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Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-23145

November 29, 1968

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary administrator-appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.
Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.
Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.
FERNANDO, J.:
Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust Company of New
York, United States of America, of the estate of the deceased Idonah Slade Perkins, who died in New York City on
March 27, 1960, to surrender to the ancillary administrator in the Philippines the stock certificates owned by her in a
Philippine corporation, Benguet Consolidated, Inc., to satisfy the legitimate claims of local creditors, the lower court, then
presided by the Honorable Arsenio Santos, now retired, issued on May 18, 1964, an order of this tenor: "After
considering the motion of the ancillary administrator, dated February 11, 1964, as well as the opposition filed by the
Benguet Consolidated, Inc., the Court hereby (1) considers as lost for all purposes in connection with the administration
and liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates covering the 33,002 shares of stock
standing in her name in the books of the Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3)
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 Probate Division of this Court." 1
From 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 Philippine corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The
challenged order represents a response and expresses a policy, to paraphrase Frankfurter, arising out of a specific
problem, addressed to the attainment of specific ends by the use of specific remedies, with full and ample support from
legal doctrines of weight and significance.
The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah Slade Perkins, who
died on March 27, 1960 in New York City, left among others, two stock certificates covering 33,002 shares of appellant,
the certificates being in the possession of the County Trust Company of New York, which as noted, is the domiciliary
administrator of the estate of the deceased.2 Then came this portion of the appellant's brief: "On August 12, 1960,
Prospero Sanidad instituted ancillary administration proceedings in the Court of First Instance of Manila; Lazaro A.
Marquez was appointed ancillary administrator, and on January 22, 1963, he was substituted by the appellee Renato D.
Tayag. A dispute arose between the domiciary administrator in New York and the ancillary administrator in the
Philippines as to which of them was entitled to the possession of the stock certificates in question. On January 27, 1964,
the Court of First Instance of Manila ordered the domiciliary administrator, County Trust Company, to "produce and
deposit" them with the ancillary administrator or with the Clerk of Court. The domiciliary administrator did not comply
with the order, and on February 11, 1964, the ancillary administrator petitioned the court to "issue an order declaring the
certificate or certificates of stocks covering the 33,002 shares issued in the name of Idonah Slade Perkins by Benguet
Consolidated, Inc., be declared [or] considered as lost."3
It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as far as it is concerned
as to "who is entitled to the possession of the stock certificates in question; appellant opposed the petition of the
ancillary administrator because the said stock certificates are in existence, they are today in the possession of the
domiciliary administrator, the County Trust Company, in New York, U.S.A...." 4

It is its view, therefore, that under the circumstances, the stock certificates cannot be declared or considered as lost.
Moreover, it would allege that there was a failure to observe certain requirements of its by-laws before new stock
certificates could be issued. Hence, its appeal.
As was made clear at the outset of this opinion, the appeal lacks merit. The challenged order constitutes an emphatic
affirmation of judicial authority sought to be emasculated by the wilful conduct of the domiciliary administrator in refusing
to accord obedience to a court decree. How, then, can this order be stigmatized as illegal?
As is true of many problems confronting the judiciary, such a response was called for by the realities of the situation.
What cannot be ignored is that conduct bordering on wilful defiance, if it had not actually reached it, cannot without
undue loss of judicial prestige, be condoned or tolerated. For the law is not so lacking in flexibility and resourcefulness
as to preclude such a solution, the more so as deeper reflection would make clear its being buttressed by indisputable
principles and supported by the strongest policy considerations.
It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no less than that of the
country. Through this challenged order, there is thus dispelled the atmosphere of contingent frustration brought 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 jurisdiction of the lower court by entering its appearance through counsel on June 27, 1963, and
filing a petition for relief from a previous order of March 15, 1963.
Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was decreed. For without
it, what it had been decided would be set at naught and nullified. Unless such a blatant disregard 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-nigh complete paralysis of judicial authority.
1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary administrator to gain control
and possession of all assets of the decedent within the jurisdiction of the Philippines. Nor could it. Such a power is
inherent in his duty to settle her estate and satisfy the claims of local creditors. 5 As Justice Tuason speaking for this
Court made clear, it is a "general rule universally recognized" that administration, whether principal or ancillary, certainly
"extends to the assets of a decedent found within the state or country where it was granted," the corollary being "that an
administrator appointed in one state or country has no power over property in another state or country." 6
It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set forth by Justice
Malcolm. Thus: "It is often necessary to have more than one administration of an estate. When a person dies intestate
owning property in the country of his domicile as well as in a foreign country, administration is had in both countries.
That which is granted in the jurisdiction of decedent's last domicile is termed the principal administration, while any other
administration is termed the ancillary administration. The reason for the latter is because a grant of administration does
not ex proprio vigore have any effect beyond the limits of the country in which it is granted. Hence, an administrator
appointed in a foreign state has no authority in the [Philippines]. The ancillary administration is proper, whenever a
person dies, leaving 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 among his heirs." 7
It would follow then that the authority of the probate court to require that ancillary administrator's right to "the stock
certificates covering the 33,002 shares ... standing in her name in the books of [appellant] Benguet Consolidated, Inc...."
be respected is equally beyond question. For appellant is a Philippine corporation owing full allegiance and subject to
the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be considered in any wise as immune
from lawful court orders.
Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue8 finds application. "In the instant case, the
actual situs of the shares of stock is in the Philippines, the corporation being domiciled [here]." To the force of the above
undeniable proposition, not even appellant is insensible. It does not dispute it. Nor could it successfully do so even if it
were so minded.

2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality of the challenged
order, how does appellant, Benguet Consolidated, Inc. propose to carry the extremely heavy burden of persuasion of
precisely demonstrating the contrary? It would assign as the basic error allegedly committed by the lower court its
"considering as lost the stock certificates covering 33,002 shares of Benguet belonging to the deceased Idonah Slade
Perkins, ..."9 More specifically, appellant would stress that the "lower court could not "consider as lost" the stock
certificates in question when, as a matter of fact, his Honor the trial Judge knew, and does know, and it is admitted by
the appellee, that the said stock certificates are in existence and are today in the possession of the domiciliary
administrator in New York."10
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
Philippines, there was nothing unreasonable or arbitrary in considering them as lost and requiring the appellant to issue
new certificates in lieu thereof. Thereby, the task incumbent under the law on the ancillary administrator could be
discharged and his responsibility fulfilled.
Any other view would result in the compliance to a valid judicial order being 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
refusing to yield obedience. Certainly, appellant would not be heard to contend in all seriousness that a judicial decree
could be treated as a mere scrap of paper, the court issuing it being powerless to remedy its flagrant disregard.
It may be admitted of course that such alleged loss as found by the lower court did not correspond exactly with the facts.
To be more blunt, the quality of truth may be lacking in such a conclusion arrived at. It is to be remembered however,
again to borrow from Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate ends have played
an important part in its development."11

if a corporate by-law would be accorded such a high estate in the jural order that a court must not only take note of it but
yield to its alleged controlling force.
The fear of appellant of a contingent 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. Its obedience to a lawful court order certainly constitutes a
valid defense, assuming that such apprehension of a possible court action against it could possibly materialize. Thus far,
nothing in the circumstances as they have developed gives substance to such a fear. Gossamer possibilities of a future
prejudice to appellant do not suffice to nullify the lawful exercise of judicial authority.
4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at war with the
basic postulates of corporate theory.
We start with the undeniable premise that, "a corporation is an artificial being created by operation of law...." 16 It owes its
life to the state, its birth being purely dependent on its will. As Berle so aptly stated: "Classically, a corporation was
conceived as an artificial person, owing its existence through creation by a sovereign power."17 As a matter of fact, the
statutory language employed owes much to Chief Justice Marshall, who in the Dartmouth College decision defined a
corporation precisely as "an artificial being, invisible, intangible, and existing only in contemplation of law."18
The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in reality a person,
but the law treats it as though it were a person by process of fiction, or by regarding it as an artificial person distinct and
separate from its individual stockholders.... It owes its existence to law. It is an artificial person created by law for certain
specific purposes, the extent of whose existence, powers and liberties is fixed by its charter."19 Dean Pound's terse
summary, a juristic person, resulting from an association of human beings granted legal personality by the state, puts
the matter neatly.20

Speaking of the common law in its earlier period, Cardozo could state fictions "were devices to advance the ends of
justice, [even if] clumsy and at times offensive."12 Some of them have persisted even to the present, that eminent jurist,
noting "the quasi contract, the adopted child, the constructive trust, all of flourishing vitality, to attest the empire of "as if"
today."13 He likewise noted "a class of fictions of another order, the fiction which is a working tool of thought, but which at
times hides itself from view till reflection and analysis have brought it to the light." 14

There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from Friedmann, "is the
reality of the group as a social and legal entity, independent of state recognition and concession."21 A corporation as
known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the state
according to law. It is logically inconceivable therefore that it will have rights and privileges of a higher priority than that
of its creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly not
excluding the judiciary, whenever called upon to do so.

What 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 judicial
technique. If ever an occasion did call for the employment of a legal fiction to put an end to the anomalous situation of a
valid judicial order being disregarded with apparent impunity, this is it. What is thus most obvious is that this particular
alleged error does not carry persuasion.

As a matter of fact, a corporation once it comes into being, following American law still of persuasive authority in our
jurisdiction, comes more often within the ken of the judiciary than the other two coordinate branches. It institutes the
appropriate court action to enforce its right. Correlatively, it is not immune from judicial control in those instances, where
a duty under the law as ascertained in an appropriate legal proceeding is cast upon it.

3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking 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 regarding ownership of such certificate or
certificates of stock allegedly lost, stolen or destroyed, the issuance of a new certificate or certificates would await the
"final decision by [a] court regarding the ownership [thereof]."15
Such reliance is misplaced. In the first place, there is no such occasion to apply such by-law. It is admitted that the
foreign domiciliary administrator did not appeal from the order now in question. Moreover, there is likewise the express
admission of appellant that as far as it is concerned, "it is immaterial ... who is entitled to the possession of the stock
certificates ..." Even if such were not the case, it would be a legal absurdity to impart to such a provision conclusiveness
and finality. Assuming that a contrariety exists between the above by-law and the command of a court decree, the latter
is to be followed.
It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to which, however, the judiciary
must yield deference, when appropriately invoked and deemed applicable. It would be most highly unorthodox, however,

To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy which
may be conceded but license which cannot be tolerated. It is to argue that it may, when so minded, overrule the state,
the source of its very existence; it is to contend that what any of its governmental organs may lawfully require could be
ignored at will. So extravagant a claim cannot possibly merit approval.
5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it was shown that in a guardianship proceedings then
pending in a lower court, the United States Veterans Administration filed a motion for the refund of a certain sum of
money paid to the minor under guardianship, alleging that the lower court had previously granted its petition to consider
the deceased father as not entitled to guerilla benefits according to a determination arrived at by its main office in the
United States. The motion was denied. In seeking a reconsideration of such order, the Administrator relied on an
American federal statute making his decisions "final and conclusive on all questions of law or fact" precluding any other
American official to examine the matter anew, "except a judge or judges of the United States court." 23Reconsideration
was denied, and the Administrator appealed.
In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the opinion that the appeal should
be rejected. The provisions of the U.S. Code, invoked by the appellant, make the decisions of the U.S. Veterans'
Administrator final and conclusive when made on claims property submitted to him for resolution; but they are not

applicable to the present case, where the Administrator is not acting as a judge but as a litigant. There is a great
difference between actions against the Administrator (which must be filed strictly in accordance with the conditions that
are imposed by the Veterans' Act, including the exclusive review by United States courts), and those actions where the
Veterans' Administrator seeks a remedy from our courts and submits to their jurisdiction by filing actions therein. Our
attention has not been called to any law or treaty that would make the findings of the Veterans' Administrator, in actions
where he is a party, conclusive on our courts. That, in effect, would deprive our tribunals of judicial discretion and render
them mere subordinate instrumentalities of the Veterans' Administrator."
It is bad enough as the Viloria decision made patent for our judiciary to accept as final and conclusive, determinations
made by foreign governmental agencies. It is infinitely worse if through the absence of any coercive power by our courts
over juridical persons within our jurisdiction, the force and effectivity of their orders could be made to depend on the
whim or caprice of alien entities. It is difficult to imagine of a situation more offensive to the dignity of the bench or the
honor of the country.
Yet that would be the effect, even if unintended, of the proposition to which appellant Benguet 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 consequences attendant on appellant prevailing
attest to the necessity of negative response from us. That is what appellant will get.
That is all then that this case presents. It is obvious why the appeal cannot succeed. It is always easy to conjure
extreme and even oppressive possibilities. That is not decisive. It does not settle the issue. What carries weight and
conviction is the result arrived at, the just solution obtained, grounded in the soundest of legal doctrines and
distinguished by its correspondence with what a sense of realism requires. For through the appealed order, the
imperative requirement of justice according to law is satisfied and national dignity and honor maintained.
WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First Instance, dated May
18, 1964, is affirmed. With costs against oppositor-appelant Benguet Consolidated, Inc.
Makalintal, Zaldivar and Capistrano, JJ., concur.
Concepcion, C.J., Reyes, J.B.L., Dizon, Sanchez and Castro, JJ., concur in the result.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 120138 September 5, 1997


MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS, RODOLFO L. JOCSON, JR., MELVIN S.
JURISPRUDENCIA, AUGUSTUS CESAR AZURA and EDGARDO D. PABALAN, petitioners,
vs.
COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, TORMIL REALTY & DEVELOPMENT
CORPORATION, ANTONIO P. TORRES, JR., MA. CRISTINA T. CARLOS, MA. LUISA T. MORALES and DANTE D.
MORALES, respondents.

ASSIGNMENT DATE PROPERTY ASSIGNED LOCATION SHARES TO BE


ISSUED
1. July 13, 1984 TCT 81834 Quezon City 13,252
TCT 144240 Quezon City
2. July 13, 1984 TCT 77008 Manila
TCT 65689 Manila 78,493
TCT 109200 Manila
3. July 13, 1984 TCT 374079 Makati 8,307
4. July 24, 1984 TCT 41527 Pasay
TCT 41528 Pasay 9,855
TCT 41529 Pasay
5. Aug. 06, 1984 El Hogar Filipino Stocks 2,000
6. Aug. 06, 1984 Manila Jockey Club Stocks 48,737

KAPUNAN, J.:
7. Aug. 07, 1984 San Miguel Corp. Stocks 50,283
In this petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioners seek to annul the
decision of the Court of Appeals in CA-G.R. SP. No. 31748 dated 23 May 1994 and its subsequent resolution dated 10
May 1995 denying petitioners' motion for reconsideration.
The present case involves two separate but interrelated conflicts. The facts leading to the first controversy are as
follows:

8. Aug. 07, 1984 China banking Corp. Stocks 6,300


9. Aug. 20, 1984 Ayala Corp. Stocks 7,468
10. Aug. 29, 1984 Ayala Fund Stocks 1,322

The late Manuel A. Torres, Jr. (Judge Torres for brevity) was the majority stockholder of Tormil Realty & Development
Corporation while private respondents who are the children of Judge Torres' deceased brother Antonio A. Torres,
constituted the minority stockholders. In particular, their respective shareholdings and positions in the corporation were
as follows:
Name of Stockholder Number of Percentage Position(s)
Shares
Manuel A. Torres, Jr. 100,120 57.21 Dir./Pres./Chair
Milagros P. Torres 33,430 19.10 Dir./Treasurer
Josefina P. Torres 8,290 4.73 Dir./Ass. Cor-Sec.
Ma. Cristina T. Carlos 8,290 4.73 Dir./Cor-Sec.
Antonio P. Torres, Jr. 8,290 4.73 Director
Ma. Jacinta P. Torres 8,290 4.73 Director
Ma. Luisa T. Morales 7,790 4.45 Director
Dante D. Morales 500 .28 Director 1
In 1984, Judge Torres, in order to make substantial savings in taxes, adopted an "estate planning" scheme under which
he assigned to Tormil Realty & Development Corporation (Tormil for brevity) various real properties he owned and his
shares of stock in other corporations in exchange for 225,972 Tormil Realty shares. Hence, on various dates in July and
August of 1984, ten (10) deeds of assignment were executed by the late Judge Torres:

225,972 2
Consequently, the aforelisted properties were duly recorded in the inventory of assets of Tormil Realty and the revenues
generated by the said properties were correspondingly entered in the corporation's books of account and financial
records.
Likewise, all the assigned parcels of land were duly registered with the respective Register of Deeds in the name of
Tormil Realty, except for the ones located in Makati and Pasay City.
At the time of the assignments and exchange, however, only 225,000 Tormil Realty shares remained unsubscribed, all
of which were duly issued to and received by Judge Torres (as evidenced by stock certificates Nos. 17, 18, 19, 20, 21,
22, 23, 24 & 25). 3
Due to the insufficient number of shares of stock issued to Judge Torres and the alleged refusal of private respondents
to approve the needed increase in the corporation's authorized capital stock (to cover the shortage of 972 shares due to
Judge Torres under the "estate planning" scheme), on 11 September 1986, Judge Torres revoked the two (2) deeds of
assignment covering the properties in Makati and Pasay City. 4
Noting the disappearance of the Makati and Pasay City properties from the corporation's inventory of assets and
financial records private respondents, on 31 March 1987, were constrained to file a complaint with the Securities and
Exchange Commission (SEC) docketed as SEC Case No. 3153 to compel Judge Torres to deliver to Tormil corporation

the two (2) deeds of assignment covering the aforementioned Makati and Pasay City properties which he had
unilaterally revoked and to cause the registration of the corresponding titles in the name of Tormil. Private respondents
alleged that following the disappearance of the properties from the corporation's inventory of assets, they found that on
October 24, 1986, Judge Torres, together with Edgardo Pabalan and Graciano Tobias, then General Manager and legal
counsel, respectively, of Tormil, formed and organized a corporation named "Torres-Pabalan Realty and Development
Corporation" and that as part of Judge Torres' contribution to the new corporation, he executed in its favor a Deed of
Assignment conveying the same Makati and Pasay City properties he had earlier transferred to Tormil.
The second controversy involving the same parties concerned the election of the 1987 corporate board of
directors.
The 1987 annual stockholders meeting and election of directors of Tormil corporation was scheduled on 25 March 1987
in compliance with the provisions of its by-laws.
Pursuant thereto, Judge Torres assigned from his own shares, one (l) share each to petitioners Tobias, Jocson,
Jurisprudencia, Azura and Pabalan. These assigned shares were in the nature of "qualifying shares," for the sole
purpose of meeting the legal requirement to be able to elect them (Tobias and company) to the Board of Directors as
Torres' nominees.
The assigned shares were covered by corresponding Tormil Stock Certificates Nos. 030, 029, 028, 027, 026 and at the
back of each certificate the following inscription is found:
The present certificate and/or the one share it represents, conformably to the purpose and
intention of the Deed of Assignment dated March 6, 1987, is not held by me under any claim of
ownership and I acknowledge that I hold the same merely as trustee of Judge Manuel A.
Torres, Jr. and for the sole purpose of qualifying me as Director;

told the body that they came as counsels of Manuel Torres, Jr. and as stockholders having
assigned qualifying shares by Manuel Torres, Jr.
The stockholders' meeting started at 2:45 p.m. with Mr. Pabalan presiding after verbally
authorized by Manuel Torres, Jr., the President and Chairman of the Board. The secretary
when asked about the quorum, said that there was more than a quorum. Mr. Pabalan
distributed copies of the president's report and the financial statements. Antonio Torres,
Jr. requested time to study the said reports and brought out the question of auditing the
finances of the corporation which he claimed was approved previously by the board. Heated
arguments ensued which also touched on family matters. Antonio Torres, Jr. moved for the
suspension of the meeting but Manuel Torres, Jr. voted for the continuation of the proceedings.
Mr. Pabalan suggested that the opinion of the SEC representatives be asked on the propriety
of suspending the meeting but Antonio Torres, Jr. objected reasoning out that we were just
observers.
When the Chairman called for the election of directors, the Secretary refused to write down the
names of nominees prompting Atty. Azura to initiate the appointment of Atty. Jocson, Jr. as
Acting Secretary.
Antonio Torres, Jr. nominated the present members of the Board. At this juncture, Milagros
Torres cried out and told the group of Manuel Torres, Jr. to leave the house.
Manuel Torres, Jr., together with his lawyers-stockholders went to the residence of Ma. Jacinta
Torres in San Miguel Village, Makati, Metro Manila. The undersigned joined them since the
group with Manuel Torres, Jr. the one who requested for S.E.C. observers, represented the
majority of the outstanding capital stock and still constituted a quorum.

(Signature of Assignee) 5
The reason behind the aforestated action was to remedy the "inequitable lopsided set-up obtaining in the corporation,
where, notwithstanding his controlling interest in the corporation, the late Judge held only a single seat in the ninemember Board of Directors and was, therefore, at the mercy of the minority, a combination of any two (2) of whom would
suffice to overrule the majority stockholder in the Board's decision making functions." 6

At the resumption of the meeting, the following were nominated and elected as directors for the
year 1987-1988:
1. Manuel Torres, Jr.
2. Ma. Jacinta Torres

On 25 March 1987, the annual stockholders meeting was held as scheduled. What transpired therein was ably narrated
by Attys. Benito Cataran and Bayani De los Reyes, the official representatives dispatched by the SEC to observe the
proceedings (upon request of the late Judge Torres) in their report dated 27 March 1987:
xxx xxx xxx
The undersigned arrived at 1:55 p.m. in the place of the meeting, a residential bungalow in
Urdaneta Village, Makati, Metro Manila. Upon arrival, Josefina Torres introduced us to the
stockholders namely: Milagros Torres, Antonio Torres, Jr., Ma. Luisa Morales, Ma. Cristina
Carlos and Ma. Jacinta Torres. Antonio Torres, Jr. questioned our authority and personality to
appear in the meeting claiming subject corporation is a family and private firm. We explained
that our appearance there was merely in response to the request of Manuel Torres, Jr. and that
SEC has jurisdiction over all registered corporations. Manuel Torres, Jr., a septuagenarian,
argued that as holder of the major and controlling shares, he approved of our attendance in the
meeting.
At about 2:30 p.m., a group composed of Edgardo Pabalan, Atty. Graciano Tobias, Atty. Rodolfo
Jocson, Jr., Atty. Melvin Jurisprudencia, and Atty. Augustus Cesar Azura arrived. Atty. Azura

3. Edgardo Pabalan
4. Graciano Tobias
5. Rodolfo Jocson, Jr.
6. Melvin Jurisprudencia
7. Augustus Cesar Azura
8. Josefina Torres
9. Dante Morales

After the election, it was resolved that after the meeting, the new board of directors shall
convene for the election of officers.
xxx xxx xxx 7
Consequently, on 10 April 1987, private respondents instituted a complaint with the SEC (SEC Case No. 3161) praying
in the main, that the election of petitioners to the Board of Directors be annulled.
Private respondents alleged that the petitioners-nominees were not legitimate stockholders of Tormil because the
assignment of shares to them violated the minority stockholders' right of pre-emption as provided in the corporation's
articles and by-laws.

Before the filing of these motions, the Commission en banc had already completed all
proceedings and had likewise ruled on the merits of the appealed cases. Viewed in this light,
we thus feel that there is nothing left to be done except to deny these motions to suspend
proceedings. 10
On the same date, the SEC en banc rendered a decision, the dispositive portion of which reads, thus:
WHEREFORE, premises considered, the appealed decision of the hearing panel is hereby
affirmed and all motions pending before us incident to this appealed case are necessarily
DISMISSED.
SO ORDERED. 11

Upon motion of petitioners, SEC Cases Nos. 3153 and 3161 were consolidated for joint hearing and adjudication.
On 6 March 1991, the Panel of Hearing Officers of the SEC rendered a decision in favor of private respondents. The
dispositive portion thereof states, thus:

Undaunted, on 10 August 1993, petitioners proceeded to plead its cause to the Court of Appeals by way of a petition for
review (docketed as CA-G.R. SP No. 31748).
On 23 May 1994, the Court of Appeals rendered a decision, the dispositive portion of which states:

WHEREFORE, premises considered, judgment is hereby rendered as follows:


1. Ordering and directing the respondents, particularly respondent Manuel A. Torres, Jr., to turn
over and deliver to TORMIL through its Corporate Secretary, Ma. Cristina T. Carlos: (a) the
originals of the Deeds of Assignment dated July 13 and 24, 1984 together with the owner's
duplicates of Transfer Certificates of Title Nos. 374079 of the Registry of Deeds for Makati, and
41527, 41528 and 41529 of the Registry of Deeds for Pasay City and/or to cause the formal
registration and transfer of title in and over such real properties in favor of TORMIL with the
proper government agency; (b) all corporate books of account, records and papers as may be
necessary for the conduct of a comprehensive audit examination, and to allow the examination
and inspection of such accounting books, papers and records by any or all of the corporate
directors, officers and stockholders and/or their duly authorized representatives or auditors;
2. Declaring as permanent and final the writ of preliminary injunction issued by the Hearing
Panel on February 13, 1989;
3. Declaring as null and void the election and appointment of respondents to the Board of
Directors and executive positions of TORMIL held on March 25, 1987, and all their acts and
resolutions made for and in behalf of TORMIL by authority of and pursuant to such invalid
appointment & election held on March 25, 1987;
4. Ordering the respondents jointly and severally, to pay the complainants the sum of ONE
HUNDRED THOUSAND PESOS (P100,000.00) as and by way of attorney's fees. 8
Petitioners promptly appealed to the SEC en banc (docketed as SEC-AC No. 339). Thereafter, on 3 April 1991, during
the pendency of said appeal, petitioner Manuel A. Torres, Jr. died. However, notice thereof was brought to the attention
of the SEC not by petitioners' counsel but by private respondents in a Manifestation dated 24 April 1991. 9
On 8 June 1993, petitioners filed a Motion to Suspend Proceedings on grounds that no administrator or legal
representative of the late Judge Torres' estate has yet been appointed by the Regional Trial Court of Makati where Sp.
Proc. No. M-1768 ("In Matter of the Issuance of the Last Will and Testament of Manuel A Torres, Jr.") was pending. Two
similar motions for suspension were filed by petitioners on 28 June 1993 and 9 July 1993.
On 19 July 1993, the SEC en banc issued an Order denying petitioners' aforecited motions on the following ground:

WHEREFORE, the petition for review is DISMISSED and the appealed decision is accordingly
affirmed.
SO ORDERED. 12
From the said decision, petitioners filed a motion for reconsideration which was denied in a resolution issued by the
Court of Appeals dated 10 May 1995. 13
Insisting on their cause, petitioners filed the present petition for review alleging that the Court of Appeals committed the
following errors in its decision:
(1)
WHEN IT RENDERED THE MAY 23, 1994 DECISION, WHICH IS A FULL LENGTH
DECISION, WITHOUT THE EVIDENCE AND THE ORIGINAL RECORD OF S.E.C. AC NO.
339 BEING PROPERLY BROUGHT BEFORE IT FOR REVIEW AND RE-EXAMINATION, AN
OMISSION RESULTING IN A CLEAR TRANSGRESSION OR CURTAILMENT OF THE
RIGHTS OF THE HEREIN PETITIONERS TO PROCEDURAL DUE PROCESS;
(2)
WHEN IT SANCTIONED THE JULY 19, 1993 DECISION OF THE RESPONDENT S.E.C.,
WHICH IS VOID FOR HAVING BEEN RENDERED WITHOUT THE PROPER SUBSTITUTION
OF THE DECEASED PRINCIPAL PARTY-RESPONDENT IN S.E.C.-AC NO. 339 AND
CONSEQUENTLY, FOR WANT OF JURISDICTION OVER THE SAID DECEASED'S TESTATE
ESTATE, AND MOREOVER, WHEN IT SOUGHT TO JUSTIFY THE NON-SUBSTITUTION BY
ITS APPLICATION OF THE CIVIL LAW CONCEPT OF NEGOTIORUM GESTIO;
(3)
WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE ORIGINAL
RECORD OF S.E.C. AC NO. 339 NOT HAVING ACTUALLY BEEN RE-EXAMINED, THAT

S.E.C. CASE NO. 3153 INVOLVED A SITUATION WHERE PERFORMANCE WAS


IMPOSSIBLE (AS CONTEMPLATED UNDER ARTICLE 1191 OF THE CIVIL CODE) AND WAS
NOT A MERE CASE OF LESION OR INADEQUACY OF CAUSE (UNDER ARTICLE 1355 OF
THE CIVIL CODE) AS SO ERRONEOUSLY CHARACTERIZED BY THE RESPONDENT
S.E.C.; and,

committed, and such prima facie finding is but consistent with the
grant of the extra-ordinary writ of preliminary injunction;
b) it required the parties to submit "simultaneous memoranda" in its
resolution dated October 15, 1993 (this is in addition to the comment
required to be filed by the respondents) and furthermore declared in
the same resolution that the petition will be decided "on the merits,"
instead of outrightly dismissing the same;

(4)
WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE ORIGINAL
RECORD OF S.E.C. AC NO. 339 NOT HAVING ACTUALLY BEEN EXAMINED, THAT THE
RECORDING BY THE LATE JUDGE MANUEL A. TORRES, JR. OF THE QUESTIONED
ASSIGNMENT OF QUALIFYING SHARES TO HIS NOMINEES, WAS AFFIRMED IN THE
STOCK AND TRANSFER BOOK BY AN ACTING CORPORATE SECRETARY AND
MOREOVER, THAT ACTUAL NOTICE OF SAID ASSIGNMENT WAS TIMELY MADE TO THE
OTHER STOCKHOLDERS. 14

c) it rendered a full length decision, wherein: (aa) it expressly declared


the respondent S.E.C. as having erred in denying the pertinent
motions to suspend proceedings; (bb) it declared the supposed error
as having become a non-issue when the respondent C.A."proceeded
to hear (the) appeal"; (cc) it formulated and applied its own theory of
negotiorum gestio in justifying the non-substitution of the deceased
principal party in S.E.C. AC No. 339 and moreover, its theory of di
minimis non curat lex (this, without first determining the true extent of
and the correct legal characterization of the so-called "shortage" of
Tormil shares;
and, (dd) it expressly affirmed the assailed decision of respondent
S.E.C. 15

We shall resolve the issues in seriatim.


