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT
FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY

a franchise and the right to engage in telecommunications business. In 1969, General

JOHN P. SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE

Telephone and Electronics Corporation (GTE), an American company and a major PLDT

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) IN THEIR

stockholder, sold 26 percent of the outstanding common shares of PLDT to PTIC. In 1977,

CAPACITIES

THE

Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and

PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC

Jose Campos, Jr. Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by

CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET

virtue of three Deeds of Assignment executed by PTIC stockholders Ramon Cojuangco and

HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG

Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC held by PHI were sequestered

DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING

by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares,

DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L.

which represent about 46.125 percent of the outstanding capital stock of PTIC, were later

NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR

declared by this Court to be owned by the Republic of the Philippines. 2

AS

CHAIR

AND

MEMBERS,

RESPECTIVELY,

OF

FE BARIN OF THE SECURITIES EXCHANGE COMMISSION, and PRESIDENT

FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE, Respondents.

In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the
remaining 54 percent of the outstanding capital stock of PTIC. On 20 November 2006, the

PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioners-in-Intervention.

Inter-Agency Privatization Council (IPC) of the Philippine Government announced that it

would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of

DECISION

PTIC, through a public bidding to be conducted on 4 December 2006. Subsequently, the

public bidding was reset to 8 December 2006, and only two bidders, Parallax Venture Fund

CARPIO, J.:

XXVII (Parallax) and Pan-Asia Presidio Capital, submitted their bids. Parallax won with a bid
of P25.6 billion or US$510 million.

The Case
This is an original petition for prohibition, injunction, declaratory relief and declaration of
nullity

of

the

sale

of

shares

of

stock

of

Philippine

Telecommunications Investment Corporation (PTIC) by the government of the Republic of the

Philippines to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific

Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC
stockholder and buy the 111,415 PTIC shares by matching the bid price of Parallax. However,
First Pacific failed to do so by the 1 February 2007 deadline set by IPC and instead, yielded its
right to PTIC itself which was then given by IPC until 2 March 2007 to buy the PTIC shares.
On 14 February 2007, First Pacific, through its subsidiary, MPAH, entered into a Conditional

Company Limited (First Pacific).

Sale and Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of the
The Antecedents

outstanding capital stock of PTIC, with the Philippine Government for the price
of P25,217,556,000 or US$510,580,189. The sale was completed on 28 February 2007.

Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125

2007 to exercise its right of first refusal in accordance with PTICs Articles of Incorporation.

percent of PTIC shares is actually an indirect sale of 12 million shares or about 6.3 percent of

First Pacific announced its intention to match Parallaxs bid.

the outstanding common shares of PLDT. With the sale, First Pacifics common
shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the

On 31 January 2007, the House of Representatives (HR) Committee on Good Government

common shareholdings of foreigners in PLDT to about 81.47 percent. This violates

conducted a public hearing on the particulars of the then impending sale of the 111,415 PTIC

Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership of

shares. Respondents Teves and Sevilla were among those who attended the public hearing.

the capital of a public utility to not more than 40 percent. 3

The HR Committee Report No. 2270 concluded that: (a) the auction of the governments
111,415 PTIC shares bore due diligence, transparency and conformity with existing legal

On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary

procedures; and (b) First Pacifics intended acquisition of the governments 111,415 PTIC

John P. Sevilla, and PCGG Commissioner Ricardo Abcede allege the following relevant facts:

shares resulting in First Pacifics 100% ownership of PTIC will not violate the 40 percent
constitutional limit on foreign ownership of a public utility since PTIC holds only 13.847

On 9 November 1967, PTIC was incorporated and had since engaged in the business

percent of the total outstanding common shares of PLDT.5 On 28 February 2007, First

of investmentholdings. PTIC held 26,034,263 PLDT common shares, or 13.847 percent of the

Pacific completed the acquisition of the 111,415 shares of stock of PTIC.

total PLDT outstanding common shares. PHI, on the other hand, was incorporated in 1977,
and became the owner of 111,415 PTIC shares or 46.125 percent of the outstanding capital

Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public

stock of PTIC by virtue of three Deeds of Assignment executed by Ramon Cojuangco and

bidding for the sale of 111,415 PTIC shares or 46 percent of the outstanding capital stock of

Luis Tirso Rivilla. In 1986, the 111,415 PTIC shares held by PHI were sequestered by the

PTIC (the remaining 54 percent of PTIC shares was already owned by First Pacific and its

PCGG, and subsequently declared by this Court as part of the ill-gotten wealth of former

affiliates); (b) Parallax offered the highest bid amounting to P25,217,556,000; (c) pursuant to

President Ferdinand Marcos. The sequestered PTIC shares were reconveyed to the Republic of

the right of first refusal in favor of PTIC and its shareholders granted in PTICs Articles of

the Philippines in accordance with this Courts decision which became final and executory on

Incorporation, MPAH, a First Pacific affiliate, exercised its right of first refusal by matching

8 August 2006.

the highest bid offered for PTIC shares on 13 February 2007; and (d) on 28 February 2007, the
sale was consummated when MPAH paid IPC P25,217,556,000 and the government delivered

The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4

the certificates for the 111,415 PTIC shares. Respondent Pangilinan denies the other

percent of the outstanding common shares of stock of PLDT, and designated the Inter-Agency

allegations of facts of petitioner.

Privatization Council (IPC), composed of the Department of Finance and the PCGG, as the
disposing entity. An invitation to bid was published in seven different newspapers from 13 to

On 28 February 2007, petitioner filed the instant petition for prohibition, injunction,

24 November 2006. On 20 November 2006, a pre-bid conference was held, and the original

declaratory relief, and declaration of nullity of sale of the 111,415 PTIC shares. Petitioner

deadline for bidding scheduled on 4 December 2006 was reset to 8 December 2006. The

claims, among others, that the sale of the 111,415 PTIC shares would result in an increase in

extension was published in nine different newspapers.

First Pacifics common shareholdings in PLDT from 30.7 percent to 37 percent, and this,
combined with Japanese NTT DoCoMos common shareholdings in PLDT, would result to a

During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the

total foreign common shareholdings in PLDT of 51.56 percent which is over the 40 percent

highest bidder with a bid of P25,217,556,000. The government notified First Pacific, the

constitutional limit.6 Petitioner asserts:

majority owner of PTIC shares, of the bidding results and gave First Pacific until 1 February

If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7 percent

This Court is not a trier of facts. Factual questions such as those raised by petitioner, 9 which

to 37.0 percent of its common or voting- stockholdings, x x x. Hence, the consummation of

indisputably demand a thorough examination of the evidence of the parties, are generally

the sale will put the two largest foreign investors in PLDT First Pacific and Japans NTT

beyond this Courts jurisdiction. Adhering to this well-settled principle, the Court shall confine

DoCoMo, which is the worlds largest wireless telecommunications firm, owning 51.56

the resolution of the instant controversy solely on the threshold and purely legal issue of

percent of PLDT common equity. x x x With the completion of the sale, data culled from the

whether the term capital in Section 11, Article XII of the Constitution refers to the total

official website of the New York Stock Exchange (www.nyse.com) showed that those foreign

common shares only or to the total outstanding capital stock (combined total of common and

entities, which own at least five percent of common equity, will collectively own 81.47

non-voting preferred shares) of PLDT, a public utility.

percent of PLDTs common equity. x x x

The Ruling of the Court
x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT
submitted to the New York Stock Exchange for the period 2003-2005, revealed that First

The petition is partly meritorious.

Pacific and several other foreign entities breached the constitutional limit of 40 percent
Petition for declaratory relief treated as petition for mandamus

ownership as early as 2003. x x x7

Petitioner raises the following issues: (1) whether the consummation of the then impending
sale of 111,415 PTIC shares to First Pacific violates the constitutional limit on foreign
ownership of a public utility; (2) whether public respondents committed grave abuse of
discretion in allowing the sale of the 111,415 PTIC shares to First Pacific; and (3) whether the
sale of common shares to foreigners in excess of 40 percent of the entire subscribed common
capital stock violates the constitutional limit on foreign ownership of a public utility. 8
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to
Intervene and Admit Attached Petition-in-Intervention. In the Resolution of 28 August 2007,
the Court granted the motion and noted the Petition-in-Intervention.

