G.R. No.

155683             February 16, 2007

PETRON CORPORATION, Petitioner,
vs.
NATIONAL COLLEGE OF BUSINESS AND ARTS, Respondent.

DECISION

CORONA, J.:

The sole question raised in this petition for review on certiorari1 is whether petitioner Petron
Corporation (Petron) should be held liable to pay attorney’s fees and exemplary damages to
respondent National College of Business and Arts (NCBA).

This case, however, is but part of a larger controversy over the lawful ownership of seven
parcels of land2 in the V. Mapa area of Sta. Mesa, Manila (the V. Mapa properties) that arose
out of a series of events that began in 1969.3

Sometime in 1969, the V. Mapa properties, then owned by Felipe and Enrique Monserrat, Jr.,
were mortgaged to the Development Bank of the Philippines (DBP) as part of the security for
the ₱5.2 million loan of Manila Yellow Taxicab Co., Inc. (MYTC) and Monserrat Enterprises Co.
MYTC, for its part, mortgaged four parcels of land located in Quiapo, Manila.

On March 31, 1975, however, Felipe’s ½ undivided interest in the V. Mapa properties was levied
upon in execution of a money judgment rendered by the Regional Trial Court (RTC) of Manila
in Filoil Marketing Corporation v. MYTC, Felipe Monserrat, and Rosario Vda. De Monserrat (the
Manila case).4 DBP challenged the levy through a third-party claim asserting that the V. Mapa
properties were mortgaged to it and were, for that reason, exempt from levy or attachment. The
RTC quashed it.

On June 18, 1981, MYTC and the Monserrats got DBP to accept a dacion en
pago arrangement whereby MYTC conveyed to the bank the four mortgaged Quiapo properties
as full settlement of their loan obligation. But despite this agreement, DBP did not release the V.
Mapa properties from the mortgage.

On May 21, 1982, Felipe, acting for himself and as Enrique’s attorney-in-fact, sold the V. Mapa
properties to respondent NCBA. Part of the agreement was that Felipe and Enrique would
secure the release of the titles to the properties free of all liens and encumbrances including
DBP’s mortgage lien and Filoil’s levy on or before July 31, 1982. But the Monserrats failed to
comply with this undertaking. Thus, on February 3, 1983, NCBA caused the annotation of an
affidavit of adverse claim on the TCTs covering the V. Mapa properties.

Shortly thereafter, NCBA filed a complaint against Felipe and Enrique for specific performance
with an alternative prayer for rescission and damages in the RTC of Manila. The case was
raffled to Branch 30 and docketed as Civil Case No. 83-16617. On March 30, 1983, NCBA had
a notice of lis pendens inscribed on the TCTs of the V. Mapa properties. A little over two years
later, NCBA impleaded DBP as an additional defendant in order to compel it to release the V.
Mapa properties from mortgage.
On February 28, 1985, during the pendency of Civil Case No. 83-16617, Enrique’s ½ undivided
interest in the V. Mapa properties was levied on in execution of a judgment of the RTC of Makati
(the Makati case)5 holding him liable to Petron (then known as Petrophil Corporation) on a 1972
promissory note. On April 29, 1985, the V. Mapa properties were sold at public auction to satisfy
the judgments in the Manila and Makati cases. Petron, the highest bidder, acquired both
Felipe’s and Enrique’s undivided interests in the property. The final deeds of sale of Enrique’s
and Felipe’s shares in the V. Mapa properties were awarded to Petron in 1986. Sometime later,
the Monserrats’ TCTs were cancelled and new ones were issued to Petron. Thus it was that,
towards the end of 1987, Petron intervened in NCBA’s suit against Felipe, Enrique and DBP
(Civil Case No. 83-16617) to assert its right to the V. Mapa properties.

The RTC rendered judgment on March 11, 1996.6 It ruled, among other things, that Petron
never acquired valid title to the V. Mapa properties as the levy and sale thereof were void and
that NCBA was now the lawful owner of the properties. Moreover, the RTC held Petron, DBP,
Felipe and Enrique jointly and severally liable to NCBA for exemplary damages and attorney’s
fees for the following reasons:

FELIPE and ENRIQUE had no reason to renege on their undertaking in the Deed of Absolute
Sale "to secure the release of the titles to the properties xxx free from all the liens and
encumbrances, and to cause the lifting of the levy on execution of Commercial Credit
Corporation, Industrial Finance Corporation[,] and Filoil over the V. Mapa [p]roperty. Moreover,
ENRIQUE had no reason to repudiate FELIPE and disavow authority he had [given] the latter to
sell his share in the V. Mapa property.

On the other hand, the mortgage in favor of DBP had been fully extinguished thru dacion en
pago as early as 18 June 1981 but it unjustifiably and whimsically refused to release the
mortgage and to surrender to the buyer (NCBA) the owner’s duplicate copies of Transfer
Certificates of Title No[s]. 83621 to 83627, thereby preventing NCBA from registering the sale in
its favor.

Similarly, [Petron] has absolutely no reason to claim the V. Mapa property. For, as shown
above, the levy in execution and sale of the shares of FELIPE and ENRIQUE in the V. Mapa
property were null and void.

Finally, in their Memorandum of Agreement dated 25 September 1992 with Technical Institute of
the Philippines, [Petron] and DBP attempted to pre-empt this Court’s power to adjudicate on the
claim of ownership stipulating that "to facilitate their defenses and cause of action in Civil Case
No. 83-16617," they agreed on the disposition of the V. Mapa property among themselves. For
obvious reasons, this Court refused to give its imprimatur and denied their prayer for dismissal
of the complaint against DBP.

These acts of defendants and intervenor demonstrate their wanton, fraudulent, reckless,
oppressive and malevolent conduct in their dealings with NCBA. Furthermore, they acted with
gross and evident bad faith in refusing to satisfy NCBA’s plainly valid and demandable claims.
Assessment of exemplary damages and attorney’s fees in the amounts of ₱100,000.00 and
₱150,000.00, respectively, is therefore in order (Arts. 2208 and 2232, Civil Code).7

Enrique, DBP and Petron appealed to the Court of Appeals (CA). The appeal was docketed as
CA–G.R. CV No. 53466. In a decision dated June 21, 2002,8 the CA affirmed the RTC
decision in toto. On motion for reconsideration, Petron and DBP tried to have the award of
exemplary damages and attorney’s fees deleted for lack of legal and factual basis. The
Philippine National Oil Company (PNOC), which had been allowed to intervene in the appeal as
transferee pendente lite of Petron’s right to the V. Mapa properties, moved for reconsideration
of the ruling on ownership. In a resolution dated October 16, 2002,9 the CA denied these
motions for lack of merit. Thereupon, Petron and PNOC took separate appeals to this Court.

In this appeal, the only issue is Petron’s liability for exemplary damages and attorney’s fees.
And on this matter, we reverse the rulings of the trial and appellate courts.

Article 2208 lays down the rule that in the absence of stipulation, attorney’s fees cannot be
recovered except in the following instances:

(1) When exemplary damages are awarded;

(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third
persons or to incur expense to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff’s plainly valid, just and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled
workers;

(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney’s fees
and expenses of litigation should be recovered.10

Here, the RTC held Petron liable to NCBA for attorney’s fees under Article 2208(5), which
allows such an award "where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiff’s plainly valid, just, and demandable claim." However, the only justification
given for this verdict was that Petron had no reason to claim the V. Mapa properties because, in
the RTC’s opinion, the levy and sale thereof were void.11 This was sorely inadequate and it was
erroneous for the CA to have upheld that ruling built on such a flimsy foundation.

Article 2208(5) contemplates a situation where one refuses unjustifiably and in evident bad faith
to satisfy another’s plainly valid, just and demandable claim, compelling the latter needlessly to
seek redress from the courts.12 In such a case, the law allows recovery of money the plaintiff
had to spend for a lawyer’s assistance in suing the defendant – expenses the plaintiff would not
have incurred if not for the defendant’s refusal to comply with the most basic rules of fair
dealing. It does not mean, however, that the losing party should be made to pay attorney’s fees
merely because the court finds his legal position to be erroneous and upholds that of the other
party, for that would be an intolerable transgression of the policy that no one should be
penalized for exercising the right to have contending claims settled by a court of law.13 In fact,
even a clearly untenable defense does not justify an award of attorney’s fees unless it amounts
to gross and evident bad faith.14

Petron’s claim to the V. Mapa properties, founded as it was on final deeds of sale on execution,
was far from untenable. No gross and evident bad faith could be imputed to Petron merely for
intervening in NCBA’s suit against DBP and the Monserrats in order to assert what it believed
(and had good reason to believe) were its rights and to have the disputed ownership of the V.
Mapa properties settled decisively in a single lawsuit.

With respect to the award of exemplary damages, the rule in this jurisdiction is that the plaintiff
must show that he is entitled to moral, temperate or compensatory damages before the court
may even consider the question of whether exemplary damages should be awarded.15 In other
words, no exemplary damages may be awarded without the plaintiff’s right to moral, temperate,
liquidated or compensatory damages having first been established. Therefore, in view of our
ruling that Petron cannot be made liable to NCBA for compensatory damages (i.e., attorney’s
fees), Petron cannot be held liable for exemplary damages either.

WHEREFORE, the petition is hereby GRANTED. The imposition of liability on Petron

Corporation for exemplary damages and attorney’s fees is REVOKED. The June 21, 2002
decision and October 16, 2002 resolution of the Court of Appeals in CA–G.R. CV No. 53466
and the March 11, 1996 decision of the Regional Trial Court of Manila in Civil Case No. 83-
16617 are hereby MODIFIED accordingly.

SO ORDERED.
.R. No. 121171 December 29, 1998

ASSET PRIVATIZATION TRUST, petitioner,

vs.
COURT OF APPEALS, JESUS S. CABARRUS, SR., JESUS S. CABARRUS, JR., JAIME T.
CABARRUS, JOSE MIGUEL CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO U.
MIRANDA, and MIGUEL M. ANTONIO, as Minority Stock-Holders of Marinduque Mining
and Industrial Corporation, respondents.

KAPUNAN, J.:

The petition for review on certiorari before us seeks to reverse and set aside the decision of the
Court of Appeals which denied due course to the petition for certiorari filed by the Asset
Privatization Trust (APT) assailing the order of the Regional Trial Court (RTC) Branch 62,
Makati City. The Makati RTC's order upheld and confirmed the award made by the Arbitration
Committee in favor of Marinduque Mining and Industrial Corporation (MMIC) and against the
Government, represented by herein petitioner APT for damages in the amount of P2.5 BILLION
(or approximately P4.5 BILLION, including interest).

Ironically, the staggering amount of damages was imposed on the Government for exercising its
legitimate right of foreclosure as creditor against the debtor MMIC as a consequence of the
latter's failure to pay its overdue and unpaid obligation of P22 billion to the Philippine National
Bank (PNB) and the Development Bank of the Philippines (DBP).

The antecedent facts

of the case.

The development, exploration and utilization of the mineral deposits in the Surigao Mineral
Reservation have been authorized by Republic Act No. 1528, as amended by Republic Acts
Nos. 2077 and 4167, by virtue of which laws, a Memorandum of Agreement was drawn on July
3, 1968, whereby the Republic of the Philippines thru the Surigao Mineral Reservation Board,
granted MMIC the exclusive right to explore, develop and exploit nickel, cobalt and other
minerals in the Surigao mineral reservation.1 MMIC is a domestic corporation engaged in
mining with respondent Jesus S. Cabarrus, Sr. as President and among its original
stockholders.

The Philippine Government undertook to support the financing of MMIC by purchase of

MMIC debenture bonds and extension of guarantees. Further, the Philippine Government
obtained a firm commitment form the DBP and/or other government financing
institutions to subscribe in MMIC and issue guarantee/s for foreign loans or deferred
payment arrangements secured from the US Eximbank, Asian Development Bank, Kobe
Steel, of amount not exceeding US$100 Million.2

DBP approved guarantees in favor of MMIC and subsequent requests for guarantees
were based on the unutilized portion of the Government commitment. Thereafter, the
Government extended accommodations to MMIC in various amounts.
On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust Agreement3 whereby
MMIC, as mortgagor, agreed to constitute a mortgage in favor or PNB and DBP as
mortgagees, over all MMIC's assets; subject of real estate and chattel mortgage executed
by the mortgagor, and additional assets described and identified, including assets of
whatever kind, nature or description, which the mortgagor may acquire whether in
substitution of, in replenishment, or in addition thereto.

Article IV of the Mortgage Trust Agreement provides for Events of Default, which
expressly includes the event that the MORTGAGOR shall fail to pay any amount secured
by this Mortgage Trust Agreement when due. 4

Article V of the Mortgage Trust Agreement prescribes in detail, and in addition to the
enumerated events of defaults, circumstances by which the mortgagor may be declared
in default, the procedure therefor, waiver of period to foreclose, authority of Trustee
before, during and after foreclosure, including taking possession of the mortgaged
properties.5

In various requests for advances/remittances of loans if huge amounts, Deeds of

Undertaking, Promissory Notes, Loan Documents, Deeds of Real Estate Mortgages,
MMIC invariably committed to pay either on demand or under certain terms the loans and
accommodations secured from or guaranteed by both DBP and PNB.

By 1984, DBP and PNB's financial both in loans and in equity in MMIC had reached
tremendous proportions, and MMIC was having a difficult time meeting its financial
obligations. MMIC had an outstanding loan with DBP in the amount of P13,792,607,565.92
as of August 31, 1984 and with PNB in the amount of P8,789,028,249.38 as July 15, 1984
or a total Government expose of Twenty Two Billion Six Hundred Sixty-Eight Million Five
Hundred Thirty-Seven Hundred Seventy and 05/100 (P22, 668,537,770.05), Philippine
Currency. 6 Thus, a financial restructuring plan (FRP) designed to reduce MMIC's interest
expense through debt conversion to equity was drafted by the Sycip Gorres Velayo
accounting firm. 7 On April 30, 1984, the FRP was approved by the Board of Directors of
the MMIC.8 However, the proposed FRP had never been formally adopted, approved or
ratified by either PNB or DBP.9

In August and September 1984, as the various loans and advances made by DBP and
PNB to MMIC had become overdue and since any restructuring program relative to the
loans was no longer feasible, and in compliance with the directive of Presidential Decree
No. 385, DBP and PNB as mortgagees of MMIC assets, decided to exercise their right to
extrajudicially foreclose the mortgages in accordance with the Mortgage Trust
Agreement. 10

The foreclosed assets were sold to PNB as the lone bidder and were assigned to three
newly formed corporations, namely, Nonoc Mining Corporation, Maricalum Mining and
Industrial Corporation, and Island Cement Corporation. In 1986, these assets were
transferred to the Asset Privatization Trust (APT). 11

On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other stockholders of
MMIC, filed a derivative suit against DBP and PNB before the RTC of Makati, Branch 62,
for Annulment of Foreclosures, Specific Performance and Damages. 12 The suit, docketed
as Civil Case No. 9900, prayed that the court: (1) annul the foreclosures, restore the
foreclosed assets to MMIC, and require the banks to account for their use and operation
in the interim; (2) direct the banks to honor and perform their commitments under the
alleged FRP; and (3) pay moral and exemplary damages, attorney's fees, litigation
expenses and costs.

In the course of the trial, private respondents and petitioner APT, as successor of the
DBP and the PNB's interest in MMIC, mutually agreed to submit the case to arbitration by
entering into a "Compromise and Arbitration Agreement," stipulating, inter alia:

NOW THEREFORE, for and in consideration of the foregoing premises and

the mutual covenants contained herein the parties agree as follows:

1. Withdrawal and Compromise. The parties have agreed to withdraw their

respective claims from the Trial Court and to resolve their dispute through
arbitration by praying to the Trial Court to issue a Compromise Judgment
based on this Compromise and Arbitration Agreement.

In withdrawing their dispute from the court and in choosing to resolve it

through arbitration, the parties have agreed that:

(a) their respective money claims shall be reduced to purely money claims;
and

(b) as successor and assignee of the PNB and DBP interests in MMIC and
the MMIC accounts, APT shall likewise succeed to the rights and
obligations of PNB and DBP in respect of the controversy subject of Civil
Case No. 9900 to be transferred to arbitration and any arbitral award/order
against either PNB and/or DBP shall be the responsibility be discharged by
and be enforceable against APT, the parties having agreed to drop PNB
and DBP from the arbitration.

2. Submission. The parties hereby agree that (a) the controversy in Civil
Case No. 9900 shall be submitted instead to arbitration under RA 876 and
(b) the reliefs prayed for in Civil Case No. 9900 shall, with the approval of
the Trial Court of this Compromise and Arbitration Agreement, be
transferred and reduced to pure pecuniary/money claims with the parties
waiving and foregoing all other forms of reliefs which they prayed for or
should have prayed for in Civil Case No. 9900. 13

The Compromise and Arbitration Agreement limited the issues to the following:

5. Issues The issues to be submitted for the Committee's resolution shall

be (a) Whether PLAINTIFFS have the capacity or the personality to institute
this derivative suit in behalf of the MMIC or its directors, (b) Whether or not
the actions leading to, and including,. the PNB-DBP foreclosure of the
MMIC assets were proper, valid and in good
faith. 14

This agreement was presented for approval to the trial court. On October 14, 1992, the
Makati RTC, Branch 61, issued an order, to wit:
 WHEREFORE, this Court orders:

1. Substituting PNB and DBP with the Asset Privatization

Trust as party defendant.

2. Approving the Compromise and Arbitration Agreement

dated October 6, 1997, attached as Annex "C" of the Omnibus
Motion.

3. Approving the Transformation of the reliefs prayed for [by]

the plaintiffs in this case into pure money claims; and

4. The Complaint is hereby DISMISSED. 15

The Arbitration Committee was composed of retired Supreme Court Justice Abraham
Sarmiento as Chairman, Atty. Jose C. Sison and former Court of Appeals Justice
Magdangal Elma as Members. On November 24, 1993, after conducting several hearings,
the Arbitration Committee rendered a majority decision in favor of MMIC, the pertinent
portions of which read as follows:

Since, as this Committee finds, there is no foreclosure at all as it was not

legally and validly done, the Committee holds and so declares that the
loans of PNB and DBP to MMIC. for the payment and recovery of which the
void foreclosure sales were undertaken, continue to remain outstanding
and unpaid. Defendant APT as the successor-in-interest of PNB and DBP to
the said loans is therefore entitled and retains the right, to collect the same
from MMIC pursuant to, and based on the loan documents signed by MMIC,
subject to the legal and valid defenses that the latter may duly and
seasonably interpose. Such loans shall, however, be reduced by the
amount which APT may have realized from the sale of the seized assets of
MMIC which by agreement should no longer be returned even if the
foreclosures were found to be null and void.

The documentary evidence submitted and adopted by the parties (Exhibits

"3", "3-B"; Exhibit "100"; and also Exhibit "ZZZ") as their exhibits would
show that the total outstanding obligation due to DBP and PNB as of the
date of foreclosure is P22,668,537,770.05, more or less.

Therefore defendant APT can, and is still entitled to, collect the outstanding
obligations of MMIC to PNB and DBP amounting to P22,668,537,770.05,
more or less, with interest thereon as stipulated in the loan documents
from the date of foreclosure up to the time they are fully paid less the
proportionate liability of DBP as owner of 87% of the total capitalization of
MMIC under the FRP. Simply put, DBP shall share in the award of damages
to, and in the obligations of, MMIC in proportion to its 87% equity in tile
total capital stock of MMIC.

x x x           x x x          x x x
 As this Committee holds that the FRP is valid, DBP's equity in MMIC is
raised to 87%. So pursuant to the above provision of the Compromise and
Arbitration Agreement, the 87% equity of DBP is hereby deducted from the
actual damages of P19,486,118,654.00 resulting in the net actual damages
of P2,531,635,425.02 plus interest.

DISPOSITION

WHEREFORE, premises considered, judgment is hereby rendered:

1. Ordering the defendant to pay to the Marinduque Mining and Industrial

Corporation, except the DBP, the sum of P2,531,635,425.02 with interest
thereon at the legal rate of six per cent (6%) per annum reckoned from
August 3, 9, and 24, 1984, pari passu, as and for actual damages. Payment
of these actual damages shall be offset by APT from the outstanding and
unpaid loans of MMIC with DBP and PNB, which have not been converted
into equity. Should there be any balance due to MMIC after the offsetting,
the same shall be satisfied from the funds representing the purchase price
of the sale of the shares of Island Cement Corporation in the amount of
P503,000,000.00 held under escrow pursuant to the Escrow Agreement
dated April 22, 1988 or to such subsequent escrow agreement that would
supercede [sic] it pursuant to paragraph (9) of the Compromise and
Arbitration Agreement;

2. Ordering the defendant to pay to the Marinduque Mining and Industrial

Corporation, except the DBP, the sum of P13,000.000.00, as and for moral
and exemplary damages. Payment of these moral and exemplary damages
shall be offset by APT from the outstanding and unpaid loans of MMIC with
DBP and PNB, which have not been converted into equity. Should there be
any balance due to MMIC after the offsetting, the same shall be satisfied
from the funds representing the purchase price of the sale of the shares of
Island Cement Corporation in the amount of P503,000,000.00 held under
escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supercede [sic] it pursuant to
paragraph (9) of the Compromise and Arbitration Agreement;

3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the
sum of P10,000,000.00, to be satisfied likewise from the funds held under
escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supersede it, pursuant to
paragraph (9) of the Compromise and Arbitration Agreement, as and for
moral damages; and

4. Ordering the defendant to pay arbitration costs.

This Decision is FINAL and EXECUTORY.

IT IS SO ORDERED. 16

Motions for reconsideration were filed by both parties, but the same were denied.
On October 17, 1993, private respondents filed in the same Civil Case No. 9900 an
"Application/Motion for Confirmation of Arbitration Award." Petitioner countered with an
"Opposition and Motion to Vacate Judgment" raising the following grounds.

1. The plaintiffs Application/Motion is improperly filed with this branch of

the Court, considering that the said motion is neither a part nor the
continuation of the proceedings in Civil Case No. 9900 which was
dismissed upon motion of the parties. In fact, the defendants in the said
Civil Case No. 9900 were the Development Bank of the Philippines and the
Philippine National Bank (PNB);

2. Under Section 71 of Rep. Act 876, an arbitration under a contract or

submission shall be deemed a special proceedings and a party to the
controversy which was arbitrated may apply to the court having
jurisdiction, (not necessarily with this Honorable Court) for an order
confirming the award;

3. The issues submitted for arbitration have been limited to two: (1)
propriety of the plaintiffs filing the derivative suit and (2) the regularity of
the foreclosure proceedings. The arbitration award sought to be confirmed
herein, far exceeded the issues submitted and even granted moral
damages to one of the herein plaintiffs;

4. Under Section 24 of Rep. Act 876, the Court must make an order vacating
the award where the arbitrators exceeded their powers, or so imperfectly
executed them, that a mutual, final and definite award upon the subject
matter submitted to them was not made. 17

Private respondents filed a "REPLY AND OPPOSITION" dated November 10, 1984,
arguing that a dismissal of Civil Case No. 9900 was merely a "qualified dismissal" to
pave the way for the submission of the controversy to arbitration and operated simply as
"a mere suspension of the proceedings" They denied that the Arbitration Committee had
exceeded its powers.

In an Order dated November 28, 1993, the trial court confirmed the award of the
Arbitration Committee. The dispositive portion of said order reads:

WHEREFORE, premises considered, and in the light of the parties [sic]

Compromise and Arbitration Agreement dated October 6, 1992, the
Decision of the Arbitration Committee promulgated on November 24, 1993,
as affirmed in a Resolution dated July 26, 1994, and finally settled and
clarified in the Separate Opinion dated September 2, 1994 of Committee
Member Elma, and the pertinent provisions of RA 876, also known as the
Arbitration Law, this Court GRANTS PLAINTIFFS' APPLICATION AND THUS
CONFIRMS THE ARBITRATION AWARD, AND JUDGMENT IS HEREBY
RENDERED:

(a) Ordering the defendant APT to the Marinduque Mining and Industrial
Corporation (MMIC), except the DBP, the sum of P3,811,757,425.00, as and
for actual damages, which shall be partially satisfied from the funds held
 under escrow in the amount of P503,000,000.00 pursuant to the Escrow
Agreement dated April 22, 1988. The balance of the award, after the escrow
funds are fully applied, shall be executed against the APT;

(b) Ordering the defendant to pay to the MMIC, except the DBP, the sum of
P13,000,000.00 as and for moral and exemplary damages;

(c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum of
P10,000,000.00 as and for moral damages; and

(d) Ordering the defendant to pay the herein plaintiffs/applicants/movants

the sum of P1,705,410.23 as arbitration costs.

In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8

paragraph 2 of the Compromise and Arbitration Agreement, and the final
edict of the Arbitration Committee's decision, and with this Court's
Confirmation, the issuance of the Arbitration Committee's Award shall
henceforth be final and executory.

SO ORDERED. 18

On December 27, 1994, petitioner filed its motion for reconsideration of the Order dated
November 28, 1994. Private respondents, in turn, submitted their reply and opposition
thereto.

On January 18, 1995, the trial court handed down its order denying APT's motion for
reconsideration for lack of merit and for having been filed out of time. The trial court
declared that "considering that the defendant APT, through counsel, officially and
actually received a copy of the Order of this Court dated November 28, 1994 on
December 6, 1994, the Motion for Reconsideration thereof filed by the defendant APT on
December 27, 1994, or after the lapse of 21 days, was clearly filed beyond the 15-day
reglementary period prescribed or provided for by law for the filing of an appeal from
final orders, resolutions, awards, judgments or decisions of any court in all cases, and
by necessary implication for the filing of a motion for reconsideration thereof."

On February 7, 1995, petitioner received private respondents' Motion for Execution and
Appointment of Custodian of Proceeds of Execution dated February 6, 1995.

Petitioner thereafter filed with the Court of Appeals a special civil action
for certiorari with temporary restraining order and/or preliminary injunction dated
February 13, 1996 to annul and declare as void the Orders of the RTC-Makati dated
November 28, 1994 and January 18, 1995 for having been issued without or in excess of
jurisdiction and/or with grave abuse of discretion. 19 As ground therefor, petitioner
alleged that:

THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION

MUCH LESS, HAS THE COURT AUTHORITY, TO CONFIRM THE ARBITRAL
 AWARD CONSIDERING THAT THE ORIGINAL CASE, CIVIL CASE NO. 9900,
HAD PREVIOUSLY BEEN DISMISSED.

II

THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION

AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION, IN ISSUING THE
QUESTIONED ORDERS CONFIRMING THE ARBITRAL AWARD AND
DENYING THE MOTION FOR RECONSIDERATION OF ORDER OF AWARD.

III

THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION AND

ACTED WITHOUT OR IN EXCESS OF AND WITHOUT JURISDICTION IN
RECKONING THE COUNTING OF THE PERIOD TO FILE MOTION FOR
RECONSIDERATION, NOT FROM THE DATE OF SERVICE OF THE COURT'S
COPY CONFIRMING THE AWARD, BUT FROM RECEIPT OF A XEROX COPY
OF WHAT PRESUMABLY IS THE OPPOSING COUNSEL'S COPY
THEREOF. 20

On July 12, 1995, he Court of Appeals, through its Fifth-Division, denied due course and
dismissed the petition for certiorari.

Hence, the instant petition for review on certiorari imputing to the Court of Appeals the
following errors:

ASSIGNMENT OF ERRORS

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE MAKATI

REGIONAL TRIAL COURT, BRANCH 62 WHICH HAS PREVIOUSLY
DISMISSED CIVIL CASE NO. 9900 HAD LOST JURISDICTION TO CONFIRM
THE ARBITRAL AWARD UNDER THE SAME CIVIL CASE AND NOT RULING
THAT THE APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN
FILED AS A NEW CASE TO BE RAFFLED OFF AMONG THE DIFFERENT
BRANCHES OF THE RTC.

II

THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT

PETITIONER WAS ESTOPPED FROM QUESTIONING THE ARBITRATION
AWARD, WHEN PETITIONER QUESTIONED THE JURISDICTION OF THE
RTC-MAKATI, BRANCH 62 AND AT THE SAME TIME MOVED TO VACATE
THE ARBITRAL AWARD.

III
 THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
RESPONDENT TRIAL COURT SHOULD HAVE EITHER DISMISSED/DENIED
PRIVATE RESPONDENTS' MOTION/PETITION FOR CONFIRMATION OF
ARBITRATION AWARD AND/OR SHOULD HAVE CONSIDERED THE
MERITS OF THE MOTION TO VACATE ARBITRAL AWARD.

IV

THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APT'S

PETITION FOR CERTIORARI AS AN APPEAL TAKEN FROM THE ORDER
CONFIRMING THE AWARD.

THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL ISSUE

OF WHEN TO RECKON THE COUNTING OF THE PERIOD TO FILE A
MOTION FOR RECONSIDERATION. 21

The petition is impressed with merit.

The RTC of Makati, Branch 62,

did not have jurisdiction to confirm

the arbitral award.

The use of the term "dismissed" is not "a mere semantic imperfection". The dispositive
portion of the Order of the trial court dated October 14, 1992 stated in no uncertain
terms:

4. The Complaint is hereby DISMISSED. 22

The term "dismiss" has a precise definition in law. "To dispose of an action, suit,
or motion without trial on the issues involved. Conclude, discontinue, terminate,
quash." 23

Admittedly, the correct procedure was for the parties to go back to the court where the
case was pending to have the award confirmed by said court. However, Branch 62 made
the fatal mistake of issuing a final order dismissing the case. While Branch 62 should
have merely suspended the case and not dismissed it,24 neither of the parties questioned
said dismissal. Thus, both parties as well as said court are bound by such error.

It is erroneous then to argue, as private respondents do, that petitioner APT was charged
with the knowledge that the "case was merely stayed until arbitration finished," as again,
the order of Branch 62 in very clear terms stated that the "complaint was dismissed." By
its own action, Branch 62 had lost jurisdiction over the case. It could not have validly
reacquired jurisdiction over the said case on mere motion of one of the parties. The
Rules of Court is specific on how a new case may be initiated and such is not done by
mere motion in a particular branch of the RTC. Consequently, as there was no "pending
action" to speak of, the petition to confirm the arbitral award should have been filed as a
new case and raffled accordingly to one of the branches of the Regional Trial Court.

II

Petitioner was not estopped from

questioning the jurisdiction of

Branch 62 of the RTC of Makati.

The Court of Appeals ruled that APT was already estopped to question the jurisdiction of
the RTC to confirm the arbitral award because it sought affirmative relief in said court by
asking that the arbitral award be vacated.

The rule is that "Where the court itself clearly has no jurisdiction over the subject matter
or the nature of the action, the invocation of this defense may be done at any time. It is
neither for the courts nor for the parties to violate or disregard that rule, let alone to
confer that jurisdiction this matter being legislative in character." 25 As a rule then,
neither waiver nor estoppel shall apply to confer jurisdiction upon a court barring highly
meritorious and exceptional circumstances. 26 One such exception was enunciated
in Tijam vs. Sibonghanoy, 27 where it was held that "after voluntarily submitting a cause
and encountering an adverse decision on the merits, it is too late for the loser to
question the jurisdiction or power of the court."

Petitioner's situation is different because from the outset, it has consistently held the
position that the RTC, Branch 62 had no jurisdiction to confirm the arbitral award;
consequently, it cannot be said that it was estopped from questioning the RTC's
jurisdiction. Petitioner's prayer for the setting aside of the arbitral award was not
inconsistent with its disavowal of the court's jurisdiction.

III

Appeal of petitioner to the

Court of Appeals thru certiorari

under Rule 65 was proper.

The Court of Appeals in dismissing APT's petition for certiorari upheld the trial court's
denial of APT's motion for reconsideration of the trial court's order confirming the
arbitral award, on the ground that said motion was filed beyond the 15-day reglementary
period; consequently, the petition for certiorari could not be resorted to as substitute to
the lost right of appeal.

We do not agree.
Section 99 of Republic Act No. 876, 28 provides that:

. . . An appeal may be taken from an order made in a proceeding under this

Act, or from a judgment entered upon an award
through certiorari proceedings, but such appeals shall be limited to
questions of law. . . ..

The aforequoted provision, however, does not preclude a party aggrieved by the arbitral
award from resorting to the extraordinary remedy of certiorari under Rule 65 of the Rules
of Court where, as in this case, the Regional Trial Court to which the award was
submitted for confirmation has acted without jurisdiction or with grave abuse of
discretion and there is no appeal, nor any plain, speedy remedy in the course of law.

Thus, Section 1 of Rule 65 provides:

Sec 1. Petition for Certiorari: — When any tribunal, board or officer

exercising judicial functions, has acted without or in excess of its or his
jurisdiction, or with grave abuse of discretion and there is no appeal, nor
any plain, speed, and adequate remedy in the ordinary course of law, a
person aggrieved thereby may file a verified petition in the proper court
alleging the facts with certainty and praying that judgment be rendered
annulling or modifying the proceedings, as the law requires, of such
tribunal, board or officer.

In the instant case, the respondent court erred in dismissing the special civil action
for certiorari, it being clear from the pleadings and the evidence that the trial court
lacked jurisdiction and/or committed grave abuse of discretion in taking cognizance of
private respondents' motion to confirm the arbitral award and, worse, in confirming said
award which is grossly and patently not in accord with the arbitration agreement, as will
be hereinafter demonstrated.

IV

The nature and limits of the

Arbitrators' power.

As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment
either as to the law or as to the facts. 29 Courts are without power to amend or overrule
merely because of disagreement with matters of law or facts determined by the
arbitrators. 30 They will not review the findings of law and fact contained in an award, and
will not undertake to substitute their judgment for that of the arbitrators, since any other
rule would make an award the commencement, not the end, of litigation. 31 Errors of law
and fact, or an erroneous decision of matters submitted to the judgment of the
arbitrators, are insufficient to invalidate an award fairly and honestly made. 32 Judicial
review of an arbitration is thus, more limited than judicial review of a trial. 33

Nonetheless, the arbitrators' award is not absolute and without exceptions. The
arbitrators cannot resolve issues beyond the scope of the submission agreement. 34 The
parties to such an agreement are bound by the arbitrators' award only to the extent and
in the manner prescribed by the contract and only if the award is rendered in conformity
thereto. 35 Thus, Sections 24 and 25 of the Arbitration Law provide grounds for vacating,
rescinding or modifying an arbitration award. Where the conditions described in Articles
2038, 36
2039, 37 and 1040 38 of the Civil Code applicable to compromises and arbitration are
attendant, the arbitration award may also be annulled.

In Chung Fu Industries (Phils.) vs. Court of Appeals, 39 we held:

. . . . It is stated explicitly under Art. 2044 of the Civil Code that the finality
of the arbitrators' award is not absolute and without exceptions. Where the
conditions described in Articles 2038, 2039 and 2040 applicable to both
compromises and arbitrations are obtaining, the arbitrator's award may be
annulled or rescended. Additionally, under Sections 24 and 25 of the
Arbitration Law, there are grounds for vacating, modifying or rescinding an
arbitrator's award. Thus, if and when the factual circumstances referred to
the above-cited provisions are present, judicial review of the award is
properly warranted.

According, Section 20 of R.A. 876 provides:

Sec. 20. Form and contents of award. — The award must be made in writing
and signed and acknowledge by a majority of the arbitrators, if more than
one; and by the sole arbitrator, if there is only only. Each party shall be
furnished with a copy of the award. The arbitrators in their award may grant
any remedy or relief which they deem just and equitable and within the
scope of the agreement of the parties, which shall include, but not be
limited to, the specific performance of a contract.

x x x           x x x          x x x

The arbitrators shall have the power to decide only those matters which
have been submitted to them. The terms of the award shall be confined to
such disputes. (Emphasis ours).

x x x           x x x          x x x

Sec. 24 of the same law enumerating the grounds for vacating an award states:

Sec. 24. Grounds for vacating award. — In any one of the following cases,
the court must make an order vacating the award upon the petition of any
party to the controversy when such party proves affirmatively that in the
arbitration proceeding:

(a) The award was procured by corruption, fraud, or other undue means; or

(b) That there was evident partiality or corruption in the arbitrators or any
of them; or
 (c) That the arbitrators were guilty of misconduct in refusing to postpone
the hearing upon sufficient cause shown, or in refusing to hear evidence
pertinent and material to the controversy; that one or more of the
arbitrators was disqualified to act as such under section nine hereof, and
willfully refrained from disclosing such disqualifications or any other
misbehavior by which the rights of any party have been materially
prejudiced; or

(d) That the arbitrators exceeded their powers, or so imperfectly executed

them, that a mutual, final and definite award upon the subject matter
submitted to them was not made. (Emphasis ours)

xxx xxx xxx.

Section 25 which enumerates the grounds for modifying the award provides:

Sec. 25. Grounds for modifying or correcting award — In anyone of the

following cases, the court must make an order modifying or correcting the
award, upon the application of any party to the controversy which was
arbitrated:

(a) Where there was an evident miscalculation of figures, or an evident

mistake in the description of any person, thing or property referred to in
the award; or

(b) Where the arbitrators have awarded upon a matter not submitted to
them, not affecting the merits of the decision upon the matter submitted; or

(c) Where the award is imperfect in a matter of form not affecting the merits
of the controversy, and if it had been a commissioner's report, the defect
could have been amended or disregarded by the court.

x x x           x x x          x x x

Finally, it should be stressed that while a court is precluded from overturning an award
for errors in the determination of factual issues, nevertheless, if an examination of the
record reveals no support whatever for the arbitrators determinations, their award must
be vacated. 40 in the same manner, an award must be vacated if it was made in "manifest
disregard of the law." 41

Against the backdrop of the foregoing provisions and principles, we find that the
arbitrators came out with an award in excess of their powers and palpably devoid of
factual and legal basis.

There was no financial

structuring program:
 foreclosure of mortgage

was fully justified.

The point need not be belabored that PNB and DBP had the legitimate right to foreclose
of the mortgages of MMIC whose obligations were past due. The foreclosure was not a
wrongful act of the banks and, therefore, could not be the basis of any award of
damages. There was no financial restructuring agreement to speak of that could have
constituted an impediment to the exercise of the banks' right to foreclose.

As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who
wrote a separate opinion:

1. The various loans and advances made by DBP and PNB to MMIC have
become overdue and remain unpaid. The fact that a FRP was drawn up is
enough to establish that MMIC has not been complying with the terms of
the loan agreement. Restructuring simply connotes that the obligations are
past due that is why it is "restructurable";

2. When MMIC thru its board and the stockholders agreed and adopted the
FRP, it only means that MMIC had been informed or notified that its
obligations were past due and that foreclosure is forthcoming;

3. At that stage, MMIC also knew that PNB-DBP had the option of either
approving the FRP or proceeding with the foreclosure. Cabarrus, who filed
this case supposedly in behalf of MMIC should have insisted on the FRP.
Yet Cabarrus himself opposed the FRP;

4. So when PNB-DBP proceeded with the foreclosure, it was done without

bad faith but with the honest and sincere belief that foreclosure was the
only alternative; a decision further explained by Dr. Placido Mapa who
testified that foreclosure was, in the judgment of PNB, the best move to
save MMIC itself.

Q : Now in this portion of Exh. "L" which was marked as Exh. "L-1", and we
adopted as Exh. 37-A for the respondent, may I know from you, Dr. Mapa
what you meant by "that the decision to foreclose was neither precipitate
nor arbitrary"?

A : Well, it is not a whimsical decision but rather decision arrived at after

weighty consideration of the information that we have received, and
listening to the prospects which reported to us that what we had assumed
would be the premises of the financial rehabilitation plan was not
materialized nor expected to materialize.

Q : And this statement that "it was premised upon the known fact" that
means, it was referring to the decision to foreclose, was premised upon the
known fact that the rehabilitation plan earlier approved by the stockholders
was no longer feasible, just what is meant "by no longer feasible"?
 A : Because the revenue that they were counting on to make the
rehabilitation plan possible, was not anymore expected to be forthcoming
because it will result in a short fall compared to the prices that were
actually taking place in the market.

Q : And I suppose that was what you were referring to when you stated that
the production targets and assumed prices of MMIC's products, among
other projections, used in the financial reorganization program that will
make it viable were not met nor expected to be met?

A : Yes.

x x x           x x x          x x x

Which brings me to my last point in this separate opinion. Was PNB and
DBP absolutely unjustified in foreclosing the mortgages?

In this connection, it can readily be seen and it cannot quite be denied that
MMIC accounts in PNB-DBP were past due. The drawing up of the FRP is
the best proof of this. When MMIC adopted a restructuring program for its
loan, it only meant that these loans were already due and unpaid. If these
loans were restructurable because they were already due and unpaid, they
are likewise "forecloseable". The option is with the PNB-DBP on what steps
to take.

The mere fact that MMIC adopted the FRP does not mean that DBP-PNB
lost the option to foreclose. Neither does it mean that the FRP is legally
binding and implementable. It must be pointed that said FRP will, in effect,
supersede the existing and past due loans of MMIC with PNB-DBP. It will
become the new loan agreement between the lenders and the borrowers.
As in all other contracts, there must therefore be a meeting of minds of the
parties; the PNB and DBP must have to validly adopt and ratify such FRP
before they can be bound by it; before it can be implemented. In this case,
not an iota of proof has been presented by the PLAINTIFFS showing that
PNB and DBP ratified and adopted the FRP. PLAINTIFFS simply relied on a
legal doctrine of promissory estoppel to support its allegations in this
regard. 42

Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated by P.D. No.
385, which took effect on January 31, 1974. The decree requires government financial
institutions to foreclose collaterals for loans where the arrearages amount to 20% of the
total outstanding obligations. The pertinent provisions of said decree read as follow:

Sec. 1. It shall be mandatory for government financial institutions, after the

lapse of sixty (60) days from the issuance of this Decree, to foreclose the
collaterals and/or securities for any loan, credit, accommodation, and/or
guarantees granted by them whenever the arrearages on such account,
including accrued interest and other charges, amount to at least twenty
percent (20%) of the total outstanding obligations, including interest and
other charges, as appearing in the books of account and/or related records
 of the financial institutions concerned. This shall be without prejudice to
the exercise by the government financial institutions of such rights and/or
remedies available to them under their respective contracts with their
debtors, including the right to foreclosure on loans, credits,
accommodations and/or guarantees on which the arrearages are less than
twenty percent (20%).

Sec. 2. No restraining order temporary or permanent injunction shall be

issued by the court against any government financial institution in any
action taken by such institution in compliance with the mandatory
foreclosure provided in Section 1 hereof, whether such restraining order,
temporary or permanent injunction is sought by the borrower(s) or any
third party or parties, except after due hearing in which it is established by
the borrower and admitted by the government financial institution
concerned that twenty percent (20%) of the outstanding arrearages has
been paid after the filing of foreclosure proceedings. (Emphasis supplied.)

Private respondents' thesis that the foreclosure proceedings were null and void because
of lack of publication in the newspaper is nothing more than a mere unsubstantiated
aliegation not borne out by the evidence. In any case, a disputable presumption exists in
favor of petitioner that official duty has been regularly performed and ordinary course of
business has been followed. 43

VI

Not only was the foreclosure rightfully exercised by the PNB and DBP, but also, from the
facts of the case, the arbitrators in making the award went beyond the arbitration
agreement.

In their complaint filed before the trial court, private respondent Cabarrus, et al. prayed
for judgment in their favor:

1. Declaring the foreclosures effected by the defendants DBP and PNB on

the assets of MMIC null and void and directing said defendants to restore
the foreclosed assets to the possession of MMIC, to render an accounting
of their use and/or operation of said assets and to indemnify MMIC for the
loss occasioned by its dispossession or the deterioration thereof;

2. Directing the defendants DBP and PNB to honor and perform their
commitments under the financial reorganization plan which was approved
at the annual stockholders' meeting of MMIC on 30 April 1984;

3. Condemning the defendants DBP and PNB, jointly and severally to pay
the plaintiffs actual damages consisting of the loss of value of their
investments amounting to not less than P80,000,000, the damnum
emergens and lucrum cessans in such amount as may be established
during the trial, moral damages in such amount as this Honorable Court
may deem just and equitable in the premises, exemplary damages in such
amount as this Honorable Court may consider appropriate for the purpose
of setting an example for the public good, attorney's fees and litigation
 expenses in such amounts as may be proven during the trial, and the costs
legally taxable in this litigation.

Further, plaintiffs pray for such other reliefs as may be just and equitable in
the premises. 44

Upon submission for arbitration, the Compromise and Arbitration Agreement of the
parties clearly and explicitly defined and limited the issues to the following:

(a) whether PLAINTIFFS have the capacity or the personality to institute

this derivative suit in behalf of the MMIC or its directors;

(b) whether or not the actions leading to, and including, the PNB-DBP
foreclosure of the MMIC assets were proper, valid and in good faith. 45

Item No. 8 of the Agreement provides for the period by which the Committee was to
render its decision, as well as the nature thereof:

8. Decision. The committee shall issue a decision on the controversy not

later than six (6) months from the date of its constitution.

In the event the committee finds that PLAINTIFFS have the personality to
file this suit and the extra-judicial foreclosure of the MMIC assets wrongful,
it shall make an award in favor of the PLAINTIFFS (excluding DBP), in an
amount as may be established or warranted by the evidence which shall be
payable in Philippine Pesos at the time of the award. Such award shall be
paid by the APT or its successor-in-interest within sixty (60) days from the
date of the award in accordance with the provisions of par. 9 hereunder. . . .
. The PLAINTIFFS' remedies under this Section shall be in addition to other
remedies that may be available to the PLAINTIFFS, all such remedies being
cumulative and not exclusive of each other.

On the other hand, in case the arbitration committee finds that PLAINTIFFS
have no capacity to sue and/or that the extra-judicial foreclosure is valid
and legal, it shall also make an award in favor of APT based on the
counterclaims of DBP and PNB in an amount as may be established or
warranted by the evidence. This decision of the arbitration committee in
favor of APT shall likewise finally settle all issues regarding the foreclosure
of the MMIC assets so that the funds held in escrow mentioned in par. 9
hereunder will thus be released in full in favor of
APT. 46

The clear and explicit terms of the submission notwithstanding, the Arbitration
Committee clearly exceeded its powers or so imperfectly executed them: (a) in ruling on
and declaring valid the FRP; (b) in awarding damages to MMIC which was not a party to
the derivative suit; and (c) in awarding moral damages to Jesus S. Cabarrus, Sr.

The arbiters overstepped

their powers by declaring as

 valid the proposed Financial

Restructuring Program.

The Arbitration Committee went beyond its mandate and thus acted in excess of its
powers when it ruled on the validity of, and gave effect to, the proposed FRP.

In submitting the case to arbitration, the parties had mutually agreed to limit the issue to
the "validity of the foreclosure" and to transform the relief prayed for therein into pure
money claims.

