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SOLE PROPRIETORSHIP and the summons.

Hence, petitioner claimed the court


had not acquired jurisdiction over her person.9
G.R. No. 125027 August 12, 2002
In the hearing of the Urgent Motion to Discharge
ANITA MANGILA, petitioner, Attachment on November 11, 1988, private respondent
vs. sought and was granted a re-setting to December 9, 1988.
COURT OF APPEALS and LORETA On that date, private respondent’s counsel did not appear,
GUINA, respondents. so the Urgent Motion to Discharge Attachment was
CARPIO, J.: deemed submitted for resolution.10

The Case The trial court granted the Motion to Discharge


Attachment on January 13, 1989 upon filing of petitioner’s
This is a petition for review on certiorari under Rule 45 of counter-bond. The trial court, however, did not rule on the
the Rules of Court, seeking to set aside the Decision1 of question of jurisdiction and on the validity of the writ of
the Court of Appeals affirming the Decision2 of the preliminary attachment.
Regional Trial Court, Branch 108, Pasay City. The trial
court upheld the writ of attachment and the declaration of On December 26, 1988, private respondent applied for an
default on petitioner while ordering her to pay private alias summons, which the trial court issued on January 19,
respondent P109,376.95 plus 18 percent interest per 1989.11 It was only on January 26, 1989 that summons
annum, 25 percent attorney’s fees and costs of suit. was finally served on petitioner.12

The Facts On February 9, 1989, petitioner filed a Motion to Dismiss


the Complaint on the ground of improper venue. Private
Petitioner Anita Mangila ("petitioner" for brevity) is an respondent’s invoice for the freight forwarding service
exporter of sea foods and doing business under the name stipulates that "if court litigation becomes necessary to
and style of Seafoods Products. Private respondent enforce collection xxx the agreed venue for such action is
Loreta Guina ("private respondent" for brevity) is the Makati, Metro Manila."13 Private respondent filed an
President and General Manager of Air Swift International, Opposition asserting that although "Makati" appears as
a single registered proprietorship engaged in the freight the stipulated venue, the same was merely an
forwarding business. inadvertence by the printing press whose general
manager executed an affidavit14 admitting such
Sometime in January 1988, petitioner contracted the
inadvertence. Moreover, private respondent claimed that
freight forwarding services of private respondent for
petitioner knew that private respondent was holding office
shipment of petitioner’s products, such as crabs, prawns
in Pasay City and not in Makati.15 The lower court, finding
and assorted fishes, to Guam (USA) where petitioner
credence in private respondent’s assertion, denied the
maintains an outlet. Petitioner agreed to pay private
Motion to Dismiss and gave petitioner five days to file her
respondent cash on delivery. Private respondent’s invoice
Answer. Petitioner filed a Motion for Reconsideration but
stipulates a charge of 18 percent interest per annum on
this too was denied.
all overdue accounts. In case of suit, the same invoice
stipulates attorney’s fees equivalent to 25 percent of the Petitioner filed her Answer16 on June 16, 1989,
amount due plus costs of suit.3 maintaining her contention that the venue was improperly
laid.
On the first shipment, petitioner requested for seven days
within which to pay private respondent. However, for the On June 26, 1989, the trial court issued an Order setting
next three shipments, March 17, 24 and 31, 1988, the pre-trial for July 18, 1989 at 8:30 a.m. and requiring
petitioner failed to pay private respondent shipping the parties to submit their pre-trial briefs. Meanwhile,
charges amounting to P109, 376.95.4 private respondent filed a Motion to Sell Attached
Properties but the trial court denied the motion.
Despite several demands, petitioner never paid private
respondent. Thus, on June 10, 1988, private respondent On motion of petitioner, the trial court issued an Order
filed Civil Case No. 5875 before the Regional Trial Court resetting the pre-trial from July 18, 1989 to August 24,
of Pasay City for collection of sum of money. 1989 at 8:30 a.m..
On August 1, 1988, the sheriff filed his Sheriff’s Return On August 24, 1989, the day of the pre-trial, the trial court
showing that summons was not served on petitioner. A issued an Order17 terminating the pre-trial and allowing
woman found at petitioner’s house informed the sheriff the private respondent to present evidence ex-parte on
that petitioner transferred her residence to Sto. Niño, September 12, 1989 at 8:30 a.m.. The Order stated that
Guagua, Pampanga. The sheriff found out further that when the case was called for pre-trial at 8:31 a.m., only
petitioner had left the Philippines for Guam.5 the counsel for private respondent appeared. Upon the
trial court’s second call 20 minutes later, petitioner’s
Thus, on September 13, 1988, construing petitioner’s
counsel was still nowhere to be found. Thus, upon motion
departure from the Philippines as done with intent to
of private respondent, the pre-trial was considered
defraud her creditors, private respondent filed a Motion for
terminated.
Preliminary Attachment. On September 26, 1988, the trial
court issued an Order of Preliminary Attachment6 against On September 12, 1989, petitioner filed her Motion for
petitioner. The following day, the trial court issued a Writ Reconsideration of the Order terminating the pre-trial.
of Preliminary Attachment. Petitioner explained that her counsel arrived 5 minutes
after the second call, as shown by the transcript of
The trial court granted the request of its sheriff for
stenographic notes, and was late because of heavy traffic.
assistance from their counterparts in RTC, Pampanga.
Petitioner claims that the lower court erred in allowing
Thus, on October 28, 1988, Sheriff Alfredo San Miguel of
private respondent to present evidence ex-parte since
RTC Pampanga served on petitioner’s household help in
there was no Order considering the petitioner as in default.
San Fernando, Pampanga, the Notice of Levy with the
Petitioner contends that the Order of August 24, 1989 did
Order, Affidavit and Bond.7
not state that petitioner was declared as in default but still
On November 7, 1988, petitioner filed an Urgent Motion the court allowed private respondent to present evidence
to Discharge Attachment8 without submitting herself to ex-parte.18
the jurisdiction of the trial court. She pointed out that up to
then, she had not been served a copy of the Complaint
1
On October 6, 1989, the trial court denied the Motion for As a preliminary note, a distinction should be made
Reconsideration and scheduled the presentation of between issuance and implementation of the writ of
private respondent’s evidence ex-parte on October 10, attachment. It is necessary to distinguish between the two
1989.1âwphi1.nêt to determine when jurisdiction over the person of the
defendant should be acquired to validly implement the writ.
On October 10, 1989, petitioner filed an Omnibus Motion This distinction is crucial in resolving whether there is
stating that the presentation of evidence ex-parte should merit in petitioner’s argument.
be suspended because there was no declaration of
petitioner as in default and petitioner’s counsel was not This Court has long settled the issue of when jurisdiction
absent, but merely late. over the person of the defendant should be acquired in
cases where a party resorts to provisional remedies. A
On October 18, 1989, the trial court denied the Omnibus party to a suit may, at any time after filing the complaint,
Motion.19 avail of the provisional remedies under the Rules of Court.
On November 20, 1989, the petitioner received a copy of Specifically, Rule 57 on preliminary attachment speaks of
the Decision of November 10, 1989, ordering petitioner to the grant of the remedy "at the commencement of the
pay respondent P109,376.95 plus 18 percent interest per action or at any time thereafter."21 This phrase refers to
annum, 25 percent attorney’s fees and costs of suit. the date of filing of the complaint which is the moment that
Private respondent filed a Motion for Execution Pending marks "the commencement of the action." The reference
Appeal but the trial court denied the same. plainly is to a time before summons is served on the
defendant, or even before summons issues.
The Ruling of the Court of Appeals
In Davao Light & Power Co., Inc. v. Court of
On December 15, 1995, the Court of Appeals rendered a Appeals,22 this Court clarified the actual time when
decision affirming the decision of the trial court. The Court jurisdiction should be had:
of Appeals upheld the validity of the issuance of the writ
of attachment and sustained the filing of the action in the "It goes without saying that whatever be the acts
RTC of Pasay. The Court of Appeals also affirmed the done by the Court prior to the acquisition of
declaration of default on petitioner and concluded that the jurisdiction over the person of defendant -
trial court did not commit any reversible error. issuance of summons, order of attachment and
writ of attachment - these do not and cannot
Petitioner filed a Motion for Reconsideration on January 5, bind and affect the defendant until and unless
1996 but the Court of Appeals denied the same in a jurisdiction over his person is eventually
Resolution dated May 20, 1996. obtained by the court, either by service on him
of summons or other coercive process or his
Hence, this petition.
voluntary submission to the court’s authority.
The Issues Hence, when the sheriff or other proper officer
commences implementation of the writ of
The issues raised by petitioner may be re-stated as attachment, it is essential that he serve on the
follows: defendant not only a copy of the applicant’s
I. affidavit and attachment bond, and of the order of
attachment, as explicitly required by Section 5 of
WHETHER RESPONDENT COURT ERRED IN Rule 57, but also the summons addressed to
NOT HOLDING THAT THE WRIT OF said defendant as well as a copy of the complaint
ATTACHMENT WAS IMPROPERLY ISSUED xxx." (Emphasis supplied.)
AND SERVED;
Furthermore, we have held that the grant of the
II. provisional remedy of attachment involves three stages:
first, the court issues the order granting the application;
WHETHER THERE WAS A VALID second, the writ of attachment issues pursuant to the
DECLARATION OF DEFAULT; order granting the writ; and third, the writ is
III. implemented. For the initial two stages, it is not
necessary that jurisdiction over the person of the
WHETHER THERE WAS IMPROPER VENUE. defendant be first obtained. However, once the
implementation of the writ commences, the court must
IV.
have acquired jurisdiction over the defendant for without
WHETHER RESPONDENT COURT ERRED IN such jurisdiction, the court has no power and authority to
DECLARING THAT PETITIONER IS OBLIGED act in any manner against the defendant. Any order
TO PAY P109, 376.95, PLUS ATTORNEY’S issuing from the Court will not bind the defendant.23
FEES.20
In the instant case, the Writ of Preliminary Attachment
The Ruling of the Court was issued on September 27, 1988 and implemented on
October 28, 1988. However, the alias summons was
Improper Issuance and Service of Writ of Attachment served only on January 26, 1989 or almost three
Petitioner ascribes several errors to the issuance and months after the implementation of the writ of
implementation of the writ of attachment. Among attachment.
petitioner’s arguments are: first, there was no ground for The trial court had the authority to issue the Writ of
the issuance of the writ since the intent to defraud her Attachment on September 27 since a motion for its
creditors had not been established; second, the value of issuance can be filed "at the commencement of the
the properties levied exceeded the value of private action." However, on the day the writ was implemented,
respondent’s claim. However, the crux of petitioner’s the trial court should have, previously or simultaneously
arguments rests on the question of the validity of the writ with the implementation of the writ, acquired jurisdiction
of attachment. Because of failure to serve summons on over the petitioner. Yet, as was shown in the records of
her before or simultaneously with the writ’s the case, the summons was actually served on petitioner
implementation, petitioner claims that the trial court had several months after the writ had been implemented.
not acquired jurisdiction over her person and thus the
service of the writ is void.
2
Private respondent, nevertheless, claims that the prior or be brought.29 However, a mere stipulation on the venue of
contemporaneous service of summons contemplated in an action is not enough to preclude parties from bringing
Section 5 of Rule 57 provides for exceptions. Among such a case in other venues.30 The parties must be able to
exceptions are "where the summons could not be served show that such stipulation is exclusive. Thus, absent
personally or by substituted service despite diligent efforts words that show the parties’ intention to restrict the filing
or where the defendant is a resident temporarily absent of a suit in a particular place, courts will allow the filing of
therefrom x x x." Private respondent asserts that when a case in any venue, as long as jurisdictional
she commenced this action, she tried to serve summons requirements are followed. Venue stipulations in a
on petitioner but the latter could not be located at her contract, while considered valid and enforceable, do not
customary address in Kamuning, Quezon City or at her as a rule supersede the general rule set forth in Rule 4 of
new address in Guagua, Pampanga.24 Furthermore, the Revised Rules of Court.31 In the absence of qualifying
respondent claims that petitioner was not even in or restrictive words, they should be considered merely as
Pampanga; rather, she was in Guam purportedly on a an agreement on additional forum, not as limiting venue
business trip. to the specified place.32
Private respondent never showed that she effected In the instant case, the stipulation does not limit the venue
substituted service on petitioner after her personal service exclusively to Makati. There are no qualifying or restrictive
failed. Likewise, if it were true that private respondent words in the invoice that would evince the intention of the
could not ascertain the whereabouts of petitioner after a parties that Makati is the "only or exclusive" venue where
diligent inquiry, still she had some other recourse under the action could be instituted. We therefore agree with
the Rules of Civil Procedure. private respondent that Makati is not the only venue
where this case could be filed.
The rules provide for certain remedies in cases where
personal service could not be effected on a party. Section Nevertheless, we hold that Pasay is not the proper venue
14, Rule 14 of the Rules of Court provides that whenever for this case.
the defendant’s "whereabouts are unknown and cannot
be ascertained by diligent inquiry, service may, by leave Under the 1997 Rules of Civil Procedure, the general rule
of court, be effected upon him by publication in a is venue in personal actions is "where the defendant or
newspaper of general circulation x x x." Thus, if any of the defendants resides or may be found, or where
petitioner’s whereabouts could not be ascertained after the plaintiff or any of the plaintiffs resides, at the election
the sheriff had served the summons at her given address, of the plaintiff."33 The exception to this rule is when the
then respondent could have immediately asked the court parties agree on an exclusive venue other than the places
for service of summons by publication on petitioner.25 mentioned in the rules. But, as we have discussed, this
exception is not applicable in this case. Hence, following
Moreover, as private respondent also claims that the general rule, the instant case may be brought in the
petitioner was abroad at the time of the service of place of residence of the plaintiff or defendant, at the
summons, this made petitioner a resident who is election of the plaintiff (private respondent herein).
temporarily out of the country. This is the exact situation
contemplated in Section 16,26 Rule 14 of the Rules of Civil In the instant case, the residence of private respondent
Procedure, providing for service of summons by (plaintiff in the lower court) was not alleged in the
publication. complaint. Rather, what was alleged was the postal
address of her sole proprietorship, Air Swift International.
In conclusion, we hold that the alias summons belatedly It was only when private respondent testified in court, after
served on petitioner cannot be deemed to have cured the petitioner was declared in default, that she mentioned her
fatal defect in the enforcement of the writ. The trial court residence to be in Better Living Subdivision, Parañaque
cannot enforce such a coercive process on petitioner City.
without first obtaining jurisdiction over her person. The
preliminary writ of attachment must be served after or In the earlier case of Sy v. Tyson Enterprises, Inc.,34 the
simultaneous with the service of summons on the reverse happened. The plaintiff in that case was Tyson
defendant whether by personal service, substituted Enterprises, Inc., a corporation owned and managed by
service or by publication as warranted by the Dominador Ti. The complaint, however, did not allege the
circumstances of the case.27 The subsequent service of office or place of business of the corporation, which was
summons does not confer a retroactive acquisition of in Binondo, Manila. What was alleged was the residence
jurisdiction over her person because the law does not of Dominador Ti, who lived in San Juan, Rizal. The case
allow for retroactivity of a belated service. was filed in the Court of First Instance of Rizal, Pasig. The
Court there held that the evident purpose of alleging the
Improper Venue address of the corporation’s president and manager was
to justify the filing of the suit in Rizal, Pasig instead of in
Petitioner assails the filing of this case in the RTC of Manila. Thus, the Court ruled that there was no question
Pasay and points to a provision in private respondent’s that venue was improperly laid in that case and held that
invoice which contains the following: the place of business of Tyson Enterpises, Inc. is
"3. If court litigation becomes necessary to considered as its residence for purposes of venue.
enforce collection, an additional equivalent (sic) Furthermore, the Court held that the residence of its
to 25% of the principal amount will be charged. president is not the residence of the corporation because
The agreed venue for such action is Makati, a corporation has a personality separate and distinct from
Metro Manila, Philippines."28 that of its officers and stockholders.

Based on this provision, petitioner contends that the In the instant case, it was established in the lower court
action should have been instituted in the RTC of Makati that petitioner resides in San Fernando,
and to do otherwise would be a ground for the dismissal Pampanga35 while private respondent resides in
of the case. Parañaque City.36 However, this case was brought in
Pasay City, where the business of private respondent is
We resolve to dismiss the case on the ground of improper found. This would have been permissible had private
venue but not for the reason stated by petitioner. respondent’s business been a corporation, just like the
case in Sy v. Tyson Enterprises, Inc. However, as
The Rules of Court provide that parties to an action may
admitted by private respondent in her Complaint37 in the
agree in writing on the venue on which an action should
lower court, her business is a sole proprietorship, and as
3
such, does not have a separate juridical personality that EXCELLENT QUALITY APPAREL,
could enable it to file a suit in court.38 In fact, there is no INC., Petitioner, v. WIN MULTI RICH BUILDERS, INC.,
law authorizing sole proprietorships to file a suit in court.39 represented by its President, WILSON G.
CHUA, Respondent.
A sole proprietorship does not possess a juridical
personality separate and distinct from the personality of DECISION
the owner of the enterprise.40 The law merely recognizes TINGA, J.:
the existence of a sole proprietorship as a form of Before us is a Rule 45 petition1 seeking the reversal of the
business organization conducted for profit by a single Decision2 and Resolution3 of the Court of Appeals in CA-
individual and requires its proprietor or owner to secure G.R. SP No. 84640. The Court of Appeals had annulled
licenses and permits, register its business name, and pay two orders4 of the Regional Trial Court (RTC), Branch 32,
taxes to the national government.41 The law does not vest of Manila in Civil Case No. 04-108940. This case involves
a separate legal personality on the sole proprietorship or a claim for a sum of money which arose from a
empower it to file or defend an action in court.42 construction dispute.
Thus, not being vested with legal personality to file this On 26 March 1996, petitioner Excellent Quality Apparel,
case, the sole proprietorship is not the plaintiff in this case Inc. (petitioner) then represented by Max L.F. Ying, Vice-
but rather Loreta Guina in her personal capacity. In fact, President for Productions, and Alfiero R. Orden,
the complaint in the lower court acknowledges in its Treasurer, entered into a contract5 with Multi-Rich
caption that the plaintiff and defendant are Loreta Guina Builders (Multi-Rich) represented by Wilson G. Chua
and Anita Mangila, respectively. The title of the petition (Chua), its President and General Manager, for the
before us does not state, and rightly so, Anita construction of a garment factory within the Cavite
Mangila v. Air Swift International, but rather Anita Mangila Philippine Economic Zone Authority (CPEZ).6 The
v. Loreta Guina. Logically then, it is the residence of duration of the project was for a maximum period of five
private respondent Guina, the proprietor with the juridical (5) months or 150 consecutive calendar days. Included in
personality, which should be considered as one of the the contract is an arbitration clause which is as follows:
proper venues for this case. Article XIX : ARBITRATION CLAUSE
All these considered, private respondent should have filed Should there be any dispute, controversy or difference
this case either in San Fernando, Pampanga (petitioner’s between the parties arising out of this Contract that may
residence) or Parañaque (private respondent’s residence). not be resolved by them to their mutual satisfaction, the
Since private respondent (complainant below) filed this matter shall be submitted to an Arbitration Committee of
case in Pasay, we hold that the case should be dismissed three (3) members; one (1) chosen by the OWNER; one
on the ground of improper venue. (1) chosen by the CONTRACTOR; and the Chairman
thereof to be chosen by two (2) members. The decision of
Although petitioner filed an Urgent Motion to Discharge the Arbitration Committee shall be final and binding on
Attachment in the lower court, petitioner expressly stated both the parties hereto. The Arbitration shall be governed
that she was filing the motion without submitting to the by the Arbitration Law (R.A. [No.] 876). The cost of
jurisdiction of the court. At that time, petitioner had not arbitration shall be borned [sic] jointly by both
been served the summons and a copy of the CONTRACTOR and OWNER on 50-50 basis.7
complaint.43 Thereafter, petitioner timely filed a Motion to The construction of the factory building was completed on
Dismiss44 on the ground of improper venue. Rule 16, 27 November 1996.
Section 1 of the Rules of Court provides that a motion to
dismiss may be filed "[W]ithin the time for but before filing Respondent Win Multi-Rich Builders, Inc. (Win) was
the answer to the complaint or pleading asserting a incorporated with the Securities and Exchange
claim." Petitioner even raised the issue of improper venue Commission (SEC) on 20 February 19978 with Chua as
in his Answer45 as a special and affirmative defense. its President and General Manager. On 26 January 2004,
Petitioner also continued to raise the issue of improper Win filed a complaint for a sum of money9 against
venue in her Petition for Review46 before this Court. We petitioner and Mr. Ying amounting to P8,634,448.20. It
thus hold that the dismissal of this case on the ground of also prayed for the issuance of a writ of attachment
improper venue is warranted. claiming that Mr. Ying was about to abscond and that
petitioner was about to close. Win obtained a surety
The rules on venue, like other procedural rules, are bond10 issued by Visayan Surety & Insurance Corporation.
designed to insure a just and orderly administration of On 10 February 2004, the RTC issued the Writ of
justice or the impartial and evenhanded determination of Attachment11 against the properties of petitioner.
every action and proceeding. Obviously, this objective will On 16 February 2004, Sheriff Salvador D. Dacumos of the
not be attained if the plaintiff is given unrestricted freedom RTC of Manila, Branch 32, went to the office of petitioner
to choose where to file the complaint or petition.47 in CPEZ to serve the Writ of Attachment, Summons12 and
We find no reason to rule on the other issues raised by the Complaint. Petitioner issued Equitable PCIBank
petitioner.1âwphi1.nêt (PEZA Branch) Check No. 160149, dated 16 February
2004, in the amount of P8,634,448.20, to prevent the
WHEREFORE, the petition is GRANTED on the grounds Sheriff from taking possession of its properties.13 The
of improper venue and invalidity of the service of the writ check was made payable to the Office of the Clerk of
of attachment. The decision of the Court of Appeals and Court of the RTC of Manila as a guarantee for whatever
the order of respondent judge denying the motion to liability there may be against petitioner.
dismiss are REVERSED and SET ASIDE. Civil Case No. Petitioner filed an Omnibus Motion14 claiming that it was
5875 is hereby dismissed without prejudice to refiling it in neither about to close. It also denied owing anything to
the proper venue. The attached properties of petitioner Win, as it had already paid all its obligations to it. Lastly,
are ordered returned to her immediately. it questioned the jurisdiction of the trial court from taking
SO ORDERED. cognizance of the case. Petitioner pointed to the presence
of the Arbitration Clause and it asserted that the case
should be referred to the Construction Industry Arbitration
Commission (CIAC) pursuant to Executive Order (E.O.)
No. 1008.
[G.R. NO. 175048 : February 10, 2009] In the hearing held on 10 February 2004, the counsel of
Win moved that its name in the case be changed from
4
"Win Multi-Rich Builders, Inc." to "Multi-Rich Builders, business.32 In the case of Mangila v. Court of
Inc." It was only then that petitioner apparently became Appeals,33 we held that:
aware of the variance in the name of the plaintiff. In the x x x In fact, there is no law authorizing sole
Reply15 filed by petitioner, it moved to dismiss the case proprietorships to file a suit in court.
since Win was not the contractor and neither a party to
A sole proprietorship does not possess a juridical
the contract, thus it cannot institute the case. Petitioner
personality separate and distinct from the personality of
obtained a Certificate of Non-Registration of
the owner of the enterprise. The law merely recognizes
Corporation/Partnership16 from the SEC which certified
the existence of a sole proprietorship as a form of
that the latter did not have any records of a "Multi-Rich
business organization conducted for profit by a single
Builders, Inc." Moreover, Win in its Rejoinder17 did not
individual and requires its proprietor or owner to secure
oppose the allegations in the Reply. Win admitted that it licenses and permits, register its business name, and pay
was only incorporated on 20 February 1997 while the taxes to the national government. The law does not vest
construction contract was executed on 26 March 1996. a separate legal personality on the sole proprietorship or
Likewise, it admitted that at the time of execution of the empower it to file or defend an action in court.
contract, Multi-Rich was a registered sole proprietorship
The original petition was instituted by Win, which is a
and was issued a business permit18 by the Office of the
SEC-registered corporation. It filed a collection of sum of
Mayor of Manila.
money suit which involved a construction contract entered
In an Order19 dated 12 April 2004, the RTC denied the into by petitioner and Multi-Rich, a sole proprietorship.
motion and stated that the issues can be answered in a The counsel of Win wanted to change the name of the
full-blown trial. Upon its denial, petitioner filed its Answer plaintiff in the suit to Multi-Rich. The change cannot be
and prayed for the dismissal of the case.20 Win filed a countenanced. The plaintiff in the collection suit is a
Motion21 to deposit the garnished amount to the court to corporation. The name cannot be changed to that of a
protect its legal rights. In a Manifestation, 22 petitioner sole proprietorship. Again, a sole proprietorship is not
vehemently opposed the deposit of the garnished amount. vested with juridical personality to file or defend an
The RTC issued an Order23 dated 20 April 2004, which action.34
granted the motion to deposit the garnished amount. On
Petitioner had continuously contested the legal
the same date, Win filed a motion24 to release the
personality of Win to institute the case. Win was given
garnished amount to it. Petitioner filed its opposition25to
ample opportunity to adduce evidence to show that it had
the motion claiming that the release of the money does
legal personality. It failed to do so. Corpus Juris
not have legal and factual basis.
Secundum, notes:
On 18 June 2004, petitioner filed a Petition for Review
x x x where an individual or sole trader organizes a
on Certiorari 26 under Rule 65 before the Court of Appeals,
corporation to take over his business and all his assets,
which questioned the jurisdiction of the RTC and
and it becomes in effect merely an alter ego of the
challenged the orders issued by the lower court with a
incorporator, the corporation, either on the grounds of
prayer for the issuance of a temporary retraining order
implied assumption of the debts or on the grounds that the
and a writ of preliminary injunction. Subsequently,
business is the same and is merely being conducted
petitioner filed a Supplemental Manifestation and
under a new guise, is liable for the incorporator's
Motion27 and alleged that the money deposited with the
preexisting debts and liabilities. Clearly, where the
RTC was turned over to Win. Win admitted that the
corporation assumes or accepts the debt of its
garnished amount had already been released to it. On 14
predecessor in business it is liable and if the transfer of
March 2006, the Court of Appeals rendered its
assets is in fraud of creditors it will be liable to the extent
Decision28 annulling the 12 April and 20 April 2004 orders
of the assets transferred. The corporation is not liable on
of the RTC.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
an implied assumption of debts from the receipt of assets
It also ruled that the RTC had jurisdiction over the case where the incorporator retains sufficient assets to pay the
since it is a suit for collection of sum of money. Petitioner indebtedness, or where none of his assets are transferred
filed a Motion for Reconsideration29 which was to the corporation, or where, although all the assets of the
subsequently denied in a resolution. 30 incorporator have been transferred, there is a change in
Hence this petition. the persons carrying on the business and the corporation
Petitioner raised the following issues to wit: (1) does Win is not merely an alter ego of the person to whose business
have a legal personality to institute the present case; (2) it succeeded.35
does the RTC have jurisdiction over the case In order for a corporation to be able to file suit and claim
notwithstanding the presence of the arbitration clause; the receivables of its predecessor in business, in this case
and (3) was the issuance of the writ of attachment and the a sole proprietorship, it must show proof that the
subsequent garnishment proper. corporation had acquired the assets and liabilities of the
A suit may only be instituted by the real party in interest. sole proprietorship. Win could have easily presented or
Section 2, Rule 3 of the Rules of Court defines "parties in attached any document e.g., deed of assignment which
interest" in this manner: will show whether the assets, liabilities and receivables of
Multi-Rich were acquired by Win. Having been given the
A real party in interest is the party who stands to be
opportunity to rebut the allegations made by petitioner,
benefited or injured by the judgment in the suit, or the
Win failed to use that opportunity. Thus, we cannot
party entitled to the avails of the suit. Unless otherwise
presume that Multi-Rich is the predecessor-in-business of
authorized by law or these Rules, every action must be
Win and hold that the latter has standing to institute the
prosecuted or defended in the name of the real party in
collection suit.
interest.
Assuming arguendo that Win has legal personality, the
Is Win a real party in interest? We answer in the negative.
petition will still be granted.
Win admitted that the contract was executed between
Section 4 of E.O. No. 100836 provides for the jurisdiction
Multi-Rich and petitioner. It further admitted that Multi-
of the Construction Industry Arbitration Commission, to
Rich was a sole proprietorship with a business permit
wit:
issued by the Office of the Mayor of Manila. A sole
proprietorship is the oldest, simplest, and most prevalent Section 4. Jurisdiction. The CIAC shall have original and
form of business enterprise.31 It is an unorganized exclusive jurisdiction over disputes arising from, or
business owned by one person. The sole proprietor is connected with, contracts entered into by parties involved
personally liable for all the debts and obligations of the in construction in the Philippines, whether the disputes
5
arises before or after the completion of the contract, or for Petitioners.
after the abandonment or breach thereof. These disputes
may involve government or private contracts. For the Solicitor General Felix Q. Antonio, Assistant Solicitor
Board to acquire jurisdiction, the parties to a dispute must General Crispin V . Bautista, Solicitor Pedro A.
agree to submit the same to voluntary arbitration. Ramirez and Special Attorney Jaime M. Maza
The jurisdiction of the CIAC may include but is not limited for Respondents.
to violation of specifications for materials and
workmanship; violation of the terms of agreement;
interpretation and/or application of contractual time and DECISION
delays; amount of damages and penalties;
commencement time and delays; maintenance and VILLAMOR, J.:
defects; payment, default of employer or contractor and This is an original action of certiorari, prohibition and
changes in contract cost. mandamus, with prayer for a writ of preliminary
mandatory and prohibitory injunction. In their petition
Excluded from the coverage of this law are disputes from
Bache & Co. (Phil.), Inc., a corporation duly organized and
employer-employee relationships which shall continue to
existing under the laws of the Philippines, and its
be covered by the Labor Code of the Philippines.
President, Frederick E. Seggerman, pray this Court to
There is nothing in the law which limits the exercise of declare null and void Search Warrant No. 2-M-70 issued
jurisdiction to complex or difficult cases. E.O. No. 1008 by respondent Judge on February 25, 1970; to order
does not distinguish between claims involving payment of respondents to desist from enforcing the same and/or
money or not.37 The CIAC acquires jurisdiction over a keeping the documents, papers and effects seized by
construction contract by the mere fact that the parties virtue thereof, as well as from enforcing the tax
agreed to submit to voluntary arbitration.38 The law does assessments on petitioner corporation alleged by
not preclude parties from stipulating a preferred forum or petitioners to have been made on the basis of the said
arbitral body but they may not divest the CIAC of documents, papers and effects, and to order the return of
jurisdiction as provided by law.39 Arbitration is an the latter to petitioners. We gave due course to the petition
alternative method of dispute resolution which is highly but did not issue the writ of preliminary injunction prayed
encouraged.40 The arbitration clause is a commitment on for therein.
the part of the parties to submit to arbitration the disputes
covered since that clause is binding, and they are The pertinent facts of this case, as gathered from record,
expected to are as follows:
abide by it in good faith.41 Clearly, the RTC should not
have taken cognizance of the collection suit. The On February 24, 1970, respondent Misael P. Vera,
presence of the arbitration clause vested jurisdiction to Commissioner of Internal Revenue, wrote a letter
the CIAC over all construction disputes between addressed to respondent Judge Vivencio M. Ruiz
Petitioner and Multi-Rich. The RTC does not have requesting the issuance of a search warrant against
jurisdiction.42 petitioners for violation of Section 46(a) of the National
Based on the foregoing, there is no need to discuss the Internal Revenue Code, in relation to all other pertinent
propriety of the issuance of the writ of attachment. provisions thereof, particularly Sections 53, 72, 73, 208
However, we cannot allow Win to retain the garnished and 209, and authorizing Revenue Examiner Rodolfo de
amount which was turned over by the RTC. The RTC did Leon, one of herein respondents, to make and file the
not have jurisdiction to issue the questioned writ of application for search warrant which was attached to the
attachment and to order the release of the garnished letter.
funds.
In the afternoon of the following day, February 25, 1970,
WHEREFORE, the petition is GRANTED. The Decision of
respondent De Leon and his witness, respondent Arturo
the Court of Appeals is hereby MODIFIED. Civil Case No.
Logronio, went to the Court of First Instance of Rizal. They
04-108940 is DISMISSED. Win Multi-Rich Builders, Inc.
brought with them the following papers: respondent
is ORDERED to return the garnished amount of EIGHT
Vera’s aforesaid letter-request; an application for search
MILLION SIX HUNDRED THIRTY-FOUR THOUSAND
warrant already filled up but still unsigned by respondent
FOUR HUNDRED
De Leon; an affidavit of respondent Logronio subscribed
FORTY-EIGHT PESOS AND FORTY CENTAVOS before respondent De Leon; a deposition in printed form
(P8,634,448.40), of respondent Logronio already accomplished and signed
which was turned over by the Regional Trial Court, to by him but not yet subscribed; and a search warrant
petitioner with legal interest of 12 percent (12%) per already accomplished but still unsigned by respondent
annum upon finality of this Decision until payment. Judge.
SO ORDERED.
At that time respondent Judge was hearing a certain case;
so, by means of a note, he instructed his Deputy Clerk of
Court to take the depositions of respondents De Leon and
Logronio. After the session had adjourned, respondent
RIGHTS OF A JURIDICAL PERSON Judge was informed that the depositions had already
[G.R. No. L-32409. February 27, 1971.] been taken. The stenographer, upon request of
respondent Judge, read to him her stenographic notes;
BACHE & CO. (PHIL.), INC. and FREDERICK E. and thereafter, respondent Judge asked respondent
SEGGERMAN, Petitioners, v. HON. JUDGE VIVENCIO Logronio to take the oath and warned him that if his
M. RUIZ, MISAEL P. VERA, in his capacity as deposition was found to be false and without legal basis,
Commissioner of Internal Revenue, ARTURO he could be charged for perjury. Respondent Judge
LOGRONIO, RODOLFO DE LEON, GAVINO signed respondent de Leon’s application for search
VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO, warrant and respondent Logronio’s deposition, Search
JOHN DOE, JOHN DOE, JOHN DOE, and JOHN Warrant No. 2-M-70 was then sign by respondent Judge
DOE, Respondents. and accordingly issued.

San Juan, Africa, Gonzales & San Agustin,


6
Three days later, or on February 28, 1970, which was a The following discussion in the Constitutional Convention
Saturday, the BIR agents served the search warrant (Laurel, Proceedings of the Philippine Constitutional
petitioners at the offices of petitioner corporation on Ayala Convention, Vol. III, pp. 755-757) is enlightening:
Avenue, Makati, Rizal. Petitioners’ lawyers protested the
search on the ground that no formal complaint or "SR. ORENSE. Vamos a dejar compañero los piropos y
transcript of testimony was attached to the warrant. The vamos al grano.
agents nevertheless proceeded with their search which
yielded six boxes of documents. En los casos de una necesidad de actuar inmediatamente
para que no se frusten los fines de la justicia mediante el
On March 3, 1970, petitioners filed a petition with the registro inmediato y la incautacion del cuerpo del delito,
Court of First Instance of Rizal praying that the search no cree Su Señoria que causaria cierta demora el
warrant be quashed, dissolved or recalled, that procedimiento apuntado en su enmienda en tal forma que
preliminary prohibitory and mandatory writs of injunction podria frustrar los fines de la justicia o si Su Señoria
be issued, that the search warrant be declared null and encuentra un remedio para esto casos con el fin de
void, and that the respondents be ordered to pay compaginar los fines de la justicia con los derechos del
petitioners, jointly and severally, damages and attorney’s individuo en su persona, bienes etcetera, etcetera.
fees. On March 18, 1970, the respondents, thru the
Solicitor General, filed an answer to the petition. After "SR. FRANCISCO. No puedo ver en la practica el caso
hearing, the court, presided over by respondent Judge, hipottico que Su Señoria pregunta por la siguiente razon:
issued on July 29, 1970, an order dismissing the petition el que solicita un mandamiento de registro tiene que
for dissolution of the search warrant. In the meantime, or hacerlo por escrito y ese escrito no aparecer en la Mesa
on April 16, 1970, the Bureau of Internal Revenue made del Juez sin que alguien vaya el juez a presentar ese
tax assessments on petitioner corporation in the total sum escrito o peticion de sucuestro. Esa persona que
of P2,594,729.97, partly, if not entirely, based on the presenta el registro puede ser el mismo denunciante o
documents thus seized. Petitioners came to this Court. alguna persona que solicita dicho mandamiento de
registro. Ahora toda la enmienda en esos casos consiste
The petition should be granted for the following en que haya peticion de registro y el juez no se atendra
reasons:chanrob1es virtual 1aw library solamente a sea peticion sino que el juez examiner a ese
denunciante y si tiene testigos tambin examiner a los
1. Respondent Judge failed to personally examine the testigos.
complainant and his witness.
"SR. ORENSE. No cree Su Señoria que el tomar le
The pertinent provisions of the Constitution of the declaracion de ese denunciante por escrito siempre
Philippines and of the Revised Rules of Court are: requeriria algun tiempo?.

"(3) The right of the people to be secure in their persons, "SR. FRANCISCO. Seria cuestio de un par de horas, pero
houses, papers and effects against unreasonable por otro lado minimizamos en todo lo posible las
searches and seizures shall not be violated, and no vejaciones injustas con la expedicion arbitraria de los
warrants shall issue but upon probable cause, to be mandamientos de registro. Creo que entre dos males
determined by the judge after examination under oath or debemos escoger. el menor.
affirmation of the complainant and the witnesses he may
produce, and particularly describing the place to be x x x
searched, and the persons or things to be seized." (Art. III,
Sec. 1, Constitution.)
"MR. LAUREL. . . . The reason why we are in favor of this
"SEC. 3. Requisites for issuing search warrant. — A amendment is because we are incorporating in our
search warrant shall not issue but upon probable cause in constitution something of a fundamental character. Now,
connection with one specific offense to be determined by before a judge could issue a search warrant, he must be
the judge or justice of the peace after examination under under the obligation to examine personally under oath the
oath or affirmation of the complainant and the witnesses complainant and if he has any witness, the witnesses that
he may produce, and particularly describing the place to he may produce . . ."
be searched and the persons or things to be seized. The implementing rule in the Revised Rules of Court, Sec.
4, Rule 126, is more emphatic and candid, for it requires
"No search warrant shall issue for more than one specific the judge, before issuing a search warrant, to "personally
offense. examine on oath or affirmation the complainant and any
witnesses he may produce . . ."
"SEC. 4. Examination of the applicant. — The judge or
justice of the peace must, before issuing the warrant, Personal examination by the judge of the complainant and
personally examine on oath or affirmation the complainant his witnesses is necessary to enable him to determine the
and any witnesses he may produce and take their existence or non-existence of a probable cause, pursuant
depositions in writing, and attach them to the record, in to Art. III, Sec. 1, par. 3, of the Constitution, and Sec. 3,
addition to any affidavits presented to him." (Rule 126, Rule 126 of the Revised Rules of Court, both of which
Revised Rules of Court.) prohibit the issuance of warrants except "upon probable
cause." The determination of whether or not a probable
The examination of the complainant and the witnesses he cause exists calls for the exercise of judgment after a
may produce, required by Art. III, Sec. 1, par. 3, of the judicial appraisal of facts and should not be allowed to be
Constitution, and by Secs. 3 and 4, Rule 126 of the delegated in the absence of any rule to the contrary.
Revised Rules of Court, should be conducted by the judge
himself and not by others. The phrase "which shall be In the case at bar, no personal examination at all was
determined by the judge after examination under oath or conducted by respondent Judge of the complainant
affirmation of the complainant and the witnesses he may (respondent De Leon) and his witness (respondent
produce," appearing in the said constitutional provision, Logronio). While it is true that the complainant’s
was introduced by Delegate Francisco as an amendment application for search warrant and the witness’ printed-
to the draft submitted by the Sub-Committee of Seven. form deposition were subscribed and sworn to before

7
respondent Judge, the latter did not ask either of the two relation to all other pertinent provisions thereof particularly
any question the answer to which could possibly be the Secs. 53, 72, 73, 208 and 209." The question is: Was the
basis for determining whether or not there was probable said search warrant issued "in connection with one
cause against herein petitioners. Indeed, the participants specific offense," as required by Sec. 3, Rule 126?
seem to have attached so little significance to the matter
that notes of the proceedings before respondent Judge To arrive at the correct answer it is essential to examine
were not even taken. At this juncture it may be well to closely the provisions of the Tax Code referred to above.
recall the salient facts. The transcript of stenographic Thus we find the following:chanrob1es virtual 1aw library
notes (pp. 61-76, April 1, 1970, Annex J-2 of the Petition)
taken at the hearing of this case in the court below shows Sec. 46(a) requires the filing of income tax returns by
that per instruction of respondent Judge, Mr. Eleodoro V. corporations.
Gonzales, Special Deputy Clerk of Court, took the
depositions of the complainant and his witness, and that Sec. 53 requires the withholding of income taxes at
stenographic notes thereof were taken by Mrs. Gaspar. At source.
that time respondent Judge was at the sala hearing a case.
After respondent Judge was through with the hearing, Sec. 72 imposes surcharges for failure to render income
Deputy Clerk Gonzales, stenographer Gaspar, tax returns and for rendering false and fraudulent returns.
complainant De Leon and witness Logronio went to
respondent Judge’s chamber and informed the Judge that Sec. 73 provides the penalty for failure to pay the income
they had finished the depositions. Respondent Judge tax, to make a return or to supply the information required
then requested the stenographer to read to him her under the Tax Code.
stenographic notes. Special Deputy Clerk Gonzales
testified as follows: Sec. 208 penalizes" [a]ny person who distills, rectifies,
repacks, compounds, or manufactures any article subject
"A And after finishing reading the stenographic notes, the to a specific tax, without having paid the privilege tax
Honorable Judge requested or instructed them, requested therefore, or who aids or abets in the conduct of illicit
Mr. Logronio to raise his hand and warned him if his distilling, rectifying, compounding, or illicit manufacture of
deposition will be found to be false and without legal basis, any article subject to specific tax . . .," and provides that
he can be charged criminally for perjury. The Honorable in the case of a corporation, partnership, or association,
Court told Mr. Logronio whether he affirms the facts the official and/or employee who caused the violation
contained in his deposition and the affidavit executed shall be responsible.
before Mr. Rodolfo de Leon.
"Q And thereafter? Sec. 209 penalizes the failure to make a return of receipts,
"A And thereafter, he signed the deposition of Mr. sales, business, or gross value of output removed, or to
Logronio. pay the tax due thereon.
"Q Who is this he?
"A The Honorable Judge. The search warrant in question was issued for at least four
"Q The deposition or the affidavit? distinct offenses under the Tax Code. The first is the
"A The affidavit, Your Honor." violation of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of
Thereafter, respondent Judge signed the search warrant. income tax returns), which are interrelated. The second is
the violation of Sec. 53 (withholding of income taxes at
The participation of respondent Judge in the proceedings source). The third is the violation of Sec. 208 (unlawful
which led to the issuance of Search Warrant No. 2-M-70 pursuit of business or occupation); and the fourth is the
was thus limited to listening to the stenographer’s violation of Sec. 209 (failure to make a return of receipts,
readings of her notes, to a few words of warning against sales, business or gross value of output actually removed
the commission of perjury, and to administering the oath or to pay the tax due thereon). Even in their classification
to the complainant and his witness. This cannot be the six above-mentioned provisions are embraced in two
consider a personal examination. If there was an different titles: Secs. 46(a), 53, 72 and 73 are under Title
examination at all of the complainant and his witness, it II (Income Tax); while Secs. 208 and 209 are under Title
was the one conducted by the Deputy Clerk of Court. But, V (Privilege Tax on Business and Occupation).
as stated, the Constitution and the rules require a
personal examination by the judge. It was precisely on Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al.,
account of the intention of the delegates to the L-19550, June 19, 1967 (20 SCRA 383), is not applicable,
Constitutional Convention to make it a duty of the issuing because there the search warrants were issued for
judge to personally examine the complainant and his "violation of Central Bank Laws, Internal Revenue (Code)
witnesses that the question of how much time would be and Revised Penal Code;" whereas, here Search Warrant
consumed by the judge in examining them came up No 2-M-70 was issued for violation of only one code, i.e.,
before the Convention, as can be seen from the record of the National Internal Revenue Code. The distinction more
the proceedings quoted above. The reading of the apparent than real, because it was precisely on account
stenographic notes to respondent Judge did not constitute of the Stonehill incident, which occurred sometime before
sufficient compliance with the constitutional mandate and the present Rules of Court took effect on January 1, 1964,
the rule; for by that manner respondent Judge did not that this Court amended the former rule by inserting
have the opportunity to observe the demeanor of the therein the phrase "in connection with one specific
complainant and his witness, and to propound initial and offense," and adding the sentence "No search warrant
follow-up questions which the judicial mind, on account of shall issue for more than one specific offense," in what is
its training, was in the best position to conceive. These now Sec. 3, Rule 126. Thus we said in Stonehill:
were important in arriving at a sound inference on the all-
important question of whether or not there was probable "Such is the seriousness of the irregularities committed in
cause. connection with the disputed search warrants, that this
Court deemed it fit to amend Section 3 of Rule 122 of the
2. The search warrant was issued for more than one former Rules of Court that ‘a search warrant shall not
specific offense. issue but upon probable cause in connection with one
Search Warrant No. 2-M-70 was issued for" [v]iolation of specific offense.’ Not satisfied with this qualification, the
Sec. 46(a) of the National Internal Revenue Code in Court added thereto a paragraph, directing that ‘no search

8
warrant shall issue for more than one specific offense.’" is the correct interpretation of this constitutional provision
is borne out by American authorities."
3. The search warrant does not particularly describe the
things to be seized. The purpose as thus explained could, surely and
effectively, be defeated under the search warrant issued
The documents, papers and effects sought to be seized in this case.
are described in Search Warrant No. 2-M-70 in this
manner: A search warrant may be said to particularly describe the
things to be seized when the description therein is as
"Unregistered and private books of accounts (ledgers, specific as the circumstances will ordinarily allow (People
journals, columnars, receipts and disbursements books, v. Rubio; 57 Phil. 384); or when the description expresses
customers ledgers); receipts for payments received; a conclusion of fact — not of law — by which the warrant
certificates of stocks and securities; contracts, promissory officer may be guided in making the search and seizure
notes and deeds of sale; telex and coded messages; (idem., dissent of Abad Santos, J.,); or when the things
business communications, accounting and business described are limited to those which bear direct relation to
records; checks and check stubs; records of bank the offense for which the warrant is being issued (Sec. 2,
deposits and withdrawals; and records of foreign Rule 126, Revised Rules of Court). The herein search
remittances, covering the years 1966 to 1970." warrant does not conform to any of the foregoing tests. If
the articles desired to be seized have any direct relation
The description does not meet the requirement in Art III, to an offense committed, the applicant must necessarily
Sec. 1, of the Constitution, and of Sec. 3, Rule 126 of the have some evidence, other than those articles, to prove
Revised Rules of Court, that the warrant should the said offense; and the articles subject of search and
particularly describe the things to be seized. seizure should come in handy merely to strengthen such
evidence. In this event, the description contained in the
In Stonehill, this Court, speaking thru Mr. Chief Justice herein disputed warrant should have mentioned, at least,
Roberto Concepcion, said: the dates, amounts, persons, and other pertinent data
"The grave violation of the Constitution made in the regarding the receipts of payments, certificates of stocks
application for the contested search warrants was and securities, contracts, promissory notes, deeds of sale,
compounded by the description therein made of the messages and communications, checks, bank deposits
effects to be searched for and seized, to wit: and withdrawals, records of foreign remittances, among
others, enumerated in the warrant.
‘Books of accounts, financial records, vouchers, journals,
correspondence, receipts, ledgers, portfolios, credit Respondents contend that certiorari does not lie because
journals, typewriters, and other documents and/or paper petitioners failed to file a motion for reconsideration of
showing all business transactions including disbursement respondent Judge’s order of July 29, 1970. The
receipts, balance sheets and related profit and loss contention is without merit. In the first place, when the
statements.’ questions raised before this Court are the same as those
which were squarely raised in and passed upon by the
"Thus, the warrants authorized the search for and seizure court below, the filing of a motion for reconsideration in
of records pertaining to all business transactions of said court before certiorari can be instituted in this Court
petitioners herein, regardless of whether the transactions is no longer a prerequisite. (Pajo, etc., Et. Al. v. Ago, Et
were legal or illegal. The warrants sanctioned the seizure Al., 108 Phil., 905). In the second place, the rule requiring
of all records of the petitioners and the aforementioned the filing of a motion for reconsideration before an
corporations, whatever their nature, thus openly application for a writ of certiorari can be entertained was
contravening the explicit command of our Bill of Rights — never intended to be applied without considering the
that the things to be seized be particularly described — as circumstances. (Matutina v. Buslon, Et Al., 109 Phil., 140.)
well as tending to defeat its major objective: the In the case at bar time is of the essence in view of the tax
elimination of general warrants." assessments sought to be enforced by respondent
officers of the Bureau of Internal Revenue against
While the term "all business transactions" does not petitioner corporation, On account of which immediate
appear in Search Warrant No. 2-M-70, the said warrant and more direct action becomes necessary. (Matute v.
nevertheless tends to defeat the major objective of the Bill Court of Appeals, Et Al., 26 SCRA 768.) Lastly, the rule
of Rights, i.e., the elimination of general warrants, for the does not apply where, as in this case, the deprivation of
language used therein is so all-embracing as to include all petitioners’ fundamental right to due process taints the
conceivable records of petitioner corporation, which, if proceeding against them in the court below not only with
seized, could possibly render its business inoperative. irregularity but also with nullity. (Matute v. Court of
Appeals, Et Al., supra.)
In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, It is next contended by respondents that a corporation is
896, this Court had occasion to explain the purpose of the not entitled to protection against unreasonable search
requirement that the warrant should particularly describe and seizures. Again, we find no merit in the contention.
the place to be searched and the things to be seized, to
wit: "Although, for the reasons above stated, we are of the
opinion that an officer of a corporation which is charged
". . . Both the Jones Law (sec. 3) and General Orders No. with a violation of a statute of the state of its creation, or
58 (sec. 97) specifically require that a search warrant of an act of Congress passed in the exercise of its
should particularly describe the place to be searched and constitutional powers, cannot refuse to produce the books
the things to be seized. The evident purpose and intent of and papers of such corporation, we do not wish to be
this requirement is to limit the things to be seized to those, understood as holding that a corporation is not entitled to
and only those, particularly described in the search immunity, under the 4th Amendment, against
warrant — to leave the officers of the law with no unreasonable searches and seizures. A corporation is,
discretion regarding what articles they shall seize, to the after all, but an association of individuals under an
end that ‘unreasonable searches and seizures’ may not assumed name and with a distinct legal entity. In
be made, — that abuses may not be committed. That this organizing itself as a collective body it waives no
constitutional immunities appropriate to such body. Its

9
property cannot be taken without compensation. It can search warrant herein nullified, and from using the same
only be proceeded against by due process of law, and is against petitioners in any criminal or other proceeding. No
protected, under the 14th Amendment, against unlawful pronouncement as to costs.
discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed.
652.)
G.R. No. 75885 May 27, 1987
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476,
480, it was thought that a different rule applied to a BATAAN SHIPYARD & ENGINEERING CO., INC.
corporation, the ground that it was not privileged from (BASECO), petitioner,
producing its books and papers. But the rights of a vs.
corporation against unlawful search and seizure are to be PRESIDENTIAL COMMISSION ON GOOD
protected even if the same result might have been GOVERNMENT, CHAIRMAN JOVITO SALONGA,
achieved in a lawful way." (Silverthorne Lumber Company, COMMISSIONER MARY CONCEPCION BAUTISTA,
Et. Al. v. United States of America, 251 U.S. 385, 64 L. ed. COMMISSIONER RAMON DIAZ, COMMISSIONER
319.) RAUL R. DAZA, COMMISSIONER QUINTIN S.
DOROMAL, CAPT. JORGE B. SIACUNCO, et
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court al., respondents.
impliedly recognized the right of a corporation to object Apostol, Bernas, Gumaru, Ona and Associates for
against unreasonable searches and seizures, thus: petitioner.

"As regards the first group, we hold that petitioners herein Vicente G. Sison for intervenor A.T. Abesamis.
have no cause of action to assail the legality of the
contested warrants and of the seizures made in
pursuance thereof, for the simple reason that said NARVASA, J.:
corporations have their respective personalities, separate
and distinct from the personality of herein petitioners, Challenged in this special civil action of certiorari and
regardless of the amount of shares of stock or the interest prohibition by a private corporation known as the Bataan
of each of them in said corporations, whatever, the offices Shipyard and Engineering Co., Inc. are: (1) Executive
they hold therein may be. Indeed, it is well settled that the Orders Numbered 1 and 2, promulgated by President
legality of a seizure can be contested only by the party Corazon C. Aquino on February 28, 1986 and March 12,
whose rights have been impaired thereby, and that the 1986, respectively, and (2) the sequestration, takeover,
objection to an unlawful search and seizure is purely and other orders issued, and acts done, in accordance
personal and cannot be availed of by third parties. with said executive orders by the Presidential
Consequently, petitioners herein may not validly object to Commission on Good Government and/or its
the use in evidence against them of the documents, Commissioners and agents, affecting said corporation.
papers and things seized from the offices and premises of 1. The Sequestration, Takeover, and Other Orders
the corporations adverted to above, since the right to Complained of
object to the admission of said papers in evidence
belongs exclusively to the corporations, to whom the a. The Basic Sequestration Order
seized effects belong, and may not be invoked by the
corporate officers in proceedings against them in their The sequestration order which, in the view of the
individual capacity . . ." petitioner corporation, initiated all its misery was issued
on April 14, 1986 by Commissioner Mary Concepcion
In the Stonehill case only the officers of the various Bautista. It was addressed to three of the agents of the
corporations in whose offices documents, papers and Commission, hereafter simply referred to as PCGG. It
effects were searched and seized were the petitioners. In reads as follows:
the case at bar, the corporation to whom the seized RE: SEQUESTRATION ORDER
documents belong, and whose rights have thereby been
impaired, is itself a petitioner. On that score, petitioner By virtue of the powers vested in the
corporation here stands on a different footing from the Presidential Commission on Good
corporations in Stonehill. Government, by authority of the
President of the Philippines, you are
The tax assessments referred to earlier in this opinion hereby directed to sequester the
were, if not entirely — as claimed by petitioners — at least following companies.
partly — as in effect admitted by respondents — based
1. Bataan Shipyard and Engineering Co.,
on the documents seized by virtue of Search Warrant No.
Inc. (Engineering Island Shipyard and
2-M-70. Furthermore, the fact that the assessments were
Mariveles Shipyard)
made some one and one-half months after the search and
seizure on February 25, 1970, is a strong indication that 2. Baseco Quarry
the documents thus seized served as basis for the
assessments. Those assessments should therefore not 3. Philippine Jai-Alai Corporation
be enforced. 4. Fidelity Management Co., Inc.
PREMISES CONSIDERED, the petition is granted. 5. Romson Realty, Inc.
Accordingly, Search Warrant No. 2-M-70 issued by
respondent Judge is declared null and void; respondents 6. Trident Management Co.
are permanently enjoined from enforcing the said search 7. New Trident Management
warrant; the documents, papers and effects seized
thereunder are ordered to be returned to petitioners; and 8. Bay Transport
respondent officials the Bureau of Internal Revenue and
9. And all affiliate companies of Alfredo
their representatives are permanently enjoined from
"Bejo" Romualdez
enforcing the assessments mentioned in Annex "G" of the
present petition, as well as other assessments based on You are hereby ordered:
the documents, papers and effects seized under the

10
1. To implement this sequestration order c. Orders Re Engineer Island
with a minimum disruption of these
companies' business activities. (1) Termination of Contract for
Security Services
2. To ensure the continuity of these
companies as going concerns, the care A third order assailed by petitioner corporation, hereafter
and maintenance of these assets until referred to simply as BASECO, is that issued on April 21,
such time that the Office of the President 1986 by a Capt. Flordelino B. Zabala, a member of the
through the Commission on Good task force assigned to carry out the basic sequestration
Government should decide otherwise. order. He sent a letter to BASECO's Vice-President for
Finance, 3 terminating the contract for security services
3. To report to the Commission on Good within the Engineer Island compound between BASECO
Government periodically. and "Anchor and FAIRWAYS" and "other civilian security
agencies," CAPCOM military personnel having already
Further, you are authorized to request for been assigned to the area,
Military/Security Support from the
Military/Police authorities, and such other (2) Change of Mode of Payment of
acts essential to the achievement of this Entry Charges
sequestration order. 1
On July 15, 1986, the same Capt. Zabala issued a
b. Order for Production of Documents Memorandum addressed to "Truck Owners and
Contractors," particularly a "Mr. Buddy Ondivilla National
On the strength of the above sequestration order, Mr. Marine Corporation," advising of the amendment in part
Jose M. Balde, acting for the PCGG, addressed a letter of their contracts with BASECO in the sense that the
dated April 18, 1986 to the President and other officers of stipulated charges for use of the BASECO road network
petitioner firm, reiterating an earlier request for the were made payable "upon entry and not anymore subject
production of certain documents, to wit: to monthly billing as was originally agreed upon." 4
1. Stock Transfer Book d. Aborted Contract for Improvement of
2. Legal documents, such as: Wharf at Engineer Island

