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Theory of Concession

appointed in one state or country has no power over property in another state or
country" (Leon and Ghezzi v. Manufacturers Life Ins. Co., 90 Phil. 459).

EN BANC
[G.R. No. L-23145. November 29, 1968.]
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG,
ancillary administrator-appellee, v. BENGUET CONSOLIDATED, INC., OppositorAppellant.
Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.

3. ID.; ID.; ID.; ID.; CASE AT BAR. Since, in the case at bar, there is a refusal,
persistently adhered to by the domiciliary administrator in New York, to deliver the
shares of stocks of appellant corporation owned by the decedent to the ancillary
administrator in the Philippines, there was nothing unreasonable or arbitrary in
considering them as lost and requiring the appellant to issue new certificates in lieu
thereof. Thereby, the task incumbent under the law on the ancillary administrator could
be discharged and his responsibility fulfilled. Any other view would result in the
compliance to a valid judicial order being made to depend on the uncontrolled
discretion of a party or entity.

Ross, Salcedo, Del Rosario, Bito & Misa for Oppositor-Appellant.

SYLLABUS

1. REMEDIAL LAW; SPECIAL PROCEEDINGS; SETTLEMENT OF ESTATE; WHEN


ANCILLARY ADMINISTRATION IS PROPER. The ancillary administration is proper,
whenever a person dies, leaving in a country other than that of his last domicile,
property to be administered in the nature of assets of the deceased liable for his
individual debts or to be distributed among his heirs (Johannes v. Harvey, 43 Phil. 175).
Ancillary administration is necessary or the reason for such administration is because a
grant of administration does not ex proprio vigore have any effect beyond the limits of
the country in which it is granted. Hence, an administrator appointed in a foreign state
has no authority in the Philippines.
2. ID.; ID.; ID.; SCOPE OF POWER AND AUTHORITY OF AN ANCILLARY
ADMINISTRATOR. No one could dispute the power of an ancillary administrator to
gain control and possession of all assets of the decedent within the jurisdiction of the
Philippines. Such a power is inherent in his duty to settle her estate and satisfy the
claims of local creditors (Rule 84, Sec. 3, Rules of Court. Cf Pavia v. De la Rosa, 8
Phil. 70; Liwanag v. Reyes, L-19159, Sept. 29, 1964; Ignacio v. Elchico, L-18937, May
16, 1967; etc.). It is a general rule universally recognized that administration, whether
principal or ancillary, certainly extends to the assets of a decedent found within the
state or country where it was granted, the corollary being "that an administrator

4. CORPORATION LAW; CORPORATIONS; CONCEPT AND NATURE. A


corporation is an artificial being created by operation of law (Sec. 2, Act No. 1459). A
corporation as known to Philippine jurisprudence is a creature without any existence
until it has received the imprimatur of the state acting according to law. It is logically
inconceivable therefore that it will have rights and privileges of a higher priority than
that of its creator. More than that, it cannot legitimately refuse to yield obedience to
acts of its state organs, certainly not excluding the judiciary, whenever called upon to
do so. A corporation is not in fact and in reality a person, but the law treats it as though
it were a person by process of fiction, or by regarding it as an artificial person distinct
and separate from its individual stockholders (1 Fletcher, Cyclopedia Corporations, pp.
19-20)

DECISION

FERNANDO, J.:

Confronted by an obstinate and adamant refusal of the domiciliary administrator, the


County Trust Company of New York, United States of America, of the estate of the
deceased Idonah Slade Perkins, who died in New York City on March 27, 1960, to
surrender to the ancillary administrator in the Philippines the stock certificates owned
by her in a Philippine corporation, Benguet Consolidated, Inc., to satisfy the legitimate
claims of local creditors, the lower court, then presided by the Honorable Arsenio

Santos, now retired, issued on May 18, 1964, an order of this tenor: "After considering
the motion of the ancillary administrator, dated February 11, 1964, as well as the
opposition filed by the Benguet Consolidated, Inc., the Court hereby (1) considers as
lost for all purposes in connection with the administration and liquidation of the
Philippine estate of Idonah Slade Perkins the stock certificates covering the 33,002
shares of stock standing in her name in the books of the Benguet Consolidated, Inc.,
(2) orders said certificates cancelled, and (3) directs said corporation to issue new
certificates in lieu thereof, the same to be delivered by said corporation to either the
incumbent ancillary administrator or to the Probate Division of this Court." 1
From such an order, an appeal was taken to this Court not by the domiciliary
administrator, the County Trust Company of New York, but by the Philippine
corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The
order challenged represents a response and expresses a policy, to paraphrase
Frankfurter, arising out of a specific problem, addressed to the attainment of specific
ends by the use of specific remedies, with full and ample support from legal doctrines
of weight and significance.
The facts will explain why. As set forth in the brief of appellant Benguet Consolidated,
Inc., Idonah Slade Perkins, who died on March 27, 1960 in New York City, left among
others, two stock certificates covering 33,002 shares of appellant, the certificates being
in the possession of the County Trust Company of New York, which as noted, is the
domiciliary administrator of the estate of the deceased 2 Then came this portion of the
appellants brief: "On August 12, 1960, Prospero Sanidad instituted ancillary
administration proceedings in the Court of First Instance of Manila; Lazaro A. Marquez
was appointed ancillary administrator; and on January 22, 1963, he was substituted by
the appellee Renato D. Tayag. A dispute arose between the domiciliary administrator in
New York and the ancillary administrator in the Philippines as to which of them was
entitled to the possession of the stock certificates in question. On January 27, 1964,
the Court of First Instance of Manila ordered the domiciliary administrator, County Trust
Company, to `produce and deposit them with the ancillary administrator or with the
Clerk of Court. The domiciliary administrator did not comply with the order, and on
February 11, 1964, the ancillary administrator petitioned the court to "issue an order
declaring the certificate or certificates of stocks covering the 33,002 shares issued in
the name of Idonah Slade Perkins by Benguet Consolidated, Inc. be declared [or]
considered as lost." 3

It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is
immaterial" as far as it is concerned as to "who is entitled to the possession of the
stock certificates in question; appellant opposed the petition of the ancillary
administrator because the said stock certificates are in existence, they are today in the
possession of the domiciliary administrator, the County Trust Company, in New York,
U.S.A.. . . ." 4
It is its view, therefore, that under the circumstances, the stock certificates cannot be
declared or considered as lost. Moreover, it would allege that there was a failure to
observe certain requirements of its by-laws before new stock certificates could be
issued. Hence, its appeal.
As was made clear at the outset of this opinion, the appeal lacks merit. The challenged
order constitutes an emphatic affirmation of judicial authority sought to be emasculated
by the willful conduct of the domiciliary administrator in refusing to accord obedience to
a court decree. How, then, can this order be stigmatized as illegal?
As is true of many problems confronting the judiciary, such a response was called for
by the realities of the situation. What cannot be ignored is that conduct bordering on
willful defiance, if it had not actually reached it, cannot without undue loss of judicial
prestige, be condoned or tolerated. For the law is not so lacking in flexibility and
resourcefulness as to preclude such a solution, the more so as deeper reflection would
make clear its being buttressed by indisputable principles and supported by the
strongest policy considerations.
It can truly be said then that the result arrived at upheld and vindicated the honor of the
judiciary no less than that of the country. Through this challenged order, there is thus
dispelled the atmosphere of contingent frustration brought about by the persistence of
the domiciliary administrator to hold on to the stock certificates after it had, as admitted,
voluntarily submitted itself to the jurisdiction of the lower court by entering its
appearance through counsel on June 27, 1963, and filing a petition for relief from a
previous order of March 15, 1963. Thus did the lower court, in the order now on appeal,
impart vitality and effectiveness to what was decreed. For without it, what it had been
decided would be set at naught and nullified. Unless such a blatant disregard by the
domiciliary administrator, with residence abroad, of what was previously ordained by a

court order could be thus remedied, it would have entailed, insofar as this matter was
concerned, not a partial but a well-nigh complete paralysis of judicial authority.
1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee
ancillary administrator to gain control and possession of all assets of the decedent
within the jurisdiction of the Philippines. Nor could it. Such a power is inherent in his
duty to settle her estate and satisfy the claims of local creditors. 5 As Justice Tuason
speaking for this Court made clear, it is a "general rule universally recognized" that
administration, whether principal or ancillary, certainly "extends to the assets of a
decedent found within the state or country where it was granted," the corollary being
"that an administrator appointed in one state or country has no power over property in
another state or country." 6
It is to be noted that the scope of the power of the ancillary administrator was, in an
earlier case, set forth by Justice Malcolm. Thus: "It is often necessary to have more
than one administration of an estate. When a person dies intestate owning property in
the country of his domicile as well as in a foreign country, administration is had in both
countries. That which is granted in the jurisdiction of decedents last domicile is termed
the principal administration, while any other administration is termed the ancillary
administration. The reason for the latter is because a grant of administration does not
ex proprio vigore have any effect beyond the limits of the country in which it is granted.
Hence, an administrator appointed in a foreign state has no authority in the
[Philippines]. The ancillary administration is proper, whenever a person dies, leaving in
a country other than that of his last domicile, property to be administered in the nature
of assets of the deceased liable for his individual debts or to be distributed among his
heirs." 7
It would follow then that the authority of the probate court to require that ancillary
administrators right to "the stock certificates covering the 33,002 shares .. standing in
her name in the books of [appellant] Benguet Consolidated, Inc.." be respected is
equally beyond question. For appellant is a Philippine corporation owing full allegiance
and subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot
therefore be considered in any wise as immune from lawful court orders.
Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue 8 finds
application. "In the instant case, the actual situs of the shares of stock is in the

Philippines, the corporation being domiciled [here]." To the force of the above
undeniable proposition, not even appellant is insensible. It does not dispute it. Nor
could it successfully do so even if it were so minded.
2. In the face of such incontrovertible doctrines that argue in a rather conclusive
fashion for the legality of the challenged order, how does appellant Benguet
Consolidated, Inc. propose to carry the extremely heavy burden of persuasion of
precisely demonstrating the contrary? It would assign as the basic error allegedly
committed by the lower court its "considering as lost the stock certificates covering
33,002 shares of Benguet belonging to the deceased Idonah Slade Perkins, . . ." 9
More specifically, appellant would stress that the "lower court could not `consider as
lost the stock certificates in question when, as a matter of fact, his Honor the trial
Judge knew, and does know, and it is admitted by the appellee, that the said stock
certificates are in existence and are today in the possession of the domiciliary
administrator in New York." 10
There may be an element of fiction in the above view of the lower court. That certainly
does not suffice to call for the reversal of the appealed order. Since there is a refusal,
persistently adhered to by the domiciliary administrator in New York, to deliver the
shares of stocks of appellant corporation owned by the decedent to the ancillary
administrator in the Philippines, there was nothing unreasonable or arbitrary in
considering them as lost and requiring the appellant to issue new certificates in lieu
thereof. Thereby, the task incumbent under the law on the ancillary administrator could
be discharged and his responsibility fulfilled.
Any other view would result in the compliance to a valid judicial order being made to
depend on the uncontrolled discretion of the party or entity, in this case domiciled
abroad, which thus far has shown the utmost persistence in refusing to yield
obedience. Certainly, appellant would not be heard to contend in all seriousness that a
judicial decree could be treated as a mere scrap of paper, the court issuing it being
powerless to remedy its flagrant disregard.
It may be admitted of course that such alleged loss as found by the lower court did not
correspond exactly with the facts. To be more blunt, the quality of truth may be lacking
in such a conclusion arrived at. It is to be remembered however, again to borrow from
Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate ends

have played an important part in its development." 11


Speaking of the common law in its earlier period, Cardozo could state that fictions
"were devices to advance the ends of justice, [even if] clumsy and at times offensive."
12 Some of them have persisted even to the present, that eminent jurist, noting "the
quasi contract, the adopted child, the constructive trust, all of flourishing vitality, to
attest the empire of `as if today." 13 He likewise noted "a class of fictions of another
order, the fiction which is a working tool of thought, but which at times hides itself from
view till reflection and analysis have brought it to the light." 14
What cannot be disputed, therefore, is the at times indispensable role that fictions as
such played in the law. There should be then on the part of the appellant a further
refinement in the catholicity of its condemnation of such judicial technique. If ever an
occasion did call for the employment of a legal fiction to put an end to the anomalous
situation of a valid judicial order being disregarded with apparent impunity, this is it.
What is thus most obvious is that this particular alleged error does not carry
persuasion.
3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by
its invoking one of the provisions of its by-laws which would set forth the procedure to
be followed in case of a lost, stolen or destroyed stock certificate; it would stress that in
the event of a contest or the pendency of an action regarding ownership of such
certificate or certificates of stock allegedly lost, stolen or destroyed, the issuance of a
new certificate or certificates would await the "final decision by [a] court regarding the
ownership [thereof]." 15
Such reliance is misplaced. In the first place, there is no such occasion to apply such a
by-law. It is admitted that the foreign domiciliary administrator did not appeal from the
order now in question. Moreover, there is likewise the express admission of appellant
that as far as it is concerned, "it is immaterial . . . who is entitled to the possession of
the stock certificates . . ." Even if such were not the case, it would be a legal absurdity
to impart to such a provision conclusiveness and finality. Assuming that a contrariety
exists between the above by-law and the command of a court decree, the latter is to be
followed.
It is understandable, as Cardozo pointed out, that the Constitution overrides a statute,

to which, however, the judiciary must yield deference, when appropriately invoked and
deemed applicable. It would be most highly unorthodox, however, if a corporate by-law
would be accorded such a high estate in the jural order that a court must not only take
note of it but yield to its alleged controlling force.
The fear of appellant of a contingent liability with which it could be saddled unless the
appealed order be set aside for its inconsistency with one of its by-laws does not
impress us. Its obedience to a lawful court order certainly constitutes a valid defense,
assuming that such apprehension of a possible court action against it could possibly
materialize. Thus far, nothing in the circumstances as they have developed gives
substance to such a fear. Gossamer possibilities of a future prejudice to appellant do
not suffice to nullify the lawful exercise of judicial authority.
4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught
with implications at war with the basic postulates of corporate theory.
We start with the undeniable premise that, "a corporation is an artificial being created
by operation of law . . ." 16 It owes its life to the state, its birth being purely dependent
on its will. As Berle so aptly stated: "Classically, a corporation was conceived as an
artificial person, owing its existence through creation by a sovereign power. 17 As a
matter of fact, the statutory language employed owes much to Chief Justice Marshall,
who in the Dartmouth College decision, defined a corporation precisely as "an artificial
being invisible, intangible, and existing only in contemplation of law." 18
The well-known authority Fletcher could summarize the matter thus: "A corporation is
not in fact and in reality a person, but the law treats it as though it were a person by
process of fiction, or by regarding it as an artificial person distinct and separate from its
individual stockholders.. It owes its existence to law. It is an artificial person created by
law for certain specific purposes, the extent of whose existence, powers and liberties is
fixed by its charter." 19 Dean Pounds terse summary, a juristic person, resulting from
an association of human beings granted legal personality by the state, puts the matter
neatly. 20
There is thus a rejection of Gierkes genosssenchaft theory, the basic theme of which
to quote from Friedmann, "is the reality of the group as a social and legal entity,
independent of state recognition and concession." 21 A corporation as known to

Philippine jurisprudence is a creature without any existence until it has received the
imprimatur of the state acting according to law. It is logically inconceivable therefore
that it will have rights and privileges of a higher priority than that of its creator. More
than that, it cannot legitimately refuse to yield obedience to acts of its state organs,
certainly not excluding the judiciary, whenever called upon to do so.
As a matter of fact, a corporation once it comes into being, following American law still
of persuasive authority in our jurisdiction, comes more often within the ken of the
judiciary than the other two coordinate branches. It institutes the appropriate Court
Action to enforce its rights. Correlatively, it is not immune from judicial control in those
instances, where a duty under the law as ascertained in an appropriate legal
proceeding is cast upon it.
To assert that it can choose which court order to follow and which to disregard is to
confer upon it not autonomy which may be conceded but license which cannot be
tolerated. It is to argue that it may, when so minded, overrule the state, the source of its
very existence; it is to contend that what any of its governmental organs may lawfully
require could be ignored at will. So extravagant a claim cannot possibly merit approval.
5. One last point. In Viloria v. Administrator of Veterans Affairs, 22 it was shown that in
a guardianship proceeding then pending in a lower court, the United States Veterans
Administration filed a motion for the refund of a certain sum of money paid to the minor
under guardianship, alleging that the lower court had previously granted its petition to
consider the deceased father as not entitled to guerilla benefits according to a
determination arrived at by its main office in the United States. The motion was denied.
In seeking a reconsideration of such order, the Administrator relied on an American
federal statute making his decisions "final and conclusive on all questions of law or
fact" precluding any other American official to examine the matter anew, "except a
judge or judges of the United States court." 23 Reconsideration was denied, and the
Administrator appealed.
In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of
the opinion that the appeal should be rejected. The provisions of the U.S. Code,
invoked by the appellant, make the decisions of U.S. Veteran Administrator final and
conclusive when made on claims properly submitted to him for resolution; but they are
not applicable to the present case, where the Administrator is not acting as a judge but

as a litigant. There is a great difference between actions against the Administrator


(which must be filed strictly in accordance with the conditions that are imposed by the
Veterans Act, including the exclusive review by United States courts), and those
actions where the Veterans Administrator seeks a remedy from our courts and submits
to their jurisdiction by filing actions therein. Our attention has not been called to any law
or treaty that would make the findings of the Veterans Administrator, in actions where
he is a party, conclusive on our courts. That, in effect, would deprive our tribunals of
judicial discretion and render them mere subordinate instrumentalities of the Veterans
Administrator."cralaw virtua1aw library
It is bad enough as the Viloria decision made patent for our judiciary to accept as final
and conclusive, determinations made by foreign governmental agencies. It is infinitely
worse if through the absence of any coercive power by our courts over juridical
persons within our jurisdiction, the force and effectivity of their orders could be made to
depend on the whim or caprice of alien entities. It is difficult to imagine of a situation
more offensive to the dignity of the bench or the honor of the country.
Yet that would be the effect, even if unintended, of the proposition to which appellant
Benguet Consolidated seems to be firmly committed as shown by its failure to accept
the validity of the order complained of; it seeks its reversal. Certainly we must at all
pains see to it that it does not succeed. The deplorable consequences attendant on
appellant prevailing attest to the necessity of a negative response from us. That is what
appellant will get.
That is all then that this case presents. It is obvious why the appeal cannot succeed. It
is always easy to conjure extreme and even oppressive possibilities. That is not
decisive. It does not settle the issue. What carries weight and conviction is the result
arrived at, the just solution obtained, grounded in the soundest of legal doctrines and
distinguished by its correspondence with what a sense of realism requires. For through
the appealed order, the imperative requirement of justice according to law is satisfied
and national dignity and honor maintained.
WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the
Court of First Instance, dated May 18, 1964, is affirmed. With costs against oppositorappellant Benguet Consolidated, Inc.

DECISION
EN BANC
[G.R. No. L-17295. July 30, 1962. ]

DIZON, J.:

ANG PUE & COMPANY, ET AL., Plaintiffs-Appellants, v. SECRETARY OF


COMMERCE AND INDUSTRY, Defendant-Appellee.

Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang Pue &
Company, Ang Pue and Tan Siong against the Secretary of Commerce and Industry to
secure judgment "declaring that plaintiffs could extend for five years the term of the
partnership pursuant to the provisions of plaintiffs Amendment to the Articles of Copartnership."cralaw virtua1aw library

Felicisimo E. Escaran, for Plaintiffs-Appellants.


Solicitor General, for Defendant-Appellee.

SYLLABUS

1. PARTNERSHIP; TO ORGANIZE NOT ABSOLUTE RIGHT. To organize a


corporation or partnership that could claim a juridical personality of its own and transact
business as such, is not a matter of absolute right but a privilege which may be
enjoyed only under such terms as the state may deem necessary to impose.
2. ID.; ONLY FILIPINOS TO ENGAGE IN RETAIL BUSINESS; REP. ACT 1180
APPLICABLE TO EXISTING PARTNERSHIP. The state through Congress had the
right to enact Republic Act No. 1180 providing that only Filipinos may engage in the
retail business and such provision was intended to apply to partnership owned by
foreigners already existing at the time of its enactment giving them the right to continue
engaging in their retail business until the expiration of their term of life.
3. ID.; AMENDMENT OF ARTICLES OF PARTNERSHIP TO EXTEND TERM AFTER
ENACTMENT OF THE LAW. The agreement in the articles of partnership to extend
the term of its life is not a property right and it must be deemed subject to the law
existing at the time when the partners came to agree regarding the extension. In the
case at bar, when the partners amended the articles of partnership, the provisions of
Republic Act 1180 were already in force, and there can be not the slightest doubt that
the right claimed by appellants to extend the original term of their partnership to
another five years would be in violation of the clear intent and purpose of said Act.

The answer filed by the defendant alleged, in substance, that the extension for another
five years of the term of the plaintiffs partnership would be in violation of the provisions
of Republic Act No. 1180.
It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens,
organized the partnership Ang Pue & Company for a term of five years from May 1,
1953, extendible by their mutual consent. The purpose of the partnership was "to
maintain the business of general merchandising, buying and selling at wholesale and
retail, particularly of lumber, hardware and other construction materials for commerce,
either native or foreign." The corresponding articles of partnership (Exhibit B) were
registered in the Office of the Securities & Exchange Commission on June 16, 1953.
On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business. It
provided, among other things, that, after its enactment, a partnership not wholly formed
by Filipinos could continue to engage in the retail business until the expiration of its
term:chanrob1es virtual 1aw library
On April 15, 1958 prior to the expiration of the five-year term of the partnership Ang
Pue & Company, but after the enactment of Republic Act 1180 the partners already
mentioned amended the original articles of partnership Exhibit B so as to extend the
term of life of the partnership to another five years. When the amended articles were
presented for registration in the Office of the Securities & Exchange Commission on
April 16, 1958, registration was refused upon the ground that the extension was in

violation of the aforesaid Act.


From the decision of the lower court dismissing the action, with costs, the plaintiffs
interposed this appeal.
The question before us is too clear to require an extended discussion. To organize a
corporation or a partnership that could claim a juridical personality of its own and
transact business as such, is not a matter of absolute right but a privilege which may
be enjoyed only under such terms as the State may deem necessary to impose. That
the State, through Congress, and in the manner provided by law, had the right to enact
Republic Act No. 1180 and to provide therein that only Filipinos and concerns wholly
owned by Filipinos may engage in the retail business can not be seriously disputed.
That this provision was clearly intended to apply to partnerships already existing at the
time of the enactment of the law is clearly shown by its provision giving them the right
to continue engaging in their retail business until the expiration of their term of life.
To argue that because the original articles of partnership provided that the partners
could extend the term of the partnership, the provisions of Republic Act 1180 cannot
adversely affect appellants herein, is to erroneously assume that the aforesaid
provision constitute a property right of which the partners can not be deprived without
due process or without their consent. The agreement contained therein must be
deemed subject to the law existing at the time when the partners come to agree
regarding the extension. In the present case, as already stated, when the partners
amended the articles of partnership, the provisions of Republic Act 1180 were already
in force, and there can be not the slightest doubt that the right claimed by appellants to
extend the original term of their partnership to another five years would be in violation
of the clear intent and purpose of the law aforesaid.
WHEREFORE, the judgment appealed from is affirmed, with costs.

FIRST DIVISION
[G.R. No. 120138. September 5, 1997.]
MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS, RODOLFO L.

JOCSON, JR., MELVIN S. JURISPRUDENCIA, AUGUSTUS CESAR AZURA and


EDGARDO D. PABALAN, Petitioners, v. COURT OF APPEALS, SECURITIES AND
EXCHANGE COMMISSION, TORMIL REALTY & DEVELOPMENT CORPORATION,
ANTONIO P. TORRES, JR., MA. CRISTINA T. CARLOS, MA. LUISA T. MORALES
and DANTE D. MORALES, Respondents.

DECISION

KAPUNAN, J.:

In this petition for review on certiorari under Rule 45 of the Revised Rules of Court,
petitioners seek to annul the decision of the Court of Appeals in CA-G.R. SP. No.
31748 dated 23 May 1994 and its subsequent resolution dated 10 May 1995 denying
petitioners motion for reconsideration.chanrobles law library : red
The present case involves two separate but interrelated conflicts. The facts leading to
the first controversy are as follows:chanrob1es virtual 1aw library
The late Manuel A. Torres, Jr. (Judge Torres for brevity) was the majority stockholder of
Tormil Realty & Development Corporation while private respondents who are the
children of Judge Torres deceased brother Antonio A. Torres, constituted the minority
stockholders. In particular, their respective shareholdings and positions in the
corporation were as follows:chanrob1es virtual 1aw library
Name of Stockholder Number of Shares Percentage Position(s)
Manuel A. Torres, Jr. 100,120 57.21 Dir./Pres./Chair
Milagros P. Torres 33,430 19.10 Dir./Treasurer
Josefina P. Torres 8,290 4.73 Dir./Ass. Cor-Sec.
Ma. Cristina T. Carlos 8,290 4.73 Dir./Cor-Sec.
Antonio P. Torres, Jr. 8,290 4.73 Director
Ma. Jacinta P. Torres 8,290 4.73 Director
Ma. Luisa T. Morales 7,790 4.45 Director
Dante D. Morales 500 .28 Director 1
In 1984, Judge Torres, in order to make substantial savings in taxes, adopted an
"estate planning" scheme under which he assigned to Tormil Realty & Development

Corporation (Tormil for brevity) various real properties he owned and his shares of
stock in other corporations in exchange for 225,972 Tormil Realty shares. Hence, on
various dates in July and August of 1984, ten (10) deeds of assignment were executed
by the late Judge Torres:chanrob1es virtual 1aw library
ASSIGNMENT DATE PROPERLY ASSIGNED LOCATION SHARES TO BE
ISSUED
1. July 13, 1984 TCT 81834 Quezon City 13,252
TCT 144240 Quezon City
2. July 13, 1984 TCT 77008 Manila
TCT 65689 Manila 78,493
TCT 109200 Manila
3. July 13, 1984 TCT 374079 Makati 8,307
4. July 24, 1984 TCT 41527 Pasay
TCT 41528 Pasay 9,855
TCT 41529 Pasay
5. Aug. 06, 1984 El Hogar Filipino Stocks 2,000
6. Aug. 06, 1984 Manila Jockey Club Stocks 48,737
7. Aug. 07, 1984 San Miguel Corp. Stocks 50,283
8. Aug. 07, 1984 China Banking Corp. Stocks 6,300
9. Aug. 20, 1984 Ayala Corp. Stocks 7,468
10. Aug. 29, 1984 Ayala Fund Stocks 1,322

225,972 2

Consequently, the aforelisted properties were duly recorded in the inventory of assets
of Tormil Realty and the revenues generated by the said properties were
correspondingly entered in the corporations books of account and financial records.
Likewise, all the assigned parcels of land were duly registered with the respective
Register of Deeds in the name of Tormil Realty, except for the ones located in Makati
and Pasay City.
At the time of the assignments and exchange, however, only 225,000 Tormil Realty

shares remained unsubscribed, all of which were duly issued to and received by Judge
Torres (as evidenced by stock certificates nos. 17, 18, 19, 20, 21, 22, 23, 24 & 25). 3
Due to the insufficient number of shares of stock issued to Judge Torres and the
alleged refusal of private respondents to approve the needed increase in the
corporations authorized capital stock (to cover the shortage of 972 shares due to
Judge Torres under the "estate planning" scheme), on 11 September 1986, Judge
Torres revoked the two (2) deeds of assignment covering the properties in Makati and
Pasay City. 4
Noting the disappearance of the Makati and Pasay City properties from the
corporations inventory of assets and financial records private respondents, on 31
March 1987, were constrained to file a complaint with the Securities and Exchange
Commission (SEC) docketed as SEC Case No. 3153 to compel Judge Torres to deliver
to Tormil corporation the two (2) deeds of assignment covering the aforementioned
Makati and Pasay City properties which he had unilaterally revoked and to cause the
registration of the corresponding titles in the name of Tormil. Private respondents
alleged that following the disappearance of the properties from the corporations
inventory of assets, they found that on October 24, 1986, Judge Torres, together with
Edgardo Pabalan and Graciano Tobias, then General Manager and legal counsel,
respectively, of Tormil, formed and organized a corporation named "Torres-Pabalan
Realty and Development Corporation" and that as part of Judge Torres contribution to
the new corporation, he executed in its favor a Deed of Assignment conveying the
same Makati and Pasay City properties he had earlier transferred to Tormil.
The second controversy involving the same parties concerned the election of the
1987 corporate board of directors.
The 1987 annual stockholders meeting and election of directors of Tormil corporation
was scheduled on 25 March 1987 in compliance with the provisions of its by-laws.
Pursuant thereto, Judge Torres assigned from his own shares, one (1) share each to
petitioners Tobias, Jocson, Jurisprudencia, Azura and Pabalan. These assigned shares
were in the nature of "qualifying shares," for the sole purpose of meeting the legal
requirement to be able to elect them (Tobias and company) to the Board of Directors as
Torres nominees.

The assigned shares were covered by corresponding Tormil Stock Certificates Nos.
030, 029, 028, 027, 026 and at the back of each certificate the following inscription is
found:chanrob1es virtual 1aw library
The present certificate and/or the one share it represents, conformably to the purpose
and intention of the Deed of Assignment dated March 6, 1987, is not held by me under
any claim of ownership and I acknowledge that I hold the same merely as trustee of
Judge Manuel A. Torres, Jr. and for the sole purpose of qualifying me as Director;
(Signature of Assignee) 5
The reason behind the aforestated action was to remedy the "inequitable lopsided setup obtaining in the corporation, where, notwithstanding his controlling interest in the
corporation, the late Judge held only a single seat in the nine-member Board of
Directors and was, therefore, at the mercy of the minority, a combination of any two (2)
of whom would suffice to overrule the majority stockholder in the Boards decision
making functions." 6

At about 2:30 p.m., a group composed of Edgardo Pabalan, Atty. Graciano Tobias, Atty.
Rodolfo Jocson, Jr., Atty. Melvin Jurisprudencia, and Atty. Augustus Cesar Azura
arrived. Atty. Azura told the body that they came as counsels of Manuel Torres, Jr. and
as stockholders having assigned qualifying shares by Manuel Torres. Jr.
The stockholders meeting started at 2:45 p.m. with Mr. Pabalan presiding after verbally
authorized by Manuel Torres, Jr., the President and Chairman of the Board. The
secretary when asked about the quorum, said that there was more than a quorum. Mr.
Pabalan distributed copies of the presidents report and the financial statements.
Antonio Torres, Jr. requested time to study the said reports and brought out the
question of auditing the finances of the corporation which he claimed was approved
previously by the board. Heated arguments ensued which also touched on family
matters. Antonio Torres, Jr. moved for the suspension of the meeting but Manuel
Torres, Jr. voted for the continuation of the proceedings.
Mr. Pabalan suggested that the opinion of the SEC representatives be asked on the
propriety of suspending the meeting but Antonio Torres, Jr. objected reasoning out that
we were just observers.

On 25 March 1987, the annual stockholders meeting was held as scheduled. What
transpired therein was ably narrated by Attys. Benito Cataran and Bayani De los
Reyes, the official representatives dispatched by the SEC to observe the proceedings
(upon request of the late Judge Torres) in their report dated 27 March 1987:chanrob1es
virtual 1aw library

When the Chairman called for the election of directors, the Secretary refused to write
down the names of nominees prompting Atty. Azura to initiate the appointment of Atty.
Jocson, Jr. as Acting Secretary.

Antonio Torres, Jr. nominated the present members of the Board. At this juncture,
Milagros Torres cried out and told the group of Manuel Torres, Jr. to leave the house.

The undersigned arrived at 1:55 p.m. in the place of the meeting, a residential
bungalow in Urdaneta Village, Makati, Metro Manila. Upon arrival, Josefina Torres
introduced us to the stockholders namely: Milagros Torres, Antonio Torres, Jr., Ma.
Luisa Morales, Ma. Cristina Carlos and Ma. Jacinta Torres. Antonio Torres, Jr.
questioned our authority and personality to appear in the meeting claiming subject
corporation is a family and private firm. We explained that our appearance there was
merely in response to the request of Manuel Torres, Jr. and that SEC has jurisdiction
over all registered corporations. Manuel Torres, Jr., a septuagenarian, argued that as
holder of the major and controlling shares, he approved of our attendance in the
meeting.

Manuel Torres, Jr., together with his lawyers-stockholders went to the residence of Ma.
Jacinta Torres in San Miguel Village, Makati, Metro Manila. The undersigned joined
them since the group with Manuel Torres, Jr. the one who requested for S.E.C.
observers, represented the majority of the outstanding capital stock and still constituted
a quorum.
At the resumption of the meeting, the following were nominated and elected as
directors for the year 1987-1988:chanrob1es virtual 1aw library

1. Manuel Torres, Jr.


2. Ma. Jacinta Torres
3. Edgardo Pabalan
4. Graciano Tobias
5. Rodolfo Jocson, Jr.
6. Melvin Jurisprudencia
7. Augustus Cesar Azura
8. Josefina Torres
9. Dante Morales

for Pasay City and/or to cause the formal registration and transfer of title in and over
such real properties in favor of TORMIL with the proper government agency; (b) all
corporate books of account, records and papers as may be necessary for the conduct
of a comprehensive audit examination, and to allow the examination and inspection of
such accounting books, papers and records by any or all of the corporate directors,
officers and stockholders and/or their duly authorized representatives or auditors;

After the election, it was resolved that after the meeting, the new board of directors
shall convene for the election of officers.
x
x
x7
Consequently, on 10 April 1987, private respondents instituted a complaint with the
SEC (SEC Case No. 3161) praying in the main, that the election of petitioners to the
Board of Directors be annulled.

3. Declaring as null and void the election and appointment of respondents to the Board
of Directors and executive positions of TORMIL held on March 25, 1987, and all their
acts and resolutions made for and in behalf of TORMIL by authority of and pursuant to
such invalid appointment & election held on March 25, 1987;

Private respondents alleged that the petitioners-nominees were not legitimate


stockholders of Tormil because the assignment of shares to them violated the minority
stockholders right of pre-emption as provided in the corporations articles and by-laws.
Upon motion of petitioners, SEC Cases Nos. 3153 and 3161 were consolidated for joint
hearing and adjudication.
On 6 March 1991, the Panel of Hearing Officers of the SEC rendered a decision in
favor of private respondents. The dispositive portion thereof states, thus:chanrob1es
virtual 1aw library
WHEREFORE, premises considered, judgment is hereby rendered as
follows:chanrob1es virtual 1aw library
1. Ordering and directing the respondents, particularly respondent Manuel A. Torres,
Jr., to turn over and deliver to TORMIL through its Corporate Secretary, Ma. Cristina T.
Carlos: (a) the originals of the Deeds of Assignment dated July 13 and 24, 1984
together with the owners duplicates of Transfer Certificates of Title Nos. 374079 of the
Registry of Deeds for Makati, and 41527, 41528 and 41529 of the Registry of Deeds

2. Declaring as permanent and final the writ of preliminary injunction issued by the
Hearing Panel on February 13, 1989:chanrob1es virtual 1aw library

4. Ordering the respondents jointly and severally, to pay the complainants the sum of
ONE HUNDRED THOUSAND PESOS (P100,000.00) as and by way of attorneys fees.
Petitioners promptly appealed to the SEC en banc (docketed as SEC-AC No. 339).
Thereafter, on 3 April 1991, during the pendency of said appeal, petitioner Manuel A.
Torres, Jr. died. However, notice thereof was brought to the attention of the SEC not by
petitioners counsel but by private respondents in a Manifestation dated 24 April 1991.
On 8 June 1993, petitioners filed a Motion to Suspend Proceedings on grounds that no
administrator or legal representative of the late Judge Torres estate has yet been
appointed by the Regional Trial Court of Makati where Sp. Proc. No. M-1768 ("In the
Matter of the Issuance of the Last Will and Testament of Manuel A. Torres, Jr.") was
pending. Two similar motions for suspension were filed by petitioners on 28 June 1993
and 9 July 1993.
On 19 July 1993, the SEC en banc issued an Order denying petitioners aforecited
motions on the following ground:jgc:chanrobles.com.ph
"Before the filing of these motions, the Commission en banc had already completed all
proceedings and had likewise ruled on the merits of the appealed cases. Viewed in this
light, we thus feel that there is nothing left to be done except to deny these motions to
suspend proceedings." 10

On the same date, the SEC en banc rendered a decision, the dispositive portion of
which reads. thus:chanrob1es virtual 1aw library
WHEREFORE, premises considered, the appealed decision of the hearing panel is
hereby affirmed and all motions pending before us incident to this appealed case are
necessarily DISMISSED.
SO ORDERED. 11
Undaunted, on 10 August 1993, petitioners proceeded to plead its cause to the Court
of Appeals by way of a petition for review (docketed as CA-G.R. SP No. 31748).
On 23 May 1994, the Court of Appeals rendered a decision, the dispositive portion of
which states:jgc:chanrobles.com.ph
"WHEREFORE, the petition for review is DISMISSED and the appealed decision is
accordingly affirmed.
SO ORDERED. 12
From the said decision, petitioners filed a motion for reconsideration which was denied
in a resolution issued by the Court of Appeals dated 10 May 1995. 13
Insisting on their cause, petitioners filed the present petition for review alleging that the
Court of Appeals committed the following errors in its decision:chanrob1es virtual 1aw
library
(1)
WHEN IT RENDERED THE MAY 23, 1994 DECISION, WHICH IS A FULL LENGTH
DECISION, WITHOUT THE EVIDENCE AND THE ORIGINAL RECORD OF S.E.C.-AC
NO. 339 BEING PROPERLY BROUGHT BEFORE IT FOR REVIEW AND REEXAMINATION, AN OMISSION RESULTING IN A CLEAR TRANSGRESSION OR
CURTAILMENT OF THE RIGHTS OF THE HEREIN PETITIONERS TO
PROCEDURAL DUE PROCESS;

(2)
WHEN IT SANCTIONED THE JULY 19, 1993 DECISION OF THE RESPONDENT
S.E.C., WHICH IS VOID FOR HAVING BEEN RENDERED WITHOUT THE PROPER
SUBSTITUTION OF THE DECEASED PRINCIPAL PARTY-RESPONDENT IN S.E.C.AC NO. 339 AND CONSEQUENTLY, FOR WANT OF JURISDICTION OVER THE
SAID DECEASEDS TESTATE ESTATE, AND MOREOVER, WHEN IT SOUGHT TO
JUSTIFY THE NON-SUBSTITUTION BY ITS APPLICATION OF THE CIVIL LAW
CONCEPT OF NEGOTIORUM GESTIO;
(3)
WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE
ORIGINAL RECORD OF S.E.C.-AC NO. 339 NOT HAVING ACTUALLY BEEN REEXAMINED, THAT S.E.C. CASE NO. 3153 INVOLVED A SITUATION WHERE
PERFORMANCE WAS IMPOSSIBLE (AS CONTEMPLATED UNDER ARTICLE 1191
OF THE CIVIL CODE) AND WAS NOT A MERE CASE OF LESION OR INADEQUACY
OF CAUSE (UNDER ARTICLE 1355 OF THE CIVIL CODE) AS SO ERRONEOUSLY
CHARACTERIZED BY THE RESPONDENT S.E.C.; and,
(4)
WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE
ORIGINAL RECORD OF S.E.C.-AC NO. 339 NOT HAVING ACTUALLY BEEN
EXAMINED, THAT THE RECORDING BY THE LATE JUDGE MANUEL A. TORRES,
JR. OF THE QUESTIONED ASSIGNMENT OF QUALIFYING SHARES TO HIS
NOMINEES, WAS AFFIRMED IN THE STOCK AND TRANSFER BOOK BY AN
ACTING CORPORATE SECRETARY AND MOREOVER, THAT ACTUAL NOTICE OF
SAID ASSIGNMENT WAS TIMELY MADE TO THE OTHER STOCKHOLDERS. 14
We shall resolve the issues in seriatim.
I

Petitioners insist that the failure to transmit the original records to the Court of Appeals

deprived them of procedural due process. Without the evidence and the original
records of the proceedings before the SEC, the Court of Appeals, petitioners
adamantly state, could not have possibly made a proper appreciation and correct
determination of the issues, particularly the factual issues, they had raised on appeal.
Petitioners also assert that since the Court of Appeals allegedly gave due course to
their petition, the original records should have been forwarded to said court.
Petitioners anchor their argument on Secs. 8 and 11 of SC Circular 1-91 (dated 27
February 1991) which provides that:chanrob1es virtual 1aw library
8. WHEN PETITION GIVEN DUE COURSE. The Court of Appeals shall give due
course to the petition only when it shows prima facie that the court, commission, board,
office or agency concerned has committed errors of fact or law that would warrant
reversal or modification of the order, ruling or decision sought to be reviewed. The
findings of fact of the court, commission, board, office or agency concerned when
supported by substantial evidence shall be final.
x

11. TRANSMITTAL OF RECORD. Within fifteen (15) days from notice that the
petition has been given due course, the court, commission, board, office or agency
concerned shall transmit to the Court of Appeals the original or a certified copy of the
entire record of the proceeding under review. The record to be transmitted may be
abridged by agreement of all parties to the proceeding. The Court of Appeals may
require or permit subsequent correction or addition to the record.
Petitioners contend that the Court of Appeals had given due course to their petition as
allegedly indicated by the following acts:chanrobles.com.ph : virtual law library
a) it granted the restraining order applied for by the herein petitioners, and after
hearing, also the writ of preliminary injunction sought by them; under the original SC
Circular No. 1-91, a petition for review may be given due course at the onset
(paragraph 8) upon a mere prima facie finding of errors of fact or law having been
committed, and such prima facie finding is but consistent with the grant of the
extraordinary writ of preliminary injunction;

b) it required the parties to submit "simultaneous memoranda" in its resolution dated


October 15, 1993 (this is in addition to the comment required to be filed by the
respondents) and furthermore declared in the same resolution that the petition will be
decided "on the merits," instead of outrightly dismissing the same;
c) it rendered a full length decision, wherein: (aa) it expressly declared the respondent
S.E.C. as having erred in denying the pertinent motions to suspend proceedings; (bb) it
declared the supposed error as having become a non-issue when the respondent C.A.
"proceeded to hear (the) appeal" ; (cc) it formulated and applied its own theory of
negotiorum gestio in justifying the non-substitution of the deceased principal party in
S.E.C.-AC No. 339 and moreover, its theory of di minimis non curat lex (this, without
first determining the true extent of and the correct legal characterization of the socalled "shortage" of Tormil shares; and, (dd) it expressly affirmed the assailed decision
of respondent S.E.C. 15
Petitioners contention is unmeritorious.
There is nothing on record to show that the Court of Appeals gave due course to the
petition. The fact alone that the Court of Appeals issued a restraining order and a writ
of preliminary injunction and required the parties to submit their respective memoranda
does not indicate that the petition was given due course. The office of an injunction is
merely to preserve the status quo pending the disposition of the case. The court can
require the submission of memoranda in support of the respective claims and positions
of the parties without necessarily giving due course to the petition. The matter of
whether or not to give due course to a petition lies in the discretion of the court.
It is worthy to mention that SC Circular No. 1-91 has been replaced by Revised
Administrative Circular No. 1-95 (which took effect on 1 June 1995) wherein the
procedure for appeals from quasi-judicial agencies to the Court of Appeals was clarified
thus:chanrob1es virtual 1aw library
10. Due course. If upon the filing of the comment or such other pleadings or
documents as may be required or allowed by the Court of Appeals or upon the
expiration of the period for the filing thereof, and on the bases of the petition or the
record the Court of Appeals finds prima facie that the court or agency concerned has
committed errors of fact or law that would warrant reversal or modification of the award,

judgment, final order or resolution sought to be reviewed, it may give due course to the
petition; otherwise, it shall dismiss the same. The findings of fact of the court or agency
concerned, when supported by substantial evidence, shall be binding on the Court of
Appeals.
11. Transmittal of record. Within fifteen (15) days from notice that the petition has
been given due course, the Court of Appeals may require the court or agency
concerned to transmit the original or a legible certified true copy of the entire record of
the proceeding under review. The record to be transmitted may be abridged by
agreement of all parties to the proceeding. The Court of Appeals may require or permit
subsequent correction of or addition to the record. (Underscoring ours.)
The aforecited circular now formalizes the correct practice and clearly states that in
resolving appeals from quasi judicial agencies, it is within the discretion of the Court of
Appeals to have the original records of the proceedings under review be transmitted to
it. In this connection, petitioners claim that the Court of Appeals could not have
decided the case on the merits without the records being brought before it is patently
lame. Indubitably, the Court of Appeals decided the case on the basis of the
uncontroverted facts and admissions contained in the pleadings, that is, the petition,
comment, reply, rejoinder, memoranda, etc. filed by the parties.
II
Petitioners contend that the decisions of the SEC and the Court of Appeals are null and
void for being rendered without the necessary substitution of parties (for the deceased
petitioner Manuel A. Torres, Jr.) as mandated by Sec. 17, Rule 3 of the Revised Rules
of Court, which provides as follows:chanrob1es virtual 1aw library
SEC. 17. Death of party. After a party dies and the claim is not thereby extinguished,
the court shall order, upon proper notice, the legal representative of the deceased to
appear and to be substituted for the deceased, within a period of thirty (30) days, or
within such time as may be granted. If the legal representative fails to appear within
said time, the court may order the opposing party to procure the appointment of a legal
representative of the deceased within a time to be specified by the court, and the
representative shall immediately appear for and on behalf of the interest of the
deceased. The court charges involved in procuring such appointment, if defrayed by
the opposing party, may be recovered as costs. The heirs of the deceased may be

allowed to be substituted for the deceased, without requiring the appointment of an


executor or administrator and the court may appoint guardian ad litem for the minor
heirs.
Petitioners insist that the SEC en banc should have granted the motions to suspend
they filed based as they were on the ground that the Regional Trial Court of Makati,
where the probate of the late Judge Torres will was pending, had yet to appoint an
administrator or legal representative of his estate.
We are not unaware of the principle underlying the aforequoted provision:chanrob1es
virtual 1aw library
It has been held that when a party dies in an action that survives, and no order is
issued by the Court for the appearance of the legal representative or of the heirs of the
deceased to be substituted for the deceased, and as a matter of fact no such
substitution has ever been effected, the trial held by the court without such legal
representative or heirs, and the judgment rendered after such trial, are null and void
because the court acquired no jurisdiction over the persons of the legal representative
or of the heirs upon whom the trial and the judgment are not binding. 16
As early as 8 April 1988, Judge Torres instituted Special Proceedings No. M-1768
before the Regional Trial Court of Makati for the ante-mortem probate of his
holographic will which he had executed on 31 October 1986. Testifying in the said
proceedings, Judge Torres confirmed his appointment of petitioner Edgardo D. Pabalan
as the sole executor of his will and administrator of his estate. The proceedings,
however, were opposed by the same parties, herein private respondents Antonio P.
Torres, Jr., Ma. Luisa T. Morales and Ma. Cristina T. Carlos, 17 who are nephew and
nieces of Judge Torres, being the children of his late brother Antonio A. Torres.
It can readily be observed therefore that the parties involved in the present controversy
are virtually the same parties fighting over the representation of the late Judge Torres
estate. It should be recalled that the purpose behind the rule on substitution of parties
is the protection of the right of every party to due process. It is to ensure that the
deceased party would continue to be properly represented in the suit through the duly
appointed legal representative of his estate. In the present case, this purpose has been
substantially fulfilled (despite the lack of formal substitution) in view of the peculiar fact

that both proceedings involve practically the same parties. Both parties have been
fiercely fighting in the probate proceedings of Judge Torres holographic will for
appointment as legal representative of his estate. Since both parties claim interests
over the estate, the rights of the estate were expected to be fully protected in the
proceedings before the SEC en banc and the Court of Appeals. In either case, whoever
shall be appointed legal representative of Judge Torres estate (petitioner Pabalan or
private respondents) would no longer be a stranger to the present case, the said
parties having voluntarily submitted to the jurisdiction of the SEC and the Court of
Appeals and having thoroughly participated in the proceedings.
The foregoing rationale finds support in the recent case of Vda. de Salazar v. CA, 18
wherein the Court expounded thus:chanrob1es virtual 1aw library
The need for substitution of heirs is based on the right to due process accruing to every
party in any proceeding. The rationale underlying this requirement in case a party dies
during the pendency of proceedings of a nature not extinguished by such death, is
that . . . the exercise of judicial power to hear and determine a cause implicitly
presupposes in the trial court, amongst other essentials, jurisdiction over the persons
of the parties. That jurisdiction was inevitably impaired upon the death of the protestee
pending the proceedings below such that unless and until a legal representative is for
him duly named and within the jurisdiction of the trial court, no adjudication in the
cause could have been accorded any validity or binding effect upon any party, in
representation of the deceased, without trenching upon the fundamental right to a day
in court which is the very essence of the constitutionally enshrined guarantee of due
process.
We are not unaware of several cases where we have ruled that a party having died in
an action that survives, the trial held by the court without appearance of the deceaseds
legal representative or substitution of heirs and the judgment rendered after such trial,
are null and void because the court acquired no jurisdiction over the persons of the
legal representatives or of the heirs upon whom the trial and the judgment would be
binding. This general rule notwithstanding, in denying petitioners motion for
reconsideration, the Court of Appeals correctly ruled that formal substitution of heirs is
not necessary when the heirs themselves voluntarily appeared, participated in the case
and presented evidence in defense of deceased defendant. Attending the case at
bench, after all, are these particular circumstances which negate petitioners belated

and seemingly ostensible claim of violation of her rights to due process. We should not
lose sight of the principle underlying the general rule that formal substitution of heirs
must be effectuated for them to be bound by a subsequent judgment. Such had been
the general rule established not because the rule on substitution of heirs and that on
appointment of a legal representative are jurisdictional requirements per se but
because non-compliance therewith results in the undeniable violation of the right to due
process of those who, though not duly notified of the proceedings, are substantially
affected by the decision rendered therein. . .
It is appropriate to mention here that when Judge Torres died on April 3, 1991, the SEC
en banc had already fully heard the parties and what remained was the evaluation of
the evidence and rendition of the judgment.
Further, petitioners filed their motions to suspend proceedings only after more than two
(2) years from the death of Judge Torres. Petitioners counsel was even remiss in his
duty under Sec. 16, Rule 3 of the Revised Rules of Court. 19 Instead, it was private
respondents who informed the SEC of Judge Torres death through a manifestation
dated 24 April 1991.
For the SEC en banc to have suspended the proceedings to await the appointment of
the legal representative by the estate was impractical and would have caused undue
delay in the proceedings and a denial of justice. There is no telling when the probate
court will decide the issue, which may still be appealed to the higher courts.
In any case, there has been no final disposition of the properties of the late Judge
Torres before the SEC. On the contrary, the decision of the SEC en banc as affirmed
by the Court of Appeals served to protect and preserve his estate. Consequently, the
rule that when a party dies, he should be substituted by his legal representative to
protect the interests of his estate in observance of due process was not violated in this
case in view of its peculiar situation where the estate was fully protected by the
presence of the parties who claim interests therein either as directors, stockholders or
heirs.
Finally, we agree with petitioners contention that the principle of negotiorum gestio 20
does not apply in the present case. Said principle explicitly covers abandoned or
neglected property or business.

