G.R. No.

191109 July 18, 2012 REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE RECLAMATION AUTHORITY (PRA), Petitioner, vs. CITY OF PARANAQUE, Respondent. MENDOZA, J.: This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, on pure questions of law, assailing the January 8, 2010 Order1 of the Regional Trial Court, Branch 195, Parafiaque City (RTC), which ruled that petitioner Philippine Reclamation Authority (PRA) is a government-owned and controlled corporation (GOCC), a taxable entity, and, therefore, . not exempt from payment of real property taxes. The pertinent portion of the said order reads: In view of the finding of this court that petitioner is not exempt from payment of real property taxes, respondent Paraaque City Treasurer Liberato M. Carabeo did not act xxx without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or in excess of jurisdiction in issuing the warrants of levy on the subject properties. WHEREFORE, the instant petition is dismissed. The Motion for Leave to File and Admit Attached Supplemental Petition is denied and the supplemental petition attached thereto is not admitted. The Public Estates Authority (PEA) is a government corporation created by virtue of Presidential Decree (P.D.) No. 1084 (Creating the Public Estates Authority, Defining its Powers and Functions, Providing Funds Therefor and For Other Purposes) which took effect on February 4, 1977 to provide a coordinated, economical and efficient reclamation of lands, and the administration and operation of lands belonging to, managed and/or operated by, the government with the object of maximizing their utilization and hastening their development consistent with public interest. On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued by then President Ferdinand Marcos, PEA was designated as the agency primarily responsible for integrating, directing and coordinating all reclamation projects for and on behalf of the National Government. On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380 transforming PEA into PRA, which shall perform all the powers and functions of the PEA relating to reclamation activities. By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of Manila Bay, including those located in Paraaque City, and was issued Original Certificates of Title (OCT Nos. 180, 202, 206, 207, 289, 557, and 559) and

Transfer Certificates of Title (TCT Nos. 104628, 7312, 7309, 7311, 9685, and 9686) over the reclaimed lands. On February 19, 2003, then Paraaque City Treasurer Liberato M. Carabeo (Carabeo) issued Warrants of Levy on PRAs reclaimed properties (Central Business Park and Barangay San Dionisio) located in Paraaque City based on the assessment for delinquent real property taxes made by then Paraaque City Assessor Soledad Medina Cue for tax years 2001 and 2002. On March 26, 2003, PRA filed a petition for prohibition with prayer for temporary restraining order (TRO) and/or writ of preliminary injunction against Carabeo before the RTC. On April 3, 2003, after due hearing, the RTC issued an order denying PRAs petition for the issuance of a temporary restraining order. On April 4, 2003, PRA sent a letter to Carabeo requesting the latter not to proceed with the public auction of the subject reclaimed properties on April 7, 2003. In response, Carabeo sent a letter stating that the public auction could not be deferred because the RTC had already denied PRAs TRO application. On April 25, 2003, the RTC denied PRAs prayer for the issuance of a writ of preliminary injunction for being moot and academic considering that the auction sale of the subject properties on April 7, 2003 had already been consummated. On August 3, 2009, after an exchange of several pleadings and the failure of both parties to arrive at a compromise agreement, PRA filed a Motion for Leave to File and Admit Attached Supplemental Petition which sought to declare as null and void the assessment for real property taxes, the levy based on the said assessment, the public auction sale conducted on April 7, 2003, and the Certificates of Sale issued pursuant to the auction sale. On January 8, 2010, the RTC rendered its decision dismissing PRAs petition. In ruling that PRA was not exempt from payment of real property taxes, the RTC reasoned out that it was a GOCC under Section 3 of P.D. No. 1084. It was organized as a stock corporation because it had an authorized capital stock divided into no par value shares. In fact, PRA admitted its corporate personality and that said properties were registered in its name as shown by the certificates of title. Therefore, as a GOCC, local tax exemption is withdrawn by virtue of Section 193 of Republic Act (R.A.) No. 7160 Local Government Code (LGC) which was the prevailing law in 2001 and 2002 with respect to real property taxation. The RTC also ruled that the tax exemption claimed by PRA under E.O. No. 654 had already been expressly repealed by R.A. No. 7160 and that PRA failed to comply with the procedural requirements in Section 206 thereof.

Not in conformity, PRA filed this petition for certiorari assailing the January 8, 2010 RTC Order based on the following GROUNDS I THE TRIAL COURT GRAVELY ERRED IN FINDING THAT PETITIONER IS LIABLE TO PAY REAL PROPERTY TAX ON THE SUBJECT RECLAIMED LANDS CONSIDERING THAT PETITIONER IS AN INCORPORATED INSTRUMENTALITY OF THE NATIONAL GOVERNMENT AND IS, THEREFORE, EXEMPT FROM PAYMENT OF REAL PROPERTY TAX UNDER SECTIONS 234(A) AND 133(O) OF REPUBLIC ACT 7160 OR THE LOCAL GOVERNMENT CODE VIS--VIS MANILA INTERNATIONAL AIRPORT AUTHORITY V. COURT OF APPEALS. II THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT RECLAIMED LANDS ARE PART OF THE PUBLIC DOMAIN AND, HENCE, EXEMPT FROM REAL PROPERTY TAX. PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions of the Administrative Code. Neither is it a GOCC under Section 16, Article XII of the 1987 Constitution because it is not required to meet the test of economic viability. Instead, PRA is a government instrumentality vested with corporate powers and performing an essential public service pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. Although it has a capital stock divided into shares, it is not authorized to distribute dividends and allotment of surplus and profits to its stockholders. Therefore, it may not be classified as a stock corporation because it lacks the second requisite of a stock corporation which is the distribution of dividends and allotment of surplus and profits to the stockholders. It insists that it may not be classified as a non-stock corporation because it has no members and it is not organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers as provided in Section 88 of the Corporation Code. Moreover, PRA points out that it was not created to compete in the market place as there was no competing reclamation company operated by the private sector. Also, while PRA is vested with corporate powers under P.D. No. 1084, such circumstance does not make it a corporation but merely an incorporated instrumentality and that the mere fact that an incorporated instrumentality of the National Government holds title to real property does not make said instrumentality a GOCC. Section 48, Chapter 12,

Book I of the Administrative Code of 1987 recognizes a scenario where a piece of land owned by the Republic is titled in the name of a department, agency or instrumentality. Thus, PRA insists that, as an incorporated instrumentality of the National Government, it is exempt from payment of real property tax except when the beneficial use of the real property is granted to a taxable person. PRA claims that based on Section 133(o) of the LGC, local governments cannot tax the national government which delegate to local governments the power to tax. It explains that reclaimed lands are part of the public domain, owned by the State, thus, exempt from the payment of real estate taxes. Reclaimed lands retain their inherent potential as areas for public use or public service. While the subject reclaimed lands are still in its hands, these lands remain public lands and form part of the public domain. Hence, the assessment of real property taxes made on said lands, as well as the levy thereon, and the public sale thereof on April 7, 2003, including the issuance of the certificates of sale in favor of the respondent Paraaque City, are invalid and of no force and effect. On the other hand, the City of Paraaque (respondent) argues that PRA since its creation consistently represented itself to be a GOCC. PRAs very own charter (P.D. No. 1084) declared it to be a GOCC and that it has entered into several thousands of contracts where it represented itself to be a GOCC. In fact, PRA admitted in its original and amended petitions and pre-trial brief filed with the RTC of Paraaque City that it was a GOCC. Respondent further argues that PRA is a stock corporation with an authorized capital stock divided into 3 million no par value shares, out of which 2 million shares have been subscribed and fully paid up. Section 193 of the LGC of 1991 has withdrawn tax exemption privileges granted to or presently enjoyed by all persons, whether natural or juridical, including GOCCs. Hence, since PRA is a GOCC, it is not exempt from the payment of real property tax. THE COURTS RULING The Court finds merit in the petition. Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a GOCC as follows: SEC. 2. General Terms Defined. x x x x (13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or

through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x. On the other hand, Section 2(10) of the Introductory Provisions of the Administrative Code defines a government "instrumentality" as follows: SEC. 2. General Terms Defined. x x x x (10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x From the above definitions, it is clear that a GOCC must be "organized as a stock or non-stock corporation" while an instrumentality is vested by law with corporate powers. Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains part of the National Government machinery although not integrated with the department framework. When the law vests in a government instrumentality corporate powers, the instrumentality does not necessarily become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed a GOCC. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the University of the Philippines, and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called government corporate entities. They are not, however, GOCCs in the strict sense as understood under the Administrative Code, which is the governing law defining the legal relationship and status of government entities.2 Correlatively, Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided into shares and x x x authorized to distribute to the holders of such shares dividends x x x." Section 87 thereof defines a non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or officers." Further, Section 88 provides that non-stock corporations are "organized for charitable, religious, educational, professional, cultural,

recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers." Two requisites must concur before one may be classified as a stock corporation, namely: (1) that it has capital stock divided into shares; and (2) that it is authorized to distribute dividends and allotments of surplus and profits to its stockholders. If only one requisite is present, it cannot be properly classified as a stock corporation. As for nonstock corporations, they must have members and must not distribute any part of their income to said members.3 In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock corporation. It cannot be considered as a stock corporation because although it has a capital stock divided into no par value shares as provided in Section 74 of P.D. No. 1084, it is not authorized to distribute dividends, surplus allotments or profits to stockholders. There is no provision whatsoever in P.D. No. 1084 or in any of the subsequent executive issuances pertaining to PRA, particularly, E.O. No. 525,5 E.O. No. 6546 and EO No. 7987 that authorizes PRA to distribute dividends, surplus allotments or profits to its stockholders. PRA cannot be considered a non-stock corporation either because it does not have members. A non-stock corporation must have members.8 Moreover, it was not organized for any of the purposes mentioned in Section 88 of the Corporation Code. Specifically, it was created to manage all government reclamation projects. Furthermore, there is another reason why the PRA cannot be classified as a GOCC. Section 16, Article XII of the 1987 Constitution provides as follows: Section 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability. The fundamental provision above authorizes Congress to create GOCCs through special charters on two conditions: 1) the GOCC must be established for the common good; and 2) the GOCC must meet the test of economic viability. In this case, PRA may have passed the first condition of common good but failed the second one economic viability. Undoubtedly, the purpose behind the creation of PRA was not for economic or commercial activities. Neither was it created to compete in the market place considering that there were no other competing reclamation companies being operated by the private sector. As mentioned earlier, PRA was created essentially to perform a public service considering that it was primarily responsible for a coordinated, economical and efficient reclamation, administration and operation of lands belonging to the government with the object of maximizing their utilization and hastening their development consistent with the public interest. Sections 2 and 4 of P.D. No. 1084 reads, as follows:

Section 2. Declaration of policy. It is the declared policy of the State to provide for a coordinated, economical and efficient reclamation of lands, and the administration and operation of lands belonging to, managed and/or operated by the government, with the object of maximizing their utilization and hastening their development consistent with the public interest. Section 4. Purposes. The Authority is hereby created for the following purposes: (a) To reclaim land, including foreshore and submerged areas, by dredging, filling or other means, or to acquire reclaimed land; (b) To develop, improve, acquire, administer, deal in, subdivide, dispose, lease and sell any and all kinds of lands, buildings, estates and other forms of real property, owned, managed, controlled and/or operated by the government. (c) To provide for, operate or administer such services as may be necessary for the efficient, economical and beneficial utilization of the above properties. The twin requirement of common good and economic viability was lengthily discussed in the case of Manila International Airport Authority v. Court of Appeals, 9 the pertinent portion of which reads: Third, the government-owned or controlled corporations created through special charters are those that meet the two conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that the government-owned or controlled corporation must be established for the common good. The second condition is that the government-owned or controlled corporation must meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides: SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability. The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations" through special charters only if these entities are required to meet the twin conditions of common good and economic viability. In other words, Congress has no power to create government-owned or controlled corporations with special charters unless they are made to comply with the two conditions of common good and economic viability. The test of economic viability applies only to governmentowned or controlled corporations that perform economic or commercial activities and need to compete in the market place. Being essentially economic vehicles of the State for the common good meaning for economic development purposes these

government-owned or controlled corporations with special charters are usually organized as stock corporations just like ordinary private corporations. In contrast, government instrumentalities vested with corporate powers and performing governmental or public functions need not meet the test of economic viability. These instrumentalities perform essential public services for the common good, services that every modern State must provide its citizens. These instrumentalities need not be economically viable since the government may even subsidize their entire operations. These instrumentalities are not the "government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution. Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with corporate powers but performing essential governmental or public functions. Congress has plenary authority to create government instrumentalities vested with corporate powers provided these instrumentalities perform essential government functions or public services. However, when the legislature creates through special charters corporations that perform economic or commercial activities, such entities known as "government-owned or controlled corporations" must meet the test of economic viability because they compete in the market place. This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar government-owned or controlled corporations, which derive their incometo meet operating expenses solely from commercial transactions in competition with the private sector. The intent of the Constitution is to prevent the creation of government-owned or controlled corporations that cannot survive on their own in the market place and thus merely drain the public coffers. Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission the purpose of this test, as follows: MR. OPLE: Madam President, the reason for this concern is really that when the government creates a corporation, there is a sense in which this corporation becomes exempt from the test of economic performance. We know what happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers' money through new equity infusions from the government and what is always invoked is the common good. That is the reason why this year, out of a budget of P115 billion for the entire government, about P28 billion of this will go into equity infusions to support a few government financial institutions. And this is all taxpayers' money which could have been relocated to agrarian reform, to social services like health and education, to augment the salaries of grossly underpaid public employees. And yet this is all going down the drain. Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a restraint on future enthusiasts for state capitalism to

excuse themselves from the responsibility of meeting the market test so that they become viable. And so, Madam President, I reiterate, for the committee's consideration and I am glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common good.1wphi1 Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987 Constitution of the Republic of the Philippines: A Commentary: The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the phrase "in the interest of the common good and subject to the test of economic viability." The addition includes the ideas that they must show capacity to function efficiently in business and that they should not go into activities which the private sector can do better. Moreover, economic viability is more than financial viability but also includes capability to make profit and generate benefits not quantifiable in financial terms. Clearly, the test of economic viability does not apply to government entities vested with corporate powers and performing essential public services. The State is obligated to render essential public services regardless of the economic viability of providing such service. The non-economic viability of rendering such essential public service does not excuse the State from withholding such essential services from the public. However, government-owned or controlled corporations with special charters, organized essentially for economic or commercial objectives, must meet the test of economic viability. These are the government-owned or controlled corporations that are usually organized under their special charters as stock corporations, like the Land Bank of the Philippines and the Development Bank of the Philippines. These are the government-owned or controlled corporations, along with government-owned or controlled corporations organized under the Corporation Code, that fall under the definition of "government-owned or controlled corporations" in Section 2(10) of the Administrative Code. [Emphases supplied] This Court is convinced that PRA is not a GOCC either under Section 2(3) of the Introductory Provisions of the Administrative Code or under Section 16, Article XII of the 1987 Constitution. The facts, the evidence on record and jurisprudence on the issue support the position that PRA was not organized either as a stock or a non-stock corporation. Neither was it created by Congress to operate commercially and compete in the private market. Instead, PRA is a government instrumentality vested with corporate powers and performing an essential public service pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. Being an incorporated government instrumentality, it is exempt from payment of real property tax.

Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands managed by PRA. On the other hand, Section 234(a) of the LGC, in relation to its Section 133(o), exempts PRA from paying realty taxes and protects it from the taxing powers of local government units. Sections 234(a) and 133(o) of the LGC provide, as follows: SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of the real property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person. xxxx SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxxx (o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local government units. [Emphasis supplied] It is clear from Section 234 that real property owned by the Republic of the Philippines (the Republic) is exempt from real property tax unless the beneficial use thereof has been granted to a taxable person. In this case, there is no proof that PRA granted the beneficial use of the subject reclaimed lands to a taxable entity. There is no showing on record either that PRA leased the subject reclaimed properties to a private taxable entity. This exemption should be read in relation to Section 133(o) of the same Code, which prohibits local governments from imposing "taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities x x x." The Administrative Code allows real property owned by the Republic to be titled in the name of agencies or instrumentalities of the national government. Such real properties remain owned by the Republic and continue to be exempt from real estate tax. Indeed, the Republic grants the beneficial use of its real property to an agency or instrumentality of the national government. This happens when the title of the real property is transferred to an agency or instrumentality even as the Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax exemption, unless "the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person."10

The rationale behind Section 133(o) has also been explained in the case of the Manila International Airport Authority,11 to wit: Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes taxation as one of the powers of local governments, local governments may only exercise such power "subject to such guidelines and limitations as the Congress may provide." When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule applies with greater force when local governments seek to tax national government instrumentalities. Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed liberally in favor of the national government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.: The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non taxliability of such agencies. There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy requires such transfer of public funds from one government pocket to another. There is also no reason for local governments to tax national government instrumentalities for rendering essential public services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax government instrumentalities for the delivery of essential public services for sound and compelling policy considerations. There must be express language in the law empowering local governments to tax national government instrumentalities. Any doubt whether such power exists is resolved against local governments. Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local governments cannot tax national government instrumentalities. As this Court held in Basco v. Philippine Amusements and Gaming Corporation:

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579) This doctrine emanates from the "supremacy" of the National Government over local governments. "Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied) Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation." (U.S. v. Sanchez, 340 US 42) The power to tax which was called by Justice Marshall as the "power to destroy" (McCulloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. [Emphases supplied] The Court agrees with PRA that the subject reclaimed lands are still part of the public domain, owned by the State and, therefore, exempt from payment of real estate taxes. Section 2, Article XII of the 1987 Constitution reads in part, as follows: Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least 60 per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twentyfive years, renewable for not more than twenty-five years, and under such terms and conditions as may provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of waterpower, beneficial use may be the measure and limit of the grant. Similarly, Article 420 of the Civil Code enumerates properties belonging to the State:

Art. 420. The following things are property of public dominion: (1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character; (2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth. [Emphases supplied] Here, the subject lands are reclaimed lands, specifically portions of the foreshore and offshore areas of Manila Bay. As such, these lands remain public lands and form part of the public domain. In the case of Chavez v. Public Estates Authority and AMARI Coastal Development Corporation,12 the Court held that foreshore and submerged areas irrefutably belonged to the public domain and were inalienable unless reclaimed, classified as alienable lands open to disposition and further declared no longer needed for public service. The fact that alienable lands of the public domain were transferred to the PEA (now PRA) and issued land patents or certificates of title in PEAs name did not automatically make such lands private. This Court also held therein that reclaimed lands retained their inherent potential as areas for public use or public service. As the central implementing agency tasked to undertake reclamation projects nationwide, with authority to sell reclaimed lands, PEA took the place of DENR as the government agency charged with leasing or selling reclaimed lands of the public domain. The reclaimed lands being leased or sold by PEA are not private lands, in the same manner that DENR, when it disposes of other alienable lands, does not dispose of private lands but alienable lands of the public domain. Only when qualified private parties acquire these lands will the lands become private lands. In the hands of the government agency tasked and authorized to dispose of alienable of disposable lands of the public domain, these lands are still public, not private lands. Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public domain" as well as "any and all kinds of lands." PEA can hold both lands of the public domain and private lands. Thus, the mere fact that alienable lands of the public domain like the Freedom Islands are transferred to PEA and issued land patents or certificates of title in PEA's name does not automatically make such lands private.13 Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, thus: SEC 14. Power to Reserve Lands of the Public and Private Dominion of the Government.(1)The President shall have the power to reserve for settlement or public use, and for specific public purposes, any of the lands of the public domain, the use of which is not

otherwise directed by law. The reserved land shall thereafter remain subject to the specific public purpose indicated until otherwise provided by law or proclamation. Reclaimed lands such as the subject lands in issue are reserved lands for public use. They are properties of public dominion. The ownership of such lands remains with the State unless they are withdrawn by law or presidential proclamation from public use. Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas of Manila Bay are part of the "lands of the public domain, waters x x x and other natural resources" and consequently "owned by the State." As such, foreshore and submerged areas "shall not be alienated," unless they are classified as "agricultural lands" of the public domain. The mere reclamation of these areas by PEA does not convert these inalienable natural resources of the State into alienable or disposable lands of the public domain. There must be a law or presidential proclamation officially classifying these reclaimed lands as alienable or disposable and open to disposition or concession. Moreover, these reclaimed lands cannot be classified as alienable or disposable if the law has reserved them for some public or quasi-public use. As the Court has repeatedly ruled, properties of public dominion are not subject to execution or foreclosure sale.14 Thus, the assessment, levy and foreclosure made on the subject reclaimed lands by respondent, as well as the issuances of certificates of title in favor of respondent, are without basis. WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of the Regional Trial Court, Branch 195, Paraaque City, is REVERSED and SET ASIDE. All reclaimed properties owned by the Philippine Reclamation Authority are hereby declared EXEMPT from real estate taxes. All real estate tax assessments, including the final notices of real estate tax delinquencies, issued by the City of Paraaque on the subject reclaimed properties; the assailed auction sale, dated April 7, 2003; and the Certificates of Sale subsequently issued by the Paraaque City Treasurer in favor of the City of Paraaque, are all declared VOID. SO ORDERED.

G.R. No. 147402

January 14, 2004

ENGR. RANULFO C. FELICIANO, in his capacity as General Manager of the Leyte Metropolitan Water District (LMWD), Tacloban City, petitioner, vs. COMMISSION ON AUDIT, Chairman CELSO D. GANGAN, Commissioners RAUL C. FLORES and EMMANUEL M. DALMAN, and Regional Director of COA Region VIII, respondents.

DECISION

CARPIO, J.: The Case This is a petition for certiorari1 to annul the Commission on Audits ("COA") Resolution dated 3 January 2000 and the Decision dated 30 January 2001 denying the Motion for Reconsideration. The COA denied petitioner Ranulfo C. Felicianos request for COA to cease all audit services, and to stop charging auditing fees, to Leyte Metropolitan Water District ("LMWD"). The COA also denied petitioners request for COA to refund all auditing fees previously paid by LMWD. Antecedent Facts A Special Audit Team from COA Regional Office No. VIII audited the accounts of LMWD. Subsequently, LMWD received a letter from COA dated 19 July 1999 requesting payment of auditing fees. As General Manager of LMWD, petitioner sent a reply dated 12 October 1999 informing COAs Regional Director that the water district could not pay the auditing fees. Petitioner cited as basis for his action Sections 6 and 20 of Presidential Decree 198 ("PD 198")2, as well as Section 18 of Republic Act No. 6758 ("RA 6758"). The Regional Director referred petitioners reply to the COA Chairman on 18 October 1999. On 19 October 1999, petitioner wrote COA through the Regional Director asking for refund of all auditing fees LMWD previously paid to COA. On 16 March 2000, petitioner received COA Chairman Celso D. Gangans Resolution dated 3 January 2000 denying his requests. Petitioner filed a motion for reconsideration on 31 March 2000, which COA denied on 30 January 2001.

On 13 March 2001, petitioner filed this instant petition. Attached to the petition were resolutions of the Visayas Association of Water Districts (VAWD) and the Philippine Association of Water Districts (PAWD) supporting the petition. The Ruling of the Commission on Audit The COA ruled that this Court has already settled COAs audit jurisdiction over local water districts in Davao City Water District v. Civil Service Commission and Commission on Audit,3 as follows: The above-quoted provision [referring to Section 3(b) PD 198] definitely sets to naught petitioners contention that they are private corporations. It is clear therefrom that the power to appoint the members who will comprise the members of the Board of Directors belong to the local executives of the local subdivision unit where such districts are located. In contrast, the members of the Board of Directors or the trustees of a private corporation are elected from among members or stockholders thereof. It would not be amiss at this point to emphasize that a private corporation is created for the private purpose, benefit, aim and end of its members or stockholders. Necessarily, said members or stockholders should be given a free hand to choose who will compose the governing body of their corporation. But this is not the case here and this clearly indicates that petitioners are not private corporations. The COA also denied petitioners request for COA to stop charging auditing fees as well as petitioners request for COA to refund all auditing fees already paid. The Issues Petitioner contends that COA committed grave abuse of discretion amounting to lack or excess of jurisdiction by auditing LMWD and requiring it to pay auditing fees. Petitioner raises the following issues for resolution: 1. Whether a Local Water District ("LWD") created under PD 198, as amended, is a government-owned or controlled corporation subject to the audit jurisdiction of COA; 2. Whether Section 20 of PD 198, as amended, prohibits COAs certified public accountants from auditing local water districts; and 3. Whether Section 18 of RA 6758 prohibits the COA from charging governmentowned and controlled corporations auditing fees. The Ruling of the Court The petition lacks merit.

The Constitution and existing laws4 mandate COA to audit all government agencies, including government-owned and controlled corporations ("GOCCs") with original charters. An LWD is a GOCC with an original charter. Section 2(1), Article IX-D of the Constitution provides for COAs audit jurisdiction, as follows: SECTION 2. (1) The Commission on Audit shall have the power, authority and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the government, which are required by law or the granting institution to submit to such audit as a condition of subsidy or equity. However, where the internal control system of the audited agencies is inadequate, the Commission may adopt such measures, including temporary or special pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts of the Government and, for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto. (Emphasis supplied) The COAs audit jurisdiction extends not only to government "agencies or instrumentalities," but also to "government-owned and controlled corporations with original charters" as well as "other government-owned or controlled corporations" without original charters. Whether LWDs are Private or Government-Owned and Controlled Corporations with Original Charters Petitioner seeks to revive a well-settled issue. Petitioner asks for a re-examination of a doctrine backed by a long line of cases culminating in Davao City Water District v. Civil Service Commission5 and just recently reiterated in De Jesus v. Commission on Audit.6 Petitioner maintains that LWDs are not government-owned and controlled corporations with original charters. Petitioner even argues that LWDs are private corporations. Petitioner asks the Court to consider certain interpretations of the applicable laws, which would give a "new perspective to the issue of the true character of water districts."7 Petitioner theorizes that what PD 198 created was the Local Waters Utilities Administration ("LWUA") and not the LWDs. Petitioner claims that LWDs are created "pursuant to" and not created directly by PD 198. Thus, petitioner concludes that PD 198 is not an "original charter" that would place LWDs within the audit jurisdiction of

COA as defined in Section 2(1), Article IX-D of the Constitution. Petitioner elaborates that PD 198 does not create LWDs since it does not expressly direct the creation of such entities, but only provides for their formation on an optional or voluntary basis. 8 Petitioner adds that the operative act that creates an LWD is the approval of the Sanggunian Resolution as specified in PD 198. Petitioners contention deserves scant consideration. We begin by explaining the general framework under the fundamental law. The Constitution recognizes two classes of corporations. The first refers to private corporations created under a general law. The second refers to government-owned or controlled corporations created by special charters. Section 16, Article XII of the Constitution provides: Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability. The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all citizens.9 The purpose of this constitutional provision is to ban private corporations created by special charters, which historically gave certain individuals, families or groups special privileges denied to other citizens.10 In short, Congress cannot enact a law creating a private corporation with a special charter. Such legislation would be unconstitutional. Private corporations may exist only under a general law. If the corporation is private, it must necessarily exist under a general law. Stated differently, only corporations created under a general law can qualify as private corporations. Under existing laws, that general law is the Corporation Code,11 except that the Cooperative Code governs the incorporation of cooperatives.12 The Constitution authorizes Congress to create government-owned or controlled corporations through special charters. Since private corporations cannot have special charters, it follows that Congress can create corporations with special charters only if such corporations are government-owned or controlled. Obviously, LWDs are not private corporations because they are not created under the Corporation Code. LWDs are not registered with the Securities and Exchange Commission. Section 14 of the Corporation Code states that "[A]ll corporations organized under this code shall file with the Securities and Exchange Commission articles of incorporation x x x." LWDs have no articles of incorporation, no incorporators and no stockholders or members. There are no stockholders or members to elect the board directors of LWDs as in the case of all corporations registered with the Securities and Exchange Commission. The local mayor or the provincial governor appoints the

directors of LWDs for a fixed term of office. This Court has ruled that LWDs are not created under the Corporation Code, thus: From the foregoing pronouncement, it is clear that what has been excluded from the coverage of the CSC are those corporations created pursuant to the Corporation Code. Significantly, petitioners are not created under the said code, but on the contrary, they were created pursuant to a special law and are governed primarily by its provision.13 (Emphasis supplied) LWDs exist by virtue of PD 198, which constitutes their special charter. Since under the Constitution only government-owned or controlled corporations may have special charters, LWDs can validly exist only if they are government-owned or controlled. To claim that LWDs are private corporations with a special charter is to admit that their existence is constitutionally infirm. Unlike private corporations, which derive their legal existence and power from the Corporation Code, LWDs derive their legal existence and power from PD 198. Sections 6 and 25 of PD 19814 provide: Section 6. Formation of District. This Act is the source of authorization and power to form and maintain a district. For purposes of this Act, a district shall be considered as a quasi-public corporation performing public service and supplying public wants. As such, a district shall exercise the powers, rights and privileges given to private corporations under existing laws, in addition to the powers granted in, and subject to such restrictions imposed, under this Act. (a) The name of the local water district, which shall include the name of the city, municipality, or province, or region thereof, served by said system, followed by the words "Water District". (b) A description of the boundary of the district. In the case of a city or municipality, such boundary may include all lands within the city or municipality. A district may include one or more municipalities, cities or provinces, or portions thereof. (c) A statement completely transferring any and all waterworks and/or sewerage facilities managed, operated by or under the control of such city, municipality or province to such district upon the filing of resolution forming the district. (d) A statement identifying the purpose for which the district is formed, which shall include those purposes outlined in Section 5 above. (e) The names of the initial directors of the district with the date of expiration of term of office for each.

(f) A statement that the district may only be dissolved on the grounds and under the conditions set forth in Section 44 of this Title. (g) A statement acknowledging the powers, rights and obligations as set forth in Section 36 of this Title. Nothing in the resolution of formation shall state or infer that the local legislative body has the power to dissolve, alter or affect the district beyond that specifically provided for in this Act. If two or more cities, municipalities or provinces, or any combination thereof, desire to form a single district, a similar resolution shall be adopted in each city, municipality and province. xxx Sec. 25. Authorization. The district may exercise all the powers which are expressly granted by this Title or which are necessarily implied from or incidental to the powers and purposes herein stated. For the purpose of carrying out the objectives of this Act, a district is hereby granted the power of eminent domain, the exercise thereof shall, however, be subject to review by the Administration. (Emphasis supplied) Clearly, LWDs exist as corporations only by virtue of PD 198, which expressly confers on LWDs corporate powers. Section 6 of PD 198 provides that LWDs "shall exercise the powers, rights and privileges given to private corporations under existing laws." Without PD 198, LWDs would have no corporate powers. Thus, PD 198 constitutes the special enabling charter of LWDs. The ineluctable conclusion is that LWDs are government-owned and controlled corporations with a special charter. The phrase "government-owned and controlled corporations with original charters" means GOCCs created under special laws and not under the general incorporation law. There is no difference between the term "original charters" and "special charters." The Court clarified this in National Service Corporation v. NLRC15 by citing the deliberations in the Constitutional Commission, as follows: THE PRESIDING OFFICER (Mr. Trenas). The session is resumed. Commissioner Romulo is recognized. MR. ROMULO. Mr. Presiding Officer, I am amending my original proposed amendment to now read as follows: "including government-owned or controlled corporations WITH ORIGINAL CHARTERS." The purpose of this amendment is to indicate that government corporations such as the GSIS and SSS, which have original charters, fall within the ambit of the civil service. However, corporations which are subsidiaries of these chartered agencies such as the Philippine

Airlines, Manila Hotel and Hyatt are excluded from the coverage of the civil service. THE PRESIDING OFFICER (Mr. Trenas). What does the Committee say? MR. FOZ. Just one question, Mr. Presiding Officer. By the term "original charters," what exactly do we mean? MR. ROMULO. We mean that they were created by law, by an act of Congress, or by special law. MR. FOZ. And not under the general corporation law. MR. ROMULO. That is correct. Mr. Presiding Officer. MR. FOZ. With that understanding and clarification, the Committee accepts the amendment. MR. NATIVIDAD. Mr. Presiding Officer, so those created by the general corporation law are out. MR. ROMULO. That is correct. (Emphasis supplied) Again, in Davao City Water District v. Civil Service Commission,16 the Court reiterated the meaning of the phrase "government-owned and controlled corporations with original charters" in this wise: By "government-owned or controlled corporation with original charter," We mean government owned or controlled corporation created by a special law and not under the Corporation Code of the Philippines. Thus, in the case of Lumanta v. NLRC (G.R. No. 82819, February 8, 1989, 170 SCRA 79, 82), We held: "The Court, in National Service Corporation (NASECO) v. National Labor Relations Commission, G.R. No. 69870, promulgated on 29 November 1988, quoting extensively from the deliberations of the 1986 Constitutional Commission in respect of the intent and meaning of the new phrase with original charter, in effect held that government-owned and controlled corporations with original charter refer to corporations chartered by special law as distinguished from corporations organized under our general incorporation statute the Corporation Code. In NASECO, the company involved had been organized under the general incorporation statute and was a subsidiary of the National Investment Development Corporation (NIDC) which in turn was a subsidiary of the Philippine National Bank, a bank chartered by a special statute. Thus, government-owned or controlled corporations like

NASECO are effectively, excluded from the scope of the Civil Service." (Emphasis supplied) Petitioners contention that the Sangguniang Bayan resolution creates the LWDs assumes that the Sangguniang Bayan has the power to create corporations. This is a patently baseless assumption. The Local Government Code17 does not vest in the Sangguniang Bayan the power to create corporations.18 What the Local Government Code empowers the Sangguniang Bayan to do is to provide for the establishment of a waterworks system "subject to existing laws." Thus, Section 447(5)(vii) of the Local Government Code provides: SECTION 447. Powers, Duties, Functions and Compensation. (a) The sangguniang bayan, as the legislative body of the municipality, shall enact ordinances, approve resolutions and appropriate funds for the general welfare of the municipality and its inhabitants pursuant to Section 16 of this Code and in the proper exercise of the corporate powers of the municipality as provided for under Section 22 of this Code, and shall: xxx (vii) Subject to existing laws, provide for the establishment, operation, maintenance, and repair of an efficient waterworks system to supply water for the inhabitants; regulate the construction, maintenance, repair and use of hydrants, pumps, cisterns and reservoirs; protect the purity and quantity of the water supply of the municipality and, for this purpose, extend the coverage of appropriate ordinances over all territory within the drainage area of said water supply and within one hundred (100) meters of the reservoir, conduit, canal, aqueduct, pumping station, or watershed used in connection with the water service; and regulate the consumption, use or wastage of water; x x x. (Emphasis supplied) The Sangguniang Bayan may establish a waterworks system only in accordance with the provisions of PD 198. The Sangguniang Bayan has no power to create a corporate entity that will operate its waterworks system. However, the Sangguniang Bayan may avail of existing enabling laws, like PD 198, to form and incorporate a water district. Besides, even assuming for the sake of argument that the Sangguniang Bayan has the power to create corporations, the LWDs would remain government-owned or controlled corporations subject to COAs audit jurisdiction. The resolution of the Sangguniang Bayan would constitute an LWDs special charter, making the LWD a governmentowned and controlled corporation with an original charter. In any event, the Court has already ruled in Baguio Water District v. Trajano19 that the Sangguniang Bayan resolution is not the special charter of LWDs, thus:

While it is true that a resolution of a local sanggunian is still necessary for the final creation of a district, this Court is of the opinion that said resolution cannot be considered as its charter, the same being intended only to implement the provisions of said decree. Petitioner further contends that a law must create directly and explicitly a GOCC in order that it may have an original charter. In short, petitioner argues that one special law cannot serve as enabling law for several GOCCs but only for one GOCC. Section 16, Article XII of the Constitution mandates that "Congress shall not, except by general law,"20 provide for the creation of private corporations. Thus, the Constitution prohibits one special law to create one private corporation, requiring instead a "general law" to create private corporations. In contrast, the same Section 16 states that "Government-owned or controlled corporations may be created or established by special charters." Thus, the Constitution permits Congress to create a GOCC with a special charter. There is, however, no prohibition on Congress to create several GOCCs of the same class under one special enabling charter. The rationale behind the prohibition on private corporations having special charters does not apply to GOCCs. There is no danger of creating special privileges to certain individuals, families or groups if there is one special law creating each GOCC. Certainly, such danger will not exist whether one special law creates one GOCC, or one special enabling law creates several GOCCs. Thus, Congress may create GOCCs either by special charters specific to each GOCC, or by one special enabling charter applicable to a class of GOCCs, like PD 198 which applies only to LWDs. Petitioner also contends that LWDs are private corporations because Section 6 of PD 19821 declares that LWDs "shall be considered quasi-public" in nature. Petitioners rationale is that only private corporations may be deemed "quasi-public" and not public corporations. Put differently, petitioner rationalizes that a public corporation cannot be deemed "quasi-public" because such corporation is already public. Petitioner concludes that the term "quasi-public" can only apply to private corporations. Petitioners argument is inconsequential. Petitioner forgets that the constitutional criterion on the exercise of COAs audit jurisdiction depends on the governments ownership or control of a corporation. The nature of the corporation, whether it is private, quasi-public, or public is immaterial. The Constitution vests in the COA audit jurisdiction over "government-owned and controlled corporations with original charters," as well as "government-owned or controlled corporations" without original charters. GOCCs with original charters are subject to COA pre-audit, while GOCCs without original charters are subject to COA post-audit. GOCCs without original charters refer to corporations created under the Corporation Code but are owned or controlled by the government. The nature or purpose of the corporation is not material in determining COAs audit jurisdiction.

Neither is the manner of creation of a corporation, whether under a general or special law. The determining factor of COAs audit jurisdiction is government ownership or control of the corporation. In Philippine Veterans Bank Employees Union-NUBE v. Philippine Veterans Bank,22 the Court even ruled that the criterion of ownership and control is more important than the issue of original charter, thus: This point is important because the Constitution provides in its Article IX-B, Section 2(1) that "the Civil Service embraces all branches, subdivisions, instrumentalities, and agencies of the Government, including government-owned or controlled corporations with original charters." As the Bank is not owned or controlled by the Government although it does have an original charter in the form of R.A. No. 3518,23 it clearly does not fall under the Civil Service and should be regarded as an ordinary commercial corporation. Section 28 of the said law so provides. The consequence is that the relations of the Bank with its employees should be governed by the labor laws, under which in fact they have already been paid some of their claims. (Emphasis supplied) Certainly, the government owns and controls LWDs. The government organizes LWDs in accordance with a specific law, PD 198. There is no private party involved as coowner in the creation of an LWD. Just prior to the creation of LWDs, the national or local government owns and controls all their assets. The government controls LWDs because under PD 198 the municipal or city mayor, or the provincial governor, appoints all the board directors of an LWD for a fixed term of six years.24 The board directors of LWDs are not co-owners of the LWDs. LWDs have no private stockholders or members. The board directors and other personnel of LWDs are government employees subject to civil service laws25 and anti-graft laws.26 While Section 8 of PD 198 states that "[N]o public official shall serve as director" of an LWD, it only means that the appointees to the board of directors of LWDs shall come from the private sector. Once such private sector representatives assume office as directors, they become public officials governed by the civil service law and anti-graft laws. Otherwise, Section 8 of PD 198 would contravene Section 2(1), Article IX-B of the Constitution declaring that the civil service includes "government-owned or controlled corporations with original charters." If LWDs are neither GOCCs with original charters nor GOCCs without original charters, then they would fall under the term "agencies or instrumentalities" of the government and thus still subject to COAs audit jurisdiction. However, the stark and undeniable fact is that the government owns LWDs. Section 4527 of PD 198 recognizes government ownership of LWDs when Section 45 states that the board of directors may dissolve an LWD only on the condition that "another public entity has acquired the assets of the district and has assumed all obligations and liabilities attached thereto." The implication is clear that an LWD is a public and not a private entity.

Petitioner does not allege that some entity other than the government owns or controls LWDs. Instead, petitioner advances the theory that the "Water Districts owner is the District itself."28 Assuming for the sake of argument that an LWD is "self-owned,"29 as petitioner describes an LWD, the government in any event controls all LWDs. First, government officials appoint all LWD directors to a fixed term of office. Second, any per diem of LWD directors in excess of P50 is subject to the approval of the Local Water Utilities Administration, and directors can receive no other compensation for their services to the LWD.30 Third, the Local Water Utilities Administration can require LWDs to merge or consolidate their facilities or operations.31 This element of government control subjects LWDs to COAs audit jurisdiction. Petitioner argues that upon the enactment of PD 198, LWDs became private entities through the transfer of ownership of water facilities from local government units to their respective water districts as mandated by PD 198. Petitioner is grasping at straws. Privatization involves the transfer of government assets to a private entity. Petitioner concedes that the owner of the assets transferred under Section 6 (c) of PD 198 is no other than the LWD itself.32 The transfer of assets mandated by PD 198 is a transfer of the water systems facilities "managed, operated by or under the control of such city, municipality or province to such (water) district."33 In short, the transfer is from one government entity to another government entity. PD 198 is bereft of any indication that the transfer is to privatize the operation and control of water systems. Finally, petitioner claims that even on the assumption that the government owns and controls LWDs, Section 20 of PD 198 prevents COA from auditing LWDs. 34 Section 20 of PD 198 provides: Sec. 20. System of Business Administration. The Board shall, as soon as practicable, prescribe and define by resolution a system of business administration and accounting for the district, which shall be patterned upon and conform to the standards established by the Administration. Auditing shall be performed by a certified public accountant not in the government service. The Administration may, however, conduct annual audits of the fiscal operations of the district to be performed by an auditor retained by the Administration. Expenses incurred in connection therewith shall be borne equally by the water district concerned and the Administration.35 (Emphasis supplied) Petitioner argues that PD 198 expressly prohibits COA auditors, or any government auditor for that matter, from auditing LWDs. Petitioner asserts that this is the import of the second sentence of Section 20 of PD 198 when it states that "[A]uditing shall be performed by a certified public accountant not in the government service."36 PD 198 cannot prevail over the Constitution. No amount of clever legislation can exclude GOCCs like LWDs from COAs audit jurisdiction. Section 3, Article IX-C of the Constitution outlaws any scheme or devise to escape COAs audit jurisdiction, thus:

Sec. 3. No law shall be passed exempting any entity of the Government or its subsidiary in any guise whatever, or any investment of public funds, from the jurisdiction of the Commission on Audit. (Emphasis supplied) The framers of the Constitution added Section 3, Article IX-D of the Constitution precisely to annul provisions of Presidential Decrees, like that of Section 20 of PD 198, that exempt GOCCs from COA audit. The following exchange in the deliberations of the Constitutional Commission elucidates this intent of the framers: MR. OPLE: I propose to add a new section on line 9, page 2 of the amended committee report which reads: NO LAW SHALL BE PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS, FROM THE JURISDICTION OF THE COMMISSION ON AUDIT. May I explain my reasons on record. We know that a number of entities of the government took advantage of the absence of a legislature in the past to obtain presidential decrees exempting themselves from the jurisdiction of the Commission on Audit, one notable example of which is the Philippine National Oil Company which is really an empty shell. It is a holding corporation by itself, and strictly on its own account. Its funds were not very impressive in quantity but underneath that shell there were billions of pesos in a multiplicity of companies. The PNOC the empty shell under a presidential decree was covered by the jurisdiction of the Commission on Audit, but the billions of pesos invested in different corporations underneath it were exempted from the coverage of the Commission on Audit. Another example is the United Coconut Planters Bank. The Commission on Audit has determined that the coconut levy is a form of taxation; and that, therefore, these funds attributed to the shares of 1,400,000 coconut farmers are, in effect, public funds. And that was, I think, the basis of the PCGG in undertaking that last major sequestration of up to 94 percent of all the shares in the United Coconut Planters Bank. The charter of the UCPB, through a presidential decree, exempted it from the jurisdiction of the Commission on Audit, it being a private organization. So these are the fetuses of future abuse that we are slaying right here with this additional section. May I repeat the amendment, Madam President: NO LAW SHALL BE PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS, FROM THE JURISDICTION OF THE COMMISSION ON AUDIT.

THE PRESIDENT: May we know the position of the Committee on the proposed amendment of Commissioner Ople? MR. JAMIR: If the honorable Commissioner will change the number of the section to 4, we will accept the amendment. MR. OPLE: Gladly, Madam President. Thank you. MR. DE CASTRO: Madam President, point of inquiry on the new amendment. THE PRESIDENT: Commissioner de Castro is recognized. MR. DE CASTRO: Thank you. May I just ask a few questions of Commissioner Ople. Is that not included in Section 2 (1) where it states: "(c) government-owned or controlled corporations and their subsidiaries"? So that if these governmentowned and controlled corporations and their subsidiaries are subjected to the audit of the COA, any law exempting certain government corporations or subsidiaries will be already unconstitutional. So I believe, Madam President, that the proposed amendment is unnecessary. MR. MONSOD: Madam President, since this has been accepted, we would like to reply to the point raised by Commissioner de Castro. THE PRESIDENT: Commissioner Monsod will please proceed. MR. MONSOD: I think the Commissioner is trying to avoid the situation that happened in the past, because the same provision was in the 1973 Constitution and yet somehow a law or a decree was passed where certain institutions were exempted from audit. We are just reaffirming, emphasizing, the role of the Commission on Audit so that this problem will never arise in the future.37 There is an irreconcilable conflict between the second sentence of Section 20 of PD 198 prohibiting COA auditors from auditing LWDs and Sections 2(1) and 3, Article IX-D of the Constitution vesting in COA the power to audit all GOCCs. We rule that the second sentence of Section 20 of PD 198 is unconstitutional since it violates Sections 2(1) and 3, Article IX-D of the Constitution. On the Legality of COAs Practice of Charging Auditing Fees Petitioner claims that the auditing fees COA charges LWDs for audit services violate the prohibition in Section 18 of RA 6758,38 which states:

Sec. 18. Additional Compensation of Commission on Audit Personnel and of other Agencies. In order to preserve the independence and integrity of the Commission on Audit (COA), its officials and employees are prohibited from receiving salaries, honoraria, bonuses, allowances or other emoluments from any government entity, local government unit, government-owned or controlled corporations, and government financial institutions, except those compensation paid directly by COA out of its appropriations and contributions. Government entities, including government-owned or controlled corporations including financial institutions and local government units are hereby prohibited from assessing or billing other government entities, including government-owned or controlled corporations including financial institutions or local government units for services rendered by its officials and employees as part of their regular functions for purposes of paying additional compensation to said officials and employees. (Emphasis supplied) Claiming that Section 18 is "absolute and leaves no doubt,"39 petitioner asks COA to discontinue its practice of charging auditing fees to LWDs since such practice allegedly violates the law. Petitioners claim has no basis. Section 18 of RA 6758 prohibits COA personnel from receiving any kind of compensation from any government entity except "compensation paid directly by COA out of its appropriations and contributions." Thus, RA 6758 itself recognizes an exception to the statutory ban on COA personnel receiving compensation from GOCCs. In Tejada v. Domingo,40 the Court declared: There can be no question that Section 18 of Republic Act No. 6758 is designed to strengthen further the policy x x x to preserve the independence and integrity of the COA, by explicitly PROHIBITING: (1) COA officials and employees from receiving salaries, honoraria, bonuses, allowances or other emoluments from any government entity, local government unit, GOCCs and government financial institutions, except such compensation paid directly by the COA out of its appropriations and contributions, and (2) government entities, including GOCCs, government financial institutions and local government units from assessing or billing other government entities, GOCCs, government financial institutions or local government units for services rendered by the latters officials and employees as part of their regular functions for purposes of paying additional compensation to said officials and employees. xxx The first aspect of the strategy is directed to the COA itself, while the second aspect is addressed directly against the GOCCs and government financial

institutions. Under the first, COA personnel assigned to auditing units of GOCCs or government financial institutions can receive only such salaries, allowances or fringe benefits paid directly by the COA out of its appropriations and contributions. The contributions referred to are the cost of audit services earlier mentioned which cannot include the extra emoluments or benefits now claimed by petitioners. The COA is further barred from assessing or billing GOCCs and government financial institutions for services rendered by its personnel as part of their regular audit functions for purposes of paying additional compensation to such personnel. x x x. (Emphasis supplied) In Tejada, the Court explained the meaning of the word "contributions" in Section 18 of RA 6758, which allows COA to charge GOCCs the cost of its audit services: x x x the contributions from the GOCCs are limited to the cost of audit services which are based on the actual cost of the audit function in the corporation concerned plus a reasonable rate to cover overhead expenses. The actual audit cost shall include personnel services, maintenance and other operating expenses, depreciation on capital and equipment and out-of-pocket expenses. In respect to the allowances and fringe benefits granted by the GOCCs to the COA personnel assigned to the formers auditing units, the same shall be directly defrayed by COA from its own appropriations x x x. 41 COA may charge GOCCs "actual audit cost" but GOCCs must pay the same directly to COA and not to COA auditors. Petitioner has not alleged that COA charges LWDs auditing fees in excess of COAs "actual audit cost." Neither has petitioner alleged that the auditing fees are paid by LWDs directly to individual COA auditors. Thus, petitioners contention must fail. WHEREFORE, the Resolution of the Commission on Audit dated 3 January 2000 and the Decision dated 30 January 2001 denying petitioners Motion for Reconsideration are AFFIRMED. The second sentence of Section 20 of Presidential Decree No. 198 is declared VOID for being inconsistent with Sections 2 (1) and 3, Article IX-D of the Constitution. No costs. SO ORDERED.

G.R. No. 155650

July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF PARAAQUE, SANGGUNIANG PANGLUNGSOD NG PARAAQUE, CITY ASSESSOR OF PARAAQUE, and CITY TREASURER OF PARAAQUE, respondents. DECISION CARPIO, J.: The Antecedents Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex in Paraaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila International Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 9091 and 2982 amended the MIAA Charter. As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land,3 including the runways and buildings ("Airport Lands and Buildings") then under the Bureau of Air Transportation.4 The MIAA Charter further provides that no portion of the land transferred to MIAA shall be disposed of through sale or any other mode unless specifically approved by the President of the Philippines.5 On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of Paraaque to pay the real estate tax imposed by the City. MIAA then paid some of the real estate tax already due. On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Paraaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows: TAX TAXABLE TAX DUE DECLARATION YEAR E-016-01370 199219,558,160.00 2001 E-016-01374 1992111,689,424.90 PENALTY TOTAL

11,201,083.20 30,789,243.20 68,149,479.59 179,838,904.49

2001 E-016-01375 19922001 E-016-01376 19922001 E-016-01377 19922001 E-016-01378 19922001 E-016-01379 19922001 E-016-01380 19922001 *E-016-013-85 19982001 *E-016-01387 19982001 *E-016-01396 19982001 GRAND TOTAL

20,276,058.00 58,144,028.00 18,134,614.65 111,107,950.40 4,322,340.00 7,776,436.00 6,444,810.00 34,876,800.00 75,240.00

12,371,832.00 32,647,890.00 35,477,712.00 93,621,740.00 11,065,188.59 29,199,803.24 67,794,681.59 178,902,631.99 2,637,360.00 6,959,700.00

4,744,944.00 12,521,380.00 2,900,164.50 9,344,974.50

5,694,560.00 50,571,360.00 33,858.00 109,098.00 P 624,506,725.42

P392,435,861.95 P232,070,863.47

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75 #9476101 for P28,676,480.00 #9476103 for P49,115.006 On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061. On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed out that Section 206 of the Local Government Code requires persons exempt from real estate tax to show proof of exemption. The OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax.

On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the City of Paraaque from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No. 66878. On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for review.7 Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at the Barangay Halls of Barangays Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public market of Barangay La Huerta; and in the main lobby of the Paraaque City Hall. The City of Paraaque published the notices in the 3 and 10 January 2003 issues of the Philippine Daily Inquirer, a newspaper of general circulation in the Philippines. The notices announced the public auction sale of the Airport Lands and Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building of Paraaque City. A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion sought to restrain respondents the City of Paraaque, City Mayor of Paraaque, Sangguniang Panglungsod ng Paraaque, City Treasurer of Paraaque, and the City Assessor of Paraaque ("respondents") from auctioning the Airport Lands and Buildings. On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court ordered respondents to cease and desist from selling at public auction the Airport Lands and Buildings. Respondents received the TRO on the same day that the Court issued it. However, respondents received the TRO only at 1:25 p.m. or three hours after the conclusion of the public auction. On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO. On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during the hearing, MIAA, respondent City of Paraaque, and the Solicitor General subsequently submitted their respective Memoranda. MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA. However, MIAA points out that it cannot claim ownership over these properties since the real owner of the Airport Lands and Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to

devote the Airport Lands and Buildings for the benefit of the general public. Since the Airport Lands and Buildings are devoted to public use and public service, the ownership of these properties remains with the State. The Airport Lands and Buildings are thus inalienable and are not subject to real estate tax by local governments. MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government Code because the Airport Lands and Buildings are owned by the Republic. To justify the exemption, MIAA invokes the principle that the government cannot tax itself. MIAA points out that the reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor. Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption privileges of "government-owned and-controlled corporations" upon the effectivity of the Local Government Code. Respondents also argue that a basic rule of statutory construction is that the express mention of one person, thing, or act excludes all others. An international airport is not among the exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax. Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos8 where we held that the Local Government Code has withdrawn the exemption from real estate tax granted to international airports. Respondents further argue that since MIAA has already paid some of the real estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildings are exempt from real estate tax. The Issue This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws. If so exempt, then the real estate tax assessments issued by the City of Paraaque, and all proceedings taken pursuant to such assessments, are void. In such event, the other issues raised in this petition become moot. The Court's Ruling We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments. First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus exempt from local taxation.