2.1. Articles of Incorporation On July 9, 1986, a PCGG fiscal agent, S. Berenguer,


entered into a contract in behalf of BASECO with
2.2. By-Laws Deltamarine Integrated Port Services, Inc., in virtue of
which the latter undertook to introduce improvements
2.3. Minutes of the Annual
costing approximately P210,000.00 on the BASECO
Stockholders Meeting from 1973 to
wharf at Engineer Island, allegedly then in poor condition,
1986
avowedly to "optimize its utilization and in return maximize
2.4. Minutes of the Regular and the revenue which would flow into the government
Special Meetings of the Board of coffers," in consideration of Deltamarine's being granted
Directors from 1973 to 1986 "priority in using the improved portion of the wharf ahead
of anybody" and exemption "from the payment of any
2.5. Minutes of the Executive charges for the use of wharf including the area where it
Committee Meetings from 1973 to may install its bagging equipments" "until the
1986 improvement remains in a condition suitable for port
2.6. Existing contracts with operations." 5 It seems however that this contract was
suppliers/contractors/others. never consummated. Capt. Jorge B. Siacunco, "Head-
(PCGG) BASECO Management Team," advised
3. Yearly list of stockholders with their Deltamarine by letter dated July 30, 1986 that "the new
corresponding share/stockholdings from management is not in a position to honor the said
1973 to 1986 duly certified by the contract" and thus "whatever improvements * * (may be
Corporate Secretary. introduced) shall be deemed unauthorized * * and shall be
at * * (Deltamarine's) own risk." 6
4. Audited Financial Statements such as
Balance Sheet, Profit & Loss and others e. Order for Operation of Sesiman Rock
from 1973 to December 31, 1985. Quarry, Mariveles, Bataan
5. Monthly Financial Statements for the By Order dated June 20, 1986, Commissioner Mary
current year up to March 31, 1986. Bautista first directed a PCGG agent, Mayor Melba O.
Buenaventura, "to plan and implement progress towards
6. Consolidated Cash Position Reports maximizing the continuous operation of the BASECO
from January to April 15, 1986. Sesiman Rock Quarry * * by conventional methods;" but
7. Inventory listings of assets up dated up afterwards, Commissioner Bautista, in representation of
to March 31, 1986. the PCGG, authorized another party, A.T. Abesamis, to
operate the quarry, located at Mariveles, Bataan, an
8. Updated schedule of Accounts agreement to this effect having been executed by them
Receivable and Accounts Payable. on September 17, 1986. 7
9. Complete list of depository banks for f. Order to Dispose of Scrap, etc.
all funds with the authorized signatories
for withdrawals thereof. By another Order of Commissioner Bautista, this time
dated June 26, 1986, Mayor Buenaventura was also
10. Schedule of company investments "authorized to clean and beautify the Company's
and placements. 2 compound," and in this connection, to dispose of or sell
"metal scraps" and other materials, equipment and
The letter closed with the warning that if the documents
machineries no longer usable, subject to specified
were not submitted within five days, the officers would be
guidelines and safeguards including audit and
cited for "contempt in pursuance with Presidential
verification. 8
Executive Order Nos. 1 and 2."
11
g. The TAKEOVER Order 25, 1986 when the Freedom Constitution was
promulgated, under the principle that the law promulgated
By letter dated July 14, 1986, Commissioner Ramon A. by the ruler under a revolutionary regime is the law of the
Diaz decreed the provisional takeover by the PCGG of land, it ceased to be acceptable when the same ruler
BASECO, "the Philippine Dockyard Corporation and all opted to promulgate the Freedom Constitution on March
their affiliated companies." 9 Diaz invoked the provisions 25, 1986 wherein under Section I of the same, Article IV
of Section 3 (c) of Executive Order No. 1, empowering the (Bill of Rights) of the 1973 Constitution was adopted
Commission — providing, among others, that "No person shall be
* * To provisionally takeover in the public deprived of life, liberty and property without due process
interest or to prevent its disposal or of law." (Const., Art. I V, Sec. 1)." 12
dissipation, business enterprises and It declares that its objection to the constitutionality of the
properties taken over by the government Executive Orders "as well as the Sequestration Order * *
of the Marcos Administration or by and Takeover Order * * issued purportedly under the
entities or persons close to former authority of said Executive Orders, rests on four
President Marcos, until the transactions fundamental considerations: First, no notice and hearing
leading to such acquisition by the latter was accorded * * (it) before its properties and business
can be disposed of by the appropriate were taken over; Second, the PCGG is not a court, but a
authorities. purely investigative agency and therefore not competent
A management team was designated to implement the to act as prosecutor and judge in the same
order, headed by Capt. Siacunco, and was given the cause; Third, there is nothing in the issuances which
following powers: envisions any proceeding, process or remedy by which
petitioner may expeditiously challenge the validity of the
1. Conducts all aspects of operation of takeover after the same has been effected;
the subject companies; and Fourthly, being directed against specified persons,
and in disregard of the constitutional presumption of
2. Installs key officers, hires and
innocence and general rules and procedures, they
terminates personnel as necessary;
constitute a Bill of Attainder." 13
3. Enters into contracts related to
b. Re Order to Produce Documents
management and operation of the
companies; It argues that the order to produce corporate records from
1973 to 1986, which it has apparently already complied
4. Ensures that the assets of the
with, was issued without court authority and infringed its
companies are not dissipated and used
constitutional right against self-incrimination, and
effectively and efficiently; revenues are
unreasonable search and seizure. 14
duly accounted for; and disburses funds
only as may be necessary; c. Re PCGG's Exercise of Right of
Ownership and Management
5. Does actions including among others,
seeking of military support as may be BASECO further contends that the PCGG had unduly
necessary, that will ensure compliance to interfered with its right of dominion and management of its
this order; business affairs by —
6. Holds itself fully accountable to the 1) terminating its contract for security services with
Presidential Commission on Good Fairways & Anchor, without the consent and against the
Government on all aspects related to this will of the contracting parties; and amending the mode of
take-over order. payment of entry fees stipulated in its Lease Contract with
National Stevedoring & Lighterage Corporation, these
h. Termination of
acts being in violation of the non-impairment clause of the
Services of BASECO
constitution; 15
Officers
2) allowing PCGG Agent Silverio Berenguer to enter into
Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz,
an "anomalous contract" with Deltamarine Integrated Port
Manuel S. Mendoza, Moises M. Valdez, Gilberto
Services, Inc., giving the latter free use of BASECO
Pasimanero, and Benito R. Cuesta I, advising of the
premises; 16
termination of their services by the PCGG. 10
3) authorizing PCGG Agent, Mayor Melba Buenaventura,
2. Petitioner's Plea and Postulates
to manage and operate its rock quarry at Sesiman,
It is the foregoing specific orders and acts of the PCGG Mariveles; 17
and its members and agents which, to repeat, petitioner
4) authorizing the same mayor to sell or dispose of its
BASECO would have this Court nullify. More particularly,
metal scrap, equipment, machinery and other
BASECO prays that this Court-
materials; 18
1) declare unconstitutional and void Executive Orders
5) authorizing the takeover of BASECO, Philippine
Numbered 1 and 2;
Dockyard Corporation, and all their affiliated companies;
2) annul the sequestration order dated April- 14, 1986,
6) terminating the services of BASECO executives:
and all other orders subsequently issued and acts done
President Hilario M. Ruiz; EVP Manuel S. Mendoza; GM
on the basis thereof, inclusive of the takeover order of July
Moises M. Valdez; Finance Mgr. Gilberto Pasimanero;
14, 1986 and the termination of the services of the
Legal Dept. Mgr. Benito R. Cuesta I; 19
BASECO executives. 11
7) planning to elect its own Board of Directors; 20
a. Re Executive Orders No. 1 and 2, and
the Sequestration and Takeover Orders 8) allowing willingly or unwillingly its personnel to take,
steal, carry away from petitioner's premises at Mariveles
While BASECO concedes that "sequestration without
* * rolls of cable wires, worth P600,000.00 on May 11,
resorting to judicial action, might be made within the
1986; 21
context of Executive Orders Nos. 1 and 2 before March
12
9) allowing "indiscriminate diggings" at Engineer Island to investigation or otherwise prevent the
retrieve gold bars supposed to have been buried Commission from accomplishing its task.
therein. 22
2. To provisionally take over in the public
3. Doubts, Misconceptions regarding Sequestration, interest or to prevent the disposal or
Freeze and Takeover Orders dissipation, business enterprises and
properties taken over by the government
Many misconceptions and much doubt about the matter of the Marcos Administration or by
of sequestration, takeover and freeze orders have been entities or persons close to former
engendered by misapprehension, or incomplete President Marcos, until the transactions
comprehension if not indeed downright ignorance of the leading to such acquisition by the latter
law governing these remedies. It is needful that these can be disposed of by the appropriate
misconceptions and doubts be dispelled so that authorities.
uninformed and useless debates about them may be
avoided, and arguments tainted b sophistry or intellectual 3. To enjoin or restrain any actual or
dishonesty be quickly exposed and discarded. Towards threatened commission of acts by any
this end, this opinion will essay an exposition of the law person or entity that may render moot
on the matter. In the process many of the objections and academic, or frustrate or otherwise
raised by BASECO will be dealt with. make ineffectual the efforts of the
Commission to carry out its task under
4. The Governing Law this order. 28
a. Proclamation No. 3 So that it might ascertain the facts germane to its
The impugned executive orders are avowedly meant to objectives, it was granted power to conduct investigations;
carry out the explicit command of the Provisional require submission of evidence by subpoenae ad
Constitution, ordained by Proclamation No. 3, 23 that the testificandum and duces tecum; administer oaths; punish
President-in the exercise of legislative power which she for contempt. 29It was given power also to promulgate
was authorized to continue to wield "(until a legislature is such rules and regulations as may be necessary to carry
elected and convened under a new Constitution" — "shall out the purposes of * * (its creation). 30
give priority to measures to achieve the mandate of the c. Executive Order No. 2
people," among others to (r)ecover ill-gotten properties
amassed by the leaders and supporters of the previous Executive Order No. 2 gives additional and more specific
regime and protect the interest of the people through data and directions respecting "the recovery of ill-gotten
orders of sequestration or freezing of assets or properties amassed by the leaders and supporters of the
accounts." 24 previous regime." It declares that:
b. Executive Order No. 1 1) * * the Government of the Philippines
is in possession of evidence showing that
Executive Order No. 1 stresses the "urgent need to there are assets and properties
recover all ill-gotten wealth," and postulates that "vast purportedly pertaining to former
resources of the government have been amassed by Ferdinand E. Marcos, and/or his wife Mrs.
former President Ferdinand E. Marcos, his immediate Imelda Romualdez Marcos, their close
family, relatives, and close associates both here and relatives, subordinates, business
abroad." 25 Upon these premises, the Presidential associates, dummies, agents or
Commission on Good Government was nominees which had been or were
created, 26 "charged with the task of assisting the acquired by them directly or indirectly,
President in regard to (certain specified) matters," among through or as a result of the improper or
which was precisely- illegal use of funds or properties owned
* * The recovery of all in-gotten wealth by the government of the Philippines or
accumulated by former President any of its branches, instrumentalities,
Ferdinand E. Marcos, his immediate enterprises, banks or financial institutions,
family, relatives, subordinates and close or by taking undue advantage of their
associates, whether located in the office, authority, influence, connections
Philippines or abroad, including or relationship, resulting in their unjust
the takeover or sequestration of all enrichment and causing grave damage
business enterprises and entities owned and prejudice to the Filipino people and
or controlled by them, during his the Republic of the Philippines:" and
administration, directly or through 2) * * said assets and properties are in the
nominees, by taking undue advantage of form of bank accounts, deposits, trust
their public office and/or using their accounts, shares of stocks, buildings,
powers, authority, influence, connections shopping centers, condominiums,
or relationship. 27 mansions, residences, estates, and other
In relation to the takeover or sequestration that it was kinds of real and personal properties in
authorized to undertake in the fulfillment of its mission, the the Philippines and in various countries
PCGG was granted "power and authority" to do the of the world." 31
following particular acts, to wit: Upon these premises, the President-
1. To sequester or place or cause to be 1) froze "all assets and properties in the
placed under its control or Philippines in which former President
possession any building or office wherein Marcos and/or his wife, Mrs. Imelda
any ill-gotten wealth or properties may be Romualdez Marcos, their close relatives,
found, and any records pertaining thereto, subordinates, business associates,
in order to prevent their destruction, dummies, agents, or nominees have any
concealment or disappearance which interest or participation;
would frustrate or hamper the
13
2) prohibited former President Ferdinand a) more particularly, that ill-gotten wealth
Marcos and/or his wife * *, their close (was) accumulated by former President
relatives, subordinates, business Ferdinand E. Marcos, his immediate
associates, duties, agents, or nominees family, relatives, subordinates and close
from transferring, conveying, associates, * * located in the Philippines
encumbering, concealing or or abroad, * * (and) business enterprises
dissipating said assets or properties in and entities (came to be) owned or
the Philippines and abroad, pending the controlled by them, during * * (the Marcos)
outcome of appropriate proceedings in administration, directly or through
the Philippines to determine whether any nominees, by taking undue advantage of
such assets or properties were acquired their public office and/or using their
by them through or as a result of powers, authority, influence,
improper or illegal use of or the Connections or relationship; 38
conversion of funds belonging to the
Government of the Philippines or any of b) otherwise stated, that "there are
its branches, instrumentalities, assets and properties purportedly
enterprises, banks or financial institutions, pertaining to former President Ferdinand
or by taking undue advantage of their E. Marcos, and/or his wife Mrs. Imelda
official position, authority, relationship, Romualdez Marcos, their close relatives,
connection or influence to unjustly enrich subordinates, business associates,
themselves at the expense and to the dummies, agents or nominees which had
grave damage and prejudice of the been or were acquired by them directly or
Filipino people and the Republic of the indirectly, through or as a result of the
Philippines; improper or illegal use of funds or
properties owned by the Government of
3) prohibited "any person the Philippines or any of its branches,
from transferring, conveying, instrumentalities, enterprises, banks or
encumbering or otherwise depleting or financial institutions, or by taking undue
concealing such assets and properties or advantage of their office, authority,
from assisting or taking part in their influence, connections or relationship,
transfer, encumbrance, concealment or resulting in their unjust enrichment and
dissipation under pain of such penalties causing grave damage and prejudice to
as are prescribed by law;" and the Filipino people and the Republic of
the Philippines"; 39
4) required "all persons in the Philippines
holding such assets or properties, c) that "said assets and properties are in
whether located in the Philippines or the form of bank accounts. deposits, trust.
abroad, in their names as nominees, accounts, shares of stocks, buildings,
agents or trustees, to make full shopping centers, condominiums,
disclosure of the same to the mansions, residences, estates, and other
Commission on Good Government within kinds of real and personal properties in
thirty (30) days from publication of * (the) the Philippines and in various countries
Executive Order, * *. 32 of the world;" 40 and
d. Executive Order No. 2) that certain "business enterprises and
14 properties (were) taken over by the
government of the Marcos Administration
A third executive order is relevant: Executive Order No. or by entities or persons close to former
14, 33 by which the PCGG is empowered, "with the President Marcos. 41
assistance of the Office of the Solicitor General and other
government agencies, * * to file and prosecute all cases 6. Government's Right and Duty to Recover All Ill-gotten
investigated by it * * as may be warranted by its Wealth
findings." 34 All such cases, whether civil or criminal, are
to be filed "with the Sandiganbayan which shall have There can be no debate about the validity and eminent
exclusive and original jurisdiction thereof." 35 Executive propriety of the Government's plan "to recover all ill-gotten
Order No. 14 also pertinently provides that civil suits for wealth."
restitution, reparation of damages, or indemnification for Neither can there be any debate about the proposition that
consequential damages, forfeiture proceedings provided assuming the above described factual premises of the
for under Republic Act No. 1379, or any other civil actions Executive Orders and Proclamation No. 3 to be true, to be
under the Civil Code or other existing laws, in connection demonstrable by competent evidence, the recovery from
with * * (said Executive Orders Numbered 1 and 2) may Marcos, his family and his dominions of the assets and
be filed separately from and proceed independently of any properties involved, is not only a right but a duty on the
criminal proceedings and may be proved by a part of Government.
preponderance of evidence;" and that, moreover, the
"technical rules of procedure and evidence shall not be But however plain and valid that right and duty may be,
strictly applied to* * (said)civil cases." 36 still a balance must be sought with the equally compelling
necessity that a proper respect be accorded and
5. Contemplated Situations adequate protection assured, the fundamental rights of
The situations envisaged and sought to be governed are private property and free enterprise which are deemed
self-evident, these being: pillars of a free society such as ours, and to which all
members of that society may without exception lay claim.
1) that "(i)ll-gotten properties (were)
amassed by the leaders and supporters * * Democracy, as a way of life enshrined
of the previous regime"; 37 in the Constitution, embraces as its
necessary components freedom of
conscience, freedom of expression, and

14
freedom in the pursuit of found, including "business enterprises and entities,"-for
happiness. Along with these freedoms the purpose of preventing the destruction, concealment or
are included economic freedom and dissipation of, and otherwise conserving and preserving,
freedom of enterprise within reasonable the same-until it can be determined, through appropriate
bounds and under proper control. * * judicial proceedings, whether the property was in truth
Evincing much concern for the protection will- gotten," i.e., acquired through or as a result of
of property, the Constitution distinctly improper or illegal use of or the conversion of funds
recognizes the preferred position which belonging to the Government or any of its branches,
real estate has occupied in law for instrumentalities, enterprises, banks or financial
ages. Property is bound up with every institutions, or by taking undue advantage of official
aspect of social life in a democracy as position, authority relationship, connection or influence,
democracy is conceived in the resulting in unjust enrichment of the ostensible owner and
Constitution.The Constitution realizes the grave damage and prejudice to the State. 44 And this, too,
indispensable role which property, is the sense in which the term is commonly understood in
owned in reasonable quantities and used other jurisdictions. 45
legitimately, plays in the stimulation to
economic effort and the formation and b. "Freeze Order"
growth of a solid social middle class that A "freeze order" prohibits the person having possession
is said to be the bulwark of democracy or control of property alleged to constitute "ill-gotten
and the backbone of every progressive wealth" "from transferring, conveying, encumbering or
and happy country. 42 otherwise depleting or concealing such property, or from
a. Need of Evidentiary Substantiation in assisting or taking part in its transfer, encumbrance,
Proper Suit concealment, or dissipation." 46 In other words, it
commands the possessor to hold the property and
Consequently, the factual premises of the Executive conserve it subject to the orders and disposition of the
Orders cannot simply be assumed. They will have to be authority decreeing such freezing. In this sense, it is akin
duly established by adequate proof in each case, in a to a garnishment by which the possessor or ostensible
proper judicial proceeding, so that the recovery of the ill- owner of property is enjoined not to deliver, transfer, or
gotten wealth may be validly and properly adjudged and otherwise dispose of any effects or credits in his
consummated; although there are some who maintain possession or control, and thus becomes in a sense an
that the fact-that an immense fortune, and "vast resources involuntary depositary thereof. 47
of the government have been amassed by former
President Ferdinand E. Marcos, his immediate family, c. Provisional Takeover
relatives, and close associates both here and abroad," In providing for the remedy of "provisional takeover," the
and they have resorted to all sorts of clever schemes and law acknowledges the apparent distinction between "ill
manipulations to disguise and hide their illicit acquisitions- gotten" "business enterprises and entities" (going
is within the realm of judicial notice, being of so extensive concerns, businesses in actual operation), generally, as
notoriety as to dispense with proof thereof, Be this as it to which the remedy of sequestration applies, it being
may, the requirement of evidentiary substantiation has necessarily inferred that the remedy entails no
been expressly acknowledged, and the procedure to be interference, or the least possible interference with the
followed explicitly laid down, in Executive Order No. 14. actual management and operations thereof; and
b. Need of Provisional Measures to "business enterprises which were taken over by the
Collect and Conserve Assets Pending government government of the Marcos Administration or
Suits by entities or persons close to him," in particular, as to
which a "provisional takeover" is authorized, "in the public
Nor may it be gainsaid that pending the institution of the interest or to prevent disposal or dissipation of the
suits for the recovery of such "ill-gotten wealth" as the enterprises." 48 Such a "provisional takeover" imports
evidence at hand may reveal, there is an obvious and something more than sequestration or freezing, more
imperative need for preliminary, provisional measures to than the placing of the business under physical
prevent the concealment, disappearance, destruction, possession and control, albeit without or with the least
dissipation, or loss of the assets and properties subject of possible interference with the management and carrying
the suits, or to restrain or foil acts that may render moot on of the business itself. In a "provisional takeover," what
and academic, or effectively hamper, delay, or negate is taken into custody is not only the physical assets of the
efforts to recover the same. business enterprise or entity, but the business operation
as well. It is in fine the assumption of control not only over
7. Provisional Remedies Prescribed by Law things, but over operations or on- going activities. But, to
To answer this need, the law has prescribed three (3) repeat, such a "provisional takeover" is allowed only as
provisional remedies. These are: (1) sequestration; (2) regards "business enterprises * * taken over by the
freeze orders; and (3) provisional takeover. government of the Marcos Administration or by entities or
persons close to former President Marcos."
Sequestration and freezing are remedies applicable
generally to unearthed instances of "ill-gotten wealth." d. No Divestment of Title Over Property
The remedy of "provisional takeover" is peculiar to cases Seized
where "business enterprises and properties (were) taken It may perhaps be well at this point to stress once again
over by the government of the Marcos Administration or the provisional, contingent character of the remedies just
by entities or persons close to former President described. Indeed the law plainly qualifies the remedy of
Marcos." 43 take-over by the adjective, "provisional." These remedies
a. Sequestration may be resorted to only for a particular exigency: to
prevent in the public interest the disappearance or
By the clear terms of the law, the power of the PCGG dissipation of property or business, and conserve it
to sequester property claimed to be "ill-gotten" means to pending adjudgment in appropriate proceedings of the
place or cause to be placed under its possession or primary issue of whether or not the acquisition of title or
control said property, or any building or office wherein any other right thereto by the apparent owner was attended by
such property and any records pertaining thereto may be some vitiating anomaly. None of the remedies is meant to
15
deprive the owner or possessor of his title or any right to As thus described, sequestration, freezing and provisional
the property sequestered, frozen or taken over and vest it takeover are akin to the provisional remedy of preliminary
in the sequestering agency, the Government or other attachment, or receivership. 53 By attachment, a sheriff
person. This can be done only for the causes and by the seizes property of a defendant in a civil suit so that it may
processes laid down by law. stand as security for the satisfaction of any judgment that
may be obtained, and not disposed of, or dissipated, or
That this is the sense in which the power to sequester, lost intentionally or otherwise, pending the action. 54 By
freeze or provisionally take over is to be understood and receivership, property, real or personal, which is subject
exercised, the language of the executive orders in of litigation, is placed in the possession and control of a
question leaves no doubt. Executive Order No. 1 declares receiver appointed by the Court, who shall conserve it
that the sequestration of property the acquisition of which pending final determination of the title or right of
is suspect shall last "until the transactions leading to such possession over it. 55 All these remedies — sequestration,
acquisition * * can be disposed of by the appropriate freezing, provisional, takeover, attachment and
authorities." 49 Executive Order No. 2 declares that the receivership — are provisional, temporary, designed for-
assets or properties therein mentioned shall remain particular exigencies, attended by no character of
frozen "pending the outcome of appropriate proceedings permanency or finality, and always subject to the control
in the Philippines to determine whether any such assets of the issuing court or agency.
or properties were acquired" by illegal means. Executive
Order No. 14 makes clear that judicial proceedings are g. Remedies, Non-Judicial
essential for the resolution of the basic issue of whether
or not particular assets are "ill-gotten," and resultant Parenthetically, that writs of sequestration or freeze or
recovery thereof by the Government is warranted. takeover orders are not issued by a court is of no moment.
The Solicitor General draws attention to the writ of
e. State of Seizure Not To Be Indefinitely distraint and levy which since 1936 the Commissioner of
Maintained; The Constitutional Internal Revenue has been by law authorized to issue
Command against property of a delinquent taxpayer. 56 BASECO
itself declares that it has not manifested "a rigid insistence
There is thus no cause for the apprehension voiced by on sequestration as a purely judicial remedy * * (as it feels)
BASECO 50 that sequestration, freezing or provisional that the law should not be ossified to a point that makes it
takeover is designed to be an end in itself, that it is the insensitive to change." What it insists on, what it
device through which persons may be deprived of their pronounces to be its "unyielding position, is that any
property branded as "ill-gotten," that it is intended to bring change in procedure, or the institution of a new one,
about a permanent, rather than a passing, transitional should conform to due process and the other
state of affairs. That this is not so is quite explicitly prescriptions of the Bill of Rights of the Constitution." 57 It
declared by the governing rules. is, to be sure, a proposition on which there can be no
Be this as it may, the 1987 Constitution should allay any disagreement.
lingering fears about the duration of these provisional h. Orders May Issue Ex Parte
remedies. Section 26 of its Transitory Provisions, 51 lays
down the relevant rule in plain terms, apart from extending Like the remedy of preliminary attachment and
ratification or confirmation (although not really necessary) receivership, as well as delivery of personal property
to the institution by presidential fiat of the remedy of in replevin suits, sequestration and provisional takeover
sequestration and freeze orders: writs may issue ex parte. 58 And as in preliminary
attachment, receivership, and delivery of personality, no
SEC. 26. The authority to issue objection of any significance may be raised to the ex
sequestration or freeze orders under parte issuance of an order of sequestration, freezing or
Proclamation No. 3 dated March 25, takeover, given its fundamental character of
1986 in relation to the recovery of ill- temporariness or conditionality; and taking account
gotten wealth shag remain operative for specially of the constitutionally expressed "mandate of the
not more than eighteen months after the people to recover ill-gotten properties amassed by the
ratification of this Constitution. However, leaders and supporters of the previous regime and protect
in the national interest, as certified by the the interest of the people;" 59 as well as the obvious need
President, the Congress may to avoid alerting suspected possessors of "ill-gotten
extend said period. wealth" and thereby cause that disappearance or loss of
A sequestration or freeze order shall be property precisely sought to be prevented, and the fact,
issued only upon showing of a prima just as self-evident, that "any transfer, disposition,
facie case. The order and the list of the concealment or disappearance of said assets and
sequestered or frozen properties shall properties would frustrate, obstruct or hamper the efforts
forthwith be registered with the proper of the Government" at the just recovery thereof. 60
court. For orders issued before the 8. Requisites for Validity
ratification of this Constitution, the
corresponding judicial action or What is indispensable is that, again as in the case of
proceeding shall be filed within six attachment and receivership, there exist a prima facie
months from its ratification. For those factual foundation, at least, for the sequestration, freeze
issued after such ratification, the judicial or takeover order, and adequate and fair opportunity to
action or proceeding shall be contest it and endeavor to cause its negation or
commenced within six months from the nullification. 61
issuance thereof.
Both are assured under the executive orders in question
The sequestration or freeze order is and the rules and regulations promulgated by the PCGG.
deemed automatically lifted if no judicial
action or proceeding is commenced as a. Prima Facie Evidence as Basis for
herein provided. 52 Orders

f. Kinship to Attachment Receivership 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
16
respect to claims on allegedly "ill-gotten" assets and The institution of these provisional remedies is also
properties, "it is the position of the new democratic premised upon the State's inherent police power,
government that President Marcos * * (and other parties regarded, as t lie power of promoting the public welfare by
affected) be afforded fair opportunity to contest these restraining and regulating the use of liberty and
claims before appropriate Philippine property," 68 and as "the most essential, insistent and
authorities." 63 Section 7 of the Commission's Rules and illimitable of powers * * in the promotion of general welfare
Regulations provides that sequestration or freeze (and and the public interest," 69and said to be co-extensive with
takeover) orders issue upon the authority of at least two self-protection and * * not inaptly termed (also) the'law of
commissioners, based on the affirmation or complaint of overruling necessity." "70
an interested party, or motu proprio when the
Commission has reasonable grounds to believe that the 10. PCGG not a "Judge"; General Functions
issuance thereof is warranted. 64 A similar requirement is It should also by now be reasonably evident from what
now found in Section 26, Art. XVIII of the 1987 has thus far been said that the PCGG is not, and was
Constitution, which requires that a "sequestration or never intended to act as, a judge. Its general function is
freeze order shall be issued only upon showing of a prima to conduct investigations in order to collect
facie case." 65 evidence establishing instances of "ill-gotten
b. Opportunity to Contest wealth;" issue sequestration, and such orders as may be
warranted by the evidence thus collected and as may be
And Sections 5 and 6 of the same Rules and Regulations necessary to preserve and conserve the assets of which
lay down the procedure by which a party may seek to set it takes custody and control and prevent their
aside a writ of sequestration or freeze order, viz: disappearance, loss or dissipation; and eventually file and
prosecute in the proper court of competent jurisdiction all
SECTION 5. Who may contend.-The cases investigated by it as may be warranted by its
person against whom a writ of findings. It does not try and decide, or hear and determine,
sequestration or freeze or hold order is or adjudicate with any character of finality or compulsion,
directed may request the lifting thereof in cases involving the essential issue of whether or not
writing, either personally or through property should be forfeited and transferred to the State
counsel within five (5) days from receipt because "ill-gotten" within the meaning of the Constitution
of the writ or order, or in the case of a hold and the executive orders. This function is reserved to the
order, from date of knowledge thereof. designated court, in this case, the
SECTION 6. Procedure for review of writ Sandiganbayan. 71 There can therefore be no serious
or order.-After due hearing or motu regard accorded to the accusation, leveled by
proprio for good cause shown, the BASECO, 72that the PCGG plays the perfidious role of
Commission may lift the writ or order prosecutor and judge at the same time.
unconditionally or subject to such 11. Facts Preclude Grant of Relief to Petitioner
conditions as it may deem necessary,
taking into consideration the evidence Upon these premises and reasoned conclusions, and
and the circumstance of the case. The upon the facts disclosed by the record, hereafter to be
resolution of the commission may be discussed, the petition cannot succeed. The writs of
appealed by the party concerned to the certiorari and prohibition prayed for will not be issued.
Office of the President of the Philippines
within fifteen (15) days from receipt The facts show that the corporation known as BASECO
thereof. was owned or controlled by President Marcos "during his
administration, through nominees, by taking undue
Parenthetically, even if the requirement for a prima advantage of his public office and/or using his powers,
facie showing of "ill- gotten wealth" were not expressly authority, or influence, " and that it was by and through the
imposed by some rule or regulation as a condition to same means, that BASECO had taken over the business
warrant the sequestration or freezing of property and/or assets of the National Shipyard and Engineering
contemplated in the executive orders in question, it would Co., Inc., and other government-owned or controlled
nevertheless be exigible in this jurisdiction in which the entities.
Rule of Law prevails and official acts which are devoid of
rational basis in fact or law, or are whimsical and 12. Organization and Stock Distribution of BASECO
capricious, are condemned and struck down. 66 BASECO describes itself in its petition as "a shiprepair
9. Constitutional Sanction of Remedies and shipbuilding company * * incorporated as a domestic
private corporation * * (on Aug. 30, 1972) by a consortium
If any doubt should still persist in the face of the foregoing of Filipino shipowners and shipping executives. Its main
considerations as to the validity and propriety of office is at Engineer Island, Port Area, Manila, where its
sequestration, freeze and takeover orders, it should be Engineer Island Shipyard is housed, and its main shipyard
dispelled by the fact that these particular remedies and is located at Mariveles Bataan." 73 Its Articles of
the authority of the PCGG to issue them have received Incorporation disclose that its authorized capital stock is
constitutional approbation and sanction. As already P60,000,000.00 divided into 60,000 shares, of which
mentioned, the Provisional or "Freedom" Constitution 12,000 shares with a value of P12,000,000.00 have been
recognizes the power and duty of the President to enact subscribed, and on said subscription, the aggregate sum
"measures to achieve the mandate of the people to * * * of P3,035,000.00 has been paid by the
(recover ill- gotten properties amassed by the leaders and incorporators. 74The same articles Identify the
supporters of the previous regime and protect the interest incorporators, numbering fifteen (15), as follows: (1) Jose
of the people through orders of sequestration or freezing A. Rojas, (2) Anthony P. Lee, (3) Eduardo T. Marcelo, (4)
of assets or accounts." And as also already adverted to, Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T.
Section 26, Article XVIII of the 1987 Constitution 67 treats Yap, (7) Antonio M. Ezpeleta, (8) Zacarias Amante, (9)
of, and ratifies the "authority to issue sequestration or Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro
freeze orders under Proclamation No. 3 dated March 25, Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza,
1986." (14) Magiliw Torres, and (15) Rodolfo Torres.

17
By 1986, however, of these fifteen (15) incorporators, six
19. Dioscoro 128
(6) had ceased to be stockholders, namely: (1) Generoso
Papa shares
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) 20. Edward T. 4 shares
stockholders listed in BASECO's Stock and Transfer Marcelo
Book. 75Their names and the number of shares
respectively held by them are as follows:
TOTAL 218,819
shares.
1. Jose A. 1,248
Rojas shares
13 Acquisition of NASSCO by BASECO

2. Severino 1,248 Barely six months after its incorporation, BASECO


G. de la Cruz shares acquired from National Shipyard & Steel Corporation, or
NASSCO, a government-owned or controlled corporation,
the latter's shipyard at Mariveles, Bataan, known as the
3. Emilio T. 2,508 Bataan National Shipyard (BNS), and — except for
Yap shares NASSCO's Engineer Island Shops and certain equipment
of the BNS, consigned for future negotiation — all its
structures, buildings, shops, quarters, houses, plants,
4. Jose 1,248
equipment and facilities, in stock or in transit. This it did in
Fernandez shares
virtue of a "Contract of Purchase and Sale with Chattel
Mortgage" executed on February 13, 1973. The price was
5. Jose 128 P52,000,000.00. As partial payment thereof, BASECO
Francisco shares 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
6. Manuel S. 96
contract. The balance of P41,600,000.00, with interest at
Mendoza shares
seven percent (7%) per annum, compounded semi-
annually, was stipulated to be paid in equal semi-annual
7. Anthony P. 1,248 installments over a term of nine (9) years, payment to
Lee shares commence after a grace period of two (2) years from date
of turnover of the shipyard to BASECO. 76
8. Hilario M. 32 14. Subsequent Reduction of Price; Intervention of
Ruiz shares Marcos
Unaccountably, the price of P52,000,000.00 was reduced
9. Constante 8 shares by more than one-half, to P24,311,550.00, about eight (8)
L. Fariñas 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
10. Fidelity 65,882
Presiding Officer of the Board of Directors, and David R.
Management, shares
Ines, as General Manager. 77 This agreement bore, at the
Inc.
top right corner of the first page, the word "APPROVED"
in the handwriting of President Marcos, followed by his
11. Trident 7,412 usual full signature. The document recited that a down
Management shares 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
12. United 1,240
period of two (2) years, with interest at 7% per annum.
Phil. Lines shares
15. Acquisition of 300 Hectares from Export Processing
Zone Authority
13. Renato M. 8 shares
Tanseco On October 1, 1974, BASECO acquired three hundred
(300) hectares of land in Mariveles from the Export
14. Fidel 8 shares Processing Zone Authority for the price of
Ventura 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
15. Metro Bay 136,370
Drydock shares 16. Acquisition of Other Assets of NASSCO; Intervention
of Marcos

16. Manuel 1 share Some nine months afterwards, or on July 15, 1975, to be
Jacela 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
17. Jonathan 1 share first two (2) purchase documents. This was accomplished
G. Lu by a deed entitled "Contract of Purchase and
Sale," 79 which, like the Memorandum of Agreement
18. Jose J. 1 share dated October 9, 1973 supra also bore at the upper right-
Tanchanco hand corner of its first page, the handwritten notation
of President Marcos reading, "APPROVED, July 29,
1973," and underneath it, his usual full signature.

18
Transferred to BASECO were NASSCO's "ownership and Capt. A.T. Romualdez' report to the President was
all its titles, rights and interests over all equipment and submitted eleven (11) days later. It opened with the
facilities including structures, buildings, shops, quarters, following caption:
houses, plants and expendable or semi-expendable
assets, located at the Engineer Island, known as the MEMORANDUM:
Engineer Island Shops, including all the equipment of the FOR : The President
Bataan National Shipyards (BNS) which were excluded
from the sale of NBS to BASECO but retained by SUBJECT: An Evaluation and Re-
BASECO and all other selected equipment and assessment of a Performance of a
machineries of NASSCO at J. Panganiban Smelting Mission
Plant." In the same deed, NASSCO committed itself to
FROM: Capt. A.T. Romualdez.
cooperate with BASECO for the acquisition from the
National Government or other appropriate Government Like Ruiz, Romualdez wrote that BASECO faced great
entity of Engineer Island. Consideration for the sale was difficulties in meeting its loan obligations due chiefly to the
set at P5,000,000.00; a down payment of P1,000,000.00 fact that "orders to build ships as expected * * did not
appears to have been made, and the balance was materialize."
stipulated to be paid at 7% interest per annum in equal
semi annual installments over a term of nine (9) years, to He advised that five stockholders had "waived and/or
commence after a grace period of two (2) years. Mr. assigned their holdings inblank," these being: (1) Jose A.
Arturo Pacificador again signed for NASSCO, together Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres, (4)
with the general manager, Mr. David R. Ines. Magiliw Torres, and (5) Anthony P. Lee. Pointing out that
"Mr. Magiliw Torres * * is already dead and Mr. Jose A.
17. Loans Obtained Rojas had a major heart attack," he made the following
quite revealing, and it may be added, quite cynical and
It further appears that on May 27, 1975 BASECO obtained
indurate recommendation, to wit:
a loan from the NDC, taken from "the last available
Japanese war damage fund of $19,000,000.00," to pay * * (that) their replacements (be effected)
for "Japanese made heavy equipment (brand so we can register their names in the
new)." 80 On September 3, 1975, it got another loan also stock book prior to the implementation
from the NDC in the amount of P30,000,000.00 (id.). And of your instructions to pass a board
on January 28, 1976, it got still another loan, this time from resolution to legalize the transfers under
the GSIS, in the sum of P12,400,000.00. 81 The claim has SEC regulations;
been made that not a single centavo has been paid on
these loans. 82 2. By getting their replacements, the
families cannot question us later on; and
18. Reports to President Marcos
3. We will owe no further favors from
In September, 1977, two (2) reports were submitted to them. 87
President Marcos regarding BASECO. The first was
contained in a letter dated September 5, 1977 of Hilario He also transmitted to Marcos, together with the report,
M. Ruiz, BASECO president. 83 The second was the following documents: 88
embodied in a confidential memorandum dated 1. Stock certificates indorsed and
September 16, 1977 of Capt. A.T. Romualdez. 84 They assigned in blank with assignments and
further disclose the fine hand of Marcos in the affairs of waivers; 89
BASECO, and that of a Romualdez, a relative by affinity.
2. The articles of incorporation, the
a. BASECO President's Report amended articles, and the by-laws of
In his letter of September 5, 1977, BASECO President BASECO;
Ruiz reported to Marcos that there had been "no orders 3. Deed of Sales, wherein NASSCO sold
or demands for ship construction" for some time and to BASECO four (4) parcels of land in
expressed the fear that if that state of affairs persisted, "Engineer Island", Port Area, Manila;
BASECO would not be able to pay its debts to the
Government, which at the time stood at the not 4. Transfer Certificate of Title No. 124822
inconsiderable amount of P165,854,000.00. 85 He in the name of BASECO, covering
suggested that, to "save the situation," there be a "spin- "Engineer Island";
off (of their) shipbuilding activities which shall be handled
exclusively by an entirely new corporation to be created;" 5. Contract dated October 9, 1973,
and towards this end, he informed Marcos that BASECO between NASSCO and BASECO re-
was — structure and equipment at Mariveles,
Bataan;
* * inviting NDC and LUSTEVECO to
participate by converting the NDC 6. Contract dated July 16, 1975, between
shipbuilding loan to BASECO amounting NASSCO and BASECO re-structure and
to P341.165M and assuming and equipment at Engineer Island, Port Area
converting a portion of BASECO's Manila;
shipbuilding loans from REPACOM 7. Contract dated October 1, 1974,
amounting to P52.2M or a total of between EPZA and BASECO re 300
P83.365M as NDC's equity contribution hectares of land at Mariveles, Bataan;
in the new corporation. LUSTEVECO will
participate by absorbing and converting a 8. List of BASECO's fixed assets;
portion of the REPACOM loan of Bay
9. Loan Agreement dated September 3,
Shipyard and Drydock, Inc., amounting to
1975, BASECO's loan from NDC of
P32.538M.86
P30,000,000.00;
b. Romualdez' Report
10. BASECO-REPACOM Agreement
dated May 27, 1975;
19
11. GSIS loan to BASECO dated January the Philippine National Oil Company (PNOC), the Luzon
28, 1976 of P12,400,000.00 for the Stevedoring Company (LUSTEVECO), and the National
housing facilities for BASECO's rank- Development Company (NDC). What is commanded
and-file employees. 90 therein is summarized by the Solicitor General, with pithy
and not inaccurate observations as to the effects thereof
Capt. Romualdez also recommended that BASECO's (in italics), as follows:
loans be restructured "until such period when BASECO
will have enough orders for ships in order for the company * * 1) the shipbuilding equipment
to meet loan obligations," and that — procured by BASECO through
reparations be transferred to NDC
An LOI may be issued to government subject to reimbursement by NDC to
agencies using floating equipment, that a BASECO (of) the amount of s allegedly
linkage scheme be applied to a certain representing the handling and incidental
percent of BASECO's net profit as part of expenses incurred by BASECO in the
BASECO's amortization payments installation of said equipment (so instead
to make it justifiable for you, Sir. 91 of NDC getting paid on its loan to
It is noteworthy that Capt. A.T. Romualdez does not BASECO, it was made to pay BASECO
appear to be a stockholder or officer of BASECO, yet he instead the amount of P18.285M); 2) the
has presented a report on BASECO to President Marcos, shipbuilding equipment procured from
and his report demonstrates intimate familiarity with the reparations through EPZA, now in the
firm's affairs and problems. possession of BASECO and BSDI (Bay
Shipyard & Drydocking, Inc.) be
19. Marcos' Response to Reports transferred to LUSTEVECO through
PNOC; and 3) the shipbuilding
President Marcos lost no time in acting on his
equipment (thus) transferred be invested
subordinates' recommendations, particularly as regards
by LUSTEVECO, acting through PNOC
the "spin-off" and the "linkage scheme" relative to
and NDC, as the government's equity
"BASECO's amortization payments."
participation in a shipbuilding corporation
a. Instructions re "Spin-Off" to be established in partnership with the
private sector.
Under date of September 28, 1977, he addressed a
Memorandum to Secretary Geronimo Velasco of the xxx xxx xxx
Philippine National Oil Company and Chairman
And so, through a simple letter of
Constante Fariñas of the National Development Company,
instruction and memorandum,
directing them "to participate in the formation of a new
BASECO's loan obligation to NDC and
corporation resulting from the spin-off of the shipbuilding
REPACOM * * in the total amount of
component of BASECO along the following guidelines:
P83.365M and BSD's REPACOM loan of
a. Equity participation of government P32.438M were wiped out and converted
shall be through LUSTEVECO and NDC into non-voting preferred shares. 95
in the amount of P115,903,000
20. Evidence of Marcos'
consisting of the following obligations of
BASECO which are hereby authorized to Ownership of BASECO
be converted to equity of the said new
corporation, to wit: It cannot therefore be gainsaid that, in the context of the
proceedings at bar, the actuality of the control by
1. NDC P83,865,000 President Marcos of BASECO has been sufficiently
(P31.165M loan & shown.
P52.2M Reparation)
Other evidence submitted to the Court by the Solicitor
2. LUSTEVECO General proves that President Marcos not only exercised
P32,538,000 control over BASECO, but also that he actually owns well
(Reparation) nigh one hundred percent of its outstanding stock.
b. Equity participation of government It will be recalled that according to petitioner- itself, as of
shall be in the form of non- voting shares. April 23, 1986, there were 218,819 shares of stock
outstanding, ostensibly owned by twenty (20)
For immediate compliance. 92
stockholders. 96 Four of these twenty are juridical persons:
Mr. Marcos' guidelines were promptly complied with by his (1) Metro Bay Drydock, recorded as holding 136,370
subordinates. Twenty-two (22) days after receiving their shares; (2) Fidelity Management, Inc., 65,882 shares;
president's memorandum, Messrs. Hilario M. Ruiz, (3) Trident Management, 7,412 shares; and (4) United
Constante L. Fariñas and Geronimo Z. Velasco, in Phil. Lines, 1,240 shares. The first three corporations,
representation of their respective corporations, executed among themselves, own an aggregate of 209,664 shares
a PRE-INCORPORATION AGREEMENT dated October of BASECO stock, or 95.82% of the outstanding stock.
20, 1977. 93 In it, they undertook to form a shipbuilding
Now, the Solicitor General has drawn the Court's attention
corporation to be known as "PHIL-ASIA SHIPBUILDING
to the intriguing circumstance that found in Malacanang
CORPORATION," to bring to realization their president's
shortly after the sudden flight of President Marcos, were
instructions. It would seem that the new corporation
certificates corresponding to more than ninety-five
ultimately formed was actually named "Philippine
percent (95%) of all the outstanding shares of stock of
Dockyard Corporation (PDC)." 94
BASECO, endorsed in blank, together with deeds of
b. Letter of Instructions No. 670 assignment of practically all the outstanding shares of
stock of the three (3) corporations above mentioned
Mr. Marcos did not forget Capt. Romualdez' (which hold 95.82% of all BASECO stock), signed by the
recommendation for a letter of instructions. On February owners thereof although not notarized. 97
14, 1978, he issued Letter of Instructions No. 670
addressed to the Reparations Commission REPACOM
20
More specifically, found in Malacanang (and now in the petitioner to borrow from them, if available, the certificates
custody of the PCGG) were: referred to" but that "it needs a more sufficient time
therefor" (sic). BASECO's counsel however eventually
1) the deeds of assignment of all 600 had to confess inability to produce the originals of the
outstanding shares of Fidelity stock certificates, putting up the feeble excuse that while
Management Inc. — which supposedly he had "requested the stockholders to allow * * (him) to
owns as aforesaid 65,882 shares of borrow said certificates, * * some of * * (them) claimed that
BASECO stock; they had delivered the certificates to third parties by way
2) the deeds of assignment of 2,499,995 of pledge and/or to secure performance of obligations,
of the 2,500,000 outstanding shares of while others allegedly have entrusted them to third parties
Metro Bay Drydock Corporation — which in view of last national emergency." 108 He has
allegedly owns 136,370 shares of conveniently omitted, nor has he offered to give the details
BASECO stock; of the transactions adverted to by him, or to explain why
he had not impressed on the supposed stockholders the
3) the deeds of assignment of 800 primordial importance of convincing this Court of their
outstanding shares of Trident present custody of the originals of the stock, or if he had
Management Co., Inc. — which allegedly done so, why the stockholders are unwilling to agree to
owns 7,412 shares of BASECO stock, some sort of arrangement so that the originals of their
assigned in blank; 98 and certificates might at the very least be exhibited to the
Court. Under the circumstances, the Court can only
4) stock certificates corresponding
conclude that he could not get the originals from the
to 207,725 out of the 218,819
stockholders for the simple reason that, as the Solicitor
outstanding shares of BASECO
General maintains, said stockholders in truth no longer
stock; that is, all but 5 % — all endorsed
have them in their possession, these having already been
in blank. 99
assigned in blank to then President Marcos.
While the petitioner's counsel was quick to dispute this
21. Facts Justify Issuance of Sequestration and Takeover
asserted fact, assuring this Court that the BASECO
Orders
stockholders were still in possession of their respective
stock certificates and had "never endorsed * * them in In the light of the affirmative showing by the Government
blank or to anyone else," 100 that denial is exposed by his that, prima facie at least, the stockholders and directors of
own prior and subsequent recorded statements as a mere BASECO as of April, 1986 109 were mere "dummies,"
gesture of defiance rather than a verifiable factual nominees or alter egos of President Marcos; at any rate,
declaration. that they are no longer owners of any shares of stock in
the corporation, the conclusion cannot be avoided that
By resolution dated September 25, 1986, this Court
said stockholders and directors have no basis and no
granted BASECO's counsel a period of 10 days "to
standing whatever to cause the filing and prosecution of
SUBMIT, as undertaken by him, * * the certificates of
the instant proceeding; and to grant relief to BASECO, as
stock issued to the stockholders of * * BASECO as of April
prayed for in the petition, would in effect be to restore the
23, 1986, as listed in Annex 'P' of the
assets, properties and business sequestered and taken
petition.' 101 Counsel thereafter moved for extension;
over by the PCGG to persons who are "dummies,"
and in his motion dated October 2, 1986, he declared inter
nominees or alter egos of the former president.
alia that "said certificates of stock are in the possession of
third parties, among whom being the respondents From the standpoint of the PCGG, the facts herein stated
themselves * * and petitioner is still endeavoring to secure at some length do indeed show that the private
copies thereof from them." 102 On the same day he filed corporation known as BASECO was "owned or controlled
another motion praying that he be allowed "to secure by former President Ferdinand E. Marcos * * during his
copies of the Certificates of Stock in the name of Metro administration, * * through nominees, by taking advantage
Bay Drydock, Inc., and of all other Certificates, of Stock of of * * (his) public office and/or using * * (his) powers,
petitioner's stockholders in possession of authority, influence * *," and that NASSCO and other
respondents." 103 property of the government had been taken over by
BASECO; and the situation justified the sequestration as
In a Manifestation dated October 10, 1986,, 104 the
well as the provisional takeover of the corporation in the
Solicitor General not unreasonably argued that counsel's
public interest, in accordance with the terms of Executive
aforestated motion to secure copies of the stock
Orders No. 1 and 2, pending the filing of the requisite
certificates "confirms the fact that stockholders of
actions with the Sandiganbayan to cause divestment of
petitioner corporation are not in possession of * * (their)
title thereto from Marcos, and its adjudication in favor of
certificates of stock," and the reason, according to him,
the Republic pursuant to Executive Order No. 14.
was "that 95% of said shares * * have been endorsed in
blank and found in Malacañang after the former President As already earlier stated, this Court agrees that this
and his family fled the country." To this manifestation assessment of the facts is correct; accordingly, it sustains
BASECO's counsel replied on November 5, 1986, as the acts of sequestration and takeover by the PCGG as
already mentioned, Stubbornly insisting that the firm's being in accord with the law, and, in view of what has thus
stockholders had not really assigned their stock. 105 far been set out in this opinion, pronounces to be without
merit the theory that said acts, and the executive orders
In view of the parties' conflicting declarations, this Court
pursuant to which they were done, are fatally defective in
resolved on November 27, 1986 among other things "to
not according to the parties affected prior notice and
require * * the petitioner * * to deposit upon proper receipt
hearing, or an adequate remedy to impugn, set aside or
with Clerk of Court Juanito Ranjo the originals of the stock
otherwise obtain relief therefrom, or that the PCGG had
certificates alleged to be in its possession or accessible to
acted as prosecutor and judge at the same time.
it, mentioned and described in Annex 'P' of its petition,
(and other pleadings) * * within ten (10) days from 22. Executive Orders Not a Bill of Attainder
notice." 106 In a motion filed on December 5,
1986, 107 BASECO's counsel made the statement, quite Neither will this Court sustain the theory that the executive
surprising in the premises, that "it will negotiate with the orders in question are a bill of attainder. 110 "A bill of
owners (of the BASECO stock in question) to allow attainder is a legislative act which inflicts punishment

21
without judicial trial." 111 "Its essence is the substitution laws of its creation. There is a reserve
of a legislative for a judicial determination of guilt." 112 right in the legislature to investigate its
contracts and find out whether it has
In the first place, nothing in the executive orders can be exceeded its powers. It would be a
reasonably construed as a determination or declaration of strange anomaly to hold that a state,
guilt. On the contrary, the executive orders, inclusive of having chartered a corporation to make
Executive Order No. 14, make it perfectly clear that any use of certain franchises, could not, in the
judgment of guilt in the amassing or acquisition of "ill- exercise of sovereignty, inquire how
gotten wealth" is to be handed down by a judicial tribunal, these franchises had been employed,
in this case, the Sandiganbayan, upon complaint filed and and whether they had been abused, and
prosecuted by the PCGG. In the second place, no demand the production of the corporate
punishment is inflicted by the executive orders, as the books and papers for that purpose. The
merest glance at their provisions will immediately make defense amounts to this, that an officer of
apparent. In no sense, therefore, may the executive the corporation which is charged with a
orders be regarded as a bill of attainder. criminal violation of the statute may plead
23. No Violation of Right against Self-Incrimination and the criminality of such corporation as a
Unreasonable Searches and Seizures refusal to produce its books. To state this
proposition is to answer it. While an
BASECO also contends that its right against self individual may lawfully refuse to answer
incrimination and unreasonable searches and seizures incriminating questions unless protected
had been transgressed by the Order of April 18, 1986 by an immunity statute, it does not follow
which required it "to produce corporate records from 1973 that a corporation, vested with special
to 1986 under pain of contempt of the Commission if it privileges and franchises may refuse to
fails to do so." The order was issued upon the authority of show its hand when charged with an
Section 3 (e) of Executive Order No. 1, treating of the abuse of such privileges. (Wilson v.
PCGG's power to "issue subpoenas requiring * * the United States, 55 Law Ed., 771, 780
production of such books, papers, contracts, records, [emphasis, the Solicitor General's])
statements of accounts and other documents as may be
material to the investigation conducted by the At any rate, Executive Order No. 14-A, amending Section
Commission, " and paragraph (3), Executive Order No. 2 4 of Executive Order No. 14 assures protection to
dealing with its power to "require all persons in the individuals required to produce evidence before the
Philippines holding * * (alleged "ill-gotten") assets or PCGG against any possible violation of his right against
properties, whether located in the Philippines or abroad, self-incrimination. It gives them immunity from
in their names as nominees, agents or trustees, to make prosecution on the basis of testimony or information he is
full disclosure of the same * *." The contention lacks merit. compelled to present. As amended, said Section 4 now
provides that —
It is elementary that the right against self-incrimination
has no application to juridical persons. xxx xxx xxx

While an individual may lawfully refuse to The witness may not refuse to comply
answer incriminating questions unless with the order on the basis of his privilege
protected by an immunity statute, it does against self-incrimination; but no
not follow that a corporation, vested with testimony or other information compelled
special privileges and franchises, may under the order (or any information
refuse to show its hand when charged directly or indirectly derived from such
with an abuse ofsuchprivileges * * 113 testimony, or other information) may be
used against the witness in any criminal
Relevant jurisprudence is also cited by the Solicitor case, except a prosecution for perjury,
General. 114 giving a false statement, or otherwise
failing to comply with the order.
* * corporations are not entitled to all of
the constitutional protections which The constitutional safeguard against unreasonable
private individuals have. * * They are not searches and seizures finds no application to the case at
at all within the privilege against self- bar either. There has been no search undertaken by any
incrimination, although this court more agent or representative of the PCGG, and of course no
than once has said that the privilege runs seizure on the occasion thereof.
very closely with the 4th Amendment's
Search and Seizure provisions. It is also 24. Scope and Extent of Powers of the PCGG
settled that an officer of the company One other question remains to be disposed of, that
cannot refuse to produce its records in its respecting the scope and extent of the powers that may
possession upon the plea that they will be wielded by the PCGG with regard to the properties or
either incriminate him or may incriminate businesses placed under sequestration or provisionally
it." (Oklahoma Press Publishing Co. v. taken over. Obviously, it is not a question to which an
Walling, 327 U.S. 186; emphasis, the answer can be easily given, much less one which will
Solicitor General's). suffice for every conceivable situation.
* * The corporation is a creature of the a. PCGG May Not Exercise Acts of
state. It is presumed to be incorporated Ownership
for the benefit of the public. It received
certain special privileges and franchises, One thing is certain, and should be stated at the outset:
and holds them subject to the laws of the the PCGG cannot exercise acts of dominion over property
state and the limitations of its charter. Its sequestered, frozen or provisionally taken over. AS
powers are limited by law. It can make no already earlier stressed with no little insistence, the act of
contract not authorized by its charter. Its sequestration; freezing or provisional takeover of property
rights to act as a corporation are only does not import or bring about a divestment of title over
preserved to it so long as it obeys the said property; does not make the PCGG the owner thereof.

