[THEORIES IN THE FORMATION OF A CORPORATION]

G.R. No. L-23145 November 29, 1968

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary administrator-
appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.

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 challenged order 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 appellant's 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 domiciary 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 wilful
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 wilful 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 decedent's
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 administrator's 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 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 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." 19Dean Pound's 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 Gierke's genossenchaft 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 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 right. 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
proceedings 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 the U.S. Veterans' Administrator final and conclusive when made on claims property
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."

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 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 oppositor-appelant Benguet Consolidated,
Inc.
G.R. No. L-17295 July 30, 1962

ANG PUE & COMPANY, ET AL., plaintiffs-appellants,

vs.
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 Article of Co-partnership."

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.

On April 15, 1958 — prior to the expiration of the five-year term of the partnership Ang Pue & Company,
but after the enactment of the Republic Act 1180, the partners already mentioned amended the
original articles of part ownership (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 partnership already existing at the time of the enactment of the law is
clearly showing by its provision giving them the right to continue engaging in their retail business until the
expiration of their term or 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 be 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 contain
therein must be deemed subject to the law existing at the time when the partners came 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.

 [CORPORATION AS A CREATURE OF LAW]

G.R. Nos. 84132-33 December 10, 1990

NATIONAL DEVELOPMENT COMPANY AND NEW AGRIX, INC., Petitioners, vs. PHILIPPINE VETERANS BANK,
THE EX-OFFICIO SHERIFF and GODOFREDO QUILING, in his capacity as Deputy Sheriff of Calamba,
Laguna, Respondents.

This case involves the constitutionality of a presidential decree which, like all other issuances of President
Marcos during his regime, was at that time regarded as sacrosanct. It is only now, in a freer atmosphere,
that his acts are being tested by the touchstone of the fundamental law that even then was supposed
to limit presidential action.: rd

The particular enactment in question is Pres. Decree No. 1717, which ordered the rehabilitation of the
Agrix Group of Companies to be administered mainly by the National Development Company. The law
outlined the procedure for filing claims against the Agrix companies and created a Claims Committee
to process these claims. Especially relevant to this case, and noted at the outset, is Sec. 4(1) thereof
providing that "all mortgages and other liens presently attaching to any of the assets of the dissolved
corporations are hereby extinguished."

Earlier, the Agrix Marketing, Inc. (AGRIX) had executed in favor of private respondent Philippine
Veterans Bank a real estate mortgage dated July 7, 1978, over three (3) parcels of land situated in Los
Baños, Laguna. During the existence of the mortgage, AGRIX went bankrupt. It was for the expressed
purpose of salvaging this and the other Agrix companies that the aforementioned decree was issued by
President Marcos.

Pursuant thereto, the private respondent filed a claim with the AGRIX Claims Committee for the
payment of its loan credit. In the meantime, the New Agrix, Inc. and the National Development
Company, petitioners herein, invoking Sec. 4 (1) of the decree, filed a petition with the Regional Trial
Court of Calamba, Laguna, for the cancellation of the mortgage lien in favor of the private respondent.
For its part, the private respondent took steps to extrajudicially foreclose the mortgage, prompting the
petitioners to file a second case with the same court to stop the foreclosure. The two cases were
consolidated.

After the submission by the parties of their respective pleadings, the trial court rendered the impugned
decision. Judge Francisco Ma. Guerrero annulled not only the challenged provision, viz., Sec. 4 (1), but
the entire Pres. Decree No. 1717 on the grounds that: (1) the presidential exercise of legislative power
was a violation of the principle of separation of powers; (2) the law impaired the obligation of contracts;
and (3) the decree violated the equal protection clause. The motion for reconsideration of this decision
having been denied, the present petition was filed.: rd

The petition was originally assigned to the Third Division of this Court but because of the constitutional
questions involved it was transferred to the Court en banc. On August 30, 1988, the Court granted the
petitioner's prayer for a temporary restraining order and instructed the respondents to cease and desist
from conducting a public auction sale of the lands in question. After the Solicitor General and the
private respondent had filed their comments and the petitioners their reply, the Court gave due course
to the petition and ordered the parties to file simultaneous memoranda. Upon compliance by the
parties, the case was deemed submitted.

The petitioners contend that the private respondent is now estopped from contesting the validity of the
decree. In support of this contention, it cites the recent case of Mendoza v. Agrix Marketing, Inc., 1
where the constitutionality of Pres. Decree No. 1717 was also raised but not resolved. The Court, after
noting that the petitioners had already filed their claims with the AGRIX Claims Committee created by
the decree, had simply dismissed the petition on the ground of estoppel.

The petitioners stress that in the case at bar the private respondent also invoked the provisions of Pres.
Decree No. 1717 by filing a claim with the AGRIX Claims Committee. Failing to get results, it sought to
foreclose the real estate mortgage executed by AGRIX in its favor, which had been extinguished by the
decree. It was only when the petitioners challenged the foreclosure on the basis of Sec. 4 (1) of the
decree, that the private respondent attacked the validity of the provision. At that stage, however,
consistent with Mendoza, the private respondent was already estopped from questioning the
constitutionality of the decree.

The Court does not agree that the principle of estoppel is applicable.

It is not denied that the private respondent did file a claim with the AGRIX Claims Committee pursuant
to this decree. It must be noted, however, that this was done in 1980, when President Marcos was the
absolute ruler of this country and his decrees were the absolute law. Any judicial challenge to them
would have been futile, not to say foolhardy. The private respondent, no less than the rest of the nation,
was aware of that reality and knew it had no choice under the circumstances but to conform.: nad
It is true that there were a few venturesome souls who dared to question the dictator's decisions before
the courts of justice then. The record will show, however, that not a single act or issuance of President
Marcos was ever declared unconstitutional, not even by the highest court, as long as he was in power.
To rule now that the private respondent is estopped for having abided with the decree instead of boldly
assailing it is to close our eyes to a cynical fact of life during that repressive time.

This case must be distinguished from Mendoza, where the petitioners, after filing their claims with the
AGRIX Claims Committee, received in settlement thereof shares of stock valued at P40,000.00 without
protest or reservation. The herein private respondent has not been paid a single centavo on its claim,
which was kept pending for more than seven years for alleged lack of supporting papers. Significantly,
the validity of that claim was not questioned by the petitioner when it sought to restrain the extrajudicial
foreclosure of the mortgage by the private respondent. The petitioner limited itself to the argument that
the private respondent was estopped from questioning the decree because of its earlier compliance
with its provisions.

Independently of these observations, there is the consideration that an affront to the Constitution
cannot be allowed to continue existing simply because of procedural inhibitions that exalt form over
substance.

The Court is especially disturbed by Section 4(1) of the decree, quoted above, extinguishing all
mortgages and other liens attaching to the assets of AGRIX. It also notes, with equal concern, the
restriction in Subsection (ii) thereof that all "unsecured obligations shall not bear interest" and in
Subsection (iii) that "all accrued interests, penalties or charges as of date hereof pertaining to the
obligations, whether secured or unsecured, shall not be recognized."

These provisions must be read with the Bill of Rights, where it is clearly provided in Section 1 that "no
person shall be deprived of life, liberty or property without due course of law nor shall any person be
denied the equal protection of the law" and in Section 10 that "no law impairing the obligation of
contracts shall be passed."

In defending the decree, the petitioners argue that property rights, like all rights, are subject to
regulation under the police power for the promotion of the common welfare. The contention is that this
inherent power of the state may be exercised at any time for this purpose so long as the taking of the
property right, even if based on contract, is done with due process of law.

This argument is an over-simplification of the problem before us. The police power is not a panacea for
all constitutional maladies. Neither does its mere invocation conjure an instant and automatic
justification for every act of the government depriving a person of his life, liberty or property.

A legislative act based on the police power requires the concurrence of a lawful subject and a lawful
method. In more familiar words, a) the interests of the public generally, as distinguished from those of a
particular class, should justify the interference of the state; and b) the means employed are reasonably
necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. 2

Applying these criteria to the case at bar, the Court finds first of all that the interests of the public are not
sufficiently involved to warrant the interference of the government with the private contracts of AGRIX.
The decree speaks vaguely of the "public, particularly the small investors," who would be prejudiced if
the corporation were not to be assisted. However, the record does not state how many there are of
such investors, and who they are, and why they are being preferred to the private respondent and
other creditors of AGRIX with vested property rights.:-cralaw

The public interest supposedly involved is not identified or explained. It has not been shown that by the
creation of the New Agrix, Inc. and the extinction of the property rights of the creditors of AGRIX, the
interests of the public as a whole, as distinguished from those of a particular class, would be promoted
or protected. The indispensable link to the welfare of the greater number has not been established. On
the contrary, it would appear that the decree was issued only to favor a special group of investors who,
for reasons not given, have been preferred to the legitimate creditors of AGRIX.

Assuming there is a valid public interest involved, the Court still finds that the means employed to
rehabilitate AGRIX fall far short of the requirement that they shall not be unduly oppressive. The
oppressiveness is patent on the face of the decree. The right to property in all mortgages, liens, interests,
penalties and charges owing to the creditors of AGRIX is arbitrarily destroyed. No consideration is paid
for the extinction of the mortgage rights. The accrued interests and other charges are simply rejected
by the decree. The right to property is dissolved by legislative fiat without regard to the private interest
violated and, worse, in favor of another private interest.

A mortgage lien is a property right derived from contract and so comes under the protection of the Bill
of Rights. So do interests on loans, as well as penalties and charges, which are also vested rights once
they accrue. Private property cannot simply be taken by law from one person and given to another
without compensation and any known public purpose. This is plain arbitrariness and is not permitted
under the Constitution.
And not only is there arbitrary taking, there is discrimination as well. In extinguishing the mortgage and
other liens, the decree lumps the secured creditors with the unsecured creditors and places them on
the same level in the prosecution of their respective claims. In this respect, all of them are considered
unsecured creditors. The only concession given to the secured creditors is that their loans are allowed to
earn interest from the date of the decree, but that still does not justify the cancellation of the interests
earned before that date. Such interests, whether due to the secured or the unsecured creditors, are all
extinguished by the decree. Even assuming such cancellation to be valid, we still cannot see why all
kinds of creditors, regardless of security, are treated alike.

Under the equal protection clause, all persons or things similarly situated must be treated alike, both in
the privileges conferred and the obligations imposed. Conversely, all persons or things differently
situated should be treated differently. In the case at bar, persons differently situated are similarly
treated, in disregard of the principle that there should be equality only among equals.- nad

One may also well wonder why AGRIX was singled out for government help, among other corporations
where the stockholders or investors were also swindled. It is not clear why other companies entitled to
similar concern were not similarly treated. And surely, the stockholders of the private respondent, whose
mortgage lien had been cancelled and legitimate claims to accrued interests rejected, were no less
deserving of protection, which they did not get. The decree operated, to use the words of a celebrated
case, 3 "with an evil eye and an uneven hand."

On top of all this, New Agrix, Inc. was created by special decree notwithstanding the provision of Article
XIV, Section 4 of the 1973 Constitution, then in force, that:

SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the formation,
organization, or regulation of private corporations, unless such corporations are owned or controlled by
the Government or any subdivision or instrumentality thereof. 4

The new corporation is neither owned nor controlled by the government. The National Development
Corporation was merely required to extend a loan of not more than P10,000,000.00 to New Agrix, Inc.
Pending payment thereof, NDC would undertake the management of the corporation, but with the
obligation of making periodic reports to the Agrix board of directors. After payment of the loan, the said
board can then appoint its own management. The stocks of the new corporation are to be issued to
the old investors and stockholders of AGRIX upon proof of their claims against the abolished
corporation. They shall then be the owners of the new corporation. New Agrix, Inc. is entirely private and
so should have been organized under the Corporation Law in accordance with the above-cited
constitutional provision.

The Court also feels that the decree impairs the obligation of the contract between AGRIX and the
private respondent without justification. While it is true that the police power is superior to the
impairment clause, the principle will apply only where the contract is so related to the public welfare
that it will be considered congenitally susceptible to change by the legislature in the interest of the
greater number. 5 Most present-day contracts are of that nature. But as already observed, the
contracts of loan and mortgage executed by AGRIX are purely private transactions and have not been
shown to be affected with public interest. There was therefore no warrant to amend their provisions and
deprive the private respondent of its vested property rights.

It is worth noting that only recently in the case of the Development Bank of the Philippines v. NLRC, 6 we
sustained the preference in payment of a mortgage creditor as against the argument that the claims of
laborers should take precedence over all other claims, including those of the government. In arriving at
this ruling, the Court recognized the mortgage lien as a property right protected by the due process
and contract clauses notwithstanding the argument that the amendment in Section 110 of the Labor
Code was a proper exercise of the police power.: nad

The Court reaffirms and applies that ruling in the case at bar.

Our finding, in sum, is that Pres. Decree No. 1717 is an invalid exercise of the police power, not being in
conformity with the traditional requirements of a lawful subject and a lawful method. The extinction of
the mortgage and other liens and of the interest and other charges pertaining to the legitimate
creditors of AGRIX constitutes taking without due process of law, and this is compounded by the
reduction of the secured creditors to the category of unsecured creditors in violation of the equal
protection clause. Moreover, the new corporation, being neither owned nor controlled by the
Government, should have been created only by general and not special law. And insofar as the
decree also interferes with purely private agreements without any demonstrated connection with the
public interest, there is likewise an impairment of the obligation of the contract.

With the above pronouncements, we feel there is no more need to rule on the authority of President
Marcos to promulgate Pres. Decree No. 1717 under Amendment No. 6 of the 1973 Constitution. Even if
he had such authority, the decree must fall just the same because of its violation of the Bill of Rights.

WHEREFORE, the petition is DISMISSED. Pres. Decree No. 1717 is declared UNCONSTITUTIONAL. The
temporary restraining order dated August 30, 1988, is LIFTED. Costs against the petitioners. SO ORDERED.
G.R. No. L-19891 July 31, 1964

J.R.S. BUSINESS CORPORATION, J.R. DA SILVA and A.J. BELTRAN, petitioners,

vs.
IMPERIAL INSURANCE, INC., MACARIO M. OFILADA, Sheriff of Manila and
HON. AGUSTIN MONTESA, Judge of the Court of First Instance of Manila, respondents.

Petitioner J. R. Da Silva, is the President of the J.R.S. Business Corporation, an establishment duly
franchised by the Congress of the Philippines, to conduct a messenger and delivery express service. On
July 12, 1961, the respondent Imperial Insurance, Inc., presented with the CFI of Manila a complaint (Civ.
Case No. 47520), for sum of money against the petitioner corporation. After the defendants therein
have submitted their Answer, the parties entered into a Compromise Agreement, assisted by their
respective counsels, the pertinent portions of which recite:

1) WHEREAS, the DEFENDANTS admit and confess their joint and solidary indebtedness to the PLAINTIFF in
the full sum of PESOS SIXTY ONE THOUSAND ONE HUNDRED SEVENTY-TWO & 32/100 (P61,172.32),
Philippine Currency, itemized as follows:

a) Principal P50,000.00

b) Interest at 12% per annum 5,706.14

c) Liquidated damages at 7% per annum 3,330.58

d) Costs of suit 135.60

e) Attorney's fees 2,000.00

2) WHEREAS, the DEFENDANTS bind themselves, jointly and severally, and hereby promise to pay their
aforementioned obligation to the PLAINTIFF at its business address at 301-305 Banquero St., (Ground
Floor), Regina Building, Escolta, Manila, within sixty (60) days from March 16, 1962 or on or before May
14, 1962;

3) WHEREAS, in the event the DEFENDANTS FAIL to pay in full the total amount of PESOS SIXTY ONE
THOUSAND ONE HUNDRED SEVENTY TWO & 32/100 (P61,172.32), Philippine Currency, for any reason
whatsoever, on May 14, 1962, the PLAINTIFF shall be entitled, as a matter of right, to move for the
execution of the decision to be rendered in the above-entitled case by this Honorable Court based on
this COMPROMISE AGREEMENT.

On March 17, 1962, the lower court rendered judgment embodying the contents of the said
compromise agreement, the dispositive portion of which reads —

WHEREFORE, the Court hereby approves the above-quoted compromise agreement and renders
judgment in accordance therewith, enjoining the parties to comply faithfully and strictly with the terms
and conditions thereof, without special pronouncement as to costs.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove
their case not covered by this stipulation of facts. 1äwphï1.ñët

On May 15, 1962, one day after the date fixed in the compromise agreement, within which the
judgment debt would be paid, but was not, respondent Imperial Insurance Inc., filed a "Motion for the
Insurance of a Writ of Execution". On May 23, 1962, a Writ of Execution was issued by respondent Sheriff
of Manila and on May 26, 1962, Notices of Sale were sent out for the auction of the personal properties
of the petitioner J.R.S. Business Corporation. On June 2, 1962, a Notice of Sale of the "whole capital
stocks of the defendants JRS Business Corporation, the business name, right of operation, the whole
assets, furnitures and equipments, the total liabilities, and Net Worth, books of accounts, etc., etc." of
the petitioner corporation was, handed down. On June 9, the petitioner, thru counsel, presented an
"Urgent Petition for Postponement of Auction Sale and for Release of Levy on the Business Name and
Right to Operate of Defendant JRS Business Corporation", stating that petitioners were busy negotiating
for a loan with which to pay the judgment debt; that the judgment was for money only and, therefore,
plaintiff (respondent Insurance Company) was not authorized to take over and appropriate for its own
use, the business name of the defendants; that the right to operate under the franchise, was not
transferable and could not be considered a personal or immovable, property, subject to levy and sale.
On June 10, 1962, a Supplemental Motion for Release of Execution, was filed by counsel of petitioner JRS
Business Corporation, claiming that the capital stocks thereof, could not be levied upon and sold under
execution. Under date of June 20, 1962, petitioner's counsel presented a pleading captioned "Very
Urgent Motion for Postponement of Public Auction Sale and for Ruling on Motion for Release of Levy on
the Business Name, Right to Operate and Capital Stocks of JRS Business Corporation". The auction sale
was set for June 21, 1962. In said motion, petitioners alleged that the loan they had applied for, was to
be secured within the next ten (10) days, and they would be able to discharge the judgment debt.
Respondents opposed the said motion and on June 21, 1962, the lower court denied the motion for
postponement of the auction sale.

In the sale which was conducted in the premises of the JRS Business Corporation at 1341 Perez St., Paco,
Manila, all the properties of said corporation contained in the Notices of Sale dated May 26, 1962, and
June 2, 1962 (the latter notice being for the whole capital stocks of the defendant, JRS Business
Corporation, the business name, right of operation, the whole assets, furnitures and equipments, the
total liabilities and Net Worth, books of accounts, etc., etc.), were bought by respondent Imperial
Insurance, Inc., for P10,000.00, which was the highest bid offered. Immediately after the sale,
respondent Insurance Company took possession of the proper ties and started running the affairs and
operating the business of the JRS Business Corporation. Hence, the present appeal.