There is absolutely no evidence that the DBP and PNB agreed, expressly or impliedly, to
the proposed FRP. It cannot be overemphasized that a FRP, as a contract, requires the
consent of the parties thereto. 47 The contract must bind both contracting
parties. 48 Private respondents even by their own admission recognized that the FRP had
yet not been carried out and that the loans of MMIC had not yet been converted into
equity. 49

However, the Arbitration Committee not only declared the FRP valid and effective, but
also converted the loans of MMIC into equity raising the equity of DBP to 87%. 50

The Arbitration Committee ruled that there was "a commitment to carry out the
FRP" 51 on the ground of promissory estoppel.

Similarly, the principle of promissory estoppel applies in the present case

considering as we observed, the fact that the government (that is, Alfredo
Velayo) was the FRP's proponent. Although the plaintiffs are agreed that
the government executed no formal agreement, the fact remains that the
DBP itself which made representations that the FRP constituted a "way
out" for MMIC. The Committee believes that although the DBP did not
formally agree (assuming that the board and stockholders' approvals were
not formal enough), it is bound nonetheless if only for its conspicuous
representations.

Although the DBP sat in the board in a dual capacity — as holder of 36% of
MMIC's equity (at that time) and as MMIC's creditor — the DBP can not
validly renege on its commitments simply because at the same time, it held
interests against the MMIC.

The fact, of course, is that as APT itself asserted, the FRP was being
"carried out" although apparently, it would supposedly fall short of its
targets. Assuming that the FRP would fail to meet its targets, the DBP —
and so this Committee holds — can not, in any event, brook any denial that
it was bound to begin with, and the fact is that adequate or not (the FRP),
the government is still bound by virtue of its acts.

The FRP, of course, did not itself promise a resounding success, although
it raised DBP's equity in MMIC to 87%. It is not an excuse, however, for the
government to deny its commitments. 52
Atty. Sison, however, did not agree and correctly observed that:

But the doctrine of promissory estoppel can hardly find application here.
The nearest that there can be said of any estoppel being present in this
case is the fact that the board of MMIC was, at the time the FRP was
adopted, mostly composed of PNB and DBP representatives. But those
representatives, singly or collectively, are not themselves PNB or DBP.
They are individuals with personalities separate and distinct from the
banks they represent. PNB and DBP have different boards with different
members who may have different decisions. It is unfair to impose upon
them the decision of the board of another company and thus pin them
down on the equitable principle of estoppel. Estoppel is a principle based
on equity and it is certainly not equitable to apply it in this particular
situation. Otherwise the rights of entirely separate distinct and
autonomous legal entities like PNB and DBP with thousands of
stockholders will be suppressed and rendered nugatory. 53

As a rule, a corporation exercises its powers, including the power to enter into contracts,
through its board of directors. While a corporation may appoint agents to enter into a
contract in its behalf, the agent should not exceed his authority. 54 In the case at bar,
there was no showing that the representatives of PNB and DBP in MMIC even had the
requisite authority to enter into a debt-for-equity swap. And if they had such authority,
there was no showing that the banks, through their board of directors, had ratified the
FRP.

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

Besides, it is not yet a well settled jurisprudence that corporations are

entitled to moral damages. While the Supreme Court may have awarded
moral damages to a corporation for besmirched reputation in Mambulao vs.
PNB, 22 SCRA 359, such ruling cannot find application in this case. It must
be pointed out that when the supposed wrongful act of foreclosure was
done, MMIC's credit reputation was no longer a desirable one. The
company then was already suffering from serious financial crisis which
definitely projects an image not compatible with good and wholesome
reputation. So it could not be said that there was a "reputation" besmirched
by the act of foreclosure. 55

The arbiters exceeded their

authority in awarding damages

to MMIC, which is not impleaded

 as a party to the derivative suit.

Civil Case No. 9900 filed before the RTC being a derivative suit, MMIC should have been
impleaded as a party. It was not joined as a party plaintiff or party defendant at any stage
of the proceedings. As it is, the award of damages to MMIC, which was not a party before
the Arbitration Committee, is a complete nullity.

Settled is the doctrine that in a derivative suit, the corporation is the real party in interest
while the stockholder filing suit for the corporation's behalf is only a nominal party. The
corporation should be included as a party in the suit.

An individual stockholder is permitted to institute a derivative suit on

behalf of the corporation wherein he holds stock in order to protect or
vindicate corporate rights, whenever the officials of the corporation refuse
to sue, or are the ones to be sued or hold the control of the corporation. In
such actions, the suing stockholder is regarded as a nominal party, with
the corporation as the real party in interest. . . . . 56

It is a condition sine qua non that the corporation be impleaded as a party because —

. . . Not only is the corporation an indispensable party, but it is also the

present rule that it must be served with process. The reason given is that
the judgment must be made binding upon the corporation in order that the
corporation may get the benefit of the suit and may not bring a subsequent
suit against the same defendants for the same cause of action. In other
words the corporation must be joined as party because it is its cause of
action that is being litigated and because judgment must be a res
ajudicata against it. 57

The reasons given for not allowing direct individual suit are:

(1) . . . "the universally recognized doctrine that a stockholder in a

corporation has no title legal or equitable to the corporate property; that
both of these are in the corporation itself for the benefit of the
stockholders." In other words, to allow shareholders to sue separately
would conflict with the separate corporate entity principle;

(2) . . . that the prior rights of the creditors may be prejudiced. Thus, our
Supreme Court held in the case of Evangelista v. Santos, that "the
stockholders may not directly claim those damages for themselves for that
would result in the appropriation by, and the distribution among them of
part of the corporate assets before the dissolution of the corporation and
the liquidation of its debts and liabilities, something which cannot be
legally done in view of section 16 of the Corporation Law . . .;

(3) the filing of such suits would conflict with the duty of the management
to sue for the protection of all concerned;

(4) it would produce wasteful multiplicity of suits; and

 (5) it would involve confusion in a ascertaining the effect of partial recovery
by an individual on the damages recoverable by the corporation for the
same act. 58

If at all an award was due MMIC, which it was not, the same should have been
given sans deduction, regardless of whether or not the party liable had equity in the
corporation, in view of the doctrine that a corporation has a personality separate and
distinct from its individual stockholders or members. DBP's alleged equity, even if it were
indeed 87%, did not give it ownership over any corporate property, including the
monetary award, its right over said corporate property being a mere expectancy or
inchoate right. 59 Notably, the stipulation even had the effect of prejudicing the other
creditors of MMIC.

The arbiters, likewise,

exceeded their authority

in awarding moral damages

to Jesus Cabarrus, Sr.

It is perplexing how the Arbitration Committee can in one breath rule that the case before
it is a derivative suit, in which the aggrieved party or the real party in interest is
supposedly the MMIC, and at the same time award moral damages to an individual
stockholder, to wit:

WHEREFORE, premises considered, judgment is hereby rendered:

x x x           x x x          x x x

3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the
sum of P10,000,000.00, to be satisfied likewise from the funds held under
escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supersede it, pursuant to
paragraph (9), Compromise and Arbitration Agreement, as and for moral
damages; . . . 60

The majority decision of the Arbitration Committee sought to justify its award of moral
damages to Jesus S. Cabarrus, Sr. by pointing to the fact that among the assets seized
by the government were assets belonging to Industrial Enterprise Inc. (IEI), of which
Cabarrus is the majority stockholder. It then acknowledged that Cabarrus had already
recovered said assets in the RTC, but that "he won no more than actual damages. While
the Committee cannot possibly speak for the RTC, there is no doubt that Jesus S.
Cabarrus, Sr., suffered moral damages on account of that specific foreclosure, damages
the Committee believes and so holds, he, Jesus S. Cabarrus, Sr., may be awarded in this
proceeding." 61

Cabarrus cause of action for the seizure of the assets belonging to IEI, of which he is the
majority stockholder, having been ventilated in a complaint he previously filed with the
RTC, from which he obtained actual damages, he was barred by res judicata from filing a
similar case in another court, this time asking for moral damages which he failed to get
from the earlier case. 62 Worse, private respondents violated the rule against non-forum
shopping.

It is a basic postulate that a corporation has a personality separate and distinct from its
stockholders. 63 The properties foreclosed belonged to MMIC, not to its stockholders.
Hence, if wrong was committed in the foreclosure, it was done against the corporation.
Another reason is that Jesus S. Cabarrus, Sr. cannot directly claim those damages for
himself that would result in the appropriation by, and the distribution to, him part of the
corporation's assets before the dissolution of the corporation and the liquidation of its
debts and liabilities. The Arbitration Committee, therefore, passed upon matters nor
submitted to it. Moreover, said cause of action had already been decided in a separate
case. It is thus quite patent that the arbitration committee exceeded the authority granted
to it by the parties' Compromise and Arbitration Agreement by awarding moral damages
to Jesus S. Cabarrus, Sr.

Atty. Sison, in his separate opinion, likewise expressed befuddlement to the award of
moral damages to Jesus S. Cabarrus, Sr.:

It is clear and it cannot be disputed therefore that based on these

stipulated issues, the parties themselves have agreed that the basic
ingredient of the causes of action in this case is the wrong committed on
the corporation (MMIC) for the alleged illegal foreclosure of its assets. By
agreeing to this stipulation, PLAINTIFFS themselves (Cabarrus, et
al.) admit that the cause of action pertains only to the corporation
(MMIC) and that they are filing this for and in behalf of MMIC.

Perforce this has to be so because it is the basic rule in Corporation Law

that "the shareholders have no title, legal or equitable to the property which
is owned by the corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil.
83). In Ganzon & Sons vs. Register of Deeds, 6 SCRA 373, the rule has been
reiterated that "a stockholder is not the co-owner of corporate property."
Since the property or assets foreclosed belongs [sic] to MMIC, the wrong
committed, if any, is done against the corporation. There is therefore no
direct injury or direct violation of the rights of Cabarrus et al. There is no
way, legal or equitable, by which Cabarrus et al. could recover damages in
their personal capacities even assuming or just because the foreclosure is
improper or invalid. The Compromise and Arbitration Agreement itself and
the elementary principles of Corporation Law say so. Therefore, I am
constrained to dissent from the award of moral damages to Cabarrus. 64

From the foregoing discussions, it is evident that, not only did the arbitration committee
exceed its powers or so imperfectly execute them, but also, its findings and conclusions
are palpably devoid of any factual basis, and in manifest disregard of the law.

We do not find it necessary to remand this case to the RTC for appropriate action. The
pleadings and memoranda filed with this Court, as well as in the Court of Appeals, raised
and extensively discussed the issues on the merits. Such being the case, there is
sufficient basis for us to resolve the controversy between the parties anchored on the
records and the pleadings before us. 65
WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as well as the
Orders of the Regional Trial Court of Makati, Branch 62, dated November 28, 1994 and
January 19, 1995, is hereby REVERSED and SET ASIDE, and the decision of the
Arbitration Committee is hereby VACATED.

SO ORDERED.

Romero, J., Please see dissenting opinion.

Purisima, J., Concur and also with the separate concurring opinion of Justice Pardo.

Pardo, J., With separate concurring opinion.

Separate Opinions

ROMERO, J., dissenting opinion;

In the instant petition for review on certiorari, petitioner. Asset Privatization Trust (APT)
is impugning the decision of respondent Court of Appeals in CA-GR SP No. 36484 dated
July 17, 1995, grounded upon the following assigned errors which it had allegedly
committed:

1) The Court of Appeals erred in not holding that the Makati Regional Trial
Court, Branch 62, which had previously dismissed Civil Case No. 9900, had
lost jurisdiction to confirm the arbitral award under the same civil case and
in not ruling that the application for confirmation should have been filed as
a new case to be raffled among the different branches of the RTC;

2) The Court of Appeals likewise erred in holding that petitioner was

estopped from questioning the arbitration award, when petitioner
questioned the jurisdiction of the RTC-Makati, Branch 62, and at the same
time moved to vacate the arbitral award;

3) The Court of Appeals erred in not holding that the respondent Trial Court
should have either dismissed/denied private respondents' motion/petition
for confirmation of arbitration award and/or should have considered the
merits of the motion to vacate (the) arbitral award;

4) The Court of Appeals erred in not treating petitioner APT's petition

for certiorari as an appeal taken from the order confirming the award; and
 5) The Court of Appeals erred in not ruling on the legal issue of when to
reckon the counting of the period to file a motion for reconsideration.1

The resolution of these issues will ultimately test the process of arbitration, how effective
or ineffective it is as an alternative mode of settling disputes, and how it is affected by
judicial review. My esteemed colleagues have taken the view that the petition is
impressed with merit and that the assailed decision of the Court of Appeals should be
reversed. In doing so, I believe they have dealt arbitration a terrible blow and wasted
years, even decades, of development in this field. I beg to differ and, therefore, dissent.

The controversy is actually simpler than it appears. The Marinduque Mining and
Industrial Corporation (MMIC) obtained several loans from the Philippine National Bank
(PNB) and the Development Bank of the Philippines (DBP) secured by mortgages over
practically all of its assets. As of July 15, 1984, MMIC's obligation had ballooned to
P22,668,537,770.05, 2 and it had no way of making the required payments. MMIC and its
two creditor banks thus ironed out a complex financial restructuring plan (FRP) designed
to drastically reduce MMIC's liability through a "debt-to-equity" scheme. 3 This
notwithstanding, the creditors opted to sell MMIC's mortgaged properties through
extrajudicial foreclosure proceedings, where PNB turned out to be the lone bidder.4

Aggrieved by this apparent bad faith on the part of the creditor banks, private
respondents Jesus S. Cabarrus, Sr., and other minority stockholders of MMIC filed a
derivative suit5 against PNB and DBP before the Makati Regional Trial Court. They prayed
for the annulment of the foreclosure and for the restoration of the company's assets, the
recognition by the creditor banks of their commitments under the FRP, and the payment
of damages, as well as attorney's fees and costs of litigation. The case was raffled to
Branch 62 and docketed as Civil Case No. 9900.

In the meantime, the rights and interests of PNB and DBP, including MMIC's
indebtedness, were transferred to petitioner, created by virtue of Proclamation No. 50, in
relation to Administrative Order No. 14. Hence, petitioner was substituted as party
defendant in Civil Case No. 9900.

On October 6, 1992, the parties entered into a Compromise and Arbitration

Agreement 6 providing, inter alia, that they were withdrawing their respective claims,
which would be reduced to pure money claims, and that they were submitting the
controversy to arbitration under Republic Act No. 876.7 The issues for arbitration were
thus limited to a determination of the plaintiffs' capacity or right to institute the derivative
suit in behalf of the MMIC or its directors, and of the propriety of the foreclosure. Of
notable import was the provision on the nature of the judgment that the arbitration
committee might render, viz.:

10. Binding Effect and Enforcement. The award of the arbitration committee

shall be final and executory upon its issuance upon the parties to the
arbitration and their assigns and successors-in-interest. In the event the
award is not voluntarily satisfied by the losing party, the party in whose
favor the award has been made may, pursuant to Republic Act No. 876,
apply to the proper Regional Trial Court for its enforcement. (Emphasis
supplied)
Upon motion of the parties, this agreement was presented to the court a quo for its
approval.8 On October 14, 1992, said court issued an order (a) dismissing the complaint;
(b) substituting the creditor banks with the APT as party defendant; (c) "approving the
Compromise and Arbitration Agreement dated October 6, 1992"; and (d) "approving the
transformation of the reliefs prayed for by the plaintiffs in this case into pure money
claims."9

On November 24, 1993, after more than six months of hearing, the arbitration
committee 10 concluded that the assailed foreclosure was not valid and accordingly
decided the case in favor of MMIC. Hence, petitioner was ordered to pay MMIC actual
damages in the amount of P2,531,635,425.02, with legal interest, and moral and
exemplary damages amounting to P13,000,000.00, and to pay Jesus S. Cabarrus, Sr., the
sum of P10,000,000.00 by way of moral damages, such awards to be offset from the
outstanding and unpaid obligations of MMIC with the creditor banks, which have not
been converted into equity. The committee likewise decreed its decision to be "final and
executory." 11

Nearly a year later, MMIC filed in Civil Case No. 9900, a verified "Application/Motion for
Confirmation of Arbitration Award." 12 This was opposed by petitioner on two grounds,
namely, that Branch 62 no longer had jurisdiction to act on said motion after it
"dismissed" the complaint in its order of October 14, 1992, and that the award "far
exceeded the issues submitted" for arbitration by the parties. 13 Not wanting to be
outdone, MMIC filed a "Reply and Opposition," arguing that the "qualified dismissal" of
Civil Case No. 9900 was merely intended to expedite the submission of the controversy
to arbitration and was, therefore, "a mere suspension of the proceedings," and that the
arbitration committee did not exceed its authority in making the award.

On November 28, 1994, the trial court issued an order 14 confirming the award of the
committee in all respects except as to the award of actual damages to MMIC, which was
increased to P3,811,757,425.00. The order closed with the following declaration:

In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8

paragraph 2 of the Compromise and Arbitration Agreement, and the final
edict of the Arbitration Committee's decision, and with this Court's
Confirmation, the issuance of the Arbitration Committee's Award shall
henceforth be final and executory.

Petitioner filed a "Motion for Reconsideration" of said order on December 27, 1994; but
this was denied by the court a quo in its order dated January 18, 1995 for lack of merit
and for having been filed beyond the reglementary period. Thus, it said:

. . . (C)onsidering that the defendant APT, through counsel, officially and

actually received a copy of the Order of this Court dated November 28,
1994 on December 6, 1994, the Motion for Reconsideration thereof filed by
the defendant APT on December 27, 1994, or after the lapse of 21 days, was
clearly filed beyond the 15-day reglementary period prescribed or provided
for . . . (by law) for the filing of an appeal from final orders, resolutions,
awards, judgments or decisions of any court in all cases, and by necessary
implication, for the filing of a motion for reconsideration thereof.
Instead of appealing such denial, petitioner filed on February 15, 1995, an "Appeal by
Certiorari . . . . under Sections 1 and 2 of Rule 65 of the Revised Rules of Court" before
the Court of Appeals, praying for the nullification of the trial court's orders dated
November 28, 1994 and January 18, 1995. It argued that the trial court had no jurisdiction
or authority to confirm the arbitral award, "considering that the original case, Civil Case
No. 9900, had previously been dismissed," and that the trial judge "acted with grave
abuse of discretion in issuing the questioned orders confirming the award and denying
the motion for reconsideration thereof." 15

On July 17, 1995, the Court of Appeals dismissed the petition for lack of merit. 16 From
this dismissal, petitioner elevated its cause to this Tribunal for a review, raising the
issues stated at the outset.

I find it distressing that, in reaching the outcome of this controversy, the majority has
emasculated the process of arbitration itself. This should not be the case for after all, the
decision of the arbitration committee is no longer the one being attacked in these
proceedings, but the judgment of the Court of Appeals which herein petitioner found to
be erroneous. The Court has had occasion to trace the history of arbitration and to
discuss its significance in the case of Chung Fu Industries (Phils.), Inc. v. Court of
Appeals, 17 viz.:

Allow us to take a leaf from history and briefly trace the evolution of
arbitration as a mode of dispute settlement.

Because conflict is inherent in human society, much effort has been

expended by men and institutions in devising ways of resolving the same.
With the progress of civilization, physical combat has been ruled out and
instead, more specific means have been evolved, such as recourse to the
good offices of a disinterested third party, whether this be a court or a
private individual or individuals.

Legal history discloses that "early judges called upon to solve private
conflicts were primarily the arbiters, persons not specially trained but in
whose morality, probity and good sense the parties in conflict reposed full
trust. Thus, in Republican Rome, arbiter and judge (judex) were
synonymous. The magistrate of praetor, after noting down the conflicting
claims of litigants, and clarifying the issues, referred them for decision to a
private person designated by the parties, by common agreement, or
selected by them from an apposite listing (the album judicium) or else by
having the arbiter chosen by lot. The judges proper, as specially trained
state officials endowed with (their) own power and jurisdiction, and taking
cognizance of litigations from beginning to end, only appeared under the
Empire, by the so-called cognitio extra ordinem."

Such means of referring a dispute to a third party has also long been an
accepted alternative to litigation at common law.

Sparse though the law and jurisprudence may be on the subject of

arbitration in the Philippines, it was nonetheless recognized in the Spanish
Civil Code; specifically, the provisions on compromises made applicable to
arbitrations under Articles 1820 and 1821. Although said provisions were
repealed by implication with the repeal of the Spanish Law of Civil
Procedure, these and additional ones were reinstated in the present Civil
Code.

Arbitration found a fertile field in the resolution of labor-management

disputes in the Philippines. Although early on, Commonwealth Act 103
(1936) provided for compulsory arbitration as the state policy to be
administered by the Court of Industrial Relations, in time such a modality
gave way to voluntary arbitration. While not completely supplanting
compulsory arbitration which until today is practiced by government
officials, the Industrial Peace Act which was passed in 1953 as Republic
Act No. 875, favored the policy of free collective bargaining, in general, and
resort to grievance procedure, in particular, as the preferred mode of
settling disputes in industry. It was accepted and enunciated more
explicitly in the Labor Code, which was passed on November 1, 1974 as
Presidential Decree No. 442, with the amendments later introduced by
Republic Act No. 6715 (1989).

Whether utilized in business transactions or in employer-employee

relations, arbitration was gaining wide acceptance. A consensual process,
it was preferred to orders imposed by government upon the disputants.
Moreover, court litigations tended to be time-consuming, costly, and
inflexible due to their scrupulous observance of the due process of law
doctrine and their strict adherence to rules of evidence.

As early as the 1920's, this Court declared:

In the Philippines fortunately, the attitude of the court

towards arbitration agreements is slowly crystallizing into
definite and workable form . . . The rule now is that unless the
agreement is such as absolutely to close the doors of the
courts against the parties, which agreement would be void,
the courts will look with favor upon such amicable
arrangements and will only with great reluctance interfere to
anticipate or nullify the action of the arbitrator.

That there was a growing need for a law regulating arbitration in general
was acknowledged when Republic Act No. 876 (1953), otherwise known as
the Arbitration Law, was passed. "Said Act was obviously adopted to
supplement — not to supplant — the New Civil Code on arbitration. It
expressly declares that "the provisions of chapters one and two, Title XIV,
Book IV of the Civil Code shall remain in force."

x x x           x x x          x x x

In practice nowadays, absent an agreement of the parties to resolve their

disputes via a particular mode, it is the regular courts that remain the fora
to resolve such matters. However, the parties may opt for recourse to third
parties, exercising their basic freedom to "establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order or public
policy." In such a case, resort to the arbitration process may be spelled out
by them in a contract in anticipation of disputes that may arise between
them. Or this may be stipulated in a submission agreement when they are
actually confronted by a dispute. Whatever be the case, such recourse to
an extrajudicial means of settlement is not intended to completely deprive
the courts of jurisdiction. In fact, the early cases on arbitration carefully
spelled out the prevailing doctrine at the time, thus: ". . . a clause in a
contract providing that all matters in dispute between the parties shall be
referred to arbitrators and to them alone is contrary to public policy and
cannot oust the courts of jurisdiction."

But certainly, the stipulation to refer all future disputes to an arbitrator or to

submit an ongoing dispute to one is valid. Being part of a contract between
the parties, it is binding and enforceable in court in case one of them
neglects, fails or refuses to arbitrate. Going a step further, in the event that
they declare their intention to refer their differences to arbitration first
before taking court action, this constitutes a condition precedent, such that
where a suit has been instituted prematurely, the court shall suspend the
same and the parties shall be directed forthwith to proceed to arbitration.

A court action may likewise be proper where the arbitrator has not been
selected by the parties.

x x x           x x x          x x x

. . . It is stated explicitly under Art. 2044 of the Civil Code that the finality of
the arbitrator's award is not absolute and without exceptions. Where the
conditions described in Articles 2038, 2039 and 2040 18 applicable to both
compromises and arbitrations are obtaining, the arbitrators' award may be
annulled or rescinded. Additionally, under Sections 24 and 25 of the
Arbitration Law, there are grounds for vacating, modifying or rescinding an
arbitrator's award. Thus, if and when the factual circumstances referred to
in the above-cited provisions are present, judicial review of the award is
properly warranted.

What if courts refuse or neglect to inquire into the factual milieu of an

arbitrator's award to determine whether it is in accordance with law or
within the scope of his authority? How may the power of judicial review be
invoked?

This is where the proper remedy is certiorari under Rule 65 of the Revised

Rules of Court. It is to be borne in mind, however, that this action will lie
only where a grave abuse of discretion or an act without or in excess of
jurisdiction on the part of the voluntary arbitrator is clearly shown. For "the
writ of certiorari is an extraordinary remedy and that certiorari jurisdiction
is not to be equated with appellate jurisdiction. In a special civil action
of certiorari, the Court will not engage in a review of the facts found nor
even of the law as interpreted or applied by the arbitrator unless the
 supposed errors of fact or of law are so patent and gross and prejudicial as
to amount to a grave abuse of discretion or an exces de pouvoir on the
part of the arbitrator." 19

So, what are the issues that need to be addressed in this action? Certainly not the
capacity of the plaintiffs below to file the derivative suit in behalf of MMIC nor the validity
of the extrajudicial foreclosure conducted by PNB and DBP. These were the issues
submitted for arbitration by the parties and resolved with finality by the arbitration
committee upon agreement of the parties themselves. The issues, therefore, all
stemming from the judgment of the Court of Appeals, may be narrowed down to three:
(1) Was it right in upholding the trial court's authority to confirm the arbitration award
considering that said court had earlier dismissed the complaint? (2) Was it correct in
finding that herein petitioner was estopped from questioning such award? (3) Was it
justified in not treating petitioner's petition for certiorari as an appeal from the trial
court's order confirming said award?

(1) Petitioner overly stresses the fact that in the trial court's order of October 14, 1992;
the complaint was "dismissed" upon approval of the Compromise and Arbitration
Agreement between the parties. Such dismissal, however, far from finally disposing of
the controversy as the term denotes, simply "suspended" it during the period of
arbitration. It is, as a colleague pointed out during the deliberation of this action, a mere
"semantic imperfection." Here is a situation where the intent of the tribunal was
obviously not to end the case with finality, but to place the proceedings in abeyance
while the parties breathed life into an alternative mode of settling their differences in the
most expeditious manner. Arbitration is not a self-enforcing process. It focuses the
direction of the hearing and the reception and appreciation of evidence by assigning
these tasks to a group of persons chosen by the parties, themselves. By this, a
circuitous and time-consuming court trial is avoided, leaving the court with the singular
duty of confirming the arbitrators' decision, and allowing it to devote more of its time to
resolving other cases. As the appellate court correctly pointed out:

. . . (T)he dismissal of the Complaint in Civil Case No. 9900 was not
intended by the parties and by the court a quo, despite the phraseology in
Item No. 4 or the dispositive portion of the Order of October 14, 1992, as a
dismissal that would put an end to the case. Rather it was simply a
pronouncement for the cessation of the proceedings in the court and the
commencement of the arbitration proceedings. It was for all intents and
purposes a stay of the civil action until an arbitration has been had or
pending the return of the arbitral award. This is evident since the parties
submitted to the court below not only an agreement to arbitrate but also a
compromise which is always submitted to the court for approval and as a
basis for a judgment. . . . 20

Regarding the trial court's authority to confirm the decision of the arbitration committee,
suffice it to say that such was not merely its right but its duty as well. Under Section 22
of R.A. No. 876, upon application or motion of any party to arbitration, the court has the
obligation of confirming the arbitrators' award absent any specific ground to vacate,
modify or correct the same. Herein private respondents did apply for such confirmation
on February 7, 1995. This was even opposed by petitioner on the ground that the
judgment had not yet become final and executory, in complete disregard of paragraph 10
of the Compromise and Arbitration Agreement and the very decision of the arbitration
committee.

The award itself was properly made since it was not vacated, modified or corrected upon
any of the grounds enumerated under Sections 24 and 25 of R.A. No. 876, to wit:

Sec. 24. Grounds for vacating award. — In any one of the following cases,
the court must make an order vacating the award upon the petition of any
party to the controversy when such party proves affirmatively that in the
arbitration proceedings:

(a) The award was procured by corruption, fraud, or other undue means; or

(b) That there was evident partiality or corruption in the arbitrators or any
of them; or

(c) That the arbitrators were guilty of misconduct in refusing to postpone

the hearing upon sufficient cause shown, or in refusing to hear evidence
pertinent and material to the controversy; that one or more of the
arbitrators was disqualified to act as such under section nine hereof, and
willfully refrained from disclosing such disqualifications or of any other
misbehavior by which the rights of any party have been materially
prejudiced; or

(d) That the arbitrators exceeded their powers, or so imperfectly executed

them, that a mutual, final and definite award upon the subject matter
submitted to them was not made.

Where an award is vacated, the court, in its discretion, may direct a new
hearing either before the same arbitrators or before a new arbitrator or
arbitrators chosen in the manner provided in the submission or contract
for the selection of the original arbitrator or arbitrators, and any provision
limiting the time in which the arbitrators may make a decision shall be
deemed applicable to the new arbitration and to commence from the date
of the court's order.

Where the court vacates, an award, costs, not exceeding fifty pesos, and
disbursements may be awarded to the prevailing party and the payment
thereof may be enforced in like manner as the payment of costs upon the
motion in an action

Sec. 25. Grounds for modifying or correcting award. — In any one of the

following cases, the court must make an order modifying or correcting the
award, upon the application of any party to the controversy which was
arbitrated:

(a) Where there was an evident miscalculation of figures, or

an evident mistake in the description of any person, thing or
property referred to in the award; or
 (b) Where the arbitrators have awarded upon a matter not
submitted to them, not affecting the merits of the decision
upon the matter submitted; or

(c) Where the award is imperfect in a matter of form not

affecting the merits of the controversy, and if it had been a
commissioner's report, the defect could have been amended
or disregarded by the court.

The order may modify and correct the award so as to effect the intent thereof and
promote justice between the parties. (Emphasis supplied)

Petitioner utterly failed to prove the existence of any of these grounds. Its strongest
argument, that the arbitration award "far exceeded the issue submitted for arbitration,"
apart from being unsubstantiated, does not go into the merits of the award, which is the
only way its modification or correction could be justified under the terms of Section 25,
aforequoted.

Furthermore, petitioner violated several covenants by asking the court a quo to vacate
the arbitration award. First, in paragraph 10 of the Compromise and Arbitration
Agreement, it agreed to abide by the arbitration committee's decision which "shall be
final and executory upon its issuance upon the parties to the arbitration and their
assigns and successors-in-interest." Next, the decision that the arbitrators did render on
November 24, 1993 specifically declared the same to be "final and executory." Finally, in
the court's confirmation order of November 28, 1994, the finality of the award was
reiterated by the court. Arbitration, as an alternative mode of settlement, is gaining
adherents in legal and judicial circles here and abroad. If its tested mechanism can
simply be ignored by an aggrieved party, one who, it must be stressed, voluntarily and
actively participated in the arbitration proceedings from the very beginning, it will
destroy the very essence of mutuality inherent in consensual contracts.

2) Petitioner claims that it is not estopped from questioning the arbitration award
probably because, notwithstanding its tenacious quest for affirmative relief, it did
not translate this pursuit into positive action. The Court of Appeals succinctly
puts it in this wise:

. . . The record shows that on its motion, petitioner APT was able to
postpone the hearing on therein plaintiffs' application/motion for
confirmation of arbitral award to a date and time that it chose. However,
when said matter was called for hearing, only counsel for therein plaintiffs
showed up. Nonetheless, respondent Judge gave APT a period of seven (7)
days from notice within which to comment on the application/motion for
confirmation. At no time did petitioner APT ask for a hearing to present its
evidence. While petitioner APT repeatedly sought to vacate the arbitral
award, it made no concrete move to pursue its cause. In fact, at the hearing
on its motion for reconsideration, both parties through their respective
counsels gave oral arguments and thereafter agreed to submit the motion
for reconsideration for resolution. If petitioner APT honestly believed that
the respondent Judge erroneously took cognizance of plaintiffs
Application/Motion for Confirmation of Arbitration Award, then it should
 have limited itself to challenging the jurisdiction of said court. The fact
remains that petitioner APT repeatedly sought affirmative relief from the
respondent Judge in the same Civil Case No. 9900. Under the
circumstances, petitioner APT may not be heard now to complain that it
was deprived of its right to question the award made by the Arbitration
Committtee. 21 (Emphasis supplied)

3) The final issue which, to my mind, has particular relevance to the case at bar,
pertains to the alleged error of the Court of Appeals in not treating APT's petition
for certiorari as an appeal from the trial court's confirmation order.

Petitioner's counsel received a copy of the confirmation order dated November 28, 1994,
on December 12, 1994. 22 Said order was, for review purposes, a "final order" because it
finally disposed of the case. Other than executing the confirmation order, there was
nothing else that the court was duty-bound to perform. Petitioner's remedy, therefore,
was to question the order, by appeal on certiorari, not before the Court of Appeals, but
before the Supreme Court 23 within the reglementary period of fifteen days which expired
on December 27, 1994. Instead of appealing, however, petitioner filed a motion for
reconsideration of the order on said deadline. Unfortunately, this was denied by the
court a quo in its order dated January 18, 1995, a copy of which was received by
petitioner's counsel on February 1, 1995. Under prevailing procedural laws, it had just
one day to perfect its appeal. On February 15, 1995, petitioner opted to file with the Court
of Appeals an "Appeal by Certiorari . . . under Sections 1 and 2 of Rule 65 of the Revised
Rules of Court." The reason is obvious: It could no longer file a regular appeal from the
assailed order because the period for doing so has lapsed. The Court of Appeals thus
made the following pertinent observation.

. . . Assuming arguendo that petitioner APT's counsel received a copy (of

the November 28, 1994, order), as claimed by them, on December 12, 1994,
then the petitioner had fifteen (15) days therefrom or until December 27,
1994, within which to appeal. The petitioner's motion for reconsideration
was admittedly filed on December 27, 1994, the last day of the reglementary
15-day period, and the order dated January 18, 1995, denying the same was
received by petitioner's counsel on February 1, 1995. Petitioner APT had
only the following day to perfect his appeal. Instead, it chose to file the
instant special civil action of certiorari on February 15, 1995.

From the start, petitioner seemed unsure of its position on appeal. While initially
questioning the "order confirming the award" of the arbitration committee, it later stated
that it was raising the issue of "filing by (herein private respondents) of a Motion for
Execution and Appointment of Custodian of proceeds of Execution dated February 6,
1995." The latter recourse is obviously erroneous, for no appeal under either Rule 45 or
Rule 65 may be taken from a "motion" or the "filing" of one. Under Rule 45, only
judgments or final orders of a court or tribunal may be appealed to a higher court, while
Rule 65 allows a special civil action where the acts of a tribunal, board or officer are
under attack for being performed with grave abuse of discretion.

The applicable law, of course, is R.A. No. 876, which provides for appeals from
arbitration awards under Section 29 thereof, viz.:
 . . . (A)n appeal may be taken from . . . a judgment entered upon an award
through certiorari proceedings, but such appeals shall be limited to
questions of law. The proceedings upon such an appeal, including the
judgment thereon, shall be governed by the Rules of Court in so far as they
are applicable.

The term "certiorari" in the aforequoted provision refers to an ordinary appeal under Rule
45, not the special action of certiorari under Rule 65. It is an "appeal," as Section 29
proclaims. The proper forum for this action is, under the old and the new rules of
procedure, the Supreme Court. Thus, Section 2(c) of Rule 41 of the 1997 Rules of Civil
Procedure states that, "In all cases where only questions of law are raised or involved,
the appeal shall be to the Supreme Court by petition for review on certiorari in
accordance with Rule 45." Moreover, Section 29 limits the appeal to "questions of law,"
another indication that it is referring to an appeal by certiorari under Rule 45 which,
indeed, is the customary manner of reviewing such issues. On the other hand, the
extraordinary remedy of certiorari under Rule 65 may be availed of by a party where
there is "no appeal, nor any plain, speedy, and adequate remedy in the course of law,"
and under circumstances where "a tribunal, board or officer exercising judicial functions,
has acted without or in excess of its or his jurisdiction, or with grave abuse of
discretion." 24

Based on the foregoing, it is clear that petitioner had run out of options after its motion
for reconsideration was denied by the trial court in its order dated January 18, 1995. To
compound its negligence, it filed the wrong action with the wrong forum. These, to my
mind, are serious procedural flaws. To rule otherwise, as the majority did, would
constitute a grave injustice to private respondents.

I vote to DISMISS the petition.

PARDO, J., separate concurring opinion;

I concur. However, I wish to add a few points not particularly emphasized in the majority
opinion.

The petition before the Court is one for review via certiorari under Rule 45 of the Revised
Rules of Court seeking to set aside the resolution of the Court of Appeals that denied
due course and dismissed APT's petition for certiorari to annul the proceedings had
before the Regional Trial Court, Makati, Branch 62, in Civil Case No. 9900, particularly the
order confirming the arbitration award, reading as follows:

WHEREFORE, premises considered, and in the light of the parties

Compromise and Arbitration Agreement dated October 6, 1992, the
Decision of the Arbitration Committee promulgated on November 24, 1993,
as affirmed in a Resolution dated July 26, 1994, and finally settled and
clarified in the Separate Opinion dated September 2, 1994 of Committee
Member Elma, and the pertinent provisions of R.A. 876, also known as the
Arbitration Law, this Court GRANTS PLAINTIFFS' APPLICATION AND THUS
 CONFIRMS THE ARBITRATION AWARD AND JUDGMENT IS HEREBY
RENDERED:

(a) Ordering the defendant APT to the

Marinduque Mining and Industrial Corporation
(MMIC), except the DBP, the sum of
P3,811,757,425.00, as and for actual damages
under escrow in the amount of P503,000,000.00
pursuant to the Escrow Agreement dated April
22, 1988. The balance of the award, after the
escrow funds are fully applied, shall be
executed against the APT;

(b) Ordering the defendants to pay to the MMIC,

except the DBP, the sum of P13,000.00 as and
for moral and exemplary damages;

(c) Ordering the defendant to pay to Jesus S.

Caburrus, Sr., the sum of P10,000,000.00 as and
for moral damages; and

(d) Ordering the defendant to pay the herein

plaintiff/applicants/movants the sum of
P1,705,410.00 as arbitration costs.

In reiteration of the mandates of Stipulation No. 10 and

Stipulation No. 8 paragraph 2 of the Compromise and
Arbitration Agreement, and the final edict of the Arbitration
Committee's decision, and with this Court's Confirmation, the
issuance of the Arbitration Committee's Award shall
henceforth be final and executory.

SO ORDERED.

Originally instituted on February 8, 1985, in the Regional Trial Court, Makati, Metro
Manila, private respondents, Jesus S. Cabarrus, Sr., et al., a few of the numerous
minority stockholders of Marinduque Mining and Industrial Corp. (hereafter MMIC), filed a
complaint, later amended on March 13, 1995, for annulment of foreclosure, specific
performance and damages against the Philippine National Bank (PNB) and the
Development Bank of the Philippines (DBP) alleging that in 1984, the PNB and DBP
effected illegally the extra-judicial foreclosure of real estate and chattel mortgages
constituted in their favor by the MMIC by the latter's assets of real estate and chattels, to
satisfy an obligation amounting to P22,668,537,770.05, and that prior to the extra-judicial
foreclosure, PNB and DBP had agreed to a financial reorganization plan of MMIC to
reduce the latter's indebtedness to P3 billion and to convert the balance of its obligation
into equity.

In their joint answer to the amended complaint, defendants PNB and DBP denied the
material allegations of the amended complaint but admitted that in August and
September, 1984, they foreclosed extra-judicially the mortgages on MMIC's assets, with
the qualification that the correct amount of obligation owed by MMIC as of July 15, 1984,
was P22,083,313,168.29; that the foreclosure of the mortgages was legal and valid as
mandated by Presidential Decree No. 385 and by the provisions of the mortgage trust
agreements between PNB, DBP and MMIC; and, that the plaintiff's therein, herein
respondents Cabarrus, et al., were not entitled to actual and moral damages.

In the course of the trial of Civil Case No. 9900, plaintiffs Jesus S. Cabarrus, et al. and the
Asset Privatization Trust (APT), as successor-in-interest of the DBP and PNB's interest in
MMIC accounts, entered into a compromise and arbitration agreement dated October 6,
1992, whereby they "agreed to move for the dismissal of the case, to transform the reliefs
prayed for therein into pure money claims and to submit the controversy to arbitration
under Republic Act (RA) 876 before a committee composed of three members" limiting
the issues to two, namely:

(a) whether plaintiffs have the capacity or the personality to

institute this derivative suit in behalf of the MMIC or its
directors, and

(b) whether or not the actions leading to, and including, the
PNB-DBP foreclosure of the MMIC assets were proper, valid
and in good faith.

Thus, the parties created an Arbitration Committee composed of three (3) members, one
(1) representative of the plaintiff; one (1) representative of APT; and the Chairman to be
agreed upon by both parties. Consequently, APT nominated Atty. Jose C. Sison, a
trustee of APT and its counsel; MMIC nominated former Justice of the Court of Appeals
Magtanggol Elma; and they selected retired Supreme Court Justice Abraham F.
Sarmiento as Chairman.

After conducting hearings and receiving voluminous evidence, on November 24, 1993,
the Arbitration Committee released what purports to be its decision penned by the
Chairman, the dispositive portion of which reads as follows:

DISPOSITION

WHEREFORE, premises considered judgment is hereby

rendered:

1. Ordering the defendant to pay the Marinduque Mining and

Industrial Corporation, except the DBP, the sum of
P2,531,635,425,02 with interest thereon at the legal rate of six
(6%) per cent per annum reckoned from August 3, 9 and 24,
1984, pari passu, as and for actual damages. Payment of
these actual damages shall be offset by APT from the
outstanding and unpaid loans of MMIC with DBP and PNB,
which have not been converted into equity. Should there be
any balance due to MMIC after the offsetting, the same shall
be satisfied from the funds representing the purchase price
of the sale of the shares of Island Cement Corporation in the
amount of P503,000,000.00 held under escrow pursuant to the
 Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supersede it
pursuant to paragraph (9) of the Compromise and Arbitration
Agreement;

2. Ordering the defendant to pay to the Marinduque Mining

and Industrial Corporation, except the DBP, the sum of
P13,000,000.00, as and for moral and exemplary damages.
Payment of these moral and exemplary damages shall be
offset by APT from the outstanding and unpaid loans of MMIC
with DBP and PNB, which have not been converted into
equity. Should there be any balance due to MMIC after the
offsetting, the same shall be satisfied from the funds
representing the purchase price of the sale of the shares of
island Cement Corporation in the amount of P503,000,000.00
held under escrow pursuant to the Escrow Agreement dated
April 22, 1988 or to such subsequent escrow agreement that
would supersede it pursuant to paragraph (9) of the
Compromise and Arbitration Agreement;

3. Ordering the defendant to pay to the plaintiff, Jesus S.

Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
likewise from the funds held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supersede it,
pursuant to paragraph (9), Compromise and Arbitration
Agreement, as and for moral damages; and

4. Ordering the defendant to pay arbitration costs.

This Decision is FINAL and EXECUTORY.

IT IS SO ORDERED.

Member Elma submitted a separate concurring and dissenting opinion reading as

follows:

ELMA, concurring and dissenting:

I am in complete agreement with the findings of the Decision on the

principal issues submitted for the Committee's resolution, viz: that
plaintiffs Cabarrus, et al., have the capacity or the personality to institute
this derivative suit in behalf of Marinduque Milling and Industrial
Corporation (MMIC) and that the actions leading to, and including, the PNB-
DBP foreclosure of the MMIC assets were improper, invalid and/or not done
in good faith. Consequently, there is concurrence on my part to the award
of actual, moral and exemplary damages to MMIC, and moral damages to
plaintiff Jesus S. Cabarrus, Sr.
 However, I am unable to agree with and, therefore, regretfully dissent as to
the manner or method of computation and amount of actual damages
awarded to MMIC, particularly set forth in paragraph 1 of the dispositive
potion of the Decision.

x x x           x x x          x x x

Considering that under the "Compromise and Arbitration Agreement", the

parties agreed that their respective claims be reduced to purely
pecuniary/money claims, then MMIC and/or plaintiffs on behalf of all the
other stockholders of MMIC are entitled to actual or compensatory
damages equivalent to the present value of their equity over the MMIC
assets, i.e. the total stockholders' equity of P20,826,700,952.00 as of
December 31, 1992. Further, since as held in the Decision that the DBP
would have an 87% equity in MMIC as a consequence of the finding that the
Financial Rehabilitation Plan (FRP), is valid (p. 64 of the Decision), then the
amount of P18,119,229,828.24 (equivalent to DBP's 87% equity) should be
deducted from the total stockholders' equity of P20,826,700,952.00 leaving
a net amount of P2,707,471,123.76 to be awarded to MMIC (excluding DBP's
share) as actual or compensatory damages.

It is to be noted that defendant APT did not present any evidence rebutting
the figures and computations made by witness Pastor. Since the Decision
finds the FRP valid, then the stockholders of MMIC (excluding DBP) should
be placed in the same position that they would have been where not for the
fact that the FRP was improperly and illegally aborted by PNB/DBP.
Accordingly, it is my submission that defendant APT should be ordered to
pay MMIC (excluding DBP) the sum of P2,707,471,123.76 with legal interest
thereon per annum from August 3, 1984 as and for actual damages.

x x x           x x x          x x x

Member Sison submitted a separate opinion reading as follows:

SEPARATE OPINION

x x x           x x x          x x x

It is clear and it cannot be disputed therefore that based on

these stipulated issues, the parties themselves have agreed
that the basic ingredient of the causes of action in this case
is the wrong committed on the corporation (MMIC) for the
alleged illegal foreclosure of its assets. By agreeing to this
stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit
that the cause of action pertains only to the corporation
(MMIC) and that they are filing this for and in behalf of MMIC.

Perforce this has to be so because it is the basic rule in

Corporation Law that "the shareholders have no title, legal or
equitable to the property which is owned by the corporation
(13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon
& Sons vs. Register of Deeds, 6 SCRA 373, the rule has been
reiterated that "a stockholder is not the co-owner of the
corporate property." Since the property or assets foreclosed
belongs to MMIC, the wrong committed, if any, is done
against the corporation. There is therefore no direct injury or
direct violation of the rights of Cabarrus et al. There is no
way, legal or equitable by which Cabarrus et al, could recover
damages in their personal capacities even assuming or just
because the foreclosure is improper or invalid. The
Compromise and Arbitration Agreement itself and the
elementary principles of Corporation Law say so. Therefore, I
am constrained to dissent from the award of moral damages
to Cabarrus.

Neither could I agree to the award of moral damages to MMIC.

The acts complained of here in which the Committee based
its award of moral damages to MMIC is the foreclosure of the
various real estate and chattel mortgages. The majority of the
Committee believes that these foreclosure constitute a
violation on an agreement forged between PNB-DBP, on one
hand, and MMIC, on the other, regarding the restructuring of
the various past due loans of MMIC to what had been termed
as the Financial Restructuring Program (FRP).

x x x           x x x          x x x

In this connection, it can readily be seen and it cannot quite

be denied that MMIC accounts in PNB-DBP were past due.
The drawing up of the FRP is the best proof of this. When
MMIC adopted a restructuring program for its loan, it only
meant that these loans were already due and unpaid. If these
loans were restructurable because they were already due and
unpaid, they are likewise "forecloseable". The option is with
the PNB-DBP on what steps to take.

