Feliciano v.

coa
DECISION
CARPIO, J.:
The Case
This is a petition for certiorari[1] to annul the Commission on Audits (COA) Resolution dated 3 January 2000 and the Decision
dated 30 January 2001 denying the Motion for Reconsideration. The COA denied petitioner Ranulfo C. Felicianos request for COA to
cease all audit services, and to stop charging auditing fees, to Leyte Metropolitan Water District (LMWD). The COA also denied
petitioners request for COA to refund all auditing fees previously paid by LMWD.
Antecedent Facts
A Special Audit Team from COA Regional Office No. VIII audited the accounts of LMWD. Subsequently, LMWD received a letter
from COA dated 19 July 1999 requesting payment of auditing fees. As General Manager of LMWD, petitioner sent a reply dated 12
October 1999 informing COAs Regional Director that the water district could not pay the auditing fees. Petitioner cited as basis for his
action Sections 6 and 20 of Presidential Decree 198 (PD 198)[2], as well as Section 18 of Republic Act No. 6758 (RA 6758).The
Regional Director referred petitioners reply to the COA Chairman on 18 October 1999.
On 19 October 1999, petitioner wrote COA through the Regional Director asking for refund of all auditing fees LMWD previously
paid to COA.
On 16 March 2000, petitioner received COA Chairman Celso D. Gangans Resolution dated 3 January 2000 denying his
requests. Petitioner filed a motion for reconsideration on 31 March 2000, which COA denied on 30 January 2001.
On 13 March 2001, petitioner filed this instant petition. Attached to the petition were resolutions of the Visayas Association of
Water Districts (VAWD) and the Philippine Association of Water Districts (PAWD) supporting the petition.
The Ruling of the Commission on Audit
The COA ruled that this Court has already settled COAs audit jurisdiction over local water districts in Davao City Water District v.
Civil Service Commission and Commission on Audit,[3] as follows:
The above-quoted provision [referring to Section 3(b) PD 198] definitely sets to naught petitioners contention that they are private corporations. It is
clear therefrom that the power to appoint the members who will comprise the members of the Board of Directors belong to the local executives of the
local subdivision unit where such districts are located. In contrast, the members of the Board of Directors or the trustees of a private corporation are
elected from among members or stockholders thereof. It would not be amiss at this point to emphasize that a private corporation is created for the
private purpose, benefit, aim and end of its members or stockholders. Necessarily, said members or stockholders should be given a free hand to
choose who will compose the governing body of their corporation. But this is not the case here and this clearly indicates that petitioners are not
private corporations.
The COA also denied petitioners request for COA to stop charging auditing fees as well as petitioners request for COA to refund all
auditing fees already paid.
The Issues
Petitioner contends that COA committed grave abuse of discretion amounting to lack or excess of jurisdiction by auditing LMWD
and requiring it to pay auditing fees.Petitioner raises the following issues for resolution:
1. Whether a Local Water District (LWD) created under PD 198, as amended, is a government-owned or controlled corporation subject to
the audit jurisdiction of COA;
2. Whether Section 20 of PD 198, as amended, prohibits COAs certified public accountants from auditing local water districts; and
3. Whether Section 18 of RA 6758 prohibits the COA from charging government-owned and controlled corporations auditing fees.
The Ruling of the Court
The petition lacks merit.
The Constitution and existing laws[4] mandate COA to audit all government agencies, including government-owned and controlled
corporations (GOCCs) with original charters. An LWD is a GOCC with an original charter. Section 2(1), Article IX-D of the Constitution
provides for COAs audit jurisdiction, as follows:
SECTION 2. (1) The Commission on Audit shall have the power, authority and duty to examine, audit, and settle all accounts pertaining to the
revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its
subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters, and on a post-audit
basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state
colleges and universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d) such non-governmental entities
receiving subsidy or equity, directly or indirectly, from or through the government, which are required by law or the granting institution to submit to
such audit as a condition of subsidy or equity. However, where the internal control system of the audited agencies is inadequate, the Commission may
adopt such measures, including temporary or special pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep the general
accounts of the Government and, for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto.
(Emphasis supplied)
The COAs audit jurisdiction extends not only to government agencies or instrumentalities, but also to government-owned and controlled
corporations with original charters as well as other government-owned or controlled corporations without original charters.
Whether LWDs are Private or Government-Owned
and Controlled Corporations with Original Charters
Petitioner seeks to revive a well-settled issue. Petitioner asks for a re-examination of a doctrine backed by a long line of cases
culminating in Davao City Water District v. Civil Service Commission [5] and just recently reiterated in De Jesus v. Commission on
Audit.[6] Petitioner maintains that LWDs are not government-owned and controlled corporations with original charters. Petitioner even
argues that LWDs are private corporations. Petitioner asks the Court to consider certain interpretations of the applicable laws, which
would give a new perspective to the issue of the true character of water districts.[7]
Petitioner theorizes that what PD 198 created was the Local Waters Utilities Administration (LWUA) and not the LWDs. Petitioner
claims that LWDs are created pursuant to and not created directly by PD 198. Thus, petitioner concludes that PD 198 is not an original
charter that would place LWDs within the audit jurisdiction of COA as defined in Section 2(1), Article IX-D of the Constitution. Petitioner
elaborates that PD 198 does not create LWDs since it does not expressly direct the creation of such entities, but only provides for their
formation on an optional or voluntary basis.[8] Petitioner adds that the operative act that creates an LWD is the approval of the
Sanggunian Resolution as specified in PD 198.
 Petitioners contention deserves scant consideration.
We begin by explaining the general framework under the fundamental law. The Constitution recognizes two classes of
corporations. The first refers to private corporations created under a general law. The second refers to government-owned or controlled
corporations created by special charters. Section 16, Article XII of the Constitution provides:
Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-
owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of
economic viability.
The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all citizens.[9] The
purpose of this constitutional provision is to ban private corporations created by special charters, which historically gave certain
individuals, families or groups special privileges denied to other citizens.[10]
In short, Congress cannot enact a law creating a private corporation with a special charter. Such legislation would be
unconstitutional. Private corporations may exist only under a general law. If the corporation is private, it must necessarily exist under a
general law. Stated differently, only corporations created under a general law can qualify as private corporations. Under existing laws,
that general law is the Corporation Code,[11] except that the Cooperative Code governs the incorporation of cooperatives.[12]
The Constitution authorizes Congress to create government-owned or controlled corporations through special charters. Since
private corporations cannot have special charters, it follows that Congress can create corporations with special charters only if such
corporations are government-owned or controlled.
Obviously, LWDs are not private corporations because they are not created under the Corporation Code. LWDs are not registered
with the Securities and Exchange Commission. Section 14 of the Corporation Code states that [A]ll corporations organized under this
code shall file with the Securities and Exchange Commission articles of incorporation x x x. LWDs have no articles of incorporation, no
incorporators and no stockholders or members. There are no stockholders or members to elect the board directors of LWDs as in the
case of all corporations registered with the Securities and Exchange Commission. The local mayor or the provincial governor appoints
the directors of LWDs for a fixed term of office. This Court has ruled that LWDs are not created under the Corporation Code, thus:
From the foregoing pronouncement, it is clear that what has been excluded from the coverage of the CSC are those corporations created pursuant to
the Corporation Code. Significantly, petitioners are not created under the said code, but on the contrary, they were created pursuant to a
special law and are governed primarily by its provision.[13] (Emphasis supplied)
LWDs exist by virtue of PD 198, which constitutes their special charter. Since under the Constitution only government-owned or
controlled corporations may have special charters, LWDs can validly exist only if they are government-owned or controlled. To claim
that LWDs are private corporations with a special charter is to admit that their existence is constitutionally infirm.
Unlike private corporations, which derive their legal existence and power from the Corporation Code, LWDs derive their legal
existence and power from PD 198. Sections 6 and 25 of PD 198[14] provide:
Section 6. Formation of District. This Act is the source of authorization and power to form and maintain a district. For purposes of this Act, a
district shall be considered as a quasi-public corporation performing public service and supplying public wants. As such, a district shall
exercise the powers, rights and privileges given to private corporations under existing laws, in addition to the powers granted in, and subject
to such restrictions imposed, under this Act.
(a) The name of the local water district, which shall include the name of the city, municipality, or province, or region thereof, served by said system,
followed by the words Water District.
(b) A description of the boundary of the district. In the case of a city or municipality, such boundary may include all lands within the city or
municipality. A district may include one or more municipalities, cities or provinces, or portions thereof.
(c) A statement completely transferring any and all waterworks and/or sewerage facilities managed, operated by or under the control of such city,
municipality or province to such district upon the filing of resolution forming the district.
(d) A statement identifying the purpose for which the district is formed, which shall include those purposes outlined in Section 5 above.
(e) The names of the initial directors of the district with the date of expiration of term of office for each.
(f) A statement that the district may only be dissolved on the grounds and under the conditions set forth in Section 44 of this Title.
(g) A statement acknowledging the powers, rights and obligations as set forth in Section 36 of this Title.
Nothing in the resolution of formation shall state or infer that the local legislative body has the power to dissolve, alter or affect the district beyond
that specifically provided for in this Act.
If two or more cities, municipalities or provinces, or any combination thereof, desire to form a single district, a similar resolution shall be adopted in
each city, municipality and province.
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Sec. 25. Authorization. The district may exercise all the powers which are expressly granted by this Title or which are necessarily implied
from or incidental to the powers and purposes herein stated. For the purpose of carrying out the objectives of this Act, a district is hereby granted
the power of eminent domain, the exercise thereof shall, however, be subject to review by the Administration. (Emphasis supplied)
Clearly, LWDs exist as corporations only by virtue of PD 198, which expressly confers on LWDs corporate powers. Section 6 of
PD 198 provides that LWDs shall exercise the powers, rights and privileges given to private corporations under existing laws. Without
PD 198, LWDs would have no corporate powers. Thus, PD 198 constitutes the special enabling charter of LWDs. The ineluctable
conclusion is that LWDs are government-owned and controlled corporations with a special charter.
The phrase government-owned and controlled corporations with original charters means GOCCs created under special laws and
not under the general incorporation law.There is no difference between the term original charters and special charters. The Court
clarified this in National Service Corporation v. NLRC[15] by citing the deliberations in the Constitutional Commission, as follows:
THE PRESIDING OFFICER (Mr. Trenas). The session is resumed.
Commissioner Romulo is recognized.
MR. ROMULO. Mr. Presiding Officer, I am amending my original proposed amendment to now read as follows: including government-owned or
controlled corporations WITH ORIGINAL CHARTERS. The purpose of this amendment is to indicate that government corporations such as the
GSIS and SSS, which have original charters, fall within the ambit of the civil service.However, corporations which are subsidiaries of these chartered
agencies such as the Philippine Airlines, Manila Hotel and Hyatt are excluded from the coverage of the civil service.
THE PRESIDING OFFICER (Mr. Trenas). What does the Committee say?
MR. FOZ. Just one question, Mr. Presiding Officer. By the term original charters, what exactly do we mean?
MR. ROMULO. We mean that they were created by law, by an act of Congress, or by special law.
MR. FOZ. And not under the general corporation law.
MR. ROMULO. That is correct. Mr. Presiding Officer.
MR. FOZ. With that understanding and clarification, the Committee accepts the amendment.
MR. NATIVIDAD. Mr. Presiding Officer, so those created by the general corporation law are out.
MR. ROMULO. That is correct. (Emphasis supplied)
Again, in Davao City Water District v. Civil Service Commission,[16] the Court reiterated the meaning of the phrase government-
owned and controlled corporations with original charters in this wise:
By government-owned or controlled corporation with original charter, We mean government owned or controlled corporation created by a
special law and not under the Corporation Code of the Philippines. Thus, in the case of Lumanta v. NLRC (G.R. No. 82819, February 8, 1989,
170 SCRA 79, 82), We held:
The Court, in National Service Corporation (NASECO) v. National Labor Relations Commission, G.R. No. 69870, promulgated on 29
November 1988, quoting extensively from the deliberations of the 1986 Constitutional Commission in respect of the intent and meaning of
the new phrase with original charter, in effect held that government-owned and controlled corporations with original charter refer to
corporations chartered by special law as distinguished from corporations organized under our general incorporation statute the Corporation
Code. In NASECO, the company involved had been organized under the general incorporation statute and was a subsidiary of the National
Investment Development Corporation (NIDC) which in turn was a subsidiary of the Philippine National Bank, a bank chartered by a special
statute. Thus, government-owned or controlled corporations like NASECO are effectively, excluded from the scope of the Civil Service. (Emphasis
supplied)
Petitioners contention that the Sangguniang Bayan resolution creates the LWDs assumes that the Sangguniang Bayan has the
power to create corporations. This is a patently baseless assumption. The Local Government Code[17] does not vest in the Sangguniang
Bayan the power to create corporations.[18] What the Local Government Code empowers the Sangguniang Bayan to do is to provide for
the establishment of a waterworks system subject to existing laws. Thus, Section 447(5)(vii) of the Local Government Code provides:
SECTION 447. Powers, Duties, Functions and Compensation. (a) The sangguniang bayan, as the legislative body of the municipality, shall enact
ordinances, approve resolutions and appropriate funds for the general welfare of the municipality and its inhabitants pursuant to Section 16 of this
Code and in the proper exercise of the corporate powers of the municipality as provided for under Section 22 of this Code, and shall:
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(vii) Subject to existing laws, provide for the establishment, operation, maintenance, and repair of an efficient waterworks system to supply water
for the inhabitants; regulate the construction, maintenance, repair and use of hydrants, pumps, cisterns and reservoirs; protect the purity and quantity
of the water supply of the municipality and, for this purpose, extend the coverage of appropriate ordinances over all territory within the drainage area
of said water supply and within one hundred (100) meters of the reservoir, conduit, canal, aqueduct, pumping station, or watershed used in
connection with the water service; and regulate the consumption, use or wastage of water;
x x x. (Emphasis supplied)
The Sangguniang Bayan may establish a waterworks system only in accordance with the provisions of PD 198. The Sangguniang
Bayan has no power to create a corporate entity that will operate its waterworks system. However, the Sangguniang Bayan may avail of
existing enabling laws, like PD 198, to form and incorporate a water district. Besides, even assuming for the sake of argument that the
Sangguniang Bayan has the power to create corporations, the LWDs would remain government-owned or controlled corporations
subject to COAs audit jurisdiction. The resolution of the Sangguniang Bayan would constitute an LWDs special charter, making the
LWD a government-owned and controlled corporation with an original charter. In any event, the Court has already ruled in Baguio
Water District v. Trajano[19] that the Sangguniang Bayan resolution is not the special charter of LWDs, thus:
While it is true that a resolution of a local sanggunian is still necessary for the final creation of a district, this Court is of the opinion that said
resolution cannot be considered as its charter, the same being intended only to implement the provisions of said decree.
Petitioner further contends that a law must create directly and explicitly a GOCC in order that it may have an original charter. In
short, petitioner argues that one special law cannot serve as enabling law for several GOCCs but only for one GOCC. Section 16,
Article XII of the Constitution mandates that Congress shall not, except by general law,[20]provide for the creation of private
corporations. Thus, the Constitution prohibits one special law to create one private corporation, requiring instead a general law to
create private corporations. In contrast, the same Section 16 states that Government-owned or controlled corporations may be created
or established by special charters. Thus, the Constitution permits Congress to create a GOCC with a special charter. There is,
however, no prohibition on Congress to create several GOCCs of the same class under one special enabling charter.
The rationale behind the prohibition on private corporations having special charters does not apply to GOCCs. There is no danger
of creating special privileges to certain individuals, families or groups if there is one special law creating each GOCC. Certainly, such
danger will not exist whether one special law creates one GOCC, or one special enabling law creates several GOCCs. Thus, Congress
may create GOCCs either by special charters specific to each GOCC, or by one special enabling charter applicable to a class of
GOCCs, like PD 198 which applies only to LWDs.
Petitioner also contends that LWDs are private corporations because Section 6 of PD 198 [21] declares that LWDs shall be
considered quasi-public in nature. Petitioners rationale is that only private corporations may be deemed quasi-public and not public
corporations. Put differently, petitioner rationalizes that a public corporation cannot be deemed quasi-public because such corporation is
already public. Petitioner concludes that the term quasi-public can only apply to private corporations. Petitioners argument is
inconsequential.
Petitioner forgets that the constitutional criterion on the exercise of COAs audit jurisdiction depends on the governments
ownership or control of a corporation. The nature of the corporation, whether it is private, quasi-public, or public is immaterial.
The Constitution vests in the COA audit jurisdiction over government-owned and controlled corporations with original charters, as
well as government-owned or controlled corporations without original charters. GOCCs with original charters are subject to COA pre-
audit, while GOCCs without original charters are subject to COA post-audit. GOCCs without original charters refer to corporations
created under the Corporation Code but are owned or controlled by the government. The nature or purpose of the corporation is not
material in determining COAs audit jurisdiction. Neither is the manner of creation of a corporation, whether under a general or special
law.
The determining factor of COAs audit jurisdiction is government ownership or control of the corporation. In Philippine
Veterans Bank Employees Union-NUBE v. Philippine Veterans Bank,[22] the Court even ruled that the criterion of ownership and
control is more important than the issue of original charter, thus:
This point is important because the Constitution provides in its Article IX-B, Section 2(1) that the Civil Service embraces all branches, subdivisions,
instrumentalities, and agencies of the Government, including government-owned or controlled corporations with original charters. As the Bank is
not owned or controlled by the Government although it does have an original charter in the form of R.A. No. 3518, [23] it clearly does not fall
under the Civil Service and should be regarded as an ordinary commercial corporation. Section 28 of the said law so provides. The
consequence is that the relations of the Bank with its employees should be governed by the labor laws, under which in fact they have already been
paid some of their claims.(Emphasis supplied)
Certainly, the government owns and controls LWDs. The government organizes LWDs in accordance with a specific law, PD
198. There is no private party involved as co-owner in the creation of an LWD. Just prior to the creation of LWDs, the national or local
government owns and controls all their assets. The government controls LWDs because under PD 198 the municipal or city mayor, or
the provincial governor, appoints all the board directors of an LWD for a fixed term of six years. [24] The board directors of LWDs are not
co-owners of the LWDs. LWDs have no private stockholders or members. The board directors and other personnel of LWDs are
government employees subject to civil service laws[25] and anti-graft laws.[26]
While Section 8 of PD 198 states that [N]o public official shall serve as director of an LWD, it only means that the appointees to
the board of directors of LWDs shall come from the private sector. Once such private sector representatives assume office as directors,
they become public officials governed by the civil service law and anti-graft laws.Otherwise, Section 8 of PD 198 would contravene
Section 2(1), Article IX-B of the Constitution declaring that the civil service includes government-owned or controlled corporations with
original charters.
If LWDs are neither GOCCs with original charters nor GOCCs without original charters, then they would fall under the term
agencies or instrumentalities of the government and thus still subject to COAs audit jurisdiction. However, the stark and undeniable fact
is that the government owns LWDs. Section 45[27] of PD 198 recognizes government ownership of LWDs when Section 45 states that
the board of directors may dissolve an LWD only on the condition that another public entity has acquired the assets of the district and
has assumed all obligations and liabilities attached thereto. The implication is clear that an LWD is a public and not a private entity.
Petitioner does not allege that some entity other than the government owns or controls LWDs. Instead, petitioner advances the
theory that the Water Districts owner is the District itself. [28] Assuming for the sake of argument that an LWD is self-owned, [29] as
petitioner describes an LWD, the government in any event controls all LWDs. First, government officials appoint all LWD directors to a
fixed term of office. Second, any per diem of LWD directors in excess of P50 is subject to the approval of the Local Water Utilities
Administration, and directors can receive no other compensation for their services to the LWD. [30] Third, the Local Water Utilities
Administration can require LWDs to merge or consolidate their facilities or operations. [31] This element of government control subjects
LWDs to COAs audit jurisdiction.
Petitioner argues that upon the enactment of PD 198, LWDs became private entities through the transfer of ownership of water
facilities from local government units to their respective water districts as mandated by PD 198. Petitioner is grasping at
straws. Privatization involves the transfer of government assets to a private entity. Petitioner concedes that the owner of the assets
transferred under Section 6 (c) of PD 198 is no other than the LWD itself. [32] The transfer of assets mandated by PD 198 is a transfer of
the water systems facilities managed, operated by or under the control of such city, municipality or province to such (water) district. [33] In
short, the transfer is from one government entity to another government entity. PD 198 is bereft of any indication that the transfer is to
privatize the operation and control of water systems.
Finally, petitioner claims that even on the assumption that the government owns and controls LWDs, Section 20 of PD 198
prevents COA from auditing LWDs. [34] Section 20 of PD 198 provides:
Sec. 20. System of Business Administration. The Board shall, as soon as practicable, prescribe and define by resolution a system of business
administration and accounting for the district, which shall be patterned upon and conform to the standards established by the
Administration. Auditing shall be performed by a certified public accountant not in the government service. The Administration may, however,
conduct annual audits of the fiscal operations of the district to be performed by an auditor retained by the Administration. Expenses incurred in
connection therewith shall be borne equally by the water district concerned and the Administration. [35] (Emphasis supplied)
Petitioner argues that PD 198 expressly prohibits COA auditors, or any government auditor for that matter, from auditing
LWDs. Petitioner asserts that this is the import of the second sentence of Section 20 of PD 198 when it states that [A]uditing shall be
performed by a certified public accountant not in the government service.[36]
PD 198 cannot prevail over the Constitution. No amount of clever legislation can exclude GOCCs like LWDs from COAs audit
jurisdiction. Section 3, Article IX-C of the Constitution outlaws any scheme or devise to escape COAs audit jurisdiction, thus:
Sec. 3. No law shall be passed exempting any entity of the Government or its subsidiary in any guise whatever, or any investment of public funds,
from the jurisdiction of the Commission on Audit. (Emphasis supplied)
The framers of the Constitution added Section 3, Article IX-D of the Constitution precisely to annul provisions of Presidential
Decrees, like that of Section 20 of PD 198, that exempt GOCCs from COA audit. The following exchange in the deliberations of the
Constitutional Commission elucidates this intent of the framers:
MR. OPLE: I propose to add a new section on line 9, page 2 of the amended committee report which reads: NO LAW SHALL BE PASSED
EXEMPTING ANY ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY INVESTMENTS OF
PUBLIC FUNDS, FROM THE JURISDICTION OF THE COMMISSION ON AUDIT.
May I explain my reasons on record.
We know that a number of entities of the government took advantage of the absence of a legislature in the past to obtain presidential decrees
exempting themselves from the jurisdiction of the Commission on Audit, one notable example of which is the Philippine National Oil Company
which is really an empty shell. It is a holding corporation by itself, and strictly on its own account. Its funds were not very impressive in quantity but
underneath that shell there were billions of pesos in a multiplicity of companies. The PNOC the empty shell under a presidential decree was covered
by the jurisdiction of the Commission on Audit, but the billions of pesos invested in different corporations underneath it were exempted from the
coverage of the Commission on Audit.
Another example is the United Coconut Planters Bank. The Commission on Audit has determined that the coconut levy is a form of taxation; and
that, therefore, these funds attributed to the shares of 1,400,000 coconut farmers are, in effect, public funds. And that was, I think, the basis of the
PCGG in undertaking that last major sequestration of up to 94 percent of all the shares in the United Coconut Planters Bank. The charter of the
UCPB, through a presidential decree, exempted it from the jurisdiction of the Commission on Audit, it being a private organization.
So these are the fetuses of future abuse that we are slaying right here with this additional section.
May I repeat the amendment, Madam President: NO LAW SHALL BE PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT OR ITS
SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS, FROM THE JURISDICTION OF THE
COMMISSION ON AUDIT.
THE PRESIDENT: May we know the position of the Committee on the proposed amendment of Commissioner Ople?
MR. JAMIR: If the honorable Commissioner will change the number of the section to 4, we will accept the amendment.
MR. OPLE: Gladly, Madam President. Thank you.
MR. DE CASTRO: Madam President, point of inquiry on the new amendment.
THE PRESIDENT: Commissioner de Castro is recognized.
MR. DE CASTRO: Thank you. May I just ask a few questions of Commissioner Ople.
Is that not included in Section 2 (1) where it states: (c) government-owned or controlled corporations and their subsidiaries? So that if these
government-owned and controlled corporations and their subsidiaries are subjected to the audit of the COA, any law exempting certain government
corporations or subsidiaries will be already unconstitutional.
So I believe, Madam President, that the proposed amendment is unnecessary.
MR. MONSOD: Madam President, since this has been accepted, we would like to reply to the point raised by Commissioner de Castro.
THE PRESIDENT: Commissioner Monsod will please proceed.
MR. MONSOD: I think the Commissioner is trying to avoid the situation that happened in the past, because the same provision was in the 1973
Constitution and yet somehow a law or a decree was passed where certain institutions were exempted from audit. We are just reaffirming,
emphasizing, the role of the Commission on Audit so that this problem will never arise in the future. [37]
There is an irreconcilable conflict between the second sentence of Section 20 of PD 198 prohibiting COA auditors from auditing
LWDs and Sections 2(1) and 3, Article IX-D of the Constitution vesting in COA the power to audit all GOCCs. We rule that the second
sentence of Section 20 of PD 198 is unconstitutional since it violates Sections 2(1) and 3, Article IX-D of the Constitution.
On the Legality of COAs
Practice of Charging Auditing Fees
Petitioner claims that the auditing fees COA charges LWDs for audit services violate the prohibition in Section 18 of RA 6758,
[38]
which states:
Sec. 18. Additional Compensation of Commission on Audit Personnel and of other Agencies. In order to preserve the independence and integrity of
the Commission on Audit (COA), its officials and employees are prohibited from receiving salaries, honoraria, bonuses, allowances or other
emoluments from any government entity, local government unit, government-owned or controlled corporations, and government financial
institutions, except those compensation paid directly by COA out of its appropriations and contributions.
Government entities, including government-owned or controlled corporations including financial institutions and local government units are hereby
prohibited from assessing or billing other government entities, including government-owned or controlled corporations including financial
institutions or local government units for services rendered by its officials and employees as part of their regular functions for purposes of paying
additional compensation to said officials and employees. (Emphasis supplied)
Claiming that Section 18 is absolute and leaves no doubt, [39] petitioner asks COA to discontinue its practice of charging auditing fees to
LWDs since such practice allegedly violates the law.
Petitioners claim has no basis.
Section 18 of RA 6758 prohibits COA personnel from receiving any kind of compensation from any government entity
except compensation paid directly by COA out of its appropriations and contributions. Thus, RA 6758 itself recognizes an
exception to the statutory ban on COA personnel receiving compensation from GOCCs. In Tejada v. Domingo,[40] the Court declared:
There can be no question that Section 18 of Republic Act No. 6758 is designed to strengthen further the policy x x x to preserve the independence
and integrity of the COA, by explicitly PROHIBITING: (1) COA officials and employees from receiving salaries, honoraria, bonuses, allowances or
other emoluments from any government entity, local government unit, GOCCs and government financial institutions, except such compensation
paid directly by the COA out of its appropriations and contributions, and (2) government entities, including GOCCs, government financial
institutions and local government units from assessing or billing other government entities, GOCCs, government financial institutions or local
government units for services rendered by the latters officials and employees as part of their regular functions for purposes of paying additional
compensation to said officials and employees.
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The first aspect of the strategy is directed to the COA itself, while the second aspect is addressed directly against the GOCCs and government
financial institutions. Under the first, COA personnel assigned to auditing units of GOCCs or government financial institutions can receive
only such salaries, allowances or fringe benefits paid directly by the COA out of its appropriations and contributions. The contributions
referred to are the cost of audit services earlier mentioned which cannot include the extra emoluments or benefits now claimed by
petitioners. The COA is further barred from assessing or billing GOCCs and government financial institutions for services rendered by its personnel
as part of their regular audit functions for purposes of paying additional compensation to such personnel. x x x. (Emphasis supplied)
In Tejada, the Court explained the meaning of the word contributions in Section 18 of RA 6758, which allows COA to charge
GOCCs the cost of its audit services:
x x x the contributions from the GOCCs are limited to the cost of audit services which are based on the actual cost of the audit function in the
corporation concerned plus a reasonable rate to cover overhead expenses. The actual audit cost shall include personnel services, maintenance and
other operating expenses, depreciation on capital and equipment and out-of-pocket expenses. In respect to the allowances and fringe benefits granted
by the GOCCs to the COA personnel assigned to the formers auditing units, the same shall be directly defrayed by COA from its own appropriations
x x x. [41]
COA may charge GOCCs actual audit cost but GOCCs must pay the same directly to COA and not to COA auditors. Petitioner has not
alleged that COA charges LWDs auditing fees in excess of COAs actual audit cost. Neither has petitioner alleged that the auditing fees
are paid by LWDs directly to individual COA auditors. Thus, petitioners contention must fail.
WHEREFORE, the Resolution of the Commission on Audit dated 3 January 2000 and the Decision dated 30 January 2001
denying petitioners Motion for Reconsideration are AFFIRMED. The second sentence of Section 20 of Presidential Decree No. 198 is
declared VOID for being inconsistent with Sections 2 (1) and 3, Article IX-D of the Constitution. No costs.
SO ORDERED.
 Feliciano vs Commission on Audit
GR No. 147402 January 14, 2004
Facts: A special audit team from COA Regional office no. VIII audited the accounts of LMWD. Subsequently, LMWD received
a letter from COA dated July 19, 1999 requesting payment of auditing fees. As general manager of LMWD, petitioner sent a
reply dated October 12, 1999 informing COA’s regional director that the water district could not pay the auditing fees.
Petitioner cited as basis for his action section 6 and 20 of Presidential Decree no. 198 as well as section 18 of RA 6758.
The regional director referred petitioner to reply o the COA Chairman on October 18, 1999. On October 19, 1999,
petitioner wrote COA through the Regional Director asking for refund of all auditing fees LMWD previously paid to COA. On
March 16, 2000, petitioner received COA Chairman Celso D. Gangans resolution dated January 3, 2o00 denying his
requests. Petitioner filed a motion for reconsideration on March 31, 2000, which COA denied on January 30, 2001.
Issue: Whether or not petitioner LMWD is a private corporation exempt from the auditing jurisdiction of COA.
Held: No. Private corporations may exist only under a general law. If the corporation is private, it must necessarily exist
under a general law. Stated differently, only corporations created under a general law can qualify as private corporations
under existing laws, that general law is the corporation code, except that the cooperative code governs the incorporation
of cooperatives.
Obviously, LWDs are not private corporations because they are not created under the corporation code. LWDs are
registered with the Securities and Exchange Commission (SEC). Section 14 of the corporation code states that all
corporations under this code shall file with the SEC articles of incorporation. LWDs have no articles of incorporation, no
incorporators and no stockholders or members. There are no stockholders or members to elect the board of directors of
LWDs as in the case of all corporations registered with the SEC. The local mayor or the provincial governor appoints the
directors of LWDs for a fixed term of office. This court has ruled that LWDs are not created under the corporation code.
The determining factor of COA’s audit jurisdiction is government ownership or control of the corporation. The criterion of
ownership and control is more important than the issue of original charter.
Certainly, the government owns and controls LWDs. The government organizes LWDs in accordance with a specific law, PD
198. There is no private party involved as co-owner in the creation of and LWD. Just prior to the creation of LWDs, the
national or local government owns and controls all their assets. The government controls LWDs because under PD 198 the
municipal or city mayor, or the provincial governor, appoints all the board of directors of an LWD for a fixed term of six (6)
years. The board of directors of LWDs are not co-owners of the LWDs. LWD have no private stockholders or members. The
board of directors and other personnel of LWDs are government employees subject to civil service laws, anti-graft laws.
Section 18 of RA 6758 prohibits COA Personnel from receiving any kind of compensation from any government except
compensation paid directly by COA out of its appropriations and contributions. Thus, RA 6758 itself recognizes an
exception to the statutory ban by COA personnel receiving compensation from GOCCs.
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs.
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG
PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF PARAÑAQUE, respondents.
DECISION
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex in Parañaque
City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila International Airport Authority ("MIAA
Charter"). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently, Executive Order
Nos. 9091 and 2982 amended the MIAA Charter.
As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA Complex. The MIAA
Charter transferred to MIAA approximately 600 hectares of land,3 including the runways and buildings ("Airport Lands and Buildings")
then under the Bureau of Air Transportation.4 The MIAA Charter further provides that no portion of the land transferred to MIAA shall be
disposed of through sale or any other mode unless specifically approved by the President of the Philippines.5
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC opined that the
Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section 21 of the MIAA Charter.
Thus, MIAA negotiated with respondent City of Parañaque to pay the real estate tax imposed by the City. MIAA then paid some of the
real estate tax already due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for the taxable years 1992
to 2001. MIAA's real estate tax delinquency is broken down as follows:
TAX
TAXABL
DECLARATIO TAX DUE PENALTY TOTAL
E YEAR
N
E-016-01370 1992- 19,558,160.00 11,201,083.20 30,789,243.20
2001
 E-016-01374 1992- 111,689,424.90 68,149,479.59 179,838,904.49
2001
E-016-01375 1992- 20,276,058.00 12,371,832.00 32,647,890.00
2001
E-016-01376 1992- 58,144,028.00 35,477,712.00 93,621,740.00
2001
E-016-01377 1992- 18,134,614.65 11,065,188.59 29,199,803.24
2001
E-016-01378 1992- 111,107,950.40 67,794,681.59 178,902,631.99
2001
E-016-01379 1992- 4,322,340.00 2,637,360.00 6,959,700.00
2001
E-016-01380 1992- 7,776,436.00 4,744,944.00 12,521,380.00
2001
*E-016-013- 1998- 6,444,810.00 2,900,164.50 9,344,974.50
85 2001
*E-016-01387 1998- 34,876,800.00 5,694,560.00 50,571,360.00
2001
*E-016-01396 1998- 75,240.00 33,858.00 109,098.00
2001
GRAND P392,435,861. P232,070,863. P 624,506,725.
TOTAL 95 47 42
1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.006
On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and
Buildings. The Mayor of the City of Parañaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to
pay the real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed out that Section 206 of the
Local Government Code requires persons exempt from real estate tax to show proof of exemption. The OGCC opined that Section 21
of the MIAA Charter is the proof that MIAA is exempt from real estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for preliminary
injunction or temporary restraining order. The petition sought to restrain the City of Parañaque from imposing real estate tax on, levying
against, and auctioning for public sale the Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day reglementary period. The
Court of Appeals also denied on 27 September 2002 MIAA's motion for reconsideration and supplemental motion for reconsideration.
Hence, MIAA filed on 5 December 2002 the present petition for review.7
Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the Barangay Halls of Barangays Vitalez, Sto.
Niño, and Tambo, Parañaque City; in the public market of Barangay La Huerta; and in the main lobby of the Parañaque City Hall. The
City of Parañaque published the notices in the 3 and 10 January 2003 issues of the Philippine Daily Inquirer, a newspaper of general
circulation in the Philippines. The notices announced the public auction sale of the Airport Lands and Buildings to the highest bidder on
7 February 2003, 10:00 a.m., at the Legislative Session Hall Building of Parañaque City.
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent Ex-Parte and Reiteratory
Motion for the Issuance of a Temporary Restraining Order. The motion sought to restrain respondents — the City of Parañaque, City
Mayor of Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer of Parañaque, and the City Assessor of Parañaque
("respondents") — from auctioning the Airport Lands and Buildings.
On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court ordered respondents to
cease and desist from selling at public auction the Airport Lands and Buildings. Respondents received the TRO on the same day that
the Court issued it. However, respondents received the TRO only at 1:25 p.m. or three hours after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during the hearing, MIAA,
respondent City of Parañaque, and the Solicitor General subsequently submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA. However, MIAA points
out that it cannot claim ownership over these properties since the real owner of the Airport Lands and Buildings is the Republic of the
Philippines. The MIAA Charter mandates MIAA to devote the Airport Lands and Buildings for the benefit of the general public. Since the
Airport Lands and Buildings are devoted to public use and public service, the ownership of these properties remains with the State. The
Airport Lands and Buildings are thus inalienable and are not subject to real estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate tax. MIAA insists
that it is also exempt from real estate tax under Section 234 of the Local Government Code because the Airport Lands and Buildings
are owned by the Republic. To justify the exemption, MIAA invokes the principle that the government cannot tax itself. MIAA points out
that the reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such a case the
tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption privileges of
"government-owned and-controlled corporations" upon the effectivity of the Local Government Code. Respondents also argue that
a basic rule of statutory construction is that the express mention of one person, thing, or act excludes all others. An international airport
is not among the exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents assert that MIAA cannot
claim that the Airport Lands and Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos8 where we held that the Local Government
Code has withdrawn the exemption from real estate tax granted to international airports. Respondents further argue that since MIAA
has already paid some of the real estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildings are
exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under
existing laws. If so exempt, then the real estate tax assessments issued by the City of Parañaque, and all proceedings taken pursuant
to such assessments, are void. In such event, the other issues raised in this petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments.
First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus exempt
from local taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines and thus exempt from real
estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate tax. Respondents
claim that the deletion of the phrase "any government-owned or controlled so exempt by its charter" in Section 234(e) of the Local
Government Code withdrew the real estate tax exemption of government-owned or controlled corporations. The deleted phrase
appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However, MIAA is not a
government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a
government-owned or controlled corporation as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation,
vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government
directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of
at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is not organized as a
stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no
stockholders or voting shares. Section 10 of the MIAA Charter9 provides:
SECTION 10. Capital. — The capital of the Authority to be contributed by the National Government shall be increased from
Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways and equipment and such other properties, movable and
immovable[,] which may be contributed by the National Government or transferred by it from any of its agencies, the valuation
of which shall be determined jointly with the Department of Budget and Management and the Commission on Audit on the date
of such contribution or transfer after making due allowances for depreciation and other deductions taking into account the
loans and other liabilities of the Authority at the time of the takeover of the assets and other properties;
(b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum (70%) of the unremitted
share of the National Government from 1983 to 1986 to be remitted to the National Treasury as provided for in Section 11 of E.
O. No. 903 as amended, shall be converted into the equity of the National Government in the Authority. Thereafter, the
Government contribution to the capital of the Authority shall be provided in the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital stock is divided into shares and x x x
authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but it is not divided into shares of stock.
MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-stock
corporation as "one where no part of its income is distributable as dividends to its members, trustees or officers." A non-stock
corporation must have members. Even if we assume that the Government is considered as the sole member of MIAA, this will not make
MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income to their members. Section 11 of the
MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury.11 This prevents MIAA from
qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious, educational,
professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture
and like chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate an international and
domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled corporation.
What then is the legal status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is like any
other government instrumentality, the only difference is that MIAA is vested with corporate powers. Section 2(10) of the Introductory
Provisions of the Administrative Code defines a government "instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested
with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds,
and enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied)
When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the
government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not
only governmental but also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain,12 police
authority13 and the levying of fees and charges.14 At the same time, MIAA exercises "all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order."15
Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains part of the
National Government machinery although not integrated with the department framework. The MIAA Charter expressly states that
transforming MIAA into a "separate and autonomous body"16 will make its operation more "financially viable."17
Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock corporations, which is
a necessary condition before an agency or instrumentality is deemed a government-owned or controlled corporation. Examples are the
Mactan International Airport Authority, the Philippine Ports Authority, the University of the Philippines and Bangko Sentral ng Pilipinas.
All these government instrumentalities exercise corporate powers but they are not organized as stock or non-stock corporations as
required by Section 2(13) of the Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes
loosely called government corporate entities. However, they are not government-owned or controlled corporations in the strict sense as
understood under the Administrative Code, which is the governing law defining the legal relationship and status of government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalitiesand local
government units.(Emphasis and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which historically merely
delegated to local governments the power to tax. While the 1987 Constitution now includes taxation as one of the powers of local
governments, local governments may only exercise such power "subject to such guidelines and limitations as the Congress may
provide."18
When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly against
local governments. The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. Any doubt
whether a person, article or activity is taxable is resolved against taxation. This rule applies with greater force when local governments
seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when Congress grants
an exemption to a national government instrumentality from local taxation, such exemption is construed liberally in favor of the national
government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies.
In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by
government in the course of its operations. For these reasons, provisions granting exemptions to government agencies may
be construed liberally, in favor of non tax-liability of such agencies.19
There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy requires such
transfer of public funds from one government pocket to another.
There is also no reason for local governments to tax national government instrumentalities for rendering essential public services to
inhabitants of local governments. The only exception is when the legislature clearly intended to tax government
instrumentalities for the delivery of essential public services for sound and compelling policy considerations. There must be
express language in the law empowering local governments to tax national government instrumentalities. Any doubt whether such
power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local governments cannot tax
national government instrumentalities. As this Court held in Basco v. Philippine Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation
of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC
Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254
US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way
as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of
them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive
to be undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra) cannot be
allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the Republic of the
Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private ownership.
ARTICLE 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State,
banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public service or for the
development of the national wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article, is patrimonial
property.
ARTICLE 422. Property of public dominion, when no longer intended for public use or for public service, shall form part of the
patrimonial property of the State.
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads, canals, rivers, torrents,
ports and bridges constructed by the State," are owned by the State. The term "ports" includes seaports and airports. The MIAA
Airport Lands and Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands
and Buildings are properties of public dominion and thus owned by the State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by the public for international and domestic
travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public does not remove the
character of the Airport Lands and Buildings as properties for public use. The operation by the government of a tollway does not change
the character of the road as one for public use. Someone must pay for the maintenance of the road, either the public indirectly through
the taxes they pay the government, or only those among the public who actually use the road through the toll fees they pay upon using
the road. The tollway system is even a more efficient and equitable manner of taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether it is of public dominion or not. Article 420 of
the Civil Code defines property of public dominion as one "intended for public use." Even if the government collects toll fees, the road is
still "intended for public use" if anyone can use the road under the same terms and conditions as the rest of the public. The charging of
fees, the limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for the use of the road do
not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income
that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as an airport for public use.
Such fees are often termed user's tax. This means taxing those among the public who actually use a public facility instead of taxing all
the public including those who never use the particular public facility. A user's tax is more equitable — a principle of taxation mandated
in the 1987 Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both international and
domestic air traffic,"22 are properties of public dominion because they are intended for public use. As properties of public dominion,
they indisputably belong to the State or the Republic of the Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public dominion. As properties of public
dominion, the Airport Lands and Buildings are outside the commerce of man. The Court has ruled repeatedly that properties of
public dominion are outside the commerce of man. As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that
properties devoted to public use are outside the commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the provincial and town
roads, the squares, streets, fountains, and public waters, the promenades, and public works of general service supported by
said towns or provinces."
The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907 withdraw or
exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant Hilaria Rojas. In leasing a
portion of said plaza or public place to the defendant for private use the plaintiff municipality exceeded its authority in the
exercise of its powers by executing a contract over a thing of which it could not dispose, nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be the object of a
contract, and plazas and streets are outside of this commerce, as was decided by the supreme court of Spain in its decision
of February 12, 1895, which says: "Communal things that cannot be sold because they are by their very nature outside
of commerce are those for public use, such as the plazas, streets, common lands, rivers, fountains, etc." (Emphasis
supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to public use and to be made available to the public in
general. They are outside the commerce of man and cannot be disposed of or even leased by the municipality to private
parties. While in case of war or during an emergency, town plazas may be occupied temporarily by private individuals, as was
done and as was tolerated by the Municipality of Pozorrubio, when the emergency has ceased, said temporary occupation or
use must also cease, and the town officials should see to it that the town plazas should ever be kept open to the public and
free from encumbrances or illegal private constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of an auction
sale.25
Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or private sale.
Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to public policy.
Essential public services will stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale. This will
happen if the City of Parañaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-payment of
real estate tax.
Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from public usethe Airport Lands and
Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141, which "remains to this day the existing general
law governing the classification and disposition of lands of the public domain other than timber and mineral lands,"27 provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the President may designate
by proclamation any tract or tracts of land of the public domain as reservations for the use of the Republic of the Philippines or
of any of its branches, or of the inhabitants thereof, in accordance with regulations prescribed for this purposes, or for quasi-
public uses or purposes when the public interest requires it, including reservations for highways, rights of way for railroads,
hydraulic power sites, irrigation systems, communal pastures or lequas communales, public parks, public quarries, public
fishponds, working men's village and other improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three shall be non-
alienable and shall not be subject to occupation, entry, sale, lease, or other disposition until again declared alienable
under the provisions of this Act or by proclamation of the President. (Emphasis and underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these properties remain
properties of public dominion and are inalienable. Since the Airport Lands and Buildings are inalienable in their present status as
properties of public dominion, they are not subject to levy on execution or foreclosure sale. As long as the Airport Lands and Buildings
are reserved for public use, their ownership remains with the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use, is reiterated in
Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. — (1) The President shall have the
power to reserve for settlement or public use, and for specific public purposes, any of the lands of the public domain,
the use of which is not otherwise directed by law. The reserved land shall thereafter remain subject to the specific
public purpose indicated until otherwise provided by law or proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential proclamation from
public use, they are properties of public dominion, owned by the Republic and outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book I of the
Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. — Whenever real property of the Government is authorized by law to be
conveyed, the deed of conveyance shall be executed in behalf of the government by the following:
(1) For property belonging to and titled in the name of the Republic of the Philippines, by the President, unless the authority
therefor is expressly vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled in the name of any political subdivision or of
any corporate agency or instrumentality, by the executive head of the agency or instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive head cannot sign
the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such deed of conveyance.28
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the Bureau of Air Transportation
of the Department of Transportation and Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International Airport Authority. — x x x x
The land where the Airport is presently located as well as the surrounding land area of approximately six hundred
hectares, are hereby transferred, conveyed and assigned to the ownership and administration of the Authority,
subject to existing rights, if any. The Bureau of Lands and other appropriate government agencies shall undertake an actual
survey of the area transferred within one year from the promulgation of this Executive Order and the corresponding title to be
issued in the name of the Authority. Any portion thereof shall not be disposed through sale or through any other mode
unless specifically approved by the President of the Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. — All existing public airport facilities, runways, lands,
buildings and other property, movable or immovable, belonging to the Airport, and all assets, powers, rights, interests and
privileges belonging to the Bureau of Air Transportation relating to airport works or air operations, including all equipment
which are necessary for the operation of crash fire and rescue facilities, are hereby transferred to the Authority. (Emphasis
supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air Transportation and Transitory
Provisions. — The Manila International Airport including the Manila Domestic Airport as a division under the Bureau of Air
Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash, promissory notes or even
stock since MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of the Philippines for both international and domestic air
traffic, is required to provide standards of airport accommodation and service comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded to meet the current and
future air traffic and other demands of aviation in Metro Manila;
WHEREAS, a management and organization study has indicated that the objectives of providing high standards of
accommodation and service within the context of a financially viable operation, will best be achieved by a separate
and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the President of the
Philippines is given continuing authority to reorganize the National Government, which authority includes the creation of
new entities, agencies and instrumentalities of the Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to transfer beneficial
ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize a division in the Bureau of Air
Transportation into a separate and autonomous body. The Republic remains the beneficial owner of the Airport Lands and
Buildings. MIAA itself is owned solely by the Republic. No party claims any ownership rights over MIAA's assets adverse to the
Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed through sale or through any other
mode unless specifically approved by the President of the Philippines." This only means that the Republic retained the beneficial
ownership of the Airport Lands and Buildings because under Article 428 of the Civil Code, only the "owner has the right to x x x dispose
of a thing." Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not own the Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without the Republic paying MIAA
any consideration. Under Section 3 of the MIAA Charter, the President is the only one who can authorize the sale or disposition of the
Airport Lands and Buildings. This only confirms that the Airport Lands and Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the Republic of the
Philippines." Section 234(a) provides:
 SEC. 234. Exemptions from Real Property Tax. — The following are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments from imposing
"[t]axes, fees or charges of any kind on the National Government, its agencies and instrumentalitiesx x x." The real properties owned
by the Republic are titled either in the name of the Republic itself or in the name of agencies or instrumentalities of the National
Government. The Administrative Code allows real property owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties remain owned by the Republic and continue to be exempt from real
estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national government. This happens
when title of the real property is transferred to an agency or instrumentality even as the Republic remains the owner of the real property.
Such arrangement does not result in the loss of the tax exemption. Section 234(a) of the Local Government Code states that real
property owned by the Republic loses its tax exemption only if the "beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person." MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of the Local
Government Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and
Buildings, such fact does not make these real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax. For
example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In such a case, MIAA
has granted the beneficial use of such land area for a consideration to a taxable person and therefore such land area is subject to real
estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to
private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by the hospital and
portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local Government Code of 1991
withdrew the tax exemption of "all persons, whether natural or juridical" upon the effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges – Unless otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals
and educational institutions are hereby withdrawn upon effectivity of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local Government Code withdrew
the tax exemption of all juridical persons, then MIAA is not exempt from real estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local Government Code that the withdrawn exemptions from realty tax
cover not just GOCCs, but all persons. To repeat, the provisions lay down the explicit proposition that the withdrawal of
realty tax exemption applies to all persons. The reference to or the inclusion of GOCCs is only clarificatory or illustrative of the
explicit provision.
The term "All persons" encompasses the two classes of persons recognized under our laws, natural and juridical
persons. Obviously, MIAA is not a natural person. Thus, the determinative test is not just whether MIAA is a GOCC,
but whether MIAA is a juridical person at all. (Emphasis and underscoring in the original)
The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status — whether MIAA is a juridical
person or not. The minority also insists that "Sections 193 and 234 may be examined in isolation from Section 133(o) to ascertain
MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew the tax exemption of all
juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the Local Government Code expressly
provides otherwise, specifically prohibiting local governments from imposing any kind of tax on national government
instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local government
units. (Emphasis and underscoring supplied)
By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national government
instrumentalities like the MIAA. Local governments are devoid of power to tax the national government, its agencies and
instrumentalities. The taxing powers of local governments do not extend to the national government, its agencies and instrumentalities,
"[u]nless otherwise provided in this Code" as stated in the saving clause of Section 133. The saving clause refers to Section 234(a) on
the exception to the exemption from real estate tax of real property owned by the Republic.
The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject to tax by local
governments. The minority insists that the juridical persons exempt from local taxation are limited to the three classes of entities
specifically enumerated as exempt in Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly registered under Republic
Act No. 6938; and (c) non-stock and non-profit hospitals and educational institutions. It would be belaboring the obvious why
the MIAA does not fall within any of the exempt entities under Section 193. (Emphasis supplied)
The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government Code. This theory will result
in gross absurdities. It will make the national government, which itself is a juridical person, subject to tax by local governments since the
national government is not included in the enumeration of exempt entities in Section 193. Under this theory, local governments can
impose any kind of local tax, and not only real estate tax, on the national government.
Under the minority's theory, many national government instrumentalities with juridical personalities will also be subject to any kind of
local tax, and not only real estate tax. Some of the national government instrumentalities vested by law with juridical personalities are:
Bangko Sentral ng Pilipinas,30 Philippine Rice Research Institute,31Laguna Lake
Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development Authority,34Philippine Ports
Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and Philippine National Railways.39
The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local governments from imposing
any kind of tax on national government instrumentalities. Section 133(o) does not distinguish between national government
instrumentalities with or without juridical personalities. Where the law does not distinguish, courts should not distinguish. Thus, Section
133(o) applies to all national government instrumentalities, with or without juridical personalities. The determinative test whether MIAA
is exempt from local taxation is not whether MIAA is a juridical person, but whether it is a national government instrumentality under
Section 133(o) of the Local Government Code. Section 133(o) is the specific provision of law prohibiting local governments from
imposing any kind of tax on the national government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in this Code." This means that
unless the Local Government Code grants an express authorization, local governments have no power to tax the national government,
its agencies and instrumentalities. Clearly, the rule is local governments have no power to tax the national government, its agencies and
instrumentalities. As an exception to this rule, local governments may tax the national government, its agencies and instrumentalities
only if the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code, which makes the national
government subject to real estate tax when it gives the beneficial use of its real properties to a taxable entity. Section 234(a) of the
Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax – The following are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to this exemption is when the
government gives the beneficial use of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the national government, its agencies and instrumentalities
are subject to any kind of tax by local governments. The exception to the exemption applies only to real estate tax and not to any other
tax. The justification for the exception to the exemption is that the real property, although owned by the Republic, is not devoted to
public use or public service but devoted to the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government Code, the later provisions
prevail over Section 133. Thus, the minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of construction, in case
of conflict the subsequent provisions should prevail. Therefore, MIAA, as a juridical person, is subject to real property taxes,
the general exemptions attaching to instrumentalities under Section 133(o) of the Local Government Code being qualified by
Sections 193 and 234 of the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and Sections 193 and 234 on the other.
No one has urged that there is such a conflict, much less has any one presenteda persuasive argument that there is such a conflict.
The minority's assumption of an irreconcilable conflict in the statutory provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its subordination to other
provisions of the Code when Section 193 states "[u]nless otherwise provided in this Code." By its own words, Section 193 admits the
superiority of other provisions of the Local Government Code that limit the exercise of the taxing power in Section 193. When a
provision of law grants a power but withholds such power on certain matters, there is no conflict between the grant of power and the
withholding of power. The grantee of the power simply cannot exercise the power on matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units." Section 133 limits the grant to
local governments of the power to tax, and not merely the exercise of a delegated power to tax. Section 133 states that the taxing
powers of local governments "shall not extend to the levy" of any kind of tax on the national government, its agencies and
instrumentalities. There is no clearer limitation on the taxing power than this.
Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section 133 logically prevails over
Section 193 which grants local governments such taxing powers. By their very meaning and purpose, the "common limitations" on the
taxing power prevail over the grant or exercise of the taxing power. If the taxing power of local governments in Section 193 prevails over
the limitations on such taxing power in Section 133, then local governments can impose any kind of tax on the national government, its
agencies and instrumentalities — a gross absurdity.
Local governments have no power to tax the national government, its agencies and instrumentalities, except as otherwise provided in
the Local Government Code pursuant to the saving clause in Section 133 stating "[u]nless otherwise provided in this Code." This
exception — which is an exception to the exemption of the Republic from real estate tax imposed by local governments — refers to
Section 234(a) of the Code. The exception to the exemption in Section 234(a) subjects real property owned by the Republic, whether
titled in the name of the national government, its agencies or instrumentalities, to real estate tax if the beneficial use of such property is
given to a taxable entity.
The minority also claims that the definition in the Administrative Code of the phrase "government-owned or controlled corporation" is not
controlling. The minority points out that Section 2 of the Introductory Provisions of the Administrative Code admits that its definitions are
not controlling when it provides:
SEC. 2. General Terms Defined. — Unless the specific words of the text, or the context as a whole, or a particular statute,
shall require a different meaning:
xxxx
The minority then concludes that reliance on the Administrative Code definition is "flawed."
The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute may require a different
meaning than that defined in the Administrative Code. However, this does not automatically mean that the definition in the
Administrative Code does not apply to the Local Government Code. Section 2 of the Administrative Code clearly states that "unless the
specific words x x x of a particular statute shall require a different meaning," the definition in Section 2 of the Administrative Code shall
apply. Thus, unless there is specific language in the Local Government Code defining the phrase "government-owned or controlled
corporation" differently from the definition in the Administrative Code, the definition in the Administrative Code prevails.
The minority does not point to any provision in the Local Government Code defining the phrase "government-owned or controlled
corporation" differently from the definition in the Administrative Code. Indeed, there is none. The Local Government Code is silent on
the definition of the phrase "government-owned or controlled corporation." The Administrative Code, however, expressly defines the
phrase "government-owned or controlled corporation." The inescapable conclusion is that the Administrative Code definition of the
phrase "government-owned or controlled corporation" applies to the Local Government Code.
The third whereas clause of the Administrative Code states that the Code "incorporates in a unified document the major structural,
functional and procedural principles and rules of governance." Thus, the Administrative Code is the governing law defining the status
and relationship of government departments, bureaus, offices, agencies and instrumentalities. Unless a statute expressly provides for a
different status and relationship for a specific government unit or entity, the provisions of the Administrative Code prevail.
The minority also contends that the phrase "government-owned or controlled corporation" should apply only to corporations organized
under the Corporation Code, the general incorporation law, and not to corporations created by special charters. The minority sees no
reason why government corporations with special charters should have a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled corporations" under the Administrative Code refer to those
corporations owned by the government or its instrumentalities which are created not by legislative enactment, but formed and
organized under the Corporation Code through registration with the Securities and Exchange Commission. In short, these are
GOCCs without original charters.
xxxx
It might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs whose full ownership is
limited by its charter to the State or Republic. Such GOCCs are not empowered to declare dividends or alienate their capital
shares.
The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing legislations. It will also result in
gross absurdities.
First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does not distinguish between one
incorporated under the Corporation Code or under a special charter. Where the law does not distinguish, courts should not distinguish.
Second, Congress has created through special charters several government-owned corporations organized as stock corporations.
Prime examples are the Land Bank of the Philippines and the Development Bank of the Philippines. The special charter40 of the Land
Bank of the Philippines provides:
SECTION 81. Capital. — The authorized capital stock of the Bank shall be nine billion pesos, divided into seven hundred and
eighty million common shares with a par value of ten pesos each, which shall be fully subscribed by the Government, and one
hundred and twenty million preferred shares with a par value of ten pesos each, which shall be issued in accordance with the
provisions of Sections seventy-seven and eighty-three of this Code. (Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock – Par value. — The capital stock of the Bank shall be Five Billion Pesos to be divided
into Fifty Million common shares with par value of P100 per share. These shares are available for subscription by the National
Government. Upon the effectivity of this Charter, the National Government shall subscribe to Twenty-Five Million common
shares of stock worth Two Billion Five Hundred Million which shall be deemed paid for by the Government with the net asset
values of the Bank remaining after the transfer of assets and liabilities as provided in Section 30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations under their special charters are the Philippine Crop Insurance
Corporation,42 Philippine International Trading Corporation,43 and the Philippine National Bank44 before it was reorganized as a stock
corporation under the Corporation Code. All these government-owned corporations organized under special charters as stock
corporations are subject to real estate tax on real properties owned by them. To rule that they are not government-owned or controlled
corporations because they are not registered with the Securities and Exchange Commission would remove them from the reach of
Section 234 of the Local Government Code, thus exempting them from real estate tax.
Third, the government-owned or controlled corporations created through special charters are those that meet the two conditions
prescribed in Section 16, Article XII of the Constitution. The first condition is that the government-owned or controlled corporation must
be established for the common good. The second condition is that the government-owned or controlled corporation must meet the test
of economic viability. Section 16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private
corporations. Government-owned or controlled corporations may be created or established by special charters in the interest
of the common good and subject to the test of economic viability. (Emphasis and underscoring supplied)
The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations" through special charters
only if these entities are required to meet the twin conditions of common good and economic viability. In other words, Congress has no
power to create government-owned or controlled corporations with special charters unless they are made to comply with the two
conditions of common good and economic viability. The test of economic viability applies only to government-owned or controlled
corporations that perform economic or commercial activities and need to compete in the market place. Being essentially economic
vehicles of the State for the common good — meaning for economic development purposes — these government-owned or controlled
corporations with special charters are usually organized as stock corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and performing governmental or public functions need not meet
the test of economic viability. These instrumentalities perform essential public services for the common good, services that every
modern State must provide its citizens. These instrumentalities need not be economically viable since the government may even
subsidize their entire operations. These instrumentalities are not the "government-owned or controlled corporations" referred to in
Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with corporate powers
but performing essential governmental or public functions. Congress has plenary authority to create government instrumentalities
vested with corporate powers provided these instrumentalities perform essential government functions or public services. However,
when the legislature creates through special charters corporations that perform economic or commercial activities, such entities —
known as "government-owned or controlled corporations" — must meet the test of economic viability because they compete in the
market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar government-owned or
controlled corporations, which derive their income to meet operating expenses solely from commercial transactions in competition with
the private sector. The intent of the Constitution is to prevent the creation of government-owned or controlled corporations that cannot
survive on their own in the market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission the purpose of this
test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the government creates a corporation, there is a
sense in which this corporation becomes exempt from the test of economic performance. We know what happened in the past.
If a government corporation loses, then it makes its claim upon the taxpayers' money through new equity infusions from the
government and what is always invoked is the common good. That is the reason why this year, out of a budget of P115 billion
for the entire government, about P28 billion of this will go into equity infusions to support a few government financial
institutions. And this is all taxpayers' money which could have been relocated to agrarian reform, to social services like health
and education, to augment the salaries of grossly underpaid public employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a restraint on
future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the market test so that they
become viable. And so, Madam President, I reiterate, for the committee's consideration and I am glad that I am joined in this
proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC TEST,"
together with the common good.45
Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987 Constitution of the
Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the phrase "in
the interest of the common good and subject to the test of economic viability." The addition includes the ideas that they must
show capacity to function efficiently in business and that they should not go into activities which the private sector can do
better. Moreover, economic viability is more than financial viability but also includes capability to make profit and generate
benefits not quantifiable in financial terms.46(Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities vested with corporate powers and performing essential
public services. The State is obligated to render essential public services regardless of the economic viability of providing such service.
The non-economic viability of rendering such essential public service does not excuse the State from withholding such essential
services from the public.
However, government-owned or controlled corporations with special charters, organized essentially for economic or commercial
objectives, must meet the test of economic viability. These are the government-owned or controlled corporations that are usually
organized under their special charters as stock corporations, like the Land Bank of the Philippines and the Development Bank of the
Philippines. These are the government-owned or controlled corporations, along with government-owned or controlled corporations
organized under the Corporation Code, that fall under the definition of "government-owned or controlled corporations" in Section 2(10)
of the Administrative Code.
The MIAA need not meet the test of economic viability because the legislature did not create MIAA to compete in the market place.
MIAA does not compete in the market place because there is no competing international airport operated by the private sector. MIAA
performs an essential public service as the primary domestic and international airport of the Philippines. The operation of an
international airport requires the presence of personnel from the following government agencies:
1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers, screening out those
without visas or travel documents, or those with hold departure orders;
2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations;
3. The quarantine office of the Department of Health, to enforce health measures against the spread of infectious diseases into
the country;
4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases into the country;
5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and the escape of
criminals, as well as to secure the airport premises from terrorist attack or seizure;
6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to enter or leave
Philippine airspace, as well as to land on, or take off from, the airport; and
7. The MIAA, to provide the proper premises — such as runway and buildings — for the government personnel, passengers,
and airlines, and to manage the airport operations.
All these agencies of government perform government functions essential to the operation of an international airport.
MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its revenues principally from
the mandatory fees and charges MIAA imposes on passengers and airlines. The terminal fees that MIAA charges every passenger are
regulatory or administrative fees47 and not income from commercial transactions.
MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative
Code, which provides:
SEC. 2. General Terms Defined. – x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested
with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or controlled corporation.
Without a change in its capital structure, MIAA remains a government instrumentality under Section 2(10) of the Introductory Provisions
of the Administrative Code. More importantly, as long as MIAA renders essential public services, it need not comply with the test of
economic viability. Thus, MIAA is outside the scope of the phrase "government-owned or controlled corporations" under Section 16,
Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled corporation" as merely
"clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes explicit conditions for the creation of "government-owned or
controlled corporations." The Administrative Code defines what constitutes a "government-owned or controlled corporation." To belittle
this phrase as "clarificatory or illustrative" is grave error.
To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory Provisions of the
Administrative Code because it is not organized as a stock or non-stock corporation. Neither is MIAA a government-owned or controlled
corporation under Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of economic viability.
MIAA is a government instrumentality vested with corporate powers and performing essential public services pursuant to Section 2(10)
of the Introductory Provisions of the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax by
local governments under Section 133(o) of the Local Government Code. The exception to the exemption in Section 234(a) does not
apply to MIAA because MIAA is not a taxable entity under the Local Government Code. Such exception applies only if the beneficial use
of real property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public dominion.
Properties of public dominion are owned by the State or the Republic. Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks,
shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public service or for the
development of the national wealth. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of MIAA are intended
for public use, and at the very least intended for public service. Whether intended for public use or public service, the Airport Lands and
Buildings are properties of public dominion. As properties of public dominion, the Airport Lands and Buildings are owned by the
Republic and thus exempt from real estate tax under Section 234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal relation and status of
government units, agencies and offices within the entire government machinery, MIAA is a government instrumentality and not a
government-owned or controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a government
instrumentality is not a taxable person because it is not subject to "[t]axes, fees or charges of any kind" by local governments. The only
exception is when MIAA leases its real property to a "taxable person" as provided in Section 234(a) of the Local Government Code, in
which case the specific real property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and Buildings
leased to taxable persons like private parties are subject to real estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are properties of public
dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically mentions "ports x x x constructed by
the State," which includes public airports and seaports, as properties of public dominion and owned by the Republic. As properties of
public dominion owned by the Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from
real estate tax under Section 234(a) of the Local Government Code. This Court has also repeatedly ruled that properties of public
dominion are not subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5 October 2001 and 27
September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of the Manila International Airport
Authority EXEMPT from the real estate tax imposed by the City of Parañaque. We declare VOID all the real estate tax assessments,
including the final notices of real estate tax delinquencies, issued by the City of Parañaque on the Airport Lands and Buildings of the
Manila International Airport Authority, except for the portions that the Manila International Airport Authority has leased to private parties.
We also declare VOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the Manila International Airport
Authority.
No costs.
SO ORDERED.
Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona, Carpio Morales, Callejo, Sr.,
Azcuna, Tinga, Chico-Nazario, Garcia, Velasco, Jr., J.J., concur.