It would seem that the matters which need determination are (1) whether the respondent Judge acted
without or in excess of his jurisdiction or with grave abuse of discretion in promulgating the Order of June
21, 1962, denying the motion for postponement of the scheduled sale at public auction, of the
properties of petitioner; and (2) whether the business name or trade name, franchise (right to operate)
and capital stocks of the petitioner are properties or property rights which could be the subject of levy,
execution and sale.

The respondent Court's act of postponing the scheduled sale was within the discretion of respondent
Judge, the exercise of which, one way or the other, did not constitute grave abuse of discretion and/or
excess of jurisdiction. There was a decision rendered and the corresponding writ of execution was
issued. Respondent Judge had jurisdiction over the matter and erroneous conclusions of law or fact, if
any, committed in the exercise of such jurisdiction are merely errors of judgment, not correctible
by certiorari (Villa Rey Transit v. Bello, et al., L-18957, April 23, 1963, and cases cited therein.)

The corporation law, on forced sale of franchises, provides —

Any franchise granted to a corporation to collect tolls or to occupy, enjoy, or use public property or any
portion of the public domain or any right of way over public property or the public domain, and any
rights and privileges acquired under such franchise may be levied upon and sold under execution,
together with the property necessary for the enjoyment, the exercise of the powers, and the receipt of
the proceeds of such franchise or right of way, in the same manner and with like effect as any other
property to satisfy any judgment against the corporation: Provided, That the sale of the franchise or right
of way and the property necessary for the enjoyment, the exercise of the powers, and the receipt of
the proceeds of said franchise or right of way is especially decreed and ordered in the judgment: And
provided, further, That the sale shall not become effective until confirmed by the court after due notice.
(Sec. 56, Corporation Law.)

In the case of Gulf Refining Co. v. Cleveland Trust Co., 108 So., 158, it was held —

The first question then for decision is the meaning of the word "franchise" in the statute.

"A franchise is a special privilege conferred by governmental authority, and which does not belong to
citizens of the country generally as a matter of common right. ... Its meaning depends more or less upon
the connection in which the word is employed and the property and corporation to which it is applied.
It may have different significations.

"For practical purposes, franchises, so far as relating to corporations, are divisible into (1) corporate or
general franchises; and (2) special or secondary franchises. The former is the franchise to exist as a
corporation, while the latter are certain rights and privileges conferred upon existing corporations, such
as the right to use the streets of a municipality to lay pipes or tracks, erect poles or string wires." 2
Fletcher's Cyclopedia Corp. See. 1148; 14 C.J. p. 160; Adams v. Yazon & M. V. R. Co., 24 So. 200, 317, 28
So. 956, 77 Miss. 253, 60 L.R.A. 33 et seq.

The primary franchise of a corporation that is, the right to exist as such, is vested "in the individuals who
compose the corporation and not in the corporation itself" (14 C.J. pp. 160, 161; Adams v.
Railroad, supra; 2 Fletcher's Cyclopedia Corp. Secs. 1153, 1158; 3 Thompson on Corporations 2d Ed.]
Secs. 2863, 2864), and cannot be conveyed in the absence of a legislative authority so to do (14A CJ.
543, 577; 1 Fletcher's Cyc. Corp. Sec. 1224; Memphis & L.R.R. Co. v. Berry 5 S. Ct. 299, 112 U.S. 609, 28
L.E.d. 837; Vicksburg Waterworks Co. v. Vicksburg, 26 S. Ct. 660, 202 U.S. 453, 50 L.E.d. 1102, 6 Ann. Cas.
253; Arthur v. Commercial & Railroad Bank, 9 Smedes & M. 394, 48 Am. Dec. 719), but the specify or
secondary franchises of a corporation are vested in the corporation and may ordinarily be conveyed or
mortgaged under a general power granted to a corporation to dispose of its property (Adams v.
Railroad, supra; 14A C.J. 542, 557; 3 Thompson on Corp. [2nd Ed.] Sec. 2909), except such special or
secondary franchises as are charged with a public use (2 Fletcher's Cyc. Corp. see. 1225; 14A C.J. 544; 3
Thompson on Corp. [2d Ed.] sec. 2908; Arthur v. Commercial & R.R. Bank, supra; McAllister v. Plant, 54
Miss. 106).
The right to operate a messenger and express delivery service, by virtue of a legislative enactment, is
admittedly a secondary franchise (R.A. No. 3260, entitled "An Act granting the JRS Business Corporation
a franchise to conduct a messenger and express service)" and, as such, under our corporation law, is
subject to levy and sale on execution together and including all the property necessary for the
enjoyment thereof. The law, however, indicates the procedure under which the same (secondary
franchise and the properties necessary for its enjoyment) may be sold under execution. Said franchise
can be sold under execution, when such sale is especially decreed and ordered in the judgment and it
becomes effective only when the sale is confirmed by the Court after due notice (Sec. 56, Corp. Law).
The compromise agreement and the judgment based thereon, do not contain any special decree or
order making the franchise answerable for the judgment debt. The same thing may be stated with
respect to petitioner's trade name or business name and its capital stock. Incidentally, the trade name
or business name corresponds to the initials of the President of the petitioner corporation and there can
be no serious dispute regarding the fact that a trade name or business name and capital stock are
necessarily included in the enjoyment of the franchise. Like that of a franchise, the law mandates, that
property necessary for the enjoyment of said franchise, can only be sold to satisfy a judgment debt if
the decision especially so provides. As We have stated heretofore, no such directive appears in the
decision. Moreover, a trade name or business name cannot be sold separately from the franchise, and
the capital stock of the petitioner corporation or any other corporation, for the matter, represents the
interest and is the property of stockholders in the corporation, who can only be deprived thereof in the
manner provided by law (Therbee v. Baker, 35 N.E. Eq. [8 Stew.] 501, 505; In re Wells' Estate, 144 N.W.
174, 177, Wis. 294, cited in 6 Words and Phrases, 109).

It, therefore, results that the inclusion of the franchise, the trade name and/or business name and the
capital stock of the petitioner corporation, in the sale of the properties of the JRS Business Corporation,
has no justification. The sale of the properties of petitioner corporation is set aside, in so far as it
authorizes the levy and sale of its franchise, trade name and capital stocks. Without pronouncement as
to costs.
G.R. No. 15574 September 17, 1919

[DUE PROCESS & EQUAL PROTECTION]

SMITH, BELL & COMPANY (LTD.), petitioner,

vs.
JOAQUIN NATIVIDAD, Collector of Customs of the port of Cebu, respondent.

A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin Natividad, Collector of
Customs of the port of Cebu, Philippine Islands, to compel him to issue a certificate of Philippine registry
to the petitioner for its motor vessel Bato. The Attorney-General, acting as counsel for respondent,
demurs to the petition on the general ground that it does not state facts sufficient to constitute a cause
of action. While the facts are thus admitted, and while, moreover, the pertinent provisions of law are
clear and understandable, and interpretative American jurisprudence is found in abundance, yet the
issue submitted is not lightly to be resolved. The question, flatly presented, is, whether Act. No. 2761 of
the Philippine Legislature is valid — or, more directly stated, whether the Government of the Philippine
Islands, through its Legislature, can deny the registry of vessels in its coastwise trade to corporations
having alien stockholders.

FACTS.

Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands. A
majority of its stockholders are British subjects. It is the owner of a motor vessel known as the Bato built for
it in the Philippine Islands in 1916, of more than fifteen tons gross The Bato was brought to Cebu in the
present year for the purpose of transporting plaintiff's merchandise between ports in the Islands.
Application was made at Cebu, the home port of the vessel, to the Collector of Customs for a
certificate of Philippine registry. The Collector refused to issue the certificate, giving as his reason that all
the stockholders of Smith, Bell & Co., Ltd., were not citizens either of the United States or of the Philippine
Islands. The instant action is the result.

LAW.

The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30, 1906 but reenacting a
portion of section 3 of this Law, and still in force, provides in its section 1:

That until Congress shall have authorized the registry as vessels of the United States of vessels owned in
the Philippine Islands, the Government of the Philippine Islands is hereby authorized to adopt, from time
to time, and enforce regulations governing the transportation of merchandise and passengers between
ports or places in the Philippine Archipelago. (35 Stat. at L., 70; Section 3912, U. S. Comp Stat. [1916]; 7
Pub. Laws, 364.)

The Act of Congress of August 29, 1916, commonly known as the Jones Law, still in force, provides in
section 3, (first paragraph, first sentence), 6, 7, 8, 10, and 31, as follows.

SEC. 3. That no law shall be enacted in said Islands which shall deprive any person of life, liberty, or
property without due process of law, or deny to any person therein the equal protection of the laws. . . .

SEC. 6. That the laws now in force in the Philippines shall continue in force and effect, except as altered,
amended, or modified herein, until altered, amended, or repealed by the legislative authority herein
provided or by Act of Congress of the United States.

SEC. 7. That the legislative authority herein provided shall have power, when not inconsistent with this
Act, by due enactment to amend, alter modify, or repeal any law, civil or criminal, continued in force
by this Act as it may from time to time see fit

This power shall specifically extend with the limitation herein provided as to the tariff to all laws relating
to revenue provided as to the tariff to all laws relating to revenue and taxation in effect in the
Philippines.

SEC. 8. That general legislative power, except as otherwise herein provided, is hereby granted to the
Philippine Legislature, authorized by this Act.

SEC. 10. That while this Act provides that the Philippine government shall have the authority to enact a
tariff law the trade relations between the islands and the United States shall continue to be governed
exclusively by laws of the Congress of the United States: Provided, That tariff acts or acts amendatory to
the tariff of the Philippine Islands shall not become law until they shall receive the approval of the
President of the United States, nor shall any act of the Philippine Legislature affecting immigration or the
currency or coinage laws of the Philippines become a law until it has been approved by the President
of the United States: Provided further, That the President shall approve or disapprove any act mentioned
in the foregoing proviso within six months from and after its enactment and submission for his approval,
and if not disapproved within such time it shall become a law the same as if it had been specifically
approved.
SEC. 31. That all laws or parts of laws applicable to the Philippines not in conflict with any of the
provisions of this Act are hereby continued in force and effect." (39 Stat at L., 546.)

On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first section of this law
amended section 1172 of the Administrative Code to read as follows:

SEC. 1172. Certificate of Philippine register. — Upon registration of a vessel of domestic ownership, and
of more than fifteen tons gross, a certificate of Philippine register shall be issued for it. If the vessel is of
domestic ownership and of fifteen tons gross or less, the taking of the certificate of Philippine register
shall be optional with the owner.

"Domestic ownership," as used in this section, means ownership vested in some one or more of the
following classes of persons: (a) Citizens or native inhabitants of the Philippine Islands; (b) citizens of the
United States residing in the Philippine Islands; (c) any corporation or company composed wholly of
citizens of the Philippine Islands or of the United States or of both, created under the laws of the United
States, or of any State thereof, or of thereof, or the managing agent or master of the vessel resides in the
Philippine Islands

Any vessel of more than fifteen gross tons which on February eighth, nineteen hundred and eighteen,
had a certificate of Philippine register under existing law, shall likewise be deemed a vessel of domestic
ownership so long as there shall not be any change in the ownership thereof nor any transfer of stock of
the companies or corporations owning such vessel to person not included under the last preceding
paragraph.

Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the Administrative Code to read
as follows:

SEC. 1176. Investigation into character of vessel. — No application for a certificate of Philippine register
shall be approved until the collector of customs is satisfied from an inspection of the vessel that it is
engaged or destined to be engaged in legitimate trade and that it is of domestic ownership as such
ownership is defined in section eleven hundred and seventy-two of this Code.

The collector of customs may at any time inspect a vessel or examine its owner, master, crew, or
passengers in order to ascertain whether the vessel is engaged in legitimate trade and is entitled to
have or retain the certificate of Philippine register.

SEC. 1202. Limiting number of foreign officers and engineers on board vessels. — No Philippine vessel
operating in the coastwise trade or on the high seas shall be permitted to have on board more than
one master or one mate and one engineer who are not citizens of the United States or of the Philippine
Islands, even if they hold licenses under section one thousand one hundred and ninety-nine hereof. No
other person who is not a citizen of the United States or of the Philippine Islands shall be an officer or a
member of the crew of such vessel. Any such vessel which fails to comply with the terms of this section
shall be required to pay an additional tonnage tax of fifty centavos per net ton per month during the
continuance of said failure.

ISSUES.

Predicated on these facts and provisions of law, the issues as above stated recur, namely, whether Act
No 2761 of the Philippine Legislature is valid in whole or in part — whether the Government of the
Philippine Islands, through its Legislature, can deny the registry of vessel in its coastwise trade to
corporations having alien stockholders .

OPINION.

1. Considered from a positive standpoint, there can exist no measure of doubt as to the power of the
Philippine Legislature to enact Act No. 2761. The Act of Congress of April 29, 1908, with its specific
delegation of authority to the Government of the Philippine Islands to regulate the transportation of
merchandise and passengers between ports or places therein, the liberal construction given to the
provisions of the Philippine Bill, the Act of Congress of July 1, 1902, by the courts, and the grant by the
Act of Congress of August 29, 1916, of general legislative power to the Philippine Legislature, are
certainly superabundant authority for such a law. While the Act of the local legislature may in a way be
inconsistent with the Act of Congress regulating the coasting trade of the Continental United States, yet
the general rule that only such laws of the United States have force in the Philippines as are expressly
extended thereto, and the abnegation of power by Congress in favor of the Philippine Islands would
leave no starting point for convincing argument. As a matter of fact, counsel for petitioner does not
assail legislative action from this direction (See U. S. vs. Bull [1910], 15 Phil., 7; Sinnot vs. Davenport [1859]
22 How., 227.)

2. It is from the negative, prohibitory standpoint that counsel argues against the constitutionality of Act
No. 2761. The first paragraph of the Philippine Bill of Rights of the Philippine Bill, repeated again in the first
paragraph of the Philippine Bill of Rights as set forth in the Jones Law, provides "That no law shall be
enacted in said Islands which shall deprive any person of life, liberty, or property without due process of
law, or deny to any person therein the equal protection of the laws." Counsel says that Act No. 2761
denies to Smith, Bell & Co., Ltd., the equal protection of the laws because it, in effect, prohibits the
corporation from owning vessels, and because classification of corporations based on the citizenship of
one or more of their stockholders is capricious, and that Act No. 2761 deprives the corporation of its
properly without due process of law because by the passage of the law company was automatically
deprived of every beneficial attribute of ownership in the Bato and left with the naked title to a boat it
could not use .

The guaranties extended by the Congress of the United States to the Philippine Islands have been used
in the same sense as like provisions found in the United States Constitution. While the "due process of law
and equal protection of the laws" clause of the Philippine Bill of Rights is couched in slightly different
words than the corresponding clause of the Fourteenth Amendment to the United States Constitution,
the first should be interpreted and given the same force and effect as the latter. (Kepner vs. U.S. [1904],
195 U. S., 100; Sierra vs. Mortiga [1907], 204 U. S.,.470; U. S. vs. Bull [1910], 15 Phil., 7.) The meaning of the
Fourteenth Amendment has been announced in classic decisions of the United States Supreme Court.
Even at the expense of restating what is so well known, these basic principles must again be set down in
order to serve as the basis of this decision.

The guaranties of the Fourteenth Amendment and so of the first paragraph of the Philippine Bill of Rights,
are universal in their application to all person within the territorial jurisdiction, without regard to any
differences of race, color, or nationality. The word "person" includes aliens. (Yick Wo vs. Hopkins [1886],
118 U. S., 356; Truax vs. Raich [1915], 239 U. S., 33.) Private corporations, likewise, are "persons" within the
scope of the guaranties in so far as their property is concerned. (Santa Clara County vs. Southern Pac.
R. R. Co. [1886], 118.U. S., 394; Pembina Mining Co. vs. Pennsylvania [1888],.125 U. S., 181 Covington & L.
Turnpike Road Co. vs. Sandford [1896], 164 U. S., 578.) Classification with the end in view of providing
diversity of treatment may be made among corporations, but must be based upon some reasonable
ground and not be a mere arbitrary selection (Gulf, Colorado & Santa Fe Railway Co. vs. Ellis [1897],.165
U. S., 150.) Examples of laws held unconstitutional because of unlawful discrimination against aliens
could be cited. Generally, these decisions relate to statutes which had attempted arbitrarily to forbid
aliens to engage in ordinary kinds of business to earn their living. (State vs. Montgomery [1900], 94
Maine, 192, peddling — but see. Commonwealth vs. Hana [1907], 195 Mass., 262; Templar vs. Board of
Examiners of Barbers [1902], 131 Mich., 254, barbers; Yick Wo vs. Hopkins [1886], 118 U. S.,.356,
discrimination against Chinese; Truax vs. Raich [1915], 239 U. S., 33; In re Parrott [1880], 1 Fed , 481;
Fraser vs. McConway & Torley Co. [1897], 82 Fed , 257; Juniata Limestone Co. vs. Fagley [1898], 187
Penn., 193, all relating to the employment of aliens by private corporations.)

A literal application of general principles to the facts before us would, of course, cause the inevitable
deduction that Act No. 2761 is unconstitutional by reason of its denial to a corporation, some of whole
members are foreigners, of the equal protection of the laws. Like all beneficient propositions, deeper
research discloses provisos. Examples of a denial of rights to aliens notwithstanding the provisions of the
Fourteenth Amendment could be cited. (Tragesser vs.Gray [1890], 73 Md., 250, licenses to sell spirituous
liquors denied to persons not citizens of the United States; Commonwealth vs. Hana [1907], 195 Mass ,
262, excluding aliens from the right to peddle; Patsone vs.Commonwealth of Pennsylvania [1914], 232 U.
S. , 138, prohibiting the killing of any wild bird or animal by any unnaturalized foreign-born resident; Ex
parte Gilleti [1915], 70 Fla., 442, discriminating in favor of citizens with reference to the taking for private
use of the common property in fish and oysters found in the public waters of the State; Heim vs. McCall
[1915], 239 U. S.,.175, and Crane vs. New York [1915], 239 U. S., 195, limiting employment on public works
by, or for, the State or a municipality to citizens of the United States.)

One of the exceptions to the general rule, most persistent and far reaching in influence is, that neither
the Fourteenth Amendment to the United States Constitution, broad and comprehensive as it is, nor any
other amendment, "was designed to interfere with the power of the State, sometimes termed its `police
power,' to prescribe regulations to promote the health, peace, morals, education, and good order of
the people, and legislate so as to increase the industries of the State, develop its resources and add to
its wealth and prosperity. From the very necessities of society, legislation of a special character, having
these objects in view, must often be had in certain districts." (Barbier vs. Connolly [1884], 113 U.S., 27;
New Orleans Gas Co. vs. Lousiana Light Co. [1885], 115 U.S., 650.) This is the same police power which
the United States Supreme Court say "extends to so dealing with the conditions which exist in the state
as to bring out of them the greatest welfare in of its people." (Bacon vs.Walker [1907], 204 U.S., 311.) For
quite similar reasons, none of the provision of the Philippine Organic Law could could have had the
effect of denying to the Government of the Philippine Islands, acting through its Legislature, the right to
exercise that most essential, insistent, and illimitable of powers, the sovereign police power, in the
promotion of the general welfare and the public interest. (U. S. vs. Toribio [1910], 15 Phil., 85; Churchill
and Tait vs. Rafferty [1915], 32 Phil., 580; Rubi vs. Provincial Board of Mindoro [1919], 39 Phil., 660.)
Another notable exception permits of the regulation or distribution of the public domain or the common
property or resources of the people of the State, so that use may be limited to its citizens. (Ex parte Gilleti
[1915], 70 Fla., 442; McCready vs. Virginia [1876], 94 U. S., 391; Patsone vs. Commonwealth of
Pennsylvania [1914], 232U. S., 138.) Still another exception permits of the limitation of employment in the
construction of public works by, or for, the State or a municipality to citizens of the United States or of the
State. (Atkin vs. Kansas [1903],191 U. S., 207; Heim vs. McCall [1915], 239 U.S., 175; Crane vs. New York
[1915], 239 U. S., 195.) Even as to classification, it is admitted that a State may classify with reference to
the evil to be prevented; the question is a practical one, dependent upon experience.
(Patsone vs.Commonwealth of Pennsylvania [1914], 232 U. S., 138.)

