G.R. No.

L-23145

November 29, 1968

TESTATE ESTATE OF IDONAH SLADE ER!INS, "e#e$%e". RENATO D. TA&AG, ancillary administratorappellee, vs. 'ENG(ET )ONSOLIDATED, IN)., oppositor-appellant. Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust Company of New York, United States of merica, of the estate of the deceased !donah Slade "erkins, who died in New York City on #arch $%, &'(), to surrender to the ancillary administrator in the "hilippines the stock certificates owned by her in a "hilippine corporation, *en+uet Consolidated, !nc., to satisfy the le+itimate claims of local creditors, the lower court, then presided by the ,onorable rsenio Santos, now retired, issued on #ay &-, &'(., an order of this tenor/ 0 fter considerin+ the motion of the ancillary administrator, dated 1ebruary &&, &'(., as well as the opposition filed by the *en+uet Consolidated, !nc., the Court hereby 2&3 considers as lost for all purposes in connection with the administration and li4uidation of the "hilippine estate of !donah Slade "erkins the stock certificates coverin+ the 55,))$ shares of stock standin+ in her name in the books of the *en+uet Consolidated, !nc., 2$3 orders said certificates cancelled, and 253 directs said corporation to issue new certificates in lieu thereof, the same to be delivered by said corporation to either the incumbent ancillary administrator or to the "robate 6ivision of this Court.0& 1rom such an order, an appeal was taken to this Court not by the domiciliary administrator, the County Trust Company of New York, but by the "hilippine corporation, the *en+uet Consolidated, !nc. The appeal cannot possibly prosper. The challen+ed order represents a response and e7presses a policy, to paraphrase 1rankfurter, arisin+ out of a specific problem, addressed to the attainment of specific ends by the use of specific remedies, with full and ample support from le+al doctrines of wei+ht and si+nificance. The facts will e7plain why. s set forth in the brief of appellant *en+uet Consolidated, !nc., !donah Slade "erkins, who died on #arch $%, &'() in New York City, left amon+ others, two stock certificates coverin+ 55,))$ shares of appellant, the certificates bein+ in the possession of the County Trust Company of New York, which as noted, is the domiciliary administrator of the estate of the deceased. $Then came this portion of the appellant8s brief/ 09n u+ust &$, &'(), "rospero Sanidad instituted ancillary administration proceedin+s in the Court of 1irst !nstance of #anila: ;a<aro . #ar4ue< was appointed ancillary administrator, and on =anuary $$, &'(5, he was substituted by the appellee >enato 6. Taya+. dispute arose between the domiciary administrator in New York and the ancillary administrator in the "hilippines as to which of them was entitled to the possession of the stock certificates in 4uestion. 9n =anuary $%, &'(., the Court of 1irst !nstance of #anila ordered the domiciliary administrator, County Trust Company, to 0produce and deposit0 them with the ancillary administrator or with the Clerk of Court. The domiciliary administrator did not comply with the order, and on 1ebruary &&, &'(., the ancillary administrator petitioned the court to 0issue an order declarin+ the certificate or certificates of stocks coverin+ the 55,))$ shares issued in the name of !donah Slade "erkins by *en+uet Consolidated, !nc., be declared ?or@ considered as lost.05 !t is to be noted further that appellant *en+uet Consolidated, !nc. admits that 0it is immaterial0 as far as it is concerned as to 0who is entitled to the possession of the stock certificates in 4uestion: appellant opposed the petition of the ancillary administrator because the said stock certificates are in e7istence, they are today in the possession of the domiciliary administrator, the County Trust Company, in New York, U.S. ....0. !t is its view, therefore, that under the circumstances, the stock certificates cannot be declared or considered as lost. #oreover, it would alle+e that there was a failure to observe certain re4uirements of its by-laws before new stock certificates could be issued. ,ence, its appeal. s was made clear at the outset of this opinion, the appeal lacks merit. The challen+ed order constitutes an emphatic affirmation of Audicial authority sou+ht to be emasculated by the wilful conduct of the domiciliary administrator in refusin+ to accord obedience to a court decree. ,ow, then, can this order be sti+mati<ed as ille+alB s is true of many problems confrontin+ the Audiciary, such a response was called for by the realities of the situation. Chat cannot be i+nored is that conduct borderin+ on wilful defiance, if it had not actually reached it, cannot without undue loss of Audicial presti+e, be condoned or tolerated. 1or the law is not so lackin+ in fle7ibility and resourcefulness as to preclude such a solution, the more so as deeper reflection would make clear its bein+ buttressed by indisputable principles and supported by the stron+est policy considerations.

!t can truly be said then that the result arrived at upheld and vindicated the honor of the Audiciary no less than that of the country. Throu+h this challen+ed order, there is thus dispelled the atmosphere of contin+ent frustration brou+ht about by the persistence of the domiciliary administrator to hold on to the stock certificates after it had, as admitted, voluntarily submitted itself to the Aurisdiction of the lower court by enterin+ its appearance throu+h counsel on =une $%, &'(5, and filin+ a petition for relief from a previous order of #arch &D, &'(5. Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was decreed. 1or without it, what it had been decided would be set at nau+ht and nullified. Unless such a blatant disre+ard by the domiciliary administrator, with residence abroad, of what was previously ordained by a court order could be thus remedied, it would have entailed, insofar as this matter was concerned, not a partial but a well-ni+h complete paralysis of Audicial authority. &. ppellant *en+uet Consolidated, !nc. did not dispute the power of the appellee ancillary administrator to +ain control and possession of all assets of the decedent within the Aurisdiction of the "hilippines. Nor could it. Such a power is inherent in his duty to settle her estate and satisfy the claims of local creditors. D s =ustice Tuason speakin+ for this Court made clear, it is a 0+eneral rule universally reco+ni<ed0 that administration, whether principal or ancillary, certainly 0e7tends to the assets of a decedent found within the state or country where it was +ranted,0 the corollary bein+ 0that an administrator appointed in one state or country has no power over property in another state or country.0( !t is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set forth by =ustice #alcolm. Thus/ 0!t is often necessary to have more than one administration of an estate. Chen a person dies intestate ownin+ property in the country of his domicile as well as in a forei+n country, administration is had in both countries. That which is +ranted in the Aurisdiction of decedent8s last domicile is termed the principal administration, while any other administration is termed the ancillary administration. The reason for the latter is because a +rant of administration does not ex proprio vigore have any effect beyond the limits of the country in which it is +ranted. ,ence, an administrator appointed in a forei+n state has no authority in the ?"hilippines@. The ancillary administration is proper, whenever a person dies, leavin+ in a country other than that of his last domicile, property to be administered in the nature of assets of the deceased liable for his individual debts or to be distributed amon+ his heirs.0% !t would follow then that the authority of the probate court to re4uire that ancillary administrator8s ri+ht to 0the stock certificates coverin+ the 55,))$ shares ... standin+ in her name in the books of ?appellant@ *en+uet Consolidated, !nc....0 be respected is e4ually beyond 4uestion. 1or appellant is a "hilippine corporation owin+ full alle+iance and subAect to the unrestricted Aurisdiction of local courts. !ts shares of stock cannot therefore be considered in any wise as immune from lawful court orders. 9ur holdin+ in Cells 1ar+o *ank and Union v. Collector of !nternal >evenue - finds application. 0!n the instant case, the actual situs of the shares of stock is in the "hilippines, the corporation bein+ domiciled ?here@.0 To the force of the above undeniable proposition, not even appellant is insensible. !t does not dispute it. Nor could it successfully do so even if it were so minded. $. !n the face of such incontrovertible doctrines that ar+ue in a rather conclusive fashion for the le+ality of the challen+ed order, how does appellant, *en+uet Consolidated, !nc. propose to carry the e7tremely heavy burden of persuasion of precisely demonstratin+ the contraryB !t would assi+n as the basic error alle+edly committed by the lower court its 0considerin+ as lost the stock certificates coverin+ 55,))$ shares of *en+uet belon+in+ to the deceased !donah Slade "erkins, ...0' #ore specifically, appellant would stress that the 0lower court could not 0consider as lost0 the stock certificates in 4uestion when, as a matter of fact, his ,onor the trial =ud+e knew, and does know, and it is admitted by the appellee, that the said stock certificates are in e7istence and are today in the possession of the domiciliary administrator in New York.0&) There may be an element of fiction in the above view of the lower court. That certainly does not suffice to call for the reversal of the appealed order. Since there is a refusal, persistently adhered to by the domiciliary administrator in New York, to deliver the shares of stocks of appellant corporation owned by the decedent to the ancillary administrator in the "hilippines, there was nothin+ unreasonable or arbitrary in considerin+ them as lost and re4uirin+ the appellant to issue new certificates in lieu thereof. Thereby, the task incumbent under the law on the ancillary administrator could be dischar+ed and his responsibility fulfilled. ny other view would result in the compliance to a valid Audicial order bein+ made to depend on the

uncontrolled discretion of the party or entity, in this case domiciled abroad, which thus far has shown the utmost persistence in refusin+ to yield obedience. Certainly, appellant would not be heard to contend in all seriousness that a Audicial decree could be treated as a mere scrap of paper, the court issuin+ it bein+ powerless to remedy its fla+rant disre+ard. !t may be admitted of course that such alle+ed loss as found by the lower court did not correspond e7actly with the facts. To be more blunt, the 4uality of truth may be lackin+ in such a conclusion arrived at. !t is to be remembered however, a+ain to borrow from 1rankfurter, 0that fictions which the law may rely upon in the pursuit of le+itimate ends have played an important part in its development.0&& Speakin+ of the common law in its earlier period, Cardo<o could state fictions 0were devices to advance the ends of Austice, ?even if@ clumsy and at times offensive.0 &$ Some of them have persisted even to the present, that eminent Aurist, notin+ 0the 4uasi contract, the adopted child, the constructive trust, all of flourishin+ vitality, to attest the empire of 0as if0 today.0&5 ,e likewise noted 0a class of fictions of another order, the fiction which is a workin+ tool of thou+ht, but which at times hides itself from view till reflection and analysis have brou+ht it to the li+ht.0&. Chat cannot be disputed, therefore, is the at times indispensable role that fictions as such played in the law. There should be then on the part of the appellant a further refinement in the catholicity of its condemnation of such Audicial techni4ue. !f ever an occasion did call for the employment of a le+al fiction to put an end to the anomalous situation of a valid Audicial order bein+ disre+arded with apparent impunity, this is it. Chat is thus most obvious is that this particular alle+ed error does not carry persuasion. 5. ppellant *en+uet Consolidated, !nc. would seek to bolster the above contention by its invokin+ one of the provisions of its by-laws which would set forth the procedure to be followed in case of a lost, stolen or destroyed stock certificate: it would stress that in the event of a contest or the pendency of an action re+ardin+ ownership of such certificate or certificates of stock alle+edly lost, stolen or destroyed, the issuance of a new certificate or certificates would await the 0final decision by ?a@ court re+ardin+ the ownership ?thereof@.0&D Such reliance is misplaced. !n the first place, there is no such occasion to apply such by-law. !t is admitted that the forei+n domiciliary administrator did not appeal from the order now in 4uestion. #oreover, there is likewise the e7press admission of appellant that as far as it is concerned, 0it is immaterial ... who is entitled to the possession of the stock certificates ...0 Even if such were not the case, it would be a le+al absurdity to impart to such a provision conclusiveness and finality. ssumin+ that a contrariety e7ists between the above by-law and the command of a court decree, the latter is to be followed. !t is understandable, as Cardo<o pointed out, that the Constitution overrides a statute, to which, however, the Audiciary must yield deference, when appropriately invoked and deemed applicable. !t would be most hi+hly unorthodo7, however, if a corporate by-law would be accorded such a hi+h estate in the Aural order that a court must not only take note of it but yield to its alle+ed controllin+ force. The fear of appellant of a contin+ent liability with which it could be saddled unless the appealed order be set aside for its inconsistency with one of its by-laws does not impress us. !ts obedience to a lawful court order certainly constitutes a valid defense, assumin+ that such apprehension of a possible court action a+ainst it could possibly materiali<e. Thus far, nothin+ in the circumstances as they have developed +ives substance to such a fear. Fossamer possibilities of a future preAudice to appellant do not suffice to nullify the lawful e7ercise of Audicial authority. .. Chat is more the view adopted by appellant *en+uet Consolidated, !nc. is frau+ht with implications at war with the basic postulates of corporate theory. Ce start with the undeniable premise that, 0a corporation is an artificial bein+ created by operation of law....0 &( !t owes its life to the state, its birth bein+ purely dependent on its will. s *erle so aptly stated/ 0Classically, a corporation was conceived as an artificial person, owin+ its e7istence throu+h creation by a soverei+n power.0 &% s a matter of fact, the statutory lan+ua+e employed owes much to Chief =ustice #arshall, who in the 6artmouth Colle+e decision defined a corporation precisely as 0an artificial bein+, invisible, intan+ible, and e7istin+ only in contemplation of law.0&The well-known authority 1letcher could summari<e the matter thus/ 0 corporation is not in fact and in reality a person, but the law treats it as thou+h it were a person by process of fiction, or by re+ardin+ it as an artificial person distinct and separate from its individual stockholders.... !t owes its e7istence to law. !t is an artificial

person created by law for certain specific purposes, the e7tent of whose e7istence, powers and liberties is fi7ed by its charter.0&' 6ean "ound8s terse summary, a Auristic person, resultin+ from an association of human bein+s +ranted le+al personality by the state, puts the matter neatly.$) There is thus a reAection of Fierke8s genossenchaft theory, the basic theme of which to 4uote from 1riedmann, 0is the reality of the +roup as a social and le+al entity, independent of state reco+nition and concession.0 $& corporation as known to "hilippine Aurisprudence is a creature without any e7istence until it has received the imprimatur of the state accordin+ to law. !t is lo+ically inconceivable therefore that it will have ri+hts and privile+es of a hi+her priority than that of its creator. #ore than that, it cannot le+itimately refuse to yield obedience to acts of its state or+ans, certainly not e7cludin+ the Audiciary, whenever called upon to do so. s a matter of fact, a corporation once it comes into bein+, followin+ merican law still of persuasive authority in our Aurisdiction, comes more often within the ken of the Audiciary than the other two coordinate branches. !t institutes the appropriate court action to enforce its ri+ht. Correlatively, it is not immune from Audicial control in those instances, where a duty under the law as ascertained in an appropriate le+al proceedin+ is cast upon it. To assert that it can choose which court order to follow and which to disre+ard is to confer upon it not autonomy which may be conceded but license which cannot be tolerated. !t is to ar+ue that it may, when so minded, overrule the state, the source of its very e7istence: it is to contend that what any of its +overnmental or+ans may lawfully re4uire could be i+nored at will. So e7trava+ant a claim cannot possibly merit approval. D. 9ne last point. !n Giloria v. dministrator of Geterans ffairs, $$ it was shown that in a +uardianship proceedin+s then pendin+ in a lower court, the United States Geterans dministration filed a motion for the refund of a certain sum of money paid to the minor under +uardianship, alle+in+ that the lower court had previously +ranted its petition to consider the deceased father as not entitled to +uerilla benefits accordin+ to a determination arrived at by its main office in the United States. The motion was denied. !n seekin+ a reconsideration of such order, the dministrator relied on an merican federal statute makin+ his decisions 0final and conclusive on all 4uestions of law or fact0 precludin+ any other merican official to e7amine the matter anew, 0e7cept a Aud+e or Aud+es of the United States court.0 $5 >econsideration was denied, and the dministrator appealed. !n an opinion by =ustice =.*.;. >eyes, we sustained the lower court. Thus/ 0Ce are of the opinion that the appeal should be reAected. The provisions of the U.S. Code, invoked by the appellant, make the decisions of the U.S. Geterans8 dministrator final and conclusive when made on claims property submitted to him for resolution: but they are not applicable to the present case, where the dministrator is not actin+ as a Aud+e but as a liti+ant. There is a +reat difference between actions a+ainst the dministrator 2which must be filed strictly in accordance with the conditions that are imposed by the Geterans8 ct, includin+ the e7clusive review by United States courts3, and those actions where the Geterans8 dministrator seeks a remedy from our courts and submits to their Aurisdiction by filin+ actions therein. 9ur attention has not been called to any law or treaty that would make the findin+s of the Geterans8 dministrator, in actions where he is a party, conclusive on our courts. That, in effect, would deprive our tribunals of Audicial discretion and render them mere subordinate instrumentalities of the Geterans8 dministrator.0 !t is bad enou+h as the Giloria decision made patent for our Audiciary to accept as final and conclusive, determinations made by forei+n +overnmental a+encies. !t is infinitely worse if throu+h the absence of any coercive power by our courts over Auridical persons within our Aurisdiction, the force and effectivity of their orders could be made to depend on the whim or caprice of alien entities. !t is difficult to ima+ine of a situation more offensive to the di+nity of the bench or the honor of the country. Yet that would be the effect, even if unintended, of the proposition to which appellant *en+uet Consolidated seems to be firmly committed as shown by its failure to accept the validity of the order complained of: it seeks its reversal. Certainly we must at all pains see to it that it does not succeed. The deplorable conse4uences attendant on appellant prevailin+ attest to the necessity of ne+ative response from us. That is what appellant will +et. That is all then that this case presents. !t is obvious why the appeal cannot succeed. !t is always easy to conAure e7treme and even oppressive possibilities. That is not decisive. !t does not settle the issue. Chat carries wei+ht and conviction is the result arrived at, the Aust solution obtained, +rounded in the soundest of le+al doctrines and distin+uished by its correspondence with what a sense of realism re4uires. 1or throu+h the appealed order, the imperative re4uirement of Austice accordin+ to law is satisfied and national di+nity and

honor maintained. C,E>E19>E, the appealed order of the ,onorable rsenio Santos, the =ud+e of the Court of 1irst !nstance, dated #ay &-, &'(., is affirmed. Cith costs a+ainst oppositor-appelant *en+uet Consolidated, !nc.

'ATAAN SHI &ARD * ENGINEERING )O., IN). +'ASE)O,, v%. )GG, )HAIR-AN .O/ITO SALONGA, )O--ISSIONER -AR& )ON)E )ION 'A(TISTA, )O--ISSIONER RA-ON DIA0, )O--ISSIONER RA(L R. DA0A, )O--ISSIONER 1(INTIN S. DORO-AL, )A T. .ORGE '. SIA)(N)O, e2 $3., Challen+ed in this special civil action of certiorari and prohibition by a private corporation known as the *ataan Shipyard and En+ineerin+ Co., !nc. are/ 2&3 E7ecutive 9rders Numbered & and $, promul+ated by "resident Cora<on C. 4uino on 1ebruary $-, &'-( and #arch &$, &'-(, respectively, and 2$3 the se4uestration, takeover, and other orders issued, and acts done, in accordance with said e7ecutive orders by the "residential Commission on Food Fovernment andHor its Commissioners and a+ents, affectin+ said corporation. &. The Sequestration, Takeover, and Other Orders Complained of a. The Basic Sequestration Order The se4uestration order which, in the view of the petitioner corporation, initiated all its misery was issued on pril &., &'-( by Commissioner #ary Concepcion *autista. !t was addressed to three of the a+ents of the Commission, hereafter simply referred to as "CFF. !t reads as follows/ >E/ SEIUEST> T!9N 9>6E> *y virtue of the powers vested in the "residential Commission on Food Fovernment, by authority of the "resident of the "hilippines, you are hereby directed to se4uester the followin+ companies. &. *ataan Shipyard and En+ineerin+ Co., !nc. 2En+ineerin+ !sland Shipyard and #ariveles Shipyard3 $. *aseco Iuarry 5. "hilippine =ai- lai Corporation .. 1idelity #ana+ement Co., !nc. D. >omson >ealty, !nc. (. Trident #ana+ement Co. %. New Trident #ana+ement -. *ay Transport '. nd all affiliate companies of lfredo 0*eAo0 >omualde< You are hereby ordered/ &. To implement this se4uestration order with a minimum disruption of these companies8 business activities. $. To ensure the continuity of these companies as +oin+ concerns, the care and maintenance of these assets until such time that the 9ffice of the "resident throu+h the Commission on Food Fovernment should decide otherwise. 5. To report to the Commission on Food Fovernment periodically. 1urther, you are authori<ed to re4uest for #ilitaryHSecurity Support from the #ilitaryH"olice authorities, and such other acts essential to the achievement of this se4uestration order. 1 b. Order for Production of Documents 9n the stren+th of the above se4uestration order, #r. =ose #. *alde, actin+ for the "CFF, addressed a letter dated pril &-, &'-( to the "resident and other officers of petitioner firm, reiteratin+ an earlier re4uest for the production of certain documents, to wit/ &. Stock Transfer *ook $. ;e+al documents, such as/ $.&. rticles of !ncorporation $.$. *y-;aws $.5. #inutes of the nnual Stockholders #eetin+ from &'%5 to &'-( $... #inutes of the >e+ular and Special #eetin+s of the *oard of 6irectors from &'%5 to &'-(

$.D. #inutes of the E7ecutive Committee #eetin+s from &'%5 to &'-( $.(. E7istin+ contracts with suppliersHcontractorsHothers. 5. Yearly list of stockholders with their correspondin+ shareHstockholdin+s from &'%5 to &'-( duly certified by the Corporate Secretary. .. udited 1inancial Statements such as *alance Sheet, "rofit J ;oss and others from &'%5 to 6ecember 5&, &'-D. D. #onthly 1inancial Statements for the current year up to #arch 5&, &'-(. (. Consolidated Cash "osition >eports from =anuary to pril &D, &'-(. %. !nventory listin+s of assets up dated up to #arch 5&, &'-(. -. Updated schedule of ccounts >eceivable and ccounts "ayable. '. Complete list of depository banks for all funds with the authori<ed si+natories for withdrawals thereof. &). Schedule of company investments and placements. 2 The letter closed with the warnin+ that if the documents were not submitted within five days, the officers would be cited for 0contempt in pursuance with "residential E7ecutive 9rder Nos. & and $.0 c. Orders Re ngineer !sland 2&3 Termination of Contract for Securit" Services third order assailed by petitioner corporation, hereafter referred to simply as * SEC9, is that issued on pril $&, &'-( by a Capt. 1lordelino *. Kabala, a member of the task force assi+ned to carry out the basic se4uestration order. ,e sent a letter to * SEC98s Gice-"resident for 1inance, 3 terminatin+ the contract for security services within the En+ineer !sland compound between * SEC9 and 0 nchor and 1 !>C YS0 and 0other civilian security a+encies,0 C "C9# military personnel havin+ already been assi+ned to the area, 2$3 Change of #ode of Pa"ment of ntr" Charges 9n =uly &D, &'-(, the same Capt. Kabala issued a #emorandum addressed to 0Truck 9wners and Contractors,0 particularly a 0#r. *uddy 9ndivilla National #arine Corporation,0 advisin+ of the amendment in part of their contracts with * SEC9 in the sense that the stipulated char+es for use of the * SEC9 road network were made payable 0upon entry and not anymore subAect to monthly billin+ as was ori+inally a+reed upon.0 4 d. $%orted Contract for !mprovement of &harf at ngineer !sland 9n =uly ', &'-(, a "CFF fiscal a+ent, S. *eren+uer, entered into a contract in behalf of * SEC9 with 6eltamarine !nte+rated "ort Services, !nc., in virtue of which the latter undertook to introduce improvements costin+ appro7imately "$&),))).)) on the * SEC9 wharf at En+ineer !sland, alle+edly then in poor condition, avowedly to 0optimi<e its utili<ation and in return ma7imi<e the revenue which would flow into the +overnment coffers,0 in consideration of 6eltamarine8s bein+ +ranted 0priority in usin+ the improved portion of the wharf ahead of anybody0 and e7emption 0from the payment of any char+es for the use of wharf includin+ the area where it may install its ba++in+ e4uipments0 0until the improvement remains in a condition suitable for port operations.0 5 !t seems however that this contract was never consummated. Capt. =or+e *. Siacunco, 0,ead- 2"CFF3 * SEC9 #ana+ement Team,0 advised 6eltamarine by letter dated =uly 5), &'-( that 0the new mana+ement is not in a position to honor the said contract0 and thus 0whatever improvements L L 2may be introduced3 shall be deemed unauthori<ed L L and shall be at L L 26eltamarine8s3 own risk.0 6 e. Order for Operation of Sesiman Rock 'uarr", #ariveles, Bataan *y 9rder dated =une $), &'-(, Commissioner #ary *autista first directed a "CFF a+ent, #ayor #elba 9. *uenaventura, 0to plan and implement pro+ress towards ma7imi<in+ the continuous operation of the * SEC9 Sesiman >ock Iuarry L L by conventional methods:0 but afterwards, Commissioner *autista, in representation of the "CFF, authori<ed another party, .T. besamis, to operate the 4uarry, located at #ariveles, *ataan, an a+reement to this effect havin+ been e7ecuted by them on September &%, &'-(. 4 f. Order to Dispose of Scrap, etc( *y another 9rder of Commissioner *autista, this time dated =une $(, &'-(, #ayor *uenaventura was also

0authori<ed to clean and beautify the Company8s compound,0 and in this connection, to dispose of or sell 0metal scraps0 and other materials, e4uipment and machineries no lon+er usable, subAect to specified +uidelines and safe+uards includin+ audit and verification. 8 +. The T$) O* R Order *y letter dated =uly &., &'-(, Commissioner >amon . 6ia< decreed the provisional takeover by the "CFF of * SEC9, 0the "hilippine 6ockyard Corporation and all their affiliated companies.0 9 6ia< invoked the provisions of Section 5 2c3 of E7ecutive 9rder No. &, empowerin+ the Commission M L L To provisionally takeover in the public interest or to prevent its disposal or dissipation, business enterprises and properties taken over by the +overnment of the #arcos dministration or by entities or persons close to former "resident #arcos, until the transactions leadin+ to such ac4uisition by the latter can be disposed of by the appropriate authorities. mana+ement team was desi+nated to implement the order, headed by Capt. Siacunco, and was +iven the followin+ powers/ &. Conducts all aspects of operation of the subAect companies: $. !nstalls key officers, hires and terminates personnel as necessary: 5. Enters into contracts related to mana+ement and operation of the companies: .. Ensures that the assets of the companies are not dissipated and used effectively and efficiently: revenues are duly accounted for: and disburses funds only as may be necessary: D. 6oes actions includin+ amon+ others, seekin+ of military support as may be necessary, that will ensure compliance to this order: (. ,olds itself fully accountable to the "residential Commission on Food Fovernment on all aspects related to this take-over order. h. Termination of Services of B$S CO Officers Thereafter, Capt. Siacunco, sent letters to ,ilario #. >ui<, #anuel S. #endo<a, #oises #. Galde<, Filberto "asimanero, and *enito >. Cuesta !, advisin+ of the termination of their services by the "CFF. 15 $. Petitioner+s Plea and Postulates !t is the fore+oin+ specific orders and acts of the "CFF and its members and a+ents which, to repeat, petitioner * SEC9 would have this Court nullify. #ore particularly, * SEC9 prays that this Court&3 declare unconstitutional and void E7ecutive 9rders Numbered & and $: $3 annul the se4uestration order dated pril- &., &'-(, and all other orders subse4uently issued and acts done on the basis thereof, inclusive of the takeover order of =uly &., &'-( and the termination of the services of the * SEC9 e7ecutives. 11 a. Re xecutive Orders ,o( - and ., and the Sequestration and Takeover Orders Chile * SEC9 concedes that /sequestration 0ithout resorting to 1udicial action, might %e made 0ithin the context of xecutive Orders ,os( - and . %efore #arch .2, -345 when the 1reedom Constitution was promul+ated, under the principle that the law promul+ated by the ruler under a revolutionary re+ime is the law of the land, it ceased to %e accepta%le when the same ruler opted to promul+ate the 1reedom Constitution on #arch $D, &'-( wherein under Section ! of the same, rticle !G 2*ill of >i+hts3 of the &'%5 Constitution was adopted providin+, amon+ others, that 0No person shall be deprived of life, liberty and property without due process of law.0 2Const., rt. ! G, Sec. &3.0 12 !t declares that its obAection to the constitutionality of the E7ecutive 9rders 0as well as the Se4uestration 9rder L L and Takeover 9rder L L issued purportedly under the authority of said E7ecutive 9rders, rests on four fundamental considerations/ 6irst, no notice and hearin+ was accorded L L 2it3 before its properties and business were taken over: Second, the "CFF is not a court, but a purely investi+ative a+ency and therefore not competent to act as prosecutor and Aud+e in the same cause: Third, there is nothin+ in the issuances which envisions any proceedin+, process or remedy by which petitioner may e7peditiously challen+e the validity of the takeover after the same has been effected: and 6ourthl", bein+ directed a+ainst specified persons, and in disre+ard of the constitutional presumption of innocence and +eneral rules and procedures, they constitute a *ill of ttainder.0 13 b. Re Order to Produce Documents

!t ar+ues that the order to produce corporate records from &'%5 to &'-(, which it has apparently already complied with, was issued without court authority and infrin+ed its constitutional ri+ht a+ainst selfincrimination, and unreasonable search and sei<ure. 14 c. Re PC77+s xercise of Right of O0nership and #anagement * SEC9 further contends that the "CFF had unduly interfered with its ri+ht of dominion and mana+ement of its business affairs by M &3 terminatin+ its contract for security services with 1airways J nchor, without the consent and a+ainst the will of the contractin+ parties: and amendin+ the mode of payment of entry fees stipulated in its ;ease Contract with National Stevedorin+ J ;i+htera+e Corporation, these acts bein+ in violation of the nonimpairment clause of the constitution: 15 $3 allowin+ "CFF +ent Silverio *eren+uer to enter into an 0anomalous contract0 with 6eltamarine !nte+rated "ort Services, !nc., +ivin+ the latter free use of * SEC9 premises: 16 53 authori<in+ "CFF Sesiman, #ariveles: 14 +ent, #ayor #elba *uenaventura, to mana+e and operate its rock 4uarry at

.3 authori<in+ the same mayor to sell or dispose of its metal scrap, e4uipment, machinery and other materials: 18 D3 authori<in+ the takeover of * SEC9, "hilippine 6ockyard Corporation, and all their affiliated companies: (3 terminatin+ the services of * SEC9 e7ecutives/ "resident ,ilario #. >ui<: EG" #anuel S. #endo<a: F# #oises #. Galde<: 1inance #+r. Filberto "asimanero: ;e+al 6ept. #+r. *enito >. Cuesta !: 19 %3 plannin+ to elect its own *oard of 6irectors: 25 -3 allowin+ willin+ly or unwillin+ly its personnel to take, steal, carry away from petitioner8s premises at #ariveles L L rolls of cable wires, worth "()),))).)) on #ay &&, &'-(: 21 '3 allowin+ 0indiscriminate di++in+s0 at En+ineer !sland to retrieve +old bars supposed to have been buried therein. 22 5. 6oubts, #isconceptions re+ardin+ Se4uestration, 1ree<e and Takeover 9rders #any misconceptions and much doubt about the matter of se4uestration, takeover and free<e orders have been en+endered by misapprehension, or incomplete comprehension if not indeed downri+ht i+norance of the law +overnin+ these remedies. !t is needful that these misconceptions and doubts be dispelled so that uninformed and useless debates about them may be avoided, and ar+uments tainted b sophistry or intellectual dishonesty be 4uickly e7posed and discarded. Towards this end, this opinion will essay an e7position of the law on the matter. !n the process many of the obAections raised by * SEC9 will be dealt with. .. The Fovernin+ ;aw a. Proclamation ,o( 8 The impu+ned e7ecutive orders are avowedly meant to carry out the e7plicit command of the "rovisional Constitution, ordained by "roclamation No. 5, 23 that the "resident-in the e7ercise of le+islative power which she was authori<ed to continue to wield 02until a le+islature is elected and convened under a new Constitution0 M 0shall +ive priority to measures to achieve the mandate of the people,0 amon+ others to9r:ecover ill;gotten properties amassed %" the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or free<ing of assets or accounts(/ 24 b. xecutive Order ,o( E7ecutive 9rder No. & stresses the 0ur+ent need to recover all ill-+otten wealth,0 and postulates that 0vast resources of the +overnment have been amassed by former "resident 1erdinand E. #arcos, his immediate family, relatives, and close associates both here and abroad.0 25 Upon these premises, the "residential Commission on Food Fovernment was created, 26 0char+ed with the task of assistin+ the "resident in re+ard to 2certain specified3 matters,0 amon+ which was preciselyL L The recovery of all in-+otten wealth accumulated by former "resident 1erdinand E. #arcos, his immediate family, relatives, subordinates and close associates, whether located in the "hilippines or abroad, includin+ the takeover or sequestration of all business enterprises and entities owned or controlled

by them, durin+ his administration, directly or throu+h nominees, by takin+ undue advanta+e of their public office andHor usin+ their powers, authority, influence, connections or relationship. 24 !n relation to the takeover or sequestration that it was authori<ed to undertake in the fulfillment of its mission, the "CFF was +ranted 0power and authority0 to do the followin+ particular acts, to wit/ &. To sequester or place or cause to %e placed under its control or possession any buildin+ or office wherein any ill-+otten wealth or properties may be found, and any records pertainin+ thereto, in order to prevent their destruction, concealment or disappearance which would frustrate or hamper the investi+ation or otherwise prevent the Commission from accomplishin+ its task. $. To provisionall" take over in the public interest or to prevent the disposal or dissipation, business enterprises and properties taken over by the +overnment of the #arcos dministration or by entities or persons close to former "resident #arcos, until the transactions leadin+ to such ac4uisition by the latter can be disposed of by the appropriate authorities. 5. To en1oin or restrain an" 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 mi+ht ascertain the facts +ermane to its obAectives, it was +ranted power to conduct investi+ations: re4uire submission of evidence by subpoenae ad testificandum and duces tecum= administer oaths: punish for contempt. 29 !t was +iven power also to promul+ate such rules and re+ulations as may be necessary to carry out the purposes of L L 2its creation3. 35 c. xecutive Order ,o( . E7ecutive 9rder No. $ +ives additional and more specific data and directions respectin+ 0the recovery of ill+otten properties amassed by the leaders and supporters of the previous re+ime.0 !t declares that/ &3 L L the 7overnment of the Philippines is in possession of evidence sho0ing that there are assets and properties purportedly pertainin+ to former 1erdinand E. #arcos, andHor his wife #rs. !melda >omualde< #arcos, their close relatives, subordinates, business associates, dummies, a+ents or nominees which had been or were ac4uired by them directly or indirectly, throu+h or as a result of the improper or ille+al use of funds or properties owned by the +overnment of the "hilippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by takin+ undue advanta+e of their office, authority, influence, connections or relationship, resultin+ in their unAust enrichment and causin+ +rave dama+e and preAudice to the 1ilipino people and the >epublic of the "hilippines/0 and $3 L L said assets and properties are in the form of bank accounts, deposits, trust accounts, shares of stocks, buildin+s, shoppin+ centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the "hilippines and in various countries of the world.0 31 Upon these premises, the "resident&3 fro<e 0all assets and properties in the "hilippines in which former "resident #arcos andHor his wife, #rs. !melda >omualde< #arcos, their close relatives, subordinates, business associates, dummies, a+ents, or nominees have any interest or participation: $3 prohi%ited former "resident 1erdinand #arcos andHor his wife L L, their close relatives, subordinates, business associates, duties, a+ents, or nominees from transferring, conve"ing, encum%ering, concealing or dissipating said assets or properties in the "hilippines and abroad, pendin+ the outcome of appropriate proceedin+s in the "hilippines to determine whether any such assets or properties were ac4uired by them throu+h or as a result of improper or ille+al use of or the conversion of funds belon+in+ to the Fovernment of the "hilippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by takin+ undue advanta+e of their official position, authority, relationship, connection or influence to unAustly enrich themselves at the e7pense and to the +rave dama+e and preAudice of the 1ilipino people and the >epublic of the "hilippines: 53 prohi%ited 0any person from transferring, conve"ing, encum%ering or other0ise depleting or concealing such assets and properties or from assistin+ or takin+ part in their transfer, encumbrance, concealment or dissipation under pain of such penalties as are prescribed by law:0 and .3 required 0all persons in the "hilippines holdin+ such assets or properties, whether located in the "hilippines or abroad, in their names as nominees, a+ents or trustees, to make full disclosure of the same to the Commission on Food Fovernment within thirty 25)3 days from publication of L 2the3 E7ecutive 9rder, L L. 32

d. xecutive Order ,o( -> third e7ecutive order is relevant/ E7ecutive 9rder No. &., 33 by which the "CFF is empowered, 0with the assistance of the 9ffice of the Solicitor Feneral and other +overnment a+encies, L L to file and prosecute all cases investigated %" it L L as may be warranted by its findin+s.0 34 ll such cases, whether civil or criminal, are to be filed 0with the Sandigan%a"an which shall have e7clusive and ori+inal Aurisdiction thereof.0 35 E7ecutive 9rder No. &. also pertinently provides that civil suits for restitution, reparation of dama+es, or indemnification for conse4uential dama+es, forfeiture proceedin+s provided for under >epublic ct No. &5%', or any other civil actions under the Civil Code or other e7istin+ laws, in connection with L L 2said E7ecutive 9rders Numbered & and $3 may be filed separately from and proceed independently of any criminal proceedin+s and may be proved by a preponderance of evidence:0 and that, moreover, the 0technical rules of procedure and evidence shall not be strictly applied toL L 2said3civil cases.0 36 D. Contemplated Situations The situations envisa+ed and sou+ht to be +overned are self-evident, these bein+/ &3 that 02i3ll-+otten properties 2were3 amassed by the leaders and supporters of the previous re+ime0:
34

a3 more particularly, that ill-+otten wealth 2was3 accumulated by former "resident 1erdinand E. #arcos, his immediate family, relatives, subordinates and close associates, L L located in the "hilippines or abroad, L L 2and3 business enterprises and entities 2came to be3 owned or controlled by them, durin+ L L 2the #arcos3 administration, directly or throu+h nominees, by takin+ undue advanta+e of their public office andHor usin+ their powers, authority, influence, Connections or relationship: 38 b3 otherwise stated, that 0there are assets and properties purportedly pertainin+ to former "resident 1erdinand E. #arcos, andHor his wife #rs. !melda >omualde< #arcos, their close relatives, subordinates, business associates, dummies, a+ents or nominees which had been or were ac4uired by them directly or indirectly, throu+h or as a result of the improper or ille+al use of funds or properties owned by the Fovernment of the "hilippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by takin+ undue advanta+e of their office, authority, influence, connections or relationship, resultin+ in their unAust enrichment and causin+ +rave dama+e and preAudice to the 1ilipino people and the >epublic of the "hilippines0: 39 c3 that 0said assets and properties are in the form of bank accounts. deposits, trust. accounts, shares of stocks, buildin+s, shoppin+ centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the "hilippines and in various countries of the world:0 45 and $3 that certain 0business enterprises and properties 2were3 taken over by the +overnment of the #arcos dministration or by entities or persons close to former "resident #arcos. 41 (. Fovernment8s >i+ht and 6uty to >ecover ll !ll-+otten Cealth There can be no debate about the validity and eminent propriety of the Fovernment8s plan 0to recover all ill+otten wealth.0 Neither can there be any debate about the proposition that assumin+ the above described factual premises of the E7ecutive 9rders and "roclamation No. 5 to be true, to be demonstrable by competent evidence, the recovery from #arcos, his family and his dominions of the assets and properties involved, is not only a ri+ht but a duty on the part of Fovernment. *ut however plain and valid that ri+ht and duty may be, still a balance must be sou+ht with the e4ually compellin+ necessity that a proper respect be accorded and ade4uate protection assured, the fundamental ri+hts 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 e7ception lay claim. L L 6emocracy, as a way of life enshrined in the Constitution, embraces as its necessary components freedom of conscience, freedom of e7pression, and freedom in the pursuit of happiness. $long 0ith these freedoms are included economic freedom and freedom of enterprise within reasonable bounds and under proper control. L L Evincin+ much concern for the protection of property, the Constitution distinctly reco+ni<es the preferred position which real estate has occupied in law for a+es. Propert" is %ound up 0ith ever" aspect of social life in a democrac" as democrac" is conceived in the Constitution( The Constitution reali<es the indispensable role which property, owned in reasonable 4uantities and used le+itimately, plays in the stimulation to economic effort and the formation and +rowth of a solid social middle class that is said to be the bulwark of democracy and the backbone of every pro+ressive and happy country. 42 a. ,eed of videntiar" Su%stantiation in Proper Suit