III

ground for the revocation of the deeds covering Pasay and Quezon City properties.
In Universal Food Corp. v. CA, the Supreme Court held:chanrob1es virtual 1aw library

Petitioners find legal basis for Judge Torres act of revoking the assignment of his
properties in Makati and Pasay City to Tormil corporation by relying on Art. 1191 of the
Civil Code which provides that:chanrob1es virtual 1aw library
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
Petitioners contentions cannot be sustained. We see no justifiable reason to disturb
the findings of SEC, as affirmed by the Court of Appeals:chanrob1es virtual 1aw library
We sustain the ruling of respondent SEC in the decision appealed from (Rollo, pp. 4546) that
. . . the shortage of 972 shares would not be valid ground for respondent Torres to
unilaterally revoke the deeds of assignment he had executed on July 13, 1984 and July
24, 1984 wherein he voluntarily assigned to TORMIL real properties covered by TCT
No. 374079 (Makati) and TCT No. 41527, 41528 and 41529 (Pasay) respectively.
A comparison of the number of shares that respondent Torres received from TORMIL
by virtue of the "deeds of assignment" and the stock certificates issued by the latter to
the former readily shows that TORMIL had substantially performed what was expected
of it. In fact, the first two issuances were in satisfaction to the properties being revoked
by respondent Torres. Hence, the shortage of 972 shares would never be a valid

The general rule is that rescission of a contract will not be permitted for a slight or
carnal breach, but only for such substantial and fundamental breach as would defeat
the very object of the parties in making the agreement.
The shortage of 972 shares definitely is not substantial and fundamental breach as
would defeat the very object of the parties in entering into contract. Art. 1355 of the
Civil Code also provides: "Except in cases specified by law, lesion or inadequacy of
cause shall not invalidate a contract, unless there has been fraud, mistake or undue
influences." There being no fraud, mistake or undue influence exerted on respondent
Torres by TORMIL and the latter having already issued to the former of its 225,000
unissued shares, the most logical course of action is to declare as null and void the
deed of revocation executed by respondent Torres. (Rollo, pp. 45-46.) 21
The aforequoted Civil Code provision does not apply in this particular situation for the
obvious reason that a specific number of shares of stock (as evidenced by stock
certificates) had already been issued to the late Judge Torres in exchange for his
Makati and Pasay City properties. The records thus disclose:chanrob1es virtual 1aw
library
DATE OF PROPERTY LOCATION NO. OF SHARES ORDER OF
ASSIGNMENT ASSIGNED TO BE ISSUED COMPLIANCE*
1. July 13, 1984 TCT 81834 Quezon City 13,252 3rd
TCT 144240 Quezon City
2. July 13, 1984 TCT 77008 Manila
TCT 65689 Manila 78,493 2nd
TCT 102200 Manila
3. July 13, 1984 TCT 374079 Makati 8,307 1st
4. July 24, 1984 TCT 41527 Pasay
TCT 41528 Pasay 9,855 4th
TCT 41529 Pasay
5. August 06, 1984 El Hogar Filipino Stocks 2,000 7th

6. August 06, 1984 Manila Jockey Club Stocks 48,737 5th


7. August 07, 1984 San Miguel Corp. Stocks 50,238 8th
8. August 07, 1984 China Banking Corp. Stocks 6,300 6th
9. August 20, 1984 Ayala Corp. Stocks 7,468.2)
10. August 29, 1984 Ayala Fund Stocks 1,322.1) 9th

TOTAL 225,972.3
* Order of stock certificate issuances by TORMIL to respondent Torres relative to the
Deeds of Assignment he executed sometime in July and August, 1984. 22 (Emphasis
ours.)
Moreover, we agree with the contention of the Solicitor General that the shortage of
shares should not have affected the assignment of the Makati and Pasay City
properties which were executed in 13 and 24 July 1984 and the consideration for which
have been duly paid or fulfilled but should have been applied logically to the last
assignment of property Judge Torres Ayala Fund shares which was executed on
29 August 1984. 23
Petitioners insist that the assignment of "qualifying shares" to the nominees of the late
Judge Torres (herein petitioners) does not partake of the real nature of a transfer or
conveyance of shares of stock as would call for the "imposition of stringent
requirements (with respect to the) recording of the transfer of said shares." Anyway,
petitioners add, there was substantial compliance with the abovestated requirement
since said assignments were entered by the late Judge Torres himself in the
corporations stock and transfer book on 6 March 1987, prior to the 25 March 1987
annual stockholders meeting and which entries were confirmed on 8 March 1987 by
petitioner Azura who was appointed Assistant Corporate Secretary by Judge Torres.
Petitioners further argue that:chanrob1es virtual 1aw library
10.10. Certainly, there is no legal or just basis for the respondent S.E.C. to penalize the
late Judge Torres by invalidating the questioned entries in the stock and transfer book,
simply because he initially made those entries (they were later affirmed by an acting
corporate secretary) and because the stock and transfer book was in his possession

instead of the elected corporate secretary, if the background facts herein-before


narrated and the serious animosities that then reigned between the deceased Judge
and his relatives are to be taken into account;
x

10.12. Indeed it was a practice in the corporate respondent, a family corporation with
only a measly number of stockholders, for the late judge to have personal custody of
corporate records; as president, chairman and majority stockholder, he had the
prerogative of designating an acting corporate secretary or to himself make the needed
entries, in instances where the regular secretary, who is a mere subordinate, is
unavailable or intentionally defaults, which was the situation that obtained immediately
prior to the 1987 annual stockholders meeting of Tormil, as the late Judge Torres had
so indicated in the stock and transfer book in the form of the entries now in question;
10.13. Surely, it would have been futile nay foolish for him to have insisted under those
circumstances, for the regular secretary, who was then part of a group ranged against
him, to make the entries of the assignments in favor of his nominees; 24
Petitioners contentions lack merit.
It is precisely the brewing family discord between Judge Torres and private
respondents his nephew and nieces that should have placed Judge Torres on his
guard. He should have been more careful in ensuring that his actions (particularly the
assignment of qualifying shares to his nominees) comply with the requirements of the
law. Petitioners cannot use the flimsy excuse that it would have been a vain attempt to
force the incumbent corporate secretary to register the aforestated assignments in the
stock and transfer book because the latter belonged to the opposite faction. It is the
corporate secretarys duty and obligation to register valid transfers of stocks and if said
corporate officer refuses to comply, the transferor-stockholder may rightfully bring suit
to compel performance. 25 In other words, there are remedies within the law that
petitioners could have availed of, instead of taking the law in their own hands, as the
clich goes.chanrobles
Thus, we agree with the ruling of the SEC en banc as affirmed by the Court of

Appeals:chanrob1es virtual 1aw library


We likewise sustain respondent SEC when it ruled, interpreting Section 74 of the
Corporation Code, as follows (Rollo, p. 45):chanrob1es virtual 1aw library
In the absence of (any) provision to the contrary, the corporate secretary is the
custodian of corporate records. Corollarily, he keeps the stock and transfer book and
makes proper and necessary entries therein.
Contrary to the generally accepted corporate practice, the stock and transfer book of
TORMIL, was not kept by Ms. Maria Cristina T. Carlos, the corporate secretary but by
respondent Torres, the President and Chairman of the Board of Directors of TORMIL.
In contravention to the above cited provision, the stock and transfer book was not kept
at the principal office of the corporation either but at the place of respondent Torres.
These being the obtaining circumstances, any entries made in the stock and transfer
book on March 8, 1987 by respondent Torres of an alleged transfer of nominal shares
to Pabalan and Co. cannot therefore be given any valid effect. Where the entries made
are not valid, Pabalan and Co. cannot therefore be considered stockholders of record
of TORMIL. Because they are not stockholders, they cannot therefore be elected as
directors of TORMIL. To rule otherwise would not only encourage violation of clear
mandate of Sec. 74 of the Corporation Code that stock and transfer book shall be kept
in the principal office of the corporation but would likewise open the flood gates of
confusion in the corporation as to who has the proper custody of the stock and transfer
book and who are the real stockholders of records of a certain corporation as any
holder of the stock and transfer book, though not the corporate secretary, at pleasure
would make entries therein.
The fact that respondent Torres holds 81.28% of the outstanding capital stock of
TORMIL is of no moment and is not a license for him to arrogate unto himself a duty
lodged to (sic) the corporate secretary. 26
All corporations, big or small, must abide by the provisions of the Corporation Code.
Being a simple family corporation is not an exemption. Such corporations cannot have
rules and practices other than those established by law.

WHEREFORE, premises considered, the petition for review on certiorari is hereby


DENIED.
SO ORDERED.

Theory of Enterprise Entity


SECOND DIVISION
[G.R. No. 125469. October 27, 1997.]
PHILIPPINE STOCK EXCHANGE, INC., Petitioner, v. THE HONORABLE COURT
OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and PUERTO AZUL
LAND, INC.,Respondents.

DECISION

TORRES, JR., J.:

The Securities and Exchange Commission is the government agency, under the direct
general supervision of the Office of the President, 1 with the immense task of enforcing
the Revised Securities Act, and all other duties assigned to it by pertinent laws. Among
its innumerable functions, and one of the most important, is the supervision of all
corporations, partnerships or associations, who are grantees of primary franchise
and/or a license or permit issued by the government to operate in the Philippines. 2
Just how far this regulatory authority extends, particularly, with regard to the Petitioner
Philippine Stock Exchange, Inc. is the issue in the case at bar.
In this Petition for Review on Certiorari, petitioner assails the resolution of the
respondent Court of Appeals, dated June 27, 1996, which affirmed the decision of the
Securities and Exchange Commission ordering the petitioner Philippine Stock
Exchange, Inc. to allow the private respondent Puerto Azul Land, Inc. to be listed in its
stock market, thus paving the way for the public offering of PALIs shares.

The facts of the case are undisputed, and are hereby restated in sum.
The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to
offer its shares to the public in order to raise funds allegedly to develop its properties
and pay its loans with several banking institutions. In January, 1995, PALI was issued a
Permit to Sell its shares to the public by the Securities and Exchange Commission
(SEC). To facilitate the trading of its shares among investors, PALI sought to course the
trading of its shares through the Philippine Stock Exchange, Inc. (PSE), for which
purpose it filed with the said stock exchange an application to list its shares, with
supporting documents attached.
On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALIs
application, recommended to the PSEs Board of Governors the approval of PALIs
listing application.
On February 14, 1996, before it could act upon PALIs application, the Board of
Governors of the PSE received a letter from the heirs of Ferdinand E. Marcos, claiming
that the late President Marcos was the legal and beneficial owner of certain properties
forming part of the Puerto Azul Beach Hotel and Resort Complex which PALI claims to
be among its assets and that the Ternate Development Corporation, which is among
the stockholders of PALI, likewise appears to have been held and continue to be held
in trust by one Rebecco Panlilio for then President Marcos and now, effectively for his
estate, and requested PALIs application to be deferred. PALI was requested to
comment upon the said letter.
PALIs answer stated that the properties forming part of the Puerto Azul Beach Hotel
and Resort Complex were not claimed by PALI as its assets. On the contrary, the resort
is actually owned by Fantasia Filipina Resort, Inc. and the Puerto Azul Country Club,
entities distinct from PALI. Furthermore, the Ternate Development Corporation owns
only 1.20% of PALI. The Marcoses responded that their claim is not confined to the
facilities forming part of the Puerto Azul Hotel and Resort Complex, thereby implying
that they are also asserting legal and beneficial ownership of other properties titled
under the name of PALI.chanroblesvirtual|awlibrary
On February 20, 1996, the PSE wrote Chairman Magtanggol Gunigundo of the

Presidential Commission on Good Government (PCGG) requesting for comments on


the letters of the PALI and the Marcoses. On March 4, 1996, the PSE was informed
that the Marcoses received a Temporary Restraining Order on the same date, enjoining
the Marcoses from, among others, "further impeding, obstructing, delaying or
interfering in any manner by or any means with the consideration, processing and
approval by the PSE of the initial public offering of PALI." The TRO was issued by
Judge Martin S. Villarama, Executive Judge of the RTC of Pasig City in Civil Case No.
65561, pending in Branch 69 thereof.
In its regular meeting held on March 27, 1996, the Board of Governors of the PSE
reached its decision to reject PALIs application, citing the existence of serious claims,
issues and circumstances surrounding PALIs ownership over its assets that adversely
affect the suitability of listing PALIs shares in the stock exchange.
On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting
Chairman, Perfecto R. Yasay, Jr., bringing to the SECs attention the action taken by
the PSE in the application of PALI for the listing of its shares with the PSE, and
requesting that the SEC in the exercise of its supervisory and regulatory powers over
stock exchanges under Section 6(j) of P.D. No. 902-A, review the PSEs action on
PALIs listing application and institute such measures as are just and proper under the
circumstances.
On the same date, or on April 11, 1996, the SEC wrote to the PSE, attaching thereto
the letter of PALI and directing the PSE to file its comments thereto within five days
from its receipt and for its authorized representative to appear for an "inquiry" on the
matter. On April 22, 1996, the PSE submitted a letter to the SEC containing its
comments to the April 11, 1996 letter of PALI.
On April 24, 1996, the SEC rendered its Order, reversing the PSEs decision. The
dispositive portion of the said order reads:jgc:chanrobles.com.ph
"WHEREFORE, premises considered, and invoking the Commissioners authority and
jurisdiction under Section 3 of the Revised Securities Act, in conjunction with Section 3,
6(j) and 6(m) of Presidential Decree No. 902-A, the decision of the Board of Governors
of the Philippine Stock Exchange denying the listing of shares of Puerto Azul Land,
Inc., is hereby set aside, and the PSE is hereby ordered to immediately cause the

listing of the PALI shares in the Exchange, without prejudice to its authority to require
PALI to disclose such other material information it deems necessary for the protection
of the investing public.
This Order shall take effect immediately.

FURTHER DISPOSITION OF PROPERTIES IN CUSTODIA LEGIS AND WHICH


FORM PART OF NAVAL/MILITARY RESERVATION; AND
IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY PROMULGATED
AND ITS IMPLEMENTATION AND APPLICATION IN THIS CASE VIOLATES THE DUE
PROCESS CLAUSE OF THE CONSTITUTION.

SO ORDERED."cralaw virtua1aw library


PSE filed a motion for reconsideration of the said order on April 29, 1996, which was,
however denied by the Commission in its May 9, 1996 Order which
states:jgc:chanrobles.com.ph
"WHEREFORE, premises considered, the Commission finds no compelling reason to
reconsider its order dated April 24, 1996, and in the light of recent developments on the
adverse claim against the PALI properties, PSE should require PALI to submit full
disclosure of material facts and information to protect the investing public. In this
regard, PALI is hereby ordered to amend its registration statements filed with the
Commission to incorporate the full disclosure of these material facts and
information."cralaw virtua1aw library
Dissatisfied with this ruling, the PSE filed with the Court of Appeals on May 17, 1996 a
Petition for Review (with Application for Writ of Preliminary Injunction and Temporary
Restraining Order), assailing the above mentioned orders of the SEC, submitting the
following as errors of the SEC:chanrob1es virtual 1aw library
I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN
ISSUING THE ASSAILED ORDERS WITHOUT POWER, JURISDICTION, OR
AUTHORITY; SEC HAS NO POWER TO ORDER THE LISTING AND SALE OF
SHARES OF PALI WHOSE ASSETS ARE SEQUESTERED AND TO REVIEW AND
SUBSTITUTE DECISIONS OF PSE ON LISTING APPLICATIONS;
II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN
FINDING THAT PSE ACTED IN AN ARBITRARY AND ABUSIVE MANNER IN
DISAPPROVING PALIS LISTING APPLICATION;
III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR ALLOWING

On June 4, 1996, PALI filed its Comment to the Petition for Review and subsequently, a
Comment and Motion to Dismiss. On June 10, 1996, PSE filed its Reply to Comment
and Opposition to Motion to Dismiss.chanroblesvirtuallawlibrary:red
On June 27, 1996, the Court of Appeals promulgated its Resolution dismissing the
PSEs Petition for Review. Hence, this Petition by the PSE.
The appellate court had ruled that the SEC had both jurisdiction and authority to look
into the decision of the petitioner PSE, pursuant to Section 3 3 of the Revised
Securities Act in relation to Section 6(j) and 6(m) 4 of P.D. No. 902-A, and Section
38(b) 5 of the Revised Securities Act, and for the purpose of ensuring fair
administration of the exchange. Both as a corporation and as a stock exchange, the
petitioner is subject to public respondents jurisdiction, regulation and control. Accepting
the argument that the public respondent has the authority merely to supervise or
regulate, would amount to serious consequences, considering that the petitioner is a
stock exchange whose business is impressed with public interest. Abuse is not remote
if the public respondent is left without any system of control. If the securities act vested
the public respondent with jurisdiction and control over all corporations; the power to
authorize the establishment of stock exchanges; the right to supervise and regulate the
same; and the power to alter and supplement rules of the exchange in the listing or
delisting of securities, then the law certainly granted to the public respondent the
plenary authority over the petitioner; and the power of review necessarily comes within
its authority.
All in all, the court held that PALI complied with all the requirements for public listing,
affirming the SECs ruling to the effect that:jgc:chanrobles.com.ph
". . . the Philippine Stock Exchange has acted in an arbitrary and abusive manner in
disapproving the application of PALI for listing of its shares in the face of the following

considerations:chanrob1es virtual 1aw library


1. PALI has clearly and admittedly complied with the Listing Rules and full disclosure
requirements of the Exchange;
2. In applying its clear and reasonable standards on the suitability for listing of shares,
PSE has failed to justify why it acted differently on the application of PALI, as compared
to the IPOs of other companies similarly situated that were allowed listing in the
Exchange;
3. It appears that the claims and issues on the title to PALIs properties were even less
serious than the claims against the assets of the other companies in that, the
assertions of the Marcoses that they are owners of the disputed properties were not
substantiated enough to overcome the strength of a title to properties issued under the
Torrens System as evidence of ownership thereof;

Court of Appeals. Respondent PALI filed its Comment to the petition on October 17,
1996. On the same date, the PCGG filed a Motion for Leave to file a Petition for
Intervention. This was followed up by the PCGGs Petition for Intervention on October
21, 1996. A supplemental Comment was filed by PALI on October 25, 1997. The Office
of the Solicitor General, representing the SEC and the Court of Appeals, likewise filed
its Comment on December 26, 1996. In answer to the PCGGs motion for leave to file
petition for intervention, PALI filed its Comment thereto on January 17, 1997, whereas
the PSE filed its own Comment on January 20, 1997.
On February 25, 1996, the PSE filed its Consolidated Reply to the comments of
respondent PALI (October 17, 1996) and the Solicitor General (December 26, 1996).
On May 16, 1997, PALI filed its Rejoinder to the said consolidated reply of PSE.

In addition, the argument that the PALI properties belong to the Military/Naval
Reservation does not inspire belief. The point is, the PALI properties are now titled. A
property loses its public character the moment it is covered by a title. As a matter of
fact, the titles have long been settled by a final judgment; and the final decree having
been registered, they can no longer be re-opened considering that the one year period
has already passed. Lastly, the determination of what standard to apply in allowing
PALIs application for listing, whether the discretion method or the system of public
disclosure adhered to by the SEC, should be addressed to the Securities Commission,
it being the government agency that exercises both supervisory and regulatory
authority over all corporations.

PSE submits that the Court of Appeals erred in ruling that the SEC had authority to
order the PSE to list the shares of PALI in the stock exchange. Under Presidential
Decree No. 902-A, the powers of the SEC over stock exchanges are more limited as
compared to its authority over ordinary corporations. In connection with this, the
powers of the SEC over stock exchanges under the Revised Securities Act are
specifically enumerated, and these do not include the power to reverse the decisions of
the stock exchange. Authorities are in abundance even in the United States, from
which the countrys security policies are patterned, to the effect of giving the Securities
Commission less control over stock exchanges, which in turn are given more leeway in
making the decision whether or not to allow corporations to offer their stock to the
public through the stock exchange. This is in accord with the "business judgment rule"
whereby the SEC and the courts are barred from intruding into business judgments of
corporations, when the same are made in good faith. The said rule precludes the
reversal of the decision of the PSE to deny PALIs listing application, absent a showing
of bad faith on the part of the PSE. Under the listing rules of the PSE, to which PALI
had previously agreed to comply, the PSE retains the discretion to accept or reject
applications for listing. Thus, even if an issuer has complied with the PSE listing rules
and requirements, PSE retains the discretion to accept or reject the issuers listing
application if the PSE determines that the listing shall not serve the interests of the
investing public.

On August 15, 1996, the PSE, after it was granted an extension, filed the instant
Petition for Review on Certiorari, taking exception to the rulings of the SEC and the

Moreover, PSE argues that the SEC has no jurisdiction over sequestered corporations,
nor with corporations whose properties are under sequestration. A reading of Republic

4. No action has been filed in any court of competent jurisdiction seeking to nullify
PALIs ownership over the disputed properties, neither has the government instituted
recovery proceedings against these properties. Yet the import of PSEs decision in
denying PALIs application is that it would be PALI, not the Marcoses, that must go to
court to prove the legality of its ownership on these properties before its shares can be
listed."cralaw virtua1aw library

of the Philippines v. Sandiganbayan, G.R. No. 105205, 240 SCRA 376, would reveal
that the properties of PALI, which were derived from the Ternate Development
Corporation (TDC) and the Monte del Sol Development Corporation (MSDC), are under
sequestration by the PCGG, and subject of forfeiture proceedings in the
Sandiganbayan. This ruling of the Court is the "law of the case" between the Republic
and TDC and MSDC. It categorically declares that the assets of these corporations
were sequestered by the PCGG on March 10, 1986 and April 4, 1988.

wise to give special treatment to the administration and regulation of stock exchanges.
6

It is, likewise, intimated that the Court of Appeals sanction that PALIs ownership over
its properties can no longer be questioned, since certificates of title have been issued
to PALI and more than one year has since lapsed, is erroneous and ignores well settled
jurisprudence on land titles. That a certificate of title issued under the Torrens System
is a conclusive evidence of ownership is not an absolute rule and admits certain
exceptions. It is fundamental that forest lands or military reservations are nonalienable. Thus, when a title covers a forest reserve or a government reservation, such
title is void.

Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold


the SECs challenged control authority over the petitioner PSE even as it provides that
"the Commission shall have absolute jurisdiction, supervision, and control over all
corporations, partnerships or associations, who are the grantees of primary franchises
and/or a license or permit issued by the government to operate in the Philippines . . ."
The SECs regulatory authority over private corporations encompasses a wide margin
of areas, touching nearly all of a corporations concerns. This authority springs from the
fact that a corporation owes its existence to the concession of its corporate franchise
from the state.

PSE, likewise, assails the SECs and the Court of Appeals reliance on the alleged
policy of "full disclosure" to uphold the listing of PALIs shares with the PSE, in the
absence of a clear mandate for the effectivity of such policy. As it is, the case records
reveal the truth that PALI did not comply with the listing rules and disclosure
requirements. In fact, PALIs documents supporting its application contained
misrepresentations and misleading statements, and concealed material information.
The matter of sequestration of PALIs properties and the fact that the same form part of
military/naval/forest reservations were not reflected in PALIs application.
It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it
is clothed with the markings of a corporate entity, it functions as the primary channel
through which the vessels of capital trade ply. The PSEs relevance to the continued
operation and filtration of the securities transactions in the country gives it a distinct
color of importance such that government intervention in its affairs becomes justified, if
not necessary. Indeed, as the only operational stock exchange in the country today, the
PSE enjoys a monopoly of securities transactions, and as such, it yields an immense
influence upon the countrys economy.
Due to this special nature of stock exchanges, the countrys lawmakers have seen it

These provisions, read together with the general grant of jurisdiction, and right of
supervision and control over all corporations under Sec. 3 of P.D. 902-A, give the SEC
the special mandate to be vigilant in the supervision of the affairs of stock exchanges
so that the interests of the investing public may be fully safeguarded.

The SECs power to look into the subject ruling of the PSE, therefore, may be implied
from or be considered as necessary or incidental to the carrying out of the SECs
express power to insure fair dealing in securities traded upon a stock exchange or to
ensure the fair administration of such exchange. 7 It is, likewise, observed that the
principal function of the SEC is the supervision and control over corporations,
partnerships and associations with the end in view that investment in these entities
may be encouraged and protected, and their activities pursued for the promotion of
economic development. 8
Thus, it was in the alleged exercise of this authority that the SEC reversed the decision
of the PSE to deny the application for listing in the stock exchange of the private
respondent PALI. The SECs action was affirmed by the Court of Appeals.
We affirm that the SEC is the entity with the primary say as to whether or not securities,
including shares of stock of a corporation, may be traded or not in the stock exchange.
This is in line with the SECs mission to ensure proper compliance with the laws, such
as the Revised Securities Act and to regulate the sale and disposition of securities in
the country. 9 As the appellate court explains:jgc:chanrobles.com.ph

faith, its orders are not reviewable by the courts. 12


"Paramount policy also supports the authority of the public respondent to review
petitioners denial of the listing. Being a stock exchange, the petitioner performs a
function that is vital to the national economy, as the business is affected with public
interest. As a matter of fact, it has often been said that the economy moves on the
basis of the rise and fall of stocks being traded. By its economic power, the petitioner
certainly can dictate which and how many users are allowed to sell securities thru the
facilities of a stock exchange, if allowed to interpret its own rules liberally as it may
please. Petitioner can either allow or deny the entry to the market of securities. To
repeat, the monopoly, unless accompanied by control, becomes subject to abuse;
hence, considering public interest, then it should be subject to government
regulation."cralaw virtua1aw library
The role of the SEC in our national economy cannot be minimized. The legislature,
through the Revised Securities Act, Presidential Decree No. 902-A, and other pertinent
laws, has entrusted to it the serious responsibility of enforcing all laws affecting
corporations and other forms of associations not otherwise vested in some other
government office. 10
This is not to say, however, that the PSEs management prerogatives are under the
absolute control of the SEC. The PSE is, after all, a corporation authorized by its
corporate franchise to engage in its proposed and duly approved business. One of the
PSEs main concerns, as such, is still the generation of profit for its stockholders.
Moreover, the PSE has all the rights pertaining to corporations, including the right to
sue and be sued, to hold property in its own name, to enter (or not to enter) into
contracts with third persons, and to perform all other legal acts within its allocated
express or implied powers.
A corporation is but an association of individuals, allowed to transact under an
assumed corporate name, and with a distinct legal personality. In organizing itself as a
collective body, it waives no constitutional immunities and perquisites appropriate to
such a body. 11 As to its corporate and management decisions, therefore, the state will
generally not interfere with the same. Questions of policy and of management are left
to the honest decision of the officers and directors of a corporation, and the courts are
without authority to substitute their judgment for the judgment of the board of directors.
The board is the business manager of the corporation, and so long as it acts in good

Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant
authority to reverse the PSEs decision in matters of application for listing in the market,
the SEC may exercise such power only if the PSEs judgment is attended by bad faith.
In Board of Liquidators v. Kalaw, 13 it was held that bad faith does not simply connote
bad judgment or negligence. It imports a dishonest purpose or some moral obliquity
and conscious doing of wrong. It means a breach of a known duty through some
motive or interest of ill will, partaking of the nature of fraud.chanrobles.com : virtual
lawlibrary
In reaching its decision to deny the application for listing of PALI, the PSE considered
important facts, which, in the general scheme, brings to serious question the
qualification of PALI to sell its shares to the public through the stock exchange. During
the time for receiving objections to the application, the PSE heard from the
representative of the late President Ferdinand E. Marcos and his family who claim the
properties of the private respondent to be part of the Marcos estate. In time, the PCGG
confirmed this claim. In fact, an order of sequestration has been issued covering the
properties of PALI, and suit for reconveyance to the state has been filed in the
Sandiganbayan Court. How the properties were effectively transferred, despite the
sequestration order, from the TDC and MSDC to Rebecco Panlilio, and to the private
respondent PALI, in only a short span of time, are not yet explained to the Court, but it
is clear that such circumstances give rise to serious doubt as to the integrity of PALI as
a stock issuer. The petitioner was in the right when it refused application of PALI, for a
contrary ruling was not to the best interest of the general public. The purpose of the
Revised Securities Act, after all, is to give adequate and effective protection to the
investing public against fraudulent representations, or false promises, and the
imposition of worthless ventures. 14
It is to be observed that the U.S. Securities Act emphasized its avowed protection to
acts detrimental to legitimate business, thus:jgc:chanrobles.com.ph
"The Securities Act, often referred to as the "truth in securities" Act, was designed not
only to provide investors with adequate information upon which to base their decisions
to buy and sell securities, but also to protect legitimate business seeking to obtain
capital through honest presentation against competition from crooked promoters and to

prevent fraud in the sale of securities. (Tenth Annual Report, U.S. Securities &
Exchange Commission, p. 14).

faith. The defense of indefeasibility of a Torrens Title does not extend to a transferee
who takes the certificate of title with notice of a flaw.

As has been pointed out, the effects of such an act are chiefly (1) prevention of
excesses and fraudulent transactions, merely by requirement of that their details be
revealed; (2) placing the market during the early stages of the offering of a security a
body of information, which operating indirectly through investment services and expert
investors, will tend to produce a more accurate appraisal of a security. . . . Thus, the
Commission may refuse to permit a registration statement to become effective if it
appears on its face to be incomplete or inaccurate in any material respect, and
empower the Commission to issue a stop order suspending the effectiveness of any
registration statement which is found to include any untrue statement of a material fact
or to omit to state any material fact required to be stated therein or necessary to make
the statements therein not misleading. (Idem)."cralaw virtua1aw library

In any case, for the purpose of determining whether PSE acted correctly in refusing the
application of PALI, the true ownership of the properties of PALI need not be
determined as an absolute fact. What is material is that the uncertainty of the
properties ownership and alienability exists, and this puts to question the qualification
of PALIs public offering. In sum, the Court finds that the SEC had acted arbitrarily in
arrogating unto itself the discretion of approving the application for listing in the PSE of
the private respondent PALI, since this is a matter addressed to the sound discretion of
the PSE, a corporate entity, whose business judgments are respected in the absence
of bad faith.

Also, as the primary market for securities, the PSE has established its name and
goodwill, and it has the right to protect such goodwill by maintaining a reasonable
standard of propriety in the entities who choose to transact through its facilities. It was
reasonable for the PSE, therefore, to exercise its judgment in the manner it deems
appropriate for its business identity, as long as no rights are trampled upon, and public
welfare is safeguarded.
In this connection, it is proper to observe that the concept of government absolutism is
a thing of the past, and should remain so.
The observation that the title of PALI over its properties is absolute and can no longer
be assailed is of no moment. At this juncture, there is the claim that the properties were
owned by TDC and MSDC and were transferred in violation of sequestration orders, to
Rebecco Panlilio and later on to PALI, besides the claim of the Marcoses that such
properties belong to the Marcos estate, and were held only in trust by Rebecco
Panlilio. It is also alleged by the petitioner that these properties belong to naval and
forest reserves, and therefore beyond private dominion. If any of these claims is
established to be true, the certificates of title over the subject properties now held by
PALI may be disregarded, as it is an established rule that a registration of a certificate
of title does not confer ownership over the properties described therein to the person
named as owner. The inscription in the registry, to be effective, must be made in good

The question as to what policy is, or should be relied upon in approving the registration
and sale of securities in the SEC is not for the Court to determine, but is left to the
sound discretion of the Securities and Exchange Commission. In mandating the SEC
to administer the Revised Securities Act, and in performing its other functions under
pertinent laws, the Revised Securities Act, under Section 3 thereof, gives the SEC the
power to promulgate such rules and regulations as it may consider appropriate in the
public interest for the enforcement of the said laws. The second paragraph of Section 4
of the said law, on the other hand, provides that no security, unless exempt by law,
shall be issued, endorsed, sold, transferred or in any other manner conveyed to the
public, unless registered in accordance with the rules and regulations that shall be
promulgated in the public interest and for the protection of investors by the
Commission. Presidential Decree No. 902-A, on the other hand, provides that the SEC,
as regulatory agency, has supervision and control over all corporations and over the
securities market as a whole, and as such, is given ample authority in determining
appropriate policies. Pursuant to this regulatory authority, the SEC has manifested that
it has adopted the policy of "full material disclosure" where all companies, listed or
applying for listing, are required to divulge truthfully and accurately, all material
information about themselves and the securities they sell, for the protection of the
investing public, and under pain of administrative, criminal and civil sanctions. In
connection with this, a fact is deemed material if it tends to induce or otherwise effect
the sale or purchase of its securities. 15 While the employment of this policy is
recognized and sanctioned by the laws, nonetheless, the Revised Securities Act sets
substantial and procedural standards which a proposed issuer of securities must

satisfy. 16 Pertinently, Section 9 of the Revised Securities Act sets forth the possible
Grounds for the Rejection of the registration of a security:jgc:chanrobles.com.ph

the sale of its security would not work to the prejudice of the public interest or as a
fraud upon the purchasers or investors." (Emphasis ours)

". . . The Commission may reject a registration statement and refuse to issue a permit
to sell the securities included in such registration statement if it finds that

A reading of the foregoing grounds reveals the intention of the lawmakers to make the
registration and issuance of securities dependent, to a certain extent, on the merits of
the securities themselves, and of the issuer, to be determined by the Securities and
Exchange Commission. This measure was meant to protect the interests of the
investing public against fraudulent and worthless securities, and the SEC is mandated
by law to safeguard these interests, following the policies and rules therefore provided.
The absolute reliance on the full disclosure method in the registration of securities is,
therefore, untenable. As it is, the Court finds that the private respondent PALI, on at
least two points (nos. 1 and 5) has failed to support the propriety of the issue of its
shares with unfailing clarity, thereby lending support to the conclusion that the PSE
acted correctly in refusing the listing of PALI in its stock exchange. This does not
discount the effectivity of whatever method the SEC, in the exercise of its vested
authority, chooses in setting the standard for public offerings of corporations wishing to
do so. However, the SEC must recognize and implement the mandate of the law,
particularly the Revised Securities Act, the provisions of which cannot be amended or
supplanted by mere administrative issuance.

(1) The registration statement is on its face incomplete or inaccurate in any material
respect or includes any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein not
misleading; or
(2) The issuer or registrant
(i) is not solvent or not in sound financial condition;
(ii) has violated or has not complied with the provisions of this Act, or the rules
promulgated pursuant thereto, or any order of the Commission;
(iii) has failed to comply with any of the applicable requirements and conditions that the
Commission may, in the public interest and for the protection of investors, impose
before the security can be registered;
(iv) has been engaged or is engaged or is about to engage in fraudulent transactions;
(v) is in any way dishonest or is not of good repute; or
(vi) does not conduct its business in accordance with law or is engaged in a business
that is illegal or contrary to government rules and regulations.
(3) The enterprise or the business of the issuer is not shown to be sound or to be
based on sound business principles;
(4) An officer, member of the board of directors, or principal stockholder of the issuer is
disqualified to be such officer, director or principal stockholder; or
(5) The issuer or registrant has not shown to the satisfaction of the Commission that

In resum, the Court finds that the PSE has acted with justified circumspection,
discounting, therefore, any imputation of arbitrariness and whimsical animation on its
part. Its action in refusing to allow the listing of PALI in the stock exchange is justified
by the law and by the circumstances attendant to this
case.chanroblesvirtuallawlibrary:red
ACCORDINGLY, in view of the foregoing considerations, the Court hereby GRANTS
the Petition for Review on Certiorari. The Decisions of the Court of Appeals and the
Securities and Exchange Commission dated July 27, 1996 and April 24, 1996,
respectively, are hereby REVERSED and SET ASIDE, and a new Judgment is hereby
ENTERED, affirming the decision of the Philippine Stock Exchange to deny the
application for listing of the private respondent Puerto Azul Land, Inc.
SO ORDERED.

Artificial Being
THIRD DIVISION
[G.R. No. 142936. April 17, 2002.]
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT
CORPORATION, Petitioners, v. ANDRADA ELECTRIC & ENGINEERING
COMPANY, Respondent.
DECISION

PANGANIBAN, J.:

Basic is the rule that a corporation has a legal personality distinct and separate from
the persons and entities owning it. The corporate veil may be lifted only if it has been
used to shield fraud, defend crime, justify a wrong, defeat public convenience, insulate
bad faith or perpetuate injustice. Thus, the mere fact that the Philippine National Bank
(PNB) acquired ownership or management of some assets of the Pampanga Sugar Mill
(PASUMIL), which had earlier been foreclosed and purchased at the resulting public
auction by the Development Bank of the Philippines (DBP), will not make PNB liable for
the PASUMILs contractual debts to Respondent.chanrob1es virtua1 1aw 1ibrary
Statement of the Case
Before us is a Petition for Review assailing the April 17, 2000 Decision 1 of the Court of
Appeals (CA) in CA-G.R. CV No. 57610. The decretal portion of the challenged
Decision reads as follows:jgc:chanrobles.com.ph
"WHEREFORE, the judgment appealed from is hereby AFFIRMED." 2
The Facts

The factual antecedents of the case are summarized by the Court of Appeals as
follows:jgc:chanrobles.com.ph
"In its complaint, the plaintiff [herein respondent] alleged that it is a partnership duly
organized, existing, and operating under the laws of the Philippines, with office and
principal place of business at Nos. 794-812 Del Monte [A]venue, Quezon City, while
the defendant [herein petitioner] Philippine National Bank (herein referred to as PNB),
is a semi-government corporation duly organized, existing and operating under the
laws of the Philippines, with office and principal place of business at Escolta Street,
Sta. Cruz, Manila; whereas, the other defendant, the National Sugar Development
Corporation (NASUDECO in brief), is also a semi-government corporation and the
sugar arm of the PNB, with office and principal place of business at the 2nd Floor,
Sampaguita Building, Cubao, Quezon City; and the defendant Pampanga Sugar Mills
(PASUMIL in short), is a corporation organized, existing and operating under the 1975
laws of the Philippines, and had its business office before 1975 at Del Carmen,
Floridablanca, Pampanga; that the plaintiff is engaged in the business of general
construction for the repairs and/or construction of different kinds of machineries and
buildings; that on August 26, 1975, the defendant PNB acquired the assets of the
defendant PASUMIL that were earlier foreclosed by the Development Bank of the
Philippines (DBP) under LOI No. 311; that the defendant PNB organized the defendant
NASUDECO in September, 1975, to take ownership and possession of the assets and
ultimately to nationalize and consolidate its interest in other PNB controlled sugar mills;
that prior to October 29, 1971, the defendant PASUMIL engaged the services of plaintiff
for electrical rewinding and repair, most of which were partially paid by the defendant
PASUMIL, leaving several unpaid accounts with the plaintiff; that finally, on October 29,
1971, the plaintiff and the defendant PASUMIL entered into a contract for the plaintiff to
perform the following, to wit
(a) Construction of one (1) power house building;
(b) Construction of three (3) reinforced concrete foundation for three (3) units 350 KW
diesel engine generating set[s];
(c) Construction of three (3) reinforced concrete foundation for the 5,000 KW and
1,250 KW turbo generator sets;

(d) Complete overhauling and reconditioning tests sum for three (3) 350 KW diesel
engine generating set[s];
(e) Installation of turbine and diesel generating sets including transformer,
switchboard, electrical wirings and pipe provided those stated units are completely
supplied with their accessories;
(f) Relocating of 2,400 V transmission line, demolition of all existing concrete
foundation and drainage canals, excavation, and earth fillings all for the total amount
of P543,500.00 as evidenced by a contract, [a] xerox copy of which is hereto attached
as Annex A and made an integral part of this complaint;
that aside from the work contract mentioned-above, the defendant PASUMIL required
the plaintiff to perform extra work, and provide electrical equipment and spare parts,
such as:chanrob1es virtual 1aw library
(a) Supply of electrical devices;
(b) Extra mechanical works;
(c) Extra fabrication works;

unpaid balance of P527,263.80, the defendant PASUMIL made a partial payment to the
plaintiff of P14,000.00, in broken amounts, covering the period from January 5, 1974 up
to May 23, 1974, leaving an unpaid balance of P513,263.80; that the defendant
PASUMIL and the defendant PNB, and now the defendant NASUDECO, failed and
refused to pay the plaintiff their just, valid and demandable obligation; that the
President of the NASUDECO is also the Vice-President of the PNB, and this official
holds office at the 10th Floor of the PNB, Escolta, Manila, and plaintiff besought this
official to pay the outstanding obligation of the defendant PASUMIL, inasmuch as the
defendant PNB and NASUDECO now owned and possessed the assets of the
defendant PASUMIL, and these defendants all benefited from the works, and the
electrical, as well as the engineering and repairs, performed by the plaintiff; that
because of the failure and refusal of the defendants to pay their just, valid, and
demandable obligations, plaintiff suffered actual damages in the total amount of
P513,263.80; and that in order to recover these sums, the plaintiff was compelled to
engage the professional services of counsel, to whom the plaintiff agreed to pay a sum
equivalent to 25% of the amount of the obligation due by way of attorneys fees.
Accordingly, the plaintiff prayed that judgment be rendered against the defendants
PNB, NASUDECO, and PASUMIL, jointly and severally to wit:chanrob1es virtual 1aw
library
(1) Sentencing the defendants to pay the plaintiffs the sum of P513,263.80, with
annual interest of 14% from the time the obligation falls due and demandable;

(d) Supply of materials and consumable items;


(e) Electrical shop repair;

(2) Condemning the defendants to pay attorneys fees amounting to 25% of the
amount claim;

(f) Supply of parts and related works for turbine generator;

(3) Ordering the defendants to pay the costs of the suit.