At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner
seeks, only the petition for prohibition is within the original jurisdiction of this court, which
however is not exclusive but is concurrent with the Regional Trial Court and the Court of
Appeals. The actions for declaratory relief, 10 injunction, and annulment of sale are not
embraced within the original jurisdiction of the Supreme Court. On this ground alone, the
petition could have been dismissed outright.
While direct resort to this Court may be justified in a petition for prohibition, 11 the Court shall
nevertheless refrain from discussing the grounds in support of the petition for prohibition since
on 28 February 2007, the questioned sale was consummated when MPAH paid
IPC P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC

Petitioners-in-intervention join petitioner Wilson Gamboa x x x in seeking, among others, to

shares.

enjoin and/or nullify the sale by respondents of the 111,415 PTIC shares to First Pacific or
assignee. Petitioners-in-intervention claim that, as PLDT subscribers, they have a stake in
the outcome of the controversy x x x where the Philippine Government is completing the sale
of government owned assets in [PLDT], unquestionably a public utility, in violation of the
nationality restrictions of the Philippine Constitution.
The Issue

However, since the threshold and purely legal issue on the definition of the term capital in
Section 11, Article XII of the Constitution has far-reaching implications to the national
economy, the Court treats the petition for declaratory relief as one for mandamus. 12
In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory
relief as one for mandamus considering the grave injustice that would result in the

interpretation of a banking law. In that case, which involved the crime of rape committed by a

In the present case, petitioner seeks primarily the interpretation of the term capital in Section

foreign tourist against a Filipino minor and the execution of the final judgment in the civil case

11, Article XII of the Constitution. He prays that this Court declare that the term capital

for damages on the tourists dollar deposit with a local bank, the Court declared Section 113 of

refers to common shares only, and that such shares constitute the sole basis in determining

Central Bank Circular No. 960, exempting foreign currency deposits from attachment,

foreign equity in a public utility. Petitioner further asks this Court to declare any ruling

garnishment or any other order or process of any court, inapplicable due to the peculiar

inconsistent with such interpretation unconstitutional.

circumstances of the case. The Court held that injustice would result especially to a citizen
aggrieved by a foreign guest like accused x x x that would negate Article 10 of the Civil

The interpretation of the term capital in Section 11, Article XII of the Constitution has far-

Code which provides that in case of doubt in the interpretation or application of laws, it is

reaching implications to the national economy. In fact, a resolution of this issue will determine

presumed that the lawmaking body intended right and justice to prevail. The Court therefore

whether Filipinos are masters, or second class citizens, in their own country. What is at stake

required respondents Central Bank of the Philippines, the local bank, and the accused to

here is whether Filipinos or foreigners will have effective control of the national economy.

comply with the writ of execution issued in the civil case for damages and to release the dollar

Indeed, if ever there is a legal issue that has far-reaching implications to the entire nation, and

deposit of the accused to satisfy the judgment.

to future generations of Filipinos, it is the threshold legal issue presented in this case.

In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside

The Court first encountered the issue on the definition of the term capital in Section 11,

the procedural infirmity of the petition for declaratory relief and treated the same as one for

Article XII of the Constitution in the case of Fernandez v. Cojuangco, docketed as G.R. No.

mandamus. In Alliance, the issue was whether the government unlawfully excluded

157360.16 That case involved the same public utility (PLDT) and substantially the same

petitioners, who were government employees, from the enjoyment of rights to which they

private respondents. Despite the importance and novelty of the constitutional issue raised

were entitled under the law. Specifically, the question was: Are the branches, agencies,

therein and despite the fact that the petition involved a purely legal question, the Court

subdivisions, and instrumentalities of the Government, including government owned or

declined to resolve the case on the merits, and instead denied the same for disregarding the

controlled corporations included among the four employers under Presidential Decree No.

hierarchy of courts.17 There, petitioner Fernandez assailed on a pure question of law the

851 which are required to pay their employees x x x a thirteenth (13th) month pay x x x ? The

Regional Trial Courts Decision of 21 February 2003 via a petition for review under Rule 45.

Constitutional principle involved therein affected all government employees, clearly justifying

The Courts Resolution, denying the petition, became final on 21 December 2004.

a relaxation of the technical rules of procedure, and certainly requiring the interpretation of the
The instant petition therefore presents the Court with another opportunity to finally settle

assailed presidential decree.

this purely legal issue which is of transcendental importance to the national economy and a
In short, it is well-settled that this Court may treat a petition for declaratory relief as one for

fundamental requirement to a faithful adherence to our Constitution. The Court must forthwith

mandamus if the issue involved has far-reaching implications. As this Court held in Salvacion:

seize such opportunity, not only for the benefit of the litigants, but more significantly for the
benefit of the entire Filipino people, to ensure, in the words of the Constitution, a self-reliant

The Court has no original and exclusive jurisdiction over a petition for declaratory

and independent national economy effectively controlled by Filipinos.18 Besides, in the light

relief. However, exceptions to this rule have been recognized. Thus, where the petition

of vague and confusing positions taken by government agencies on this purely legal issue,

has far-reaching implications and raises questions that should be resolved, it may be

present and future foreign investors in this country deserve, as a matter of basic fairness, a

15

treated as one for mandamus. (Emphasis supplied)

categorical ruling from this Court on the extent of their participation in the capital of public
utilities and other nationalized businesses.

Despite its far-reaching implications to the national economy, this purely legal issue has

laws in order to be valid and enforceable must be published in the Official Gazette or

remained unresolved for over 75 years since the 1935 Constitution. There is no reason for this

otherwise effectively promulgated. In ruling for the petitioners legal standing, the Court

Court to evade this ever recurring fundamental issue and delay again defining the term

declared that the right they sought to be enforced is a public right recognized by no less than

capital, which appears not only in Section 11, Article XII of the Constitution, but also in

the fundamental law of the land.

Section 2, Article XII on co-production and joint venture agreements for the development of
our natural resources,19 in Section 7, Article XII on ownership of private lands, 20 in Section 10,

Legaspi v. Civil Service Commission, while reiterating Taada, further declared that when a

Article XII on the reservation of certain investments to Filipino citizens, 21 in Section 4(2),

mandamus proceeding involves the assertion of a public right, the requirement of

Article XIV on the ownership of educational institutions, 22 and in Section 11(2), Article XVI

personal interest is satisfied by the mere fact that petitioner is a citizen and, therefore,

on the ownership of advertising companies.

23

Petitioner has locus standi

part of the general public which possesses the right.

Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been
involved under the questioned contract for the development, management and operation of the

There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to

Manila International Container Terminal, public interest [was] definitely involved

question the subject sale, which he claims to violate the nationality requirement prescribed in

considering the important role [of the subject contract] . . . in the economic development

Section 11, Article XII of the Constitution. If the sale indeed violates the Constitution, then

of the country and the magnitude of the financial consideration involved. We concluded

there is a possibility that PLDTs franchise could be revoked, a dire consequence directly

that, as a consequence, the disclosure provision in the Constitution would constitute sufficient

affecting petitioners interest as a stockholder.

authority for upholding the petitioners standing. (Emphasis supplied)

More importantly, there is no question that the instant petition raises matters of transcendental

Clearly, since the instant petition, brought by a citizen, involves matters of transcendental

importance to the public. The fundamental and threshold legal issue in this case, involving the

public importance, the petitioner has the requisite locus standi.

national economy and the economic welfare of the Filipino people, far outweighs any
perceived impediment in the legal personality of the petitioner to bring this action.