Conse4uently, the factual premises of the E7ecutive 9rders cannot simply be assumed. They will have to be duly established by ade4uate proof in each case, in a proper Audicial proceedin+, so that the recovery of the ill-+otten wealth may be validly and properly adAud+ed and consummated: althou+h there are some who maintain that the fact-that an immense fortune, and 0vast resources of the +overnment have been amassed by former "resident 1erdinand E. #arcos, his immediate family, relatives, and close associates both here and abroad,0 and they have resorted to all sorts of clever schemes and manipulations to dis+uise and hide their illicit ac4uisitions-is within the realm of Audicial notice, bein+ of so e7tensive notoriety as to dispense with proof thereof, *e this as it may, the re4uirement of evidentiary substantiation has been e7pressly acknowled+ed, and the procedure to be followed e7plicitly laid down, in E7ecutive 9rder No. &.. b. ,eed of Provisional #easures to Collect and Conserve $ssets Pending Suits Nor may it be +ainsaid that pendin+ the institution of the suits for the recovery of such 0ill-+otten wealth0 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 subAect of the suits, or to restrain or foil acts that may render moot and academic, or effectively hamper, delay, or ne+ate efforts to recover the same. %. "rovisional >emedies "rescribed by ;aw To answer this need, the law has prescribed three 253 provisional remedies. These are/ 2&3 se4uestration: 2$3 free<e orders: and 253 provisional takeover. Se4uestration and free<in+ are remedies applicable +enerally to unearthed instances of 0ill-+otten wealth.0 The remedy of 0provisional takeover0 is peculiar to cases where 0business enterprises and properties 2were3 taken over by the +overnment of the #arcos dministration or by entities or persons close to former "resident #arcos.0 43 a. Sequestration *y the clear terms of the law, the power of the "CFF to sequester propert" claimed to be 0ill-+otten0 means to place or cause to be placed under its possession or control said property, or any buildin+ or office wherein any such property and any records pertainin+ thereto may be found, includin+ 0business enterprises and entities,0-for the purpose of preventin+ the destruction, concealment or dissipation of, and otherwise conservin+ and preservin+, the same-until it can be determined, throu+h appropriate Audicial proceedin+s, whether the property was in truth will- +otten,0 i.e., ac4uired throu+h or as a result of improper or ille+al use of or the conversion of funds belon+in+ to the Fovernment or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by takin+ undue advanta+e of official position, authority relationship, connection or influence, resultin+ in unAust enrichment of the ostensible owner and +rave dama+e and preAudice to the State. 44 nd this, too, is the sense in which the term is commonly understood in other Aurisdictions. 45 b. /6ree<e Order/ 0free<e order0 prohibits the person havin+ possession or control of property alle+ed to constitute 0ill+otten wealth0 0from transferrin+, conveyin+, encumberin+ or otherwise depletin+ or concealin+ such property, or from assistin+ or takin+ part in its transfer, encumbrance, concealment, or dissipation.0 46 !n other words, it commands the possessor to hold the property and conserve it subAect to the orders and disposition of the authority decreein+ such free<in+. !n this sense, it is akin to a +arnishment by which the possessor or ostensible owner of property is enAoined 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. 44 c. Provisional Takeover !n providin+ for the remedy of 0provisional takeover,0 the law acknowled+es the apparent distinction between 0ill +otten0 0business enterprises and entities0 2+oin+ concerns, businesses in actual operation3, +enerally, as to which the remedy of se4uestration applies, it bein+ necessarily inferred that the remedy entails no interference, or the least possible interference with the actual mana+ement and operations thereof: and 0business enterprises which were taken over %" the government government of the #arcos $dministration or %" entities or persons close to him,/ in particular, as to which a 0provisional takeover0 is authori<ed, 0in the public interest or to prevent disposal or dissipation of the enterprises.0 48 Such a 0provisional takeover0 imports somethin+ more than se4uestration or free<in+, more than the placin+ of the business under physical possession and control, albeit without or with the least possible interference with the mana+ement and carryin+ on of the business itself. !n a 0provisional takeover,0 what is taken into

custody is not only the physical assets of the business enterprise or entity, but the business operation as well. !t is in fine the assumption of control not only over thin+s, but over operations or on- +oin+ activities. *ut, to repeat, such a 0provisional takeover0 is allowed only as re+ards 0business enterprises L L taken over %" the government of the #arcos $dministration or %" entities or persons close to former President #arcos(/ d. ,o Divestment of Title Over Propert" Sei<ed !t may perhaps be well at this point to stress once a+ain the provisional, contin+ent character of the remedies Aust described. !ndeed the law plainly 4ualifies the remedy of take-over by the adAective, 0provisional.0 These remedies may be resorted to only for a particular e7i+ency/ to prevent in the public interest the disappearance or dissipation of property or business, and conserve it pendin+ adAud+ment in appropriate proceedin+s of the primary issue of whether or not the ac4uisition of title or other ri+ht thereto by the apparent owner was attended by some vitiatin+ anomaly. None of the remedies is meant to deprive the owner or possessor of his title or any ri+ht to the property se4uestered, fro<en or taken over and vest it in the se4uesterin+ a+ency, the Fovernment 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 se4uester, free<e or provisionally take over is to be understood and e7ercised, the lan+ua+e of the e7ecutive orders in 4uestion leaves no doubt. E7ecutive 9rder No. & declares that the se4uestration of property the ac4uisition of which is suspect shall last /until the transactions leading to such acquisition L L can %e disposed of %" the appropriate authorities(/ 49 E7ecutive 9rder No. $ declares that the assets or properties therein mentioned shall remain fro<en /pending the outcome of appropriate proceedings in the Philippines to determine 0hether an" such assets or properties 0ere acquired/ %" illegal means( E7ecutive 9rder No. &. makes clear that Audicial proceedin+s are essential for the resolution of the basic issue of whether or not particular assets are 0ill-+otten,0 and resultant recovery thereof by the Fovernment is warranted. e. State of Sei<ure ,ot To Be !ndefinitel" #aintained= The Constitutional Command There is thus no cause for the apprehension voiced by * SEC9 55 that se4uestration, free<in+ or provisional takeover is desi+ned to be an end in itself, that it is the device throu+h which persons may be deprived of their property branded as 0ill-+otten,0 that it is intended to brin+ about a permanent, rather than a passin+, transitional state of affairs. That this is not so is 4uite e7plicitly declared by the +overnin+ rules. *e this as it may, the &'-% Constitution should allay any lin+erin+ fears about the duration of these provisional remedies. Section $( of its Transitory "rovisions, 51 lays down the relevant rule in plain terms, apart from e7tendin+ ratification or confirmation 2althou+h not really necessary3 to the institution by presidential fiat of the remedy of se4uestration and free<e orders/ SEC. $(. The authority to issue se4uestration or free<e orders under "roclamation No. 5 dated #arch $D, &'-( in relation to the recovery of ill-+otten wealth sha+ remain operative for not more than eighteen months after the ratification of this Constitution. ,owever, in the national interest, as certified by the "resident, the Congress ma" extendsaid period. se4uestration or free<e order shall be issued only upon showin+ of a prima facie case. The order and the list of the se4uestered or fro<en properties shall forthwith be re+istered with the proper court. 1or orders issued before the ratification of this Constitution, the correspondin+ Audicial action or proceedin+ shall be filed within si7 months from its ratification. 1or those issued after such ratification, the Audicial action or proceedin+ shall be commenced within six months from the issuance thereof. The se4uestration or free<e order is deemed automatically lifted if no Audicial action or proceedin+ is commenced as herein provided. 52 f. )inship to $ttachment Receivership s thus described, se4uestration, free<in+ and provisional takeover are akin to the provisional remedy of preliminary attachment, or receivership. 53 *y attachment, a sheriff sei<es property of a defendant in a civil suit so that it may stand as security for the satisfaction of any Aud+ment that may be obtained, and not disposed of, or dissipated, or lost intentionally or otherwise, pendin+ the action. 54 *y receivership, property, real or personal, which is subAect of liti+ation, is placed in the possession and control of a receiver appointed by the Court, who shall conserve it pendin+ final determination of the title or ri+ht of possession over it. 55 ll these remedies M se4uestration, free<in+, provisional, takeover, attachment and receivership M are provisional, temporary, desi+ned for-particular e7i+encies, attended by no character of permanency or finality, and always subAect to the control of the issuin+ court or a+ency.

+. Remedies, ,on;?udicial "arenthetically, that writs of se4uestration or free<e or takeover orders are not issued by a court is of no moment. The Solicitor Feneral draws attention to the writ of distraint and levy which since &'5( the Commissioner of !nternal >evenue has been by law authori<ed to issue a+ainst property of a delin4uent ta7payer. 56 * SEC9 itself declares that it has not manifested 0a ri+id insistence on se4uestration as a purely Audicial remedy L L 2as it feels3 that the law should not be ossified to a point that makes it insensitive to chan+e.0 Chat it insists on, what it pronounces to be its 0unyieldin+ position, is that any chan+e in procedure, or the institution of a new one, should conform to due process and the other prescriptions of the *ill of >i+hts of the Constitution.0 54 !t is, to be sure, a proposition on which there can be no disa+reement. h. Orders #a" !ssue x Parte ;ike the remedy of preliminary attachment and receivership, as well as delivery of personal property in replevin suits, se4uestration and provisional takeover writs may issue ex parte( 58 nd as in preliminary attachment, receivership, and delivery of personality, no obAection of any si+nificance may be raised to the ex parte issuance of an order of se4uestration, free<in+ or takeover, +iven its fundamental character of temporariness or conditionality: and takin+ account specially of the constitutionally e7pressed 0mandate of the people to recover ill-+otten properties amassed by the leaders and supporters of the previous re+ime and protect the interest of the people:0 59 as well as the obvious need to avoid alertin+ suspected possessors of 0ill-+otten wealth0 and thereby cause that disappearance or loss of property precisely sou+ht to be prevented, and the fact, Aust as self-evident, that 0any transfer, disposition, concealment or disappearance of said assets and properties would frustrate, obstruct or hamper the efforts of the Fovernment0 at the Aust recovery thereof. 65 -. Requisites for *alidit" Chat is indispensable is that, a+ain as in the case of attachment and receivership, there e7ist a prima facie factual foundation, at least, for the se4uestration, free<e or takeover order, and ade4uate and fair opportunity to contest it and endeavor to cause its ne+ation or nullification. 61 *oth are assured under the e7ecutive orders in 4uestion and the rules and re+ulations promul+ated by the "CFF. a. Prima 6acie vidence as Basis for Orders E7ecutive 9rder No. &. enAoins that there be 0due re+ard to the re4uirements of fairness and due process.0 62 E7ecutive 9rder No. $ declares that with respect to claims on alle+edly 0ill-+otten0 assets and properties, 0it is the position of the new democratic +overnment that "resident #arcos L L 2and other parties affected3 be afforded fair opportunity to contest these claims before appropriate "hilippine authorities.0 63Section % of the Commission8s >ules and >e+ulations provides that se4uestration or free<e 2and takeover3 orders issue upon the authority of at least two commissioners, based on the affirmation or complaint of an interested part", or motu proprio when the Commission has reasonable +rounds to believe that the issuance thereof is warranted. 64 similar re4uirement is now found in Section $(, rt. NG!!! of the &'-% Constitution, which re4uires that a 0se4uestration or free<e order shall be issued only upon showin+ of a prima facie case.0 65 b. Opportunit" to Contest nd Sections D and ( of the same >ules and >e+ulations lay down the procedure by which a party may seek to set aside a writ of se4uestration or free<e order, vi</ SECT!9N D. &ho ma" contend(-The person a+ainst whom a writ of se4uestration or free<e or hold order is directed may re4uest the liftin+ thereof in writin+, either personally or throu+h counsel within five 2D3 days from receipt of the writ or order, or in the case of a hold order, from date of knowled+e thereof. SECT!9N (. Procedure for revie0 of 0rit or order( - fter due hearin+ or motu proprio for +ood cause shown, the Commission may lift the writ or order unconditionally or subAect to such conditions as it may deem necessary, takin+ into consideration the evidence and the circumstance of the case. The resolution of the commission may be appealed by the party concerned to the 9ffice of the "resident of the "hilippines within fifteen 2&D3 days from receipt thereof. "arenthetically, even if the re4uirement for a prima facie showin+ of 0ill- +otten wealth0 were not e7pressly imposed by some rule or re+ulation as a condition to warrant the se4uestration or free<in+ of property contemplated in the e7ecutive orders in 4uestion, it would nevertheless be e7i+ible in this Aurisdiction in which the >ule of ;aw 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

'. Constitutional Sanction of >emedies !f any doubt should still persist in the face of the fore+oin+ considerations as to the validity and propriety of se4uestration, free<e and takeover orders, it should be dispelled by the fact that these particular remedies and the authority of the "CFF to issue them have received constitutional approbation and sanction. s already mentioned, the "rovisional or 01reedom0 Constitution reco+ni<es the power and duty of the "resident to enact 0measures to achieve the mandate of the people to L L L 2recover ill- +otten properties amassed by the leaders and supporters of the previous re+ime and protect the interest of the people throu+h orders of sequestration or free<ing of assets or accounts(/ nd as also already adverted to, Section $(, rticle NG!!! of the &'-% Constitution 64 treats of, and ratifies the 0authority to issue se4uestration or free<e orders under "roclamation No. 5 dated #arch $D, &'-(.0 The institution of these provisional remedies is also premised upon the State8s inherent police power, re+arded, as t lie power of promotin+ the public welfare by restrainin+ and re+ulatin+ the use of liberty and property,0 68 and as 0the most essential, insistent and illimitable of powers L L in the promotion of +eneral welfare and the public interest,0 69 and said to be co-e7tensive with self-protection and L L not inaptly termed 2also3 the8law of overrulin+ necessity.0 0 45 &). PC77 not a /?udge/= 7eneral 6unctions !t should also by now be reasonably evident from what has thus far been said that the "CFF is not, and was never intended to act as, a Aud+e. !ts +eneral function is to conduct investi+ations in order to collect evidence establishin+ instances of 0ill-+otten wealth:0 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 Aurisdiction all cases investi+ated by it as may be warranted by its findin+s. !t does not try and decide, or hear and determine, or adAudicate with any character of finality or compulsion, cases involvin+ the essential issue of whether or not property should be forfeited and transferred to the State because 0ill-+otten0 within the meanin+ of the Constitution and the e7ecutive orders. This function is reserved to the desi+nated court, in this case, the Sandi+anbayan. 41 There can therefore be no serious re+ard accorded to the accusation, leveled by * SEC9, 42 that the "CFF plays the perfidious role of prosecutor and Aud+e at the same time. &&. 6acts Preclude 7rant 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 * SEC9 was owned or controlled by "resident #arcos 0durin+ his administration, throu+h nominees, by takin+ undue advanta+e of his public office andHor usin+ his powers, authority, or influence, 0 and that it was by and throu+h the same means, that * SEC9 had taken over the business andHor assets of the National Shipyard and En+ineerin+ Co., !nc., and other +overnment-owned or controlled entities. &$. Organi<ation and Stock Distri%ution of B$S CO * SEC9 describes itself in its petition as 0a shiprepair and shipbuildin+ company L L incorporated as a domestic private corporation L L 2on u+. 5), &'%$3 by a consortium of 1ilipino shipowners and shippin+ e7ecutives. !ts main office is at En+ineer !sland, "ort rea, #anila, where its En+ineer !sland Shipyard is housed, and its main shipyard is located at #ariveles *ataan.0 43 !ts rticles of !ncorporation disclose that its authori<ed capital stock is "(),))),))).)) divided into (),))) shares, of which &$,))) shares with a value of "&$,))),))).)) have been subscribed, and on said subscription, the a++re+ate sum of "5,)5D,))).)) has been paid by the incorporators. 44 The same articles !dentify the incorporators, numberin+ fifteen 2&D3, as follows/ 2&3 =ose . >oAas, 2$3 nthony ". ;ee, 253 Eduardo T. #arcelo, 2.3 =ose ". 1ernande<, 2D3 Feneroso Tanseco, 2(3 Emilio T. Yap, 2%3 ntonio #. E<peleta, 2-3 Kacarias mante, 2'3 Severino de la Cru<, 2&)3 =ose 1rancisco, 2&&3 6ioscoro "apa, 2&$3 9ctavio "osadas, 2&53 #anuel S. #endo<a, 2&.3 #a+iliw Torres, and 2&D3 >odolfo Torres. *y &'-(, however, of these fifteen 2&D3 incorporators, si7 2(3 had ceased to be stockholders, namely/ 2&3 Feneroso Tanseco, 2$3 ntonio E<peleta, 253 Kacarias mante, 2.3 9ctavio "osadas, 2D3 #a+iliw Torres, and 2(3 >odolfo Torres. s of this year, &'-(, there were twenty 2$)3 stockholders listed in * SEC98s Stock and Transfer *ook. 45 Their names and the number of shares respectively held by them are as follows/ &. =ose . >oAas &,$.- shares

$. Severino F. de la Cru< 5. Emilio T. Yap .. =ose 1ernande< D. =ose 1rancisco (. #anuel S. #endo<a %. nthony ". ;ee -. ,ilario #. >ui<

&,$.- shares $,D)- shares &,$.- shares &$- shares '( shares &,$.- shares 5$ shares '. Constante ;. 1ariOas &). 1idelity #ana+ement, !nc. &&. Trident #ana+ement &$. United "hil. ;ines &5. >enato #. Tanseco &.. 1idel Gentura &D. #etro *ay 6rydock &(. #anuel =acela &%. =onathan F. ;u &-. =ose =. Tanchanco &'. 6ioscoro "apa $). Edward T. #arcelo T9T ; - shares

(D,--$ share %,.&$ shares &,$.) shares - shares

&5 $cquisition of ,$SSCO %" B$S CO *arely si7 months after its incorporation, * SEC9 ac4uired from National Shipyard J Steel Corporation, or N SSC9, a +overnment-owned or controlled corporation, the latter8s shipyard at #ariveles, *ataan, known as the *ataan National Shipyard 2*NS3, and M e7cept for N SSC98s En+ineer !sland Shops and certain e4uipment of the *NS, consi+ned for future ne+otiation M all its structures, buildin+s, shops, 4uarters, houses, plants, e4uipment and facilities, in stock or in transit. This it did in virtue of a 0Contract of "urchase and Sale with Chattel #ort+a+e0 e7ecuted on 1ebruary &5, &'%5. The price was "D$,))),))).)). s partial payment thereof, * SEC9 delivered to N SSC9 a cash bond of "&&,.)),))).)), convertible into cash within twenty-four 2$.3 hours from completion of the inventory undertaken pursuant to the contract. The balance of ".&,()),))).)), with interest at seven percent 2%P3 per annum, compounded semi-annually, was stipulated to be paid in e4ual semi-annual installments over a term of nine 2'3 years, payment to commence after a +race period of two 2$3 years from date of turnover of the shipyard to * SEC9. 46 &.. Su%sequent Reduction of Price= !ntervention of #arcos Unaccountably, the price of "D$,))),))).)) was reduced by more than one-half, to "$.,5&&,DD).)), about ei+ht 2-3 months later. document to this effect was e7ecuted on 9ctober ', &'%5, entitled 0#emorandum +reement,0 and was si+ned for N SSC9 by rturo "acificador, as "residin+ 9fficer of the *oard of 6irectors, and 6avid >. !nes, as Feneral #ana+er. 44 This a+reement bore, at the top ri+ht corner of the first pa+e, the word 0 "">9GE60 in the handwritin+ of President #arcos, followed by his usual full si+nature. The document recited that a down payment of "D,-($,5&).)) had been made by * SEC9, and the balance of "&',..',$.).)) was payable in e4ual semi-annual installments over nine 2'3 years after a +race period of two 2$3 years, with interest at %P per annum. &D. $cquisition of 8@@ Aectares from xport Processing Bone $uthorit" 9n 9ctober &, &'%., * SEC9 ac4uired three hundred 25))3 hectares of land in #ariveles from the E7port "rocessin+ Kone uthority for the price of "&),).%,'.).)) of which, as set out in the document of sale,

"$,))).))).)) was paid upon its e7ecution, and the balance stipulated to be payable in installments. 48 &(. $cquisition of Other $ssets of ,$SSCO= !ntervention of #arcos Some nine months afterwards, or on =uly &D, &'%D, to be precise, * SEC9, a+ain with the intervention of "resident #arcos, ac4uired ownership of the rest of the assets of N SSC9 which had not been included in the first two 2$3 purchase documents. This was accomplished by a deed entitled 0Contract of "urchase and Sale,0 49 which, like the #emorandum of +reement dated 9ctober ', &'%5 supraalso bore at the upper ri+ht-hand corner of its first pa+e, the handwritten notation of President #arcos readin+, 0 "">9GE6, =uly $', &'%5,0 and underneath it, his usual full si+nature. Transferred to * SEC9 were N SSC98s 0ownership and all its titles, ri+hts and interests over all e4uipment and facilities includin+ structures, buildin+s, shops, 4uarters, houses, plants and e7pendable or semi-e7pendable assets, located at the En+ineer !sland, known as the En+ineer !sland Shops, includin+ all the e4uipment of the *ataan National Shipyards 2*NS3 which were e7cluded from the sale of N*S to * SEC9 but retained by * SEC9 and all other selected e4uipment and machineries of N SSC9 at =. "an+aniban Smeltin+ "lant.0 !n the same deed, N SSC9 committed itself to cooperate with * SEC9 for the ac4uisition from the National Fovernment or other appropriate Fovernment entity of En+ineer !sland. Consideration for the sale was set at "D,))),))).)): a down payment of "&,))),))).)) appears to have been made, and the balance was stipulated to be paid at %P interest per annum in e4ual semi annual installments over a term of nine 2'3 years, to commence after a +race period of two 2$3 years. #r. rturo "acificador a+ain si+ned for N SSC9, to+ether with the +eneral mana+er, #r. 6avid >. !nes. &%. Coans O%tained !t further appears that on #ay $%, &'%D * SEC9 obtained a loan from the N6C, taken from 0the last available =apanese war dama+e fund of Q&',))),))).)),0 to pay for 0=apanese made heavy e4uipment 2brand new3.0 85 9n September 5, &'%D, it +ot another loan also from the N6C in the amount of "5),))),))).)) 9id(:( nd on =anuary $-, &'%(, it +ot still another loan, this time from the FS!S, in the sum of "&$,.)),))).)). 81 The claim has been made that not a sin+le centavo has been paid on these loans. 82 &-. Reports to President #arcos !n September, &'%%, two 2$3 reports were submitted to "resident #arcos re+ardin+ * SEC9. The first was contained in a letter dated September D, &'%% of ,ilario #. >ui<, * SEC9 president. 83 The second was embodied in a confidential memorandum dated September &(, &'%% of Capt. .T. >omualde<. 84 They further disclose the fine hand of #arcos in the affairs of * SEC9, and that of a >omualde<, a relative by affinity. a. B$S CO President+s Report !n his letter of September D, &'%%, * SEC9 "resident >ui< reported to #arcos that there had been 0no orders or demands for ship construction0 for some time and e7pressed the fear that if that state of affairs persisted, * SEC9 would not be able to pay its debts to the Fovernment, which at the time stood at the not inconsiderable amount of "&(D,-D.,))).)). 85 ,e su++ested that, to 0save the situation,0 there be a /spin;off 2of their3 shipbuildin+ activities which shall be handled e7clusively by an entirely new corporation to be created:0 and towards this end, he informed #arcos that * SEC9 was M L L invitin+ N6C and ;USTEGEC9 to participate by convertin+ the N6C shipbuildin+ loan to * SEC9 amountin+ to "5.&.&(D# and assumin+ and convertin+ a portion of * SEC98s shipbuildin+ loans from >E" C9# amountin+ to "D$.$# or a total of "-5.5(D# as N6C8s e4uity contribution in the new corporation. ;USTEGEC9 will participate by absorbin+ and convertin+ a portion of the >E" C9# loan of *ay Shipyard and 6rydock, !nc., amountin+ to "5$.D5-#.86 Romualde<+ Report Capt. .T. >omualde<8 report to the "resident was submitted eleven 2&&3 days later. !t opened with the followin+ caption/ #E#9> N6U#/ 19> / The "resident SU*=ECT/ $n valuation and Re;assessment of a Performance of a #ission 1>9#/ Capt. .T. >omualde<. ;ike >ui<, >omualde< wrote that * SEC9 faced +reat difficulties in meetin+ its loan obli+ations due chiefly to the fact that 0orders to build ships as e7pected L L did not materiali<e.0

,e advised that five stockholders had /0aived andDor assigned their holdings in%lank,/ these bein+/ 2&3 =ose . >oAas, 2$3 Severino de la Cru<, 253 >odolfo Torres, 2.3 #a+iliw Torres, and 2D3 nthony ". ;ee. "ointin+ out that 0#r. #a+iliw Torres L L is already dead and #r. =ose . >oAas had a maAor heart attack,0 he made the followin+ 4uite revealin+, and it may be added, 4uite cynical and indurate recommendation, to wit/ L L 2that3 their replacements 2be effected3 so we can re+ister their names in the stock book prior to the implementation of "our instructions to pass a board resolution to le+ali<e the transfers under SEC re+ulations: $. *y +ettin+ their replacements, the families cannot question us later on= and 5. &e 0ill o0e no further favors from them( 84 ,e also transmitted to #arcos, to+ether with the report, the followin+ documents/
88

&. Stock certificates indorsed and assigned in %lank 0ith assignments and 0aivers= 89 $. The articles of incorporation, the amended articles, and the by-laws of * SEC9: 5. 6eed of Sales, wherein N SSC9 sold to * SEC9 four 2.3 parcels of land in 0En+ineer !sland0, "ort rea, #anila: .. Transfer Certificate of Title No. &$.-$$ in the name of * SEC9, coverin+ 0En+ineer !sland0: D. Contract dated 9ctober ', &'%5, between N SSC9 and * SEC9 re-structure and e4uipment at #ariveles, *ataan: (. Contract dated =uly &(, &'%D, between N SSC9 and * SEC9 re-structure and e4uipment at En+ineer !sland, "ort rea #anila: %. Contract dated 9ctober &, &'%., between E"K and * SEC9 re 5)) hectares of land at #ariveles, *ataan: -. ;ist of * SEC98s fi7ed assets: '. ;oan +reement dated September 5, &'%D, * SEC98s loan from N6C of "5),))),))).)): &). * SEC9->E" C9# +reement dated #ay $%, &'%D: &&. FS!S loan to * SEC9 dated =anuary $-, &'%( of "&$,.)),))).)) for the housin+ facilities for * SEC98s rank-and-file employees. 95 Capt. >omualde< also recommended that * SEC98s loans be restructured 0until such period when * SEC9 will have enou+h orders for ships in order for the company to meet loan obli+ations,0 and that M $n CO! ma" %e issued to +overnment a+encies usin+ floatin+ e4uipment, that a linka+e scheme be applied to a certain percent of * SEC98s net profit as part of * SEC98s amorti<ation payments to make it 1ustifia%le for "ou, Sir( 91 !t is noteworthy that Capt. .T. >omualde< does not appear to be a stockholder or officer of * SEC9, yet he has presented a report on * SEC9 to "resident #arcos, and his report demonstrates intimate familiarity with the firm8s affairs and problems. &'. #arcos+ Response to Reports "resident #arcos lost no time in actin+ on his subordinates8 recommendations, particularly as re+ards the 0spin-off0 and the 0linka+e scheme0 relative to 0* SEC98s amorti<ation payments.0 a. !nstructions re /Spin;Off/ Under date of September $-, &'%%, he addressed a #emorandum to Secretary Feronimo Gelasco of the "hilippine National 9il Company and Chairman Constante 1ariOas of the National 6evelopment Company, directin+ them 0to participate in the formation of a new corporation resultin+ from the spin;off of the ship%uilding component of * SEC9 alon+ the followin+ +uidelines/ a. E4uity participation of +overnment shall be throu+h ;USTEGEC9 and N6C in the amount of "&&D,')5,))) consistin+ of the followin+ o%ligations of B$S CO 0hich are here%" authori<ed to %e converted to equit" of the said new corporation, to wit/ &. N6C "-5,-(D,))) 2"5&.&(D# loan J "D$.$# >eparation3 $. ;USTEGEC9 "5$,D5-,))) 2>eparation3

b. E4uity participation of +overnment shall be in the form of non- votin+ shares. 6or immediate compliance( 92 #r. #arcos8 +uidelines were promptly complied with by his subordinates. Twenty-two 2$$3 days after receivin+ their president8s memorandum, #essrs. ,ilario #. >ui<, Constante ;. 1ariOas and Feronimo K. Gelasco, in representation of their respective corporations, e7ecuted a ">E-!NC9>"9> T!9N F>EE#ENT dated 9ctober $), &'%%. 93 !n it, they undertook to form a shipbuildin+ corporation to be known as 0",!;- S! S,!"*U!;6!NF C9>"9> T!9N,0 to brin+ to reali<ation their president8s instructions. !t would seem that the new corporation ultimately formed was actually named 0"hilippine 6ockyard Corporation 2"6C3.0 94 b. Cetter of !nstructions ,o( 5E@ #r. #arcos did not for+et Capt. >omualde<8 recommendation for a letter of instructions. 9n 1ebruary &., &'%-, he issued ;etter of !nstructions No. (%) addressed to the >eparations Commission >E" C9# the "hilippine National 9il Company 2"N9C3, the ;u<on Stevedorin+ Company 2;USTEGEC93, and the National 6evelopment Company 2N6C3. Chat is commanded therein is summari<ed by the Solicitor Feneral, with pithy and not inaccurate observations as to the effects thereof 2in italics3, as follows/ L L &3 the shipbuildin+ e4uipment procured by * SEC9 throu+h reparations be transferred to N6C subAect to reimbursement by N6C to * SEC9 2of3 the amount of s alle+edly representin+ the handlin+ and incidental e7penses incurred by * SEC9 in the installation of said e4uipment 9so instead of ,DC getting paid on its loan to B$S CO, it 0as made to pa" B$S CO instead the amount of P-4(.42#:= $3 the shipbuildin+ e4uipment procured from reparations throu+h E"K , now in the possession of * SEC9 and *S6! 2*ay Shipyard J 6rydockin+, !nc.3 be transferred to ;USTEGEC9 throu+h "N9C: and 53 the shipbuildin+ e4uipment 2thus3 transferred be invested by ;USTEGEC9, actin+ throu+h "N9C and N6C, as the +overnment8s e4uity participation in a shipbuildin+ corporation to be established in partnership with the private sector. 777 777 777 nd so, throu+h a simple letter of instruction and memorandum, * SEC98s loan obli+ation to N6C and >E" C9# L L in the total amount of "-5.5(D# and *S68s >E" C9# loan of "5$..5-# were wiped out and converted into non-votin+ preferred shares. 95 $). vidence of #arcos+ O0nership of B$S CO !t cannot therefore be +ainsaid that, in the conte7t of the proceedin+s at bar, the actuality of the control by "resident #arcos of * SEC9 has been sufficiently shown. 9ther evidence submitted to the Court by the Solicitor Feneral proves that "resident #arcos not only exercised control over * SEC9, but also that he actuall" o0ns well ni+h one hundred percent of its outstandin+ stock. !t will be recalled that accordin+ to petitioner- itself, as of pril $5, &'-(, there were $&-,-&' shares of stock outstandin+, ostensibly owned by twenty 2$)3 stockholders. 96 1our of these twenty are Auridical persons/ 2&3 #etro Ba" Dr"dock, recorded as holdin+ &5(,5%) shares: 2$3 6idelit" #anagement, !nc(, (D,--$ shares: 253 Trident #anagement, %,.&$ shares: and 2.3 United "hil. ;ines, &,$.) shares. The first three corporations, amon+ themselves, own an a++re+ate of $)',((. shares of * SEC9 stock, or 'D.-$P of the outstandin+ stock. Now, the Solicitor Feneral has drawn the Court8s attention to the intri+uin+ circumstance that found in #alacanan+ shortly after the sudden fli+ht of "resident #arcos, were certificates correspondin+ to more than ninet";five percent 932F: of all the outstandin+ shares of stock of * SEC9, endorsed in blank, to+ether with deeds of assi+nment of practically all the outstandin+ shares of stock of the three 253 corporations above mentioned 2which hold 32(4.F of all * SEC9 stock3, si+ned by the owners thereof althou+h not notari<ed. 94 #ore specifically, found in #alacanan+ 2and now in the custody of the "CFF3 were/ &3 the deeds of assi+nment of all 5@@ outstanding shares of 6idelit" #anagement !nc( G which supposedly owns as aforesaid (D,--$ shares of * SEC9 stock: $3 the deeds of assi+nment of .,>33,332 of the .,2@@,@@@ outstanding shares of #etro Ba" Dr"dock Corporation Gwhich alle+edly owns &5(,5%) shares of * SEC9 stock:

53 the deeds of assi+nment of 4@@ outstanding shares of Trident #anagement Co(, !nc( M which alle+edly owns %,.&$ shares of * SEC9 stock, assi+ned in blank: 98 and .3 stock certificates correspondin+ to .@E,E.2 out of the .-4,4-3 outstanding shares of B$S CO stock= that is, all but D P M all endorsed in blank. 99 Chile the petitioner8s counsel was 4uick to dispute this asserted fact, assurin+ this Court that the * SEC9 stockholders were still in possession of their respective stock certificates and had 0never endorsed L L them in blank or to anyone else,0 155 that denial is e7posed by his own prior and subse4uent recorded statements as a mere +esture of defiance rather than a verifiable factual declaration. *y resolution dated September $D, &'-(, this Court +ranted * SEC98s counsel a period of &) days 0to SU*#!T, as undertaken %" him,L L the certificates of stock issued to the stockholders of L L * SEC9 as of pril $5, &'-(, as listed in nne7 8"8 of the petition.8 151Counsel thereafter moved for e7tension: and in his motion dated 9ctober $, &'-(, he declared inter alia that 0said certificates of stock are in the possession of third parties, amon+ whom bein+ the respondents themselves L L and petitioner is still endeavoring to secure copies thereof from them.0 152 9n the same day he filed another motion prayin+ that he be allowed 0to secure copies of the Certificates of Stock in the name of #etro *ay 6rydock, !nc., and of all other Certificates, of Stock of petitioner8s stockholders in possession of respondents.0 153 !n a #anifestation dated 9ctober &), &'-(,, 154 the Solicitor Feneral not unreasonably ar+ued that counsel8s aforestated motion to secure copies of the stock certificates 0confirms the fact that stockholders of petitioner corporation are not in possession of L L 2their3 certificates of stock,0 and the reason, accordin+ to him, was 0that 'DP of said shares L L have been endorsed in blank and found in #alacaOan+ after the former "resident and his family fled the country.0 To this manifestation * SEC98s counsel replied on November D, &'-(, as already mentioned, Stubbornly insistin+ that the firm8s stockholders had not really assi+ned their stock. 155 !n view of the parties8 conflictin+ declarations, this Court resolved on November $%, &'-( amon+ other thin+s 0to re4uire L L the petitioner L L to deposit upon proper receipt with Clerk of Court =uanito >anAo the originals of the stock certificates alle+ed to be in its possession or accessible to it, mentioned and described in nne7 8"8 of its petition, 2and other pleadin+s3 L L within ten 2&)3 days from notice.0 156 !n a motion filed on 6ecember D, &'-(, 154 * SEC98s counsel made the statement, 4uite surprisin+ in the premises, that 0it will ne+otiate with the owners 2of the * SEC9 stock in 4uestion3 to allow petitioner to borrow from them, if available, the certificates referred to0 but that 0it needs a more sufficient time therefor0 2sic3. * SEC98s counsel however eventually had to confess inability to produce the ori+inals of the stock certificates, puttin+ up the feeble e7cuse that while he had 0re4uested the stockholders to allow L L 2him3 to borrow said certificates, L L some of L L 2them3 claimed that they had delivered the certificates to third parties by way of pled+e andHor to secure performance of obli+ations, while others alle+edly have entrusted them to third parties in view of last national emer+ency.0 158 ,e has conveniently omitted, nor has he offered to +ive the details of the transactions adverted to by him, or to e7plain why he had not impressed on the supposed stockholders the primordial importance of convincin+ this Court of their present custody of the ori+inals of the stock, or if he had done so, why the stockholders are unwillin+ to a+ree to some sort of arran+ement so that the ori+inals of their certificates mi+ht at the very least be e7hibited to the Court. Under the circumstances, the Court can only conclude that he could not +et the ori+inals from the stockholders for the simple reason that, as the Solicitor Feneral maintains, said stockholders in truth no lon+er have them in their possession, these havin+ already been assi+ned in blank to then "resident #arcos. $&. 6acts ?ustif" !ssuance of Sequestration and Takeover Orders !n the li+ht of the affirmative showin+ by the Fovernment that, prima facie at least, the stockholders and directors of * SEC9 as of pril, &'-( 159 were mere 0dummies,0 nominees or alter egos of "resident #arcos: at any rate, that they are no lon+er owners of any shares of stock in the corporation, the conclusion cannot be avoided that said stockholders and directors have no basis and no standin+ whatever to cause the filin+ and prosecution of the instant proceedin+: and to +rant relief to * SEC9, as prayed for in the petition, would in effect be to restore the assets, properties and business se4uestered and taken over by the "CFF to persons who are 0dummies,0 nominees or alter egos of the former president. 1rom the standpoint of the "CFF, the facts herein stated at some len+th do indeed show that the private corporation known as * SEC9 was 0owned or controlled by former "resident 1erdinand E. #arcos L L durin+ his administration, L L throu+h nominees, by takin+ advanta+e of L L 2his3 public office andHor usin+ L L 2his3 powers, authority, influence L L,0 and that N SSC9 and other property of the +overnment had been taken over by * SEC9: and the situation Austified the se4uestration as well as the provisional takeover of the corporation in the public interest, in accordance with the terms of E7ecutive 9rders No. & and $,

pendin+ the filin+ of the re4uisite actions with the Sandi+anbayan to cause divestment of title thereto from #arcos, and its adAudication in favor of the >epublic pursuant to E7ecutive 9rder No. &.. s already earlier stated, this Court a+rees that this assessment of the facts is correct: accordin+ly, it sustains the acts of se4uestration and takeover by the "CFF as bein+ 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 e7ecutive orders pursuant to which they were done, are fatally defective in not accordin+ to the parties affected prior notice and hearin+, or an ade4uate remedy to impu+n, set aside or otherwise obtain relief therefrom, or that the "CFF had acted as prosecutor and Aud+e at the same time. $$. xecutive Orders ,ot a Bill of $ttainder Neither will this Court sustain the theory that the e7ecutive orders in 4uestion are a bill of attainder. 115 0 bill of attainder is a le+islative act which inflicts punishment without Audicial trial.0 111 0!ts essence is the substitution of a le+islative for a Audicial determination of +uilt.0 112 !n the first place, nothin+ in the e7ecutive orders can be reasonably construed as a determination or declaration of +uilt. 9n the contrary, the e7ecutive orders, inclusive of E7ecutive 9rder No. &., make it perfectly clear that any Aud+ment of +uilt in the amassin+ or ac4uisition of 0ill-+otten wealth0 is to be handed down by a Audicial tribunal, in this case, the Sandigan%a"an, upon complaint filed and prosecuted by the "CFF. !n the second place, no punishment is inflicted by the e7ecutive orders, as the merest +lance at their provisions will immediately make apparent. !n no sense, therefore, may the e7ecutive orders be re+arded as a bill of attainder. $5. ,o *iolation of Right against Self;!ncrimination and Hnreasona%le Searches and Sei<ures * SEC9 also contends that its ri+ht a+ainst self incrimination and unreasonable searches and sei<ures had been trans+ressed by the 9rder of pril &-, &'-( which re4uired it 0to produce corporate records from &'%5 to &'-( under pain of contempt of the Commission if it fails to do so.0 The order was issued upon the authority of Section 5 2e3 of E7ecutive 9rder No. &, treatin+ of the "CFF8s power to 0issue subpoenas re4uirin+ L L the production of such books, papers, contracts, records, statements of accounts and other documents as may be material to the investi+ation conducted by the Commission, 0 and para+raph 253, E7ecutive 9rder No. $ dealin+ with its power to 0re4uire all persons in the "hilippines holdin+ L L 2alle+ed 0ill-+otten03 assets or properties, whether located in the "hilippines or abroad, in their names as nominees, a+ents or trustees, to make full disclosure of the same L L.0 The contention lacks merit. !t is elementary that the ri+ht a+ainst self-incrimination has no application to Auridical persons. Chile an individual may lawfully refuse to answer incriminatin+ 4uestions unless protected by an immunity statute, it does not follow that a corporation, vested with special privile+es and franchises, may refuse to show its hand when char+ed with an abuse ofsuchprivile+es L L 113 >elevant Aurisprudence is also cited by the Solicitor Feneral. 114 L L corporations are not entitled to all of the constitutional protections which private individuals have. L L The" are not at all 0ithin the privilege against self;incrimination, althou+h this court more than once has said that the privile+e runs very closely with the .th mendment8s Search and Sei<ure provisions. !t is also settled that an officer of the compan" cannot refuse to produce its records in its possession upon the plea that the" 0ill either incriminate him or ma" incriminate it(/ 29klahoma "ress "ublishin+ Co. v. Callin+, 5$% U.S. &-(: emphasis, the Solicitor Feneral8s3. L L The corporation is a creature of the state. !t is presumed to be incorporated for the benefit of the public. !t received certain special privile+es and franchises, and holds them subAect to the laws of the state and the limitations of its charter. !ts powers are limited by law. !t can make no contract not authori<ed by its charter. !ts ri+hts to act as a corporation are only preserved to it so lon+ as it obeys the laws of its creation. There is a reserve ri+ht in the le+islature to investi+ate its contracts and find out whether it has e7ceeded its powers. !t would be a stran+e anomaly to hold that a state, havin+ chartered a corporation to make use of certain franchises, could not, in the e7ercise of soverei+nty, in4uire 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 char+ed 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. &hile an individual ma" la0full" refuse to ans0er incriminating questions unless protected %" an immunit" statute, it does not follo0 that a corporation, vested 0ith special privileges and franchises ma" refuse to sho0 its hand 0hen charged 0ith an a%use of such privileges( 2Cilson v. United States, DD ;aw Ed., %%&, %-) ?emphasis, the Solicitor Feneral8s@3

t any rate, E7ecutive 9rder No. &.- , amendin+ Section . of E7ecutive 9rder No. &. assures protection to individuals re4uired to produce evidence before the "CFF a+ainst any possible violation of his ri+ht a+ainst self-incrimination. !t +ives them immunity from prosecution on the basis of testimony or information he is compelled to present. s amended, said Section . now provides that M 777 777 777 The witness may not refuse to comply with the order on the basis of his privile+e a+ainst self-incrimination: but no testimony or other information compelled under the order 2or any information directly or indirectly derived from such testimony, or other information3 may be used a+ainst the witness in any criminal case, e7cept a prosecution for perAury, +ivin+ a false statement, or otherwise failin+ to comply with the order. The constitutional safe+uard a+ainst unreasonable searches and sei<ures finds no application to the case at bar either. There has been no search undertaken by any a+ent or representative of the "CFF, and of course no sei<ure on the occasion thereof. $.. Scope and xtent of Po0ers of the PC77 9ne other 4uestion remains to be disposed of, that respectin+ the scope and e7tent of the powers that may be wielded by the "CFF with re+ard to the properties or businesses placed under se4uestration or provisionally taken over. 9bviously, it is not a 4uestion to which an answer can be easily +iven, much less one which will suffice for every conceivable situation. a. PC77 #a" ,ot xercise $cts of O0nership 9ne thin+ is certain, and should be stated at the outset/ the PC77 cannot exercise acts of dominion over property se4uestered, fro<en or provisionally taken over. S already earlier stressed with no little insistence, the act of se4uestration: free<in+ or provisional takeover of property does not import or brin+ about a divestment of title over said property: does not make the "CFF the owner thereof. !n relation to the property se4uestered, fro<en or provisionally taken over, the PC77 is a conservator, not an o0ner( Therefore, it can not perform acts of strict ownership: and this is specially true in the situations contemplated by the se4uestration rules where, unlike cases of receivership, for e7ample, no court e7ercises effective supervision or can upon due application and hearin+, +rant authority for the performance of acts of dominion. E4ually evident is that the resort to the provisional remedies in 4uestion should entail the least possible interference with business operations or activities so that, in the event that the accusation of the business enterprise bein+ 0ill +otten0 be not proven, it may be returned to its ri+htful owner as far as possible in the same condition as it was at the time of se4uestration. b. PC77 Aas Onl" Po0ers of $dministration The "CFF may thus e7ercise only powers of administration over the property or business se4uestered or provisionally taken over, much like a court-appointed receiver, 115 such as to brin+ and defend actions in its own name: receive rents: collect debts due: pay outstandin+ debts: and +enerally do such other acts and thin+s as may be necessary to fulfill its mission as conservator and administrator. !n this conte7t, it may in addition enAoin 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 >ules of Court: and seek and secure the assistance of any office, a+ency or instrumentality of the +overnment. 116 !n the case of se4uestered businesses +enerally 2i.e., +oin+ concerns, businesses in current operation3, as in the case of se4uestered obAects, its essential role, as already discussed, is that of conservator, caretaker, 0watchdo+0 or overseer. !t is not that of mana+er, or innovator, much less an owner. c. Po0ers over Business Cimitations Thereon nterprises Taken Over %" #arcos or ntities or Persons Close to him=

Now, in the special instance of a business enterprise shown by evidence to have been 0taken over by the +overnment of the #arcos dministration or by entities or persons close to former "resident #arcos,0 114 the "CFF is +iven power and authority, as already adverted to, to 0provisionally take 2it3 over in the public interest or to prevent L L 2its3 disposal or dissipation:0 and since the term is obviously employed in reference to +oin+ concerns, or business enterprises in operation, somethin+ more than mere physical custody is connoted: the "CFF may in this case e7ercise some measure of control in the operation, runnin+, or mana+ement of the business itself. *ut even in this special situation, the intrusion into mana+ement should be restricted to the minimum de+ree necessary to accomplish the le+islative will, which is 0to prevent the disposal or dissipation0 of the business enterprise. There should be no hasty, indiscriminate, unreasoned

replacement or substitution of mana+ement officials or chan+e of policies, particularly in respect of viable establishments. !n fact, such a replacement or substitution should be avoided if at all possible, and undertaken only when Austified by demonstrably tenable +rounds and in line with the stated obAectives of the "CFF. nd it +oes without sayin+ that where replacement of mana+ement officers may be called for, the +reatest prudence, circumspection, care and attention - should accompany that undertakin+ to the end that truly competent, e7perienced and honest mana+ers may be recruited. There should be no role to be played in this area by rank amateurs, no matter how wen meanin+. The road to hell, it has been said, is paved with +ood intentions. The business is not to be e7perimented or played around with, not run into the +round, not driven to bankruptcy, not fleeced, not ruined. Si+ht should never be lost si+ht of the ultimate obAective of the whole e7ercise, which is to turn over the business to the >epublic, once Audicially established to be 0ill-+otten.0 >eason dictates that it is only under these conditions and circumstances that the supervision, administration and control of business enterprises provisionally taken over may le+itimately be e7ercised. d. *oting of Sequestered Stock= Conditions Therefor So, too, it is within the parameters of these conditions and circumstances that the "CFF may properly e7ercise the prero+ative to vote se4uestered stock of corporations, +ranted to it by the "resident of the "hilippines throu+h a #emorandum dated =une $(, &'-(. That #emorandum authori<es the "CFF, 0pendin+ the outcome of proceedin+s to determine the ownership of L L 2se4uestered3 shares of stock,0 0to vote such shares of stock as it may have se4uestered in corporations at all stockholders8 meetin+s called for the election of directors, declaration of dividends, amendment of the rticles of !ncorporation, etc.0 The #emorandum should be construed in such a manner as to be consistent with, and not contradictory of the E7ecutive 9rders earlier promul+ated on the same matter. There should be no e7ercise of the ri+ht to vote simply because the ri+ht e7ists, or because the stocks se4uestered constitute the controllin+ or a substantial part of the corporate votin+ power. The stock is not to be voted to replace directors, or revise the articles or by-laws, or otherwise brin+ about substantial chan+es in policy, pro+ram or practice of the corporation e7cept for demonstrably wei+hty and defensible +rounds, and always in the conte7t of the stated purposes of se4uestration or provisional takeover, i.e., to prevent the dispersion or undue disposal of the corporate assets. 6irectors are not to be voted out simply because the power to do so e7ists. 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 wasta+e of corporate property, and always under such circumstances as assure that the replacements are truly possessed of competence, e7perience and probity. !n the case at bar, there was ade4uate Austification to vote the incumbent directors out of office and elect others in their stead because the evidence showed prima facie that the former were Aust tools of "resident #arcos and were no lon+er owners of any stock in the firm, if they ever were at all. This is why, in its >esolution of 9ctober $-, &'-(: 118 this Court declared that M "etitioner has failed to make out a case of +rave abuse or e7cess of Aurisdiction in respondents8 callin+ and holdin+ of a stockholders8 meetin+ for the election of directors as authori<ed by the #emorandum of the "resident L L 2to the "CFF3 dated =une $(, &'-(, particularly, where as in this case, the +overnment can, throu+h its desi+nated directors, properly e7ercise control and mana+ement over what appear to be properties and assets owned and belon+in+ to the +overnment itself and over which the persons who appear in this case on behalf of * SEC9 have failed to show any ri+ht or even any shareholdin+ in said corporation. !t must however be emphasi<ed that the conduct of the "CFF nominees in the * SEC9 *oard in the mana+ement of the company8s affairs should henceforth be +uided and +overned by the norms herein laid down. They should never for a moment allow themselves to for+et that they are conservators, not owners of the business: they are fiduciaries, trustees, of whom the hi+hest de+ree of dili+ence and rectitude is, in the premises, re4uired. $D. ,o Sufficient Sho0ing of Other !rregularities s to the other irre+ularities complained of by * SEC9, i.e., the cancellation or revision, and the e7ecution of certain contracts, inclusive of the termination of the employment of some of its e7ecutives, 119 this Court cannot, in the present state of the evidence on record, pass upon them. !t is not necessary to do so. The issues arisin+ therefrom may and will be left for initial determination in the appropriate action. *ut the Court will state that absent any showin+ of any important cause therefor, it will not normally substitute its Aud+ment for that of the "CFF in these individual transactions. !t is clear however, that as thin+s now stand, the petitioner cannot be said to have established the correctness of its submission that the acts of the "CFF in 4uestion were done without or in e7cess of its powers, or with +rave abuse of discretion.

C,E>E19>E, the petition is dismissed. The temporary restrainin+ order issued on 9ctober &., &'-( is lifted

6G.R. No. 128695. .$78$r9 21, 1999: A'S-)'N 'ROAD)ASTING )OR ORATION, v%. )A , RE ('LI) 'ROAD)ASTING )OR ., /I/A ROD()TIONS, IN)., $7" /I)ENTE DEL ROSARIO, !n this petition for review on certiorari, petitioners *S-C*N *roadcastin+ Corp. 2hereinafter *S-C*N3 seeks to reverse and set aside the decision?&@ of 5& 9ctober &''( and the resolution?$@ of &) #arch &''% of the Court of ppeals in C -F.>. CG No. ..&$D. The former affirmed with modification the decision?5@ of $- pril &''5 of the >e+ional Trial Court 2>TC3 of Iue<on City, *ranch -), in Civil Case No. I-&$5)'. The latter denied the motion to reconsider the decision of 5& 9ctober &''(. The antecedents, as found by the >TC and adopted by the Court of ppeals, are as follows/ !n &''), *S-C*N and G!G e7ecuted a 1ilm E7hibition +reement 2E7h. R S3 whereby Giva +ave *SC*N an e7clusive ri+ht to e7hibit some Giva films. Sometime in 6ecember &''&, in accordance with para+raph $.. ?sic@ of said a+reement statin+ that&.. *S-C*N shall have the ri+ht of first refusal to the ne7t twenty-four 2$.3 Giva films for TG telecast under such terms as may be a+reed upon by the parties hereto, provided, however, that such ri+ht shall be e7ercised by *S-C*N from the actual offer in writin+. Giva, throu+h defendant 6el >osario, offered *S-C*N, throu+h its vice-president Charo Santos-Concio, a list of three 253 film packa+es 25( title3 from which *S-C*N may e7ercise its ri+ht of first refusal under the afore-said a+reement 2E7hs. R&S par. $, R$,S R$- S and R$-* T Giva3. *S-C*N, however throu+h #rs. Concio, Rcan tick off only ten 2&)3 titlesS 2from the list3 Rwe can purchaseS 2E7h. R5S T Giva3 and therefore did not accept said list 2TSN, =une -, &''$, pp. '-&)3. The titles ticked off by #rs. Concio are not the subAect of the case at bar e7cept the film R#a+in+ Sino Ua #an.S 1or further enli+htenment, this reAection letter dated =anuary )(, &''$ 2E7h R5S T Giva3 is hereby 4uoted/ ( =anuary &''$ 6ear Gic, This is not a very formal business letter ! am writin+ to you as ! would like to e7press my difficulty in recommendin+ the purchase of the three film packa+es you are offerin+ *S-C*N. 1rom amon+ the three packa+es ! can only tick off &) titles we can purchase. "lease see attached. ! hope you will understand my position. #ost of the action pictures in the list do not have bi+ action stars in the cast. They are not for primetime. !n line with this ! wish to mention that ! have not scheduled for telecast several action pictures in our very first contract because of the cheap production value of these movies as well as the lack of bi+ action stars. s a film producer, ! am sure you understand what ! am tryin+ to say as Giva produces only bi+ action pictures. !n fact, ! would like to re4uest two 2$3 additional runs for these movies as ! can only schedule them in out non-primetime slots. Ce have to cover the amount that was paid for these movies because as you very well know that non-primetime advertisin+ rates are very low. These are the unaired titles in the first contract. &. Uontra "ersa ?sic@ $. >aider "latoon 5. Under+round +uerillas .. Ti+er Command D. *oy de Sabo+ (. lady Commando %. *atan+ #atadero -. >ebelyon ! hope you will consider this re4uest of mine. The other dramatic films have been offered to us before and have been reAected because of the rulin+ of #T>C* to have them aired at '/)) p.m. due to their very adult themes. s for the &) titles ! have choosen ?sic@ from the 5 packa+es please consider includin+ all the other Giva movies produced last year, ! have 4uite an attractive offer to make. Thankin+ you and with my warmest re+ards. 2Si+ned3 Charo Santos-Concio 9n 1ebruary $%, &''$, defendant 6el >osario approached *S-C*NVs #s. Concio, with a list consistin+ of D$ ori+inal movie titles 2i.e., not yet aired on television3 includin+ the &. titles subAect of the present case, as well as &). re-runs 2previously aired on television3 from which *S-C*N may choose another D$ titles, as a total of &D( titles, proposin+ to sell to *S-C*N airin+ ri+hts over this packa+e of D$ ori+inals and D$ reruns for "(),))),))).)) of which "5),))),))).)) will be in cash and "5),))),))).)) worth of television spots 2E7h. R.S to R.-CS T Giva: R'S T Giva3. 9n pril $, &''$, defendant 6el >osario and *S-C*NVs +eneral mana+er, Eu+enio ;ope< !!!, met at the Tamarind Frill >estaurant in Iue<on City to discuss the packa+e proposal of G!G . Chat transpired in that

lunch meetin+ is the subAect of conflictin+ versions. #r. ;ope< testified that he and #r. 6el >osario alle+edly a+reed that *S-C*N was +ranted e7clusive film ri+hts to fourteen 2&.3 films for a total consideration of "5( million: that he alle+edly put this a+reement as to the price and number of films in a RnapkinS and si+ned it and +ave it to #r. 6el >osario 2E7h. 6: TSN, pp. $.-$(, %%-%-, =une -, &''$3. 9n the other hand. 6el >osario denied havin+ made any a+reement with ;ope< re+ardin+ the &. Giva films: denied the e7istence of a napkin in which ;ope< wrote somethin+: and insisted that what he and ;ope< discussed at the lunch meetin+ was GivaVs film packa+e offer of &). films 2D$ ori+inals and D$ re-runs3 for a total price of "() million. #r. ;ope< promisin+ ?sic@to make a counter proposal which came in the form of a proposal contract nne7 RCS of the complaint 2E7h. R&S T Giva: E7h RCS T *S-C*N3. 9n pril )(, &''$, 6el >osario and #r. Fraciano Fo<on of >*S Senior vice-president for 1inance discussed the terms and conditions of GivaVs offer to sell the &). films, after the reAection of the same packa+e by *S-C*N. 9n pril )%, &''$, defendant 6el >osario received throu+h his secretary , a handwritten note from #s. Concio, 2E7h. RDS T Giva3, which reads/ R,ereVs the draft of the contract. ! hope you find everythin+ in order,S to which was attached a draft e7hibition a+reement 2E7h. RCS T *S-C*N: E7h. R'S T Giva p. 53 a counter-proposal coverin+ D5 films, D$ of which came from the list sent by defendant 6el >osario and one film was added by #s. Concio, for a consideration of "5D million. E7hibit RCS provides that *S-C*N is +ranted film ri+hts to D5 films and contains a ri+ht of first refusal to &''$ Giva 1ilms.S The said counter proposal was however reAected by GivaVs *oard of 6irectors ?in the@ evenin+ of the same day, pril %, &''$, as Giva would not sell anythin+ less than the packa+e of &). films for "() million pesos 2E7h. R'S T Giva3, and such reAection was relayed to #s. Concio. 9n pril $', &''$, after the reAection of *S-C*N and followin+ several ne+otiations and meetin+s defendant 6el >osario and GivaVs "resident Teresita Cru<, in consideration of "() million, si+ned a letter of a+reement dated pril $., &''$, +rantin+ >*S the e7clusive ri+ht to air &). Giva-produced andHor ac4uired films 2E7h. R%- S - >*S: E7h. R.S T >*S3 includin+ the fourteen 2&.3 films subAect of the present case.?.@ 9n $% #ay &''$, *S-C*N filed before the >TC a complaint for specific performance with a prayer for a writ of preliminary inAunction andHor temporary restrainin+ order a+ainst private respondents >epublic *roadcastin+ Corporation?D@ 2hereafter >*S3, Giva "roduction 2hereafter G!G 3, and Gicente del >osario. The complaint was docketed as Civil Case No. I-'$-&$5)'. 9n $- #ay &''$, the >TC issued a temporary restrainin+ order?(@ enAoinin+ private respondents from proceedin+ with the airin+, broadcastin+, and televisin+ of the fourteen G!G films subAect of the controversy, startin+ with the film #a+in+ Sino Ua #an, which was scheduled to be shown on private respondent >*SV channel % at seven oVclock in the evenin+ of said date. 9n &% =une &''$, after appropriate proceedin+s, the >TC issued an order?%@ directin+ the issuance of a writ of preliminary inAunction upon *S-C*NVs postin+ of a "5D million bond. *S-C*N moved for the reduction of the bond,?-@ while private respondents moved for reconsideration of the order and offered to put up a counterbond.?'@ !n the meantime, private respondents filed separate answer with counterclaim.?&)@ >*S also set up a crossclaim a+ainst G!G . 9n 5 u+ust &''$, the >TC issued an order?&&@ dissolvin+ the writ of preliminary inAunction upon the postin+ by >*S of a "5) million counterbond to answer for whatever dama+es *S-C*N mi+ht suffer by virtue of such dissolution. ,owever, it reduced petitionerVs inAunction bond to "&D million as a condition precedent for the reinstatement of the writ of preliminary inAunction should private respondents be unable to post a counterbond. t the pre-trial?&$@ on ( u+ust &''$, the parties upon su++estion of the court, a+reed to e7plore the possibility of an amicable settlement. !n the meantime, >*S prayed for and was +ranted reasonable time within which to put up a "5) million counterbond in the event that no settlement would be reached. s the parties failed to enter into an amicable settlement, >*S posted on & 9ctober &''$ a counterbond, which the >TC approved in its 9rder of &D 9ctober &''$.?&5@ 9n &' 9ctober &''$, *S-C*N filed a motion for reconsideration?&.@ of the 5 u+ust and &D 9ctober &''$ 9rders, which >*S opposed.?&D@ 9n $' 9ctober, the >TC conducted a pre-trial.?&(@ "endin+ resolution of its motion for reconsideration, *S-C*N filed with the Court of ppeals a petition?&%@ challen+in+ the >TCVs 9rder of 5 u+ust and &D 9ctober &''$ and prayin+ for the issuance of a writ of preliminary inAunction to enAoin the >TC from enforcin+ said orders. The case was docketed as C -F.>. S" No. $'5)). 9n 5 November &''$, the Court of ppeals issued a temporary restrainin+ order?&-@ to enAoin the airin+, broadcastin+, and televisin+ of any or all of the films involved in the controversy. 9n &- 6ecember &''$, the Court of ppeals promul+ated a decision?&'@ dismissin+ the petition in C -F.>. S" No. $'5)) for bein+ premature. *S-C*N challen+ed the dismissal in a petition for review filed with

this Court on &' =anuary &''5, which was docketed s F.>. No. &)-5(5. !n the meantime the >TC received the evidence for the parties in Civil Case No. I-'$-&$5)'. Thereafter, on $- pril &''5, it rendered a decision?$)@ in favor of >*S and G!G and a+ainst *S-C*N disposin+ as follows/ C,E>E19>E, under cool reflection and prescindin+ from the fore+oin+, Aud+ment is rendered in favor of defendants and a+ainst the plaintiff. 2&3 The complaint is hereby dismissed: 2$3 "laintiff *S-C*N is ordered to pay defendant >*S the followin+/ a3 "&)%,%$%.)) the amount of premium paid by >*S to the surety which issued defendants >*SVs bond to lift the inAunction: b3 "&'&,-.5.)) for the amount of print advertisement for R#a+in+ Sino Ua #anS in various newspapers: c3 ttorneyVs fees in the amount of "& million: d3 "D million as and by way of moral dama+es: e3 "D million as and by way of e7emplary dama+es: 253 1or the defendant G!G , plaintiff *S-C*N is ordered to pay "$&$,))).)) by way of reasonable attorneyVs fees. 2.3 The cross-claim of defendant >*S a+ainst defendant G!G is dismissed. 2D3 "laintiff to pay the costs. ccordin+ to the >TC, there was no meetin+ of minds on the price and terms of the offer. The alle+ed a+reement between ;ope< !!! and 6el >osario was subAect to the approval of the G!G *oard of 6irectors, and said a+reement was disapproved durin+ the meetin+ of the *oard on % pril &''$. ,ence, there was no basis for *S-C*NVs demand that G!G si+ned the &''$ 1ilm E7hibition +reement. 1urthermore, the ri+ht of first refusal under the &'') 1ilm E7hibition +reement had previously been e7ercised per #s. ConcioVs letter to 6el >osario tickin+ off ten titles acceptable to them, which would have made the &''$ a+reement an entirely new contract. 9n $& =une &''5, this Court denied?$&@ *S-C*NVs petition for review in F.>. No. &)-5(5, as no reversible error was committed by the Court of ppeals in its challen+ed decision and the case had Rbecome moot and academic in view of the dismissal of the main action by the court a 4uoin its decisionS of $- pril &''5. ++rieved by the >TCVs decision, *S-C*N appealed to the Court of ppeals claimin+ that there was a perfected contract between *S-C*N and G!G +rantin+ *S-C*N the e7clusive ri+ht to e7hibit the subAect films. "rivate respondents G!G and 6el >osario also appealed seekin+ moral and e7emplary dama+es and additional attorneyVs fees. !n its decision of 5& 9ctober &''(, the Court of ppeals a+reed with the >TC that the contract between *S-C*N and G!G had not been perfected, absent the approval by the G!G *oard of 6irectors of whatever 6el >osario, itVs a+ent, mi+ht have a+reed with ;ope< !!!. The appellate court did not even believe *S-C*NVs evidence that ;ope< !!! actually wrote down such an a+reement on a Rnapkin,S as the same was never produced in court. !t likewise reAected *S-C*NVs insistence on its ri+ht of first refusal and ratiocinated as follows/ s re+ards the matter of ri+ht of first refusal, it may be true that a 1ilm E7hibition +reement was entered into between ppellant *S-C*N and appellant G!G under E7hibit R S in &'') and that para+. &.. thereof provides/ &.. *S-C*N shall have the ri+ht of first refusal to the ne7t twenty-four 2$.3 G!G films for TG telecast under such terms as may be a+reed upon by the parties hereto, provided, however, that such ri+ht shall be e7ercised by *S-C*N within a period of fifteen 2&D3 days from the actual offer in writin+ 2>ecords, p. &.3. ?,@owever, it is very clear that said ri+ht of first refusal in favor of *S-C*N shall still be subAected to such terms as may be a+reed upon by the parties thereto, and that the said ri+ht shall be e7ercised by *S-C*N within fifteen 2&D3 days from the actual offer in writin+. Said para+. &.. of the a+reement E7hibit R S on the ri+ht of first refusal did not fi7 the price of the film ri+ht to the twenty-four 2$.3 films, nor did it specify the terms thereof. The same are still left to be a+reed upon by the parties. !n the instant case, *S-C*NVs letter of reAection E7hibit 5 2>ecords, p. -'3 stated that it can only tick off ten 2&)3 films, and the draft contract E7hibit RCS accepted only fourteen 2&.3 films, while para+. &.. of E7hibit R S speaks of the ne7t twenty-four 2$.3 films. The offer of G!G was sometime in 6ecember &''&, 2E7hibits $, $- , $-*: >ecords, pp. -(---: 6ecision, p. &&, >ecords, p. &&D)3, when the first list of G!G films was sent by #r. 6el >osario to *S-C*N. The Gice "resident of *S-C*N, #rs. Charo Santos-Concio, sent a letter dated =anuary (, &''$ 2E7hibit 5, >ecords, p. -'3 where *S-C*N e7ercised its ri+ht of refusal by reAectin+ the offer of G!G . s aptly observed by the trial court, with the said letter of #rs. Concio of =anuary (, &''$, *S-C*N had lost its ri+ht of first refusal. nd even if Ce reckon the fifteen 2&D3 day period from 1ebruary $%, &''$ 2E7hibit . to .-C3 when another list was sent to *S-C*N after the letter of #rs. Concio, still the fifteen 2&D3 day period within which *S-