x-------------------------------------------------------------------------------x
DISSENTING OPINION
TINGA, J. :
The legally correct resolution of this petition would have had the added benefit of an utterly fair and equitable result – a recognition of
the constitutional and statutory power of the City of Parañaque to impose real property taxes on the Manila International Airport
Authority (MIAA), but at the same time, upholding a statutory limitation that prevents the City of Parañaque from seizing and conducting
an execution sale over the real properties of MIAA. In the end, all that the City of Parañaque would hold over the MIAA is a limited lien,
unenforceable as it is through the sale or disposition of MIAA properties. Not only is this the legal effect of all the relevant constitutional
and statutory provisions applied to this case, it also leaves the room for negotiation for a mutually acceptable resolution between the
City of Parañaque and MIAA.
Instead, with blind but measured rage, the majority today veers wildly off-course, shattering statutes and judicial precedents left and
right in order to protect the precious Ming vase that is the Manila International Airport Authority (MIAA). While the MIAA is left
unscathed, it is surrounded by the wreckage that once was the constitutional policy, duly enacted into law, that was local autonomy.
Make no mistake, the majority has virtually declared war on the seventy nine (79) provinces, one hundred seventeen (117) cities, and
one thousand five hundred (1,500) municipalities of the Philippines.1
The icing on this inedible cake is the strained and purposely vague rationale used to justify the majority opinion. Decisions of the
Supreme Court are expected to provide clarity to the parties and to students of jurisprudence, as to what the law of the case is,
especially when the doctrines of long standing are modified or clarified. With all due respect, the decision in this case is plainly so, so
wrong on many levels. More egregious, in the majority's resolve to spare the Manila International Airport Authority (MIAA) from liability
for real estate taxes, no clear-cut rule emerges on the important question of the power of local government units (LGUs) to tax
government corporations, instrumentalities or agencies.
The majority would overturn sub silencio, among others, at least one dozen precedents enumerated below:
1) Mactan-Cebu International Airport Authority v. Hon. Marcos,2 the leading case penned in 1997 by recently retired Chief Justice
Davide, which held that the express withdrawal by the Local Government Code of previously granted exemptions from realty taxes
applied to instrumentalities and government-owned or controlled corporations (GOCCs) such as the Mactan-Cebu International Airport
Authority (MCIAA). The majority invokes the ruling in Basco v. Pagcor,3 a precedent discredited in Mactan, and a vanguard of a doctrine
so noxious to the concept of local government rule that the Local Government Code was drafted precisely to counter such philosophy.
The efficacy of several rulings that expressly rely on Mactan, such as PHILRECA v. DILG Secretary,4 City Government of San Pablo v.
Hon. Reyes5 is now put in question.
2) The rulings in National Power Corporation v. City of Cabanatuan,6 wherein the Court, through Justice Puno, declared that the
National Power Corporation, a GOCC, is liable for franchise taxes under the Local Government Code, and succeeding cases that have
relied on it such as Batangas Power Corp. v. Batangas City7 The majority now states that deems instrumentalities as defined under the
Administrative Code of 1987 as purportedly beyond the reach of any form of taxation by LGUs, stating "[l]ocal governments are devoid
of power to tax the national government, its agencies and instrumentalities."8 Unfortunately, using the definition employed by the
majority, as provided by Section 2(d) of the Administrative Code, GOCCs are also considered as instrumentalities, thus leading to the
astounding conclusion that GOCCs may not be taxed by LGUs under the Local Government Code.
3) Lung Center of the Philippines v. Quezon City,9 wherein a unanimous en banc Court held that the Lung Center of the Philippines may
be liable for real property taxes. Using the majority's reasoning, the Lung Center would be properly classified as an instrumentality
which the majority now holds as exempt from all forms of local taxation.10
4) City of Davao v. RTC,11 where the Court held that the Government Service Insurance System (GSIS) was liable for real property
taxes for the years 1992 to 1994, its previous exemption having been withdrawn by the enactment of the Local Government
Code.12 This decision, which expressly relied on Mactan, would be directly though silently overruled by the majority.
5) The common essence of the Court's rulings in the two Philippine Ports Authority v. City of Iloilo,13 cases penned by Justices Callejo
and Azcuna respectively, which relied in part on Mactan in holding the Philippine Ports Authority (PPA) liable for realty taxes,
notwithstanding the fact that it is a GOCC. Based on the reasoning of the majority, the PPA cannot be considered a GOCC. The
reliance of these cases on Mactan, and its rationale for holding governmental entities like the PPA liable for local government taxation is
mooted by the majority.
6) The 1963 precedent of Social Security System Employees Association v. Soriano,14 which declared the Social Security Commission
(SSC) as a GOCC performing proprietary functions. Based on the rationale employed by the majority, the Social Security System is not
a GOCC. Or perhaps more accurately, "no longer" a GOCC.
7) The decision penned by Justice (now Chief Justice) Panganiban, Light Rail Transit Authority v. Central Board of Assessment.15 The
characterization therein of the Light Rail Transit Authority (LRTA) as a "service-oriented commercial endeavor" whose patrimonial
property is subject to local taxation is now rendered inconsequential, owing to the majority's thinking that an entity such as the LRTA is
itself exempt from local government taxation16, irrespective of the functions it performs. Moreover, based on the majority's criteria, LRTA
is not a GOCC.
8) The cases of Teodoro v. National Airports Corporation17 and Civil Aeronautics Administration v. Court of Appeals.18 wherein the Court
held that the predecessor agency of the MIAA, which was similarly engaged in the operation, administration and management of the
Manila International Agency, was engaged in the exercise of proprietary, as opposed to sovereign functions. The majority would hold
otherwise that the property maintained by MIAA is actually patrimonial, thus implying that MIAA is actually engaged in sovereign
functions.
9) My own majority in Phividec Industrial Authority v. Capitol Steel,19 wherein the Court held that the Phividec Industrial Authority, a
GOCC, was required to secure the services of the Office of the Government Corporate Counsel for legal representation.20 Based on the
reasoning of the majority, Phividec would not be a GOCC, and the mandate of the Office of the Government Corporate Counsel
extends only to GOCCs.
10) Two decisions promulgated by the Court just last month (June 2006), National Power Corporation v. Province of Isabela21 and GSIS
v. City Assessor of Iloilo City.22 In the former, the Court pronounced that "[a]lthough as a general rule, LGUs cannot impose taxes, fees,
or charges of any kind on the National Government, its agencies and instrumentalities, this rule admits of an exception, i.e., when
specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities." Yet the majority
now rules that the exceptions in the LGC no longer hold, since "local governments are devoid of power to tax the national government,
its agencies and instrumentalities."23 The ruling in the latter case, which held the GSIS as liable for real property taxes, is now put in
jeopardy by the majority's ruling.
There are certainly many other precedents affected, perhaps all previous jurisprudence regarding local government taxation vis-a-vis
government entities, as well as any previous definitions of GOCCs, and previous distinctions between the exercise of governmental and
proprietary functions (a distinction laid down by this Court as far back as 191624). What is the reason offered by the majority for
overturning or modifying all these precedents and doctrines? None is given, for the majority takes comfort instead in the pretense that
these precedents never existed. Only children should be permitted to subscribe to the theory that something bad will go away if you
pretend hard enough that it does not exist.
I.
Case Should Have Been Decided
Following Mactan Precedent
The core issue in this case, whether the MIAA is liable to the City of Parañaque for real property taxes under the Local Government
Code, has already been decided by this Court in the Mactan case, and should have been resolved by simply applying precedent.
Mactan Explained
A brief recall of the Mactan case is in order. The Mactan-Cebu International Airport Authority (MCIAA) claimed that it was exempt from
payment of real property taxes to the City of Cebu, invoking the specific exemption granted in Section 14 of its charter, Republic Act No.
6958, and its status as an instrumentality of the government performing governmental functions.25 Particularly, MCIAA invoked Section
133 of the Local Government Code, precisely the same provision utilized by the majority as the basis for MIAA's exemption. Section
133 reads:
Sec. 133. Common Limitations on the Taxing Powers of Local Government Units.— Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:
xxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local government units.
(emphasis and underscoring supplied).
However, the Court in Mactan noted that Section 133 qualified the exemption of the National Government, its agencies and
instrumentalities from local taxation with the phrase "unless otherwise provided herein." It then considered the other relevant provisions
of the Local Government Code, particularly the following:
SEC. 193. Withdrawal of Tax Exemption Privileges. – Unless otherwise provided in this Code, tax exemption or incentives granted to, or
enjoyed by all persons, whether natural or juridical, including government-owned and controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.26
SECTION 232. Power to Levy Real Property Tax. – A province or city or a municipality within the Metropolitan Manila area may levy an
annual ad valorem tax on real property such as land, building, machinery, and other improvements not hereafter specifically
exempted.27
SECTION 234. Exemptions from Real Property Tax. -- The following are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person:
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious cemeteries and all
lands, buildings, and improvements actually, directly, and exclusively used for religious charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned and
controlled corporations engaged in the distribution of water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and environmental protection.
Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons,
whether natural or juridical, including all government-owned or controlled corporations are hereby withdrawn upon the effectivity of this
Code.28
Clearly, Section 133 was not intended to be so absolute a prohibition on the power of LGUs to tax the National Government, its
agencies and instrumentalities, as evidenced by these cited provisions which "otherwise provided." But what was the extent of the
limitation under Section 133? This is how the Court, correctly to my mind, defined the parameters in Mactan:
The foregoing sections of the LGC speak of: (a) the limitations on the taxing powers of local government units and the exceptions to
such limitations; and (b) the rule on tax exemptions and the exceptions thereto. The use of exceptions or provisos in these sections, as
shown by the following clauses:
(1) "unless otherwise provided herein" in the opening paragraph of Section 133;
(2) "Unless otherwise provided in this Code" in Section 193;
(3) "not hereafter specifically exempted" in Section 232; and
(4) "Except as provided herein" in the last paragraph of Section 234
initially hampers a ready understanding of the sections. Note, too, that the aforementioned clause in Section 133 seems to be
inaccurately worded. Instead of the clause "unless otherwise provided herein," with the "herein" to mean, of course, the section, it
should have used the clause "unless otherwise provided in this Code." The former results in absurdity since the section itself
enumerates what are beyond the taxing powers of local government units and, where exceptions were intended, the exceptions are
explicitly indicated in the next. For instance, in item (a) which excepts income taxes "when levied on banks and other financial
institutions"; item (d) which excepts "wharfage on wharves constructed and maintained by the local government unit concerned"; and
item (1) which excepts taxes, fees and charges for the registration and issuance of licenses or permits for the driving of "tricycles." It
may also be observed that within the body itself of the section, there are exceptions which can be found only in other parts of the LGC,
but the section interchangeably uses therein the clause, "except as otherwise provided herein" as in items (c) and (i), or the clause
"except as provided in this Code" in item (j). These clauses would be obviously unnecessary or mere surplusages if the opening clause
of the section were "Unless otherwise provided in this Code" instead of "Unless otherwise provided herein." In any event, even if the
latter is used, since under Section 232 local government units have the power to levy real property tax, except those exempted
therefrom under Section 234, then Section 232 must be deemed to qualify Section 133.
Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down in Section 133, the
taxing powers of local government units cannot extend to the levy of, inter alia, "taxes, fees and charges of any kind on the National
Government, its agencies and instrumentalities, and local government units"; however, pursuant to Section 232, provinces, cities, and
municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter alia, "real property owned by the
Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration
or otherwise, to a taxable person," as provided in item (a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by natural or judicial persons, including government-owned and
controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon the effectivity of the LGC,
except those granted to local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, and unless otherwise provided in the LGC. The latter proviso could refer to Section 234 which enumerates the
properties exempt from real property tax. But the last paragraph of Section 234 further qualifies the retention of the exemption insofar
as real property taxes are concerned by limiting the retention only to those enumerated therein; all others not included in the
enumeration lost the privilege upon the effectivity of the LGC. Moreover, even as to real property owned by the Republic of the
Philippines or any of its political subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is withdrawn if the
beneficial use of such property has been granted to a taxable person for consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from payment of real
property taxes granted to natural or juridical persons, including government-owned or controlled corporations, except as provided in the
said section, and the petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its exemption from such tax
granted it in Section 14 of its Charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary can only be justified if the petitioner
can seek refuge under any of the exceptions provided in Section 234, but not under Section 133, as it now asserts, since, as shown
above, the said section is qualified by Sections 232 and 234.29
The Court in Mactan acknowledged that under Section 133, instrumentalities were generally exempt from all forms of local government
taxation, unless otherwise provided in the Code. On the other hand, Section 232 "otherwise provided" insofar as it allowed LGUs to levy
an ad valorem real property tax, irrespective of who owned the property. At the same time, the imposition of real property taxes under
Section 232 is in turn qualified by the phrase "not hereinafter specifically exempted." The exemptions from real property taxes are
enumerated in Section 234, which specifically states that only real properties owned "by the Republic of the Philippines or any of its
political subdivisions" are exempted from the payment of the tax. Clearly, instrumentalities or GOCCs do not fall within the exceptions
under Section 234.30
Mactan Overturned the
Precedents Now Relied
Upon by the Majority
But the petitioners in Mactan also raised the Court's ruling in Basco v. PAGCOR,31 decided before the enactment of the Local
Government Code. The Court in Basco declared the PAGCOR as exempt from local taxes, justifying the exemption in this wise:
Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled
corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. In addition to its
corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers xxx
PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the category
of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is
exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local government.
"The states have no power by taxation or otherwise, to retard impede, burden or in any manner control the operation of constitutional
laws enacted by Congress to carry into execution the powers vested in the federal government." (McCulloch v. Marland, 4 Wheat 316, 4
L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to touch, in
that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no
state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140,
emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be
undesirable activates or enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to destroy" (McCulloch v. Maryland, supra) cannot be allowed to
defeat an instrumentality or creation of the very entity which has the inherent power to wield it.32
Basco is as strident a reiteration of the old guard view that frowned on the principle of local autonomy, especially as it interfered with the
prerogatives and privileges of the national government. Also consider the following citation from Maceda v. Macaraig,33 decided the
same year as Basco. Discussing the rule of construction of tax exemptions on government instrumentalities, the sentiments are of a
similar vein.
Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of a
government political subdivision or instrumentality.
The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or deductions, even more obvious
than with reference to the affirmative or levying provisions of tax statutes, is to minimize differential treatment and foster impartiality,
fairness, and equality of treatment among tax payers.
The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such
case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course
of its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non
tax-liability of such agencies.
In the case of property owned by the state or a city or other public corporations, the express exemption should not be construed with
the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to such property "exemption is the
rule and taxation the exception."34
Strikingly, the majority cites these two very cases and the stodgy rationale provided therein. This evinces the perspective from which
the majority is coming from. It is admittedly a viewpoint once shared by this Court, and en vogue prior to the enactment of the Local
Government Code of 1991.
However, the Local Government Code of 1991 ushered in a new ethos on how the art of governance should be practiced in the
Philippines, conceding greater powers once held in the private reserve of the national government to LGUs. The majority might have
private qualms about the wisdom of the policy of local autonomy, but the members of the Court are not expected to substitute their
personal biases for the legislative will, especially when the 1987 Constitution itself promotes the principle of local autonomy.
Article II. Declaration of Principles and State Policies
xxx
Sec. 25. The State shall ensure the autonomy of local governments.
Article X. Local Government
xxx
Sec. 2. The territorial and political subdivisions shall enjoy local autonomy.
Section 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable local
government structure instituted through a system of decentralization with effective mechanisms of recall, initiative, and referendum,
allocate among the different local government units their powers, responsibilities, and resources, and provide for the qualifications,
election, appointment and removal, term, salaries, powers and functions and duties of local officials, and all other matters relating to the
organization and operation of the local units.
xxx
Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges
subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes,
fees, and charges shall accrue exclusively to the local governments.
xxx
The Court in Mactan recognized that a new day had dawned with the enactment of the 1987 Constitution and the Local Government
Code of 1991. Thus, it expressly rejected the contention of the MCIAA that Basco was applicable to them. In doing so, the language of
the Court was dramatic, if only to emphasize how monumental the shift in philosophy was with the enactment of the Local Government
Code:
Accordingly, the position taken by the [MCIAA] is untenable. Reliance on Basco v. Philippine Amusement and Gaming Corporation is
unavailing since it was decided before the effectivity of the [Local Government Code]. Besides, nothing can prevent Congress from
decreeing that even instrumentalities or agencies of the Government performing governmental functions may be subject to tax. Where it
is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom.35 (emphasis supplied)
The Court Has Repeatedly
Reaffirmed Mactan Over the
Precedents Now Relied Upon
By the Majority
Since then and until today, the Court has been emphatic in declaring the Basco doctrine as dead. The notion that instrumentalities may
be subjected to local taxation by LGUs was again affirmed in National Power Corporation v. City of Cabanatuan,36 which was penned by
Justice Puno. NPC or Napocor, invoking its continued exemption from payment of franchise taxes to the City of Cabanatuan, alleged
that it was an instrumentality of the National Government which could not be taxed by a city government. To that end, Basco was cited
by NPC. The Court had this to say about Basco.
xxx[T]he doctrine in Basco vs. Philippine Amusement and Gaming Corporation relied upon by the petitioner to support its claim no
longer applies. To emphasize, the Basco case was decided prior to the effectivity of the LGC, when no law empowering the local
government units to tax instrumentalities of the National Government was in effect. However, as this Court ruled in the case of Mactan
Cebu International Airport Authority (MCIAA) vs. Marcos, nothing prevents Congress from decreeing that even instrumentalities or
agencies of the government performing governmental functions may be subject to tax. In enacting the LGC, Congress exercised its
prerogative to tax instrumentalities and agencies of government as it sees fit. Thus, after reviewing the specific provisions of the LGC,
this Court held that MCIAA, although an instrumentality of the national government, was subject to real property tax.37
In the 2003 case of Philippine Ports Authority v. City of Iloilo,38 the Court, in the able ponencia of Justice Azcuna, affirmed the levy of
realty taxes on the PPA. Although the taxes were assessed under the old Real Property Tax Code and not the Local Government Code,
the Court again cited Mactan to refute PPA's invocation of Basco as the basis of its exemption.
[Basco] did not absolutely prohibit local governments from taxing government instrumentalities. In fact we stated therein:
The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide by law. Since
P.D. 1869 remains an "operative" law until "amended, repealed or revoked". . . its "exemption clause" remains an exemption to the
exercise of the power of local governments to impose taxes and fees.
Furthermore, in the more recent case of Mactan Cebu International Airport Authority v. Marcos, where the Basco case was similarly
invoked for tax exemption, we stated: "[N]othing can prevent Congress from decreeing that even instrumentalities or agencies of the
Government performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and
national policy, no one can doubt its wisdom." The fact that tax exemptions of government-owned or controlled corporations have been
expressly withdrawn by the present Local Government Code clearly attests against petitioner's claim of absolute exemption of
government instrumentalities from local taxation.39
Just last month, the Court in National Power Corporation v. Province of Isabela40 again rejected Basco in emphatic terms. Held the
Court, through Justice Callejo, Sr.:
Thus, the doctrine laid down in the Basco case is no longer true. In the Cabanatuan case, the Court noted primarily that the Basco case
was decided prior to the effectivity of the LGC, when no law empowering the local government units to tax instrumentalities of the
National Government was in effect. It further explained that in enacting the LGC, Congress empowered the LGUs to impose certain
taxes even on instrumentalities of the National Government.41
The taxability of the PPA recently came to fore in Philippine Ports Authority v. City of Iloilo42 case, a decision also penned by Justice
Callejo, Sr., wherein the Court affirmed the sale of PPA's properties at public auction for failure to pay realty taxes. The Court again
reiterated that "it was the intention of Congress to withdraw the tax exemptions granted to or presently enjoyed by all persons, including
government-owned or controlled corporations, upon the effectivity" of the Code.43 The Court in the second Public Ports Authority case
likewise cited Mactan as providing the "raison d'etre for the withdrawal of the exemption," namely, "the State policy to ensure autonomy
to local governments and the objective of the [Local Government Code] that they enjoy genuine and meaningful local autonomy to
enable them to attain their fullest development as self-reliant communities. . . . "44
Last year, the Court, in City of Davao v. RTC,45 affirmed that the legislated exemption from real property taxes of the Government
Service Insurance System (GSIS) was removed under the Local Government Code. Again, Mactan was relied upon as the governing
precedent. The removal of the tax exemption stood even though the then GSIS law46 prohibited the removal of GSIS' tax exemptions
unless the exemption was specifically repealed, "and a provision is enacted to substitute the declared policy of exemption from any and
all taxes as an essential factor for the solvency of the fund."47 The Court, citing established doctrines in statutory construction and
Duarte v. Dade48ruled that such proscription on future legislation was itself prohibited, as "the legislature cannot bind a future legislature
to a particular mode of repeal."49
And most recently, just less than one month ago, the Court, through Justice Corona in Government Service Insurance System v. City
Assessor of Iloilo50 again affirmed that the Local Government Code removed the previous exemption from real property taxes of the
GSIS. Again Mactan was cited as having "expressly withdrawn the [tax] exemption of the [GOCC].51
Clearly then, Mactan is not a stray or unique precedent, but the basis of a jurisprudential rule employed by the Court since its adoption,
the doctrine therein consistent with the Local Government Code. Corollarily, Basco, the polar opposite of Mactan has been emphatically
rejected and declared inconsistent with the Local Government Code.
II.
Majority, in Effectively Overturning Mactan,
Refuses to Say Why Mactan Is Wrong
The majority cites Basco in support. It does not cite Mactan, other than an incidental reference that it is relied upon by the
respondents.52 However, the ineluctable conclusion is that the majority rejects the rationale and ruling in Mactan. The majority provides
for a wildly different interpretation of Section 133, 193 and 234 of the Local Government Code than that employed by the Court in
Mactan. Moreover, the parties in Mactan and in this case are similarly situated, as can be obviously deducted from the fact that both
petitioners are airport authorities operating under similarly worded charters. And the fact that the majority cites doctrines contrapuntal to
the Local Government Code as in Basco and Maceda evinces an intent to go against the Court's jurisprudential trend adopting the
philosophy of expanded local government rule under the Local Government Code.
Before I dwell upon the numerous flaws of the majority, a brief comment is necessitated on the majority's studied murkiness vis-à-vis
the Mactan precedent. The majority is obviously inconsistent with Mactan and there is no way these two rulings can stand together.
Following basic principles in statutory construction, Mactan will be deemed as giving way to this new ruling.
However, the majority does not bother to explain why Mactan is wrong. The interpretation in Mactan of the relevant provisions of the
Local Government Code is elegant and rational, yet the majority refuses to explain why this reasoning of the Court in Mactan is
erroneous. In fact, the majority does not even engage Mactan in any meaningful way. If the majority believes that Mactan may still stand
despite this ruling, it remains silent as to the viable distinctions between these two cases.
The majority's silence on Mactan is baffling, considering how different this new ruling is with the ostensible precedent. Perhaps the
majority does not simply know how to dispense with the ruling in Mactan. If Mactan truly deserves to be discarded as precedent, it
deserves a more honorable end than death by amnesia or ignonominous disregard. The majority could have devoted its discussion in
explaining why it thinks Mactan is wrong, instead of pretending that Mactan never existed at all. Such an approach might not have won
the votes of the minority, but at least it would provide some degree of intellectual clarity for the parties, LGUs and the national
government, students of jurisprudence and practitioners. A more meaningful debate on the matter would have been possible, enriching
the study of law and the intellectual dynamic of this Court.
There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the MIAA are similarly situated. They are
both, as will be demonstrated, GOCCs, commonly engaged in the business of operating an airport. They are the owners of airport
properties they respectively maintain and hold title over these properties in their name.53 These entities are both owned by the State,
and denied by their respective charters the absolute right to dispose of their properties without prior approval elsewhere.54 Both of them
are
not empowered to obtain loans or encumber their properties without prior approval the prior approval of the President.55
III.
Instrumentalities, Agencies
And GOCCs Generally
Liable for Real Property Tax
I shall now proceed to demonstrate the errors in reasoning of the majority. A bulwark of my position lies with Mactan, which will further
demonstrate why the majority has found it inconvenient to even grapple with the precedent that is Mactan in the first place.
Mactan held that the prohibition on taxing the national government, its agencies and instrumentalities under Section 133 is qualified by
Section 232 and Section 234, and accordingly, the only relevant exemption now applicable to these bodies is as provided under Section
234(o), or on "real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person."
It should be noted that the express withdrawal of previously granted exemptions by the Local Government Code do not even make any
distinction as to whether the exempt person is a governmental entity or not. As Sections 193 and 234 both state, the withdrawal applies
to "all persons, including [GOCCs]", thus encompassing the two classes of persons recognized under our laws, natural persons56 and
juridical persons.57
The fact that the Local Government Code mandates the withdrawal of previously granted exemptions evinces certain key points. If an
entity was previously granted an express exemption from real property taxes in the first place, the obvious conclusion would be that
such entity would ordinarily be liable for such taxes without the exemption. If such entities were already deemed exempt due to some
overarching principle of law, then it would be a redundancy or surplusage to grant an exemption to an already exempt entity. This fact
militates against the claim that MIAA is preternaturally exempt from realty taxes, since it required the enactment of an express
exemption from such taxes in its charter.
Amazingly, the majority all but ignores the disquisition in Mactan and asserts that government instrumentalities are not taxable persons
unless they lease their properties to a taxable person. The general rule laid down in Section 232 is given short shrift. In arriving at this
conclusion, several leaps in reasoning are committed.
Majority's Flawed Definition
of GOCCs.
The majority takes pains to assert that the MIAA is not a GOCC, but rather an instrumentality. However, and quite grievously, the
supposed foundation of this assertion is an adulteration.
The majority gives the impression that a government instrumentality is a distinct concept from a government corporation.58 Most
tellingly, the majority selectively cites a portion of Section 2(10) of the Administrative Code of 1987, as follows:
Instrumentality refers to any agency of the National Government not integrated within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. xxx59 (emphasis omitted)
However, Section 2(10) of the Administrative Code, when read in full, makes an important clarification which the majority does not
show. The portions omitted by the majority are highlighted below:
(10)Instrumentality refers to any agency of the National Government not integrated within the department framework, vested with
special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and government—owned
or controlled corporations.60
Since Section 2(10) makes reference to "agency of the National Government," Section 2(4) is also worth citing in full:
(4) Agency of the Government refers to any of the various units of the Government, including a department, bureau, office,
instrumentality, or government-owned or controlled corporation, or a local government or a distinct unit therein. (emphasis supplied)61
Clearly then, based on the Administrative Code, a GOCC may be an instrumentality or an agency of the National Government. Thus,
there actually is no point in the majority's assertion that MIAA is not a GOCC, since based on the majority's premise of Section 133 as
the key provision, the material question is whether MIAA is either an instrumentality, an agency, or the National Government itself. The
very provisions of the Administrative Code provide that a GOCC can be either an instrumentality or an agency, so why even bother to
extensively discuss whether or not MIAA is a GOCC?
Indeed as far back as the 1927 case of Government of the Philippine Islands v. Springer,62 the Supreme Court already noted that a
corporation of which the government is the majority stockholder "remains an agency or instrumentality of government."63
Ordinarily, the inconsequential verbiage stewing in judicial opinions deserve little rebuttal. However, the entire discussion of the majority
on the definition of a GOCC, obiter as it may ultimately be, deserves emphatic refutation. The views of the majority on this matter are
very dangerous, and would lead to absurdities, perhaps unforeseen by the majority. For in fact, the majority effectively declassifies
many entities created and recognized as GOCCs and would give primacy to the Administrative Code of 1987 rather than their
respective charters as to the definition of these entities.
Majority Ignores the Power
Of Congress to Legislate and
Define Chartered Corporations
First, the majority declares that, citing Section 2(13) of the Administrative Code, a GOCC must be "organized as a stock or non-stock
corporation," as defined under the Corporation Code. To insist on this as an absolute rule fails on bare theory. Congress has the
undeniable power to create a corporation by legislative charter, and has been doing so throughout legislative history. There is no
constitutional prohibition on Congress as to what structure these chartered corporations should take on. Clearly, Congress has the
prerogative to create a corporation in whatever form it chooses, and it is not bound by any traditional format. Even if there is a definition
of what a corporation is under the Corporation Code or the Administrative Code, these laws are by no means sacrosanct. It should be
remembered that these two statutes fall within the same level of hierarchy as a congressional charter, since they all are legislative
enactments. Certainly, Congress can choose to disregard either the Corporation Code or the Administrative Code in defining the
corporate structure of a GOCC, utilizing the same extent of legislative powers similarly vesting it the putative ability to amend or abolish
the Corporation Code or the Administrative Code.
These principles are actually recognized by both the Administrative Code and the Corporation Code. The definition of GOCCs,
agencies and instrumentalities under the Administrative Code are laid down in the section entitled "General Terms Defined," which
qualifies:
Sec. 2. General Terms Defined. – Unless the specific words of the text, or the context as a whole, or a particular statute, shall require a
different meaning: (emphasis supplied)
xxx
Similar in vein is Section 6 of the Corporation Code which provides:
SEC. 4. Corporations created by special laws or charters.— Corporations created by special laws or charters shall be governed
primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by the provisions of this
Code, insofar as they are applicable. (emphasis supplied)
Thus, the clear doctrine emerges – the law that governs the definition of a corporation or entity created by Congress is its legislative
charter. If the legislative enactment defines an entity as a corporation, then it is a corporation, no matter if the Corporation Code or the
Administrative Code seemingly provides otherwise. In case of conflict between the legislative charter of a government corporation, on
one hand, and the Corporate Code and the Administrative Code, on the other, the former always prevails.
Majority, in Ignoring the
Legislative Charters, Effectively
Classifies Duly Established GOCCs,
With Disastrous and Far Reaching
Legal Consequences
Second, the majority claims that MIAA does not qualify either as a stock or non-stock corporation, as defined under the Corporation
Code. It explains that the MIAA is not a stock corporation because it does not have any capital stock divided into shares. Neither can it
be considered as a non-stock corporation because it has no members, and under Section 87, a non-stock corporation is one where no
part of its income is distributable as dividends to its members, trustees or officers.
This formulation of course ignores Section 4 of the Corporation Code, which again provides that corporations created by special laws or
charters shall be governed primarily by the provisions of the special law or charter, and not the Corporation Code.
That the MIAA cannot be considered a stock corporation if only because it does not have a stock structure is hardly a plausible
proposition. Indeed, there is no point in requiring a capital stock structure for GOCCs whose full ownership is limited by its charter to the
State or Republic. Such GOCCs are not empowered to declare dividends or alienate their capital shares.
Admittedly, there are GOCCs established in such a manner, such as the National Power Corporation (NPC), which is provided with
authorized capital stock wholly subscribed and paid for by the Government of the Philippines, divided into shares but at the same time,
is prohibited from transferring, negotiating, pledging, mortgaging or otherwise giving these shares as security for payment of any
obligation.64 However, based on the Corporation Code definition relied upon by the majority, even the NPC cannot be considered as a
stock corporation. Under Section 3 of the Corporation Code, stock corporations are defined as being "authorized to distribute to the
holders of its shares dividends or allotments of the surplus profits on the basis of the shares held."65 On the other hand, Section 13 of
the NPC's charter states that "the Corporation shall be non-profit and shall devote all its returns from its capital investment, as well as
excess revenues from its operation, for expansion."66 Can the holder of the shares of NPC, the National Government, receive its surplus
profits on the basis of its shares held? It cannot, according to the NPC charter, and hence, following Section 3 of the Corporation Code,
the NPC is not a stock corporation, if the majority is to be believed.
The majority likewise claims that corporations without members cannot be deemed non-stock corporations. This would seemingly
exclude entities such as the NPC, which like MIAA, has no ostensible members. Moreover, non-stock corporations cannot distribute any
part of its income as dividends to its members, trustees or officers. The majority faults MIAA for remitting 20% of its gross operating
income to the national government. How about the Philippine Health Insurance Corporation, created with the "status of a tax-exempt
government corporation attached to the Department of Health" under Rep. Act No. 7875.67 It too cannot be considered as a stock
corporation because it has no capital stock structure. But using the criteria of the majority, it is doubtful if it would pass muster as a non-
stock corporation, since the PHIC or Philhealth, as it is commonly known, is expressly empowered "to collect, deposit, invest,
administer and disburse" the National Health Insurance Fund.68 Or how about the Social Security System, which under its revised
charter, Republic Act No. 8282, is denominated as a "corporate body."69 The SSS has no capital stock structure, but has capital
comprised of contributions by its members, which are eventually remitted back to its members. Does this disqualify the SSS from
classification as a GOCC, notwithstanding this Court's previous pronouncement in Social Security System Employees Association v.
Soriano?70
In fact, Republic Act No. 7656, enacted in 1993, requires that all GOCCs, whether stock or non-stock,71 declare and remit at least fifty
percent (50%) of their annual net earnings as cash, stock or property dividends to the National Government.72 But according to the
majority, non-stock corporations are prohibited from declaring any part of its income as dividends. But if Republic Act No. 7656 requires
even non-stock corporations to declare dividends from income, should it not follow that the prohibition against declaration of dividends
by non-stock corporations under the Corporation Code does not apply to government-owned or controlled corporations? For if not, and
the majority's illogic is pursued, Republic Act No. 7656, passed in 1993, would be fatally flawed, as it would contravene the
Administrative Code of 1987 and the Corporation Code.
In fact, the ruinous effects of the majority's hypothesis on the nature of GOCCs can be illustrated by Republic Act No. 7656. Following
the majority's definition of a GOCC and in accordance with Republic Act No. 7656, here are but a few entities which are not obliged to
remit fifty (50%) of its annual net earnings to the National Government as they are excluded from the scope of Republic Act No. 7656:
1) Philippine Ports Authority73 – has no capital stock74, no members, and obliged to apply the balance of its income or revenue at the
end of each year in a general reserve.75
2) Bases Conversion Development Authority76 - has no capital stock,77 no members.
3) Philippine Economic Zone Authority78 - no capital stock,79 no members.
4) Light Rail Transit Authority80 - no capital stock,81 no members.
5) Bangko Sentral ng Pilipinas82 - no capital stock,83 no members, required to remit fifty percent (50%) of its net profits to the National
Treasury.84
6) National Power Corporation85 - has capital stock but is prohibited from "distributing to the holders of its shares dividends or allotments
of the surplus profits on the basis of the shares held;"86 no members.
7) Manila International Airport Authority – no capital stock87, no members88, mandated to remit twenty percent (20%) of its annual gross
operating income to the National Treasury.89
Thus, for the majority, the MIAA, among many others, cannot be considered as within the coverage of Republic Act No. 7656.
Apparently, President Fidel V. Ramos disagreed. How else then could Executive Order No. 483, signed in 1998 by President Ramos, be
explained? The issuance provides:
WHEREAS, Section 1 of Republic Act No. 7656 provides that:
"Section 1. Declaration of Policy. - It is hereby declared the policy of the State that in order for the National Government to realize
additional revenues, government-owned and/or controlled corporations, without impairing their viability and the purposes for which they
have been established, shall share a substantial amount of their net earnings to the National Government."
WHEREAS, to support the viability and mandate of government-owned and/or controlled corporations [GOCCs], the liquidity, retained
earnings position and medium-term plans and programs of these GOCCs were considered in the determination of the reasonable
dividend rates of such corporations on their 1997 net earnings.
WHEREAS, pursuant to Section 5 of RA 7656, the Secretary of Finance recommended the adjustment on the percentage of annual net
earnings that shall be declared by the Manila International Airport Authority [MIAA] and Phividec Industrial Authority [PIA] in the interest
of national economy and general welfare.
NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Philippines, by virtue of the powers vested in me by law, do hereby order:
SECTION 1. The percentage of net earnings to be declared and remitted by the MIAA and PIA as dividends to the National Government
as provided for under Section 3 of Republic Act No. 7656 is adjusted from at least fifty percent [50%] to the rates specified hereunder:
1. Manila International Airport Authority - 35% [cash]
2. Phividec Industrial Authority - 25% [cash]
SECTION 2. The adjusted dividend rates provided for under Section 1 are only applicable on 1997 net earnings of the concerned
government-owned and/or controlled corporations.
Obviously, it was the opinion of President Ramos and the Secretary of Finance that MIAA is a GOCC, for how else could it have come
under the coverage of Republic Act No. 7656, a law applicable only to GOCCs? But, the majority apparently disagrees, and resultantly
holds that MIAA is not obliged to remit even the reduced rate of thirty five percent (35%) of its net earnings to the national government,
since it cannot be covered by Republic Act No. 7656.
All this mischief because the majority would declare the Administrative Code of 1987 and the Corporation Code as the sole sources of
law defining what a government corporation is. As I stated earlier, I find it illogical that chartered corporations are compelled to comply
with the templates of the Corporation Code, especially when the Corporation Code itself states that these corporations are to be
governed by their own charters. This is especially true considering that the very provision cited by the majority, Section 87 of the
Corporation Code, expressly says that the definition provided therein is laid down "for the purposes of this [Corporation] Code." Read in
conjunction with Section 4 of the Corporation Code which mandates that corporations created by charter be governed by the law
creating them, it is clear that contrary to the majority, MIAA is not disqualified from classification as a non-stock corporation by reason of
Section 87, the provision not being applicable to corporations created by special laws or charters. In fact, I see no real impediment why
the MIAA and similarly situated corporations such as the PHIC, the SSS, the Philippine Deposit Insurance Commission, or maybe even
the NPC could at the very least, be deemed as no stock corporations (as differentiated from non-stock corporations).
The point, stripped to bare simplicity, is that entity created by legislative enactment is a corporation if the legislature says so. After all, it
is the legislature that dictates what a corporation is in the first place. This is better illustrated by another set of entities created before
martial law. These include the Mindanao Development Authority,90 the Northern Samar Development Authority,91 the Ilocos Sur
Development Authority,92 the Southeastern Samar Development Authority93 and the Mountain Province Development Authority.94 An
examination of the first section of the statutes creating these entities reveal that they were established "to foster accelerated and
balanced growth" of their respective regions, and towards such end, the charters commonly provide that "it is recognized that a
government corporation should be created for the purpose," and accordingly, these charters "hereby created a body
corporate."95 However, these corporations do not have capital stock nor members, and are obliged to return the unexpended balances
of their appropriations and earnings to a revolving fund in the National Treasury. The majority effectively declassifies these entities as
GOCCs, never mind the fact that their very charters declare them to be GOCCs.
I mention these entities not to bring an element of obscurantism into the fray. I cite them as examples to emphasize my fundamental
point—that it is the legislative charters of these entities, and not the Administrative Code, which define the class of personality of these
entities created by Congress. To adopt the view of the majority would be, in effect, to sanction an implied repeal of numerous
congressional charters for the purpose of declassifying GOCCs. Certainly, this could not have been the intent of the crafters of the
Administrative Code when they drafted the "Definition of Terms" incorporated therein.
MIAA Is Without
Doubt, A GOCC
Following the charters of government corporations, there are two kinds of GOCCs, namely: GOCCs which are stock corporations and
GOCCs which are no stock corporations (as distinguished from non-stock corporation). Stock GOCCs are simply those which have
capital stock while no stock GOCCs are those which have no capital stock. Obviously these definitions are different from the definitions
of the terms in the Corporation Code. Verily, GOCCs which are not incorporated with the Securities and Exchange Commission are not
governed by the Corporation Code but by their respective charters.
For the MIAA's part, its charter is replete with provisions that indubitably classify it as a GOCC. Observe the following provisions from
MIAA's charter:
SECTION 3. Creation of the Manila International Airport Authority.—There is hereby established a body corporate to be known as the
Manila International Airport Authority which shall be attached to the Ministry of Transportation and Communications. The principal office
of the Authority shall be located at the New Manila International Airport. The Authority may establish such offices, branches, agencies or
subsidiaries as it may deem proper and necessary; Provided, That any subsidiary that may be organized shall have the prior approval
of the President.
The land where the Airport is presently located as well as the surrounding land area of approximately six hundred hectares, are hereby
transferred, conveyed and assigned to the ownership and administration of the Authority, subject to existing rights, if any. The Bureau of
Lands and other appropriate government agencies shall undertake an actual survey of the area transferred within one year from the
promulgation of this Executive Order and the corresponding title to be issued in the name of the Authority. Any portion thereof shall not
be disposed through sale or through any other mode unless specifically approved by the President of the Philippines.
xxx
SECTION 5. Functions, Powers, and Duties. — The Authority shall have the following functions, powers and duties:
xxx
(d) To sue and be sued in its corporate name;
(e) To adopt and use a corporate seal;
(f) To succeed by its corporate name;
(g) To adopt its by-laws, and to amend or repeal the same from time to time;
(h) To execute or enter into contracts of any kind or nature;
(i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building, airport facility, or property of
whatever kind and nature, whether movable or immovable, or any interest therein;
(j) To exercise the power of eminent domain in the pursuit of its purposes and objectives;
xxx
(o) To exercise all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the
provisions of this Executive Order.
xxx
SECTION 16. Borrowing Power. — The Authority may, after consultation with the Minister of Finance and with the approval of the
President of the Philippines, as recommended by the Minister of Transportation and Communications, raise funds, either from local or
international sources, by way of loans, credits or securities, and other borrowing instruments, with the power to create pledges,
mortgages and other voluntary liens or encumbrances on any of its assets or properties.
All loans contracted by the Authority under this Section, together with all interests and other sums payable in respect thereof, shall
constitute a charge upon all the revenues and assets of the Authority and shall rank equally with one another, but shall have priority
over any other claim or charge on the revenue and assets of the Authority: Provided, That this provision shall not be construed as a
prohibition or restriction on the power of the Authority to create pledges, mortgages, and other voluntary liens or encumbrances on any
assets or property of the Authority.
Except as expressly authorized by the President of the Philippines the total outstanding indebtedness of the Authority in the principal
amount, in local and foreign currency, shall not at any time exceed the net worth of the Authority at any given time.
xxx
The President or his duly authorized representative after consultation with the Minister of Finance may guarantee, in the name and on
behalf of the Republic of the Philippines, the payment of the loans or other indebtedness of the Authority up to the amount herein
authorized.
These cited provisions establish the fitness of MIAA to be the subject of legal relations.96 MIAA under its charter may acquire and
possess property, incur obligations, and bring civil or criminal actions. It has the power to contract in its own name, and to acquire title
to real or personal property. It likewise may exercise a panoply of corporate powers and possesses all the trappings of corporate
personality, such as a corporate name, a corporate seal and by-laws. All these are contained in MIAA's charter which, as conceded by
the Corporation Code and even the Administrative Code, is the primary law that governs the definition and organization of the MIAA.
In fact, MIAA itself believes that it is a GOCC represents itself as such. It said so itself in the very first paragraph of the present petition
before this Court.97 So does, apparently, the Department of Budget and Management, which classifies MIAA as a "government owned &
controlled corporation" on its internet website.98 There is also the matter of Executive Order No. 483, which evinces the belief of the
then-president of the Philippines that MIAA is a GOCC. And the Court before had similarly characterized MIAA as a government-owned
and controlled corporation in the earlier MIAA case, Manila International Airport Authority v. Commission on Audit.99
Why then the hesitance to declare MIAA a GOCC? As the majority repeatedly asserts, it is because MIAA is actually an instrumentality.
But the very definition relied upon by the majority of an instrumentality under the Administrative Code clearly states that a GOCC is
likewise an instrumentality or an agency. The question of whether MIAA is a GOCC might not even be determinative of this Petition, but
the effect of the majority's disquisition on that matter may even be more destructive than the ruling that MIAA is exempt from realty
taxes. Is the majority ready to live up to the momentous consequences of its flawed reasoning?
Novel Proviso in 1987 Constitution
Prescribing Standards in the
Creation of GOCCs Necessarily
Applies only to GOCCs Created
After 1987.
One last point on this matter on whether MIAA is a GOCC. The majority triumphantly points to Section 16, Article XII of the 1987
Constitution, which mandates that the creation of GOCCs through special charters be "in the interest of the common good and subject
to the test of economic viability." For the majority, the test of economic viability does not apply to government entities vested with
corporate powers and performing essential public services. But this test of "economic viability" is new to the constitutional framework.
No such test was imposed in previous Constitutions, including the 1973 Constitution which was the fundamental law in force when the
MIAA was created. How then could the MIAA, or any GOCC created before 1987 be expected to meet this new precondition to the
creation of a GOCC? Does the dissent seriously suggest that GOCCs created before 1987 may be declassified on account of their
failure to meet this "economic viability test"?
Instrumentalities and Agencies
Also Generally Liable For
Real Property Taxes
Next, the majority, having bludgeoned its way into asserting that MIAA is not a GOCC, then argues that MIAA is an instrumentality. It
cites incompletely, as earlier stated, the provision of Section 2(10) of the Administrative Code. A more convincing view offered during
deliberations, but which was not adopted by the ponencia, argued that MIAA is not an instrumentality but an agency, considering the
fact that under the Administrative Code, the MIAA is attached within the department framework of the Department of Transportation and
Communications.100 Interestingly, Executive Order No. 341, enacted by President Arroyo in 2004, similarly calls MIAA an agency. Since
instrumentalities are expressly defined as "an agency not integrated within the department framework," that view concluded that MIAA
cannot be deemed an instrumentality.
Still, that distinction is ultimately irrelevant. Of course, as stated earlier, the Administrative Code considers GOCCs as agencies, 101 so
the fact that MIAA is an agency does not exclude it from classification as a GOCC. On the other hand, the majority justifies MIAA's
purported exemption on Section 133 of the Local Government Code, which similarly situates "agencies and instrumentalities" as
generally exempt from the taxation powers of LGUs. And on this point, the majority again evades Mactan and somehow concludes that
Section 133 is the general rule, notwithstanding Sections 232 and 234(a) of the Local Government Code. And the majority's ultimate
conclusion? "By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national
government instrumentalities like the MIAA. Local governments are devoid of power to tax the national government, its agencies and
instrumentalities."102
The Court's interpretation of the Local Government Code in Mactan renders the law integrally harmonious and gives due accord to the
respective prerogatives of the national government and LGUs. Sections 133 and 234(a) ensure that the Republic of the Philippines or
its political subdivisions shall not be subjected to any form of local government taxation, except realty taxes if the beneficial use of the
property owned has been granted for consideration to a taxable entity or person. On the other hand, Section 133 likewise assures that
government instrumentalities such as GOCCs may not be arbitrarily taxed by LGUs, since they could be subjected to local taxation if
there is a specific proviso thereon in the Code. One such proviso is Section 137, which as the Court found in National Power
Corporation,103 permits the imposition of a franchise tax on businesses enjoying a franchise, even if it be a GOCC such as NPC. And,
as the Court acknowledged in Mactan, Section 232 provides another exception on the taxability of instrumentalities.
The majority abjectly refuses to engage Section 232 of the Local Government Code although it provides the indubitable general rule
that LGUs "may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvements not
hereafter specifically exempted." The specific exemptions are provided by Section 234. Section 232 comes sequentially after Section
133(o),104 and even if the sequencing is irrelevant, Section 232 would fall under the qualifying phrase of Section 133, "Unless otherwise
provided herein." It is sad, but not surprising that the majority is not willing to consider or even discuss the general rule, but only the
exemptions under Section 133 and Section 234. After all, if the majority is dead set in ruling for MIAA no matter what the law says, why
bother citing what the law does say.
Constitution, Laws and
Jurisprudence Have Long
Explained the Rationale
Behind the Local Taxation
Of GOCCs.
This blithe disregard of precedents, almost all of them unanimously decided, is nowhere more evident than in the succeeding
discussion of the majority, which asserts that the power of local governments to tax national government instrumentalities be construed
strictly against local governments. The Maceda case, decided before the Local Government Code, is cited, as is Basco. This section of
the majority employs deliberate pretense that the Code never existed, or that the fundamentals of local autonomy are of limited effect in
our country. Why is it that the Local Government Code is barely mentioned in this section of the majority? Because Section 5 of the
Code, purposely omitted by the majority provides for a different rule of interpretation than that asserted:
Section 5. Rules of Interpretation. – In the interpretation of the provisions of this Code, the following rules shall apply:
(a) Any provision on a power of a local government unit shall be liberally interpreted in its favor, and in case of doubt, any question
thereon shall be resolved in favor of devolution of powers and of the lower local government unit. Any fair and reasonable doubt as to
the existence of the power shall be interpreted in favor of the local government unit concerned;
(b) In case of doubt, any tax ordinance or revenue measure shall be construed strictly against the local government unit enacting it, and
liberally in favor of the taxpayer. Any tax exemption, incentive or relief granted by any local government unit pursuant to the provisions
of this Code shall be construed strictly against the person claiming it; xxx
Yet the majority insists that "there is no point in national and local governments taxing each other, unless a sound and compelling policy
requires such transfer of public funds from one government pocket to another."105 I wonder whether the Constitution satisfies the
majority's desire for "a sound and compelling policy." To repeat:
Article II. Declaration of Principles and State Policies
xxx
Sec. 25. The State shall ensure the autonomy of local governments.
Article X. Local Government
xxx
Sec. 2. The territorial and political subdivisions shall enjoy local autonomy.
xxx
Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges
subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes,
fees, and charges shall accrue exclusively to the local governments.
Or how about the Local Government Code, presumably an expression of sound and compelling policy considering that it was enacted
by the legislature, that veritable source of all statutes:
SEC. 129. Power to Create Sources of Revenue. - Each local government unit shall exercise its power to create its own sources of
revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. Such
taxes, fees, and charges shall accrue exclusively to the local government units.
Justice Puno, in National Power Corporation v. City of Cabanatuan,106 provides a more "sound and compelling policy considerations"
that would warrant sustaining the taxability of government-owned entities by local government units under the Local Government Code.
Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of the
local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of
peace, progress, and prosperity of the people. As this Court observed in the Mactan case, "the original reasons for the withdrawal of tax
exemption privileges granted to government-owned or controlled corporations and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises." With the added burden of
devolution, it is even more imperative for government entities to share in the requirements of development, fiscal or otherwise, by
paying taxes or other charges due from them.107
I dare not improve on Justice Puno's exhaustive disquisition on the statutory and jurisprudential shift brought about the acceptance of
the principles of local autonomy:
In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has become a tool to
realize social justice and the equitable distribution of wealth, economic progress and the protection of local industries as well as public
welfare and similar objectives. Taxation assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth,
the power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees
and other charges pursuant to Article X, section 5 of the 1987 Constitution, viz:
"Section 5. Each Local Government unit shall have the power to create its own sources of revenue, to levy taxes, fees and charges
subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes,
fees and charges shall accrue exclusively to the Local Governments."
This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and
promoting decentralization of governance. For a long time, the country's highly centralized government structure has bred a culture of
dependence among local government leaders upon the national leadership. It has also "dampened the spirit of initiative, innovation and
imaginative resilience in matters of local development on the part of local government leaders." 35 The only way to shatter this culture
of dependence is to give the LGUs a wider role in the delivery of basic services, and confer them sufficient powers to generate their
own sources for the purpose. To achieve this goal, section 3 of Article X of the 1987 Constitution mandates Congress to enact a local
government code that will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing
powers, viz:
"Section 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable local
government structure instituted through a system of decentralization with effective mechanisms of recall, initiative, and referendum,
allocate among the different local government units their powers, responsibilities, and resources, and provide for the qualifications,
election, appointment and removal, term, salaries, powers and functions and duties of local officials, and all other matters relating to the
organization and operation of the local units."
To recall, prior to the enactment of the Rep. Act No. 7160, also known as the Local Government Code of 1991 (LGC), various measures
have been enacted to promote local autonomy. These include the Barrio Charter of 1959, the Local Autonomy Act of 1959, the
Decentralization Act of 1967 and the Local Government Code of 1983. Despite these initiatives, however, the shackles of dependence
on the national government remained. Local government units were faced with the same problems that hamper their capabilities to
participate effectively in the national development efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over
external sources of income, (c) limited authority to prioritize and approve development projects, (d) heavy dependence on external
sources of income, and (e) limited supervisory control over personnel of national line agencies.
Considered as the most revolutionary piece of legislation on local autonomy, the LGC effectively deals with the fiscal constraints faced
by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws such as the imposition of taxes on
forest products, forest concessionaires, mineral products, mining operations, and the like. The LGC likewise provides enough flexibility
to impose tax rates in accordance with their needs and capabilities. It does not prescribe graduated fixed rates but merely specifies the
minimum and maximum tax rates and leaves the determination of the actual rates to the respective sanggunian.108
And the Court's ruling through Justice Azcuna in Philippine Ports Authority v. City of Iloilo109, provides especially clear and emphatic
rationale:
In closing, we reiterate that in taxing government-owned or controlled corporations, the State ultimately suffers no loss. In National
Power Corp. v. Presiding Judge, RTC, Br. XXV, 38 we elucidated:
Actually, the State has no reason to decry the taxation of NPC's properties, as and by way of real property taxes. Real property taxes,
after all, form part and parcel of the financing apparatus of the Government in development and nation-building, particularly in the local
government level.
xxxxxxxxx
To all intents and purposes, real property taxes are funds taken by the State with one hand and given to the other. In no measure can
the government be said to have lost anything.
Finally, we find it appropriate to restate that the primary reason for the withdrawal of tax exemption privileges granted to government-
owned and controlled corporations and all other units of government was that such privilege resulted in serious tax base erosion and
distortions in the tax treatment of similarly situated enterprises, hence resulting in the need for these entities to share in the
requirements of development, fiscal or otherwise, by paying the taxes and other charges due from them.110
How does the majority counter these seemingly valid rationales which establish the soundness of a policy consideration subjecting
national instrumentalities to local taxation? Again, by simply ignoring that these doctrines exist. It is unfortunate if the majority deems
these cases or the principles of devolution and local autonomy as simply too inconvenient, and relies instead on discredited
precedents. Of course, if the majority faces the issues squarely, and expressly discusses why Basco was right and Mactan was wrong,
then this entire endeavor of the Court would be more intellectually satisfying. But, this is not a game the majority wants to play.
Mischaracterization of My
Views on the Tax Exemption
Enjoyed by the National Government
Instead, the majority engages in an extended attack pertaining to Section 193, mischaracterizing my views on that provision as if I had
been interpreting the provision as making "the national government, which itself is a juridical person, subject to tax by local
governments since the national government is not included in the enumeration of exempt entities in Section 193."111
Nothing is farther from the truth. I have never advanced any theory of the sort imputed in the majority. My main thesis on the matter
merely echoes the explicit provision of Section 193 that unless otherwise provided in the Local Government Code (LGC) all tax
exemptions enjoyed by all persons, whether natural or juridical, including GOCCs, were withdrawn upon the effectivity of the Code.
Since the provision speaks of withdrawal of tax exemptions of persons, it follows that the exemptions theretofore enjoyed by MIAA
which is definitely a person are deemed withdrawn upon the advent of the Code.
On the other hand, the provision does not address the question of who are beyond the reach of the taxing power of LGUs. In fine, the
grant of tax exemption or the withdrawal thereof assumes that the person or entity involved is subject to tax. Thus, Section 193 does
not apply to entities which were never given any tax exemption. This would include the national government and its political
subdivisions which, as a general rule, are not subjected to tax in the first place.112 Corollarily, the national government and its political
subdivisions do not need tax exemptions. And Section 193 which ordains the withdrawal of tax exemptions is obviously irrelevant to
them.
Section 193 is in point for the disposition of this case as it forecloses dependence for the grant of tax exemption to MIAA on Section 21
of its charter. Even the majority should concede that the charter section is now ineffectual, as Section 193 withdraws the tax exemptions
previously enjoyed by all juridical persons.
With Section 193 mandating the withdrawal of tax exemptions granted to all persons upon the effectivity of the LGC, for MIAA to
continue enjoying exemption from realty tax, it will have to rely on a basis other than Section 21 of its charter.
Lung Center of the Philippines v. Quezon City113 provides another illustrative example of the jurisprudential havoc wrought about by the
majority. Pursuant to its charter, the Lung Center was organized as a trust administered by an eponymous GOCC organized with the
SEC.114 There is no doubt it is a GOCC, even by the majority's reckoning. Applying the Administrative Code, it is also considered as an
agency, the term encompassing even GOCCs. Yet since the Administrative Code definition of "instrumentalities" encompasses
agencies, especially those not attached to a line department such as the Lung Center, it also follows that the Lung Center is an
instrumentality, which for the majority is exempt from all local government taxes, especially real estate taxes. Yet just in 2004, the Court
unanimously held that the Lung Center was not exempt from real property taxes. Can the majority and Lung Center be reconciled? I do
not see how, and no attempt is made to demonstrate otherwise.
Another key point. The last paragraph of Section 234 specifically asserts that any previous exemptions from realty taxes granted to or
enjoyed by all persons, including all GOCCs, are thereby withdrawn. The majority's interpretation of Sections 133 and 234(a) however
necessarily implies that all instrumentalities, including GOCCs, can never be subjected to real property taxation under the Code. If that
is so, what then is the sense of the last paragraph specifically withdrawing previous tax exemptions to all persons, including GOCCs
when juridical persons such as MIAA are anyway, to his view, already exempt from such taxes under Section 133? The majority's
interpretation would effectively render the express and emphatic withdrawal of previous exemptions to GOCCs inutile. Ut magis valeat
quam pereat. Hence, where a statute is susceptible of more than one interpretation, the court should adopt such reasonable and
beneficial construction which will render the provision thereof operative and effective, as well as harmonious with each other.115
But, the majority seems content rendering as absurd the Local Government Code, since it does not have much use anyway for the
Code's general philosophy of fiscal autonomy, as evidently seen by the continued reliance on Basco or Maceda. Local government rule
has never been a grant of emancipation from the national government. This is the favorite bugaboo of the opponents of local autonomy
—the fallacy that autonomy equates to independence.
Thus, the conclusion of the majority is that under Section 133(o), MIAA as a government instrumentality is beyond the reach of local
taxation because it is not subject to taxes, fees or charges of any kind. Moreover, the taxation of national instrumentalities and agencies
by LGUs should be strictly construed against the LGUs, citing Maceda and Basco. No mention is made of the subsequent rejection of
these cases in jurisprudence following the Local Government Code, including Mactan. The majority is similarly silent on the general rule
under Section 232 on real property taxation or Section 5 on the rules of construction of the Local Government Code.
V.
MIAA, and not the National Government
Is the Owner of the Subject Taxable Properties
Section 232 of the Local Government Code explicitly provides that there are exceptions to the general rule on rule property taxation, as
"hereafter specifically exempted." Section 234, certainly "hereafter," provides indubitable basis for exempting entities from real property
taxation. It provides the most viable legal support for any claim that an governmental entity such as the MIAA is exempt from real
property taxes. To repeat:
SECTION 234. Exemptions from Real Property Tax. -- The following are exempted from payment of the real property tax:
xxx
(f) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person:
The majority asserts that the properties owned by MIAA are owned by the Republic of the Philippines, thus placing them under the
exemption under Section 234. To arrive at this conclusion, the majority employs four main arguments.
MIAA Property Is Patrimonial
And Not Part of Public Dominion
The majority claims that the Airport Lands and Buildings are property of public dominion as defined by the Civil Code, and therefore
owned by the State or the Republic of the Philippines. But as pointed out by Justice Azcuna in the first PPA case, if indeed a property is
considered part of the public dominion, such property is "owned by the general public and cannot be declared to be owned by a public
corporation, such as [the PPA]."
Relevant on this point are the following provisions of the MIAA charter:
Section 3. Creation of the Manila International Airport Authority. – xxx
The land where the Airport is presently located as well as the surrounding land area of approximately six hundred hectares, are hereby
transferred, conveyed and assigned to the ownership and administration of the Authority, subject to existing rights, if any. xxx Any
portion thereof shall not be disposed through sale or through any other mode unless specifically approved by the President of the
Philippines.
Section 22. Transfer of Existing Facilities and Intangible Assets. – All existing public airport facilities, runways, lands, buildings and other
property, movable or immovable, belonging to the Airport, and all assets, powers rights, interests and privileges belonging to the Bureau
of Air Transportation relating to airport works or air operations, including all equipment which are necessary for the operation of crash
fire and rescue facilities, are hereby transferred to the Authority.
Clearly, it is the MIAA, and not either the State, the Republic of the Philippines or the national government that asserts legal title over
the Airport Lands and Buildings. There was an express transfer of ownership between the MIAA and the national government. If the
distinction is to be blurred, as the majority does, between the State/Republic/Government and a body corporate such as the MIAA, then
the MIAA charter showcases the remarkable absurdity of an entity transferring property to itself.
Nothing in the Civil Code or the Constitution prohibits the State from transferring ownership over property of public dominion to an entity
that it similarly owns. It is just like a family transferring ownership over the properties its members own into a family corporation. The
family exercises effective control over the administration and disposition of these properties. Yet for several purposes under the law,
such as taxation, it is the corporation that is deemed to own those properties. A similar situation obtains with MIAA, the State, and the
Airport Lands and Buildings.
The second Public Ports Authority case, penned by Justice Callejo, likewise lays down useful doctrines in this regard. The Court refuted
the claim that the properties of the PPA were owned by the Republic of the Philippines, noting that PPA's charter expressly transferred
ownership over these properties to the PPA, a situation which similarly obtains with MIAA. The Court even went as far as saying that
the fact that the PPA "had not been issued any torrens title over the port and port facilities and appurtenances is of no legal
consequence. A torrens title does not, by itself, vest ownership; it is merely an evidence of title over properties. xxx It has never been
recognized as a mode of acquiring ownership over real properties."116
The Court further added:
xxx The bare fact that the port and its facilities and appurtenances are accessible to the general public does not exempt it from the
payment of real property taxes. It must be stressed that the said port facilities and appurtenances are the petitioner's corporate
patrimonial properties, not for public use, and that the operation of the port and its facilities and the administration of its buildings are in
the nature of ordinary business. The petitioner is clothed, under P.D. No. 857, with corporate status and corporate powers in the
furtherance of its proprietary interests xxx The petitioner is even empowered to invest its funds in such government securities approved
by the Board of Directors, and derives its income from rates, charges or fees for the use by vessels of the port premises, appliances or
equipment. xxx Clearly then, the petitioner is a profit-earning corporation; hence, its patrimonial properties are subject to tax.117
There is no doubt that the properties of the MIAA, as with the PPA, are in a sense, for public use. A similar argument was propounded
by the Light Rail Transit Authority in Light Rail Transit Authority v. Central Board of Assessment,118which was cited in Philippine Ports
Authority and deserves renewed emphasis. The Light Rail Transit Authority (LRTA), a body corporate, "provides valuable transportation
facilities to the paying public."119 It claimed that its carriage-ways and terminal stations are immovably attached to government-owned
national roads, and to impose real property taxes thereupon would be to impose taxes on public roads. This view did not persuade the
Court, whose decision was penned by Justice (now Chief Justice) Panganiban. It was noted:
Though the creation of the LRTA was impelled by public service — to provide mass transportation to alleviate the traffic and
transportation situation in Metro Manila — its operation undeniably partakes of ordinary business. Petitioner is clothed with corporate
status and corporate powers in the furtherance of its proprietary objectives. Indeed, it operates much like any private corporation
engaged in the mass transport industry. Given that it is engaged in a service-oriented commercial endeavor, its carriageways and
terminal stations are patrimonial property subject to tax, notwithstanding its claim of being a government-owned or controlled
corporation.
xxx
Petitioner argues that it merely operates and maintains the LRT system, and that the actual users of the carriageways and terminal
stations are the commuting public. It adds that the public use character of the LRT is not negated by the fact that revenue is obtained
from the latter's operations.
We do not agree. Unlike public roads which are open for use by everyone, the LRT is accessible only to those who pay the required
fare. It is thus apparent that petitioner does not exist solely for public service, and that the LRT carriageways and terminal stations are
not exclusively for public use. Although petitioner is a public utility, it is nonetheless profit-earning. It actually uses those carriageways
and terminal stations in its public utility business and earns money therefrom.120
xxx
Even granting that the national government indeed owns the carriageways and terminal stations, the exemption would not apply
because their beneficial use has been granted to petitioner, a taxable entity.121
There is no substantial distinction between the properties held by the PPA, the LRTA, and the MIAA. These three entities are in the
business of operating facilities that promote public transportation.
The majority further asserts that MIAA's properties, being part of the public dominion, are outside the commerce of man. But if this is
so, then why does Section 3 of MIAA's charter authorize the President of the Philippines to approve the sale of any of these properties?
In fact, why does MIAA's charter in the first place authorize the transfer of these airport properties, assuming that indeed these are
beyond the commerce of man?
No Trust Has Been Created
Over MIAA Properties For
The Benefit of the Republic
The majority posits that while MIAA might be holding title over the Airport Lands and Buildings, it is holding it in trust for the Republic. A
provision of the Administrative Code is cited, but said provision does not expressly provide that the property is held in trust. Trusts are
either express or implied, and only those situations enumerated under the Civil Code would constitute an implied trust. MIAA does not
fall within this enumeration, and neither is there a provision in MIAA's charter expressly stating that these properties are being held in
trust. In fact, under its charter, MIAA is obligated to retain up to eighty percent (80%) of its gross operating income, not an
inconsequential sum assuming that the beneficial owner of MIAA's properties is actually the Republic, and not the MIAA.
Also, the claim that beneficial ownership over the MIAA remains with the government and not MIAA is ultimately irrelevant. Section
234(a) of the Local Government Code provides among those exempted from paying real property taxes are "[r]eal property owned by
the [Republic]… except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." In the
context of Section 234(a), the identity of the beneficial owner over the properties is not determinative as to whether the exemption
avails. It is the identity of the beneficial user of the property owned by the Republic or its political subdivisions that is crucial, for if said
beneficial user is a taxable person, then the exemption does not lie.
I fear the majority confuses the notion of what might be construed as "beneficial ownership" of the Republic over the properties of MIAA
as nothing more than what arises as a consequence of the fact that the capital of MIAA is contributed by the National Government.122 If
so, then there is no difference between the State's ownership rights over MIAA properties than those of a majority stockholder over the
properties of a corporation. Even if such shareholder effectively owns the corporation and controls the disposition of its assets, the
personality of the stockholder remains separately distinct from that of the corporation. A brief recall of the entrenched rule in corporate
law is in order:
The first consequence of the doctrine of legal entity regarding the separate identity of the corporation and its stockholders insofar as
their obligations and liabilities are concerned, is spelled out in this general rule deeply entrenched in American jurisprudence:
Unless the liability is expressly imposed by constitutional or statutory provisions, or by the charter, or by special agreement of the
stockholders, stockholders are not personally liable for debts of the corporation either at law or equity. The reason is that the
corporation is a legal entity or artificial person, distinct from the members who compose it, in their individual capacity; and when it
contracts a debt, it is the debt of the legal entity or artificial person – the corporation – and not the debt of the individual members. (13A
Fletcher Cyc. Corp. Sec. 6213)
The entirely separate identity of the rights and remedies of a corporation itself and its individual stockholders have been given definite
recognition for a long time. Applying said principle, the Supreme Court declared that a corporation may not be made to answer for acts
or liabilities of its stockholders or those of legal entities to which it may be connected, or vice versa. (Palay Inc. v. Clave et. al. 124
SCRA 638) It was likewise declared in a similar case that a bonafide corporation should alone be liable for corporate acts duly
authorized by its officers and directors. (Caram Jr. v. Court of Appeals et.al. 151 SCRA, p. 372)123
It bears repeating that MIAA under its charter, is expressly conferred the right to exercise all the powers of a corporation under the
Corporation Law, including the right to corporate succession, and the right to sue and be sued in its corporate name.124 The national
government made a particular choice to divest ownership and operation of the Manila International Airport and transfer the same to
such an empowered entity due to perceived advantages. Yet such transfer cannot be deemed consequence free merely because it was
the State which contributed the operating capital of this body corporate.
The majority claims that the transfer the assets of MIAA was meant merely to effect a reorganization. The imputed rationale for such
transfer does not serve to militate against the legal consequences of such assignment. Certainly, if it was intended that the transfer
should be free of consequence, then why was it effected to a body corporate, with a distinct legal personality from that of the State or
Republic? The stated aims of the MIAA could have very well been accomplished by creating an agency without independent juridical
personality.
VI.
MIAA Performs Proprietary Functions
Nonetheless, Section 234(f) exempts properties owned by the Republic of the Philippines or its political subdivisions from realty
taxation. The obvious question is what comprises "the Republic of the Philippines." I think the key to understanding the scope of "the
Republic" is the phrase "political subdivisions." Under the Constitution, political subdivisions are defined as "the provinces, cities,
municipalities and barangays."125 In correlation, the Administrative Code of 1987 defines "local government" as referring to "the political
subdivisions established by or in accordance with the Constitution."
Clearly then, these political subdivisions are engaged in the exercise of sovereign functions and are accordingly exempt. The same
could be said generally of the national government, which would be similarly exempt. After all, even with the principle of local autonomy,
it is inherently noxious and self-defeatist for local taxation to interfere with the sovereign exercise of functions. However, the exercise of
proprietary functions is a different matter altogether.
Sovereign and Proprietary
Functions Distinguished
Sovereign or constituent functions are those which constitute the very bonds of society and are compulsory in nature, while ministrant
or proprietary functions are those undertaken by way of advancing the general interests of society and are merely optional.126 An
exhaustive discussion on the matter was provided by the Court in Bacani v. NACOCO:127
xxx This institution, when referring to the national government, has reference to what our Constitution has established composed of
three great departments, the legislative, executive, and the judicial, through which the powers and functions of government are
exercised. These functions are twofold: constituent and ministrant. The former are those which constitute the very bonds of society and
are compulsory in nature; the latter are those that are undertaken only by way of advancing the general interests of society, and are
merely optional. President Wilson enumerates the constituent functions as follows:
"'(1) The keeping of order and providing for the protection of persons and property from violence and robbery.
'(2) The fixing of the legal relations between man and wife and between parents and children.
'(3) The regulation of the holding, transmission, and interchange of property, and the determination of its liabilities for debt or for crime.
'(4) The determination of contract rights between individuals.
'(5) The definition and punishment of crime.
'(6) The administration of justice in civil cases.
'(7) The determination of the political duties, privileges, and relations of citizens.
'(8) Dealings of the state with foreign powers: the preservation of the state from external danger or encroachment and the advancement
of its international interests.'" (Malcolm, The Government of the Philippine Islands, p. 19.)
The most important of the ministrant functions are: public works, public education, public charity, health and safety regulations, and
regulations of trade and industry. The principles determining whether or not a government shall exercise certain of these optional
functions are: (1) that a government should do for the public welfare those things which private capital would not naturally undertake
and (2) that a government should do these things which by its very nature it is better equipped to administer for the public welfare than
is any private individual or group of individuals. (Malcolm, The Government of the Philippine Islands, pp. 19-20.)
From the above we may infer that, strictly speaking, there are functions which our government is required to exercise to promote its
objectives as expressed in our Constitution and which are exercised by it as an attribute of sovereignty, and those which it may exercise
to promote merely the welfare, progress and prosperity of the people. To this latter class belongs the organization of those corporations
owned or controlled by the government to promote certain aspects of the economic life of our people such as the National Coconut
Corporation. These are what we call government-owned or controlled corporations which may take on the form of a private enterprise
or one organized with powers and formal characteristics of a private corporations under the Corporation Law.128
The Court in Bacani rejected the proposition that the National Coconut Corporation exercised sovereign functions:
Does the fact that these corporations perform certain functions of government make them a part of the Government of the Philippines?
The answer is simple: they do not acquire that status for the simple reason that they do not come under the classification of municipal
or public corporation. Take for instance the National Coconut Corporation. While it was organized with the purpose of "adjusting the
coconut industry to a position independent of trade preferences in the United States" and of providing "Facilities for the better curing of
copra products and the proper utilization of coconut by-products," a function which our government has chosen to exercise to promote
the coconut industry, however, it was given a corporate power separate and distinct from our government, for it was made subject to the
provisions of our Corporation Law in so far as its corporate existence and the powers that it may exercise are concerned (sections 2
and 4, Commonwealth Act No. 518). It may sue and be sued in the same manner as any other private corporations, and in this sense it
is an entity different from our government. As this Court has aptly said, "The mere fact that the Government happens to be a majority
stockholder does not make it a public corporation" (National Coal Co. vs. Collector of Internal Revenue, 46 Phil., 586-587). "By
becoming a stockholder in the National Coal Company, the Government divested itself of its sovereign character so far as respects the
transactions of the corporation. . . . Unlike the Government, the corporation may be sued without its consent, and is subject to taxation.
Yet the National Coal Company remains an agency or instrumentality of government." (Government of the Philippine Islands vs.
Springer, 50 Phil., 288.)
The following restatement of the entrenched rule by former SEC Chairperson Rosario Lopez bears noting:
The fact that government corporations are instrumentalities of the State does not divest them with immunity from suit. (Malong v. PNR,
138 SCRA p. 63) It is settled that when the government engages in a particular business through the instrumentality of a corporation, it
divests itself pro hoc vice of its sovereign character so as to subject itself to the rules governing private corporations, (PNB v. Pabolan
82 SCRA 595) and is to be treated like any other corporation. (PNR v. Union de Maquinistas Fogonero y Motormen, 84 SCRA 223)
In the same vein, when the government becomes a stockholder in a corporation, it does not exercise sovereignty as such. It acts
merely as a corporator and exercises no other power in the management of the affairs of the corporation than are expressly given by
the incorporating act. Nor does the fact that the government may own all or a majority of the capital stock take from the corporation its
character as such, or make the government the real party in interest. (Amtorg Trading Corp. v. US 71 F2d 524, 528)129
MIAA Performs Proprietary
Functions No Matter How
Vital to the Public Interest
The simple truth is that, based on these accepted doctrinal tests, MIAA performs proprietary functions. The operation of an airport
facility by the State may be imbued with public interest, but it is by no means indispensable or obligatory on the national government. In
fact, as demonstrated in other countries, it makes a lot of economic sense to leave the operation of airports to the private sector.
The majority tries to becloud this issue by pointing out that the MIAA does not compete in the marketplace as there is no competing
international airport operated by the private sector; and that MIAA performs an essential public service as the primary domestic and
international airport of the Philippines. This premise is false, for one. On a local scale, MIAA competes with other international airports
situated in the Philippines, such as Davao International Airport and MCIAA. More pertinently, MIAA also competes with other
international airports in Asia, at least. International airlines take into account the quality and conditions of various international airports
in determining the number of flights it would assign to a particular airport, or even in choosing a hub through which destinations
necessitating connecting flights would pass through.
Even if it could be conceded that MIAA does not compete in the market place, the example of the Philippine National Railways should
be taken into account. The PNR does not compete in the marketplace, and performs an essential public service as the operator of the
railway system in the Philippines. Is the PNR engaged in sovereign functions? The Court, in Malong v. Philippine National
Railways,130 held that it was not.131
Even more relevant to this particular case is Teodoro v. National Airports Corporation,132 concerning the proper appreciation of the
functions performed by the Civil Aeronautics Administration (CAA), which had succeeded the defunction National Airports Corporation.
The CAA claimed that as an unincorporated agency of the Republic of the Philippines, it was incapable of suing and being sued. The
Court noted:
Among the general powers of the Civil Aeronautics Administration are, under Section 3, to execute contracts of any kind, to purchase
property, and to grant concession rights, and under Section 4, to charge landing fees, royalties on sales to aircraft of aviation gasoline,
accessories and supplies, and rentals for the use of any property under its management.
These provisions confer upon the Civil Aeronautics Administration, in our opinion, the power to sue and be sued. The power to sue and
be sued is implied from the power to transact private business. And if it has the power to sue and be sued on its behalf, the Civil
Aeronautics Administration with greater reason should have the power to prosecute and defend suits for and against the National
Airports Corporation, having acquired all the properties, funds and choses in action and assumed all the liabilities of the latter. To deny
the National Airports Corporation's creditors access to the courts of justice against the Civil Aeronautics Administration is to say that the
government could impair the obligation of its corporations by the simple expedient of converting them into unincorporated agencies. 133
xxx
Eventually, the charter of the CAA was revised, and it among its expanded functions was "[t]o administer, operate, manage, control,
maintain and develop the Manila International Airport."134 Notwithstanding this expansion, in the 1988 case of CAA v. Court of
Appeals135 the Court reaffirmed the ruling that the CAA was engaged in "private or non-governmental functions."136 Thus, the Court had
already ruled that the predecessor agency of MIAA, the CAA was engaged in private or non-governmental functions. These are more
precedents ignored by the majority. The following observation from the Teodoro case very well applies to MIAA.
The Civil Aeronautics Administration comes under the category of a private entity. Although not a body corporate it was created, like the
National Airports Corporation, not to maintain a necessary function of government, but to run what is essentially a business, even if
revenues be not its prime objective but rather the promotion of travel and the convenience of the traveling public. It is engaged in an
enterprise which, far from being the exclusive prerogative of state, may, more than the construction of public roads, be undertaken by
private concerns.137
If the determinative point in distinguishing between sovereign functions and proprietary functions is the vitality of the public service
being performed, then it should be noted that there is no more important public service performed than that engaged in by public
utilities. But notably, the Constitution itself authorizes private persons to exercise these functions as it allows them to operate public
utilities in this country138 If indeed such functions are actually sovereign and belonging properly to the government, shouldn't it follow
that the exercise of these tasks remain within the exclusive preserve of the State?
There really is no prohibition against the government taxing itself,139 and nothing obscene with allowing government entities exercising
proprietary functions to be taxed for the purpose of raising the coffers of LGUs. On the other hand, it would be an even more noxious
proposition that the government or the instrumentalities that it owns are above the law and may refuse to pay a validly imposed tax.
MIAA, or any similar entity engaged in the exercise of proprietary, and not sovereign functions, cannot avoid the adverse-effects of tax
evasion simply on the claim that it is imbued with some of the attributes of government.
VII.
MIAA Property Not Subject to
Execution Sale Without Consent
Of the President.
Despite the fact that the City of Parañaque ineluctably has the power to impose real property taxes over the MIAA, there is an equally
relevant statutory limitation on this power that must be fully upheld. Section 3 of the MIAA charter states that "[a]ny portion [of the [lands
transferred, conveyed and assigned to the ownership and administration of the MIAA] shall not be disposed through sale or through any
other mode unless specifically approved by the President of the Philippines."140
Nothing in the Local Government Code, even with its wide grant of powers to LGUs, can be deemed as repealing this prohibition under
Section 3, even if it effectively forecloses one possible remedy of the LGU in the collection of delinquent real property taxes. While the
Local Government Code withdrew all previous local tax exemptions of the MIAA and other natural and juridical persons, it did not
similarly withdraw any previously enacted prohibitions on properties owned by GOCCs, agencies or instrumentalities. Moreover, the
resulting legal effect, subjecting on one hand the MIAA to local taxes but on the other hand shielding its properties from any form of sale
or disposition, is not contradictory or paradoxical, onerous as its effect may be on the LGU. It simply means that the LGU has to find
another way to collect the taxes due from MIAA, thus paving the way for a mutually acceptable negotiated solution.141
There are several other reasons this statutory limitation should be upheld and applied to this case. It is at this juncture that the
importance of the Manila Airport to our national life and commerce may be accorded proper consideration. The closure of the airport,
even by reason of MIAA's legal omission to pay its taxes, will have an injurious effect to our national economy, which is ever reliant on
air travel and traffic. The same effect would obtain if ownership and administration of the airport were to be transferred to an LGU or
some other entity which were not specifically chartered or tasked to perform such vital function. It is for this reason that the MIAA
charter specifically forbids the sale or disposition of MIAA properties without the consent of the President. The prohibition prevents the
peremptory closure of the MIAA or the hampering of its operations on account of the demands of its creditors. The airport is important
enough to be sheltered by legislation from ordinary legal processes.
Section 3 of the MIAA charter may also be appreciated as within the proper exercise of executive control by the President over the
MIAA, a GOCC which despite its separate legal personality, is still subsumed within the executive branch of government. The power of
executive control by the President should be upheld so long as such exercise does not contravene the Constitution or the law, the
President having the corollary duty to faithfully execute the Constitution and the laws of the land.142 In this case, the exercise of
executive control is precisely recognized and authorized by the legislature, and it should be upheld even if it comes at the expense of
limiting the power of local government units to collect real property taxes.
Had this petition been denied instead with Mactan as basis, but with the caveat that the MIAA properties could not be subject of
execution sale without the consent of the President, I suspect that the parties would feel little distress. Through such action, both the
Local Government Code and the MIAA charter would have been upheld. The prerogatives of LGUs in real property taxation, as
guaranteed by the Local Government Code, would have been preserved, yet the concerns about the ruinous effects of having to close
the Manila International Airport would have been averted. The parties would then be compelled to try harder at working out a
compromise, a task, if I might add, they are all too willing to engage in.143 Unfortunately, the majority will cause precisely the opposite
result of unremitting hostility, not only to the City of Parañaque, but to the thousands of LGUs in the country.
VIII.
Summary of Points
My points may be summarized as follows:
1) Mactan and a long line of succeeding cases have already settled the rule that under the Local Government Code, enacted pursuant
to the constitutional mandate of local autonomy, all natural and juridical persons, even those GOCCs, instrumentalities and agencies,
are no longer exempt from local taxes even if previously granted an exemption. The only exemptions from local taxes are those
specifically provided under the Local Government Code itself, or those enacted through subsequent legislation.
2) Under the Local Government Code, particularly Section 232, instrumentalities, agencies and GOCCs are generally liable for real
property taxes. The only exemptions therefrom under the same Code are provided in Section 234, which include real property owned
by the Republic of the Philippines or any of its political subdivisions.
3) The subject properties are owned by MIAA, a GOCC, holding title in its own name. MIAA, a separate legal entity from the Republic of
the Philippines, is the legal owner of the properties, and is thus liable for real property taxes, as it does not fall within the exemptions
under Section 234 of the Local Government Code.
4) The MIAA charter expressly bars the sale or disposition of MIAA properties. As a result, the City of Parañaque is prohibited from
seizing or selling these properties by public auction in order to satisfy MIAA's tax liability. In the end, MIAA is encumbered only by a
limited lien possessed by the City of Parañaque.
On the other hand, the majority's flaws are summarized as follows:
1) The majority deliberately ignores all precedents which run counter to its hypothesis, including Mactan. Instead, it relies and directly
cites those doctrines and precedents which were overturned by Mactan. By imposing a different result than that warranted by the
precedents without explaining why Mactan or the other precedents are wrong, the majority attempts to overturn all these ruling sub
silencio and without legal justification, in a manner that is not sanctioned by the practices and traditions of this Court.
2) The majority deliberately ignores the policy and philosophy of local fiscal autonomy, as mandated by the Constitution, enacted under
the Local Government Code, and affirmed by precedents. Instead, the majority asserts that there is no sound rationale for local
governments to tax national government instrumentalities, despite the blunt existence of such rationales in the Constitution, the Local
Government Code, and precedents.
3) The majority, in a needless effort to justify itself, adopts an extremely strained exaltation of the Administrative Code above and
beyond the Corporation Code and the various legislative charters, in order to impose a wholly absurd definition of GOCCs that
effectively declassifies innumerable existing GOCCs, to catastrophic legal consequences.
4) The majority asserts that by virtue of Section 133(o) of the Local Government Code, all national government agencies and
instrumentalities are exempt from any form of local taxation, in contravention of several precedents to the contrary and the proviso
under Section 133, "unless otherwise provided herein [the Local Government Code]."
5) The majority erroneously argues that MIAA holds its properties in trust for the Republic of the Philippines, and that such properties
are patrimonial in character. No express or implied trust has been created to benefit the national government. The legal distinction
between sovereign and proprietary functions, as affirmed by jurisprudence, likewise preclude the classification of MIAA properties as
patrimonial.
IX.
Epilogue
If my previous discussion still fails to convince on how wrong the majority is, then the following points are well-worth considering. The
majority cites the Bangko Sentral ng Pilipinas (Bangko Sentral) as a government instrumentality that exercises corporate powers but
not organized as a stock or non-stock corporation. Correspondingly for the majority, the Bangko ng Sentral is exempt from all forms of
local taxation by LGUs by virtue of the Local Government Code.
Section 125 of Rep. Act No. 7653, The New Central Bank Act, states:
SECTION 125. Tax Exemptions. — The Bangko Sentral shall be exempt for a period of five (5) years from the approval of this Act from
all national, provincial, municipal and city taxes, fees, charges and assessments.
The New Central Bank Act was promulgated after the Local Government Code if the BSP is already preternaturally exempt from local
taxation owing to its personality as an "government instrumentality," why then the need to make a new grant of exemption, which if the
majority is to be believed, is actually a redundancy. But even more tellingly, does not this provision evince a clear intent that after the
lapse of five (5) years, that the Bangko Sentral will be liable for provincial, municipal and city taxes? This is the clear congressional
intent, and it is Congress, not this Court which dictates which entities are subject to taxation and which are exempt.
Perhaps this notion will offend the majority, because the Bangko Sentral is not even a government owned corporation, but a
government instrumentality, or perhaps "loosely", a "government corporate entity." How could such an entity like the Bangko Sentral ,
which is not even a government owned corporation, be subjected to local taxation like any mere mortal? But then, see Section 1 of the
New Central Bank Act:
SECTION 1. Declaration of Policy. — The State shall maintain a central monetary authority that shall function and operate as an
independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking and credit. In
line with this policy, and considering its unique functions and responsibilities, the central monetary authority established under this Act,
while being a government-owned corporation, shall enjoy fiscal and administrative autonomy.
Apparently, the clear legislative intent was to create a government corporation known as the Bangko Sentral ng Pilipinas. But this
legislative intent, the sort that is evident from the text of the provision and not the one that needs to be unearthed from the bowels of the
archival offices of the House and the Senate, is for naught to the majority, as it contravenes the Administrative Code of 1987, which
after all, is "the governing law defining the status and relationship of government agencies and instrumentalities" and thus superior to
the legislative charter in determining the personality of a chartered entity. Its like saying that the architect who designed a school
building is better equipped to teach than the professor because at least the architect is familiar with the geometry of the classroom.
Consider further the example of the Philippine Institute of Traditional and Alternative Health Care (PITAHC), created by Republic Act
No. 8243 in 1997. It has similar characteristics as MIAA in that it is established as a body corporate,144 and empowered with the
attributes of a corporation,145 including the power to purchase or acquire real properties.146 However the PITAHC has no capital stock
and no members, thus following the majority, it is not a GOCC.
The state policy that guides PITAHC is the development of traditional and alternative health care,147 and its objectives include the
promotion and advocacy of alternative, preventive and curative health care modalities that have been proven safe, effective and cost
effective.148 "Alternative health care modalities" include "other forms of non-allophatic, occasionally non-indigenous or imported healing
methods" which include, among others "reflexology, acupuncture, massage, acupressure" and chiropractics.149
Given these premises, there is no impediment for the PITAHC to purchase land and construct thereupon a massage parlor that would
provide a cheaper alternative to the opulent spas that have proliferated around the metropolis. Such activity is in line with the purpose
of the PITAHC and with state policy. Is such massage parlor exempt from realty taxes? For the majority, it is, for PITAHC is an
instrumentality or agency exempt from local government taxation, which does not fall under the exceptions under Section 234 of the
Local Government Code. Hence, this massage parlor would not just be a shelter for frazzled nerves, but for taxes as well.
Ridiculous? One might say, certainly a decision of the Supreme Court cannot be construed to promote an absurdity. But precisely the
majority, and the faulty reasoning it utilizes, opens itself up to all sorts of mischief, and certainly, a tax-exempt massage parlor is one of
the lesser evils that could arise from the majority ruling. This is indeed a very strange and very wrong decision.
I dissent.
DANTE O. TINGA
Associate Justice
MANILA INTERNATIONAL AIRPORT AUTHORITY v. CA, GR NO. 155650, 2006-07-20
Facts:
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport
(NAIA)
As operator of the international airport, MIAA administers the land, improvements and equipment within the
NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land,... The MIAA
Charter further provides that no portion of the land transferred to MIAA shall be disposed of through sale or
any other mode unless specifically approved by the President of the
Philippines.
The OGCC opined that the Local Government Code of 1991 withdrew the exemption from real estate tax
granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with... respondent City of
Parañaque to pay the real estate tax imposed by the City. MIAA then paid some of the real estate tax already
due.
MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque
The Mayor of the City of Parañaque threatened to sell at public auction the Airport Lands and Buildings
should MIAA fail to pay the... real estate tax delinquency.
MIAA filed with the Court of Appeals an original petition for prohibition and injunction
The petition sought to restrain the City of Parañaque from imposing real estate tax on, levying... against, and
auctioning for public sale the Airport Lands and Buildings.
Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day reglementary period.
Court of Appeals also denied... motion for reconsideration... the present petition for review.
MIAA insists that it is... exempt from real estate tax under Section 234 of the Local Government Code
because the Airport Lands and Buildings are owned by... the Republic.
To justify the exemption, MIAA invokes the principle that the government cannot tax itself.
Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption
privileges of "government-owned and-controlled corporations" upon the effectivity of the Local Government
Code.
Issues:
whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws.
Ruling:
We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local
governments.
First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National
Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by the
Republic of the Philippines and thus... exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax.
However, MIAA is not a government-owned or controlled corporation.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or
controlled corporation.
MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with
corporate powers.
When the law vests in a government instrumentality corporate powers, the instrumentality does not become
a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it
remains a government instrumentality exercising not only... governmental but also corporate powers. Thus,
MIAA exercises the governmental powers of eminent domain,... police authority... and the levying of fees and
charges.
At the same time, MIAA exercises "all the... powers of a corporation under the Corporation Law, insofar as
these powers are not inconsistent with the provisions of this Executive Order."
When local governments invoke the power to tax on national government instrumentalities, such power is
construed strictly against local governments. The rule is that a tax is never presumed and there must be
clear language in the law imposing the tax. Any doubt whether a person,... article or activity is taxable is
resolved against taxation. This rule applies with greater force when local governments seek to tax national
government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption.
However, when Congress grants an exemption to a national government instrumentality from local taxation,
such exemption is construed liberally in favor of the national... government instrumentality.
There must be express language in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local... governments.
CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA, LUISA MAGSAYSAY-CORPUZ, assisted be her
husband, Dr. Jose Corpuz, FELICIDAD P. MAGSAYSAY, and MERCEDES MAGSAYSAY-DIAZ, petitioners,
vs.
THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special Administratrix of the Estate of the late Genaro F.
Magsaysay respondents.