(g) Supply of electrical equipment for machinery;

"The defendants PNB and NASUDECO filed a joint motion to dismiss the complaint
chiefly on the ground that the complaint failed to state sufficient allegations to establish
a cause of action against both defendants, inasmuch as there is lack or want of privity
of contract between the plaintiff and the two defendants, the PNB and NASUDECO,
said defendants citing Article 1311 of the New Civil Code, and the case law ruling in
Salonga v. Warner Barnes & Co., 88 Phil. 125; and Manila Port Service, Et. Al. v. Court
of Appeals, Et Al., 20 SCRA 1214.

(h) Supply of diesel engine parts and other related works including fabrication of parts.
that out of the total obligation of P777,263.80, the defendant PASUMIL had paid only
P250,000.00, leaving an unpaid balance, as of June 27, 1973, amounting to
P527,263.80, as shown in the Certification of the chief accountant of the PNB, a
machine copy of which is appended as Annex C of the complaint; that out of said

"The motion to dismiss was by the court a quo denied in its Order of November 27,
1980; in the same order, that court directed the defendants to file their answer to the
complaint within 15 days.
"In their answer, the defendant NASUDECO reiterated the grounds of its motion to
dismiss, to wit:chanrob1es virtual 1aw library
That the complaint does not state a sufficient cause of action against the defendant
NASUDECO because: (a) NASUDECO is not . . . privy to the various electrical
construction jobs being sued upon by the plaintiff under the present complaint; (b) the
taking over by NASUDECO of the assets of defendant PASUMIL was solely for the
purpose of reconditioning the sugar central of defendant PASUMIL pursuant to martial
law powers of the President under the Constitution; (c) nothing in the LOI No. 189-A
(as well as in LOI No. 311) authorized or commanded the PNB or its subsidiary
corporation, the NASUDECO, to assume the corporate obligations of PASUMIL as that
being involved in the present case; and, (d) all that was mentioned by the said letter of
instruction insofar as the PASUMIL liabilities [were] concerned [was] for the PNB, or its
subsidiary corporation the NASUDECO, to make a study of, and submit [a]
recommendation on the problems concerning the same.
"By way of counterclaim, the NASUDECO averred that by reason of the filing by the
plaintiff of the present suit, which it [labeled] as unfounded or baseless, the defendant
NASUDECO was constrained to litigate and incur litigation expenses in the amount of
P50,000.00, which plaintiff should be sentenced to pay. Accordingly, NASUDECO
prayed that the complaint be dismissed and on its counterclaim, that the plaintiff be
condemned to pay P50,000.00 in concept of attorneys fees as well as exemplary
damages.
"In its answer, the defendant PNB likewise reiterated the grounds of its motion to
dismiss, namely: (1) the complaint states no cause of action against the defendant
PNB; (2) that PNB is not a party to the contract alleged in par. 6 of the complaint and
that the alleged services rendered by the plaintiff to the defendant PASUMIL upon
which plaintiffs suit is erected, was rendered long before PNB took possession of the
assets of the defendant PASUMIL under LOI No. 189-A; (3) that the PNB take-over of
the assets of the defendant PASUMIL under LOI 189-A was solely for the purpose of
reconditioning the sugar central so that PASUMIL may resume its operations in time for

the 1974-75 milling season, and that nothing in the said LOI No. 189-A, as well as in
LOI No. 311, authorized or directed PNB to assume the corporate obligation/s of
PASUMIL, let alone that for which the present action is brought; (4) that PNBs
management and operation under LOI No. 311 did not refer to any asset of PASUMIL
which the PNB had to acquire and thereafter [manage], but only to those which were
foreclosed by the DBP and were in turn redeemed by the PNB from the DBP; (5) that
conformably to LOI No. 311, on August 15, 1975, the PNB and the Development Bank
of the Philippines (DBP) entered into a Redemption Agreement whereby DBP sold,
transferred and conveyed in favor of the PNB, by way of redemption, all its (DBP)
rights and interest in and over the foreclosed real and/or personal properties of
PASUMIL, as shown in Annex C which is made an integral part of the answer; (6) that
again, conformably with LOI No. 311, PNB pursuant to a Deed of Assignment dated
October 21, 1975, conveyed, transferred, and assigned for valuable consideration, in
favor of NASUDECO, a distinct and independent corporation, all its (PNB) rights and
interest in and under the above Redemption Agreement. This is shown in Annex D
which is also made an integral part of the answer; [7] that as a consequence of the said
Deed of Assignment, PNB on October 21, 1975 ceased to manage and operate the
above-mentioned assets of PASUMIL, which function was now actually transferred to
NASUDECO. In other words, so asserted PNB, the complaint as to PNB, had become
moot and academic because of the execution of the said Deed of Assignment; [8] that
moreover, LOI No. 311 did not authorize or direct PNB to assume the corporate
obligations of PASUMIL, including the alleged obligation upon which this present suit
was brought; and [9] that, at most, what was granted to PNB in this respect was the
authority to make a study of and submit recommendation on the problems concerning
the claims of PASUMIL creditors, under sub-par. 5 LOI No. 311.
"In its counterclaim, the PNB averred that it was unnecessarily constrained to litigate
and to incur expenses in this case, hence it is entitled to claim attorneys fees in the
amount of at least P50,000.00. Accordingly, PNB prayed that the complaint be
dismissed; and that on its counterclaim, that the plaintiff be sentenced to pay defendant
PNB the sum of P50,000.00 as attorneys fees, aside from exemplary damages in such
amount that the court may seem just and equitable in the premises.
"Summons by publication was made via the Philippines Daily Express, a newspaper
with editorial office at 371 Bonifacio Drive, Port Area, Manila, against the defendant
PASUMIL, which was thereafter declared in default as shown in the August 7, 1981

Order issued by the Trial Court.


"After due proceedings, the Trial Court rendered judgment, the decretal portion of
which reads:chanrob1es virtual 1aw library

In their Memorandum, petitioners raise the following errors for the Courts
consideration:chanrob1es virtual 1aw library

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the


defendant Corporation, Philippine National Bank (PNB) NATIONAL SUGAR
DEVELOPMENT CORPORATION (NASUDECO) and PAMPANGA SUGAR MILLS
(PASUMIL), ordering the latter to pay jointly and severally the former the
following:chanrob1es virtual 1aw library

"I

1. The sum of P513,623.80 plus interest thereon at the rate of 14% per annum as
claimed from September 25, 1980 until fully paid;
2. The sum of P102,724.76 as attorneys fees; and,
3. Costs.
SO ORDERED.
Manila, Philippines, September 4, 1986.
(SGD) ERNESTO S. TENGCO

The Court of Appeals gravely erred in law in holding the herein petitioners liable for the
unpaid corporate debts of PASUMIL, a corporation whose corporate existence has not
been legally extinguished or terminated, simply because of petitioners[] take-over of
the management and operation of PASUMIL pursuant to the mandates of LOI No. 189A, as amended by LOI No. 311.
"II

The Court of Appeals gravely erred in law in not applying [to] the case at bench the
ruling enunciated in Edward J. Nell Co. v. Pacific Farms, 15 SCRA 415." 6
Succinctly put, the aforesaid errors boil down to the principal issue of whether PNB is
liable for the unpaid debts of PASUMIL to Respondent.
This Courts Ruling

Judge " 3
Ruling of the Court of Appeals

The Petition is meritorious.


Main Issue:chanrob1es virtual 1aw library

Affirming the trial court, the CA held that it was offensive to the basic tenets of justice
and equity for a corporation to take over and operate the business of another
corporation, while disavowing or repudiating any responsibility, obligation or liability
arising therefrom. 4
Hence, this Petition. 5
Issues

Liability for Corporate Debts


As a general rule, questions of fact may not be raised in a petition for review under
Rule 45 of the Rules of Court. 7 To this rule, however, there are some exceptions
enumerated in Fuentes v. Court of Appeals. 8 After a careful scrutiny of the records and
the pleadings submitted by the parties, we find that the lower courts misappreciated the
evidence presented. 9 Overlooked by the CA were certain relevant facts that would

justify a conclusion different from that reached in the assailed Decision. 10


Petitioners posit that they should not be held liable for the corporate debts of PASUMIL,
because their takeover of the latters foreclosed assets did not make them assignees.
On the other hand, respondent asserts that petitioners and PASUMIL should be treated
as one entity and, as such, jointly and severally held liable for PASUMILs unpaid
obligation.
As a rule, a corporation that purchases the assets of another will not be liable for the
debts of the selling corporation, provided the former acted in good faith and paid
adequate consideration for such assets, except when any of the following
circumstances is present: (1) where the purchaser expressly or impliedly agrees to
assume the debts, (2) where the transaction amounts to a consolidation or merger of
the corporations, (3) where the purchasing corporation is merely a continuation of the
selling corporation, and (4) where the transaction is fraudulently entered into in order to
escape liability for those debts. 11
Piercing the Corporate
Veil Not Warranted
A corporation is an artificial being created by operation of law. It possesses the right of
succession and such powers, attributes, and properties expressly authorized by law or
incident to its existence. 12 It has a personality separate and distinct from the persons
composing it, as well as from any other legal entity to which it may be related. 13 This
is basic.
Equally well-settled is the principle that the corporate mask may be removed or the
corporate veil pierced when the corporation is just an alter ego of a person or of
another corporation. 14 For reasons of public policy and in the interest of justice, the
corporate veil will justifiably be impaled 15 only when it becomes a shield for fraud,
illegality or inequity committed against third persons. 16
Hence, any application of the doctrine of piercing the corporate veil should be done
with caution. 17 A court should be mindful of the milieu where it is to be applied. 18 It
must be certain that the corporate fiction was misused to such an extent that injustice,

fraud, or crime was committed against another, in disregard of its rights. 19 The
wrongdoing must be clearly and convincingly established; it cannot be presumed. 20
Otherwise, an injustice that was never unintended may result from an erroneous
application. 21
This Court has pierced the corporate veil to ward off a judgment credit, 22 to avoid
inclusion of corporate assets as part of the estate of the decedent, 23 to escape liability
arising from a debt, 24 or to perpetuate fraud and/or confuse legitimate issues 25 either
to promote or to shield unfair objectives 26 or to cover up an otherwise blatant violation
of the prohibition against forum-shopping. 27 Only in these and similar instances may
the veil be pierced and disregarded. 28
The question of whether a corporation is a mere alter ego is one of fact. 29 Piercing the
veil of corporate fiction may be allowed only if the following elements concur: (1)
control not mere stock control, but complete domination not only of finances, but
of policy and business practice in respect to the transaction attacked, must have been
such that the corporate entity as to this transaction had at the time no separate mind,
will or existence of its own; (2) such control must have been used by the defendant to
commit a fraud or a wrong to perpetuate the violation of a statutory or other positive
legal duty, or a dishonest and an unjust act in contravention of plaintiffs legal right; and
(3) the said control and breach of duty must have proximately caused the injury or
unjust loss complained of. 30
We believe that the absence of the foregoing elements in the present case precludes
the piercing of the corporate veil. First, other than the fact that petitioners acquired the
assets of PASUMIL, there is no showing that their control over it warrants the disregard
of corporate personalities. 31 Second, there is no evidence that their juridical
personality was used to commit a fraud or to do a wrong; or that the separate corporate
entity was farcically used as a mere alter ego, business conduit or instrumentality of
another entity or person. 32 Third, respondent was not defrauded or injured when
petitioners acquired the assets of PASUMIL. 33
Being the party that asked for the piercing of the corporate veil, respondent had the
burden of presenting clear and convincing evidence to justify the setting aside of the
separate corporate personality rule. 34 However, it utterly failed to discharge this
burden; 35 it failed to establish by competent evidence that petitioners separate

corporate veil had been used to conceal fraud, illegality or inequity. 36


While we agree with respondents claim that the assets of the National Sugar
Development Corporation (NASUDECO) can be easily traced to PASUMIL, 37 we are
not convinced that the transfer of the latters assets to petitioners was fraudulently
entered into in order to escape liability for its debt to Respondent. 38

justify a wrong, protect fraud or defend crime. 52 None of the foregoing exceptions was
shown to exist in the present case. 53 On the contrary, the lifting of the corporate veil
would result in manifest injustice. This we cannot allow.
No Merger or
Consolidation

A careful review of the records reveals that DBP foreclosed the mortgage executed by
PASUMIL and acquired the assets as the highest bidder at the public auction
conducted. 39 The bank was justified in foreclosing the mortgage, because the
PASUMIL account had incurred arrearages of more than 20 percent of the total
outstanding obligation. 40 Thus, DBP had not only a right, but also a duty under the law
to foreclose the subject properties. 41
Pursuant to LOI No. 189-A 42 as amended by LOI No. 311, 43 PNB acquired
PASUMILs assets that DBP had foreclosed and purchased in the normal course.
Petitioner bank was likewise tasked to manage temporarily the operation of such
assets either by itself or through a subsidiary corporation. 44
PNB, as the second mortgagee, redeemed from DBP the foreclosed PASUMIL assets
pursuant to Section 6 of Act No. 3135. 45 These assets were later conveyed to PNB for
a consideration, the terms of which were embodied in the Redemption Agreement 46
PNB, as successor-in-interest, stepped into the shoes of DBP as PASUMILs creditor
47 By way of a Deed of Assignment, 48 PNB then transferred to NASUDECO all its
rights under the Redemption Agreement.
In Development Bank of the Philippines v. Court of Appeals, 49 we had the occasion to
resolve a similar issue. We ruled that PNB, DBP and their transferees were not liable
for Marinduque Minings unpaid obligations to Remington Industrial Sales Corporation
(Remington) after the two banks had foreclosed the assets of Marinduque Mining. We
likewise held that Remington failed to discharge its burden of proving bad faith on the
part of Marinduque Mining to justify the piercing of the corporate veil.
In the instant case, the CA erred in affirming the trial courts lifting of the corporate
mask. 50 The CA did not point to any fact evidencing bad faith on the part of PNB and
its transferee. 51 The corporate fiction was not used to defeat public convenience,

Respondent further claims that petitioners should be held liable for the unpaid
obligations of PASUMIL by virtue of LOI Nos. 189-A and 311, which expressly
authorized PASUMIL and PNB to merge or consolidate. On the other hand, petitioners
contend that their takeover of the operations of PASUMIL did not involve any corporate
merger or consolidation, because the latter had never lost its separate identity as a
corporation.
A consolidation is the union of two or more existing entities to form a new entity called
the consolidated corporation. A merger, on the other hand, is a union whereby one or
more existing corporations are absorbed by another corporation that survives and
continues the combined business. 54
The merger, however, does not become effective upon the mere agreement of the
constituent corporations. 55 Since a merger or consolidation involves fundamental
changes in the corporation, as well as in the rights of stockholders and creditors, there
must be an express provision of law authorizing them. 56 For a valid merger or
consolidation, the approval by the Securities and Exchange Commission (SEC) of the
articles of merger or consolidation is required. 57 These articles must likewise be duly
approved by a majority of the respective stockholders of the constituent corporations.
58
In the case at bar, we hold that there is no merger or consolidation with respect to
PASUMIL and PNB. The procedure prescribed under Title IX of the Corporation Code
59 was not followed.
In fact, PASUMILs corporate existence, as correctly found by the CA, had not been
legally extinguished or terminated. 60 Further, prior to PNBs acquisition of the
foreclosed assets, PASUMIL had previously made partial payments to respondent for

the formers obligation in the amount of P777,263.80. As of June 27, 1973, PASUMIL
had paid P250,000 to respondent and, from January 5, 1974 to May 23, 1974, another
P14,000.
Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL
to Respondent. 61 LOI No. 11 explicitly provides that PNB shall study and submit
recommendations on the claims of PASUMILs creditors. 62 Clearly, the corporate
separateness between PASUMIL and PNB remains, despite respondents insistence to
the contrary. 63
WHEREFORE, the Petition is hereby GRANTED and the assailed Decision SET
ASIDE. No pronouncement as to costs.chanrob1es virtua1 1aw 1ibrary
SO ORDERED.

FIRST DIVISION
[G.R. No. 48930. February 23, 1944. ]
ANTONIO VAZQUEZ, Petitioner, v. FRANCISCO DE BORJA, Respondent.
[G.R. No. 48931. February 23, 1944. ]
FRANCISCO DE BORJA, Petitioner, v. ANTONIO VAZQUEZ, Respondent.
SYLLABUS
1. CORPORATIONS; OFFICERS PERSONAL LIABILITY ON CONTRACTS. It is
well known that a corporation is an artificial being invested by law with a personality of
its own, separate and distinct from that of its stockholders and from that of its officers
who manage and run its affairs. The mere fact that its personality is owing to a legal
fiction and that it necessarily has to act thru its agents, does not make the latter
personally liable on a contract duly entered into, or for an act lawfully performed, by
them for and in its behalf. The legal fiction by which the personality of a corporation is
created is a practical reality and necessity. Without it no corporate entities may exist
and no corporate business may be transacted. Such legal fiction may be disregarded
only when an attempt is made to use it as a cloak to hide an unlawful or fraudulent
purpose. No such thing has been alleged or proven in this case. It has not been

alleged nor even intimated that Vazquez personally benefited by the contract of sale in
question and that he is merely invoking the legal fiction to avoid personal liability.
Neither is it contended that he entered into said contract for the corporation in bad faith
and with intent to defraud the plaintiff. We find no legal and factual basis upon which to
hold him liable on the contract either principally or subsidiarily.
2. ID.; ID.; NEGLIGENCE. The trial court found him guilty of negligence in the
performance of the contract and held him personally liable on that account. On the
other hand, the Court of Appeals found that he "no solamente obro con negligencia,
sino interviniendo culpa de su parte, por lo que de acuerdo con los arts. 1102, 1103 y
1902 del Codigo Civil, el debe ser responsable subsidiariamente del pago de la
cantidad objeto de la demanda." We think both the trial court and the Court of Appeals
erred in law in so holding. They have manifestly failed to distinguish a contractual from
an extracontractual obligation, or an obligation arising from contract from an obligation
arising from culpa aquiliana. The fault and negligence referred to in articles 1101-1104
of the Civil Code are those incidental to the fulfillment or nonfulfillment of a contractual
obligation; while the fault or negligence referred to in article 1902 is the culpa aquiliana
of the civil law, homologous but not identical to tort of the common law, which gives rise
to an obligation independently of any contract. (Cf. Manila R. R. Co. v. Cia.
Trasatlantica, 38 Phil., 875, 887-890; Cangco v. Manila R. R. Co., 38 Phil., 768.) The
fact that the corporation, acting thru Vazquez as its manager, was guilty of negligence
in the fulfillment of the contract, did not make Vazquez principally or even subsidiarily
liable for such negligence. Since it was the corporations contract, its nonfulfillment,
whether due to negligence or fault or to any other cause, made the corporation and not
its agent liable.
3. ID.; ID.; ID. On the other hand, independently of the contract Vazquez by his fault
or negligence caused damage to the plaintiff, he would be liable to the latter under
article 1902 of the Civil Code. But then the plaintiffs cause of action should be based
on culpa aquiliana and not on the contract alleged in his complaint herein; and
Vazquez liability would be principal and not merely subsidiary, as the Court of Appeals
has erroneously held.
4. ID.; ID.; ID.; NO CAUSE OF ACTION BASED ON "CULPA AQUILIANA" ALLEGED
IN COMPLAINT OR LITIGATED IN TRIAL COURT; NO JURISDICTION OVER THE
ISSUE. No such cause of action was alleged in the complaint or tried by express or

implied consent of the parties by virtue of section 4 of Rule 17. Hence the trial court
had no jurisdiction over the issue and could not adjudicate upon it. (Reyes v. Diaz, G.
R. No. 48754.) Consequently it was error for the Court of Appeals to remand the case
to the trial court to try and decide such issue.

DECISION

OZAETA, J.:

This action was commenced in the Court of First Instance of Manila by Francisco de
Borja against Antonio Vazquez and Fernando Busuego to recover from them jointly and
severally the total sum of P4,702.70 upon three alleged causes of action, to wit: First,
that in or about the month of January, 1932, the defendants jointly and severally
obligated themselves to sell to the plaintiff 4,000 cavans of palay at P2.10 per cavan, to
be delivered during the month of February, 1932, the said defendants having
subsequently received from the plaintiff in virtue of said agreement the sum of P8,400;
that the defendants delivered to the plaintiff during the months of February, March, and
April, 1932, only 2,488 cavans of palay of the value of P5,224.80 and refused to deliver
the balance of 1,512 cavans of the value of P3,175.20 notwithstanding repeated
demands. Second, that because of defendants refusal to deliver to the plaintiff the said
1,512 cavans of palay within the period above mentioned, the plaintiff suffered
damages in the sum of P1,000. And, third, that on account of the agreement above
mentioned the plaintiff delivered to the defendants 4,000 empty sacks, of which they
returned to the plaintiff only 2,490 and refused to deliver to the plaintiff the balance of
1,510 sacks or to pay their value amounting to P377.50; and that on account of such
refusal the plaintiff suffered damages in the sum of P150.
The defendant Antonio Vazquez answered the complaint, denying having entered into
the contract mentioned in the first cause of action in his own individual and personal
capacity, either solely or together with his codefendant Fernando Busuego, and
alleging that the agreement for the purchase of 4,000 cavans of palay and the payment
of the price of P8,400 were made by the plaintiff with and to the Natividad-Vazquez
Sabani Development Co., Inc., a corporation organized and existing under the laws of
the Philippines, of which the defendant Antonio Vazquez was the acting manager at the
time the transaction took place. By way of counterclaim, the said defendant alleged

that he suffered damages in the sum of P1,000 on account of the filing of this action
against him by the plaintiff with full knowledge that the said defendant had nothing to
do whatever with any and all of the transactions mentioned in the complaint in his own
individual and personal capacity.
The trial court rendered judgment ordering the defendant Antonio Vazquez to pay to the
plaintiff the sum of P3,175.20 plus the sum of P377.50, with legal interest on both
sums, and absolving the defendant Fernando Busuego (treasurer of the corporation)
from the complaint and the plaintiff from the defendant Antonio Vazquez counterclaim.
Upon appeal to the Court of Appeals, the latter modified that judgment by reducing it to
the total sum of P3,314.78, with legal interest thereon and the costs. But by a
subsequent resolution upon the defendants motion for reconsideration, the Court of
Appeals set aside its judgment and ordered that the case be remanded to the court of
origin for further proceedings. The defendant Vazquez, not being agreeable to that
result, filed the present petition for certiorari (G.R. No. 48930) to review and reverse
the judgment of the Court of Appeals; and the plaintiff Francisco de Borja, excepting to
the resolution of the Court of Appeals whereby its original judgment was set aside and
the case was ordered remanded to the court of origin for further proceedings, filed a
cross-petition for certiorari (G.R. No. 48931) to maintain the original judgment of the
Court of Appeals.
The original decision of the Court of Appeals and its subsequent resolutions on
reconsideration read as follows:jgc:chanrobles.com.ph
"Es hecho no controvertido que el 25 de Febrero de 1932, el demandado-apelante
vendio al demandante 4,000 cavanes de palay al precio de P2.10 el cavan, de los
cuales, dicho demandante solamente recibio 2,583 cavanes; y que asimismo recibio
para su envase 4,000 sacos vacios. Esta probado que de dichos 4,000 sacos vacios
solamente se entregaron, 2,583 quedando en poder del demandado el resto, y cuyo
valor es el de P0.24 cada uno. Presentada la demanda contra los demandados
Antonio Vazquez y Fernando Busuego para el pago de la cantidad de P4,702.70, con
sus intereses legales desde el 1.0 de marzo de 1932 hasta su completeo pago y las
costas, el Juzgado de Primera Instancia de Manila fallo el asunto condenando a
Antonio Vazquez a pagar al demandante la cantidad de P3,175.20, mas la cantidad de
P377.50, con sus intereses legales, absolviendo al demandado Fernando Busuego de
la demanda y al demandante de la reconvencion de los demandados, sin especial

pronunciamiento en cuanto a las costas. De dicha decision apelo el demandado


Antonio Vazquez, apuntando como principal error el de que el habia sido condenado
personalmente, y no la corporacion por el representada.
"Segun la preponderancia de las pruebas, la venta hecha por Antonio Vazquez a favor
de Francisco de Borja de los 4,000 cavanes de palay fue en su capacidad de
Presidente interino y Manager de la corporacion Natividad-Vazquez Sabani
Development Co., Inc. Asi resulta del Exh. 1, que es la copia al carbon del recibo
otorgado por el demandado Vazquez, y cuyo original lo habia perdido el demandante,
segun el. Asi tambien consta en los libros de la corporacion arriba mencionada, puesto
que en los mismos se ha asentado tanto la entrada de los P8,400, precio del palay,
como su envio al gobierno en pago de los alquileres de la Hacienda Sabani. Asi mismo
lo admitio Francisco de Borja al abogado Sr. Jacinto Tomacruz, posterior presidente de
la corporacion sucesora en el arrendamiento de la Sabani Estate, cuando el solicito
sus buenos oficios para el cobro del precio del palay no entregado. Asi igualmente lo
declaro el que hizo entrega de parte del palay a Borja, Felipe Veneracion, cuyo
testimonio no ha sido refutado. Y asi se deduce de la misma demanda, cuando se
incluyo en ella a Fernando Busuego, tesorero de la Natividad-Vazquez Sabani
Development Co., Inc.
"Siendo esto asi, la principal responsable debe ser la Natividad- Vazquez Sabani
Development Co., Inc., que quedo insolvente y dejo de existir. El Juez sentenciador
declaro, sin embargo, al demandado Vazquez responsable del pago de la cantidad
reclamada por su negligencia al vender los referidos 4,000 cavanes de palay sin
averiguar antes si o no dicha cantidad existia en las bodegas de la corporacion.
"Resulta del Exh. 8 que despues de la venta de los 4,000 cavanes de palay a
Francisco de Borja, el mismo demandado vendio a Kwong Ah Phoy 1,500 cavanes al
precio de P2.00 el cavan, y decimos despues porque esta ultima venta aparece
asentada despues de la primera. Segun esto, el apelante no solamente obro con
negligencia, sino interviniendo culpa de su parte, por lo que de acuerdo con los arts.
1102, 1103 y 1902 del Codigo Civil, el debe ser responsable subsidiariamente del pago
de la cantidad objeto de la demanda.
"En meritos de todo lo expuesto, se confirma la decision apelada con la modificacion
de que el apelante debe pagar al apelado la suma de P2,975.70 como valor de los

1,417 cavanes de palay que dejo de entregar al demandante, mas la suma de P339.08
como importe de los 1,417 sacos vacios, que dejo de devolver, a razon de P0.24 el
saco, total P3,314.78, con sus intereses legales desde la interposicion de la demanda
y las costas de ambas instancias."cralaw virtua1aw library
"Vista la mocion de reconsideracion de nuestra decision de fecha 13 de Octubre de
1942, y alegandose en la misma que cuando el apelante vendio los 1,500 cavanes de
palay a Ah Phoy, la corporacion todavia tenia bastante existencia de dicho grano, y no
estando dicho extremo suficientemente discutido y probado, y pudiendo variar el
resultado del asunto, dejamos sin efecto nuestra citada decision, y ordenamos la
devolucion de la causa al Juzgado de origen para que reciba pruebas al efecto y dicte
despues la decision correspondiente."cralaw virtua1aw library
"Upon consideration of the motion of the attorney for the plaintiff-appellee in case CAG.R. No. 8676, Francisco de Borja v. Antonio Vazquez Et. Al., praying, for the reasons
therein given, that the resolution of December 22, 1942, be reconsidered: Considering
that said resolution remanding the case to the lower court is for the benefit of the
plaintiff-appellee to afford him opportunity to refute the contention of the defendantappellant Antonio Vazquez, motion denied."cralaw virtua1aw library
The action is on a contract, and the only issue pleaded and tried is whether the plaintiff
entered into the contract with the defendant Antonio Vazquez in his personal capacity
or as manager of the Natividad-Vazquez Sabani Development Co., Inc. The Court of
Appeals found that according to the preponderance of the evidence "the sale made by
Antonio Vazquez in favor of Francisco de Borja of 4,000 cavans of palay was in his
capacity as acting president and manager of the corporation Natividad-Vazquez Sabani
Development Co., Inc." That finding of fact is final and, it resolving the only issue
involved, should be determinative of the result.
The Court of Appeals doubly erred in ordering that the cause be remanded to the court
of origin for further trial to determine whether the corporation had sufficient stock of
palay at the time appellant sold 1,500 cavans of palay to Kwong Ah Phoy. First, if that
point was material to the issue, it should have been proven during the trial; and the
statement of the court that it had not been sufficiently discussed and proven was no
justification for ordering a new trial, which, by the way, neither party had solicited but
against which, on the contrary, both parties now vehemently protest. Second, the point

is, in any event, beside the issue, and this we shall now discuss in connection with the
original judgment of the Court of Appeals which the plaintiff cross-petitioner seeks to
maintain.
The action being on a contract, and it appearing from the preponderance of the
evidence that the party liable on the contract is the Natividad-Vazquez Sabani
Development Co., Inc., which is not a party herein, the complaint should have been
dismissed. Counsel for the plaintiff, in his brief as respondent, argues that altho by the
preponderance of the evidence the trial court and the Court of Appeals found that
Vazquez celebrated the contract in his capacity as acting president of the corporation
and altho it was the latter, thru Vazquez, with which the plaintiff had contracted and
which, thru Vazquez, had received the sum of P8,400 from Borja, and altho that was
true from the point of view of a legal fiction, "ello no impide que tambien sea verdad lo
alegado en la demanda de que la persona de Vazquez fue la que contrato con Borja y
que la misma persona de Vazquez fue quien recibio la suma de P8,400." But such
argument is invalid and insufficient to show that the president of the corporation is
personally liable on the contract duly and lawfully entered into by him in its behalf.
It is well known that a corporation is an artificial being invested by law with a
personality of its own, separate and distinct from that of its stockholders and from that
of its officers who manage and run its affairs. The mere fact that its personality is owing
to a legal fiction and that it necessarily has to act thru its agents, does not make the
latter personally liable on a contract duly entered into, or for an act lawfully performed,
by them for and in its behalf. The legal fiction by which the personality of a corporation
is created is a practical reality and necessity. Without it no corporate entities may exist
and no corporate business may be transacted. Such legal fiction may be disregarded
only when an attempt is made to use it as a cloak to hide an unlawful or fraudulent
purpose. No such thing has been alleged or proven in this case. It has not been
alleged nor even intimated that Vazquez personally benefited by the contract of sale in
question and that he is merely invoking the legal fiction to avoid personal liability.
Neither is it contended that he entered into said contract for the corporation in bad faith
and with intent to defraud the plaintiff. We find no legal and factual basis upon which to
hold him liable on the contract either principally or subsidiarily.
The trial court found him guilty of negligence in the performance of the contract and
held him personally liable on that account. On the other hand, the Court of Appeals

found that he "no solamente obro con negligencia, sino interviniendo culpa de su parte,
por lo que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser
responsable subsidiariamente del pago de la cantidad objeto de la demanda." We think
both the trial court and the Court of Appeals erred in law in so holding. They have
manifestly failed to distinguish a contractual from an extracontractual obligation, or an
obligation arising from contract from an obligation arising from culpa aquiliana. The
fault and negligence referred to in articles 1101-1104 of the Civil Code are those
incidental to the fulfillment or nonfulfillment of a contractual obligation; while the fault or
negligence referred to in article 1902 is the culpa aquiliana of the civil law, homologous
but not identical to tort of the common law, which gives rise to an obligation
independently of any contract. (Cf. Manila R. R. Co. v. Cia. Trasatlantica, 38 Phil., 875,
887-890; Cangco v. Manila R. R. Co., 38 Phil., 768.) The fact that the corporation,
acting thru Vazquez as its manager, was guilty of negligence in the fulfillment of the
contract, did not make Vazquez principally or even subsidiarily liable for such
negligence. Since it was the corporations contract, its nonfulfillment, whether due to
negligence or fault or to any other cause, made the corporation and not its agent
liable.
On the other hand, if independently of the contract Vazquez by his fault or negligence
caused damage to the plaintiff, he would be liable to the latter under article 1902 of the
Civil Code. But then the plaintiffs cause of action should be based on culpa aquiliana
and not on the contract alleged in his complaint herein; and Vazquez liability would be
principal and not merely subsidiary, as the Court of Appeals has erroneously held. No
such cause of action was alleged in the complaint or tried by express or implied
consent of the parties by virtue of section 4 of Rule 17. Hence the trial court had no
jurisdiction over the issue and could not adjudicate upon it. (Reyes v. Diaz, G. R. No.
48754.) Consequently it was error for the Court of Appeals to remand the case to the
trial court to try and decide such issue.
It only remains for us to consider petitioners second assignment of error referring to
the lower courts refusal to entertain his counterclaim for damages against the
respondent Borja arising from the bringing of this action. The lower courts having
sustained plaintiffs action, they naturally could not have entertained defendants
counterclaim for damages on account of the bringing of the action. The finding of the
Court of Appeals that according to the preponderance of the evidence the defendant
Vazquez celebrated the contract not in his personal capacity but as acting president

and manager of the corporation, does not warrant his contention that the suit against
him is malicious and tortious; and since we have to decide defendants counterclaim
upon the facts found by the Court of Appeals, we find no sufficient basis upon which to
sustain said counterclaim. Indeed, we feel that as a matter of moral justice we ought to
state here that the indignant attitude adopted by the defendant towards the plaintiff for
having brought this action against him is in our estimation not wholly right. Altho from
the legal point of view he was not personally liable for the fulfillment of the contract
entered into by him on behalf of the corporation of which he was the acting president
and manager, we think it was his moral duty towards the party with whom he
contracted in said capacity to see to it that the corporation represented by him fulfilled
the contract by delivering the palay it had sold, the price of which it had already
received. Recreant to such duty as a moral person, he has no legitimate cause for
indignation. We feel that under the circumstances he not only has no cause of action
against the plaintiff for damages but is not even entitled to costs.
The judgment of the Court of Appeals is reversed, and the complaint is hereby
dismissed, without any finding as to costs.
Yulo, C.J., Moran, Horrilleno, and Bocobo, JJ., concur.
Separate Opinions

contract between the plaintiff and Natividad- Vazquez Sabani Development Co., Inc.,
which is not a party to this case. Nevertheless, inasmuch as it was proven at the trial
that the defendant was guilty of fault in that he prevented the performance of the
plaintiffs contract and also of negligence bordering on fraud which caused damage to
the plaintiff, the error of procedure should not be a hindrance to the rendition of a
decision in accordance with the evidence actually introduced by the parties, especially
when in such a situation we may order the necessary amendment of the pleadings, or
even consider them correspondingly amended.
As already stated, the corporation of which the defendant was acting president and
manager was, at the time he made the sale to the plaintiff, known to him to be
insolvent. As a matter of fact, said corporation was soon thereafter dissolved. There is
admitted damage on the part of the plaintiff, proven to have been inflicted by reason of
the fault or negligence of the defendant. In the interest of simple justice and to avoid
multiplicity of suits I am therefore impelled to consider the present action as one based
on fault or negligence and to sentence the defendant accordingly. Otherwise, he would
be allowed to profit by his own wrong under the protective cover of the corporate
existence of the company he represented. It cannot be pretended that any advantage
under the sale inured to the benefit of Natividad-Vazquez Sabani Development Co.,
Inc., and not of the defendant personally, since the latter undoubtedly owned a
considerable part of its capital.

PARAS, J., dissenting:chanrob1es virtual 1aw library


FIRST DIVISION
Upon the facts of this case as expressly or impliedly admitted in the majority opinion,
the plaintiff is entitled to a judgment against the defendant. The latter, as acting
president and manager of Natividad-Vazquez Sabani Development Co., Inc., and with
full knowledge of the then insolvent status of his company, agreed to sell to the plaintiff
4,000 cavans of palay. Notwithstanding the receipt from the plaintiff of the full purchase
price, the defendant delivered only 2,488 cavans and failed and refused to deliver the
remaining 1,512 cavans and a quantity of empty sacks, or their value. Such failure
resulted, according to the Court of First Instance of Manila and the Court of Appeals,
from his fault or negligence.
It is true that the cause of action made out by the complaint is technically based on a

[G.R. No. 119002. October 19, 2000.]


INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., Petitioner, v. HON.
COURT OF APPEALS, HENRI KAHN, PHILIPPINES FOOTBALL
FEDERATION,Respondents.
DECISION

KAPUNAN, J.:

On June 30 1989, petitioner International Express Travel and Tour Services, Inc.,
through its managing director, wrote a letter to the Philippine Football Federation
(Federation), through its president private respondent Henri Kahn, wherein the former
offered its services as a travel agency to the latter. 1
The offer was accepted.chanrob1es virtua1 1aw 1ibrary
Petitioner secured the airline tickets for the trips of the athletes and officials of the
Federation to the South East Asian Games in Kuala Lumpur as well as various other
trips to the Peoples Republic of China and Brisbane. The total cost of the tickets
amounted to P449,654.83. For the tickets received, the Federation made two partial
payments, both in September of 1989, in the total amount of P176,467.50. 2
On 4 October 1989, petitioner wrote the Federation, through the private respondent a
demand letter requesting for the amount of P265,894.33. 3 On 30 October 1989, the
Federation, through the Project Gintong Alay, paid the amount of P31,603.00. 4

On the other hand, the Federation failed to file its answer, hence, was declared in
default by the trial court. 8
In due course, the trial court rendered judgment and ruled in favor of the petitioner and
declared Henri Kahn personally liable for the unpaid obligation of the Federation. In
arriving at the said ruling, the trial court rationalized:chanrob1es virtual 1aw library
Defendant Henri Kahn would have been correct in his contentions had it been duly
established that defendant Federation is a corporation The trouble, however, is that
neither the plaintiff nor the defendant Henri Kahn has adduced any evidence proving
the corporate existence of the defendant Federation. In paragraph 2 of its complaint,
plaintiff asserted that "defendant Philippine Football Federation is a sports association .
. ." This has not been denied by defendant Henri Kahn in his Answer. Being the
President of defendant Federation, its corporate existence is within the personal
knowledge of defendant Henri Kahn. He could have easily denied specifically the
assertion of the plaintiff that it is a mere sports association if it were a domestic
corporation. But he did not.
x

On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000
as partial payment for the outstanding balance of the Federation. 5 Thereafter, no
further payments were made despite repeated demands.chanrob1es virtua1 1aw
1ibrary
This prompted petitioner to file a civil case before the Regional Trial Court of Manila.
Petitioner sued Henri Kahn in his personal capacity and as President of the Federation
and impleaded the Federation as an alternative defendant. Petitioner sought to hold
Henri Kahn liable for the unpaid balance for the tickets purchased by the Federation on
the ground that Henri Kahn allegedly guaranteed the said obligation. 6
Henri Kahn filed his answer with counterclaim. While not denying the allegation that the
Federation owed the amount P207,524.20, representing the unpaid balance for the
plane tickets, he averred that the petitioner has no cause of action against him either in
his personal capacity or in his official capacity as president of the Federation. He
maintained that he; did not guarantee payment but merely acted as an agent of the
Federation which has a separate and distinct juridical personality. 7

A voluntary unincorporated association, like defendant Federation has no power to


enter into, or to ratify, a contract. The contract entered into by its officers or agents on
behalf of such association is not binding on, or enforceable against it. The officers or
agents are themselves personally liable.
x

x9

The dispositive portion of the trial courts decision reads:chanrob1es virtual 1aw library
WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the plaintiff
the principal sum of P207,524.20, plus the interest thereon at the legal rate computed
from July 5, 1990, the date the complaint was filed, until the principal obligation is fully
liquidated; and another sum of P15,000.00 for attorneys fees.chanrob1es virtua1 1aw
1ibrary
The complaint of the plaintiff against the Philippine Football Federation and the

counterclaims of the defendant Henri Kahn are hereby dismissed.


With the costs against defendant Henri Kahn. 10
Only Henri Kahn elevated the above decision to the Court of Appeals. On 21
December 1994, the respondent court rendered a decision reversing the trial court, the
decretal portion of said decision reads:chanrob1es virtual 1aw library
WHEREFORE, premises considered, the judgment appealed from is hereby
REVERSED and SET ASIDE and another one is rendered dismissing the complaint
against defendant Henri S. Kahn. 11
In finding for Henri Kahn, the Court of Appeals recognized the juridical existence of the
Federation. It rationalized that since petitioner failed to prove that Henri Kahn
guaranteed the obligation of the Federation, he should not be held liable for the same
as said entity has a separate and distinct personality from its officers.
Petitioner filed a motion for reconsideration and as an alternative prayer pleaded that
the Federation be held liable for the unpaid obligation. The same was denied by the
appellate court in its resolution of 8 February 1995, where it stated that:chanrob1es
virtua1 1aw 1ibrary
As to the alternative prayer for the Modification of the Decision by expressly declaring
in the dispositive portion thereof the Philippine Football Federation (PFF) as liable for
the unpaid obligation, it should be remembered that the trial court dismissed the
complaint against the Philippine Football Federation, and the plaintiff did not appeal
from this decision. Hence, the Philippine Football Federation is not a party to this
appeal and consequently, no judgment may be pronounced by this Court against the
PFF without violating the due process clause, let alone the fact that the judgment
dismissing the complaint against it, had already become final by virtue of the plaintiffs
failure to appeal therefrom. The alternative prayer is therefore similarly DENIED. 12
Petitioner now seeks recourse to this Court and alleges that the respondent court
committed the following assigned errors: 13

PETITIONER HAD DEALT WITH THE PHILIPPINE FOOTBALL FEDERATION (PFF)


AS A CORPORATE ENTITY AND IN NOT HOLDING THAT PRIVATE RESPONDENT
HENRI KAHN WAS THE ONE, WHO REPRESENTED THE PFF AS HAVING
CORPORATE PERSONALITY.
B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE
RESPONDENT HENRI KAHN PERSONALLY LIABLE FOR THE OBLIGATION OF
THE UNINCORPORATED PFF, HAVING NEGOTIATED WITH PETITIONER AND
CONTRACTED THE OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL
PAYMENT AN ASSURED PETITIONER OF FULLY SETTLING THE OBLIGATION.
C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT
PERSONALLY LIABLE, THE HONORABLE COURT OF APPEALS ERRED IN NOT
EXPRESSLY DECLARING IN ITS DECISION THAT THE PFF IS SOLELY LIABLE
FOR THE OBLIGATION.chanrob1es virtua1 1aw 1ibrary
The resolution of the case at bar hinges on the determination of the existence of the
Philippine Football Federation as a juridical person. In the assailed decision, the
appellate court recognized the existence of the Federation. In support of this, the CA
cited Republic Act 3135, otherwise known as the Revised Charter of the Philippine
Amateur Athletic Federation, and Presidential Decree No. 604 as the laws from which
said Federation derives its existence.chanrob1es virtua1 1aw 1ibrary
As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604
recognized the juridical existence of national sports associations. This may be gleaned
from the powers and functions granted to these associations. Section 14 of R.A. 3135
provides:chanrob1es virtual 1aw library
SECTION 14. Functions, powers and duties of Associations. The National Sports
Association shall have the following functions, powers and duties:chanrob1es virtual
1aw library
1. To adopt a constitution and by-laws for their internal organization and government.
2. To raise funds by donations benefits, and other means for their purposes.