C*N shall e7ercise its ri+ht of first refusal has already e7pired.?$$@ ccordin+ly, respondent court sustained the award factual dama+es consistin+ in the cost of print advertisements and the premium payments for the counterbond, there bein+ ade4uate proof of the pecuniary loss which >*S has suffered as a result of the filin+ of the complaint by *S-C*N. s to the award of moral dama+es, the Court of ppeals found reasonable basis therefor, holdin+ that >*SVs reputation was debased by the filin+ of the complaint in Civil Case No. I-'$-&$5)' and by the non-showin+ of the film R#a+in+ Sino Ua #an.S >espondent court also held that e7emplary dama+es were correctly imposed by way of e7ample or correction for the public +ood in view of the filin+ of the complaint despite petitionerVs knowled+e that the contract with G!G had not been perfected. !t also upheld the award of attorneyVs fees, reasonin+ that with *S-C*NVs act of institutin+ Civil Case No. I-'$-&$5)', >*S was Runnecessarily forced to liti+ate.S The appellate court, however, reduced the awards of moral dama+es to " $ million, e7emplary dama+es to "$ million, and attorneyVs fees to "D)),))).)). 9n the other hand, respondent Court of ppeals denied G!G and 6el >osarioVs appeal because it was R>*S and not G!G which was actually preAudiced when the complaint was filed by *S-C*N.S !ts motion for reconsideration havin+ been denied, *S-C*N filed the petition in this case, contendin+ that the Court of ppeals +ravely erred in ! W >U;!NF T, T T,E>E C S N9 "E>1ECTE6 C9NT> CT *ETCEEN "ET!T!9NE> N6 ">!G TE >ES"9N6ENT G!G N9TC!T,ST N6!NF ">E"9N1E> NCE 91 EG!6ENCE 66UCE6 *Y "ET!T!9NE> T9 T,E C9NT> >Y. !! W !N C >6!NF CTU ; N6 C9#"ENS T9>Y 6 # FES !N 1 G9> 91 ">!G TE >ES"9N6ENT >*S. !!! W !N C >6!NF #9> ; N6 ENE#"; >Y 6 # FES !N 1 G9> 91 ">!G TE >ES"9N6ENT >*S. !G W !N C >6!NF T9>NEYVS 1EES 91 >*S. *S-C*N claims that it had yet to fully e7ercise its ri+ht of first refusal over twenty-four titles under the &'') 1ilm E7hibition +reement, as it had chosen only ten titles from the first list. !t insists that we +ive credence to ;ope<Vs testimony that he and 6el >osario met at the Tamarind Frill >estaurant, discussed the terms and conditions of the second list 2the &''$ 1ilm E7hibition +reement3 and upon a+reement thereon, wrote the same on a paper napkin. !t also asserts that the contract has already been effective, as the elements thereof, namely, consent, obAect, and consideration were established. !t then concludes that the Court of ppealsV pronouncements were not supported by law and Aurisprudence, as per our decision of & 6ecember &''D in ;imketkai Sons #illin+, !nc. v. Court of ppeals,?$5@ which cited Toyota Shaw, !nc. v. Court of ppeals:?$.@ n+ Yu suncion v. Court of ppeals,?$D@ and Gillonco >ealty Company v. *ormaheco, !nc.?$(@ nent the actual dama+es awarded to >*S, *S-C*N disavows liability therefor. >*S spent for the premium on the counterbond of its own volition in order to ne+ate the inAunction issued by the trial court after the parties had ventilated their respective positions durin+ the hearin+s for the purpose. The filin+ of the counterbond was an option available to >*S, but it can hardly be ar+ued that *S-C*N compelled >*S to incur such e7pense. *esides, >*S had another available option, i.e., move for the dissolution of the inAunction: or if it was determined to put up a counterbond, it could have presented a cash bond. 1urthermore under rticle $$)5 of the Civil Code, the party sufferin+ loss inAury is also re4uired to e7ercise the dili+ence of a +ood father of a family to minimi<e the dama+es resultin+ from the act or omission. s re+ards the cost of print advertisements, >*S had not convincin+ly established that this was a loss attributable to the non-showin+ of R#a+in+ Sino Ua #anS: on the contrary, it was brou+ht out durin+ trial that with or without the case or inAunction, >*S would have spent such an amount to +enerate interest in the film. *S-C*N further contends that there was no other clear basis for the awards of moral and e7emplary dama+es. The controversy involvin+ *S-C*N and >*S did not in any way ori+inate from business transaction between them. The claims for such dama+es did not arise from any contractual dealin+s or from specific acts committed by *S-C*N a+ainst >*S that may be characteri<ed as wanton, fraudulent, or reckless: they arose by virtue only of the filin+ of the complaint. n award of moral and e7emplary dama+es is not warranted where the record is bereft of any proof that a party acted maliciously or in bad faith in filin+ an action.?$%@ !n any case, free resort to courts for redress of wron+s is a matter of public policy. The law reco+ni<es the ri+ht of every one to sue for that which he honestly believes to be his ri+ht without fear of standin+ trial for dama+es where by lack of sufficient evidence, le+al technicalities, or a different interpretation of the laws on the matter, the case would lose +round.?$-@ 9ne who, makes use of his own le+al ri+ht does no inAury.?$'@ !f dama+e results from filin+ of the complaint, it is damnum abs4ue

inAuria.?5)@ *esides, moral dama+es are +enerally not awarded in favor of a Auridical person, unless it enAoys a +ood reputation that was debased by the offendin+ party resultin+ in social humiliation.?5&@ s re+ards the award of attorneyVs fees, *S-C*N maintains that the same had no factual, le+al, or e4uitable Austification. !n sustainin+ the trial courtVs award, the Court of ppeals acted in clear disre+ard of the doctrine laid down in *uan v. Cama+anacan?5$@ that the te7t of the decision should state the reason why attorneyVs fees are bein+ awarded: otherwise, the award should be disallowed. *esides, no bad faith has been imputed on, much less proved as havin+ been committed by, *S-C*N. !t has been held that Rwhere no sufficient showin+ of bad faith would be reflected in a partyVs persistence in a case other than an erroneous conviction of the ri+hteousness of his cause, attorneyVs fees shall not be recovered as cost.S?55@ 9n the other hand, >*S asserts that there was no perfected contract between *S-C*N and G!G absent meetin+ of minds between them re+ardin+ the obAect and consideration of the alle+ed contract. !t affirms that *S-C*NVs claim of a ri+ht of first refusal was correctly reAected by the trial court. >*S insists the premium it had paid for the counterbond constituted a pecuniary loss upon which it may recover. !t was obli+ed to put up the counterbond due to the inAunction procured by *S-C*N. Since the trial court found that *S-C*N had no cause of action or valid claim a+ainst >*S and, therefore not entitled to the writ of inAunction, >*S could recover from *S-C*N the premium paid on the counterbond. Contrary to the claim of *S-C*N, the cash bond would prove to be more e7pensive, as the loss would be e4uivalent to the cost of money >*S would fore+o in case the "5) million came from its funds or was borrowed from banks. >*S likewise asserts that it was entitled to the cost of advertisements for the cancelled showin+ of the film R#a+in+ Sino Ua #anS because the print advertisements were out to announce the showin+ on a particular day and hour on Channel %, i.e., in its entirety at one time, not as series to be shown on a periodic basis. ,ence, the print advertisements were +ood and relevant for the particular date of showin+, and since the film could not be shown on that particular date and hour because of the inAunction, the e7penses for the advertisements had +one to waste. s re+ards moral and e7emplary dama+es, >*S asserts that *S-C*N filed the case and secured inAunctions purely for the purpose of harassin+ and preAudicin+ >*S. "ursuant then to rticles &' and $& of the Civil Code, *S-C*N must be held liable for such dama+es. Citin+Tolentino,?5.@ dama+es may be awarded in cases of abuse of ri+hts even if the done is not illicit, and there is abuse of ri+hts where a plaintiff institutes an action purely for the purpose of harassin+ or preAudicin+ the defendant. !n support of its stand that a Auridical entity can recover moral and e7emplary dama+es, private respondent >*S cited "eople v. #anero,?5D@where it was stated that such entity may recover moral and e7emplary dama+es if it has a +ood reputation that is debased resultin+ in social humiliation. !t then ratiocinates: thus/ There can be no doubt that >*SV reputation has been debased by *S-C*NVs acts in this case. Chen >*S was not able to fulfill its commitment to the viewin+ public to show the film R#a+in+ Sino Ua #anS on the scheduled dates and times 2and on two occasions that >*S advertised3, it suffered serious embarrassment and social humiliation. Chen the showin+ was cancelled, irate viewers called up >*SV offices and subAected >*S to verbal abuse 2R nnounce kayo n+ announce, hindi ninyo naman ilalabasS, Rnanloloko yata kayoS3 2E7h. 5->*S, par.53. This alone was not somethin+ >*S brou+ht upon itself. !t was e7actly what *S-C*N had planted to happen. The amount of moral and e7emplary dama+es cannot be said to be e7cessive. Two reasons Austify the amount of the award. The first is that the humiliation suffered by >*S, is national in e7tent. >*SV operations as a broadcastin+ company is ?sic@ nationwide. !ts clientele, like that of *S-C*N, consists of those who own and watch television. !t is not an e7a++eration to state, and it is a matter of Audicial notice that almost every other person in the country watches television. The humiliation suffered by >*S is multiplied by the number of televiewers who had anticipated the showin+ of the film, R#a+in+ Sino Ua #anS on #ay $- and November 5, &''$ but did not see it owin+ to the cancellation. dded to this are the advertisers who had placed commercial spots for the telecast and to whom >*S had a commitment in consideration of the placement to show the film in the dates and times specified. The second is that it is a competitor that caused >*S suffer the humiliation. The humiliation and inAury are far +reater in de+ree when caused by an entity whose ultimate business obAective is to lure customers 2viewers in this case3 away from the competition.?5(@ 1or their part, G!G and Gicente del >osario contend that the findin+s of fact of the trial court and the Court of ppeals do not support *S-C*NVs claim that there was a perfected contract. Such factual findin+s can no lon+er be disturbed in this petition for review under >ule .D, as only 4uestions of law can be raised, not 4uestions of fact. 9n the issue of dama+es and attorneys fees, they adopted the ar+uments of >*S. The key issues for our consideration are 2&3 whether there was a perfected contract between G!G and *S-C*N, and 2$3 whether >*S is entitled to dama+es and attorneyVs fees. !t may be noted that that award of attorneyVs fees of "$&$,))) in favor of G!G is not assi+ned as another error. !

The first issue should be resolved a+ainst *S-C*N. contract is a meetin+ of minds between two persons whereby one binds himself to +ive somethin+ or render some service to another?5%@ for a consideration. There is no contract unless the followin+ re4uisites concur/ 2&3 consent of the contractin+ parties: 2$3 obAect certain which is the subAect of the contract: and 253 cause of the obli+ation, which is established.?5-@ contract under+oes three sta+es/ 2a3 preparation, conception, or +eneration, which is the period of ne+otiation and bar+ainin+, endin+ at the moment of a+reement of the parties: 2b3 perfection or birth of the contract, which is the moment when the parties come to a+ree on the terms of the contract: and 2c3 consummation or death, which is the fulfillment or performance of the terms a+reed upon in the contract.?5'@ Contracts that are consensual in nature are perfected upon mere meetin+ of the minds. 9nce there is concurrence between the offer and the acceptance upon the subAect matter, consideration, and terms of payment a contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not 4ualify the terms of the offer: it must be plain, une4uivocal, unconditional, and without variance of any sort from the proposal. 4ualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a reAection of the ori+inal offer. Conse4uently, when somethin+ is desired which is not e7actly what is proposed in the offer, such acceptance is not sufficient to +enerate consent because any modification or variation from the terms of the offer annuls the offer.?.)@ Chen #r. 6el >osario of Giva met #r. ;ope< of *S-C*N at the Tamarind Frill on $ pril &''$ to discuss the packa+e of films, said packa+e of &). G!G films was G!G Vs offer to *S-C*N to enter into a new 1ilm E7hibition +reement. *ut *S-C*N, sent throu+h #s. Concio, counter-proposal in the form a draft contract proposin+ e7hibition of D5 films for a consideration of "5D million. This counter-proposal could be nothin+ less than the counter-offer of #r. ;ope< durin+ his conference with 6el >osario at Tamarind Frill >estaurant. Clearly, there was no acceptance of G!G Vs offer, for it was met by a counter-offer which substantially varied the terms of the offer. *S-C*NVs reliance in ;imketkai Sons #illin+, !nc. v. Court of ppeals?.&@ and Gillonco >ealty Company v. *ormaheco, !nc.,?.$@ is misplaced. !n these cases, it was held that an acceptance may contain a re4uest for certain chan+es in the terms of the offer and yet be a bindin+ acceptance as lon+ as Rit is clear that the meanin+ of the acceptance is positively and une4uivocally to accept the offer, whether such re4uest is +ranted or not.S This rulin+ was, however, reversed in the resolution of $' #arch &''(,?.5@ which ruled that the acceptance of an offer must be un4ualified and absolute, i.e., it Rmust be identical in all respects with that of the offer so as to produce consent or meetin+s of the minds.S 9n the other hand, in Gillonco, cited in ;imketkai, the alle+ed chan+es in the revised counter-offer were not material but merely clarificatory of what had previously been a+reed upon. !t cited the statement in Stuart v. 1ranklin ;ife !nsurance Co.?..@ that Ra vendorVs chan+e in a phrase of the offer to purchase, which chan+e does not essentially chan+e the terms of the offer, does not amount to a reAection of the offer and the tender of a counter-offer.S?.D@ ,owever, when any of the elements of the contract is modified upon acceptance, such alteration amounts to a counter-offer. !n the case at bar, *S-C*N made no un4ualified acceptance of G!G Vs offer hence, they underwent period of bar+ainin+. *S-C*N then formali<ed its counter-proposals or counter-offer in a draft contract. G!G throu+h its *oard of 6irectors, reAected such counter-offer. Even if it be conceded ar+uendo that 6el >osario had accepted the counter-offer, the acceptance did not bind G!G , as there was no proof whatsoever that 6el >osario had the specific authority to do so. Under the Corporation Code,?.(@ unless otherwise provided by said Code, corporate powers, such as the power to enter into contracts, are e7ercised by the *oard of 6irectors. ,owever, the *oard may dele+ate such powers to either an e7ecutive committee or officials or contracted mana+ers. The dele+ation, e7cept for the e7ecutive committee, must be for specific purposes.?.%@ 6ele+ation to officers makes the latter a+ents of the corporation: accordin+ly, the +eneral rules of a+ency as to the bindin+ effects of their acts would apply.?.-@ 1or such officers to be deemed fully clothed by the corporation to e7ercise a power of the *oard, the latter must specially authori<e them to do so. that 6el >osario did not have the authority to accept *S-C*NVs counter-offer was best evidenced by his submission of the draft contract to G!G Vs *oard of 6irectors for the latterVs approval. !n any event, there was between 6el >osario and ;ope< !!! no meetin+ of minds. The followin+ findin+s of the trial court are instructive/ number of considerations militate a+ainst *S-C*NVs claim that a contract was perfected at that lunch meetin+ on pril )$, &''$ at the Tamarind Frill. 1!>ST, #r. ;ope< claimed that what was a+reed upon at the Tamarind Frill referred to the price and the number of films, which he wrote on a napkin. ,owever, E7hibit RCS contains numerous provisions which were not discussed at the Tamarind Frill, if ;ope< testimony was to be believed nor could they have been

physically written on a napkin. There was even doubt as to whether it was a paper napkin or cloth napkin. !n short what were written in E7hibit RCS were not discussed, and therefore could not have been a+reed upon, by the parties. ,ow then could this court compel the parties to si+n E7hibit RCS when the provisions thereof were not previously a+reed uponB SEC9N6, #r. ;ope< claimed that what was a+reed upon as the subAect matter of the contract was &. films. The complaint in fact prays for delivery of &. films. *ut E7hibit RCS mentions D5 films as its subAect matter. Chich is whichB !f E7hibit RCS reflected the true intent of the parties, then *S-C*NVs claim for &. films in its complaint is false or if what it alle+ed in the complaint is true, then E7hibit RCS did not reflect what was a+reed upon by the parties. This underscores the fact that there was no meetin+ of the minds as to the subAect matter of the contract, so as to preclude perfection thereof. 1or settled is the rule that there can be no contract where there is no obAect certain which is its subAect matter 2 rt. &5&-, NCC3. T,!>6, #r. ;ope< ?sic@ answer to 4uestion $' of his affidavit testimony 2E7h. R6S3 States/ RCe were able to reach an a+reement. G!G +ave us the e7clusive license to show these fourteen 2&.3 films, and we a+reed to pay Giva the amount of"&(,)D),))).)) as well as +rant Giva commercial slots worth "&','D),))).)). Ce had already earmarked this "&(,)D),))).)).S which +ives a total consideration of "5( million 2"&','D&,))).)) plus "&(,)D),))).)) e4uals "5(,))),))).))3. 9n cross-e7amination #r. ;ope< testified/ I Chat was written in this napkin The total price, the breakdown the known Giva movies, the % blockbuster movies and the other % Giva movies because the price was broken down accordin+ly. The none ?sic@ Giva and the seven other Giva movies and the sharin+ between the cash portion and the concerned spot portion in the total amount of "5D million pesos. Now, which is whichB "5( million or "5D millionB This weakens *S-C*NVs claim. 19U>T,. #rs. Concio, testifyin+ for *S-C*N stated that she transmitted E7hibit RCS to #r. 6el >osario with a handwritten note, describin+ said E7hibit RCS as a draft.S 2E7h. RDS T Giva: tsn pp. $5-$., =une )-, &''$3. The said draft has a well defined meanin+ Since E7hibit RCS is only a draft, or a tentative, provisional or preparatory writin+ prepared for discussion, the terms and conditions thereof could not have been previously a+reed upon by *S-C*N and Giva. E7hibit RCS could not therefore le+ally bind Giva, not havin+ a+reed thereto. !n fact, #s. Concio admitted that the terms and conditions embodied in E7hibit RCS were prepared by *S-C*NVs lawyers and there was no discussion on said terms and conditions s the parties had not yet discussed the proposed terms and conditions in E7hibit RC,S and there was no evidence whatsoever that Giva a+reed to the terms and conditions thereof, said document cannot be a bindin+ contract. The fact that Giva refused to si+n E7hibit RCS reveals only two ?sic@ well that it did not a+ree on its terms and conditions, and this court has no authority to compel Giva to a+ree thereto. 1!1T,. #r. ;ope< understand ?sic@ that what he and #r. 6el >osario a+reed upon at the Tamarind Frill was only provisional, in the sense that it was subAect to approval by the *oard of 6irectors of Giva. ,e testified/ I Now, #r. Citness, and after that Tamarinf meetin+ W the second meetin+ wherein you claimed that you have the meetin+ of the minds between you and #r. Gic del >osario, what happenedB Gic 6el >osario was supposed to call us up and tell us specifically the result of the discussion with the *oard of 6irectors. I nd you are referrin+ to the so-called a+reement which you wrote in ?sic@ a piece of paperB Yes, sir. I So, he was +oin+ to forward that to the board of 6irectors for approvalB Yes, sir 2 I 6id #r. 6el >osario tell you that he will submit it to his *oard for approvalB Yes, sir. The above testimony of #r. ;ope< shows beyond doubt that he knew #r. 6el >osario had no authority to bind Giva to a contract with *S-C*N until and unless its *oard of 6irectors approved it. The complaint, in fact, alle+es that #r. 6el >osario Ris the E7ecutive "roducer of defendant GivaS which Ris a corporation.S 2par. $, complaint3. s a mere a+ent of Giva, 6el >osario could not bind Giva unless what he did is ratified by its 6irectors. 2Gicente vs.Feralde<, D$ SC> $&): rnold vs. Cillets and "aterson, .. "hil. (5.3. s a mere a+ent, reco+ni<ed as such by plaintiff, 6el >osario could not be held liable Aointly and severally with Giva and his inclusion as party defendant has no le+al basis. 2Salon+a vs. Carner *arnes ?sic@,C9;T , -"hil. &$D: Salmon vs. Tan, 5( "hil. DD(3. The testimony of #r. ;ope< and the alle+ations in the complaint are clear admissions that what was supposed to have been a+reed upon at the Tamarind Frill between #r. ;ope< and 6el >osario was not a bindin+ a+reement. !t is as it should be because corporate power to enter into a contract is lod+ed in the *oard of 6irectors. 2Sec. $5, Corporation Code3. Cithout such board approval by the Giva board, whatever a+reement ;ope< and 6el >osario arrived at could not ripen into a valid bindin+ upon Giva 2Yao Ua Sin Tradin+ vs. Court of ppeals, $)' SC> %(53. The evidence adduced shows that the *oard of 6irectors of Giva reAected E7hibit RCS and insisted that the film packa+e for &). films be maintained 2E7h.

R%-& T Cica3.?.'@ The contention that *S-C*N had yet to fully e7ercise its ri+ht of first refusal over twenty-four films under the &'') 1ilm E7hibition +reement and that the meetin+ between ;ope< and 6el >osario was a continuation of said previous contract is untenable. s observed by the trial court, *S-C*NVs ri+ht of first refusal had already been e7ercised when #s. Concio wrote to Giva tickin+ off ten films. Thus/ ?T@he subse4uent ne+otiation with *S-C*N two 2$3 months after this letter was sent, was for an entirely different packa+e. #s. Concio herself admitted on cross-e7amination to havin+ used or e7ercised the ri+ht of first refusal. She stated that the list was not acceptable and was indeed not accepted by *S-C*N, 2Tsn, =une -, &''$, pp. --&)3. Even #r. ;ope< himself admitted that the ri+ht of first refusal may have been already e7ercised by #s. Concio 2as she had3. 2TSN, =une -, &''$, pp. %&-%D3. 6el >osario himself knew and understand ?sic@ that *S-C*N has lost its ri+ht of first refusal when his list of 5( titles were reAected 2Tsn, =une ', &''$, pp. &)-&&3.?D)@ !! ,owever, we find for *S-C*N on the issue of dama+es. Ce shall first take up actual dama+es. Chapter $, Title NG!!!, *ook !G of the Civil Code is the specific law on actual or compensatory dama+es. E7cept as provided by law or by stipulation, one is entitled to compensation for actual dama+es only for such pecuniary loss suffered by him as he has duly proved.?D&@ The indemnification shall comprehend not only the value of the loss suffered, but also that of the profits that the obli+ee failed to obtain.?D$@ !n contracts and 4uasi-contracts the dama+es which may be awarded are dependent on whether the obli+or acted with +ood faith or otherwise. !n case of +ood faith, the dama+es recoverable are those which are the natural and probable conse4uences of the breach of the obli+ation and which the parties have foreseen or could have reasonably foreseen at the time of the constitution of the obli+ation. !f the obli+or acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all dama+es which may be reasonably attributed to the non-performance of the obli+ation.?D5@ !n crimes and 4uasi-delicts, the defendants shall be liable for all dama+es which are the natural and probable conse4uences of the act or omission complained of, whether or not such dama+es have been foreseen or could have reasonably been foreseen by the defendant.?D.@ ctual dama+es may likewise be recovered for loss or impairment of earnin+ capacity in cases of temporary or permanent personal inAury, or for inAury to the plaintiffVs business standin+ or commercial credit.?DD@ The claim of >*S for actual dama+es did not arise from contract, 4uasi-contract, delict, or 4uasi-delict. !t arose from the fact of filin+ of the complaint despite *S-C*NVs alle+ed knowled+e of lack of cause of action. Thus para+raph &$ of >*SVs nswer with Counterclaim and Cross-claim under the headin+ C9UNTE>C; !# specifically alle+es/ &$. *S-C*N filed the complaint knowin+ fully well that it has no cause of action a+ainst >*S. s a result thereof, >*S suffered actual dama+es in the amount of "(,($&,&'D.5$.?D(@ Needless to state the award of actual dama+es cannot be comprehended under the above law on actual dama+es. >*S could only probably take refu+e under rticles &', $), and $& of the Civil Code, which read as follows/ >T. &'. Every person must, in the e7ercise of hid ri+hts and in the performance of his duties, act with Austice, +ive everyone his due, and observe honesty and +ood faith. >T. $). Every person who, contrary to law, wilfully or ne+li+ently causes dama+e to another shall indemnify the latter for the same. >T. $&. ny person who wilfully causes loss or inAury to another in a manner that is contrary to morals, +ood customs or public policy shall compensate the latter for the dama+e. !t may further be observed that in cases where a writ of preliminary inAunction is issued, the dama+es which the defendant may suffer by reason of the writ are recoverable from the inAunctive bond.?D%@ !n this case, *S-C*N had not yet filed the re4uired bond: as a matter of fact, it asked for reduction of the bond and even went to the Court of ppeals to challen+e the order on the matter. Clearly then, it was not necessary for >*S to file a counterbond. ,ence, *S-C*N cannot be held responsible for the premium >*S paid for the counterbond. Neither could *S-C*N be liable for the print advertisements for R#a+in+ Sino Ua #anS for lack of sufficient le+al basis. The >TC issued a temporary restrainin+ order and later, a writ of preliminary inAunction on the basis of its determination that there e7isted sufficient +round for the issuance thereof. Notably, the >TC did not dissolve the inAunction on the +round of lack of le+al and factual basis, but because of the plea of >*S that it be allowed to put up a counterbond. s re+ards attorneyVs fees, the law is clear that in the absence of stipulation, attorneyVs fees may be recovered as actual or compensatory dama+es under any of the circumstances provided for in rticle $$)of the Civil Code.?D-@ The +eneral rule is that attorneyVs fees cannot be recovered as part of dama+es because of the policy that

no premium should be placed on the ri+ht to liti+ate.?D'@ They are not to be awarded every time a party wins a suit. The power of the court t award attorneyVs fees under rticle $$)- demands factual, le+al, and e4uitable Austification.?()@ Even when a claimant is compelled to liti+ate with third persons or to incur e7penses to protect his ri+hts, still attorneyVs fees may not be awarded where no sufficient showin+ of bad faith could be reflected in a partyVs persistence in a case other than an erroneous conviction of the ri+hteousness of his cause.?(&@ s to moral dama+es the law is Section &, Chapter 5, Title NG!!!, *ook !G of the Civil Code. rticle $$&% thereof defines what are included in moral dama+es, while rticle $$&' enumerates the cases where they may be recovered. rticle $$$) provides that moral dama+es may be recovered in breaches of contract where the defendant acted fraudulently or in bad faith. >*SVs claim for moral dama+es could possibly fall only under item 2&)3 of rticle $$&', thereof which reads/ 2&)3 cts and actions referred to in rticles $&, $(, $%, $-, $', 5), 5$, 5. and 5D. #oral dama+es are in the cate+ory of an award desi+ned to compensate the claimant for actual inAury suffered and not to impose a penalty on the wron+doer.?($@ The award is not meant to enrich the complainant at the e7pense of the defendant, but to enable the inAured party to obtain means, diversion, or amusements that will serve to obviate the moral sufferin+ he has under+one. !t is aimed at the restoration, within the limits of the possible, of the spiritual status 4uo ante, and should be proportionate to the sufferin+ inflicted.?(5@ Trial courts must then +uard a+ainst the award of e7orbitant dama+es: they should e7ercise balanced restrained and measured obAectivity to avoid suspicion that it was due to passion, preAudice, or corruption or the part of the trial court.?(.@ The award of moral dama+es cannot be +ranted in favor of a corporation because, bein+ an artificial person and havin+ e7istence only in le+al contemplation, it has no feelin+s, no emotions, no senses. !t cannot, therefore, e7perience physical sufferin+ and mental an+uish, which can be e7perienced only by one havin+ a nervous system.?(D@ The statement in "eople v. #anero?((@ and #ambulao ;umber Co. v. "N*?(%@ that a corporation may recover moral dama+es if it Rhas a +ood reputation that is debased, resultin+ in social humiliationS is an obiter dictum. 9n this score alone the award for dama+es must be set aside, since >*S is a corporation. The basic law on e7emplary dama+es is Section D Chapter 5, Title NG!!!, *ook !G of the Civil Code. These are imposed by way of e7ample or correction for the public +ood, in addition to moral, temperate, li4uidated, or compensatory dama+es.?(-@ They are recoverable in criminal cases as part of the civil liability when the crime was committed with one or more a++ravatin+ circumstances:?('@ in 4uasi-delicts, if the defendant acted with +ross ne+li+ence:?%)@ and in contracts and 4uasi-contracts, if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.?%&@ !t may be reiterated that the claim of >*S a+ainst *S-C*N is not based on contract, 4uasi-contract, delict, or 4uasi-delict. ,ence, the claims for moral and e7emplary dama+es can only be based on rticles &', $), and $& of the Civil Code. The elements of abuse of ri+ht under rticle &' are the followin+/ 2&3 the e7istence of a le+al ri+ht or duty, 2$3 which is e7ercised in bad faith, and 253 for the sole intent of preAudicin+ or inAurin+ another. rticle $) speaks of the +eneral sanction for all provisions of law which do not especially provide for their own sanction: while rticle $& deals with acts contra bonus mores, and has the followin+ elements/ 2&3 there is an act which is le+al, 2$3 but which is contrary to morals, +ood custom, public order, or public policy, and 253 and it is done with intent to inAure.?%$@ Gerily then, malice or bad faith is at the core of rticles &', $), and $&. #alice or bad faith implies a conscious and intentional desi+n to do a wron+ful act for a dishonest purpose or moral obli4uity.?%5@ Such must be substantiated by evidence.?%.@ There is no ade4uate proof that *S-C*N was inspired by malice or bad faith. !t was honestly convinced of the merits of its cause after it had under+one serious ne+otiations culminatin+ in its formal submission of a draft contract. Settled is the rule that the adverse result of an action does not per se make the action wron+ful and subAect the actor to dama+es, for the law could not have meant impose a penalty on the ri+ht to liti+ate. !f dama+es result from a personVs e7ercise of a ri+ht, it is damnum abs4ue inAuria.?%D@ C,E>E19>E, the instant petition is F> NTE6. The challen+ed decision of the Court of ppeals in C F.>. CG No. ..&$D is hereby >EGE>SE6 e7cept as to unappealed award of attorneyVs fees in favor of G!G "roductions, !nc.