Second, the real properties of MIAA are owned by the Republic of the Philippines and thus exempt from real estate tax. 1. MIAA is Not a Government-Owned or Controlled Corporation Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate tax. Respondents claim that the deletion of the phrase "any government-owned or controlled so exempt by its charter" in Section 234(e) of the Local Government Code withdrew the real estate tax exemption of government-owned or controlled corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities exempt from real estate tax. There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a government-owned or controlled corporation as follows: SEC. 2. General Terms Defined. x x x x (13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied) A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. Section 10 of the MIAA Charter9 provides: SECTION 10. Capital. The capital of the Authority to be contributed by the National Government shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to consist of: (a) The value of fixed assets including airport facilities, runways and equipment and such other properties, movable and immovable[,] which may be contributed by the National Government or transferred by it from any of its agencies, the valuation of which shall be determined jointly with the Department of Budget and Management and the Commission on Audit on the date of such contribution or transfer after making due allowances for depreciation and other deductions taking into account the loans and other liabilities of the Authority at the time of the takeover of the assets and other properties;

(b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum (70%) of the unremitted share of the National Government from 1983 to 1986 to be remitted to the National Treasury as provided for in Section 11 of E. O. No. 903 as amended, shall be converted into the equity of the National Government in the Authority. Thereafter, the Government contribution to the capital of the Authority shall be provided in the General Appropriations Act. Clearly, under its Charter, MIAA does not have capital stock that is divided into shares. Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital stock is divided into shares and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation. MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or officers." A non-stock corporation must have members. Even if we assume that the Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury.11 This prevents MIAA from qualifying as a non-stock corporation. Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate an international and domestic airport for public use. Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled corporation. What then is the legal status of MIAA within the National Government? MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the Administrative Code defines a government "instrumentality" as follows: SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied) When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain,12 police authority13 and the levying of fees and charges.14 At the same time, MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order."15 Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains part of the National Government machinery although not integrated with the department framework. The MIAA Charter expressly states that transforming MIAA into a "separate and autonomous body"16 will make its operation more "financially viable."17 Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the University of the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are not organized as stock or nonstock corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called government corporate entities. However, they are not government-owned or controlled corporations in the strict sense as understood under the Administrative Code, which is the governing law defining the legal relationship and status of government entities. A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states: SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local government units.(Emphasis and underscoring supplied) Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes taxation as one of the powers of local governments, local governments may only exercise such power "subject to such guidelines and limitations as the Congress may provide."18 When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule applies with greater force when local governments seek to tax national government instrumentalities. Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed liberally in favor of the national government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.: The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non tax-liability of such agencies.19 There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy requires such transfer of public funds from one government pocket to another. There is also no reason for local governments to tax national government instrumentalities for rendering essential public services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax government instrumentalities for the delivery of essential public services for sound and compelling policy considerations. There must be express language in the law empowering local governments to tax national government instrumentalities. Any doubt whether such power exists is resolved against local governments. Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local governments cannot tax national government

instrumentalities. As this Court held in Basco v. Philippine Amusements and Gaming Corporation: The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579) This doctrine emanates from the "supremacy" of the National Government over local governments. "Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied) Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42). The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. 20 2. Airport Lands and Buildings of MIAA are Owned by the Republic a. Airport Lands and Buildings are of Public Dominion The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the Republic of the Philippines. The Civil Code provides: ARTICLE 419. Property is either of public dominion or of private ownership. ARTICLE 420. The following things are property of public dominion: (1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth. (Emphasis supplied) ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article, is patrimonial property. ARTICLE 422. Property of public dominion, when no longer intended for public use or for public service, shall form part of the patrimonial property of the State. No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports" includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the Philippines. The Airport Lands and Buildings are devoted to public use because they are used by the public for international and domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public does not remove the character of the Airport Lands and Buildings as properties for public use. The operation by the government of a tollway does not change the character of the road as one for public use. Someone must pay for the maintenance of the road, either the public indirectly through the taxes they pay the government, or only those among the public who actually use the road through the toll fees they pay upon using the road. The tollway system is even a more efficient and equitable manner of taxing the public for the maintenance of public roads. The charging of fees to the public does not determine the character of the property whether it is of public dominion or not. Article 420 of the Civil Code defines property of public dominion as one "intended for public use." Even if the government collects toll fees, the road is still "intended for public use" if anyone can use the road under the same terms and conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for the use of the road do not affect the public character of the road. The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as an airport for public use. Such fees are often termed user's tax. This means taxing those among the public who actually use a public facility instead of taxing all the public including those who never use the particular public facility. A user's tax is more equitable a principle of taxation mandated in the 1987 Constitution.21

The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both international and domestic air traffic,"22 are properties of public dominion because they are intended for public use. As properties of public dominion, they indisputably belong to the State or the Republic of the Philippines. b. Airport Lands and Buildings are Outside the Commerce of Man The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public dominion. As properties of public dominion, the Airport Lands and Buildings are outside the commerce of man. The Court has ruled repeatedly that properties of public dominion are outside the commerce of man. As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that properties devoted to public use are outside the commerce of man, thus: According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and public works of general service supported by said towns or provinces." The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907 withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public place to the defendant for private use the plaintiff municipality exceeded its authority in the exercise of its powers by executing a contract over a thing of which it could not dispose, nor is it empowered so to do. The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be the object of a contract, and plazas and streets are outside of this commerce, as was decided by the supreme court of Spain in its decision of February 12, 1895, which says: "Communal things that cannot be sold because they are by their very nature outside of commerce are those for public use, such as the plazas, streets, common lands, rivers, fountains, etc." (Emphasis supplied) 23 Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the commerce of man: xxx Town plazas are properties of public dominion, to be devoted to public use and to be made available to the public in general. They are outside the commerce of man and cannot be disposed of or even leased by the municipality to private parties. While in case of war or during an emergency, town plazas may be occupied temporarily by private individuals, as was done and as was tolerated by the Municipality of Pozorrubio, when the emergency has ceased, said temporary occupation or use must also cease, and the town officials should see

to it that the town plazas should ever be kept open to the public and free from encumbrances or illegal private constructions.24 (Emphasis supplied) The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of an auction sale.25 Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to public policy. Essential public services will stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale. This will happen if the City of Paraaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax. Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from public use the Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141, which "remains to this day the existing general law governing the classification and disposition of lands of the public domain other than timber and mineral lands,"27 provide: SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the President may designate by proclamation any tract or tracts of land of the public domain as reservations for the use of the Republic of the Philippines or of any of its branches, or of the inhabitants thereof, in accordance with regulations prescribed for this purposes, or for quasi-public uses or purposes when the public interest requires it, including reservations for highways, rights of way for railroads, hydraulic power sites, irrigation systems, communal pastures or lequas communales, public parks, public quarries, public fishponds, working men's village and other improvements for the public benefit. SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three shall be non-alienable and shall not be subject to occupation, entry, sale, lease, or other disposition until again declared alienable under the provisions of this Act or by proclamation of the President. (Emphasis and underscoring supplied) Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these properties remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings are inalienable in their present status as properties of public dominion, they are not subject to levy on execution or foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership remains with the State or the Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states: SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. (1) The President shall have the power to reserve for settlement or public use, and for specific public purposes, any of the lands of the public domain, the use of which is not otherwise directed by law. The reserved land shall thereafter remain subject to the specific public purpose indicated until otherwise provided by law or proclamation; x x x x. (Emphasis supplied) There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential proclamation from public use, they are properties of public dominion, owned by the Republic and outside the commerce of man. c. MIAA is a Mere Trustee of the Republic MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the Republic, thus: SEC. 48. Official Authorized to Convey Real Property. Whenever real property of the Government is authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following: (1) For property belonging to and titled in the name of the Republic of the Philippines, by the President, unless the authority therefor is expressly vested by law in another officer. (2) For property belonging to the Republic of the Philippines but titled in the name of any political subdivision or of any corporate agency or instrumentality, by the executive head of the agency or instrumentality. (Emphasis supplied) In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such deed of conveyance.28 d. Transfer to MIAA was Meant to Implement a Reorganization The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the Bureau of Air Transportation of the Department of Transportation and Communications. The MIAA Charter provides:

SECTION 3. Creation of the Manila International Airport Authority. x x x x The land where the Airport is presently located as well as the surrounding land area of approximately six hundred hectares, are hereby transferred, conveyed and assigned to the ownership and administration of the Authority, subject to existing rights, if any. The Bureau of Lands and other appropriate government agencies shall undertake an actual survey of the area transferred within one year from the promulgation of this Executive Order and the corresponding title to be issued in the name of the Authority. Any portion thereof shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines. (Emphasis supplied) SECTION 22. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities, runways, lands, buildings and other property, movable or immovable, belonging to the Airport, and all assets, powers, rights, interests and privileges belonging to the Bureau of Air Transportation relating to airport works or air operations, including all equipment which are necessary for the operation of crash fire and rescue facilities, are hereby transferred to the Authority. (Emphasis supplied) SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air Transportation and Transitory Provisions. The Manila International Airport including the Manila Domestic Airport as a division under the Bureau of Air Transportation is hereby abolished. x x x x. The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash, promissory notes or even stock since MIAA is not a stock corporation. The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and Buildings to MIAA, thus: WHEREAS, the Manila International Airport as the principal airport of the Philippines for both international and domestic air traffic, is required to provide standards of airport accommodation and service comparable with the best airports in the world; WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded to meet the current and future air traffic and other demands of aviation in Metro Manila;

WHEREAS, a management and organization study has indicated that the objectives of providing high standards of accommodation and service within the context of a financially viable operation, will best be achieved by a separate and autonomous body; and WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the President of the Philippines is given continuing authority to reorganize the National Government, which authority includes the creation of new entities, agencies and instrumentalities of the Government[.] (Emphasis supplied) The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize a division in the Bureau of Air Transportation into a separate and autonomous body. The Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party claims any ownership rights over MIAA's assets adverse to the Republic. The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines." This only means that the Republic retained the beneficial ownership of the Airport Lands and Buildings because under Article 428 of the Civil Code, only the "owner has the right to x x x dispose of a thing." Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not own the Airport Lands and Buildings. At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without the Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the President is the only one who can authorize the sale or disposition of the Airport Lands and Buildings. This only confirms that the Airport Lands and Buildings belong to the Republic. e. Real Property Owned by the Republic is Not Taxable Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the Republic of the Philippines." Section 234(a) provides: SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;

x x x. (Emphasis supplied) This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments from imposing "[t]axes, fees or charges of any kind on the National Government, its agencies and instrumentalities x x x." The real properties owned by the Republic are titled either in the name of the Republic itself or in the name of agencies or instrumentalities of the National Government. The Administrative Code allows real property owned by the Republic to be titled in the name of agencies or instrumentalities of the national government. Such real properties remain owned by the Republic and continue to be exempt from real estate tax. The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national government. This happens when title of the real property is transferred to an agency or instrumentality even as the Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax exemption. Section 234(a) of the Local Government Code states that real property owned by the Republic loses its tax exemption only if the "beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of the Local Government Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these real properties subject to real estate tax. However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration to a taxable person and therefore such land area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled: Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes.29 3. Refutation of Arguments of Minority The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local Government Code of 1991 withdrew the tax exemption of "all persons, whether natural or juridical" upon the effectivity of the Code. Section 193 provides: SEC. 193. Withdrawal of Tax Exemption Privileges Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently

enjoyed by all persons, whether natural or juridical, including governmentowned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions are hereby withdrawn upon effectivity of this Code. (Emphasis supplied) The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local Government Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real estate tax. Thus, the minority declares: It is evident from the quoted provisions of the Local Government Code that the withdrawn exemptions from realty tax cover not just GOCCs, but all persons. To repeat, the provisions lay down the explicit proposition that the withdrawal of realty tax exemption applies to all persons. The reference to or the inclusion of GOCCs is only clarificatory or illustrative of the explicit provision. The term "All persons" encompasses the two classes of persons recognized under our laws, natural and juridical persons. Obviously, MIAA is not a natural person. Thus, the determinative test is not just whether MIAA is a GOCC, but whether MIAA is a juridical person at all. (Emphasis and underscoring in the original) The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status whether MIAA is a juridical person or not. The minority also insists that "Sections 193 and 234 may be examined in isolation from Section 133(o) to ascertain MIAA's claim of exemption." The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew the tax exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the Local Government Code expressly provides otherwise, specifically prohibiting local governments from imposing any kind of tax on national government instrumentalities. Section 133(o) states: SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxxx (o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local government units. (Emphasis and underscoring supplied)

By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national government instrumentalities like the MIAA. Local governments are devoid of power to tax the national government, its agencies and instrumentalities. The taxing powers of local governments do not extend to the national government, its agencies and instrumentalities, "[u]nless otherwise provided in this Code" as stated in the saving clause of Section 133. The saving clause refers to Section 234(a) on the exception to the exemption from real estate tax of real property owned by the Republic. The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject to tax by local governments. The minority insists that the juridical persons exempt from local taxation are limited to the three classes of entities specifically enumerated as exempt in Section 193. Thus, the minority states: x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly registered under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and educational institutions. It would be belaboring the obvious why the MIAA does not fall within any of the exempt entities under Section 193. (Emphasis supplied) The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government Code. This theory will result in gross absurdities. It will make the national government, which itself is a juridical person, subject to tax by local governments since the national government is not included in the enumeration of exempt entities in Section 193. Under this theory, local governments can impose any kind of local tax, and not only real estate tax, on the national government. Under the minority's theory, many national government instrumentalities with juridical personalities will also be subject to any kind of local tax, and not only real estate tax. Some of the national government instrumentalities vested by law with juridical personalities are: Bangko Sentral ng Pilipinas,30 Philippine Rice Research Institute,31 Laguna Lake Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development Authority,34 Philippine Ports Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and Philippine National Railways.39 The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local governments from imposing any kind of tax on national government instrumentalities. Section 133(o) does not distinguish between national government instrumentalities with or without juridical personalities. Where the law does not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all national government instrumentalities, with or without juridical personalities. The determinative test whether MIAA is exempt from local taxation is not whether MIAA is a

juridical person, but whether it is a national government instrumentality under Section 133(o) of the Local Government Code. Section 133(o) is the specific provision of law prohibiting local governments from imposing any kind of tax on the national government, its agencies and instrumentalities. Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in this Code." This means that unless the Local Government Code grants an express authorization, local governments have no power to tax the national government, its agencies and instrumentalities. Clearly, the rule is local governments have no power to tax the national government, its agencies and instrumentalities. As an exception to this rule, local governments may tax the national government, its agencies and instrumentalities only if the Local Government Code expressly so provides. The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code, which makes the national government subject to real estate tax when it gives the beneficial use of its real properties to a taxable entity. Section 234(a) of the Local Government Code provides: SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of the real property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person. x x x. (Emphasis supplied) Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to this exemption is when the government gives the beneficial use of the real property to a taxable entity. The exception to the exemption in Section 234(a) is the only instance when the national government, its agencies and instrumentalities are subject to any kind of tax by local governments. The exception to the exemption applies only to real estate tax and not to any other tax. The justification for the exception to the exemption is that the real property, although owned by the Republic, is not devoted to public use or public service but devoted to the private gain of a taxable person. The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government Code, the later provisions prevail over Section 133. Thus, the minority asserts: x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of construction, in case of conflict the subsequent

provisions should prevail. Therefore, MIAA, as a juridical person, is subject to real property taxes, the general exemptions attaching to instrumentalities under Section 133(o) of the Local Government Code being qualified by Sections 193 and 234 of the same law. (Emphasis supplied) The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and Sections 193 and 234 on the other. No one has urged that there is such a conflict, much less has any one presenteda persuasive argument that there is such a conflict. The minority's assumption of an irreconcilable conflict in the statutory provisions is an egregious error for two reasons. First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its subordination to other provisions of the Code when Section 193 states "[u]nless otherwise provided in this Code." By its own words, Section 193 admits the superiority of other provisions of the Local Government Code that limit the exercise of the taxing power in Section 193. When a provision of law grants a power but withholds such power on certain matters, there is no conflict between the grant of power and the withholding of power. The grantee of the power simply cannot exercise the power on matters withheld from its power. Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units." Section 133 limits the grant to local governments of the power to tax, and not merely the exercise of a delegated power to tax. Section 133 states that the taxing powers of local governments "shall not extend to the levy" of any kind of tax on the national government, its agencies and instrumentalities. There is no clearer limitation on the taxing power than this. Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section 133 logically prevails over Section 193 which grants local governments such taxing powers. By their very meaning and purpose, the "common limitations" on the taxing power prevail over the grant or exercise of the taxing power. If the taxing power of local governments in Section 193 prevails over the limitations on such taxing power in Section 133, then local governments can impose any kind of tax on the national government, its agencies and instrumentalities a gross absurdity. Local governments have no power to tax the national government, its agencies and instrumentalities, except as otherwise provided in the Local Government Code pursuant to the saving clause in Section 133 stating "[u]nless otherwise provided in this Code." This exception which is an exception to the exemption of the Republic from real estate tax imposed by local governments refers to Section 234(a) of the Code. The exception to the exemption in Section 234(a) subjects real property owned by the Republic, whether titled in the name of the national government, its agencies or instrumentalities, to real estate tax if the beneficial use of such property is given to a taxable entity.

The minority also claims that the definition in the Administrative Code of the phrase "government-owned or controlled corporation" is not controlling. The minority points out that Section 2 of the Introductory Provisions of the Administrative Code admits that its definitions are not controlling when it provides: SEC. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a particular statute, shall require a different meaning: xxxx The minority then concludes that reliance on the Administrative Code definition is "flawed." The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute may require a different meaning than that defined in the Administrative Code. However, this does not automatically mean that the definition in the Administrative Code does not apply to the Local Government Code. Section 2 of the Administrative Code clearly states that "unless the specific words x x x of a particular statute shall require a different meaning," the definition in Section 2 of the Administrative Code shall apply. Thus, unless there is specific language in the Local Government Code defining the phrase "government-owned or controlled corporation" differently from the definition in the Administrative Code, the definition in the Administrative Code prevails. The minority does not point to any provision in the Local Government Code defining the phrase "government-owned or controlled corporation" differently from the definition in the Administrative Code. Indeed, there is none. The Local Government Code is silent on the definition of the phrase "government-owned or controlled corporation." The Administrative Code, however, expressly defines the phrase "government-owned or controlled corporation." The inescapable conclusion is that the Administrative Code definition of the phrase "government-owned or controlled corporation" applies to the Local Government Code. The third whereas clause of the Administrative Code states that the Code "incorporates in a unified document the major structural, functional and procedural principles and rules of governance." Thus, the Administrative Code is the governing law defining the status and relationship of government departments, bureaus, offices, agencies and instrumentalities. Unless a statute expressly provides for a different status and relationship for a specific government unit or entity, the provisions of the Administrative Code prevail. The minority also contends that the phrase "government-owned or controlled corporation" should apply only to corporations organized under the Corporation Code, the general incorporation law, and not to corporations created by special charters. The

minority sees no reason why government corporations with special charters should have a capital stock. Thus, the minority declares: I submit that the definition of "government-owned or controlled corporations" under the Administrative Code refer to those corporations owned by the government or its instrumentalities which are created not by legislative enactment, but formed and organized under the Corporation Code through registration with the Securities and Exchange Commission. In short, these are GOCCs without original charters. xxxx It might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs whose full ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered to declare dividends or alienate their capital shares. The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing legislations. It will also result in gross absurdities. First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does not distinguish between one incorporated under the Corporation Code or under a special charter. Where the law does not distinguish, courts should not distinguish. Second, Congress has created through special charters several government-owned corporations organized as stock corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of the Philippines. The special charter40 of the Land Bank of the Philippines provides: SECTION 81. Capital. The authorized capital stock of the Bank shall be nine billion pesos, divided into seven hundred and eighty million common shares with a par value of ten pesos each, which shall be fully subscribed by the Government, and one hundred and twenty million preferred shares with a par value of ten pesos each, which shall be issued in accordance with the provisions of Sections seventy-seven and eighty-three of this Code. (Emphasis supplied) Likewise, the special charter41 of the Development Bank of the Philippines provides: SECTION 7. Authorized Capital Stock Par value. The capital stock of the Bank shall be Five Billion Pesos to be divided into Fifty Million common shares with par value of P100 per share. These shares are available for subscription by the National Government. Upon the effectivity of this Charter, the National Government shall subscribe to Twenty-Five Million common shares of stock worth Two Billion Five Hundred Million which shall be deemed paid for by the

Government with the net asset values of the Bank remaining after the transfer of assets and liabilities as provided in Section 30 hereof. (Emphasis supplied) Other government-owned corporations organized as stock corporations under their special charters are the Philippine Crop Insurance Corporation,42 Philippine International Trading Corporation,43 and the Philippine National Bank44 before it was reorganized as a stock corporation under the Corporation Code. All these governmentowned corporations organized under special charters as stock corporations are subject to real estate tax on real properties owned by them. To rule that they are not government-owned or controlled corporations because they are not registered with the Securities and Exchange Commission would remove them from the reach of Section 234 of the Local Government Code, thus exempting them from real estate tax. Third, the government-owned or controlled corporations created through special charters are those that meet the two conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that the government-owned or controlled corporation must be established for the common good. The second condition is that the government-owned or controlled corporation must meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides: SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability. (Emphasis and underscoring supplied) The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations" through special charters only if these entities are required to meet the twin conditions of common good and economic viability. In other words, Congress has no power to create government-owned or controlled corporations with special charters unless they are made to comply with the two conditions of common good and economic viability. The test of economic viability applies only to governmentowned or controlled corporations that perform economic or commercial activities and need to compete in the market place. Being essentially economic vehicles of the State for the common good meaning for economic development purposes these government-owned or controlled corporations with special charters are usually organized as stock corporations just like ordinary private corporations. In contrast, government instrumentalities vested with corporate powers and performing governmental or public functions need not meet the test of economic viability. These instrumentalities perform essential public services for the common good, services that every modern State must provide its citizens. These instrumentalities need not be economically viable since the government may even subsidize their entire operations. These instrumentalities are not the "government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with corporate powers but performing essential governmental or public functions. Congress has plenary authority to create government instrumentalities vested with corporate powers provided these instrumentalities perform essential government functions or public services. However, when the legislature creates through special charters corporations that perform economic or commercial activities, such entities known as "government-owned or controlled corporations" must meet the test of economic viability because they compete in the market place. This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar government-owned or controlled corporations, which derive their income to meet operating expenses solely from commercial transactions in competition with the private sector. The intent of the Constitution is to prevent the creation of government-owned or controlled corporations that cannot survive on their own in the market place and thus merely drain the public coffers. Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission the purpose of this test, as follows: MR. OPLE: Madam President, the reason for this concern is really that when the government creates a corporation, there is a sense in which this corporation becomes exempt from the test of economic performance. We know what happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers' money through new equity infusions from the government and what is always invoked is the common good. That is the reason why this year, out of a budget of P115 billion for the entire government, about P28 billion of this will go into equity infusions to support a few government financial institutions. And this is all taxpayers' money which could have been relocated to agrarian reform, to social services like health and education, to augment the salaries of grossly underpaid public employees. And yet this is all going down the drain. Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the market test so that they become viable. And so, Madam President, I reiterate, for the committee's consideration and I am glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common good.45 Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:

The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the phrase "in the interest of the common good and subject to the test of economic viability." The addition includes the ideas that they must show capacity to function efficiently in business and that they should not go into activities which the private sector can do better. Moreover, economic viability is more than financial viability but also includes capability to make profit and generate benefits not quantifiable in financial terms.46 (Emphasis supplied) Clearly, the test of economic viability does not apply to government entities vested with corporate powers and performing essential public services. The State is obligated to render essential public services regardless of the economic viability of providing such service. The non-economic viability of rendering such essential public service does not excuse the State from withholding such essential services from the public. However, government-owned or controlled corporations with special charters, organized essentially for economic or commercial objectives, must meet the test of economic viability. These are the government-owned or controlled corporations that are usually organized under their special charters as stock corporations, like the Land Bank of the Philippines and the Development Bank of the Philippines. These are the government-owned or controlled corporations, along with government-owned or controlled corporations organized under the Corporation Code, that fall under the definition of "government-owned or controlled corporations" in Section 2(10) of the Administrative Code. The MIAA need not meet the test of economic viability because the legislature did not create MIAA to compete in the market place. MIAA does not compete in the market place because there is no competing international airport operated by the private sector. MIAA performs an essential public service as the primary domestic and international airport of the Philippines. The operation of an international airport requires the presence of personnel from the following government agencies: 1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers, screening out those without visas or travel documents, or those with hold departure orders; 2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations; 3. The quarantine office of the Department of Health, to enforce health measures against the spread of infectious diseases into the country; 4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases into the country;

5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and the escape of criminals, as well as to secure the airport premises from terrorist attack or seizure; 6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to enter or leave Philippine airspace, as well as to land on, or take off from, the airport; and 7. The MIAA, to provide the proper premises such as runway and buildings for the government personnel, passengers, and airlines, and to manage the airport operations. All these agencies of government perform government functions essential to the operation of an international airport. MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its revenues principally from the mandatory fees and charges MIAA imposes on passengers and airlines. The terminal fees that MIAA charges every passenger are regulatory or administrative fees47 and not income from commercial transactions. MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative Code, which provides: SEC. 2. General Terms Defined. x x x x (10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied) The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or controlled corporation. Without a change in its capital structure, MIAA remains a government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative Code. More importantly, as long as MIAA renders essential public services, it need not comply with the test of economic viability. Thus, MIAA is outside the scope of the phrase "government-owned or controlled corporations" under Section 16, Article XII of the 1987 Constitution. The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled corporation" as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes explicit conditions for the creation of "government-owned or controlled corporations." The Administrative Code defines what

constitutes a "government-owned or controlled corporation." To belittle this phrase as "clarificatory or illustrative" is grave error. To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is MIAA a governmentowned or controlled corporation under Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA is a government instrumentality vested with corporate powers and performing essential public services pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the Local Government Code. The exception to the exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity under the Local Government Code. Such exception applies only if the beneficial use of real property owned by the Republic is given to a taxable entity. Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public dominion. Properties of public dominion are owned by the State or the Republic. Article 420 of the Civil Code provides: Art. 420. The following things are property of public dominion: (1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character; (2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth. (Emphasis supplied) The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of MIAA are intended for public use, and at the very least intended for public service. Whether intended for public use or public service, the Airport Lands and Buildings are properties of public dominion. As properties of public dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate tax under Section 234(a) of the Local Government Code. 4. Conclusion Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal relation and status of government units, agencies and offices within the entire government machinery, MIAA is a government instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a government instrumentality is not a taxable person because it is not subject to "[t]axes, fees or charges of any kind" by local governments.

The only exception is when MIAA leases its real property to a "taxable person" as provided in Section 234(a) of the Local Government Code, in which case the specific real property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Paraaque. Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically mentions "ports x x x constructed by the State," which includes public airports and seaports, as properties of public dominion and owned by the Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code. This Court has also repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale. WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of the Manila International Airport Authority EXEMPT from the real estate tax imposed by the City of Paraaque. We declare VOID all the real estate tax assessments, including the final notices of real estate tax delinquencies, issued by the City of Paraaque on the Airport Lands and Buildings of the Manila International Airport Authority, except for the portions that the Manila International Airport Authority has leased to private parties. We also declare VOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the Manila International Airport Authority. No costs. SO ORDERED.

G.R. No. 58168 December 19, 1989 CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA, LUISA MAGSAYSAY-CORPUZ, assisted be her husband, Dr. Jose Corpuz, FELICIDAD P. MAGSAYSAY, and MERCEDES MAGSAYSAY-DIAZ, petitioners, vs. THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special Administratrix of the Estate of the late Genaro F. Magsaysay respondents.

FERNAN, C.J.: In this petition for review on certiorari, petitioners seek to reverse and set aside [1] the decision of the Court of Appeals dated July l3, 1981, 1 affirming that of the Court of First Instance of Zambales and Olongapo City which denied petitioners' motion to intervene in an annulment suit filed by herein private respondent, and [2] its resolution dated September 7, 1981, denying their motion for reconsideration. Petitioners are raising a purely legal question; whether or not respondent Court of Appeals correctly denied their motion for intervention. The facts are not controverted. On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the late Senator Genaro Magsaysay, brought before the then Court of First Instance of Olongapo an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales. In her complaint, she alleged that in 1958, she and her husband acquired, thru conjugal funds, a parcel of land with improvements, known as "Pequena Island", covered by TCT No. 3258; that after the death of her husband, she discovered [a] an annotation at the back of TCT No. 3258 that "the land was acquired by her husband from his separate capital;" [b] the registration of a Deed of Assignment dated June 25, 1976 purportedly executed by the late Senator in favor of SUBIC, as a result of which TCT No. 3258 was cancelled and TCT No. 22431 issued in the name of SUBIC; and [c] the registration of Deed of Mortgage dated April 28, 1977 in the amount of P 2,700,000.00 executed by SUBIC in favor of FILMANBANK; that the foregoing acts were void and done in an attempt to defraud the conjugal partnership considering that the land is conjugal, her marital consent to the annotation on TCT No. 3258 was not obtained, the change made by the Register of Deeds of the titleholders was effected without the approval of the Commissioner of Land Registration and that the late Senator did not execute the purported Deed of Assignment or his consent thereto, if obtained, was secured by mistake, violence and intimidation. She further alleged that the assignment in favor of SUBIC was without consideration and consequently null and void. She prayed that the Deed of Assignment and the Deed of Mortgage be annulled

and that the Register of Deeds be ordered to cancel TCT No. 22431 and to issue a new title in her favor. On March 7, 1979, herein petitioners, sisters of the late senator, filed a motion for intervention on the ground that on June 20, 1978, their brother conveyed to them onehalf (1/2 ) of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of around 41 % of the total outstanding shares of such stocks of SUBIC, they have a substantial and legal interest in the subject matter of litigation and that they have a legal interest in the success of the suit with respect to SUBIC. On July 26, 1979, the court denied the motion for intervention, and ruled that petitioners have no legal interest whatsoever in the matter in litigation and their being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a personality separate and distinct from its stockholders. On appeal, respondent Court of Appeals found no factual or legal justification to disturb the findings of the lower court. The appellate court further stated that whatever claims the petitioners have against the late Senator or against SUBIC for that matter can be ventilated in a separate proceeding, such that with the denial of the motion for intervention, they are not left without any remedy or judicial relief under existing law. Petitioners' motion for reconsideration was denied. Hence, the instant recourse. Petitioners anchor their right to intervene on the purported assignment made by the late Senator of a certain portion of his shareholdings to them as evidenced by a Deed of Sale dated June 20, 1978. 2 Such transfer, petitioners posit, clothes them with an interest, protected by law, in the matter of litigation. Invoking the principle enunciated in the case of PNB v. Phil. Veg. Oil Co., 49 Phil. 857,862 & 853 (1927), 3 petitioners strongly argue that their ownership of 41.66% of the entire outstanding capital stock of SUBIC entitles them to a significant vote in the corporate affairs; that they are affected by the action of the widow of their late brother for it concerns the only tangible asset of the corporation and that it appears that they are more vitally interested in the outcome of the case than SUBIC. Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court affirms the respondent court's holding that petitioners herein have no legal interest in the subject matter in litigation so as to entitle them to intervene in the proceedings below. In the case of Batama Farmers' Cooperative Marketing Association, Inc. v. Rosal, 4 we held: "As clearly stated in Section 2 of Rule 12 of the Rules of Court, to be permitted to intervene in a pending action, the party must have a legal interest in the matter in litigation, or in the success of either of the parties or an interest against both, or he must be so situated as to be adversely affected by a distribution or other disposition of the property in the custody of the court or an officer thereof ."

To allow intervention, [a] it must be shown that the movant has legal interest in the matter in litigation, or otherwise qualified; and [b] consideration must be given as to whether the adjudication of the rights of the original parties may be delayed or prejudiced, or whether the intervenor's rights may be protected in a separate proceeding or not. Both requirements must concur as the first is not more important than the second. 5 The interest which entitles a person to intervene in a suit between other parties must be in the matter in litigation and of such direct and immediate character that the intervenor will either gain or lose by the direct legal operation and effect of the judgment. Otherwise, if persons not parties of the action could be allowed to intervene, proceedings will become unnecessarily complicated, expensive and interminable. And this is not the policy of the law. 6 The words "an interest in the subject" mean a direct interest in the cause of action as pleaded, and which would put the intervenor in a legal position to litigate a fact alleged in the complaint, without the establishment of which plaintiff could not recover. 7 Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote, conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a right in the management of the corporation and to share in the profits thereof and in the properties and assets thereof on dissolution, after payment of the corporate debts and obligations. While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner thereof with any legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person. 8 Petitioners further contend that the availability of other remedies, as declared by the Court of appeals, is totally immaterial to the availability of the remedy of intervention. We cannot give credit to such averment. As earlier stated, that the movant's interest may be protected in a separate proceeding is a factor to be considered in allowing or disallowing a motion for intervention. It is significant to note at this juncture that as per records, there are four pending cases involving the parties herein, enumerated as follows: [1] Special Proceedings No. 122122 before the CFI of Manila, Branch XXII, entitled "Concepcion Magsaysay-Labrador, et al. v. Subic Land Corp., et al.", involving the validity of the transfer by the late Genaro Magsaysay of one-half of his shareholdings in Subic Land Corporation; [2] Civil Case No. 2577-0 before the CFI of Zambales, Branch III, "Adelaida Rodriguez-Magsaysay v. Panganiban, etc.; Concepcion Labrador, et al. Intervenors", seeking to annul the purported Deed of Assignment in favor of SUBIC and its annotation at the back of TCT No. 3258 in the name of respondent's deceased husband; [3] SEC Case No. 001770, filed by

respondent praying, among other things that she be declared in her capacity as the surviving spouse and administratrix of the estate of Genaro Magsaysay as the sole subscriber and stockholder of SUBIC. There, petitioners, by motion, sought to intervene. Their motion to reconsider the denial of their motion to intervene was granted; [4] SP No. Q-26739 before the CFI of Rizal, Branch IV, petitioners herein filing a contingent claim pursuant to Section 5, Rule 86, Revised Rules of Court. 9 Petitioners' interests are no doubt amply protected in these cases. Neither do we lend credence to petitioners' argument that they are more interested in the outcome of the case than the corporation-assignee, owing to the fact that the latter is willing to compromise with widow-respondent and since a compromise involves the giving of reciprocal concessions, the only conceivable concession the corporation may give is a total or partial relinquishment of the corporate assets. 10 Such claim all the more bolsters the contingent nature of petitioners' interest in the subject of litigation. The factual findings of the trial court are clear on this point. The petitioners cannot claim the right to intervene on the strength of the transfer of shares allegedly executed by the late Senator. The corporation did not keep books and records. 11 Perforce, no transfer was ever recorded, much less effected as to prejudice third parties. The transfer must be registered in the books of the corporation to affect third persons. The law on corporations is explicit. Section 63 of the Corporation Code provides, thus: "No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred." And even assuming arguendo that there was a valid transfer, petitioners are nonetheless barred from intervening inasmuch as their rights can be ventilated and amply protected in another proceeding. WHEREFORE, the instant petition is hereby DENIED. Costs against petitioners. SO ORDERED.

G.R. No. L-31061 August 17, 1976 SULO NG BAYAN INC., plaintiff-appellant, vs. GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL WATERWORKS & SEWERAGE AUTHORITY, HACIENDA CARETAS, INC, and REGISTER OF DEEDS OF BULACAN, defendants-appellees. Hill & Associates Law Offices for appellant. Araneta, Mendoza & Papa for appellee Gregorio Araneta, Inc. Carlos, Madarang, Carballo & Valdez for Paradise Farms, Inc. Leopoldo M. Abellera, Arsenio J. Magpale & Raul G. Bernardo, Office of the Government Corporate Counsel for appellee National Waterworks & Sewerage Authority. Candido G. del Rosario for appellee Hacienda Caretas, Inc.

ANTONIO, J.: The issue posed in this appeal is whether or not plaintiff corporation (non- stock may institute an action in behalf of its individual members for the recovery of certain parcels of land allegedly owned by said members; for the nullification of the transfer certificates of title issued in favor of defendants appellees covering the aforesaid parcels of land; for a declaration of "plaintiff's members as absolute owners of the property" and the issuance of the corresponding certificate of title; and for damages. On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of First Instance of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against defendants-appellees to recover the ownership and possession of a large tract of land in San Jose del Monte, Bulacan, containing an area of 27,982,250 square meters, more or less, registered under the Torrens System in the name of defendants-appellees' predecessors-in-interest. 1 The complaint, as amended on June 13, 1966, specifically alleged that plaintiff is a corporation organized and existing under the laws of the Philippines, with its principal office and place of business at San Jose del Monte, Bulacan; that its membership is composed of natural persons residing at San Jose del Monte, Bulacan; that the members of the plaintiff corporation, through themselves and their predecessors-in-interest, had pioneered in the clearing of the fore-mentioned tract of land, cultivated the same since the Spanish regime and continuously possessed the said property openly and public under concept of ownership adverse against the whole world; that defendant-appellee Gregorio Araneta, Inc., sometime in the year 1958, through force and intimidation, ejected the members

of the plaintiff corporation fro their possession of the aforementioned vast tract of land; that upon investigation conducted by the members and officers of plaintiff corporation, they found out for the first time in the year 1961 that the land in question "had been either fraudelently or erroneously included, by direct or constructive fraud, in Original Certificate of Title No. 466 of the Land of Records of the province of Bulacan", issued on May 11, 1916, which title is fictitious, non-existent and devoid of legal efficacy due to the fact that "no original survey nor plan whatsoever" appears to have been submitted as a basis thereof and that the Court of First Instance of Bulacan which issued the decree of registration did not acquire jurisdiction over the land registration case because no notice of such proceeding was given to the members of the plaintiff corporation who were then in actual possession of said properties; that as a consequence of the nullity of the original title, all subsequent titles derived therefrom, such as Transfer Certificate of Title No. 4903 issued in favor of Gregorio Araneta and Carmen Zaragoza, which was subsequently cancelled by Transfer Certificate of Title No. 7573 in the name of Gregorio Araneta, Inc., Transfer Certificate of Title No. 4988 issued in the name of, the National Waterworks & Sewerage Authority (NWSA), Transfer Certificate of Title No. 4986 issued in the name of Hacienda Caretas, Inc., and another transfer certificate of title in the name of Paradise Farms, Inc., are therefore void. Plaintiff-appellant consequently prayed (1) that Original Certificate of Title No. 466, as well as all transfer certificates of title issued and derived therefrom, be nullified; (2) that "plaintiff's members" be declared as absolute owners in common of said property and that the corresponding certificate of title be issued to plaintiff; and (3) that defendant-appellee Gregorio Araneta, Inc. be ordered to pay to plaintiff the damages therein specified. On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to dismiss the amended complaint on the grounds that (1) the complaint states no cause of action; and (2) the cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss based on the same grounds. Appellee National Waterworks & Sewerage Authority did not file any motion to dismiss. However, it pleaded in its answer as special and affirmative defenses lack of cause of action by the plaintiff-appellant and the barring of such action by prescription and laches. During the pendency of the motion to dismiss, plaintiff-appellant filed a motion, dated October 7, 1966, praying that the case be transferred to another branch of the Court of First Instance sitting at Malolos, Bulacan, According to defendants-appellees, they were not furnished a copy of said motion, hence, on October 14, 1966, the lower court issued an Order requiring plaintiff-appellant to furnish the appellees copy of said motion, hence, on October 14, 1966, defendant-appellant's motion dated October 7, 1966 and, consequently, prayed that the said motion be denied for lack of notice and for failure of the plaintiff-appellant to comply with the Order of October 14, 1966. Similarly, defendant-appellee paradise Farms, Inc. filed, on December 2, 1966, a manifestation information the court that it also did not receive a copy of the afore-

mentioned of appellant. On January 24, 1967, the trial court issued an Order dismissing the amended complaint. On February 14, 1967, appellant filed a motion to reconsider the Order of dismissal on the grounds that the court had no jurisdiction to issue the Order of dismissal, because its request for the transfer of the case from the Valenzuela Branch of the Court of First Instance to the Malolos Branch of the said court has been approved by the Department of Justice; that the complaint states a sufficient cause of action because the subject matter of the controversy in one of common interest to the members of the corporation who are so numerous that the present complaint should be treated as a class suit; and that the action is not barred by the statute of limitations because (a) an action for the reconveyance of property registered through fraud does not prescribe, and (b) an action to impugn a void judgment may be brought any time. This motion was denied by the trial court in its Order dated February 22, 1967. From the afore-mentioned Order of dismissal and the Order denying its motion for reconsideration, plaintiff-appellant appealed to the Court of Appeals. On September 3, 1969, the Court of Appeals, upon finding that no question of fact was involved in the appeal but only questions of law and jurisdiction, certified this case to this Court for resolution of the legal issues involved in the controversy. I Appellant contends, as a first assignment of error, that the trial court acted without authority and jurisdiction in dismissing the amended complaint when the Secretary of Justice had already approved the transfer of the case to any one of the two branches of the Court of First Instance of Malolos, Bulacan. Appellant confuses the jurisdiction of a court and the venue of cases with the assignment of cases in the different branches of the same Court of First Instance. Jurisdiction implies the power of the court to decide a case, while venue the place of action. There is no question that respondent court has jurisdiction over the case. The venue of actions in the Court of First Instance is prescribed in Section 2, Rule 4 of the Revised Rules of Court. The laying of venue is not left to the caprice of plaintiff, but must be in accordance with the aforesaid provision of the rules. 2 The mere fact that a request for the transfer of a case to another branch of the same court has been approved by the Secretary of Justice does not divest the court originally taking cognizance thereof of its jurisdiction, much less does it change the venue of the action. As correctly observed by the trial court, the indorsement of the Undersecretary of Justice did not order the transfer of the case to the Malolos Branch of the Bulacan Court of First Instance, but only "authorized" it for the reason given by plaintiff's counsel that the transfer would be convenient for the parties. The trial court is not without power to either grant or deny the motion, especially in the light of a strong opposition thereto filed by the defendant. We hold that the court a quo acted within its

authority in denying the motion for the transfer the case to Malolos notwithstanding the authorization" of the same by the Secretary of Justice. II Let us now consider the substantive aspect of the Order of dismissal. In dismissing the amended complaint, the court a quo said: The issue of lack of cause of action raised in the motions to dismiss refer to the lack of personality of plaintiff to file the instant action. Essentially, the term 'cause of action' is composed of two elements: (1) the right of the plaintiff and (2) the violation of such right by the defendant. (Moran, Vol. 1, p. 111). For these reasons, the rules require that every action must be prosecuted and defended in the name of the real party in interest and that all persons having an interest in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs (Sec. 2, Rule 3). In the amended complaint, the people whose rights were alleged to have been violated by being deprived and dispossessed of their land are the members of the corporation and not the corporation itself. The corporation has a separate. and distinct personality from its members, and this is not a mere technicality but a matter of substantive law. There is no allegation that the members have assigned their rights to the corporation or any showing that the corporation has in any way or manner succeeded to such rights. The corporation evidently did not have any rights violated by the defendants for which it could seek redress. Even if the Court should find against the defendants, therefore, the plaintiff corporation would not be entitled to the reliefs prayed for, which are recoveries of ownership and possession of the land, issuance of the corresponding title in its name, and payment of damages. Neither can such reliefs be awarded to the members allegedly deprived of their land, since they are not parties to the suit. It appearing clearly that the action has not been filed in the names of the real parties in interest, the complaint must be dismissed on the ground of lack of cause of action. 3 Viewed in the light of existing law and jurisprudence, We find that the trial court correctly dismissed the amended complaint. It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or members. 4 The property of the corporation is its property and not that of the stockholders, as owners, although they have equities in it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. 5 Conversely, a corporation

ordinarily has no interest in the individual property of its stockholders unless transferred to the corporation, "even in the case of a one-man corporation. 6 The mere fact that one is president of a corporation does not render the property which he owns or possesses the property of the corporation, since the president, as individual, and the corporation are separate similarities. 7 Similarly, stockholders in a corporation engaged in buying and dealing in real estate whose certificates of stock entitled the holder thereof to an allotment in the distribution of the land of the corporation upon surrender of their stock certificates were considered not to have such legal or equitable title or interest in the land, as would support a suit for title, especially against parties other than the corporation. 8 It must be noted, however, that the juridical personality of the corporation, as separate and distinct from the persons composing it, is but a legal fiction introduced for the purpose of convenience and to subserve the ends of justice. 9 This separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work an injustice, or where necessary to achieve equity. 10 Thus, when "the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, ... the law will regard the corporation as an association of persons, or in the case of two corporations, merge them into one, the one being merely regarded as part or instrumentality of the other. 11 The same is true where a corporation is a dummy and serves no business purpose and is intended only as a blind, or an alter ego or business conduit for the sole benefit of the stockholders. 12 This doctrine of disregarding the distinct personality of the corporation has been applied by the courts in those cases when the corporate entity is used for the evasion of taxes 13 or when the veil of corporate fiction is used to confuse legitimate issue of employer-employee relationship, 14 or when necessary for the protection of creditors, in which case the veil of corporate fiction may be pierced and the funds of the corporation may be garnished to satisfy the debts of a principal stockholder. 15 The aforecited principle is resorted to by the courts as a measure protection for third parties to prevent fraud, illegality or injustice. 16 It has not been claimed that the members have assigned or transferred whatever rights they may have on the land in question to the plaintiff corporation. Absent any showing of interest, therefore, a corporation, like plaintiff-appellant herein, has no personality to bring an action for and in behalf of its stockholders or members for the purpose of recovering property which belongs to said stockholders or members in their personal capacities. It is fundamental that there cannot be a cause of action 'without an antecedent primary legal right conferred' by law upon a person. 17 Evidently, there can be no wrong without a corresponding right, and no breach of duty by one person without a corresponding right belonging to some other person. 18 Thus, the essential elements of a cause of action are legal right of the plaintiff, correlative obligation of the defendant, an act or

omission of the defendant in violation of the aforesaid legal right. 19 Clearly, no right of action exists in favor of plaintiff corporation, for as shown heretofore it does not have any interest in the subject matter of the case which is material and, direct so as to entitle it to file the suit as a real party in interest. III Appellant maintains, however, that the amended complaint may be treated as a class suit, pursuant to Section 12 of Rule 3 of the Revised Rules of Court. In order that a class suit may prosper, the following requisites must be present: (1) that the subject matter of the controversy is one of common or general interest to many persons; and (2) that the parties are so numerous that it is impracticable to bring them all before the court. 20 Under the first requisite, the person who sues must have an interest in the controversy, common with those for whom he sues, and there must be that unity of interest between him and all such other persons which would entitle them to maintain the action if suit was brought by them jointly. 21 As to what constitutes common interest in the subject matter of the controversy, it has been explained in Scott v. Donald 22 thus: The interest that will allow parties to join in a bill of complaint, or that will enable the court to dispense with the presence of all the parties, when numerous, except a determinate number, is not only an interest in the question, but one in common in the subject Matter of the suit; ... a community of interest growing out of the nature and condition of the right in dispute; for, although there may not be any privity between the numerous parties, there is a common title out of which the question arises, and which lies at the foundation of the proceedings ... [here] the only matter in common among the plaintiffs, or between them and the defendants, is an interest in the Question involved which alone cannot lay a foundation for the joinder of parties. There is scarcely a suit at law, or in equity which settles a Principle or applies a principle to a given state of facts, or in which a general statute is interpreted, that does not involved a Question in which other parties are interested. ... (Emphasis supplied ) Here, there is only one party plaintiff, and the plaintiff corporation does not even have an interest in the subject matter of the controversy, and cannot, therefore, represent its members or stockholders who claim to own in their individual capacities ownership of the said property. Moreover, as correctly stated by the appellees, a class suit does not lie in actions for the recovery of property where several persons claim Partnership of their respective portions of the property, as each one could alleged and prove his

respective right in a different way for each portion of the land, so that they cannot all be held to have Identical title through acquisition prescription. 23 Having shown that no cause of action in favor of the plaintiff exists and that the action in the lower court cannot be considered as a class suit, it would be unnecessary and an Idle exercise for this Court to resolve the remaining issue of whether or not the plaintiffs action for reconveyance of real property based upon constructive or implied trust had already prescribed. ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the plaintiff-appellant. Fernando, C.J., Barredo, Aquino and Concepcion, Jr., JJ., concur.

G.R. No. 75885 May 27, 1987 BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner, vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents. Apostol, Bernas, Gumaru, Ona and Associates for petitioner. Vicente G. Sison for intervenor A.T. Abesamis.

NARVASA, J.: Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by President Corazon C. Aquino on February 28, 1986 and March 12, 1986, respectively, and (2) the sequestration, takeover, and other orders issued, and acts done, in accordance with said executive orders by the Presidential Commission on Good Government and/or its Commissioners and agents, affecting said corporation. 1. The Sequestration, Takeover, and Other Orders Complained of a. The Basic Sequestration Order The sequestration order which, in the view of the petitioner corporation, initiated all its misery was issued on April 14, 1986 by Commissioner Mary Concepcion Bautista. It was addressed to three of the agents of the Commission, hereafter simply referred to as PCGG. It reads as follows: RE: SEQUESTRATION ORDER By virtue of the powers vested in the Presidential Commission on Good Government, by authority of the President of the Philippines, you are hereby directed to sequester the following companies. 1. Bataan Shipyard and Engineering Co., Inc. (Engineering Island Shipyard and Mariveles Shipyard) 2. Baseco Quarry 3. Philippine Jai-Alai Corporation

4. Fidelity Management Co., Inc. 5. Romson Realty, Inc. 6. Trident Management Co. 7. New Trident Management 8. Bay Transport 9. And all affiliate companies of Alfredo "Bejo" Romualdez You are hereby ordered: 1. To implement this sequestration order with a minimum disruption of these companies' business activities. 2. To ensure the continuity of these companies as going concerns, the care and maintenance of these assets until such time that the Office of the President through the Commission on Good Government should decide otherwise. 3. To report to the Commission on Good Government periodically. Further, you are authorized to request for Military/Security Support from the Military/Police authorities, and such other acts essential to the achievement of this sequestration order. 1 b. Order for Production of Documents On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated April 18, 1986 to the President and other officers of petitioner firm, reiterating an earlier request for the production of certain documents, to wit: 1. Stock Transfer Book 2. Legal documents, such as: 2.1. Articles of Incorporation 2.2. By-Laws 2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986

2.4. Minutes of the Regular and Special Meetings of the Board of Directors from 1973 to 1986 2.5. Minutes of the Executive Committee Meetings from 1973 to 1986 2.6. Existing contracts with suppliers/contractors/others. 3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to 1986 duly certified by the Corporate Secretary. 4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from 1973 to December 31, 1985. 5. Monthly Financial Statements for the current year up to March 31, 1986. 6. Consolidated Cash Position Reports from January to April 15, 1986. 7. Inventory listings of assets up dated up to March 31, 1986. 8. Updated schedule of Accounts Receivable and Accounts Payable. 9. Complete list of depository banks for all funds with the authorized signatories for withdrawals thereof. 10. Schedule of company investments and placements. 2 The letter closed with the warning that if the documents were not submitted within five days, the officers would be cited for "contempt in pursuance with Presidential Executive Order Nos. 1 and 2." c. Orders Re Engineer Island (1) Termination of Contract for Security Services A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is that issued on April 21, 1986 by a Capt. Flordelino B. Zabala, a member of the task force assigned to carry out the basic sequestration order. He sent a letter to BASECO's Vice-President for Finance, 3 terminating the contract for security services within the Engineer Island compound between BASECO and "Anchor and FAIRWAYS" and "other civilian security agencies," CAPCOM military personnel having already been assigned to the area, (2) Change of Mode of Payment of Entry Charges

On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners and Contractors," particularly a "Mr. Buddy Ondivilla National Marine Corporation," advising of the amendment in part of their contracts with BASECO in the sense that the stipulated charges for use of the BASECO road network were made payable "upon entry and not anymore subject to monthly billing as was originally agreed upon." 4 d. Aborted Contract for Improvement of Wharf at Engineer Island On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of BASECO with Deltamarine Integrated Port Services, Inc., in virtue of which the latter undertook to introduce improvements costing approximately P210,000.00 on the BASECO wharf at Engineer Island, allegedly then in poor condition, avowedly to "optimize its utilization and in return maximize the revenue which would flow into the government coffers," in consideration of Deltamarine's being granted "priority in using the improved portion of the wharf ahead of anybody" and exemption "from the payment of any charges for the use of wharf including the area where it may install its bagging equipments" "until the improvement remains in a condition suitable for port operations." 5 It seems however that this contract was never consummated. Capt. Jorge B. Siacunco, "Head- (PCGG) BASECO Management Team," advised Deltamarine by letter dated July 30, 1986 that "the new management is not in a position to honor the said contract" and thus "whatever improvements * * (may be introduced) shall be deemed unauthorized * * and shall be at * * (Deltamarine's) own risk." 6 e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent, Mayor Melba O. Buenaventura, "to plan and implement progress towards maximizing the continuous operation of the BASECO Sesiman Rock Quarry * * by conventional methods;" but afterwards, Commissioner Bautista, in representation of the PCGG, authorized another party, A.T. Abesamis, to operate the quarry, located at Mariveles, Bataan, an agreement to this effect having been executed by them on September 17, 1986. 7 f. Order to Dispose of Scrap, etc. By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor Buenaventura was also "authorized to clean and beautify the Company's compound," and in this connection, to dispose of or sell "metal scraps" and other materials, equipment and machineries no longer usable, subject to specified guidelines and safeguards including audit and verification. 8 g. The TAKEOVER Order

By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover by the PCGG of BASECO, "the Philippine Dockyard Corporation and all their affiliated companies." 9 Diaz invoked the provisions of Section 3 (c) of Executive Order No. 1, empowering the Commission * * To provisionally takeover in the public interest or to prevent its disposal or dissipation, business enterprises and properties taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos, until the transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities. A management team was designated to implement the order, headed by Capt. Siacunco, and was given the following powers: 1. Conducts all aspects of operation of the subject companies; 2. Installs key officers, hires and terminates personnel as necessary; 3. Enters into contracts related to management and operation of the companies; 4. Ensures that the assets of the companies are not dissipated and used effectively and efficiently; revenues are duly accounted for; and disburses funds only as may be necessary; 5. Does actions including among others, seeking of military support as may be necessary, that will ensure compliance to this order; 6. Holds itself fully accountable to the Presidential Commission on Good Government on all aspects related to this take-over order. h. Termination of Services of BASECO Officers Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M. Valdez, Gilberto Pasimanero, and Benito R. Cuesta I, advising of the termination of their services by the PCGG. 10 2. Petitioner's Plea and Postulates It is the foregoing specific orders and acts of the PCGG and its members and agents which, to repeat, petitioner BASECO would have this Court nullify. More particularly, BASECO prays that this Court1) declare unconstitutional and void Executive Orders Numbered 1 and 2;

2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts done on the basis thereof, inclusive of the takeover order of July 14, 1986 and the termination of the services of the BASECO executives. 11 a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders While BASECO concedes that "sequestration without resorting to judicial action, might be made within the context of Executive Orders Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was promulgated, under the principle that the law promulgated by the ruler under a revolutionary regime is the law of the land, it ceased to be acceptable when the same ruler opted to promulgate the Freedom Constitution on March 25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was adopted providing, among others, that "No person shall be deprived of life, liberty and property without due process of law." (Const., Art. I V, Sec. 1)." 12 It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration Order * * and Takeover Order * * issued purportedly under the authority of said Executive Orders, rests on four fundamental considerations: First, no notice and hearing was accorded * * (it) before its properties and business were taken over; Second, the PCGG is not a court, but a purely investigative agency and therefore not competent to act as prosecutor and judge in the same cause; Third, there is nothing in the issuances which envisions any proceeding, process or remedy by which petitioner may expeditiously challenge the validity of the takeover after the same has been effected; and Fourthly, being directed against specified persons, and in disregard of the constitutional presumption of innocence and general rules and procedures, they constitute a Bill of Attainder." 13 b. Re Order to Produce Documents It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already complied with, was issued without court authority and infringed its constitutional right against self-incrimination, and unreasonable search and seizure. 14 c. Re PCGG's Exercise of Right of Ownership and Management BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of its business affairs by 1) terminating its contract for security services with Fairways & Anchor, without the consent and against the will of the contracting parties; and amending the mode of payment of entry fees stipulated in its Lease Contract with National Stevedoring &

Lighterage Corporation, these acts being in violation of the non-impairment clause of the constitution; 15 2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine Integrated Port Services, Inc., giving the latter free use of BASECO premises; 16 3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock quarry at Sesiman, Mariveles; 17 4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and other materials; 18 5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliated companies; 6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S. Mendoza; GM Moises M. Valdez; Finance Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19 7) planning to elect its own Board of Directors; 20 8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's premises at Mariveles * * rolls of cable wires, worth P600,000.00 on May 11, 1986; 21 9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have been buried therein. 22 3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders Many misconceptions and much doubt about the matter of sequestration, takeover and freeze orders have been engendered by misapprehension, or incomplete comprehension if not indeed downright ignorance of the law governing these remedies. It is needful that these misconceptions and doubts be dispelled so that uninformed and useless debates about them may be avoided, and arguments tainted b sophistry or intellectual dishonesty be quickly exposed and discarded. Towards this end, this opinion will essay an exposition of the law on the matter. In the process many of the objections raised by BASECO will be dealt with. 4. The Governing Law a. Proclamation No. 3 The impugned executive orders are avowedly meant to carry out the explicit command of the Provisional Constitution, ordained by Proclamation No. 3, 23 that the President-in

the exercise of legislative power which she was authorized to continue to wield "(until a legislature is elected and convened under a new Constitution" "shall give priority to measures to achieve the mandate of the people," among others to (r)ecover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or freezing of assets or accounts." 24 b. Executive Order No. 1 Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and postulates that "vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad." 25 Upon these premises, the Presidential Commission on Good Government was created, 26 "charged with the task of assisting the President in regard to (certain specified) matters," among which was precisely* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates, whether located in the Philippines or abroad, including the takeover or sequestration of all business enterprises and entities owned or controlled by them, during his administration, directly or through nominees, by taking undue advantage of their public office and/or using their powers, authority, influence, connections or relationship. 27 In relation to the takeover or sequestration that it was authorized to undertake in the fulfillment of its mission, the PCGG was granted "power and authority" to do the following particular acts, to wit: 1. To sequester or place or cause to be placed under its control or possession any building or office wherein any ill-gotten wealth or properties may be found, and any records pertaining thereto, in order to prevent their destruction, concealment or disappearance which would frustrate or hamper the investigation or otherwise prevent the Commission from accomplishing its task. 2. To provisionally take over in the public interest or to prevent the disposal or dissipation, business enterprises and properties taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos, until the transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities. 3. To enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic, or frustrate or otherwise make ineffectual the efforts of the Commission to carry out its task under this order. 28