A. THE, HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT

3. To purchase, sell, lease or otherwise encumber property both real and personal, for
the accomplishment of their purpose;

4. To affiliate with international or regional sports Associations after due consultation


with the executive committee;

13. Perform such other functions as may be provided by law.

13. To perform such other acts as may be necessary for the proper accomplishment of
their purposes and not inconsistent with this Act.
Section 8 of P.D. 604, grants similar functions to these sports associations:chanrob1es
virtual 1aw library
SECTION. 8. Functions, Powers, and Duties of National Sports Association. The
National sports associations shall have the following functions, powers, and
duties:chanrob1es virtual 1aw library
1. Adopt a Constitution and By-Laws for their internal organization and government
which shall be submitted to the Department and any amendment hereto shall take
effect upon approval by the Department: Provided, however, That no team, school,
club, organization or entity shall be admitted as a voting member of an association
unless 60 per cent of the athletes composing said team, school, club, organization or
entity are Filipino citizens.
2. Raise funds by donations, benefits, and other means for their purpose subject to the
approval of the Department;
3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for
the accomplishment of their purpose;
4. Conduct local, interport, and international competitions, other than the Olympic and
Asian Games, for the promotion of their sport;
5. Affiliate with international or regional sports associations after due consultation with
the Department;

The above powers and functions granted to national sports associations clearly
indicate that these entities may acquire a juridical personality. The power to purchase,
sell, lease and encumber property are acts which may only be done by persons,
whether natural or artificial, with juridical capacity. However, while we agree with the
appellate court that national sports associations may be accorded corporate status,
such does not automatically take place by the mere passage of these laws.chanrob1es
virtua1 1aw 1ibrary
It is a basic postulate that before a corporation may acquire juridical personality, the
State must give its consent either in the form of a special law or a general enabling act.
We cannot agree with the view of the appellate court; and the private respondent that
the Philippine Football Federation came into existence upon the passage of these
laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the
Philippine Football Federation. These laws merely recognized the existence of national
sports associations and provided the manner by which these entities may acquire
juridical personality. Section 11 of R.A. 3135 provides:chanrob1es virtual 1aw library
SECTION 11. National Sports Association; organization and recognition. A National
Association shall be organized for each individual sports in the Philippines in the
manner hereinafter provided to constitute the Philippine Amateur Athletic Federation.
Applications for recognition as a National Sports Association shall be filed with the
executive committee together with, among others, a copy of the constitution and bylaws and a list of the members of the proposed association, and a filing fee of ten
pesos.
The Executive Committee shall give the recognition applied for if it is satisfied that said
association will promote the purposes of this Act and particularly section three thereof.
No application shall be held pending for more than three months after the filing thereof
without any action having been taken thereon by the executive committee. Should the
application be rejected, the reasons for such rejection shall be clearly stated in a
written communication to the applicant. Failure to specify the reasons for the rejection

shall not affect the application which shall be considered as unacted upon: Provided
however, That until the executive committee herein provided shall have been formed,
applications for recognition shall be passed upon by the duly elected members of the
present executive committee of the Philippine Amateur Athletic Federation. The said
executive committee shall be dissolved upon the organization of the executive
committee herein provided: Provided, further, That the functioning executive committee
is charged with the responsibility of seeing to it that the National Sports Associations
are formed and organized within six months from and after the passage of this
Act.chanrob1es virtua1 1aw 1ibrary

Federation has indeed been recognized and accredited by either the Philippine
Amateur Athletic Federation or the Department of Youth and Sports Development.
Accordingly, we rule that the Philippine Football Federation is not a national sports
association within the purview of the aforementioned laws and does not have corporate
existence of its own.chanrob1es virtua1 1aw 1ibrary

The Department shall give the recognition applied for if it is satisfied that the national
sports association to be organized will promote the objectives of this Decree and has
substantially complied with the rules and regulations of the Department: Provided, That
the Department may withdraw accreditation or recognition for violation of this Decree
and such rules and regulations formulated by it.

Thus being said, it follows that private respondent Henry Kahn should be held liable for
the unpaid obligations of the unincorporated Philippine Football Federation. It is a
settled principal in corporation law that any person acting or purporting to act on behalf
of a corporation which has no valid existence assumes such privileges and becomes
personally liable for contract entered into or for other acts performed as such agent. 14
As president of the Federation, Henri Kahn is presumed to have known about the
corporate existence or non-existence of the Federation. We cannot subscribe to the
position taken by the appellate court that even assuming that the Federation was
defectively incorporated, the petitioner cannot deny the corporate existence of the
Federation because it had contracted and dealt with the Federation in such a manner
as to recognize and in effect admit its existence. 15 The doctrine of corporation by
estoppel is mistakenly applied by the respondent court to the petitioner. The application
of the doctrine applies to a third party only when he tries to escape liabilities on a
contract from which he has benefited on the irrelevant ground of defective
incorporation. 16 In the case at bar, the petitioner is not trying to escape liability from
the contract but rather is the one claiming from the contract.

The Department shall supervise the national sports association: Provided, That the
latter shall have exclusive technical control over the development and promotion of the
particular sport for which they are organized.

WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The
decision of the Regional Trial Court of Manila, Branch 35, in Civil Case No. 90-53595 is
hereby REINSTATED.

Clearly the above cited provisions require that before an entity may be considered as a
national sports association, such entity must be recognized by the accrediting
organization, the Philippine, Amateur Athletic Federation under R.A. 3135, and the
Department of Youth and Sports Development under P.D. 604.

SO ORDERED.

Section 7 of P.D. 604, similarly provides:chanrob1es virtual 1aw library


SECTION 7. National Sports Associations: Application for accreditation or
recognition as a national sports association for each individual sport in the Philippines
shall be filed with the Department together with, among others, a copy of the
Constitution and By-Laws and a list of the members of the proposed association.

This fact of recognition, however, Henri Kahn failed to substantiate. In attempting to


prove the juridical existence of the Federation, Henri Kahn attached to his motion for
reconsideration before the trial court a copy of the constitution and by-laws of the
Philippine, Football Federation. Unfortunately, the same does not prove that said

Right of Succession
EN BANC
G.R. No. 184517, October 08, 2013

SME BANK INC., ABELARDO P. SAMSON, OLGA SAMSON AND AURELIO


VILLAFLOR, JR., Petitioners, v. PEREGRIN T. DE GUZMAN, EDUARDO M.
AGUSTIN, JR., ELICERIO GASPAR, RICARDO GASPAR JR., EUFEMIA ROSETE,
FIDEL ESPIRITU, SIMEON ESPIRITU, JR., AND LIBERATO
MANGOBA, Respondents.

bank officials proposed its sale to Abelardo Samson (Samson). 8cralawlibrary


Accordingly, negotiations ensued, and a formal offer was made to Samson. Through
his attorney-in-fact, Tomas S. Gomez IV, Samson then sent formal letters (Letter
Agreements) to Agustin and De Guzman, demanding the following as preconditions for
the sale of SME Banks shares of stock:chanroblesvirtualawlibrary

G.R. No. 186641, October 08, 2013


4.
SME BANK INC., ABELARDO P. SAMSON, OLGA SAMSON AND AURELIO
VILLAFLOR, JR., Petitioners, v. ELICERIO GASPAR, RICARDO GASPAR, JR.,
EUFEMIA ROSETE, FIDEL ESPIRITU, SIMEON ESPIRITU, JR., AND LIBERATO
MANGOBA, Respondents.
DECISION
SERENO, C.J.:
Security of tenure is a constitutionally guaranteed right. 1 Employees may not be
terminated from their regular employment except for just or authorized causes under
the Labor Code2and other pertinent laws. A mere change in the equity composition of a
corporation is neither a just nor an authorized cause that would legally permit the
dismissal of the corporations employees en masse.
Before this Court are consolidated Rule 45 Petitions for Review on Certiorari3 assailing
the Decision4 and Resolution5 of the Court of Appeals (CA) in CA-G.R. SP No. 97510
and its Decision6and Resolution7 in CA-G.R. SP No. 97942.
The facts of the case are as follows:chanroblesvirtualawlibrary
Respondent employees Elicerio Gaspar (Elicerio), Ricardo Gaspar, Jr. (Ricardo),
Eufemia Rosete (Eufemia), Fidel Espiritu (Fidel), Simeon Espiritu, Jr. (Simeon, Jr.), and
Liberato Mangoba (Liberato) were employees of Small and Medium Enterprise Bank,
Incorporated (SME Bank). Originally, the principal shareholders and corporate directors
of the bank were Eduardo M. Agustin, Jr. (Agustin) and Peregrin de Guzman, Jr. (De
Guzman).
In June 2001, SME Bank experienced financial difficulties. To remedy the situation, the

You shall guarantee the peaceful turn over of all assets as well as the
peaceful transition of management of the bank and shall terminate/retire the
employees we mutually agree upon, upon transfer of shares in favor of our
groups nominees;

xxxx
7.

All retirement benefits, if any of the above officers/stockholders/board of


directors are hereby waived upon cosummation [sic] of the above sale. The
retirement benefits of the rank and file employees including the managers shall be
honored by the new management in accordance with B.R. No. 10, S. 1997. 9

Agustin and De Guzman accepted the terms and conditions proposed by Samson and
signed the conforme portion of the Letter Agreements.10cralawlibrary
Simeon Espiritu (Espiritu), then the general manager of SME Bank, held a meeting with
all the employees of the head office and of the Talavera and Muoz branches of SME
Bank and persuaded them to tender their resignations, 11 with the promise that they
would be rehired upon reapplication. His directive was allegedly done at the behest of
petitioner Olga Samson.12cralawlibrary
Relying on this representation, Elicerio,13 Ricardo,14 Fidel,15 Simeon, Jr.,16 and
Liberato17 tendered their resignations dated 27 August 2001. As for Eufemia, the
records show that she first tendered a resignation letter dated 27 August 2001, 18 and
then a retirement letter dated September 2001. 19cralawlibrary
Elicerio,20 Ricardo,21 Fidel,22 Simeon, Jr.,23 and Liberato24 submitted application letters
on 11 September 2001. Both the resignation letters and copies of respondent
employees application letters were transmitted by Espiritu to Samsons representative
on 11 September 2001.25cralawlibrary

On 11 September 2001, Agustin and De Guzman signified their conformity to the Letter
Agreements and sold 86.365% of the shares of stock of SME Bank to spouses
Abelardo and Olga Samson. Spouses Samson then became the principal shareholders
of SME Bank, while Aurelio Villaflor, Jr. was appointed bank president. As it turned out,
respondent employees, except for Simeon, Jr.,26 were not rehired. After a month in
service, Simeon, Jr. again resigned on October 2001. 27cralawlibrary
Respondent-employees demanded the payment of their respective separation pays,
but their requests were denied.
Aggrieved by the loss of their jobs, respondent employees filed a Complaint before the
National Labor Relations Commission (NLRC) Regional Arbitration Branch No. III and
sued SME Bank, spouses Abelardo and Olga Samson and Aurelio Villaflor (the
Samson Group) for unfair labor practice; illegal dismissal; illegal deductions;
underpayment; and nonpayment of allowances, separation pay and 13 th month
pay.28 Subsequently, they amended their Complaint to include Agustin and De Guzman
as respondents to the case.29cralawlibrary
On 27 October 2004, the labor arbiter ruled that the buyer of an enterprise is not bound
to absorb its employees, unless there is an express stipulation to the contrary.
However, he also found that respondent employees were illegally dismissed, because
they had involuntarily executed their resignation letters after relying on representations
that they would be given their separation benefits and rehired by the new management.
Accordingly, the labor arbiter decided the case against Agustin and De Guzman, but
dismissed the Complaint against the Samson Group, as
follows:chanroblesvirtualawlibrary
WHEREFORE, premises considered, judgment is hereby rendered ordering
respondents Eduardo Agustin, Jr. and Peregrin De Guzman to pay complainants
separation pay in the total amount of P339,403.00 detailed as
follows:chanroblesvirtualawlibrary
Elicerio B.
=P5,837.00
Gaspar
Ricardo B.
=P11,674.00
Gaspar, Jr.
Liberato B.
=P64,207.00
Mangoba
Fidel E.
=P29,185.00

Espiritu
Simeon B.
=P26,000.00
Espiritu, Jr.
Eufemia E.
P202,510.0
=
Rosete
0
All other claims including the complaint against Abelardo Samson, Olga Samson and
Aurelio Villaflor are hereby DISMISSED for want of merit.
SO ORDERED.30
Dissatisfied with the Decision of the labor arbiter, respondent employees, Agustin and
De Guzman brought separate appeals to the NLRC. Respondent employees
questioned the labor arbiters failure to award backwages, while Agustin and De
Guzman contended that they should not be held liable for the payment of the
employees claims.
The NLRC found that there was only a mere transfer of shares and therefore, a mere
change of management from Agustin and De Guzman to the Samson Group. As the
change of management was not a valid ground to terminate respondent bank
employees, the NLRC ruled that they had indeed been illegally dismissed. It further
ruled that Agustin, De Guzman and the Samson Group should be held jointly and
severally liable for the employees separation pay and backwages, as
follows:chanroblesvirtualawlibrary
WHEREFORE, premises considered, the Decision appealed from is
hereby MODIFIED. Respondents are hereby Ordered to jointly and severally pay the
complainants backwages from 11 September 2001 until the finality of this Decision,
separation pay at one month pay for every year of service, P10,000.00 and P5,000.00
moral and exemplary damages, and five (5%) percent attorneys fees.
Other dispositions are AFFIRMED
SO ORDERED.31
On 28 November 2006, the NLRC denied the Motions for Reconsideration filed by
Agustin, De Guzman and the Samson Group.32cralawlibrary
Agustin and De Guzman filed a Rule 65 Petition for Certiorari with the CA, docketed as
CA-G.R. SP No. 97510. The Samson Group likewise filed a separate Rule 65 Petition
for Certiorariwith the CA, docketed as CA-G.R. SP No. 97942. Motions to consolidate
both cases were not acted upon by the appellate court.

On 13 March 2008, the CA rendered a Decision in CA-G.R. SP No. 97510 affirming


that of the NLRC. The fallo of the CA Decision reads:chanroblesvirtualawlibrary
WHEREFORE, in view of the foregoing, the petition is DENIED. Accordingly, the
Decision dated May 8, 2006, and Resolution dated November 28, 2006 of the National
Labor Relations Commission in NLRC NCR CA No. 043236-05 (NLRC RAB III-074542-02) are hereby AFFIRMED.
SO ORDERED.33
Subsequently, CA-G.R. SP No. 97942 was disposed of by the appellate court in a
Decision dated 15 January 2008, which likewise affirmed that of the NLRC. The
dispositive portion of the CA Decision states:chanroblesvirtualawlibrary
WHEREFORE, premises considered, the instant Petition for Certiorari is denied, and
the herein assailed May 8, 2006 Decision and November 28, 2006 Resolution of the
NLRC are hereby AFFIRMED.
SO ORDERED.34
The appellate court denied the Motions for Reconsideration filed by the parties in
Resolutions dated 1 September 200835 and 19 February 2009.36cralawlibrary
The Samson Group then filed two separate Rule 45 Petitions questioning the CA
Decisions and Resolutions in CA-G.R. SP No. 97510 and CA-G.R. SP No. 97942. On
17 June 2009, this Court resolved to consolidate both Petitions. 37cralawlibrary
THE ISSUES
Succinctly, the parties are asking this Court to determine whether respondent
employees were illegally dismissed and, if so, which of the parties are liable for the
claims of the employees and the extent of the reliefs that may be awarded to these
employees.
THE COURTS RULING
The instant Petitions are partly meritorious.
I
Respondent employees were illegally dismissed.

As to Elicerio Gaspar, Ricardo Gaspar, Jr., Fidel Espiritu, Eufemia Rosete and
Liberato Mangoba
The Samson Group contends that Elicerio, Ricardo, Fidel, and Liberato voluntarily
resigned from their posts, while Eufemia retired from her position. As their resignations
and retirements were voluntary, they were not dismissed from their employment. 38 In
support of this argument, it presented copies of their resignation and retirement
letters,39 which were couched in terms of gratitude.
We disagree. While resignation letters containing words of gratitude may indicate that
the employees were not coerced into resignation,40 this fact alone is not conclusive
proof that they intelligently, freely and voluntarily resigned. To rule that resignation
letters couched in terms of gratitude are, by themselves, conclusive proof that the
employees intended to relinquish their posts would open the floodgates to possible
abuse. In order to withstand the test of validity, resignations must be made voluntarily
and with the intention of relinquishing the office, coupled with an act of
relinquishment.41 Therefore, in order to determine whether the employees truly
intended to resign from their respective posts, we cannot merely rely on the tenor of
the resignation letters, but must take into consideration the totality of circumstances in
each particular case.
Here, the records show that Elicerio, Ricardo, Fidel, and Liberato only tendered
resignation letters because they were led to believe that, upon reapplication, they
would be reemployed by the new management.42 As it turned out, except for Simeon,
Jr., they were not rehired by the new management. Their reliance on the representation
that they would be reemployed gives credence to their argument that they merely
submitted courtesy resignation letters because it was demanded of them, and that they
had no real intention of leaving their posts. We therefore conclude that Elicerio,
Ricardo, Fidel, and Liberato did not voluntarily resign from their work; rather, they were
terminated from their employment.
As to Eufemia, both the CA and the NLRC discussed her case together with the cases
of the rest of respondent-employees. However, a review of the records shows that,
unlike her co-employees, she did not resign; rather, she submitted a letter indicating
that she was retiring from her former position.43cralawlibrary

The fact that Eufemia retired and did not resign, however, does not change our
conclusion that illegal dismissal took place.
Retirement, like resignation, should be an act completely voluntary on the part of the
employee. If the intent to retire is not clearly established or if the retirement is
involuntary, it is to be treated as a discharge.44cralawlibrary
In this case, the facts show that Eufemias retirement was not of her own volition. The
circumstances could not be more telling. The facts show that Eufemia was likewise
given the option to resign or retire in order to fulfill the precondition in the Letter
Agreements that the seller should terminate/retire the employees [mutually agreed
upon] upon transfer of shares to the buyers.45 Thus, like her other co-employees, she
first submitted a letter of resignation dated 27 August 2001. 46 For one reason or
another, instead of resigning, she chose to retire and submitted a retirement letter to
that effect.47 It was this letter that was subsequently transmitted to the representative of
the Samson Group on 11 September 2001.48cralawlibrary
In San Miguel Corporation v. NLRC,49 we have explained that involuntary retirement is
tantamount to dismissal, as employees can only choose the means and methods of
terminating their employment, but are powerless as to the status of their employment
and have no choice but to leave the company. This rule squarely applies to Eufemias
case. Indeed, she could only choose between resignation and retirement, but was
made to understand that she had no choice but to leave SME Bank. Thus, we conclude
that, similar to her other co-employees, she was illegally dismissed from employment.
The Samson Group further argues50 that, assuming the employees were dismissed, the
dismissal is legal because cessation of operations due to serious business losses is
one of the authorized causes of termination under Article 283 of the Labor
Code.51cralawlibrary
Again, we disagree.
The law permits an employer to dismiss its employees in the event of closure of the
business establishment.52 However, the employer is required to serve written notices
on the worker and the Department of Labor at least one month before the intended

date of closure.53 Moreover, the dismissed employees are entitled to separation pay,
except if the closure was due to serious business losses or financial
reverses.54 However, to be exempt from making such payment, the employer must
justify the closure by presenting convincing evidence that it actually suffered serious
financial reverses.55cralawlibrary
In this case, the records do not support the contention of SME Bank that it intended to
close the business establishment. On the contrary, the intention of the parties to keep it
in operation is confirmed by the provisions of the Letter Agreements requiring Agustin
and De Guzman to guarantee the peaceful transition of management of the bank and
to appoint a manager of [the Samson Groups] choice x x x to oversee bank
operations.
Even assuming that the parties intended to close the bank, the records do not show
that the employees and the Department of Labor were given written notices at least
one month before the dismissal took place. Moreover, aside from their bare assertions,
the parties failed to substantiate their claim that SME Bank was suffering from serious
financial reverses.
In fine, the argument that the dismissal was due to an authorized cause holds no water.
Petitioner bank also argues that, there being a transfer of the business establishment,
the innocent transferees no longer have any obligation to continue employing
respondent employees,56 and that the most that they can do is to give preference to the
qualified separated employees; hence, the employees were validly
dismissed.57cralawlibrary
The argument is misleading and unmeritorious. Contrary to petitioner banks
argument, there was no transfer of the business establishment to speak of, but
merely a change in the new majority shareholders of the corporation.
There are two types of corporate acquisitions: asset sales and stock sales. 58 In asset
sales, the corporate entity59 sells all or substantially all of its assets60 to another entity.
In stock sales, the individual or corporate shareholders61 sell a controlling block of
stock62 to new or existing shareholders.

In asset sales, the rule is that the seller in good faith is authorized to dismiss the
affected employees, but is liable for the payment of separation pay under the law. 63 The
buyer in good faith, on the other hand, is not obliged to absorb the employees affected
by the sale, nor is it liable for the payment of their claims. 64 The most that it may do, for
reasons of public policy and social justice, is to give preference to the qualified
separated personnel of the selling firm. 65cralawlibrary

of the employees for having abandoned their work, and it dismissed the rest for
committing acts prejudicial to the interest of the new management. 71cralawlibrary

In contrast with asset sales, in which the assets of the selling corporation are
transferred to another entity, the transaction in stock sales takes place at the
shareholder level. Because the corporation possesses a personality separate and
distinct from that of its shareholders, a shift in the composition of its shareholders will
not affect its existence and continuity. Thus, notwithstanding the stock sale, the
corporation continues to be the employer of its people and continues to be liable for the
payment of their just claims. Furthermore, the corporation or its new majority
shareholders are not entitled to lawfully dismiss corporate employees absent a just or
authorized cause.

In disposing of the merits of the case, we upheld the validity of the second termination,
ruling that the parties are free to renew the contract or not [upon the expiration of the
period provided for in their probationary contract of employment]. 73 Citing our
pronouncements in Central Azucarera del Danao v. Court of Appeals,74San Felipe Neri
School of Mandaluyong, Inc. v. NLRC,75 and MDII Supervisors & Confidential
Employees Association v. Presidential Assistant on Legal Affairs,76 we likewise upheld
the validity of the employees first separation from employment, pronouncing as
follows:chanroblesvirtualawlibrary
A change of ownership in a business concern is not proscribed by law. In Central
Azucarera del Danao vs. Court of Appeals, this Court stated:chanroblesvirtualawlibrary
There can be no controversy for it is a principle well- recognized, that it is within the
employers legitimate sphere of management control of the business to adopt
economic policies or make some changes or adjustments in their organization or
operations that would insure profit to itself or protect the investment of its stockholders.
As in the exercise of such management prerogative, the employer may merge or
consolidate its business with another, or sell or dispose all or substantially all of its
assets and properties which may bring about the dismissal or termination of its
employees in the process. Such dismissal or termination should not however be
interpreted in such a manner as to permit the employer to escape payment of
termination pay. For such a situation is not envisioned in the law. It strikes at the very
concept of social justice.

In the case at bar, the Letter Agreements show that their main object is the acquisition
by the Samson Group of 86.365% of the shares of stock of SME Bank. 66 Hence, this
case involves a stock sale, whereby the transferee acquires the controlling shares of
stock of the corporation. Thus, following the rule in stock sales, respondent employees
may not be dismissed except for just or authorized causes under the Labor Code.
Petitioner bank argues that, following our ruling in Manlimos v. NLRC,67 even in cases
of stock sales, the new owners are under no legal duty to absorb the sellers
employees, and that the most that the new owners may do is to give preference to the
qualified separated employees.68 Thus, petitioner bank argues that the dismissal was
lawful.
We are not persuaded.
Manlimos dealt with a stock sale in which a new owner or management group acquired
complete ownership of the corporation at the shareholder level. 69 The employees of the
corporation were later considered terminated, with their conformity 70 by the new
majority shareholders. The employees then re-applied for their jobs and were rehired
on a probationary basis. After about six months, the new management dismissed two

Thereafter, the employees sought reinstatement, arguing that their dismissal was
illegal, since they remained regular employees of the corporation regardless of the
change of management.72cralawlibrary

In a number of cases on this point, the rule has been laid down that the sale or
disposition must be motivated by good faith as an element of exemption from liability.
Indeed, an innocent transferee of a business establishment has no liability to the
employees of the transfer or to continue employer them. Nor is the transferee liable for
past unfair labor practices of the previous owner, except, when the liability therefor is
assumed by the new employer under the contract of sale, or when liability arises

because of the new owners participation in thwarting or defeating the rights of the
employees.chanrob1esvirtualawlibrary
Where such transfer of ownership is in good faith, the transferee is under no legal duty
to absorb the transferors employees as there is no law compelling such absorption.
The most that the transferee may do, for reasons of public policy and social justice, is
to give preference to the qualified separated employees in the filling of vacancies in the
facilities of the purchaser.
Since the petitioners were effectively separated from work due to a bona fide change of
ownership and they were accordingly paid their separation pay, which they freely and
voluntarily accepted, the private respondent corporation was under no obligation to
employ them; it may, however, give them preference in the hiring. x x x. (Citations
omitted)
We take this opportunity to revisit our ruling in Manlimos insofar as it applied a doctrine
on asset sales to a stock sale case. Central Azucarera del Danao, San Felipe Neri
School of Mandaluyong and MDII Supervisors & Confidential Employees
Association all dealt with asset sales, as they involved a sale of all or substantially all of
the assets of the corporation. The transactions in those cases were not made at the
shareholder level, but at the corporate level. Thus, applicable to those cases were the
rules in asset sales: the employees may be separated from their employment, but the
seller is liable for the payment of separation pay; on the other hand, the buyer in good
faith is not required to retain the affected employees in its service, nor is it liable for the
payment of their claims.

The right to security of tenure guarantees the right of employees to continue in their
employment absent a just or authorized cause for termination. This guarantee
proscribes a situation in which the corporation procures the severance of the
employment of its employees who patently still desire to work for the corporation
only because new majority stockholders and a new management have come into the
picture. This situation is a clear circumvention of the employees constitutionally
guaranteed right to security of tenure, an act that cannot be countenanced by this
Court.
It is thus erroneous on the part of the corporation to consider the employees as
terminated from their employment when the sole reason for so doing is a change of
management by reason of the stock sale. The conformity of the employees to the
corporations act of considering them as terminated and their subsequent acceptance
of separation pay does not remove the taint of illegal dismissal. Acceptance of
separation pay does not bar the employees from subsequently contesting the legality
of their dismissal, nor does it estop them from challenging the legality of their
separation from the service.77cralawlibrary
We therefore see it fit to expressly reverse our ruling in Manlimos insofar as it upheld
that, in a stock sale, the buyer in good faith has no obligation to retain the employees
of the selling corporation; and that the dismissal of the affected employees is lawful,
even absent a just or authorized cause.
As to Simeon Espiritu, Jr.

The rule should be different in Manlimos, as this case involves a stock sale. It is error
to even discuss transfer of ownership of the business, as the business did not actually
change hands. The transfer only involved a change in the equity composition of the
corporation. To reiterate, the employees are not transferred to a new employer, but
remain with the original corporate employer, notwithstanding an equity shift in
its majority shareholders. This being so, the employment status of the employees
should not have been affected by the stock sale. A change in the equity composition of
the corporate shareholders should not result in the automatic termination of the
employment of the corporations employees. Neither should it give the new majority
shareholders the right to legally dismiss the corporations employees, absent a just or
authorized cause.

The CA and the NLRC discussed the case of Simeon, Jr. together with that of the rest
of respondent-employees. However, a review of the records shows that the conditions
leading to his dismissal from employment are different. We thus discuss his
circumstance separately.
The Samson Group contends that Simeon, Jr., likewise voluntarily resigned from his
post.78 According to them, he had resigned from SME Bank before the share transfer
took place.79Upon the change of ownership of the shares and the management of the
company, Simeon, Jr. submitted a letter of application to and was rehired by the new
management.80 However, the Samson Group alleged that for purely personal reasons,
he again resigned from his employment on 15 October 2001. 81cralawlibrary

Simeon, Jr., on the other hand, contends that while he was reappointed by the new
management after his letter of application was transmitted, he was not given a clear
position, his benefits were reduced, and he suffered a demotion in rank. 82 These
allegations were not refuted by the Samson Group.
We hold that Simeon, Jr. was likewise illegally dismissed from his employment.
Similar to our earlier discussion, we find that his first courtesy resignation letter was
also executed involuntarily. Thus, it cannot be the basis of a valid resignation; and thus,
at that point, he was illegally terminated from his employment. He was, however,
rehired by SME Bank under new management, although based on his allegations, he
was not reinstated to his former position or to a substantially equivalent one. 83 Rather,
he even suffered a reduction in benefits and a demotion in rank. 84 These led to his
submission of another resignation letter effective 15 October 2001. 85cralawlibrary
We rule that these circumstances show that Simeon, Jr. was constructively dismissed.
In Peaflor v. Outdoor Clothing Manufacturing Corporation,86 we have defined
constructive dismissal as follows:chanroblesvirtualawlibrary
Constructive dismissal is an involuntary resignation by the employee due to the harsh,
hostile, and unfavorable conditions set by the employer and which arises when a clear
discrimination, insensibility, or disdain by an employer exists and has become
unbearable to the employee.87
Constructive dismissal exists where there is cessation of work, because continued
employment is rendered impossible, unreasonable or unlikely, as an offer involving a
demotion in rank or a diminution in pay and other benefits. 88cralawlibrary
These circumstances are clearly availing in Simeon, Jr.s case. He was made to resign,
then rehired under conditions that were substantially less than what he was enjoying
before the illegal termination occurred. Thus, for the second time, he involuntarily
resigned from his employment. Clearly, this case is illustrative of constructive dismissal,
an act prohibited under our labor laws.
II
SME Bank, Eduardo M. Agustin, Jr. and Peregrin de Guzman, Jr. are liable for
illegal dismissal.

Having ruled on the illegality of the dismissal, we now discuss the issue of liability and
determine who among the parties are liable for the claims of the illegally dismissed
employees.
The settled rule is that an employer who terminates the employment of its employees
without lawful cause or due process of law is liable for illegal dismissal. 89cralawlibrary
None of the parties dispute that SME Bank was the employer of respondent
employees. The fact that there was a change in the composition of its shareholders did
not affect the employer-employee relationship between the employees and the
corporation, because an equity transfer affects neither the existence nor the liabilities of
a corporation. Thus, SME Bank continued to be the employer of respondent employees
notwithstanding the equity change in the corporation. This outcome is in line with the
rule that a corporation has a personality separate and distinct from that of its individual
shareholders or members, such that a change in the composition of its shareholders or
members would not affect its corporate liabilities.
Therefore, we conclude that, as the employer of the illegally dismissed employees
before and after the equity transfer, petitioner SME Bank is liable for the satisfaction of
their claims.
Turning now to the liability of Agustin, De Guzman and the Samson Group for illegal
dismissal, at the outset we point out that there is no privity of employment contracts
between Agustin, De Guzman and the Samson Group, on the one hand, and
respondent employees on the other. Rather, the employment contracts were between
SME Bank and the employees. However, this fact does not mean that Agustin, De
Guzman and the Samson Group may not be held liable for illegal dismissal as
corporate directors or officers. In Bogo-Medellin Sugarcane Planters Association, Inc.
v. NLRC,90 we laid down the rule as regards the liability of corporate directors and
officers in illegal dismissal cases, as follows:chanroblesvirtualawlibrary
Unless they have exceeded their authority, corporate officers are, as a general rule, not
personally liable for their official acts, because a corporation, by legal fiction, has a
personality separate and distinct from its officers, stockholders and members.
However, this fictional veil may be pierced whenever the corporate personality is used
as a means of perpetuating a fraud or an illegal act, evading an existing obligation, or

confusing a legitimate issue. In cases of illegal dismissal, corporate directors and


officers are solidarily liable with the corporation, where terminations of employment are
done with malice or in bad faith.91 (Citations omitted)
Thus, in order to determine the respective liabilities of Agustin, De Guzman and the
Samson Group under the afore-quoted rule, we must determine, first, whether they
may be considered as corporate directors or officers; and, second, whether the
terminations were done maliciously or in bad faith.
There is no question that both Agustin and De Guzman were corporate directors of
SME Bank. An analysis of the facts likewise reveals that the dismissal of the
employees was done in bad faith. Motivated by their desire to dispose of their shares of
stock to Samson, they agreed to and later implemented the precondition in the Letter
Agreements as to the termination or retirement of SME Banks employees. However,
instead of going through the proper procedure, the bank manager induced respondent
employees to resign or retire from their respective employments, while promising that
they would be rehired by the new management. Fully relying on that promise, they
tendered courtesy resignations or retirements and eventually found themselves
jobless. Clearly, this sequence of events constituted a gross circumvention of our labor
laws and a violation of the employees constitutionally guaranteed right to security of
tenure. We therefore rule that, as Agustin and De Guzman are corporate directors who
have acted in bad faith, they may be held solidarily liable with SME Bank for the
satisfaction of the employees lawful claims.
As to spouses Samson, we find that nowhere in the records does it appear that they
were either corporate directors or officers of SME Bank at the time the illegal
termination occurred, except that the Samson Group had already taken over as new
management when Simeon, Jr. was constructively dismissed. Not being corporate
directors or officers, spouses Samson were not in legal control of the bank and
consequently had no power to dismiss its employees.
Respondent employees argue that the Samson Group had already taken over and
conducted an inventory before the execution of the share purchase
agreement.92 Agustin and De Guzman likewise argued that it was at Olga Samsons
behest that the employees were required to resign from their posts. 93 Even if this
statement were true, it cannot amount to a finding that spouses Samson should be
treated as corporate directors or officers of SME Bank. The records show that it was

Espiritu who asked the employees to tender their resignation and or retirement letters,
and that these letters were actually tendered to him. 94 He then transmitted these letters
to the representative of the Samson Group.95 That the spouses Samson had to ask
Espiritu to require the employees to resign shows that they were not in control of the
corporation, and that the former shareholders through Espiritu were still in charge
thereof. As the spouses Samson were neither corporate officers nor directors at the
time the illegal dismissal took place, we find that there is no legal basis in the present
case to hold them in their personal capacities solidarily liable with SME Bank for
illegally dismissing respondent employees, without prejudice to any liabilities that may
have attached under other provisions of law.
Furthermore, even if spouses Samson were already in control of the corporation at the
time that Simeon, Jr. was constructively dismissed, we refuse to pierce the corporate
veil and find them liable in their individual steads. There is no showing that his
constructive dismissal amounted to more than a corporate act by SME Bank, or that
spouses Samson acted maliciously or in bad faith in bringing about his constructive
dismissal.
Finally, as regards Aurelio Villaflor, while he may be considered as a corporate officer,
being the president of SME Bank, the records are bereft of any evidence that indicates
his actual participation in the termination of respondent employees. Not having
participated at all in the illegal act, he may not be held individually liable for the
satisfaction of their claims.
III
Respondent employees are entitled to separation pay, full backwages, moral
damages, exemplary damages and attorneys fees.
The rule is that illegally dismissed employees are entitled to (1) either reinstatement, if
viable, or separation pay if reinstatement is no longer viable; and (2)
backwages.96cralawlibrary
Courts may grant separation pay in lieu of reinstatement when the relations between
the employer and the employee have been so severely strained; when reinstatement is
not in the best interest of the parties; when it is no longer advisable or practical to order
reinstatement; or when the employee decides not to be reinstated. 97 In this case,
respondent employees expressly pray for a grant of separation pay in lieu of

reinstatement. Thus, following a finding of illegal dismissal, we rule that they are
entitled to the payment of separation pay equivalent to their one-month salary for every
year of service as an alternative to reinstatement.

SECOND DIVISION
[G.R. No. 185122 : August 16, 2010]

Respondent employees are likewise entitled to full backwages notwithstanding the


grant of separation pay. In Santos v. NLRC,98 we explained that an award of
backwages restores the income that was lost by reason of the unlawful dismissal, while
separation pay "provide[s] the employee with 'the wherewithal during the period that he
is looking for another employment.'"99 Thus, separation pay is a proper substitute only
for reinstatement; it is not an adequate substitute for both reinstatement and
backwages.100 Hence, respondent employees are entitled to the grant of full backwages
in addition to separation pay.
As to moral damages, exemplary damages and attorney's fees, we uphold the
appellate court's grant thereof based on our finding that the forced resignations and
retirement were fraudulently done and attended by bad faith.
WHEREFORE, premises considered, the instant Petitions for Review are PARTIALLY
GRANTED.
The assailed Decision and Resolution of the Court of Appeals in CA G.R. SP No.
97510 dated 13 March 2008 and 1 September 2008, respectively, are
hereby REVERSED and SET ASIDEinsofar as it held Abelardo P. Samson, Olga
Samson and Aurelio Villaflor, Jr. solidarily liable for illegal dismissal.
The assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No.
97942 dated 15 January 2008 and 19 February 2009, respectively, are
likewise REVERSED and SET ASIDE insofar as it held Abelardo P. Samson, Olga
Samson and Aurelio Villaflor, Jr. solidarily liable for illegal dismissal.
We REVERSE our ruling in Manlimos v. NLRC insofar as it upheld that, in a stock sale,
the buyer in good faith has no obligation to retain the employees of the selling
corporation, and that the dismissal of the affected employees is lawful even absent a
just or authorized cause.
SO ORDERED.

WENSHA SPA CENTER, INC. AND/OR XU ZHI JIE, PETITIONERS, VS. LORETA T.
YUNG, RESPONDENT.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by an
employer who was charged before the National Labor Relations
Commission (NLRC) for dismissing an employee upon the advice of a Feng Shui
master. In this action, the petitioners assail the May 28, 2008 Decision 1 and October
23, 2008 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 98855
entitled Loreta T. Yung v. National Labor Relations Commission, Wensha Spa Center,
Inc. and/or Xu Zhi Jie.
THE FACTS:
Wensha Spa Center, Inc. (Wensha) in Quezon City is in the business of sauna bath
and massage services. Xu Zhi Jie a.k.a. Pobby Co (Xu) is its president,3 respondent
Loreta T. Yung(Loreta) was its administrative manager at the time of her termination
from employment.
In her position paper,4 Loreta stated that she used to be employed by Manmen
Services Co., Ltd. (Manmen) where Xu was a client. Xu was apparently impressed by
Loreta's performance. After he established Wensha, he convinced Loreta to transfer
and work at Wensha. Loreta was initially reluctant to accept Xu's offer because her job
at Manmen was stable and she had been with Manmen for seven years. But Xu was
persistent and offered her a higher pay. Enticed, Loreta resigned from Manmen and
transferred to Wensha. She started working on April 21, 2004 as Xu's personal
assistant and interpreter at a monthly salary of P12,000.00.
Loreta introduced positive changes to Wensha which resulted in increased business.

This pleased Xu so that on May 18, 2004, she was promoted to the position of
Administrative Manager.5
Loreta recounted that on August 10, 2004, she was asked to leave her office because
Xu and a Feng Shui master were exploring the premises. Later that day, Xu asked
Loreta to go on leave with pay for one month. She did so and returned on September
10, 2004. Upon her return, Xu and his wife asked her to resign from Wensha because,
according to the Feng Shui master, her aura did not match that of Xu. Loreta refused
but was informed that she could no longer continue working at Wensha. That same
afternoon, Loreta went to the NLRC and filed a case for illegal dismissal against Xu
and Wensha.
Wensha and Xu denied illegally terminating Loreta's employment. They claimed that
two months after Loreta was hired, they received various complaints against her from
the employees so that on August 10, 2004, they advised her to take a leave of absence
for one month while they conducted an investigation on the matter. Based on the
results of the investigation, they terminated Loreta's employment on August 31, 2004
for loss of trust and confidence.6
The Labor Arbiter (LA) Francisco Robles dismissed Loreta's complaint for lack of merit.
He found it more probable that Loreta was dismissed from her employment due to
Wensha's loss of trust and confidence in her. The LA's decision7 partly reads:
However, this office has found it dubious and hard to believe the contentions made by
the complainant that she was dismissed by the respondents on the sole ground that
she is a "mismatch" in respondents' business as advised by an alleged Feng Shui
Master. The complainant herself alleged in her position paper that she has done
several improvements in respondents' business such as uplifting the morale and
efficiency of its employees and increasing respondents' clientele, and that respondent
Co was very much pleased with the improvements made by the complainant that she
was offered twice a promotion but she nevertheless declined. It would be against
human experience and contrary to business acumen to let go of someone, who was an
asset and has done so much for the company merely on the ground that she is a
"mismatch" to the business. Absent any proof submitted by the complainant, this office
finds it more probable that the complainant was dismissed due to loss of trust and
confidence.8

This ruling was affirmed by the NLRC in its December 29, 2006 Resolution, 9 citing its
observation that Wensha was still considering the proper action to take on the day
Loreta left Wensha and filed her complaint. The NLRC added that this finding was
bolstered by Wensha's September 10, 2004 letter to Loreta asking her to come back to
personally clarify some matters, but she declined because she had already filed a
case.
Loreta moved for a reconsideration of the NLRC's ruling but her motion was denied.
Loreta then went to the CA on a petition for certiorari. The CA reversed the ruling of
the NLRC on the ground that it gravely abused its discretion in appreciating the factual
bases that led to Loreta's dismissal. The CA noted that there were irregularities and
inconsistencies in Wensha's position. The CA stated the following:
We, thus, peruse the affidavits and documentary evidence of the Private Respondents
and find the following: First, on the affidavits of their witnesses, it must be noted that
the same were mere photocopies. It was held that [T]he purpose of the rule in
requiring the production of the best evidence is the prevention of fraud, because if a
party is in possession of such evidence and withholds it, and seeks to substitute
inferior evidence in its place, the presumption naturally arise[s] that the better evidence
is withheld for fraudulent purposes which its production would expose and
defeat. Moreover, the affidavits were not executed under oath. The rule is that an
affiant must sign the document in the presence of and take his oath before a notary
public as evidence that the affidavit was properly made. Guided by these principles,
the affidavits cannot be assigned any weighty probative value and are mere scraps of
paper the contents of which are hearsay. Second, on the sales report and order slips,
which allegedly prove that Yung had been charging her food and drinks to Wensha, the
said pieces of evidence do not, however, bear Yung's name thereon or even her
signature. In fact, it does not state anyone's name, except that of Wensha. Hence, it
would simply be capricious to pinpoint, or impute, on Yung as the author in charging
such expenses to Wensha on the basis of hearsay evidence. Third, while the affidavit
of Wensha's Operations Manager, Princess delos Reyes (delos Reyes), may have
been duly executed under oath, she did not, however, specify the alleged infractions
that Yung committed. If at all, delos Reyes only made general statements on the
alleged complaints against Yung that were not even substantiated by any other piece of
evidence. Finally, the daily time records (DTRs) of Yung, which supposedly prove her
habitual tardiness, were mere photocopies that are not even signed by Wensha's

authorized representative, thus suspect, if not violative of the best evidence rule and,
therefore, incompetent evidence. x x x [Emphases appear in the original]
x x x x.
Finally, after the Private Respondents filed their position paper, they alleged mistake on
the part of their former counsel in stating that Yung was dismissed on August 31, 2004.
Thus, they subsequently moved for the admission of their rejoinder. Notably, however,
the said rejoinder was dated October 4, 2004, earlier than the date when their position
paper was filed, which was on November 3, 2004. It is also puzzling that their position
paper was dated November 25, 2004, much later than its date of filing. The
irregularities are simply too glaring to be ignored. Nevertheless, the Private
Respondents' admission of Yung's termination on August 31, 2004 cannot be retracted.
They cannot use the mistake of their counsel as an excuse considering that the
position paper was verified by their Operations Manager, delos Reyes, who
attested to the truth of the contents therein. 10[Emphasis supplied]
Hence, the fallo of the CA decision reads:
WHEREFORE, the instant petition is GRANTED. Wensha Spa Center, Inc. and Xu Zhi
Jie are ORDERED to, jointly and severally, pay Loreta T. Yung her full backwages,
other privileges, and benefits, or their monetary equivalent, corresponding to the period
of her dismissal from September 1, 2004 up to the finality of this decision, and
damages in the amounts of fifty thousand pesos (Php50,000.00) as moral damages,
twenty five thousand pesos (Php25,000.00) as exemplary damages, and twenty
thousand pesos (Php20,000.00) as attorney's fees. No costs.
SO ORDERED.11
Wensha and Xu now assail this ruling of the CA in this petition presenting the following:
V. GROUNDS FOR THE ALLOWANCE OF THE PETITION
5.1 The following are the reasons and arguments, which are purely questions of law
and some questions of facts, which justify the appeal by certiorari under Rule 45 of the
1997 Revised Rules of Civil Procedure, as amended, to this Honorable SUPREME
COURT of the assailed Decision and Resolution, to wit:

5.1.1 The Honorable COURT OF APPEALS gravely erred in reversing that factual
findings of the Honorable Labor Arbiter and the Honorable NLRC (Third Division)
notwithstanding recognized and established rule in our jurisdiction that findings of facts
of quasi-judicial agencies who have gained expertise on their respective subject
matters are given respect and finality;
5.1.2 The Honorable COURT OF APPEALS committed grave abuse of discretion and
serious errors when it ruled that findings of facts of the Honorable Labor Arbiter and the
Honorable NLRC are not supported by substantial evidence despite the fact that the
records clearly show that petitioner therein was not dismissed but is under
investigation, and that she is guilty of serious infractions that warranted her termination;
5.1.3 The Honorable COURT OF APPEALS grave[ly] erred when it ordered herein
petitioner to pay herein respondent her separation pay, in lieu of reinstatement, and full
backwages, as well as damages and attorney's fees;
5.1.4 The Honorable COURT OF APPEALS committed grave abuse of discretion and
serious errors when it held that petitioner XU ZHI JIE to be solidarily liable with
WENSHA, assuming that respondent was illegally dismissed;
5.2 The same need to be corrected as they would work injustice to the herein
petitioner, grave and irreparable damage will be done to him, and would pose
dangerous precedent.12
THE COURT'S RULING:
Loreta's security of tenure is guaranteed by the Constitution and the Labor Code. The
1987 Philippine Constitution provides in Section 18, Article II that the State shall protect
the rights of workers and promote their welfare. Section 3, Article XIII also provides
that all workers shall be entitled to security of tenure. Along that line, Article 3 of the
Labor Code mandates that the State shall assure the rights of workers to security of
tenure.
Under the security of tenure guarantee, a worker can only be terminated from his
employment for cause and after due process. For a valid termination by the employer:

(1) the dismissal must be for a valid cause as provided in Article 282, or for any of the
authorized causes under Articles 283 and 284 of the Labor Code; and (2) the employee
must be afforded an opportunity to be heard and to defend himself. A just and valid
cause for an employee's dismissal must be supported by substantial evidence, and
before the employee can be dismissed, he must be given notice and an adequate
opportunity to be heard.13 In the process, the employer bears the burden of proving that
the dismissal of an employee was for a valid cause. Its failure to discharge this burden
renders the dismissal unjustified and, therefore, illegal. 14
As a rule, the factual findings of the court below are conclusive on Us in a petition for
review on certiorari where We review only errors of law. This case, however, is an
exception because the CA's factual findings are not congruent with those of the NLRC
and the LA.
According to Wensha in its position paper,15 it dismissed Loreta on August 31, 2004
after investigating the complaints against her. Wensha asserted that her dismissal was
a valid exercise of an employer's right to terminate a managerial employee for loss of
trust and confidence. It claimed that she caused the resignation of an employee
because of gossips initiated by her. It was the reason she was asked to take a leave of
absence with pay for one month starting August 10, 2004. 16
Wensha also alleged that Loreta was "sowing intrigues in the company" which was
inimical to Wensha. She was also accused of dishonesty, serious breach of trust
reposed in her, tardiness, and abuse of authority.17
In its Rejoinder, Wensha changed its position claiming that it did not terminate Loreta's
employment on August 31, 2004. It even sent her a notice requesting her to report
back to work. She, however, declined because she had already filed her complaint. 18
As correctly found by the CA, the cause of Loreta's dismissal is questionable. Loss of
trust and confidence to be a valid ground for dismissal must have basis and must be
founded on clearly established facts.19
The Court finds the LA ruling that states, "[a]bsent any proof submitted by the
complainant, this office finds it more probable that the complainant was dismissed due
to loss of trust and confidence,"20 to be utterly erroneous as it is contrary to the

applicable rules and pertinent jurisprudence. The onus of proving a valid dismissal
rests on the employer, not on the employee.21 It is the employer who bears the burden
of proving that its dismissal of the employee is for a valid or authorized cause
supported by substantial evidence. 22
According to the NLRC, "[p]erusal of the entire records show that complainant left the
respondents' premises when she was confronted with the infractions imputed against
her."23 This information was taken from the affidavit24 of Princess Delos Reyes (Delos
Reyes) which was dated March 21, 2005, not in Wensha's earlier position paper or
pleadings submitted to the LA. The affidavits 25 of employees attached to Delos Reyes'
affidavit were all dated November 19, 2004 indicating that they were not yet executed
when the complaints against Loreta were supposedly being investigated in August
2004.
It is also noteworthy that Wensha's position paper related that because of the gossips
perpetrated by Loreta, a certain Oliva Gonzalo (Gonzalo) resigned from Wensha.
Because of the incident, Gonzalo, whose father was a policeman, "reportedly got angry
with complainant and of the management telling her friends at respondent company
that she would retaliate thus creating fear among those concerned." 26 As a result,
Loreta was advised to take a paid leave of absence for one month while Wensha
conducted an investigation.
According to Loreta, however, the reason for her termination was her aura did not
match that of Xu and the work environment at Wensha. Loreta narrated:
On August 10, 2004 however, complainant was called by respondent Xu and told her to
wait at the lounge area while the latter and a Feng Shui Master were doing some
analysis of the office. After several hours of waiting, respondent Xu then told
complainant that according to the Feng Shui master her Chinese Zodiac sign is a
"mismatch" with that of the respondents; that complainant should not enter the
administrative office for a month while an altar was to be placed on the left side where
complainant has her table to allegedly correct the "mismatch" and that it is necessary
that offerings and prayers have to be made and said for about a month to correct the
alleged "jinx." Respondent Xu instructed complainant not to report to the office for a
month with assurance of continued and regular salary. She was ordered not to seek
employment elsewhere and was told to come back on the 10 th of September 2004.27

TO ALL EMPLOYEES OF WENSHA SPA CENTER


Although she was a little confused, Loreta did as she was instructed and did not report
for work for a month. She returned to work on September 10, 2004. This is how
Loreta recounted the events of that day:
On September 10, 2004, in the morning, complainant reported to the office of
respondents. As usual, she punched-in her time card and signed in the logbook of the
security guard. When she entered the administrative office, some of its employees
immediately contacted respondent Xu. Respondent Xu then contacted complainant
thru her mobile phone and told her to leave the administrative office immediately and
instead to wait for him in the dining area.