The mere fact that MMIC adopted the FRP does not mean that
DBP-PNB lost the option to foreclose. Neither does it mean
that the FRP is legally binding and implementable. It must be
pointed that said FRP will, in effect, supersede the existing
and past due loans of MMIC with PNB-DBP. It will become the
new loan agreement between the lenders and the borrowers.
As in all other contracts, there must therefore be a meeting of
the minds of the parties; the PNB and DBP must have to
validly adopt and ratify such FRP before they can be bound
by it; before it can be implemented. In this case, not an iota of
proof has been presented by the PLAINTIFFS showing that
PNB and DBP ratified and adopted the FRP. PLAINTIFFS
simply relied on a legal doctrine of promissory estoppel to
support its allegations in this regard.
 x x x           x x x          x x x

All told, PNB and DBP had the right to foreclose and were
justified in doing so. But were the foreclosure legally done or
carried out? Were the requirements of notice, posting and
publication required by Acts 3135 and 1508 substantially
complied with?

x x x           x x x          x x x

I cannot, however, concur with the for holding that such

minor taint of illegality in the foreclosure is enough to justify
the award of damages, amounting to P19,486,118,654.00.
"Rules of law respecting the recovery of damages are framed
with reference to just rights or both parties, not merely what
may be right for an injured person to receive, but also what is
just to compel the other party to pay, to accord just
compensation for the injury" (Kennings vs. Kline Ind. 602).
Following this universally accepted rule on damage, I do not
believe it is just to compel APT to pay such huge amount for
such minor technical infraction.

But while I do not agree with this pronouncement of the

Committee, I nevertheless concur with the result as far as the
disposition of the award for actual damages is concerned. I
agree that DEFENDANT APT can, and is still entitled to,
collect the outstanding obligations of MMIC to PNB and DBP
amounting to P22,668,537,770.05 with interest thereon as
stipulated in the loan documents from the date of foreclosure
until the time they are fully paid. The resultant effect of such a
disposition is that APT can offset the said obligation due
from MMIC such that ultimately no damages will be due and
payable to MMIC. As there may be damage without injury,
there can be injury without damage (15 Am. Jur., p. 388). This
case is a case of "injury without damage".

Both parties moved for reconsideration of the "decision" of the Arbitration Committee. In
addition, respondents Cabarrus et al. filed a motion for clarification and to re-open the
case to receive evidence. In a resolution dated July 26, 1984, with one member
dissenting, the Arbitration Committee denied the motions for reconsideration of both
parties as well as all other pending motions.

On October 17, 1984, respondents Cabarrus et al. filed directly with the Regional Trial
Court, Makati, Branch 62, in the same Civil Case No. 9900, a pleading entitled
application/motion for confirmation of arbitral award.

On November 4, 1994, petitioner APT filed an opposition and motion to vacate judgment,
contending that respondents' motion was improperly filed with the same branch of the
court in Civil Case No. 9900, which was previously dismissed, and that the motion should
have been filed as a separate special proceedings in the Regional Trial Court to be
docketed by the Clerk of Court.

Nonetheless, acting on the application/motion, Judge Roberto C. Diokno, presiding

judge, Regional Trial Court, Makati, Branch 62, on November 28, 1994, issued an order
granting plaintiffs' application confirming the arbitration award, and rendering judgment
as set out in the opening paragraph of this opinion.

On December 12, 1994, petitioner APT received notice of the lower court's order. On
December 27, 1994, petitioner APT filed a motion for reconsideration. By order dated
January 18, 1995, the trial court denied the motion. On February 7, 1995, respondents
Cabarrus, et al. filed a motion for execution and appointment of custodian of proceeds of
execution. Petitioner opposed the motion. It is apparently still unresolved.

On February 15, 1995, petitioner APT filed with the Court of Appeals an original special
civil action for certiorari with prayer for temporary restraining order or preliminary
injunction1 to annul the two (2) orders of the respondent Regional Trial Court above-
mentioned confirming the arbitral award and denying its reconsideration.

The issue presented in said petition was whether respondent Judge Roberto C. Diokno,
Regional Trial Court, Makati, Branch 62, had jurisdiction to act on private respondents'
application/motion for confirmation of arbitral award in the same Civil Case No. 9900,
which had been dismissed earlier on motion of the parties, and thus the court gravely
abused its discretion in confirming the arbitral award.

In its decision promulgated on July 17, 1995, the Court of Appeals denied due course and
dismissed the petition for certiorari for lack of merit.

Hence, this petition for review filed on September 07, 1995. 2

The petition is impressed with merit.

First, the Regional Trial Court, Makati, Branch 62, did not validly acquire jurisdiction over
the case by respondents' filing of a mere motion in the same Civil Case No. 9900 because
the case had been dismissed earlier and such dismissal had become final and
unappealable. As heretofore stated, on October 6, 1992, the parties entered into a
compromise and arbitration agreement expressly providing that they "have agreed to
withdraw their respective claims from the Trial Court and to resolve their dispute through
arbitration by praying to the Trial Court to issue a compromise judgment based on this
Compromise and Arbitration agreement.

Clearly, the parties had withdrawn the action then pending with the Regional Trial Court,
Makati, Branch 62, in Civil Case No. 9900, and agreed that they would submit their
dispute to arbitration and reduce their respective claims to "purely money claims",
"waiving and foregoing all other forms of reliefs which they prayed for or could have
prayed for in Civil Case No. 9900." The parties "agreed to move for the dismissal of the
case, to transform the reliefs prayed for therein to pure money claims and submit the
controversy to arbitration under Republic Act (RA) 876 before a committee composed of
three members."
In its order dated October 12, 1992, in Civil Case No. 9900, the trial court presided over by
respondent Judge categorically decreed that "The complaint is hereby dismissed". Such
disposition terminated the case finally and irretrievably disposed of the same.3 The term
"dismissed" has a definite meaning in law. "A judgment of 'dismissed', without qualifying
words indicating a right to take further proceedings, is presumed to be dismissed on the
merits".4 The dismissal could not have been a suspension of action provided for in the
arbitration law, Republic Act No. 876.

Upon the finality of such order of dismissal, the case could no longer be revived by mere
motion. The trial court had lost its authority over the case. 5 We cite as squarely
applicable the decision where this Court emphatically said "But after the dismissal has
become final through the lapse of the fifteen-day reglementary period, the only way by
which the action may be resuscitated or 'revived,' is by the institution of a subsequent
action through the filing of another complaint and the payment of the fees prescribed by
law. This is so because upon attainment of finality of a dismissal through the lapse of
said reglementary period, the Court loses jurisdiction and control over it and can no
longer make any disposition in respect thereof inconsistent with such dismissal"6 It is
true that the confirmation of an arbitral award is within the jurisdiction over the subject
matter of a regional trial court. Such jurisdiction must be invoked by proper motion as a
special proceedings with notice to the parties filed in the proper court with the clerk of
court (and upon payment of the prescribed fees). 7

Second, the Arbitration Committee did not actually reach a valid decision on the subject
controversy.

In the purported decision dated November 24, 1994, penned by Chairman Sarmiento, the
Committee ordered petitioner APT to pay to MMIC the sum of P2,531,635,425.02, with
interest thereon at the legal rate at 6% per annum from August 3, 9 and 24, 1984, pari
passu as actual damages; to pay MMIC P13 million, as moral and exemplary damages,
and to pay Jesus S. Cabarrus, Sr. P10 million, as moral damages.

In the concurring and dissenting opinion of Member Elma, he agreed with the finding on
the principal issue submitted for resolution. However, he dissented as to the manner or
method of computation and amount of actual damages awarded to MMIC. He submitted
that APT should be ordered to pay MMIC the sum of P2,707,471,123.76, with legal interest
thereon per annum from August 3, 1984, as actual damages.

In his separate opinion, Member Sison stated that he concurred with the result as far as
the disposition of the award of actual damage is concerned. He agreed that APT is
entitled to collect the outstanding obligations of MMIC to PNB and DBP amounting to
P22,668,537,770.05, with interest as stipulated in the loan documents from the date of
foreclosure until fully paid. The resultant effect is that APT can offset said obligation due
from MMIC such that ultimately no damages shall be due and payable to MMIC. He was
against the award of moral and exemplary damages to MMIC and Jesus S. Cabarrus, Sr.

It is obvious that the disposition in Chairman Sarmiento's award and the concurring and
dissenting opinion of Member Elma do not tally and, hence, because of the dissent of
Member Sison, the Arbitration Committee did not reach a majority decision constituting a
valid judgment or fallo of the Committee.
 The powers and duties of boards and commissions may not
be exercised by the individual members separately. Their
acts are official only when done by the members convened in
session upon a concurrence of at least a majority and with at
least a quorum present.8

Respondents Cabarrus, et al. considered the disposition as confusing and incomplete as

to the award of damages and thereby requiring the reception of further evidence as to
necessitate the re-opening of hearings on the case. On May 20, 1994, they filed a motion
for clarification seeking answer from the arbitration committee as to the final amount of
actual damages the MMIC is entitled to, and, on June 9, 1994, they filed a motion to
reopen the case and to receive evidence.

Even the Arbitration Committee's resolution of the various motions for reconsideration
and other reliefs was conflicting. For Chairman Sarmiento, respondents' motion for
reconsideration, dated December 15, 1993, and petitioner's motion for reconsideration,
dated January 3, 1994, respondents' motion for clarification dated June 8, 1994, and
respondents' urgent motion to re-open the case and to receive evidence were all DENIED
for lack of merit.

Member Elma dissented from the denial of the parties' motion for reconsideration,
reiterating that MMIC is entitled to actual damages in the sum of P2,707,471,123.76, with
legal interest thereon from August 3, 1984.

Member Azura (substituting Sison) concurred with the Chairman in denying respondents'
motion for reconsideration, motion for clarification and motion to re-open the case but
favored granting petitioner's (APT) motion for reconsideration.

WHEREFORE, I vote to GRANT the petition at bench, reverse the decision of the Court of
Appeals9 as well as the orders of the Regional Trial Court, Makati, Branch 62, in Civil
Case No. 9900, vacate the "decision" of the Arbitration Committee dated November 24,
1993, and, finally, ENJOIN the trial court from further acting on the case.

Separate Opinions

ROMERO, J., dissenting opinion;

In the instant petition for review on certiorari, petitioner. Asset Privatization Trust (APT)
is impugning the decision of respondent Court of Appeals in CA-GR SP No. 36484 dated
July 17, 1995, grounded upon the following assigned errors which it had allegedly
committed:

1) The Court of Appeals erred in not holding that the Makati Regional Trial
Court, Branch 62, which had previously dismissed Civil Case No. 9900, had
lost jurisdiction to confirm the arbitral award under the same civil case and
in not ruling that the application for confirmation should have been filed as
a new case to be raffled among the different branches of the RTC;

2) The Court of Appeals likewise erred in holding that petitioner was

estopped from questioning the arbitration award, when petitioner
 questioned the jurisdiction of the RTC-Makati, Branch 62, and at the same
time moved to vacate the arbitral award;

3) The Court of Appeals erred in not holding that the respondent Trial Court
should have either dismissed/denied private respondents' motion/petition
for confirmation of arbitration award and/or should have considered the
merits of the motion to vacate (the) arbitral award;

4) The Court of Appeals erred in not treating petitioner APT's petition

for certiorari as an appeal taken from the order confirming the award; and

5) The Court of Appeals erred in not ruling on the legal issue of when to
reckon the counting of the period to file a motion for reconsideration.1

The resolution of these issues will ultimately test the process of arbitration, how effective
or ineffective it is as an alternative mode of settling disputes, and how it is affected by
judicial review. My esteemed colleagues have taken the view that the petition is
impressed with merit and that the assailed decision of the Court of Appeals should be
reversed. In doing so, I believe they have dealt arbitration a terrible blow and wasted
years, even decades, of development in this field. I beg to differ and, therefore, dissent.

The controversy is actually simpler than it appears. The Marinduque Mining and
Industrial Corporation (MMIC) obtained several loans from the Philippine National Bank
(PNB) and the Development Bank of the Philippines (DBP) secured by mortgages over
practically all of its assets. As of July 15, 1984, MMIC's obligation had ballooned to
P22,668,537,770.05, 2 and it had no way of making the required payments. MMIC and its
two creditor banks thus ironed out a complex financial restructuring plan (FRP) designed
to drastically reduce MMIC's liability through a "debt-to-equity" scheme. 3 This
notwithstanding, the creditors opted to sell MMIC's mortgaged properties through
extrajudicial foreclosure proceedings, where PNB turned out to be the lone bidder.4

Aggrieved by this apparent bad faith on the part of the creditor banks, private
respondents Jesus S. Cabarrus, Sr., and other minority stockholders of MMIC filed a
derivative suit5 against PNB and DBP before the Makati Regional Trial Court. They prayed
for the annulment of the foreclosure and for the restoration of the company's assets, the
recognition by the creditor banks of their commitments under the FRP, and the payment
of damages, as well as attorney's fees and costs of litigation. The case was raffled to
Branch 62 and docketed as Civil Case No. 9900.

In the meantime, the rights and interests of PNB and DBP, including MMIC's
indebtedness, were transferred to petitioner, created by virtue of Proclamation No. 50, in
relation to Administrative Order No. 14. Hence, petitioner was substituted as party
defendant in Civil Case No. 9900.

On October 6, 1992, the parties entered into a Compromise and Arbitration

Agreement 6 providing, inter alia, that they were withdrawing their respective claims,
which would be reduced to pure money claims, and that they were submitting the
controversy to arbitration under Republic Act No. 876.7 The issues for arbitration were
thus limited to a determination of the plaintiffs' capacity or right to institute the derivative
suit in behalf of the MMIC or its directors, and of the propriety of the foreclosure. Of
notable import was the provision on the nature of the judgment that the arbitration
committee might render, viz.:

10. Binding Effect and Enforcement. The award of the arbitration committee

shall be final and executory upon its issuance upon the parties to the
arbitration and their assigns and successors-in-interest. In the event the
award is not voluntarily satisfied by the losing party, the party in whose
favor the award has been made may, pursuant to Republic Act No. 876,
apply to the proper Regional Trial Court for its enforcement. (Emphasis
supplied)

Upon motion of the parties, this agreement was presented to the court a quo for its
approval.8 On October 14, 1992, said court issued an order (a) dismissing the complaint;
(b) substituting the creditor banks with the APT as party defendant; (c) "approving the
Compromise and Arbitration Agreement dated October 6, 1992"; and (d) "approving the
transformation of the reliefs prayed for by the plaintiffs in this case into pure money
claims."9

On November 24, 1993, after more than six months of hearing, the arbitration
committee 10 concluded that the assailed foreclosure was not valid and accordingly
decided the case in favor of MMIC. Hence, petitioner was ordered to pay MMIC actual
damages in the amount of P2,531,635,425.02, with legal interest, and moral and
exemplary damages amounting to P13,000,000.00, and to pay Jesus S. Cabarrus, Sr., the
sum of P10,000,000.00 by way of moral damages, such awards to be offset from the
outstanding and unpaid obligations of MMIC with the creditor banks, which have not
been converted into equity. The committee likewise decreed its decision to be "final and
executory." 11

Nearly a year later, MMIC filed in Civil Case No. 9900, a verified "Application/Motion for
Confirmation of Arbitration Award." 12 This was opposed by petitioner on two grounds,
namely, that Branch 62 no longer had jurisdiction to act on said motion after it
"dismissed" the complaint in its order of October 14, 1992, and that the award "far
exceeded the issues submitted" for arbitration by the parties. 13 Not wanting to be
outdone, MMIC filed a "Reply and Opposition," arguing that the "qualified dismissal" of
Civil Case No. 9900 was merely intended to expedite the submission of the controversy
to arbitration and was, therefore, "a mere suspension of the proceedings," and that the
arbitration committee did not exceed its authority in making the award.

On November 28, 1994, the trial court issued an order 14 confirming the award of the
committee in all respects except as to the award of actual damages to MMIC, which was
increased to P3,811,757,425.00. The order closed with the following declaration:

In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8

paragraph 2 of the Compromise and Arbitration Agreement, and the final
edict of the Arbitration Committee's decision, and with this Court's
Confirmation, the issuance of the Arbitration Committee's Award shall
henceforth be final and executory.
Petitioner filed a "Motion for Reconsideration" of said order on December 27, 1994; but
this was denied by the court a quo in its order dated January 18, 1995 for lack of merit
and for having been filed beyond the reglementary period. Thus, it said:

. . . (C)onsidering that the defendant APT, through counsel, officially and

actually received a copy of the Order of this Court dated November 28,
1994 on December 6, 1994, the Motion for Reconsideration thereof filed by
the defendant APT on December 27, 1994, or after the lapse of 21 days, was
clearly filed beyond the 15-day reglementary period prescribed or provided
for . . . (by law) for the filing of an appeal from final orders, resolutions,
awards, judgments or decisions of any court in all cases, and by necessary
implication, for the filing of a motion for reconsideration thereof.

Instead of appealing such denial, petitioner filed on February 15, 1995, an "Appeal by
Certiorari . . . . under Sections 1 and 2 of Rule 65 of the Revised Rules of Court" before
the Court of Appeals, praying for the nullification of the trial court's orders dated
November 28, 1994 and January 18, 1995. It argued that the trial court had no jurisdiction
or authority to confirm the arbitral award, "considering that the original case, Civil Case
No. 9900, had previously been dismissed," and that the trial judge "acted with grave
abuse of discretion in issuing the questioned orders confirming the award and denying
the motion for reconsideration thereof." 15

On July 17, 1995, the Court of Appeals dismissed the petition for lack of merit. 16 From
this dismissal, petitioner elevated its cause to this Tribunal for a review, raising the
issues stated at the outset.

I find it distressing that, in reaching the outcome of this controversy, the majority has
emasculated the process of arbitration itself. This should not be the case for after all, the
decision of the arbitration committee is no longer the one being attacked in these
proceedings, but the judgment of the Court of Appeals which herein petitioner found to
be erroneous. The Court has had occasion to trace the history of arbitration and to
discuss its significance in the case of Chung Fu Industries (Phils.), Inc. v. Court of
Appeals, 17 viz.:

Allow us to take a leaf from history and briefly trace the evolution of
arbitration as a mode of dispute settlement.

Because conflict is inherent in human society, much effort has been

expended by men and institutions in devising ways of resolving the same.
With the progress of civilization, physical combat has been ruled out and
instead, more specific means have been evolved, such as recourse to the
good offices of a disinterested third party, whether this be a court or a
private individual or individuals.

Legal history discloses that "early judges called upon to solve private
conflicts were primarily the arbiters, persons not specially trained but in
whose morality, probity and good sense the parties in conflict reposed full
trust. Thus, in Republican Rome, arbiter and judge (judex) were
synonymous. The magistrate of praetor, after noting down the conflicting
claims of litigants, and clarifying the issues, referred them for decision to a
private person designated by the parties, by common agreement, or
selected by them from an apposite listing (the album judicium) or else by
having the arbiter chosen by lot. The judges proper, as specially trained
state officials endowed with (their) own power and jurisdiction, and taking
cognizance of litigations from beginning to end, only appeared under the
Empire, by the so-called cognitio extra ordinem."

Such means of referring a dispute to a third party has also long been an
accepted alternative to litigation at common law.

Sparse though the law and jurisprudence may be on the subject of

arbitration in the Philippines, it was nonetheless recognized in the Spanish
Civil Code; specifically, the provisions on compromises made applicable to
arbitrations under Articles 1820 and 1821. Although said provisions were
repealed by implication with the repeal of the Spanish Law of Civil
Procedure, these and additional ones were reinstated in the present Civil
Code.

Arbitration found a fertile field in the resolution of labor-management

disputes in the Philippines. Although early on, Commonwealth Act 103
(1936) provided for compulsory arbitration as the state policy to be
administered by the Court of Industrial Relations, in time such a modality
gave way to voluntary arbitration. While not completely supplanting
compulsory arbitration which until today is practiced by government
officials, the Industrial Peace Act which was passed in 1953 as Republic
Act No. 875, favored the policy of free collective bargaining, in general, and
resort to grievance procedure, in particular, as the preferred mode of
settling disputes in industry. It was accepted and enunciated more
explicitly in the Labor Code, which was passed on November 1, 1974 as
Presidential Decree No. 442, with the amendments later introduced by
Republic Act No. 6715 (1989).

Whether utilized in business transactions or in employer-employee

relations, arbitration was gaining wide acceptance. A consensual process,
it was preferred to orders imposed by government upon the disputants.
Moreover, court litigations tended to be time-consuming, costly, and
inflexible due to their scrupulous observance of the due process of law
doctrine and their strict adherence to rules of evidence.

As early as the 1920's, this Court declared:

In the Philippines fortunately, the attitude of the court

towards arbitration agreements is slowly crystallizing into
definite and workable form . . . The rule now is that unless the
agreement is such as absolutely to close the doors of the
courts against the parties, which agreement would be void,
the courts will look with favor upon such amicable
arrangements and will only with great reluctance interfere to
anticipate or nullify the action of the arbitrator.
That there was a growing need for a law regulating arbitration in general
was acknowledged when Republic Act No. 876 (1953), otherwise known as
the Arbitration Law, was passed. "Said Act was obviously adopted to
supplement — not to supplant — the New Civil Code on arbitration. It
expressly declares that "the provisions of chapters one and two, Title XIV,
Book IV of the Civil Code shall remain in force."

x x x           x x x          x x x

In practice nowadays, absent an agreement of the parties to resolve their

disputes via a particular mode, it is the regular courts that remain the fora
to resolve such matters. However, the parties may opt for recourse to third
parties, exercising their basic freedom to "establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order or public
policy." In such a case, resort to the arbitration process may be spelled out
by them in a contract in anticipation of disputes that may arise between
them. Or this may be stipulated in a submission agreement when they are
actually confronted by a dispute. Whatever be the case, such recourse to
an extrajudicial means of settlement is not intended to completely deprive
the courts of jurisdiction. In fact, the early cases on arbitration carefully
spelled out the prevailing doctrine at the time, thus: ". . . a clause in a
contract providing that all matters in dispute between the parties shall be
referred to arbitrators and to them alone is contrary to public policy and
cannot oust the courts of jurisdiction."

But certainly, the stipulation to refer all future disputes to an arbitrator or to

submit an ongoing dispute to one is valid. Being part of a contract between
the parties, it is binding and enforceable in court in case one of them
neglects, fails or refuses to arbitrate. Going a step further, in the event that
they declare their intention to refer their differences to arbitration first
before taking court action, this constitutes a condition precedent, such that
where a suit has been instituted prematurely, the court shall suspend the
same and the parties shall be directed forthwith to proceed to arbitration.

A court action may likewise be proper where the arbitrator has not been
selected by the parties.

x x x           x x x          x x x

. . . It is stated explicitly under Art. 2044 of the Civil Code that the finality of
the arbitrator's award is not absolute and without exceptions. Where the
conditions described in Articles 2038, 2039 and 2040 18 applicable to both
compromises and arbitrations are obtaining, the arbitrators' award may be
annulled or rescinded. Additionally, under Sections 24 and 25 of the
Arbitration Law, there are grounds for vacating, modifying or rescinding an
arbitrator's award. Thus, if and when the factual circumstances referred to
in the above-cited provisions are present, judicial review of the award is
properly warranted.
 What if courts refuse or neglect to inquire into the factual milieu of an
arbitrator's award to determine whether it is in accordance with law or
within the scope of his authority? How may the power of judicial review be
invoked?

This is where the proper remedy is certiorari under Rule 65 of the Revised

Rules of Court. It is to be borne in mind, however, that this action will lie
only where a grave abuse of discretion or an act without or in excess of
jurisdiction on the part of the voluntary arbitrator is clearly shown. For "the
writ of certiorari is an extraordinary remedy and that certiorari jurisdiction
is not to be equated with appellate jurisdiction. In a special civil action
of certiorari, the Court will not engage in a review of the facts found nor
even of the law as interpreted or applied by the arbitrator unless the
supposed errors of fact or of law are so patent and gross and prejudicial as
to amount to a grave abuse of discretion or an exces de pouvoir on the
part of the arbitrator." 19

So, what are the issues that need to be addressed in this action? Certainly not the
capacity of the plaintiffs below to file the derivative suit in behalf of MMIC nor the validity
of the extrajudicial foreclosure conducted by PNB and DBP. These were the issues
submitted for arbitration by the parties and resolved with finality by the arbitration
committee upon agreement of the parties themselves. The issues, therefore, all
stemming from the judgment of the Court of Appeals, may be narrowed down to three:
(1) Was it right in upholding the trial court's authority to confirm the arbitration award
considering that said court had earlier dismissed the complaint? (2) Was it correct in
finding that herein petitioner was estopped from questioning such award? (3) Was it
justified in not treating petitioner's petition for certiorari as an appeal from the trial
court's order confirming said award?

(1) Petitioner overly stresses the fact that in the trial court's order of October 14, 1992;
the complaint was "dismissed" upon approval of the Compromise and Arbitration
Agreement between the parties. Such dismissal, however, far from finally disposing of
the controversy as the term denotes, simply "suspended" it during the period of
arbitration. It is, as a colleague pointed out during the deliberation of this action, a mere
"semantic imperfection." Here is a situation where the intent of the tribunal was
obviously not to end the case with finality, but to place the proceedings in abeyance
while the parties breathed life into an alternative mode of settling their differences in the
most expeditious manner. Arbitration is not a self-enforcing process. It focuses the
direction of the hearing and the reception and appreciation of evidence by assigning
these tasks to a group of persons chosen by the parties, themselves. By this, a
circuitous and time-consuming court trial is avoided, leaving the court with the singular
duty of confirming the arbitrators' decision, and allowing it to devote more of its time to
resolving other cases. As the appellate court correctly pointed out:

. . . (T)he dismissal of the Complaint in Civil Case No. 9900 was not
intended by the parties and by the court a quo, despite the phraseology in
Item No. 4 or the dispositive portion of the Order of October 14, 1992, as a
dismissal that would put an end to the case. Rather it was simply a
pronouncement for the cessation of the proceedings in the court and the
commencement of the arbitration proceedings. It was for all intents and
 purposes a stay of the civil action until an arbitration has been had or
pending the return of the arbitral award. This is evident since the parties
submitted to the court below not only an agreement to arbitrate but also a
compromise which is always submitted to the court for approval and as a
basis for a judgment. . . . 20

Regarding the trial court's authority to confirm the decision of the arbitration committee,
suffice it to say that such was not merely its right but its duty as well. Under Section 22
of R.A. No. 876, upon application or motion of any party to arbitration, the court has the
obligation of confirming the arbitrators' award absent any specific ground to vacate,
modify or correct the same. Herein private respondents did apply for such confirmation
on February 7, 1995. This was even opposed by petitioner on the ground that the
judgment had not yet become final and executory, in complete disregard of paragraph 10
of the Compromise and Arbitration Agreement and the very decision of the arbitration
committee.

The award itself was properly made since it was not vacated, modified or corrected upon
any of the grounds enumerated under Sections 24 and 25 of R.A. No. 876, to wit:

Sec. 24. Grounds for vacating award. — In any one of the following cases,
the court must make an order vacating the award upon the petition of any
party to the controversy when such party proves affirmatively that in the
arbitration proceedings:

(a) The award was procured by corruption, fraud, or other undue means; or

(b) That there was evident partiality or corruption in the arbitrators or any
of them; or

(c) That the arbitrators were guilty of misconduct in refusing to postpone

the hearing upon sufficient cause shown, or in refusing to hear evidence
pertinent and material to the controversy; that one or more of the
arbitrators was disqualified to act as such under section nine hereof, and
willfully refrained from disclosing such disqualifications or of any other
misbehavior by which the rights of any party have been materially
prejudiced; or

(d) That the arbitrators exceeded their powers, or so imperfectly executed

them, that a mutual, final and definite award upon the subject matter
submitted to them was not made.

Where an award is vacated, the court, in its discretion, may direct a new
hearing either before the same arbitrators or before a new arbitrator or
arbitrators chosen in the manner provided in the submission or contract
for the selection of the original arbitrator or arbitrators, and any provision
limiting the time in which the arbitrators may make a decision shall be
deemed applicable to the new arbitration and to commence from the date
of the court's order.
 Where the court vacates, an award, costs, not exceeding fifty pesos, and
disbursements may be awarded to the prevailing party and the payment
thereof may be enforced in like manner as the payment of costs upon the
motion in an action

Sec. 25. Grounds for modifying or correcting award. — In any one of the

following cases, the court must make an order modifying or correcting the
award, upon the application of any party to the controversy which was
arbitrated:

(a) Where there was an evident miscalculation of figures, or

an evident mistake in the description of any person, thing or
property referred to in the award; or

(b) Where the arbitrators have awarded upon a matter not

submitted to them, not affecting the merits of the decision
upon the matter submitted; or

(c) Where the award is imperfect in a matter of form not

affecting the merits of the controversy, and if it had been a
commissioner's report, the defect could have been amended
or disregarded by the court.

The order may modify and correct the award so as to effect the intent thereof and
promote justice between the parties. (Emphasis supplied)

Petitioner utterly failed to prove the existence of any of these grounds. Its strongest
argument, that the arbitration award "far exceeded the issue submitted for arbitration,"
apart from being unsubstantiated, does not go into the merits of the award, which is the
only way its modification or correction could be justified under the terms of Section 25,
aforequoted.

Furthermore, petitioner violated several covenants by asking the court a quo to vacate
the arbitration award. First, in paragraph 10 of the Compromise and Arbitration
Agreement, it agreed to abide by the arbitration committee's decision which "shall be
final and executory upon its issuance upon the parties to the arbitration and their
assigns and successors-in-interest." Next, the decision that the arbitrators did render on
November 24, 1993 specifically declared the same to be "final and executory." Finally, in
the court's confirmation order of November 28, 1994, the finality of the award was
reiterated by the court. Arbitration, as an alternative mode of settlement, is gaining
adherents in legal and judicial circles here and abroad. If its tested mechanism can
simply be ignored by an aggrieved party, one who, it must be stressed, voluntarily and
actively participated in the arbitration proceedings from the very beginning, it will
destroy the very essence of mutuality inherent in consensual contracts.

2) Petitioner claims that it is not estopped from questioning the arbitration award
probably because, notwithstanding its tenacious quest for affirmative relief, it did
not translate this pursuit into positive action. The Court of Appeals succinctly
puts it in this wise:
 . . . The record shows that on its motion, petitioner APT was able to
postpone the hearing on therein plaintiffs' application/motion for
confirmation of arbitral award to a date and time that it chose. However,
when said matter was called for hearing, only counsel for therein plaintiffs
showed up. Nonetheless, respondent Judge gave APT a period of seven (7)
days from notice within which to comment on the application/motion for
confirmation. At no time did petitioner APT ask for a hearing to present its
evidence. While petitioner APT repeatedly sought to vacate the arbitral
award, it made no concrete move to pursue its cause. In fact, at the hearing
on its motion for reconsideration, both parties through their respective
counsels gave oral arguments and thereafter agreed to submit the motion
for reconsideration for resolution. If petitioner APT honestly believed that
the respondent Judge erroneously took cognizance of plaintiffs
Application/Motion for Confirmation of Arbitration Award, then it should
have limited itself to challenging the jurisdiction of said court. The fact
remains that petitioner APT repeatedly sought affirmative relief from the
respondent Judge in the same Civil Case No. 9900. Under the
circumstances, petitioner APT may not be heard now to complain that it
was deprived of its right to question the award made by the Arbitration
Committtee. 21 (Emphasis supplied)

3) The final issue which, to my mind, has particular relevance to the case at bar,
pertains to the alleged error of the Court of Appeals in not treating APT's petition
for certiorari as an appeal from the trial court's confirmation order.

Petitioner's counsel received a copy of the confirmation order dated November 28, 1994,
on December 12, 1994. 22 Said order was, for review purposes, a "final order" because it
finally disposed of the case. Other than executing the confirmation order, there was
nothing else that the court was duty-bound to perform. Petitioner's remedy, therefore,
was to question the order, by appeal on certiorari, not before the Court of Appeals, but
before the Supreme Court 23 within the reglementary period of fifteen days which expired
on December 27, 1994. Instead of appealing, however, petitioner filed a motion for
reconsideration of the order on said deadline. Unfortunately, this was denied by the
court a quo in its order dated January 18, 1995, a copy of which was received by
petitioner's counsel on February 1, 1995. Under prevailing procedural laws, it had just
one day to perfect its appeal. On February 15, 1995, petitioner opted to file with the Court
of Appeals an "Appeal by Certiorari . . . under Sections 1 and 2 of Rule 65 of the Revised
Rules of Court." The reason is obvious: It could no longer file a regular appeal from the
assailed order because the period for doing so has lapsed. The Court of Appeals thus
made the following pertinent observation.

. . . Assuming arguendo that petitioner APT's counsel received a copy (of

the November 28, 1994, order), as claimed by them, on December 12, 1994,
then the petitioner had fifteen (15) days therefrom or until December 27,
1994, within which to appeal. The petitioner's motion for reconsideration
was admittedly filed on December 27, 1994, the last day of the reglementary
15-day period, and the order dated January 18, 1995, denying the same was
received by petitioner's counsel on February 1, 1995. Petitioner APT had
only the following day to perfect his appeal. Instead, it chose to file the
instant special civil action of certiorari on February 15, 1995.
From the start, petitioner seemed unsure of its position on appeal. While initially
questioning the "order confirming the award" of the arbitration committee, it later stated
that it was raising the issue of "filing by (herein private respondents) of a Motion for
Execution and Appointment of Custodian of proceeds of Execution dated February 6,
1995." The latter recourse is obviously erroneous, for no appeal under either Rule 45 or
Rule 65 may be taken from a "motion" or the "filing" of one. Under Rule 45, only
judgments or final orders of a court or tribunal may be appealed to a higher court, while
Rule 65 allows a special civil action where the acts of a tribunal, board or officer are
under attack for being performed with grave abuse of discretion.

The applicable law, of course, is R.A. No. 876, which provides for appeals from
arbitration awards under Section 29 thereof, viz.:

. . . (A)n appeal may be taken from . . . a judgment entered upon an award

through certiorari proceedings, but such appeals shall be limited to
questions of law. The proceedings upon such an appeal, including the
judgment thereon, shall be governed by the Rules of Court in so far as they
are applicable.

The term "certiorari" in the aforequoted provision refers to an ordinary appeal under Rule
45, not the special action of certiorari under Rule 65. It is an "appeal," as Section 29
proclaims. The proper forum for this action is, under the old and the new rules of
procedure, the Supreme Court. Thus, Section 2(c) of Rule 41 of the 1997 Rules of Civil
Procedure states that, "In all cases where only questions of law are raised or involved,
the appeal shall be to the Supreme Court by petition for review on certiorari in
accordance with Rule 45." Moreover, Section 29 limits the appeal to "questions of law,"
another indication that it is referring to an appeal by certiorari under Rule 45 which,
indeed, is the customary manner of reviewing such issues. On the other hand, the
extraordinary remedy of certiorari under Rule 65 may be availed of by a party where
there is "no appeal, nor any plain, speedy, and adequate remedy in the course of law,"
and under circumstances where "a tribunal, board or officer exercising judicial functions,
has acted without or in excess of its or his jurisdiction, or with grave abuse of
discretion." 24

Based on the foregoing, it is clear that petitioner had run out of options after its motion
for reconsideration was denied by the trial court in its order dated January 18, 1995. To
compound its negligence, it filed the wrong action with the wrong forum. These, to my
mind, are serious procedural flaws. To rule otherwise, as the majority did, would
constitute a grave injustice to private respondents.

I vote to DISMISS the petition.

PARDO, J., separate concurring opinion;

I concur. However, I wish to add a few points not particularly emphasized in the majority
opinion.
The petition before the Court is one for review via certiorari under Rule 45 of the Revised
Rules of Court seeking to set aside the resolution of the Court of Appeals that denied
due course and dismissed APT's petition for certiorari to annul the proceedings had
before the Regional Trial Court, Makati, Branch 62, in Civil Case No. 9900, particularly the
order confirming the arbitration award, reading as follows:

WHEREFORE, premises considered, and in the light of the parties

Compromise and Arbitration Agreement dated October 6, 1992, the
Decision of the Arbitration Committee promulgated on November 24, 1993,
as affirmed in a Resolution dated July 26, 1994, and finally settled and
clarified in the Separate Opinion dated September 2, 1994 of Committee
Member Elma, and the pertinent provisions of R.A. 876, also known as the
Arbitration Law, this Court GRANTS PLAINTIFFS' APPLICATION AND THUS
CONFIRMS THE ARBITRATION AWARD AND JUDGMENT IS HEREBY
RENDERED:

(a) Ordering the defendant APT to the

Marinduque Mining and Industrial Corporation
(MMIC), except the DBP, the sum of
P3,811,757,425.00, as and for actual damages
under escrow in the amount of P503,000,000.00
pursuant to the Escrow Agreement dated April
22, 1988. The balance of the award, after the
escrow funds are fully applied, shall be
executed against the APT;

(b) Ordering the defendants to pay to the MMIC,

except the DBP, the sum of P13,000.00 as and
for moral and exemplary damages;

(c) Ordering the defendant to pay to Jesus S.

Caburrus, Sr., the sum of P10,000,000.00 as and
for moral damages; and

(d) Ordering the defendant to pay the herein

plaintiff/applicants/movants the sum of
P1,705,410.00 as arbitration costs.

In reiteration of the mandates of Stipulation No. 10 and

Stipulation No. 8 paragraph 2 of the Compromise and
Arbitration Agreement, and the final edict of the Arbitration
Committee's decision, and with this Court's Confirmation, the
issuance of the Arbitration Committee's Award shall
henceforth be final and executory.

SO ORDERED.

Originally instituted on February 8, 1985, in the Regional Trial Court, Makati, Metro
Manila, private respondents, Jesus S. Cabarrus, Sr., et al., a few of the numerous
minority stockholders of Marinduque Mining and Industrial Corp. (hereafter MMIC), filed a
complaint, later amended on March 13, 1995, for annulment of foreclosure, specific
performance and damages against the Philippine National Bank (PNB) and the
Development Bank of the Philippines (DBP) alleging that in 1984, the PNB and DBP
effected illegally the extra-judicial foreclosure of real estate and chattel mortgages
constituted in their favor by the MMIC by the latter's assets of real estate and chattels, to
satisfy an obligation amounting to P22,668,537,770.05, and that prior to the extra-judicial
foreclosure, PNB and DBP had agreed to a financial reorganization plan of MMIC to
reduce the latter's indebtedness to P3 billion and to convert the balance of its obligation
into equity.

In their joint answer to the amended complaint, defendants PNB and DBP denied the
material allegations of the amended complaint but admitted that in August and
September, 1984, they foreclosed extra-judicially the mortgages on MMIC's assets, with
the qualification that the correct amount of obligation owed by MMIC as of July 15, 1984,
was P22,083,313,168.29; that the foreclosure of the mortgages was legal and valid as
mandated by Presidential Decree No. 385 and by the provisions of the mortgage trust
agreements between PNB, DBP and MMIC; and, that the plaintiff's therein, herein
respondents Cabarrus, et al., were not entitled to actual and moral damages.

In the course of the trial of Civil Case No. 9900, plaintiffs Jesus S. Cabarrus, et al. and the
Asset Privatization Trust (APT), as successor-in-interest of the DBP and PNB's interest in
MMIC accounts, entered into a compromise and arbitration agreement dated October 6,
1992, whereby they "agreed to move for the dismissal of the case, to transform the reliefs
prayed for therein into pure money claims and to submit the controversy to arbitration
under Republic Act (RA) 876 before a committee composed of three members" limiting
the issues to two, namely:

(a) whether plaintiffs have the capacity or the personality to

institute this derivative suit in behalf of the MMIC or its
directors, and

(b) whether or not the actions leading to, and including, the
PNB-DBP foreclosure of the MMIC assets were proper, valid
and in good faith.

Thus, the parties created an Arbitration Committee composed of three (3) members, one
(1) representative of the plaintiff; one (1) representative of APT; and the Chairman to be
agreed upon by both parties. Consequently, APT nominated Atty. Jose C. Sison, a
trustee of APT and its counsel; MMIC nominated former Justice of the Court of Appeals
Magtanggol Elma; and they selected retired Supreme Court Justice Abraham F.
Sarmiento as Chairman.

After conducting hearings and receiving voluminous evidence, on November 24, 1993,
the Arbitration Committee released what purports to be its decision penned by the
Chairman, the dispositive portion of which reads as follows:

DISPOSITION

WHEREFORE, premises considered judgment is hereby

rendered:
 1. Ordering the defendant to pay the Marinduque Mining and
Industrial Corporation, except the DBP, the sum of
P2,531,635,425,02 with interest thereon at the legal rate of six
(6%) per cent per annum reckoned from August 3, 9 and 24,
1984, pari passu, as and for actual damages. Payment of
these actual damages shall be offset by APT from the
outstanding and unpaid loans of MMIC with DBP and PNB,
which have not been converted into equity. Should there be
any balance due to MMIC after the offsetting, the same shall
be satisfied from the funds representing the purchase price
of the sale of the shares of Island Cement Corporation in the
amount of P503,000,000.00 held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supersede it
pursuant to paragraph (9) of the Compromise and Arbitration
Agreement;

2. Ordering the defendant to pay to the Marinduque Mining

and Industrial Corporation, except the DBP, the sum of
P13,000,000.00, as and for moral and exemplary damages.
Payment of these moral and exemplary damages shall be
offset by APT from the outstanding and unpaid loans of MMIC
with DBP and PNB, which have not been converted into
equity. Should there be any balance due to MMIC after the
offsetting, the same shall be satisfied from the funds
representing the purchase price of the sale of the shares of
island Cement Corporation in the amount of P503,000,000.00
held under escrow pursuant to the Escrow Agreement dated
April 22, 1988 or to such subsequent escrow agreement that
would supersede it pursuant to paragraph (9) of the
Compromise and Arbitration Agreement;

3. Ordering the defendant to pay to the plaintiff, Jesus S.

Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
likewise from the funds held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supersede it,
pursuant to paragraph (9), Compromise and Arbitration
Agreement, as and for moral damages; and

4. Ordering the defendant to pay arbitration costs.

This Decision is FINAL and EXECUTORY.

IT IS SO ORDERED.

Member Elma submitted a separate concurring and dissenting opinion reading as

follows:

ELMA, concurring and dissenting:

 I am in complete agreement with the findings of the Decision on the
principal issues submitted for the Committee's resolution, viz: that
plaintiffs Cabarrus, et al., have the capacity or the personality to institute
this derivative suit in behalf of Marinduque Milling and Industrial
Corporation (MMIC) and that the actions leading to, and including, the PNB-
DBP foreclosure of the MMIC assets were improper, invalid and/or not done
in good faith. Consequently, there is concurrence on my part to the award
of actual, moral and exemplary damages to MMIC, and moral damages to
plaintiff Jesus S. Cabarrus, Sr.

However, I am unable to agree with and, therefore, regretfully dissent as to

the manner or method of computation and amount of actual damages
awarded to MMIC, particularly set forth in paragraph 1 of the dispositive
potion of the Decision.

x x x           x x x          x x x

Considering that under the "Compromise and Arbitration Agreement", the

parties agreed that their respective claims be reduced to purely
pecuniary/money claims, then MMIC and/or plaintiffs on behalf of all the
other stockholders of MMIC are entitled to actual or compensatory
damages equivalent to the present value of their equity over the MMIC
assets, i.e. the total stockholders' equity of P20,826,700,952.00 as of
December 31, 1992. Further, since as held in the Decision that the DBP
would have an 87% equity in MMIC as a consequence of the finding that the
Financial Rehabilitation Plan (FRP), is valid (p. 64 of the Decision), then the
amount of P18,119,229,828.24 (equivalent to DBP's 87% equity) should be
deducted from the total stockholders' equity of P20,826,700,952.00 leaving
a net amount of P2,707,471,123.76 to be awarded to MMIC (excluding DBP's
share) as actual or compensatory damages.

It is to be noted that defendant APT did not present any evidence rebutting
the figures and computations made by witness Pastor. Since the Decision
finds the FRP valid, then the stockholders of MMIC (excluding DBP) should
be placed in the same position that they would have been where not for the
fact that the FRP was improperly and illegally aborted by PNB/DBP.
Accordingly, it is my submission that defendant APT should be ordered to
pay MMIC (excluding DBP) the sum of P2,707,471,123.76 with legal interest
thereon per annum from August 3, 1984 as and for actual damages.

x x x           x x x          x x x

Member Sison submitted a separate opinion reading as follows:

SEPARATE OPINION

x x x           x x x          x x x

It is clear and it cannot be disputed therefore that based on

these stipulated issues, the parties themselves have agreed
that the basic ingredient of the causes of action in this case
is the wrong committed on the corporation (MMIC) for the
alleged illegal foreclosure of its assets. By agreeing to this
stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit
that the cause of action pertains only to the corporation
(MMIC) and that they are filing this for and in behalf of MMIC.

Perforce this has to be so because it is the basic rule in

Corporation Law that "the shareholders have no title, legal or
equitable to the property which is owned by the corporation
(13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon
& Sons vs. Register of Deeds, 6 SCRA 373, the rule has been
reiterated that "a stockholder is not the co-owner of the
corporate property." Since the property or assets foreclosed
belongs to MMIC, the wrong committed, if any, is done
against the corporation. There is therefore no direct injury or
direct violation of the rights of Cabarrus et al. There is no
way, legal or equitable by which Cabarrus et al, could recover
damages in their personal capacities even assuming or just
because the foreclosure is improper or invalid. The
Compromise and Arbitration Agreement itself and the
elementary principles of Corporation Law say so. Therefore, I
am constrained to dissent from the award of moral damages
to Cabarrus.

Neither could I agree to the award of moral damages to MMIC.

The acts complained of here in which the Committee based
its award of moral damages to MMIC is the foreclosure of the
various real estate and chattel mortgages. The majority of the
Committee believes that these foreclosure constitute a
violation on an agreement forged between PNB-DBP, on one
hand, and MMIC, on the other, regarding the restructuring of
the various past due loans of MMIC to what had been termed
as the Financial Restructuring Program (FRP).

x x x           x x x          x x x

In this connection, it can readily be seen and it cannot quite

be denied that MMIC accounts in PNB-DBP were past due.
The drawing up of the FRP is the best proof of this. When
MMIC adopted a restructuring program for its loan, it only
meant that these loans were already due and unpaid. If these
loans were restructurable because they were already due and
unpaid, they are likewise "forecloseable". The option is with
the PNB-DBP on what steps to take.