To justify that portion of Act no. 2761 which permits corporations or companies to obtain a certificate of
Philippine registry only on condition that they be composed wholly of citizens of the Philippine Islands or
of the United States or both, as not infringing Philippine Organic Law, it must be done under some one
of the exceptions here mentioned This must be done, moreover, having particularly in mind what is so
often of controlling effect in this jurisdiction — our local experience and our peculiar local conditions.

To recall a few facts in geography, within the confines of Philippine jurisdictional limits are found more
than three thousand islands. Literally, and absolutely, steamship lines are, for an Insular territory thus
situated, the arteries of commerce. If one be severed, the life-blood of the nation is lost. If on the other
hand these arteries are protected, then the security of the country and the promotion of the general
welfare is sustained. Time and again, with such conditions confronting it, has the executive branch of
the Government of the Philippine Islands, always later with the sanction of the judicial branch, taken a
firm stand with reference to the presence of undesirable foreigners. The Government has thus assumed
to act for the all-sufficient and primitive reason of the benefit and protection of its own citizens and of
the self-preservation and integrity of its dominion. (In re Patterson [1902], 1 Phil., 93; Forbes vs.Chuoco,
Tiaco and Crossfield [1910], 16 Phil., 534;.228 U.S., 549; In re McCulloch Dick [1918], 38 Phil., 41.) Boats
owned by foreigners, particularly by such solid and reputable firms as the instant claimant, might indeed
traverse the waters of the Philippines for ages without doing any particular harm. Again, some
evilminded foreigner might very easily take advantage of such lavish hospitality to chart Philippine
waters, to obtain valuable information for unfriendly foreign powers, to stir up insurrection, or to
prejudice Filipino or American commerce. Moreover, under the Spanish portion of Philippine law, the
waters within the domestic jurisdiction are deemed part of the national domain, open to public use.
(Book II, Tit. IV, Ch. I, Civil Code; Spanish Law of Waters of August 3, 1866, arts 1, 2, 3.) Common carriers
which in the Philippines as in the United States and other countries are, as Lord Hale said, "affected with
a public interest," can only be permitted to use these public waters as a privilege and under such
conditions as to the representatives of the people may seem wise. (See De Villata vs. Stanley [1915], 32
Phil., 541.)

In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a case herein before mentioned,
Justice Holmes delivering the opinion of the United States Supreme Court said:

This statute makes it unlawful for any unnaturalized foreign-born resident to kill any wild bird or animal
except in defense of person or property, and `to that end' makes it unlawful for such foreign-born
person to own or be possessed of a shotgun or rifle; with a penalty of $25 and a forfeiture of the gun or
guns. The plaintiff in error was found guilty and was sentenced to pay the abovementioned fine. The
judgment was affirmed on successive appeals. (231 Pa., 46; 79 Atl., 928.) He brings the case to this court
on the ground that the statute is contrary to the 14th Amendment and also is in contravention of the
treaty between the United States and Italy, to which latter country the plaintiff in error belongs .

Under the 14th Amendment the objection is twofold; unjustifiably depriving the alien of property, and
discrimination against such aliens as a class. But the former really depends upon the latter, since it
hardly can be disputed that if the lawful object, the protection of wild life (Geer vs. Connecticut, 161
U.S., 519; 40 L. ed., 793; 16 Sup. Ct. Rep., 600), warrants the discrimination, the, means adopted for
making it effective also might be adopted. . . .

The discrimination undoubtedly presents a more difficult question. But we start with reference to the evil
to be prevented, and that if the class discriminated against is or reasonably might be considered to
define those from whom the evil mainly is to be feared, it properly may be picked out. A lack of
abstract symmetry does not matter. The question is a practical one, dependent upon experience. . . .

The question therefore narrows itself to whether this court can say that the legislature of Pennsylvania
was not warranted in assuming as its premise for the law that resident unnaturalized aliens were the
peculiar source of the evil that it desired to prevent. (Barrett vs. Indiana,. 229 U.S., 26, 29; 57 L. ed., 1050,
1052; 33 Sup. Ct. Rep., 692.)

Obviously the question, so stated, is one of local experience, on which this court ought to be very slow
to declare that the state legislature was wrong in its facts (Adams vs. Milwaukee, 228 U.S., 572, 583; 57 L.
ed., 971,.977; 33 Sup. Ct. Rep., 610.) If we might trust popular speech in some states it was right; but it is
enough that this court has no such knowledge of local conditions as to be able to say that it was
manifestly wrong. . . .

Judgment affirmed.

We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having alien stockholders, is
entitled to the protection afforded by the due-process of law and equal protection of the laws clause
of the Philippine Bill of Rights, nevertheless, Act No. 2761 of the Philippine Legislature, in denying to
corporations such as Smith, Bell &. Co. Ltd., the right to register vessels in the Philippines coastwise trade,
does not belong to that vicious species of class legislation which must always be condemned, but does
fall within authorized exceptions, notably, within the purview of the police power, and so does not
offend against the constitutional provision.

This opinion might well be brought to a close at this point. It occurs to us, however, that the legislative
history of the United States and the Philippine Islands, and, probably, the legislative history of other
countries, if we were to take the time to search it out, might disclose similar attempts at restriction on the
right to enter the coastwise trade, and might thus furnish valuable aid by which to ascertain and, if
possible, effectuate legislative intention.

3. The power to regulate commerce, expressly delegated to the Congress by the Constitution, includes
the power to nationalize ships built and owned in the United States by registries and enrollments, and
the recording of the muniments of title of American vessels. The Congress "may encourage or it may
entirely prohibit such commerce, and it may regulate in any way it may see fit between these two
extremes." (U.S. vs.Craig [1886], 28 Fed., 795; Gibbons vs. Ogden [1824], 9 Wheat., 1; The Passenger
Cases [1849], 7 How., 283.)

Acting within the purview of such power, the first Congress of the United States had not been long
convened before it enacted on September 1, 1789, "An Act for Registering and Clearing Vessels,
Regulating the Coasting Trade, and for other purposes." Section 1 of this law provided that for any ship
or vessel to obtain the benefits of American registry, it must belong wholly to a citizen or citizens of the
United States "and no other." (1 Stat. at L., 55.) That Act was shortly after repealed, but the same idea
was carried into the Acts of Congress of December 31, 1792 and February 18, 1793. (1 Stat. at L., 287,
305.).Section 4 of the Act of 1792 provided that in order to obtain the registry of any vessel, an oath shall
be taken and subscribed by the owner, or by one of the owners thereof, before the officer authorized
to make such registry, declaring, "that there is no subject or citizen of any foreign prince or state, directly
or indirectly, by way of trust, confidence, or otherwise, interested in such vessel, or in the profits or issues
thereof." Section 32 of the Act of 1793 even went so far as to say "that if any licensed ship or vessel shall
be transferred to any person who is not at the time of such transfer a citizen of and resident within the
United States, ... every such vessel with her tackle, apparel, and furniture, and the cargo found on
board her, shall be forefeited." In case of alienation to a foreigner, Chief Justice Marshall said that all the
privileges of an American bottom were ipso facto forfeited. (U.S. vs. Willings and Francis [1807], 4
Cranch, 48.) Even as late as 1873, the Attorney-General of the United States was of the opinion that
under the provisions of the Act of December 31, 1792, no vessel in which a foreigner is directly or
indirectly interested can lawfully be registered as a vessel of the United. States. (14 Op. Atty.-Gen. [U.S.],
340.)

These laws continued in force without contest, although possibly the Act of March 3, 1825, may have
affected them, until amended by the Act of May 28, 1896 (29 Stat. at L., 188) which extended the
privileges of registry from vessels wholly owned by a citizen or citizens of the United States to
corporations created under the laws of any of the states thereof. The law, as amended, made possible
the deduction that a vessel belonging to a domestic corporation was entitled to registry or enrollment
even though some stock of the company be owned by aliens. The right of ownership of stock in a
corporation was thereafter distinct from the right to hold the property by the corporation
(Humphreys vs. McKissock [1890], 140 U.S., 304; Queen vs. Arnaud [1846], 9 Q. B., 806; 29 Op. Atty.-Gen.
[U.S.],188.)

On American occupation of the Philippines, the new government found a substantive law in operation
in the Islands with a civil law history which it wisely continued in force Article fifteen of the Spanish Code
of Commerce permitted any foreigner to engage in Philippine trade if he had legal capacity to do so
under the laws of his nation. When the Philippine Commission came to enact the Customs
Administrative Act (No. 355) in 1902, it returned to the old American policy of limiting the protection and
flag of the United States to vessels owned by citizens of the United States or by native inhabitants of the
Philippine Islands (Sec. 117.) Two years later, the same body reverted to the existing Congressional law
by permitting certification to be issued to a citizen of the United States or to a corporation or company
created under the laws of the United States or of any state thereof or of the Philippine Islands (Act No.
1235, sec. 3.) The two administration codes repeated the same provisions with the necessary
amplification of inclusion of citizens or native inhabitants of the Philippine Islands (Adm. Code of 1916,
sec. 1345; Adm. Code of 1917, sec. 1172). And now Act No. 2761 has returned to the restrictive idea of
the original Customs Administrative Act which in turn was merely a reflection of the statutory language
of the first American Congress.

Provisions such as those in Act No. 2761, which deny to foreigners the right to a certificate of Philippine
registry, are thus found not to be as radical as a first reading would make them appear.

Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to be to enact an
anti-alien shipping act. The ultimate purpose of the Legislature is to encourage Philippine ship-building.
This, without doubt, has, likewise, been the intention of the United States Congress in passing navigation
or tariff laws on different occasions. The object of such a law, the United States Supreme Court once
said, was to encourage American trade, navigation, and ship-building by giving American ship-owners
exclusive privileges. (Old Dominion Steamship Co. vs.Virginia [1905], 198 U.S., 299; Kent's Commentaries,
Vol. 3, p. 139.)
In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824], 9 Wheat., 1) is found the
following:

Licensing acts, in fact, in legislation, are universally restraining acts; as, for example, acts licensing
gaming houses, retailers of spirituous liquors, etc. The act, in this instance, is distinctly of that character,
and forms part of an extensive system, the object of which is to encourage American shipping, and
place them on an equal footing with the shipping of other nations. Almost every commercial nation
reserves to its own subjects a monopoly of its coasting trade; and a countervailing privilege in favor of
American shipping is contemplated, in the whole legislation of the United States on this subject. It is not
to give the vessel an American character, that the license is granted; that effect has been correctly
attributed to the act of her enrollment. But it is to confer on her American privileges, as
contradistinguished from foreign; and to preserve the. Government from fraud by foreigners, in
surreptitiously intruding themselves into the American commercial marine, as well as frauds upon the
revenue in the trade coastwise, that this whole system is projected.

The United States Congress in assuming its grave responsibility of legislating wisely for a new country did
so imbued with a spirit of Americanism. Domestic navigation and trade, it decreed, could only be
carried on by citizens of the United States. If the representatives of the American people acted in this
patriotic manner to advance the national policy, and if their action was accepted without protest in
the courts, who can say that they did not enact such beneficial laws under the all-pervading police
power, with the prime motive of safeguarding the country and of promoting its prosperity? Quite
similarly, the Philippine Legislature made up entirely of Filipinos, representing the mandate of the Filipino
people and the guardian of their rights, acting under practically autonomous powers, and imbued with
a strong sense of Philippinism, has desired for these Islands safety from foreign interlopers, the use of the
common property exclusively by its citizens and the citizens of the United States, and protection for the
common good of the people. Who can say, therefore, especially can a court, that with all the facts
and circumstances affecting the Filipino people before it, the Philippine Legislature has erred in the
enactment of Act No. 2761?

Surely, the members of the judiciary are not expected to live apart from active life, in monastic seclusion
amidst dusty tomes and ancient records, but, as keen spectators of passing events and alive to the
dictates of the general — the national — welfare, can incline the scales of their decisions in favor of that
solution which will most effectively promote the public policy. All the presumption is in favor of the
constitutionally of the law and without good and strong reasons, courts should not attempt to nullify the
action of the Legislature. "In construing a statute enacted by the Philippine Commission (Legislature), we
deem it our duty not to give it a construction which would be repugnant to an Act of Congress, if the
language of the statute is fairly susceptible of another construction not in conflict with the higher law."
(In re Guariña [1913], 24. Phil., 36; U.S. vs. Ten Yu [1912], 24 Phil., 1.) That is the true construction which will
best carry legislative intention into effect.

With full consciousness of the importance of the question, we nevertheless are clearly of the opinion
that the limitation of domestic ownership for purposes of obtaining a certificate of Philippine registry in
the coastwise trade to citizens of the Philippine Islands, and to citizens of the United States, does not
violate the provisions of paragraph 1 of section 3 of the Act of Congress of August 29, 1916 No treaty
right relied upon Act No. 2761 of the Philippine Legislature is held valid and constitutional .

The petition for a writ of mandamus is denied, with costs against the petitioner. So ordered.
 [UNREASONABLE SEARCH & SEIZURE]

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

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

Upon application of the officers of the government named on the margin 1 — hereinafter referred to as
Respondents-Prosecutors — several judges2 — hereinafter referred to as Respondents-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 the any peace officer, to search the persons above-named
and/or the premises of their offices, warehouses and/or residences, and to seize and take possession of
the following personal property to wit:

Books of accounts, financial records, vouchers, correspondence, receipts, ledgers, journals, portfolios,
credit journals, typewriters, and other documents and/or papers showing all business transactions
including disbursements receipts, balance sheets and profit and loss statements and Bobbins (cigarette
wrappers).

as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense," or "used or
intended to be used as the means of committing the offense," which is described in the applications
adverted to above as "violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue
(Code) and the Revised Penal Code."

Alleging that the aforementioned search warrants are null and void, as contravening the Constitution
and the Rules of Court — because, inter alia: (1) they do not describe with particularity the documents,
books and things to be seized; (2) cash money, not mentioned in the warrants, were actually seized; (3)
the warrants were issued to fish evidence against the aforementioned petitioners in deportation cases
filed against them; (4) the searches and seizures were made in an illegal manner; and (5) the
documents, papers and cash money seized were not delivered to the courts that issued the warrants, to
be disposed of in accordance with law — on March 20, 1962, said petitioners filed with the Supreme
Court this original action for certiorari, prohibition, mandamus and injunction, and prayed that, pending
final disposition of the present case, a writ of preliminary injunction be issued restraining Respondents-
Prosecutors, their agents and /or representatives from using the effects seized as aforementioned or any
copies thereof, in the deportation cases already adverted to, and that, in due course, thereafter,
decision be rendered quashing the contested search warrants and declaring the same null and void,
and commanding the respondents, their agents or representatives to return to petitioners herein, in
accordance with Section 3, Rule 67, of the 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 two (2) major groups, namely: (a) those found and seized in the offices of the
aforementioned corporations, and (b) those found and seized in the residences of petitioners herein.

As regards the first group, we hold that petitioners herein have no cause of action to assail the legality
of the contested warrants and of the seizures made in pursuance thereof, for the simple reason that
said corporations have their respective personalities, separate and distinct from the personality of herein
petitioners, regardless of the amount of shares of stock or of the interest of each of them in said
corporations, and whatever the offices they hold therein may be.8 Indeed, it is well settled that the
legality of a seizure can be contested only by the party whose rights have been impaired thereby,9 and
that the objection to an unlawful search and seizure is purely personal and cannot be availed of by
third parties. 10 Consequently, petitioners herein may not validly object to the use in evidence against
them of the documents, papers and things seized from the offices and premises of the corporations
adverted to above, since the right to object to the admission of said papers in evidence
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:

. . . that the Government's action in gaining possession of papers belonging to the corporation did not
relate to nor did it affect the personal defendants. If these papers were unlawfully seized and thereby
the constitutional rights of or any one were invaded, they were the rights of the corporation and not the
rights of the other defendants. Next, it is clear that a question of the lawfulness of a seizure can be
raised only by one whose rights have been invaded. Certainly, such a seizure, if unlawful, could not
affect the constitutional rights of defendants whose property had not been seized or the privacy of
whose homes had not been disturbed; nor could they claim for themselves the benefits of the Fourth
Amendment, when its violation, if any, was with reference to the rights of another. Remus vs. United
States (C.C.A.)291 F. 501, 511. It follows, therefore, that the question of the admissibility of the evidence
based on an alleged unlawful search and seizure does not extend to the personal defendants but
embraces only the corporation whose property was taken. . . . (A Guckenheimer & Bros. Co. vs. United
States, [1925] 3 F. 2d. 786, 789, Emphasis supplied.)

With respect to the documents, papers and things seized in the residences of petitioners herein, the
aforementioned resolution of June 29, 1962, lifted the writ of preliminary injunction previously issued by
this Court, 12 thereby, in effect, restraining herein Respondents-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.1äwphï1.ñët

Petitioners maintain that the aforementioned search warrants are in the nature of general warrants and
that accordingly, the seizures effected upon the authority there of are null and void. In this connection,
the Constitution 13provides:

The right of the people to be secure in their persons, houses, papers, and effects against unreasonable
searches and seizures shall not be violated, and no warrants shall issue but upon probable cause, to be
determined by the judge after examination under oath or affirmation of the complainant and the
witnesses he may produce, and particularly describing the place to be searched, and the persons or
things to be seized.

Two points must be stressed in connection with this constitutional mandate, namely: (1) that no warrant
shall issue but upon probable cause, to be determined by the judge in the manner set forth in said
provision; and (2) that the warrant shall particularly describe the things to be seized.

None of these requirements has been complied with in the contested warrants. Indeed, the same were
issued upon applications stating that the natural and juridical person therein named had committed a
"violation of Central Ban Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised Penal
Code." In other words, 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 the legal heresy, of the highest order, to convict anybody
of a "violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised
Penal Code," — as alleged in the aforementioned applications — without reference to any determinate
provision of said laws or

To uphold the validity of the warrants in question would be to wipe out completely one of the most
fundamental rights guaranteed in our Constitution, for it would place the sanctity of the domicile and
the privacy of communication and correspondence at the mercy of the whims caprice or passion of
peace officers. This is precisely the evil sought to be remedied by the constitutional provision above
quoted — to outlaw the so-called general warrants. It is not difficult to imagine what would happen, in
times of keen political strife, when the party in power feels that the minority is likely to wrest it, even
though by legal means.