WE WOULD LIKE TO INFORM YOU THAT MS. LORIE TSE YUNG, FORMER
ADMINISTRATIVE OFFICER OF WENSHA SPA CENTER IS NO
LONGER CONNECTED TO THIS COMPANY STARTING TODAY SEPTEMBER 10,
2004.
ANY TRANSACTION MADE BY HER IS NO LONGER A LIABILITY OF THE
COMPANY.
(SGD.) THE MANAGEMENT [Italics were in red letters.]29

xxx
Complainant waited for respondent Xu in the dining area. After waiting for about two
(2) hours, respondent Xu was nowhere. Instead, it was Jiang Xue Qin a.k.a Annie Co,
the Chinese wife of respondent Xu, who arrived and after a short conversation between
them, the former frankly told complainant that she has to resign allegedly she is a
mismatch to respondent Xu according to the Feng Shui master and therefore she does
not fit to work (sic) with the respondents. Surprised and shocked, complainant
demanded of Jiang Xue Qin to issue a letter of termination if it were the reason
therefor.
Instead of a termination letter issued, Jiang Xue Qin insisted for the complainant's
resignation. But when complainant stood her ground, Jian Xue Qin shouted invectives
at her and told to leave the office immediately.
Respondent Xu did not show up but talked to the complainant over the mobile phone
and convinced her likewise to resign from the company since there is no way to retain
her because her aura unbalanced the area of employment according to the Feng Shui,
the Chinese spiritual art of placement. Hearing this from no lees than respondent Xu,
complainant left the office and went straight to this Office and filed the present case on
September 10, 2004. xxx28
Loreta also alleged that in the afternoon of that day, September 10, 2004, a notice was
posted on the Wensha bulletin board that reads:

The Court finds Loreta's complaint credible. There is consistency in her pleadings and
evidence. In contrast, Wensha's pleadings and evidence, taken as a whole, suffer from
inconsistency. Moreover, the affidavits of the employees only pertain to petty matters
that, to the Court's mind, are not sufficient to support Wensha's alleged loss of trust
and confidence. To be a valid cause for termination of employment, the act or acts
constituting breach of trust must have been done intentionally, knowingly, and
purposely; and they must be founded on clearly established facts.
The CA decision is supported by evidence and logically flows from a review of the
records. Loreta's narration of the events surrounding her termination from employment
was simple and straightforward. Her claims are more credible than the affidavits which
were clearly prepared as an afterthought.
More importantly, the records are bereft of evidence that Loreta was duly informed of
the charges against her and that she was given the opportunity to respond to those
charges prior to her dismissal. If there were indeed charges against Loreta that
Wensha had to investigate, then it should have informed her of those charges and
required her to explain her side. Wensha should also have kept records of the
investigation conducted while Loreta was on leave. The law requires that two notices
be given to an employee prior to a valid termination: the first notice is to inform the
employee of the charges against her with a warning that she may be terminated from
her employment and giving her reasonable opportunity within which to explain her side,
and the second notice is the notice to the employee that upon due consideration of all

the circumstances, she is being terminated from her employment. 30 This is a


requirement of due process and clearly, Loreta did not receive any of those required
notices.
We are in accord with the pronouncement of the CA that the reinstatement of Loreta to
her former position is no longer feasible in the light of the strained relations between
the parties. Reinstatement, under the circumstances, would no longer be practical as it
would not be in the interest of both parties. Under the law and jurisprudence, an
illegally dismissed employee is entitled to two reliefs - backwages and reinstatement,
which are separate and distinct. If reinstatement would only exacerbate the tension and
further ruin the relations of the employer and the employee, or if their relationship has
been unduly strained due to irreconcilable differences, particularly where the illegally
dismissed employee held a managerial or key position in the company, it would be
prudent to order payment of separation pay instead of reinstatement. 31 In the case
of Golden Ace Builders v. Talde,32 We wrote:
Under the doctrine of strained relations, the payment of separation pay has been
considered an acceptable alternative to reinstatement when the latter option is no
longer desirable or viable. On the one hand, such payment liberates the employee from
what could be a highly oppressive work environment. On the other, the payment
releases the employer from the grossly unpalatable obligation of maintaining in its
employ a worker it could no longer trust.
In the case at bench, the CA, upon its own assessment, pronounced that the relations
between petitioners and the respondent have become strained because of her
dismissal anchored on dubious charges. The respondent has not contested the
finding. As she is not insisting on being reinstated, she should be paid separation pay
equivalent to one (1) month salary for every year of service. 33 The CA, however, failed
to decree such award in the dispositive portion. This should be rectified.

sufficient ground for disregarding the separate corporate personality." 34


In labor cases, corporate directors and officers may be held solidarily liable with the
corporation for the termination of employment only if done with malice or in bad
faith.35 Bad faith does not connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of wrong; it means breach of a
known duty through some motive or interest or ill will; it partakes of the nature of
fraud.36
In the subject decision, the CA concluded that petitioner Xu and Wensha are jointly and
severally liable to Loreta.37 We have read the decision in its entirety but simply failed to
come across any finding of bad faith or malice on the part of Xu. There is, therefore,
no justification for such a ruling. To sustain such a finding, there should be an evidence
on record that an officer or director acted maliciously or in bad faith in terminating the
services of an employee.38 Moreover, the finding or indication that the dismissal was
effected with malice or bad faith should be stated in the decision itself. 39
WHEREFORE, the petition is PARTIALLY GRANTED. The decretal portion of the May
28, 2008 Decision of the Court of Appeals, in CA-G.R. SP No. 98855, is
hereby MODIFIED to read as follows:
WHEREFORE, the petition is GRANTED. Wensha Spa Center, Inc. is hereby ordered
to pay Loreta T. Yung her full backwages, other privileges, and benefits, or their
monetary equivalent, and separation pay reckoned from the date of her dismissal,
September 1, 2004, up to the finality of this decision, plus damages in the amounts of
Fifty Thousand (P50,000.00) Pesos, as moral damages; Twenty Five Thousand
(P25,000.00) Pesos as exemplary damages; and Twenty Thousand (P20,000.00)
Pesos, as attorney's fees. No costs.
SO ORDERED.

Nevertheless, the Court finds merit in the argument of petitioner Xu that the CA erred
in ruling that he is solidarily liable with Wensha.
Elementary is the rule that a corporation is invested by law with a personality separate
and distinct from those of the persons composing it and from that of any other legal
entity to which it may be related. "Mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of a corporation is not of itself

Creature with enumerated powers, attributes, and properties


FIRST DIVISION
[G.R. NO. 152542 : July 8, 2004]

MONFORT HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION, as


represented by MA. ANTONIA M. SALVATIERRA,Petitioner, v.ANTONIO B.
MONFORT III, MA. LUISA MONFORT ASCALON, ILDEFONSO B. MONFORT,
ALFREDO B. MONFORT, CARLOS M. RODRIGUEZ, EMILY FRANCISCA R.
DOLIQUEZ, ENCARNACION CECILIA R. PAYLADO, JOSE MARTIN M.
RODRIGUEZ and COURT OF APPEALS,Respondents.

Monfort Hermanos Agricultural Development Corporation, a domestic private


corporation, is the registered owner of a farm, fishpond and sugar cane plantation
known as Haciendas San Antonio II, Marapara, Pinanoag and Tinampa-an, all situated
in Cadiz City.3 It also owns one unit of motor vehicle and two units of tractors. 4 The
same allowed Ramon H. Monfort, its Executive Vice President, to breed and maintain
fighting cocks in his personal capacity at Hacienda San Antonio. 5 rll

[G.R. NO. 155472 : July 8, 2004]

In 1997, the group of Antonio Monfort III, through force and intimidation, allegedly took
possession of the 4 Haciendas, the produce thereon and the motor vehicle and
tractors, as well as the fighting cocks of Ramon H. Monfort.

ANTONIO B. MONFORT III, MA. LUISA MONFORT ASCALON, ILDEFONSO B.


MONFORT, ALFREDO B. MONFORT, CARLOS M. RODRIGUEZ, EMILY
FRANCISCA R. DOLIQUEZ, ENCARNACION CECILIA R. PAYLADO, JOSE MARTIN
M. RODRIGUEZ, Petitioners, v. HON. COURT OF APPEALS, MONFORT
HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION, as represented by
MA. ANTONIA M. SALVATIERRA, and RAMON H. MONFORT, Respondents.
DECISION

In G.R. No. 155472:


On April 10, 1997, the Corporation, represented by its President, Ma. Antonia M.
Salvatierra, and Ramon H. Monfort, in his personal capacity, filed against the group of
Antonio Monfort III, a complaint6 for delivery of motor vehicle, tractors and 378 fighting
cocks, with prayer for injunction and damages, docketed as Civil Case No. 506-C,
before the Regional Trial Court of Negros Occidental, Branch 60.

YNARES-SANTIAGO, J.:
Before the Court are consolidated petitions for review of the decisions of the Court of
Appeals in the complaints for forcible entry and replevin filed by Monfort Hermanos
Agricultural Development Corporation (Corporation) and Ramon H. Monfort against the
children, nephews, and nieces of its original incorporators (collectively known as the
group of Antonio Monfort III).
The petition in G.R. No. 152542, assails the October 5, 2001 Decision 1 of the Special
Tenth Division of the Court of Appeals in CA-G.R. SP No. 53652, which ruled that Ma.
Antonia M. Salvatierra has no legal capacity to represent the Corporation in the forcible
entry case docketed as Civil Case No. 534-C, before the Municipal Trial Court of Cadiz
City.On the other hand, the petition in G.R. No. 155472, seeks to set aside the June 7,
2002 Decision2 rendered by the Special Former Thirteenth Division of the Court of
Appeals in CA-G.R. SP No. 49251, where it refused to address, on jurisdictional
considerations, the issue of Ma. Antonia M. Salvatierras capacity to file a complaint for
replevin on behalf of the Corporation in Civil Case No. 506-C before the Regional Trial
Court of Cadiz City, Branch 60.

The group of Antonio Monfort III filed a motion to dismiss contending, inter alia, that
Ma. Antonia M. Salvatierra has no capacity to sue on behalf of the Corporation
because the March 31, 1997 Board Resolution 7 authorizing Ma. Antonia M. Salvatierra
and/or Ramon H. Monfort to represent the Corporation is void as the purported
Members of the Board who passed the same were not validly elected officers of the
Corporation.
On May 4, 1998, the trial court denied the motion to dismiss. 8 The group of Antonio
Monfort III filed a petition for certiorari with the Court of Appeals but the same was
dismissed on June 7, 2002.9 The Special Former Thirteenth Division of the appellate
court did not resolve the validity of the March 31, 1997 Board Resolution and the
election of the officers who signed it, ratiocinating that the determination of said
question is within the competence of the trial court.
The motion for reconsideration filed by the group of Antonio Monfort III was
denied.10 Hence, they instituted a Petition for Review with this Court, docketed as G.R.
No. 155472.

In G.R. No. 152542:


On April 21, 1997, Ma. Antonia M. Salvatierra filed on behalf of the Corporation a
complaint for forcible entry, preliminary mandatory injunction with temporary restraining
order and damages against the group of Antonio Monfort III, before the Municipal Trial
Court (MTC) of Cadiz City.11 It contended that the latter through force and intimidation,
unlawfully took possession of the 4 Haciendas and deprived the Corporation of the
produce thereon.
In their answer,12 the group of Antonio Monfort III alleged that they are possessing and
controlling the Haciendas and harvesting the produce therein on behalf of the
corporation and not for themselves.They likewise raised the affirmative defense of lack
of legal capacity of Ma. Antonia M. Salvatierra to sue on behalf of the Corporation.
On February 18, 1998, the MTC of Cadiz City rendered a decision dismissing the
complaint.13 On appeal, the Regional Trial Court of Negros Occidental, Branch 60,
reversed the Decision of the MTCC and remanded the case for further
proceedings.14 rll
Aggrieved, the group of Antonio Monfort III filed a Petition for Review with the Court of
Appeals.On October 5, 2001, the Special Tenth Division set aside the judgment of the
RTC and dismissed the complaint for forcible entry for lack of capacity of Ma. Antonia
M. Salvatierra to represent the Corporation.15 The motion for reconsideration filed by
the latter was denied by the appellate court.16 rll
Unfazed, the Corporation filed a Petition for Review with this Court, docketed as G.R.
No. 152542 which was consolidated with G.R. No. 155472 per Resolution dated
January 21, 2004.17 rll
The focal issue in these consolidated petitions is whether or not Ma. Antonia M.
Salvatierra has the legal capacity to sue on behalf of the Corporation.
The group of Antonio Monfort III claims that the March 31, 1997 Board Resolution
authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to represent the
Corporation is void because the purported Members of the Board who passed the
same were not validly elected officers of the Corporation.

A corporation has no power except those expressly conferred on it by the Corporation


Code and those that are implied or incidental to its existence.In turn, a corporation
exercises said powers through its board of directors and/or its duly authorized officers
and agents.Thus, it has been observed that the power of a corporation to sue and be
sued in any court is lodged with the board of directors that exercises its corporate
powers.In turn, physical acts of the corporation, like the signing of documents, can be
performed only by natural persons duly authorized for the purpose by corporate bylaws or by a specific act of the board of directors. 18 rll
Corollary thereto, corporations are required under Section 26 of the Corporation Code
to submit to the SEC within thirty (30) days after the election the names, nationalities
and residences of the elected directors, trustees and officers of the Corporation.In
order to keep stockholders and the public transacting business with domestic
corporations properly informed of their organizational operational status, the SEC
issued the following rules:rbl r l l lbrr
xxx
2.A General Information Sheetshall be filed with this Commission within thirty (30)
days following the date of the annual stockholders meeting.No extension of said period
shall be allowed, except for very justifiable reasons stated in writing by the President,
Secretary, Treasurer or other officers, upon which the Commission may grant an
extension for not more than ten (10) days.
2.A.Should a director, trustee or officer die, resign or in any manner, cease to hold
office, the corporation shall report such fact to the Commission with fifteen (15) days
after such death, resignation or cessation of office.
3.If for any justifiable reason, the annual meeting has to be postponed, the company
should notify the Commission in writing of such postponement.
The General Information Sheet shall state, among others, the names of the
elected directors and officers, together with their corresponding position
title (Emphasis supplied)rllbrr
In the instant case, the six signatories to the March 31, 1997 Board Resolution
authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to represent the

Corporation, were: Ma. Antonia M. Salvatierra, President; Ramon H. Monfort,


Executive Vice President; Directors Paul M. Monfort, Yvete M. Benedicto and Jaqueline
M. Yusay; and Ester S. Monfort, Secretary.19However, the names of the last four (4)
signatories to the said Board Resolution do not appear in the 1996 General Information
Sheet submitted by the Corporation with the SEC.Under said General Information
Sheet the composition of the Board is as follows:rbl r l l
lbrr
1.Ma. Antonia M. Salvatierra (Chairman) ;chanroblesvirtuallawlibrary
2.Ramon H. Monfort (Member);chanroblesvirtuallawlibrary
3.Antonio H. Monfort, Jr., (Member);chanroblesvirtuallawlibrary

case against private respondent was authorized by the Board. On the other hand, the
second set of officers, viz., Saturnino G. Belen, Jr., Alberto C. Nograles and Jose L.R.
Reyes, presented a Resolution dated July 30, 1986, to show that Premium did not
authorize the filing in its behalf of any suit against the private respondent International
Corporate Bank.
Later on, petitioner submitted its Articles of Incorporation dated November 6, 1979 with
the following as Directors: Mario C. Zavalla, Pedro C. Celso, Oscar B. Gan, Lionel
Pengson, and Jose Ma. Silva.
However, it appears from the general information sheet and the Certification issued by
the SEC on August 19, 1986 that as of March 4, 1981, the officers and members of the
board of directors of the Premium Marble Resources, Inc. were:rbl
r l l lbrr

4.Joaquin H. Monfort (Member);chanroblesvirtuallawlibrary


Alberto C. Nograles President/Director
5.Francisco H. Monfort (Member) and
Fernando D. Hilario Vice President/Director
6.Jesus Antonio H. Monfort (Member). 20 rll
Augusto I. Galace Treasurer
There is thus a doubt as to whether Paul M. Monfort, Yvete M. Benedicto, Jaqueline M.
Yusay and Ester S. Monfort, were indeed duly elected Members of the Board legally
constituted to bring suit in behalf of the Corporation. 21 rll

Jose L.R. Reyes Secretary/Director


Pido E. Aguilar Director

22

In Premium Marble Resources, Inc. v. Court of Appeals , the Court was confronted
with the similar issue of capacity to sue of the officers of the corporation who filed a
complaint for damages. In the said case, we sustained the dismissal of the complaint
because it was not established that the Members of the Board who authorized the filing
of the complaint were the lawfully elected officers of the corporation.Thus
The only issue in this case is whether or not the filing of the case for damages against
private respondent was authorized by a duly constituted Board of Directors of the
petitioner corporation.
Petitioner, through the first set of officers, viz., Mario Zavalla, Oscar Gan, Lionel
Pengson, Jose Ma. Silva, Aderito Yujuico and Rodolfo Millare, presented the Minutes of
the meeting of its Board of Directors held on April 1, 1982, as proof that the filing of the

Saturnino G. Belen, Jr. Chairman of the Board.


While the Minutes of the Meeting of the Board on April 1, 1982 states that the newly
elected officers for the year 1982 were Oscar Gan, Mario Zavalla, Aderito Yujuico and
Rodolfo Millare, petitioner failed to show proof that this election was reported to the
SEC. In fact, the last entry in their General Information Sheet with the SEC, as of 1986
appears to be the set of officers elected in March 1981.
We agree with the finding of public respondent Court of Appeals, that in the absence of
any board resolution from its board of directors the [sic] authority to act for and in
behalf of the corporation, the present action must necessarily fail. The power of the
corporation to sue and be sued in any court is lodged with the board of directors that

exercises its corporate powers. Thus, the issue of authority and the invalidity of
plaintiff-appellants subscription which is still pending, is a matter that is also addressed,
considering the premises, to the sound judgment of the Securities & Exchange
Commission.
By the express mandate of the Corporation Code (Section 26), all corporations duly
organized pursuant thereto are required to submit within the period therein stated (30
days) to the Securities and Exchange Commission the names, nationalities and
residences of the directors, trustees and officers elected.
Sec. 26 of the Corporation Code provides, thus:rbl r l l
lbrr
Sec. 26.Report of election of directors, trustees and officers. Within thirty (30) days
after the election of the directors, trustees and officers of the corporation, the secretary,
or any other officer of the corporation, shall submit to the Securities
andExchangeCommission,the names, nationalities and residences of the
directors,trustees andofficerselected. xxx
Evidently, the objective sought to be achieved by Section 26 is to give the public
information, under sanction of oath of responsible officers, of the nature of business,
financial condition and operational status of the company together with information on
its key officers or managers so that those dealing with it and those who intend to do
business with it may know or have the means of knowing facts concerning the
corporations financial resources and business responsibility.
The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa, et
al., are the incumbent officers of Premium has not been fully substantiated.In the
absence of an authority from the board of directors, no person, not even the officers of
the corporation, can validly bind the corporation.
In the case at bar, the fact that four of the six Members of the Board listed in the 1996
General Information Sheet23 are already dead24 at the time the March 31, 1997 Board
Resolution was issued, does not automatically make the four signatories (i.e., Paul M.
Monfort, Yvete M. Benedicto, Jaqueline M. Yusay and Ester S. Monfort) to the said
Board Resolution (whose name do not appear in the 1996 General Information Sheet)

as among the incumbent Members of the Board.This is because it was not established
that they were duly elected to replace the said deceased Board Members.
To correct the alleged error in the General Information Sheet, the retained accountant
of the Corporation informed the SEC in its November 11, 1998 letter that the noninclusion of the lawfully elected directors in the 1996 General Information Sheet was
attributable to its oversight and not the fault of the Corporation. 25 This belated attempt,
however, did not erase the doubt as to whether an election was indeed held.As
previously stated, a corporation is mandated to inform the SEC of the names and the
change in the composition of its officers and board of directors within 30 days after
election if one was held, or 15 days after the death, resignation or cessation of office of
any of its director, trustee or officer if any of them died, resigned or in any manner,
ceased to hold office.This, the Corporation failed to do.The alleged election of the
directors and officers who signed the March 31, 1997 Board Resolution was held on
October 16, 1996, but the SEC was informed thereof more than two years later, or on
November 11, 1998.The 4 Directors appearing in the 1996 General Information Sheet
died between the years 1984 1987,26 but the records do not show if such demise was
reported to the SEC.
What further militates against the purported election of those who signed the March 31,
1997 Board Resolution was the belated submission of the alleged Minutes of the
October 16, 1996 meeting where the questioned officers were elected.The issue of
legal capacity of Ma. Antonia M. Salvatierra was raised before the lower court by the
group of Antonio Monfort III as early as 1997, but the Minutes of said October 16, 1996
meeting was presented by the Corporation only in its September 29, 1999 Comment
before the Court of Appeals.27 Moreover, the Corporation failed to prove that the same
October 16, 1996 Minutes was submitted to the SEC.In fact, the 1997 General
Information Sheet28 submitted by the Corporation does not reflect the names of the 4
Directors claimed to be elected on October 16, 1996.
Considering the foregoing, we find that Ma. Antonia M. Salvatierra failed to prove that
four of those who authorized her to represent the Corporation were the lawfully elected
Members of the Board of the Corporation.As such, they cannot confer valid authority
for her to sue on behalf of the corporation.
The Court notes that the complaint in Civil Case No. 506-C, for replevin before the
Regional Trial Court of Negros Occidental, Branch 60, has 2 causes of action, i.e.,

unlawful detention of the Corporations motor vehicle and tractors, and the unlawful
detention of the of 387 fighting cocks of Ramon H. Monfort.Since Ramon sought
redress of the latter cause of action in his personal capacity, the dismissal of the
complaint for lack of capacity to sue on behalf of the corporation should be limited only
to the corporations cause of action for delivery of motor vehicle and tractors.In view,
however, of the demise of Ramon on June 25, 1999, 29 substitution by his heirs is
proper.
WHEREFORE, in view of all the foregoing, the petition in G.R. No. 152542 is
DENIED.The October 5, 2001 Decision of the Special Tenth Division of the Court of
Appeals in CA-G.R. SP No. 53652, which set aside the August 14, 1998 Decision of
the Regional Trial Court of Negros Occidental, Branch 60 in Civil Case No. 822, is
AFFIRMED.
In G.R. No. 155472, the petition is GRANTED and the June 7, 2002 Decision rendered
by the Special Former Thirteenth Division of the Court of Appeals in CA-G.R. SP No.
49251, dismissing the petition filed by the group of Antonio Monfort III, is REVERSED
and SET ASIDE.
The complaint for forcible entry docketed as Civil Case No. 822 before the Municipal
Trial Court of Cadiz City is DISMISSED.In Civil Case No. 506-C with the Regional Trial
Court of Negros Occidental, Branch 60, the action for delivery of personal property filed
by Monfort Hermanos Agricultural Development Corporation is likewise
DISMISSED.With respect to the action filed by Ramon H. Monfort for the delivery of
387 fighting cocks, the Regional Trial Court of Negros Occidental, Branch 60, is
ordered to effect the corresponding substitution of parties.
No costs.
SO ORDERED.

Entitlement to Constitutional Guarantees


EN BANC

[G.R. No. L-19550. June 19, 1967.]


HARRY S. STONEHlLL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL
BECK, Petitioners, v. HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF
JUSTICE, JOSE LUKBAN, in his capacity as Acting Director of the 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.
Paredes, Poblador, Cruz & Nazareno and Meer, Meer & Meer and Juan T . David,
for Petitioners.
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.

SYLLABUS

1. CONSTITUTIONAL LAW; SEARCH AND SEIZURE; WHO MAY CONTEST


LEGALITY THEREOF CASE AT BAR. It is well settled that the legality of a seizure
can be contested only by the party whose rights have been impaired thereby (Lewis v.
U.S., 6 F. 2d. 22) and that the objection to an unlawful search and seizure is purely
personal and cannot be availed of by third parties (In. re Dooley, 48 F. 2d. 121: Rouda
v. U.S., 10 F. 2d. 916; Lusco v. U.S., 287 F. 69; Ganci v. U.S., 287 F, 60; Moriz v. U.S.,
26 F. 2d. 444). Consequently, petitioner in the case at bar may not validly object to the
use in evidence against them of the document, papers, and things seized from the
offices and premises of the corporation adverted to, 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 U.S., v. Gaas, 17 F. 2d. 997;
People v. Rubio, 57 Phil., 384).

2. ID.; ID.; REQUISITES FOR ISSUANCE OF SEARCH WARRANT. Two points


must be stressed in connection with this constitutional mandate, namely: (1) that no
warrant 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 persons therein named had committed a "violation of Central Bank Laws, Tariff
and Customs Laws, Internal Revenue (Code) and Revised Penal Code." In other
words, no specific 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 the case at bar do not allege any specific acts performed by
herein petitioners. It would be a 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 aforementioned applications without
reference to any determine provision of said laws or coders.
3. ID.; ID.; ID.; GENERAL WARRANTS ARE OUTLAWED BY THE CONSTITUTION.
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 victims, caprice or passion of peace officers. This is precisely the evil
sought to be remedied by the constitutional provision Sec. 1, par. 3 Art. III, Const.) 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, by providing in its
counterpart, under the Revised Rules of Court (Sec. 3, Rule 126) 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 paragraph,
directing that "no search warrant shall issue for more than one specific offense."cralaw
virtua1aw library

4. ID.; ID.; ID.; ID.; CASE AT BAR. 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 petitioners herein, regardless of whether the
transaction 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.
5. ID.; ID.; ID.; NON-EXCLUSIONARY RULE CONTRAVENES THE
CONSTITUTIONAL PROHIBITIONS AGAINST UNREASONABLE SEARCH AND
SEIZURES. 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 only 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 crime. crime. But when this fishing expedition is indicative of the absence of
evidence to establish a probable cause.
6. ID.; ID.; ID.; ID.; PROSECUTION OF THOSE WHO SECURE ILLEGAL SEARCH
WARRANT OR MAKE UNREASONABLE SEARCH OR SEIZURE IS NO EXCUSE.
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 of securing their conviction, is watered
down by the pardoning power of the party for whose benefit the illegality had been
committed.
7. ID.; ID.; ID.; MONCADO DOCTRINE ABANDONED. The doctrine adopted in the
Moncado case must be, as it is hereby, abandoned; the warrants for the search of 3
residences of petitioners, as specified in the Resolution of June 29, 1962, are null and
void; the searches and seizures therein made are illegal.

DECISION

CONCEPCION, C.J.:

Upon application of the officers of the government named on the margin 1


hereinafter referred to as Respondent-Prosecutors several judges 2 hereinafter
referred to as Respondent-Judges issued, on different dates, 3 a total of 42 search
warrants against petitioners herein 4 and/or the corporations of which they were
officers, 5 directed to 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:jgc:chanrobles.com.ph
"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)."cralaw virtua1aw
library
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."cralaw virtua1aw library

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 RespondentProsecutors, 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 Rules of Court, the documents, papers,
things and cash moneys seized or confiscated under the search warrants in question.
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.
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
Thus, the documents, papers, and things seized under the alleged authority of the
warrants in question may be split into (2) major groups, namely: (a) those found and
seized in the offices of the aforementioned corporations and (b) those found 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 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. 11 Indeed, it has been held:jgc:chanrobles.com.ph
". . . that the Governments 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 v. 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. v. 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, denied the lifting of
the writ of preliminary injunction previously issued by this Court, 12 thereby, in effect,

restraining herein Respondent-Prosecutors 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.
Petitioners maintain that the aforementioned search warrants are in the nature of
general warrants and that, accordingly, the seizures effected upon the authority thereof
are null and void. In this connection, the Constitution 13
provides:jgc:chanrobles.com.ph
"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."cralaw virtua1aw library
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 persons
therein named had committed a "violation of Central Bank Laws, Tariff and Customs
Laws, Internal Revenue (Code) and Revised Penal Code." In other words, no specific
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 a 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 codes.
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 socalled 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 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."cralaw virtua1aw library
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:jgc:chanrobles.com.ph
"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."cralaw virtua1aw library
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 v. Peoples Court (80 Phil. 1), Respondent- 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:jgc:chanrobles.com.ph
"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:jgc:chanrobles.com.ph
"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 of the
same Federal Court. 20 After reviewing previous decisions thereon, said Court held, in
Mapp v. Ohio (supra.):jgc:chanrobles.com.ph
". . . Today we once again examine the Wolfs 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 held that
all evidence obtained by searches and seizures in violation of the Constitution is, by
that same authority, inadmissible in a State court.
"Since the Fourth Amendments 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
undeserving 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 Courts 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 privacy, 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
necessary 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
consistently 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 enjoinment. Only last year the Court itself recognized that the purpose of
the exclusionary rule 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 the 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
enforceable itself, chooses to suspend its enjoinment. 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 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.
In their Motion for Reconsideration and Amendment of the Resolution of this Court
dated June 29, 1962, petitioners allege that Room 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 the United States. 22

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.
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.

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, not in 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 a 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 and

Separate Opinions

CASTRO, J., concurring and dissenting:chanrob1es virtual 1aw library


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:chanrob1es virtual 1aw library
1. All the search warrants served by the National Bureau of Investigation in this case
are general warrants and are therefore prescribed 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 v. 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 effects seized in the 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 expressly declaring as null and void
the search 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."cralaw virtua1aw library
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
illegality 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 argumenti, 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 illegality 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 pronouncements 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."cralaw virtua1aw library
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.

invoked. No doubt the future will bring countless others. By nothing we say here or do
we either foresee or foreclose factual situations to which the Fourth Amendment may
be applicable." Hoffa v. U.S. 87 S. Ct. 408 (December 12, 1966) See also U.S. v.
Jeffers, 342 U.S. 48, 72 S. Ct. 93 (November 13, 1951). (Emphasis supplied).

Ownership of matters seized gives "standing."cralaw virtua1aw library


Control of premises searches gives "standing."cralaw virtua1aw library
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 v. United
States, 362 U.S. 257, 261 (1960) (narcotics stored in the apartment of a friend of the
defendant); Henzel v. 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 v. Jeffers, 342 U.S. 48 (1951) (narcotics seized in an apartment not belonging to
the defendant); Pielow v. United States, 8F. 2d 492, 493 (9th Cir. 1925) (books seized
from the defendants sister but belonging to the defendant); Cf. Villano v. 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:jgc:chanrobles.com.ph
"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 he places himself or his property within a
constitutionally protected area, be it his homes, or his office, his hotel room or his
automobile. There he is protected from unwarranted governmental intrusion. And when
he puts something 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 petitioners private papers in Gouled,
or the surreptitious electronic surveillance 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

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 (IBMS, 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 effects seized therefrom.
In Jones v. 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 standards of the
then prevailing circuit court decisions, the Supreme Court said (362 U.S.
266):jgc:chanrobles.com.ph
"We do not lightly depart from this course of decisions by the lower courts. We are
persuaded, however, that it is unnecessary 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, and guest, often only of gossamer
strength, ought not be determinative in fashioning procedures ultimately referable to
constitutional safeguards." See also Chapman v. 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 v. 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 v. Antonelli Fireworks Co., 53 F. Supp. 870, 873
(W. D. N. Y. 1943), the corporations president successfully moved for the return and
suppression as to him of both personal and corporate documents seized from his home
during the course of an illegal search:jgc:chanrobles.com.ph
"The lawful possession by Antonelli of documents and property, either his own or the
corporations, 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 articles and the suppression of the
evidence so obtained should be granted." (Emphasis supplied)
Time was when only a person who had property interest in either the place searched or
the articles seized had the necessary standing to invoke the protection of the
exclusionary rule. But in MacDonald v. United States, 336 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 v. Jeffers, 342 U.S. 48 (1951). Nine years later, in 1960, in Jones v.
United 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 premises where the search occurs."cralaw virtua1aw library
Shortly after the U.S. Supreme Courts 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 v. United States, 296 F. 2d. 650, 652
(5th Cir. 1961), supra. The court concluded 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 in the case at
bar). A postal inspector had unlawfully searched the corporations premises and had
seized most of the corporations books and records. Looking to Jones, the court
observed:jgc:chanrobles.com.ph
"Jones clearly tells us, therefore, what is not required to 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 Inspectors search and seizure of the
corporations 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
invaded premises . . ." Henzel v. United States, 296 F. 2d at 651.
Henzel was soon followed by Villano v. United States, 310 F. 2d 680, 683, (10th Cir.
1962). In Villano, police officers seized two notebooks from a desk in the defendants
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 and Villano considered also the fact that the search and seizure were "directed
at" the moving defendant. Henzel v. United States, 296 F. 2d at 682; Villano v. 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 v. United. States, 232 F. 2d
855, 861 (8th Cir. 1956).
Aggrieved person doctrine where the search warrant is primarily directed against said
person gives "standing."cralaw virtua1aw library
The latest United States decision squarely in point is United States v. 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, Birrells attorney. * Dunn, in turn, had stored most of the
records at his home in the country and on a farm which, according to Dunns affidavit,
was under his (Dunns) "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 v. U.S., supra; U.S. v.
Antonelli Fireworks Co., 53 F. Supp. 870, Affd 155 F. 2d 631; Henzel v. U.S., supra;
and Schwimmer v. 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 v. 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 342
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 SOLELY 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 of 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 from the foregoing, this Court, at all events, should order the return to the
petitioners all personal and 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 were
the objects of the unlawful searches and seizures, I submit that the grouping should be:
(a) personal or private papers of the petitioners wherever they were unlawfully seized,
be it their family residences, offices, warehouses and/or premises owned and/or
controlled and/or possessed (actually or constructively) by them as shown in all the
search warrants 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 are personal/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.

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.

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.

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.

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

The pertinent facts of this case, as gathered from record, are as follows:chanrob1es
virtual 1aw library

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.

VILLAMOR, J.:

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.

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

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?.
"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.
x

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

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?
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
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.

"Q Who is this he?


"A The Honorable Judge.
"Q The deposition or the affidavit?
"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

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.
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.
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.
The documents, papers and effects sought to be seized are described in Search
Warrant No. 2-M-70 in this manner:jgc:chanrobles.com.ph
"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-M70, 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 allembracing 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.)

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. 2M-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.

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

Castro, J., concurs in the result.


Separate Opinions
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 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.

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.
Apostol, Bernas, Gumaru, Ona and Associates for petitioner.
Vicente G. Sison for intervenor A.T. Abesamis.

NARVASA, J.:
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:
RE: SEQUESTRATION ORDER

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.
1. Bataan Shipyard and Engineering Co., Inc.
(Engineering Island Shipyard and Mariveles
Shipyard)

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:
1. Stock Transfer Book
2. Legal documents, such as:

2. Baseco Quarry
2.1. Articles of Incorporation
3. Philippine Jai-Alai Corporation
2.2. By-Laws
4. Fidelity Management Co., Inc.
5. Romson Realty, Inc.
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

2.3. Minutes of the Annual Stockholders


Meeting from 1973 to 1986
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
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.

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

10. Schedule of company investments and placements. 2


e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan
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 Vice-President 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
d. Aborted Contract for Improvement of Wharf at Engineer Island
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

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
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:
1. Conducts all aspects of operation of the subject companies;
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
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 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
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
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
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:
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.
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
"ill-gotten 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 "ill-gotten 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 "ill-gotten" 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 same-until 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

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.

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 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
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

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 ill-gotten wealth shag remain operative for not more
thaneighteen 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
f. Kinship to Attachment Receivership
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 "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 "illgotten 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.
a. Prima Facie Evidence as Basis for Orders
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 "ill-gotten" 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
theaffirmation 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.
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
9. Constitutional Sanction of Remedies
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."
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," 69 and said to be co-extensive 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, 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.
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.
12. Organization and Stock Distribution of BASECO
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.

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

2. Severino G. de la
Cruz

1,248 shares

3. Emilio T. Yap

4. Jose Fernandez

5. Jose Francisco

6. Manuel S. Mendoza

7. Anthony P. Lee

8. Hilario M. Ruiz

9. Constante L. Farias

10. Fidelity
Management, Inc.

65,882 shares

11. Trident
Management

7,412 shares

12. United Phil. Lines

1,240 shares

13. Renato M. Tanseco

8 shares

14. Fidel Ventura

8 shares

15. Metro Bay Drydock

136,370 shares

16. Manuel Jacela

1 share

17. Jonathan G. Lu

1 share

18. Jose J. Tanchanco

1 share

19. Dioscoro Papa

128 shares

2,508 shares

1,248 shares

128 shares

96 shares

1,248 shares

32 shares

8 shares

16. Acquisition of Other Assets of NASSCO; Intervention of Marcos


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
14. Subsequent Reduction of Price; Intervention of 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 semiannual 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

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," 79 which, 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," 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)." 80 On 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
18. Reports to President Marcos
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
Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It
opened with the following caption:
MEMORANDUM:

2. By getting their replacements, the families cannot question us


later on; and
3. We will owe no further favors from them. 87
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 bylaws 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";
5. Contract dated October 9, 1973, between NASSCO and
BASECO re-structure and equipment at Mariveles, Bataan;

FOR : The President

6. Contract dated July 16, 1975, between NASSCO and BASECO


re-structure and equipment at Engineer Island, Port Area Manila;

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


a Mission

7. Contract dated October 1, 1974, between EPZA and BASECO re


300 hectares of land at Mariveles, Bataan;

FROM: Capt. A.T. Romualdez.

8. List of BASECO's fixed assets;

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;

9. Loan Agreement dated September 3, 1975, BASECO's loan


from NDC of P30,000,000.00;
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-andfile 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.
19. Marcos' Response to Reports
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:

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 "PHILASIA 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. NDC P83,865,000 (P31.165M loan &


P52.2M Reparation)

* * 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.

2. LUSTEVECO P32,538,000 (Reparation)

xxx xxx xxx

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:

b. Equity participation of government shall be in the form of nonvoting shares.


For immediate compliance. 92

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
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 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. 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 "ill-gotten") 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.

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

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

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

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.

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.

25. No Sufficient Showing of Other Irregularities

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

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

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,

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.
Separate Opinions
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 ill-gotten 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 government-owned 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-inlaw, 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 takeover 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." 11 Police power
rests upon public necessity and upon the right of the State and of the public to selfprotection. 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. 14 Its 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.

preserve the property in litigation (Article 2005, Civil Code). Sequestration is in the
nature of a judicial deposit (ibid.).

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.

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. 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.

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.

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 "ill-gotten 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:

MELENCIO-HERRERA, J., concurring:

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


concerned.

I concur in the general propositions embodied in or implied from the majority opinion,
among them:

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

(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
ill-gotten 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 petitionerowners 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 also limitedby 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.

Separate Opinions
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 ill-gotten 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 government-owned 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-inlaw, 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 takeover 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." 11 Police power
rests upon public necessity and upon the right of the State and of the public to selfprotection. 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. 14 Its 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.
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 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. 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 "ill-gotten 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.
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
ill-gotten 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.

example. Otherwise, banks, merchandizing firms, investment institutions, and other


sensitive businesses will find themselves in a similar quandary.

(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.

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.

(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 petitionerowners 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

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 also limitedby 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.