22
In relation to the property sequestered, frozen or recruited. There should be no role to be played in this area
provisionally taken over, the PCGG is a conservator, not by rank amateurs, no matter how wen meaning. The road
an owner. Therefore, it can not perform acts of strict to hell, it has been said, is paved with good intentions. The
ownership; and this is specially true in the situations business is not to be experimented or played around with,
contemplated by the sequestration rules where, unlike not run into the ground, not driven to bankruptcy, not
cases of receivership, for example, no court exercises fleeced, not ruined. Sight should never be lost sight of the
effective supervision or can upon due application and ultimate objective of the whole exercise, which is to turn
hearing, grant authority for the performance of acts of over the business to the Republic, once judicially
dominion. established to be "ill-gotten." Reason dictates that it is
only under these conditions and circumstances that the
Equally evident is that the resort to the provisional supervision, administration and control of business
remedies in question should entail the least possible enterprises provisionally taken over may legitimately be
interference with business operations or activities so that, exercised.
in the event that the accusation of the business enterprise
being "ill gotten" be not proven, it may be returned to its d. Voting of Sequestered Stock;
rightful owner as far as possible in the same condition as Conditions Therefor
it was at the time of sequestration.
So, too, it is within the parameters of these conditions and
b. PCGG Has Only Powers of circumstances that the PCGG may properly exercise the
Administration prerogative to vote sequestered stock of corporations,
granted to it by the President of the Philippines through a
The PCGG may thus exercise only powers of Memorandum dated June 26, 1986. That Memorandum
administration over the property or business sequestered authorizes the PCGG, "pending the outcome of
or provisionally taken over, much like a court-appointed proceedings to determine the ownership of * *
receiver, 115 such as to bring and defend actions in its (sequestered) shares of stock," "to vote such shares of
own name; receive rents; collect debts due; pay stock as it may have sequestered in corporations at all
outstanding debts; and generally do such other acts and stockholders' meetings called for the election of directors,
things as may be necessary to fulfill its mission as declaration of dividends, amendment of the Articles of
conservator and administrator. In this context, it may in Incorporation, etc." The Memorandum should be
addition enjoin or restrain any actual or threatened construed in such a manner as to be consistent with, and
commission of acts by any person or entity that may not contradictory of the Executive Orders earlier
render moot and academic, or frustrate or otherwise make promulgated on the same matter. There should be no
ineffectual its efforts to carry out its task; punish for direct exercise of the right to vote simply because the right exists,
or indirect contempt in accordance with the Rules of Court; or because the stocks sequestered constitute the
and seek and secure the assistance of any office, agency controlling or a substantial part of the corporate voting
or instrumentality of the government. 116 In the case of power. The stock is not to be voted to replace directors,
sequestered businesses generally (i.e., going concerns, or revise the articles or by-laws, or otherwise bring about
businesses in current operation), as in the case of substantial changes in policy, program or practice of the
sequestered objects, its essential role, as already corporation except for demonstrably weighty and
discussed, is that of conservator, caretaker, "watchdog" defensible grounds, and always in the context of the
or overseer. It is not that of manager, or innovator, much stated purposes of sequestration or provisional takeover,
less an owner. i.e., to prevent the dispersion or undue disposal of the
c. Powers over Business Enterprises corporate assets. Directors are not to be voted out simply
Taken Over by Marcos or Entities or because the power to do so exists. Substitution of
Persons Close to him; Limitations directors is not to be done without reason or rhyme,
Thereon should indeed be shunned if at an possible, and
undertaken only when essential to prevent disappearance
Now, in the special instance of a business enterprise or wastage of corporate property, and always under such
shown by evidence to have been "taken over by the circumstances as assure that the replacements are truly
government of the Marcos Administration or by entities or possessed of competence, experience and probity.
persons close to former President Marcos," 117 the
PCGG is given power and authority, as already adverted In the case at bar, there was adequate justification to vote
to, to "provisionally take (it) over in the public interest or the incumbent directors out of office and elect others in
to prevent * * (its) disposal or dissipation;" and since the their stead because the evidence showed prima facie that
term is obviously employed in reference to going the former were just tools of President Marcos and were
concerns, or business enterprises in operation, something no longer owners of any stock in the firm, if they ever were
more than mere physical custody is connoted; the PCGG at all. This is why, in its Resolution of October 28,
may in this case exercise some measure of control in the 1986; 118 this Court declared that —
operation, running, or management of the business itself. Petitioner has failed to make out a case
But even in this special situation, the intrusion into of grave abuse or excess of jurisdiction in
management should be restricted to the minimum degree respondents' calling and holding of a
necessary to accomplish the legislative will, which is "to stockholders' meeting for the election of
prevent the disposal or dissipation" of the business directors as authorized by the
enterprise. There should be no hasty, indiscriminate, Memorandum of the President * * (to the
unreasoned replacement or substitution of management PCGG) dated June 26, 1986, particularly,
officials or change of policies, particularly in respect of where as in this case, the government
viable establishments. In fact, such a replacement or can, through its designated directors,
substitution should be avoided if at all possible, and properly exercise control and
undertaken only when justified by demonstrably tenable management over what appear to be
grounds and in line with the stated objectives of the PCGG. properties and assets owned and
And it goes without saying that where replacement of belonging to the government itself and
management officers may be called for, the greatest over which the persons who appear in
prudence, circumspection, care and attention - should this case on behalf of BASECO have
accompany that undertaking to the end that truly failed to show any right or even any
competent, experienced and honest managers may be shareholding in said corporation.
23
It must however be emphasized that the conduct of the Can your Honor help us once more?
PCGG nominees in the BASECO Board in the Grateful for your understanding, God bless you and your
management of the company's affairs should henceforth undertakings.
be guided and governed by the norms herein laid down.
We shall be privileged if you find time to visit our
They should never for a moment allow themselves to
orphanage – the Home of Love – and the Spiritual Retreat
forget that they are conservators, not owners of the
Center in Antipolo City.
business; they are fiduciaries, trustees, of whom the
highest degree of diligence and rectitude is, in the To answer the query of Mr. Prioreschi, the Courts cannot
premises, required. grant to foundations like the Good Shepherd Foundation,
Inc. the same exemption from payment of legal fees
25. No Sufficient Showing of Other Irregularities granted to indigent litigants even if the foundations are
working for indigent and underprivileged people.
As to the other irregularities complained of by BASECO,
i.e., the cancellation or revision, and the execution of The basis for the exemption from legal and filing fees is
certain contracts, inclusive of the termination of the the free access clause, embodied in Sec. 11, Art. III of the
employment of some of its executives, 119 this Court 1987 Constitution, thus:
cannot, in the present state of the evidence on record, Sec. 11. Free access to the courts and quasi-judicial
pass upon them. It is not necessary to do so. The issues bodies and adequate legal assistance shall not be denied
arising therefrom may and will be left for initial to any person by reason of poverty.
determination in the appropriate action. But the Court will The importance of the right to free access to the courts
state that absent any showing of any important cause and quasi-judicial bodies and to adequate legal
therefor, it will not normally substitute its judgment for that assistance cannot be denied. A move to remove the
of the PCGG in these individual transactions. It is clear provision on free access from the Constitution on the
however, that as things now stand, the petitioner cannot ground that it was already covered by the equal protection
be said to have established the correctness of its clause was defeated by the desire to give constitutional
submission that the acts of the PCGG in question were stature to such specific protection of the poor.1
done without or in excess of its powers, or with grave
abuse of discretion. In implementation of the right of free access under the
Constitution, the Supreme Court promulgated rules,
WHEREFORE, the petition is dismissed. The temporary specifically, Sec. 21, Rule 3, Rules of Court,2 and Sec. 19,
restraining order issued on October 14, 1986 is lifted. Rule 141, Rules of Court,3 which respectively state thus:
Sec. 21. Indigent party. — A party may be authorized to
litigate his action, claim or defense as an indigent if the
A. M. No. 09-6-9-SC August 19, 2009 court, upon an ex parte application and hearing, is
RE: Query of Mr. Roger C. Prioreschi Re Exemption satisfied that the party is one who has no money or
from Legal and Filing Fees of the Good Shepherd property sufficient and available for food, shelter and
Foundation, Inc. basic necessities for himself and his family.
RESOLUTION Such authority shall include an exemption from payment
of docket and other lawful fees, and of transcripts of
BERSAMIN, J.:
stenographic notes which the court may order to be
In his letter dated May 22, 2009 addressed to the Chief furnished him. The amount of the docket and other lawful
Justice, Mr. Roger C. Prioreschi, administrator of the fees which the indigent was exempted from paying shall
Good Shepherd Foundation, Inc., wrote: be a lien on any judgment rendered in the case favorable
The Good Shepherd Foundation, Inc. is very grateful for to the indigent, unless the court otherwise provides.
your 1rst. Indorsement to pay a nominal fee of Php Any adverse party may contest the grant of such authority
5,000.00 and the balance upon the collection action of 10 at any time before judgment is rendered by the trial court.
million pesos, thus giving us access to the Justice System If the court should determine after hearing that the party
previously denied by an up-front excessive court fee. declared as an indigent is in fact a person with sufficient
The Hon. Court Administrator Jose Perez pointed out to income or property, the proper docket and other lawful
the need of complying with OCA Circular No. 42-2005 and fees shall be assessed and collected by the clerk of court.
Rule 141 that reserves this "privilege" to indigent persons. If payment is not made within the time fixed by the court,
While judges are appointed to interpret the law, this type execution shall issue for the payment thereof, without
of law seems to be extremely detailed with requirements prejudice to such other sanctions as the court may impose.
that do not leave much room for interpretations. (22a)1avvphi1
In addition, this law deals mainly with "individual indigent" Sec. 19. Indigent litigants exempt from payment of legal
and it does not include Foundations or Associations that fees.– Indigent litigants (a) whose gross income and that
work with and for the most Indigent persons. As seen in of their immediate family do not exceed an amount double
our Article of Incorporation, since 1985 the Good the monthly minimum wage of an employee and (b) who
Shepherd Foundation, Inc. reached-out to the poorest do not own real property with a fair market value as stated
among the poor, to the newly born and abandoned babies, in the current tax declaration of more than three hundred
to children who never saw the smile of their mother, to old thousand (P300,000.00) pesos shall be exempt from
people who cannot afford a few pesos to pay for "common payment of legal fees.
prescriptions", to broken families who returned to a The legal fees shall be a lien on any judgment rendered
normal life. In other words, we have been working hard for in the case favorable to the indigent litigant unless the
the very Filipino people, that the Government and the court otherwise provides.
society cannot reach to, or have rejected or abandoned To be entitled to the exemption herein provided, the
them.
litigant shall execute an affidavit that he and his immediate
Can the Courts grant to our Foundation who works for family do not earn a gross income abovementioned, and
indigent and underprivileged people, the same option they do not own any real property with the fair value
granted to indigent people? aforementioned, supported by an affidavit of a
The two Executive Judges, that we have approached, fear disinterested person attesting to the truth of the litigant’s
accusations of favoritism or other kind of attack if they affidavit. The current tax declaration, if any, shall be
approve something which is not clearly and specifically attached to the litigant’s affidavit.
stated in the law or approved by your HONOR.
24
Any falsity in the affidavit of litigant or disinterested person
shall be sufficient cause to dismiss the complaint or action T/R Date Maturi Principal Description of
or to strike out the pleading of that party, without prejudice Nos Grant ty Goods
to whatever criminal liability may have been incurred. . ed Date
The clear intent and precise language of the aforequoted
184 12-05- 03- P1,596,470 79.9425 M/T
provisions of the Rules of Court indicate that only a natural
5 80 05-81 .05 "SDK" Brand
party litigant may be regarded as an indigent litigant. The
Synthetic
Good Shepherd Foundation, Inc., being a corporation
Graphite
invested by the State with a juridical personality separate
Electrode
and distinct from that of its members,4 is a juridical person.
Among others, it has the power to acquire and possess
property of all kinds as well as incur obligations and bring 185 12-08- 03- P198,150.6 3,000 pcs. (15
civil or criminal actions, in conformity with the laws and 3 80 06-81 7 bundles)
regulations of their organization.5 As a juridical person, Calorized
therefore, it cannot be accorded the exemption from legal Lance Pipes
and filing fees granted to indigent litigants.
That the Good Shepherd Foundation, Inc. is working for 182 11-28- 02- P707,879.7 One Lot High
indigent and underprivileged people is of no moment. 4 80 26-81 1 Fired
Clearly, the Constitution has explicitly premised the free Refractory
access clause on a person’s poverty, a condition that only Tundish Bricks
a natural person can suffer.
179 11-21- 02- P835,526.2 5 cases spare
There are other reasons that warrant the rejection of the
8 80 19-81 5 parts for CCM
request for exemption in favor of a juridical person. For
one, extending the exemption to a juridical person on the
ground that it works for indigent and underprivileged 180 11-21- 02- P370,332.5 200 pcs. ingot
people may be prone to abuse (even with the imposition 8 80 19-81 2 moulds
of rigid documentation requirements), particularly by
corporations and entities bent on circumventing the rule 204 01-30- 04- P469,669.2 High Fired
on payment of the fees. Also, the scrutiny of compliance 2 81 30-81 9 Refractory
with the documentation requirements may prove too time- Nozzle Bricks
consuming and wasteful for the courts.
In view of the foregoing, the Good Shepherd Foundation, 180 11-21- 02- P2,001,715 Synthetic
Inc. cannot be extended the exemption from legal and 1 80 19-81 .17 Graphite
filing fees despite its working for indigent and Electrode [with]
underprivileged people. tapered pitch
filed nipples
SO ORDERED.
185 12-09- 03- P197,843.6 3,000 pcs. (15
7 80 09-81 1 bundles
calorized lance
pipes [)]
CRIMINAL LIABILITY OF A CORPORATION
189 12-17- 03- P67,652.04 Spare parts for
G. R. No. 164317 February 6, 2006 5 80 17-81 Spectrophotom
ALFREDO CHING, Petitioner, eter
vs.
THE SECRETARY OF JUSTICE, ASST. CITY 191 12-22- 03- P91,497.85 50 pcs. Ingot
PROSECUTOR ECILYN BURGOS-VILLAVERT, 1 80 20-81 moulds
JUDGE EDGARDO SUDIAM of the Regional Trial
Court, Manila, Branch 52; RIZAL COMMERCIAL 204 01-30- 04- P91,456.97 50 pcs. Ingot
BANKING CORP. and THE PEOPLE OF THE 1 81 30-81 moulds
PHILIPPINES, Respondents.
DECISION 209 02-10- 05- P66,162.26 8 pcs. Kubota
CALLEJO, SR., J.: 9 81 11-81 Rolls for rolling
mills
Before the Court is a petition for review on certiorari of the
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No.
57169 dismissing the petition for certiorari, prohibition and 210 02-10- 05- P210,748.0 Spare parts for
mandamus filed by petitioner Alfredo Ching, and its 0 81 12-81 0 Lacolaboratory
Resolution2 dated June 28, 2004 denying the motion for Equipment5
reconsideration thereof.
Under the receipts, petitioner agreed to hold the goods in
Petitioner was the Senior Vice-President of Philippine trust for the said bank, with authority to sell but not by way
Blooming Mills, Inc. (PBMI). Sometime in September to of conditional sale, pledge or otherwise; and in case such
October 1980, PBMI, through petitioner, applied with the goods were sold, to turn over the proceeds thereof as
Rizal Commercial Banking Corporation (respondent bank) soon as received, to apply against the relative
for the issuance of commercial letters of credit to finance acceptances and payment of other indebtedness to
its importation of assorted goods.3 respondent bank. In case the goods remained unsold
Respondent bank approved the application, and within the specified period, the goods were to be returned
irrevocable letters of credit were issued in favor of to respondent bank without any need of demand. Thus,
petitioner. The goods were purchased and delivered in said "goods, manufactured products or proceeds thereof,
trust to PBMI. Petitioner signed 13 trust receipts4 as whether in the form of money or bills, receivables, or
surety, acknowledging delivery of the following goods: accounts separate and capable of identification" were
respondent bank’s property.
25
When the trust receipts matured, petitioner failed to return of a product ultimately sold but covers failure to turn over
the goods to respondent bank, or to return their value the proceeds of the sale of entrusted goods, or to return
amounting to ₱6,940,280.66 despite demands. Thus, the said goods if unsold or not otherwise disposed of in
bank filed a criminal complaint for estafa6 against accordance with the terms of the trust receipts."
petitioner in the Office of the City Prosecutor of Manila. The Justice Secretary further stated that the respondent
After the requisite preliminary investigation, the City bound himself under the terms of the trust receipts not
Prosecutor found probable cause estafa under Article 315, only as a corporate official of PBMI but also as its surety;
paragraph 1(b) of the Revised Penal Code, in relation to hence, he could be proceeded against in two (2) ways:
Presidential Decree (P.D.) No. 115, otherwise known as first, as surety as determined by the Supreme Court in its
the Trust Receipts Law. Thirteen (13) Informations were decision in Rizal Commercial Banking Corporation v.
filed against the petitioner before the Regional Trial Court Court of Appeals;17 and second, as the corporate official
(RTC) of Manila. The cases were docketed as Criminal responsible for the offense under P.D. No. 115, via
Cases No. 86-42169 to 86-42181, raffled to Branch 31 of criminal prosecution. Moreover, P.D. No. 115 explicitly
said court. allows the prosecution of corporate officers "without
Petitioner appealed the resolution of the City Prosecutor prejudice to the civil liabilities arising from the criminal
to the then Minister of Justice. The appeal was dismissed offense." Thus, according to the Justice Secretary,
in a Resolution7 dated March 17, 1987, and petitioner following Rizal Commercial Banking Corporation, the civil
moved for its reconsideration. On December 23, 1987, the liability imposed is clearly separate and distinct from the
Minister of Justice granted the motion, thus reversing the criminal liability of the accused under P.D. No. 115.
previous resolution finding probable cause against Conformably with the Resolution of the Secretary of
petitioner.8 The City Prosecutor was ordered to move for Justice, the City Prosecutor filed 13 Informations against
the withdrawal of the Informations. petitioner for violation of P.D. No. 115 before the RTC of
This time, respondent bank filed a motion for Manila. The cases were docketed as Criminal Cases No.
reconsideration, which, however, was denied on February 99-178596 to 99-178608 and consolidated for trial before
24, 1988.9The RTC, for its part, granted the Motion to Branch 52 of said court. Petitioner filed a motion for
Quash the Informations filed by petitioner on the ground reconsideration, which the Secretary of Justice denied in
that the material allegations therein did not amount to a Resolution18 dated January 17, 2000.
estafa.10 Petitioner then filed a petition for certiorari, prohibition and
In the meantime, the Court rendered judgment in Allied mandamus with the CA, assailing the resolutions of the
Banking Corporation v. Ordoñez,11 holding that the penal Secretary of Justice on the following grounds:
provision of P.D. No. 115 encompasses any act violative 1. THE RESPONDENTS ARE ACTING WITH AN
of an obligation covered by the trust receipt; it is not UNEVEN HAND AND IN FACT, ARE ACTING
limited to transactions involving goods which are to be OPPRESSIVELY AGAINST ALFREDO CHING
sold (retailed), reshipped, stored or processed as a WHEN THEY ALLOWED HIS PROSECUTION
component of a product ultimately sold. The Court also DESPITE THE FACT THAT NO EVIDENCE HAD
ruled that "the non-payment of the amount covered by a BEEN PRESENTED TO PROVE HIS
trust receipt is an act violative of the obligation of the PARTICIPATION IN THE ALLEGED
entrustee to pay."12 TRANSACTIONS.
On February 27, 1995, respondent bank re-filed the 2. THE RESPONDENT SECRETARY OF
criminal complaint for estafa against petitioner before the JUSTICE COMMITTED AN ACT IN GRAVE
Office of the City Prosecutor of Manila. The case was ABUSE OF DISCRETION AND IN EXCESS OF
docketed as I.S. No. 95B-07614. HIS JURISDICTION WHEN THEY CONTINUED
Preliminary investigation ensued. On December 8, 1995, PROSECUTION OF THE PETITIONER
the City Prosecutor ruled that there was no probable DESPITE THE LENGTH OF TIME INCURRED
cause to charge petitioner with violating P.D. No. 115, as IN THE TERMINATION OF THE PRELIMINARY
petitioner’s liability was only civil, not criminal, having INVESTIGATION THAT SHOULD JUSTIFY THE
signed the trust receipts as surety.13 Respondent bank DISMISSAL OF THE INSTANT CASE.
appealed the resolution to the Department of Justice 3. THE RESPONDENT SECRETARY OF
(DOJ) via petition for review, alleging that the City JUSTICE AND ASSISTANT CITY
Prosecutor erred in ruling: PROSECUTOR ACTED IN GRAVE ABUSE OF
1. That there is no evidence to show that DISCRETION AMOUNTING TO AN EXCESS OF
respondent participated in the misappropriation of JURISDICTION WHEN THEY CONTINUED THE
the goods subject of the trust receipts; PROSECUTION OF THE PETITIONER
DESPITE LACK OF SUFFICIENT BASIS.19
2. That the respondent is a mere surety of the
trust receipts; and In his petition, petitioner incorporated a certification
stating that "as far as this Petition is concerned, no action
3. That the liability of the respondent is only civil
or proceeding in the Supreme Court, the Court of Appeals
in nature.14
or different divisions thereof, or any tribunal or agency. It
On July 13, 1999, the Secretary of Justice issued is finally certified that if the affiant should learn that a
Resolution No. 25015 granting the petition and reversing similar action or proceeding has been filed or is pending
the assailed resolution of the City Prosecutor. According before the Supreme Court, the Court of Appeals, or
to the Justice Secretary, the petitioner, as Senior Vice- different divisions thereof, of any other tribunal or agency,
President of PBMI, executed the 13 trust receipts and as it hereby undertakes to notify this Honorable Court within
such, was the one responsible for the offense. Thus, the five (5) days from such notice."20
execution of said receipts is enough to indict the petitioner
In its Comment on the petition, the Office of the Solicitor
as the official responsible for violation of P.D. No. 115.
General alleged that -
The Justice Secretary also declared that petitioner could
not contend that P.D. No. 115 covers only goods A.
ultimately destined for sale, as this issue had already THE HONORABLE SECRETARY OF JUSTICE
been settled in Allied Banking Corporation v. CORRECTLY RULED THAT PETITIONER
Ordoñez,16 where the Court ruled that P.D. No. 115 is "not ALFREDO CHING IS THE OFFICER
limited to transactions in goods which are to be sold RESPONSIBLE FOR THE OFFENSE
(retailed), reshipped, stored or processed as a component CHARGED AND THAT THE ACTS OF
26
PETITIONER FALL WITHIN THE AMBIT OF Section 2, Rule 42, as well as the ruling of this Court in
VIOLATION OF P.D. [No.] 115 IN RELATION TO Melo v. Court of Appeals.24
ARTICLE 315, PAR. 1(B) OF THE REVISED We agree with the ruling of the CA that the certification of
PENAL CODE. non-forum shopping petitioner incorporated in his petition
B. before the appellate court is defective. The certification
THERE IS NO MERIT IN PETITIONER’S reads:
CONTENTION THAT EXCESSIVE DELAY HAS It is further certified that as far as this Petition is concerned,
MARRED THE CONDUCT OF THE no action or proceeding in the Supreme Court, the Court
PRELIMINARY INVESTIGATION OF THE CASE, of Appeals or different divisions thereof, or any tribunal or
JUSTIFYING ITS DISMISSAL. agency.
C. It is finally certified that if the affiant should learn that a
THE PRESENT SPECIAL CIVIL ACTION FOR similar action or proceeding has been filed or is pending
CERTIORARI, PROHIBITION AND MANDAMUS before the Supreme Court, the Court of Appeals, or
IS NOT THE PROPER MODE OF REVIEW different divisions thereof, of any other tribunal or agency,
FROM THE RESOLUTION OF THE it hereby undertakes to notify this Honorable Court within
DEPARTMENT OF JUSTICE. THE PRESENT five (5) days from such notice.25
PETITION MUST THEREFORE BE Under Section 1, second paragraph of Rule 65 of the
DISMISSED.21 Revised Rules of Court, the petition should be
On April 22, 2004, the CA rendered judgment dismissing accompanied by a sworn certification of non-forum
the petition for lack of merit, and on procedural grounds. shopping, as provided in the third paragraph of Section 3,
On the procedural issue, it ruled that (a) the certification Rule 46 of said Rules. The latter provision reads in part:
of non-forum shopping executed by petitioner and SEC. 3. Contents and filing of petition; effect of non-
incorporated in the petition was defective for failure to compliance with requirements. — The petition shall
comply with the first two of the three-fold undertakings contain the full names and actual addresses of all the
prescribed in Rule 7, Section 5 of the Revised Rules of petitioners and respondents, a concise statement of the
Civil Procedure; and (b) the petition for certiorari, matters involved, the factual background of the case and
prohibition and mandamus was not the proper remedy of the grounds relied upon for the relief prayed for.
the petitioner. xxx
On the merits of the petition, the CA ruled that the assailed The petitioner shall also submit together with the petition
resolutions of the Secretary of Justice were correctly a sworn certification that he has not theretofore
issued for the following reasons: (a) petitioner, being the commenced any other action involving the same issues in
Senior Vice-President of PBMI and the signatory to the the Supreme Court, the Court of Appeals or different
trust receipts, is criminally liable for violation of P.D. No. divisions thereof, or any other tribunal or agency; if there
115; (b) the issue raised by the petitioner, on whether he is such other action or proceeding, he must state the
violated P.D. No. 115 by his actuations, had already been status of the same; and if he should thereafter learn that
resolved and laid to rest in Allied Bank Corporation v. a similar action or proceeding has been filed or is pending
Ordoñez;22 and (c) petitioner was estopped from raising before the Supreme Court, the Court of Appeals, or
the different divisions thereof, or any other tribunal or agency,
City Prosecutor’s delay in the final disposition of the he undertakes to promptly inform the aforesaid courts and
preliminary investigation because he failed to do so in the other tribunal or agency thereof within five (5) days
DOJ. therefrom. xxx
Thus, petitioner filed the instant petition, alleging that: Compliance with the certification against forum shopping
I is separate from and independent of the avoidance of
forum shopping itself. The requirement is mandatory. The
THE COURT OF APPEALS ERRED WHEN IT
failure of the petitioner to comply with the foregoing
DISMISSED THE PETITION ON THE GROUND
requirement shall be sufficient ground for the dismissal of
THAT THE CERTIFICATION OF NON-FORUM
the petition without prejudice, unless otherwise
SHOPPING INCORPORATED THEREIN WAS
provided.26
DEFECTIVE.
Indubitably, the first paragraph of petitioner’s certification
II
is incomplete and unintelligible. Petitioner failed to certify
THE COURT OF APPEALS ERRED WHEN IT that he "had not heretofore commenced any other action
RULED THAT NO GRAVE ABUSE OF involving the same issues in the Supreme Court, the Court
DISCRETION AMOUNTING TO LACK OR of Appeals or the different divisions thereof or any other
EXCESS OF JURISDICTION WAS COMMITTED tribunal or agency" as required by paragraph 4, Section 3,
BY THE SECRETARY OF JUSTICE IN COMING Rule 46 of the Revised Rules of Court.
OUT WITH THE ASSAILED RESOLUTIONS.23
We agree with petitioner’s contention that the certification
The Court will delve into and resolve the issues seriatim. is designed to promote and facilitate the orderly
The petitioner avers that the CA erred in dismissing his administration of justice, and therefore, should not be
petition on a mere technicality. He claims that the rules of interpreted with absolute literalness. In his works on the
procedure should be used to promote, not frustrate, Revised Rules of Civil Procedure, former Supreme Court
substantial justice. He insists that the Rules of Court Justice Florenz Regalado states that, with respect to the
should be construed liberally especially when, as in this contents of the certification which the pleader may
case, his substantial rights are adversely affected; hence, prepare, the rule of substantial compliance may be
the deficiency in his certification of non-forum shopping availed of.27However, there must be a special
should not result in the dismissal of his petition. circumstance or compelling reason which makes the strict
The Office of the Solicitor General (OSG) takes the application of the requirement clearly unjustified. The
opposite view, and asserts that indubitably, the certificate instant petition has not alleged any such extraneous
of non-forum shopping incorporated in the petition before circumstance. Moreover, as worded, the certification
the CA is defective because it failed to disclose essential cannot even be regarded as substantial compliance with
facts about pending actions concerning similar issues and the procedural requirement. Thus, the CA was not
parties. It asserts that petitioner’s failure to comply with informed whether, aside from the petition before it,
the Rules of Court is fatal to his petition. The OSG cited
27
petitioner had commenced any other action involving the Petitioner asserts that the appellate court’s ruling is
same issues in other tribunals. erroneous because (a) the transaction between PBMI and
On the merits of the petition, the CA ruled that the respondent bank is not a trust receipt transaction; (b) he
petitioner failed to establish that the Secretary of Justice entered into the transaction and was sued in his capacity
committed grave abuse of discretion in finding probable as PBMI Senior Vice-President; (c) he never received the
cause against the petitioner for violation of estafa under goods as an entrustee for PBMI, hence, could not have
Article 315, paragraph 1(b) of the Revised Penal Code, in committed any dishonesty or abused the confidence of
relation to P.D. No. 115. Thus, the appellate court respondent bank; and (d) PBMI acquired the goods and
ratiocinated: used the same in operating its machineries and
equipment and not for resale.
Be that as it may, even on the merits, the arguments
advanced in support of the petition are not persuasive The OSG, for its part, submits a contrary view, to wit:
enough to justify the desired conclusion that respondent 34. Petitioner further claims that he is not a person
Secretary of Justice gravely abused its discretion in responsible for the offense allegedly because "[b]eing
coming out with his assailed Resolutions. Petitioner posits charged as the Senior Vice-President of Philippine
that, except for his being the Senior Vice-President of the Blooming Mills (PBM), petitioner cannot be held criminally
PBMI, there is no iota of evidence that he was a participes liable as the transactions sued upon were clearly entered
crimines in violating the trust receipts sued upon; and that into in his capacity as an officer of the corporation" and
his liability, if at all, is purely civil because he signed the that [h]e never received the goods as an entrustee for
said trust receipts merely as a xxx surety and not as the PBM as he never had or took possession of the goods nor
entrustee. These assertions are, however, too dull that did he commit dishonesty nor "abuse of confidence in
they cannot even just dent the findings of the respondent transacting with RCBC." Such argument is bereft of merit.
Secretary, viz: 35. Petitioner’s being a Senior Vice-President of the
"x x x it is apropos to quote section 13 of PD 115 which Philippine Blooming Mills does not exculpate him from
states in part, viz: any liability. Petitioner’s responsibility as the corporate
‘xxx If the violation or offense is committed by a official of PBM who received the goods in trust is premised
corporation, partnership, association or other judicial on Section 13 of P.D. No. 115, which provides:
entities, the penalty provided for in this Decree shall be Section 13. Penalty Clause. The failure of an entrustee to
imposed upon the directors, officers, employees or other turn over the proceeds of the sale of the goods,
officials or persons therein responsible for the offense, documents or instruments covered by a trust receipt to the
without prejudice to the civil liabilities arising from the extent of the amount owing to the entruster or as appears
criminal offense.’ in the trust receipt or to return said goods, documents or
"There is no dispute that it was the respondent, who as instruments if they were not sold or disposed of in
senior vice-president of PBM, executed the thirteen (13) accordance with the terms of the trust receipt shall
trust receipts. As such, the law points to him as the official constitute the crime of estafa, punishable under the
responsible for the offense. Since a corporation cannot be provisions of Article Three hundred and fifteen, paragraph
proceeded against criminally because it cannot commit one (b) of Act Numbered Three thousand eight hundred
crime in which personal violence or malicious intent is and fifteen, as amended, otherwise known as the Revised
required, criminal action is limited to the corporate agents Penal Code. If the violation or offense is committed by a
guilty of an act amounting to a crime and never against corporation, partnership, association or other juridical
the corporation itself (West Coast Life Ins. Co. vs. Hurd, entities, the penalty provided for in this Decree shall be
27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus, imposed upon the directors, officers, employees or other
the execution by respondent of said receipts is enough to officials or persons therein responsible for the offense,
indict him as the official responsible for violation of PD 115. without prejudice to the civil liabilities arising from the
criminal offense. (Emphasis supplied)
"Parenthetically, respondent is estopped to still contend
that PD 115 covers only goods which are ultimately 36. Petitioner having participated in the negotiations for
destined for sale and not goods, like those imported by the trust receipts and having received the goods for PBM,
PBM, for use in manufacture. This issue has already been it was inevitable that the petitioner is the proper corporate
settled in the Allied Banking Corporation case, supra, officer to be proceeded against by virtue of the PBM’s
where he was also a party, when the Supreme Court ruled violation of P.D. No. 115.29
that PD 115 is ‘not limited to transactions in goods which The ruling of the CA is correct.
are to be sold (retailed), reshipped, stored or processed In Mendoza-Arce v. Office of the Ombudsman
as a component or a product ultimately sold’ but ‘covers (Visayas),30 this Court held that the acts of a quasi-judicial
failure to turn over the proceeds of the sale of entrusted officer may be assailed by the aggrieved party via a
goods, or to return said goods if unsold or disposed of in petition for certiorari and enjoined (a) when necessary to
accordance with the terms of the trust receipts.’ afford adequate protection to the constitutional rights of
"In regard to the other assigned errors, we note that the the accused; (b) when necessary for the orderly
respondent bound himself under the terms of the trust administration of justice; (c) when the acts of the officer
receipts not only as a corporate official of PBM but also are without or in excess of authority; (d) where the
as its surety. It is evident that these are two (2) capacities charges are manifestly false and motivated by the lust for
which do not exclude the other. Logically, he can be vengeance; and (e) when there is clearly no prima facie
proceeded against in two (2) ways: first, as surety as case against the accused.31 The Court also declared that,
determined by the Supreme Court in its decision in RCBC if the officer conducting a preliminary investigation (in that
vs. Court of Appeals, 178 SCRA 739; and, secondly, as case, the Office of the Ombudsman) acts without or in
the corporate official responsible for the offense under PD excess of his authority and resolves to file an Information
115, the present case is an appropriate remedy under our despite the absence of probable cause, such act may be
penal law. nullified by a writ of certiorari.32
"Moreover, PD 115 explicitly allows the prosecution of Indeed, under Section 4, Rule 112 of the 2000 Rules of
corporate officers ‘without prejudice to the civil liabilities Criminal Procedure,33 the Information shall be prepared
arising from the criminal offense’ thus, the civil liability by the Investigating Prosecutor against the respondent
imposed on respondent in RCBC vs. Court of Appeals only if he or she finds probable cause to hold such
case is clearly separate and distinct from his criminal respondent for trial. The Investigating Prosecutor acts
liability under PD 115.’"28 without or in excess of his authority under the Rule if the

28
Information is filed against the respondent despite 2. In the case of instruments a) to sell or procure
absence of evidence showing probable cause their sale or exchange; or b) to deliver them to a
therefor.34 If the Secretary of Justice reverses the principal; or c) to effect the consummation of
Resolution of the Investigating Prosecutor who found no some transactions involving delivery to a
probable cause to hold the respondent for trial, and orders depository or register; or d) to effect their
such prosecutor to file the Information despite the presentation, collection or renewal.
absence of probable cause, the Secretary of Justice acts The sale of goods, documents or instruments by a person
contrary to law, without authority and/or in excess of in the business of selling goods, documents or
authority. Such resolution may likewise be nullified in a instruments for profit who, at the outset of the transaction,
petition for certiorari under Rule 65 of the Revised Rules has, as against the buyer, general property rights in such
of Civil Procedure.35 goods, documents or instruments, or who sells the same
A preliminary investigation, designed to secure the to the buyer on credit, retaining title or other interest as
respondent against hasty, malicious and oppressive security for the payment of the purchase price, does not
prosecution, is an inquiry to determine whether (a) a crime constitute a trust receipt transaction and is outside the
has been committed; and (b) whether there is probable purview and coverage of this Decree.
cause to believe that the accused is guilty thereof. It is a An entrustee is one having or taking possession of goods,
means of discovering the person or persons who may be documents or instruments under a trust receipt
reasonably charged with a crime. Probable cause need transaction, and any successor in interest of such person
not be based on clear and convincing evidence of guilt, as for the purpose of payment specified in the trust receipt
the investigating officer acts upon probable cause of agreement.39 The entrustee is obliged to: (1) hold the
reasonable belief. Probable cause implies probability of goods, documents or instruments in trust for the entruster
guilt and requires more than bare suspicion but less than and shall dispose of them strictly in accordance with the
evidence which would justify a conviction. A finding of terms and conditions of the trust receipt; (2) receive the
probable cause needs only to rest on evidence showing proceeds in trust for the entruster and turn over the same
that more likely than not, a crime has been committed by to the entruster to the extent of the amount owing to the
the suspect.36 entruster or as appears on the trust receipt; (3) insure the
However, while probable cause should be determined in goods for their total value against loss from fire, theft,
a summary manner, there is a need to examine the pilferage or other casualties; (4) keep said goods or
evidence with care to prevent material damage to a proceeds thereof whether in money or whatever form,
potential accused’s constitutional right to liberty and the separate and capable of identification as property of the
guarantees of freedom and fair play37 and to protect the entruster; (5) return the goods, documents or instruments
State from the burden of unnecessary expenses in in the event of non-sale or upon demand of the entruster;
prosecuting alleged offenses and holding trials arising and (6) observe all other terms and conditions of the trust
from false, fraudulent or groundless charges.38 receipt not contrary to the provisions of the decree.40
In this case, petitioner failed to establish that the The entruster shall be entitled to the proceeds from the
Secretary of Justice committed grave abuse of discretion sale of the goods, documents or instruments released
in issuing the assailed resolutions. Indeed, he acted in under a trust receipt to the entrustee to the extent of the
accord with law and the evidence. amount owing to the entruster or as appears in the trust
Section 4 of P.D. No. 115 defines a trust receipt receipt, or to the return of the goods, documents or
transaction, thus: instruments in case of non-sale, and to the enforcement
of all other rights conferred on him in the trust receipt;
Section 4. What constitutes a trust receipt transaction. A
provided, such are not contrary to the provisions of the
trust receipt transaction, within the meaning of this Decree,
document.41
is any transaction by and between a person referred to in
this Decree as the entruster, and another person referred In the case at bar, the transaction between petitioner and
to in this Decree as entrustee, whereby the entruster, who respondent bank falls under the trust receipt transactions
owns or holds absolute title or security interests over envisaged in P.D. No. 115. Respondent bank imported
certain specified goods, documents or instruments, the goods and entrusted the same to PBMI under the trust
releases the same to the possession of the entrustee receipts signed by petitioner, as entrustee, with the bank
upon the latter’s execution and delivery to the entruster of as entruster. The agreement was as follows:
a signed document called a "trust receipt" wherein the And in consideration thereof, I/we hereby agree to hold
entrustee binds himself to hold the designated goods, said goods in trust for the said BANK as its property with
documents or instruments in trust for the entruster and to liberty to sell the same within ____days from the date of
sell or otherwise dispose of the goods, documents or the execution of this Trust Receipt and for the Bank’s
instruments with the obligation to turn over to the entruster account, but without authority to make any other
the proceeds thereof to the extent of the amount owing to disposition whatsoever of the said goods or any part
the entruster or as appears in the trust receipt or the thereof (or the proceeds) either by way of conditional sale,
goods, documents or instruments themselves if they are pledge or otherwise.
unsold or not otherwise disposed of, in accordance with I/we agree to keep the said goods insured to their full
the terms and conditions specified in the trust receipt, or value against loss from fire, theft, pilferage or other
for other purposes substantially equivalent to any of the casualties as directed by the BANK, the sum insured to
following: be payable in case of loss to the BANK, with the
1. In case of goods or documents, (a) to sell the understanding that the BANK is, not to be chargeable with
goods or procure their sale; or (b) to manufacture the storage premium or insurance or any other expenses
or process the goods with the purpose of ultimate incurred on said goods.
sale; Provided, That, in the case of goods In case of sale, I/we further agree to turn over the
delivered under trust receipt for the purpose of proceeds thereof as soon as received to the BANK, to
manufacturing or processing before its ultimate apply against the relative acceptances (as described
sale, the entruster shall retain its title over the above) and for the payment of any other indebtedness of
goods whether in its original or processed form mine/ours to the BANK. In case of non-sale within the
until the entrustee has complied fully with his period specified herein, I/we agree to return the goods
obligation under the trust receipt; or (c) to load, under this Trust Receipt to the BANK without any need of
unload, ship or otherwise deal with them in a demand.
manner preliminary or necessary to their sale; or
29
I/we agree to keep the said goods, manufactured ARTICLE 315. Swindling (estafa). – Any person who shall
products or proceeds thereof, whether in the form of defraud another by any of the means mentioned
money or bills, receivables, or accounts separate and hereinbelow shall be punished by:
capable of identification as property of the BANK.42 1st. The penalty of prision correccional in its
It must be stressed that P.D. No. 115 is a declaration by maximum period to prision mayor in its minimum
legislative authority that, as a matter of public policy, the period, if the amount of the fraud is over 12,000
failure of person to turn over the proceeds of the sale of pesos but does not exceed 22,000 pesos; and if
the goods covered by a trust receipt or to return said such amount exceeds the latter sum, the penalty
goods, if not sold, is a public nuisance to be abated by the provided in this paragraph shall be imposed in its
imposition of penal sanctions.43 maximum period, adding one year for each
The Court likewise rules that the issue of whether P.D. No. additional 10,000 pesos; but the total penalty
115 encompasses transactions involving goods procured which may be imposed shall not exceed twenty
as a component of a product ultimately sold has been years. In such cases, and in connection with the
resolved in the affirmative in Allied Banking Corporation v. accessory penalties which may be imposed and
Ordoñez.44 The law applies to goods used by the for the purpose of the other provisions of this
entrustee in the operation of its machineries and Code, the penalty shall be termed prision mayor
equipment. The non-payment of the amount covered by or reclusion temporal, as the case may be;
the trust receipts or the non-return of the goods covered 2nd. The penalty of prision correccional in its
by the receipts, if not sold or otherwise not disposed of, minimum and medium periods, if the amount of
violate the entrustee’s obligation to pay the amount or to the fraud is over 6,000 pesos but does not exceed
return the goods to the entruster. 12,000 pesos;
In Colinares v. Court of Appeals,45 the Court declared that 3rd. The penalty of arresto mayor in its maximum
there are two possible situations in a trust receipt period to prision correccional in its minimum
transaction. The first is covered by the provision which period, if such amount is over 200 pesos but does
refers to money received under the obligation involving not exceed 6,000 pesos; and
the duty to deliver it (entregarla) to the owner of the 4th. By arresto mayor in its medium and maximum periods,
merchandise sold. The second is covered by the provision if such amount does not exceed 200 pesos, provided that
which refers to merchandise received under the obligation in the four cases mentioned, the fraud be committed by
to return it (devolvera) to the owner.46 Thus, failure of the any of the following means; xxx
entrustee to turn over the proceeds of the sale of the
Though the entrustee is a corporation, nevertheless, the
goods covered by the trust receipts to the entruster or to
law specifically makes the officers, employees or other
return said goods if they were not disposed of in
officers or persons responsible for the offense, without
accordance with the terms of the trust receipt is a crime
prejudice to the civil liabilities of such corporation and/or
under P.D. No. 115, without need of proving intent to
board of directors, officers, or other officials or employees
defraud. The law punishes dishonesty and abuse of
responsible for the offense. The rationale is that such
confidence in the handling of money or goods to the
officers or employees are vested with the authority and
prejudice of the entruster, regardless of whether the latter
responsibility to devise means necessary to ensure
is the owner or not. A mere failure to deliver the proceeds
compliance with the law and, if they fail to do so, are held
of the sale of the goods, if not sold, constitutes a criminal
criminally accountable; thus, they have a responsible
offense that causes prejudice, not only to another, but
share in the violations of the law.48
more to the public interest.47
If the crime is committed by a corporation or other juridical
The Court rules that although petitioner signed the trust
entity, the directors, officers, employees or other officers
receipts merely as Senior Vice-President of PBMI and
thereof responsible for the offense shall be charged and
had no physical possession of the goods, he cannot avoid
penalized for the crime, precisely because of the nature
prosecution for violation of P.D. No. 115.
of the crime and the penalty therefor. A corporation cannot
The penalty clause of the law, Section 13 of P.D. No. 115 be arrested and imprisoned; hence, cannot be penalized
reads: for a crime punishable by imprisonment.49 However, a
Section 13. Penalty Clause. The failure of an entrustee to corporation may be charged and prosecuted for a crime if
turn over the proceeds of the sale of the goods, the imposable penalty is fine. Even if the statute
documents or instruments covered by a trust receipt to the prescribes both fine and imprisonment as penalty, a
extent of the amount owing to the entruster or as appears corporation may be prosecuted and, if found guilty, may
in the trust receipt or to return said goods, documents or be fined.50
instruments if they were not sold or disposed of in A crime is the doing of that which the penal code forbids
accordance with the terms of the trust receipt shall to be done, or omitting to do what it commands. A
constitute the crime of estafa, punishable under the necessary part of the definition of every crime is the
provisions of Article Three hundred and fifteen, paragraph designation of the author of the crime upon whom the
one (b) of Act Numbered Three thousand eight hundred penalty is to be inflicted. When a criminal statute
and fifteen, as amended, otherwise known as the Revised designates an act of a corporation or a crime and
Penal Code.1âwphi1 If the violation or offense is prescribes punishment therefor, it creates a criminal
committed by a corporation, partnership, association or offense which, otherwise, would not exist and such can
other juridical entities, the penalty provided for in this be committed only by the corporation. But when a penal
Decree shall be imposed upon the directors, officers, statute does not expressly apply to corporations, it does
employees or other officials or persons therein not create an offense for which a corporation may be
responsible for the offense, without prejudice to the civil punished. On the other hand, if the State, by statute,
liabilities arising from the criminal offense. defines a crime that may be committed by a corporation
The crime defined in P.D. No. 115 is malum prohibitum but prescribes the penalty therefor to be suffered by the
but is classified as estafa under paragraph 1(b), Article officers, directors, or employees of such corporation or
315 of the Revised Penal Code, or estafa with abuse of other persons responsible for the offense, only such
confidence. It may be committed by a corporation or other individuals will suffer such penalty.51Corporate officers or
juridical entity or by natural persons. However, the penalty employees, through whose act, default or omission the
for the crime is imprisonment for the periods provided in corporation commits a crime, are themselves individually
said Article 315, which reads: guilty of the crime.52

30
The principle applies whether or not the crime requires the On 9 October 1981, petitioners signed, in their capacities
consciousness of wrongdoing. It applies to those as officers of El Oro Corporation, a trust receipt
corporate agents who themselves commit the crime and corresponding to Letter of Credit No. 2-00914-5 (for
to those, who, by virtue of their managerial positions or ₱294,000). Petitioners bound themselves to sell the
other similar relation to the corporation, could be deemed goods covered by that letter of credit and to remit the
responsible for its commission, if by virtue of their proceeds to respondent bank, if sold, or to return the
relationship to the corporation, they had the power to goods, if not sold, on or before 8 December 1981.
prevent the act.53 Moreover, all parties active in promoting After Tanchaoco Incorporated and Maresco Corporation
a crime, whether agents or not, are principals.54 Whether delivered the raw materials to El Oro Corporation,
such officers or employees are benefited by their delictual respondent bank paid the former ₱564,871.05 and
acts is not a touchstone of their criminal liability. Benefit is ₱294,000, respectively.
not an operative fact.
Petitioners did not comply with their undertaking under the
In this case, petitioner signed the trust receipts in question. trust receipts. Respondent bank made several demands
He cannot, thus, hide behind the cloak of the separate for payments but El Oro Corporation made partial
corporate personality of PBMI. In the words of Chief payments only. On 27 June 1983 and 28 June 1983,
Justice Earl Warren, a corporate officer cannot protect respondent bank’s counsel5 and its
himself behind a corporation where he is the actual, representative6 respectively sent final demand letters to
present and efficient actor.55 El Oro Corporation. El Oro Corporation replied that it
IN LIGHT OF ALL THE FOREGOING, the petition is could not fully pay its debt because the Armed Forces of
DENIED for lack of merit. Costs against the petitioner. the Philippines had delayed paying for the survival bolos.
SO ORDERED. Respondent bank charged petitioners with estafa under
Section 13, Presidential Decree No. 115 ("Section 13") 7 or
Trust Receipts Law ("PD 115"). After preliminary
investigation, the then Makati Fiscal’s Office found
probable cause to indict petitioners. The Makati Fiscal’s
G.R. No. 145578 November 18, 2005
Office filed the corresponding Informations (docketed as
JOSE C. TUPAZ IV and PETRONILA C. Criminal Case Nos. 8848 and 8849) with the Regional
TUPAZ, Petitioners, Trial Court, Makati, on 17 January 1984 and the cases
vs. were raffled to Branch 144 ("trial court") on 20 January
THE COURT OF APPEALS and BANK OF THE 1984. Petitioners pleaded not guilty to the charges and
PHILIPPINE ISLANDS, Respondents. trial ensued. During the trial, respondent bank presented
DECISION evidence on the civil aspect of the cases.
CARPIO, J.: The Ruling of the Trial Court
The Case On 16 July 1992, the trial court rendered judgment
This is a petition for review1 of the Decision2 of the Court acquitting petitioners of estafa on reasonable doubt.
of Appeals dated 7 September 2000 and its Resolution However, the trial court found petitioners solidarily liable
dated 18 October 2000. The 7 September 2000 Decision with El Oro Corporation for the balance of El Oro
affirmed the ruling of the Regional Trial Court, Makati, Corporation’s principal debt under the trust receipts. The
Branch 144 in a case for estafa under Section 13, dispositive portion of the trial court’s Decision provides:
Presidential Decree No. 115. The Court of Appeals’ WHEREFORE, judgment is hereby rendered
Resolution of 18 October 2000 denied petitioners’ motion ACQUITTING both accused Jose C. Tupaz, IV and
for reconsideration. Petronila Tupaz based upon reasonable doubt.
The Facts However, El Oro Engraver Corporation, Jose C. Tupaz,
Petitioners Jose C. Tupaz IV and Petronila C. Tupaz IV and Petronila Tupaz, are hereby ordered, jointly and
("petitioners") were Vice-President for Operations and solidarily, to pay the Bank of the Philippine Islands the
Vice-President/Treasurer, respectively, of El Oro outstanding principal obligation of ₱624,129.19 (as of
Engraver Corporation ("El Oro Corporation"). El Oro January 23, 1992) with the stipulated interest at the rate
Corporation had a contract with the Philippine Army to of 18% per annum; plus 10% of the total amount due as
supply the latter with "survival bolos." attorney’s fees; ₱5,000.00 as expenses of litigation; and
costs of the suit.8
To finance the purchase of the raw materials for the
survival bolos, petitioners, on behalf of El Oro Corporation, In holding petitioners civilly liable with El Oro Corporation,
applied with respondent Bank of the Philippine Islands the trial court held:
("respondent bank") for two commercial letters of credit. [S]ince the civil action for the recovery of the civil liability
The letters of credit were in favor of El Oro Corporation’s is deemed impliedly instituted with the criminal action, as
suppliers, Tanchaoco Manufacturing in fact the prosecution thereof was actively handled by the
Incorporated3("Tanchaoco Incorporated") and Maresco private prosecutor, the Court believes that the El Oro
Rubber and Retreading Corporation4 ("Maresco Engraver Corporation and both accused Jose C. Tupaz
Corporation"). Respondent bank granted petitioners’ and Petronila Tupaz, jointly and solidarily should be held
application and issued Letter of Credit No. 2-00896-3 for civilly liable to the Bank of the Philippine Islands. The
₱564,871.05 to Tanchaoco Incorporated and Letter of mere fact that they were unable to collect in full from the
Credit No. 2-00914-5 for ₱294,000 to Maresco AFP and/or the Department of National Defense the
Corporation. proceeds of the sale of the delivered survival bolos
Simultaneous with the issuance of the letters of credit, manufactured from the raw materials covered by the trust
petitioners signed trust receipts in favor of respondent receipt agreements is no valid defense to the civil claim of
bank. On 30 September 1981, petitioner Jose C. Tupaz the said complainant and surely could not wipe out their
IV ("petitioner Jose Tupaz") signed, in his personal civil obligation. After all, they are free to institute an action
capacity, a trust receipt corresponding to Letter of Credit to collect the same.9
No. 2-00896-3 (for ₱564,871.05). Petitioner Jose Tupaz Petitioners appealed to the Court of Appeals. Petitioners
bound himself to sell the goods covered by the letter of contended that: (1) their acquittal "operates to extinguish
credit and to remit the proceeds to respondent bank, if [their] civil liability" and (2) at any rate, they are not
sold, or to return the goods, if not sold, on or before 29 personally liable for El Oro Corporation’s debts.
December 1981. The Ruling of the Court of Appeals
31
In its Decision of 7 September 2000, the Court of Appeals CORPORATION, THE SAME IS NOT YET DUE AND
affirmed the trial court’s ruling. The appellate court held: PAYABLE;
It is clear from [Section 13, PD 115] that civil liability 3. GRANTING THAT THE QUESTIONED OBLIGATION
arising from the violation of the trust receipt agreement is WAS ALREADY DUE AND PAYABLE, xxx
distinct from the criminal liability imposed therein. In the PETITIONERS ARE NOT PERSONALLY LIABLE TO xxx
case of Vintola vs. Insular Bank of Asia and America, our RESPONDENT BANK, SINCE THEY SIGNED THE
Supreme Court held that acquittal in the estafa case (P.D. LETTER[S] OF CREDIT AS ‘SURETY’ AS OFFICERS
115) is no bar to the institution of a civil action for OF EL ORO, AND THEREFORE, AN EXCLUSIVE
collection. This is because in such cases, the civil liability LIABILITY OF EL ORO; [AND]
of the accused does not arise ex delicto but rather 4. IN THE ALTERNATIVE, THE QUESTIONED
based ex contractu and as such is distinct and TRANSACTIONS ARE SIMULATED AND VOID.11
independent from any criminal proceedings and may
The Issues
proceed regardless of the result of the latter. Thus, an
independent civil action to enforce the civil liability may be The petition raises these issues:
filed against the corporation aside from the criminal action (1) Whether petitioners bound themselves personally
against the responsible officers or employees. liable for El Oro Corporation’s debts under the trust
xxx receipts;
[W]e hereby hold that the acquittal of the accused- (2) If so —
appellants from the criminal charge of estafa did not (a) whether petitioners’ liability is solidary with El Oro
operate to extinguish their civil liability under the letter of Corporation; and
credit-trust receipt arrangement with plaintiff-appellee, (b) whether petitioners’ acquittal of estafa under Section
with which they dealt both in their personal capacity and 13, PD 115 extinguished their civil liability.
as officers of El Oro Engraver Corporation, the letter of
The Ruling of the Court
credit applicant and principal debtor.
The petition is partly meritorious. We affirm the Court of
Appellants argued that they cannot be held solidarily
Appeals’ ruling with the modification that petitioner Jose
liable with their corporation, El Oro Engraver Corporation,
alleging that they executed the subject documents Tupaz is liable as guarantor of El Oro Corporation’s debt
including the trust receipt agreements only in their under the trust receipt dated 30 September 1981.
capacity as such corporate officers. They said that these On Petitioners’ Undertaking Under
instruments are mere pro-forma and that they executed the Trust Receipts
these instruments on the strength of a board resolution of A corporation, being a juridical entity, may act only
said corporation authorizing them to apply for the opening through its directors, officers, and employees. Debts
of a letter of credit in favor of their suppliers as well as to incurred by these individuals, acting as such corporate
execute the other documents necessary to accomplish agents, are not theirs but the direct liability of the
the same. corporation they represent.12 As an exception, directors or
Such contention, however, is contradicted by the officers are personally liable for the corporation’s debts
evidence on record. The trust receipt agreement indicated only if they so contractually agree or stipulate.13
in clear and unmistakable terms that the accused signed Here, the dorsal side of the trust receipts contains the
the same as surety for the corporation and that they following stipulation:
bound themselves directly and immediately liable in the
event of default with respect to the obligation under the To the Bank of the Philippine Islands
letters of credit which were made part of the said In consideration of your releasing to
agreement, without need of demand. Even in the ………………………………… under the terms of this
application for the letter of credit, it is likewise clear that Trust Receipt the goods described herein, I/We, jointly
the undertaking of the accused is that of a surety as and severally, agree and promise to pay to you, on
indicated [in] the following words: "In consideration of your demand, whatever sum or sums of money which you may
establishing the commercial letter of credit herein applied call upon me/us to pay to you, arising out of, pertaining to,
for substantially in accordance with the foregoing, the and/or in any way connected with, this Trust Receipt, in
undersigned Applicant and Surety hereby agree, jointly the event of default and/or non-fulfillment in any respect
and severally, to each and all stipulations, provisions and of this undertaking on the part of the said
conditions on the reverse side hereof." ……………………………………. I/we further agree that
xxx my/our liability in this guarantee shall be DIRECT AND
IMMEDIATE, without any need whatsoever on your part
Having contractually agreed to hold themselves solidarily to take any steps or exhaust any legal remedies that you
liable with El Oro Engraver Corporation under the subject may have against the said ………………………………….
trust receipt agreements with appellee Bank of the before making demand upon me/us.14 (Capitalization in
Philippine Islands, herein accused-appellants may not, the original)
therefore, invoke the separate legal personality of the said
corporation to evade their civil liability under the letter of In the trust receipt dated 9 October 1981, petitioners
credit-trust receipt arrangement with said appellee, signed below this clause as officers of El Oro Corporation.
notwithstanding their acquittal in the criminal cases filed Thus, under petitioner Petronila Tupaz’s signature are the
against them. The trial court thus did not err in holding the words "Vice-Pres–Treasurer" and under petitioner Jose
appellants solidarily liable with El Oro Engraver Tupaz’s signature are the words "Vice-Pres–Operations."
Corporation for the outstanding principal obligation of By so signing that trust receipt, petitioners did not bind
₱624,129.19 (as of January 23, 1992) with the stipulated themselves personally liable for El Oro Corporation’s
interest at the rate of 18% per annum, plus 10% of the obligation. In Ong v. Court of Appeals,15 a corporate
total amount due as attorney’s fees, ₱5,000.00 as representative signed a solidary guarantee clause in two
expenses of litigation and costs of suit.10 trust receipts in his capacity as corporate representative.
There, the Court held that the corporate representative
Hence, this petition. Petitioners contend that: did not undertake to guarantee personally the payment of
1. A JUDGMENT OF ACQUITTAL OPERATE[S] TO the corporation’s debts, thus:
EXTINGUISH THE CIVIL LIABILITY OF PETITIONERS[;] [P]etitioner did not sign in his personal capacity the
2. GRANTING WITHOUT ADMITTING THAT THE solidary guarantee clause found on the dorsal portion of
QUESTIONED OBLIGATION WAS INCURRED BY THE the trust receipts. Petitioner placed his signature after the
32
typewritten words "ARMCO INDUSTRIAL provision is a solidary guaranty clause, thereby clearly
CORPORATION" found at the end of the solidary distinguishing it from a contract of surety. It, however,
guarantee clause. Evidently, petitioner did not undertake described the guaranty as solidary between the
to guaranty personally the payment of the principal and guarantors; this would have been correct if two (2)
interest of ARMAGRI’s debt under the two trust receipts. guarantors had signed it. The clause "we jointly and
Hence, for the trust receipt dated 9 October 1981, we severally agree and undertake" refers to the undertaking
sustain petitioners’ claim that they are not personally of the two (2) parties who are to sign it or to the liability
liable for El Oro Corporation’s obligation. existing between themselves. It does not refer to the
undertaking between either one or both of them on the
For the trust receipt dated 30 September 1981, the dorsal
one hand and the petitioner on the other with respect to
portion of which petitioner Jose Tupaz signed alone, we
the liability described under the trust receipt. xxx
find that he did so in his personal capacity. Petitioner Jose
Tupaz did not indicate that he was signing as El Oro Furthermore, any doubt as to the import or true intent of
Corporation’s Vice-President for Operations. Hence, the solidary guaranty clause should be resolved against
petitioner Jose Tupaz bound himself personally liable for the petitioner. The trust receipt, together with the
El Oro Corporation’s debts. Not being a party to the trust questioned solidary guaranty clause, is on a form drafted
receipt dated 30 September 1981, petitioner Petronila and prepared solely by the petitioner; Chi’s participation
Tupaz is not liable under such trust receipt. therein is limited to the affixing of his signature thereon. It
is, therefore, a contract of adhesion; as such, it must be
The Nature of Petitioner Jose Tupaz’s Liability
strictly construed against the party responsible for its
Under the Trust Receipt Dated 30 September 1981 preparation.18(Underlining supplied; italicization in the
As stated, the dorsal side of the trust receipt dated 30 original)
September 1981 provides: However, respondent bank’s suit against petitioner Jose
To the Bank of the Philippine Islands Tupaz stands despite the Court’s finding that he is liable
In consideration of your releasing to as guarantor only. First, excussion is not a pre-requisite
………………………………… under the terms of this to secure judgment against a guarantor. The guarantor
Trust Receipt the goods described herein, I/We, jointly can still demand deferment of the execution of the
and severally, agree and promise to pay to you, on judgment against him until after the assets of the principal
demand, whatever sum or sums of money which you may debtor shall have been exhausted. 19 Second, the benefit
call upon me/us to pay to you, arising out of, pertaining to, of excussion may be waived.20 Under the trust receipt
and/or in any way connected with, this Trust Receipt, in dated 30 September 1981, petitioner Jose Tupaz waived
the event of default and/or non-fulfillment in any respect excussion when he agreed that his "liability in [the]
of this undertaking on the part of the said guaranty shall be DIRECT AND IMMEDIATE, without any
……………………………………. I/we further agree that need whatsoever on xxx [the] part [of respondent bank] to
my/our liability in this guarantee shall be DIRECT AND take any steps or exhaust any legal remedies xxx." The
IMMEDIATE, without any need whatsoever on your part clear import of this stipulation is that petitioner Jose Tupaz
to take any steps or exhaust any legal remedies that you waived the benefit of excussion under his guarantee.
may have against the said As guarantor, petitioner Jose Tupaz is liable for El Oro
……………………………………………. Before making Corporation’s principal debt and other accessory liabilities
demand upon me/us. (Underlining supplied; capitalization (as stipulated in the trust receipt and as provided by law)
in the original) under the trust receipt dated 30 September 1981. That
The lower courts interpreted this to mean that petitioner trust receipt (and the trust receipt dated 9 October 1981)
Jose Tupaz bound himself solidarily liable with El Oro provided for payment of attorney’s fees equivalent to 10%
Corporation for the latter’s debt under that trust receipt. of the total amount due and an "interest at the rate of
7% per annum, or at such other rate as the bank may fix,
This is error. from the date due until paid xxx."21 In the applications for
In Prudential Bank v. Intermediate Appellate the letters of credit, the parties stipulated that drafts drawn
Court,16 the Court interpreted a substantially identical under the letters of credit are subject to interest at the rate
clause17 in a trust receipt signed by a corporate officer of 18% per annum.22
who bound himself personally liable for the corporation’s
The lower courts correctly applied the 18% interest
obligation. The petitioner in that case contended that the rate per annum considering that the face value of each of
stipulation "we jointly and severally agree and undertake" the trust receipts is based on the drafts drawn under the
rendered the corporate officer solidarily liable with the
letters of credit. Based on the guidelines laid down in
corporation. We dismissed this claim and held the
corporate officer liable as guarantor only. The Court Eastern Shipping Lines, Inc. v. Court of Appeals,23 the
further ruled that had there been more than one accrued stipulated interest earns 12% interest per
signatories to the trust receipt, the solidary liability would annum from the time of the filing of the Informations in the
exist between the guarantors. We held: Makati Regional Trial Court on 17 January 1984. Further,
the total amount due as of the date of the finality of this
Petitioner [Prudential Bank] insists that by virtue of the Decision will earn interest at 18% per annum until fully
clear wording of the xxx clause "x x x we jointly and
paid since this was the stipulated rate in the applications
severally agree and undertake x x x," and the concluding
for the letters of credit.24
sentence on exhaustion, [respondent] Chi’s liability
therein is solidary. The accounting of El Oro Corporation’s debts as of 23
January 1992, which the trial court used, is no longer
xxx useful as it does not specify the amounts owing under
Our xxx reading of the questioned solidary guaranty each of the trust receipts. Hence, in the execution of this
clause yields no other conclusion than that the obligation Decision, the trial court shall compute El Oro
of Chi is only that of a guarantor. This is further bolstered Corporation’s total liability under each of the trust receipts
by the last sentence which speaks of waiver of exhaustion, dated 30 September 1981 and 9 October 1981 based on
which, nevertheless, is ineffective in this case because the following formula:25
the space therein for the party whose property may not be
TOTAL AMOUNT DUE = [principal + interest + interest on
exhausted was not filled up. Under Article 2058 of the Civil
interest] – partial payments made26
Code, the defense of exhaustion (excussion) may be
raised by a guarantor before he may be held liable for the Interest = principal x 18 % per annum x no. of years from
obligation. Petitioner likewise admits that the questioned due date27 until finality of judgment