FERNAN, C.J.:
In this petition for review on certiorari, petitioners seek to reverse and set aside [1] the decision of the Court of Appeals dated July l3,
1981, 1 affirming that of the Court of First Instance of Zambales and Olongapo City which denied petitioners' motion to intervene in an
annulment suit filed by herein private respondent, and [2] its resolution dated September 7, 1981, denying their motion for
reconsideration.
Petitioners are raising a purely legal question; whether or not respondent Court of Appeals correctly denied their motion for intervention.
The facts are not controverted.
On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the late Senator Genaro
Magsaysay, brought before the then Court of First Instance of Olongapo an action against Artemio Panganiban, Subic Land Corporation
(SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales. In her complaint, she alleged that in
1958, she and her husband acquired, thru conjugal funds, a parcel of land with improvements, known as "Pequena Island", covered by
TCT No. 3258; that after the death of her husband, she discovered [a] an annotation at the back of TCT No. 3258 that "the land was
acquired by her husband from his separate capital;" [b] the registration of a Deed of Assignment dated June 25, 1976 purportedly
executed by the late Senator in favor of SUBIC, as a result of which TCT No. 3258 was cancelled and TCT No. 22431 issued in the
name of SUBIC; and [c] the registration of Deed of Mortgage dated April 28, 1977 in the amount of P 2,700,000.00 executed by SUBIC
in favor of FILMANBANK; that the foregoing acts were void and done in an attempt to defraud the conjugal partnership considering that
the land is conjugal, her marital consent to the annotation on TCT No. 3258 was not obtained, the change made by the Register of
Deeds of the titleholders was effected without the approval of the Commissioner of Land Registration and that the late Senator did not
execute the purported Deed of Assignment or his consent thereto, if obtained, was secured by mistake, violence and intimidation. She
further alleged that the assignment in favor of SUBIC was without consideration and consequently null and void. She prayed that the
Deed of Assignment and the Deed of Mortgage be annulled and that the Register of Deeds be ordered to cancel TCT No. 22431 and to
issue a new title in her favor.
On March 7, 1979, herein petitioners, sisters of the late senator, filed a motion for intervention on the ground that on June 20, 1978,
their brother conveyed to them one-half (1/2 ) of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of around
41 % of the total outstanding shares of such stocks of SUBIC, they have a substantial and legal interest in the subject matter of
litigation and that they have a legal interest in the success of the suit with respect to SUBIC.
On July 26, 1979, the court denied the motion for intervention, and ruled that petitioners have no legal interest whatsoever in the matter
in litigation and their being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene because
SUBIC has a personality separate and distinct from its stockholders.
On appeal, respondent Court of Appeals found no factual or legal justification to disturb the findings of the lower court. The appellate
court further stated that whatever claims the petitioners have against the late Senator or against SUBIC for that matter can be ventilated
in a separate proceeding, such that with the denial of the motion for intervention, they are not left without any remedy or judicial relief
under existing law.
Petitioners' motion for reconsideration was denied. Hence, the instant recourse.
Petitioners anchor their right to intervene on the purported assignment made by the late Senator of a certain portion of his
shareholdings to them as evidenced by a Deed of Sale dated June 20, 1978. 2 Such transfer, petitioners posit, clothes them with an
interest, protected by law, in the matter of litigation.
Invoking the principle enunciated in the case of PNB v. Phil. Veg. Oil Co., 49 Phil. 857,862 & 853 (1927), 3petitioners strongly argue that
their ownership of 41.66% of the entire outstanding capital stock of SUBIC entitles them to a significant vote in the corporate affairs;
that they are affected by the action of the widow of their late brother for it concerns the only tangible asset of the corporation and that it
appears that they are more vitally interested in the outcome of the case than SUBIC.
Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court affirms the respondent court's holding that petitioners
herein have no legal interest in the subject matter in litigation so as to entitle them to intervene in the proceedings below. In the case of
Batama Farmers' Cooperative Marketing Association, Inc. v. Rosal, 4 we held: "As clearly stated in Section 2 of Rule 12 of the Rules of
Court, to be permitted to intervene in a pending action, the party must have a legal interest in the matter in litigation, or in the success of
either of the parties or an interest against both, or he must be so situated as to be adversely affected by a distribution or other
disposition of the property in the custody of the court or an officer thereof ."
To allow intervention, [a] it must be shown that the movant has legal interest in the matter in litigation, or otherwise qualified; and [b]
consideration must be given as to whether the adjudication of the rights of the original parties may be delayed or prejudiced, or whether
the intervenor's rights may be protected in a separate proceeding or not. Both requirements must concur as the first is not more
important than the second. 5
The interest which entitles a person to intervene in a suit between other parties must be in the matter in litigation and of such direct and
immediate character that the intervenor will either gain or lose by the direct legal operation and effect of the judgment. Otherwise, if
persons not parties of the action could be allowed to intervene, proceedings will become unnecessarily complicated, expensive and
interminable. And this is not the policy of the law. 6
The words "an interest in the subject" mean a direct interest in the cause of action as pleaded, and which would put the intervenor in a
legal position to litigate a fact alleged in the complaint, without the establishment of which plaintiff could not recover. 7
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote, conjectural, consequential and collateral. At the
very least, their interest is purely inchoate, or in sheer expectancy of a right in the management of the corporation and to share in the
profits thereof and in the properties and assets thereof on dissolution, after payment of the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner thereof
with any legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in nature.
Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person. 8
Petitioners further contend that the availability of other remedies, as declared by the Court of appeals, is totally immaterial to the
availability of the remedy of intervention.
We cannot give credit to such averment. As earlier stated, that the movant's interest may be protected in a separate proceeding is a
factor to be considered in allowing or disallowing a motion for intervention. It is significant to note at this juncture that as per records,
there are four pending cases involving the parties herein, enumerated as follows: [1] Special Proceedings No. 122122 before the CFI of
Manila, Branch XXII, entitled "Concepcion Magsaysay-Labrador, et al. v. Subic Land Corp., et al.", involving the validity of the transfer
by the late Genaro Magsaysay of one-half of his shareholdings in Subic Land Corporation; [2] Civil Case No. 2577-0 before the CFI of
Zambales, Branch III, "Adelaida Rodriguez-Magsaysay v. Panganiban, etc.; Concepcion Labrador, et al. Intervenors", seeking to annul
the purported Deed of Assignment in favor of SUBIC and its annotation at the back of TCT No. 3258 in the name of respondent's
deceased husband; [3] SEC Case No. 001770, filed by respondent praying, among other things that she be declared in her capacity as
the surviving spouse and administratrix of the estate of Genaro Magsaysay as the sole subscriber and stockholder of SUBIC. There,
petitioners, by motion, sought to intervene. Their motion to reconsider the denial of their motion to intervene was granted; [4] SP No. Q-
26739 before the CFI of Rizal, Branch IV, petitioners herein filing a contingent claim pursuant to Section 5, Rule 86, Revised Rules of
Court. 9 Petitioners' interests are no doubt amply protected in these cases.
Neither do we lend credence to petitioners' argument that they are more interested in the outcome of the case than the corporation-
assignee, owing to the fact that the latter is willing to compromise with widow-respondent and since a compromise involves the giving of
reciprocal concessions, the only conceivable concession the corporation may give is a total or partial relinquishment of the corporate
assets. 10
Such claim all the more bolsters the contingent nature of petitioners' interest in the subject of litigation.
The factual findings of the trial court are clear on this point. The petitioners cannot claim the right to intervene on the strength of the
transfer of shares allegedly executed by the late Senator. The corporation did not keep books and records. 11 Perforce, no transfer was
ever recorded, much less effected as to prejudice third parties. The transfer must be registered in the books of the corporation to affect
third persons. The law on corporations is explicit. Section 63 of the Corporation Code provides, thus: "No transfer, however, shall be
valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to
the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred."
And even assuming arguendo that there was a valid transfer, petitioners are nonetheless barred from intervening inasmuch as their
rights can be ventilated and amply protected in another proceeding.
WHEREFORE, the instant petition is hereby DENIED. Costs against petitioners.
SO ORDERED.
Gutierrez, Jr., Bidin and Corte's, JJ., concur.
Feliciano, J., is on leave
SULO NG BAYAN INC., plaintiff-appellant,
vs.
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.
Araneta, Mendoza & Papa for appellee Gregorio Araneta, Inc.
Carlos, Madarang, Carballo & Valdez for Paradise Farms, Inc.
Leopoldo M. Abellera, Arsenio J. Magpale & Raul G. Bernardo, Office of the Government Corporate Counsel for appellee National
Waterworks & Sewerage Authority.
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.
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.
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.
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.
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.
I
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.
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.
II
Let us now consider the substantive aspect of the Order of dismissal.
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.
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
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. 9This 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
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
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.
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.
III
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.
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
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
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
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.
ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the plaintiff-appellant.
BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY
CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S.
DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents.
Apostol, Bernas, Gumaru, Ona and Associates for petitioner.
Vicente G. Sison for intervenor A.T. Abesamis.

NARVASA, J.:
Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan Shipyard and
Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by President Corazon C. Aquino on February 28, 1986
and March 12, 1986, respectively, and (2) the sequestration, takeover, and other orders issued, and acts done, in accordance with said
executive orders by the Presidential Commission on Good Government and/or its Commissioners and agents, affecting said
corporation.
1. The Sequestration, Takeover, and Other Orders Complained of
a. The Basic Sequestration Order
The sequestration order which, in the view of the petitioner corporation, initiated all its misery was issued on April 14, 1986 by
Commissioner Mary Concepcion Bautista. It was addressed to three of the agents of the Commission, hereafter simply referred to as
PCGG. It reads as follows:
RE: SEQUESTRATION ORDER
By virtue of the powers vested in the Presidential Commission on Good Government, by authority of the President of
the Philippines, you are hereby directed to sequester the following companies.
1. Bataan Shipyard and Engineering Co., Inc. (Engineering Island Shipyard and Mariveles
Shipyard)
2. Baseco Quarry
3. Philippine Jai-Alai Corporation
4. Fidelity Management Co., Inc.
5. Romson Realty, Inc.
6. Trident Management Co.
7. New Trident Management
8. Bay Transport
9. And all affiliate companies of Alfredo "Bejo" Romualdez
You are hereby ordered:
1. To implement this sequestration order with a minimum disruption of these companies' business activities.
2. To ensure the continuity of these companies as going concerns, the care and maintenance of these assets until
such time that the Office of the President through the Commission on Good Government should decide otherwise.
3. To report to the Commission on Good Government periodically.
Further, you are authorized to request for Military/Security Support from the Military/Police authorities, and such other
acts essential to the achievement of this sequestration order. 1
b. Order for Production of Documents
On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated April 18, 1986 to
the President and other officers of petitioner firm, reiterating an earlier request for the production of certain documents, to wit:
1. Stock Transfer Book
2. Legal documents, such as:
2.1. Articles of Incorporation
2.2. By-Laws
2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986
2.4. Minutes of the Regular and Special Meetings of the Board of Directors from 1973 to 1986
2.5. Minutes of the Executive Committee Meetings from 1973 to 1986
2.6. Existing contracts with suppliers/contractors/others.
3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to 1986 duly certified by the
Corporate Secretary.
4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from 1973 to December 31, 1985.
5. Monthly Financial Statements for the current year up to March 31, 1986.
6. Consolidated Cash Position Reports from January to April 15, 1986.
7. Inventory listings of assets up dated up to March 31, 1986.
8. Updated schedule of Accounts Receivable and Accounts Payable.
9. Complete list of depository banks for all funds with the authorized signatories for withdrawals thereof.
10. Schedule of company investments and placements. 2
The letter closed with the warning that if the documents were not submitted within five days, the officers would be cited for "contempt in
pursuance with Presidential Executive Order Nos. 1 and 2."
c. Orders Re Engineer Island
(1) Termination of Contract for Security Services
A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is that issued on April 21, 1986 by a Capt.
Flordelino B. Zabala, a member of the task force assigned to carry out the basic sequestration order. He sent a letter to BASECO's
Vice-President for Finance, 3 terminating the contract for security services within the Engineer Island compound between BASECO and
"Anchor and FAIRWAYS" and "other civilian security agencies," CAPCOM military personnel having already been assigned to the area,
(2) Change of Mode of Payment of Entry Charges
On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners and Contractors," particularly a "Mr.
Buddy Ondivilla National Marine Corporation," advising of the amendment in part of their contracts with BASECO in the sense that the
stipulated charges for use of the BASECO road network were made payable "upon entry and not anymore subject to monthly billing as
was originally agreed upon." 4
d. Aborted Contract for Improvement of Wharf at Engineer Island
On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of BASECO with Deltamarine Integrated Port
Services, Inc., in virtue of which the latter undertook to introduce improvements costing approximately P210,000.00 on the BASECO
wharf at Engineer Island, allegedly then in poor condition, avowedly to "optimize its utilization and in return maximize the revenue which
would flow into the government coffers," in consideration of Deltamarine's being granted "priority in using the improved portion of the
wharf ahead of anybody" and exemption "from the payment of any charges for the use of wharf including the area where it may install
its bagging equipments" "until the improvement remains in a condition suitable for port operations." 5 It seems however that this contract
was never consummated. Capt. Jorge B. Siacunco, "Head- (PCGG) BASECO Management Team," advised Deltamarine by letter dated
July 30, 1986 that "the new management is not in a position to honor the said contract" and thus "whatever improvements * * (may be
introduced) shall be deemed unauthorized * * and shall be at * * (Deltamarine's) own risk." 6
e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan
By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent, Mayor Melba O. Buenaventura, "to plan and
implement progress towards maximizing the continuous operation of the BASECO Sesiman Rock Quarry * * by conventional methods;"
but afterwards, Commissioner Bautista, in representation of the PCGG, authorized another party, A.T. Abesamis, to operate the quarry,
located at Mariveles, Bataan, an agreement to this effect having been executed by them on September 17, 1986. 7
f. Order to Dispose of Scrap, etc.
By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor Buenaventura was also "authorized to clean and
beautify the Company's compound," and in this connection, to dispose of or sell "metal scraps" and other materials, equipment and
machineries no longer usable, subject to specified guidelines and safeguards including audit and verification. 8
g. The TAKEOVER Order
By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover by the PCGG of BASECO, "the
Philippine Dockyard Corporation and all their affiliated companies." 9 Diaz invoked the provisions of Section 3 (c) of Executive Order No.
1, empowering the Commission —
* * To provisionally takeover in the public interest or to prevent its disposal or dissipation, business enterprises and
properties taken over by the government of the Marcos Administration or by entities or persons close to former
President Marcos, until the transactions leading to such acquisition by the latter can be disposed of by the
appropriate authorities.
A management team was designated to implement the order, headed by Capt. Siacunco, and was given the following powers:
1. Conducts all aspects of operation of the subject companies;
2. Installs key officers, hires and terminates personnel as necessary;
3. Enters into contracts related to management and operation of the companies;
4. Ensures that the assets of the companies are not dissipated and used effectively and efficiently; revenues are duly
accounted for; and disburses funds only as may be necessary;
5. Does actions including among others, seeking of military support as may be necessary, that will ensure compliance
to this order;
6. Holds itself fully accountable to the Presidential Commission on Good Government on all aspects related to this
take-over order.
h. Termination of Services of BASECO Officers
Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M. Valdez, Gilberto Pasimanero, and Benito R.
Cuesta I, advising of the termination of their services by the PCGG. 10
2. Petitioner's Plea and Postulates
It is the foregoing specific orders and acts of the PCGG and its members and agents which, to repeat, petitioner BASECO would have
this Court nullify. More particularly, BASECO prays that this Court-
1) declare unconstitutional and void Executive Orders Numbered 1 and 2;
2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts done on the basis thereof,
inclusive of the takeover order of July 14, 1986 and the termination of the services of the BASECO executives. 11
a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders
While BASECO concedes that "sequestration without resorting to judicial action, might be made within the context of Executive Orders
Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was promulgated, under the principle that the law promulgated by
the ruler under a revolutionary regime is the law of the land, it ceased to be acceptable when the same ruler opted to promulgate the
Freedom Constitution on March 25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was
adopted providing, among others, that "No person shall be deprived of life, liberty and property without due process of law." (Const., Art.
I V, Sec. 1)." 12
It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration Order * * and Takeover Order *
* issued purportedly under the authority of said Executive Orders, rests on four fundamental considerations: First, no notice and hearing
was accorded * * (it) before its properties and business were taken over; Second, the PCGG is not a court, but a purely investigative
agency and therefore not competent to act as prosecutor and judge in the same cause; Third, there is nothing in the issuances which
envisions any proceeding, process or remedy by which petitioner may expeditiously challenge the validity of the takeover after the
same has been effected; and Fourthly, being directed against specified persons, and in disregard of the constitutional presumption of
innocence and general rules and procedures, they constitute a Bill of Attainder." 13
b. Re Order to Produce Documents
It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already complied with, was issued
without court authority and infringed its constitutional right against self-incrimination, and unreasonable search and seizure. 14
c. Re PCGG's Exercise of Right of Ownership and Management
BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of its business affairs by —
1) terminating its contract for security services with Fairways & Anchor, without the consent and against the will of the contracting
parties; and amending the mode of payment of entry fees stipulated in its Lease Contract with National Stevedoring & Lighterage
Corporation, these acts being in violation of the non-impairment clause of the constitution; 15
2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine Integrated Port Services, Inc.,
giving the latter free use of BASECO premises; 16
3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock quarry at Sesiman, Mariveles; 17
4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and other materials; 18
5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliated companies;
6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S. Mendoza; GM Moises M. Valdez; Finance
Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19
7) planning to elect its own Board of Directors; 20
8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's premises at Mariveles * * rolls of cable wires,
worth P600,000.00 on May 11, 1986; 21
9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have been buried therein. 22
3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders
Many misconceptions and much doubt about the matter of sequestration, takeover and freeze orders have been engendered by
misapprehension, or incomplete comprehension if not indeed downright ignorance of the law governing these remedies. It is needful
that these misconceptions and doubts be dispelled so that uninformed and useless debates about them may be avoided, and
arguments tainted b sophistry or intellectual dishonesty be quickly exposed and discarded. Towards this end, this opinion will essay an
exposition of the law on the matter. In the process many of the objections raised by BASECO will be dealt with.
4. The Governing Law
a. Proclamation No. 3
The impugned executive orders are avowedly meant to carry out the explicit command of the Provisional Constitution, ordained by
Proclamation No. 3, 23 that the President-in the exercise of legislative power which she was authorized to continue to wield "(until a
legislature is elected and convened under a new Constitution" — "shall give priority to measures to achieve the mandate of the people,"
among others to (r)ecover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest
of the people through orders of sequestration or freezing of assets or accounts." 24
b. Executive Order No. 1
Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and postulates that "vast resources of the government
have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and
abroad." 25 Upon these premises, the Presidential Commission on Good Government was created, 26 "charged with the task of assisting
the President in regard to (certain specified) matters," among which was precisely-
* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E. Marcos, his immediate family,
relatives, subordinates and close associates, whether located in the Philippines or abroad, including the takeover or
sequestration of all business enterprises and entities owned or controlled by them, during his administration, directly
or through nominees, by taking undue advantage of their public office and/or using their powers, authority, influence,
connections or relationship. 27
In relation to the takeover or sequestration that it was authorized to undertake in the fulfillment of its mission, the PCGG was granted
"power and authority" to do the following particular acts, to wit:
1. To sequester or place or cause to be placed under its control or possession any building or office wherein any ill-
gotten wealth or properties may be found, and any records pertaining thereto, in order to prevent their destruction,
concealment or disappearance which would frustrate or hamper the investigation or otherwise prevent the
Commission from accomplishing its task.
2. To provisionally take over in the public interest or to prevent the disposal or dissipation, business enterprises and
properties taken over by the government of the Marcos Administration or by entities or persons close to former
President Marcos, until the transactions leading to such acquisition by the latter can be disposed of by the
appropriate authorities.
3. To enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and
academic, or frustrate or otherwise make ineffectual the efforts of the Commission to carry out its task under this
order. 28
So that it might ascertain the facts germane to its objectives, it was granted power to conduct investigations; require submission of
evidence by subpoenae ad testificandum and duces tecum; administer oaths; punish for contempt. 29It was given power also to
promulgate such rules and regulations as may be necessary to carry out the purposes of * * (its creation). 30
c. Executive Order No. 2
Executive Order No. 2 gives additional and more specific data and directions respecting "the recovery of ill-gotten properties amassed
by the leaders and supporters of the previous regime." It declares that:
1) * * the Government of the Philippines is in possession of evidence showing that there are assets and properties
purportedly pertaining to former Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close
relatives, subordinates, business associates, dummies, agents or nominees which had been or were acquired by
them directly or indirectly, through or as a result of the improper or illegal use of funds or properties owned by the
government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or
by taking undue advantage of their office, authority, influence, connections or relationship, resulting in their unjust
enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines:" and
2) * * said assets and properties are in the form of bank accounts, deposits, trust accounts, shares of stocks,
buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds of real and personal
properties in the Philippines and in various countries of the world." 31
Upon these premises, the President-
1) froze "all assets and properties in the Philippines in which former President Marcos and/or his wife, Mrs. Imelda
Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents, or nominees have
any interest or participation;
2) prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives, subordinates, business
associates, duties, agents, or nominees from transferring, conveying, encumbering, concealing or dissipating said
assets or properties in the Philippines and abroad, pending the outcome of appropriate proceedings in the Philippines
to determine whether any such assets or properties were acquired by them through or as a result of improper or
 illegal use of or the conversion of funds belonging to the Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their official position,
authority, relationship, connection or influence to unjustly enrich themselves at the expense and to the grave damage
and prejudice of the Filipino people and the Republic of the Philippines;
3) prohibited "any person from transferring, conveying, encumbering or otherwise depleting or concealing such
assets and properties or from assisting or taking part in their transfer, encumbrance, concealment or dissipation
under pain of such penalties as are prescribed by law;" and
4) required "all persons in the Philippines holding such assets or properties, whether located in the Philippines or
abroad, in their names as nominees, agents or trustees, to make full disclosure of the same to the Commission on
Good Government within thirty (30) days from publication of * (the) Executive Order, * *. 32
d. Executive Order No. 14
A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG is empowered, "with the assistance of the Office of
the Solicitor General and other government agencies, * * to file and prosecute all cases investigated by it * * as may be warranted by its
findings." 34 All such cases, whether civil or criminal, are to be filed "with the Sandiganbayan which shall have exclusive and original
jurisdiction thereof." 35 Executive Order No. 14 also pertinently provides that civil suits for restitution, reparation of damages, or
indemnification for consequential damages, forfeiture proceedings provided for under Republic Act No. 1379, or any other civil actions
under the Civil Code or other existing laws, in connection with * * (said Executive Orders Numbered 1 and 2) may be filed separately
from and proceed independently of any criminal proceedings and may be proved by a preponderance of evidence;" and that, moreover,
the "technical rules of procedure and evidence shall not be strictly applied to* * (said)civil cases." 36
5. Contemplated Situations
The situations envisaged and sought to be governed are self-evident, these being:
1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the previous regime"; 37
a) more particularly, that ill-gotten wealth (was) accumulated by former President Ferdinand E. Marcos, his immediate
family, relatives, subordinates and close associates, * * located in the Philippines or abroad, * * (and) business
enterprises and entities (came to be) owned or controlled by them, during * * (the Marcos) administration, directly or
through nominees, by taking undue advantage of their public office and/or using their powers, authority, influence,
Connections or relationship; 38
b) otherwise stated, that "there are assets and properties purportedly pertaining to former President Ferdinand E.
Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates,
dummies, agents or nominees which had been or were acquired by them directly or indirectly, through or as a result
of the improper or illegal use of funds or properties owned by the Government of the Philippines or any of its
branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their office,
authority, influence, connections or relationship, resulting in their unjust enrichment and causing grave damage and
prejudice to the Filipino people and the Republic of the Philippines"; 39
c) that "said assets and properties are in the form of bank accounts. deposits, trust. accounts, shares of stocks,
buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds of real and personal
properties in the Philippines and in various countries of the world;" 40 and
2) that certain "business enterprises and properties (were) taken over by the government of the Marcos
Administration or by entities or persons close to former President Marcos. 41
6. Government's Right and Duty to Recover All Ill-gotten Wealth
There can be no debate about the validity and eminent propriety of the Government's plan "to recover all ill-gotten wealth."
Neither can there be any debate about the proposition that assuming the above described factual premises of the Executive Orders and
Proclamation No. 3 to be true, to be demonstrable by competent evidence, the recovery from Marcos, his family and his dominions of
the assets and properties involved, is not only a right but a duty on the part of Government.
But however plain and valid that right and duty may be, still a balance must be sought with the equally compelling necessity that a
proper respect be accorded and adequate protection assured, the fundamental rights of private property and free enterprise which are
deemed pillars of a free society such as ours, and to which all members of that society may without exception lay claim.
* * Democracy, as a way of life enshrined in the Constitution, embraces as its necessary components freedom of
conscience, freedom of expression, and freedom in the pursuit of happiness. Along with these freedoms are included
economic freedom and freedom of enterprise within reasonable bounds and under proper control. * * Evincing much
concern for the protection of property, the Constitution distinctly recognizes the preferred position which real estate
has occupied in law for ages. Property is bound up with every aspect of social life in a democracy as democracy is
conceived in the Constitution.The Constitution realizes the indispensable role which property, owned in reasonable
quantities and used legitimately, plays in the stimulation to economic effort and the formation and growth of a solid
social middle class that is said to be the bulwark of democracy and the backbone of every progressive and happy
country. 42
a. Need of Evidentiary Substantiation in Proper Suit
Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to be duly established by
adequate proof in each case, in a proper judicial proceeding, so that the recovery of the ill-gotten wealth may be validly and properly
adjudged and consummated; although there are some who maintain that the fact-that an immense fortune, and "vast resources of the
government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both
here and abroad," and they have resorted to all sorts of clever schemes and manipulations to disguise and hide their illicit acquisitions-
is within the realm of judicial notice, being of so extensive notoriety as to dispense with proof thereof, Be this as it may, the requirement
of evidentiary substantiation has been expressly acknowledged, and the procedure to be followed explicitly laid down, in Executive
Order No. 14.
b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits
Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gotten wealth" as the evidence at hand may
reveal, there is an obvious and imperative need for preliminary, provisional measures to prevent the concealment, disappearance,
destruction, dissipation, or loss of the assets and properties subject of the suits, or to restrain or foil acts that may render moot and
academic, or effectively hamper, delay, or negate efforts to recover the same.
7. Provisional Remedies Prescribed by Law
To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration; (2) freeze orders; and (3)
provisional takeover.
Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten wealth." The remedy of "provisional
takeover" is peculiar to cases where "business enterprises and properties (were) taken over by the government of the Marcos
Administration or by entities or persons close to former President Marcos." 43
a. Sequestration
By the clear terms of the law, the power of the PCGG to sequester property claimed to be "ill-gotten" means to place or cause to be
placed under its possession or control said property, or any building or office wherein any such property and any records pertaining
thereto may be found, including "business enterprises and entities,"-for the purpose of preventing the destruction, concealment or
dissipation of, and otherwise conserving and preserving, the same-until it can be determined, through appropriate judicial proceedings,
whether the property was in truth will- gotten," i.e., acquired through or as a result of improper or illegal use of or the conversion of
funds belonging to the Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking
undue advantage of official position, authority relationship, connection or influence, resulting in unjust enrichment of the ostensible
owner and grave damage and prejudice to the State. 44 And this, too, is the sense in which the term is commonly understood in other
jurisdictions. 45
b. "Freeze Order"
A "freeze order" prohibits the person having possession or control of property alleged to constitute "ill-gotten wealth" "from transferring,
conveying, encumbering or otherwise depleting or concealing such property, or from assisting or taking part in its transfer,
encumbrance, concealment, or dissipation." 46 In other words, it commands the possessor to hold the property and conserve it subject
to the orders and disposition of the authority decreeing such freezing. In this sense, it is akin to a garnishment by which the possessor
or ostensible owner of property is enjoined not to deliver, transfer, or otherwise dispose of any effects or credits in his possession or
control, and thus becomes in a sense an involuntary depositary thereof. 47
c. Provisional Takeover
In providing for the remedy of "provisional takeover," the law acknowledges the apparent distinction between "ill gotten" "business
enterprises and entities" (going concerns, businesses in actual operation), generally, as to which the remedy of sequestration applies, it
being necessarily inferred that the remedy entails no interference, or the least possible interference with the actual management and
operations thereof; and "business enterprises which were taken over by the government government of the Marcos Administration or by
entities or persons close to him," in particular, as to which a "provisional takeover" is authorized, "in the public interest or to prevent
disposal or dissipation of the enterprises." 48 Such a "provisional takeover" imports something more than sequestration or freezing,
more than the placing of the business under physical possession and control, albeit without or with the least possible interference with
the management and carrying on of the business itself. In a "provisional takeover," what is taken into custody is not only the physical
assets of the business enterprise or entity, but the business operation as well. It is in fine the assumption of control not only over things,
but over operations or on- going activities. But, to repeat, such a "provisional takeover" is allowed only as regards "business enterprises
* * taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos."
d. No Divestment of Title Over Property Seized
It may perhaps be well at this point to stress once again the provisional, contingent character of the remedies just described. Indeed the
law plainly qualifies the remedy of take-over by the adjective, "provisional." These remedies may be resorted to only for a particular
exigency: to prevent in the public interest the disappearance or dissipation of property or business, and conserve it pending adjudgment
in appropriate proceedings of the primary issue of whether or not the acquisition of title or other right thereto by the apparent owner was
attended by some vitiating anomaly. None of the remedies is meant to deprive the owner or possessor of his title or any right to the
property sequestered, frozen or taken over and vest it in the sequestering agency, the Government or other person. This can be done
only for the causes and by the processes laid down by law.
That this is the sense in which the power to sequester, freeze or provisionally take over is to be understood and exercised, the
language of the executive orders in question leaves no doubt. Executive Order No. 1 declares that the sequestration of property the
acquisition of which is suspect shall last "until the transactions leading to such acquisition * * can be disposed of by the appropriate
authorities." 49 Executive Order No. 2 declares that the assets or properties therein mentioned shall remain frozen "pending the
outcome of appropriate proceedings in the Philippines to determine whether any such assets or properties were acquired" by illegal
means. Executive Order No. 14 makes clear that judicial proceedings are essential for the resolution of the basic issue of whether or
not particular assets are "ill-gotten," and resultant recovery thereof by the Government is warranted.
e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional Command
There is thus no cause for the apprehension voiced by BASECO 50 that sequestration, freezing or provisional takeover is designed to be
an end in itself, that it is the device through which persons may be deprived of their property branded as "ill-gotten," that it is intended to
bring about a permanent, rather than a passing, transitional state of affairs. That this is not so is quite explicitly declared by the
governing rules.
Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of these provisional remedies. Section 26 of
its Transitory Provisions, 51 lays down the relevant rule in plain terms, apart from extending ratification or confirmation (although not
really necessary) to the institution by presidential fiat of the remedy of sequestration and freeze orders:
SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986 in
relation to the recovery of ill-gotten wealth shag remain operative for not more than eighteen months after the
ratification of this Constitution. However, in the national interest, as certified by the President, the Congress may
extend said period.
A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order and the list of the
sequestered or frozen properties shall forthwith be registered with the proper court. For orders issued before the
ratification of this Constitution, the corresponding judicial action or proceeding shall be filed within six months from its
ratification. For those issued after such ratification, the judicial action or proceeding shall be commenced within six
months from the issuance thereof.
 The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is commenced as
herein provided. 52
f. Kinship to Attachment Receivership
As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy of preliminary attachment, or
receivership. 53 By attachment, a sheriff seizes property of a defendant in a civil suit so that it may stand as security for the satisfaction
of any judgment that may be obtained, and not disposed of, or dissipated, or lost intentionally or otherwise, pending the action. 54 By
receivership, property, real or personal, which is subject of litigation, is placed in the possession and control of a receiver appointed by
the Court, who shall conserve it pending final determination of the title or right of possession over it. 55 All these remedies —
sequestration, freezing, provisional, takeover, attachment and receivership — are provisional, temporary, designed for-particular
exigencies, attended by no character of permanency or finality, and always subject to the control of the issuing court or agency.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a court is of no moment. The Solicitor General
draws attention to the writ of distraint and levy which since 1936 the Commissioner of Internal Revenue has been by law authorized to
issue against property of a delinquent taxpayer. 56 BASECO itself declares that it has not manifested "a rigid insistence on sequestration
as a purely judicial remedy * * (as it feels) that the law should not be ossified to a point that makes it insensitive to change." What it
insists on, what it pronounces to be its "unyielding position, is that any change in procedure, or the institution of a new one, should
conform to due process and the other prescriptions of the Bill of Rights of the Constitution." 57 It is, to be sure, a proposition on which
there can be no disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and receivership, as well as delivery of personal property in replevin suits, sequestration and
provisional takeover writs may issue ex parte. 58 And as in preliminary attachment, receivership, and delivery of personality, no objection
of any significance may be raised to the ex parte issuance of an order of sequestration, freezing or takeover, given its fundamental
character of temporariness or conditionality; and taking account specially of the constitutionally expressed "mandate of the people to
recover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people;" 59 as
well as the obvious need to avoid alerting suspected possessors of "ill-gotten wealth" and thereby cause that disappearance or loss of
property precisely sought to be prevented, and the fact, just as self-evident, that "any transfer, disposition, concealment or
disappearance of said assets and properties would frustrate, obstruct or hamper the efforts of the Government" at the just recovery
thereof. 60
8. Requisites for Validity
What is indispensable is that, again as in the case of attachment and receivership, there exist a prima facie factual foundation, at least,
for the sequestration, freeze or takeover order, and adequate and fair opportunity to contest it and endeavor to cause its negation or
nullification. 61
Both are assured under the executive orders in question and the rules and regulations promulgated by the PCGG.
a. Prima Facie Evidence as Basis for Orders
Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and due process." 62Executive Order No. 2
declares that with respect to claims on allegedly "ill-gotten" assets and properties, "it is the position of the new democratic government
that President Marcos * * (and other parties affected) be afforded fair opportunity to contest these claims before appropriate Philippine
authorities." 63 Section 7 of the Commission's Rules and Regulations provides that sequestration or freeze (and takeover) orders issue
upon the authority of at least two commissioners, based on the affirmation or complaint of an interested party, or motu proprio when the
Commission has reasonable grounds to believe that the issuance thereof is warranted. 64 A similar requirement is now found in Section
26, Art. XVIII of the 1987 Constitution, which requires that a "sequestration or freeze order shall be issued only upon showing of
a prima facie case." 65
b. Opportunity to Contest
And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a party may seek to set aside a writ of
sequestration or freeze order, viz:
SECTION 5. Who may contend.-The person against whom a writ of sequestration or freeze or hold order is directed
may request the lifting thereof in writing, either personally or through counsel within five (5) days from receipt of the
writ or order, or in the case of a hold order, from date of knowledge thereof.
SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio for good cause shown, the
Commission may lift the writ or order unconditionally or subject to such conditions as it may deem necessary, taking
into consideration the evidence and the circumstance of the case. The resolution of the commission may be appealed
by the party concerned to the Office of the President of the Philippines within fifteen (15) days from receipt thereof.
Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth" were not expressly imposed by some rule or
regulation as a condition to warrant the sequestration or freezing of property contemplated in the executive orders in question, it would
nevertheless be exigible in this jurisdiction in which the Rule of Law prevails and official acts which are devoid of rational basis in fact or
law, or are whimsical and capricious, are condemned and struck down. 66
9. Constitutional Sanction of Remedies
If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of sequestration, freeze and
takeover orders, it should be dispelled by the fact that these particular remedies and the authority of the PCGG to issue them have
received constitutional approbation and sanction. As already mentioned, the Provisional or "Freedom" Constitution recognizes the
power and duty of the President to enact "measures to achieve the mandate of the people to * * * (recover ill- gotten properties
amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or
freezing of assets or accounts." And as also already adverted to, Section 26, Article XVIII of the 1987 Constitution 67 treats of, and
ratifies the "authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986."
The institution of these provisional remedies is also premised upon the State's inherent police power, regarded, as t lie power of
promoting the public welfare by restraining and regulating the use of liberty and property," 68 and as "the most essential, insistent and
illimitable of powers * * in the promotion of general welfare and the public interest," 69and said to be co-extensive with self-protection
and * * not inaptly termed (also) the'law of overruling necessity." "70
10. PCGG not a "Judge"; General Functions
It should also by now be reasonably evident from what has thus far been said that the PCGG is not, and was never intended to act as,
a judge. Its general function is to conduct investigations in order to collect evidence establishing instances of "ill-gotten wealth;" issue
sequestration, and such orders as may be warranted by the evidence thus collected and as may be necessary to preserve and
conserve the assets of which it takes custody and control and prevent their disappearance, loss or dissipation; and eventually file and
prosecute in the proper court of competent jurisdiction all cases investigated by it as may be warranted by its findings. It does not try
and decide, or hear and determine, or adjudicate with any character of finality or compulsion, cases involving the essential issue of
whether or not property should be forfeited and transferred to the State because "ill-gotten" within the meaning of the Constitution and
the executive orders. This function is reserved to the designated court, in this case, the Sandiganbayan. 71 There can therefore be no
serious regard accorded to the accusation, leveled by BASECO, 72that the PCGG plays the perfidious role of prosecutor and judge at
the same time.
11. Facts Preclude Grant of Relief to Petitioner
Upon these premises and reasoned conclusions, and upon the facts disclosed by the record, hereafter to be discussed, the petition
cannot succeed. The writs of certiorari and prohibition prayed for will not be issued.
The facts show that the corporation known as BASECO was owned or controlled by President Marcos "during his administration,
through nominees, by taking undue advantage of his public office and/or using his powers, authority, or influence, " and that it was by
and through the same means, that BASECO had taken over the business and/or assets of the National Shipyard and Engineering Co.,
Inc., and other government-owned or controlled entities.
12. Organization and Stock Distribution of BASECO
BASECO describes itself in its petition as "a shiprepair and shipbuilding company * * incorporated as a domestic private corporation * *
(on Aug. 30, 1972) by a consortium of Filipino shipowners and shipping executives. Its main office is at Engineer Island, Port Area,
Manila, where its Engineer Island Shipyard is housed, and its main shipyard is located at Mariveles Bataan." 73 Its Articles of
Incorporation disclose that its authorized capital stock is P60,000,000.00 divided into 60,000 shares, of which 12,000 shares with a
value of P12,000,000.00 have been subscribed, and on said subscription, the aggregate sum of P3,035,000.00 has been paid by the
incorporators. 74The same articles Identify the incorporators, numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee,
(3) Eduardo T. Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio M. Ezpeleta, (8) Zacarias Amante,
(9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza, (14) Magiliw Torres,
and (15) Rodolfo Torres.
By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be stockholders, namely: (1) Generoso Tanseco, (2) Antonio
Ezpeleta, (3) Zacarias Amante, (4) Octavio Posadas, (5) Magiliw Torres, and (6) Rodolfo Torres. As of this year, 1986, there were
twenty (20) stockholders listed in BASECO's Stock and Transfer Book. 75Their names and the number of shares respectively held by
them are as follows:
1. Jose 1,2
A. Rojas 48
sha
res
2. 1,2
Severin 48
o G. de sha
la Cruz res
3. 2,5
Emilio T. 08
Yap sha
res
4. Jose 1,2
Fernand 48
ez sha
res
5. Jose 128
Francisc sha
o res
6. 96
Manuel sha
S. res
Mendoz
a
7. 1,2
Anthony 48
P. Lee sha
res
8. 32
Hilario sha
M. Ruiz res
9. 8
 Constan sha
te L. res
Fariñas
10. 65,
Fidelity 882
Manage sha
ment, res
Inc.
11. 7,4
Trident 12
Manage sha
ment res
12. 1,2
United 40
Phil. sha
Lines res
13. 8
Renato sha
M. res
Tanseco
14. 8
Fidel sha
Ventura res
15. 136
Metro ,37
Bay 0
Drydock sha
res
16. 1
Manuel sha
Jacela re
17. 1
Jonatha sha
n G. Lu re
18. Jose 1
J. sha
Tanchan re
co
19. 128
Dioscor sha
o Papa res
20. 4
Edward sha
T. res
Marcelo
TOTAL 218
,81
9
sha
res.
13 Acquisition of NASSCO by BASECO
Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel Corporation, or NASSCO, a government-
owned or controlled corporation, the latter's shipyard at Mariveles, Bataan, known as the Bataan National Shipyard (BNS), and —
except for NASSCO's Engineer Island Shops and certain equipment of the BNS, consigned for future negotiation — all its structures,
buildings, shops, quarters, houses, plants, equipment and facilities, in stock or in transit. This it did in virtue of a "Contract of Purchase
and Sale with Chattel Mortgage" executed on February 13, 1973. The price was P52,000,000.00. As partial payment thereof, BASECO
delivered to NASSCO a cash bond of P11,400,000.00, convertible into cash within twenty-four (24) hours from completion of the
inventory undertaken pursuant to the contract. The balance of P41,600,000.00, with interest at seven percent (7%) per annum,
compounded semi-annually, was stipulated to be paid in equal semi-annual installments over a term of nine (9) years, payment to
commence after a grace period of two (2) years from date of turnover of the shipyard to BASECO. 76
14. Subsequent Reduction of Price; Intervention of Marcos
Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to P24,311,550.00, about eight (8) months later. A
document to this effect was executed on October 9, 1973, entitled "Memorandum Agreement," and was signed for NASSCO by Arturo
Pacificador, as Presiding Officer of the Board of Directors, and David R. Ines, as General Manager. 77 This agreement bore, at the top
right corner of the first page, the word "APPROVED" in the handwriting of President Marcos, followed by his usual full signature. The
document recited that a down payment of P5,862,310.00 had been made by BASECO, and the balance of P19,449,240.00 was
payable in equal semi-annual installments over nine (9) years after a grace period of two (2) years, with interest at 7% per annum.
15. Acquisition of 300 Hectares from Export Processing Zone Authority
On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the Export Processing Zone Authority
for the price of P10,047,940.00 of which, as set out in the document of sale, P2,000.000.00 was paid upon its execution, and the
balance stipulated to be payable in installments. 78
16. Acquisition of Other Assets of NASSCO; Intervention of Marcos
Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the intervention of President Marcos, acquired
ownership of the rest of the assets of NASSCO which had not been included in the first two (2) purchase documents. This was
accomplished by a deed entitled "Contract of Purchase and Sale," 79 which, like the Memorandum of Agreement dated October 9,
1973 supra also bore at the upper right-hand corner of its first page, the handwritten notation of President Marcos reading,
"APPROVED, July 29, 1973," and underneath it, his usual full signature. Transferred to BASECO were NASSCO's "ownership and all
its titles, rights and interests over all equipment and facilities including structures, buildings, shops, quarters, houses, plants and
expendable or semi-expendable assets, located at the Engineer Island, known as the Engineer Island Shops, including all the
equipment of the Bataan National Shipyards (BNS) which were excluded from the sale of NBS to BASECO but retained by BASECO
and all other selected equipment and machineries of NASSCO at J. Panganiban Smelting Plant." In the same deed, NASSCO
committed itself to cooperate with BASECO for the acquisition from the National Government or other appropriate Government entity of
Engineer Island. Consideration for the sale was set at P5,000,000.00; a down payment of P1,000,000.00 appears to have been made,
and the balance was stipulated to be paid at 7% interest per annum in equal semi annual installments over a term of nine (9) years, to
commence after a grace period of two (2) years. Mr. Arturo Pacificador again signed for NASSCO, together with the general manager,
Mr. David R. Ines.
17. Loans Obtained
It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken from "the last available Japanese war damage
fund of $19,000,000.00," to pay for "Japanese made heavy equipment (brand new)." 80 On September 3, 1975, it got another loan also
from the NDC in the amount of P30,000,000.00 (id.). And on January 28, 1976, it got still another loan, this time from the GSIS, in the
sum of P12,400,000.00. 81 The claim has been made that not a single centavo has been paid on these loans. 82
18. Reports to President Marcos
In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO. The first was contained in a letter dated
September 5, 1977 of Hilario M. Ruiz, BASECO president. 83 The second was embodied in a confidential memorandum dated
September 16, 1977 of Capt. A.T. Romualdez. 84 They further disclose the fine hand of Marcos in the affairs of BASECO, and that of a
Romualdez, a relative by affinity.
a. BASECO President's Report
In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that there had been "no orders or demands for ship
construction" for some time and expressed the fear that if that state of affairs persisted, BASECO would not be able to pay its debts to
the Government, which at the time stood at the not inconsiderable amount of P165,854,000.00. 85 He suggested that, to "save the
situation," there be a "spin-off (of their) shipbuilding activities which shall be handled exclusively by an entirely new corporation to be
created;" and towards this end, he informed Marcos that BASECO was —
* * inviting NDC and LUSTEVECO to participate by converting the NDC shipbuilding loan to BASECO amounting to
P341.165M and assuming and converting a portion of BASECO's shipbuilding loans from REPACOM amounting to
P52.2M or a total of P83.365M as NDC's equity contribution in the new corporation. LUSTEVECO will participate by
absorbing and converting a portion of the REPACOM loan of Bay Shipyard and Drydock, Inc., amounting to
P32.538M.86
b. Romualdez' Report
Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It opened with the following caption:
MEMORANDUM:
FOR : The President
SUBJECT: An Evaluation and Re-assessment of a Performance of a Mission
FROM: Capt. A.T. Romualdez.
Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan obligations due chiefly to the fact that "orders to
build ships as expected * * did not materialize."
He advised that five stockholders had "waived and/or assigned their holdings inblank," these being: (1) Jose A. Rojas, (2) Severino de
la Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee. Pointing out that "Mr. Magiliw Torres * * is already dead and Mr.
Jose A. Rojas had a major heart attack," he made the following quite revealing, and it may be added, quite cynical and indurate
recommendation, to wit:
* * (that) their replacements (be effected) so we can register their names in the stock book prior to the implementation
of your instructions to pass a board resolution to legalize the transfers under SEC regulations;
2. By getting their replacements, the families cannot question us later on; and
3. We will owe no further favors from them. 87
He also transmitted to Marcos, together with the report, the following documents: 88
1. Stock certificates indorsed and assigned in blank with assignments and waivers; 89
2. The articles of incorporation, the amended articles, and the by-laws of BASECO;
3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in "Engineer Island", Port Area, Manila;
4. Transfer Certificate of Title No. 124822 in the name of BASECO, covering "Engineer Island";
 5. Contract dated October 9, 1973, between NASSCO and BASECO re-structure and equipment at Mariveles,
Bataan;
6. Contract dated July 16, 1975, between NASSCO and BASECO re-structure and equipment at Engineer Island,
Port Area Manila;
7. Contract dated October 1, 1974, between EPZA and BASECO re 300 hectares of land at Mariveles, Bataan;
8. List of BASECO's fixed assets;
9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC of P30,000,000.00;
10. BASECO-REPACOM Agreement dated May 27, 1975;
11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for the housing facilities for BASECO's rank-
and-file employees. 90
Capt. Romualdez also recommended that BASECO's loans be restructured "until such period when BASECO will have enough orders
for ships in order for the company to meet loan obligations," and that —
An LOI may be issued to government agencies using floating equipment, that a linkage scheme be applied to a
certain percent of BASECO's net profit as part of BASECO's amortization payments to make it justifiable for you,
Sir. 91
It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer of BASECO, yet he has presented a report on
BASECO to President Marcos, and his report demonstrates intimate familiarity with the firm's affairs and problems.
19. Marcos' Response to Reports
President Marcos lost no time in acting on his subordinates' recommendations, particularly as regards the "spin-off" and the "linkage
scheme" relative to "BASECO's amortization payments."
a. Instructions re "Spin-Off"
Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo Velasco of the Philippine National Oil
Company and Chairman Constante Fariñas of the National Development Company, directing them "to participate in the formation of a
new corporation resulting from the spin-off of the shipbuilding component of BASECO along the following guidelines:
a. Equity participation of government shall be through LUSTEVECO and NDC in the amount of P115,903,000
consisting of the following obligations of BASECO which are hereby authorized to be converted to equity of the said
new corporation, to wit:
1. NDC P83,865,000 (P31.165M loan & P52.2M Reparation)
2. LUSTEVECO P32,538,000 (Reparation)
b. Equity participation of government shall be in the form of non- voting shares.
For immediate compliance. 92
Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22) days after receiving their president's
memorandum, Messrs. Hilario M. Ruiz, Constante L. Fariñas and Geronimo Z. Velasco, in representation of their respective
corporations, executed a PRE-INCORPORATION AGREEMENT dated October 20, 1977. 93 In it, they undertook to form a shipbuilding
corporation to be known as "PHIL-ASIA SHIPBUILDING CORPORATION," to bring to realization their president's instructions. It would
seem that the new corporation ultimately formed was actually named "Philippine Dockyard Corporation (PDC)." 94
b. Letter of Instructions No. 670
Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On February 14, 1978, he issued Letter of
Instructions No. 670 addressed to the Reparations Commission REPACOM the Philippine National Oil Company (PNOC), the Luzon
Stevedoring Company (LUSTEVECO), and the National Development Company (NDC). What is commanded therein is summarized by
the Solicitor General, with pithy and not inaccurate observations as to the effects thereof (in italics), as follows:
* * 1) the shipbuilding equipment procured by BASECO through reparations be transferred to NDC subject to
reimbursement by NDC to BASECO (of) the amount of s allegedly representing the handling and incidental expenses
incurred by BASECO in the installation of said equipment (so instead of NDC getting paid on its loan to BASECO, it
was made to pay BASECO instead the amount of P18.285M); 2) the shipbuilding equipment procured from
reparations through EPZA, now in the possession of BASECO and BSDI (Bay Shipyard & Drydocking, Inc.) be
transferred to LUSTEVECO through PNOC; and 3) the shipbuilding equipment (thus) transferred be invested by
LUSTEVECO, acting through PNOC and NDC, as the government's equity participation in a shipbuilding corporation
to be established in partnership with the private sector.
xxx xxx xxx
And so, through a simple letter of instruction and memorandum, BASECO's loan obligation to NDC and REPACOM *
* in the total amount of P83.365M and BSD's REPACOM loan of P32.438M were wiped out and converted into non-
voting preferred shares. 95
20. Evidence of Marcos'
Ownership of BASECO
It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the control by President Marcos of
BASECO has been sufficiently shown.
Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only exercised control over BASECO,
but also that he actually owns well nigh one hundred percent of its outstanding stock.
It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 shares of stock outstanding, ostensibly
owned by twenty (20) stockholders. 96 Four of these twenty are juridical persons: (1) Metro Bay Drydock, recorded as holding 136,370
shares; (2) Fidelity Management, Inc., 65,882 shares; (3) Trident Management, 7,412 shares; and (4) United Phil. Lines, 1,240 shares.
The first three corporations, among themselves, own an aggregate of 209,664 shares of BASECO stock, or 95.82% of the outstanding
stock.
Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that found in Malacanang shortly after the
sudden flight of President Marcos, were certificates corresponding to more than ninety-five percent (95%) of all the outstanding shares
of stock of BASECO, endorsed in blank, together with deeds of assignment of practically all the outstanding shares of stock of the three
(3) corporations above mentioned (which hold 95.82% of all BASECO stock), signed by the owners thereof although not notarized. 97
More specifically, found in Malacanang (and now in the custody of the PCGG) were:
 1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc. — which supposedly owns as
aforesaid 65,882 shares of BASECO stock;
2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding shares of Metro Bay Drydock Corporation
— which allegedly owns 136,370 shares of BASECO stock;
3) the deeds of assignment of 800 outstanding shares of Trident Management Co., Inc. — which allegedly owns
7,412 shares of BASECO stock, assigned in blank; 98 and
4) stock certificates corresponding to 207,725 out of the 218,819 outstanding shares of BASECO stock; that is, all but
5 % — all endorsed in blank. 99
While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that the BASECO stockholders were still in
possession of their respective stock certificates and had "never endorsed * * them in blank or to anyone else," 100 that denial is
exposed by his own prior and subsequent recorded statements as a mere gesture of defiance rather than a verifiable factual
declaration.
By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of 10 days "to SUBMIT, as undertaken by
him, * * the certificates of stock issued to the stockholders of * * BASECO as of April 23, 1986, as listed in Annex 'P' of the
petition.' 101 Counsel thereafter moved for extension; and in his motion dated October 2, 1986, he declared inter alia that "said
certificates of stock are in the possession of third parties, among whom being the respondents themselves * * and petitioner is still
endeavoring to secure copies thereof from them." 102 On the same day he filed another motion praying that he be allowed "to secure
copies of the Certificates of Stock in the name of Metro Bay Drydock, Inc., and of all other Certificates, of Stock of petitioner's
stockholders in possession of respondents." 103
In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably argued that counsel's aforestated motion to
secure copies of the stock certificates "confirms the fact that stockholders of petitioner corporation are not in possession of * * (their)
certificates of stock," and the reason, according to him, was "that 95% of said shares * * have been endorsed in blank and found in
Malacañang after the former President and his family fled the country." To this manifestation BASECO's counsel replied on November
5, 1986, as already mentioned, Stubbornly insisting that the firm's stockholders had not really assigned their stock. 105
In view of the parties' conflicting declarations, this Court resolved on November 27, 1986 among other things "to require * * the
petitioner * * to deposit upon proper receipt with Clerk of Court Juanito Ranjo the originals of the stock certificates alleged to be in its
possession or accessible to it, mentioned and described in Annex 'P' of its petition, (and other pleadings) * * within ten (10) days from
notice." 106 In a motion filed on December 5, 1986, 107 BASECO's counsel made the statement, quite surprising in the premises, that
"it will negotiate with the owners (of the BASECO stock in question) to allow petitioner to borrow from them, if available, the certificates
referred to" but that "it needs a more sufficient time therefor" (sic). BASECO's counsel however eventually had to confess inability to
produce the originals of the stock certificates, putting up the feeble excuse that while he had "requested the stockholders to allow * *
(him) to borrow said certificates, * * some of * * (them) claimed that they had delivered the certificates to third parties by way of pledge
and/or to secure performance of obligations, while others allegedly have entrusted them to third parties in view of last national
emergency." 108 He has conveniently omitted, nor has he offered to give the details of the transactions adverted to by him, or to explain
why he had not impressed on the supposed stockholders the primordial importance of convincing this Court of their present custody of
the originals of the stock, or if he had done so, why the stockholders are unwilling to agree to some sort of arrangement so that the
originals of their certificates might at the very least be exhibited to the Court. Under the circumstances, the Court can only conclude that
he could not get the originals from the stockholders for the simple reason that, as the Solicitor General maintains, said stockholders in
truth no longer have them in their possession, these having already been assigned in blank to then President Marcos.
21. Facts Justify Issuance of Sequestration and Takeover Orders
In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and directors of BASECO as of
April, 1986 109 were mere "dummies," nominees or alter egos of President Marcos; at any rate, that they are no longer owners of any
shares of stock in the corporation, the conclusion cannot be avoided that said stockholders and directors have no basis and no
standing whatever to cause the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for in the
petition, would in effect be to restore the assets, properties and business sequestered and taken over by the PCGG to persons who are
"dummies," nominees or alter egos of the former president.
From the standpoint of the PCGG, the facts herein stated at some length do indeed show that the private corporation known as
BASECO was "owned or controlled by former President Ferdinand E. Marcos * * during his administration, * * through nominees, by
taking advantage of * * (his) public office and/or using * * (his) powers, authority, influence * *," and that NASSCO and other property of
the government had been taken over by BASECO; and the situation justified the sequestration as well as the provisional takeover of the
corporation in the public interest, in accordance with the terms of Executive Orders No. 1 and 2, pending the filing of the requisite
actions with the Sandiganbayan to cause divestment of title thereto from Marcos, and its adjudication in favor of the Republic pursuant
to Executive Order No. 14.
As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, it sustains the acts of sequestration
and takeover by the PCGG as being in accord with the law, and, in view of what has thus far been set out in this opinion, pronounces to
be without merit the theory that said acts, and the executive orders pursuant to which they were done, are fatally defective in not
according to the parties affected prior notice and hearing, or an adequate remedy to impugn, set aside or otherwise obtain relief
therefrom, or that the PCGG had acted as prosecutor and judge at the same time.
22. Executive Orders Not a Bill of Attainder
Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. 110 "A bill of attainder is a legislative
act which inflicts punishment without judicial trial." 111 "Its essence is the substitution of a legislative for a judicial determination of
guilt." 112
In the first place, nothing in the executive orders can be reasonably construed as a determination or declaration of guilt. On the
contrary, the executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any judgment of guilt in the amassing or
acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and
prosecuted by the PCGG. In the second place, no punishment is inflicted by the executive orders, as the merest glance at their
provisions will immediately make apparent. In no sense, therefore, may the executive orders be regarded as a bill of attainder.
23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures
BASECO also contends that its right against self incrimination and unreasonable searches and seizures had been transgressed by the
Order of April 18, 1986 which required it "to produce corporate records from 1973 to 1986 under pain of contempt of the Commission if
it fails to do so." The order was issued upon the authority of Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to
"issue subpoenas requiring * * the production of such books, papers, contracts, records, statements of accounts and other documents
as may be material to the investigation conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing with its
power to "require all persons in the Philippines holding * * (alleged "ill-gotten") assets or properties, whether located in the Philippines
or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same * *." The contention lacks merit.
It is elementary that the right against self-incrimination has no application to juridical persons.
While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it
does not follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when
charged with an abuse ofsuchprivileges * * 113
Relevant jurisprudence is also cited by the Solicitor General. 114
* * corporations are not entitled to all of the constitutional protections which private individuals have. * * They are not
at all within the privilege against self-incrimination, although this court more than once has said that the privilege runs
very closely with the 4th Amendment's Search and Seizure provisions. It is also settled that an officer of the company
cannot refuse to produce its records in its possession upon the plea that they will either incriminate him or may
incriminate it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's).
* * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received
certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its
charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a
corporation are only preserved to it so long as it obeys the laws of its creation. There is a reserve right in the
legislature to investigate its contracts and find out whether it has exceeded its powers. It would be a strange anomaly
to hold that a state, having chartered a corporation to make use of certain franchises, could not, in the exercise of
sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the
production of the corporate books and papers for that purpose. The defense amounts to this, that an officer of the
corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a
refusal to produce its books. To state this proposition is to answer it. While an individual may lawfully refuse to
answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested
with special privileges and franchises may refuse to show its hand when charged with an abuse of such
privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the Solicitor General's])
At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to individuals required to
produce evidence before the PCGG against any possible violation of his right against self-incrimination. It gives them immunity from
prosecution on the basis of testimony or information he is compelled to present. As amended, said Section 4 now provides that —
xxx xxx xxx
The witness may not refuse to comply with the order on the basis of his privilege against self-incrimination; but no
testimony or other information compelled under the order (or any information directly or indirectly derived from such
testimony, or other information) may be used against the witness in any criminal case, except a prosecution for
perjury, giving a false statement, or otherwise failing to comply with the order.
The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either. There has been
no search undertaken by any agent or representative of the PCGG, and of course no seizure on the occasion thereof.
24. Scope and Extent of Powers of the PCGG
One other question remains to be disposed of, that respecting the scope and extent of the powers that may be wielded by the PCGG
with regard to the properties or businesses placed under sequestration or provisionally taken over. Obviously, it is not a question to
which an answer can be easily given, much less one which will suffice for every conceivable situation.
a. PCGG May Not Exercise Acts of Ownership
One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property sequestered, frozen
or provisionally taken over. AS already earlier stressed with no little insistence, the act of sequestration; freezing or provisional takeover
of property does not import or bring about a divestment of title over said property; does not make the PCGG the owner thereof. In
relation to the property sequestered, frozen or provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not
perform acts of strict ownership; and this is specially true in the situations contemplated by the sequestration rules where, unlike cases
of receivership, for example, no court exercises effective supervision or can upon due application and hearing, grant authority for the
performance of acts of dominion.
Equally evident is that the resort to the provisional remedies in question should entail the least possible interference with business
operations or activities so that, in the event that the accusation of the business enterprise being "ill gotten" be not proven, it may be
returned to its rightful owner as far as possible in the same condition as it was at the time of sequestration.
b. PCGG Has Only Powers of Administration
The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over,
much like a court-appointed receiver, 115 such as to bring and defend actions in its own name; receive rents; collect debts due; pay
outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and
administrator. In this context, it may in addition enjoin or restrain any actual or threatened commission of acts by any person or entity
that may render moot and academic, or frustrate or otherwise make ineffectual its efforts to carry out its task; punish for direct or
indirect contempt in accordance with the Rules of Court; and seek and secure the assistance of any office, agency or instrumentality of
the government. 116 In the case of sequestered businesses generally (i.e., going concerns, businesses in current operation), as in the
case of sequestered objects, its essential role, as already discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not
that of manager, or innovator, much less an owner.
c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him; Limitations Thereon
Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the government of the Marcos
Administration or by entities or persons close to former President Marcos," 117 the PCGG is given power and authority, as already
adverted to, to "provisionally take (it) over in the public interest or to prevent * * (its) disposal or dissipation;" and since the term is
obviously employed in reference to going concerns, or business enterprises in operation, something more than mere physical custody
is connoted; the PCGG may in this case exercise some measure of control in the operation, running, or management of the business
itself. But even in this special situation, the intrusion into management should be restricted to the minimum degree necessary to
accomplish the legislative will, which is "to prevent the disposal or dissipation" of the business enterprise. There should be no hasty,
indiscriminate, unreasoned replacement or substitution of management officials or change of policies, particularly in respect of viable
establishments. In fact, such a replacement or substitution should be avoided if at all possible, and undertaken only when justified by
demonstrably tenable grounds and in line with the stated objectives of the PCGG. And it goes without saying that where replacement of
management officers may be called for, the greatest prudence, circumspection, care and attention - should accompany that undertaking
to the end that truly competent, experienced and honest managers may be recruited. There should be no role to be played in this area
by rank amateurs, no matter how wen meaning. The road to hell, it has been said, is paved with good intentions. The business is not to
be experimented or played around with, not run into the ground, not driven to bankruptcy, not fleeced, not ruined. Sight should never be
lost sight of the ultimate objective of the whole exercise, which is to turn over the business to the Republic, once judicially established to
be "ill-gotten." Reason dictates that it is only under these conditions and circumstances that the supervision, administration and control
of business enterprises provisionally taken over may legitimately be exercised.
d. Voting of Sequestered Stock; Conditions Therefor
So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the prerogative to vote
sequestered stock of corporations, granted to it by the President of the Philippines through a Memorandum dated June 26, 1986. That
Memorandum authorizes the PCGG, "pending the outcome of proceedings to determine the ownership of * * (sequestered) shares of
stock," "to vote such shares of stock as it may have sequestered in corporations at all stockholders' meetings called for the election of
directors, declaration of dividends, amendment of the Articles of Incorporation, etc." The Memorandum should be construed in such a
manner as to be consistent with, and not contradictory of the Executive Orders earlier promulgated on the same matter. There should
be no exercise of the right to vote simply because the right exists, or because the stocks sequestered constitute the controlling or a
substantial part of the corporate voting power. The stock is not to be voted to replace directors, or revise the articles or by-laws, or
otherwise bring about substantial changes in policy, program or practice of the corporation except for demonstrably weighty and
defensible grounds, and always in the context of the stated purposes of sequestration or provisional takeover, i.e., to prevent the
dispersion or undue disposal of the corporate assets. Directors are not to be voted out simply because the power to do so exists.
Substitution of directors is not to be done without reason or rhyme, should indeed be shunned if at an possible, and undertaken only
when essential to prevent disappearance or wastage of corporate property, and always under such circumstances as assure that the
replacements are truly possessed of competence, experience and probity.
In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in their stead because
the evidence showed prima facie that the former were just tools of President Marcos and were no longer owners of any stock in the
firm, if they ever were at all. This is why, in its Resolution of October 28, 1986; 118 this Court declared that —
Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling and holding of
a stockholders' meeting for the election of directors as authorized by the Memorandum of the President * * (to the
PCGG) dated June 26, 1986, particularly, where as in this case, the government can, through its designated
directors, properly exercise control and management over what appear to be properties and assets owned and
belonging to the government itself and over which the persons who appear in this case on behalf of BASECO have
failed to show any right or even any shareholding in said corporation.
It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management of the company's
affairs should henceforth be guided and governed by the norms herein laid down. They should never for a moment allow themselves to
forget that they are conservators, not owners of the business; they are fiduciaries, trustees, of whom the highest degree of diligence
and rectitude is, in the premises, required.
25. No Sufficient Showing of Other Irregularities
As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the execution of certain contracts,
inclusive of the termination of the employment of some of its executives, 119 this Court cannot, in the present state of the evidence on
record, pass upon them. It is not necessary to do so. The issues arising therefrom may and will be left for initial determination in the
appropriate action. But the Court will state that absent any showing of any important cause therefor, it will not normally substitute its
judgment for that of the PCGG in these individual transactions. It is clear however, that as things now stand, the petitioner cannot be
said to have established the correctness of its submission that the acts of the PCGG in question were done without or in excess of its
powers, or with grave abuse of discretion.
WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is lifted.
Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.