6G.R. No. 141994. .$78$r9 14, 2555: FILI INAS 'ROAD)ASTING NET;OR!, IN)., petitioner, vs. AGO -EDI)AL AND ED()ATIONAL )ENTER-'I)OL )HRISTIAN )OLLEGE OF -EDI)INE, +A-E)-'))-, $7" ANGELITA F. AGO, . This petition for review?&@ assails the . =anuary &''' 6ecision?$@ and $( =anuary $))) >esolution of the Court of ppeals in C -F.>. CG No. .)&D&. The Court of ppeals affirmed with modification the &. 6ecember &''$ 6ecision?5@ of the >e+ional Trial Court of ;e+a<pi City, *ranch &), in Civil Case No. -$5(. The Court of ppeals held 1ilipinas *roadcastin+ Network, !nc. and its broadcasters ,ermo+enes le+re and Carmelo >ima liable for libel and ordered them to solidarily pay +o #edical and Educational Center*icol Christian Colle+e of #edicine moral dama+es, attorneyVs fees and costs of suit. The ntecedents RE7posXS is a radio documentary?.@ pro+ram hosted by Carmelo Y#elV >ima 2R>imaS3 and ,ermo+enes Y=unV le+re 2R le+reS3.?D@ E7posX is aired every mornin+ over 6K>C- # which is owned by 1ilipinas *roadcastin+ Network, !nc. 2R1*N!S3. RE7posXS is heard over ;e+a<pi City, the lbay municipalities and other *icol areas.?(@ !n the mornin+ of &. and &D 6ecember &'-', >ima and le+re e7posed various alle+ed complaints from students, teachers and parents a+ainst +o #edical and Educational Center-*icol Christian Colle+e of #edicine 2R #ECS3 and its administrators. Claimin+ that the broadcasts were defamatory, #EC and n+elita +o 2R +oS3, as 6ean of #ECVs Colle+e of #edicine, filed a complaint for dama+es?%@ a+ainst 1*N!, >ima and le+re on $% 1ebruary &''). Iuoted are portions of the alle+edly libelous broadcasts/ .(N ALEGRE/ ;et us be+in with the less burdensome/ if you have children takin+ medical course at #EC-*CC#, advise them to pass all subAects because if they fail in any subAect they will repeat their year level, takin+ up all subAects includin+ those they have passed already. Several students had approached me statin+ that they had consulted with the 6ECS which told them that there is no such re+ulation. !f ?there@ is no such re+ulation why is #EC doin+ the sameB 777 Second/ Earlier #EC students in "hysical Therapy had complained that the course is not reco+ni<ed by 6ECS. 777 Third/ Students are re4uired to take and pay for the subAect even if the subAect does not have an instructor - such +reed for money on the part of #ECVs administration. Take the subAect natomy/ students would pay for the subAect upon enrolment because it is offered by the school. ,owever there would be no instructor for such subAect. Students would be informed that course would be moved to a later date because the school is still searchin+ for the appropriate instructor. !t is a public knowled+e that the +o #edical and Educational Center has survived and has been survivin+ for the past few years since its inception because of funds support from forei+n foundations. !f you will take a look at the #EC premises youVll find out that the names of the buildin+s there are forei+n soundin+s. There is a #c6onald ,all. Chy not =ose >i<al or *onifacio ,allB That is a very concrete and undeniable evidence that the support of forei+n foundations for #EC is substantial, isnVt itB Cith the report which is the basis of the e7pose in 6K>C today, it would be very easy for detractors and enemies of the +o family to stop the flow of support of forei+n foundations who assist the medical school on the basis of the latterVs purpose. *ut if the purpose of the institution 2 #EC3 is to deceive students at cross purpose with its reason for bein+ it is possible for these forei+n foundations to lift or suspend their donations temporarily.?-@ 9n the other hand, the administrators of #EC-*CC#, #EC Science ,i+h School and the #EC-!nstitute of #ass Communication in their effort to minimi<e e7penses in terms of salary are absorbin+ or continues to accept RreAectsS. 1or e7ample how many teachers in #EC are former teachers of 4uinas University but were removed because of immoralityB 6oes it mean that the present administration of #EC have the total definite moral foundation from catholic administrator of 4uinas University. ! will prove to you my friends, that #EC is a dumpin+ +round, +arba+e, not merely of moral and physical misfits. "robably they only 4ualify in terms of intellect. The 6ean of Student ffairs of #EC is =ustita ;ola, as the family name implies. She is too old to work, bein+ an old woman. !s the #EC administration e7ploitin+ the very ?e@nterprisin+ or compromisin+ and undemandin+ ;olaB Could it be that #EC is Aust patiently makin+ use of 6ean =ustita ;ola were if she is very old. s in atmospheric situation T <ero visibility T the plane cannot land, meanin+ she is very old, low pay follows. *y the way, 6ean =ustita ;ola is also the chairman of the

committee on scholarship in #EC. She had retired from *icol University a lon+ time a+o but #EC has patiently made use of her. -EL RI-A< 777 #y friends based on the e7pose, #EC is a dumpin+ +round for moral and physically misfit people. Chat does this meanB !mmoral and physically misfits as teachers. #ay ! say !Vm sorry to 6ean =ustita ;ola. *ut this is the truth. The truth is this, that your are no lon+er fit to teach. You are too old. s an aviation, your case is <ero visibility. 6onVt insist. 777 Chy did #EC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The reason is practical cost savin+ in salaries, because an old person is not fastidious, so lon+ as she has money to buy the in+redient of beetle Auice. The elderly can +et by T thatVs why she 2;ola3 was taken in as 6ean. 777 9n our end our task is to attend to the interests of students. !t is likely that the students would be influenced by evil. Chen they become members of society outside of campus will be liabilities rather than assets. Chat do you e7pect from a doctor who while studyin+ at #EC is so much burdened with unreasonable impositionB Chat do you e7pect from a student who aside from peculiar problems T because not all students are rich T in their stru++le to improve their social status are even more burdened with false re+ulations. 777?'@ 2Emphasis supplied3 The complaint further alle+ed that #EC is a reputable learnin+ institution. Cith the supposed e7posXs, 1*N!, >ima and le+re Rtransmitted malicious imputations, and as such, destroyed plaintiffsV 2 #EC and +o3 reputation.S #EC and +o included 1*N! as defendant for alle+edly failin+ to e7ercise due dili+ence in the selection and supervision of its employees, particularly >ima and le+re. 9n &- =une &''), 1*N!, >ima and le+re, throu+h tty. >o<il ;o<ares, filed an nswer?&)@ alle+in+ that the broadcasts a+ainst #EC were fair and true. 1*N!, >ima and le+re claimed that they were plainly impelled by a sense of public duty to report the R+oin+s-on in #EC, ?which is@ an institution imbued with public interest.S Thereafter, trial ensued. 6urin+ the presentation of the evidence for the defense, tty. Edmundo Cea, collaboratin+ counsel of tty. ;o<ares, filed a #otion to 6ismiss?&&@ on 1*N!Vs behalf. The trial court denied the motion to dismiss. Conse4uently, 1*N! filed a separate nswer claimin+ that it e7ercised due dili+ence in the selection and supervision of >ima and le+re. 1*N! claimed that before hirin+ a broadcaster, the broadcaster should 2&3 file an application: 2$3 be interviewed: and 253 under+o an apprenticeship and trainin+ pro+ram after passin+ the interview. 1*N! likewise claimed that it always reminds its broadcasters to Robserve truth, fairness and obAectivity in their broadcasts and to refrain from usin+ libelous and indecent lan+ua+e.S #oreover, 1*N! re4uires all broadcasters to pass the )apisanan ng mga Brodkaster sa Pilipinas 2RU*"S3 accreditation test and to secure a U*" permit. 9n &. 6ecember &''$, the trial court rendered a 6ecision?&$@ findin+ 1*N! and le+re liable for libel e7cept >ima. The trial court held that the broadcasts are libelous per se. The trial court reAected the broadcastersV claim that their utterances were the result of strai+ht reportin+ because it had no factual basis. The broadcasters did not even verify their reports before airin+ them to show +ood faith. !n holdin+ 1*N! liable for libel, the trial court found that 1*N! failed to e7ercise dili+ence in the selection and supervision of its employees. !n absolvin+ >ima from the char+e, the trial court ruled that >imaVs only participation was when he a+reed with le+reVs e7posX. The trial court found >imaVs statement within the Rbounds of freedom of speech, e7pression, and of the press.S The dispositive portion of the decision reads/ C,E>E19>E, premises considered, this court finds for the plaintiff. Considerin+ the de+ree of dama+es caused by the controversial utterances, which are not found by this court to be really very serious and dama+in+, and there bein+ no showin+ that indeed the enrollment of plaintiff school dropped,defendants ,ermo+enes R=unS le+re, =r. and 1ilipinas *roadcastin+ Network 2owner of the radio station 6K>C3, are hereby Aointly and severally ordered to pay plaintiff +o #edical and Educational Center-*icol Christian Colle+e of #edicine 2 #EC-*CC#3 the amount of "5)),))).)) moral dama+es, plus"5),))).)) reimbursement of attorneyVs fees, and to pay the costs of suit. *oth parties, namely, 1*N!, >ima and le+re, on one hand, and #EC and +o, on the other, appealed the decision to the Court of ppeals. The Court of ppeals affirmed the trial courtVs Aud+ment with modification. The appellate court made >ima solidarily liable with 1*N! and le+re. The appellate court denied +oVs claim for dama+es and attorneyVs fees because the broadcasts were directed a+ainst #EC, and not

a+ainst her. The dispositive portion of the Court of ppealsV decision reads/ ;HEREFORE, the decision appealed from is hereby AFFIR-ED, subAect to the modification that broadcaster #el >ima is SOLIDARIL& AD.(DGED liable with 1*N?!@ and ,ermo?+@enes le+re. 1*N!, >ima and le+re filed a motion for reconsideration which the Court of ppeals denied in its $( =anuary $))) >esolution. The >ulin+ of the Court of ppeals The Court of ppeals upheld the trial courtVs rulin+ that the 4uestioned broadcasts are libelous per se and that 1*N!, >ima and le+re failed to overcome the le+al presumption of malice. The Court of ppeals found >ima and le+reVs claim that they were actuated by their moral and social duty to inform the public of the studentsV +ripes as insufficient to Austify the utterance of the defamatory remarks. 1indin+ no factual basis for the imputations a+ainst #ECVs administrators, the Court of ppeals ruled that the broadcasts were made Rwith reckless disre+ard as to whether they were true or false.S The appellate court pointed out that 1*N!, >ima and le+re failed to present in court any of the students who alle+edly complained a+ainst #EC. >ima and le+re merely +ave a sin+le name when asked to identify the students. ccordin+ to the Court of ppeals, these circumstances cast doubt on the veracity of the broadcastersV claim that they were Rimpelled by their moral and social duty to inform the public about the studentsV +ripes.S The Court of ppeals found >ima also liable for libel since he remarked that R2&3 #EC-*CC# is a dumpin+ +round for morally and physically misfit teachers: 2$3 #EC obtained the services of 6ean =ustita ;ola to minimi<e e7penses on its employeesV salaries: and 253 #EC burdened the students with unreasonable imposition and false re+ulations.S?&(@ The Court of ppeals held that 1*N! failed to e7ercise due dili+ence in the selection and supervision of its employees for allowin+ >ima and le+re to make the radio broadcasts without the proper U*" accreditation. The Court of ppeals denied +oVs claim for dama+es and attorneyVs fees because the libelous remarks were directed a+ainst #EC, and not a+ainst her. The Court of ppeals adAud+ed 1*N!, >ima and le+re solidarily liable to pay #EC moral dama+es, attorneyVs fees and costs of suit. !ssues 1*N! raises the followin+ issues for resolution/ !. !!. !!!. C,ET,E> T,E *>9 6C STS >E ;!*E;9US: C,ET,E> #EC !S ENT!T;E6 T9 #9> ; 6 # FES: C,ET,E> T,E C >6 91 TT9>NEYVS 1EES !S ">9"E>: and N6 ;EF>E 19> " Y#ENT 91 #9> ;

!G. C,ET,E> 1*N! !S S9;!6 >!;Y ;! *;E C!T, >!# 6 # FES, TT9>NEYVS 1EES N6 C9STS 91 SU!T. T=e )o8r2>% R83?7@ Ce deny the petition.

This is a civil action for dama+es as a result of the alle+edly defamatory remarks of >ima and le+re a+ainst #EC.?&%@ Chile #EC did not point out clearly the le+al basis for its complaint, a readin+ of the complaint reveals that #ECVs cause of action is based on rticles 5) and 55 of the Civil Code. rticle 5)?&-@ authori<es a separate civil action to recover civil liability arisin+ from a criminal offense. 9n the other hand, rticle 55?&'@ particularly provides that the inAured party may brin+ a separate civil action for dama+es in cases of defamation, fraud, and physical inAuries. #EC also invokes rticle &'?$)@ of the Civil Code to Austify its claim for dama+es. #EC cites rticles $&%(?$&@ and $&-)?$$@ of the Civil Code to hold 1*N! solidarily liable with >ima and le+re. I. &hether the %roadcasts are li%elous libel?$5@ is a public and malicious imputation of a crime, or of a vice or defect, real or ima+inary, or any act or omission, condition, status, or circumstance tendin+ to cause the dishonor, discredit, or contempt of a natural or Auridical person, or to blacken the memory of one who is dead.?$.@ There is no 4uestion that the broadcasts were made public and imputed to #EC defects or circumstances tendin+ to cause it dishonor, discredit and contempt. >ima and le+reVs remarks such as R+reed for money on the part of #ECVs administratorsS: R #EC is a dumpin+ +round, +arba+e of 777 moral and physical

misfitsS: and #EC students who +raduate Rwill be liabilities rather than assetsS of the society are libelous per se. Taken as a whole, the broadcasts su++est that #EC is a money-makin+ institution where physically and morally unfit teachers abound. ,owever, 1*N! contends that the broadcasts are not malicious. 1*N! claims that >ima and le+re were plainly impelled by their civic duty to air the studentsV +ripes. 1*N! alle+es that there is no evidence that ill will or spite motivated >ima and le+re in makin+ the broadcasts. 1*N! further points out that >ima and le+re e7erted efforts to obtain #ECVs side and +ave +o the opportunity to defend #EC and its administrators. 1*N! concludes that since there is no malice, there is no libel. 1*N!Vs contentions are untenable. Every defamatory imputation is presumed malicious.?$D@ >ima and le+re failed to show ade4uately their +ood intention and Austifiable motive in airin+ the supposed +ripes of the students. s hosts of a documentary or public affairs pro+ram, >ima and le+re should have presented the public issues Rfree from inaccurate and misleadin+ information.S?$(@ ,earin+ the studentsV alle+ed complaints a month before the e7posX,?$%@ they had sufficient time to verify their sources and information. ,owever, >ima and le+re hardly made a thorou+h investi+ation of the studentsV alle+ed +ripes. Neither did they in4uire about nor confirm the purported irre+ularities in #EC from the 6epartment of Education, Culture and Sports. le+re testified that he merely went to #EC to verify his report from an alle+ed #EC official who refused to disclose any information. le+re simply relied on the words of the students Rbecause they were many and not because there is proof that what they are sayin+ is true.S?$-@ This plainly shows >ima and le+reVs reckless disre+ard of whether their report was true or not. Contrary to 1*N!Vs claim, the broadcasts were not Rthe result of strai+ht reportin+.S Si+nificantly, some courts in the United States apply the privile+e of Rneutral reporta+eS in libel cases involvin+ matters of public interest or public fi+ures. Under this privile+e, a republisher who accuratel" and disinterestedly reports certain defamatory statements made a+ainst public fi+ures is shielded from liability, re+ardless of the republisherVs subAective awareness of the truth or falsity of the accusation.?$'@ >ima and le+re cannot invoke the privile+e of neutral reporta+e because unfounded comments abound in the broadcasts. #oreover, there is no e7istin+ controversy involvin+ #EC when the broadcasts were made. The privile+e of neutral reporta+e applies where the defamed person is a public fi+ure who is involved in an e7istin+ controversy, and a party to that controversy makes the defamatory statement.?5)@ ,owever, 1*N! ar+ues vi+orously that malice in law does not apply to this case. Citin+ Borjal v. Court of Appeals,?5&@ 1*N! contends that the broadcasts Rfall within the covera+e of 4ualifiedly privile+ed communicationsS for bein+ commentaries on matters of public interest. Such bein+ the case, #EC should prove malice in fact or actual malice. Since #EC alle+edly failed to prove actual malice, there is no libel. 1*N!Vs reliance on Borjal is misplaced. !n Borjal, the Court elucidated on the Rdoctrine of fair comment,S thus/ ?1@air commentaries on matters of public interest are privile+ed and constitute a valid defense in an action for libel or slander. The doctrine of fair comment means that while in +eneral every discreditable imputation publicly made is deemed false, because every man is presumed innocent until his +uilt is Audicially proved, and every false imputation is deemed malicious, nevertheless, when the discreditable imputation is directed a+ainst a public person in his public capacity, it is not necessarily actionable. !n order that such discreditable imputation to a public official may be actionable, it must either be a false alle+ation of fact or a comment based on a false supposition. !f the comment is an e7pression of opinion, based on established facts,then it is immaterial that the opinion happens to be mistaken, as lon+ as it mi+ht reasonably be inferred from the facts.?5$@ 2Emphasis supplied3 True, #EC is a private learnin+ institution whose business of educatin+ students is R+enuinely imbued with public interest.S The welfare of the youth in +eneral and #ECVs students in particular is a matter which the public has the ri+ht to know. Thus, similar to the newspaper articles in Borjal, the subAect broadcasts dealt with matters of public interest. ,owever, unlike in Borjal, the 4uestioned broadcasts are 7o2 based on e%2$b3?%=e" A$#2%. The record supports the followin+ findin+s of the trial court/ 777 lthou+h defendants claim that they were motivated by consistent reports of students and parents a+ainst plaintiff, yet, defendants have not presented in court, nor even +ave name of a sin+le 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 dan+erous because it could easily +ive license to the media to mali+n people and establishments based on flimsy e7cuses that there were reports to them althou+h they could not satisfactorily establish it. Such la7ity would encoura+e careless and irresponsible broadcastin+ 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 analy<e the truth of the reports before they aired it, in order to prove that they are in +ood faith. le+re contended that plaintiff school had no permit and is not accredited to offer "hysical Therapy courses. Yet, plaintiff produced a certificate comin+ from 6ECS that as of Sept. $$, &'-% or more than $ years before the controversial broadcast, accreditation to offer "hysical Therapy course had already been +iven the plaintiff, which certificate is si+ned by no less than the Secretary of Education and Culture herself, ;ourdes >. Iuisumbin+ 2E7h. C-rebuttal3. 6efendants could have easily known this were they careful enou+h to verify. nd yet, defendants were very cate+orical and sounded too positive when they made the erroneous report that plaintiff had no permit to offer "hysical Therapy courses which they were offerin+. The alle+ation that plaintiff was +ettin+ tremendous aids from forei+n foundations like #cdonald 1oundation prove not to be true also. The truth is there is no #cdonald 1oundation e7istin+. lthou+h a bi+ buildin+ of plaintiff school was +iven the name #cdonald buildin+, that was only in order to honor the first missionary in *icol of plaintiffsV reli+ion, as e7plained by 6r. ;ita +o. Contrary to the claim of defendants over the air, not a sin+le centavo appears to be received by plaintiff school from the aforementioned #c6onald 1oundation which does not e7ist. 6efendants did not even also bother to prove their claim, thou+h denied by 6ra. +o, that when medical students fail in one subAect, they are made to repeat all the other subAect?s@, even those they have already passed, nor their claim that the school char+es 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 +ive semblance of +ood faith. s for the alle+ation that plaintiff is the dumpin+ +round for misfits, and immoral teachers, defendant?s@ sin+led out 6ean =ustita ;ola who is said to be so old, with <ero visibility already. 6ean ;ola testified in court last =an. $&, &''&, and was found to be %D years old. 777 Even older people prove to be effective teachers like Supreme Court =ustices who are still very much in demand as law professors in their late years. Counsel for defendants is past %D but is found by this court to be still very sharp and effective. So is plaintiffsV counsel. 6r. ;ola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile. The contention that plaintiffsV +raduates become liabilities rather than assets of our society is a mere conclusion. *ein+ from the place himself, this court is aware that maAority of the medical +raduates of plaintiffs pass the board e7amination easily and become prosperous and responsible professionals.?55@ ,ad the comments been an e7pression of opinion based on established facts, it is immaterial that the opinion happens to be mistaken, as lon+ as it mi+ht reasonably be inferred from the facts.?5.@ ,owever, the comments of >ima and le+re were not backed up by facts. Therefore, the broadcasts are not privile+ed and remain libelous per se( The broadcasts also violate the >adio Code?5D@ of the )apisanan ng mga Brodkaster sa Pilipinas, !nk( 2R>adio CodeS3. !tem !2*3 of the >adio Code provides/ '. ('LI) AFFAIRS, ('LI) ISS(ES AND )O--ENTARIES .. "ublic affairs pro+ram shall present public issues free from personal bias, preAudice and inaccurate and misleadin+ information. 7 7 7 1urthermore, the station shall strive to present balanced discussion of issues. 7 7 7. %. The station shall be responsible at all times in the supervision of public affairs, public issues and commentary pro+rams so that they conform to the provisions and standards of this code. -. !t shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest, +eneral welfare and +ood order in the presentation of public affairs and public issues.?5(@ The broadcasts fail to meet the standards prescribed in the >adio Code, which lays down the code of ethical conduct +overnin+ practitioners in the radio broadcast industry. The >adio Code is a voluntary code of conduct imposed by the radio broadcast industry on its own members. The >adio Code is a public warranty by the radio broadcast industry that radio broadcast practitioners are subAect to a code by which their conduct are measured for lapses, liability and sanctions. The public has a ri+ht to e7pect and demand that radio broadcast practitioners live up to the code of conduct of their profession, Aust like other professionals. professional code of conduct provides the

standards for determinin+ whether a person has acted Austly, honestly and with +ood faith in the e7ercise of his ri+hts and performance of his duties as re4uired by rticle &'?5%@ of the Civil Code. professional code of conduct also provides the standards for determinin+ whether a person who willfully causes loss or inAury to another has acted in a manner contrary to morals or +ood customs under rticle $&?5-@ of the Civil Code. II. &hether $# C is entitled to moral damages 1*N! contends that #EC is not entitled to moral dama+es because it is a corporation.?5'@ Auridical person is +enerally not entitled to moral dama+es because, unlike a natural person, it cannot e7perience physical sufferin+ or such sentiments as wounded feelin+s, serious an7iety, mental an+uish or moral shock.?.)@ The Court of ppeals cites Mambulao Lumber Co. v. PNB, et al.?.&@to Austify the award of moral dama+es. ,owever, the CourtVs statement in Mambulao that Ra corporation may have a +ood reputation which, if besmirched, may also be a +round for the award of moral dama+esS is an o%iter dictum. ?.$@ Nevertheless, #ECVs claim for moral dama+es falls under item % of rticle $$&'?.5@ of the Civil Code. This provision e7pressly authori<es the recovery of moral dama+es in cases of libel, slander or any other form of defamation. rticle $$&'2%3 does not 4ualify whether the plaintiff is a natural or Auridical person. Therefore, a Auridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral dama+es.?..@ #oreover, where the broadcast is libelous per se, the law implies dama+es.?.D@ !n such a case, evidence of an honest mistake or the want of character or reputation of the party libeled +oes only in miti+ation of dama+es.?.(@ Neither in such a case is the plaintiff re4uired to introduce evidence of actual dama+es as a condition precedent to the recovery of some dama+es.?.%@ !n this case, the broadcasts are libelous per se. Thus, #EC is entitled to moral dama+es. ,owever, we find the award of "5)),))) moral dama+es unreasonable. The record shows that even thou+h the broadcasts were libelous per se, #EC has not suffered any substantial or material dama+e to its reputation. Therefore, we reduce the award of moral dama+es from "5)),))) to"&D),))). !!!( &hether the a0ard of attorne"Is fees is proper 1*N! contends that since #EC is not entitled to moral dama+es, there is no basis for the award of attorneyVs fees. 1*N! adds that the instant case does not fall under the enumeration in rticle $$)-?.-@ of the Civil Code. The award of attorneyVs fees is not proper because #EC failed to Austify satisfactorily its claim for attorneyVs fees. #EC did not adduce evidence to warrant the award of attorneyVs fees. #oreover, both the trial and appellate courts failed to e7plicitly state in their respective decisions the rationale for the award of attorneyVs fees.?.'@ !n !nter- sia !nvestment !ndustries, !nc. v. Court of ppeals,?D)@ we held that/ ?!@t is an accepted doctrine that the award thereof as an item of dama+es is the e7ception rather than the rule, and counselVs fees are not to be awarded every time a party wins a suit. The power of the court to award attorneyVs fees under rticle $$)- of the Civil Code demands factual, le+al and e4uitable Austification, without which the award is a conclusion without a premise, its basis bein+ improperly left to speculation and conAecture. !n all events, the court must e7plicitly state in the te7t of the decision, and not only in the decretal portion thereof, the le+al reason for the award of attorneyVs fees.?D&@ 2Emphasis supplied3 Chile it mentioned about the award of attorneyVs fees by statin+ that it Rlies within the discretion of the court and depends upon the circumstances of each case,S the Court of ppeals failed to point out any circumstance to Austify the award. IV. &hether 6B,! is solidaril" lia%le 0ith Rima and $legre for moral damages, attorne"Is fees and costs of suit 1*N! contends that it is not solidarily liable with >ima and le+re for the payment of dama+es and attorneyVs fees because it e7ercised due dili+ence in the selection and supervision of its employees, particularly >ima and le+re. 1*N! maintains that its broadcasters, includin+ >ima and le+re, under+o a Rvery re+imented processS before they are allowed to +o on air. RThose who apply for broadcaster are subAected to interviews, e7aminations and an apprenticeship pro+ram.S

1*N! further ar+ues that le+reVs a+e and lack of trainin+ are irrelevant to his competence as a broadcaster. 1*N! points out that the Rminor deficiencies in the U*" accreditation of >ima and le+re do not in any way prove that 1*N! did not e7ercise the dili+ence of a +ood father of a family in selectin+ and supervisin+ them.S >imaVs accreditation lapsed due to his non-payment of the U*" annual fees while le+reVs accreditation card was delayed alle+edly for reasons attributable to the U*" #anila 9ffice. 1*N! claims that membership in the U*" is merely voluntary and not re4uired by any law or +overnment re+ulation. 1*N!Vs ar+uments do not persuade us. The basis of the present action is a tort. =oint tort feasors are Aointly and severally liable for the tort which they commit.?D$@ =oint tort feasors are all the persons who command, insti+ate, promote, encoura+e, 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.?D5@ Thus, #EC correctly anchored its cause of action a+ainst 1*N! on rticles $&%( and $&-) of the Civil Code. s operator of 6K>C- # and employer of >ima and le+re, 1*N! is solidarily liable to pay for dama+es arisin+ from the libelous broadcasts. s stated by the Court of ppeals, Rrecovery for defamatory statements published by radio or television may be had from the owner of the station, a licensee, theoperator of the station, or a person who procures, or participates in, the makin+ of the defamatory statements.S?D.@ n 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 authori<es or ratifies the defamation.?DD@ !n this case, >ima and le+re were clearly performin+ their official duties as hosts of 1*N!Vs radio pro+ram E7posX when they aired the broadcasts. 1*N! neither alle+ed nor proved that >ima and le+re went beyond the scope of their work at that time. There was likewise no showin+ that 1*N! did not authori<e and ratify the defamatory broadcasts. #oreover, there is insufficient evidence on record that 1*N! e7ercised due dili+ence in the selection and supervision of its employees, particularly >ima and le+re. 1*N! merely showed that it e7ercised dili+ence in the %e3e#2?o7 of its broadcasters without introducin+ any evidence to prove that it observed the same dili+ence in the %8Berv?%?o7 of >ima and le+re. 1*N! did not show how it e7ercised dili+ence in supervisin+ its broadcasters. 1*N!Vs alle+ed constant reminder to its broadcasters to Robserve truth, fairness and obAectivity and to refrain from usin+ libelous and indecent lan+ua+eS is not enou+h to prove due dili+ence in the supervision of its broadcasters. de4uate trainin+ of the broadcasters on the industryVs code of conduct, sufficient information on libel laws, and continuous evaluation of the broadcastersV performance are but a few of the many ways of showin+ dili+ence in the supervision of broadcasters. 1*N! claims that it Rhas taken all the precaution in the %e3e#2?o7 of >ima and le+re as broadcasters, bearin+ in mind their 4ualifications.S ,owever, no clear and convincin+ evidence shows that >ima and le+re underwent 1*N!Vs Rre+imented processS of application. 1urthermore, 1*N! admits that >ima and le+re had deficiencies in their U*" accreditation,?D(@ which is one of 1*N!Vs re4uirements before it hires a broadcaster. Si+nificantly, membership in the U*", while voluntary, indicates the broadcasterVs stron+ commitment to observe the broadcast industryVs rules and re+ulations. Clearly, these circumstances show 1*N!Vs lack of dili+ence in selectin+ and supervisin+ >ima and le+re. ,ence, 1*N! is solidarily liable to pay dama+es to+ether with >ima and le+re. ;HEREFORE, we 6ENY the instant petition. Ce 11!># the 6ecision of . =anuary &''' and >esolution of $( =anuary $))) of the Court of ppeals in C -F.>. CG No. .)&D& with the #96!1!C T!9N that the award of moral dama+es is reduced from "5)),))) to "&D),))) and the award of attorneyVs fees is deleted. Costs a+ainst petitioner.

G.R. No. L-35262

-$r#= 15, 1935

THE EO LE OF THE HILI INE ISLANDS, plaintiff-appellant, vs. TAN 'OON !ONG, defendant-appellee. This is an appeal from an order of the =ud+e of the $5rd =udicial 6istrict sustainin+ to demurrer to an information char+in+ the defendant Tan *oon Uon+ with the violation of section &.D- of ct No. $%&& as amended. The information reads as follows/ That on and durin+ the four 4uarters of the year &'$., in the municipality of !loilo, "rovince of !loilo, "hilippine !slands, the said accused, as corporation or+ani<ed under the laws of the "hilippine !slands and en+a+ed in the purchase and the sale of su+ar, 0bayon,0 copra7, and other native products and as such obAect to the payment of internal-revenue ta7es upon its sales, did then and there voluntarily, ille+ally, and criminally declare in &'$. for the purpose of ta7ation only the sum of "$,5D$,%(&.'., when in truth and in fact, and the accused well knew that the total +ross sales of said corporation durin+ that year amounted to "$,D.5,5)5..., thereby failin+ to declare for the purpose of ta7ation the amount of "&'),D.&.D), and voluntarily and ille+ally not payin+ the Fovernment as internal-revenue percenta+e ta7es the sum of "$,'().&$, correspondin+ to &Z per cent of said undeclared sales. The 4uestion to be decided is whether the information sets forth facts renderin+ the defendant, as mana+er of the corporation liable criminally under section $%$5 of ct No. $%&& for violation of section &.D- of the same act for the benefit of said corporation. Section &.D- and $%$5 read as follows/ SEC. &.D-. Pa"ment of percentage taxes M 'uarterl" reports of earnings. M The percenta+e ta7es on business shall be payable at the end of each calendar 4uarter in the amount lawfully due on the business transacted durin+ each 4uarter: and it shall be on the duty of every person conductin+ a business subAect to such ta7, within the same period as is allowed for the payment of the 4uarterly installments of the fi7ed ta7es without penalty, to make a true and complete return of the amount of the receipts or earnin+s of his business durin+ the preceedin+ 4uarter and pay the ta7 due thereon. 2 ct No. $%&&.3 SEC. $%$5. 6ailure to make true return of receipts and sales . M ny person who, bein+ re4uired by law to make a return of the amount of his receipts, sales, or business, shall fail or ne+lect to make such return within the time re4uired, shall be punished by a fine not e7ceedin+ "$))) or by imprisonment for a term not e7ceedin+ one year, or both. nd any such person who shall make a false or fraudulent return shall be punished by a fine not e7ceedin+ "&), )))) or by imprisonment for a term not e7ceedin+ two years, or both. 2 ct No. $%&&.3 pparently, the court below based the appealed rulin+ on the +round that the offense char+ed must be re+arded as committed by the corporation and not by its officials or a+ents. This view is in direct conflict with the +reat wei+ht of authority. a corporation can act only throu+h its officers and a+ents, and where the business itself involves a violation of the law, the correct rule is that all who participate in it are liable 2Frall and 9strand8s Case, &)5 Ga., -DD, and authorities there cited.3 !n case of State vs( *urnam 2&% Cash., &''3, the court went so far as to hold that the mana+er of a diary corporation was criminally liable for the violation of a statute by the corporation throu+h he was not present when the offense was committed. !n the present case, the information or complaint alle+es that he defendant was the mana+er of a corporation which was en+a+ed in business as a merchant, and as such mana+er, he made a false return, for purposes of ta7ation, of the total amount of sale made by said false return constitutes a violation of law, the defendant, as the author of the ille+al act, must necessarily answer for its conse4uences, provided that the alle+ation are proven. The rulin+ of the court below sustainin+ the demurrer to the complaint is therefore reversed, and the case will be returned to said court for further proceedin+s not inconsistent with our view as hereinafter stated.

6G.R. No. 124415. .$78$r9 24, 2555: R(FINA L(& LI- petitioner, vs. )A, A(TO TR()! T'A )OR ORATION, S EED DISTRI'(TING, IN)., A)TI/E DISTRI'(TORS, ALLIAN)E -AR!ETING )OR ORATION, A)TION )O- AN&, IN). . #ay a corporation, in its universality, be the proper subAect of and be included in the inventory of the estate of a deceased personB "etitioner disputes before us throu+h the instant petition for review on certiorari, the decision?&@ of the Court of ppeals promul+ated on &- pril &''(, in C -F> S" No. 5-(&%, which nullified and set aside the orders dated ). =uly &''D?$@, &$ September &''D?5@ and &D September &''D?.@ of the >e+ional Trial Court of Iue<on City, *ranch '5, sittin+ as a probate court. "etitioner >ufina ;uy ;im is the survivin+ spouse of the late "astor Y. ;im whose estate is the subAect of probate proceedin+s in Special "roceedin+s I-'D-$555., entitled, 0!n >e/ !ntestate Estate of "astor Y. ;im >ufina ;uy ;im, represented by Feor+e ;uy, "etitioner0. "rivate respondents uto Truck Corporation, lliance #arketin+ Corporation, Speed 6istributin+, !nc., ctive 6istributin+, !nc. and ction Company are corporations formed, or+ani<ed and e7istin+ under "hilippine laws and which owned real properties covered under the Torrens system. 9n && =une &''., "astor Y. ;im died intestate. ,erein petitioner, as survivin+ spouse and duly represented by her nephew Feor+e ;uy, filed on &% #arch &''D, a Aoint petition?D@ for the administration of the estate of "astor Y. ;im before the >e+ional Trial Court of Iue<on City. "rivate respondent corporations, whose properties were included in the inventory of the estate of "astor Y. ;im, then filed a motion?(@ for the liftin+ of lis pendens and motion?%@ for e7clusion of certain properties from the estate of the decedent. !n an order?-@ dated )- =une &''D, the >e+ional Trial Court of Iue<on City, *ranch '5, sittin+ as a probate court, +ranted the private respondentsV twin motions, in this wise/ 0Cherefore, the >e+ister of 6eeds of Iue<on City is hereby ordered to lift, e7pun+e or delete the annotation of lis pendens on Transfer Certificates of Title Nos. &&(%&(, &&(%&%, &&(%&-, &&(%&' and D&-$ and it is hereby further ordered that the properties covered by the same titles as well as those properties by 2sic3 Transfer Certificate of Title Nos. (&5.'., 5(5&$5, $5($5( and $(5$5( are e7cluded from these proceedin+s. Subse4uently, >ufina ;uy ;im filed a verified amended petition?'@ which contained the followin+ averments/ 05. The late "astor Y. ;im personally owned durin+ his lifetime the followin+ business entities, to wit/ *usiness Entity lliance #arketin+ ,!nc. Speed 6istributin+ !nc. uto Truck T* Corp. ctive 6istributors, !nc. ction Company Galen<uela *ulacan. ddress/ *lock 5, ;ot (, 6acca *1 ,omes, "araOa4ue, #etro #anila. '&) *arrio Nio+, +uinaldo ,i+hway, *acoor, Cavite. $$D& >oosevelt venue, Iue<on City. *lock 5, ;ot (, 6acca *1 ,omes, "araOa4ue, #etro #anila. &)) $)th venue #urphy, Iue<on City or '$-6 #c- rthur ,i+hway

05.& lthou+h the above business entities dealt and en+a+ed in business with the public as corporations, all their capital, assets and e4uity were however, personally owned by the late "astor Y ;im. ,ence the alle+ed stockholders and officers appearin+ in the respective articles of incorporation of the above business entities were mere dummies of "astor Y. ;im, and they were listed therein only for purposes of re+istration with the Securities and E7chan+e Commission. 0.. "astor ;im, likewise, had Time, Savin+s and Current 6eposits with the followin+ banks/ 2a3 #etrobank, Frace "ark, Caloocan City and Iue<on venue, Iue<on City *ranches and 2b3 1irst !ntestate *ank 2formerly "roducers *ank3, >i<al Commercial *ankin+ Corporation and in other banks whose identities are yet to be determined. 0D. That the followin+ real properties, althou+h re+istered in the name of the above entities, were actually ac4uired by "astor Y. ;im durin+ his marria+e with petitioner, to wit/ Corporation Title ;ocation

k. uto Truck T* Corporation 4. lliance #arketin+

TCT No. (&%%$( TCT No. $%-'(

Sto. 6omin+o Cainta, >i<al "rance, #etro #anila

Copies of the above-mentioned Transfer Certificate of Title andHor Ta7 6eclarations are hereto attached as nne7es 0C0 to 0C0. 0%. The aforementioned properties andHor real interests left by the late "astor Y. ;im, are all conAu+al in nature, havin+ been ac4uired by him durin+ the e7istence of his marria+e with petitioner. 0-. There are other real and personal properties owned by "astor Y. ;im which petitioner could not as yet identify. "etitioner, however will submit to this ,onorable Court the identities thereof and the necessary documents coverin+ the same as soon as possible.0 9n ). =uly &''D, the >e+ional Trial Court actin+ on petitionerVs motion issued an order?&)@, thus/ 0Cherefore, the order dated )- =une &''D is hereby set aside and the >e+istry of 6eeds of Iue<on City is hereby directed to reinstate the annotation of lis pendens in case said annotation had already been deleted andHor cancelled said TCT Nos. &&(%&(, &&(%&%, &&(%&-, &&(%&' and D&$-$. 1urther more 2sic3, said properties covered by TCT Nos. (&5.'., 5(D&$5, $5($D( and $5($5% by virtue of the petitioner are included in the instant petition. 9n ). September &''D, the probate court appointed >ufina ;im as special administrator?&&@ and #i+uel ;im and ;awyer 6onald ;ee, as co-special administrators of the estate of "astor Y. ;im, after which letters of administration were accordin+ly issued. !n an order?&$@ dated &$ September &''D, the probate court denied anew private respondentsV motion for e7clusion, in this wise/ 0The issue precisely raised by the petitioner in her petition is whether the corporations are the mere alter e+os or instrumentalities of "astor ;im, 9therwise 2sic3 stated, the issue involves the piercin+ of the corporate veil, a matter that is clearly within the Aurisdiction of this ,onorable Court and not the Securities and E7chan+e Commission. Thus, in the case of Cease vs. Court of ppeals, '5 SC> .-5, the crucial issue decided by the re+ular court was whether the corporation involved therein was the mere e7tension of the decedent. fter findin+ in the affirmative, the Court ruled that the assets of the corporation are also assets of the estate. readin+ of ".6. ')$, the law relied upon by oppositors, shows that the SECVs e7clusive 2sic3 applies only to intra-corporate controversy. !t is simply a suit to settle the intestate estate of a deceased person who, durin+ his lifetime, ac4uired several properties and put up corporations as his instrumentalities. 9n &D September &''D, the probate court actin+ on an ex parte motion filed by petitioner, issued an order?&5@ the dispositive portion of which reads/ 0Cherefore, the parties and the followin+ banks concerned herein under enumerated are hereby ordered to comply strictly with this order and to produce and submit to the special administrators , throu+h this ,onorable Court within 2D3 five days from receipt of this order their respective records of the savin+sHcurrent accountsHtime deposits and other deposits in the names of "astor ;im andHor corporations abovementioned, showin+ all the transactions made or done concernin+ savin+s Hcurrent accounts from =anuary &''. up to their receipt of this court order. "rivate respondent filed a special civil action for certiorari?&.@, with an ur+ent prayer for a restrainin+ order or writ of preliminary inAunction, before the Court of ppeals 4uestionin+ the orders of the >e+ional Trial Court, sittin+ as a probate court. 9n &- pril &''(, the Court of ppeals, findin+ in favor of herein private respondents, rendered the assailed decision?&D@, the decretal portion of which declares/ 0Cherefore, premises considered, the instant special civil action for certiorari is hereby +ranted, The impu+ned orders issued by respondent court on =uly .,&''D and September &$, &''D are hereby nullified and set aside. The impu+ned order issued by respondent on September &D, &''D is nullified insofar as petitioner corporations0 bank accounts and records are concerned. Throu+h the e7pediency of >ule .D of the >ules of Court, herein petitioner >ufina ;uy ;im now comes before us with a lone assi+nment of error?&(@/