So that it might ascertain the facts germane to its objectives, it was granted power to conduct investigations; require submission of evidence by subpoenae ad testificandum and duces tecum; administer oaths; punish for contempt. 29 It was given power also to promulgate such rules and regulations as may be necessary to carry out the purposes of * * (its creation). 30 c. Executive Order No. 2 Executive Order No. 2 gives additional and more specific data and directions respecting "the recovery of ill-gotten properties amassed by the leaders and supporters of the previous regime." It declares that: 1) * * the Government of the Philippines is in possession of evidence showing that there are assets and properties purportedly pertaining to former Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or nominees which had been or were acquired by them directly or indirectly, through or as a result of the improper or illegal use of funds or properties owned by the government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their office, authority, influence, connections or relationship, resulting in their unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines:" and 2) * * said assets and properties are in the form of bank accounts, deposits, trust accounts, shares of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the Philippines and in various countries of the world."
31

Upon these premises, the President1) froze "all assets and properties in the Philippines in which former President Marcos and/or his wife, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents, or nominees have any interest or participation; 2) prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives, subordinates, business associates, duties, agents, or nominees from transferring, conveying, encumbering, concealing or dissipating said assets or properties in the Philippines and abroad, pending the outcome of appropriate proceedings in the Philippines to determine whether any such assets or properties were acquired by them through or as a result of improper or illegal use of or the conversion of funds belonging

to the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their official position, authority, relationship, connection or influence to unjustly enrich themselves at the expense and to the grave damage and prejudice of the Filipino people and the Republic of the Philippines; 3) prohibited "any person from transferring, conveying, encumbering or otherwise depleting or concealing such assets and properties or from assisting or taking part in their transfer, encumbrance, concealment or dissipation under pain of such penalties as are prescribed by law;" and 4) required "all persons in the Philippines holding such assets or properties, whether located in the Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same to the Commission on Good Government within thirty (30) days from publication of * (the) Executive Order, * *. 32 d. Executive Order No. 14 A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG is empowered, "with the assistance of the Office of the Solicitor General and other government agencies, * * to file and prosecute all cases investigated by it * * as may be warranted by its findings." 34 All such cases, whether civil or criminal, are to be filed "with the Sandiganbayan which shall have exclusive and original jurisdiction thereof." 35 Executive Order No. 14 also pertinently provides that civil suits for restitution, reparation of damages, or indemnification for consequential damages, forfeiture proceedings provided for under Republic Act No. 1379, or any other civil actions under the Civil Code or other existing laws, in connection with * * (said Executive Orders Numbered 1 and 2) may be filed separately from and proceed independently of any criminal proceedings and may be proved by a preponderance of evidence;" and that, moreover, the "technical rules of procedure and evidence shall not be strictly applied to* * (said)civil cases." 36 5. Contemplated Situations The situations envisaged and sought to be governed are self-evident, these being: 1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the previous regime"; 37 a) more particularly, that ill-gotten wealth (was) accumulated by former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates, * * located in the Philippines or abroad, * * (and) business enterprises and entities (came to be) owned or controlled

by them, during * * (the Marcos) administration, directly or through nominees, by taking undue advantage of their public office and/or using their powers, authority, influence, Connections or relationship; 38 b) otherwise stated, that "there are assets and properties purportedly pertaining to former President Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or nominees which had been or were acquired by them directly or indirectly, through or as a result of the improper or illegal use of funds or properties owned by the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their office, authority, influence, connections or relationship, resulting in their unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines"; 39 c) that "said assets and properties are in the form of bank accounts. deposits, trust. accounts, shares of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the Philippines and in various countries of the world;" 40 and 2) that certain "business enterprises and properties (were) taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos. 41 6. Government's Right and Duty to Recover All Ill-gotten Wealth There can be no debate about the validity and eminent propriety of the Government's plan "to recover all ill-gotten wealth." Neither can there be any debate about the proposition that assuming the above described factual premises of the Executive Orders and Proclamation No. 3 to be true, to be demonstrable by competent evidence, the recovery from Marcos, his family and his dominions of the assets and properties involved, is not only a right but a duty on the part of Government. But however plain and valid that right and duty may be, still a balance must be sought with the equally compelling necessity that a proper respect be accorded and adequate protection assured, the fundamental rights of private property and free enterprise which are deemed pillars of a free society such as ours, and to which all members of that society may without exception lay claim. * * Democracy, as a way of life enshrined in the Constitution, embraces as its necessary components freedom of conscience, freedom of expression,

and freedom in the pursuit of happiness. Along with these freedoms are included economic freedom and freedom of enterprise within reasonable bounds and under proper control. * * Evincing much concern for the protection of property, the Constitution distinctly recognizes the preferred position which real estate has occupied in law for ages. Property is bound up with every aspect of social life in a democracy as democracy is conceived in the Constitution. The Constitution realizes the indispensable role which property, owned in reasonable quantities and used legitimately, plays in the stimulation to economic effort and the formation and growth of a solid social middle class that is said to be the bulwark of democracy and the backbone of every progressive and happy country. 42 a. Need of Evidentiary Substantiation in Proper Suit Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to be duly established by adequate proof in each case, in a proper judicial proceeding, so that the recovery of the ill-gotten wealth may be validly and properly adjudged and consummated; although there are some who maintain that the fact-that an immense fortune, and "vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad," and they have resorted to all sorts of clever schemes and manipulations to disguise and hide their illicit acquisitions-is within the realm of judicial notice, being of so extensive notoriety as to dispense with proof thereof, Be this as it may, the requirement of evidentiary substantiation has been expressly acknowledged, and the procedure to be followed explicitly laid down, in Executive Order No. 14. b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gotten wealth" as the evidence at hand may reveal, there is an obvious and imperative need for preliminary, provisional measures to prevent the concealment, disappearance, destruction, dissipation, or loss of the assets and properties subject of the suits, or to restrain or foil acts that may render moot and academic, or effectively hamper, delay, or negate efforts to recover the same. 7. Provisional Remedies Prescribed by Law To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration; (2) freeze orders; and (3) provisional takeover. Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten wealth." The remedy of "provisional takeover" is peculiar to cases where

"business enterprises and properties (were) taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos." a. Sequestration

43

By the clear terms of the law, the power of the PCGG to sequester property claimed to be "ill-gotten" means to place or cause to be placed under its possession or control said property, or any building or office wherein any such property and any records pertaining thereto may be found, including "business enterprises and entities,"-for the purpose of preventing the destruction, concealment or dissipation of, and otherwise conserving and preserving, the same-until it can be determined, through appropriate judicial proceedings, whether the property was in truth will- gotten," i.e., acquired through or as a result of improper or illegal use of or the conversion of funds belonging to the Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of official position, authority relationship, connection or influence, resulting in unjust enrichment of the ostensible owner and grave damage and prejudice to the State. 44 And this, too, is the sense in which the term is commonly understood in other jurisdictions. 45 b. "Freeze Order" A "freeze order" prohibits the person having possession or control of property alleged to constitute "ill-gotten wealth" "from transferring, conveying, encumbering or otherwise depleting or concealing such property, or from assisting or taking part in its transfer, encumbrance, concealment, or dissipation." 46 In other words, it commands the possessor to hold the property and conserve it subject to the orders and disposition of the authority decreeing such freezing. In this sense, it is akin to a garnishment by which the possessor or ostensible owner of property is enjoined not to deliver, transfer, or otherwise dispose of any effects or credits in his possession or control, and thus becomes in a sense an involuntary depositary thereof. 47 c. Provisional Takeover In providing for the remedy of "provisional takeover," the law acknowledges the apparent distinction between "ill gotten" "business enterprises and entities" (going concerns, businesses in actual operation), generally, as to which the remedy of sequestration applies, it being necessarily inferred that the remedy entails no interference, or the least possible interference with the actual management and operations thereof; and "business enterprises which were taken over by the government government of the Marcos Administration or by entities or persons close to him," in particular, as to which a "provisional takeover" is authorized, "in the public interest or to prevent disposal or dissipation of the enterprises." 48 Such a "provisional takeover" imports something more than sequestration or freezing, more than the placing of the business under physical possession and control, albeit without or with the least possible interference with the management and carrying on of the business

itself. In a "provisional takeover," what is taken into custody is not only the physical assets of the business enterprise or entity, but the business operation as well. It is in fine the assumption of control not only over things, but over operations or on- going activities. But, to repeat, such a "provisional takeover" is allowed only as regards "business enterprises * * taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos." d. No Divestment of Title Over Property Seized It may perhaps be well at this point to stress once again the provisional, contingent character of the remedies just described. Indeed the law plainly qualifies the remedy of take-over by the adjective, "provisional." These remedies may be resorted to only for a particular exigency: to prevent in the public interest the disappearance or dissipation of property or business, and conserve it pending adjudgment in appropriate proceedings of the primary issue of whether or not the acquisition of title or other right thereto by the apparent owner was attended by some vitiating anomaly. None of the remedies is meant to deprive the owner or possessor of his title or any right to the property sequestered, frozen or taken over and vest it in the sequestering agency, the Government or other person. This can be done only for the causes and by the processes laid down by law. That this is the sense in which the power to sequester, freeze or provisionally take over is to be understood and exercised, the language of the executive orders in question leaves no doubt. Executive Order No. 1 declares that the sequestration of property the acquisition of which is suspect shall last "until the transactions leading to such acquisition * * can be disposed of by the appropriate authorities." 49 Executive Order No. 2 declares that the assets or properties therein mentioned shall remain frozen "pending the outcome of appropriate proceedings in the Philippines to determine whether any such assets or properties were acquired" by illegal means. Executive Order No. 14 makes clear that judicial proceedings are essential for the resolution of the basic issue of whether or not particular assets are "ill-gotten," and resultant recovery thereof by the Government is warranted. e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional Command There is thus no cause for the apprehension voiced by BASECO 50 that sequestration, freezing or provisional takeover is designed to be an end in itself, that it is the device through which persons may be deprived of their property branded as "ill-gotten," that it is intended to bring about a permanent, rather than a passing, transitional state of affairs. That this is not so is quite explicitly declared by the governing rules. Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of these provisional remedies. Section 26 of its Transitory Provisions, 51 lays down the relevant rule in plain terms, apart from extending ratification or confirmation

(although not really necessary) to the institution by presidential fiat of the remedy of sequestration and freeze orders: SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986 in relation to the recovery of illgotten wealth shag remain operative for not more than eighteen months after the ratification of this Constitution. However, in the national interest, as certified by the President, the Congress may extend said period. A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order and the list of the sequestered or frozen properties shall forthwith be registered with the proper court. For orders issued before the ratification of this Constitution, the corresponding judicial action or proceeding shall be filed within six months from its ratification. For those issued after such ratification, the judicial action or proceeding shall be commenced within six months from the issuance thereof. The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is commenced as herein provided. 52 f. Kinship to Attachment Receivership As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy of preliminary attachment, or receivership. 53 By attachment, a sheriff seizes property of a defendant in a civil suit so that it may stand as security for the satisfaction of any judgment that may be obtained, and not disposed of, or dissipated, or lost intentionally or otherwise, pending the action. 54 By receivership, property, real or personal, which is subject of litigation, is placed in the possession and control of a receiver appointed by the Court, who shall conserve it pending final determination of the title or right of possession over it. 55 All these remedies sequestration, freezing, provisional, takeover, attachment and receivership are provisional, temporary, designed for-particular exigencies, attended by no character of permanency or finality, and always subject to the control of the issuing court or agency. g. Remedies, Non-Judicial Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a court is of no moment. The Solicitor General draws attention to the writ of distraint and levy which since 1936 the Commissioner of Internal Revenue has been by law authorized to issue against property of a delinquent taxpayer. 56 BASECO itself declares that it has not manifested "a rigid insistence on sequestration as a purely judicial remedy * * (as it feels) that the law should not be ossified to a point that makes it insensitive to change." What it insists on, what it pronounces to be its "unyielding position, is that any change in procedure, or the institution of a new one, should

conform to due process and the other prescriptions of the Bill of Rights of the Constitution." 57 It is, to be sure, a proposition on which there can be no disagreement. h. Orders May Issue Ex Parte Like the remedy of preliminary attachment and receivership, as well as delivery of personal property in replevin suits, sequestration and provisional takeover writs may issue ex parte. 58 And as in preliminary attachment, receivership, and delivery of personality, no objection of any significance may be raised to the ex parte issuance of an order of sequestration, freezing or takeover, given its fundamental character of temporariness or conditionality; and taking account specially of the constitutionally expressed "mandate of the people to recover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people;" 59 as well as the obvious need to avoid alerting suspected possessors of "ill-gotten wealth" and thereby cause that disappearance or loss of property precisely sought to be prevented, and the fact, just as self-evident, that "any transfer, disposition, concealment or disappearance of said assets and properties would frustrate, obstruct or hamper the efforts of the Government" at the just recovery thereof. 60 8. Requisites for Validity What is indispensable is that, again as in the case of attachment and receivership, there exist a prima facie factual foundation, at least, for the sequestration, freeze or takeover order, and adequate and fair opportunity to contest it and endeavor to cause its negation or nullification. 61 Both are assured under the executive orders in question and the rules and regulations promulgated by the PCGG. a. Prima Facie Evidence as Basis for Orders Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and due process." 62 Executive Order No. 2 declares that with respect to claims on allegedly "ill-gotten" assets and properties, "it is the position of the new democratic government that President Marcos * * (and other parties affected) be afforded fair opportunity to contest these claims before appropriate Philippine authorities." 63 Section 7 of the Commission's Rules and Regulations provides that sequestration or freeze (and takeover) orders issue upon the authority of at least two commissioners, based on the affirmation or complaint of an interested party, or motu proprio when the Commission has reasonable grounds to believe that the issuance thereof is warranted. 64 A similar requirement is now found in Section 26, Art. XVIII of the 1987 Constitution, which requires that a "sequestration or freeze order shall be issued only upon showing of a prima facie case." 65 b. Opportunity to Contest

And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a party may seek to set aside a writ of sequestration or freeze order, viz: SECTION 5. Who may contend.-The person against whom a writ of sequestration or freeze or hold order is directed may request the lifting thereof in writing, either personally or through counsel within five (5) days from receipt of the writ or order, or in the case of a hold order, from date of knowledge thereof. SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio for good cause shown, the Commission may lift the writ or order unconditionally or subject to such conditions as it may deem necessary, taking into consideration the evidence and the circumstance of the case. The resolution of the commission may be appealed by the party concerned to the Office of the President of the Philippines within fifteen (15) days from receipt thereof. Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth" were not expressly imposed by some rule or regulation as a condition to warrant the sequestration or freezing of property contemplated in the executive orders in question, it would nevertheless be exigible in this jurisdiction in which the Rule of Law prevails and official acts which are devoid of rational basis in fact or law, or are whimsical and capricious, are condemned and struck down. 66 9. Constitutional Sanction of Remedies If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of sequestration, freeze and takeover orders, it should be dispelled by the fact that these particular remedies and the authority of the PCGG to issue them have received constitutional approbation and sanction. As already mentioned, the Provisional or "Freedom" Constitution recognizes the power and duty of the President to enact "measures to achieve the mandate of the people to * * * (recover ill- gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or freezing of assets or accounts." And as also already adverted to, Section 26, Article XVIII of the 1987 Constitution 67 treats of, and ratifies the "authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986." The institution of these provisional remedies is also premised upon the State's inherent police power, regarded, as t lie power of promoting the public welfare by restraining and regulating the use of liberty and property," 68 and as "the most essential, insistent and illimitable of powers * * in the promotion of general welfare and the public interest," 69 and said to be co-extensive with self-protection and * * not inaptly termed (also) the'law of overruling necessity." " 70

10. PCGG not a "Judge"; General Functions It should also by now be reasonably evident from what has thus far been said that the PCGG is not, and was never intended to act as, a judge. Its general function is to conduct investigations in order to collect evidence establishing instances of "ill-gotten wealth;" issue sequestration, and such orders as may be warranted by the evidence thus collected and as may be necessary to preserve and conserve the assets of which it takes custody and control and prevent their disappearance, loss or dissipation; and eventually file and prosecute in the proper court of competent jurisdiction all cases investigated by it as may be warranted by its findings. It does not try and decide, or hear and determine, or adjudicate with any character of finality or compulsion, cases involving the essential issue of whether or not property should be forfeited and transferred to the State because "ill-gotten" within the meaning of the Constitution and the executive orders. This function is reserved to the designated court, in this case, the Sandiganbayan. 71 There can therefore be no serious regard accorded to the accusation, leveled by BASECO, 72 that the PCGG plays the perfidious role of prosecutor and judge at the same time. 11. Facts Preclude Grant of Relief to Petitioner Upon these premises and reasoned conclusions, and upon the facts disclosed by the record, hereafter to be discussed, the petition cannot succeed. The writs of certiorari and prohibition prayed for will not be issued. The facts show that the corporation known as BASECO was owned or controlled by President Marcos "during his administration, through nominees, by taking undue advantage of his public office and/or using his powers, authority, or influence, " and that it was by and through the same means, that BASECO had taken over the business and/or assets of the National Shipyard and Engineering Co., Inc., and other government-owned or controlled entities. 12. Organization and Stock Distribution of BASECO BASECO describes itself in its petition as "a shiprepair and shipbuilding company * * incorporated as a domestic private corporation * * (on Aug. 30, 1972) by a consortium of Filipino shipowners and shipping executives. Its main office is at Engineer Island, Port Area, Manila, where its Engineer Island Shipyard is housed, and its main shipyard is located at Mariveles Bataan." 73 Its Articles of Incorporation disclose that its authorized capital stock is P60,000,000.00 divided into 60,000 shares, of which 12,000 shares with a value of P12,000,000.00 have been subscribed, and on said subscription, the aggregate sum of P3,035,000.00 has been paid by the incorporators. 74 The same articles Identify the incorporators, numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee, (3) Eduardo T. Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio M. Ezpeleta, (8) Zacarias Amante,

(9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza, (14) Magiliw Torres, and (15) Rodolfo Torres. By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be stockholders, namely: (1) Generoso Tanseco, (2) Antonio Ezpeleta, (3) Zacarias Amante, (4) Octavio Posadas, (5) Magiliw Torres, and (6) Rodolfo Torres. As of this year, 1986, there were twenty (20) stockholders listed in BASECO's Stock and Transfer Book. 75 Their names and the number of shares respectively held by them are as follows: 1. Jose A. Rojas 2. Severino G. de la Cruz 3. Emilio T. Yap 4. Jose Fernandez 5. Jose Francisco 6. Manuel S. Mendoza 7. Anthony P. Lee 8. Hilario M. Ruiz 9. Constante L. Farias 10. Fidelity Management, Inc. 11. Trident Management 12. United Phil. Lines 13. Renato 1,248 shares 1,248 shares 2,508 shares 1,248 shares 128 shares 96 shares 1,248 shares 32 shares 8 shares 65,882 shares 7,412 shares 1,240 shares 8 shares

M. Tanseco 14. Fidel Ventura 15. Metro Bay Drydock 16. Manuel Jacela 17. Jonathan G. Lu 18. Jose J. Tanchanco 19. Dioscoro Papa 20. Edward T. Marcelo TOTAL 8 shares 136,370 shares 1 share 1 share 1 share 128 shares 4 shares 218,819 shares.

13 Acquisition of NASSCO by BASECO Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel Corporation, or NASSCO, a government-owned or controlled corporation, the latter's shipyard at Mariveles, Bataan, known as the Bataan National Shipyard (BNS), and except for NASSCO's Engineer Island Shops and certain equipment of the BNS, consigned for future negotiation all its structures, buildings, shops, quarters, houses, plants, equipment and facilities, in stock or in transit. This it did in virtue of a "Contract of Purchase and Sale with Chattel Mortgage" executed on February 13, 1973. The price was P52,000,000.00. As partial payment thereof, BASECO delivered to NASSCO a cash bond of P11,400,000.00, convertible into cash within twenty-four (24) hours from completion of the inventory undertaken pursuant to the contract. The balance of P41,600,000.00, with interest at seven percent (7%) per annum, compounded semi-annually, was stipulated to be paid in equal semi-annual installments over a term of nine (9) years, payment to commence after a grace period of two (2) years from date of turnover of the shipyard to BASECO. 76 14. Subsequent Reduction of Price; Intervention of Marcos Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to P24,311,550.00, about eight (8) months later. A document to this effect was executed

on October 9, 1973, entitled "Memorandum Agreement," and was signed for NASSCO by Arturo Pacificador, as Presiding Officer of the Board of Directors, and David R. Ines, as General Manager. 77 This agreement bore, at the top right corner of the first page, the word "APPROVED" in the handwriting of President Marcos, followed by his usual full signature. The document recited that a down payment of P5,862,310.00 had been made by BASECO, and the balance of P19,449,240.00 was payable in equal semiannual installments over nine (9) years after a grace period of two (2) years, with interest at 7% per annum. 15. Acquisition of 300 Hectares from Export Processing Zone Authority On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the Export Processing Zone Authority for the price of P10,047,940.00 of which, as set out in the document of sale, P2,000.000.00 was paid upon its execution, and the balance stipulated to be payable in installments. 78 16. Acquisition of Other Assets of NASSCO; Intervention of Marcos Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the intervention of President Marcos, acquired ownership of the rest of the assets of NASSCO which had not been included in the first two (2) purchase documents. This was accomplished by a deed entitled "Contract of Purchase and Sale," 79 which, like the Memorandum of Agreement dated October 9, 1973 supra also bore at the upper right-hand corner of its first page, the handwritten notation of President Marcos reading, "APPROVED, July 29, 1973," and underneath it, his usual full signature. Transferred to BASECO were NASSCO's "ownership and all its titles, rights and interests over all equipment and facilities including structures, buildings, shops, quarters, houses, plants and expendable or semi-expendable assets, located at the Engineer Island, known as the Engineer Island Shops, including all the equipment of the Bataan National Shipyards (BNS) which were excluded from the sale of NBS to BASECO but retained by BASECO and all other selected equipment and machineries of NASSCO at J. Panganiban Smelting Plant." In the same deed, NASSCO committed itself to cooperate with BASECO for the acquisition from the National Government or other appropriate Government entity of Engineer Island. Consideration for the sale was set at P5,000,000.00; a down payment of P1,000,000.00 appears to have been made, and the balance was stipulated to be paid at 7% interest per annum in equal semi annual installments over a term of nine (9) years, to commence after a grace period of two (2) years. Mr. Arturo Pacificador again signed for NASSCO, together with the general manager, Mr. David R. Ines. 17. Loans Obtained It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken from "the last available Japanese war damage fund of $19,000,000.00," to pay for "Japanese made heavy equipment (brand new)." 80 On September 3, 1975, it got

another loan also from the NDC in the amount of P30,000,000.00 (id.). And on January 28, 1976, it got still another loan, this time from the GSIS, in the sum of P12,400,000.00. 81 The claim has been made that not a single centavo has been paid on these loans. 82 18. Reports to President Marcos In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO. The first was contained in a letter dated September 5, 1977 of Hilario M. Ruiz, BASECO president. 83 The second was embodied in a confidential memorandum dated September 16, 1977 of Capt. A.T. Romualdez. 84 They further disclose the fine hand of Marcos in the affairs of BASECO, and that of a Romualdez, a relative by affinity. a. BASECO President's Report In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that there had been "no orders or demands for ship construction" for some time and expressed the fear that if that state of affairs persisted, BASECO would not be able to pay its debts to the Government, which at the time stood at the not inconsiderable amount of P165,854,000.00. 85 He suggested that, to "save the situation," there be a "spin-off (of their) shipbuilding activities which shall be handled exclusively by an entirely new corporation to be created;" and towards this end, he informed Marcos that BASECO was * * inviting NDC and LUSTEVECO to participate by converting the NDC shipbuilding loan to BASECO amounting to P341.165M and assuming and converting a portion of BASECO's shipbuilding loans from REPACOM amounting to P52.2M or a total of P83.365M as NDC's equity contribution in the new corporation. LUSTEVECO will participate by absorbing and converting a portion of the REPACOM loan of Bay Shipyard and Drydock, Inc., amounting to P32.538M. 86 b. Romualdez' Report Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It opened with the following caption: MEMORANDUM: FOR : The President SUBJECT: An Evaluation and Re-assessment of a Performance of a Mission FROM: Capt. A.T. Romualdez.

Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan obligations due chiefly to the fact that "orders to build ships as expected * * did not materialize." He advised that five stockholders had "waived and/or assigned their holdings inblank," these being: (1) Jose A. Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee. Pointing out that "Mr. Magiliw Torres * * is already dead and Mr. Jose A. Rojas had a major heart attack," he made the following quite revealing, and it may be added, quite cynical and indurate recommendation, to wit: * * (that) their replacements (be effected) so we can register their names in the stock book prior to the implementation of your instructions to pass a board resolution to legalize the transfers under SEC regulations; 2. By getting their replacements, the families cannot question us later on; and 3. We will owe no further favors from them. 87 He also transmitted to Marcos, together with the report, the following documents:
88

1. Stock certificates indorsed and assigned in blank with assignments and waivers; 89 2. The articles of incorporation, the amended articles, and the by-laws of BASECO; 3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in "Engineer Island", Port Area, Manila; 4. Transfer Certificate of Title No. 124822 in the name of BASECO, covering "Engineer Island"; 5. Contract dated October 9, 1973, between NASSCO and BASECO restructure and equipment at Mariveles, Bataan; 6. Contract dated July 16, 1975, between NASSCO and BASECO restructure and equipment at Engineer Island, Port Area Manila; 7. Contract dated October 1, 1974, between EPZA and BASECO re 300 hectares of land at Mariveles, Bataan; 8. List of BASECO's fixed assets; 9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC of P30,000,000.00;

10. BASECO-REPACOM Agreement dated May 27, 1975; 11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for the housing facilities for BASECO's rank-and-file employees. 90 Capt. Romualdez also recommended that BASECO's loans be restructured "until such period when BASECO will have enough orders for ships in order for the company to meet loan obligations," and that An LOI may be issued to government agencies using floating equipment, that a linkage scheme be applied to a certain percent of BASECO's net profit as part of BASECO's amortization payments to make it justifiable for you, Sir. 91 It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer of BASECO, yet he has presented a report on BASECO to President Marcos, and his report demonstrates intimate familiarity with the firm's affairs and problems. 19. Marcos' Response to Reports President Marcos lost no time in acting on his subordinates' recommendations, particularly as regards the "spin-off" and the "linkage scheme" relative to "BASECO's amortization payments." a. Instructions re "Spin-Off" Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo Velasco of the Philippine National Oil Company and Chairman Constante Farias of the National Development Company, directing them "to participate in the formation of a new corporation resulting from the spin-off of the shipbuilding component of BASECO along the following guidelines: a. Equity participation of government shall be through LUSTEVECO and NDC in the amount of P115,903,000 consisting of the following obligations of BASECO which are hereby authorized to be converted to equity of the said new corporation, to wit: 1. NDC P83,865,000 (P31.165M loan & P52.2M Reparation) 2. LUSTEVECO P32,538,000 (Reparation) b. Equity participation of government shall be in the form of non- voting shares. For immediate compliance. 92

Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22) days after receiving their president's memorandum, Messrs. Hilario M. Ruiz, Constante L. Farias and Geronimo Z. Velasco, in representation of their respective corporations, executed a PRE-INCORPORATION AGREEMENT dated October 20, 1977. 93 In it, they undertook to form a shipbuilding corporation to be known as "PHILASIA SHIPBUILDING CORPORATION," to bring to realization their president's instructions. It would seem that the new corporation ultimately formed was actually named "Philippine Dockyard Corporation (PDC)." 94 b. Letter of Instructions No. 670 Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On February 14, 1978, he issued Letter of Instructions No. 670 addressed to the Reparations Commission REPACOM the Philippine National Oil Company (PNOC), the Luzon Stevedoring Company (LUSTEVECO), and the National Development Company (NDC). What is commanded therein is summarized by the Solicitor General, with pithy and not inaccurate observations as to the effects thereof (in italics), as follows: * * 1) the shipbuilding equipment procured by BASECO through reparations be transferred to NDC subject to reimbursement by NDC to BASECO (of) the amount of s allegedly representing the handling and incidental expenses incurred by BASECO in the installation of said equipment (so instead of NDC getting paid on its loan to BASECO, it was made to pay BASECO instead the amount of P18.285M); 2) the shipbuilding equipment procured from reparations through EPZA, now in the possession of BASECO and BSDI (Bay Shipyard & Drydocking, Inc.) be transferred to LUSTEVECO through PNOC; and 3) the shipbuilding equipment (thus) transferred be invested by LUSTEVECO, acting through PNOC and NDC, as the government's equity participation in a shipbuilding corporation to be established in partnership with the private sector. xxx xxx xxx And so, through a simple letter of instruction and memorandum, BASECO's loan obligation to NDC and REPACOM * * in the total amount of P83.365M and BSD's REPACOM loan of P32.438M were wiped out and converted into non-voting preferred shares. 95 20. Evidence of Marcos' Ownership of BASECO It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the control by President Marcos of BASECO has been sufficiently shown.

Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only exercised control over BASECO, but also that he actually owns well nigh one hundred percent of its outstanding stock. It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 shares of stock outstanding, ostensibly owned by twenty (20) stockholders. 96 Four of these twenty are juridical persons: (1) Metro Bay Drydock, recorded as holding 136,370 shares; (2) Fidelity Management, Inc., 65,882 shares; (3) Trident Management, 7,412 shares; and (4) United Phil. Lines, 1,240 shares. The first three corporations, among themselves, own an aggregate of 209,664 shares of BASECO stock, or 95.82% of the outstanding stock. Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that found in Malacanang shortly after the sudden flight of President Marcos, were certificates corresponding to more than ninety-five percent (95%) of all the outstanding shares of stock of BASECO, endorsed in blank, together with deeds of assignment of practically all the outstanding shares of stock of the three (3) corporations above mentioned (which hold 95.82% of all BASECO stock), signed by the owners thereof although not notarized. 97 More specifically, found in Malacanang (and now in the custody of the PCGG) were: 1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc. which supposedly owns as aforesaid 65,882 shares of BASECO stock; 2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding shares of Metro Bay Drydock Corporation which allegedly owns 136,370 shares of BASECO stock; 3) the deeds of assignment of 800 outstanding shares of Trident Management Co., Inc. which allegedly owns 7,412 shares of BASECO stock, assigned in blank; 98 and 4) stock certificates corresponding to 207,725 out of the 218,819 outstanding shares of BASECO stock; that is, all but 5 % all endorsed in blank. 99 While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that the BASECO stockholders were still in possession of their respective stock certificates and had "never endorsed * * them in blank or to anyone else," 100 that denial is exposed by his own prior and subsequent recorded statements as a mere gesture of defiance rather than a verifiable factual declaration.

By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of 10 days "to SUBMIT, as undertaken by him, * * the certificates of stock issued to the stockholders of * * BASECO as of April 23, 1986, as listed in Annex 'P' of the petition.' 101 Counsel thereafter moved for extension; and in his motion dated October 2, 1986, he declared inter alia that "said certificates of stock are in the possession of third parties, among whom being the respondents themselves * * and petitioner is still endeavoring to secure copies thereof from them." 102 On the same day he filed another motion praying that he be allowed "to secure copies of the Certificates of Stock in the name of Metro Bay Drydock, Inc., and of all other Certificates, of Stock of petitioner's stockholders in possession of respondents." 103 In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably argued that counsel's aforestated motion to secure copies of the stock certificates "confirms the fact that stockholders of petitioner corporation are not in possession of * * (their) certificates of stock," and the reason, according to him, was "that 95% of said shares * * have been endorsed in blank and found in Malacaang after the former President and his family fled the country." To this manifestation BASECO's counsel replied on November 5, 1986, as already mentioned, Stubbornly insisting that the firm's stockholders had not really assigned their stock. 105 In view of the parties' conflicting declarations, this Court resolved on November 27, 1986 among other things "to require * * the petitioner * * to deposit upon proper receipt with Clerk of Court Juanito Ranjo the originals of the stock certificates alleged to be in its possession or accessible to it, mentioned and described in Annex 'P' of its petition, (and other pleadings) * * within ten (10) days from notice." 106 In a motion filed on December 5, 1986, 107 BASECO's counsel made the statement, quite surprising in the premises, that "it will negotiate with the owners (of the BASECO stock in question) to allow petitioner to borrow from them, if available, the certificates referred to" but that "it needs a more sufficient time therefor" (sic). BASECO's counsel however eventually had to confess inability to produce the originals of the stock certificates, putting up the feeble excuse that while he had "requested the stockholders to allow * * (him) to borrow said certificates, * * some of * * (them) claimed that they had delivered the certificates to third parties by way of pledge and/or to secure performance of obligations, while others allegedly have entrusted them to third parties in view of last national emergency." 108 He has conveniently omitted, nor has he offered to give the details of the transactions adverted to by him, or to explain why he had not impressed on the supposed stockholders the primordial importance of convincing this Court of their present custody of the originals of the stock, or if he had done so, why the stockholders are unwilling to agree to some sort of arrangement so that the originals of their certificates might at the very least be exhibited to the Court. Under the circumstances, the Court can only conclude that he could not get the originals from the stockholders for the simple reason that, as the Solicitor General maintains, said stockholders in truth no longer have them in their possession, these having already been assigned in blank to then President Marcos.

21. Facts Justify Issuance of Sequestration and Takeover Orders In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and directors of BASECO as of April, 1986 109 were mere "dummies," nominees or alter egos of President Marcos; at any rate, that they are no longer owners of any shares of stock in the corporation, the conclusion cannot be avoided that said stockholders and directors have no basis and no standing whatever to cause the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for in the petition, would in effect be to restore the assets, properties and business sequestered and taken over by the PCGG to persons who are "dummies," nominees or alter egos of the former president. From the standpoint of the PCGG, the facts herein stated at some length do indeed show that the private corporation known as BASECO was "owned or controlled by former President Ferdinand E. Marcos * * during his administration, * * through nominees, by taking advantage of * * (his) public office and/or using * * (his) powers, authority, influence * *," and that NASSCO and other property of the government had been taken over by BASECO; and the situation justified the sequestration as well as the provisional takeover of the corporation in the public interest, in accordance with the terms of Executive Orders No. 1 and 2, pending the filing of the requisite actions with the Sandiganbayan to cause divestment of title thereto from Marcos, and its adjudication in favor of the Republic pursuant to Executive Order No. 14. As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, it sustains the acts of sequestration and takeover by the PCGG as being in accord with the law, and, in view of what has thus far been set out in this opinion, pronounces to be without merit the theory that said acts, and the executive orders pursuant to which they were done, are fatally defective in not according to the parties affected prior notice and hearing, or an adequate remedy to impugn, set aside or otherwise obtain relief therefrom, or that the PCGG had acted as prosecutor and judge at the same time. 22. Executive Orders Not a Bill of Attainder Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. 110 "A bill of attainder is a legislative act which inflicts punishment without judicial trial." 111 "Its essence is the substitution of a legislative for a judicial determination of guilt." 112 In the first place, nothing in the executive orders can be reasonably construed as a determination or declaration of guilt. On the contrary, the executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any judgment of guilt in the amassing or acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In the second place, no punishment is inflicted by the executive orders, as the

merest glance at their provisions will immediately make apparent. In no sense, therefore, may the executive orders be regarded as a bill of attainder. 23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures BASECO also contends that its right against self incrimination and unreasonable searches and seizures had been transgressed by the Order of April 18, 1986 which required it "to produce corporate records from 1973 to 1986 under pain of contempt of the Commission if it fails to do so." The order was issued upon the authority of Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the production of such books, papers, contracts, records, statements of accounts and other documents as may be material to the investigation conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing with its power to "require all persons in the Philippines holding * * (alleged "ill-gotten") assets or properties, whether located in the Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same * *." The contention lacks merit. It is elementary that the right against self-incrimination has no application to juridical persons. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an abuse ofsuchprivileges * * 113 Relevant jurisprudence is also cited by the Solicitor General. 114 * * corporations are not entitled to all of the constitutional protections which private individuals have. * * They are not at all within the privilege against self-incrimination, although this court more than once has said that the privilege runs very closely with the 4th Amendment's Search and Seizure provisions. It is also settled that an officer of the company cannot refuse to produce its records in its possession upon the plea that they will either incriminate him or may incriminate it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's). * * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the laws of its creation. There is a reserve right in the legislature to investigate its contracts and find out whether it has exceeded its powers. It would be a strange anomaly to hold

that a state, having chartered a corporation to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the corporate books and papers for that purpose. The defense amounts to this, that an officer of the corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a refusal to produce its books. To state this proposition is to answer it. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises may refuse to show its hand when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the Solicitor General's]) At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to individuals required to produce evidence before the PCGG against any possible violation of his right against self-incrimination. It gives them immunity from prosecution on the basis of testimony or information he is compelled to present. As amended, said Section 4 now provides that xxx xxx xxx The witness may not refuse to comply with the order on the basis of his privilege against self-incrimination; but no testimony or other information compelled under the order (or any information directly or indirectly derived from such testimony, or other information) may be used against the witness in any criminal case, except a prosecution for perjury, giving a false statement, or otherwise failing to comply with the order. The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either. There has been no search undertaken by any agent or representative of the PCGG, and of course no seizure on the occasion thereof. 24. Scope and Extent of Powers of the PCGG One other question remains to be disposed of, that respecting the scope and extent of the powers that may be wielded by the PCGG with regard to the properties or businesses placed under sequestration or provisionally taken over. Obviously, it is not a question to which an answer can be easily given, much less one which will suffice for every conceivable situation. a. PCGG May Not Exercise Acts of Ownership

One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property sequestered, frozen or provisionally taken over. AS already earlier stressed with no little insistence, the act of sequestration; freezing or provisional takeover of property does not import or bring about a divestment of title over said property; does not make the PCGG the owner thereof. In relation to the property sequestered, frozen or provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not perform acts of strict ownership; and this is specially true in the situations contemplated by the sequestration rules where, unlike cases of receivership, for example, no court exercises effective supervision or can upon due application and hearing, grant authority for the performance of acts of dominion. Equally evident is that the resort to the provisional remedies in question should entail the least possible interference with business operations or activities so that, in the event that the accusation of the business enterprise being "ill gotten" be not proven, it may be returned to its rightful owner as far as possible in the same condition as it was at the time of sequestration. b. PCGG Has Only Powers of Administration The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over, much like a court-appointed receiver, 115 such as to bring and defend actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and administrator. In this context, it may in addition enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic, or frustrate or otherwise make ineffectual its efforts to carry out its task; punish for direct or indirect contempt in accordance with the Rules of Court; and seek and secure the assistance of any office, agency or instrumentality of the government. 116 In the case of sequestered businesses generally (i.e., going concerns, businesses in current operation), as in the case of sequestered objects, its essential role, as already discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not that of manager, or innovator, much less an owner. c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him; Limitations Thereon Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos," 117 the PCGG is given power and authority, as already adverted to, to "provisionally take (it) over in the public interest or to prevent * * (its) disposal or dissipation;" and since the term is obviously employed in reference to going concerns, or business enterprises in operation, something more than mere physical custody is connoted; the PCGG may in this case exercise some measure of

control in the operation, running, or management of the business itself. But even in this special situation, the intrusion into management should be restricted to the minimum degree necessary to accomplish the legislative will, which is "to prevent the disposal or dissipation" of the business enterprise. There should be no hasty, indiscriminate, unreasoned replacement or substitution of management officials or change of policies, particularly in respect of viable establishments. In fact, such a replacement or substitution should be avoided if at all possible, and undertaken only when justified by demonstrably tenable grounds and in line with the stated objectives of the PCGG. And it goes without saying that where replacement of management officers may be called for, the greatest prudence, circumspection, care and attention - should accompany that undertaking to the end that truly competent, experienced and honest managers may be recruited. There should be no role to be played in this area by rank amateurs, no matter how wen meaning. The road to hell, it has been said, is paved with good intentions. The business is not to be experimented or played around with, not run into the ground, not driven to bankruptcy, not fleeced, not ruined. Sight should never be lost sight of the ultimate objective of the whole exercise, which is to turn over the business to the Republic, once judicially established to be "ill-gotten." Reason dictates that it is only under these conditions and circumstances that the supervision, administration and control of business enterprises provisionally taken over may legitimately be exercised. d. Voting of Sequestered Stock; Conditions Therefor So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the prerogative to vote sequestered stock of corporations, granted to it by the President of the Philippines through a Memorandum dated June 26, 1986. That Memorandum authorizes the PCGG, "pending the outcome of proceedings to determine the ownership of * * (sequestered) shares of stock," "to vote such shares of stock as it may have sequestered in corporations at all stockholders' meetings called for the election of directors, declaration of dividends, amendment of the Articles of Incorporation, etc." The Memorandum should be construed in such a manner as to be consistent with, and not contradictory of the Executive Orders earlier promulgated on the same matter. There should be no exercise of the right to vote simply because the right exists, or because the stocks sequestered constitute the controlling or a substantial part of the corporate voting power. The stock is not to be voted to replace directors, or revise the articles or bylaws, or otherwise bring about substantial changes in policy, program or practice of the corporation except for demonstrably weighty and defensible grounds, and always in the context of the stated purposes of sequestration or provisional takeover, i.e., to prevent the dispersion or undue disposal of the corporate assets. Directors are not to be voted out simply because the power to do so exists. Substitution of directors is not to be done without reason or rhyme, should indeed be shunned if at an possible, and undertaken only when essential to prevent disappearance or wastage of corporate property, and always under such circumstances as assure that the replacements are truly possessed of competence, experience and probity.

In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in their stead because the evidence showed prima facie that the former were just tools of President Marcos and were no longer owners of any stock in the firm, if they ever were at all. This is why, in its Resolution of October 28, 1986; 118 this Court declared that Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling and holding of a stockholders' meeting for the election of directors as authorized by the Memorandum of the President * * (to the PCGG) dated June 26, 1986, particularly, where as in this case, the government can, through its designated directors, properly exercise control and management over what appear to be properties and assets owned and belonging to the government itself and over which the persons who appear in this case on behalf of BASECO have failed to show any right or even any shareholding in said corporation. It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management of the company's affairs should henceforth be guided and governed by the norms herein laid down. They should never for a moment allow themselves to forget that they are conservators, not owners of the business; they are fiduciaries, trustees, of whom the highest degree of diligence and rectitude is, in the premises, required. 25. No Sufficient Showing of Other Irregularities As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the execution of certain contracts, inclusive of the termination of the employment of some of its executives, 119 this Court cannot, in the present state of the evidence on record, pass upon them. It is not necessary to do so. The issues arising therefrom may and will be left for initial determination in the appropriate action. But the Court will state that absent any showing of any important cause therefor, it will not normally substitute its judgment for that of the PCGG in these individual transactions. It is clear however, that as things now stand, the petitioner cannot be said to have established the correctness of its submission that the acts of the PCGG in question were done without or in excess of its powers, or with grave abuse of discretion. WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is lifted. Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.

G.R. No. 125986 January 28, 1999 LUXURIA HOMES, INC., and/or AIDA M. POSADAS, petitioners, vs. HONORABLE COURT OF APPEALS, JAMES BUILDER CONSTRUCTION and/or JAIME T. BRAVO, respondents.

MARTINEZ, J.: This petition for review assails the decision of the respondent Court of Appeals dated March 15, 1996, 1 which affirmed with modification the judgment of default rendered by the Regional Trial Court of Muntinlupa, Branch 276, in Civil Case No. 92-2592 granting all the reliefs prayed for in the complaint of private respondents James Builder Construction and/or Jaime T. Bravo. As culled from the record, the facts are as follows: Petitioner Aida M. Posadas and her two (2) minor children co-owned a 1.6 hectare property in Sucat, Muntinlupa, which was occupied by squatters. Petitioner Posadas entered into negotiations with private respondent Jaime T. Bravo regarding the development of the said property into a residential subdivision. On May 3, 1989, she authorized private respondent to negotiate with the squatters to leave the said property. With a written authorization, respondent Bravo buckled down to work and started negotiations with the squatters. Meanwhile, some seven (7) months later, on December 11, 1989, petitioner Posadas and her two (2) children, through a Deed of Assignment, assigned the said property to petitioner Luxuria Homes, Inc., purportedly for organizational and tax avoidance purposes. Respondent Bravo signed as one of the witnesses to the execution of the Deed of Assignment and the Articles of Incorporation of petitioner Luxuria Homes, Inc. Then sometime in 1992, the harmonious and congenial relationship of petitioner Posadas and respondent Bravo turned sour when the former supposedly could not accept the management contracts to develop the 1.6 hectare property into a residential subdivision, the latter was proposing. In retaliation, respondent Bravo demanded payment for services rendered in connection with the development of the land. In his statement of account dated 21 August 1991 2 respondent demanded the payment of P1,708,489.00 for various services rendered, i.e., relocation of squatters, preparation of the architectural design and site development plan, survey and fencing. Petitioner Posadas refused to pay the amount demanded. Thus, in September 1992, private respondents James Builder Construction and Jaime T. Bravo instituted a complaint for specific performance before the trial court against petitioners Posadas

and Luxuria Homes, Inc. Private respondents alleged therein that petitioner Posadas asked them to clear the subject parcel of land of squatters for a fee of P1,100,000.00 for which they were partially paid the amount of P461,511.50, leaving a balance of P638,488.50. They were also supposedly asked to prepare a site development plan and an architectural design for a contract price of P450,000.00 for which they were partially paid the amount of P25,000.00, leaving a balance of P425,000.00. And in anticipation of the signing of the land development contract, they had to construct a bunkhouse and warehouse on the property which amounted to P300,000.00, and a hollow blocks factory for P60,000.00. Private respondents also claimed that petitioner Posadas agreed that private respondents will develop the land into a first class subdivision thru a management contract and that petitioner Posadas is unjustly refusing to comply with her obligation to finalize the said management contract. The prayer in the complaint of the private respondents before the trial court reads as follows: WHEREFORE, premises considered, it is respectfully prayed of this Honorable Court that after hearing/trial judgment be rendered ordering defendant to: a) Comply with its obligation to deliver/finalize Management Contract of its land in Sucat, Muntinlupa, Metro Manila and to pay plaintiff its balance in the amount of P1,708,489.00: b) Pay plaintiff moral and exemplary damages in the amount of P500.000.00; c) Pay plaintiff actual damages in the amount of P500.000.00 (Bunkhouse/warehouse- P300.000.00, Hollow-block factory-P60.000.00, lumber, cement, etc., P120.000.00, guard-P20.000.00); d) Pay plaintiff attorney's fee of P50.000 plus P700 per appearance in court and 5% of that which may be awarded by the court to plaintiff re its monetary claims: e) Pay cost of this suit. 3 On September 27, 1993, the trial court declared petitioner Posadas in default and allowed the private respondents to present their evidence ex-parte. On March 8, 1994, it ordered petitioner Posadas, jointly and in solidum with petitioner Luxuria Homes, Inc., to pay private respondents as follows: 1. . . . the balance of the payment for the various services performed by Plaintiff with respect to the land covered by TCT NO. 167895 previously No. 158290 in the total amount of P1,708,489.00.

2. . . . actual damages incurred for the construction of the warehouse/bunks, and for the material used in the total sum of P1,500.000.00. 3. Moral and exemplary damages of P500.000.00. 4. Attorney's fee of P50,000.00. 5. And cost of this proceedings. Defendant Aida Posadas as the Representative of the Corporation Luxuria Homes, Incorporated, is further directed to execute the management contract she committed to do, also in consideration of the various undertakings that Plaintiff rendered for her. 4 Aggrieved by the aforecited decision, petitioners appealed to respondent Court of Appeals, which, as aforestated, affirmed with modification the decision of the trial court. The appellate court deleted the award of moral damages on the ground that respondent James Builder Construction is a corporation and hence could not experience physical suffering and mental anguish. It also reduced the award of exemplary damages. The dispositive portion of the decision reads: WHEREFORE, the decision appealed from is hereby AFFIRMED with the modification that the award of moral damages is ordered deleted and the award of exemplary damages to the plaintiff's-appellee should only be in the amount of FIFTY THOUSAND (P50,000.00) PESOS. 5 Petitioners' motion for reconsideration was denied, prompting the filing of this petition for review before this Court. On January 15, 1997, the Third Division of this Court denied due course to this petition for failing to show convincingly any reversible error on the part of the Court of Appeals. This Court however deleted the grant of exemplary damages and attorney's fees. The Court also reduced the trial court's award of actual damages from P1,500,000.00 to P500,000.00 reasoning that the grant should not exceed the amount prayed for in the complaint. In the prayer in the complaint respondents asked for actual damages in the amount of P500,000.00 only. Still feeling aggrieved with the resolution of this Court, petitioners filed a motion for reconsideration. On March 17, 1997, this Court found merit in the petitioners' motion for reconsideration and reinstated this petition for review. From their petition for review and motion for reconsideration before this Court, we now synthesize the issues as follows:

1. Were private respondents able to present ex-parte sufficient evidence to substantiate the allegations in their complaint and entitle them to their prayers? 2. Can petitioner Luxuria Homes, Inc., be held liable to private respondents for the transactions supposedly entered into between petitioner Posadas and private respondents? 3. Can petitioners be compelled to enter into a management contract with private respondents? Petitioners who were declared in default assert that the private respondents who presented their evidence ex-parte nonetheless utterly failed to substantiate the allegations in their complaint and as such cannot be entitled to the reliefs prayed for. A perusal of the record shows that petitioner Posadas contracted respondent Bravo to render various services for the initial development of the property as shown by vouchers evidencing payments made by petitioner Posadas to respondent Bravo for squatter relocation, architectural design, survey and fencing. Respondents prepared the architectural design, site development plan and survey in connection with petitioner Posadas' application with the Housing and Land Use Regulatory Board (HLURB) for the issuance of the Development Permit, Preliminary Approval and Locational Clearance. 6 Petitioner benefited from said services as the Development Permit and the Locational Clearance were eventually issued by the HLURB in her favor. Petitioner Posadas is therefore liable to pay for these services rendered by respondents. The contract price for the survey of the land is P140,000.00. Petitioner made partial payments totaling P130,000.00 leaving a payable balance of P10,000.00. In his testimony, 7 he alleged that the agreed price for the preparation of the site development plan is P500,000.00 and that the preparation of the architectural designs is for P450,000, or a total of P950,000.00 for the two contracts. In his complaint however, respondent Bravo alleged that he was asked "to prepare the site development plan and the architectural designs . . . for a contract price of P450,000.00 . . . " 8 The discrepancy or inconsistency was never reconciled and clarified. We reiterate that we cannot award an amount higher than what was claimed in the complaint. Consequently for the preparation of both the architectural design and site development plan, respondent is entitled to the amount of P450,000.00 less partial payments made in the amount of P25,000.00. In Policarpio v. RTC of Quezon City, 9 it was held that a court is bereft of jurisdiction to award, in a judgment by default, a relief other than that specifically prayed for in the complaint. As regards the contracts for the ejectment of squatters and fencing, we believe however that respondents failed to show proof that they actually fulfilled their

commitments therein. Aside from the bare testimony of respondent Bravo, no other evidence was presented to show that all the squatters were ejected from the property. Respondent Bravo failed to show how many shanties or structures were actually occupying the property before he entered the same, to serve as basis for concluding whether the task was finished or not. His testimony alone that he successfully negotiated for the ejectment of all the squatters from the property will not suffice. Likewise, in the case of fencing, there is no proof that it was accomplished as alleged. Respondent Bravo claims that he finished sixty percent (60%) of the fencing project but he failed to present evidence showing the area sought to be fenced and the actual area fenced by him. We therefore have no basis to determining the veracity respondent's allegations. We cannot assume that the said services rendered for it will be unfair to require petitioner to pay the full amount claimed in case the respondents obligations were not completely fulfilled. For respondents' failure to show proof of accomplishment of the aforesaid services, their claims cannot be granted. In P.T. Cerna Corp. v. Court of Appeals, 10 we ruled that in civil cases, the burden of proof rests upon the party who, as determined by the pleadings or the nature of the case, asserts the affirmative of an issue. In this case the burden lies on the complainant, who is duty bound to prove the allegations in the complaint. As this Court has held, he who alleges a fact has the burden of proving it and A MERE ALLEGATION IS NOT EVIDENCE. And the rules do not change even if the defendant is declared in default. In the leading case of Lopez v. Mendezona, 11 this Court ruled that after entry of judgment in default against a defendant who has neither appeared nor answered, and before final judgment in favor of the plaintiff, the latter must establish by competent evidence all the material allegations of his complaint upon which he bases his prayer for relief. In De los Santos v. De la Cruz, 12 this Court declared that a judgement by default against a defendant does not imply a waiver of rights except that of being heard and of presenting evidence in his favor. It does not imply admission by the defendant of the facts and causes of action of the plaintiff, because the codal section requires the latter to adduce his evidence in support of his allegations as an indispensable condition before final judgment could be given in his favor. Nor could it be interpreted as an admission by the defendant that the plaintiff's causes of action finds support in the law or that the latter is entitled to the relief prayed for. We explained the rule in judgments by default in Pascua v. Florendo, 13 where we said that nowhere is it stated that the complainants are automatically entitled to the relief prayed for, once the defendants are declared in default. Favorable relief can be granted only after the court has ascertained that the evidence offered and the facts proven by the presenting party warrant the grant of the same. Otherwise it would be meaningless to require presentation of evidence if everytime the other party is declared in default, a decision would automatically be rendered in favor of the non-defaulting party and exactly according to the tenor of his prayer. In Lim Tanhu v. Ramolete 14 we

elaborated and said that a defaulted defendant is not actually thrown out of court. The rules see to it that any judgment against him must be in accordance with law. The evidence to support the plaintiff's cause is, of course, presented in his absence, but the court is not supposed to admit that which is basically incompetent. Although the defendant would not be in a position to object, elementary justice requires that only legal evidence should be considered against him. If the evidence presented should not be sufficient to justify a judgment for the plaintiff, the complaint must be dismissed. And if an unfavorable judgment should be justifiable, it cannot exceed the amount or be different in kind from what is prayed for in the complaint. The prayer for actual damages in the amount of P500,000.00, supposedly for the bunkhouse/warehouse, hollow-block factory, lumber, cement, guard, etc., which the trial court granted and even increased to P1,500,000.00, and which this Court would have rightly reduced to the amount prayed for in the complaint, was not established, as shown upon further review of the record. No receipts or vouchers were presented by private respondents to show that they actually spent the amount. In Salas v. Court of Appeals, 15 we said that the burden of proof of the damages suffered is on the party claiming the same. It his duty to present evidence to support his claim for actual damages. If he failed to do so, he has only himself to blame if no award for actual damages is handed down. In fine, as we declared in PNOC Shipping & Transport Corp. v. Court of Appeals, 16 basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but must actually be proven with reasonable degree of certainty, premised upon competent proof or best evidence obtainable of the actual amount thereof. We go to the second issue of whether Luxuria Homes, Inc., was a party to the transactions entered into by petitioner Posadas and private respondents and thus could be held jointly and severally with petitioner Posadas. Private respondents contend that petitioner Posadas surreptitiously formed Luxuria Homes, Inc., and transferred the subject parcel of land to it to evade payment and defraud creditors, including private respondents. This allegation does not find support in the evidence on record. On the contrary we hold that respondent Court of Appeals committed a reversible error when it upheld the factual finding of the trial court that petitioners' liability was aggravated by the fact that Luxuria Homes, Inc., was formed by petitioner Posadas after demand for payment had been made, evidently for her to evade payment of her obligation, thereby showing that the transfer of her property to Luxuria Homes, Inc., was in fraud of creditors. We easily glean from the record that private respondents sent demand letters on 21 August 1991 and 14 September 1991, or more than a year and a half after the execution of the Deed of Assignment on 11 December 1989, and the issuance of the

Articles of Incorporation of petitioner Luxuria Homes on 26 January 1990. And, the transfer was made at the time the relationship between petitioner Posadas and private respondents was supposedly very pleasant. In fact the Deed of Assignment dated 11 December 1989 and the Articles of Incorporation of Luxuria Homes, Inc., issued 26 January 1990 were both signed by respondent Bravo himself as witness. It cannot be said then that the incorporation of petitioner Luxuria Homes and the eventual transfer of the subject property to it were in fraud of private respondents as such were done with the full knowledge of respondent Bravo himself. Besides petitioner Posadas is not the majority stockholder of petitioner Luxuria Homes, Inc., as erroneously stated by the lower court. The Articles of Incorporation of petitioner Luxuria Homes, Inc., clearly show that petitioner Posadas owns approximately 33% only of the capital stock. Hence petitioner Posadas cannot be considered as an alter ego of petitioner Luxuria Homes, Inc. To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot be presumed. This is elementary. Thus in Bayer-Roxas v. Court of Appeals, 17 we said that the separate personality of the corporation may be disregarded only when the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary for the protection of the creditors. Accordingly in Del Roscrrio v. NLRC, 18 where the Philsa International Placement and Services Corp. was organized and registered with the POEA in 1981, several years before the complainant was filed a case in 1985, we held that this cannot imply fraud. Obviously in the instant case, private respondents failed to show proof that petitioner Posadas acted in bad faith. Consequently since private respondents failed to show that petitioner Luxuria Homes, Inc., was a party to any of the supposed transactions, not even to the agreement to negotiate with and relocate the squatters, it cannot be held liable, nay jointly and in solidum, to pay private respondents. In this case since it was petitioner Aida M. Posadas who contracted respondent Bravo to render the subject services, only she is liable to pay the amounts adjudged herein. We now resolve the third and final issue. Private respondents urge the court to compel petitioners to execute a management contract with them on the basis of the authorization letter dated May 3, 1989. The full text of Exh. "D" reads: I hereby certify that we have duly authorized the bearer, Engineer Bravo to negotiate, in our behalf, the ejectment of squatters from our property of 1.6 hectares, more or less, in Sucat Muntinlupa. This authority is extended to him as the representative of the Managers; under our agreement for them to undertake the development of said area and the construction of housing units intended to convert the land into a first class subdivision.