The mere fact that MMIC adopted the FRP does not mean that
DBP-PNB lost the option to foreclose. Neither does it mean
that the FRP is legally binding and implementable. It must be
pointed that said FRP will, in effect, supersede the existing
 and past due loans of MMIC with PNB-DBP. It will become the
new loan agreement between the lenders and the borrowers.
As in all other contracts, there must therefore be a meeting of
the minds of the parties; the PNB and DBP must have to
validly adopt and ratify such FRP before they can be bound
by it; before it can be implemented. In this case, not an iota of
proof has been presented by the PLAINTIFFS showing that
PNB and DBP ratified and adopted the FRP. PLAINTIFFS
simply relied on a legal doctrine of promissory estoppel to
support its allegations in this regard.

x x x           x x x          x x x

All told, PNB and DBP had the right to foreclose and were
justified in doing so. But were the foreclosure legally done or
carried out? Were the requirements of notice, posting and
publication required by Acts 3135 and 1508 substantially
complied with?

x x x           x x x          x x x

I cannot, however, concur with the for holding that such

minor taint of illegality in the foreclosure is enough to justify
the award of damages, amounting to P19,486,118,654.00.
"Rules of law respecting the recovery of damages are framed
with reference to just rights or both parties, not merely what
may be right for an injured person to receive, but also what is
just to compel the other party to pay, to accord just
compensation for the injury" (Kennings vs. Kline Ind. 602).
Following this universally accepted rule on damage, I do not
believe it is just to compel APT to pay such huge amount for
such minor technical infraction.

But while I do not agree with this pronouncement of the

Committee, I nevertheless concur with the result as far as the
disposition of the award for actual damages is concerned. I
agree that DEFENDANT APT can, and is still entitled to,
collect the outstanding obligations of MMIC to PNB and DBP
amounting to P22,668,537,770.05 with interest thereon as
stipulated in the loan documents from the date of foreclosure
until the time they are fully paid. The resultant effect of such a
disposition is that APT can offset the said obligation due
from MMIC such that ultimately no damages will be due and
payable to MMIC. As there may be damage without injury,
there can be injury without damage (15 Am. Jur., p. 388). This
case is a case of "injury without damage".

Both parties moved for reconsideration of the "decision" of the Arbitration Committee. In
addition, respondents Cabarrus et al. filed a motion for clarification and to re-open the
case to receive evidence. In a resolution dated July 26, 1984, with one member
dissenting, the Arbitration Committee denied the motions for reconsideration of both
parties as well as all other pending motions.

On October 17, 1984, respondents Cabarrus et al. filed directly with the Regional Trial
Court, Makati, Branch 62, in the same Civil Case No. 9900, a pleading entitled
application/motion for confirmation of arbitral award.

On November 4, 1994, petitioner APT filed an opposition and motion to vacate judgment,
contending that respondents' motion was improperly filed with the same branch of the
court in Civil Case No. 9900, which was previously dismissed, and that the motion should
have been filed as a separate special proceedings in the Regional Trial Court to be
docketed by the Clerk of Court.

Nonetheless, acting on the application/motion, Judge Roberto C. Diokno, presiding

judge, Regional Trial Court, Makati, Branch 62, on November 28, 1994, issued an order
granting plaintiffs' application confirming the arbitration award, and rendering judgment
as set out in the opening paragraph of this opinion.

On December 12, 1994, petitioner APT received notice of the lower court's order. On
December 27, 1994, petitioner APT filed a motion for reconsideration. By order dated
January 18, 1995, the trial court denied the motion. On February 7, 1995, respondents
Cabarrus, et al. filed a motion for execution and appointment of custodian of proceeds of
execution. Petitioner opposed the motion. It is apparently still unresolved.

On February 15, 1995, petitioner APT filed with the Court of Appeals an original special
civil action for certiorari with prayer for temporary restraining order or preliminary
injunction1 to annul the two (2) orders of the respondent Regional Trial Court above-
mentioned confirming the arbitral award and denying its reconsideration.

The issue presented in said petition was whether respondent Judge Roberto C. Diokno,
Regional Trial Court, Makati, Branch 62, had jurisdiction to act on private respondents'
application/motion for confirmation of arbitral award in the same Civil Case No. 9900,
which had been dismissed earlier on motion of the parties, and thus the court gravely
abused its discretion in confirming the arbitral award.

In its decision promulgated on July 17, 1995, the Court of Appeals denied due course and
dismissed the petition for certiorari for lack of merit.

Hence, this petition for review filed on September 07, 1995. 2

The petition is impressed with merit.

First, the Regional Trial Court, Makati, Branch 62, did not validly acquire jurisdiction over
the case by respondents' filing of a mere motion in the same Civil Case No. 9900 because
the case had been dismissed earlier and such dismissal had become final and
unappealable. As heretofore stated, on October 6, 1992, the parties entered into a
compromise and arbitration agreement expressly providing that they "have agreed to
withdraw their respective claims from the Trial Court and to resolve their dispute through
arbitration by praying to the Trial Court to issue a compromise judgment based on this
Compromise and Arbitration agreement.
Clearly, the parties had withdrawn the action then pending with the Regional Trial Court,
Makati, Branch 62, in Civil Case No. 9900, and agreed that they would submit their
dispute to arbitration and reduce their respective claims to "purely money claims",
"waiving and foregoing all other forms of reliefs which they prayed for or could have
prayed for in Civil Case No. 9900." The parties "agreed to move for the dismissal of the
case, to transform the reliefs prayed for therein to pure money claims and submit the
controversy to arbitration under Republic Act (RA) 876 before a committee composed of
three members."

In its order dated October 12, 1992, in Civil Case No. 9900, the trial court presided over by
respondent Judge categorically decreed that "The complaint is hereby dismissed". Such
disposition terminated the case finally and irretrievably disposed of the same.3 The term
"dismissed" has a definite meaning in law. "A judgment of 'dismissed', without qualifying
words indicating a right to take further proceedings, is presumed to be dismissed on the
merits".4 The dismissal could not have been a suspension of action provided for in the
arbitration law, Republic Act No. 876.

Upon the finality of such order of dismissal, the case could no longer be revived by mere
motion. The trial court had lost its authority over the case. 5 We cite as squarely
applicable the decision where this Court emphatically said "But after the dismissal has
become final through the lapse of the fifteen-day reglementary period, the only way by
which the action may be resuscitated or 'revived,' is by the institution of a subsequent
action through the filing of another complaint and the payment of the fees prescribed by
law. This is so because upon attainment of finality of a dismissal through the lapse of
said reglementary period, the Court loses jurisdiction and control over it and can no
longer make any disposition in respect thereof inconsistent with such dismissal"6 It is
true that the confirmation of an arbitral award is within the jurisdiction over the subject
matter of a regional trial court. Such jurisdiction must be invoked by proper motion as a
special proceedings with notice to the parties filed in the proper court with the clerk of
court (and upon payment of the prescribed fees). 7

Second, the Arbitration Committee did not actually reach a valid decision on the subject
controversy.

In the purported decision dated November 24, 1994, penned by Chairman Sarmiento, the
Committee ordered petitioner APT to pay to MMIC the sum of P2,531,635,425.02, with
interest thereon at the legal rate at 6% per annum from August 3, 9 and 24, 1984, pari
passu as actual damages; to pay MMIC P13 million, as moral and exemplary damages,
and to pay Jesus S. Cabarrus, Sr. P10 million, as moral damages.

In the concurring and dissenting opinion of Member Elma, he agreed with the finding on
the principal issue submitted for resolution. However, he dissented as to the manner or
method of computation and amount of actual damages awarded to MMIC. He submitted
that APT should be ordered to pay MMIC the sum of P2,707,471,123.76, with legal interest
thereon per annum from August 3, 1984, as actual damages.

In his separate opinion, Member Sison stated that he concurred with the result as far as
the disposition of the award of actual damage is concerned. He agreed that APT is
entitled to collect the outstanding obligations of MMIC to PNB and DBP amounting to
P22,668,537,770.05, with interest as stipulated in the loan documents from the date of
foreclosure until fully paid. The resultant effect is that APT can offset said obligation due
from MMIC such that ultimately no damages shall be due and payable to MMIC. He was
against the award of moral and exemplary damages to MMIC and Jesus S. Cabarrus, Sr.

It is obvious that the disposition in Chairman Sarmiento's award and the concurring and
dissenting opinion of Member Elma do not tally and, hence, because of the dissent of
Member Sison, the Arbitration Committee did not reach a majority decision constituting a
valid judgment or fallo of the Committee.

The powers and duties of boards and commissions may not

be exercised by the individual members separately. Their
acts are official only when done by the members convened in
session upon a concurrence of at least a majority and with at
least a quorum present.8

Respondents Cabarrus, et al. considered the disposition as confusing and incomplete as

to the award of damages and thereby requiring the reception of further evidence as to
necessitate the re-opening of hearings on the case. On May 20, 1994, they filed a motion
for clarification seeking answer from the arbitration committee as to the final amount of
actual damages the MMIC is entitled to, and, on June 9, 1994, they filed a motion to
reopen the case and to receive evidence.

Even the Arbitration Committee's resolution of the various motions for reconsideration
and other reliefs was conflicting. For Chairman Sarmiento, respondents' motion for
reconsideration, dated December 15, 1993, and petitioner's motion for reconsideration,
dated January 3, 1994, respondents' motion for clarification dated June 8, 1994, and
respondents' urgent motion to re-open the case and to receive evidence were all DENIED
for lack of merit.

Member Elma dissented from the denial of the parties' motion for reconsideration,
reiterating that MMIC is entitled to actual damages in the sum of P2,707,471,123.76, with
legal interest thereon from August 3, 1984.

Member Azura (substituting Sison) concurred with the Chairman in denying respondents'
motion for reconsideration, motion for clarification and motion to re-open the case but
favored granting petitioner's (APT) motion for reconsideration.

WHEREFORE, I vote to GRANT the petition at bench, reverse the decision of the Court of
Appeals9 as well as the orders of the Regional Trial Court, Makati, Branch 62, in Civil
Case No. 9900, vacate the "decision" of the Arbitration Committee dated November 24,
1993, and, finally, ENJOIN the trial court from further acting on the case.
G.R. No. L-22973           January 30, 1968

MAMBULAO LUMBER COMPANY, plaintiff-appellant,

vs.
PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of
Camarines Norte, defendants-appellees.

Ernesto P. Vilar and Arthur Tordesillas for plaintiff-appellant.

Tomas Besa and Jose B. Galang for defendants-appellees.

ANGELES, J.:

An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila in Civil
Case No. 52089, entitled "Mambulao Lumber Company, plaintiff, versus Philippine National
Bank and Anacleto Heraldo, defendants", dismissing the complaint against both defendants and
sentencing the plaintiff to pay to defendant Philippine National Bank (PNB for short) the sum of
P3,582.52 with interest thereon at the rate of 6% per annum from December 22, 1961 until fully
paid, and the costs of suit.

In seeking the reversal of the decision, the plaintiff advances several propositions in its brief
which may be restated as follows:

1. That its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87
and not P58,213.51 as concluded by the court a quo; hence, the proceeds of the
foreclosure sale of its real property alone in the amount of P56,908.00 on that date,
added to the sum of P738.59 it remitted to the PNB thereafter was more than sufficient
to liquidate its obligation, thereby rendering the subsequent foreclosure sale of its
chattels unlawful;

2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees and the
additional sum of P298.54 as expenses of the foreclosure sale;

3. That the subsequent foreclosure sale of its chattels is null and void, not only because
it had already settled its indebtedness to the PNB at the time the sale was effected, but
also for the reason that the said sale was not conducted in accordance with the
provisions of the Chattel Mortgage Law and the venue agreed upon by the parties in the
mortgage contract;

4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for its value;
and

5. That for the acts of the PNB in proceeding with the sale of the chattels, in utter
disregard of plaintiff's vigorous opposition thereto, and in taking possession thereof after
the sale thru force, intimidation, coercion, and by detaining its "man-in-charge" of said
properties, the PNB is liable to plaintiff for damages and attorney's fees.

The antecedent facts of the case, as found by the trial court, are as follows:
On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the Naga
Branch of defendant PNB and the former offered real estate, machinery, logging and
transportation equipments as collaterals. The application, however, was approved for a
loan of P100,000 only. To secure the payment of the loan, the plaintiff mortgaged to
defendant PNB a parcel of land, together with the buildings and improvements existing
thereon, situated in the poblacion of Jose Panganiban (formerly Mambulao), province of
Camarines Norte, and covered by Transfer Certificate of Title No. 381 of the land
records of said province, as well as various sawmill equipment, rolling unit and other
fixed assets of the plaintiff, all situated in its compound in the aforementioned
municipality.

On August 2, 1956, the PNB released from the approved loan the sum of P27,500, for
which the plaintiff signed a promissory note wherein it promised to pay to the PNB the
said sum in five equal yearly installments at the rate of P6,528.40 beginning July 31,
1957, and every year thereafter, the last of which would be on July 31, 1961.

On October 19, 1956, the PNB made another release of P15,500 as part of the
approved loan granted to the plaintiff and so on the said date, the latter executed
another promissory note wherein it agreed to pay to the former the said sum in five equal
yearly installments at the rate of P3,679.64 beginning July 31, 1957, and ending on July
31, 1961.

The plaintiff failed to pay the amortization on the amounts released to and received by it.
Repeated demands were made upon the plaintiff to pay its obligation but it failed or
otherwise refused to do so. Upon inspection and verification made by employees of the
PNB, it was found that the plaintiff had already stopped operation about the end of 1957
or early part of 1958.

On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines
Norte requesting him to take possession of the parcel of land, together with the
improvements existing thereon, covered by Transfer Certificate of Title No. 381 of the
land records of Camarines Norte, and to sell it at public auction in accordance with the
provisions of Act No. 3135, as amended, for the satisfaction of the unpaid obligation of
the plaintiff, which as of September 22, 1961, amounted to P57,646.59, excluding
attorney's fees. In compliance with the request, on October 16, 1961, the Provincial
Sheriff of Camarines Norte issued the corresponding notice of extra-judicial sale and
sent a copy thereof to the plaintiff. According to the notice, the mortgaged property
would be sold at public auction at 10:00 a.m. on November 21, 1961, at the ground floor
of the Court House in Daet, Camarines Norte.

On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte
requesting him to take possession of the chattels mortgaged to it by the plaintiff and sell
them at public auction also on November 21, 1961, for the satisfaction of the sum of
P57,646.59, plus 6% annual interest therefore from September 23, 1961, attorney's fees
equivalent to 10% of the amount due and the costs and expenses of the sale. On the
same day, the PNB sent notice to the plaintiff that the former was foreclosing
extrajudicially the chattels mortgaged by the latter and that the auction sale thereof
would be held on November 21, 1961, between 9:00 and 12:00 a.m., in Mambulao,
Camarines Norte, where the mortgaged chattels were situated.
On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession of
the chattels mortgaged by the plaintiff and made an inventory thereof in the presence of
a PC Sergeant and a policeman of the municipality of Jose Panganiban. On November
9, 1961, the said Deputy Sheriff issued the corresponding notice of public auction sale of
the mortgaged chattels to be held on November 21, 1961, at 10:00 a.m., at the plaintiff's
compound situated in the municipality of Jose Panganiban, Province of Camarines
Norte.

On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail
matter, one to the Naga Branch of the PNB and another to the Provincial Sheriff of
Camarines Norte, protesting against the foreclosure of the real estate and chattel
mortgages on the grounds that they could not be effected unless a Court's order was
issued against it (plaintiff) for said purpose and that the foreclosure proceedings,
according to the terms of the mortgage contracts, should be made in Manila. In said
letter to the Naga Branch of the PNB, it was intimated that if the public auction sale
would be suspended and the plaintiff would be given an extension of ninety (90) days, its
obligation would be settled satisfactorily because an important negotiation was then
going on for the sale of its "whole interest" for an amount more than sufficient to liquidate
said obligation.

The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as a
request for extension of the foreclosure sale of the mortgaged chattels and so it advised
the Sheriff of Camarines Norte to defer it to December 21, 1961, at the same time and
place. A copy of said advice was sent to the plaintiff for its information and guidance.

The foreclosure sale of the parcel of land, together with the buildings and improvements
thereon, covered by Transfer Certificate of Title No. 381, was, however, held on
November 21, 1961, and the said property was sold to the PNB for the sum of
P56,908.00, subject to the right of the plaintiff to redeem the same within a period of one
year. On the same date, Deputy Provincial Sheriff Heraldo executed a certificate of sale
in favor of the PNB and a copy thereof was sent to the plaintiff.

In a letter dated December 14, 1961 (but apparently posted several days later), the
plaintiff sent a bank draft for P738.59 to the Naga Branch of the PNB, allegedly in full
settlement of the balance of the obligation of the plaintiff after the application thereto of
the sum of P56,908.00 representing the proceeds of the foreclosure sale of parcel of
land described in Transfer Certificate of Title No. 381. In the said letter, the plaintiff
reiterated its request that the foreclosure sale of the mortgaged chattels be discontinued
on the grounds that the mortgaged indebtedness had been fully paid and that it could not
be legally effected at a place other than the City of Manila.

In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of
Camarines Norte that it had fully paid its obligation to the PNB, and enclosed therewith a
copy of its letter to the latter dated December 14, 1961.

On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the
plaintiff acknowledging the remittance of P738.59 with the advice, however, that as of
that date the balance of the account of the plaintiff was P9,161.76, to which should be
added the expenses of guarding the mortgaged chattels at the rate of P4.00 a day
beginning December 19, 1961. It was further explained in said letter that the sum of
 P57,646.59, which was stated in the request for the foreclosure of the real estate
mortgage, did not include the 10% attorney's fees and expenses of the sale.
Accordingly, the plaintiff was advised that the foreclosure sale scheduled on the 21st of
said month would be stopped if a remittance of P9,161.76, plus interest thereon and
guarding fees, would be made.

On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at
10:00 a.m. and they were awarded to the PNB for the sum of P4,200 and the
corresponding bill of sale was issued in its favor by Deputy Provincial Sheriff Heraldo.

In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNB
advised the plaintiff giving it priority to repurchase the chattels acquired by the former at
public auction. This offer was reiterated in a letter dated January 3, 1962, of the Attorney
of the Naga Branch of the PNB to the plaintiff, with the suggestion that it exercise its
right of redemption and that it apply for the condonation of the attorney's fees. The
plaintiff did not follow the advice but on the contrary it made known of its intention to file
appropriate action or actions for the protection of its interests.

On May 24, 1962, several employees of the PNB arrived in the compound of the plaintiff
in Jose Panganiban, Camarines Norte, and they informed Luis Salgado, Chief Security
Guard of the premises, that the properties therein had been auctioned and bought by the
PNB, which in turn sold them to Mariano Bundok. Upon being advised that the purchaser
would take delivery of the things he bought, Salgado was at first reluctant to allow any
piece of property to be taken out of the compound of the plaintiff. The employees of the
PNB explained that should Salgado refuse, he would be exposing himself to a litigation
wherein he could be held liable to pay big sum of money by way of damages.
Apprehensive of the risk that he would take, Salgado immediately sent a wire to the
President of the plaintiff in Manila, asking advice as to what he should do. In the
meantime, Mariano Bundok was able to take out from the plaintiff's compound two
truckloads of equipment.

In the afternoon of the same day, Salgado received a telegram from plaintiff's President
directing him not to deliver the "chattels" without court order, with the information that the
company was then filing an action for damages against the PNB. On the following day,
May 25, 1962, two trucks and men of Mariano Bundok arrived but Salgado did not permit
them to take out any equipment from inside the compound of the plaintiff. Thru the
intervention, however, of the local police and PC soldiers, the trucks of Mariano Bundok
were able finally to haul the properties originally mortgaged by the plaintiff to the PNB,
which were bought by it at the foreclosure sale and subsequently sold to Mariano
Bundok.

Upon the foregoing facts, the trial court rendered the decision appealed from which, as stated in
the first paragraph of this opinion, sentenced the Mambulao Lumber Company to pay to the
defendant PNB the sum of P3,582.52 with interest thereon at the rate of 6% per annum from
December 22, 1961 (day following the date of the questioned foreclosure of plaintiff's chattels)
until fully paid, and the costs. Mambulao Lumber Company interposed the instant appeal.

We shall discuss the various points raised in appellant's brief in seriatim.

The first question Mambulao Lumber Company poses is that which relates to the amount of its
indebtedness to the PNB arising out of the principal loans and the accrued interest thereon. It is
contended that its obligation under the terms of the two promissory notes it had executed in
favor of the PNB amounts only to P56,485.87 as of November 21, 1961, when the sale of real
property was effected, and not P58,213.51 as found by the trial court.

There is merit to this claim. Examining the terms of the promissory note executed by the
appellant in favor of the PNB, we find that the agreed interest on the loan of P43,000.00 —
P27,500.00 released on August 2, 1956 as per promissory note of even date (Exhibit C-3), and
P15,500.00 released on October 19, 1956, as per promissory note of the same date (Exhibit C-
4) — was six per cent (6%) per annum from the respective date of said notes "until paid". In the
statement of account of the appellant as of September 22, 1961, submitted by the PNB, it
appears that in arriving at the total indebtedness of P57,646.59 as of that date, the PNB had
compounded the principal of the loan and the accrued 6% interest thereon each time the yearly
amortizations became due, and on the basis of these compounded amounts charged additional
delinquency interest on them up to September 22, 1961; and to this erroneously computed total
of P57,646.59, the trial court added 6% interest per annum from September 23, 1961 to
November 21 of the same year. In effect, the PNB has claimed, and the trial court has
adjudicated to it, interest on accrued interests from the time the various amortizations of the
loan became due until the real estate mortgage executed to secure the loan was extra-judicially
foreclosed on November 21, 1961. This is an error. Section 5 of Act No. 2655 expressly
provides that in computing the interest on any obligation, promissory note or other instrument or
contract, compound interest shall not be reckoned, except by agreement, or in default thereof,
whenever the debt is judicially claimed. This is also the clear mandate of Article 2212 of the new
Civil Code which provides that interest due shall earn legal interest only from the time it is
judicially demanded, and of Article 1959 of the same code which ordains that interest due and
unpaid shall not earn interest. Of course, the parties may, by stipulation, capitalize the interest
due and unpaid, which as added principal shall earn new interest; but such stipulation is
nowhere to be found in the terms of the promissory notes involved in this case. Clearly
therefore, the trial court fell into error when it awarded interest on accrued interests, without any
agreement to that effect and before they had been judicially demanded.

Appellant next assails the award of attorney's fees and the expenses of the foreclosure sale in
favor of the PNB. With respect to the amount of P298.54 allowed as expenses of the extra-
judicial sale of the real property, appellant maintains that the same has no basis, factual or
legal, and should not have been awarded. It likewise decries the award of attorney's fees which,
according to the appellant, should not be deducted from the proceeds of the sale of the real
property, not only because there is no express agreement in the real estate mortgage contract
to pay attorney's fees in case the same is extra-judicially foreclosed, but also for the reason that
the PNB neither spent nor incurred any obligation to pay attorney's fees in connection with the
said extra-judicial foreclosure under consideration.

There is reason for the appellant to assail the award of P298.54 as expenses of the sale. In this
respect, the trial court said:

The parcel of land, together with the buildings and improvements existing thereon
covered by Transfer Certificate of Title No. 381, was sold for P56,908. There was,
however, no evidence how much was the expenses of the foreclosure sale although
from the pertinent provisions of the Rules of Court, the Sheriff's fees would be P1 for
 advertising the sale (par. k, Sec. 7, Rule 130 of the Old Rules) and P297.54 as his
commission for the sale (par. n, Sec. 7, Rule 130 of the Old Rules) or a total of P298.54.

There is really no evidence of record to support the conclusion that the PNB is entitled to the
amount awarded as expenses of the extra-judicial foreclosure sale. The court below committed
error in applying the provisions of the Rules of Court for purposes of arriving at the amount
awarded. It is to be borne in mind that the fees enumerated under paragraphs k and n, Section
7, of Rule 130 (now Rule 141) are demandable, only by a sheriff serving processes of the court
in connection with judicial foreclosure of mortgages under Rule 68 of the new Rules, and not in
cases of extra-judicial foreclosure of mortgages under Act 3135. The law applicable is Section 4
of Act 3135 which provides that the officer conducting the sale is entitled to collect a fee of
P5.00 for each day of actual work performed in addition to his expenses in connection with the
foreclosure sale. Admittedly, the PNB failed to prove during the trial of the case, that it actually
spent any amount in connection with the said foreclosure sale. Neither may expenses for
publication of the notice be legally allowed in the absence of evidence on record to support it. 1 It
is true, as pointed out by the appellee bank, that courts should take judicial notice of the fees
provided for by law which need not be proved; but in the absence of evidence to show at least
the number of working days the sheriff concerned actually spent in connection with the extra-
judicial foreclosure sale, the most that he may be entitled to, would be the amount of P10.00 as
a reasonable allowance for two day's work — one for the preparation of the necessary notices
of sale, and the other for conducting the auction sale and issuance of the corresponding
certificate of sale in favor of the buyer. Obviously, therefore, the award of P298.54 as expenses
of the sale should be set aside.

But the claim of the appellant that the real estate mortgage does not provide for attorney's fees
in case the same is extra-judicially foreclosed, cannot be favorably considered, as would readily
be revealed by an examination of the pertinent provision of the mortgage contract. The parties
to the mortgage appear to have stipulated under paragraph (c) thereof, inter alia:

. . . For the purpose of extra-judicial foreclosure, the Mortgagor hereby appoints the
Mortgagee his attorney-in-fact to sell the property mortgaged under Act 3135, as
amended, to sign all documents and to perform all acts requisite and necessary to
accomplish said purpose and to appoint its substitute as such attorney-in-fact with the
same powers as above specified. In case of judicial foreclosure, the Mortgagor hereby
consents to the appointment of the Mortgagee or any of its employees as receiver,
without any bond, to take charge of the mortgaged property at once, and to hold
possession of the same and the rents, benefits and profits derived from the mortgaged
property before the sale, less the costs and expenses of the receivership; the Mortgagor
hereby agrees further that in all cases, attorney's fees hereby fixed at Ten Per cent
(10%) of the total indebtedness then unpaid which in no case shall be less than P100.00
exclusive of all fees allowed by law, and the expenses of collection shall be the
obligation of the Mortgagor and shall with priority, be paid to the Mortgagee out of any
sums realized as rents and profits derived from the mortgaged property or from the
proceeds realized from the sale of the said property and this mortgage shall likewise
stand as security therefor. . . .

We find the above stipulation to pay attorney's fees clear enough to cover both cases of
foreclosure sale mentioned thereunder, i.e., judicially or extra-judicially. While the phrase "in all
cases" appears to be part of the second sentence, a reading of the whole context of the
stipulation would readily show that it logically refers to extra-judicial foreclosure found in the first
sentence and to judicial foreclosure mentioned in the next sentence. And the ambiguity in the
stipulation suggested and pointed out by the appellant by reason of the faulty sentence
construction should not be made to defeat the otherwise clear intention of the parties in the
agreement.

It is suggested by the appellant, however, that even if the above stipulation to pay attorney's
fees were applicable to the extra-judicial foreclosure sale of its real properties, still, the award of
P5,821.35 for attorney's fees has no legal justification, considering the circumstance that the
PNB did not actually spend anything by way of attorney's fees in connection with the sale. In
support of this proposition, appellant cites authorities to the effect: (1) that when the mortgagee
has neither paid nor incurred any obligation to pay an attorney in connection with the
foreclosure sale, the claim for such fees should be denied; 2 and (2) that attorney's fees will not
be allowed when the attorney conducting the foreclosure proceedings is an officer of the
corporation (mortgagee) who receives a salary for all the legal services performed by him for the
corporation. 3 These authorities are indeed enlightening; but they should not be applied in this
case. The very same authority first cited suggests that said principle is not absolute, for there is
authority to the contrary. As to the fact that the foreclosure proceeding's were handled by an
attorney of the legal staff of the PNB, we are reluctant to exonerate herein appellant from the
payment of the stipulated attorney's fees on this ground alone, considering the express
agreement between the parties in the mortgage contract under which appellant became liable to
pay the same. At any rate, we find merit in the contention of the appellant that the award of
P5,821.35 in favor of the PNB as attorney's fees is unconscionable and unreasonable,
considering that all that the branch attorney of the said bank did in connection with the
foreclosure sale of the real property was to file a petition with the provincial sheriff of Camarines
Norte requesting the latter to sell the same in accordance with the provisions of Act 3135.

The principle that courts should reduce stipulated attorney's fees whenever it is found under the
circumstances of the case that the same is unreasonable, is now deeply rooted in this
jurisdiction to entertain any serious objection to it. Thus, this Court has explained:

But the principle that it may be lawfully stipulated that the legal expenses involved in the
collection of a debt shall be defrayed by the debtor does not imply that such stipulations
must be enforced in accordance with the terms, no matter how injurious or oppressive
they may be. The lawful purpose to be accomplished by such a stipulation is to permit
the creditor to receive the amount due him under his contract without a deduction of the
expenses caused by the delinquency of the debtor. It should not be permitted for him to
convert such a stipulation into a source of speculative profit at the expense of the debtor.

Contracts for attorney's services in this jurisdiction stands upon an entirely different
footing from contracts for the payment of compensation for any other services. By
express provision of section 29 of the Code of Civil Procedure, an attorney is not entitled
in the absence of express contract to recover more than a reasonable compensation for
his services; and even when an express contract is made the court can ignore it and limit
the recovery to reasonable compensation if the amount of the stipulated fee is found by
the court to be unreasonable. This is a very different rule from that announced in section
1091 of the Civil Code with reference to the obligation of contracts in general, where it is
said that such obligation has the force of law between the contracting parties. Had the
plaintiff herein made an express contract to pay his attorney an uncontingent fee of
P2,115.25 for the services to be rendered in reducing the note here in suit to judgment, it
would not have been enforced against him had he seen fit to oppose it, as such a fee is
 obviously far greater than is necessary to remunerate the attorney for the work involved
and is therefore unreasonable. In order to enable the court to ignore an express contract
for an attorney's fees, it is not necessary to show, as in other contracts, that it is contrary
to morality or public policy (Art. 1255, Civil Code). It is enough that it is unreasonable or
unconscionable. 4

Since then this Court has invariably fixed counsel fees on a quantum meruit basis whenever the
fees stipulated appear excessive, unconscionable, or unreasonable, because a lawyer is
primarily a court officer charged with the duty of assisting the court in administering impartial
justice between the parties, and hence, the fees should be subject to judicial control. Nor should
it be ignored that sound public policy demands that courts disregard stipulations for counsel
fees, whenever they appear to be a source of speculative profit at the expense of the debtor or
mortgagor. 5 And it is not material that the present action is between the debtor and the creditor,
and not between attorney and client. As court have power to fix the fee as between attorney and
client, it must necessarily have the right to say whether a stipulation like this, inserted in a
mortgage contract, is valid. 6

In determining the compensation of an attorney, the following circumstances should be

considered: the amount and character of the services rendered; the responsibility imposed; the
amount of money or the value of the property affected by the controversy, or involved in the
employment; the skill and experience called for in the performance of the service; the
professional standing of the attorney; the results secured; and whether or not the fee is
contingent or absolute, it being a recognized rule that an attorney may properly charge a much
larger fee when it is to be contingent than when it is not. 7 From the stipulation in the mortgage
contract earlier quoted, it appears that the agreed fee is 10% of the total indebtedness,
irrespective of the manner the foreclosure of the mortgage is to be effected. The agreement is
perhaps fair enough in case the foreclosure proceedings is prosecuted judicially but, surely, it is
unreasonable when, as in this case, the mortgage was foreclosed extra-judicially, and all that
the attorney did was to file a petition for foreclosure with the sheriff concerned. It is to be
assumed though, that the said branch attorney of the PNB made a study of the case before
deciding to file the petition for foreclosure; but even with this in mind, we believe the amount of
P5,821.35 is far too excessive a fee for such services. Considering the above circumstances
mentioned, it is our considered opinion that the amount of P1,000.00 would be more than
sufficient to compensate the work aforementioned.

The next issue raised deals with the claim that the proceeds of the sale of the real properties
alone together with the amount it remitted to the PNB later was more than sufficient to liquidate
its total obligation to herein appellee bank. Again, we find merit in this claim. From the foregoing
discussion of the first two errors assigned, and for purposes of determining the total obligation of
herein appellant to the PNB as of November 21, 1961 when the real estate mortgage was
foreclosed, we have the following illustration in support of this conclusion:1äwphï1.ñët

A. -
I. Principal Loan
(a) Promissory note dated August 2, 1956 P27,500.00
(1) Interest at 6% per annum from Aug. 2, 1956 to Nov. 21, 1961 8,751.78
(b) Promissory note dated October 19, 1956 P15,500.00
 (1) Interest at 6% per annum from Oct.19, 1956 to Nov. 21, 1961 4,734.08
II. Sheriff's fees [for two (2) day's work] 10.00
III. Attorney's fee 1,000.00

Total obligation as of Nov. 21, 1961 P57,495.86

B. -
Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21,
I. P56,908.00
1961
II. Additional amount remitted to the PNB on Dec. 18, 1961 738.59

Total amount of Payment made to PNB as of Dec. 18, 1961 P57,646.59

Deduct: Total obligation to the PNB P57,495.86

Excess Payment to the PNB P 150.73

========

From the foregoing illustration or computation, it is clear that there was no further necessity to
foreclose the mortgage of herein appellant's chattels on December 21, 1961; and on this ground
alone, we may declare the sale of appellant's chattels on the said date, illegal and void. But we
take into consideration the fact that the PNB must have been led to believe that the stipulated
10% of the unpaid loan for attorney's fees in the real estate mortgage was legally maintainable,
and in accordance with such belief, herein appellee bank insisted that the proceeds of the sale
of appellant's real property was deficient to liquidate the latter's total indebtedness. Be that as it
may, however, we still find the subsequent sale of herein appellant's chattels illegal and
objectionable on other grounds.

That appellant vigorously objected to the foreclosure of its chattel mortgage after the foreclosure
of its real estate mortgage on November 21, 1961, can not be doubted, as shown not only by its
letter to the PNB on November 19, 1961, but also in its letter to the provincial sheriff of
Camarines Norte on the same date. These letters were followed by another letter to the
appellee bank on December 14, 1961, wherein herein appellant, in no uncertain terms,
reiterated its objection to the scheduled sale of its chattels on December 21, 1961 at Jose
Panganiban, Camarines Norte for the reasons therein stated that: (1) it had settled in full its total
obligation to the PNB by the sale of the real estate and its subsequent remittance of the amount
of P738.59; and (2) that the contemplated sale at Jose Panganiban would violate their
agreement embodied under paragraph (i) in the Chattel Mortgage which provides as follows:

(i) In case of both judicial and extra-judicial foreclosure under Act 1508, as amended, the
parties hereto agree that the corresponding complaint for foreclosure or the petition for
sale should be filed with the courts or the sheriff of the City of Manila, as the case may
be; and that the Mortgagor shall pay attorney's fees hereby fixed at ten per cent (10%) of
the total indebtedness then unpaid but in no case shall it be less than P100.00, exclusive
 of all costs and fees allowed by law and of other expenses incurred in connection with
the said foreclosure. [Emphasis supplied]

Notwithstanding the abovequoted agreement in the chattel mortgage contract, and in utter
disregard of the objection of herein appellant to the sale of its chattels at Jose Panganiban,
Camarines Norte and not in the City of Manila as agreed upon, the PNB proceeded with the
foreclosure sale of said chattels. The trial court, however, justified said action of the PNB in the
decision appealed from in the following rationale:

While it is true that it was stipulated in the chattel mortgage contract that a petition for
the extra-judicial foreclosure thereof should be filed with the Sheriff of the City of Manila,
nevertheless, the effect thereof was merely to provide another place where the mortgage
chattel could be sold in addition to those specified in the Chattel Mortgage Law. Indeed,
a stipulation in a contract cannot abrogate much less impliedly repeal a specific
provision of the statute. Considering that Section 14 of Act No. 1508 vests in the
mortgagee the choice where the foreclosure sale should be held, hence, in the case
under consideration, the PNB had three places from which to select, namely: (1) the
place of residence of the mortgagor; (2) the place of the mortgaged chattels were
situated; and (3) the place stipulated in the contract. The PNB selected the second and,
accordingly, the foreclosure sale held in Jose Panganiban, Camarines Norte, was legal
and valid.

To the foregoing conclusion, We disagree. While the law grants power and authority to the
mortgagee to sell the mortgaged property at a public place in the municipality where the
mortgagor resides or where the property is situated, 8 this Court has held that the sale of a
mortgaged chattel may be made in a place other than that where it is found, provided that the
owner thereof consents thereto; or that there is an agreement to this effect between the
mortgagor and the mortgagee. 9 But when, as in this case, the parties agreed to have the sale of
the mortgaged chattels in the City of Manila, which, any way, is the residence of the mortgagor,
it cannot be rightly said that mortgagee still retained the power and authority to select from
among the places provided for in the law and the place designated in their agreement over the
objection of the mortgagor. In providing that the mortgaged chattel may be sold at the place of
residence of the mortgagor or the place where it is situated, at the option of the mortgagee, the
law clearly contemplated benefits not only to the mortgagor but to the mortgagee as well. Their
right arising thereunder, however, are personal to them; they do not affect either public policy or
the rights of third persons. They may validly be waived. So, when herein mortgagor and
mortgagee agreed in the mortgage contract that in cases of both judicial and extra-judicial
foreclosure under Act 1508, as amended, the corresponding complaint for foreclosure or the
petition for sale should be filed with the courts or the Sheriff of Manila, as the case may be, they
waived their corresponding rights under the law. The correlative obligation arising from that
agreement have the force of law between them and should be complied with in good faith. 10

By said agreement the parties waived the legal venue, and such waiver is valid and
legally effective, because it, was merely a personal privilege they waived, which is not
contrary, to public policy or to the prejudice of third persons. It is a general principle that
a person may renounce any right which the law gives unless such renunciation is
expressly prohibited or the right conferred is of such nature that its renunciation would
be against public policy. 11
 On the other hand, if a place of sale is specified in the mortgage and statutory
requirements in regard thereto are complied with, a sale is properly conducted in that
place. Indeed, in the absence of a statute to the contrary, a sale conducted at a place
other than that stipulated for in the mortgage is invalid, unless the mortgagor consents to
such sale. 12

Moreover, Section 14 of Act 1508, as amended, provides that the officer making the sale should
make a return of his doings which shall particularly describe the articles sold and the amount
received from each article. From this, it is clear that the law requires that sale be made article by
article, otherwise, it would be impossible for him to state the amount received for each item.
This requirement was totally disregarded by the Deputy Sheriff of Camarines Norte when he
sold the chattels in question in bulk, notwithstanding the fact that the said chattels consisted of
no less than twenty different items as shown in the bill of sale. 13 This makes the sale of the
chattels manifestly objectionable. And in the absence of any evidence to show that the
mortgagor had agreed or consented to such sale in gross, the same should be set aside.

It is said that the mortgagee is guilty of conversion when he sells under the mortgage but not in
accordance with its terms, or where the proceedings as to the sale of foreclosure do not comply
with the statute. 14 This rule applies squarely to the facts of this case where, as earlier shown,
herein appellee bank insisted, and the appellee deputy sheriff of Camarines Norte proceeded
with the sale of the mortgaged chattels at Jose Panganiban, Camarines Norte, in utter disregard
of the valid objection of the mortgagor thereto for the reason that it is not the place of sale
agreed upon in the mortgage contract; and the said deputy sheriff sold all the chattels (among
which were a skagit with caterpillar engine, three GMC 6 x 6 trucks, a Herring Hall Safe, and
Sawmill equipment consisting of a 150 HP Murphy Engine, plainer, large circular saws etc.) as a
single lot in violation of the requirement of the law to sell the same article by article. The PNB
has resold the chattels to another buyer with whom it appears to have actively cooperated in
subsequently taking possession of and removing the chattels from appellant compound by
force, as shown by the circumstance that they had to take along PC soldiers and municipal
policemen of Jose Panganiban who placed the chief security officer of the premises in jail to
deprive herein appellant of its possession thereof. To exonerate itself of any liability for the
breach of peace thus committed, the PNB would want us to believe that it was the subsequent
buyer alone, who is not a party to this case, that was responsible for the forcible taking of the
property; but assuming this to be so, still the PNB cannot escape liability for the conversion of
the mortgaged chattels by parting with its interest in the property. Neither would its claim that it
afterwards gave a chance to herein appellant to repurchase or redeem the chattels, improve its
position, for the mortgagor is not under obligation to take affirmative steps to repossess the
chattels that were converted by the mortgagee. 15 As a consequence of the said wrongful acts of
the PNB and the Deputy Sheriff of Camarines Norte, therefore, We have to declare that herein
appellant is entitled to collect from them, jointly and severally, the full value of the chattels in
question at the time they were illegally sold by them. To this effect was the holding of this Court
in a similar situation. 16

The effect of this irregularity was, in our opinion to make the plaintiff liable to the
defendant for the full value of the truck at the time the plaintiff thus carried it off to be
sold; and of course, the burden is on the defendant to prove the damage to which he
was thus subjected. . . .

This brings us to the problem of determining the value of the mortgaged chattels at the time of
their sale in 1961. The trial court did not make any finding on the value of the chattels in the
decision appealed from and denied altogether the right of the appellant to recover the same. We
find enough evidence of record, however, which may be used as a guide to ascertain their
value. The record shows that at the time herein appellant applied for its loan with the PNB in
1956, for which the chattels in question were mortgaged as part of the security therefore, herein
appellant submitted a list of the chattels together with its application for the loan with a stated
value of P107,115.85. An official of the PNB made an inspection of the chattels in the same
year giving it an appraised value of P42,850.00 and a market value of P85,700.00. 17 The same
chattels with some additional equipment acquired by herein appellant with part of the proceeds
of the loan were reappraised in a re-inspection conducted by the same official in 1958, in the
report of which he gave all the chattels an appraised value of P26,850.00 and a market value of
P48,200.00. 18 Another re-inspection report in 1959 gave the appraised value as P19,400.00
and the market value at P25,600.00. 19 The said official of the PNB who made the foregoing
reports of inspection and re-inspections testified in court that in giving the values appearing in
the reports, he used a conservative method of appraisal which, of course, is to be expected of
an official of the appellee bank. And it appears that the values were considerably reduced in all
the re-inspection reports for the reason that when he went to herein appellant's premises at the
time, he found the chattels no longer in use with some of the heavier equipments dismantled
with parts thereof kept in the bodega; and finding it difficult to ascertain the value of the
dismantled chattels in such condition, he did not give them anymore any value in his reports.
Noteworthy is the fact, however, that in the last re-inspection report he made of the chattels in
1961, just a few months before the foreclosure sale, the same inspector of the PNB reported
that the heavy equipment of herein appellant were "lying idle and rusty" but were "with a shed
free from rains" 20 showing that although they were no longer in use at the time, they were kept
in a proper place and not exposed to the elements. The President of the appellant company, on
the other hand, testified that its caterpillar (tractor) alone is worth P35,000.00 in the market, and
that the value of its two trucks acquired by it with part of the proceeds of the loan and included
as additional items in the mortgaged chattels were worth no less than P14,000.00. He likewise
appraised the worth of its Murphy engine at P16,000.00 which, according to him, when taken
together with the heavy equipments he mentioned, the sawmill itself and all other equipment
forming part of the chattels under consideration, and bearing in mind the current cost of
equipments these days which he alleged to have increased by about five (5) times, could safely
be estimated at P120,000.00. This testimony, except for the appraised and market values
appearing in the inspection and re-inspection reports of the PNB official earlier mentioned, stand
uncontroverted in the record; but We are not inclined to accept such testimony at its par value,
knowing that the equipments of herein appellant had been idle and unused since it stopped
operating its sawmill in 1958 up to the time of the sale of the chattels in 1961. We have no doubt
that the value of chattels was depreciated after all those years of inoperation, although from the
evidence aforementioned, We may also safely conclude that the amount of P4,200.00 for which
the chattels were sold in the foreclosure sale in question was grossly unfair to the mortgagor.
Considering, however, the facts that the appraised value of P42,850.00 and the market value of
P85,700.00 originally given by the PNB official were admittedly conservative; that two 6 x 6
trucks subsequently bought by the appellant company had thereafter been added to the
chattels; and that the real value thereof, although depreciated after several years of inoperation,
was in a way maintained because the depreciation is off-set by the marked increase in the cost
of heavy equipment in the market, it is our opinion that the market value of the chattels at the
time of the sale should be fixed at the original appraised value of P42,850.00.

Herein appellant's claim for moral damages, however, seems to have no legal or factual basis.
Obviously, an artificial person like herein appellant corporation cannot experience physical
sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social
humiliation which are basis of moral damages. 21 A corporation may have a good reputation
which, if besmirched, may also be a ground for the award of moral damages. The same cannot
be considered under the facts of this case, however, not only because it is admitted that herein
appellant had already ceased in its business operation at the time of the foreclosure sale of the
chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the
chattels could have upon its reputation or business standing would undoubtedly be the same
whether the sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is
the place agreed upon by the parties in the mortgage contract.

But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in
proceeding with the sale in utter disregard of the agreement to have the chattels sold in Manila
as provided for in the mortgage contract, to which their attentions were timely called by herein
appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00,
herein appellant should be awarded exemplary damages in the sum of P10,000.00. The
circumstances of the case also warrant the award of P3,000.00 as attorney's fees for herein
appellant.

WHEREFORE AND CONSIDERING ALL THE FOREGOING, the decision appealed from
should be, as hereby, it is set aside. The Philippine National Bank and the Deputy Sheriff of the
province of Camarines Norte are ordered to pay, jointly and severally, to Mambulao Lumber
Company the total amount of P56,000.73, broken as follows: P150.73 overpaid by the latter to
the PNB, P42,850.00 the value of the chattels at the time of the sale with interest at the rate of
6% per annum from December 21, 1961, until fully paid, P10,000.00 in exemplary damages,
and P3,000.00 as attorney's fees. Costs against both appellees.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Fernando,
JJ., concur.
Bengzon, J.P. J., took no part.
G.R. No. 113176. July 30, 2001

HANIL DEVELOPMENT CO., LTD., Petitioner, v. COURT OF APPEALS AND M.R. ESCOBAR
EXPLOSIVE ENGINEERS, INC., Respondents.

[G.R. No. 113342. July 30, 2001

M.R. ESCOBAR EXPLOSIVE ENGINEERS, INC., petitioner v. COURT OF APPEALS AND

HANIL DEVELOPMENT CO., LTD., Respondents.

D E C I S I O N**

PUNO, J.:

Before us are Petitions for Review on Certiorari under Rule 45 of the Decision rendered on
August 23, 1993 and the Resolution promulgated on January 5, 1994, both by the Court of
Appeals.