33
Interest on interest = interest computed as of the filing of September 1981 as thus computed by the Regional Trial
the complaint (17 January 1984) x 12% x no. of years until Court, Makati, Branch 144; and
finality of judgment 3) Petitioners Jose C. Tupaz IV and Petronila C. Tupaz
Attorney’s fees is 10% of the total amount computed as of are not liable under the trust receipt dated 9 October 1981.
finality of judgment SO ORDERED.
Total amount due as of the date of finality of judgment will
earn an interest of 18% per annum until fully paid.
In so delegating this task, we reiterate what we said
in Rizal Commercial Banking Corporation v. Alfa RTW
Manufacturing Corporation28 where we also ordered
the trial court to compute the amount of obligation due LIABILITY FOR TORT/NEGLIGENCE
based on a formula substantially similar to that indicated
G.R. No. L-27155 May 18, 1978
above:
PHILIPPINE NATIONAL BANK, petitioner,
The total amount due xxx [under] the xxx contract[] xxx
vs.
may be easily determined by the trial court through a
THE COURT OF APPEALS, RITA GUECO TAPNIO,
simple mathematical computation based on the formula
CECILIO GUECO and THE PHILIPPINE AMERICAN
specified above. Mathematics is an exact science, the
GENERAL INSURANCE COMPANY, INC., respondents.
application of which needs no further proof from the
parties. Medina, Locsin, Coruña, & Sumbillo for petitioner.
Petitioner Jose Tupaz’s Acquittal did not Manuel Lim & Associates for private respondents.
Extinguish his Civil Liability
The rule is that where the civil action is impliedly instituted ANTONIO, J.:
with the criminal action, the civil liability is not extinguished Certiorari to review the decision of the Court of Appeals
by acquittal — which affirmed the judgment of the Court of First Instance
[w]here the acquittal is based on reasonable doubt xxx as of Manila in Civil Case No. 34185, ordering petitioner, as
only preponderance of evidence is required in civil cases; third-party defendant, to pay respondent Rita Gueco
where the court expressly declares that the liability of the Tapnio, as third-party plaintiff, the sum of P2,379.71, plus
accused is not criminal but only civil in nature xxx as, for 12% interest per annum from September 19, 1957 until
instance, in the felonies of estafa, theft, and malicious the same is fully paid, P200.00 attorney's fees and costs,
mischief committed by certain relatives who thereby incur the same amounts which Rita Gueco Tapnio was ordered
only civil liability (See Art. 332, Revised Penal Code); to pay the Philippine American General Insurance Co.,
and, where the civil liability does not arise from or is not Inc., to be paid directly to the Philippine American General
based upon the criminal act of which the accused was Insurance Co., Inc. in full satisfaction of the judgment
acquitted xxx.29 (Emphasis supplied) rendered against Rita Gueco Tapnio in favor of the former;
plus P500.00 attorney's fees for Rita Gueco Tapnio and
Here, respondent bank chose not to file a separate civil
costs. The basic action is the complaint filed by Philamgen
action30 to recover payment under the trust receipts.
(Philippine American General Insurance Co., Inc.) as
Instead, respondent bank sought to recover payment in
surety against Rita Gueco Tapnio and Cecilio Gueco, for
Criminal Case Nos. 8848 and 8849. Although the trial
the recovery of the sum of P2,379.71 paid by Philamgen
court acquitted petitioner Jose Tupaz, his acquittal did not
to the Philippine National Bank on behalf of respondents
extinguish his civil liability. As the Court of Appeals
Tapnio and Gueco, pursuant to an indemnity agreement.
correctly held, his liability arose not from the criminal act
Petitioner Bank was made third-party defendant by
of which he was acquitted (ex delito) but from the trust
Tapnio and Gueco on the theory that their failure to pay
receipt contract (ex contractu) of 30 September 1981.
the debt was due to the fault or negligence of petitioner.
Petitioner Jose Tupaz signed the trust receipt of 30
September 1981 in his personal capacity. The facts as found by the respondent Court of Appeals, in
affirming the decision of the Court of First Instance of
On the other Matters Petitioners Raise
Manila, are quoted hereunder:
Petitioners raise for the first time in this appeal the
Plaintiff executed its Bond, Exh. A, with
contention that El Oro Corporation’s debts under the trust
defendant Rita Gueco Tapnio as
receipts are not yet due and demandable. Alternatively,
principal, in favor of the Philippine
petitioners assail the trust receipts as simulated. These
National Bank Branch at San Fernando,
assertions have no merit. Under the terms of the trust
Pampanga, to guarantee the payment of
receipts dated 30 September 1981 and 9 October 1981,
defendant Rita Gueco Tapnio's account
El Oro Corporation’s debts fell due on 29 December 1981
with said Bank. In turn, to guarantee the
and 8 December 1981, respectively.
payment of whatever amount the
Neither is there merit to petitioners’ claim that the trust bonding company would pay to the
receipts were simulated. During the trial, petitioners did Philippine National Bank, both
not deny applying for the letters of credit and defendants executed the indemnity
subsequently executing the trust receipts to secure agreement, Exh. B. Under the terms and
payment of the drafts drawn under the letters of credit. conditions of this indemnity agreement,
WHEREFORE, we GRANT the petition in part. whatever amount the plaintiff would pay
We AFFIRM the Decision of the Court of Appeals dated 7 would earn interest at the rate of 12% per
September 2000 and its Resolution dated 18 October annum, plus attorney's fees in the
2000 with the following MODIFICATIONS: amount of 15 % of the whole amount due
1) El Oro Engraver Corporation is principally liable for the in case of court litigation.
total amount due under the trust receipts dated 30 The original amount of the bond was for
September 1981 and 9 October 1981, as computed by the P4,000.00; but the amount was later
Regional Trial Court, Makati, Branch 144, upon finality of reduced to P2,000.00.
this Decision, based on the formula provided above; It is not disputed that defendant Rita
2) Petitioner Jose C. Tupaz IV is liable for El Oro Engraver Gueco Tapnio was indebted to the bank
Corporation’s total debt under the trust receipt dated 30 in the sum of P2,000.00, plus
accumulated interests unpaid, which she
34
failed to pay despite demands. The Bank without sugar quota allotment
wrote a letter of demand to plaintiff, as Sometimes, however, a planter
per Exh. C; whereupon, plaintiff paid the harvest less sugar than her
bank on September 18, 1957, the full quota, so her excess quota is
amount due and owing in the sum of utilized by another who pays
P2,379.91, for and on account of her for its use. This is the
defendant Rita Gueco's obligation (Exhs. arrangement entered into
D and D-1). between Mrs. Tapnio and Mr.
Plaintiff, in turn, made several demands, Tuazon regarding the former's
both verbal and written, upon defendants excess quota for 1956-1957
(Exhs. E and F), but to no avail. (Exh. "4"-Gueco).
Defendant Rita Gueco Tapnio admitted Since the quota was mortgaged
all the foregoing facts. She claims, to the P.N.B., the contract of
however, when demand was made upon lease had to be approved by
her by plaintiff for her to pay her debt to said Bank, The same was
the Bank, that she told the Plaintiff that submitted to the branch
she did not consider herself to be manager at San Fernando,
indebted to the Bank at all because she Pampanga. The latter required
had an agreement with one Jacobo- the parties to raise the
Nazon whereby she had leased to the consideration of P2.80 per picul
latter her unused export sugar quota for or a total of P2,800.00 (Exh. "2-
the 1956-1957 agricultural year, Gueco") informing them that
consisting of 1,000 piculs at the rate of "the minimum lease rental
P2.80 per picul, or for a total of P2,800.00, acceptable to the Bank, is
which was already in excess of her P2.80 per picul." In a letter
obligation guaranteed by plaintiff's bond, addressed to the branch
Exh. A. This lease agreement, according manager on August 10, 1956,
to her, was with the knowledge of the Mr. Tuazon informed the
bank. But the Bank has placed obstacles manager that he was agreeable
to the consummation of the lease, and to raising the consideration to
the delay caused by said obstacles P2.80 per picul. He further
forced 'Nazon to rescind the lease informed the manager that he
contract. Thus, Rita Gueco Tapnio filed was ready to pay said amount
her third-party complaint against the as the funds were in his folder
Bank to recover from the latter any and which was kept in the bank.
all sums of money which may be Explaining the meaning of
adjudged against her and in favor of the Tuazon's statement as to the
plaitiff plus moral damages, attorney's funds, it was stated by him that
fees and costs. he had an approved loan from
Insofar as the contentions of the parties the bank but he had not yet
herein are concerned, we quote with utilized it as he was intending to
approval the following findings of the use it to pay for the quota.
lower court based on the evidence Hence, when he said the
presented at the trial of the case: amount needed to pay Mrs.
Tapnio was in his folder which
It has been established during
was in the bank, he meant and
the trial that Mrs. Tapnio had an
the manager understood and
export sugar quota of 1,000
knew he had an approved loan
piculs for the agricultural year
available to be used in payment
1956-1957 which she did not
of the quota. In said Exh. "6-
need. She agreed to allow Mr.
Gueco", Tuazon also informed
Jacobo C. Tuazon to use said
the manager that he would want
quota for the consideration of
for a notice from the manager
P2,500.00 (Exh. "4"-Gueco).
as to the time when the bank
This agreement was called a
needed the money so that
contract of lease of sugar
Tuazon could sign the
allotment.
corresponding promissory note.
At the time of the agreement,
Further Consideration of the evidence
Mrs. Tapnio was indebted to the
discloses that when the branch manager
Philippine National Bank at San
of the Philippine National Bank at San
Fernando, Pampanga. Her
Fernando recommended the approval of
indebtedness was known as a
the contract of lease at the price of P2.80
crop loan and was secured by a
per picul (Exh. 1 1-Bank), whose
mortgage on her standing crop
recommendation was concurred in by the
including her sugar quota
Vice-president of said Bank, J. V.
allocation for the agricultural
Buenaventura, the board of directors
year corresponding to said
required that the amount be raised to
standing crop. This
13.00 per picul. This act of the board of
arrangement was necessary in
directors was communicated to Tuazon,
order that when Mrs. Tapnio
who in turn asked for a reconsideration
harvests, the P.N.B., having a
thereof. On November 19, 1956, the
lien on the crop, may effectively
branch manager submitted Tuazon's
enforce collection against her.
request for reconsideration to the board
Her sugar cannot be exported
of directors with another
35
recommendation for the approval of the (2) In not holding that based on the statistics of sugar price
lease at P2.80 per picul, but the board and prices of sugar quota in the possession of the
returned the recommendation unacted petitioner, the latter's Board of Directors correctly fixed the
upon, considering that the current price rental of price per picul of 1,000 piculs of sugar quota
prevailing at the time was P3.00 per picul leased by respondent Rita Gueco Tapnio to Jacobo C.
(Exh. 9-Bank). Tuazon at P3.00 per picul.
The parties were notified of the refusal on Petitioner argued that as an assignee of the sugar quota
the part of the board of directors of the of Tapnio, it has the right, both under its own Charter and
Bank to grant the motion for under the Corporation Law, to safeguard and protect its
reconsideration. The matter stood as it rights and interests under the deed of assignment, which
was until February 22, 1957, when include the right to approve or disapprove the said lease
Tuazon wrote a letter (Exh. 10-Bank of sugar quota and in the exercise of that authority, its
informing the Bank that he was no longer Board of Directors necessarily had authority to determine
interested to continue the deal, referring and fix the rental price per picul of the sugar quota subject
to the lease of sugar quota allotment in of the lease between private respondents and Jacobo C.
favor of defendant Rita Gueco Tapnio. Tuazon. It argued further that both under its Charter and
The result is that the latter lost the sum of the Corporation Law, petitioner, acting thru its Board of
P2,800.00 which she should have Directors, has the perfect right to adopt a policy with
received from Tuazon and which she respect to fixing of rental prices of export sugar quota
could have paid the Bank to cancel off allocations, and in fixing the rentals at P3.00 per picul, it
her indebtedness, did not act arbitrarily since the said Board was guided by
The court below held, and in this holding statistics of sugar price and prices of sugar quotas
we concur that failure of the negotiation prevailing at the time. Since the fixing of the rental of the
for the lease of the sugar quota allocation sugar quota is a function lodged with petitioner's Board of
of Rita Gueco Tapnio to Tuazon was due Directors and is a matter of policy, the respondent Court
to the fault of the directors of the of Appeals could not substitute its own judgment for that
Philippine National Bank, The refusal on of said Board of Directors, which acted in good faith,
the part of the bank to approve the lease making as its basis therefore the prevailing market price
at the rate of P2.80 per picul which, as as shown by statistics which were then in their possession.
stated above, would have enabled Rita Finally, petitioner emphasized that under the appealed
Gueco Tapnio to realize the amount of judgment, it shall suffer a great injustice because as a
P2,800.00 which was more than creditor, it shall be deprived of a just claim against its
sufficient to pay off her indebtedness to debtor (respondent Rita Gueco Tapnio) as it would be
the Bank, and its insistence on the rental required to return to respondent Philamgen the sum of
price of P3.00 per picul thus P2,379.71, plus interest, which amount had been
unnecessarily increasing the value by previously paid to petitioner by said insurance company
only a difference of P200.00. inevitably in behalf of the principal debtor, herein respondent Rita
brought about the rescission of the lease Gueco Tapnio, and without recourse against respondent
contract to the damage and prejudice of Rita Gueco Tapnio.
Rita Gueco Tapnio in the aforesaid sum
We must advert to the rule that this Court's appellate
of P2,800.00. The unreasonableness of
jurisdiction in proceedings of this nature is limited to
the position adopted by the board of
reviewing only errors of law, accepting as conclusive the
directors of the Philippine National Bank
factual fin dings of the Court of Appeals upon its own
in refusing to approve the lease at the
assessment of the evidence. 2
rate of P2.80 per picul and insisting on
the rate of P3.00 per picul, if only to The contract of lease of sugar quota allotment at P2.50
increase the retail value by only P200.00 per picul between Rita Gueco Tapnio and Jacobo C.
is shown by the fact that all the accounts Tuazon was executed on April 17, 1956. This contract
of Rita Gueco Tapnio with the Bank were was submitted to the Branch Manager of the Philippine
secured by chattel mortgage on standing National Bank at San Fernando, Pampanga. This
crops, assignment of leasehold rights arrangement was necessary because Tapnio's
and interests on her properties, and indebtedness to petitioner was secured by a mortgage on
surety bonds, aside from the fact that her standing crop including her sugar quota allocation for
from Exh. 8-Bank, it appears that she the agricultural year corresponding to said standing crop.
was offering to execute a real estate The latter required the parties to raise the consideration
mortgage in favor of the Bank to replace to P2.80 per picul, the minimum lease rental acceptable
the surety bond This statement is further to the Bank, or a total of P2,800.00. Tuazon informed the
bolstered by the fact that Rita Gueco Branch Manager, thru a letter dated August 10, 1956, that
Tapnio apparently had the means to pay he was agreeable to raising the consideration to P2.80 per
her obligation fact that she has been picul. He further informed the manager that he was ready
granted several value of almost to pay the said sum of P2,800.00 as the funds were in his
P80,000.00 for the agricultural years folder which was kept in the said Bank. This referred to
from 1952 to 56. 1 the approved loan of Tuazon from the Bank which he
intended to use in paying for the use of the sugar quota.
Its motion for the reconsideration of the decision of the
The Branch Manager submitted the contract of lease of
Court of Appeals having been denied, petitioner filed the
sugar quota allocation to the Head Office on September
present petition.
7, 1956, with a recommendation for approval, which
The petitioner contends that the Court of Appeals erred: recommendation was concurred in by the Vice-President
(1) In finding that the rescission of the lease contract of of the Bank, Mr. J. V. Buenaventura. This notwithstanding,
the 1,000 piculs of sugar quota allocation of respondent the Board of Directors of petitioner required that the
Rita Gueco Tapnio by Jacobo C. Tuazon was due to the consideration be raised to P3.00 per picul.
unjustified refusal of petitioner to approve said lease Tuazon, after being informed of the action of the Board of
contract, and its unreasonable insistence on the rental Directors, asked for a reconsideration thereof. On
price of P3.00 instead of P2.80 per picul; and November 19, 1956, the Branch Manager submitted the
36
request for reconsideration and again recommended the agricultural year was about to expire, that by its
approval of the lease at P2.80 per picul, but the Board disapproval of the lease private respondents would be
returned the recommendation unacted, stating that the unable to utilize the sugar quota in question. In failing to
current price prevailing at that time was P3.00 per picul. observe the reasonable degree of care and vigilance
On February 22, 1957, Tuazon wrote a letter, informing which the surrounding circumstances reasonably impose,
the Bank that he was no longer interested in continuing petitioner is consequently liable for the damages caused
the lease of sugar quota allotment. The crop year 1956- on private respondents. Under Article 21 of the New Civil
1957 ended and Mrs. Tapnio failed to utilize her sugar Code, "any person who wilfully causes loss or injury to
quota, resulting in her loss in the sum of P2,800.00 which another in a manner that is contrary to morals, good
she should have received had the lease in favor of Tuazon customs or public policy shall compensate the latter for
been implemented. the damage." The afore-cited provisions on human
relations were intended to expand the concept of torts in
It has been clearly shown that when the Branch Manager
this jurisdiction by granting adequate legal remedy for the
of petitioner required the parties to raise the consideration
untold number of moral wrongs which is impossible for
of the lease from P2.50 to P2.80 per picul, or a total of
human foresight to specifically provide in the statutes. 5
P2,800-00, they readily agreed. Hence, in his letter to the
Branch Manager of the Bank on August 10, 1956, Tuazon A corporation is civilly liable in the same manner as
informed him that the minimum lease rental of P2.80 per natural persons for torts, because "generally speaking,
picul was acceptable to him and that he even offered to the rules governing the liability of a principal or master for
use the loan secured by him from petitioner to pay in full a tort committed by an agent or servant are the same
the sum of P2,800.00 which was the total consideration of whether the principal or master be a natural person or a
the lease. This arrangement was not only satisfactory to corporation, and whether the servant or agent be a natural
the Branch Manager but it was also approves by Vice- or artificial person. All of the authorities agree that a
President J. V. Buenaventura of the PNB. Under that principal or master is liable for every tort which he
arrangement, Rita Gueco Tapnio could have realized the expressly directs or authorizes, and this is just as true of
amount of P2,800.00, which was more than enough to pay a corporation as of a natural person, A corporation is liable,
the balance of her indebtedness to the Bank which was therefore, whenever a tortious act is committed by an
secured by the bond of Philamgen. officer or agent under express direction or authority from
the stockholders or members acting as a body, or,
There is no question that Tapnio's failure to utilize her
generally, from the directors as the governing body." 6
sugar quota for the crop year 1956-1957 was due to the
disapproval of the lease by the Board of Directors of WHEREFORE, in view of the foregoing, the decision of
petitioner. The issue, therefore, is whether or not the Court of Appeals is hereby AFFIRMED.
petitioner is liable for the damage caused.
As observed by the trial court, time is of the essence in
the approval of the lease of sugar quota allotments, since
the same must be utilized during the milling season, [G.R. NO. 160039 : June 29, 2004]
because any allotment which is not filled during such RAYMUNDO ODANI SECOSA, EL BUENASENSO
milling season may be reallocated by the Sugar Quota SYand DASSAD WAREHOUSINGand PORT
Administration to other holders of allotments. 3 There was SERVICES, INCORPORATED, Petitioners, v. HEIRS OF
no proof that there was any other person at that time ERWIN SUAREZ FRANCISCO, Respondents.
willing to lease the sugar quota allotment of private
DECISION
respondents for a price higher than P2.80 per picul. "The
fact that there were isolated transactions wherein the YNARES-SANTIAGO, J.:
consideration for the lease was P3.00 a picul", according This is a Petition for Review under Rule 45 of the Rules
to the trial court, "does not necessarily mean that there of Court seeking the reversal of the decision1 of the Court
are always ready takers of said price. " The of Appeals dated February 27, 2003 in CA-G.R. CV No.
unreasonableness of the position adopted by the 61868, which affirmed in totothe June 19, 1998
petitioner's Board of Directors is shown by the fact that the decision2 of Branch 20 of the Regional Trial Court of
difference between the amount of P2.80 per picul offered Manila in Civil Case No. 96-79554.
by Tuazon and the P3.00 per picul demanded by the The facts are as follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Board amounted only to a total sum of P200.00.
On June 27, 1996, at around 4:00 p.m., Erwin Suarez
Considering that all the accounts of Rita Gueco Tapnio
Francisco, an eighteen year old third year physical
with the Bank were secured by chattel mortgage on
therapy student of the Manila Central University, was
standing crops, assignment of leasehold rights and
riding a motorcycle along Radial 10 Avenue, near the
interests on her properties, and surety bonds and that she
Veteran Shipyard Gate in the City of Manila.At the same
had apparently "the means to pay her obligation to the
time, Petitioner, Raymundo Odani Secosa, was driving an
Bank, as shown by the fact that she has been granted
Isuzu cargo truck with plate number PCU-253 on the
several sugar crop loans of the total value of almost
same road. The truck was owned by petitioner, Dassad
P80,000.00 for the agricultural years from 1952 to 1956",
Warehousing and Port Services, Inc.
there was no reasonable basis for the Board of Directors
of petitioner to have rejected the lease agreement Traveling behind the motorcycle driven by Francisco was
because of a measly sum of P200.00. a sand and gravel truck, which in turn was being tailed by
the Isuzu truck driven by Secosa.The three vehicles were
While petitioner had the ultimate authority of approving or
traversing the southbound lane at a fairly high
disapproving the proposed lease since the quota was
speed.When Secosa overtook the sand and gravel truck,
mortgaged to the Bank, the latter certainly cannot escape
he bumped the motorcycle causing Francisco to fall.The
its responsibility of observing, for the protection of the
rear wheels of the Isuzu truck then ran over Francisco,
interest of private respondents, that degree of care,
which resulted in his instantaneous death.Fearing for his
precaution and vigilance which the circumstances justly
life, petitioner Secosa left his truck and fled the scene of
demand in approving or disapproving the lease of said
the collision.3 ςrνll
sugar quota. The law makes it imperative that every
person "must in the exercise of his rights and in the Respondents, the parents of Erwin Francisco, thus filed
performance of his duties, act with justice, give everyone an action for damages against Raymond Odani Secosa,
his due, and observe honesty and good faith, 4 This Dassad Warehousing and Port Services, Inc. and
petitioner failed to do. Certainly, it knew that the Dassads president, El Buenasucenso Sy.The complaint
37
was docketed as Civil Case No.96-79554 of the RTC of The obligation imposed by article 2176 is demandable not
Manila, Branch 20. only for ones own acts or omissions, but also for those of
On June 19, 1998, after a full-blown trial, the court a persons for whom one is responsible x x x.
quo rendered a decision in favor of herein respondents, Employers shall be liable for the damages caused by their
the dispositive portion of which employees and household helpers acting within the scope
states:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ of their assigned tasks, even though the former are not
WHEREFORE, premised on the foregoing, judgment is engaged in any business or industry x x x.
hereby rendered in favor of the plaintiffs ordering the The responsibility treated of in this article shall cease
defendants to pay plaintiffs jointly and when the persons herein mentioned prove that they
severally:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ observed all the diligence of a good father of a family to
1.The sum of P55,000.00 as actual and compensatory prevent damage.
damages;chanroblesvirtuallawlibrary Based on the foregoing provisions, when an injury is
2.The sum of P20,000.00 for the repair of the caused by the negligence of an employee, there instantly
motorcycle;chanroblesvirtuallawlibrary arises a presumption that there was negligence on the
part of the employer either in the selection of his employee
3.The sum of P100,000.00 for the loss of earning
or in the supervision over him after such selection.The
capacity;chanroblesvirtuallawlibrary
presumption, however, may be rebutted by a clear
4.The sum of P500,000.00 as moral showing on the part of the employer that it exercised the
damages;chanroblesvirtuallawlibrary care and diligence of a good father of a family in the
5.The sum of P50,000.00 as exemplary selection and supervision of his employee.Hence, to
damages;chanroblesvirtuallawlibrary evade solidary liability for quasi-delict committed by an
6.The sum of P50,000.00 as attorneys fees plus cost of employee, the employer must adduce sufficient proof that
suit. it exercised such degree of care.6 ςrνll
SO ORDERED. How does an employer prove that he indeed exercised
the diligence of a good father of a family in the selection
Petitioners appealed the decision to the Court of Appeals, and supervision of his employee? The case of Metro
which affirmed the appealed decision in toto.4 ςrνll Manila Transit Corporation v. Court of Appeals 7 is
Hence the present petition, based on the following instructive:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
arguments:
In fine, the party, whether plaintiff or defendant, who
I. asserts the affirmative of the issue has the burden of
THE COURT OF APPEALS SERIOUSLY ERRED WHEN presenting at the trial such amount of evidence required
IT AFFIRMED THE DECISION OF THE TRIAL COURT by law to obtain a favorable judgment8 . .. In making proof
THAT PETITIONER DASSAD DID NOT EXERCISE THE in its or his case, it is paramount that the best and most
DILIGENCE OF A GOOD FATHER OF A FAMILY IN THE complete evidence is formally entered.9 ςrνll
SELECTION AND SUPERVISION OF ITS EMPLOYEES Coming now to the case at bar, while there is no rule
WHICH IS NOT IN ACCORDANCE WITH ARTICLE 2180 which requires that testimonial evidence, to hold sway,
OF THE NEW CIVIL CODE AND RELATED must be corroborated by documentary evidence,
JURISPRUDENCE ON THE MATTER. inasmuch as the witnesses testimonies dwelt on mere
II. generalities, we cannot consider the same as sufficiently
THE COURT OF APPEALS SERIOUSLY ERRED WHEN persuasive proof that there was observance of due
IT AFFIRMED THE DECISION OF THE TRIAL COURT diligence in the selection and supervision of employees.
IN HOLDING PETITIONER EL BUENASENSO SY Petitioners attempt to prove its deligentissimi patris
SOLIDARILY LIABLE WITH PETITIONERS DASSAD familias in the selection and supervision of employees
AND SECOSA IN VIOLATION OF THE CORPORATION through oral evidence must fail as it was unable to
LAW AND RELATED JURISPRUDENCE ON THE buttress the same with any other evidence, object or
MATTER. documentary, which might obviate the apparent biased
nature of the testimony.10 ςrνll
III.
Our view that the evidence for petitioner MMTC falls short
THE JUDGMENT OF THE TRIAL COURT AS of the required evidentiary quantum as would convincingly
AFFIRMED BY THE COURT OF APPEALS AWARDING and undoubtedly prove its observance of the diligence of
P500,000.00 AS MORAL DAMAGES IS MANIFESTLY a good father of a family has its precursor in the
ABSURD, MISTAKEN AND UNJUST.5 ςrνll underlying rationale pronounced in the earlier case of
The petition is partly impressed with merit. Central Taxicab Corp. v. Ex-Meralco Employees
On the issue of whether petitioner Dassad Warehousing Transportation Co., et al.,11 set amidst an almost identical
and Port Services, Inc. exercised the diligence of a good factual setting, where we held
father of a family in the selection and supervision of its that:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
employees, we find the assailed decision to be in full The failure of the defendant company to produce in court
accord with pertinent provisions of law and established any record or other documentary proof tending to
jurisprudence. establish that it had exercised all the diligence of a good
Article 2176 of the Civil Code father of a family in the selection and supervision of its
provides:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ drivers and buses, notwithstanding the calls therefor by
Whoever by act or omission causes damage to another, both the trial court and the opposing counsel, argues
there being fault or negligence, is obliged to pay for the strongly against its pretensions.
damage done.Such fault or negligence, if there is no pre- We are fully aware that there is no hard-and-fast rule on
existing contractual relation between the parties, is called the quantum of evidence needed to prove due
a quasi-delict and is governed by the provisions of this observance of all the diligence of a good father of a family
Chapter. as would constitute a valid defense to the legal
On the other hand, Article 2180, in pertinent part, presumption of negligence on the part of an employer or
states:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ master whose employee has by his negligence, caused
damage to another. x x x (R) educing the testimony of
Albert to its proper proportion, we do not have enough
trustworthy evidence left to go by. We are of the
38
considered opinion, therefore, that the believable liable with its co-petitioner Raymundo Secosa for the
evidence on the degree of care and diligence that has damages suffered by the heirs of Erwin Francisco.
been exercised in the selection and supervision of However, we find that petitioner El Buenasenso Sy cannot
Roberto Leon y Salazar, is not legally sufficient to be held solidarily liable with his co-petitioners. While it
overcome the presumption of negligence against the may be true that Sy is the president of petitioner Dassad
defendant company. Warehousing and Port Services, Inc., such fact is not by
The above-quoted ruling was reiterated in a recent case itself sufficient to hold him solidarily liable for the liabilities
again involving the Metro Manila Transit adjudged against his co-petitioners.
Corporation,12 thus:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ It is a settled precept in this jurisdiction that a corporation
In the selection of prospective employees, employers are is invested by law with a personality separate from that of
required to examine them as to their qualifications, its stockholders or members.16 It has a personality
experience, and service records.13 On the other hand, separate and distinct from those of the persons
with respect to the supervision of employees, employers composing it as well as from that of any other entity to
should formulate standard operating procedures, monitor which it may be related. Mere ownership by a single
their implementation, and impose disciplinary measures stockholder or by another corporation of all or nearly all of
for breaches thereof. To establish these factors in a trial the capital stock of a corporation is not in itself sufficient
involving the issue of vicarious liability, employers must ground for disregarding the separate corporate
submit concrete proof, including documentary evidence. personality.17 A corporations authority to act and its
In this case, MMTC sought to prove that it exercised the liability for its actions are separate and apart from the
diligence of a good father of a family with respect to the individuals who own it.18 ςrνll
selection of employees by presenting mainly testimonial The so-called veil of corporation fiction treats as separate
evidence on its hiring procedure. According to MMTC, and distinct the affairs of a corporation and its officers and
applicants are required to submit professional driving stockholders. As a general rule, a corporation will be
licenses, certifications of work experience, and looked upon as a legal entity, unless and until sufficient
clearances from the National Bureau of Investigation; to reason to the contrary appears.When the notion of legal
undergo tests of their driving skills, concentration, reflexes, entity is used to defeat public convenience, justify wrong,
and vision; and, to complete training programs on traffic protect fraud, or defend crime, the law will regard the
rules, vehicle maintenance, and standard operating corporation as an association of persons.19 Also, the
procedures during emergency cases. corporate entity may be disregarded in the interest of
xxx justice in such cases as fraud that may work inequities
among members of the corporation internally, involving no
Although testimonies were offered that in the case of
rights of the public or third persons.In both instances,
Pedro Musa all these precautions were followed, the
there must have been fraud and proof of it. For the
records of his interview, of the results of his examinations,
separate juridical personality of a corporation to be
and of his service were not presented.. . [T]here is no
disregarded, the wrongdoing must be clearly and
record that Musa attended such training programs and
convincingly established.20 It cannot be presumed.21 ςrνll
passed the said examinations before he was employed.
No proof was presented that Musa did not have any The records of this case are bereft of any evidence
record of traffic violations. Nor were records of daily tending to show the presence of any grounds enumerated
inspections, allegedly conducted by supervisors, ever above that will justify the piercing of the veil of corporate
presented.. . The failure of MMTC to present such fiction such as to hold the president of Dassad
documentary proof puts in doubt the credibility of its Warehousing and Port Services, Inc. solidarily liable with
witnesses. it.
Jurisprudentially, therefore, the employer must not merely The Isuzu cargo truck which ran over Erwin Francisco was
present testimonial evidence to prove that he observed registered in the name of Dassad Warehousing and Port
the diligence of a good father of a family in the selection Services, Inc., and not in the name of El Buenasenso
and supervision of his employee, but he must also support Sy.Raymundo Secosa is an employee of Dassad
such testimonial evidence with concrete or documentary Warehousing and Port Services, Inc. and not of El
evidence. The reason for this is to obviate the biased Buenasenso Sy.All these things, when taken collectively,
nature of the employers testimony or that of his point toward El Buenasenso Sys exclusion from liability
witnesses.14 ςrνll for damages arising from the death of Erwin Francisco.
Applying the foregoing doctrines to the present case, we Having both found Raymundo Secosa and Dassad
hold that petitioner Dassad Warehousing and Port Warehousing and Port Services, Inc. liable for negligence
Services, Inc. failed to conclusively prove that it had for the death of Erwin Francisco on June 27, 1996, we
exercised the requisite diligence of a good father of a now consider the question of moral damages which his
family in the selection and supervision of its employees. parents, herein respondents, are entitled to
recover.Petitioners assail the award of moral damages of
Edilberto Duerme, the lone witness presented by Dassad
P500,000.00 for being manifestly absurd, mistaken and
Warehousing and Port Services, Inc. to support its
unjust.We are not persuaded.
position that it had exercised the diligence of a good father
of a family in the selection and supervision of its Under Article 2206, the spouse, legitimate and illegitimate
employees, testified that he was the one who descendants and ascendants of the deceased may
recommended petitioner Raymundo Secosa as a driver to demand moral damages for mental anguish for the death
Dassad Warehousing and Port Services, Inc.; that it was of the deceased. The reason for the grant of moral
his duty to scrutinize the capabilities of drivers; and that damages has been explained in this
he believed petitioner to be physically and mentally fit for wise:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
he had undergone rigid training and attended the PPA .. . the award of moral damages is aimed at a restoration,
safety seminar.15 ςrνll within the limits possible, of the spiritual status quo ante;
Petitioner Dassad Warehousing and Port Services, Inc. and therefore, it must be proportionate to the suffering
failed to support the testimony of its lone witness with inflicted. The intensity of the pain experienced by the
documentary evidence which would have strengthened its relatives of the victim is proportionate to the intensity of
claim of due diligence in the selection and supervision of affection for him and bears no relation whatsoever with
its employees.Such an omission is fatal to its position, on the wealth or means of the offender.22 ςrνll
account of which, Dassad can be rightfully held solidarily
39
In the instant case, the spouses Francisco presented Jesus Agana and Raymund Agana] and ENRIQUE
evidence of the searing pain that they felt when the AGANA, Petitioners, v. THE COURT OF APPEALS and
premature loss of their son was relayed to them. That pain JUAN FUENTES, Respondents.
was highly evident in the testimony of the father who was x - - - - - - - - - - - - - - - - - - - - - - -x
forever deprived of a son, a son whose untimely death
G.R. No. 127590
came at that point when the latter was nearing the
culmination of every parents wish to educate their MIGUEL AMPIL, Petitioner, v. NATIVIDAD and
children.The death of Francis has indeed left a void in the ENRIQUE AGANA, Respondents.
lives of the respondents. Antonio Francisco testified on RESOLUTION
the effect of the death of his son, Francis, in this CORONA, J.:
manner:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
With prior leave of court,1cralaw petitioner Professional
Q: (Atty. Balanag) :What did you do when you learned that Services, Inc. (PSI) filed a second motion for
your son was killed on June 27, reconsideration2cralaw urging referral thereof to the Court
1996?chanroblesvirtualawlibrary en banc and seeking modification of the decision dated
A: (ANTONIO FRANCISCO) :I boxed the door and January 31, 2007 and resolution dated February 11, 2008
pushed the image of St. Nio telling why this happened to which affirmed its vicarious and direct liability for damages
us. to respondents Enrique Agana and the heirs of Natividad
Q: Mr. Witness, how did you feel when you learned of the Agana (Aganas).
untimely death of your son, Erwin Suares Manila Medical Services, Inc. (MMSI),3cralaw Asian
(sic) ?chanroblesvirtualawlibrary Hospital, Inc. (AHI),4cralaw and Private Hospital
A: Masakit po ang mawalan ng anak. Its really hard for Association of the Philippines (PHAP)5cralaw all sought to
me, the thought that my son is dead. intervene in these cases invoking the common ground
that, unless modified, the assailed decision and resolution
xxx
will jeopardize the financial viability of private hospitals
Q: How did your family react to the death of Erwin Suarez and jack up the cost of health care.
Francisco?chanroblesvirtualawlibrary
The Special First Division of the Court granted the
A: All of my family and relatives were felt (sic) sorrow motions for intervention of MMSI, AHI and PHAP
because they knew that my son is (sic) good. (hereafter intervenors),6cralaw and referred en
Q: We know that it is impossible to put money terms(s) consulta to the Court en banc the motion for prior leave of
[on] the life of [a] human, but since you are now in court court and the second motion for reconsideration of
and if you were to ask this court how much would you and PSI.7cralaw
your family compensate? (sic) Due to paramount public interest, the Court en
A: Even if they pay me millions, they cannot remove the banc accepted the referral8cralaw and heard the parties
anguish of my son (sic). 23 ςrνll on oral arguments on one particular issue: whether a
Moral damages are emphatically not intended to enrich a hospital may be held liable for the negligence of
plaintiff at the expense of the defendant. They are physicians-consultants allowed to practice in its
awarded to allow the former to obtain means, diversion or premises.9cralaw
amusements that will serve to alleviate the moral suffering To recall the salient facts, PSI, together with Dr. Miguel
he has undergone due to the defendants culpable action Ampil (Dr. Ampil) and Dr. Juan Fuentes (Dr. Fuentes),
and must, perforce, be proportional to the suffering was impleaded by Enrique Agana and Natividad Agana
inflicted.24 We have previously held as proper an award of (later substituted by her heirs), in a complaint 10cralaw for
P500,000.00 as moral damages to the heirs of a damages filed in the Regional Trial Court (RTC) of
deceased family member who died in a vehicular accident. Quezon City, Branch 96, for the injuries suffered by
In our 2002 decision in Metro Manila Transit Corporation Natividad when Dr. Ampil and Dr. Fuentes neglected to
v. Court of Appeals, et al.,25 we affirmed the award of remove from her body two gauzes11cralaw which were
moral damages of P500,000.00 to the heirs of the victim, used in the surgery they performed on her on April 11,
a mother, who died from injuries she sustained when a 1984 at the Medical City General Hospital. PSI was
bus driven by an employee of the petitioner hit her.In the impleaded as owner, operator and manager of the
case at bar, we likewise affirm the portion of the assailed hospital.
decision awarding the moral damages. In a decision12cralaw dated March 17, 1993, the RTC held
Since the petitioners did not question the other damages PSI solidarily liable with Dr. Ampil and Dr. Fuentes for
adjudged against them by the court a quo, we affirm the damages.13cralaw On appeal, the Court of Appeals (CA),
award of these damages to the Respondents. absolved Dr. Fuentes but affirmed the liability of Dr. Ampil
WHEREFORE, the petition is DENIED.The assailed and PSI, subject to the right of PSI to claim
decision is AFFIRMED with the MODIFICATION that reimbursement from Dr. Ampil.14cralaw
petitioner El Buenasenso Sy is ABSOLVED from any On petition for review, this Court, in its January 31, 2007
liability adjudged against his co-petitioners in this case. decision, affirmed the CA decision.15cralaw PSI filed a
Costs against petitioners. motion for reconsideration16cralaw but the Court denied it
in a resolution dated February 11, 2008.17cralaw
SO ORDERED.
The Court premised the direct liability of PSI to the
Aganas on the following facts and law:
First, there existed between PSI and Dr. Ampil an
employer-employee relationship as contemplated in the
G.R. No. 126297 : February 2, 2010
December 29, 1999 decision in Ramos v. Court of
PROFESSIONAL SERVICES, INC., Petitioner, v. THE Appeals 18cralaw that "for purposes of allocating
COURT OF APPEALS and NATIVIDAD and ENRIQUE responsibility in medical negligence cases, an employer-
AGANA, Respondents. employee relationship exists between hospitals and their
x - - - - - - - - - - - - - - - - - - - - - - -x consultants."19cralaw Although the Court in Ramos later
G.R. No. 126467 issued a Resolution dated April 11,
200220cralaw reversing its earlier finding on the existence
NATIVIDAD [substituted by her children Marcelino
of an employment relationship between hospital and
Agana III, Enrique Agana, Jr., Emma Agana-Andaya,
doctor, a similar reversal was not warranted in the present
40
case because the defense raised by PSI consisted of a After gathering its thoughts on the issues, this Court holds
mere general denial of control or responsibility over the that PSI is liable to the Aganas, not under the principle
actions of Dr. Ampil.21cralaw of respondeat superior for lack of evidence of an
Second, by accrediting Dr. Ampil and advertising his employment relationship with Dr. Ampil but under the
qualifications, PSI created the public impression that he principle of ostensible agency for the negligence of Dr.
was its agent.22cralaw Enrique testified that it was on Ampil and, pro hac vice, under the principle of corporate
account of Dr. Ampil's accreditation with PSI that he negligence for its failure to perform its duties as a hospital.
conferred with said doctor about his wife's (Natividad's) While in theory a hospital as a juridical entity cannot
condition.23cralaw After his meeting with Dr. Ampil, practice medicine,32cralaw in reality it utilizes doctors,
Enrique asked Natividad to personally consult Dr. surgeons and medical practitioners in the conduct of its
Ampil.24cralaw In effect, when Enrigue and Natividad business of facilitating medical and surgical
engaged the services of Dr. Ampil, at the back of their treatment.33cralaw Within that reality, three legal
minds was that the latter was a staff member of a relationships crisscross: (1) between the hospital and the
prestigious hospital. Thus, under the doctrine of apparent doctor practicing within its premises; (2) between the
authority applied in Nogales, et al. v. Capitol Medical hospital and the patient being treated or examined within
Center, et al. ,25cralaw PSI was liable for the negligence its premises and (3) between the patient and the doctor.
of Dr. Ampil. The exact nature of each relationship determines the
Finally, as owner and operator of Medical City General basis and extent of the liability of the hospital for the
Hospital, PSI was bound by its duty to provide negligence of the doctor.
comprehensive medical services to Natividad Agana, to Where an employment relationship exists, the hospital
exercise reasonable care to protect her from may be held vicariously liable under Article
harm,26cralaw to oversee or supervise all persons who 217634cralaw in relation to Article 218035cralaw of the
practiced medicine within its walls, and to take active Civil Code or the principle of respondeat superior. Even
steps in fixing any form of negligence committed within its when no employment relationship exists but it is shown
premises.27cralaw PSI committed a serious breach of its that the hospital holds out to the patient that the doctor is
corporate duty when it failed to conduct an immediate its agent, the hospital may still be vicariously liable under
investigation into the reported missing gauzes.28cralaw Article 2176 in relation to Article 143136cralaw and Article
PSI is now asking this Court to reconsider the foregoing 186937cralaw of the Civil Code or the principle of apparent
rulings for these reasons: authority.38cralaw Moreover, regardless of its relationship
with the doctor, the hospital may be held directly liable to
I
the patient for its own negligence or failure to follow
The declaration in the 31 January 2007 Decision vis-a-vis established standard of conduct to which it should
the 11 February 2009 Resolution that the ruling in Ramos conform as a corporation.39cralaw
vs. Court of Appeals (G.R. No. 134354, December 29,
This Court still employs the "control test" to determine the
1999) that "an employer-employee relations exists
existence of an employer-employee relationship between
between hospital and their consultants" stays should be
hospital and doctor. In Calamba Medical Center, Inc. v.
set aside for being inconsistent with or contrary to the
National Labor Relations Commission, et al. 40cralaw it
import of the resolution granting the hospital's motion for
held:
reconsideration in Ramos vs. Court of Appeals (G.R. No.
134354, April 11, 2002), which is applicable to PSI since Under the "control test", an employment relationship
the Aganas failed to prove an employer-employee exists between a physician and a hospital if the hospital
relationship between PSI and Dr. Ampil and PSI proved controls both the means and the details of the process by
that it has no control over Dr. Ampil. In fact, the trial court which the physician is to accomplish his task.
has found that there is no employer-employee xxx xxx xxx
relationship in this case and that the doctor's are As priorly stated, private respondents maintained specific
independent contractors. work-schedules, as determined by petitioner through its
II medical director, which consisted of 24-hour shifts totaling
Respondents Aganas engaged Dr. Miguel Ampil as their forty-eight hours each week and which were strictly to be
doctor and did not primarily and specifically look to the observed under pain of administrative sanctions.
Medical City Hospital (PSI) for medical care and support; That petitioner exercised control over respondents
otherwise stated, respondents Aganas did not select gains light from the undisputed fact that in the
Medical City Hospital (PSI) to provide medical care emergency room, the operating room, or any
because of any apparent authority of Dr. Miguel Ampil as department or ward for that matter, respondents'
its agent since the latter was chosen primarily and work is monitored through its nursing supervisors,
specifically based on his qualifications and being friend charge nurses and orderlies. Without the approval or
and neighbor. consent of petitioner or its medical director, no
III operations can be undertaken in those areas. For
control test to apply, it is not essential for the
PSI cannot be liable under doctrine of corporate
employer to actually supervise the performance of
negligence since the proximate cause of Mrs. Agana's
duties of the employee, it being enough that it has the
injury was the negligence of Dr. Ampil, which is an
right to wield the power. (emphasis supplied)
element of the principle of corporate negligence.29cralaw
Even in its December 29, 1999 decision41cralaw and April
In their respective memoranda, intervenors raise parallel
11, 2002 resolution42cralaw in Ramos, the Court found
arguments that the Court's ruling on the existence of an
the control test decisive.
employer-employee relationship between private
hospitals and consultants will force a drastic and complex In the present case, it appears to have escaped the
alteration in the long-established and currently prevailing Court's attention that both the RTC and the CA found no
relationships among patient, physician and hospital, with employment relationship between PSI and Dr. Ampil, and
burdensome operational and financial consequences and that the Aganas did not question such finding. In its
adverse effects on all three parties.30cralaw March 17, 1993 decision, the RTC found "that defendant
doctors were not employees of PSI in its hospital, they
The Aganas comment that the arguments of PSI need no
being merely consultants without any employer-employee
longer be entertained for they have all been traversed in
relationship and in the capacity of independent
the assailed decision and resolution.31cralaw

41
contractors."43cralaw The Aganas never questioned such City General Hospital, and that said hospital was well
finding. known and prominent. Enrique looked upon Dr. Ampil not
PSI, Dr. Ampil and Dr. Fuentes appealed44cralaw from the as independent of but as integrally related to Medical City.
RTC decision but only on the issues of negligence, PSI's acts tended to confirm and reinforce, rather than
agency and corporate liability. In its September 6, 1996 negate, Enrique's view. It is of record that PSI required a
decision, the CA mistakenly referred to PSI and Dr. Ampil "consent for hospital care"53cralaw to be signed
as employer-employee, but it was clear in its discussion preparatory to the surgery of Natividad. The form reads:
on the matter that it viewed their relationship as one of Permission is hereby given to the medical, nursing and
mere apparent agency.45cralaw laboratory staff of the Medical City General Hospital to
The Aganas appealed from the CA decision, but only to perform such diagnostic procedures and to administer
question the exoneration of Dr. Fuentes.46cralaw PSI also such medications and treatments as may be deemed
appealed from the CA decision, and it was then that the necessary or advisable by thephysicians of this
issue of employment, though long settled, was unwittingly hospitalfor and during the confinement of xxx. (emphasis
resurrected. supplied)
In fine, as there was no dispute over the RTC finding that By such statement, PSI virtually reinforced the public
PSI and Dr. Ampil had no employer-employee impression that Dr. Ampil was a physician ofits hospital,
relationship, such finding became final and conclusive rather than one independently practicing in it; that the
even to this Court.47cralaw There was no reason for PSI medications and treatments he prescribed were
to have raised it as an issue in its petition. Thus, whatever necessary and desirable; and that the hospital staff was
discussion on the matter that may have ensued was prepared to carry them out.
purely academic. PSI pointed out in its memorandum that Dr. Ampil's
Nonetheless, to allay the anxiety of the intervenors, the hospital affiliation was not the exclusive basis of the
Court holds that, in this particular instance, the concurrent Aganas decision to have Natividad treated in Medical City
finding of the RTC and the CA that PSI was not the General Hospital, meaning that, had Dr. Ampil been
employer of Dr. Ampil is correct. Control as a affiliated with another hospital, he would still have been
determinative factor in testing the employer-employee chosen by the Aganas as Natividad's surgeon.54cralaw
relationship between doctor and hospital under which the The Court cannot speculate on what could have been
hospital could be held vicariously liable to a patient in behind the Aganas decision but would rather adhere
medical negligence cases is a requisite fact to be strictly to the fact that, under the circumstances at that
established by preponderance of evidence. Here, there time, Enrique decided to consult Dr. Ampil for he believed
was insufficient evidence that PSI exercised the power of him to be a staff member of a prominent and known
control or wielded such power over the means and the hospital. After his meeting with Dr. Ampil, Enrique advised
details of the specific process by which Dr. Ampil applied his wife Natividad to go to the Medical City General
his skills in the treatment of Natividad. Consequently, PSI Hospital to be examined by said doctor, and the hospital
cannot be held vicariously liable for the negligence of Dr. acted in a way that fortified Enrique's belief.
Ampil under the principle of respondeat superior.
This Court must therefore maintain the ruling that PSI is
There is, however, ample evidence that the hospital (PSI) vicariously liable for the negligence of Dr. Ampil as its
held out to the patient (Natividad)48cralaw that the doctor ostensible agent.
(Dr. Ampil) was its agent. Present are the two factors that
Moving on to the next issue, the Court notes that PSI
determine apparent authority: first, the hospital's implied
made the following admission in its Motion for
manifestation to the patient which led the latter to
Reconsideration:
conclude that the doctor was the hospital's agent; and
second, the patient's reliance upon the conduct of the 51. Clearly, not being an agent or employee of petitioner
hospital and the doctor, consistent with ordinary care and PSI, PSI [sic] is not liable for Dr. Ampil's acts during the
prudence.49cralaw operation. Considering further that Dr. Ampil was
personally engaged as a doctor by Mrs. Agana, it is
Enrique testified that on April 2, 1984, he consulted Dr.
incumbent upon Dr. Ampil, as "Captain of the Ship", and
Ampil regarding the condition of his wife; that after the
as the Agana's doctor to advise her on what to do with her
meeting and as advised by Dr. Ampil, he " asked [his]
situation vis-a-vis the two missing gauzes. In addition to
wife to go to Medical City to be examined by [Dr. Ampil] ";
noting the missing gauzes, regular check-ups were
and that the next day, April 3, he told his daughter to take
made and no signs of complications were exhibited
her mother to Dr. Ampil.50cralaw This timeline indicates
during her stay at the hospital, which could have
that it was Enrique who actually made the decision on
alerted petitioner PSI's hospital to render and provide
whom Natividad should consult and where, and that the
post-operation services to and tread on Dr. Ampil's
latter merely acceded to it. It explains the testimony of
role as the doctor of Mrs. Agana. The absence of
Natividad that she consulted Dr. Ampil at the instigation of
negligence of PSI from the patient's admission up to
her daughter.51cralaw
her discharge is borne by the finding of facts in this
Moreover, when asked what impelled him to choose Dr. case. Likewise evident therefrom is the absence of
Ampil, Enrique testified: any complaint from Mrs. Agana after her discharge
Atty. Agcaoili from the hospital which had she brought to the
On that particular occasion, April 2, 1984, what was your hospital's attention, could have alerted petitioner PSI
reason for choosing Dr. Ampil to contact with in to act accordingly and bring the matter to Dr. Ampil's
connection with your wife's illness? attention. But this was not the case. Ms. Agana
complained ONLY to Drs. Ampil and Fuentes, not the
A. First, before that, I have known him to be a specialist
hospital. How then could PSI possibly do something
on that part of the body as a surgeon, second, I have
to fix the negligence committed by Dr. Ampil when it
known him to be a staff memberof the Medical City which
was not informed about it at all . 55cralaw (emphasis
is a prominent and knownhospital. And third, because
supplied)
he is a neighbor, I expect more than the usual medical
service to be given to us, than his ordinary PSI reiterated its admission when it stated that had
patients.52cralaw (emphasis supplied) Natividad Agana "informed the hospital of her discomfort
and pain, the hospital would have been obliged to act on
Clearly, the decision made by Enrique for Natividad to
it."56cralaw
consult Dr. Ampil was significantly influenced by the
impression that Dr. Ampil was a staff member of Medical The significance of the foregoing statements is critical.
42
First, they constitute judicial admission by PSI that while while the purpose of the second would have been to
it had no power to control the means or method by which pinpoint any lapse in procedure that led to the gauze
Dr. Ampil conducted the surgery on Natividad Agana, it count discrepancy, so as to prevent a recurrence thereof
had the power to review or cause the reviewof what and to determine corrective measures that would ensure
may have irregularly transpired within its walls strictly for the safety of Natividad. That Dr. Ampil negligently failed
the purpose of determining whether some form of to notify Natividad did not release PSI from its self-
negligence may have attended any procedure done inside imposed separate responsibility.
its premises, with the ultimate end of protecting its Corollary to its non-delegable undertaking to review
patients. potential incidents of negligence committed within its
Second, it is a judicial admission that, by virtue of the premises, PSI had the duty to take notice of medical
nature of its business as well as its prominence57cralaw in records prepared by its own staff and submitted to its
the hospital industry, it assumed a duty to "tread on" the custody, especially when these bear earmarks of a
"captain of the ship" role of any doctor rendering services surgery gone awry. Thus, the record taken during the
within its premises for the purpose of ensuring the safety operation of Natividad which reported a gauze count
of the patients availing themselves of its services and discrepancy should have given PSI sufficient reason to
facilities. initiate a review. It should not have waited for Natividad to
Third, by such admission, PSI defined the standards of its complain.
corporate conduct under the circumstances of this case, As it happened, PSI took no heed of the record of
specifically: (a) that it had a corporate duty to Natividad operation and consequently did not initiate a review of
even after her operation to ensure her safety as a patient; what transpired during Natividad's operation. Rather, it
(b) that its corporate duty was not limited to having its shirked its responsibility and passed it on to others to Dr.
nursing staff note or record the two missing gauzes and Ampil whom it expected to inform Natividad, and to
(c) that its corporate duty extended to determining Dr. Natividad herself to complain before it took any
Ampil's role in it, bringing the matter to his attention, and meaningful step. By its inaction, therefore, PSI failed its
correcting his negligence. own standard of hospital care. It committed corporate
And finally, by such admission, PSI barred itself from negligence.
arguing in its second motion for reconsideration that the It should be borne in mind that the corporate negligence
concept of corporate responsibility was not yet in ascribed to PSI is different from the medical negligence
existence at the time Natividad underwent attributed to Dr. Ampil. The duties of the hospital are
treatment;58cralaw and that if it had any corporate distinct from those of the doctor-consultant practicing
responsibility, the same was limited to reporting the within its premises in relation to the patient; hence, the
missing gauzes and did not include "taking an active step failure of PSI to fulfill its duties as a hospital corporation
in fixing the negligence committed."59cralaw An gave rise to a direct liability tothe Aganas distinct from that
admission made in the pleading cannot be controverted of Dr. Ampil.
by the party making such admission and is conclusive as All this notwithstanding, we make it clear that PSI's
to him, and all proofs submitted by him contrary thereto or hospital liability based on ostensible agency and
inconsistent therewith should be ignored, whether or not corporate negligence applies only to this case, pro hac
objection is interposed by a party.60cralaw vice. It is not intended to set a precedent and should not
Given the standard of conduct that PSI defined for itself, serve as a basis to hold hospitals liable for every form of
the next relevant inquiry is whether the hospital measured negligence of their doctors-consultants under any and all
up to it. circumstances. The ruling is unique to this case, for the
PSI excuses itself from fulfilling its corporate duty on the liability of PSI arose from an implied agency with Dr. Ampil
ground that Dr. Ampil assumed the personal responsibility and an admitted corporate duty to Natividad.64cralaw
of informing Natividad about the two missing Other circumstances peculiar to this case warrant this
gauzes.61cralaw Dr. Ricardo Jocson, who was part of the ruling,65cralaw not the least of which being that the agony
group of doctors that attended to Natividad, testified that wrought upon the Aganas has gone on for 26 long years,
toward the end of the surgery, their group talked about the with Natividad coming to the end of her days racked in
missing gauzes but Dr. Ampil assured them that he would pain and agony. Such wretchedness could have been
personally notify the patient about it.62cralaw Furthermore, avoided had PSI simply done what was logical: heed the
PSI claimed that there was no reason for it to act on the report of a guaze count discrepancy, initiate a review of
report on the two missing gauzes because Natividad what went wrong and take corrective measures to ensure
Agana showed no signs of complications. She did not the safety of Nativad. Rather, for 26 years, PSI hemmed
even inform the hospital about her discomfort.63cralaw and hawed at every turn, disowning any such
The excuses proffered by PSI are totally unacceptable. responsibility to its patient. Meanwhile, the options left to
the Aganas have all but dwindled, for the status of Dr.
To begin with, PSI could not simply wave off the problem
Ampil can no longer be ascertained.66cralaw
and nonchalantly delegate to Dr. Ampil the duty to review
what transpired during the operation. The purpose of such Therefore, taking all the equities of this case into
review would have been to pinpoint when, how and by consideration, this Court believes P15 million would be a
whom two surgical gauzes were mislaid so that necessary fair and reasonable liability of PSI, subject to 12% p.a.
remedial measures could be taken to avert any jeopardy interest from the finality of this resolution to full satisfaction.
to Natividad's recovery. Certainly, PSI could not have WHEREFORE, the second motion for reconsideration
expected that purpose to be achieved by merely hoping is DENIEDand the motions for intervention are NOTED.
that the person likely to have mislaid the gauzes might be Professional Services, Inc. is ORDERED pro hac vice to
able to retrace his own steps. By its own standard of pay Natividad (substituted by her children Marcelino
corporate conduct, PSI's duty to initiate the review was Agana III, Enrique Agana, Jr., Emma Agana-Andaya,
non-delegable. Jesus Agana and Raymund Agana) and Enrique Agana
While Dr. Ampil may have had the primary responsibility the total amount of P15 million, subject to 12% p.a.
of notifying Natividad about the missing gauzes, PSI interest from the finality of this resolution to full satisfaction.
imposed upon itself the separate and independent No further pleadings by any party shall be entertained in
responsibility of initiating the inquiry into the missing this case.
gauzes. The purpose of the first would have been to
apprise Natividad of what transpired during her surgery,