0The respondent Court of ppeals erred in reversin+ the orders of the lower court which merely allowed the preliminary or provisional inclusion of the private respondents as part of the estate of the late deceased 2sic3 "astor Y. ;im with the respondent Court of ppeals arro+atin+ unto itself the power to repeal, to disobey or to i+nore the clear and e7plicit provisions of >ules -&,-5,-. and -% of the >ules of Court and thereby preventin+ the petitioner, from performin+ her duty as special administrator of the estate as e7pressly provided in the said >ules.0 "etitionerVs contentions tread on perilous +rounds. !n the instant petition for review, petitioner prays that we affirm the orders issued by the probate court which were subse4uently set aside by the Court of ppeals. Yet, before we delve into the merits of the case, a review of the rules on Aurisdiction over probate proceedin+s is indeed in order. The provisions of >epublic ct %('&?&%@, which introduced amendments to *atas "ambansa *l+. &$', are pertinent/ CSe#2?o7 1. Section &' of *atas "ambansa *l+. &$', otherwise known as the 0=udiciary >eor+ani<ation ct of &'-)0, is hereby amended to read as follows/ Section &'. =urisdiction in civil cases. >e+ional Trial Courts shall e7ercise e7clusive Aurisdiction/ 2.3 !n all matters of probate, both testate and intestate, where the +ross value of the estate e7ceeds 9ne ,undred Thousand "esos 2"&)),)))3 or, in probate matters in #etro #anila, where such +ross value e7ceeds 2"$)),)))3: Section 5. Section 55 of the same law is hereby amended to read as follows/ Section 55. =urisdiction of #etropolitan Trial Courts, #unicipal Trial Courts and #unicipal Circuit Trial Courts in Civil Cases.-#etropolitan Trial Courts, #unicipal Trial Courts and #unicipal Circuit Trial Courts shall e7ercise/ &. E7clusive ori+inal Aurisdiction over civil actions and probate proceedin+s, testate and intestate, includin+ the +rant of provisional remedies in proper cases, where the value of the personal property, estate or amount of the demand does not e7ceed 9ne ,undred Thousand "esos2"&)),)))3 or, in #etro #anila where such personal property, estate or amount of the demand does not e7ceed Two ,undred Thousand "esos 2"$)),)))3, e7clusive of interest, dama+es of whatever kind, attorneyVs fees, liti+ation e7penses and costs, the amount of which must be specifically alle+ed, "rovided, that interest, dama+es of whatever kind, attorneyVs, liti+ation e7penses and costs shall be included in the determination of the filin+ fees, "rovided further, that where there are several claims or causes of actions between the same or different parties, embodied in the same complaint, the amount of the demand shall be the totality of the claims in all the causes of action, irrespective of whether the causes of action arose out of the same or different transactions: Simply put, the determination of which court e7ercises Aurisdiction over matters of probate depends upon the +ross value of the estate of the decedent. s to the power and authority of the probate court, petitioner relies heavily on the principle that a probate court may pass upon title to certain properties, al%eit provisionally, for the purpose of determinin+ whether a certain property should or should not be included in the inventory. !n a litany of cases, Ce defined the parameters by which the court may e7tend its probin+ arms in the determination of the 4uestion of title in probate proceedin+s. This Court, in PA !"#, $#. vs. C"%#! "& APP'AL ,?&-@ held/ 0N N N s a rule, the 4uestion of ownership is an e7traneous matter which the probate court cannot resolve with finality. Thus, for the purpose of determinin+ whether a certain property should or should not be included in the inventory of estate properties, the "robate Court may pass upon the title thereto, but such determination is provisional, not conclusive, and is subAect to the final decision in a separate action to resolve title.0 Ce reiterated the rule in P'#'I#A vs. C"%#! "& APP'AL ?&'@/ 0N N N The function of resolvin+ whether or not a certain property should be included in the inventory or list of properties to be administered by the administrator is one clearly within the competence of the probate court. ,owever, the courtVs determination is only provisional in character, not conclusive, and is subAect to

the final decision in a separate action which may be instituted by the parties.0 1urther, in M"#AL' vs. C&I "& CAVI!'?$)@ citin+ C%I("N vs. #AM"L'!'?$&@, Ce made an e7position on the probate courtVs limited Aurisdiction/ 0!t is a well-settled rule that a probate court or one in char+e of proceedin+s whether testate or intestate cannot adAudicate or determine title to properties claimed to be a part of the estate and which are e4ually claimed to belon+ to outside parties. ll that the said court could do as re+ards said properties is to determine whether they should or should not be included in the inventory or list of properties to be administered by the administrator. !f there is no dispute, well and +ood: but if there is, then the parties, the administrator and the opposin+ parties have to resort to an ordinary action for a final determination of the conflictin+ claims of title because the probate court cannot do so.0 +ain, in VAL'#A vs. IN '#!"?$$@, Ce had occasion to elucidate, throu+h #r. =ustice ndres Narvasa?$5@/ 0Settled is the rule that a Court of 1irst !nstance 2now >e+ional Trial Court3, actin+ as a probate court, e7ercises but limited Aurisdiction, and thus has no power to take co+ni<ance of and determine the issue of title to property claimed by a third person adversely to the decedent, unless the claimant and all other parties havin+ le+al interest in the property consent, e7pressly or impliedly, to the submission of the 4uestion to the probate court for adAud+ment, or the interests of third persons are not thereby preAudiced, the reason for the e7ception bein+ that the 4uestion of whether or not a particular matter should be resolved by the court in the e7ercise of its +eneral Aurisdiction or of its limited Aurisdiction as a special court 2e.+. probate, land re+istration, etc.3, is in reality not a Aurisdictional but in essence of procedural one, involvin+ a mode of practice which may be waived. 7 7 7 7 7 7. T=e%e #o7%?"er$2?o7% $%%8me @re$2er #o@e7#9 D=ere, $% =ere, 2=e Torre7% 2?23e ?% 7o2 ?7 2=e "e#e"e72>% 7$me b82 ?7 o2=er%, $ %?28$2?o7 o7 D=?#= 2=?% )o8r2 =$% $3re$"9 =$" o##$%?o7 2o r83e 7 7 7.02emphasis 9urs3 "etitioner, in the present case, ar+ues that the parcels of land covered under the Torrens system and re+istered in the name of private respondent corporations should be included in the inventory of the estate of the decedent "astor Y. ;im, alle+in+ that after all the determination by the probate court of whether these properties should be included or not is merely provisional in nature, thus, not conclusive and subAect to a final determination in a separate action brou+ht for the purpose of adAud+in+ once and for all the issue of title. Yet, under the peculiar circumstances, where the parcels of land are re+istered in the name of private respondent corporations, the Aurisprudence pronounced in B"LI A) vs., ALCI*?$.@ is of +reat essence and finds applicability, thus/ 0!t does not matter that respondent-administratri7 has evidence purportin+ to support her claim of ownership, for, on the other hand, petitioners have a Torrens title in their favor, which under the law is endowed with incontestability until after it has been set aside in the manner indicated in the law itself, which, of course, does not include, brin+in+ up the matter as a mere incident in special proceedin+s for the settlement of the estate of deceased persons. 7 7 07 7 7. !n re+ard to such incident of inclusion or e7clusion, Ce hold that if a property covered by Torrens title is involved, the presumptive conclusiveness of such title should be +iven due wei+ht, and in the absence of stron+ compellin+ evidence to the contrary, the holder thereof should be considered as the owner of the property in controversy until his title is nullified or modified in an appropriate ordinary action, particularly, when as in the case at bar, possession of the property itself is in the persons named in the title. 7 7 70 perusal of the records would reveal that no stron+ compellin+ evidence was ever presented by petitioner to bolster her bare assertions as to the title of the deceased "astor Y. ;im over the properties. Even so, ".6. &D$', otherwise known as, 0 The "roperty >e+istration 6ecree0, proscribes collateral attack on Torrens Title, hence/ Section .-. Certificate not subAect to collateral attack. - certificate of title shall not be subAect to collateral attack. !t cannot be altered, modified or cancelled e7cept in a direct proceedin+ in accordance with law.0 !n C%I("N vs. #AM"L'!', where similarly as in the case at bar, the property subAect of the controversy was duly re+istered under the Torrens system, Ce cate+orically stated/ 07 7 7 ,avin+ been apprised of the fact that the property in 4uestion was in the possession of third parties

and more important, covered by a transfer certificate of title issued in the name of such third parties, the respondent court should have denied the motion of the respondent administrator and e7cluded the property in 4uestion from the inventory of the property of the estate. !t had no authority to deprive such third persons of their possession and ownership of the property. 7 7 70 !nasmuch as the real properties included in the inventory of the estate of the late "astor Y. ;im are in the possession of and are re+istered in the name of private respondent corporations, which under the law possess a personality separate and distinct from their stockholders, and in the absence of any co+ency to shred the veil of corporate fiction, the presumption of conclusiveness of said titles in favor of private respondents should stand undisturbed. ccordin+ly, the probate court was remiss in denyin+ private respondentsV motion for e7clusion. Chile it may be true that the >e+ional Trial Court, actin+ in a restricted capacity and e7ercisin+ limited Aurisdiction as a probate court, is competent to issue orders involvin+ inclusion or e7clusion of certain properties in the inventory of the estate of the decedent, and to adAud+e, al%eit, provisionally the 4uestion of title over properties, it is no less true that such authority conferred upon by law and reinforced by Aurisprudence, should be e7ercised Audiciously, with due re+ard and caution to the peculiar circumstances of each individual case. Notwithstandin+ that the real properties were duly re+istered under the Torrens system in the name of private respondents, and as such were to be afforded the presumptive conclusiveness of title, the probate court obviously opted to shut its eyes to this +leamy fact and still proceeded to issue the impu+ned orders. *y its denial of the motion for e7clusion, the probate court in effect acted in utter disre+ard of the presumption of conclusiveness of title in favor of private respondents. Certainly, the probate court throu+h such bra<en act trans+ressed the clear provisions of law and infrin+ed settled Aurisprudence on this matter. #oreover, petitioner ur+es that not only the properties of private respondent corporations are properly part of the decedentVs estate but also the private respondent corporations themselves. To rivet such flimsy contention, petitioner cited that the late "astor Y. ;im durin+ his lifetime, or+ani<ed and wholly-owned the five corporations, which are the private respondents in the instant case.?$D@ "etitioner thus attached as nne7es 010?$(@ and 0F0?$%@ of the petition for review affidavits e7ecuted by Teresa ;im and ;ani Cenceslao which amon+ others, contained averments that the incorporators of Uniwide 6istributin+, !nc. included on the list had no actual participation in the or+ani<ation and incorporation of the said corporation. The affiants added that the persons whose names appeared on the articles of incorporation of Uniwide 6istributin+, !nc., as incorporators thereof, are mere dummies since they have not actually contributed any amount to the capital stock of the corporation and have been merely asked by the late "astor Y. ;im to affi7 their respective si+natures thereon. !t is settled that a corporation is clothed with personality separate and distinct from that of the persons composin+ it. !t may not +enerally be held liable for that of the persons composin+ it. !t may not be held liable for the personal indebtedness of its stockholders or those of the entities connected with it.?$-@ >udimentary is the rule that a corporation is invested by law with a personality distinct and separate from its stockholders or members. !n the same vein, a corporation by le+al fiction and convenience is an entity shielded by a protective mantle and imbued by law with a character alien to the persons comprisin+ it. Nonetheless, the shield is not at all times invincible. Thus, in &I# ! P+ILIPPIN' IN!'#NA!I"NAL BAN, vs. C"%#! "& APP'AL ?$'@, Ce enunciated/ 07 7 7 Chen the fiction is ur+ed as a means of perpetratin+ a fraud or an ille+al act or as a vehicle for the evasion of an e7istin+ obli+ation, the circumvention of statutes, the achievement or perfection of a monopoly or +enerally the perpetration of knavery or crime, 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 a++re+ation of individuals. 7 7 70 "iercin+ the veil of corporate entity re4uires the court to see throu+h the protective shroud which e7empts its stockholders from liabilities that ordinarily, they could be subAect to, or distin+uishes one corporation from a seemin+ly separate one, were it not for the e7istin+ corporate fiction.?5)@ The corporate mask may be lifted and the corporate veil may be pierced when a corporation is Aust but the alter e+o of a person or of another corporation. Chere bad+es of fraud e7ist, where public convenience is defeated: where a wron+ is sou+ht to be Austified thereby, the corporate fiction or the notion of le+al entity should come to nau+ht.?5&@ 1urther, the test in determinin+ the applicability of the doctrine of piercin+ the veil of corporate fiction is as

follows/ &3 Control, not mere maAority 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 e7istence of its own: 2$3 Such control must have been used by the defendant to commit fraud or wron+, to perpetuate the violation of a statutory or other positive le+al duty, or dishonest and unAust act in contravention of plaintiffs le+al ri+ht: and 253 The aforesaid control and breach of duty must pro7imately cause the inAury or unAust loss complained of. The absence of any of these elements prevent 0piercin+ the corporate veil0.?5$@ #ere ownership by a sin+le stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for disre+ardin+ the fiction of separate corporate personalities. ?55@ #oreover, to disre+ard the separate Auridical personality of a corporation, the wron+-doin+ must be clearly and convincin+ly established. !t cannot be presumed.?5.@ Frantin+ arguendo that the >e+ional Trial Court in this case was not merely actin+ in a limited capacity as a probate court, petitioner nonetheless failed to adduce competent evidence that would have Austified the court to impale the veil of corporate fiction. Truly, the reliance reposed by petitioner on the affidavits e7ecuted by Teresa ;im and ;ani Cenceslao is unavailin+ considerin+ that the aforementioned documents possess no wei+hty probative value pursuant to the hearsay rule. *esides it is imperative for us to stress that such affidavits are inadmissible in evidence inasmuch as the affiants were not at all presented durin+ the course of the proceedin+s in the lower court. To put it differently, for this Court to uphold the admissibility of said documents would be to rele+ate from 9ur duty to apply such basic rule of evidence in a manner consistent with the law and Aurisprudence. 9ur pronouncement in P'"PL' BAN, AN* !#% ! C"MPAN) vs. L'"NI*A ?5D@ finds pertinence/ 0 ffidavits are classified as hearsay evidence since they are not +enerally prepared by the affiant but by another who uses his own lan+ua+e in writin+ the affiantVs statements, which may thus be either omitted or misunderstood by the one writin+ them. #oreover, the adverse party is deprived of the opportunity to crosse7amine the affiants. 1or this reason, affidavits are +enerally reAected for bein+ hearsay, unless the affiant themselves are placed on the witness stand to testify thereon.0 s to the order?5(@ of the lower court, dated &D September &''D, the Court of ppeals correctly observed that the >e+ional Trial Court, *ranch '5 acted without Aurisdiction in issuin+ said order: The probate court had no authority to demand the production of bank accounts in the name of the private respondent corporations. ;HEREFORE, in view of the fore+oin+ dis4uisitions, the instant petition is hereby 6!S#!SSE6 for lack of merit and the decision of the Court of ppeals which nullified and set aside the orders issued by the >e+ional Trial Court, *ranch '5, actin+ as a probate court, dated ). =uly &''D and &$ September &''D is 11!>#E6.

G.R. No. L-13119

SeB2ember 22, 1959

RI)ARDO TANTONG)O, vs. !AISAHAN NG -GA -ANGGAGA;A SA LA )A- AN +!!-, AND )IR This is a petition for certiorari and prohibition with prayer for issuance of a writ of preliminary inAunction to prohibit respondent Court of !ndustrial >elations from proceedin+ with the hearin+ of the contempt proceedin+s for which petitioner >icardo Tanton+co was cited to appear the present his evidence. The contempt proceedin+s which petitioner seeks to stop are based on the order of the Court of !ndustrial >elations, dated September 5), &'D%, which reads as follows/ !t appearin+ that the 9rder of this Court, in the above-entitled case, dated 1ebruary &-, &'D% 2folios &5.&((3, has become final and e7ecutory and the respondents have failed to comply with the same, the said respondents, namely, the ;a Campana Starch and Coffee 1actory or its mana+er or the person who has char+e of the mana+ement, and the administrator of the Estate of >amon Tanton+co are hereby ordered to comply with said order, within five days from receipt hereof, particularly the followin+, to wit/ 2a3 To reinstate the persons named in the said 9rder of 1ebruary &-, &'D%: 2%3 To deposit the amount of "(D,D5..)& with this Court. Cith respect to possible back wa+es from u+ust $-, &'D% as mentioned in the petition for contempt of u+ust 5), &'D%, the same shall first be determined. 1ailure to comply with this 9rder shall be directly dealt with accordin+ly. !t would appear that petitioner >icardo Tanton+co failed to comply with said order and so, as already stated, he was cited to appear and to adduce evidence on his behalf to show why he should not be punished for indirect contempt. The facts in this case may be briefly narrated thus/ Sometime in =une, &'D&, members of the Uaisahan n+ m+a #an++a+awa sa ;a Campana, a labor union to which were affiliated workers in the ;a Campana Starch 1actory and ;a Campana Coffee 1actory, two separate entities but under the one mana+ement, presented demands for hi+her wa+es, and more privile+es and benefits in connection with their work. Chen the mana+ement failed and refused to +rant the demands, the 6epartment of ;abor intervened: but failin+ to settle the controversy, it certified the dispute to the Court of !ndustrial >elations on =uly &%, &'D&, where it was docketed as Case No. D-.TG. 9n the theory that the laborers presentin+ the demands were only the ones workin+ in the coffee factory, said company filed throu+h the mana+ement a motion to dismiss claimin+ that inasmuch as there were only &. of them in said factory, the Court of !ndustrial >elations had no Aurisdiction to entertain and decide the case. The motion was denied by the Court of !ndustrial >elations, which said/ . . . There was only mana+ement for the business of +aw+aw and coffee with whom the laborers are dealin+ re+ardin+ their work. ,ence, the filin+ of action a+ainst the ;a Campana Starch and Coffee 1actory is proper and Austified.-J0phKl(nLt The order of denial was appealed to this Tribunal throu+h certiorari under F.>. No. ;-D(%%. !n disposin+ of the case, we held/ s to the first +round, petitioners obviously do not 4uestion the fact that the number of employees of the ;a Campana Fau+au "ackin+ involved in the case is more than the Aurisdictional number 25&3 re4uired by law, but they contend that the industrial court has no Aurisdiction to try case a+ainst ;a Campana Coffee 1actory Co. !nc. because the latter has alle+edly only &. laborers and only five of these are members of respondent Uaisahan. This contention loses force when it is noted that, as found by the industrial court M and this findin+ is conclusive upon us M ;a Campana Fau+au "ackin+ and ;a Campana Coffee 1actory Co. !nc., are operatin+ under one sin+le mana+ement, that is, one business thou+h with two trade names. True, the coffee factory is a corporation , and, by le+al fiction, an entity e7istin+ separate and part from the persons composin+ it, that is, Tan Ton+ and his family. *ut is settled this fiction of law, which has been introduced as a matter of convenience and to subserve the ends of Austice cannot be invoke to further an end subversive of that purpose. ... The attempt to make the two factories appear as two separate business, when in reality, they are but one is but a device to defeat the ends of the law 2the ct +overnin+ capital and labor relations3 and should not be permitted to prevail. 2;a Campana Coffee 1actory, et al., vs. Uaisahan n+ m+a #an++a+awa, etc. et al., '5 "hil., &(): .' 9ff. Fa<., ?(@ $5)).3 Upon the return of the case to the Court of !ndustrial >elations, the latter proceeded with the hearin+. !n the

meantime incidental cases involvin+ the same parties came up and were filed before the Court of !ndustrial >elations in the followin+ cases/-J0phKl(nLt Case No. D-.-G2&3 M petition for contempt a+ainst the ;a Campana Starch and Coffee 1actory for havin+ employed $& new laborers in violation of the order of =uly $&, &'D&, filed on =uly $D, &'D&: Case No. D-.-G2$3 M petition of ;a Campana for authority for authority to dismiss ;oreto *ernabe, filed on =uly $D, &'(D&: Case No. D-.-G253 M petition of Union to reinstate *onifacio Calderon with backpay, filed on &'D&: u+ust 5,

Case No. D-.-G2D3 M petition of Union to reinstate #arcelo Estrada and E7e4uiel >api< with back pay and to punish officials of the company for contempt, filed on 1ebruary &5, &'D$: and Case No. D-.-G2(3 M petition of union for reinstatement of !bardola<a and seven other member-laborers and to punish the officers of the company for contempt, filed on =uly &D, &'D5. These five cases were heard Aointly. !n the meantime >amon Tanton+co supposed to be the owner and mana+er of the ;a Campana Starch 1actory and the person in char+e of the ;a Campana Coffee 1actory died on #ay &(, &'D(. 9n motion of the labor union, the Court of !ndustrial >elations order the inclusion as party respondent of the administrator of the estate of >amon Tanton+co who was >icardo Tanton+co. >icardo Tanton+co, as administrator, under a special appearance filed a motion to dismiss all the cases includin+ the main case, that is to say, Cases No. D-.-2G3 to D-.-G2(3, on the +round that said cases involved claims for sums of money and conse4uently should be filed before the probate court havin+ Aurisdiction over the estate, pursuant to the provisions of >ule 5, Section $&, and >ule --, Section & of the >ules of Court. 9n u+ust $5, &'D(, the Court of !ndustrial >elations denied the motion to dismiss and proceed to hear the incidental cases a+ainst the ;a Campana entities. 9n =une &$, &'D(, a partial decision was rendered in the main case No. D-.-G, which partial decision was elevated to us and is still pendin+ appeal. 9n 1ebruary &-, &'D%, the Court of !ndustrial >elations issued an order in incidental Cases No. D-.-G2&3, G2$3, G2D3 and G2(3, directin+ the 0mana+ement of the respondent company and or the administrator of the Estate of >amon Tanton+co0, to reinstate the dismissed laborers mentioned therein with back wa+es. This order of 1ebruary &-, &'D%, as well as the order directin+ the inclusion of the administrator of the estate of >amon Tanton+co as additional respondent in the incidental cases, and the order denyin+ the petition of the administrator to dismiss said incidental cases were appealed to this tribunal thou+h certiorari. The appeal, however, was summarily dismissed by this Court in its resolution of =une &$, &'D%, as follows/ This Court, deliberatin+ upon the alle+ations of the petition filed in case l-&$5DD 2;a Campana Starch Coffee 1actory et al. vs. Uaisahan n+ #+a #an++a+awa sa la Campana, UU#, et al3 for review, on certiorari of the decision of the Court of !ndustrial >elations referred to therein, and findin+ that there is no merit in the petition, >ES9;GE T9 6!S#!SS the same. The C!> order of 1ebruary &-, ,&'D%, in the incidental cases Nos. D-.-G to G2(3, havin+ become final and e7ecutory , the laborers involved reported for work on u+ust $-, &'D%, but they were not admitted by the mana+ement. Conse4uently, the union filed a petition dated u+ust 5), &'D%, to hold respondents in said cases for contempt. fter hearin+ the C!> issued the order of September 5), &'D%, subAect of this petition, orderin+ 0the ;a Campana Starch and Coffee 1actory or its mana+er or the person who has char+e of its mana+ement and the administrator of the estate of >amon Tanton+co0 to 0reinstate the persons named in the order of 1ebruary &-, &'D%0 and 0to deposit the amount of "(D,D5..)&.0 1or refusal or failure to comply with said order, petitioner >icardo Tanton+co was re4uired to appear before the attorney of the C!> in contempt proceedin+s. "etitioner now seeks to prohibit the C!> from proceedin+ with the trial for contempt and to enAoin respondent C!> from enforcin+ its order of September 5), &'D%. "etitioner contends that upon the death of >amon Tanton+co, the claims of the laborers should have been dismissed and that said claims should have been filed with the probate court havin+ Aurisdiction over the administration proceedin+s of the estate of >amon Tanton+co, pursuant to the provisions of >ule 5, Section $& of the >ules of Court and that the failure to file claims with the administrator forever barred said claims as provided in >ule -%, Section D of the >ules of Court, especially after the assets of the estate had been distributed amon+ the heirs, and petitioner had ceased to be the administrator of the estate. s already stated this same 4uestion was raised by petitioner in F.>. No. ;-&$5DD, entitled 0;a Campana Starch and Coffee 1actory and >icardo Tanton+co, etc. vs. Uaisahan n+ m+a #an++a+awa sa ;a Campana 2UU#3,0 which, as already stated, was summarily dismissed by this Court in a resolution dated =une &$, &'D%.

Conse4uently, said 4uestion may not a+ain be raised in the present case. 1urthermore, it may be recalled that both in the main case in the incidental cases No. D-.-G to D-.-G2(3, >amon Tanton+co was never a party. The party there was the ;a Campana Starch and Coffee 1actory by which name it was sou+ht to desi+nate the two entities ;a Campana Starch "ackin+ and the ;a Campana Coffee 1actory. Naturally, the claims contained in said cases were not the claims contemplated by law to be submitted before the administrator. !n other words the death of >amon Tanton+co did not deprive the C!> of its Aurisdiction over the cases aforementioned. #oreover, the money claims of the laborers were merely incidental to their demands for reinstatement for havin+ been unAustly dismissed, and for better workin+ conditions. "etitioner, however, contends that in F.>. No. ;-D(%%, we 0pierced the veil of corporate e7istence0, and held that the ;a Campana Starch and Coffee 1actory and its owner, >amon Tanton+co, were one: so that with the death of >amon, the ;a Campana entities ceased to e7ist, resultin+ in the loss of Aurisdiction of the C!> to enforce its order a+ainst said entities. The reason we applied the so-called 0piercin+ the veil of corporate e7istence0 in F.>. No. ;-D(%% was to avoid the technicality therein advanced in order to defeat the Aurisdiction of the C!>. Ce there found that althou+h there were ostensibly two separate companies or entities, they were mana+ed by the same person or persons and the workers in both were used interchan+eably so that in order to determine whether or not the C!> had Aurisdiction, the number of workers in both entitles, not in only one, was to be considered. ,owever, we still believe that althou+h the family of >amon Tanton+co was practically the owner of both the coffee factory and the starch factory, nevertheless these entities are separate from the personality of >amon. The coffee factory is a stock corporation and the shares are owned not only by >amon but also by others, such as petitioner >icardo who not only is a stockholder and director and treasurer but also the mana+ement of the same 1urthermore, petitioner is now estopped from claimin+ that the two entities in 4uestion and >amon are one. Thus in nne7 5-C!> 2par. & thereof3 which is a complaint for inAunction filed by ;a Campana 1ood "roducts, et al and ;a Campana Starch "ackin+ a+ainst the consolidated ;abor 9r+ani<ation of the "hilippines, in civil Case No. "-$D.-$ in the Court of 1irst !nstance of >i<al, petitioner admitted the e7istence and operation of said entities: in nne7 .MC!> where petitioner appeared as Feneral #ana+er representin+ the two entities in its a+reement with the ;a Campana Corkers Union to resolve the dispute between the two entities and the laborers in case Nos. &)%$-G and &5%&-U;", the e7istence of the two entities appears to have been admitted: and in nne7 D- -C!>, an answer to the complaint of ;a Campana Corkers Union in case No. &.%&-U;" 2 nne7 D-C!>3, petitioner admitted the alle+ation that said two factories were in e7istence and doin+ business with petitioner as mana+er of the same. !n relation to the order of the C!> re4uirin+ petitioner to appear in the contempt proceedin+s instituted a+ainst him, petitioner contends that after he ceased to be the administrator of the estate of >amon Tanton+co, he may not now be compelled to comply with the order of the court. !n answer, it is enou+h to bear in mind the Aurisdiction and authority of the C!> as to compliance with and violations of its orders under section (, Commonwealth ct No. &.5, which we 4uote below/ . . . The Court or any =ud+e thereof shall have furthermore, all the inherent powers of a court of Austice provided in para+raph D of >ule &$. of the Supreme Court, as well as the power to punish direct and indirect contempt as provided in >ule (. of the same Court, under the same procedure and penalties provided therein. ny violation of any order, award, or decision of the Court of !ndustrial >elations shall, after such order, award or decision has become final, conclusive, and e7ecutory, constitute contempt of court/ . . . !n case the employer 2or landlord3 committin+ any such violation or contempt is an association or corporation, the mana+er or the person who has the char+e of the mana+ement of the business of the association or corporation and the officers of directors thereof who have ordered or authori<ed the violation of contempt shall be liable. . . . !n conclusion, we find and hold that the ;a Campana Starch and 1ood "roducts Company which stands for the ;a Campana Starch and Coffee 1actory are entities distinct from the personality of >amon Tanton+co: that after the death of >amon these two entities continued to e7ist and to operate under the mana+ement of petitioner and that conse4uently he is the proper person and official to which the orders of the C!> are addressed and who is in duty bound to comply with the same. Ce further find that the C!> acted with in its Aurisdiction in issuin+ its order of September 5), &'D% and in re4uirin+ petitioner to appear to +ive his evidence if any in relation with the contempt proceedin+s instituted a+ainst him.-J0phKl(nLt !n view of the fore+oin+, the petition for certiorari is .hereby denied and the writ of preliminary inAunction dissolved, with costs.