I
Petitioners insist that the failure to transmit the original records to the Court of Appeals deprived them of procedural due
process. Without the evidence and the original records of the proceedings before the SEC, the Court of Appeals,
petitioners adamantly state, could not have possibly made a proper appreciation and correct determination of the issues,
particularly the factual issues, they had raised on appeal. Petitioners also assert that since the Court of Appeals
allegedly gave due course to their petition, the original records should have been forwarded to said court.
Petitioners anchor their argument on Secs. 8 and 11 of SC Circular 1-91 (dated 27 February 1991) which provides that:
8. WHEN PETITION GIVEN DUE COURSE. The Court of Appeals shall give due course to
the petition only when it shows prima facie that the court, commission, board, office or agency
concerned has committed errors of fact or law that would warrant reversal or modification of the
order, ruling or decision sought to be reviewed. The findings of fact of the court commission,
board, office or agency concerned when supported by substantial evidence shall be final.
xxx xxx xxx
11. TRANSMITTAL OF RECORD. Within fifteen (15) days from notice that the petition has
been given due course, the court, commission, board, office or agency concerned shall transmit
to the Court of Appeals the original or a certified copy of the entire record of the proceeding
under review. The record to be transmitted may be abridged by agreement of all parties to the
proceeding. The Court of Appeals may require or permit subsequent correction or addition to
the record.
Petitioners contend that the Court of Appeals had given due course to their petition as allegedly indicated by the
following acts:
a) it granted the restraining order applied for by the herein petitioners,
and after hearing, also the writ of preliminary injunction sought by
them; under the original SC Circular No. 1-91, a petition for review
may be given due course at the onset (paragraph 8) upon a
mere prima facie finding of errors of fact or law having been

Petitioners' contention is unmeritorious.


There is nothing on record to show that the Court of Appeals gave due course to the petition. The fact alone that the
Court of Appeals issued a restraining order and a writ of preliminary injunction and required the parties to submit their
respective memoranda does not indicate that the petition was given due course. The office of an injunction is merely to
preserve the status quo pending the disposition of the case. The court can require the submission of memoranda in
support of the respective claims and positions of the parties without necessarily giving due course to the petition. The
matter of whether or not to give due course to a petition lies in the discretion of the court.
It is worthy to mention that SC Circular No. 1-91 has been replaced by Revised Administrative Circular No. 1-95 (which
took effect on 1 June 1995) wherein the procedure for appeals from quasi-judicial agencies to the Court of Appeals was
clarified thus:
10. Due course. If upon the filing of the comment or such other pleadings or documents as
may be required or allowed by the Court of Appeals or upon the expiration of the period for the
filing thereof, and on the bases of the petition or the record the Court of Appeals finds prima
facie that the court or agency concerned has committed errors of fact or law that would warrant
reversal or modification of the award, judgment, final order or resolution sought to be reviewed,
it may give due course to the petition; otherwise, it shall dismiss the same. The findings of fact
of the court or agency concerned, when supported by substantial evidence, shall be binding on
the Court of Appeals.
11. Transmittal of record. Within fifteen (15) days from notice that the petition has been
given due course, the Court of Appeals may require the court or agency concerned to transmit
the original or a legible certified true copy of the entire record of the proceeding under review.
The record to be transmitted may be abridged by agreement of all parties to the proceeding.
The Court of Appeals may require or permit subsequent correction of or addition to the record.
(Emphasis ours.)
The aforecited circular now formalizes the correct practice and clearly states that in resolving appeals from quasi judicial
agencies, it is within the discretion of the Court of Appeals to have the original records of the proceedings under review
be transmitted to it. In this connection petitioners' claim that the Court of Appeals could not have decided the case on

the merits without the records being brought before it is patently lame. Indubitably, the Court of Appeals decided the
case on the basis of the uncontroverted facts and admissions contained in the pleadings, that is, the petition, comment,
reply, rejoinder, memoranda, etc. filed by the parties.

having voluntarily submitted to the jurisdiction of the SEC and the Court of Appeals and having thoroughly participated in
the proceedings.
The foregoing rationate finds support in the recent case of Vda. de Salazar v. CA, 18 wherein the Court expounded thus:

II
Petitioners contend that the decisions of the SEC and the Court of Appeals are null and void for being rendered without
the necessary substitution of parties (for the deceased petitioner Manuel A. Torres, Jr.) as mandated by Sec. 17, Rule 3
of the Revised Rules of Court, which provides as follows:
Sec. 17. Death of party. After a party dies and the claim is not thereby extinguished, the
court shall order, upon proper notice, the legal representative of the deceased to appear and to
be substituted for the deceased, within a period of thirty (30) days, or within such time as may
be granted. If the legal representative fails to appear within said time, the court may order the
opposing party to procure the appointment of a legal representative of the deceased within a
time to be specified by the court, and the representative shall immediately appear for and on
behalf of the interest of the deceased. The court charges involved in procuring such
appointment, if defrayed by the opposing party, may be recovered as costs. The heirs of the
deceased may be allowed to be substituted for the deceased, without requiring the
appointment of an executor or administrator and the court may appoint guardian ad litem for
the minor heirs.
Petitioners insist that the SEC en banc should have granted the motions to suspend they filed based as they were on
the ground that the Regional Trial Court of Makati, where the probate of the late Judge Torres' will was pending, had yet
to appoint an administrator or legal representative of his estate.
We are not unaware of the principle underlying the aforequoted provision:
It has been held that when a party dies in an action that survives, and no order is issued by the
Court for the appearance of the legal representative or of the heirs of the deceased to be
substituted for the deceased, and as a matter of fact no such substitution has ever been
effected, the trial held by the court without such legal representative or heirs, and the judgment
rendered after such trial, are null and void because the court acquired no jurisdiction over the
persons of the legal representative or of the heirs upon whom the trial and the judgment are not
binding. 16
As early as 8 April 1988, Judge Torres instituted Special Proceedings No. M-1768 before the Regional Trial Court of
Makati for the ante-mortem probate of his holographic will which he had executed on 31 October 1986. Testifying in the
said proceedings, Judge Torres confirmed his appointment of petitioner Edgardo D. Pabalan as the sole executor of his
will and administrator of his estate. The proceedings, however, were opposed by the same parties, herein private
respondents Antonio P. Torres, Jr., Ma. Luisa T. Morales and Ma. Cristina T. Carlos, 17 who are nephew and nieces of
Judge Torres, being the children of his late brother Antonio A. Torres.
It can readily be observed therefore that the parties involved in the present controversy are virtually the same parties
fighting over the representation of the late Judge Torres' estate. It should be recalled that the purpose behind the rule on
substitution of parties is the protection of the right of every party to due process. It is to ensure that the deceased party
would continue to be properly represented in the suit through the duly appointed legal representative of his estate. In the
present case, this purpose has been substantially fulfilled (despite the lack of formal substitution) in view of the peculiar
fact that both proceedings involve practically the same parties. Both parties have been fiercely fighting in the probate
proceedings of Judge Torres' holographic will for appointment as legal representative of his estate. Since both parties
claim interests over the estate, the rights of the estate were expected to be fully protected in the proceedings before the
SEC en banc and the Court of Appeals. In either case, whoever shall be appointed legal representative of Judge Torres'
estate (petitioner Pabalan or private respondents) would no longer be a stranger to the present case, the said parties

The need for substitution of heirs is based on the right to due process accruing to every party in
any proceeding. The rationale underlying this requirement in case a party dies during the
pendency of proceedings of a nature not extinguished by such death, is that . . . the exercise of
judicial power to hear and determine a cause implicitly presupposes in the trial court, amongst
other essentials, jurisdiction over the persons of the parties. That jurisdiction was inevitably
impaired upon the death of the protestee pending the proceedings below such that unless and
until a legal representative is for him duly named and within the jurisdiction of the trial court, no
adjudication in the cause could have been accorded any validity or binding effect upon any
party, in representation of the deceased, without trenching upon the fundamental right to a day
in court which is the very essence of the constitutionally enshrined guarantee of due process.
We are not unaware of several cases where we have ruled that a party having died in an action
that survives, the trial held by the court without appearance of the deceased's legal
representative or substitution of heirs and the judgment rendered after such trial, are null and
void because the court acquired no jurisdiction over the persons of the legal representatives or
of the heirs upon whom the trial and the judgment would be binding. This general rule
notwithstanding, in denying petitioner's motion for reconsideration, the Court of Appeals
correctly ruled that formal substitution of heirs is not necessary when the heirs themselves
voluntarily appeared, participated in the case and presented evidence in defense of deceased
defendant. Attending the case at bench, after all, are these particular circumstances which
negate petitioner's belated and seemingly ostensible claim of violation of her rights to due
process. We should not lose sight of the principle underlying the general rule that formal
substitution of heirs must be effectuated for them to be bound by a subsequent judgment. Such
had been the general rule established not because the rule on substitution of heirs and that on
appointment of a legal representative are jurisdictional requirements per se but because noncompliance therewith results in the undeniable violation of the right to due process of those
who, though not duly notified of the proceedings, are substantially affected by the decision
rendered therein . . . .
It is appropriate to mention here that when Judge Torres died on April 3, 1991, the SEC en banc had already fully heard
the parties and what remained was the evaluation of the evidence and rendition of the judgment.
Further, petitioners filed their motions to suspend proceedings only after more than two (2) years from the death of
Judge Torres. Petitioners' counsel was even remiss in his duty under Sec. 16, Rule 3 of the Revised Rules of
Court. 19 Instead, it was private respondents who informed the SEC of Judge Torres' death through a manifestation
dated 24 April 1991.
For the SEC en banc to have suspended the proceedings to await the appointment of the legal representative by the
estate was impractical and would have caused undue delay in the proceedings and a denial of justice. There is no telling
when the probate court will decide the issue, which may still be appealed to the higher courts.
In any case, there has been no final disposition of the properties of the late Judge Torres before the SEC. On the
contrary, the decision of the SEC en banc as affirmed by the Court of Appeals served to protect and preserve his estate.
Consequently, the rule that when a party dies, he should be substituted by his legal representative to protect the
interests of his estate in observance of due process was not violated in this case in view of its peculiar situation where
the estate was fully protected by the presence of the parties who claim interests therein either as directors, stockholders
or heirs.

Finally, we agree with petitioners' contention that the principle of negotiorum gestio 20 does not apply in the present case.
Said principle explicitly covers abandoned or neglected property or business.

The shortage of 972 shares definitely is not substantial and


fundamental breach as would defeat the very object of the parties in
entering into contract. Art. 1355 of the Civil Code also provides:
"Except in cases specified by law, lesion or inadequacy of cause shall
not invalidate a contract, unless there has been fraud, mistake or
undue influences." There being no fraud, mistake or undue influence
exerted on respondent Torres by TORMIL and the latter having already
issued to the former of its 225,000 unissued shares, the most logical
course of action is to declare as null and void the deed of revocation
executed by respondent Torres. (Rollo, pp. 45-46.) 21

III
Petitioners find legal basis for Judge Torres' act of revoking the assignment of his properties in Makati and Pasay City to
Tormil corporation by relying on Art. 1191 of the Civil Code which provides that:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
Petitioners' contentions cannot be sustained. We see no justifiable reason to disturb the findings of SEC, as affirmed by
the Court of Appeals:
We sustain the ruling of respondent SEC in the decision appealed from (Rollo, pp. 45-46) that

. . . the shortage of 972 shares would not be valid ground for


respondent Torres to unilaterally revoke the deeds of assignment he
had executed on July 13, 1984 and July 24, 1984 wherein he
voluntarily assigned to TORMIL real properties covered by TCT No.
374079 (Makati) and TCT No. 41527, 41528 and 41529 (Pasay)
respectively.
A comparison of the number of shares that respondent Torres received
from TORMIL by virtue of the "deeds of assignment" and the stock
certificates issued by the latter to the former readily shows that
TORMIL had substantially performed what was expected of it. In fact,
the first two issuances were in satisfaction to the properties being
revoked by respondent Torres. Hence, the shortage of 972 shares
would never be a valid ground for the revocation of the deeds covering
Pasay and Quezon City properties.

The aforequoted Civil Code provision does not apply in this particular situation for the obvious reason that a specific
number of shares of stock (as evidenced by stock certificates) had already been issued to the late Judge Torres in
exchange for his Makati and Pasay City properties. The records thus disclose:
DATE OF PROPERTY LOCATION NO. OF SHARES ORDER OF
ASSIGNMENT ASSIGNED TO BE ISSUED COMPLIANCE*
1. July 13, 1984 TCT 81834 Quezon City) 13,252 3rd
TCT 144240 Quezon City)
2. July 13, 1984 TCT 77008 Manila)
TCT 65689 Manila) 78,493 2nd
TCT 102200 Manila)
3. July 13, 1984 TCT 374079 Makati 8,307 1st
4. July 24, 1984 TCT 41527 Pasay
TCT 41528 Pasay) 9,855 4th
TCT 41529 Pasay)
5. August 6, 1984 El Hogar Filipino Stocks 2,000 7th
6. August 6, 1984 Manila Jockey Club Stocks 48,737 5th
7. August 7, 1984 San Miguel Corp. Stocks 50,238 8th
8. August 7, 1984 China Banking Corp. Stocks 6,300 6th
9. August 20, 1984 Ayala Corp. Stocks 7,468.2) 9th
10. August 29, 1984 Ayala Fund Stocks 1,322.1)

In Universal Food Corp. vs. CA, the Supreme Court held:


The general rule is that rescission of a
contract will not be permitted for a slight or
carnal breach, but only for such substantial
and fundamental breach as would defeat the
very object of the parties in making the
agreement.

TOTAL 225,972.3
*Order of stock certificate issuances by TORMIL to respondent Torres relative to the Deeds of
Assignment he executed sometime in July and August, 1984. 22 (Emphasis ours.)

Moreover, we agree with the contention of the Solicitor General that the shortage of shares should not have affected the
assignment of the Makati and Pasay City properties which were executed in 13 and 24 July 1984 and the consideration
for which have been duly paid or fulfilled but should have been applied logically to the last assignment of property
Judge Torres' Ayala Fund shares which was executed on 29 August 1984.23

We likewise sustain respondent SEC when it ruled, interpreting Section 74 of the Corporation
Code, as follows (Rollo, p. 45):
In the absence of (any) provision to the contrary, the corporate
secretary is the custodian of corporate records. Corollarily, he keeps
the stock and transfer book and makes proper and necessary entries
therein.

IV
Petitioners insist that the assignment of "qualifying shares" to the nominees of the late Judge Torres (herein petitioners)
does not partake of the real nature of a transfer or conveyance of shares of stock as would call for the "imposition of
stringent requirements (with respect to the) recording of the transfer of said shares." Anyway, petitioners add, there was
substantial compliance with the above-stated requirement since said assignments were entered by the late Judge Torres
himself in the corporation's stock and transfer book on 6 March 1987, prior to the 25 March 1987 annual stockholders
meeting and which entries were confirmed on 8 March 1987 by petitioner Azura who was appointed Assistant Corporate
Secretary by Judge Torres.

Contrary to the generally accepted corporate practice, the stock and


transfer book of TORMIL was not kept by Ms. Maria Cristina T. Carlos,
the corporate secretary but by respondent Torres, the President and
Chairman of the Board of Directors of TORMIL. In contravention to the
above cited provision, the stock and transfer book was not kept at the
principal office of the corporation either but at the place of respondent
Torres.

Petitioners further argue that:


These being the obtaining circumstances, any entries made in the
stock and transfer book on March 8, 1987 by respondent Torres of an
alleged transfer of nominal shares to Pabalan and Co. cannot
therefore be given any valid effect. Where the entries made are not
valid, Pabalan and Co. cannot therefore be considered stockholders of
record of TORMIL. Because they are not stockholders, they cannot
therefore be elected as directors of TORMIL. To rule otherwise would
not only encourage violation of clear mandate of Sec. 74 of the
Corporation Code that stock and transfer book shall be kept in the
principal office of the corporation but would likewise open the flood
gates of confusion in the corporation as to who has the proper custody
of the stock and transfer book and who are the real stockholders of
records of a certain corporation as any holder of the stock and transfer
book, though not the corporate secretary, at pleasure would make
entries therein.

10.10. Certainly, there is no legal or just basis for the respondent S.E.C. to penalize the late
Judge Torres by invalidating the questioned entries in the stock and transfer book, simply
because he initially made those entries (they were later affirmed by an acting corporate
secretary) and because the stock and transfer book was in his possession instead of the
elected corporate secretary, if the background facts herein-before narrated and the serious
animosities that then reigned between the deceased Judge and his relatives are to be taken
into account;
xxx xxx xxx
10.12. Indeed it was a practice in the corporate respondent, a family corporation with only a
measly number of stockholders, for the late judge to have personal custody of corporate
records; as president, chairman and majority stockholder, he had the prerogative of designating
an acting corporate secretary or to himself make the needed entries, in instances where the
regular secretary, who is a mere subordinate, is unavailable or intentionally defaults, which was
the situation that obtained immediately prior to the 1987 annual stockholders meeting of Tormil,
as the late Judge Torres had so indicated in the stock and transfer book in the form of the
entries now in question;
10.13. Surely, it would have been futile nay foolish for him to have insisted under those
circumstances, for the regular secretary, who was then part of a group ranged against him, to
make the entries of the assignments in favor of his nominees; 24

The fact that respondent Torres holds 81.28% of the outstanding


capital stock of TORMIL is of no moment and is not a license for him
to arrogate unto himself a duty lodged to (sic) the corporate
secretary. 26
All corporations, big or small, must abide by the provisions of the Corporation Code. Being a simple family corporation is
not an exemption. Such corporations cannot have rules and practices other than those established by law.
WHEREFORE, premises considered, the petition for review on certiorari is hereby DENIED.

Petitioners' contentions lack merit.


SO ORDERED.
It is precisely the brewing family discord between Judge Torres and private respondents his nephew and nieces that
should have placed Judge Torres on his guard. He should have been more careful in ensuring that his actions
(particularly the assignment of qualifying shares to his nominees) comply with the requirements of the law. Petitioners
cannot use the flimsy excuse that it would have been a vain attempt to force the incumbent corporate secretary to
register the aforestated assignments in the stock and transfer book because the latter belonged to the opposite faction.
It is the corporate secretary's duty and obligation to register valid transfers of stocks and if said corporate officer refuses
to comply, the transferor-stockholder may rightfully bring suit to compel performance. 25 In other words, there are
remedies within the law that petitioners could have availed of, instead of taking the law in their own hands, as the cliche
goes.
Thus, we agree with the ruling of the SEC en banc as affirmed by the Court of Appeals:

The issue squarely presented, both in the Court of First Instance and in this Court, is whether a discrepancy between
the tally board or tally sheet and the election returns constitutes sufficient ground for the Court of First Instance to order
a recount of the votes cast in the precinct affected (No. 65 of Tacloban City).
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-22540

July 31, 1964

BARTOLOME LAWSIN, petitioner,


vs.
HON. GODOFREDO ESCALONA, Judge of the Court of First Instance of Leyte, Branch I, and VIRGINIO A.
ASTILLA, respondents.
Jose W. Diokno for petitioner.
Francisco Astilla for respondents.
REYES, J.B.L., J.:
In the general elections of November 12, 1963, the herein petitioner, Bartolome Lawsin, and respondent Virginio Astilla,
were duly registered official candidates of the Nacionalista and Liberal parties, respectively, for one of the posts for
councilors in the City of Tacloban. On November 27, 1963, Astilla filed a verified petition in Branch I of the Court of First
Instance of Leyte (Election Case No. 3423) pleading that the election inspectors of Precinct No. 65 had erroneously
credited candidate Lawsin with seventy-five (75) votes in the election returns, instead of sixty-five (65) votes, as shown
in the tally board and certificates of votes duly issued by the election inspectors; that the said discrepancy erroneously
credited candidate Lawsin an additional ten (10) votes, an error which would effect the result of the election in that were
it not for the same petitioner Astilia should be rightfully declared elected with a majority of eight votes over Lawsin; and
prayed for the recount of the votes cast in said precinct 65 of Tacloban City.
Lawsin answered denying that any error was committed; that an action involving same facts, parties, cause of action,
and ultimate relief was already pending before Branch IV of the same court, being Election Case No. 3415; and that the
petition stated no cause of action, in that a discrepancy between the election returns and the corresponding tally board
or tally sheet did not warrant a recount of votes under section 163 of the Revised Election Code.
It is admitted that eleven days previous to the petition in this case, i.e., on November 16, 1963, Astilla had docketed, in
Branch I of the Court of First Instance of Leyte, a petition against Bartolome Lawsin, the City Treasurer of Tacloban, and
the Boards of Election Inspectors of Precincts 65 and 70, seeking to compel the latter to correct their election returns, on
the basis of the same discrepancy between the 75 votes credited to Lawsin and the allegedly true number of votes (65)
cast for him. Later, on November 25, 1963, an amended petition was filed, praying for a recount of votes as alternative
remedy. The amendment was subsequently withdrawn, and the present petition for recount was filed independently in
Branch IV. This petition for correction of returns was dismissed by Judge Elias B. Asuncion of Branch I, and the
judgment was sustained by this Court in G.R. No. L-22246, decided on February 29, 1964.
But while said case (L-22246) was still pending in the Supreme Court, Judge Godofredo Escalona of Branch IV of the
Court of First Instance of Leyte, on January 22, 1964, adjudged that Astilla was entitled to a recount due to the
discrepancies alleged in his petition, and enjoined the board of canvassers from proclaiming Lawsin. The latter moved
for a reconsideration, and upon its denial resorted to the Supreme Court on Certiorari and Prohibition, no appeal being
provided for by law. Upon his request, and the posting of a bond of P1,000.00, this Court issued a preliminary injunction
to halt further proceedings in the case below.

Sections 163 and 168 of the Revised Election Code provide as follows:
163. When statements of a precinct are contradictory. In case it appears to the provincial board of
canvassers that another copy or other authentic copies of the statement from an election precinct submitted
to the board give to a candidate a different number of votes and the difference affects the results of the
election, the Court of First Instance of the province, upon motion of the board or of any candidate affected,
may proceed to recount the votes cast in the precinct for the sole purpose of determining which is the true
statement or which is the true result of the count of the votes cast in said precinct for the office in question.
Notice of such proceeding shall be given to all candidates affected.
168. Canvass of the election for municipal offices. The municipal board of canvassers shall meet
immediately after the election. The municipal treasurer shall produce before it the statements of the election
from the different election precincts filed with him, and the board shall count the votes cast for candidates
for municipal offices and proclaim as elected for said offices those who have polled the largest number of
votes for the different offices, in the same manner as hereinbefore provided for the provincial board, and to
that end it shall have the same powers including that of resorting to the court in the case of contradictory
statements. The municipal board of canvassers shall not recount the ballots nor examine any of them but
shall proceed upon the statements presented to it. In case of contradictions or discrepancies between the
copies of the same statements, the procedure provided in section one hundred and sixty-three of this Code
shall be followed.
We have held in Parlade vs. Quicho, G.R. No. L-16259, December 29, 1959, that a judicial recount of votes under
section 163
is a special authority conferred on the Court and must be restrictively construed, so as not to extend to other cases that
may, more or less, bear some resemblance to the situation described in said sections;
that the discrepancy between the statement and another copy or other authentic copies thereof (mentioned in sections
163 and 168) means a variance existing between copies of the statement of the election returns presented by the local
treasurers to the respective boards of canvassers, "exclusively", as stated in Galang vs. Miranda, 36 Phil. 316, p. 320;
and that a discrepancy between the election returns and a certificate issued to the watchers is not a ground for a
recount, because said certificate is not the authentic copy of the statement of election returns contemplated by the law.
The Parlade ruling is decisive in the case before us. It should be obvious that if a discrepancy between the statements
of election returns and a certificate signed by the inspectors and issued to a watcher does not warrant a recount as ruled
in that case, then a variance between the returns and the corresponding tally board or sheet can not be a ground for a
recount either, since the sheet is not a copy of the former Tally board and tally sheet already provided by law and were
in use in previous elections (see R.A. No. 180 [1947] section 148) and yet they were not included or referred to in
sections 163 and 168 of the Election Code as documents to be taken into account in determining discrepancies that
justify a recount.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this
Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by this
stipulation of facts. 1wph1.t
It is argued that under the "instructions for Boards of Inspectors", issued by the "Commission on Elections in 1963, the
votes counted are recorded in the tally board by the poll clerk and on the tally sheet by one inspector; that the tally sheet
is certified by the latter as true and correct, while the chairman, the other inspector and the poll clerk certify in turn that it
is the tally sheet used by the certifying inspector, so that the tally sheet has the same guarantees of authenticity as the
election returns. Yet a certification of correctness by one inspector is certainly not the equivalent of a certification by all

the members of the board of inspectors, who, in the case of the election returns, collectively attest that the data
contained therein are true and correct. The additional precautions prescribed by the Commission on Elections, pursuant
to its regulatory power, could not warrant the conclusion that the tally sheet is one of the authentic copies referred to in
section 163, since the Commission on Elections may not increase its scope, nor alter or amend the Election Code
enacted by the Legislature. If sections 163 and 168 did not originally include the tally sheet (or board), the Commission
is powerless to subsequently insert it therein.
The special nature and limited scope of the summary judicial recount provided by section 168 of the Election Code is
admittedly aimed at delaying as little as practicable the proclamation of the winning candidate, without prejudice to a
thorough revision of the election results in proper cases by means of the corresponding election protest, which is the
normal process provided for the purpose. To multiply the grounds for a recount of votes before a proclamation by the
board of canvassers is made has the effect of downgrading the election protest as a remedy, and to prolong the periods
during which the contested positions will remain without an occupant, thereby provoking suspicion, conjecture, and
unrest. The case at bar is a prime example; over six months have elapsed since the election without the canvassers
being able to make proclamation. Thus it seems fair and just to require clear statutory authority for a recount based on
discrepancies found elsewhere than in election returns.
But there is another ground upon which Astilla's petition for recount should be denied: By filing separate proceedings for
the correction of the returns and for the recount of votes, respondent herein, Virginio Astilla, was guilty of splitting one
and the same cause of action. The operative facts were the same in the two cases he has filed in the Court of First
Instance of Leyte, to wit, the averred discrepancy between the tally sheet and the copies of the election returns,
whereby Lawsin was allegedly credited with ten more votes than he really obtained, to the prejudice of Astilla. Upon that
single cause of action,1 Astilla could seek either a correction of returns or a recount, but not make it the subject of two or
more suits, either simultaneously or successively. Wherefore, in accordance with section 4 of Rule 2 of the Revised
Rules of Court (also section 4 of Rule 2 of the old Rules), the judgment in the correction case should be a bar to the
other suit for recount.2 Even when he resorted to this Court (in case L-22246) against the denial by Judge Asuncion of
his petition for correction, Astilla could still have asked that this Court direct the Judge to order a recount; but he did not
do so, evidently preferring to continue with the separate proceeding before Judge Escalona, and thereby maintain an
unnecessary multiplicity of suits. This fact was called by petitioner Lawsin to the attention of respondent Judge, but the
latter improperly failed to consider it. The result, as previously observed, was to unwarrantedly delay the proclamation
for eight months, contrary to the spirit of the Election Code.
Respondent Astilla urges that the certiorari petition should be considered barred for not having been interposed within
five days, citing section 178 of the Election Code. That legal provision, be it noted, clearly refers to an appeal from a
decision in an electoral protest. We have found no unnecessary delay in Lawsin's seeking consideration, nor in his
resort to this Court, allowing for the fact that the judgment complained of was rendered in Leyte. Basically, the delay was
due to Astilla's filing two suits for one and the same cause of action.
FOR THE FOREGOING REASONS, the lower court's order for recount and its injunction against a proclamation by the
municipal board of canvassers are hereby revoked and set aside, and the preliminary injunction issued heretofore by
this Court is made permanent. Costs against respondent Virginio Astilla.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-48930

February 23, 1944

ANTONIO VAZQUEZ, petitioner,


vs.
FRANCISCO DE BORJA, respondent.
x---------------------------------------------------------x
G.R. No. L-48931