In the early seventies, the Ministry of Public Works and Highways (MPWH for brevity) awarded
petitioner Hanil Development Co., Ltd. (Hanil for brevity) the contract to construct the 200-
kilometer Iligan-Cagayan de Oro-Butuan Highway Project. On November 14, 1976, Hanil sub-let
the rock-blasting work portion of the contract to private respondent M.R. Escobar Explosive
Engineers, Inc. (Escobar for brevity). By express stipulation of the parties, Escobar will be
compensated thus:

xxx

9. For the services performed by Sub-Contractor (Escobar) in accordance with the terms and
conditions herein described, Hanil will pay twenty pesos (P20.00) per cubic meter on the
following basis:

a. If the rocks are solid in nature, quantity will be assessed as shown on the cross-section.

b. If the nature of the rock is soft and can be removed by using ripper, quantity may be
assessed on the actual blasted amount surveyed by both Company and Sub-Contractors
engineers.

On January 3, 1977, Escobar commenced its blasting works. It continued its services until
terminated by Hanil on December 15, 1978. For the duration of the contract, it worked on the
segments of the construction undertaking designated in the agreement as A-2, B-2, B-3, B-4,
and C-1. It was fully paid for the areas A-2 and B-4. It claimed, however, that Hanil still partially
owes it one million three hundred forty one thousand seven hundred twenty-seven and 40/100
(P1,341,727.40) pesos for blastings done in the B-2, B-3 and C-1 areas. The claim was
predicated on the theory that the rocks it caused to explode in the contested areas were solid in
nature, and therefore the volume should be computed using the cross-section approach
pursuant to the above-quoted paragraph 9(a). It appears that all the payments it received were
fixed based on the joint survey method under paragraph 9(b). Escobar stressed that Hanil was
always paid by the MPWH using the cross-section system. This was pursuant to the awarded
200-km. highway project contract between the MPWH and Hanil, where the volumes of rocks to
be blasted in specific areas were already pre-estimated based on the cross-section approach. In
fine, Escobars line of reasoning is that Hanil should pay it the same amount of money Hanil
received from the MPWH for the blastings it did in the contested areas (B-2, B-3 and C-1). The
figure P1,341,727.40 represents the difference between the two.

Consequently, Escobar instituted Civil Case No. 35966 for recovery of a sum of money with
damages against Hanil before the then Court of First Instance of Rizal (CFI for brevity). Hanil
filed its answer with counterclaim for damages. Trial thereafter ensued. On April 16, 1982, the
CFI handed down a Decision ordering Hanil to pay P1,341,727.40 for the value of rocks blasted
by Escobar; 10% of the amount due for attorneys fees; and the costs of suit.

On May 24, 1982, upon Escobars motion, the CFI garnished the bank accounts of Hanil and
levied its equipments. On June 29, 1982, it also granted Escobars Ex-parte Motion to Deposit
Cash praying that the Finance Manager of the National Power Corporation (NAPOCOR) be
directed to withdraw Hanils funds from the NAPOCOR and deposit the same with the Clerk of
Court. Hanil challenged the issuance of the May 24 and June 29 Orders before the Court of
Appeals in a Petition for Certiorari with prayer for Injunction and Preliminary Restraining Order,
docketed as CA-G.R. No. SP-14512. The appellate court, in a decision rendered on February 3,
1983, voided the challenged Orders.

While the above-mentioned petition was pending before the Court of Appeals and despite the
writ of injunction issued by it, other developments continued to unfold in the CFI. In an Order
dated August 23, 1982, it disapproved Hanils Amended Record on Appeal and dismissed its
appeal. On October 19, 1982, it denied Hanils Motion for Reconsideration of the August 23
Order and at the same time granted Escobars Motion for Execution of Judgment. These two
Orders were again contested by Hanil before the appellate court in a Petition for Certiorari and
Mandamus with prayer for Prohibition. The said Orders were again annulled and set aside.
Hanils appeal was reinstated and the CFI was ordered to elevate the entire records of the case
to the Court of Appeals.

After transmittal of the records, the Court of Appeals notified Hanil on February 11, 1985 to file
Appellants Brief within forty-five days. On March 13, 1985, and within the reglementary period to
submit its brief, Hanil filed an Application for Judgment against Attachment Bond and Motion to
Defer Filing of Appellants Brief, praying for a hearing before the Court of Appeals so it could
prove the damages it sustained as a result of the illegal writ of attachment issued by the CFI. It
wanted a judgment against the attachment bond posted by Escobar and its insurer Sanpiro
Insurance Corporation (Sanpiro for brevity) to be included in the appealed decision in the main
case, Civil Case No. 35966, then pending before the Court of Appeals. Escobar filed its
Comment with a Motion to Dismiss Appeal allegedly for Hanils failure to file its brief.

On April 30, 1985, the appellate court issued a Resolution denying Hanils Application for
Judgment Against the Attachment Bond together with its Motion to Defer Filing of Appellants
Brief. It also dismissed Hanils appeal. Hanils Motion for Reconsideration was denied on June
20, 1985. Hanil promptly sought relief from said April 30 and June 20 Resolutions by filing with
this Court a Petition for Certiorari, Mandamus and Prohibition with Mandatory Injunction. In a
decision rendered on September 30, 1986, we reversed and set aside the assailed Resolutions.
We also directed the Court of Appeals to conduct hearings on the application for damages
against the bond filed by Hanil and to reinstate the appeal.
Upon reinstatement of the appeal, the appellate court conducted hearings on the application for
judgment against the attachment bond. On August 23, 1993, it promulgated the herein
contested Decision, 3 the decretal portion of which reads as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. REVERSING and SETTING ASIDE the appealed decision in Civil Case No. 35966;

2. DISMISSING the complaint in Civil Case No. 35966;

3. ORDERING the plaintiff-appellee (Escobar) to pay defendant-appellant under the

counterclaim in Civil Case No. 35966 the following sums of money:

a. FIFTY THOUSAND (P50,000.00) PESOS, for and as attorneys fees;

b. TWENTY THOUSAND (P20,000.00) PESOS in the concept of nominal damages

4. ORDERING plaintiff-appellee and bondsman Sanpiro to jointly and severally pay defendant-
appellant under the attachment bond the total sum of FIFTY-SEVEN THOUSAND FIVE
HUNDRED SEVEN AND 90/100 (P57,507.90) PESOS as and for attorneys fees and litigation
expenses; and

5. ORDERING plaintiff-appellee to pay bondsman Sanpiro by way of reimbursement under their

Indemnity Agreement the sum of FIFTY-SEVEN THOUSAND FIVE HUNDRED SEVEN AND
90/100 (P57,507.90) PESOS.

Costs against plaintiff-appellee.

Hanil and Escobar filed their own respective Motions for Reconsideration, which were both
denied in a Resolution 5 dated January 5, 1994.

On February 15, 1994, Hanil filed before this court a Petition for Review on Certiorari under
Rule 45 assailing the amount of damages awarded to it. This was docketed as G.R. No.
113176, entitled Hanil Development Co., Ltd., Petitioner, vs. Court of Appeals and M.R. Escobar
Explosive Engineers, Respondents. On February 24, 1994, Escobar likewise filed its own
Petition for Review on Certiorari under Rule 45, docketed as G.R. No. 113342, entitled M.R.
Escobar Explosive Engineers, Inc., Petitioner, vs. Court of Appeals and Hanil Development Co.,
Ltd., Respondents
In G.R. No. 113176, petitioner Hanil raises the following grounds:

I. THE U.S.$3,000.00 INCURRED AND SPENT BY PETITIONER IN TAKING THE

DEPOSITION OF ONE OF ITS WITNESSES SHOULD HAVE BEEN ADJUDGED TO BE PAID
BY THE PRIVATE RESPONDENT.

II. THE PETITIONER SHOULD HAVE BEEN AWARDED WITH TEMPERATE DAMAGES OF
P5,000,000.00 IN LIEU OF ACTUAL DAMAGES, INSTEAD OF THE SMALLER SUM OF
P20,000.00 IN NOMINAL DAMAGES.

III. THE PETITIONER SHOULD HAVE BEEN AWARDED MORAL DAMAGES IN THE
AMOUNT OF P1,000,000.00.

IV. THE PRIVATE RESPONDENT SHOULD BE MADE TO PAY THE PETITIONER

EXEMPLARY DAMAGES IN THE AMOUNT OF P5,000,000.00 IN ORDER TO BE AN
EFFECTIVE DETERRENT TO MALEVOLENT, FRAUDULENT AND MALICIOUS SUIT AND
APPLICATION FOR ATTACHMENT AND OTHER SIMILAR ACTS;

V. THE AWARDED ATTORNEYS FEES FOR THE PRINCIPAL ACTION SHOULD HAVE
BEEN INCREASED FROM P50,000.00 TO P500,000.00.

In G. R. No. 113342, petitioner Escobar makes the following assignment of errors:

I.

THE COURT OF APPEALS ERRED GRAVELY IN NOT AFFIRMING THE TRIAL COURTS 16
APRIL 1982 DECISION IN PETITIONERS FAVOR.

II.

THE COURT OF APPEALS FURTHER ERRED GRAVELY IN AWARDING DAMAGES AND

ATTORNEYS FEES TO PRIVATE RESPONDENT, AS WELL AS IN AWARDING ADDITIONAL
ATTORNEYS FEES AND INJUNCTION BOND PREMIUM ON PRIVATE RESPONDENTS
APPLICATION FOR DAMAGES ON ATTACHMENT.

III.

THEREFORE THE COURT OF APPEALS ERRED IN NOT DISMISSING THE PETITION IN

CA-G.R. NO. 05055 OUTRIGHT FOR BEING UTTERLY DEVOID OF MERIT.

We will jointly discuss the related issues forwarded by the parties, first, in respect of the appeal
from the Decision of the CFI in Civil Case No. 35966, before ruling on the issues advanced
anent the application for judgment on the attachment bond.

Re: Appeal from the Decision of the CFI

in Civil Case No. 35966

In its petition in G.R. No. 113342, Escobar claims that the Court of Appeals erroneously relied
on sub-paragraph (b) of paragraph 9 of the Sub-Contract Agreement. It maintains that all the
blasting works it performed in areas B-2, B-3 and C-1 were for and on solid rock areas. It
emphasizes that since Hanil was paid by the MPWH based on the cross-section system in
these areas, it should likewise be paid in the same manner.

The contention fails to impress. Just because the MPWH paid Hanil using the cross-section
approach for the blastings in the contested areas does not necessarily mean that Hanil should
in turn compensate Escobar based on the same technique of computation. Apropos is the
observation made by Mr. N.A. Vaitialingam, the Project Manager of the engineering consultants
Sauti, Certeza & F.F. Cruz for the 200-kilometer Iligan-Butuan highway construction project. In a
letter 8 dated December 10, 1979 addressed to the Honorable Minister of the MPWH, he
declared the following:

These payments are made subject to the specification under Clause 105-3-2 Rock Material of
the General Specifications, copy attached. Therefore it is not possible to ascertain the exact
volume of rock or boulders blasted by the sub-contractor from the volume paid to the contractor
because the rock blasted may be, for example, 60% or 65 % of the volume paid in the cross-
section. Also very often boulders are pushed by the bull-dozers without blasting.

Thus it is desired that the main contractor (Hanil) and the sub-contractor should come to a
mutual agreement on the subject. (emphasis supplied.)

The import of this observation was correctly interpreted by the Court of Appeals, thus:

What Mr. N.A. Vaitialingam simply means is that the cross-section computation for payment by
the MPWH to appellant (Hanil), as contractor, could not be in turn used as an accurate basis for
payment by appellant to appellee (Escobar), as sub-contractor, not only because the rock
blasted in each cross-section might have been (sic) consisted only of 60% or 65% solid rock but
also because very often blasting was no longer necessary since boulders were just removed by
bulldozers. The truth of Mr. Vaitialingams statement is confirmed by appellees own
documentary evidence which show that rock blasting and boulders comprised a major portion of
the work done in segment B-2 (Exh. B-3) and segment B-3 (Exh. B-2) and that the work in
segment C-1 (Exh. B-1) consisted entirely of blasting and dozing. Moreover, appellees Exhibits
B-1, B-2 and B-3 clearly evince that In all cases there were overburden of earth of varying
depths on top of rock and boulders. In other words, payment to appellee as shown by cross-
section under Sub-paragraph (a) of Paragraph 9 of the questioned document was obviously
inapplicable for not being based on an actual and accurate method of measurement.

This letter (Exhibit H) is part of the evidence of Escobar. It cannot impugn its own evidence.

To be sure, what governs the contractual relation between Escobar and Hanil are the
stipulations contained in their Sub-contract Agreement. A contract is the law between the parties
and where there is nothing in it which is contrary to law, morals, good customs, public policy or
public good, its validity must be sustained.

The express terms of the agreement are clear as day to necessitate any interpretation. For the
cross-section approach under paragraph 9(a) to apply, it is imperative to establish that the rocks
blasted were solid in nature. Otherwise, the joint survey procedure will be followed. Escobar
failed to prove the nature of the rocks it blasted in the disputed areas. It did not introduce in
evidence object samples of the rocks in the area. Neither did it present photographs, both wide
and close-up angles of representative portions of the said areas that it worked on, let alone
photographs of typical clusters of the rock it blasted. 11cräläwvirtualibräry

That the cross-section system was not at all followed by the parties is further shown by
Escobars act in the first seven months of the two-year agreement when it received monthly
payments computed on the basis of the joint survey method. During the period from January to
July 1977, its monthly billings were fixed after a joint survey of the estimated quantity of rocks
before blasting and another joint assessment of the actual volume of rocks blasted by its own
engineers and those of Hanil, which is in accordance with Paragraph 9(b), not 9(a), of their Sub-
contract Agreement. Its belated assertion that these monthly collections were understood to be
mere partial compensation, subject to adjustment after applying the cross-section approach,
appears to be an afterthought. If the claim is true, it could have easily indicated or annotated the
condition in the billings that it sent Hanil and the receipts for the payment. Since Escobar
accepted payment for a considerable period of time under the joint survey method [par. 9(b)], it
cannot later be allowed to assume an inconsistent position by invoking the cross-section
approach [par. 9(a)].

We now discuss the merit of Hanils petition. For its part, it seeks an increase in the grant of
nominal damages and attorneys fees. It also prays for additional awards of moral and
exemplary damages.

Hanils plea for additional amount in the form of temperate damages in lieu of the nominal
damages awarded to it must be denied. We agree with the appellate courts ruling that the
amount of twenty thousand pesos (P20,000.00) is just. Hanil failed to prove the actual value of
pecuniary injury which it sustained as a consequence of Escobars institution of an unfounded
civil suit. The testimony of one of its witnesses presented in the CFI, to the effect that the filing
of the complaint affected Hanils reputation and that it affected the management and engineers
working in the site, 121 is not enough proof. The institution of the suit, unfounded though it may
be, does not always lead to pecuniary loss as to warrant an award of actual or temperate
damages. The link between the cause (the suit) and the effect (the loss) must be established by
the required proof.

So, too, must its demand for payment of moral damages fail. The rule is that moral damages
can not be granted in favor of a corporation. Being an artificial person and having existence only
in legal contemplation, a corporation has no feelings, no emotions, no senses. It cannot,
therefore, experience physical suffering, mental anguish, fright, serious anxiety, wounded
feelings or moral shock or social humiliation, which can be suffered only by one having a
nervous system.

Hanils prayer for exemplary damages must likewise be denied. It must be remembered that this
kind of damages cannot be recovered as a matter of right. Its allowance rests in the sound
discretion of the court, and only upon a showing of its legal foundation. Under the Civil Code,
the claimant must first establish that he is entitled to moral, temperate, compensatory or
liquidated damages before it may be imposed in his favor. 14 Hanil failed to do so, hence, it
cannot claim exemplary damages.
We hold, however, that an increase in the grant of attorneys fees from fifty thousand pesos
(P50,000.00) to one hundred fifty thousand pesos (P150,000.00) is in order. Although the
original complaint lodged with the CFI was merely for collection of a sum of money with
damages, involving as it did modest legal issues, that complaint had in reality generated several
incidents during the close to twenty years that this case was under litigation. Twice, Hanil filed
Petitions for Certiorari with the Court of Appeals. Once, it elevated the case to this Court
questioning the dismissal of the appeal by the appellate court. Then, after reinstatement of the
appeal, it had to present and defend its case not only for the appeal but also for its application
on the attachment bond. And now, Hanil has to contend with Escobars Petition in G.R. No.
113342, even as it concerns itself with its own Petition in G.R. No. 113176. In fine, taking into
account the over-all factual environment upon which this case proceeded, we find the award of
P50,000.00 insufficient and hereby augment it to P150,000.00.

Re: Application for Judgment on the Attachment Bond

Apropos the Application for Judgment on the Attachment Bond, Escobar claims in its petition
that the award of attorneys fees and injunction bond premium in favor of Hanil is to law and
jurisprudence. It contends that no malice or bad faith may be imputed to it in procuring the writ.

Escobars protestation is now too late in the day. The question of the illegality of the attachment
and Escobars bad faith in obtaining it has long been settled in one of the earlier incidents of this
case. The Court of Appeals, in its decision rendered on February 3, 1983 in C.A.-G.R. No. SP-
14512, voided the challenged writ, having been issued with grave abuse of discretion. Escobars
bad faith in procuring the writ cannot be doubted. Its Petition for the Issuance of Preliminary
Attachment made such damning allegations that: Hanil was already able to secure a complete
release of its final collection from the MPWH; it has moved out some of its heavy equipments for
unknown destination, and it may leave the country anytime. Worse, its Ex Parte Motion to
Resolve Petition alleged that after personal verification by (Escobar) of (Hanils) equipment in
Cagayan de Oro City, it appears that the equipments were no longer existing from their
compound. All these allegations of Escobar were found to be totally baseless and untrue. So
manifest was their baselessness that Escobar did not even submit a reply to refute the
assertions Hanil made in its Opposition to the Petition for the Issuance of Preliminary
Attachment. Nor did it attempt to negate the same assertions of Hanil in its Motion for
Reconsideration. Instead, it advanced the evasive claim that the Motion has become moot and
academic on the ground that the writ of attachment has already been executed.

We therefore hold that on the basis of the evidence presented, Hanil is entitled to temperate
damages in the amount of five hundred thousand pesos (P500,000.00). As a consequence of
the illegal writ, Hanil suffered the following damages: (1) some of the checks it issued were
dishonored after its bank accounts were garnished; (2) its operation stopped temporarily for five
days because it was prevented from using its equipments and machineries; and (3) its goodwill,
reputation and commercial standing as one of the top multi-national construction firms in Asia
was tarnished.

In light of Escobars bad faith in procuring the attachment and garnishment orders, we grant the
additional award of exemplary damages in the amount of one million pesos (P1,000,000.00) by
way of example or correction for public good. This should deter parties in litigations from
resorting to baseless and preposterous allegations to obtain writs of attachments from gullible
judges. The misuse of our legal processes cannot be tolerated especially if they victimize
persons and institutions of foreign nationality doing legitimate business in our jurisdiction. While
as a general rule, the liability on the attachment bond is limited to actual (or in some cases,
temperate or nominal) damages, exemplary damages may be recovered where the attachment
was established to be maliciously sued out. 15cräläwvirtualibräry

We, however, delete the award of attorneys fees for the litigation of the application for damages
against the bond since we have already included the same in our grant of attorneys fees in the
main action concerning the appeal.

In other aspects, we sustain the assailed Decision and Resolution of the Court of Appeals. The
claim of Hanil that as part of the cost of suit, Escobar should be made to pay three thousand
U.S. dollars (U.S.$3,000.00) for the money it spent in taking the deposition upon written
interrogatories of one of its witnesses, Engr. Chan Woo Park, in South Korea on November 18,
1988 is bereft of merit. The case law on this issue is now settled, viz.:

(T)he expenses of taking depositions are allowable as costs only if it appears to the court: (1)
that they were reasonably necessary; (2) the burden of so demonstrating is upon the party
claiming such expenses as costs; (3) whether that burden is met is within the sound discretion
of the trial court; and (4) its ruling thereon is presumed to be correct and will not be disturbed
unless it is so unreasonable as to manifest a clear abuse of discretion.16 (emphasis supplied)

Whether the taking of a deposition was reasonably necessary to the protection of the partys
interests as to entitle it to reimbursement of expenses is a question primarily for the lower court
to decide based on all the facts and circumstances of the case. On this score, the Court of
Appeals (which heard the Application for Damages) disallowed Hanils claim since the deposition
was merely corroborative in nature and, therefore, superfluous. 17 We agree. A cursory reading
of the transcript of deposition of Engr. Chan will readily reveal that his testimony only
corroborated that of Hanils earlier witness, Mr. Chang Yong Ahn, its Operations Manager, who
took the stand on February 26, 1988. The two testimonies dealt with the same topic: the illegal
writ of attachment on Hanils equipments and garnishment of its funds, and the pecuniary loss it
suffered as a consequence thereof. In fact, despite the Court of Appealss own conclusion about
the superfluity of the deposition, it still decided in favor of Hanil based on the other undisputed
evidence on record.

In the same vein, we sustain the grant of seven thousand five hundred seven pesos and ninety
centavos (P7,507.90) as injunction bond premium for being reasonable under the premises.

Finally, we find and so hold that, as between Escobar and its bondsman Sanpiro, the former is
liable to the latter by virtue of their Indemnity Agreement 181 for the damages the subject
attachment bond is herein made to answer. However, since the extent of its liability will be
determined only by the terms and conditions of the contract of suretyship, 19 it can only be held
answerable up to the amount of one million three hundred forty-one thousand, seven hundred
twenty-seven pesos and forty centavos (P1,341,727.40).

IN VIEW WHEREOF, the assailed Decision and Resolution of the Court of Appeals are hereby
modified as follows:

1. ORDERING Escobar to pay Hanil under the counterclaim in Civil Case No. 35966 the
following sums of money:

a. TWENTY THOUSAND PESOS (P20,000.00) as nominal damages;

b. ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00) for and as attorneys fees.

2. ORDERING Escobar, and bondsman Sanpiro to jointly and severally pay with it up to the
extent of one million three hundred forty-one thousand seven hundred twenty-seven pesos and
forty centavos (P1,341,727.40), to pay Hanil under the attachment bond the following sums of
money:

a. FIVE HUNDRED THOUSAND PESOS (P500,000.00) as temperate damages;

b. ONE MILLION PESOS (P1,000,000.00) as exemplary damages;

c. SEVEN THOUSAND FIVE HUNDRED SEVEN PESOS AND NINETY CENTAVOS

(P7,507.90) for the Injunction Bond Premium.

3. ORDERING Escobar to pay Hanil the remainder of the amount of temperate, exemplary and
bond premium damages - which cannot be fully covered by the attachment bond - in the sum of
ONE HUNDRED SIXTY-FIVE THOUSAND SEVEN HUNDRED EIGHTY PESOS AND FIFTY
CENTAVOS (P165,780.50).

4. ORDERING Escobar to pay bondsman Sanpiro by way of reimbursement under their

Indemnity Agreement the sum of ONE MILLION THREE HUNDRED FORTY-ONE THOUSAND
SEVEN HUNDRED TWENTY-SEVEN PESOS AND FORTY CENTAVOS (P1,341,727.40).

Costs against Escobar.

SO ORDERED.

EN BANC

[G.R. No. L-32409. February 27, 1971.]

BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, v.

HON. JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA, in his capacity as
Commissioner of Internal Revenue, ARTURO LOGRONIO, RODOLFO DE
LEON, GAVINO VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO, JOHN
DOE, JOHN DOE, JOHN DOE, and JOHN DOE, Respondents.

San Juan, Africa, Gonzales & San Agustin, for Petitioners.

Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin V .

Bautista, Solicitor Pedro A. Ramirez and Special Attorney Jaime M. Maza
for Respondents.
 DECISION

VILLAMOR, J.:

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

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

On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal

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

In the afternoon of the following day, February 25, 1970, respondent De Leon and
his witness, respondent Arturo Logronio, went to the Court of First Instance of
Rizal. They brought with them the following papers: respondent 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.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee and

Makasiar, JJ., concur.

Reyes, J.B.L., J., concurs with Mr. Justice Barredo.

Castro, J., concurs in the result.

 G.R. No. L-31061 August 17, 1976

SULO NG BAYAN INC., Plaintiff-Appellant, v. GREGORIO ARANETA, INC.,

PARADISE FARMS, INC., NATIONAL WATERWORKS & SEWERAGE
AUTHORITY, HACIENDA CARETAS, INC, and REGISTER OF DEEDS OF
BULACAN, defendants-appellees.

Hill & Associates Law Offices for appellant.chanrobles virtual law library

Araneta, Mendoza & Papa for appellee Gregorio Araneta, Inc.chanrobles virtual law
library

Carlos, Madarang, Carballo & Valdez for Paradise Farms, Inc.chanrobles virtual law
library

Leopoldo M. Abellera, Arsenio J. Magpale & Raul G. Bernardo, Office of the

Government Corporate Counsel for appellee National Waterworks & Sewerage
Authority.chanrobles virtual law library

Candido G. del Rosario for appellee Hacienda Caretas, Inc.

ANTONIO, J.:

The issue posed in this appeal is whether or not plaintiff corporation (non- stock
may institute an action in behalf of its individual members for the recovery of
certain parcels of land allegedly owned by said members; for the nullification of the
transfer certificates of title issued in favor of defendants appellees covering the
aforesaid parcels of land; for a declaration of "plaintiff's members as absolute
owners of the property" and the issuance of the corresponding certificate of title;
and for damages.chanroblesvirtualawlibrarychanrobles virtual law library

On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de

revindicacion with the Court of First Instance of Bulacan, Fifth Judicial District,
Valenzuela, Bulacan, against defendants-appellees to recover the ownership and
possession of a large tract of land in San Jose del Monte, Bulacan, containing an
area of 27,982,250 square meters, more or less, registered under the Torrens
System in the name of defendants-appellees' predecessors-in-interest. 1 The
complaint, as amended on June 13, 1966, specifically alleged that plaintiff is a
corporation organized and existing under the laws of the Philippines, with its
principal office and place of business at San Jose del Monte, Bulacan; that its
membership is composed of natural persons residing at San Jose del Monte,
Bulacan; that the members of the plaintiff corporation, through themselves and
their predecessors-in-interest, had pioneered in the clearing of the fore-mentioned
tract of land, cultivated the same since the Spanish regime and continuously
possessed the said property openly and public under concept of ownership adverse
against the whole world; that defendant-appellee Gregorio Araneta, Inc., sometime
in the year 1958, through force and intimidation, ejected the members of the
plaintiff corporation fro their possession of the aforementioned vast tract of land;
that upon investigation conducted by the members and officers of plaintiff
corporation, they found out for the first time in the year 1961 that the land in
question "had been either fraudelently or erroneously included, by direct or
constructive fraud, in Original Certificate of Title No. 466 of the Land of Records of
the province of Bulacan", issued on May 11, 1916, which title is fictitious, non-
existent and devoid of legal efficacy due to the fact that "no original survey nor plan
whatsoever" appears to have been submitted as a basis thereof and that the Court
of First Instance of Bulacan which issued the decree of registration did not acquire
jurisdiction over the land registration case because no notice of such proceeding
was given to the members of the plaintiff corporation who were then in actual
possession of said properties; that as a consequence of the nullity of the original
title, all subsequent titles derived therefrom, such as Transfer Certificate of Title No.
4903 issued in favor of Gregorio Araneta and Carmen Zaragoza, which was
subsequently cancelled by Transfer Certificate of Title No. 7573 in the name of
Gregorio Araneta, Inc., Transfer Certificate of Title No. 4988 issued in the name of,
the National Waterworks & Sewerage Authority (NWSA), Transfer Certificate of Title
No. 4986 issued in the name of Hacienda Caretas, Inc., and another transfer
certificate of title in the name of Paradise Farms, Inc., are therefore void. Plaintiff-
appellant consequently prayed (1) that Original Certificate of Title No. 466, as well
as all transfer certificates of title issued and derived therefrom, be nullified; (2) that
"plaintiff's members" be declared as absolute owners in common of said property
and that the corresponding certificate of title be issued to plaintiff; and (3) that
defendant-appellee Gregorio Araneta, Inc. be ordered to pay to plaintiff the
damages therein specified.chanroblesvirtualawlibrarychanrobles virtual law library

On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to

dismiss the amended complaint on the grounds that (1) the complaint states no
cause of action; and (2) the cause of action, if any, is barred by prescription and
laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss
based on the same grounds. Appellee National Waterworks & Sewerage Authority
did not file any motion to dismiss. However, it pleaded in its answer as special and
affirmative defenses lack of cause of action by the plaintiff-appellant and the
barring of such action by prescription and
laches.chanroblesvirtualawlibrarychanrobles virtual law library

During the pendency of the motion to dismiss, plaintiff-appellant filed a motion,

dated October 7, 1966, praying that the case be transferred to another branch of
the Court of First Instance sitting at Malolos, Bulacan, According to defendants-
appellees, they were not furnished a copy of said motion, hence, on October 14,
1966, the lower court issued an Order requiring plaintiff-appellant to furnish the
appellees copy of said motion, hence, on October 14, 1966, defendant-appellant's
motion dated October 7, 1966 and, consequently, prayed that the said motion be
denied for lack of notice and for failure of the plaintiff-appellant to comply with the
Order of October 14, 1966. Similarly, defendant-appellee paradise Farms, Inc. filed,
on December 2, 1966, a manifestation information the court that it also did not
receive a copy of the afore-mentioned of appellant. On January 24, 1967, the trial
court issued an Order dismissing the amended complaint.
On February 14, 1967, appellant filed a motion to reconsider the Order of dismissal
on the grounds that the court had no jurisdiction to issue the Order of dismissal,
because its request for the transfer of the case from the Valenzuela Branch of the
Court of First Instance to the Malolos Branch of the said court has been approved
by the Department of Justice; that the complaint states a sufficient cause of action
because the subject matter of the controversy in one of common interest to the
members of the corporation who are so numerous that the present complaint
should be treated as a class suit; and that the action is not barred by the statute of
limitations because (a) an action for the reconveyance of property registered
through fraud does not prescribe, and (b) an action to impugn a void judgment may
be brought any time. This motion was denied by the trial court in its Order dated
February 22, 1967. From the afore-mentioned Order of dismissal and the Order
denying its motion for reconsideration, plaintiff-appellant appealed to the Court of
Appeals.chanroblesvirtualawlibrarychanrobles virtual law library

On September 3, 1969, the Court of Appeals, upon finding that no question of fact
was involved in the appeal but only questions of law and jurisdiction, certified this
case to this Court for resolution of the legal issues involved in the
controversy.chanroblesvirtualawlibrarychanrobles virtual law library

Ichanrobles virtual law library

Appellant contends, as a first assignment of error, that the trial court acted without
authority and jurisdiction in dismissing the amended complaint when the Secretary
of Justice had already approved the transfer of the case to any one of the two
branches of the Court of First Instance of Malolos,
Bulacan.chanroblesvirtualawlibrarychanrobles virtual law library

Appellant confuses the jurisdiction of a court and the venue of cases with the
assignment of cases in the different branches of the same Court of First Instance.
Jurisdiction implies the power of the court to decide a case, while venue the place
of action. There is no question that respondent court has jurisdiction over the case.
The venue of actions in the Court of First Instance is prescribed in Section 2, Rule 4
of the Revised Rules of Court. The laying of venue is not left to the caprice of
plaintiff, but must be in accordance with the aforesaid provision of the rules. 2 The
mere fact that a request for the transfer of a case to another branch of the same
court has been approved by the Secretary of Justice does not divest the court
originally taking cognizance thereof of its jurisdiction, much less does it change the
venue of the action. As correctly observed by the trial court, the indorsement of the
Undersecretary of Justice did not order the transfer of the case to the Malolos
Branch of the Bulacan Court of First Instance, but only "authorized" it for the
reason given by plaintiff's counsel that the transfer would be convenient for the
parties. The trial court is not without power to either grant or deny the motion,
especially in the light of a strong opposition thereto filed by the defendant. We hold
that the court a quo acted within its authority in denying the motion for the transfer
the case to Malolos notwithstanding the authorization" of the same by the Secretary
of Justice.chanroblesvirtualawlibrarychanrobles virtual law library
II chanrobles virtual law library

Let us now consider the substantive aspect of the Order of

dismissal.chanroblesvirtualawlibrarychanrobles virtual law library

In dismissing the amended complaint, the court a quo said:

The issue of lack of cause of action raised in the motions to dismiss refer to the lack
of personality of plaintiff to file the instant action. Essentially, the term 'cause of
action' is composed of two elements: (1) the right of the plaintiff and (2) the
violation of such right by the defendant. (Moran, Vol. 1, p. 111). For these reasons,
the rules require that every action must be prosecuted and defended in the name of
the real party in interest and that all persons having an interest in the subject of
the action and in obtaining the relief demanded shall be joined as plaintiffs (Sec. 2,
Rule 3). In the amended complaint, the people whose rights were alleged to have
been violated by being deprived and dispossessed of their land are the members of
the corporation and not the corporation itself. The corporation has a separate. and
distinct personality from its members, and this is not a mere technicality but a
matter of substantive law. There is no allegation that the members have assigned
their rights to the corporation or any showing that the corporation has in any way
or manner succeeded to such rights. The corporation evidently did not have any
rights violated by the defendants for which it could seek redress. Even if the Court
should find against the defendants, therefore, the plaintiff corporation would not be
entitled to the reliefs prayed for, which are recoveries of ownership and possession
of the land, issuance of the corresponding title in its name, and payment of
damages. Neither can such reliefs be awarded to the members allegedly deprived of
their land, since they are not parties to the suit. It appearing clearly that the action
has not been filed in the names of the real parties in interest, the complaint must
be dismissed on the ground of lack of cause of action. 3

Viewed in the light of existing law and jurisprudence, We find that the trial court
correctly dismissed the amended complaint.chanroblesvirtualawlibrarychanrobles
virtual law library

It is a doctrine well-established and obtains both at law and in equity that a

corporation is a distinct legal entity to be considered as separate and apart from the
individual stockholders or members who compose it, and is not affected by the
personal rights, obligations and transactions of its stockholders or members. 4 The
property of the corporation is its property and not that of the stockholders, as
owners, although they have equities in it. Properties registered in the name of the
corporation are owned by it as an entity separate and distinct from its
members. 5 Conversely, a corporation ordinarily has no interest in the individual
property of its stockholders unless transferred to the corporation, "even in the case
of a one-man corporation. 6 The mere fact that one is president of a corporation
does not render the property which he owns or possesses the property of the
corporation, since the president, as individual, and the corporation are separate
similarities. 7 Similarly, stockholders in a corporation engaged in buying and dealing
in real estate whose certificates of stock entitled the holder thereof to an allotment
in the distribution of the land of the corporation upon surrender of their stock
certificates were considered not to have such legal or equitable title or interest in
the land, as would support a suit for title, especially against parties other than the
corporation. 8 chanrobles virtual law library

It must be noted, however, that the juridical personality of the corporation, as

separate and distinct from the persons composing it, is but a legal fiction introduced
for the purpose of convenience and to subserve the ends of justice. 9 This separate
personality of the corporation may be disregarded, or the veil of corporate fiction
pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to
work -an injustice, or where necessary to achieve equity. 10 chanrobles virtual law
library

Thus, when "the notion of legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, ... the law will regard the corporation as an
association of persons, or in the case of two corporations, merge them into one, the
one being merely regarded as part or instrumentality of the other. 11 The same is
true where a corporation is a dummy and serves no business purpose and is
intended only as a blind, or an alter ego or business conduit for the sole benefit of
the stockholders. 12 This doctrine of disregarding the distinct personality of the
corporation has been applied by the courts in those cases when the corporate entity
is used for the evasion of taxes 13 or when the veil of corporate fiction is used to
confuse legitimate issue of employer-employee relationship, 14 or when necessary
for the protection of creditors, in which case the veil of corporate fiction may be
pierced and the funds of the corporation may be garnished to satisfy the debts of a
principal stockholder. 15 The aforecited principle is resorted to by the courts as a
measure protection for third parties to prevent fraud, illegality or
injustice. 16 chanrobles virtual law library

It has not been claimed that the members have assigned or transferred whatever
rights they may have on the land in question to the plaintiff corporation. Absent any
showing of interest, therefore, a corporation, like plaintiff-appellant herein, has no
personality to bring an action for and in behalf of its stockholders or members for
the purpose of recovering property which belongs to said stockholders or members
in their personal capacities.chanroblesvirtualawlibrarychanrobles virtual law library

It is fundamental that there cannot be a cause of action 'without an antecedent

primary legal right conferred' by law upon a person. 17 Evidently, there can be no
wrong without a corresponding right, and no breach of duty by one person without
a corresponding right belonging to some other person. 18 Thus, the essential
elements of a cause of action are legal right of the plaintiff, correlative obligation of
the defendant, an act or omission of the defendant in violation of the aforesaid legal
right. 19 Clearly, no right of action exists in favor of plaintiff corporation, for as
shown heretofore it does not have any interest in the subject matter of the case
which is material and, direct so as to entitle it to file the suit as a real party in
interest.chanroblesvirtualawlibrarychanrobles virtual law library

IIIchanrobles virtual law library

Appellant maintains, however, that the amended complaint may be treated as a
class suit, pursuant to Section 12 of Rule 3 of the Revised Rules of
Court.chanroblesvirtualawlibrarychanrobles virtual law library

In order that a class suit may prosper, the following requisites must be present: (1)
that the subject matter of the controversy is one of common or general interest to
many persons; and (2) that the parties are so numerous that it is impracticable to
bring them all before the court. 20 chanrobles virtual law library

Under the first requisite, the person who sues must have an interest in the
controversy, common with those for whom he sues, and there must be that unity of
interest between him and all such other persons which would entitle them to
maintain the action if suit was brought by them jointly. 21 chanrobles virtual law
library

As to what constitutes common interest in the subject matter of the controversy, it

has been explained in Scott v. Donald 22 thus:

The interest that will allow parties to join in a bill of complaint, or that will enable
the court to dispense with the presence of all the parties, when numerous, except a
determinate number, is not only an interest in the question, but one in common in
the subject Matter of the suit; ... a community of interest growing out of the nature
and condition of the right in dispute; for, although there may not be any privity
between the numerous parties, there is a common title out of which the question
arises, and which lies at the foundation of the proceedings ... [here] the only
matter in common among the plaintiffs, or between them and the defendants, is an
interest in the Question involved which alone cannot lay a foundation for the joinder
of parties. There is scarcely a suit at law, or in equity which settles a Principle or
applies a principle to a given state of facts, or in which a general statute is
interpreted, that does not involved a Question in which other parties are interested.
... (Emphasis supplied )

Here, there is only one party plaintiff, and the plaintiff corporation does not even
have an interest in the subject matter of the controversy, and cannot, therefore,
represent its members or stockholders who claim to own in their individual
capacities ownership of the said property. Moreover, as correctly stated by the
appellees, a class suit does not lie in actions for the recovery of property where
several persons claim Partnership of their respective portions of the property, as
each one could alleged and prove his respective right in a different way for each
portion of the land, so that they cannot all be held to have Identical title through
acquisition prescription. 23 chanrobles virtual law library

Having shown that no cause of action in favor of the plaintiff exists and that the
action in the lower court cannot be considered as a class suit, it would be
unnecessary and an Idle exercise for this Court to resolve the remaining issue of
whether or not the plaintiffs action for reconveyance of real property based upon
constructive or implied trust had already
prescribed.chanroblesvirtualawlibrarychanrobles virtual law library
ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the
plaintiff-appellant.
G. R. No. 164317             February 6, 2006

ALFREDO CHING, Petitioner,
vs.
THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOS-VILLAVERT,
JUDGE EDGARDO SUDIAM of the Regional Trial Court, Manila, Branch 52; RIZAL
COMMERCIAL BANKING CORP. and THE PEOPLE OF THE PHILIPPINES, Respondents.

DECISION

CALLEJO, SR., J.:

Before the Court is a petition for review on certiorari of the Decision 1 of the Court of Appeals (CA) in
CA-G.R. SP No. 57169 dismissing the petition for certiorari, prohibition and mandamus filed by
petitioner Alfredo Ching, and its Resolution2 dated June 28, 2004 denying the motion for
reconsideration thereof.

Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime in
September to October 1980, PBMI, through petitioner, applied with the Rizal Commercial Banking
Corporation (respondent bank) for the issuance of commercial letters of credit to finance its
importation of assorted goods.3

Respondent bank approved the application, and irrevocable letters of credit were issued in favor of
petitioner. The goods were purchased and delivered in trust to PBMI. Petitioner signed 13 trust
receipts4 as surety, acknowledging delivery of the following goods:

T/R Date Granted Maturity Date Principal Description of Goods

Nos.

1845 12-05-80 03-05-81 P1,596,470.05 79.9425 M/T "SDK" Brand

Synthetic Graphite
Electrode

1853 12-08-80 03-06-81 P198,150.67 3,000 pcs. (15 bundles)

Calorized Lance Pipes

1824 11-28-80 02-26-81 P707,879.71 One Lot High Fired

Refractory Tundish Bricks

1798 11-21-80 02-19-81 P835,526.25 5 cases spare parts for

CCM

1808 11-21-80 02-19-81 P370,332.52 200 pcs. ingot moulds

2042 01-30-81 04-30-81 P469,669.29 High Fired Refractory

Nozzle Bricks

1801 11-21-80 02-19-81 P2,001,715.17 Synthetic Graphite

Electrode [with] tapered
pitch filed nipples

1857 12-09-80 03-09-81 P197,843.61 3,000 pcs. (15 bundles

 calorized lance pipes [)]

1895 12-17-80 03-17-81 P67,652.04 Spare parts for

Spectrophotometer

1911 12-22-80 03-20-81 P91,497.85 50 pcs. Ingot moulds

2041 01-30-81 04-30-81 P91,456.97 50 pcs. Ingot moulds

2099 02-10-81 05-11-81 P66,162.26 8 pcs. Kubota Rolls for

rolling mills

2100 02-10-81 05-12-81 P210,748.00 Spare parts for

Lacolaboratory
Equipment5

Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to sell
but not by way of conditional sale, pledge or otherwise; and in case such goods were sold, to turn
over the proceeds thereof as soon as received, to apply against the relative acceptances and
payment of other indebtedness to respondent bank. In case the goods remained unsold within the
specified period, the goods were to be returned to respondent bank without any need of demand.
Thus, said "goods, manufactured products or proceeds thereof, whether in the form of money or
bills, receivables, or accounts separate and capable of identification" were respondent bank’s
property.

When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to return
their value amounting to ₱6,940,280.66 despite demands. Thus, the bank filed a criminal complaint
for estafa6 against petitioner in the Office of the City Prosecutor of Manila.

After the requisite preliminary investigation, the City Prosecutor found probable cause estafa under
Article 315, paragraph 1(b) of the Revised Penal Code, in relation to Presidential Decree (P.D.) No.
115, otherwise known as the Trust Receipts Law. Thirteen (13) Informations were filed against the
petitioner before the Regional Trial Court (RTC) of Manila. The cases were docketed as Criminal
Cases No. 86-42169 to 86-42181, raffled to Branch 31 of said court.

Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The appeal
was dismissed in a Resolution7 dated March 17, 1987, and petitioner moved for its reconsideration.
On December 23, 1987, the Minister of Justice granted the motion, thus reversing the previous
resolution finding probable cause against petitioner. 8 The City Prosecutor was ordered to move for
the withdrawal of the Informations.

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

In the meantime, the Court rendered judgment in Allied Banking Corporation v. Ordoñez, 11 holding
that the penal provision of P.D. No. 115 encompasses any act violative of an obligation covered by
the trust receipt; it is not limited to transactions involving goods which are to be sold (retailed),
reshipped, stored or processed as a component of a product ultimately sold. The Court also ruled
that "the non-payment of the amount covered by a trust receipt is an act violative of the obligation of
the entrustee to pay."12
On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against petitioner
before the Office of the City Prosecutor of Manila. The case was docketed as I.S. No. 95B-07614.

Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that there was no
probable cause to charge petitioner with violating P.D. No. 115, as petitioner’s liability was only civil,
not criminal, having signed the trust receipts as surety.13 Respondent bank appealed the resolution
to the Department of Justice (DOJ) via petition for review, alleging that the City Prosecutor erred in
ruling:

1. That there is no evidence to show that respondent participated in the misappropriation of

the goods subject of the trust receipts;

2. That the respondent is a mere surety of the trust receipts; and

3. That the liability of the respondent is only civil in nature. 14

On July 13, 1999, the Secretary of Justice issued Resolution No. 25015 granting the petition and
reversing the assailed resolution of the City Prosecutor. According to the Justice Secretary, the
petitioner, as Senior Vice-President of PBMI, executed the 13 trust receipts and as such, was the
one responsible for the offense. Thus, the execution of said receipts is enough to indict the petitioner
as the official responsible for violation of P.D. No. 115. The Justice Secretary also declared that
petitioner could not contend that P.D. No. 115 covers only goods ultimately destined for sale, as this
issue had already been settled in Allied Banking Corporation v. Ordoñez, 16 where the Court ruled
that P.D. No. 115 is "not limited to transactions in goods which are to be sold (retailed), reshipped,
stored or processed as a component of a product ultimately sold but covers failure to turn over the
proceeds of the sale of entrusted goods, or to return said goods if unsold or not otherwise disposed
of in accordance with the terms of the trust receipts."

The Justice Secretary further stated that the respondent bound himself under the terms of the trust
receipts not only as a corporate official of PBMI but also as its surety; hence, he could be proceeded
against in two (2) ways: first, as surety as determined by the Supreme Court in its decision in Rizal
Commercial Banking Corporation v. Court of Appeals; 17 and second, as the corporate official
responsible for the offense under P.D. No. 115, via criminal prosecution. Moreover, P.D. No. 115
explicitly allows the prosecution of corporate officers "without prejudice to the civil liabilities arising
from the criminal offense." Thus, according to the Justice Secretary, following Rizal Commercial
Banking Corporation, the civil liability imposed is clearly separate and distinct from the criminal
liability of the accused under P.D. No. 115.

Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13
Informations against petitioner for violation of P.D. No. 115 before the RTC of Manila. The cases
were docketed as Criminal Cases No. 99-178596 to 99-178608 and consolidated for trial before
Branch 52 of said court. Petitioner filed a motion for reconsideration, which the Secretary of Justice
denied in a Resolution18 dated January 17, 2000.

Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing the
resolutions of the Secretary of Justice on the following grounds:

1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE
ACTING OPPRESSIVELY AGAINST ALFREDO CHING WHEN THEY ALLOWED HIS
PROSECUTION DESPITE THE FACT THAT NO EVIDENCE HAD BEEN PRESENTED TO
PROVE HIS PARTICIPATION IN THE ALLEGED TRANSACTIONS.
 2. THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN GRAVE
ABUSE OF DISCRETION AND IN EXCESS OF HIS JURISDICTION WHEN THEY
CONTINUED PROSECUTION OF THE PETITIONER DESPITE THE LENGTH OF TIME
INCURRED IN THE TERMINATION OF THE PRELIMINARY INVESTIGATION THAT
SHOULD JUSTIFY THE DISMISSAL OF THE INSTANT CASE.