Definition of the Term Capital in

Section 11, Article XII of the 1987 Constitution

24

In Chavez v. PCGG, the Court upheld the right of a citizen to bring a suit on matters of
transcendental importance to the public, thus:

Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates
the Filipinization of public utilities, to wit:

In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and the
object of mandamus is to obtain the enforcement of a public duty, the people are

Section 11. No franchise, certificate, or any other form of authorization for the operation

regarded as the real parties in interest; and because it is sufficient that petitioner is a

of a public utility shall be granted except to citizens of the Philippines or to corporations

citizen and as such is interested in the execution of the laws, he need not show that he has

or associations organized under the laws of the Philippines, at least sixty per centum of

any legal or special interest in the result of the action. In the aforesaid case, the petitioners

whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization

sought to enforce their right to be informed on matters of public concern, a right then

be exclusive in character or for a longer period than fifty years. Neither shall any such

recognized in Section 6, Article IV of the 1973 Constitution, in connection with the rule that

franchise or right be granted except under the condition that it shall be subject to amendment,

alteration, or repeal by the Congress when the common good so requires. The State shall

Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission,

encourage equity participation in public utilities by the general public. The participation of

reminds us that the Filipinization provision in the 1987 Constitution is one of the products of

foreign investors in the governing body of any public utility enterprise shall be limited to their

the spirit of nationalism which gripped the 1935 Constitutional Convention. 25 The 1987

proportionate share in its capital, and all the executive and managing officers of such

Constitution provides for the Filipinization of public utilities by requiring that any form of

corporation or association must be citizens of the Philippines. (Emphasis supplied)

authorization for the operation of public utilities should be granted only to citizens of the
Philippines or to corporations or associations organized under the laws of the Philippines at

The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution,

least sixty per centum of whose capital is owned by such citizens. The provision is [an

thus:

express] recognition of the sensitive and vital position of public utilities both in the
national economy and for national security.26 The evident purpose of the citizenship

Section 5. No franchise, certificate, or any other form of authorization for the operation
of a public utility shall be granted except to citizens of the Philippines or to corporations
or associations organized under the laws of the Philippines at least sixty per centum of
the capital of which is owned by such citizens, nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty years. Neither shall any

requirement is to prevent aliens from assuming control of public utilities, which may be
inimical to the national interest. 27 This specific provision explicitly reserves to Filipino citizens
control of public utilities, pursuant to an overriding economic goal of the 1987 Constitution: to
conserve and develop our patrimony 28 and ensure a self-reliant and independent national
economy effectively controlled by Filipinos.29

such franchise or right be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the National Assembly when the public interest so

Any citizen or juridical entity desiring to operate a public utility must therefore meet the

requires. The State shall encourage equity participation in public utilities by the general public.

minimum nationality requirement prescribed in Section 11, Article XII of the Constitution.

The participation of foreign investors in the governing body of any public utility enterprise

Hence, for a corporation to be granted authority to operate a public utility, at least 60 percent

shall be limited to their proportionate share in the capital thereof. (Emphasis supplied)

of its capital must be owned by Filipino citizens.

The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the

The crux of the controversy is the definition of the term capital. Does the term capital in

1935 Constitution, viz:

Section 11, Article XII of the Constitution refer to common shares or to the total outstanding
capital stock (combined total of common and non-voting preferred shares)?

Section 8. No franchise, certificate, or any other form of authorization for the operation
of a public utility shall be granted except to citizens of the Philippines or to corporations

Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities

or other entities organized under the laws of the Philippines sixty per centum of the

refers only to common shares because such shares are entitled to vote and it is through voting

capital of which is owned by citizens of the Philippines, nor shall such franchise, certificate,

that control over a corporation is exercised. Petitioner posits that the term capital in Section

or authorization be exclusive in character or for a longer period than fifty years. No franchise

11, Article XII of the Constitution refers to the ownership of common capital stock

or right shall be granted to any individual, firm, or corporation, except under the condition that

subscribed and outstanding, which class of shares alone, under the corporate set-up of PLDT,

it shall be subject to amendment, alteration, or repeal by the Congress when the public interest

can vote and elect members of the board of directors. It is undisputed that PLDTs non-voting

so requires. (Emphasis supplied)

preferred shares are held mostly by Filipino citizens. 30 This arose from Presidential Decree No.
217,31 issued on 16 June 1973 by then President Ferdinand Marcos, requiring every applicant

of a PLDT telephone line to subscribe to non-voting preferred shares to pay for the investment
cost of installing the telephone line.

32

Similarly, respondent Manuel V. Pangilinan does not define the term capital in Section 11,
Article XII of the Constitution. Neither does he refute petitioners claim of foreigners holding
more than 40 percent of PLDTs common shares. Instead, respondent Pangilinan focuses on

Petitioners-in-intervention basically reiterate petitioners arguments and adopt petitioners

the procedural flaws of the petition and the alleged violation of the due process rights of

definition of the term capital. 33 Petitioners-in-intervention allege that the approximate

foreigners. Respondent Pangilinan emphasizes in his Memorandum (1) the absence of this

foreign ownership of common capital stock of PLDT x x x already amounts to at least 63.54%

Courts jurisdiction over the petition; (2) petitioners lack of standing; (3) mootness of the

of the total outstanding common stock, which means that foreigners exercise significant

petition; (4) non-availability of declaratory relief; and (5) the denial of due process rights.

control over PLDT, patently violating the 40 percent foreign equity limitation in public

Moreover, respondent Pangilinan alleges that the issue should be whether owners of shares in

utilities prescribed by the Constitution.

PLDT as well as owners of shares in companies holding shares in PLDT may be required to
relinquish their shares in PLDT and in those companies without any law requiring them to

Respondents, on the other hand, do not offer any definition of the term capital in Section 11,

surrender their shares and also without notice and trial.

Article XII of the Constitution. More importantly, private respondents Nazareno and
Pangilinan of PLDT do not dispute that more than 40 percent of the common shares of PLDT

Respondent Pangilinan further asserts that Section 11, [Article XII of the Constitution]

are held by foreigners.

imposes no nationality requirement on the shareholders of the utility company as a

condition for keeping their shares in the utility company. According to him, Section 11

In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on

the procedural infirmities of the petition and the supposed violation of the due process rights
of the affected foreign common shareholders. Respondent Nazareno does not deny
petitioners allegation of foreigners dominating the common shareholdings of PLDT.

does not authorize taking one persons property (the shareholders stock in the utility
company) on the basis of another partys alleged failure to satisfy a requirement that is a
condition only for that other partys retention of another piece of property (the utility company
being at least 60% Filipino-owned to keep its franchise). 36

Nazareno stressed mainly that the petition seeks to divest foreign common shareholders
purportedly exceeding 40% of the total common shareholdings in PLDT of their

The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P.

ownership over their shares. Thus, the foreign natural and juridical PLDT shareholders

Sevilla, Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the

34

must be impleaded in this suit so that they can be heard. Essentially, Nazareno invokes

definition of the term capital. In its Memorandum 37 dated 24 September 2007, the OSG also

denial of due process on behalf of the foreign common shareholders.

limits its discussion on the supposed procedural defects of the petition, i.e. lack of standing,
lack of jurisdiction, non-inclusion of interested parties, and lack of basis for injunction. The

While Nazareno does not introduce any definition of the term capital, he states that among
the factual assertions that need to be established to counter petitioners allegations is the
uniform interpretation by government agencies (such as the SEC), institutions and
corporations (such as the Philippine National Oil Company-Energy Development

OSG does not present any definition or interpretation of the term capital in Section 11,
Article XII of the Constitution. The OSG contends that the petition actually partakes of a
collateral attack on PLDTs franchise as a public utility, which in effect requires a fullblown trial where all the parties in interest are given their day in court. 38

Corporation or PNOC-EDC) of including both preferred shares and common shares in

controlling interest in view of testing compliance with the 40% constitutional

Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the

limitation on foreign ownership in public utilities.35

Philippine Stock Exchange (PSE), does not also define the term capital and seeks the
dismissal of the petition on the following grounds: (1) failure to state a cause of action against

Lim; (2) the PSE allegedly implemented its rules and required all listed companies, including

Consequently, in the case of petitioner PLDT, since it is already admitted that the voting

PLDT, to make proper and timely disclosures; and (3) the reliefs prayed for in the petition

interests of foreigners which would gain entry to petitioner PLDT by the acquisition of

would adversely impact the stock market.