The aforecited document is nothing more than a "to-whom-it-may-concern" authorization letter to negotiate with the squatters. Although it appears that there was an agreement for the development of the area, there is no showing that same was ever perfected and finalized. Private respondents presented in evidence only drafts of a proposed management contract with petitioner's handwritten marginal notes but the management contract was not put in its final form. The reason why there was no final uncorrected draft was because the parties could not agree on the stipulations of said contract, which even private respondents admitted as found by the trial court. 19 As a consequence the management drafts submitted by the private respondents should at best be considered as mere unaccepted offers. We find no cogent reason, considering that the parties no longer are in a harmonious relationship, for the execution of a contract to develop a subdivision. It is fundamental that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent of the parties. To compel petitioner Posadas, whether as representative of petitioner Luxuria Homes or in her personal capacity, to execute a management contract under the terms and conditions of private respondents would be to violate the principle of consensuality of contracts. In Philippine National Bank v. Court of Appeals, 20 we held that if the assent is wanting on the part of one who contracts, his act has no more efficacy than if it had been done under duress or by a person of unsound mind. In ordering petitioner Posadas to execute a management contract with private respondents, the trial court in effect is putting her under duress. The parties are bound to fulfill the stipulations in a contract only upon its perfection. At anytime prior to the perfection of a contract, unaccepted offers and proposals remain as such and cannot be considered as binding commitments; hence not demandable. WHEREFORE, the petition is PARTIALLY GRANTED. The assailed decision dated March 15, 1996, of respondent Honorable Court of Appeals and its Resolution dated August 12, 1996, are MODIFIED ordering PETITIONER AIDA M. POSADAS to pay PRIVATE RESPONDENTS the amount of P435,000.00 as balance for the preparation of the architectural design, site development plan and survey. All other claims of respondents are hereby DENIED for lack of merit.1wphi1.nt SO ORDERED.

G.R. No. 108734 May 29, 1996 CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe; Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.

HERMOSISIMA, JR., J.:p The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or of another corporation. Where badges of fraud exist; where public convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to naught. The law in these instances will regard the corporation as a mere association of persons and, in case of two corporations, merge them into one. Thus, where a sister corporation is used as a shield to evade a corporation's subsidiary liability for damages, the corporation may not be heard to say that it has a personality separate and distinct from the other corporation. The piercing of the corporate veil comes into play. This special civil action ostensibly raises the question of whether the National Labor Relations Commission committed grave abuse of discretion when it issued a "breakopen order" to the sheriff to be enforced against personal property found in the premises of petitioner's sister company. Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and riggers. On November, 1981, private respondents were served individual written notices of termination of employment by petitioner, effective on November 30, 1981. It was stated in the individual notices that their contracts of employment had expired and the project in which they were hired had been completed. Public respondent found it to be, the fact, however, that at the time of the termination of private respondent's employment, the project in which they were hired had not yet

been finished and completed. Petitioner had to engage the services of sub-contractors whose workers performed the functions of private respondents. Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner. On December 19, 1984, the Labor Arbiter rendered judgment 1 ordering petitioner to reinstate private respondents and to pay them back wages equivalent to one year or three hundred working days. On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration filed by petitioner on the ground that the said decision had already become final and executory. 2 On October 16, 1986, the NLRC Research and Information Department made the finding that private respondents' back wages amounted to P199,800.00. 3 On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision, dated December 19, 1984. The writ was partially satisfied through garnishment of sums from petitioner's debtor, the Metropolitan Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the cashier of the NLRC. On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from herein petitioner the sum of P117,414.76, representing the balance of the judgment award, and to reinstate private respondents to their former positions. On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner through the security guard on duty but the service was refused on the ground that petitioner no longer occupied the premises. On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of execution. The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated November 2, 1989: 1. All the employees inside petitioner's premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent; 2. Levy was made upon personal properties he found in the premises;

3. Security guards with high-powered guns prevented him from removing the properties he had levied upon. 4 The said special sheriff recommended that a "break-open order" be issued to enable him to enter petitioner's premises so that he could proceed with the public auction sale of the aforesaid personal properties on November 7, 1989. On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President. On November 23, 1989, private respondents filed a "Motion for Issuance of a BreakOpen Order," alleging that HPPI and petitioner corporation were owned by the same incorporator/stockholders. They also alleged that petitioner temporarily suspended its business operations in order to evade its legal obligations to them and that private respondents were willing to post an indemnity bond to answer for any damages which petitioner and HPPI may suffer because of the issuance of the break-open order. In support of their claim against HPPI, private respondents presented duly certified copies of the General Informations Sheet, dated May 15, 1987, submitted by petitioner to the Securities Exchange Commission (SEC) and the General Information Sheet, dated May 25, 1987, submitted by HPPI to the Securities and Exchange Commission. The General Information Sheet submitted by the petitioner revealed the following: 1. Breakdown of Subscribed Capital Name of Stockholder Amount Subscribed HPPI P 6,999,500.00 Antonio W. Lim 2,900,000.00 Dennis S. Cuyegkeng 300.00 Elisa C. Lim 100,000.00 Teodulo R. Dino 100.00 Virgilio O. Casino 100.00 2. Board of Directors Antonio W. Lim Chairman Dennis S. Cuyegkeng Member

Elisa C. Lim Member Teodulo R. Dino Member Virgilio O. Casino Member 3. Corporate Officers Antonio W. Lim President Dennis S. Cuyegkeng Assistant to the President Elisa O. Lim Treasurer Virgilio O. Casino Corporate Secretary 4. Principal Office 355 Maysan Road Valenzuela, Metro Manila. 5 On the other hand, the General Information Sheet of HPPI revealed the following: 1. Breakdown of Subscribed Capital Name of Stockholder Amount Subscribed Antonio W. Lim P 400,000.00 Elisa C. Lim 57,700.00 AWL Trading 455,000.00 Dennis S. Cuyegkeng 40,100.00 Teodulo R. Dino 100.00 Virgilio O. Casino 100.00 2. Board of Directors Antonio W. Lim Chairman Elisa C. Lim Member Dennis S. Cuyegkeng Member

Virgilio O. Casino Member Teodulo R. Dino Member 3. Corporate Officers Antonio W. Lim President Dennis S. Cuyegkeng Assistant to the President Elisa C. Lim Treasurer Virgilio O. Casino Corporate Secretary 4. Principal Office 355 Maysan Road, Valenzuela, Metro Manila. 6 On February 1, 1990, HPPI filed an Opposition to private respondents' motion for issuance of a break-open order, contending that HPPI is a corporation which is separate and distinct from petitioner. HPPI also alleged that the two corporations are engaged in two different kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner was then engaged in construction. On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents' motion for break-open order. Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order of the Labor Arbiter, issued a break-open order and directed private respondents to file a bond. Thereafter, it directed the sheriff to proceed with the auction sale of the properties already levied upon. It dismissed the third-party claim for lack of merit. Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated December 3, 1992. Hence, the resort to the present petition. Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its decision despite a third-party claim on the levied property. Petitioner further contends, that the doctrine of piercing the corporate veil should not have been applied, in this case, in the absence of any showing that it created HPPI in order to evade its liability to private respondents. It also contends that HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a business which is distinct and separate from petitioner's construction business. Hence, it is of no

consequence that petitioner and HPPI shared the same premises, the same President and the same set of officers and subscribers. 7 We find petitioner's contention to be unmeritorious. It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. 8 But, this separate and distinct personality of a corporation is merely a fiction created by law for convenience and to promote justice. 9 So, when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, 10 this separate personality of the corporation may be disregarded or the veil of corporate fiction pierced. 11 This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation. 12 The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit: 1. Stock ownership by one or common ownership of both corporations. 2. Identity of directors and officers. 3. The manner of keeping corporate books and records. 4. Methods of conducting the business. 13 The SEC en banc explained the "instrumentality rule" which the courts have applied in disregarding the separate juridical personality of corporations as follows: Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the "instrumentality" may be disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such domination of instances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control must be shown to have been exercised at the time the acts complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made. The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:

1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty or dishonest and unjust act in contravention of plaintiff's legal rights; and 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant's relationship to that operation. 14 Thus the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a subterfuge is purely one of fact. 15 In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, it filed an Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the same day, a similar information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. Furthermore, the NLRC stated that: Both information sheets were filed by the same Virgilio O. Casio as the corporate secretary of both corporations. It would also not be amiss to note that both corporations had the same president, the same board of directors, the same corporate officers, and substantially the same subscribers. From the foregoing, it appears that, among other things, the respondent (herein petitioner) and the third-party claimant shared the same address and/or premises. Under this circumstances, (sic) it cannot be said that the property levied upon by the sheriff were not of respondents. 16 Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of back wages and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation.

The facts in this case are analogous to Claparols v. Court of Industrial Relations, 17 where we had the occasion to rule: Respondent court's findings that indeed the Claparols Steel and Nail Plant, which ceased operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957, up to December 7, 1962, when the latter finally ceased to operate, were not disputed by petitioner. It is very clear that the latter corporation was a continuation and successor of the first entity . . . . Both predecessors and successor were owned and controlled by petitioner Eduardo Claparols and there was no break in the succession and continuity of the same business. This "avoiding-the-liability" scheme is very patent, considering that 90% of the subscribed shares of stock of the Claparols Steel Corporation (the second corporation) was owned by respondent . . . Claparols himself, and all the assets of the dissolved Claparols Steel and Nail plant were turned over to the emerging Claparols Steel Corporation. It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its employees. In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution, private respondents had no other recourse but to apply for a break-open order after the third-party claim of HPPI was dismissed for lack of merit by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment which provides that: Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his representative entry to the place where the property subject of execution is located or kept, the judgment creditor may apply to the Commission or Labor Arbiter concerned for a break-open order. Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing were complied with. Petitioner and the third-party claimant were given the opportunity to submit evidence in support of their claim. Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the Labor Arbiter. Finally, we do not find any reason to disturb the rule that factual findings of quasijudicial agencies supported by substantial evidence are binding on this Court and are entitled to great respect, in the absence of showing of grave abuse of a discretion. 18

WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992 and December 3, 1992, are AFFIRMED. SO ORDERED.

G.R. No. L-23893

October 29, 1968

VILLA REY TRANSIT, INC., plaintiff-appellant, vs. EUSEBIO E. FERRER, PANGASINAN TRANSPORTATION CO., INC. and PUBLIC SERVICE COMMISSION, defendants. EUSEBIO E. FERRER and PANGASINAN TRANSPORTATION CO., INC., defendants-appellants. PANGASINAN TRANSPORTATION CO., INC., third-party plaintiff-appellant, vs. JOSE M. VILLARAMA, third-party defendant-appellee. Chuidian Law Office for plaintiff-appellant. Bengzon, Zarraga & Villegas for defendant-appellant / third-party plaintiff-appellant. Laurea & Pison for third-party defendant-appellee. ANGELES, J.: This is a tri-party appeal from the decision of the Court of First Instance of Manila, Civil Case No. 41845, declaring null and void the sheriff's sale of two certificates of public convenience in favor of defendant Eusebio E. Ferrer and the subsequent sale thereof by the latter to defendant Pangasinan Transportation Co., Inc.; declaring the plaintiff Villa Rey Transit, Inc., to be the lawful owner of the said certificates of public convenience; and ordering the private defendants, jointly and severally, to pay to the plaintiff, the sum of P5,000.00 as and for attorney's fees. The case against the PSC was dismissed. The rather ramified circumstances of the instant case can best be understood by a chronological narration of the essential facts, to wit: Prior to 1959, Jose M. Villarama was an operator of a bus transportation, under the business name of Villa Rey Transit, pursuant to certificates of public convenience granted him by the Public Service Commission (PSC, for short) in Cases Nos. 44213 and 104651, which authorized him to operate a total of thirty-two (32) units on various routes or lines from Pangasinan to Manila, and vice-versa. On January 8, 1959, he sold the aforementioned two certificates of public convenience to the Pangasinan Transportation Company, Inc. (otherwise known as Pantranco), for P350,000.00 with the condition, among others, that the seller (Villarama) "shall not for a period of 10 years from the date of this sale, apply for any TPU service identical or competing with the buyer." Barely three months thereafter, or on March 6, 1959: a corporation called Villa Rey Transit, Inc. (which shall be referred to hereafter as the Corporation) was organized with a capital stock of P500,000.00 divided into 5,000 shares of the par value of

P100.00 each; P200,000.00 was the subscribed stock; Natividad R. Villarama (wife of Jose M. Villarama) was one of the incorporators, and she subscribed for P1,000.00; the balance of P199,000.00 was subscribed by the brother and sister-in-law of Jose M. Villarama; of the subscribed capital stock, P105,000.00 was paid to the treasurer of the corporation, who was Natividad R. Villarama. In less than a month after its registration with the Securities and Exchange Commission (March 10, 1959), the Corporation, on April 7, 1959, bought five certificates of public convenience, forty-nine buses, tools and equipment from one Valentin Fernando, for the sum of P249,000.00, of which P100,000.00 was paid upon the signing of the contract; P50,000.00 was payable upon the final approval of the sale by the PSC; P49,500.00 one year after the final approval of the sale; and the balance of P50,000.00 "shall be paid by the BUYER to the different suppliers of the SELLER." The very same day that the aforementioned contract of sale was executed, the parties thereto immediately applied with the PSC for its approval, with a prayer for the issuance of a provisional authority in favor of the vendee Corporation to operate the service therein involved.1 On May 19, 1959, the PSC granted the provisional permit prayed for, upon the condition that "it may be modified or revoked by the Commission at any time, shall be subject to whatever action that may be taken on the basic application and shall be valid only during the pendency of said application." Before the PSC could take final action on said application for approval of sale, however, the Sheriff of Manila, on July 7, 1959, levied on two of the five certificates of public convenience involved therein, namely, those issued under PSC cases Nos. 59494 and 63780, pursuant to a writ of execution issued by the Court of First Instance of Pangasinan in Civil Case No. 13798, in favor of Eusebio Ferrer, plaintiff, judgment creditor, against Valentin Fernando, defendant, judgment debtor. The Sheriff made and entered the levy in the records of the PSC. On July 16, 1959, a public sale was conducted by the Sheriff of the said two certificates of public convenience. Ferrer was the highest bidder, and a certificate of sale was issued in his name. Thereafter, Ferrer sold the two certificates of public convenience to Pantranco, and jointly submitted for approval their corresponding contract of sale to the PSC.2 Pantranco therein prayed that it be authorized provisionally to operate the service involved in the said two certificates. The applications for approval of sale, filed before the PSC, by Fernando and the Corporation, Case No. 124057, and that of Ferrer and Pantranco, Case No. 126278, were scheduled for a joint hearing. In the meantime, to wit, on July 22, 1959, the PSC issued an order disposing that during the pendency of the cases and before a final resolution on the aforesaid applications, the Pantranco shall be the one to operate provisionally the service under the two certificates embraced in the contract between Ferrer and Pantranco. The Corporation took issue with this particular ruling of the PSC and elevated the matter to the Supreme Court,3 which decreed, after deliberation, that until the issue on the ownership of the disputed certificates shall have been finally

settled by the proper court, the Corporation should be the one to operate the lines provisionally. On November 4, 1959, the Corporation filed in the Court of First Instance of Manila, a complaint for the annulment of the sheriff's sale of the aforesaid two certificates of public convenience (PSC Cases Nos. 59494 and 63780) in favor of the defendant Ferrer, and the subsequent sale thereof by the latter to Pantranco, against Ferrer, Pantranco and the PSC. The plaintiff Corporation prayed therein that all the orders of the PSC relative to the parties' dispute over the said certificates be annulled. In separate answers, the defendants Ferrer and Pantranco averred that the plaintiff Corporation had no valid title to the certificates in question because the contract pursuant to which it acquired them from Fernando was subject to a suspensive condition the approval of the PSC which has not yet been fulfilled, and, therefore, the Sheriff's levy and the consequent sale at public auction of the certificates referred to, as well as the sale of the same by Ferrer to Pantranco, were valid and regular, and vested unto Pantranco, a superior right thereto. Pantranco, on its part, filed a third-party complaint against Jose M. Villarama, alleging that Villarama and the Corporation, are one and the same; that Villarama and/or the Corporation was disqualified from operating the two certificates in question by virtue of the aforementioned agreement between said Villarama and Pantranco, which stipulated that Villarama "shall not for a period of 10 years from the date of this sale, apply for any TPU service identical or competing with the buyer." Upon the joinder of the issues in both the complaint and third-party complaint, the case was tried, and thereafter decision was rendered in the terms, as above stated. As stated at the beginning, all the parties involved have appealed from the decision. They submitted a joint record on appeal. Pantranco disputes the correctness of the decision insofar as it holds that Villa Rey Transit, Inc. (Corporation) is a distinct and separate entity from Jose M. Villarama; that the restriction clause in the contract of January 8, 1959 between Pantranco and Villarama is null and void; that the Sheriff's sale of July 16, 1959, is likewise null and void; and the failure to award damages in its favor and against Villarama. Ferrer, for his part, challenges the decision insofar as it holds that the sheriff's sale is null and void; and the sale of the two certificates in question by Valentin Fernando to the Corporation, is valid. He also assails the award of P5,000.00 as attorney's fees in favor of the Corporation, and the failure to award moral damages to him as prayed for in his counterclaim.

The Corporation, on the other hand, prays for a review of that portion of the decision awarding only P5,000.00 as attorney's fees, and insisting that it is entitled to an award of P100,000.00 by way of exemplary damages. After a careful study of the facts obtaining in the case, the vital issues to be resolved are: (1) Does the stipulation between Villarama and Pantranco, as contained in the deed of sale, that the former "SHALL NOT FOR A PERIOD OF 10 YEARS FROM THE DATE OF THIS SALE, APPLY FOR ANY TPU SERVICE IDENTICAL OR COMPETING WITH THE BUYER," apply to new lines only or does it include existing lines?; (2) Assuming that said stipulation covers all kinds of lines, is such stipulation valid and enforceable?; (3) In the affirmative, that said stipulation is valid, did it bind the Corporation? For convenience, We propose to discuss the foregoing issues by starting with the last proposition. The evidence has disclosed that Villarama, albeit was not an incorporator or stockholder of the Corporation, alleging that he did not become such, because he did not have sufficient funds to invest, his wife, however, was an incorporator with the least subscribed number of shares, and was elected treasurer of the Corporation. The finances of the Corporation which, under all concepts in the law, are supposed to be under the control and administration of the treasurer keeping them as trust fund for the Corporation, were, nonetheless, manipulated and disbursed as if they were the private funds of Villarama, in such a way and extent that Villarama appeared to be the actual owner-treasurer of the business without regard to the rights of the stockholders. The following testimony of Villarama,4 together with the other evidence on record, attests to that effect: Q. Doctor, I want to go back again to the incorporation of the Villa Rey Transit, Inc. You heard the testimony presented here by the bank regarding the initial opening deposit of ONE HUNDRED FIVE THOUSAND PESOS, of which amount Eighty-Five Thousand Pesos was a check drawn by yourself personally. In the direct examination you told the Court that the reason you drew a check for Eighty-Five Thousand Pesos was because you and your wife, or your wife, had spent the money of the stockholders given to her for incorporation. Will you please tell the Honorable Court if you knew at the time your wife was spending the money to pay debts, you personally knew she was spending the money of the incorporators? A. You know my money and my wife's money are one. We never talk about those things. Q. Doctor, your answer then is that since your money and your wife's money are one money and you did not know when your wife was paying debts with the incorporator's money?

A. Because sometimes she uses my money, and sometimes the money given to her she gives to me and I deposit the money. Q. Actually, aside from your wife, you were also the custodian of some of the incorporators here, in the beginning? A. Not necessarily, they give to my wife and when my wife hands to me I did not know it belonged to the incorporators. Q. It supposes then your wife gives you some of the money received by her in her capacity as treasurer of the corporation? A. Q. A. Q. A. Maybe. What did you do with the money, deposit in a regular account? Deposit in my account. Of all the money given to your wife, she did not receive any check? I do not remember.

Q. Is it usual for you, Doctor, to be given Fifty Thousand Pesos without even asking what is this? xxx JUDGE: Reform the question. xxx xxx

Q. The subscription of your brother-in-law, Mr. Reyes, is Fifty-Two Thousand Pesos, did your wife give you Fifty-two Thousand Pesos? A. I have testified before that sometimes my wife gives me money and I do not know exactly for what. The evidence further shows that the initial cash capitalization of the corporation of P105,000.00 was mostly financed by Villarama. Of the P105,000.00 deposited in the First National City Bank of New York, representing the initial paid-up capital of the Corporation, P85,000.00 was covered by Villarama's personal check. The deposit slip for the said amount of P105,000.00 was admitted in evidence as Exh. 23, which shows on its face that P20,000.00 was paid in cash and P85,000.00 thereof was covered by Check No. F-50271 of the First National City Bank of New York. The testimonies of Alfonso Sancho5 and Joaquin Amansec,6 both employees of said bank, have proved that the drawer of the check was Jose Villarama himself.

Another witness, Celso Rivera, accountant of the Corporation, testified that while in the books of the corporation there appears an entry that the treasurer received P95,000.00 as second installment of the paid-in subscriptions, and, subsequently, also P100,000.00 as the first installment of the offer for second subscriptions worth P200,000.00 from the original subscribers, yet Villarama directed him (Rivera) to make vouchers liquidating the sums.7 Thus, it was made to appear that the P95,000.00 was delivered to Villarama in payment for equipment purchased from him, and the P100,000.00 was loaned as advances to the stockholders. The said accountant, however, testified that he was not aware of any amount of money that had actually passed hands among the parties involved,8 and actually the only money of the corporation was the P105,000.00 covered by the deposit slip Exh. 23, of which as mentioned above, P85,000.00 was paid by Villarama's personal check. Further, the evidence shows that when the Corporation was in its initial months of operation, Villarama purchased and paid with his personal checks Ford trucks for the Corporation. Exhibits 20 and 21 disclose that the said purchases were paid by Philippine Bank of Commerce Checks Nos. 992618-B and 993621-B, respectively. These checks have been sufficiently established by Fausto Abad, Assistant Accountant of Manila Trading & Supply Co., from which the trucks were purchased9 and Aristedes Solano, an employee of the Philippine Bank of Commerce,10 as having been drawn by Villarama. Exhibits 6 to 19 and Exh. 22, which are photostatic copies of ledger entries and vouchers showing that Villarama had co-mingled his personal funds and transactions with those made in the name of the Corporation, are very illuminating evidence. Villarama has assailed the admissibility of these exhibits, contending that no evidentiary value whatsoever should be given to them since "they were merely photostatic copies of the originals, the best evidence being the originals themselves." According to him, at the time Pantranco offered the said exhibits, it was the most likely possessor of the originals thereof because they were stolen from the files of the Corporation and only Pantranco was able to produce the alleged photostat copies thereof. Section 5 of Rule 130 of the Rules of Court provides for the requisites for the admissibility of secondary evidence when the original is in the custody of the adverse party, thus: (1) opponent's possession of the original; (2) reasonable notice to opponent to produce the original; (3) satisfactory proof of its existence; and (4) failure or refusal of opponent to produce the original in court.11 Villarama has practically admitted the second and fourth requisites.12 As to the third, he admitted their previous existence in the files of the Corporation and also that he had seen some of them. 13 Regarding the first element, Villarama's theory is that since even at the time of the issuance of the subpoena duces tecum, the originals were already missing, therefore, the Corporation was no longer in possession of the same. However, it is not necessary for a party seeking to introduce secondary evidence to show that the original is in the actual possession of his adversary. It is enough that the circumstances are such as to

indicate that the writing is in his possession or under his control. Neither is it required that the party entitled to the custody of the instrument should, on being notified to produce it, admit having it in his possession.14 Hence, secondary evidence is admissible where he denies having it in his possession. The party calling for such evidence may introduce a copy thereof as in the case of loss. For, among the exceptions to the best evidence rule is "when the original has been lost, destroyed, or cannot be produced in court."15 The originals of the vouchers in question must be deemed to have been lost, as even the Corporation admits such loss. Viewed upon this light, there can be no doubt as to the admissibility in evidence of Exhibits 6 to 19 and 22. Taking account of the foregoing evidence, together with Celso Rivera's testimony, 16 it would appear that: Villarama supplied the organization expenses and the assets of the Corporation, such as trucks and equipment;17 there was no actual payment by the original subscribers of the amounts of P95,000.00 and P100,000.00 as appearing in the books;18 Villarama made use of the money of the Corporation and deposited them to his private accounts;19 and the Corporation paid his personal accounts.20 Villarama himself admitted that he mingled the corporate funds with his own money. 21 He also admitted that gasoline purchases of the Corporation were made in his name22 because "he had existing account with Stanvac which was properly secured and he wanted the Corporation to benefit from the rebates that he received."23 The foregoing circumstances are strong persuasive evidence showing that Villarama has been too much involved in the affairs of the Corporation to altogether negative the claim that he was only a part-time general manager. They show beyond doubt that the Corporation is his alter ego. It is significant that not a single one of the acts enumerated above as proof of Villarama's oneness with the Corporation has been denied by him. On the contrary, he has admitted them with offered excuses. Villarama has admitted, for instance, having paid P85,000.00 of the initial capital of the Corporation with the lame excuse that "his wife had requested him to reimburse the amount entrusted to her by the incorporators and which she had used to pay the obligations of Dr. Villarama (her husband) incurred while he was still the owner of Villa Rey Transit, a single proprietorship." But with his admission that he had received P350,000.00 from Pantranco for the sale of the two certificates and one unit,24 it becomes difficult to accept Villarama's explanation that he and his wife, after consultation,25 spent the money of their relatives (the stockholders) when they were supposed to have their own money. Even if Pantranco paid the P350,000.00 in check to him, as claimed, it could have been easy for Villarama to have deposited said check in his account and issued his own check to pay his obligations. And there is no evidence adduced that the said amount of P350,000.00 was all spent or was insufficient to settle his prior obligations in his business, and in the light of the

stipulation in the deed of sale between Villarama and Pantranco that P50,000.00 of the selling price was earmarked for the payments of accounts due to his creditors, the excuse appears unbelievable. On his having paid for purchases by the Corporation of trucks from the Manila Trading & Supply Co. with his personal checks, his reason was that he was only sharing with the Corporation his credit with some companies. And his main reason for mingling his funds with that of the Corporation and for the latter's paying his private bills is that it would be more convenient that he kept the money to be used in paying the registration fees on time, and since he had loaned money to the Corporation, this would be set off by the latter's paying his bills. Villarama admitted, however, that the corporate funds in his possession were not only for registration fees but for other important obligations which were not specified.26 Indeed, while Villarama was not the Treasurer of the Corporation but was, allegedly, only a part-time manager,27 he admitted not only having held the corporate money but that he advanced and lent funds for the Corporation, and yet there was no Board Resolution allowing it.28 Villarama's explanation on the matter of his involvement with the corporate affairs of the Corporation only renders more credible Pantranco's claim that his control over the corporation, especially in the management and disposition of its funds, was so extensive and intimate that it is impossible to segregate and identify which money belonged to whom. The interference of Villarama in the complex affairs of the corporation, and particularly its finances, are much too inconsistent with the ends and purposes of the Corporation law, which, precisely, seeks to separate personal responsibilities from corporate undertakings. It is the very essence of incorporation that the acts and conduct of the corporation be carried out in its own corporate name because it has its own personality. The doctrine that a corporation is a legal entity distinct and separate from the members and stockholders who compose it is recognized and respected in all cases which are within reason and the law.29 When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime,30 the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals. Upon the foregoing considerations, We are of the opinion, and so hold, that the preponderance of evidence have shown that the Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that the restrictive clause in the contract entered into by the latter and Pantranco is also enforceable and binding against the said Corporation. For the rule is that a seller or promisor may not make use of a corporate entity as a means of evading the obligation of his covenant.31 Where the Corporation is substantially the

alter ego of the covenantor to the restrictive agreement, it can be enjoined from competing with the covenantee.32 The Corporation contends that even on the supposition that Villa Rey Transit, Inc. and Villarama are one and the same, the restrictive clause in the contract between Villarama and Pantranco does not include the purchase of existing lines but it only applies to application for the new lines. The clause in dispute reads thus: (4) The SELLER shall not, for a period of ten (10) years from the date of this sale apply for any TPU service identical or competing with the BUYER. (Emphasis supplied) As We read the disputed clause, it is evident from the context thereof that the intention of the parties was to eliminate the seller as a competitor of the buyer for ten years along the lines of operation covered by the certificates of public convenience subject of their transaction. The word "apply" as broadly used has for frame of reference, a service by the seller on lines or routes that would compete with the buyer along the routes acquired by the latter. In this jurisdiction, prior authorization is needed before anyone can operate a TPU service,33whether the service consists in a new line or an old one acquired from a previous operator. The clear intention of the parties was to prevent the seller from conducting any competitive line for 10 years since, anyway, he has bound himself not to apply for authorization to operate along such lines for the duration of such period.34 If the prohibition is to be applied only to the acquisition of new certificates of public convenience thru an application with the Public Service Commission, this would, in effect, allow the seller just the same to compete with the buyer as long as his authority to operate is only acquired thru transfer or sale from a previous operator, thus defeating the intention of the parties. For what would prevent the seller, under the circumstances, from having a representative or dummy apply in the latter's name and then later on transferring the same by sale to the seller? Since stipulations in a contract is the law between the contracting parties, Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. (Art. 19, New Civil Code.) We are not impressed of Villarama's contention that the re-wording of the two previous drafts of the contract of sale between Villarama and Pantranco is significant in that as it now appears, the parties intended to effect the least restriction. We are persuaded, after an examination of the supposed drafts, that the scope of the final stipulation, while not as long and prolix as those in the drafts, is just as broad and comprehensive. At most, it can be said that the re-wording was done merely for brevity and simplicity.

The evident intention behind the restriction was to eliminate the sellers as a competitor, and this must be, considering such factors as the good will35 that the seller had already gained from the riding public and his adeptness and proficiency in the trade. On this matter, Corbin, an authority on Contracts has this to say.36 When one buys the business of another as a going concern, he usually wishes to keep it going; he wishes to get the location, the building, the stock in trade, and the customers. He wishes to step into the seller's shoes and to enjoy the same business relations with other men. He is willing to pay much more if he can get the "good will" of the business, meaning by this the good will of the customers, that they may continue to tread the old footpath to his door and maintain with him the business relations enjoyed by the seller. ... In order to be well assured of this, he obtains and pays for the seller's promise not to reopen business in competition with the business sold. As to whether or not such a stipulation in restraint of trade is valid, our jurisprudence on the matter37says: The law concerning contracts which tend to restrain business or trade has gone through a long series of changes from time to time with the changing condition of trade and commerce. With trifling exceptions, said changes have been a continuous development of a general rule. The early cases show plainly a disposition to avoid and annul all contract which prohibited or restrained any one from using a lawful trade "at any time or at any place," as being against the benefit of the state. Later, however, the rule became well established that if the restraint was limited to "a certain time" and within "a certain place," such contracts were valid and not "against the benefit of the state." Later cases, and we think the rule is now well established, have held that a contract in restraint of trade is valid providing there is a limitation upon either time or place. A contract, however, which restrains a man from entering into business or trade without either a limitation as to time or place, will be held invalid. The public welfare of course must always be considered and if it be not involved and the restraint upon one party is not greater than protection to the other requires, contracts like the one we are discussing will be sustained. The general tendency, we believe, of modern authority, is to make the test whether the restraint is reasonably necessary for the protection of the contracting parties. If the contract is reasonably necessary to protect the interest of the parties, it will be upheld. (Emphasis supplied.) Analyzing the characteristics of the questioned stipulation, We find that although it is in the nature of an agreement suppressing competition, it is, however, merely ancillary or incidental to the main agreement which is that of sale. The suppression or restraint is only partial or limited: first, in scope, it refers only to application for TPU by the seller in

competition with the lines sold to the buyer; second, in duration, it is only for ten (10) years; and third, with respect to situs or territory, the restraint is only along the lines covered by the certificates sold. In view of these limitations, coupled with the consideration of P350,000.00 for just two certificates of public convenience, and considering, furthermore, that the disputed stipulation is only incidental to a main agreement, the same is reasonable and it is not harmful nor obnoxious to public service.38 It does not appear that the ultimate result of the clause or stipulation would be to leave solely to Pantranco the right to operate along the lines in question, thereby establishing monopoly or predominance approximating thereto. We believe the main purpose of the restraint was to protect for a limited time the business of the buyer. Indeed, the evils of monopoly are farfetched here. There can be no danger of price controls or deterioration of the service because of the close supervision of the Public Service Commission.39 This Court had stated long ago,40 that "when one devotes his property to a use in which the public has an interest, he virtually grants to the public an interest in that use and submits it to such public use under reasonable rules and regulations to be fixed by the Public Utility Commission." Regarding that aspect of the clause that it is merely ancillary or incidental to a lawful agreement, the underlying reason sustaining its validity is well explained in 36 Am. Jur. 537-539, to wit: ... Numerous authorities hold that a covenant which is incidental to the sale and transfer of a trade or business, and which purports to bind the seller not to engage in the same business in competition with the purchaser, is lawful and enforceable. While such covenants are designed to prevent competition on the part of the seller, it is ordinarily neither their purpose nor effect to stifle competition generally in the locality, nor to prevent it at all in a way or to an extent injurious to the public. The business in the hands of the purchaser is carried on just as it was in the hands of the seller; the former merely takes the place of the latter; the commodities of the trade are as open to the public as they were before; the same competition exists as existed before; there is the same employment furnished to others after as before; the profits of the business go as they did before to swell the sum of public wealth; the public has the same opportunities of purchasing, if it is a mercantile business; and production is not lessened if it is a manufacturing plant. The reliance by the lower court on tile case of Red Line Transportation Co. v. Bachrach41 and finding that the stipulation is illegal and void seems misplaced. In the said Red Line case, the agreement therein sought to be enforced was virtually a division of territory between two operators, each company imposing upon itself an obligation not to operate in any territory covered by the routes of the other. Restraints of this type, among common carriers have always been covered by the general rule invalidating agreements in restraint of trade. 42

Neither are the other cases relied upon by the plaintiff-appellee applicable to the instant case. In Pampanga Bus Co., Inc. v. Enriquez,43the undertaking of the applicant therein not to apply for the lifting of restrictions imposed on his certificates of public convenience was not an ancillary or incidental agreement. The restraint was the principal objective. On the other hand, in Red Line Transportation Co., Inc. v. Gonzaga,44 the restraint there in question not to ask for extension of the line, or trips, or increase of equipment was not an agreement between the parties but a condition imposed in the certificate of public convenience itself. Upon the foregoing considerations, Our conclusion is that the stipulation prohibiting Villarama for a period of 10 years to "apply" for TPU service along the lines covered by the certificates of public convenience sold by him to Pantranco is valid and reasonable. Having arrived at this conclusion, and considering that the preponderance of the evidence have shown that Villa Rey Transit, Inc. is itself the alter ego of Villarama, We hold, as prayed for in Pantranco's third party complaint, that the said Corporation should, until the expiration of the 1-year period abovementioned, be enjoined from operating the line subject of the prohibition. To avoid any misunderstanding, it is here to be emphasized that the 10-year prohibition upon Villarama is not against his application for, or purchase of, certificates of public convenience, but merely the operation of TPU along the lines covered by the certificates sold by him to Pantranco. Consequently, the sale between Fernando and the Corporation is valid, such that the rightful ownership of the disputed certificates still belongs to the plaintiff being the prior purchaser in good faith and for value thereof. In view of the ancient rule of caveat emptor prevailing in this jurisdiction, what was acquired by Ferrer in the sheriff's sale was only the right which Fernando, judgment debtor, had in the certificates of public convenience on the day of the sale.45 Accordingly, by the "Notice of Levy Upon Personalty" the Commissioner of Public Service was notified that "by virtue of an Order of Execution issued by the Court of First Instance of Pangasinan, the rights, interests, or participation which the defendant, VALENTIN A. FERNANDO in the above entitled case may have in the following realty/personalty is attached or levied upon, to wit: The rights, interests and participation on the Certificates of Public Convenience issued to Valentin A. Fernando, in Cases Nos. 59494, etc. ... Lines Manila to Lingayen, Dagupan, etc. vice versa." Such notice of levy only shows that Ferrer, the vendee at auction of said certificates, merely stepped into the shoes of the judgment debtor. Of the same principle is the provision of Article 1544 of the Civil Code, that "If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property." There is no merit in Pantranco and Ferrer's theory that the sale of the certificates of public convenience in question, between the Corporation and Fernando, was not consummated, it being only a conditional sale subject to the suspensive condition of its approval by the Public Service Commission. While section 20(g) of the Public Service

Act provides that "subject to established limitation and exceptions and saving provisions to the contrary, it shall be unlawful for any public service or for the owner, lessee or operator thereof, without the approval and authorization of the Commission previously had ... to sell, alienate, mortgage, encumber or lease its property, franchise, certificates, privileges, or rights or any part thereof, ...," the same section also provides: ... Provided, however, That nothing herein contained shall be construed to prevent the transaction from being negotiated or completed before its approval or to prevent the sale, alienation, or lease by any public service of any of its property in the ordinary course of its business. It is clear, therefore, that the requisite approval of the PSC is not a condition precedent for the validity and consummation of the sale. Anent the question of damages allegedly suffered by the parties, each of the appellants has its or his own version to allege. Villa Rey Transit, Inc. claims that by virtue of the "tortious acts" of defendants (Pantranco and Ferrer) in acquiring the certificates of public convenience in question, despite constructive and actual knowledge on their part of a prior sale executed by Fernando in favor of the said corporation, which necessitated the latter to file the action to annul the sheriff's sale to Ferrer and the subsequent transfer to Pantranco, it is entitled to collect actual and compensatory damages, and attorney's fees in the amount of P25,000.00. The evidence on record, however, does not clearly show that said defendants acted in bad faith in their acquisition of the certificates in question. They believed that because the bill of sale has yet to be approved by the Public Service Commission, the transaction was not a consummated sale, and, therefore, the title to or ownership of the certificates was still with the seller. The award by the lower court of attorney's fees of P5,000.00 in favor of Villa Rey Transit, Inc. is, therefore, without basis and should be set aside. Eusebio Ferrer's charge that by reason of the filing of the action to annul the sheriff's sale, he had suffered and should be awarded moral, exemplary damages and attorney's fees, cannot be entertained, in view of the conclusion herein reached that the sale by Fernando to the Corporation was valid. Pantranco, on the other hand, justifies its claim for damages with the allegation that when it purchased ViIlarama's business for P350,000.00, it intended to build up the traffic along the lines covered by the certificates but it was rot afforded an opportunity to do so since barely three months had elapsed when the contract was violated by Villarama operating along the same lines in the name of Villa Rey Transit, Inc. It is further claimed by Pantranco that the underhanded manner in which Villarama violated the contract is pertinent in establishing punitive or moral damages. Its contention as to the proper measure of damages is that it should be the purchase price of P350,000.00 that it paid to Villarama. While We are fully in accord with Pantranco's claim of

entitlement to damages it suffered as a result of Villarama's breach of his contract with it, the record does not sufficiently supply the necessary evidentiary materials upon which to base the award and there is need for further proceedings in the lower court to ascertain the proper amount. PREMISES CONSIDERED, the judgment appealed from is hereby modified as follows: 1. The sale of the two certificates of public convenience in question by Valentin Fernando to Villa Rey Transit, Inc. is declared preferred over that made by the Sheriff at public auction of the aforesaid certificate of public convenience in favor of Eusebio Ferrer; 2. Reversed, insofar as it dismisses the third-party complaint filed by Pangasinan Transportation Co. against Jose M. Villarama, holding that Villa Rey Transit, Inc. is an entity distinct and separate from the personality of Jose M. Villarama, and insofar as it awards the sum of P5,000.00 as attorney's fees in favor of Villa Rey Transit, Inc.; 3. The case is remanded to the trial court for the reception of evidence in consonance with the above findings as regards the amount of damages suffered by Pantranco; and 4. On equitable considerations, without costs. So ordered.

G.R. No. 100812 June 25, 1999 FRANCISCO MOTORS CORPORATION, petitioner, vs. COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA MANUEL, respondents.

QUISUMBING, J.: This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to annul the decision 1 of the Court of Appeals in C.A. G.R. CV No. 10014 affirming the decision rendered by Branch 135, Regional Trial Court of Makati, Metro Manila. The procedural antecedents of this petition are as follows: On January 23, 1985, petitioner filed a complaint 2 against private respondents to recover three thousand four hundred twelve and six centavos (P3,412.06), representing the balance of the jeep body purchased by the Manuels from petitioner; an additional sum of twenty thousand four hundred fifty-four and eighty centavos (P20,454.80) representing the unpaid balance on the cost of repair of the vehicle; and six thousand pesos (P6,000.00) for cost of suit and attorney's fees. 3 To the original balance on the price of jeep body were added the costs of repair. 4 In their answer, private respondents interposed a counterclaim for unpaid legal services by Gregorio Manuel in the amount of fifty thousand pesos (P50,000) which was not paid by the incorporators, directors and officers of the petitioner. The trial court decided the case on June 26, 1985, in favor of petitioner in regard to the petitioner's claim for money, but also allowed the counter-claim of private respondents. Both parties appealed. On April 15, 1991, the Court of Appeals sustained the trial court's decision. 5 Hence, the present petition. For our review in particular is the propriety of the permissive counterclaim which private respondents filed together with their answer to petitioner's complaint for a sum of money. Private respondent Gregorio Manuel alleged as an affirmative defense that, while he was petitioner's Assistant Legal Officer, he represented members of the Francisco family in the intestate estate proceedings of the late Benita Trinidad. However, even after the termination of the proceedings, his services were not paid. Said family members, he said, were also incorporators, directors and officers of petitioner. Hence to petitioner's collection suit, he filed a counter permissive counterclaim for the unpaid attorney's fees. 6 For failure of petitioner to answer the counterclaim, the trial court declared petitioner in default on this score, and evidence ex-parte was presented on the counterclaim. The trial court ruled in favor of private respondents and found that Gregorio Manuel indeed rendered legal services to the Francisco family in Special Proceedings Number 7803

 "In the Matter of Intestate Estate of Benita Trinidad". Said court also found that his legal services were not compensated despite repeated demands, and thus ordered petitioner to pay him the amount of fifty thousand (P50,000.00) pesos. 7 Dissatisfied with the trial court's order, petitioner elevated the matter to the Court of Appeals, posing the following issues: I. WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS NULL AND VOID AS IT NEVER ACQUIRED JURISDICTION OVER THE PERSON OF THE DEFENDANT. II. WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN THE ALLEGED PERMISSIVE COUNTERCLAIM SHOULD BE HELD LIABLE TO THE CLAIM OF DEFENDANT-APPELLEES. III. WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFFAPPELLANT TO ANSWER THE ALLEGED PERMISSIVE COUNTERCLAIM. 8 Petitioner contended that the trial court did not acquire jurisdiction over it because no summons was validly served on it together with the copy of the answer containing the permissive counterclaim. Further, petitioner questions the propriety of its being made party to the case because it was not the real party in interest but the individual members of the Francisco family concerned with the intestate case. In its assailed decision now before us for review, respondent Court of Appeals held that a counterclaim must be answered in ten (10) days, pursuant to Section 4, Rule 11, of the Rules of Court; and nowhere does it state in the Rules that a party still needed to be summoned anew if a counterclaim was set up against him. Failure to serve summons, said respondent court, did not effectively negate trial court's jurisdiction over petitioner in the matter of the counterclaim. It likewise pointed out that there was no reason for petitioner to be excused from answering the counterclaim. Court records showed that its former counsel, Nicanor G. Alvarez, received the copy of the answer with counterclaim two (2) days prior to his withdrawal as counsel for petitioner. Moreover when petitioner's new counsel, Jose N. Aquino, entered his appearance, three (3) days still remained within the period to file an answer to the counterclaim. Having failed to answer, petitioner was correctly considered in default by the trial court. 9 Even assuming that the trial court acquired no jurisdiction over petitioner, respondent court also said, but having filed a motion for reconsideration seeking relief

from the said order of default, petitioner was estopped from further questioning the trial court's jurisdiction. 10 On the question of its liability for attorney's fees owing to private respondent Gregorio Manuel, petitioner argued that being a corporation, it should not be held liable therefor because these fees were owed by the incorporators, directors and officers of the corporation in their personal capacity as heirs of Benita Trinidad. Petitioner stressed that the personality of the corporation, vis-a-vis the individual persons who hired the services of private respondent, is separate and distinct, 11 hence, the liability of said individuals did not become an obligation chargeable against petitioner. Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows: However, this distinct and separate personality is merely a fiction created by law for convenience and to promote justice. Accordingly, this separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for found (sic) illegality, or to work an injustice, or where necessary to achieve equity or when necessary for the protection of creditors. (Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347) Corporations are composed of natural persons and the legal fiction of a separate corporate personality is not a shield for the commission of injustice and inequity. (Chemplex Philippines, Inc. vs. Pamatian, 57 SCRA 408). In the instant case, evidence shows that the plaintiff-appellant Francisco Motors Corporation is composed of the heirs of the late Benita Trinidad as directors and incorporators for whom defendant Gregorio Manuel rendered legal services in the intestate estate case of their deceased mother. Considering the aforestated principles and circumstances established in this case, equity and justice demands plaintiff-appellant's veil of corporate identity should be pierced and the defendant be compensated for legal services rendered to the heirs, who are directors of the plaintiff-appellant corporation. 12 Now before us, petitioner assigns the following errors: I. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY. II.

THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS JURISDICTION OVER PETITIONER WITH RESPECT TO THE COUNTERCLAIM. 13 Petitioner submits that respondent court should not have resorted to piercing the veil of corporate fiction because the transaction concerned only respondent Gregorio Manuel and the heirs of the late Benita Trinidad. According to petitioner, there was no cause of action by said respondent against petitioner; personal concerns of the heirs should be distinguished from those involving corporate affairs. Petitioner further contends that the present case does not fall among the instances wherein the courts may look beyond the distinct personality of a corporation. According to petitioner, the services for which respondent Gregorio Manuel seeks to collect fees from petitioner are personal in nature. Hence, it avers the heirs should have been sued in their personal capacity, and not involve the corporation. 14 With regard to the permissive counterclaim, petitioner also insists that there was no proper service of the answer containing the permissive counterclaim. It claims that the counterclaim is a separate case which can only be properly served upon the opposing party through summons. Further petitioner states that by nature, a permissive counterclaim is one which does not arise out of nor is necessarily connected with the subject of the opposing party's claim. Petitioner avers that since there was no service of summons upon it with regard to the counterclaim, then the court did not acquire jurisdiction over petitioner. Since a counterclaim is considered an action independent from the answer, according to petitioner, then in effect there should be two simultaneous actions between the same parties: each party is at the same time both plaintiff and defendant with respect to the other, 15 requiring in each case separate summonses. In their Comment, private respondents focus on the two questions raised by petitioner. They defend the propriety of piercing the veil of corporate fiction, but deny the necessity of serving separate summonses on petitioner in regard to their permissive counterclaim contained in the answer. Private respondents maintain both trial and appellate courts found that respondent Gregorio Manuel was employed as assistant legal officer of petitioner corporation, and that his services were solicited by the incorporators, directors and members to handle and represent them in Special Proceedings No. 7803, concerning the Intestate Estate of the late Benita Trinidad. They assert that the members of petitioner corporation took advantage of their positions by not compensating respondent Gregorio Manuel after the termination of the estate proceedings despite his repeated demands for payment of his services. They cite findings of the appellate court that support piercing the veil of corporate identity in this particular case. They assert that the corporate veil may be disregarded when it is used to defeat public convenience, justify wrong, protect fraud, and defend crime. It may also be pierced, according to them, where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of

the stockholders or of another corporate entity. In these instances, they aver, the corporation should be treated merely as an association of individual persons. 16 Private respondents dispute petitioner's claim that its right to due process was violated when respondents' counterclaim was granted due course, although no summons was served upon it. They claim that no provision in the Rules of Court requires service of summons upon a defendant in a counterclaim. Private respondents argue that when the petitioner filed its complaint before the trial court it voluntarily submitted itself to the jurisdiction of the court. As a consequence, the issuance of summons on it was no longer necessary. Private respondents say they served a copy of their answer with affirmative defenses and counterclaim on petitioner's former counsel, Nicanor G. Alvarez. While petitioner would have the Court believe that respondents served said copy upon Alvarez after he had withdrawn his appearance as counsel for the petitioner, private respondents assert that this contention is utterly baseless. Records disclose that the answer was received two (2) days before the former counsel for petitioner withdrew his appearance, according to private respondents. They maintain that the present petition is but a form of dilatory appeal, to set off petitioner's obligations to the respondents by running up more interest it could recover from them. Private respondents therefore claim damages against petitioner. 17 To resolve the issues in this case, we must first determine the propriety of piercing the veil of corporate fiction. Basic in corporation law is the principle that a corporation has a separate personality distinct from its stockholders and from other corporations to which it may be connected. 18 However, under the doctrine of piercing the veil of corporate entity, the corporation's separate juridical personality may be disregarded, for example, when the corporate identity is used to defeat public convenience, justify wrong, protect fraud, or defend crime. Also, where the corporation is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation, then its distinct personality may be ignored. 19 In these circumstances, the courts will treat the corporation as a mere aggrupation of persons and the liability will directly attach to them. The legal fiction of a separate corporate personality in those cited instances, for reasons of public policy and in the interest of justice, will be justifiably set aside. In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate veil has no relevant application here. Respondent court erred in permitting the trial court's resort to this doctrine. The rationale behind piercing a corporation's identity in a given case is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities. However, in the case at bar, instead of holding certain individuals or persons responsible for an alleged corporate act, the situation has been reversed. It is the

petitioner as a corporation which is being ordered to answer for the personal liability of certain individual directors, officers and incorporators concerned. Hence, it appears to us that the doctrine has been turned upside down because of its erroneous invocation. Note that according to private respondent Gregorio Manuel his services were solicited as counsel for members of the Francisco family to represent them in the intestate proceedings over Benita Trinidad's estate. These estate proceedings did not involve any business of petitioner. Note also that he sought to collect legal fees not just from certain Francisco family members but also from petitioner corporation on the claims that its management had requested his services and he acceded thereto as an employee of petitioner from whom it could be deduced he was also receiving a salary. His move to recover unpaid legal fees through a counterclaim against Francisco Motors Corporation, to offset the unpaid balance of the purchase and repair of a jeep body could only result from an obvious misapprehension that petitioner's corporate assets could be used to answer for the liabilities of its individual directors, officers, and incorporators. Such result if permitted could easily prejudice the corporation, its own creditors, and even other stockholders; hence, clearly inequitous to petitioner. Furthermore, considering the nature of the legal services involved, whatever obligation said incorporators, directors and officers of the corporation had incurred, it was incurred in their personal capacity. When directors and officers of a corporation are unable to compensate a party for a personal obligation, it is far-fetched to allege that the corporation is perpetuating fraud or promoting injustice, and be thereby held liable therefor by piercing its corporate veil. While there are no hard and fast rules on disregarding separate corporate identity, we must always be mindful of its function and purpose. A court should be careful in assessing the milieu where the doctrine of piercing the corporate veil may be applied. Otherwise an injustice, although unintended, may result from its erroneous application. The personality of the corporation and those of its incorporators, directors and officers in their personal capacities ought to be kept separate in this case. The claim for legal fees against the concerned individual incorporators, officers and directors could not be properly directed against the corporation without violating basic principles governing corporations. Moreover, every action including a counterclaim must be prosecuted or defended in the name of the real party in interest. 20 It is plainly an error to lay the claim for legal fees of private respondent Gregorio Manuel at the door of petitioner (FMC) rather than individual members of the Francisco family. However, with regard to the procedural issue raised by petitioner's allegation, that it needed to be summoned anew in order for the court to acquire jurisdiction over it, we agree with respondent court's view to the contrary. Section 4, Rule 11 of the Rules of Court provides that a counterclaim or cross-claim must be answered within ten (10) days from service. Nothing in the Rules of Court says that summons should first be served on the defendant before an answer to counterclaim must be made. The

purpose of a summons is to enable the court to acquire jurisdiction over the person of the defendant. Although a counterclaim is treated as an entirely distinct and independent action, the defendant in the counterclaim, being the plaintiff in the original complaint, has already submitted to the jurisdiction of the court. Following Rule 9, Section 3 of the 1997 Rules of Civil Procedure, 21 if a defendant (herein petitioner) fails to answer the counterclaim, then upon motion of plaintiff, the defendant may be declared in default. This is what happened to petitioner in this case, and this Court finds no procedural error in the disposition of the appellate court on this particular issue. Moreover, as noted by the respondent court, when petitioner filed its motion seeking to set aside the order of default, in effect it submitted itself to the jurisdiction of the court. As well said by respondent court: Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show that upon its request, plaintiff-appellant was granted time to file a motion for reconsideration of the disputed decision. Plaintiff-appellant did file its motion for reconsideration to set aside the order of default and the judgment rendered on the counterclaim. Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the counterclaim, as it vigorously insists, plaintiff-appellant is considered to have submitted to the court's jurisdiction when it filed the motion for reconsideration seeking relief from the court. (Soriano vs. Palacio, 12 SCRA 447). A party is estopped from assailing the jurisdiction of a court after voluntarily submitting himself to its jurisdiction. (Tejones vs. Gironella, 159 SCRA 100). Estoppel is a bar against any claims of lack of jurisdiction. (Balais vs. Balais, 159 SCRA 37). 22 WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby REVERSED insofar only as it held Francisco Motors Corporation liable for the legal obligation owing to private respondent Gregorio Manuel; but this decision is without prejudice to his filing the proper suit against the concerned members of the Francisco family in their personal capacity. No pronouncement as to costs.1wphi1.nt SO ORDERED.