Such is the seriousness of the irregularities committed in connection with the disputed search warrants,
that this Court deemed it fit to amend Section 3 of Rule 122 of the former Rules of Court 14 by providing
in its counterpart, under the Revised Rules of Court 15 that "a search warrant shall not issue but upon
probable cause in connection with one specific offense." Not satisfied with this qualification, the Court
added thereto a paragraph, directing that "no search warrant shall issue for more than one specific
offense."

The grave violation of the Constitution made in the application for the contested search warrants was
compounded by the description therein made of the effects to be searched for and seized, to wit:
Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios,
credit journals, typewriters, and other documents and/or papers showing all business transactions
including disbursement receipts, balance sheets and related profit and loss statements.

Thus, the warrants authorized the search for and seizure of records pertaining to all business
transactions of petitioners herein, regardless of whether the transactions were legal or illegal. The
warrants sanctioned the seizure of all records of the petitioners and the aforementioned corporations,
whatever their nature, thus openly contravening the explicit command of our Bill of Rights — that the
things to be seized be particularly described — as well as tending to defeat its major objective: the
elimination of general warrants.

Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-Prosecutors maintain that, even if
the searches and seizures under consideration were unconstitutional, the documents, papers and things
thus seized are admissible in evidence against petitioners herein. Upon mature deliberation, however,
we are unanimously of the opinion that the position taken in the Moncado case must be abandoned.
Said position was in line with the American common law rule, that the criminal should not be allowed to
go free merely "because the constable has blundered," 16 upon the theory that the constitutional
prohibition against unreasonable searches and seizures is protected by means other than the exclusion
of evidence unlawfully obtained, 17 such as the common-law action for damages against the searching
officer, against the party who procured the issuance of the search warrant and against those assisting in
the execution of an illegal search, their criminal punishment, resistance, without liability to an unlawful
seizure, and such other legal remedies as may be provided by other laws.

However, most common law jurisdictions have already given up this approach and eventually adopted
the exclusionary rule, realizing that this is the only practical means of enforcing the constitutional
injunction against unreasonable searches and seizures. In the language of Judge Learned Hand:

As we understand it, the reason for the exclusion of evidence competent as such, which has been
unlawfully acquired, is that exclusion is the only practical way of enforcing the constitutional privilege. In
earlier times the action of trespass against the offending official may have been protection enough; but
that is true no longer. Only in case the prosecution which itself controls the seizing officials, knows that it
cannot profit by their wrong will that wrong be repressed.18

In fact, over thirty (30) years before, the Federal Supreme Court had already declared:

If letters and private documents can thus be seized and held and used in evidence against a citizen
accused of an offense, the protection of the 4th Amendment, declaring his rights to be secure against
such searches and seizures, is of no value, and, so far as those thus placed are concerned, might as well
be stricken from the Constitution. The efforts of the courts and their officials to bring the guilty to
punishment, praiseworthy as they are, are not to be aided by the sacrifice of those great principles
established by years of endeavor and suffering which have resulted in their embodiment in the
fundamental law of the land.19

This view was, not only reiterated, but, also, broadened in subsequent decisions on the same Federal
Court. 20After reviewing previous decisions thereon, said Court held, in Mapp vs. Ohio (supra.):

. . . Today we once again examine the Wolf's constitutional documentation of the right of privacy free
from unreasonable state intrusion, and after its dozen years on our books, are led by it to close the only
courtroom door remaining open to evidence secured by official lawlessness in flagrant abuse of that
basic right, reserved to all persons as a specific guarantee against that very same unlawful conduct.
We hold that all evidence obtained by searches and seizures in violation of the Constitution is, by that
same authority, inadmissible in a State.

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

Indeed, the non-exclusionary rule is contrary, not only to the letter, but also, to the spirit of the
constitutional injunction against unreasonable searches and seizures. To be sure, if the applicant for a
search warrant has competent evidence to establish probable cause of the commission of a given
crime by the party against whom the warrant is intended, then there is no reason why the applicant
should not comply with the requirements of the fundamental law. Upon the other hand, if he has no
such competent evidence, then it is not possible for the Judge to find that there is probable cause, and,
hence, no justification for the issuance of the warrant. The only possible explanation (not justification) for
its issuance is the necessity of fishing evidence of the commission of a crime. But, then, this fishing
expedition is indicative of the absence of evidence to establish a probable cause.

Moreover, the theory that the criminal prosecution of those who secure an illegal search warrant and/or
make unreasonable searches or seizures would suffice to protect the constitutional guarantee under
consideration, overlooks the fact that violations thereof are, in general, committed By agents of the
party in power, for, certainly, those belonging to the minority could not possibly abuse a power they do
not have. Regardless of the handicap under which the minority usually — but, understandably — finds
itself in prosecuting agents of the majority, one must not lose sight of the fact that the psychological
and moral effect of the possibility 21 of securing their conviction, is watered down by the pardoning
power of the party for whose benefit the illegality had been committed.

In their Motion for Reconsideration and Amendment of the Resolution of this Court dated June 29, 1962,
petitioners allege that Rooms Nos. 81 and 91 of Carmen Apartments, House No. 2008, Dewey Boulevard,
House No. 1436, Colorado Street, and Room No. 304 of the Army-Navy Club, should be included among
the premises considered in said Resolution as residences of herein petitioners, Harry S. Stonehill, Robert P.
Brook, John J. Brooks and Karl Beck, respectively, and that, furthermore, the records, papers and other
effects seized in the offices of the corporations above referred to include personal belongings of said
petitioners and other effects under their exclusive possession and control, for the exclusion of which they
have a standing under the latest rulings of the federal courts of federal courts of the United States. 22

We note, however, that petitioners' theory, regarding their alleged possession of and control over the
aforementioned records, papers and effects, and the alleged "personal" nature thereof, has Been
Advanced, 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
readjustment of that followed in said petitions, to suit the approach intimated in the Resolution sought to
be reconsidered and amended. Then, too, some of the affidavits or copies of alleged affidavits
attached to said motion for reconsideration, or submitted in support thereof, contain either inconsistent
allegations, or allegations inconsistent with the theory now advanced by petitioners herein.

Upon the other hand, we are not satisfied that the allegations of said petitions said motion for
reconsideration, and the contents of the aforementioned affidavits and other papers submitted in
support of said motion, have sufficiently established the facts or conditions contemplated in the cases
relied upon by the petitioners; to warrant application of the views therein expressed, should we agree
thereto. At any rate, we do not deem it necessary to express our opinion thereon, it being best to leave
the matter open for determination in appropriate cases in the future.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.
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.

This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of preliminary
mandatory and prohibitory injunction. In their petition Bache & Co. (Phil.), Inc., a corporation duly
organized and existing under the laws of the Philippines, and its President, Frederick E. Seggerman, pray
this Court to declare null and void Search Warrant No. 2-M-70 issued by respondent Judge on February
25, 1970; to order respondents to desist from enforcing the same and/or keeping the documents,
papers and effects seized by virtue thereof, as well as from enforcing the tax assessments on petitioner
corporation alleged by petitioners to have been made on the basis of the said documents, papers and
effects, and to order the return of the latter to petitioners. We gave due course to the petition but did
not issue the writ of preliminary injunction prayed for therein.

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

On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a letter
addressed to respondent Judge Vivencio M. Ruiz requesting the issuance of a search warrant against
petitioners for violation of Section 46(a) of the National Internal Revenue Code, in relation to all other
pertinent provisions thereof, particularly Sections 53, 72, 73, 208 and 209, and authorizing Revenue
Examiner Rodolfo de Leon, one of herein respondents, to make and file the application for search
warrant which was attached to the letter.

In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness,
respondent Arturo Logronio, went to the Court of First Instance of Rizal. They brought with them the
following papers: respondent Vera’s 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 Leon’s application for search warrant and respondent Logronio’s deposition,
Search Warrant No. 2-M-70 was then sign by respondent Judge and accordingly issued.

Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the search
warrant petitioners at the offices of petitioner corporation on Ayala Avenue, Makati, Rizal. Petitioners’
lawyers protested the search on the ground that no formal complaint or transcript of testimony was
attached to the warrant. The agents nevertheless proceeded with their search which yielded six boxes
of documents.

On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal praying that the
search warrant be quashed, dissolved or recalled, that preliminary prohibitory and mandatory writs of
injunction be issued, that the search warrant be declared null and void, and that the respondents be
ordered to pay petitioners, jointly and severally, damages and attorney’s 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 compañero 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 Señoria que causaria
cierta demora el procedimiento apuntado en su enmienda en tal forma que podria frustrar los fines de
la justicia o si Su Señoria 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 Señoria 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 Señoria 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 x 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
complainant’s application for search warrant and the witness’ printed-form deposition were subscribed
and sworn to before respondent Judge, the latter did not ask either of the two any question the answer
to which could possibly be the basis for determining whether or not there was probable cause against
herein petitioners. Indeed, the participants seem to have attached so little significance to the matter
that notes of the proceedings before respondent Judge were not even taken. At this juncture it may be
well to recall the salient facts. The transcript of stenographic notes (pp. 61-76, April 1, 1970, Annex J-2 of
the Petition) taken at the hearing of this case in the court below shows that per instruction of
respondent Judge, Mr. Eleodoro V. Gonzales, Special Deputy Clerk of Court, took the depositions of the
complainant and his witness, and that stenographic notes thereof were taken by Mrs. Gaspar. At that
time respondent Judge was at the sala hearing a case. After respondent Judge was through with the
hearing, Deputy Clerk Gonzales, stenographer Gaspar, complainant De Leon and witness Logronio
went to respondent Judge’s 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.

"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 stenographer’s readings of her notes, to a few words of
warning against the commission of perjury, and to administering the oath to the complainant and his
witness. This cannot be consider a personal examination. If there was an examination at all of the
complainant and his witness, it was the one conducted by the Deputy Clerk of Court. But, as stated, the
Constitution and the rules require a personal examination by the judge. It was precisely on account of
the intention of the delegates to the Constitutional Convention to make it a duty of the issuing judge to
personally examine the complainant and his witnesses that the question of how much time would be
consumed by the judge in examining them came up before the Convention, as can be seen from the
record of the proceedings quoted above. The reading of the stenographic notes to respondent Judge
did not constitute sufficient compliance with the constitutional mandate and the rule; for by that
manner respondent Judge did not have the opportunity to observe the demeanor of the complainant
and his witness, and to propound initial and follow-up questions which the judicial mind, on account of
its training, was in the best position to conceive. These were important in arriving at a sound inference
on the all-important question of whether or not there was probable cause.

2. The search warrant was issued for more than one specific offense.

Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of the National Internal Revenue
Code in relation to all other pertinent provisions thereof particularly Secs. 53, 72, 73, 208 and 209." The
question is: Was the said search warrant issued "in connection with one specific offense," as required by
Sec. 3, Rule 126?

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.

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-M-70, the said
warrant nevertheless tends to defeat the major objective of the Bill of Rights, i.e., the elimination of
general warrants, for the language used therein is so all-embracing as to include all conceivable
records of petitioner corporation, which, if seized, could possibly render its business inoperative.

In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court had occasion to explain the
purpose of the requirement that the warrant should particularly describe the place to be searched and
the things to be seized, to wit:jgc:chanrobles.com.ph

". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) specifically require that a search
warrant should particularly describe the place to be searched and the things to be seized. The evident
purpose and intent of this requirement is to limit the things to be seized to those, and only those,
particularly described in the search warrant — to leave the officers of the law with no discretion
regarding what articles they shall seize, to the end that ‘unreasonable searches and seizures’ may not
be made, — that abuses may not be committed. That this is the correct interpretation of this
constitutional provision is borne out by American authorities."cralaw virtua1aw library
The purpose as thus explained could, surely and effectively, be defeated under the search warrant
issued in this case.

A search warrant may be said to particularly describe the things to be seized when the description
therein is as specific as the circumstances will ordinarily allow (People v. Rubio; 57 Phil. 384); or when the
description expresses a conclusion of fact — not of law — by which the warrant officer may be guided
in making the search and seizure (idem., dissent of Abad Santos, J.,); or when the things described are
limited to those which bear direct relation to the offense for which the warrant is being issued (Sec. 2,
Rule 126, Revised Rules of Court). The herein search warrant does not conform to any of the foregoing
tests. If the articles desired to be seized have any direct relation to an offense committed, the applicant
must necessarily have some evidence, other than those articles, to prove the said offense; and the
articles subject of search and seizure should come in handy merely to strengthen such evidence. In this
event, the description contained in the herein disputed warrant should have mentioned, at least, the
dates, amounts, persons, and other pertinent data regarding the receipts of payments, certificates of
stocks and securities, contracts, promissory notes, deeds of sale, messages and communications,
checks, bank deposits and withdrawals, records of foreign remittances, among others, enumerated in
the warrant.

Respondents contend that certiorari does not lie because petitioners failed to file a motion for
reconsideration of respondent Judge’s order of July 29, 1970. The contention is without merit. In the first
place, when the questions raised before this Court are the same as those which were squarely raised in
and passed upon by the court below, the filing of a motion for reconsideration in said court
before certiorari can be instituted in this Court is no longer a prerequisite. (Pajo, etc., Et. Al. v. Ago, Et Al.,
108 Phil., 905). In the second place, the rule requiring the filing of a motion for reconsideration before an
application for a writ of certiorari can be entertained was never intended to be applied without
considering the circumstances. (Matutina v. Buslon, Et Al., 109 Phil., 140.) In the case at bar time is of the
essence in view of the tax assessments sought to be enforced by respondent officers of the Bureau of
Internal Revenue against petitioner corporation, On account of which immediate and more direct
action becomes necessary. (Matute v. Court of Appeals, Et Al., 26 SCRA 768.) Lastly, the rule does not
apply where, as in this case, the deprivation of petitioners’ fundamental right to due process taints the
proceeding against them in the court below not only with irregularity but also with nullity. (Matute v.
Court of Appeals, Et Al., supra.)

It is next contended by respondents that a corporation is not entitled to protection against

unreasonable search and seizures. Again, we find no merit in the contention.

"Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is
charged with a violation of a statute of the state of its creation, or of an act of Congress passed in the
exercise of its constitutional powers, cannot refuse to produce the books and papers of such
corporation, we do not wish to be understood as holding that a corporation is not entitled to immunity,
under the 4th Amendment, against unreasonable searches and seizures. A corporation is, after all, but
an association of individuals under an assumed name and with a distinct legal entity. In organizing itself
as a collective body it waives no constitutional immunities appropriate to such body. Its property
cannot be taken without compensation. It can only be proceeded against by due process of law, and
is protected, under the 14th Amendment, against unlawful discrimination . . ." (Hale v. Henkel, 201 U.S.
43, 50 L. ed. 652.)

"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule applied to
a corporation, the ground that it was not privileged from producing its books and papers. But the rights
of a corporation against unlawful search and seizure are to be protected even if the same result might
have been achieved in a lawful way." (Silverthorne Lumber Company, Et. Al. v. United States of
America, 251 U.S. 385, 64 L. ed. 319.)

In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a corporation to
object against unreasonable searches and seizures, thus:jgc:chanrobles.com.ph

"As regards the first group, we hold that petitioners herein have no cause of action to assail the legality
of the contested warrants and of the seizures made in pursuance thereof, for the simple reason that
said corporations have their respective personalities, separate and distinct from the personality of herein
petitioners, regardless of the amount of shares of stock or the interest of each of them in said
corporations, whatever, the offices they hold therein may be. Indeed, it is well settled that the legality of
a seizure can be contested only by the party whose rights have been impaired thereby, and that the
objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties.
Consequently, petitioners herein may not validly object to the use in evidence against them of the
documents, papers and things seized from the offices and premises of the corporations adverted to
above, since the right to object to the admission of said papers in evidence belongs exclusively to the
corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in
proceedings against them in their individual capacity . . ."cralaw virtua1aw library
In the Stonehill case only the officers of the various corporations in whose offices documents, papers
and effects were searched and seized were the petitioners. In the case at bar, the corporation to
whom the seized documents belong, and whose rights have thereby been impaired, is itself a
petitioner. On that score, petitioner corporation here stands on a different footing from the corporations
in Stonehill.

The tax assessments referred to earlier in this opinion were, if not entirely — as claimed by petitioners —
at least partly — as in effect admitted by respondents — based on the documents seized by virtue of
Search Warrant No. 2-M-70. Furthermore, the fact that the assessments were made some one and one-
half months after the search and seizure on February 25, 1970, is a strong indication that the documents
thus seized served as basis for the assessments. Those assessments should therefore not be enforced.

PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70 issued by
respondent Judge is declared null and void; respondents are permanently enjoined from enforcing the
said search warrant; the documents, papers and effects seized thereunder are ordered to be returned
to petitioners; and respondent officials the Bureau of Internal Revenue and their representatives are
permanently enjoined from enforcing the assessments mentioned in Annex "G" of the present petition,
as well as other assessments based on the documents, papers and effects seized under the search
warrant herein nullified, and from using the same against petitioners in any criminal or other proceeding.
No pronouncement as to costs.
 [SELF-INCRIMINATION]

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.

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)

2. Baseco Quarry

3. Philippine Jai-Alai Corporation

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

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:

2.1. Articles of Incorporation

2.2. By-Laws
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.

10. Schedule of company investments and placements. 2

The letter closed with the warning that if the documents were not submitted within five days, the officers
would be cited for "contempt in pursuance with Presidential Executive Order Nos. 1 and 2."

c. Orders Re Engineer Island

(1) Termination of Contract for Security Services

A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is that issued on
April 21, 1986 by a Capt. Flordelino B. Zabala, a member of the task force assigned to carry out the
basic sequestration order. He sent a letter to BASECO's 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 position to
honor the said contract" and thus "whatever improvements * * (may be introduced) shall be deemed
unauthorized * * and shall be at * * (Deltamarine's) own risk." 6

e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan

By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent, Mayor Melba
O. Buenaventura, "to plan and implement progress towards maximizing the continuous operation of the
BASECO Sesiman Rock Quarry * * by conventional methods;" but afterwards, Commissioner Bautista, in
representation of the PCGG, authorized another party, A.T. Abesamis, to operate the quarry, located at
Mariveles, Bataan, an agreement to this effect having been executed by them on September 17,
1986. 7

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 Court-

1) 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. 29It 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 President-

1) 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 Sandiganbayan which 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

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 apparent owner was attended by some vitiating anomaly. None of the remedies is
meant to deprive the owner or possessor of his title or any right to the property sequestered, frozen or
taken over and vest it in the sequestering agency, the Government or other person. This can be done
only for the causes and by the processes laid down by law.
That this is the sense in which the power to sequester, freeze or provisionally take over is to be
understood and exercised, the language of the executive orders in question leaves no doubt. Executive
Order No. 1 declares that the sequestration of property the acquisition of which is suspect shall last "until
the transactions leading to such acquisition * * can be disposed of by the appropriate
authorities." 49 Executive Order No. 2 declares that the assets or properties therein mentioned shall
remain frozen "pending the outcome of appropriate proceedings in the Philippines to determine
whether any such assets or properties were acquired" by illegal means. Executive Order No. 14 makes
clear that judicial proceedings are essential for the resolution of the basic issue of whether or not
particular assets are "ill-gotten," and resultant recovery thereof by the Government is warranted.

e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional Command

There is thus no cause for the apprehension voiced by BASECO 50 that sequestration, freezing or
provisional takeover is designed to be an end in itself, that it is the device through which persons may
be deprived of their property branded as "ill-gotten," that it is intended to bring about a permanent,
rather than a passing, transitional state of affairs. That this is not so is quite explicitly declared by the
governing rules.

Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of these
provisional remedies. Section 26 of its Transitory Provisions, 51 lays down the relevant rule in plain terms,
apart from extending ratification or confirmation (although not really necessary) to the institution by
presidential fiat of the remedy of sequestration and freeze orders:

SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25,
1986 in relation to the recovery of ill-gotten wealth shag remain operative for not more than eighteen
months after the ratification of this Constitution. However, in the national interest, as certified by the
President, the Congress may extend said period.

A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order and
the list of the sequestered or frozen properties shall forthwith be registered with the proper court. For
orders issued before the ratification of this Constitution, the corresponding judicial action or proceeding
shall be filed within six months from its ratification. For those issued after such ratification, the judicial
action or proceeding shall be commenced within six months from the issuance thereof.

The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is
commenced as herein provided. 52

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 replevin suits, sequestration and provisional takeover writs may issue ex parte. 58 And as in preliminary
attachment, receivership, and delivery of personality, no objection of any significance may be raised to
the ex parte issuance of an order of sequestration, freezing or takeover, given its fundamental
character of temporariness or conditionality; and taking account specially of the constitutionally
expressed "mandate of the people to recover ill-gotten properties amassed by the leaders and
supporters of the previous regime and protect the interest of the people;" 59 as well as the obvious need
to avoid alerting suspected possessors of "ill-gotten wealth" and thereby cause that disappearance or
loss of property precisely sought to be prevented, and the fact, just as self-evident, that "any transfer,
disposition, concealment or disappearance of said assets and properties would frustrate, obstruct or
hamper the efforts of the Government" at the just recovery thereof. 60

8. Requisites for Validity

What is indispensable is that, again as in the case of attachment and receivership, there exist a prima
facie factual foundation, at least, for the sequestration, freeze or takeover order, and adequate and
fair opportunity to contest it and endeavor to cause its negation or nullification. 61

Both are assured under the executive orders in question and the rules and regulations promulgated by
the PCGG.

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 the affirmation
or complaint of an interested party, or motu proprio when the Commission has reasonable grounds to
believe that the issuance thereof is warranted. 64 A similar requirement is now found in Section 26, Art.
XVIII of the 1987 Constitution, which requires that a "sequestration or freeze order shall be issued only
upon showing of a prima facie case." 65

b. Opportunity to Contest

And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a party may
seek to set aside a writ of sequestration or freeze order, viz:

SECTION 5. Who may contend.-The person against whom a writ of sequestration or freeze or hold order
is directed may request the lifting thereof in writing, either personally or through counsel within five (5)
days from receipt of the writ or order, or in the case of a hold order, from date of knowledge thereof.

SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio for good cause
shown, the Commission may lift the writ or order unconditionally or subject to such conditions as it may
deem necessary, taking into consideration the evidence and the circumstance of the case. The
resolution of the commission may be appealed by the party concerned to the Office of the President of
the Philippines within fifteen (15) days from receipt thereof.

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 Constitution 67 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," 69and 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 evidence establishing 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, 72that 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. 74The 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. 75Their 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 2,508 shares

4. Jose Fernandez 1,248 shares

5. Jose Francisco 128 shares

6. Manuel S. Mendoza 96 shares

7. Anthony P. Lee 1,248 shares

8. Hilario M. Ruiz 32 shares

9. Constante L. Fariñas 8 shares

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

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 semi-annual installments over nine
(9) years after a grace period of two (2) years, with interest at 7% per annum.

15. Acquisition of 300 Hectares from Export Processing Zone Authority

On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the
Export Processing Zone Authority for the price of P10,047,940.00 of which, as set out in the document of
sale, P2,000.000.00 was paid upon its execution, and the balance stipulated to be payable in
installments. 78

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

Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the intervention of
President Marcos, acquired ownership of the rest of the assets of NASSCO which had not been included
in the first two (2) purchase documents. This was accomplished by a deed entitled "Contract of
Purchase and Sale," 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:

FOR : The President

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

FROM: Capt. A.T. Romualdez.

Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan obligations due
chiefly to the fact that "orders to build ships as expected * * did not materialize."

He advised that five stockholders had "waived and/or assigned their holdings inblank," these being: (1)
Jose A. Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee.
Pointing out that "Mr. Magiliw Torres * * is already dead and Mr. Jose A. Rojas had a major heart attack,"
he made the following quite revealing, and it may be added, quite cynical and indurate
recommendation, to wit:

* * (that) their replacements (be effected) so we can register their names in the stock book prior to the
implementation of your instructions to pass a board resolution to legalize the transfers under SEC
regulations;

2. By getting their replacements, the families cannot question us later on; and

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 by-laws of BASECO;

3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in "Engineer Island", Port Area,
Manila;
4. Transfer Certificate of Title No. 124822 in the name of BASECO, covering "Engineer Island";

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

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

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

8. List of BASECO's fixed assets;

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-and-file employees. 90

Capt. Romualdez also recommended that BASECO's loans be restructured "until such period when
BASECO will have enough orders for ships in order for the company to meet loan obligations," and that
—

An LOI may be issued to government agencies using floating equipment, that a linkage scheme be
applied to a certain percent of BASECO's net profit as part of BASECO's amortization payments to make
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 Fariñas of the National Development
Company, directing them "to participate in the formation of a new corporation resulting from the spin-
off of the shipbuilding component of BASECO along the following guidelines:

a. Equity participation of government shall be through LUSTEVECO and NDC in the amount of
P115,903,000 consisting of the following obligations of BASECO which are hereby authorized to be
converted to equity of the said new corporation, to wit:

1. NDC P83,865,000 (P31.165M loan & P52.2M Reparation)

2. LUSTEVECO P32,538,000 (Reparation)

b. Equity participation of government shall be in the form of non- voting shares.

For immediate compliance. 92

Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22) days after
receiving their president's memorandum, Messrs. Hilario M. Ruiz, Constante L. Fariñas and Geronimo Z.
Velasco, in representation of their respective corporations, executed a PRE-INCORPORATION
AGREEMENT dated October 20, 1977. 93 In it, they undertook to form a shipbuilding corporation to be
known as "PHIL-ASIA SHIPBUILDING CORPORATION," to bring to realization their president's instructions. It
would seem that the new corporation ultimately formed was actually named "Philippine Dockyard
Corporation (PDC)." 94

b. Letter of Instructions No. 670

Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On February
14, 1978, he issued Letter of Instructions No. 670 addressed to the Reparations Commission REPACOM
the Philippine National Oil Company (PNOC), the Luzon Stevedoring Company (LUSTEVECO), and the
National Development Company (NDC). What is commanded therein is summarized by the Solicitor
General, with pithy and not inaccurate observations as to the effects thereof (in italics), as follows:

* * 1) the shipbuilding equipment procured by BASECO through reparations be transferred to NDC

subject to reimbursement by NDC to BASECO (of) the amount of s allegedly representing the handling
and incidental expenses incurred by BASECO in the installation of said equipment (so instead of NDC
getting paid on its loan to BASECO, it was made to pay BASECO instead the amount of P18.285M); 2)
the shipbuilding equipment procured from reparations through EPZA, now in the possession of BASECO
and BSDI (Bay Shipyard & Drydocking, Inc.) be transferred to LUSTEVECO through PNOC; and 3) the
shipbuilding equipment (thus) transferred be invested by LUSTEVECO, acting through PNOC and NDC,
as the government's equity participation in a shipbuilding corporation to be established in partnership
with the private sector.

xxx xxx xxx

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
Malacañang 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.

24. Scope and Extent of Powers of the PCGG

One other question remains to be disposed of, that respecting the scope and extent of the powers that
may be wielded by the PCGG with regard to the properties or businesses placed under sequestration or
provisionally taken over. Obviously, it is not a question to which an answer can be easily given, much
less one which will suffice for every conceivable situation.

a. PCGG May Not Exercise Acts of Ownership

One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of
dominion over property sequestered, frozen or provisionally taken over. AS already earlier stressed with
no little insistence, the act of sequestration; freezing or provisional takeover of property does not import
or bring about a divestment of title over said property; does not make the PCGG the owner thereof. In
relation to the property sequestered, frozen or provisionally taken over, the PCGG is a conservator, not
an owner. Therefore, it can not perform acts of strict ownership; and this is specially true in the situations
contemplated by the sequestration rules where, unlike cases of receivership, for example, no court
exercises effective supervision or can upon due application and hearing, grant authority for the
performance of acts of dominion.

Equally evident is that the resort to the provisional remedies in question should entail the least possible
interference with business operations or activities so that, in the event that the accusation of the
business enterprise being "ill gotten" be not proven, it may be returned to its rightful owner as far as
possible in the same condition as it was at the time of sequestration.

b. PCGG Has Only Powers of Administration

The PCGG may thus exercise only powers of administration over the property or business sequestered or
provisionally taken over, much like a court-appointed receiver, 115 such as to bring and defend actions
in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such other
acts and things as may be necessary to fulfill its mission as conservator and administrator. In this context,
it may in addition enjoin or restrain any actual or threatened commission of acts by any person or entity
that may render moot and academic, or frustrate or otherwise make ineffectual its efforts to carry out its
task; punish for direct or indirect contempt in accordance with the Rules of Court; and seek and secure
the assistance of any office, agency or instrumentality of the government. 116 In the case of
sequestered businesses generally (i.e., going concerns, businesses in current operation), as in the case
of sequestered objects, its essential role, as already discussed, is that of conservator, caretaker,
"watchdog" or overseer. It is not that of manager, or innovator, much less an owner.

c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him; Limitations
Thereon

Now, in the special instance of a business enterprise shown by evidence to have been "taken over by
the government of the Marcos Administration or by entities or persons close to former President
Marcos," 117 the PCGG is given power and authority, as already adverted to, to "provisionally take (it)
over in the public interest or to prevent * * (its) disposal or dissipation;" and since the term is obviously
employed in reference to going concerns, or business enterprises in operation, something more than
mere physical custody is connoted; the PCGG may in this case exercise some measure of control in the
operation, running, or management of the business itself. But even in this special situation, the intrusion
into management should be restricted to the minimum degree necessary to accomplish the legislative
will, which is "to prevent the disposal or dissipation" of the business enterprise. There should be no hasty,
indiscriminate, unreasoned replacement or substitution of management officials or change of policies,
particularly in respect of viable establishments. In fact, such a replacement or substitution should be
avoided if at all possible, and undertaken only when justified by demonstrably tenable grounds and in
line with the stated objectives of the PCGG. And it goes without saying that where replacement of
management officers may be called for, the greatest prudence, circumspection, care and attention -
should accompany that undertaking to the end that truly competent, experienced and honest
managers may be recruited. There should be no role to be played in this area by rank amateurs, no
matter how wen meaning. The road to hell, it has been said, is paved with good intentions. The business
is not to be experimented or played around with, not run into the ground, not driven to bankruptcy, not
fleeced, not ruined. Sight should never be lost sight of the ultimate objective of the whole exercise,
which is to turn over the business to the Republic, once judicially established to be "ill-gotten." Reason
dictates that it is only under these conditions and circumstances that the supervision, administration and
control of business enterprises provisionally taken over may legitimately be exercised.

d. Voting of Sequestered Stock; Conditions Therefor

So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly
exercise the prerogative to vote sequestered stock of corporations, granted to it by the President of the
Philippines through a Memorandum dated June 26, 1986. That Memorandum authorizes the PCGG,
"pending the outcome of proceedings to determine the ownership of * * (sequestered) shares of stock,"
"to vote such shares of stock as it may have sequestered in corporations at all stockholders' meetings
called for the election of directors, declaration of dividends, amendment of the Articles of
Incorporation, etc." The Memorandum should be construed in such a manner as to be consistent with,
and not contradictory of the Executive Orders earlier promulgated on the same matter. There should be
no exercise of the right to vote simply because the right exists, or because the stocks sequestered
constitute the controlling or a substantial part of the corporate voting power. The stock is not to be
voted to replace directors, or revise the articles or by-laws, or otherwise bring about substantial changes
in policy, program or practice of the corporation except for demonstrably weighty and defensible
grounds, and always in the context of the stated purposes of sequestration or provisional takeover, i.e.,
to prevent the dispersion or undue disposal of the corporate assets. Directors are not to be voted out
simply because the power to do so exists. Substitution of directors is not to be done without reason or
rhyme, should indeed be shunned if at an possible, and undertaken only when essential to prevent
disappearance or wastage of corporate property, and always under such circumstances as assure that
the replacements are truly possessed of competence, experience and probity.

In the case at bar, there was adequate justification to vote the incumbent directors out of office and
elect others in their stead because the evidence showed prima facie that the former were just tools of
President Marcos and were no longer owners of any stock in the firm, if they ever were at all. This is why,
in its Resolution of October 28, 1986; 118 this Court declared that —

Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling
and holding of a stockholders' meeting for the election of directors as authorized by the Memorandum
of the President * * (to the PCGG) dated June 26, 1986, particularly, where as in this case, the
government can, through its designated directors, properly exercise control and management over
what appear to be properties and assets owned and belonging to the government itself and over
which the persons who appear in this case on behalf of BASECO have failed to show any right or even
any shareholding in said corporation.

It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the
management of the company's affairs should henceforth be guided and governed by the norms herein
laid down. They should never for a moment allow themselves to forget that they are conservators, not
owners of the business; they are fiduciaries, trustees, of whom the highest degree of diligence and
rectitude is, in the premises, required.

25. No Sufficient Showing of Other Irregularities

As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the
execution of certain contracts, inclusive of the termination of the employment of some of its
executives, 119 this Court cannot, in the present state of the evidence on record, pass upon them. It is
not necessary to do so. The issues arising therefrom may and will be left for initial determination in the
appropriate action. But the Court will state that absent any showing of any important cause therefor, it
will not normally substitute its judgment for that of the PCGG in these individual transactions. It is clear
however, that as things now stand, the petitioner cannot be said to have established the correctness of
its submission that the acts of the PCGG in question were done without or in excess of its powers, or with
grave abuse of discretion.

WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is
lifted.
 [RIGHT TO RECOVER MORAL DAMAGES]

G.R. No. 128690 January 21, 1999

ABS-CBN BROADCASTING CORPORATION, petitioners, vs. HONORABLE COURT OF APPEALS, REPUBLIC

BROADCASTING CORP., VIVA PRODUCTIONS, INC., and VICENTE DEL ROSARIO, respondents.

In this petition for review on certiorari, petitioners ABS-CBN Broadcasting Corp. (hereinafter ABS-CBN)
seeks to reverse and set aside the decision[1] of 31 October 1996 and the resolution[2] of 10 March 1997
of the Court of Appeals in CA-G.R. CV No. 44125. The former affirmed with modification the decision [3] of
28 April 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No. Q-12309. The
latter denied the motion to reconsider the decision of 31 October 1996.

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

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.

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

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 our very first contract because of the cheap production value of
these movies as well as the lack of big action stars. As a film producer, I am sure you understand what I
am trying to say as Viva produces only big action pictures.

In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in out
non-primetime slots. We have to cover the amount that was paid for these movies because as you very
well know that non-primetime advertising rates are very low. These are the unaired titles in the first
contract.

1. Kontra Persa [sic]

2. Raider Platoon

3. Underground guerillas

4. Tiger Command

5. Boy de Sabog

6. lady Commando

7. Batang Matadero

8. Rebelyon

I hope you will consider this request of mine.

The other dramatic films have been offered to us before and have been rejected because of the ruling
of MTRCB to have them aired at 9:00 p.m. due to their very adult themes.

As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other Viva
movies produced last year, I have quite an attractive offer to make.
Thanking you and with my warmest regards.

(Signed)

Charo Santos-Concio

On February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms. Concio, with a list consisting of
52 original movie titles (i.e., not yet aired on television) including the 14 titles subject of the present case,
as well as 104 re-runs (previously aired on television) from which ABS-CBN may choose another 52 titles,
as a total of 156 titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals and 52
re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00 worth of television
spots (Exh. 4 to 4-C Viva; 9 Viva).

On April 2, 1992, defendant Del Rosario and ABS-CBNs general manager, Eugenio Lopez III, met at the
Tamarind Grill Restaurant in Quezon City to discuss the package proposal of VIVA. What transpired in
that lunch meeting is the subject of conflicting versions. Mr. Lopez testified that he and Mr. Del Rosario
allegedly agreed that ABS-CBN was granted exclusive film rights to fourteen (14) films for a total
consideration of P36 million; that he allegedly put this agreement as to the price and number of films in
a napkin and signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the
other hand. Del Rosario denied having made any agreement with Lopez regarding the 14 Viva films;
denied the existence of a napkin in which Lopez wrote something; and insisted that what he and Lopez
discussed at the lunch meeting was Vivas film package offer of 104 films (52 originals and 52 re-runs) for
a total price of P60 million. Mr. Lopez promising [sic]to make a counter proposal which came in the form
of a proposal contract Annex C of the complaint (Exh. 1 Viva; Exh C ABS-CBN).

On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance
discussed the terms and conditions of Vivas offer to sell the 104 films, after the rejection of the same
package by ABS-CBN.

On April 07, 1992, defendant Del Rosario received through his secretary , a handwritten note from Ms.
Concio, (Exh. 5 Viva), which reads: Heres the draft of the contract. I hope you find everything in order,
to which was attached a draft exhibition agreement (Exh. C ABS-CBN; Exh. 9 Viva p. 3) a counter-
proposal covering 53 films, 52 of which came from the list sent by defendant Del Rosario and one film
was added by Ms. Concio, for a consideration of P35 million. Exhibit C provides that ABS-CBN is granted
film rights to 53 films and contains a right of first refusal to 1992 Viva Films.The said counter proposal was
however rejected by Vivas Board of Directors [in the] evening of the same day, April 7, 1992, as Viva
would not sell anything less than the package of 104 films for P60 million pesos (Exh. 9 Viva), and such
rejection was relayed to Ms. Concio.

On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings
defendant Del Rosario and Vivas President Teresita Cruz, in consideration of P60 million, signed a letter
of agreement dated April 24, 1992, granting RBS the exclusive right to air 104 Viva-produced and/or
acquired films (Exh. 7-A - RBS; Exh. 4 RBS) including the fourteen (14) films subject of the present case. [4]

On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a
writ of preliminary injunction and/or temporary restraining order against private respondents Republic
Broadcasting Corporation[5] (hereafter RBS), Viva Production (hereafter VIVA), and Vicente del
Rosario. The complaint was docketed as Civil Case No. Q-92-12309.