SMART shares through the Questioned Transactions is equivalent to 82.99%, and the nominee
arrangements between the foreign principals and the Filipino owners is likewise admitted,

In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a

there is, therefore, a violation of Section 11, Article XII of the Constitution.

stockholder of record of PLDT, contended that the term capital in the 1987 Constitution
refers to shares entitled to vote or the common shares. Fernandez explained thus:

Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial
Court to support the proposition that the meaning of the word capital as used in Section 11,

The forty percent (40%) foreign equity limitation in public utilities prescribed by the

Article XII of the Constitution allegedly refers to the sum total of the shares subscribed and

Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares,

paid-in by the shareholder and it allegedly is immaterial how the stock is classified, whether as

considering that it is through voting that control is being exercised. x x x

common or preferred, cannot stand in the face of a clear legislative policy as stated in the FIA
which took effect in 1991 or way after said opinions were rendered, and as clarified by the

Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions
on fully nationalized and partially nationalized activities is for Filipino nationals to be always
in control of the corporation undertaking said activities. Otherwise, if the Trial Courts ruling
upholding respondents arguments were to be given credence, it would be possible for the

above-quoted Amendments. In this regard, suffice it to state that as between the law and an
opinion rendered by an administrative agency, the law indubitably prevails. Moreover, said
Opinions are merely advisory and cannot prevail over the clear intent of the framers of the
Constitution.

ownership structure of a public utility corporation to be divided into one percent (1%)
common stocks and ninety-nine percent (99%) preferred stocks. Following the Trial Courts

In the same vein, the SECs construction of Section 11, Article XII of the Constitution is at

ruling adopting respondents arguments, the common shares can be owned entirely by

best merely advisory for it is the courts that finally determine what a law means. 39

foreigners thus creating an absurd situation wherein foreigners, who are supposed to be
minority shareholders, control the public utility corporation.

On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos
A. Arellano, Helen Y. Dee, Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F.

xxxx

Nebres, Ray C. Espinosa, Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea,
argued that the term capital in Section 11, Article XII of the Constitution includes preferred

Thus, the 40% foreign ownership limitation should be interpreted to apply to both the

shares since the Constitution does not distinguish among classes of stock, thus:

beneficial ownership and the controlling interest.

16. The Constitution applies its foreign ownership limitation on the corporations capital,
xxxx
Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities
prescribed by the Constitution refers to ownership of shares of stock entitled to vote, i.e.,
common shares. Furthermore, ownership of record of shares will not suffice but it must be
shown that the legal and beneficial ownership rests in the hands of Filipino citizens.

without distinction as to classes of shares. x x x

In this connection, the Corporation Code which was already in force at the time the present
(1987) Constitution was drafted defined outstanding capital stock as follows:

Section 137. Outstanding capital stock defined. The term outstanding capital stock, as

Sec. 6. Classification of shares. The shares of stock of stock corporations may be divided

used in this Code, means the total shares of stock issued under binding subscription

into classes or series of shares, or both, any of which classes or series of shares may have such

agreements to subscribers or stockholders, whether or not fully or partially paid, except

rights, privileges or restrictions as may be stated in the articles of incorporation:

treasury shares.

Provided, That no share may be deprived of voting rights except those classified and
issued as preferred or redeemable shares, unless otherwise provided in this Code:

Section 137 of the Corporation Code also does not distinguish between common and preferred

Provided, further, That there shall always be a class or series of shares which have complete

shares, nor exclude either class of shares, in determining the outstanding capital stock (the

voting rights. Any or all of the shares or series of shares may have a par value or have no par

capital) of a corporation. Consequently, petitioners suggestion to reckon PLDTs foreign

value as may be provided for in the articles of incorporation: Provided, however, That banks,

equity only on the basis of PLDTs outstanding common shares is without legal basis. The

trust companies, insurance companies, public utilities, and building and loan associations shall

language of the Constitution should be understood in the sense it has in common use.

not be permitted to issue no-par value shares of stock.

xxxx

Preferred shares of stock issued by any corporation may be given preference in the distribution
of the assets of the corporation in case of liquidation and in the distribution of dividends, or

17. But even assuming that resort to the proceedings of the Constitutional Commission is
necessary, there is nothing in the Record of the Constitutional Commission (Vol. III) which
petitioner misleadingly cited in the Petition x x x which supports petitioners view that only
common shares should form the basis for computing a public utilitys foreign equity.
xxxx
18. In addition, the SEC the government agency primarily responsible for implementing the
Corporation Code, and which also has the responsibility of ensuring compliance with the
Constitutions foreign equity restrictions as regards nationalized activities x x x has
categorically ruled that both common and preferred shares are properly considered in
determining outstanding capital stock and the nationality composition thereof. 40
We agree with petitioner and petitioners-in-intervention. The term capital in Section 11,
Article XII of the Constitution refers only to shares of stock entitled to vote in the election of
directors, and thus in the present case only to common shares, 41 and not to the total
outstanding capital stock comprising both common and non-voting preferred shares.
The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:

such other preferences as may be stated in the articles of incorporation which are not violative
of the provisions of this Code: Provided, That preferred shares of stock may be issued only
with a stated par value. The Board of Directors, where authorized in the articles of
incorporation, may fix the terms and conditions of preferred shares of stock or any series
thereof: Provided, That such terms and conditions shall be effective upon the filing of a
certificate thereof with the Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-assessable
and the holder of such shares shall not be liable to the corporation or to its creditors in respect
thereto: Provided; That shares without par value may not be issued for a consideration less
than the value of five (P5.00) pesos per share: Provided, further, That the entire consideration
received by the corporation for its no-par value shares shall be treated as capital and shall not
be available for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring compliance
with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the certificate of
stock, each share shall be equal in all respects to every other share.

Where the articles of incorporation provide for non-voting shares in the cases allowed by this

Corporation Code only preferred or redeemable shares can be deprived of the right to

Code, the holders of such shares shall nevertheless be entitled to vote on the following

vote.46 Common shares cannot be deprived of the right to vote in any corporate meeting, and

matters:

any provision in the articles of incorporation restricting the right of common shareholders to
vote is invalid.47

1. Amendment of the articles of incorporation;

Considering that common shares have voting rights which translate to control, as opposed to
2. Adoption and amendment of by-laws;

preferred shares which usually have no voting rights, the term capital in Section 11, Article
XII of the Constitution refers only to common shares. However, if the preferred shares also

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the
corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other corporations;

have the right to vote in the election of directors, then the term capital shall include such
preferred shares because the right to participate in the control or management of the
corporation is exercised through the right to vote in the election of directors. In short, the
term capital in Section 11, Article XII of the Constitution refers only to shares of stock
that can vote in the election of directors.
This interpretation is consistent with the intent of the framers of the Constitution to place in
the hands of Filipino citizens the control and management of public utilities. As revealed in the

7. Investment of corporate funds in another corporation or business in accordance with this

deliberations of the Constitutional Commission, capital refers to the voting stock

Code; and

or controlling interest of a corporation, to wit:

8. Dissolution of the corporation.

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and
foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.

Except as provided in the immediately preceding paragraph, the vote necessary to approve a
particular corporate act as provided in this Code shall be deemed to refer only to stocks with

MR. VILLEGAS. That is right.

voting rights.
MR. NOLLEDO. In teaching law, we are always faced with this question: Where do we base
Indisputably, one of the rights of a stockholder is the right to participate in the control or

the equity requirement, is it on the authorized capital stock, on the subscribed capital stock, or

management of the corporation. 43 This is exercised through his vote in the election of directors

on the paid-up capital stock of a corporation? Will the Committee please enlighten me on

because it is the board of directors that controls or manages the corporation. 44 In the absence of

this?

provisions in the articles of incorporation denying voting rights to preferred shares, preferred
shares have the same voting rights as common shares. However, preferred shareholders are
often excluded from any control, that is, deprived of the right to vote in the election of
directors and on other matters, on the theory that the preferred shareholders are merely
investors in the corporation for income in the same manner as bondholders. 45 In fact, under the

MR. VILLEGAS. We have just had a long discussion with the members of the team from the
UP Law Center who provided us a draft. The phrase that is contained here which we
adopted from the UP draft is 60 percent of voting stock.

MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared

MR. AZCUNA. But the control can be with the foreigners even if they are the minority.

delinquent, unpaid capital stock shall be entitled to vote.

Let us say 40 percent of the capital is owned by them, but it is the voting capital,
whereas, the Filipinos own the nonvoting shares. So we can have a situation where the

MR. VILLEGAS. That is right.

corporation is controlled by foreigners despite being the minority because they have the
voting capital. That is the anomaly that would result here.

MR. NOLLEDO. Thank you.

MR. BENGZON. No, the reason we eliminated the word stock as stated in the 1973
With respect to an investment by one corporation in another corporation, say, a corporation
with 60-40 percent equity invests in another corporation which is permitted by the Corporation

and 1935 Constitutions is that according to Commissioner Rodrigo, there are

associations that do not have stocks. That is why we say CAPITAL.

Code, does the Committee adopt the grandfather rule?

MR. AZCUNA. We should not eliminate the phrase controlling interest.
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. BENGZON. In the case of stock corporations, it is assumed.49 (Emphasis supplied)
MR. NOLLEDO. Therefore, we need additional Filipino capital?
Thus, 60 percent of the capital assumes, or should result in, controlling interest in the
MR. VILLEGAS. Yes.48
xxxx
MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase voting
stock or controlling interest.
MR. AZCUNA. Hence, without the Davide amendment, the committee report would read:
corporations or associations at least sixty percent of whose CAPITAL is owned by such
citizens.

corporation. Reinforcing this interpretation of the term capital, as referring to controlling

interest or shares entitled to vote, is the definition of a Philippine national in the Foreign
Investments Act of 1991,50 to wit:
SEC. 3. Definitions. As used in this Act:
a. The term Philippine national shall mean a citizen of the Philippines; or a domestic
partnership or association wholly owned by citizens of the Philippines; or a corporation
organized under the laws of the Philippines of which at least sixty percent (60%) of the
capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a corporation organized abroad and registered as doing business in the
Philippines under the Corporation Code of which one hundred percent (100%) of the capital

MR. VILLEGAS. Yes.

stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for
pension or other employee retirement or separation benefits, where the trustee is a Philippine

MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the

national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine

capital to be owned by citizens.

nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in
a Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent

MR. VILLEGAS. That is right.

(60%) of the capital stock outstanding and entitled to vote of each of both corporations must

be owned and held by citizens of the Philippines and at least sixty percent (60%) of the

Individuals or juridical entities not meeting the aforementioned qualifications are

members of the Board of Directors of each of both corporations must be citizens of the

considered as non-Philippine nationals. (Emphasis supplied)

Philippines, in order that the corporation, shall be considered a Philippine national.

(Emphasis supplied)

Mere legal title is insufficient to meet the 60 percent Filipino-owned capital required in the
Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled

In explaining the definition of a Philippine national, the Implementing Rules and

with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60

Regulations of the Foreign Investments Act of 1991 provide:

percent of the outstanding capital stock must rest in the hands of Filipino nationals in
accordance with the constitutional mandate. Otherwise, the corporation is considered as non-

b. Philippine national shall mean a citizen of the Philippines or a domestic partnership or

Philippine national[s].

association wholly owned by the citizens of the Philippines; or a corporation organized

under the laws of the Philippines of which at least sixty percent [60%] of the capital

Under Section 10, Article XII of the Constitution, Congress may reserve to citizens of the

stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or

Philippines or to corporations or associations at least sixty per centum of whose capital is

a trustee of funds for pension or other employee retirement or separation benefits, where the

owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of

trustee is a Philippine national and at least sixty percent [60%] of the fund will accrue to the

investments. Thus, in numerous laws Congress has reserved certain areas of investments to

benefit of the Philippine nationals; Provided, that where a corporation its non-Filipino

Filipino citizens or to corporations at least sixty percent of the capital of which is owned by

stockholders own stocks in a Securities and Exchange Commission [SEC] registered

Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contracts or

enterprise, at least sixty percent [60%] of the capital stock outstanding and entitled to vote of

R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for

both corporations must be owned and held by citizens of the Philippines and at least sixty

Micro, Small and Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping

percent [60%] of the members of the Board of Directors of each of both corporation must be

Development Act or R.A. No. 7471; (5) Domestic Shipping Development Act of 2004 or R.A.

citizens of the Philippines, in order that the corporation shall be considered a Philippine

No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and (7) Ship

national. The control test shall be applied for this purpose.

Mortgage Decree or P.D. No. 1521. Hence, the term capital in Section 11, Article XII of the
Constitution is also used in the same context in numerous laws reserving certain areas of

Compliance with the required Filipino ownership of a corporation shall be determined

investments to Filipino citizens.

on the basis of outstanding capital stock whether fully paid or not, but only such stocks
which are generally entitled to vote are considered.

To construe broadly the term capital as the total outstanding capital stock, including both
common and non-voting preferred shares, grossly contravenes the intent and letter of the

For stocks to be deemed owned and held by Philippine citizens or Philippine nationals,

Constitution that the State shall develop a self-reliant and independent national

mere legal title is not enough to meet the required Filipino equity. Full beneficial

economy effectively controlled by Filipinos. A broad definition unjustifiably disregards who

ownership of the stocks, coupled with appropriate voting rights is essential. Thus, stocks,

owns the all-important voting stock, which necessarily equates to control of the public utility.

the voting rights of which have been assigned or transferred to aliens cannot be
considered held by Philippine citizens or Philippine nationals.

We shall illustrate the glaring anomaly in giving a broad definition to the term capital. Let us
assume that a corporation has 100 common shares owned by foreigners and 1,000,000 nonvoting preferred shares owned by Filipinos, with both classes of share having a par value of

one peso (P1.00) per share. Under the broad definition of the term capital, such corporation

all purposes, while holders of preferred shares have no voting right for any purpose

would be considered compliant with the 40 percent constitutional limit on foreign equity of

whatsoever.

public utilities since the overwhelming majority, or more than 99.999 percent, of the total
outstanding capital stock is Filipino owned. This is obviously absurd.

It must be stressed, and respondents do not dispute, that foreigners hold a majority of the
common shares of PLDT. In fact, based on PLDTs 2010 General Information Sheet

In the example given, only the foreigners holding the common shares have voting rights in the

(GIS),54 which is a document required to be submitted annually to the Securities and Exchange

election of directors, even if they hold only 100 shares. The foreigners, with a minuscule

Commission,55 foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold

equity of less than 0.001 percent, exercise control over the public utility. On the other hand,

only 66,750,622 common shares.56 In other words, foreigners hold 64.27% of the total number

the Filipinos, holding more than 99.999 percent of the equity, cannot vote in the election of

of PLDTs common shares, while Filipinos hold only 35.73%. Since holding a majority of the

directors and hence, have no control over the public utility. This starkly circumvents the intent

common shares equates to control, it is clear that foreigners exercise control over PLDT. Such

of the framers of the Constitution, as well as the clear language of the Constitution, to place

amount of control unmistakably exceeds the allowable 40 percent limit on foreign ownership

the control of public utilities in the hands of Filipinos. It also renders illusory the State policy

of public utilities expressly mandated in Section 11, Article XII of the Constitution.

of an independent national economy effectively controlled by Filipinos.

Moreover, the Dividend Declarations of PLDT for 2009, 57 as submitted to the SEC, shows that
The example given is not theoretical but can be found in the real world, and in fact exists in

per share the SIP 58preferred shares earn a pittance in dividends compared to the common

the present case.

shares. PLDT declared dividends for the common shares at P70.00 per share, while the
declared dividends for the preferred shares amounted to a measlyP1.00 per share.59 So the

Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of

preferred shares not only cannot vote in the election of directors, they also have very little and

directors. PLDTs Articles of Incorporation expressly state that the holders of Serial

obviously negligible dividend earning capacity compared to common shares.