G.R. No. 142435

April 30, 2003

ESTELITA BURGOS LIPAT and ALFREDO LIPAT, petitioners, vs. PACIFIC BANKING CORPORATION, REGISTER OF DEEDS, RTC EX-OFFICIO SHERIFF OF QUEZON CITY and the Heirs of EUGENIO D. TRINIDAD, respondents. QUISUMBING, J.: This petition for review on certiorari seeks the reversal of the Decision1 dated October 21, 1999 of the Court of Appeals in CA-G.R. CV No. 41536 which dismissed herein petitioners' appeal from the Decision2 dated February 10, 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 84, in Civil Case No. Q-89-4152. The trial court had dismissed petitioners' complaint for annulment of real estate mortgage and the extra-judicial foreclosure thereof. Likewise brought for our review is the Resolution3 dated February 23, 2000 of the Court of Appeals which denied petitioners' motion for reconsideration. The facts, as culled from records, are as follows: Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned "Bela's Export Trading" (BET), a single proprietorship with principal office at No. 814 Aurora Boulevard, Cubao, Quezon City. BET was engaged in the manufacture of garments for domestic and foreign consumption. The Lipats also owned the "Mystical Fashions" in the United States, which sells goods imported from the Philippines through BET. Mrs. Lipat designated her daughter, Teresita B. Lipat, to manage BET in the Philippines while she was managing "Mystical Fashions" in the United States. In order to facilitate the convenient operation of BET, Estelita Lipat executed on December 14, 1978, a special power of attorney appointing Teresita Lipat as her attorney-in-fact to obtain loans and other credit accommodations from respondent Pacific Banking Corporation (Pacific Bank). She likewise authorized Teresita to execute mortgage contracts on properties owned or co-owned by her as security for the obligations to be extended by Pacific Bank including any extension or renewal thereof. Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to secure for and in behalf of her mother, Mrs. Lipat and BET, a loan from Pacific Bank amounting to P583,854.00 to buy fabrics to be manufactured by BET and exported to "Mystical Fashions" in the United States. As security therefor, the Lipat spouses, as represented by Teresita, executed a Real Estate Mortgage over their property located at No. 814 Aurora Blvd., Cubao, Quezon City. Said property was likewise made to secure "other additional or new loans, discounting lines, overdrafts and credit accommodations, of whatever amount, which the Mortgagor and/or Debtor may subsequently obtain from the Mortgagee as well as any renewal or extension by the

Mortgagor and/or Debtor of the whole or part of said original, additional or new loans, discounting lines, overdrafts and other credit accommodations, including interest and expenses or other obligations of the Mortgagor and/or Debtor owing to the Mortgagee, whether directly, or indirectly, principal or secondary, as appears in the accounts, books and records of the Mortgagee."4 On September 5, 1979, BET was incorporated into a family corporation named Bela's Export Corporation (BEC) in order to facilitate the management of the business. BEC was engaged in the business of manufacturing and exportation of all kinds of garments of whatever kind and description5 and utilized the same machineries and equipment previously used by BET. Its incorporators and directors included the Lipat spouses who owned a combined 300 shares out of the 420 shares subscribed, Teresita Lipat who owned 20 shares, and other close relatives and friends of the Lipats.6 Estelita Lipat was named president of BEC, while Teresita became the vice-president and general manager. Eventually, the loan was later restructured in the name of BEC and subsequent loans were obtained by BEC with the corresponding promissory notes duly executed by Teresita on behalf of the corporation. A letter of credit was also opened by Pacific Bank in favor of A. O. Knitting Manufacturing Co., Inc., upon the request of BEC after BEC executed the corresponding trust receipt therefor. Export bills were also executed in favor of Pacific Bank for additional finances. These transactions were all secured by the real estate mortgage over the Lipats' property. The promissory notes, export bills, and trust receipt eventually became due and demandable. Unfortunately, BEC defaulted in its payments. After receipt of Pacific Bank's demand letters, Estelita Lipat went to the office of the bank's liquidator and asked for additional time to enable her to personally settle BEC's obligations. The bank acceded to her request but Estelita failed to fulfill her promise. Consequently, the real estate mortgage was foreclosed and after compliance with the requirements of the law the mortgaged property was sold at public auction. On January 31, 1989, a certificate of sale was issued to respondent Eugenio D. Trinidad as the highest bidder. On November 28, 1989, the spouses Lipat filed before the Quezon City RTC a complaint for annulment of the real estate mortgage, extrajudicial foreclosure and the certificate of sale issued over the property against Pacific Bank and Eugenio D. Trinidad. The complaint, which was docketed as Civil Case No. Q-89-4152, alleged, among others, that the promissory notes, trust receipt, and export bills were all ultra vires acts of Teresita as they were executed without the requisite board resolution of the Board of Directors of BEC. The Lipats also averred that assuming said acts were valid and binding on BEC, the same were the corporation's sole obligation, it having a personality distinct and separate from spouses Lipat. It was likewise pointed out that Teresita's authority to secure a loan from Pacific Bank was specifically limited to Mrs.

Lipat's sole use and benefit and that the real estate mortgage was executed to secure the Lipats' and BET's P583,854.00 loan only. In their respective answers, Pacific Bank and Trinidad alleged in common that petitioners Lipat cannot evade payments of the value of the promissory notes, trust receipt, and export bills with their property because they and the BEC are one and the same, the latter being a family corporation. Respondent Trinidad further claimed that he was a buyer in good faith and for value and that petitioners are estopped from denying BEC's existence after holding themselves out as a corporation. After trial on the merits, the RTC dismissed the complaint, thus: WHEREFORE, this Court holds that in view of the facts contained in the record, the complaint filed in this case must be, as is hereby, dismissed. Plaintiffs however has five (5) months and seventeen (17) days reckoned from the finality of this decision within which to exercise their right of redemption. The writ of injunction issued is automatically dissolved if no redemption is effected within that period. The counterclaims and cross-claim are likewise dismissed for lack of legal and factual basis. No costs. IT IS SO ORDERED.7 The trial court ruled that there was convincing and conclusive evidence proving that BEC was a family corporation of the Lipats. As such, it was a mere extension of petitioners' personality and business and a mere alter ego or business conduit of the Lipats established for their own benefit. Hence, to allow petitioners to invoke the theory of separate corporate personality would sanction its use as a shield to further an end subversive of justice.8 Thus, the trial court pierced the veil of corporate fiction and held that Bela's Export Corporation and petitioners (Lipats) are one and the same. Pacific Bank had transacted business with both BET and BEC on the supposition that both are one and the same. Hence, the Lipats were estopped from disclaiming any obligations on the theory of separate personality of corporations, which is contrary to principles of reason and good faith. The Lipats timely appealed the RTC decision to the Court of Appeals in CA-G.R. CV No. 41536. Said appeal, however, was dismissed by the appellate court for lack of merit. The Court of Appeals found that there was ample evidence on record to support the application of the doctrine of piercing the veil of corporate fiction. In affirming the findings of the RTC, the appellate court noted that Mrs. Lipat had full control over the activities of the corporation and used the same to further her business interests.9 In fact, she had benefited from the loans obtained by the corporation to finance her

business. It also found unnecessary a board resolution authorizing Teresita Lipat to secure loans from Pacific Bank on behalf of BEC because the corporation's by-laws allowed such conduct even without a board resolution. Finally, the Court of Appeals ruled that the mortgage property was not only liable for the original loan of P583,854.00 but likewise for the value of the promissory notes, trust receipt, and export bills as the mortgage contract equally applies to additional or new loans, discounting lines, overdrafts, and credit accommodations which petitioners subsequently obtained from Pacific Bank. The Lipats then moved for reconsideration, but this was denied by the appellate court in its Resolution of February 23, 2000.10 Hence, this petition, with petitioners submitting that the court a quo erred 1) . . . IN HOLDING THAT THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION APPLIES IN THIS CASE. 2) . . . IN HOLDING THAT PETITIONERS' PROPERTY CAN BE HELD LIABLE UNDER THE REAL ESTATE MORTGAGE NOT ONLY FOR THE AMOUNT OF P583,854.00 BUT ALSO FOR THE FULL VALUE OF PROMISSORY NOTES, TRUST RECEIPTS AND EXPORT BILLS OF BELA'S EXPORT CORPORATION. 3) . . . IN HOLDING THAT "THE IMPOSITION OF 15% ATTORNEY'S FEES IN THE EXTRA-JUDICIAL FORECLOSURE IS BEYOND THIS COURT'S JURISDICTION FOR IT IS BEING RAISED FOR THE FIRST TIME IN THIS APPEAL." 4) . . . IN HOLDING PETITIONER ALFREDO LIPAT LIABLE TO PAY THE DISPUTED PROMISSORY NOTES, THE DOLLAR ACCOMMODATIONS AND TRUST RECEIPTS DESPITE THE EVIDENT FACT THAT THEY WERE NOT SIGNED BY HIM AND THEREFORE ARE NOT VALID OR ARE NOT BINDING TO HIM. 5) . . . IN DENYING PETITIONERS' MOTION FOR RECONSIDERATION AND IN HOLDING THAT SAID MOTION FOR RECONSIDERATION IS "AN UNAUTHORIZED MOTION, A MERE SCRAP OF PAPER WHICH CAN NEITHER BIND NOR BE OF ANY CONSEQUENCE TO APPELLANTS."11 In sum, the following are the relevant issues for our resolution: 1. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case;

2. Whether or not petitioners' property under the real estate mortgage is liable not only for the amount of P583,854.00 but also for the value of the promissory notes, trust receipt, and export bills subsequently incurred by BEC; and 3. Whether or not petitioners are liable to pay the 15% attorney's fees stipulated in the deed of real estate mortgage. On the first issue, petitioners contend that both the appellate and trial courts erred in holding them liable for the obligations incurred by BEC through the application of the doctrine of piercing the veil of corporate fiction absent any clear showing of fraud on their part. Respondents counter that there is clear and convincing evidence to show fraud on part of petitioners given the findings of the trial court, as affirmed by the Court of Appeals, that BEC was organized as a business conduit for the benefit of petitioners. Petitioners' contentions fail to persuade this Court. A careful reading of the judgment of the RTC and the resolution of the appellate court show that in finding petitioners' mortgaged property liable for the obligations of BEC, both courts below relied upon the alter ego doctrine or instrumentality rule, rather than fraud in piercing the veil of corporate fiction. When the corporation is the mere alter ego or business conduit of a person, the separate personality of the corporation may be disregarded.12 This is commonly referred to as the "instrumentality rule" or the alter ego doctrine, which the courts have applied in disregarding the separate juridical personality of corporations. As held in one case, Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the 'instrumentality' may be disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. x x x .13 We find that the evidence on record demolishes, rather than buttresses, petitioners' contention that BET and BEC are separate business entities. Note that Estelita Lipat admitted that she and her husband, Alfredo, were the owners of BET14 and were two of the incorporators and majority stockholders of BEC.15 It is also undisputed that Estelita Lipat executed a special power of attorney in favor of her daughter, Teresita, to obtain loans and credit lines from Pacific Bank on her behalf.16 Incidentally, Teresita was designated as executive-vice president and general manager of both BET and BEC, respectively.17 We note further that: (1) Estelita and Alfredo Lipat are the owners and majority shareholders of BET and BEC, respectively;18 (2) both firms were managed by their daughter, Teresita;19 (3) both firms were engaged in the garment business, supplying products to "Mystical Fashion," a U.S. firm established by Estelita Lipat; (4)

both firms held office in the same building owned by the Lipats;20 (5) BEC is a family corporation with the Lipats as its majority stockholders; (6) the business operations of the BEC were so merged with those of Mrs. Lipat such that they were practically indistinguishable; (7) the corporate funds were held by Estelita Lipat and the corporation itself had no visible assets; (8) the board of directors of BEC was composed of the Burgos and Lipat family members;21 (9) Estelita had full control over the activities of and decided business matters of the corporation;22 and that (10) Estelita Lipat had benefited from the loans secured from Pacific Bank to finance her business abroad23 and from the export bills secured by BEC for the account of "Mystical Fashion."24 It could not have been coincidental that BET and BEC are so intertwined with each other in terms of ownership, business purpose, and management. Apparently, BET and BEC are one and the same and the latter is a conduit of and merely succeeded the former. Petitioners' attempt to isolate themselves from and hide behind the corporate personality of BEC so as to evade their liabilities to Pacific Bank is precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy. In our view, BEC is a mere continuation and successor of BET, and petitioners cannot evade their obligations in the mortgage contract secured under the name of BEC on the pretext that it was signed for the benefit and under the name of BET. We are thus constrained to rule that the Court of Appeals did not err when it applied the instrumentality doctrine in piercing the corporate veil of BEC. On the second issue, petitioners contend that their mortgaged property should not be made liable for the subsequent credit lines and loans incurred by BEC because, first, it was not covered by the mortgage contract of BET which only covered the loan of P583,854.00 and which allegedly had already been paid; and, second, it was secured by Teresita Lipat without any authorization or board resolution of BEC. We find petitioners' contention untenable. As found by the Court of Appeals, the mortgaged property is not limited to answer for the loan of P583,854.00. Thus: Finally, the extent to which the Lipats' property can be held liable under the real estate mortgage is not limited to P583,854.00. It can be held liable for the value of the promissory notes, trust receipt and export bills as well. For the mortgage was executed not only for the purpose of securing the Bela's Export Trading's original loan of P583,854.00, but also for "other additional or new loans, discounting lines, overdrafts and credit accommodations, of whatever amount, which the Mortgagor and/or Debtor may subsequently obtain from the mortgagee as well as any renewal or extension by the Mortgagor and/or Debtor of the whole or part of said original, additional or new loans, discounting lines, overdrafts and other credit accommodations, including interest and expenses or other obligations of the Mortgagor and/or Debtor owing to the Mortgagee, whether directly, or indirectly principal or secondary, as appears in the accounts, books and records of the mortgagee.25

As a general rule, findings of fact of the Court of Appeals are final and conclusive, and cannot be reviewed on appeal by the Supreme Court, provided they are borne out by the record or based on substantial evidence.26 As noted earlier, BEC merely succeeded BET as petitioners' alter ego; hence, petitioners' mortgaged property must be held liable for the subsequent loans and credit lines of BEC. Further, petitioners' contention that the original loan had already been paid, hence, the mortgaged property should not be made liable to the loans of BEC, is unsupported by any substantial evidence other than Estelita Lipat's self-serving testimony. Two disputable presumptions under the rules on evidence weigh against petitioners, namely: (a) that a person takes ordinary care of his concerns;27 and (b) that things have happened according to the ordinary course of nature and the ordinary habits of life.28 Here, if the original loan had indeed been paid, then logically, petitioners would have asked from Pacific Bank for the required documents evidencing receipt and payment of the loans and, as owners of the mortgaged property, would have immediately asked for the cancellation of the mortgage in the ordinary course of things. However, the records are bereft of any evidence contradicting or overcoming said disputable presumptions. Petitioners contend further that the mortgaged property should not bind the loans and credit lines obtained by BEC as they were secured without any proper authorization or board resolution. They also blame the bank for its laxity and complacency in not requiring a board resolution as a requisite for approving the loans. Such contentions deserve scant consideration. Firstly, it could not have been possible for BEC to release a board resolution since per admissions by both petitioner Estelita Lipat and Alice Burgos, petitioners' rebuttal witness, no business or stockholder's meetings were conducted nor were there election of officers held since its incorporation. In fact, not a single board resolution was passed by the corporate board29 and it was Estelita Lipat and/or Teresita Lipat who decided business matters.30 Secondly, the principle of estoppel precludes petitioners from denying the validity of the transactions entered into by Teresita Lipat with Pacific Bank, who in good faith, relied on the authority of the former as manager to act on behalf of petitioner Estelita Lipat and both BET and BEC. While the power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in its board of directors, subject to the articles of incorporation, by-laws, or relevant provisions of law, yet, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and powers to officers, committees, or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate by-laws, or authorization from the board, either expressly or impliedly by habit, custom, or acquiescence in the general course of business.31 Apparent authority, is derived not merely from practice.

Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers.32 In this case, Teresita Lipat had dealt with Pacific Bank on the mortgage contract by virtue of a special power of attorney executed by Estelita Lipat. Recall that Teresita Lipat acted as the manager of both BEC and BET and had been deciding business matters in the absence of Estelita Lipat. Further, the export bills secured by BEC were for the benefit of "Mystical Fashion" owned by Estelita Lipat.33 Hence, Pacific Bank cannot be faulted for relying on the same authority granted to Teresita Lipat by Estelita Lipat by virtue of a special power of attorney. It is a familiar doctrine that if a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent's authority.34 We find no necessity to extensively deal with the liability of Alfredo Lipat for the subsequent credit lines of BEC. Suffice it to state that Alfredo Lipat never disputed the validity of the real estate mortgage of the original loan; hence, he cannot now dispute the subsequent loans obtained using the same mortgage contract since it is, by its very terms, a continuing mortgage contract. On the third and final issue, petitioners assail the decision of the Court of Appeals for not taking cognizance of the issue on attorney's fees on the ground that it was raised for the first time on appeal. We find the conclusion of the Court of Appeals to be in accord with settled jurisprudence. Basic is the rule that matters not raised in the complaint cannot be raised for the first time on appeal.35 A close perusal of the complaint yields no allegations disputing the attorney's fees imposed under the real estate mortgage and petitioners cannot now allege that they have impliedly disputed the same when they sought the annulment of the contract. In sum, we find no reversible error of law committed by the Court of Appeals in rendering the decision and resolution herein assailed by petitioners. WHEREFORE, the petition is DENIED. The Decision dated October 21, 1999 and the Resolution dated February 23, 2000 of the Court of Appeals in CA-G.R. CV No. 41536 are AFFIRMED. Costs against petitioners. SO ORDERED.

G.R. No. 163786

February 16, 2005

TIMES TRANSPORTATION COMPANY, INC., petitioner, vs. SANTOS SOTELO, CONRADO B. SALONGA, SAMSON C. SOLIVEN, BIENVENIDO F. MALANA, JR., JOVITO V. ALCAUSIN, EFREN A. RAMOS, RODRIGO P. CABUSAO, JR., EDGAR G. PONCE, RONALD ALLAN PARINAS, RODEL PALO, REYNALDO R. RAGUCOS, MARIO T. TOLEDO, BERNARDINO PADUA, DOMINGO P. BILAN, ARNEL VALLEDORES, RAMON RETUTA, JR., PANTALEON TABANGIN, ALBERTO PANDO, VIRGILIO E. OBAR, EULOGIO D. DIGA, SR., DANIEL LLADO, RONILO BALTAZAR, MARITO PANDO, LEOPOLDO FUNTILA, GERRY B. CARRIDO, WILLIAM A. TABUCOL, ANTONIO L. RAMOS, SR., PABLO P. PADRE, HENRY B. GANIR, TEOTIMO R. REQUILMAN, CIPRIANO ULPINDO, ROGER BABIDA, SAMUEL PERALTA, BONIFACIO TUMALIP, EDGAR ABLOG, EFREN ABELLA, RODRIGO RABOY, RENATO SILVA, GEORGE PERALTA, RONILO BARBOSA, JULIAN BUENAFE, FLORENCIO CARIO, BERNIE TUMBAGA, RODRIGO CABAERO, ELMER TAMO, LEOPOLDO NANA, NELIE BOSE, DEMETRIO HERRERA, RODOLFO ABELLA, ALVIN ELEFANTE, REDENTOR GARCIA, JERRY PALACPAC, JOSE PAET, ARTHUR IBEA, ELIZER BORJA, EDMUNDO ASPIRAS, JOSE V. PESCADOR, WILLIAM GARCIA, ERNESTO P. MANGULABNAN, BENJAMIN B. BLAZA, JOSELITO P. CACABELOS, LEON R. GALANTA, JR., MARIANO P. TEJADA, PEDRITO C. ORTIZ, JR., NESTOR E. BALCITA, FLOR BURBANO, HERNANDO A. PIMENTEL, ALEX A. GOMEZ, ARNALDO P. BOSE, NAPOLEON BALDERAS, CARLINO V. RULLODA, JR., RANDY R. AMODO, CORNELIO R. RAGUINI, ROBERT CERIA, JUANITO U. UGALDE, ALBERTO PAJO, ALFREDO VALOROSO, RUFINO ADRIATICO, BARTOLOME C. EDROSOLAN, JR., REYNANTE A. ALCAIN, NOELITO SUSA and VICENTE NAVA, respondents. DECISION YNARES-SANTIAGO, J.: This petition for review on certiorari assails the decision of the Court of Appeals dated January 30, 2004 in CA-G.R. SP No. 75291,1 which set aside the decision and resolution of the National Labor Relations Commission, and its resolution dated May 24, 20042 denying reconsideration thereof. Petitioner Times Transportation Company, Inc. (Times) is a corporation engaged in the business of land transportation. Prior to its closure in 1997, the Times Employees Union (TEU) was formed and issued a certificate of union registration. Times challenged the legitimacy of TEU by filing a petition for the cancellation of its union registration.

On March 3, 1997, TEU held a strike in response to Times alleged attempt to form a rival union and its dismissal of the employees identified to be active union members. Upon petition by Times, then Labor Secretary, and now Associate Justice of this Court, Leonardo A. Quisumbing, assumed jurisdiction over the case and referred the matter to the NLRC for compulsory arbitration. The case was docketed as NLRC NCR CC000134-97. A return-to-work order was likewise issued on March 10, 1997. In a certification election held on July 1, 1997, TEU was certified as the sole and exclusive collective bargaining agent in Times. Consequently, TEUs president wrote the management of Times and requested for collective bargaining. Times refused on the ground that the decision of the Med-Arbiter upholding the validity of the certification election was not yet final and executory. TEU filed a Notice of Strike on August 8, 1997. Another conciliation/mediation proceeding was conducted for the purpose of settling the brewing dispute. In the meantime, Times management implemented a retrenchment program and notices of retrenchment dated September 16, 1997 were sent to some of its employees, including the respondents herein, informing them of their retrenchment effective 30 days thereafter. On October 17, 1997, TEU held a strike vote on grounds of unfair labor practice on the part of Times. For alleged participation in what it deemed was an illegal strike, Times terminated all the 123 striking employees by virtue of two notices dated October 26, 1997 and November 24, 1997.3 On November 17, 1997, then DOLE Secretary Quisumbing issued the second return-to-work order certifying the dispute to the NLRC. While the strike was ended, the employees were no longer admitted back to work. In the meantime, by December 12, 1997, Mencorp Transport Systems, Inc. (Mencorp) had acquired ownership over Times Certificates of Public Convenience and a number of its bus units by virtue of several deeds of sale.4 Mencorp is controlled and operated by Mrs. Virginia Mendoza, daughter of Santiago Rondaris, the majority stockholder of Times. On May 21, 1998, the NLRC rendered a decision5 in the cases certified to it by the DOLE, the dispositive portion of which read: WHEREFORE, the respondents first strike, conducted from March 3, 1997 to March 12, 1997, is hereby declared LEGAL; its second strike, which commenced on October 17, 1997, is hereby declared ILLEGAL. Consequently, those 23 persons who participated in the illegal strike are deemed to have lost their employment status and were therefore validly dismissed from employment: The respondents "Motion to Implead Mencorp Transport Systems, Inc. and/or Virginia Mendoza and/or Santiago Rondaris" is hereby DENIED for lack of merit.

SO ORDERED.6 Times and TEU both appealed the decision of the NLRC, which the Court of Appeals affirmed on November 17, 2000.7 Upon denial of its motion for reconsideration, Times filed a petition for review on certiorari,8 docketed as G.R. Nos. 148500-01, now pending with the Third Division of this Court. TEU likewise appealed but its petition was denied due course. In 1998, and after the closure of Times, the retrenched employees, including practically all the respondents herein, filed cases for illegal dismissal, money claims and unfair labor practices against Times before the Regional Arbitration Branch in San Fernando City, La Union. Times filed a Motion to Dismiss but on October 30, 1998, the arbitration branch ordered the archiving of the cases pending resolution of G.R. Nos. 148500-01.9 The dismissed employees did not interpose an appeal from said Order. Instead, they withdrew their complaints with leave of court and filed a new set of cases before the National Capital Region Arbitration Branch. This time, they impleaded Mencorp and the Spouses Reynaldo and Virginia Mendoza. Times sought the dismissal of these cases on the ground of litis pendencia and forum shopping. On January 31, 2002, Labor Arbiter Renaldo O. Hernandez rendered a decision stating: WHEREFORE, premises considered, judgment is hereby entered FINDING that the dismissals of complainants, excluding the expunged ones, by respondent Times Transit (sic) Company, Inc. effected, participated in, authorized or ratified by respondent Santiago Rondaris constituted the prohibited act of unfair labor practice under Article 248(a) and (e) of the Labor Code, as amended and hence, illegal and that the sale of said respondent company to respondents Mencorp Transport Systems Company (sic), Inc. and/or Virginia Mendoza and Reynaldo Mendoza was simulated and/or effected in bad faith, ORDERING: 1. respondents Times Transit (sic) Company, Inc. and Santiago Rondaris as the officer administratively held liable of the unfair labor practice herein to CEASE AND DESIST therefore (sic); 2. respondents Times Transit (sic) Company, Inc. and/or Santiago Rondaris and Mencorp Transport Systems Company, Inc. and/or Virginia Mendoza and Reynaldo Mendoza to cause the reinstatement therein of complainants to their former positions without loss of seniority rights and benefits and to pay jointly and severally said complainants full back wages reckoned from their respective dates of illegal dismissal as above-indicated, until actually reinstated or in lieu of such reinstatement, at the option of said complainants, payment of their separation pay of one (1) month pay per year of service, reckoned from their date of hire as above-indicated, until actual payment and/or finality of this decision;

3. and finally for respondents Times Transit (sic) Company, Inc. and/or Santiago Rondaris to pay jointly and severally said complainants as moral and exemplary damages the combined amount of P75,000.00 and 5% of the total award as attorneys fees. All other claims of complainants are dismissed for lack of merit. . SO ORDERED.10 The monetary award amounted to P43,347,341.69. On March 4, 2002, Times, Mencorp and the Spouses Mendoza submitted their respective memorandum of appeal to the NLRC with motions to reduce the bond. Mencorp posted a P5 million bond issued by Security Pacific Assurance Corp. (SPAC). On April 30, 2002, the NLRC issued an order disposing of the said motion, thus: WHEREFORE, premises considered, the Urgent Motion for Reduction of Bond is denied for lack of merit. Respondents are hereby ordered to complete the bond equivalent to the monetary award in the Labor Arbiters Decision, within an unextendible period of ten (10) days from receipt hereof, otherwise, the appeal shall be dismissed for non-perfection thereof. SO ORDERED.11 On May 18, 2002, Times moved to reconsider said order arguing mainly that it did not have sufficient funds to put up the required bond. On July 26, 2002, Mencorp and the Spouses Mendoza posted an additional P10 million appeal bond. Thus far, the total amount of bond posted was P15 million. On August 7, 2002, the NLRC granted the Motion for Reduction of Bond and approved the P10 million additional appeal bond.12 On September 17, 2002, the NLRC rendered its decision, stating: WHEREFORE, the foregoing premises duly considered, the decision appealed from is hereby VACATED. The records of these consolidated cases are hereby ordered REMANDED to the Arbitration Branch of origin for disposition and for the conduct of appropriate proceedings for a decision to be rendered with dispatch. SO ORDERED.13 Reconsideration thereof was denied by the NLRC on October 30, 2002. Thus, the respondents appealed to the Court of Appeals by way of a petition for certiorari, attributing grave abuse of discretion on the NLRC for: (1) not dismissing the appeals of Times, Mencorp and the Spouses Mendoza despite their failure to post the required bond; (2) remanding the case for further proceedings despite the sufficiency of the evidence presented by the parties; (3) not sustaining the labor arbiters ruling that they

were illegally dismissed; (4) not affirming the labor arbiters ruling that there was no litis pendencia; and (5) not ruling that Times and Mencorp are one and the same entity.1vvphi1.nt On January 30, 2004, the Court of Appeals rendered the decision now assailed in this petition, the decretal portion of which states: WHEREFORE, based on the foregoing, the instant petition is hereby GRANTED. The assailed Decision and Resolution of the NLRC are hereby SET ASIDE. The Decision of the Labor Arbiter dated January 31, 2002 is hereby REINSTATED. SO ORDERED.14 Times, Mencorp and the Spouses Mendoza filed Motions for Reconsideration, which were denied in a resolution promulgated on May 24, 2004. Hence, this petition for review based on the following grounds: I. Petitioner respectfully maintains that the Honorable Court a quo, in not dismissing the complaints against the petitioner on the ground of lis pendens, decided the matter in a way not in accord with existing laws and applicable decisions of this Honorable Court. II. Petitioner, further, respectfully maintains that the Honorable Court a quo, in determining that herein petitioners hitherto lost their right to appeal to the NLRC on account of their purported failure to post an adequate appeal bond, radically departed from the accepted and usual course of judicial proceedings, not to mention resolved said issue in a manner and fashion antithetical to existing jurisprudence. III. Petitioner, furthermore, respectfully maintains that the Honorable Court a quo, in applying wholesale the doctrine of piercing the veil of corporate fiction and finding Times co-petitioners liable for the formers obligations, resolved the matter in a manner contradictory to existing applicable laws and dispositions of this Honorable Court, and departed from the accepted and usual course of judicial proceedings with regard to admitting evidence to sustain the application of such principle.15 The petition lacks merit. As to the first issue, Times argues that there exists an identity of issues, rights asserted, relief sought and causes of action between the present case and the one concerning the legality of the second strike, which is now pending with the Third Division of this Court. As such, the Court of Appeals erred in not dismissing the case at bar on the ground of litis pendencia.

Litis pendencia as a ground for dismissal of an action refers to that situation wherein another action is pending between the same parties for the same cause of action and the second action becomes unnecessary and vexatious.16 We agree with the findings of the Court of Appeals that there is no litis pendencia as the two cases involve dissimilar causes of action. The first case, now pending with the Third Division, pertains to the alleged error of the NLRC in not upholding the dismissal of all the striking employees (not only of the 23 strikers so declared to have lost their employment) in spite of the latters ruling that the second strike was illegal. None of the respondents herein were among those deemed terminated by virtue of the NLRC decision. In the instant case, the issue is the validity of the retrenchment implemented by Times prior to the second strike and the subsequent dismissal of the striking employees. As such, there can be no question that respondents were still employees of Times when they were retrenched. In short, the outcome of this case does not hinge on the legality of the second strike or the validity of the dismissal of the striking employees, which issues are yet to be resolved in G.R. Nos. 148500-01. Consequently, litis pendencia does not arise. Anent the issue on whether Times perfected its appeal to the NLRC, the right to appeal is a statutory right and one who seeks to avail of the right must comply with the statute or rules. The rules for perfecting an appeal must be strictly followed as they are considered indispensable interdictions against needless delays and for orderly discharge of judicial business.17 Section 3(a), Rule VI of the NLRC Rules of Procedure outlines the requisites for perfecting an appeal, to wit: SECTION 3. Requisites for Perfection of Appeal. a) The Appeal shall be filed within the reglementary period as provided in Section 1 of this Rule and shall be under oath with proof of payment of the required appeal fee and the posting of a cash or surety bond as provided in Section 6 of this Rule; shall be accompanied by memorandum of appeal which shall state the grounds relied upon and the arguments in support thereof; the relief prayed for and a statement of the date when the appellant received the appealed decision, order or award and proof of service on the other party of such appeal. A mere notice of appeal without complying with the other requisites aforestated shall not stop the running of the period for perfecting an appeal. (Emphasis supplied) Article 223 of the Labor Code provides that in case of a judgment involving a monetary award, an appeal by the employer may be perfected only upon the posting of a cash or surety bond issued by a reputable bonding company duly accredited by the NLRC in the amount equivalent to the monetary award in the judgment appealed from. The perfection of an appeal in the manner and within the period prescribed by law is not only mandatory but also jurisdictional, and failure to perfect an appeal has the effect of making the judgment final and executory.18 However, in several cases, we have

relaxed the rules regarding the appeal bond especially where it must necessarily yield to the broader interest of substantial justice.19 The Rules of Procedure of the NLRC allows for the reduction of the appeal bond upon motion of the appellant and on meritorious grounds.20 It is required however that such motion is filed within the reglementary period to appeal. The records reveal that Times, Mencorp and the Spouses Mendozas motion to reduce the bond was denied and the NLRC ordered them to post the required amount within an unextendible period of ten (10) days.21 However, instead of complying with the directive, Times filed another motion for reconsideration of the order of denial. Several weeks later, Mencorp posted an additional bond, which was still less than the required amount. Three (3) months after the filing of the motion for reconsideration, the NLRC reversed its previous order and granted the motion for reduction of bond.1awphi1.nt We agree with the Court of Appeals that the foregoing constitutes grave abuse of discretion on the part of the NLRC. By delaying the resolution of Times motion for reconsideration, it has unnecessarily prolonged the period of appeal. We have held that to extend the period of appeal is to prolong the resolution of the case, a circumstance which would give the employer the opportunity to wear out the energy and meager resources of the workers to the point that they would be constrained to give up for less than what they deserve in law.22 The NLRC is well to take notice of our pronouncement in Santos v. Velarde:23 The Court is aware that the NLRC is not bound by the technical rules of procedure and is allowed to be liberal in the interpretation of rules in deciding labor cases. However, such liberality should not be applied in the instant case as it would render futile the very purpose for which the principle of liberality is adopted. From the decision of the Labor Arbiter, it took the NLRC four months to rule on the "motion" for exemption to pay bond and another four months to decide the merits of the case. This Court has repeatedly ruled that delay in the settlement of labor cases cannot be countenanced. Not only does it involve the survival of an employee and his loved ones who are dependent on him, it also wears down the meager resources of the workers...24 (Emphasis supplied) The NLRCs reversal of its previous order of denial lacks basis. In the first motion, Mencorp and Spouses Mendoza moved for the reduction of the appeal bond on the ground that the computation of the monetary award was highly suspicious and anomalous. In their motion for reconsideration of the NLRCs denial, Mencorp and the Spouses Mendoza cited financial difficulties in completing the appeal bond. Neither ground is well-taken. Times and Mencorp failed to substantiate their allegations of errors in the computation of the monetary award. They merely asserted "inaccuracies" without specifying which aspect of the computation was inaccurate. If Times and Mencorp truly believed that there were errors in the computation, they could have presented their own computation

for comparison. As to the claim of financial difficulties, suffice it to say that the law does not require outright payment of the total monetary award, but only the posting of a bond to ensure that the award will be eventually paid should the appeal fail.l^vvphi1.net What Times has to pay is a moderate and reasonable sum for the premium for such bond.25 The impression thus created was that Times, Mencorp and the Spouses Mendoza were clearly circumventing, if not altogether dodging, the rules on the posting of appeal bonds. On the propriety of the piercing of the corporate veil, Times claims that "to drag Mencorp, [Spouses] Mendoza and Rondaris into the picture on the purported ground that a fictitious sale of Times assets in their favor was consummated with the end in view of frustrating the ends of justice and for purposes of evading compliance with the judgment is the height of judicial arrogance."26 The Court of Appeals believes otherwise and reckons that Times and Mencorp failed to adduce evidence to refute allegations of collusion between them. We have held that piercing the corporate veil is warranted only in cases when the separate legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, such that in the case of two corporations, the law will regard the corporations as merged into one.27 It may be allowed only if the following elements concur: (1) controlnot mere stock control, but complete dominationnot only of finances, but of policy and business practice in respect to the transaction attacked; (2) such control must have been used to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of a legal right; and (3) the said control and breach of duty must have proximately caused the injury or unjust loss complained of.28 The following findings of the Labor Arbiter, which were cited and affirmed by the Court of Appeals, have not been refuted by Times, to wit: 1. The sale was transferred to a corporation controlled by V. Mendoza, the daughter of respondent S. Rondaris of [Times] where she is/was also a director, as proven by the articles of incorporation of [Mencorp]; 2. All of the stockholders/incorporators of [Mencorp]: Reynaldo M. Mendoza, Virginia R. Mendoza, Vernon Gerard R. Mendoza, Vivian Charity R. Mendoza, Vevey Rosario R. Mendoza are all relatives of respondent S. Rondaris; 3. The timing of the sale evidently was to negate the employees/complainants/members right to organization as it was effected when their union (TEU) was just organized/requesting [Times] to bargain;

5. [Mencorp] never obtained a franchise since its supposed incorporation in 10 May 1994 but at present, all the buses of [Times] are already being run/operated by respondent [Mencorp], the franchise of [Times] having been transferred to it.29 We uphold the findings of the labor arbiter and the Court of Appeals. The sale of Times franchise as well as most of its bus units to a company owned by Rondaris daughter and family members, right in the middle of a labor dispute, is highly suspicious. It is evident that the transaction was made in order to remove Times remaining assets from the reach of any judgment that may be rendered in the unfair labor practice cases filed against it. WHEREFORE, premises considered, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 75291 dated January 30, 2004 and its resolution dated May 24, 2004, are hereby AFFIRMED in toto. SO ORDERED.

G.R. No. L-5081

February 24, 1954

MARVEL BUILDING CORPORATION, ET AL., plaintiffs-appellees, vs. SATURNINO DAVID, in his capacity as Collector, Bureau of Internal Revenue, defendant-appellant. Assistant Solicitor General Francisco Carreon for appellant. Antonio Quirino and Rosendo J. Tansinsin for appellees. LABRADOR, J.: This action was brought by plaintiffs as stockholders of the Marvel Building Corporation to enjoin the defendant Collector of Internal Revenue from selling at public auction various properties described in the complaint, including three parcels of land, with the buildings situated thereon, known as the Aguinaldo Building, the Wise Building, and the Dewey Boulevard-Padre Faura Mansion, all registered in the name of the said corporation. Said properties were seized and distrained by defendant to collect war profits taxes assessed against plaintiff Maria B. Castro (Exhibit B). Plaintiffs allege that the said three properties (lands and buildings) belong to Marvel Building Corporation and not to Maria B. Castro, while the defendant claims that Maria B. Castro is the true and sole owner of all the subscribed stock of the Marvel Building Corporation, including those appearing to have been subscribed and paid for by the other members, and consequently said Maria B. Castro is also the true and exclusive owner of the properties seized. The trial court held that the evidence, which is mostly circumstantial, fails to show to its satisfaction that Maria B. Castro is the true owner of all the stock certificates of the corporation, because the evidence is susceptible of two interpretations and an interpretation may not be made which would deprive one of the property without due process of law. It appears that on September 15, 1950, the Secretary of Finance, upon consideration of the report of a special committee assigned to study the war profits tax case of Mrs. Maria B. Castro, recommended the collection of P3,593,950.78 as war profits taxes for the latter, and on September 22, 1953 the President instructed the Collector that steps be taken to collect the same (Exhibits 114, 114-A to 114-D). Pursuant thereto various properties, including the three above mentioned, were seized by the Collector of Internal Revenue on October 31, 1950. On November 13, 1950, the original complaint in this case was filed. After trial, the Court of First Instance of Manila rendered judgment ordering the release of the properties mentioned, and enjoined the Collector of Internal Revenue from selling the same. The Collector of Internal Revenue has appealed to this Court against the judgment. The following facts are not disputed, or are satisfactorily proved by the evidence:

The Articles of Incorporation of the Marvel Building Corporation is dated February 12, 1947 and according to it the capital stock is P2,000,000, of which P1,025,000 was (at the time of incorporation) subscribed and paid for by the following incorporators: Maria B. Castro 250 shares Amado A. Yatco 100 Santiago Tan 100 Jose T. Lopez 90 Benita Lamagna 90 C.S. Gonzales 80 Maria Cristobal 70 Segundo 75 Esguerra, Sr. Ramon 70 Sangalang Maximo Cristobal 55 Antonio Cristobal 45 P 250,000.00 " " " " " " " " " " 100,000.00 100,000.00 90,000.00 90,000.00 80,000.00 70,000.00 75,000.00 70,000.00 55,000.00 45,000.00 P1,025,000.00

Maria B Castro was elected President and Maximo Cristobal, Secretary-Treasurer (Exhibit A). The Wise Building was purchased on September 4, 1946, the purchase being made in the name of Dolores Trinidad, wife of Amado A. Yatco (Exhibit V), and the Aguinaldo Building, on January 17, 1947, in the name of Segundo Esguerra, Sr. (Exhibit M). Both building were purchased for P1,800,000, but as the corporation had only P1,025,000, the balance of the purchase price was obtained as loans from the Insular Life Assurance Co., Ltd. and the Philippine Guaranty Co., Inc. (Exhibit C). Of the incorporators of the Marvel Building Corporation, Maximo Cristobal and Antonio Cristobal are half-brothers of Maria B. Castro, Maria Cristobal is a half-sister, and Segundo Esguerra, Sr. a brother-in-law, husband of Maria Cristobal, Maria B. Castro's half-sister. Maximo B. Cristobal did not file any income tax returns before the year 1946, except for three years 1939 and 1940, but in these years he was exempted from the tax. He has not filed any war profits tax return (Exhibit 54). Antonio Cristobal, Segundo Esguerra, Sr. and Jose T. Lopez did not file any income tax returns for the years prior to 1946, and neither did they file any war profits tax returns (Exhibit 52). Maria Cristobal filed income tax returns for the year 1929 to 1942, but they were exempt from the tax (Exhibit 53). Benita A. Lamagna did not file any income tax returns prior to 1945, except for 1942 which was exempt. She did not file any was profits tax

(Exhibit 55). Ramon M. Sangalang did not file income tax returns up to 1945 except for the years 1936, 1937, 1938, 1939 and 1940. He has not filed any war profits tax return (Exhibit 57). Amada A. Yatco did not file income tax returns prior to 1945, except for the years 1937, 1938, 1939, 1941 and 1942, but these were exempt. He did not file any war profits tax return (Exhibit 58). Antonio Cristobal's income in 1946 is P15,630, and in 1947, P4,550 (Exhibits 59-60); Maximo B. Cristobal's income in 1946 is P19,759.10, in 1947, P9,773.47 (Exhibits 6162); Segundo Esquerra's income in 1946 is P5,500, in 1947, P7,754.32 (Exhibits 6364); Jose T. Lopez's income in 1946 is P20,785, in 1947, P14,302.77 (Exhibits 69-70); Benita A. Lamagna's income in 1945 is P1,559, in 1946, P6,463.36, in 1947, P6,189.79 and her husband's income in 1947 is P10,825.53 (Exhibits 65-68); Ramon M. Sangalang's income in 1945 is P5,500, in 1946, P18,300.00 (Exhibits 71-72); Santiago Tan's income in 1945 is P456, in 1947 is P9,167.95, and in 1947, P7,620.11 (Exhibits 73-75); and Amado Yatco's income in 1945 is P12,600, in 1946, P23,960, and in 1947, P11,160 (Exhibits 76-78). In October, 1945 Maria B. Castro, Nicasio Yatco, Maxima Cristobal de Esquerra, Maria Cristobal Lopez and Maximo Cristobal organized the Maria B. Castro, Inc. with capital stock of P100,000, of which Maria B. Castro subscribed for P99,600 and all others for P100 each. This was increased in 1950 to P500,000 and Maria B. Castro subscribed P76,000 and the others P1,000 each (Exhibit 126). It does not appear that the stockholders or the board of directors of the Marvel Building Corporation have ever held a business meeting, for no books thereof or minutes meeting were ever mentioned by the officers thereof or presented by them at the trial. The by-laws of the corporation, if any had ever been approved, has not been presented. Neither does it appear that any report of the affairs of the corporation has been made, either of its transactions or accounts. From the book of accounts of the corporation, advances to the Marvel Building Corporation of P125,000 were made by Maria B. Castro in 1947, P102,916.05 in 1948 and P102,916.05 in 1948, and P160,910.96 in 1949 (Exhibit 118). The main issue involved in these proceedings is: Is Maria B. Castro the owner of all the shares of stocks of Marvel Building Corporation and the other stockholders mere dummies of hers? The most important evidence presented by the Collector of Internal Revenue to prove his claim that Maria B. Castro is the sole and exclusive owner of the shares of stock of the Marvel Building Corporation is supposed endorsement in blank of the shares of stock issued in the name of the other incorporators, and the possession thereof by Maria B. Castro. The existence of said endorsed certificates was testified to by witnesses Felipe Aquino, internal revenue examiner, Antonio Mariano, examiner, and Crispin Llamado, Under Secretary of Finance, who declared as follows: Towards the

end of the year 1948 and about the beginning of the year 1949, while Aquino and Mariano were examining the books and papers were furnished by its secretary, Maximo Cristobal, they came across an envelope containing eleven stock certificates, bound together by an Acco fastener, which (certificates) corresponded in number and in amount on their face to the subscriptions of the stockholders that all the certificates, except that in the name of Maria B. Castro, were endorsed in the bank by the subscribers; that as the two revenue agents could not agree what to do with the certificates, Aquino brought them to Under-Secretary of Finance Llamado, who thereupon suggested that photostatic copies thereof be taken; that this was done, and the photostatic copies taken are (Exhibits 4, 5, 6, 7, 8, 9, 10, 11, 12 and 13; and in that July, 1950, copy-cat copies of the above photostats were taken, and said copy-cat copies are Exhibits 40-49. Julio Llamado, bookkeeper of the Marvel Building Corporation from 1947 to May, 1948, also testified that he was the one who had prepared the original certificates, putting therein the number of shares in words in handprint; that the originals were given to him by Maria B. Castro for comparison with the articles of incorporation; that they were not yet signed by the President and by the Secretary-Treasurer when he had the certificates; and that after the checking he returned all of them to Mrs. Castro. He recognized the photostats, Exhibit 4 to 13 as photostats of the said originals. He also declared that he also prepared a set of stock certificates, similar to the certificates which were copied in the photostats, the number of shares, and the date issue, and that the certificates he had prepared are Exhibits H, H-1 to H-7 and J (Exhibits 30-38). This set of certificates was made by him first and the set of which photostats were taken, a few days later. The plaintiffs offered a half-hearted denial of the existence of the endorsed blank certificates, Maximo Cristobal, secretary of the corporation, saying that no investigation was ever made by Aquino and Mariano in which said certificates were discovered by the latter. They, however, vigorously attack the credibility of the witnesses for the defendant, imputing to the Llamados, enmity against Maria B. Castro, and to Aquino and Mariano, a very doubtful conduct in not divulging the existence of the certificates either Lobrin, Chief Income Tax Examiner, or to the Collector of Internal Revenue, both their immediate chiefs. Reliance is also placed on a certificate, Exhibit W, wherein Aquino and others declare that the certificates (Exhibits 30 to 38, or H, H-1 to H-7 and J) were regular and were not endorsed when the same were examined. In connection with this certificate, Exhibit W, we note that it states that the certificates examined were Exhibits 30 to 38, the existence or character of which are not disputed. But the statement contains nothing to the effect that the above certificates were the only one existence, according to their knowledge. Again the certificate was issued for an examination on September 1949, not by Aquino and Mariano at the end of 1948 or the beginning of 1949. The certificate, therefore, neither denies the existence of the endorsed certificates, nor that Aquino and Mariano had made an examination of the

papers of the corporation at the end of the year 1948. It ca not, therefore, discredit the testimonies of the defendant's witnesses. As to the supposed enmity of the Llamados towards the plaintiff Maria B. Castro, we note that, supposing that there really was such enmity, it does not appear that it was of such magnitude or force as could have induced the Llamados and Maria B. Castro were close friends way back in 1947 and up to 1949; but that at the time of the trial the friendship had been marred by misunderstandings. We believe that in 1948 and 1949 the Llamados were trusted friends of Maria B. Castro, and this explains why they had knowledge of her secret transactions. The younger Llamado even made advances for the hand of Maria B. Castro's daughter, and this at the time when as a bookkeeper he was entrusted with checking up the certificates of stock. When the older Llamado kept secret the existence of the endorsed certificates, the friendship between the two families was yet intact; hence, the existence of the endorsed certificates must have been kept to himself by the older Llamado. All the above circumstances reinforce our belief that the Llamados had personal knowledge of the facts they testify to, and the existence of this knowledge in turn renders improbable plaintiffs' claim that their testimonies were biased. Attempt was also made by the plaintiffs to show by expert evidence that the endorsement could have been superimposed, i.e., that the signatures made on other papers and these were pasted and thereafter the documents photographed. Judicial experience is to the effect that the expert witnesses can always be obtained for both sides of an issue, most likely because expert witnesses are no longer impermeable to the influence of fees (II Wigmore, Sec. 563(2), p. 646). And if parties are capable of paying fees, expert opinion should be received with caution. In the case at bar, the opinion on the supposed superimposition was merely a possibility, and we note various circumstances which proved that the signatures were not superimposed and corroborate defendant's claim that they were genuine. In the first place,, the printed endorsement contains a very heavy line at the bottom for the signature of the endorsee. This line in almost all the endorsements is as clear as the printed letters above it, and at the points where the letters of the signature extend down and transversed it (the line), there is no indication that the line is covered by a superimposed paper. Again in these places both the signatures and the lines are clear and distinct where they cross one another. Had there been superimpositions the above features could not have been possible. In the second place, Maria B. Castro admitted having signed 25 stock certificates, but only eleven were issued (t. s. n., p. 662). No explanation is given by her why she had to sign as many as 25 forms when there were only eleven subscribers and eleven forms to be filed. This circumstances corroborate the young Llamado's declaration that two sets of certificates had been prepared. The nineteen issue must be Exhibits H, H-1 to H-7 and J, or Nos. 30 to 38, and the stock certificates endorsed whose photostatic copies are Exhibits 4 to 13. It is to be remembered also, that it is a common practice among unscrupulous merchants to carry two sets of books, one set for themselves and another to be shown to tax

collectors. This practice could not have been unknown to Maria B. Castro, who apparently had been able to evade the payment of her war profits taxes. These circumstances, coupled with the testimony of Julio Llamado that two sets of certificates were given to him for checking, show to an impartial mind the existence of the set of certificates endorsed in blank, thus confirming the testimonies of the defendant's witnesses, Aquino, Mariano and Crispin Llamado, and thus discrediting the obviously partial testimony of the expert presented by plaintiffs. The genuineness of the signatures on the endorsements is not disputed. How could the defendant have secured these genuine signatures? Plaintiffs offer no explanation for this, although they do not question them. It follows that the genuine signatures must have been made on the stock certificates themselves. Next in importance among the evidence submitted by the defendant collector to prove his contention that Maria B. Castro is the sole owner of the shares of stock of the Marvel Building Corporation, is the fact that the other stockholders did not have incomes in such amounts, during the time of the organization of the corporation in 1947, or immediately thereto, as to enable them to pay in full for their supposed subscriptions. This fact is proved by their income tax returns, or the absence thereof. Let us take Amado A. Yatco as an example. Before 1945 his returns were exempt from the tax, in 1945 he had P12,600 and in 1946, P23,000. He has four children. How could he have paid P100,000 in 1945 and 1946? Santiago Tan who also contributed P100,000 had no appreciable income before 1946, and this year an income of only P9,167.95. Jose T. Lopez also did not file any income tax returns before 1940 and 1946 he had an income of only P20,785, whereas he is supposed to have subscribed P90,000 worth of stock early in 1947. Benita Lamagna had no returns either up to 1945, except in 1942, which was exempt and in 1945 she had an income of P1,550 and in 1946, P6,463.36. In the same situation are all the others, and besides, brothers and sisters and brother-in-law of Maria B. Castro. On the other hand, Maria B. Castro had been found to have made enormous gains or profits in her business such that the taxes thereon were assessed at around P3,000,000. There was, therefore, a prima facie case out by the defendant collector that Maria B. Castro had furnished (& all the money that the Marvel Building Corporation had. In order the meet the above evidence only three of the plaintiffs testified, namely, Maximo Cristobal, the corporation's secretary, who made the general assertion on the witness stand that the other stockholders paid for their shares in full, Maria B. Castro, who stated that payments for the subscription were made to her, and C.S. Gonzales, who admitted that Maria B. Castro, paid for his subscription. After a careful study of the above testimonies, however, we find them subject to various objections. Maximo Cristobal declared that he issued provincial receipts for the subscriptions supposedly paid to him in 1946; but none of the supposed receipts were presented. If the subscriptions were really received by him, big as the amounts were, he would have been able to tell specifically, by dates and in fix amounts, when and how the payments were made. The general assertion of alleged payments, without the concrete days and

amounts of payments, are, according to our experience, positive identifications of untruthfulness, for when a witness testified to a fact that actually occurs, the act is concretely stated and no generalization is made. With respect to Maria B. Castro's testimony, we find it to be as untruthful as that of Cristobal. She declared that payments of the subscriptions took place between July and December, 1946, and that first payments were first deposited by her in the National City Bank of New York. A study of her account in said bank (Exhibit 82), however, fails to show the alleged deposit of the subscriptions during the year 1946 (See Exhibits 83-112). This fact completely belies her assertion. As to the testimony of C.S. Gonzales that Maria B. Castro advanced his subscription, there is nothing in the evidence to corroborate it, and the circumstances show otherwise. If he had really been a stockholder and Maria B. Castro advanced his subscription, the agreement between him and Castro should have been put in writing, the amount advanced being quite considerable (P80,000), and it appearing further that Gonzales is no close relative or confidant of Castro. Lastly, it is significant that the plaintiffs, the supposed subscribers, who should have come to court to assert that they actually paid for their subscriptions, and are not mere dummies, did not do so. They could not have afforded such a costly indifference, valued at from P70,000 to P100,000 each, if they were not actual dummies. This failure on their part to take the witness stand to deny or refute the charge that they were mere dummies is to us of utmost significance. What could have been easier to disprove the charge that they were dummies, than for them to come to court and show their receipts and testify on the payments they have paid on their subscriptions? This they, however refused to do so. They had it in their power to rebut the charges, but they chose to keep silent. The non-production of evidence that would naturally have been produced by an honest and therefore fearless claimant permits the inference that its tenor is unfavorable to the party's cause (II Wigmore, Sec. 285, p.162). A party's silence to adverse testimony is equivalent to an admission of its truth (Ibid, Sec. 289, p. 175). Our consideration of the evidence submitted on both sides leads us to a conclusion exactly opposite that arrived at by the trial court. In general the evidence offered by the plaintiffs is testimonial and direct evidence, easy of fabrication; that offered by defendant, documentary and circumstantial, not only difficult of fabrication but in most cases found in the possession of plaintiffs. There is very little room for choice as between the two. The circumstantial evidence is not only convincing; it is conclusive. The existence of endorsed certificates, discovered by the internal revenue agents between 1948 and 1949 in the possession of the Secretary-Treasurer, the fact that twenty-five certificates were signed by the president of the corporation, for no justifiable reason, the fact that two sets of certificates were issued, the undisputed fact that Maria B. Castro had made enormous profits and, therefore, had a motive to hide them to evade the payment of taxes, the fact that the other subscribers had no incomes of sufficient magnitude to justify their big subscriptions, the fact that the subscriptions were not receipted for and deposited by the treasurer in the name of the corporation

but were kept by Maria B. Castro herself, the fact that the stockholders or the directors never appeared to have ever met to discuss the business of the corporation, the fact that Maria B. Castro advanced big sums of money to the corporation without any previous arrangement or accounting, and the fact that the books of accounts were kept as if they belonged to Maria B. Castro alone these facts are of patent and potent significance. What are their necessary implications? Maria B. Castro would not have asked them to endorse their stock certificates, or be keeping these in her possession, if they were really the owners. They never would have consented that Maria B. Castro keep the funds without receipts or accounting, nor that she manages the business without their knowledge or concurrence, were they owners of the stocks in their own rights. Each and every one of the facts all set forth above, in the same manner, is inconsistent with the claim that the stockholders, other than Maria B. Castro, own their shares in their own right. On the other hand, each and every one of them, and all of them, can point to no other conclusion than that Maria B. Castro was the sole and exclusive owner of the shares and that they were only her dummies. In our opinion, the facts and circumstances duly set forth above, all of which have been proved to our satisfaction, prove conclusively and beyond reasonable doubt (section 89, Rule 123 of the Rules of Court and section 42 of the Provisional law for the application of the Penal Code) that Maria B. Castro is the sole and exclusive owner of all the shares of stock of the Marvel Building Corporation and that the other partners are her dummies. Wherefore, the judgment appealed from should be, as it hereby is, reversed and the action filed by plaintiffs-appellees, dismissed, with costs against plaintiffs-appellees. So ordered. Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Jugo and Bautista Angelo, JJ., concur.