Corporate Social Responsibility


EN BANC
[G.R. No. 126297 : February 02, 2010]
PROFESSIONAL SERVICES, INC., PETITIONER, VS. THE COURT OF APPEALS
AND NATIVIDAD AND ENRIQUE AGANA, RESPONDENTS.
[G.R. NO. 126467]
NATIVIDAD [SUBSTITUTED BY HER CHILDREN MARCELINO AGANA III,
ENRIQUE AGANA, JR., EMMA AGANA-ANDAYA, JESUS AGANA AND RAYMUND
AGANA] AND ENRIQUE AGANA, PETITIONERS, VS. THE COURT OF APPEALS
AND JUAN FUENTES, RESPONDENTS.
[G.R. NO. 127590]
MIGUEL AMPIL, PETITIONER, VS. NATIVIDAD AND ENRIQUE AGANA,
RESPONDENTS.
RESOLUTION
CORONA, J.:
With prior leave of court,1 petitioner Professional Services, Inc. (PSI) filed a second
motion for reconsideration2 urging referral thereof to the Court en banc and seeking
modification of the decision dated January 31, 2007 and resolution dated February 11,
2008 which affirmed its vicarious and direct liability for damages to respondents
Enrique Agana and the heirs of Natividad Agana (Aganas).
Manila Medical Services, Inc. (MMSI),3 Asian Hospital, Inc. (AHI),4 and Private Hospital

Association of the Philippines (PHAP)5 all sought to intervene in these cases invoking
the common ground that, unless modified, the assailed decision and resolution will
jeopardize the financial viability of private hospitals and jack up the cost of health care.
The Special First Division of the Court granted the motions for intervention of MMSI,
AHI and PHAP (hereafter intervenors),6 and referred en consulta to the Court en
banc the motion for prior leave of court and the second motion for reconsideration of
PSI.7
Due to paramount public interest, the Court en banc accepted the referral8 and heard
the parties on oral arguments on one particular issue: whether a hospital may be held
liable for the negligence of physicians-consultants allowed to practice in its premises. 9
To recall the salient facts, PSI, together with Dr. Miguel Ampil (Dr. Ampil) and Dr. Juan
Fuentes (Dr. Fuentes), was impleaded by Enrique Agana and Natividad Agana (later
substituted by her heirs), in a complaint10 for damages filed in the Regional Trial Court
(RTC) of Quezon City, Branch 96, for the injuries suffered by Natividad when Dr. Ampil
and Dr. Fuentes neglected to remove from her body two gauzes 11 which were used in
the surgery they performed on her on April 11, 1984 at the Medical City General
Hospital. PSI was impleaded as owner, operator and manager of the hospital.
In a decision12 dated March 17, 1993, the RTC held PSI solidarily liable with Dr. Ampil
and Dr. Fuentes for damages.13 On appeal, the Court of Appeals (CA), absolved Dr.
Fuentes but affirmed the liability of Dr. Ampil and PSI, subject to the right of PSI to
claim reimbursement from Dr. Ampil.14
On petition for review, this Court, in its January 31, 2007 decision, affirmed the CA
decision.15 PSI filed a motion for reconsideration16 but the Court denied it in a resolution
dated February 11, 2008.17
The Court premised the direct liability of PSI to the Aganas on the following facts and
law:
First, there existed between PSI and Dr. Ampil an employer-employee relationship as
contemplated in the December 29, 1999 decision in Ramos v. Court of Appeals18 that
"for purposes of allocating responsibility in medical negligence cases, an employer-

employee relationship exists between hospitals and their consultants." 19 Although the
Court in Ramos later issued a Resolution dated April 11, 200220 reversing its earlier
finding on the existence of an employment relationship between hospital and doctor, a
similar reversal was not warranted in the present case because the defense raised by
PSI consisted of a mere general denial of control or responsibility over the actions of
Dr. Ampil.21
Second, by accrediting Dr. Ampil and advertising his qualifications, PSI created the
public impression that he was its agent.22 Enrique testified that it was on account of Dr.
Ampil's accreditation with PSI that he conferred with said doctor about his wife's
(Natividad's) condition.23 After his meeting with Dr. Ampil, Enrique asked Natividad to
personally consult Dr. Ampil.24 In effect, when Enrigue and Natividad engaged the
services of Dr. Ampil, at the back of their minds was that the latter was a staff member
of a prestigious hospital. Thus, under the doctrine of apparent authority applied
in Nogales, et al. v. Capitol Medical Center, et al.,25 PSI was liable for the negligence of
Dr. Ampil.

that there is no employer-employee relationship in this case and that the doctor's are
independent contractors.
II
Respondents Aganas engaged Dr. Miguel Ampil as their doctor and did not primarily
and specifically look to the Medical City Hospital (PSI) for medical care and support;
otherwise stated, respondents Aganas did not select Medical City Hospital (PSI) to
provide medical care because of any apparent authority of Dr. Miguel Ampil as its
agent since the latter was chosen primarily and specifically based on his qualifications
and being friend and neighbor.
III
PSI cannot be liable under doctrine of corporate negligence since the proximate cause
of Mrs. Agana's injury was the negligence of Dr. Ampil, which is an element of the
principle of corporate negligence.29

Finally, as owner and operator of Medical City General Hospital, PSI was bound by its
duty to provide comprehensive medical services to Natividad Agana, to exercise
reasonable care to protect her from harm,26 to oversee or supervise all persons who
practiced medicine within its walls, and to take active steps in fixing any form of
negligence committed within its premises.27 PSI committed a serious breach of its
corporate duty when it failed to conduct an immediate investigation into the reported
missing gauzes.28

In their respective memoranda, intervenors raise parallel arguments that the Court's
ruling on the existence of an employer-employee relationship between private hospitals
and consultants will force a drastic and complex alteration in the long-established and
currently prevailing relationships among patient, physician and hospital, with
burdensome operational and financial consequences and adverse effects on all three
parties.30

PSI is now asking this Court to reconsider the foregoing rulings for these reasons:

The Aganas comment that the arguments of PSI need no longer be entertained for they
have all been traversed in the assailed decision and resolution. 31

I
The declaration in the 31 January 2007 Decision vis--vis the 11 February 2009
Resolution that the ruling in Ramos vs. Court of Appeals (G.R. No. 134354, December
29, 1999) that "an employer-employee relations exists between hospital and their
consultants" stays should be set aside for being inconsistent with or contrary to the
import of the resolution granting the hospital's motion for reconsideration in Ramos vs.
Court of Appeals (G.R. No. 134354, April 11, 2002), which is applicable to PSI since the
Aganas failed to prove an employer-employee relationship between PSI and Dr. Ampil
and PSI proved that it has no control over Dr. Ampil. In fact, the trial court has found

After gathering its thoughts on the issues, this Court holds that PSI is liable to the
Aganas, not under the principle of respondeat superior for lack of evidence of an
employment relationship with Dr. Ampil but under the principle of ostensible agency for
the negligence of Dr. Ampil and, pro hac vice, under the principle of corporate
negligence for its failure to perform its duties as a hospital.
While in theory a hospital as a juridical entity cannot practice medicine, 32 in reality it
utilizes doctors, surgeons and medical practitioners in the conduct of its business of
facilitating medical and surgical treatment.33 Within that reality, three legal relationships

crisscross: (1) between the hospital and the doctor practicing within its premises; (2)
between the hospital and the patient being treated or examined within its premises and
(3) between the patient and the doctor. The exact nature of each relationship
determines the basis and extent of the liability of the hospital for the negligence of the
doctor.

actually supervise the performance of duties of the employee, it being enough


that it has the right to wield the power. (emphasis supplied)

Where an employment relationship exists, the hospital may be held vicariously liable
under Article 217634 in relation to Article 218035 of the Civil Code or the principle
of respondeat superior. Even when no employment relationship exists but it is shown
that the hospital holds out to the patient that the doctor is its agent, the hospital may
still be vicariously liable under Article 2176 in relation to Article 1431 36 and Article
186937 of the Civil Code or the principle of apparent authority. 38 Moreover, regardless of
its relationship with the doctor, the hospital may be held directly liable to the patient for
its own negligence or failure to follow established standard of conduct to which it
should conform as a corporation.39

In the present case, it appears to have escaped the Court's attention that both the RTC
and the CA found no employment relationship between PSI and Dr. Ampil, and that the
Aganas did not question such finding. In its March 17, 1993 decision, the RTC
found "that defendant doctors were not employees of PSI in its hospital, they being
merely consultants without any employer-employee relationship and in the capacity of
independent contractors."43 The Aganas never questioned such finding.

This Court still employs the "control test" to determine the existence of an employeremployee relationship between hospital and doctor. In Calamba Medical Center, Inc. v.
National Labor Relations Commission, et al.40 it held:
Under the "control test", an employment relationship exists between a physician and a
hospital if the hospital controls both the means and the details of the process by which
the physician is to accomplish his task.
xx xx xx
As priorly stated, private respondents maintained specific work-schedules, as
determined by petitioner through its medical director, which consisted of 24-hour shifts
totaling forty-eight hours each week and which were strictly to be observed under pain
of administrative sanctions.
That petitioner exercised control over respondents gains light from the
undisputed fact that in the emergency room, the operating room, or any
department or ward for that matter, respondents' work is monitored through its
nursing supervisors, charge nurses and orderlies. Without the approval or
consent of petitioner or its medical director, no operations can be undertaken in
those areas. For control test to apply, it is not essential for the employer to

Even in its December 29, 1999 decision41 and April 11, 2002 resolution42 in Ramos, the
Court found the control test decisive.

PSI, Dr. Ampil and Dr. Fuentes appealed44 from the RTC decision but only on the
issues of negligence, agency and corporate liability. In its September 6, 1996 decision,
the CA mistakenly referred to PSI and Dr. Ampil as employer-employee, but it was
clear in its discussion on the matter that it viewed their relationship as one of mere
apparent agency.45
The Aganas appealed from the CA decision, but only to question the exoneration of Dr.
Fuentes.46 PSI also appealed from the CA decision, and it was then that the issue of
employment, though long settled, was unwittingly resurrected.
In fine, as there was no dispute over the RTC finding that PSI and Dr. Ampil had no
employer-employee relationship, such finding became final and conclusive even to this
Court.47 There was no reason for PSI to have raised it as an issue in its petition. Thus,
whatever discussion on the matter that may have ensued was purely academic.
Nonetheless, to allay the anxiety of the intervenors, the Court holds that, in this
particular instance, the concurrent finding of the RTC and the CA that PSI was not the
employer of Dr. Ampil is correct. Control as a determinative factor in testing the
employer-employee relationship between doctor and hospital under which the hospital
could be held vicariously liable to a patient in medical negligence cases is a requisite
fact to be established by preponderance of evidence. Here, there was insufficient
evidence that PSI exercised the power of control or wielded such power over the
means and the details of the specific process by which Dr. Ampil applied his skills in

the treatment of Natividad. Consequently, PSI cannot be held vicariously liable for the
negligence of Dr. Ampil under the principle of respondeat superior.

record that PSI required a "consent for hospital care"53 to be signed preparatory to the
surgery of Natividad. The form reads:

There is, however, ample evidence that the hospital (PSI) held out to the patient
(Natividad)48 that the doctor (Dr. Ampil) was its agent. Present are the two factors that
determine apparent authority: first, the hospital's implied manifestation to the patient
which led the latter to conclude that the doctor was the hospital's agent; and second,
the patient's reliance upon the conduct of the hospital and the doctor, consistent with
ordinary care and prudence.49

Permission is hereby given to the medical, nursing and laboratory staff of the Medical
City General Hospital to perform such diagnostic procedures and to administer such
medications and treatments as may be deemed necessary or advisable by
the physicians of this hospital for and during the confinement of xxx. (emphasis
supplied)

Enrique testified that on April 2, 1984, he consulted Dr. Ampil regarding the condition of
his wife; that after the meeting and as advised by Dr. Ampil, he "asked [his] wife to go
to Medical City to be examined by [Dr. Ampil]"; and that the next day, April 3, he told his
daughter to take her mother to Dr. Ampil. 50 This timeline indicates that it was Enrique
who actually made the decision on whom Natividad should consult and where, and that
the latter merely acceded to it. It explains the testimony of Natividad that she consulted
Dr. Ampil at the instigation of her daughter.51

By such statement, PSI virtually reinforced the public impression that Dr. Ampil was a
physician of its hospital, rather than one independently practicing in it; that the
medications and treatments he prescribed were necessary and desirable; and that the
hospital staff was prepared to carry them out.
PSI pointed out in its memorandum that Dr. Ampil's hospital affiliation was not the
exclusive basis of the Aganas' decision to have Natividad treated in Medical City
General Hospital, meaning that, had Dr. Ampil been affiliated with another hospital, he
would still have been chosen by the Aganas as Natividad's surgeon. 54

Moreover, when asked what impelled him to choose Dr. Ampil, Enrique testified:
Atty. Agcaoili
On that particular occasion, April 2, 1984, what was your reason for choosing Dr. Ampil
to contact with in connection with your wife's illness?
A. First, before that, I have known him to be a specialist on that part of the body as a
surgeon, second, I have known him to be a staff member of the Medical City which is
aprominent and known hospital. And third, because he is a neighbor, I expect more
than the usual medical service to be given to us, than his ordinary patients. 52 (emphasis
supplied)
Clearly, the decision made by Enrique for Natividad to consult Dr. Ampil was
significantly influenced by the impression that Dr. Ampil was a staff member of Medical
City General Hospital, and that said hospital was well known and prominent. Enrique
looked upon Dr. Ampil not as independent of but as integrally related to Medical City.
PSI's acts tended to confirm and reinforce, rather than negate, Enrique's view. It is of

The Court cannot speculate on what could have been behind the Aganas' decision but
would rather adhere strictly to the fact that, under the circumstances at that time,
Enrique decided to consult Dr. Ampil for he believed him to be a staff member of a
prominent and known hospital. After his meeting with Dr. Ampil, Enrique advised his
wife Natividad to go to the Medical City General Hospital to be examined by said
doctor, and the hospital acted in a way that fortified Enrique's belief.
This Court must therefore maintain the ruling that PSI is vicariously liable for the
negligence of Dr. Ampil as its ostensible agent.
Moving on to the next issue, the Court notes that PSI made the following admission in
its Motion for Reconsideration:
51. Clearly, not being an agent or employee of petitioner PSI, PSI [sic] is not liable for
Dr. Ampil's acts during the operation. Considering further that Dr. Ampil was personally
engaged as a doctor by Mrs. Agana, it is incumbent upon Dr. Ampil, as "Captain of the
Ship", and as the Agana's doctor to advise her on what to do with her situation vis--vis
the two missing gauzes. In addition to noting the missing gauzes, regular check-

ups were made and no signs of complications were exhibited during her stay at
the hospital, which could have alerted petitioner PSI's hospital to render and
provide post-operation services to and tread on Dr. Ampil's role as the doctor of
Mrs. Agana. The absence of negligence of PSI from the patient's admission up to
her discharge is borne by the finding of facts in this case. Likewise evident
therefrom is the absence of any complaint from Mrs. Agana after her discharge
from the hospital which had she brought to the hospital's attention, could have
alerted petitioner PSI to act accordingly and bring the matter to Dr. Ampil's
attention. But this was not the case. Ms. Agana complained ONLY to Drs. Ampil
and Fuentes, not the hospital. How then could PSI possibly do something to fix
the negligence committed by Dr. Ampil when it was not informed about it at
all.55(emphasis supplied)
PSI reiterated its admission when it stated that had Natividad Agana "informed the
hospital of her discomfort and pain, the hospital would have been obliged to act on
it."56
The significance of the foregoing statements is critical.
First, they constitute judicial admission by PSI that while it had no power to control the
means or method by which Dr. Ampil conducted the surgery on Natividad Agana, it had
the power to review or cause the review of what may have irregularly transpired
within its walls strictly for the purpose of determining whether some form of negligence
may have attended any procedure done inside its premises, with the ultimate end of
protecting its patients.
Second, it is a judicial admission that, by virtue of the nature of its business as well as
its prominence57 in the hospital industry, it assumed a duty to "tread on" the "captain of
the ship" role of any doctor rendering services within its premises for the purpose of
ensuring the safety of the patients availing themselves of its services and facilities.
Third, by such admission, PSI defined the standards of its corporate conduct under the
circumstances of this case, specifically: (a) that it had a corporate duty to Natividad
even after her operation to ensure her safety as a patient; (b) that its corporate duty
was not limited to having its nursing staff note or record the two missing gauzes and (c)
that its corporate duty extended to determining Dr. Ampil's role in it, bringing the matter

to his attention, and correcting his negligence.


And finally, by such admission, PSI barred itself from arguing in its second motion for
reconsideration that the concept of corporate responsibility was not yet in existence at
the time Natividad underwent treatment;58 and that if it had any corporate responsibility,
the same was limited to reporting the missing gauzes and did not include "taking an
active step in fixing the negligence committed."59 An admission made in the pleading
cannot be controverted by the party making such admission and is conclusive as to
him, and all proofs submitted by him contrary thereto or inconsistent therewith should
be ignored, whether or not objection is interposed by a party. 60
Given the standard of conduct that PSI defined for itself, the next relevant inquiry is
whether the hospital measured up to it.
PSI excuses itself from fulfilling its corporate duty on the ground that Dr. Ampil
assumed the personal responsibility of informing Natividad about the two missing
gauzes.61 Dr. Ricardo Jocson, who was part of the group of doctors that attended to
Natividad, testified that toward the end of the surgery, their group talked about the
missing gauzes but Dr. Ampil assured them that he would personally notify the patient
about it.62 Furthermore, PSI claimed that there was no reason for it to act on the report
on the two missing gauzes because Natividad Agana showed no signs of
complications. She did not even inform the hospital about her discomfort. 63
The excuses proffered by PSI are totally unacceptable.
To begin with, PSI could not simply wave off the problem and nonchalantly delegate to
Dr. Ampil the duty to review what transpired during the operation. The purpose of such
review would have been to pinpoint when, how and by whom two surgical gauzes were
mislaid so that necessary remedial measures could be taken to avert any jeopardy to
Natividad's recovery. Certainly, PSI could not have expected that purpose to be
achieved by merely hoping that the person likely to have mislaid the gauzes might be
able to retrace his own steps. By its own standard of corporate conduct, PSI's duty to
initiate the review was non-delegable.
While Dr. Ampil may have had the primary responsibility of notifying Natividad about
the missing gauzes, PSI imposed upon itself the separate and independent

responsibility of initiating the inquiry into the missing gauzes. The purpose of the first
would have been to apprise Natividad of what transpired during her surgery, while the
purpose of the second would have been to pinpoint any lapse in procedure that led to
the gauze count discrepancy, so as to prevent a recurrence thereof and to determine
corrective measures that would ensure the safety of Natividad. That Dr. Ampil
negligently failed to notify Natividad did not release PSI from its self-imposed separate
responsibility.
Corollary to its non-delegable undertaking to review potential incidents of negligence
committed within its premises, PSI had the duty to take notice of medical records
prepared by its own staff and submitted to its custody, especially when these bear
earmarks of a surgery gone awry. Thus, the record taken during the operation of
Natividad which reported a gauze count discrepancy should have given PSI sufficient
reason to initiate a review. It should not have waited for Natividad to complain.
As it happened, PSI took no heed of the record of operation and consequently did not
initiate a review of what transpired during Natividad's operation. Rather, it shirked its
responsibility and passed it on to others - to Dr. Ampil whom it expected to inform
Natividad, and to Natividad herself to complain before it took any meaningful step. By
its inaction, therefore, PSI failed its own standard of hospital care. It committed
corporate negligence.

being that the agony wrought upon the Aganas has gone on for 26 long years, with
Natividad coming to the end of her days racked in pain and agony. Such wretchedness
could have been avoided had PSI simply done what was logical: heed the report of a
guaze count discrepancy, initiate a review of what went wrong and take corrective
measures to ensure the safety of Nativad. Rather, for 26 years, PSI hemmed and
hawed at every turn, disowning any such responsibility to its patient. Meanwhile, the
options left to the Aganas have all but dwindled, for the status of Dr. Ampil can no
longer be ascertained.66
Therefore, taking all the equities of this case into consideration, this Court believes P15
million would be a fair and reasonable liability of PSI, subject to 12% p.a. interest from
the finality of this resolution to full satisfaction.
WHEREFORE, the second motion for reconsideration is DENIED and the motions for
intervention are NOTED.
Professional Services, Inc. is ORDERED pro hac vice to pay Natividad (substituted by
her children Marcelino Agana III, Enrique Agana, Jr., Emma Agana-Andaya, Jesus
Agana and Raymund Agana) and Enrique Agana the total amount of P15 million,
subject to 12% p.a. interest from the finality of this resolution to full satisfaction.
No further pleadings by any party shall be entertained in this case.

It should be borne in mind that the corporate negligence ascribed to PSI is different
from the medical negligence attributed to Dr. Ampil. The duties of the hospital are
distinct from those of the doctor-consultant practicing within its premises in relation to
the patient; hence, the failure of PSI to fulfill its duties as a hospital corporation gave
rise to a direct liability to the Aganas distinct from that of Dr. Ampil.
All this notwithstanding, we make it clear that PSI's hospital liability based on
ostensible agency and corporate negligence applies only to this case, pro hac vice. It is
not intended to set a precedent and should not serve as a basis to hold hospitals liable
for every form of negligence of their doctors-consultants under any and all
circumstances. The ruling is unique to this case, for the liability of PSI arose from an
implied agency with Dr. Ampil and an admitted corporate duty to Natividad. 64
Other circumstances peculiar to this case warrant this ruling, 65 not the least of which

Let the long-delayed entry of judgment be made in this case upon receipt by all
concerned parties of this resolution.
SO ORDERED.

Criminal Liability

Republic of the Philippines


SUPREME COURT
Manila
EN BANC

G.R. No. L-28882 May 31, 1971

issue of 18 August 1967, of an essay, entitled "Corruption in Asia", which, in part,


reads, as follows:

TIME, INC., petitioner,


vs.
HON. ANDRES REYES, as Judge of the Court of First Instance of Rizal, ELISEO
S. ZARI, as Deputy Clerk of Court, Branch VI, Court of First Instance of Rizal,
ANTONIO J. VILLEGAS and JUAN PONCE ENRILE, respondents.

Sycip, Salazar, Luna, Manalo & Feliciano for petitioner.

Angel C. Cruz Law Office for respondents.


REYES, J.B.L., J.:
Petition for certiorari and prohibition, with preliminary injunction, to annul certain orders
of the respondent Court of First Instance of Rizal, issued in its Civil Case No. 10403,
entitled "Antonio J. Villegas and Juan Ponce Enrile vs. Time, Inc., and Time-Life
International, Publisher of 'Time' Magazine (Asia Edition)", and to prohibit the said court
from further proceeding with the said civil case.

Upon petitioner's posting a bond of P1,000.00, this Court, as prayed for, ordered, on 15
April 1968, the issuance of a writ of preliminary injunction.

The problem of Manila's mayor, ANTONIO VILLEGAS, is a case in point. When it was
discovered last year that the mayor's coffers contained far more pesos than seemed
reasonable in the light of his income, an investigation was launched. Witnesses who
had helped him out under curious circumstance were asked to explain in court. One
government official admitted lending Villegas P30,000 pesos ($7,700) without interest
because he was the mayor's compadre. An assistant declared he had given Villegas
loans without collateral because he regarded the boss as my own son. A wealthy
Manila businessman testified that he had lent Villegas' wife 15,000 pesos because the
mayor was like a brother to me. With that, Villegas denounced the investigation as an
invasion of his family's privacy. The case was dismissed on a technicality, and Villegas
is still mayor. 3
More specifically, the plaintiffs' complaint alleges, inter alia that:

(4)
Defendants, conspiring and confederating, published a libelous article,
publicly, falsely and maliciously imputing to Plaintiffs the commission of the crimes of
graft, corruption and nepotism; that said publication particularly referred to Plaintiff
Mayor Antonio J. Villegas as a case in point in connection with graft, corruption and
nepotism in Asia; that said publication without any doubt referred to co-plaintiff Juan
Ponce Enrile as the high government official who helped under curious circumstances
Plaintiff Mayor Antonio J. Villegas in lending the latter approximately P30,000.00
($7,700.00) without interest because he was the Mayor's compadre; that the purpose
of said Publications is to cause the dishonor, discredit and put in public contempt the
Plaintiffs, particularly Plaintiff Mayor Antonio J. Villegas.

The petition alleges that petitioner Time, Inc., 1 is an American corporation with
principal offices at Rocketfeller Center, New York City, N. Y., and is the publisher of
"Time", a weekly news magazine; the petition, however, does not allege the petitioner's
legal capacity to sue in the courts of the Philippine. 2

On motion of the respondents-plaintiffs, the respondent judge, on 25 November 1967,


granted them leave to take the depositions "of Mr. Anthony Gonzales, Time-Life
international", and "Mr. Cesar B. Enriquez, Muller & Phipps (Manila) Ltd.", in
connection with the activities and operations in the Philippines of the petitioner, and, on
27 November 1967, issued a writ of attachment on the real and personal estate of
Time, Inc.

In the aforesaid Civil Case No. 10403, therein plaintiffs (herein respondents) Antonio J.
Villegas and Juan Ponce Enrile seek to recover from the herein petitioner damages
upon an alleged libel arising from a publication of Time (Asia Edition) magazine, in its

Petitioner received the summons and a copy of the complaint at its offices in New York
on 13 December 1967 and, on 27 December 1967, it filed a motion to dismiss the
complaint for lack of jurisdiction and improper venue, relying upon the provisions of
Republic Act 4363. Private respondents opposed the motion.

In an order dated 26 February 1968, respondent court deferred the determination of


the motion to dismiss until after trial of the case on the merits, the court having
considered that the grounds relied upon in the motion do not appear to be indubitable.
Petitioner moved for reconsideration of the deferment private respondents again
opposed.
On 30 March 1968, respondent judge issued an order re-affirming the previous order of
deferment for the reason that "the rule laid down under Republic Act. No. 4363,
amending Article 360 of the Revised Penal Code, is not applicable to actions against
non-resident defendants, and because questions involving harassment and
inconvenience, as well as disruption of public service do not appear indubitable. ..."

Failing in its efforts to discontinue the taking of the depositions, previously adverted to,
and to have action taken, before trial, on its motion to dismiss, petitioner filed the
instant petition for certiorari and prohibition.
The orders for the taking of the said depositions, for deferring determination of the
motion to dismiss, and for reaffirming the deferment, and the writ of attachment are
sought to be annulled in the petition..
There is no dispute that at the time of the publication of the allegedly offending essay,
private respondents Antonio Villegas and Juan Ponce Enrile were the Mayor Of the
City of Manila and Undersecretary of Finance and concurrently Acting Commissioner of
Customs, respectively, with offices in the City of Manila. The issues in this case are:
1.
Whether or not, under the provisions of Republic Act No. 4363 the
respondent Court of First Instance of Rizal has jurisdiction to take cognizance of the
civil suit for damages arising from an allegedly libelous publication, considering that the
action was instituted by public officers whose offices were in the City of Manila at the
time of the publication; if it has no jurisdiction, whether or not its erroneous assumption
of jurisdiction may be challenged by a foreign corporation by writ of certiorari or
prohibition; and
2.
Whether or not Republic Act 4363 is applicable to action against a foreign
corporation or non-resident defendant.

Provisions of Republic Act No. 4363, which are relevant to the resolution of the
foregoing issues, read, as follows:

Section 1.
Article three hundred sixty of the Revised Penal Code, as amended
by Republic Act Numbered Twelve hundred and eighty-nine, is further amended to read
as follows:

'ART. 360.
Persons responsible. Any person who shall publish, exhibit, or
cause the publication or exhibition of any defamation in writing or by similar means,
shall be responsible for the same.
The author or editor of a book or pamphlet, or the editor or business manager of a daily
newspaper, magazine or serial publication, shall be responsible for the defamations
contained therein to the extent as if he were the author thereof.
The criminal and civil action for damages in cases of written defamations as provided
for in this chapter, shall be filed simultaneously or separately with the court of first
instance of the province or city where the libelous article is printed and first published
or where any of the offended parties actually resides at the time of the commission of
the offense; Provided, however, That where one of the offended parties is a public
officer whose office is in the City of Manila at the time of the commission of the offense,
the action shall be filed in the Court of First Instance of the City of Manila or of the city
or province where the libelous article is printed and first published, and in case such
public officer does not hold office in the City of Manila, the action shall be filed in the
Court of First Instance of the province or city where he held office at the time of the
commission of the offense or where the libelous article is printed and first published
and in case one of the offended parties is a private individual, the action shall be filed in
the Court of First Instance of the province or city where he actually resides at the time
of the commission of the offense or where the libelous matter is printed and first
published; Provided, further, That the civil action shall be filed in the same court where
the criminal action is filed and vice versa; Provided, furthermore, That the court where
the criminal action or civil action for damages is first filed, shall acquire jurisdiction to
the exclusion of other courts; And provided finally, That this amendment shall not apply
to cases of written defamations, the civil and/or criminal actions which have been filed
in court at the time of the effectivity of the law
xxx

xxx

xxx

xxx

xxx

xxx

Sec. 3. This Act shall take effect only if and when, within thirty days from its approval,
the newspapermen in the Philippines shall organize, and elect the members of, a
Philippine Press Council, a private agency of the said newspapermen, whose function

shall be to promulgate a Code of Ethics for them and the Philippine press investigate
violations thereof, and censure any newspaperman or newspaper guilty of any violation
of the said Code, and the fact that such Philippine Press Council has been organized
and its members have been duly elected in accordance herewith shall be ascertained
and proclaimed by the President of the Philippines.
Under the first proviso in section 1, the venue of a civil action for damages in cases of
written defamations is localized upon the basis of, first, whether the offended party or
plaintiff is a public officer or a private individual; and second, if he is a public officer,
whether his office is in Manila or not in Manila, at the time of the commission of the
offense. If the offended party is a public officer in the office in the City of Manila, the
proviso limits him to two (2) choices of venue, namely, in the Court of First instance of
the City of Manila or in the city or province where the libelous article is printed and first
published ..."
The complaint lodged in the court of Rizal by respondents does not allege that the
libelous article was printed and first published in the province of Rizal and, since the
respondents-plaintiffs are public officers with offices in Manila at the time of the
commission of the alleged offense, it is clear that the only place left for them wherein to
file their action, is the Court of First Instance of Manila.
The limitation of the choices of venue, as introduced into the Penal Code through its
amendments by Republic Act 4363, was intended "to minimize or limit the filing of outof-town libel suits" to protect an alleged offender from "hardships, inconveniences and
harassments" and, furthermore, to protect "the interest of the public service" where one
of the offended parties is a public officer." 4 The intent, of the law is clear: a libeled
public official might sue in the court of the locality where he holds office, in order that
the prosecution of the action should interfere as little as possible with the discharge of
his official duties and labors. The only alternative allowed him by law is to prosecute
those responsible for the libel in the place where the offending article was printed and
first published. Here, the law tolerates the interference with the libeled officer's duties
only for the sake of avoiding unnecessary harassment of the accused. Since the
offending publication was not printed in the Philippines, the alternative venue was not
open to respondent Mayor Villegas of Manila and Undersecretary of Finance Enrile,
who were the offended parties.
But respondents-plaintiffs argue that Republic Act No. 4363 is not applicable where the
action is against non-existent defendant, as petitioner Time, Inc., for several reasons.
They urge that, in enacting Republic Act No. 4363, Congress did not intend to protect
non-resident defendants as shown by Section 3, which provides for the effectivity of the
statute only if and when the "newspapermen in the Philippines" have organized a
"Philippine Press Council" whose function shall be to promulgate a Code of Ethics for
"them" and "the Philippine press"; and since a non-resident defendant is not in a

position to comply with the conditions imposed for the effectivity of the statute, such
defendant may not invoke its provisions; that a foreign corporation is not
inconvenienced by an out-of-town libel suit; that it would be absurd and incongruous, in
the absence of an extradition treaty, for the law to give to public officers with office in
Manila the second option of filing a criminal case in the court of the place where the
libelous article is printed and first published if the defendant is a foreign corporation
and that, under the "single publication" rule which originated in the United States and
imported into the Philippines, the rule was understood to mean that publications in
another state are not covered by venue statutes of the forum.

The implication of respondents' argument is that the law would not take effect as to
non-resident defendants or accused. We see nothing in the text of the law that would
sustain such unequal protection to some of those who may be charged with libel. The
official proclamation that a Philippine Press Council has been organized is made a precondition to the effectivity of the entire Republic Act No. 4363, and no terms are
employed therein to indicate that the law can or will be effective only as to some, but
not all, of those that may be charged with libeling our public officers.
The assertion that a foreign corporation or a non-resident defendant is not
inconvenienced by an out-of-town suit is irrelevant and untenable, for venue and
jurisdiction are not dependent upon convenience or inconvenience to a party; and
moreover, venue was fixed under Republic Act No. 4363, pursuant to the basic policy
of the law that is, as previously stated, to protect the interest of the public service when
the offended party is a public officer, by minimizing as much as possible any
interference with the discharge of his duties.
That respondents-plaintiffs could not file a criminal case for libel against a non-resident
defendant does not make Republic Act No. 4363 incongruous of absurd, for such
inability to file a criminal case against a non-resident natural person equally exists in
crimes other than libel. It is a fundamental rule of international jurisdiction that no state
can by its laws, and no court which is only a creature of the state, can by its judgments
or decrees, directly bind or affect property or persons beyond the limits of the state. 5
Not only this, but if the accused is a corporation, no criminal action can lie against it, 6
whether such corporation or resident or non-resident. At any rate, the case filed by
respondents-plaintiffs is case for damages.
50 Am. Jur. 2d 659 differentiates the "multiple publication" and "single publication" rules
(invoked by private respondents) to be as follows:
The common law as to causes of action for tort arising out of a single publication was
to the effect that each communication of written or printed matter was a distinct and

separate publication of a libel contained therein, giving rise to a separate cause of


action. This rule ('multiple publication' rule) is still followed in several American
jurisdictions, and seems to be favored by the American Law Institute. Other
jurisdictions have adopted the 'single publication' rule which originated in New York,
under which any single integrated publication, such as one edition of a newspaper,
book, or magazine, or one broadcast, is treated as a unit, giving rise to only one cause
of action, regardless of the number of times it is exposed to different people. ...
These rules are not pertinent in the present scheme because the number of causes of
action that may be available to the respondents-plaintiffs is not here in issue. We are
here confronted by a specific venue statute, conferring jurisdiction in cases of libel
against Public officials to specified courts, and no other. The rule is that where a statute
creates a right and provides a remedy for its enforcement, the remedy is exclusive; and
where it confers jurisdiction upon a particular court, that jurisdiction is likewise
exclusive, unless otherwise provided. Hence, the venue provisions of Republic Act No.
4363 should be deemed mandatory for the party bringing the action, unless the
question of venue should be waived by the defendant, which was not the case here.
Only thus can the policy of the Act be upheld and maintained. Nor is there any reason
why the inapplicability of one alternative venue should result in rendering the other
alternative, also inapplicable.
The dismissal of the present petition is asked on the ground that the petitioner foreign
corporation failed to allege its capacity to sue in the courts of the Philippines.
Respondents rely on section 69 of the Corporation law, which provides:
SEC. 69. No foreign corporation or corporations formed, organized, or existing under
any laws other than those of the Philippines shall be permitted to ... maintain by itself or
assignee any suit for the recovery of any debt, claim, or demand whatever, unless it
shall have the license prescribed in the section immediately preceding. ..." ...;
They also invoke the ruling in Marshall-Wells Co. vs. Elser & Co., Inc. 7 that no foreign
corporation may be permitted to maintain any suit in the local courts unless it shall
have the license required by the law, and the ruling in Atlantic Mutual Ins. Co., Inc. vs.
Cebu Stevedoring Co., Inc. 8 that "where ... the law denies to a foreign corporation the
right to maintain suit unless it has previously complied with a certain requirement, then
such compliance or the fact that the suing corporation is exempt therefrom, becomes a
necessary averment in the complaint." We fail to see how these doctrines can be a
propos in the case at bar, since the petitioner is not "maintaining any suit" but is merely
defending one against itself; it did not file any complaint but only a corollary defensive
petition to prohibit the lower court from further proceeding with a suit that it had no
jurisdiction to entertain.

Petitioner's failure to aver its legal capacity to institute the present petition is not fatal,
for ...

A foreign corporation may, by writ of prohibition, seek relief against the wrongful
assumption of jurisdiction. And a foreign corporation seeking a writ of prohibition
against further maintenance of a suit, on the ground of want of jurisdiction in which
jurisdiction is not bound by the ruling of the court in which the suit was brought, on a
motion to quash service of summons, that it has jurisdiction. 9
It is also advanced that the present petition is premature, since respondent court has
not definitely ruled on the motion to dismiss, nor held that it has jurisdiction, but only
argument is untenable. The motion to dismiss was predicated on the respondent
court's lack of jurisdiction to entertain the action; and the rulings of this Court are that
writs of certiorari or prohibition, or both, may issue in case of a denial or deferment of
action on such a motion to dismiss for lack of jurisdiction.
If the question of jurisdiction were not the main ground for this petition for review by
certiorari, it would be premature because it seeks to have a review of an interlocutory
order. But as it would be useless and futile to go ahead with the proceedings if the
court below had no jurisdiction this petition was given due course.' (San Beda vs. CIR,
51 O.G. 5636, 5638).
'While it is true that action on a motion to dismiss may be deferred until the trial and an
order to that effect is interlocutory, still where it clearly appears that the trial judge or
court is proceeding in excess or outside of its jurisdiction, the remedy of prohibition
would lie since it would be useless and a waste of time to go ahead with the
proceedings. (Philippine International Fair, Inc., et al. vs. Ibaez, et al., 50 Off. Gaz.
1036; Enrique v. Macadaeg, et al., 47 Off. Gaz. 1207; see also San Beda College vs.
CIR, 51 Off. Gaz. 5636.)' (University of Sto. Tomas v. Villanueva, L-13748, 30 October
1959.).
Similarly, in Edward J. Nell Co. vs. Cubacub, L-20843, 23 June 1965, 14 SCRA 419,
this Court held:

'.......................................................... It is a settledrule that the jurisdiction of a court


over the subject-matter is determined by the allegations in the complaint; and when a
motion to dismiss is filed for lack of jurisdiction those allegations are deemed admitted
for purposes of such motion, so that it may be resolved without waiting for the trial.
Thus it has been held that the consideration thereof may not be postponed in the hope

that the evidence may yield other qualifying or concurring data which would bring the
case under the court's jurisdiction.'
To the same effect are the rulings in: Ruperto vs. Fernando, 83 Phil. 943; Administrator
of Hacienda Luisita Estate vs. Alberto, L-12133, 21 October 1958.

SECOND DIVISION

G.R. No. 170891

November 24, 2009

Summing up, We hold:

(1)
The under Article 360 of the Revised Penal Code, as amended by Republic
Act No. 4363, actions for damages by public officials for libelous publications against
them can only be filed in the courts of first instance ofthe city or province where the
offended functionary held office at the time ofthe commission of the offense, in case the
libelous article was first printed or published outside the Philippines.
(2)
That the action of a court in refusing to rule, or deferring its ruling, on a
motion to dismiss for lack of jurisdiction over the subject matter, or for improper venue,
is in excess of jurisdiction and correctable by writ of prohibition or certiorari sued out in
the appellate Court, even before trial on the merits is had.
WHEREFORE, the writs applied for are granted: the respondent Court of First Instance
of Rizal is declared without jurisdiction to take cognizance of its Civil Case No. 10403;
and its orders issued in connection therewith are hereby annulled and set aside,.
Respondent court is further commanded to desist from further proceedings in Civil
case No. 10403 aforesaid. Costs against private respondents, Antonio J. Villegas and
Juan Ponce Enrile.
The writ of preliminary injunction heretofore issued by this Supreme Court is made
permanent.
Concepcion, C.J., Dizon, Makalintal, Fernando, Teehankee, Barredo, Villamor and
concur.
Castro, J., took no part.

Republic of the Philippines


SUPREME COURT
Manila

MANUEL C. ESPIRITU, JR., AUDIE LLONA, FREIDA F. ESPIRITU, CARLO F.


ESPIRITU, RAFAEL F. ESPIRITU, ROLANDO M. MIRABUNA, HERMILYN A.
MIRABUNA, KIM ROLAND A. MIRABUNA, KAYE ANN A. MIRABUNA, KEN RYAN A.
MIRABUNA, JUANITO P. DE CASTRO, GERONIMA A. ALMONITE and MANUEL C.
DEE, who are the officers and directors of BICOL GAS REFILLING PLANT
CORPORATION, Petitioners,
vs.
PETRON CORPORATION and CARMEN J. DOLOIRAS, doing business under the
name "KRISTINA PATRICIA ENTERPRISES," Respondents.

DECISION

ABAD, J.:

This case is about the offense or offenses that arise from the reloading of the liquefied
petroleum gas cylinder container of one brand with the liquefied petroleum gas of
another brand.

The Facts and the Case

Respondent Petron Corporation (Petron) sold and distributed liquefied petroleum gas
(LPG) in cylinder tanks that carried its trademark "Gasul."1 Respondent Carmen J.
Doloiras owned and operated Kristina Patricia Enterprises (KPE), the exclusive
distributor of Gasul LPGs in the whole of Sorsogon.2 Jose Nelson Doloiras (Jose)
served as KPEs manager.

Bicol Gas Refilling Plant Corporation (Bicol Gas) was also in the business of selling
and distributing LPGs in Sorsogon but theirs carried the trademark "Bicol Savers Gas."
Petitioner Audie Llona managed Bicol Gas.

In the course of trade and competition, any given distributor of LPGs at times acquired
possession of LPG cylinder tanks belonging to other distributors operating in the same
area. They called these "captured cylinders." According to Jose, KPEs manager, in
April 2001 Bicol Gas agreed with KPE for the swapping of "captured cylinders" since
one distributor could not refill captured cylinders with its own brand of LPG. At one
time, in the course of implementing this arrangement, KPEs Jose visited the Bicol Gas
refilling plant. While there, he noticed several Gasul tanks in Bicol Gas possession. He
requested a swap but Audie Llona of Bicol Gas replied that he first needed to ask the
permission of the Bicol Gas owners. That permission was given and they had a swap
involving around 30 Gasul tanks held by Bicol Gas in exchange for assorted tanks held
by KPE.

KPEs Jose noticed, however, that Bicol Gas still had a number of Gasul tanks in its
yard. He offered to make a swap for these but Llona declined, saying the Bicol Gas
owners wanted to send those tanks to Batangas. Later Bicol Gas told Jose that it had
no more Gasul tanks left in its possession. Jose observed on almost a daily basis,
however, that Bicol Gas trucks which plied the streets of the province carried a load of
Gasul tanks. He noted that KPEs volume of sales dropped significantly from June to
July 2001.

On August 4, 2001 KPEs Jose saw a particular Bicol Gas truck on the Maharlika
Highway. While the truck carried mostly Bicol Savers LPG tanks, it had on it one
unsealed 50-kg Gasul tank and one 50-kg Shellane tank. Jose followed the truck and
when it stopped at a store, he asked the driver, Jun Leorena, and the Bicol Gas sales
representative, Jerome Misal, about the Gasul tank in their truck. They said it was
empty but, when Jose turned open its valve, he noted that it was not. Misal and
Leorena then admitted that the Gasul and Shellane tanks on their truck belonged to a
customer who had them filled up by Bicol Gas. Misal then mentioned that his manager
was a certain Rolly Mirabena.

Because of the above incident, KPE filed a complaint3 for violations of Republic Act
(R.A.) 623 (illegally filling up registered cylinder tanks), as amended, and Sections 155
(infringement of trade marks) and 169.1 (unfair competition) of the Intellectual Property
Code (R.A. 8293). The complaint charged the following: Jerome Misal, Jun Leorena,
Rolly Mirabena, Audie Llona, and several John and Jane Does, described as the
directors, officers, and stockholders of Bicol Gas. These directors, officers, and
stockholders were eventually identified during the preliminary investigation.

Subsequently, the provincial prosecutor ruled that there was probable cause only for
violation of R.A. 623 (unlawfully filling up registered tanks) and that only the four Bicol
Gas employees, Mirabena, Misal, Leorena, and petitioner Llona, could be charged. The
charge against the other petitioners who were the stockholders and directors of the
company was dismissed.

Dissatisfied, Petron and KPE filed a petition for review with the Office of the Regional
State Prosecutor, Region V, which initially denied the petition but partially granted it on
motion for reconsideration. The Office of the Regional State Prosecutor ordered the
filing of additional informations against the four employees of Bicol Gas for unfair
competition. It ruled, however, that no case for trademark infringement was present.
The Secretary of Justice denied the appeal of Petron and KPE and their motion for
reconsideration.

Undaunted, Petron and KPE filed a special civil action for certiorari with the Court of
Appeals4 but the Bicol Gas employees and stockholders concerned opposed it,
assailing the inadequacy in its certificate of non-forum shopping, given that only Atty.
Joel Angelo C. Cruz signed it on behalf of Petron. In its Decision5 dated October 17,
2005, the Court of Appeals ruled, however, that Atty. Cruzs certification constituted
sufficient compliance. As to the substantive aspect of the case, the Court of Appeals
reversed the Secretary of Justices ruling. It held that unfair competition does not
necessarily absorb trademark infringement. Consequently, the court ordered the filing
of additional charges of trademark infringement against the concerned Bicol Gas
employees as well.

Since the Bicol Gas employees presumably acted under the direct order and control of
its owners, the Court of Appeals also ordered the inclusion of the stockholders of Bicol
Gas in the various charges, bringing to 16 the number of persons to be charged, now

including petitioners Manuel C. Espiritu, Jr., Freida F. Espiritu, Carlo F. Espiritu, Rafael
F. Espiritu, Rolando M. Mirabuna, Hermilyn A. Mirabuna, Kim Roland A. Mirabuna,
Kaye Ann A. Mirabuna, Ken Ryan A. Mirabuna, Juanito P. de Castro, Geronima A.
Almonite, and Manuel C. Dee (together with Audie Llona), collectively, petitioners
Espiritu, et al. The court denied the motion for reconsideration of these employees and
stockholders in its Resolution dated January 6, 2006, hence, the present petition for
review6 before this Court.

The Issues Presented

First. Petitioners Espiritu, et al. point out that the certificate of non-forum shopping that
respondents KPE and Petron attached to the petition they filed with the Court of
Appeals was inadequate, having been signed only by Petron, through Atty. Cruz.