Preferred Stock shall not be entitled to vote at any meeting of the stockholders for the
election of directors or for any other purpose or otherwise participate in any action taken by

As shown in PLDTs 2010 GIS, 60 as submitted to the SEC, the par value of PLDT common

the corporation or its stockholders, or to receive notice of any meeting of stockholders. 51

shares is P5.00 per share, whereas the par value of preferred shares is P10.00 per share. In
other words, preferred shares have twice the par value of common shares but cannot elect

On the other hand, holders of common shares are granted the exclusive right to vote in the

directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the

election of directors. PLDTs Articles of Incorporation 52 state that each holder of Common

preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the

Capital Stock shall have one vote in respect of each share of such stock held by him on all

preferred shares.61 Worse, preferred shares constitute 77.85% of the authorized capital stock of

matters voted upon by the stockholders, and the holders of Common Capital Stock shall

PLDT while common shares constitute only 22.15%. 62 This undeniably shows that beneficial

have the exclusive right to vote for the election of directors and for all other purposes.53

interest in PLDT is not with the non-voting preferred shares but with the common shares,
blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino

In short, only holders of common shares can vote in the election of directors, meaning only

beneficial ownership in a public utility.

common shareholders exercise control over PLDT. Conversely, holders of preferred shares,
who have no voting rights in the election of directors, do not have any control over PLDT. In

The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in

fact, under PLDTs Articles of Incorporation, holders of common shares have voting rights for

the hands of Filipinos in accordance with the constitutional mandate. Full beneficial

ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting

constitutional duty to limit control of public utilities to Filipino citizens. Such an interpretation

rights, is constitutionally required for the States grant of authority to operate a public utility.

certainly runs counter to the constitutional provision reserving certain areas of investment to

The undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are non-

Filipino citizens, such as the exploitation of natural resources as well as the ownership of land,

voting and earn only 1/70 of the dividends that PLDT common shares earn, grossly violates

educational institutions and advertising businesses. The Court should never open to foreign

the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership

control what the Constitution has expressly reserved to Filipinos for that would be a betrayal

of a public utility.

of the Constitution and of the national interest. The Court must perform its solemn duty to
defend and uphold the intent and letter of the Constitution to ensure, in the words of the

In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60

Constitution, a self-reliant and independent national economy effectively controlled by

percent of the dividends, of PLDT. This directly contravenes the express command in

Filipinos.

Section 11, Article XII of the Constitution that [n]o franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to x x x corporations

Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly

x x x organized under the laws of the Philippines, at least sixty per centum of whose capital

reserving to Filipinosspecific areas of investment, such as the development of natural

is owned by such citizens x x x.

resources and ownership of land, educational institutions and advertising business, is selfexecuting. There is no need for legislation to implement these self-executing provisions of the

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares

Constitution. The rationale why these constitutional provisions are self-executing was

exercises the sole right to vote in the election of directors, and thus exercise control over

explained in Manila Prince Hotel v. GSIS,66 thus:

PLDT; (2) Filipinos own only 35.73% of PLDTs common shares, constituting a minority of
the voting stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44%

x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a

owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends

constitutional mandate, the presumption now is that all provisions of the constitution are self-

63

that common shares earn; (5) preferred shares have twice the par value of common shares;

executing. If the constitutional provisions are treated as requiring legislation instead of self-

and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and

executing, the legislature would have the power to ignore and practically nullify the mandate

common shares only 22.15%. This kind of ownership and control of a public utility is a

of the fundamental law. This can be cataclysmic. That is why the prevailing view is, as it has

mockery of the Constitution.

always been, that

Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock
64

market value ofP2,328.00 per share, while PLDT preferred shares with a par value of P10.00
65

. . . in case of doubt, the Constitution should be considered self-executing rather than non-selfexecuting. . . .Unless the contrary is clearly intended, the provisions of the Constitution

per share have a current stock market value ranging from only P10.92 to P11.06 per share, is

should be considered self-executing, as a contrary rule would give the legislature

a glaring confirmation by the market that control and beneficial ownership of PLDT rest with

discretion to determine when, or whether, they shall be effective. These provisions would

the common shares, not with the preferred shares.

be subordinated to the will of the lawmaking body, which could make them entirely
meaningless by simply refusing to pass the needed implementing statute. (Emphasis supplied)

Indisputably, construing the term capital in Section 11, Article XII of the Constitution to
include both voting and non-voting shares will result in the abject surrender of our
telecommunications industry to foreigners, amounting to a clear abdication of the States

In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S.

To treat Section 11, Article XII of the Constitution as not self-executing would mean that since

Puno, later Chief Justice, agreed that constitutional provisions are presumed to be self-

the 1935 Constitution, or over the last 75 years, not one of the constitutional provisions

executing. Justice Puno stated:

expressly reserving specific areas of investments to corporations, at least 60 percent of the

capital of which is owned by Filipinos, was enforceable. In short, the framers of the 1935,

Courts as a rule consider the provisions of the Constitution as self-executing, rather than as

1973 and 1987 Constitutions miserably failed to effectively reserve to Filipinos specific areas

requiring future legislation for their enforcement. The reason is not difficult to discern. For if

of investment, like the operation by corporations of public utilities, the exploitation by

they are not treated as self-executing, the mandate of the fundamental law ratified by the

corporations of mineral resources, the ownership by corporations of real estate, and the

sovereign people can be easily ignored and nullified by Congress. Suffused with wisdom

ownership of educational institutions. All the legislatures that convened since 1935 also

of the ages is the unyielding rule that legislative actions may give breath to constitutional

miserably failed to enact legislations to implement these vital constitutional provisions that

rights but congressional inaction should not suffocate them.

determine who will effectively control the national economy, Filipinos or foreigners. This
Court cannot allow such an absurd interpretation of the Constitution.

Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches
and seizures, the rights of a person under custodial investigation, the rights of an accused, and

This Court has held that the SEC has both regulatory and adjudicative functions. 69 Under its

the privilege against self-incrimination. It is recognized that legislation is unnecessary to

regulatory functions, the SEC can be compelled by mandamus to perform its statutory duty

enable courts to effectuate constitutional provisions guaranteeing the fundamental rights of

when it unlawfully neglects to perform the same. Under its adjudicative or quasi-judicial

life, liberty and the protection of property. The same treatment is accorded to constitutional

functions, the SEC can be also be compelled by mandamus to hear and decide a possible

provisions forbidding the taking or damaging of property for public use without just

violation of any law it administers or enforces when it is mandated by law to investigate such

compensation. (Emphasis supplied)

violation.

Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, applied

Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject

directly the provisions of the 1935, 1973 and 1987 Constitutions limiting land ownership to

or disapprove the Articles of Incorporation of any corporation where the required

Filipinos. In Soriano v. Ong Hoo,68this Court ruled:

percentage of ownership of the capital stock to be owned by citizens of the Philippines

has not been complied with as required by existing laws or the Constitution. Thus, the

x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his

land to an alien, and as both the citizen and the alien have violated the law, none of them
should have a recourse against the other, and it should only be the State that should be allowed
to intervene and determine what is to be done with the property subject of the violation. We
have said that what the State should do or could do in such matters is a matter of public policy,
entirely beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G.

SEC is the government agency tasked with the statutory duty to enforce the nationality
requirement prescribed in Section 11, Article XII of the Constitution on the ownership of
public utilities. This Court, in a petition for declaratory relief that is treated as a petition for
mandamus as in the present case, can direct the SEC to perform its statutory duty under the
law, a duty that the SEC has apparently unlawfully neglected to do based on the 2010 GIS that
respondent PLDT submitted to the SEC.