G.R. No. L-30822 July 31, 1975 EDUARDO CLAPAROLS, ROMULO AGSAM and/or CLAPAROLS STEEL AND NAIL PLANT, petitioners, vs. COURT OF INDUSTRIAL RELATIONS, ALLIED WORKERS' ASSOCIATION and/or DEMETRIO GARLITOS, ALFREDO ONGSUCO, JORGE SEMILLANO, SALVADOR DOROTEO, ROSENDO ESPINOSA, LUDOVICO BALOPENOS, ASER AMANCIO, MAXIMO QUIOYO, GAUDENCIO QUIOYO, and IGNACIO QUIOYO, respondents. Ruben G. Bala for petitioners. Rolando N. Medalla for private respondents.

MAKASIAR, J.: A petition for certiorari to set aside the order of respondent Court of Industrial Relations dated May 30, 1969 directing petitioners to pay back wages and bonuses to private respondents as well as its resolution of July 5, 1969 denying the motion for reconsideration of said order in Case No. 32-ULP-Iloilo entitled "Allied Workers' Association, et. al., versus Eduardo Claparols, et. al.." It appears that on August 6, 1957, a complaint for unfair labor practice was filed by herein private respondent Allied Workers' Association, respondent Demetrio Garlitos and ten (10) respondent workers against herein petitioners on account of the dismissal of respondent workers from petitioner Claparols Steel and Nail Plant. On September 16, 1963, respondent Court rendered its decision finding "Mr. Claparols guilty of union busting and" of having "dismissed said complainants because of their union activities," and ordering respondents "(1) To cease and desist from committing unfair labor practices against their employees and laborers; (2) To reinstate said complainants to their former or equivalent jobs, as soon as possible, with back wages from the date of their dismissal up to their actual reinstatement" (p. 12, Decision; p. 27, rec.). A motion to reconsider the above decision was filed by herein petitioners, which respondent Court, sitting en banc, denied in a resolution dated January 27, 1964. On March 30, 1964, counsel for herein respondent workers (complainants in the ULP case) filed a motion for execution of respondent Court's September 16, 1963 decision. On May 14, 1964, respondent Court, in its order of September 16, 1963, granted execution and directed herein petitioners

to reinstate the above complainants to their former or equivalent jobs within five (5) days after receipt of a copy of this order. In order to implement the award of back wages, the Chief of the Examining Division or any of his assistants is hereby directed to proceed to the office of the respondents at Matab-ang, Talisay, Negros Occidental, and examine its payrolls and other pertinent records and compute the back wages of the complainants in accordance with the decision dated September 16, 1963, and, upon termination, to submit his report as soon as possible for further disposition (p. 7, Brief for Respondents, p. 113, rec.). which was reiterated by respondent Court in a subsequent order dated November 10, 1964 (pp. 7-8, Brief for Respondents, p. 113, rec.). On December 14, 1964, respondent workers were accompanied by the Chief of Police of Talisay, Negros Occidental to the compound of herein petitioner company to report for reinstatement per order of the court. Respondent workers were, however, refused reinstatement by company accountant Francisco Cusi for he had no order from plant owner Eduardo Claparols nor from his lawyer Atty. Plaridel Katalbas, to reinstate respondent workers. Again, on December 15, 1964, respondent workers were accompanied by a police officer to the company compound, but then, they were again refused reinstatement by Cusi on the same ground. On January 15, 1965, the CIR Chief Examiner Submitted his report containing three computations, to wit: The first computation covers the period February 1, 1957 to October 31, 1964. The second is up to and including December 7, 1962, when the corporation stopped operations, while the third is only up to June 30, 1957 when the Claparols Steel and Nail Plant ceased to operate (Annex B, Petition for Review on Certiorari, p. 14, Brief for appellees, p. 113, rec.). with the explanation that: 6. Since the records of the Claparols Steel Corporation show that it was established on July 1, 1957 succeeding the Claparols Steel and Nail Plant which ceased operations on June 30, 1957, and that the Claparols Steel Corporation stopped operations on December 7, 1962, three (3) computations are presented herein for the consideration of this Honorable Court (p. 2, Report of Examiner, p. 29, rec.). On January 23, 1965, petitioners filed an opposition alleging that under the circumstances presently engulfing the company, petitioner Claparols could not personally reinstate respondent workers; that assuming the workers are entitled to

back wages, the same should only be limited to three months pursuant to the court ruling in the case of Sta. Cecilia Sawmills vs. CIR (L-19273-74, February 20, 1964); and that since Claparols Steel Corporation ceased to operate on December 7, 1962, re-employment of respondent workers cannot go beyond December 7, 1962. A reply to petitioner's opposition was filed by respondent workers, alleging among others, that Claparols Steel and Nail Plant and Claparols Steel and Nail Corporation are one and the same corporation controlled by petitioner Claparols, with the latter corporation succeeding the former. On November 28, 1966, after conducting a series of hearings on the report of the examiner, respondent Court issued an order, the dispositive portion of which reads: WHEREFORE, the Report of the. Examiner filed on January 15, 1965, is hereby approved subject to the foregoing findings and dispositions. Consequently, the Corporation Auditing Examiner is directed to recompute the back wages of complainants Demetrio Garlitos and Alfredo Ongsuco on the basis of P200.00 and P270.00 a month, respectively; to compute those of complainant Ignacio Quioyo as aforesaid; to compute the deductible earnings of complainants Ongsuco, Jorge Semillano and Garlitos, as found in the body of this order; and to compute the bonuses of each and every complainant, except Honorato Quioyo. Thereafter, as soon as possible, the Examiner should submit a report in compliance herewith of the Court's further disposition (p. 24, Brief for Respondents, p. 113, rec.). On December 7, 1966, a motion for reconsideration was filed by petitioner, assailing respondent Court's ruling that (1) the ruling in the case of Sta. Cecilia Sawmills Inc. CIR, et. al, does not apply in the case at bar; and (2) that bonus should be included in the recoverable wages. On December 14, 1966, a counter-opposition was filed by private respondents alleging that petitioners' motion for reconsideration was pro forma, it not making express reference to the testimony or documentary evidence or to the provision of law alleged to be contrary to such findings or conclusions of respondent Court. On February 8, 1967, respondent Court of Industrial Relations dismissed petitioners' motion for reconsideration for being pro forma. Whereupon, petitioners filed a petition for certiorari with this COURT in G.R. No. L27272 to set aside the November 28, 1966 order of respondent Court, as well as its February 8, 1967 resolution. Petitioners assigned therein as errors of law the very same assignment of errors it raises in the present case, to wit: I

THE RESPONDENT COURT ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION, IN HOLDING IN THE ORDER UNDER REVIEW THAT BONUSES SHOULD BE PAID TO THE RESPONDENT WORKERS DESPITE THE FACT THAT THE SAME WAS NOT ADJUDICATED IN ITS ORIGINAL DECISION. II THE RESPONDENT COURT ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION, IN NOT APPLYING THE DOCTRINE LAID DOWN BY THIS HONORABLE TRIBUNAL IN THE CASE OF "STA. CECILIA SAWMILLS, INC. VS. C.I.R., ET. AL.," G.R. No. L-19273-74, PROMULGATED ON FEBRUARY 29, 1964 (pp. 10-11, rec.). On April 27, 1967, the Supreme Court denied petitioners' petition for certiorari (p. 77, rec. of L-27272), which was reiterated on May 19, 1967 (p. 27, Respondent's Brief, p. 113, rec.; p. 81, rec. of L-27272). On May 3, 1967, private respondents moved to have the workers' back wages properly recomputed. A motion to the same end was reiterated by private respondents on June 14, 1967. On July 13, 1967, respondent Court directed a recomputation of the back wages of respondent workers in accordance with its order dated November 28, 1966. The said order in part reads: WHEREFORE, the Chief Auditing Examiner of the Court or any of his assistants, is hereby directed to recompute the back wages of the workers involved in this case in accordance with the Order of November 28, 1966 within 20 days from receipt of a copy of this Order (p. 28, Brief for Respondents, p. 113, rec.). Then on March 21, 1968, the Chief Examiner came out with his report, the disputed portion of which (regarding bonuses) reads: xxx xxx xxx 4. The yearly bonuses of the employees and laborers of respondent corporation are given on the following basis: Basic Additional: a. For every dependent 1% of monthly salary

b. For every dependent in elementary grade 2% of monthly salary c. For every dependent in high school 3% of monthly salary d. For every dependent in college 5% of monthly salary xxx xxx xxx 7. The computed ... bonuses after deducting the earnings elsewhere of Messrs. Ongsuco, Garlitos and Semillano are as follows: Name x x x Bonuses x x x 1. Alfredo Ongsuco P1,620.00 2. Demetrio Garlitos 1,200.00 3. Ignacio Quioyo 455.23 4. Aser Abancio 461.00 5. Ludovico Belopeos 752.05 6. Salvador Doroteo 714.70 7. Rosendo Espinosa 1,075.40 8. Gaudencio Quioyo 1,167.92 9. Jorge Semillano 1,212.08 10. Maximo Quioyo 449.41 Total P9,107.79 (Pp. 30-31, Respondent's Brief, p. 113, rec.) On April 16, 1968, petitioners filed their opposition to the report of the Examiner dated March 21, 1968 on grounds already rejected by respondent Court in its order dated November 28, 1966, and by the Supreme Court also in its ruling in G.R. No. L-27272. On May 4, 1968, a rejoinder to petitioners' opposition was filed by private respondents, alleging among others "that the grounds of petitioners' opposition were the same grounds raised by them before and passed upon by respondent Court and this Honorable Tribunal; that this order of November 28, 1966 which passed upon these issues became final and executory on June 3, 1967 from the Honorable Supreme Court. (Order of respondent Court dated July 13, 1967). [p. 32, Brief for Respondents, p. 113, rec.]. On July 26, 1968, private respondents filed their motion for approval of the Report of the Examiner submitted on March 21, 1968, alleging, among others, that petitioners, in their opposition, did not actually dispute the data elicited by the Chief Examiner but rather harped on grounds which, as already stated, had already been turned down by the Supreme Court.

On October 19, 1968, herein private respondents filed their "Constancia", submitting the case for resolution of respondent Court of Industrial Relations. On May 30, 1969, respondent Court issued an order, subject of the present appeal, the dispositive portion of which reads: WHEREFORE, there being no proof offered to substantiate respondent Eduardo Claparols' opposition, the Examiner's Report should be, and it is hereby, APPROVED. Consequently, pursuant to the decision dated September 16, 1963, respondent ... (petitioners herein) are hereby directed to pay the respective back wages and bonuses of the complainants (respondents herein) ... (p. 35, Brief for Respondents; p. 113, rec.; emphasis supplied).1wph1.t On June 7, 1969, petitioners filed a motion for reconsideration on practically the same grounds previously raised by them. On June 30, 1969, respondents filed an opposition to petitioners' motion for reconsideration, with the following allegations: 1. The issues raised, namely, whether bonuses should be included in the award for back wages had already been resolved by respondent court in its orders dated November 28, 1966, and December 7, 1966, and in the Resolution of the Honorable Supreme Court in G.R. No. L-27272 dated April 26, 1967 and May 19, 1967, and the same is already a settled and final issue. 2. Petitioners' motion for reconsideration is merely a rehash of previous arguments, effete and unrejuvenated, pro forma, and intended merely to delay the proceedings. As correctly contended by private respondents, the present petition is barred by Our resolutions of April 26, 1967 and May 19, 1967 in G.R. No. L-27272 (Eduardo Claparols, et. al. vs. CIR, et. al.) [pp. 77-83, rec. of L- 27272], dismissing said case, wherein said petitioners invoked the applicability of the doctrine in Sta. Cecilia Sawmills, Inc. vs. CIR, et. al. (L-19273-74, Feb. 29, 1964, 10 SCRA 433) and impugned the illegality of the order of respondent Court dated November 28, 1966 directing the computation and payment of the bonuses, aside from back wages on the ground that these bonuses were not included in the decision of September 16, 1963, which had long become final. The aforesaid resolutions in G.R. No. L-27272 constitute the law of the instant case, wherein herein petitioners raised again practically the same issues invoked in the abovementioned case. The denial of the petition in G.R. No. L-27272 suffices to warrant the denial of the present petition; and We need not go any further.

However, without lending a sympathetic ear to the obvious desire of herein petitioners of this Court to re-examine which would be an exercise in futility the final ruling in G.R. No. L-27272, which as above-stated is the law of the instant case, but solely to remind herein petitioners, We reiterate the governing principles. WE uniformly held that "a bonus is not a demandable and enforceable obligation, except when it is a part of the wage or salary compensation" (Philippine Education Co. vs. CIR and the Union of Philippine Co. Employees [NLU], 92 Phil. 381; Ansay, et. al. vs. National Development Co., et. al., 107 Phil. 998, 999; Emphasis supplied). In Atok Big Wedge Mining Co. vs. Atok Big Wedge Mutual Benefit Association (92 Phil. 754), this Court, thru Justice Labrador, held: Whether or not bonus forms part of wages depends upon the condition or circumstance for its payment. If it is an additional compensation WHICH THE EMPLOYER PROMISED AND AGREED to give without any condition imposed for its payment ... then it is part of the wage. (Emphasis supplied).1wph1.t In Altomonte vs. Philippine American Drug Co. (106 Phil. 137), the Supreme Court held that an employee is not entitled to bonus where there is no showing that it had been granted by the employer to its employees periodically or regularly as to become part of their wages or salaries. The clear implication is that bonus is recoverable as part of the wage or salary where the employer regularly or periodically gives it to employees. American jurisprudence equally regards bonuses as part of compensation or recoverable wages. Thus, it was held that "... it follows that in determining the regular rate of pay, a bonus which in fact constitutes PART OF AN EMPLOYEE'S compensation, rather than a true gift or gratuity, has to be taken into consideration." (48 Am. Jur. 2d, Labor and Labor Relations, No. 1555, citing the cases of Triple "AAA" Co. vs. Wirtz and Haber vs. Americana Corporation; Emphasis supplied). It was further held that "... the regular rate includes incentive bonuses paid to the employees in addition to the guaranteed base rates regardless of any contract provision to the contrary and even though such bonuses could not be determined or paid until such time after the pay day" (48 Am. Jur. 2d, Labor and Labor Relations, No. 1555, citing the case of Walling vs. Harnischfeger Corp., 325 US 427, 89 L Ed 1711, 65 S Ct. 1246; Emphasis supplied).1wph1.t Petitioners in the present case do not dispute that as a matter of tradition, the company has been doling out bonuses to employees. In fact, the company balance sheets for the years 1956 to 1962 contained bonus and pension computations which were never repudiated or questioned by petitioners. As such, bonus for a given year earmarked as a matter of tradition for distribution to employees has formed part of their recoverable

wages from the company. Moreover, with greater reason, should recovery of bonuses as part of back wages be observed in the present case since the company, in the light of the very admission of company accountant Francisco Cusi, distributes bonuses to its employees even if the company has suffered losses. Specifically, petitioner company has done this in 1962 (t.s.n., p. 149, Sept. 20, 1965). Since bonuses are part of back wages of private respondents, the order of May 30, 1969, directing the payment of their bonuses, did not amend the decision of September 16, 1963 of respondent Court directing payment of their wages, which has long become final and executory, in the same way that the previous order of May 14, 1964 granting execution of said decision of September 16, 1963 also directed the computation of the wages to be paid to private respondents as decreed by the decision of September 16, 1963. All the orders of May 30, 1969, November 28, 1966 and May 14, 1964 merely implement the already final and executory decision of September 16, 1963. Petitioners insist that We adopt the ruling in the Sta. Cecilia Sawmills case wherein the recoverable back wages were limited to only three (3) months; because as in the Sta. Cecilia Sawmills case, the Claparols Steel and Nail Plant ceased operations due to enormous business reverses. Respondent Court's findings that indeed the Claparols Steel and Nail Plant, which ceased operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957 up to December 7, 1962, when the latter finally ceased to operate, were not disputed by petitioners. It is very clear that the latter corporation was a continuation and successor of the first entity, and its emergence was skillfully timed to avoid the financial liability that already attached to its predecessor, the Claparols Steel and Nail Plant. Both predecessors and successor were owned and controlled by the petitioner Eduardo Claparols and there was no break in the succession and continuity of the same business. This "avoiding-theliability" scheme is very patent, considering that 90% of the subscribed shares of stocks of the Claparols Steel Corporation (the second corporation) was owned by respondent (herein petitioner) Claparols himself, and all the assets of the dissolved Claparols Steel and Nail Plant were turned over to the emerging Claparols Steel Corporation. It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its employees. It is well remembering that in Yutivo & Sons Hardware Company vs. Court of Tax Appeals (L-13203, Jan. 28, 1961, 1 SCRA 160), We held that when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association or persons, or, in the case of two corporations, will merge them into one.

In Liddel & Company, Inc. vs. Collector of Internal Revenue (L-9687, June 30, 1961, 2 SCRA 632), this Court likewise held that where a corporation is a dummy and serves no business purpose and is intended only as a blind, the corporate fiction may be ignored. In Commissioner of Internal Revenue vs. Norton and Harrison Company (L-17618, Aug. 31, 1964, 11 SCRA 714), We ruled that where a corporation is merely an adjunct, business conduit or alter ego of another corporation, the fiction of separate and distinct corporate entities should be disregarded. To the same uniform effect are the decisions in the cases of Republic vs. Razon (L17462, May 29, 1967, 20 SCRA 234) and A.D. Santos, Inc. vs. Vasquez (L-23586, March 20, 1968, 22 SCRA 1156). WE agree with respondent Court of Industrial Relations, therefore, that the amount of back wages recoverable by respondent workers from petitioners should be the amount accruing up to December 7, 1962 when the Claparols Steel Corporation ceased operations. WHEREFORE, PETITION IS HEREBY DENIED WITH TREBLE COSTS AGAINST PETITIONERS TO BE PAID BY THEIR COUNSEL. Castro (Chairman), Esguerra, Muoz Palma and Martin, JJ., concur. Teehankee, J., is on leave.

G.R. No. L-33172 October 18, 1979 ERNESTO CEASE, CECILIA CEASE, MARION CEASE, TERESA CEASELACEBAL and the F.L. CEASE PLANTATION CO., INC. as Trustee of properties of the defunct TIAONG MILLING & PLANTATION CO., petitioners, vs. HONORABLE COURT OF APPEALS, (Special Seventh Division), HON. MANOLO L. MADDELA, Presiding Judge, Court of First Instance of Quezon, BENJAMIN CEASE and FLORENCE CEASE, respondents.

GUERRERO, J: Appeal by certiorari from the decision of the Court of Appeals in CA-G.R. No. 45474, entitled "Ernesto Cease, et al. vs. Hon. Manolo L. Maddela, Judge of the Court of First Instance of Quezon, et al." 1 which dismissed the petition for certiorari, mandamus, and prohibition instituted by the petitioners against the respondent judge and the private respondents. The antecedents of the case, as found by the appellate court, are as follows: IT RESULTING: That the antecedents are not difficult to understand; sometime in June 1908, one Forrest L. Cease common predecessor in interest of the parties together with five (5) other American citizens organized the Tiaong Milling and Plantation Company and in the course of its corporate existence the company acquired various properties but at the same time all the other original incorporators were bought out by Forrest L. Cease together with his children namely Ernest, Cecilia, Teresita, Benjamin, Florence and one Bonifacia Tirante also considered a member of the family; the charter of the company lapsed in June 1958; but whether there were steps to liquidate it, the record is silent; on 13 August 1959, Forrest L. Cease died and by extrajudicial partition of his shares, among the children, this was disposed of on 19 October 1959; it was here where the trouble among them came to arise because it would appear that Benjamin and Florence wanted an actual division while the other children wanted reincorporation; and proceeding on that, these other children Ernesto, Teresita and Cecilia and aforementioned other stockholder Bonifacia Tirante proceeded to incorporate themselves into the F.L. Cease Plantation Company and registered it with the Securities and Exchange Commission on 9 December, 1959; apparently in view of that, Benjamin and Florence for their part initiated a Special Proceeding No. 3893 of the Court of First Instance of Tayabas for the settlement of the estate of Forest L. Cease on 21 April, 1960 and one month afterwards on 19 May 1960 they filed Civil Case No. 6326 against Ernesto, Teresita and Cecilia Cease

together with Bonifacia Tirante asking that the Tiaong Milling and Plantation Corporation be declared Identical to F.L. Cease and that its properties be divided among his children as his intestate heirs; this Civil Case was resisted by aforestated defendants and notwithstanding efforts of the plaintiffs to have the properties placed under receivership, they were not able to succeed because defendants filed a bond to remain as they have remained in possession; after that and already, during the pendency of Civil Case No. 6326 specifically on 21 May, 1961 apparently on the eve of the expiry of the three (3) year period provided by the law for the liquidation of corporations, the board of liquidators of Tiaong Milling executed an assignment and conveyance of properties and trust agreement in favor of F.L. Cease Plantation Co. Inc. as trustee of the Tiaong Milling and Plantation Co. so Chat upon motion of the plaintiffs trial Judge ordered that this alleged trustee be also included as party defendant; now this being the situation, it will be remembered that there were thus two (2) proceedings pending in the Court of First Instance of Quezon namely Civil Case No. 6326 and Special Proceeding No. 3893 but both of these were assigned to the Honorable Respondent Judge Manolo L. Maddela p. 43 and the case was finally heard and submitted upon stipulation of facts pp, 34-110, rollo; and trial Judge by decision dated 27 December 1969 held for the plaintiffs Benjamin and Florence, the decision containing the following dispositive part: VIEWED IN THE LIGHT OF ALL THE FOREGOING, judgment is hereby rendered in favor of plaintiffs and against the defendants declaring that: 1) The assets or properties of the defunct Tiaong Milling and Plantation Company now appearing under the name of F.L. Cease Plantation Company as Trustee, is the estate also of the deceased Forrest L. Cease and ordered divided, share and share alike, among his six children the plaintiffs and the defendants in accordance with Rule 69, Rules of Court; 2) The Resolution to Sell dated October 12, 1959 and the Transfer and Conveyance with Trust Agreement is hereby set aside as improper and illegal for the purposes and effect that it was intended and, therefore, null and void; 3) That F.L. Cease Plantation Company is removed as 'Trustee for interest against the estate and essential to the protection of plaintiffs' rights and is hereby ordered to deliver and convey all the properties and assets of the defunct Tiaong Milling now under its name, custody and control to whomsoever be appointed as Receiver - disqualifying and of the parties herein -

the latter to act accordingly upon proper assumption of office; and 4) Special Proceedings No. 3893 for administration is terminated and dismissed; the instant case to proceed but on issues of damages only and for such action inherently essential for partition. SO ORDERED. Lucena City, December 27, 1969., pp. 122-a-123, rollo. upon receipt of that, defendants there filled a notice of appeal p. 129, rollo together with an appeal bond and a record on appeal but the plaintiffs moved to dismiss the appeal on the ground that the judgment was in fact interlocutory and not appealable p. 168 rollo and this position of defendants was sustained by trial Judge, His Honor ruling that IN VIEW OF THE FOREGOING, the appeal interposed by plaintiffs is hereby dismissed as premature and the Record on Appeal is necessarily disapproved as improper at this stage of the proceedings. SO ORDERED. Lucena City, April 27, 1970. and so it was said defendants brought the matter first to the Supreme Court, on mandamus on 20 May, 1970 to compel the appeal and certiorari and prohibition to annul the order of 27 April, 1970 on the ground that the decision was "patently erroneous" p. 16, rollo; but the Supreme Court remanded the case to this Court of Appeals by resolution of 27 May 1970, p. 173, and this Court of Appeals on 1 July 1970 p. 175 dismissed the petition so far as the mandamus was concerned taking the view that the decision sought to be appealed dated 27 December, 1969 was interlocutory and not appealable but on motion for reconsideration of petitioners and since there was possible merit so far as its prayer for certiorari and prohibition was concerned, by resolution of the Court on 19 August, 1970, p. 232, the petition was permitted to go ahead in that capacity; and it is the position of petitioners that the decision of 27 December, 1969 as well as the order of 27 April, 1970 suffered of certain fatal defects, which respondents deny and on their part raise the preliminary point that this Court of Appeals has no authority to give relief to petitioners because not

in aid of its appellate jurisdiction, and that the questions presented cannot be raised for the first time before this Court of Appeals; Respondent Court of Appeals in its decision promulgated December 9, 1970 dismissed the petition with costs against petitioners, hence the present petition to this Court on the following assignment of errors: THE COURT OF APPEALS ERRED I. IN SANCTIONING THE WRONGFUL EXERCISE OF JURISDICTION BEYOND THE LIMITS OF AUTHORITY CONFERRED BY LAW UPON THE LOWER COURT, WHEN IT PROCEEDED TO HEAR, ADJUDGE AND ADJUDICATE (a) Special Proceedings No. 3893 for the settlement of the Estate of Forrest L. Cease, simultaneously and concurrently with (b) Civil Case No. 6326, wherein the lower Court ordered Partition under Rule 69, Rules of Court THE ISSUE OF LEGAL OWNERSHIP OF THE PROPERTIES COMMONLY INVOLVED IN BOTH ACTIONS HAVING BEEN RAISED AT THE OUTSET BY THE TIAONG MILLING AND PLANTATION COMPANY, AS THE REGISTERED OWNER OF SUCH PROPERTIES UNDER ACT 496. II. IN AFFIRMING - UNSUPPORTED BY ANY EVIDENCE WHATSOEVER NOR CITATION OF ANY LAW TO JUSTIFY - THE UNWARRANTED CONCLUSION THAT SUBJECT PROPERTIES, FOUND BY THE LOWER COURT AND THE COURT OF APPEALS AS ACTUALLY REGISTERED IN THE NAME OF PETITIONER CORPORATION AND/OR ITS PREDECESSOR IN INTEREST, THE TIAONG MILLING AND PLANTATION COMPANY, DURING ALL THE 50 YEARS OF ITS CORPORATE EXISTENCE "ARE ALSO PROPERTIES OF THE ESTATE OF FOREST L. CEASE." III. IN AFFIRMING THE ARBITRARY CONCLUSION OF THE LOWER COURT THAT ITS DECISION OF DECEMBER 27,1969 IS AN "INTERLUCUTORY DECISION." IN DISMISSED NG THE PETITION FOR WRIT OF MANDAMUS, AND IN AFFIRMING THE MANIFESTLY UNJUST JUDGMENT RENDERED WHICH CONTRADICTS THE FINDINGS OF ULTIMATE FACTS THEREIN CONTAINED. During the period that ensued after the filing in this Court of the respective briefs and the subsequent submission of the case for decision, some incidents had transpired, the summary of which may be stated as follows:

1. Separate from this present appeal, petitioners filed a petition for certiorari and prohibition in this Court, docketed as G.R. No. L-35629 (Ernesto Cease, et al. vs. Hon. Manolo L. Maddela, et al.) which challenged the order of respondent judge dated September 27, 1972 appointing his Branch Clerk of Court, Mr. Eleno M. Joyas, as receiver of the properties subject of the appealed civil case, which order, petitioners saw as a virtual execution of the lower court's judgment (p. 92, rollo). In Our resolution of November 13, 1972, issued in G.R. No. L-35629, the petition was denied since respondent judge merely appointed an auxilliary receiver for the preservation of the properties as well as for the protection of the interests of all parties in Civil Case No. 6326; but at the same time, We expressed Our displeasure in the appointment of the branch clerk of court or any other court personnel for that matter as receiver. (p. 102, rollo). 2. Meanwhile, sensing that the appointed receiver was making some attempts to take possession of the properties, petitioners filed in this present appeal an urgent petition to restrain proceedings in the lower court. We resolved the petition on January 29, 1975 by issuing a corresponding temporary restraining order enjoining the court a quo from implementing its decision of December 27, 1969, more particularly, the taking over by a receiver of the properties subject of the litigation, and private respondents Benjamin and Florence Cease from proceeding or taking any action on the matter until further orders from this Court (pp. 99-100, rollo). Private respondents filed a motion for reconsideration of Our resolution of January 29, 1975. After weighing the arguments of the parties and taking note of Our resolution in G.R. No. L-35629 which upheld the appointment of a receiver, We issued another resolution dated April 11, 1975 lifting effective immediately Our previous temporary restraining order which enforced the earlier resolution of January 29, 1975 (pp. 140-141, rollo). 3. On February 6, 1976, private respondents filed an urgent petition to restrain proceedings below in view of the precipitate replacement of the court appointed receiver Mayor Francisco Escueta (vice Mr. Eleno M. Joyas) and the appointment of Mr. Guillermo Lagrosa on the eve of respondent Judge Maddela's retirement (p. 166, rollo). The urgent petition was denied in Our resolution of February 18, 1976 (p. 176, rollo). 4. Several attempts at a compromise agreement failed to materialize. A Tentative Compromise Agreement dated July 30, 1975 was presented to the Court on August 6, 1976 for the signature of the parties, but respondents "unceremoniously" repudiated the same by leaving the courtroom without the permission of the court (Court of First Instance of Quezon, Branch 11) as a result of which respondents and their counsel were cited for contempt (p. 195, 197, rollo) that respondents' reason for the repudiation appears to be petitioners' failure to render an audited account of their administration covering the period from May 31, 1961 up to January 29, 1974, plus the inclusion of a provision on waiver and relinquishment by respondents of whatever rights that may have accrued to their favor by virtue of the lower court's decision and the affirmative decision of the appellate court.

We go now to the alleged errors committed by the respondent Court of Appeals. As can be gleaned from petitioners' brief and the petition itself, two contentions underlie the first assigned error. First, petitioners argue that there was an irregular and arbitrarte termination and dismissal of the special proceedings for judicial administration simultaneously ordered in the lower court . s decision in Civil Case No. 6326 adjudicating the partition of the estate, without categorically, reasoning the opposition to the petition for administration Second, that the issue of ownership had been raised in the lower court when Tiaong Milling asserted title over the properties registered in its corporate name adverse to Forrest L. Cease or his estate, and that the said issue was erroneously disposed of by the trial court in the partition proceedings when it concluded that the assets or properties of the defunct company is also the estate of the deceased proprietor. The propriety of the dismissal and termination of the special proceedings for judicial administration must be affirmed in spite of its rendition in another related case in view of the established jurisprudence which favors partition when judicial administration become, unnecessary. As observed by the Court of Appeals, the dismissal at first glance is wrong, for the reason that what was actually heard was Civil Case No. 6326. The technical consistency, however, it is far less importance than the reason behind the doctrinal rule against placing an estate under administration. Judicial rulings consistently hold the view that where partition is possible, either judicial or extrajudicial, the estate should not be burdened with an administration proceeding without good and compelling reason. When the estate has no creditors or pending obligations to be paid, the beneficiaries in interest are not bound to submit the property to judicial administration which is always long and costly, or to apply for the appointment of an administrator by the court, especially when judicial administration is unnecessary and superfluous. Thus When a person dies without leaving pending obligations to be paid, his heirs, whether of age or not, are bound to submit the property to a judicial administration, which is always long and costly, or to apply for the appointment of an administrator by the court. It has been uniformly held that in such case the judicial administration and the appointment of an administrator are superfluous and unnecessary proceedings (Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil, 434; Bondad vs. Bondad, 34 Phil., 232; Baldemor vs. Malangyaon, 34 Phil., 367; Fule vs. Fule, 46 Phil., 317). Syllabus, Intestate estate of the deceased Luz Garcia. Pablo G. Utulo vs. Leona Pasion Viuda de Garcia, 66 Phil. 302. Where the estate has no debts, recourse may be had to an administration proceeding only if the heirs have good reasons for not resorting to an action for partition. Where partition is possible, either in or out of court, the estate should not be burdened with an administration proceeding without

good and compelling reasons. (Intestate Estate of Mercado vs. Magtibay, 96 Phil. 383) In the records of this case, We find no indication of any indebtedness of the estate. No creditor has come up to charge the estate within the two-year period after the death of Forrest L. Cease, hence, the presumption under Section 1, Rule 74 that the estate is free from creditors must apply. Neither has the status of the parties as legal heirs, much less that of respondents, been raised as an issue. Besides, extant in the records is the stipulation of the parties to submit the pleadings and contents of the administration proceedings for the cognizance of the trial judge in adjudicating the civil case for partition (Respondents' Brief, p, 20, rollo). As respondents observe, the parties in both cases are the same, so are the properties involved; that actual division is the primary objective in both actions; the theory and defense of the respective parties are likewise common; and that both cases have been assigned to the same respondent judge. We feel that the unifying effect of the foregoing circumstances invites the wholesome exception to the structures of procedural rule, thus allowing, instead, room for judicial flexibility. Respondent judge's dismissal of the administration proceedings then, is a judicious move, appreciable in today's need for effective and speedy administration of justice. There being ample reason to support the dismissal of the special proceedings in this appealed case, We cannot see in the records any compelling reason why it may not be dismissed just the same even if considered in a separate action. This is inevitably certain specially when the subject property has already been found appropriate for partition, thus reducing the petition for administration to a mere unnecessary solicitation. The second point raised by petitioners in their first assigned error is equally untenable. In effect, petitioners argue that the action for partition should not have prospered in view of the repudiation of the co-ownership by Tiaong Milling and Plantation Company when, as early in the trial court, it already asserted ownership and corporate title over the properties adverse to the right of ownership of Forrest L. Cease or his estate. We are not unmindful of the doctrine relied upon by petitioners in Rodriguez vs. Ravilan, 17 Phil. 63 wherein this Court held that in an action for partition, it is assumed that the parties by whom it is prosecuted are all co-owners or co-proprietors of the property to be divided, and that the question of common ownership is not to be argued, not the fact as to whether the intended parties are or are not the owners of the property in question, but only as to how and in what manner and proportion the said property of common ownership shall be distributed among the interested parties by order of the Court. Consistent with this dictum, it has been field that if any party to a suit for partition denies the pro-indiviso character of the estate whose partition is sought, and claims instead, exclusive title thereto the action becomes one for recovery of property cognizable in the courts of ordinary jurisdiction. 2 Petitioners' argument has only theoretical persuasion, to say the least, rather apparent than real. It must be remembered that when Tiaong Milling adduced its defense and raised the issue of ownership, its corporate existence already terminated through the

expiration of its charter. It is clear in Section 77 of Act No. 1459 (Corporation Law) that upon the expiration of the charter period, the corporation ceases to exist and is dissolved ipso facto except for purposes connected with the winding up and liquidation. The provision allows a three year, period from expiration of the charter within which the entity gradually settles and closes its affairs, disposes and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was established. At this terminal stage of its existence, Tiaong Milling may no longer persist to maintain adverse title and ownership of the corporate assets as against the prospective distributees when at this time it merely holds the property in trust, its assertion of ownership is not only a legal contradiction, but more so, to allow it to maintain adverse interest would certainly thwart the very purpose of liquidation and the final distribute loll of the assets to the proper, parties. We agree with the Court of Appeals in its reasoning that substance is more important than form when it sustained the dismissal of Special Proceedings No. 3893, thus a) As to the dismissal of Special Proceedings No. 3893, of course, at first glance, this was wrong, for the reason that the case trial had been heard was Civil Case No. 6326; but what should not be overlooked either is Chat respondent Judge was the same Judge that had before him in his own sala, said Special Proceedings No. 3893, p. 43 rollo, and the parties to the present Civil Case No. 6326 had themselves asked respondent Judge to take judicial notice of the same and its contents page 34, rollo; it is not difficult to see that when respondent Judge in par. 4 of the dispositive part of his decision complained of, ordered that, 4) Special Proceedings No. 3893 for administration is terminated and dismissed; the instant case to proceed but on issues of damages only and for such action inherently essential or partition. p. 123, rollo, in truth and in fact, His Honor was issuing that order also within Civil Case No. 632 but in connection with Special Proceedings No. 389:3: for substance is more important Chan form, the contending par ties in both proceedings being exactly the same, but not only this, let it not be forgotten that when His Honor dismissed Special Proceedings No. 3893, that dismissal precisely was a dismissal that petitioners herein had themselves sought and solicited from respondent Judge as petitioners themselves are in their present petition pp. 5-6, rollo; this Court must find difficulty in reconciling petitioners' attack with the fact that it was they themselves that had insisted on that dismissal; on the principle that not he who is favored but he who is hurt by a judicial order is he only who should be heard to complain and especially since extraordinary legal remedies are remedies in extermies granted to parties ' who have been the victims not merely of errors but of grave wrongs, and it cannot be seen how one who got what he

had asked could be heard to claim that he had been the victim of a wrong, petitioners should not now complain of an order they had themselves asked in order to attack such an order afterwards; if at all, perhaps, third parties, creditors, the Bureau of Internal Revenue, might have been prejudiced, and could have had the personality to attack that dismissal of Special Proceedings No. 3893, but not petitioners herein, and it is not now for this Court of Appeals to protect said third persons who have not come to the Court below or sought to intervene herein; On the second assigned error, petitioners argue that no evidence has been found to support the conclusion that the registered properties of Tiaong Milling are also properties of the estate of Forrest L. Cease; that on the contrary, said properties are registered under Act No. 496 in the name of Tiaong Milling as lawful owner and possessor for the last 50 years of its corporate existence. We do not agree. In reposing ownership to the estate of Forrest L. Cease, the trial court indeed found strong support, one that is based on a well-entrenched principle of law. In sustaining respondents' theory of "merger of Forrest L. Cease and The Tiaong Milling as one personality", or that "the company is only the business conduit and alter ego of the deceased Forrest L. Cease and the registered properties of Tiaong Milling are actually properties of Forrest L. Cease and should be divided equally, share and share alike among his six children, ... ", the trial court did aptly apply the familiar exception to the general rule by disregarding the legal fiction of distinct and separate corporate personality and regarding the corporation and the individual member one and the same. In shredding the fictitious corporate veil, the trial judge narrated the undisputed factual premise, thus: While the records showed that originally its incorporators were aliens, friends or third-parties in relation of one to another, in the course of its existence, it developed into a close family corporation. The Board of Directors and stockholders belong to one family the head of which Forrest L. Cease always retained the majority stocks and hence the control and management of its affairs. In fact, during the reconstruction of its records in 1947 before the Security and Exchange Commission only 9 nominal shares out of 300 appears in the name of his 3 eldest children then and another person close to them. It is likewise noteworthy to observe that as his children increase or perhaps become of age, he continued distributing his shares among them adding Florence, Teresa and Marion until at the time of his death only 190 were left to his name. Definitely, only the members of his family benefited from the Corporation. The accounts of the corporation and therefore its operation, as well as that of the family appears to be indistinguishable and apparently joined together. As admitted by the defendants (Manifestation of Compliance with Order of March 7, 1963 [Exhibit "21"] the corporation 'never' had any

account with any banking institution or if any account was carried in a bank on its behalf, it was in the name of Mr. Forrest L. Cease. In brief, the operation of the Corporation is merged with those of the majority stockholders, the latter using the former as his instrumentality and for the exclusive benefits of all his family. From the foregoing indication, therefore, there is truth in plaintiff's allegation that the corporation is only a business conduit of his father and an extension of his personality, they are one and the same thing. Thus, the assets of the corporation are also the estate of Forrest L. Cease, the father of the parties herein who are all legitimate children of full blood. A rich store of jurisprudence has established the rule known as the doctrine of disregarding or piercing the veil of corporate fiction. Generally, a corporation is invested by law with a personality separate and distinct from that of the persons composing it as well as from that of any other legal entity to which it may be related. By virtue of this attribute, a corporation may not, generally, be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected, and vice versa. This separate and distinct personality is, however, merely a fiction created by law for convenience and to promote the ends of justice (Laguna Transportation Company vs. Social Security System, L-14606, April 28, 1960; La Campana Coffee Factory, Inc. vs. Kaisahan ng mga Manggagawa sa La Campana, L5677, May 25, 1953). For this reason, it may not be used or invoked for ends subversive of the policy and purpose behind its creation (Emiliano Cano Enterprises, Inc. vs. CIR, L-20502, Feb. 26, 1965) or which could not have been intended by law to which it owes its being McConnel vs. Court of Appeals, L- 10510, March 17, 1961, 1 SCRA 722). This is particularly true where the fiction is used to defeat public convenience, justify wrong, protect fraud, defend crime (Yutivo Sons Hardware Company vs. Court of Tax Appeals, L-13203, Jan. 28, 1961, 1 SCRA 160), confuse legitimate legal or judicial issues (R. F. Sugay & Co. vs. Reyes, L-20451, Dec. 28, 1964), perpetrate deception or otherwise circumvent the law (Gregorio Araneta, Inc. vs. reason de Paterno, L-2886, Aug. 22, 1952, 49 O.G. 721). This is likewise true where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another corporate entity (McConnel vs. Court of Appeals, supra; Commissioner of Internal Revenue vs. Norton Harrison Co., L-7618, Aug. 31, 1964). In any of these cases, the notion of corporate entity will be pierced or disregarded, and the corporation will be treated merely as an association of persons or, where there are two corporations, they will be merged as one, the one being merely regarded as part or the instrumentality of the otter (Koppel [Phil.] Inc. vs. Yatco, 77 Phil. 496, Yutivo Sons Hardware Company vs. Court of Tax Appeals, supra). So must the case at bar add to this jurisprudence. An indubitable deduction from the findings of the trial court cannot but lead to the conclusion that the business of the corporation is largely, if not wholly, the personal venture of Forrest L. Cease. There is

not even a shadow of a showing that his children were subscribers or purchasers of the stocks they own. Their participation as nominal shareholders emanated solely from Forrest L. Cease's gratuitous dole out of his own shares to the benefit of his children and ultimately his family. Were we sustain the theory of petitioners that the trial court acted in excess of jurisdiction or abuse of discretion amounting to lack of jurisdiction in deciding Civil Case No. 6326 as a case for partition when the defendant therein, Tiaong Milling and Plantation Company, Inc. as registered owner asserted ownership of the assets and properties involved in the litigation, which theory must necessarily be based on the assumption that said assets and properties of Tiaong Milling and Plantation Company, Inc. now appearing under the name of F. L. Cease Plantation Company as Trustee are distinct and separate from the estate of Forrest L. Cease to which petitioners and respondents as legal heirs of said Forrest L. Cease are equally entitled share and share alike, then that legal fiction of separate corporate personality shall have been used to delay and ultimately deprive and defraud the respondents of their successional rights to the estate of their deceased father. For Tiaong Milling and Plantation Company shall have been able to extend its corporate existence beyond the period of its charter which lapsed in June, 1958 under the guise and cover of F. L, Cease Plantation Company, Inc. as Trustee which would be against the law, and as Trustee shall have been able to use the assets and properties for the benefit of the petitioners, to the great prejudice and defraudation. of private respondents. Hence, it becomes necessary and imperative to pierce that corporate veil. Under the third assigned error, petitioners claim that the decision of the lower court in the partition case is not interlocutory but rather final for it consists of final and determinative dispositions of the contentions of the parties. We find no merit in petitioners' stand. Under the 1961 pronouncement and ruling of the Supreme Court in Vda. de Zaldarriaga vs. Enriquez, 1 SCRA 1188 (and the sequel case of Vda. de Zaldarriaga vs. Zaldarriaga, 2 SCRA 356), the lower court's dismissal of petitioners' proposed appeal from its December 27, 1969 judgment as affirmed by the Court of Appeals on the ground of prematurity in that the judgment was not final but interlocutory was in order. As was said in said case: It is true that in Africa vs. Africa, 42 Phil. 934 and other cases it was held contrary to the rule laid down in Ron vs. Mojica, 8 Phil. 328; Rodriguez vs. Ravilan, 17 Phil. 63 - that in a partition case where defendant relies on the defense of exclusive ownership, the action becomes one for title and the decision or order directing partition is final, but the ruling to this effect has been expressly reversed in the Fuentebella case which, in our opinion, expresses the correct view, considering that a decision or order directing partition is not final because it leaves something more to be done in the trial court for the complete disposition of the case, namely, the appointment of

commissioners, the proceedings to be had before them, the submission of their report which, according to law, must be set for hearing. In fact, it is only after said hearing that the court may render a final judgment finally disposing of the action (Rule 71, section 7, Rules of Court). (1 SCRA at page 1193). It should be noted, however, that the said ruling in Zaldarriaga as based on Fuentebella vs. Carrascoso, XIV Lawyers Journal 305 (May 27, 1942), has been expressly abandoned by the Court in Miranda vs. Court of Appeals, 71 SCRA 295; 331-333 (June 18, 1976) wherein Mr. Justice Teehankee, speaking for the Court, laid down the following doctrine: The Court, however, deems it proper for the guidance of the bench and bar to now declare as is clearly indicated from the compelling reasons and considerations hereinabove stated: - that the Court considers the better rule to be that stated in H. E. Heacock Co. vs. American Trading Co., to wit, that where the primary purpose of a case is to ascertain and determine who between plaintiff and defendant is the true owner and entitled to the exclusive use of the disputed property, "the judgment . . . rendered by the lower court [is] a judgment on the merits as to those questions, and [that] the order of the court for an accounting was based upon, and is incidental to the judgment on the merits. That is to say, that the judgment . . . [is] a final judgment ... that in this kind of a case an accounting is a mere incident to the judgment; that an appeal lies from the rendition of the judgment as rendered ... "(as is widely held by a great number of judges and members of the bar, as shown by the cases so decided and filed and still pending with the Court) for the fundamental reasons therein stated that "this is more in harmony with the administration of justice and the spirit and intent of the [Rules]. If on appeal the judgment of the lower court is affirmed, it would not in the least work an injustice to any of the legal rights of [appellee]. On the other hand, if for any reason this court should reverse the judgment of the lower court, the accounting would be a waste of time and money, and might work a material injury to the [appellant]; and - that accordingly, the contrary ruling in Fuentebella vs. Carrascoso which expressly reversed the Heacock case and a line of similar decisions and ruled that such a decision for recovery of property with accounting "is not final but merely interlocutory and therefore not appealable" and subsequent cases adhering to the same must be now in turn abandoned and set aside. Fuentebella adopted instead the opposite line of conflicting decisions mostly in partition proceedings and exemplified by Ron vs. Mojica 8 Phil. 928 (under the old Code of Civil Procedure) that an order for partition of

real property is not final and appealable until after the actual partition of the property as reported by the court appointed commissioners and approved by the court in its judgment accepting the report. lt must be especially noted that such rule governing partitions is now so expressly provided and spelled out in Rule 69 of the Rules of Court, with special reference to Sections 1, 2, 3, 6, 7 and 11, to wit, that there must first be a preliminar, order for partition of the real estate (section 2) and where the parties-coowners cannot agree, the court appointed commissioners make a plan of actual partition which must first be passed upon and accepted by the trial court and embodied in a judgment to be rendered by it (sections 6 and 11). In partition cases, it must be further borne in mind that Rule 69, section 1 refers to "a person having the right to compel the partition of real estate," so that the general rule of partition that an appeal will not lie until the partition or distribution proceedings are terminated will not apply where appellant claims exclusive ownership of the whole property and denies the adverse party's right to any partition, as was the ruling in Villanueva vs. Capistrano and Africa vs .Africa, supra, Fuentebellas express rehearsal of these cases must likewise be deemed now also abandoned in view of the Court's expressed preference for the rationale of the Heacock case. The Court's considered opinion is that imperative considerations of public policy and of sound practice in the courts and adherence to the constitutional mandate of simplified, just, speedy and inexpensive determination of every action call for considering such judgments for recovery of property with accounting as final judgments which are duly appealable (and would therefore become final and executory if not appealed within the reglementary period) with the accounting as a mere incident of the judgment to be rendered during the course of the appeal as provided in Rule 39, section 4 or to be implemented at the execution stage upon final affirmance on appeal of the judgment (as in Court of Industrial Relations unfair labor practice cases ordering the reinstatement of the worker with accounting, computation and payment of his backwages less earnings elsewhere during his layoff) and that the only reason given in Fuentebelia for the contrary ruling, viz, "the general harm that would follow from throwing the door open to multiplicity of appeals in a single case" of lesser import and consequence. (Emphasis copied). The miranda ruling has since then been applied as the new rule by a unanimous Court in Valdez vs. Bagasao, 82 SCRA 22 (March 8, 1978). If there were a valid genuine claim of Exclusive ownership of the inherited properties on the part of petitioners to respondents' action for partition, then under the Miranda ruling, petitioners would be sustained, for as expressly held therein " the general rule of partition that an appeal will not lie until the partition or distribution proceedings are

terminated will not apply where appellant claims exclusive ownership of the whole property and denies the adverse party's right to any partition." But this question has now been rendered moot and academic for the very issue of exclusive ownership claimed by petitioners to deny and defeat respondents' right to partition - which is the very core of their rejected appeal - has been squarely resolved herein against them, as if the appeal had been given due course. The Court has herein expressly sustained the trial court's findings, as affirmed by the Court of Appeals, that the assets or properties of the defunct company constitute the estate of the deceased proprietor (supra at page 7) and the defunct company's assertion of ownership of the properties is a legal contradiction and would but thwart the liquidation and final distribution and partition of the properties among the parties hereof as children of their deceased father Forrest L. Cease. There is therefore no further hindrance to effect the partition of the properties among the parties in implementation of the appealed judgment. One last consideration. Parties are brothers and sisters, legal heirs of their deceased father, Forrest L. Cease. By all rights in law and jurisprudence, each is entitled to share and share alike in the estate, which the trial court correctly ordained and sustained by the appellate court. Almost 20 years have lapsed since the filing of Special Proceedings No. 3893 for the administration of the Estate of Forrest L. Cease and Civil Case No. 6326 for liquidation and partition of the assets of the defunct Tiaong Milling and Plantation Co., Inc. A succession of receivers were appointed by the court to take, keep in possession, preserve and manage properties of the corporation which at one time showed an income of P386,152.90 and expenses of P308,405.01 for the period covering January 1, 1960 to August 31, 1967 as per Summary of Operations of Commissioner for Finance appointed by the Court (Brief for Respondents, p. 38). In the meantime, ejectment cases were filed by and against the heirs in connection with the properties involved, aggravating the already strained relations of the parties. A prudent and practical realization of these circumstances ought and must constrain the parties to give each one his due in law and with fairness and dispatch that their basic rights be enjoyed. And by remanding this case to the court a quo for the actual partition of the properties, the substantial rights of everyone of the heirs have not been impaired, for in fact, they have been preserved and maintained. WHEREFORE, IN VIEW OF THE FOREGOING, the judgment appealed from is hereby AFFIRMED with costs against the petitioners. SO ORDERED.

G.R. No. 168306

June 19, 2007

WILLIAM C. YAO, SR., LUISA C. YAO, RICHARD C. YAO, WILLIAM C. YAO JR., and ROGER C. YAO, petitioners, vs. THE PEOPLE OF THE PHILIPPINES, PETRON CORPORATION and PILIPINAS SHELL PETROLEUM CORP., and its Principal, SHELL INTL PETROLEUM CO. LTD., respondents. DECISION CHICO-NAZARIO, J.: In this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, petitioners William C. Yao, Sr., Luisa C. Yao, Richard C. Yao, William C. Yao, Jr., and Roger C. Yao pray for the reversal of the Decision dated 30 September 2004,2 and Resolution dated 1 June 2005, of the Court of Appeals in CA G.R. SP No. 79256, 3 affirming the two Orders, both dated 5 June 2003, of the Regional Trial Court (RTC), Branch 17, Cavite City, relative to Search Warrants No. 2-2003 and No. 3-2003.4 In the said Orders, the RTC denied the petitioners Motion to Quash Search Warrant5 and Motion for the Return of the Motor Compressor and Liquified Petroleum Gas (LPG) Refilling Machine.6 The following are the facts: Petitioners are incorporators and officers of MASAGANA GAS CORPORATION (MASAGANA), an entity engaged in the refilling, sale and distribution of LPG products. Private respondents Petron Corporation (Petron) and Pilipinas Shell Petroleum Corporation (Pilipinas Shell) are two of the largest bulk suppliers and producers of LPG in the Philippines. Their LPG products are sold under the marks "GASUL" and "SHELLANE," respectively. Petron is the registered owner in the Philippines of the trademarks GASUL and GASUL cylinders used for its LPG products. It is the sole entity in the Philippines authorized to allow refillers and distributors to refill, use, sell, and distribute GASUL LPG containers, products and its trademarks. Pilipinas Shell, on the other hand, is the authorized user in the Philippines of the tradename, trademarks, symbols, or designs of its principal, Shell International Petroleum Company Limited (Shell International), including the marks SHELLANE and SHELL device in connection with the production, sale and distribution of SHELLANE LPGs. It is the only corporation in the Philippines authorized to allow refillers and distributors to refill, use, sell and distribute SHELLANE LPG containers and products.7 On 3 April 2003, National Bureau of Investigation (NBI) agent Ritche N. Oblanca (Oblanca) filed two applications for search warrant with the RTC, Branch 17, Cavite City, against petitioners and other occupants of the MASAGANA compound located at Governors Drive, Barangay Lapidario, Trece Martires, Cavite City, for alleged violation

of Section 155, in relation to Section 170 of Republic Act No. 8293, otherwise known as "The Intellectual Property Code of the Philippines."8 The two applications for search warrant uniformly alleged that per information, belief, and personal verification of Oblanca, the petitioners are actually producing, selling, offering for sale and/or distributing LPG products using steel cylinders owned by, and bearing the tradenames, trademarks, and devices of Petron and Pilipinas Shell, without authority and in violation of the rights of the said entities. In his two separate affidavits9 attached to the two applications for search warrant, Oblanca alleged: 1. [That] on 11 February 2003, the National Bureau of Investigation ("NBI") received a letter-complaint from Atty. Bienvenido I. Somera Jr. of Villaraza and Angangco, on behalf of among others, [Petron Corporation (PETRON)] and Pilipinas Shell Petroleum Corporation (PSPC), the authorized representative of Shell International Petroleum Company Limited ("Shell International"), requesting assistance in the investigation and, if warranted, apprehension and prosecution of certain persons and/or establishments suspected of violating the intellectual property rights [of PETRON] and of PSPC and Shell International. 2. [That] on the basis of the letter-complaint, I, together with Agent Angelo Zarzoso, was assigned as the NBI agent on the case. 3. [That] prior to conducting the investigation on the reported illegal activities, he reviewed the certificates of trademark registrations issued in favor of [PETRON], PSPC and Shell International as well as other documents and other evidence obtained by the investigative agency authorized by [PETRON], PSPC and Shell International to investigate and cause the investigation of persons and establishments violating the rights of [PETRON], PSPC and Shell International, represented by Mr. Bernabe C. Alajar. Certified copies of the foregoing trademark registrations are attached hereto as Annexes "A" to ":E". 4. [That] among the establishments alleged to be unlawfully refilling and unlawfully selling and distributing [Gasul LPG and] Shellane products is Masagana Gas Corporation ("MASAGANA"). Based on Securities and Exchange Commission Records, MASAGANA has its principal office address at 9775 Kamagong Street, San Antonio Village, Makati, Metro Manila. The incorporators and directors of MASAGANA are William C. Yao, Sr., Luisa C. Yao, Richard C. Yao, William C. Yao, Jr., and Roger C. Yao. x x x. 5. I confirmed that MASAGANA is not authorized to use [PETRON and] Shellane LPG cylinders and its trademarks and tradenames or to be refillers or distributors of [PETRON and] Shellane LPGs.