On 28 May 1992, the RTC issued a temporary restraining order [6] enjoining private respondents from
proceeding with the airing, broadcasting, and televising of the fourteen VIVA films subject of the
controversy, starting with the film Maging Sino Ka Man, which was scheduled to be shown on private
respondent RBS channel 7 at seven oclock in the evening of said date.

On 17 June 1992, after appropriate proceedings, the RTC issued an order [7] directing the issuance of a
writ of preliminary injunction upon ABS-CBNs posting of a P35 million bond. ABS-CBN moved for the
reduction of the bond,[8] while private respondents moved for reconsideration of the order and offered
to put up a counterbond.[9]

In the meantime, private respondents filed separate answer with counterclaim. [10] RBS also set up a
cross-claim against VIVA.

On 3 August 1992, the RTC issued an order[11] dissolving the writ of preliminary injunction upon the
posting by RBS of a P30 million counterbond to answer for whatever damages ABS-CBN might suffer by
virtue of such dissolution. However, it reduced petitioners injunction bond to P15 million as a condition
precedent for the reinstatement of the writ of preliminary injunction should private respondents be
unable to post a counterbond.

At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the court, agreed to explore the
possibility of an amicable settlement. In the meantime, RBS prayed for and was granted reasonable
time within which to put up a P30 million counterbond in the event that no settlement would be
reached.
As the parties failed to enter into an amicable settlement, RBS posted on 1 October 1992 a
counterbond, which the RTC approved in its Order of 15 October 1992. [13]

On 19 October 1992, ABS-CBN filed a motion for reconsideration[14] of the 3 August and 15 October 1992
Orders, which RBS opposed.[15]

On 29 October, the RTC conducted a pre-trial.[16]

Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a
petition[17] challenging the RTCs Order of 3 August and 15 October 1992 and praying for the issuance of
a writ of preliminary injunction to enjoin the RTC from enforcing said orders. The case was docketed as
CA-G.R. SP No. 29300.

On 3 November 1992, the Court of Appeals issued a temporary restraining order [18] to enjoin the airing,
broadcasting, and televising of any or all of the films involved in the controversy.

On 18 December 1992, the Court of Appeals promulgated a decision [19] dismissing the petition in CA-
G.R. SP No. 29300 for being premature. ABS-CBN challenged the dismissal in a petition for review filed
with this Court on 19 January 1993, which was docketed s G.R. No. 108363.

In the meantime the RTC received the evidence for the parties in Civil Case No. Q-92-12309. Thereafter,
on 28 April 1993, it rendered a decision[20] in favor of RBS and VIVA and against ABS-CBN disposing as
follows:

WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is rendered in favor of
defendants and against the plaintiff.

(1) The complaint is hereby dismissed;

(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:

a) P107,727.00 the amount of premium paid by RBS to the surety which issued defendants RBSs bond to
lift the injunction;

b) P191,843.00 for the amount of print advertisement for Maging Sino Ka Man in various newspapers;

c) Attorneys fees in the amount of P1 million;

d) P5 million as and by way of moral damages;

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

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

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

(5) Plaintiff to pay the costs.

According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged
agreement between Lopez III and Del Rosario was subject to the approval of the VIVA Board of
Directors, and said agreement was disapproved during the meeting of the Board on 7 April
1992. Hence, there was no basis for ABS-CBNs demand that VIVA signed the 1992 Film Exhibition
Agreement.Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had previously
been exercised per Ms. Concios letter to Del Rosario ticking off ten titles acceptable to them, which
would have made the 1992 agreement an entirely new contract.

On 21 June 1993, this Court denied[21] ABS-CBNs petition for review in G.R. No. 108363, as no reversible
error was committed by the Court of Appeals in its challenged decision and the case had become
moot and academic in view of the dismissal of the main action by the court a quo in its decision of 28
April 1993.

Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of Appeals claiming that there was a
perfected contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the
subject films. Private respondents VIVA and Del Rosario also appealed seeking moral and exemplary
damages and additional attorneys fees.

In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between
ABS-CBN and VIVA had not been perfected, absent the approval by the VIVA Board of Directors of
whatever Del Rosario, its agent, might have agreed with Lopez III. The appellate court did not even
believe ABS-CBNs evidence that Lopez III actually wrote down such an agreement on a napkin, as the
same was never produced in court. It likewise rejected ABS-CBNs insistence on its right of first refusal and
ratiocinated as follows:
As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was entered
into between Appellant ABS-CBN and appellant VIVA under Exhibit A in 1990 and that parag. 1.4
thereof provides:

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV telecast
under such terms as may be agreed upon by the parties hereto, provided, however, that such right shall
be exercised by ABS-CBN within a period of fifteen (15) days from the actual offer in writing (Records, p.
14).

[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subjected to such
terms as may be agreed upon by the parties thereto, and that the said right shall be exercised by ABS-
CBN within fifteen (15) days from the actual offer in writing.

Said parag. 1.4 of the agreement Exhibit A on the right of first refusal did not fix the price of the film right
to the twenty-four (24) films, nor did it specify the terms thereof. The same are still left to be agreed upon
by the parties.

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

The offer of VIVA 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, Mrs. Charo Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records,
p. 89) where ABS-CBN exercised its right of refusal by rejecting the offer of VIVA. As aptly observed by
the trial court, with the said letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first
refusal. And even if We reckon the fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C) when
another list was sent to ABS-CBN after the letter of Mrs. Concio, still the fifteen (15) day period within
which ABS-CBN shall exercise its right of first refusal has already expired.[22]

Accordingly, respondent court sustained the award factual damages consisting in the cost of print
advertisements and the premium payments for the counterbond, there being adequate proof of the
pecuniary loss which RBS has suffered as a result of the filing of the complaint by ABS-CBN. As to the
award of moral damages, the Court of Appeals found reasonable basis therefor, holding that RBSs
reputation was debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-
showing of the film Maging Sino Ka Man. Respondent court also held that exemplary damages were
correctly imposed by way of example or correction for the public good in view of the filing of the
complaint despite petitioners knowledge that the contract with VIVA had not been perfected. It also
upheld the award of attorneys fees, reasoning that with ABS-CBNs act of instituting Civil Case No. Q-92-
12309, RBS was unnecessarily forced to litigate. The appellate court, however, reduced the awards of
moral damages to P 2 million, exemplary damages to P2 million, and attorneys fees to P500,000.00.

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

Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending
that the Court of Appeals gravely erred in

RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND PRIVATE RESPONDENT
VIVA NOTWITHSTANDING PREPONFERANCE OF EVIDENCE ADDUCED BY PETITIONER TO THE CONTRARY.

II

IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.

III

IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.

IV

IN AWARDING ATORNEYS FEES OF RBS.

ABS-CBN claims that it had yet to fully exercise its right of first refusal over 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 Lopezs testimony that he and Del Rosario met at the Tamarind Grill Restaurant, discussed
the terms and conditions of the second list (the 1992 Film Exhibition Agreement) and upon agreement
thereon, wrote the same on a paper napkin. It also asserts that the contract has already been effective,
as the elements thereof, namely, consent, object, and consideration were established. It then
concludes that the Court of Appeals pronouncements were not supported by law and jurisprudence,
as per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of Appeals,[23] which
cited Toyota Shaw, Inc. v. Court of Appeals;[24] Ang Yu Asuncion v. Court of Appeals,[25] and Villonco
Realty Company v. Bormaheco, Inc.[26]

Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the
premium on the counterbond of its own volition in order to negate the injunction issued by the trial court
after the parties had ventilated their respective positions during the hearings for the purpose. The filing
of the counterbond was an option available to RBS, but it can hardly be argued that ABS-CBN
compelled RBS to incur such expense. Besides, RBS had another available option, i.e., move for the
dissolution of the injunction; or if it was determined to put up a counterbond, it could have presented a
cash bond. Furthermore under Article 2203 of the Civil Code, the party suffering loss injury is also
required to exercise the diligence of a good father of a family to minimize the damages resulting from
the act or omission. As regards the cost of print advertisements, RBS had not convincingly established
that this was a loss attributable to the non-showing of Maging Sino Ka Man; on the contrary, it was
brought out during trial that with or without the case or injunction, RBS would have spent such an
amount to generate interest in the film.

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

As regards the award of attorneys fees, ABS-CBN maintains that the same had no factual, legal, or
equitable justification. In sustaining the trial courts award, the Court of Appeals acted in clear disregard
of the doctrine laid down in Buan v. Camaganacan[32] that the text of the decision should state the
reason why attorneys fees are being awarded; otherwise, the award should be disallowed. Besides, no
bad faith has been imputed on, much less proved as having been committed by, ABS-CBN. It has been
held that where no sufficient showing of bad faith would be reflected in a partys persistence in a case
other than an erroneous conviction of the righteousness of his cause, attorneys fees shall not be
recovered as cost.[33]

On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA
absent meeting of minds between them regarding the object and consideration of the alleged
contract. It affirms that ABS-CBNs claim of a right of first refusal was correctly rejected by the trial
court. RBS insists the premium it had paid for the counterbond constituted a pecuniary loss upon which
it may recover. It was obliged to put up the counterbond due to the injunction procured by ABS-
CBN. Since the trial court found that ABS-CBN had no cause of action or valid claim against RBS and,
therefore not entitled to the writ of injunction, RBS could recover from ABS-CBN the premium paid on the
counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to be more expensive, as
the loss would be equivalent to the cost of money RBS would forego in case the P30 million came from
its funds or was borrowed from banks.

RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the
film Maging Sino Ka Man because the print advertisements were out to announce the showing on a
particular day and hour on Channel 7, i.e., in its entirety at one time, not as series to be shown on a
periodic basis. Hence, the print advertisements were good and relevant for the particular date of
showing, and since the film could not be shown on that particular date and hour because of the
injunction, the expenses for the advertisements had gone to waste.

As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured
injunctions purely for the purpose of harassing and prejudicing RBS. Pursuant then to Articles 19 and 21
of the Civil Code, ABS-CBN must be held liable for such damages. Citing Tolentino,[34] damages may be
awarded in cases of abuse of rights even if the done is not illicit, and there is abuse of rights where a
plaintiff institutes an action purely for the purpose of harassing or prejudicing the defendant.

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

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

The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the
amount of the award.

The first is that the humiliation suffered by RBS, is national in extent. RBS operations as a broadcasting
company is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of those who own and watch
television. It is not an exaggeration to state, and it is a matter of judicial notice that almost every other
person in the country watches television. The humiliation suffered by RBS is multiplied by the number of
televiewers who had anticipated the showing of the film, Maging Sino Ka Man on May 28 and
November 3, 1992 but did not see it owing to the cancellation. Added to this are the advertisers who
had placed commercial spots for the telecast and to whom RBS had a commitment in consideration of
the placement to show the film in the dates and times specified.

The second is that it is a competitor that caused RBS suffer the humiliation. The humiliation and injury are
far greater in degree when caused by an entity whose ultimate business objective is to lure customers
(viewers in this case) away from the competition.[36]

For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the
Court of Appeals do not support ABS-CBNs claim that there was a perfected contract. Such factual
findings can no longer be disturbed in this petition for review under Rule 45, as only questions of law can
be raised, not questions of fact. On the issue of damages and attorneys fees, they adopted the
arguments of RBS.

The key issues for our consideration are (1) whether there was a perfected contract between VIVA and
ABS-CBN, and (2) whether RBS is entitled to damages and attorneys fees. It may be noted that that
award of attorneys fees of P212,000 in favor of VIVA is not assigned as another error.

The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two
persons whereby one binds himself to give something or render some service to another [37] for a
consideration. There is no contract unless the following requisites concur: (1) 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 Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss
the package of films, said package of 104 VIVA films was VIVAs offer to ABS-CBN to enter into a new
Film Exhibition Agreement. But ABS-CBN, sent through Ms. Concio, counter-proposal in the form a draft
contract proposing exhibition of 53 films for a consideration of P35 million. This counter-proposal could
be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario at Tamarind
Grill Restaurant. Clearly, there was no acceptance of VIVAs offer, for it was met by a counter-offer
which substantially varied the terms of the offer.

ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of Appeals [41] and Villonco Realty Company v.
Bormaheco, Inc.,[42] is misplaced. In these cases, it was held that an acceptance may contain a request
for certain changes in the terms of the offer and yet be a binding acceptance as long as it is clear that
the meaning of the acceptance is positively and unequivocally to accept the offer, whether such
request is granted or not. This ruling was, however, reversed in the resolution of 29 March 1996, [43] which
ruled that the acceptance of an offer must be unqualified and absolute, i.e., it must be identical in all
respects with that of the offer so as to produce consent or meetings of the minds.

On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were
not material but merely clarificatory of what had previously been agreed upon. It cited the statement
in Stuart v. Franklin Life Insurance Co.[44] that a vendors change in a phrase of the offer to purchase,
which change does not essentially change the terms of the offer, does not amount to a rejection of the
offer and the tender of a counter-offer.[45] However, when any of the elements of the contract is
modified upon acceptance, such alteration amounts to a counter-offer.

In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer hence, they underwent
period of bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft
contract. VIVA through its Board of Directors, rejected such 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 the Corporation Code,[46] unless otherwise provided by said Code, corporate powers, such as the
power to enter into contracts, are exercised by the Board of Directors. However, the Board may
delegate such powers to either an executive committee or officials or contracted managers. The
delegation, except for the executive committee, must be for specific purposes. [47] Delegation to officers
makes the latter agents of the corporation; accordingly, the general rules of agency as to the binding
effects of their acts would apply.[48] For such officers to be deemed fully clothed by the corporation to
exercise a power of the Board, the latter must specially authorize them to do so. that Del Rosario did not
have the authority to accept ABS-CBNs counter-offer was best evidenced by his submission of the draft
contract to VIVAs Board of Directors for the latters approval. In any event, there was between Del
Rosario and Lopez III no meeting of minds. The following findings of the trial court are instructive:

A number of considerations militate against ABS-CBNs claim that a contract was perfected at that
lunch meeting on April 02, 1992 at the Tamarind Grill.

FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the
number of films, which he wrote on a napkin. However, Exhibit C contains numerous provisions which
were not discussed at the Tamarind Grill, if Lopez testimony was to be believed nor could they have
been physically written on a napkin. There was even doubt as to whether it was a paper napkin or cloth
napkin. In short what were written in Exhibit C were not discussed, and therefore could not have been
agreed upon, by the parties. How then could this court compel the parties to sign Exhibit C when the
provisions thereof were not previously agreed upon?

SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14
films. The complaint in fact prays for delivery of 14 films. But Exhibit C mentions 53 films as its subject
matter. Which is which? If Exhibit C reflected the true intent of the parties, then ABS-CBNs claim for 14
films in its complaint is false or if what it alleged in the complaint is true, then Exhibit C did not reflect
what was agreed upon by the parties. This underscores the fact that there was no meeting of the minds
as to the subject matter of the contract, so as to preclude perfection thereof.For settled is the rule that
there can be no contract where there is no object certain which is its subject matter (Art. 1318, NCC).

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

We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen (14)
films, and we agreed to pay Viva the amount of P16,050,000.00 as well as grant Viva commercial slots
worth P19,950,000.00. We had already earmarked this P16,050,000.00.

which gives a total consideration of P36 million (P19,951,000.00 plus P16,050,000.00

equals P36,000,000.00).

On cross-examination Mr. Lopez testified:

Q What was written in this napkin?

A The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the other 7 Viva
movies because the price was broken down accordingly. The none [sic] Viva and the seven other Viva
movies and the sharing between the cash portion and the concerned spot portion in the total amount
of P35 million pesos.

Now, which is which? P36 million or P35 million? This weakens ABS-CBNs claim.

FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit C to Mr. Del Rosario with
a handwritten note, describing said Exhibit C as a draft. (Exh. 5 Viva; tsn pp. 23-24, June 08, 1992). The
said draft has a well defined meaning.

Since Exhibit C is only a draft, or a tentative, provisional or preparatory writing prepared for discussion,
the terms and conditions thereof could not have been previously agreed upon by ABS-CBN and
Viva. Exhibit C could not therefore legally bind Viva, not having agreed thereto. In fact, Ms. Concio
admitted that the terms and conditions embodied in Exhibit C were prepared by ABS-CBNs lawyers and
there was no discussion on said terms and conditions.

As the parties had not yet discussed the proposed terms and conditions in Exhibit C, and there was no
evidence whatsoever that Viva agreed to the terms and conditions thereof, said document cannot be
a binding contract. The fact that Viva refused to sign Exhibit C reveals only two [sic] well that it did not
agree on its terms and conditions, and this court has no authority to compel Viva to agree thereto.

FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind Grill
was only provisional, in the sense that it was subject to approval by the Board of Directors of Viva. He
testified:

Q Now, Mr. Witness, and after that Tamarinf meeting the second meeting wherein you claimed that you
have the meeting of the minds between you and Mr. Vic del Rosario, what happened?

A Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion with the
Board of Directors.

Q And you are referring to the so-called agreement which you wrote in [sic] a piece of paper?

A Yes, sir.

Q So, he was going to forward that to the board of Directors for approval?

A Yes, sir (Tsn, pp. 42-43, June 8, 1992)

Q Did Mr. Del Rosario tell you that he will submit it to his Board for approval?

A Yes, sir. (Tsn, p. 69, June 8, 1992).

The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority
to bind Viva to a contract with ABS-CBN until and unless its Board of Directors approved it.The
complaint, in fact, alleges that Mr. Del Rosario is the Executive Producer of defendant Viva which is a
corporation. (par. 2, complaint). As a mere agent of Viva, Del Rosario could not bind Viva unless what
he did is ratified by its Directors. (Vicente vs.Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44
Phil. 634). As a mere agent, recognized as such by plaintiff, Del Rosario could not be held liable jointly
and severally with Viva and his inclusion as party defendant has no legal basis. (Salonga vs. Warner
Barnes [sic],COLTA, 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556).