43
Let the long-delayed entry of judgment be made in this shares to be sold at public auction on 15 January 1993.
case upon receipt by all concerned parties of this Again, this letter was sent to Clemente’s mailing address
resolution. that had already been closed.6
SO ORDERED. On 5 January 1993, a notice of auction sale was posted
on the Club’s bulletin board, as well as on the club’s
premises. The auction sale took place as scheduled on
15 January 1993, and Clemente’s share sold for
₱64,000.7According to the Certificate of Sale issued by
G.R. No. 165443 April 16, 2009
Calatagan after the sale, Clemente’s share was
CALATAGAN GOLF CLUB, INC. Petitioner, purchased by a Nestor A. Virata.8 At the time of the sale,
vs. Clemente’s accrued monthly dues amounted to
SIXTO CLEMENTE, JR., Respondent. ₱5,200.00.9 A notice of foreclosure of Clemente’s share
DECISION was published in the 26 May 1993 issue of the Business
TINGA, J.: World.10
Seeking the reversal of the Decision1 dated 1 June 2004 Clemente learned of the sale of his share only in
of the Court of Appeals in CA-G.R. SP No. 62331 and the November of 1997.11 He filed a claim with the Securities
reinstatement of the Decision dated 15 November 2000 of and Exchange Commission (SEC) seeking the restoration
the Securities and Exchange Commission (SEC) in SEC of his shareholding in Calatagan with damages.
Case No. 04-98-5954, petitioner Calatagan Golf Club, Inc. On 15 November 2000, the SEC rendered a decision
(Calatagan) filed this Rule 45 petition against respondent dismissing Clemente’s complaint. Citing Section 69 of the
Sixto Clemente, Jr. (Clemente). Corporation Code which provides that the sale of shares
The key facts are undisputed. at an auction sale can only be questioned within six (6)
months from the date of sale, the SEC concluded that
Clemente applied to purchase one share of stock of
Clemente’s claim, filed four (4) years after the sale, had
Calatagan, indicating in his application for membership
already prescribed. The SEC further held that Calatagan
his mailing address at "Phimco Industries, Inc. – P.O. Box
had complied with all the requirements for a valid sale of
240, MCC," complete residential address, office and
the subject share, Clemente having failed to inform
residence telephone numbers, as well as the company
Calatagan that the address he had earlier supplied was
(Phimco) with which he was connected, Calatagan issued
no longer his address. Clemente, the SEC ruled, had
to him Certificate of Stock No. A-01295 on 2 May 1990
acted in bad faith in assuming as he claimed that his non-
after paying ₱120,000.00 for the share.2
payment of monthly dues would merely render his share
Calatagan charges monthly dues on its members to meet "inactive."
expenses for general operations, as well as costs for
Clemente filed a petition for review with the Court of
upkeep and improvement of the grounds and facilities.
Appeals. On 1 June 2004, the Court of Appeals
The provision on monthly dues is incorporated in
promulgated a decision reversing the SEC. The appellate
Calatagan’s Articles of Incorporation and By-Laws. It is
court restored Clemente’s one share with a directive to
also reproduced at the back of each certificate of
Calatagan to issue in his a new share, and awarded to
stock.3 As reproduced in the dorsal side of Certificate of
Clemente a total of ₱400,000.00 in damages, less the
Stock No. A-01295, the provision reads:
unpaid monthly dues of ₱5,200.00.
5. The owners of shares of stock shall be subject to the
In rejecting the SEC’s finding that the action had
payment of monthly dues in an amount as may be
prescribed, the Court of Appeals cited the SEC’s own
prescribed in the by-laws or by the Board of Directors
ruling in SEC Case No. 4160, Caram v. Valley Golf
which shall in no case be less that [sic] ₱50.00 to meet
Country Club, Inc., that Section 69 of the Corporation
the expenses for the general operations of the club, and
Code specifically refers to unpaid subscriptions to capital
the maintenance and improvement of its premises and
stock, and not to any other debt of stockholders. With the
facilities, in addition to such fees as may be charged for
insinuation that Section 69 does not apply to unpaid
the actual use of the facilities x x x
membership dues in non-stock corporations, the
When Clemente became a member the monthly charge appellate court employed Article 1140 of the Civil Code as
stood at ₱400.00. He paid ₱3,000.00 for his monthly dues the proper rule of prescription. The provision sets the
on 21 March 1991 and another ₱5,400.00 on 9 December prescription period of actions to recover movables at eight
1991. Then he ceased paying the dues. At that point, his (8) years.
balance amounted to ₱400.00.4
The Court of Appeals also pointed out that since that
Ten (10) months later, Calatagan made the initial step to Calatagan’s first two demand letters had been returned to
collect Clemente’s back accounts by sending a demand it as sender with the notation about the closure of the
letter dated 21 September 1992. It was followed by a mailing address, it very well knew that its third and final
second letter dated 22 October 1992. Both letters were demand letter also sent to the same mailing address
sent to Clemente’s mailing address as indicated in his would not be received by Clemente. It noted the by-law
membership application but were sent back to sender with requirement that within ten (10) days after the Board has
the postal note that the address had been closed. 5 ordered the sale at auction of a member’s share of stock
Calatagan declared Clemente delinquent for having failed for indebtedness, the Corporate Secretary shall notify the
to pay his monthly dues for more than sixty (60) days, owner thereof and advise the Membership Committee of
specifically ₱5,600.00 as of 31 October 1992. Calatagan such fact. Finally, the Court of Appeals ratiocinated that
also included Clemente’s name in the list of delinquent "a person who is in danger of the imminent loss of his
members posted on the club’s bulletin board. On 1 property has the right to be notified and be given the
December 1992, Calatagan’s board of directors adopted chance to prevent the loss."12
a resolution authorizing the foreclosure of shares of Hence, the present appeal.
delinquent members, including Clemente’s; and the public
Calatagan maintains that the action of Clemente had
auction of these shares.
prescribed pursuant to Section 69 of the Corporation
On 7 December 1992, Calatagan sent a third and final Code, and that the requisite notices under both the law
letter to Clemente, this time signed by its Corporate and the by-laws had been rendered to Clemente.
Secretary, Atty. Benjamin Tanedo, Jr. The letter contains
Section 69 of the Code provides that an action to recover
a warning that unless Clemente settles his outstanding
delinquent stock sold must be commenced by the filing of
dues, his share would be included among the delinquent
44
a complaint within six (6) months from the date of sale. As By-laws that govern the payment of dues, the lapse into
correctly pointed out by the Court of Appeals, Section 69 delinquency of the member, and the constitution and
is part of Title VIII of the Code entitled "Stocks and execution on the lien. We quote these provisions:
Stockholders" and refers specifically to unpaid ARTICLE XII – MEMBER’S ACCOUNT
subscriptions to capital stock, the sale of which is
SEC. 31. (a) Billing Members, Posting of Delinquent
governed by the immediately preceding Section 68.
Members – The Treasurer shall bill al members monthly.
The Court of Appeals debunked both Calatagan’s and the As soon as possible after the end of every month, a
SEC’s reliance on Section 69 by citing another SEC ruling statement showing the account of bill of a member for said
in the case of Caram v. Valley Golf. In connection with month will be prepared and sent to him. If the bill of any
Section 69, Calatagan raises a peripheral point made in member remains unpaid by the 20th of the month
the SEC’s Caram ruling. In Caram, the SEC, using as following that in which the bill was incurred, the Treasurer
take-off Section 6 of the Corporation Code which refers to shall notify him that if his bill is not paid in full by the end
"such rights, privileges or restrictions as may be stated in of the succeeding month his name will be posted as
the articles of incorporation," pointed out that the Articles delinquent the following day at the Clubhouse bulletin
of Incorporation of Valley Golf does not "impose any lien, board. While posted, a member, the immediate members
liability or restriction on the Golf Share [of Caram]," but of his family, and his guests, may not avail of the facilities
only its (Valley Golf’s) By-Laws does. Here, Calatagan of the Club.
stresses that its own Articles of Incorporation does
(b) Members on the delinquent list for more than
provide that the monthly dues assessed on owners of
60 days shall be reported to the Board and their
shares of the corporation, along with all other obligations
shares or the shares of the juridical entities they
of the shareholders to the club, "shall constitute a first lien
represent shall thereafter be ordered sold by the
on the shares… and in the event of delinquency such
Board at auction to satisfy the claims of the Club
shares may be ordered sold by the Board of Directors in
as provided for in Section 32 hereon. A member
the manner provided in the By-Laws to satisfy said dues
may pay his overdue account at any time before
or other obligations of the shareholders."13 With its illative
the auction sale.
but incomprehensible logic, Calatagan concludes that the
prescriptive period under Section 69 should also apply to Sec. 32. Lien on Shares; Sale of Share at Auction- The
the sale of Clemente’s share as the lien that Calatagan club shall have a first lien on every share of stock to
perceives to be a restriction is stated in the articles of secure debts of the members to the Club. This lien shall
incorporation and not only in the by-laws. be annotated on the certificates of stock and may be
enforced by the Club in the following manner:
We remain unconvinced.
(a) Within ten (10) days after the Board has
There are fundamental differences that defy equivalence
ordered the sale at auction of a member’s share
or even analogy between the sale of delinquent stock
of stock for indebtedness under Section 31(b)
under Section 68 and the sale that occurred in this case.
hereof, the Secretary shall notify the owner
At the root of the sale of delinquent stock is the non-
thereof, and shall advise the Membership
payment of the subscription price for the share of stock
Committee of such fact.
itself. The stockholder or subscriber has yet to fully pay
for the value of the share or shares subscribed. In this (b) The Membership Committee shall then notify
case, Clemente had already fully paid for the share in all applicants on the Waiting List and all
Calatagan and no longer had any outstanding obligation registered stockholders of the availability of a
to deprive him of full title to his share. Perhaps the analogy share of stock for sale at auction at a specified
could have been made if Clemente had not yet fully paid date, time and place, and shall post a notice to
for his share and the non-stock corporation, pursuant to that effect in the Club bulletin board for at least
an article or by-law provision designed to address that ten (10) days prior to the auction sale.
situation, decided to sell such share as a consequence. (c) On the date and hour fixed, the Membership
But that is not the case here, and there is no purpose for Committee shall proceed with the auction by viva
us to apply Section 69 to the case at bar. voce bidding and award the sale of the share of
Calatagan argues in the alternative that Clemente’s suit is stock to the highest bidder.
barred by Article 1146 of the Civil Code which establishes (d) The purchase price shall be paid by the
four (4) years as the prescriptive period for actions based winning bidder to the Club within twenty-four (24)
upon injury to the rights of the plaintiff on the hypothesis hours after the bidding. The winning bidder or the
that the suit is purely for damages. As a second representative in the case of a juridical entity shall
alternative still, Calatagan posits that Clemente’s action is become a Regular Member upon payment of the
governed by Article 1149 of the Civil Code which sets five purchase price and issuance of a new stock
(5) years as the period of prescription for all other actions certificate in his name or in the name of the
whose prescriptive periods are not fixed in the Civil Code juridical entity he represents. The proceeds of the
or in any other law. Neither article is applicable but Article sale shall be paid by the Club to the selling
1140 of the Civil Code which provides that an action to stockholder after deducting his obligations to the
recover movables shall prescribe in eight (8) years. Club.
Calatagan’s action is for the recovery of a share of stock, (e) If no bids be received or if the winning bidder
plus damages. fails to pay the amount of this bid within twenty-
Calatagan’s advertence to the fact that the constitution of four (24) hours after the bidding, the auction
a lien on the member’s share by virtue of the explicit procedures may be repeated from time to time at
provisions in its Articles of Incorporation and By-Laws is the discretion of the Membership Committee until
relevant but ultimately of no help to its cause. Calatagan’s the share of stock be sold.
Articles of Incorporation states that the "dues, together (f) If the proceeds from the sale of the share of
with all other obligations of members to the club, shall stock are not sufficient to pay in full the
constitute a first lien on the shares, second only to any indebtedness of the member, the member shall
lien in favor of the national or local government, and in the continue to be obligated to the Club for the unpaid
event of delinquency such shares may be ordered sold by balance. If the member whose share of stock is
the Board of Directors in the manner provided in the By- sold fails or refuse to surrender the stock
Laws to satisfy said dues or other obligations of the certificate for cancellation, cancellation shall be
stockholders."14 In turn, there are several provisions in the effected in the books of the Club based on a
45
record of the proceedings. Such cancellation the Corporate Secretary – the chief repository of all
shall render the unsurrendered stock certificate corporate records – the obligation to check Clemente’s
null and void and notice to this effect shall be duly other address which, under the By-Laws, have to be kept
published. on file and are in fact on file. One obvious purpose of
It is plain that Calatagan had endeavored to install a clear giving the Corporate Secretary the duty to keep the
and comprehensive procedure to govern the payment of addresses of members on file is specifically for matters of
monthly dues, the declaration of a member as delinquent, this kind, when the member cannot be reached through
and the constitution of a lien on the shares and its his or her mailing address. Significantly, the Corporate
eventual public sale to answer for the member’s debts. Secretary does not have to do the actual verification of
Under Section 91 of the Corporation Code, membership other addressees on record; a mere clerk can do the very
in a non-stock corporation "shall be terminated in the simple task of checking the files as in fact clerks actually
manner and for the causes provided in the articles of undertake these tasks. In fact, one telephone call to
incorporation or the by-laws." The By-law provisions are Clemente’s phone numbers on file would have alerted him
elaborate in explaining the manner and the causes for the of his impending loss.
termination of membership in Calatagan, through the Ultimately, the petition must fail because Calatagan had
execution on the lien of the share. The Court is satisfied failed to duly observe both the spirit and letter of its own
that the By-Laws, as written, affords due protection to the by-laws. The by-law provisions was clearly conceived to
member by assuring that the member should be notified afford due notice to the delinquent member of the
by the Secretary of the looming execution sale that would impending sale, and not just to provide an intricate façade
terminate membership in the club. In addition, the By- that would facilitate Calatagan’s sale of the share. But
Laws guarantees that after the execution sale, the then, the bad faith on Calatagan’s part is palpable. As
proceeds of the sale would be returned to the former found by the Court of Appeals, Calatagan very well knew
member after deducting the outstanding obligations. If that Clemente’s postal box to which it sent its previous
followed to the letter, the termination of membership letters had already been closed, yet it persisted in sending
under this procedure outlined in the By-Laws would that final letter to the same postal box. What for? Just for
accord with substantial justice. the exercise, it appears, as it had known very well that the
Yet, did Calatagan actually comply with the by-law letter would never actually reach Clemente.1avvphi1
provisions when it sold Clemente’s share? The appellate It is noteworthy that Clemente in his membership
court’s finding on this point warrants our approving application had provided his residential address along
citation, thus: with his residence and office telephone numbers. Nothing
In accordance with this provision, Calatagan sent the third in Section 32 of Calatagan’s By-Laws requires that the
and final demand letter to Clemente on December 7, 1992. final notice prior to the sale be made solely through the
The letter states that if the amount of delinquency is not member’s mailing address. Clemente cites our aphorism-
paid, the share will be included among the delinquent like pronouncement in Rizal Commercial Banking
shares to be sold at public auction. This letter was signed Corporation v. Court of Appeals15 that "[a] simple
by Atty. Benjamin Tanedo, Jr., Calatagan Golf’s telephone call and an ounce of good faith x x x could have
Corporate Secretary. It was again sent to Clemente’s prevented this present controversy." That memorable
mailing address – Phimco Industries Inc., P.O. Box observation is quite apt in this case.
240, MCC Makati. As expected, it was returned because Calatagan’s bad faith and failure to observe its own By-
the post office box had been closed. Laws had resulted not merely in the loss of Clemente’s
Under the By-Laws, the Corporate Secretary is tasked to privilege to play golf at its golf course and avail of its
"give or cause to be given, all notices required by law or amenities, but also in significant pecuniary damage to him.
by these By-Laws. .. and … keep a record of the For that loss, the only blame that could be thrown
addresses of all stockholders. As quoted above, Sec. 32 Clemente’s way was his failure to notify Calatagan of the
(a) of the By-Laws further provides that "within ten (10) closure of the P.O. Box. That lapse, if we uphold
days after the Board has ordered the sale at auction of a Calatagan would cost Clemente a lot. But, in the first place,
member’s share of stock for indebtedness under Section does he deserve answerability for failing to notify the club
31 (b) hereof, the Secretary shall notify the owner thereof of the closure of the postal box? Indeed, knowing as he
and shall advise the Membership Committee of such did that Calatagan was in possession of his home address
fact.," The records do not disclose what report the as well as residence and office telephone numbers, he
Corporate Secretary transmitted to the Membership had every reason to assume that the club would not be at
Committee to comply with Section 32(a). Obviously, the a loss should it need to contact him. In addition, according
reason for this mandatory requirement is to give the to Clemente, he was not even aware of the closure of the
Membership Committee the opportunity to find out, before postal box, the maintenance of which was not his
the share is sold, if proper notice has been made to the responsibility but his employer Phimco’s.
shareholder member. The utter bad faith exhibited by Calatagan brings into
We presume that the Corporate Secretary, as a lawyer is operation Articles 19, 20 and 21 of the Civil Code,16 under
knowledgeable on the law and on the standards of good the Chapter on Human Relations. These provisions,
faith and fairness that the law requires. As custodian of which the Court of Appeals did apply, enunciate a general
corporate records, he should also have known that the obligation under law for every person to act fairly and in
first two letters sent to Clemente were returned because good faith towards one another. A non-stock corporation
the P.O. Box had been closed. Thus, we are surprised – like Calatagan is not exempt from that obligation in its
given his knowledge of the law and of corporate records treatment of its members. The obligation of a corporation
– that he would send the third and final letter – Clemente’s to treat every person honestly and in good faith extends
last chance before his share is sold and his membership even to its shareholders or members, even if the latter find
lost – to the same P.O. Box that had been closed. themselves contractually bound to perform certain
obligations to the corporation. A certificate of stock cannot
Calatagan argues that it "exercised due diligence before
be a charter of dehumanization.
the foreclosure sale" and "sent several notices to
Clemente’s specified mailing address." We do not agree; We turn to the matter of damages. The award of actual
we cannot label as due diligence Calatagan’s act of damages is of course warranted since Clemente has
sending the December 7, 1992 letter to Clemente’s sustained pecuniary injury by reason of Calatagan’s
mailing address knowing fully well that the P.O. Box had wrongful violation of its own By-Laws. It would not be
been closed. Due diligence or good faith imposes upon feasible to deliver Clemente’s original Certificate of Stock
46
because it had already been cancelled and a new one that such right shall be exercised by ABS-CBN
issued in its place in the name of the purchases at the from the actual offer in writing.
auction who was not impleaded in this case. However, the Viva, through defendant Del Rosario, offered
Court of Appeals instead directed that Calatagan to issue ABS-CBN, through its vice-president Charo
to Clemente a new certificate of stock. That sufficiently Santos-Concio, a list of three(3) film packages
redresses the actual damages sustained by Clemente. (36 title) from which ABS-CBN may exercise its
After all, the certificate of stock is simply the evidence of right of first refusal under the afore-said
the share. agreement (Exhs. "1" par, 2, "2," "2-A'' and "2-B"-
The Court of Appeals also awarded Clemente Viva). ABS-CBN, however through Mrs. Concio,
₱200,000.00 as moral damages, ₱100,000.00 as "can tick off only ten (10) titles" (from the list) "we
exemplary damages, and ₱100,000.00 as attorney’s fees. can purchase" (Exh. "3" - Viva) and therefore did
We agree that the award of such damages is warranted. not accept said list (TSN, June 8, 1992, pp. 9-10).
The Court of Appeals cited Calatagan for violation of The titles ticked off by Mrs. Concio are not the
Article 32 of the Civil Code, which allows recovery of subject of the case at bar except the film ''Maging
damages from any private individual "who directly or Sino Ka Man."
indirectly obstructs, defeats, violates or in any manner For further enlightenment, this rejection letter
impedes or impairs" the right "against deprivation of dated January 06, 1992 (Exh "3" - Viva) is hereby
property without due process of laws." The plain letter of quoted:
the provision squarely entitles Clemente to damages from 6 January 1992
Calatagan. Even without Article 32 itself, Calatagan will
Dear Vic,
still be bound to pay moral and exemplary damages to
Clemente. The latter was able to duly prove that he had This is not a very formal business letter I am
sustained mental anguish, serious anxiety and wounded writing to you as I would like to express my
feelings by reason of Calatagan’s acts, thereby entitling difficulty in recommending the purchase of the
him to moral damages under Article 2217 of the Civil Code. three film packages you are offering ABS-CBN.
Moreover, it is evident that Calatagan’s bad faith as From among the three packages I can only tick
exhibited in the off 10 titles we can purchase. Please see
course of its corporate actions warrants correction for the attached. I hope you will understand my position.
public good, thereby justifying exemplary damages under Most of the action pictures in the list do not have
Article 2229 of the Civil Code. big action stars in the cast. They are not for
primetime. In line with this I wish to mention that I
WHEREFORE, the petition is DENIED. The Decision of
have not scheduled for telecast several action
the Court of Appeals is AFFIRMED. Costs against
pictures in out very first contract because of the
petitioner.
cheap production value of these movies as well
SO ORDERED. as the lack of big action stars. As a film producer,
I am sure you understand what I am trying to say
as Viva produces only big action pictures.
In fact, I would like to request two (2) additional
runs for these movies as I can only schedule them
in our non-primetime slots. We have to cover the
ENTITLEMENT TO MORAL DAMAGES amount that was paid for these movies because
G.R. No. 128690 January 21, 1999 as you very well know that non-primetime
advertising rates are very low. These are the
ABS-CBN BROADCASTING
unaired titles in the first contract.
CORPORATION, petitioner,
vs. 1. Kontra Persa [sic].
HONORABLE COURT OF APPEALS, REPUBLIC 2. Raider Platoon.
BROADCASTING CORP, VIVA PRODUCTION, INC., 3. Underground guerillas
and VICENTE DEL ROSARIO, respondents.
4. Tiger Command
5. Boy de Sabog
DAVIDE, JR., CJ.:
6. Lady Commando
In this petition for review on certiorari, petitioner ABS-
7. Batang Matadero
CBN Broadcasting Corp. (hereafter ABS-CBN) seeks to
reverse and set aside the decision 1 of 31 October 1996 8. Rebelyon
and the resolution 2 of 10 March 1997 of the Court of I hope you will consider this request of mine.
Appeals in CA-G.R. CV No. 44125. The former affirmed The other dramatic films have been offered to us
with modification the decision 3 of 28 April 1993 of the before and have been rejected because of the
Regional Trial Court (RTC) of Quezon City, Branch 80, in ruling of MTRCB to have them aired at 9:00 p.m.
Civil Case No. Q-92-12309. The latter denied the motion due to their very adult themes.
to reconsider the decision of 31 October 1996.
As for the 10 titles I have choosen [sic] from the 3
The antecedents, as found by the RTC and adopted by packages please consider including all the other
the Court of Appeals, are as follows: Viva movies produced last year. I have quite an
In 1990, ABS-CBN and Viva executed a Film attractive offer to make.
Exhibition Agreement (Exh. "A") whereby Viva Thanking you and with my warmest regards.
gave ABS-CBN an exclusive right to exhibit some
Viva films. Sometime in December 1991, in
accordance with paragraph 2.4 [sic] of said (Signed)
agreement stating that —. Charo Santos-Concio
1.4 ABS-CBN shall have the right of first refusal On February 27, 1992, defendant Del Rosario
to the next twenty-four (24) Viva films for TV approached ABS-CBN's Ms. Concio, with a list consisting
telecast under such terms as may be agreed of 52 original movie titles (i.e. not yet aired on television)
upon by the parties hereto, provided, however, including the 14 titles subject of the present case, as well

47
as 104 re-runs (previously aired on television) from which of preliminary injunction and/or temporary restraining
ABS-CBN may choose another 52 titles, as a total of 156 order against private respondents Republic Broadcasting
titles, proposing to sell to ABS-CBN airing rights over this Corporation 5 (hereafter RBS ), Viva Production
package of 52 originals and 52 re-runs for (hereafter VIVA), and Vicente Del Rosario. The complaint
P60,000,000.00 of which P30,000,000.00 will be in cash was docketed as Civil Case No. Q-92-12309.
and P30,000,000.00 worth of television spots (Exh. "4" to On 27 May 1992, RTC issued a temporary restraining
"4-C" Viva; "9" -Viva). order 6 enjoining private respondents from proceeding
On April 2, 1992, defendant Del Rosario and with the airing, broadcasting, and televising of the
ABS-CBN general manager, Eugenio Lopez fourteen VIVA films subject of the controversy, starting
III, met at the Tamarind Grill Restaurant in with the film Maging Sino Ka Man, which was scheduled
Quezon City to discuss the package to be shown on private respondents RBS' channel 7 at
proposal of Viva. What transpired in that seven o'clock in the evening of said date.
lunch meeting is the subject of conflicting On 17 June 1992, after appropriate proceedings, the RTC
versions. Mr. Lopez testified that he and Mr. issued an
Del Rosario allegedly agreed that ABS-CRN order 7 directing the issuance of a writ of preliminary
was granted exclusive film rights to fourteen injunction upon ABS-CBN's posting of P35 million bond.
(14) films for a total consideration of P36 ABS-CBN moved for the reduction of the bond, 8 while
million; that he allegedly put this agreement private respondents moved for reconsideration of the
as to the price and number of films in a order and offered to put up a counterbound. 9
"napkin'' and signed it and gave it to Mr. Del
In the meantime, private respondents filed separate
Rosario (Exh. D; TSN, pp. 24-26, 77-78,
answers with counterclaim. 10 RBS also set up a cross-
June 8, 1992). On the other hand, Del
claim against VIVA..
Rosario denied having made any agreement
with Lopez regarding the 14 Viva films; On 3 August 1992, the RTC issued an order 11 dissolving
denied the existence of a napkin in which the writ of preliminary injunction upon the posting by RBS
Lopez wrote something; and insisted that of a P30 million counterbond to answer for whatever
what he and Lopez discussed at the lunch damages ABS-CBN might suffer by virtue of such
meeting was Viva's film package offer of 104 dissolution. However, it reduced petitioner's injunction
films (52 originals and 52 re-runs) for a total bond to P15 million as a condition precedent for the
price of P60 million. Mr. Lopez promising reinstatement of the writ of preliminary injunction should
[sic]to make a counter proposal which came private respondents be unable to post a counterbond.
in the form of a proposal contract Annex "C" At the pre-trial 12 on 6 August 1992, the parties, upon
of the complaint (Exh. "1"·- Viva; Exh. "C" - suggestion of the court, agreed to explore the possibility
ABS-CBN). of an amicable settlement. In the meantime, RBS prayed
On April 06, 1992, Del Rosario and Mr. for and was granted reasonable time within which to put
Graciano Gozon of RBS Senior vice- up a P30 million counterbond in the event that no
president for Finance discussed the terms settlement would be reached.
and conditions of Viva's offer to sell the 104 As the parties failed to enter into an amicable settlement
films, after the rejection of the same RBS posted on 1 October 1992 a counterbond, which the
package by ABS-CBN. RTC approved in its Order of 15 October 1992.13
On April 07, 1992, defendant Del Rosario On 19 October 1992, ABS-CBN filed a motion for
received through his secretary, a reconsideration 14 of the 3 August and 15 October 1992
handwritten note from Ms. Concio, (Exh. "5" Orders, which RBS opposed. 15
- Viva), which reads: "Here's the draft of the On 29 October 1992, the RTC conducted a pre-trial. 16
contract. I hope you find everything in order,"
Pending resolution of its motion for reconsideration, ABS-
to which was attached a draft exhibition
CBN filed with the Court of Appeals a
agreement (Exh. "C''- ABS-CBN; Exh. "9" -
petition17challenging the RTC's Orders of 3 August and 15
Viva, p. 3) a counter-proposal covering 53
October 1992 and praying for the issuance of a writ of
films, 52 of which came from the list sent by
defendant Del Rosario and one film was preliminary injunction to enjoin the RTC from enforcing
added by Ms. Concio, for a consideration of said orders. The case was docketed as CA-G.R. SP No.
29300.
P35 million. Exhibit "C" provides that ABS-
CBN is granted films right to 53 films and On 3 November 1992, the Court of Appeals issued a
contains a right of first refusal to "1992 Viva temporary restraining order18 to enjoin the airing,
Films." The said counter proposal was broadcasting, and televising of any or all of the films
however rejected by Viva's Board of involved in the controversy.
Directors [in the] evening of the same day, On 18 December 1992, the Court of Appeals promulgated
April 7, 1992, as Viva would not sell anything a decision 19 dismissing the petition in CA -G.R. No.
less than the package of 104 films for P60 29300 for being premature. ABS-CBN challenged the
million pesos (Exh. "9" - Viva), and such dismissal in a petition for review filed with this Court on 19
rejection was relayed to Ms. Concio. January 1993, which was docketed as G.R. No. 108363.
On April 29, 1992, after the rejection of ABS- In the meantime the RTC received the evidence for the
CBN and following several negotiations and parties in Civil Case No. Q-192-1209. Thereafter, on 28
meetings defendant Del Rosario and Viva's April 1993, it rendered a decision 20 in favor of RBS and
President Teresita Cruz, in consideration of VIVA and against ABS-CBN disposing as follows:
P60 million, signed a letter of agreement WHEREFORE, under cool reflection and
dated April 24, 1992. granting RBS the prescinding from the foregoing,
exclusive right to air 104 Viva-produced judgments is rendered in favor of
and/or acquired films (Exh. "7-A" - RBS; Exh. defendants and against the plaintiff.
"4" - RBS) including the fourteen (14) films
subject of the present case. 4 (1) The complaint is hereby dismissed;
On 27 May 1992, ABS-CBN filed before the RTC a (2) Plaintiff ABS-CBN is ordered to pay
complaint for specific performance with a prayer for a writ defendant RBS the following:

48
a) P107,727.00, the amount period of fifteen (15) days from
of premium paid by RBS to the actual offer in writing
the surety which issued (Records, p. 14).
defendant RBS's bond to lift [H]owever, it is very clear that said right
the injunction; of first refusal in favor of ABS-CBN shall
b) P191,843.00 for the still be subject to such terms as may be
amount of print agreed upon by the parties thereto, and
advertisement for "Maging that the said right shall be exercised by
Sino Ka Man" in various ABS-CBN within fifteen (15) days from
newspapers; the actual offer in writing.
c) Attorney's fees in the Said parag. 1.4 of the agreement Exhibit
amount of P1 million; "A" on the right of first refusal did not fix
d) P5 million as and by way the price of the film right to the twenty-
of moral damages; four (24) films, nor did it specify the terms
thereof. The same are still left to be
e) P5 million as and by way
agreed upon by the parties.
of exemplary damages;
In the instant case, ABS-CBN's letter of
(3) For defendant VIVA, plaintiff ABS-
rejection Exhibit 3 (Records, p. 89) stated
CBN is ordered to pay P212,000.00 by
that it can only tick off ten (10) films, and
way of reasonable attorney's fees.
the draft contract Exhibit "C" accepted
(4) The cross-claim of defendant RBS only fourteen (14) films, while parag. 1.4
against defendant VIVA is dismissed. of Exhibit "A'' speaks of the next twenty-
(5) Plaintiff to pay the costs. four (24) films.
According to the RTC, there was no meeting of minds on The offer of V1VA was sometime in
the price and terms of the offer. The alleged agreement December 1991 (Exhibits 2, 2-A. 2-B;
between Lopez III and Del Rosario was subject to the Records, pp. 86-88; Decision, p. 11,
approval of the VIVA Board of Directors, and said Records, p. 1150), when the first list of
agreement was disapproved during the meeting of the VIVA films was sent by Mr. Del Rosario
Board on 7 April 1992. Hence, there was no basis for to ABS-CBN. The Vice President of ABS-
ABS-CBN's demand that VIVA signed the 1992 Film CBN, Ms. Charo Santos-Concio, sent a
Exhibition Agreement. Furthermore, the right of first letter dated January 6, 1992 (Exhibit 3,
refusal under the 1990 Film Exhibition Agreement had Records, p. 89) where ABS-CBN
previously been exercised per Ms. Concio's letter to Del exercised its right of refusal by rejecting
Rosario ticking off ten titles acceptable to them, which the offer of VIVA.. As aptly observed by
would have made the 1992 agreement an entirely new the trial court, with the said letter of Mrs.
contract. Concio of January 6, 1992, ABS-CBN
On 21 June 1993, this Court denied21 ABS-CBN's petition had lost its right of first refusal. And even
for review in G.R. No. 108363, as no reversible error was if We reckon the fifteen (15) day period
committed by the Court of Appeals in its challenged from February 27, 1992 (Exhibit 4 to 4-C)
decision and the case had "become moot and academic when another list was sent to ABS-CBN
in view of the dismissal of the main action by the court a after the letter of Mrs. Concio, still the
quo in its decision" of 28 April 1993. fifteen (15) day period within which ABS-
CBN shall exercise its right of first refusal
Aggrieved by the RTC's decision, ABS-CBN appealed to has already expired.22
the Court of Appeals claiming that there was a perfected
contract between ABS-CBN and VIVA granting ABS-CBN Accordingly, respondent court sustained the award of
the exclusive right to exhibit the subject films. Private actual damages consisting in the cost of print
respondents VIVA and Del Rosario also appealed advertisements and the premium payments for the
seeking moral and exemplary damages and additional counterbond, there being adequate proof of the pecuniary
attorney's fees. loss which RBS had suffered as a result of the filing of the
complaint by ABS-CBN. As to the award of moral
In its decision of 31 October 1996, the Court of Appeals damages, the Court of Appeals found reasonable basis
agreed with the RTC that the contract between ABS-CBN
therefor, holding that RBS's reputation was debased by
and VIVA had not been perfected, absent the approval by
the filing of the complaint in Civil Case No. Q-92-12309
the VIVA Board of Directors of whatever Del Rosario, it's
and by the non-showing of the film "Maging Sino Ka Man."
agent, might have agreed with Lopez III. The appellate
Respondent court also held that exemplary damages
court did not even believe ABS-CBN's evidence that were correctly imposed by way of example or correction
Lopez III actually wrote down such an agreement on a for the public good in view of the filing of the complaint
"napkin," as the same was never produced in court. It
despite petitioner's knowledge that the contract with VIVA
likewise rejected ABS-CBN's insistence on its right of first
had not been perfected, It also upheld the award of
refusal and ratiocinated as follows:
attorney's fees, reasoning that with ABS-CBN's act of
As regards the matter of right of first refusal, it instituting Civil Case No, Q-92-1209, RBS was
may be true that a Film Exhibition Agreement "unnecessarily forced to litigate." The appellate court,
was entered into between Appellant ABS-CBN however, reduced the awards of moral damages to P2
and appellant VIVA under Exhibit "A" in 1990, million, exemplary damages to P2 million, and attorney's
and that parag. 1.4 thereof provides: fees to P500, 000.00.
1.4 ABS-CBN shall have the On the other hand, respondent Court of Appeals denied
right of first refusal to the next VIVA and Del Rosario's appeal because it was "RBS and
twenty-four (24) VIVA films for not VIVA which was actually prejudiced when the
TV telecast under such terms as complaint was filed by ABS-CBN."
may be agreed upon by the
Its motion for reconsideration having been denied, ABS-
parties hereto, provided,
CBN filed the petition in this case, contending that the
however, that such right shall be
Court of Appeals gravely erred in
exercised by ABS-CBN within a
49
I for redress of wrongs is a matter of public policy. The law
. . . RULING THAT THERE WAS NO recognizes the right of every one to sue for that which he
PERFECTED CONTRACT BETWEEN honestly believes to be his right without fear of standing
PETITIONER AND PRIVATE trial for damages where by lack of sufficient evidence,
RESPONDENT VIVA legal technicalities, or a different interpretation of the laws
NOTWITHSTANDING on the matter, the case would lose ground. 28 One who
PREPONDERANCE OF EVIDENCE makes use of his own legal right does no injury. 29 If
ADDUCED BY PETITIONER TO THE damage results front the filing of the complaint, it
CONTRARY. is damnum absque injuria. 30 Besides, moral damages
are generally not awarded in favor of a juridical person,
II
unless it enjoys a good reputation that was debased by
. . . IN AWARDING ACTUAL AND the offending party resulting in social humiliation.31
COMPENSATORY DAMAGES IN
As regards the award of attorney's fees, ABS-CBN
FAVOR OF PRIVATE RESPONDENT
maintains that the same had no factual, legal, or equitable
RBS.
justification. In sustaining the trial court's award, the Court
III of Appeals acted in clear disregard of the doctrines laid
. . . IN AWARDING MORAL AND down in Buan v. Camaganacan 32 that the text of the
EXEMPLARY DAMAGES IN FAVOR OF decision should state the reason why attorney's fees are
PRIVATE RESPONDENT RBS. being awarded; otherwise, the award should be
IV disallowed. Besides, no bad faith has been imputed on,
much less proved as having been committed by, ABS-
. . . IN AWARDING ATTORNEY'S FEES CBN. It has been held that "where no sufficient showing
IN FAVOR OF RBS. of bad faith would be reflected in a party' s persistence in
ABS-CBN claims that it had yet to fully exercise its right of a case other than an erroneous conviction of the
first refusal over twenty-four titles under the 1990 Film righteousness of his cause, attorney's fees shall not be
Exhibition Agreement, as it had chosen only ten titles from recovered as cost." 33
the first list. It insists that we give credence to Lopez's On the other hand, RBS asserts that there was no
testimony that he and Del Rosario met at the Tamarind perfected contract between ABS-CBN and VIVA absent
Grill Restaurant, discussed the terms and conditions of
any meeting of minds between them regarding the object
the second list (the 1992 Film Exhibition Agreement) and
and consideration of the alleged contract. It affirms that
upon agreement thereon, wrote the same on a paper
the ABS-CBN's claim of a right of first refusal was
napkin. It also asserts that the contract has already been
correctly rejected by the trial court. RBS insist the
effective, as the elements thereof, namely, consent, premium it had paid for the counterbond constituted a
object, and consideration were established. It then pecuniary loss upon which it may recover. It was obliged
concludes that the Court of Appeals' pronouncements
to put up the counterbound due to the injunction procured
were not supported by law and jurisprudence, as per our
by ABS-CBN. Since the trial court found that ABS-CBN
decision of 1 December 1995 in Limketkai Sons Milling,
had no cause of action or valid claim against RBS and,
Inc. v. Court of Appeals, 23 which cited Toyota Shaw, Inc.
therefore not entitled to the writ of injunction, RBS could
v. Court of Appeals, 24 Ang Yu Asuncion v. Court of
recover from ABS-CBN the premium paid on the
Appeals, 25 and Villonco Realty Company v. Bormaheco.
counterbond. Contrary to the claim of ABS-CBN, the cash
Inc.26
bond would prove to be more expensive, as the loss
Anent the actual damages awarded to RBS, ABS-CBN would be equivalent to the cost of money RBS would
disavows liability therefor. RBS spent for the premium on forego in case the P30 million came from its funds or was
the counterbond of its own volition in order to negate the borrowed from banks.
injunction issued by the trial court after the parties had RBS likewise asserts that it was entitled to the cost of
ventilated their respective positions during the hearings
advertisements for the cancelled showing of the film
for the purpose. The filing of the counterbond was an
"Maging Sino Ka Man" because the print advertisements
option available to RBS, but it can hardly be argued that
were put out to announce the showing on a particular day
ABS-CBN compelled RBS to incur such expense. and hour on Channel 7, i.e., in its entirety at one time, not
Besides, RBS had another available option, i.e., move for
a series to be shown on a periodic basis. Hence, the print
the dissolution or the injunction; or if it was determined to advertisement were good and relevant for the particular
put up a counterbond, it could have presented a cash
date showing, and since the film could not be shown on
bond. Furthermore under Article 2203 of the Civil Code,
that particular date and hour because of the injunction, the
the party suffering loss or injury is also required to
expenses for the advertisements had gone to waste.
exercise the diligence of a good father of a family to
minimize the damages resulting from the act or omission. As regards moral and exemplary damages, RBS asserts
As regards the cost of print advertisements, RBS had not that ABS-CBN filed the case and secured injunctions
convincingly established that this was a loss attributable purely for the purpose of harassing and prejudicing RBS.
to the non showing "Maging Sino Ka Man"; on the contrary, Pursuant then to Article 19 and 21 of the Civil Code, ABS-
it was brought out during trial that with or without the case CBN must be held liable for such
or the injunction, RBS would have spent such an amount damages. Citing Tolentino,34 damages may be awarded
to generate interest in the film. in cases of abuse of rights even if the act done is not illicit
and there is abuse of rights were plaintiff institutes and
ABS-CBN further contends that there was no clear basis action purely for the purpose of harassing or prejudicing
for the awards of moral and exemplary damages. The
the defendant.
controversy involving ABS-CBN and RBS did not in any
way originate from business transaction between them. In support of its stand that a juridical entity can recover
The claims for such damages did not arise from any moral and exemplary damages, private respondents
contractual dealings or from specific acts committed by RBS cited People v. Manero,35 where it was stated that
ABS-CBN against RBS that may be characterized as such entity may recover moral and exemplary damages if
wanton, fraudulent, or reckless; they arose by virtue only it has a good reputation that is debased resulting in social
of the filing of the complaint, An award of moral and humiliation. it then ratiocinates; thus:
exemplary damages is not warranted where the record is There can be no doubt that RBS'
bereft of any proof that a party acted maliciously or in bad reputation has been debased by ABS-
faith in filing an action. 27 In any case, free resort to courts CBN's acts in this case. When RBS was
50
not able to fulfill its commitment to the negotiation and bargaining, ending at the
viewing public to show the film "Maging moment of agreement of the parties;
Sino Ka Man" on the scheduled dates (b) perfection or birth of the contract,
and times (and on two occasions that which is the moment when the parties
RBS advertised), it suffered serious come to agree on the terms of the
embarrassment and social humiliation. contract; and
When the showing was canceled, late
(c) consummation or death, which is the
viewers called up RBS' offices and
fulfillment or performance of the terms
subjected RBS to verbal abuse
agreed upon in the contract. 39
("Announce kayo nang announce, hindi
ninyo naman ilalabas," "nanloloko yata Contracts that are consensual in nature are perfected
kayo") (Exh. 3-RBS, par. 3). This alone upon mere meeting of the minds, Once there is
was not something RBS brought upon concurrence between the offer and the acceptance upon
itself. it was exactly what ABS-CBN had the subject matter, consideration, and terms of payment a
planned to happen. contract is produced. The offer must be certain. To
convert the offer into a contract, the acceptance must be
The amount of moral and exemplary
absolute and must not qualify the terms of the offer; it
damages cannot be said to be excessive.
must be plain, unequivocal, unconditional, and without
Two reasons justify the amount of the
variance of any sort from the proposal. A qualified
award.
acceptance, or one that involves a new proposal,
The first is that the humiliation suffered by constitutes a counter-offer and is a rejection of the original
RBS is national extent. RBS operations offer. Consequently, when something is desired which is
as a broadcasting company is [sic] not exactly what is proposed in the offer, such acceptance
nationwide. Its clientele, like that of ABS- is not sufficient to generate consent because any
CBN, consists of those who own and modification or variation from the terms of the offer annuls
watch television. It is not an exaggeration the offer.40
to state, and it is a matter of judicial notice
When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-
that almost every other person in the
CBN at the Tamarind Grill on 2 April 1992 to discuss the
country watches television. The
package of films, said package of 104 VIVA films was
humiliation suffered by RBS is multiplied
VIVA's offer to ABS-CBN to enter into a new Film
by the number of televiewers who had
Exhibition Agreement. But ABS-CBN, sent, through Ms.
anticipated the showing of the film
Concio, a counter-proposal in the form of a draft contract
"Maging Sino Ka Man" on May 28 and
proposing exhibition of 53 films for a consideration of P35
November 3, 1992 but did not see it
million. This counter-proposal could be nothing less than
owing to the cancellation. Added to this
the counter-offer of Mr. Lopez during his conference with
are the advertisers who had placed
Del Rosario at Tamarind Grill Restaurant. Clearly, there
commercial spots for the telecast and to
was no acceptance of VIVA's offer, for it was met by a
whom RBS had a commitment in
counter-offer which substantially varied the terms of the
consideration of the placement to show
offer.
the film in the dates and times specified.
ABS-CBN's reliance in Limketkai Sons Milling, Inc.
The second is that it is a competitor that
v. Court of
caused RBS to suffer the humiliation.
Appeals 41 and Villonco Realty Company v. Bormaheco,
The humiliation and injury are far greater
Inc., 42 is misplaced. In these cases, it was held that an
in degree when caused by an entity
acceptance may contain a request for certain changes in
whose ultimate business objective is to
the terms of the offer and yet be a binding acceptance as
lure customers (viewers in this case)
long as "it is clear that the meaning of the acceptance is
away from the competition. 36
positively and unequivocally to accept the offer, whether
For their part, VIVA and Vicente del Rosario contend that such request is granted or not." This ruling was, however,
the findings of fact of the trial court and the Court of reversed in the resolution of 29 March 1996, 43 which
Appeals do not support ABS-CBN's claim that there was ruled that the acceptance of all offer must be unqualified
a perfected contract. Such factual findings can no longer and absolute, i.e., it "must be identical in all respects with
be disturbed in this petition for review under Rule 45, as that of the offer so as to produce consent or meeting of
only questions of law can be raised, not questions of fact. the minds."
On the issue of damages and attorneys fees, they
On the other hand, in Villonco, cited in Limketkai, the
adopted the arguments of RBS.
alleged changes in the revised counter-offer were not
The key issues for our consideration are (1) whether there material but merely clarificatory of what had previously
was a perfected contract between VIVA and ABS-CBN, been agreed upon. It cited the statement in Stuart
and (2) whether RBS is entitled to damages and v. Franklin Life Insurance Co.44 that "a vendor's change in
attorney's fees. It may be noted that the award of a phrase of the offer to purchase, which change does not
attorney's fees of P212,000 in favor of VIVA is not essentially change the terms of the offer, does not amount
assigned as another error. to a rejection of the offer and the tender of a counter-
I. offer." 45However, when any of the elements of the
The first issue should be resolved against ABS-CBN. A contract is modified upon acceptance, such alteration
contract is a meeting of minds between two persons amounts to a counter-offer.
whereby one binds himself to give something or to render In the case at bar, ABS-CBN made no unqualified
some service to another 37 for a consideration. there is no acceptance of VIVA's offer. Hence, they underwent a
contract unless the following requisites concur: (1) period of bargaining. ABS-CBN then formalized its
consent of the contracting parties; (2) object certain which counter-proposals or counter-offer in a draft contract,
is the subject of the contract; and (3) cause of the VIVA through its Board of Directors, rejected such
obligation, which is established.38 A contract undergoes counter-offer, Even if it be conceded arguendo that Del
three stages: Rosario had accepted the counter-offer, the acceptance
(a) preparation, conception, or did not bind VIVA, as there was no proof whatsoever that
generation, which is the period of Del Rosario had the specific authority to do so.

51
Under Corporation Code,46 unless otherwise provided by had already earmarked
said Code, corporate powers, such as the power; to enter this P16, 050,000.00.
into contracts; are exercised by the Board of Directors. which gives a total consideration of P36
However, the Board may delegate such powers to either million (P19,950,000.00 plus
an executive committee or officials or contracted P16,050,000.00. equals
managers. The delegation, except for the executive P36,000,000.00).
committee, must be for specific purposes, 47 Delegation to
On cross-examination Mr. Lopez testified:
officers makes the latter agents of the corporation;
accordingly, the general rules of agency as to the bindings Q. What was written in
effects of their acts would this napkin?
apply. 48 For such officers to be deemed fully clothed by A. The total price, the
the corporation to exercise a power of the Board, the latter breakdown the known
must specially authorize them to do so. That Del Rosario Viva movies, the 7
did not have the authority to accept ABS-CBN's counter- blockbuster movies and
offer was best evidenced by his submission of the draft the other 7 Viva movies
contract to VIVA's Board of Directors for the latter's because the price was
approval. In any event, there was between Del Rosario broken down
and Lopez III no meeting of minds. The following findings accordingly. The none
of the trial court are instructive: [sic] Viva and the seven
A number of considerations militate other Viva movies and
against ABS-CBN's claim that a contract the sharing between the
was perfected at that lunch meeting on cash portion and the
April 02, 1992 at the Tamarind Grill. concerned spot portion
in the total amount of
FIRST, Mr. Lopez claimed that what was
P35 million pesos.
agreed upon at the Tamarind Grill
referred to the price and the number of Now, which is which? P36 million or P35
films, which he wrote on a napkin. million? This weakens ABS-CBN's claim.
However, Exhibit "C" contains numerous FOURTH. Mrs. Concio, testifying for
provisions which, were not discussed at ABS-CBN stated that she transmitted
the Tamarind Grill, if Lopez testimony Exhibit "C" to Mr. Del Rosario with a
was to be believed nor could they have handwritten note, describing said Exhibit
been physically written on a napkin. "C" as a "draft." (Exh. "5" - Viva; tsn pp.
There was even doubt as to whether it 23-24 June 08, 1992). The said draft has
was a paper napkin or a cloth napkin. In a well defined meaning.
short what were written in Exhibit "C'' Since Exhibit "C" is only a draft, or a
were not discussed, and therefore could tentative, provisional or preparatory
not have been agreed upon, by the writing prepared for discussion, the terms
parties. How then could this court compel and conditions thereof could not have
the parties to sign Exhibit "C" when the been previously agreed upon by ABS-
provisions thereof were not previously CBN and Viva Exhibit "C'' could not
agreed upon? therefore legally bind Viva, not having
SECOND, Mr. Lopez claimed that what agreed thereto. In fact, Ms. Concio
was agreed upon as the subject matter of admitted that the terms and conditions
the contract was 14 films. The complaint embodied in Exhibit "C" were prepared
in fact prays for delivery of 14 films. But by ABS-CBN's lawyers and there was no
Exhibit "C" mentions 53 films as its discussion on said terms and
subject matter. Which is which If Exhibits conditions. . . .
"C" reflected the true intent of the parties, As the parties had not yet discussed the
then ABS-CBN's claim for 14 films in its proposed terms and conditions in Exhibit
complaint is false or if what it alleged in "C," and there was no evidence
the complaint is true, then Exhibit "C" did whatsoever that Viva agreed to the terms
not reflect what was agreed upon by the and conditions thereof, said document
parties. This underscores the fact that cannot be a binding contract. The fact
there was no meeting of the minds as to that Viva refused to sign Exhibit "C"
the subject matter of the contracts, so as reveals only two [sic] well that it did not
to preclude perfection thereof. For settled agree on its terms and conditions, and
is the rule that there can be no contract this court has no authority to compel Viva
where there is no object which is its to agree thereto.
subject matter (Art. 1318, NCC).
FIFTH. Mr. Lopez understand [sic] that
THIRD, Mr. Lopez [sic] answer to what he and Mr. Del Rosario agreed
question 29 of his affidavit testimony upon at the Tamarind Grill was only
(Exh. "D") states: provisional, in the sense that it was
We were able to reach subject to approval by the Board of
an agreement. VIVA Directors of Viva. He testified:
gave us the exclusive Q. Now, Mr. Witness,
license to show these and after that Tamarind
fourteen (14) films, and meeting ... the second
we agreed to pay Viva meeting wherein you
the amount of claimed that you have
P16,050,000.00 as well the meeting of the minds
as grant Viva between you and Mr. Vic
commercial slots worth del Rosario, what
P19,950,000.00. We happened?
52
A. Vic Del Rosario was [T]he subsequent negotiation with ABS-
supposed to call us up CBN two (2) months after this letter was
and tell us specifically sent, was for an entirely different
the result of the package. Ms. Concio herself admitted on
discussion with the cross-examination to having used or
Board of Directors. exercised the right of first refusal. She
Q. And you are referring stated that the list was not acceptable
to the so-called and was indeed not accepted by ABS-
agreement which you CBN, (TSN, June 8, 1992, pp. 8-10).
wrote in [sic] a piece of Even Mr. Lopez himself admitted that the
paper? right of the first refusal may have been
already exercised by Ms. Concio (as she
A. Yes, sir.
had). (TSN, June 8, 1992, pp. 71-75). Del
Q. So, he was going to Rosario himself knew and understand
forward that to the board [sic] that ABS-CBN has lost its rights of
of Directors for approval? the first refusal when his list of 36 titles
A. Yes, sir. (Tsn, pp. 42- were rejected (Tsn, June 9, 1992, pp. 10-
43, June 8, 1992) 11) 50
Q. Did Mr. Del Rosario II
tell you that he will However, we find for ABS-CBN on the issue of damages.
submit it to his Board for We shall first take up actual damages. Chapter 2, Title
approval? XVIII, Book IV of the Civil Code is the specific law on
A. Yes, sir. (Tsn, p. 69, actual or compensatory damages. Except as provided by
June 8, 1992). law or by stipulation, one is entitled to compensation for
The above testimony of Mr. Lopez shows actual damages only for such pecuniary loss suffered by
beyond doubt that he knew Mr. Del him as he has duly proved. 51 The indemnification shall
Rosario had no authority to bind Viva to comprehend not only the value of the loss suffered, but
a contract with ABS-CBN until and unless also that of the profits that the obligee failed to obtain. 52 In
its Board of Directors approved it. The contracts and quasi-contracts the damages which may be
complaint, in fact, alleges that Mr. Del awarded are dependent on whether the obligor acted with
Rosario "is the Executive Producer of good faith or otherwise, It case of good faith, the damages
defendant Viva" which "is a corporation." recoverable are those which are the natural and probable
(par. 2, complaint). As a mere agent of consequences of the breach of the obligation and which
Viva, Del Rosario could not bind Viva the parties have foreseen or could have reasonably
unless what he did is ratified by its Board foreseen at the time of the constitution of the obligation. If
of Directors. (Vicente vs. Geraldez, 52 the obligor acted with fraud, bad faith, malice, or wanton
SCRA 210; Arnold vs. Willetsand attitude, he shall be responsible for all damages which
Paterson, 44 Phil. 634). As a mere agent, may be reasonably attributed to the non-performance of
recognized as such by plaintiff, Del the obligation. 53 In crimes and quasi-delicts, the
Rosario could not be held liable jointly defendant shall be liable for all damages which are the
and severally with Viva and his inclusion natural and probable consequences of the act or omission
as party defendant has no legal basis. complained of, whether or not such damages has been
(Salonga vs. Warner Barner [sic] , foreseen or could have reasonably been foreseen by the
COLTA , 88 Phil. 125; Salmon vs. Tan, defendant.54
36 Phil. 556). Actual damages may likewise be recovered for loss or
The testimony of Mr. Lopez and the impairment of earning capacity in cases of temporary or
allegations in the complaint are clear permanent personal injury, or for injury to the plaintiff's
admissions that what was supposed to business standing or commercial credit.55
have been agreed upon at the Tamarind The claim of RBS for actual damages did not arise from
Grill between Mr. Lopez and Del Rosario contract, quasi-contract, delict, or quasi-delict. It arose
was not a binding agreement. It is as it from the fact of filing of the complaint despite ABS-CBN's
should be because corporate power to alleged knowledge of lack of cause of action. Thus
enter into a contract is lodged in the paragraph 12 of RBS's Answer with Counterclaim and
Board of Directors. (Sec. 23, Corporation Cross-claim under the heading COUNTERCLAIM
Code). Without such board approval by specifically alleges:
the Viva board, whatever agreement 12. ABS-CBN filed the complaint
Lopez and Del Rosario arrived at could knowing fully well that it has no cause of
not ripen into a valid contract binding action RBS. As a result thereof, RBS
upon Viva (Yao Ka Sin Trading vs. Court suffered actual damages in the amount of
of Appeals, 209 SCRA 763). The P6,621,195.32. 56
evidence adduced shows that the Board
Needless to state the award of actual damages cannot be
of Directors of Viva rejected Exhibit "C"
comprehended under the above law on actual damages.
and insisted that the film package for 140
RBS could only probably take refuge under Articles 19, 20,
films be maintained (Exh. "7-1" - Viva ). 49
and 21 of the Civil Code, which read as follows:
The contention that ABS-CBN had yet to fully exercise its
Art. 19. Every person must, in the
right of first refusal over twenty-four films under the 1990
exercise of his rights and in the
Film Exhibition Agreement and that the meeting between
performance of his duties, act with justice,
Lopez and Del Rosario was a continuation of said
give everyone his due, and observe
previous contract is untenable. As observed by the trial
honesty and good faith.
court, ABS-CBN right of first refusal had already been
exercised when Ms. Concio wrote to VIVA ticking off ten Art. 20. Every person who, contrary to
films, Thus: law, wilfully or negligently causes