February 23, 1944

FRANCISCO DE BORJA, petitioner,


vs.
ANTONIO VAZQUEZ, respondent.
OZAETA, J.:
This action was commenced in the Court of First Instance of Manila by Francisco de Borja against Antonio Vazquez and
Fernando Busuego to recover from them jointly and severally the total sum of P4,702.70 upon three alleged causes of
action, to wit: First, that in or about the month of January, 1932, the defendants jointly and severally obligated
themselves to sell to the plaintiff 4,000 cavans of palay at P2.10 per cavan, to be delivered during the month of
February, 1932, the said defendants having subsequently received from the plaintiff in virtue of said agreement the sum
of P8,400; that the defendants delivered to the plaintiff during the months of February, March, and April, 1932, only
2,488 cavans of palay of the value of P5,224.80 and refused to deliver the balance of 1,512 cavans of the value of
P3,175.20 notwithstanding repeated demands. Second, that because of defendants' refusal to deliver to the plaintiff the
said 1,512 cavans of palay within the period above mentioned, the plaintiff suffered damages in the sum of P1,000. And,
third, that on account of the agreement above mentioned the plaintiff delivered to the defendants 4,000 empty sacks, of
which they returned to the plaintiff only 2,490 and refused to deliver to the plaintiff the balance of 1,510 sacks or to pay
their value amounting to P377.50; and that on account of such refusal the plaintiff suffered damages in the sum of P150.
The defendant Antonio Vazquez answered the complaint, denying having entered into the contract mentioned in the first
cause of action in his own individual and personal capacity, either solely or together with his codefendant Fernando
Busuego, and alleging that the agreement for the purchase of 4,000 cavans of palay and the payment of the price of
P8,400 were made by the plaintiff with and to the Natividad-Vasquez Sabani Development Co., Inc., a corporation
organized and existing under the laws of the Philippines, of which the defendant Antonio Vazquez was the acting
manager at the time the transaction took place. By way of counterclaim, the said defendant alleged that he suffered
damages in the sum of P1,000 on account of the filing of this action against him by the plaintiff with full knowledge that
the said defendant had nothing to do whatever with any and all of the transactions mentioned in the complaint in his own
individual and personal capacity.
The trial court rendered judgment ordering the defendant Antonio Vazquez to pay to the plaintiff the sum of P3,175.20
plus the sum of P377.50, with legal interest on both sums, and absolving the defendant Fernando Busuego (treasurer of
the corporation) from the complaint and the plaintiff from the defendant Antonio Vazquez' counterclaim. Upon appeal to
the Court of Appeals, the latter modified that judgment by reducing it to the total sum of P3,314.78, with legal interest
thereon and the costs. But by a subsequent resolution upon the defendant's motion for reconsideration, the Court of
Appeals set aside its judgment and ordered that the case be remanded to the court of origin for further proceedings. The

defendant Vazquez, not being agreeable to that result, filed the present petition for certiorari (G.R. No. 48930) to review
and reverse the judgment of the Court of Appeals; and the plaintiff Francisco de Borja, excepting to the resolution of the
Court of Appeals whereby its original judgment was set aside and the case was ordered remanded to the court of origin
for further proceedings, filed a cross-petition for certiorari (G.R. No. 48931) to maintain the original judgment of the
Court of Appeals.
The original decision of the Court of Appeals and its subsequent resolutions on reconsideration read as follows:
Es hecho no controvertido que el 25 de Febrero de 1932, el demandado-apelante vendio al demandante
4,000 cavanes de palay al precio de P2.10 el cavan, de los cuales, dicho demandante solamente recibio
2,583 cavanes; y que asimismo recibio para su envase 4,000 sacos vacios. Esta provbado que de dichos
4,000 sacos vacios solamente se entregaron, 2,583 quedando en poder del demandado el resto, y cuyo
valor es el de P0.24 cada uno. Presentada la demanda contra los demandados Antonio Vazquez y
Fernando Busuego para el pago de la cantidad de P4,702.70, con sus intereses legales desde el 1.o de
marzo de 1932 hasta su completo pago y las costas, el Juzgado de Primera Instancia de Manila el asunto
condenando a Antonio Vazquez a pagar al demandante la cantidad de P3,175.20, mas la cantidad de
P377.50, con sus intereses legales, absolviendo al demandado Fernando Busuego de la demanda y al
demandante de la reconvencion de los demandados, sin especial pronunciamiento en cuanto a las costas.
De dicha decision apelo el demandado Antonio Vazquez, apuntado como principal error el de que el habia
sido condenado personalmente, y no la corporacion por el representada.
Segun la preponderancia de las pruebas, la venta hecha por Antonio Vazquez a favor de Francisco de
Borja de los 4,000 cavanes de palay fue en su capacidad de Presidente interino y Manager de la
corporacion Natividad-Vazquez Sabani Development Co., Inc. Asi resulta del Exh. 1, que es la copia al
carbon del recibo otorgado por el demandado Vazquez, y cuyo original lo habia perdido el demandante,
segun el. Asi tambien consta en los libros de la corporacion arriba mencionada, puesto que en los mismos
se ha asentado tanto la entrada de los P8,400, precio del palay, como su envio al gobierno en pago de los
alquileres de la Hacienda Sabani. Asi mismo lo admitio Francisco de Borja al abogado Sr. Jacinto
Tomacruz, posterior presidente de la corporacion sucesora en el arrendamiento de la Sabani Estate,
cuando el solicito sus buenos oficios para el cobro del precio del palay no entregado. Asi igualmente lo
declaro el que hizo entrega de parte del palay a Borja, Felipe Veneracion, cuyo testimonio no ha sido
refutado. Y asi se deduce de la misma demanda, cuando se incluyo en ella a Fernando Busuego, tesorero
de la Natividad-Vazquez Sabani Development Co., Inc.
Siendo esto asi, la principal responsable debe ser la Natividad-Vazquez Sabani Development Co., Inc., que
quedo insolvente y dejo de existir. El Juez sentenciador declaro, sin embargo, al demandado Vazquez
responsable del pago de la cantidad reclamada por su negligencia al vender los referidos 4,000 cavanes de
palay sin averiguar antes si o no dicha cantidad existia en las bodegas de la corporacion.
Resulta del Exh. 8 que despues de la venta de los 4,000 cavanes de palay a Francisco de Borja, el mismo
demandado vendio a Kwong Ah Phoy 1,500 cavanes al precio de P2.00 el cavan, y decimos 'despues'
porque esta ultima venta aparece asentada despues de la primera. Segun esto, el apelante no solamente
obro con negligencia, sino interviniendo culpa de su parte, por lo que de acuerdo con los arts. 1102, 1103 y
1902 del Codigo Civil, el debe ser responsable subsidiariamente del pago de la cantidad objecto de la
demanda.
En meritos de todo lo expuesto, se confirma la decision apelada con la modificacion de que el apelante
debe pagar al apelado la suma de P2,295.70 como valor de los 1,417 cavanes de palay que dejo de
entregar al demandante, mas la suma de P339.08 como importe de los 1,417 sacos vacios, que dejo de
devolver, a razon de P0.24 el saco, total P3,314.78, con sus intereses legales desde la interposicion de la
demanda y las costas de ambas instancias.
Vista la mocion de reconsideracion de nuestra decision de fecha 13 de Octubre de 1942, y alegandose en
la misma que cuando el apelante vendio los 1,500 cavanes de palay a Ah Phoy, la corporacion todavia
tenia bastante existencia de dicho grano, y no estando dicho extremo suficientemente discutido y probado,

y pudiendo variar el resultado del asunto, dejamos sin efecto nuestra citada decision, y ordenamos la
devolucion de la causa al Juzgado de origen para que reciba pruebas al efecto y dicte despues la decision
correspondiente.
Upon consideration of the motion of the attorney for the plaintiff-appellee in case CA-G.R. No.
8676, Francisco de Borja vs. Antonio Vasquez et al., praying, for the reasons therein given, that the
resolution of December 22, 1942, be reconsidered: Considering that said resolution remanding the case to
the lower court is for the benefit of the plaintiff-appellee to afford him opportunity to refute the contention of
the defendant-appellant Antonio Vazquez, motion denied.
The action is on a contract, and the only issue pleaded and tried is whether the plaintiff entered into the contract with the
defendant Antonio Vazquez in his personal capacity or as manager of the Natividad-Vazquez Sabani Development Co.,
Inc. The Court of Appeals found that according to the preponderance of the evidence "the sale made by Antonio
Vazquez in favor of Francisco de Borja of 4,000 cavans of palay was in his capacity as acting president and manager of
the corporation Natividad-Vazquez Sabani Development Co., Inc." That finding of fact is final and, it resolving the only
issue involved, should be determinative of the result.
The Court of Appeals doubly erred in ordering that the cause be remanded to the court of origin for further trial to
determine whether the corporation had sufficient stock of palay at the time appellant sold, 1500 cavans of palay to
Kwong Ah Phoy. First, if that point was material to the issue, it should have been proven during the trial; and the
statement of the court that it had not been sufficiently discussed and proven was no justification for ordering a new trial,
which, by the way, neither party had solicited but against which, on the contrary, both parties now vehemently protest.
Second, the point is, in any event, beside the issue, and this we shall now discuss in connection with the original
judgment of the Court of Appeals which the plaintiff cross-petitioner seeks to maintain.
The action being on a contract, and it appearing from the preponderance of the evidence that the party liable on the
contract is the Natividad-Vazquez Sabani Development Co., Inc. which is not a party herein, the complaint should have
been dismissed. Counsel for the plaintiff, in his brief as respondent, argues that altho by the preponderance of the
evidence the trial court and the Court of Appeals found that Vazquez celebrated the contract in his capacity as acting
president of the corporation and altho it was the latter, thru Vazquez, with which the plaintiff had contracted and which,
thru Vazquez, had received the sum of P8,400 from Borja, and altho that was true from the point of view of a legal
fiction, "ello no impede que tambien sea verdad lo alegado en la demanda de que la misma persona de Vasquez fue la
que contrato con Borja y que la misma persona de Vasquez fue quien recibio la suma de P8,400." But such argument is
invalid and insufficient to show that the president of the corporation is personally liable on the contract duly and lawfully
entered into by him in its behalf.
It is well known that a corporation is an artificial being invested by law with a personality of its own, separate and distinct
from that of its stockholders and from that of its officers who manage and run its affairs. The mere fact that its
personality is owing to a legal fiction and that it necessarily has to act thru its agents, does not make the latter personally
liable on a contract duly entered into, or for an act lawfully performed, by them for an in its behalf. The legal fiction by
which the personality of a corporation is created is a practical reality and necessity. Without it no corporate entities may
exists and no corporate business may be transacted. Such legal fiction may be disregarded only when an attempt is
made to use it as a cloak to hide an unlawful or fraudulent purpose. No such thing has been alleged or proven in this
case. It has not been alleged nor even intimated that Vazquez personally benefited by the contract of sale in question
and that he is merely invoking the legal fiction to avoid personal liability. Neither is it contended that he entered into said
contract for the corporation in bad faith and with intent to defraud the plaintiff. We find no legal and factual basis upon
which to hold him liable on the contract either principally or subsidiarily.
The trial court found him guilty of negligence in the performance of the contract and held him personally liable on that
account. On the other hand, the Court of Appeals found that he "no solamente obro con negligencia, sino interveniendo
culpa de su parte, por lo que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser responsable
subsidiariamente del pago de la cantidad objeto de la demanda." We think both the trial court and the Court of Appeals
erred in law in so holding. They have manifestly failed to distinguish a contractual from an extracontractual obligation, or
an obligation arising from contract from an obligation arising from culpa aquiliana. The fault and negligence referred to in
articles 1101-1104 of the Civil Code are those incidental to the fulfillment or nonfullfillment of a contractual obligation;

while the fault or negligence referred to in article 1902 is the culpa aquiliana of the civil law, homologous but not identical
to tort of the common law, which gives rise to an obligation independently of any contract. (Cf. Manila R.R. Co. vs. Cia.
Trasatlantica, 38 Phil., 875, 887-890; Cangco vs. Manila R.R. Co., 38 Phil. 768.) The fact that the corporation, acting
thru Vazquez as its manager, was guilty of negligence in the fulfillment of the contract, did not make Vazquez principally
or even subsidiarily liable for such negligence. Since it was the corporation's contract, its nonfulfillment, whether due to
negligence or fault or to any other cause, made the corporation and not its agent liable.
On the other hand if independently of the contract Vazquez by his fault or negligence cause damaged to the plaintiff, he
would be liable to the latter under article 1902 of the Civil Code. But then the plaintiff's cause of action should be based
on culpa aquiliana and not on the contract alleged in his complaint herein; and Vazquez' liability would be principal and
not merely subsidiary, as the Court of Appeals has erroneously held. No such cause of action was alleged in the
complaint or tried by express or implied consent of the parties by virtue of section 4 of Rule 17. Hence the trial court had
no jurisdiction over the issue and could not adjudicate upon it (Reyes vs. Diaz, G.R. No. 48754.) Consequently it was
error for the Court of Appeals to remand the case to the trial court to try and decide such issue.
It only remains for us to consider petitioner's second assignment of error referring to the lower courts' refusal to entertain
his counterclaim for damages against the respondent Borja arising from the bringing of this action. The lower courts
having sustained plaintiff's action. The finding of the Court of Appeals that according to the preponderance of the
evidence the defendant Vazquez celebrated the contract not in his personal capacity but as acting president and
manager of the corporation, does not warrant his contention that the suit against him is malicious and tortious; and since
we have to decide defendant's counterclaim upon the facts found by the Court of Appeals, we find no sufficient basis
upon which to sustain said counterclaim. Indeed, we feel that a a matter of moral justice we ought to state here that the
indignant attitude adopted by the defendant towards the plaintiff for having brought this action against him is in our
estimation not wholly right. Altho from the legal point of view he was not personally liable for the fulfillment of the
contract entered into by him on behalf of the corporation of which he was the acting president and manager, we think it
was his moral duty towards the party with whom he contracted in said capacity to see to it that the corporation
represented by him fulfilled the contract by delivering the palay it had sold, the price of which it had already received.
Recreant to such duty as a moral person, he has no legitimate cause for indignation. We feel that under the
circumstances he not only has no cause of action against the plaintiff for damages but is not even entitled to costs.
The judgment of the Court of Appeals is reversed, and the complaint is hereby dismissed, without any finding as to
costs.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 152542

July 8, 2004

In 1997, the group of Antonio Monfort III, through force and intimidation, allegedly took possession of the 4 Haciendas,
the produce thereon and the motor vehicle and tractors, as well as the fighting cocks of Ramon H. Monfort.
In G.R. No. 155472:

MONFORT HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION, as represented by MA. ANTONIA M.


SALVATIERRA, petitioner,
vs.
ANTONIO B. MONFORT III, MA. LUISA MONFORT ASCALON, ILDEFONSO B. MONFORT, ALFREDO B.
MONFORT, CARLOS M. RODRIGUEZ, EMILY FRANCISCA R. DOLIQUEZ, ENCARNACION CECILIA R. PAYLADO,
JOSE MARTIN M. RODRIGUEZ and COURT OF APPEALS, respondents.
G.R. No. 155472

Monfort, its Executive Vice President, to breed and maintain fighting cocks in his personal capacity at Hacienda San
Antonio.5

July 8, 2004

ANTONIO B. MONFORT III, MA. LUISA MONFORT ASCALON, ILDEFONSO B. MONFORT, ALFREDO B.
MONFORT, CARLOS M. RODRIGUEZ, EMILY FRANCISCA R. DOLIQUEZ, ENCARNACION CECILIA R. PAYLADO,
JOSE MARTIN M. RODRIGUEZ, petitioners,
vs.
HON. COURT OF APPEALS, MONFORT HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION, as
represented by MA. ANTONIA M. SALVATIERRA, and RAMON H. MONFORT, respondents.

On April 10, 1997, the Corporation, represented by its President, Ma. Antonia M. Salvatierra, and Ramon H. Monfort, in
his personal capacity, filed against the group of Antonio Monfort III, a complaint 6 for delivery of motor vehicle, tractors
and 378 fighting cocks, with prayer for injunction and damages, docketed as Civil Case No. 506-C, before the Regional
Trial Court of Negros Occidental, Branch 60.
The group of Antonio Monfort III filed a motion to dismiss contending, inter alia, that Ma. Antonia M. Salvatierra has no
capacity to sue on behalf of the Corporation because the March 31, 1997 Board Resolution7 authorizing Ma. Antonia M.
Salvatierra and/or Ramon H. Monfort to represent the Corporation is void as the purported Members of the Board who
passed the same were not validly elected officers of the Corporation.
On May 4, 1998, the trial court denied the motion to dismiss.8 The group of Antonio Monfort III filed a petition for
certiorari with the Court of Appeals but the same was dismissed on June 7, 2002.9 The Special Former Thirteenth
Division of the appellate court did not resolve the validity of the March 31, 1997 Board Resolution and the election of the
officers who signed it, ratiocinating that the determination of said question is within the competence of the trial court.
The motion for reconsideration filed by the group of Antonio Monfort III was denied. 10 Hence, they instituted a petition for
review with this Court, docketed as G.R. No. 155472.
In G.R. No. 152542:

DECISION
On April 21, 1997, Ma. Antonia M. Salvatierra filed on behalf of the Corporation a complaint for forcible entry, preliminary
mandatory injunction with temporary restraining order and damages against the group of Antonio Monfort III, before the
Municipal Trial Court (MTC) of Cadiz City.11 It contended that the latter through force and intimidation, unlawfully took
possession of the 4 Haciendas and deprived the Corporation of the produce thereon.
YNARES-SANTIAGO, J.:
Before the Court are consolidated petitions for review of the decisions of the Court of Appeals in the complaints for
forcible entry and replevin filed by Monfort Hermanos Agricultural Development Corporation (Corporation) and Ramon
H. Monfort against the children, nephews, and nieces of its original incorporators (collectively known as "the group of
Antonio Monfort III").
The petition in G.R. No. 152542, assails the October 5, 2001 Decision1 of the Special Tenth Division of the Court of
Appeals in CA-G.R. SP No. 53652, which ruled that Ma. Antonia M. Salvatierra has no legal capacity to represent the
Corporation in the forcible entry case docketed as Civil Case No. 534-C, before the Municipal Trial Court of Cadiz City.
On the other hand, the petition in G.R. No. 155472, seeks to set aside the June 7, 2002 Decision2 rendered by the
Special Former Thirteenth Division of the Court of Appeals in CA-G.R. SP No. 49251, where it refused to address, on
jurisdictional considerations, the issue of Ma. Antonia M. Salvatierra's capacity to file a complaint for replevin on behalf
of the Corporation in Civil Case No. 506-C before the Regional Trial Court of Cadiz City, Branch 60.
Monfort Hermanos Agricultural Development Corporation, a domestic private corporation, is the registered owner of a
farm, fishpond and sugar cane plantation known as Haciendas San Antonio II, Marapara, Pinanoag and Tinampa-an, all
situated in Cadiz City.3 It also owns one unit of motor vehicle and two units of tractors.4 The same allowed Ramon H.

In their answer,12 the group of Antonio Monfort III alleged that they are possessing and controlling the Haciendas and
harvesting the produce therein on behalf of the corporation and not for themselves. They likewise raised the affirmative
defense of lack of legal capacity of Ma. Antonia M. Salvatierra to sue on behalf of the Corporation.
On February 18, 1998, the MTC of Cadiz City rendered a decision dismissing the complaint.13 On appeal, the Regional
Trial Court of Negros Occidental, Branch 60, reversed the Decision of the MTCC and remanded the case for further
proceedings.14
Aggrieved, the group of Antonio Monfort III filed a petition for review with the Court of Appeals. On October 5, 2001, the
Special Tenth Division set aside the judgment of the RTC and dismissed the complaint for forcible entry for lack of
capacity of Ma. Antonia M. Salvatierra to represent the Corporation.15 The motion for reconsideration filed by the latter
was denied by the appellate court.16
Unfazed, the Corporation filed a petition for review with this Court, docketed as G.R. No. 152542 which was
consolidated with G.R. No. 155472 per Resolution dated January 21, 2004.17
The focal issue in these consolidated petitions is whether or not Ma. Antonia M. Salvatierra has the legal capacity to sue
on behalf of the Corporation.

The group of Antonio Monfort III claims that the March 31, 1997 Board Resolution authorizing Ma. Antonia M. Salvatierra
and/or Ramon H. Monfort to represent the Corporation is void because the purported Members of the Board who
passed the same were not validly elected officers of the Corporation.
A corporation has no power except those expressly conferred on it by the Corporation Code and those that are implied
or incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly
authorized officers and agents. Thus, it has been observed that the power of a corporation to sue and be sued in any
court is lodged with the board of directors that exercises its corporate powers. In turn, physical acts of the corporation,
like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate
by-laws or by a specific act of the board of directors.18
Corollary thereto, corporations are required under Section 26 of the Corporation Code to submit to the SEC within thirty
(30) days after the election the names, nationalities and residences of the elected directors, trustees and officers of the
Corporation. In order to keep stockholders and the public transacting business with domestic corporations properly
informed of their organizational operational status, the SEC issued the following rules:
xxx

xxx

xxx

2. A General Information Sheet shall be filed with this Commission within thirty (30) days following the
date of the annual stockholders' meeting. No extension of said period shall be allowed, except for very
justifiable reasons stated in writing by the President, Secretary, Treasurer or other officers, upon which the
Commission may grant an extension for not more than ten (10) days.
2.A. Should a director, trustee or officer die, resign or in any manner, cease to hold office, the
corporation shall report such fact to the Commission with fifteen (15) days after such death,
resignation or cessation of office.
3. If for any justifiable reason, the annual meeting has to be postponed, the company should notify the
Commission in writing of such postponement.
The General Information Sheet shall state, among others, the names of the elected directors and
officers, together with their corresponding position title (Emphasis supplied)

There is thus a doubt as to whether Paul M. Monfort, Yvete M. Benedicto, Jaqueline M. Yusay and Ester S. Monfort,
were indeed duly elected Members of the Board legally constituted to bring suit in behalf of the Corporation. 21
In Premium Marble Resources, Inc. v. Court of Appeals,22 the Court was confronted with the similar issue of capacity to
sue of the officers of the corporation who filed a complaint for damages. In the said case, we sustained the dismissal of
the complaint because it was not established that the Members of the Board who authorized the filing of the complaint
were the lawfully elected officers of the corporation. Thus
The only issue in this case is whether or not the filing of the case for damages against private respondent
was authorized by a duly constituted Board of Directors of the petitioner corporation.
Petitioner, through the first set of officers, viz., Mario Zavalla, Oscar Gan, Lionel Pengson, Jose Ma. Silva,
Aderito Yujuico and Rodolfo Millare, presented the Minutes of the meeting of its Board of Directors held on
April 1, 1982, as proof that the filing of the case against private respondent was authorized by the Board.
On the other hand, the second set of officers, viz., Saturnino G. Belen, Jr., Alberto C. Nograles and Jose
L.R. Reyes, presented a Resolution dated July 30, 1986, to show that Premium did not authorize the filing
in its behalf of any suit against the private respondent International Corporate Bank.
Later on, petitioner submitted its Articles of Incorporation dated November 6, 1979 with the following as
Directors: Mario C. Zavalla, Pedro C. Celso, Oscar B. Gan, Lionel Pengson, and Jose Ma. Silva.
However, it appears from the general information sheet and the Certification issued by the SEC on August
19, 1986 that as of March 4, 1981, the officers and members of the board of directors of the Premium
Marble Resources, Inc. were:
Alberto C. Nograles President/Director
Fernando D. Hilario Vice President/Director
Augusto I. Galace Treasurer
Jose L.R. Reyes Secretary/Director

In the instant case, the six signatories to the March 31, 1997 Board Resolution authorizing Ma. Antonia M. Salvatierra
and/or Ramon H. Monfort to represent the Corporation, were: Ma. Antonia M. Salvatierra, President; Ramon H. Monfort,
Executive Vice President; Directors Paul M. Monfort, Yvete M. Benedicto and Jaqueline M. Yusay; and Ester S. Monfort,
Secretary.19 However, the names of the last four (4) signatories to the said Board Resolution do not appear in the 1996
General Information Sheet submitted by the Corporation with the SEC. Under said General Information Sheet the
composition of the Board is as follows:
1. Ma. Antonia M. Salvatierra (Chairman);
2. Ramon H. Monfort (Member);
3. Antonio H. Monfort, Jr., (Member);
4. Joaquin H. Monfort (Member);
5. Francisco H. Monfort (Member) and
6. Jesus Antonio H. Monfort (Member).20

Pido E. Aguilar Director


Saturnino G. Belen, Jr. Chairman of the Board.
While the Minutes of the Meeting of the Board on April 1, 1982 states that the newly elected officers for the
year 1982 were Oscar Gan, Mario Zavalla, Aderito Yujuico and Rodolfo Millare, petitioner failed to show
proof that this election was reported to the SEC. In fact, the last entry in their General Information Sheet
with the SEC, as of 1986 appears to be the set of officers elected in March 1981.
We agree with the finding of public respondent Court of Appeals, that "in the absence of any board
resolution from its board of directors the [sic] authority to act for and in behalf of the corporation, the present
action must necessarily fail. The power of the corporation to sue and be sued in any court is lodged with the
board of directors that exercises its corporate powers. Thus, the issue of authority and the invalidity of
plaintiff-appellant's subscription which is still pending, is a matter that is also addressed, considering the
premises, to the sound judgment of the Securities & Exchange Commission."

By the express mandate of the Corporation Code (Section 26), all corporations duly organized pursuant
thereto are required to submit within the period therein stated (30 days) to the Securities and Exchange
Commission the names, nationalities and residences of the directors, trustees and officers elected.

and the unlawful detention of the of 387 fighting cocks of Ramon H. Monfort. Since Ramon sought redress of the latter
cause of action in his personal capacity, the dismissal of the complaint for lack of capacity to sue on behalf of the
corporation should be limited only to the corporation's cause of action for delivery of motor vehicle and tractors. In view,
however, of the demise of Ramon on June 25, 1999,29 substitution by his heirs is proper.

Sec. 26 of the Corporation Code provides, thus:


"Sec. 26. Report of election of directors, trustees and officers. Within thirty (30) days after
the election of the directors, trustees and officers of the corporation, the secretary, or any other
officer of the corporation, shall submit to the Securities and Exchange Commission, the names,
nationalities and residences of the directors, trustees and officers elected. xxx"
Evidently, the objective sought to be achieved by Section 26 is to give the public information, under sanction
of oath of responsible officers, of the nature of business, financial condition and operational status of the
company together with information on its key officers or managers so that those dealing with it and those
who intend to do business with it may know or have the means of knowing facts concerning the
corporation's financial resources and business responsibility.
The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa, et al., are the incumbent
officers of Premium has not been fully substantiated. In the absence of an authority from the board of
directors, no person, not even the officers of the corporation, can validly bind the corporation.
In the case at bar, the fact that four of the six Members of the Board listed in the 1996 General Information Sheet23are
already dead24 at the time the March 31, 1997 Board Resolution was issued, does not automatically make the four
signatories (i.e., Paul M. Monfort, Yvete M. Benedicto, Jaqueline M. Yusay and Ester S. Monfort) to the said Board
Resolution (whose name do not appear in the 1996 General Information Sheet) as among the incumbent Members of
the Board. This is because it was not established that they were duly elected to replace the said deceased Board
Members.
To correct the alleged error in the General Information Sheet, the retained accountant of the Corporation informed the
SEC in its November 11, 1998 letter that the non-inclusion of the lawfully elected directors in the 1996 General
Information Sheet was attributable to its oversight and not the fault of the Corporation. 25 This belated attempt, however,
did not erase the doubt as to whether an election was indeed held. As previously stated, a corporation is mandated to
inform the SEC of the names and the change in the composition of its officers and board of directors within 30 days after
election if one was held, or 15 days after the death, resignation or cessation of office of any of its director, trustee or
officer if any of them died, resigned or in any manner, ceased to hold office. This, the Corporation failed to do. The
alleged election of the directors and officers who signed the March 31, 1997 Board Resolution was held on October 16,
1996, but the SEC was informed thereof more than two years later, or on November 11, 1998. The 4 Directors
appearing in the 1996 General Information Sheet died between the years 1984 1987, 26 but the records do not show if
such demise was reported to the SEC.
What further militates against the purported election of those who signed the March 31, 1997 Board Resolution was the
belated submission of the alleged Minutes of the October 16, 1996 meeting where the questioned officers were elected.
The issue of legal capacity of Ma. Antonia M. Salvatierra was raised before the lower court by the group of Antonio
Monfort III as early as 1997, but the Minutes of said October 16, 1996 meeting was presented by the Corporation only in
its September 29, 1999 Comment before the Court of Appeals.27 Moreover, the Corporation failed to prove that the
same October 16, 1996 Minutes was submitted to the SEC. In fact, the 1997 General Information Sheet28 submitted by
the Corporation does not reflect the names of the 4 Directors claimed to be elected on October 16, 1996.
Considering the foregoing, we find that Ma. Antonia M. Salvatierra failed to prove that four of those who authorized her
to represent the Corporation were the lawfully elected Members of the Board of the Corporation. As such, they cannot
confer valid authority for her to sue on behalf of the corporation.
The Court notes that the complaint in Civil Case No. 506-C, for replevin before the Regional Trial Court of Negros
Occidental, Branch 60, has 2 causes of action, i.e., unlawful detention of the Corporation's motor vehicle and tractors,

WHEREFORE, in view of all the foregoing, the petition in G.R. No. 152542 is DENIED. The October 5, 2001 Decision of
the Special Tenth Division of the Court of Appeals in CA-G.R. SP No. 53652, which set aside the August 14, 1998
Decision of the Regional Trial Court of Negros Occidental, Branch 60 in Civil Case No. 822, is AFFIRMED.
In G.R. No. 155472, the petition is GRANTED and the June 7, 2002 Decision rendered by the Special Former Thirteenth
Division of the Court of Appeals in CA-G.R. SP No. 49251, dismissing the petition filed by the group of Antonio Monfort
III, is REVERSED and SET ASIDE.
The complaint for forcible entry docketed as Civil Case No. 822 before the Municipal Trial Court of Cadiz City is
DISMISSED. In Civil Case No. 506-C with the Regional Trial Court of Negros Occidental, Branch 60, the action for
delivery of personal property filed by Monfort Hermanos Agricultural Development Corporation is likewise DISMISSED.
With respect to the action filed by Ramon H. Monfort for the delivery of 387 fighting cocks, the Regional Trial Court of
Negros Occidental, Branch 60, is ordered to effect the corresponding substitution of parties.
No costs.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. 15574

SEC. 3. That no law shall be enacted in said Islands which shall deprive any person of life, liberty, or
property without due process of law, or deny to any person therein the equal protection of the laws. . . .
SEC. 6. That the laws now in force in the Philippines shall continue in force and effect, except as altered,
amended, or modified herein, until altered, amended, or repealed by the legislative authority herein
provided or by Act of Congress of the United States.

September 17, 1919

SMITH, BELL & COMPANY (LTD.), petitioner,


vs.
JOAQUIN NATIVIDAD, Collector of Customs of the port of Cebu, respondent.

SEC. 7. That the legislative authority herein provided shall have power, when not inconsistent with this Act,
by due enactment to amend, alter modify, or repeal any law, civil or criminal, continued in force by this Act
as it may from time to time see fit
This power shall specifically extend with the limitation herein provided as to the tariff to all laws relating to
revenue provided as to the tariff to all laws relating to revenue and taxation in effect in the Philippines.

Ross and Lawrence for petitioner.


Attorney-General Paredes for respondent.