Separate Opinions

TEEHANKEE, CJ., concurring:

I fully concur with the masterly opinion of Mr. Justice Narvasa. In the process of disposing of the issues raised by petitioner BASECO in
the case at bar, it comprehensively discusses the laws and principles governing the Presidential Commission on Good Government
(PCGG) and defines the scope and extent of its powers in the discharge of its monumental task of recovering the "ill-gotten wealth,
accumulated by former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates, whether
located in the Philippines or abroad (and) business enterprises and entities owned or controlled by them during I . . .(the Marcos)
administration, directly or through nominees, by taking undue advantage of their public office and/or using their powers, authority,
influence, connections or relationship." 1
The Court is unanimous insofar as the judgment at bar upholds the imperative need of recovering the ill-gotten properties amassed by
the previous regime, which "deserves the fullest support of the judiciary and all sectors of society." 2 To quote the pungent language of
Mr. Justice Cruz, "(T)here is no question that all lawful efforts should be taken to recover the tremendous wealth plundered from the
people by the past regime in the most execrable thievery perpetrated in all history. No right-thinking Filipino can quarrel with this
necessary objective, and on this score I am happy to concur with the ponencia." 3
The Court is likewise unanimous in its judgment dismissing the petition to declare unconstitutional and void Executive Orders Nos. 1
and 2 to annul the sequestration order of April 14, 1986. For indeed, the 1987 Constitution overwhelmingly adopted by the people at the
February 2, 1987 plebiscite expressly recognized in Article XVIII, section 26 thereof 4 the vital functions of respondent PCGG to achieve
the mandate of the people to recover such ill-gotten wealth and properties as ordained by Proclamation No. 3 promulgated on March
25, 1986.
The Court is likewise unanimous as to the general rule set forth in the main opinion that "the PCGG cannot exercise acts of dominion
over property sequestered, frozen or provisionally taken over" and "(T)he PCGG may thus exercise only powers of administration over
the property or business sequestered or provisionally taken over, much like a court-appointed receiver, such as to bring and defend
actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may be
necessary to fulfill its mission as conservator and administrator. In this context, it may in addition enjoin or restrain any actual or
threatened commission of acts by any person or entity that may render moot and academic, or frustrate or otherwise make ineffectual
its efforts to carry out its task; punish for direct or indirect contempt in accordance with the Rules of Court; and seek and secure the
assistance of any office, agency or instrumentality of the government. In the case of sequestered businesses generally (i.e. going
concerns, business in current operation), as in the case of sequestered objects, its essential role, as already discussed, is that of
conservator, caretaker, 'watchdog' or overseer. It is not that of manager, or innovator, much less an owner." 5
Now, the case at bar involves one where the third and most encompassing and rarely invoked of provisional remedies, 6 the provisional
takeover of the Baseco properties and business operations has been availed of by the PCGG, simply because the evidence on hand,
not only prima facie but convincingly with substantial and documentary evidence of record establishes that the corporation known as
petitioner BASECO "was owned or controlled by President Marcos 'during his administration, through nominees, by taking undue
advantage of his public office and/or using his powers, authority, or influence;' and that it was by and through the same means, that
BASECO had taken over the business and/or assets of the [government-owned] National Shipyard and Engineering Co., Inc., and other
government-owned or controlled entities." The documentary evidence shows that petitioner BASECO (read Ferdinand E. Marcos) in
successive transactions all directed and approved by the former President-in an orgy of what according to the PCGG's then chairman,
Jovito Salonga, in his statement before the 1986 Constitutional Commission, "Mr. Ople once called 'organized pillage' "-gobbled up the
government corporation National Shipyard & Steel Corporation NASSCO its shipyard at Mariveles, 300 hectares of land in Mariveles
from the Export Processing Zone Authority, Engineer Island itself in Manila and its complex of equipment and facilities including
structures, buildings, shops, quarters, houses, plants and expendable or semi-expendable assets and obtained huge loans of
$19,000,000.00 from the last available Japanese war damage fund, P30,000,000.00 from the NDC and P12,400,000.00 from the GSIS.
The sordid details are set forth in detail in Paragraphs 1 1 to 20 of the main opinion. They include confidential reports from then
BASECO president Hilario M. Ruiz and the deposed President's brother-in- law, then Captain (later Commodore) Alfredo Romualdez,
who although not on record as an officer or stockholder of BASECO reported directly to the deposed President on its affairs and made
the recommendations, all approved by the latter, for the gobbling up by BASECO of all the choice government assets and properties.
All this evidence has been placed of record in the case at bar. And petitioner has had all the time and opportunity to refute it, submittals
to the contrary notwithstanding, but has dismally failed to do so. To cite one glaring instance: as stated in the main opinion, the
evidence submitted to this Court by the Solicitor General "proves that President Marcos not only exercised control over BASECO, but
also that he actually owns well nigh one hundred percent of its outstanding stock." It cites the fact that three corporations, evidently
front or dummy corporations, among twenty shareholders, in name, of BASECO, namely Metro Bay Drydock, Fidelity Management, Inc.
and Trident Management hold 209,664 shares or 95.82%, of BASECO's outstanding stock. Now, the Solicitor General points out further
than BASECO certificates "corresponding to more than ninety-five percent (95%) of all the outstanding shares of stock of BASECO,
endorsed in blank, together with deeds of assignment of practically all the outstanding shares of stock of the three (3) corporations
above mentioned (which hold 95.82% of all BASECO stock), signed by the owners thereof although not notarized" 7 were found in
Malacañang shortly after the deposed President's sudden flight from the country on the night of February 25, 1986. Thus, the main
opinion's unavoidable conclusion that "(W)hile the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that
the BASECO stockholders were still in possession of their respective stock certificates and had 'never endorsed * * * them in blank or to
anyone else,' that denial is exposed by his own prior and subsequent recorded statements as a mere gesture of defiance rattler than a
verifiable factual declaration . . . . Under the circumstances, the Court can only conclude that he could not get the originals from the
stockholders for the simple reason that as the Solicitor General maintains, said stockholders in truth no longer have them in their
possession, these having already been assigned in blank to President Marcos."8
With this strong unrebutted evidence of record in this Court, Justice Melencio-Herrera, joined by Justice Feliciano, expressly concurs
with the main opinion upholding the commission's take-over, stating that "(I) have no objection to according the right to vote
sequestered stock in case of a takeover of business actually belonging to the government or whose capitalization comes from public
funds but which, somehow, landed in the hands of private persons, as in the case of BASECO." They merely qualify their concurrence
with the injunction that such takeovers be exercised with "caution and prudence" pending the determination of "the true and real
ownership" of the sequestered shares. Suffice it to say in this regard that each case has to be judged from the pertinent facts and
circumstances and that the main opinion emphasizes sufficiently that it is only in the special instances specified in the governing laws
grounded on the superior national interest and welfare and the practical necessity of preserving the property and preventing its loss or
disposition that the provisional remedy of provisional take-over is exercised.
Here, according to the dissenting opinion, "the PCGG concludes that sequestered property is ill-gotten wealth and proceeds to exercise
acts of ownership over said properties . . . . and adds that "the fact of ownership must be established in a proper suit before a court of
justice"-which this Court has preempted with its finding that "in the context of the proceedings at bar, the actuality of the control by
President Marcos of BASECO has been sufficiently shown."
But BASECO who has instituted this action to set aside the sequestration and take-over orders of respondent commission has chosen
to raise these very issues in this Court. We cannot ostrich-like hide our head in the sand and say that it has not yet been established in
the proper court that what the PCGG has taken over here are government properties, as a matter of record and public notice and
knowledge, like the NASSCO, its Engineer Island and Mariveles Shipyard and entire complex, which have been pillaged and placed in
the name of the dummy or front company named BASECO but from all the documentary evidence of record shown by its street
certificates all found in Malacanang should in reality read "Ferdinand E. Marcos" and/or his brother-in-law. Such take-over can in no
way be termed "lawless usurpation," for the government does not commit any act of usurpation in taking over its own properties that
have been channeled to dummies, who are called upon to prove in the proper court action what they have failed to do in this Court, that
they have lawfully acquired ownership of said properties, contrary to the documentary evidence of record, which they must likewise
explain away. This Court, in the exercise of its jurisdiction on certiorari and as the guardian of the Constitution and protector of the
people's basic constitutional rights, has entertained many petitions on the part of parties claiming to be adversely affected by
sequestration and other orders of the PCGG, This Court set the criterion that such orders should issue only upon showing of a prima
facie case, which criterion was adopted in the 1987 Constitution. The Court's judgment cannot be faulted if much more than a prima
facie has been shown in this case, which the faceless figures claiming to represent BASECO have failed to refute or disprove despite
all the opportunity to do so.
The record plainly shows that petitioner BASECO which is but a mere shell to mask its real owner did not and could not explain how
and why they received such favored and preferred treatment with tailored Letters of Instruction and handwritten personal approval of
the deposed President that handed it on a silver platter the whole complex and properties of NASSCO and Engineer Island and the
Mariveles Shipyard.
It certainly would be the height of absurdity and helplessness if this government could not here and now take over the possession and
custody of its very own properties and assets that had been stolen from it and which it had pledged to recover for the benefit and in the
greater interest of the Filipino people, whom the past regime had saddled with a huge $27-billion foreign debt that has since ballooned
to $28.5-billion.
Thus, the main opinion correctly concludes that "(I)n the light of the affirmative showing by the Government that, prima facie at least,
the stockholders and directors of BASECO as of April, 1986 were mere 'dummies,' nominees or alter egos of President Marcos; at any
rate, that they are no longer owners of any shares of stock in the corporation, the conclusion cannot be avoided that said stockholders
and directors have no basis and no standing whatever to cause the filing and prosecution of the instant proceeding; and to grant relief
to BASECO, as prayed for in the petition, would in effect be to restore the assets, properties and business sequestered and taken over
by the PCGG to persons who are 'dummies' nominees or alter egos of the former President." 9
And Justice Padilla in his separate concurrence "called a spade a spade," citing the street certificates representing 95 % of BASECO's
outstanding stock found in Malacañang after Mr. Marcos' hasty flight in February, 1986 and the extent of the control he exercised over
policy decisions affecting BASECO and concluding that "Consequently, even ahead of judicial proceedings, I am convinced that the
Republic of the Philippines, thru the PCGG, has the right and even the duty to take over full control and supervision of BASECO."
Indeed, the provisional remedies available to respondent commission are rooted in the police power of the State, the most pervasive
and the least limitable of the powers of Government since it represents "the power of sovereignty, the power to govern men and things
within the limits of its domain." 10 Police power has been defined as the power inherent in the State "to prescribe regulations to
promote the health, morals, education, good order or safety, and general welfare of the people." 11 Police power rests upon public
necessity and upon the right of the State and of the public to self-protection. 12 "Salus populi suprema est lex" or "the welfare of the
people is the Supreme Law." 13 For this reason, it is co-extensive with the necessities of the case and the safeguards of public
interest. 14 Its scope expands and contracts with changing needs. 15 "It may be said in a general way that the police power extends to
all the great public needs. It may be put forth in aid of what is sanctioned by usage, or held by the prevailing morality or strong and
preponderant opinion to be greatly and immediately necessary to the public welfare." 16 That the public interest or the general welfare
is subserved by sequestering the purported ill-gotten assets and properties and taking over stolen properties of the government
channeled to dummy or front companies is stating the obvious. The recovery of these ill-gotten assets and properties would greatly aid
our financially crippled government and hasten our national economic recovery, not to mention the fact that they rightfully belong to the
people. While as a measure of self-protection, if, in the interest of general welfare, police power may be exercised to protect citizens
and their businesses in financial and economic matters, it may similarly be exercised to protect the government itself against potential
financial loss and the possible disruption of governmental functions. 17 Police power as the power of self-protection on the part of the
community bears the same relation to the community that the principle of self-defense bears to the individual. 18 Truly, it may be said
that even more than self- defense, the recovery of ill-gotten wealth and of the government's own properties involves the material and
moral survival of the nation, marked as the past regime was by the obliteration of any line between private funds and the public treasury
and abuse of unlimited power and elimination of any accountability in public office, as the evidence of record amply shows.
It should be mentioned that the tracking down of the deposed President's actual ownership of the BASECO shares was fortuitously
facilitated by the recovery of the street certificates in Malacañang after his hasty flight from the country last year. This is not generally
the case.
For example, in the ongoing case filed by the government to recover from the Marcoses valuable real estate holdings in New York and
the Lindenmere estate in Long Island, former PCGG chairman Jovito Salonga has revealed that their names "do not appear on any title
to the property. Every building in New York is titled in the name of a Netherlands Antilles corporation, which in turn is purportedly owned
by three Panamanian corporations, with bearer shares. This means that the shares of this corporation can change hands any time,
since they can be transferred, under the law of Panama, without previous registration on the books of the corporation. One of the first
documents that we discovered shortly after the February revolution was a declaration of trust handwritten by Mr. Joseph Bernstein on
April 4, 1982 on a Manila Peninsula Hotel stationery stating that he would act as a trustee for the benefit of President Ferdinand Marcos
and would act solely pursuant to the instructions of Marcos with respect to the Crown Building in New York." 19
This is just to stress the difficulties of the tasks confronting respondent PCGG, which nevertheless has so far commendably produced
unprecedented positive results. As stated by then chairman Salonga:
PCGG has turned over to the Office of the President around 2 billion pesos in cash, free of any lien. It has also
delivered to the President-as a result of a compromise settlement-around 200 land titles involving vast tracks of land
in Metro Manila, Rizal, Laguna, Cavite, and Bataan, worth several billion pesos. These lands are now available for
low-cost housing projects for the benefit of the poor and the dispossessed amongst our people.
In the legal custody of the Commission as a result of sequestration proceedings, are expensive jewelry amounting to
310 million pesos, 42 aircraft amounting to 718 million pesos, vessels amounting to 748 million pesos, and shares of
stock amounting to around 215 million pesos.
But, as I said, the bulk of the ill-gotten wealth is located abroad, not in the Philippines. Through the efforts of the
PCGG, we have caused the freezing or sequestration of properties, deposits, and securities probably worth many
billions of pesos in New York, New Jersey, Hawaii, California, and more importantly-in Switzerland. Due to favorable
developments in Switzerland, we may expect, according to our Swiss lawyers, the first deliveries of the Swiss
deposits in the foreseeable future, perhaps in less than a year's time. In New York, PCGG through its lawyers who
 render their services free of cost to the Philippine government, succeeded in getting injunctive relief against Mr. and
Mrs. Marcos and their nominees and agents. There is now an offer for settlement that is being studied and explored
by our lawyers there.
If we succeed in recovering not an (since this is impossible) but a substantial part of the ill-gotten wealth here and in
various countries of the world — something the revolutionary governments of China, Ethiopia, Iran and Nicaragua
were not able to accomplish at all with respect to properties outside their territorial boundaries — the Presidential
Commission on Good Government, which has undertaken the difficult and thankless task of trying to undo what had
been done so secretly and effectively in the last twenty years, shall have more than justified its existence. 20
The misdeeds of some PCGG volunteers and personnel cited in the dissenting opinion do not detract at an from the PCGG's
accomplishments, just as no one would do away with newspapers because of some undesirable elements. The point is that all such
misdeeds have been subject to public exposure and as stated in the dissent itself, the erring PCGG representatives have been forthwith
dismissed and replaced.
The magnitude of the tasks that confront respondent PCGG with its limited resources and staff support and volunteers should be
appreciated, together with the assistance that foreign governments and lawyers have spontaneously given the commission.
A word about the PCGG's firing of the BASECO lawyers who filed the present petition challenging its questioned orders, filing a motion
to withdraw the petition, after it had put in eight of its representatives as directors of the BASECO board of directors. This was entirely
proper and in accordance with the Court's Resolution of October 28, 1986, which denied BASECO's motion for the issuance of a
restraining order against such take-over and declared that "the government can, through its designated directors, properly exercise
control and management over what appear to be properties and assets owned and belonging to the government itself and over which
the persons who appear in this case on behalf of BASECO have failed to show any eight or even any shareholding in said
corporation." In other words, these dummies or fronts cannot seek to question the government's right to recover the very properties and
assets that have been stolen from it by using the very same stolen properties and funds derived therefrom. If they wish to pursue their
own empty claim, they must do it on their own, after first establishing that they indeed have a lawful right and/or shareholding in
BASECO.
Under the 1987 Constitution, the PCGG is called upon to file the judicial proceedings for forfeiture and recovery of the sequestered or
frozen properties covered by its orders issued before the ratification of the Constitution on February 2, 1987, within six months from
such ratification, or by August 2, 1987. (For those orders issued after such ratification, the judicial action or proceeding must be
commenced within six months from the issuance thereof.) The PCGG has not really been given much time, considering the magnitude
of its tasks. It is entitled to some forbearance, in availing of the maximum time granted it for the filing of the corresponding judicial action
with the Sandiganbayan.
PADILLA, J., concurring:
The majority opinion penned by Mr. Justice Narvasa maintains and upholds the valid distinction between acts of conservation and
preservation of assets and acts of ownership. Sequestration, freeze and temporary take-over encompass the first type of acts. They do
not include the second type of acts which are reserved only to the rightful owner of the assets or business sequestered or temporarily
taken over.
The removal and election of members of the board of directors of a corporate enterprise is, to me, a clear act of ownership on the part
of the shareholders of the corporation. Under ordinary circumstances, I would deny the PCGG the authority to change and elect the
members of BASECO's Board of Directors. However, under the facts as disclosed by the records, it appears that the certificates of
stock representing about ninety-five (95%) per cent of the total ownership in BASECO's capital stock were found endorsed in blank in
Malacanang (presumably in the possession and control of Mr. Marcos) at the time he and his family fled in February 1986. This
circumstance let alone the extent of the control Mr. Marcos exercised, while in power, over policy decisions affecting BASECO, entirely
satisfies my mind that BASECO was owned and controlled by Mr. Marcos. This is calling a spade a spade. I am also entirely satisfied in
my mind that Mr. Marcos could not have acquired the ownership of BASECO out of his lawfully-gotten wealth.
Consequently, even ahead of judicial proceedings, I am convinced that the Republic of the Philippines, through the PCGG, has the right
and even the duty to take-over full control and supervision of BASECO.
MELENCIO-HERRERA, J., concurring:
I would like to qualify my concurrence in so far as the voting of sequestered stork is concerned.
The voting of sequestered stock is, to my mind, an exercise of an attribute of ownership. It goes beyond the purpose of a writ of
sequestration, which is essentially to preserve the property in litigation (Article 2005, Civil Code). Sequestration is in the nature of a
judicial deposit (ibid.).
I have no objection to according the right to vote sequestered stock in case of a take-over of business actually belonging to the
government or whose capitalization comes from public funds but which, somehow, landed in the hands of private persons, as in the
case of BASECO. To my mind, however, caution and prudence should be exercised in the case of sequestered shares of an on-going
private business enterprise, specially the sensitive ones, since the true and real ownership of said shares is yet to be determined and
proven more conclusively by the Courts.
It would be more in keeping with legal norms if forfeiture proceedings provided for under Republic Act No. 1379 be filed in Court and the
PCGG seek judicial appointment as a receiver or administrator, in which case, it would be empowered to vote sequestered shares
under its custody (Section 55, Corporation Code). Thereby, the assets in litigation are brought within the Court's jurisdiction and the
presence of an impartial Judge, as a requisite of due process, is assured. For, even in its historical context, sequestration is a judicial
matter that is best handled by the Courts.
I consider it imperative that sequestration measures be buttressed by judicial proceedings the soonest possible in order to settle the
matter of ownership of sequestered shares and to determine whether or not they are legally owned by the stockholders of record or are
"ill-gotten wealth" subject to forfeiture in favor of the State. Sequestration alone, being actually an ancillary remedy to a principal action,
should not be made the basis for the exercise of acts of dominion for an indefinite period of time.
Sequestration is an extraordinary, harsh, and severe remedy. It should be confined to its lawful parameters and exercised, with due
regard, in the words of its enabling laws, to the requirements of fairness, due process (Executive Order No. 14, palay 7, 1986), and
Justice (Executive Order No. 2, March 12, 1986).
Feliciano, J., concur.
GUTIERREZ, JR., J., concurring and dissenting:
I concur, in part, in the erudite opinion penned for the Court by my distinguished colleague Mr. Justice Andres R. Narvasa. I agree
insofar as it states the principles which must govern PCGG sequestrations and emphasizes the limitations in the exercise of its broad
grant of powers.
I concur in the general propositions embodied in or implied from the majority opinion, among them:
(1) The efforts of Government to recover ill-gotten properties amassed by the previous regime deserve the fullest support of the
judiciary and all sectors of society. I believe, however, that a nation professing adherence to the rule of law and fealty to democratic
processes must adopt ways and means which are always within the bounds of lawfully granted authority and which meet the tests of
due process and other Bill of Rights protections.
(2) Sequestration is intended to prevent the destruction, concealment, or dissipation of ill-gotten wealth. The object is conservation and
preservation. Any exercise of power beyond these objectives is lawless usurpation.
(3) The PCGG exercises only such powers as are granted by law and not proscribed by the Constitution. The remedies it enforces are
provisional and contingent. Whether or not sequestered property is indeed ill-gotten must be-determined by a court of justice. The
PCGG has absolutely no power to divest title over sequestered property or to act as if its findings are final.
(4) The PCGG does not own sequestered property. It cannot and must not exercise acts of ownership. To quote the majority opinion,
"one thing is certain ..., the PCGG cannot exercise acts of dominion."
(5) The provisional takeover in a sequestration should not be indefinitely maintained. It is the duty of the PCGG to immediately file
appropriate criminal or civil cases once the evidence has been gathered.
It is the difference between what the Court says and what the PCGG does which constrains me to dissent. Even as the Court
emphasizes principles of due process and fair play, it has unfortunately validated ultra vires acts violative of those very same principles.
While we stress the rules which must govern the PCGG in the exercise of its powers, the Court has failed to stop or check acts which
go beyond the power of sequestration given by law to the PCGG.
We are all agreed in the Court that the PCGG is not a judge. It is an investigator and prosecutor. Sequestration is only a preliminary or
ancillary remedy. There must be a principal and independent suit filed in court to establish the true ownership of sequestered
properties. The factual premise that a sequestered property was ill-gotten by former President Marcos, his family, relatives,
subordinates, and close associates cannot be assumed. The fact of ownership must be established in a proper suit before a court of
justice.
But what has the Court, in effect, ruled?
Pages 21 to 33 of the majority opinion are dedicated to a statement of facts which conclusively and indubitably shows that BASECO is
owned by President Marcos-and that it was acquired and vastly enlarged by the former President's taking undue advantage of his
public office and using his powers, authority, or influence.
There has been no court hearing, no trial, and no presentation of evidence. All that we have is what the PCGG has given us. The
petitioner has not even been allowed to see the evidence, much less refute it.
What the PCGG has gathered in the course of its seizures and investigations may be gospel truth. However, that truth must be properly
established in a trial court, not unilaterally determined by the PCGG or declared by this Court in a special proceeding which only asks
us to set aside or enjoin an illegal exercise of power. After this decision, there is nothing more for a trial court to ascertain. Certainly, no
lower court would dare to arrive at findings contrary to this Court's conclusions, no matter how insistent we may be in labelling such
conclusions as "prima facie." To me, this is the basic flaw in PCGG procedures that the Court is, today, unwittingly legitimating. Even
before the institution of a court case, the PCGG concludes that sequestered property is ill-gotten wealth and proceeds to exercise acts
of ownership over said properties. It treats sequestered property as its own even before the oppositor-owners have been divested of
their titles.
The Court declares that a state of seizure is not to be indefinitely maintained. This means that court proceedings to either forfeit the
sequestered properties or clear the names and titles of the petitioners must be filed as soon as possible.
This case is a good example of disregard or avoidance of this requirement. With the kind of evidence which the PCGG professes to
possess, the forfeiture case could have been filed simultaneously with the issuance of sequestration orders or shortly thereafter.
And yet, the records show that the PCGG appears to concentrate more on the means rather than the ends, in running the BASECO,
taking over the board of directors and management, getting rid of security guards, disposing of scrap, entering into new contracts and
otherwise behaving as if it were already the owner. At this late date and with all the evidence PCGG claims to have, no court case has
been filed.
Among the interesting items elicited during the oral arguments or found in the records of this petition are:
(1) Upon sequestering BASECO, some PCGG personnel lost no time in digging up paved premises with jack hammers in a frantic
search for buried gold bars.
(2) Two top PCGG volunteers charged each other with stealing properties under their custody. The PCGG had to step in, dismiss the
erring representatives, and replace them with new ones.
(3) The petitioner claims that the lower bid of a rock quarry operator was accepted even as a higher and more favorable bid was
offered. When the questionable deal was brought to our attention, the awardee allegedly raised his bid to the level of the better offer.
The successful bidder later submitted a comment in intervention explaining his side. Whoever is telling the truth, the fact remains that
multi-million peso contracts involving the operations of sequestered companies should be entered into under the supervision of a court,
not freely executed by the PCGG even when the petitioner-owners question the propriety and integrity of those transactions.
(4) The PCGG replaced eight out of eleven members of the BASECO board of directors with its own men. Upon taking over full control
of the corporation, the newly installed board reversed the efforts of the former owners to protect their interests. The new board fired the
BASECO lawyers who instituted the instant petition. It then filed a motion to withdraw this very same petition we are now deciding. In
other words, the "new owners" did not want the Supreme Court to continue poking into the legality of their acts. They moved to abort
the petition filed with us.
Any suspicion of impropriety would have been avoided if the PCGG had filed the required court proceedings and exercised its acts of
management and control under court supervision. The requirements of due process would have been met.
One other matter I wish to discuss in this separate opinion is PCGG's selection of eight out of the eleven members of the BASECO
board of directors.
The election of the members of a board of directors is distinctly and unqualifiedly an act of ownership. When stockholders of a
corporation elect or remove members of a board of directors, they exercise their right of ownership in the company they own, By no
stretch of the imagination can the revamp of a board of directors be considered as a mere act of conserving assets or preventing the
dissipation of sequestered assets. The broad powers of a sequestrator are more than enough to protect sequestered assets. There is
no need and no legal basis to reach out further and exercise ultimate acts of ownership.
Under the powers which PCGG has assumed and wields, it can amend the articles and by-laws of a sequestered corporation, decrease
the capital stock, or sell substantially all corporate assets without any effective check from the owners not yet divested of their titles or
from a court of justice. The PCGG is tasked to preserve assets but when it exercises the acts of an owner, it could also very well
destroy. I hope that the case of the Philippine Daily Express, a major newspaper closed by the PCGG, is an isolated example.
Otherwise, banks, merchandizing firms, investment institutions, and other sensitive businesses will find themselves in a similar
quandary.
I join the PCGG and all right thinking Filipinos in condemning the totalitarian acts which made possible the accumulation of ill-gotten
wealth. I, however, dissent when authoritarian and ultra vires methods are used to recover that stolen wealth. One wrong cannot be
corrected by the employment of another wrong.
I, therefore, vote to grant the petition. Pending the filing of an appropriate case in court, the PCGG must be enjoined from exercising
any and all acts of ownership over the sequestered firm.
Bidin and Cortes, JJ., concur and dissent.

CRUZ, J., dissenting:

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

Separate Opinions
TEEHANKEE, CJ., concurring:
I fully concur with the masterly opinion of Mr. Justice Narvasa. In the process of disposing of the issues raised by petitioner BASECO in
the case at bar, it comprehensively discusses the laws and principles governing the Presidential Commission on Good Government
(PCGG) and defines the scope and extent of its powers in the discharge of its monumental task of recovering the "ill-gotten wealth,
accumulated by former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates, whether
located in the Philippines or abroad (and) business enterprises and entities owned or controlled by them during I . . .(the Marcos)
administration, directly or through nominees, by taking undue advantage of their public office and/or using their powers, authority,
influence, connections or relationship." 1
The Court is unanimous insofar as the judgment at bar upholds the imperative need of recovering the ill-gotten properties amassed by
the previous regime, which "deserves the fullest support of the judiciary and all sectors of society." 2 To quote the pungent language of
Mr. Justice Cruz, "(T)here is no question that all lawful efforts should be taken to recover the tremendous wealth plundered from the
people by the past regime in the most execrable thievery perpetrated in all history. No right-thinking Filipino can quarrel with this
necessary objective, and on this score I am happy to concur with the ponencia." 3
The Court is likewise unanimous in its judgment dismissing the petition to declare unconstitutional and void Executive Orders Nos. 1
and 2 to annul the sequestration order of April 14, 1986. For indeed, the 1987 Constitution overwhelmingly adopted by the people at the
February 2, 1987 plebiscite expressly recognized in Article XVIII, section 26 thereof 4 the vital functions of respondent PCGG to achieve
the mandate of the people to recover such ill-gotten wealth and properties as ordained by Proclamation No. 3 promulgated on March
25, 1986.
The Court is likewise unanimous as to the general rule set forth in the main opinion that "the PCGG cannot exercise acts of dominion
over property sequestered, frozen or provisionally taken over" and "(T)he PCGG may thus exercise only powers of administration over
the property or business sequestered or provisionally taken over, much like a court-appointed receiver, such as to bring and defend
actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may be
necessary to fulfill its mission as conservator and administrator. In this context, it may in addition enjoin or restrain any actual or
threatened commission of acts by any person or entity that may render moot and academic, or frustrate or otherwise make ineffectual
its efforts to carry out its task; punish for direct or indirect contempt in accordance with the Rules of Court; and seek and secure the
assistance of any office, agency or instrumentality of the government. In the case of sequestered businesses generally (i.e. going
concerns, business in current operation), as in the case of sequestered objects, its essential role, as already discussed, is that of
conservator, caretaker, 'watchdog' or overseer. It is not that of manager, or innovator, much less an owner." 5
Now, the case at bar involves one where the third and most encompassing and rarely invoked of provisional remedies, 6 the provisional
takeover of the Baseco properties and business operations has been availed of by the PCGG, simply because the evidence on hand,
not only prima facie but convincingly with substantial and documentary evidence of record establishes that the corporation known as
petitioner BASECO "was owned or controlled by President Marcos 'during his administration, through nominees, by taking undue
advantage of his public office and/or using his powers, authority, or influence;' and that it was by and through the same means, that
BASECO had taken over the business and/or assets of the [government-owned] National Shipyard and Engineering Co., Inc., and other
government-owned or controlled entities." The documentary evidence shows that petitioner BASECO (read Ferdinand E. Marcos) in
successive transactions all directed and approved by the former President-in an orgy of what according to the PCGG's then chairman,
Jovito Salonga, in his statement before the 1986 Constitutional Commission, "Mr. Ople once called 'organized pillage' "-gobbled up the
government corporation National Shipyard & Steel Corporation NASSCO its shipyard at Mariveles, 300 hectares of land in Mariveles
from the Export Processing Zone Authority, Engineer Island itself in Manila and its complex of equipment and facilities including
structures, buildings, shops, quarters, houses, plants and expendable or semi-expendable assets and obtained huge loans of
$19,000,000.00 from the last available Japanese war damage fund, P30,000,000.00 from the NDC and P12,400,000.00 from the GSIS.
The sordid details are set forth in detail in Paragraphs 1 1 to 20 of the main opinion. They include confidential reports from then
BASECO president Hilario M. Ruiz and the deposed President's brother-in- law, then Captain (later Commodore) Alfredo Romualdez,
who although not on record as an officer or stockholder of BASECO reported directly to the deposed President on its affairs and made
the recommendations, all approved by the latter, for the gobbling up by BASECO of all the choice government assets and properties.
All this evidence has been placed of record in the case at bar. And petitioner has had all the time and opportunity to refute it, submittals
to the contrary notwithstanding, but has dismally failed to do so. To cite one glaring instance: as stated in the main opinion, the
evidence submitted to this Court by the Solicitor General "proves that President Marcos not only exercised control over BASECO, but
also that he actually owns well nigh one hundred percent of its outstanding stock." It cites the fact that three corporations, evidently
front or dummy corporations, among twenty shareholders, in name, of BASECO, namely Metro Bay Drydock, Fidelity Management, Inc.
and Trident Management hold 209,664 shares or 95.82%, of BASECO's outstanding stock. Now, the Solicitor General points out further
than BASECO certificates "corresponding to more than ninety-five percent (95%) of all the outstanding shares of stock of BASECO,
endorsed in blank, together with deeds of assignment of practically all the outstanding shares of stock of the three (3) corporations
above mentioned (which hold 95.82% of all BASECO stock), signed by the owners thereof although not notarized" 7 were found in
Malacañang shortly after the deposed President's sudden flight from the country on the night of February 25, 1986. Thus, the main
opinion's unavoidable conclusion that "(W)hile the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that
the BASECO stockholders were still in possession of their respective stock certificates and had 'never endorsed * * * them in blank or to
anyone else,' that denial is exposed by his own prior and subsequent recorded statements as a mere gesture of defiance rattler than a
verifiable factual declaration . . . . Under the circumstances, the Court can only conclude that he could not get the originals from the
stockholders for the simple reason that as the Solicitor General maintains, said stockholders in truth no longer have them in their
possession, these having already been assigned in blank to President Marcos."8
With this strong unrebutted evidence of record in this Court, Justice Melencio-Herrera, joined by Justice Feliciano, expressly concurs
with the main opinion upholding the commission's take-over, stating that "(I) have no objection to according the right to vote
sequestered stock in case of a takeover of business actually belonging to the government or whose capitalization comes from public
funds but which, somehow, landed in the hands of private persons, as in the case of BASECO." They merely qualify their concurrence
with the injunction that such takeovers be exercised with "caution and prudence" pending the determination of "the true and real
ownership" of the sequestered shares. Suffice it to say in this regard that each case has to be judged from the pertinent facts and
circumstances and that the main opinion emphasizes sufficiently that it is only in the special instances specified in the governing laws
grounded on the superior national interest and welfare and the practical necessity of preserving the property and preventing its loss or
disposition that the provisional remedy of provisional take-over is exercised.
Here, according to the dissenting opinion, "the PCGG concludes that sequestered property is ill-gotten wealth and proceeds to exercise
acts of ownership over said properties . . . . and adds that "the fact of ownership must be established in a proper suit before a court of
justice"-which this Court has preempted with its finding that "in the context of the proceedings at bar, the actuality of the control by
President Marcos of BASECO has been sufficiently shown."
But BASECO who has instituted this action to set aside the sequestration and take-over orders of respondent commission has chosen
to raise these very issues in this Court. We cannot ostrich-like hide our head in the sand and say that it has not yet been established in
the proper court that what the PCGG has taken over here are government properties, as a matter of record and public notice and
knowledge, like the NASSCO, its Engineer Island and Mariveles Shipyard and entire complex, which have been pillaged and placed in
the name of the dummy or front company named BASECO but from all the documentary evidence of record shown by its street
certificates all found in Malacanang should in reality read "Ferdinand E. Marcos" and/or his brother-in-law. Such take-over can in no
way be termed "lawless usurpation," for the government does not commit any act of usurpation in taking over its own properties that
have been channeled to dummies, who are called upon to prove in the proper court action what they have failed to do in this Court, that
they have lawfully acquired ownership of said properties, contrary to the documentary evidence of record, which they must likewise
explain away. This Court, in the exercise of its jurisdiction on certiorari and as the guardian of the Constitution and protector of the
people's basic constitutional rights, has entertained many petitions on the part of parties claiming to be adversely affected by
sequestration and other orders of the PCGG, This Court set the criterion that such orders should issue only upon showing of a prima
facie case, which criterion was adopted in the 1987 Constitution. The Court's judgment cannot be faulted if much more than a prima
facie has been shown in this case, which the faceless figures claiming to represent BASECO have failed to refute or disprove despite
all the opportunity to do so.
The record plainly shows that petitioner BASECO which is but a mere shell to mask its real owner did not and could not explain how
and why they received such favored and preferred treatment with tailored Letters of Instruction and handwritten personal approval of
the deposed President that handed it on a silver platter the whole complex and properties of NASSCO and Engineer Island and the
Mariveles Shipyard.
It certainly would be the height of absurdity and helplessness if this government could not here and now take over the possession and
custody of its very own properties and assets that had been stolen from it and which it had pledged to recover for the benefit and in the
greater interest of the Filipino people, whom the past regime had saddled with a huge $27-billion foreign debt that has since ballooned
to $28.5-billion.
Thus, the main opinion correctly concludes that "(I)n the light of the affirmative showing by the Government that, prima facie at least,
the stockholders and directors of BASECO as of April, 1986 were mere 'dummies,' nominees or alter egos of President Marcos; at any
rate, that they are no longer owners of any shares of stock in the corporation, the conclusion cannot be avoided that said stockholders
and directors have no basis and no standing whatever to cause the filing and prosecution of the instant proceeding; and to grant relief
to BASECO, as prayed for in the petition, would in effect be to restore the assets, properties and business sequestered and taken over
by the PCGG to persons who are 'dummies' nominees or alter egos of the former President." 9
And Justice Padilla in his separate concurrence "called a spade a spade," citing the street certificates representing 95 % of BASECO's
outstanding stock found in Malacañang after Mr. Marcos' hasty flight in February, 1986 and the extent of the control he exercised over
policy decisions affecting BASECO and concluding that "Consequently, even ahead of judicial proceedings, I am convinced that the
Republic of the Philippines, thru the PCGG, has the right and even the duty to take over full control and supervision of BASECO."
Indeed, the provisional remedies available to respondent commission are rooted in the police power of the State, the most pervasive
and the least limitable of the powers of Government since it represents "the power of sovereignty, the power to govern men and things
within the limits of its domain." 10 Police power has been defined as the power inherent in the State "to prescribe regulations to
promote the health, morals, education, good order or safety, and general welfare of the people." 11 Police power rests upon public
necessity and upon the right of the State and of the public to self-protection. 12 "Salus populi suprema est lex" or "the welfare of the
people is the Supreme Law." 13 For this reason, it is co-extensive with the necessities of the case and the safeguards of public
interest. 14 Its scope expands and contracts with changing needs. 15 "It may be said in a general way that the police power extends to
all the great public needs. It may be put forth in aid of what is sanctioned by usage, or held by the prevailing morality or strong and
preponderant opinion to be greatly and immediately necessary to the public welfare." 16 That the public interest or the general welfare
is subserved by sequestering the purported ill-gotten assets and properties and taking over stolen properties of the government
channeled to dummy or front companies is stating the obvious. The recovery of these ill-gotten assets and properties would greatly aid
our financially crippled government and hasten our national economic recovery, not to mention the fact that they rightfully belong to the
people. While as a measure of self-protection, if, in the interest of general welfare, police power may be exercised to protect citizens
and their businesses in financial and economic matters, it may similarly be exercised to protect the government itself against potential
financial loss and the possible disruption of governmental functions. 17 Police power as the power of self-protection on the part of the
community bears the same relation to the community that the principle of self-defense bears to the individual. 18 Truly, it may be said
that even more than self- defense, the recovery of ill-gotten wealth and of the government's own properties involves the material and
moral survival of the nation, marked as the past regime was by the obliteration of any line between private funds and the public treasury
and abuse of unlimited power and elimination of any accountability in public office, as the evidence of record amply shows.
It should be mentioned that the tracking down of the deposed President's actual ownership of the BASECO shares was fortuitously
facilitated by the recovery of the street certificates in Malacañang after his hasty flight from the country last year. This is not generally
the case.
For example, in the ongoing case filed by the government to recover from the Marcoses valuable real estate holdings in New York and
the Lindenmere estate in Long Island, former PCGG chairman Jovito Salonga has revealed that their names "do not appear on any title
to the property. Every building in New York is titled in the name of a Netherlands Antilles corporation, which in turn is purportedly owned
by three Panamanian corporations, with bearer shares. This means that the shares of this corporation can change hands any time,
since they can be transferred, under the law of Panama, without previous registration on the books of the corporation. One of the first
documents that we discovered shortly after the February revolution was a declaration of trust handwritten by Mr. Joseph Bernstein on
April 4, 1982 on a Manila Peninsula Hotel stationery stating that he would act as a trustee for the benefit of President Ferdinand Marcos
and would act solely pursuant to the instructions of Marcos with respect to the Crown Building in New York." 19
This is just to stress the difficulties of the tasks confronting respondent PCGG, which nevertheless has so far commendably produced
unprecedented positive results. As stated by then chairman Salonga:
PCGG has turned over to the Office of the President around 2 billion pesos in cash, free of any lien. It has also
delivered to the President-as a result of a compromise settlement-around 200 land titles involving vast tracks of land
in Metro Manila, Rizal, Laguna, Cavite, and Bataan, worth several billion pesos. These lands are now available for
low-cost housing projects for the benefit of the poor and the dispossessed amongst our people.
In the legal custody of the Commission as a result of sequestration proceedings, are expensive jewelry amounting to
310 million pesos, 42 aircraft amounting to 718 million pesos, vessels amounting to 748 million pesos, and shares of
stock amounting to around 215 million pesos.
But, as I said, the bulk of the ill-gotten wealth is located abroad, not in the Philippines. Through the efforts of the
PCGG, we have caused the freezing or sequestration of properties, deposits, and securities probably worth many
billions of pesos in New York, New Jersey, Hawaii, California, and more importantly-in Switzerland. Due to favorable
developments in Switzerland, we may expect, according to our Swiss lawyers, the first deliveries of the Swiss
deposits in the foreseeable future, perhaps in less than a year's time. In New York, PCGG through its lawyers who
render their services free of cost to the Philippine government, succeeded in getting injunctive relief against Mr. and
Mrs. Marcos and their nominees and agents. There is now an offer for settlement that is being studied and explored
by our lawyers there.
If we succeed in recovering not an (since this is impossible) but a substantial part of the ill-gotten wealth here and in
various countries of the world-something the revolutionary governments of China, Ethiopia, Iran and Nicaragua were
not able to accomplish at all with respect to properties outside their territorial boundaries-the Presidential Commission
on Good Government, which has undertaken the difficult and thankless task of trying to undo what had been done so
secretly and effectively in the last twenty years, shall have more than justified its existence. 20
The misdeeds of some PCGG volunteers and personnel cited in the dissenting opinion do not detract at an from the PCGG's
accomplishments, just as no one would do away with newspapers because of some undesirable elements. The point is that all such
misdeeds have been subject to public exposure and as stated in the dissent itself, the erring PCGG representatives have been forthwith
dismissed and replaced.
The magnitude of the tasks that confront respondent PCGG with its limited resources and staff support and volunteers should be
appreciated, together with the assistance that foreign governments and lawyers have spontaneously given the commission.
A word about the PCGG's firing of the BASECO lawyers who filed the present petition challenging its questioned orders, filing a motion
to withdraw the petition, after it had put in eight of its representatives as directors of the BASECO board of directors. This was entirely
proper and in accordance with the Court's Resolution of October 28, 1986, which denied BASECO's motion for the issuance of a
restraining order against such take-over and declared that "the government can, through its designated directors, properly exercise
control and management over what appear to be properties and assets owned and belonging to the government itself and over which
the persons who appear in this case on behalf of BASECO have failed to show any eight or even any shareholding in said
corporation." In other words, these dummies or fronts cannot seek to question the government's right to recover the very properties and
assets that have been stolen from it by using the very same stolen properties and funds derived therefrom. If they wish to pursue their
own empty claim, they must do it on their own, after first establishing that they indeed have a lawful right and/or shareholding in
BASECO.
Under the 1987 Constitution, the PCGG is called upon to file the judicial proceedings for forfeiture and recovery of the sequestered or
frozen properties covered by its orders issued before the ratification of the Constitution on February 2, 1987, within six months from
such ratification, or by August 2, 1987. (For those orders issued after such ratification, the judicial action or proceeding must be
commenced within six months from the issuance thereof.) The PCGG has not really been given much time, considering the magnitude
of its tasks. It is entitled to some forbearance, in availing of the maximum time granted it for the filing of the corresponding judicial action
with the Sandiganbayan.
PADILLA, J., concurring:
The majority opinion penned by Mr. Justice Narvasa maintains and upholds the valid distinction between acts of conservation and
preservation of assets and acts of ownership. Sequestration, freeze and temporary take-over encompass the first type of acts. They do
not include the second type of acts which are reserved only to the rightful owner of the assets or business sequestered or temporarily
taken over.
The removal and election of members of the board of directors of a corporate enterprise is, to me, a clear act of ownership on the part
of the shareholders of the corporation. Under ordinary circumstances, I would deny the PCGG the authority to change and elect the
members of BASECO's Board of Directors. However, under the facts as disclosed by the records, it appears that the certificates of
stock representing about ninety-five (95%) per cent of the total ownership in BASECO's capital stock were found endorsed in blank in
Malacanang (presumably in the possession and control of Mr. Marcos) at the time he and his family fled in February 1986. This
circumstance let alone the extent of the control Mr. Marcos exercised, while in power, over policy decisions affecting BASECO, entirely
satisfies my mind that BASECO was owned and controlled by Mr. Marcos. This is calling a spade a spade. I am also entirely satisfied in
my mind that Mr. Marcos could not have acquired the ownership of BASECO out of his lawfully-gotten wealth.
Consequently, even ahead of judicial proceedings, I am convinced that the Republic of the Philippines, through the PCGG, has the right
and even the duty to take-over full control and supervision of BASECO.
MELENCIO-HERRERA, J., concurring:
I would like to qualify my concurrence in so far as the voting of sequestered stork is concerned.
The voting of sequestered stock is, to my mind, an exercise of an attribute of ownership. It goes beyond the purpose of a writ of
sequestration, which is essentially to preserve the property in litigation (Article 2005, Civil Code). Sequestration is in the nature of a
judicial deposit (ibid.).
I have no objection to according the right to vote sequestered stock in case of a take-over of business actually belonging to the
government or whose capitalization comes from public funds but which, somehow, landed in the hands of private persons, as in the
case of BASECO. To my mind, however, caution and prudence should be exercised in the case of sequestered shares of an on-going
private business enterprise, specially the sensitive ones, since the true and real ownership of said shares is yet to be determined and
proven more conclusively by the Courts.
It would be more in keeping with legal norms if forfeiture proceedings provided for under Republic Act No. 1379 be filed in Court and the
PCGG seek judicial appointment as a receiver or administrator, in which case, it would be empowered to vote sequestered shares
under its custody (Section 55, Corporation Code). Thereby, the assets in litigation are brought within the Court's jurisdiction and the
presence of an impartial Judge, as a requisite of due process, is assured. For, even in its historical context, sequestration is a judicial
matter that is best handled by the Courts.
I consider it imperative that sequestration measures be buttressed by judicial proceedings the soonest possible in order to settle the
matter of ownership of sequestered shares and to determine whether or not they are legally owned by the stockholders of record or are
"ill-gotten wealth" subject to forfeiture in favor of the State. Sequestration alone, being actually an ancillary remedy to a principal action,
should not be made the basis for the exercise of acts of dominion for an indefinite period of time.
Sequestration is an extraordinary, harsh, and severe remedy. It should be confined to its lawful parameters and exercised, with due
regard, in the words of its enabling laws, to the requirements of fairness, due process (Executive Order No. 14, palay 7, 1986), and
Justice (Executive Order No. 2, March 12, 1986).
Feliciano, J., concur.