53
damage to another, shall indemnify the having existence only in legal contemplation, it has no
latter for tile same. feelings, no emotions, no senses, It cannot, therefore,
Art. 21. Any person who wilfully causes experience physical suffering and mental anguish, which
loss or injury to another in a manner that call be experienced only by one having a nervous
is contrary to morals, good customs or system. 65 The statement in People
public policy shall compensate the latter v. Manero 66 and Mambulao Lumber Co. v. PNB 67 that a
for the damage. corporation may recover moral damages if it "has a good
reputation that is debased, resulting in social humiliation"
It may further be observed that in cases where a writ of
is an obiter dictum. On this score alone the award for
preliminary injunction is issued, the damages which the
damages must be set aside, since RBS is a corporation.
defendant may suffer by reason of the writ are
recoverable from the injunctive bond. 57 In this case, ABS- The basic law on exemplary damages is Section 5,
CBN had not yet filed the required bond; as a matter of Chapter 3, Title XVIII, Book IV of the Civil Code. These
fact, it asked for reduction of the bond and even went to are imposed by way of example or correction for the public
the Court of Appeals to challenge the order on the matter, good, in addition to moral, temperate, liquidated or
Clearly then, it was not necessary for RBS to file a compensatory damages. 68 They are recoverable in
counterbond. Hence, ABS-CBN cannot be held criminal cases as part of the civil liability when the crime
responsible for the premium RBS paid for the was committed with one or more aggravating
counterbond. circumstances; 69 in quasi-contracts, if the defendant
acted with gross negligence; 70 and in contracts and
Neither could ABS-CBN be liable for the print
quasi-contracts, if the defendant acted in a wanton,
advertisements for "Maging Sino Ka Man" for lack of
fraudulent, reckless, oppressive, or malevolent manner. 71
sufficient legal basis. The RTC issued a temporary
restraining order and later, a writ of preliminary injunction It may be reiterated that the claim of RBS against ABS-
on the basis of its determination that there existed CBN is not based on contract, quasi-contract, delict, or
sufficient ground for the issuance thereof. Notably, the quasi-delict, Hence, the claims for moral and exemplary
RTC did not dissolve the injunction on the ground of lack damages can only be based on Articles 19, 20, and 21 of
of legal and factual basis, but because of the plea of RBS the Civil Code.
that it be allowed to put up a counterbond. The elements of abuse of right under Article 19 are the
As regards attorney's fees, the law is clear that in the following: (1) the existence of a legal right or duty, (2)
absence of stipulation, attorney's fees may be recovered which is exercised in bad faith, and (3) for the sole intent
as actual or compensatory damages under any of the of prejudicing or injuring another. Article 20 speaks of the
circumstances provided for in Article 2208 of the Civil general sanction for all other provisions of law which do
Code. 58 not especially provide for their own sanction; while Article
21 deals with acts contra bonus mores, and has the
The general rule is that attorney's fees cannot be
following elements; (1) there is an act which is legal, (2)
recovered as part of damages because of the policy that
but which is contrary to morals, good custom, public order,
no premium should be placed on the right to
or public policy, and (3) and it is done with intent to
litigate.59 They are not to be awarded every time a party
injure. 72
wins a suit. The power of the court to award attorney's
fees under Article 2208 demands factual, legal, and Verily then, malice or bad faith is at the core of Articles 19,
equitable justification.60Even when claimant is compelled 20, and 21. Malice or bad faith implies a conscious and
to litigate with third persons or to incur expenses to protect intentional design to do a wrongful act for a dishonest
his rights, still attorney's fees may not be awarded where purpose or moral obliquity. 73 Such must be substantiated
no sufficient showing of bad faith could be reflected in a by evidence. 74
party's persistence in a case other than erroneous There is no adequate proof that ABS-CBN was inspired
conviction of the righteousness of his cause. 61 by malice or bad faith. It was honestly convinced of the
As to moral damages the law is Section 1, Chapter 3, Title merits of its cause after it had undergone serious
XVIII, Book IV of the Civil Code. Article 2217 thereof negotiations culminating in its formal submission of a draft
defines what are included in moral damages, while Article contract. Settled is the rule that the adverse result of an
2219 enumerates the cases where they may be action does not per se make the action wrongful and
recovered, Article 2220 provides that moral damages may subject the actor to damages, for the law could not have
be recovered in breaches of contract where the defendant meant to impose a penalty on the right to litigate. If
acted fraudulently or in bad faith. RBS's claim for moral damages result from a person's exercise of a right, it
damages could possibly fall only under item (10) of Article is damnum absque injuria.75
2219, thereof which reads: WHEREFORE, the instant petition is GRANTED. The
(10) Acts and actions referred to in challenged decision of the Court of Appeals in CA-G.R.
Articles 21, 26, 27, 28, 29, 30, 32, 34, and CV No, 44125 is hereby REVERSED except as to
35. unappealed award of attorney's fees in favor of VIVA
Productions, Inc.1âwphi1.nêt
Moral damages are in the category of an award designed
to compensate the claimant for actual injury suffered. and No pronouncement as to costs.
not to impose a penalty on the wrongdoer.62 The award is SO ORDERED.
not meant to enrich the complainant at the expense of the
defendant, but to enable the injured party to obtain means,
diversion, or amusements that will serve to obviate then
moral suffering he has undergone. It is aimed at the
G.R. No. 128066 June 19, 2000
restoration, within the limits of the possible, of the
spiritual status quo ante, and should be proportionate to JARDINE DAVIES INC., petitioner,
the suffering inflicted.63 Trial courts must then guard vs.
against the award of exorbitant damages; they should COURT OF APPEALS and FAR EAST MILLS SUPPLY
exercise balanced restrained and measured objectivity to CORPORATION, respondents.
avoid suspicion that it was due to passion, prejudice, or x - - - - - - - - - - - - - - - - - - - - - - -x
corruption on the part of the trial court. 64 G.R. No. 128069
The award of moral damages cannot be granted in favor PURE FOODS CORPORATION, petitioner,
of a corporation because, being an artificial person and vs.
54
COURT OF APPEALS and FAR EAST MILLS SUPPLY endorsed in favor of and shall be delivered to
CORPORATION, respondents. Pure Foods Corporation;
BELLOSILLO, J.: 6. Warranty of one (1) year against defective
This is rather a simple case for specific performance with material and/or workmanship.
damages which could have been resolved through Once finalized, we shall ask you to sign the formal
mediation and conciliation during its infancy stage had the contract embodying the foregoing terms and conditions.
parties been earnest in expediting the disposal of this Immediately, FEMSCO submitted the required
case. They opted however to resort to full court performance bond in the amount of P1,841,187.90 and
proceedings and denied themselves the benefits of contractor's all-risk insurance policy in the amount of
alternative dispute resolution, thus making the process P6,137,293.00 which PUREFOODS through its Vice
more arduous and long-drawn. President Benedicto G. Tope acknowledged in a letter
The controversy started in 1992 at the height of the power dated 18 December 1992. FEMSCO also made
crisis which the country was then experiencing. To arrangements with its principal and started the
remedy and curtail further losses due to the series of PUREFOODS project by purchasing the necessary
power failures, petitioner PURE FOODS CORPORATION materials. PUREFOODS on the other hand returned
(hereafter PUREFOODS) decided to install two (2) 1500 FEMSCO's Bidder's Bond in the amount of P1,000,000.00,
KW generators in its food processing plant in San Roque, as requested.
Marikina City. Later, however, in a letter dated 22 December 1992,
Sometime in November 1992 a bidding for the supply and PUREFOODS through its Senior Vice President Teodoro
installation of the generators was held. Several suppliers L. Dimayuga unilaterally canceled the award as
and dealers were invited to attend a pre-bidding "significant factors were uncovered and brought to (their)
conference to discuss the conditions, propose scheme attention which dictate (the) cancellation and warrant a
and specifications that would best suit the needs of total review and re-bid of (the) project." Consequently,
PUREFOODS. Out of the eight (8) prospective bidders FEMSCO protested the cancellation of the award and
who attended the pre-bidding conference, only three (3) sought a meeting with PUREFOODS. However, on 26
bidders, namely, respondent FAR EAST MILLS SUPPLY March 1993, before the matter could be resolved,
CORPORATION (hereafter FEMSCO), MONARK and PUREFOODS already awarded the project and entered
ADVANCE POWER submitted bid proposals and gave into a contract with JARDINE NELL, a division of Jardine
bid bonds equivalent to 5% of their respective bids, as Davies, Inc. (hereafter JARDINE), which incidentally was
required. not one of the bidders.1âwphi1.nêt
Thereafter, in a letter dated 12 December 1992 FEMSCO thus wrote PUREFOODS to honor its contract
addressed to FEMSCO President Alfonso Po, with the former, and to JARDINE to cease and desist from
PUREFOODS confirmed the award of the contract to delivering and installing the two (2) generators at
FEMSCO — PUREFOODS. Its demand letters unheeded, FEMSCO
Gentlemen: sued both PUREFOODS and JARDINE: PUREFOODS
for reneging on its contract, and JARDINE for its
This will confirm that Pure Foods Corporation has
unwarranted interference and inducement. Trial ensued.
awarded to your firm the project: Supply and Installation
After FEMSCO presented its evidence, JARDINE filed a
of two (2) units of 1500 KW/unit Generator Sets at the
Demurrer to Evidence.
Processed Meats Plant, Bo. San Roque, Marikina, based
on your proposal number PC 28-92 dated November 20, On 27 June 1994 the Regional Trial Court of Pasig, Br.
1992, subject to the following basic terms and conditions: 68, 1 granted JARDINE's Demurrer to Evidence. The trial
court concluded that "[w]hile it may seem to the plaintiff
1. Lump sum contract of P6,137,293.00 (VAT
that by the actions of the two defendants there is
included), for the supply of materials and labor for
something underhanded going on, this is all a matter of
the local portion and the labor for the imported
perception, and unsupported by hard evidence, mere
materials, payable by progress billing twice a
suspicions and suppositions would not stand up very well
month, with ten percent (10%) retention. The
in a court of law." 2 Meanwhile trial proceeded as regards
retained amount shall be released thirty (30) days
the case against PUREFOODS.
after acceptance of the completed project and
upon posting of Guarantee Bond in an amount On 28 July 1994 the trial court rendered a decision
equivalent to twenty percent (20%) of the contract ordering PUREFOODS: (a) to indemnify FEMSCO the
price. The Guarantee Bond shall be valid for one sum of P2,300,000.00 representing the value of
(1) year from completion and acceptance of engineering services it rendered; (b) to pay FEMSCO the
project. The contract price includes future sum of US$14,000.00 or its peso equivalent, and
increase/s in costs of materials and labor; P900,000.00 representing contractor's mark-up on
installation work, considering that it would be impossible
2. The projects shall be undertaken pursuant to
to compel PUREFOODS to honor, perform and fulfill its
the attached specifications. It is understood that
contractual obligations in view of PUREFOOD's contract
any item required to complete the project, and
with JARDINE and noting that construction had already
those not included in the list of items shall be
started thereon; (c) to pay attorney's fees in an amount
deemed included and covered and shall be
equivalent to 20% of the total amount due; and, (d) to pay
performed;
the costs. The trial court dismissed the counterclaim filed
3. All materials shall be brand new; by PUREFOODS for lack of factual and legal basis.
4. The project shall commence immediately and Both FEMSCO and PUREFOODS appealed to the Court
must be completed within twenty (20) working of Appeals. FEMSCO appealed the 27 June 1994
days after the delivery of Generator Set to Resolution of the trial court which granted the Demurrer
Marikina Plant, penalty equivalent to 1/10 of 1% to Evidence filed by JARDINE resulting in the dismissal of
of the purchase price for every day of delay; the complaint against it, while PUREFOODS appealed
5. The Contractor shall put up Performance Bond the 28 July 1994 Decision of the same court which
equivalent to thirty (30%) of the contract price, ordered it to pay FEMSCO.
and shall procure All Risk Insurance equivalent to On 14 August 1996 the Court of Appeals affirmed in
the contract price upon commencement of the toto the 28 July 1994 Decision of the trial court. 3 It also
project. The All Risk Insurance Policy shall be reversed the 27 June 1994 Resolution of the lower court
55
and ordered JARDINE to pay FEMSCO damages for PUREFOODS started the process of entering into the
inducing PUREFOODS to violate the latter's contract with contract by conducting a bidding, Art. 1326 of the Civil
FEMSCO. As such, JARDINE was ordered to pay Code, which provides that "[a]dvertisements for bidders
FEMSCO P2,000,000.00 for moral damages. In addition, are simply invitations to make proposals," applies.
PUREFOODS was also directed to pay FEMSCO Accordingly, the Terms and Conditions of the Bidding
P2,000,000.00 as moral damages and P1,000,000.00 as disseminated by petitioner PUREFOODS constitutes the
exemplary damages as well as 20% of the total amount "advertisement" to bid on the project. The bid proposals
due as attorney's fees. or quotations submitted by the prospective suppliers
On 31 January 1997 the Court of Appeals denied for lack including respondent FEMSCO, are the offers. And, the
of merit the separate motions for reconsideration filed by reply of petitioner PUREFOODS, the acceptance or
PUREFOODS and JARDINE. Hence, these two (2) rejection of the respective offers.
petitions for review filed by PUREFOODS and JARDINE Quite obviously, the 12 December 1992 letter of petitioner.
which were subsequently consolidated. PUREFOODS to FEMSCO constituted acceptance of
PUREFOODS maintains that the conclusions of both the respondent FEMSCO's offer as contemplated by law. The
trial court and the appellate court are premised on a tenor of the letter, i.e., "This will confirm that Pure Foods
misapprehension of facts. It argues that its 12 December has awarded to your firm (FEMSCO) the project," could
1992 letter to FEMSCO was not an acceptance of the not be more categorical. While the same letter
latter's bid proposal and award of the project but more of enumerated certain "basic terms and conditions," these
a qualified acceptance constituting a counter-offer which conditions were imposed on the performance of the
required FEMSCO's express conforme. Since obligation rather than on the perfection of the contract.
PUREFOODS never received FEMSCO's conforme, Thus, the first "condition" was merely a reiteration of the
PUREFOODS was very well within reason to revoke its contract price and billing scheme based on the Terms and
qualified acceptance or counter-offer. Hence, no contract Conditions of Bidding and the bid or previous offer of
was perfected between PUREFOODS and FEMSCO. respondent FEMSCO. The second and third "conditions"
PUREFOODS also contends that it was never in bad faith were nothing more than general statements that all items
when it dealt with FEMSCO. Hence moral and exemplary and materials including those excluded in the list but
damages should not have been awarded. necessary to complete the project shall be deemed
included and should be brand new. The fourth "condition"
Corollarily, JARDINE asserts that the records are bereft
concerned the completion of the work to be done, i.e.,
of any showing that it had prior knowledge of the
within twenty (20) days from the delivery of the generator
supposed contract between PUREFOODS and FEMSCO,
set, the purchase of which was part of the contract. The
and that it induced PUREFOODS to violate the latter's
fifth "condition" had to do with the putting up of a
alleged contract with FEMSCO. Moreover, JARDINE
performance bond and an all-risk insurance, both of which
reasons that FEMSCO, an artificial person, is not entitled
should be given upon commencement of the project. The
to moral damages. But granting arguendo that the award
sixth "condition" related to the standard warranty of one
of moral damages is proper, P2,000,000.00 is extremely
(1) year. In fine, the enumerated "basic terms and
excessive.
conditions" were prescriptions on how the obligation was
In the main, these consolidated cases present two (2) to be performed and implemented. They were far from
issues: first, whether there existed a perfected contract being conditions imposed on the perfection of the contract.
between PUREFOODS and FEMSCO; and second,
In Babasa v. Court of Appeals 8 we distinguished between
granting there existed a perfected contract, whether there
a condition imposed on the perfection of a contract and a
is any showing that JARDINE induced or connived with
condition imposed merely on the performance of an
PUREFOODS to violate the latter's contract with
obligation. While failure to comply with the first condition
FEMSCO.
results in the failure of a contract, failure to comply with
A contract is defined as "a juridical convention manifested the second merely gives the other party options and/or
in legal form, by virtue of which one or more persons bind remedies to protect his interests.
themselves in favor of another or others, or reciprocally,
We thus agree with the conclusion of respondent
to the fulfillment of a prestation to give, to do, or not to
appellate court which affirmed the trial court —
do." 4There can be no contract unless the following
requisites concur: (a) consent of the contracting parties; As can be inferred from the actual phrase used in
(b) object certain which is the subject matter of the the first portion of the letter, the decision to award
contract; and, (c) cause of the obligation which is the contract has already been made. The letter
established. 5 A contract binds both contracting parties only serves as a confirmation of such decision.
and has the force of law between them. Hence, to the Court's mind, there is already an
acceptance made of the offer received by
Contracts are perfected by mere consent, upon the
Purefoods. Notwithstanding the terms and
acceptance by the offeree of the offer made by the offeror.
conditions enumerated therein, the offer has
From that moment, the parties are bound not only to the
been accepted and/or amplified the details of the
fulfillment of what has been expressly stipulated but also
terms and conditions contained in the Terms and
to all the consequences which, according to their nature,
Conditions of Bidding given out by Purefoods to
may be in keeping with good faith, usage and law. 6 To
prospective bidders. 9
produce a contract, the acceptance must not qualify the
terms of the offer. However, the acceptance may be But even granting arguendo that the 12 December 1992
express or implied. 7 For a contract to arise, the letter of petitioner PUREFOODS constituted a
acceptance must be made known to the offeror. "conditional counter-offer," respondent FEMCO's
Accordingly, the acceptance can be withdrawn or revoked submission of the performance bond and contractor's all-
before it is made known to the offeror. risk insurance was an implied acceptance, if not a clear
indication of its acquiescence to, the "conditional counter-
In the instant case, there is no issue as regards the
offer," which expressly stated that the performance bond
subject matter of the contract and the cause of the
and the contractor's all-risk insurance should be given
obligation. The controversy lies in the consent — whether
upon the commencement of the contract. Corollarily, the
there was an acceptance of the offer, and if so, if it was
acknowledgment thereof by petitioner PUREFOODS, not
communicated, thereby perfecting the contract.
to mention its return of FEMSCO's bidder's bond, was a
To resolve the dispute, there is a need to determine what concrete manifestation of its knowledge that respondent
constituted the offer and the acceptance. Since petitioner FEMSCO indeed consented to the "conditional counter-
56
offer." After all, as earlier adverted to, an acceptance may PUREFOODS to violate its contract with respondent
either be express or implied, 10 and this can be inferred FEMSCO.
from the contemporaneous and subsequent acts of the WHEREFORE, judgment is hereby rendered as follows:
contracting parties.
(a) The petition in G.R. No. 128066 is GRANTED.
Accordingly, for all intents and purposes, the contract at The assailed Decision of the Court of Appeals
that point has been perfected, and respondent reversing the 27 June 1994 resolution of the trial
FEMSCO's conforme would only be a mere surplusage. court and ordering petitioner JARDINE DAVIES,
The discussion of the price of the project two (2) months INC., to pay private respondent FAR EAST
after the 12 December 1992 letter can be deemed as MILLS SUPPLY CORPORATION P2,000,000.00
nothing more than a pressure being exerted by petitioner as moral damages is REVERSED and SET
PUREFOODS on respondent FEMSCO to lower the price ASIDE for insufficiency of evidence; and
even after the contract had been perfected. Indeed from
(b) The petition in G.R. No. 128069 is DENIED.
the facts, it can easily be surmised that petitioner
The assailed Decision of the Court of Appeals
PUREFOODS was haggling for a lower price even after
ordering petitioner PUREFOODS
agreeing to the earlier quotation, and was threatening to
CORPORATION to pay private respondent FAR
unilaterally cancel the contract, which it eventually did.
EAST MILLS SUPPLY CORPORATION the sum
Petitioner PUREFOODS also makes an issue out of the
of P2,300,000.00 representing the value of
absence of a purchase order (PO). Suffice it to say that
engineering services it rendered, US$14,000.00
purchase orders or POs do not make or break a contract.
or its peso equivalent, and P900,000.00
Thus, even the tenor of the subsequent letter of petitioner
representing the contractor's mark-up on
PUREFOODS, i.e., "Pure Foods Corporation is hereby
installation work, as well as attorney's fees
canceling the award to your company of the project,"
equivalent to twenty percent (20%) of the total
presupposes that the contract has been perfected. For,
amount due, is AFFIRMED. In addition, petitioner
there can be no cancellation if the contract was not
PURE FOODS CORPORATION is ordered to
perfected in the first place.
pay private respondent FAR EAST MILLS
Petitioner PUREFOODS also argues that it was never in SUPPLY CORPORATION moral damages in the
bad faith.1avvphi1 On the contrary, it believed in good amount of P1,000,000.00 and exemplary
faith that no such contract was perfected. We are not damages in the amount of P1,000,000.00. Costs
convinced. We subscribe to the factual findings and against petitioner.
conclusions of the trial court which were affirmed by the
SO ORDERED.
appellate court —
Hence, by the unilateral cancellation of the
contract, the defendant (petitioner PURE FOODS)
has acted with bad faith and this was further
aggravated by the subsequent inking of a G.R. No. 172428 November 28, 2008
contract between defendant Purefoods and HERMAN C. CRYSTAL, LAMBERTO C. CRYSTAL,
erstwhile co-defendant Jardine. It is very evident ANN GEORGIA C. SOLANTE, and DORIS C.
that Purefoods thought that by the expedient MAGLASANG, as Heirs of Deceased SPOUSES
means of merely writing a letter would RAYMUNDO I. CRYSTAL and DESAMPARADOS C.
automatically cancel or nullify the existing CRYSTAL, petitioners,
contract entered into by both parties after a vs.
process of bidding. This, to the Court's mind, is a BANK OF THE PHILIPPINE ISLANDS, respondent.
flagrant violation of the express provisions of the DECISION
law and is contrary to fair and just dealings to
TINGA, J.:
which every man is due. 11
Before us is a Petition for Review1 of the Decision2 and
This Court has awarded in the past moral damages to a
Resolution3 of the Court of Appeals dated 24 October
corporation whose reputation has been besmirched. 12 In
2005 and 31 March 2006, respectively, in CA G.R. CV No.
the instant case, respondent FEMSCO has sufficiently
72886, which affirmed the 8 June 2001 decision of the
shown that its reputation was tarnished after it
Regional Trial Court, Branch 5, of Cebu City.4
immediately ordered equipment from its suppliers on
account of the urgency of the project, only to be canceled The facts, as culled from the records, follow.
later. We thus sustain respondent appellate court's award On 28 March 1978, spouses Raymundo and
of moral damages. We however reduce the award from Desamparados Crystal obtained a P300,000.00 loan in
P2,000,000.00 to P1,000,000.00, as moral damages are behalf of the Cebu Contractors Consortium Co. (CCCC)
never intended to enrich the recipient. Likewise, the from the Bank of the Philippine Islands-Butuan branch
award of exemplary damages by way of example for the (BPI-Butuan). The loan was secured by a chattel
public good is excessive and should be reduced to mortgage on heavy equipment and machinery of CCCC.
P100,000.00. On the same date, the spouses executed in favor of BPI-
Petitioner JARDINE maintains on the other hand that Butuan a Continuing Suretyship5 where they bound
respondent appellate court erred in ordering it to pay themselves as surety of CCCC in the aggregate principal
moral damages to respondent FEMSCO as it supposedly sum of not exceeding P300,000.00. Thereafter, or on 29
induced PUREFOODS to violate the contract with March 1979, Raymundo Crystal executed a promissory
FEMSCO. We agree. While it may seem that petitioners note6 for the amount of P300,000.00, also in favor of BPI-
PUREFOODS and JARDINE connived to deceive Butuan.
respondent FEMSCO, we find no specific evidence on Sometime in August 1979, CCCC renewed a previous
record to support such perception. Likewise, there is no loan, this time from BPI, Cebu City branch (BPI-Cebu
showing whatsoever that petitioner JARDINE induced City). The renewal was evidenced by a promissory
petitioner PUREFOODS. The similarity in the design note7 dated 13 August 1979, signed by the spouses in
submitted to petitioner PUREFOODS by both petitioner their personal capacities and as managing partners of
JARDINE and respondent FEMSCO, and the tender of a CCCC. The promissory note states that the spouses are
lower quotation by petitioner JARDINE are insufficient to jointly and severally liable with CCCC. It appears that
show that petitioner JARDINE indeed induced petitioner before the original loan could be granted, BPI-Cebu City
required CCCC to put up a security.
57
However, CCCC had no real property to offer as security but the Court of Appeals also denied their motion for
for the loan; hence, the spouses executed a real estate reconsideration.19Hence, the present petition.
mortgage8over their own real property on 22 September Before the Court, petitioners who are the heirs of the
1977.9 On 3 October 1977, they executed another real spouses argue that the failure of the spouses to pay the
estate mortgage over the same lot in favor of BPI-Cebu BPI-Cebu City loan of P120,000.00 was due to BPI’s
City, to secure an additional loan of P20,000.00 of illegal refusal to accept payment for the loan unless
CCCC.10 the P300,000.00 loan from BPI-Butuan would also be
CCCC failed to pay its loans to both BPI-Butuan and BPI- paid. Consequently, in view of BPI’s unjust refusal to
Cebu City when they became due. CCCC, as well as the accept payment of the BPI-Cebu City loan, the loan
spouses, failed to pay their obligations despite demands. obligation of the spouses was extinguished, petitioners
Thus, BPI resorted to the foreclosure of the chattel contend.
mortgage and the real estate mortgage. The foreclosure The contention has no merit. Petitioners rely on IBAA’s
sale on the chattel mortgage was initially stalled with the offer to purchase the mortgaged lot from them and to
issuance of a restraining order against BPI.11 However, directly pay BPI out of the proceeds thereof to settle the
following BPI’s compliance with the necessary requisites loan.20 BPI’s refusal to agree to such payment scheme
of extrajudicial foreclosure, the foreclosure sale on the cannot extinguish the spouses’ loan obligation. In the first
chattel mortgage was consummated on 28 February 1988, place, IBAA is not privy to the loan agreement or the
with the proceeds amounting to P240,000.00 applied to promissory note between the spouses and BPI. Contracts,
the loan from BPI-Butuan which had then after all, take effect only between the parties, their
reached P707,393.90.12 Meanwhile, on 7 July 1981, successors in interest, heirs
Insular Bank of Asia and America (IBAA), through its Vice-
and assigns.21 Besides, under Art. 1236 of the Civil Code,
President for Legal and Corporate Affairs, offered to buy
the creditor is not bound to accept payment or
the lot subject of the two (2) real
performance by a third person who has no interest in the
estate mortgages and to pay directly the spouses’ fulfillment of the obligation, unless there is a stipulation to
indebtedness in exchange for the release of the the contrary. We see no stipulation in the promissory note
mortgages. BPI rejected IBAA’s offer to pay. 13 which states that a third person may fulfill the spouses’
BPI filed a complaint for sum of money against CCCC and obligation. Thus, it is clear that the spouses alone bear
the spouses before the Regional Trial Court of Butuan responsibility for the same.
City (RTC Butuan), seeking to recover the deficiency of In any event, the promissory note is the controlling
the loan of CCCC and the spouses with BPI-Butuan. The repository of the obligation of the spouses. Under the
trial court ruled in favor of BPI. Pursuant to the decision, promissory note, the spouses defined the parameters of
BPI instituted extrajudicial foreclosure of the spouses’ their obligation as follows:
mortgaged property.14
On or before June 29, 1980 on demand, for value
On 10 April 1985, the spouses filed an action received, I/we promise to pay, jointly and
for Injunction With Damages, With A Prayer For A severally, to the BANK OF THE PHILIPPINE
Restraining Order and/ or Writ of Preliminary ISLANDS, at its office in the city of Cebu
Injunction.15 The spouses claimed that the foreclosure of Philippines, the sum of ONE HUNDRED
the real estate mortgages is illegal because BPI should TWENTY THOUSAND PESOS (P120,0000.00),
have exhausted CCCC’s properties first, stressing that Philippine Currency, subject to periodic
they are mere guarantors of the renewed loans. They also installments on the principal as
prayed that they be awarded moral and exemplary follows: P30,000.00 quarterly amortization
damages, attorney’s fees, litigation expenses and cost of starting September 28, 1979. x x x 22
suit. Subsequently, the spouses filed an amended
A solidary obligation is one in which each of the debtors
complaint,16 additionally alleging that CCCC had opened
is liable for the entire obligation, and each of the creditors
and maintained a foreign currency savings account
is entitled to demand the satisfaction of the whole
(FCSA-197) with bpi, Makati branch (BPI-Makati), and
obligation from any or all of the debtors. 23 A liability is
that said FCSA was used as security for a P450,000.00
solidary "only when the obligation expressly so states,
loan also extended by BPI-Makati. The P450,000.00 loan
when the law so provides or when the nature of the
was allegedly paid, and thereafter the spouses demanded
the return of the FCSA passbook. BPI rejected the obligation so requires."24 Thus, when the obligor
demand; thus, the spouses were unable to withdraw from undertakes to be "jointly and severally" liable, it means
the said account to pay for their other obligations to BPI. that the obligation is solidary,25 such as in this case. By
stating "I/we promise to pay, jointly and severally, to the
The trial court dismissed the spouses’ complaint and
BANK OF THE PHILIPPINE ISLANDS," the spouses
ordered them to pay moral and exemplary damages and
agreed to be sought out and be demanded payment from,
attorney’s fees to BPI.17 It ruled that since the spouses
by BPI. BPI did demand payment from them, but they
agreed to bind themselves jointly and severally, they are
failed to comply with their obligation, prompting BPI’s valid
solidarily liable for the loans; hence, BPI can validly
resort to the foreclosure of the chattel mortgage and the
foreclose the two real estate mortgages. Moreover, being
real estate mortgages.
guarantors-mortgagors, the spouses are not entitled to
the benefit of exhaustion. Anent the FCSA, the trial court More importantly, the promissory note, wherein the
found that CCCC originally had FCDU SA No. 197 with spouses undertook to be solidarily liable for the principal
BPI, Dewey Boulevard branch, which was transferred to loan, partakes the nature of a suretyship and therefore is
BPI-Makati as FCDU SA 76/0035, at the request of an additional security for the loan. Thus we held in one
Desamparados Crystal. FCDU SA 76/0035 was thus case that if solidary liability was instituted to "guarantee"
closed, but Desamparados Crystal failed to surrender the a principal obligation, the law deems the contract to be
passbook because it was lost. The transferred FCSA in one of suretyship.26 And while a contract of a surety is in
BPI-Makati was the one used as security for essence secondary only to a valid principal obligation, the
CCCC’s P450,000.00 loan from BPI-Makati. CCCC was surety’s liability to the creditor or promisee of the principal
no longer allowed to withdraw from FCDU SA No. 197 is said to be direct, primary, and absolute; in other words,
because it was already closed. the surety is directly and equally bound with the principal.
The surety therefore becomes liable for the debt or duty
The spouses appealed the decision of the trial court to the
of another even if he possesses no direct or personal
Court of Appeals, but their appeal was dismissed.18 The
spouses moved for the reconsideration of the decision,
58
interest over the obligations nor does he receive any justification for an award of attorney's fees, such filing,
benefit therefrom.27 however, has almost invariably been held not to be a
Petitioners contend that the Court of Appeals erred in not ground for an award of moral damages. The rationale for
granting their counterclaims, considering that they the rule is that the law could not have meant to impose a
suffered moral damages in view of the unjust refusal of penalty on the right to litigate. Otherwise, moral damages
BPI to accept the payment scheme proposed by IBAA and must every time be awarded in favor of the prevailing
the allegedly unjust and illegal foreclosure of the real defendant against an unsuccessful plaintiff.40 BPI may
estate mortgages on their property.28 Conversely, they have been inconvenienced by the suit, but we do not see
argue that the Court of Appeals erred in awarding moral how it could have possibly suffered besmirched reputation
damages to BPI, which is a corporation, as well as on account of the single suit alone. Hence, the award of
exemplary damages, attorney’s fees and expenses of moral damages should be deleted.
litigation.29 The awards of exemplary damages and attorney’s fees,
We do not agree. Moral damages are meant to however, are proper. Exemplary damages, on the other
compensate the claimant for any physical suffering, hand, are imposed by way of example or correction for the
mental anguish, fright, serious anxiety, besmirched public good, when the party to a contract acts in a wanton,
reputation, wounded feelings, moral shock, social fraudulent, oppressive or malevolent manner, while
humiliation and similar injuries unjustly caused.30 Such attorney’s fees are allowed when exemplary damages are
damages, to be recoverable, must be the proximate result awarded and when the party to a suit is compelled to incur
of a wrongful act or omission the factual basis for which is expenses to protect his interest.41 The spouses instituted
satisfactorily established by the aggrieved party.31 There their complaint against BPI notwithstanding the fact that
being no wrongful or unjust act on the part of BPI in they were the ones who failed to pay their obligations.
demanding payment from them and in seeking the Consequently, BPI was forced to litigate and defend its
foreclosure of the chattel and real estate mortgages, there interest. For these reasons, BPI is entitled to the awards
is no lawful basis for award of damages in favor of the of exemplary damages and attorney’s fees.
spouses. WHEREFORE, the petition is DENIED. The Decision and
Neither is BPI entitled to moral damages. A juridical Resolution of the Court of Appeals dated 24 October 2005
person is generally not entitled to moral damages and 31 March 2006, respectively, are hereby AFFIRMED,
because, unlike a natural person, it cannot experience with the MODIFICATION that the award of moral
physical suffering or such sentiments as wounded damages to Bank of the Philippine Islands is DELETED.
feelings, serious anxiety, mental anguish or moral Costs against the petitioners.
shock.32 The Court of Appeals found BPI as "being SO ORDERED.
famous and having gained its familiarity and respect not
only in the Philippines but also in the whole world because
of its good will and good reputation must protect and
defend the same against any unwarranted suit such as
the case at bench."33 In holding that BPI is entitled to G.R. No. 141994 January 17, 2005
moral damages, the Court of Appeals relied on the case FILIPINAS BROADCASTING NETWORK,
of People v. Manero,34 wherein the Court ruled that "[i]t is INC., petitioner,
only when a juridical person has a good reputation that is vs.
debased, resulting in social humiliation, that moral AGO MEDICAL AND EDUCATIONAL CENTER-BICOL
damages may be awarded."35 CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM)
We do not agree with the Court of Appeals. A statement and ANGELITA F. AGO, respondents.
similar to that made by the Court in Manero can be found DECISION
in the case of Mambulao Lumber Co. v. PNB, et al.,36 thus: CARPIO, J.:
x x x Obviously, an artificial person like herein The Case
appellant corporation cannot experience physical
This petition for review1 assails the 4 January 1999
sufferings, mental anguish, fright, serious anxiety,
Decision2 and 26 January 2000 Resolution of the Court of
wounded feelings, moral shock or social
Appeals in CA-G.R. CV No. 40151. The Court of Appeals
humiliation which are basis of moral damages. A
corporation may have good reputation which, affirmed with modification the 14 December 1992
if besmirched may also be a ground for the Decision3 of the Regional Trial Court of Legazpi City,
award of moral damages. x x x (Emphasis Branch 10, in Civil Case No. 8236. The Court of Appeals
held Filipinas Broadcasting Network, Inc. and its
supplied)
broadcasters Hermogenes Alegre and Carmelo Rima
Nevertheless, in the more recent cases of ABS-CBN Corp. liable for libel and ordered them to solidarily pay Ago
v. Court of Appeals, et al.,37 and Filipinas Broadcasting Medical and Educational Center-Bicol Christian College
Network, Inc. v. Ago Medical and Educational Center- of Medicine moral damages, attorney’s fees and costs of
Bicol Christian College of Medicine (AMEC-BCCM),38 the suit.
Court held that the statements in Manero and Mambulao
The Antecedents
were mere obiter dicta, implying that the award of moral
damages to corporations is not a hard and fast rule. "Exposé" is a radio documentary4 program hosted by
Indeed, while the Court may allow the grant of moral Carmelo ‘Mel’ Rima ("Rima") and Hermogenes ‘Jun’
damages to corporations, it is not automatically granted; Alegre ("Alegre").5 Exposé is aired every morning over
there must still be proof of the existence of the factual DZRC-AM which is owned by Filipinas Broadcasting
basis of the damage and its causal relation to the Network, Inc. ("FBNI"). "Exposé" is heard over Legazpi
defendant’s acts. This is so because moral damages, City, the Albay municipalities and other Bicol areas.6
though incapable of pecuniary estimation, are in the In the morning of 14 and 15 December 1989, Rima and
category of an award designed to compensate the Alegre exposed various alleged complaints from students,
claimant for actual injury suffered and not to impose a teachers and parents against Ago Medical and
penalty on the wrongdoer.39 Educational Center-Bicol Christian College of Medicine
The spouses’ complaint against BPI proved to be ("AMEC") and its administrators. Claiming that the
unfounded, but it does not automatically entitle BPI to broadcasts were defamatory, AMEC and Angelita Ago
moral damages. Although the institution of a clearly ("Ago"), as Dean of AMEC’s College of Medicine, filed a
unfounded civil suit can at times be a legal complaint for damages7 against FBNI, Rima and Alegre
59
on 27 February 1990. Quoted are portions of the allegedly xxx My friends based on the expose, AMEC is a dumping
libelous broadcasts: ground for moral and physically misfit people. What does
JUN ALEGRE: this mean? Immoral and physically misfits as teachers.
Let us begin with the less burdensome: if you have May I say I’m sorry to Dean Justita Lola. But this is the
children taking medical course at AMEC-BCCM, truth. The truth is this, that your are no longer fit to teach.
advise them to pass all subjects because if they fail You are too old. As an aviation, your case is zero visibility.
in any subject they will repeat their year level, taking Don’t insist.
up all subjects including those they have passed xxx Why did AMEC still absorb her as a teacher, a dean,
already. Several students had approached me stating and chairman of the scholarship committee at that. The
that they had consulted with the DECS which told them reason is practical cost saving in salaries, because an old
that there is no such regulation. If [there] is no such person is not fastidious, so long as she has money to buy
regulation why is AMEC doing the same? the ingredient of beetle juice. The elderly can get by –
xxx that’s why she (Lola) was taken in as Dean.
Second: Earlier AMEC students in Physical Therapy xxx
had complained that the course is not recognized by xxx On our end our task is to attend to the interests of
DECS. xxx students. It is likely that the students would be influenced
Third: Students are required to take and pay for the by evil. When they become members of society
subject even if the subject does not have an outside of campus will be liabilities rather than
instructor - such greed for money on the part of assets. What do you expect from a doctor who while
AMEC’s administration. Take the subject Anatomy: studying at AMEC is so much burdened with
students would pay for the subject upon enrolment unreasonable imposition? What do you expect from a
because it is offered by the school. However there would student who aside from peculiar problems – because not
be no instructor for such subject. Students would be all students are rich – in their struggle to improve their
informed that course would be moved to a later date social status are even more burdened with false
because the school is still searching for the appropriate regulations. xxx9 (Emphasis supplied)
instructor. The complaint further alleged that AMEC is a reputable
xxx learning institution. With the supposed exposés, FBNI,
Rima and Alegre "transmitted malicious imputations, and
It is a public knowledge that the Ago Medical and
as such, destroyed plaintiffs’ (AMEC and Ago)
Educational Center has survived and has been surviving
reputation." AMEC and Ago included FBNI as defendant
for the past few years since its inception because of funds
for allegedly failing to exercise due diligence in the
support from foreign foundations. If you will take a look at
selection and supervision of its employees, particularly
the AMEC premises you’ll find out that the names of the
Rima and Alegre.
buildings there are foreign soundings. There is a
McDonald Hall. Why not Jose Rizal or Bonifacio Hall? On 18 June 1990, FBNI, Rima and Alegre, through Atty.
That is a very concrete and undeniable evidence that the Rozil Lozares, filed an Answer10 alleging that the
support of foreign foundations for AMEC is substantial, broadcasts against AMEC were fair and true. FBNI, Rima
isn’t it? With the report which is the basis of the expose in and Alegre claimed that they were plainly impelled by a
DZRC today, it would be very easy for detractors and sense of public duty to report the "goings-on in AMEC,
enemies of the Ago family to stop the flow of support of [which is] an institution imbued with public interest."
foreign foundations who assist the medical school on the Thereafter, trial ensued. During the presentation of the
basis of the latter’s purpose. But if the purpose of the evidence for the defense, Atty. Edmundo Cea,
institution (AMEC) is to deceive students at cross purpose collaborating counsel of Atty. Lozares, filed a Motion to
with its reason for being it is possible for these foreign Dismiss11 on FBNI’s behalf. The trial court denied the
foundations to lift or suspend their donations temporarily. 8 motion to dismiss. Consequently, FBNI filed a separate
xxx Answer claiming that it exercised due diligence in the
selection and supervision of Rima and Alegre. FBNI
On the other hand, the administrators of AMEC-BCCM,
claimed that before hiring a broadcaster, the broadcaster
AMEC Science High School and the AMEC-Institute of
should (1) file an application; (2) be interviewed; and (3)
Mass Communication in their effort to minimize
undergo an apprenticeship and training program after
expenses in terms of salary are absorbing or
passing the interview. FBNI likewise claimed that it always
continues to accept "rejects". For example how many
reminds its broadcasters to "observe truth, fairness and
teachers in AMEC are former teachers of Aquinas
objectivity in their broadcasts and to refrain from using
University but were removed because of immorality?
libelous and indecent language." Moreover, FBNI
Does it mean that the present administration of AMEC
requires all broadcasters to pass the Kapisanan ng mga
have the total definite moral foundation from catholic
Brodkaster sa Pilipinas ("KBP") accreditation test and to
administrator of Aquinas University. I will prove to you my
secure a KBP permit.
friends, that AMEC is a dumping ground, garbage, not
merely of moral and physical misfits. Probably they On 14 December 1992, the trial court rendered a
only qualify in terms of intellect. The Dean of Student Decision12 finding FBNI and Alegre liable for libel except
Affairs of AMEC is Justita Lola, as the family name implies. Rima. The trial court held that the broadcasts are
She is too old to work, being an old woman. Is the AMEC libelous per se. The trial court rejected the broadcasters’
administration exploiting the very [e]nterprising or claim that their utterances were the result of straight
compromising and undemanding Lola? Could it be that reporting because it had no factual basis. The
AMEC is just patiently making use of Dean Justita Lola broadcasters did not even verify their reports before airing
were if she is very old. As in atmospheric situation – zero them to show good faith. In holding FBNI liable for libel,
visibility – the plane cannot land, meaning she is very old, the trial court found that FBNI failed to exercise diligence
low pay follows. By the way, Dean Justita Lola is also the in the selection and supervision of its employees.
chairman of the committee on scholarship in AMEC. She In absolving Rima from the charge, the trial court ruled
had retired from Bicol University a long time ago but that Rima’s only participation was when he agreed with
AMEC has patiently made use of her. Alegre’s exposé. The trial court found Rima’s statement
xxx within the "bounds of freedom of speech, expression, and
of the press." The dispositive portion of the decision reads:
MEL RIMA:

60
WHEREFORE, premises considered, this court finds for FBNI raises the following issues for resolution:
the plaintiff. Considering the degree of damages I. WHETHER THE BROADCASTS ARE
caused by the controversial utterances, which are not LIBELOUS;
found by this court to be really very serious and
II. WHETHER AMEC IS ENTITLED TO MORAL
damaging, and there being no showing that indeed
DAMAGES;
the enrollment of plaintiff school dropped, defendants
Hermogenes "Jun" Alegre, Jr. and Filipinas Broadcasting III. WHETHER THE AWARD OF ATTORNEY’S
Network (owner of the radio station DZRC), are hereby FEES IS PROPER; and
jointly and severally ordered to pay plaintiff Ago Medical IV. WHETHER FBNI IS SOLIDARILY LIABLE
and Educational Center-Bicol Christian College of WITH RIMA AND ALEGRE FOR PAYMENT OF
Medicine (AMEC-BCCM) the amount of ₱300,000.00 MORAL DAMAGES, ATTORNEY’S FEES AND
moral damages, plus ₱30,000.00 reimbursement of COSTS OF SUIT.
attorney’s fees, and to pay the costs of suit. The Court’s Ruling
SO ORDERED. 13 (Emphasis supplied) We deny the petition.
Both parties, namely, FBNI, Rima and Alegre, on one This is a civil action for damages as a result of the
hand, and AMEC and Ago, on the other, appealed the allegedly defamatory remarks of Rima and Alegre against
decision to the Court of Appeals. The Court of Appeals AMEC.17 While AMEC did not point out clearly the legal
affirmed the trial court’s judgment with modification. The basis for its complaint, a reading of the complaint reveals
appellate court made Rima solidarily liable with FBNI and that AMEC’s cause of action is based on Articles 30 and
Alegre. The appellate court denied Ago’s claim for 33 of the Civil Code. Article 3018 authorizes a separate
damages and attorney’s fees because the broadcasts civil action to recover civil liability arising from a criminal
were directed against AMEC, and not against her. The offense. On the other hand, Article 3319 particularly
dispositive portion of the Court of Appeals’ decision reads: provides that the injured party may bring a separate civil
WHEREFORE, the decision appealed from is action for damages in cases of defamation, fraud, and
hereby AFFIRMED, subject to the modification that physical injuries. AMEC also invokes Article 1920 of the
broadcaster Mel Rima is SOLIDARILY Civil Code to justify its claim for damages. AMEC cites
ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre. Articles 217621 and 218022 of the Civil Code to hold FBNI
SO ORDERED.14 solidarily liable with Rima and Alegre.
FBNI, Rima and Alegre filed a motion for reconsideration I.
which the Court of Appeals denied in its 26 January 2000 Whether the broadcasts are libelous
Resolution. A libel23 is a public and malicious imputation of a crime, or
Hence, FBNI filed this petition.15 of a vice or defect, real or imaginary, or any act or
The Ruling of the Court of Appeals omission, condition, status, or circumstance tending to
cause the dishonor, discredit, or contempt of a natural or
The Court of Appeals upheld the trial court’s ruling that
juridical person, or to blacken the memory of one who is
the questioned broadcasts are libelous per se and that
dead.24
FBNI, Rima and Alegre failed to overcome the legal
presumption of malice. The Court of Appeals found Rima There is no question that the broadcasts were made
and Alegre’s claim that they were actuated by their moral public and imputed to AMEC defects or circumstances
and social duty to inform the public of the students’ gripes tending to cause it dishonor, discredit and contempt. Rima
as insufficient to justify the utterance of the defamatory and Alegre’s remarks such as "greed for money on the
remarks. part of AMEC’s administrators"; "AMEC is a dumping
ground, garbage of xxx moral and physical misfits"; and
Finding no factual basis for the imputations against
AMEC students who graduate "will be liabilities rather
AMEC’s administrators, the Court of Appeals ruled that
than assets" of the society are libelous per se. Taken as
the broadcasts were made "with reckless disregard as to
a whole, the broadcasts suggest that AMEC is a money-
whether they were true or false." The appellate court
making institution where physically and morally unfit
pointed out that FBNI, Rima and Alegre failed to present
teachers abound.
in court any of the students who allegedly complained
against AMEC. Rima and Alegre merely gave a single However, FBNI contends that the broadcasts are not
name when asked to identify the students. According to malicious. FBNI claims that Rima and Alegre were plainly
the Court of Appeals, these circumstances cast doubt on impelled by their civic duty to air the students’ gripes.
the veracity of the broadcasters’ claim that they were FBNI alleges that there is no evidence that ill will or spite
"impelled by their moral and social duty to inform the motivated Rima and Alegre in making the broadcasts.
public about the students’ gripes." FBNI further points out that Rima and Alegre exerted
efforts to obtain AMEC’s side and gave Ago the
The Court of Appeals found Rima also liable for libel since
opportunity to defend AMEC and its administrators. FBNI
he remarked that "(1) AMEC-BCCM is a dumping ground
concludes that since there is no malice, there is no libel.
for morally and physically misfit teachers; (2) AMEC
obtained the services of Dean Justita Lola to minimize FBNI’s contentions are untenable.
expenses on its employees’ salaries; and (3) AMEC Every defamatory imputation is presumed
burdened the students with unreasonable imposition and malicious.25 Rima and Alegre failed to show adequately
false regulations."16 their good intention and justifiable motive in airing the
The Court of Appeals held that FBNI failed to exercise due supposed gripes of the students. As hosts of a
diligence in the selection and supervision of its employees documentary or public affairs program, Rima and Alegre
for allowing Rima and Alegre to make the radio should have presented the public issues "free
broadcasts without the proper KBP accreditation. The from inaccurate and misleading information."26 Hearing
Court of Appeals denied Ago’s claim for damages and the students’ alleged complaints a month before the
attorney’s fees because the libelous remarks were exposé,27 they had sufficient time to verify their sources
directed against AMEC, and not against her. The Court of and information. However, Rima and Alegre hardly made
Appeals adjudged FBNI, Rima and Alegre solidarily liable a thorough investigation of the students’ alleged gripes.
to pay AMEC moral damages, attorney’s fees and costs Neither did they inquire about nor confirm the purported
of suit.1awphi1.nét irregularities in AMEC from the Department of Education,
Culture and Sports. Alegre testified that he merely went to
Issues
AMEC to verify his report from an alleged AMEC official
61
who refused to disclose any information. Alegre simply not verify and analyze the truth of the reports before they
relied on the words of the students "because they were aired it, in order to prove that they are in good faith.
many and not because there is proof that what they are Alegre contended that plaintiff school had no permit and
saying is true."28 This plainly shows Rima and Alegre’s is not accredited to offer Physical Therapy courses. Yet,
reckless disregard of whether their report was true or not. plaintiff produced a certificate coming from DECS that as
Contrary to FBNI’s claim, the broadcasts were not "the of Sept. 22, 1987 or more than 2 years before the
result of straight reporting." Significantly, some courts in controversial broadcast, accreditation to offer Physical
the United States apply the privilege of "neutral reportage" Therapy course had already been given the plaintiff,
in libel cases involving matters of public interest or public which certificate is signed by no less than the Secretary
figures. Under this privilege, a republisher of Education and Culture herself, Lourdes R. Quisumbing
who accurately and disinterestedly reports certain (Exh. C-rebuttal). Defendants could have easily known
defamatory statements made against public figures is this were they careful enough to verify. And yet,
shielded from liability, regardless of the republisher’s defendants were very categorical and sounded too
subjective awareness of the truth or falsity of the positive when they made the erroneous report that plaintiff
accusation.29 Rima and Alegre cannot invoke the privilege had no permit to offer Physical Therapy courses which
of neutral reportage because unfounded comments they were offering.
abound in the broadcasts. Moreover, there is no existing The allegation that plaintiff was getting tremendous aids
controversy involving AMEC when the broadcasts were from foreign foundations like Mcdonald Foundation prove
made. The privilege of neutral reportage applies where not to be true also. The truth is there is no Mcdonald
the defamed person is a public figure who is involved in Foundation existing. Although a big building of plaintiff
an existing controversy, and a party to that controversy school was given the name Mcdonald building, that was
makes the defamatory statement.30 only in order to honor the first missionary in Bicol of
However, FBNI argues vigorously that malice in law does plaintiffs’ religion, as explained by Dr. Lita Ago. Contrary
not apply to this case. Citing Borjal v. Court of to the claim of defendants over the air, not a single
Appeals,31 FBNI contends that the broadcasts "fall within centavo appears to be received by plaintiff school from
the coverage of qualifiedly privileged communications" for the aforementioned McDonald Foundation which does not
being commentaries on matters of public interest. Such exist.
being the case, AMEC should prove malice in fact or Defendants did not even also bother to prove their claim,
actual malice. Since AMEC allegedly failed to prove though denied by Dra. Ago, that when medical students
actual malice, there is no libel. fail in one subject, they are made to repeat all the other
FBNI’s reliance on Borjal is misplaced. In Borjal, the subject[s], even those they have already passed, nor their
Court elucidated on the "doctrine of fair comment," thus: claim that the school charges laboratory fees even if there
[F]air commentaries on matters of public interest are are no laboratories in the school. No evidence was
privileged and constitute a valid defense in an action for presented to prove the bases for these claims, at least in
libel or slander. The doctrine of fair comment means that order to give semblance of good faith.
while in general every discreditable imputation publicly As for the allegation that plaintiff is the dumping ground
made is deemed false, because every man is presumed for misfits, and immoral teachers, defendant[s] singled out
innocent until his guilt is judicially proved, and every false Dean Justita Lola who is said to be so old, with zero
imputation is deemed malicious, nevertheless, when the visibility already. Dean Lola testified in court last Jan. 21,
discreditable imputation is directed against a public 1991, and was found to be 75 years old. xxx Even older
person in his public capacity, it is not necessarily people prove to be effective teachers like Supreme Court
actionable. In order that such discreditable imputation Justices who are still very much in demand as law
to a public official may be actionable, it must either be professors in their late years. Counsel for defendants is
a false allegation of fact or a comment based on a past 75 but is found by this court to be still very sharp and
false supposition. If the comment is an expression of effective.l^vvphi1.net So is plaintiffs’ counsel.
opinion, based on established facts, then it is Dr. Lola was observed by this court not to be physically
immaterial that the opinion happens to be mistaken, as decrepit yet, nor mentally infirmed, but is still alert and
long as it might reasonably be inferred from the docile.
facts.32 (Emphasis supplied)
The contention that plaintiffs’ graduates become liabilities
True, AMEC is a private learning institution whose rather than assets of our society is a mere conclusion.
business of educating students is "genuinely imbued with Being from the place himself, this court is aware that
public interest." The welfare of the youth in general and majority of the medical graduates of plaintiffs pass the
AMEC’s students in particular is a matter which the public board examination easily and become prosperous and
has the right to know. Thus, similar to the newspaper responsible professionals.33
articles in Borjal, the subject broadcasts dealt with
Had the comments been an expression of opinion based
matters of public interest. However, unlike in Borjal, the
on established facts, it is immaterial that the opinion
questioned broadcasts are not based on established
happens to be mistaken, as long as it might reasonably
facts. The record supports the following findings of the
be inferred from the facts.34 However, the comments of
trial court:
Rima and Alegre were not backed up by facts. Therefore,
xxx Although defendants claim that they were motivated the broadcasts are not privileged and remain libelous per
by consistent reports of students and parents against se.
plaintiff, yet, defendants have not presented in court, nor
The broadcasts also violate the Radio Code35 of
even gave name of a single student who made the
the Kapisanan ng mga Brodkaster sa Pilipinas,
complaint to them, much less present written complaint or
Ink. ("Radio Code"). Item I(B) of the Radio Code provides:
petition to that effect. To accept this defense of
defendants is too dangerous because it could easily give B. PUBLIC AFFAIRS, PUBLIC ISSUES AND
license to the media to malign people and establishments COMMENTARIES
based on flimsy excuses that there were reports to them 1. x x x
although they could not satisfactorily establish it. Such 4. Public affairs program shall present public
laxity would encourage careless and irresponsible issues free from personal bias, prejudice
broadcasting which is inimical to public interests. and inaccurate and misleading information. x
Secondly, there is reason to believe that defendant radio x x Furthermore, the station shall strive to present
broadcasters, contrary to the mandates of their duties, did balanced discussion of issues. x x x.
62
xxx FBNI contends that since AMEC is not entitled to moral
7. The station shall be responsible at all times in damages, there is no basis for the award of attorney’s
the supervision of public affairs, public issues and fees. FBNI adds that the instant case does not fall under
commentary programs so that they conform to the enumeration in Article 220848 of the Civil Code.
the provisions and standards of this code. The award of attorney’s fees is not proper because AMEC
8. It shall be the responsibility of the newscaster, failed to justify satisfactorily its claim for attorney’s fees.
commentator, host and announcer to protect AMEC did not adduce evidence to warrant the award of
public interest, general welfare and good order in attorney’s fees. Moreover, both the trial and appellate
the presentation of public affairs and public courts failed to explicitly state in their respective decisions
issues.36 (Emphasis supplied) the rationale for the award of attorney’s fees.49 In Inter-
Asia Investment Industries, Inc. v. Court of
The broadcasts fail to meet the standards prescribed in
Appeals ,50 we held that:
the Radio Code, which lays down the code of ethical
conduct governing practitioners in the radio broadcast [I]t is an accepted doctrine that the award thereof as an
industry. The Radio Code is a voluntary code of conduct item of damages is the exception rather than the rule, and
imposed by the radio broadcast industry on its own counsel’s fees are not to be awarded every time a party
members. The Radio Code is a public warranty by the wins a suit. The power of the court to award attorney’s
radio broadcast industry that radio broadcast practitioners fees under Article 2208 of the Civil Code demands
are subject to a code by which their conduct are measured factual, legal and equitable justification, without
for lapses, liability and sanctions. which the award is a conclusion without a premise,
its basis being improperly left to speculation and
The public has a right to expect and demand that radio
conjecture. In all events, the court must explicitly state in
broadcast practitioners live up to the code of conduct of
the text of the decision, and not only in the decretal portion
their profession, just like other professionals. A
thereof, the legal reason for the award of attorney’s
professional code of conduct provides the standards for
fees.51 (Emphasis supplied)
determining whether a person has acted justly, honestly
and with good faith in the exercise of his rights and While it mentioned about the award of attorney’s fees by
performance of his duties as required by Article 1937 of the stating that it "lies within the discretion of the court and
Civil Code. A professional code of conduct also provides depends upon the circumstances of each case," the Court
the standards for determining whether a person who of Appeals failed to point out any circumstance to justify
willfully causes loss or injury to another has acted in a the award.
manner contrary to morals or good customs under Article IV.
2138 of the Civil Code. Whether FBNI is solidarily liable with Rima and Alegre for
II. moral damages, attorney’s fees and costs of suit
Whether AMEC is entitled to moral damages FBNI contends that it is not solidarily liable with Rima and
FBNI contends that AMEC is not entitled to moral Alegre for the payment of damages and attorney’s fees
damages because it is a corporation.39 because it exercised due diligence in the selection and
supervision of its employees, particularly Rima and Alegre.
A juridical person is generally not entitled to moral
FBNI maintains that its broadcasters, including Rima and
damages because, unlike a natural person, it cannot
Alegre, undergo a "very regimented process" before they
experience physical suffering or such sentiments as
are allowed to go on air. "Those who apply for broadcaster
wounded feelings, serious anxiety, mental anguish or
are subjected to interviews, examinations and an
moral shock.40 The Court of Appeals cites Mambulao
apprenticeship program."
Lumber Co. v. PNB, et al.41 to justify the award of moral
damages. However, the Court’s statement FBNI further argues that Alegre’s age and lack of training
in Mambulao that "a corporation may have a good are irrelevant to his competence as a broadcaster. FBNI
reputation which, if besmirched, may also be a ground for points out that the "minor deficiencies in the KBP
the award of moral damages" is an obiter dictum.42 accreditation of Rima and Alegre do not in any way prove
that FBNI did not exercise the diligence of a good father
Nevertheless, AMEC’s claim for moral damages falls
of a family in selecting and supervising them." Rima’s
under item 7 of Article 221943 of the Civil Code. This
accreditation lapsed due to his non-payment of the KBP
provision expressly authorizes the recovery of moral
annual fees while Alegre’s accreditation card was delayed
damages in cases of libel, slander or any other form of
allegedly for reasons attributable to the KBP Manila Office.
defamation. Article 2219(7) does not qualify whether the
FBNI claims that membership in the KBP is merely
plaintiff is a natural or juridical person. Therefore, a
voluntary and not required by any law or government
juridical person such as a corporation can validly
regulation.
complain for libel or any other form of defamation and
claim for moral damages.44 FBNI’s arguments do not persuade us.
Moreover, where the broadcast is libelous per se, the law The basis of the present action is a tort. Joint tort feasors
implies damages.45 In such a case, evidence of an honest are jointly and severally liable for the tort which they
mistake or the want of character or reputation of the party commit.52 Joint tort feasors are all the persons who
libeled goes only in mitigation of damages.46 Neither in command, instigate, promote, encourage, advise,
such a case is the plaintiff required to introduce evidence countenance, cooperate in, aid or abet the commission of
of actual damages as a condition precedent to the a tort, or who approve of it after it is done, if done for their
recovery of some damages.47 In this case, the broadcasts benefit.53Thus, AMEC correctly anchored its cause of
are libelous per se. Thus, AMEC is entitled to moral action against FBNI on Articles 2176 and 2180 of the Civil
damages. Code.1a\^/phi1.net
However, we find the award of ₱300,000 moral damages As operator of DZRC-AM and employer of Rima and
unreasonable. The record shows that even though the Alegre, FBNI is solidarily liable to pay for damages arising
broadcasts were libelous per se, AMEC has not suffered from the libelous broadcasts. As stated by the Court of
any substantial or material damage to its reputation. Appeals, "recovery for defamatory statements published
Therefore, we reduce the award of moral damages from by radio or television may be had from the owner of the
₱300,000 to ₱150,000. station, a licensee, the operator of the station, or a
person who procures, or participates in, the making of the
III.
defamatory statements."54 An employer and employee
Whether the award of attorney’s fees is proper are solidarily liable for a defamatory statement by the
63
employee within the course and scope of his or her per annum from December 22, 1961 until fully paid, and
employment, at least when the employer authorizes or the costs of suit.
ratifies the defamation.55 In this case, Rima and Alegre In seeking the reversal of the decision, the plaintiff
were clearly performing their official duties as hosts of advances several propositions in its brief which may be
FBNI’s radio program Exposé when they aired the restated as follows:
broadcasts. FBNI neither alleged nor proved that Rima
1. That its total indebtedness to the PNB as of
and Alegre went beyond the scope of their work at that
November 21, 1961, was only P56,485.87 and
time. There was likewise no showing that FBNI did not
not P58,213.51 as concluded by the court a quo;
authorize and ratify the defamatory broadcasts.
hence, the proceeds of the foreclosure sale of its
Moreover, there is insufficient evidence on record that real property alone in the amount of P56,908.00
FBNI exercised due diligence in on that date, added to the sum of P738.59 it
the selection andsupervision of its employees, remitted to the PNB thereafter was more than
particularly Rima and Alegre. FBNI merely showed that it sufficient to liquidate its obligation, thereby
exercised diligence in the selection of its broadcasters rendering the subsequent foreclosure sale of its
without introducing any evidence to prove that it observed chattels unlawful;
the same diligence in the supervision of Rima and
2. That it is not liable to pay PNB the amount of
Alegre. FBNI did not show how it exercised diligence in
P5,821.35 for attorney's fees and the additional
supervising its broadcasters. FBNI’s alleged constant
sum of P298.54 as expenses of the foreclosure
reminder to its broadcasters to "observe truth, fairness
sale;
and objectivity and to refrain from using libelous and
indecent language" is not enough to prove due diligence 3. That the subsequent foreclosure sale of its
in the supervision of its broadcasters. Adequate training chattels is null and void, not only because it had
of the broadcasters on the industry’s code of conduct, already settled its indebtedness to the PNB at the
sufficient information on libel laws, and continuous time the sale was effected, but also for the reason
evaluation of the broadcasters’ performance are but a few that the said sale was not conducted in
of the many ways of showing diligence in the supervision accordance with the provisions of the Chattel
of broadcasters. Mortgage Law and the venue agreed upon by the
parties in the mortgage contract;
FBNI claims that it "has taken all the precaution in
the selection of Rima and Alegre as broadcasters, 4. That the PNB, having illegally sold the chattels,
bearing in mind their qualifications." However, no clear is liable to the plaintiff for its value; and
and convincing evidence shows that Rima and Alegre 5. That for the acts of the PNB in proceeding with
underwent FBNI’s "regimented process" of application. the sale of the chattels, in utter disregard of
Furthermore, FBNI admits that Rima and Alegre had plaintiff's vigorous opposition thereto, and in
deficiencies in their KBP accreditation,56 which is one of taking possession thereof after the sale thru force,
FBNI’s requirements before it hires a broadcaster. intimidation, coercion, and by detaining its "man-
Significantly, membership in the KBP, while voluntary, in-charge" of said properties, the PNB is liable to
indicates the broadcaster’s strong commitment to observe plaintiff for damages and attorney's fees.
the broadcast industry’s rules and regulations. Clearly, The antecedent facts of the case, as found by the trial
these circumstances show FBNI’s lack of diligence in court, are as follows:
selecting andsupervising Rima and Alegre. Hence, FBNI
On May 5, 1956 the plaintiff applied for an
is solidarily liable to pay damages together with Rima and
industrial loan of P155,000 with the Naga Branch
Alegre.
of defendant PNB and the former offered real
WHEREFORE, we DENY the instant petition. We estate, machinery, logging and transportation
AFFIRM the Decision of 4 January 1999 and Resolution equipments as collaterals. The application,
of 26 January 2000 of the Court of Appeals in CA-G.R. however, was approved for a loan of P100,000
CV No. 40151 with the MODIFICATION that the award of only. To secure the payment of the loan, the
moral damages is reduced from ₱300,000 to ₱150,000 plaintiff mortgaged to defendant PNB a parcel of
and the award of attorney’s fees is deleted. Costs against land, together with the buildings and
petitioner. improvements existing thereon, situated in the
SO ORDERED. poblacion of Jose Panganiban (formerly
Mambulao), province of Camarines Norte, and
covered by Transfer Certificate of Title No. 381 of
the land records of said province, as well as
various sawmill equipment, rolling unit and other
G.R. No. L-22973 January 30, 1968
fixed assets of the plaintiff, all situated in its
MAMBULAO LUMBER COMPANY, plaintiff-appellant, compound in the aforementioned municipality.
vs.
On August 2, 1956, the PNB released from the
PHILIPPINE NATIONAL BANK and ANACLETO
approved loan the sum of P27,500, for which the
HERALDO Deputy Provincial Sheriff of Camarines
plaintiff signed a promissory note wherein it
Norte,defendants-appellees.
promised to pay to the PNB the said sum in five
Ernesto P. Vilar and Arthur Tordesillas for plaintiff- equal yearly installments at the rate of P6,528.40
appellant. beginning July 31, 1957, and every year
Tomas Besa and Jose B. Galang for defendants- thereafter, the last of which would be on July 31,
appellees. 1961.
ANGELES, J.: On October 19, 1956, the PNB made another
An appeal from a decision, dated April 2, 1964, of the release of P15,500 as part of the approved loan
Court of First Instance of Manila in Civil Case No. 52089, granted to the plaintiff and so on the said date,
entitled "Mambulao Lumber Company, plaintiff, versus the latter executed another promissory note
Philippine National Bank and Anacleto Heraldo, wherein it agreed to pay to the former the said
defendants", dismissing the complaint against both sum in five equal yearly installments at the rate of
defendants and sentencing the plaintiff to pay to P3,679.64 beginning July 31, 1957, and ending
defendant Philippine National Bank (PNB for short) the on July 31, 1961.
sum of P3,582.52 with interest thereon at the rate of 6%
64
The plaintiff failed to pay the amortization on the The letter of the plaintiff to the Naga Branch of the
amounts released to and received by it. Repeated PNB was construed by the latter as a request for
demands were made upon the plaintiff to pay its extension of the foreclosure sale of the
obligation but it failed or otherwise refused to do mortgaged chattels and so it advised the Sheriff
so. Upon inspection and verification made by of Camarines Norte to defer it to December 21,
employees of the PNB, it was found that the 1961, at the same time and place. A copy of said
plaintiff had already stopped operation about the advice was sent to the plaintiff for its information
end of 1957 or early part of 1958. and guidance.
On September 27, 1961, the PNB sent a letter to The foreclosure sale of the parcel of land,
the Provincial Sheriff of Camarines Norte together with the buildings and improvements
requesting him to take possession of the parcel of thereon, covered by Transfer Certificate of Title
land, together with the improvements existing No. 381, was, however, held on November 21,
thereon, covered by Transfer Certificate of Title 1961, and the said property was sold to the PNB
No. 381 of the land records of Camarines Norte, for the sum of P56,908.00, subject to the right of
and to sell it at public auction in accordance with the plaintiff to redeem the same within a period of
the provisions of Act No. 3135, as amended, for one year. On the same date, Deputy Provincial
the satisfaction of the unpaid obligation of the Sheriff Heraldo executed a certificate of sale in
plaintiff, which as of September 22, 1961, favor of the PNB and a copy thereof was sent to
amounted to P57,646.59, excluding attorney's the plaintiff.
fees. In compliance with the request, on October In a letter dated December 14, 1961 (but
16, 1961, the Provincial Sheriff of Camarines apparently posted several days later), the plaintiff
Norte issued the corresponding notice of extra- sent a bank draft for P738.59 to the Naga Branch
judicial sale and sent a copy thereof to the plaintiff. of the PNB, allegedly in full settlement of the
According to the notice, the mortgaged property balance of the obligation of the plaintiff after the
would be sold at public auction at 10:00 a.m. on application thereto of the sum of P56,908.00
November 21, 1961, at the ground floor of the representing the proceeds of the foreclosure sale
Court House in Daet, Camarines Norte. of parcel of land described in Transfer Certificate
On November 6, 1961, the PNB sent a letter to of Title No. 381. In the said letter, the plaintiff
the Provincial Sheriff of Camarines Norte reiterated its request that the foreclosure sale of
requesting him to take possession of the chattels the mortgaged chattels be discontinued on the
mortgaged to it by the plaintiff and sell them at grounds that the mortgaged indebtedness had
public auction also on November 21, 1961, for the been fully paid and that it could not be legally
satisfaction of the sum of P57,646.59, plus 6% effected at a place other than the City of Manila.
annual interest therefore from September 23, In a letter dated December 16, 1961, the plaintiff
1961, attorney's fees equivalent to 10% of the advised the Provincial Sheriff of Camarines Norte
amount due and the costs and expenses of the that it had fully paid its obligation to the PNB, and
sale. On the same day, the PNB sent notice to the enclosed therewith a copy of its letter to the latter
plaintiff that the former was foreclosing dated December 14, 1961.
extrajudicially the chattels mortgaged by the latter
On December 18, 1961, the Attorney of the Naga
and that the auction sale thereof would be held on
Branch of the PNB, wrote to the plaintiff
November 21, 1961, between 9:00 and 12:00
acknowledging the remittance of P738.59 with
a.m., in Mambulao, Camarines Norte, where the
the advice, however, that as of that date the
mortgaged chattels were situated.
balance of the account of the plaintiff was
On November 8, 1961, Deputy Provincial Sheriff P9,161.76, to which should be added the
Anacleto Heraldo took possession of the chattels expenses of guarding the mortgaged chattels at
mortgaged by the plaintiff and made an inventory the rate of P4.00 a day beginning December 19,
thereof in the presence of a PC Sergeant and a 1961. It was further explained in said letter that
policeman of the municipality of Jose Panganiban. the sum of P57,646.59, which was stated in the
On November 9, 1961, the said Deputy Sheriff request for the foreclosure of the real estate
issued the corresponding notice of public auction mortgage, did not include the 10% attorney's fees
sale of the mortgaged chattels to be held on and expenses of the sale. Accordingly, the
November 21, 1961, at 10:00 a.m., at the plaintiff was advised that the foreclosure sale
plaintiff's compound situated in the municipality of scheduled on the 21st of said month would be
Jose Panganiban, Province of Camarines Norte. stopped if a remittance of P9,161.76, plus interest
On November 19, 1961, the plaintiff sent thereon and guarding fees, would be made.
separate letters, posted as registered air mail On December 21, 1961, the foreclosure sale of
matter, one to the Naga Branch of the PNB and the mortgaged chattels was held at 10:00 a.m.
another to the Provincial Sheriff of Camarines and they were awarded to the PNB for the sum of
Norte, protesting against the foreclosure of the P4,200 and the corresponding bill of sale was
real estate and chattel mortgages on the grounds issued in its favor by Deputy Provincial Sheriff
that they could not be effected unless a Court's Heraldo.
order was issued against it (plaintiff) for said
In a letter dated December 26, 1961, the Manager
purpose and that the foreclosure proceedings,
of the Naga Branch of the PNB advised the
according to the terms of the mortgage contracts,
plaintiff giving it priority to repurchase the chattels
should be made in Manila. In said letter to the
acquired by the former at public auction. This
Naga Branch of the PNB, it was intimated that if
offer was reiterated in a letter dated January 3,
the public auction sale would be suspended and
1962, of the Attorney of the Naga Branch of the
the plaintiff would be given an extension of ninety
PNB to the plaintiff, with the suggestion that it
(90) days, its obligation would be settled
exercise its right of redemption and that it apply
satisfactorily because an important negotiation
for the condonation of the attorney's fees. The
was then going on for the sale of its "whole
plaintiff did not follow the advice but on the
interest" for an amount more than sufficient to
contrary it made known of its intention to file
liquidate said obligation.