3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY PROSECUTOR

ACTED IN GRAVE ABUSE OF DISCRETION AMOUNTING TO AN EXCESS OF
JURISDICTION WHEN THEY CONTINUED THE PROSECUTION OF THE PETITIONER
DESPITE LACK OF SUFFICIENT BASIS.19

In his petition, petitioner incorporated a certification stating that "as far as this Petition is concerned,
no action or proceeding in the Supreme Court, the Court of Appeals or different divisions thereof, or
any tribunal or agency. It is finally certified that if the affiant should learn that a similar action or
proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different
divisions thereof, of any other tribunal or agency, it hereby undertakes to notify this Honorable Court
within five (5) days from such notice."20

In its Comment on the petition, the Office of the Solicitor General alleged that -

A.

THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT PETITIONER

ALFREDO CHING IS THE OFFICER RESPONSIBLE FOR THE OFFENSE CHARGED AND
THAT THE ACTS OF PETITIONER FALL WITHIN THE AMBIT OF VIOLATION OF P.D.
[No.] 115 IN RELATION TO ARTICLE 315, PAR. 1(B) OF THE REVISED PENAL CODE.

B.

THERE IS NO MERIT IN PETITIONER’S CONTENTION THAT EXCESSIVE DELAY HAS

MARRED THE CONDUCT OF THE PRELIMINARY INVESTIGATION OF THE CASE,
JUSTIFYING ITS DISMISSAL.

C.

THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORARI, PROHIBITION AND

MANDAMUS IS NOT THE PROPER MODE OF REVIEW FROM THE RESOLUTION OF
THE DEPARTMENT OF JUSTICE. THE PRESENT PETITION MUST THEREFORE BE
DISMISSED.21

On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and on
procedural grounds. On the procedural issue, it ruled that (a) the certification of non-forum shopping
executed by petitioner and incorporated in the petition was defective for failure to comply with the
first two of the three-fold undertakings prescribed in Rule 7, Section 5 of the Revised Rules of Civil
Procedure; and (b) the petition for certiorari, prohibition and mandamus was not the proper remedy
of the petitioner.

On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of Justice
were correctly issued for the following reasons: (a) petitioner, being the Senior Vice-President of
PBMI and the signatory to the trust receipts, is criminally liable for violation of P.D. No. 115; (b) the
issue raised by the petitioner, on whether he violated P.D. No. 115 by his actuations, had already
been resolved and laid to rest in Allied Bank Corporation v. Ordoñez;22 and (c) petitioner was
estopped from raising the

City Prosecutor’s delay in the final disposition of the preliminary investigation because he failed to do
so in the DOJ.

Thus, petitioner filed the instant petition, alleging that:

THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THE

GROUND THAT THE CERTIFICATION OF NON-FORUM SHOPPING INCORPORATED
THEREIN WAS DEFECTIVE.

II

THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WAS COMMITTED
BY THE SECRETARY OF JUSTICE IN COMING OUT WITH THE ASSAILED
RESOLUTIONS.23

The Court will delve into and resolve the issues seriatim.

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

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

We agree with the ruling of the CA that the certification of non-forum shopping petitioner
incorporated in his petition before the appellate court is defective. The certification reads:

It is further certified that as far as this Petition is concerned, no action or proceeding in the Supreme
Court, the Court of Appeals or different divisions thereof, or any tribunal or agency.

It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or
is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, of any
other tribunal or agency, it hereby undertakes to notify this Honorable Court within five (5) days from
such notice.25

Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition should be
accompanied by a sworn certification of non-forum shopping, as provided in the third paragraph of
Section 3, Rule 46 of said Rules. The latter provision reads in part:
SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. — The petition
shall contain the full names and actual addresses of all the petitioners and respondents, a concise
statement of the matters involved, the factual background of the case and the grounds relied upon
for the relief prayed for.

xxx

The petitioner shall also submit together with the petition a sworn certification that he has not
theretofore commenced any other action involving the same issues in the Supreme Court, the Court
of Appeals or different divisions thereof, or any other tribunal or agency; if there is such other action
or proceeding, he must state the status of the same; and if he should thereafter learn that a similar
action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or
different divisions thereof, or any other tribunal or agency, he undertakes to promptly inform the
aforesaid courts and other tribunal or agency thereof within five (5) days therefrom. xxx

Compliance with the certification against forum shopping is separate from and independent of the
avoidance of forum shopping itself. The requirement is mandatory. The failure of the petitioner to
comply with the foregoing requirement shall be sufficient ground for the dismissal of the petition
without prejudice, unless otherwise provided.26

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

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

On the merits of the petition, the CA ruled that the petitioner failed to establish that the Secretary of
Justice committed grave abuse of discretion in finding probable cause against the petitioner for
violation of estafa under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D.
No. 115. Thus, the appellate court ratiocinated:

Be that as it may, even on the merits, the arguments advanced in support of the petition are not
persuasive enough to justify the desired conclusion that respondent Secretary of Justice gravely
abused its discretion in coming out with his assailed Resolutions. Petitioner posits that, except for his
being the Senior Vice-President of the PBMI, there is no iota of evidence that he was a participes
crimines in violating the trust receipts sued upon; and that his liability, if at all, is purely civil because
he signed the said trust receipts merely as a xxx surety and not as the entrustee. These assertions
are, however, too dull that they cannot even just dent the findings of the respondent Secretary, viz:

"x x x it is apropos to quote section 13 of PD 115 which states in part, viz:

‘xxx If the violation or offense is committed by a corporation, partnership, association or other judicial
entities, the penalty provided for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without prejudice to the
civil liabilities arising from the criminal offense.’

"There is no dispute that it was the respondent, who as senior vice-president of PBM, executed the
thirteen (13) trust receipts. As such, the law points to him as the official responsible for the offense.
Since a corporation cannot be proceeded against criminally because it cannot commit crime in which
personal violence or malicious intent is required, criminal action is limited to the corporate agents
guilty of an act amounting to a crime and never against the corporation itself (West Coast Life Ins.
Co. vs. Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus, the execution by respondent
of said receipts is enough to indict him as the official responsible for violation of PD 115.

"Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which are
ultimately destined for sale and not goods, like those imported by PBM, for use in manufacture. This
issue has already been settled in the Allied Banking Corporation case, supra, where he was also a
party, when the Supreme Court ruled that PD 115 is ‘not limited to transactions in goods which are to
be sold (retailed), reshipped, stored or processed as a component or a product ultimately sold’ but
‘covers failure to turn over the proceeds of the sale of entrusted goods, or to return said goods if
unsold or disposed of in accordance with the terms of the trust receipts.’

"In regard to the other assigned errors, we note that the respondent bound himself under the terms
of the trust receipts not only as a corporate official of PBM but also as its surety. It is evident that
these are two (2) capacities which do not exclude the other. Logically, he can be proceeded against
in two (2) ways: first, as surety as determined by the Supreme Court in its decision in RCBC vs.
Court of Appeals, 178 SCRA 739; and, secondly, as the corporate official responsible for the offense
under PD 115, the present case is an appropriate remedy under our penal law.

"Moreover, PD 115 explicitly allows the prosecution of corporate officers ‘without prejudice to the civil
liabilities arising from the criminal offense’ thus, the civil liability imposed on respondent in RCBC vs.
Court of Appeals case is clearly separate and distinct from his criminal liability under PD 115.’" 28

Petitioner asserts that the appellate court’s ruling is erroneous because (a) the transaction between
PBMI and respondent bank is not a trust receipt transaction; (b) he entered into the transaction and
was sued in his capacity as PBMI Senior Vice-President; (c) he never received the goods as an
entrustee for PBMI, hence, could not have committed any dishonesty or abused the confidence of
respondent bank; and (d) PBMI acquired the goods and used the same in operating its machineries
and equipment and not for resale.

The OSG, for its part, submits a contrary view, to wit:

34. Petitioner further claims that he is not a person responsible for the offense allegedly because
"[b]eing charged as the Senior Vice-President of Philippine Blooming Mills (PBM), petitioner cannot
be held criminally liable as the transactions sued upon were clearly entered into in his capacity as an
officer of the corporation" and that [h]e never received the goods as an entrustee for PBM as he
never had or took possession of the goods nor did he commit dishonesty nor "abuse of confidence in
transacting with RCBC." Such argument is bereft of merit.

35. Petitioner’s being a Senior Vice-President of the Philippine Blooming Mills does not exculpate
him from any liability. Petitioner’s responsibility as the corporate official of PBM who received the
goods in trust is premised on Section 13 of P.D. No. 115, which provides:
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the
goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the
entruster or as appears in the trust receipt or to return said goods, documents or instruments if they
were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the
crime of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one
(b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as
the Revised Penal Code. If the violation or offense is committed by a corporation, partnership,
association or other juridical entities, the penalty provided for in this Decree shall be imposed upon
the directors, officers, employees or other officials or persons therein responsible for the offense,
without prejudice to the civil liabilities arising from the criminal offense. (Emphasis supplied)

36. Petitioner having participated in the negotiations for the trust receipts and having received the
goods for PBM, it was inevitable that the petitioner is the proper corporate officer to be proceeded
against by virtue of the PBM’s violation of P.D. No. 115. 29

The ruling of the CA is correct.

In Mendoza-Arce v. Office of the Ombudsman (Visayas), 30 this Court held that the acts of a quasi-
judicial officer may be assailed by the aggrieved party via a petition for certiorari and enjoined (a)
when necessary to afford adequate protection to the constitutional rights of the accused; (b) when
necessary for the orderly administration of justice; (c) when the acts of the officer are without or in
excess of authority; (d) where the charges are manifestly false and motivated by the lust for
vengeance; and (e) when there is clearly no prima facie case against the accused. 31 The Court also
declared that, if the officer conducting a preliminary investigation (in that case, the Office of the
Ombudsman) acts without or in excess of his authority and resolves to file an Information despite the
absence of probable cause, such act may be nullified by a writ of certiorari. 32

Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure, 33 the Information shall
be prepared by the Investigating Prosecutor against the respondent only if he or she finds probable
cause to hold such respondent for trial. The Investigating Prosecutor acts without or in excess of his
authority under the Rule if the Information is filed against the respondent despite absence of
evidence showing probable cause therefor. 34 If the Secretary of Justice reverses the Resolution of
the Investigating Prosecutor who found no probable cause to hold the respondent for trial, and
orders such prosecutor to file the Information despite the absence of probable cause, the Secretary
of Justice acts contrary to law, without authority and/or in excess of authority. Such resolution may
likewise be nullified in a petition for certiorari under Rule 65 of the Revised Rules of Civil
Procedure.35

A preliminary investigation, designed to secure the respondent against hasty, malicious and
oppressive prosecution, is an inquiry to determine whether (a) a crime has been committed; and (b)
whether there is probable cause to believe that the accused is guilty thereof. It is a means of
discovering the person or persons who may be reasonably charged with a crime. Probable cause
need not be based on clear and convincing evidence of guilt, as the investigating officer acts upon
probable cause of reasonable belief. Probable cause implies probability of guilt and requires more
than bare suspicion but less than evidence which would justify a conviction. A finding of probable
cause needs only to rest on evidence showing that more likely than not, a crime has been committed
by the suspect.36

However, while probable cause should be determined in a summary manner, there is a need to
examine the evidence with care to prevent material damage to a potential accused’s constitutional
right to liberty and the guarantees of freedom and fair play 37 and to protect the State from the burden
of unnecessary expenses in prosecuting alleged offenses and holding trials arising from false,
fraudulent or groundless charges.38

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

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

Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning
of this Decree, is any transaction by and between a person referred to in this Decree as the
entruster, and another person referred to in this Decree as entrustee, whereby the entruster, who
owns or holds absolute title or security interests over certain specified goods, documents or
instruments, releases the same to the possession of the entrustee upon the latter’s execution and
delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds
himself to hold the designated goods, documents or instruments in trust for the entruster and to sell
or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the
entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in
the trust receipt or the goods, documents or instruments themselves if they are unsold or not
otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or
for other purposes substantially equivalent to any of the following:

1. In case of goods or documents, (a) to sell the goods or procure their sale; or (b) to
manufacture or process the goods with the purpose of ultimate sale; Provided, That, in the
case of goods delivered under trust receipt for the purpose of manufacturing or processing
before its ultimate sale, the entruster shall retain its title over the goods whether in its original
or processed form until the entrustee has complied fully with his obligation under the trust
receipt; or (c) to load, unload, ship or otherwise deal with them in a manner preliminary or
necessary to their sale; or

2. In the case of instruments a) to sell or procure their sale or exchange; or b) to deliver them
to a principal; or c) to effect the consummation of some transactions involving delivery to a
depository or register; or d) to effect their presentation, collection or renewal.

The sale of goods, documents or instruments by a person in the business of selling goods,
documents or instruments for profit who, at the outset of the transaction, has, as against the buyer,
general property rights in such goods, documents or instruments, or who sells the same to the buyer
on credit, retaining title or other interest as security for the payment of the purchase price, does not
constitute a trust receipt transaction and is outside the purview and coverage of this Decree.

An entrustee is one having or taking possession of goods, documents or instruments under a trust
receipt transaction, and any successor in interest of such person for the purpose of payment
specified in the trust receipt agreement.39 The entrustee is obliged to: (1) hold the goods, documents
or instruments in trust for the entruster and shall dispose of them strictly in accordance with the
terms and conditions of the trust receipt; (2) receive the proceeds in trust for the entruster and turn
over the same to the entruster to the extent of the amount owing to the entruster or as appears on
the trust receipt; (3) insure the goods for their total value against loss from fire, theft, pilferage or
other casualties; (4) keep said goods or proceeds thereof whether in money or whatever form,
separate and capable of identification as property of the entruster; (5) return the goods, documents
or instruments in the event of non-sale or upon demand of the entruster; and (6) observe all other
terms and conditions of the trust receipt not contrary to the provisions of the decree. 40
The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments
released under a trust receipt to the entrustee to the extent of the amount owing to the entruster or
as appears in the trust receipt, or to the return of the goods, documents or instruments in case of
non-sale, and to the enforcement of all other rights conferred on him in the trust receipt; provided,
such are not contrary to the provisions of the document. 41

In the case at bar, the transaction between petitioner and respondent bank falls under the trust
receipt transactions envisaged in P.D. No. 115. Respondent bank imported the goods and entrusted
the same to PBMI under the trust receipts signed by petitioner, as entrustee, with the bank as
entruster. The agreement was as follows:

And in consideration thereof, I/we hereby agree to hold said goods in trust for the said BANK as its
property with liberty to sell the same within ____days from the date of the execution of this Trust
Receipt and for the Bank’s account, but without authority to make any other disposition whatsoever
of the said goods or any part thereof (or the proceeds) either by way of conditional sale, pledge or
otherwise.

I/we agree to keep the said goods insured to their full value against loss from fire, theft, pilferage or
other casualties as directed by the BANK, the sum insured to be payable in case of loss to the
BANK, with the understanding that the BANK is, not to be chargeable with the storage premium or
insurance or any other expenses incurred on said goods.

In case of sale, I/we further agree to turn over the proceeds thereof as soon as received to the
BANK, to apply against the relative acceptances (as described above) and for the payment of any
other indebtedness of mine/ours to the BANK. In case of non-sale within the period specified herein,
I/we agree to return the goods under this Trust Receipt to the BANK without any need of demand.

I/we agree to keep the said goods, manufactured products or proceeds thereof, whether in the form
of money or bills, receivables, or accounts separate and capable of identification as property of the
BANK.42

It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of
public policy, the failure of person to turn over the proceeds of the sale of the goods covered by a
trust receipt or to return said goods, if not sold, is a public nuisance to be abated by the imposition of
penal sanctions.43

The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions involving
goods procured as a component of a product ultimately sold has been resolved in the affirmative in
Allied Banking Corporation v. Ordoñez.44 The law applies to goods used by the entrustee in the
operation of its machineries and equipment. The non-payment of the amount covered by the trust
receipts or the non-return of the goods covered by the receipts, if not sold or otherwise not disposed
of, violate the entrustee’s obligation to pay the amount or to return the goods to the entruster.

In Colinares v. Court of Appeals,45 the Court declared that there are two possible situations in a trust
receipt transaction. The first is covered by the provision which refers to money received under the
obligation involving the duty to deliver it (entregarla) to the owner of the merchandise sold. The
second is covered by the provision which refers to merchandise received under the obligation to
return it (devolvera) to the owner.46 Thus, failure of the entrustee to turn over the proceeds of the
sale of the goods covered by the trust receipts to the entruster or to return said goods if they were
not disposed of in accordance with the terms of the trust receipt is a crime under P.D. No. 115,
without need of proving intent to defraud. The law punishes dishonesty and abuse of confidence in
the handling of money or goods to the prejudice of the entruster, regardless of whether the latter is
the owner or not. A mere failure to deliver the proceeds of the sale of the goods, if not sold,
constitutes a criminal offense that causes prejudice, not only to another, but more to the public
interest.47

The Court rules that although petitioner signed the trust receipts merely as Senior Vice-President of
PBMI and had no physical possession of the goods, he cannot avoid prosecution for violation of P.D.
No. 115.

The penalty clause of the law, Section 13 of P.D. No. 115 reads:

Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the
goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the
entruster or as appears in the trust receipt or to return said goods, documents or instruments if they
were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the
crime of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one
(b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as
the Revised Penal Code.  If the violation or offense is committed by a corporation, partnership,
1âwphi1

association or other juridical entities, the penalty provided for in this Decree shall be imposed upon
the directors, officers, employees or other officials or persons therein responsible for the offense,
without prejudice to the civil liabilities arising from the criminal offense.

The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph
1(b), Article 315 of the Revised Penal Code, or estafa with abuse of confidence. It may be committed
by a corporation or other juridical entity or by natural persons. However, the penalty for the crime is
imprisonment for the periods provided in said Article 315, which reads:

ARTICLE 315. Swindling (estafa). – Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:

1st. The penalty of prision correccional in its maximum period to prision mayor in its
minimum period, if the amount of the fraud is over 12,000 pesos but does not exceed 22,000
pesos; and if such amount exceeds the latter sum, the penalty provided in this paragraph
shall be imposed in its maximum period, adding one year for each additional 10,000 pesos;
but the total penalty which may be imposed shall not exceed twenty years. In such cases,
and in connection with the accessory penalties which may be imposed and for the purpose
of the other provisions of this Code, the penalty shall be termed prision mayor or reclusion
temporal, as the case may be;

2nd. The penalty of prision correccional in its minimum and medium periods, if the amount of
the fraud is over 6,000 pesos but does not exceed 12,000 pesos;

3rd. The penalty of arresto mayor in its maximum period to prision correccional in its
minimum period, if such amount is over 200 pesos but does not exceed 6,000 pesos; and

4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed 200
pesos, provided that in the four cases mentioned, the fraud be committed by any of the following
means; xxx

Though the entrustee is a corporation, nevertheless, the law specifically makes the officers,
employees or other officers or persons responsible for the offense, without prejudice to the civil
liabilities of such corporation and/or board of directors, officers, or other officials or employees
responsible for the offense. The rationale is that such officers or employees are vested with the
authority and responsibility to devise means necessary to ensure compliance with the law and, if
they fail to do so, are held criminally accountable; thus, they have a responsible share in the
violations of the law.48

If the crime is committed by a corporation or other juridical entity, the directors, officers, employees
or other officers thereof responsible for the offense shall be charged and penalized for the crime,
precisely because of the nature of the crime and the penalty therefor. A corporation cannot be
arrested and imprisoned; hence, cannot be penalized for a crime punishable by
imprisonment.49 However, a corporation may be charged and prosecuted for a crime if the imposable
penalty is fine. Even if the statute prescribes both fine and imprisonment as penalty, a corporation
may be prosecuted and, if found guilty, may be fined. 50

A crime is the doing of that which the penal code forbids to be done, or omitting to do what it
commands. A necessary part of the definition of every crime is the designation of the author of the
crime upon whom the penalty is to be inflicted. When a criminal statute designates an act of a
corporation or a crime and prescribes punishment therefor, it creates a criminal offense which,
otherwise, would not exist and such can be committed only by the corporation. But when a penal
statute does not expressly apply to corporations, it does not create an offense for which a
corporation may be punished. On the other hand, if the State, by statute, defines a crime that may
be committed by a corporation but prescribes the penalty therefor to be suffered by the officers,
directors, or employees of such corporation or other persons responsible for the offense, only such
individuals will suffer such penalty. 51 Corporate officers or employees, through whose act, default or
omission the corporation commits a crime, are themselves individually guilty of the crime. 52

The principle applies whether or not the crime requires the consciousness of wrongdoing. It applies
to those corporate agents who themselves commit the crime and to those, who, by virtue of their
managerial positions or other similar relation to the corporation, could be deemed responsible for its
commission, if by virtue of their relationship to the corporation, they had the power to prevent the
act.53 Moreover, all parties active in promoting a crime, whether agents or not, are
principals.54 Whether such officers or employees are benefited by their delictual acts is not a
touchstone of their criminal liability. Benefit is not an operative fact.

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

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

SO ORDERED.
FILIPINAS BROADCASTING NETWORK, INC., Petitioner, v. AGO MEDICAL AND
EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and
ANGELITA F. AGO, Respondents.

[G.R. NO. 141994 - January 17, 2005] CARPIO, J.:

The Case

This Petition for Review 1 assails the 4 January 1999 Decision 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 Decision3 of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case
No. 8236. The Court of Appeals held Filipinas Broasting Network, Inc. and its broasters 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, attorney's fees and costs of
suit.

The Antecedents

"Exposé" is a radio documentary4 program hosted by Carmelo 'Mel' Rima ("Rima") and Hermogenes
'Jun' Alegre ("Alegre").5 Exposé is aired every morning over DZRC-AM which is owned by Filipinas
Broasting Network, Inc. ("FBNI"). "Exposé" 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 broasts were defamatory,
AMEC and Angelita Ago ("Ago"), as Dean of AMEC's College of Medicine, filed a complaint for
damages7 against FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of the
allegedly libelous broasts:

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 AMEC's 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 you ll 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, isn't 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 latter's 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 I m 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. Don't 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 - that's 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. xxx9 (Emphasis supplied)ςrαlαωlιbrαrÿ

The complaint further alleged that AMEC is a reputable learning institution. With the supposed
exposés, 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 Answer10 alleging
that the broasts 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 Dismiss11 on FBNI's 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 broaster, the broaster 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 broasters to "observe truth, fairness and objectivity in their broasts and to
refrain from using libelous and indecent language." Moreover, FBNI requires all broasters 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 Decision12 finding FBNI and Alegre liable for libel
except Rima. The trial court held that the broasts are libelous per se. The trial court rejected the
broasters' claim that their utterances were the result of straight reporting because it had no factual
basis. The broasters 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 Rima's only participation was when he
agreed with Alegre's exposé. The trial court found Rima's 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 Broasting 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 attorney's fees, and to pay the costs of suit.

SO ORDERED.13 (Emphasis supplied)ςrαlαωlιbrαrÿ

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 court's
judgment with modification. The appellate court made Rima solidarily liable with FBNI and Alegre.
The appellate court denied Ago's claim for damages and attorney's fees because the broasts 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
broaster 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 court's ruling that the questioned broasts 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 Alegre's 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 AMEC's administrators, the Court of Appeals
ruled that the broasts 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 broasters' 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 broasts without the proper KBP
accreditation. The Court of Appeals denied Ago's claim for damages and attorney's 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, attorney's fees and
costs of suit.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

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 ATTORNEY'S FEES IS PROPER; andcralawlibrary

IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF
MORAL DAMAGES, ATTORNEY'S FEES AND COSTS OF SUIT.

The Court's 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 AMEC's cause of action is based on Articles 30 and 33 of the Civil Code.
Article 3018 authorizes a separate civil action to recover civil liability arising from a criminal offense.
On the other hand, Article 3319 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
1920 of the Civil Code to justify its claim for damages. AMEC cites Articles 217621 and 218022 of
the Civil Code to hold FBNI solidarily liable with Rima and Alegre.

I.

Whether the broasts are libelous

A libel23 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 broasts were made public and imputed to AMEC defects or
circumstances tending to cause it dishonor, discredit and contempt. Rima and Alegre's remarks such
as "greed for money on the part of AMEC's 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 broasts suggest that AMEC is a
money-making institution where physically and morally unfit teachers abound.

However, FBNI contends that the broasts 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 broasts. FBNI further points out that
Rima and Alegre exerted efforts to obtain AMEC's side and gave Ago the opportunity to defend
AMEC and its administrators. FBNI concludes that since there is no malice, there is no libel.

FBNI's 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 exposé,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 Alegre's reckless disregard of whether their report
was true or not.

Contrary to FBNI's claim, the broasts 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 republisher's 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 broasts. Moreover, there is no existing controversy involving AMEC when
the broasts 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 broasts "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.

FBNI's 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)ςrαlαωlιbrαrÿ

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 AMEC's students in particular is
a matter which the public has the right to know. Thus, similar to the newspaper articles in Borjal, the
subject broasts dealt with matters of public interest. However, unlike in Borjal, the questioned
broasts 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 broasting which is inimical to public interests.

Secondly, there is reason to believe that defendant radio broasters, 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 broast, 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.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

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 broasts are
not privileged and remain libelous per se.

The broasts also violate the Radio Code35 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)ςrαlαωlιbrαrÿ

The broasts fail to meet the standards prescribed in the Radio Code, which lays down the code of
ethical conduct governing practitioners in the radio broast industry. The Radio Code is a voluntary
code of conduct imposed by the radio broast industry on its own members. The Radio Code is a
public warranty by the radio broast industry that radio broast 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 broast 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 1937 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 2138 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 Court's 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, AMEC's claim for moral damages falls under item 7 of Article 221943 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 broast 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 broasts 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 broasts 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 attorney's fees is proper

FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of
attorney's fees. FBNI adds that the instant case does not fall under the enumeration in Article
220848 of the Civil Code.

The award of attorney's fees is not proper because AMEC failed to justify satisfactorily its claim for
attorney's fees. AMEC did not adduce evidence to warrant the award of attorney's fees. Moreover,
both the trial and appellate courts failed to explicitly state in their respective decisions the rationale
for the award of attorney's 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 counsel's fees are not to be awarded every time a party wins a suit. The power of the
court to award attorney's fees under Article 2208 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
attorney's fees.51 (Emphasis supplied)ςrαlαωlιbrαrÿ

While it mentioned about the award of attorney's 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, attorney's fees and costs
of suit

FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and
attorney's fees because it exercised due diligence in the selection and supervision of its employees,
particularly Rima and Alegre. FBNI maintains that its broasters, including Rima and Alegre, undergo
a "very regimented process" before they are allowed to go on air. "Those who apply for broaster are
subjected to interviews, examinations and an apprenticeship program."

FBNI further argues that Alegre's age and lack of training are irrelevant to his competence as a
broaster. 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." Rima's accreditation lapsed due to his non-payment of the KBP annual fees
while Alegre's 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.

FBNI's 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.ςηαñrοblεš νιr†υαl lαω
lιbrαrÿ

As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for
damages arising from the libelous broasts. 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 FBNI's radio program Exposé when they aired the broasts.
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 broasts.

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 broasters 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 broasters. FBNI's alleged constant reminder to its broasters 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 broasters. Adequate training of the
broasters on the industry's code of conduct, sufficient information on libel laws, and continuous
evaluation of the broasters' performance are but a few of the many ways of showing diligence in the
supervision of broasters.

FBNI claims that it "has taken all the precaution in the selection of Rima and Alegre as broasters,
bearing in mind their qualifications." However, no clear and convincing evidence shows that Rima
and Alegre underwent FBNI's "regimented process" of application. Furthermore, FBNI admits that
Rima and Alegre had deficiencies in their KBP accreditation,56 which is one of FBNI's requirements
before it hires a broaster. Significantly, membership in the KBP, while voluntary, indicates the
broaster's strong commitment to observe the broast industry's rules and regulations. Clearly, these
circumstances show FBNI's 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 attorney's fees is deleted. Costs against petitioner.

SO ORDERED.

G.R. No. 205728 January 21, 2015

THE DIOCESE OF BACOLOD, REPRESENTED BY THE MOST REV. BISHOP VICENTE M.

NAVARRA and THE BISHOP HIMSELF IN HIS PERSONAL CAPACITY, Petitioners,
vs.
COMMISSION ON ELECTIONS AND THE ELECTION OFFICER OF BACOLOD CITY, ATTY.
MAVIL V. MAJARUCON, Respondents.

DECISION
LEONEN, J.:

"The Philippines is a democratic and republican State. Sovereignty resides in the people and all
government authority emanates from them." – Article II, Section 1, Constitution

All governmental authority emanates from our people. No unreasonable restrictions of the
fundamental and preferred right to expression of the electorate during political contests no
matter how seemingly benign will be tolerated.

This case defines the extent that our people may shape the debates during elections. It is
significant and of first impression. We are asked to decide whether the Commission on
Elections (COMELEC) has the competence to limit expressions made by the citizens — who are
not candidates — during elections.

Before us is a special civil action for certiorari and prohibition with application for preliminary
injunction and temporary restraining order1 under Rule 65 of the Rules of Court seeking to
nullify COMELEC’s Notice to Remove Campaign Materials2 dated February 22, 2013 and
letter3 issued on February 27, 2013.

The facts are not disputed.

On February 21, 2013, petitioners posted two (2) tarpaulins within a private compound housing
the San Sebastian Cathedral of Bacolod. Each tarpaulin was approximately six feet (6') by ten
feet (10') in size. They were posted on the front walls of the cathedral within public view. The
first tarpaulin contains the message "IBASURA RH Law" referring to the Reproductive Health
Law of 2012 or Republic Act No. 10354. The second tarpaulin is the subject of the present
case.4 This tarpaulin contains the heading "Conscience Vote" and lists candidates as either
"(Anti-RH) Team Buhay" with a check mark, or "(Pro-RH) Team Patay" with an "X" mark.5 The
electoral candidates were classified according to their vote on the adoption of Republic Act No.
10354, otherwise known as the RH Law.6 Those who voted for the passing of the law were
classified by petitioners as comprising "Team Patay," while those who voted against it form
"Team Buhay":7

TEAM BUHAYTEAM PATAY

Estrada, JV Angara, Juan Edgardo
Honasan, Gregorio Casiño, Teddy
Magsaysay, Mitos Cayetano, Alan Peter
Pimentel, Koko Enrile, Jackie
Trillanes, Antonio Escudero, Francis
Villar, Cynthia Hontiveros, Risa
Party List Buhay Legarda, Loren
Party List Ang Pamilya Party List Gabriela
Party List Akbayan
Party List Bayan Muna
Party List Anak Pawis
During oral arguments, respondents conceded that the tarpaulin was neither sponsored nor paid
for by any candidate. Petitioners also conceded that the tarpaulin contains names ofcandidates
for the 2013 elections, but not of politicians who helped in the passage of the RH Law but were
not candidates for that election.

On February 22, 2013, respondent Atty. Mavil V. Majarucon, in her capacity as Election Officer
of Bacolod City, issued a Notice to Remove Campaign Materials8 addressed to petitioner Most
Rev. Bishop Vicente M. Navarra. The election officer ordered the tarpaulin’s removal within
three (3) days from receipt for being oversized. COMELEC Resolution No. 9615 provides for the
size requirement of two feet (2’) by three feet (3’).9

On February 25, 2013, petitioners replied10 requesting, among others, that (1) petitioner Bishop
be given a definite ruling by COMELEC Law Department regarding the tarpaulin; and (2)
pending this opinion and the availment of legal remedies, the tarpaulin be allowed to remain.11

On February 27, 2013, COMELEC Law Department issued a letter12 ordering the immediate
removal of the tarpaulin; otherwise, it will be constrained to file an election offense against
petitioners. The letter of COMELEC Law Department was silenton the remedies available to
petitioners. The letter provides as follows:

Dear Bishop Navarra:

It has reached this Office that our Election Officer for this City, Atty. Mavil Majarucon, had
already given you notice on February 22, 2013 as regards the election propaganda material
posted on the church vicinity promoting for or against the candidates and party-list groups with
the following names and messages, particularly described as follows:
Material size : six feet (6’) by ten feet (10’)

Description : FULL COLOR TARPAULIN

Image of : SEE ATTACHED PICTURES

Message : CONSCIENCE VOTE (ANTI RH) TEAM

BUHAY; (PRO RH) TEAM PATAY

Location : POSTED ON THE CHURCH VICINITY

OF THE DIOCESE OF BACOLOD CITY

The three (3) – day notice expired on February 25, 2013.

Considering that the above-mentioned material is found to be in violation of Comelec Resolution

No. 9615 promulgated on January 15, 2013 particularly on the size (even with the subsequent
division of the said tarpaulin into two), as the lawful size for election propaganda material is only
two feet (2’) by three feet (3’), please order/cause the immediate removal of said election
propaganda material, otherwise, we shall be constrained to file an election offense case against
you.

We pray that the Catholic Church will be the first institution to help the Commission on Elections
inensuring the conduct of peaceful, orderly, honest and credible elections.

Thank you and God Bless!

[signed]
ATTY. ESMERALDA AMORA-LADRA
Director IV13
Concerned about the imminent threatof prosecution for their exercise of free speech, petitioners
initiated this case through this petition for certiorari and prohibition with application for
preliminary injunction and temporary restraining order.14 They question respondents’ notice
dated February 22, 2013 and letter issued on February 27, 2013. They pray that: (1) the petition
be given due course; (2) a temporary restraining order (TRO) and/or a writ of preliminary
injunction be issued restraining respondents from further proceeding in enforcing their orders for
the removal of the Team Patay tarpaulin; and (3) after notice and hearing, a decision be
rendered declaring the questioned orders of respondents as unconstitutional and void, and
permanently restraining respondents from enforcing them or any other similar order.15

After due deliberation, this court, on March 5, 2013, issued a temporary restraining order
enjoining respondents from enforcing the assailed notice and letter, and set oral arguments on
March 19, 2013.16

On March 13, 2013, respondents filed their comment17 arguing that (1) a petition for certiorari
and prohibition under Rule 65 of the Rules of Court filed before this court is not the proper
remedy to question the notice and letter of respondents; and (2) the tarpaulin is an election
propaganda subject to regulation by COMELEC pursuant to its mandate under Article IX-C,
Section 4 of the Constitution. Hence, respondents claim that the issuances ordering its removal
for being oversized are valid and constitutional.18

During the hearing held on March 19, 2013, the parties were directed to file their respective
memoranda within 10 days or by April 1, 2013, taking into consideration the intervening
holidays.19

The issues, which also served as guide for the oral arguments, are:20

I.

WHETHER THE 22 FEBRUARY 2013 NOTICE/ORDER BY ELECTION OFFICER

MAJARUCON AND THE 27 FEBRUARY 2013 ORDER BY THE COMELEC LAW
DEPARTMENT ARE CONSIDERED JUDGMENTS/FINAL ORDERS/RESOLUTIONS OF THE
COMELEC WHICH WOULD WARRANT A REVIEW OF THIS COURT VIA RULE 65
PETITION[;]

A. WHETHER PETITIONERS VIOLATED THE HIERARCHY OF COURTS DOCTRINE AND

JURISPRUDENTIAL RULES GOVERNING APPEALS FROM COMELEC DECISIONS;
B. ASSUMING ARGUENDO THAT THE AFOREMENTIONED ORDERS ARE NOT
CONSIDERED JUDGMENTS/FINAL ORDERS/RESOLUTIONS OF THE COMELEC,
WHETHER THERE ARE EXCEPTIONAL CIRCUMSTANCES WHICH WOULD ALLOW THIS
COURT TO TAKE COGNIZANCE OF THE CASE[;]

II.

WHETHER IT IS RELEVANT TODETERMINE WHETHER THE TARPAULINS ARE

"POLITICAL ADVERTISEMENT" OR "ELECTION PROPAGANDA" CONSIDERING THAT
PETITIONER IS NOT A POLITICAL CANDIDATE[;]

III.

WHETHER THE TARPAULINS ARE A FORM OR EXPRESSION (PROTECTED SPEECH), OR

ELECTION PROPAGANDA/POLITICAL ADVERTISEMENT[;]

A. ASSUMING ARGUENDO THAT THE TARPAULINS ARE A FORM OF EXPRESSION,

WHETHER THE COMELEC POSSESSES THE AUTHORITY TO REGULATE THE SAME[;]

B. WHETHER THIS FORM OF EXPRESSION MAY BE REGULATED[;]

IV.

WHETHER THE 22 FEBRUARY 2013 NOTICE/ ORDER BY ELECTION OFFICER

MAJARUCON AND THE 27 FEBRUARY 2013 ORDER BY THE COMELEC LAW
DEPARTMENT VIOLATES THE PRINCIPLE OF SEPARATION OF CHURCH AND STATE[;]
[AND]

V.

WHETHER THE ACTION OF THE PETITIONERS IN POSTING ITS TARPAULIN VIOLATES

THE CONSTITUTIONAL PRINCIPLE OF SEPARATION OF CHURCH AND STATE.

I
PROCEDURAL ISSUES

I.A

This court’s jurisdiction over COMELEC cases

Respondents ask that this petition be dismissed on the ground that the notice and letter are not
final orders, decisions, rulings, or judgments of the COMELEC En Banc issued in the exercise
of its adjudicatory powers, reviewable via Rule 64 of the Rules of Court.21

Rule 64 is not the exclusive remedy for all acts of the COMELEC. Rule 65 is applicable
especially to raise objections relating to a grave abuse of discretion resulting in the ouster of
jurisdiction.22 As a special civil action, there must also be a showing that there be no plain,
speedy, and adequate remedy in the ordinary course of the law.

Respondents contend that the assailed notice and letter are not subject to review by this court,
whose power to review is "limited only to final decisions, rulings and orders of the COMELEC En
Banc rendered in the exercise of its adjudicatory or quasi-judicial power."23 Instead,
respondents claim that the assailed notice and letter are reviewable only by COMELEC itself
pursuant to Article IX-C, Section 2(3) of the Constitution24 on COMELEC’s power to decide all
questions affecting elections.25 Respondents invoke the cases of Ambil, Jr. v. COMELEC,26
Repol v. COMELEC,27 Soriano, Jr. v. COMELEC,28 Blanco v. COMELEC,29 and Cayetano v.
COMELEC,30 to illustrate how judicialintervention is limited to final decisions, orders, rulings
and judgments of the COMELEC En Banc.31

These cases are not applicable.

In Ambil, Jr. v. COMELEC, the losing party in the gubernatorial race of Eastern Samar filed the
election protest.32 At issue was the validity of the promulgation of a COMELEC Division
resolution.33 No motion for reconsideration was filed to raise this issue before the COMELEC
En Banc. This court declared that it did not have jurisdiction and clarified:

We have interpreted [Section 7, Article IX-A of the Constitution]34 to mean final orders, rulings
and decisionsof the COMELEC rendered in the exercise of its adjudicatory or quasi-judicial
powers." This decision must be a final decision or resolution of the Comelec en banc, not of a
division, certainly not an interlocutory order of a division.The Supreme Court has no power to
review viacertiorari, an interlocutory order or even a final resolution of a Division of the
Commission on Elections.35 (Emphasis in the original, citations omitted)
However, in the next case cited by respondents, Repol v. COMELEC, this court provided
exceptions to this general rule. Repolwas another election protest case, involving the mayoralty
elections in Pagsanghan, Samar.36 This time, the case was brought to this court because the
COMELEC First Division issued a status quo ante order against the Regional Trial Court
executing its decision pending appeal.37 This court’s ponencia discussed the general rule
enunciated in Ambil, Jr. that it cannot take jurisdiction to review interlocutory orders of a
COMELEC Division.38 However, consistent with ABS-CBN Broadcasting Corporation v.
COMELEC,39 it clarified the exception:

This Court, however, has ruled in the past that this procedural requirement [of filing a motion for
reconsideration] may be glossed over to prevent miscarriage of justice, when the issue involves
the principle of social justice or the protection of labor, when the decision or resolution sought to
be set aside is a nullity, or when the need for relief is extremely urgent and certiorari is the only
adequate and speedy remedy available.40

Based on ABS-CBN, this court could review orders and decisions of COMELEC — in electoral
contests — despite not being reviewed by the COMELEC En Banc, if:

1) It will prevent the miscarriage of justice;

2) The issue involves a principle of social justice;

3) The issue involves the protection of labor;

4) The decision or resolution sought tobe set aside is a nullity; or

5) The need for relief is extremely urgent and certiorari is the only adequate and speedy remedy
available.

Ultimately, this court took jurisdiction in Repoland decided that the status quo anteorder issued
by the COMELEC Division was unconstitutional.

Respondents also cite Soriano, Jr. v. COMELEC.This case was also an election protest case
involving candidates for the city council of Muntinlupa City.41 Petitioners in Soriano, Jr.filed
before this court a petition for certiorari against an interlocutory order of the COMELEC First
Division.42 While the petition was pending in this court, the COMELEC First Division dismissed
the main election protest case.43 Sorianoapplied the general rule that only final orders should
be questioned with this court. The ponencia for this court, however, acknowledged the
exceptions to the general rule in ABS-CBN.44

Blanco v. COMELEC, another case cited by respondents, was a disqualification case of one of
the mayoralty candidates of Meycauayan, Bulacan.45 The COMELEC Second Division ruled
that petitioner could not qualify for the 2007 elections due to the findings in an administrative
case that he engaged in vote buying in the 1995 elections.46 No motion for reconsideration was
filed before the COMELEC En Banc. This court, however, took cognizance of this case applying
one of the exceptions in ABS-CBN: The assailed resolution was a nullity.47

Finally, respondents cited Cayetano v. COMELEC, a recent election protest case involving the
mayoralty candidates of Taguig City.48 Petitioner assailed a resolution of the COMELEC
denying her motion for reconsideration to dismiss the election protest petition for lack of form
and substance.49 This court clarified the general rule and refused to take cognizance of the
review of the COMELEC order. While recognizing the exceptions in ABS-CBN, this court ruled
that these exceptions did not apply.50

Ambil, Jr., Repol, Soriano, Jr., Blanco, and Cayetano cited by respondents do not operate as
precedents to oust this court from taking jurisdiction over this case. All these cases cited involve
election protests or disqualification cases filed by the losing candidate against the winning
candidate.

In the present case, petitioners are not candidates seeking for public office. Their petition is filed
to assert their fundamental right to expression.

Furthermore, all these cases cited by respondents pertained to COMELEC’s exercise of its
adjudicatory or quasi-judicial power. This case pertains to acts of COMELEC in the
implementation of its regulatory powers. When it issued the notice and letter, the COMELEC
was allegedly enforcingelection laws.

I.B

Rule 65, grave abuse of discretion,

and limitations on political speech

The main subject of thiscase is an alleged constitutional violation: the infringement on speech
and the "chilling effect" caused by respondent COMELEC’s notice and letter.

Petitioners allege that respondents committed grave abuse of discretion amounting to lack or
excess of jurisdiction in issuing the notice51 dated February 22,2013 and letter52 dated
February 27, 2013 ordering the removal of the tarpaulin.53 It is their position that these infringe
on their fundamental right to freedom of expression and violate the principle of separation of
church and state and, thus, are unconstitutional.54

The jurisdiction of this court over the subject matter is determined from the allegations in the
petition. Subject matter jurisdiction is defined as the authority "to hear and determine cases of
the general class to which the proceedings in question belong and is conferred by the sovereign
authority which organizes the court and defines its powers."55 Definitely, the subject matter in
this case is different from the cases cited by respondents.

Nothing less than the electorate’s political speech will be affected by the restrictions imposed by
COMELEC. Political speech is motivated by the desire to be heard and understood, to move
people to action. It is concerned with the sovereign right to change the contours of power
whether through the election of representatives in a republican government or the revision of the
basic text of the Constitution. The zeal with which we protect this kind of speech does not
depend on our evaluation of the cogency of the message. Neither do we assess whether we
should protect speech based on the motives of COMELEC. We evaluate restrictions on freedom
of expression from their effects. We protect both speech and medium because the quality of this
freedom in practice will define the quality of deliberation in our democratic society.

COMELEC’s notice and letter affect preferred speech. Respondents’ acts are capable of
repetition. Under the conditions in which it was issued and in view of the novelty of this case,it
could result in a "chilling effect" that would affect other citizens who want their voices heard on
issues during the elections. Other citizens who wish to express their views regarding the
election and other related issues may choose not to, for fear of reprisal or sanction by the
COMELEC. Direct resort to this court is allowed to avoid such proscribed conditions. Rule 65 is
also the procedural platform for raising grave abuse of discretion.

Both parties point to constitutional provisions on jurisdiction. For petitioners, it referred to this
court’s expanded exercise of certiorari as provided by the Constitution as follows:
Judicial power includes the duty of the courts of justice to settle actual controversies involving
rights which are legally demandable and enforceable, and to determine whether ornot there has
been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government.56 (Emphasis supplied)

On the other hand, respondents relied on its constitutional mandate to decide all questions
affectingelections. Article IX-C, Section 2(3) of the Constitution, provides:

Sec. 2. The Commission on Elections shall exercise the following powers and functions:

....

(3) Decide, except those involving the right to vote, all questions affecting elections, including
determination of the number and location of polling places, appointment of election officials and
inspectors, and registration of voters.

Respondents’ reliance on this provision is misplaced.

We are not confronted here with the question of whether the COMELEC, in its exercise of
jurisdiction, gravely abused it. We are confronted with the question as to whether the
COMELEC had any jurisdiction at all with its acts threatening imminent criminal action
effectively abridging meaningful political speech.

It is clear that the subject matter of the controversy is the effect of COMELEC’s notice and letter
on free speech. This does not fall under Article IX-C, Section 2(3) of the Constitution. The use of
the word "affecting" in this provision cannot be interpreted to mean that COMELEC has the
exclusive power to decide any and allquestions that arise during elections. COMELEC’s
constitutional competencies during elections should not operate to divest this court of its own
jurisdiction.

The more relevant provision for jurisdiction in this case is Article VIII, Section 5(1) of the
Constitution.This provision provides for this court’s original jurisdiction over petitions for
certiorari and prohibition. This should be read alongside the expanded jurisdiction of the court in
Article VIII, Section 1 of the Constitution.
Certainly, a breach of the fundamental right of expression by COMELEC is grave abuse of
discretion. Thus, the constitutionality of the notice and letter coming from COMELEC is within
this court’s power to review.

During elections, we have the power and the duty to correct any grave abuse of discretion or
any act tainted with unconstitutionality on the part of any government branch or instrumentality.
This includes actions by the COMELEC. Furthermore, it is this court’s constitutional mandate to
protect the people against government’s infringement of their fundamental rights. This
constitutional mandate out weighs the jurisdiction vested with the COMELEC.

It will, thus, be manifest injustice if the court does not take jurisdiction over this case.

I.C

Hierarchy of courts

This brings us to the issue of whether petitioners violated the doctrine of hierarchy of courts in
directly filing their petition before this court.