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

I concur, in part, in the erudite opinion penned for the Court by my distinguished colleague Mr. Justice Andres R. Narvasa. I agree
insofar as it states the principles which must govern PCGG sequestrations and emphasizes the limitations in the exercise of its broad
grant of powers.
I concur in the general propositions embodied in or implied from the majority opinion, among them:
(1) The efforts of Government to recover ill-gotten properties amassed by the previous regime deserve the fullest support of the
judiciary and all sectors of society. I believe, however, that a nation professing adherence to the rule of law and fealty to democratic
processes must adopt ways and means which are always within the bounds of lawfully granted authority and which meet the tests of
due process and other Bill of Rights protections.
(2) Sequestration is intended to prevent the destruction, concealment, or dissipation of ill-gotten wealth. The object is conservation and
preservation. Any exercise of power beyond these objectives is lawless usurpation.
(3) The PCGG exercises only such powers as are granted by law and not proscribed by the Constitution. The remedies it enforces are
provisional and contingent. Whether or not sequestered property is indeed ill-gotten must be-determined by a court of justice. The
PCGG has absolutely no power to divest title over sequestered property or to act as if its findings are final.
(4) The PCGG does not own sequestered property. It cannot and must not exercise acts of ownership. To quote the majority opinion,
"one thing is certain ..., the PCGG cannot exercise acts of dominion."
(5) The provisional takeover in a sequestration should not be indefinitely maintained. It is the duty of the PCGG to immediately file
appropriate criminal or civil cases once the evidence has been gathered.
It is the difference between what the Court says and what the PCGG does which constrains me to dissent. Even as the Court
emphasizes principles of due process and fair play, it has unfortunately validated ultra vires acts violative of those very same principles.
While we stress the rules which must govern the PCGG in the exercise of its powers, the Court has failed to stop or check acts which
go beyond the power of sequestration given by law to the PCGG.
We are all agreed in the Court that the PCGG is not a judge. It is an investigator and prosecutor. Sequestration is only a preliminary or
ancillary remedy. There must be a principal and independent suit filed in court to establish the true ownership of sequestered
properties. The factual premise that a sequestered property was ill-gotten by former President Marcos, his family, relatives,
subordinates, and close associates cannot be assumed. The fact of ownership must be established in a proper suit before a court of
justice.
But what has the Court, in effect, ruled?
Pages 21 to 33 of the majority opinion are dedicated to a statement of facts which conclusively and indubitably shows that BASECO is
owned by President Marcos-and that it was acquired and vastly enlarged by the former President's taking undue advantage of his
public office and using his powers, authority, or influence.
There has been no court hearing, no trial, and no presentation of evidence. All that we have is what the PCGG has given us. The
petitioner has not even been allowed to see the evidence, much less refute it.
What the PCGG has gathered in the course of its seizures and investigations may be gospel truth. However, that truth must be properly
established in a trial court, not unilaterally determined by the PCGG or declared by this Court in a special proceeding which only asks
us to set aside or enjoin an illegal exercise of power. After this decision, there is nothing more for a trial court to ascertain. Certainly, no
lower court would dare to arrive at findings contrary to this Court's conclusions, no matter how insistent we may be in labelling such
conclusions as "prima facie." To me, this is the basic flaw in PCGG procedures that the Court is, today, unwittingly legitimating. Even
before the institution of a court case, the PCGG concludes that sequestered property is ill-gotten wealth and proceeds to exercise acts
of ownership over said properties. It treats sequestered property as its own even before the oppositor-owners have been divested of
their titles.
The Court declares that a state of seizure is not to be indefinitely maintained. This means that court proceedings to either forfeit the
sequestered properties or clear the names and titles of the petitioners must be filed as soon as possible.
This case is a good example of disregard or avoidance of this requirement. With the kind of evidence which the PCGG professes to
possess, the forfeiture case could have been filed simultaneously with the issuance of sequestration orders or shortly thereafter.
And yet, the records show that the PCGG appears to concentrate more on the means rather than the ends, in running the BASECO,
taking over the board of directors and management, getting rid of security guards, disposing of scrap, entering into new contracts and
otherwise behaving as if it were already the owner. At this late date and with all the evidence PCGG claims to have, no court case has
been filed.
Among the interesting items elicited during the oral arguments or found in the records of this petition are:
(1) Upon sequestering BASECO, some PCGG personnel lost no time in digging up paved premises with jack hammers in a frantic
search for buried gold bars.
(2) Two top PCGG volunteers charged each other with stealing properties under their custody. The PCGG had to step in, dismiss the
erring representatives, and replace them with new ones.
(3) The petitioner claims that the lower bid of a rock quarry operator was accepted even as a higher and more favorable bid was
offered. When the questionable deal was brought to our attention, the awardee allegedly raised his bid to the level of the better offer.
The successful bidder later submitted a comment in intervention explaining his side. Whoever is telling the truth, the fact remains that
multi-million peso contracts involving the operations of sequestered companies should be entered into under the supervision of a court,
not freely executed by the PCGG even when the petitioner-owners question the propriety and integrity of those transactions.
(4) The PCGG replaced eight out of eleven members of the BASECO board of directors with its own men. Upon taking over full control
of the corporation, the newly installed board reversed the efforts of the former owners to protect their interests. The new board fired the
BASECO lawyers who instituted the instant petition. It then filed a motion to withdraw this very same petition we are now deciding. In
other words, the "new owners" did not want the Supreme Court to continue poking into the legality of their acts. They moved to abort
the petition filed with us.
Any suspicion of impropriety would have been avoided if the PCGG had filed the required court proceedings and exercised its acts of
management and control under court supervision. The requirements of due process would have been met.
One other matter I wish to discuss in this separate opinion is PCGG's selection of eight out of the eleven members of the BASECO
board of directors.
The election of the members of a board of directors is distinctly and unqualifiedly an act of ownership. When stockholders of a
corporation elect or remove members of a board of directors, they exercise their right of ownership in the company they own, By no
stretch of the imagination can the revamp of a board of directors be considered as a mere act of conserving assets or preventing the
dissipation of sequestered assets. The broad powers of a sequestrator are more than enough to protect sequestered assets. There is
no need and no legal basis to reach out further and exercise ultimate acts of ownership.
Under the powers which PCGG has assumed and wields, it can amend the articles and by-laws of a sequestered corporation, decrease
the capital stock, or sell substantially all corporate assets without any effective check from the owners not yet divested of their titles or
from a court of justice. The PCGG is tasked to preserve assets but when it exercises the acts of an owner, it could also very well
destroy. I hope that the case of the Philippine Daily Express, a major newspaper closed by the PCGG, is an isolated example.
Otherwise, banks, merchandizing firms, investment institutions, and other sensitive businesses will find themselves in a similar
quandary.
I join the PCGG and all right thinking Filipinos in condemning the totalitarian acts which made possible the accumulation of ill-gotten
wealth. I, however, dissent when authoritarian and ultra vires methods are used to recover that stolen wealth. One wrong cannot be
corrected by the employment of another wrong.
I, therefore, vote to grant the petition. Pending the filing of an appropriate case in court, the PCGG must be enjoined from exercising
any and all acts of ownership over the sequestered firm.
Bidin and Cortes, JJ., concur and dissent.

CRUZ, J., dissenting:

My brother Narvasa has written a truly outstanding decision that bespeaks a penetrating and analytical mind and a masterly grasp of
the serious problem we are asked to resolve. He deserves and I offer him my sincere admiration.
There is no question that all lawful efforts should be taken to recover the tremendous wealth plundered from the people by the past
regime in the most execrable thievery perpetrated in all history. No right-thinking Filipino can quarrel with this necessary objective, and
on this score I am happy to concur with the ponencia.
But for all my full agreement with the basic thesis of the majority, I regret I find myself unable to support its conclusions in favor Of the
respondent PCGG. My view is that these conclusions clash with the implacable principles of the free society. foremost among which is
due process. This demands our reverent regard.
Due process protects the life, liberty and property of every person, whoever he may be. Even the most despicable criminal is entitled to
this protection. Granting this distinction to Marcos, we are still not justified in depriving him of this guaranty on the mere justification that
he appears to own the BASECO shares.
I am convinced and so submit that the PCGG cannot at this time take over the BASECO without any court order and exercise thereover
acts of ownership without court supervision. Voting the shares is an act of ownership. Reorganizing the board of directors is an act of
ownership. Such acts are clearly unauthorized. As the majority opinion itself stresses, the PCGG is merely an administrator whose
authority is limited to preventing the sequestered properties from being dissipated or clandestinely transferred.
The court action prescribed in the Constitution is not inadequate and is available to the PCGG. The advantage of this remedy is that,
unlike the ad libitum measures now being take it is authorized and at the same time also limited by the fundamental law. I see no
reason why it should not now be employed by the PCGG, to remove all doubts regarding the legality of its acts and all suspicions
concerning its motives.
BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY
CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA, COMMISSIONER
QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents.
FACTS

Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan
Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by President Corazon C.
Aquino on February 28, 1986 and March 12, 1986, respectively, and (2) the sequestration, takeover, and other orders
issued, and acts done, in accordance with said executive orders by the Presidential Commission on Good Government
and/or its Commissioners and agents, affecting said corporation.

The sequestration order which, in the view of the petitioner corporation, initiated all its misery was issued on April 14,
1986 by Commissioner Mary Concepcion Bautista.

On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated April
18, 1986 to the President and other officers of petitioner firm, reiterating an earlier request for the production of
certain documents such as Stock Transfer Book and other Legal documents (Articles of Incorporation, By-Laws, etc.)

Orders were also issued in connection with the sequestration and takeover, such as termination of Contract for
Security Services and abortion of contract for Improvement of Wharf at Engineer Island; Change of Mode of Payment of
Entry Charges; Operation of Sesiman Rock Quarry, Mariveles, Bataa; disposal of scrap, etc.; and the provisional
takeover by the PCGG of BASECO, “the Philippine Dockyard Corporation and all their affiliated companies.”

While BASECO concedes that “sequestration without resorting to judicial action, might be made within the context of
Executive Orders Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was promulgated, under the
principle that the law promulgated by the ruler under a revolutionary regime is the law of the land, it ceased to be
acceptable when the same ruler opted to promulgate the Freedom Constitution on March 25, 1986 wherein under
Section I of the same,y Article IV (Bill of Rights) of the 1973 Constitution was adopted providing, among others, that
“No person shall be deprived of life, liberty and property without due process of law.” (Const., Art. I V, Sec. 1).”

It declares that its objection to the constitutionality of the Executive Orders “as well as the Sequestration Order * * and
Takeover Order * * issued purportedly under the authority of said Executive Orders, rests on four fundamental
considerations: First, no notice and hearing was accorded * * (it) before its properties and business were taken over;
Second, the PCGG is not a court, but a purely investigative agency and therefore not competent to act as prosecutor
and judge in the same cause; Third, there is nothing in the issuances which envisions any proceeding, process or
remedy by which petitioner may expeditiously challenge the validity of the takeover after the same has been effected;
and Fourthly, being directed against specified persons, and in disregard of the constitutional presumption of innocence
and general rules and procedures, they constitute a Bill of Attainder.”

It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already complied
with, was issued without court authority and infringed its constitutional right against self-incrimination, and
unreasonable search and seizure. 14
BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of its
business affairs.

ISSUE

Whether or not the sequestration order dated April 14, 1986, and all other orders subsequently issued and acts done
on the basis thereof, inclusive of the takeover order of July 14, 1986 and the termination of the services of the BASECO
executives are valid;

DECISION

Yes. The petition cannot succeed. The writs of certiorari and prohibition prayed for will not be issued. Other evidence
submitted to the Court by the Solicitor General proves that President Marcos not only exercised control over BASECO,
but also that he actually owns well nigh one hundred percent of its outstanding stock.

Executive Orders Not a Bill of Attainder – In the first place, nothing in the executive orders can be reasonably
construed as a determination or declaration of guilt. On the contrary, the executive orders, inclusive of Executive Order
No. 14, make it perfectly clear that any judgment of guilt in the amassing or acquisition of “ill-gotten wealth” is to be
handed down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by the PCGG.
In the second place, no punishment is inflicted by the executive orders, as the merest glance at their provisions will
immediately make apparent. In no sense, therefore, may the executive orders be regarded as a bill of attainder.

No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures – It is elementary that the
right against self-incrimination has no application to juridical persons. While an individual may lawfully refuse to
answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested
with special privileges and franchises, may refuse to show its hand when charged with an abuse ofsuchprivileges * *

Scope and Extent of Powers of the PCGG – PCGG cannot exercise acts of dominion over property sequestered, frozen or
provisionally taken over. AS already earlier stressed with no little insistence, the act of sequestration; freezing or
provisional takeover of property does not import or bring about a divestment of title over said property; does not make
the PCGG the owner thereof.

The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally
taken over, much like a court-appointed receiver, such as to bring and defend actions in its own name; receive rents;
collect debts due; pay outstanding debts; and generally do such other acts and things as may be necessary to fulfill its
mission as conservator and administrator.

Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him; Limitations Thereon – Now,
in the special instance of a business enterprise shown by evidence to have been “taken over by the government of the
Marcos Administration or by entities or persons close to former President Marcos,” the PCGG is given power and
authority, as already adverted to, to “provisionally take (it) over in the public interest or to prevent * * (its) disposal or
dissipation;” and since the term is obviously employed in reference to going concerns, or business enterprises in
operation, something more than mere physical custody is connoted; the PCGG may in this case exercise some
measure of control in the operation, running, or management of the business itself. But even in this special situation,
the intrusion into management should be restricted to the minimum degree necessary to accomplish the legislative
will, which is “to prevent the disposal or dissipation” of the business enterprise.

Voting of Sequestered Stock; Conditions Therefor – So, too, it is within the parameters of these conditions and
circumstances that the PCGG may properly exercise the prerogative to vote sequestered stock of corporations, granted
to it by the President of the Philippines through a Memorandum dated June 26, 1986. In the case at bar, there was
adequate justification to vote the incumbent directors out of office and elect others in their stead because the
evidence showed prima facie that the former were just tools of President Marcos and were no longer owners of any
stock in the firm, if they ever were at all.

No Sufficient Showing of Other Irregularities -As to the other irregularities complained of by BASECO, i.e., the
cancellation or revision, and the execution of certain contracts, inclusive of the termination of the employment of some
of its executives, this Court cannot, in the present state of the evidence on record, pass upon them. It is not necessary
to do so. The issues arising therefrom may and will be left for initial determination in the appropriate action.

WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is lifted.
LUXURIA HOMES, INC., and/or AIDA M. POSADAS, petitioners, vs. HONORABLE COURT OF APPEALS, JAMES BUILDER
CONSTRUCTION and/or JAIME T. BRAVO, respondents.
DECISION
MARTINEZ, J.:
This petition for review assails the decision of the respondent Court of Appeals dated March 15, 1996, [1] which affirmed with modification the
judgment of default rendered by the Regional Trial Court of Muntinlupa, Branch 276, in Civil Case No. 92-2592 granting all the reliefs prayed for in
the complaint of private respondent James Builder Construction and/or Jaime T. Bravo.
 As culled from the record, the facts are as follows:
Petitioner Aida M. Posadas and her two (2) minor children co-owned a 1.6 hectare property in Sucat, Muntinlupa, which was occupied by
squatters. Petitioner Posadas entered into negotiations with private respondent Jaime T. Bravo regarding the development of the said property into a
residential subdivision. On May 3, 1989, she authorized private respondent to negotiate with the squatters to leave the said property. With a written
authorization, respondent Bravo buckled down to work and started negotiations with the squatters.
Meanwhile, some seven (7) months later, on December 11, 1989, petitioner Posadas and her two (2) children, through a Deed of Assignment,
assigned the said property to petitioner Luxuria Homes, Inc., purportedly for organizational and tax avoidance purposes. Respondent Bravo signed as
one of the witnesses to the execution of the Deed of Assignment and the Articles of Incorporation of petitioner Luxuria Homes, Inc.
Then sometime in 1992, the harmonious and congenial relationship of petitioner Posadas and respondent Bravo turned sour when the former
supposedly could not accept the management contracts to develop the 1.6 hectare property into a residential subdivision, the latter was proposing. In
retaliation, respondent Bravo demanded payment for services rendered in connection with the development of the land. In his statement of account
dated 21 August 1991[2] respondent demanded the payment of P1,708,489.00 for various services rendered, i.e., relocation of squatters, preparation of
the architectural design and site development plan, survey and fencing.
Petitioner Posadas refused to pay the amount demanded. Thus, in September 1992, private respondents James Builder Construction and Jaime
T. Bravo instituted a complaint for specific performance before the trial court against petitioners Posadas and Luxuria Homes, Inc. Private
respondents alleged therein that petitioner Posadas asked them to clear the subject parcel of land of squatters for a fee of P1,100,000.00 for which
they were partially paid the amount of P461,511.50, leaving a balance of P638,488.50. They were also supposedly asked to prepare a site
development plan and an architectural design for a contract price of P450,000.00 for which they were partially paid the amount of P25,000.00,
leaving a balance of P425,000.00. And in anticipation of the signing of the land development contract, they had to construct a bunkhouse and
warehouse on the property which amounted to P300,000.00, and a hollow blocks factory for P60,000.00. Private respondents also claimed that
petitioner Posadas agreed that private respondents will develop the land into a first class subdivision thru a management contract and that petitioner
Posadas is unjustly refusing to comply with her obligation to finalize the said management contract.
The prayer in the complaint of the private respondents before the trial court reads as follows:
WHEREFORE, premises considered, it is respectfully prayed of this Honorable Court that after hearing/trial judgment be rendered ordering
defendant to:
a) Comply with its obligation to deliver/finalize Management Contract of its land in Sucat, Muntinlupa, Metro Manila and to pay plaintiff its balance
in the amount of P1,708,489.00;
b) Pay plaintiff moral and exemplary damages in the amount of P500,000.00;
c) Pay plaintiff actual damages in the amount of P500,000.00 (Bunkhouse/warehouse P300,000.00, Hollow-block factory P60,000.00, lumber,
cement, etc., P120,000.00, guard P20,000.00);
d) Pay plaintiff attorneys fee of P50,000 plus P700 per appearance in court and 5% of that which may be awarded by the court to plaintiff re its
monetary claims;
e) Pay cost of this suit.[3]
On September 27, 1993, the trial court declared petitioner Posadas in default and allowed the private respondents to present their evidence ex-
parte. On March 8, 1994, it ordered petitioner Posadas, jointly and in solidum with petitioner Luxuria Homes, Inc., to pay private respondents as
follows:
1. x x x the balance of the payment for the various services performed by Plaintiff with respect to the land covered by TCT NO. 167895 previously
No. 158290 in the total amount of P1,708,489.00.
2. x x x actual damages incurred for the construction of the warehouses/bunks, and for the materials used in the total sum of P1,500,000.00.
3. Moral and exemplary damages of P500,000.00.
4. Attorneys fee of P50,000.00.
5. And cost of this proceedings.
Defendant Aida Posadas as the Representative of the Corporation Luxuria Homes, Incorporated, is further directed to execute the management
contract she committed to do, also in consideration of the various undertakings that Plaintiff rendered for her. [4]
Aggrieved by the aforecited decision, petitioners appealed to respondent Court of Appeals, which, as aforestated, affirmed with modification
the decision of the trial court. The appellate court deleted the award of moral damages on the ground that respondent James Builder Construction is a
corporation and hence could not experience physical suffering and mental anguish. It also reduced the award of exemplary damages. The dispositive
portion of the decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with the modification that the award of moral damages is ordered deleted and the
award of exemplary damages to the plaintiffs-appellee should only be in the amount of FIFTY THOUSAND (P50,000.00) PESOS.[5]
Petitioners motion for reconsideration was denied, prompting the filing of this petition for review before this Court.
On January 15, 1997, the Third Division of this Court denied due course to this petition for failing to show convincingly any reversible error on
the part of the Court of Appeals. This Court however deleted the grant of exemplary damages and attorneys fees. The Court also reduced the trial
courts award of actual damages from P1,500,000.00 to P500,000.00 reasoning that the grantshould not exceed the amount prayed for in the
complaint. In the prayer in the complaint respondents asked for actual damages in the amount of P500,000.00 only.
Still feeling aggrieved with the resolution of this Court, petitioners filed a motion for reconsideration. On March 17, 1997, this Court found
merit in the petitioners motion for reconsideration and reinstated this petition for review.
From their petition for review and motion for reconsideration before this Court, we now synthesize the issues as follows:
1. Were private respondents able to present ex-parte sufficient evidence to substantiate the allegations in their complaint and entitle them
to their prayers?
2. Can petitioner Luxuria Homes, Inc., be held liable to private respondents for the transactions supposedly entered into between
petitioner Posadas and private respondents?
3. Can petitioners be compelled to enter into a management contract with private respondents?
Petitioners who were declared in default assert that the private respondents who presented their evidence ex-parte nonetheless utterly failed to
substantiate the allegations in their complaint and as such cannot be entitled to the reliefs prayed for.
A perusal of the record shows that petitioner Posadas contracted respondents Bravo to render various services for the initial development of the
property as shown by vouchers evidencing payments made by petitioner Posadas to respondents Bravo for squatter relocation, architectural design,
survey and fencing.
 Respondents prepared the architectural design, site development plan and survey in connection with petitioner Posadas application with the
Housing and Land Regulatory Board (HLRUB) for the issuance of the Development Permit, Preliminary Approval and Locational Clearance.
[6]
Petitioner benefited from said services as the Development Permit and the Locational Clearance were eventually issued by the HLURB in her
favor. Petitioner Posadas is therefore liable to pay for these services rendered by respondents. The contract price for the survey of the land
is P140,000.00. Petitioner made partial payments totaling P130,000.00 leaving a payable balance of P10,000.00.
In his testimony,[7] he alleged that the agreed price for the preparation of the site development plan is P500,000.00 and that the preparation of
the architectural designs is for P450,000, or a total of P950,000.00 for the two contracts. In his complaint however, respondent Bravo alleged that he
was asked to prepare the site development plan and the architectural designs x x x for a contract price of P450,000.00 x x x.[8] The discrepancy or
inconsistency was never reconciled and clarified.
We reiterate that we cannot award an amount higher than what was claimed in the complaint. Consequently for the preparation of both the
architectural design and site development plan, respondent is entitled to the amount of P450,000.00 less partial payments made in the amount
of P25,000.00. In Policarpio v. RTC of Quezon City,[9] it was held that a court is bereft of jurisdiction to award, in a judgment by default, a relief
other than that specifically prayed for in the complaint.
As regards the contracts for the ejectment of squatters and fencing, we believe however that respondents failed to show proof that they actually
fulfilled their commitments therein. Aside from the bare testimony of respondent Bravo, no other evidence was presented to show that all the squatter
were ejected from the property. Respondent Bravo failed to show how many shanties or structures were actually occupying the property before he
entered the same, to serve as basis for concluding whether the task was finished or not. His testimony alone that he successfully negotiated for the
ejectment of all the squatters from the property will not suffice.
Likewise, in the case of fencing, there is no proof that it was accomplished as alleged. Respondent Bravo claims that he finished sixty percent
(60%) of the fencing project but he failed to present evidence showing the area sought to be fenced and the actual area fenced by him. We therefore
have no basis to determining the veracity respondents allegations. We cannot assume that the said services rendered for it will be unfair to require
petitioner to pay the full amount claimed in case the respondents obligations were not completely fulfilled.
For respondents failure to show proof of accomplishment of the aforesaid services, their claims cannot be granted. In P.T. Cerna Corp. v. Court
of Appeals,[10] we ruled that in civil cases, the burden of proof rests upon the party who, as determined by the pleadings or the nature of the case,
asserts the affirmative of an issue. In this case the burden lies on the complainant, who is duty bound to prove the allegations in the complaint. As this
Court has held, he who alleges a fact has the burden of proving it and A MERE ALLEGATION IS NOT EVIDENCE.
And the rules do not change even if the defendant is declared in default. In the leading case of Lopez v. Mendezona,[11] this Court ruled that
after entry of judgment in default against a defendant who has neither appeared nor answered, and before final judgment in favor of the plaintiff, the
latter must establish by competent evidence all the material allegations of his complaint upon which he bases his prayer for relief. In De los Santos v.
De la Cruz[12] this Court declared that a judgment by default against a defendant does not imply a waiver of rights except that of being heard and of
presenting evidence in his favor. It does not imply admission by the defendant of the facts and causes of action of the plaintiff, because the codal
section requires the latter to adduce his evidence in support of his allegations as an indispensable condition before final judgment could be given in
his favor. Nor could it be interpreted as an admission by the defendant that the plaintiffs causes of action finds support in the law or that the latter is
entitled to the relief prayed for.
We explained the rule in judgments by default in Pascua v. Florendo,[13] where we said that nowhere is it stated that the complainants are
automatically entitled to the relief prayed for, once the defendants are declared in default. Favorable relief can be granted only after the court has
ascertained that the evidence offered and the facts proven by the presenting party warrant the grant of the same. Otherwise it would be meaningless to
require presentation of evidence if everytime the other party is declared in default, a decision would automatically be rendered in favor of the non-
defaulting party and exactly according to the tenor of his prayer. In Lim Tanhu v. Ramolete[14] we elaborated and said that a defaulted defendant is
not actually thrown out of court. The rules see to it that any judgment against him must be in accordance with law. The evidence to support the
plaintiffs cause is, of course, presented in his absence, but the court is not supposed to admit that which is basically incompetent. Although the
defendant would not be in a position to object, elementary justice requires that only legal evidence should be considered against him. If the evidence
presented should not be sufficient to justify a judgment for the plaintiff, the complaint must be dismissed. And if an unfavorable judgment should be
justifiable, it cannot exceed the amount or be different in kind from what is prayed for in the complaint.
The prayer for actual damages in the amount of P500,000.00, supposedly for the bunkhouse/warehouse, hollow-block factory, lumber, cement,
guard, etc., which the trial court granted and even increased to P1,500,000.00, and which this Court would have rightly reduced to the amount prayed
for in the complaint, was not established, as shown upon further review of the record. No receipts or vouchers were presented by private respondents
to show that they actually spent the amount. In Salas v. Court of Appeals,[15] we said that the burden of proof of the damages suffered is on the party
claiming the same. It his duty to present evidence to support his claim for actual damages. If he failed to do so, he has only himself to blame if no
award for actual damages is handed down.
In fine, as we declared in PNOC Shipping & Transport Corp. v. Court of Appeals,[16] basic is the rule that to recover actual damages, the
amount of loss must not only be capable of proof but must actually be proven with reasonable degree of certainty, premised upon competent proof or
best evidence obtainable of the actual amount thereof.
We go to the second issue of whether Luxuria Homes, Inc., was a party to the transactions entered into by petitioner Posadas and private
respondents and thus could be held jointly and severally with petitioner Posadas. Private respondents contend that petitioner Posadas surreptitiously
formed Luxuria Homes, Inc., and transferred the subject parcel of land to it to evade payment and defraud creditors, including private
respondents. This allegation does not find support in the evidence on record.
On the contrary we hold that respondents Court of Appeals committed a reversible error when it upheld the factual finding of the trial court that
petitioners liability was aggravated by the fact that Luxuria Homes, Inc., was formed by petitioner Posadas after demand for payment had been made,
evidently for her to evade payment of her obligation, thereby showing that the transfer of her property to Luxuria Homes, Inc., was in fraud of
creditors.
We easily glean from the record that private respondents sent demand letters on 21 August 1991 and 14 September 1991, or more than a year
and a half after the execution of the Deed of Assignment on 11 December 1989, and the issuance of the Articles of Incorporation of petitioner Luxuria
Homes on 26 January 1990. And, the transfer was made at the time the relationship between petitioner Posadas and private respondents was
supposedly very pleasant. In fact the Deed of Assignment dated 11 December 1989 and the Articles of Incorporation of Luxuria Homes, Inc., issued
26 January 1990 were both signed by respondent Bravo himself as witness. It cannot be said then that the incorporation of petitioner Luxuria Homes
and the eventual transfer of the subject property to it were in fraud of private respondent as such were done with the full knowledge of respondent
Bravo himself.
 Besides petitioner Posadas is not the majority stockholder of petitioner Luxuria Homes, Inc., as erroneously stated by the lower court. The
Articles of Incorporation of petitioner Luxuria Homes, Inc., clearly show that petitioner Posadas owns approximately 33% only of the capital
stock. Hence petitioner Posadas cannot be considered as an alter ego of petitioner Luxuria Homes, Inc.
To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot be
presumed. This is elementary. Thus in Bayer-Roxas v. Court of Appeals,[17] we said that the separate personality of the corporation may be
disregarded only when the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary for the protection of
the creditors. Accordingly in Del Rosario v. NLRC,[18] where the Philsa International Placement and Services Corp. was organized and registered
with the POEA in 1981, several years before the complainant was filed a case in 1985, we held that this cannot imply fraud.
Obviously in the instant case, private respondents failed to show proof that petitioner Posadas acted in bad faith. Consequently since private
respondents failed to show that petitioner Luxuria Homes, Inc., was a party to any of the supposed transactions, not even to the agreement to
negotiate with and relocate the squatters, it cannot be held liable, nay jointly and in solidum, to pay private respondents. In this case since it was
petitioner Aida M. Posadas who contracted respondent Bravo to render the subject services, only she is liable to pay the amounts adjudged herein.
We now resolved the third and final issue. Private respondents urge the court to compel petitioners to execute a management contract with them
on the basis of the authorization letter dated May 3, 1989. The full text of Exh D reads:
I hereby certify that we have duly authorized the bearer, Engineer Bravo to negotiate, in our behalf, the ejectment of squatters from our property of
1.6 hectares, more or less, in Sucat, Muntinlupa. This authority is extended to him as the representatives of the Managers, under our agreement for
them to undertake the development of said area and the construction of housing units intended to convert the land into a first class subdivision.
The aforecited document is nothing more than a to-whom-it-may-concern authorization letter to negotiate with the squatters. Although it
appears that there was an agreement for the development of the area, there is no showing that same was never perfected and finalized. Private
respondents presented in evidence only drafts of a proposed management contract with petitioners handwritten marginal notes but the management
contract was not put in its final form. The reason why there was no final uncorrected draft was because the parties could not agree on the stipulations
of said contract, which even the private respondents admitted as found by the trial court. [19] As a consequence the management drafts submitted by the
private respondents should at best be considered as mere unaccepted offers. We find no cogent reason, considering that the parties no longer are in a
harmonious relationship, for the execution of a contract to develop a subdivision.
It is fundamental that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent of the
parties. To compel petitioner Posadas, whether as representatives of petitioners Luxuria Homes or in her personal capacity, to execute a management
contract under the terms and conditions of private respondents would be to violate the principle of consensuality of contracts. In Philippine National
bank v. Court of Appeals,[20] we held that if the assent is wanting on the part of one who contracts, his act has no more efficacy than if it had been
done under duress or by a person of unsound mind. In ordering petitioner Posadas to execute a management contract with private respondents, the
trial court in effect is putting her under duress.
The parties are bound to fulfill the stipulations in a contract only upon its perfection. At anytime prior to the perfection of a contract,
unaccepted offers and proposals remain as such and cannot be considered as binding commitments; hence not demandable.
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed decision dated March 15, 1996, of respondent Honorable Court of
Appeals and its Resolution dated August 12, 1996, are MODIFIED ordering PETITIONER AIDA M. POSADAS to pay PRIVATE RESPONDENTS
the amount of P435,000.00 as balance for the preparation of the architectural design, site development plan and survey. All other claims of
respondents are hereby DENIED for lack of merit.
SO ORDERED
CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto
Marabe, Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador,
Rogello Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Aifredo Albera, Paquito Salut, Domingo Guarino, Romeo
Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and
Ruben Robalos, respondents.
DECISION
HERMOSISIMA, JR., J.:
The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or
of another corporation. Where badges of fraud exist; where public convenience is defeated; where a wrong is sought to be justified
thereby, the corporate fiction or the notion of legal entity should come to naught. The law in these instances will regard the corporation
as a mere association of persons and, in case of two corporations, merge them into one.
Thus, where a sister corporation is used as a shield to evade a corporations subsidiary liability for damages, the corporation may
not be heard to say that it has a personality separate and distinct from the other corporation. The piercing of the corporate veil comes
into play.
This special civil action ostensibly raises the question of whether the National Labor Relations Commission committed grave
abuse of discretion when it issued a break-open order to the sheriff to be enforced against personal property found in the premises of
petitioners sister company.
Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, is
engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and riggers.
On November, 1981, private respondents were served individual written notices of termination of employment by petitioner,
effective on November 30, 1981. It was stated in the individual notices that their contracts of employment had expired and the project in
which they were hired had been completed.
Public respondent found it to be, the fact, however, that at the time of the termination of private respondents employment, the
project in which they were hired had not yet been finished and completed. Petitioner had to engage the services of sub-contractors
whose workers performed the functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their legal holiday
pay, overtime pay and thirteenth-month pay against petitioner.
On December 19, 1984, the Labor Arbiter rendered judgment 1 ordering petitioner to reinstate private respondents and to pay them
back wages equivalent to one year or three hundred working days.
On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration filed by
petitioner on the ground that the said decision had already become final and executory.2
 On October 16, 1986, the NLRC Research and Information Department made the finding that private respondents backwages
amounted to P199,800.00.3
On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision, dated December
19, 1984. The writ was partially satisfied through garnishment of sums from petitioners debtor, the Metropolitan Waterworks and
Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the cashier of the NLRC.
On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from herein
petitioner the sum of P117,414.76, representing the balance of the judgment award, and to reinstate private respondents to their former
positions.
On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner through the
security guard on duty but the service was refused on the ground that petitioner no longer occupied the premises.
On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of execution.
The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated November 2, 1989:
1. All the employees inside petitioners premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were employees of Hydro Pipes
Philippines, Inc. (HPPI) and not by respondent;
2. Levy was made upon personal properties he found in the premises;
3. Security guards with high-powered guns prevented him from removing the properties he had levied upon. 4
The said special sheriff recommended that a break-open order be issued to enable him to enter petitioners premises so that he
could proceed with the public auction sale of the aforesaid personal properties on November 7, 1989.
On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties
sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President.
On November 23, 1989, private respondents filed a Motion for Issuance of a Break-Open Order, alleging that HPPI and petitioner
corporation were owned by the same incorporator! stockholders. They also alleged that petitioner temporarily suspended its business
operations in order to evade its legal obligations to them and that private respondents were willing to post an indemnity bond to answer
for any damages which petitioner and HPPI may suffer because of the issuance of the break-open order.
In support of their claim against HPPI, private respondents presented duly certified copies of the General Informations Sheet,
dated May 15, 1987, submitted by petitioner to the Securities and Exchange Commission (SEC) and the General Information Sheet,
dated May 15, 1987, submitted by HPPI to the Securities and Exchange Commission.
The General Information Sheet submitted by the petitioner1 revealed the following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
HPPI P6,999,500.00
Antonio W. Lim 2,900,000.00
Dennis S. Cuyegkeng 300.00
Elisa C. Lim 100,000.00
Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman
Dennis S. Cuyegkeng Member
Elisa C. Lim Member
Teodulo R. Dino Member
Virgilio O. Casino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Elisa 0. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road
Valenzuela, Metro Manila.5
On the other hand, the General Information Sheet of HPPI revealed the following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
Antonio W. Lim P400,000.00
Elisa C. Lim 57,700.00
AWL Trading 455,000.00
Dennis S. Cuyegkeng 40,100.00
Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman
Elisa C. Lim Member
Dennis S. Cuyegkeng Member
Virgilio O. Casino Member
Teodulo R. Dino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Elisa O. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road, Valenzuela, Metro Manila.6
On February 1, 1990, HPPI filed an Opposition to private respondents motion for issuance of a break-open order, contending that
HPPI is a corporation which is separate and distinct from petitioner. HPPI also alleged that the two corporations are engaged in two
different kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner was then engaged in construction.
On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents motion for break-open order.
Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order of the Labor Arbiter, issued a
break-open order and directed private respondents to file a bond. Thereafter, it directed the sheriff to proceed with the auction sale of
the properties already levied upon. It dismissed the third-party claim for lack of merit.
Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated December 3, 1992.
Hence, the resort to the present petition.
Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its decision despite a third-
party claim on the levied property. Petitioner further contends, that the doctrine of piercing the corporate veil should not have been
applied, in this case, in the absence of any showing that it created HPPI in order to evade its liability to private respondents. It also
contends that HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a business which is distinct and separate
from petitioners construction business. Hence, it is of no consequence that petitioner and HPPI shared the same premises, the same
President and the same set of officers and subscribers.7
We find petitioners contention to be unmeritorious.
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from
other corporations to which it may be connected.8 But, this separate and distinct personality of a corporation is merely a fiction created
by law for convenience and to promote justice.9 So, when the notion of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, 10 this separate personality of
the corporation may be disregarded or the veil of corporate fiction pierced. 11 This is true likewise when the corporation is merely an
adjunct, a business conduit or an alter ego of another corporation.12
The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and circumstances of each
case. No hard and fast rule can be accurately laid down, but certainly, there are some probative factors of identity that will justify the
application of the doctrine of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.13
The SEC en banc explained the instrumentality rule which the courts have applied in disregarding the separate juridical
personality of corporations as follows:
Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the
other, the fiction of the corporate entity of the instrumentality may be disregarded. The control necessary to invoke the rule is not majority or even
complete stock control but such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind,
will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control must be shown to have been exercised at the
time the acts complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the
complaint is made.
The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:
1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect
to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty,
or dishonest and unjust act in contravention of plaintiffs legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The absence of any one of these elements prevents piercing the corporate veil. in applying the instrumentality or alter ego doctrine, the courts are
concerned with reality and not form, with how the corporation operated and the individual defendants relationship to that operation. 14
Thus, the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a subterfuge is
purely one of fact.15
In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, it filed an
Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating that its office address is at 355 Maysan
Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the same day, a similar information
sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio O. Casino as the corporate secretary of both corporations. It would also not be amiss to note
that both corporations had the samepresident, the same board of directors, the same corporate officers, and substantially the same subscribers.
From the foregoing, it appears that, among other things, the respondent (herein petitioner) and the third-party claimant shared the same address
and/or premises. Under this circumstances, (sic) it cannot be said that the property levied upon by the sheriff were not of respondents. 16
Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of backwages and to bar
their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and its emergence was
skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation.
The facts in this case are analogous to Claparols v. Court of Industrial Relations17 where we had the occasion to rule:
Respondent courts findings that indeed the Claparols Steel and Nail Plant, which ceased operation of June 30, 1957, was SUCCEEDED by the
Claparols Steel Corporation effective the next day, July 1, 1957, up to December 7, 1962, when the latter finally ceased to operate, were not disputed
by petitioner. it is very clear that the latter corporation was a continuation and successor of the first entity x x x. Both predecessors and successor
were owned and controlled by petitioner Eduardo Claparols and there was no break in the succession and continuity of the same business. This
avoiding-the-liability scheme is very patent, considering that 90% of the subscribed shares of stock of the Claparols Steel Corporation (the second
corporation) was owned by respondent x x x Claparols himself, and all the assets of the dissolved Claparols Steel and Nail Plant were turned over to
the emerging Claparols Steel Corporation.
It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the present case
could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution, private
respondents had no other recourse but to apply for a break-open order after the third-party claim of HPPI was dismissed for lack of
merit by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment which provides that:
Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his representative entry to the place where the property subject of
execution is located or kept, the judgment creditor may apply to the Commission or Labor Arbiter concerned for a break-open order.
Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing were complied with. Petitioner
and the third-party claimant were given the opportunity to submit evidence in support of their claim.
Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the Labor Arbiter.
Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies supported by substantial
evidence are binding on this Court and are entitled to great respect, in the absence of showing of grave abuse of a discretion.18
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992 and December 3, 1992,
are AFFIRMED.
SO ORDERED.
Padilla (Chairman), Bellosillo, Vitug, and Kapunan, JJ., concur.
VILLA REY TRANSIT, INC., plaintiff-appellant,
vs.
EUSEBIO E. FERRER, PANGASINAN TRANSPORTATION CO., INC. and PUBLIC SERVICE COMMISSION,defendants.
EUSEBIO E. FERRER and PANGASINAN TRANSPORTATION CO., INC., defendants-appellants.
PANGASINAN TRANSPORTATION CO., INC., third-party plaintiff-appellant,
vs.
JOSE M. VILLARAMA, third-party defendant-appellee.
Chuidian Law Office for plaintiff-appellant.
Bengzon, Zarraga & Villegas for defendant-appellant / third-party plaintiff-appellant.
Laurea & Pison for third-party defendant-appellee.
ANGELES, J.:
This is a tri-party appeal from the decision of the Court of First Instance of Manila, Civil Case No. 41845, declaring null and void the
sheriff's sale of two certificates of public convenience in favor of defendant Eusebio E. Ferrer and the subsequent sale thereof by the
latter to defendant Pangasinan Transportation Co., Inc.; declaring the plaintiff Villa Rey Transit, Inc., to be the lawful owner of the said
certificates of public convenience; and ordering the private defendants, jointly and severally, to pay to the plaintiff, the sum of P5,000.00
as and for attorney's fees. The case against the PSC was dismissed.
The rather ramified circumstances of the instant case can best be understood by a chronological narration of the essential facts, to wit:
Prior to 1959, Jose M. Villarama was an operator of a bus transportation, under the business name of Villa Rey Transit, pursuant to
certificates of public convenience granted him by the Public Service Commission (PSC, for short) in Cases Nos. 44213 and 104651,
which authorized him to operate a total of thirty-two (32) units on various routes or lines from Pangasinan to Manila, and vice-versa. On
January 8, 1959, he sold the aforementioned two certificates of public convenience to the Pangasinan Transportation Company, Inc.
(otherwise known as Pantranco), for P350,000.00 with the condition, among others, that the seller (Villarama) "shall not for a period of
10 years from the date of this sale, apply for any TPU service identical or competing with the buyer."
Barely three months thereafter, or on March 6, 1959: a corporation called Villa Rey Transit, Inc. (which shall be referred to hereafter as
the Corporation) was organized with a capital stock of P500,000.00 divided into 5,000 shares of the par value of P100.00 each;
P200,000.00 was the subscribed stock; Natividad R. Villarama (wife of Jose M. Villarama) was one of the incorporators, and she
subscribed for P1,000.00; the balance of P199,000.00 was subscribed by the brother and sister-in-law of Jose M. Villarama; of the
subscribed capital stock, P105,000.00 was paid to the treasurer of the corporation, who was Natividad R. Villarama.
In less than a month after its registration with the Securities and Exchange Commission (March 10, 1959), the Corporation, on April 7,
1959, bought five certificates of public convenience, forty-nine buses, tools and equipment from one Valentin Fernando, for the sum of
P249,000.00, of which P100,000.00 was paid upon the signing of the contract; P50,000.00 was payable upon the final approval of the
sale by the PSC; P49,500.00 one year after the final approval of the sale; and the balance of P50,000.00 "shall be paid by the BUYER
to the different suppliers of the SELLER."
The very same day that the aforementioned contract of sale was executed, the parties thereto immediately applied with the PSC for its
approval, with a prayer for the issuance of a provisional authority in favor of the vendee Corporation to operate the service therein
involved.1 On May 19, 1959, the PSC granted the provisional permit prayed for, upon the condition that "it may be modified or revoked
by the Commission at any time, shall be subject to whatever action that may be taken on the basic application and shall be valid only
during the pendency of said application." Before the PSC could take final action on said application for approval of sale, however, the
Sheriff of Manila, on July 7, 1959, levied on two of the five certificates of public convenience involved therein, namely, those issued
under PSC cases Nos. 59494 and 63780, pursuant to a writ of execution issued by the Court of First Instance of Pangasinan in Civil
Case No. 13798, in favor of Eusebio Ferrer, plaintiff, judgment creditor, against Valentin Fernando, defendant, judgment debtor. The
Sheriff made and entered the levy in the records of the PSC. On July 16, 1959, a public sale was conducted by the Sheriff of the
said two certificates of public convenience. Ferrer was the highest bidder, and a certificate of sale was issued in his name.
Thereafter, Ferrer sold the two certificates of public convenience to Pantranco, and jointly submitted for approval their corresponding
contract of sale to the PSC.2 Pantranco therein prayed that it be authorized provisionally to operate the service involved in the
said two certificates.
The applications for approval of sale, filed before the PSC, by Fernando and the Corporation, Case No. 124057, and that of Ferrer and
Pantranco, Case No. 126278, were scheduled for a joint hearing. In the meantime, to wit, on July 22, 1959, the PSC issued an order
disposing that during the pendency of the cases and before a final resolution on the aforesaid applications, the Pantranco shall be the
one to operate provisionally the service under the twocertificates embraced in the contract between Ferrer and Pantranco. The
Corporation took issue with this particular ruling of the PSC and elevated the matter to the Supreme Court,3 which decreed, after
deliberation, that until the issue on the ownership of the disputed certificates shall have been finally settled by the proper court, the
Corporation should be the one to operate the lines provisionally.
On November 4, 1959, the Corporation filed in the Court of First Instance of Manila, a complaint for the annulment of the sheriff's sale
of the aforesaid two certificates of public convenience (PSC Cases Nos. 59494 and 63780) in favor of the defendant Ferrer, and the
subsequent sale thereof by the latter to Pantranco, against Ferrer, Pantranco and the PSC. The plaintiff Corporation prayed therein that
all the orders of the PSC relative to the parties' dispute over the said certificates be annulled.
In separate answers, the defendants Ferrer and Pantranco averred that the plaintiff Corporation had no valid title to the certificates in
question because the contract pursuant to which it acquired them from Fernando was subject to a suspensive condition — the approval
of the PSC — which has not yet been fulfilled, and, therefore, the Sheriff's levy and the consequent sale at public auction of the
certificates referred to, as well as the sale of the same by Ferrer to Pantranco, were valid and regular, and vested unto Pantranco, a
superior right thereto.
Pantranco, on its part, filed a third-party complaint against Jose M. Villarama, alleging that Villarama and the Corporation, are one and
the same; that Villarama and/or the Corporation was disqualified from operating the two certificates in question by virtue of the
aforementioned agreement between said Villarama and Pantranco, which stipulated that Villarama "shall not for a period of 10 years
from the date of this sale, apply for any TPU service identical or competing with the buyer."
Upon the joinder of the issues in both the complaint and third-party complaint, the case was tried, and thereafter decision was rendered
in the terms, as above stated.
As stated at the beginning, all the parties involved have appealed from the decision. They submitted a joint record on appeal.
Pantranco disputes the correctness of the decision insofar as it holds that Villa Rey Transit, Inc. (Corporation) is a distinct and separate
entity from Jose M. Villarama; that the restriction clause in the contract of January 8, 1959 between Pantranco and Villarama is null and
void; that the Sheriff's sale of July 16, 1959, is likewise null and void; and the failure to award damages in its favor and against
Villarama.
Ferrer, for his part, challenges the decision insofar as it holds that the sheriff's sale is null and void; and the sale of the two certificates in
question by Valentin Fernando to the Corporation, is valid. He also assails the award of P5,000.00 as attorney's fees in favor of the
Corporation, and the failure to award moral damages to him as prayed for in his counterclaim.
The Corporation, on the other hand, prays for a review of that portion of the decision awarding only P5,000.00 as attorney's fees, and
insisting that it is entitled to an award of P100,000.00 by way of exemplary damages.
After a careful study of the facts obtaining in the case, the vital issues to be resolved are: (1) Does the stipulation between Villarama
and Pantranco, as contained in the deed of sale, that the former "SHALL NOT FOR A PERIOD OF 10 YEARS FROM THE DATE OF
THIS SALE, APPLY FOR ANY TPU SERVICE IDENTICAL OR COMPETING WITH THE BUYER," apply to new lines only or does it
include existing lines?; (2) Assuming that said stipulation covers all kinds of lines, is such stipulation valid and enforceable?; (3) In the
affirmative, that said stipulation is valid, did it bind the Corporation?
For convenience, We propose to discuss the foregoing issues by starting with the last proposition.
The evidence has disclosed that Villarama, albeit was not an incorporator or stockholder of the Corporation, alleging that he did not
become such, because he did not have sufficient funds to invest, his wife, however, was an incorporator with the least subscribed
number of shares, and was elected treasurer of the Corporation. The finances of the Corporation which, under all concepts in the law,
are supposed to be under the control and administration of the treasurer keeping them as trust fund for the Corporation, were,
nonetheless, manipulated and disbursed as if they were the private funds of Villarama, in such a way and extent that Villarama
appeared to be the actual owner-treasurer of the business without regard to the rights of the stockholders. The following testimony of
Villarama,4together with the other evidence on record, attests to that effect:
Q. Doctor, I want to go back again to the incorporation of the Villa Rey Transit, Inc. You heard the testimony presented
here by the bank regarding the initial opening deposit of ONE HUNDRED FIVE THOUSAND PESOS, of which amount Eighty-
Five Thousand Pesos was a check drawn by yourself personally. In the direct examination you told the Court that the reason
you drew a check for Eighty-Five Thousand Pesos was because you and your wife, or your wife, had spent the money of the
stockholders given to her for incorporation. Will you please tell the Honorable Court if you knew at the time your wife was
spending the money to pay debts, you personally knew she was spending the money of the incorporators?
A. You know my money and my wife's money are one. We never talk about those things.
Q. Doctor, your answer then is that since your money and your wife's money are one money and you did not know when
your wife was paying debts with the incorporator's money?
A. Because sometimes she uses my money, and sometimes the money given to her she gives to me and I deposit the
money.
Q. Actually, aside from your wife, you were also the custodian of some of the incorporators here, in the beginning?
A. Not necessarily, they give to my wife and when my wife hands to me I did not know it belonged to the incorporators.
Q. It supposes then your wife gives you some of the money received by her in her capacity as treasurer of the corporation?
A. Maybe.
Q. What did you do with the money, deposit in a regular account?
A. Deposit in my account.
Q. Of all the money given to your wife, she did not receive any check?
A. I do not remember.
Q. Is it usual for you, Doctor, to be given Fifty Thousand Pesos without even asking what is this?
xxx xxx xxx
JUDGE: Reform the question.
Q. The subscription of your brother-in-law, Mr. Reyes, is Fifty-Two Thousand Pesos, did your wife give you Fifty-two
Thousand Pesos?
A. I have testified before that sometimes my wife gives me money and I do not know exactly for what.
The evidence further shows that the initial cash capitalization of the corporation of P105,000.00 was mostly financed by Villarama. Of
the P105,000.00 deposited in the First National City Bank of New York, representing the initial paid-up capital of the Corporation,
P85,000.00 was covered by Villarama's personal check. The deposit slip for the said amount of P105,000.00 was admitted in evidence
as Exh. 23, which shows on its face that P20,000.00 was paid in cash and P85,000.00 thereof was covered by Check No. F-50271 of
the First National City Bank of New York. The testimonies of Alfonso Sancho5 and Joaquin Amansec,6 both employees of said bank,
have proved that the drawer of the check was Jose Villarama himself.
Another witness, Celso Rivera, accountant of the Corporation, testified that while in the books of the corporation there appears an entry
that the treasurer received P95,000.00 as second installment of the paid-in subscriptions, and, subsequently, also P100,000.00 as the
first installment of the offer for second subscriptions worth P200,000.00 from the original subscribers, yet Villarama directed him
(Rivera) to make vouchers liquidating the sums.7 Thus, it was made to appear that the P95,000.00 was delivered to Villarama in
payment for equipment purchased from him, and the P100,000.00 was loaned as advances to the stockholders. The said accountant,
however, testified that he was not aware of any amount of money that had actually passed hands among the parties involved,8 and
actually the only money of the corporation was the P105,000.00 covered by the deposit slip Exh. 23, of which as mentioned above,
P85,000.00 was paid by Villarama's personal check.
Further, the evidence shows that when the Corporation was in its initial months of operation, Villarama purchased and paid with his
personal checks Ford trucks for the Corporation. Exhibits 20 and 21 disclose that the said purchases were paid by Philippine Bank of
Commerce Checks Nos. 992618-B and 993621-B, respectively. These checks have been sufficiently established by Fausto Abad,
Assistant Accountant of Manila Trading & Supply Co., from which the trucks were purchased9 and Aristedes Solano, an employee of the
Philippine Bank of Commerce,10as having been drawn by Villarama.
Exhibits 6 to 19 and Exh. 22, which are photostatic copies of ledger entries and vouchers showing that Villarama had co-mingled his
personal funds and transactions with those made in the name of the Corporation, are very illuminating evidence. Villarama has assailed
the admissibility of these exhibits, contending that no evidentiary value whatsoever should be given to them since "they were merely
photostatic copies of the originals, the best evidence being the originals themselves." According to him, at the time Pantranco offered
the said exhibits, it was the most likely possessor of the originals thereof because they were stolen from the files of the Corporation and
only Pantranco was able to produce the alleged photostat copies thereof.
Section 5 of Rule 130 of the Rules of Court provides for the requisites for the admissibility of secondary evidence when the original is in
the custody of the adverse party, thus: (1) opponent's possession of the original; (2) reasonable notice to opponent to produce the
original; (3) satisfactory proof of its existence; and (4) failure or refusal of opponent to produce the original in court.11 Villarama has
practically admitted the second and fourth requisites.12As to the third, he admitted their previous existence in the files of the Corporation
and also that he had seen some of them.13 Regarding the first element, Villarama's theory is that since even at the time of the issuance
of the subpoena duces tecum, the originals were already missing, therefore, the Corporation was no longer in possession of the same.
However, it is not necessary for a party seeking to introduce secondary evidence to show that the original is in the actual possession of
his adversary. It is enough that the circumstances are such as to indicate that the writing is in his possession or under his control.
Neither is it required that the party entitled to the custody of the instrument should, on being notified to produce it, admit having it in his
possession.14 Hence, secondary evidence is admissible where he denies having it in his possession. The party calling for such
evidence may introduce a copy thereof as in the case of loss. For, among the exceptions to the best evidence rule is "when the original
has been lost, destroyed, or cannot be produced in court."15 The originals of the vouchers in question must be deemed to have been
lost, as even the Corporation admits such loss. Viewed upon this light, there can be no doubt as to the admissibility in evidence of
Exhibits 6 to 19 and 22.
Taking account of the foregoing evidence, together with Celso Rivera's testimony,16 it would appear that: Villarama supplied the
organization expenses and the assets of the Corporation, such as trucks and equipment;17 there was no actual payment by the original
subscribers of the amounts of P95,000.00 and P100,000.00 as appearing in the books;18 Villarama made use of the money of the
Corporation and deposited them to his private accounts;19 and the Corporation paid his personal accounts.20
Villarama himself admitted that he mingled the corporate funds with his own money.21 He also admitted that gasoline purchases of the
Corporation were made in his name22 because "he had existing account with Stanvac which was properly secured and he wanted the
Corporation to benefit from the rebates that he received."23
The foregoing circumstances are strong persuasive evidence showing that Villarama has been too much involved in the affairs of the
Corporation to altogether negative the claim that he was only a part-time general manager. They show beyond doubt that the
Corporation is his alter ego.
It is significant that not a single one of the acts enumerated above as proof of Villarama's oneness with the Corporation has been
denied by him. On the contrary, he has admitted them with offered excuses.
Villarama has admitted, for instance, having paid P85,000.00 of the initial capital of the Corporation with the lame excuse that "his wife
had requested him to reimburse the amount entrusted to her by the incorporators and which she had used to pay the obligations of Dr.
Villarama (her husband) incurred while he was still the owner of Villa Rey Transit, a single proprietorship." But with his admission that
he had received P350,000.00 from Pantranco for the sale of the two certificates and one unit,24 it becomes difficult to accept Villarama's
explanation that he and his wife, after consultation,25 spent the money of their relatives (the stockholders) when they were supposed to
have their own money. Even if Pantranco paid the P350,000.00 in check to him, as claimed, it could have been easy for Villarama to
have deposited said check in his account and issued his own check to pay his obligations. And there is no evidence adduced that the
said amount of P350,000.00 was all spent or was insufficient to settle his prior obligations in his business, and in the light of the
stipulation in the deed of sale between Villarama and Pantranco that P50,000.00 of the selling price was earmarked for the payments of
accounts due to his creditors, the excuse appears unbelievable.
On his having paid for purchases by the Corporation of trucks from the Manila Trading & Supply Co. with his personal checks, his
reason was that he was only sharing with the Corporation his credit with some companies. And his main reason for mingling his funds
with that of the Corporation and for the latter's paying his private bills is that it would be more convenient that he kept the money to be
used in paying the registration fees on time, and since he had loaned money to the Corporation, this would be set off by the latter's
paying his bills. Villarama admitted, however, that the corporate funds in his possession were not only for registration fees but for other
important obligations which were not specified.26
Indeed, while Villarama was not the Treasurer of the Corporation but was, allegedly, only a part-time manager,27 he admitted not only
having held the corporate money but that he advanced and lent funds for the Corporation, and yet there was no Board Resolution
allowing it.28
Villarama's explanation on the matter of his involvement with the corporate affairs of the Corporation only renders more credible
Pantranco's claim that his control over the corporation, especially in the management and disposition of its funds, was so extensive and
intimate that it is impossible to segregate and identify which money belonged to whom. The interference of Villarama in the complex
affairs of the corporation, and particularly its finances, are much too inconsistent with the ends and purposes of the Corporation law,
which, precisely, seeks to separate personal responsibilities from corporate undertakings. It is the very essence of incorporation that the
acts and conduct of the corporation be carried out in its own corporate name because it has its own personality.
The doctrine that a corporation is a legal entity distinct and separate from the members and stockholders who compose it is recognized
and respected in all cases which are within reason and the law.29 When the fiction is urged as a means of perpetrating a fraud or an
illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a
monopoly or generally the perpetration of knavery or crime,30 the veil with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals.
Upon the foregoing considerations, We are of the opinion, and so hold, that the preponderance of evidence have shown that the Villa
Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that the restrictive clause in the contract entered into by the latter and
Pantranco is also enforceable and binding against the said Corporation. For the rule is that a seller or promisor may not make use of a
corporate entity as a means of evading the obligation of his covenant.31 Where the Corporation is substantially the alter ego of the
covenantor to the restrictive agreement, it can be enjoined from competing with the covenantee.32
The Corporation contends that even on the supposition that Villa Rey Transit, Inc. and Villarama are one and the same, the restrictive
clause in the contract between Villarama and Pantranco does not include the purchase of existing lines but it only applies to application
for the new lines. The clause in dispute reads thus:
(4) The SELLER shall not, for a period of ten (10) years from the date of this sale apply for any TPU service identical or
competing with the BUYER. (Emphasis supplied)
As We read the disputed clause, it is evident from the context thereof that the intention of the parties was to eliminate the seller as a
competitor of the buyer for ten years along the lines of operation covered by the certificates of public convenience subject of their
transaction. The word "apply" as broadly used has for frame of reference, a service by the seller on lines or routes that would compete
with the buyer along the routes acquired by the latter. In this jurisdiction, prior authorization is needed before anyone can operate a TPU
service,33whether the service consists in a new line or an old one acquired from a previous operator. The clear intention of the parties
was to prevent the seller from conducting any competitive line for 10 years since, anyway, he has bound himself not to apply for
authorization to operate along such lines for the duration of such period.34
If the prohibition is to be applied only to the acquisition of new certificates of public convenience thru an application with the Public
Service Commission, this would, in effect, allow the seller just the same to compete with the buyer as long as his authority to operate is
only acquired thru transfer or sale from a previous operator, thus defeating the intention of the parties. For what would prevent the
seller, under the circumstances, from having a representative or dummy apply in the latter's name and then later on transferring the
same by sale to the seller? Since stipulations in a contract is the law between the contracting parties,
Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith. (Art. 19, New Civil Code.)
We are not impressed of Villarama's contention that the re-wording of the two previous drafts of the contract of sale between Villarama
and Pantranco is significant in that as it now appears, the parties intended to effect the least restriction. We are persuaded, after an
examination of the supposed drafts, that the scope of the final stipulation, while not as long and prolix as those in the drafts, is just as
broad and comprehensive. At most, it can be said that the re-wording was done merely for brevity and simplicity.
The evident intention behind the restriction was to eliminate the sellers as a competitor, and this must be, considering such factors as
the good will35 that the seller had already gained from the riding public and his adeptness and proficiency in the trade. On this matter,
Corbin, an authority on Contracts has this to say.36
When one buys the business of another as a going concern, he usually wishes to keep it going; he wishes to get the location,
the building, the stock in trade, and the customers. He wishes to step into the seller's shoes and to enjoy the same business
relations with other men. He is willing to pay much more if he can get the "good will" of the business, meaning by this the good
will of the customers, that they may continue to tread the old footpath to his door and maintain with him the business relations
enjoyed by the seller.
... In order to be well assured of this, he obtains and pays for the seller's promise not to reopen business in competition with
the business sold.
As to whether or not such a stipulation in restraint of trade is valid, our jurisprudence on the matter37says:
The law concerning contracts which tend to restrain business or trade has gone through a long series of changes from time to
time with the changing condition of trade and commerce. With trifling exceptions, said changes have been a continuous
development of a general rule. The early cases show plainly a disposition to avoid and annul all contract which prohibited or
restrained any one from using a lawful trade "at any time or at any place," as being against the benefit of the state. Later,
however, the rule became well established that if the restraint was limited to "a certain time" and within "a certain place," such
contracts were valid and not "against the benefit of the state." Later cases, and we think the rule is now well established, have
held that a contract in restraint of trade is valid providing there is a limitation upon either time or place. A contract, however,
which restrains a man from entering into business or trade without either a limitation as to time or place, will be held invalid.
The public welfare of course must always be considered and if it be not involved and the restraint upon one party is not greater
than protection to the other requires, contracts like the one we are discussing will be sustained. The general tendency, we
believe, of modern authority, is to make the test whether the restraint is reasonably necessary for the protection of the
contracting parties. If the contract is reasonably necessary to protect the interest of the parties, it will be upheld. (Emphasis
supplied.)
Analyzing the characteristics of the questioned stipulation, We find that although it is in the nature of an agreement suppressing
competition, it is, however, merely ancillary or incidental to the main agreement which is that of sale. The suppression or restraint is
only partial or limited: first, in scope, it refers only to application for TPU by the seller in competition with the lines sold to the buyer;
second, in duration, it is only for ten (10) years; and third, with respect to situs or territory, the restraint is only along the lines covered by
the certificates sold. In view of these limitations, coupled with the consideration of P350,000.00 for just two certificates of public
convenience, and considering, furthermore, that the disputed stipulation is only incidental to a main agreement, the same is reasonable
and it is not harmful nor obnoxious to public service.38 It does not appear that the ultimate result of the clause or stipulation would be to
leave solely to Pantranco the right to operate along the lines in question, thereby establishing monopoly or predominance
approximating thereto. We believe the main purpose of the restraint was to protect for a limited time the business of the buyer.
Indeed, the evils of monopoly are farfetched here. There can be no danger of price controls or deterioration of the service because of
the close supervision of the Public Service Commission.39 This Court had stated long ago,40that "when one devotes his property to a
use in which the public has an interest, he virtually grants to the public an interest in that use and submits it to such public use under
reasonable rules and regulations to be fixed by the Public Utility Commission."
Regarding that aspect of the clause that it is merely ancillary or incidental to a lawful agreement, the underlying reason sustaining its
validity is well explained in 36 Am. Jur. 537-539, to wit:
... Numerous authorities hold that a covenant which is incidental to the sale and transfer of a trade or business, and which
purports to bind the seller not to engage in the same business in competition with the purchaser, is lawful and enforceable.
While such covenants are designed to prevent competition on the part of the seller, it is ordinarily neither their purpose nor
effect to stifle competition generally in the locality, nor to prevent it at all in a way or to an extent injurious to the public. The
business in the hands of the purchaser is carried on just as it was in the hands of the seller; the former merely takes the place
of the latter; the commodities of the trade are as open to the public as they were before; the same competition exists as
existed before; there is the same employment furnished to others after as before; the profits of the business go as they did
before to swell the sum of public wealth; the public has the same opportunities of purchasing, if it is a mercantile business; and
production is not lessened if it is a manufacturing plant.
The reliance by the lower court on tile case of Red Line Transportation Co. v. Bachrach41 and finding that the stipulation is illegal and
void seems misplaced. In the said Red Line case, the agreement therein sought to be enforced was virtually a division of territory
between two operators, each company imposing upon itself an obligation not to operate in any territory covered by the routes of the
other. Restraints of this type, among common carriers have always been covered by the general rule invalidating agreements in
restraint of trade. 42
Neither are the other cases relied upon by the plaintiff-appellee applicable to the instant case. In Pampanga Bus Co., Inc. v.
Enriquez,43the undertaking of the applicant therein not to apply for the lifting of restrictions imposed on his certificates of public
convenience was not an ancillary or incidental agreement. The restraint was the principal objective. On the other hand, in Red Line
Transportation Co., Inc. v. Gonzaga,44 the restraint there in question not to ask for extension of the line, or trips, or increase of
equipment — was not an agreement between the parties but a condition imposed in the certificate of public convenience itself.
Upon the foregoing considerations, Our conclusion is that the stipulation prohibiting Villarama for a period of 10 years to "apply" for TPU
service along the lines covered by the certificates of public convenience sold by him to Pantranco is valid and reasonable. Having
arrived at this conclusion, and considering that the preponderance of the evidence have shown that Villa Rey Transit, Inc. is itself
the alter ego of Villarama, We hold, as prayed for in Pantranco's third party complaint, that the said Corporation should, until the
expiration of the 1-year period abovementioned, be enjoined from operating the line subject of the prohibition.
To avoid any misunderstanding, it is here to be emphasized that the 10-year prohibition upon Villarama is not against his application for,
or purchase of, certificates of public convenience, but merely the operation of TPU along the lines covered by the certificates sold by
him to Pantranco. Consequently, the sale between Fernando and the Corporation is valid, such that the rightful ownership of the
disputed certificates still belongs to the plaintiff being the prior purchaser in good faith and for value thereof. In view of the ancient rule
of caveat emptor prevailing in this jurisdiction, what was acquired by Ferrer in the sheriff's sale was only the right which Fernando,
judgment debtor, had in the certificates of public convenience on the day of the sale.45
Accordingly, by the "Notice of Levy Upon Personalty" the Commissioner of Public Service was notified that "by virtue of an Order of
Execution issued by the Court of First Instance of Pangasinan, the rights, interests, or participation which the defendant, VALENTIN A.
FERNANDO — in the above entitled case may have in the following realty/personalty is attached or levied upon, to wit: The rights,
interests and participation on the Certificates of Public Convenience issued to Valentin A. Fernando, in Cases Nos. 59494, etc. ... Lines
— Manila to Lingayen, Dagupan, etc. vice versa." Such notice of levy only shows that Ferrer, the vendee at auction of said certificates,
merely stepped into the shoes of the judgment debtor. Of the same principle is the provision of Article 1544 of the Civil Code, that "If the
same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property."
There is no merit in Pantranco and Ferrer's theory that the sale of the certificates of public convenience in question, between the
Corporation and Fernando, was not consummated, it being only a conditional sale subject to the suspensive condition of its approval by
the Public Service Commission. While section 20(g) of the Public Service Act provides that "subject to established limitation and
exceptions and saving provisions to the contrary, it shall be unlawful for any public service or for the owner, lessee or operator thereof,
without the approval and authorization of the Commission previously had ... to sell, alienate, mortgage, encumber or lease its property,
franchise, certificates, privileges, or rights or any part thereof, ...," the same section also provides:
... Provided, however, That nothing herein contained shall be construed to prevent the transaction from being negotiated or
completed before its approval or to prevent the sale, alienation, or lease by any public service of any of its property in the
ordinary course of its business.
It is clear, therefore, that the requisite approval of the PSC is not a condition precedent for the validity and consummation of the sale.
Anent the question of damages allegedly suffered by the parties, each of the appellants has its or his own version to allege.
Villa Rey Transit, Inc. claims that by virtue of the "tortious acts" of defendants (Pantranco and Ferrer) in acquiring the certificates of
public convenience in question, despite constructive and actual knowledge on their part of a prior sale executed by Fernando in favor of
the said corporation, which necessitated the latter to file the action to annul the sheriff's sale to Ferrer and the subsequent transfer to
Pantranco, it is entitled to collect actual and compensatory damages, and attorney's fees in the amount of P25,000.00. The evidence on
record, however, does not clearly show that said defendants acted in bad faith in their acquisition of the certificates in question. They
believed that because the bill of sale has yet to be approved by the Public Service Commission, the transaction was not a
consummated sale, and, therefore, the title to or ownership of the certificates was still with the seller. The award by the lower court of
attorney's fees of P5,000.00 in favor of Villa Rey Transit, Inc. is, therefore, without basis and should be set aside.
Eusebio Ferrer's charge that by reason of the filing of the action to annul the sheriff's sale, he had suffered and should be awarded
moral, exemplary damages and attorney's fees, cannot be entertained, in view of the conclusion herein reached that the sale by
Fernando to the Corporation was valid.
Pantranco, on the other hand, justifies its claim for damages with the allegation that when it purchased ViIlarama's business for
P350,000.00, it intended to build up the traffic along the lines covered by the certificates but it was rot afforded an opportunity to do so
since barely three months had elapsed when the contract was violated by Villarama operating along the same lines in the name of Villa
Rey Transit, Inc. It is further claimed by Pantranco that the underhanded manner in which Villarama violated the contract is pertinent in
establishing punitive or moral damages. Its contention as to the proper measure of damages is that it should be the purchase price of
P350,000.00 that it paid to Villarama. While We are fully in accord with Pantranco's claim of entitlement to damages it suffered as a
result of Villarama's breach of his contract with it, the record does not sufficiently supply the necessary evidentiary materials upon which
to base the award and there is need for further proceedings in the lower court to ascertain the proper amount.
PREMISES CONSIDERED, the judgment appealed from is hereby modified as follows:
1. The sale of the two certificates of public convenience in question by Valentin Fernando to Villa Rey Transit, Inc. is declared preferred
over that made by the Sheriff at public auction of the aforesaid certificate of public convenience in favor of Eusebio Ferrer;
2. Reversed, insofar as it dismisses the third-party complaint filed by Pangasinan Transportation Co. against Jose M. Villarama, holding
that Villa Rey Transit, Inc. is an entity distinct and separate from the personality of Jose M. Villarama, and insofar as it awards the sum
of P5,000.00 as attorney's fees in favor of Villa Rey Transit, Inc.;
3. The case is remanded to the trial court for the reception of evidence in consonance with the above findings as regards the amount of
damages suffered by Pantranco; and
4. On equitable considerations, without costs. So ordered.
FRANCISCO MOTORS CORPORATION, petitioner, vs. COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA
MANUEL, respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to annul the decision [1] of the Court of Appeals in C.A. G.R.
CV No. 10014 affirming the decision rendered by Branch 135, Regional Trial Court of Makati, Metro Manila. The procedural antecedents of this
petition are as follows:
On January 23, 1985, petitioner filed a complaint [2] against private respondents to recover three thousand four hundred twelve and six centavos
(P3,412.06), representing the balance of the jeep body purchased by the Manuels from petitioner; an additional sum of twenty thousand four hundred
fifty-four and eighty centavos (P20,454.80) representing the unpaid balance on the cost of repair of the vehicle; and six thousand pesos (P6,000.00)
for cost of suit and attorneys fees.[3] To the original balance on the price of jeep body were added the costs of repair. [4] In their answer, private
respondents interposed a counterclaim for unpaid legal services by Gregorio Manuel in the amount of fifty thousand pesos (P50,000) which was not
paid by the incorporators, directors and officers of the petitioner. The trial court decided the case on June 26, 1985, in favor of petitioner in regard to
the petitioners claim for money, but also allowed the counter-claim of private respondents. Both parties appealed. On April 15, 1991, the Court of
Appeals sustained the trial courts decision.[5] Hence, the present petition.
For our review in particular is the propriety of the permissive counterclaim which private respondents filed together with their answer to
petitioners complaint for a sum of money. Private respondent Gregorio Manuel alleged as an affirmative defense that, while he was petitioners
Assistant Legal Officer, he represented members of the Francisco family in the intestate estate proceedings of the late Benita Trinidad. However, even
after the termination of the proceedings, his services were not paid. Said family members, he said, were also incorporators, directors and officers of
petitioner. Hence to counter petitioners collection suit, he filed a permissive counterclaim for the unpaid attorneys fees. [6]
For failure of petitioner to answer the counterclaim, the trial court declared petitioner in default on this score, and evidence ex-parte was
presented on the counterclaim. The trial court ruled in favor of private respondents and found that Gregorio Manuel indeed rendered legal services to
the Francisco family in Special Proceedings Number 7803- In the Matter of Intestate Estate of Benita Trinidad. Said court also found that his legal
services were not compensated despite repeated demands, and thus ordered petitioner to pay him the amount of fifty thousand (P50,000.00) pesos. [7]
Dissatisfied with the trial courts order, petitioner elevated the matter to the Court of Appeals, posing the following issues:
I.
WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS NULL AND VOID AS IT NEVER ACQUIRED
JURISDICTION OVER THE PERSON OF THE DEFENDANT.
II.
WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN THE ALLEGED PERMISSIVE COUNTERCLAIM SHOULD
BE HELD LIABLE TO THE CLAIM OF DEFENDANT-APPELLEES.
III.
WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-APPELLANT TO ANSWER THE ALLEGED PERMISSIVE
COUNTERCLAIM.[8]
Petitioner contended that the trial court did not acquire jurisdiction over it because no summons was validly served on it together with the copy
of the answer containing the permissive counterclaim. Further, petitioner questions the propriety of its being made party to the case because it was
not the real party in interest but the individual members of the Francisco family concerned with the intestate case.
In its assailed decision now before us for review, respondent Court of Appeals held that a counterclaim must be answered in ten (10) days,
pursuant to Section 4, Rule 11, of the Rules of Court; and nowhere does it state in the Rules that a party still needed to be summoned anew if a
counterclaim was set up against him. Failure to serve summons, said respondent court, did not effectively negate trial courts jurisdiction over
petitioner in the matter of the counterclaim. It likewise pointed out that there was no reason for petitioner to be excused from answering the
counterclaim. Court records showed that its former counsel, Nicanor G. Alvarez, received the copy of the answer with counterclaim two (2) days
prior to his withdrawal as counsel for petitioner.Moreover when petitioners new counsel, Jose N. Aquino, entered his appearance, three (3) days still
remained within the period to file an answer to the counterclaim. Having failed to answer, petitioner was correctly considered in default by the trial
court.[9] Even assuming that the trial court acquired no jurisdiction over petitioner, respondent court also said, but having filed a motion for
reconsideration seeking relief from the said order of default, petitioner was estopped from further questioning the trial courts jurisdiction. [10]
On the question of its liability for attorneys fees owing to private respondent Gregorio Manuel, petitioner argued that being a corporation, it
should not be held liable therefor because these fees were owed by the incorporators, directors and officers of the corporation in their personal
capacity as heirs of Benita Trinidad. Petitioner stressed that the personality of the corporation, vis--vis the individual persons who hired the services
of private respondent, is separate and distinct,[11] hence, the liability of said individuals did not become an obligation chargeable against petitioner.
Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:
However, this distinct and separate personality is merely a fiction created by law for convenience and to promote justice. Accordingly, 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 found (sic)
illegality, or to work an injustice, or where necessary to achieve equity or when necessary for the protection of creditors. (Sulo ng Bayan, Inc. vs.
Araneta, Inc., 72 SCRA 347) Corporations are composed of natural persons and the legal fiction of a separate corporate personality is not a shield for
the commission of injustice and inequity. (Chemplex Philippines, Inc. vs. Pamatian, 57 SCRA 408)
In the instant case, evidence shows that the plaintiff-appellant Francisco Motors Corporation is composed of the heirs of the late Benita Trinidad as
directors and incorporators for whom defendant Gregorio Manuel rendered legal services in the intestate estate case of their deceased
mother. Considering the aforestated principles and circumstances established in this case, equity and justice demands plaintiff-appellants veil of
corporate identity should be pierced and the defendant be compensated for legal services rendered to the heirs, who are directors of the plaintiff-
appellant corporation.[12]
Now before us, petitioner assigns the following errors:
I.
THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY.
II.
THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS JURISDICTION OVER PETITIONER WITH RESPECT TO THE
COUNTERCLAIM.[13]
Petitioner submits that respondent court should not have resorted to piercing the veil of corporate fiction because the transaction concerned
only respondent Gregorio Manuel and the heirs of the late Benita Trinidad. According to petitioner, there was no cause of action by said respondent
against petitioner; personal concerns of the heirs should be distinguished from those involving corporate affairs. Petitioner further contends that the
present case does not fall among the instances wherein the courts may look beyond the distinct personality of a corporation. According to petitioner,
the services for which respondent Gregorio Manuel seeks to collect fees from petitioner are personal in nature. Hence, it avers the heirs should have
been sued in their personal capacity, and not involve the corporation. [14]
With regard to the permissive counterclaim, petitioner also insists that there was no proper service of the answer containing the permissive
counterclaim. It claims that the counterclaim is a separate case which can only be properly served upon the opposing party through summons. Further
petitioner states that by nature, a permissive counterclaim is one which does not arise out of nor is necessarily connected with the subject of the
opposing partys claim. Petitioner avers that since there was no service of summons upon it with regard to the counterclaim, then the court did not
acquire jurisdiction over petitioner. Since a counterclaim is considered an action independent from the answer, according to petitioner, then in effect
there should be two simultaneous actions between the same parties: each party is at the same time both plaintiff and defendant with respect to the
other,[15] requiring in each case separate summonses.
In their Comment, private respondents focus on the two questions raised by petitioner. They defend the propriety of piercing the veil of
corporate fiction, but deny the necessity of serving separate summonses on petitioner in regard to their permissive counterclaim contained in the
answer.
Private respondents maintain both trial and appellate courts found that respondent Gregorio Manuel was employed as assistant legal officer of
petitioner corporation, and that his services were solicited by the incorporators, directors and members to handle and represent them in Special
Proceedings No. 7803, concerning the Intestate Estate of the late Benita Trinidad. They assert that the members of petitioner corporation took
advantage of their positions by not compensating respondent Gregorio Manuel after the termination of the estate proceedings despite his repeated
demands for payment of his services. They cite findings of the appellate court that support piercing the veil of corporate identity in this particular
case. They assert that the corporate veil may be disregarded when it is used to defeat public convenience, justify wrong, protect fraud, and defend
crime. It may also be pierced, according to them, where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole
benefit of the stockholders or of another corporate entity. In these instances, they aver, the corporation should be treated merely as an association of
individual persons.[16]
Private respondents dispute petitioners claim that its right to due process was violated when respondents counterclaim was granted due course,
although no summons was served upon it.They claim that no provision in the Rules of Court requires service of summons upon a defendant in a
counterclaim. Private respondents argue that when the petitioner filed its complaint before the trial court it voluntarily submitted itself to the
jurisdiction of the court. As a consequence, the issuance of summons on it was no longer necessary. Private respondents say they served a copy of
their answer with affirmative defenses and counterclaim on petitioners former counsel, Nicanor G. Alvarez. While petitioner would have the Court
believe that respondents served said copy upon Alvarez after he had withdrawn his appearance as counsel for the petitioner, private respondents assert
that this contention is utterly baseless. Records disclose that the answer was received two (2) days before the former counsel for petitioner withdrew
his appearance, according to private respondents. They maintain that the present petition is but a form of dilatory appeal, to set off petitioners
obligations to the respondents by running up more interest it could recover from them. Private respondents therefore claim damages against
petitioner.[17]
To resolve the issues in this case, we must first determine the propriety of piercing the veil of corporate fiction.
Basic in corporation law is the principle that a corporation has a separate personality distinct from its stockholders and from other corporations
to which it may be connected.[18] However, under the doctrine of piercing the veil of corporate entity, the corporations separate juridical personality
may be disregarded, for example, when the corporate identity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime. Also, where the corporation is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its
affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation, then its distinct personality may be
ignored.[19] In these circumstances, the courts will treat the corporation as a mere aggrupation of persons and the liability will directly attach to
them. The legal fiction of a separate corporate personality in those cited instances, for reasons of public policy and in the interest of justice, will be
justifiably set aside.
In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate veil has no relevant application
here. Respondent court erred in permitting the trial courts resort to this doctrine. The rationale behind piercing a corporations identity in a given case
is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the
corporate personality as a shield for undertaking certain proscribed activities. However, in the case at bar, instead of holding certain individuals or
persons responsible for an alleged corporate act, the situation has been reversed. It is the petitioner as a corporation which is being ordered to answer
for the personal liability of certain individual directors, officers and incorporators concerned. Hence, it appears to us that the doctrine has been turned
upside down because of its erroneous invocation. Note that according to private respondent Gregorio Manuel his services were solicited as counsel
for members of the Francisco family to represent them in the intestate proceedings over Benita Trinidads estate. These estate proceedings did not
involve any business of petitioner.
Note also that he sought to collect legal fees not just from certain Francisco family members but also from petitioner corporation on the claims
that its management had requested his services and he acceded thereto as an employee of petitioner from whom it could be deduced he was also
receiving a salary. His move to recover unpaid legal fees through a counterclaim against Francisco Motors Corporation, to offset the unpaid balance
of the purchase and repair of a jeep body could only result from an obvious misapprehension that petitioners corporate assets could be used to answer
for the liabilities of its individual directors, officers, and incorporators. Such result if permitted could easily prejudice the corporation, its own
creditors, and even other stockholders; hence, clearly inequitous to petitioner.
Furthermore, considering the nature of the legal services involved, whatever obligation said incorporators, directors and officers of the
corporation had incurred, it was incurred in their personal capacity. When directors and officers of a corporation are unable to compensate a party for
a personal obligation, it is far-fetched to allege that the corporation is perpetuating fraud or promoting injustice, and be thereby held liable therefor by
piercing its corporate veil. While there are no hard and fast rules on disregarding separate corporate identity, we must always be mindful of its
function and purpose. A court should be careful in assessing the milieu where the doctrine of piercing the corporate veil may be applied. Otherwise
an injustice, although unintended, may result from its erroneous application.
The personality of the corporation and those of its incorporators, directors and officers in their personal capacities ought to be kept separate in
this case. The claim for legal fees against the concerned individual incorporators, officers and directors could not be properly directed against the
corporation without violating basic principles governing corporations. Moreover, every action including a counterclaim must be prosecuted or
defended in the name of the real party in interest. [20] It is plainly an error to lay the claim for legal fees of private respondent Gregorio Manuel at the
door of petitioner (FMC) rather than individual members of the Francisco family.
However, with regard to the procedural issue raised by petitioners allegation, that it needed to be summoned anew in order for the court to
acquire jurisdiction over it, we agree with respondent courts view to the contrary. Section 4, Rule 11 of the Rules of Court provides that a
counterclaim or cross-claim must be answered within ten (10) days from service. Nothing in the Rules of Court says that summons should first be
served on the defendant before an answer to counterclaim must be made. The purpose of a summons is to enable the court to acquire jurisdiction over
the person of the defendant. Although a counterclaim is treated as an entirely distinct and independent action, the defendant in the counterclaim,
being the plaintiff in the original complaint, has already submitted to the jurisdiction of the court. Following Rule 9, Section 3 of the 1997 Rules of
Civil Procedure,[21] if a defendant (herein petitioner) fails to answer the counterclaim, then upon motion of plaintiff, the defendant may be declared in
default. This is what happened to petitioner in this case, and this Court finds no procedural error in the disposition of the appellate court on this
particular issue. Moreover, as noted by the respondent court, when petitioner filed its motion seeking to set aside the order of default, in effect it
submitted itself to the jurisdiction of the court. As well said by respondent court:
Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show that upon its request, plaintiff-appellant was granted time to
file a motion for reconsideration of the disputed decision. Plaintiff-appellant did file its motion for reconsideration to set aside the order of default
and the judgment rendered on the counterclaim.
Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the counterclaim, as it vigorously insists, plaintiff-appellant is considered
to have submitted to the courts jurisdiction when it filed the motion for reconsideration seeking relief from the court. (Soriano vs. Palacio, 12 SCRA
447). A party is estopped from assailing the jurisdiction of a court after voluntarily submitting himself to its jurisdiction. (Tejones vs. Gironella, 159
SCRA 100). Estoppel is a bar against any claims of lack of jurisdiction. (Balais vs. Balais, 159 SCRA 37).[22]
WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby REVERSED insofar only as it held Francisco Motors
Corporation liable for the legal obligation owing to private respondent Gregorio Manuel; but this decision is without prejudice to his filing the proper
suit against the concerned members of the Francisco family in their personal capacity. No pronouncement as to costs.
SO ORDERED.
ESTELITA BURGOS LIPAT and ALFREDO LIPAT, petitioners, vs. PACIFIC BANKING CORPORATION, REGISTER OF DEEDS,
RTC EX-OFFICIO SHERIFF OF QUEZON CITY and the Heirs of EUGENIO D. TRINIDAD, respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari seeks the reversal of the Decision[1] dated October 21, 1999 of the Court of Appeals in CA-
G.R. CV No. 41536 which dismissed herein petitioners appeal from the Decision [2] dated February 10, 1993 of the Regional Trial Court
(RTC) of Quezon City, Branch 84, in Civil Case No. Q-89-4152. The trial court had dismissed petitioners complaint for annulment of real
estate mortgage and the extra-judicial foreclosure thereof. Likewise brought for our review is the Resolution [3] dated February 23, 2000
of the Court of Appeals which denied petitioners motion for reconsideration.
The facts, as culled from records, are as follows:
Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned Belas Export Trading (BET), a single proprietorship with
principal office at No. 814 Aurora Boulevard, Cubao, Quezon City. BET was engaged in the manufacture of garments for domestic and
foreign consumption. The Lipats also owned the Mystical Fashions in the United States, which sells goods imported from the
Philippines through BET. Mrs. Lipat designated her daughter, Teresita B. Lipat, to manage BET in the Philippines while she was
managing Mystical Fashions in the United States.
In order to facilitate the convenient operation of BET, Estelita Lipat executed on December 14, 1978, a special power of attorney
appointing Teresita Lipat as her attorney-in-fact to obtain loans and other credit accommodations from respondent Pacific Banking
Corporation (Pacific Bank). She likewise authorized Teresita to execute mortgage contracts on properties owned or co-owned by her as
security for the obligations to be extended by Pacific Bank including any extension or renewal thereof.
Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to secure for and in behalf of her mother,
Mrs. Lipat and BET, a loan from Pacific Bank amounting to P583,854.00 to buy fabrics to be manufactured by BET and exported to
Mystical Fashions in the United States. As security therefor, the Lipat spouses, as represented by Teresita, executed a Real Estate
Mortgage over their property located at No. 814 Aurora Blvd., Cubao, Quezon City. Said property was likewise made to secure other
additional or new loans, discounting lines, overdrafts and credit accommodations, of whatever amount, which the Mortgagor and/or
Debtor may subsequently obtain from the Mortgagee as well as any renewal or extension by the Mortgagor and/or Debtor of the whole
or part of said original, additional or new loans, discounting lines, overdrafts and other credit accommodations, including interest and
expenses or other obligations of the Mortgagor and/or Debtor owing to the Mortgagee, whether directly, or indirectly, principal or
secondary, as appears in the accounts, books and records of the Mortgagee.[4]
On September 5, 1979, BET was incorporated into a family corporation named Belas Export Corporation (BEC) in order to
facilitate the management of the business. BEC was engaged in the business of manufacturing and exportation of all kinds of garments
of whatever kind and description[5] and utilized the same machineries and equipment previously used by BET. Its incorporators and
directors included the Lipat spouses who owned a combined 300 shares out of the 420 shares subscribed, Teresita Lipat who owned 20
shares, and other close relatives and friends of the Lipats. [6] Estelita Lipat was named president of BEC, while Teresita became the
vice-president and general manager.
 Eventually, the loan was later restructured in the name of BEC and subsequent loans were obtained by BEC with the
corresponding promissory notes duly executed by Teresita on behalf of the corporation. A letter of credit was also opened by Pacific
Bank in favor of A. O. Knitting Manufacturing Co., Inc., upon the request of BEC after BEC executed the corresponding trust receipt
therefor. Export bills were also executed in favor of Pacific Bank for additional finances. These transactions were all secured by the real
estate mortgage over the Lipats property.
The promissory notes, export bills, and trust receipt eventually became due and demandable. Unfortunately, BEC defaulted in its
payments. After receipt of Pacific Banks demand letters, Estelita Lipat went to the office of the banks liquidator and asked for additional
time to enable her to personally settle BECs obligations. The bank acceded to her request but Estelita failed to fulfill her promise.
Consequently, the real estate mortgage was foreclosed and after compliance with the requirements of the law the mortgaged
property was sold at public auction. On January 31, 1989, a certificate of sale was issued to respondent Eugenio D. Trinidad as the
highest bidder.
On November 28, 1989, the spouses Lipat filed before the Quezon City RTC a complaint for annulment of the real estate
mortgage, extrajudicial foreclosure and the certificate of sale issued over the property against Pacific Bank and Eugenio D.
Trinidad. The complaint, which was docketed as Civil Case No. Q-89-4152, alleged, among others, that the promissory notes, trust
receipt, and export bills were all ultra vires acts of Teresita as they were executed without the requisite board resolution of the Board of
Directors of BEC. The Lipats also averred that assuming said acts were valid and binding on BEC, the same were the corporations sole
obligation, it having a personality distinct and separate from spouses Lipat. It was likewise pointed out that Teresitas authority to secure
a loan from Pacific Bank was specifically limited to Mrs. Lipats sole use and benefit and that the real estate mortgage was executed to
secure the Lipats and BETs P583,854.00 loan only.
In their respective answers, Pacific Bank and Trinidad alleged in common that petitioners Lipat cannot evade payments of the
value of the promissory notes, trust receipt, and export bills with their property because they and the BEC are one and the same, the
latter being a family corporation. Respondent Trinidad further claimed that he was a buyer in good faith and for value and that
petitioners are estopped from denying BECs existence after holding themselves out as a corporation.
After trial on the merits, the RTC dismissed the complaint, thus:
WHEREFORE, this Court holds that in view of the facts contained in the record, the complaint filed in this case must be, as is hereby,
dismissed. Plaintiffs however has five (5) months and seventeen (17) days reckoned from the finality of this decision within which to exercise their
right of redemption. The writ of injunction issued is automatically dissolved if no redemption is effected within that period.
The counterclaims and cross-claim are likewise dismissed for lack of legal and factual basis.
No costs.
IT IS SO ORDERED.[7]
The trial court ruled that there was convincing and conclusive evidence proving that BEC was a family corporation of the
Lipats. As such, it was a mere extension of petitioners personality and business and a mere alter ego or business conduit of the Lipats
established for their own benefit. Hence, to allow petitioners to invoke the theory of separate corporate personality would sanction its
use as a shield to further an end subversive of justice.[8] Thus, the trial court pierced the veil of corporate fiction and held that Belas
Export Corporation and petitioners (Lipats) are one and the same. Pacific Bank had transacted business with both BET and BEC on the
supposition that both are one and the same. Hence, the Lipats were estopped from disclaiming any obligations on the theory of
separate personality of corporations, which is contrary to principles of reason and good faith.
The Lipats timely appealed the RTC decision to the Court of Appeals in CA-G.R. CV No. 41536. Said appeal, however, was
dismissed by the appellate court for lack of merit. The Court of Appeals found that there was ample evidence on record to support the
application of the doctrine of piercing the veil of corporate fiction. In affirming the findings of the RTC, the appellate court noted that Mrs.
Lipat had full control over the activities of the corporation and used the same to further her business interests. [9] In fact, she had
benefited from the loans obtained by the corporation to finance her business. It also found unnecessary a board resolution authorizing
Teresita Lipat to secure loans from Pacific Bank on behalf of BEC because the corporations by-laws allowed such conduct even without
a board resolution. Finally, the Court of Appeals ruled that the mortgage property was not only liable for the original loan of P583,854.00
but likewise for the value of the promissory notes, trust receipt, and export bills as the mortgage contract equally applies to additional or
new loans, discounting lines, overdrafts, and credit accommodations which petitioners subsequently obtained from Pacific Bank.
The Lipats then moved for reconsideration, but this was denied by the appellate court in its Resolution of February 23, 2000.[10]
Hence, this petition, with petitioners submitting that the court a quo erred
1) .IN HOLDING THAT THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION APPLIES IN THIS CASE.
2) .IN HOLDING THAT PETITIONERS PROPERTY CAN BE HELD LIABLE UNDER THE REAL ESTATE MORTGAGE NOT
ONLY FOR THE AMOUNT OF P583,854.00 BUT ALSO FOR THE FULL VALUE OF PROMISSORY NOTES, TRUST
RECEIPTS AND EXPORT BILLS OF BELAS EXPORT CORPORATION.
3) .IN HOLDING THAT THE IMPOSITION OF 15% ATTORNEYS FEES IN THE EXTRA-JUDICIAL FORECLOSURE IS
BEYOND THIS COURTS JURISDICTION FOR IT IS BEING RAISED FOR THE FIRST TIME IN THIS APPEAL.
4) .IN HOLDING PETITIONER ALFREDO LIPAT LIABLE TO PAY THE DISPUTED PROMISSORY NOTES, THE DOLLAR
ACCOMMODATIONS AND TRUST RECEIPTS DESPITE THE EVIDENT FACT THAT THEY WERE NOT SIGNED BY
HIM AND THEREFORE ARE NOT VALID OR ARE NOT BINDING TO HIM.
5) .IN DENYING PETITIONERS MOTION FOR RECONSIDERATION AND IN HOLDING THAT SAID MOTION FOR
RECONSIDERATION IS AN UNAUTHORIZED MOTION, A MERE SCRAP OF PAPER WHICH CAN NEITHER BIND
NOR BE OF ANY CONSEQUENCE TO APPELLANTS.[11]
In sum, the following are the relevant issues for our resolution:
1. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case;
2. Whether or not petitioners' property under the real estate mortgage is liable not only for the amount of P583,854.00 but also for
the value of the promissory notes, trust receipt, and export bills subsequently incurred by BEC; and
3. Whether or not petitioners are liable to pay the 15% attorneys fees stipulated in the deed of real estate mortgage.
On the first issue, petitioners contend that both the appellate and trial courts erred in holding them liable for the obligations
incurred by BEC through the application of the doctrine of piercing the veil of corporate fiction absent any clear showing of fraud on
their part.
 Respondents counter that there is clear and convincing evidence to show fraud on part of petitioners given the findings of the trial
court, as affirmed by the Court of Appeals, that BEC was organized as a business conduit for the benefit of petitioners.
Petitioners contentions fail to persuade this Court. A careful reading of the judgment of the RTC and the resolution of the appellate
court show that in finding petitioners mortgaged property liable for the obligations of BEC, both courts below relied upon the alter
ego doctrine or instrumentality rule, rather than fraud in piercing the veil of corporate fiction. When the corporation is the mere alter
ego or business conduit of a person, the separate personality of the corporation may be disregarded. [12] This is commonly referred to as
the instrumentality rule or the alter ego doctrine, which the courts have applied in disregarding the separate juridical personality of
corporations. As held in one case,
Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other,
the fiction of the corporate entity of the instrumentality may be disregarded. The control necessary to invoke the rule is not majority or even complete
stock control but such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or
existence of its own, and is but a conduit for its principal. xxx [13]
We find that the evidence on record demolishes, rather than buttresses, petitioners contention that BET and BEC are separate
business entities. Note that Estelita Lipat admitted that she and her husband, Alfredo, were the owners of BET [14] and were two of the
incorporators and majority stockholders of BEC.[15] It is also undisputed that Estelita Lipat executed a special power of attorney in favor
of her daughter, Teresita, to obtain loans and credit lines from Pacific Bank on her behalf. [16] Incidentally, Teresita was designated as
executive-vice president and general manager of both BET and BEC, respectively. [17] We note further that: (1) Estelita and Alfredo Lipat
are the owners and majority shareholders of BET and BEC, respectively;[18] (2) both firms were managed by their daughter, Teresita;
[19]
(3) both firms were engaged in the garment business, supplying products to Mystical Fashion, a U.S. firm established by Estelita
Lipat; (4) both firms held office in the same building owned by the Lipats; [20] (5) BEC is a family corporation with the Lipats as its majority
stockholders; (6) the business operations of the BEC were so merged with those of Mrs. Lipat such that they were practically
indistinguishable; (7) the corporate funds were held by Estelita Lipat and the corporation itself had no visible assets; (8) the board of
directors of BEC was composed of the Burgos and Lipat family members;[21] (9) Estelita had full control over the activities of and
decided business matters of the corporation; [22] and that (10) Estelita Lipat had benefited from the loans secured from Pacific Bank to
finance her business abroad[23] and from the export bills secured by BEC for the account of Mystical Fashion. [24] It could not have been
coincidental that BET and BEC are so intertwined with each other in terms of ownership, business purpose, and
management. Apparently, BET and BEC are one and the same and the latter is a conduit of and merely succeeded the
former. Petitioners attempt to isolate themselves from and hide behind the corporate personality of BEC so as to evade their liabilities
to Pacific Bank is precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy. In our view,
BEC is a mere continuation and successor of BET, and petitioners cannot evade their obligations in the mortgage contract secured
under the name of BEC on the pretext that it was signed for the benefit and under the name of BET. We are thus constrained to rule
that the Court of Appeals did not err when it applied the instrumentality doctrine in piercing the corporate veil of BEC.
On the second issue, petitioners contend that their mortgaged property should not be made liable for the subsequent credit lines
and loans incurred by BEC because, first, it was not covered by the mortgage contract of BET which only covered the loan
of P583,854.00 and which allegedly had already been paid; and, second, it was secured by Teresita Lipat without any authorization or
board resolution of BEC.
We find petitioners contention untenable. As found by the Court of Appeals, the mortgaged property is not limited to answer for the
loan of P583,854.00. Thus:
Finally, the extent to which the Lipats property can be held liable under the real estate mortgage is not limited to P583,854.00. It can be held liable for
the value of the promissory notes, trust receipt and export bills as well. For the mortgage was executed not only for the purpose of securing the Belas
Export Tradings original loan of P583,854.00, but also for other additional or new loans, discounting lines, overdrafts and credit accommodations, of
whatever amount, which the Mortgagor and/or Debtor may subsequently obtain from the mortgagee as well as any renewal or extension by the
Mortgagor and/or Debtor of the whole or part of said original, additional or new loans, discounting lines, overdrafts and other credit
accommodations, including interest and expenses or other obligations of the Mortgagor and/or Debtor owing to the Mortgagee, whether directly, or
indirectly principal or secondary, as appears in the accounts, books and records of the mortgagee. [25]
As a general rule, findings of fact of the Court of Appeals are final and conclusive, and cannot be reviewed on appeal by the
Supreme Court, provided they are borne out by the record or based on substantial evidence. [26] As noted earlier, BEC merely
succeeded BET as petitioners alter ego; hence, petitioners mortgaged property must be held liable for the subsequent loans and credit
lines of BEC.
Further, petitioners contention that the original loan had already been paid, hence, the mortgaged property should not be made
liable to the loans of BEC, is unsupported by any substantial evidence other than Estelita Lipats self-serving testimony. Two disputable
presumptions under the rules on evidence weigh against petitioners, namely: (a) that a person takes ordinary care of his concerns;
[27]
and (b) that things have happened according to the ordinary course of nature and the ordinary habits of life. [28] Here, if the original
loan had indeed been paid, then logically, petitioners would have asked from Pacific Bank for the required documents evidencing
receipt and payment of the loans and, as owners of the mortgaged property, would have immediately asked for the cancellation of the
mortgage in the ordinary course of things. However, the records are bereft of any evidence contradicting or overcoming said disputable
presumptions.
Petitioners contend further that the mortgaged property should not bind the loans and credit lines obtained by BEC as they were
secured without any proper authorization or board resolution. They also blame the bank for its laxity and complacency in not requiring a
board resolution as a requisite for approving the loans.
Such contentions deserve scant consideration.
Firstly, it could not have been possible for BEC to release a board resolution since per admissions by both petitioner Estelita Lipat
and Alice Burgos, petitioners rebuttal witness, no business or stockholders meetings were conducted nor were there election of officers
held since its incorporation. In fact, not a single board resolution was passed by the corporate board [29] and it was Estelita Lipat and/or
Teresita Lipat who decided business matters.[30]
Secondly, the principle of estoppel precludes petitioners from denying the validity of the transactions entered into by Teresita Lipat
with Pacific Bank, who in good faith, relied on the authority of the former as manager to act on behalf of petitioner Estelita Lipat and
both BET and BEC. While the power and responsibility to decide whether the corporation should enter into a contract that will bind the
corporation is lodged in its board of directors, subject to the articles of incorporation, by-laws, or relevant provisions of law, yet, just as a
natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its
functions and powers to officers, committees, or agents. The authority of such individuals to bind the corporation is generally derived
from law, corporate by-laws, or authorization from the board, either expressly or impliedly by habit, custom, or acquiescence in the
general course of business.[31] Apparent authority, is derived not merely from practice. Its existence may be ascertained through (1) the
general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent
authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, whether within or beyond the scope of his ordinary powers.[32]
In this case, Teresita Lipat had dealt with Pacific Bank on the mortgage contract by virtue of a special power of attorney executed
by Estelita Lipat. Recall that Teresita Lipat acted as the manager of both BEC and BET and had been deciding business matters in the
absence of Estelita Lipat. Further, the export bills secured by BEC were for the benefit of Mystical Fashion owned by Estelita Lipat.
[33]
Hence, Pacific Bank cannot be faulted for relying on the same authority granted to Teresita Lipat by Estelita Lipat by virtue of a
special power of attorney. It is a familiar doctrine that if a corporation knowingly permits one of its officers or any other agent to act
within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; thus, the corporation
will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agents authority.[34]
We find no necessity to extensively deal with the liability of Alfredo Lipat for the subsequent credit lines of BEC. Suffice it to state
that Alfredo Lipat never disputed the validity of the real estate mortgage of the original loan; hence, he cannot now dispute the
subsequent loans obtained using the same mortgage contract since it is, by its very terms, a continuing mortgage contract.
On the third and final issue, petitioners assail the decision of the Court of Appeals for not taking cognizance of the issue on
attorneys fees on the ground that it was raised for the first time on appeal. We find the conclusion of the Court of Appeals to be in
accord with settled jurisprudence. Basic is the rule that matters not raised in the complaint cannot be raised for the first time on appeal.
[35]
A close perusal of the complaint yields no allegations disputing the attorneys fees imposed under the real estate mortgage and
petitioners cannot now allege that they have impliedly disputed the same when they sought the annulment of the contract.
In sum, we find no reversible error of law committed by the Court of Appeals in rendering the decision and resolution herein
assailed by petitioners.
WHEREFORE, the petition is DENIED. The Decision dated October 21, 1999 and the Resolution dated February 23, 2000 of the
Court of Appeals in CA-G.R. CV No. 41536 are AFFIRMED. Costs against petitioners.
SO ORDERED.
TIMES TRANSPORTATION COMPANY, INC., petitioner, vs. SANTOS SOTELO, CONRADO B. SALONGA, SAMSON C. SOLIVEN,
BIENVENIDO F. MALANA, JR., JOVITO V. ALCAUSIN, EFREN A. RAMOS, RODRIGO P. CABUSAO, JR., EDGAR G.
PONCE, RONALD ALLAN PARINAS, RODEL PALO, REYNALDO R. RAGUCOS, MARIO T. TOLEDO, BERNARDINO
PADUA, DOMINGO P. BILAN, ARNEL VALLEDORES, RAMON RETUTA, JR., PANTALEON TABANGIN, ALBERTO
PANDO, VIRGILIO E. OBAR, EULOGIO D. DIGA, SR., DANIEL LLADO, RONILO BALTAZAR, MARITO PANDO,
LEOPOLDO FUNTILA, GERRY B. CARRIDO, WILLIAM A. TABUCOL, ANTONIO L. RAMOS, SR., PABLO P. PADRE,
HENRY B. GANIR, TEOTIMO R. REQUILMAN, CIPRIANO ULPINDO, ROGER BABIDA, SAMUEL PERALTA, BONIFACIO
TUMALIP, EDGAR ABLOG, EFREN ABELLA, RODRIGO RABOY, RENATO SILVA, GEORGE PERALTA, RONILO
BARBOSA, JULIAN BUENAFE, FLORENCIO CARIO, BERNIE TUMBAGA, RODRIGO CABAERO, ELMER TAMO,
LEOPOLDO NANA, NELIE BOSE, DEMETRIO HERRERA, RODOLFO ABELLA, ALVIN ELEFANTE, REDENTOR GARCIA,
JERRY PALACPAC, JOSE PAET, ARTHUR IBEA, ELIZER BORJA, EDMUNDO ASPIRAS, JOSE V. PESCADOR, WILLIAM
GARCIA, ERNESTO P. MANGULABNAN, BENJAMIN B. BLAZA, JOSELITO P. CACABELOS, LEON R. GALANTA, JR.,
MARIANO P. TEJADA, PEDRITO C. ORTIZ, JR., NESTOR E. BALCITA, FLOR BURBANO, HERNANDO A. PIMENTEL,
ALEX A. GOMEZ, ARNALDO P. BOSE, NAPOLEON BALDERAS, CARLINO V. RULLODA, JR., RANDY R. AMODO,
CORNELIO R. RAGUINI, ROBERT CERIA, JUANITO U. UGALDE, ALBERTO PAJO, ALFREDO VALOROSO, RUFINO
ADRIATICO, BARTOLOME C. EDROSOLAN, JR., REYNANTE A. ALCAIN, NOELITO SUSA and VICENTE
NAVA, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the decision of the Court of Appeals dated January 30, 2004 in CA-G.R. SP No.
75291,[1] which set aside the decision and resolution of the National Labor Relations Commission, and its resolution dated May 24,
2004[2] denying reconsideration thereof.
Petitioner Times Transportation Company, Inc. (Times) is a corporation engaged in the business of land transportation. Prior to its
closure in 1997, the Times Employees Union (TEU) was formed and issued a certificate of union registration. Times challenged the
legitimacy of TEU by filing a petition for the cancellation of its union registration.
On March 3, 1997, TEU held a strike in response to Times alleged attempt to form a rival union and its dismissal of the employees
identified to be active union members. Upon petition by Times, then Labor Secretary, and now Associate Justice of this Court, Leonardo
A. Quisumbing, assumed jurisdiction over the case and referred the matter to the NLRC for compulsory arbitration. The case was
docketed as NLRC NCR CC-000134-97. A return-to-work order was likewise issued on March 10, 1997.
In a certification election held on July 1, 1997, TEU was certified as the sole and exclusive collective bargaining agent in Times.
Consequently, TEUs president wrote the management of Times and requested for collective bargaining. Times refused on the ground
that the decision of the Med-Arbiter upholding the validity of the certification election was not yet final and executory.
TEU filed a Notice of Strike on August 8, 1997. Another conciliation/mediation proceeding was conducted for the purpose of
settling the brewing dispute. In the meantime, Times management implemented a retrenchment program and notices of retrenchment
dated September 16, 1997 were sent to some of its employees, including the respondents herein, informing them of their retrenchment
effective 30 days thereafter.
On October 17, 1997, TEU held a strike vote on grounds of unfair labor practice on the part of Times. For alleged participation in
what it deemed was an illegal strike, Times terminated all the 123 striking employees by virtue of two notices dated October 26, 1997
and November 24, 1997.[3] On November 17, 1997, then DOLE Secretary Quisumbing issued the second return-to-work order certifying
the dispute to the NLRC. While the strike was ended, the employees were no longer admitted back to work.
 In the meantime, by December 12, 1997, Mencorp Transport Systems, Inc. (Mencorp) had acquired ownership over Times
Certificates of Public Convenience and a number of its bus units by virtue of several deeds of sale. [4] Mencorp is controlled and
operated by Mrs. Virginia Mendoza, daughter of Santiago Rondaris, the majority stockholder of Times.
On May 21, 1998, the NLRC rendered a decision[5] in the cases certified to it by the DOLE, the dispositive portion of which read:
WHEREFORE, the respondents first strike, conducted from March 3, 1997 to March 12, 1997, is hereby declared LEGAL; its second strike, which
commenced on October 17, 1997, is hereby declared ILLEGAL. Consequently, those 23 persons who participated in the illegal strike are deemed to
have lost their employment status and were therefore validly dismissed from employment:
The respondents Motion to Implead Mencorp Transport Systems, Inc. and/or Virginia Mendoza and/or Santiago Rondaris is hereby DENIED for lack
of merit.
SO ORDERED.[6]
Times and TEU both appealed the decision of the NLRC, which the Court of Appeals affirmed on November 17, 2000. [7] Upon
denial of its motion for reconsideration, Times filed a petition for review on certiorari,[8] docketed as G.R. Nos. 148500-01, now pending
with the Third Division of this Court. TEU likewise appealed but its petition was denied due course.
In 1998, and after the closure of Times, the retrenched employees, including practically all the respondents herein, filed cases for
illegal dismissal, money claims and unfair labor practices against Times before the Regional Arbitration Branch in San Fernando City,
La Union. Times filed a Motion to Dismiss but on October 30, 1998, the arbitration branch ordered the archiving of the cases pending
resolution of G.R. Nos. 148500-01.[9]
The dismissed employees did not interpose an appeal from said Order. Instead, they withdrew their complaints with leave of court
and filed a new set of cases before the National Capital Region Arbitration Branch. This time, they impleaded Mencorp and the
Spouses Reynaldo and Virginia Mendoza. Times sought the dismissal of these cases on the ground of litis pendencia and forum
shopping. On January 31, 2002, Labor Arbiter Renaldo O. Hernandez rendered a decision stating:
WHEREFORE, premises considered, judgment is hereby entered FINDING that the dismissals of complainants, excluding the expunged ones, by
respondent Times Transit (sic) Company, Inc. effected, participated in, authorized or ratified by respondent Santiago Rondaris constituted the
prohibited act of unfair labor practice under Article 248(a) and (e) of the Labor Code, as amended and hence, illegal and that the sale of said
respondent company to respondents Mencorp Transport Systems Company (sic), Inc. and/or Virginia Mendoza and Reynaldo Mendoza was
simulated and/or effected in bad faith, ORDERING:
1. respondents Times Transit (sic) Company, Inc. and Santiago Rondaris as the officer administratively held liable of the unfair labor practice herein
to CEASE AND DESIST therefore (sic);
2. respondents Times Transit (sic) Company, Inc. and/or Santiago Rondaris and Mencorp Transport Systems Company, Inc. and/or Virginia Mendoza
and Reynaldo Mendoza to cause the reinstatement therein of complainants to their former positions without loss of seniority rights and benefits and
to pay jointly and severally said complainants full back wages reckoned from their respective dates of illegal dismissal as above-indicated, until
actually reinstated or in lieu of such reinstatement, at the option of said complainants, payment of their separation pay of one (1) month pay per year
of service, reckoned from their date of hire as above-indicated, until actual payment and/or finality of this decision;
3. and finally for respondents Times Transit (sic) Company, Inc. and/or Santiago Rondaris to pay jointly and severally said complainants as moral and
exemplary damages the combined amount of P75,000.00 and 5% of the total award as attorneys fees.
All other claims of complainants are dismissed for lack of merit.
.
SO ORDERED.[10]
The monetary award amounted to P43,347,341.69. On March 4, 2002, Times, Mencorp and the Spouses Mendoza submitted
their respective memorandum of appeal to the NLRC with motions to reduce the bond. Mencorp posted a P5 million bond issued by
Security Pacific Assurance Corp. (SPAC). On April 30, 2002, the NLRC issued an order disposing of the said motion, thus:
WHEREFORE, premises considered, the Urgent Motion for Reduction of Bond is denied for lack of merit. Respondents are hereby ordered to
complete the bond equivalent to the monetary award in the Labor Arbiters Decision, within an unextendible period of ten (10) days from receipt
hereof, otherwise, the appeal shall be dismissed for non-perfection thereof.
SO ORDERED.[11]
On May 18, 2002, Times moved to reconsider said order arguing mainly that it did not have sufficient funds to put up the required
bond. On July 26, 2002, Mencorp and the Spouses Mendoza posted an additional P10 million appeal bond. Thus far, the total amount
of bond posted was P15 million. On August 7, 2002, the NLRC granted the Motion for Reduction of Bond and approved the P10 million
additional appeal bond.[12]
On September 17, 2002, the NLRC rendered its decision, stating:
WHEREFORE, the foregoing premises duly considered, the decision appealed from is hereby VACATED. The records of these consolidated cases
are hereby ordered REMANDED to the Arbitration Branch of origin for disposition and for the conduct of appropriate proceedings for a decision to
be rendered with dispatch.
SO ORDERED.[13]
Reconsideration thereof was denied by the NLRC on October 30, 2002. Thus, the respondents appealed to the Court of Appeals
by way of a petition for certiorari, attributing grave abuse of discretion on the NLRC for: (1) not dismissing the appeals of Times,
Mencorp and the Spouses Mendoza despite their failure to post the required bond; (2) remanding the case for further proceedings
despite the sufficiency of the evidence presented by the parties; (3) not sustaining the labor arbiters ruling that they were illegally
dismissed; (4) not affirming the labor arbiters ruling that there was no litis pendencia; and (5) not ruling that Times and Mencorp are one
and the same entity.
On January 30, 2004, the Court of Appeals rendered the decision now assailed in this petition, the decretal portion of which
states:
WHEREFORE, based on the foregoing, the instant petition is hereby GRANTED. The assailed Decision and Resolution of the NLRC are hereby
SET ASIDE. The Decision of the Labor Arbiter dated January 31, 2002 is hereby REINSTATED.
SO ORDERED.[14]
Times, Mencorp and the Spouses Mendoza filed Motions for Reconsideration, which were denied in a resolution promulgated on
May 24, 2004. Hence, this petition for review based on the following grounds:
 I. Petitioner respectfully maintains that the Honorable Court a quo, in not dismissing the complaints against the petitioner on
the ground of lis pendens, decided the matter in a way not in accord with existing laws and applicable decisions of this
Honorable Court.
II. Petitioner, further, respectfully maintains that the Honorable Court a quo, in determining that herein petitioners hitherto lost
their right to appeal to the NLRC on account of their purported failure to post an adequate appeal bond, radically
departed from the accepted and usual course of judicial proceedings, not to mention resolved said issue in a manner and
fashion antithetical to existing jurisprudence.
III. Petitioner, furthermore, respectfully maintains that the Honorable Court a quo, in applying wholesale the doctrine of
piercing the veil of corporate fiction and finding Times co-petitioners liable for the formers obligations, resolved the matter
in a manner contradictory to existing applicable laws and dispositions of this Honorable Court, and departed from the
accepted and usual course of judicial proceedings with regard to admitting evidence to sustain the application of such
principle.[15]
The petition lacks merit.
As to the first issue, Times argues that there exists an identity of issues, rights asserted, relief sought and causes of action
between the present case and the one concerning the legality of the second strike, which is now pending with the Third Division of this
Court. As such, the Court of Appeals erred in not dismissing the case at bar on the ground of litis pendencia.
Litis pendencia as a ground for dismissal of an action refers to that situation wherein another action is pending between the same
parties for the same cause of action and the second action becomes unnecessary and vexatious. [16] We agree with the findings of the
Court of Appeals that there is no litis pendencia as the two cases involve dissimilar causes of action. The first case, now pending with
the Third Division, pertains to the alleged error of the NLRC in not upholding the dismissal of all the striking employees (not only of the
23 strikers so declared to have lost their employment) in spite of the latters ruling that the second strike was illegal. None of the
respondents herein were among those deemed terminated by virtue of the NLRC decision.
In the instant case, the issue is the validity of the retrenchment implemented by Times prior to the second strike and the
subsequent dismissal of the striking employees. As such, there can be no question that respondents were still employees of Times
when they were retrenched. In short, the outcome of this case does not hinge on the legality of the second strike or the validity of the
dismissal of the striking employees, which issues are yet to be resolved in G.R. Nos. 148500-01. Consequently, litis pendencia does not
arise.
Anent the issue on whether Times perfected its appeal to the NLRC, the right to appeal is a statutory right and one who seeks to
avail of the right must comply with the statute or rules. The rules for perfecting an appeal must be strictly followed as they are
considered indispensable interdictions against needless delays and for orderly discharge of judicial business.[17] Section 3(a), Rule VI of
the NLRC Rules of Procedure outlines the requisites for perfecting an appeal, to wit:
SECTION 3. Requisites for Perfection of Appeal. a) The Appeal shall be filed within the reglementary period as provided in Section 1 of this Rule
and shall be under oath with proof of payment of the required appeal fee and the posting of a cash or surety bond as provided in Section 6 of this
Rule; shall be accompanied by memorandum of appeal which shall state the grounds relied upon and the arguments in support thereof; the relief
prayed for and a statement of the date when the appellant received the appealed decision, order or award and proof of service on the other party of
such appeal.
A mere notice of appeal without complying with the other requisites aforestated shall not stop the running of the period for perfecting an
appeal. (Emphasis supplied)
Article 223 of the Labor Code provides that in case of a judgment involving a monetary award, an appeal by the employer may be
perfected only upon the posting of a cash or surety bond issued by a reputable bonding company duly accredited by the NLRC in the
amount equivalent to the monetary award in the judgment appealed from. The perfection of an appeal in the manner and within the
period prescribed by law is not only mandatory but also jurisdictional, and failure to perfect an appeal has the effect of making the
judgment final and executory.[18] However, in several cases, we have relaxed the rules regarding the appeal bond especially where it
must necessarily yield to the broader interest of substantial justice.[19] The Rules of Procedure of the NLRC allows for the reduction of
the appeal bond upon motion of the appellant and on meritorious grounds. [20] It is required however that such motion is filed within the
reglementary period to appeal.
The records reveal that Times, Mencorp and the Spouses Mendozas motion to reduce the bond was denied and the NLRC
ordered them to post the required amount within an unextendible period of ten (10) days.[21] However, instead of complying with the
directive, Times filed another motion for reconsideration of the order of denial. Several weeks later, Mencorp posted an additional bond,
which was still less than the required amount. Three (3) months after the filing of the motion for reconsideration, the NLRC reversed its
previous order and granted the motion for reduction of bond.
We agree with the Court of Appeals that the foregoing constitutes grave abuse of discretion on the part of the NLRC. By delaying
the resolution of Times motion for reconsideration, it has unnecessarily prolonged the period of appeal. We have held that to extend the
period of appeal is to prolong the resolution of the case, a circumstance which would give the employer the opportunity to wear out the
energy and meager resources of the workers to the point that they would be constrained to give up for less than what they deserve in
law.[22] The NLRC is well to take notice of our pronouncement in Santos v. Velarde:[23]
The Court is aware that the NLRC is not bound by the technical rules of procedure and is allowed to be liberal in the interpretation of rules in
deciding labor cases. However, such liberality should not be applied in the instant case as it would render futile the very purpose for which the
principle of liberality is adopted. From the decision of the Labor Arbiter, it took the NLRC four months to rule on the motion for exemption to pay
bond and another four months to decide the merits of the case. This Court has repeatedly ruled that delay in the settlement of labor cases cannot be
countenanced. Not only does it involve the survival of an employee and his loved ones who are dependent on him, it also wears down the meager
resources of the workers...[24] (Emphasis supplied)
The NLRCs reversal of its previous order of denial lacks basis. In the first motion, Mencorp and Spouses Mendoza moved for the
reduction of the appeal bond on the ground that the computation of the monetary award was highly suspicious and anomalous. In their
motion for reconsideration of the NLRCs denial, Mencorp and the Spouses Mendoza cited financial difficulties in completing the appeal
bond. Neither ground is well-taken.
Times and Mencorp failed to substantiate their allegations of errors in the computation of the monetary award. They merely
asserted inaccuracies without specifying which aspect of the computation was inaccurate. If Times and Mencorp truly believed that
there were errors in the computation, they could have presented their own computation for comparison. As to the claim of financial
difficulties, suffice it to say that the law does not require outright payment of the total monetary award, but only the posting of a bond to
ensure that the award will be eventually paid should the appeal fail. What Times has to pay is a moderate and reasonable sum for the
premium for such bond.[25] The impression thus created was that Times, Mencorp and the Spouses Mendoza were clearly
circumventing, if not altogether dodging, the rules on the posting of appeal bonds.
On the propriety of the piercing of the corporate veil, Times claims that to drag Mencorp, [Spouses] Mendoza and Rondaris into
the picture on the purported ground that a fictitious sale of Times assets in their favor was consummated with the end in view of
frustrating the ends of justice and for purposes of evading compliance with the judgment is the height of judicial arrogance. [26] The Court
of Appeals believes otherwise and reckons that Times and Mencorp failed to adduce evidence to refute allegations of collusion between
them.
We have held that piercing the corporate veil is warranted only in cases when the separate legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, such that in the case of two corporations, the law will regard the corporations
as merged into one.[27] It may be allowed only if the following elements concur: (1) controlnot mere stock control, but complete
dominationnot only of finances, but of policy and business practice in respect to the transaction attacked; (2) such control must have
been used to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an
unjust act in contravention of a legal right; and (3) the said control and breach of duty must have proximately caused the injury or unjust
loss complained of.[28]
The following findings of the Labor Arbiter, which were cited and affirmed by the Court of Appeals, have not been refuted by
Times, to wit:
1. The sale was transferred to a corporation controlled by V. Mendoza, the daughter of respondent S. Rondaris of [Times]
where she is/was also a director, as proven by the articles of incorporation of [Mencorp];
2. All of the stockholders/incorporators of [Mencorp]: Reynaldo M. Mendoza, Virginia R. Mendoza, Vernon Gerard R.
Mendoza, Vivian Charity R. Mendoza, Vevey Rosario R. Mendoza are all relatives of respondent S. Rondaris;
3. The timing of the sale evidently was to negate the employees/complainants/members right to organization as it was
effected when their union (TEU) was just organized/requesting [Times] to bargain;
5. [Mencorp] never obtained a franchise since its supposed incorporation in 10 May 1994 but at present, all the buses of
[Times] are already being run/operated by respondent [Mencorp], the franchise of [Times] having been transferred to it.[29]
We uphold the findings of the labor arbiter and the Court of Appeals. The sale of Times franchise as well as most of its bus units to
a company owned by Rondaris daughter and family members, right in the middle of a labor dispute, is highly suspicious. It is evident
that the transaction was made in order to remove Times remaining assets from the reach of any judgment that may be rendered in the
unfair labor practice cases filed against it.
WHEREFORE, premises considered, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 75291
dated January 30, 2004 and its resolution dated May 24, 2004, are hereby AFFIRMED in toto.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Carpio, and Azcuna, JJ.
WILLIAM C. YAO, SR., LUISA C. YAO, G.R. No. 168306
RICHARD C. YAO, WILLIAM C. YAO JR.,
and ROGER C. YAO,
Petitioners, Present:

YNARES-SANTIAGO,
-versus Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO, and
THE PEOPLE OF THE PHILIPPINES, NACHURA, JJ.
PETRON CORPORATION and PILIPINAS
SHELL PETROLEUM CORP., and its
Principal, SHELL INTL PETROLEUM CO.
LTD.,
Respondents.
Promulgated:

June 19, 2007

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

DECISION

CHICO-NAZARIO, J.:

In this Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court, petitioners William C. Yao, Sr., Luisa C. Yao, Richard C. Yao,
William C. Yao, Jr., and Roger C. Yao pray for the reversal of the Decision dated 30 September 2004, [2] and Resolution dated 1 June 2005, of the
Court of Appeals in CA G.R. SP No. 79256, [3] affirming the two Orders, both dated 5 June 2003, of the Regional Trial Court (RTC), Branch
17, Cavite City, relative to Search Warrants No. 2-2003 and No. 3-2003. [4] In the said Orders, the RTC denied the petitioners Motion to Quash Search
Warrant[5] and Motion for the Return of the Motor Compressor and Liquified Petroleum Gas (LPG) Refilling Machine.[6]

The following are the facts:

 Petitioners are incorporators and officers of MASAGANA GAS CORPORATION (MASAGANA), an entity engaged in the refilling, sale
and distribution of LPG products. Private respondents Petron Corporation (Petron) and Pilipinas Shell Petroleum Corporation (Pilipinas Shell) are
two of the largest bulk suppliers and producers of LPG in the Philippines. Their LPG products are sold under the marks GASUL and SHELLANE,
respectively. Petron is the registered owner in the Philippines of the trademarks GASUL and GASUL cylinders used for its LPG products. It is the
sole entity in the Philippines authorized to allow refillers and distributors to refill, use, sell, and distribute GASUL LPG containers, products and its
trademarks. Pilipinas Shell, on the other hand, is the authorized user in the Philippines of the tradename, trademarks, symbols, or designs of its
principal, Shell International Petroleum Company Limited (Shell International), including the marks SHELLANE and SHELL device in connection
with the production, sale and distribution of SHELLANE LPGs. It is the only corporation in the Philippinesauthorized to allow refillers and
distributors to refill, use, sell and distribute SHELLANE LPG containers and products. [7]

On 3 April 2003, National Bureau of Investigation (NBI) agent Ritche N. Oblanca (Oblanca) filed two applications for search warrant with
the RTC, Branch 17, Cavite City, against petitioners and other occupants of the MASAGANA compound located at Governors
Drive, Barangay Lapidario, Trece Martires, Cavite City, for alleged violation of Section 155, in relation to Section 170 of Republic Act No. 8293,
otherwise known as The Intellectual Property Code of the Philippines. [8] The two applications for search warrant uniformly alleged that per
information, belief, and personal verification of Oblanca, the petitioners are actually producing, selling, offering for sale and/or distributing LPG
products using steel cylinders owned by, and bearing the tradenames, trademarks, and devices of Petron and Pilipinas Shell, without authority and in
violation of the rights of the said entities.