SEC. 8. That general legislative power, except as otherwise herein provided, is hereby granted to the
Philippine Legislature, authorized by this Act.

MALCOLM, J.:
A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin Natividad, Collector of Customs of the port
of Cebu, Philippine Islands, to compel him to issue a certificate of Philippine registry to the petitioner for its motor
vessel Bato. The Attorney-General, acting as counsel for respondent, demurs to the petition on the general ground that
it does not state facts sufficient to constitute a cause of action. While the facts are thus admitted, and while, moreover,
the pertinent provisions of law are clear and understandable, and interpretative American jurisprudence is found in
abundance, yet the issue submitted is not lightly to be resolved. The question, flatly presented, is, whether Act. No. 2761
of the Philippine Legislature is valid or, more directly stated, whether the Government of the Philippine Islands,
through its Legislature, can deny the registry of vessels in its coastwise trade to corporations having alien stockholders.
FACTS.
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands. A majority of its
stockholders are British subjects. It is the owner of a motor vessel known as the Bato built for it in the Philippine Islands
in 1916, of more than fifteen tons gross The Bato was brought to Cebu in the present year for the purpose of
transporting plaintiff's merchandise between ports in the Islands. Application was made at Cebu, the home port of the
vessel, to the Collector of Customs for a certificate of Philippine registry. The Collector refused to issue the certificate,
giving as his reason that all the stockholders of Smith, Bell & Co., Ltd., were not citizens either of the United States or of
the Philippine Islands. The instant action is the result.
LAW.
The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30, 1906 but reenacting a portion of section 3
of this Law, and still in force, provides in its section 1:
That until Congress shall have authorized the registry as vessels of the United States of vessels owned in
the Philippine Islands, the Government of the Philippine Islands is hereby authorized to adopt, from time to
time, and enforce regulations governing the transportation of merchandise and passengers between ports
or places in the Philippine Archipelago. (35 Stat. at L., 70; Section 3912, U. S. Comp Stat. [1916]; 7 Pub.
Laws, 364.)
The Act of Congress of August 29, 1916, commonly known as the Jones Law, still in force, provides in section 3, (first
paragraph, first sentence), 6, 7, 8, 10, and 31, as follows.

SEC. 10. That while this Act provides that the Philippine government shall have the authority to enact a tariff
law the trade relations between the islands and the United States shall continue to be governed exclusively
by laws of the Congress of the United States: Provided, That tariff acts or acts amendatory to the tariff of the
Philippine Islands shall not become law until they shall receive the approval of the President of the United
States, nor shall any act of the Philippine Legislature affecting immigration or the currency or coinage laws
of the Philippines become a law until it has been approved by the President of the United States: Provided
further, That the President shall approve or disapprove any act mentioned in the foregoing proviso within six
months from and after its enactment and submission for his approval, and if not disapproved within such
time it shall become a law the same as if it had been specifically approved.
SEC. 31. That all laws or parts of laws applicable to the Philippines not in conflict with any of the provisions
of this Act are hereby continued in force and effect." (39 Stat at L., 546.)
On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first section of this law amended section
1172 of the Administrative Code to read as follows:
SEC. 1172. Certificate of Philippine register. Upon registration of a vessel of domestic ownership, and of
more than fifteen tons gross, a certificate of Philippine register shall be issued for it. If the vessel is of
domestic ownership and of fifteen tons gross or less, the taking of the certificate of Philippine register shall
be optional with the owner.
"Domestic ownership," as used in this section, means ownership vested in some one or more of the
following classes of persons: (a) Citizens or native inhabitants of the Philippine Islands; (b) citizens of the
United States residing in the Philippine Islands; (c) any corporation or company composed wholly of
citizens of the Philippine Islands or of the United States or of both, created under the laws of the United
States, or of any State thereof, or of thereof, or the managing agent or master of the vessel resides in the
Philippine Islands
Any vessel of more than fifteen gross tons which on February eighth, nineteen hundred and eighteen, had a
certificate of Philippine register under existing law, shall likewise be deemed a vessel of domestic ownership
so long as there shall not be any change in the ownership thereof nor any transfer of stock of the
companies or corporations owning such vessel to person not included under the last preceding paragraph.
Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the Administrative Code to read as follows:

SEC. 1176. Investigation into character of vessel. No application for a certificate of Philippine register
shall be approved until the collector of customs is satisfied from an inspection of the vessel that it is
engaged or destined to be engaged in legitimate trade and that it is of domestic ownership as such
ownership is defined in section eleven hundred and seventy-two of this Code.
The collector of customs may at any time inspect a vessel or examine its owner, master, crew, or
passengers in order to ascertain whether the vessel is engaged in legitimate trade and is entitled to have or
retain the certificate of Philippine register.
SEC. 1202. Limiting number of foreign officers and engineers on board vessels. No Philippine vessel
operating in the coastwise trade or on the high seas shall be permitted to have on board more than one
master or one mate and one engineer who are not citizens of the United States or of the Philippine Islands,
even if they hold licenses under section one thousand one hundred and ninety-nine hereof. No other person
who is not a citizen of the United States or of the Philippine Islands shall be an officer or a member of the
crew of such vessel. Any such vessel which fails to comply with the terms of this section shall be required to
pay an additional tonnage tax of fifty centavos per net ton per month during the continuance of said failure.

States Supreme Court. Even at the expense of restating what is so well known, these basic principles must again be set
down in order to serve as the basis of this decision.
The guaranties of the Fourteenth Amendment and so of the first paragraph of the Philippine Bill of Rights, are universal
in their application to all person within the territorial jurisdiction, without regard to any differences of race, color, or
nationality. The word "person" includes aliens. (Yick Wo vs. Hopkins [1886], 118 U. S., 356; Truax vs. Raich [1915], 239
U. S., 33.) Private corporations, likewise, are "persons" within the scope of the guaranties in so far as their property is
concerned. (Santa Clara County vs. Southern Pac. R. R. Co. [1886], 118.U. S., 394; Pembina Mining
Co.vs. Pennsylvania [1888],.125 U. S., 181 Covington & L. Turnpike Road Co. vs. Sandford [1896], 164 U. S., 578.)
Classification with the end in view of providing diversity of treatment may be made among corporations, but must be
based upon some reasonable ground and not be a mere arbitrary selection (Gulf, Colorado & Santa Fe Railway
Co.vs. Ellis [1897],.165 U. S., 150.) Examples of laws held unconstitutional because of unlawful discrimination against
aliens could be cited. Generally, these decisions relate to statutes which had attempted arbitrarily to forbid aliens to
engage in ordinary kinds of business to earn their living. (State vs. Montgomery [1900], 94 Maine, 192, peddling but
see. Commonwealth vs. Hana [1907], 195 Mass., 262; Templar vs. Board of Examiners of Barbers [1902], 131 Mich.,
254, barbers; Yick Wo vs. Hopkins [1886], 118 U. S.,.356, discrimination against Chinese; Truax vs. Raich [1915], 239
U. S., 33; In re Parrott [1880], 1 Fed , 481; Fraser vs. McConway & Torley Co. [1897], 82 Fed , 257; Juniata Limestone
Co. vs. Fagley [1898], 187 Penn., 193, all relating to the employment of aliens by private corporations.)

ISSUES.
Predicated on these facts and provisions of law, the issues as above stated recur, namely, whether Act No 2761 of the
Philippine Legislature is valid in whole or in part whether the Government of the Philippine Islands, through its
Legislature, can deny the registry of vessel in its coastwise trade to corporations having alien stockholders .
OPINION.
1. Considered from a positive standpoint, there can exist no measure of doubt as to the power of the Philippine
Legislature to enact Act No. 2761. The Act of Congress of April 29, 1908, with its specific delegation of authority to the
Government of the Philippine Islands to regulate the transportation of merchandise and passengers between ports or
places therein, the liberal construction given to the provisions of the Philippine Bill, the Act of Congress of July 1, 1902,
by the courts, and the grant by the Act of Congress of August 29, 1916, of general legislative power to the Philippine
Legislature, are certainly superabundant authority for such a law. While the Act of the local legislature may in a way be
inconsistent with the Act of Congress regulating the coasting trade of the Continental United States, yet the general rule
that only such laws of the United States have force in the Philippines as are expressly extended thereto, and the
abnegation of power by Congress in favor of the Philippine Islands would leave no starting point for convincing
argument. As a matter of fact, counsel for petitioner does not assail legislative action from this direction (See U. S. vs.
Bull [1910], 15 Phil., 7; Sinnot vs. Davenport [1859] 22 How., 227.)
2. It is from the negative, prohibitory standpoint that counsel argues against the constitutionality of Act No. 2761. The
first paragraph of the Philippine Bill of Rights of the Philippine Bill, repeated again in the first paragraph of the Philippine
Bill of Rights as set forth in the Jones Law, provides "That no law shall be enacted in said Islands which shall deprive
any person of life, liberty, or property without due process of law, or deny to any person therein the equal protection of
the laws." Counsel says that Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection of the laws because it,
in effect, prohibits the corporation from owning vessels, and because classification of corporations based on the
citizenship of one or more of their stockholders is capricious, and that Act No. 2761 deprives the corporation of its
properly without due process of law because by the passage of the law company was automatically deprived of every
beneficial attribute of ownership in the Bato and left with the naked title to a boat it could not use .
The guaranties extended by the Congress of the United States to the Philippine Islands have been used in the same
sense as like provisions found in the United States Constitution. While the "due process of law and equal protection of
the laws" clause of the Philippine Bill of Rights is couched in slightly different words than the corresponding clause of the
Fourteenth Amendment to the United States Constitution, the first should be interpreted and given the same force and
effect as the latter. (Kepner vs. U.S. [1904], 195 U. S., 100; Sierra vs. Mortiga [1907], 204 U. S.,.470; U. S. vs. Bull
[1910], 15 Phil., 7.) The meaning of the Fourteenth Amendment has been announced in classic decisions of the United

A literal application of general principles to the facts before us would, of course, cause the inevitable deduction that Act
No. 2761 is unconstitutional by reason of its denial to a corporation, some of whole members are foreigners, of the equal
protection of the laws. Like all beneficient propositions, deeper research discloses provisos. Examples of a denial of
rights to aliens notwithstanding the provisions of the Fourteenth Amendment could be cited. (Tragesser vs.Gray [1890],
73 Md., 250, licenses to sell spirituous liquors denied to persons not citizens of the United States;
Commonwealth vs. Hana [1907], 195 Mass , 262, excluding aliens from the right to peddle; Patsone vs.Commonwealth
of Pennsylvania [1914], 232 U. S. , 138, prohibiting the killing of any wild bird or animal by any unnaturalized foreignborn resident; Ex parte Gilleti [1915], 70 Fla., 442, discriminating in favor of citizens with reference to the taking for
private use of the common property in fish and oysters found in the public waters of the State; Heim vs. McCall [1915],
239 U. S.,.175, and Crane vs. New York [1915], 239 U. S., 195, limiting employment on public works by, or for, the State
or a municipality to citizens of the United States.)
One of the exceptions to the general rule, most persistent and far reaching in influence is, that neither the Fourteenth
Amendment to the United States Constitution, broad and comprehensive as it is, nor any other amendment, "was
designed to interfere with the power of the State, sometimes termed its `police power,' to prescribe regulations to
promote the health, peace, morals, education, and good order of the people, and legislate so as to increase the
industries of the State, develop its resources and add to its wealth and prosperity. From the very necessities of society,
legislation of a special character, having these objects in view, must often be had in certain districts."
(Barbiervs. Connolly [1884], 113 U.S., 27; New Orleans Gas Co. vs. Lousiana Light Co. [1885], 115 U.S., 650.) This is
the same police power which the United States Supreme Court say "extends to so dealing with the conditions which
exist in the state as to bring out of them the greatest welfare in of its people." (Bacon vs. Walker [1907], 204 U.S., 311.)
For quite similar reasons, none of the provision of the Philippine Organic Law could could have had the effect of denying
to the Government of the Philippine Islands, acting through its Legislature, the right to exercise that most essential,
insistent, and illimitable of powers, the sovereign police power, in the promotion of the general welfare and the public
interest. (U. S. vs. Toribio [1910], 15 Phil., 85; Churchill and Tait vs. Rafferty [1915], 32 Phil., 580; Rubi vs.Provincial
Board of Mindoro [1919], 39 Phil., 660.) Another notable exception permits of the regulation or distribution of the public
domain or the common property or resources of the people of the State, so that use may be limited to its citizens. (Ex
parte Gilleti [1915], 70 Fla., 442; McCready vs. Virginia [1876], 94 U. S., 391; Patsone vs.Commonwealth of
Pennsylvania [1914], 232U. S., 138.) Still another exception permits of the limitation of employment in the construction
of public works by, or for, the State or a municipality to citizens of the United States or of the State. (Atkin vs. Kansas
[1903],191 U. S., 207; Heim vs. McCall [1915], 239 U.S., 175; Crane vs. New York [1915], 239 U. S., 195.) Even as to
classification, it is admitted that a State may classify with reference to the evil to be prevented; the question is a practical
one, dependent upon experience. (Patsone vs. Commonwealth of Pennsylvania [1914], 232 U. S., 138.)
To justify that portion of Act no. 2761 which permits corporations or companies to obtain a certificate of Philippine
registry only on condition that they be composed wholly of citizens of the Philippine Islands or of the United States or
both, as not infringing Philippine Organic Law, it must be done under some one of the exceptions here mentioned This

must be done, moreover, having particularly in mind what is so often of controlling effect in this jurisdiction our local
experience and our peculiar local conditions.
To recall a few facts in geography, within the confines of Philippine jurisdictional limits are found more than three
thousand islands. Literally, and absolutely, steamship lines are, for an Insular territory thus situated, the arteries of
commerce. If one be severed, the life-blood of the nation is lost. If on the other hand these arteries are protected, then
the security of the country and the promotion of the general welfare is sustained. Time and again, with such conditions
confronting it, has the executive branch of the Government of the Philippine Islands, always later with the sanction of the
judicial branch, taken a firm stand with reference to the presence of undesirable foreigners. The Government has thus
assumed to act for the all-sufficient and primitive reason of the benefit and protection of its own citizens and of the selfpreservation and integrity of its dominion. (In re Patterson [1902], 1 Phil., 93; Forbes vs.Chuoco, Tiaco and Crossfield
[1910], 16 Phil., 534;.228 U.S., 549; In re McCulloch Dick [1918], 38 Phil., 41.) Boats owned by foreigners, particularly
by such solid and reputable firms as the instant claimant, might indeed traverse the waters of the Philippines for ages
without doing any particular harm. Again, some evilminded foreigner might very easily take advantage of such lavish
hospitality to chart Philippine waters, to obtain valuable information for unfriendly foreign powers, to stir up insurrection,
or to prejudice Filipino or American commerce. Moreover, under the Spanish portion of Philippine law, the waters within
the domestic jurisdiction are deemed part of the national domain, open to public use. (Book II, Tit. IV, Ch. I, Civil Code;
Spanish Law of Waters of August 3, 1866, arts 1, 2, 3.) Common carriers which in the Philippines as in the United States
and other countries are, as Lord Hale said, "affected with a public interest," can only be permitted to use these public
waters as a privilege and under such conditions as to the representatives of the people may seem wise. (See De
Villata vs. Stanley [1915], 32 Phil., 541.)
In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a case herein before mentioned, Justice
Holmes delivering the opinion of the United States Supreme Court said:
This statute makes it unlawful for any unnaturalized foreign-born resident to kill any wild bird or animal
except in defense of person or property, and `to that end' makes it unlawful for such foreign-born person to
own or be possessed of a shotgun or rifle; with a penalty of $25 and a forfeiture of the gun or guns. The
plaintiff in error was found guilty and was sentenced to pay the abovementioned fine. The judgment was
affirmed on successive appeals. (231 Pa., 46; 79 Atl., 928.) He brings the case to this court on the ground
that the statute is contrary to the 14th Amendment and also is in contravention of the treaty between the
United States and Italy, to which latter country the plaintiff in error belongs .
Under the 14th Amendment the objection is twofold; unjustifiably depriving the alien of property, and
discrimination against such aliens as a class. But the former really depends upon the latter, since it hardly
can be disputed that if the lawful object, the protection of wild life (Geer vs. Connecticut, 161 U.S., 519; 40
L. ed., 793; 16 Sup. Ct. Rep., 600), warrants the discrimination, the, means adopted for making it effective
also might be adopted. . . .
The discrimination undoubtedly presents a more difficult question. But we start with reference to the evil to
be prevented, and that if the class discriminated against is or reasonably might be considered to define
those from whom the evil mainly is to be feared, it properly may be picked out. A lack of abstract symmetry
does not matter. The question is a practical one, dependent upon experience. . . .
The question therefore narrows itself to whether this court can say that the legislature of Pennsylvania was
not warranted in assuming as its premise for the law that resident unnaturalized aliens were the peculiar
source of the evil that it desired to prevent. (Barrett vs. Indiana,. 229 U.S., 26, 29; 57 L. ed., 1050, 1052; 33
Sup. Ct. Rep., 692.)
Obviously the question, so stated, is one of local experience, on which this court ought to be very slow to
declare that the state legislature was wrong in its facts (Adams vs. Milwaukee, 228 U.S., 572, 583; 57 L.
ed., 971,.977; 33 Sup. Ct. Rep., 610.) If we might trust popular speech in some states it was right; but it is
enough that this court has no such knowledge of local conditions as to be able to say that it was manifestly
wrong. . . .

Judgment affirmed.
We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having alien stockholders, is entitled to the
protection afforded by the due-process of law and equal protection of the laws clause of the Philippine Bill of Rights,
nevertheless, Act No. 2761 of the Philippine Legislature, in denying to corporations such as Smith, Bell &. Co. Ltd., the
right to register vessels in the Philippines coastwise trade, does not belong to that vicious species of class legislation
which must always be condemned, but does fall within authorized exceptions, notably, within the purview of the police
power, and so does not offend against the constitutional provision.
This opinion might well be brought to a close at this point. It occurs to us, however, that the legislative history of the
United States and the Philippine Islands, and, probably, the legislative history of other countries, if we were to take the
time to search it out, might disclose similar attempts at restriction on the right to enter the coastwise trade, and might
thus furnish valuable aid by which to ascertain and, if possible, effectuate legislative intention.
3. The power to regulate commerce, expressly delegated to the Congress by the Constitution, includes the
power to nationalize ships built and owned in the United States by registries and enrollments, and the
recording of the muniments of title of American vessels. The Congress "may encourage or it may entirely
prohibit such commerce, and it may regulate in any way it may see fit between these two extremes."
(U.S. vs. Craig [1886], 28 Fed., 795; Gibbons vs. Ogden [1824], 9 Wheat., 1; The Passenger Cases [1849],
7 How., 283.)
Acting within the purview of such power, the first Congress of the United States had not been long convened before it
enacted on September 1, 1789, "An Act for Registering and Clearing Vessels, Regulating the Coasting Trade, and for
other purposes." Section 1 of this law provided that for any ship or vessel to obtain the benefits of American registry, it
must belong wholly to a citizen or citizens of the United States "and no other." (1 Stat. at L., 55.) That Act was shortly
after repealed, but the same idea was carried into the Acts of Congress of December 31, 1792 and February 18, 1793.
(1 Stat. at L., 287, 305.).Section 4 of the Act of 1792 provided that in order to obtain the registry of any vessel, an oath
shall be taken and subscribed by the owner, or by one of the owners thereof, before the officer authorized to make such
registry, declaring, "that there is no subject or citizen of any foreign prince or state, directly or indirectly, by way of trust,
confidence, or otherwise, interested in such vessel, or in the profits or issues thereof." Section 32 of the Act of 1793
even went so far as to say "that if any licensed ship or vessel shall be transferred to any person who is not at the time of
such transfer a citizen of and resident within the United States, ... every such vessel with her tackle, apparel, and
furniture, and the cargo found on board her, shall be forefeited." In case of alienation to a foreigner, Chief Justice
Marshall said that all the privileges of an American bottom were ipso facto forfeited. (U.S. vs. Willings and Francis
[1807], 4 Cranch, 48.) Even as late as 1873, the Attorney-General of the United States was of the opinion that under the
provisions of the Act of December 31, 1792, no vessel in which a foreigner is directly or indirectly interested can lawfully
be registered as a vessel of the United. States. (14 Op. Atty.-Gen. [U.S.], 340.)
These laws continued in force without contest, although possibly the Act of March 3, 1825, may have affected them, until
amended by the Act of May 28, 1896 (29 Stat. at L., 188) which extended the privileges of registry from vessels wholly
owned by a citizen or citizens of the United States to corporations created under the laws of any of the states thereof.
The law, as amended, made possible the deduction that a vessel belonging to a domestic corporation was entitled to
registry or enrollment even though some stock of the company be owned by aliens. The right of ownership of stock in a
corporation was thereafter distinct from the right to hold the property by the corporation (Humphreys vs.McKissock
[1890], 140 U.S., 304; Queen vs. Arnaud [1846], 9 Q. B., 806; 29 Op. Atty.-Gen. [U.S.],188.)
On American occupation of the Philippines, the new government found a substantive law in operation in the Islands with
a civil law history which it wisely continued in force Article fifteen of the Spanish Code of Commerce permitted any
foreigner to engage in Philippine trade if he had legal capacity to do so under the laws of his nation. When the Philippine
Commission came to enact the Customs Administrative Act (No. 355) in 1902, it returned to the old American policy of
limiting the protection and flag of the United States to vessels owned by citizens of the United States or by native
inhabitants of the Philippine Islands (Sec. 117.) Two years later, the same body reverted to the existing Congressional
law by permitting certification to be issued to a citizen of the United States or to a corporation or company created under
the laws of the United States or of any state thereof or of the Philippine Islands (Act No. 1235, sec. 3.) The two
administration codes repeated the same provisions with the necessary amplification of inclusion of citizens or native

inhabitants of the Philippine Islands (Adm. Code of 1916, sec. 1345; Adm. Code of 1917, sec. 1172). And now Act No.
2761 has returned to the restrictive idea of the original Customs Administrative Act which in turn was merely a reflection
of the statutory language of the first American Congress.
Provisions such as those in Act No. 2761, which deny to foreigners the right to a certificate of Philippine registry, are
thus found not to be as radical as a first reading would make them appear.
Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to be to enact an anti-alien shipping
act. The ultimate purpose of the Legislature is to encourage Philippine ship-building. This, without doubt, has, likewise,
been the intention of the United States Congress in passing navigation or tariff laws on different occasions. The object of
such a law, the United States Supreme Court once said, was to encourage American trade, navigation, and ship-building
by giving American ship-owners exclusive privileges. (Old Dominion Steamship Co. vs. Virginia [1905], 198 U.S., 299;
Kent's Commentaries, Vol. 3, p. 139.)
In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824], 9 Wheat., 1) is found the following:
Licensing acts, in fact, in legislation, are universally restraining acts; as, for example, acts licensing gaming
houses, retailers of spirituous liquors, etc. The act, in this instance, is distinctly of that character, and forms
part of an extensive system, the object of which is to encourage American shipping, and place them on an
equal footing with the shipping of other nations. Almost every commercial nation reserves to its own
subjects a monopoly of its coasting trade; and a countervailing privilege in favor of American shipping is
contemplated, in the whole legislation of the United States on this subject. It is not to give the vessel an
American character, that the license is granted; that effect has been correctly attributed to the act of her
enrollment. But it is to confer on her American privileges, as contradistinguished from foreign; and to
preserve the. Government from fraud by foreigners, in surreptitiously intruding themselves into the
American commercial marine, as well as frauds upon the revenue in the trade coastwise, that this whole
system is projected.
The United States Congress in assuming its grave responsibility of legislating wisely for a new country did so imbued
with a spirit of Americanism. Domestic navigation and trade, it decreed, could only be carried on by citizens of the United
States. If the representatives of the American people acted in this patriotic manner to advance the national policy, and if
their action was accepted without protest in the courts, who can say that they did not enact such beneficial laws under
the all-pervading police power, with the prime motive of safeguarding the country and of promoting its prosperity? Quite
similarly, the Philippine Legislature made up entirely of Filipinos, representing the mandate of the Filipino people and the
guardian of their rights, acting under practically autonomous powers, and imbued with a strong sense of Philippinism,
has desired for these Islands safety from foreign interlopers, the use of the common property exclusively by its citizens
and the citizens of the United States, and protection for the common good of the people. Who can say, therefore,
especially can a court, that with all the facts and circumstances affecting the Filipino people before it, the Philippine
Legislature has erred in the enactment of Act No. 2761?
Surely, the members of the judiciary are not expected to live apart from active life, in monastic seclusion amidst dusty
tomes and ancient records, but, as keen spectators of passing events and alive to the dictates of the general the
national welfare, can incline the scales of their decisions in favor of that solution which will most effectively promote
the public policy. All the presumption is in favor of the constitutionally of the law and without good and strong reasons,
courts should not attempt to nullify the action of the Legislature. "In construing a statute enacted by the Philippine
Commission (Legislature), we deem it our duty not to give it a construction which would be repugnant to an Act of
Congress, if the language of the statute is fairly susceptible of another construction not in conflict with the higher law."
(In re Guaria [1913], 24. Phil., 36; U.S. vs. Ten Yu [1912], 24 Phil., 1.) That is the true construction which will best carry
legislative intention into effect.
With full consciousness of the importance of the question, we nevertheless are clearly of the opinion that the limitation of
domestic ownership for purposes of obtaining a certificate of Philippine registry in the coastwise trade to citizens of the
Philippine Islands, and to citizens of the United States, does not violate the provisions of paragraph 1 of section 3 of the
Act of Congress of August 29, 1916 No treaty right relied upon Act No. 2761 of the Philippine Legislature is held valid
and constitutional .

The petition for a writ of mandamus is denied, with costs against the petitioner. So ordered.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-19550

June 19, 1967

HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK, petitioners,
vs.
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN, in his capacity as Acting
Director, National Bureau of Investigation; SPECIAL PROSECUTORS PEDRO D. CENZON, EFREN I. PLANA and
MANUEL VILLAREAL, JR. and ASST. FISCAL MANASES G. REYES; JUDGE AMADO ROAN, Municipal Court of
Manila; JUDGE ROMAN CANSINO, Municipal Court of Manila; JUDGE HERMOGENES CALUAG, Court of First
Instance of Rizal-Quezon City Branch, and JUDGE DAMIAN JIMENEZ, Municipal Court of Quezon
City, respondents.
Paredes, Poblador, Cruz and Nazareno and Meer, Meer and Meer and Juan T. David for petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico P. de Castro, Assistant Solicitor
General Frine C. Zaballero, Solicitor Camilo D. Quiason and Solicitor C. Padua for respondents.
CONCEPCION, C.J.:
Upon application of the officers of the government named on the margin1 hereinafter referred to as RespondentsProsecutors several judges2 hereinafter referred to as Respondents-Judges issued, on different dates, 3 a total
of 42 search warrants against petitioners herein4 and/or the corporations of which they were officers,5 directed to the any
peace officer, to search the persons above-named and/or the premises of their offices, warehouses and/or residences,
and to seize and take possession of the following personal property to wit:
Books of accounts, financial records, vouchers, correspondence, receipts, ledgers, journals, portfolios,
credit journals, typewriters, and other documents and/or papers showing all business transactions including
disbursements receipts, balance sheets and profit and loss statements and Bobbins (cigarette wrappers).
as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense," or "used or intended to be
used as the means of committing the offense," which is described in the applications adverted to above as "violation of
Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and the Revised Penal Code."
Alleging that the aforementioned search warrants are null and void, as contravening the Constitution and the Rules of
Court because, inter alia: (1) they do not describe with particularity the documents, books and things to be seized; (2)
cash money, not mentioned in the warrants, were actually seized; (3) the warrants were issued to fish evidence against
the aforementioned petitioners in deportation cases filed against them; (4) the searches and seizures were made in an
illegal manner; and (5) the documents, papers and cash money seized were not delivered to the courts that issued the
warrants, to be disposed of in accordance with law on March 20, 1962, said petitioners filed with the Supreme Court
this original action for certiorari, prohibition, mandamus and injunction, and prayed that, pending final disposition of the
present case, a writ of preliminary injunction be issued restraining Respondents-Prosecutors, their agents and /or
representatives from using the effects seized as aforementioned or any copies thereof, in the deportation cases already
adverted to, and that, in due course, thereafter, decision be rendered quashing the contested search warrants and
declaring the same null and void, and commanding the respondents, their agents or representatives to return to
petitioners herein, in accordance with Section 3, Rule 67, of the Rules of Court, the documents, papers, things and cash
moneys seized or confiscated under the search warrants in question.
In their answer, respondents-prosecutors alleged, 6 (1) that the contested search warrants are valid and have been
issued in accordance with law; (2) that the defects of said warrants, if any, were cured by petitioners' consent; and (3)

that, in any event, the effects seized are admissible in evidence against herein petitioners, regardless of the alleged
illegality of the aforementioned searches and seizures.
On March 22, 1962, this Court issued the writ of preliminary injunction prayed for in the petition. However, by resolution
dated June 29, 1962, the writ was partially lifted or dissolved, insofar as the papers, documents and things seized from
the offices of the corporations above mentioned are concerned; but, the injunction was maintained as regards the
papers, documents and things found and seized in the residences of petitioners herein.7
Thus, the documents, papers, and things seized under the alleged authority of the warrants in question may be split into
two (2) major groups, namely: (a) those found and seized in the offices of the aforementioned corporations, and (b)
those found and seized in the residences of petitioners herein.
As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the contested
warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have their
respective personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of
shares of stock or of the interest of each of them in said corporations, and whatever the offices they hold therein may
be.8 Indeed, it is well settled that the legality of a seizure can be contested only by the party whose rights have been
impaired thereby,9 and that the objection to an unlawful search and seizure is purely personal and cannot be availed of
by third parties. 10 Consequently, petitioners herein may not validly object to the use in evidence against them of the
documents, papers and things seized from the offices and premises of the corporations adverted to above, since the
right to object to the admission of said papers in evidence belongs exclusively to the corporations, to whom the seized
effects belong, and may not be invoked by the corporate officers in proceedings against them in their individual
capacity. 11 Indeed, it has been held:
. . . that the Government's action in gaining possession of papers belonging to the corporation did not relate
to nor did it affect the personal defendants. If these papers were unlawfully seized and thereby the
constitutional rights of or any one were invaded, they were the rights of the corporation and not the rights of
the other defendants. Next, it is clear that a question of the lawfulness of a seizure can be raised only by
one whose rights have been invaded. Certainly, such a seizure, if unlawful, could not affect the
constitutional rights of defendants whose property had not been seized or the privacy of whose homes had
not been disturbed; nor could they claim for themselves the benefits of the Fourth Amendment, when its
violation, if any, was with reference to the rights of another. Remus vs. United States (C.C.A.)291 F. 501,
511. It follows, therefore, that the question of the admissibility of the evidence based on an alleged unlawful
search and seizure does notextend to the personal defendants but embraces only the corporation whose
property was taken. . . . (A Guckenheimer & Bros. Co. vs. United States, [1925] 3 F. 2d. 786, 789, Emphasis
supplied.)
With respect to the documents, papers and things seized in the residences of petitioners herein, the aforementioned
resolution of June 29, 1962, lifted the writ of preliminary injunction previously issued by this Court, 12 thereby, in effect,
restraining herein Respondents-Prosecutors from using them in evidence against petitioners herein.
In connection with said documents, papers and things, two (2) important questions need be settled, namely: (1) whether
the search warrants in question, and the searches and seizures made under the authority thereof, are valid or not, and
(2) if the answer to the preceding question is in the negative, whether said documents, papers and things may be used
in evidence against petitioners herein.1wph1.t
Petitioners maintain that the aforementioned search warrants are in the nature of general warrants and that accordingly,
the seizures effected upon the authority there of are null and void. In this connection, the Constitution 13provides:
The right of the people to be secure in their persons, houses, papers, and effects against unreasonable
searches and seizures shall not be violated, and no warrants shall issue but upon probable cause, to be
determined by the judge after examination under oath or affirmation of the complainant and the witnesses
he may produce, and particularly describing the place to be searched, and the persons or things to be
seized.