G.R. No. 93394 -$r#= 3, 1994 TRADERS RO&AL 'AN!, vs. )A, FILRITERS G(ARANT& ASS(RAN)E )OR ORATION $7" )ENTRAL 'AN! oA 2=e HILI INES, ssailed in this "etition for >eview on Certiorari is the 6ecision of the respondent Court of ppeals dated =anuary $', &''), 1 affirmin+ the nullity of the transfer of Central *ank Certificate of !ndebtedness 2C*C!3 No. 6-'&, 2 with a face value of "D)),))).)), from the "hilippine Underwriters 1inance Corporation 2"hilfinance3 to the petitioner Trader8s >oyal *ank 2T>*3, under a >epurchase +reement 3 dated 1ebruary ., &'-&, and a 6etached ssi+nment 4 dated pril $%, &'-&. 6ocketed as Civil Case No. -5-&%'(( in the >e+ional Trial Court of #anila, *ranch 5$, the action was ori+inally filed as a "etition for#andamus 5 under >ule (D of the >ules of Court, to compel the Central *ank of the "hilippines to re+ister the transfer of the subAect C*C! to petitioner Traders >oyal *ank 2T>*3. !n the said petition, T>* stated that/ 5. 9n November $%, &'%', 1ilriters Fuaranty ssurance Corporation 21ilriters3 e7ecuted a 06etached ssi+nment0 . . ., whereby 1ilriters, as re+istered owner, sold, transferred, assi+ned and delivered unto "hilippine Underwriters 1inance Corporation 2"hilfinance3 all its ri+hts and title to Central *ank Certificates of !ndebtedness of "ES9S/ 1!GE ,UN6>E6 T,9US N6 2"D)),)))3 and havin+ an a++re+ate value of "ES9S/ T,>EE #!;;!9N 1!GE ,UN6>E6 T,9US N6 2"5,D)),))).))3: .. The aforesaid 6etached ssi+nment 2 nne7 0 03 contains an e7press authori<ation e7ecuted by the transferor intended to complete the assi+nment throu+h the re+istration of the transfer in the name of "hil1inance, which authori<ation is specifically phrased as follows/ 821ilriters3 hereby irrevocably authori<ed the said issuer 2Central *ank3 to transfer the said bondHcertificates on the books of its fiscal a+ent: D. 9n 1ebruary ., &'-&, petitioner entered into a >epurchase +reement with "hil1inance . . ., whereby, for and in consideration of the sum of "ES9S/ 1!GE ,UN6>E6 T,9US N6 2"D)),))).))3, "hil1inance sold, transferred and delivered to petitioner C*C! .-year, -th series, Serial No. 6-'& with a face value of "D)),))).)) . . ., which C*C! was amon+ those previously ac4uired by "hil1inance from 1ilriters as averred in para+raph 5 of the "etition: (. "ursuant to the aforesaid >epurchase +reement 2 nne7 0*03, "hilfinance a+reed to repurchase C*C! Serial No. 6-'& 2 nne7 0C03, at the stipulated price of "ES9S/ 1!GE ,UN6>E6 N!NETEEN T,9US N6 T,>EE ,UN6>E6 S!NTY-9NE J &&H&)) 2"D&',5(&.&&3 on pril $%, &'-&: %. "hil1inance failed to repurchase the C*C! on the a+reed date of maturity, checks it issued in favor of petitioner were dishonored for insufficient funds: pril $%, &'-&, when the

-. 9win+ to the default of "hil1inance, it e7ecuted a 6etached ssi+nment in favor of the "etitioner to enable the latter to have its title completed and re+istered in the books of the respondent. nd by means of said 6etachment, "hilfinance transferred and assi+ned all, its ri+hts and title in the said C*C! 2 nne7 0C03 to petitioner and, furthermore, it did thereby 0irrevocably authori<e the said issuer 2respondent herein3 to transfer the said bondHcertificate on the books of its fiscal a+ent.0 . . . '. "etitioner presented the C*C! 2 nne7 0C03, to+ether with the two 2$3 aforementioned 6etached ssi+nments 2 nne7es 0*0 and 0603, to the Securities Servicin+ 6epartment of the respondent, and re4uested the latter to effect the transfer of the C*C! on its books and to issue a new certificate in the name of petitioner as absolute owner thereof: &). >espondent failed and refused to re+ister the transfer as re4uested, and continues to do so notwithstandin+ petitioner8s valid and Aust title over the same and despite repeated demands in writin+, the latest of which is hereto attached as nne7 0E0 and made an inte+ral part hereof: &&. The e7press provisions +overnin+ the transfer of the C*C! were substantially complied with the petitioner8s re4uest for re+istration, to wit/ 0No transfer thereof shall be valid unless made at said office 2where the Certificate has been re+istered3 by the re+istered owner hereof, in person or by his attorney duly authori<ed in writin+, and similarly noted hereon, and upon payment of a nominal transfer fee which may be re4uired, a new Certificate shall be issued to the transferee of the re+istered holder thereof.0 and, without a doubt, the 6etached ssi+nments presented to respondent were sufficient authori<ations in writin+ e7ecuted by the re+istered owner, 1ilriters, and its transferee, "hil1inance, as re4uired by the

above-4uoted provision: &$. Upon such compliance with the aforesaid re4uirements, the ministerial duties of re+isterin+ a transfer of ownership over the C*C! and issuin+ a new certificate to the transferee devolves upon the respondent: Upon these assertions, T>* prayed for the re+istration by the Central *ank of the subAect C*C! in its name. 9n 6ecember ., &'-., the >e+ional Trial Court the case took co+ni<ance of the defendant Central *ank of the "hilippines8 #otion for dmission of mended nswer with Counter Claim for !nterpleader 6 thereby callin+ to fore the respondent 1ilriters Fuaranty ssurance Corporation 21ilriters3, the re+istered owner of the subAect C*C! as respondent. 1or its part, 1ilriters interAected as Special 6efenses the followin+/ &&. >espondent is the re+istered owner of C*C! No. -'&: &$. The C*C! constitutes part of the reserve investment a+ainst liabilities re4uired of respondent as an insurance company under the !nsurance Code: &5. Cithout any consideration or benefit whatsoever to 1ilriters, in violation of law and the trust fund doctrine and to the preAudice of policyholders and to all who have present or future claim a+ainst policies issued by 1ilriters, lfredo *anaria, then Senior Gice-"resident-Treasury of 1ilriters, without any board resolution, knowled+e or consent of the board of directors of 1ilriters, and without any clearance or authori<ation from the !nsurance Commissioner, e7ecuted a detached assi+nment purportedly assi+nin+ C*C! No. -'& to "hilfinance: 777 777 777 &.. Subse4uently, lberto 1abella, Senior Gice-"resident-Comptroller are "ilar =acobe, Gice-"residentTreasury of 1ilriters 2both of whom were holdin+ the same positions in "hilfinance3, without any consideration or benefit redoundin+ to 1ilriters and to the +rave preAudice of 1ilriters, its policy holders and all who have present or future claims a+ainst its policies, e7ecuted similar detached assi+nment forms transferrin+ the C*C! to plaintiff: 777 777 777 &D. The detached assi+nment is patently void and inoperative because the assi+nment is without the knowled+e and consent of directors of 1ilriters, and not duly authori<ed in writin+ by the *oard, as re4uirin+ by rticle G, Section 5 of C* Circular No. %(': &(. The assi+nment of the C*C! to "hilfinance is a personal act of lfredo *anaria and not the corporate act of 1ilriters and such null and void: a3 The assi+nment was e7ecuted without consideration and for that reason, the assi+nment is void from the be+innin+ 2 rticle &.)', Civil Code3: b3 The assi+nment was e7ecuted without any knowled+e and consent of the board of directors of 1ilriters: c3 The C*C! constitutes reserve investment of 1ilriters a+ainst liabilities, which is a re4uirement under the !nsurance Code for its e7istence as an insurance company and the pursuit of its business operations. The assi+nment of the C*C! is ille+al act in the sense of malum in se or malum prohi%itum, for anyone to make, either as corporate or personal act: d3 The transfer of dimunition of reserve investments of 1ilriters is e7pressly prohibited by law, is immoral and a+ainst public policy: e3 The assi+nment of the C*C! has resulted in the capital impairment and in the solvency deficiency of 1ilriters 2and has in fact helped in placin+ 1ilriters under conservatorship3, an inevitable result known to the officer who e7ecuted assi+nment. &%. "laintiff had acted in bad faith and with knowled+e of the ille+ality and invalidity of the assi+nment. a3 The C*C! No. -'& is not a ne+otiable instrument and as a certificate of indebtedness is not payable to bearer but is a re+istered in the name of 1ilriters: b3 The provision on transfer of the C*C!s provides that the Central *ank shall treat the registered o0ner as the a%solute o0ner and that the value of the re+istered certificates shall be payable only to the re+istered owner: a sufficient notice to plaintiff that the assi+nments do not +ive them the re+istered owner8s ri+ht as absolute owner of the C*C!8s:

c3 C* Circular %(', Series of &'-) 2>ules and >e+ulations Fovernin+ C*C!s3 provides that the re+istered certificates are payable only to the re+istered owner 2 rticle !!, Section &3. &-. "laintiff knew full well that the assi+nment by "hilfinance of C*C! No. -'& by 1ilriters is not a re+ular transaction made in the usual of ordinary course of business: a3 The C*C! constitutes part of the reserve investments of 1ilriters a+ainst liabilities re4uires by the !nsurance Code and its assi+nment or transfer is e7pressly prohibited by law. There was no attempt to +et any clearance or authori<ation from the !nsurance Commissioner: b3 The assi+nment by 1ilriters of the C*C! is clearly not a transaction in the usual or re+ular course of its business: c3 The C*C! involved substantial amount and its assi+nment clearly constitutes disposition of 0all or substantially all0 of the assets of 1ilriters, which re4uires the affirmative action of the stockholders 2Section .), Corporation ?sic@ Code. 4 !n its 6ecision 8 dated pril $', &'--, the >e+ional Trial Court of #anila, *ranch NNN!!! found the assi+nment of C*C! No. 6-'& in favor of "hilfinance, and the subse4uent assi+nment of the same C*C! by "hilfinance in favor of Traders >oyal *ank null and void and of no force and effect. The dispositive portion of the decision reads/ CC9>6!NF;Y, Aud+ment is hereby rendered in favor of the respondent 1ilriters Fuaranty Corporation and a+ainst the plaintiff Traders >oyal *ank/ ssurance

2a3 6eclarin+ the assi+nment of C*C! No. -'& in favor of "hil1inance, and the subse4uent assi+nment of C*C! by "hil1inance in favor of the plaintiff Traders >oyal *ank as null and void and of no force and effect: 2b3 9rderin+ the respondent Central *ank of the "hilippines to disre+ard the said assi+nment and to pay the value of the proceeds of the C*C! No. 6-'& to the 1ilriters Fuaranty ssurance Corporation: 2c3 9rderin+ the plaintiff Traders >oyal *ank to pay respondent 1ilriters Fuaranty ssurance Corp. The sum of "&),))) as attorney8s fees: and 2d3 to pay the costs. S9 9>6E>E6. 9 The petitioner assailed the decision of the trial court in the Court of ppeals failed. The findin+s of the fact of the said court are hereby reproduced/
15

, but their appeals likewise

The records reveal that defendant 1ilriters is the re+istered owner of C*C! No. 6-'&. Under a deed of assi+nment dated November $%, &'%&, 1ilriters transferred C*C! No. 6-'& to "hilippine Underwriters 1inance Corporation 2"hilfinance3. Subse4uently, "hilfinance transferred C*C! No. 6-'&, which was still re+istered in the name of 1ilriters, to appellant Traders >oyal *ank 2T>*3. The transfer was made under a repurchase a+reement dated 1ebruary ., &'-&, +rantin+ "hilfinance the ri+ht to repurchase the instrument on or before pril $%, &'-&. Chen "hilfinance failed to buy back the note on maturity date, it e7ecuted a deed of assi+nment, dated pril $%, &'-&, conveyin+ to appellant T>* all its ri+ht and the title to C*C! No. 6-'&. rmed with the deed of assi+nment, T>* then sou+ht the transfer and re+istration of C*C! No. 6-'& in its name before the Security and Servicin+ 6epartment of the Central *ank 2C*3. Central *ank, however, refused to effect the transfer and re+istration in view of an adverse claim filed by defendant 1ilriters. ;eft with no other recourse, T>* filed a special civil action for mandamus a+ainst the Central *ank in the >e+ional Trial Court of #anila. The suit, however, was subse4uently treated by the lower court as a case of interpleader when C* prayed in its amended answer that 1ilriters be impleaded as a respondent and the court adAud+e which of them is entitled to the ownership of C*C! No. 6-'&. 1ailin+ to +et a favorable Aud+ment. T>* now comes to this Court on appeal. 11 !n the appellate court, petitioner ar+ued that the subAect C*C! was a ne+otiable instrument, and havin+ ac4uired the said certificate from "hilfinance as a holder in due course, its possession of the same is thus free fro any defect of title of prior parties and from any defense available to prior parties amon+ themselves, and it may thus, enforce payment of the instrument for the full amount thereof a+ainst all parties liable thereon. 12 !n i+norin+ said ar+ument, the appellate court that the C*C! is not a ne+otiable instrument, since the instrument clearly stated that it was payable to 1ilriters, the re+istered owner, whose name was inscribed

thereon, and that the certificate lacked the words of ne+otiability which serve as an e7pression of consent that the instrument may be transferred by ne+otiation. 9bviously, the assi+nment of the certificate from 1ilriters to "hilfinance was fictitious, havin+ made without consideration, and did not conform to Central *ank Circular No. %(', series of &'-), better known as the 0>ules and >e+ulations Fovernin+ Central *ank Certificates of !ndebtedness0, which provided that any 0assi+nment of re+istered certificates shall not be valid unless made . . . by the re+istered owner thereof in person or by his representative duly authori<ed in writin+.0 "etitioner8s claimed interest has no basis, since it was derived from "hilfinance whose interest was ine7istent, havin+ ac4uired the certificate throu+h simulation. Chat happened was "hilfinance merely borrowed C*C! No. 6-'& from 1ilriters, a sister corporation, to +uarantee its financin+ operations. Said the Court/ !n the case at bar, lfredo 9. *anaria, who si+ned the deed of assi+nment purportedly for and on behalf of 1ilriters, did not have the necessary written authori<ation from the *oard of 6irectors of 1ilriters to act for the latter. 1or lack of such authority, the assi+nment did not therefore bind 1ilriters and violated as the same time Central *ank Circular No. %(' which has the force and effect of a law, resultin+ in the nullity of the transfer 2"eople v. Iue "o ;ay, '. "hil. (.): 5# "hilippines, !nc. vs. Commissioner of !nternal >evenue, &(D SC> %%-3. !n sum, "hilfinance ac4uired no title or ri+hts under C*C! No. 6-'& which it could assi+n or transfer to Traders >oyal *ank and which the latter can re+ister with the Central *ank. C,E>E19>E, the Aud+ment appealed from is 11!>#E6, with costs a+ainst plaintiff-appellant. S9 9>6E>E6. 13 "etitioner8s present position rests solely on the ar+ument that "hilfinance owns ')P of 1ilriters e4uity and the two corporations have identical corporate officers, thus demandin+ the application of the doctrine or piercin+ the veil of corporate fiction, as to +ive validity to the transfer of the C*C! from re+istered owner to petitioner T>*. 14 This renders the payment by T>* to "hilfinance of C*C!, as actual payment to 1ilriters. Thus, there is no merit to the lower court8s rulin+ that the transfer of the C*C! from 1ilriters to "hilfinance was null and void for lack of consideration. dmittedly, the subAect C*C! is not a ne+otiable instrument in the absence of words of ne+otiability within the meanin+ of the ne+otiable instruments law 2 ct $)5&3. The pertinent portions of the subAect C*C! read/ 777 777 777 The Central *ank of the "hilippines 2the *ank3 for value received, hereby promises to pay bearer, of if this Certificate of indebtedness be re+istered, to 1!;>!TE>S FU > NTY SSU> NCE C9>"9> T!9N, the re+istered owner hereof, the principal sum of 1!GE ,UN6>E6 T,9US N6 "ES9S. 777 777 777 "roperly understood, a certificate of indebtedness pertains to certificates for the creation and maintenance of a permanent improvement revolvin+ fund, is similar to a 0bond,0 2-$ #inn. $)$3. *ein+ e4uivalent to a bond, it is properly understood as acknowled+ment of an obli+ation to pay a fi7ed sum of money. !t is usually used for the purpose of lon+ term loans. The appellate court ruled that the subAect C*C! is not a ne+otiable instrument, statin+ that/ s worded, the instrument provides a promise 0to pay 1ilriters Fuaranty ssurance Corporation, the re+istered owner hereof.0 Gery clearly, the instrument is payable only to 1ilriters, the re+istered owner, whose name is inscribed thereon. !t lacks the words of ne+otiability which should have served as an e7pression of consent that the instrument may be transferred by ne+otiation. 15 readin+ of the subAect C*C! indicates that the same is payable to 1!;>!TE>S FU > NTY SSU> NCE C9>"9> T!9N, and to no one else, thus, discountin+ the petitioner8s submission that the same is a ne+otiable instrument, and that it is a holder in due course of the certificate. The lan+ua+e of ne+otiability which characteri<e a ne+otiable paper as a credit instrument is its freedom to circulate as a substitute for money. ,ence, freedom of ne+otiability is the touchtone relatin+ to the protection of holders in due course, and the freedom of ne+otiability is the foundation for the protection which the law throws around a holder in due course 2&& m. =ur. $d, 5$3. This freedom in ne+otiability is

totally absent in a certificate indebtedness as it merely to pay a sum of money to a specified person or entity for a period of time. s held in Caltex 9Philippines:, !nc. v. Court of $ppeals, 16/ The accepted rule is that the ne+otiability or non-ne+otiability of an instrument is determined from the writin+, that is, from the face of the instrument itself. !n the construction of a bill or note, the intention of the parties is to control, if it can be le+ally ascertained. Chile the writin+ may be read in the li+ht of surroundin+ circumstance in order to more perfectly understand the intent and meanin+ of the parties, yet as they have constituted the writin+ to be the only outward and visible e7pression of their meanin+, no other words are to be added to it or substituted in its stead. The duty of the court in such case is to ascertain, not what the parties may have secretly intended as contradistin+uished from what their words e7press, but what is the meanin+ of the words they have used. Chat the parties meant must be determined by what they said. Thus, the transfer of the instrument from "hilfinance to T>* was merely an assi+nment, and is not +overned by the ne+otiable instruments law. The pertinent 4uestion then is, was the transfer of the C*C! from 1ilriters to "hilfinance and subse4uently from "hilfinance to T>*, in accord with e7istin+ law, so as to entitle T>* to have the C*C! re+istered in its name with the Central *ankB The followin+ are the appellate court8s pronouncements on the matter/ Clearly shown in the record is the fact that "hilfinance8s title over C*C! No. 6-'& is defective since it ac4uired the instrument from 1ilriters fictitiously. lthou+h the deed of assi+nment stated that the transfer was for 0value received0, there was really no consideration involved. Chat happened was "hilfinance merely borrowed C*C! No. 6-'& from 1ilriters, a sister corporation. Thus, for lack of any consideration, the assi+nment made is a complete nullity. Chat is more, Ce find that the transfer made by 1ilriters to "hilfinance did not conform to Central *ank Circular No. %(', series of &'-), otherwise known as the 0>ules and >e+ulations Fovernin+ Central *ank Certificates of !ndebtedness0, under which the note was issued. "ublished in the 9fficial Fa<ette on November &', &'-), Section 5 thereof provides that any assi+nment of re+istered certificates shall not be valid unless made . . . by the re+istered owner thereof in person or by his representative duly authori<ed in writin+. !n the case at bar, lfredo 9. *anaria, who si+ned the deed of assi+nment purportedly for and on behalf of 1ilriters, did not have the necessary written authori<ation from the *oard of 6irectors of 1ilriters to act for the latter. 1or lack of such authority, the assi+nment did not therefore bind 1ilriters and violated at the same time Central *ank Circular No. %(' which has the force and effect of a law, resultin+ in the nullity of the transfer 2"eople vs. Iue "o ;ay, '. "hil. (.): 5# "hilippines, !nc. vs. Commissioner of !nternal >evenue, &(D SC> %%-3. !n sum, "hilfinance ac4uired no title or ri+hts under C*C! No. 6-'& which it could assi+n or transfer to Traders >oyal *ank and which the latter can re+ister with the Central *ank "etitioner now ar+ues that the transfer of the subAect C*C! to T>* must upheld, as the respondent 1ilriters and "hilfinance, thou+h separate corporate entities on paper, have used their corporate fiction to defraud T>* into purchasin+ the subAect C*C!, which purchase now is refused re+istration by the Central *ank. Says the petitioner: Since "hilfinance own about ')P of 1ilriters and the two companies have the same corporate officers, if the principle of piercin+ the veil of corporate entity were to be applied in this case, then T>*8s payment to "hilfinance for the C*C! purchased by it could Aust as well be considered a payment to 1ilriters, the re+istered owner of the C*C! as to bar the latter from claimin+, as it has, that it never received any payment for that C*C! sold and that said C*C! was sold without its authority. 777 777 777 Ce respectfully submit that, considerin+ that the Court of ppeals has held that the C*C! was merely borrowed by "hilfinance from 1ilriters, a sister corporation, to +uarantee its 2"hilfinance8s3 financin+ operations, if it were to be consistent therewith, on the issued raised by T>* that there was a piercin+ a veil of corporate entity, the Court of ppeals should have ruled that such veil of corporate entity was, in fact, pierced, and the payment by T>* to "hilfinance should be construed as payment to 1ilriters. 14 Ce disa+ree with "etitioner. "etitioner cannot put up the e7cuse of piercin+ the veil of corporate entity, as this merely an e4uitable

remedy, and may be awarded only in cases when the corporate fiction is used to defeat public convenience, Austify wron+, protect fraud or defend crime or where a corporation is a mere alter e+o or business conduit of a person. 18 "eiercin+ the veil of corporate entity re4uires the court to see throu+h the protective shroud which e7empts its stockholders from liabilities that ordinarily, they could be subAect to, or distin+uished one corporation from a seemin+ly separate one, were it not for the e7istin+ corporate fiction. *ut to do this, the court must be sure that the corporate fiction was misused, to such an e7tent that inAustice, fraud, or crime was committed upon another, disre+ardin+, thus, his, her, or its ri+hts. !t is the protection of the interests of innocent third persons dealin+ with the corporate entity which the law aims to protect by this doctrine. The corporate separateness between 1ilriters and "hilfinance remains, despite the petitioners insistence on the contrary. 1or one, other than the alle+ation that 1ilriters is ')P owned by "hilfinance, and the identity of one shall be maintained as to the other, there is nothin+ else which could lead the court under circumstance to disre+ard their corporate personalities. Thou+h it is true that when valid reasons e7ist, the le+al fiction that a corporation is an entity with a Auridical personality separate from its stockholders and from other corporations may be disre+arded, 19 in the absence of such +rounds, the +eneral rule must upheld. The fact that 1ilfinance owns maAority shares in 1ilriters is not by itself a +round to disre+ard the independent corporate status of 1ilriters. !n Ciddel M Co.,!nc. vs. Collector of !nternal Revenue, 25 the mere ownership by a sin+le stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for disre+ardin+ the fiction of separate corporate personalities. !n the case at bar, there is sufficient showin+ that the petitioner was not defrauded at all when it ac4uired the subAect certificate of indebtedness from "hilfinance. 9n its face the subAect certificates states that it is re+istered in the name of 1ilriters. This should have put the petitioner on notice, and prompted it to in4uire from 1ilriters as to "hilfinance8s title over the same or its authority to assi+n the certificate. s it is, there is no showin+ to the effect that petitioner had any dealin+s whatsoever with 1ilriters, nor did it make in4uiries as to the ownership of the certificate. The terms of the C*C! No. 6-'& contain a provision on its T> NS1E>. Thus/ T> NS1E>. This Certificate shall pass by delivery unless it is re+istered in the owner8s name at any office of the *ank or any a+ency duly authori<ed by the *ank, and such re+istration is noted hereon. fter such re+istration no transfer thereof shall be valid unless made at said office 2where the Certificates has been re+istered3 by the re+istered owner hereof, in person, or by his attorney, duly authori<ed in writin+ and similarly noted hereon and upon payment of a nominal transfer fee which may be re4uired, a new Certificate shall be issued to the transferee of the re+istered owner thereof. The bank or any a+ency duly authori<ed by the *ank may deem and treat the bearer of this Certificate, or if this Certificate is re+istered as herein authori<ed, the person in whose name the same is re+istered as the absolute owner of this Certificate, for the purpose of receivin+ payment hereof, or on account hereof, and for all other purpose whether or not this Certificate shall be overdue. This is notice to petitioner to secure from 1ilriters a written authori<ation for the transfer or to re4uire "hilfinance to submit such an authori<ation from 1ilriters. "etitioner knew that "hilfinance is not re+istered owner of the C*C! No. 6-'&. The fact that a non-owner was disposin+ of the re+istered C*C! owned by another entity was a +ood reason for petitioner to verify of in4uire as to the title "hilfinance to dispose to the C*C!. #oreover, C*C! No. 6-'& is +overned by C* Circular No. %(', series of &'') 21, known as the >ules and >e+ulations Fovernin+ Central *ank Certificates of !ndebtedness, Section 5, rticle G of which provides that/ Sec. 5. ssi+nment of >e+istered Certificates. M ssi+nment of re+istered certificates shall not be valid unless made at the office where the same have been issued and re+istered or at the Securities Servicin+ 6epartment, Central *ank of the "hilippines, and by the re+istered owner thereof, in person or by his representative, duly authori<ed in writin+. 1or this purpose, the transferee may be desi+nated as the representative of the re+istered owner. "etitioner, bein+ a commercial bank, cannot fei+n i+norance of Central *ank Circular %(', and its re4uirements. n entity which deals with corporate a+ents within circumstances showin+ that the a+ents are actin+ in e7cess of corporate authority, may not hold the corporation liable. 22 This is only fair, as everyone must, in the e7ercise of his ri+hts and in the performance of his duties, act with Austice, +ive

everyone his due, and observe honesty and +ood faith. 23 The transfer made by 1ilriters to "hilfinance did not conform to the said. Central *ank Circular, which for all intents, is considered part of the law. s found by the courts a quo, lfredo 9. *anaria, who had si+ned the deed of assi+nment from 1ilriters to "hilfinance, purportedly for and in favor of 1ilriters, did not have the necessary written authori<ation from the *oard of 6irectors of 1ilriters to act for the latter. s it is, the sale from 1ilriters to "hilfinance was fictitious, and therefore void and ine7istent, as there was no consideration for the same. This is fatal to the petitioner8s cause, for then, "hilfinance had no title over the subAect certificate to convey the Traders >oyal *ank. ,emo potest nisi quod de 1ure potest M no man can do anythin+ e7cept what he can do lawfully. Concededly, the subAect C*C! was ac4uired by 1ilriters to form part of its le+al and capital reserves, which are re4uired by law 24 to be maintained at a mandated level. This was pointed out by Elias Farcia, #ana+er-in-Char+e of respondent 1ilriters, in his testimony +iven before the court on #ay 5), &'-(. I 6o you know this Central *ank Certificate of !ndebtedness, in short, C*C! No. 6-'& in the face value of "D))),))).)) subAect of this caseB Yes, sir. I Chy do you know thisB Cell, this was C*C! of the company sou+ht to be e7amined by the !nsurance Commission sometime in early &'-& and this C*C! No. -'& was amon+ the C*C!8s that were found to be missin+. I ;et me take you back further before &'-&. 6id you have the knowled+e of this C*C! No. -'& before &'-&B Yes, sir. This C*C! is an investment of 1ilriters re4uired by the !nsurance Commission as le+al reserve of the company. I ;e+al reserve for the purpose of whatB Cell, you see, the !nsurance companies are re4uired to put up le+al reserves under Section $&5 of the !nsurance Code e4uivalent to .) percent of the premiums receipt and further, the !nsurance Commission re4uires this reserve to be invested preferably in +overnment securities or +overnment binds. This is how this C*C! came to be purchased by the company. !t cannot, therefore, be taken out of the said funds, without violatin+ the re4uirements of the law. Thus, the anauthori<ed use or distribution of the same by a corporate officer of 1ilriters cannot bind the said corporation, not without the approval of its *oard of 6irectors, and the maintenance of the re4uired reserve fund. Conse4uently, the title of 1ilriters over the subAect certificate of indebtedness must be upheld over the claimed interest of Traders >oyal *ank. CC9>6!NF;Y, the petition is 6!S#!SSE6 and the decision appealed from dated =anuary $', &'') is hereby 11!>#E6.

6G.R. No. 141614. A8@8%2 14, 2551: ADALIA '. FRAN)IS)O $7" -ERR&LAND DE/ELO -ENT )OR ORATION, petitioners, vs. RITA ). -E.IA, $% EEe#82r?E oA Te%2$2e E%2$2e oA ANDREA )ORDO/A /DA. DE G(TIERRE0, ( !n this petition for review by certiorari, petitioners pray for the settin+ aside of the 6ecision of the Court of ppeals promul+ated on &5 pril &''' and its &D 6ecember &''' >esolution in C -F.>. CG No. &'$-&. ndrea Cordova Gda. de Futierre< 2Futierre<3 was the re+istered owner of a parcel of land in Camarin, Caloocan City known as ;ot -(& of the Tala Estate. The land had an a++re+ate area of twenty-five 2$D3 hectares and was covered by Transfer Certificate of Title 2TCT3 No. D%%' of the >e+istry of 6eeds of Caloocan City. The property was later subdivided into five lots with an area of five hectares each and pursuant thereto, TCT No. D%%' was cancelled and five new transfer certificates of title were issued in the name of Futierre<, namely TCT No. %&$5 coverin+ ;ot -(&- , TCT No. %&$. coverin+ ;ot -(&-*, TCT No. %&$D coverin+ ;ot -(&-C, TCT No. %&$( coverin+ ;ot -(&-6 and TCT No. %&$% coverin+ ;ot -(&-E. 9n $& 6ecember &'(., Futierre< and Cardale 1inancin+ and >ealty Corporation 2Cardale3 e7ecuted a 6eed of Sale with #ort+a+e relatin+ to the lots covered by TCT Nos. %&$., %&$D, %&$( and %&$%, for the consideration of "-)),))).)). Upon the e7ecution of the deed, Cardale paid Futierre< "&%&,))).)). !t was a+reed that the balance of "($',))).)) would be paid in several installments within five years from the date of the deed, at an interest of nine percent per annum Rbased on the successive unpaid principal balances.S Thereafter, the titles of Futierre< were cancelled and in lieu thereof TCT Nos. %D5& to %D5. were issued in favor of Cardale. To secure payment of the balance of the purchase price, Cardale constituted a mort+a+e on three of the four parcels of land covered by TCT Nos. %D5&, %D5$ and %D55, encompassin+ fifteen hectares of land.?&@ The encumbrance was annotated upon the certificates of title and the ownerVs duplicate certificates. The ownerVs duplicates were retained by Futierre<. 9n $( u+ust &'(-, owin+ to CardaleVs failure to settle its mort+a+e obli+ation, Futierre< filed a complaint for rescission of the contract with the Iue<on City >e+ional Trial Court 2>TC3, which was docketed as Civil Case No. I-&$5((.?$@ 9n $) 9ctober &'(', durin+ the pendency of the rescission case, Futierre< died and was substituted by her e7ecutri7, respondent >ita C. #eAia 2#eAia3. !n &'%&, plaintiffVs presentation of evidence was terminated. ,owever, Cardale, which was represented by petitioner dalia *. 1rancisco 21rancisco3 in her capacity as Gice-"resident and Treasurer of Cardale, lost interest in proceedin+ with the presentation of its evidence and the case lapsed into inactive status for a period of about fourteen years. !n the meantime, the mort+a+ed parcels of land covered by TCT Nos. %D5$ and %D55 became delin4uent in the payment of real estate ta7es in the amount of "&)$,5)).)), while the other mort+a+ed property covered by TCT No. %D5& became delin4uent in the amount of "-',$5&.5%, which culminated in their levy and auction sale on & and &$ September &'-5, in satisfaction of the ta7 arrears. The hi+hest bidder for the three parcels of land was petitioner #erryland 6evelopment Corporation 2#erryland3, whose "resident and maAority stockholder is 1rancisco. memorandum based upon the certificate of sale was then made upon the ori+inal copies of TCT Nos. %D5& to %D55. 9n &5 u+ust &'-., before the e7piration of the one year redemption period, #eAia filed a #otion for 6ecision with the trial court. The hearin+ of said motion was deferred, however, due to a #otion for "ostponement filed by Cardale throu+h 1rancisco, who si+ned the motion in her capacity as Rofficer-inchar+e,S claimin+ that Cardale needed time to hire new counsel. ,owever, 1rancisco did not mention the ta7 delin4uencies and sale in favor of #erryland. Subse4uently, the redemption period e7pired and #erryland, actin+ throu+h 1rancisco, filed petitions for consolidation of title,?5@ which culminated in the issuance of certain orders?.@ decreein+ the cancellation of CardalesV TCT Nos. %D5& to %D55 and the issuance of new transfer certificates of title Rfree from any encumbrance or third-party claim whatsoeverS in favor of #erryland. "ursuant to such orders, the >e+ister of 6eeds of Caloocan City issued new transfer certificates of title in the name of #erryland which did not bear a memorandum of the mort+a+e liens in favor of Futierre<. Thereafter, sometime in =une &'-D, 1rancisco filed in Civil Case No. I-&$5(( an undated #anifestation to the effect that the properties subAect of the mort+a+e and covered by TCT Nos. %D5& to %D55 had been levied upon by the local +overnment of Caloocan City and sold at a ta7 delin4uency sale. 1rancisco further claimed that the delin4uency sale had rendered the issues in Civil Case No. I-&$5(( moot and academic. +reein+ with 1rancisco, the trial court dismissed the case, e7plainin+ that since the properties mort+a+ed to Cardale had been transferred to #erryland which was not a party to the case for rescission, it would be more appropriate for the parties to resolve their controversy in another action.

9n &. =anuary &'-%, #eAia, in her capacity as e7ecutri7 of the Estate of Futierre<, filed with the >TC of Iue<on City a complaint for dama+es with prayer for preliminary attachment a+ainst 1rancisco, #erryland and the >e+ister of 6eeds of Caloocan City. The case was docketed as Civil Case No. I-.'%((. 9n &D pril &'--, the trial court rendered a decision?D@ in favor of the defendants, dismissin+ the complaint for dama+es filed by #eAia. !t was held that plaintiff #eAia, as e7ecutri7 of Futierre<Vs estate, failed to establish by clear and convincin+ evidence her alle+ations that 1rancisco controlled Cardale and #erryland and that she had employed fraud by intentionally causin+ Cardale to default in its payment of real property ta7es on the mort+a+ed properties so that #erryland could purchase the same by means of a ta7 delin4uency sale. #oreover, accordin+ to the trial court, the failure to recover the property subAect of the 6eed of Sale with #ort+a+e was due to #eAiaVs failure to actively pursue the action for rescission 2Civil Case No. &$5((3, allowin+ the case to dra+ on for ei+hteen years. Thus, it ruled that The act of not payin+ or failin+ to pay ta7es due the +overnment by the defendant dalia *. 1rancisco, as treasurer of Cardale 1inancin+ and >ealty Corporation do not, per se, constitute perpetration of fraud or an ille+al act. !t do ?sic@ not also constitute an act of evasion of an e7istin+ obli+ation 2to plaintiff3 if there is no clear showin+ that such an act of non-payment of ta7es was deliberately made despite its 2CardaleVs3 solvency and capability to pay. There is no evidence showin+ that Cardale 1inancin+ and >ealty Corporation was financially capable of payin+ said ta7es at the time. RThere are times when the corporate fiction will be disre+arded/ 2&3 where all the members or stockholders commit ille+al act: 2$3 where the corporation is used as dummy to commit fraud or wron+: 253 where the corporation is an a+ency for a parent corporation: and 2.3 where the stock of a corporation is owned by one person.S 2!, 1letcher, D-, D', (& and (53. None of the fore+oin+ reasons can be applied to the incidents in this case/ 2&3 there appears no ille+al act committed by the stockholders of defendant #erryland 6evelopment Corporation and Cardale 1inancin+ and >ealty Corporation: 2$3 the incidents proven by evidence of the plaintiff as well as that of the defendants do not show that either or both corporations were used as dummies by defendant dalia *. 1rancisco to commit fraud or wron+. To be used as ?a@ dummy, there has to be a showin+ that the dummy corporation is controlled by the person usin+ it. The evidence of plaintiff failed to prove that defendant dalia *. 1rancisco has controllin+ interest in either or both corporations. 9n the other hand, the evidence of defendants clearly show that defendant 1rancisco has no control over either of the two corporations: 253 none of the two corporations appears to be an a+ency for a parent 2the other3 corporation: and 2.3 the stock of either of the two corporation ?sic@ is not owned by one person 2defendant dalia *. 1rancisco3. E7cept for defendant dalia *. 1rancisco, the incorporators and stockholders of one corporation are different from the other. The said case 2Civil Case No. &$5((3 remained pendin+ for almost &- years before the then Court of 1irst !nstance, now the >e+ional Trial Court. Even if the trial of the said case became protracted on account of the retirement andHor promotion of the presidin+ Aud+e, as well as the transfer of the case from one sala to another, and as claimed by the plaintiff Rthat the defendant lost interestS, 2which alle+ation is unusual, so to speak3, the court believe ?sic@ that it would not have taken that lon+ to dispose ?of@ said case had plaintiff not slept on her ri+hts, and her duty and obli+ation to see to it that the case is always set for hearin+ so that it may be adAudicated ?at@ the earliest possible time. This duty pertains to both parties, but plaintiff should have been more assertive, as it was her obli+ation, similar to the obli+ation of plaintiff relative to the service of summons in other cases. The fact that Cardale 1inancin+ and >ealty Corporation did not perform its obli+ation as provided in the said R6eed of Sale with #ort+a+eS 2E7hibit R S3 is very clear. ;ikewise, the fact that ndrea Cordova, the contractin+ party, represented by the plaintiff in this case did not also perform her duties andHor obli+ation provided in the said contract is also clear. This could have been the reason why the plaintiff in said case 2E7hibit RES3 slept on her ri+hts and allowed the same to remain pendin+ for almost &- years. ,owever, and irrespective of any other reason behind the same, the court believes that plaintiff, indeed, is the one to blame for the failure of the testate estate of the late ndrea Cordova Gda. de Futierre< to recover the money or property due it on the basis of E7hibit R S. 777 ,ad the plaintiff not slept on her ri+hts and had it not been for her failure to perform her commensurate duty to pursue vi+orously her case a+ainst Cardale 1inancin+ and >ealty Corporation in said Civil Case No. &$5((, she could have easily known said non-payment of realty ta7es on the said properties by said Cardale 1inancin+ and >ealty Corporation, or, at least the auction sales that followed, and from which she could have redeemed said properties within the one year period provided by law, or, have availed of remedies at the time to protect the interest of the testate estate of the late ndrea Cordova Gda. de Futierre<. The dispositive portion of the trial courtVs decision states C,E>E19>E, in view of all the fore+oin+ consideration, the court hereby renders Aud+ment in favor of the