Respondents contend that petitioners’ failure to file the proper suit with a lower court of
concurrent jurisdiction is sufficient ground for the dismissal of their petition.57 They add that
observation of the hierarchy of courts is compulsory, citing Heirs of Bertuldo Hinog v. Melicor.58
While respondents claim that while there are exceptions to the general rule on hierarchy of
courts, none of these are present in this case.59

On the other hand, petitioners cite Fortich v. Corona60 on this court’s discretionary power to
take cognizance of a petition filed directly to it if warranted by "compelling reasons, or [by] the
nature and importance of the issues raised. . . ."61 Petitioners submit that there are "exceptional
and compelling reasons to justify a direct resort [with] this Court."62

In Bañez, Jr. v. Concepcion,63 we explained the necessity of the application of the hierarchy of
courts:

The Court must enjoin the observance of the policy on the hierarchy of courts, and now affirms
that the policy is not to be ignored without serious consequences. The strictness of the policy is
designed to shield the Court from having to deal with causes that are also well within the
competence of the lower courts, and thus leave time to the Court to deal with the more
fundamental and more essential tasks that the Constitution has assigned to it. The Court may
act on petitions for the extraordinary writs of certiorari, prohibition and mandamus only when
absolutely necessary or when serious and important reasons exist to justify an exception to the
policy.64

In Bañez, we also elaborated on the reasons why lower courts are allowed to issue writs of
certiorari, prohibition, and mandamus, citing Vergara v. Suelto:65

The Supreme Court is a court of lastresort, and must so remain if it is to satisfactorily perform
the functions assigned to it by the fundamental charter and immemorial tradition. It cannot and
should not be burdened with the task of dealing with causes in the first instance. Its original
jurisdiction to issue the so-called extraordinary writs should be exercised only where absolutely
necessary or where serious and important reasons exist therefore. Hence, that jurisdiction
should generally be exercised relative to actions or proceedings before the Court of Appeals, or
before constitutional or other tribunals, bodies or agencies whose acts for some reason or
another are not controllable by the Court of Appeals. Where the issuance of an extraordinary
writ is also within the competence of the Court of Appeals or a Regional Trial Court, it is in either
of these courts that the specific action for the writ’s procurement must be presented. This is and
should continue to be the policy in this regard, a policy that courts and lawyers must strictly
observe.66 (Emphasis omitted)

The doctrine that requires respect for the hierarchy of courts was created by this court to ensure
that every level of the judiciary performs its designated roles in an effective and efficient
manner. Trial courts do not only determine the facts from the evaluation of the evidence
presented before them. They are likewise competent to determine issues of law which may
include the validity of an ordinance, statute, or even an executive issuance in relation to the
Constitution.67 To effectively perform these functions, they are territorially organized into
regions and then into branches. Their writs generally reach within those territorial boundaries.
Necessarily, they mostly perform the all-important task of inferring the facts from the evidence
as these are physically presented before them. In many instances, the facts occur within their
territorial jurisdiction, which properly present the ‘actual case’ that makes ripe a determination of
the constitutionality of such action. The consequences, of course, would be national in scope.
There are, however, some cases where resort to courts at their level would not be practical
considering their decisions could still be appealed before the higher courts, such as the Court of
Appeals.

The Court of Appeals is primarily designed as an appellate court that reviews the determination
of facts and law made by the trial courts. It is collegiate in nature. This nature ensures more
standpoints in the review of the actions of the trial court. But the Court of Appeals also has
original jurisdiction over most special civil actions. Unlike the trial courts, its writs can have a
nationwide scope. It is competent to determine facts and, ideally, should act on constitutional
issues thatmay not necessarily be novel unless there are factual questions to determine.

This court, on the other hand, leads the judiciary by breaking new ground or further reiterating
— in the light of new circumstances or in the light of some confusions of bench or bar —
existing precedents. Rather than a court of first instance or as a repetition of the actions of the
Court of Appeals, this court promulgates these doctrinal devices in order that it truly performs
that role.

In other words, the Supreme Court’s role to interpret the Constitution and act in order to protect
constitutional rights when these become exigent should not be emasculated by the doctrine in
respect of the hierarchy of courts. That has never been the purpose of such doctrine.

Thus, the doctrine of hierarchy of courts is not an iron-clad rule.68 This court has "full
discretionary power to take cognizance and assume jurisdiction [over] special civil actions for
certiorari . . .filed directly with it for exceptionally compelling reasons69 or if warranted by the
nature of the issues clearly and specifically raised in the petition."70 As correctly pointed out by
petitioners,71 we have provided exceptions to this doctrine:

First, a direct resort to this court is allowed when there are genuine issues of constitutionality
that must be addressed at the most immediate time. A direct resort to this court includes
availing of the remedies of certiorari and prohibition toassail the constitutionality of actions of
both legislative and executive branches of the government.72

In this case, the assailed issuances of respondents prejudice not only petitioners’ right to
freedom of expression in the present case, but also of others in future similar cases. The case
before this court involves an active effort on the part of the electorate to reform the political
landscape. This has become a rare occasion when private citizens actively engage the public in
political discourse. To quote an eminent political theorist:

[T]he theory of freedom of expression involves more than a technique for arriving at better social
judgments through democratic procedures. It comprehends a vision of society, a faith and a
whole way of life. The theory grew out of an age that was awakened and invigorated by the idea
of new society in which man's mind was free, his fate determined by his own powers of reason,
and his prospects of creating a rational and enlightened civilization virtually unlimited. It is put
forward as a prescription for attaining a creative, progressive, exciting and intellectually robust
community. It contemplates a mode of life that, through encouraging toleration, skepticism,
reason and initiative, will allow man to realize his full potentialities.It spurns the alternative of a
society that is tyrannical, conformist, irrational and stagnant.73
In a democracy, the citizen’s right tofreely participate in the exchange of ideas in furtherance of
political decision-making is recognized. It deserves the highest protection the courts may
provide, as public participation in nation-building isa fundamental principle in our Constitution.
As such, their right to engage in free expression of ideas must be given immediate protection by
this court.

A second exception is when the issuesinvolved are of transcendental importance.74 In these

cases, the imminence and clarity of the threat to fundamental constitutional rights outweigh the
necessity for prudence. The doctrine relating to constitutional issues of transcendental
importance prevents courts from the paralysis of procedural niceties when clearly faced with the
need for substantial protection.

In the case before this court, there is a clear threat to the paramount right of freedom of speech
and freedom of expression which warrants invocation of relief from this court. The principles laid
down in this decision will likely influence the discourse of freedom of speech in the future,
especially in the context of elections. The right to suffrage not only includes the right to vote for
one’s chosen candidate, but also the right to vocalize that choice to the public in general, in the
hope of influencing their votes. It may be said that in an election year, the right to vote
necessarily includes the right to free speech and expression. The protection of these
fundamental constitutional rights, therefore, allows for the immediate resort to this court.

Third, cases of first impression75 warrant a direct resort to this court. In cases of first
impression, no jurisprudence yet exists that will guide the lower courts on this matter. In
Government of the United States v. Purganan,76 this court took cognizance of the case as a
matter of first impression that may guide the lower courts:

In the interest of justice and to settle once and for all the important issue of bail in extradition
proceedings, we deem it best to take cognizance of the present case. Such proceedings
constitute a matter of first impression over which there is, as yet, no local jurisprudence to guide
lower courts.77

This court finds that this is indeed a case of first impression involving as it does the issue of
whether the right of suffrage includes the right of freedom of expression. This is a question
which this court has yet to provide substantial answers to, through jurisprudence. Thus, direct
resort to this court is allowed.

Fourth, the constitutional issues raisedare better decided by this court. In Drilon v. Lim,78 this
court held that:
. . . it will be prudent for such courts, if only out of a becoming modesty, to defer to the higher
judgmentof this Court in the consideration of its validity, which is better determined after a
thorough deliberation by a collegiate body and with the concurrence of the majority of those who
participated in its discussion.79 (Citation omitted)

In this case, it is this court, with its constitutionally enshrined judicial power, that can rule with
finality on whether COMELEC committed grave abuse of discretion or performed acts contrary
to the Constitution through the assailed issuances.

Fifth, the time element presented in this case cannot be ignored. This case was filed during the
2013 election period. Although the elections have already been concluded, future cases may be
filed that necessitate urgency in its resolution. Exigency in certain situations would qualify as an
exception for direct resort to this court.

Sixth, the filed petition reviews the act of a constitutional organ. COMELEC is a constitutional
body. In Albano v. Arranz,80 cited by petitioners, this court held that "[i]t is easy to realize the
chaos that would ensue if the Court of First Instance ofeach and every province were [to]
arrogate itself the power to disregard, suspend, or contradict any order of the Commission on
Elections: that constitutional body would be speedily reduced to impotence."81

In this case, if petitioners sought to annul the actions of COMELEC through pursuing remedies
with the lower courts, any ruling on their part would not have been binding for other citizens
whom respondents may place in the same situation. Besides, thiscourt affords great respect to
the Constitution and the powers and duties imposed upon COMELEC. Hence, a ruling by this
court would be in the best interest of respondents, in order that their actions may be guided
accordingly in the future.

Seventh, petitioners rightly claim that they had no other plain, speedy, and adequate remedy in
the ordinary course of law that could free them from the injurious effects of respondents’ acts in
violation of their right to freedom of expression.

In this case, the repercussions of the assailed issuances on this basic right constitute an
exceptionally compelling reason to justify the direct resort to this court. The lack of other
sufficient remedies in the course of law alone is sufficient ground to allow direct resort to this
court.
Eighth, the petition includes questionsthat are "dictated by public welfare and the advancement
of public policy, or demanded by the broader interest of justice, or the orders complained of
were found to be patent nullities, or the appeal was consideredas clearly an inappropriate
remedy."82 In the past, questions similar to these which this court ruled on immediately despite
the doctrine of hierarchy of courts included citizens’ right to bear arms,83 government contracts
involving modernization of voters’ registration lists,84 and the status and existence of a public
office.85

This case also poses a question of similar, if not greater import. Hence, a direct action to this
court is permitted.

It is not, however, necessary that all of these exceptions must occur at the same time to justify a
direct resort to this court. While generally, the hierarchy of courts is respected, the present case
falls under the recognized exceptions and, as such, may be resolved by this court directly.

I.D

The concept of a political question

Respondents argue further that the size limitation and its reasonableness is a political question,
hence not within the ambit of this court’s power of review. They cite Justice Vitug’s separate
opinion in Osmeña v. COMELEC86 to support their position:

It might be worth mentioning that Section 26, Article II, of the Constitution also states that the
"State shall guarantee equal access to opportunities for public service, and prohibit political
dynasties as may be defined by law." I see neither Article IX (C)(4) nor Section 26, Article II, of
the Constitution to be all that adversarial or irreconcilably inconsistent with the right of free
expression. In any event, the latter, being one of general application, must yield to the specific
demands of the Constitution. The freedom of expression concededly holds, it is true, a vantage
point in hierarchy of constitutionally-enshrined rights but, like all fundamental rights, it is not
without limitations.

The case is not about a fight between the "rich" and the "poor" or between the "powerful" and
the "weak" in our society but it is to me a genuine attempt on the part of Congress and the
Commission on Elections to ensure that all candidates are given an equal chance to media
coverage and thereby be equally perceived as giving real life to the candidates’ right of free
expression rather than being viewed as an undue restriction of that freedom. The wisdom in the
enactment of the law, i.e., that which the legislature deems to be best in giving life to the
Constitutional mandate, is not for the Court to question; it is a matter that lies beyond the normal
prerogatives of the Court to pass upon.87

This separate opinion is cogent for the purpose it was said. But it is not in point in this case.

The present petition does not involve a dispute between the rich and poor, or the powerful and
weak, on their equal opportunities for media coverage of candidates and their right to freedom
of expression. This case concerns the right of petitioners, who are non-candidates, to post the
tarpaulin in their private property, asan exercise of their right of free expression. Despite the
invocation of the political question doctrine by respondents, this court is not proscribed from
deciding on the merits of this case.

In Tañada v. Cuenco,88 this court previously elaborated on the concept of what constitutes a
political question:

What is generally meant, when it is said that a question is political, and not judicial, is that it is a
matter which is to be exercised by the people in their primary political capacity, or that it has
been specifically delegated to some other department or particular officer of the government,
withdiscretionary power to act.89 (Emphasis omitted)

It is not for this court to rehearse and re-enact political debates on what the text of the law
should be. In political forums, particularly the legislature, the creation of the textof the law is
based on a general discussion of factual circumstances, broadly construed in order to allow for
general application by the executive branch. Thus, the creation of the law is not limited by
particular and specific facts that affect the rights of certain individuals, per se.

Courts, on the other hand, rule on adversarial positions based on existing facts established on a
specific case-to-case basis, where parties affected by the legal provision seek the courts’
understanding of the law.

The complementary nature of the political and judicial branches of government is essential in
order to ensure that the rights of the general public are upheld at all times. In order to preserve
this balance, branches of government must afford due respectand deference for the duties and
functions constitutionally delegated to the other. Courts cannot rush to invalidate a law or rule.
Prudence dictates that we are careful not to veto political acts unless we can craft doctrine
narrowly tailored to the circumstances of the case.
The case before this court does not call for the exercise of prudence or modesty. There is no
political question. It can be acted upon by this court through the expanded jurisdiction granted to
this court through Article VIII, Section 1 of the Constitution.

A political question arises in constitutional issues relating to the powers or competence of

different agencies and departments of the executive or those of the legislature. The political
question doctrine is used as a defense when the petition asks this court to nullify certain acts
that are exclusively within the domain of their respective competencies, as provided by the
Constitution or the law. In such situation, presumptively, this court should act with deference. It
will decline to void an act unless the exercise of that power was so capricious and arbitrary so
as to amount to grave abuse of discretion.

The concept of a political question, however, never precludes judicial review when the act of a
constitutional organ infringes upon a fundamental individual or collective right. Even assuming
arguendo that the COMELEC did have the discretion to choose the manner of regulation of the
tarpaulin in question, it cannot do so by abridging the fundamental right to expression.

Marcos v. Manglapus90 limited the use of the political question doctrine:

When political questions are involved, the Constitution limits the determination to whether or not
there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the official whose action is being questioned. If grave abuse is not established, the Court
will not substitute its judgment for that of the official concerned and decide a matter which by its
nature or by law is for the latter alone to decide.91

How this court has chosen to address the political question doctrine has undergone an evolution
since the timethat it had been first invoked in Marcos v. Manglapus. Increasingly, this court has
taken the historical and social context of the case and the relevance of pronouncements of
carefully and narrowly tailored constitutional doctrines. This trend was followed in cases such as
Daza v. Singson92 and Coseteng v. Mitra Jr.93

Daza and Coseteng involved a question as to the application of Article VI, Section 18 of the
1987 Constitution involving the removal of petitioners from the Commission on Appointments. In
times past, this would have involved a quint essentially political question as it related to the
dominance of political parties in Congress. However, in these cases, this court exercised its
power of judicial review noting that the requirement of interpreting the constitutional provision
involved the legality and not the wisdom of a manner by which a constitutional duty or power
was exercised. This approach was again reiterated in Defensor Santiago v. Guingona, Jr.94
In Integrated Bar of the Philippines v. Zamora,95 this court declared again that the possible
existence ofa political question did not bar an examination of whether the exercise of discretion
was done with grave abuse of discretion. In that case, this court ruled on the question of
whether there was grave abuse of discretion in the President’s use of his power to call out the
armed forces to prevent and suppress lawless violence.

In Estrada v. Desierto,96 this court ruled that the legal question as to whether a former
President resigned was not a political question even if the consequences would be to ascertain
the political legitimacy of a successor President.

Many constitutional cases arise from political crises. The actors in such crises may use the
resolution of constitutional issues as leverage. But the expanded jurisdiction of this court now
mandates a duty for it to exercise its power of judicial review expanding on principles that may
avert catastrophe or resolve social conflict.

This court’s understanding of the political question has not been static or unbending. In Llamas
v. Executive Secretary Oscar Orbos,97 this court held:

While it is true that courts cannot inquire into the manner in which the President's discretionary
powers are exercised or into the wisdom for its exercise, it is also a settled rule that when the
issue involved concerns the validity of such discretionary powers or whether said powers are
within the limits prescribed by the Constitution, We will not decline to exercise our power of
judicial review. And such review does not constitute a modification or correction of the act of the
President, nor does it constitute interference with the functions of the President.98

The concept of judicial power in relation to the concept of the political question was discussed
most extensively in Francisco v. HRET.99 In this case, the House of Representatives
arguedthat the question of the validity of the second impeachment complaint that was filed
against former Chief Justice Hilario Davide was a political question beyond the ambit of this
court. Former Chief Justice Reynato Puno elaborated on this concept in his concurring and
dissenting opinion:

To be sure, the force to impugn the jurisdiction of this Court becomes more feeble in light of the
new Constitution which expanded the definition of judicial power as including "the duty of the
courts of justice to settle actual controversies involving rights which are legally demandable and
enforceable, and to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the
Government." As well observed by retired Justice Isagani Cruz, this expanded definition of
judicial power considerably constricted the scope of political question. He opined that the
language luminously suggests that this duty (and power) is available even against the executive
and legislative departments including the President and the Congress, in the exercise of their
discretionary powers.100 (Emphasis in the original, citations omitted)

Francisco also provides the cases which show the evolution of the political question, as applied
in the following cases:

In Marcos v. Manglapus, this Court, speaking through Madame Justice Irene Cortes, held: The
present Constitution limits resort to the political question doctrine and broadens the scope of
judicial inquiry into areas which the Court,under previous constitutions, would have normally left
to the political departments to decide. x x x

In Bengzon v. Senate Blue Ribbon Committee, through Justice Teodoro Padilla, this Court
declared:

The "allocation of constitutional boundaries" is a task that this Court must perform under the
Constitution. Moreover, as held in a recent case, "(t)he political question doctrine neither
interposes an obstacle to judicial determination of the rival claims. The jurisdiction to delimit
constitutional boundaries has been given to this Court. It cannot abdicate that obligation
mandated by the 1987 Constitution, although said provision by no means does away with the
applicability of the principle in appropriate cases." (Emphasis and italics supplied)

And in Daza v. Singson, speaking through Justice Isagani Cruz, this Court ruled:

In the case now before us, the jurisdictional objection becomes even less tenable and decisive.
The reason is that, even if we were to assume that the issue presented before us was political in
nature, we would still not be precluded from resolving it under the expanded jurisdiction
conferred upon us that now covers, in proper cases, even the political question.x x x (Emphasis
and italics supplied.)

....

In our jurisdiction, the determination of whether an issue involves a truly political and non-
justiciable question lies in the answer to the question of whether there are constitutionally
imposed limits on powers or functions conferred upon political bodies. If there are, then our
courts are duty-bound to examine whether the branch or instrumentality of the government
properly acted within such limits.101 (Citations omitted)
As stated in Francisco, a political question will not be considered justiciable if there are no
constitutionally imposed limits on powers or functions conferred upon political bodies. Hence,
the existence of constitutionally imposed limits justifies subjecting the official actions of the body
to the scrutiny and review of this court.

In this case, the Bill of Rights gives the utmost deference to the right to free speech. Any
instance that this right may be abridged demands judicial scrutiny. It does not fall squarely into
any doubt that a political question brings.

I.E

Exhaustion of administrative remedies

Respondents allege that petitioners violated the principle of exhaustion of administrative

remedies. Respondents insist that petitioners should have first brought the matter to the
COMELEC En Banc or any of its divisions.102

Respondents point out that petitioners failed to comply with the requirement in Rule 65 that
"there is no appeal, or any plain, speedy, and adequate remedy in the ordinary course of
law."103 They add that the proper venue to assail the validity of the assailed issuances was in
the course of an administrative hearing to be conducted by COMELEC.104 In the event that an
election offense is filed against petitioners for posting the tarpaulin, they claim that petitioners
should resort to the remedies prescribed in Rule 34 of the COMELEC Rules of Procedure.105

The argument on exhaustion of administrative remedies is not proper in this case.

Despite the alleged non-exhaustion of administrative remedies, it is clear that the controversy is
already ripe for adjudication. Ripeness is the "prerequisite that something had by then been
accomplished or performed by either branch [or in this case, organ of government] before a
court may come into the picture."106

Petitioners’ exercise of their rightto speech, given the message and their medium, had
understandable relevance especially during the elections. COMELEC’s letter threatening the
filing of the election offense against petitioners is already an actionable infringement of this right.
The impending threat of criminal litigation is enough to curtail petitioners’ speech.
In the context of this case, exhaustion of their administrative remedies as COMELEC suggested
in their pleadings prolongs the violation of their freedom of speech.

Political speech enjoys preferred protection within our constitutional order. In Chavez v.
Gonzales,107 Justice Carpio in a separate opinion emphasized: "[i]f everthere is a hierarchy of
protected expressions, political expression would occupy the highest rank, and among different
kinds of political expression, the subject of fair and honest elections would be at the top."108
Sovereignty resides in the people.109 Political speech is a direct exercise of the sovereignty.
The principle of exhaustion of administrative remedies yields in order to protect this fundamental
right.

Even assuming that the principle of exhaustion of administrative remedies is applicable, the
current controversy is within the exceptions to the principle. In Chua v. Ang,110 this court held:

On the other hand, prior exhaustion of administrative remedies may be dispensed with and
judicial action may be validly resorted to immediately: (a) when there is a violation of due
process; (b) when the issue involved is purely a legal question; (c) when the administrative
action is patently illegal amounting to lack or excess of jurisdiction; (d) when there is estoppel on
the part ofthe administrative agency concerned; (e) when there is irreparable injury; (f) when the
respondent is a department secretary whose acts as analter ego of the President bear the
implied and assumed approval of the latter; (g) when to require exhaustion of administrative
remedies would be unreasonable; (h) when it would amount to a nullification of a claim; (i) when
the subject matter is a private land in land case proceedings; (j) whenthe rule does not provide a
plain, speedy and adequate remedy; or (k) when there are circumstances indicating the urgency
of judicial intervention."111 (Emphasis supplied, citation omitted)

The circumstances emphasized are squarely applicable with the present case. First, petitioners
allegethat the assailed issuances violated their right to freedom of expression and the principle
of separation of church and state. This is a purely legal question. Second, the circumstances of
the present case indicate the urgency of judicial intervention considering the issue then on the
RH Law as well as the upcoming elections. Thus, to require the exhaustion of administrative
remedies in this case would be unreasonable.

Time and again, we have held that this court "has the power to relax or suspend the rules or to
except a case from their operation when compelling reasons so warrant, or whenthe purpose of
justice requires it, [and when] [w]hat constitutes [as] good and sufficient cause that will merit
suspension of the rules is discretionary upon the court".112 Certainly, this case of first
impression where COMELEC has threatenedto prosecute private parties who seek to
participate in the elections by calling attention to issues they want debated by the publicin the
manner they feel would be effective is one of those cases.
II
SUBSTANTIVE ISSUES

II.A

COMELEC had no legal basis to regulate expressions made by private citizens

Respondents cite the Constitution, laws, and jurisprudence to support their position that they
had the power to regulate the tarpaulin.113 However, all of these provisions pertain to
candidates and political parties. Petitioners are not candidates. Neither do theybelong to any
political party. COMELEC does not have the authority to regulate the enjoyment of the preferred
right to freedom of expression exercised by a non-candidate in this case.

II.A.1

First, respondents cite Article IX-C, Section 4 of the Constitution, which provides:

Section 4. The Commission may,during the election period, supervise or regulate the enjoyment
or utilization of all franchises or permits for the operation of transportation and other public
utilities, media of communication or information, all grants, special privileges, or concessions
granted by the Government or any subdivision, agency, or instrumentality thereof, including any
government-owned or controlled corporation or its subsidiary. Such supervision or regulation
shall aim to ensure equal opportunity, time, and space, and the right to reply, including
reasonable, equal rates therefor, for public information campaigns and forums among
candidates in connection with the objective of holding free, orderly, honest, peaceful, and
credible elections.114 (Emphasis supplied)

Sanidad v. COMELEC115 involved the rules promulgated by COMELEC during the plebiscite
for the creation of the Cordillera Autonomous Region.116 Columnist Pablito V. Sanidad
questioned the provision prohibiting journalists from covering plebiscite issues on the day before
and on plebiscite day.117 Sanidad argued that the prohibition was a violation of the
"constitutional guarantees of the freedom of expression and of the press. . . ."118 We held that
the "evil sought to be prevented by this provision is the possibility that a franchise holder may
favor or give any undue advantage to a candidate in terms of advertising space or radio or
television time."119 This court found that "[m]edia practitioners exercising their freedom of
expression during plebiscite periods are neither the franchise holders nor the candidates[,]"120
thus, their right to expression during this period may not be regulated by COMELEC.121
Similar to the media, petitioners in the case at bar are neither franchise holders nor candidates.
II.A.2

Respondents likewise cite Article IX-C, Section 2(7) of the Constitution as follows:122

Sec. 2. The Commission on Elections shall exercise the following powers and functions:

....

(7) Recommend to the Congress effective measures to minimize election spending, including
limitation of places where propaganda materials shall be posted, and to prevent and penalize all
forms of election frauds, offenses, malpractices, and nuisance candidates. (Emphasis supplied)
Based on the enumeration made on actsthat may be penalized, it will be inferred that this
provision only affects candidates.

Petitioners assail the "Notice to Remove Campaign Materials" issued by COMELEC. This was
followed bythe assailed letter regarding the "election propaganda material posted on the church
vicinity promoting for or against the candidates and party-list groups. . . ."123

Section 9 of the Fair Election Act124 on the posting of campaign materials only mentions
"parties" and "candidates":

Sec. 9. Posting of Campaign Materials. - The COMELEC may authorize political parties and
party-list groups to erect common poster areas for their candidates in not more than ten (10)
public places such as plazas, markets, barangay centers and the like, wherein candidates can
post, display or exhibit election propaganda: Provided, That the size ofthe poster areas shall not
exceed twelve (12) by sixteen (16) feet or its equivalent. Independent candidates with no
political parties may likewise be authorized to erect common poster areas in not more than ten
(10) public places, the size of which shall not exceed four (4) by six (6) feet or its equivalent.
Candidates may post any lawful propaganda material in private places with the consent of the
owner thereof, and in public places or property which shall be allocated equitably and impartially
among the candidates. (Emphasis supplied)

Similarly, Section 17 of COMELEC Resolution No. 9615, the rules and regulations implementing
the Fair Election Act, provides as follows:
SECTION 17. Posting of Campaign Materials. - Parties and candidates may post any lawful
campaign material in:

a. Authorized common poster areasin public places subject to the requirements and/or
limitations set forth in the next following section; and

b. Private places provided it has the consent of the owner thereof.

The posting of campaign materials in public places outside of the designated common poster
areas and those enumerated under Section 7 (g) of these Rules and the like is prohibited.
Persons posting the same shall be liable together with the candidates and other persons who
caused the posting. It will be presumed that the candidates and parties caused the posting of
campaign materials outside the common poster areas if they do not remove the same within
three (3) days from notice which shall be issued by the Election Officer of the city or municipality
where the unlawful election propaganda are posted or displayed.

Members of the PNP and other law enforcement agencies called upon by the Election Officeror
other officials of the COMELEC shall apprehend the violators caught in the act, and file the
appropriate charges against them. (Emphasis supplied)

Respondents considered the tarpaulin as a campaign material in their issuances. The above
provisions regulating the posting of campaign materials only apply to candidates and political
parties, and petitioners are neither of the two.

Section 3 of Republic Act No. 9006on "Lawful Election Propaganda" also states that these are
"allowed for all registered political parties, national, regional, sectoral parties or organizations
participating under the party-list elections and for all bona fide candidates seeking national and
local elective positions subject to the limitation on authorized expenses of candidates and
political parties. . . ." Section 6 of COMELEC Resolution No. 9615 provides for a similar
wording. These provisions show that election propaganda refers to matter done by or on behalf
of and in coordination with candidates and political parties. Some level of coordination with the
candidates and political parties for whom the election propaganda are released would ensure
that these candidates and political parties maintain within the authorized expenses limitation.

The tarpaulin was not paid for byany candidate or political party.125 There was no allegation
that petitioners coordinated with any of the persons named in the tarpaulin regarding its posting.
On the other hand, petitioners posted the tarpaulin as part of their advocacy against the RH
Law. Respondents also cite National Press Club v. COMELEC126 in arguing that its regulatory
power under the Constitution, to some extent, set a limit on the right to free speech during
election period.127

National Press Club involved the prohibition on the sale and donation of space and time for
political advertisements, limiting political advertisements to COMELEC-designated space and
time. This case was brought by representatives of mass media and two candidates for office in
the 1992 elections. They argued that the prohibition on the sale and donation of space and time
for political advertisements is tantamount to censorship, which necessarily infringes on the
freedom of speech of the candidates.128

This court upheld the constitutionality of the COMELEC prohibition in National Press Club.
However, this case does not apply as most of the petitioners were electoral candidates, unlike
petitioners in the instant case. Moreover, the subject matter of National Press Club, Section
11(b) of Republic Act No. 6646,129 only refers to a particular kind of media such as
newspapers, radio broadcasting, or television.130 Justice Feliciano emphasized that the
provision did not infringe upon the right of reporters or broadcasters to air their commentaries
and opinions regarding the candidates, their qualifications, and program for government.
Compared to Sanidadwherein the columnists lost their ability to give their commentary on the
issues involving the plebiscite, National Press Clubdoes not involve the same infringement.

In the case at bar, petitioners lost their ability to give a commentary on the candidates for the
2013 national elections because of the COMELEC notice and letter. It was not merelya
regulation on the campaigns of candidates vying for public office. Thus, National Press
Clubdoes not apply to this case.

Finally, Section 79 of Batas Pambansa Blg. 881, otherwise known as the Omnibus Election
Code, defines an"election campaign" as follows:

....

(b) The term "election campaign" or "partisan political activity" refers to an act designed to
promote the election or defeat of a particular candidate or candidates to a public office which
shall include:

(1) Forming organizations, associations, clubs, committees or other groups of persons for the
purpose of soliciting votes and/or undertaking any campaign for or against a candidate;
(2) Holding political caucuses, conferences, meetings, rallies, parades, or other similar
assemblies, for the purpose of soliciting votes and/or undertaking any campaign or propaganda
for or against a candidate;

(3) Making speeches, announcements or commentaries, or holding interviews for or against the
election of any candidate for public office;

(4) Publishing or distributing campaign literature or materials designed to support or oppose the
election of any candidate; or

(5) Directly or indirectly soliciting votes, pledges or support for or against a candidate.

The foregoing enumerated acts ifperformed for the purpose of enhancing the chances of
aspirants for nomination for candidacy to a public office by a political party, aggroupment, or
coalition of parties shall not be considered as election campaign or partisan election activity.
Public expressions or opinions or discussions of probable issues in a forthcoming electionor on
attributes of or criticisms against probable candidates proposed to be nominated in a
forthcoming political party convention shall not be construed as part of any election campaign or
partisan political activity contemplated under this Article. (Emphasis supplied)

True, there is no mention whether election campaign is limited only to the candidates and
political parties themselves. The focus of the definition is that the act must be "designed to
promote the election or defeat of a particular candidate or candidates to a public office."

In this case, the tarpaulin contains speech on a matter of public concern, that is, a statement of
either appreciation or criticism on votes made in the passing of the RH law. Thus, petitioners
invoke their right to freedom of expression.

II.B

The violation of the constitutional right

to freedom of speech and expression

Petitioners contend that the assailed notice and letter for the removal of the tarpaulin violate
their fundamental right to freedom of expression.

On the other hand, respondents contend that the tarpaulin is an election propaganda subject to
their regulation pursuant to their mandate under Article IX-C, Section 4 of the Constitution.
Thus, the assailed notice and letter ordering itsremoval for being oversized are valid and
constitutional.131

II.B.1

Fundamental to the consideration of this issue is Article III, Section 4 of the Constitution:

Section 4. No law shall be passed abridging the freedom of speech, of expression, or of the
press, or the right of the people peaceably to assemble and petition the government for redress
of grievances.132

No law. . .

While it is true that the present petition assails not a law but an opinion by the COMELEC Law
Department, this court has applied Article III, Section 4 of the Constitution even to governmental
acts.

In Primicias v. Fugoso,133 respondent Mayor applied by analogy Section 1119 of the Revised
Ordinances of 1927 of Manila for the public meeting and assembly organized by petitioner
Primicias.134 Section 1119 requires a Mayor’s permit for the use of streets and public places for
purposes such as athletic games, sports, or celebration of national holidays.135 What was
questioned was not a law but the Mayor’s refusal to issue a permit for the holding of petitioner’s
public meeting.136 Nevertheless, this court recognized the constitutional right to freedom of
speech, to peaceful assembly and to petition for redress of grievances, albeit not absolute,137
and the petition for mandamus to compel respondent Mayor to issue the permit was
granted.138

In ABS-CBN v. COMELEC, what was assailed was not a law but COMELEC En Banc
Resolution No. 98-1419 where the COMELEC resolved to approve the issuance of a restraining
order to stop ABS-CBN from conducting exit surveys.139 The right to freedom of expression
was similarly upheld in this case and, consequently, the assailed resolution was nullified and set
aside.140
. . . shall be passed abridging. . .

All regulations will have an impact directly or indirectly on expression. The prohibition against
the abridgment of speech should not mean an absolute prohibition against regulation. The
primary and incidental burden on speech must be weighed against a compelling state interest
clearly allowed in the Constitution. The test depends on the relevant theory of speech implicit in
the kind of society framed by our Constitution.

. . . of expression. . .

Our Constitution has also explicitly included the freedom of expression, separate and in addition
to the freedom of speech and of the press provided in the US Constitution. The word
"expression" was added in the 1987 Constitution by Commissioner Brocka for having a wider
scope:

MR. BROCKA: This is a very minor amendment, Mr. Presiding Officer. On Section 9, page 2,
line 29, it says: "No law shall be passed abridging the freedom of speech." I would like to
recommend to the Committee the change of the word "speech" to EXPRESSION; or if not, add
the words AND EXPRESSION after the word "speech," because it is more expansive, it has a
wider scope, and it would refer to means of expression other than speech.

THE PRESIDING OFFICER (Mr.Bengzon): What does the Committee say?

FR. BERNAS: "Expression" is more broad than speech. We accept it.

MR. BROCKA: Thank you.

THE PRESIDING OFFICER (Mr.Bengzon): Is it accepted?

FR. BERNAS: Yes.

THE PRESIDING OFFICER (Mr.Bengzon): Is there any objection? (Silence) The Chair hears
none; the amendment is approved.
FR. BERNAS: So, that provision will now read: "No law shall be passed abridging the freedom
of speech, expression or of the press . . . ."141 Speech may be said to be inextricably linked to
freedom itself as "[t]he right to think is the beginning of freedom, and speech must be protected
from the government because speech is the beginning of thought."142

II.B.2

Communication is an essential outcome of protected speech.143 Communication exists when

"(1) a speaker, seeking to signal others, uses conventional actions because he orshe
reasonably believes that such actions will be taken by the audience in the manner intended; and
(2) the audience so takes the actions."144 "[I]n communicative action[,] the hearer may respond
to the claims by . . . either accepting the speech act’s claims or opposing them with criticism or
requests for justification."145

Speech is not limited to vocal communication. "[C]onduct is treated as a form of speech

sometimes referred to as ‘symbolic speech[,]’"146 such that "‘when ‘speech’ and ‘nonspeech’
elements are combined in the same course of conduct,’ the ‘communicative element’ of the
conduct may be ‘sufficient to bring into play the [right to freedom of expression].’"147

The right to freedom of expression, thus, applies to the entire continuum of speech from
utterances made to conduct enacted, and even to inaction itself as a symbolic manner of
communication.

In Ebralinag v. The Division Superintendent of Schools of Cebu,148 students who were

members of the religious sect Jehovah’s Witnesses were to be expelled from school for refusing
to salute the flag, sing the national anthem, and recite the patriotic pledge.149 In his concurring
opinion, Justice Cruz discussed how the salute is a symbolic manner of communication and a
valid form of expression.150 He adds that freedom of speech includes even the right to be
silent:

Freedom of speech includes the right to be silent. Aptly has it been said that the Bill of Rights
that guarantees to the individual the liberty to utter what is in his mind also guarantees to him
the liberty not to utter what is not in his mind. The salute is a symbolic manner of communication
that conveys its messageas clearly as the written or spoken word. As a valid form of expression,
it cannot be compelled any more than it can be prohibited in the face of valid religious objections
like those raised in this petition. To impose it on the petitioners is to deny them the right not to
speak when their religion bids them to be silent. This coercion of conscience has no place in the
free society.
The democratic system provides for the accommodation of diverse ideas, including the
unconventional and even the bizarre or eccentric. The will of the majority prevails, but it cannot
regiment thought by prescribing the recitation by rote of its opinions or proscribing the assertion
of unorthodox or unpopular views as inthis case. The conscientious objections of the petitioners,
no less than the impatience of those who disagree with them, are protected by the Constitution.
The State cannot make the individual speak when the soul within rebels.151

Even before freedom "of expression" was included in Article III, Section 4 of the present
Constitution,this court has applied its precedent version to expressions other than verbal
utterances.

In the 1985 case of Gonzalez v. Chairman Katigbak,152 petitioners objected to the classification
of the motion picture "Kapit sa Patalim" as "For Adults Only." They contend that the
classification "is without legal and factual basis and is exercised as impermissible restraint of
artistic expression."153 This court recognized that "[m]otion pictures are important both as a
medium for the communication of ideas and the expression of the artistic impulse."154 It adds
that "every writer,actor, or producer, no matter what medium of expression he may use, should
be freed from the censor."155 This court found that "[the Board’s] perception of what constitutes
obscenity appears to be unduly restrictive."156 However, the petition was dismissed solely on
the ground that there were not enough votes for a ruling of grave abuse of discretion in the
classification made by the Board.157

II.B.3

Size does matter

The form of expression is just as important as the information conveyed that it forms part of the
expression. The present case is in point.

It is easy to discern why size matters.

First, it enhances efficiency in communication. A larger tarpaulin allows larger fonts which make
it easier to view its messages from greater distances. Furthermore, a larger tarpaulin makes it
easier for passengers inside moving vehicles to read its content. Compared with the
pedestrians, the passengers inside moving vehicles have lesser time to view the content of a
tarpaulin. The larger the fonts and images, the greater the probability that it will catch their
attention and, thus, the greater the possibility that they will understand its message.
Second, the size of the tarpaulin may underscore the importance of the message to the reader.
From an ordinary person’s perspective, those who post their messages in larger fonts care more
about their message than those who carry their messages in smaller media. The perceived
importance given by the speakers, in this case petitioners, to their cause is also part of the
message. The effectivity of communication sometimes relies on the emphasis put by the
speakers and onthe credibility of the speakers themselves. Certainly, larger segments of the
public may tend to be more convinced of the point made by authoritative figures when they
make the effort to emphasize their messages.

Third, larger spaces allow for more messages. Larger spaces, therefore, may translate to more
opportunities to amplify, explain, and argue points which the speakers might want to
communicate. Rather than simply placing the names and images of political candidates and an
expression of support, larger spaces can allow for brief but memorable presentations of the
candidates’ platforms for governance. Larger spaces allow for more precise inceptions of ideas,
catalyze reactions to advocacies, and contribute more to a more educated and reasoned
electorate. A more educated electorate will increase the possibilities of both good governance
and accountability in our government.

These points become more salient when it is the electorate, not the candidates or the political
parties, that speaks. Too often, the terms of public discussion during elections are framed and
kept hostage by brief and catchy but meaningless sound bites extolling the character of the
candidate. Worse, elections sideline political arguments and privilege the endorsement by
celebrities. Rather than provide obstacles to their speech, government should in fact encourage
it. Between the candidates and the electorate, the latter have the better incentive to demand
discussion of the more important issues. Between the candidates and the electorate, the former
have better incentives to avoid difficult political standpoints and instead focus on appearances
and empty promises.

Large tarpaulins, therefore, are not analogous to time and place.158 They are fundamentally
part of expression protected under Article III, Section 4 of the Constitution.

II.B.4

There are several theories and schools of thought that strengthen the need to protect the basic
right to freedom of expression.

First, this relates to the right ofthe people to participate in public affairs, including the right to
criticize government actions.
Proponents of the political theory on "deliberative democracy" submit that "substantial, open,
[and] ethical dialogue isa critical, and indeed defining, feature of a good polity."159 This theory
may be considered broad, but it definitely "includes [a] collective decision making with the
participation of all who will beaffected by the decision."160 It anchors on the principle that the
cornerstone of every democracy is that sovereignty resides in the people.161 To ensure order in
running the state’s affairs, sovereign powers were delegated and individuals would be elected or
nominated in key government positions to represent the people. On this note, the theory on
deliberative democracy may evolve to the right of the people to make government accountable.
Necessarily, this includes the right of the people to criticize acts made pursuant to governmental
functions.

Speech that promotes dialogue on publicaffairs, or airs out grievances and political discontent,
should thus be protected and encouraged.

Borrowing the words of Justice Brandeis, "it is hazardous to discourage thought, hope and
imagination; that fear breeds repression; that repression breeds hate; that hate menaces stable
government; that the path of safety lies in the opportunity to discuss freely supposed grievances
and proposed remedies."162

In this jurisdiction, this court held that "[t]he interest of society and the maintenance of good
government demand a full discussion of public affairs."163 This court has, thus, adopted the
principle that "debate on public issues should be uninhibited, robust,and wide open . . .
[including even] unpleasantly sharp attacks on government and public officials."164

Second, free speech should be encouraged under the concept of a market place of ideas. This
theory was articulated by Justice Holmes in that "the ultimate good desired is better reached by
[the] free trade in ideas:"165

When men have realized that time has upset many fighting faiths, they may come to believe
even more than they believe the very foundations of their own conduct that the ultimate good
desired is better reached by free trade in ideas - that the best test of truth is the power of the
thought to get itself accepted in the competition of the market, and that truth is the only ground
upon which their wishes safely can be carried out.166

The way it works, the exposure to the ideas of others allows one to "consider, test, and develop
their own conclusions."167 A free, open, and dynamic market place of ideas is constantly
shaping new ones. This promotes both stability and change where recurring points may
crystallize and weak ones may develop. Of course, free speech is more than the right to
approve existing political beliefs and economic arrangements as it includes, "[t]o paraphrase
Justice Holmes, [the] freedom for the thought that we hate, no less than for the thought that
agrees with us."168 In fact, free speech may "best serve its high purpose when it induces a
condition of unrest, creates dissatisfaction with conditions as they are, or even stirs people to
anger."169 It is in this context that we should guard against any curtailment of the people’s right
to participate in the free trade of ideas.

Third, free speech involves self-expression that enhances human dignity. This right is "a means
of assuring individual self-fulfillment,"170 among others. In Philippine Blooming Mills Employees
Organization v. Philippine Blooming Mills Co., Inc,171 this court discussed as follows:

The rights of free expression, free assembly and petition, are not only civil rights but also
political rights essential to man's enjoyment of his life, to his happiness and to his full and
complete fulfillment.Thru these freedoms the citizens can participate not merely in the periodic
establishment of the government through their suffrage but also in the administration of public
affairs as well as in the discipline of abusive public officers. The citizen is accorded these rights
so that he can appeal to the appropriate governmental officers or agencies for redress and
protection as well as for the imposition of the lawful sanctions on erring public officers and
employees.172 (Emphasis supplied)

Fourth, expression is a marker for group identity. For one, "[v]oluntary associations perform [an]
important democratic role [in providing] forums for the development of civil skills, for
deliberation, and for the formation of identity and community spirit[,] [and] are largely immune
from [any] governmental interference."173 They also "provide a buffer between individuals and
the state - a free space for the development of individual personality, distinct group identity, and
dissident ideas - and a potential source of opposition to the state."174 Free speech must be
protected as the vehicle to find those who have similar and shared values and ideals, to join
together and forward common goals.

Fifth, the Bill of Rights, free speech included, is supposed to "protect individuals and minorities
against majoritarian abuses perpetrated through [the] framework [of democratic
governance]."175 Federalist framers led by James Madison were concerned about two
potentially vulnerable groups: "the citizenry at large - majorities - who might be tyrannized or
plundered by despotic federal officials"176 and the minorities who may be oppressed by
"dominant factions of the electorate [that] capture [the] government for their own selfish
ends[.]"177 According to Madison, "[i]t is of great importance in a republic not only to guard the
society against the oppression of its rulers, but to guard one part of the society against the
injustice of the other part."178 We should strive to ensure that free speech is protected
especially in light of any potential oppression against those who find themselves in the fringes
on public issues.
Lastly, free speech must be protected under the safety valve theory.179 This provides that
"nonviolent manifestations of dissent reduce the likelihood of violence[.]"180 "[A] dam about to
burst . . . resulting in the ‘banking up of a menacing flood of sullen anger behind the walls of
restriction’"181 has been used to describe the effect of repressing nonviolent outlets.182 In
order to avoid this situation and prevent people from resorting to violence, there is a need for
peaceful methods in making passionate dissent. This includes "free expression and political
participation"183 in that they can "vote for candidates who share their views, petition their
legislatures to [make or] change laws, . . . distribute literature alerting other citizens of their
concerns[,]"184 and conduct peaceful rallies and other similar acts.185 Free speech must, thus,
be protected as a peaceful means of achieving one’s goal, considering the possibility that
repression of nonviolent dissent may spill over to violent means just to drive a point.

II.B.5

Every citizen’s expression with political consequences enjoys a high degree of protection.
Respondents argue that the tarpaulinis election propaganda, being petitioners’ way of endorsing
candidates who voted against the RH Law and rejecting those who voted for it.186 As such, it is
subject to regulation by COMELEC under its constitutional mandate.187 Election propaganda is
defined under Section 1(4) of COMELEC Resolution No. 9615 as follows: SECTION 1.
Definitions . . .

....

4. The term "political advertisement" or "election propaganda" refers to any matter broadcasted,
published, printed, displayed or exhibited, in any medium, which contain the name, image, logo,
brand, insignia, color motif, initials, and other symbol or graphic representation that is capable of
being associated with a candidate or party, and is intended to draw the attention of the public or
a segment thereof to promote or oppose, directly or indirectly, the election of the said candidate
or candidates to a public office. In broadcast media, political advertisements may take the form
of spots, appearances on TV shows and radio programs, live or taped announcements, teasers,
and other forms of advertising messages or announcements used by commercial advertisers.
Political advertising includes matters, not falling within the scope of personal opinion, that
appear on any Internet website, including, but not limited to, social networks, blogging sites, and
micro-blogging sites, in return for consideration, or otherwise capable of pecuniary estimation.

On the other hand, petitioners invoke their "constitutional right to communicate their opinions,
views and beliefs about issues and candidates."188 They argue that the tarpaulin was their
statement of approval and appreciation of the named public officials’ act of voting against the
RH Law, and their criticism toward those who voted in its favor.189 It was "part of their
advocacy campaign against the RH Law,"190 which was not paid for by any candidate or
political party.191 Thus, "the questioned orders which . . . effectively restrain[ed] and curtail[ed]
[their] freedom of expression should be declared unconstitutional and void."192

This court has held free speech and other intellectual freedoms as "highly ranked in our scheme
of constitutional values."193 These rights enjoy precedence and primacy.194 In Philippine
Blooming Mills, this court discussed the preferred position occupied by freedom of expression:

Property and property rights can belost thru prescription; but human rights are imprescriptible. If
human rights are extinguished by the passage of time, then the Bill of Rights is a useless
attempt to limit the power of government and ceases to be an efficacious shield against the
tyranny of officials, of majorities, ofthe influential and powerful, and of oligarchs - political,
economic or otherwise.