Two points must be stressed in connection with this constitutional mandate, namely: (1) that no warrant shall issue
butupon probable cause, to be determined by the judge in the manner set forth in said provision; and (2) that the
warrant shall particularly describe the things to be seized.
None of these requirements has been complied with in the contested warrants. Indeed, the same were issued upon
applications stating that the natural and juridical person therein named had committed a "violation of Central Ban Laws,
Tariff and Customs Laws, Internal Revenue (Code) and Revised Penal Code." In other words, no specific offense had
been alleged in said applications. The averments thereof with respect to the offense committed were abstract. As a
consequence, it was impossible for the judges who issued the warrants to have found the existence of probable cause,
for the same presupposes the introduction of competent proof that the party against whom it is sought has
performed particular acts, or committed specific omissions, violating a given provision of our criminal laws. As a matter
of fact, the applications involved in this case do not allege any specific acts performed by herein petitioners. It would be
the legal heresy, of the highest order, to convict anybody of a "violation of Central Bank Laws, Tariff and Customs Laws,
Internal Revenue (Code) and Revised Penal Code," as alleged in the aforementioned applications without
reference to any determinate provision of said laws or
To uphold the validity of the warrants in question would be to wipe out completely one of the most fundamental rights
guaranteed in our Constitution, for it would place the sanctity of the domicile and the privacy of communication and
correspondence at the mercy of the whims caprice or passion of peace officers. This is precisely the evil sought to be
remedied by the constitutional provision above quoted to outlaw the so-called general warrants. It is not difficult to
imagine what would happen, in times of keen political strife, when the party in power feels that the minority is likely to
wrest it, even though by legal means.
Such is the seriousness of the irregularities committed in connection with the disputed search warrants, that this Court
deemed it fit to amend Section 3 of Rule 122 of the former Rules of Court 14 by providing in its counterpart, under the
Revised Rules of Court 15 that "a search warrant shall not issue but upon probable cause in connection with one specific
offense." Not satisfied with this qualification, the Court added thereto a paragraph, directing that "no search warrant shall
issue for more than one specific offense."
The grave violation of the Constitution made in the application for the contested search warrants was compounded by
the description therein made of the effects to be searched for and seized, to wit:
Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios,
credit journals, typewriters, and other documents and/or papers showing all business transactions including
disbursement receipts, balance sheets and related profit and loss statements.
Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of petitioners
herein, regardless of whether the transactions were legal or illegal. The warrants sanctioned the seizure of all records of
the petitioners and the aforementioned corporations, whatever their nature, thus openly contravening the explicit
command of our Bill of Rights that the things to be seized be particularly described as well as tending to defeat its
major objective: the elimination of general warrants.
Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-Prosecutors maintain that, even if the searches
and seizures under consideration were unconstitutional, the documents, papers and things thus seized are admissible in
evidence against petitioners herein. Upon mature deliberation, however, we are unanimously of the opinion that the
position taken in the Moncado case must be abandoned. Said position was in line with the American common law rule,
that the criminal should not be allowed to go free merely "because the constable has blundered," 16 upon the theory that
the constitutional prohibition against unreasonable searches and seizures is protected by means other than the
exclusion of evidence unlawfully obtained, 17 such as the common-law action for damages against the searching officer,
against the party who procured the issuance of the search warrant and against those assisting in the execution of an
illegal search, their criminal punishment, resistance, without liability to an unlawful seizure, and such other legal
remedies as may be provided by other laws.

However, most common law jurisdictions have already given up this approach and eventually adopted the exclusionary
rule, realizing that this is the only practical means of enforcing the constitutional injunction against unreasonable
searches and seizures. In the language of Judge Learned Hand:
As we understand it, the reason for the exclusion of evidence competent as such, which has been
unlawfully acquired, is that exclusion is the only practical way of enforcing the constitutional privilege. In
earlier times the action of trespass against the offending official may have been protection enough; but that
is true no longer. Only in case the prosecution which itself controls the seizing officials, knows that it cannot
profit by their wrong will that wrong be repressed.18
In fact, over thirty (30) years before, the Federal Supreme Court had already declared:
If letters and private documents can thus be seized and held and used in evidence against a citizen
accused of an offense, the protection of the 4th Amendment, declaring his rights to be secure against such
searches and seizures, is of no value, and, so far as those thus placed are concerned, might as well be
stricken from the Constitution. The efforts of the courts and their officials to bring the guilty to punishment,
praiseworthy as they are, are not to be aided by the sacrifice of those great principles established by years
of endeavor and suffering which have resulted in their embodiment in the fundamental law of the land.19
This view was, not only reiterated, but, also, broadened in subsequent decisions on the same Federal Court. 20 After
reviewing previous decisions thereon, said Court held, in Mapp vs. Ohio (supra.):
. . . Today we once again examine the Wolf's constitutional documentation of the right of privacy free from
unreasonable state intrusion, and after its dozen years on our books, are led by it to close the only
courtroom door remaining open to evidence secured by official lawlessness in flagrant abuse of that basic
right, reserved to all persons as a specific guarantee against that very same unlawful conduct. We hold that
all evidence obtained by searches and seizures in violation of the Constitution is, by that same authority,
inadmissible in a State.
Since the Fourth Amendment's right of privacy has been declared enforceable against the States through
the Due Process Clause of the Fourteenth, it is enforceable against them by the same sanction of exclusion
as it used against the Federal Government. Were it otherwise, then just as without the Weeks rule the
assurance against unreasonable federal searches and seizures would be "a form of words," valueless and
underserving of mention in a perpetual charter of inestimable human liberties, so too, without that rule the
freedom from state invasions of privacy would be so ephemeral and so neatly severed from its conceptual
nexus with the freedom from all brutish means of coercing evidence as not to permit this Court's high
regard as a freedom"implicit in the concept of ordered liberty." At the time that the Court held in Wolf that
the amendment was applicable to the States through the Due Process Clause, the cases of this Court as
we have seen, had steadfastly held that as to federal officers the Fourth Amendment included the exclusion
of the evidence seized in violation of its provisions. Even Wolf "stoutly adhered" to that proposition. The
right to when conceded operatively enforceable against the States, was not susceptible of destruction by
avulsion of the sanction upon which its protection and enjoyment had always been deemed dependent
under the Boyd, Weeks and Silverthorne Cases. Therefore, in extending the substantive protections of due
process to all constitutionally unreasonable searches state or federal it was logically and
constitutionally necessarily that the exclusion doctrine an essential part of the right to privacy be also
insisted upon as an essential ingredient of the right newly recognized by the Wolf Case. In short, the
admission of the new constitutional Right by Wolf could not tolerate denial of its most important
constitutional privilege, namely, the exclusion of the evidence which an accused had been forced to give by
reason of the unlawful seizure. To hold otherwise is to grant the right but in reality to withhold its privilege
and enjoyment. Only last year the Court itself recognized that the purpose of the exclusionary rule to "is to
deter to compel respect for the constitutional guaranty in the only effectively available way by
removing the incentive to disregard it" . . . .
The ignoble shortcut to conviction left open to the State tends to destroy the entire system of constitutional
restraints on which the liberties of the people rest. Having once recognized that the right to privacy

embodied in the Fourth Amendment is enforceable against the States, and that the right to be secure
against rude invasions of privacy by state officers is, therefore constitutional in origin, we can no longer
permit that right to remain an empty promise. Because it is enforceable in the same manner and to like
effect as other basic rights secured by its Due Process Clause, we can no longer permit it to be revocable
at the whim of any police officer who, in the name of law enforcement itself, chooses to suspend its
enjoyment. Our decision, founded on reason and truth, gives to the individual no more than that which the
Constitution guarantees him to the police officer no less than that to which honest law enforcement is
entitled, and, to the courts, that judicial integrity so necessary in the true administration of justice. (emphasis
ours.)
Indeed, the non-exclusionary rule is contrary, not only to the letter, but also, to the spirit of the constitutional injunction
against unreasonable searches and seizures. To be sure, if the applicant for a search warrant has competent evidence
to establish probable cause of the commission of a given crime by the party against whom the warrant is intended, then
there is no reason why the applicant should not comply with the requirements of the fundamental law. Upon the other
hand, if he has no such competent evidence, then it is not possible for the Judge to find that there is probable cause,
and, hence, no justification for the issuance of the warrant. The only possible explanation (not justification) for its
issuance is the necessity of fishing evidence of the commission of a crime. But, then, this fishing expedition is indicative
of the absence of evidence to establish a probable cause.
Moreover, the theory that the criminal prosecution of those who secure an illegal search warrant and/or make
unreasonable searches or seizures would suffice to protect the constitutional guarantee under consideration, overlooks
the fact that violations thereof are, in general, committed By agents of the party in power, for, certainly, those belonging
to the minority could not possibly abuse a power they do not have. Regardless of the handicap under which the minority
usually but, understandably finds itself in prosecuting agents of the majority, one must not lose sight of the fact that
the psychological and moral effect of the possibility 21 of securing their conviction, is watered down by the pardoning
power of the party for whose benefit the illegality had been committed.
In their Motion for Reconsideration and Amendment of the Resolution of this Court dated June 29, 1962, petitioners
allege that Rooms Nos. 81 and 91 of Carmen Apartments, House No. 2008, Dewey Boulevard, House No. 1436,
Colorado Street, and Room No. 304 of the Army-Navy Club, should be included among the premises considered in said
Resolution as residences of herein petitioners, Harry S. Stonehill, Robert P. Brook, John J. Brooks and Karl Beck,
respectively, and that, furthermore, the records, papers and other effects seized in the offices of the corporations above
referred to include personal belongings of said petitioners and other effects under their exclusive possession and
control, for the exclusion of which they have a standing under the latest rulings of the federal courts of federal courts of
the United States. 22
We note, however, that petitioners' theory, regarding their alleged possession of and control over the aforementioned
records, papers and effects, and the alleged "personal" nature thereof, has Been Advanced, not in their petition or
amended petition herein, but in the Motion for Reconsideration and Amendment of the Resolution of June 29, 1962. In
other words, said theory would appear to be readjustment of that followed in said petitions, to suit the approach
intimated in the Resolution sought to be reconsidered and amended. Then, too, some of the affidavits or copies of
alleged affidavits attached to said motion for reconsideration, or submitted in support thereof, contain either inconsistent
allegations, or allegations inconsistent with the theory now advanced by petitioners herein.
Upon the other hand, we are not satisfied that the allegations of said petitions said motion for reconsideration, and the
contents of the aforementioned affidavits and other papers submitted in support of said motion, have sufficiently
established the facts or conditions contemplated in the cases relied upon by the petitioners; to warrant application of the
views therein expressed, should we agree thereto. At any rate, we do not deem it necessary to express our opinion
thereon, it being best to leave the matter open for determination in appropriate cases in the future.
We hold, therefore, that the doctrine adopted in the Moncado case must be, as it is hereby, abandoned; that the
warrants for the search of three (3) residences of herein petitioners, as specified in the Resolution of June 29, 1962, are
null and void; that the searches and seizures therein made are illegal; that the writ of preliminary injunction heretofore
issued, in connection with the documents, papers and other effects thus seized in said residences of herein petitioners
is hereby made permanent; that the writs prayed for are granted, insofar as the documents, papers and other effects so

seized in the aforementioned residences are concerned; that the aforementioned motion for Reconsideration and
Amendment should be, as it is hereby, denied; and that the petition herein is dismissed and the writs prayed for denied,
as regards the documents, papers and other effects seized in the twenty-nine (29) places, offices and other premises
enumerated in the same Resolution, without special pronouncement as to costs.
It is so ordered.

Republic of the Philippines


SUPREME COURT
Manila

4. Fidelity Management Co., Inc.


5. Romson Realty, Inc.

EN BANC

6. Trident Management Co.

G.R. No. 75885 May 27, 1987

7. New Trident Management

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner,


vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA, COMMISSIONER
MARY CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA,
COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents.
Apostol, Bernas, Gumaru, Ona and Associates for petitioner.

8. Bay Transport
9. And all affiliate companies of Alfredo "Bejo" Romualdez
You are hereby ordered:
1. To implement this sequestration order with a minimum disruption of these companies'
business activities.

Vicente G. Sison for intervenor A.T. Abesamis.

2. To ensure the continuity of these companies as going concerns, the care and maintenance
of these assets until such time that the Office of the President through the Commission on
Good Government should decide otherwise.

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

3. To report to the Commission on Good Government periodically.


Further, you are authorized to request for Military/Security Support from the Military/Police
authorities, and such other acts essential to the achievement of this sequestration order. 1
b. Order for Production of Documents
On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated April
18, 1986 to the President and other officers of petitioner firm, reiterating an earlier request for the production of certain
documents, to wit:
1. Stock Transfer Book
2. Legal documents, such as:
2.1. Articles of Incorporation
2.2. By-Laws
2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986

2. Baseco Quarry

2.4. Minutes of the Regular and Special Meetings of the Board of


Directors from 1973 to 1986

3. Philippine Jai-Alai Corporation

2.5. Minutes of the Executive Committee Meetings from 1973 to 1986


2.6. Existing contracts with suppliers/contractors/others.

3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to 1986
duly certified by the Corporate Secretary.
4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from 1973 to
December 31, 1985.
5. Monthly Financial Statements for the current year up to March 31, 1986.
6. Consolidated Cash Position Reports from January to April 15, 1986.
7. Inventory listings of assets up dated up to March 31, 1986.
8. Updated schedule of Accounts Receivable and Accounts Payable.
9. Complete list of depository banks for all funds with the authorized signatories for withdrawals
thereof.
10. Schedule of company investments and placements. 2
The letter closed with the warning that if the documents were not submitted within five days, the officers would be cited
for "contempt in pursuance with Presidential Executive Order Nos. 1 and 2."
c. Orders Re Engineer Island
(1) Termination of Contract for Security Services
A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is that issued on April 21, 1986
by a Capt. Flordelino B. Zabala, a member of the task force assigned to carry out the basic sequestration order. He sent
a letter to BASECO's Vice-President for Finance, 3 terminating the contract for security services within the Engineer
Island compound between BASECO and "Anchor and FAIRWAYS" and "other civilian security agencies," CAPCOM
military personnel having already been assigned to the area,
(2) Change of Mode of Payment of Entry Charges
On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners and Contractors,"
particularly a "Mr. Buddy Ondivilla National Marine Corporation," advising of the amendment in part of their contracts
with BASECO in the sense that the stipulated charges for use of the BASECO road network were made payable "upon
entry and not anymore subject to monthly billing as was originally agreed upon." 4

dated July 30, 1986 that "the new management is not in a position to honor the said contract" and thus "whatever
improvements * * (may be introduced) shall be deemed unauthorized * * and shall be at * * (Deltamarine's) own risk." 6
e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan
By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent, Mayor Melba O.
Buenaventura, "to plan and implement progress towards maximizing the continuous operation of the BASECO Sesiman
Rock Quarry * * by conventional methods;" but afterwards, Commissioner Bautista, in representation of the PCGG,
authorized another party, A.T. Abesamis, to operate the quarry, located at Mariveles, Bataan, an agreement to this effect
having been executed by them on September 17, 1986. 7
f. Order to Dispose of Scrap, etc.
By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor Buenaventura was also "authorized
to clean and beautify the Company's compound," and in this connection, to dispose of or sell "metal scraps" and other
materials, equipment and machineries no longer usable, subject to specified guidelines and safeguards including audit
and verification. 8
g. The TAKEOVER Order
By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover by the PCGG of
BASECO, "the Philippine Dockyard Corporation and all their affiliated companies." 9 Diaz invoked the provisions of
Section 3 (c) of Executive Order No. 1, empowering the Commission
* * To provisionally takeover in the public interest or to prevent its disposal or dissipation,
business enterprises and properties taken over by the government of the Marcos
Administration or by entities or persons close to former President Marcos, until the transactions
leading to such acquisition by the latter can be disposed of by the appropriate authorities.
A management team was designated to implement the order, headed by Capt. Siacunco, and was given the following
powers:
1. Conducts all aspects of operation of the subject companies;
2. Installs key officers, hires and terminates personnel as necessary;
3. Enters into contracts related to management and operation of the companies;
4. Ensures that the assets of the companies are not dissipated and used effectively and
efficiently; revenues are duly accounted for; and disburses funds only as may be necessary;

d. Aborted Contract for Improvement of Wharf at Engineer Island


On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of BASECO with Deltamarine
Integrated Port Services, Inc., in virtue of which the latter undertook to introduce improvements costing approximately
P210,000.00 on the BASECO wharf at Engineer Island, allegedly then in poor condition, avowedly to "optimize its
utilization and in return maximize the revenue which would flow into the government coffers," in consideration of
Deltamarine's being granted "priority in using the improved portion of the wharf ahead of anybody" and exemption "from
the payment of any charges for the use of wharf including the area where it may install its bagging equipments" "until the
improvement remains in a condition suitable for port operations." 5 It seems however that this contract was never
consummated. Capt. Jorge B. Siacunco, "Head- (PCGG) BASECO Management Team," advised Deltamarine by letter

5. Does actions including among others, seeking of military support as may be necessary, that
will ensure compliance to this order;
6. Holds itself fully accountable to the Presidential Commission on Good Government on all
aspects related to this take-over order.
h. Termination of Services of BASECO Officers

Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M. Valdez, Gilberto Pasimanero,
and Benito R. Cuesta I, advising of the termination of their services by the PCGG. 10
2. Petitioner's Plea and Postulates
It is the foregoing specific orders and acts of the PCGG and its members and agents which, to repeat, petitioner
BASECO would have this Court nullify. More particularly, BASECO prays that this Court1) declare unconstitutional and void Executive Orders Numbered 1 and 2;
2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts done on the
basis thereof, inclusive of the takeover order of July 14, 1986 and the termination of the services of the BASECO
executives. 11

3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock quarry at Sesiman,
Mariveles; 17
4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and other materials; 18
5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliated companies;
6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S. Mendoza; GM Moises M.
Valdez; Finance Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19
7) planning to elect its own Board of Directors; 20
8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's premises at Mariveles * * rolls
of cable wires, worth P600,000.00 on May 11, 1986; 21

a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders
9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have been buried therein. 22
While BASECO concedes that "sequestration without resorting to judicial action, might be made within the context of
Executive Orders Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was promulgated, under the
principle that the law promulgated by the ruler under a revolutionary regime is the law of the land, it ceased to be
acceptable when the same ruler opted to promulgate the Freedom Constitution on March 25, 1986 wherein under
Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was adopted providing, among others, that "No
person shall be deprived of life, liberty and property without due process of law." (Const., Art. I V, Sec. 1)." 12
It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration Order * * and
Takeover Order * * issued purportedly under the authority of said Executive Orders, rests on four fundamental
considerations: First, no notice and hearing was accorded * * (it) before its properties and business were taken
over;Second, the PCGG is not a court, but a purely investigative agency and therefore not competent to act as
prosecutor and judge in the same cause; Third, there is nothing in the issuances which envisions any proceeding,
process or remedy by which petitioner may expeditiously challenge the validity of the takeover after the same has been
effected; and Fourthly, being directed against specified persons, and in disregard of the constitutional presumption of
innocence and general rules and procedures, they constitute a Bill of Attainder." 13
b. Re Order to Produce Documents
It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already complied with,
was issued without court authority and infringed its constitutional right against self-incrimination, and unreasonable
search and seizure. 14
c. Re PCGG's Exercise of Right of Ownership and Management
BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of its
business affairs by
1) terminating its contract for security services with Fairways & Anchor, without the consent and against the will of the
contracting parties; and amending the mode of payment of entry fees stipulated in its Lease Contract with National
Stevedoring & Lighterage Corporation, these acts being in violation of the non-impairment clause of the constitution; 15
2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine Integrated Port
Services, Inc., giving the latter free use of BASECO premises; 16

3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders


Many misconceptions and much doubt about the matter of sequestration, takeover and freeze orders have been
engendered by misapprehension, or incomplete comprehension if not indeed downright ignorance of the law governing
these remedies. It is needful that these misconceptions and doubts be dispelled so that uninformed and useless
debates about them may be avoided, and arguments tainted b sophistry or intellectual dishonesty be quickly exposed
and discarded. Towards this end, this opinion will essay an exposition of the law on the matter. In the process many of
the objections raised by BASECO will be dealt with.
4. The Governing Law
a. Proclamation No. 3
The impugned executive orders are avowedly meant to carry out the explicit command of the Provisional Constitution,
ordained by Proclamation No. 3, 23 that the President-in the exercise of legislative power which she was authorized to
continue to wield "(until a legislature is elected and convened under a new Constitution" "shall give priority to
measures to achieve the mandate of the people," among others to (r)ecover ill-gotten properties amassed by the
leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or
freezing of assets or accounts." 24
b. Executive Order No. 1
Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and postulates that "vast resources of
the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and
close associates both here and abroad." 25 Upon these premises, the Presidential Commission on Good Government
was created, 26 "charged with the task of assisting the President in regard to (certain specified) matters," among which
was precisely* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E. Marcos,
his immediate family, relatives, subordinates and close associates, whether located in the
Philippines or abroad, including the takeover or sequestration of all business enterprises and
entities owned or controlled by them, during his administration, directly or through nominees, by
taking undue advantage of their public office and/or using their powers, authority, influence,
connections or relationship. 27

In relation to the takeover or sequestration that it was authorized to undertake in the fulfillment of its mission, the PCGG
was granted "power and authority" to do the following particular acts, to wit:
1. To sequester or place or cause to be placed under its control or possession any building or
office wherein any ill-gotten wealth or properties may be found, and any records pertaining
thereto, in order to prevent their destruction, concealment or disappearance which would
frustrate or hamper the investigation or otherwise prevent the Commission from accomplishing
its task.
2. To provisionally take over in the public interest or to prevent the disposal or dissipation,
business enterprises and properties taken over by the government of the Marcos
Administration or by entities or persons close to former President Marcos, until the transactions
leading to such acquisition by the latter can be disposed of by the appropriate authorities.
3. To enjoin or restrain any actual or threatened commission of acts by any person or entity that
may render moot and academic, or frustrate or otherwise make ineffectual the efforts of the
Commission to carry out its task under this order. 28
So that it might ascertain the facts germane to its objectives, it was granted power to conduct investigations; require
submission of evidence by subpoenae ad testificandum and duces tecum; administer oaths; punish for contempt. 29 It
was given power also to promulgate such rules and regulations as may be necessary to carry out the purposes of * * (its
creation). 30
c. Executive Order No. 2
Executive Order No. 2 gives additional and more specific data and directions respecting "the recovery of ill-gotten
properties amassed by the leaders and supporters of the previous regime." It declares that:
1) * * the Government of the Philippines is in possession of evidence showing that there are
assets and properties purportedly pertaining to former Ferdinand E. Marcos, and/or his wife
Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates,
dummies, agents or nominees which had been or were acquired by them directly or indirectly,
through or as a result of the improper or illegal use of funds or properties owned by the
government of the Philippines or any of its branches, instrumentalities, enterprises, banks or
financial institutions, or by taking undue advantage of their office, authority, influence,
connections or relationship, resulting in their unjust enrichment and causing grave damage and
prejudice to the Filipino people and the Republic of the Philippines:" and
2) * * said assets and properties are in the form of bank accounts, deposits, trust accounts,
shares of stocks, buildings, shopping centers, condominiums, mansions, residences, estates,
and other kinds of real and personal properties in the Philippines and in various countries of the
world." 31

pending the outcome of appropriate proceedings in the Philippines to determine whether any
such assets or properties were acquired by them through or as a result of improper or illegal
use of or the conversion of funds belonging to the Government of the Philippines or any of its
branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue
advantage of their official position, authority, relationship, connection or influence to unjustly
enrich themselves at the expense and to the grave damage and prejudice of the Filipino people
and the Republic of the Philippines;
3) prohibited "any person from transferring, conveying, encumbering or otherwise depleting or
concealing such assets and properties or from assisting or taking part in their transfer,
encumbrance, concealment or dissipation under pain of such penalties as are prescribed by
law;" and
4) required "all persons in the Philippines holding such assets or properties, whether located in
the Philippines or abroad, in their names as nominees, agents or trustees, to make full
disclosure of the same to the Commission on Good Government within thirty (30) days from
publication of * (the) Executive Order, * *. 32
d. Executive Order No. 14
A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG is empowered, "with the assistance of
the Office of the Solicitor General and other government agencies, * * to file and prosecute all cases investigated by it * *
as may be warranted by its findings." 34 All such cases, whether civil or criminal, are to be filed "with
theSandiganbayan which shall have exclusive and original jurisdiction thereof." 35 Executive Order No. 14 also
pertinently provides that civil suits for restitution, reparation of damages, or indemnification for consequential damages,
forfeiture proceedings provided for under Republic Act No. 1379, or any other civil actions under the Civil Code or other
existing laws, in connection with * * (said Executive Orders Numbered 1 and 2) may be filed separately from and
proceed independently of any criminal proceedings and may be proved by a preponderance of evidence;" and that,
moreover, the "technical rules of procedure and evidence shall not be strictly applied to* * (said)civil cases." 36
5. Contemplated Situations
The situations envisaged and sought to be governed are self-evident, these being:
1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the previous
regime"; 37
a) more particularly, that ill-gotten wealth (was) accumulated by former President Ferdinand E.
Marcos, his immediate family, relatives, subordinates and close associates, * * located in the
Philippines or abroad, * * (and) business enterprises and entities (came to be) owned or
controlled by them, during * * (the Marcos) administration, directly or through nominees, by
taking undue advantage of their public office and/or using their powers, authority, influence,
Connections or relationship; 38

Upon these premises, the President1) froze "all assets and properties in the Philippines in which former President Marcos and/or
his wife, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business
associates, dummies, agents, or nominees have any interest or participation;
2) prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives,
subordinates, business associates, duties, agents, or nominees from transferring, conveying,
encumbering, concealing or dissipating said assets or properties in the Philippines and abroad,

b) otherwise stated, that "there are assets and properties purportedly pertaining to former
President Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close
relatives, subordinates, business associates, dummies, agents or nominees which had been or
were acquired by them directly or indirectly, through or as a result of the improper or illegal use
of funds or properties owned by the Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of
their office, authority, influence, connections or relationship, resulting in their unjust enrichment
and causing grave damage and prejudice to the Filipino people and the Republic of the
Philippines"; 39

c) that "said assets and properties are in the form of bank accounts. deposits, trust. accounts,
shares of stocks, buildings, shopping centers, condominiums, mansions, residences, estates,
and other kinds of real and personal properties in the Philippines and in various countries of the
world;" 40 and
2) that certain "business enterprises and properties (were) taken over by the government of the
Marcos Administration or by entities or persons close to former President Marcos. 41
6. Government's Right and Duty to Recover All Ill-gotten Wealth
There can be no debate about the validity and eminent propriety of the Government's plan "to recover all ill-gotten
wealth."

restrain or foil acts that may render moot and academic, or effectively hamper, delay, or negate efforts to recover the
same.
7. Provisional Remedies Prescribed by Law
To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration; (2) freeze
orders; and (3) provisional takeover.
Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten wealth." The remedy
of "provisional takeover" is peculiar to cases where "business enterprises and properties (were) taken over by the
government of the Marcos Administration or by entities or persons close to former President Marcos." 43
a. Sequestration