In his two separate affidavits[9] attached to the two applications for search warrant, Oblanca alleged:
1. [That] on 11 February 2003, the National Bureau of Investigation (NBI) received a letter-complaint from
Atty. Bienvenido I. Somera Jr. of Villaraza and Angangco, on behalf of among others, [Petron Corporation (PETRON)]
and Pilipinas Shell Petroleum Corporation (PSPC), the authorized representative of Shell International Petroleum Company
Limited (Shell International), requesting assistance in the investigation and, if warranted, apprehension and prosecution of certain
persons and/or establishments suspected of violating the intellectual property rights [of PETRON] and of PSPC and Shell
International.

2. [That] on the basis of the letter-complaint, I, together with Agent Angelo Zarzoso, was assigned as the
NBI agent on the case.

3. [That] prior to conducting the investigation on the reported illegal activities, he reviewed the
certificates of trademark registrations issued in favor of [PETRON], PSPC and Shell International as well as other documents
and other evidence obtained by the investigative agency authorized by [PETRON], PSPC and Shell International to investigate
and cause the investigation of persons and establishments violating the rights of [PETRON], PSPC and Shell International,
represented by Mr. Bernabe C. Alajar.Certified copies of the foregoing trademark registrations are attached hereto as Annexes
A to :E.

4. [That] among the establishments alleged to be unlawfully refilling and unlawfully selling and
distributing [Gasul LPG and] Shellane products is Masagana Gas Corporation (MASAGANA). Based on Securities and
Exchange Commission Records, MASAGANA has its principal office address at 9775 Kamagong Street, San
AntonioVillage, Makati, Metro Manila. The incorporators and directors of MASAGANA are William C. Yao, Sr., Luisa
C. Yao, Richard C. Yao, William C. Yao, Jr., and Roger C. Yao. x x x.

5. I confirmed that MASAGANA is not authorized to use [PETRON and] Shellane LPG cylinders and its
trademarks and tradenames or to be refillers or distributors of [PETRON and] Shellane LPGs.

6. I went to MASAGANAs refilling station located at Governors

Drive, Barangay Lapidario, Trece Martires City (sic), Cavite to investigate its activities. I confirmed that MASAGANA is
indeed engaged in the unauthorized refilling, sale and/or distribution of [Gasul and] Shellane LPG cylinders. I found out that
MASAGANA delivery trucks with Plate Nos. UMN-971, PEZ-612, WTE-527, XAM-970 and WFC-603 coming in and out of
the refilling plant located at the aforementioned address contained multi-brand LPG cylinders including
[Gasul and] Shellane. x x x.

7. [That] on 13 February 2003, I conducted a test-buy accompanied by Mr. Bernabe C. Alajar. After
asking the purpose of our visit, MASAGANAs guard allowed us to enter the MASAGANA refilling plant to purchase GASUL
and SHELLANE LPGs. x x x. We were issued an order slip which we presented to the cashiers office located near the refilling
station. After paying the amount x x x covering the cost of the cylinders and their contents, they were issued Cash Invoice No.
56210 dated February 13, 2003.We were, thereafter, assisted by the plant attendant in choosing empty GASUL
and SHELLANE 11 kg. cylinders, x x x were brought to the refilling station [and filled in their presence.] I noticed that no
valve seals were placed on the cylinders.

[That] while inside the refilling plant doing the test-buy, I noticed that stockpiles of multi-branded cylinders including GASUL
and SHELLANE cylinders were stored near the refilling station. I also noticed that the total land area of the refilling plant is
about 7,000 to 10,000 square meters. At the corner right side of the compound immediately upon entering the gate is a covered
area where the maintenance of the cylinders is taking place. Located at the back right corner of the compound are two storage
tanks while at the left side also at the corner portion is another storage tank. Several meters and fronting the said storage tank
is where the refilling station and the office are located. It is also in this storage tank where the elevated blue water tank
depicting MASAGANA CORP. is located. About eleven (11) refilling pumps and stock piles of multi-branded cylinders
including Shellane and GASUL are stored in the refilling station. At the left side of the entrance gate is the guard house with
small door for the pedestrians and at the right is a blue steel gate used for incoming and outgoing vehicles.
 8. [That] on 27 February 2003, I conducted another test-buy accompanied by
Mr. Bernabe C. Alajar. x x x After choosing the cylinders, we were issued an order slip which we presented to the
cashier. Upon payment, Cash Invoice No. 56398 was issued covering the cost of both GASUL and SHELLANE LPG cylinders
and their contents.x x x Both cylinders were refilled in our presence and no valve seals were placed on the cylinders.

Copies of the photographs of the delivery trucks, LPG cylinders and registration papers were also attached to the aforementioned affidavits.
[10]

Bernabe C. Alajar (Alajar), owner of Able Research and Consulting Services Inc., was hired by Petron and Pilipinas Shell to assist them in
carrying out their Brand Protection Program. Alajar accompanied Oblanca during the surveillance of and test-buys at the refilling plant of
MASAGANA. He also executed two separate affidavits corroborating the statements of Oblanca. These were annexed to the two applications for
search warrant.[11]

After conducting the preliminary examination on Oblanca and Alajar, and upon reviewing their sworn affidavits and other attached
documents, Judge MelchorQ.C. Sadang (Judge Sadang), Presiding Judge of the RTC, Branch 17, Cavite City, found probable cause and
correspondingly issued Search Warrants No. 2-2003 and No. 3-2003. [12] The search warrants commanded any peace officer to make an immediate
search of the MASAGANA compound and to seize the following items:
Under Search Warrant No. 2-2003:

a. Empty/filled LPG cylinder tanks/containers, bearing the tradename SHELLANE, SHELL (Device)
of Pilipinas Shell Petroleum Corporation and the trademarks and other devices owned by Shell International Petroleum
Company, Ltd.;

b. Machinery and/or equipment being used or intended to be used for the purpose of illegally refilling LPG cylinders
belonging to Pilipinas Shell Petroleum Corporation bearing the latters tradename as well as the marks belonging to
Shell International Petroleum Company, Ltd., enumerated hereunder:

1. Bulk/Bullet LPG storage tanks;

2. Compressor/s (for pneumatic refilling system);
3. LPG hydraulic pump/s;
4. LPG refilling heads/hoses and appurtenances or LPG filling assembly;
5. LPG pipeline gate valve or ball valve and handles and levers;
6. LPG weighing scales; and
7. Seals simulating the shell trademark.
c. Sales invoices, ledgers, journals, official receipts, purchase orders, and all other books of accounts, inventories and
documents pertaining to the production, sale and/or distribution of the aforesaid goods/products.

d. Delivery truck bearing Plate Nos. WTE-527, XAM-970 and WFC-603, hauling trucks, and/or other delivery trucks
or vehicles or conveyances being used or intended to be used for the purpose of selling and/or distributing the above-
mentioned counterfeit products.

Under Search Warrant No. 3-2003:

a. Empty/filled LPG cylinder tanks/containers, bearing Petron Corporations (Petron) tradename and
its tradename GASUL and other devices owned and/or used exclusively by Petron;

b. Machinery and/or equipment being used or intended to be used for the purpose of illegally refilling LPG cylinders
belonging to Petron enumerated hereunder;

1. Bulk/Bullet LPG storage tanks;

2. Compressor/s (for pneumatic filling system);
3. LPG hydraulic pump/s;
4. LPG filling heads/hoses and appurtenances or LPG filling assembly;
5. LPG pipeline gate valve or ball valve and handles levers;
6. LPG weighing scales; and
7. Seals bearing the Petron mark;

c. Sales invoices, ledgers, journals, official receipts, purchase orders, and all other books of accounts, inventories and
documents pertaining to the production, sale and/or distribution of the aforesaid goods/products; and

d. Delivery trucks bearing Plate Nos. UMN-971, PEZ-612 and WFC-603, hauling trucks, and/or other delivery trucks
or vehicles or conveyances being used for the purpose of selling and/or distributing the above-mentioned counterfeit
products.

Upon the issuance of the said search warrants, Oblanca and several NBI operatives immediately proceeded to the MASAGANA
compound and served the search warrants on petitioners. [13] After searching the premises of MASAGANA, the following articles described in
Search Warrant No. 2-2003 were seized:
 a. Thirty-eight (38) filled 11 kg. LPG cylinders, bearing the tradename of Pilipinas Shell Petroleum Corporation and
the trademarks and other devices owned by Shell International Petroleum Company, Ltd.;

b. Thirty-nine (39) empty 11 kg. LPG cylinders, bearing the tradename of Pilipinas Shell Petroleum Corporation and
the trademarks and other devices owned by Shell International Petroleum Company, Ltd.;

c. Eight (8) filled 50 kg. LPG cylinders, bearing the tradename of Pilipinas Shell Petroleum Corporation and the
trademarks and other devices owned by Shell International Petroleum Company, Ltd.;

d. Three (3) empty 50 kg. LPG cylinders, bearing the tradename of Pilipinas Shell Petroleum Corporation and the
trademarks and other devices owned by Shell International Petroleum Company, Ltd.;

e. One (1) set of motor compressor for filling system.

Pursuant to Search Warrant No. 3-2003, the following articles were also seized:

a. Six (6) filled 11 kg. LPG cylinders without seal, bearing Petrons tradename and its trademark GASUL and other
devices owned and/or used exclusively by Petron;

b. Sixty-three (63) empty 11 kg. LPG cylinders, bearing Petrons tradename and its trademark GASUL and other
devices owned and/or used exclusively by Petron;

c. Seven (7) tampered 11 kg. LPG cylinders, bearing Petrons tradename and its trademark GASUL and other devices
owned and/or used exclusively by Petron;

d. Five (5) tampered 50 kg. LPG cylinders, bearing Petrons tradename and its trademark GASUL and other devices
owned and/or used exclusively by Petron with tampered GASUL logo;

e. One (1) set of motor compressor for filling system; and

f. One (1) set of LPG refilling machine.

On 22 April 2003, petitioners filed with the RTC a Motion to Quash Search Warrants No. 2-2003 and No. 3-2003 [14] on the following
grounds:

1. There is no probable cause for the issuance of the search warrant and the conditions for the issuance of
a search warrant were not complied with;

2. Applicant NBI Agent Ritchie N. Oblanca and his witness Bernabe C. Alajar do not have any authority
to apply for a search warrant. Furthermore, they committed perjury when they alleged in their sworn
statements that they conducted a test-buy on two occasions;

3. The place to be searched was not specified in the Search Warrant as the place has an area of 10,000
square meters (one hectare) more or less, for which reason the place to be searched must be indicated with
particularity;

4. The search warrant is characterized as a general warrant as the items to be seized as mentioned in the
search warrant are being used in the conduct of the lawful business of respondents and the same are not
being used in refilling Shellane and Gasul LPGs.

On 30 April 2003, MASAGANA, as third party claimant, filed with the RTC a Motion for the Return of Motor Compressor and LPG
Refilling Machine.[15]It claimed that it is the owner of the said motor compressor and LPG refilling machine; that these items were used in the
operation of its legitimate business; and that their seizure will jeopardize its business interests.

On 5 June 2003, the RTC issued two Orders, one of which denied the petitioners Motion to Quash Search Warrants No. 2-2003 and No.
3-2003, and the other one also denied the Motion for the Return of Motor Compressor and LPG Refilling Machine of MASAGANA, for lack of
merit.[16]

With respect to the Order denying the petitioners motion to quash Search Warrants No. 2-2003 and No. 3-2003, the RTC held that based
on the testimonies of Oblanca and Alajar, as well as the documentary evidence consisting of receipts, photographs, intellectual property and
corporate registration papers, there is probable cause to believe that petitioners are engaged in the business of refilling or using cylinders which
bear the trademarks or devices of Petron and PilipinasShell in the place sought to be searched and that such activity is probably in violation of
Section 155 in relation to Section 170 of Republic Act No. 8293.
 It also ruled that Oblanca and Alajar had personal knowledge of the acts complained of since they were the ones who monitored the
activities of and conducted test-buys on MASAGANA; that the search warrants in question are not general warrants because the compound
searched are solely used and occupied by MASAGANA, and as such, there was no need to particularize the areas within the compound that would
be searched; and that the items to be seized in the subject search warrants were sufficiently described with particularity as the same was limited to
cylinder tanks bearing the trademarks GASUL and SHELLANE.

As regards the Order denying the motion of MASAGANA for the return of its motor compressor and LPG refilling machine, the RTC
resolved that MASAGANA cannot be considered a third party claimant whose rights were violated as a result of the seizure since the evidence
disclosed that petitioners are stockholders of MASAGANA and that they conduct their business through the same juridical entity. It maintained
that to rule otherwise would result in the misapplication and debasement of the veil of corporate fiction. It also stated that the veil of corporate
fiction cannot be used as a refuge from liability.

Further, the RTC ratiocinated that ownership by another person or entity of the seized items is not a ground to order its return; that in
seizures pursuant to a search warrant, what is important is that the seized items were used or intended to be used as means of committing the
offense complained of; that by its very nature, the properties sought to be returned in the instant case appear to be related to and intended for the
illegal activity for which the search warrants were applied for; and that the items seized are instruments of an offense.

Petitioners filed Motions for Reconsideration of the assailed Orders, [17] but these were denied by the RTC in its Order dated 21 July
2003 for lack of compelling reasons.[18]

Subsequently, petitioners appealed the two Orders of the RTC to the Court of Appeals via a special civil action for certiorari under Rule
65 of the Rules of Court.[19] On 30 September 2004, the Court of Appeals promulgated its Decision affirming the Orders of the RTC. [20] It adopted
in essence the bases and reasons of the RTC in its two Orders. The decretal portion thereof reads:

Based on the foregoing, this Court finds no reason to disturb the assailed Orders of the respondent judge. Grave abuse
of discretion has not been proven to exist in this case.

WHEREFORE, the petition is hereby DISMISSED for lack of merit. The assailed orders both dated June 5, 2003 are
hereby AFFIRMED.

Petitioners filed a Motion for Reconsideration [21] of the Decision of the Court of Appeals, but this was denied in its Resolution dated 1
June 2005 for lack of merit.[22]

Petitioners filed the instant petition on the following grounds:

I.

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PRESIDING JUDGE
OF RTC CAVITE CITY HAD SUFFICIENT BASIS IN DECLARING THE EXISTENCE OF PROBABLE CAUSE;

II.

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT NBI AGENT (RITCHIE OBLANCA) CAN APPLY
FOR THE SEARCH WARRANTS NOTHWITHSTANDING HIS LACK OF AUTHORITY;

III.

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE REQUIREMENT OF GIVING A PARTICULAR
DESCRIPTION OF THE PLACE TO BE SEARCHED WAS COMPLIED WITH;

IV.

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE APPLICATIONS AND THE SEARCH
WARRANTS THEMSELVES SHOW NO AMBIGUITY OF THE ITEMS TO BE SEIZED;

V.

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE COMPLAINT IS DIRECTED AGAINST
MASAGANA GAS CORPORATION, ACTING THROUGH ITS OFFICERS AND DIRECTORS, HENCE MASAGANA GAS
CORPORATION MAY NOT BE CONSIDERED AS THIRD PARTY CLAIMANT WHOSE RIGHTS WERE VIOLATED AS A
RESULT OF THE SEIZURE.[23]

Apropos the first issue, petitioners allege that Oblanca and Alajar had no personal knowledge of the matters on which they testified;
that Oblanca and Alajarlied to Judge Sadang when they stated under oath that they were the ones who conducted the test-buys on two different
occasions; that the truth of the matter is that Oblanca and Alajar never made the purchases personally; that the transactions were undertaken by other
persons namely, Nikko Javier and G. Villanueva as shown in the Entry/Exit Slips of MASAGANA; and that even if it were true
that Oblanca and Alajar asked Nikko Javier and G. Villanueva to conduct the test-buys, the information relayed by the latter two to the former was
mere hearsay.[24]

Petitioners also contend that if Oblanca and Alajar had indeed used different names in purchasing the LPG cylinders, they should have
mentioned it in their applications for search warrants and in their testimonies during the preliminary examination; that it was only after the petitioners
had submitted to the RTC the entry/exit slips showing different personalities who made the purchases that Oblanca and Alajar explained that they had
to use different names in order to avoid detection; that Alajar is not connected with either of the private respondents; that Alajar was not in a position
to inform the RTC as to the distinguishing trademarks of SHELLANE and GASUL; that Oblanca was not also competent to testify on the marks
allegedly infringed by petitioners; that Judge Sadang failed to ask probing questions on the distinguishing marks of SHELLANE and GASUL; that
the findings of the Brand Protection Committee of Pilipinas Shell were not submitted nor presented to the RTC; that although
Judge Sadang examined Oblanca and Alajar, the former did not ask exhaustive questions; and that the questions Judge Sadangasked were merely
rehash of the contents of the affidavits of Oblanca and Alajar.[25]

These contentions are devoid of merit.

Article III, Section 2, of the present Constitution states the requirements before a search warrant may be validly issued, to wit:

Section 2. The right of the people to be secure in their persons, houses, papers, and effects against unreasonable
searches and seizures of whatever nature and for any purpose shall be inviolable, and no search warrant or warrant of
arrest shall issue except upon probable cause to be determined personally 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. (emphasis supplied).

Section 4 of Rule 126 of the Revised Rules on Criminal Procedure, provides with more particularity the requisites in issuing a search
warrant, viz:

SEC. 4. Requisites for issuing search warrant. A search warrant shall not issue except upon probable cause in
connection with one specific offense to be determined personally 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 things to be seized
which may be anywhere in the Philippines.

According to the foregoing provisions, a search warrant can be issued only upon a finding of probable cause. Probable cause for search
warrant means such facts and circumstances which would lead a reasonably discreet and prudent man to believe that an offense has been committed
and that the objects sought in connection with the offense are in the place to be searched. [26]

The facts and circumstances being referred thereto pertain to facts, data or information personally known to the applicant and the witnesses
he may present.[27]The applicant or his witnesses must have personal knowledge of the circumstances surrounding the commission of the offense
being complained of. Reliable information is insufficient. Mere affidavits are not enough, and the judge must depose in writing the complainant and
his witnesses.[28]

Section 155 of Republic Act No. 8293 identifies the acts constituting trademark infringement, thus:

SEC. 155. Remedies; Infringement. Any person who shall, without the consent of the owner of the registered mark:

155.1. Use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark or the same
container or a dominant feature thereof in connection with the sale, offering for sale, distribution, advertising of any goods or
services including other preparatory steps necessary to carry out the sale of any goods or services on or in connection with which
such use is likely to cause confusion, or to cause mistake, or to deceive; or

155.2. Reproduce, counterfeit, copy or colorably imitate a registered mark or a dominant feature thereof and apply such
reproduction, counterfeit, copy or colorable imitation to labels, signs, prints, packages, wrappers, receptacles or advertisements
intended to be used in commerce upon or in connection with the sale, offering for sale, distribution, or advertising of goods or
services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive, shall be liable in
a civil action for infringement by the registrant for the remedies hereinafter set forth: Provided, That the infringement takes place
at the moment any of the acts stated in Subsection 155.1 or this subsection are committed regardless of whether there is actual
sale of goods or services using the infringing material.

As can be gleaned in Section 155.1, mere unauthorized use of a container bearing a registered trademark in connection with the sale,
distribution or advertising of goods or services which is likely to cause confusion, mistake or deception among the buyers/consumers can be
considered as trademark infringement.

In his sworn affidavits,[29] Oblanca stated that before conducting an investigation on the alleged illegal activities of MASAGANA, he
reviewed the certificates of trademark registrations issued by the Philippine Intellectual Property Office in favor of Petron and Pilipinas Shell; that he
confirmed from Petron and PilipinasShell that MASAGANA is not authorized to sell, use, refill or distribute GASUL and SHELLANE LPG cylinder
containers; that he and Alajar monitored the activities of MASAGANA in its refilling plant station located within its compound at Governors
Drive, Barangay Lapidario, Trece Martires, Cavite City; that, using different names, they conducted two test-buys therein where they purchased LPG
cylinders bearing the trademarks GASUL and SHELLANE; that the said GASUL and SHELLANE LPG cylinders were refilled in their presence by
the MASAGANA employees; that while they were inside the MASAGANA compound, he noticed stock piles of multi-branded cylinders including
GASUL and SHELLANE LPG cylinders; and that they observed delivery trucks loaded with GASUL and SHELLANE LPG cylinders coming in and
out of the MASAGANA compound and making deliveries to various retail outlets. These allegations were corroborated by Alajar in his separate
affidavits.

In support of the foregoing statements, Oblanca also submitted the following documentary and object evidence:

1. Certified true copy of the Certificate of Registration No. 44046 for SHELL (DEVICE) in the name of Shell
International;

2. Certified true copy of the Certificate of Registration No. 41789 for SHELL (DEVICE) in the name of Shell
International;

3. Certified true copy of the Certificate of Registration No. 37525 for SHELL (DEVICE) in the name of Shell
International;

4. Certified true copy of the Certificate of Registration No. R-2813 for SHELL in the name of Shell International;

5. Certified true copy of the Certificate of Registration No. 31443 for SHELLANE in the name of Shell International;

6. Certified true copy of the Certificate of Registration No. 57945 for the mark GASUL in the name of Petron;

7. Certified true copy of the Certificate of Registration No. C-147 for GASUL CYLINDER CONTAINING
LIQUEFIED PETROLEUM GAS in the name of Petron;

8. Certified true copy of the Certificate of Registration No. 61920 for the mark GASUL AND DEVICE in the name
of Petron;

9. Certified true copy of the Articles of Incorporation of Masagana;

10. Certified true copy of the By-laws of Masagana;

11. Certified true copy of the latest General Information Sheet of Masagana on file with the Securities and Exchange
Commission;

12. Pictures of delivery trucks coming in and out of Masagana while it delivered Gasul and Shellane LPG;

13. Cash Invoice No. 56210 dated 13 February 2003 issued by Masagana for the Gasul and Shellane LPG purchased by
Agent Oblanca and witness Alajar;

14. Pictures of the Shellane and Gasul LPGs covered by Cash Invoice No. 56210 purchased from Masagana by
Agent Oblanca and witness Alajar;

15. Cash Invoice No. 56398 dated 27 February 2003 issued by Masagana for the Gasul and Shellane LPG purchased by
Agent Oblanca and witness Alajar; and

16. Pictures of the Shellane and Gasul LPGs covered by Cash Invoice No. 56398 purchased from Masagana by
Agent Oblanca and witness Alajar.[30]

Extant from the foregoing testimonial, documentary and object evidence is that Oblanca and Alajar have personal knowledge of the fact
that petitioners, through MASAGANA, have been using the LPG cylinders bearing the marks GASUL and SHELLANE without permission
from Petron and Pilipinas Shell, a probable cause for trademark infringement. Both Oblanca and Alajar were clear and insistent that they were the
very same persons who monitored the activities of MASAGANA; that they conducted test-buys thereon; and that in order to avoid suspicion, they
used different names during the test-buys. They also personally witnessed the refilling of LPG cylinders bearing the marks GASUL and SHELLANE
inside the MASAGANA refilling plant station and the deliveries of these refilled containers to some outlets using mini-trucks.

Indeed, the aforesaid facts and circumstances are sufficient to establish probable cause. It should be borne in mind that the determination of
probable cause does not call for the application of the rules and standards of proof that a judgment of conviction requires after trial on the merits. As
the term implies, probable cause is concerned with probability, not absolute or even moral certainty. The standards of judgment are those of a
reasonably prudent man, not the exacting calibrations of a judge after a full blown trial. [31]

The fact that Oblanca and Alajar used different names in the purchase receipts do not negate personal knowledge on their part. It is a
common practice of the law enforcers such as NBI agents during covert investigations to use different names in order to conceal their true identities.
This is reasonable and understandable so as not to endanger the life of the undercover agents and to facilitate the lawful arrest or apprehension of
suspected violators of the law.
 Petitioners contention that Oblanca and Alajar should have mentioned the fact that they used different names in their respective affidavits
and during the preliminary examination is puerile. The argument is too vacuous to merit serious consideration. There is nothing in the provisions of
law concerning the issuance of a search warrant which directly or indirectly mandates that the applicant of the search warrant or his witnesses should
state in their affidavits the fact that they used different names while conducting undercover investigations, or to divulge such fact during the
preliminary examination. In the light of other more material facts which needed to be established for a finding of probable cause, it is not difficult to
believe that Oblanca and Alajar failed to mention that they used aliases in entering the MASAGANA compound due to mere oversight.

It cannot be gainfully said that Oblanca and Alajar are not competent to testify on the trademarks infringed by the petitioners. As earlier
discussed, Oblancadeclared under oath that before conducting an investigation on the alleged illegal activities of MASAGANA, he reviewed the
certificates of trademark registrations issued by the Philippine Intellectual Property Office in favor of Petron and Pilipinas Shell. These certifications
of trademark registrations were attached by Oblanca in his applications for the search warrants. Alajar, on the other hand, works as a private
investigator and, in fact, owns a private investigation and research/consultation firm. His firm was hired and authorized, pursuant to the Brand
Protection Program of Petron and Pilipinas Shell, to verify reports that MASAGANA is involved in the illegal sale and refill of GASUL and
SHELLANE LPG cylinders.[32] As part of the job, he studied and familiarized himself with the registered trademarks of GASUL and SHELLANE,
and the distinct features of the LPG cylinders bearing the same trademarks before conducting surveillance and test-buys on MASAGANA. [33] He also
submitted to Oblanca several copies of the same registered trademark registrations and accompanied Oblanca during the surveillance and test-buys.

As to whether the form and manner of questioning made by Judge Sadang complies with the requirements of law, Section 5 of Rule 126 of
the Revised Rules on Criminal Procedure, prescribes the rules in the examination of the complainant and his witnesses when applying for search
warrant, to wit:

SEC. 5. Examination of complainant; record.- The judge must, before issuing the warrant, personally examine in the
form of searching questions and answers, in writing under oath, the complainant and the witnesses he may produce on facts
personally known to them and attach to the record their sworn statements, together with the affidavits submitted.

The searching questions propounded to the applicant and the witnesses depend largely on the discretion of the judge. Although there is no
hard-andfast rule governing how a judge should conduct his investigation, it is axiomatic that the examination must be probing and exhaustive, not
merely routinary, general, peripheral, perfunctory or pro forma. The judge must not simply rehash the contents of the affidavit but must make his own
inquiry on the intent and justification of the application. [34]

After perusing the Transcript of Stenographic Notes of the preliminary examination, we found the questions of Judge Sadang to be
sufficiently probing, not at all superficial and perfunctory. [35] The testimonies of Oblanca and Alajar were consistent with each other and their
narration of facts was credible. As correctly found by the Court of Appeals:

This Court is likewise not convinced that respondent Judge failed to ask probing questions in his determination of the
existence of probable cause. This Court has thoroughly examined the Transcript of Stenographic Notes taken during the
investigation conducted by the respondent Judge and found that respondent Judge lengthily inquired into the circumstances of the
case. For instance, he required the NBI agent to confirm the contents of his affidavit, inquired as to where the test-buys were
conducted and by whom, verified whether PSPC and PETRON have registered trademarks or tradenames, required the NBI
witness to explain how the test-buys were conducted and to describe the LPG cylinders purchased from Masagana Gas
Corporation, inquired why the applications for Search Warrant were filed in Cavite City considering that Masagana Gas
Corporation was located in Trece Martires, Cavite, inquired whether the NBI Agent has a sketch of the place and if there was any
distinguishing sign to identify the place to be searched, and inquired about their alleged tailing and monitoring of the delivery
trucks. x x x.[36]

Since probable cause is dependent largely on the opinion and findings of the judge who conducted the examination and who had the
opportunity to question the applicant and his witnesses, the findings of the judge deserves great weight. The reviewing court can overturn such
findings only upon proof that the judge disregarded the facts before him or ignored the clear dictates of reason. [37] We find no compelling reason to
disturb Judge Sadangs findings herein.

Anent the second issue, petitioners argue that Judge Sadang failed to require Oblanca to show his authority to apply for search warrants;
that Oblanca is a member of the Anti-Organized Crime and not that of the Intellectual Property Division of the NBI; that all complaints for
infringement should be investigated by the Intellectual Property Division of the NBI; that it is highly irregular that an agent not assigned to the
Intellectual Property Division would apply for a search warrant and without authority from the NBI Director; that the alleged letter-complaint of
Atty. Bienvenido Somera, Jr. of Villaraza and Angangco Law Office was not produced in court; that Judge Sadang did not require Oblanca to
produce the alleged letter-complaint which is material and relevant to the determination of the existence of probable cause; and
that Petron and Pilipinas Shell, being two different corporations, should have issued a board resolution authorizing the Villaraza and Angangco Law
Office to apply for search warrant in their behalf. [38]

We reject these protestations.

The authority of Oblanca to apply for the search warrants in question is clearly discussed and explained in his affidavit, viz:

[That] on 11 February 2003, the National Bureau of Investigation (NBI) received a letter-complaint from
Atty. Bienvenido I. Somera, Jr. of Villaraza and Angangco, on behalf of among others, Petron Corporation (PETRON)
[and Pilipinas Shell Petroleum Corporation (PSPC), the authorized representative of Shell International Petroleum Company
Limited (SHELL INTERNATIONAL)] requesting assistance in the investigation and, if warranted, apprehension and prosecution
 of certain persons and/or establishments suspected of violating the intellectual property rights of PETRON [and of PSPC and
Shell International.]

11. [That] on the basis of the letter-complaint, I, together with Agent Angelo Zarzoso, was assigned as the NBI agent on the case.
[39]

The fact that Oblanca is a member of the Anti-Organized Crime Division and not that of the Intellectual Property Division does not
abrogate his authority to apply for search warrant. As aptly stated by the RTC and the Court of Appeals, there is nothing in the provisions on search
warrant under Rule 126 of the Revised Rules on Criminal Procedure, which specifically commands that the applicant law enforcer must be a member
of a division that is assigned or related to the subject crime or offense before the application for search warrant may be acted upon. The petitioners
did not also cite any law, rule or regulation mandating such requirement. At most, petitioners may only be referring to the administrative organization
and/or internal rule or practice of the NBI. However, not only did petitioners failed to establish the existence thereof, but they also did not prove that
such administrative organization and/or internal rule or practice are inviolable.

Neither is the presentation of the letter-complaint of Atty. Somera and board resolutions from Petron and Pilipinas Shell required or
necessary in determining probable cause. As heretofore discussed, the affidavits of Oblanca and Alajar, coupled with the object and documentary
evidence they presented, are sufficient to establish probable cause. It can also be presumed that Oblanca, as an NBI agent, is a public officer who had
regularly performed his official duty. [40] He would not have initiated an investigation on MASAGANA without a proper complaint. Furthermore,
Atty. Somera did not step up to deny his letter-complaint.

Regarding the third issue, petitioners posit that the applications for search warrants of Oblanca did not specify the particular area to be
searched, hence, giving the raiding team wide latitude in determining what areas they can search. They aver that the search warrants were general
warrants, and are therefore violative of the Constitution. Petitioners also assert that since the MASAGANA compound is about 10,000.00 square
meters with several structures erected on the lot, the search warrants should have defined the areas to be searched.

The long standing rule is that a description of the place to be searched is sufficient if the officer with the warrant can, with reasonable
effort, ascertain and identify the place intended and distinguish it from other places in the community. Any designation or description known to the
locality that points out the place to the exclusion of all others, and on inquiry leads the officers unerringly to it, satisfies the constitutional
requirement.[41]

Moreover, in the determination of whether a search warrant describes the premises to be searched with sufficient particularity, it has been
held that the executing officers prior knowledge as to the place intended in the warrant is relevant. This would seem to be especially true where the
executing officer is the affiant on whose affidavit the warrant had been issued, and when he knows that the judge who issued the warrant intended the
compound described in the affidavit.[42]

The search warrants in question commanded any peace officer to make an immediate search on MASAGANA compound located at
Governors Drive, BarangayLapidario, Trece Martires, Cavite City. It appears that the raiding team had ascertained and reached MASAGANA
compound without difficulty since MASAGANA does not have any other offices/plants in Trece Martires, Cavite City. Moreover, Oblanca, who was
with the raiding team, was already familiar with the MASAGANA compound as he and Alajar had monitored and conducted test-buys thereat.

Even if there are several structures inside the MASAGANA compound, there was no need to particularize the areas to be searched because,
as correctly stated by Petron and Pilipinas Shell, these structures constitute the essential and necessary components of the petitioners business and
cannot be treated separately as they form part of one entire compound. The compound is owned and used solely by MASAGANA. What the case law
merely requires is that, the place to be searched can be distinguished in relation to the other places in the community. Indubitably, this requisite was
complied with in the instant case.

As to the fourth issue, petitioners asseverate that the search warrants did not indicate with particularity the items to be seized since the
search warrants merely described the items to be seized as LPG cylinders bearing the trademarks GASUL and SHELLANE without specifying their
sizes.

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; 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; or when the things described are limited to those which bear direct relation to the offense for which the warrant is being issued. [43]

While it is true that the property to be seized under a warrant must be particularly described therein and no other property can be
taken thereunder, yet the description is required to be specific only in so far as the circumstances will ordinarily allow. The law does not require that
the things to be seized must be described in precise and minute details as to leave no room for doubt on the part of the searching authorities;
otherwise it would be virtually impossible for the applicants to obtain a search warrant as they would not know exactly what kind of things they are
looking for. Once described, however, the articles subject of the search and seizure need not be so invariant as to require absolute concordance, in our
view, between those seized and those described in the warrant. Substantial similarity of those articles described as a class or specie would suffice. [44]

Measured against this standard, we find that the items to be seized under the search warrants in question were sufficiently described with
particularity. The articles to be confiscated were restricted to the following: (1) LPG cylinders bearing the trademarks GASUL and SHELLANE; (2)
Machines and equipments used or intended to be used in the illegal refilling of GASUL and SHELLANE cylinders. These machines were also
specifically enumerated and listed in the search warrants; (3) Documents which pertain only to the production, sale and distribution of the GASUL
and SHELLANE LPG cylinders; and (4) Delivery trucks bearing Plate Nos. WTE-527, XAM-970 and WFC-603, hauling trucks, and/or other
delivery trucks or vehicles or conveyances being used or intended to be used for the purpose of selling and/or distributing GASUL and SHELLANE
LPG cylinders.[45]
 Additionally, since the described items are clearly limited only to those which bear direct relation to the offense, i.e., violation of section
155 of Republic Act No. 8293, for which the warrant was issued, the requirement of particularity of description is satisfied.

Given the foregoing, the indication of the accurate sizes of the GASUL and SHELLANE LPG cylinders or tanks would be unnecessary.

Finally, petitioners claim that MASAGANA has the right to intervene and to move for the return of the seized items; that the items seized
by the raiding team were being used in the legitimate business of MASAGANA; that the raiding team had no right to seize them under the guise that
the same were being used in refilling GASUL and SHELLANE LPG cylinders; and that there being no action for infringement filed against them
and/or MASAGANA from the seizure of the items up to the present, it is only fair that the seized articles be returned to the lawful owner in
accordance with Section 20 of A.M. No. 02-1-06-SC.

It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders,
directors or officers. However, 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. [46] In other words, the law will
not recognize the separate corporate existence if the corporation is being used pursuant to the foregoing unlawful objectives. This non-recognition is
sometimes referred to as the doctrine of piercing the veil of corporate entity or disregarding the fiction of corporate entity. Where the separate
corporate entity is disregarded, the corporation will be treated merely as an association of persons and the stockholders or members will be
considered as the corporation, that is, liability will attach personally or directly to the officers and stockholders. [47]

As we now find, the petitioners, as directors/officers of MASAGANA, are utilizing the latter in violating the intellectual property rights
of Petron and PilipinasShell. Thus, petitioners collectively and MASAGANA should be considered as one and the same person for liability purposes.
Consequently, MASAGANAs third party claim serves no refuge for petitioners.

Even if we were to sustain the separate personality of MASAGANA from that of the petitioners, the effect will be the same. The law does
not require that the property to be seized should be owned by the person against whom the search warrants is directed. Ownership, therefore, is of no
consequence, and it is sufficient that the person against whom the warrant is directed has control or possession of the property sought to be seized.
[48]
Hence, even if, as petitioners claimed, the properties seized belong to MASAGANA as a separate entity, their seizure pursuant to the search
warrants is still valid.

Further, it is apparent that the motor compressor, LPG refilling machine and the GASUL and SHELL LPG cylinders seized were
the corpus delicti, the body or substance of the crime, or the evidence of the commission of trademark infringement. These were the very instruments
used or intended to be used by the petitioners in trademark infringement. It is possible that, if returned to MASAGANA, these items will be used
again in violating the intellectual property rights of Petron and Pilipinas Shell.[49] Thus, the RTC was justified in denying the petitioners motion for
their return so as to prevent the petitioners and/or MASAGANA from using them again in trademark infringement.

Petitioners reliance on Section 20 of A.M. No. 02-1-06-SC, [50] is not tenable. As correctly observed by the Solicitor General, A.M. 02-1-06-
SC is not applicable in the present case because it governs only searches and seizures in civil actions for infringement of intellectual property rights.
[51]
The offense complained of herein is for criminal violation of Section 155 in relation to Section 170 [52] of Republic Act No. 8293.

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 79256, dated 30
September 2004 and 1 June 2005, respectively, are hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

C. ARNOLD HALL and BRADLEY P. HALL, petitioners,

vs.
EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED BROWN, EMMA BROWN, HIPOLITA CAPUCIONG, in
his capacity as receiver of the Far Eastern Lumber and Commercial Co., Inc.,respondents.
Claro M. Recto for petitioners.
Ramon Diokno and Jose W. Diokno for respondents.
BENGZON, J.:
This is petition to set aside all the proceedings had in civil case No. 381 of the Court of First Instance of Leyte and to enjoin the
respondent judge from further acting upon the same.
Facts: (1) on May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the respondents Fred Brown, Emma Brown, Hipolita
D. Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the article of incorporation of the Far Eastern Lumber and
Commercial Co., Inc., organized to engage in a general lumber business to carry on as general contractors, operators and managers,
etc. Attached to the article was an affidavit of the treasurer stating that 23,428 shares of stock had been subscribed and fully paid with
certain properties transferred to the corporation described in a list appended thereto.
(2) Immediately after the execution of said articles of incorporation, the corporation proceeded to do business with the adoption of by-
laws and the election of its officers.
(3) On December 2, 1947, the said articles of incorporation were filed in the office of the Securities and Exchange Commissioner, for
the issuance of the corresponding certificate of incorporation.
(4) On March 22, 1948, pending action on the articles of incorporation by the aforesaid governmental office, the respondents Fred
Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed before the Court of First Instance of Leyte the civil case
numbered 381, entitled "Fred Brown et al. vs. Arnold C. Hall et al.", alleging among other things that the Far Eastern Lumber and
Commercial Co. was an unregistered partnership; that they wished to have it dissolved because of bitter dissension among the
members, mismanagement and fraud by the managers and heavy financial losses.
(5) The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss, contesting the court's jurisdiction
and the sufficiently of the cause of action.
(6) After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company; and at the request of plaintiffs,
appointed of the properties thereof, upon the filing of a P20,000 bond.
(7) The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the receiver, but the respondent judge
refused to accept the offer and to discharge the receiver. Whereupon, the present special civil action was instituted in this court. It is
based upon two main propositions, to wit:
(a) The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company, because it being a de facto corporation,
dissolution thereof may only be ordered in a quo warranto proceeding instituted in accordance with section 19 of the Corporation Law.
(b) Inasmuch as respondents Fred Brown and Emma Brown had signed the article of incorporation but only a partnership.
Discussion: The second proposition may at once be dismissed. All the parties are informed that the Securities and Exchange
Commission has not, so far, issued the corresponding certificate of incorporation. All of them know, or sought to know, that the
personality of a corporation begins to exist only from the moment such certificate is issued — not before (sec. 11, Corporation Law).
The complaining associates have not represented to the others that they were incorporated any more than the latter had made similar
representations to them. And as nobody was led to believe anything to his prejudice and damage, the principle of estoppel does not
apply. Obviously this is not an instance requiring the enforcement of contracts with the corporation through the rule of estoppel.
The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern Lumber and Commercial Co., is a de
facto corporation, section 19 of the Corporation Law applies, and therefore the court had not jurisdiction to take cognizance of said civil
case number 381. Section 19 reads as follows:
. . . The due incorporation of any corporations claiming in good faith to be a corporation under this Act and its right to exercise
corporate powers shall not be inquired into collaterally in any private suit to which the corporation may be a party, but such
inquiry may be had at the suit of the Insular Government on information of the Attorney-General.
There are least two reasons why this section does not govern the situation. Not having obtained the certificate of incorporation, the Far
Eastern Lumber and Commercial Co. — even its stockholders — may not probably claim "in good faith" to be a corporation.
Under our statue it is to be noted (Corporation Law, sec. 11) that it is the issuance of a certificate of incorporation by the
Director of the Bureau of Commerce and Industry which calls a corporation into being. The immunity if collateral attack is
granted to corporations "claiming in good faith to be a corporation under this act." Such a claim is compatible with the
existence of errors and irregularities; but not with a total or substantial disregard of the law. Unless there has been an evident
attempt to comply with the law the claim to be a corporation "under this act" could not be made "in good faith." (Fisher on the
Philippine Law of Stock Corporations, p. 75. See also Humphreys vs. Drew, 59 Fla., 295; 52 So., 362.)
Second, this is not a suit in which the corporation is a party. This is a litigation between stockholders of the alleged corporation, for the
purpose of obtaining its dissolution. Even the existence of a de jure corporation may be terminated in a private suit for its dissolution
between stockholders, without the intervention of the state.
There might be room for argument on the right of minority stockholders to sue for dissolution;1 but that question does not affect the
court's jurisdiction, and is a matter for decision by the judge, subject to review on appeal. Whkch brings us to one principal reason why
this petition may not prosper, namely: the petitioners have their remedy by appealing the order of dissolution at the proper time.
There is a secondary issue in connection with the appointment of a receiver. But it must be admitted that receivership is proper in
proceedings for dissolution of a company or corporation, and it was no error to reject the counter-bond, the court having declared the
dissolution. As to the amount of the bond to be demanded of the receiver, much depends upon the discretion of the trial court, which in
this instance we do not believe has been clearly abused.
Judgment: The petition will, therefore, be dismissed, with costs. The preliminary injunction heretofore issued will be dissolved.
Ozaeta, Pablo, Tuason, Montemayor, and Reyes, JJ., concur.
SEVENTH DAY ADVENTIST G.R. No. 150416
CONFERENCE CHURCH OF
SOUTHERN PHILIPPINES, INC.,
and/or represented by MANASSEH
C. ARRANGUEZ, BRIGIDO P.
GULAY, FRANCISCO M. LUCENARA,
DIONICES O. TIPGOS, LORESTO
C. MURILLON, ISRAEL C. NINAL,
GEORGE G. SOMOSOT, JESSIE
T. ORBISO, LORETO PAEL and
JOEL BACUBAS,
Petitioners, Present:

PUNO, J., Chairperson,

SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and
GARCIA, JJ.

NORTHEASTERN MINDANAO
MISSION OF SEVENTH DAY
ADVENTIST, INC., and/or
represented by JOSUE A. LAYON,
WENDELL M. SERRANO, FLORANTE
P. TY and JETHRO CALAHAT
and/or SEVENTH DAY ADVENTIST
CHURCH [OF] NORTHEASTERN
MINDANAO MISSION,*
Respondents. Promulgated:
July 21, 2006

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

DECISION

CORONA, J.:

This petition for review on certiorari assails the Court of Appeals (CA) decision [1] and resolution[2] in CA-G.R. CV No. 41966
affirming, with modification, the decision of the Regional Trial Court (RTC) of Bayugan, Agusan del Sur, Branch 7 in Civil
Case No. 63.

This case involves a 1,069 sq. m. lot covered by Transfer Certificate of Title (TCT) No. 4468
in Bayugan, Agusan del Sur originally owned by Felix Cosio and his wife, Felisa Cuysona.

On April 21, 1959, the spouses Cosio donated the land to the South Philippine Union Mission of Seventh Day
Adventist Church of Bayugan Esperanza, Agusan (SPUM-SDA Bayugan).[3] Part of the deed of donation read:

KNOW ALL MEN BY THESE PRESENTS:

That we Felix Cosio[,] 49 years of age[,] and Felisa Cuysona[,] 40 years of age, [h]usband and wife, both are
citizen[s] of the Philippines, and resident[s] with post office address in the Barrio of Bayugan, Municipality of
Esperanza, Province of Agusan, Philippines, do hereby grant, convey and forever quit claim by way of Donation or
gift unto the South Philippine [Union] Mission of Seventh Day Adventist Church of Bayugan, Esperanza, Agusan, all
the rights, title, interest, claim and demand both at law and as well in possession as in expectancy of in and to all the
place of land and portion situated in the Barrio of Bayugan, Municipality of Esperanza, Province of Agusan,
Philippines, more particularly and bounded as follows, to wit:

1. a parcel of land for Church Site purposes only.

2. situated [in Barrio Bayugan, Esperanza].
3. Area: 30 meters wide and 30 meters length or 900 square meters.
4. Lot No. 822-Pls-225. Homestead Application No. V-36704, Title No. P-285.
5. Bounded Areas
North by National High Way; East by Bricio Gerona; South by Serapio Abijaron and West by Feliz Cosio xxx. [4]

The donation was allegedly accepted by one Liberato Rayos, an elder of the Seventh Day Adventist Church, on behalf of
the donee.

Twenty-one years later, however, on February 28, 1980, the same parcel of land was sold by the spouses Cosio to
the Seventh Day Adventist Church of Northeastern Mindanao Mission (SDA-NEMM). [5] TCT No. 4468 was thereafter issued
in the name of SDA-NEMM.[6]

Claiming to be the alleged donees successors-in-interest, petitioners asserted ownership over the property. This was
opposed by respondents who argued that at the time of the donation, SPUM-SDA Bayugan could not legally be a donee
because, not having been incorporated yet, it had no juridical personality. Neither were petitioners members of the local
church then, hence, the donation could not have been made particularly to them.

On September 28, 1987, petitioners filed a case, docketed as Civil Case No. 63 (a suit for cancellation of title, quieting of
ownership and possession, declaratory relief and reconveyance with prayer for preliminary injunction and damages), in
the RTC of Bayugan, Agusandel Sur. After trial, the trial court rendered a decision [7] on November 20, 1992 upholding the
sale in favor of respondents.
On appeal, the CA affirmed the RTC decision but deleted the award of moral damages and attorneys fees.
[8]
Petitioners motion for reconsideration was likewise denied. Thus, this petition.
The issue in this petition is simple: should SDA-NEMMs ownership of the lot covered by TCT No. 4468 be upheld?
[9]
We answer in the affirmative.
The controversy between petitioners and respondents involves two supposed transfers of the lot previously owned
by the spouses Cosio: (1) a donation to petitioners alleged predecessors-in-interest in 1959 and (2) a sale to respondents
in 1980.
Donation is undeniably one of the modes of acquiring ownership of real property. Likewise, ownership of a
property may be transferred by tradition as a consequence of a sale.
 Petitioners contend that the appellate court should not have ruled on the validity of the donation since it was not
among the issues raised on appeal. This is not correct because an appeal generally opens the entire case for review.
We agree with the appellate court that the alleged donation to petitioners was void.

Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another person who
accepts it. The donation could not have been made in favor of an entity yet inexistent at the time it was made. Nor could it
have been accepted as there was yet no one to accept it.

The deed of donation was not in favor of any informal group of SDA members but a supposed SPUM-
SDA Bayugan (the local church) which, at the time, had neither juridical personality nor capacity to accept such gift.

Declaring themselves a de facto corporation, petitioners allege that they should benefit from the donation.
But there are stringent requirements before one can qualify as a de facto corporation:

(a) the existence of a valid law under which it may be incorporated;

(b) an attempt in good faith to incorporate; and
(c) assumption of corporate powers.[10]
While there existed the old Corporation Law (Act 1459), [11] a law under which SPUM-SDA Bayugan could have been
organized, there is no proof that there was an attempt to incorporate at that time.

The filing of articles of incorporation and the issuance of the certificate of incorporation are essential for the existence of
a de facto corporation.[12] We have held that an organization not registered with the Securities and Exchange Commission
(SEC) cannot be considered a corporation in any concept, not even as a corporation de facto.[13] Petitioners themselves
admitted that at the time of the donation, they were not registered with the SEC, nor did they even attempt to
organize[14] to comply with legal requirements.
Corporate existence begins only from the moment a certificate of incorporation is issued. No such certificate was
ever issued to petitioners or their supposed predecessor-in-interest at the time of the donation. Petitioners obviously could
not have claimed succession to an entity that never came to exist. Neither could the principle of separate juridical
personality apply since there was never any corporation [15] to speak of. And, as already stated, some of the representatives
of petitioner Seventh Day Adventist Conference Church of Southern Philippines, Inc. were not even members of the local
church then, thus, they could not even claim that the donation was particularly for them. [16]

The de facto doctrine thus effects a compromise between two conflicting public interest[s]the one opposed to an
unauthorized assumption of corporate privileges; the other in favor of doing justice to the parties and of establishing a
general assurance of security in business dealing with corporations.[17]

Generally, the doctrine exists to protect the public dealing with supposed corporate entities, not to favor the
defective or non-existent corporation.[18]
In view of the foregoing, petitioners arguments anchored on their supposed de facto status hold no water. We are
convinced that there was no donation to petitioners or their supposed predecessor-in-interest.
On the other hand, there is sufficient basis to affirm the title of SDA-NEMM. The factual findings of the trial court
in this regard were not convincingly disputed. This Court is not a trier of facts. Only questions of law are the proper
subject of a petition for review on certiorari. [19]

Sustaining the validity of respondents title as well as their right of ownership over the property, the trial court
stated:

[W]hen Felix Cosio was shown the Absolute Deed of Sale during the hearing xxx he acknowledged that the same
was his xxx but that it was not his intention to sell the controverted property because he had previously donated the
same lot to the South Philippine Union Mission of SDA Church of Bayugan-Esperanza.Cosio avouched that had it
been his intendment to sell, he would not have disposed of it for a mere P2,000.00 in two installments but
for P50,000.00 or P60,000.00. According to him, the P2,000.00 was not a consideration of the sale but only a form of
help extended.

A thorough analysis and perusal, nonetheless, of the Deed of Absolute Sale disclosed that it has the
essential requisites of contracts pursuant to xxx Article 1318 of the Civil Code, except that the consideration
of P2,000.00 is somewhat insufficient for a [1,069-square meter] land. Would then this inadequacy of the
consideration render the contract invalid?

Article 1355 of the Civil Code provides:

Except in cases specified by law, lesion or inadequacy of cause shall not

invalidate a contract, unless there has been fraud, mistake or undue influence.

No evidence [of fraud, mistake or undue influence] was adduced by [petitioners].

xxx
 Well-entrenched is the rule that a Certificate of Title is generally a conclusive evidence of [ownership] of the
land. There is that strong and solid presumption that titles were legally issued and that they are valid. It is irrevocable
and indefeasible and the duty of the Court is to see to it that the title is maintained and respected unless challenged
in a direct proceeding. xxx The title shall be received as evidence in all the Courts and shall be conclusive as to all
matters contained therein.

[This action was instituted almost seven years after the certificate of title in respondents name was issued in 1980.][20]

According to Art. 1477 of the Civil Code, the ownership of the thing sold shall be transferred to the vendee upon
the actual or constructive delivery thereof. On this, the noted author Arturo Tolentino had this to say:

The execution of [a] public instrument xxx transfers the ownership from the vendor to the vendee who may
thereafter exercise the rights of an owner over the same[21]

Here, transfer of ownership from the spouses Cosio to SDA-NEMM was made upon constructive delivery of the
property on February 28, 1980 when the sale was made through a public instrument. [22] TCT No. 4468 was thereafter
issued and it remains in the name of SDA-NEMM.

WHEREFORE, the petition is hereby DENIED.

Costs against petitioners.

SO ORDERED.