6. I went to MASAGANAs refilling station located at Governors Drive, Barangay Lapidario, Trece Martires City (sic), Cavite to investigate its activities. I confirmed that MASAGANA is indeed engaged in the unauthorized refilling, sale and/or distribution of [Gasul and] Shellane LPG cylinders. I found out that MASAGANA delivery trucks with Plate Nos. UMN-971, PEZ-612, WTE-527, XAM-970 and WFC-603 coming in and out of the refilling plant located at the aforementioned address contained multi-brand LPG cylinders including [Gasul and] Shellane. x x x. 7. [That] on 13 February 2003, I conducted a test-buy accompanied by Mr. Bernabe C. Alajar. After asking the purpose of our visit, MASAGANAs guard allowed us to enter the MASAGANA refilling plant to purchase GASUL and SHELLANE LPGs. x x x. We were issued an order slip which we presented to the cashiers office located near the refilling station. After paying the amount x x x covering the cost of the cylinders and their contents, they were issued Cash Invoice No. 56210 dated February 13, 2003. We were, thereafter, assisted by the plant attendant in choosing empty GASUL and SHELLANE 11 kg. cylinders, x x x were brought to the refilling station [and filled in their presence.] I noticed that no valve seals were placed on the cylinders. [That] while inside the refilling plant doing the test-buy, I noticed that stockpiles of multi-branded cylinders including GASUL and SHELLANE cylinders were stored near the refilling station. I also noticed that the total land area of the refilling plant is about 7,000 to 10,000 square meters. At the corner right side of the compound immediately upon entering the gate is a covered area where the maintenance of the cylinders is taking place. Located at the back right corner of the compound are two storage tanks while at the left side also at the corner portion is another storage tank. Several meters and fronting the said storage tank is where the refilling station and the office are located. It is also in this storage tank where the elevated blue water tank depicting MASAGANA CORP. is located. About eleven (11) refilling pumps and stock piles of multi-branded cylinders including Shellane and GASUL are stored in the refilling station. At the left side of the entrance gate is the guard house with small door for the pedestrians and at the right is a blue steel gate used for incoming and outgoing vehicles. 8. [That] on 27 February 2003, I conducted another test-buy accompanied by Mr. Bernabe C. Alajar. x x x After choosing the cylinders, we were issued an order slip which we presented to the cashier. Upon payment, Cash Invoice No. 56398 was issued covering the cost of both GASUL and SHELLANE LPG cylinders and their contents. x x x Both cylinders were refilled in our presence and no valve seals were placed on the cylinders. Copies of the photographs of the delivery trucks, LPG cylinders and registration papers were also attached to the aforementioned affidavits.10 Bernabe C. Alajar (Alajar), owner of Able Research and Consulting Services Inc., was hired by Petron and Pilipinas Shell to assist them in carrying out their Brand Protection

Program. Alajar accompanied Oblanca during the surveillance of and test-buys at the refilling plant of MASAGANA. He also executed two separate affidavits corroborating the statements of Oblanca. These were annexed to the two applications for search warrant.11 After conducting the preliminary examination on Oblanca and Alajar, and upon reviewing their sworn affidavits and other attached documents, Judge Melchor Q.C. Sadang (Judge Sadang), Presiding Judge of the RTC, Branch 17, Cavite City, found probable cause and correspondingly issued Search Warrants No. 2-2003 and No. 32003.12 The search warrants commanded any peace officer to make an immediate search of the MASAGANA compound and to seize the following items: Under Search Warrant No. 2-2003: a. Empty/filled LPG cylinder tanks/containers, bearing the tradename "SHELLANE", "SHELL" (Device) of Pilipinas Shell Petroleum Corporation and the trademarks and other devices owned by Shell International Petroleum Company, Ltd.; b. Machinery and/or equipment being used or intended to be used for the purpose of illegally refilling LPG cylinders belonging to Pilipinas Shell Petroleum Corporation bearing the latters tradename as well as the marks belonging to Shell International Petroleum Company, Ltd., enumerated hereunder: 1. Bulk/Bullet LPG storage tanks; 2. Compressor/s (for pneumatic refilling system); 3. LPG hydraulic pump/s; 4. LPG refilling heads/hoses and appurtenances or LPG filling assembly; 5. LPG pipeline gate valve or ball valve and handles and levers; 6. LPG weighing scales; and 7. Seals simulating the shell trademark. c. Sales invoices, ledgers, journals, official receipts, purchase orders, and all other books of accounts, inventories and documents pertaining to the production, sale and/or distribution of the aforesaid goods/products. d. Delivery truck bearing Plate Nos. WTE-527, XAM-970 and WFC-603, hauling trucks, and/or other delivery trucks or vehicles or conveyances being used or intended to be used for the purpose of selling and/or distributing the above-mentioned counterfeit products.

Under Search Warrant No. 3-2003: a. Empty/filled LPG cylinder tanks/containers, bearing Petron Corporations (Petron) tradename and its tradename "GASUL" and other devices owned and/or used exclusively by Petron; b. Machinery and/or equipment being used or intended to be used for the purpose of illegally refilling LPG cylinders belonging to Petron enumerated hereunder; 1. Bulk/Bullet LPG storage tanks; 2. Compressor/s (for pneumatic filling system); 3. LPG hydraulic pump/s; 4. LPG filling heads/hoses and appurtenances or LPG filling assembly; 5. LPG pipeline gate valve or ball valve and handles levers; 6. LPG weighing scales; and 7. Seals bearing the Petron mark; c. Sales invoices, ledgers, journals, official receipts, purchase orders, and all other books of accounts, inventories and documents pertaining to the production, sale and/or distribution of the aforesaid goods/products; and d. Delivery trucks bearing Plate Nos. UMN-971, PEZ-612 and WFC-603, hauling trucks, and/or other delivery trucks or vehicles or conveyances being used for the purpose of selling and/or distributing the above-mentioned counterfeit products. Upon the issuance of the said search warrants, Oblanca and several NBI operatives immediately proceeded to the MASAGANA compound and served the search warrants on petitioners.13 After searching the premises of MASAGANA, the following articles described in Search Warrant No. 2-2003 were seized: a. Thirty-eight (38) filled 11 kg. LPG cylinders, bearing the tradename of Pilipinas Shell Petroleum Corporation and the trademarks and other devices owned by Shell International Petroleum Company, Ltd.; b. Thirty-nine (39) empty 11 kg. LPG cylinders, bearing the tradename of Pilipinas Shell Petroleum Corporation and the trademarks and other devices owned by Shell International Petroleum Company, Ltd.;

c. Eight (8) filled 50 kg. LPG cylinders, bearing the tradename of Pilipinas Shell Petroleum Corporation and the trademarks and other devices owned by Shell International Petroleum Company, Ltd.; d. Three (3) empty 50 kg. LPG cylinders, bearing the tradename of Pilipinas Shell Petroleum Corporation and the trademarks and other devices owned by Shell International Petroleum Company, Ltd.; e. One (1) set of motor compressor for filling system. Pursuant to Search Warrant No. 3-2003, the following articles were also seized: a. Six (6) filled 11 kg. LPG cylinders without seal, bearing Petrons tradename and its trademark "GASUL" and other devices owned and/or used exclusively by Petron; b. Sixty-three (63) empty 11 kg. LPG cylinders, bearing Petrons tradename and its trademark "GASUL" and other devices owned and/or used exclusively by Petron; c. Seven (7) tampered 11 kg. LPG cylinders, bearing Petrons tradename and its trademark "GASUL" and other devices owned and/or used exclusively by Petron; d. Five (5) tampered 50 kg. LPG cylinders, bearing Petrons tradename and its trademark "GASUL" and other devices owned and/or used exclusively by Petron with tampered "GASUL" logo; e. One (1) set of motor compressor for filling system; and f. One (1) set of LPG refilling machine. On 22 April 2003, petitioners filed with the RTC a Motion to Quash Search Warrants No. 2-2003 and No. 3-200314 on the following grounds: 1. There is no probable cause for the issuance of the search warrant and the conditions for the issuance of a search warrant were not complied with; 2. Applicant NBI Agent Ritchie N. Oblanca and his witness Bernabe C. Alajar do not have any authority to apply for a search warrant. Furthermore, they committed perjury when they alleged in their sworn statements that they conducted a test-buy on two occasions; 3. The place to be searched was not specified in the Search Warrant as the place has an area of 10,000 square meters (one hectare) more or less, for which reason the place to be searched must be indicated with particularity; 4. The search warrant is characterized as a general warrant as the items to be seized as mentioned in the search warrant are being used in the conduct of the lawful

business of respondents and the same are not being used in refilling Shellane and Gasul LPGs. On 30 April 2003, MASAGANA, as third party claimant, filed with the RTC a Motion for the Return of Motor Compressor and LPG Refilling Machine.15 It claimed that it is the owner of the said motor compressor and LPG refilling machine; that these items were used in the operation of its legitimate business; and that their seizure will jeopardize its business interests. On 5 June 2003, the RTC issued two Orders, one of which denied the petitioners Motion to Quash Search Warrants No. 2-2003 and No. 3-2003, and the other one also denied the Motion for the Return of Motor Compressor and LPG Refilling Machine of MASAGANA, for lack of merit.16 With respect to the Order denying the petitioners motion to quash Search Warrants No. 2-2003 and No. 3-2003, the RTC held that based on the testimonies of Oblanca and Alajar, as well as the documentary evidence consisting of receipts, photographs, intellectual property and corporate registration papers, there is probable cause to believe that petitioners are engaged in the business of refilling or using cylinders which bear the trademarks or devices of Petron and Pilipinas Shell in the place sought to be searched and that such activity is probably in violation of Section 155 in relation to Section 170 of Republic Act No. 8293. It also ruled that Oblanca and Alajar had personal knowledge of the acts complained of since they were the ones who monitored the activities of and conducted test-buys on MASAGANA; that the search warrants in question are not general warrants because the compound searched are solely used and occupied by MASAGANA, and as such, there was no need to particularize the areas within the compound that would be searched; and that the items to be seized in the subject search warrants were sufficiently described with particularity as the same was limited to cylinder tanks bearing the trademarks GASUL and SHELLANE. As regards the Order denying the motion of MASAGANA for the return of its motor compressor and LPG refilling machine, the RTC resolved that MASAGANA cannot be considered a third party claimant whose rights were violated as a result of the seizure since the evidence disclosed that petitioners are stockholders of MASAGANA and that they conduct their business through the same juridical entity. It maintained that to rule otherwise would result in the misapplication and debasement of the veil of corporate fiction. It also stated that the veil of corporate fiction cannot be used as a refuge from liability. Further, the RTC ratiocinated that ownership by another person or entity of the seized items is not a ground to order its return; that in seizures pursuant to a search warrant, what is important is that the seized items were used or intended to be used as means of committing the offense complained of; that by its very nature, the properties sought

to be returned in the instant case appear to be related to and intended for the illegal activity for which the search warrants were applied for; and that the items seized are instruments of an offense. Petitioners filed Motions for Reconsideration of the assailed Orders,17 but these were denied by the RTC in its Order dated 21 July 2003 for lack of compelling reasons.18 Subsequently, petitioners appealed the two Orders of the RTC to the Court of Appeals via a special civil action for certiorari under Rule 65 of the Rules of Court.19 On 30 September 2004, the Court of Appeals promulgated its Decision affirming the Orders of the RTC.20 It adopted in essence the bases and reasons of the RTC in its two Orders. The decretal portion thereof reads: Based on the foregoing, this Court finds no reason to disturb the assailed Orders of the respondent judge. Grave abuse of discretion has not been proven to exist in this case. WHEREFORE, the petition is hereby DISMISSED for lack of merit. The assailed orders both dated June 5, 2003 are hereby AFFIRMED. Petitioners filed a Motion for Reconsideration21 of the Decision of the Court of Appeals, but this was denied in its Resolution dated 1 June 2005 for lack of merit.22 Petitioners filed the instant petition on the following grounds: I. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PRESIDING JUDGE OF RTC CAVITE CITY HAD SUFFICIENT BASIS IN DECLARING THE EXISTENCE OF PROBABLE CAUSE; II. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT NBI AGENT (RITCHIE OBLANCA) CAN APPLY FOR THE SEARCH WARRANTS NOTHWITHSTANDING HIS LACK OF AUTHORITY; III. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE REQUIREMENT OF GIVING A PARTICULAR DESCRIPTION OF THE PLACE TO BE SEARCHED WAS COMPLIED WITH; IV.

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE APPLICATIONS AND THE SEARCH WARRANTS THEMSELVES SHOW NO AMBIGUITY OF THE ITEMS TO BE SEIZED; V. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE COMPLAINT IS DIRECTED AGAINST MASAGANA GAS CORPORATION, ACTING THROUGH ITS OFFICERS AND DIRECTORS, HENCE MASAGANA GAS CORPORATION MAY NOT BE CONSIDERED AS THIRD PARTY CLAIMANT WHOSE RIGHTS WERE VIOLATED AS A RESULT OF THE SEIZURE.23 Apropos the first issue, petitioners allege that Oblanca and Alajar had no personal knowledge of the matters on which they testified; that Oblanca and Alajar lied to Judge Sadang when they stated under oath that they were the ones who conducted the testbuys on two different occasions; that the truth of the matter is that Oblanca and Alajar never made the purchases personally; that the transactions were undertaken by other persons namely, Nikko Javier and G. Villanueva as shown in the Entry/Exit Slips of MASAGANA; and that even if it were true that Oblanca and Alajar asked Nikko Javier and G. Villanueva to conduct the test-buys, the information relayed by the latter two to the former was mere hearsay.24 Petitioners also contend that if Oblanca and Alajar had indeed used different names in purchasing the LPG cylinders, they should have mentioned it in their applications for search warrants and in their testimonies during the preliminary examination; that it was only after the petitioners had submitted to the RTC the entry/exit slips showing different personalities who made the purchases that Oblanca and Alajar explained that they had to use different names in order to avoid detection; that Alajar is not connected with either of the private respondents; that Alajar was not in a position to inform the RTC as to the distinguishing trademarks of SHELLANE and GASUL; that Oblanca was not also competent to testify on the marks allegedly infringed by petitioners; that Judge Sadang failed to ask probing questions on the distinguishing marks of SHELLANE and GASUL; that the findings of the Brand Protection Committee of Pilipinas Shell were not submitted nor presented to the RTC; that although Judge Sadang examined Oblanca and Alajar, the former did not ask exhaustive questions; and that the questions Judge Sadang asked were merely rehash of the contents of the affidavits of Oblanca and Alajar.25 These contentions are devoid of merit. Article III, Section 2, of the present Constitution states the requirements before a search warrant may be validly issued, to wit: Section 2. The right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizures of whatever nature and for any

purpose shall be inviolable, and no search warrant or warrant of arrest shall issue except upon probable cause to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the persons or things to be seized. (emphasis supplied). Section 4 of Rule 126 of the Revised Rules on Criminal Procedure, provides with more particularity the requisites in issuing a search warrant, viz: SEC. 4. Requisites for issuing search warrant. A search warrant shall not issue except upon probable cause in connection with one specific offense to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the things to be seized which may be anywhere in the Philippines. According to the foregoing provisions, a search warrant can be issued only upon a finding of probable cause. Probable cause for search warrant means such facts and circumstances which would lead a reasonably discreet and prudent man to believe that an offense has been committed and that the objects sought in connection with the offense are in the place to be searched.26 The facts and circumstances being referred thereto pertain to facts, data or information personally known to the applicant and the witnesses he may present.27 The applicant or his witnesses must have personal knowledge of the circumstances surrounding the commission of the offense being complained of. "Reliable information" is insufficient. Mere affidavits are not enough, and the judge must depose in writing the complainant and his witnesses.28 Section 155 of Republic Act No. 8293 identifies the acts constituting trademark infringement, thus: SEC. 155. Remedies; Infringement. Any person who shall, without the consent of the owner of the registered mark: 155.1. Use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark or the same container or a dominant feature thereof in connection with the sale, offering for sale, distribution, advertising of any goods or services including other preparatory steps necessary to carry out the sale of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive; or 155.2. Reproduce, counterfeit, copy or colorably imitate a registered mark or a dominant feature thereof and apply such reproduction, counterfeit, copy or colorable imitation to labels, signs, prints, packages, wrappers, receptacles or advertisements intended to be used in commerce upon or in connection with the sale, offering for sale,

distribution, or advertising of goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive, shall be liable in a civil action for infringement by the registrant for the remedies hereinafter set forth: Provided, That the infringement takes place at the moment any of the acts stated in Subsection 155.1 or this subsection are committed regardless of whether there is actual sale of goods or services using the infringing material. As can be gleaned in Section 155.1, mere unauthorized use of a container bearing a registered trademark in connection with the sale, distribution or advertising of goods or services which is likely to cause confusion, mistake or deception among the buyers/consumers can be considered as trademark infringement. In his sworn affidavits,29 Oblanca stated that before conducting an investigation on the alleged illegal activities of MASAGANA, he reviewed the certificates of trademark registrations issued by the Philippine Intellectual Property Office in favor of Petron and Pilipinas Shell; that he confirmed from Petron and Pilipinas Shell that MASAGANA is not authorized to sell, use, refill or distribute GASUL and SHELLANE LPG cylinder containers; that he and Alajar monitored the activities of MASAGANA in its refilling plant station located within its compound at Governors Drive, Barangay Lapidario, Trece Martires, Cavite City; that, using different names, they conducted two test-buys therein where they purchased LPG cylinders bearing the trademarks GASUL and SHELLANE; that the said GASUL and SHELLANE LPG cylinders were refilled in their presence by the MASAGANA employees; that while they were inside the MASAGANA compound, he noticed stock piles of multi-branded cylinders including GASUL and SHELLANE LPG cylinders; and that they observed delivery trucks loaded with GASUL and SHELLANE LPG cylinders coming in and out of the MASAGANA compound and making deliveries to various retail outlets. These allegations were corroborated by Alajar in his separate affidavits. In support of the foregoing statements, Oblanca also submitted the following documentary and object evidence: 1. Certified true copy of the Certificate of Registration No. 44046 for "SHELL (DEVICE)" in the name of Shell International; 2. Certified true copy of the Certificate of Registration No. 41789 for "SHELL (DEVICE) in the name of Shell International; 3. Certified true copy of the Certificate of Registration No. 37525 for "SHELL (DEVICE) in the name of Shell International; 4. Certified true copy of the Certificate of Registration No. R-2813 for "SHELL" in the name of Shell International;

5. Certified true copy of the Certificate of Registration No. 31443 for "SHELLANE" in the name of Shell International; 6. Certified true copy of the Certificate of Registration No. 57945 for the mark "GASUL" in the name of Petron; 7. Certified true copy of the Certificate of Registration No. C-147 for "GASUL CYLINDER CONTAINING LIQUEFIED PETROLEUM GAS" in the name of Petron; 8. Certified true copy of the Certificate of Registration No. 61920 for the mark "GASUL AND DEVICE" in the name of Petron; 9. Certified true copy of the Articles of Incorporation of Masagana; 10. Certified true copy of the By-laws of Masagana; 11. Certified true copy of the latest General Information Sheet of Masagana on file with the Securities and Exchange Commission; 12. Pictures of delivery trucks coming in and out of Masagana while it delivered Gasul and Shellane LPG; 13. Cash Invoice No. 56210 dated 13 February 2003 issued by Masagana for the Gasul and Shellane LPG purchased by Agent Oblanca and witness Alajar; 14. Pictures of the Shellane and Gasul LPGs covered by Cash Invoice No. 56210 purchased from Masagana by Agent Oblanca and witness Alajar; 15. Cash Invoice No. 56398 dated 27 February 2003 issued by Masagana for the Gasul and Shellane LPG purchased by Agent Oblanca and witness Alajar; and 16. Pictures of the Shellane and Gasul LPGs covered by Cash Invoice No. 56398 purchased from Masagana by Agent Oblanca and witness Alajar.30 Extant from the foregoing testimonial, documentary and object evidence is that Oblanca and Alajar have personal knowledge of the fact that petitioners, through MASAGANA, have been using the LPG cylinders bearing the marks GASUL and SHELLANE without permission from Petron and Pilipinas Shell, a probable cause for trademark infringement. Both Oblanca and Alajar were clear and insistent that they were the very same persons who monitored the activities of MASAGANA; that they conducted test-buys thereon; and that in order to avoid suspicion, they used different names during the test-buys. They also personally witnessed the refilling of LPG cylinders bearing the marks GASUL and SHELLANE inside the MASAGANA refilling plant station and the deliveries of these refilled containers to some outlets using minitrucks.

Indeed, the aforesaid facts and circumstances are sufficient to establish probable cause. It should be borne in mind that the determination of probable cause does not call for the application of the rules and standards of proof that a judgment of conviction requires after trial on the merits. As the term implies, "probable cause" is concerned with probability, not absolute or even moral certainty. The standards of judgment are those of a reasonably prudent man, not the exacting calibrations of a judge after a full blown trial.31 The fact that Oblanca and Alajar used different names in the purchase receipts do not negate personal knowledge on their part. It is a common practice of the law enforcers such as NBI agents during covert investigations to use different names in order to conceal their true identities. This is reasonable and understandable so as not to endanger the life of the undercover agents and to facilitate the lawful arrest or apprehension of suspected violators of the law. Petitioners contention that Oblanca and Alajar should have mentioned the fact that they used different names in their respective affidavits and during the preliminary examination is puerile. The argument is too vacuous to merit serious consideration. There is nothing in the provisions of law concerning the issuance of a search warrant which directly or indirectly mandates that the applicant of the search warrant or his witnesses should state in their affidavits the fact that they used different names while conducting undercover investigations, or to divulge such fact during the preliminary examination. In the light of other more material facts which needed to be established for a finding of probable cause, it is not difficult to believe that Oblanca and Alajar failed to mention that they used aliases in entering the MASAGANA compound due to mere oversight. It cannot be gainfully said that Oblanca and Alajar are not competent to testify on the trademarks infringed by the petitioners. As earlier discussed, Oblanca declared under oath that before conducting an investigation on the alleged illegal activities of MASAGANA, he reviewed the certificates of trademark registrations issued by the Philippine Intellectual Property Office in favor of Petron and Pilipinas Shell. These certifications of trademark registrations were attached by Oblanca in his applications for the search warrants. Alajar, on the other hand, works as a private investigator and, in fact, owns a private investigation and research/consultation firm. His firm was hired and authorized, pursuant to the Brand Protection Program of Petron and Pilipinas Shell, to verify reports that MASAGANA is involved in the illegal sale and refill of GASUL and SHELLANE LPG cylinders.32 As part of the job, he studied and familiarized himself with the registered trademarks of GASUL and SHELLANE, and the distinct features of the LPG cylinders bearing the same trademarks before conducting surveillance and test-buys on MASAGANA.33 He also submitted to Oblanca several copies of the same registered trademark registrations and accompanied Oblanca during the surveillance and test-buys.

As to whether the form and manner of questioning made by Judge Sadang complies with the requirements of law, Section 5 of Rule 126 of the Revised Rules on Criminal Procedure, prescribes the rules in the examination of the complainant and his witnesses when applying for search warrant, to wit: SEC. 5. Examination of complainant; record.- The judge must, before issuing the warrant, personally examine in the form of searching questions and answers, in writing under oath, the complainant and the witnesses he may produce on facts personally known to them and attach to the record their sworn statements, together with the affidavits submitted. The searching questions propounded to the applicant and the witnesses depend largely on the discretion of the judge. Although there is no hard-andfast rule governing how a judge should conduct his investigation, it is axiomatic that the examination must be probing and exhaustive, not merely routinary, general, peripheral, perfunctory or pro forma. The judge must not simply rehash the contents of the affidavit but must make his own inquiry on the intent and justification of the application.34 After perusing the Transcript of Stenographic Notes of the preliminary examination, we found the questions of Judge Sadang to be sufficiently probing, not at all superficial and perfunctory.35 The testimonies of Oblanca and Alajar were consistent with each other and their narration of facts was credible. As correctly found by the Court of Appeals: This Court is likewise not convinced that respondent Judge failed to ask probing questions in his determination of the existence of probable cause. This Court has thoroughly examined the Transcript of Stenographic Notes taken during the investigation conducted by the respondent Judge and found that respondent Judge lengthily inquired into the circumstances of the case. For instance, he required the NBI agent to confirm the contents of his affidavit, inquired as to where the "test-buys" were conducted and by whom, verified whether PSPC and PETRON have registered trademarks or tradenames, required the NBI witness to explain how the "test-buys" were conducted and to describe the LPG cylinders purchased from Masagana Gas Corporation, inquired why the applications for Search Warrant were filed in Cavite City considering that Masagana Gas Corporation was located in Trece Martires, Cavite, inquired whether the NBI Agent has a sketch of the place and if there was any distinguishing sign to identify the place to be searched, and inquired about their alleged tailing and monitoring of the delivery trucks. x x x.36 Since probable cause is dependent largely on the opinion and findings of the judge who conducted the examination and who had the opportunity to question the applicant and his witnesses, the findings of the judge deserves great weight. The reviewing court can overturn such findings only upon proof that the judge disregarded the facts before him or ignored the clear dictates of reason.37 We find no compelling reason to disturb Judge Sadangs findings herein.

Anent the second issue, petitioners argue that Judge Sadang failed to require Oblanca to show his authority to apply for search warrants; that Oblanca is a member of the Anti-Organized Crime and not that of the Intellectual Property Division of the NBI; that all complaints for infringement should be investigated by the Intellectual Property Division of the NBI; that it is highly irregular that an agent not assigned to the Intellectual Property Division would apply for a search warrant and without authority from the NBI Director; that the alleged letter-complaint of Atty. Bienvenido Somera, Jr. of Villaraza and Angangco Law Office was not produced in court; that Judge Sadang did not require Oblanca to produce the alleged letter-complaint which is material and relevant to the determination of the existence of probable cause; and that Petron and Pilipinas Shell, being two different corporations, should have issued a board resolution authorizing the Villaraza and Angangco Law Office to apply for search warrant in their behalf.38 We reject these protestations. The authority of Oblanca to apply for the search warrants in question is clearly discussed and explained in his affidavit, viz: [That] on 11 February 2003, the National Bureau of Investigation (NBI) received a letter-complaint from Atty. Bienvenido I. Somera, Jr. of Villaraza and Angangco, on behalf of among others, Petron Corporation (PETRON) [and Pilipinas Shell Petroleum Corporation (PSPC), the authorized representative of Shell International Petroleum Company Limited (SHELL INTERNATIONAL)] requesting assistance in the investigation and, if warranted, apprehension and prosecution of certain persons and/or establishments suspected of violating the intellectual property rights of PETRON [and of PSPC and Shell International.] 11. [That] on the basis of the letter-complaint, I, together with Agent Angelo Zarzoso, was assigned as the NBI agent on the case.39 The fact that Oblanca is a member of the Anti-Organized Crime Division and not that of the Intellectual Property Division does not abrogate his authority to apply for search warrant. As aptly stated by the RTC and the Court of Appeals, there is nothing in the provisions on search warrant under Rule 126 of the Revised Rules on Criminal Procedure, which specifically commands that the applicant law enforcer must be a member of a division that is assigned or related to the subject crime or offense before the application for search warrant may be acted upon. The petitioners did not also cite any law, rule or regulation mandating such requirement. At most, petitioners may only be referring to the administrative organization and/or internal rule or practice of the NBI. However, not only did petitioners failed to establish the existence thereof, but they also did not prove that such administrative organization and/or internal rule or practice are inviolable.

Neither is the presentation of the letter-complaint of Atty. Somera and board resolutions from Petron and Pilipinas Shell required or necessary in determining probable cause. As heretofore discussed, the affidavits of Oblanca and Alajar, coupled with the object and documentary evidence they presented, are sufficient to establish probable cause. It can also be presumed that Oblanca, as an NBI agent, is a public officer who had regularly performed his official duty.40 He would not have initiated an investigation on MASAGANA without a proper complaint. Furthermore, Atty. Somera did not step up to deny his letter-complaint. Regarding the third issue, petitioners posit that the applications for search warrants of Oblanca did not specify the particular area to be searched, hence, giving the raiding team wide latitude in determining what areas they can search. They aver that the search warrants were general warrants, and are therefore violative of the Constitution. Petitioners also assert that since the MASAGANA compound is about 10,000.00 square meters with several structures erected on the lot, the search warrants should have defined the areas to be searched. The long standing rule is that a description of the place to be searched is sufficient if the officer with the warrant can, with reasonable effort, ascertain and identify the place intended and distinguish it from other places in the community. Any designation or description known to the locality that points out the place to the exclusion of all others, and on inquiry leads the officers unerringly to it, satisfies the constitutional requirement.41 Moreover, in the determination of whether a search warrant describes the premises to be searched with sufficient particularity, it has been held that the executing officers prior knowledge as to the place intended in the warrant is relevant. This would seem to be especially true where the executing officer is the affiant on whose affidavit the warrant had been issued, and when he knows that the judge who issued the warrant intended the compound described in the affidavit.42 The search warrants in question commanded any peace officer to make an immediate search on MASAGANA compound located at Governors Drive, Barangay Lapidario, Trece Martires, Cavite City. It appears that the raiding team had ascertained and reached MASAGANA compound without difficulty since MASAGANA does not have any other offices/plants in Trece Martires, Cavite City. Moreover, Oblanca, who was with the raiding team, was already familiar with the MASAGANA compound as he and Alajar had monitored and conducted test-buys thereat. Even if there are several structures inside the MASAGANA compound, there was no need to particularize the areas to be searched because, as correctly stated by Petron and Pilipinas Shell, these structures constitute the essential and necessary components of the petitioners business and cannot be treated separately as they form part of one entire compound. The compound is owned and used solely by MASAGANA. What the case law merely requires is that, the place to be searched can

be distinguished in relation to the other places in the community. Indubitably, this requisite was complied with in the instant case. As to the fourth issue, petitioners asseverate that the search warrants did not indicate with particularity the items to be seized since the search warrants merely described the items to be seized as LPG cylinders bearing the trademarks GASUL and SHELLANE without specifying their sizes. A search warrant may be said to particularly describe the things to be seized when the description therein is as specific as the circumstances will ordinarily allow; or when the description expresses a conclusion of fact not of law by which the warrant officer may be guided in making the search and seizure; or when the things described are limited to those which bear direct relation to the offense for which the warrant is being issued.43 While it is true that the property to be seized under a warrant must be particularly described therein and no other property can be taken thereunder, yet the description is required to be specific only in so far as the circumstances will ordinarily allow. The law does not require that the things to be seized must be described in precise and minute details as to leave no room for doubt on the part of the searching authorities; otherwise it would be virtually impossible for the applicants to obtain a search warrant as they would not know exactly what kind of things they are looking for. Once described, however, the articles subject of the search and seizure need not be so invariant as to require absolute concordance, in our view, between those seized and those described in the warrant. Substantial similarity of those articles described as a class or specie would suffice.44 Measured against this standard, we find that the items to be seized under the search warrants in question were sufficiently described with particularity. The articles to be confiscated were restricted to the following: (1) LPG cylinders bearing the trademarks GASUL and SHELLANE; (2) Machines and equipments used or intended to be used in the illegal refilling of GASUL and SHELLANE cylinders. These machines were also specifically enumerated and listed in the search warrants; (3) Documents which pertain only to the production, sale and distribution of the GASUL and SHELLANE LPG cylinders; and (4) Delivery trucks bearing Plate Nos. WTE-527, XAM-970 and WFC603, hauling trucks, and/or other delivery trucks or vehicles or conveyances being used or intended to be used for the purpose of selling and/or distributing GASUL and SHELLANE LPG cylinders.45 Additionally, since the described items are clearly limited only to those which bear direct relation to the offense, i.e., violation of section 155 of Republic Act No. 8293, for which the warrant was issued, the requirement of particularity of description is satisfied.

Given the foregoing, the indication of the accurate sizes of the GASUL and SHELLANE LPG cylinders or tanks would be unnecessary. Finally, petitioners claim that MASAGANA has the right to intervene and to move for the return of the seized items; that the items seized by the raiding team were being used in the legitimate business of MASAGANA; that the raiding team had no right to seize them under the guise that the same were being used in refilling GASUL and SHELLANE LPG cylinders; and that there being no action for infringement filed against them and/or MASAGANA from the seizure of the items up to the present, it is only fair that the seized articles be returned to the lawful owner in accordance with Section 20 of A.M. No. 02-1-06-SC. It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders, directors or officers. However, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons, or in the case of two corporations merge them into one.46 In other words, the law will not recognize the separate corporate existence if the corporation is being used pursuant to the foregoing unlawful objectives. This non-recognition is sometimes referred to as the doctrine of piercing the veil of corporate entity or disregarding the fiction of corporate entity. Where the separate corporate entity is disregarded, the corporation will be treated merely as an association of persons and the stockholders or members will be considered as the corporation, that is, liability will attach personally or directly to the officers and stockholders.47 As we now find, the petitioners, as directors/officers of MASAGANA, are utilizing the latter in violating the intellectual property rights of Petron and Pilipinas Shell. Thus, petitioners collectively and MASAGANA should be considered as one and the same person for liability purposes. Consequently, MASAGANAs third party claim serves no refuge for petitioners. Even if we were to sustain the separate personality of MASAGANA from that of the petitioners, the effect will be the same. The law does not require that the property to be seized should be owned by the person against whom the search warrants is directed. Ownership, therefore, is of no consequence, and it is sufficient that the person against whom the warrant is directed has control or possession of the property sought to be seized.48 Hence, even if, as petitioners claimed, the properties seized belong to MASAGANA as a separate entity, their seizure pursuant to the search warrants is still valid. Further, it is apparent that the motor compressor, LPG refilling machine and the GASUL and SHELL LPG cylinders seized were the corpus delicti, the body or substance of the crime, or the evidence of the commission of trademark infringement. These were the very instruments used or intended to be used by the petitioners in trademark infringement. It is possible that, if returned to MASAGANA, these items will

be used again in violating the intellectual property rights of Petron and Pilipinas Shell.49 Thus, the RTC was justified in denying the petitioners motion for their return so as to prevent the petitioners and/or MASAGANA from using them again in trademark infringement. Petitioners reliance on Section 20 of A.M. No. 02-1-06-SC,50 is not tenable. As correctly observed by the Solicitor General, A.M. 02-1-06-SC is not applicable in the present case because it governs only searches and seizures in civil actions for infringement of intellectual property rights.51 The offense complained of herein is for criminal violation of Section 155 in relation to Section 17052 of Republic Act No. 8293. WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 79256, dated 30 September 2004 and 1 June 2005, respectively, are hereby AFFIRMED. Costs against petitioners. SO ORDERED.

G.R. No. L-2598

June 29, 1950

C. ARNOLD HALL and BRADLEY P. HALL, petitioners, vs. EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED BROWN, EMMA BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of the Far Eastern Lumber and Commercial Co., Inc., respondents. Claro M. Recto for petitioners. Ramon Diokno and Jose W. Diokno for respondents. BENGZON, J.: This is petition to set aside all the proceedings had in civil case No. 381 of the Court of First Instance of Leyte and to enjoin the respondent judge from further acting upon the same. Facts: (1) on May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the article of incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber business to carry on as general contractors, operators and managers, etc. Attached to the article was an affidavit of the treasurer stating that 23,428 shares of stock had been subscribed and fully paid with certain properties transferred to the corporation described in a list appended thereto. (2) Immediately after the execution of said articles of incorporation, the corporation proceeded to do business with the adoption of by-laws and the election of its officers. (3) On December 2, 1947, the said articles of incorporation were filed in the office of the Securities and Exchange Commissioner, for the issuance of the corresponding certificate of incorporation. (4) On March 22, 1948, pending action on the articles of incorporation by the aforesaid governmental office, the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed before the Court of First Instance of Leyte the civil case numbered 381, entitled "Fred Brown et al. vs. Arnold C. Hall et al.", alleging among other things that the Far Eastern Lumber and Commercial Co. was an unregistered partnership; that they wished to have it dissolved because of bitter dissension among the members, mismanagement and fraud by the managers and heavy financial losses. (5) The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss, contesting the court's jurisdiction and the sufficiently of the cause of action.

(6) After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company; and at the request of plaintiffs, appointed of the properties thereof, upon the filing of a P20,000 bond. (7) The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the receiver, but the respondent judge refused to accept the offer and to discharge the receiver. Whereupon, the present special civil action was instituted in this court. It is based upon two main propositions, to wit: (a) The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company, because it being a de facto corporation, dissolution thereof may only be ordered in a quo warranto proceeding instituted in accordance with section 19 of the Corporation Law. (b) Inasmuch as respondents Fred Brown and Emma Brown had signed the article of incorporation but only a partnership. Discussion: The second proposition may at once be dismissed. All the parties are informed that the Securities and Exchange Commission has not, so far, issued the corresponding certificate of incorporation. All of them know, or sought to know, that the personality of a corporation begins to exist only from the moment such certificate is issued not before (sec. 11, Corporation Law). The complaining associates have not represented to the others that they were incorporated any more than the latter had made similar representations to them. And as nobody was led to believe anything to his prejudice and damage, the principle of estoppel does not apply. Obviously this is not an instance requiring the enforcement of contracts with the corporation through the rule of estoppel. The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern Lumber and Commercial Co., is a de facto corporation, section 19 of the Corporation Law applies, and therefore the court had not jurisdiction to take cognizance of said civil case number 381. Section 19 reads as follows: . . . The due incorporation of any corporations claiming in good faith to be a corporation under this Act and its right to exercise corporate powers shall not be inquired into collaterally in any private suit to which the corporation may be a party, but such inquiry may be had at the suit of the Insular Government on information of the Attorney-General. There are least two reasons why this section does not govern the situation. Not having obtained the certificate of incorporation, the Far Eastern Lumber and Commercial Co. even its stockholders may not probably claim "in good faith" to be a corporation. Under our statue it is to be noted (Corporation Law, sec. 11) that it is the issuance of a certificate of incorporation by the Director of the Bureau of

Commerce and Industry which calls a corporation into being. The immunity if collateral attack is granted to corporations "claiming in good faith to be a corporation under this act." Such a claim is compatible with the existence of errors and irregularities; but not with a total or substantial disregard of the law. Unless there has been an evident attempt to comply with the law the claim to be a corporation "under this act" could not be made "in good faith." (Fisher on the Philippine Law of Stock Corporations, p. 75. See also Humphreys vs. Drew, 59 Fla., 295; 52 So., 362.) Second, this is not a suit in which the corporation is a party. This is a litigation between stockholders of the alleged corporation, for the purpose of obtaining its dissolution. Even the existence of a de jure corporation may be terminated in a private suit for its dissolution between stockholders, without the intervention of the state. There might be room for argument on the right of minority stockholders to sue for dissolution;1 but that question does not affect the court's jurisdiction, and is a matter for decision by the judge, subject to review on appeal. Whkch brings us to one principal reason why this petition may not prosper, namely: the petitioners have their remedy by appealing the order of dissolution at the proper time. There is a secondary issue in connection with the appointment of a receiver. But it must be admitted that receivership is proper in proceedings for dissolution of a company or corporation, and it was no error to reject the counter-bond, the court having declared the dissolution. As to the amount of the bond to be demanded of the receiver, much depends upon the discretion of the trial court, which in this instance we do not believe has been clearly abused. Judgment: The petition will, therefore, be dismissed, with costs. The preliminary injunction heretofore issued will be dissolved. Ozaeta, Pablo, Tuason, Montemayor, and Reyes, JJ., concur.

G.R. No. 150416

July 21, 2006

SEVENTH DAY ADVENTIST CONFERENCE CHURCH OF SOUTHERN PHILIPPINES, INC., and/or represented by MANASSEH C. ARRANGUEZ, BRIGIDO P. GULAY, FRANCISCO M. LUCENARA, DIONICES O. TIPGOS, LORESTO C. MURILLON, ISRAEL C. NINAL, GEORGE G. SOMOSOT, JESSIE T. ORBISO, LORETO PAEL and JOEL BACUBAS, petitioners, vs. NORTHEASTERN MINDANAO MISSION OF SEVENTH DAY ADVENTIST, INC., and/or represented by JOSUE A. LAYON, WENDELL M. SERRANO, FLORANTE P. TY and JETHRO CALAHAT and/or SEVENTH DAY ADVENTIST CHURCH [OF] NORTHEASTERN MINDANAO MISSION,* Respondents. DECISION CORONA, J.: This petition for review on certiorari assails the Court of Appeals (CA) decision1 and resolution2 in CA-G.R. CV No. 41966 affirming, with modification, the decision of the Regional Trial Court (RTC) of Bayugan, Agusan del Sur, Branch 7 in Civil Case No. 63. This case involves a 1,069 sq. m. lot covered by Transfer Certificate of Title (TCT) No. 4468 in Bayugan, Agusan del Sur originally owned by Felix Cosio and his wife, Felisa Cuysona. On April 21, 1959, the spouses Cosio donated the land to the South Philippine Union Mission of Seventh Day Adventist Church of Bayugan Esperanza, Agusan (SPUMSDA Bayugan).3 Part of the deed of donation read: KNOW ALL MEN BY THESE PRESENTS: That we Felix Cosio[,] 49 years of age[,] and Felisa Cuysona[,] 40 years of age, [h]usband and wife, both are citizen[s] of the Philippines, and resident[s] with post office address in the Barrio of Bayugan, Municipality of Esperanza, Province of Agusan, Philippines, do hereby grant, convey and forever quit claim by way of Donation or gift unto the South Philippine [Union] Mission of Seventh Day Adventist Church of Bayugan, Esperanza, Agusan, all the rights, title, interest, claim and demand both at law and as well in possession as in expectancy of in and to all the place of land and portion situated in the Barrio of Bayugan, Municipality of Esperanza, Province of Agusan, Philippines, more particularly and bounded as follows, to wit: 1. a parcel of land for Church Site purposes only. 2. situated [in Barrio Bayugan, Esperanza]. 3. Area: 30 meters wide and 30 meters length or 900 square meters.

4. Lot No. 822-Pls-225. Homestead Application No. V-36704, Title No. P-285. 5. Bounded Areas North by National High Way; East by Bricio Gerona; South by Serapio Abijaron and West by Feliz Cosio xxx. 4 The donation was allegedly accepted by one Liberato Rayos, an elder of the Seventh Day Adventist Church, on behalf of the donee. Twenty-one years later, however, on February 28, 1980, the same parcel of land was sold by the spouses Cosio to the Seventh Day Adventist Church of Northeastern Mindanao Mission (SDA-NEMM).5 TCT No. 4468 was thereafter issued in the name of SDA-NEMM.6 Claiming to be the alleged donees successors-in-interest, petitioners asserted ownership over the property. This was opposed by respondents who argued that at the time of the donation, SPUM-SDA Bayugan could not legally be a donee because, not having been incorporated yet, it had no juridical personality. Neither were petitioners members of the local church then, hence, the donation could not have been made particularly to them. On September 28, 1987, petitioners filed a case, docketed as Civil Case No. 63 (a suit for cancellation of title, quieting of ownership and possession, declaratory relief and reconveyance with prayer for preliminary injunction and damages), in the RTC of Bayugan, Agusan del Sur. After trial, the trial court rendered a decision7 on November 20, 1992 upholding the sale in favor of respondents. On appeal, the CA affirmed the RTC decision but deleted the award of moral damages and attorneys fees.8 Petitioners motion for reconsideration was likewise denied. Thus, this petition. The issue in this petition is simple: should SDA-NEMMs ownership of the lot covered by TCT No. 4468 be upheld?9 We answer in the affirmative. The controversy between petitioners and respondents involves two supposed transfers of the lot previously owned by the spouses Cosio: (1) a donation to petitioners alleged predecessors-in-interest in 1959 and (2) a sale to respondents in 1980. Donation is undeniably one of the modes of acquiring ownership of real property. Likewise, ownership of a property may be transferred by tradition as a consequence of a sale.

Petitioners contend that the appellate court should not have ruled on the validity of the donation since it was not among the issues raised on appeal. This is not correct because an appeal generally opens the entire case for review. We agree with the appellate court that the alleged donation to petitioners was void. Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another person who accepts it. The donation could not have been made in favor of an entity yet inexistent at the time it was made. Nor could it have been accepted as there was yet no one to accept it. The deed of donation was not in favor of any informal group of SDA members but a supposed SPUM-SDA Bayugan (the local church) which, at the time, had neither juridical personality nor capacity to accept such gift. Declaring themselves a de facto corporation, petitioners allege that they should benefit from the donation. But there are stringent requirements before one can qualify as a de facto corporation: (a) the existence of a valid law under which it may be incorporated; (b) an attempt in good faith to incorporate; and (c) assumption of corporate powers.10 While there existed the old Corporation Law (Act 1459),11 a law under which SPUMSDA Bayugan could have been organized, there is no proof that there was an attempt to incorporate at that time. The filing of articles of incorporation and the issuance of the certificate of incorporation are essential for the existence of a de facto corporation.12 We have held that an organization not registered with the Securities and Exchange Commission (SEC) cannot be considered a corporation in any concept, not even as a corporation de facto.13 Petitioners themselves admitted that at the time of the donation, they were not registered with the SEC, nor did they even attempt to organize14 to comply with legal requirements. Corporate existence begins only from the moment a certificate of incorporation is issued. No such certificate was ever issued to petitioners or their supposed predecessor-in-interest at the time of the donation. Petitioners obviously could not have claimed succession to an entity that never came to exist. Neither could the principle of separate juridical personality apply since there was never any corporation15 to speak of. And, as already stated, some of the representatives of petitioner Seventh Day Adventist Conference Church of Southern Philippines, Inc. were not even

members of the local church then, thus, they could not even claim that the donation was particularly for them.16 "The de facto doctrine thus effects a compromise between two conflicting public interest[s]the one opposed to an unauthorized assumption of corporate privileges; the other in favor of doing justice to the parties and of establishing a general assurance of security in business dealing with corporations."17 Generally, the doctrine exists to protect the public dealing with supposed corporate entities, not to favor the defective or non-existent corporation.18 In view of the foregoing, petitioners arguments anchored on their supposed de facto status hold no water. We are convinced that there was no donation to petitioners or their supposed predecessor-in-interest. On the other hand, there is sufficient basis to affirm the title of SDA-NEMM. The factual findings of the trial court in this regard were not convincingly disputed. This Court is not a trier of facts. Only questions of law are the proper subject of a petition for review on certiorari.19 Sustaining the validity of respondents title as well as their right of ownership over the property, the trial court stated: [W]hen Felix Cosio was shown the Absolute Deed of Sale during the hearing xxx he acknowledged that the same was his xxx but that it was not his intention to sell the controverted property because he had previously donated the same lot to the South Philippine Union Mission of SDA Church of Bayugan-Esperanza. Cosio avouched that had it been his intendment to sell, he would not have disposed of it for a mere P2,000.00 in two installments but for P50,000.00 or P60,000.00. According to him, the P2,000.00 was not a consideration of the sale but only a form of help extended. A thorough analysis and perusal, nonetheless, of the Deed of Absolute Sale disclosed that it has the essential requisites of contracts pursuant to xxx Article 1318 of the Civil Code, except that the consideration of P2,000.00 is somewhat insufficient for a [1,069-square meter] land. Would then this inadequacy of the consideration render the contract invalid? Article 1355 of the Civil Code provides: Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. No evidence [of fraud, mistake or undue influence] was adduced by [petitioners]. xxx

Well-entrenched is the rule that a Certificate of Title is generally a conclusive evidence of [ownership] of the land. There is that strong and solid presumption that titles were legally issued and that they are valid. It is irrevocable and indefeasible and the duty of the Court is to see to it that the title is maintained and respected unless challenged in a direct proceeding. xxx The title shall be received as evidence in all the Courts and shall be conclusive as to all matters contained therein. [This action was instituted almost seven years after the certificate of title in respondents name was issued in 1980.]20 According to Art. 1477 of the Civil Code, the ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. On this, the noted author Arturo Tolentino had this to say: The execution of [a] public instrument xxx transfers the ownership from the vendor to the vendee who may thereafter exercise the rights of an owner over the same21 Here, transfer of ownership from the spouses Cosio to SDA-NEMM was made upon constructive delivery of the property on February 28, 1980 when the sale was made through a public instrument.22 TCT No. 4468 was thereafter issued and it remains in the name of SDA-NEMM. WHEREFORE, the petition is hereby DENIED. Costs against petitioners. SO ORDERED.

[G.R. No. 119002. October 19, 2000] INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION, respondents. DECISION KAPUNAN, J.: On June 30 1989, petitioner International Express Travel and Tour Services, Inc., through its managing director, wrote a letter to the Philippine Football Federation (Federation), through its president private respondent Henri Kahn, wherein the former offered its services as a travel agency to the latter.i[1] The offer was accepted. Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in Kuala Lumpur as well as various other trips to the People's Republic of China and Brisbane. The total cost of the tickets amounted to P449,654.83. For the tickets received, the Federation made two partial payments, both in September of 1989, in the total amount of P176,467.50.ii[2] On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand letter requesting for the amount of P265,894.33.iii[3] On 30 October 1989, the Federation, through the Project Gintong Alay, paid the amount of P31,603.00.iv[4] On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial payment for the outstanding balance of the Federation.v[5] Thereafter, no further payments were made despite repeated demands. This prompted petitioner to file a civil case before the Regional Trial Court of Manila. Petitioner sued Henri Kahn in his personal capacity and as President of the Federation and impleaded the Federation as an alternative defendant. Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased by the Federation on the ground that Henri Kahn allegedly guaranteed the said obligation.vi[6] Henri Kahn filed his answer with counterclaim. While not denying the allegation that the Federation owed the amount P207,524.20, representing the unpaid balance for the plane tickets, he averred that the petitioner has no cause of action against him either in his personal capacity or in his official capacity as president of the Federation. He maintained that he did not guarantee payment but merely acted as an agent of the Federation which has a separate and distinct juridical personality.vii[7] On the other hand, the Federation failed to file its answer, hence, was declared in default by the trial court.viii[8]

In due course, the trial court rendered judgment and ruled in favor of the petitioner and declared Henri Kahn personally liable for the unpaid obligation of the Federation. In arriving at the said ruling, the trial court rationalized: Defendant Henri Kahn would have been correct in his contentions had it been duly established that defendant Federation is a corporation. The trouble, however, is that neither the plaintiff nor the defendant Henri Kahn has adduced any evidence proving the corporate existence of the defendant Federation. In paragraph 2 of its complaint, plaintiff asserted that "Defendant Philippine Football Federation is a sports association xxx." This has not been denied by defendant Henri Kahn in his Answer. Being the President of defendant Federation, its corporate existence is within the personal knowledge of defendant Henri Kahn. He could have easily denied specifically the assertion of the plaintiff that it is a mere sports association, if it were a domestic corporation. But he did not. xxx A voluntary unincorporated association, like defendant Federation has no power to enter into, or to ratify, a contract. The contract entered into by its officers or agents on behalf of such association is not binding on, or enforceable against it. The officers or agents are themselves personally liable. x x xix[9] The dispositive portion of the trial court's decision reads: WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the plaintiff the principal sum of P207,524.20, plus the interest thereon at the legal rate computed from July 5, 1990, the date the complaint was filed, until the principal obligation is fully liquidated; and another sum of P15,000.00 for attorney's fees. The complaint of the plaintiff against the Philippine Football Federation and the counterclaims of the defendant Henri Kahn are hereby dismissed. With the costs against defendant Henri Kahn.x[10] Only Henri Kahn elevated the above decision to the Court of Appeals. On 21 December 1994, the respondent court rendered a decision reversing the trial court, the decretal portion of said decision reads: WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET ASIDE and another one is rendered dismissing the complaint against defendant Henri S. Kahn.xi[11] In finding for Henri Kahn, the Court of Appeals recognized the juridical existence of the Federation. It rationalized that since petitioner failed to prove that Henri Kahn

guaranteed the obligation of the Federation, he should not be held liable for the same as said entity has a separate and distinct personality from its officers. Petitioner filed a motion for reconsideration and as an alternative prayer pleaded that the Federation be held liable for the unpaid obligation. The same was denied by the appellate court in its resolution of 8 February 1995, where it stated that: As to the alternative prayer for the Modification of the Decision by expressly declaring in the dispositive portion thereof the Philippine Football Federation (PFF) as liable for the unpaid obligation, it should be remembered that the trial court dismissed the complaint against the Philippine Football Federation, and the plaintiff did not appeal from this decision. Hence, the Philippine Football Federation is not a party to this appeal and consequently, no judgment may be pronounced by this Court against the PFF without violating the due process clause, let alone the fact that the judgment dismissing the complaint against it, had already become final by virtue of the plaintiff's failure to appeal therefrom. The alternative prayer is therefore similarly DENIED.xii[12] Petitioner now seeks recourse to this Court and alleges that the respondent court committed the following assigned errors:xiii[13] A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAD DEALT WITH THE PHILIPPINE FOOTBALL FEDERATION (PFF) AS A CORPORATE ENTITY AND IN NOT HOLDING THAT PRIVATE RESPONDENT HENRI KAHN WAS THE ONE WHO REPRESENTED THE PFF AS HAVING A CORPORATE PERSONALITY. B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT HENRI KAHN PERSONALLY LIABLE FOR THE OBLIGATION OF THE UNINCORPORATED PFF, HAVING NEGOTIATED WITH PETITIONER AND CONTRACTED THE OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL PAYMENT AND ASSURED PETITIONER OF FULLY SETTLING THE OBLIGATION. C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT PERSONALLY LIABLE, THE HONORABLE COURT OF APPEALS ERRED IN NOT EXPRESSLY DECLARING IN ITS DECISION THAT THE PFF IS SOLELY LIABLE FOR THE OBLIGATION. The resolution of the case at bar hinges on the determination of the existence of the Philippine Football Federation as a juridical person. In the assailed decision, the appellate court recognized the existence of the Federation. In support of this, the CA cited Republic Act 3135, otherwise known as the Revised Charter of the Philippine Amateur Athletic Federation, and Presidential Decree No. 604 as the laws from which said Federation derives its existence.

As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical existence of national sports associations. This may be gleaned from the powers and functions granted to these associations. Section 14 of R.A. 3135 provides: SEC. 14. Functions, powers and duties of Associations. - The National Sports' Association shall have the following functions, powers and duties: 1. To adopt a constitution and by-laws for their internal organization and government; 2. To raise funds by donations, benefits, and other means for their purposes.