R. No. L-5996, June 27, 1956.) While the legislature has not definitely decided what policy
should be followed in cases of violations against the constitutional prohibition, courts of

Under Section 5(m) of the Securities Regulation Code, 71 the SEC is vested with the power

justice cannot go beyond by declaring the disposition to be null and void as violative of

and function to suspend or revoke, after proper notice and hearing, the franchise or

the Constitution. x x x (Emphasis supplied)

certificate of registration of corporations, partnerships or associations, upon any of the

grounds provided by law. The SEC is mandated under Section 5(d) of the same Code with
the power and function to investigate x x x the activities of persons to ensure
compliance with the laws and regulations that SEC administers or enforces. The GIS that all
corporations are required to submit to SEC annually should put the SEC on guard against
violations of the nationality requirement prescribed in the Constitution and existing laws. This
Court can compel the SEC, in a petition for declaratory relief that is treated as a petition for
mandamus as in the present case, to hear and decide a possible violation of Section 11, Article

This is a petition for certiorari seeking the annulment of the Decision[1] of the then Court of
First Instance of Rizal[2] for having been rendered in grave abuse of discretion. Private
respondents Robes-Francisco Realty and Development Corporation (hereafter, "the
Corporation") and Adalia F. Robes filed in the court a quo, an action for specific performance
to compel petitioner to redeem 800 preferred shares of stock with a face value of P8,000.00
and to pay 1% quarterly interest thereon as quarterly dividend owing them under the terms and
conditions of the certificates of stock.
The court a quo rendered judgment in favor of private respondents; hence, this instant
petition.

XII of the Constitution in view of the ownership structure of PLDTs voting shares, as
admitted by respondents and as stated in PLDTs 2010 GIS that PLDT submitted to SEC.

Herein parties debate only legal issues, no issues of fact having been raised by them in
the court a quo. For ready reference, however, the following narration of pertinent transactions
and events is in order:

WHEREFORE, we PARTLY GRANT the petition and rule that the term capital in Section
11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the
election of directors, and thus in the present case only to common shares, and not to the total
outstanding capital stock (common and non-voting preferred shares). Respondent Chairperson
of the Securities and Exchange Commission is DIRECTED to apply this definition of the
term capital in determining the extent of allowable foreign ownership in respondent
Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article
XII of the Constitution, to impose the appropriate sanctions under the law.
SO ORDERED.

Said certificates of stock bear the following terms and conditions:

FIRST DIVISION
[G.R. No. 51765. March 3, 1997]
REPUBLIC PLANTERS BANK, petitioner, vs. HON. ENRIQUE A. AGANA, SR., as
Presiding Judge, Court of First Instance of Rizal, Branch XXVIII, Pasay City,
ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION and
ADALIA F. ROBES, respondents.
DECISION
HERMOSISIMA, JR., J.:

On September 18, 1961, private respondent Corporation secured a loan from petitioner in the
amount of P120,000.00. As part of the proceeds of the loan, preferred shares of stocks were
issued to private respondent Corporation, through its officers then, private respondent Adalia
F. Robes and one Carlos F. Robes. In other words, instead of giving the legal tender totaling to
the full amount of the loan, which isP120,000.00, petitioner lent such amount partially in the
form of money and partially in the form of stock certificates numbered 3204 and 3205, each
for 400 shares with a par value of P10.00 per share, or forP4,000.00 each, for a total
of P8,000.00. Said stock certificates were in the name of private respondent Adalia F. Robes
and Carlos F. Robes, who subsequently, however, endorsed his shares in favor of Adalia F.
Robes.

"The Preferred Stock shall have the following rights, preferences, qualifications and
limitations, to wit:
1. Of the right to receive a quarterly dividend of One Per
Centum (1%), cumulative and participating.
xxx
2. That such preferred shares may be redeemed, by the
system of drawing lots, at any time after two (2)
years from the date of issue at the option of the
Corporation. x x x."
On January 31, 1979, private respondents proceeded against petitioner and filed a Complaint
anchored on private respondents' alleged rights to collect dividends under the preferred shares

in question and to have petitioner redeem the same under the terms and conditions of the stock
certificates. Private respondents attached to their complaint, a letter-demand dated January 5,
1979 which, significantly, was not formally offered in evidence.

As to the claim by the defendant that plaintiffs' cause of action is barred by prescription,
suffice it to state that the running of the prescriptive period was considered interrupted by the
written extrajudicial demands made by the plaintiffs from the defendant." [7]

Petitioner filed a Motion to Dismiss [3] private respondents' Complaint on the following
grounds: (1) that the trial court had no jurisdiction over the subject-matter of the action; (2)
that the action was unenforceable under substantive law; and (3) that the action was barred by
the statute of limitations and/or laches.

Aggrieved by the decision of the trial court, petitioner elevated the case before us
essentially on pure questions of law. Petitioner's statement of the issues that it submits for us to
adjudicate upon, is as follows:
"A.

RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN ORDERING PETITIONER TO PAY RESPONDENT
ADALIA F. ROBES THE AMOUNT OF P8,213.69 AS INTERESTS
FROM 1961 To 1979 ON HER PREFERRED SHARES.

B.

RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN ORDERING PETITIONER TO REDEEM
RESPONDENT ADALIA F. ROBES' PREFERRED SHARES
FOR P8,000.00

Petitioner's Motion to Dismiss was denied by the trial court in an Order dated March 16,
1979.[4] Petitioner then filed its Answer on May 2, 1979. [5] Thereafter, the trial court gave the
parties ten (10) days from July 30, 1979 to submit their respective memoranda after the
submission of which the case would be deemed submitted for resolution. [6]
On September 7, 1979, the trial court rendered the herein assailed decision in favor of
private respondents. In ordering petitioner to pay private respondents the face value of the
stock certificates as redemption price, plus 1% quarterly interest thereon until full payment,
the trial court ruled:
"There being no issue of fact raised by either of the parties who filed their respective
memoranda delineating their respective contentions, a judgment on the pleadings,
conformably with an earlier order of the Court, appears to be in order.
From a further perusal of the pleadings, it appears that the provision of the stock certificates in
question to the effect that the plaintiffs shall have the right to receive a quarterly dividend of
One Per Centum (1%), cumulative and participating, clearly and unequivocably [sic] indicates
that the same are 'interest bearing stocks' which are stocks issued by a corporation under an
agreement to pay a certain rate of interest thereon (5 Thompson, Sec. 3439). As such, plaintiffs
become entitled to the payment thereof as a matter of right without necessity of a prior
declaration of dividend.
On the question of the redemption by the defendant of said preferred shares of stock, the very
wordings of the terms and conditions in said stock certificates clearly allows the same.
To allow the herein defendant not to redeem said preferred shares of stock and/or pay the
interest due thereon despite the clear import of said provisions by the mere invocation of
alleged Central Bank Circulars prohibiting the same is tantamount to an impairment of the
obligation of contracts enshrined in no less than the fundamental law itself.
Moreover, the herein defendant is considered in estoppel from taking shelter behind a General
Banking Act provision to the effect that it cannot buy its own shares of stocks considering that
the very terms and conditions in said stock certificates allowing their redemption are its own
handiwork.

C.

RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN DISREGARDING THE ORDER OF THE
CENTRAL BANK TO PETITIONER TO DESIST FROM REDEEMING
ITS PREFERRED SHARES AND FROM PAYING DIVIDENDS
THEREON x x x.

D.

THE TRIAL COURT ERRED IN NOT HOLDING THAT THE

COMPLAINT DOES NOT STATE A CAUSE OF ACTION.

E.

THE TRIAL COURT ERRED IN NOT HOLDING THAT THE

CLAIM OF RESPONDENT ADALIA F. ROBES IS BARRED BY
PRESCRIPTION OR LACHES."[8]

The petition is meritorious.