Neither can there be any debate about the proposition that assuming the above described factual premises of the
Executive Orders and Proclamation No. 3 to be true, to be demonstrable by competent evidence, the recovery from
Marcos, his family and his dominions of the assets and properties involved, is not only a right but a duty on the part of
Government.
But however plain and valid that right and duty may be, still a balance must be sought with the equally compelling
necessity that a proper respect be accorded and adequate protection assured, the fundamental rights of private property
and free enterprise which are deemed pillars of a free society such as ours, and to which all members of that society
may without exception lay claim.
* * Democracy, as a way of life enshrined in the Constitution, embraces as its necessary
components freedom of conscience, freedom of expression, and freedom in the pursuit of
happiness. Along with these freedoms are included economic freedom and freedom of
enterprise within reasonable bounds and under proper control. * * Evincing much concern for
the protection of property, the Constitution distinctly recognizes the preferred position which
real estate has occupied in law for ages. Property is bound up with every aspect of social life in
a democracy as democracy is conceived in the Constitution. The Constitution realizes the
indispensable role which property, owned in reasonable quantities and used legitimately, plays
in the stimulation to economic effort and the formation and growth of a solid social middle class
that is said to be the bulwark of democracy and the backbone of every progressive and happy
country. 42
a. Need of Evidentiary Substantiation in Proper Suit
Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to be duly
established by adequate proof in each case, in a proper judicial proceeding, so that the recovery of the ill-gotten wealth
may be validly and properly adjudged and consummated; although there are some who maintain that the fact-that an
immense fortune, and "vast resources of the government have been amassed by former President Ferdinand E.
Marcos, his immediate family, relatives, and close associates both here and abroad," and they have resorted to all sorts
of clever schemes and manipulations to disguise and hide their illicit acquisitions-is within the realm of judicial notice,
being of so extensive notoriety as to dispense with proof thereof, Be this as it may, the requirement of evidentiary
substantiation has been expressly acknowledged, and the procedure to be followed explicitly laid down, in Executive
Order No. 14.
b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits
Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gotten wealth" as the evidence
at hand may reveal, there is an obvious and imperative need for preliminary, provisional measures to prevent the
concealment, disappearance, destruction, dissipation, or loss of the assets and properties subject of the suits, or to

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

It may perhaps be well at this point to stress once again the provisional, contingent character of the remedies just
described. Indeed the law plainly qualifies the remedy of take-over by the adjective, "provisional." These remedies may
be resorted to only for a particular exigency: to prevent in the public interest the disappearance or dissipation of property
or business, and conserve it pending adjudgment in appropriate proceedings of the primary issue of whether or not the
acquisition of title or other right thereto by the apparent owner was attended by some vitiating anomaly. None of the
remedies is meant to deprive the owner or possessor of his title or any right to the property sequestered, frozen or taken
over and vest it in the sequestering agency, the Government or other person. This can be done only for the causes and
by the processes laid down by law.
That this is the sense in which the power to sequester, freeze or provisionally take over is to be understood and
exercised, the language of the executive orders in question leaves no doubt. Executive Order No. 1 declares that the
sequestration of property the acquisition of which is suspect shall last "until the transactions leading to such acquisition *
* can be disposed of by the appropriate authorities." 49 Executive Order No. 2 declares that the assets or properties
therein mentioned shall remain frozen "pending the outcome of appropriate proceedings in the Philippines to determine
whether any such assets or properties were acquired" by illegal means. Executive Order No. 14 makes clear that judicial
proceedings are essential for the resolution of the basic issue of whether or not particular assets are "ill-gotten," and
resultant recovery thereof by the Government is warranted.
e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional Command
There is thus no cause for the apprehension voiced by BASECO 50 that sequestration, freezing or provisional takeover is
designed to be an end in itself, that it is the device through which persons may be deprived of their property branded as
"ill-gotten," that it is intended to bring about a permanent, rather than a passing, transitional state of affairs. That this is
not so is quite explicitly declared by the governing rules.
Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of these provisional remedies.
Section 26 of its Transitory Provisions, 51 lays down the relevant rule in plain terms, apart from extending ratification or
confirmation (although not really necessary) to the institution by presidential fiat of the remedy of sequestration and
freeze orders:
SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated
March 25, 1986 in relation to the recovery of ill-gotten wealth shag remain operative for not
more than eighteen months after the ratification of this Constitution. However, in the national
interest, as certified by the President, the Congress may extend said period.

takeover, attachment and receivership are provisional, temporary, designed for-particular exigencies, attended by no
character of permanency or finality, and always subject to the control of the issuing court or agency.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a court is of no moment. The
Solicitor General draws attention to the writ of distraint and levy which since 1936 the Commissioner of Internal
Revenue has been by law authorized to issue against property of a delinquent taxpayer. 56 BASECO itself declares that
it has not manifested "a rigid insistence on sequestration as a purely judicial remedy * * (as it feels) that the law should
not be ossified to a point that makes it insensitive to change." What it insists on, what it pronounces to be its "unyielding
position, is that any change in procedure, or the institution of a new one, should conform to due process and the other
prescriptions of the Bill of Rights of the Constitution." 57 It is, to be sure, a proposition on which there can be no
disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and receivership, as well as delivery of personal property in replevin suits,
sequestration and provisional takeover writs may issue ex parte. 58 And as in preliminary attachment, receivership, and
delivery of personality, no objection of any significance may be raised to the ex parte issuance of an order of
sequestration, freezing or takeover, given its fundamental character of temporariness or conditionality; and taking
account specially of the constitutionally expressed "mandate of the people to recover ill-gotten properties amassed by
the leaders and supporters of the previous regime and protect the interest of the people;" 59 as well as the obvious need
to avoid alerting suspected possessors of "ill-gotten wealth" and thereby cause that disappearance or loss of property
precisely sought to be prevented, and the fact, just as self-evident, that "any transfer, disposition, concealment or
disappearance of said assets and properties would frustrate, obstruct or hamper the efforts of the Government" at the
just recovery thereof. 60
8. Requisites for Validity
What is indispensable is that, again as in the case of attachment and receivership, there exist a prima facie factual
foundation, at least, for the sequestration, freeze or takeover order, and adequate and fair opportunity to contest it and
endeavor to cause its negation or nullification. 61
Both are assured under the executive orders in question and the rules and regulations promulgated by the PCGG.

A sequestration or freeze order shall be issued only upon showing of a prima facie case. The
order and the list of the sequestered or frozen properties shall forthwith be registered with the
proper court. For orders issued before the ratification of this Constitution, the corresponding
judicial action or proceeding shall be filed within six months from its ratification. For those
issued after such ratification, the judicial action or proceeding shall be commenced within six
months from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted if no judicial action or
proceeding is commenced as herein provided. 52
f. Kinship to Attachment Receivership
As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy of preliminary
attachment, or receivership. 53 By attachment, a sheriff seizes property of a defendant in a civil suit so that it may stand
as security for the satisfaction of any judgment that may be obtained, and not disposed of, or dissipated, or lost
intentionally or otherwise, pending the action. 54 By receivership, property, real or personal, which is subject of litigation,
is placed in the possession and control of a receiver appointed by the Court, who shall conserve it pending final
determination of the title or right of possession over it. 55 All these remedies sequestration, freezing, provisional,

a. Prima Facie Evidence as Basis for Orders


Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and due process." 62Executive
Order No. 2 declares that with respect to claims on allegedly "ill-gotten" assets and properties, "it is the position of the
new democratic government that President Marcos * * (and other parties affected) be afforded fair opportunity to contest
these claims before appropriate Philippine authorities." 63 Section 7 of the Commission's Rules and Regulations provides
that sequestration or freeze (and takeover) orders issue upon the authority of at least two commissioners, based on
the affirmation or complaint of an interested party, or motu proprio when the Commission has reasonable grounds to
believe that the issuance thereof is warranted. 64 A similar requirement is now found in Section 26, Art. XVIII of the 1987
Constitution, which requires that a "sequestration or freeze order shall be issued only upon showing of a prima
facie case." 65
b. Opportunity to Contest
And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a party may seek to set
aside a writ of sequestration or freeze order, viz:

SECTION 5. Who may contend.-The person against whom a writ of sequestration or freeze or
hold order is directed may request the lifting thereof in writing, either personally or through
counsel within five (5) days from receipt of the writ or order, or in the case of a hold order, from
date of knowledge thereof.

The facts show that the corporation known as BASECO was owned or controlled by President Marcos "during his
administration, through nominees, by taking undue advantage of his public office and/or using his powers, authority, or
influence, " and that it was by and through the same means, that BASECO had taken over the business and/or assets of
the National Shipyard and Engineering Co., Inc., and other government-owned or controlled entities.

SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio for good
cause shown, the Commission may lift the writ or order unconditionally or subject to such
conditions as it may deem necessary, taking into consideration the evidence and the
circumstance of the case. The resolution of the commission may be appealed by the party
concerned to the Office of the President of the Philippines within fifteen (15) days from receipt
thereof.

12. Organization and Stock Distribution of BASECO

Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth" were not expressly imposed by
some rule or regulation as a condition to warrant the sequestration or freezing of property contemplated in the executive
orders in question, it would nevertheless be exigible in this jurisdiction in which the Rule of Law prevails and official acts
which are devoid of rational basis in fact or law, or are whimsical and capricious, are condemned and struck down. 66

BASECO describes itself in its petition as "a shiprepair and shipbuilding company * * incorporated as a domestic private
corporation * * (on Aug. 30, 1972) by a consortium of Filipino shipowners and shipping executives. Its main office is at
Engineer Island, Port Area, Manila, where its Engineer Island Shipyard is housed, and its main shipyard is located at
Mariveles Bataan." 73 Its Articles of Incorporation disclose that its authorized capital stock is P60,000,000.00 divided into
60,000 shares, of which 12,000 shares with a value of P12,000,000.00 have been subscribed, and on said subscription,
the aggregate sum of P3,035,000.00 has been paid by the incorporators. 74 The same articles Identify the incorporators,
numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee, (3) Eduardo T. Marcelo, (4) Jose P. Fernandez,
(5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio M. Ezpeleta, (8) Zacarias Amante, (9) Severino de la Cruz, (10)
Jose Francisco, (11) Dioscoro Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza, (14) Magiliw Torres, and (15)
Rodolfo Torres.

9. Constitutional Sanction of Remedies


If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of
sequestration, freeze and takeover orders, it should be dispelled by the fact that these particular remedies and the
authority of the PCGG to issue them have received constitutional approbation and sanction. As already mentioned, the
Provisional or "Freedom" Constitution recognizes the power and duty of the President to enact "measures to achieve the
mandate of the people to * * * (recover ill- gotten properties amassed by the leaders and supporters of the previous
regime and protect the interest of the people through orders of sequestration or freezing of assets or accounts." And as
also already adverted to, Section 26, Article XVIII of the 1987 Constitution 67 treats of, and ratifies the "authority to issue
sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986."
The institution of these provisional remedies is also premised upon the State's inherent police power, regarded, as t lie
power of promoting the public welfare by restraining and regulating the use of liberty and property," 68 and as "the most
essential, insistent and illimitable of powers * * in the promotion of general welfare and the public interest," 69and said to
be co-extensive with self-protection and * * not inaptly termed (also) the'law of overruling necessity." " 70

By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be stockholders, namely: (1) Generoso
Tanseco, (2) Antonio Ezpeleta, (3) Zacarias Amante, (4) Octavio Posadas, (5) Magiliw Torres, and (6) Rodolfo Torres. As
of this year, 1986, there were twenty (20) stockholders listed in BASECO's Stock and Transfer Book. 75Their names and
the number of shares respectively held by them are as follows:

1. Jose A. Rojas

1,248 shares

2. Severino G. de la Cruz

1,248 shares

3. Emilio T. Yap

2,508 shares

4. Jose Fernandez

1,248 shares

5. Jose Francisco

128 shares

6. Manuel S. Mendoza

96 shares

10. PCGG not a "Judge"; General Functions


It should also by now be reasonably evident from what has thus far been said that the PCGG is not, and was never
intended to act as, a judge. Its general function is to conduct investigations in order to collect evidence establishing
instances of "ill-gotten wealth;" issue sequestration, and such orders as may be warranted by the evidence thus
collected and as may be necessary to preserve and conserve the assets of which it takes custody and control and
prevent their disappearance, loss or dissipation; and eventually file and prosecute in the proper court of competent
jurisdiction all cases investigated by it as may be warranted by its findings. It does not try and decide, or hear and
determine, or adjudicate with any character of finality or compulsion, cases involving the essential issue of whether or
not property should be forfeited and transferred to the State because "ill-gotten" within the meaning of the Constitution
and the executive orders. This function is reserved to the designated court, in this case, the Sandiganbayan. 71 There
can therefore be no serious regard accorded to the accusation, leveled by BASECO, 72 that the PCGG plays the
perfidious role of prosecutor and judge at the same time.
11. Facts Preclude Grant of Relief to Petitioner
Upon these premises and reasoned conclusions, and upon the facts disclosed by the record, hereafter to be discussed,
the petition cannot succeed. The writs of certiorari and prohibition prayed for will not be issued.

7. Anthony P. Lee

1,248 shares

18. Jose J. Tanchanco

1 share

8. Hilario M. Ruiz

32 shares

19. Dioscoro Papa

128 shares

9. Constante L. Farias

8 shares

20. Edward T. Marcelo

4 shares

10. Fidelity Management,


Inc.

65,882 shares

TOTAL

218,819 shares.

11. Trident Management

7,412 shares

12. United Phil. Lines

1,240 shares

13. Renato M. Tanseco

8 shares

13 Acquisition of NASSCO by BASECO


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

8 shares

15. Metro Bay Drydock

136,370 shares

Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to P24,311,550.00, about eight (8)
months later. A document to this effect was executed on October 9, 1973, entitled "Memorandum Agreement," and was
signed for NASSCO by Arturo Pacificador, as Presiding Officer of the Board of Directors, and David R. Ines, as General
Manager. 77 This agreement bore, at the top right corner of the first page, the word "APPROVED" in the handwriting
of President Marcos, followed by his usual full signature. The document recited that a down payment of P5,862,310.00
had been made by BASECO, and the balance of P19,449,240.00 was payable in equal semi-annual installments over
nine (9) years after a grace period of two (2) years, with interest at 7% per annum.
15. Acquisition of 300 Hectares from Export Processing Zone Authority

16. Manuel Jacela

1 share

17. Jonathan G. Lu

1 share

On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the Export Processing
Zone Authority for the price of P10,047,940.00 of which, as set out in the document of sale, P2,000.000.00 was paid
upon its execution, and the balance stipulated to be payable in installments. 78
16. Acquisition of Other Assets of NASSCO; Intervention of Marcos

Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the intervention of President
Marcos, acquired ownership of the rest of the assets of NASSCO which had not been included in the first two (2)
purchase documents. This was accomplished by a deed entitled "Contract of Purchase and Sale," 79 which, like the
Memorandum of Agreement dated October 9, 1973 supra also bore at the upper right-hand corner of its first page, the
handwritten notation of President Marcos reading, "APPROVED, July 29, 1973," and underneath it, his usual full
signature. Transferred to BASECO were NASSCO's "ownership and all its titles, rights and interests over all equipment
and facilities including structures, buildings, shops, quarters, houses, plants and expendable or semi-expendable
assets, located at the Engineer Island, known as the Engineer Island Shops, including all the equipment of the Bataan
National Shipyards (BNS) which were excluded from the sale of NBS to BASECO but retained by BASECO and all other
selected equipment and machineries of NASSCO at J. Panganiban Smelting Plant." In the same deed, NASSCO
committed itself to cooperate with BASECO for the acquisition from the National Government or other appropriate
Government entity of Engineer Island. Consideration for the sale was set at P5,000,000.00; a down payment of
P1,000,000.00 appears to have been made, and the balance was stipulated to be paid at 7% interest per annum in
equal semi annual installments over a term of nine (9) years, to commence after a grace period of two (2) years. Mr.
Arturo Pacificador again signed for NASSCO, together with the general manager, Mr. David R. Ines.
17. Loans Obtained
It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken from "the last available
Japanese war damage fund of $19,000,000.00," to pay for "Japanese made heavy equipment (brand new)." 80 On
September 3, 1975, it got another loan also from the NDC in the amount of P30,000,000.00 (id.). And on January 28,
1976, it got still another loan, this time from the GSIS, in the sum of P12,400,000.00. 81 The claim has been made that
not a single centavo has been paid on these loans. 82
18. Reports to President Marcos
In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO. The first was contained in
a letter dated September 5, 1977 of Hilario M. Ruiz, BASECO president. 83 The second was embodied in a confidential
memorandum dated September 16, 1977 of Capt. A.T. Romualdez. 84 They further disclose the fine hand of Marcos in
the affairs of BASECO, and that of a Romualdez, a relative by affinity.
a. BASECO President's Report
In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that there had been "no orders or
demands for ship construction" for some time and expressed the fear that if that state of affairs persisted, BASECO
would not be able to pay its debts to the Government, which at the time stood at the not inconsiderable amount of
P165,854,000.00. 85 He suggested that, to "save the situation," there be a "spin-off (of their) shipbuilding activities which
shall be handled exclusively by an entirely new corporation to be created;" and towards this end, he informed Marcos
that BASECO was
* * inviting NDC and LUSTEVECO to participate by converting the NDC shipbuilding loan to
BASECO amounting to P341.165M and assuming and converting a portion of BASECO's
shipbuilding loans from REPACOM amounting to P52.2M or a total of P83.365M as NDC's
equity contribution in the new corporation. LUSTEVECO will participate by absorbing and
converting a portion of the REPACOM loan of Bay Shipyard and Drydock, Inc., amounting to
P32.538M. 86
b. Romualdez' Report
Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It opened with the following caption:
MEMORANDUM:

FOR : The President


SUBJECT: An Evaluation and Re-assessment of a Performance of a Mission
FROM: Capt. A.T. Romualdez.
Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan obligations due chiefly to the fact
that "orders to build ships as expected * * did not materialize."
He advised that five stockholders had "waived and/or assigned their holdings inblank," these being: (1) Jose A. Rojas,
(2) Severino de la Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee. Pointing out that "Mr. Magiliw
Torres * * is already dead and Mr. Jose A. Rojas had a major heart attack," he made the following quite revealing, and it
may be added, quite cynical and indurate recommendation, to wit:
* * (that) their replacements (be effected) so we can register their names in the stock book prior
to the implementation of your instructions to pass a board resolution to legalize the transfers
under SEC regulations;
2. By getting their replacements, the families cannot question us later on; and
3. We will owe no further favors from them. 87
He also transmitted to Marcos, together with the report, the following documents: 88
1. Stock certificates indorsed and assigned in blank with assignments and waivers; 89
2. The articles of incorporation, the amended articles, and the by-laws of BASECO;
3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in "Engineer
Island", Port Area, Manila;
4. Transfer Certificate of Title No. 124822 in the name of BASECO, covering "Engineer Island";
5. Contract dated October 9, 1973, between NASSCO and BASECO re-structure and
equipment at Mariveles, Bataan;
6. Contract dated July 16, 1975, between NASSCO and BASECO re-structure and equipment
at Engineer Island, Port Area Manila;
7. Contract dated October 1, 1974, between EPZA and BASECO re 300 hectares of land at
Mariveles, Bataan;
8. List of BASECO's fixed assets;
9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC of P30,000,000.00;
10. BASECO-REPACOM Agreement dated May 27, 1975;

11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for the housing facilities
for BASECO's rank-and-file employees. 90

What is commanded therein is summarized by the Solicitor General, with pithy and not inaccurate observations as to the
effects thereof (in italics), as follows:

Capt. Romualdez also recommended that BASECO's loans be restructured "until such period when BASECO will have
enough orders for ships in order for the company to meet loan obligations," and that

* * 1) the shipbuilding equipment procured by BASECO through reparations be transferred to


NDC subject to reimbursement by NDC to BASECO (of) the amount of s allegedly representing
the handling and incidental expenses incurred by BASECO in the installation of said
equipment (so instead of NDC getting paid on its loan to BASECO, it was made to pay
BASECO instead the amount of P18.285M); 2) the shipbuilding equipment procured from
reparations through EPZA, now in the possession of BASECO and BSDI (Bay Shipyard &
Drydocking, Inc.) be transferred to LUSTEVECO through PNOC; and 3) the shipbuilding
equipment (thus) transferred be invested by LUSTEVECO, acting through PNOC and NDC, as
the government's equity participation in a shipbuilding corporation to be established in
partnership with the private sector.

An LOI may be issued to government agencies using floating equipment, that a linkage scheme
be applied to a certain percent of BASECO's net profit as part of BASECO's amortization
payments to make it justifiable for you, Sir. 91
It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer of BASECO, yet he has
presented a report on BASECO to President Marcos, and his report demonstrates intimate familiarity with the firm's
affairs and problems.

xxx xxx xxx


19. Marcos' Response to Reports
And so, through a simple letter of instruction and memorandum, BASECO's loan obligation to
NDC and REPACOM * * in the total amount of P83.365M and BSD's REPACOM loan of
P32.438M were wiped out and converted into non-voting preferred shares. 95

President Marcos lost no time in acting on his subordinates' recommendations, particularly as regards the "spin-off" and
the "linkage scheme" relative to "BASECO's amortization payments."
20. Evidence of Marcos'

a. Instructions re "Spin-Off"
Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo Velasco of the Philippine
National Oil Company and Chairman Constante Farias of the National Development Company, directing them "to
participate in the formation of a new corporation resulting from the spin-off of the shipbuilding component of BASECO
along the following guidelines:
a. Equity participation of government shall be through LUSTEVECO and NDC in the amount of
P115,903,000 consisting of the following obligations of BASECO which are hereby authorized
to be converted to equity of the said new corporation, to wit:
1. NDC P83,865,000 (P31.165M loan & P52.2M Reparation)
2. LUSTEVECO P32,538,000 (Reparation)
b. Equity participation of government shall be in the form of non- voting shares.
For immediate compliance.

92

Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22) days after receiving their
president's memorandum, Messrs. Hilario M. Ruiz, Constante L. Farias and Geronimo Z. Velasco, in representation of
their respective corporations, executed a PRE-INCORPORATION AGREEMENT dated October 20, 1977. 93 In it, they
undertook to form a shipbuilding corporation to be known as "PHIL-ASIA SHIPBUILDING CORPORATION," to bring to
realization their president's instructions. It would seem that the new corporation ultimately formed was actually named
"Philippine Dockyard Corporation (PDC)." 94
b. Letter of Instructions No. 670
Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On February 14, 1978, he
issued Letter of Instructions No. 670 addressed to the Reparations Commission REPACOM the Philippine National Oil
Company (PNOC), the Luzon Stevedoring Company (LUSTEVECO), and the National Development Company (NDC).

Ownership of BASECO
It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the control by President
Marcos of BASECO has been sufficiently shown.
Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only exercised
control over BASECO, but also that he actually owns well nigh one hundred percent of its outstanding stock.
It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 shares of stock outstanding,
ostensibly owned by twenty (20) stockholders. 96 Four of these twenty are juridical persons: (1) Metro Bay
Drydock, recorded as holding 136,370 shares; (2) Fidelity Management, Inc., 65,882 shares; (3) Trident
Management, 7,412 shares; and (4) United Phil. Lines, 1,240 shares. The first three corporations, among themselves,
own an aggregate of 209,664 shares of BASECO stock, or 95.82% of the outstanding stock.
Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that found in Malacanang
shortly after the sudden flight of President Marcos, were certificates corresponding to more than ninety-five percent
(95%) of all the outstanding shares of stock of BASECO, endorsed in blank, together with deeds of assignment of
practically all the outstanding shares of stock of the three (3) corporations above mentioned (which hold 95.82% of all
BASECO stock), signed by the owners thereof although not notarized. 97
More specifically, found in Malacanang (and now in the custody of the PCGG) were:
1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc. which
supposedly owns as aforesaid 65,882 shares of BASECO stock;
2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding shares of Metro Bay
Drydock Corporation which allegedly owns 136,370 shares of BASECO stock;

3) the deeds of assignment of 800 outstanding shares of Trident Management Co., Inc.
which allegedly owns 7,412 shares of BASECO stock, assigned in blank; 98 and
4) stock certificates corresponding to 207,725 out of the 218,819 outstanding shares of
BASECO stock; that is, all but 5 % all endorsed in blank. 99
While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that the BASECO stockholders
were still in possession of their respective stock certificates and had "never endorsed * * them in blank or to anyone
else," 100 that denial is exposed by his own prior and subsequent recorded statements as a mere gesture of defiance
rather than a verifiable factual declaration.
By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of 10 days "to SUBMIT, as
undertaken by him, * * the certificates of stock issued to the stockholders of * * BASECO as of April 23, 1986, as listed in
Annex 'P' of the petition.' 101 Counsel thereafter moved for extension; and in his motion dated October 2, 1986, he
declared inter alia that "said certificates of stock are in the possession of third parties, among whom being the
respondents themselves * * and petitioner is still endeavoring to secure copies thereof from them." 102 On the same
day he filed another motion praying that he be allowed "to secure copies of the Certificates of Stock in the name of
Metro Bay Drydock, Inc., and of all other Certificates, of Stock of petitioner's stockholders in possession of
respondents." 103
In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably argued that counsel's
aforestated motion to secure copies of the stock certificates "confirms the fact that stockholders of petitioner corporation
are not in possession of * * (their) certificates of stock," and the reason, according to him, was "that 95% of said shares *
* have been endorsed in blank and found in Malacaang after the former President and his family fled the country." To
this manifestation BASECO's counsel replied on November 5, 1986, as already mentioned, Stubbornly insisting that the
firm's stockholders had not really assigned their stock. 105
In view of the parties' conflicting declarations, this Court resolved on November 27, 1986 among other things "to require
* * the petitioner * * to deposit upon proper receipt with Clerk of Court Juanito Ranjo the originals of the stock
certificates alleged to be in its possession or accessible to it, mentioned and described in Annex 'P' of its petition, (and
other pleadings) * * within ten (10) days from notice." 106 In a motion filed on December 5, 1986, 107 BASECO's
counsel made the statement, quite surprising in the premises, that "it will negotiate with the owners (of the BASECO
stock in question) to allow petitioner to borrow from them, if available, the certificates referred to" but that "it needs a
more sufficient time therefor" (sic). BASECO's counsel however eventually had to confess inability to produce the
originals of the stock certificates, putting up the feeble excuse that while he had "requested the stockholders to allow * *
(him) to borrow said certificates, * * some of * * (them) claimed that they had delivered the certificates to third parties by
way of pledge and/or to secure performance of obligations, while others allegedly have entrusted them to third parties in
view of last national emergency." 108 He has conveniently omitted, nor has he offered to give the details of the
transactions adverted to by him, or to explain why he had not impressed on the supposed stockholders the primordial
importance of convincing this Court of their present custody of the originals of the stock, or if he had done so, why the
stockholders are unwilling to agree to some sort of arrangement so that the originals of their certificates might at the
very least be exhibited to the Court. Under the circumstances, the Court can only conclude that he could not get the
originals from the stockholders for the simple reason that, as the Solicitor General maintains, said stockholders in truth
no longer have them in their possession, these having already been assigned in blank to then President Marcos.
21. Facts Justify Issuance of Sequestration and Takeover Orders
In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and directors of
BASECO as of April, 1986 109 were mere "dummies," nominees or alter egos of President Marcos; at any rate, that they
are no longer owners of any shares of stock in the corporation, the conclusion cannot be avoided that said stockholders
and directors have no basis and no standing whatever to cause the filing and prosecution of the instant proceeding; and
to grant relief to BASECO, as prayed for in the petition, would in effect be to restore the assets, properties and business
sequestered and taken over by the PCGG to persons who are "dummies," nominees or alter egos of the former
president.

From the standpoint of the PCGG, the facts herein stated at some length do indeed show that the private corporation
known as BASECO was "owned or controlled by former President Ferdinand E. Marcos * * during his administration, * *
through nominees, by taking advantage of * * (his) public office and/or using * * (his) powers, authority, influence * *,"
and that NASSCO and other property of the government had been taken over by BASECO; and the situation justified
the sequestration as well as the provisional takeover of the corporation in the public interest, in accordance with the
terms of Executive Orders No. 1 and 2, pending the filing of the requisite actions with the Sandiganbayan to cause
divestment of title thereto from Marcos, and its adjudication in favor of the Republic pursuant to Executive Order No. 14.
As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, it sustains the acts
of sequestration and takeover by the PCGG as being in accord with the law, and, in view of what has thus far been set
out in this opinion, pronounces to be without merit the theory that said acts, and the executive orders pursuant to which
they were done, are fatally defective in not according to the parties affected prior notice and hearing, or an adequate
remedy to impugn, set aside or otherwise obtain relief therefrom, or that the PCGG had acted as prosecutor and judge
at the same time.
22. Executive Orders Not a Bill of Attainder
Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. 110 "A bill of
attainder is a legislative act which inflicts punishment without judicial trial." 111 "Its essence is the substitution of a
legislative for a judicial determination of guilt." 112
In the first place, nothing in the executive orders can be reasonably construed as a determination or declaration of guilt.
On the contrary, the executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any judgment of
guilt in the amassing or acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal, in this case,
the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In the second place, no punishment is inflicted
by the executive orders, as the merest glance at their provisions will immediately make apparent. In no sense, therefore,
may the executive orders be regarded as a bill of attainder.
23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures
BASECO also contends that its right against self incrimination and unreasonable searches and seizures had been
transgressed by the Order of April 18, 1986 which required it "to produce corporate records from 1973 to 1986 under
pain of contempt of the Commission if it fails to do so." The order was issued upon the authority of Section 3 (e) of
Executive Order No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the production of such books,
papers, contracts, records, statements of accounts and other documents as may be material to the investigation
conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing with its power to "require all persons
in the Philippines holding * * (alleged "ill-gotten") assets or properties, whether located in the Philippines or abroad, in
their names as nominees, agents or trustees, to make full disclosure of the same * *." The contention lacks merit.
It is elementary that the right against self-incrimination has no application to juridical persons.
While an individual may lawfully refuse to answer incriminating questions unless protected by
an immunity statute, it does not follow that a corporation, vested with special privileges and
franchises, may refuse to show its hand when charged with an abuse ofsuchprivileges * * 113
Relevant jurisprudence is also cited by the Solicitor General. 114
* * corporations are not entitled to all of the constitutional protections which private individuals
have. * *They are not at all within the privilege against self-incrimination, although this court
more than once has said that the privilege runs very closely with the 4th Amendment's Search
and Seizure provisions. It is also settled that an officer of the company cannot refuse to
produce its records in its possession upon the plea that they will either incriminate him or may

incriminate it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the
Solicitor General's).
* * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of
the public. It received certain special privileges and franchises, and holds them subject to the
laws of the state and the limitations of its charter. Its powers are limited by law. It can make no
contract not authorized by its charter. Its rights to act as a corporation are only preserved to it
so long as it obeys the laws of its creation. There is a reserve right in the legislature to
investigate its contracts and find out whether it has exceeded its powers. It would be a strange
anomaly to hold that a state, having chartered a corporation to make use of certain franchises,
could not, in the exercise of sovereignty, inquire how these franchises had been employed, and
whether they had been abused, and demand the production of the corporate books and papers
for that purpose. The defense amounts to this, that an officer of the corporation which is
charged with a criminal violation of the statute may plead the criminality of such corporation as
a refusal to produce its books. To state this proposition is to answer it. While an individual may
lawfully refuse to answer incriminating questions unless protected by an immunity statute, it
does not follow that a corporation, vested with special privileges and franchises may refuse to
show its hand when charged with an abuse of such privileges. (Wilson v. United States, 55 Law
Ed., 771, 780 [emphasis, the Solicitor General's])
At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to individuals
required to produce evidence before the PCGG against any possible violation of his right against self-incrimination. It
gives them immunity from prosecution on the basis of testimony or information he is compelled to present. As amended,
said Section 4 now provides that
xxx xxx xxx
The witness may not refuse to comply with the order on the basis of his privilege against selfincrimination; but no testimony or other information compelled under the order (or any
information directly or indirectly derived from such testimony, or other information) may be used
against the witness in any criminal case, except a prosecution for perjury, giving a false
statement, or otherwise failing to comply with the order.
The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either.
There has been no search undertaken by any agent or representative of the PCGG, and of course no seizure on the
occasion thereof.
24. Scope and Extent of Powers of the PCGG
One other question remains to be disposed of, that respecting the scope and extent of the powers that may be wielded
by the PCGG with regard to the properties or businesses placed under sequestration or provisionally taken over.
Obviously, it is not a question to which an answer can be easily given, much less one which will suffice for every
conceivable situation.
a. PCGG May Not Exercise Acts of Ownership
One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property
sequestered, frozen or provisionally taken over. AS already earlier stressed with no little insistence, the act of
sequestration; freezing or provisional takeover of property does not import or bring about a divestment of title over said
property; does not make the PCGG the owner thereof. In relation to the property sequestered, frozen or provisionally
taken over, the PCGG is a conservator, not an owner. Therefore, it can not perform acts of strict ownership; and this is
specially true in the situations contemplated by the sequestration rules where, unlike cases of receivership, for example,
no court exercises effective supervision or can upon due application and hearing, grant authority for the performance of
acts of dominion.