In the hierarchy of civil liberties, the rights of free expression and of assembly occupy a
preferred position as they are essential to the preservation and vitality of our civil and political
institutions; and such priority "gives these liberties the sanctity and the sanction not permitting
dubious intrusions."195 (Citations omitted)

This primordial right calls for utmost respect, more so "when what may be curtailed is the
dissemination of information to make more meaningful the equally vital right of suffrage."196 A
similar idea appeared in our jurisprudence as early as 1969, which was Justice Barredo’s
concurring and dissenting opinion in Gonzales v. COMELEC:197

I like to reiterate over and over, for it seems this is the fundamental point others miss, that
genuine democracy thrives only where the power and right of the people toelect the men to
whom they would entrust the privilege to run the affairs of the state exist. In the language of the
declaration of principles of our Constitution, "The Philippines is a republican state. Sovereignty
resides in the people and all government authority emanates from them" (Section 1, Article II).
Translating this declaration into actuality, the Philippines is a republic because and solely
because the people in it can be governed only by officials whom they themselves have placed in
office by their votes. And in it is on this cornerstone that I hold it tobe self-evident that when the
freedoms of speech, press and peaceful assembly and redress of grievances are being
exercised in relation to suffrage or asa means to enjoy the inalienable right of the qualified
citizen to vote, they are absolute and timeless. If our democracy and republicanism are to be
worthwhile, the conduct of public affairs by our officials must be allowed to suffer incessant and
unabating scrutiny, favorable or unfavorable, everyday and at all times. Every holder of power in
our government must be ready to undergo exposure any moment of the day or night, from
January to December every year, as it is only in this way that he can rightfully gain the
confidence of the people. I have no patience for those who would regard public dissection of the
establishment as an attribute to be indulged by the people only at certain periods of time. I
consider the freedoms of speech, press and peaceful assembly and redress of grievances,
when exercised in the name of suffrage, as the very means by which the right itself to vote can
only be properly enjoyed.It stands to reason therefore, that suffrage itself would be next to
useless if these liberties cannot be untrammelled [sic] whether as to degree or time.198
(Emphasis supplied)

Not all speech are treated the same. In Chavez v. Gonzales, this court discussed that some
types of speech may be subject to regulation:

Some types of speech may be subjected to some regulation by the State under its pervasive
police power, in order that it may not be injurious to the equal right of others or those of the
community or society. The difference in treatment is expected because the relevant interests of
one type of speech, e.g., political speech, may vary from those of another, e.g., obscene
speech. Distinctionshave therefore been made in the treatment, analysis, and evaluation ofthe
permissible scope of restrictions on various categories of speech. We have ruled, for example,
that in our jurisdiction slander or libel, lewd and obscene speech, as well as "fighting words" are
not entitled to constitutional protection and may be penalized.199 (Citations omitted)

We distinguish between politicaland commercial speech. Political speech refers to speech "both
intended and received as a contribution to public deliberation about some issue,"200 "foster[ing]
informed and civicminded deliberation."201 On the other hand, commercial speech has been
defined as speech that does "no more than propose a commercial transaction."202 The
expression resulting from the content of the tarpaulin is, however, definitely political speech. In
Justice Brion’s dissenting opinion, he discussed that "[t]he content of the tarpaulin, as well as
the timing of its posting, makes it subject of the regulations in RA 9006 and Comelec Resolution
No. 9615."203 He adds that "[w]hile indeed the RH issue, by itself,is not an electoralmatter, the
slant that the petitioners gave the issue converted the non-election issue into a live election one
hence, Team Buhay and Team Patay and the plea to support one and oppose the other."204

While the tarpaulin may influence the success or failure of the named candidates and political
parties, this does not necessarily mean it is election propaganda. The tarpaulin was not paid for
or posted "in return for consideration" by any candidate, political party, or party-list group.

The second paragraph of Section 1(4) of COMELEC Resolution No. 9615, or the rules and
regulations implementing Republic Act No. 9006 as an aid to interpret the law insofar as the
facts of this case requires, states:

4. The term "political advertisement" or "election propaganda" refers to any matter broadcasted,
published, printed, displayed or exhibited, in any medium, which contain the name, image, logo,
brand, insignia, color motif, initials, and other symbol or graphic representation that is capable of
being associated with a candidate or party, and is intended to draw the attention of the public or
a segment thereof to promote or oppose, directly or indirectly, the election of the said candidate
or candidates to a public office. In broadcast media, political advertisements may take the form
of spots, appearances on TV shows and radio programs, live or taped announcements, teasers,
and other forms of advertising messages or announcements used by commercial advertisers.
Political advertising includes matters, not falling within the scope of personal opinion, that
appear on any Internet website, including, but not limited to, social networks, blogging sites, and
micro-blogging sites, in return for consideration, or otherwise capable of pecuniary estimation.
(Emphasis supplied)

It is clear that this paragraph suggests that personal opinions are not included, while sponsored
messages are covered.

Thus, the last paragraph of Section 1(1) of COMELEC Resolution No. 9615 states:

SECTION 1. Definitions - As used in this Resolution:

1. The term "election campaign" or "partisan political activity" refers to an act designed to
promote the election or defeat of a particular candidate or candidates to a public office, and
shall include any of the following:

....

Personal opinions, views, and preferences for candidates, contained in blogs shall not be
considered acts of election campaigning or partisan politicalactivity unless expressed by
government officials in the Executive Department, the Legislative Department, the Judiciary, the
Constitutional Commissions, and members of the Civil Service.

In any event, this case does not refer to speech in cyberspace, and its effects and parameters
should be deemed narrowly tailored only in relation to the facts and issues in this case. It also
appears that such wording in COMELEC Resolution No. 9615 does not similarly appear in
Republic Act No. 9006, the law it implements.

We should interpret in this manner because of the value of political speech.

As early as 1918, in United States v. Bustos,205 this court recognized the need for full
discussion of public affairs. We acknowledged that free speech includes the right to criticize the
conduct of public men:

The interest of society and the maintenance of good government demand a full discussion of
public affairs. Complete liberty to comment on the conduct of public men is a scalpel in the case
of free speech. The sharp incision of its probe relieves the abscesses of official dom. Men in
public life may suffer under a hostile and an unjust accusation; the wound can be assuaged with
the balm of a clear conscience. A public officer must not be too thin-skinned with reference to
comment upon his official acts. Only thus can the intelligence and dignity of the individual be
exalted.206

Subsequent jurisprudence developed the right to petition the government for redress of
grievances, allowing for criticism, save for some exceptions.207 In the 1951 case of Espuelas v.
People,208 this court noted every citizen’s privilege to criticize his or her government, provided
it is "specific and therefore constructive, reasoned or tempered, and not a contemptuous
condemnation of the entire government set-up."209

The 1927 case of People v. Titular210 involved an alleged violation of the Election Law
provision "penaliz[ing] the anonymous criticism of a candidate by means of posters or
circulars."211 This court explained that it is the poster’s anonymous character that is being
penalized.212 The ponente adds that he would "dislike very muchto see this decision made the
vehicle for the suppression of public opinion."213

In 1983, Reyes v. Bagatsing214 discussed the importance of allowing individuals to vent their
views. According to this court, "[i]ts value may lie in the fact that there may be something worth
hearing from the dissenter [and] [t]hat is to ensurea true ferment of ideas."215

Allowing citizens to air grievances and speak constructive criticisms against their government
contributes to every society’s goal for development. It puts forward matters that may be
changed for the better and ideas that may be deliberated on to attain that purpose. Necessarily,
it also makes the government accountable for acts that violate constitutionally protected rights.

In 1998, Osmeña v. COMELEC found Section 11(b) of Republic Act No. 6646, which prohibits
mass media from selling print space and air time for campaign except to the COMELEC, to be a
democracy-enhancing measure.216 This court mentioned how "discussion of public issues and
debate on the qualifications of candidates in an election are essential to the proper functioning
of the government established by our Constitution."217
As pointed out by petitioners, "speech serves one of its greatest public purposes in the context
of elections when the free exercise thereof informs the people what the issues are, and who are
supporting what issues."218 At the heart of democracy is every advocate’s right to make known
what the people need to know,219 while the meaningful exercise of one’s right of suffrage
includes the right of every voter to know what they need to know in order to make their choice.

Thus, in Adiong v. COMELEC,220 this court discussed the importance of debate on public
issues, and the freedom of expression especially in relation to information that ensures the
meaningful exercise of the right of suffrage:

We have adopted the principle that debate on public issues should be uninhibited, robust, and
wide open and that it may well include vehement, caustic and sometimes unpleasantly sharp
attacks on government and public officials. Too many restrictions will deny to people the robust,
uninhibited, and wide open debate, the generating of interest essential if our elections will truly
be free, clean and honest.

We have also ruled that the preferred freedom of expression calls all the more for the utmost
respect when what may be curtailed is the dissemination of information to make more
meaningful the equally vital right of suffrage.221 (Emphasis supplied, citations omitted)

Speech with political consequences isat the core of the freedom of expression and must be
protected by this court.

Justice Brion pointed out that freedomof expression "is not the god of rights to which all other
rights and even government protection of state interest must bow."222

The right to freedom of expression isindeed not absolute. Even some forms of protected speech
are still subjectto some restrictions. The degree of restriction may depend on whether the
regulation is content-based or content-neutral.223 Content-based regulations can either be
based on the viewpoint of the speaker or the subject of the expression.

II.B.6

Content-based regulation
COMELEC contends that the order for removal of the tarpaulin is a content-neutral regulation.
The order was made simply because petitioners failed to comply with the maximum size
limitation for lawful election propaganda.224

On the other hand, petitioners argue that the present size regulation is content-based as it
applies only to political speech and not to other forms of speech such as commercial
speech.225 "[A]ssuming arguendo that the size restriction sought to be applied . . . is a mere
time, place, and manner regulation, it’s still unconstitutional for lack of a clear and reasonable
nexus with a constitutionally sanctioned objective."226

The regulation may reasonably be considered as either content-neutral or content-based.227

Regardless, the disposition of this case will be the same. Generally, compared with other forms
of speech, the proposed speech is content-based.

As pointed out by petitioners, the interpretation of COMELEC contained in the questioned order
applies only to posters and tarpaulins that may affect the elections because they deliver
opinions that shape both their choices. It does not cover, for instance, commercial speech.

Worse, COMELEC does not point to a definite view of what kind of expression of non-
candidates will be adjudged as "election paraphernalia." There are no existing bright lines to
categorize speech as election-related and those that are not. This is especially true when
citizens will want to use their resources to be able to raise public issues that should be tackled
by the candidates as what has happened in this case. COMELEC’s discretion to limit speech in
this case is fundamentally unbridled.

Size limitations during elections hit ata core part of expression. The content of the tarpaulin is
not easily divorced from the size of its medium.

Content-based regulation bears a heavy presumption of invalidity, and this court has used the
clear and present danger rule as measure.228 Thus, in Chavez v. Gonzales:

A content-based regulation, however, bears a heavy presumption of invalidity and is measured

against the clear and present danger rule. The latter will pass constitutional muster only if
justified by a compelling reason, and the restrictions imposedare neither overbroad nor
vague.229 (Citations omitted)

Under this rule, "the evil consequences sought to be prevented must be substantive, ‘extremely
serious and the degree of imminence extremely high.’"230 "Only when the challenged act has
overcome the clear and present danger rule will it pass constitutional muster, with the
government having the burden of overcoming the presumed unconstitutionality."231

Even with the clear and present danger test, respondents failed to justify the regulation. There is
no compelling and substantial state interest endangered by the posting of the tarpaulinas to
justify curtailment of the right of freedom of expression. There is no reason for the state to
minimize the right of non-candidate petitioners to post the tarpaulin in their private property. The
size of the tarpaulin does not affect anyone else’s constitutional rights.

Content-based restraint or censorship refers to restrictions "based on the subject matter of the
utterance or speech."232 In contrast, content-neutral regulation includes controls merely on the
incidents of the speech such as time, place, or manner of the speech.233

This court has attempted to define "content-neutral" restraints starting with the 1948 case of
Primicias v. Fugoso.234 The ordinance in this case was construed to grant the Mayor discretion
only to determine the public places that may be used for the procession ormeeting, but not the
power to refuse the issuance of a permit for such procession or meeting.235 This court
explained that free speech and peaceful assembly are "not absolute for it may be so regulated
that it shall not beinjurious to the equal enjoyment of others having equal rights, nor injurious to
the rights of the community or society."236

The earlier case of Calalang v. Williams237 involved the National Traffic Commission resolution
that prohibited the passing of animal-drawn vehicles along certain roads at specific hours.238
This court similarly discussed police power in that the assailed rules carry outthe legislative
policy that "aims to promote safe transit upon and avoid obstructions on national roads, in the
interest and convenience of the public."239

As early as 1907, United States v. Apurado240 recognized that "more or less disorder will mark
the public assembly of the people to protest against grievances whether real or imaginary,
because on such occasions feeling is always wrought to a high pitch of excitement. . . ."241 It is
with this backdrop that the state is justified in imposing restrictions on incidental matters as time,
place, and manner of the speech.

In the landmark case of Reyes v. Bagatsing, this court summarized the steps that permit
applicants must follow which include informing the licensing authority ahead of time as regards
the date, public place, and time of the assembly.242 This would afford the public official time to
inform applicants if there would be valid objections, provided that the clear and present danger
test is the standard used for his decision and the applicants are given the opportunity to be
heard.243 This ruling was practically codified in Batas Pambansa No. 880, otherwise known as
the Public Assembly Act of 1985.
Subsequent jurisprudence have upheld Batas Pambansa No. 880 as a valid content-neutral
regulation. In the 2006 case of Bayan v. Ermita,244 this court discussed how Batas Pambansa
No. 880 does not prohibit assemblies but simply regulates their time, place, and manner.245 In
2010, this court found in Integrated Bar of the Philippines v. Atienza246 that respondent Mayor
Atienza committed grave abuse of discretion when he modified the rally permit by changing the
venue from Mendiola Bridge to Plaza Miranda without first affording petitioners the opportunity
to be heard.247

We reiterate that the regulation involved at bar is content-based. The tarpaulin content is not
easily divorced from the size of its medium.

II.B.7

Justice Carpio and Justice Perlas-Bernabe suggest that the provisions imposing a size limit for
tarpaulins are content-neutral regulations as these "restrict the mannerby which speech is
relayed but not the content of what is conveyed."248

If we apply the test for content-neutral regulation, the questioned acts of COMELEC will not
pass the three requirements for evaluating such restraints on freedom of speech.249 "When the
speech restraints take the form of a content-neutral regulation, only a substantial governmental
interest is required for its validity,"250 and it is subject only to the intermediate approach.251

This intermediate approach is based on the test that we have prescribed in several cases.252 A
content-neutral government regulation is sufficiently justified:

[1] if it is within the constitutional power of the Government; [2] if it furthers an important or
substantial governmental interest; [3] if the governmental interest is unrelated to the
suppression of free expression; and [4] if the incident restriction on alleged [freedom of speech
& expression] is no greater than is essential to the furtherance of that interest.253

On the first requisite, it is not within the constitutional powers of the COMELEC to regulate the
tarpaulin. As discussed earlier, this is protected speech by petitioners who are non-candidates.
On the second requirement, not only must the governmental interest be important or substantial,
it must also be compelling as to justify the restrictions made.
Compelling governmental interest would include constitutionally declared principles. We have
held, for example, that "the welfare of children and the State’s mandate to protect and care for
them, as parens patriae,254 constitute a substantial and compelling government interest in
regulating . . . utterances in TV broadcast."255

Respondent invokes its constitutional mandate to ensure equal opportunity for public
information campaigns among candidates in connection with the holding of a free, orderly,
honest, peaceful, and credible election.256

Justice Brion in his dissenting opinion discussed that "[s]ize limits to posters are necessary to
ensure equality of public information campaigns among candidates, as allowing posters with
different sizes gives candidates and their supporters the incentive to post larger posters[,] [and]
[t]his places candidates with more money and/or with deep-pocket supporters at an undue
advantage against candidates with more humble financial capabilities."257

First, Adiong v. COMELEC has held that this interest is "not as important as the right of [a
private citizen] to freely express his choice and exercise his right of free speech."258 In any
case, faced with both rights to freedom of speech and equality, a prudent course would be to
"try to resolve the tension in a way that protects the right of participation."259

Second, the pertinent election lawsrelated to private property only require that the private
property owner’s consent be obtained when posting election propaganda in the property.260
This is consistent with the fundamental right against deprivation of property without due process
of law.261 The present facts do not involve such posting of election propaganda absent consent
from the property owner. Thus, this regulation does not apply in this case.

Respondents likewise cite the Constitution262 on their authority to recommend effective

measures to minimize election spending. Specifically, Article IX-C, Section 2(7) provides:

Sec. 2. The Commission on Elections shall exercise the following powers and functions:

....

(7) Recommend to the Congress effective measures to minimize election spending, including
limitation of places where propaganda materials shall be posted, and to prevent and penalize all
forms of election frauds, offenses, malpractices, and nuisance candidates. (Emphasis supplied)
This does not qualify as a compelling and substantial government interest to justify regulation of
the preferred right to freedom of expression.
The assailed issuances for the removal of the tarpaulin are based on the two feet (2’) by three
feet (3’) size limitation under Section 6(c) of COMELEC Resolution No. 9615. This resolution
implements the Fair Election Act that provides for the same size limitation.263
This court held in Adiong v. COMELEC that "[c]ompared to the paramount interest of the State
in guaranteeing freedom of expression, any financial considerations behind the regulation are of
marginal significance."264 In fact, speech with political consequences, as in this case, should
be encouraged and not curtailed. As petitioners pointed out, the size limitation will not serve the
objective of minimizing election spending considering there is no limit on the number of
tarpaulins that may be posted.265
The third requisite is likewise lacking. We look not only at the legislative intent or motive in
imposing the restriction, but more so at the effects of such restriction, if implemented. The
restriction must not be narrowly tailored to achieve the purpose. It must be demonstrable. It
must allow alternative avenues for the actor to make speech.
In this case, the size regulation is not unrelated to the suppression of speech. Limiting the
maximum size of the tarpaulin would render ineffective petitioners’ message and violate their
right to exercise freedom of expression.
The COMELEC’s act of requiring the removal of the tarpaulin has the effect of dissuading
expressions with political consequences. These should be encouraged, more so when
exercised to make more meaningful the equally important right to suffrage.
The restriction in the present case does not pass even the lower test of intermediate scrutiny for
content-neutral regulations.
The action of the COMELEC in thiscase is a strong deterrent to further speech by the
electorate. Given the stature of petitioners and their message, there are indicators that this will
cause a "chilling effect" on robust discussion during elections.
The form of expression is just as important as the message itself. In the words of Marshall
McLuhan, "the medium is the message."266 McLuhan’s colleague and mentor Harold Innis has
earlier asserted that "the materials on which words were written down have often counted for
more than the words themselves."267
III
Freedom of expression and equality
III.A
The possibility of abuse

Of course, candidates and political parties do solicit the help of private individuals for the
endorsement of their electoral campaigns.

On the one extreme, this can take illicit forms such as when endorsement materials in the form
of tarpaulins, posters, or media advertisements are made ostensibly by "friends" but in reality
are really paid for by the candidate or political party. This skirts the constitutional value that
provides for equal opportunities for all candidates.

However, as agreed by the parties during the oral arguments in this case, this is not the
situation that confronts us. In such cases, it will simply be a matter for investigation and proof of
fraud on the part of the COMELEC.

The guarantee of freedom of expression to individuals without any relationship to any political
candidate should not be held hostage by the possibility of abuse by those seeking to be elected.
It is true that there can be underhanded, covert, or illicit dealings so as to hide the candidate’s
real levels of expenditures. However, labelling all expressions of private parties that tend to
have an effect on the debate in the elections as election paraphernalia would be too broad a
remedy that can stifle genuine speech like in this case. Instead, to address this evil, better and
more effective enforcement will be the least restrictive means to the fundamental freedom.

On the other extreme, moved by the credentials and the message of a candidate, others will
spend their own resources in order to lend support for the campaigns. This may be without
agreement between the speaker and the candidate or his or her political party. In lieu of
donating funds to the campaign, they will instead use their resources directly in a way that the
candidate or political party would have doneso. This may effectively skirt the constitutional and
statutory limits of campaign spending.

Again, this is not the situation in this case.

The message of petitioners in thiscase will certainly not be what candidates and political parties
will carry in their election posters or media ads. The message of petitioner, taken as a whole, is
an advocacy of a social issue that it deeply believes. Through rhetorical devices, it
communicates the desire of Diocese that the positions of those who run for a political position
on this social issue be determinative of how the public will vote. It primarily advocates a stand
on a social issue; only secondarily — even almost incidentally — will cause the election or non-
election of a candidate.

The twin tarpaulins consist of satire of political parties. Satire is a "literary form that employs
such devices as sarcasm, irony and ridicule to deride prevailing vices or follies,"268 and this
may target any individual or group in society, private and government alike. It seeks to
effectively communicate a greater purpose, often used for "political and social criticism"269
"because it tears down facades, deflates stuffed shirts, and unmasks hypocrisy. . . . Nothing is
more thoroughly democratic than to have the high-and-mighty lampooned and spoofed."270
Northrop Frye, wellknown in this literary field, claimed that satire had two defining features: "one
is wit or humor founded on fantasy or a sense of the grotesque and absurd, the other is an
object of attack."271 Thus, satire frequently uses exaggeration, analogy, and other rhetorical
devices.

The tarpaulins exaggerate. Surely, "Team Patay" does not refer to a list of dead individuals nor
could the Archbishop of the Diocese of Bacolod have intended it to mean that the entire plan of
the candidates in his list was to cause death intentionally. The tarpaulin caricatures political
parties and parodies the intention of those in the list. Furthermore, the list of "Team Patay" is
juxtaposed with the list of "Team Buhay" that further emphasizes the theme of its author:
Reproductive health is an important marker for the church of petitioners to endorse.

The messages in the tarpaulins are different from the usual messages of candidates. Election
paraphernalia from candidates and political parties are more declarative and descriptive and
contain no sophisticated literary allusion to any social objective. Thus, they usually simply exhort
the public to vote for a person with a brief description of the attributes of the candidate. For
example "Vote for [x], Sipag at Tiyaga," "Vote for [y], Mr. Palengke," or "Vote for [z], Iba kami sa
Makati."

This court’s construction of the guarantee of freedom of expression has always been wary of
censorship or subsequent punishment that entails evaluation of the speaker’s viewpoint or the
content of one’s speech. This is especially true when the expression involved has political
consequences. In this case, it hopes to affect the type of deliberation that happens during
elections. A becoming humility on the part of any human institution no matter how endowed with
the secular ability to decide legal controversies with finality entails that we are not the keepers of
all wisdom.

Humanity’s lack of omniscience, even acting collectively, provides space for the weakest
dissent. Tolerance has always been a libertarian virtue whose version is embedded in our Billof
Rights. There are occasional heretics of yesterday that have become our visionaries.
Heterodoxies have always given us pause. The unforgiving but insistent nuance that the
majority surely and comfortably disregards provides us with the checks upon reality that may
soon evolve into creative solutions to grave social problems. This is the utilitarian version. It
could also be that it is just part of human necessity to evolve through being able to express or
communicate.

However, the Constitution we interpret is not a theoretical document. It contains other provisions
which, taken together with the guarantee of free expression, enhances each other’s value.
Among these are the provisions that acknowledge the idea of equality. In shaping doctrine
construing these constitutional values, this court needs to exercise extraordinary prudence and
produce narrowly tailored guidance fit to the facts as given so as not to unwittingly cause the
undesired effect of diluting freedoms as exercised in reality and, thus, render them meaningless.
III.B.

Speech and equality:

Some considerations We first establish that there are two paradigms of free speech that
separate at the point of giving priority to equality vis-à-vis liberty.272

In an equality-based approach, "politically disadvantaged speech prevails over regulation[,] but

regulation promoting political equality prevails over speech."273 This view allows the
government leeway to redistribute or equalize ‘speaking power,’ such as protecting, even
implicitly subsidizing, unpopular or dissenting voices often systematically subdued within
society’s ideological ladder.274 This view acknowledges that there are dominant political actors
who, through authority, power, resources, identity, or status, have capabilities that may drown
out the messages of others. This is especially true in a developing or emerging economy that is
part of the majoritarian world like ours.

The question of libertarian tolerance

This balance between equality and the ability to express so as to find one’s authentic self or to
participate in the self determination of one’s communities is not new only to law. It has always
been a philosophical problematique.

In his seminal work, Repressive Tolerance, philosopher and social theorist Herbert Marcuse
recognized how institutionalized inequality exists as a background limitation, rendering
freedoms exercised within such limitation as merely "protect[ing] the already established
machinery of discrimination."275 In his view, any improvement "in the normal course of events"
within an unequal society, without subversion, only strengthens existing interests of those in
power and control.276

In other words, abstract guarantees of fundamental rights like freedom of expression may
become meaningless if not taken in a real context. This tendency to tackle rights in the abstract
compromises liberties. In his words:

Liberty is self-determination, autonomy—this is almost a tautology, but a tautology which results

from a whole series of synthetic judgments. It stipulates the ability to determine one’s own life:
to be able to determine what to do and what not to do, what to suffer and what not. But the
subject of this autonomy is never the contingent, private individual as that which he actually is or
happens to be; it is rather the individual as a human being who is capable of being free with the
others. And the problem of making possible such a harmony between every individual liberty
and the other is not that of finding a compromise between competitors, or between freedom and
law, between general and individual interest, common and private welfare in an established
society, but of creating the society in which man is no longer enslaved by institutions which
vitiate self-determination from the beginning. In other words, freedom is still to be created even
for the freest of the existing societies.277 (Emphasis in the original)

Marcuse suggests that the democratic argument — with all opinions presented to and
deliberated by the people — "implies a necessary condition, namely, that the people must be
capable of deliberating and choosing on the basis of knowledge, that they must have access to
authentic information, and that, on this basis, their evaluation must be the result of autonomous
thought."278 He submits that "[d]ifferent opinions and ‘philosophies’ can no longer compete
peacefully for adherence and persuasion on rational grounds: the ‘marketplace of ideas’ is
organized and delimited by those who determine the national and the individual interest."279 A
slant toward left manifests from his belief that "there is a ‘natural right’ of resistance for
oppressed and overpowered minorities to use extralegal means if the legal ones have proved to
be inadequate."280 Marcuse, thus, stands for an equality that breaks away and transcends from
established hierarchies, power structures, and indoctrinations. The tolerance of libertarian
society he refers to as "repressive tolerance."

Legal scholars

The 20th century also bears witness to strong support from legal scholars for "stringent
protections of expressive liberty,"281 especially by political egalitarians. Considerations such as
"expressive, deliberative, and informational interests,"282 costs or the price of expression, and
background facts, when taken together, produce bases for a system of stringent protections for
expressive liberties.283

Many legal scholars discuss the interest and value of expressive liberties. Justice Brandeis
proposed that "public discussion is a political duty."284 Cass Sustein placed political speech on
the upper tier of his twotier model for freedom of expression, thus, warranting stringent
protection.285 He defined political speech as "both intended and received as a contribution to
public deliberation about some issue."286

But this is usually related also tofair access to opportunities for such liberties.287 Fair access to
opportunity is suggested to mean substantive equality and not mere formal equalitysince
"favorable conditions for realizing the expressive interest will include some assurance of the
resources required for expression and some guarantee that efforts to express views on matters
of common concern will not be drowned out by the speech of betterendowed citizens."288
Justice Brandeis’ solution is to "remedy the harms of speech with more speech."289 This view
moves away from playing down the danger as merely exaggerated, toward "tak[ing] the costs
seriously and embrac[ing] expression as the preferred strategy for addressing them."290
However, in some cases, the idea of more speech may not be enough. Professor Laurence
Tribe observed the need for context and "the specification of substantive values before
[equality] has full meaning."291 Professor Catherine A. MacKinnon adds that "equality
continues to be viewed in a formal rather than a substantive sense."292 Thus, more speech can
only mean more speech from the few who are dominant rather than those who are not.

Our jurisprudence

This court has tackled these issues.

Osmeña v. COMELEC affirmed National Press Club v. COMELEC on the validity of Section
11(b) ofthe Electoral Reforms Law of 1987.293 This section "prohibits mass media from selling
or giving free of charge print space or air time for campaign or other political purposes, except to
the Commission on Elections."294 This court explained that this provision only regulates the
time and manner of advertising in order to ensure media equality among candidates.295 This
court grounded this measure on constitutional provisions mandating political equality:296 Article
IX-C, Section 4

Section 4. The Commission may, during the election period, supervise or regulate the
enjoyment or utilization of all franchises or permits for the operation of transportation and other
public utilities, media of communication or information, all grants, special privileges, or
concessions granted by the Government or any subdivision, agency, or instrumentality thereof,
including any government-owned or controlled corporation or its subsidiary. Such supervision or
regulation shall aim to ensure equal opportunity, time, and space, and the right to reply,
including reasonable, equal rates therefor, for public information campaigns and forums among
candidates in connection with the objective of holding free, orderly, honest, peaceful, and
credible elections. (Emphasis supplied)

Article XIII, Section 1

Section 1. The Congress shall give highest priorityto the enactment of measures that protect
and enhance the right of all the people to human dignity, reducesocial, economic, and political
inequalities, and remove cultural inequities by equitably diffusing wealth and political power for
the common good.

To this end, the State shall regulate the acquisition, ownership, use, and disposition of property
and its increments. (Emphasis supplied)
Article II, Section 26

Section 26. The State shall guarantee equal access to opportunities for public service, and
prohibit political dynasties as may be defined by law. (Emphasis supplied)

Thus, in these cases, we have acknowledged the Constitution’s guarantee for more substantive
expressive freedoms that take equality of opportunities into consideration during elections.

The other view

However, there is also the other view. This is that considerations of equality of opportunity or
equality inthe ability of citizens as speakers should not have a bearing in free speech doctrine.
Under this view, "members of the public are trusted to make their own individual evaluations of
speech, and government is forbidden to intervene for paternalistic or redistributive reasons . . .
[thus,] ideas are best left to a freely competitive ideological market."297 This is consistent with
the libertarian suspicion on the use of viewpoint as well as content to evaluate the constitutional
validity or invalidity of speech.

The textual basis of this view is that the constitutional provision uses negative rather than
affirmative language. It uses ‘speech’ as its subject and not ‘speakers’.298 Consequently, the
Constitution protects free speech per se, indifferent to the types, status, or associations of its
speakers.299 Pursuant to this, "government must leave speakers and listeners in the private
order to their own devices in sorting out the relative influence of speech."300

Justice Romero’s dissenting opinion in Osmeña v. COMELEC formulates this view that freedom
of speech includes "not only the right to express one’s views, but also other cognate rights
relevant to the free communication [of] ideas, not excluding the right to be informed on matters
of public concern."301 She adds:

And since so many imponderables may affect the outcome of elections — qualifications of
voters and candidates, education, means of transportation, health, public discussion, private
animosities, the weather, the threshold of a voter’s resistance to pressure — the utmost
ventilation of opinion of men and issues, through assembly, association and organizations, both
by the candidate and the voter, becomes a sine qua non for elections to truly reflect the will of
the electorate.302 (Emphasis supplied)
Justice Romero’s dissenting opinion cited an American case, if only to emphasize free speech
primacy such that"courts, as a rule are wary to impose greater restrictions as to any attempt to
curtail speeches with political content,"303 thus:

the concept that the government may restrict the speech of some elements in our society in
order to enhance the relative voice of the others is wholly foreign to the First Amendment which
was designed to "secure the widest possible dissemination of information from diverse and
antagonistic sources" and "to assure unfettered interchange of ideas for the bringing about of
political and social changes desired by the people."304

This echoes Justice Oliver Wendell Holmes’ submission "that the market place of ideas is still
the best alternative to censorship."305

Parenthetically and just to provide the whole detail of the argument, the majority of the US
Supreme Court in the campaign expenditures case of Buckley v. Valeo "condemned restrictions
(even if content-neutral) on expressive liberty imposed in the name of ‘enhanc[ing] the relative
voice of others’ and thereby ‘equaliz[ing] access to the political arena."306 The majority did not
use the equality-based paradigm.

One flaw of campaign expenditurelimits is that "any limit placed on the amount which a person
can speak, which takes out of his exclusive judgment the decision of when enough is enough,
deprives him of his free speech."307

Another flaw is how "[a]ny quantitative limitation on political campaigning inherently constricts
the sum of public information and runs counter to our ‘profound national commitment that
debate on public issues should be uninhibited, robust, and wide-open.’"308

In fact, "[c]onstraining those who have funds or have been able to raise funds does not ease the
plight of those without funds in the first place . . . [and] even if one’s main concern isslowing the
increase in political costs, it may be more effective torely on market forces toachieve that result
than on active legal intervention."309 According to Herbert Alexander, "[t]o oppose limitations is
not necessarily to argue that the sky’s the limit [because in] any campaign there are saturation
levels and a point where spending no longer pays off in votes per dollar."310

III. C.

When private speech amounts

to election paraphernalia

The scope of the guarantee of free expression takes into consideration the constitutional
respect for human potentiality and the effect of speech. It valorizes the ability of human beings
to express and their necessity to relate. On the other hand, a complete guarantee must also
take into consideration the effects it will have in a deliberative democracy. Skewed distribution
of resources as well as the cultural hegemony of the majority may have the effect of drowning
out the speech and the messages of those in the minority. In a sense, social inequality does
have its effect on the exercise and effect of the guarantee of free speech. Those who have more
will have better access to media that reaches a wider audience than those who have less.
Those who espouse the more popular ideas will have better reception than the subversive and
the dissenters of society.To be really heard and understood, the marginalized view normally
undergoes its own degree of struggle.

The traditional view has been to tolerate the viewpoint of the speaker and the content of his or
her expression. This view, thus, restricts laws or regulation that allows public officials to make
judgments of the value of such viewpoint or message content. This should still be the principal
approach.

However, the requirements of the Constitution regarding equality in opportunity must provide
limits to some expression during electoral campaigns.

Thus clearly, regulation of speech in the context of electoral campaigns made by candidates or
the members of their political parties or their political parties may be regulated as to time, place,
and manner. This is the effect of our rulings in Osmeña v. COMELEC and National Press Club
v. COMELEC.

Regulation of speech in the context of electoral campaigns made by persons who are not
candidates or who do not speak as members of a political party which are, taken as a whole,
principally advocacies of a social issue that the public must consider during elections is
unconstitutional. Such regulation is inconsistent with the guarantee of according the fullest
possible range of opinions coming from the electorate including those that can catalyze candid,
uninhibited, and robust debate in the criteria for the choice of a candidate.

This does not mean that there cannot be a specie of speech by a private citizen which will not
amount toan election paraphernalia to be validly regulated by law.
Regulation of election paraphernalia will still be constitutionally valid if it reaches into speech of
persons who are not candidates or who do not speak as members of a political party if they are
not candidates, only if what is regulated is declarative speech that, taken as a whole, has for its
principal object the endorsement of a candidate only. The regulation (a) should be provided by
law, (b) reasonable, (c) narrowly tailored to meet the objective of enhancing the opportunity of
all candidates to be heard and considering the primacy of the guarantee of free expression, and
(d) demonstrably the least restrictive means to achieve that object. The regulation must only be
with respect to the time, place, and manner of the rendition of the message. In no situation may
the speech be prohibited or censored onthe basis of its content. For this purpose, it will
notmatter whether the speech is made with or on private property.

This is not the situation, however, in this case for two reasons. First, as discussed, the principal
message in the twin tarpaulins of petitioners consists of a social advocacy.

Second, as pointed out in the concurring opinion of Justice Antonio Carpio, the present law —
Section 3.3 of Republic Act No. 9006 and Section 6(c) of COMELEC Resolution No. 9615 — if
applied to this case, will not pass the test of reasonability. A fixed size for election posters or
tarpaulins without any relation to the distance from the intended average audience will be
arbitrary. At certain distances, posters measuring 2 by 3 feet could no longer be read by the
general public and, hence, would render speech meaningless. It will amount to the abridgement
of speech with political consequences.

IV
Right to property

Other than the right to freedom of expression311 and the meaningful exercise of the right to
suffrage,312 the present case also involves one’s right to property.313

Respondents argue that it is the right of the state to prevent the circumvention of regulations
relating to election propaganda by applying such regulations to private individuals.314 Certainly,
any provision or regulation can be circumvented. But we are not confronted with this possibility.
Respondents agree that the tarpaulin in question belongs to petitioners. Respondents have also
agreed, during the oral arguments, that petitioners were neither commissioned nor paid by any
candidate or political party to post the material on their walls.

Even though the tarpaulin is readily seen by the public, the tarpaulin remains the private
property of petitioners. Their right to use their property is likewise protected by the Constitution.
In Philippine Communications Satellite Corporation v. Alcuaz:315

Any regulation, therefore, which operates as an effective confiscation of private property or

constitutes an arbitrary or unreasonable infringement of property rights is void, because it is
repugnant to the constitutional guaranties of due process and equal protection of the laws.316
(Citation omitted)

This court in Adiong held that a restriction that regulates where decals and stickers should be
posted is "so broad that it encompasses even the citizen’s private property."317 Consequently,
it violates Article III, Section 1 of the Constitution which provides thatno person shall be deprived
of his property without due process of law. This court explained:

Property is more than the mere thing which a person owns, it includes the right to acquire, use,
and dispose of it; and the Constitution, in the 14th Amendment, protects these essential
attributes.

Property is more than the mere thing which a person owns. It is elementary that it includes the
right to acquire, use, and dispose of it. The Constitution protects these essential attributes of
property. Holden v. Hardy, 169 U.S. 366, 391, 41 L. ed. 780, 790, 18 Sup. Ct. Rep. 383.
Property consists of the free use, enjoyment, and disposal of a person’s acquisitions without
control or diminution save by the law of the land. 1 Cooley’s Bl. Com. 127. (Buchanan v. Warley
245 US 60 [1917])318

This court ruled that the regulation in Adiong violates private property rights:

The right to property may be subject to a greater degree of regulation but when this right is
joined by a "liberty" interest, the burden of justification on the part of the Government must be
exceptionally convincing and irrefutable. The burden is not met in this case.

Section 11 of Rep. Act 6646 is so encompassing and invasive that it prohibits the posting or
display of election propaganda in any place, whether public or private, except inthe common
poster areas sanctioned by COMELEC. This means that a private person cannot post his own
crudely prepared personal poster on his own front dooror on a post in his yard. While the
COMELEC will certainly never require the absurd, there are no limits to what overzealous and
partisan police officers, armed with a copy of the statute or regulation, may do.319 Respondents
ordered petitioners, who are private citizens, to remove the tarpaulin from their own property.
The absurdity of the situation is in itself an indication of the unconstitutionality of COMELEC’s
interpretation of its powers.
Freedom of expression can be intimately related with the right to property. There may be no
expression when there is no place where the expression may be made. COMELEC’s
infringement upon petitioners’ property rights as in the present case also reaches out to
infringement on their fundamental right to speech.

Respondents have not demonstrated thatthe present state interest they seek to promote
justifies the intrusion into petitioners’ property rights. Election laws and regulations must be
reasonable. It must also acknowledge a private individual’s right to exercise property rights.
Otherwise, the due process clause will be violated.

COMELEC Resolution No. 9615 and the Fair Election Act intend to prevent the posting of
election propaganda in private property without the consent of the owners of such private
property. COMELEC has incorrectly implemented these regulations. Consistent with our ruling
in Adiong, we find that the act of respondents in seeking to restrain petitioners from posting the
tarpaulin in their own private property is an impermissible encroachments on the right to
property.

V
Tarpaulin and its message are not religious speech

We proceed to the last issues pertaining to whether the COMELEC in issuing the questioned
notice and letter violated the right of petitioners to the free exercise of their religion.

At the outset, the Constitution mandates the separation of church and state.320 This takes
many forms. Article III, Section 5 of the Constitution, for instance provides:

Section 5. No law shall be made respecting an establishment of religion, or prohibiting the free
exercise thereof. The free exercise and enjoyment of religious profession and worship, without
discrimination or preference, shall forever be allowed. Noreligious test shall be required for the
exercise of civil or political rights.

There are two aspects of this provision.321 The first is the none stablishment clause.322
Second is the free exercise and enjoyment of religious profession and worship.323

The second aspect is atissue in this case.

Clearly, not all acts done by those who are priests, bishops, ustadz, imams, or any other
religious make such act immune from any secular regulation.324 The religious also have a
secular existence. They exist within a society that is regulated by law.

The Bishop of Bacolod caused the posting of the tarpaulin. But not all acts of a bishop amounts
to religious expression. This notwithstanding petitioners’ claim that "the views and position of the
petitioners, the Bishop and the Diocese of Bacolod, on the RH Bill is inextricably connected to
its Catholic dogma, faith, and moral teachings. . . ."325

The difficulty that often presents itself in these cases stems from the reality that every act can
be motivated by moral, ethical, and religious considerations. In terms of their effect on the
corporeal world, these acts range from belief, to expressions of these faiths, to religious
ceremonies, and then to acts of a secular character that may, from the point of view of others
who do not share the same faith or may not subscribe to any religion, may not have any
religious bearing.

Definitely, the characterizations ofthe religious of their acts are not conclusive on this court.
Certainly, our powers of adjudication cannot be blinded by bare claims that acts are religious in
nature.

Petitioners erroneously relied on the case of Ebralinag v. The Division Superintendent of

Schools of Cebu326 in claiming that the court "emphatically" held that the adherents ofa
particular religion shall be the ones to determine whether a particular matter shall be considered
ecclesiastical in nature.327 This court in Ebralinagexempted Jehovah’s Witnesses from
participating in the flag ceremony "out of respect for their religious beliefs, [no matter how]
"bizarre" those beliefsmay seem to others."328 This court found a balance between the
assertion of a religious practice and the compelling necessities of a secular command. It was an
early attempt at accommodation of religious beliefs.

In Estrada v. Escritor,329 this court adopted a policy of benevolent neutrality:

With religion looked upon with benevolence and not hostility, benevolent neutrality allows
accommodation of religion under certain circumstances. Accommodations are government
policies that take religion specifically intoaccount not to promote the government’s favored form
of religion, but to allow individuals and groups to exercise their religion without hindrance. Their
purpose or effect therefore is to remove a burden on, or facilitate the exercise of, a person’s or
institution’s religion. As Justice Brennan explained, the "government [may] take religion into
account . . . to exempt, when possible, from generally applicable governmental regulation
individuals whose religious beliefs and practices would otherwise thereby be infringed, or to
create without state involvement an atmosphere in which voluntary religious exercise may
flourish."330

This court also discussed the Lemon test in that case, such that a regulation is constitutional
when: (1) it has a secular legislative purpose; (2) it neither advances nor inhibits religion; and (3)
it does not foster an excessive entanglement with religion.331

As aptly argued by COMELEC, however, the tarpaulin, on its face, "does not convey any
religious doctrine of the Catholic church."332 That the position of the Catholic church appears to
coincide with the message of the tarpaulin regarding the RH Law does not, by itself, bring the
expression within the ambit of religious speech. On the contrary, the tarpaulin clearly refers to
candidates classified under "Team Patay" and "Team Buhay" according to their respective votes
on the RH Law.

The same may be said of petitioners’ reliance on papal encyclicals to support their claim that the
expression onthe tarpaulin is an ecclesiastical matter. With all due respect to the Catholic
faithful, the church doctrines relied upon by petitioners are not binding upon this court. The
position of the Catholic religion in the Philippines as regards the RH Law does not suffice to
qualify the posting by one of its members of a tarpaulin as religious speech solely on such
basis. The enumeration of candidates on the face of the tarpaulin precludes any doubtas to its
nature as speech with political consequences and not religious speech.

Furthermore, the definition of an "ecclesiastical affair" in Austria v. National Labor Relations

Commission333 cited by petitioners finds no application in the present case. The posting of the
tarpaulin does not fall within the category of matters that are beyond the jurisdiction of civil
courts as enumerated in the Austriacase such as "proceedings for excommunication,
ordinations of religious ministers, administration of sacraments and other activities withattached
religious significance."334

A FINAL NOTE

We maintain sympathies for the COMELEC in attempting to do what it thought was its duty in
this case. However, it was misdirected.

COMELEC’s general role includes a mandate to ensure equal opportunities and reduce
spending among candidates and their registered political parties. It is not to regulate or limit the
speech of the electorate as it strives to participate inthe electoral exercise.
The tarpaulin in question may be viewed as producing a caricature of those who are running for
public office.Their message may be construed generalizations of very complex individuals and
party-list organizations.

They are classified into black and white: as belonging to "Team Patay" or "Team Buhay."

But this caricature, though not agreeable to some, is still protected speech.

That petitioners chose to categorize them as purveyors of death or of life on the basis of a
single issue — and a complex piece of legislation at that — can easily be interpreted as
anattempt to stereo type the candidates and party-list organizations. Not all may agree to the
way their thoughts were expressed, as in fact there are other Catholic dioceses that chose not
to follow the example of petitioners.

Some may have thought that there should be more room to consider being more broad-minded
and non-judgmental. Some may have expected that the authors would give more space to
practice forgiveness and humility.

But, the Bill of Rights enumerated in our Constitution is an enumeration of our fundamental
liberties. It is not a detailed code that prescribes good conduct. It provides space for all to be
guided by their conscience, not only in the act that they do to others but also in judgment of the
acts of others.

Freedom for the thought we can disagree with can be wielded not only by those in the minority.
This can often be expressed by dominant institutions, even religious ones. That they made their
point dramatically and in a large way does not necessarily mean that their statements are true,
or that they have basis, or that they have been expressed in good taste.

Embedded in the tarpaulin, however, are opinions expressed by petitioners. It is a specie of

expression protected by our fundamental law. It is an expression designed to invite attention,
cause debate, and hopefully, persuade. It may be motivated by the interpretation of petitioners
of their ecclesiastical duty, but their parishioner’s actions will have very real secular
consequences. Certainly, provocative messages do matter for the elections.
What is involved in this case is the most sacred of speech forms: expression by the electorate
that tends to rouse the public to debate contemporary issues. This is not speechby candidates
or political parties to entice votes. It is a portion of the electorate telling candidates the
conditions for their election. It is the substantive content of the right to suffrage.
This. is a form of speech hopeful of a quality of democracy that we should all deserve. It is
protected as a fundamental and primordial right by our Constitution. The expression in the
medium chosen by petitioners deserves our protection.
WHEREFORE, the instant petition is GRANTED. The temporary restraining order previously
issued is hereby made permanent. The act of the COMELEC in issuing the assailed notice
dated February 22, 2013 and letter dated February 27, 2013 is declared unconstitutional.

SO ORDERED.