Before passing upon the merits of this petition, it may be pertinent to provide an
overview on the nature of preferred shares and the redemption thereof, considering that these
issues lie at the heart of the dispute.
A preferred share of stock, on one hand, is one which entitles the holder thereof to
certain preferences over the holders of common stock. The preferences are designed to induce
persons to subscribe for shares of a corporation. [9] Preferred shares take a multiplicity of

forms. The most common forms may be classified into two: (1) preferred shares as to assets;
and (2) preferred shares as to dividends. The former is a share which gives the holder thereof
preference in the distribution of the assets of the corporation in case of liquidation; [10] the latter
is a share the holder of which is entitled to receive dividends on said share to the extent agreed
upon before any dividends at all are paid to the holders of common stock. [11] There is no
guaranty, however, that the share will receive any dividends. Under the old Corporation Law
in force at the time the contract between the petitioner and the private respondents was entered
into, it was provided that "no corporation shall make or declare any dividend except from the
surplus profits arising from its business, or distribute its capital stock or property other than
actual profits among its members or stockholders until after the payment of its debts and the
termination of its existence by limitation or lawful dissolution." [12] Similarly, the present
Corporation Code[13] provides that the board of directors of a stock corporation may declare
dividends only out of unrestricted retained earnings. [14] The Code, in Section 43, adopting the
change made in accounting terminology, substituted the phrase unrestricted retained earnings,"
which may be a more precise term, in place of "surplus profits arising from its business" in the
former law. Thus, the declaration of dividends is dependent upon the availability of surplus
profit or unrestricted retained earnings, as the case may be. Preferences granted to preferred
stockholders, moreover, do not give them a lien upon the property of the corporation nor make
them creditors of the corporation, the right of the former being always subordinate to the latter.
Dividends are thus payable only when there are profits earned by the corporation and as a
general rule, even if there are existing profits, the board of directors has the discretion to
determine whether or not dividends are to be declared. [15] Shareholders, both common and
preferred, are considered risk takers who invest capital in the business and who can look only
to what is left after corporate debts and liabilities are fully paid. [16]
Redeemable shares, on the other hand, are shares usually preferred, which by their terms
are redeemable at a fixed date, or at the option of either issuing corporation, or the
stockholder, or both at a certain redemption price. [17] A redemption by the corporation of its
stock is, in a sense, a repurchase of it for cancellation. [18] The present Code allows redemption
of shares even if there are no unrestricted retained earnings on the books of the corporation.
This is a new provision which in effect qualifies the general rule that the corporation cannot
purchase its own shares except out of current retained earnings. [19] However, while redeemable
shares may be redeemed regardless of the existence of unrestricted retained earnings, this is
subject to the condition that the corporation has, after such redemption, assets in its books to
cover debts and liabilities inclusive of capital stock. Redemption, therefore, may not be made
where the corporation is insolvent or if such redemption will cause insolvency or inability of
the corporation to meet its debts as they mature. [20]
We come now to the merits of the case. The petitioner argues that it cannot be compelled
to redeem the preferred shares issued to the private respondent. We agree. Respondent judge,
in ruling that petitioner must redeem the shares in question, stated that:
"On the question of the redemption by the defendant of said preferred shares of stock, the very
wordings of the terms and conditions in said stock certificates clearly allows the same." [21]

What respondent Judge failed to recognize was that while the stock certificate does allow
redemption, the option to do so was clearly vested in the petitioner bank. The redemption
therefore is clearly the type known as "optional". Thus, except as otherwise provided in the
stock certificate, the redemption rests entirely with the corporation and the stockholder is
without right to either compel or refuse the redemption of its stock. [22] Furthermore, the terms
and conditions set forth therein use the word "may". It is a settled doctrine in statutory
construction that the word "may" denotes discretion, and cannot be construed as having a
mandatory effect. We fail to see how respondent judge can ignore what, in his words, are the
"very wordings of the terms and conditions in said stock certificates" and construe what is
clearly a mere option to be his legal basis for compelling the petitioner to redeem the shares in
question.
The redemption of said shares cannot be allowed. As pointed out by the petitioner, the
Central Bank made a finding that said petitioner has been suffering from chronic reserve
deficiency,[23] and that such finding resulted in a directive, issued on January 31, 1973 by then
Gov. G. S. Licaros of the Central Bank, to the President and Acting Chairman of the Board of
the petitioner bank prohibiting the latter from redeeming any preferred share, on the ground
that said redemption would reduce the assets of the Bank to the prejudice of its depositors and
creditors.[24] Redemption of preferred shares was prohibited for a just and valid reason. The
directive issued by the Central Bank Governor was obviously meant to preserve the status quo,
and to prevent the financial ruin of a banking institution that would have resulted in adverse
repercussions, not only to its depositors and creditors, but also to the banking industry as a
whole. The directive, in limiting the exercise of a right granted by law to a corporate entity,
may thus be considered as an exercise of police power. The respondent judge insists that the
directive constitutes an impairment of the obligation of contracts. It has, however, been settled
that the Constitutional guaranty of non-impairment of obligations of contract is limited by the
exercise of the police power of the state, the reason being that public welfare is superior to
private rights.[25]
The respondent judge also stated that since the stock certificate granted the private
respondents the right to receive a quarterly dividend of one Per Centum (1%), cumulative and
participating, it "clearly and unequivocably (sic) indicates that the same are 'interest bearing
stocks' or stocks issued by a corporation under an agreement to pay a certain rate of interest
thereon. As such, plaintiffs (private respondents herein) become entitled to the payment
thereof as a matter of right without necessity of a prior declaration of dividend." [26] There is no
legal basis for this observation. Both Sec. 16 of the Corporation Law and Sec. 43 of the
present Corporation Code prohibit the issuance of any stock dividend without the approval of
stockholders, representing not less than two-thirds (2/3) of the outstanding capital stock at a
regular or special meeting duly called for the purpose. These provisions underscore the fact
that payment of dividends to a stockholder is not a matter of right but a matter of consensus.
Furthermore, "interest bearing stocks", on which the corporation agrees absolutely to pay
interest before dividends are paid to common stockholders, is legal only when construed as
requiring payment of interest as dividends from net earnings or surplus only. [27] Clearly, the
respondent judge, in compelling the petitioner to redeem the shares in question and to pay the

corresponding dividends, committed grave abuse of discretion amounting to lack or excess of

jurisdiction in ignoring both the terms and conditions specified in the stock certificate, as well
as the clear mandate of the law.
Anent the issue of prescription, this Court so holds that the claim of private respondent
is already barred by prescription as well as laches. Art. 1144 of the New Civil Code provides
that a right of action that is founded upon a written contract prescribes in ten (10) years. The
letter-demand made by the private respondents to the petitioner was made only on January 5,
1979, or almost eighteen years after receipt of the written contract in the form of the stock
certificate. As noted earlier, this letter-demand, significantly, was not formally offered in
evidence, nor were any other evidence of demand presented. Therefore, we conclude that the
only time the private respondents saw it fit to assert their rights, if any, to the preferred shares
of stock, was after the lapse of almost eighteen years. The same clearly indicates that the right
of the private respondents to any relief under the law has already prescribed. Moreover, the
claim of the private respondents is also barred by laches. Laches has been defined as the
failure or neglect, for an unreasonable length of time, to do that which by exercising due
diligence could or should have been done earlier; it is negligence or omission to assert a right
within a reasonable time, warranting a presumption that the party entitled to assert it either has
abandoned it or declined to assert it.[28]

Considering that the terms and conditions set forth in the stock certificate clearly
indicate that redemption of the preferred shares may be made at any time after the lapse of two
years from the date of issue, private respondents should have taken it upon themselves, after
the lapse of the said period, to inquire from the petitioner the reason why the said shares have
not been redeemed. As it is, not only two years had lapsed, as agreed upon, but an additional
sixteen years passed before the private respondents saw it fit to demand their right. The
petitioner, at the time it issued said preferred shares to the private respondents in 1961, could
not have known that it would be suffering from chronic reserve deficiency twelve years later.
Had the private respondents been vigilant in asserting their rights, the redemption could have
been effected at a time when the petitioner bank was not suffering from any financial crisis.
WHEREFORE, the instant petition, being impressed with merit, is hereby GRANTED.
The challenged decision of respondent judge is set aside and the complaint against the
petitioner is dismissed.
Costs against the private respondents.
SO ORDERED.