Equally evident is that the resort to the provisional remedies in question should entail the least possible interference with
business operations or activities so that, in the event that the accusation of the business enterprise being "ill gotten" be
not proven, it may be returned to its rightful owner as far as possible in the same condition as it was at the time of
sequestration.
b. PCGG Has Only Powers of Administration
The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally
taken over, much like a court-appointed receiver, 115 such as to bring and defend actions in its own name; receive
rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may be necessary to
fulfill its mission as conservator and administrator. In this context, it may in addition enjoin or restrain any actual or
threatened commission of acts by any person or entity that may render moot and academic, or frustrate or otherwise
make ineffectual its efforts to carry out its task; punish for direct or indirect contempt in accordance with the Rules of
Court; and seek and secure the assistance of any office, agency or instrumentality of the government. 116 In the case of
sequestered businesses generally (i.e., going concerns, businesses in current operation), as in the case of sequestered
objects, its essential role, as already discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not that of
manager, or innovator, much less an owner.
c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to
him; Limitations Thereon
Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the government of
the Marcos Administration or by entities or persons close to former President Marcos," 117 the PCGG is given power
and authority, as already adverted to, to "provisionally take (it) over in the public interest or to prevent * * (its) disposal or
dissipation;" and since the term is obviously employed in reference to going concerns, or business enterprises in
operation, something more than mere physical custody is connoted; the PCGG may in this case exercise some measure
of control in the operation, running, or management of the business itself. But even in this special situation, the intrusion
into management should be restricted to the minimum degree necessary to accomplish the legislative will, which is "to
prevent the disposal or dissipation" of the business enterprise. There should be no hasty, indiscriminate, unreasoned
replacement or substitution of management officials or change of policies, particularly in respect of viable
establishments. In fact, such a replacement or substitution should be avoided if at all possible, and undertaken only
when justified by demonstrably tenable grounds and in line with the stated objectives of the PCGG. And it goes without
saying that where replacement of management officers may be called for, the greatest prudence, circumspection, care
and attention - should accompany that undertaking to the end that truly competent, experienced and honest managers
may be recruited. There should be no role to be played in this area by rank amateurs, no matter how wen meaning. The
road to hell, it has been said, is paved with good intentions. The business is not to be experimented or played around
with, not run into the ground, not driven to bankruptcy, not fleeced, not ruined. Sight should never be lost sight of the
ultimate objective of the whole exercise, which is to turn over the business to the Republic, once judicially established to
be "ill-gotten." Reason dictates that it is only under these conditions and circumstances that the supervision,
administration and control of business enterprises provisionally taken over may legitimately be exercised.
d. Voting of Sequestered Stock; Conditions Therefor
So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the
prerogative to vote sequestered stock of corporations, granted to it by the President of the Philippines through a
Memorandum dated June 26, 1986. That Memorandum authorizes the PCGG, "pending the outcome of proceedings to
determine the ownership of * * (sequestered) shares of stock," "to vote such shares of stock as it may have sequestered
in corporations at all stockholders' meetings called for the election of directors, declaration of dividends, amendment of
the Articles of Incorporation, etc." The Memorandum should be construed in such a manner as to be consistent with, and
not contradictory of the Executive Orders earlier promulgated on the same matter. There should be no exercise of the
right to vote simply because the right exists, or because the stocks sequestered constitute the controlling or a
substantial part of the corporate voting power. The stock is not to be voted to replace directors, or revise the articles or
by-laws, or otherwise bring about substantial changes in policy, program or practice of the corporation except for
demonstrably weighty and defensible grounds, and always in the context of the stated purposes of sequestration or
provisional takeover, i.e., to prevent the dispersion or undue disposal of the corporate assets. Directors are not to be

voted out simply because the power to do so exists. Substitution of directors is not to be done without reason or rhyme,
should indeed be shunned if at an possible, and undertaken only when essential to prevent disappearance or wastage
of corporate property, and always under such circumstances as assure that the replacements are truly possessed of
competence, experience and probity.
Republic of the Philippines
SUPREME COURT
Manila

In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in their
stead because the evidence showed prima facie that the former were just tools of President Marcos and were no longer
owners of any stock in the firm, if they ever were at all. This is why, in its Resolution of October 28, 1986;118 this Court
declared that

SECOND DIVISION
Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents'
calling and holding of a stockholders' meeting for the election of directors as authorized by the
Memorandum of the President * * (to the PCGG) dated June 26, 1986, particularly, where as in
this case, the government can, through its designated directors, properly exercise control and
management over what appear to be properties and assets owned and belonging to the
government itself and over which the persons who appear in this case on behalf of BASECO
have failed to show any right or even any shareholding in said corporation.
It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management of
the company's affairs should henceforth be guided and governed by the norms herein laid down. They should never for
a moment allow themselves to forget that they are conservators, not owners of the business; they are fiduciaries,
trustees, of whom the highest degree of diligence and rectitude is, in the premises, required.

G.R. No. L-27155 May 18, 1978


PHILIPPINE NATIONAL BANK, petitioner,
vs.
THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE AMERICAN GENERAL
INSURANCE COMPANY, INC., respondents.
Medina, Locsin, Corua, & Sumbillo for petitioner.
Manuel Lim & Associates for private respondents.

25. No Sufficient Showing of Other Irregularities


As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the execution of certain
contracts, inclusive of the termination of the employment of some of its executives, 119 this Court cannot, in the present
state of the evidence on record, pass upon them. It is not necessary to do so. The issues arising therefrom may and will
be left for initial determination in the appropriate action. But the Court will state that absent any showing of any important
cause therefor, it will not normally substitute its judgment for that of the PCGG in these individual transactions. It is clear
however, that as things now stand, the petitioner cannot be said to have established the correctness of its submission
that the acts of the PCGG in question were done without or in excess of its powers, or with grave abuse of discretion.
WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is lifted.

ANTONIO, J.:
Certiorari to review the decision of the Court of Appeals which affirmed the judgment of the Court of First Instance of
Manila in Civil Case No. 34185, ordering petitioner, as third-party defendant, to pay respondent Rita Gueco Tapnio, as
third-party plaintiff, the sum of P2,379.71, plus 12% interest per annum from September 19, 1957 until the same is fully
paid, P200.00 attorney's fees and costs, the same amounts which Rita Gueco Tapnio was ordered to pay the Philippine
American General Insurance Co., Inc., to be paid directly to the Philippine American General Insurance Co., Inc. in full
satisfaction of the judgment rendered against Rita Gueco Tapnio in favor of the former; plus P500.00 attorney's fees for
Rita Gueco Tapnio and costs. The basic action is the complaint filed by Philamgen (Philippine American General
Insurance Co., Inc.) as surety against Rita Gueco Tapnio and Cecilio Gueco, for the recovery of the sum of P2,379.71
paid by Philamgen to the Philippine National Bank on behalf of respondents Tapnio and Gueco, pursuant to an
indemnity agreement. Petitioner Bank was made third-party defendant by Tapnio and Gueco on the theory that their
failure to pay the debt was due to the fault or negligence of petitioner.
The facts as found by the respondent Court of Appeals, in affirming the decision of the Court of First Instance of Manila,
are quoted hereunder:
Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco Tapnio as principal, in favor of
the Philippine National Bank Branch at San Fernando, Pampanga, to guarantee the payment of
defendant Rita Gueco Tapnio's account with said Bank. In turn, to guarantee the payment of
whatever amount the bonding company would pay to the Philippine National Bank, both
defendants executed the indemnity agreement, Exh. B. Under the terms and conditions of this
indemnity agreement, whatever amount the plaintiff would pay would earn interest at the rate of
12% per annum, plus attorney's fees in the amount of 15 % of the whole amount due in case of
court litigation.
The original amount of the bond was for P4,000.00; but the amount was later reduced to
P2,000.00.

It is not disputed that defendant Rita Gueco Tapnio was indebted to the bank in the sum of
P2,000.00, plus accumulated interests unpaid, which she failed to pay despite demands. The
Bank wrote a letter of demand to plaintiff, as per Exh. C; whereupon, plaintiff paid the bank on
September 18, 1957, the full amount due and owing in the sum of P2,379.91, for and on
account of defendant Rita Gueco's obligation (Exhs. D and D-1).
Plaintiff, in turn, made several demands, both verbal and written, upon defendants (Exhs. E and
F), but to no avail.
Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims, however, when
demand was made upon her by plaintiff for her to pay her debt to the Bank, that she told the
Plaintiff that she did not consider herself to be indebted to the Bank at all because she had an
agreement with one Jacobo-Nazon whereby she had leased to the latter her unused export
sugar quota for the 1956-1957 agricultural year, consisting of 1,000 piculs at the rate of P2.80
per picul, or for a total of P2,800.00, which was already in excess of her obligation guaranteed
by plaintiff's bond, Exh. A. This lease agreement, according to her, was with the knowledge of
the bank. But the Bank has placed obstacles to the consummation of the lease, and the delay
caused by said obstacles forced 'Nazon to rescind the lease contract. Thus, Rita Gueco Tapnio
filed her third-party complaint against the Bank to recover from the latter any and all sums of
money which may be adjudged against her and in favor of the plaitiff plus moral damages,
attorney's fees and costs.
Insofar as the contentions of the parties herein are concerned, we quote with approval the
following findings of the lower court based on the evidence presented at the trial of the case:
It has been established during the trial that Mrs. Tapnio had an export
sugar quota of 1,000 piculs for the agricultural year 1956-1957 which
she did not need. She agreed to allow Mr. Jacobo C. Tuazon to use
said quota for the consideration of P2,500.00 (Exh. "4"-Gueco). This
agreement was called a contract of lease of sugar allotment.
At the time of the agreement, Mrs. Tapnio was indebted to the
Philippine National Bank at San Fernando, Pampanga. Her
indebtedness was known as a crop loan and was secured by a
mortgage on her standing crop including her sugar quota allocation for
the agricultural year corresponding to said standing crop. This
arrangement was necessary in order that when Mrs. Tapnio harvests,
the P.N.B., having a lien on the crop, may effectively enforce collection
against her. Her sugar cannot be exported without sugar quota
allotment Sometimes, however, a planter harvest less sugar than her
quota, so her excess quota is utilized by another who pays her for its
use. This is the arrangement entered into between Mrs. Tapnio and
Mr. Tuazon regarding the former's excess quota for 1956-1957 (Exh.
"4"-Gueco).
Since the quota was mortgaged to the P.N.B., the contract of lease
had to be approved by said Bank, The same was submitted to the
branch manager at San Fernando, Pampanga. The latter required the
parties to raise the consideration of P2.80 per picul or a total of
P2,800.00 (Exh. "2-Gueco") informing them that "the minimum lease
rental acceptable to the Bank, is P2.80 per picul." In a letter addressed
to the branch manager on August 10, 1956, Mr. Tuazon informed the
manager that he was agreeable to raising the consideration to P2.80
per picul. He further informed the manager that he was ready to pay

said amount as the funds were in his folder which was kept in the
bank.
Explaining the meaning of Tuazon's statement as to the funds, it was
stated by him that he had an approved loan from the bank but he had
not yet utilized it as he was intending to use it to pay for the quota.
Hence, when he said the amount needed to pay Mrs. Tapnio was in
his folder which was in the bank, he meant and the manager
understood and knew he had an approved loan available to be used in
payment of the quota. In said Exh. "6-Gueco", Tuazon also informed
the manager that he would want for a notice from the manager as to
the time when the bank needed the money so that Tuazon could sign
the corresponding promissory note.
Further Consideration of the evidence discloses that when the branch manager of the
Philippine National Bank at San Fernando recommended the approval of the contract of lease
at the price of P2.80 per picul (Exh. 1 1-Bank), whose recommendation was concurred in by
the Vice-president of said Bank, J. V. Buenaventura, the board of directors required that the
amount be raised to 13.00 per picul. This act of the board of directors was communicated to
Tuazon, who in turn asked for a reconsideration thereof. On November 19, 1956, the branch
manager submitted Tuazon's request for reconsideration to the board of directors with another
recommendation for the approval of the lease at P2.80 per picul, but the board returned the
recommendation unacted upon, considering that the current price prevailing at the time was
P3.00 per picul (Exh. 9-Bank).
The parties were notified of the refusal on the part of the board of directors of the Bank to grant
the motion for reconsideration. The matter stood as it was until February 22, 1957, when
Tuazon wrote a letter (Exh. 10-Bank informing the Bank that he was no longer interested to
continue the deal, referring to the lease of sugar quota allotment in favor of defendant Rita
Gueco Tapnio. The result is that the latter lost the sum of P2,800.00 which she should have
received from Tuazon and which she could have paid the Bank to cancel off her indebtedness,
The court below held, and in this holding we concur that failure of the negotiation for the lease
of the sugar quota allocation of Rita Gueco Tapnio to Tuazon was due to the fault of the
directors of the Philippine National Bank, The refusal on the part of the bank to approve the
lease at the rate of P2.80 per picul which, as stated above, would have enabled Rita Gueco
Tapnio to realize the amount of P2,800.00 which was more than sufficient to pay off her
indebtedness to the Bank, and its insistence on the rental price of P3.00 per picul thus
unnecessarily increasing the value by only a difference of P200.00. inevitably brought about the
rescission of the lease contract to the damage and prejudice of Rita Gueco Tapnio in the
aforesaid sum of P2,800.00. The unreasonableness of the position adopted by the board of
directors of the Philippine National Bank in refusing to approve the lease at the rate of P2.80
per picul and insisting on the rate of P3.00 per picul, if only to increase the retail value by only
P200.00 is shown by the fact that all the accounts of Rita Gueco Tapnio with the Bank were
secured by chattel mortgage on standing crops, assignment of leasehold rights and interests
on her properties, and surety bonds, aside from the fact that from Exh. 8-Bank, it appears that
she was offering to execute a real estate mortgage in favor of the Bank to replace the surety
bond This statement is further bolstered by the fact that Rita Gueco Tapnio apparently had the
means to pay her obligation fact that she has been granted several value of almost P80,000.00
for the agricultural years from 1952 to 56. 1
Its motion for the reconsideration of the decision of the Court of Appeals having been denied, petitioner filed the present
petition.
The petitioner contends that the Court of Appeals erred:

(1) In finding that the rescission of the lease contract of the 1,000 piculs of sugar quota allocation of respondent Rita
Gueco Tapnio by Jacobo C. Tuazon was due to the unjustified refusal of petitioner to approve said lease contract, and
its unreasonable insistence on the rental price of P3.00 instead of P2.80 per picul; and
(2) In not holding that based on the statistics of sugar price and prices of sugar quota in the possession of the petitioner,
the latter's Board of Directors correctly fixed the rental of price per picul of 1,000 piculs of sugar quota leased by
respondent Rita Gueco Tapnio to Jacobo C. Tuazon at P3.00 per picul.
Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the right, both under its own Charter and under
the Corporation Law, to safeguard and protect its rights and interests under the deed of assignment, which include the
right to approve or disapprove the said lease of sugar quota and in the exercise of that authority, its
Board of Directors necessarily had authority to determine and fix the rental price per picul of the sugar quota subject of
the lease between private respondents and Jacobo C. Tuazon. It argued further that both under its Charter and the
Corporation Law, petitioner, acting thru its Board of Directors, has the perfect right to adopt a policy with respect to fixing
of rental prices of export sugar quota allocations, and in fixing the rentals at P3.00 per picul, it did not act arbitrarily since
the said Board was guided by statistics of sugar price and prices of sugar quotas prevailing at the time. Since the fixing
of the rental of the sugar quota is a function lodged with petitioner's Board of Directors and is a matter of policy, the
respondent Court of Appeals could not substitute its own judgment for that of said Board of Directors, which acted in
good faith, making as its basis therefore the prevailing market price as shown by statistics which were then in their
possession.
Finally, petitioner emphasized that under the appealed judgment, it shall suffer a great injustice because as a creditor, it
shall be deprived of a just claim against its debtor (respondent Rita Gueco Tapnio) as it would be required to return to
respondent Philamgen the sum of P2,379.71, plus interest, which amount had been previously paid to petitioner by said
insurance company in behalf of the principal debtor, herein respondent Rita Gueco Tapnio, and without recourse against
respondent Rita Gueco Tapnio.
We must advert to the rule that this Court's appellate jurisdiction in proceedings of this nature is limited to reviewing only
errors of law, accepting as conclusive the factual fin dings of the Court of Appeals upon its own assessment of the
evidence. 2
The contract of lease of sugar quota allotment at P2.50 per picul between Rita Gueco Tapnio and Jacobo C. Tuazon
was executed on April 17, 1956. This contract was submitted to the Branch Manager of the Philippine National Bank at
San Fernando, Pampanga. This arrangement was necessary because Tapnio's indebtedness to petitioner was secured
by a mortgage on her standing crop including her sugar quota allocation for the agricultural year corresponding to said
standing crop. The latter required the parties to raise the consideration to P2.80 per picul, the minimum lease rental
acceptable to the Bank, or a total of P2,800.00. Tuazon informed the Branch Manager, thru a letter dated August 10,
1956, that he was agreeable to raising the consideration to P2.80 per picul. He further informed the manager that he
was ready to pay the said sum of P2,800.00 as the funds were in his folder which was kept in the said Bank. This
referred to the approved loan of Tuazon from the Bank which he intended to use in paying for the use of the sugar
quota. The Branch Manager submitted the contract of lease of sugar quota allocation to the Head Office on September
7, 1956, with a recommendation for approval, which recommendation was concurred in by the Vice-President of the
Bank, Mr. J. V. Buenaventura. This notwithstanding, the Board of Directors of petitioner required that the consideration
be raised to P3.00 per picul.
Tuazon, after being informed of the action of the Board of Directors, asked for a reconsideration thereof. On November
19, 1956, the Branch Manager submitted the request for reconsideration and again recommended the approval of the
lease at P2.80 per picul, but the Board returned the recommendation unacted, stating that the current price prevailing at
that time was P3.00 per picul.
On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no longer interested in continuing the
lease of sugar quota allotment. The crop year 1956-1957 ended and Mrs. Tapnio failed to utilize her sugar quota,

resulting in her loss in the sum of P2,800.00 which she should have received had the lease in favor of Tuazon been
implemented.
It has been clearly shown that when the Branch Manager of petitioner required the parties to raise the consideration of
the lease from P2.50 to P2.80 per picul, or a total of P2,800-00, they readily agreed. Hence, in his letter to the Branch
Manager of the Bank on August 10, 1956, Tuazon informed him that the minimum lease rental of P2.80 per picul was
acceptable to him and that he even offered to use the loan secured by him from petitioner to pay in full the sum of
P2,800.00 which was the total consideration of the lease. This arrangement was not only satisfactory to the Branch
Manager but it was also approves by Vice-President J. V. Buenaventura of the PNB. Under that arrangement, Rita
Gueco Tapnio could have realized the amount of P2,800.00, which was more than enough to pay the balance of her
indebtedness to the Bank which was secured by the bond of Philamgen.
There is no question that Tapnio's failure to utilize her sugar quota for the crop year 1956-1957 was due to the
disapproval of the lease by the Board of Directors of petitioner. The issue, therefore, is whether or not petitioner is liable
for the damage caused.
As observed by the trial court, time is of the essence in the approval of the lease of sugar quota allotments, since the
same must be utilized during the milling season, because any allotment which is not filled during such milling season
may be reallocated by the Sugar Quota Administration to other holders of allotments. 3 There was no proof that there
was any other person at that time willing to lease the sugar quota allotment of private respondents for a price higher
than P2.80 per picul. "The fact that there were isolated transactions wherein the consideration for the lease was P3.00 a
picul", according to the trial court, "does not necessarily mean that there are always ready takers of said price. " The
unreasonableness of the position adopted by the petitioner's Board of Directors is shown by the fact that the difference
between the amount of P2.80 per picul offered by Tuazon and the P3.00 per picul demanded by the Board amounted
only to a total sum of P200.00. Considering that all the accounts of Rita Gueco Tapnio with the Bank were secured by
chattel mortgage on standing crops, assignment of leasehold rights and interests on her properties, and surety bonds
and that she had apparently "the means to pay her obligation to the Bank, as shown by the fact that she has been
granted several sugar crop loans of the total value of almost P80,000.00 for the agricultural years from 1952 to 1956",
there was no reasonable basis for the Board of Directors of petitioner to have rejected the lease agreement because of
a measly sum of P200.00.
While petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota was
mortgaged to the Bank, the latter certainly cannot escape its responsibility of observing, for the protection of the interest
of private respondents, that degree of care, precaution and vigilance which the circumstances justly demand in
approving or disapproving the lease of said sugar quota. The law makes it imperative that every person "must in the
exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty
and good faith, 4 This petitioner failed to do. Certainly, it knew that the agricultural year was about to expire, that by its
disapproval of the lease private respondents would be unable to utilize the sugar quota in question. In failing to observe
the reasonable degree of care and vigilance which the surrounding circumstances reasonably impose, petitioner is
consequently liable for the damages caused on private respondents. Under Article 21 of the New Civil Code, "any
person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage." The afore-cited provisions on human relations were intended to expand the
concept of torts in this jurisdiction by granting adequate legal remedy for the untold number of moral wrongs which is
impossible for human foresight to specifically provide in the statutes. 5
A corporation is civilly liable in the same manner as natural persons for torts, because "generally speaking, the rules
governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the
principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial
person. All of the authorities agree that a principal or master is liable for every tort which he expressly directs or
authorizes, and this is just as true of a corporation as of a natural person, A corporation is liable, therefore, whenever a
tortious act is committed by an officer or agent under express direction or authority from the stockholders or members
acting as a body, or, generally, from the directors as the governing body." 6
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby AFFIRMED.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 126297

January 31, 2007

PROFESSIONAL SERVICES, INC., Petitioner,


vs.
NATIVIDAD and ENRIQUE AGANA, Respondents.
x-----------------------x
G.R. No. 126467

January 31, 2007

NATIVIDAD (Substituted by her children MARCELINO AGANA III, ENRIQUE AGANA, JR., EMMA AGANA
ANDAYA, JESUS AGANA, and RAYMUND AGANA) and ENRIQUE AGANA, Petitioners,
vs.
JUAN FUENTES, Respondent.
x- - - - - - - - - - - - - - - - - - - -- - - - x
G.R. No. 127590

January 31, 2007

MIGUEL AMPIL, Petitioner,


vs.
NATIVIDAD AGANA and ENRIQUE AGANA, Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Hospitals, having undertaken one of mankinds most important and delicate endeavors, must assume the grave
responsibility of pursuing it with appropriate care. The care and service dispensed through this high trust, however
technical, complex and esoteric its character may be, must meet standards of responsibility commensurate with the
undertaking to preserve and protect the health, and indeed, the very lives of those placed in the hospitals keeping. 1
Assailed in these three consolidated petitions for review on certiorari is the Court of Appeals Decision2 dated September
6, 1996 in CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198 affirming with modification the Decision3dated March 17,
1993 of the Regional Trial Court (RTC), Branch 96, Quezon City in Civil Case No. Q-43322 and nullifying its Order dated
September 21, 1993.
The facts, as culled from the records, are:
On April 4, 1984, Natividad Agana was rushed to the Medical City General Hospital (Medical City Hospital) because of
difficulty of bowel movement and bloody anal discharge. After a series of medical examinations, Dr. Miguel Ampil,
petitioner in G.R. No. 127590, diagnosed her to be suffering from "cancer of the sigmoid."

On April 11, 1984, Dr. Ampil, assisted by the medical staff4 of the Medical City Hospital, performed an anterior resection
surgery on Natividad. He found that the malignancy in her sigmoid area had spread on her left ovary, necessitating the
removal of certain portions of it. Thus, Dr. Ampil obtained the consent of Natividads husband, Enrique Agana, to permit
Dr. Juan Fuentes, respondent in G.R. No. 126467, to perform hysterectomy on her.
After Dr. Fuentes had completed the hysterectomy, Dr. Ampil took over, completed the operation and closed the incision.
However, the operation appeared to be flawed. In the corresponding Record of Operation dated April 11, 1984, the
attending nurses entered these remarks:

On March 17, 1993, the RTC rendered its Decision in favor of the Aganas, finding PSI, Dr. Ampil and Dr. Fuentes liable
for negligence and malpractice, the decretal part of which reads:
WHEREFORE, judgment is hereby rendered for the plaintiffs ordering the defendants PROFESSIONAL SERVICES,
INC., DR. MIGUEL AMPIL and DR. JUAN FUENTES to pay to the plaintiffs, jointly and severally, except in respect of the
award for exemplary damages and the interest thereon which are the liabilities of defendants Dr. Ampil and Dr. Fuentes
only, as follows:
1. As actual damages, the following amounts:

"sponge count lacking 2

a. The equivalent in Philippine Currency of the total of US$19,900.00 at the rate of P21.60US$1.00, as reimbursement of actual expenses incurred in the United States of America;

"announced to surgeon searched (sic) done but to no avail continue for closure."
b. The sum of P4,800.00 as travel taxes of plaintiffs and their physician daughter;
On April 24, 1984, Natividad was released from the hospital. Her hospital and medical bills, including the doctors fees,
amounted to P60,000.00.
After a couple of days, Natividad complained of excruciating pain in her anal region. She consulted both Dr. Ampil and
Dr. Fuentes about it. They told her that the pain was the natural consequence of the surgery. Dr. Ampil then
recommended that she consult an oncologist to examine the cancerous nodes which were not removed during the
operation.
On May 9, 1984, Natividad, accompanied by her husband, went to the United States to seek further treatment. After four
months of consultations and laboratory examinations, Natividad was told she was free of cancer. Hence, she was
advised to return to the Philippines.
On August 31, 1984, Natividad flew back to the Philippines, still suffering from pains. Two weeks thereafter, her daughter
found a piece of gauze protruding from her vagina. Upon being informed about it, Dr. Ampil proceeded to her house
where he managed to extract by hand a piece of gauze measuring 1.5 inches in width. He then assured her that the
pains would soon vanish.
Dr. Ampils assurance did not come true. Instead, the pains intensified, prompting Natividad to seek treatment at the
Polymedic General Hospital. While confined there, Dr. Ramon Gutierrez detected the presence of another foreign object
in her vagina -- a foul-smelling gauze measuring 1.5 inches in width which badly infected her vaginal vault. A rectovaginal fistula had formed in her reproductive organs which forced stool to excrete through the vagina. Another surgical
operation was needed to remedy the damage. Thus, in October 1984, Natividad underwent another surgery.
On November 12, 1984, Natividad and her husband filed with the RTC, Branch 96, Quezon City a complaint for
damages against the Professional Services, Inc. (PSI), owner of the Medical City Hospital, Dr. Ampil, and Dr. Fuentes,
docketed as Civil Case No. Q-43322. They alleged that the latter are liable for negligence for leaving two pieces of
gauze inside Natividads body and malpractice for concealing their acts of negligence.
Meanwhile, Enrique Agana also filed with the Professional Regulation Commission (PRC) an administrative complaint
for gross negligence and malpractice against Dr. Ampil and Dr. Fuentes, docketed as Administrative Case No. 1690. The
PRC Board of Medicine heard the case only with respect to Dr. Fuentes because it failed to acquire jurisdiction over Dr.
Ampil who was then in the United States.
On February 16, 1986, pending the outcome of the above cases, Natividad died and was duly substituted by her abovenamed children (the Aganas).

c. The total sum of P45,802.50, representing the cost of hospitalization at Polymedic Hospital,
medical fees, and cost of the saline solution;
2. As moral damages, the sum of P2,000,000.00;
3. As exemplary damages, the sum of P300,000.00;
4. As attorneys fees, the sum of P250,000.00;
5. Legal interest on items 1 (a), (b), and (c); 2; and 3 hereinabove, from date of filing of the complaint until
full payment; and
6. Costs of suit.
SO ORDERED.
Aggrieved, PSI, Dr. Fuentes and Dr. Ampil interposed an appeal to the Court of Appeals, docketed as CA-G.R. CV No.
42062.
Incidentally, on April 3, 1993, the Aganas filed with the RTC a motion for a partial execution of its Decision, which was
granted in an Order dated May 11, 1993. Thereafter, the sheriff levied upon certain properties of Dr. Ampil and sold them
for P451,275.00 and delivered the amount to the Aganas.
Following their receipt of the money, the Aganas entered into an agreement with PSI and Dr. Fuentes to indefinitely
suspend any further execution of the RTC Decision. However, not long thereafter, the Aganas again filed a motion for an
alias writ of execution against the properties of PSI and Dr. Fuentes. On September 21, 1993, the RTC granted the
motion and issued the corresponding writ, prompting Dr. Fuentes to file with the Court of Appeals a petition for certiorari
and prohibition, with prayer for preliminary injunction, docketed as CA-G.R. SP No. 32198. During its pendency, the
Court of Appeals issued a Resolution5 dated October 29, 1993 granting Dr. Fuentes prayer for injunctive relief.
On January 24, 1994, CA-G.R. SP No. 32198 was consolidated with CA-G.R. CV No. 42062.
Meanwhile, on January 23, 1995, the PRC Board of Medicine rendered its Decision6 in Administrative Case No. 1690
dismissing the case against Dr. Fuentes. The Board held that the prosecution failed to show that Dr. Fuentes was the
one who left the two pieces of gauze inside Natividads body; and that he concealed such fact from Natividad.