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

5. Affiliate with international or regional sports associations after due consultation with the Department; xxx 13. Perform such other functions as may be provided by law. The above powers and functions granted to national sports associations clearly indicate that these entities may acquire a juridical personality. The power to purchase, sell, lease and encumber property are acts which may only be done by persons, whether natural or artificial, with juridical capacity. However, while we agree with the appellate court that national sports associations may be accorded corporate status, such does not automatically take place by the mere passage of these laws. It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form of a special law or a general enabling act. We cannot agree with the view of the appellate court and the private respondent that the Philippine Football Federation came into existence upon the passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the Philippine Football Federation. These laws merely recognized the existence of national sports associations and provided the manner by which these entities may acquire juridical personality. Section 11 of R.A. 3135 provides: SEC. 11. National Sports' Association; organization and recognition. - A National Association shall be organized for each individual sports in the Philippines in the manner hereinafter provided to constitute the Philippine Amateur Athletic Federation. Applications for recognition as a National Sports' Association shall be filed with the executive committee together with, among others, a copy of the constitution and bylaws and a list of the members of the proposed association, and a filing fee of ten pesos. The Executive Committee shall give the recognition applied for if it is satisfied that said association will promote the purposes of this Act and particularly section three thereof. No application shall be held pending for more than three months after the filing thereof without any action having been taken thereon by the executive committee. Should the application be rejected, the reasons for such rejection shall be clearly stated in a written communication to the applicant. Failure to specify the reasons for the rejection shall not affect the application which shall be considered as unacted upon: Provided, however, That until the executive committee herein provided shall have been formed, applications for recognition shall be passed upon by the duly elected members of the present executive committee of the Philippine Amateur Athletic Federation. The said executive committee shall be dissolved upon the organization of the executive committee herein provided: Provided, further, That the functioning executive committee is charged with the responsibility of seeing to it that the National Sports' Associations are formed and organized within six months from and after the passage of this Act.

Section 7 of P.D. 604, similarly provides: SEC. 7. National Sports Associations. - Application for accreditation or recognition as a national sports association for each individual sport in the Philippines shall be filed with the Department together with, among others, a copy of the Constitution and By-Laws and a list of the members of the proposed association. The Department shall give the recognition applied for if it is satisfied that the national sports association to be organized will promote the objectives of this Decree and has substantially complied with the rules and regulations of the Department: Provided, That the Department may withdraw accreditation or recognition for violation of this Decree and such rules and regulations formulated by it. The Department shall supervise the national sports association: Provided, That the latter shall have exclusive technical control over the development and promotion of the particular sport for which they are organized. Clearly the above cited provisions require that before an entity may be considered as a national sports association, such entity must be recognized by the accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135, and the Department of Youth and Sports Development under P.D. 604. This fact of recognition, however, Henri Kahn failed to substantiate. In attempting to prove the juridical existence of the Federation, Henri Kahn attached to his motion for reconsideration before the trial court a copy of the constitution and by-laws of the Philippine Football Federation. Unfortunately, the same does not prove that said Federation has indeed been recognized and accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and Sports Development. Accordingly, we rule that the Philippine Football Federation is not a national sports association within the purview of the aforementioned laws and does not have corporate existence of its own. Thus being said, it follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine Football Federation. It is a settled principal in corporation law that any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and becomes personally liable for contract entered into or for other acts performed as such agent.xiv[14] As president of the Federation, Henri Kahn is presumed to have known about the corporate existence or non-existence of the Federation. We cannot subscribe to the position taken by the appellate court that even assuming that the Federation was defectively incorporated, the petitioner cannot deny the corporate existence of the Federation because it had contracted and dealt with the Federation in such a manner as to recognize and in effect admit its existence.xv[15] The doctrine of corporation by estoppel is mistakenly applied by the respondent court to the petitioner. The application of the doctrine applies to a third party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective

incorporation.xvi[16] In the case at bar, the petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract. WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The decision of the Regional Trial Court of Manila, Branch 35, in Civil Case No. 90-53595 is hereby REINSTATED. SO ORDERED.

G.R. No. 141994

January 17, 2005

FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents. DECISION CARPIO, J.: The Case This petition for review1 assails the 4 January 1999 Decision2 and 26 January 2000 Resolution of the Court of Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December 1992 Decision3 of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel and ordered them to solidarily pay Ago Medical and Educational Center-Bicol Christian College of Medicine moral damages, attorneys fees and costs of suit. The Antecedents "Expos" is a radio documentary4 program hosted by Carmelo Mel Rima ("Rima") and Hermogenes Jun Alegre ("Alegre").5 Expos is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. ("FBNI"). "Expos" is heard over Legazpi City, the Albay municipalities and other Bicol areas.6 In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students, teachers and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine ("AMEC") and its administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago ("Ago"), as Dean of AMECs College of Medicine, filed a complaint for damages7 against FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of the allegedly libelous broadcasts: JUN ALEGRE: Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them to pass all subjects because if they fail in any subject they will repeat their year level, taking up all subjects including those they have passed already. Several students had approached me stating that they had consulted with the DECS which told them that there is no such regulation. If [there] is no such regulation why is AMEC doing the same?

xxx Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS. xxx Third: Students are required to take and pay for the subject even if the subject does not have an instructor - such greed for money on the part of AMECs administration. Take the subject Anatomy: students would pay for the subject upon enrolment because it is offered by the school. However there would be no instructor for such subject. Students would be informed that course would be moved to a later date because the school is still searching for the appropriate instructor. xxx It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the past few years since its inception because of funds support from foreign foundations. If you will take a look at the AMEC premises youll find out that the names of the buildings there are foreign soundings. There is a McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence that the support of foreign foundations for AMEC is substantial, isnt it? With the report which is the basis of the expose in DZRC today, it would be very easy for detractors and enemies of the Ago family to stop the flow of support of foreign foundations who assist the medical school on the basis of the latters purpose. But if the purpose of the institution (AMEC) is to deceive students at cross purpose with its reason for being it is possible for these foreign foundations to lift or suspend their donations temporarily.8 xxx On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of Mass Communication in their effort to minimize expenses in terms of salary are absorbing or continues to accept "rejects". For example how many teachers in AMEC are former teachers of Aquinas University but were removed because of immorality? Does it mean that the present administration of AMEC have the total definite moral foundation from catholic administrator of Aquinas University. I will prove to you my friends, that AMEC is a dumping ground, garbage, not merely of moral and physical misfits. Probably they only qualify in terms of intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the family name implies. She is too old to work, being an old woman. Is the AMEC administration exploiting the very [e]nterprising or compromising and undemanding Lola? Could it be that AMEC is just patiently making use of Dean Justita Lola were if she is very old. As in atmospheric situation zero visibility the plane cannot land, meaning she is very old, low pay follows. By the way, Dean Justita Lola is also the chairman of the committee on scholarship in AMEC. She had retired from Bicol University a long time ago but AMEC has patiently made use of her.

xxx MEL RIMA: xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does this mean? Immoral and physically misfits as teachers. May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You are too old. As an aviation, your case is zero visibility. Dont insist. xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The reason is practical cost saving in salaries, because an old person is not fastidious, so long as she has money to buy the ingredient of beetle juice. The elderly can get by thats why she (Lola) was taken in as Dean. xxx xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by evil. When they become members of society outside of campus will be liabilities rather than assets. What do you expect from a doctor who while studying at AMEC is so much burdened with unreasonable imposition? What do you expect from a student who aside from peculiar problems because not all students are rich in their struggle to improve their social status are even more burdened with false regulations. xxx9 (Emphasis supplied) The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI, Rima and Alegre "transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation." AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence in the selection and supervision of its employees, particularly Rima and Alegre. On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer10 alleging that the broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a sense of public duty to report the "goings-on in AMEC, [which is] an institution imbued with public interest." Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea, collaborating counsel of Atty. Lozares, filed a Motion to Dismiss11 on FBNIs behalf. The trial court denied the motion to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in the selection and supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster should (1) file an application; (2) be interviewed; and (3) undergo an apprenticeship and training program after passing the interview. FBNI likewise claimed

that it always reminds its broadcasters to "observe truth, fairness and objectivity in their broadcasts and to refrain from using libelous and indecent language." Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga Brodkaster sa Pilipinas ("KBP") accreditation test and to secure a KBP permit. On 14 December 1992, the trial court rendered a Decision12 finding FBNI and Alegre liable for libel except Rima. The trial court held that the broadcasts are libelous per se. The trial court rejected the broadcasters claim that their utterances were the result of straight reporting because it had no factual basis. The broadcasters did not even verify their reports before airing them to show good faith. In holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the selection and supervision of its employees. In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he agreed with Alegres expos. The trial court found Rimas statement within the "bounds of freedom of speech, expression, and of the press." The dispositive portion of the decision reads: WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused by the controversial utterances, which are not found by this court to be really very serious and damaging, and there being no showing that indeed the enrollment of plaintiff school dropped, defendants Hermogenes "Jun" Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio station DZRC), are hereby jointly and severally ordered to pay plaintiff Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the amount of P300,000.00 moral damages, plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of suit. SO ORDERED. 13 (Emphasis supplied) Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision to the Court of Appeals. The Court of Appeals affirmed the trial courts judgment with modification. The appellate court made Rima solidarily liable with FBNI and Alegre. The appellate court denied Agos claim for damages and attorneys fees because the broadcasts were directed against AMEC, and not against her. The dispositive portion of the Court of Appeals decision reads: WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre. SO ORDERED.14 FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000 Resolution.

Hence, FBNI filed this petition.15 The Ruling of the Court of Appeals The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per se and that FBNI, Rima and Alegre failed to overcome the legal presumption of malice. The Court of Appeals found Rima and Alegres claim that they were actuated by their moral and social duty to inform the public of the students gripes as insufficient to justify the utterance of the defamatory remarks. Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled that the broadcasts were made "with reckless disregard as to whether they were true or false." The appellate court pointed out that FBNI, Rima and Alegre failed to present in court any of the students who allegedly complained against AMEC. Rima and Alegre merely gave a single name when asked to identify the students. According to the Court of Appeals, these circumstances cast doubt on the veracity of the broadcasters claim that they were "impelled by their moral and social duty to inform the public about the students gripes." The Court of Appeals found Rima also liable for libel since he remarked that "(1) AMEC-BCCM is a dumping ground for morally and physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to minimize expenses on its employees salaries; and (3) AMEC burdened the students with unreasonable imposition and false regulations."16 The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its employees for allowing Rima and Alegre to make the radio broadcasts without the proper KBP accreditation. The Court of Appeals denied Agos claim for damages and attorneys fees because the libelous remarks were directed against AMEC, and not against her. The Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages, attorneys fees and costs of suit.1awphi1.nt Issues FBNI raises the following issues for resolution: I. WHETHER THE BROADCASTS ARE LIBELOUS; II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES; III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT.

The Courts Ruling We deny the petition. This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against AMEC.17 While AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint reveals that AMECs cause of action is based on Articles 30 and 33 of the Civil Code. Article 3018 authorizes a separate civil action to recover civil liability arising from a criminal offense. On the other hand, Article 3319 particularly provides that the injured party may bring a separate civil action for damages in cases of defamation, fraud, and physical injuries. AMEC also invokes Article 1920 of the Civil Code to justify its claim for damages. AMEC cites Articles 217621 and 218022 of the Civil Code to hold FBNI solidarily liable with Rima and Alegre. I. Whether the broadcasts are libelous A libel23 is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or juridical person, or to blacken the memory of one who is dead.24 There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending to cause it dishonor, discredit and contempt. Rima and Alegres remarks such as "greed for money on the part of AMECs administrators"; "AMEC is a dumping ground, garbage of xxx moral and physical misfits"; and AMEC students who graduate "will be liabilities rather than assets" of the society are libelous per se. Taken as a whole, the broadcasts suggest that AMEC is a money-making institution where physically and morally unfit teachers abound. However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly impelled by their civic duty to air the students gripes. FBNI alleges that there is no evidence that ill will or spite motivated Rima and Alegre in making the broadcasts. FBNI further points out that Rima and Alegre exerted efforts to obtain AMECs side and gave Ago the opportunity to defend AMEC and its administrators. FBNI concludes that since there is no malice, there is no libel. FBNIs contentions are untenable. Every defamatory imputation is presumed malicious.25 Rima and Alegre failed to show adequately their good intention and justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or public affairs program, Rima and Alegre should have presented the public issues "free from inaccurate and misleading information."26 Hearing the students alleged complaints a month before the expos,27

they had sufficient time to verify their sources and information. However, Rima and Alegre hardly made a thorough investigation of the students alleged gripes. Neither did they inquire about nor confirm the purported irregularities in AMEC from the Department of Education, Culture and Sports. Alegre testified that he merely went to AMEC to verify his report from an alleged AMEC official who refused to disclose any information. Alegre simply relied on the words of the students "because they were many and not because there is proof that what they are saying is true."28 This plainly shows Rima and Alegres reckless disregard of whether their report was true or not. Contrary to FBNIs claim, the broadcasts were not "the result of straight reporting." Significantly, some courts in the United States apply the privilege of "neutral reportage" in libel cases involving matters of public interest or public figures. Under this privilege, a republisher who accurately and disinterestedly reports certain defamatory statements made against public figures is shielded from liability, regardless of the republishers subjective awareness of the truth or falsity of the accusation.29 Rima and Alegre cannot invoke the privilege of neutral reportage because unfounded comments abound in the broadcasts. Moreover, there is no existing controversy involving AMEC when the broadcasts were made. The privilege of neutral reportage applies where the defamed person is a public figure who is involved in an existing controversy, and a party to that controversy makes the defamatory statement.30 However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of Appeals,31 FBNI contends that the broadcasts "fall within the coverage of qualifiedly privileged communications" for being commentaries on matters of public interest. Such being the case, AMEC should prove malice in fact or actual malice. Since AMEC allegedly failed to prove actual malice, there is no libel. FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the "doctrine of fair comment," thus: [F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or slander. The doctrine of fair comment means that while in general every discreditable imputation publicly made is deemed false, because every man is presumed innocent until his guilt is judicially proved, and every false imputation is deemed malicious, nevertheless, when the discreditable imputation is directed against a public person in his public capacity, it is not necessarily actionable. In order that such discreditable imputation to a public official may be actionable, it must either be a false allegation of fact or a comment based on a false supposition. If the comment is an expression of opinion, based on established facts, then it is immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred from the facts.32 (Emphasis supplied) True, AMEC is a private learning institution whose business of educating students is "genuinely imbued with public interest." The welfare of the youth in general and AMECs students in particular is a matter which the public has the right to know. Thus,

similar to the newspaper articles in Borjal, the subject broadcasts dealt with matters of public interest. However, unlike in Borjal, the questioned broadcasts are not based on established facts. The record supports the following findings of the trial court: xxx Although defendants claim that they were motivated by consistent reports of students and parents against plaintiff, yet, defendants have not presented in court, nor even gave name of a single student who made the complaint to them, much less present written complaint or petition to that effect. To accept this defense of defendants is too dangerous because it could easily give license to the media to malign people and establishments based on flimsy excuses that there were reports to them although they could not satisfactorily establish it. Such laxity would encourage careless and irresponsible broadcasting which is inimical to public interests. Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties, did not verify and analyze the truth of the reports before they aired it, in order to prove that they are in good faith. Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet, plaintiff produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years before the controversial broadcast, accreditation to offer Physical Therapy course had already been given the plaintiff, which certificate is signed by no less than the Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants could have easily known this were they careful enough to verify. And yet, defendants were very categorical and sounded too positive when they made the erroneous report that plaintiff had no permit to offer Physical Therapy courses which they were offering. The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove not to be true also. The truth is there is no Mcdonald Foundation existing. Although a big building of plaintiff school was given the name Mcdonald building, that was only in order to honor the first missionary in Bicol of plaintiffs religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single centavo appears to be received by plaintiff school from the aforementioned McDonald Foundation which does not exist. Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students fail in one subject, they are made to repeat all the other subject[s], even those they have already passed, nor their claim that the school charges laboratory fees even if there are no laboratories in the school. No evidence was presented to prove the bases for these claims, at least in order to give semblance of good faith. As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled out Dean Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in court last Jan. 21, 1991, and was found to be 75

years old. xxx Even older people prove to be effective teachers like Supreme Court Justices who are still very much in demand as law professors in their late years. Counsel for defendants is past 75 but is found by this court to be still very sharp and effective.l^vvphi1.net So is plaintiffs counsel. Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile. The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere conclusion. Being from the place himself, this court is aware that majority of the medical graduates of plaintiffs pass the board examination easily and become prosperous and responsible professionals.33 Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred from the facts.34 However, the comments of Rima and Alegre were not backed up by facts. Therefore, the broadcasts are not privileged and remain libelous per se. The broadcasts also violate the Radio Code35 of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. ("Radio Code"). Item I(B) of the Radio Code provides: B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES 1. x x x 4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate and misleading information. x x x Furthermore, the station shall strive to present balanced discussion of issues. x x x. xxx 7. The station shall be responsible at all times in the supervision of public affairs, public issues and commentary programs so that they conform to the provisions and standards of this code. 8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest, general welfare and good order in the presentation of public affairs and public issues.36 (Emphasis supplied) The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical conduct governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code of conduct imposed by the radio broadcast industry on its own members. The Radio Code is a public warranty by the radio broadcast industry that radio broadcast practitioners are subject to a code by which their conduct are measured for lapses, liability and sanctions.

The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of their profession, just like other professionals. A professional code of conduct provides the standards for determining whether a person has acted justly, honestly and with good faith in the exercise of his rights and performance of his duties as required by Article 1937 of the Civil Code. A professional code of conduct also provides the standards for determining whether a person who willfully causes loss or injury to another has acted in a manner contrary to morals or good customs under Article 2138 of the Civil Code. II. Whether AMEC is entitled to moral damages FBNI contends that AMEC is not entitled to moral damages because it is a corporation.39 A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.40 The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.41 to justify the award of moral damages. However, the Courts statement in Mambulao that "a corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages" is an obiter dictum.42 Nevertheless, AMECs claim for moral damages falls under item 7 of Article 221943 of the Civil Code. This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages.44 Moreover, where the broadcast is libelous per se, the law implies damages.45 In such a case, evidence of an honest mistake or the want of character or reputation of the party libeled goes only in mitigation of damages.46 Neither in such a case is the plaintiff required to introduce evidence of actual damages as a condition precedent to the recovery of some damages.47 In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages. However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its reputation. Therefore, we reduce the award of moral damages from P300,000 to P150,000. III.

Whether the award of attorneys fees is proper FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorneys fees. FBNI adds that the instant case does not fall under the enumeration in Article 220848 of the Civil Code. The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys fees. AMEC did not adduce evidence to warrant the award of attorneys fees. Moreover, both the trial and appellate courts failed to explicitly state in their respective decisions the rationale for the award of attorneys fees. 49 In Inter-Asia Investment Industries, Inc. v. Court of Appeals ,50 we held that: [I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and counsels fees are not to be awarded every time a party wins a suit. The power of the court to award attorneys fees under Article 2208 of the Civil Code demands factual, legal and equitable justification, without which the award is a conclusion without a premise, its basis being improperly left to speculation and conjecture. In all events, the court must explicitly state in the text of the decision, and not only in the decretal portion thereof, the legal reason for the award of attorneys fees.51 (Emphasis supplied) While it mentioned about the award of attorneys fees by stating that it "lies within the discretion of the court and depends upon the circumstances of each case," the Court of Appeals failed to point out any circumstance to justify the award. IV. Whether FBNI is solidarily liable with Rima and Alegre for moral damages, attorneys fees and costs of suit FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorneys fees because it exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI maintains that its broadcasters, including Rima and Alegre, undergo a "very regimented process" before they are allowed to go on air. "Those who apply for broadcaster are subjected to interviews, examinations and an apprenticeship program." FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a broadcaster. FBNI points out that the "minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way prove that FBNI did not exercise the diligence of a good father of a family in selecting and supervising them." Rimas accreditation lapsed due to his non-payment of the KBP annual fees while Alegres accreditation card was delayed allegedly for reasons attributable to the KBP Manila Office. FBNI claims that membership in the KBP is merely voluntary and not required by any law or government regulation.

FBNIs arguments do not persuade us. The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they commit.52 Joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit. 53 Thus, AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the Civil Code.1a\^/phi1.net As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from the libelous broadcasts. As stated by the Court of Appeals, "recovery for defamatory statements published by radio or television may be had from the owner of the station, a licensee, the operator of the station, or a person who procures, or participates in, the making of the defamatory statements."54 An employer and employee are solidarily liable for a defamatory statement by the employee within the course and scope of his or her employment, at least when the employer authorizes or ratifies the defamation.55 In this case, Rima and Alegre were clearly performing their official duties as hosts of FBNIs radio program Expos when they aired the broadcasts. FBNI neither alleged nor proved that Rima and Alegre went beyond the scope of their work at that time. There was likewise no showing that FBNI did not authorize and ratify the defamatory broadcasts. Moreover, there is insufficient evidence on record that FBNI exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI merely showed that it exercised diligence in the selection of its broadcasters without introducing any evidence to prove that it observed the same diligence in the supervision of Rima and Alegre. FBNI did not show how it exercised diligence in supervising its broadcasters. FBNIs alleged constant reminder to its broadcasters to "observe truth, fairness and objectivity and to refrain from using libelous and indecent language" is not enough to prove due diligence in the supervision of its broadcasters. Adequate training of the broadcasters on the industrys code of conduct, sufficient information on libel laws, and continuous evaluation of the broadcasters performance are but a few of the many ways of showing diligence in the supervision of broadcasters. FBNI claims that it "has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in mind their qualifications." However, no clear and convincing evidence shows that Rima and Alegre underwent FBNIs "regimented process" of application. Furthermore, FBNI admits that Rima and Alegre had deficiencies in their KBP accreditation,56 which is one of FBNIs requirements before it hires a broadcaster. Significantly, membership in the KBP, while voluntary, indicates the broadcasters strong commitment to observe the broadcast industrys rules and regulations. Clearly, these circumstances show FBNIs lack of diligence in selecting and supervising Rima and Alegre. Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre.

WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26 January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of moral damages is reduced from P300,000 to P150,000 and the award of attorneys fees is deleted. Costs against petitioner. SO ORDERED. Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.

G.R. No. 118692

July 28, 2006

COASTAL PACIFIC TRADING, INC., petitioner, vs. SOUTHERN ROLLING MILLS, CO., INC. (now known as Visayan Integrated Steel Corporation), FAR EAST BANK & TRUST COMPANY, PHILIPPINE COMMERCIAL INDUSTRIAL1 BANK, EQUITABLE BANKING CORPORATION, PRUDENTIAL BANK, BOARD OF TRUSTEES-CONSORTIUM OF BANKS-VISCO, UNITED COCONUT PLANTERS BANK, CITYTRUST BANKING CORPORATION, ASSOCIATED BANK, INSULAR BANK OF ASIA AND AMERICA, INTERNATIONAL CORPORATE BANK, COMMER-CIAL BANK OF MANILA, BANK OF THE PHILIPPINE ISLANDS, NATIONAL STEEL CORPORA-TION, THE PROVINCIAL SHERIFF OF BOHOL, and DEPUTY SHERIFF JOVITO DIGAL,2 respondents. DECISION PANGANIBAN, C.J.: Directors owe loyalty and fidelity to the corporation they serve and to its creditors. When these directors sit on the board as representatives of shareholders who are also major creditors, they cannot be allowed to use their offices to secure undue advantage for those shareholders, in fraud of other creditors who do not have a similar representation in the board of directors. The Case Before us is a Petition for Review3 under Rule 45 of the Rules of Court, assailing the September 27, 1994 Decision4 and the January 5, 1995 Resolution5 of the Court of Appeals (CA) in CA-GR CV No. 39385. The challenged Decision disposed as follows: "WHEREFORE, the decision of the Regional Trial Court is hereby AFFIRMED in toto."6 The challenged Resolution denied reconsideration. The Facts Respondent Southern Rolling Mills Co., Inc. was organized in 1959 for the purpose of engaging in a steel processing business. It was later renamed Visayan Integrated Steel Corporation (VISCO).7 On December 11, 1961, VISCO obtained a loan from the Development Bank of the Philippines (DBP) in the amount of P836,000. This loan was secured by a duly recorded Real Estate Mortgage over VISCO's three (3) parcels of land, including all the machineries and equipment found there.8

On August 15, 1963, VISCO entered into a Loan Agreement9 with respondent banks (later referred to as "Consortium"10) for the amount of US$5,776,186.71 or P21,745,707.36 (at the then prevailing exchange rate) to finance its importation of various raw materials. To secure the full and faithful performance of its obligation, VISCO executed on August 3, 1965, a second mortgage11 over the same land, machineries and equipment in favor of respondent banks. This second mortgage remained unrecorded.12 VISCO eventually defaulted in the performance of its obligation to respondent banks. This prompted the Consortium to file on January 26, 1966, Civil Case No. 1841, which was a Petition for Foreclosure of Mortgage with Petition for Receivership.13 This case was eventually dismissed for failure to prosecute.14 Afterwards, negotiations were conducted between VISCO and respondent banks for the conversion of the unpaid loan into equity in the corporation.15 Vicente Garcia, vicepresident of VISCO and of Far East Bank and Trust Company (FEBTC),16 testified that sometime in 1966, the creditor banks were given management of and control over VISCO.17 In time,18 in order to reorganize it, its principal creditors agreed to group themselves into a creditors' consortium.19 As a result of the reorganized corporate structure of VISCO, respondent banks acquired more than 90 percent of its equity. Notwithstanding this conversion, it remained indebted to the Consortium in the amount of P16,123,918.02.20 Meanwhile from 1964 to 1965, VISCO also entered into a processing agreement with Petitioner Coastal Pacific Trading, Inc. ("Coastal"). Pursuant to that agreement, petitioner delivered 3,000 metric tons of hot rolled steel coils to VISCO for processing into block iron sheets. Contrary to their agreement, the latter was able to process and deliver to petitioner only 1,600 metric tons of those sheets. Hence, a total of 1,400 metric tons of hot rolled steel coils remained unaccounted for.21 The fact that petitioner was among the major creditors of VISCO was recognized by the latter's vice-president, Vicente Garcia.22 Indeed, on October 9, 1970, it forwarded to petitioner a proposal for a Compromise Agreement.23 Subsequent developments indicate, however, that the parties did not arrive at a compromise. Two years later, on October 20, 1972, Garcia wrote Arturo P. Samonte, representative of FEBTC24 and director of VISCO,25 a letter that reads as follows: "In the light of recent development on IISMI and Elirol which were taken over by the government, I suggest that we take certain precautionary measures to protect the interests of the Consortium of Banks. One such step may be to insure the safety of the unexpended funds of VISCO from any contingencies in the future. As of now VISCO's account with the Far East Bank is in the name of BOARD OF TRUSTEES VISCO CONSORTIUM OF BANKS. It may be better to eliminate the term VISCO and just call the account BOARD OF TRUSTEES CONSORTIUM OF BANKS."26

According to a notation on this letter, an FEBTC assistant cashier named Silverio duly complied with the above request.27 Indeed, events would later reveal that the bank held a deposit account in the name of the "Board of Trustees-Consortium of Banks."28 On September 20, 1974, respondent banks held a luncheon meeting29 in the FEBTC Boardroom to discuss how they would address the insistent demands of the DBP for VISCO to settle its obligations. Jose B. Fernandez, Jr., VISCO's then chairman and concurrent FEBTC President,30 expressed his apprehension that either the DBP or the government would soon pursue extra-judicial foreclosure against VISCO. In this regard, Fernandez informed the members of the Consortium that he had received letter-offers from two corporations that were interested in purchasing VISCO's generator sets.31 After deliberating on the matter, the members decided to approve the sale of these two generator sets to Filmag (Phil.), Inc. It was also agreed that the proceeds of the sale would be used to pay VISCO's indebtedness to DBP and to secure the release of the first mortgage.32 The Consortium agreed with Filmag on the following payment procedure: "The payment procedure will be as follows: Filmag pays to VISCO; VISCO pays the Consortium; and then the Consortium pays the DBP with the arrangement that the Consortium subrogates to the rights of the DBP as first mortgagee to the VISCO plant. The Consortium further agreed to call a meeting of the VISCO board of directors for the purpose of considering and formally approving the proposed sale of the 2 generators to Filmag."33 Accordingly, on October 4, 1974, the VISCO board of directors had a meeting in the FEBTC Boardroom.34 The board was asked to decide how VISCO would settle its debt to DBP: whether by asking the Consortium to put up the necessary amount or by accepting Filmag's offer to purchase VISCO's generator sets.35 The latter option was unanimously chosen36 in a Resolution worded as follows: "RESOLVED, That the offer of Filmag (Philippines) Inc. in their letters of December 14, 1973 and March 19, 1974 to purchase two (2) units of generator sets, including standard accessories, of VISCO is hereby accepted under the following terms and conditions: xxx xxx xxx

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

xxx

xxx

xxx

"FURTHER RESOLVED, That the sales proceeds of PESOS: ONE MILLION FIVE HUNDRED FIFTY THOUSAND FIVE HUNDRED SEVENTY TWO ONLY (P1,550,572) shall be utilized to pay the liability of VISCO with the Development Bank of the Philippines."37 The sale of the generator sets to Filmag took place and, according to the testimony of Garcia, the proceeds were deposited with FEBTC in a special account held in trust for the Consortium.38 A year after, on May 22, 1975, petitioner filed with the Pasig Regional Trial Court (RTC) a Complaint39 for Recovery of Property and Damages with Preliminary Injunction and Attachment.40 Petitioner's allegation was that VISCO had fraudulently misapplied or converted the finished steel sheets entrusted to it.41 On June 3, 1975, Judge Pedro A. Revilla issued a Writ of Preliminary Attachment over its properties that were not exempt from execution.42 In compliance with the Writ, Sheriff Andres R. Bonifacio attempted to garnish the account of VISCO in FEBTC,43 which denied holding that account. Instead, the bank admitted that what it had was a deposit account in the name of the Board of TrusteesConsortium of Banks, particularly Account No. 2479-1.44 FEBTC reported to Sheriff Bonifacio that it had instructed its accounting department to hold the account, "subject to the prior liens or rights in favor of [FEBTC] and other entities."45 While petitioner's case was pending, VISCO's vice-president (Garcia) and director (Arturo Samonte) requested from FEBTC a cash advance of P1,342,656.88 for the full settlement of VISCO's account with DBP.46 On June 29, 1976, FEBTC complied by issuing Check No. FE239249 for P1,342,656.88, payable to "[DBP] for [the] account of VISCO."47 On even date, DBP executed a Deed of Assignment of Mortgage Rights Interest and Participation48 in favor of Respondent Consortium of Banks. The deed stated that, in consideration of the payment made, all of DBP's rights under the mortgage agreement with VISCO were being transferred and conveyed to the Consortium.49 Thus did the latter obtain DBP's recorded primary lien over the real and chattel properties of VISCO. On September 23, 1980, the Consortium filed a Petition for Extra-Judicial Foreclosure with the Office of the Provincial Sheriff of Bohol.50 The Notice of Extrajudicial Foreclosure of Mortgage, published in the Bohol Newsweek on October 10, 1980, announced that the auction sale was scheduled for November 11, 1980.51 On November 3, 1980, Southern Industrial Projects, Inc. (SIP), which was a judgment creditor52 of VISCO, filed Civil Case No. 3383. It was a Complaint53 for Declaration of Nullity of the Mortgage and Injunction to Restrain the Consortium from Proceeding with the Auction Sale. SIP argued that DBP had actually been paid by VISCO with the

proceeds from the sale of the generator sets. Hence, the mortgage in favor of that bank had been extinguished by the payment and could not have been assigned to the Consortium.54 A temporary restraining order against the latter was thus successfully obtained; the provincial sheriff could not proceed with the auction sale of the mortgaged assets.55 But SIP's victory was short-lived. On March 2, 1984, Civil Case No. 3383 was decided in favor of the Consortium.56 Judge Andrew S. Namocatcat ruled thus: "The evidence of the plaintiff is only anchored on the fact that the deed of assignment executed by the DBP in favor of the defendant banks is an act which would defraud creditors. It is the thinking of the court that the payment of defendant banks to DBP of VISCO's loan and the execution of the DBP of the deed of assignment of credit and rights to the defendant banks is in accordance with Article 1302 and 1303 of the New Civil Code, and said transaction is not to defraud creditors because the defendant banks are also creditors of VISCO."57 On June 14, 1985, this Decision was affirmed by the Intermediate Appellate Court in CA-GR No. 03719. 58 The auction sale of VISCO's mortgaged properties took place on March 19, 1985 and the Consortium emerged as the highest bidder.59 The Certificate of Sale60 in its favor was registered on May 22, 1985.61 On June 27, 1985, VISCO executed through Vicente Garcia, a Deed of Assignment of Right of Redemption62 in favor of the National Steel Corporation (NSC), in consideration of P100,000. 63 On the same day, the Consortium sold the foreclosed real and personal properties of VISCO to the NSC.64 On August 16, 1985, petitioner filed against respondents Civil Case No. 3929, which was a Complaint for Annulment or Rescission of Sale, Damages with Preliminary Injunction.65 Coastal alleged that, despite the Writ of Attachment issued in its favor in the still pending Civil Case No. 21272, the Consortium had sold the properties to NSC. Further, despite the attachment of the properties, the Consortium was allegedly able to sell and place them beyond the reach of VISCO's other creditors.66 Thus imputing bad faith to respondent banks' actions, petitioner said that the sale was intended to defraud VISCO's other creditors. Petitioner further contended that the assignment in favor of the Consortium was fraudulent, because DBP had been paid with the proceeds from the sale of the generator sets owned by VISCO, and not with the Consortium's own funds.67 Petitioner offered as proof the minutes of the meeting68 in which the transaction was decided. Respondent Consortium countered that the minutes would in fact readily disclose that the intention of its members was to apply the proceeds to a partial payment to DBP.69 Respondent insisted that it used its own funds to pay the bank.70

On August 20, 1985, a temporary restraining order (TRO)71 was issued by Judge Mercedes Gozo-Dadole against VISCO, enjoining it from proceeding with the removal or disposal of its properties; the execution and/or consummation of the foreclosure sale; and the sale of the foreclosed properties to NSC. On September 6, 1985, the trial court issued an Order requiring the Consortium to post a bond of P25 million in favor of Coastal for damages that petitioner may suffer from the lifting of the TRO. The bond filed was then approved by the RTC in its Order of September 13, 1985. 72 On December 15, 1986, Civil Case No. 21272 was finally decided by Judge Nicolas P. Lapena, Jr., in favor of Coastal.73 VISCO was ordered to pay petitioner the sum of P851,316.19 with interest at the legal rate, plus attorney's fees of P50,000.00 and costs.74 Coastal filed a Motion for Execution,75 but the judgment has remained unsatisfied to date. On January 5, 1992, a Decision76 on Civil Case No. 3929 was rendered as follows: "WHEREFORE, this Court hereby renders judgment in favor of the defendants and against the plaintiff Coastal Pacific Trading, Inc. BY WAY OF THE MAIN COMPLAINT, to wit: "1. Declaring the extrajudicial foreclosure sale conducted by the sheriff and the corresponding certificate of sale executed by the defendant sheriffs on March 15, 1985 relative to the real properties of the defendant SRM/VISCO of Cortes, Bohol, Philippines, which were registered in the Register of Deeds of Bohol, on May 22, 1985 and the Transfer of Assignment to the defendant National Steel Corporation of any or part of the foreclosed properties arising from the extrajudicial foreclosure sale as valid and legal; "2. Ordering the plaintiff Coastal Pacific Trading Inc. to pay the defendant Consortium of Banks[,] Southern Rolling Mills, Co., Inc., Far East Bank & Trust Company, Philippine Commercial Industrial Bank, Equitable Banking Corporation, Prudential Bank, Board of Trustees-Consortium of Banks[VISCO], United Coconut Planters Bank, City Trust Banking Corporation, Associated Bank, Insular Bank of Asia and America, International Corporate Bank, Commercial Bank of Manila, Bank of the Philippine Islands and the National Steel Corporation in the instant case the amount of FIVE HUNDRED THOUSAND PESOS (P500,000.00) representing damages; "3. Ordering the plaintiff The (sic) Coastal Pacific Trading Inc. to pay the defendants the amount of FIFTEEN THOUSAND PESOS (P15,000.00) representing attorney's fees; "4. Dismissing the Amended Complaint of the plaintiff;

"5. Ordering the plaintiff to pay the cost; AND "BY WAY OF CROSS CLAIM INTERPOSED "BY THE DEFENDANT National Steel Corporation against the Consortium of Banks and SRM/VISCO, the same is dismissed for lack of merit, without pronouncement as to cost."77 Insisting that the trial court erred in holding that it had failed to prove its case by preponderance of evidence, Coastal filed an appeal with the CA. Allegedly, the purported insufficiency of proof was based on the sole ground that petitioner did not file an objection when the properties were sold on execution. It contended that the court a quo had arrived at this erroneous conclusion by relying on inapplicable jurisprudence.78 Additionally, Coastal argued that the trial court had erred in not annulling the foreclosure proceedings and sale for being fictitious and done to defraud petitioner as VISCO's creditor. Supposedly, the DBP mortgage had already been extinguished by payment; thus, the bank could not have assigned the contract to the Consortium.79 Petitioner also prayed for the annulment of the sale in favor of NSC on the ground that the latter was a party to the fraudulent foreclosure and, hence, not a buyer in good faith.80 Ruling of the Court of Appeals At the outset, the CA stressed that the validity of the Consortium's mortgage, foreclosure, and assignments had already been upheld in CA-GR CV No. 03719, entitled Southern Industrial Projects v. United Coconut Planters Bank81 Citing Valencia v. RTC of Quezon City, Br. 9082 and Vda. de Cruzo v. Carriaga,83 the CA explained that the absolute identity of parties was not necessary for the application of res judicata. All that was required was a shared identity of interests, as shown by the identity of reliefs sought by one person in a prior case and by another in a subsequent case. While Coastal was not a party to Southern Industrial Projects, it should nevertheless be bound by that Decision, because it had raised substantially the same claim and cause of action as SIP, according to the appellate court. The CA held that the basic reliefs sought by Coastal and SIP were substantially the same: the nullification of the Deed of Assignment in favor of the Consortium, the foreclosure sale, and the subsequent sale to NSC. Because this identity of reliefs sought showed an identity of interests, the CA concluded that it need not rule on those issues.84 As to the issue that the DBP mortgage had been extinguished by payment, the CA quoted its earlier Decision in Southern Industrial Projects: "The evidence shows that the proceeds of the sale of the two generating sets were applied by defendants-appellees in the payment of the outstanding

obligation of VISCO. It appears that said proceeds were deposited in the bank account of the consortium of creditors to avoid it being garnished by the creditors notwithstanding the set-off, VISCO was still indebted to the defendantsappellees. "The evidence x x x shows that upon VISCO's request for [cash] advance, the Far East Banks (sic) and Trust Co., the manager of the consortium of creditors, issued FEBTC check No. 239249 on June 29, 1976 in the amount of P1,342,656.68 payable to the DBP to pay off its loan to the latter. xxx xxx xxx

"x x x. A public document celebrated with all the legal formalities under the safeguard of notarial certificate is evidence against a party, and a high degree [of] proof is necessary to overcome the legal presumption that the recital is true. The biased and interested testimony of one of the parties to such instrument who attempts to vary or repudiate what it purports to be, cannot overcome the evidentiary force of what is recited in the document."85 The appellate court also rejected petitioner's contention that the Consortium's Petition for Extrajudicial Foreclosure was already barred by the earlier resort to a judicial foreclosure. The CA clarified that in filing a Petition for Judicial Foreclosure, the Consortium had pursued its right as junior encumbrancer. On the other hand, the Consortium filed a Petition for Extrajudicial Foreclosure as a first encumbrancer by virtue of DBP's assignment in its favor.86 The CA also rejected petitioner's theory of extinguishment of obligation by merger. It observed that the merger could not have possibly taken place, because respondent banks and VISCO were not creditors and debtors in their own right.87 Petitioner's Motion for Reconsideration,88 which was received by the CA on November 15, 1994,89 was denied for lack of merit. Hence, this Petition.90 Issues Petitioner raises the following issues for our consideration: "I "Respondent Court of Appeals, seemingly to avoid the irrefutable evidence of fraud and collusion practised by [respondents] against [Petitioner] Coastal, erroneously sustained the trial court's holding that the present case is barred by res judicata because of the previous decision in the case of Southern Industrial Projects, Inc., vs. United Coconut Planters Bank, CA-G.R. No. 03719,

considering that the elements that call for the application of this rule are not present in the case at bar, and the exceptions allowed by this Honorable Supreme Court are not applicable here for variance or distinction in facts and issues, x x x:"91 "II "Respondent Court of Appeals further erred in not annulling the Deed of Assignment of the DBP mortgage x x x, the extrajudicial foreclosure proceedings of the two mortgages x x x, and the separate sale of the land and machineries as real and personal properties by the foreclosing banks to NSC, as well as the assignment or waiver of SRM/Visco's legal right of redemption over the foreclosed properties, for being fraudulently executed through collusion among the [respondents] and in fraud of SRM/Visco's creditor, [Petitioner] Coastal, x x x;"92 Stripped of nonessentials, the two issues may be restated as follows: 1. Whether the present action is barred by res judicata 2. Whether respondents disposed of VISCO's assets in fraud of the creditors The Court's Ruling The Petition is meritorious. First Issue: Res judicata The CA cited Valencia v. RTC of Quezon City93 to support the finding that SIP and Coastal were substantially the same parties. We distinguish. In Valencia, the plaintiff-intervenor in the first case, Cario, claimed Lot 4 based on an alleged purchase of Valencia's "squatter's rights" over the property. The trial court dismissed the claim and held that no such purchase ever took place.94 It also held that, on the assumption that a sale had taken place, the sale was null and void for being contrary to the pertinent housing law. It also found that all current occupants of Lot 4 were illegal squatters; thus, it ordered their ejectment. When this first case attained finality, Carino's daughter, Catbagan, filed another suit against Valencia. Catbagan challenged the applicability of the ejectment Order issued to her; as an occupant of the lot, she was allegedly not a party to the first case. Her Petition was denied for lack of merit.95 The execution of the Decision in the first case was again forestalled when Llanes, Cario's sister-in-law who was another occupant of Lot 4, filed another suit against the

same respondent. Like Cario, Llanes insisted on having purchased the subject lot from Valencia.96 This Court ruled that the suit was barred by res judicata. There was a substantial identity of parties, because the right claimed by both Cario and Llanes were based on each one's alleged purchase of Valencia's "squatter's rights."97 In the first case, sales of "squatter's rights" were already categorically declared null and void for being contrary to law. Thus, Llanes' admission that she had purchased Valencia's "squatter's rights" placed her in the same category as Cario. The purchase could not be treated differently, because the final and executory Decision held that all purchases of "squatter's rights" (regardless of who the purchasers were) were null and void.98 Further, the earlier ruling held that "the present occupants are illegal squatters." That ruling included Llanes, who was admittedly one of the occupants.99 Simply put, she and Valencia were considered identical parties for purposes of res judicata, because they were obviously litigating under the same void title and capacity as vendees of "squatter's rights" and as occupants of Lot 4. Moreover, we held in Valencia that Llanes' suit was merely a clear attempt to prevent or delay the execution of the judgment in the first case, which had become final by reason of the three affirmances by this Court. The pattern to obstruct the execution of the first judgment was obvious: after Cario lost the first case, her daughter filed a second one. When the daughter lost the second, the daughter-in-law filed a third case. It may be observed that the three successive plaintiffs were all occupants of the same property and belonged to the same family; this fact was also indicative of their privity. Given this background, it becomes clear that the finding of a substantial identity of parties in Valencia was based on its peculiar factual circumstances, which are different from those in the present case. Unlike Llanes, Coastal is not asserting a right that has been categorically declared null and void in a prior case. In fact, its right based on the processing agreement was upheld in Civil Case No. 21272. Clearly, Coastal cannot be treated in the same manner as Llanes. The CA erred in applying Southern Industrial Projects v. United Coconut Planters Bank100 as a bar by res judicata with respect to the present case. For this principle to apply, the following elements must concur: a) the former judgment was final; b) the court that rendered it had jurisdiction over the subject matter and the parties; c) the judgment was based on the merits; and, d) between the first and the second actions, there is an identity of parties, subject matters, and causes of action. 101 It is axiomatic that res judicata does not require an absolute, but only a substantial, identity of parties. There is a substantial identity when there is privity between the two parties or they are successors-in-interest by title subsequent to the commencement of

the action, litigating for the same thing, under the same title, and in the same capacity.102 Petitioner was not acting in the same capacity as SIP when it filed Civil Case No. 3383, which eventually became AC-GR CV No. 03719. It brought this latter action as a creditor under a processing agreement with VISCO; on the other hand, the latter was sued by SIP, based on an alleged breach of their management contract. Very clearly, their rights were entirely distinct and separate from each other. In no manner were these two creditors privies of each other. The causes of action in the two Complaints were also different. Causes of action arise from violations of rights. A single right may be violated by several acts or omissions, in which case the plaintiff has only one cause of action. Likewise, a single act or omission may violate several rights at the same time, as when the act constitutes a violation of separate and distinct legal obligations.103 The violation of each of these separate rights is a separate cause of action in itself.104 Hence, although these causes of action arise from the same state of facts, they are distinct and independent and may be litigated separately; recovery on one is not a bar to subsequent actions on the others. 105 In the present case, the right of SIP (arising from its management contract with VISCO) is totally distinct and separate from the right of Coastal (arising from its processing contract with VISCO). SIP and Coastal are asserting distinct rights arising from different legal obligations of the debtor corporation. Thus, VISCO's violation of those separate rights has given rise to separate causes of action. The confusion in the resolution of the issue of identity of parties occurred, because the two creditors were assailing the same transactions of VISCO on the same grounds. Since the two cases they filed presented similar legal issues, the appellate court held that its ruling in AC-GR CV No. 03719 was also applicable to the instant case. Common but palpable is this misconception of the doctrine of res judicata. Persons do not become privies by the mere fact that they are interested in the same question or in proving the same set of facts, or that one person is interested in the result of a litigation involving the other. Hence, several creditors of one debtor cannot be considered as identical parties for the purpose of assailing the acts of the debtor. They have distinct credits, rights, and interests, such that the failure of one to recover should not preclude the other creditors from also pursuing their legal remedies. Further, petitioner, which was not a party to Southern Industrial Projects (their causes of action being separate and distinct), did not have the opportunity to be heard in that case, much less to present its own evidence. Thus, to bind petitioner to the Decision in that case would clearly violate its rights to due process. As a separate party, it has the right to have its arguments and evidence evaluated on their own merits. Second Issue: Fraud of Creditors

We now come to the heart of the Petition. Coastal alleges that the assignment of mortgage, the extrajudicial foreclosure proceedings, and the sale of the properties of VISCO should all be rescinded on the ground that they were done to defraud the latter's creditors. The CA found no merit in petitioner's arguments. It ruled that the assignment conformed to the requirements of law; that the consideration for the assignment had allegedly been given by FEBTC; and that, hence, the Consortium had a right to foreclose on the mortgaged properties. By focusing on the innate validity of these Contracts, the CA totally overlooked the issue of fraud as a ground for rescission. Elementary is the principle that the validity of a contract does not preclude its rescission. Under Articles 1380 and 1381 (3) of the Civil Code, contracts that are otherwise valid between the contracting parties may nonetheless be subsequently rescinded by reason of injury to third persons, like creditors.106 In fact, rescission implies that there is a contract that, while initially valid, produces a lesion or pecuniary damage to someone.107 Thus, when the CA confined itself to the issue of the validity of these contracts, it did not at all address the heart of petitioner's cause of action: whether these transactions had been undertaken by the Consortium to defraud VISCO's other creditors. There is more than a preponderance of evidence showing the Consortium's deliberate plan to defraud VISCO's other creditors. Consortium Banks as Directors It will be recalled that Respondent Consortium took over management and control of VISCO by acquiring 90 percent of the latter's equity. Thus, 9 out of the 10 directors of the corporation were all officials of the Consortium,108 which may thus be said to have effectively occupied and/or controlled the board. Significantly, nowhere in the records can we find any denial by respondent of this allegation by petitioner.109 As directors of VISCO, the officials of the Consortium were in a position of trust; thus, they owed it a duty of loyalty. This trust relationship sprang from the fact that they had control and guidance over its corporate affairs and property.110 Their duty was more stringent when it became insolvent or without sufficient assets to meet its outstanding obligations that arose. Because they were deemed trustees of the creditors in those instances, they should have managed the corporation's assets with strict regard for the creditors' interests. When these directors became corporate creditors in their own right, they should not have permitted themselves to secure any undue advantage over other creditors.111 In the instant case, the Consortium miserably failed to observe its duty of fidelity towards VISCO and its creditors. Duty of the Consortium Banks to VISCO's Creditors

Recall that as early as 1966, the Consortium, through its directors on the board of VISCO, had already assumed management and control over the latter. Hence, when VISCO recognized its outstanding liability to petitioner in 1970 and offered a Compromise Agreement,112 respondent banks were already at the helm of the debtor corporation. The members of the Consortium, therefore, cannot deny that they were aware of those claims against the corporation. Nonetheless, they did not adopt any measure to protect petitioner's credit. Quite the opposite, they even took steps to hide VISCO's unexpended funds. Garcia's 1972 letter to Samonte unmistakably reveals that they kept those funds in an account named "Board of Trustees VISCO Consortium of Banks." This fact alone shows an effort to hide, with the evident intent to keep, those funds for themselves. The letter even says that, for the protection of the Consortium, the name "VISCO" should be eliminated entirely, so that the account name would read "Board of Trustees Consortium of Banks." Clearly, this particular move was found to be necessary to avoid a takeover by the government, which was also a creditor of VISCO.113 This express intent of the latter, under the direction and for the benefit of the Consortium, corroborated petitioner's contention that respondent banks had defrauded VISCO's creditors. Assignment of Mortgage in Favor of the Consortium Banks The assignment of mortgage in favor of the Consortium also bears the earmarks of fraud. Initially, respondent banks had agreed that VISCO should sell two of its generator sets, so that the proceeds could be utilized to pay DBP. This plan was direct, simple, and would extinguish the encumbrance in favor of the bank. Then, quite surprisingly, the Consortium set down the following payment procedure: Filmag would pay VISCO; the latter would pay the Consortium, which would pay DBP; and the Consortium would then subrogate DBP to the latter's rights as first mortgagee. One is then led to ask: if the intention was to pay DBP; from the sales proceeds of the generator sets, why did the money have to pass through the Consortium? The answer lies in the nature of respondent's mortgage. It will be recalled that this mortgage remained unrecorded and not legally binding on the other creditors.114 Thus, if DBP had been directly paid by VISCO, the latter could have freed up its properties to the satisfaction of all its other creditors. This procedure would have been fair to all, but it was not followed by the Consortium. Instead, the proceeds from the sale of the generator sets were first paid to respondent banks, which used the money to pay DBP. The last step in the payment procedure explains the reason for this preferred though roundabout manner of payment. This final step entitled the Consortium to obtain DBP's primary lien through an assignment by allowing it to pay VISCO's loan to the bank, without incurring additional expenses.

In the end, by collecting the money from VISCO, respondent banks recovered what they had ostensibly remitted to DBP. Moreover, the primary lien that respondent banks acquired allowed them, as unsecured creditors of VISCO, to foreclose on the assets of the corporation without regard to its inferior claims. It was a clever ruse that would have worked, were it not done by creditors who were duty-bound, as directors, not to take clever advantage of other creditors. To be sure, there was undue advantage. The payment scheme devised by the Consortium continued the efficacy of the primary lien, this time in its favor, to the detriment of the other creditors. When one considers its knowledge that VISCO's assets might not be enough to meet its obligations to several creditors,115 the intention to defraud the other creditors is even more striking. Fraud is present when the debtor knows that its actions would cause injury.116 The assignment in favor of the Consortium was a rescissible contract for having been undertaken in fraud of creditors.117 Article 1385 of the Civil Code provides for the effect of rescission, as follows: "Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. "Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. "In this case, indemnity for damages may be demanded from the person causing the loss." Indeed, mutual restitution is required in all cases involving rescission. But when it is no longer possible to return the object of the contract, an indemnity for damages operates as restitution. The important consideration is that the indemnity for damages should restore to the injured party what was lost. In the case at bar, it is no longer possible to order the return of VISCO's properties. They have already been sold to the NSC, which has not been shown to have acted in bad faith. The party alleging bad faith must establish it by competent proof. Sans that proof, purchasers are deemed to be in good faith, and their interest in the subject property must not be disturbed. Purchasers in good faith are those who buy the property of another without notice that some other person has a right to or interest in the property; and who pay the full and fair price for it at the time of the purchase, or before they get notice of some other persons' claim of interest in the property.118

In the present case, petitioner failed to discharge its burden of proving bad faith on the part of NSC. There is insufficient evidence on record that the latter participated in the design to defraud VISCO's creditors. To NSC, petitioner imputes fraud from the sole fact that the former was allegedly aware that its vendor, the Consortium, had taken control over VISCO including the corporation's assets.119 We cannot appreciate how knowledge of the takeover would necessarily implicate anyone in the Consortium's fraudulent designs. Besides, NSC was not shown to be privy to the information that VISCO had no other assets to satisfy other creditors' respective claims. The right of an innocent purchaser for value must be respected and protected, even if its vendors obtained their title through fraud.120 Pursuant to this principle, the remedy of the defrauded creditor is to sue for damages against those who caused or employed the fraud. Hence, petitioner is entitled to damages from the Consortium. Award of Damages It is essential that for damages to be awarded, a claimant must satisfactorily prove during the trial that they have a factual basis, and that the defendant's acts have a causal connection to them.121 Thus, the question of damages should normally call for a remand of the case to the lower court for further proceedings. Considering, however, the length of time that petitioner's just claim has been thwarted, we find it in the best interest of substantial justice to decide the issue of damages now on the basis of the available records. A remand for further proceedings would only result in a needless delay. Going over the records of the case, we find that petitioner has a final and executory judgment in its favor in Civil Case No. 21272. The judgment in that case reads as follows: "WHEREFORE, judgment is hereby rendered in favor of the plaintiffs ordering defendant VISCO/SRM to pay the plaintiffs the sum of P851,316.19 with interest thereon at the legal rate from the filing of this complaint, plus attorney's fees of P50,000.00 and to pay the costs."122 The foregoing is the judgment credit that petitioner cannot enforce against VISCO because of Respondent Consortium's fraudulent disposition of the corporation's assets. In other words, the above amounts define the extent of the actual damage suffered by Coastal and the amount that respondent has to restore pursuant to Article 1385. On the basis of the finding of fraud, the award of exemplary damages is in order, to serve as a warning to other creditors not to abuse their rights. Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or correction for the public good. By their nature, exemplary damages should be imposed in an amount sufficient and effective to deter possible future similar acts by respondent banks. The court finds the amount of P250,000 sufficient in the instant case.

As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot experience physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and moral shock.123 The only exception to this rule is when the corporation has a good reputation that is debased, resulting in its humiliation in the business realm.124 In the present case, the records do not show any evidence that the name or reputation of petitioner has been sullied as a result of the Consortium's fraudulent acts. Accordingly, moral damages are not warranted. WHEREFORE, the Petition is GRANTED. The assailed Decision of the Court of Appeals dated September 27, 1994, and its Resolution dated January 5, 1995, are hereby REVERSED and SET ASIDE. Respondent Consortium of Banks is ordered to PAY Petitioner Coastal Pacific Trading, Inc., the sum adjudged by the Regional Trial Court of Pasig, Branch 167, in Civil Case No. 21272 entitled Coastal Pacific Trading, Felix de la Costa, and Aurora del Banco v. Visayan Integrated Corporation, to wit: "x x x the sum of P851,316.19 with interest thereon at the legal rate from the filing of [the] [C]omplaint, plus attorney's fees of P50,000 and x x x the costs." Respondent Consortium of Banks is further ordered to pay petitioner exemplary damages in the amount of P250,000. SO ORDERED. Ynares-Santiago, Austria-Martinez, Callejo, Sr., Chico-Nazario, J.J., concur.