65
appropriate action or actions for the protection of 22, 1961; and to this erroneously computed total of
its interests. P57,646.59, the trial court added 6% interest per annum
On May 24, 1962, several employees of the PNB from September 23, 1961 to November 21 of the same
arrived in the compound of the plaintiff in Jose year. In effect, the PNB has claimed, and the trial court
Panganiban, Camarines Norte, and they has adjudicated to it, interest on accrued interests from
informed Luis Salgado, Chief Security Guard of the time the various amortizations of the loan became due
the premises, that the properties therein had until the real estate mortgage executed to secure the loan
been auctioned and bought by the PNB, which in was extra-judicially foreclosed on November 21, 1961.
turn sold them to Mariano Bundok. Upon being This is an error. Section 5 of Act No. 2655 expressly
advised that the purchaser would take delivery of provides that in computing the interest on any obligation,
the things he bought, Salgado was at first promissory note or other instrument or contract,
reluctant to allow any piece of property to be compound interest shall not be reckoned, except by
taken out of the compound of the plaintiff. The agreement, or in default thereof, whenever the debt is
employees of the PNB explained that should judicially claimed. This is also the clear mandate of Article
Salgado refuse, he would be exposing himself to 2212 of the new Civil Code which provides that interest
a litigation wherein he could be held liable to pay due shall earn legal interest only from the time it is
big sum of money by way of damages. judicially demanded, and of Article 1959 of the same code
Apprehensive of the risk that he would take, which ordains that interest due and unpaid shall not earn
Salgado immediately sent a wire to the President interest. Of course, the parties may, by stipulation,
of the plaintiff in Manila, asking advice as to what capitalize the interest due and unpaid, which as added
he should do. In the meantime, Mariano Bundok principal shall earn new interest; but such stipulation is
was able to take out from the plaintiff's compound nowhere to be found in the terms of the promissory notes
two truckloads of equipment. involved in this case. Clearly therefore, the trial court fell
into error when it awarded interest on accrued interests,
In the afternoon of the same day, Salgado
without any agreement to that effect and before they had
received a telegram from plaintiff's President
been judicially demanded.
directing him not to deliver the "chattels" without
court order, with the information that the company Appellant next assails the award of attorney's fees and the
was then filing an action for damages against the expenses of the foreclosure sale in favor of the PNB. With
PNB. On the following day, May 25, 1962, two respect to the amount of P298.54 allowed as expenses of
trucks and men of Mariano Bundok arrived but the extra-judicial sale of the real property, appellant
Salgado did not permit them to take out any maintains that the same has no basis, factual or legal, and
equipment from inside the compound of the should not have been awarded. It likewise decries the
plaintiff. Thru the intervention, however, of the award of attorney's fees which, according to the appellant,
local police and PC soldiers, the trucks of Mariano should not be deducted from the proceeds of the sale of
Bundok were able finally to haul the properties the real property, not only because there is no express
originally mortgaged by the plaintiff to the PNB, agreement in the real estate mortgage contract to pay
which were bought by it at the foreclosure sale attorney's fees in case the same is extra-judicially
and subsequently sold to Mariano Bundok. foreclosed, but also for the reason that the PNB neither
spent nor incurred any obligation to pay attorney's fees in
Upon the foregoing facts, the trial court rendered the
connection with the said extra-judicial foreclosure under
decision appealed from which, as stated in the first
consideration.
paragraph of this opinion, sentenced the Mambulao
Lumber Company to pay to the defendant PNB the sum There is reason for the appellant to assail the award of
of P3,582.52 with interest thereon at the rate of 6% per P298.54 as expenses of the sale. In this respect, the trial
annum from December 22, 1961 (day following the date court said:
of the questioned foreclosure of plaintiff's chattels) until The parcel of land, together with the buildings and
fully paid, and the costs. Mambulao Lumber Company improvements existing thereon covered by
interposed the instant appeal. Transfer Certificate of Title No. 381, was sold for
We shall discuss the various points raised in appellant's P56,908. There was, however, no evidence how
brief in seriatim. much was the expenses of the foreclosure sale
although from the pertinent provisions of the
The first question Mambulao Lumber Company poses is
Rules of Court, the Sheriff's fees would be P1 for
that which relates to the amount of its indebtedness to the
advertising the sale (par. k, Sec. 7, Rule 130 of
PNB arising out of the principal loans and the accrued
the Old Rules) and P297.54 as his commission
interest thereon. It is contended that its obligation under
for the sale (par. n, Sec. 7, Rule 130 of the Old
the terms of the two promissory notes it had executed in
Rules) or a total of P298.54.
favor of the PNB amounts only to P56,485.87 as of
November 21, 1961, when the sale of real property was There is really no evidence of record to support the
effected, and not P58,213.51 as found by the trial court. conclusion that the PNB is entitled to the amount awarded
as expenses of the extra-judicial foreclosure sale. The
There is merit to this claim. Examining the terms of the
court below committed error in applying the provisions of
promissory note executed by the appellant in favor of the
the Rules of Court for purposes of arriving at the amount
PNB, we find that the agreed interest on the loan of
awarded. It is to be borne in mind that the fees
P43,000.00 — P27,500.00 released on August 2, 1956 as
enumerated under paragraphs k and n, Section 7, of Rule
per promissory note of even date (Exhibit C-3), and
130 (now Rule 141) are demandable, only by a sheriff
P15,500.00 released on October 19, 1956, as per
serving processes of the court in connection with judicial
promissory note of the same date (Exhibit C-4) — was six
foreclosure of mortgages under Rule 68 of the new Rules,
per cent (6%) per annum from the respective date of said
and not in cases of extra-judicial foreclosure of mortgages
notes "until paid". In the statement of account of the
under Act 3135. The law applicable is Section 4 of Act
appellant as of September 22, 1961, submitted by the
3135 which provides that the officer conducting the sale
PNB, it appears that in arriving at the total indebtedness
is entitled to collect a fee of P5.00 for each day of actual
of P57,646.59 as of that date, the PNB had compounded
work performed in addition to his expenses in connection
the principal of the loan and the accrued 6% interest
with the foreclosure sale. Admittedly, the PNB failed to
thereon each time the yearly amortizations became due,
prove during the trial of the case, that it actually spent any
and on the basis of these compounded amounts charged
amount in connection with the said foreclosure sale.
additional delinquency interest on them up to September
66
Neither may expenses for publication of the notice be attorney's fees will not be allowed when the attorney
legally allowed in the absence of evidence on record to conducting the foreclosure proceedings is an officer of the
support it. 1 It is true, as pointed out by the appellee bank, corporation (mortgagee) who receives a salary for all the
that courts should take judicial notice of the fees provided legal services performed by him for the
for by law which need not be proved; but in the absence corporation. 3 These authorities are indeed enlightening;
of evidence to show at least the number of working days but they should not be applied in this case. The very same
the sheriff concerned actually spent in connection with the authority first cited suggests that said principle is not
extra-judicial foreclosure sale, the most that he may be absolute, for there is authority to the contrary. As to the
entitled to, would be the amount of P10.00 as a fact that the foreclosure proceeding's were handled by an
reasonable allowance for two day's work — one for the attorney of the legal staff of the PNB, we are reluctant to
preparation of the necessary notices of sale, and the other exonerate herein appellant from the payment of the
for conducting the auction sale and issuance of the stipulated attorney's fees on this ground alone,
corresponding certificate of sale in favor of the buyer. considering the express agreement between the parties
Obviously, therefore, the award of P298.54 as expenses in the mortgage contract under which appellant became
of the sale should be set aside. liable to pay the same. At any rate, we find merit in the
But the claim of the appellant that the real estate contention of the appellant that the award of P5,821.35 in
mortgage does not provide for attorney's fees in case the favor of the PNB as attorney's fees is unconscionable and
same is extra-judicially foreclosed, cannot be favorably unreasonable, considering that all that the branch
considered, as would readily be revealed by an attorney of the said bank did in connection with the
examination of the pertinent provision of the mortgage foreclosure sale of the real property was to file a petition
contract. The parties to the mortgage appear to have with the provincial sheriff of Camarines Norte requesting
stipulated under paragraph (c) thereof, inter alia: the latter to sell the same in accordance with the
provisions of Act 3135.
. . . For the purpose of extra-judicial foreclosure,
the Mortgagor hereby appoints the Mortgagee his The principle that courts should reduce stipulated
attorney-in-fact to sell the property mortgaged attorney's fees whenever it is found under the
under Act 3135, as amended, to sign all circumstances of the case that the same is unreasonable,
documents and to perform all acts requisite and is now deeply rooted in this jurisdiction to entertain any
necessary to accomplish said purpose and to serious objection to it. Thus, this Court has explained:
appoint its substitute as such attorney-in-fact with But the principle that it may be lawfully stipulated
the same powers as above specified. In case of that the legal expenses involved in the collection
judicial foreclosure, the Mortgagor hereby of a debt shall be defrayed by the debtor does not
consents to the appointment of the Mortgagee or imply that such stipulations must be enforced in
any of its employees as receiver, without any accordance with the terms, no matter how
bond, to take charge of the mortgaged property at injurious or oppressive they may be. The lawful
once, and to hold possession of the same and the purpose to be accomplished by such a stipulation
rents, benefits and profits derived from the is to permit the creditor to receive the amount due
mortgaged property before the sale, less the him under his contract without a deduction of the
costs and expenses of the receivership; the expenses caused by the delinquency of the
Mortgagor hereby agrees further that in all cases, debtor. It should not be permitted for him to
attorney's fees hereby fixed at Ten Per cent (10%) convert such a stipulation into a source of
of the total indebtedness then unpaid which in no speculative profit at the expense of the debtor.
case shall be less than P100.00 exclusive of all Contracts for attorney's services in this
fees allowed by law, and the expenses of jurisdiction stands upon an entirely different
collection shall be the obligation of the Mortgagor footing from contracts for the payment of
and shall with priority, be paid to the Mortgagee compensation for any other services. By express
out of any sums realized as rents and profits provision of section 29 of the Code of Civil
derived from the mortgaged property or from the Procedure, an attorney is not entitled in the
proceeds realized from the sale of the said absence of express contract to recover more than
property and this mortgage shall likewise stand a reasonable compensation for his services; and
as security therefor. . . . even when an express contract is made the court
We find the above stipulation to pay attorney's fees clear can ignore it and limit the recovery to reasonable
enough to cover both cases of foreclosure sale mentioned compensation if the amount of the stipulated fee
thereunder, i.e., judicially or extra-judicially. While the is found by the court to be unreasonable. This is
phrase "in all cases" appears to be part of the second a very different rule from that announced in
sentence, a reading of the whole context of the stipulation section 1091 of the Civil Code with reference to
would readily show that it logically refers to extra-judicial the obligation of contracts in general, where it is
foreclosure found in the first sentence and to judicial said that such obligation has the force of law
foreclosure mentioned in the next sentence. And the between the contracting parties. Had the plaintiff
ambiguity in the stipulation suggested and pointed out by herein made an express contract to pay his
the appellant by reason of the faulty sentence attorney an uncontingent fee of P2,115.25 for the
construction should not be made to defeat the otherwise services to be rendered in reducing the note here
clear intention of the parties in the agreement. in suit to judgment, it would not have been
It is suggested by the appellant, however, that even if the enforced against him had he seen fit to oppose it,
above stipulation to pay attorney's fees were applicable to as such a fee is obviously far greater than is
the extra-judicial foreclosure sale of its real properties, still, necessary to remunerate the attorney for the
the award of P5,821.35 for attorney's fees has no legal work involved and is therefore unreasonable. In
justification, considering the circumstance that the PNB order to enable the court to ignore an express
did not actually spend anything by way of attorney's fees contract for an attorney's fees, it is not necessary
in connection with the sale. In support of this proposition, to show, as in other contracts, that it is contrary to
appellant cites authorities to the effect: (1) that when the morality or public policy (Art. 1255, Civil Code). It
mortgagee has neither paid nor incurred any obligation to is enough that it is unreasonable or
pay an attorney in connection with the foreclosure sale, unconscionable. 4
the claim for such fees should be denied; 2 and (2) that

67
Since then this Court has invariably fixed counsel fees on III. Attorney's fee 1,000.00
a quantum meruit basis whenever the fees stipulated
appear excessive, unconscionable, or unreasonable,
because a lawyer is primarily a court officer charged with
the duty of assisting the court in administering impartial Total obligation as of Nov. 21, 1961 P57,495.86
justice between the parties, and hence, the fees should
be subject to judicial control. Nor should it be ignored that B. -
sound public policy demands that courts disregard
stipulations for counsel fees, whenever they appear to be Proceeds of the foreclosure sale of
a source of speculative profit at the expense of the debtor I. the real estate mortgage on Nov. 21, P56,908.00
or mortgagor. 5 And it is not material that the present 1961
action is between the debtor and the creditor, and not
between attorney and client. As court have power to fix II. Additional amount remitted to the
738.59
the fee as between attorney and client, it must necessarily PNB on Dec. 18, 1961
have the right to say whether a stipulation like this,
inserted in a mortgage contract, is valid. 6
In determining the compensation of an attorney, the Total amount of Payment made to
PNB as of Dec. 18, 1961 P57,646.59
following circumstances should be considered: the
amount and character of the services rendered; the
responsibility imposed; the amount of money or the value
of the property affected by the controversy, or involved in Deduct: Total obligation to the PNB P57,495.86
the employment; the skill and experience called for in the
performance of the service; the professional standing of
the attorney; the results secured; and whether or not the Excess Payment to the PNB P 150.73
fee is contingent or absolute, it being a recognized rule ========
that an attorney may properly charge a much larger fee
when it is to be contingent than when it is not. 7 From the From the foregoing illustration or computation, it is clear
stipulation in the mortgage contract earlier quoted, it that there was no further necessity to foreclose the
appears that the agreed fee is 10% of the total mortgage of herein appellant's chattels on December 21,
indebtedness, irrespective of the manner the foreclosure 1961; and on this ground alone, we may declare the sale
of the mortgage is to be effected. The agreement is of appellant's chattels on the said date, illegal and void.
perhaps fair enough in case the foreclosure proceedings But we take into consideration the fact that the PNB must
is prosecuted judicially but, surely, it is unreasonable have been led to believe that the stipulated 10% of the
when, as in this case, the mortgage was foreclosed extra- unpaid loan for attorney's fees in the real estate mortgage
judicially, and all that the attorney did was to file a petition was legally maintainable, and in accordance with such
for foreclosure with the sheriff concerned. It is to be belief, herein appellee bank insisted that the proceeds of
assumed though, that the said branch attorney of the PNB the sale of appellant's real property was deficient to
made a study of the case before deciding to file the liquidate the latter's total indebtedness. Be that as it may,
petition for foreclosure; but even with this in mind, we however, we still find the subsequent sale of herein
believe the amount of P5,821.35 is far too excessive a fee appellant's chattels illegal and objectionable on other
for such services. Considering the above circumstances grounds.
mentioned, it is our considered opinion that the amount of That appellant vigorously objected to the foreclosure of its
P1,000.00 would be more than sufficient to compensate chattel mortgage after the foreclosure of its real estate
the work aforementioned. mortgage on November 21, 1961, can not be doubted, as
The next issue raised deals with the claim that the shown not only by its letter to the PNB on November 19,
proceeds of the sale of the real properties alone together 1961, but also in its letter to the provincial sheriff of
with the amount it remitted to the PNB later was more than Camarines Norte on the same date. These letters were
sufficient to liquidate its total obligation to herein appellee followed by another letter to the appellee bank on
bank. Again, we find merit in this claim. From the December 14, 1961, wherein herein appellant, in no
foregoing discussion of the first two errors assigned, and uncertain terms, reiterated its objection to the scheduled
for purposes of determining the total obligation of herein sale of its chattels on December 21, 1961 at Jose
appellant to the PNB as of November 21, 1961 when the Panganiban, Camarines Norte for the reasons therein
real estate mortgage was foreclosed, we have the stated that: (1) it had settled in full its total obligation to the
following illustration in support of this PNB by the sale of the real estate and its subsequent
conclusion:1äwphï1.ñët remittance of the amount of P738.59; and (2) that the
contemplated sale at Jose Panganiban would violate their
A. - agreement embodied under paragraph (i) in the Chattel
Mortgage which provides as follows:
I. Principal Loan
(i) In case of both judicial and extra-judicial
foreclosure under Act 1508, as amended, the
(a) Promissory note dated August 2, parties hereto agree that the corresponding
P27,500.00
1956 complaint for foreclosure or the petition for sale
should be filed with the courts or the sheriff of the
(1) Interest at 6% per annum from City of Manila, as the case may be; and that the
8,751.78
Aug. 2, 1956 to Nov. 21, 1961 Mortgagor shall pay attorney's fees hereby fixed
at ten per cent (10%) of the total indebtedness
(b) Promissory note dated October then unpaid but in no case shall it be less than
P15,500.00
19, 1956 P100.00, exclusive of all costs and fees allowed
by law and of other expenses incurred in
(1) Interest at 6% per annum from connection with the said foreclosure. [Emphasis
4,734.08
Oct.19, 1956 to Nov. 21, 1961 supplied]
Notwithstanding the abovequoted agreement in the
II. Sheriff's fees [for two (2) day's work] 10.00
chattel mortgage contract, and in utter disregard of the
objection of herein appellant to the sale of its chattels at
68
Jose Panganiban, Camarines Norte and not in the City of conducted at a place other than that stipulated for
Manila as agreed upon, the PNB proceeded with the in the mortgage is invalid, unless the mortgagor
foreclosure sale of said chattels. The trial court, however, consents to such sale. 12
justified said action of the PNB in the decision appealed Moreover, Section 14 of Act 1508, as amended, provides
from in the following rationale: that the officer making the sale should make a return of
While it is true that it was stipulated in the chattel his doings which shall particularly describe the articles
mortgage contract that a petition for the extra- sold and the amount received from each article. From this,
judicial foreclosure thereof should be filed with it is clear that the law requires that sale be made article
the Sheriff of the City of Manila, nevertheless, the by article, otherwise, it would be impossible for him to
effect thereof was merely to provide another state the amount received for each item. This requirement
place where the mortgage chattel could be sold in was totally disregarded by the Deputy Sheriff of
addition to those specified in the Chattel Camarines Norte when he sold the chattels in question in
Mortgage Law. Indeed, a stipulation in a contract bulk, notwithstanding the fact that the said chattels
cannot abrogate much less impliedly repeal a consisted of no less than twenty different items as shown
specific provision of the statute. Considering that in the bill of sale. 13 This makes the sale of the chattels
Section 14 of Act No. 1508 vests in the manifestly objectionable. And in the absence of any
mortgagee the choice where the foreclosure sale evidence to show that the mortgagor had agreed or
should be held, hence, in the case under consented to such sale in gross, the same should be set
consideration, the PNB had three places from aside.
which to select, namely: (1) the place of residence It is said that the mortgagee is guilty of conversion when
of the mortgagor; (2) the place of the mortgaged he sells under the mortgage but not in accordance with its
chattels were situated; and (3) the place terms, or where the proceedings as to the sale of
stipulated in the contract. The PNB selected the foreclosure do not comply with the statute. 14 This rule
second and, accordingly, the foreclosure sale applies squarely to the facts of this case where, as earlier
held in Jose Panganiban, Camarines Norte, was shown, herein appellee bank insisted, and the appellee
legal and valid. deputy sheriff of Camarines Norte proceeded with the
To the foregoing conclusion, We disagree. While the law sale of the mortgaged chattels at Jose Panganiban,
grants power and authority to the mortgagee to sell the Camarines Norte, in utter disregard of the valid objection
mortgaged property at a public place in the municipality of the mortgagor thereto for the reason that it is not the
where the mortgagor resides or where the property is place of sale agreed upon in the mortgage contract; and
situated, 8 this Court has held that the sale of a mortgaged the said deputy sheriff sold all the chattels (among which
chattel may be made in a place other than that where it is were a skagit with caterpillar engine, three GMC 6 x 6
found, provided that the owner thereof consents thereto; trucks, a Herring Hall Safe, and Sawmill equipment
or that there is an agreement to this effect between the consisting of a 150 HP Murphy Engine, plainer, large
mortgagor and the mortgagee. 9 But when, as in this case, circular saws etc.) as a single lot in violation of the
the parties agreed to have the sale of the mortgaged requirement of the law to sell the same article by article.
chattels in the City of Manila, which, any way, is the The PNB has resold the chattels to another buyer with
residence of the mortgagor, it cannot be rightly said that whom it appears to have actively cooperated in
mortgagee still retained the power and authority to select subsequently taking possession of and removing the
from among the places provided for in the law and the chattels from appellant compound by force, as shown by
place designated in their agreement over the objection of the circumstance that they had to take along PC soldiers
the mortgagor. In providing that the mortgaged chattel and municipal policemen of Jose Panganiban who placed
may be sold at the place of residence of the mortgagor or the chief security officer of the premises in jail to deprive
the place where it is situated, at the option of the herein appellant of its possession thereof. To exonerate
mortgagee, the law clearly contemplated benefits not only itself of any liability for the breach of peace thus
to the mortgagor but to the mortgagee as well. Their right committed, the PNB would want us to believe that it was
arising thereunder, however, are personal to them; they the subsequent buyer alone, who is not a party to this
do not affect either public policy or the rights of third case, that was responsible for the forcible taking of the
persons. They may validly be waived. So, when herein property; but assuming this to be so, still the PNB cannot
mortgagor and mortgagee agreed in the mortgage escape liability for the conversion of the mortgaged
contract that in cases of both judicial and extra-judicial chattels by parting with its interest in the property. Neither
foreclosure under Act 1508, as amended, the would its claim that it afterwards gave a chance to herein
corresponding complaint for foreclosure or the petition for appellant to repurchase or redeem the chattels, improve
sale should be filed with the courts or the Sheriff of Manila, its position, for the mortgagor is not under obligation to
as the case may be, they waived their corresponding take affirmative steps to repossess the chattels that were
rights under the law. The correlative obligation arising converted by the mortgagee. 15 As a consequence of the
from that agreement have the force of law between them said wrongful acts of the PNB and the Deputy Sheriff of
and should be complied with in good faith. 10 Camarines Norte, therefore, We have to declare that
By said agreement the parties waived the legal herein appellant is entitled to collect from them, jointly and
venue, and such waiver is valid and legally severally, the full value of the chattels in question at the
effective, because it, was merely a personal time they were illegally sold by them. To this effect was
privilege they waived, which is not contrary, to the holding of this Court in a similar situation. 16
public policy or to the prejudice of third persons. The effect of this irregularity was, in our opinion
It is a general principle that a person may to make the plaintiff liable to the defendant for the
renounce any right which the law gives unless full value of the truck at the time the plaintiff thus
such renunciation is expressly prohibited or the carried it off to be sold; and of course, the burden
right conferred is of such nature that its is on the defendant to prove the damage to which
renunciation would be against public policy. 11 he was thus subjected. . . .
On the other hand, if a place of sale is specified This brings us to the problem of determining the value of
in the mortgage and statutory requirements in the mortgaged chattels at the time of their sale in 1961.
regard thereto are complied with, a sale is The trial court did not make any finding on the value of the
properly conducted in that place. Indeed, in the chattels in the decision appealed from and denied
absence of a statute to the contrary, a sale altogether the right of the appellant to recover the same.

69
We find enough evidence of record, however, which may market value of the chattels at the time of the sale should
be used as a guide to ascertain their value. The record be fixed at the original appraised value of P42,850.00.
shows that at the time herein appellant applied for its loan Herein appellant's claim for moral damages, however,
with the PNB in 1956, for which the chattels in question seems to have no legal or factual basis. Obviously, an
were mortgaged as part of the security therefore, herein artificial person like herein appellant corporation cannot
appellant submitted a list of the chattels together with its experience physical sufferings, mental anguish, fright,
application for the loan with a stated value of P107,115.85. serious anxiety, wounded feelings, moral shock or social
An official of the PNB made an inspection of the chattels humiliation which are basis of moral damages. 21 A
in the same year giving it an appraised value of corporation may have a good reputation which, if
P42,850.00 and a market value of P85,700.00. 17 The besmirched, may also be a ground for the award of moral
same chattels with some additional equipment acquired damages. The same cannot be considered under the
by herein appellant with part of the proceeds of the loan facts of this case, however, not only because it is admitted
were reappraised in a re-inspection conducted by the that herein appellant had already ceased in its business
same official in 1958, in the report of which he gave all the operation at the time of the foreclosure sale of the chattels,
chattels an appraised value of P26,850.00 and a market but also for the reason that whatever adverse effects of
value of P48,200.00. 18 Another re-inspection report in the foreclosure sale of the chattels could have upon its
1959 gave the appraised value as P19,400.00 and the reputation or business standing would undoubtedly be the
market value at P25,600.00. 19 The said official of the PNB same whether the sale was conducted at Jose
who made the foregoing reports of inspection and re- Panganiban, Camarines Norte, or in Manila which is the
inspections testified in court that in giving the values place agreed upon by the parties in the mortgage contract.
appearing in the reports, he used a conservative method
But for the wrongful acts of herein appellee bank and the
of appraisal which, of course, is to be expected of an
deputy sheriff of Camarines Norte in proceeding with the
official of the appellee bank. And it appears that the values
sale in utter disregard of the agreement to have the
were considerably reduced in all the re-inspection reports
chattels sold in Manila as provided for in the mortgage
for the reason that when he went to herein appellant's
contract, to which their attentions were timely called by
premises at the time, he found the chattels no longer in
herein appellant, and in disposing of the chattels in gross
use with some of the heavier equipments dismantled with
for the miserable amount of P4,200.00, herein appellant
parts thereof kept in the bodega; and finding it difficult to
should be awarded exemplary damages in the sum of
ascertain the value of the dismantled chattels in such
P10,000.00. The circumstances of the case also warrant
condition, he did not give them anymore any value in his
the award of P3,000.00 as attorney's fees for herein
reports. Noteworthy is the fact, however, that in the last
appellant.
re-inspection report he made of the chattels in 1961, just
a few months before the foreclosure sale, the same WHEREFORE AND CONSIDERING ALL THE
inspector of the PNB reported that the heavy equipment FOREGOING, the decision appealed from should be, as
of herein appellant were "lying idle and rusty" but were hereby, it is set aside. The Philippine National Bank and
"with a shed free from rains" 20 showing that although they the Deputy Sheriff of the province of Camarines Norte are
were no longer in use at the time, they were kept in a ordered to pay, jointly and severally, to Mambulao Lumber
proper place and not exposed to the elements. The Company the total amount of P56,000.73, broken as
President of the appellant company, on the other hand, follows: P150.73 overpaid by the latter to the PNB,
testified that its caterpillar (tractor) alone is worth P42,850.00 the value of the chattels at the time of the sale
P35,000.00 in the market, and that the value of its two with interest at the rate of 6% per annum from December
trucks acquired by it with part of the proceeds of the loan 21, 1961, until fully paid, P10,000.00 in exemplary
and included as additional items in the mortgaged chattels damages, and P3,000.00 as attorney's fees. Costs
were worth no less than P14,000.00. He likewise against both appellees.
appraised the worth of its Murphy engine at P16,000.00
which, according to him, when taken together with the
heavy equipments he mentioned, the sawmill itself and all
other equipment forming part of the chattels under G.R. Nos. 86883-85 January 29, 1993
consideration, and bearing in mind the current cost of
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
equipments these days which he alleged to have
vs.
increased by about five (5) times, could safely be
NORBERTO MANERO, JR., EDILBERTO MANERO,
estimated at P120,000.00. This testimony, except for the
ELPIDIO MANERO, SEVERINO LINES, RUDY LINES,
appraised and market values appearing in the inspection
EFREN PLEÑAGO, ROGER BEDAÑO, RODRIGO
and re-inspection reports of the PNB official earlier
ESPIA, ARSENIO VILLAMOR, JR., JOHN DOE and
mentioned, stand uncontroverted in the record; but We
PETER DOE, accused.
are not inclined to accept such testimony at its par value,
knowing that the equipments of herein appellant had been SEVERINO LINES, RUDY LINES, EFREN PLEÑAGO
idle and unused since it stopped operating its sawmill in and ROGER BENDAÑO, accused-appellants.
1958 up to the time of the sale of the chattels in 1961. We The Solicitor General for plaintiff-appellee.
have no doubt that the value of chattels was depreciated Romeo P. Jorge for accused-appellants.
after all those years of inoperation, although from the
evidence aforementioned, We may also safely conclude
that the amount of P4,200.00 for which the chattels were BELLOSILLO, J.:
sold in the foreclosure sale in question was grossly unfair This was gruesome murder in a main thoroughfare an
to the mortgagor. Considering, however, the facts that the hour before sundown. A hapless foreign religious minister
appraised value of P42,850.00 and the market value of was riddled with bullets, his head shattered into bits and
P85,700.00 originally given by the PNB official were pieces amidst the revelling of his executioners as they
admittedly conservative; that two 6 x 6 trucks danced and laughed around their quarry, chanting the
subsequently bought by the appellant company had tune "Mutya Ka Baleleng", a popular regional folk song,
thereafter been added to the chattels; and that the real kicking and scoffing at his prostrate, miserable, spiritless
value thereof, although depreciated after several years of figure that was gasping its last. Seemingly unsatiated with
inoperation, was in a way maintained because the the ignominy of their manslaughter, their leader picked up
depreciation is off-set by the marked increase in the cost pieces of the splattered brain and mockingly displayed
of heavy equipment in the market, it is our opinion that the them before horrified spectators. Some accounts swear
70
that acts of cannibalism ensued, although they were not of prision correccional, and minimum, to
sufficiently demonstrated. However, for their outrageous eight (8) years and twenty (20) days
feat, the gangleader already earned the monicker of prision mayor, as maximum, and to
"cannibal priest-killer" But, what is indubitable is that Fr. pay the complainant Rufino Robles the
Tulio Favali1 was senselessly killed for no apparent sum of P20,000.00 as attorney's fees and
reason than that he was one of the Italian Catholic P2,000.00 as court appearance fee for
missionaries laboring in heir vineyard in the hinterlands of every day of trial and to pay
Mindanao.2 proportionately the costs.
In the aftermath of the murder, police authorities launched The foregoing penalties shall be served
a massive manhunt which resulted in the capture of the by the said accused successively in the
perpetrators except Arsenio Villamor, Jr., and two order of their respective severity in
unidentified persons who eluded arrest and still remain at accordance with the provisions of Article
large. 70 of the Revised Penal Code, as
Informations for Murder,3 Attempted Murder4 and amended.7
Arson5 were accordingly filed against those responsible From this judgment of conviction only accused Severino
for the frenzied orgy of violence that fateful day of 11 April Lines, Rudy Lines, Efren Pleñago and Roger Bedaño
1985. As these cases arose from the same occasion, they appealed with respect to the cases for Murder and
were all consolidated in Branch 17 of the Regional Trial Attempted Murder. The Manero brothers as well as
Court of Kidapawan, Cotabato.6 Rodrigo Espia did not appeal; neither did Norberto
After trial, the court a quo held — Manero, Jr., in the Arson case. Consequently, the
decision as against them already became final.
WHEREFORE . . . the Court finds the
accused Norberto Manero, Jr. alias Culled from the records, the facts are: On 11 April 1985,
Commander Bucay, Edilberto Manero around 10:00 o'clock in the morning, the Manero brothers
alias Edil, Elpidio Manero, Severino Norberto Jr., Edilberto and Elpidio, along with Rodrigo
Lines, Rudy Lines, Rodrigo Espia alias Espia, Severino Lines, Rudy Lines, Efren Pleñago and
Rudy, Efren Pleñago and Roger Bedaño Roger Bedaño, were inside the eatery of one Reynaldo
GUILTY beyond reasonable doubt of the Diocades at Km. 125, La Esperanza, Tulunan, Cotabato.
offense of Murder, and with the They were conferring with Arsenio Villamor, Jr., private
aggravating circumstances of superior secretary to the Municipal Mayor of Tulunan, Cotabato,
strength and treachery, hereby and his two (2) unidentified bodyguards. Plans to liquidate
sentences each of them to a penalty of a number of suspected communist sympathizers were
imprisonment of reclusion perpetua; to discussed. Arsenio Villamor, Jr. scribbled on a cigarette
pay the Pontifical Institute of Foreign wrapper the following "NPA v. NPA, starring Fr. Peter,
Mission (PIME) Brothers, the Domingo Gomez, Bantil, Fred Gapate, Rene alias
congregation to which Father Tulio Favali Tabagac and Villaning." "Fr. Peter" is Fr. Peter Geremias,
belonged, a civil indemnity of P12,000.00; an Italian priest suspected of having links with the
attorney's fees in the sum of P50,000.00 communist movement; "Bantil" is Rufino Robles, a
for each of the eight (8) accused or a total Catholic lay leader who is the complaining witness in the
sum of P400,000.00; court appearance Attempted Murder; Domingo Gomez is another lay leader,
fee of P10,000.00 for every day the case while the others are simply "messengers". On the same
was set for trial; moral damages in the occasion, the conspirators agreed to Edilberto Manero's
sum of P100,000.00; and to pay proposal that should they fail to kill Fr. Peter Geremias,
proportionately the costs. another Italian priest would be killed in his stead.8
Further, the Court finds the accused At about 1:00 o'clock that afternoon, Elpidio Manero with
Norberto Manero, Jr. alias Commander two (2) unidentified companions nailed a placard on a
Bucay GUILTY beyond reasonable doubt street-post beside the eatery of Deocades. The placard
of the offense of Arson and with the bore the same inscriptions as those found on the cigarette
application of the Indeterminate wrapper except for the additional phrase "versus Bucay,
Sentence Law, hereby sentences him to Edil and Palo." Some two (2) hours later, Elpidio also
an indeterminate penalty of posted a wooden placard bearing the same message on
imprisonment of not less than four (4) a street cross-sign close to the eatery.9
years, nine (9) months, one (1) day Later, at 4:00 o'clock, the Manero brothers, together with
of prision correccional, as minimum, to Espia and the four (4) appellants, all with assorted
six (6) years of prision correccional, as firearms, proceeded to the house of "Bantil", their first
maximum, and to indemnify the Pontifical intended victim, which was also in the vicinity of
Institute of Foreign Mission (PIME) Deocades' carinderia. They were met by "Bantil" who
Brothers, the congregation to which confronted them why his name was included in the
Father Tulio Favali belonged, the sum of placards. Edilberto brushed aside the query; instead, he
P19,000.00 representing the value of the asked "Bantil" if he had any qualms about it, and without
motorcycle and to pay the costs. any provocation, Edilberto drew his revolver and fired at
Finally, the Court finds the accused the forehead of "Bantil". "Bantil" was able to parry the gun,
Norberto Manero, Jr., alias Commander albeit his right finger and the lower portion of his right ear
Bucay, Edilberto Manero alias Edil, were hit. Then they grappled for its possession until
Elpidio Manero, Severino Lines, Rudy "Bantil" was extricated by his wife from the fray. But, as
Lines, Rodrigo Espia alias Rudy, Efren he was running away, he was again fired upon by
Pleñago and Roger Bedaño GUILTY Edilberto. Only his trousers were hit. "Bantil" however
beyond reasonable doubt of the offense managed to seek refuge in the house of a certain
of Attempted Murder and with the Domingo Gomez. 10 Norberto, Jr., ordered his men to
application of the Indeterminate surround the house and not to allow any one to get out so
Sentence Law, hereby sentences each of that "Bantil" would die of hemorrhage. Then Edilberto
them to an indeterminate penalty of went back to the restaurant of Deocades and pistol-
imprisonment of not less than two (2) whipped him on the face and accused him of being a
years, four (4) months and one (1) day
71
communist coddler, while appellants and their cohorts where it would take the accused only fifteen to twenty
relished the unfolding drama. 11 minutes by jeep or tricycle, or some one-and-a-half hours
Moments later, while Deocades was feeding his swine, by foot, to traverse the distance between the place where
Edilberto strewed him with a burst of gunfire from his M- he allegedly was at the time of commission of the offense
14 Armalite. Deocades cowered in fear as he knelt with and the scene of the crime. 17 Recently, we ruled that
both hands clenched at the back of his head. This again there can be no physical impossibility even if the distance
drew boisterous laughter and ridicule from the dreaded between two places is merely two (2) hours by
desperados. bus. 18 More important, it is well-settled that the defense
of alibi cannot prevail over
At 5:00 o'clock, Fr. Tulio Favali arrived at Km. 125 on
the positive identification of the authors of the crime by the
board his motorcycle. He entered the house of Gomez.
prosecution witnesses. 19
While inside, Norberto, Jr., and his co-accused Pleñago
towed the motorcycle outside to the center of the highway. In the case before Us, two (2) eyewitnesses, Reynaldo
Norberto, Jr., opened the gasoline tank, spilled some fuel, Deocades and Manuel Bantolo, testified that they were
lit a fire and burned the motorcycle. As the vehicle was both inside the eatery at about 10:00 o'clock in the
ablaze, the felons raved and rejoiced. 12 morning of 11 April 1985 when the Manero brothers,
together with appellants, first discussed their plan to kill
Upon seeing his motorcycle on fire, Fr. Favali accosted
some communist sympathizers. The witnesses also
Norberto, Jr. But the latter simply stepped backwards and
testified that they still saw the appellants in the company
executed a thumbs-down signal. At this point, Edilberto
of the Manero brothers at 4:00 o'clock in the afternoon
asked the priest: "Ano ang gusto mo, padre (What is it you
when Rufino Robles was shot. Further, at 5:00 o'clock that
want, Father)? Gusto mo, Father, bukon ko ang ulo mo
same afternoon, appellants were very much at the scene
(Do you want me, Father, to break your head)?"
of the crime, along with the Manero brothers, when Fr.
Thereafter, in a flash, Edilberto fired at the head of the
Favali was brutally murdered. 20 Indeed, in the face of
priest. As Fr. Favali dropped to the ground, his hands
such positive declarations that appellants were at
clasped against his chest, Norberto, Jr., taunted Edilberto
the locus criminis from 10:00 o'clock in the morning up to
if that was the only way he knew to kill a priest. Slighted
about 5:00 o'clock in the afternoon, the alibi of appellants
over the remark, Edilberto jumped over the prostrate body
that they were somewhere else, which is negative in
three (3) times, kicked it twice, and fired anew. The burst
nature, cannot prevail. 21 The presence of appellants in
of gunfire virtually shattered the head of Fr. Favali,
the eatery at Km. 125 having been positively established,
causing his brain to scatter on the road. As Norberto, Jr.,
all doubts that they were not privy to the plot to liquidate
flaunted the brain to the terrified onlookers, his brothers
alleged communist sympathizers are therefore removed.
danced and sang "Mutya Ka Baleleng" to the delight of
There was direct proof to link them to the conspiracy.
their comrades-in-arms who now took guarded positions
to isolate the victim from possible assistance. 13 There is conspiracy when two or more persons come to
an agreement to commit a crime and decide to commit
In seeking exculpation from criminal liability, appellants
it. 22It is not essential that all the accused commit together
Severino Lines, Rudy Lines, Efren Pleñago and Roger
each and every act constitutive of the offense. 23 It is
Bedaño contend that the trial court erred in disregarding
enough that an accused participates in an act or deed
their respective defenses of alibi which, if properly
where there is singularity of purpose, and unity in its
appreciated, would tend to establish that there was no
execution is present. 24
prior agreement to kill; that the intended victim was Fr.
Peter Geremias, not Fr. Tulio Favali; that there was only The findings of the court a quo unmistakably show that
one (1) gunman, Edilberto; and, that there was absolutely there was indeed a community of design as evidenced by
no showing that appellants cooperated in the shooting of the concerted acts of all the accused. Thus —
the victim despite their proximity at the time to Edilberto. The other six accused, 25 all armed with
But the evidence on record does not agree with the high powered firearms, were positively
arguments of accused-appellants. identified with Norberto Manero, Jr. and
Edilberto Manero in the carinderia of
On their defense of alibi, accused brothers Severino and
Reynaldo Deocades in La Esperanza,
Rudy Lines claim that they were harvesting palay the
Tulunan, Cotabato at 10:00 o'clock in the
whole day of 11 April 1985 some one kilometer away from
morning of 11 April 1985 morning . . . they
the crime scene. Accused Roger Bedaño alleges that he
were outside of the carinderia by the
was on an errand for the church to buy lumber and nipa
window near the table where Edilberto
in M'lang, Cotabato, that morning of 11 April 1985, taking
Manero, Norberto Manero, Jr., Jun
along his wife and sick child for medical treatment and
Villamor, Elpidio Manero and unidentified
arrived in La Esperanza, Tulunan, past noontime.
members of the airborne from Cotabato
Interestingly, all appellants similarly contend that it was were grouped together. Later that
only after they heard gunshots that they rushed to the morning, they all went to the cockhouse
house of Norberto Manero, Sr., Barangay Captain of La nearby to finish their plan and drink tuba.
Esperanza, where they were joined by their fellow CHDF They were seen again with Edilberto
members and co-accused, and that it was only then that Manero and Norberto Manero, Jr., at
they proceeded together to where the crime took place at 4:00 o'clock in the afternoon of that day
Km. 125. near the house of Rufino Robles (Bantil)
It is axiomatic that the accused interposing the defense of when Edilberto Manero shot Robles.
alibi must not only be at some other place but that it must They surrounded the house of Domingo
also be physically impossible for him to be at the scene of Gomez where Robles fled and hid, but
the crime at the time of its commission. 14 later left when Edilberto Manero told
Considering the failure of appellants to prove the required them to leave as Robles would die of
physical impossibility of being present at the crime scene, hemorrhage. They followed Fr. Favali to
as can be readily deduced from the proximity between the Domingo Gomez' house, witnessed and
places where accused-appellants were allegedly situated enjoyed the burning of the motorcycle of
at the time of the commission of the offenses and Fr. Favali and later stood guard with their
the locus criminis, 15 the defense of alibi is definitely firearms ready on the road when
feeble. 16After all, it has been the consistent ruling of this Edilberto Manero shot to death Fr. Favali.
Court that no physical impossibility exists in instances Finally, they joined Norberto Manero, Jr.

72
and Edilberto Manero in their enjoyment and if not, they will (sic) make
and merriment on the death of the Reynaldo Deocades an example?
priest. 26 A He also agreed laughing.
From the foregoing narration of the trial court, it is clear Conspiracy or action in concert to achieve a criminal
that appellants were not merely innocent bystanders but design being sufficiently shown, the act of one is the act
were in fact vital cogs in perpetrating the savage murder of all the other conspirators, and
of Fr. Favali and the attempted murder of Rufino Robles the precise extent or modality of participation of each of
by the Manero brothers and their militiamen. For sure, them becomes secondary. 30
appellants all assumed a fighting stance to discourage if
The award of moral damages in the amount of
not prevent any attempt to provide assistance to the fallen
P100,000.00 to the congregation, the Pontifical Institute
priest. They surrounded the house of Domingo Gomez to
of Foreign Mission (PIME) Brothers, is not proper. There
stop Robles and the other occupants from leaving so that
is nothing on record which indicates that the deceased
the wounded Robles may die of
effectively severed his civil relations with his family, or that
hemorrhage. 27Undoubtedly, these were overt acts to
he disinherited any member thereof, when he joined his
ensure success of the commission of the crimes and in
religious congregation. As a matter of fact, Fr. Peter
furtherance of the aims of the conspiracy. The appellants
Geremias of the same congregation, who was then a
acted in concert in the murder of Fr. Favali and in the
parish priest of Kidapawan, testified that "the religious
attempted murder of Rufino Robles. While accused-
family belongs to the natural family of origin." 31 Besides,
appellants may not have delivered the fatal shots
as We already held, 32 a juridical person is not entitled to
themselves, their collective action showed a common
moral damages because, not being a natural person, it
intent to commit the criminal acts.
cannot experience physical suffering or such sentiments
While it may be true that Fr. Favali was not originally the as wounded feelings, serious anxiety, mental anguish or
intended victim, as it was Fr. Peter Geremias whom the moral shock. It is only when a juridical person has a good
group targetted for the kill, nevertheless, Fr. Favali was reputation that is debased, resulting in social humiliation,
deemed a good substitute in the murder as he was an that moral damages may be awarded.
Italian priest. On this, the conspirators expressly agreed.
Neither can We award moral damages to the heirs of the
As witness Manuel Bantolo explained 28 —
deceased who may otherwise be lawfully entitled thereto
Q Aside from those persons listed in that pursuant to par. (3), Art. 2206, of the Civil Code, 33 for the
paper to be killed, were there other persons reason that the heirs never presented any evidence
who were to be liquidated? showing that they suffered mental anguish; much less did
A There were some others. they take the witness stand. It has been held 34 that moral
Q Who were they? damages and their causal relation to the defendant's acts
should be satisfactorily proved by the claimant. It is
A They said that if they could not kill those
elementary that in order that moral damages may be
persons listed in that paper then they will (sic)
awarded there must be proof of moral
kill anyone so long as he is (sic) an Italian
suffering. 35 However, considering that the brutal slaying
and if they could not kill the persons they like
of Fr. Tulio Favali was attended with abuse of superior
to kill they will (sic) make Reynaldo
strength, cruelty and ignominy by deliberately and
Deocades as their sample.
inhumanly augmenting the pain and anguish of the victim,
That appellants and their co-accused reached a common outraging or scoffing at his person or corpse, exemplary
understanding to kill another Italian priest in the event that damages may be awarded to the lawful heirs, 36 even
Fr. Peter Geremias could not be spotted was elucidated though not proved nor expressly pleaded in the
by Bantolo thus 29 — complaint, 37 and the amount of P100,000.00 is
Q Who suggested that Fr. Peter be considered reasonable.
the first to be killed? With respect to the civil indemnity of P12,000.00 for the
A All of them in the group. death of Fr. Tulio Favali, the amount is increased to
Q What was the reaction of Norberto P50,000.00 in accordance with existing jurisprudence,
Manero with respect to the plan to kill which should be paid to the lawful heirs, not the PIME as
Fr. Peter? the trial court ruled.
A He laughed and even said, "amo WHEREFORE, the judgment appealed from being in
ina" meaning "yes, we will kill him accord with law and the evidence is AFFIRMED with the
ahead." modification that the civil indemnity which is increased
from P12,000.00 to P50,000.00 is awarded to the lawful
xxx xxx xxx
heirs of the deceased plus exemplary damages of
Q What about Severino Lines? What P100,000.00; however, the award of moral damages is
was his reaction? deleted.
A He also laughed and so conformed Costs against accused-appellants.
and agreed to it.
SO ORDERED.
Q Rudy Lines.
A He also said "yes".
Q What do you mean "yes"?
A He also agreed and he was happy
and said "yes" we will kill him.
GOCCs
xxx xxx xxx
Q What about Efren Pleñago? G.R. No. 155650 July 20, 2006
A He also agreed and even MANILA INTERNATIONAL AIRPORT
commented laughing "go ahead". AUTHORITY, petitioner,
vs.
Q Roger Bedaño, what was his COURT OF APPEALS, CITY OF PARAÑAQUE, CITY
reaction to that suggestion that should MAYOR OF PARAÑAQUE, SANGGUNIANG
they fail to kill Fr. Peter, they will (sic) PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR
kill anybody provided he is an Italian
73
OF PARAÑAQUE, and CITY TREASURER OF #9476103 for P49,115.006
PARAÑAQUE, respondents. On 17 July 2001, the City of Parañaque, through its City
DECISION Treasurer, issued notices of levy and warrants of levy on
CARPIO, J.: the Airport Lands and Buildings. The Mayor of the City of
Parañaque threatened to sell at public auction the Airport
The Antecedents
Lands and Buildings should MIAA fail to pay the real
Petitioner Manila International Airport Authority (MIAA) estate tax delinquency. MIAA thus sought a clarification of
operates the Ninoy Aquino International Airport (NAIA) OGCC Opinion No. 061.
Complex in Parañaque City under Executive Order No.
On 9 August 2001, the OGCC issued Opinion No. 147
903, otherwise known as the Revised Charter of the
clarifying OGCC Opinion No. 061. The OGCC pointed out
Manila International Airport Authority ("MIAA Charter").
that Section 206 of the Local Government Code requires
Executive Order No. 903 was issued on 21 July 1983 by
persons exempt from real estate tax to show proof of
then President Ferdinand E. Marcos. Subsequently,
exemption. The OGCC opined that Section 21 of the
Executive Order Nos. 9091 and 2982 amended the MIAA
MIAA Charter is the proof that MIAA is exempt from real
Charter.
estate tax.
As operator of the international airport, MIAA administers
On 1 October 2001, MIAA filed with the Court of Appeals
the land, improvements and equipment within the NAIA
an original petition for prohibition and injunction, with
Complex. The MIAA Charter transferred to MIAA
prayer for preliminary injunction or temporary restraining
approximately 600 hectares of land,3 including the
order. The petition sought to restrain the City of
runways and buildings ("Airport Lands and Buildings")
Parañaque from imposing real estate tax on, levying
then under the Bureau of Air Transportation. 4 The MIAA
against, and auctioning for public sale the Airport Lands
Charter further provides that no portion of the land
and Buildings. The petition was docketed as CA-G.R. SP
transferred to MIAA shall be disposed of through sale or
No. 66878.
any other mode unless specifically approved by the
President of the Philippines.5 On 5 October 2001, the Court of Appeals dismissed the
petition because MIAA filed it beyond the 60-day
On 21 March 1997, the Office of the Government
reglementary period. The Court of Appeals also denied on
Corporate Counsel (OGCC) issued Opinion No. 061. The
27 September 2002 MIAA's motion for reconsideration
OGCC opined that the Local Government Code of 1991
and supplemental motion for reconsideration. Hence,
withdrew the exemption from real estate tax granted to
MIAA filed on 5 December 2002 the present petition for
MIAA under Section 21 of the MIAA Charter. Thus, MIAA
review.7
negotiated with respondent City of Parañaque to pay the
real estate tax imposed by the City. MIAA then paid some Meanwhile, in January 2003, the City of Parañaque
of the real estate tax already due. posted notices of auction sale at the Barangay Halls of
Barangays Vitalez, Sto. Niño, and Tambo, Parañaque
On 28 June 2001, MIAA received Final Notices of Real
City; in the public market of Barangay La Huerta; and in
Estate Tax Delinquency from the City of Parañaque for
the main lobby of the Parañaque City Hall. The City of
the taxable years 1992 to 2001. MIAA's real estate tax
Parañaque published the notices in the 3 and 10 January
delinquency is broken down as follows:
2003 issues of the Philippine Daily Inquirer, a newspaper
TAX TAXABLE of general circulation in the Philippines. The notices
TAX DUE PENALTY TOTAL
DECLARATION YEAR announced the public auction sale of the Airport Lands
and Buildings to the highest bidder on 7 February 2003,
E-016-01370 1992- 19,558,160.00 11,201,083.20 30,789,243.20
10:00 a.m., at the Legislative Session Hall Building of
2001
Parañaque City.
E-016-01374 1992- 111,689,424.90 68,149,479.59 179,838,904.49
A day before the public auction, or on 6 February 2003, at
2001 5:10 p.m., MIAA filed before this Court an Urgent Ex-
Parte and Reiteratory Motion for the Issuance of a
E-016-01375 1992- 20,276,058.00 12,371,832.00 32,647,890.00
Temporary Restraining Order. The motion sought to
2001
restrain respondents — the City of Parañaque, City Mayor
E-016-01376 1992- 58,144,028.00 35,477,712.00 of Parañaque, Sangguniang Panglungsod ng Parañaque,
93,621,740.00
2001 City Treasurer of Parañaque, and the City Assessor of
Parañaque ("respondents") — from auctioning the Airport
E-016-01377 1992- 18,134,614.65 11,065,188.59 29,199,803.24
Lands and Buildings.
2001
On 7 February 2003, this Court issued a temporary
E-016-01378 1992- 111,107,950.40 67,794,681.59 178,902,631.99
restraining order (TRO) effective immediately. The Court
2001 ordered respondents to cease and desist from selling at
public auction the Airport Lands and Buildings.
E-016-01379 1992- 4,322,340.00 2,637,360.00 6,959,700.00
Respondents received the TRO on the same day that the
2001
Court issued it. However, respondents received the TRO
E-016-01380 1992- 7,776,436.00 4,744,944.00 only at 1:25 p.m. or three hours after the conclusion of the
12,521,380.00
2001 public auction.
*E-016-013-85 1998- 6,444,810.00 2,900,164.50 On 10 February 2003, this Court issued a Resolution
9,344,974.50
confirming nunc pro tunc the TRO.
2001
On 29 March 2005, the Court heard the parties in oral
*E-016-01387 1998- 34,876,800.00 5,694,560.00 50,571,360.00
arguments. In compliance with the directive issued during
2001 the hearing, MIAA, respondent City of Parañaque, and the
*E-016-01396 1998- 75,240.00 33,858.00 Solicitor General subsequently submitted their respective
109,098.00
2001 Memoranda.
MIAA admits that the MIAA Charter has placed the title to
GRAND TOTAL P392,435,861.95 P232,070,863.47 Pthe
624,506,725.42
Airport Lands and Buildings in the name of MIAA.
1992-1997 RPT was paid on Dec. 24, 1997 as per However, MIAA points out that it cannot claim ownership
O.R.#9476102 for P4,207,028.75 over these properties since the real owner of the Airport
#9476101 for P28,676,480.00 Lands and Buildings is the Republic of the Philippines.
The MIAA Charter mandates MIAA to devote the Airport
74
Lands and Buildings for the benefit of the general public. of the Administrative Code of 1987 defines a government-
Since the Airport Lands and Buildings are devoted to owned or controlled corporation as follows:
public use and public service, the ownership of these SEC. 2. General Terms Defined. – x x x x
properties remains with the State. The Airport Lands and
(13) Government-owned or controlled
Buildings are thus inalienable and are not subject to real
corporation refers to any agency organized as a
estate tax by local governments.
stock or non-stock corporation, vested with
MIAA also points out that Section 21 of the MIAA Charter functions relating to public needs whether
specifically exempts MIAA from the payment of real estate governmental or proprietary in nature, and owned
tax. MIAA insists that it is also exempt from real estate tax by the Government directly or through its
under Section 234 of the Local Government Code instrumentalities either wholly, or, where
because the Airport Lands and Buildings are owned by applicable as in the case of stock corporations, to
the Republic. To justify the exemption, MIAA invokes the the extent of at least fifty-one (51) percent of its
principle that the government cannot tax itself. MIAA capital stock: x x x. (Emphasis supplied)
points out that the reason for tax exemption of public
A government-owned or controlled corporation must be
property is that its taxation would not inure to any public
"organized as a stock or non-stock corporation." MIAA
advantage, since in such a case the tax debtor is also the
is not organized as a stock or non-stock corporation.
tax creditor.
MIAA is not a stock corporation because it has no capital
Respondents invoke Section 193 of the Local stock divided into shares. MIAA has no stockholders or
Government Code, which expressly withdrew the tax voting shares. Section 10 of the MIAA Charter9 provides:
exemption privileges of "government-owned and-
SECTION 10. Capital. — The capital of the
controlled corporations" upon the effectivity of the Local
Authority to be contributed by the National
Government Code. Respondents also argue that a basic
Government shall be increased from Two and
rule of statutory construction is that the express mention
One-half Billion (P2,500,000,000.00) Pesos to
of one person, thing, or act excludes all others. An
Ten Billion (P10,000,000,000.00) Pesos to
international airport is not among the exceptions
consist of:
mentioned in Section 193 of the Local Government Code.
Thus, respondents assert that MIAA cannot claim that the (a) The value of fixed assets including airport
Airport Lands and Buildings are exempt from real estate facilities, runways and equipment and such other
tax. properties, movable and immovable[,] which may
be contributed by the National Government or
Respondents also cite the ruling of this Court in Mactan
transferred by it from any of its agencies, the
International Airport v. Marcos8 where we held that the
valuation of which shall be determined jointly with
Local Government Code has withdrawn the exemption
the Department of Budget and Management and
from real estate tax granted to international airports.
the Commission on Audit on the date of such
Respondents further argue that since MIAA has already
contribution or transfer after making due
paid some of the real estate tax assessments, it is now
allowances for depreciation and other deductions
estopped from claiming that the Airport Lands and
taking into account the loans and other liabilities
Buildings are exempt from real estate tax.
of the Authority at the time of the takeover of the
The Issue assets and other properties;
This petition raises the threshold issue of whether the (b) That the amount of P605 million as of
Airport Lands and Buildings of MIAA are exempt from real December 31, 1986 representing about seventy
estate tax under existing laws. If so exempt, then the real percentum (70%) of the unremitted share of the
estate tax assessments issued by the City of Parañaque, National Government from 1983 to 1986 to be
and all proceedings taken pursuant to such assessments, remitted to the National Treasury as provided for
are void. In such event, the other issues raised in this in Section 11 of E. O. No. 903 as amended, shall
petition become moot. be converted into the equity of the National
The Court's Ruling Government in the Authority. Thereafter, the
We rule that MIAA's Airport Lands and Buildings are Government contribution to the capital of the
exempt from real estate tax imposed by local Authority shall be provided in the General
governments. Appropriations Act.
First, MIAA is not a government-owned or controlled Clearly, under its Charter, MIAA does not have capital
corporation but an instrumentality of the National stock that is divided into shares.
Government and thus exempt from local taxation. Second, Section 3 of the Corporation Code10 defines a stock
the real properties of MIAA are owned by the corporation as one whose "capital stock is divided into
Republic of the Philippines and thus exempt from real shares and x x x authorized to distribute to the
estate tax. holders of such shares dividends x x x." MIAA has
1. MIAA is Not a Government-Owned or Controlled capital but it is not divided into shares of stock. MIAA has
Corporation no stockholders or voting shares. Hence, MIAA is not a
stock corporation.
Respondents argue that MIAA, being a government-
owned or controlled corporation, is not exempt from real MIAA is also not a non-stock corporation because it has
estate tax. Respondents claim that the deletion of the no members. Section 87 of the Corporation Code defines
phrase "any government-owned or controlled so exempt a non-stock corporation as "one where no part of its
by its charter" in Section 234(e) of the Local Government income is distributable as dividends to its members,
Code withdrew the real estate tax exemption of trustees or officers." A non-stock corporation must have
government-owned or controlled corporations. The members. Even if we assume that the Government is
deleted phrase appeared in Section 40(a) of the 1974 considered as the sole member of MIAA, this will not
Real Property Tax Code enumerating the entities exempt make MIAA a non-stock corporation. Non-stock
from real estate tax. corporations cannot distribute any part of their income to
their members. Section 11 of the MIAA Charter mandates
There is no dispute that a government-owned or
MIAA to remit 20% of its annual gross operating income
controlled corporation is not exempt from real estate tax.
to the National Treasury.11 This prevents MIAA from
However, MIAA is not a government-owned or controlled
qualifying as a non-stock corporation.
corporation. Section 2(13) of the Introductory Provisions

75
Section 88 of the Corporation Code provides that non- municipalities, and barangays shall not
stock corporations are "organized for charitable, religious, extend to the levy of the following:
educational, professional, cultural, recreational, fraternal, xxxx
literary, scientific, social, civil service, or similar purposes,
(o) Taxes, fees or charges of any kind on the
like trade, industry, agriculture and like chambers." MIAA
National Government, its agencies and
is not organized for any of these purposes. MIAA, a public
instrumentalitiesand local government
utility, is organized to operate an international and
units.(Emphasis and underscoring supplied)
domestic airport for public use.
Section 133(o) recognizes the basic principle that local
Since MIAA is neither a stock nor a non-stock corporation,
governments cannot tax the national government, which
MIAA does not qualify as a government-owned or
historically merely delegated to local governments the
controlled corporation. What then is the legal status of
power to tax. While the 1987 Constitution now includes
MIAA within the National Government?
taxation as one of the powers of local governments, local
MIAA is a government instrumentality vested with governments may only exercise such power "subject to
corporate powers to perform efficiently its governmental such guidelines and limitations as the Congress may
functions. MIAA is like any other government provide."18
instrumentality, the only difference is that MIAA is vested
When local governments invoke the power to tax on
with corporate powers. Section 2(10) of the Introductory
national government instrumentalities, such power is
Provisions of the Administrative Code defines a
construed strictly against local governments. The rule is
government "instrumentality" as follows:
that a tax is never presumed and there must be clear
SEC. 2. General Terms Defined. –– x x x x language in the law imposing the tax. Any doubt whether
(10) Instrumentality refers to any agency of the a person, article or activity is taxable is resolved against
National Government, not integrated within the taxation. This rule applies with greater force when local
department framework, vested with special governments seek to tax national government
functions or jurisdiction by law, endowed with instrumentalities.
some if not all corporate powers, administering Another rule is that a tax exemption is strictly construed
special funds, and enjoying operational autonomy, against the taxpayer claiming the exemption. However,
usually through a charter. x x x (Emphasis when Congress grants an exemption to a national
supplied) government instrumentality from local taxation, such
When the law vests in a government instrumentality exemption is construed liberally in favor of the national
corporate powers, the instrumentality does not become a government instrumentality. As this Court declared
corporation. Unless the government instrumentality is in Maceda v. Macaraig, Jr.:
organized as a stock or non-stock corporation, it remains The reason for the rule does not apply in the case
a government instrumentality exercising not only of exemptions running to the benefit of the
governmental but also corporate powers. Thus, MIAA government itself or its agencies. In such case the
exercises the governmental powers of eminent practical effect of an exemption is merely to
domain,12 police authority13 and the levying of fees and reduce the amount of money that has to be
charges.14 At the same time, MIAA exercises "all the handled by government in the course of its
powers of a corporation under the Corporation Law, operations. For these reasons, provisions
insofar as these powers are not inconsistent with the granting exemptions to government agencies
provisions of this Executive Order."15 may be construed liberally, in favor of non tax-
Likewise, when the law makes a government liability of such agencies.19
instrumentality operationally autonomous, the There is, moreover, no point in national and local
instrumentality remains part of the National Government governments taxing each other, unless a sound and
machinery although not integrated with the department compelling policy requires such transfer of public funds
framework. The MIAA Charter expressly states that from one government pocket to another.
transforming MIAA into a "separate and autonomous
There is also no reason for local governments to tax
body"16 will make its operation more "financially viable."17
national government instrumentalities for rendering
Many government instrumentalities are vested with essential public services to inhabitants of local
corporate powers but they do not become stock or non- governments. The only exception is when the
stock corporations, which is a necessary condition before legislature clearly intended to tax government
an agency or instrumentality is deemed a government- instrumentalities for the delivery of essential public
owned or controlled corporation. Examples are the services for sound and compelling policy
Mactan International Airport Authority, the Philippine considerations. There must be express language in the
Ports Authority, the University of the Philippines law empowering local governments to tax national
and Bangko Sentral ng Pilipinas. All these government government instrumentalities. Any doubt whether such
instrumentalities exercise corporate powers but they are power exists is resolved against local governments.
not organized as stock or non-stock corporations as
Thus, Section 133 of the Local Government Code states
required by Section 2(13) of the Introductory Provisions of
that "unless otherwise provided" in the Code, local
the Administrative Code. These government
governments cannot tax national government
instrumentalities are sometimes loosely called
instrumentalities. As this Court held in Basco v.
government corporate entities. However, they are not
Philippine Amusements and Gaming Corporation:
government-owned or controlled corporations in the strict
sense as understood under the Administrative Code, The states have no power by taxation or
which is the governing law defining the legal relationship otherwise, to retard, impede, burden or in
and status of government entities. any manner control the operation of
constitutional laws enacted by Congress
A government instrumentality like MIAA falls under
to carry into execution the powers vested
Section 133(o) of the Local Government Code, which
in the federal government. (MC Culloch v.
states:
Maryland, 4 Wheat 316, 4 L Ed. 579)
SEC. 133. Common Limitations on the Taxing
This doctrine emanates from the "supremacy" of
Powers of Local Government Units. – Unless
the National Government over local governments.
otherwise provided herein, the exercise of the
taxing powers of provinces, cities,
76
"Justice Holmes, speaking for the indirectly through the taxes they pay the government, or
Supreme Court, made reference to the only those among the public who actually use the road
entire absence of power on the part of the through the toll fees they pay upon using the road. The
States to touch, in that way (taxation) at tollway system is even a more efficient and equitable
least, the instrumentalities of the United manner of taxing the public for the maintenance of public
States (Johnson v. Maryland, 254 US 51) roads.
and it can be agreed that no state or The charging of fees to the public does not determine the
political subdivision can regulate a character of the property whether it is of public dominion
federal instrumentality in such a way as or not. Article 420 of the Civil Code defines property of
to prevent it from consummating its public dominion as one "intended for public use." Even if
federal responsibilities, or even to the government collects toll fees, the road is still "intended
seriously burden it in the accomplishment for public use" if anyone can use the road under the same
of them." (Antieau, Modern Constitutional terms and conditions as the rest of the public. The
Law, Vol. 2, p. 140, emphasis supplied) charging of fees, the limitation on the kind of vehicles that
Otherwise, mere creatures of the State can can use the road, the speed restrictions and other
defeat National policies thru extermination of conditions for the use of the road do not affect the public
what local authorities may perceive to be character of the road.
undesirable activities or enterprise using the The terminal fees MIAA charges to passengers, as well
power to tax as "a tool for regulation" (U.S. v. as the landing fees MIAA charges to airlines, constitute
Sanchez, 340 US 42). the bulk of the income that maintains the operations of
The power to tax which was called by Justice MIAA. The collection of such fees does not change the
Marshall as the "power to destroy" (Mc Culloch v. character of MIAA as an airport for public use. Such fees
Maryland, supra) cannot be allowed to defeat an are often termed user's tax. This means taxing those
instrumentality or creation of the very entity which among the public who actually use a public facility instead
has the inherent power to wield it. 20 of taxing all the public including those who never use the
2. Airport Lands and Buildings of MIAA are Owned by particular public facility. A user's tax is more equitable —
the Republic a principle of taxation mandated in the 1987
Constitution.21
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA, which its
The Airport Lands and Buildings of MIAA are property
Charter calls the "principal airport of the Philippines for
of public dominion and therefore owned by the State
both international and domestic air traffic,"22 are
or the Republic of the Philippines. The Civil Code
properties of public dominion because they are intended
provides:
for public use. As properties of public dominion, they
ARTICLE 419. Property is either of public indisputably belong to the State or the Republic of the
dominion or of private ownership. Philippines.
ARTICLE 420. The following things are b. Airport Lands and Buildings are Outside the
property of public dominion: Commerce of Man
(1) Those intended for public use, such as The Airport Lands and Buildings of MIAA are devoted to
roads, canals, rivers, torrents, ports and public use and thus are properties of public dominion. As
bridges constructed by the State, banks, properties of public dominion, the Airport Lands and
shores, roadsteads, and others of similar Buildings are outside the commerce of man. The Court
character; has ruled repeatedly that properties of public dominion
(2) Those which belong to the State, without are outside the commerce of man. As early as 1915, this
being for public use, and are intended for some Court already ruled in Municipality of Cavite v.
public service or for the development of the Rojas that properties devoted to public use are outside
national wealth. (Emphasis supplied) the commerce of man, thus:
ARTICLE 421. All other property of the State, According to article 344 of the Civil Code:
which is not of the character stated in the "Property for public use in provinces and in towns
preceding article, is patrimonial property. comprises the provincial and town roads, the
ARTICLE 422. Property of public dominion, when squares, streets, fountains, and public waters, the
no longer intended for public use or for public promenades, and public works of general service
service, shall form part of the patrimonial property supported by said towns or provinces."
of the State. The said Plaza Soledad being a promenade for
No one can dispute that properties of public dominion public use, the municipal council of Cavite could
mentioned in Article 420 of the Civil Code, like "roads, not in 1907 withdraw or exclude from public use
canals, rivers, torrents, ports and bridges a portion thereof in order to lease it for the sole
constructed by the State," are owned by the State. The benefit of the defendant Hilaria Rojas. In leasing
term "ports" includes seaports and airports. The a portion of said plaza or public place to the
MIAA Airport Lands and Buildings constitute a "port" defendant for private use the plaintiff municipality
constructed by the State. Under Article 420 of the Civil exceeded its authority in the exercise of its
Code, the MIAA Airport Lands and Buildings are powers by executing a contract over a thing of
properties of public dominion and thus owned by the State which it could not dispose, nor is it empowered so
or the Republic of the Philippines. to do.
The Airport Lands and Buildings are devoted to public use The Civil Code, article 1271, prescribes that
because they are used by the public for international everything which is not outside the commerce of
and domestic travel and transportation. The fact that man may be the object of a contract, and plazas
the MIAA collects terminal fees and other charges from and streets are outside of this commerce, as
the public does not remove the character of the Airport was decided by the supreme court of Spain in its
Lands and Buildings as properties for public use. The decision of February 12, 1895, which says:
operation by the government of a tollway does not change "Communal things that cannot be sold
the character of the road as one for public use. Someone because they are by their very nature outside
must pay for the maintenance of the road, either the public of commerce are those for public use, such as