LIM TONG LIM, petitioner,

vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide the profits or
losses that may arise therefrom, even if it is shown that they have not contributed any capital of their own to a "common fund." Their
contribution may be in the form of credit or industry, not necessarily cash or fixed assets. Being partner, they are all liable for debts
incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of an unincorporated association or
ostensible corporation may lie in a person who may not have directly transacted on its behalf, but reaped benefits from that contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the Court of Appeals in CA-
GR CV
41477, 1 which disposed as follows:
WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed. 2
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as hereinafter
made by reason of the special and unique facts and circumstances and the proceedings that transpired during the
trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the
Agreement plus P68,000.00 representing the unpaid price of the floats not covered by said
Agreement;
b. 12% interest per annum counted from date of plaintiff's invoices and computed on their
respective amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated
February 9, 1990;
ii. Accrued interest for P27,904.02 on Invoice No. 14413 for P146,868.00 dated
February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated
February 19, 1990;
c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing P500.00 per appearance in
court;
d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from
September 20, 1990 (date of attachment) to September 12, 1991 (date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and
floats in the amount of P532,045.00 and P68,000.00, respectively, or for the total amount P600,045.00, this
Court noted that these items were attached to guarantee any judgment that may be rendered in favor of the
plaintiff but, upon agreement of the parties, and, to avoid further deterioration of the nets during the
pendency of this case, it was ordered sold at public auction for not less than P900,000.00 for which the
 plaintiff was the sole and winning bidder. The proceeds of the sale paid for by plaintiff was deposited in
court. In effect, the amount of P900,000.00 replaced the attached property as a guaranty for any judgment
that plaintiff may be able to secure in this case with the ownership and possession of the nets and floats
awarded and delivered by the sheriff to plaintiff as the highest bidder in the public auction sale. It has also
been noted that ownership of the nets [was] retained by the plaintiff until full payment [was] made as
stipulated in the invoices; hence, in effect, the plaintiff attached its own properties. It [was] for this reason
also that this Court earlier ordered the attachment bond filed by plaintiff to guaranty damages to defendants
to be cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor of
defendants.
From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in this
case will have to be satisfied from the amount of P900,000.00 as this amount replaced the attached nets
and floats. Considering, however, that the total judgment obligation as computed above would amount to
only P840,216.92, it would be inequitable, unfair and unjust to award the excess to the defendants who are
not entitled to damages and who did not put up a single centavo to raise the amount of P900,000.00 aside
from the fact that they are not the owners of the nets and floats. For this reason, the defendants are hereby
relieved from any and all liabilities arising from the monetary judgment obligation enumerated above and for
plaintiff to retain possession and ownership of the nets and floats and for the reimbursement of the
P900,000.00 deposited by it with the Clerk of Court.
SO ORDERED. 3
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February 7, 1990, for the
purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they
were engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total price
of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold to the Corporation. 4
The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents filed a collection suit against Chua,
Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against the three in their
capacities as general partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as shown by a
Certification from the Securities and Exchange Commission. 5 On September 20, 1990, the lower court issued a Writ of Preliminary
Attachment, which the sheriff enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port,
Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable time within which to
pay. He also turned over to respondent some of the nets which were in his possession. Peter Yao filed an Answer, after which he was
deemed to have waived his right to cross-examine witnesses and to present evidence on his behalf, because of his failure to appear in
subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and moved for the lifting of
the Writ of Attachment. 6 The trial court maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets
at a public auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds of
P900,000. 7
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay respondent. 8
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses presented and
(2) on a Compromise Agreement executed by the three 9 in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in
the RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a
declaration of ownership of fishing boats; (d) an injunction and (e) damages. 10 The Compromise Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of
P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as full payment for
P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00
whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter
Yao;
c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency
shall be shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3
Peter Yao. 11
The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint liability could be
presumed from the equal distribution of the profit and loss. 21
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus be held liable
as a such for the fishing nets and floats purchased by and for the use of the partnership. The appellate court ruled:
The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnership for
a specific undertaking, that is for commercial fishing . . . . Oviously, the ultimate undertaking of the defendants was to
divide the profits among themselves which is what a partnership essentially is . . . . By a contract of partnership, two
or more persons bind themselves to contribute money, property or industry to a common fund with the intention of
dividing the profits among themselves (Article 1767, New Civil Code). 13
Hence, petitioner brought this recourse before this Court. 14
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA, YAO
AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED
AMONG THEM.
 II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING
CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS
UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIM'S
GOODS.
In determining whether petitioner may be held liable for the fishing nets and floats from respondent, the Court must resolve this key
issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.
This Court's Ruling
The Petition is devoid of merit.
First and Second Issues:
Existence of a Partnership
and Petitioner's Liability
In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts the CA finding that a
partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on the Compromise Agreement
alone. Furthermore, he disclaims any direct participation in the purchase of the nets, alleging that the negotiations were conducted by
Chua and Yao only, and that he has not even met the representatives of the respondent company. Petitioner further argues that he was
a lessor, not a partner, of Chua and Yao, for the "Contract of Lease " dated February 1, 1990, showed that he had merely leased to the
two the main asset of the purported partnership — the fishing boat F/B Lourdes. The lease was for six months, with a monthly rental of
P37,500 plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed that there existed a
partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which provides:
Art. 1767 — By the contract of partnership, two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three existed based on the following factual findings: 15
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while
Antonio Chua was already Yao's partner;
(2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to acquire two fishing boats, the FB
Lourdes and the FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2)
boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing, dry docking and other expenses for
the boats would be shouldered by Chua and Yao;
(6) That because of the "unavailability of funds," Jesus Lim again extended a loan to the partnership in the amount of
P1 million secured by a check, because of which, Yao and Chua entrusted the ownership papers of two other boats,
Chua's FB Lady Anne Mel and Yao's FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent
Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and Peter
Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b) reformation of contracts; (c)
declaration of ownership of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants the
terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which
they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioner's brother. In their
Compromise Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to
divide equally among them the excess or loss. These boats, the purchase and the repair of which were financed with borrowed money,
fell under the term "common fund" under Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an
intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided
equally among them also shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The
fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It would have been
inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment, without which
the business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the fishing business.
They purchased the boats, which constituted the main assets of the partnership, and they agreed that the proceeds from the sales and
operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus, the foregoing
factual findings of the RTC and the CA are binding on this Court, absent any cogent proof that the present action is embraced by one of
the exceptions to the rule. 16 In assailing the factual findings of the two lower courts, petitioner effectively goes beyond the bounds of a
petition for review under Rule 45.
Compromise Agreement
Not the Sole Basis of Partnership
Petitioner argues that the appellate court's sole basis for assuming the existence of a partnership was the Compromise Agreement. He
also claims that the settlement was entered into only to end the dispute among them, but not to adjudicate their preexisting rights and
obligations. His arguments are baseless. The Agreement was but an embodiment of the relationship extant among the parties prior to
its execution.
A proper adjudication of claimants' rights mandates that courts must review and thoroughly appraise all relevant facts. Both lower courts
have done so and have found, correctly, a preexisting partnership among the parties. In implying that the lower courts have decided on
the basis of one piece of document alone, petitioner fails to appreciate that the CA and the RTC delved into the history of the document
and explored all the possible consequential combinations in harmony with law, logic and fairness. Verily, the two lower courts' factual
findings mentioned above nullified petitioner's argument that the existence of a partnership was based only on the Compromise
Agreement.
Petitioner Was a Partner,
Not a Lessor
We are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua and Yao, not a partner in the fishing
venture. His argument allegedly finds support in the Contract of Lease and the registration papers showing that he was the owner of the
boats, including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own boats to pay a debt
of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No lessor would do what petitioner did.
Indeed, his consent to the sale proved that there was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts were undertaken
in order to finance the acquisition and the upgrading of the vessels which would be used in their fishing business. The sale of the boats,
as well as the division among the three of the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes,
though registered in his name, was not his own property but an asset of the partnership. It is not uncommon to register the properties
acquired from a loan in the name of the person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of
the creditor, Jesus Lim.
We stress that it is unreasonable — indeed, it is absurd — for petitioner to sell his property to pay a debt he did not incur, if the
relationship among the three of them was merely that of lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not to him.
Again, we disagree.
Sec. 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. — All persons who assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a
result thereof: Provided however, That when any such ostensible corporation is sued on any transaction entered by it
as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of
corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the
ground that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from denying its corporate
existence. "The reason behind this doctrine is obvious — an unincorporated association has no personality and would be incompetent
to act and appropriate for itself the power and attributes of a corporation as provided by law; it cannot create agents or confer authority
on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at their
own risk. And as it is an elementary principle of law that a person who acts as an agent without authority or without a principal is himself
regarded as the principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or purporting to act on
behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for
contracts entered into or for other acts performed as such agent. 17
The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an unincorporated
association, which represented itself to be a corporation, will be estopped from denying its corporate capacity in a suit against it by a
third person who relied in good faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility for
a contract it entered into and by virtue of which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received
benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged corporation. In such case, all
those who benefited from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held liable
for contracts they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold. The only question
here is whether petitioner should be held jointly 18 liable with Chua and Yao. Petitioner contests such liability, insisting that only those
who dealt in the name of the ostensible corporation should be held liable. Since his name does not appear on any of the contracts and
since he never directly transacted with the respondent corporation, ergo, he cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlier been proven to be an
asset of the partnership. He in fact questions the attachment of the nets, because the Writ has effectively stopped his use of the fishing
vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation. Although it was never legally
formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in representation of it.
Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid
existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the benefits of the contract
entered into by persons with whom he previously had an existing relationship, he is deemed to be part of said association and is
covered by the scope of the doctrine of corporation by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor: 19
A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of
movement and position, entraps and destroys the other. It is, rather, a contest in which each contending party fully
and fairly lays before the court the facts in issue and then, brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks that justice be done upon the merits. Lawsuits, unlike
duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and
becomes its great hindrance and chief enemy, deserves scant consideration from courts. There should be no vested
rights in technicalities.
Third Issue:
 Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with the Court of Appeals that
this issue is now moot and academic. As previously discussed, F/B Lourdes was an asset of the partnership and that it was placed in
the name of petitioner, only to assure payment of the debt he and his partners owed. The nets and the floats were specifically
manufactured and tailor-made according to their own design, and were bought and used in the fishing venture they agreed upon.
Hence, the issuance of the Writ to assure the payment of the price stipulated in the invoices is proper. Besides, by specific agreement,
ownership of the nets remained with Respondent Philippine Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
Melo, Purisima and Gonzaga-Reyes, JJ., concur.
Vitug, J., pls. see concurring opinion.
Separate Opinions
VITUG, J., concurring opinion;
I share the views expressed in the ponencia of an esteemed colleague, Mr. Justice Artemio V. Panganiban, particularly the finding that
Antonio Chua, Peter Yao and petitioner Lim Tong Lim have incurred the liabilities of general partners. I merely would wish to elucidate a
bit, albeit briefly, the liability of partners in a general partnership.
When a person by his act or deed represents himself as a partner in an existing partnership or with one or more persons not actual
partners, he is deemed an agent of such persons consenting to such representation and in the same manner, if he were a partner, with
respect to persons who rely upon the representation. 1 The association formed by Chua, Yao and Lim, should be, as it has been
deemed, a de facto partnership with all the consequent obligations for the purpose of enforcing the rights of third persons. The liability
of general partners (in a general partnership as so opposed to a limited partnership) is laid down in Article 1816 2 which posits that all
partners shall be liable pro rata beyond the partnership assets for all the contracts which may have been entered into in its name, under
its signature, and by a person authorized to act for the partnership. This rule is to be construed along with other provisions of the Civil
Code which postulate that the partners can be held solidarily liable with the partnership specifically in these instances — (1) where, by
any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of his
co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is
liable therefor to the same extent as the partner so acting or omitting to act; (2) where one partner acting within the scope of his
apparent authority receives money or property of a third person and misapplies it; and (3) where the partnership in the course of its
business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in
the custody of the partnership 3 — consistently with the rules on the nature of civil liability in delicts and quasi-delicts.
INTERNATIONAL EXPRESS TRAVEL AND TOUR VS. CA
DECISION
KAPUNAN, J.:
On June 30 1989, petitioner International Express Travel and Tour Services, Inc., through its managing director, wrote a letter to
the Philippine Football Federation (Federation), through its president private respondent Henri Kahn, wherein the former offered its
services as a travel agency to the latter.[1] The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in
Kuala Lumpur as well as various other trips to the People's Republic of China and Brisbane. The total cost of the tickets amounted to
P449,654.83. For the tickets received, the Federation made two partial payments, both in September of 1989, in the total amount of
P176,467.50.[2]
On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand letter requesting for the amount of
P265,894.33.[3] On 30 October 1989, the Federation, through the Project Gintong Alay, paid the amount of P31,603.00.[4]
On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial payment for the outstanding
balance of the Federation.[5] Thereafter, no further payments were made despite repeated demands.
This prompted petitioner to file a civil case before the Regional Trial Court of Manila. Petitioner sued Henri Kahn in his personal
capacity and as President of the Federation and impleaded the Federation as an alternative defendant. Petitioner sought to hold Henri
Kahn liable for the unpaid balance for the tickets purchased by the Federation on the ground that Henri Kahn allegedly guaranteed the
said obligation.[6]
Henri Kahn filed his answer with counterclaim. While not denying the allegation that the Federation owed the amount
P207,524.20, representing the unpaid balance for the plane tickets, he averred that the petitioner has no cause of action against him
either in his personal capacity or in his official capacity as president of the Federation. He maintained that he did not guarantee
payment but merely acted as an agent of the Federation which has a separate and distinct juridical personality.[7]
On the other hand, the Federation failed to file its answer, hence, was declared in default by the trial court.[8]
In due course, the trial court rendered judgment and ruled in favor of the petitioner and declared Henri Kahn personally liable for
the unpaid obligation of the Federation. In arriving at the said ruling, the trial court rationalized:
Defendant Henri Kahn would have been correct in his contentions had it been duly established that defendant Federation is a corporation. The
trouble, however, is that neither the plaintiff nor the defendant Henri Kahn has adduced any evidence proving the corporate existence of the
defendant Federation. In paragraph 2 of its complaint, plaintiff asserted that "Defendant Philippine Football Federation is a sports association xxx."
This has not been denied by defendant Henri Kahn in his Answer. Being the President of defendant Federation, its corporate existence is within the
personal knowledge of defendant Henri Kahn. He could have easily denied specifically the assertion of the plaintiff that it is a mere sports
association, if it were a domestic corporation. But he did not.
xxx
A voluntary unincorporated association, like defendant Federation has no power to enter into, or to ratify, a contract. The contract entered into by its
officers or agents on behalf of such association is not binding on, or enforceable against it. The officers or agents are themselves personally liable.
x x x[9]
The dispositive portion of the trial court's decision reads:
WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the plaintiff the principal sum of P207,524.20, plus the interest thereon
at the legal rate computed from July 5, 1990, the date the complaint was filed, until the principal obligation is fully liquidated; and another sum of
P15,000.00 for attorney's fees.
The complaint of the plaintiff against the Philippine Football Federation and the counterclaims of the defendant Henri Kahn are hereby dismissed.
With the costs against defendant Henri Kahn.[10]
Only Henri Kahn elevated the above decision to the Court of Appeals. On 21 December 1994, the respondent court rendered a
decision reversing the trial court, the decretal portion of said decision reads:
WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET ASIDE and another one is rendered dismissing the
complaint against defendant Henri S. Kahn.[11]
In finding for Henri Kahn, the Court of Appeals recognized the juridical existence of the Federation. It rationalized that since
petitioner failed to prove that Henri Kahn guaranteed the obligation of the Federation, he should not be held liable for the same as said
entity has a separate and distinct personality from its officers.
Petitioner filed a motion for reconsideration and as an alternative prayer pleaded that the Federation be held liable for the unpaid
obligation. The same was denied by the appellate court in its resolution of 8 February 1995, where it stated that:
As to the alternative prayer for the Modification of the Decision by expressly declaring in the dispositive portion thereof the Philippine Football
Federation (PFF) as liable for the unpaid obligation, it should be remembered that the trial court dismissed the complaint against the Philippine
Football Federation, and the plaintiff did not appeal from this decision. Hence, the Philippine Football Federation is not a party to this appeal and
consequently, no judgment may be pronounced by this Court against the PFF without violating the due process clause, let alone the fact that the
judgment dismissing the complaint against it, had already become final by virtue of the plaintiff's failure to appeal therefrom. The alternative prayer
is therefore similarly DENIED.[12]
Petitioner now seeks recourse to this Court and alleges that the respondent court committed the following assigned errors:[13]
A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAD DEALT WITH THE
PHILIPPINE FOOTBALL FEDERATION (PFF) AS A CORPORATE ENTITY AND IN NOT HOLDING THAT PRIVATE
RESPONDENT HENRI KAHN WAS THE ONE WHO REPRESENTED THE PFF AS HAVING A CORPORATE
PERSONALITY.
B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT HENRI KAHN
PERSONALLY LIABLE FOR THE OBLIGATION OF THE UNINCORPORATED PFF, HAVING NEGOTIATED WITH
PETITIONER AND CONTRACTED THE OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL PAYMENT AND
ASSURED PETITIONER OF FULLY SETTLING THE OBLIGATION.
C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT PERSONALLY LIABLE, THE HONORABLE
COURT OF APPEALS ERRED IN NOT EXPRESSLY DECLARING IN ITS DECISION THAT THE PFF IS SOLELY
LIABLE FOR THE OBLIGATION.
The resolution of the case at bar hinges on the determination of the existence of the Philippine Football Federation as a juridical
person. In the assailed decision, the appellate court recognized the existence of the Federation. In support of this, the CA cited
Republic Act 3135, otherwise known as the Revised Charter of the Philippine Amateur Athletic Federation, and Presidential Decree No.
604 as the laws from which said Federation derives its existence.
As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical existence of national sports
associations. This may be gleaned from the powers and functions granted to these associations. Section 14 of R.A. 3135 provides:
SEC. 14. Functions, powers and duties of Associations. - The National Sports' Association shall have the following functions, powers and duties:
1. To adopt a constitution and by-laws for their internal organization and government;
2. To raise funds by donations, benefits, and other means for their purposes.
3. To purchase, sell, lease or otherwise encumber property both real and personal, for the accomplishment of their purpose;
4. To affiliate with international or regional sports' Associations after due consultation with the executive committee;
xxx
13. To perform such other acts as may be necessary for the proper accomplishment of their purposes and not inconsistent with this Act.
Section 8 of P.D. 604, grants similar functions to these sports associations:
SEC. 8. Functions, Powers, and Duties of National Sports Association. - The National sports associations shall have the following functions, powers,
and duties:
1. Adopt a Constitution and By-Laws for their internal organization and government which shall be submitted to the Department and any amendment
thereto shall take effect upon approval by the Department: Provided, however, That no team, school, club, organization, or entity shall be admitted as
a voting member of an association unless 60 per cent of the athletes composing said team, school, club, organization, or entity are Filipino citizens;
2. Raise funds by donations, benefits, and other means for their purpose subject to the approval of the Department;
3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for the accomplishment of their purpose;
4. Conduct local, interport, and international competitions, other than the Olympic and Asian Games, for the promotion of their sport;
5. Affiliate with international or regional sports associations after due consultation with the Department;
xxx
13. Perform such other functions as may be provided by law.
The above powers and functions granted to national sports associations clearly indicate that these entities may acquire a juridical
personality. The power to purchase, sell, lease and encumber property are acts which may only be done by persons, whether natural or
artificial, with juridical capacity. However, while we agree with the appellate court that national sports associations may be accorded
corporate status, such does not automatically take place by the mere passage of these laws.
It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form
of a special law or a general enabling act.We cannot agree with the view of the appellate court and the private respondent that the
Philippine Football Federation came into existence upon the passage of these laws.Nowhere can it be found in R.A. 3135 or P.D. 604
any provision creating the Philippine Football Federation. These laws merely recognized the existence of national sports associations
and provided the manner by which these entities may acquire juridical personality. Section 11 of R.A. 3135 provides:
SEC. 11. National Sports' Association; organization and recognition. - A National Association shall be organized for each individual sports in the
Philippines in the manner hereinafter provided to constitute the Philippine Amateur Athletic Federation. Applications for recognition as a National
Sports' Association shall be filed with the executive committee together with, among others, a copy of the constitution and by-laws and a list of the
members of the proposed association, and a filing fee of ten pesos.
The Executive Committee shall give the recognition applied for if it is satisfied that said association will promote the purposes of this Act and
particularly section three thereof. No application shall be held pending for more than three months after the filing thereof without any action having
been taken thereon by the executive committee. Should the application be rejected, the reasons for such rejection shall be clearly stated in a written
communication to the applicant. Failure to specify the reasons for the rejection shall not affect the application which shall be considered as unacted
upon: Provided, however, That until the executive committee herein provided shall have been formed, applications for recognition shall be passed
upon by the duly elected members of the present executive committee of the Philippine Amateur Athletic Federation. The said executive committee
shall be dissolved upon the organization of the executive committee herein provided: Provided, further, That the functioning executive committee is
charged with the responsibility of seeing to it that the National Sports' Associations are formed and organized within six months from and after the
passage of this Act.
Section 7 of P.D. 604, similarly provides:
SEC. 7. National Sports Associations. - Application for accreditation or recognition as a national sports association for each individual sport in the
Philippines shall be filed with the Department together with, among others, a copy of the Constitution and By-Laws and a list of the members of the
proposed association.
The Department shall give the recognition applied for if it is satisfied that the national sports association to be organized will promote the objectives
of this Decree and has substantially complied with the rules and regulations of the Department: Provided, That the Department may withdraw
accreditation or recognition for violation of this Decree and such rules and regulations formulated by it.
The Department shall supervise the national sports association: Provided, That the latter shall have exclusive technical control over the development
and promotion of the particular sport for which they are organized.
Clearly the above cited provisions require that before an entity may be considered as a national sports association, such entity
must be recognized by the accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135, and the Department of
Youth and Sports Development under P.D. 604. This fact of recognition, however, Henri Kahn failed to substantiate. In attempting to
prove the juridical existence of the Federation, Henri Kahn attached to his motion for reconsideration before the trial court a copy of the
constitution and by-laws of the Philippine Football Federation. Unfortunately, the same does not prove that said Federation has indeed
been recognized and accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and Sports
Development. Accordingly, we rule that the Philippine Football Federation is not a national sports association within the purview of the
aforementioned laws and does not have corporate existence of its own.
Thus being said, it follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the
unincorporated Philippine Football Federation. It is a settled principal in corporation law that any person acting or purporting to act on
behalf of a corporation which has no valid existence assumes such privileges and becomes personally liable for contract entered into or
for other acts performed as such agent. [14] As president of the Federation, Henri Kahn is presumed to have known about the corporate
existence or non-existence of the Federation. We cannot subscribe to the position taken by the appellate court that even assuming that
the Federation was defectively incorporated, the petitioner cannot deny the corporate existence of the Federation because it had
contracted and dealt with the Federation in such a manner as to recognize and in effect admit its existence. [15] The doctrine of
corporation by estoppel is mistakenly applied by the respondent court to the petitioner. The application of the doctrine applies to a third
party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective incorporation.
[16]
In the case at bar, the petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The decision of the Regional Trial Court of Manila,
Branch 35, in Civil Case No. 90-53595 is hereby REINSTATED.
SO ORDERED.
FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN
COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review[1] assails the 4 January 1999 Decision[2] and 26 January 2000 Resolution of the Court of Appeals in CA-
G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December 1992 Decision [3] of the Regional Trial Court of
Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters
Hermogenes Alegre and Carmelo Rima liable for libel and ordered them to solidarily pay Ago Medical and Educational Center-Bicol
Christian College of Medicine moral damages, attorneys fees and costs of suit.
The Antecedents
Expos is a radio documentary[4] program hosted by Carmelo Mel Rima (Rima) and Hermogenes Jun Alegre (Alegre). [5] Expos is
aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. (FBNI). Expos is heard over Legazpi City,
the Albay municipalities and other Bicol areas.[6]
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students, teachers and
parents against Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC) and its administrators. Claiming that
the broadcasts were defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs College of Medicine, filed a complaint for
damages[7] against FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of the allegedly libelous broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them to pass all subjects because if
they fail in any subject they will repeat their year level, taking up all subjects including those they have passed already. Several students had
approached me stating that they had consulted with the DECS which told them that there is no such regulation. If [there] is no such regulation why is
AMEC doing the same?
xxx
Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS. xxx
Third: Students are required to take and pay for the subject even if the subject does not have an instructor - such greed for money on the
part of AMECs administration. Take the subject Anatomy: students would pay for the subject upon enrolment because it is offered by the school.
However there would be no instructor for such subject. Students would be informed that course would be moved to a later date because the school is
still searching for the appropriate instructor.
xxx
It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the past few years since its inception
because of funds support from foreign foundations. If you will take a look at the AMEC premises youll find out that the names of the buildings there
are foreign soundings. There is a McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence that the
support of foreign foundations for AMEC is substantial, isnt it? With the report which is the basis of the expose in DZRC today, it would be very easy
for detractors and enemies of the Ago family to stop the flow of support of foreign foundations who assist the medical school on the basis of the
latters purpose. But if the purpose of the institution (AMEC) is to deceive students at cross purpose with its reason for being it is possible for these
foreign foundations to lift or suspend their donations temporarily. [8]
xxx
On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of Mass Communication in
their effort to minimize expenses in terms of salary are absorbing or continues to accept rejects. For example how many teachers in AMEC are
former teachers of Aquinas University but were removed because of immorality? Does it mean that the present administration of AMEC have the
total definite moral foundation from catholic administrator of Aquinas University. I will prove to you my friends, that AMEC is a dumping ground,
garbage, not merely of moral and physical misfits. Probably they only qualify in terms of intellect. The Dean of Student Affairs of AMEC is
Justita Lola, as the family name implies. She is too old to work, being an old woman. Is the AMEC administration exploiting the very [e]nterprising
or compromising and undemanding Lola? Could it be that AMEC is just patiently making use of Dean Justita Lola were if she is very old. As in
atmospheric situation zero visibility the plane cannot land, meaning she is very old, low pay follows. By the way, Dean Justita Lola is also the
chairman of the committee on scholarship in AMEC. She had retired from Bicol University a long time ago but AMEC has patiently made use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does this mean? Immoral and
physically misfits as teachers.
May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You are too old. As an aviation,
your case is zero visibility. Dont insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The reason is practical cost saving in
salaries, because an old person is not fastidious, so long as she has money to buy the ingredient of beetle juice. The elderly can get by thats why she
(Lola) was taken in as Dean.
xxx
xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by evil. When they become
members of society outside of campus will be liabilities rather than assets. What do you expect from a doctor who while studying at AMEC is so
much burdened with unreasonable imposition? What do you expect from a student who aside from peculiar problems because not all students are rich
in their struggle to improve their social status are even more burdened with false regulations. xxx [9] (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI, Rima and Alegre
transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation. AMEC and Ago included FBNI as
defendant for allegedly failing to exercise due diligence in the selection and supervision of its employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer [10] alleging that the broadcasts against
AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a sense of public duty to report the goings-
on in AMEC, [which is] an institution imbued with public interest.
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea, collaborating counsel of Atty.
Lozares, filed a Motion to Dismiss [11] on FBNIs behalf. The trial court denied the motion to dismiss. Consequently, FBNI filed a separate
Answer claiming that it exercised due diligence in the selection and supervision of Rima and Alegre. FBNI claimed that before hiring a
broadcaster, the broadcaster should (1) file an application; (2) be interviewed; and (3) undergo an apprenticeship and training program
after passing the interview. FBNI likewise claimed that it always reminds its broadcasters to observe truth, fairness and objectivity in
their broadcasts and to refrain from using libelous and indecent language. Moreover, FBNI requires all broadcasters to pass
the Kapisanan ng mga Brodkaster sa Pilipinas (KBP) accreditation test and to secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision [12] finding FBNI and Alegre liable for libel except Rima. The trial court
held that the broadcasts are libelous per se. The trial court rejected the broadcasters claim that their utterances were the result of
straight reporting because it had no factual basis. The broadcasters did not even verify their reports before airing them to show good
faith. In holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the selection and supervision of its
employees.
In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he agreed with Alegres expos. The
trial court found Rimas statement within the bounds of freedom of speech, expression, and of the press. The dispositive portion of the
decision reads:
WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused by the controversial utterances,
which are not found by this court to be really very serious and damaging, and there being no showing that indeed the enrollment of plaintiff
school dropped, defendants Hermogenes Jun Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio station DZRC), are hereby jointly
and severally ordered to pay plaintiff Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the amount
of P300,000.00 moral damages, plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of suit.
SO ORDERED. [13] (Emphasis supplied)
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision to the Court
of Appeals. The Court of Appeals affirmed the trial courts judgment with modification. The appellate court made Rima solidarily liable
with FBNI and Alegre. The appellate court denied Agos claim for damages and attorneys fees because the broadcasts were directed
against AMEC, and not against her. The dispositive portion of the Court of Appeals decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel Rima is SOLIDARILY
ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.[14]
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000 Resolution.
Hence, FBNI filed this petition.[15]
The Ruling of the Court of Appeals
The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per se and that FBNI, Rima and
Alegre failed to overcome the legal presumption of malice. The Court of Appeals found Rima and Alegres claim that they were actuated
by their moral and social duty to inform the public of the students gripes as insufficient to justify the utterance of the defamatory
remarks.
Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled that the broadcasts were
made with reckless disregard as to whether they were true or false. The appellate court pointed out that FBNI, Rima and Alegre failed to
present in court any of the students who allegedly complained against AMEC. Rima and Alegre merely gave a single name when asked
to identify the students. According to the Court of Appeals, these circumstances cast doubt on the veracity of the broadcasters claim
that they were impelled by their moral and social duty to inform the public about the students gripes.
The Court of Appeals found Rima also liable for libel since he remarked that (1) AMEC-BCCM is a dumping ground for morally
and physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to minimize expenses on its employees salaries;
and (3) AMEC burdened the students with unreasonable imposition and false regulations.[16]
The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its employees for allowing
Rima and Alegre to make the radio broadcasts without the proper KBP accreditation. The Court of Appeals denied Agos claim for
damages and attorneys fees because the libelous remarks were directed against AMEC, and not against her. The Court of Appeals
adjudged FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages, attorneys fees and costs of suit.
Issues
FBNI raises the following issues for resolution:
I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL DAMAGES, ATTORNEYS
FEES AND COSTS OF SUIT.
The Courts Ruling
We deny the petition.
This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against AMEC. [17] While
AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint reveals that AMECs cause of action is based
on Articles 30 and 33 of the Civil Code. Article 30 [18] authorizes a separate civil action to recover civil liability arising from a criminal
offense. On the other hand, Article 33[19] particularly provides that the injured party may bring a separate civil action for damages in
cases of defamation, fraud, and physical injuries. AMEC also invokes Article 19[20] of the Civil Code to justify its claim for damages.
AMEC cites Articles 2176[21] and 2180[22] of the Civil Code to hold FBNI solidarily liable with Rima and Alegre.
I.
Whether the broadcasts are libelous
A libel[23] is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or omission, condition,
status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or juridical person, or to blacken the memory
of one who is dead.[24]
There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending to cause it
dishonor, discredit and contempt. Rima and Alegres remarks such as greed for money on the part of AMECs administrators; AMEC is a
dumping ground, garbage of xxx moral and physical misfits; and AMEC students who graduate will be liabilities rather than assets of the
society are libelous per se. Taken as a whole, the broadcasts suggest that AMEC is a money-making institution where physically and
morally unfit teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly impelled by their
civic duty to air the students gripes. FBNI alleges that there is no evidence that ill will or spite motivated Rima and Alegre in making the
broadcasts. FBNI further points out that Rima and Alegre exerted efforts to obtain AMECs side and gave Ago the opportunity to defend
AMEC and its administrators. FBNI concludes that since there is no malice, there is no libel.
FBNIs contentions are untenable.
Every defamatory imputation is presumed malicious. [25] Rima and Alegre failed to show adequately their good intention and
justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or public affairs program, Rima and Alegre
should have presented the public issues free from inaccurate and misleading information.[26] Hearing the students alleged complaints a
month before the expos,[27] they had sufficient time to verify their sources and information. However, Rima and Alegre hardly made a
thorough investigation of the students alleged gripes. Neither did they inquire about nor confirm the purported irregularities in AMEC
from the Department of Education, Culture and Sports. Alegre testified that he merely went to AMEC to verify his report from an alleged
AMEC official who refused to disclose any information. Alegre simply relied on the words of the students because they were many and
not because there is proof that what they are saying is true. [28] This plainly shows Rima and Alegres reckless disregard of whether their
report was true or not.
Contrary to FBNIs claim, the broadcasts were not the result of straight reporting. Significantly, some courts in the United States
apply the privilege of neutral reportage in libel cases involving matters of public interest or public figures. Under this privilege, a
republisher who accurately and disinterestedly reports certain defamatory statements made against public figures is shielded from
liability, regardless of the republishers subjective awareness of the truth or falsity of the accusation. [29] Rima and Alegre cannot invoke
the privilege of neutral reportage because unfounded comments abound in the broadcasts. Moreover, there is no existing controversy
involving AMEC when the broadcasts were made. The privilege of neutral reportage applies where the defamed person is a public
figure who is involved in an existing controversy, and a party to that controversy makes the defamatory statement.[30]
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of Appeals,[31] FBNI
contends that the broadcasts fall within the coverage of qualifiedly privileged communications for being commentaries on matters of
public interest. Such being the case, AMEC should prove malice in fact or actual malice. Since AMEC allegedly failed to prove actual
malice, there is no libel.
FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the doctrine of fair comment, thus:
[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or slander. The doctrine of fair
comment means that while in general every discreditable imputation publicly made is deemed false, because every man is presumed innocent until
his guilt is judicially proved, and every false imputation is deemed malicious, nevertheless, when the discreditable imputation is directed against a
public person in his public capacity, it is not necessarily actionable. In order that such discreditable imputation to a public official may be
actionable, it must either be a false allegation of fact or a comment based on a false supposition. If the comment is an expression of opinion,
based on established facts, then it is immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred from the facts.
[32]
(Emphasis supplied)
True, AMEC is a private learning institution whose business of educating students is genuinely imbued with public interest. The
welfare of the youth in general and AMECs students in particular is a matter which the public has the right to know. Thus, similar to the
newspaper articles in Borjal, the subject broadcasts dealt with matters of public interest. However, unlike in Borjal, the questioned
broadcasts are not based on established facts. The record supports the following findings of the trial court:
xxx Although defendants claim that they were motivated by consistent reports of students and parents against plaintiff, yet, defendants have not
presented in court, nor even gave name of a single student who made the complaint to them, much less present written complaint or petition to that
effect. To accept this defense of defendants is too dangerous because it could easily give license to the media to malign people and establishments
based on flimsy excuses that there were reports to them although they could not satisfactorily establish it. Such laxity would encourage careless and
irresponsible broadcasting which is inimical to public interests.
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties, did not verify and analyze the truth of
the reports before they aired it, in order to prove that they are in good faith.
Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet, plaintiff produced a certificate
coming from DECS that as of Sept. 22, 1987 or more than 2 years before the controversial broadcast, accreditation to offer Physical Therapy course
had already been given the plaintiff, which certificate is signed by no less than the Secretary of Education and Culture herself, Lourdes R.
Quisumbing (Exh. C-rebuttal). Defendants could have easily known this were they careful enough to verify. And yet, defendants were very
categorical and sounded too positive when they made the erroneous report that plaintiff had no permit to offer Physical Therapy courses which they
were offering.
The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove not to be true also. The truth is
there is no Mcdonald Foundation existing. Although a big building of plaintiff school was given the name Mcdonald building, that was only in order
to honor the first missionary in Bicol of plaintiffs religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single
centavo appears to be received by plaintiff school from the aforementioned McDonald Foundation which does not exist.
Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students fail in one subject, they are made to
repeat all the other subject[s], even those they have already passed, nor their claim that the school charges laboratory fees even if there are no
laboratories in the school. No evidence was presented to prove the bases for these claims, at least in order to give semblance of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled out Dean Justita Lola who is said to
be so old, with zero visibility already. Dean Lola testified in court last Jan. 21, 1991, and was found to be 75 years old. xxx Even older people prove
to be effective teachers like Supreme Court Justices who are still very much in demand as law professors in their late years. Counsel for defendants is
past 75 but is found by this court to be still very sharp and effective. So is plaintiffs counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile.
The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere conclusion. Being from the place himself, this
court is aware that majority of the medical graduates of plaintiffs pass the board examination easily and become prosperous and responsible
professionals.[33]
Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion happens to be
mistaken, as long as it might reasonably be inferred from the facts. [34] However, the comments of Rima and Alegre were not backed up
by facts. Therefore, the broadcasts are not privileged and remain libelous per se.
The broadcasts also violate the Radio Code [35] of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. (Radio Code). Item I(B) of
the Radio Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1. x x x
4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate and misleading information. x
x x Furthermore, the station shall strive to present balanced discussion of issues. x x x.
xxx
7. The station shall be responsible at all times in the supervision of public affairs, public issues and commentary programs so that they
conform to the provisions and standards of this code.
8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest, general welfare and good
order in the presentation of public affairs and public issues. [36] (Emphasis supplied)
The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical conduct governing
practitioners in the radio broadcast industry. The Radio Code is a voluntary code of conduct imposed by the radio broadcast industry on
its own members. The Radio Code is a public warranty by the radio broadcast industry that radio broadcast practitioners are subject to
a code by which their conduct are measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of their profession,
just like other professionals. A professional code of conduct provides the standards for determining whether a person has acted justly,
honestly and with good faith in the exercise of his rights and performance of his duties as required by Article 19 [37] of the Civil Code. A
professional code of conduct also provides the standards for determining whether a person who willfully causes loss or injury to another
has acted in a manner contrary to morals or good customs under Article 21[38] of the Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a corporation.[39]
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical
suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.[40] The Court of Appeals
cites Mambulao Lumber Co. v. PNB, et al.[41] to justify the award of moral damages. However, the Courts statement in Mambulao that
a corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages is an obiter
dictum.[42]
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 [43] of the Civil Code. This provision expressly
authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify
whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or
any other form of defamation and claim for moral damages.[44]
Moreover, where the broadcast is libelous per se, the law implies damages.[45] In such a case, evidence of an honest mistake or
the want of character or reputation of the party libeled goes only in mitigation of damages. [46] Neither in such a case is the plaintiff
required to introduce evidence of actual damages as a condition precedent to the recovery of some damages. [47] In this case, the
broadcasts are libelous per se. Thus, AMEC is entitled to moral damages.
However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the broadcasts were
libelous per se, AMEC has not suffered any substantial or material damage to its reputation. Therefore, we reduce the award of moral
damages from P300,000 to P150,000.
III.
Whether the award of attorneys fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorneys fees. FBNI adds that
the instant case does not fall under the enumeration in Article 2208[48] of the Civil Code.
The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys fees. AMEC did not
adduce evidence to warrant the award of attorneys fees. Moreover, both the trial and appellate courts failed to explicitly state in their
respective decisions the rationale for the award of attorneys fees. [49] In Inter-Asia Investment Industries, Inc. v. Court of Appeals,
[50]
we held that:
[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and counsels fees are not to be awarded
every time a party wins a suit. The power of the court to award attorneys fees under Article 2208 of the Civil Code demands factual, legal and
equitable justification, without which the award is a conclusion without a premise, its basis being improperly left to speculation and
conjecture. In all events, the court must explicitly state in the text of the decision, and not only in the decretal portion thereof, the legal reason for the
award of attorneys fees.[51] (Emphasis supplied)
While it mentioned about the award of attorneys fees by stating that it lies within the discretion of the court and depends upon the
circumstances of each case, the Court of Appeals failed to point out any circumstance to justify the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre
for moral damages, attorneys fees
and costs of suit
FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorneys fees because it
exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI maintains that its
broadcasters, including Rima and Alegre, undergo a very regimented process before they are allowed to go on air. Those who apply for
broadcaster are subjected to interviews, examinations and an apprenticeship program.
FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a broadcaster. FBNI points out that
the minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way prove that FBNI did not exercise the diligence of a
good father of a family in selecting and supervising them. Rimas accreditation lapsed due to his non-payment of the KBP annual fees
while Alegres accreditation card was delayed allegedly for reasons attributable to the KBP Manila Office. FBNI claims that membership
in the KBP is merely voluntary and not required by any law or government regulation.
FBNIs arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they commit. [52] Joint tort
feasors are all the persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the
commission of a tort, or who approve of it after it is done, if done for their benefit. [53] Thus, AMEC correctly anchored its cause of action
against FBNI on Articles 2176 and 2180 of the Civil Code.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from the libelous
broadcasts. As stated by the Court of Appeals, recovery for defamatory statements published by radio or television may be had from
the owner of the station, a licensee, the operator of the station, or a person who procures, or participates in, the making of the
defamatory statements.[54] An employer and employee are solidarily liable for a defamatory statement by the employee within the
course and scope of his or her employment, at least when the employer authorizes or ratifies the defamation. [55] In this case, Rima and
Alegre were clearly performing their official duties as hosts of FBNIs radio program Expos when they aired the broadcasts. FBNI neither
alleged nor proved that Rima and Alegre went beyond the scope of their work at that time. There was likewise no showing that FBNI did
not authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in the selection and supervision of its
employees, particularly Rima and Alegre. FBNI merely showed that it exercised diligence in the selection of its broadcasters without
introducing any evidence to prove that it observed the same diligence in the supervisionof Rima and Alegre. FBNI did not show how it
exercised diligence in supervising its broadcasters. FBNIs alleged constant reminder to its broadcasters to observe truth, fairness and
objectivity and to refrain from using libelous and indecent language is not enough to prove due diligence in the supervision of its
broadcasters. Adequate training of the broadcasters on the industrys code of conduct, sufficient information on libel laws, and
continuous evaluation of the broadcasters performance are but a few of the many ways of showing diligence in the supervision of
broadcasters.
FBNI claims that it has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in mind their
qualifications. However, no clear and convincing evidence shows that Rima and Alegre underwent FBNIs regimented process of
application. Furthermore, FBNI admits that Rima and Alegre had deficiencies in their KBP accreditation, [56] which is one of FBNIs
requirements before it hires a broadcaster. Significantly, membership in the KBP, while voluntary, indicates the broadcasters strong
commitment to observe the broadcast industrys rules and regulations. Clearly, these circumstances show FBNIs lack of diligence in
selecting and supervising Rima and Alegre. Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26 January 2000 of
the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of moral damages is reduced from P300,000
to P150,000 and the award of attorneys fees is deleted. Costs against petitioner.
SO ORDERED.
 G.R. No. 118692
COASTAL PACIFIC Present:
TRADING, INC.,
Petitioner, Panganiban, CJ,
Chairman,
- versus - Ynares-Santiago,
Austria-Martinez,
Callejo, Sr., and
SOUTHERN ROLLING MILLS, CO., INC. (now known Chico-Nazario, JJ
as Visayan Integrated Steel Corporation), FAR EAST
BANK & TRUST COMPANY, PHILIPPINE
COMMERCIAL INDUSTRIAL[1]BANK, EQUITABLE
BANKING CORPORATION, PRUDENTIAL BANK,
BOARD OF TRUSTEES-CONSORTIUM OF BANKS-
VISCO, UNITED COCONUT PLANTERS BANK,
CITYTRUST BANKING CORPORATION, ASSOCIATED
BANK, INSULAR BANK OF ASIA AND AMERICA,
INTERNATIONAL CORPORATE BANK, COMMER-CIAL
BANK OF MANILA, BANK OF THE PHILIPPINE
ISLANDS, NATIONAL STEEL CORPORA-TION, THE
PROVINCIAL SHERIFF OF BOHOL, and DEPUTY
SHERIFF JOVITO DIGAL,[2]
Respondents.
Promulgated:

July 28, 2006

X -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - -- -- X
DECISION

PANGANIBAN, CJ:

D irectors owe loyalty and fidelity to the corporation they serve and to its creditors. When these directors sit on
the board as representatives of shareholders who are also major creditors, they cannot be allowed to use their offices
to secure undue advantage for those shareholders, in fraud of other creditors who do not have a similar
representation in the board of directors.

The Case

Before us is a Petition for Review[3] under Rule 45 of the Rules of Court, assailing the September 27,
1994 Decision[4] and the January 5, 1995Resolution[5] of the Court of Appeals (CA) in CA-GR CV No. 39385. The
challenged Decision disposed as follows:

WHEREFORE, the decision of the Regional Trial Court is hereby AFFIRMED in toto.[6]

The challenged Resolution denied reconsideration.

The Facts

Respondent Southern Rolling Mills Co., Inc. was organized in 1959 for the purpose of engaging in a steel processing
business. It was later renamed Visayan Integrated Steel Corporation (VISCO).[7]
On December 11, 1961, VISCO obtained a loan from the Development Bank of the Philippines (DBP) in the
amount of P836,000. This loan was secured by a duly recorded Real Estate Mortgage over VISCOs three (3) parcels
of land, including all the machineries and equipment found there. [8]

On August 15, 1963, VISCO entered into a Loan Agreement [9] with respondent banks (later referred to as
Consortium[10]) for the amount of US$5,776,186.71 or P21,745,707.36 (at the then prevailing exchange rate) to
finance its importation of various raw materials. To secure the full and faithful performance of its obligation, VISCO
executed on August 3, 1965, a second mortgage [11] over the same land, machineries and equipment in favor of
respondent banks. This second mortgage remained unrecorded.[12]

VISCO eventually defaulted in the performance of its obligation to respondent banks. This prompted the
Consortium to file on January 26, 1966, Civil Case No. 1841, which was a Petition for Foreclosure of Mortgage with
Petition for Receivership.[13] This case was eventually dismissed for failure to prosecute. [14]

Afterwards, negotiations were conducted between VISCO and respondent banks for the conversion of the
unpaid loan into equity in the corporation. [15] Vicente Garcia, vice-president of VISCO and of Far East Bank and Trust
Company (FEBTC),[16] testified that sometime in 1966, the creditor banks were given management of and control over
VISCO.[17] In time,[18] in order to reorganize it, its principal creditors agreed to group themselves into a creditors
consortium.[19] As a result of the reorganized corporate structure of VISCO, respondent banks acquired more than 90
percent of its equity. Notwithstanding this conversion, it remained indebted to the Consortium in the amount
of P16,123,918.02.[20]

Meanwhile from 1964 to 1965, VISCO also entered into a processing agreement with Petitioner Coastal Pacific
Trading, Inc. (Coastal). Pursuant to that agreement, petitioner delivered 3,000 metric tons of hot rolled steel coils to
VISCO for processing into block iron sheets. Contrary to their agreement, the latter was able to process and deliver
to petitioner only 1,600 metric tons of those sheets. Hence, a total of 1,400 metric tons of hot rolled steel coils
remained unaccounted for.[21] The fact that petitioner was among the major creditors of VISCO was recognized by the
latters vice-president, Vicente Garcia. [22] Indeed, on October 9, 1970, it forwarded to petitioner a proposal for a
Compromise Agreement.[23] Subsequent developments indicate, however, that the parties did not arrive at a
compromise.

Two years later, on October 20, 1972, Garcia wrote Arturo P. Samonte, representative of FEBTC[24] and director of
VISCO,[25] a letter that reads as follows:

In the light of recent development on IISMI and Elirol which were taken over by the government, I suggest that we
take certain precautionary measures to protect the interests of the Consortium of Banks. One such step may be to
insure the safety of the unexpended funds of VISCO from any contingencies in the future. As of now VISCOs account
with the Far East Bank is in the name of BOARD OF TRUSTEES VISCO CONSORTIUM OF BANKS. It may be
better to eliminate the term VISCO and just call the account BOARD OF TRUSTEES CONSORTIUM OF BANKS. [26]

According to a notation on this letter, an FEBTC assistant cashier named Silverio duly complied with the above
request.[27] Indeed, events would later reveal that the bank held a deposit account in the name of the Board of
Trustees-Consortium of Banks.[28]
On September 20, 1974, respondent banks held a luncheon meeting [29] in the FEBTC Boardroom to discuss how
they would address the insistent demands of the DBP for VISCO to settle its obligations. Jose B. Fernandez,
Jr., VISCOs then chairman and concurrent FEBTC President, [30] expressed his apprehension that either the DBP or
the government would soon pursue extra-judicial foreclosure against VISCO.

In this regard, Fernandez informed the members of the Consortium that he had received letter-offers from two
corporations that were interested in purchasing VISCOs generator sets.[31] After deliberating on the matter, the
members decided to approve the sale of these two generator sets to Filmag (Phil.), Inc. It was also agreed that the
proceeds of the sale would be used to pay VISCOs indebtedness to DBP and to secure the release of the first
mortgage.[32] The Consortium agreed with Filmag on the following payment procedure:

The payment procedure will be as follows: Filmag pays to VISCO; VISCO pays the Consortium; and then the
Consortium pays the DBP with the arrangement that the Consortium subrogates to the rights of the DBP as first
mortgagee to the VISCO plant. The Consortium further agreed to call a meeting of the VISCO board of directors for
the purpose of considering and formally approving the proposed sale of the 2 generators to Filmag.[33]

Accordingly, on October 4, 1974, the VISCO board of directors had a meeting in the FEBTC Boardroom. [34] The board
was asked to decide how VISCO would settle its debt to DBP: whether by asking the Consortium to put up the
necessary amount or by accepting Filmags offer to purchase VISCOs generator sets.[35] The latter option was
unanimously chosen[36] in a Resolution worded as follows:

RESOLVED, That the offer of Filmag (Philippines) Inc. in their letters of December 14, 1973 and March 19,
1974 to purchase two (2) units of generator sets, including standard accessories, of VISCO is hereby accepted under
the following terms and conditions:

xxxxxxxxx
 2. The price for the two (2) generator sets is PESOS: ONE MILLION FIVE HUNDRED FIFTY THOUSAND
FIVE HUNDRED SEVENTY TWO ONLY (P1,550,572) x x x and shall be payable upon signing of a letter-agreement
and which shall be later formalized into a Deed of Sale. The amount, however, shall be held by the depositary bank of
VISCO, Far East Bank and Trust Company, in escrow and shall be at VISCOs disposal upon the signing of Filmag of
the receipt/s of delivery of the said two (2) generator sets.

xxxxxxxxx

FURTHER RESOLVED, That the sales proceeds of PESOS: ONE MILLION FIVE HUNDRED FIFTY
THOUSAND FIVE HUNDRED SEVENTY TWO ONLY (P1,550,572) shall be utilized to pay the liability of VISCO with
the Development Bank of the Philippines.[37]

The sale of the generator sets to Filmag took place and, according to the testimony of Garcia, the proceeds were
deposited with FEBTC in a special account held in trust for the Consortium. [38]

A year after, on May 22, 1975, petitioner filed with the Pasig Regional Trial Court (RTC) a Complaint [39] for
Recovery of Property and Damages with Preliminary Injunction and Attachment. [40] Petitioners allegation was that
VISCO had fraudulently misapplied or converted the finished steel sheets entrusted to it. [41] On June 3, 1975, Judge
Pedro A. Revilla issued a Writ of Preliminary Attachment over its properties that were not exempt from execution. [42]
In compliance with the Writ, Sheriff Andres R. Bonifacio attempted to garnish the account of VISCO in FEBTC,
[43]
which denied holding that account. Instead, the bank admitted that what it had was a deposit account in the name
of the Board of Trustees-Consortium of Banks, particularly Account No. 2479-1. [44] FEBTC reported to
Sheriff Bonifacio that it had instructed its accounting department to hold the account, subject to the prior liens or
rights in favor of [FEBTC] and other entities.[45]
While petitioners case was pending, VISCOs vice-president (Garcia) and director (Arturo Samonte) requested
from FEBTC a cash advance of P1,342,656.88 for the full settlement of VISCOs account with DBP.[46] On June 29,
1976, FEBTC complied by issuing Check No. FE239249 for P1,342,656.88, payable to [DBP] for [the] account of
VISCO.[47] On even date, DBP executed a Deed of Assignment of Mortgage Rights Interest and Participation [48] in favor
of Respondent Consortium of Banks. The deed stated that, in consideration of the payment made, all of DBPs rights
under the mortgage agreement with VISCO were being transferred and conveyed to the Consortium. [49] Thus did the
latter obtain DBPs recorded primarylien over the real and chattel properties of VISCO.

On September 23, 1980, the Consortium filed a Petition for Extra-Judicial Foreclosure with the Office of the
Provincial Sheriff of Bohol.[50] The Notice of Extrajudicial Foreclosure of Mortgage, published in
the Bohol Newsweek on October 10, 1980, announced that the auction sale was scheduled for November 11, 1980.[51]

On November 3, 1980, Southern Industrial Projects, Inc. (SIP), which was a judgment creditor [52] of VISCO,
filed Civil Case No. 3383. It was a Complaint[53] for Declaration of Nullity of the Mortgage and Injunction to Restrain
the Consortium from Proceeding with the Auction Sale. SIP argued that DBP had actually been paid by VISCO with
the proceeds from the sale of the generator sets. Hence, the mortgage in favor of that bank had been extinguished by
the payment and could not have been assigned to the Consortium. [54] A temporary restraining order against the latter
was thus successfully obtained; the provincial sheriff could not proceed with the auction sale of the mortgaged
assets.[55] But SIPs victory was short-lived.On March 2, 1984, Civil Case No. 3383 was decided in favor of the
Consortium.[56] Judge Andrew S. Namocatcat ruled thus:
The evidence of the plaintiff is only anchored on the fact that the deed of assignment executed by the DBP
in favor of the defendant banks is an act which would defraud creditors. It is the thinking of the court that the
payment of defendant banks to DBP of VISCOs loan and the execution of the DBP of the deed of assignment of
credit and rights to the defendant banks is in accordance with Article 1302 and 1303 of the New Civil Code, and said
transaction is not to defraud creditors because the defendant banks are also creditors of VISCO.[57]

On June 14, 1985, this Decision was affirmed by the Intermediate Appellate Court in CA-GR No. 03719. [58]

The auction sale of VISCOs mortgaged properties took place on March 19, 1985 and the Consortium emerged
as the highest
bidder.[59] The Certificate of Sale[60] in its favor was registered on May 22, 1985.[61]

On June 27, 1985, VISCO executed through Vicente Garcia, a Deed of Assignment of Right of Redemption [62] in
favor of the National Steel Corporation (NSC), in consideration of P100,000. [63] On the same day, the Consortium sold
the foreclosed real and personal properties of VISCO to the NSC. [64]

On August 16, 1985, petitioner filed against respondents Civil Case No. 3929, which was a Complaint for
Annulment or Rescission of Sale, Damages with Preliminary Injunction. [65] Coastal alleged that, despite the Writ of
Attachment issued in its favor in the still pending Civil Case No. 21272, the Consortium had sold the properties to
NSC. Further, despite the attachment of the properties, the Consortium was allegedly able to sell and place them
beyond the reach of VISCOs other creditors.[66] Thus imputing bad faith to respondent banks actions, petitioner said
that the sale was intended to defraud VISCOs other creditors.

Petitioner further contended that the assignment in favor of the Consortium was fraudulent, because DBP had
been paid with the proceeds from the sale of the generator sets owned by VISCO, and not with the Consortiums own
funds.[67] Petitioner offered as proof the minutes of the meeting [68] in which the transaction was decided. Respondent
Consortium countered that the minutes would in fact readily disclose that the intention of its members was to apply
the proceeds to a partial payment to DBP.[69] Respondent insisted that it used its own funds to pay the bank. [70]

On August 20, 1985, a temporary restraining order (TRO) [71] was issued by Judge Mercedes Gozo-
Dadole against VISCO, enjoining it from proceeding with the removal or disposal of its properties; the execution
and/or consummation of the foreclosure sale; and the sale of the foreclosed properties to NSC. On September 6,
1985, the trial court issued an Order requiring the Consortium to post a bond of P25 million in favor of Coastal for
damages that petitioner may suffer from the lifting of the TRO. The bond filed was then approved by the RTC in its
Order of September 13, 1985.[72]

On December 15, 1986, Civil Case No. 21272 was finally decided by Judge Nicolas P. Lapena, Jr., in favor of Coastal.
[73]
VISCO was ordered to pay petitioner the sum of P851,316.19 with interest at the legal rate, plus attorneys fees
of P50,000.00 and costs.[74] Coastal filed a Motion for Execution, [75] but the judgment has remained unsatisfied to
date.

On January 5, 1992, a Decision[76] on Civil Case No. 3929 was rendered as follows:

WHEREFORE, this Court hereby renders judgment in favor of the defendants and against the plaintiff Coastal
Pacific Trading, Inc. BY WAY OF THE MAIN COMPLAINT, to wit:

1. Declaring the extrajudicial foreclosure sale conducted by the sheriff and the
corresponding certificate of sale executed by the defendant sheriffs on March 15, 1985 relative to
the real properties of the defendant SRM/VISCO of Cortes, Bohol, Philippines, which were
registered in the Register of Deeds of Bohol, on May 22, 1985 and the Transfer of Assignment to
the defendant National Steel Corporation of any or part of the foreclosed properties arising from
the extrajudicial foreclosure sale as valid and legal;
2. Ordering the plaintiff Coastal Pacific Trading Inc. to pay the defendant Consortium of
Banks[,] Southern Rolling Mills, Co., Inc., Far East Bank & Trust Company, Philippine
Commercial Industrial Bank, Equitable Banking Corporation, Prudential Bank, Board of Trustees-
Consortium of Banks- [VISCO], United Coconut Planters Bank, City Trust Banking Corporation,
Associated Bank, Insular Bank of Asia and America, International Corporate Bank, Commercial
Bank of Manila, Bank of the Philippine Islands and the National Steel Corporation in the instant
case the amount of FIVE HUNDRED THOUSAND PESOS (P500,000.00) representing damages;

3. Ordering the plaintiff The (sic) Coastal Pacific Trading Inc. to pay the defendants the
amount of FIFTEEN THOUSAND PESOS (P15,000.00) representing attorneys fees;

4. Dismissing the Amended Complaint of the plaintiff;

5. Ordering the plaintiff to pay the cost; AND
BY WAY OF CROSS CLAIM INTERPOSED
BY THE DEFENDANT National Steel Corporation against the Consortium of Banks and
SRM/VISCO, the same is dismissed for lack of merit, without pronouncement as to cost.[77]

Insisting that the trial court erred in holding that it had failed to prove its case by preponderance of evidence,
Coastal filed an appeal with the CA.Allegedly, the purported insufficiency of proof was based on the sole ground that
petitioner did not file an objection when the properties were sold on execution. It contended that the court a quo had
arrived at this erroneous conclusion by relying on inapplicable jurisprudence. [78]

Additionally, Coastal argued that the trial court had erred in not annulling the foreclosure proceedings and
sale for being fictitious and done to defraud petitioner as VISCOs creditor. Supposedly, the DBP mortgage had
already been extinguished by payment; thus, the bank could not have assigned the contract to the Consortium. [79]

Petitioner also prayed for the annulment of the sale in favor of NSC on the ground that the latter was a party
to the fraudulent foreclosure and, hence, not a buyer in good faith. [80]

Ruling of the Court of Appeals

 At the outset, the CA stressed that the validity of the Consortiums mortgage, foreclosure, and assignments
had already been upheld in CA-GR CV No. 03719, entitled Southern Industrial Projects v. United Coconut
Planters Bank [81] Citing Valencia v. RTC of Quezon City, Br. 90[82] and Vda. deCruzo v. Carriaga, [83] the CA
explained that the absolute identity of parties was not necessary for the application of res judicata. All that was
required was a shared identity of interests, as shown by the identity of reliefs sought by one person in a prior case
and by another in a subsequent case.

While Coastal was not a party to Southern Industrial Projects, it should nevertheless be bound by that Decision,
because it had raised substantially the same claim and cause of action as SIP, according to the appellate court. The CA held
that the basic reliefs sought by Coastal and SIP were substantially the same: the nullification of the Deed of Assignment in
favor of the Consortium, the foreclosure sale, and the subsequent sale to NSC. Because this identity of reliefssought showed
an identity of interests, the CA concluded that it need not rule on those issues.[84]

As to the issue that the DBP mortgage had been extinguished by payment, the CA quoted its earlier Decision
in Southern Industrial Projects:

The evidence shows that the proceeds of the sale of the two generating sets were applied by defendants-
appellees in the payment of the outstanding obligation of VISCO. It appears that said proceeds were deposited in the
bank account of the consortium of creditors to avoid it being garnished by the creditors notwithstanding the set-
off, VISCO was still indebted to the defendants-appellees.

The evidence x x x shows that upon VISCOs request for [cash] advance, the Far East Banks (sic) and Trust
Co., the manager of the consortium of creditors, issued FEBTC check No. 239249 on June 29, 1976 in the amount
of P1,342,656.68 payable to the DBP to pay off its loan to the latter.

xxxxxxxxx

x x x. A public document celebrated with all the legal formalities under the safeguard of notarial certificate is
evidence against a party, and a high degree [of] proof is necessary to overcome the legal presumption that the recital
is true. The biased and interested testimony of one of the parties to such instrument who attempts to vary or
repudiate what it purports to be, cannot overcome the evidentiary force of what is recited in the document.[85]

The appellate court also rejected petitioners contention that the Consortiums Petition for Extrajudicial
Foreclosure was already barred by the earlier resort to a judicial foreclosure. The CA clarified that in filing a Petition
for Judicial Foreclosure, the Consortium had pursued its right as junior encumbrancer. On the other hand, the
Consortium filed a Petition for Extrajudicial Foreclosure as a first encumbrancer by virtue of DBPs assignment in its
favor.[86]

The CA also rejected petitioners theory of extinguishment of obligation by merger. It observed that the
merger could not have possibly taken place, because respondent banks and VISCO were not creditors and debtors in
their own right.[87]

Petitioners Motion for Reconsideration, [88] which was received by the CA on November 15, 1994,[89] was
denied for lack of merit.
Hence, this Petition.[90]

Issues

Petitioner raises the following issues for our consideration:

Respondent Court of Appeals, seemingly to avoid the irrefutable evidence of fraud and collusion practised by
[respondents] against [Petitioner] Coastal, erroneously sustained the trial courts holding that the present case is
barred by res judicata because of the previous decision in the case of Southern Industrial Projects, Inc., vs. United
Coconut Planters Bank, CA-G.R. No. 03719, considering that the elements that call for the application of this rule are
not present in the case at bar, and the exceptions allowed by this Honorable Supreme Court are not applicable here
for variance or distinction in facts and issues, x x x:[91]

"II
 Respondent Court of Appeals further erred in not annulling the Deed of Assignment of the DBP mortgage x x x, the
extrajudicial foreclosure proceedings of the two mortgages x x x, and the separate sale of the land and machineries as
real and personal properties by the foreclosing banks to NSC, as well as the assignment or waiver of
SRM/Viscos legal right of redemption over the foreclosed properties, for being fraudulently executed through
collusion among the [respondents] and in fraud of SRM/Viscos creditor, [Petitioner] Coastal, x x x;[92]

Stripped of nonessentials, the two issues may be restated as follows:

1. Whether the present action is barred by res judicata

2. Whether respondents disposed of VISCOs assets in fraud of the creditors

The Courts Ruling

The Petition is meritorious.

First Issue:
Res judicata

The CA cited Valencia v. RTC of Quezon City[93] to support the finding that SIP and Coastal were substantially
the same parties. We distinguish.

In Valencia, the plaintiff-intervenor in the first case, Cario, claimed Lot 4 based on an alleged purchase
of Valencias squatters rights over the property. The trial court dismissed the claim and held that no such purchase
ever took place.[94] It also held that, on the assumption that a sale had taken place, the sale was null and void for
being contrary to the pertinent housing law. It also found that all current occupants of Lot 4 were illegal squatters;
thus, it ordered their ejectment.

When this first case attained finality, Carinos daughter, Catbagan, filed another suit
against Valencia. Catbagan challenged the applicability of the ejectment Order issued to her; as an occupant of the
lot, she was allegedly not a party to the first case. Her Petition was denied for lack of merit.[95]

The execution of the Decision in the first case was again forestalled when Llanes, Carios sister-in-law who
was another occupant of Lot 4, filed another suit against the same respondent. Like Cario, Llanes insisted on having
purchased the subject lot from Valencia.[96] This Court ruled that the suit was barred by res judicata. There was a
substantial identity of parties, because the right claimed by both Cario and Llanes were based on each ones alleged
purchase of Valencias squatters rights.[97]

In the first case, sales of squatters rights were already categorically declared null and void for being contrary
to law. Thus, Llanes admission that she had purchased Valencias squatters rights placed her in the same category
as Cario. The purchase could not be treated differently, because the final and executory Decision held
that all purchases of squatters rights (regardless of who the purchasers were) were null and void.[98]

Further, the earlier ruling held that the present occupants are illegal squatters. That ruling included Llanes,
who was admittedly one of the occupants. [99] Simply put, she and Valencia were considered identical parties for
purposes of res judicata, because they were obviously litigating under the same void title and capacity as vendees of
squatters rights and as occupants of Lot 4.

Moreover, we held in Valencia that Llanes suit was merely a clear attempt to prevent or delay the execution
of the judgment in the first case, which had become final by reason of the three affirmances by this Court. The
pattern to obstruct the execution of the first judgment was obvious: after Cario lost the first case, her daughter filed
a second one. When the daughter lost the second, the daughter-in-law filed a third case. It may be observed that the
three successive plaintiffs were all occupants of the same property and belonged to the same family; this fact was
also indicative of their privity.
Given this background, it becomes clear that the finding of a substantial identity of parties in Valencia was
based on its peculiar factual circumstances, which are different from those in the present case.

Unlike Llanes, Coastal is not asserting a right that has been categorically declared null and void in a prior
case. In fact, its right based on the processing agreement was upheld in Civil Case No. 21272. Clearly, Coastal cannot
be treated in the same manner as Llanes.
 The CA erred in applying Southern Industrial Projects v. United Coconut Planters Bank [100] as a bar
by res judicata with respect to the present case. For this principle to apply, the following elements must concur: a)
the former judgment was final; b) the court that rendered it had jurisdiction over the subject matter and the parties;
c) the judgment was based on the merits; and, d) between the first and the second actions, there is an identity of
parties, subject matters, and causes of action.[101]
It is axiomatic that res judicata does not require an absolute, but only a substantial, identity of parties. There
is a substantial identity when there is privity between the two parties or they are successors-in-interest by title
subsequent to the commencement of the action, litigating for the same thing, under the same title, and in the same
capacity.[102] Petitioner was not acting in the same capacity as SIP when it filed Civil Case No. 3383, which eventually
became AC-GR CV No. 03719. It brought this latter action as a creditor under a processing agreement with VISCO;
on the other hand, the latter was sued by SIP, based on an alleged breach of their management contract. Very clearly,
their rights were entirely distinct and separate from each other. In no manner were these two creditors privies of
each other.

The causes of action in the two Complaints were also different. Causes of action arise from violations of
rights. A single right may be violated by several acts or omissions, in which case the plaintiff has only one cause of
action. Likewise, a single act or omission may violate several rights at the same time, as when the act constitutes a
violation of separate and distinct legal obligations. [103] The violation of each of these separate rights is a separate
cause of action in itself. [104] Hence, although these causes of action arise from the same state of facts, they are
distinct and independent and may be litigated separately; recovery on one is not a bar to subsequent actions on the
others.[105]

In the present case, the right of SIP (arising from its management contract with VISCO) is totally distinct and
separate from the right of Coastal (arising from its processing contract with VISCO). SIP and Coastal are asserting
distinct rights arising from different legal obligations of the debtor corporation. Thus, VISCOs violation of those
separate rights has given rise to separate causes of action.
The confusion in the resolution of the issue of identity of parties occurred, because the two creditors were
assailing the same transactions of VISCO on the same grounds. Since the two cases they filed presented similar legal
issues, the appellate court held that its ruling in AC-GR CV No. 03719 was also applicable to the instant case.

Common but palpable is this misconception of the doctrine of res judicata. Persons do not become privies by
the mere fact that they are interested in the same question or in proving the same set of facts, or that one person is
interested in the result of a litigation involving the other.Hence, several creditors of one debtor cannot be considered
as identical parties for the purpose of assailing the acts of the debtor. They have distinct credits, rights, and
interests, such that the failure of one to recover should not preclude the other creditors from also pursuing their
legal remedies.

Further, petitioner, which was not a party to Southern Industrial Projects (their causes of action being
separate and distinct), did not have the opportunity to be heard in that case, much less to present its own
evidence. Thus, to bind petitioner to the Decision in that case would clearly violate its rights to due process. As a
separate party, it has the right to have its arguments and evidence evaluated on their own merits.

Second Issue:
Fraud of Creditors

We now come to the heart of the Petition. Coastal alleges that the assignment of mortgage, the extrajudicial
foreclosure proceedings, and the sale of the properties of VISCO should all be rescinded on the ground that they
were done to defraud the latters creditors.

The CA found no merit in petitioners arguments. It ruled that the assignment conformed to the requirements
of law; that the consideration for the assignment had allegedly been given by FEBTC; and that, hence, the
Consortium had a right to foreclose on the mortgaged properties.

By focusing on the innate validity of these Contracts, the CA totally overlooked the issue of fraud as a ground
for rescission. Elementary is the principle that the validity of a contract does not preclude its rescission. Under
Articles 1380 and 1381 (3) of the Civil Code, contracts that are otherwise valid between the contracting parties may
nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. [106] In fact, rescission
implies that there is a contract that, while initially valid, produces a lesion or pecuniary damage to someone. [107] Thus,
when the CA confined itself to the issue of the validity of these contracts, it did not at all address the heart of
petitioners cause of action: whether these transactions had been undertaken by the Consortium to
defraud VISCOs other creditors.

There is more than a preponderance of evidence showing the Consortiums deliberate plan to
defraud VISCOs other creditors.
Consortium Banks as Directors

It will be recalled that Respondent Consortium took over management and control of VISCO by acquiring 90
percent of the latters equity. Thus, 9 out of the 10 directors of the corporation were all officials of the Consortium,
[108]
which may thus be said to have effectively occupied and/or controlled the board. Significantly, nowhere in the
records can we find any denial by respondent of this allegation by petitioner. [109]

As directors of VISCO, the officials of the Consortium were in a position of trust; thus, they owed it a duty of
loyalty. This trust relationship sprang from the fact that they had control and guidance over its corporate affairs and
property.[110] Their duty was more stringent when it became insolvent or without sufficient assets to meet its
outstanding obligations that arose. Because they were deemed trustees of the creditors in those instances, they
should have managed the corporations assets with strict regard for the creditors interests. When these directors
became corporate creditors in their own right, they should not have permitted themselves to secure any undue
advantage over other creditors.[111] In the instant case, the Consortium miserably failed to observe its duty of fidelity
towards VISCO and its creditors.

Duty of the Consortium Banks

to VISCOs Creditors

Recall that as early as 1966, the Consortium, through its directors on the board of VISCO, had already
assumed management and control over the latter. Hence, when VISCO recognized its outstanding liability to
petitioner in 1970 and offered a Compromise Agreement, [112] respondent banks were already at the helm of the
debtor corporation. The members of the Consortium, therefore, cannot deny that they were aware of those claims
against the corporation. Nonetheless, they did not adopt any measure to protect petitioners credit.

Quite the opposite, they even took steps to hide VISCOs unexpended funds. Garcias 1972 letter
to Samonte unmistakably reveals that they kept those funds in an account named Board of Trustees VISCO
Consortium of Banks. This fact alone shows an effort to hide, with the evident intent to keep, those funds
for themselves. The letter even says that, for the protection of the Consortium, the name VISCO should be eliminated
entirely, so that the account name would read Board of Trustees Consortium of Banks. Clearly, this particular move
was found to be necessary to avoid a takeover by the government, which was also a creditor of VISCO. [113] This
express intent of the latter, under the direction and for the benefit of the Consortium, corroborated petitioners
contention that respondent banks had defrauded VISCOs creditors.

Assignment of Mortgage
in Favor of the Consortium Banks

The assignment of mortgage in favor of the Consortium also bears the earmarks of fraud. Initially, respondent
banks had agreed that VISCO should sell two of its generator sets, so that the proceeds could be utilized to pay
DBP. This plan was direct, simple, and would extinguish the encumbrance in favor of the bank.

Then, quite surprisingly, the Consortium set down the following payment procedure: Filmag would pay
VISCO; the latter would pay the Consortium, which would pay DBP; and the Consortium would then subrogate DBP
to the latters rights as first mortgagee. One is then led to ask: if the intention was to pay DBP; from the sales
proceeds of the generator sets, why did the money have to pass through the Consortium?

The answer lies in the nature of respondents mortgage. It will be recalled that this mortgage remained
unrecorded and not legally binding on the other creditors. [114] Thus, if DBP had been directly paid by VISCO, the
latter could have freed up its properties to the satisfaction of all its other creditors. This procedure would have been
fair to all, but it was not followed by the Consortium.

Instead, the proceeds from the sale of the generator sets were first paid to respondent banks, which used the
money to pay DBP. The last step in the payment procedure explains the reason for this preferred though roundabout
manner of payment. This final step entitled the Consortium to obtain DBPs primary lien through an assignment by
allowing it to pay VISCOs loan to the bank, without incurring additional expenses.

In the end, by collecting the money from VISCO, respondent banks recovered what they had ostensibly
remitted to DBP. Moreover, the primary lien that respondent banks acquired allowed them, as unsecured creditors of
VISCO, to foreclose on the assets of the corporation without regard to its inferior claims. It was a clever ruse that
would have worked, were it not done by creditors who were duty-bound, as directors, not to take clever advantage of
other creditors.
 To be sure, there was undue advantage. The payment scheme devised by the Consortium continued the
efficacy of the primary lien, this time in its favor, to the detriment of the other creditors. When one considers its
knowledge that VISCOs assets might not be enough to meet its obligations to several creditors, [115] the intention to
defraud the other creditors is even more striking. Fraud is present when the debtor knows that its actions would
cause injury.[116]

The assignment in favor of the Consortium was a rescissible contract for having been undertaken in fraud of
creditors.[117] Article 1385 of the Civil Code provides for the effect of rescission, as follows:

Rescission creates the obligation to return the things which were the object of the contract, together with
their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission
can return whatever he may be obliged to restore.

Neither shall rescission take place when the things which are the object of the contract are legally in the
possession of third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss.

Indeed, mutual restitution is required in all cases involving rescission. But when it is no longer possible to
return the object of the contract, an indemnity for damages operates as restitution. The important consideration is
that the indemnity for damages should restore to the injured party what was lost.

In the case at bar, it is no longer possible to order the return of VISCOs properties. They have already been
sold to the NSC, which has not been shown to have acted in bad faith. The party alleging bad faith must establish it
by competent proof. Sans that proof, purchasers are deemed to be in good faith, and their interest in the subject
property must not be disturbed. Purchasers in good faith are those who buy the property of another without notice
that some other person has a right to or interest in the property; and who pay the full and fair price for it at the time
of the purchase, or before they get notice of some other persons claim of interest in the property. [118]

In the present case, petitioner failed to discharge its burden of proving bad faith on the part of NSC. There is
insufficient evidence on record that the latter participated in the design to defraud VISCOs creditors. To NSC,
petitioner imputes fraud from the sole fact that the former was allegedly aware that its vendor, the Consortium, had
taken control over VISCO including the corporations assets. [119] We cannot appreciate how knowledge of the takeover
would necessarily implicate anyone in the Consortiums fraudulent designs. Besides, NSC was not shown to be privy
to the information that VISCO had no other assets to satisfy other creditors respective claims.

The right of an innocent purchaser for value must be respected and protected, even if its vendors obtained
their title through fraud.[120]Pursuant to this principle, the remedy of the defrauded creditor is to sue for damages
against those who caused or employed the fraud. Hence, petitioner is entitled to damages from the Consortium.

Award of Damages

It is essential that for damages to be awarded, a claimant must satisfactorily prove during the trial that they have a
factual basis, and that the defendants acts have a causal connection to them. [121] Thus, the question of damages
should normally call for a remand of the case to the lower court for further proceedings. Considering, however, the
length of time that petitioners just claim has been thwarted, we find it in the best interest of substantial justice to
decide the issue of damages now on the basis of the available records. A remand for further proceedings would only
result in a needless delay.

Going over the records of the case, we find that petitioner has a final and executory judgment in its favor in
Civil Case No. 21272. The judgment in that case reads as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs ordering defendant VISCO/SRM to pay
the plaintiffs the sum of P851,316.19 with interest thereon at the legal rate from the filing of this complaint, plus
attorneys fees of P50,000.00 and to pay the costs.[122]

The foregoing is the judgment credit that petitioner cannot enforce against VISCO because of Respondent
Consortiums fraudulent disposition of the corporations assets. In other words, the above amounts define the extent of
the actual damage suffered by Coastal and the amount that respondent has to restore pursuant to Article 1385.
 On the basis of the finding of fraud, the award of exemplary damages is in order, to serve as a warning to
other creditors not to abuse their rights. Under Article 2229 of the Civil Code, exemplary or corrective damages are
imposed by way of example or correction for the public good. By their nature, exemplary damages should be imposed
in an amount sufficient and effective to deter possible future similar acts by respondent banks.The court finds the
amount of P250,000 sufficient in the instant case.

As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot
experience physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and moral shock.
[123]
The only exception to this rule is when the corporation has a good reputation that is debased, resulting in its
humiliation in the business realm. [124] In the present case, the records do not show any evidence that the name or
reputation of petitioner has been sullied as a result of the Consortiums fraudulent acts. Accordingly, moral damages
are not warranted.

WHEREFORE, the Petition is GRANTED. The assailed Decision of the Court of Appeals dated September 27, 1994,
and its Resolution dated January 5, 1995, are hereby REVERSED and SET ASIDE. Respondent Consortium of Banks
is ordered to PAY Petitioner Coastal Pacific Trading, Inc., the sum adjudged by the Regional Trial Court of Pasig,
Branch 167, in Civil Case No. 21272 entitled Coastal Pacific Trading, Felix de la Costa, and Aurora
del Banco v. Visayan Integrated Corporation, to wit: x x x the sum of P851,316.19 with interest thereon at the legal
rate from the filing of [the] [C]omplaint, plus attorneys fees of P50,000 and x x x the costs. Respondent Consortium of
Banks is further ordered to pay petitioner exemplary damages in the amount of P250,000.

SO ORDERED.