But, while procedural requirements such as that of submittal of a certificate of nonforum shopping cannot be totally disregarded, they may be deemed substantially
complied with under justifiable circumstances.7 One of these circumstances is where
the petitioners filed a collective action in which they share a common interest in its
subject matter or raise a common cause of action. In such a case, the certification by
one of the petitioners may be deemed sufficient.8

The petition presents the following issues:

1. Whether or not the certificate of non-forum shopping that accompanied the petition
filed with the Court of Appeals, signed only by Atty. Cruz on behalf of Petron, complied
with what the rules require;

2. Whether or not the facts of the case warranted the filing of charges against the Bicol
Gas people for:

a) Filling up the LPG tanks registered to another manufacturer without the latters
consent in violation of R.A. 623, as amended;

b) Trademark infringement consisting in Bicol Gas use of a trademark that is


confusingly similar to Petrons registered "Gasul" trademark in violation of section 155
also of R.A. 8293; and

c) Unfair competition consisting in passing off Bicol Gas-produced LPGs for Petronproduced Gasul LPG in violation of Section 168.3 of R.A. 8293.

The Courts Rulings

Here, KPE and Petron shared a common cause of action against petitioners Espiritu, et
al., namely, the violation of their proprietary rights with respect to the use of Gasul
tanks and trademark. Furthermore, Atty. Cruz said in his certification that he was
executing it "for and on behalf of the Corporation, and co-petitioner Carmen J.
Doloiras."9 Thus, the object of the requirement to ensure that a party takes no
recourse to multiple forums was substantially achieved. Besides, the failure of KPE to
sign the certificate of non-forum shopping does not render the petition defective with
respect to Petron which signed it through Atty. Cruz.10 The Court of Appeals, therefore,
acted correctly in giving due course to the petition before it.

Second. The Court of Appeals held that under the facts of the case, there is probable
cause that petitioners Espiritu, et al. committed all three crimes: (a) illegally filling up an
LPG tank registered to Petron without the latters consent in violation of R.A. 623, as
amended; (b) trademark infringement which consists in Bicol Gas use of a trademark
that is confusingly similar to Petrons registered "Gasul" trademark in violation of
Section 155 of R.A. 8293; and (c) unfair competition which consists in petitioners
Espiritu, et al. passing off Bicol Gas-produced LPGs for Petron-produced Gasul LPG in
violation of Section 168.3 of R.A. 8293.

Here, the complaint adduced at the preliminary investigation shows that the one 50-kg
Petron Gasul LPG tank found on the Bicol Gas truck "belonged to [a Bicol Gas]
customer who had the same filled up by BICOL GAS."11 In other words, the customer
had that one Gasul LPG tank brought to Bicol Gas for refilling and the latter obliged.

R.A. 623, as amended,12 punishes any person who, without the written consent of the
manufacturer or seller of gases contained in duly registered steel cylinders or tanks,
fills the steel cylinder or tank, for the purpose of sale, disposal or trafficking, other than
the purpose for which the manufacturer or seller registered the same. This was what
happened in this case, assuming the allegations of KPEs manager to be true. Bicol
Gas employees filled up with their firms gas the tank registered to Petron and bearing
its mark without the latters written authority. Consequently, they may be prosecuted for
that offense.

But, as for the crime of trademark infringement, Section 155 of R.A. 8293 (in relation to
Section 17013 ) provides that it is committed by any person who shall, without the
consent of the owner of the registered mark:

1. Use in commerce any reproduction, counterfeit, copy or colorable imitation of a


registered mark or the same container or a dominant feature thereof in connection with
the sale, offering for sale, distribution, advertising of any goods or services including
other preparatory steps necessary to carry out the sale of any goods or services on or
in connection with which such use is likely to cause confusion, or to cause mistake, or
to deceive; or
2. Reproduce, counterfeit, copy or colorably imitate a registered mark or a dominant
feature thereof and apply such reproduction, counterfeit, copy or colorable imitation to
labels, signs, prints, packages, wrappers, receptacles or advertisements intended to be
used in commerce upon or in connection with the sale, offering for sale, distribution, or
advertising of goods or services on or in connection with which such use is likely to
cause confusion, or to cause mistake, or to deceive.
KPE and Petron have to show that the alleged infringer, the responsible officers and
staff of Bicol Gas, used Petrons Gasul trademark or a confusingly similar trademark on
Bicol Gas tanks with intent to deceive the public and defraud its competitor as to what it
is selling.14 Examples of this would be the acts of an underground shoe manufacturer
in Malabon producing "Nike" branded rubber shoes or the acts of a local shirt company
with no connection to La Coste, producing and selling shirts that bear the stitched
logos of an open-jawed alligator.
Here, however, the allegations in the complaint do not show that Bicol Gas painted on
its own tanks Petrons Gasul trademark or a confusingly similar version of the same to
deceive its customers and cheat Petron. Indeed, in this case, the one tank bearing the
mark of Petron Gasul found in a truck full of Bicol Gas tanks was a genuine Petron

Gasul tank, more of a captured cylinder belonging to competition. No proof has been
shown that Bicol Gas has gone into the business of distributing imitation Petron Gasul
LPGs.

As to the charge of unfair competition, Section 168.3 (a) of R.A. 8293 (also in relation
to Section 170) describes the acts constituting the offense as follows:

168.3. In particular, and without in any way limiting the scope of protection against
unfair competition, the following shall be deemed guilty of unfair competition:
(a) Any person, who is selling his goods and gives them the general appearance of
goods of another manufacturer or dealer, either as to the goods themselves or in the
wrapping of the packages in which they are contained, or the devices or words
thereon, or in any other feature of their appearance, which would be likely to influence
purchasers to believe that the goods offered are those of a manufacturer or dealer,
other than the actual manufacturer or dealer, or who otherwise clothes the goods with
such appearance as shall deceive the public and defraud another of his legitimate
trade, or any subsequent vendor of such goods or any agent of any vendor engaged in
selling such goods with a like purpose;
Essentially, what the law punishes is the act of giving ones goods the general
appearance of the goods of another, which would likely mislead the buyer into believing
that such goods belong to the latter. Examples of this would be the act of
manufacturing or selling shirts bearing the logo of an alligator, similar in design to the
open-jawed alligator in La Coste shirts, except that the jaw of the alligator in the former
is closed, or the act of a producer or seller of tea bags with red tags showing the
shadow of a black dog when his competitor is producing or selling popular tea bags
with red tags showing the shadow of a black cat.
Here, there is no showing that Bicol Gas has been giving its LPG tanks the general
appearance of the tanks of Petrons Gasul. As already stated, the truckfull of Bicol Gas
tanks that the KPE manager arrested on a road in Sorsogon just happened to have
mixed up with them one authentic Gasul tank that belonged to Petron.

The only point left is the question of the liability of the stockholders and members of the
board of directors of Bicol Gas with respect to the charge of unlawfully filling up a steel
cylinder or tank that belonged to Petron. The Court of Appeals ruled that they should be

charged along with the Bicol Gas employees who were pointed to as directly involved
in overt acts constituting the offense.1avvphi1

Bicol Gas is a corporation. As such, it is an entity separate and distinct from the
persons of its officers, directors, and stockholders. It has been held, however, that
corporate officers or employees, through whose act, default or omission the corporation
commits a crime, may themselves be individually held answerable for the crime.15
Jose claimed in his affidavit that, when he negotiated the swapping of captured
cylinders with Bicol Gas, its manager, petitioner Audie Llona, claimed that he would be
consulting with the owners of Bicol Gas about it. Subsequently, Bicol Gas declined the
offer to swap cylinders for the reason that the owners wanted to send their captured
cylinders to Batangas. The Court of Appeals seized on this as evidence that the
employees of Bicol Gas acted under the direct orders of its owners and that "the
owners of Bicol Gas have full control of the operations of the business."16
The "owners" of a corporate organization are its stockholders and they are to be
distinguished from its directors and officers. The petitioners here, with the exception of
Audie Llona, are being charged in their capacities as stockholders of Bicol Gas. But the
Court of Appeals forgets that in a corporation, the management of its business is
generally vested in its board of directors, not its stockholders.17 Stockholders are
basically investors in a corporation. They do not have a hand in running the day-to-day
business operations of the corporation unless they are at the same time directors or
officers of the corporation. Before a stockholder may be held criminally liable for acts
committed by the corporation, therefore, it must be shown that he had knowledge of
the criminal act committed in the name of the corporation and that he took part in the
same or gave his consent to its commission, whether by action or inaction.
The finding of the Court of Appeals that the employees "could not have committed the
crimes without the consent, [abetment], permission, or participation of the owners of
Bicol Gas"18 is a sweeping speculation especially since, as demonstrated above, what
was involved was just one Petron Gasul tank found in a truck filled with Bicol Gas
tanks. Although the KPE manager heard petitioner Llona say that he was going to
consult the owners of Bicol Gas regarding the offer to swap additional captured
cylinders, no indication was given as to which Bicol Gas stockholders Llona consulted.
It would be unfair to charge all the stockholders involved, some of whom were proved
to be minors.19 No evidence was presented establishing the names of the
stockholders who were charged with running the operations of Bicol Gas. The
complaint even failed to allege who among the stockholders sat in the board of
directors of the company or served as its officers.

The Court of Appeals of course specifically mentioned petitioner stockholder Manuel C.


Espiritu, Jr. as the registered owner of the truck that the KPE manager brought to the
police for investigation because that truck carried a tank of Petron Gasul. But the act
that R.A. 623 punishes is the unlawful filling up of registered tanks of another. It does
not punish the act of transporting such tanks. And the complaint did not allege that the
truck owner connived with those responsible for filling up that Gasul tank with Bicol
Gas LPG.
WHEREFORE, the Court REVERSES and SETS ASIDE the Decision of the Court of
Appeals in CA-G.R. SP 87711 dated October 17, 2005 as well as its Resolution dated
January 6, 2006, the Resolutions of the Secretary of Justice dated March 11, 2004 and
August 31, 2004, and the Order of the Office of the Regional State Prosecutor, Region
V, dated February 19, 2003. The Court REINSTATES the Resolution of the Office of the
Provincial Prosecutor of Sorsogon in I.S. 2001-9231 (inadvertently referred in the
Resolution itself as I.S. 2001-9234), dated February 26, 2002. The names of petitioners
Manuel C. Espiritu, Jr., Freida F. Espititu, Carlo F. Espiritu, Rafael F. Espiritu, Rolando
M. Mirabuna, Hermilyn A. Mirabuna, Kim Roland A. Mirabuna, Kaye Ann A. Mirabuna,
Ken Ryan A. Mirabuna, Juanito P. De Castro, Geronima A. Almonite and Manuel C.
Dee are ORDERED excluded from the charge.
SO ORDERED.

G. R. No. 164317

February 6, 2006

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.:

Before the Court is a petition for review on certiorari of the Decision1 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 Resolution2 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:

xxxx
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.

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

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 VicePresident 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,16 where 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
In its Comment on the petition, the Office of the Solicitor General alleged that 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.
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 Vice-President 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:

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:

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.

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.

II

xxx

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 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

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.
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

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
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.
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.
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:

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 VicePresident; (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:

"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

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)

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

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

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.

The ruling of the CA is correct.

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

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

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:

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

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

Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 199481

December 3, 2012

ILDEFONSO S. CRISOLOGO, Petitioner,

vs.
PEOPLE OF THE PHILIPPINES and CHINA BANKING CORPORATION,
Respondents.

The subject L/Cs were included in the special term-payment arrangement mutually
agreed upon by the parties, and payable in installments. In the payment of its
obligations, Novachem would normally give instructions to Chinabank as to what
particular L/C or trust receipt obligation its payments would be applied. However, the
latter deviated from the special arrangement and misapplied payments intended for the
subject L/Cs and exacted unconscionably high interests and penalty charges.

DECISION

PERLAS-BERNABE, J.:
This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the
November 23, 2011 Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 80350,
which affirmed the December 4, 2002 Decision3 of the Regional Trial Courtt (RTC);
Manila, Branch 21. The RTC Decision acquitted petitioner Ildefonso S. Crisologo
(petitioner) of the charges for violation of Presidential Decree (P.D.) No. 115 (Trust
Receipts Law) in relation to Article 315 1(b) of the Revised Penal Code (RPC), but
adjudged him civilly liable under the subject letters of credit.
The Factual Antecedents
Sometime in January and February 1989, petitioner, as President of Novachemical
Industries, Inc. (Novachem), applied for commercial letters of credit from private
respondent China Banking Corporation (Chinabank) to finance the purchase of 1,6004
kgs. of amoxicillin trihydrate micronized from Hyundai Chemical Company based in
Seoul, South Korea and glass containers from San Miguel Corporation (SMC).
Subsequently, Chinabank issued Letters of Credit Nos. 89/03015 and DOM-330416 in
the respective amounts of US$114,400.007 (originally US$135,850.00)8 with a peso
equivalent of P2,139,119.809 and P1,712,289.90. After petitioner received the goods,
he executed for and in behalf of Novachem the corresponding trust receipt agreements
dated May 24, 1989 and August 31, 1989 in favor of Chinabank.
On January 28, 2004, Chinabank, through its Staff Assistant, Ms. Maria Rosario De
Mesa (Ms. De Mesa), filed before the City Prosecutor's Office of Manila a ComplaintAffidavit10 charging petitioner for violation of P.D. No. 115 in relation to Article 315 1(b)
of the RPC for his purported failure to turn-over the goods or the proceeds from the
sale thereof, despite repeated demands. It averred that the latter, with intent to defraud,
and with unfaithfulness and abuse of confidence, misapplied, misappropriated and
converted the goods subject of the trust agreements, to its damage and prejudice.
In his defense, petitioner claimed that as a regular client of Chinabank, Novachem was
granted a credit line and letters of credit (L/Cs) secured by trust receipt agreements.

The City Prosecutor found probable cause to indict petitioner as charged and filed the
corresponding informations before the RTC of Manila, docketed as Criminal Case Nos.
94-139613 and 94-139614.

The RTC Ruling


After due proceedings, the RTC rendered a Decision11 dated December 4, 2002
acquitting petitioner of the criminal charges for failure of the prosecution to prove his
guilt beyond reasonable doubt. It, however, adjudged him civilly liable to Chinabank,
without need for a separate civil action, for the amounts of P1,843,567.90 and
P879,166.81 under L/C Nos. 89/0301 and DOM-33041, respectively, less the payment
of P500,000.00 made during the preliminary investigation, with legal interest from the
filing of the informations on October 27, 1994 until full payment, and for the costs.

The CA Ruling
On appeal of the civil aspect, the CA affirmed12 the RTC Decision holding petitioner
civilly liable. It noted that petitioner signed the "Guarantee Clause" of the trust receipt
agreements in his personal capacity and even waived the benefit of excussion against
Novachem. As such, he is personally and solidarily liable with Novachem.
The Petition
In the instant petition, petitioner contends that the CA erred in declaring him civilly
liable under the subject L/Cs which are corporate obligations of Novachem, and that
the adjudged amounts were without factual basis because the obligations had already
been settled. He also questions the unilaterally-imposed interest rates applied by
Chinabank and, accordingly, prays for the application of the stipulated interest rate of
18% per annum (p.a.) on the corporations obligations. He further assails the authority
of Ms. De Mesa to prosecute the case against him sans authority from Chinabank's
Board of Directors.

The Court's Ruling


The petition is partly meritorious.
Section 13 of the Trust Receipts Law explicitly provides that if the violation or offense is
committed by a corporation, as in this case, the penalty provided for under the law shall
be imposed upon the directors, officers, employees or other officials or person
responsible for the offense, without prejudice to the civil liabilities arising from the
criminal offense.
In this case, petitioner was acquitted of the charge for violation of the Trust Receipts
Law in relation to Article 315 1(b)13 of the RPC. As such, he is relieved of the
corporate criminal liability as well as the corresponding civil liability arising therefrom.
However, as correctly found by the RTC and the CA, he may still be held liable for the
trust receipts and L/C transactions he had entered into in behalf of Novachem.
Settled is the rule that debts incurred by directors, officers, and employees acting as
corporate agents are not their direct liability but of the corporation they represent,
except if they contractually agree/stipulate or assume to be personally liable for the
corporations debts,14 as in this case.
The RTC and the CA adjudged petitioner personally and solidarily liable with
Novachem for the obligations secured by the subject trust receipts based on the finding
that he signed the guarantee clauses therein in his personal capacity and even waived
the benefit of excussion. However, a review of the records shows that petitioner signed
only the guarantee clauses of the Trust Receipt dated May 24, 198915 and the
corresponding Application and Agreement for Commercial Letter of Credit No. L/C No.
89/0301.16 With respect to the Trust Receipt17 dated August 31, 1989 and Irrevocable
Letter of Credit18 No. L/C No. DOM-33041 issued to SMC for the glass containers, the
second pages of these documents that would have reflected the guarantee clauses
were missing and did not form part of the prosecution's formal offer of evidence. In
relation thereto, Chinabank stipulated19 before the CA that the second page of the
August 31, 1989 Trust Receipt attached to the complaint before the court a quo would
serve as the missing page. A perusal of the said page, however, reveals that the same
does not bear the signature of the petitioner in the guarantee clause. Hence, it was
error for the CA to hold petitioner likewise liable for the obligation secured by the said
trust receipt (L/C No. DOM-33041). Neither was sufficient evidence presented to prove
that petitioner acted in bad faith or with gross negligence as regards the transaction
that would have held him civilly liable for his actions in his capacity as President of
Novachem.1wphi1

On the matter of interest, while petitioner assailed the unilateral imposition of interest at
rates above the stipulated 18% p.a., he failed to submit a summary of the pertinent
dates when excessive interests were imposed and the purported over-payments that
should be refunded. Having failed to prove his affirmative defense, the Court finds no
reason to disturb the amount awarded to Chinabank. Settled is the rule that in civil
cases, the party who asserts the affirmative of an issue has the onus to prove his
assertion in order to obtain a favorable judgment. Thus, the burden rests on the debtor
to prove payment rather than on the creditor to prove non-payment.20
Lastly, the Court affirms Ms. De Mesa's capacity to sue on behalf of Chinabank despite
the lack of proof of authority to represent the latter. The Court noted that as Staff
Assistant of Chinabank, Ms. De Mesa was tasked, among others, to review
applications for L/Cs, verify the documents of title and possession of goods covered by
L/Cs, as well as pertinent documents under trust receipts (TRs); prepare/send/cause
the preparation of statements of accounts reflecting the outstanding balance under the
said L/Cs and/or TRs, and accept the corresponding payments; refer unpaid
obligations to Chinabank's lawyers and follow-up results thereon. As such, she was in a
position to verify the truthfulness and correctness of the allegations in the ComplaintAffidavit. Besides, petitioner voluntarily submitted21 to the jurisdiction of the court a
quo and did not question Ms. De Mesa's authority to represent Chinabank in the instant
case until an adverse decision was rendered against him.
WHEREFORE, the assailed November 23, 2011 Decision of the Court of Appeals in
CA-G.R. CV No. 80350 is AFFIRMED with the modification absolving petitioner
lldefonso S. Crisologo from any civil liability to private respondent China Banking
Corporation with respect to the Trust Receipt dated August 31, 1989 and L/C No.
DOM-33041. The rest of the Decision stands.

SO ORDERED.

ESTELA M.PERLAS-BERNABE
Associate Justice
SECOND DIVISIO

JAIME U. GOSIACO, G.R. No. 173807

Petitioner,
Present:

The right to recover due and demandable pecuniary obligations incurred by juridical
persons such as corporations cannot be impaired by procedural rules. Our rules of
procedure governing the litigation of criminal actions for violation of Batas Pambansa
Blg. 22 (B.P. 22) have given the appearance of impairing such substantive rights, and
we take the opportunity herein to assert the necessary clarifications.

QUISUMBING, J.,
- versus - Chairperson,
CARPIO MORALES,
TINGA,
VELASCO, JR., and
BRION, JJ.
LETICIA CHING and EDWIN
CASTA,
Respondents. Promulgated:
April 16, 2009

x---------------------------------------------------------------------------------x

DECISION

TINGA, J.:

Before us is a Rule 45 petition[1] which seeks the reversal of the Decision[2] of the
Court of Appeals in CA-GR No. 29488. The Court of Appeals' decision affirmed the
decision[3] of the Regional Trial Court of Pasig, Branch 68 in Criminal Case No.
120482. The RTC's decision reversed the decision[4] of the Metropolitan Trial Court of
San Juan, Branch 58 in Criminal Case No. 70445 which involved a charge of violation
of B.P. Blg. 22 against respondents Leticia Ching (Ching) and Edwin Casta (Casta).
On 16 February 2000, petitioner Jaime Gosiaco (petitioner) invested P8,000,000.00
with ASB Holdings, Inc. (ASB) by way of loan. The money was loaned to ASB for a
period of 48 days with interest at 10.5% which is equivalent to P112,000.00. In
exchange, ASB through its Business Development Operation Group manager Ching,
issued DBS checks no. 0009980577 and 0009980578 for P8,000,000.00 and
P112,000.00 respectively. The checks, both signed by Ching, were drawn against DBS
Bank Makati Head Office branch. ASB, through a letter dated 31 March 2000,
acknowledged that it owed petitioner the abovementioned amounts.[5]
Upon maturity of the ASB checks, petitioner went to the DBS Bank San Juan Branch to
deposit the two (2) checks. However, upon presentment, the checks were dishonored
and payments were refused because of a stop payment order and for insufficiency of
funds. Petitioner informed respondents, through letters dated 6 and 10 April 2000,[6]
about the dishonor of the checks and demanded replacement checks or the return of
the money placement but to no avail. Thus, petitioner filed a criminal complaint for
violation of B.P. Blg. 22 before the Metropolitan Trial Court of San Juan against the
private respondents.
Ching was arraigned and tried while Casta remained at large. Ching denied liability and
claimed that she was a mere employee of ASB. She asserted that she did not have
knowledge as to how much money ASB had in the banks. Such responsibility, she
claimed belonged to another department.
On 15 December 2000, petitioner moved[7] that ASB and its president, Luke Roxas, be
impleaded as party defendants. Petitioner, then, paid the corresponding docket fees.
However, the MTC denied the motion as the case had already been submitted for final
decision.[8]

On 8 February 2001, the MTC acquitted Ching of criminal liability but it did not absolve
her from civil liability. The MTC ruled that Ching, as a corporate officer of ASB, was
civilly liable since she was a signatory to the checks.[9]
Both petitioner and Ching appealed the ruling to the RTC. Petitioner appealed to the
RTC on the ground that the MTC failed to hold ASB and Roxas either jointly or
severally liable with Ching. On the other hand, Ching moved for a reconsideration
which was subsequently denied. Thereafter, she filed her notice of appeal on the
ground that she should not be held civilly liable for the bouncing checks because they
were contractual obligations of ASB.

On 12 July 2005, the RTC rendered its decision sustaining Ching's appeal. The RTC
affirmed the MTCs ruling which denied the motion to implead ASB and Roxas for lack
of jurisdiction over their persons. The RTC also exonerated Ching from civil liability and
ruled that the subject obligation fell squarely on ASB. Thus, Ching should not be held
civilly liable.[10]

Petitioner filed a petition for review with the Court of Appeals on the grounds that the
RTC erred in absolving Ching from civil liability; in upholding the refusal of the MTC to
implead ASB and Roxas; and in refusing to pierce the corporate veil of ASB and hold
Roxas liable.
On 19 July 2006, the Court of Appeals affirmed the decision of the RTC and stated that
the amount petitioner sought to recover was a loan made to ASB and not to Ching.
Roxas testimony further bolstered the fact that the checks issued by Ching were for
and in behalf of ASB. The Court of Appeals ruled that ASB cannot be impleaded in a
B.P. Blg. 22 case since it is not a natural person and in the case of Roxas, he was not
the subject of a preliminary investigation. Lastly, the Court of Appeals ruled that there
was no need to pierce the corporate veil of ASB since none of the requisites were
present.[11]
Hence this petition.
Petitioner raised the following issues: (1) is a corporate officer who signed a bouncing
check civilly liable under B.P. Blg. 22; (2) can a corporation be impleaded in a B.P. Blg.
22 case; and (3) is there a basis to pierce the corporate veil of ASB?
B.P. Blg. 22 is popularly known as the Bouncing Checks Law. Section 1 of B.P. Blg. 22
provides:

xxx xxx xxx


Where the check is drawn by a corporation, company or entity, the person or persons,
who actually signed the check in behalf of such drawer shall be liable under this Act.
B.P. Blg. 22 was enacted to address the rampant issuance of bouncing checks as
payment for pre-existing obligations. The circulation of bouncing checks adversely
affected confidence in trade and commerce. The State criminalized such practice
because it was deemed injurious to public interests[12] and was found to be pernicious
and inimical to public welfare.[13] B.P. Blg. 22 punishes the act of making and issuing
bouncing checks. It is the act itself of issuing the checks which is considered malum
prohibitum. The law is an offense against public order and not an offense against
property.[14] It penalizes the issuance of a check without regard to its purpose. It
covers all types of checks.[15] Even checks that were issued as a form of deposit or
guarantee were held to be within the ambit of B.P. Blg. 22.[16]
When a corporate officer issues a worthless check in the corporate name he may be
held personally liable for violating a penal statute.[17] The statute imposes criminal
penalties on anyone who with intent to defraud another of money or property, draws or
issues a check on any bank with knowledge that he has no sufficient funds in such
bank to meet the check on presentment.[18] Moreover, the personal liability of the
corporate officer is predicated on the principle that he cannot shield himself from
liability from his own acts on the ground that it was a corporate act and not his personal
act.[19] As we held in Llamado v. Court of Appeals:[20]

Petitioner's argument that he should not be held personally liable for the amount of the
check because it was a check of the Pan Asia Finance Corporation and he signed the
same in his capacity as Treasurer of the corporation, is also untenable. The third
paragraph of Section 1 of BP Blg. 22 states: Where the check is drawn by a
corporation, company or entity, the person or persons who actually signed the check in
behalf of such drawer shall be liable under this Act.
The general rule is that a corporate officer who issues a bouncing corporate check can
only be held civilly liable when he is convicted. In the recent case of Bautista v. Auto
Plus Traders Inc.,[21] the Court ruled decisively that the civil liability of a corporate
officer in a B.P. Blg. 22 case is extinguished with the criminal liability. We are not
inclined through this case to revisit so recent a precedent, and the rule of stare decisis
precludes us to discharge Ching of any civil liability arising from the B.P. Blg. 22 case
against her, on account of her acquittal in the criminal charge.

We recognize though the bind entwining the petitioner. The records clearly show that it
is ASB is civilly obligated to petitioner. In the various stages of this case, petitioner has
been proceeding from the premise that he is unable to pursue a separate civil action
against ASB itself for the recovery of the amounts due from the subject checks. From
this premise, petitioner sought to implead ASB as a defendant to the B.P. Blg. 22 case,
even if such case is criminal in nature.[22]
What supplied the notion to the petitioner that he was unable to pursue a separate civil
action against ASB? He cites the Revised Rules on Criminal Procedure, particularly the
provisions involving B.P. Blg. 22 cases, which state that:
Rule 111, Section 1Institution of criminal and civil action.

procedure. Technically, nothing in Section 1(b) of Rule 11 prohibits the reservation of a


separate civil action against the juridical person on whose behalf the check was issued.
What the rules prohibit is the reservation of a separate civil

action against the natural person charged with violating B.P. Blg. 22, including such
corporate officer who had signed the bounced check.

xxx
(b) The criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to
include the corresponding civil action. No reservation to file such civil action separately
shall be allowed.
Upon filing of the aforesaid joint criminal and civil actions, the offended party shall pay
in full the filing fees based on the amount of the check involved, which shall be
considered as the actual damages claimed. Where the complainant or information also
seeks to recover liquidated, moral, nominal, temperate or exemplary damages, the
offended party shall pay the filing fees based on the amounts alleged therein. If the
amounts are not so alleged but any of these damages are subsequently awarded by
the court, the filing fees based on the amount awarded shall constitute a first lien on
the judgment.
Where the civil action has been filed separately and trial thereof has not yet
commenced, it may be consolidated with the criminal action upon application with the
court trying the latter case. If the application is granted, the trial of both actions shall
proceed in accordance with section 2 of this Rule governing consolidation of the civil
and criminal actions.[23]
We are unable to agree with petitioner that he is entitled to implead ASB in the B.P. Blg.
22 case, or any other corporation for that matter, even if the Rules require the joint trial
of both the criminal and civil liability. A basic maxim in statutory construction is that the
interpretation of penal laws is strictly construed against the State and liberally
construed against the accused. Nowhere in B.P. Blg. 22 is it provided that a juridical
person may be impleaded as an accused or defendant in the prosecution for violations
of that law, even in the litigation of the civil aspect thereof.
Nonetheless, the substantive right of a creditor to recover due and demandable
obligations against a debtor-corporation cannot be denied or diminished by a rule of

In theory the B.P. Blg. 22 criminal liability of the person who issued the bouncing check
in behalf of a corporation stands independent of the civil liability of the corporation
itself, such civil liability arising from the Civil Code. B.P. Blg. 22 itself fused this criminal
liability of the signer of the check in behalf of the corporation with the corresponding
civil liability of the corporation itself by allowing the complainant to recover such civil
liability not from the corporation, but from the person who signed the check in its
behalf. Prior to the amendments to our rules on criminal procedure, it though clearly
was permissible to pursue the criminal liability against the signatory, while going after
the corporation itself for the civil liability.

However, with the insistence under the amended rules that the civil and criminal liability
attaching to the bounced check be pursued jointly, the previous option to directly
pursue the civil liability against the person who incurred the civil obligationthe
corporation itselfis no longer that clear. In theory, the implied institution of the civil case
into the criminal case for B.P. Blg. 22 should not affect the civil liability of the
corporation for the same check, since such implied institution concerns the civil liability
of the signatory, and not of the corporation.
Let us pursue this point further. B.P. Blg. 22 imposes a distinct civil liability on the
signatory of the check which is distinct from the civil liability of the corporation for the
amount represented from the check. The civil liability attaching to the signatory arises
from the wrongful act of signing the check despite the insufficiency of funds in the
account, while the civil liability attaching to the corporation is itself the very obligation
covered by the check or the consideration for its execution. Yet these civil liabilities are
mistaken to be indistinct. The confusion is traceable to the singularity of the amount of
each.

If we conclude, as we should, that under the current Rules of Criminal Procedure, the
civil action that is impliedly instituted in the B.P. Blg. 22 action is only the civil liability of
the signatory, and not that of the corporation itself, the distinctness of the cause of
action against the signatory and that against the corporation is rendered beyond
dispute. It follows that the actions involving these liabilities should be adjudged
according to their respective standards and merits. In the B.P. Blg. 22 case, what the
trial court should determine whether or not the signatory had signed the check with
knowledge of the insufficiency of funds or credit in the bank account, while in the civil
case the trial court should ascertain whether or not the obligation itself

There are two prevailing concerns should civil recovery against the corporation be
pursued even as the B.P. Blg. 22 case against the signatory remains extant. First, the
possibility that the plaintiff might be awarded the amount of the check in both the B.P.
Blg. 22 case and in the civil action against the corporation. For obvious reasons, that
should not be permitted. Considering that petitioner herein has no chance to recover
the amount of the check through the B.P. Blg. 22 case, we need not contend with that
possibility through this case. Nonetheless, as a matter of prudence, it is best we refer
the matter to the Committee on Rules for the formulation of proper guidelines to
prevent that possibility.

is valid and demandable. The litigation of both questions could, in theory, proceed
independently and simultaneously without being ultimately conclusive on one or the
other.

The other concern is over the payment of filing fees in both the B.P. Blg. 22 case and
the civil action against the corporation. Generally, we see no evil or cause for distress if
the plaintiff were made to pay filing fees based on the amount of the check in both the
B.P. Blg. 22 case and the civil action. After all, the plaintiff therein made the deliberate
option to file two separate cases, even if the recovery of the amounts of the check
against the corporation could evidently be pursued through the civil action alone.

It might be argued that under the current rules, if the signatory were made liable for the
amount of the check by reason of the B.P. Blg. 22 case, such signatory would have the
option of recovering the same amount from the corporation. Yet that prospect does not
ultimately satisfy the ends of justice. If the signatory does not have sufficient assets to
answer for the amount of the checka distinct possibility considering the occasional
large-scale transactions engaged in by corporations the corporation would not be
subsidiarily liable to the complainant, even if it in truth the controversy, of which the
criminal case is just a part, is traceable to the original obligation of the corporation.
While the Revised Penal Code imposes subsidiary civil liability to corporations for
criminal acts engaged in by their employees in the discharge of their duties, said
subsidiary liability applies only to felonies,[24] and not to crimes penalized by special
laws such as B.P. Blg. 22. And nothing in B.P. Blg. 22 imposes such subsidiary liability
to the corporation in whose name the check is actually issued. Clearly then, should the
check signatory be unable to pay the obligation incurred by the corporation, the
complainant would be bereft of remedy unless the right of action to collect on the
liability of the corporation is recognized and given flesh.

Nonetheless, in petitioners particular case, considering the previous legal confusion on


whether he is authorized to file the civil case against ASB, he should, as a matter of
equity, be exempted from paying the filing fees based on the amount of the checks
should he pursue the civil action against ASB. In a similar vein and for a similar reason,
we likewise find that petitioner should not be barred by prescription should he file the
civil action as the period should not run from the date the checks were issued but from
the date this decision attains finality. The courts should not be bound strictly by the
statute of limitations or the doctrine of laches when to do so, manifest wrong or
injustice would result.[25]
WHEREFORE, the petition is DENIED, without prejudice to the right of petitioner Jaime
U. Gosiaco to pursue an independent civil action against ASB Holdings Inc. for the
amount of the subject checks, in accordance with the terms of this decision. No
pronouncements as to costs.
Let a copy of this Decision be REFERRED to the Committee on Revision of the Rules
for the formulation of the formal rules of procedure to govern the civil action for the
recovery of the amount covered by the check against the juridical person which issued
it.
SO ORDERED.
DANTE O. TINGA
Associate Justice

FIRST DIVISION
[G.R. No. 129577-80. February 15, 2000]
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. BULU CHOWDURY, accusedappellant.
DECISION
PUNO, J.:
In November 1995, Bulu Chowdury and Josephine Ong were charged before the
Regional Trial Court of Manila with the crime of illegal recruitment in large scale
committed as follows:
"That sometime between the period from August 1994 to October 1994 in the City of
Manila, Philippines and within the jurisdiction of this Honorable Court, the abovenamed accused, representing themselves to have the capacity to contract, enlist and
transport workers for employment abroad, conspiring, confederating and mutually
helping one another, did then and there willfully, unlawfully and feloniously recruit the
herein complainants: Estrella B. Calleja, Melvin C. Miranda and Aser S. Sasis,
individually or as a group for employment in Korea without first obtaining the required
license and/or authority from the Philippine Overseas Employment Administration."[1]
They were likewise charged with three counts of estafa committed against private
complainants.[2] The State Prosecutor, however, later dismissed the estafa charges
against Chowdury[3] and filed an amended information indicting only Ong for the
offense.[4]

Chowdury was arraigned on April 16, 1996 while Ong remained at large. He pleaded
"not guilty" to the charge of illegal recruitment in large scale.[5]

Trial ensued.

The prosecution presented four witnesses: private complainants Aser Sasis, Estrella
Calleja and Melvin Miranda, and Labor Employment Officer Abbelyn Caguitla.

Sasis testified that he first met Chowdury in August 1994 when he applied with
Craftrade Overseas Developers (Craftrade) for employment as factory worker in South
Korea. Chowdury, a consultant of Craftrade, conducted the interview. During the
interview, Chowdury informed him about the requirements for employment. He told him
to submit his passport, NBI clearance, passport size picture and medical certificate. He
also required him to undergo a seminar. He advised him that placement would be on a
first-come-first-serve basis and urged him to complete the requirements immediately.
Sasis was also charged a processing fee of P25,000.00. Sasis completed all the
requirements in September 1994. He also paid a total amount of P16,000.00 to
Craftrade as processing fee. All payments were received by Ong for which she issued
three receipts.[6] Chowdury then processed his papers and convinced him to complete
his payment.[7]
Sasis further said that he went to the office of Craftrade three times to follow up his
application but he was always told to return some other day. In one of his visits to
Craftrades office, he was informed that he would no longer be deployed for
employment abroad. This prompted him to withdraw his payment but he could no
longer find Chowdury. After two unsuccessful attempts to contact him, he decided to file
with the Philippine Overseas Employment Administration (POEA) a case for illegal
recruitment against Chowdury. Upon verification with the POEA, he learned that
Craftrade's license had already expired and has not been renewed and that Chowdury,
in his personal capacity, was not a licensed recruiter.[8]

Calleja testified that in June 1994, she applied with Craftrade for employment as
factory worker in South Korea. She was interviewed by Chowdury. During the interview,
he asked questions regarding her marital status, her age and her province. Toward the
end of the interview, Chowdury told her that she would be working in a factory in Korea.
He required her to submit her passport, NBI clearance, ID pictures, medical certificate
and birth certificate. He also obliged her to attend a seminar on overseas employment.
After she submitted all the documentary requirements, Chowdury required her to pay
P20,000.00 as placement fee. Calleja made the payment on August 11, 1994 to Ong
for which she was issued a receipt.[9] Chowdury assured her that she would be able to
leave on the first week of September but it proved to be an empty promise. Calleja was
not able to leave despite several follow-ups. Thus, she went to the POEA where she
discovered that Craftrade's license had already expired. She tried to withdraw her
money from Craftrade to no avail. Calleja filed a complaint for illegal recruitment
against Chowdury upon advice of POEA's legal counsel.[10]

Miranda testified that in September 1994, his cousin accompanied him to the office of
Craftrade in Ermita, Manila and introduced him to Chowdury who presented himself as
consultant and interviewer. Chowdury required him to fill out a bio-data sheet before
conducting the interview. Chowdury told Miranda during the interview that he would
send him to Korea for employment as factory worker. Then he asked him to submit the
following documents: passport, passport size picture, NBI clearance and medical
certificate. After he complied with the requirements, he was advised to wait for his visa
and to pay P25,000.00 as processing fee. He paid the amount of P25,000.00 to Ong
who issued receipts therefor.[11] Craftrade, however, failed to deploy him. Hence,
Miranda filed a complaint with the POEA against Chowdury for illegal recruitment.[12]
Labor Employment Officer Abbelyn Caguitla of the Licensing Branch of the POEA
testified that she prepared a certification on June 9, 1996 that Chowdury and his coaccused, Ong, were not, in their personal capacities, licensed recruiters nor were they
connected with any licensed agency. She nonetheless stated that Craftrade was
previously licensed to recruit workers for abroad which expired on December 15, 1993.
It applied for renewal of its license but was only granted a temporary license effective
December 16, 1993 until September 11, 1994. From September 11, 1994, the POEA
granted Craftrade another temporary authority to process the expiring visas of
overseas workers who have already been deployed. The POEA suspended Craftrade's
temporary license on December 6, 1994.[13]

For his defense, Chowdury testified that he worked as interviewer at Craftrade from
1990 until 1994. His primary duty was to interview job applicants for abroad. As a mere
employee, he only followed the instructions given by his superiors, Mr. Emmanuel
Geslani, the agencys President and General Manager, and Mr. Utkal Chowdury, the
agency's Managing Director. Chowdury admitted that he interviewed private
complainants on different dates. Their office secretary handed him their bio-data and
thereafter he led them to his room where he conducted the interviews. During the
interviews, he had with him a form containing the qualifications for the job and he filled
out this form based on the applicant's responses to his questions. He then submitted
them to Mr. Utkal Chowdury who in turn evaluated his findings. He never received
money from the applicants. He resigned from Craftrade on November 12, 1994.[14]
Another defense witness, Emelita Masangkay who worked at the Accreditation Branch
of the POEA presented a list of the accredited principals of Craftrade Overseas
Developers[15] and a list of processed workers of Craftrade Overseas Developers from
1988 to 1994.[16]
The trial court found Chowdury guilty beyond reasonable doubt of the crime of illegal
recruitment in large scale. It sentenced him to life imprisonment and to pay a fine of

P100,000.00. It further ordered him to pay Aser Sasis the amount of P16,000.00,
Estrella Calleja, P20,000.00 and Melvin Miranda, P25,000.00. The dispositive portion
of the decision reads:
"WHEREFORE, in view of the foregoing considerations, the prosecution having proved
the guilt of the accused Bulu Chowdury beyond reasonable doubt of the crime of Illegal
Recruitment in large scale, he is hereby sentenced to suffer the penalty of life
imprisonment and a fine of P100,000.00 under Art. 39 (b) of the New Labor Code of the
Philippines. The accused is ordered to pay the complainants Aser Sasis the amount of
P16,000.00; Estrella Calleja the amount of P20,000.00; Melvin Miranda the amount of
P25,000.00."[17]
Chowdury appealed.
The elements of illegal recruitment in large scale are:
(1) The accused undertook any recruitment activity defined under Article 13 (b) or any
prohibited practice enumerated under Article 34 of the Labor Code;
(2) He did not have the license or authority to lawfully engage in the recruitment and
placement of workers; and
(3) He committed the same against three or more persons, individually or as a group.
[18]
The last paragraph of Section 6 of Republic Act (RA) 8042[19] states who shall be held
liable for the offense, thus:
"The persons criminally liable for the above offenses are the principals, accomplices
and accessories. In case of juridical persons, the officers having control, management
or direction of their business shall be liable."
The Revised Penal Code which supplements the law on illegal recruitment[20] defines
who are the principals, accomplices and accessories. The principals are: (1) those who
take a direct part in the execution of the act; (2) those who directly force or induce
others to commit it; and (3) those who cooperate in the commission of the offense by
another act without which it would not have been accomplished.[21] The accomplices
are those persons who may not be considered as principal as defined in Section 17 of
the Revised Penal Code but cooperate in the execution of the offense by previous or
simultaneous act.[22] The accessories are those who, having knowledge of the
commission of the crime, and without having participated therein, either as principals or
accomplices, take part subsequent to its commission in any of the following manner:
(1) by profiting themselves or assisting the offenders to profit by the effects of the
crime; (2) by concealing or destroying the body of the crime, or the effects or

instruments thereof, in order to prevent its discovery; and (3) by harboring, concealing,
or assisting in the escape of the principal of the crime, provided the accessory acts with
abuse of his public functions or whenever the author of the crime is guilty of treason,
parricide, murder, or an attempt at the life of the chief executive, or is known to be
habitually guilty of some other crime.[23]

Citing the second sentence of the last paragraph of Section 6 of RA 8042, accusedappellant contends that he may not be held liable for the offense as he was merely an
employee of Craftrade and he only performed the tasks assigned to him by his
superiors. He argues that the ones who should be held liable for the offense are the
officers having control, management and direction of the agency.

As stated in the first sentence of Section 6 of RA 8042, the persons who may be held
liable for illegal recruitment are the principals, accomplices and accessories. An
employee of a company or corporation engaged in illegal recruitment may be held
liable as principal, together with his employer,[24] if it is shown that he actively and
consciously participated in illegal recruitment.[25] It has been held that the existence of
the corporate entity does not shield from prosecution the corporate agent who
knowingly and intentionally causes the corporation to commit a crime. The corporation
obviously acts, and can act, only by and through its human agents, and it is their
conduct which the law must deter. The employee or agent of a corporation engaged in
unlawful business naturally aids and abets in the carrying on of such business and will
be prosecuted as principal if, with knowledge of the business, its purpose and effect, he
consciously contributes his efforts to its conduct and promotion, however slight his
contribution may be.[26] The law of agency, as applied in civil cases, has no application
in criminal cases, and no man can escape punishment when he participates in the
commission of a crime upon the ground that he simply acted as an agent of any party.
[27] The culpability of the employee therefore hinges on his knowledge of the offense
and his active participation in its commission. Where it is shown that the employee was
merely acting under the direction of his superiors and was unaware that his acts
constituted a crime, he may not be held criminally liable for an act done for and in
behalf of his employer.[28]
The fundamental issue in this case, therefore, is whether accused-appellant knowingly
and intentionally participated in the commission of the crime charged.

Evidence shows that accused-appellant interviewed private complainants in the


months of June, August and September in 1994 at Craftrade's office. At that time, he
was employed as interviewer of Craftrade which was then operating under a temporary
authority given by the POEA pending renewal of its license.[29] The temporary license
included the authority to recruit workers.[30] He was convicted based on the fact that
he was not registered with the POEA as employee of Craftrade. Neither was he, in his
personal capacity, licensed to recruit overseas workers. Section 10 Rule II Book II of
the Rules and Regulation Governing Overseas Employment (1991) requires that every
change, termination or appointment of officers, representatives and personnel of
licensed agencies be registered with the POEA. Agents or representatives appointed
by a licensed recruitment agency whose appointments are not previously approved by
the POEA are considered "non-licensee " or "non-holder of authority" and therefore not
authorized to engage in recruitment activity.[31]
Upon examination of the records, however, we find that the prosecution failed to prove
that accused-appellant was aware of Craftrade's failure to register his name with the
POEA and that he actively engaged in recruitment despite this knowledge. The
obligation to register its personnel with the POEA belongs to the officers of the agency.
[32] A mere employee of the agency cannot be expected to know the legal
requirements for its operation. The evidence at hand shows that accused-appellant
carried out his duties as interviewer of Craftrade believing that the agency was duly
licensed by the POEA and he, in turn, was duly authorized by his agency to deal with
the applicants in its behalf. Accused-appellant in fact confined his actions to his job
description. He merely interviewed the applicants and informed them of the
requirements for deployment but he never received money from them. Their payments
were received by the agency's cashier, Josephine Ong. Furthermore, he performed his
tasks under the supervision of its president and managing director. Hence, we hold that
the prosecution failed to prove beyond reasonable doubt accused-appellant's
conscious and active participation in the commission of the crime of illegal recruitment.
His conviction, therefore, is without basis.
This is not to say that private complainants are left with no remedy for the wrong
committed against them. The Department of Justice may still file a complaint against
the officers having control, management or direction of the business of Craftrade
Overseas Developers (Craftrade), so long as the offense has not yet prescribed. Illegal
recruitment is a crime of economic sabotage which need to be curbed by the strong
arm of the law. It is important, however, to stress that the government's action must be
directed to the real offenders, those who perpetrate the crime and benefit from it.