The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was
supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not
a binding agreement. It is as it should be because corporate power to enter into a contract is lodged in
the Board of Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva board,
whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid binding upon Viva
(Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA 763). The evidence adduced shows that the Board
of Directors of Viva rejected Exhibit C and insisted that the film package for 104 films be maintained
(Exh. 7-1 Cica).[49]

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

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

II

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

Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of
temporary or permanent personal injury, or for injury to the plaintiffs business standing or commercial
credit.[55]

The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-
delict. It arose from the fact of filing of the complaint despite ABS-CBNs alleged knowledge of lack of
cause of action. Thus paragraph 12 of RBSs Answer with Counterclaim and Cross-claim under the
heading COUNTERCLAIM specifically alleges:

12. ABS-CBN filed the complaint knowing fully well that it has no cause of action against RBS. As a result
thereof, RBS suffered actual damages in the amount of P6,621,195.32.[56]

Needless to state the award of actual damages cannot be comprehended under the above law on
actual damages. RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil Code,
which read as follows:

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

ART. 20. Every person who, contrary to law, wilfully or negligently causes damage to another shall
indemnify the latter for the 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 attorneys fees, the law is clear that in the absence of stipulation, attorneys fees may be
recovered as actual or compensatory damages under any of the circumstances provided for in Article
2208 of the Civil Code.[58]

The general rule is that attorneys fees cannot be recovered as part of damages because of the policy
that no premium should be placed on the right to litigate.[59] They are not to be awarded every time a
party wins a suit. The power of the court t award attorneys fees under Article 2208 demands factual,
legal, and equitable justification.[60] Even when a claimant is compelled to litigate with third persons or
to incur expenses to protect his rights, still attorneys fees may not be awarded where no sufficient
showing of bad faith could be reflected in a partys persistence in a case other than an erroneous
conviction of the righteousness of his cause.[61]

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

(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 the moral suffering he has undergone. It is aimed at
the restoration, within the limits of the possible, of the spiritual status quo ante, and should be
proportionate to the suffering inflicted.[63] Trial courts must then guard against the award of exorbitant
damages; they should exercise balanced restrained and measured objectivity to avoid suspicion that it
was due to passion, prejudice, or corruption or the part of the trial court.[64]
The award of moral damages cannot be granted in favor of a corporation because, being an artificial
person and having existence only in legal contemplation, it has no feelings, no emotions, no senses. It
cannot, therefore, experience physical suffering and mental anguish, which can be experienced only
by one having a nervous system.[65] The statement in People v. Manero[66] and Mambulao Lumber Co. v.
PNB[67] that a corporation may recover moral damages if it has a good reputation that is debased,
resulting in social humiliation is an obiter dictum. On this score alone the award for damages must be set
aside, since RBS is a corporation.

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

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 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 impose a penalty
on the right to litigate. If damages result from a persons 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 attorneys fees in favor of VIVA
Productions, Inc.

No pronouncement as to costs.

SO ORDERED.
G.R. No. 128066 June 19, 2000

JARDINE DAVIES INC., petitioner, vs. COURT OF APPEALS and FAR EAST MILLS SUPPLY
CORPORATION, respondents.

G.R. No. 128069 June 19, 2000

PURE FOODS CORPORATION, petitioner, vs. COURT OF APPEALS and FAR EAST MILLS SUPPLY
CORPORATION, respondents.

This is rather a simple case for specific performance with damages which could have been resolved
through mediation and conciliation during its infancy stage had the parties been earnest in expediting
the disposal of this case. They opted however to resort to full court proceedings and denied themselves
the benefits of alternative dispute resolution, thus making the process more arduous and long-drawn.

The controversy started in 1992 at the height of the power crisis which the country was then
experiencing. To remedy and curtail further losses due to the series of power failures, petitioner PURE
FOODS CORPORATION (hereafter PUREFOODS) decided to install two (2) 1500 KW generators in its food
processing plant in San Roque, Marikina City.

Sometime in November 1992 a bidding for the supply and installation of the generators was held.
Several suppliers and dealers were invited to attend a pre-bidding conference to discuss the conditions,
propose scheme and specifications that would best suit the needs of PUREFOODS. Out of the eight (8)
prospective bidders who attended the pre-bidding conference, only three (3) bidders, namely,
respondent FAR EAST MILLS SUPPLY CORPORATION (hereafter FEMSCO), MONARK and ADVANCE
POWER submitted bid proposals and gave bid bonds equivalent to 5% of their respective bids, as
required.

Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO President Alfonso Po, PUREFOODS
confirmed the award of the contract to FEMSCO -

Gentlemen:

This will confirm that Pure Foods Corporation has awarded to your firm the project: Supply and
Installation of two (2) units of 1500 KW/unit Generator Sets at the Processed Meats Plant, Bo. San Roque,
Marikina, based on your proposal number PC 28-92 dated November 20, 1992, subject to the following
basic terms and conditions:

1. Lump sum contract of P6,137,293.00 (VAT included), for the supply of materials and labor for the local
portion and the labor for the imported materials, payable by progress billing twice a month, with ten
percent (10%) retention. The retained amount shall be released thirty (30) days after acceptance of the
completed project and upon posting of Guarantee Bond in an amount equivalent to twenty percent
(20%) of the contract price. The Guarantee Bond shall be valid for one (1) year from completion and
acceptance of project. The contract price includes future increase/s in costs of materials and labor;

2. The project shall be undertaken pursuant to the attached specifications. It is understood that any
item required to complete the project, and those not included in the list of items shall be deemed
included and covered and shall be performed;

3. All materials shall be brand new;

4. The project shall commence immediately and must be completed within twenty (20) working days
after the delivery of Generator Set to Marikina Plant, penalty equivalent to 1/10 of 1% of the purchase
price for every day of delay;

5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of the contract price, and
shall procure All Risk Insurance equivalent to the contract price upon commencement of the project.
The All Risk Insurance Policy shall be endorsed in favor of and shall be delivered to Pure Foods
Corporation;

6. Warranty of one (1) year against defective material and/or workmanship.

Once finalized, we shall ask you to sign the formal contract embodying the foregoing terms and
conditions.

Immediately, FEMSCO submitted the required performance bond in the amount of P1,841,187.90 and
contractors all-risk insurance policy in the amount of P6,137,293.00 which PUREFOODS through its Vice
President Benedicto G. Tope acknowledged in a letter dated 18 December 1992. FEMSCO also made
arrangements with its principal and started the PUREFOODS project by purchasing the necessary
materials. PUREFOODS on the other hand returned FEMSCOs Bidders Bond in the amount
of P1,000,000.00, as requested.
Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice President
Teodoro L. Dimayuga unilaterally canceled the award as "significant factors were uncovered and
brought to (their) attention which dictate (the) cancellation and warrant a total review and re-bid of
(the) project." Consequently, FEMSCO protested the cancellation of the award and sought a meeting
with PUREFOODS. However, on 26 March 1993, before the matter could be resolved, PUREFOODS
already awarded the project and entered into a contract with JARDINE NELL, a division of Jardine
Davies, Inc. (hereafter JARDINE), which incidentally was not one of the bidders.

FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to cease and
desist from delivering and installing the two (2) generators at PUREFOODS. Its demand letters unheeded,
FEMSCO sued both PUREFOODS and JARDINE: PUREFOODS for reneging on its contract, and JARDINE for
its unwarranted interference and inducement. Trial ensued. After FEMSCO presented its evidence,
JARDINE filed a Demurrer to Evidence.

On 27 June 1994 the Regional Trial Court of Pasig, Br. 68,[1] granted JARDINEs Demurrer to Evidence. The
trial court concluded that "[w]hile it may seem to the plaintiff that by the actions of the two defendants
there is something underhanded going on, this is all a matter of perception, and unsupported by hard
evidence, mere suspicions and suppositions would not stand up very well in a court of
law."[2] Meanwhile trial proceeded as regards the case against PUREFOODS.

On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify FEMSCO the
sum of P2,300,000.00 representing the value of engineering services it rendered; (b) to pay FEMSCO the
sum of US$14,000.00 or its peso equivalent, and P900,000.00 representing contractor's mark-up on
installation work, considering that it would be impossible to compel PUREFOODS to honor, perform and
fulfill its contractual obligations in view of PUREFOOD's contract with JARDINE and noting that
construction had already started thereon; (c) to pay attorneys fees in an amount equivalent to 20% of
the total amount due; and, (d) to pay the costs. The trial court dismissed the counterclaim filed by
PUREFOODS for lack of factual and legal basis.

Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June 1994
Resolution of the trial court which granted the Demurrer to Evidence filed by JARDINE resulting in the
dismissal of the complaint against it, while PUREFOODS appealed the 28 July 1994 Decision of the same
court which ordered it to pay FEMSCO.

On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of the trial court.[3] It
also reversed the 27 June 1994 Resolution of the lower court and ordered JARDINE to pay FEMSCO
damages for inducing PUREFOODS to violate the latters contract with FEMSCO. As such, JARDINE was
ordered to pay FEMSCO P2,000,000.00 for moral damages. In addition, PUREFOODS was also directed to
pay FEMSCO P2,000,000.00 as moral damages and P1,000,000.00 as exemplary damages as well as 20%
of the total amount due as attorney's fees.

On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for
reconsideration filed by PUREFOODS and JARDINE. Hence, these two (2) petitions for review filed by
PUREFOODS and JARDINE which were subsequently consolidated.

PUREFOODS maintains that the conclusions of both the trial court and the appellate court are premised
on a misapprehension of facts. It argues that its 12 December 1992 letter to FEMSCO was not an
acceptance of the latter's bid proposal and award of the project but more of a qualified acceptance
constituting a counter-offer which required FEMSCO's express conforme. Since PUREFOODS never
received FEMSCOs conforme, PUREFOODS was very well within reason to revoke its qualified
acceptance or counter-offer. Hence, no contract was perfected between PUREFOODS and FEMSCO.
PUREFOODS also contends that it was never in bad faith when it dealt with FEMSCO. Hence moral and
exemplary damages should not have been awarded.

Corollarily, JARDINE asserts that the records are bereft of any showing that it had prior knowledge of the
supposed contract between PUREFOODS and FEMSCO, and that it induced PUREFOODS to violate the
latters alleged contract with FEMSCO. Moreover, JARDINE reasons that FEMSCO, an artificial person, is
not entitled to moral damages. But granting arguendothat the award of moral damages is
proper, P2,000,000.00 is extremely excessive.

In the main, these consolidated cases present two (2) issues: first, whether there existed a perfected
contract between PUREFOODS and FEMSCO; and second, granting there existed a perfected contract,
whether there is any showing that JARDINE induced or connived with PUREFOODS to violate the latter's
contract with FEMSCO.

A contract is defined as "a juridical convention manifested in legal form, by virtue of which one or more
persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to
give, to do, or not to do."[4] There can be no contract unless the following requisites concur: (a) consent
of the contracting parties; (b) object certain which is the subject matter of the contract; and, (c) cause
of the obligation which is established.[5] A contract binds both contracting parties and has the force of
law between them.
Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by
the offeror. From that moment, the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law.[6] To produce a contract, the acceptance must not qualify the
terms of the offer. However, the acceptance may be express or implied.[7] For a contract to arise, the
acceptance must be made known to the offeror. Accordingly, the acceptance can be withdrawn or
revoked before it is made known to the offeror.

In the instant case, there is no issue as regards the subject matter of the contract and the cause of the
obligation. The controversy lies in the consent - whether there was an acceptance of the offer, and if
so, if it was communicated, thereby perfecting the contract.

To resolve the dispute, there is a need to determine what constituted the offer and the acceptance.
Since petitioner PUREFOODS started the process of entering into the contract by conducting a bidding,
Art. 1326 of the Civil Code, which provides that "[a]dvertisements for bidders are simply invitations to
make proposals," applies. Accordingly, the Terms and Conditions of the Bidding disseminated by
petitioner PUREFOODS constitutes the "advertisement" to bid on the project. The bid proposals or
quotations submitted by the prospective suppliers including respondent FEMSCO, are the offers. And,
the reply of petitioner PUREFOODS, the acceptance or rejection of the respective offers.

Quite obviously, the 12 December 1992 letter of petitioner PUREFOODS to FEMSCO constituted
acceptance of respondent FEMSCOs offer as contemplated by law. The tenor of the letter, i.e., "This will
confirm that Pure Foods has awarded to your firm (FEMSCO) the project," could not be more
categorical. While the same letter enumerated certain "basic terms and conditions," these conditions
were imposed on the performance of the obligation rather than on the perfection of the contract. Thus,
the first "condition" was merely a reiteration of the contract price and billing scheme based on
the Terms and Conditions of Bidding and the bid or previous offer of respondent FEMSCO. The second
and third "conditions" were nothing more than general statements that all items and materials including
those excluded in the list but necessary to complete the project shall be deemed included and should
be brand new. The fourth "condition" concerned the completion of the work to be done, i.e., within
twenty (20) days from the delivery of the generator set, the purchase of which was part of the contract.
The fifth "condition" had to do with the putting up of a performance bond and an all-risk insurance, both
of which should be given upon commencement of the project. The sixth "condition" related to the
standard warranty of one (1) year. In fine, the enumerated "basic terms and conditions" were
prescriptions on how the obligation was to be performed and implemented. They were far from being
conditions imposed on the perfection of the contract.

In Babasa v. Court of Appeals[8] we distinguished between a condition imposed on the perfection of a

contract and a condition imposed merely on the performance of an obligation. While failure to comply
with the first condition results in the failure of a contract, failure to comply with the second merely gives
the other party options and/or remedies to protect his interests.

We thus agree with the conclusion of respondent appellate court which affirmed the trial court -

As can be inferred from the actual phrase used in the first portion of the letter, the decision to award the
contract has already been made. The letter only serves as a confirmation of such decision. Hence, to
the Courts mind, there is already an acceptance made of the offer received by Purefoods.
Notwithstanding the terms and conditions enumerated therein, the offer has been accepted and/or
amplified the details of the terms and conditions contained in the Terms and Conditions of Bidding
given out by Purefoods to prospective bidders.[9]

But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS constituted a
"conditional counter-offer," respondent FEMCO's submission of the performance bond and contractor's
all-risk insurance was an implied acceptance, if not a clear indication of its acquiescence to, the
"conditional counter-offer," which expressly stated that the performance bond and the contractor's all-
risk insurance should be given upon the commencement of the contract. Corollarily, the
acknowledgment thereof by petitioner PUREFOODS, not to mention its return of FEMSCO's bidder's
bond, was a concrete manifestation of its knowledge that respondent FEMSCO indeed consented to
the "conditional counter-offer." After all, as earlier adverted to, an acceptance may either be express or
implied,[10] and this can be inferred from the contemporaneous and subsequent acts of the contracting
parties.

Accordingly, for all intents and purposes, the contract at that point has been perfected, and
respondent FEMSCO's conforme would only be a mere surplusage. The discussion of the price of the
project two (2) months after the 12 December 1992 letter can be deemed as nothing more than a
pressure being exerted by petitioner PUREFOODS on respondent FEMSCO to lower the price even after
the contract had been perfected. Indeed from the facts, it can easily be surmised that petitioner
PUREFOODS was haggling for a lower price even after agreeing to the earlier quotation, and was
threatening to unilaterally cancel the contract, which it eventually did. Petitioner PUREFOODS also
makes an issue out of the absence of a purchase order (PO). Suffice it to say that purchase orders or
POs do not make or break a contract. Thus, even the tenor of the subsequent letter of petitioner
PUREFOODS, i.e., "Pure Foods Corporation is hereby canceling the award to your company of the
project," presupposes that the contract has been perfected. For, there can be no cancellation if the
contract was not perfected in the first place.

Petitioner PUREFOODS also argues that it was never in bad faith. On the contrary, it believed in good
faith that no such contract was perfected. We are not convinced. We subscribe to the factual findings
and conclusions of the trial court which were affirmed by the appellate court -

Hence, by the unilateral cancellation of the contract, the defendant (petitioner PURE FOODS) has
acted with bad faith and this was further aggravated by the subsequent inking of a contract between
defendant Purefoods and erstwhile co-defendant Jardine. It is very evident that Purefoods thought that
by the expedient means of merely writing a letter would automatically cancel or nullify the existing
contract entered into by both parties after a process of bidding. This, to the Courts mind, is a flagrant
violation of the express provisions of the law and is contrary to fair and just dealings to which every man
is due.[11]

This Court has awarded in the past moral damages to a corporation whose reputation has been
besmirched.[12] In the instant case, respondent FEMSCO has sufficiently shown that its reputation was
tarnished after it immediately ordered equipment from its suppliers on account of the urgency of the
project, only to be canceled later. We thus sustain respondent appellate court's award of moral
damages. We however reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages are
never intended to enrich the recipient. Likewise, the award of exemplary damages by way of example
for the public good is excessive and should be reduced to P100,000.00.

Petitioner JARDINE maintains on the other hand that respondent appellate court erred in ordering it to
pay moral damages to respondent FEMSCO as it supposedly induced PUREFOODS to violate the
contract with FEMSCO. We agree. While it may seem that petitioners PUREFOODS and JARDINE
connived to deceive respondent FEMSCO, we find no specific evidence on record to support such
perception. Likewise, there is no showing whatsoever that petitioner JARDINE induced petitioner
PUREFOODS. The similarity in the design submitted to petitioner PUREFOODS by both petitioner JARDINE
and respondent FEMSCO, and the tender of a lower quotation by petitioner JARDINE are insufficient to
show that petitioner JARDINE indeed induced petitioner PUREFOODS to violate its contract with
respondent FEMSCO.

WHEREFORE, judgment is hereby rendered as follows:

(a) The petition in G.R. No. 128066 is GRANTED. The assailed Decision of the Court of Appeals reversing
the 27 June 1994 resolution of the trial court and ordering petitioner JARDINE DAVIES, INC., to pay
private respondent FAR EAST MILLS SUPPLY CORPORATION P2,000,000.00 as moral damages is REVERSED
and SET ASIDE for insufficiency of evidence; and

(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the Court of Appeals ordering
petitioner PURE FOODS CORPORATION to pay private respondent FAR EAST MILLS SUPPLY CORPORATION
the sum of P2,300,000.00 representing the value of engineering services it rendered, US$14,000.00 or its
peso equivalent, and P900,000.00 representing the contractor's mark-up on installation work, as well as
attorney's fees equivalent to twenty percent (20%) of the total amount due, is AFFIRMED. In addtion,
petitioner PURE FOODS CORPORATION is ordered to pay private respondent FAR EAST MILLS SUPPLY
CORPORATION moral damages in the amount of P1,000,000.00 and exemplary damages in the amount
of P1,000,000.00. Costs against petitioner.

SO ORDERED.
G.R. No. 141994 January 17, 2005

FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL CENTER-
BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents.

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]

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:

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

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.

xxx

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.
SO ORDERED.[14]

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

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.

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) AMEC-BCCM 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

FBNI raises the following issues for 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

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.

I.

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 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.

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]

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.
 [PRACTIVE OF PROFESSION]

G.R. No. 100152 March 31, 2000

ACEBEDO OPTICAL COMPANY, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS, Hon.
MAMINDIARA MANGOTARA, in his capacity as Presiding Judge of the RTC, 12th Judicial Region, Br. 1,
Iligan City; SAMAHANG OPTOMETRIST Sa PILIPINAS - Iligan City Chapter, LEO T. CAHANAP, City Legal
Officer, and Hon. CAMILO P. CABILI, City Mayor of Iligan, respondents.

At bar is a petition for review under Rule 45 of the Rules of Court seeking to nullify the dismissal by the
Court of Appeals of the original petition for certiorari, prohibition and mandamus filed by the herein
petitioner against the City Mayor and City Legal Officer of Iligan and the Samahang Optometrist sa
Pilipinas - Iligan Chapter (SOPI, for brevity).