77
the plazas, streets, common lands, rivers, Lands and Buildings are reserved for public use, their
fountains, etc." (Emphasis supplied) 23 ownership remains with the State or the Republic of the
Again in Espiritu v. Municipal Council, the Court Philippines.
declared that properties of public dominion are outside the The authority of the President to reserve lands of the
commerce of man: public domain for public use, and to withdraw such public
xxx Town plazas are properties of public use, is reiterated in Section 14, Chapter 4, Title I, Book III
dominion, to be devoted to public use and to be of the Administrative Code of 1987, which states:
made available to the public in general. They SEC. 14. Power to Reserve Lands of the Public
are outside the commerce of man and cannot and Private Domain of the Government. —
be disposed of or even leased by the municipality (1) The President shall have the power to
to private parties. While in case of war or during reserve for settlement or public use, and for
an emergency, town plazas may be occupied specific public purposes, any of the lands of
temporarily by private individuals, as was done the public domain, the use of which is not
and as was tolerated by the Municipality of otherwise directed by law. The reserved land
Pozorrubio, when the emergency has ceased, shall thereafter remain subject to the specific
said temporary occupation or use must also public purpose indicated until otherwise
cease, and the town officials should see to it that provided by law or proclamation;
the town plazas should ever be kept open to the x x x x. (Emphasis supplied)
public and free from encumbrances or illegal
There is no question, therefore, that unless the Airport
private constructions.24 (Emphasis supplied)
Lands and Buildings are withdrawn by law or presidential
The Court has also ruled that property of public dominion, proclamation from public use, they are properties of public
being outside the commerce of man, cannot be the dominion, owned by the Republic and outside the
subject of an auction sale.25 commerce of man.
Properties of public dominion, being for public use, are not c. MIAA is a Mere Trustee of the Republic
subject to levy, encumbrance or disposition through public
MIAA is merely holding title to the Airport Lands and
or private sale. Any encumbrance, levy on execution or
Buildings in trust for the Republic. Section 48, Chapter 12,
auction sale of any property of public dominion is void for
Book I of the Administrative Code allows
being contrary to public policy. Essential public services
instrumentalities like MIAA to hold title to real
will stop if properties of public dominion are subject to
properties owned by the Republic, thus:
encumbrances, foreclosures and auction sale. This will
happen if the City of Parañaque can foreclose and compel SEC. 48. Official Authorized to Convey Real
the auction sale of the 600-hectare runway of the MIAA Property. — Whenever real property of the
for non-payment of real estate tax. Government is authorized by law to be conveyed,
the deed of conveyance shall be executed in
Before MIAA can encumber26 the Airport Lands and
behalf of the government by the following:
Buildings, the President must first withdraw from public
usethe Airport Lands and Buildings. Sections 83 and 88 (1) For property belonging to and titled in the
of the Public Land Law or Commonwealth Act No. 141, name of the Republic of the Philippines, by the
which "remains to this day the existing general law President, unless the authority therefor is
governing the classification and disposition of lands of the expressly vested by law in another officer.
public domain other than timber and mineral (2) For property belonging to the Republic of
lands,"27 provide: the Philippines but titled in the name of any
SECTION 83. Upon the recommendation of the political subdivision or of any corporate
Secretary of Agriculture and Natural Resources, agency or instrumentality, by the executive
the President may designate by proclamation any head of the agency or instrumentality. (Emphasis
tract or tracts of land of the public domain as supplied)
reservations for the use of the Republic of the In MIAA's case, its status as a mere trustee of the Airport
Philippines or of any of its branches, or of the Lands and Buildings is clearer because even its executive
inhabitants thereof, in accordance with head cannot sign the deed of conveyance on behalf of the
regulations prescribed for this purposes, or for Republic. Only the President of the Republic can sign
quasi-public uses or purposes when the public such deed of conveyance.28
interest requires it, including reservations for d. Transfer to MIAA was Meant to Implement a
highways, rights of way for railroads, hydraulic Reorganization
power sites, irrigation systems, communal
The MIAA Charter, which is a law, transferred to MIAA the
pastures or lequas communales, public parks,
title to the Airport Lands and Buildings from the Bureau of
public quarries, public fishponds, working men's
village and other improvements for the public Air Transportation of the Department of Transportation
benefit. and Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International
SECTION 88. The tract or tracts of land
Airport Authority. — x x x x
reserved under the provisions of Section
eighty-three shall be non-alienable and shall The land where the Airport is presently
not be subject to occupation, entry, sale, located as well as the surrounding land area
lease, or other disposition until again of approximately six hundred hectares, are
declared alienable under the provisions of hereby transferred, conveyed and assigned to
this Act or by proclamation of the President. the ownership and administration of the
(Emphasis and underscoring supplied) Authority, subject to existing rights, if any.
The Bureau of Lands and other appropriate
Thus, unless the President issues a proclamation
withdrawing the Airport Lands and Buildings from public government agencies shall undertake an actual
use, these properties remain properties of public survey of the area transferred within one year
dominion and are inalienable. Since the Airport Lands from the promulgation of this Executive Order and
the corresponding title to be issued in the name
and Buildings are inalienable in their present status as
of the Authority. Any portion thereof shall not
properties of public dominion, they are not subject to levy
be disposed through sale or through any
on execution or foreclosure sale. As long as the Airport
other mode unless specifically approved by
78
the President of the Philippines. (Emphasis At any time, the President can transfer back to the
supplied) Republic title to the Airport Lands and Buildings without
SECTION 22. Transfer of Existing Facilities and the Republic paying MIAA any consideration. Under
Intangible Assets. — All existing public airport Section 3 of the MIAA Charter, the President is the only
facilities, runways, lands, buildings and other one who can authorize the sale or disposition of the
property, movable or immovable, belonging to Airport Lands and Buildings. This only confirms that the
the Airport, and all assets, powers, rights, Airport Lands and Buildings belong to the Republic.
interests and privileges belonging to the e. Real Property Owned by the Republic is Not
Bureau of Air Transportation relating to airport Taxable
works or air operations, including all equipment Section 234(a) of the Local Government Code exempts
which are necessary for the operation of crash fire from real estate tax any "[r]eal property owned by the
and rescue facilities, are hereby transferred to the Republic of the Philippines." Section 234(a) provides:
Authority. (Emphasis supplied)
SEC. 234. Exemptions from Real Property Tax.
SECTION 25. Abolition of the Manila — The following are exempted from payment
International Airport as a Division in the Bureau of of the real property tax:
Air Transportation and Transitory Provisions. —
(a) Real property owned by the Republic of the
The Manila International Airport including the
Philippines or any of its political subdivisions
Manila Domestic Airport as a division under the
except when the beneficial use thereof has
Bureau of Air Transportation is hereby abolished.
been granted, for consideration or otherwise,
x x x x. to a taxable person;
The MIAA Charter transferred the Airport Lands and x x x. (Emphasis supplied)
Buildings to MIAA without the Republic receiving cash,
This exemption should be read in relation with Section
promissory notes or even stock since MIAA is not a stock
133(o) of the same Code, which prohibits local
corporation.
governments from imposing "[t]axes, fees or charges of
The whereas clauses of the MIAA Charter explain the any kind on the National Government, its agencies
rationale for the transfer of the Airport Lands and and instrumentalitiesx x x." The real properties owned
Buildings to MIAA, thus: by the Republic are titled either in the name of the
WHEREAS, the Manila International Airport as Republic itself or in the name of agencies or
the principal airport of the Philippines for both instrumentalities of the National Government. The
international and domestic air traffic, is required Administrative Code allows real property owned by the
to provide standards of airport accommodation Republic to be titled in the name of agencies or
and service comparable with the best airports in instrumentalities of the national government. Such real
the world; properties remain owned by the Republic and continue to
WHEREAS, domestic and other terminals, be exempt from real estate tax.
general aviation and other facilities, have to be The Republic may grant the beneficial use of its real
upgraded to meet the current and future air traffic property to an agency or instrumentality of the national
and other demands of aviation in Metro Manila; government. This happens when title of the real property
WHEREAS, a management and organization is transferred to an agency or instrumentality even as the
study has indicated that the objectives of Republic remains the owner of the real property. Such
providing high standards of accommodation arrangement does not result in the loss of the tax
and service within the context of a financially exemption. Section 234(a) of the Local Government Code
viable operation, will best be achieved by a states that real property owned by the Republic loses its
separate and autonomous body; and tax exemption only if the "beneficial use thereof has been
granted, for consideration or otherwise, to a taxable
WHEREAS, under Presidential Decree No. 1416,
person." MIAA, as a government instrumentality, is not a
as amended by Presidential Decree No. 1772,
taxable person under Section 133(o) of the Local
the President of the Philippines is given
Government Code. Thus, even if we assume that the
continuing authority to reorganize the National
Republic has granted to MIAA the beneficial use of the
Government, which authority includes the
Airport Lands and Buildings, such fact does not make
creation of new entities, agencies and
these real properties subject to real estate tax.
instrumentalities of the Government[.]
(Emphasis supplied) However, portions of the Airport Lands and Buildings that
MIAA leases to private entities are not exempt from real
The transfer of the Airport Lands and Buildings from the
estate tax. For example, the land area occupied by
Bureau of Air Transportation to MIAA was not meant to
hangars that MIAA leases to private corporations is
transfer beneficial ownership of these assets from the
subject to real estate tax. In such a case, MIAA has
Republic to MIAA. The purpose was merely to reorganize
granted the beneficial use of such land area for a
a division in the Bureau of Air Transportation into a
consideration to a taxable person and therefore such
separate and autonomous body. The Republic remains
land area is subject to real estate tax. In Lung Center of
the beneficial owner of the Airport Lands and Buildings.
the Philippines v. Quezon City, the Court ruled:
MIAA itself is owned solely by the Republic. No party
claims any ownership rights over MIAA's assets adverse Accordingly, we hold that the portions of the land
to the Republic. leased to private entities as well as those parts of
the hospital leased to private individuals are not
The MIAA Charter expressly provides that the Airport
exempt from such taxes. On the other hand, the
Lands and Buildings "shall not be disposed through
portions of the land occupied by the hospital and
sale or through any other mode unless specifically
portions of the hospital used for its patients,
approved by the President of the Philippines." This
whether paying or non-paying, are exempt from
only means that the Republic retained the beneficial
real property taxes.29
ownership of the Airport Lands and Buildings because
under Article 428 of the Civil Code, only the "owner has 3. Refutation of Arguments of Minority
the right to x x x dispose of a thing." Since MIAA cannot The minority asserts that the MIAA is not exempt from real
dispose of the Airport Lands and Buildings, MIAA does estate tax because Section 193 of the Local Government
not own the Airport Lands and Buildings. Code of 1991 withdrew the tax exemption of "all persons,

79
whether natural or juridical" upon the effectivity of the The minority, however, theorizes that unless exempted in
Code. Section 193 provides: Section 193 itself, all juridical persons are subject to tax
SEC. 193. Withdrawal of Tax Exemption by local governments. The minority insists that the
Privileges – Unless otherwise provided in this juridical persons exempt from local taxation are limited to
Code, tax exemptions or incentives granted to, the three classes of entities specifically enumerated as
or presently enjoyed by all persons, whether exempt in Section 193. Thus, the minority states:
natural or juridical, including government- x x x Under Section 193, the exemption is limited
owned or controlled corporations, except local to (a) local water districts; (b) cooperatives duly
water districts, cooperatives duly registered registered under Republic Act No. 6938; and (c)
under R.A. No. 6938, non-stock and non-profit non-stock and non-profit hospitals and
hospitals and educational institutions are hereby educational institutions. It would be belaboring
withdrawn upon effectivity of this Code. the obvious why the MIAA does not fall within any
(Emphasis supplied) of the exempt entities under Section 193.
The minority states that MIAA is indisputably a juridical (Emphasis supplied)
person. The minority argues that since the Local The minority's theory directly contradicts and completely
Government Code withdrew the tax exemption of all negates Section 133(o) of the Local Government Code.
juridical persons, then MIAA is not exempt from real This theory will result in gross absurdities. It will make the
estate tax. Thus, the minority declares: national government, which itself is a juridical person,
It is evident from the quoted provisions of the subject to tax by local governments since the national
Local Government Code that the withdrawn government is not included in the enumeration of exempt
exemptions from realty tax cover not just entities in Section 193. Under this theory, local
GOCCs, but all persons. To repeat, the governments can impose any kind of local tax, and not
provisions lay down the explicit proposition that only real estate tax, on the national government.
the withdrawal of realty tax exemption applies to Under the minority's theory, many national government
all persons. The reference to or the inclusion of instrumentalities with juridical personalities will also be
GOCCs is only clarificatory or illustrative of the subject to any kind of local tax, and not only real estate
explicit provision. tax. Some of the national government instrumentalities
The term "All persons" encompasses the two vested by law with juridical personalities are: Bangko
classes of persons recognized under our laws, Sentral ng Pilipinas,30 Philippine Rice Research
natural and juridical persons. Obviously, Institute,31Laguna Lake
MIAA is not a natural person. Thus, the Development Authority, 32 Fisheries Development
determinative test is not just whether MIAA is 33
Authority, Bases Conversion Development
a GOCC, but whether MIAA is a juridical Authority,34Philippine Ports Authority,35 Cagayan de Oro
person at all. (Emphasis and underscoring in the Port Authority,36 San Fernando Port Authority,37 Cebu
original) Port Authority,38 and Philippine National Railways.39
The minority posits that the "determinative test" whether The minority's theory violates Section 133(o) of the Local
MIAA is exempt from local taxation is its status — whether Government Code which expressly prohibits local
MIAA is a juridical person or not. The minority also insists governments from imposing any kind of tax on national
that "Sections 193 and 234 may be examined in isolation government instrumentalities. Section 133(o) does not
from Section 133(o) to ascertain MIAA's claim of distinguish between national government
exemption." instrumentalities with or without juridical personalities.
The argument of the minority is fatally flawed. Section 193 Where the law does not distinguish, courts should not
of the Local Government Code expressly withdrew the tax distinguish. Thus, Section 133(o) applies to all national
exemption of all juridical persons "[u]nless otherwise government instrumentalities, with or without juridical
provided in this Code." Now, Section 133(o) of the Local personalities. The determinative test whether MIAA is
Government Code expressly provides otherwise, exempt from local taxation is not whether MIAA is a
specifically prohibiting local governments from imposing juridical person, but whether it is a national government
any kind of tax on national government instrumentalities. instrumentality under Section 133(o) of the Local
Section 133(o) states: Government Code. Section 133(o) is the specific
provision of law prohibiting local governments from
SEC. 133. Common Limitations on the Taxing
imposing any kind of tax on the national government, its
Powers of Local Government Units. – Unless
agencies and instrumentalities.
otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, Section 133 of the Local Government Code starts with the
and barangays shall not extend to the levy of the saving clause "[u]nless otherwise provided in this Code."
following: This means that unless the Local Government Code
grants an express authorization, local governments have
xxxx
no power to tax the national government, its agencies and
(o) Taxes, fees or charges of any kinds on the instrumentalities. Clearly, the rule is local governments
National Government, its agencies and have no power to tax the national government, its
instrumentalities, and local government units. agencies and instrumentalities. As an exception to this
(Emphasis and underscoring supplied) rule, local governments may tax the national government,
By express mandate of the Local Government Code, local its agencies and instrumentalities only if the Local
governments cannot impose any kind of tax on national Government Code expressly so provides.
government instrumentalities like the MIAA. Local The saving clause in Section 133 refers to the exception
governments are devoid of power to tax the national to the exemption in Section 234(a) of the Code, which
government, its agencies and instrumentalities. The makes the national government subject to real estate tax
taxing powers of local governments do not extend to the when it gives the beneficial use of its real properties to a
national government, its agencies and instrumentalities, taxable entity. Section 234(a) of the Local Government
"[u]nless otherwise provided in this Code" as stated in the Code provides:
saving clause of Section 133. The saving clause refers to
SEC. 234. Exemptions from Real Property Tax –
Section 234(a) on the exception to the exemption from
The following are exempted from payment of the
real estate tax of real property owned by the Republic.
real property tax:

80
(a) Real property owned by the Republic of the Local governments have no power to tax the national
Philippines or any of its political subdivisions government, its agencies and instrumentalities, except as
except when the beneficial use thereof has been otherwise provided in the Local Government Code
granted, for consideration or otherwise, to a pursuant to the saving clause in Section 133 stating
taxable person. "[u]nless otherwise provided in this Code." This exception
x x x. (Emphasis supplied) — which is an exception to the exemption of the Republic
from real estate tax imposed by local governments —
Under Section 234(a), real property owned by the
refers to Section 234(a) of the Code. The exception to the
Republic is exempt from real estate tax. The exception to
exemption in Section 234(a) subjects real property owned
this exemption is when the government gives the
by the Republic, whether titled in the name of the national
beneficial use of the real property to a taxable entity.
government, its agencies or instrumentalities, to real
The exception to the exemption in Section 234(a) is the estate tax if the beneficial use of such property is given to
only instance when the national government, its agencies a taxable entity.
and instrumentalities are subject to any kind of tax by local
The minority also claims that the definition in the
governments. The exception to the exemption applies
Administrative Code of the phrase "government-owned or
only to real estate tax and not to any other tax. The
controlled corporation" is not controlling. The minority
justification for the exception to the exemption is that the
points out that Section 2 of the Introductory Provisions of
real property, although owned by the Republic, is not
the Administrative Code admits that its definitions are not
devoted to public use or public service but devoted to the
controlling when it provides:
private gain of a taxable person.
SEC. 2. General Terms Defined. — Unless the
The minority also argues that since Section 133 precedes
specific words of the text, or the context as a
Section 193 and 234 of the Local Government Code, the
whole, or a particular statute, shall require a
later provisions prevail over Section 133. Thus, the
different meaning:
minority asserts:
xxxx
x x x Moreover, sequentially Section 133
antecedes Section 193 and 234. Following an The minority then concludes that reliance on the
accepted rule of construction, in case of conflict Administrative Code definition is "flawed."
the subsequent provisions should prevail. The minority's argument is a non sequitur. True, Section
Therefore, MIAA, as a juridical person, is subject 2 of the Administrative Code recognizes that a statute
to real property taxes, the general exemptions may require a different meaning than that defined in the
attaching to instrumentalities under Section 133(o) Administrative Code. However, this does not
of the Local Government Code being qualified by automatically mean that the definition in the
Sections 193 and 234 of the same law. Administrative Code does not apply to the Local
(Emphasis supplied) Government Code. Section 2 of the Administrative Code
The minority assumes that there is an irreconcilable clearly states that "unless the specific words x x x of a
conflict between Section 133 on one hand, and Sections particular statute shall require a different meaning," the
193 and 234 on the other. No one has urged that there is definition in Section 2 of the Administrative Code shall
such a conflict, much less has any one presenteda apply. Thus, unless there is specific language in the Local
persuasive argument that there is such a conflict. The Government Code defining the phrase "government-
minority's assumption of an irreconcilable conflict in the owned or controlled corporation" differently from the
statutory provisions is an egregious error for two reasons. definition in the Administrative Code, the definition in the
Administrative Code prevails.
First, there is no conflict whatsoever between Sections
133 and 193 because Section 193 expressly admits its The minority does not point to any provision in the Local
subordination to other provisions of the Code when Government Code defining the phrase "government-
Section 193 states "[u]nless otherwise provided in this owned or controlled corporation" differently from the
Code." By its own words, Section 193 admits the definition in the Administrative Code. Indeed, there is
superiority of other provisions of the Local Government none. The Local Government Code is silent on the
Code that limit the exercise of the taxing power in Section definition of the phrase "government-owned or controlled
193. When a provision of law grants a power but withholds corporation." The Administrative Code, however,
such power on certain matters, there is no conflict expressly defines the phrase "government-owned or
between the grant of power and the withholding of power. controlled corporation." The inescapable conclusion is
The grantee of the power simply cannot exercise the that the Administrative Code definition of the phrase
power on matters withheld from its power. "government-owned or controlled corporation" applies to
the Local Government Code.
Second, Section 133 is entitled "Common Limitations on
the Taxing Powers of Local Government Units." Section The third whereas clause of the Administrative Code
133 limits the grant to local governments of the power to states that the Code "incorporates in a unified document
tax, and not merely the exercise of a delegated power to the major structural, functional and procedural principles
tax. Section 133 states that the taxing powers of local and rules of governance." Thus, the Administrative Code
governments "shall not extend to the levy" of any kind of is the governing law defining the status and relationship
tax on the national government, its agencies and of government departments, bureaus, offices, agencies
instrumentalities. There is no clearer limitation on the and instrumentalities. Unless a statute expressly provides
taxing power than this. for a different status and relationship for a specific
government unit or entity, the provisions of the
Since Section 133 prescribes the "common limitations" on
Administrative Code prevail.
the taxing powers of local governments, Section 133
logically prevails over Section 193 which grants local The minority also contends that the phrase "government-
governments such taxing powers. By their very meaning owned or controlled corporation" should apply only to
and purpose, the "common limitations" on the taxing corporations organized under the Corporation Code, the
power prevail over the grant or exercise of the taxing general incorporation law, and not to corporations created
power. If the taxing power of local governments in Section by special charters. The minority sees no reason why
193 prevails over the limitations on such taxing power in government corporations with special charters should
Section 133, then local governments can impose any kind have a capital stock. Thus, the minority declares:
of tax on the national government, its agencies and I submit that the definition of "government-owned
instrumentalities — a gross absurdity. or controlled corporations" under the
81
Administrative Code refer to those corporations the common good. The second condition is that the
owned by the government or its instrumentalities government-owned or controlled corporation must meet
which are created not by legislative enactment, the test of economic viability. Section 16, Article XII of the
but formed and organized under the Corporation 1987 Constitution provides:
Code through registration with the Securities and SEC. 16. The Congress shall not, except by
Exchange Commission. In short, these are general law, provide for the formation,
GOCCs without original charters. organization, or regulation of private corporations.
xxxx Government-owned or controlled corporations
It might as well be worth pointing out that there is may be created or established by special charters
no point in requiring a capital structure for GOCCs in the interest of the common good and subject to
whose full ownership is limited by its charter to the test of economic viability. (Emphasis and
the State or Republic. Such GOCCs are not underscoring supplied)
empowered to declare dividends or alienate their The Constitution expressly authorizes the legislature to
capital shares. create "government-owned or controlled corporations"
The contention of the minority is seriously flawed. It is not through special charters only if these entities are required
in accord with the Constitution and existing legislations. It to meet the twin conditions of common good and
will also result in gross absurdities. economic viability. In other words, Congress has no
power to create government-owned or controlled
First, the Administrative Code definition of the phrase
corporations with special charters unless they are made
"government-owned or controlled corporation" does not
to comply with the two conditions of common good and
distinguish between one incorporated under the
economic viability. The test of economic viability applies
Corporation Code or under a special charter. Where the
only to government-owned or controlled corporations that
law does not distinguish, courts should not distinguish.
perform economic or commercial activities and need to
Second, Congress has created through special charters compete in the market place. Being essentially economic
several government-owned corporations organized as vehicles of the State for the common good — meaning for
stock corporations. Prime examples are the Land Bank of economic development purposes — these government-
the Philippines and the Development Bank of the owned or controlled corporations with special charters are
Philippines. The special charter40 of the Land Bank of the usually organized as stock corporations just like ordinary
Philippines provides: private corporations.
SECTION 81. Capital. — The authorized capital In contrast, government instrumentalities vested with
stock of the Bank shall be nine billion pesos, corporate powers and performing governmental or public
divided into seven hundred and eighty million functions need not meet the test of economic viability.
common shares with a par value of ten pesos These instrumentalities perform essential public services
each, which shall be fully subscribed by the for the common good, services that every modern State
Government, and one hundred and twenty million must provide its citizens. These instrumentalities need not
preferred shares with a par value of ten pesos be economically viable since the government may even
each, which shall be issued in accordance with subsidize their entire operations. These instrumentalities
the provisions of Sections seventy-seven and are not the "government-owned or controlled
eighty-three of this Code. (Emphasis supplied) corporations" referred to in Section 16, Article XII of the
Likewise, the special charter41 of the Development Bank 1987 Constitution.
of the Philippines provides: Thus, the Constitution imposes no limitation when the
SECTION 7. Authorized Capital Stock – Par legislature creates government instrumentalities vested
value. — The capital stock of the Bank shall be with corporate powers but performing essential
Five Billion Pesos to be divided into Fifty Million governmental or public functions. Congress has plenary
common shares with par value of P100 per share. authority to create government instrumentalities vested
These shares are available for subscription by the with corporate powers provided these instrumentalities
National Government. Upon the effectivity of this perform essential government functions or public services.
Charter, the National Government shall subscribe However, when the legislature creates through special
to Twenty-Five Million common shares of stock charters corporations that perform economic or
worth Two Billion Five Hundred Million which commercial activities, such entities — known as
shall be deemed paid for by the Government with "government-owned or controlled corporations" — must
the net asset values of the Bank remaining after meet the test of economic viability because they compete
the transfer of assets and liabilities as provided in in the market place.
Section 30 hereof. (Emphasis supplied) This is the situation of the Land Bank of the Philippines
Other government-owned corporations organized as and the Development Bank of the Philippines and similar
stock corporations under their special charters are the government-owned or controlled corporations, which
Philippine Crop Insurance Corporation,42 Philippine derive their income to meet operating expenses solely
International Trading Corporation,43 and the Philippine from commercial transactions in competition with the
National Bank44 before it was reorganized as a stock private sector. The intent of the Constitution is to prevent
corporation under the Corporation Code. All these the creation of government-owned or controlled
government-owned corporations organized under special corporations that cannot survive on their own in the
charters as stock corporations are subject to real estate market place and thus merely drain the public coffers.
tax on real properties owned by them. To rule that they Commissioner Blas F. Ople, proponent of the test of
are not government-owned or controlled corporations economic viability, explained to the Constitutional
because they are not registered with the Securities and Commission the purpose of this test, as follows:
Exchange Commission would remove them from the
MR. OPLE: Madam President, the reason for this
reach of Section 234 of the Local Government Code, thus
concern is really that when the government
exempting them from real estate tax.
creates a corporation, there is a sense in which
Third, the government-owned or controlled corporations this corporation becomes exempt from the test of
created through special charters are those that meet the economic performance. We know what happened
two conditions prescribed in Section 16, Article XII of the in the past. If a government corporation loses,
Constitution. The first condition is that the government- then it makes its claim upon the taxpayers' money
owned or controlled corporation must be established for through new equity infusions from the
82
government and what is always invoked is the travel documents, or those with hold departure
common good. That is the reason why this year, orders;
out of a budget of P115 billion for the entire 2. The Bureau of Customs, to collect import duties
government, about P28 billion of this will go into or enforce the ban on prohibited importations;
equity infusions to support a few government
3. The quarantine office of the Department of
financial institutions. And this is all taxpayers'
Health, to enforce health measures against the
money which could have been relocated to
spread of infectious diseases into the country;
agrarian reform, to social services like health and
education, to augment the salaries of grossly 4. The Department of Agriculture, to enforce
underpaid public employees. And yet this is all measures against the spread of plant and animal
going down the drain. diseases into the country;
Therefore, when we insert the phrase 5. The Aviation Security Command of the
"ECONOMIC VIABILITY" together with the Philippine National Police, to prevent the entry of
"common good," this becomes a restraint on terrorists and the escape of criminals, as well as
future enthusiasts for state capitalism to excuse to secure the airport premises from terrorist
themselves from the responsibility of meeting the attack or seizure;
market test so that they become viable. And so, 6. The Air Traffic Office of the Department of
Madam President, I reiterate, for the committee's Transportation and Communications, to authorize
consideration and I am glad that I am joined in aircraft to enter or leave Philippine airspace, as
this proposal by Commissioner Foz, the insertion well as to land on, or take off from, the airport; and
of the standard of "ECONOMIC VIABILITY OR 7. The MIAA, to provide the proper premises —
THE ECONOMIC TEST," together with the such as runway and buildings — for the
common good.45 government personnel, passengers, and airlines,
Father Joaquin G. Bernas, a leading member of the and to manage the airport operations.
Constitutional Commission, explains in his textbook The All these agencies of government perform government
1987 Constitution of the Republic of the Philippines: A functions essential to the operation of an international
Commentary: airport.
The second sentence was added by the 1986 MIAA performs an essential public service that every
Constitutional Commission. The significant modern State must provide its citizens. MIAA derives its
addition, however, is the phrase "in the interest of revenues principally from the mandatory fees and
the common good and subject to the test of charges MIAA imposes on passengers and airlines. The
economic viability." The addition includes the terminal fees that MIAA charges every passenger are
ideas that they must show capacity to function regulatory or administrative fees47 and not income from
efficiently in business and that they should not go commercial transactions.
into activities which the private sector can do
MIAA falls under the definition of a government
better. Moreover, economic viability is more than
instrumentality under Section 2(10) of the Introductory
financial viability but also includes capability to
Provisions of the Administrative Code, which provides:
make profit and generate benefits not quantifiable
in financial terms.46(Emphasis supplied) SEC. 2. General Terms Defined. – x x x x
Clearly, the test of economic viability does not apply to (10) Instrumentality refers to any agency of the
government entities vested with corporate powers and National Government, not integrated within the
performing essential public services. The State is department framework, vested with special
obligated to render essential public services regardless of functions or jurisdiction by law, endowed with
the economic viability of providing such service. The non- some if not all corporate powers, administering
economic viability of rendering such essential public special funds, and enjoying operational autonomy,
service does not excuse the State from withholding such usually through a charter. x x x (Emphasis
essential services from the public. supplied)
However, government-owned or controlled corporations The fact alone that MIAA is endowed with corporate
with special charters, organized essentially for economic powers does not make MIAA a government-owned or
or commercial objectives, must meet the test of economic controlled corporation. Without a change in its capital
viability. These are the government-owned or controlled structure, MIAA remains a government instrumentality
corporations that are usually organized under their special under Section 2(10) of the Introductory Provisions of the
charters as stock corporations, like the Land Bank of the Administrative Code. More importantly, as long as MIAA
Philippines and the Development Bank of the Philippines. renders essential public services, it need not comply with
These are the government-owned or controlled the test of economic viability. Thus, MIAA is outside the
corporations, along with government-owned or controlled scope of the phrase "government-owned or controlled
corporations organized under the Corporation Code, that corporations" under Section 16, Article XII of the 1987
fall under the definition of "government-owned or Constitution.
controlled corporations" in Section 2(10) of the The minority belittles the use in the Local Government
Administrative Code. Code of the phrase "government-owned or controlled
The MIAA need not meet the test of economic viability corporation" as merely "clarificatory or illustrative." This is
because the legislature did not create MIAA to compete fatal. The 1987 Constitution prescribes explicit conditions
in the market place. MIAA does not compete in the market for the creation of "government-owned or controlled
place because there is no competing international airport corporations." The Administrative Code defines what
operated by the private sector. MIAA performs an constitutes a "government-owned or controlled
essential public service as the primary domestic and corporation." To belittle this phrase as "clarificatory or
international airport of the Philippines. The operation of an illustrative" is grave error.
international airport requires the presence of personnel To summarize, MIAA is not a government-owned or
from the following government agencies: controlled corporation under Section 2(13) of the
1. The Bureau of Immigration and Deportation, to Introductory Provisions of the Administrative Code
document the arrival and departure of because it is not organized as a stock or non-stock
passengers, screening out those without visas or corporation. Neither is MIAA a government-owned or
controlled corporation under Section 16, Article XII of the
83
1987 Constitution because MIAA is not required to meet Authority EXEMPT from the real estate tax imposed by
the test of economic viability. MIAA is a government the City of Parañaque. We declare VOID all the real
instrumentality vested with corporate powers and estate tax assessments, including the final notices of real
performing essential public services pursuant to Section estate tax delinquencies, issued by the City of Parañaque
2(10) of the Introductory Provisions of the Administrative on the Airport Lands and Buildings of the Manila
Code. As a government instrumentality, MIAA is not International Airport Authority, except for the portions that
subject to any kind of tax by local governments under the Manila International Airport Authority has leased to
Section 133(o) of the Local Government Code. The private parties. We also declare VOID the assailed
exception to the exemption in Section 234(a) does not auction sale, and all its effects, of the Airport Lands and
apply to MIAA because MIAA is not a taxable entity under Buildings of the Manila International Airport Authority.
the Local Government Code. Such exception applies only No costs.
if the beneficial use of real property owned by the
SO ORDERED.
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 G.R. No. 177131 June 7, 2011
Code provides: BOY SCOUTS OF THE PHILIPPINES, Petitioner,
Art. 420. The following things are property of vs.
public dominion: COMMISSION ON AUDIT, Respondent.
(1) Those intended for public use, such as roads, DECISION
canals, rivers, torrents, ports and bridges LEONARDO-DE CASTRO, J.:
constructed by the State, banks, shores, The jurisdiction of the Commission on Audit (COA) over
roadsteads, and others of similar character; the Boy Scouts of the Philippines (BSP) is the subject
(2) Those which belong to the State, without matter of this controversy that reached us via petition for
being for public use, and are intended for some prohibition1 filed by the BSP under Rule 65 of the 1997
public service or for the development of the Rules of Court. In this petition, the BSP seeks that the
national wealth. (Emphasis supplied) COA be prohibited from implementing its June 18, 2002
The term "ports x x x constructed by the State" includes Decision,2 its February 21, 2007 Resolution,3 as well as
airports and seaports. The Airport Lands and Buildings of all other issuances arising therefrom, and that all of the
MIAA are intended for public use, and at the very least foregoing be rendered null and void. 4
intended for public service. Whether intended for public Antecedent Facts and Background of the Case
use or public service, the Airport Lands and Buildings are This case arose when the COA issued Resolution No. 99-
properties of public dominion. As properties of public 0115 on August 19, 1999 ("the COA Resolution"), with the
dominion, the Airport Lands and Buildings are owned by subject "Defining the Commission’s policy with respect to
the Republic and thus exempt from real estate tax under the audit of the Boy Scouts of the Philippines." In its
Section 234(a) of the Local Government Code. whereas clauses, the COA Resolution stated that the BSP
4. Conclusion was created as a public corporation under
Under Section 2(10) and (13) of the Introductory Commonwealth Act No. 111, as amended by Presidential
Provisions of the Administrative Code, which governs the Decree No. 460 and Republic Act No. 7278; that in Boy
legal relation and status of government units, agencies Scouts of the Philippines v. National Labor Relations
and offices within the entire government machinery, MIAA Commission,6 the Supreme Court ruled that the BSP, as
is a government instrumentality and not a government- constituted under its charter, was a "government-
owned or controlled corporation. Under Section 133(o) of controlled corporation within the meaning of Article
the Local Government Code, MIAA as a government IX(B)(2)(1) of the Constitution"; and that "the BSP is
instrumentality is not a taxable person because it is not appropriately regarded as a government instrumentality
subject to "[t]axes, fees or charges of any kind" by local under the 1987 Administrative Code."7 The COA
governments. The only exception is when MIAA leases its Resolution also cited its constitutional mandate under
real property to a "taxable person" as provided in Section Section 2(1), Article IX (D). Finally, the COA Resolution
234(a) of the Local Government Code, in which case the reads:
specific real property leased becomes subject to real NOW THEREFORE, in consideration of the foregoing
estate tax. Thus, only portions of the Airport Lands and premises, the COMMISSION PROPER HAS RESOLVED,
Buildings leased to taxable persons like private parties AS IT DOES HEREBY RESOLVE, to conduct an annual
are subject to real estate tax by the City of Parañaque. financial audit of the Boy Scouts of the Philippines in
Under Article 420 of the Civil Code, the Airport Lands and accordance with generally accepted auditing standards,
Buildings of MIAA, being devoted to public use, are and express an opinion on whether the financial
properties of public dominion and thus owned by the State statements which include the Balance Sheet, the Income
or the Republic of the Philippines. Article 420 specifically Statement and the Statement of Cash Flows present fairly
mentions "ports x x x constructed by the State," which its financial position and results of operations.
includes public airports and seaports, as properties of xxxx
public dominion and owned by the Republic. As properties BE IT RESOLVED FURTHERMORE, that for purposes of
of public dominion owned by the Republic, there is no audit supervision, the Boy Scouts of the Philippines shall
doubt whatsoever that the Airport Lands and Buildings are be classified among the government corporations
expressly exempt from real estate tax under Section belonging to the Educational, Social, Scientific, Civic and
234(a) of the Local Government Code. This Court has Research Sector under the Corporate Audit Office I, to be
also repeatedly ruled that properties of public dominion audited, similar to the subsidiary corporations, by
are not subject to execution or foreclosure sale. employing the team audit approach.8 (Emphases
WHEREFORE, we GRANT the petition. We SET supplied.)
ASIDE the assailed Resolutions of the Court of Appeals The BSP sought reconsideration of the COA Resolution
of 5 October 2001 and 27 September 2002 in CA-G.R. SP in a letter9 dated November 26, 1999 signed by the BSP
No. 66878. We DECLARE the Airport Lands and National President Jejomar C. Binay, who is now the Vice
Buildings of the Manila International Airport President of the Republic, wherein he wrote:
84
It is the position of the BSP, with all due respect, that it is Region, Iloilo City and Eugenio F. Capreso, Council Scout
not subject to the Commission’s jurisdiction on the Executive of Calbayog City.11
following grounds: In a letter12 dated July 3, 2000, Director Crescencio S.
1. We reckon that the ruling in the case of Boy Sunico, Corporate Audit Officer (CAO) I of the COA,
Scouts of the Philippines vs. National Labor furnished the BSP with a copy of the
Relations Commission, et al. (G.R. No. 80767) Memorandum13 dated June 20, 2000 of Atty. Santos M.
classifying the BSP as a government-controlled Alquizalas, the COA General Counsel. In said
corporation is anchored on the "substantial Memorandum, the COA General Counsel opined that
Government participation" in the National Republic Act No. 7278 did not supersede the Court’s
Executive Board of the BSP. It is to be noted that ruling in Boy Scouts of the Philippines v. National Labor
the case was decided when the BSP Charter is Relations Commission, even though said law eliminated
defined by Commonwealth Act No. 111 as the substantial government participation in the selection
amended by Presidential Decree 460. of members of the National Executive Board of the BSP.
However, may we humbly refer you to Republic Act No. The Memorandum further provides:
7278 which amended the BSP’s charter after the cited Analysis of the said case disclosed that the substantial
case was decided. The most salient of all amendments in government participation is only one (1) of the three (3)
RA No. 7278 is the alteration of the composition of the grounds relied upon by the Court in the resolution of the
National Executive Board of the BSP. case. Other considerations include the character of the
The said RA virtually eliminated the "substantial BSP’s purposes and functions which has a public aspect
government participation" in the National Executive Board and the statutory designation of the BSP as a "public
by removing: (i) the President of the Philippines and corporation". These grounds have not been deleted by
executive secretaries, with the exception of the Secretary R.A. No. 7278. On the contrary, these were strengthened
of Education, as members thereof; and (ii) the as evidenced by the amendment made relative to BSP’s
appointment and confirmation power of the President of purposes stated in Section 3 of R.A. No. 7278.
the Philippines, as Chief Scout, over the members of the On the argument that BSP is not appropriately regarded
said Board. as "a government instrumentality" and "agency" of the
The BSP believes that the cited case has been government, such has already been answered and
superseded by RA 7278. Thereby weakening the case’s clarified. The Supreme Court has elucidated this matter in
conclusion that the BSP is a government-controlled the BSP case when it declared that BSP is regarded as,
corporation (sic). The 1987 Administrative Code itself, of both a "government-controlled corporation with an original
which the BSP vs. NLRC relied on for some terms, defines charter" and as an "instrumentality" of the Government.
government-owned and controlled corporations as Likewise, it is not disputed that the Administrative Code of
agencies organized as stock or non-stock corporations 1987 designated the BSP as one of the attached agencies
which the BSP, under its present charter, is not. of DECS. Being an attached agency, however, it does not
change its nature as a government-controlled corporation
Also, the Government, like in other GOCCs, does not
with original charter and, necessarily, subject to COA
have funds invested in the BSP. What RA 7278 only
audit jurisdiction. Besides, Section 2(1), Article IX-D of the
provides is that the Government or any of its subdivisions,
Constitution provides that COA shall have the power,
branches, offices, agencies and instrumentalities can
authority, and duty to examine, audit and settle all
from time to time donate and contribute funds to the BSP.
accounts pertaining to the revenue and receipts of, and
xxxx expenditures or uses of funds and property, owned or held
Also the BSP respectfully believes that the BSP is not in trust by, or pertaining to, the Government, or any of its
"appropriately regarded as a government instrumentality subdivisions, agencies or instrumentalities, including
under the 1987 Administrative Code" as stated in the COA government-owned or controlled corporations with
resolution. As defined by Section 2(10) of the said code, original charters.14
instrumentality refers to "any agency of the National Based on the Memorandum of the COA General Counsel,
Government, not integrated within the department Director Sunico wrote:
framework, vested with special functions or jurisdiction by
In view of the points clarified by said Memorandum
law, endowed with some if not all corporate powers,
upholding COA Resolution No. 99-011, we have to
administering special funds, and enjoying operational
comply with the provisions of the latter, among which is to
autonomy, usually through a charter."
conduct an annual financial audit of the Boy Scouts of the
The BSP is not an entity administering special funds. It is Philippines.15
not even included in the DECS National Budget. x x x
In a letter dated November 20, 2000 signed by Director
It may be argued also that the BSP is not an "agency" of Amorsonia B. Escarda, CAO I, the COA informed the BSP
the Government. The 1987 Administrative Code, merely that a preliminary survey of its organizational structure,
referred the BSP as an "attached agency" of the DECS as operations and accounting system/records shall be
distinguished from an actual line agency of departments conducted on November 21 to 22, 2000.16
that are included in the National Budget. The BSP
Upon the BSP’s request, the audit was deferred for thirty
believes that an "attached agency" is different from an
(30) days. The BSP then filed a Petition for Review with
"agency." Agency, as defined in Section 2(4) of the
Prayer for Preliminary Injunction and/or Temporary
Administrative Code, is defined as any of the various units
Restraining Order before the COA. This was denied by
of the Government including a department, bureau, office,
the COA in its questioned Decision, which held that the
instrumentality, government-owned or controlled
BSP is under its audit jurisdiction. The BSP moved for
corporation or local government or distinct unit therein.
reconsideration but this was likewise denied under its
Under the above definition, the BSP is neither a unit of the questioned Resolution.17
Government; a department which refers to an executive
This led to the filing by the BSP of this petition for
department as created by law (Section 2[7] of the
prohibition with preliminary injunction and temporary
Administrative Code); nor a bureau which refers to any
restraining order against the COA.
principal subdivision or unit of any department (Section
2[8], Administrative Code).10 The Issue
Subsequently, requests for reconsideration of the COA As stated earlier, the sole issue to be resolved in this case
Resolution were also made separately by Robert P. is whether the BSP falls under the COA’s audit jurisdiction.
Valdellon, Regional Scout Director, Western Visayas The Parties’ Respective Arguments
85
The BSP contends that Boy Scouts of the Philippines v. as BSP has never been included in any appropriations act
National Labor Relations Commission is inapplicable for for the government. Neither has the government invested
purposes of determining the audit jurisdiction of the COA funds with BSP. BSP, has not been, at any time, a user of
as the issue therein was the jurisdiction of the National government property or funds; nor have properties of the
Labor Relations Commission over a case for illegal government been held in trust by BSP. This is precisely
dismissal and unfair labor practice filed by certain BSP the reason why, until this time, the COA has not attempted
employees.18 to subject BSP to its audit jurisdiction. x x x.25
While the BSP concedes that its functions do relate to To summarize its other arguments, the BSP contends that
those that the government might otherwise completely it is not a government-owned or controlled corporation;
assume on its own, it avers that this alone was not neither is it an instrumentality, agency, or subdivision of
determinative of the COA’s audit jurisdiction over it. The the government.
BSP further avers that the Court in Boy Scouts of the In its Comment,26 the COA argues as follows:
Philippines v. National Labor Relations Commission
1. The BSP is a public corporation created under
"simply stated x x x that in respect of functions, the BSP
Commonwealth Act No. 111 dated October 31,
is akin to a public corporation" but this was not
1936, and whose functions relate to the fostering
synonymous to holding that the BSP is a government
of public virtues of citizenship and patriotism and
corporation or entity subject to audit by the COA. 19
the general improvement of the moral spirit and
The BSP contends that Republic Act No. 7278 introduced fiber of the youth. The manner of creation and the
crucial amendments to its charter; hence, the findings of purpose for which the BSP was created
the Court in Boy Scouts of the Philippines v. National indubitably prove that it is a government agency.
Labor Relations Commission are no longer valid as the
2. Being a government agency, the funds and
government has ceased to play a controlling influence in
property owned or held in trust by the BSP are
it. The BSP claims that the pronouncements of the Court
subject to the audit authority of respondent
therein must be taken only within the context of that case;
Commission on Audit pursuant to Section 2 (1),
that the Court had categorically found that its assets were
Article IX-D of the 1987 Constitution.
acquired from the Boy Scouts of America and not from the
Philippine government, and that its operations are 3. Republic Act No. 7278 did not change the
financed chiefly from membership dues of the Boy Scouts character of the BSP as a government-owned or
themselves as well as from property rentals; and that "the controlled corporation and government
BSP may correctly be characterized as non-governmental, instrumentality.27
and hence, beyond the audit jurisdiction of the COA." It The COA maintains that the functions of the BSP that
further claims that the designation by the Court of the BSP include, among others, the teaching to the youth of
as a government agency or instrumentality is mere obiter patriotism, courage, self-reliance, and kindred virtues, are
dictum.20 undeniably sovereign functions enshrined under the
The BSP maintains that the provisions of Republic Act No. Constitution and discussed by the Court in Boy Scouts of
7278 suggest that "governance of BSP has come to be the Philippines v. National Labor Relations Commission.
overwhelmingly a private affair or nature, with government The COA contends that any attempt to classify the BSP
participation restricted to the seat of the Secretary of as a private corporation would be incomprehensible since
Education, Culture and Sports."21 It cites Philippine no less than the law which created it had designated it as
Airlines Inc. v. Commission on Audit22 wherein the Court a public corporation and its statutory mandate embraces
declared that, "PAL, having ceased to be a government- performance of sovereign functions.28
owned or controlled corporation is no longer under the The COA claims that the only reason why the BSP
audit jurisdiction of the COA."23 Claiming that the employees fell within the scope of the Civil Service
amendments introduced by Republic Act No. 7278 Commission even before the 1987 Constitution was the
constituted a supervening event that changed the BSP’s fact that it was a government-owned or controlled
corporate identity in the same way that the government’s corporation; that as an attached agency of the
privatization program changed PAL’s, the BSP makes the Department of Education, Culture and Sports (DECS), the
case that the government no longer has control over it; BSP is an agency of the government; and that the BSP is
thus, the COA cannot use the Boy Scouts of the a chartered institution under Section 1(12) of the Revised
Philippines v. National Labor Relations Commission as its Administrative Code of 1987, embraced under the term
basis for the exercise of its jurisdiction and the issuance government instrumentality.29
of COA Resolution No. 99-011.24 The BSP further claims The COA concludes that being a government agency, the
as follows: funds and property owned or held by the BSP are subject
It is not far-fetched, in fact, to concede that BSP’s funds to the audit authority of the COA pursuant to Section 2(1),
and assets are private in character. Unlike ordinary public Article IX (D) of the 1987 Constitution.
corporations, such as provinces, cities, and municipalities, In support of its arguments, the COA cites The Veterans
or government-owned and controlled corporations, such Federation of the Philippines (VFP) v. Reyes,30 wherein
as Land Bank of the Philippines and the Development the Court held that among the reasons why the VFP is a
Bank of the Philippines, the assets and funds of BSP are public corporation is that its charter, Republic Act No.
not derived from any government grant. For its operations, 2640, designates it as one. Furthermore, the COA quotes
BSP is not dependent in any way on any government the Court as saying in that case:
appropriation; as a matter of fact, it has not even been
included in any appropriations for the government. To be In several cases, we have dealt with the issue of whether
certain specific activities can be classified as sovereign
sure, COA has not alleged, in its Resolution No. 99-011
functions. These cases, which deal with activities not
or in the Memorandum of its General Counsel, that BSP
immediately apparent to be sovereign functions, upheld
received, receives or continues to receive assets and
funds from any agency of the government. The foregoing the public sovereign nature of operations needed either to
simply point to the private nature of the funds and assets promote social justice or to stimulate patriotic sentiments
and love of country.
of petitioner BSP.
xxxx
xxxx
Petitioner claims that its funds are not public funds
As stated in petitioner’s third argument, BSP’s assets and
because no budgetary appropriations or government
funds were never acquired from the government. Its
operations are not in any way financed by the government, funds have been released to the VFP directly or indirectly
86
from the DBM, and because VFP funds come from For its part, in its Comment42 filed on December 3, 2010,
membership dues and lease rentals earned from the BSP submits that its charter, Commonwealth Act No.
administering government lands reserved for the VFP. 111, as amended by Republic Act No. 7278, is
The fact that no budgetary appropriations have been constitutional as it does not violate Section 16, Article XII
released to the VFP does not prove that it is a private of the Constitution. The BSP alleges that "while [it] is not
corporation. The DBM indeed did not see it fit to propose a public corporation within the purview of COA’s audit
budgetary appropriations to the VFP, having itself jurisdiction, neither is it a private corporation created by
believed that the VFP is a private corporation. If the DBM, special law falling within the ambit of the constitutional
however, is mistaken as to its conclusion regarding the prohibition x x x."43 The BSP further alleges:
nature of VFP's incorporation, its previous assertions will Petitioner’s purpose is embodied in Section 3 of C.A. No.
not prevent future budgetary appropriations to the VFP. 111, as amended by Section 1 of R.A. No. 7278, thus:
The erroneous application of the law by public officers xxxx
does not bar a subsequent correct application of the
A reading of the foregoing provision shows that petitioner
law.31(Citations omitted.)
was created to advance the interest of the youth,
The COA points out that the government is not precluded specifically of young boys, and to mold them into
by law from extending financial support to the BSP and becoming good citizens. Ultimately, the creation of
adding to its funds, and that "as a government petitioner redounds to the benefit, not only of those boys,
instrumentality which continues to perform a vital function but of the public good or welfare. Hence, it can be said
imbued with public interest and reflective of the that petitioner’s purpose and functions are more of a
government’s policy to stimulate patriotic sentiments and public rather than a private character. Petitioner caters to
love of country, the BSP’s funds from whatever source are all boys who wish to join the organization without any
public funds, and can be used solely for public purpose in distinction. It does not limit its membership to a particular
pursuance of the provisions of Republic Act No. [7278]."32 class of boys. Petitioner’s members are trained in
The COA claims that the fact that it has not yet audited scoutcraft and taught patriotism, civic consciousness and
the BSP’s funds may not bar the subsequent exercise of responsibility, courage, self-reliance, discipline and
its audit jurisdiction. kindred virtues, and moral values, preparing them to
The BSP filed its Reply33 on August 29, 2007 maintaining become model citizens and outstanding leaders of the
that its statutory designation as a "public corporation" and country.44
the public character of its purpose and functions are not The BSP reiterates its stand that the public character of
determinative of the COA’s audit jurisdiction; reiterating its its purpose and functions do not place it within the ambit
stand that Boy Scouts of the Philippines v. National Labor of the audit jurisdiction of the COA as it lacks the
Relations Commission is not applicable anymore because government ownership or control that the Constitution
the aspect of government ownership and control has been requires before an entity may be subject of said
removed by Republic Act No. 7278; and concluding that jurisdiction.45 It avers that it merely stated in its Reply that
the funds and property that it either owned or held in trust the withdrawal of government control is akin to
are not public funds and are not subject to the COA’s audit privatization, but it does not necessarily mean that
jurisdiction. petitioner is a private corporation.46The BSP claims that it
Thereafter, considering the BSP’s claim that it is a private has a unique characteristic which "neither classifies it as
corporation, this Court, in a Resolution34 dated July 20, a purely public nor a purely private corporation";47 that it
2010, required the parties to file, within a period of twenty is not a quasi-public corporation; and that it may belong to
(20) days from receipt of said Resolution, their respective a different class altogether.48
comments on the issue of whether Commonwealth Act No. The BSP claims that assuming arguendo that it is a
111, as amended by Republic Act No. 7278, is private corporation, its creation is not contrary to the
constitutional. purpose of Section 16, Article XII of the Constitution; and
In compliance with the Court’s resolution, the parties filed that the evil sought to be avoided by said provision is
their respective Comments. inexistent in the enactment of the BSP’s charter,49 as, (i)
it was not created for any pecuniary purpose; (ii) those
In its Comment35 dated October 22, 2010, the COA
who will primarily benefit from its creation are not its
argues that the constitutionality of Commonwealth Act No.
officers but its entire membership consisting of boys being
111, as amended, is not determinative of the resolution of
trained in scoutcraft all over the country; (iii) it caters to all
the present controversy on the COA’s audit jurisdiction
boys who wish to join the organization without any
over petitioner, and in fact, the controversy may be
distinction; and (iv) it does not limit its membership to a
resolved on other grounds; thus, the requisites before a
particular class or group of boys. Thus, the enactment of
judicial inquiry may be made, as set forth in Commissioner
its charter confers no special privilege to particular
of Internal Revenue v. Court of Tax Appeals,36 have not
individuals, families, or groups; nor does it bring about the
been fully met.37 Moreover, the COA maintains that
danger of granting undue favors to certain groups to the
behind every law lies the presumption of
prejudice of others or of the interest of the country, which
constitutionality.38 The COA likewise argues that contrary
are the evils sought to be prevented by the constitutional
to the BSP’s position, repeal of a law by implication is not
provision involved.50
favored.39 Lastly, the COA claims that there was no
violation of Section 16, Article XII of the 1987 Constitution Finally, the BSP states that the presumption of
with the creation or declaration of the BSP as a constitutionality of a legislative enactment prevails absent
government corporation. Citing Philippine Society for the any clear showing of its repugnancy to the Constitution.51
Prevention of Cruelty to Animals v. Commission on The Ruling of the Court
Audit,40 the COA further alleges: After looking at the legislative history of its amended
The true criterion, therefore, to determine whether a charter and carefully studying the applicable laws and the
corporation is public or private is found in the totality of the arguments of both parties, we find that the BSP is a public
relation of the corporation to the State. If the corporation corporation and its funds are subject to the COA’s audit
is created by the State as the latter’s own agency or jurisdiction.
instrumentality to help it in carrying out its governmental The BSP Charter (Commonwealth Act No. 111, approved
functions, then that corporation is considered public; on October 31, 1936), entitled "An Act to Create a Public
otherwise, it is private. x x x.41 Corporation to be Known as the Boy Scouts of the
Philippines, and to Define its Powers and Purposes"
87
created the BSP as a "public corporation" to serve the necessary to carry into effect the provisions of this Act and
following public interest or purpose: promote the purposes of said corporation: Provided, That
Sec. 3. The purpose of this corporation shall be to said corporation shall have no power to issue certificates
promote through organization and cooperation with other of stock or to declare or pay dividends, its objectives and
agencies, the ability of boys to do useful things for purposes being solely of benevolent character and not for
themselves and others, to train them in scoutcraft, and to pecuniary profit of its members.
inculcate in them patriotism, civic consciousness and "Sec. 3. The purpose of this corporation shall be to
responsibility, courage, self-reliance, discipline and promote through organization and cooperation with other
kindred virtues, and moral values, using the method which agencies, the ability of boys to do useful things for
are in common use by boy scouts. themselves and others, to train them in scoutcraft, and to
Presidential Decree No. 460, approved on May 17, 1974, inculcate in them patriotism, civic consciousness and
amended Commonwealth Act No. 111 and provided responsibility, courage, self-reliance, discipline and
substantial changes in the BSP organizational structure. kindred virtues, and moral values, using the method which
Pertinent provisions are quoted below: are in common use by boy scouts."
Section II. Section 5 of the said Act is also amended to Sec. 2. Section 4 of Commonwealth Act No. 111, as
read as follows: amended, is hereby repealed and in lieu thereof, Section
4 shall read as follows:
The governing body of the said corporation shall consist
of a National Executive Board composed of (a) the "Sec. 4. The President of the Philippines shall be the Chief
President of the Philippines or his representative; (b) the Scout of the Boy Scouts of the Philippines."
charter and life members of the Boy Scouts of the Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act No.
Philippines; (c) the Chairman of the Board of Trustees of 111, as amended, are hereby amended to read as follows:
the Philippine Scouting Foundation; (d) the Regional "Sec. 5. The governing body of the said corporation shall
Chairman of the Scout Regions of the Philippines; (e) the consist of a National Executive Board, the members of
Secretary of Education and Culture, the Secretary of which shall be Filipino citizens of good moral character.
Social Welfare, the Secretary of National Defense, the The Board shall be composed of the following:
Secretary of Labor, the Secretary of Finance, the
"(a) One (1) charter member of the Boy Scouts of
Secretary of Youth and Sports, and the Secretary of Local
the Philippines who shall be elected by the
Government and Community Development; (f) an equal
members of the National Council at its meeting
number of individuals from the private sector; (g) the
called for this purpose;
National President of the Girl Scouts of the Philippines; (h)
one Scout of Senior age from each Scout Region to "(b) The regional chairmen of the scout regions
represent the boy membership; and (i) three who shall be elected by the representatives of all
representatives of the cultural minorities. Except for the the local scout councils of the region during its
Regional Chairman who shall be elected by the Regional meeting called for this purpose: Provided, That a
Scout Councils during their annual meetings, and the candidate for regional chairman need not be the
Scouts of their respective regions, all members of the chairman of a local scout council;
National Executive Board shall be either by appointment "(c) The Secretary of Education, Culture and
or cooption, subject to ratification and confirmation by the Sports;
Chief Scout, who shall be the Head of State. Vacancies in "(d) The National President of the Girl Scouts of
the Executive Board shall be filled by a majority vote of the Philippines;
the remaining members, subject to ratification and
"(e) One (1) senior scout, each from Luzon,
confirmation by the Chief Scout. The by-laws may
Visayas and Mindanao areas, to be elected by the
prescribe the number of members of the National
Executive Board necessary to constitute a quorum of the senior scout delegates of the local scout councils
board, which number may be less than a majority of the to the scout youth forums in their respective areas,
in its meeting called for this purpose, to represent
whole number of the board. The National Executive Board
the boy scout membership;
shall have power to make and to amend the by-laws, and,
by a two-thirds vote of the whole board at a meeting called "(f) Twelve (12) regular members to be elected by
for this purpose, may authorize and cause to be executed the members of the National Council in its
mortgages and liens upon the property of the corporation. meeting called for this purpose;
Subsequently, on March 24, 1992, Republic Act No. 7278 "(g) At least ten (10) but not more than fifteen (15)
further amended Commonwealth Act No. 111 "by additional members from the private sector who
strengthening the volunteer and democratic character" of shall be elected by the members of the National
the BSP and reducing government representation in its Executive Board referred to in the immediately
governing body, as follows: preceding paragraphs (a), (b), (c), (d), (e) and (f)
Section 1. Sections 2 and 3 of Commonwealth Act. No. at the organizational meeting of the newly
111, as amended, is hereby amended to read as follows: reconstituted National Executive Board which
shall be held immediately after the meeting of the
"Sec. 2. The said corporation shall have the powers of National Council wherein the twelve (12) regular
perpetual succession, to sue and be sued; to enter into members and the one (1) charter member were
contracts; to acquire, own, lease, convey and dispose of elected.
such real and personal estate, land grants, rights and
choses in action as shall be necessary for corporate xxxx
purposes, and to accept and receive funds, real and "Sec. 8. Any donation or contribution which from time to
personal property by gift, devise, bequest or other means, time may be made to the Boy Scouts of the Philippines by
to conduct fund-raising activities; to adopt and use a seal, the Government or any of its subdivisions, branches,
and the same to alter and destroy; to have offices and offices, agencies or instrumentalities or by a foreign
conduct its business and affairs in Metropolitan Manila government or by private, entities and individuals shall be
and in the regions, provinces, cities, municipalities, and expended by the National Executive Board in pursuance
barangays of the Philippines, to make and adopt by-laws, of this Act.
rules and regulations not inconsistent with this Act and the The BSP as a Public Corporation under Par. 2, Art. 2 of
laws of the Philippines, and generally to do all such acts the Civil Code
and things, including the establishment of regulations for
the election of associates and successors, as may be
88
There are three classes of juridical persons under Article agencies, administrative relationships shall be
44 of the Civil Code and the BSP, as presently constituted categorized and defined as follows:
under Republic Act No. 7278, falls under the second xxxx
classification. Article 44 reads:
(3) Attachment. – (a) This refers to the lateral relationship
Art. 44. The following are juridical persons: between the department or its equivalent and the
(1) The State and its political subdivisions; attached agency or corporation for purposes of policy and
(2) Other