We find that he did not.


IN VIEW WHEREOF, the assailed decision of the Regional Trial Court is REVERSED
and SET ASIDE. Accused-appellant is hereby ACQUITTED. The Director of the Bureau

of Corrections is ordered to RELEASE accused-appellant unless he is being held for


some other cause, and to REPORT to this Court compliance with this order within ten
(10) days from receipt of this decision. Let a copy of this Decision be furnished the
Secretary of the Department of Justice for his information and appropriate action.

SO ORDERED.
Davide, Jr., C.J., (Chairman), Kapunan, Pardo, and Ynares-Santiago, JJ., concur.

Moral Damages
Republic of the Philippines
SUPREME COURT

The antecedents, as found by the RTC and adopted by the Court of Appeals, are as
follows:
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.

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.
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."

Manila

FIRST DIVISION

G.R. No. 128690

Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No. Q-92-12309.
The latter denied the motion to reconsider the decision of 31 October 1996.

January 21, 1999

For further enlightenment, this rejection letter dated January 06, 1992 (Exh "3" - Viva)
is hereby quoted:

ABS-CBN BROADCASTING CORPORATION, petitioner,


vs.
HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA
PRODUCTION, INC., and VICENTE DEL ROSARIO, respondents.

DAVIDE, JR., CJ.:


In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp.
(hereafter 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

6 January 1992

Dear Vic,
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
ABS-CBN.
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 out
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 our 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.
2.
3.
4.
5.
6.
7.
8.

Kontra Persa [sic].


Raider Platoon.
Underground guerillas
Tiger Command
Boy de Sabog
Lady Commando
Batang Matadero
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-CBN's 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 reruns 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-CBN 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 ABSCRN 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 Viva's 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 Viva's 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: "Here's 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 films right to 53 films and contains a right of first refusal to "1992 Viva Films."
The said counter proposal was however rejected by Viva's 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 Viva's 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. Q-92-12309.
On 27 May 1992, 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 respondents RBS' channel 7 at
seven o'clock 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-CBN's
posting of 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
counterbound. 9

In the meantime, private respondents filed separate answers 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 petitioner's 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 1992, 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 RTC's Orders 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. 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 as
G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-1921209. 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, judgments 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
defendant RBS's bond to lift the injunction;
b)
P191,843.00 for the amount of print advertisement for "Maging Sino Ka Man"
in various newspapers;
c)

Attorney's fees in the amount of P1 million;

d)

P5 million as and by way of moral damages;

e)

P5 million as and by way of exemplary damages;

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

(4)

(5)

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

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-CBN's
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. Concio's 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-CBN's 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 RTC's 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
attorney's fees.
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, it's agent, might have agreed with
Lopez III. The appellate court did not even believe ABS-CBN's 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-CBN's 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
subject 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.
In the instant case, ABS-CBN's 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.
The offer of V1VA was sometime in December 1991 (Exhibits 2, 2-A. 2-B; Records, pp.
86-88; 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, Ms. Charo SantosConcio, sent a letter dated January 6, 1992 (Exhibit 3, Records, p. 89) where ABSCBN 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 of actual 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 had 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 RBS's 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 petitioner's knowledge that the contract with VIVA had
not been perfected, It also upheld the award of attorney's fees, reasoning that with
ABS-CBN's act of instituting Civil Case No, Q-92-1209, RBS was "unnecessarily forced
to litigate." The appellate court, however, reduced the awards of moral damages to P2
million, exemplary damages to P2 million, and attorney's fees to P500, 000.00.

On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal
because it was "RBS and not VIVA which was actually prejudiced when the complaint
was filed by ABS-CBN."
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
PREPONDERANCE 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 ATTORNEY'S FEES IN FAVOR OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four
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 Lopez's 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 or 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 or 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 "Maging Sino Ka Man"; on the contrary, it was brought
out during trial that with or without the case or the injunction, RBS would have spent
such an amount to generate interest in the film.

ABS-CBN further contends that there was no 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 front the 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
As regards the award of attorney's fees, ABS-CBN maintains that the same had no
factual, legal, or equitable justification. In sustaining the trial court's award, the Court of
Appeals acted in clear disregard of the doctrines laid down in Buan v. Camaganacan
32 that the text of the decision should state the reason why attorney's 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 party' s
persistence in a case other than an erroneous conviction of the righteousness of his
cause, attorney's fees shall not be recovered as cost." 33

On the other hand, RBS asserts that there was no perfected contract between ABSCBN and VIVA absent any meeting of minds between them regarding the object and
consideration of the alleged contract. It affirms that the ABS-CBN's claim of a right of
first refusal was correctly rejected by the trial court. RBS insist the premium it had paid
for the counterbond constituted a pecuniary loss upon which it may recover. It was
obliged to put up the counterbound 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 put
out to announce the showing on a particular day and hour on Channel 7, i.e., in its
entirety at one time, not a series to be shown on a periodic basis. Hence, the print
advertisement were good and relevant for the particular date 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 Article 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 act done is not illicit and there is abuse of rights were plaintiff
institutes and action purely for the purpose of harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and exemplary damages,
private respondents 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:

There can be no doubt that RBS' reputation has been debased by ABS-CBN's 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 canceled, late viewers called up RBS' offices and
subjected RBS to verbal abuse ("Announce kayo nang 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 planned to happen.

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 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 to 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-CBN's 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
attorney's fees. It may be noted that the award of attorney's 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 to render some
service to another 37 for a consideration. there is no contract unless the following
requisites concur: (1) 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:

(a)
preparation, conception, or generation, which is the period of negotiation and
bargaining, ending at the moment of agreement of the parties;

(b)
perfection or birth of the contract, which is the moment when the parties
come to agree on the terms of the contract; and
(c)
consummation or death, which is the fulfillment or performance of the terms
agreed upon in the contract. 39
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 with 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
VIVA's offer to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-CBN,
sent, through Ms. Concio, a counter-proposal in the form of a draft contract proposing
exhibition of 53 films for a consideration of P35 million. This counter-proposal could be
nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario
at Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA's offer, for it
was met by a counter-offer which substantially varied the terms of the offer.
ABS-CBN's 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 all 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 meeting 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
vendor's 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 VIVA's offer. Hence,
they underwent a 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
counter-offer, 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 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 bindings
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-CBN's counter-offer was best evidenced by
his submission of the draft contract to VIVA's Board of Directors for the latter's
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-CBN's 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 a 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 Exhibits "C" reflected the
true intent of the parties, then ABS-CBN's 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 contracts, so as to preclude perfection thereof. For
settled is the rule that there can be no contract where there is no object which is its
subject matter (Art. 1318, NCC).

THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. "D")
states:

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 (P19,950,000.00 plus P16,050,000.00.
equals P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q.

What was written in this napkin?

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-CBN's 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-CBN's 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 Tamarind 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.

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 Board of 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 Barner [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 contract
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 140 films be maintained (Exh. "7-1" - Viva ). 49
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-CBN right of first refusal had already
been exercised when Ms. Concio wrote to VIVA ticking off ten films, Thus:
[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 crossexamination 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. 8-10). Even Mr. Lopez himself admitted that the right of the 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 rights of the
first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-11) 50
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, It 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 defendant 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 has been foreseen or could have reasonably been foreseen by the
defendant. 54
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 plaintiff's
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-CBN's
alleged knowledge of lack of cause of action. Thus paragraph 12 of RBS's 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
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:
Art. 19. Every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith.
Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to
another, shall indemnify the latter for tile same.
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.
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 attorney's fees, the law is clear that in the absence of stipulation, attorney's
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 attorney's 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 to award
attorney's fees under Article 2208 demands factual, legal, and equitable justification. 60
Even when claimant is compelled to litigate with third persons or to incur expenses to
protect his rights, still attorney's fees may not be awarded where no sufficient showing
of bad faith could be reflected in a party's persistence in a case other than 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. RBS's claim for moral damages could possibly fall only
under item (10) of Article 2219, thereof which reads:
(10)

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

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
then 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 on 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 call 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.
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-contracts, 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
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.
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 other
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
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 to impose a penalty on
the right to litigate. If damages result from a person's exercise of a right, it is damnum
absque injuria. 75
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 attorney's fees in favor of VIVA Productions, Inc.1wphi1.nt
No pronouncement as to costs.

SO ORDERED.

Melo, Kapunan, Martinez and Pardo JJ., concur.

FIRST DIVISION

In the morning of 14 and 15 December 1989, Rima and Alegre exposed various
alleged complaints from students, teachers and parents against Ago Medical and
Educational Center-Bicol Christian College of Medicine (AMEC) and its administrators.
Claiming that the broadcasts were defamatory, AMEC and Angelita Ago (Ago), as Dean
of AMECs College of Medicine, filed a complaint for damages[7] against FBNI, Rima
and Alegre on 27 February 1990. Quoted are portions of the allegedly libelous
broadcasts:
JUN ALEGRE:

[G.R. No. 141994. January 17, 2005]


FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND
EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMECBCCM) and ANGELITA F. AGO, respondents.
DECISION
CARPIO, J.:

Let us begin with the less burdensome: if you have children taking medical course at
AMEC-BCCM, advise them to pass all subjects because if they fail in any subject they
will repeat their year level, taking up all subjects including those they have passed
already. Several students had approached me stating that they had consulted with the
DECS which told them that there is no such regulation. If [there] is no such regulation
why is AMEC doing the same?
xxx

The Case

This petition for review[1] assails the 4 January 1999 Decision[2] and 26 January 2000
Resolution of the Court of Appeals in CA-G.R. CV No. 40151. The Court of Appeals
affirmed with modification the 14 December 1992 Decision[3] of the Regional Trial
Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held
Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and
Carmelo Rima liable for libel and ordered them to solidarily pay Ago Medical and
Educational Center-Bicol Christian College of Medicine moral damages, attorneys fees
and costs of suit.
The Antecedents
Expos is a radio documentary[4] program hosted by Carmelo Mel Rima (Rima) and
Hermogenes Jun Alegre (Alegre).[5] Expos is aired every morning over DZRC-AM
which is owned by Filipinas Broadcasting Network, Inc. (FBNI). Expos is heard over
Legazpi City, the Albay municipalities and other Bicol areas.[6]

Second: Earlier AMEC students in Physical Therapy had complained that the course is
not recognized by DECS. xxx
Third: Students are required to take and pay for the subject even if the subject does not
have an instructor - such greed for money on the part of AMECs administration. Take
the subject Anatomy: students would pay for the subject upon enrolment because it is
offered by the school. However there would be no instructor for such subject. Students
would be informed that course would be moved to a later date because the school is
still searching for the appropriate instructor.
xxx
It is a public knowledge that the Ago Medical and Educational Center has survived and
has been surviving for the past few years since its inception because of funds support
from foreign foundations. If you will take a look at the AMEC premises youll find out
that the names of the buildings there are foreign soundings. There is a McDonald Hall.
Why not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence
that the support of foreign foundations for AMEC is substantial, isnt it? With the report
which is the basis of the expose in DZRC today, it would be very easy for detractors
and enemies of the Ago family to stop the flow of support of foreign foundations who
assist the medical school on the basis of the latters purpose. But if the purpose of the
institution (AMEC) is to deceive students at cross purpose with its reason for being it is
possible for these foreign foundations to lift or suspend their donations temporarily.[8]

xxx

On the other hand, the administrators of AMEC-BCCM, AMEC Science High School
and the AMEC-Institute of Mass Communication in their effort to minimize expenses in
terms of salary are absorbing or continues to accept rejects. For example how many
teachers in AMEC are former teachers of Aquinas University but were removed
because of immorality? Does it mean that the present administration of AMEC have the
total definite moral foundation from catholic administrator of Aquinas University. I will
prove to you my friends, that AMEC is a dumping ground, garbage, not merely of moral
and physical misfits. Probably they only qualify in terms of intellect. The Dean of
Student Affairs of AMEC is Justita Lola, as the family name implies. She is too old to
work, being an old woman. Is the AMEC administration exploiting the very
[e]nterprising or compromising and undemanding Lola? Could it be that AMEC is just
patiently making use of Dean Justita Lola were if she is very old. As in atmospheric
situation zero visibility the plane cannot land, meaning she is very old, low pay follows.
By the way, Dean Justita Lola is also the chairman of the committee on scholarship in
AMEC. She had retired from Bicol University a long time ago but AMEC has patiently
made use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping ground for moral and
physically misfit people. What does this mean? Immoral and physically misfits as
teachers.
May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your
are no longer fit to teach. You are too old. As an aviation, your case is zero visibility.
Dont insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the
scholarship committee at that. The reason is practical cost saving in salaries, because
an old person is not fastidious, so long as she has money to buy the ingredient of
beetle juice. The elderly can get by thats why she (Lola) was taken in as Dean.

xx

xxx On our end our task is to attend to the interests of students. It is likely that the
students would be influenced by evil. When they become members of society outside
of campus will be liabilities rather than assets. What do you expect from a doctor who
while studying at AMEC is so much burdened with unreasonable imposition? What do
you expect from a student who aside from peculiar problems because not all students
are rich in their struggle to improve their social status are even more burdened with
false regulations. xxx[9] (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning institution. With the
supposed exposs, FBNI, Rima and Alegre transmitted malicious imputations, and as
such, destroyed plaintiffs (AMEC and Ago) reputation. AMEC and Ago included FBNI
as defendant for allegedly failing to exercise due diligence in the selection and
supervision of its employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an
Answer[10] alleging that the broadcasts against AMEC were fair and true. FBNI, Rima
and Alegre claimed that they were plainly impelled by a sense of public duty to report
the goings-on in AMEC, [which is] an institution imbued with public interest.
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty.
Edmundo Cea, collaborating counsel of Atty. Lozares, filed a Motion to Dismiss[11] on
FBNIs behalf. The trial court denied the motion to dismiss. Consequently, FBNI filed a
separate Answer claiming that it exercised due diligence in the selection and
supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the
broadcaster should (1) file an application; (2) be interviewed; and (3) undergo an
apprenticeship and training program after passing the interview. FBNI likewise claimed
that it always reminds its broadcasters to observe truth, fairness and objectivity in their
broadcasts and to refrain from using libelous and indecent language. Moreover, FBNI
requires all broadcasters to pass the Kapisanan ng mga Brodkaster sa Pilipinas (KBP)
accreditation test and to secure a KBP permit.

On 14 December 1992, the trial court rendered a Decision[12] finding FBNI and Alegre
liable for libel except Rima. The trial court held that the broadcasts are libelous per se.
The trial court rejected the broadcasters claim that their utterances were the result of
straight reporting because it had no factual basis. The broadcasters did not even verify
their reports before airing them to show good faith. In holding FBNI liable for libel, the
trial court found that FBNI failed to exercise diligence in the selection and supervision
of its employees.
In absolving Rima from the charge, the trial court ruled that Rimas only participation
was when he agreed with Alegres expos. The trial court found Rimas statement within

the bounds of freedom of speech, expression, and of the press. The dispositive portion
of the decision reads:
WHEREFORE, premises considered, this court finds for the plaintiff. Considering the
degree of damages caused by the controversial utterances, which are not found by this
court to be really very serious and damaging, and there being no showing that indeed
the enrollment of plaintiff school dropped, defendants Hermogenes Jun Alegre, Jr. and
Filipinas Broadcasting Network (owner of the radio station DZRC), are hereby jointly
and severally ordered to pay plaintiff Ago Medical and Educational Center-Bicol
Christian College of Medicine (AMEC-BCCM) the amount of P300,000.00 moral
damages, plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of
suit.
SO ORDERED. [13] (Emphasis supplied)
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the
other, appealed the decision to the Court of Appeals. The Court of Appeals affirmed the
trial courts judgment with modification. The appellate court made Rima solidarily liable
with FBNI and Alegre. The appellate court denied Agos claim for damages and
attorneys fees because the broadcasts were directed against AMEC, and not against
her. The dispositive portion of the Court of Appeals decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the


modification that broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I]
and Hermo[g]enes Alegre.

Finding no factual basis for the imputations against AMECs administrators, the Court of
Appeals ruled that the broadcasts were made with reckless disregard as to whether
they were true or false. The appellate court pointed out that FBNI, Rima and Alegre
failed to present in court any of the students who allegedly complained against AMEC.
Rima and Alegre merely gave a single name when asked to identify the students.
According to the Court of Appeals, these circumstances cast doubt on the veracity of
the broadcasters claim that they were impelled by their moral and social duty to inform
the public about the students gripes.

The Court of Appeals found Rima also liable for libel since he remarked that (1) AMECBCCM is a dumping ground for morally and physically misfit teachers; (2) AMEC
obtained the services of Dean Justita Lola to minimize expenses on its employees
salaries; and (3) AMEC burdened the students with unreasonable imposition and false
regulations.[16]

The Court of Appeals held that FBNI failed to exercise due diligence in the selection
and supervision of its employees for allowing Rima and Alegre to make the radio
broadcasts without the proper KBP accreditation. The Court of Appeals denied Agos
claim for damages and attorneys fees because the libelous remarks were directed
against AMEC, and not against her. The Court of Appeals adjudged FBNI, Rima and
Alegre solidarily liable to pay AMEC moral damages, attorneys fees and costs of suit.
Issues

SO ORDERED.[14]

FBNI raises the following issues for resolution:

FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals
denied in its 26 January 2000 Resolution.

I. WHETHER THE BROADCASTS ARE LIBELOUS;


II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and

Hence, FBNI filed this petition.[15]


The Ruling of the Court of Appeals
The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are
libelous per se and that FBNI, Rima and Alegre failed to overcome the legal
presumption of malice. The Court of Appeals found Rima and Alegres claim that they
were actuated by their moral and social duty to inform the public of the students gripes
as insufficient to justify the utterance of the defamatory remarks.

IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR
PAYMENT OF MORAL DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT.
The Courts Ruling

We deny the petition.

This is a civil action for damages as a result of the allegedly defamatory remarks of
Rima and Alegre against AMEC.[17] While AMEC did not point out clearly the legal
basis for its complaint, a reading of the complaint reveals that AMECs cause of action
is based on Articles 30 and 33 of the Civil Code. Article 30[18] authorizes a separate
civil action to recover civil liability arising from a criminal offense. On the other hand,
Article 33[19] particularly provides that the injured party may bring a separate civil
action for damages in cases of defamation, fraud, and physical injuries. AMEC also
invokes Article 19[20] of the Civil Code to justify its claim for damages. AMEC cites
Articles 2176[21] and 2180[22] of the Civil Code to hold FBNI solidarily liable with Rima
and Alegre.

Alegre should have presented the public issues free from inaccurate and misleading
information.[26] Hearing the students alleged complaints a month before the expos,[27]
they had sufficient time to verify their sources and information. However, Rima and
Alegre hardly made a thorough investigation of the students alleged gripes. Neither did
they inquire about nor confirm the purported irregularities in AMEC from the
Department of Education, Culture and Sports. Alegre testified that he merely went to
AMEC to verify his report from an alleged AMEC official who refused to disclose any
information. Alegre simply relied on the words of the students because they were many
and not because there is proof that what they are saying is true.[28] This plainly shows
Rima and Alegres reckless disregard of whether their report was true or not.

I.

Contrary to FBNIs claim, the broadcasts were not the result of straight reporting.
Significantly, some courts in the United States apply the privilege of neutral reportage
in libel cases involving matters of public interest or public figures. Under this privilege,
a republisher who accurately and disinterestedly reports certain defamatory statements
made against public figures is shielded from liability, regardless of the republishers
subjective awareness of the truth or falsity of the accusation.[29] Rima and Alegre
cannot invoke the privilege of neutral reportage because unfounded comments abound
in the broadcasts. Moreover, there is no existing controversy involving AMEC when the
broadcasts were made. The privilege of neutral reportage applies where the defamed
person is a public figure who is involved in an existing controversy, and a party to that
controversy makes the defamatory statement.[30]

Whether the broadcasts are libelous


A libel[23] is a public and malicious imputation of a crime, or of a vice or defect, real or
imaginary, or any act or omission, condition, status, or circumstance tending to cause
the dishonor, discredit, or contempt of a natural or juridical person, or to blacken the
memory of one who is dead.[24]
There is no question that the broadcasts were made public and imputed to AMEC
defects or circumstances tending to cause it dishonor, discredit and contempt. Rima
and Alegres remarks such as greed for money on the part of AMECs administrators;
AMEC is a dumping ground, garbage of xxx moral and physical misfits; and AMEC
students who graduate will be liabilities rather than assets of the society are libelous
per se. Taken as a whole, the broadcasts suggest that AMEC is a money-making
institution where physically and morally unfit teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima
and Alegre were plainly impelled by their civic duty to air the students gripes. FBNI
alleges that there is no evidence that ill will or spite motivated Rima and Alegre in
making the broadcasts. FBNI further points out that Rima and Alegre exerted efforts to
obtain AMECs side and gave Ago the opportunity to defend AMEC and its
administrators. FBNI concludes that since there is no malice, there is no libel.

FBNIs contentions are untenable.

Every defamatory imputation is presumed malicious.[25] Rima and Alegre failed to


show adequately their good intention and justifiable motive in airing the supposed
gripes of the students. As hosts of a documentary or public affairs program, Rima and

However, FBNI argues vigorously that malice in law does not apply to this case. Citing
Borjal v. Court of Appeals,[31] FBNI contends that the broadcasts fall within the
coverage of qualifiedly privileged communications for being commentaries on matters
of public interest. Such being the case, AMEC should prove malice in fact or actual
malice. Since AMEC allegedly failed to prove actual malice, there is no libel.
FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the doctrine of
fair comment, thus:
[F]air commentaries on matters of public interest are privileged and constitute a valid
defense in an action for libel or slander. The doctrine of fair comment means that while
in general every discreditable imputation publicly made is deemed false, because
every man is presumed innocent until his guilt is judicially proved, and every false
imputation is deemed malicious, nevertheless, when the discreditable imputation is
directed against a public person in his public capacity, it is not necessarily actionable.
In order that such discreditable imputation to a public official may be actionable, it must
either be a false allegation of fact or a comment based on a false supposition. If the
comment is an expression of opinion, based on established facts, then it is immaterial
that the opinion happens to be mistaken, as long as it might reasonably be inferred
from the facts.[32] (Emphasis supplied)

True, AMEC is a private learning institution whose business of educating students is


genuinely imbued with public interest. The welfare of the youth in general and AMECs
students in particular is a matter which the public has the right to know. Thus, similar to
the newspaper articles in Borjal, the subject broadcasts dealt with matters of public
interest. However, unlike in Borjal, the questioned broadcasts are not based on
established facts. The record supports the following findings of the trial court:
xxx Although defendants claim that they were motivated by consistent reports of
students and parents against plaintiff, yet, defendants have not presented in court, nor
even gave name of a single student who made the complaint to them, much less
present written complaint or petition to that effect. To accept this defense of defendants
is too dangerous because it could easily give license to the media to malign people and
establishments based on flimsy excuses that there were reports to them although they
could not satisfactorily establish it. Such laxity would encourage careless and
irresponsible broadcasting which is inimical to public interests.
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the
mandates of their duties, did not verify and analyze the truth of the reports before they
aired it, in order to prove that they are in good faith.

Alegre contended that plaintiff school had no permit and is not accredited to offer
Physical Therapy courses. Yet, plaintiff produced a certificate coming from DECS that
as of Sept. 22, 1987 or more than 2 years before the controversial broadcast,
accreditation to offer Physical Therapy course had already been given the plaintiff,
which certificate is signed by no less than the Secretary of Education and Culture
herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants could have easily known
this were they careful enough to verify. And yet, defendants were very categorical and
sounded too positive when they made the erroneous report that plaintiff had no permit
to offer Physical Therapy courses which they were offering.
The allegation that plaintiff was getting tremendous aids from foreign foundations like
Mcdonald Foundation prove not to be true also. The truth is there is no Mcdonald
Foundation existing. Although a big building of plaintiff school was given the name
Mcdonald building, that was only in order to honor the first missionary in Bicol of
plaintiffs religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants over
the air, not a single centavo appears to be received by plaintiff school from the
aforementioned McDonald Foundation which does not exist.
Defendants did not even also bother to prove their claim, though denied by Dra. Ago,
that when medical students fail in one subject, they are made to repeat all the other
subject[s], even those they have already passed, nor their claim that the school

charges laboratory fees even if there are no laboratories in the school. No evidence
was presented to prove the bases for these claims, at least in order to give semblance
of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and immoral
teachers, defendant[s] singled out Dean Justita Lola who is said to be so old, with zero
visibility already. Dean Lola testified in court last Jan. 21, 1991, and was found to be 75
years old. xxx Even older people prove to be effective teachers like Supreme Court
Justices who are still very much in demand as law professors in their late years.
Counsel for defendants is past 75 but is found by this court to be still very sharp and
effective. So is plaintiffs counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally
infirmed, but is still alert and docile.
The contention that plaintiffs graduates become liabilities rather than assets of our
society is a mere conclusion. Being from the place himself, this court is aware that
majority of the medical graduates of plaintiffs pass the board examination easily and
become prosperous and responsible professionals.[33]
Had the comments been an expression of opinion based on established facts, it is
immaterial that the opinion happens to be mistaken, as long as it might reasonably be
inferred from the facts.[34] However, the comments of Rima and Alegre were not
backed up by facts. Therefore, the broadcasts are not privileged and remain libelous
per se.
The broadcasts also violate the Radio Code[35] of the Kapisanan ng mga Brodkaster
sa Pilipinas, Ink. (Radio Code). Item I(B) of the Radio Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1. x x x
4. Public affairs program shall present public issues free from personal bias, prejudice
and inaccurate and misleading information. x x x Furthermore, the station shall strive to
present balanced discussion of issues. x x x.
xxx
7. The station shall be responsible at all times in the supervision of public affairs, public
issues and commentary programs so that they conform to the provisions and standards
of this code.

8. It shall be the responsibility of the newscaster, commentator, host and announcer to


protect public interest, general welfare and good order in the presentation of public
affairs and public issues.[36] (Emphasis supplied)

The broadcasts fail to meet the standards prescribed in the Radio Code, which lays
down the code of ethical conduct governing practitioners in the radio broadcast
industry. The Radio Code is a voluntary code of conduct imposed by the radio
broadcast industry on its own members. The Radio Code is a public warranty by the
radio broadcast industry that radio broadcast practitioners are subject to a code by
which their conduct are measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up
to the code of conduct of their profession, just like other professionals. A professional
code of conduct provides the standards for determining whether a person has acted
justly, honestly and with good faith in the exercise of his rights and performance of his
duties as required by Article 19[37] of the Civil Code. A professional code of conduct
also provides the standards for determining whether a person who willfully causes loss
or injury to another has acted in a manner contrary to morals or good customs under
Article 21[38] of the Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a corporation.
[39]
A juridical person is generally not entitled to moral damages because, unlike a natural
person, it cannot experience physical suffering or such sentiments as wounded
feelings, serious anxiety, mental anguish or moral shock.[40] The Court of Appeals
cites Mambulao Lumber Co. v. PNB, et al.[41] to justify the award of moral damages.
However, the Courts statement in Mambulao that a corporation may have a good
reputation which, if besmirched, may also be a ground for the award of moral damages
is an obiter dictum.[42]
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219[43] of
the Civil Code. This provision expressly authorizes the recovery of moral damages in
cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify
whether the plaintiff is a natural or juridical person. Therefore, a juridical person such
as a corporation can validly complain for libel or any other form of defamation and
claim for moral damages.[44]

Moreover, where the broadcast is libelous per se, the law implies damages.[45] In such
a case, evidence of an honest mistake or the want of character or reputation of the
party libeled goes only in mitigation of damages.[46] Neither in such a case is the
plaintiff required to introduce evidence of actual damages as a condition precedent to
the recovery of some damages.[47] In this case, the broadcasts are libelous per se.
Thus, AMEC is entitled to moral damages.
However, we find the award of P300,000 moral damages unreasonable. The record
shows that even though the broadcasts were libelous per se, AMEC has not suffered
any substantial or material damage to its reputation. Therefore, we reduce the award of
moral damages from P300,000 to P150,000.
III.
Whether the award of attorneys fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is no basis for
the award of attorneys fees. FBNI adds that the instant case does not fall under the
enumeration in Article 2208[48] of the Civil Code.
The award of attorneys fees is not proper because AMEC failed to justify satisfactorily
its claim for attorneys fees. AMEC did not adduce evidence to warrant the award of
attorneys fees. Moreover, both the trial and appellate courts failed to explicitly state in
their respective decisions the rationale for the award of attorneys fees.[49] In Inter-Asia
Investment Industries, Inc. v. Court of Appeals,[50] we held that:

[I]t is an accepted doctrine that the award thereof as an item of damages is the
exception rather than the rule, and counsels fees are not to be awarded every time a
party wins a suit. The power of the court to award attorneys fees under Article 2208 of
the Civil Code demands factual, legal and equitable justification, without which the
award is a conclusion without a premise, its basis being improperly left to speculation
and conjecture. In all events, the court must explicitly state in the text of the decision,
and not only in the decretal portion thereof, the legal reason for the award of attorneys
fees.[51] (Emphasis supplied)
While it mentioned about the award of attorneys fees by stating that it lies within the
discretion of the court and depends upon the circumstances of each case, the Court of
Appeals failed to point out any circumstance to justify the award.
IV.

Whether FBNI is solidarily liable with Rima and Alegre for moral damages, attorneys
fees and costs of suit FBNI contends that it is not solidarily liable with Rima and Alegre
for the payment of damages and attorneys fees because it exercised due diligence in
the selection and supervision of its employees, particularly Rima and Alegre. FBNI
maintains that its broadcasters, including Rima and Alegre, undergo a very regimented
process before they are allowed to go on air. Those who apply for broadcaster are
subjected to interviews, examinations and an apprenticeship program.
FBNI further argues that Alegres age and lack of training are irrelevant to his
competence as a broadcaster. FBNI points out that the minor deficiencies in the KBP
accreditation of Rima and Alegre do not in any way prove that FBNI did not exercise
the diligence of a good father of a family in selecting and supervising them. Rimas
accreditation lapsed due to his non-payment of the KBP annual fees while Alegres
accreditation card was delayed allegedly for reasons attributable to the KBP Manila
Office. FBNI claims that membership in the KBP is merely voluntary and not required
by any law or government regulation.
FBNIs arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable
for the tort which they commit.[52] Joint tort feasors are all the persons who command,
instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the
commission of a tort, or who approve of it after it is done, if done for their benefit.[53]
Thus, AMEC correctly anchored its cause of action against FBNI on Articles 2176 and
2180 of the Civil Code.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to
pay for damages arising from the libelous broadcasts. As stated by the Court of
Appeals, recovery for defamatory statements published by radio or television may be
had from the owner of the station, a licensee, the operator of the station, or a person
who procures, or participates in, the making of the defamatory statements.[54] An
employer and employee are solidarily liable for a defamatory statement by the
employee within the course and scope of his or her employment, at least when the
employer authorizes or ratifies the defamation.[55] In this case, Rima and Alegre were
clearly performing their official duties as hosts of FBNIs radio program Expos when
they aired the broadcasts. FBNI neither alleged nor proved that Rima and Alegre went
beyond the scope of their work at that time. There was likewise no showing that FBNI
did not authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in
the selection and supervision of its employees, particularly Rima and Alegre. FBNI
merely showed that it exercised diligence in the selection of its broadcasters without
introducing any evidence to prove that it observed the same diligence in the

supervision of Rima and Alegre. FBNI did not show how it exercised diligence in
supervising its broadcasters. FBNIs alleged constant reminder to its broadcasters to
observe truth, fairness and objectivity and to refrain from using libelous and indecent
language is not enough to prove due diligence in the supervision of its broadcasters.
Adequate training of the broadcasters on the industrys code of conduct, sufficient
information on libel laws, and continuous evaluation of the broadcasters performance
are but a few of the many ways of showing diligence in the supervision of
broadcasters.

FBNI claims that it has taken all the precaution in the selection of Rima and Alegre as
broadcasters, bearing in mind their qualifications. However, no clear and convincing
evidence shows that Rima and Alegre underwent FBNIs regimented process of
application. Furthermore, FBNI admits that Rima and Alegre had deficiencies in their
KBP accreditation,[56] which is one of FBNIs requirements before it hires a
broadcaster. Significantly, membership in the KBP, while voluntary, indicates the
broadcasters strong commitment to observe the broadcast industrys rules and
regulations. Clearly, these circumstances show FBNIs lack of diligence in selecting and
supervising Rima and Alegre. Hence, FBNI is solidarily liable to pay damages together
with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January
1999 and Resolution of 26 January 2000 of the Court of Appeals in CA-G.R. CV No.
40151 with the MODIFICATION that the award of moral damages is reduced from
P300,000 to P150,000 and the award of attorneys fees is deleted. Costs against
petitioner.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 172428

November 28, 2008

HERMAN C. CRYSTAL, LAMBERTO C. CRYSTAL, ANN GEORGIA C. SOLANTE, and


DORIS C. MAGLASANG, as Heirs of Deceased SPOUSES RAYMUNDO I. CRYSTAL
and DESAMPARADOS C. CRYSTAL, petitioners,
vs.
BANK OF THE PHILIPPINE ISLANDS, respondent.
DECISION
TINGA, J.:
Before us is a Petition for Review1 of the Decision2 and Resolution3 of the Court of
Appeals dated 24 October 2005 and 31 March 2006, respectively, in CA G.R. CV No.
72886, which affirmed the 8 June 2001 decision of the Regional Trial Court, Branch 5,
of Cebu City.4
The facts, as culled from the records, follow.
On 28 March 1978, spouses Raymundo and Desamparados Crystal obtained a
P300,000.00 loan in behalf of the Cebu Contractors Consortium Co. (CCCC) from the
Bank of the Philippine Islands-Butuan branch (BPI-Butuan). The loan was secured by a
chattel mortgage on heavy equipment and machinery of CCCC. On the same date, the
spouses executed in favor of BPI-Butuan a Continuing Suretyship5 where they bound
themselves as surety of CCCC in the aggregate principal sum of not exceeding
P300,000.00. Thereafter, or on 29 March 1979, Raymundo Crystal executed a
promissory note6 for the amount of P300,000.00, also in favor of BPI-Butuan.
Sometime in August 1979, CCCC renewed a previous loan, this time from BPI, Cebu
City branch (BPI-Cebu City). The renewal was evidenced by a promissory note7 dated
13 August 1979, signed by the spouses in their personal capacities and as managing
partners of CCCC. The promissory note states that the spouses are jointly and
severally liable with CCCC. It appears that before the original loan could be granted,
BPI-Cebu City required CCCC to put up a security.

However, CCCC had no real property to offer as security for the loan; hence, the
spouses executed a real estate mortgage8 over their own real property on 22
September 1977.9 On 3 October 1977, they executed another real estate mortgage
over the same lot in favor of BPI-Cebu City, to secure an additional loan of P20,000.00
of CCCC.10

CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu City when they became
due. CCCC, as well as the spouses, failed to pay their obligations despite demands.
Thus, BPI resorted to the foreclosure of the chattel mortgage and the real estate
mortgage. The foreclosure sale on the chattel mortgage was initially stalled with the
issuance of a restraining order against BPI.11 However, following BPIs compliance
with the necessary requisites of extrajudicial foreclosure, the foreclosure sale on the
chattel mortgage was consummated on 28 February 1988, with the proceeds
amounting to P240,000.00 applied to the loan from BPI-Butuan which had then
reached P707,393.90.12 Meanwhile, on 7 July 1981, Insular Bank of Asia and America
(IBAA), through its Vice-President for Legal and Corporate Affairs, offered to buy the lot
subject of the two (2) real
estate mortgages and to pay directly the spouses indebtedness in exchange for the
release of the mortgages. BPI rejected IBAAs offer to pay.13
BPI filed a complaint for sum of money against CCCC and the spouses before the
Regional Trial Court of Butuan City (RTC Butuan), seeking to recover the deficiency of
the loan of CCCC and the spouses with BPI-Butuan. The trial court ruled in favor of
BPI. Pursuant to the decision, BPI instituted extrajudicial foreclosure of the spouses
mortgaged property.14
On 10 April 1985, the spouses filed an action for Injunction With Damages, With A
Prayer For A Restraining Order and/ or Writ of Preliminary Injunction.15 The spouses
claimed that the foreclosure of the real estate mortgages is illegal because BPI should
have exhausted CCCCs properties first, stressing that they are mere guarantors of the
renewed loans. They also prayed that they be awarded moral and exemplary damages,
attorneys fees, litigation expenses and cost of suit. Subsequently, the spouses filed an
amended complaint,16 additionally alleging that CCCC had opened and maintained a
foreign currency savings account (FCSA-197) with bpi, Makati branch (BPI-Makati),
and that said FCSA was used as security for a P450,000.00 loan also extended by
BPI-Makati. The P450,000.00 loan was allegedly paid, and thereafter the spouses
demanded the return of the FCSA passbook. BPI rejected the demand; thus, the
spouses were unable to withdraw from the said account to pay for their other
obligations to BPI.
The trial court dismissed the spouses complaint and ordered them to pay moral and
exemplary damages and attorneys fees to BPI.17 It ruled that since the spouses
agreed to bind themselves jointly and severally, they are solidarily liable for the loans;
hence, BPI can validly foreclose the two real estate mortgages. Moreover, being
guarantors-mortgagors, the spouses are not entitled to the benefit of exhaustion. Anent
the FCSA, the trial court found that CCCC originally had FCDU SA No. 197 with BPI,
Dewey Boulevard branch, which was transferred to BPI-Makati as FCDU SA 76/0035,
at the request of Desamparados Crystal. FCDU SA 76/0035 was thus closed, but

Desamparados Crystal failed to surrender the passbook because it was lost. The
transferred FCSA in BPI-Makati was the one used as security for CCCCs P450,000.00
loan from BPI-Makati. CCCC was no longer allowed to withdraw from FCDU SA No.
197 because it was already closed.
The spouses appealed the decision of the trial court to the Court of Appeals, but their
appeal was dismissed.18 The spouses moved for the reconsideration of the decision,
but the Court of Appeals also denied their motion for reconsideration.19 Hence, the
present petition.
Before the Court, petitioners who are the heirs of the spouses argue that the failure of
the spouses to pay the BPI-Cebu City loan of P120,000.00 was due to BPIs illegal
refusal to accept payment for the loan unless the P300,000.00 loan from BPI-Butuan
would also be paid. Consequently, in view of BPIs unjust refusal to accept payment of
the BPI-Cebu City loan, the loan obligation of the spouses was extinguished,
petitioners contend.

The contention has no merit. Petitioners rely on IBAAs offer to purchase the
mortgaged lot from them and to directly pay BPI out of the proceeds thereof to settle
the loan.20 BPIs refusal to agree to such payment scheme cannot extinguish the
spouses loan obligation. In the first place, IBAA is not privy to the loan agreement or
the promissory note between the spouses and BPI. Contracts, after all, take effect only
between the parties, their successors in interest, heirs
and assigns.21 Besides, under Art. 1236 of the Civil Code, the creditor is not bound to
accept payment or performance by a third person who has no interest in the fulfillment
of the obligation, unless there is a stipulation to the contrary. We see no stipulation in
the promissory note which states that a third person may fulfill the spouses obligation.
Thus, it is clear that the spouses alone bear responsibility for the same.
In any event, the promissory note is the controlling repository of the obligation of the
spouses. Under the promissory note, the spouses defined the parameters of their
obligation as follows:
On or before June 29, 1980 on demand, for value received, I/we promise to pay, jointly
and severally, to the BANK OF THE PHILIPPINE ISLANDS, at its office in the city of
Cebu Philippines, the sum of ONE HUNDRED TWENTY THOUSAND PESOS
(P120,0000.00), Philippine Currency, subject to periodic installments on the principal as
follows: P30,000.00 quarterly amortization starting September 28, 1979. x x x 22
A solidary obligation is one in which each of the debtors is liable for the entire
obligation, and each of the creditors is entitled to demand the satisfaction of the whole

obligation from any or all of the debtors. 23 A liability is solidary "only when the
obligation expressly so states, when the law so provides or when the nature of the
obligation so requires."24 Thus, when the obligor undertakes to be "jointly and
severally" liable, it means that the obligation is solidary,25 such as in this case. By
stating "I/we promise to pay, jointly and severally, to the BANK OF THE PHILIPPINE
ISLANDS," the spouses agreed to be sought out and be demanded payment from, by
BPI. BPI did demand payment from them, but they failed to comply with their
obligation, prompting BPIs valid resort to the foreclosure of the chattel mortgage and
the real estate mortgages.
More importantly, the promissory note, wherein the spouses undertook to be solidarily
liable for the principal loan, partakes the nature of a suretyship and therefore is an
additional security for the loan. Thus we held in one case that if solidary liability was
instituted to "guarantee" a principal obligation, the law deems the contract to be one of
suretyship.26 And while a contract of a surety is in essence secondary only to a valid
principal obligation, the suretys liability to the creditor or promisee of the principal is
said to be direct, primary, and absolute; in other words, the surety is directly and
equally bound with the principal. The surety therefore becomes liable for the debt or
duty of another even if he possesses no direct or personal interest over the obligations
nor does he receive any benefit therefrom.27
Petitioners contend that the Court of Appeals erred in not granting their counterclaims,
considering that they suffered moral damages in view of the unjust refusal of BPI to
accept the payment scheme proposed by IBAA and the allegedly unjust and illegal
foreclosure of the real estate mortgages on their property.28 Conversely, they argue
that the Court of Appeals erred in awarding moral damages to BPI, which is a
corporation, as well as exemplary damages, attorneys fees and expenses of
litigation.29
We do not agree. Moral damages are meant to compensate the claimant for any
physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation and similar injuries unjustly
caused.30 Such damages, to be recoverable, must be the proximate result of a
wrongful act or omission the factual basis for which is satisfactorily established by the
aggrieved party.31 There being no wrongful or unjust act on the part of BPI in
demanding payment from them and in seeking the foreclosure of the chattel and real
estate mortgages, there is no lawful basis for award of damages in favor of the
spouses.
Neither is BPI entitled to moral damages. A juridical person is generally not entitled to
moral damages because, unlike a natural person, it cannot experience physical
suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or
moral shock.32 The Court of Appeals found BPI as "being famous and having gained

its familiarity and respect not only in the Philippines but also in the whole world
because of its good will and good reputation must protect and defend the same against
any unwarranted suit such as the case at bench."33 In holding that BPI is entitled to
moral damages, the Court of Appeals relied on the case of People v. Manero,34
wherein the Court ruled that "[i]t is only when a juridical person has a good reputation
that is debased, resulting in social humiliation, that moral damages may be
awarded."35
We do not agree with the Court of Appeals. A statement similar to that made by the
Court in Manero can be found in the case of Mambulao Lumber Co. v. PNB, et al.,36
thus:
x x x Obviously, an artificial person like herein appellant corporation cannot experience
physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral
shock or social humiliation which are basis of moral damages. A corporation may have
good reputation which, if besmirched may also be a ground for the award of moral
damages. x x x (Emphasis supplied)
Nevertheless, in the more recent cases of ABS-CBN Corp. v. Court of Appeals, et al.,37
and Filipinas Broadcasting Network, Inc. v. Ago Medical and Educational Center-Bicol
Christian College of Medicine (AMEC-BCCM),38 the Court held that the statements in
Manero and Mambulao were mere obiter dicta, implying that the award of moral
damages to corporations is not a hard and fast rule. Indeed, while the Court may allow
the grant of moral damages to corporations, it is not automatically granted; there must
still be proof of the existence of the factual basis of the damage and its causal relation
to the defendants acts. This is so because moral damages, though incapable of
pecuniary estimation, are in the category of an award designed to compensate the
claimant for actual injury suffered and not to impose a penalty on the wrongdoer.39
The spouses complaint against BPI proved to be unfounded, but it does not
automatically entitle BPI to moral damages. Although the institution of a clearly
unfounded civil suit can at times be a legal

justification for an award of attorney's fees, such filing, however, has almost invariably
been held not to be a ground for an award of moral damages. The rationale for the rule
is that the law could not have meant to impose a penalty on the right to litigate.
Otherwise, moral damages must every time be awarded in favor of the prevailing
defendant against an unsuccessful plaintiff.40 BPI may have been inconvenienced by
the suit, but we do not see how it could have possibly suffered besmirched reputation
on account of the single suit alone. Hence, the award of moral damages should be
deleted.
The awards of exemplary damages and attorneys fees, however, are proper.
Exemplary damages, on the other hand, are imposed by way of example or correction
for the public good, when the party to a contract acts in a wanton, fraudulent,
oppressive or malevolent manner, while attorneys fees are allowed when exemplary
damages are awarded and when the party to a suit is compelled to incur expenses to
protect his interest.41 The spouses instituted their complaint against BPI
notwithstanding the fact that they were the ones who failed to pay their obligations.
Consequently, BPI was forced to litigate and defend its interest. For these reasons, BPI
is entitled to the awards of exemplary damages and attorneys fees.
WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of
Appeals dated 24 October 2005 and 31 March 2006, respectively, are hereby
AFFIRMED, with the MODIFICATION that the award of moral damages to Bank of the
Philippine Islands is DELETED.
Costs against the petitioners.
SO ORDERED.
DANTE O. TINGA
Associate Justice