The antecedent facts leading to the filing of the instant petition are as follows:

Petitioner applied with the Office of the City Mayor of Iligan for a business permit. After consideration of
petitioners application and the opposition interposed thereto by local optometrists, respondent City
Mayor issued Business Permit No. 5342 subject to the following conditions:

1. Since it is a corporation, Acebedo cannot put up an optical clinic but only a

commercial store;

2. Acebedo cannot examine and/or prescribe reading and similar optical glasses for
patients, because these are functions of optical clinics;

3. Acebedo cannot sell reading and similar eyeglasses without a prescription having first
been made by an independent optometrist (not its employee) or independent optical
clinic. Acebedo can only sell directly to the public, without need of a prescription, Ray-
Ban and similar eyeglasses;

4. Acebedo cannot advertise optical lenses and eyeglasses, but can advertise Ray-Ban
and similar glasses and frames;

5. Acebedo is allowed to grind lenses but only upon the prescription of an independent
optometrist.[1]

On December 5, 1988, private respondent Samahan ng Optometrist Sa Pilipinas (SOPI), Iligan Chapter,
through its Acting President, Dr. Frances B. Apostol, lodged a complaint against the petitioner before
the Office of the City Mayor, alleging that Acebedo had violated the conditions set forth in its business
permit and requesting the cancellation and/or revocation of such permit.

Acting on such complaint, then City Mayor Camilo P. Cabili designated City Legal Officer Leo T.
Cahanap to conduct an investigation on the matter. On July 12, 1989, respondent City Legal Officer
submitted a report to the City Mayor finding the herein petitioner guilty of violating all the conditions of
its business permit and recommending the disqualification of petitioner from operating its business in
Iligan City. The report further advised that no new permit shall be granted to petitioner for the year 1989
and should only be given time to wind up its affairs.

On July 19, 1989, the City Mayor sent petitioner a Notice of Resolution and Cancellation of Business
Permit effective as of said date and giving petitioner three (3) months to wind up its affairs.

On October 17, 1989, petitioner brought a petition for certiorari, prohibition and mandamus with prayer
for restraining order/preliminary injunction against the respondents, City Mayor, City Legal Officer and
Samahan ng Optometrists sa Pilipinas-Iligan City Chapter (SOPI), docketed as Civil Case No. 1497 before
the Regional Trial Court of Iligan City, Branch I. Petitioner alleged that (1) it was denied due process
because it was not given an opportunity to present its evidence during the investigation conducted by
the City Legal Officer; (2) it was denied equal protection of the laws as the limitations imposed on its
business permit were not imposed on similar businesses in Iligan City; (3) the City Mayor had no authority
to impose the special conditions on its business permit; and (4) the City Legal Officer had no authority to
conduct the investigation as the matter falls within the exclusive jurisdiction of the Professional
Regulation Commission and the Board of Optometry.

Respondent SOPI interposed a Motion to Dismiss the Petition on the ground of non-exhaustion of
administrative remedies but on November 24, 1989, Presiding Judge Mamindiara P. Mangotara
deferred resolution of such Motion to Dismiss until after trial of the case on the merits. However, the
prayer for a writ of preliminary injunction was granted. Thereafter, respondent SOPI filed its answer.
On May 30, 1990, the trial court dismissed the petition for failure to exhaust administrative remedies, and
dissolved the writ of preliminary injunction it earlier issued. Petitioners motion for reconsideration met the
same fate. It was denied by an Order dated June 28, 1990.

On October 3, 1990, instead of taking an appeal, petitioner filed a petition for certiorari, prohibition and
mandamus with the Court of Appeals seeking to set aside the questioned Order of Dismissal, branding
the same as tainted with grave abuse of discretion on the part of the trial court.

On January 24, 1991, the Ninth Division[2] of the Court of Appeals dismissed the petition for lack of merit.
Petitioners motion reconsideration was also denied in the Resolution dated May 15, 1991.

Undaunted, petitioner has come before this court via the present petition, theorizing that:

A.

THE RESPONDENT COURT, WHILE CORRECTLY HOLDING THAT THE RESPONDENT CITY
MAYOR ACTED BEYOND HIS AUTHORITY IN IMPOSING THE SPECIAL CONDITIONS IN THE
PERMIT AS THEY HAD NO BASIS IN ANY LAW OR ORDINANCE, ERRED IN HOLDING THAT THE
SAID SPECIAL CONDITIONS NEVERTHELESS BECAME BINDING ON PETITIONER UPON ITS
ACCEPTANCE THEREOF AS A PRIVATE AGREEMENT OR CONTRACT.

B.

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE CONTRACT BETWEEN
PETITIONER AND THE CITY OF ILIGAN WAS ENTERED INTO BY THE LATTER IN THE
PERFORMANCE OF ITS PROPRIETARY FUNCTIONS.

The petition is impressed with merit.

Although petitioner agrees with the finding of the Court of Appeals that respondent City Mayor acted
beyond the scope of his authority in imposing the assailed conditions in subject business permit, it has
excepted to the ruling of the Court of Appeals that the said conditions nonetheless became binding on
petitioner, once accepted, as a private agreement or contract. Petitioner maintains that the said
special conditions are null and void for being ultra vires and cannot be given effect; and therefore, the
principle of estoppel cannot apply against it.

On the other hand, the public respondents, City Mayor and City Legal Officer, private respondent SOPI
and the Office of the Solicitor General contend that as a valid exercise of police power, respondent
City Mayor has the authority to impose, as he did, special conditions in the grant of business permits.

Police power as an inherent attribute of sovereignty is the power to prescribe regulations to promote
the health, morals, peace, education, good order or safety and general welfare of the people. [3] The
State, through the legislature, has delegated the exercise of police power to local government units, as
agencies of the State, in order to effectively accomplish and carry out the declared objects of their
creation.[4] This delegation of police power is embodied in the general welfare clause of the Local
Government Code which provides:

Sec. 16. General Welfare. - Every local government unit shall exercise the powers
expressly granted, those necessarily implied therefrom, as well as powers necessary,
appropriate, or incidental for its efficient and effective governance, and those which are
essential to the promotion of the general welfare. Within their respective territorial
jurisdictions, local government units shall ensure and support, among other things, the
preservation and enrichment of culture, promote health and safety, enhance the right of
the people to a balanced ecology, encourage and support the development of
appropriate and self-reliant scientific and technological capabilities, improve public
morals, enhance economic prosperity and social justice, promote full employment
among their residents, maintain peace and order, and preserve the comfort and
convenience of their inhabitants.

The scope of police power has been held to be so comprehensive as to encompass almost all matters
affecting the health, safety, peace, order, morals, comfort and convenience of the community. Police
power is essentially regulatory in nature and the power to issue licenses or grant business permits, if
exercised for a regulatory and not revenue-raising purpose, is within the ambit of this power.[5]

The authority of city mayors to issue or grant licenses and business permits is beyond cavil. It is provided
for by law.
Section 171, paragraph 2 (n) of Batas Pambansa Bilang 337 otherwise known as the Local Government
Code of 1983, reads:

Sec. 171. The City Mayor shall:

xxx

n) Grant or refuse to grant, pursuant to law, city licenses or permits, and revoke the same
for violation of law or ordinance or the conditions upon which they are granted.

However, the power to grant or issue licenses or business permits must always be exercised in
accordance with law, with utmost observance of the rights of all concerned to due process and equal
protection of the law.

Succinct and in point is the ruling of this Court, that:

"x x x While a business may be regulated, such regulation must, however, be within the
bounds of reason, i. e., the regulatory ordinance must be reasonable, and its provision
cannot be oppressive amounting to an arbitrary interference with the business or calling
subject of regulation. A lawful business or calling may not, under the guise of regulation,
be unreasonably interfered with even by the exercise of police power. xxx

xxx xxx xxx

xxx The exercise of police power by the local government is valid unless it contravenes
the fundamental law of the land or an act of the legislature, or unless it is against public
policy or is unreasonable, oppressive, partial, discriminating or in derogation of a
common right."[6]

In the case under consideration, the business permit granted by respondent City Mayor to petitioner
was burdened with several conditions. Petitioner agrees with the holding by the Court of Appeals that
respondent City Mayor acted beyond his authority in imposing such special conditions in its permit as
the same have no basis in the law or ordinance. Public respondents and private respondent SOPI, on
the other hand, are one in saying that the imposition of said special conditions on petitioners business
permit is well within the authority of the City Mayor as a valid exercise of police power.

As aptly discussed by the Solicitor General in his Comment, the power to issue licenses and permits
necessarily includes the corollary power to revoke, withdraw or cancel the same. And the power to
revoke or cancel, likewise includes the power to restrict through the imposition of certain conditions. In
the case of Austin-Hardware, Inc. vs. Court of Appeals,[7] it was held that the power to license carries
with it the authority to provide reasonable terms and conditions under which the licensed business shall
be conducted. As the Solicitor General puts it:

"If the City Mayor is empowered to grant or refuse to grant a license, which is a broader
power, it stands to reason that he can also exercise a lesser power that is reasonably
incidental to his express power, i. e. to restrict a license through the imposition of certain
conditions, especially so that there is no positive prohibition to the exercise of such
prerogative by the City Mayor, nor is there any particular official or body vested with
such authority"[8]

However, the present inquiry does not stop there, as the Solicitor General believes. The power or
authority of the City Mayor to impose conditions or restrictions in the business permit is indisputable.
What petitioner assails are the conditions imposed in its particular case which, it complains, amount to a
confiscation of the business in which petitioner is engaged.

Distinction must be made between the grant of a license or permit to do business and the issuance of a
license to engage in the practice of a particular profession. The first is usually granted by the local
authorities and the second is issued by the Board or Commission tasked to regulate the particular
profession. A business permit authorizes the person, natural or otherwise, to engage in business or some
form of commercial activity. A professional license, on the other hand, is the grant of authority to a
natural person to engage in the practice or exercise of his or her profession.

In the case at bar, what is sought by petitioner from respondent City Mayor is a permit to engage in the
business of running an optical shop. It does not purport to seek a license to engage in the practice of
optometry as a corporate body or entity, although it does have in its employ, persons who are duly
licensed to practice optometry by the Board of Examiners in Optometry.
The case of Samahan ng Optometrists sa Pilipinas vs. Acebedo International Corporation, G.R. No.
117097,[9] promulgated by this Court on March 21, 1997, is in point. The factual antecedents of that case
are similar to those of the case under consideration and the issue ultimately resolved therein is exactly
the same issue posed for resolution by this Court en banc.

In the said case, the Acebedo International Corporation filed with the Office of the Municipal Mayor an
application for a business permit for the operation of a branch of Acebedo Optical in Candon, Ilocos
Sur. The application was opposed by the Samahan ng Optometrists sa Pilipinas-Ilocos Sur Chapter,
theorizing that Acebedo is a juridical entity not qualified to practice optometry. A committee was
created by the Office of the Mayor to study private respondents application. Upon recommendation of
the said committee, Acebedos application for a business permit was denied. Acebedo filed a petition
with the Regional Trial Court but the same was dismissed. On appeal, however, the Court of Appeals
reversed the trial courts disposition, prompting the Samahan ng Optometrists to elevate the matter to
this Court.

The First Division of this Court, then composed of Honorable Justice Teodoro Padilla, Josue Bellosillo, Jose
Vitug and Santiago Kapunan, with Honorable Justice Regino Hermosisima, Jr. as ponente, denied the
petition and ruled in favor of respondent Acebedo International Corporation, holding that "the fact that
private respondent hires optometrists who practice their profession in the course of their employment in
private respondents optical shops, does not translate into a practice of optometry by private
respondent itself."[10] The Court further elucidated that in both the old and new Optometry Law, R.A. No.
1998, superseded by R.A. No. 8050, it is significant to note that there is no prohibition against the hiring
by corporations of optometrists. The Court concluded thus:

"All told, there is no law that prohibits the hiring by corporations of optometrists or
considers the hiring by corporations of optometrists as a practice by the corporation itself
of the profession of optometry."

In the present case, the objective of the imposition of subject conditions on petitioners business permit
could be attained by requiring the optometrists in petitioners employ to produce a valid certificate of
registration as optometrist, from the Board of Examiners in Optometry. A business permit is issued
primarily to regulate the conduct of business and the City Mayor cannot, through the issuance of such
permit, regulate the practice of a profession, like that of optometry. Such a function is within the
exclusive domain of the administrative agency specifically empowered by law to supervise the
profession, in this case the Professional Regulations Commission and the Board of Examiners in
Optometry.

It is significant to note that during the deliberations of the bicameral conference committee of the
Senate and the House of Representatives on R.A. 8050 (Senate Bill No. 1998 and House Bill No. 14100),
the committee failed to reach a consensus as to the prohibition on indirect practice of optometry by
corporations. The proponent of the bill, former Senator Freddie Webb, admitted thus:

"Senator Webb: xxx xxx xxx

The focus of contention remains to be the proposal of prohibiting the indirect practice of optometry by
corporations. We took a second look and even a third look at the issue in the bicameral conference,
but a compromise remained elusive."[11]

Former Senator Leticia Ramos-Shahani likewise voted her reservation in casting her vote:

"Senator Shahani: Mr. President

The optometry bills have evoked controversial views from the members of the panel.
While we realize the need to uplift the standards of optometry as a profession, the
consensus of both Houses was to avoid touching sensitive issues which properly belong to
judicial determination. Thus, the bicameral conference committee decided to leave the
issue of indirect practice of optometry and the use of trade names open to the wisdom
of the Courts which are vested with the prerogative of interpreting the laws." [12]

From the foregoing, it is thus evident that Congress has not adopted a unanimous position on the matter
of prohibition of indirect practice of optometry by corporations, specifically on the hiring and
employment of licensed optometrists by optical corporations. It is clear that Congress left the resolution
of such issue for judicial determination, and it is therefore proper for this Court to resolve the issue.

Even in the United States, jurisprudence varies and there is a conflict of opinions among the federal
courts as to the right of a corporation or individual not himself licensed, to hire and employ licensed
optometrists.[13]
Courts have distinguished between optometry as a learned profession in the category of law and
medicine, and optometry as a mechanical art. And, insofar as the courts regard optometry as merely a
mechanical art, they have tended to find nothing objectionable in the making and selling of
eyeglasses, spectacles and lenses by corporations so long as the patient is actually examined and
prescribed for by a qualified practitioner.[14]

The primary purpose of the statute regulating the practice of optometry is to insure that optometrical
services are to be rendered by competent and licensed persons in order to protect the health and
physical welfare of the people from the dangers engendered by unlicensed practice. Such purpose
may be fully accomplished although the person rendering the service is employed by a corporation.[15]

Furthermore, it was ruled that the employment of a qualified optometrist by a corporation is not against
public policy.[16] Unless prohibited by statutes, a corporation has all the contractual rights that an
individual has[17] and it does not become the practice of medicine or optometry because of the
presence of a physician or optometrist.[18] The manufacturing, selling, trading and bartering of
eyeglasses and spectacles as articles of merchandise do not constitute the practice of optometry. [19]

In the case of Dvorine vs. Castelberg Jewelry Corporation,[20] defendant corporation conducted as part
of its business, a department for the sale of eyeglasses and the furnishing of optometrical services to its
clients. It employed a registered optometrist who was compensated at a regular salary and commission
and who was furnished instruments and appliances needed for the work, as well as an office. In holding
that the corporation was not engaged in the practice of optometry, the court ruled that there is no
public policy forbidding the commercialization of optometry, as in law and medicine, and recognized
the general practice of making it a commercial business by advertising and selling eyeglasses.

To accomplish the objective of the regulation, a state may provide by statute that corporations cannot
sell eyeglasses, spectacles, and lenses unless a duly licensed physician or a duly qualified optometrist is
in charge of, and in personal attendance at the place where such articles are sold.[21] In such a case,
the patients primary and essential safeguard lies in the optometrists control of the "treatment" by means
of prescription and preliminary and final examination.[22]

In analogy, it is noteworthy that private hospitals are maintained by corporations incorporated for the
purpose of furnishing medical and surgical treatment. In the course of providing such treatments, these
corporations employ physicians, surgeons and medical practitioners, in the same way that in the course
of manufacturing and selling eyeglasses, eye frames and optical lenses, optical shops hire licensed
optometrists to examine, prescribe and dispense ophthalmic lenses. No one has ever charged that
these corporations are engaged in the practice of medicine. There is indeed no valid basis for treating
corporations engaged in the business of running optical shops differently.

It also bears stressing, as petitioner has pointed out, that the public and private respondents did not
appeal from the ruling of the Court of Appeals. Consequently, the holding by the Court of Appeals that
the act of respondent City Mayor in imposing the questioned special conditions on petitioners business
permit is ultra vires cannot be put into issue here by the respondents. It is well-settled that:

"A party who has not appealed from the decision may not obtain any affirmative relief
from the appellate court other than what he had obtain from the lower court, if any,
whose decision is brought up on appeal.[23]

xxx an appellee who is not an appellant may assign errors in his brief where his purpose is
to maintain the judgment on other grounds, but he cannot seek modification or reversal
of the judgment or affirmative relief unless he has also appealed." [24]

Thus, respondents submission that the imposition of subject special conditions on petitioners business
permit is not ultra vires cannot prevail over the finding and ruling by the Court of Appeals from which
they (respondents) did not appeal.

Anent the second assigned error, petitioner maintains that its business permit issued by the City Mayor is
not a contract entered into by Iligan City in the exercise of its proprietary functions, such that although
petitioner agreed to such conditions, it cannot be held in estoppel since ultra vires acts cannot be
given effect.

Respondents, on the other hand, agree with the ruling of the Court of Appeals that the business permit
in question is in the nature of a contract between Iligan City and the herein petitioner, the terms and
conditions of which are binding upon agreement, and that petitioner is estopped from questioning the
same. Moreover, in the Resolution denying petitioners motion for reconsideration, the Court of Appeals
held that the contract between the petitioner and the City of Iligan was entered into by the latter in the
performance of its proprietary functions.
This Court holds otherwise. It had occasion to rule that a license or permit is not in the nature of a
contract but a special privilege.

"xxx a license or a permit is not a contract between the sovereignty and the licensee or
permitee, and is not a property in the constitutional sense, as to which the constitutional
proscription against impairment of the obligation of contracts may extend. A license is
rather in the nature of a special privilege, of a permission or authority to do what is within
its terms. It is not in any way vested, permanent or absolute." [25]

It is therefore decisively clear that estoppel cannot apply in this case. The fact that petitioner
acquiesced in the special conditions imposed by the City Mayor in subject business permit does not
preclude it from challenging the said imposition, which is ultra vires or beyond the ambit of authority of
respondent City Mayor. Ultra vires acts or acts which are clearly beyond the scope of ones authority are
null and void and cannot be given any effect. The doctrine of estoppel cannot operate to give effect
to an act which is otherwise null and void or ultra vires.

The Court of Appeals erred in adjudging subject business permit as having been issued by respondent
City Mayor in the performance of proprietary functions of Iligan City. As hereinabove elaborated upon,
the issuance of business licenses and permits by a municipality or city is essentially regulatory in nature.
The authority, which devolved upon local government units to issue or grant such licenses or permits, is
essentially in the exercise of the police power of the State within the contemplation of the general
welfare clause of the Local Government Code.

WHEREFORE, the petition is GRANTED; the Decision of the Court of Appeals in CA-GR SP No. 22995
REVERSED; and the respondent City Mayor is hereby ordered to reissue petitioners business permit in
accordance with law and with this disposition. No pronouncement as to costs.

SO ORDERED.