defendants >e+ister of 6eeds of Caloocan City, #erryland 6evelopment Corporation and dalia *. 1rancisco, and a+ainst plaintiff >ita C. #eAia, as E7ecutri7 of the Testate Estate of ndrea Cordova Gda. 6e Futierre<, and hereby orders/ &. That this case for dama+es be dismissed, at the same time, plaintiffVs motion for reconsideration dated September $5, &'-% is denied: $. "laintiff pay the defendants #erryland 6evelopment Corporation and the >e+ister of 6eeds the sum of "$),))).)), and another sum of "$),))).)) to the defendant dalia *. 1rancisco, as and for attorneyVs fees and liti+ation e7penses, and pay the costs of the proceedin+s. The Court of ppeals,?(@ in its decision?%@ promul+ated on &5 pril &''', reversed the trial court, holdin+ that the corporate veil of Cardale and #erryland must be pierced in order to hold 1rancisco and #erryland solidarily liable since these two corporations were used as dummies by 1rancisco, who employed fraud in allowin+ Cardale to default on the realty ta7es for the properties mort+a+ed to Futierre< so that #erryland could ac4uire the same free from all liens and encumbrances in the ta7 delin4uency sale and, as a conse4uence thereof, frustratin+ Futierre<Vs ri+hts as a mort+a+ee over the subAect properties. Thus, the Court of ppeals premised its findin+s of fraud on the followin+ circumstances T 777 ppellee 1rancisco knew that Cardale of which she was vice-president and treasurer had an outstandin+ obli+ation to Futierre< for the unpaid balance of the real properties covered by TCT Nos. %D5& to %D55, which Cardale purchased from Futierre< which account, as of 6ecember &'--, already amounted to ".,.&.,$%&..5 2E7h. U, pp. 5'-.., record3: she also knew that Futierre< had a mort+a+e lien on the said properties to secure payment of the aforesaid obli+ation: she likewise knew that the said mort+a+ed properties were under liti+ation in Civil Case No. I-&$5(( which was an action filed by Futierre< a+ainst Cardale for rescission of the sale andHor recovery of said properties 2E7h. E3. 6espite such knowled+e, appellee 1rancisco did not inform Futierre<Vs Estate or the E7ecutri7 2herein appellant3 as well as the trial court that the mort+a+ed properties had incurred ta7 delin4uencies, and that 1inal Notices dated =uly ', &'-$ had been sent by the City Treasurer of Caloocan demandin+ payment of such ta7 arrears within ten 2&)3 days from receipt thereof 2E7hs. = J =-&, pp. 5%-5-, record3. *oth notices which were addressed to T Cardale 1inancin+ J >ealty Corporation cHo #erryland 6evelopment Corporation and sent to appellee 1ranciscoVs address at -5 Uatipunan >oad, Chite "lains, Iue<on City, +ave warnin+ that if the ta7es were not paid within the aforesaid period, the properties would be sold at public auction to satisfy the ta7 delin4uencies. To reiterate, notwithstandin+ receipt of the aforesaid notices, appellee 1rancisco did not inform the Estate of Futierre< or her e7ecutri7 about the ta7 delin4uencies and of the impendin+ auction sale of the said properties. Even a modicum of +ood faith and fair play should have encoura+ed appellee 1rancisco to at least advise Futierre<Vs Estate throu+h her e7ecutri7 2herein appellant3 and the trial court which was hearin+ the complaint for rescission and recovery of said properties of such fact, so that the Estate of Futierre<, which had a real interest on the properties as mort+a+ee and as plaintiff in the rescission and recovery suit, could at least take steps to forestall the auction sale and thereby preserve the properties and protect its interests thereon. nd not only did appellee 1rancisco allow the auction sale to take place, but she used her other corporation 2#erryland3 in participatin+ in the auction sale and in ac4uirin+ the very properties which her first corporation 2Cardale3 had mort+a+ed to Futierre<. +ain, appellee 1rancisco did not thereafter inform the Estate of Futierre< or its e7ecutri7 2herein appellant3 about the auction sale, thus precludin+ the Estate from e7ercisin+ its ri+ht of redemption. nd it was only after the e7piration of the redemption period that appellee 1rancisco filed a #anifestation in Civil Case No. I-&$5(( 2E7h. !, p. 5(, record3, in which she disclosed for the first time to the trial court and appellant that the properties subAect of the case and on which Futierre< or her Estate had a mort+a+e lien, had been sold in a ta7 delin4uency sale. nd in order to further conceal her deceptive maneuver, appellee 1rancisco did not divul+e in her aforesaid #anifestation that it was her other corporation 2#erryland3 that ac4uired the properties in the auction sale. Ce are not impressed by appelleeVs submission that no evidence was adduced to prove that Cardale had the capacity to pay the ta7 arrears and therefore she or Cardale may not be faulted for the ta7 delin4uency sale of the properties in 4uestion. ppellee 1ranciscoVs bad faith or deception did not necessarily lie in CardaleVs or her failure to settle the ta7 deli4uencies in 4uestion, but in not disclosin+ to Futierre<Vs estate or its e7ecutri7 2herein appellant3 which had a mort+a+e lien on said properties the ta7 delin4uencies and the impendin+ auction sale of the encumbered properties. ppellee 1ranciscoVs deception is further shown by her concealment of the ta7 delin4uency sale of the properties from the estate or its e7ecutri7, thus preventin+ the latter from availin+ of the ri+ht of redemption

of said properties. That appellee 1rancisco divul+ed the auction sale of the properties only after such redemption period had lapsed clearly betrays her intention to keep Futierre<Vs Estate or its E7ecutri7 from availin+ of such ri+ht. nd as the evidence would further show, appellee 1rancisco had a hand in securin+ for #erryland consolidation of its ownership of the properties and in seein+ to it that #errylandVs torrens certificates for the properties were free from liens and encumbrances. ll these appellee 1rancisco did even as she was fully aware that Futierre< or her estate had a valid and subsistin+ mort+a+e lien on the said properties. !t is likewise worthy of note that early on appellee 1rancisco had testified in the action for rescission of sale and recovery of possession and ownership of the properties which Futierre< filed a+ainst Cardale 2Civil Case No. I-&$5((3 in her capacity as defendant CardaleVs vice-president and treasurer. *ut then, for no plausible reason whatsoever, she lost interest in continuin+ with the presentation of evidence for defendant Cardale. nd then, when appellant #eAia as e7ecutri7 of Futierre<Vs Estate filed on u+ust &5, &'-. a #otion for 6ecision in the aforesaid case, appellee 1rancisco moved to defer consideration of appellantVs #otion on the prete7t that defendant Cardale needed time to employ another counsel. Si+nificantly, in her aforesaid #otion for "ostponement dated u+ust &(, &'-. which appellee 1rancisco personally si+ned as 9fficer-in-Char+e of Cardale, she also did not disclose the fact that the properties subAect matter of the case had lon+ been sold at a ta7 delin4uency sale and ac4uired by her other corporation #erryland. nd as if what she had already accomplished were not enou+h fraudulence, appellee 1rancisco, actin+ in behalf of #erryland, caused the issuance of new transfer certificates of title in the name of #erryland, which did not anymore bear the mort+a+e lien in favor of Futierre<. !n the meantime, to further avoid payment of the mort+a+e indebtedness owin+ to Futierre<Vs estate, Cardale corporation was dissolved. 1inally, to put the properties beyond the reach of the mort+a+ee, Futierre<Vs estate, #erryland caused the subdivision of such properties, which were subse4uently sold on installment basis. !n its petition for certiorari, petitioners ar+ue that there is no law re4uirin+ the mort+a+or to inform the mort+a+ee of the ta7 delin4uencies, if any, of the mort+a+ed properties. #oreover, petitioners claim that CardaleVs failure to pay the realty ta7es, per se, does not constitute fraud since it was not proven that Cardale was capable of payin+ the ta7es. "etitioners also contend that if #eAia, as e7ecutri7 of Futierre<Vs estate, was not remiss in her duty to pursue Civil Case No. &$5((, she could have easily learned of the non-payment of realty ta7es on the subAect properties and of the auction sale that followed and thus, have redeemed the properties or availed of some other remedy to conserve the estate of Futierre<. !n addition, #eAia could have annotated a notice of lis pendens on the titles of the mort+a+ed properties, but she failed to do so. !t is the stand of petitioners that respondent has not adduced any proof that 1rancisco controlled both Cardale and #erryland and that she used these two corporations to perpetuate a fraud upon Futierre< or her estate. "etitioners maintain that the Revidence shows that, apart form the mea+er share of petitioner 1rancisco, the stockholdin+s of both corporations comprise other shareholders, and the stockholders of either of them, aside from petitioner 1rancisco, are composed of different persons.S s to Civil Case No. &$5((, petitioners insist that the decision of the trial court in that case constitutes res 1udicata to the instant case.?-@ !t is dicta in corporation law that a corporation is a Auridical person with a separate and distinct personality from that of the stockholders or members who compose it.?'@ ,owever, when the le+al fiction of the separate corporate personality is abused, such as when the same is used for fraudulent or wron+ful ends, the courts have not hesitated to pierce the corporate veil. 9ne of the earliest formulations of this doctrine of piercin+ the corporate veil was made in the merican case of Hnited States v( #il0aukee Refrigerator Transit Co.?&)@ !f any +eneral rule can be laid down, in the present state of authority, it is that a corporation will be looked upon as a le+al entity as a +eneral rule, and until sufficient reason to the contrary appears: but, when the notion of le+al entity is used to defeat public convenience, Austify wron+, protect fraud, or defend crime, the law will re+ard the corporation as an association of persons. Since then a +ood number of cases have firmly implanted this doctrine in "hilippine Aurisprudence.?&&@ 9ne such case is Hmali v( Court of $ppeals?&$@ wherein the Court declared that T Under the doctrine of piercin+ the veil of corporate entity, when valid +rounds therefore e7ist, the le+al fiction that a corporation is an entity with a Auridical personality separate and distinct from its members or stockholders may be disre+arded. !n such cases, the corporation will be considered as a mere association of persons. The members or stockholders of the corporation will be considered as the corporation, that is, liability will attach directly to the officers and stockholders. The doctrine applies when the corporate fiction is used to defeat public convenience, Austify wron+, protect fraud, or defend crime, or when it is made as a

shield to confuse the le+itimate issues, or where a corporation is the mere alter e+o or business conduit of a person, or where the corporation is so or+ani<ed and controlled and its affairs are so conducted as to make it merely an instrumentality, a+ency, conduit or adAunct of another corporation. Cith specific re+ard to corporate officers, the +eneral rule is that the officer cannot be held personally liable with the corporation, whether civilly or otherwise, for the conse4uences of his acts, if he acted for and in behalf of the corporation, within the scope of his authority and in +ood faith. !n such cases, the officerVs acts are properly attributed to the corporation.?&5@ ,owever, if it is proven that the officer has used the corporate fiction to defraud a third party,?&.@ or that he has acted ne+li+ently, maliciously or in bad faith,?&D@ then the corporate veil shall be lifted and he shall be held personally liable for the particular corporate obli+ation involved. The Court, after an assiduous study of this case, is convinced that the totality of the circumstances appertainin+ conduce to the inevitable conclusion that petitioner 1rancisco acted in bad faith. The events leadin+ up to the loss by the Futierre< estate of its mort+a+e security attest to this. !t has been established that Cardale failed to comply with its obli+ation to pay the balance of the purchase price for the four parcels of land it bou+ht from Futierre< covered by TCT Nos. %D5& to %D5., which obli+ation was secured by a mort+a+e upon the lands covered by TCT Nos. %D5&, %D5$ and %D55. This prompted Futierre< to file an action for rescission of the 6eed of Sale with #ort+a+e 2Civil Case No. I-&$5((3, but the case dra++ed on for about fourteen years when Cardale, as represented by 1rancisco, who was Gice-"resident and Treasurer of the same,?&(@ lost interest in completin+ its presentation of evidence. Even before &'-. when #eAia, in her capacity as e7ecutri7 of Futierre<Vs estate, filed a #otion for 6ecision with the trial court, there is no 4uestion that 1rancisco knew that the properties subAect of the mort+a+e had become ta7 delin4uent. !n fact, as treasurer of Cardale, 1rancisco herself was the officer char+ed with the responsibility of payin+ the realty ta7es on the corporationVs properties. This was admitted by the trial court in its decision.?&%@ !n addition, notices dated ' =uly &'-$ from the City Treasurer of Caloocan demandin+ payment of the ta7 arrears on the subAect properties and +ivin+ warnin+ that if the realty ta7es were not paid within the +iven period then such properties would be sold at public auction to satisfy the ta7 delin4uencies were sent directly to 1ranciscoVs address in Chite "lains, Iue<on City.?&-@ Thus, as early as &'-$, 1rancisco could have informed the Futierre< estate or the trial court in Civil Case No. I-&$5(( of the ta7 arrears and of the notice from the City Treasurer so that the estate could have taken the necessary steps to prevent the auction sale and to protect its interests in the mort+a+ed properties, but she did no such thin+. 1inally, in &'-5, the properties were levied upon and sold at public auction wherein #erryland a corporation where 1rancisco is a stockholder?&'@ and concurrently acts as "resident and director?$)@ was the hi+hest bidder. Chen #eAia filed the #otion for 6ecision in Civil Case No. I-&$5((,?$&@ the period for redeemin+ the properties subAect of the ta7 sale had not yet e7pired.?$$@ Under the >ealty "roperty Ta7 Code,?$5@ pursuant to which the ta7 levy and sale were prosecuted,?$.@ both the delin4uent ta7payer and in his absence, any person holdin+ a lien or claim over the property shall have the ri+ht to redeem the property within one year from the date of re+istration of the sale.?$D@ ,owever, if these persons fail to redeem the property within the time provided, then the purchaser ac4uires the property Rfree from any encumbrance or third party claim whatsoever.S?$(@ Cardale made no attempts to redeem the mort+a+ed property durin+ this time. #oreover, instead of informin+ #eAia or the trial court in I-&$5(( about the ta7 sale, the records show that 1rancisco filed a #otion for "ostponement?$%@ in behalf of Cardale - even si+nin+ the motion in her capacity as Rofficer-in-char+eS - which worked to defer the hearin+ of #eAiaVs #otion for 6ecision. No mention was made by 1rancisco of the ta7 sale in the motion for postponement. 9nly after the redemption period had e7pired did 1rancisco decide to reveal what had transpired by filin+ a #anifestation statin+ that the properties subAect of the mort+a+e in favor of Futierre< had been sold at a ta7 delin4uency sale: however, 1rancisco failed to mention that it was #erryland that ac4uired the properties since she was probably afraid that if she did so the court would see behind her fraudulent scheme. !n this re+ard, it is also si+nificant to note that it was 1rancisco herself who filed the petitions for consolidation of title and who helped secure for #erryland titles over the subAect properties Rfree from any encumbrance or third-party claim whatsoever.S !t is e7ceedin+ly apparent to the Court that the totality of 1rancisoVs actions clearly betray an intention to conceal the ta7 delin4uencies, levy and public auction of the subAect properties from the estate of Futierre< and the trial court in Civil Case No. I-&$5(( until after the e7piration of the redemption period when the remotest possibility for the recovery of the properties would be e7tin+uished.?$-@ Conse4uently, 1rancisco had effectively deprived the estate of Futierre< of its ri+hts as mort+a+ee over the three parcels of land which were sold to Cardale. !f 1rancisco was actin+ in +ood faith, then she should have disclosed the status of the mort+a+ed properties to the trial court in Civil Case No. I-&$5(( - especially after #eAia had filed a #otion for 6ecision, in response to which she filed a motion for postponement wherein she could

easily have mentioned the ta7 sale - since this action directly affected such properties which were the subAect of both the sale and mort+a+e. That #erryland ac4uired the property at the public auction only serves to shed more li+ht upon 1ranciscoVs fraudulent purposes. *ased on the findin+s of the Court of ppeals, 1rancisco is the controllin+ stockholder and "resident of #erryland.?$'@ Thus, aside from the instrumental role she played as an officer of Cardale, in evadin+ that corporationVs le+itimate obli+ations to Futierre<, it appears that 1ranciscoVs actions were also oriented towards securin+ advanta+es for another corporation in which she had a substantial interest. Ce cannot a+ree, however, with the Court of ppealsV decision to hold #erryland solidarily liable with 1rancisco. The only act imputable to #erryland in relation to the mort+a+ed properties is that it purchased the same and this by itself is not a fraudulent or wron+ful act. No evidence has been adduced to establish that #erryland was a mere alter e+o or business conduit of 1rancisco. Time and a+ain it has been reiterated that mere ownership by a sin+le stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient +round for disre+ardin+ the separate corporate personality.?5)@ Neither has it been alle+ed or proven that #erryland is so or+ani<ed and controlled and its affairs are so conducted as to make it merely an instrumentality, a+ency, conduit or adAunct of Cardale.?5&@ Even assumin+ that the businesses of Cardale and #erryland are interrelated, this alone is not Austification for disre+ardin+ their separate personalities, absent any showin+ that #erryland was purposely used as a shield to defraud creditors and third persons of their ri+hts.?5$@ Thus, #errylandVs separate Auridical personality must be upheld. *ased on a statement of account submitted by #eAia, the Court of ppeals awarded ".,5&.,$%&..5 in favor of the estate of Futierre< which represents the unpaid balance of the purchase price in the amount of "($',))).)) with an interest rate of nine percent 2'P3 per annum, in accordance with the a+reement of the parties under the 6eed of Sale with #ort+a+e,?55@ as of 6ecember &'--.?5.@ Therefore, in addition to the amount awarded by the appellate court, 1rancisco should pay the estate of Futierre< interest on the unpaid balance of the purchase price 2in the amount of "($',))).))3 at the rate of nine percent 2'P3 per annum computed from =anuary, &'-' until fully satisfied. 1inally, contrary to petitionerVs assertions, we a+ree with the Court of ppeals that the decision of the trial court in Civil Case No. I-&$5(( does not constitute res 1udicata insofar as the present case is concerned because the decision in the first case was not a Aud+ment on the merits. >ather, it was merely based upon the premise that since Cardale had been dissolved and the property ac4uired by another corporation, the action for rescission would not prosper. s a matter of fact, it was even e7pressly stated by the trial court that the parties should ventilate their issues in another action. ;HEREFORE, the &5 pril &''' 6ecision of the Court of ppeals is hereby accordin+ly #96!1!E6 so as to hold 6 ;! 1> NC!SC9 solely liable to the estate of Futierre< for the amount of ".,5&.,$%&..5 and for interest on the unpaid balance of the purchase price 2in the amount of "($',))).))3 at the rate of nine percent 2'P3 per annum computed from =anuary, &'-' until fully satisfied. #E>>Y; N6 is hereby absolved from all liability.

)HINA 'AN!ING )OR ORATION, - ver%8% -

G.R. No. 149234

D&NE-SE- ELE)TRONI)S )OR ORATION, . =une &&, $))( 9n =une &' and $(, &'-D, 6ynetics, !nc. 26ynetics3 and Elpidio 9. ;im borrowed a total of "-,'5',))) from petitioner China *ankin+ Corporation. The loan was evidenced by si7 promissory notes.?&@ The borrowers failed to pay when the obli+ations became due. "etitioner conse4uently instituted a complaint for sum of money?$@on =une $D, &'-% a+ainst them. The complaint sou+ht payment of the unpaid promissory notes plus interest and penalties. Summons was not served on 6ynetics, however, because it had already closed down. ;im, on the other hand, filed his answer on 6ecember &D, &'-% denyin+ that Rhe promised to pay ?the obli+ations@ Aointly and severally to ?petitioner@.S?5@ 9n =anuary %, &'--, the case was scheduled for pre-trial with respect to ;im. The case a+ainst 6ynetics was archived. 9n September $5, &'--, an amended complaint?.@ was filed by petitioner impleadin+ respondent 6yne-Sem Electronics Corporation 26yne-Sem3 and its stockholders Gicente Chuidian, ntonio Farcia and =acob >atinoff. ccordin+ to petitioner, respondent was formed and or+ani<ed to be 6yneticsV alter e+o as established by the followin+ circumstances/ 6ynetics, !nc. and respondent are both en+a+ed in the same line of business of manufacturin+, producin+, assemblin+, processin+, importin+, e7portin+, buyin+, distributin+, marketin+ and testin+ inte+rated circuits and semiconductor devices: ?t@he principal office and factory site of 6ynetics, !nc. located at vocado >oad, 1T! Comple7, Ta+ui+, #etro #anila, were used by respondent as its principal office and factory site: ?r@espondent ac4uired some of the machineries and e4uipment of 6ynetics, !nc. from banks which ac4uired the same throu+h foreclosure: ?r@espondent retained some of the officers of 6ynetics, !nc.?D@ 9n 6ecember $-, &'--, respondent filed its answer, alle+in+ that/ D.& ?t@he incorporators as well as present stockholders of ?respondent@ are totally different from those of 6ynetics, !nc., and not one of them has ever been a stockholder or officer of the latter: D.$ ?n@ot one of the directors of ?respondent@ is, or has ever been, a director, officer, or stockholder of 6ynetics, !nc.: D.5 ?t@he various facilities, machineries and e4uipment bein+ used by ?respondent@ in its business operations were le+itimately and validly ac4uired, under arms-len+th transactions, from various corporations which had become absolute owners thereof at the time of said transactions: these were not Aust Rtaken overS nor Rac4uired from 6yneticsS by ?respondent@, contrary to what plaintiff falsely and maliciously alle+es: D.. ?respondent@ ac4uired most of its present machineries and e4uipment as second-hand items to keep costs down: D.D ?t@he present plant site is under lease from 1ood Terminal, !nc., a +overnment-controlled corporation, and is located inside the 1T! Comple7 in Ta+ui+, #etro #anila, where a number of other firms or+ani<ed in &'-( and also en+a+ed in the same or similar business have likewise established their factories: practical convenience, and nothin+ else, was behind ?respondentVs@ choice of plant site: D.( ?respondent@ operates its own bonded warehouse under authority from the *ureau of Customs which has the sole and absolute prero+ative to authori<e and assi+n customs bonded warehouses: a+ain, practical convenience played its role here since the warehouse in 4uestion was virtually lyin+ idle and unused when said *ureau decided to assi+n it to ?respondent@ in =une &'-(.?(@ 9n 1ebruary $-, &'-', the trial court issued an order archivin+ the case as to Chuidian, Farcia and >atinoff since summons had remained unserved. fter hearin+, the court a quo rendered a decision on 6ecember $%, &''& which read/

?T@he Court rules that 6yne-Sem Electronics Corporation is not an alter e+o of 6ynetics, !nc. Thus, 6yne-SemElectronics Corporation is not liable under the promissory notes. C,E>E19>E, Aud+ment is hereby rendered orderin+ 6ynetics, !nc. and Elpidio 9. ;im, Aointly and severally, to pay plaintiff. nent the complaint a+ainst 6yne-Sem and the latterVs counterclaim, both are hereby dismissed, without costs. 1rom this adverse decision, petitioner appealed to the Court of ppeals?-@ but the appellate court dismissed the appeal and affirmed the trial courtVs decision.?'@ !t found that respondent was indeed not an alter e+o of 6ynetics. The two corporations had different articles of incorporation. Contrary to petitionerVs claim, no mer+er or absorption took place between the two. Chat transpired was a mere sale of the assets of 6ynetics to respondent. The appellate court denied petitionerVs motion for reconsideration.?&)@ ,ence, this petition for review?&&@ with the followin+ assi+ned errors/ G!. !ssues Chat is the 4uantum of evidence needed for the trial court to determine if the veil of corporat?e@ fiction should be piercedB ?C@hether or not the >e+ional Trial Court of #anila *ranch &D in its 6ecision dated 6ecember $%, &''& and the Court of ppeals in its 6ecision dated 1ebruary $-, $))& and >esolution dated =uly $%, $))&, which affirmed en toto ?*ranch &D, #anila >e+ional Trial CourtVs decision,@ have ruled in accordance with law andHor applicable ?Aurisprudence@ to the e7tent that the 6octrine of "iercin+ the Geil ofCorporat?e@ 1iction is not applicable in the case at barB?&$@ Ce find no merit in the petition. The 4uestion of whether one corporation is merely an alter e+o of another is purely one of fact. So is the 4uestion of whether acorporation is a paper company, a sham or subterfu+e or whether petitioner adduced the re4uisite 4uantum of evidence warrantin+ the piercin+ of the veil of respondentVs corporate entity. This Court is not a trier of facts. 1indin+s of fact of the Court of ppeals, affirmin+ those of the trial court, are final and conclusive. The Aurisdiction of this Court in a petition for review on certiorari is limited to reviewin+ only errors of law, not of fact, unless it is shown, inter alia, that/ 2a3 the conclusion is +rounded entirely on speculations, surmises and conAectures: 2b3 the inference is manifestly mistaken, absurd and impossible: 2c3 there is +rave abuse of discretion: 2d3 the Aud+ment is based on a misapplication of facts: 2e3 the findin+s of fact of the trial court and the appellate court are contradicted by the evidence on record and 2f3 the Court of ppeals went beyond the issues of the case and its findin+s are contrary to the admissions of both parties.?&5@ Ce have reviewed the records and found that the factual findin+s of the trial and appellate courts and conse4uently their conclusions were supported by the evidence on record. The +eneral rule is that a corporation has a personality separate and distinct from that of its stockholders and othercorporations to which it may be connected.?&.@ This is a fiction created by law for convenience and to prevent inAustice.?&D@ Nevertheless, bein+ a mere fiction of law, peculiar situations or valid +rounds may e7ist to warrant the disre+ard of its independent bein+ and the piercin+ of the corporate veil.?&(@ !n #artine< v( Court of $ppeals,?&%@ we held/ The veil of separate corporate personality may be lifted when such personality is used to defeat public convenience, Austify wron+, protect fraud or defend crime: or used as a shield to confuse the le+itimate issues: or when the corporation is merely an adAunct, a business conduit or an alter e+o of another corporation or where the corporation is so or+ani<ed and controlled and its affairs are so conducted as to make it merely an instrumentality, a+ency, conduit or adAunct of another corporation: or when the corporation is used as a cloak or cover for fraud or ille+ality, or to work inAustice, or where necessary to achieve e4uity or for the protection of the creditors. !n such cases, the corporation will be considered as a mere association of persons. The liability will directly attach to the stockholders or to the other corporation.

To disre+ard the separate Auridical personality of a corporation, the wron+doin+ must be proven clearly and convincin+ly.?&-@ !n this case, petitioner failed to prove that 6yne-Sem was or+ani<ed and controlled, and its affairs conducted, in a manner that made it merely an instrumentality, a+ency, conduit or adAunct of 6ynetics, or that it was established to defraud 6yneticsV creditors, includin+ petitioner. The similarity of business of the two corporations did not warrant a conclusion that respondent was but a conduit of 6ynetics. s we held in Hmali v( Court of $ppeals,?&'@ Rthe mere fact that the businesses of two or more corporations are interrelated is not a Austification for disre+ardin+ their separate personalities, absent sufficient showin+ that the corporate entity was purposely used as a shield to defraud creditors and third persons of their ri+hts.S ;ikewise, respondentVs ac4uisition of some of the machineries and e4uipment of 6ynetics was not proof that respondent was formed to defraud petitioner. s the Court of ppeals found, no mer+er?$)@ took place between 6ynetics and respondent 6yne-Sem. Chat took place was a sale of the assets?$&@ of the former to the latter. #er+er is le+ally distinct from a sale of assets.?$$@ Thus, where one corporation sells or otherwise transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor. "etitioner itself admits that respondent ac4uired the machineries and e4uipment not directly from 6ynetics but from the various corporations which successfully bidded for them in an auction sale. The contracts of sale e7ecuted between the winnin+ bidders and respondent showed that the assets were sold for considerable amounts.?$5@ The Court of ppeals thus correctly ruled that the assets were not RdivertedS to respondent as an alter e+o of 6ynetics.?$.@ The machineries and e4uipment were transferred and disposed of by the winnin+ bidders in their capacity as owners. The sales were therefore valid and the transfers of the properties to respondent le+al and not in any way in contravention of petitionerVs ri+hts as 6yneticsV creditor. 1inally, it may be true that respondent later hired 6yneticsV former Gice-"resident ;uvinia #a+laya and ssistant Corporate Counsel Gir+ilio Fesmundo. 1rom this, however, we cannot conclude that respondent was an alter e+o of 6ynetics. !n fact, even the overlappin+ of incorporators and stockholders of two or more corporations will not necessarily lead to such inference and Austify the piercin+ of the veil of corporate fiction.?$D@ #uch more has to be proven. "remises considered, no factual and le+al basis e7ists to hold respondent 6yne-Sem liable for the obli+ations of 6ynetics to petitioner. ;HEREFORE, the petition is hereby DENIED. The assailed Court of resolution in C -F.>. CG No. .)(%$ are hereby AFFIR-ED. ppealsV decision and

G.R. No. L-12419

-$9 31, 1962

)IR vs. THE )L(' FILI INO, IN). DE )E'( This is a petition to review the decision of the Court of Ta7 ppeals, reversin+ the decision of the Collector of !nternal >evenue, assessin+ a+ainst and demandin+ from the 0Club 1ilipino, !nc. de Cebu0, the sum of "&$,)(-.-. as fi7ed and percenta+e ta7es, surchar+e and compromise penalty, alle+edly due from it as a keeper of bar and restaurant. s found by the Court of Ta7 ppeals, the 0Club 1ilipino, !nc. de Cebu,0 2Club, for short3, is a civic corporation or+ani<ed under the laws of the "hilippines with an ori+inal authori<ed capital stock of "$$,))).)), which was subse4uently increased to "$)),))).)), amon+ others, to it 0proporcionar, operar, y mantener un campo de +olf, tenis, +imnesio 2+ymnasiums3, Aue+o de bolos 2bowlin+ alleys3, mesas de billar y pool, y toda clase de Aue+os no prohibidos por leyes +enerales y ordenan<as +enerales: y desarollar y cultivar deportes de toda clase y denominacion cual4uiera para el recreo y entrenamiento saludable de sus miembros y accionistas0 2sec. $, Escritura de !ncorporacion del Club 1ilipino, !nc. E7h. 3. Neither in the articles or by-laws is there a provision relative to dividends and their distribution, althou+h it is covenanted that upon its dissolution, the Club8s remainin+ assets, after payin+ debts, shall be donated to a charitable "hilippine !nstitution in Cebu 2 rt. $%, Estatutos del Club, E7h. -a.3. The Club owns and operates a club house, a bowlin+ alley, a +olf course 2on a lot leased from the +overnment3, and a bar-restaurant where it sells wines and li4uors, soft drinks, meals and short orders to its members and their +uests. The %ar;restaurant was a necessary incident to the operation of the club and its +olf-course. The club is operated mainly with funds derived from membership fees and dues. Chatever profits it had, were used to defray its overhead e7penses and to improve its +olf-course. !n &'D&, as a result of a capital surplus, arisin+ from the re-valuation of its real properties, the value or price of which increased, the Club declared stock dividends: but no actual cash dividends were distributed to the stockholders. !n &'D$, a *!> a+ent discovered that the Club has never paid percenta+e ta7 on the +ross receipts of its bar and restaurant, althou+h it secured *-., *-'2a3 and *-% licenses. !n a letter dated 6ecember $$, &-D$, the Collector of !nternal >evenue assessed a+ainst and demanded from the Club, the followin+ sums/ M s percenta+e ta7 on its +ross receipts durin+ the ta7 years &'.( to &'D& "',D''.) % $,5''.%% %).)) D)).))

Surchar+e therein s fi7ed ta7 for the years &'.( to &'D$ Compromise penalty

The Club wrote the Collector, re4uestin+ for the cancellation of the assessment. The re4uest havin+ been denied, the Club filed the instant petition for review. The dominant issues involved in this case are two fold/ &. Chether the respondent Club is liable for the payment of the sum of &$,)(-.-., as fi7ed and percenta+e ta7es and surchar+es prescribed in sections &-$, &-5 and &'& of the Ta7 Code, under which the assessment was made, in connection with the operation of its bar and restaurant, durin+ the periods mentioned above: and $. Chether it is liable for the payment of the sum of "D)).)) as compromise penalty. Section &-$, of the Ta7 Code states, 0Unless otherwise provided, every person en+a+in+ in a business on which the percenta+e ta7 is imposed shall pay in full a fi7ed annual ta7 of ten pesos for each calendar year or fraction thereof in which such person shall en+a+e in said business.0 Section &-5 provides in +eneral that 0the percenta+e ta7es on business shall be payable at the end of each calendar 4uarter in the amount lawfully due on the business transacted durin+ each 4uarter: etc.0 nd section &'&, same Ta7 Code, provides 0"ercenta+e ta7. . Ueepers of restaurants, refreshment parlors and other eatin+ places shall pay a ta7 three per centum, and keepers of bar and cafes where wines or

li4uors are served five per centum of their +ross receipts .0 !t has been held that the liability for fi7ed and percenta+e ta7es, as provided by these sections, does not ipso facto attach by mere reason of the operation of a bar and restaurant. 1or the liability to attach, the operator thereof must be en+a+ed in the business as a barkeeper and restaurateur. The plain and ordinary meanin+ of %usiness is restricted to activities or affairs where profit is the purpose or livelihood is the motive, and the term business when used without 4ualification, should be construed in its plain and ordinary meanin+, restricted to activities for profitor livelihood 2The Coll. of !nt. >ev. v. #anila ;od+e No. %(& of the *"9E ?#anila Elks Club@ J Court of Ta7 ppeals, F.>. No. ;-&&&%(, =une $', &'D', +ivin+ full definitions of the word 0business0: Coll. of !nt. >ev. v. Sweeney, et al. ?!nternational Club of !loilo, !nc.@, F.>. No. ;-&$&%-, u+. $&, &'D', the facts of which are similar to the ones at bar: #anila "olo Club v. *. ;. #eer, etc., No. ;-&)-D., =an. $%, &'()3. ,avin+ found as a fact that the Club was or+ani<ed to develop and cultivate sports of all class and denomination, for the healthful recreation and entertainment of its stockholders and members: that upon its dissolution, its remainin+ assets, after payin+ debts, shall be donated to a charitable "hilippine !nstitution in Cebu: that it is operated mainly with funds derived from membership fees and dues: that the Club8s bar and restaurant catered only to its members and their +uests: that there was in fact no cash dividend distribution to its stockholders and that whatever was derived on retail from its bar and restaurant was used to defray its overall overhead e7penses and to improve its +olf-course 2cost-plus-e7penses-basis3, it stands to reason that the Club is not en+a+ed in the business of an operator of bar and restaurant 2same authorities, cited above3. !t is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does not necessarily convert it into a profit-makin+ enterprise. The bar and restaurant are necessary adAuncts of the Club to foster its purposes and the profits derived therefrom are necessarily incidental to the primary obAect of developin+ and cultivatin+ sports for the healthful recreation and entertainment of the stockholders and members. That a Club makes some profit, does not make it a profit-makin+ Club. s has been remarked, a club should always strive, whenever possible, to have surplus 2=esus Sacred ,eart Colle+e v. Collector of !nt. >ev., F.>. No. ;-(-)%, #ay $., &'D.: Collector of !nt. >ev. v. Sinco Educational Corp., F.>. No. ;-'$%(, 9ct. $5, &'D(3. !t is claimed that unlike the two cases Aust cited 2supra3, which are non-stock, the appellee Club is a stock corporation. This is unmeritorious. The facts that the capital stock of the respondent Club is divided into shares, does not detract from the findin+ of the trial court that it is not en+a+ed in the business of operator of bar and restaurant. Chat is determinative of whether or not the Club is en+a+ed in such business is its obAect or purpose, as stated in its articles and by-laws. !t is a familiar rule that the actual purpose is not controlled by the corporate form or by the commercial aspect of the business prosecuted, but may be shown by e7trinsic evidence, includin+ the by-laws and the method of operation. 1rom the e7trinsic evidence adduced, the Ta7 Court concluded that the Club is not en+a+ed in the business as a barkeeper and restaurateur. #oreover, for a stock corporation to e7ist, two re4uisites must be complied with, to wit/ 2&3 a capital stock divided into shares and 2$3 an authority to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of the shares held 2sec. 5, ct No. &.D'3. !n the case at bar, nowhere in its articles of incorporation or by-laws could be found an authority for the distribution of its dividends or surplus profits. Strictly speakin+, it cannot, therefore, be considered a stock corporation, within the contemplation of the corporation law. ta7 is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit, nonstock or+ani<ations, unless the intent to the contrary is manifest and patent0 2Collector v. *"9E Elks Club, et al., supra3, which is not the case in the present appeal. ,avin+ arrived at the conclusion that respondent Club is not en+a+ed in the business as an operator of a bar and restaurant, and therefore, not liable for fi7ed and percenta+e ta7es, it follows that it is not liable for any penalty, much less of a compromise penalty. C,E>E19>E, the decision appealed from is affirmed without costs.