On September 6, 1996, the Court of Appeals rendered its Decision jointly disposing of CA-G.R. CV No. 42062 and CAG.R. SP No. 32198, thus:
WHEREFORE, except for the modification that the case against defendant-appellant Dr. Juan Fuentes is hereby
DISMISSED, and with the pronouncement that defendant-appellant Dr. Miguel Ampil is liable to reimburse defendantappellant Professional Services, Inc., whatever amount the latter will pay or had paid to the plaintiffs-appellees, the
decision appealed from is hereby AFFIRMED and the instant appeal DISMISSED.
Concomitant with the above, the petition for certiorari and prohibition filed by herein defendant-appellant Dr. Juan
Fuentes in CA-G.R. SP No. 32198 is hereby GRANTED and the challenged order of the respondent judge dated
September 21, 1993, as well as the alias writ of execution issued pursuant thereto are hereby NULLIFIED and SET
ASIDE. The bond posted by the petitioner in connection with the writ of preliminary injunction issued by this Court on
November 29, 1993 is hereby cancelled.

Dr. Ampils arguments are purely conjectural and without basis. Records show that he did not present any evidence to
prove that the American doctors were the ones who put or left the gauzes in Natividads body. Neither did he submit
evidence to rebut the correctness of the record of operation, particularly the number of gauzes used. As to the alleged
negligence of Dr. Fuentes, we are mindful that Dr. Ampil examined his (Dr. Fuentes) work and found it in order.
The glaring truth is that all the major circumstances, taken together, as specified by the Court of Appeals, directly point
to Dr. Ampil as the negligent party, thus:
First, it is not disputed that the surgeons used gauzes as sponges to control the bleeding of the patient
during the surgical operation.
Second, immediately after the operation, the nurses who assisted in the surgery noted in their report that
the sponge count (was) lacking 2; that such anomaly was announced to surgeon and that a search was
done but to no avail prompting Dr. Ampil to continue for closure x x x.

Costs against defendants-appellants Dr. Miguel Ampil and Professional Services, Inc.
SO ORDERED.
Only Dr. Ampil filed a motion for reconsideration, but it was denied in a Resolution7 dated December 19, 1996.
Hence, the instant consolidated petitions.
In G.R. No. 126297, PSI alleged in its petition that the Court of Appeals erred in holding that: (1) it is estopped from
raising the defense that Dr. Ampil is not its employee; (2) it is solidarily liable with Dr. Ampil; and (3) it is not entitled to its
counterclaim against the Aganas. PSI contends that Dr. Ampil is not its employee, but a mere consultant or independent
contractor. As such, he alone should answer for his negligence.

Third, after the operation, two (2) gauzes were extracted from the same spot of the body of Mrs. Agana
where the surgery was performed.
An operation requiring the placing of sponges in the incision is not complete until the sponges are properly removed,
and it is settled that the leaving of sponges or other foreign substances in the wound after the incision has been closed
is at least prima facie negligence by the operating surgeon.8 To put it simply, such act is considered so inconsistent with
due care as to raise an inference of negligence. There are even legions of authorities to the effect that such act is
negligence per se.9

In G.R. No. 126467, the Aganas maintain that the Court of Appeals erred in finding that Dr. Fuentes is not guilty of
negligence or medical malpractice, invoking the doctrine of res ipsa loquitur. They contend that the pieces of gauze are
prima facie proofs that the operating surgeons have been negligent.

Of course, the Court is not blind to the reality that there are times when danger to a patients life precludes a surgeon
from further searching missing sponges or foreign objects left in the body. But this does not leave him free from any
obligation. Even if it has been shown that a surgeon was required by the urgent necessities of the case to leave a
sponge in his patients abdomen, because of the dangers attendant upon delay, still, it is his legal duty to so inform his
patient within a reasonable time thereafter by advising her of what he had been compelled to do. This is in order that
she might seek relief from the effects of the foreign object left in her body as her condition might permit. The ruling in
Smith v. Zeagler10 is explicit, thus:

Finally, in G.R. No. 127590, Dr. Ampil asserts that the Court of Appeals erred in finding him liable for negligence and
malpractice sans evidence that he left the two pieces of gauze in Natividads vagina. He pointed to other probable
causes, such as: (1) it was Dr. Fuentes who used gauzes in performing the hysterectomy; (2) the attending nurses
failure to properly count the gauzes used during surgery; and (3) the medical intervention of the American doctors who
examined Natividad in the United States of America.

The removal of all sponges used is part of a surgical operation, and when a physician or surgeon fails to remove a
sponge he has placed in his patients body that should be removed as part of the operation, he thereby leaves his
operation uncompleted and creates a new condition which imposes upon him the legal duty of calling the new condition
to his patients attention, and endeavoring with the means he has at hand to minimize and avoid untoward results likely
to ensue therefrom.

For our resolution are these three vital issues: first, whether the Court of Appeals erred in holding Dr. Ampil liable for
negligence and malpractice; second, whether the Court of Appeals erred in absolving Dr. Fuentes of any liability; and
third, whether PSI may be held solidarily liable for the negligence of Dr. Ampil.

Here, Dr. Ampil did not inform Natividad about the missing two pieces of gauze. Worse, he even misled her that the pain
she was experiencing was the ordinary consequence of her operation. Had he been more candid, Natividad could have
taken the immediate and appropriate medical remedy to remove the gauzes from her body. To our mind, what was
initially an act of negligence by Dr. Ampil has ripened into a deliberate wrongful act of deceiving his patient.

I - G.R. No. 127590


Whether the Court of Appeals Erred in Holding Dr. Ampil
Liable for Negligence and Malpractice.
Dr. Ampil, in an attempt to absolve himself, gears the Courts attention to other possible causes of Natividads detriment.
He argues that the Court should not discount either of the following possibilities: first, Dr. Fuentes left the gauzes in
Natividads body after performing hysterectomy; second, the attending nurses erred in counting the gauzes; and third,
the American doctors were the ones who placed the gauzes in Natividads body.

This is a clear case of medical malpractice or more appropriately, medical negligence. To successfully pursue this kind
of case, a patient must only prove that a health care provider either failed to do something which a reasonably prudent
health care provider would have done, or that he did something that a reasonably prudent provider would not have
done; and that failure or action caused injury to the patient.11 Simply put, the elements are duty, breach, injury and
proximate causation. Dr, Ampil, as the lead surgeon, had the duty to remove all foreign objects, such as gauzes, from
Natividads body before closure of the incision. When he failed to do so, it was his duty to inform Natividad about it. Dr.
Ampil breached both duties. Such breach caused injury to Natividad, necessitating her further examination by American
doctors and another surgery. That Dr. Ampils negligence is the proximate cause12 of Natividads injury could be traced
from his act of closing the incision despite the information given by the attending nurses that two pieces of gauze were
still missing. That they were later on extracted from Natividads vagina established the causal link between Dr. Ampils

negligence and the injury. And what further aggravated such injury was his deliberate concealment of the missing
gauzes from the knowledge of Natividad and her family.

application of the doctrine does not dispense with the requirement of proof of negligence. Here, the negligence was
proven to have been committed by Dr. Ampil and not by Dr. Fuentes.

II - G.R. No. 126467

III - G.R. No. 126297

Whether the Court of Appeals Erred in Absolving

Whether PSI Is Liable for the Negligence of Dr. Ampil

Dr. Fuentes of any Liability

The third issue necessitates a glimpse at the historical development of hospitals and the resulting theories concerning
their liability for the negligence of physicians.

The Aganas assailed the dismissal by the trial court of the case against Dr. Fuentes on the ground that it is contrary to
the doctrine of res ipsa loquitur. According to them, the fact that the two pieces of gauze were left inside Natividads
body is a prima facie evidence of Dr. Fuentes negligence.
We are not convinced.
Literally, res ipsa loquitur means "the thing speaks for itself." It is the rule that the fact of the occurrence of an injury,
taken with the surrounding circumstances, may permit an inference or raise a presumption of negligence, or make out a
plaintiffs prima facie case, and present a question of fact for defendant to meet with an explanation. 13 Stated differently,
where the thing which caused the injury, without the fault of the injured, is under the exclusive control of the defendant
and the injury is such that it should not have occurred if he, having such control used proper care, it affords reasonable
evidence, in the absence of explanation that the injury arose from the defendants want of care, and the burden of proof
is shifted to him to establish that he has observed due care and diligence.14
From the foregoing statements of the rule, the requisites for the applicability of the doctrine of res ipsa loquitur are: (1)
the occurrence of an injury; (2) the thing which caused the injury was under the control and management of the
defendant; (3) the occurrence was such that in the ordinary course of things, would not have happened if those who had
control or management used proper care; and (4) the absence of explanation by the defendant. Of the foregoing
requisites, the most instrumental is the "control and management of the thing which caused the injury."15
We find the element of "control and management of the thing which caused the injury" to be wanting. Hence, the
doctrine of res ipsa loquitur will not lie.

Until the mid-nineteenth century, hospitals were generally charitable institutions, providing medical services to the lowest
classes of society, without regard for a patients ability to pay.18 Those who could afford medical treatment were usually
treated at home by their doctors.19 However, the days of house calls and philanthropic health care are over. The modern
health care industry continues to distance itself from its charitable past and has experienced a significant conversion
from a not-for-profit health care to for-profit hospital businesses. Consequently, significant changes in health law have
accompanied the business-related changes in the hospital industry. One important legal change is an increase in
hospital liability for medical malpractice. Many courts now allow claims for hospital vicarious liability under the theories of
respondeat superior, apparent authority, ostensible authority, or agency by estoppel. 20
In this jurisdiction, the statute governing liability for negligent acts is Article 2176 of the Civil Code, which reads:
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for
the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called
a quasi-delict and is governed by the provisions of this Chapter.
A derivative of this provision is Article 2180, the rule governing vicarious liability under the doctrine of respondeat
superior, thus:
ART. 2180. The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions, but also for
those of persons for whom one is responsible.
x x x

It was duly established that Dr. Ampil was the lead surgeon during the operation of Natividad. He requested the
assistance of Dr. Fuentes only to perform hysterectomy when he (Dr. Ampil) found that the malignancy in her sigmoid
area had spread to her left ovary. Dr. Fuentes performed the surgery and thereafter reported and showed his work to Dr.
Ampil. The latter examined it and finding everything to be in order, allowed Dr. Fuentes to leave the operating room. Dr.
Ampil then resumed operating on Natividad. He was about to finish the procedure when the attending nurses informed
him that two pieces of gauze were missing. A "diligent search" was conducted, but the misplaced gauzes were not
found. Dr. Ampil then directed that the incision be closed. During this entire period, Dr. Fuentes was no longer in the
operating room and had, in fact, left the hospital.
Under the "Captain of the Ship" rule, the operating surgeon is the person in complete charge of the surgery room and all
personnel connected with the operation. Their duty is to obey his orders.16 As stated before, Dr. Ampil was the lead
surgeon. In other words, he was the "Captain of the Ship." That he discharged such role is evident from his following
conduct: (1) calling Dr. Fuentes to perform a hysterectomy; (2) examining the work of Dr. Fuentes and finding it in order;
(3) granting Dr. Fuentes permission to leave; and (4) ordering the closure of the incision. To our mind, it was this act of
ordering the closure of the incision notwithstanding that two pieces of gauze remained unaccounted for, that caused
injury to Natividads body. Clearly, the control and management of the thing which caused the injury was in the hands of
Dr. Ampil, not Dr. Fuentes.
In this jurisdiction, res ipsa loquitur is not a rule of substantive law, hence, does not per se create or constitute an
independent or separate ground of liability, being a mere evidentiary rule.17 In other words, mere invocation and

x x x

The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their
employees in the service of the branches in which the latter are employed or on the occasion of their functions.
Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of
their assigned tasks even though the former are not engaged in any business or industry.
x x x

x x x

The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all
the diligence of a good father of a family to prevent damage.
A prominent civilist commented that professionals engaged by an employer, such as physicians, dentists, and
pharmacists, are not "employees" under this article because the manner in which they perform their work is not within
the control of the latter (employer). In other words, professionals are considered personally liable for the fault or
negligence they commit in the discharge of their duties, and their employer cannot be held liable for such fault or
negligence. In the context of the present case, "a hospital cannot be held liable for the fault or negligence of a physician
or surgeon in the treatment or operation of patients."21

The foregoing view is grounded on the traditional notion that the professional status and the very nature of the
physicians calling preclude him from being classed as an agent or employee of a hospital, whenever he acts in a
professional capacity.22 It has been said that medical practice strictly involves highly developed and specialized
knowledge,23 such that physicians are generally free to exercise their own skill and judgment in rendering medical
services sans interference.24 Hence, when a doctor practices medicine in a hospital setting, the hospital and its
employees are deemed to subserve him in his ministrations to the patient and his actions are of his own responsibility. 25
The case of Schloendorff v. Society of New York Hospital 26 was then considered an authority for this view. The
"Schloendorff doctrine" regards a physician, even if employed by a hospital, as an independent contractor because of
the skill he exercises and the lack of control exerted over his work. Under this doctrine, hospitals are exempt from the
application of the respondeat superior principle for fault or negligence committed by physicians in the discharge of their
profession.
However, the efficacy of the foregoing doctrine has weakened with the significant developments in medical care. Courts
came to realize that modern hospitals are increasingly taking active role in supplying and regulating medical care to
patients. No longer were a hospitals functions limited to furnishing room, food, facilities for treatment and operation, and
attendants for its patients. Thus, in Bing v. Thunig,27 the New York Court of Appeals deviated from the Schloendorff
doctrine, noting that modern hospitals actually do far more than provide facilities for treatment. Rather, they regularly
employ, on a salaried basis, a large staff of physicians, interns, nurses, administrative and manual workers. They charge
patients for medical care and treatment, even collecting for such services through legal action, if necessary. The court
then concluded that there is no reason to exempt hospitals from the universal rule of respondeat superior.
In our shores, the nature of the relationship between the hospital and the physicians is rendered inconsequential in view
of our categorical pronouncement in Ramos v. Court of Appeals28 that for purposes of apportioning responsibility in
medical negligence cases, an employer-employee relationship in effect exists between hospitals and their attending and
visiting physicians. This Court held:

But the Ramos pronouncement is not our only basis in sustaining PSIs liability. Its liability is also anchored upon the
agency principle of apparent authority or agency by estoppel and the doctrine of corporate negligence which have
gained acceptance in the determination of a hospitals liability for negligent acts of health professionals. The present
case serves as a perfect platform to test the applicability of these doctrines, thus, enriching our jurisprudence.
Apparent authority, or what is sometimes referred to as the "holding
out" theory, or doctrine of ostensible agency or agency by estoppel,29 has its origin from the law of agency. It imposes
liability, not as the result of the reality of a contractual relationship, but rather because of the actions of a principal or an
employer in somehow misleading the public into believing that the relationship or the authority exists.30The concept is
essentially one of estoppel and has been explained in this manner:
"The principal is bound by the acts of his agent with the apparent authority which he knowingly permits the agent to
assume, or which he holds the agent out to the public as possessing. The question in every case is whether the
principal has by his voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant
with business usages and the nature of the particular business, is justified in presuming that such agent has authority to
perform the particular act in question.31
The applicability of apparent authority in the field of hospital liability was upheld long time ago in Irving v. Doctor Hospital
of Lake Worth, Inc.32 There, it was explicitly stated that "there does not appear to be any rational basis for excluding the
concept of apparent authority from the field of hospital liability." Thus, in cases where it can be shown that a hospital, by
its actions, has held out a particular physician as its agent and/or employee and that a patient has accepted treatment
from that physician in the reasonable belief that it is being rendered in behalf of the hospital, then the hospital will be
liable for the physicians negligence.
Our jurisdiction recognizes the concept of an agency by implication or estoppel. Article 1869 of the Civil Code reads:

"We now discuss the responsibility of the hospital in this particular incident. The unique practice (among private
hospitals) of filling up specialist staff with attending and visiting "consultants," who are allegedly not hospital employees,
presents problems in apportioning responsibility for negligence in medical malpractice cases. However, the difficulty is
more apparent than real.
In the first place, hospitals exercise significant control in the hiring and firing of consultants and in the conduct of their
work within the hospital premises. Doctors who apply for consultant slots, visiting or attending, are required to submit
proof of completion of residency, their educational qualifications, generally, evidence of accreditation by the appropriate
board (diplomate), evidence of fellowship in most cases, and references. These requirements are carefully scrutinized
by members of the hospital administration or by a review committee set up by the hospital who either accept or reject
the application. x x x.
After a physician is accepted, either as a visiting or attending consultant, he is normally required to attend clinicopathological conferences, conduct bedside rounds for clerks, interns and residents, moderate grand rounds and patient
audits and perform other tasks and responsibilities, for the privilege of being able to maintain a clinic in the hospital,
and/or for the privilege of admitting patients into the hospital. In addition to these, the physicians performance as a
specialist is generally evaluated by a peer review committee on the basis of mortality and morbidity statistics, and
feedback from patients, nurses, interns and residents. A consultant remiss in his duties, or a consultant who regularly
falls short of the minimum standards acceptable to the hospital or its peer review committee, is normally politely
terminated.
In other words, private hospitals, hire, fire and exercise real control over their attending and visiting consultant staff.
While consultants are not, technically employees, x x x, the control exercised, the hiring, and the right to terminate
consultants all fulfill the important hallmarks of an employer-employee relationship, with the exception of the payment of
wages. In assessing whether such a relationship in fact exists, the control test is determining. Accordingly, on the basis
of the foregoing, we rule that for the purpose of allocating responsibility in medical negligence cases, an employeremployee relationship in effect exists between hospitals and their attending and visiting physicians. "

ART. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his
failure to repudiate the agency, knowing that another person is acting on his behalf without authority.
In this case, PSI publicly displays in the lobby of the Medical City Hospital the names and specializations of the
physicians associated or accredited by it, including those of Dr. Ampil and Dr. Fuentes. We concur with the Court of
Appeals conclusion that it "is now estopped from passing all the blame to the physicians whose names it proudly
paraded in the public directory leading the public to believe that it vouched for their skill and competence." Indeed, PSIs
act is tantamount to holding out to the public that Medical City Hospital, through its accredited physicians, offers quality
health care services. By accrediting Dr. Ampil and Dr. Fuentes and publicly advertising their qualifications, the hospital
created the impression that they were its agents, authorized to perform medical or surgical services for its patients. As
expected, these patients, Natividad being one of them, accepted the services on the reasonable belief that such were
being rendered by the hospital or its employees, agents, or servants. The trial court correctly pointed out:
x x x regardless of the education and status in life of the patient, he ought not be burdened with the defense of absence
of employer-employee relationship between the hospital and the independent physician whose name and competence
are certainly certified to the general public by the hospitals act of listing him and his specialty in its lobby directory, as in
the case herein. The high costs of todays medical and health care should at least exact on the hospital greater, if not
broader, legal responsibility for the conduct of treatment and surgery within its facility by its accredited physician or
surgeon, regardless of whether he is independent or employed."33
The wisdom of the foregoing ratiocination is easy to discern. Corporate entities, like PSI, are capable of acting only
through other individuals, such as physicians. If these accredited physicians do their job well, the hospital succeeds in
its mission of offering quality medical services and thus profits financially. Logically, where negligence mars the quality of
its services, the hospital should not be allowed to escape liability for the acts of its ostensible agents.
We now proceed to the doctrine of corporate negligence or corporate responsibility.

One allegation in the complaint in Civil Case No. Q-43332 for negligence and malpractice is that PSI as owner, operator
and manager of Medical City Hospital, "did not perform the necessary supervision nor exercise diligent efforts in the
supervision of Drs. Ampil and Fuentes and its nursing staff, resident doctors, and medical interns who assisted Drs.
Ampil and Fuentes in the performance of their duties as surgeons."34 Premised on the doctrine of corporate negligence,
the trial court held that PSI is directly liable for such breach of duty.

the Civil Code, but also directly liable for its own negligence under Article 2176. In Fridena, the Supreme Court of
Arizona held:
x x x In recent years, however, the duty of care owed to the patient by the hospital has expanded. The emerging trend is
to hold the hospital responsible where the hospital has failed to monitor and review medical services being provided
within its walls. See Kahn Hospital Malpractice Prevention, 27 De Paul . Rev. 23 (1977).

We agree with the trial court.


Recent years have seen the doctrine of corporate negligence as the judicial answer to the problem of allocating
hospitals liability for the negligent acts of health practitioners, absent facts to support the application of respondeat
superior or apparent authority. Its formulation proceeds from the judiciarys acknowledgment that in these modern times,
the duty of providing quality medical service is no longer the sole prerogative and responsibility of the physician. The
modern hospitals have changed structure. Hospitals now tend to organize a highly professional medical staff whose
competence and performance need to be monitored by the hospitals commensurate with their inherent responsibility to
provide quality medical care.35
The doctrine has its genesis in Darling v. Charleston Community Hospital. 36 There, the Supreme Court of Illinois held
that "the jury could have found a hospital negligent, inter alia, in failing to have a sufficient number of trained nurses
attending the patient; failing to require a consultation with or examination by members of the hospital staff; and failing to
review the treatment rendered to the patient." On the basis of Darling, other jurisdictions held that a hospitals corporate
negligence extends to permitting a physician known to be incompetent to practice at the hospital.37 With the passage of
time, more duties were expected from hospitals, among them: (1) the use of reasonable care in the maintenance of safe
and adequate facilities and equipment; (2) the selection and retention of competent physicians; (3) the overseeing or
supervision of all persons who practice medicine within its walls; and (4) the formulation, adoption and enforcement of
adequate rules and policies that ensure quality care for its patients.38 Thus, in Tucson Medical Center, Inc. v.
Misevich,39 it was held that a hospital, following the doctrine of corporate responsibility, has the duty to see that it meets
the standards of responsibilities for the care of patients. Such duty includes the proper supervision of the members of its
medical staff. And in Bost v. Riley,40 the court concluded that a patient who enters a hospital does so with the reasonable
expectation that it will attempt to cure him. The hospital accordingly has the duty to make a reasonable effort to monitor
and oversee the treatment prescribed and administered by the physicians practicing in its premises.
In the present case, it was duly established that PSI operates the Medical City Hospital for the purpose and under the
concept of providing comprehensive medical services to the public. Accordingly, it has the duty to exercise reasonable
care to protect from harm all patients admitted into its facility for medical treatment. Unfortunately, PSI failed to perform
such duty. The findings of the trial court are convincing, thus:
x x x PSIs liability is traceable to its failure to conduct an investigation of the matter reported in the nota bene of the
count nurse. Such failure established PSIs part in the dark conspiracy of silence and concealment about the gauzes.
Ethical considerations, if not also legal, dictated the holding of an immediate inquiry into the events, if not for the benefit
of the patient to whom the duty is primarily owed, then in the interest of arriving at the truth. The Court cannot accept
that the medical and the healing professions, through their members like defendant surgeons, and their institutions like
PSIs hospital facility, can callously turn their backs on and disregard even a mere probability of mistake or negligence
by refusing or failing to investigate a report of such seriousness as the one in Natividads case.
It is worthy to note that Dr. Ampil and Dr. Fuentes operated on Natividad with the assistance of the Medical City
Hospitals staff, composed of resident doctors, nurses, and interns. As such, it is reasonable to conclude that PSI, as the
operator of the hospital, has actual or constructive knowledge of the procedures carried out, particularly the report of the
attending nurses that the two pieces of gauze were missing. In Fridena v. Evans, 41 it was held that a corporation is
bound by the knowledge acquired by or notice given to its agents or officers within the scope of their authority and in
reference to a matter to which their authority extends. This means that the knowledge of any of the staff of Medical City
Hospital constitutes knowledge of PSI. Now, the failure of PSI, despite the attending nurses report, to investigate and
inform Natividad regarding the missing gauzes amounts to callous negligence. Not only did PSI breach its duties to
oversee or supervise all persons who practice medicine within its walls, it also failed to take an active step in fixing the
negligence committed. This renders PSI, not only vicariously liable for the negligence of Dr. Ampil under Article 2180 of

Among the cases indicative of the emerging trend is Purcell v. Zimbelman, 18 Ariz. App. 75,500 P. 2d 335 (1972). In
Purcell, the hospital argued that it could not be held liable for the malpractice of a medical practitioner because he was
an independent contractor within the hospital. The Court of Appeals pointed out that the hospital had created a
professional staff whose competence and performance was to be monitored and reviewed by the governing body of the
hospital, and the court held that a hospital would be negligent where it had knowledge or reason to believe that a doctor
using the facilities was employing a method of treatment or care which fell below the recognized standard of care.
Subsequent to the Purcell decision, the Arizona Court of Appeals held that a hospital has certain inherent responsibilities
regarding the quality of medical care furnished to patients within its walls and it must meet the standards of responsibility
commensurate with this undertaking. Beeck v. Tucson General Hospital, 18 Ariz. App. 165, 500 P. 2d 1153 (1972). This
court has confirmed the rulings of the Court of Appeals that a hospital has the duty of supervising the competence of the
doctors on its staff. x x x.
x

x x

In the amended complaint, the plaintiffs did plead that the operation was performed at the hospital with its knowledge,
aid, and assistance, and that the negligence of the defendants was the proximate cause of the patients injuries. We find
that such general allegations of negligence, along with the evidence produced at the trial of this case, are sufficient to
support the hospitals liability based on the theory of negligent supervision."
Anent the corollary issue of whether PSI is solidarily liable with Dr. Ampil for damages, let it be emphasized that PSI,
apart from a general denial of its responsibility, failed to adduce evidence showing that it exercised the diligence of a
good father of a family in the accreditation and supervision of the latter. In neglecting to offer such proof, PSI failed to
discharge its burden under the last paragraph of Article 2180 cited earlier, and, therefore, must be adjudged solidarily
liable with Dr. Ampil. Moreover, as we have discussed, PSI is also directly liable to the Aganas.
One final word. Once a physician undertakes the treatment and care of a patient, the law imposes on him certain
obligations. In order to escape liability, he must possess that reasonable degree of learning, skill and experience
required by his profession. At the same time, he must apply reasonable care and diligence in the exercise of his skill and
the application of his knowledge, and exert his best judgment.
WHEREFORE, we DENY all the petitions and AFFIRM the challenged Decision of the Court of Appeals in CA-G.R. CV
No. 42062 and CA-G.R. SP No. 32198.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 126297

February 11, 2008

PROFESSIONAL SERVICES, INC., petitioner,


vs.
THE COURT OF APPEALS and NATIVIDAD and ENRIQUE AGANA, respondents,
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 126467

February 11, 2008

NATIVIDAD (Substituted by her children MARCELINO AGANA III, ENRIQUE AGANA, JR., EMMA AGANA
ANDAYA, JESUS AGANA, and RAYMUND AGANA) and ENRIQUE AGANA, petitioners,
vs.
THE COURT OF APPEALS and JUAN FUENTES, respondents,
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 127590

February 11, 2008

MIGUEL AMPIL, petitioner,


vs.
THE COURT OF APPEALS and NATIVIDAD AGANA and ENRIQUE AGANA, respondents.
RESOLUTION
SANDOVAL-GUTIERREZ, J.:
As the hospital industry changes, so must the laws and jurisprudence governing hospital liability. The immunity from
medical malpractice traditionally accorded to hospitals has to be eroded if we are to balance the interest of the patients
and hospitals under the present setting.
Before this Court is a motion for reconsideration filed by Professional Services, Inc. (PSI), petitioner in G.R. No. 126297,
assailing the Courts First Division Decision dated January 31, 2007, finding PSI and Dr. Miguel Ampil, petitioner in G.R.
No. 127590, jointly and severally liable for medical negligence.
A brief revisit of the antecedent facts is imperative.
On April 4, 1984, Natividad Agana was admitted at the Medical City General Hospital (Medical City) because of difficulty
of bowel movement and bloody anal discharge. Dr. Ampil diagnosed her to be suffering from "cancer of the sigmoid."
Thus, on April 11, 1984, Dr. Ampil, assisted by the medical staff1 of Medical City, performed an anterior resection surgery
upon her. During the surgery, he found that the malignancy in her sigmoid area had spread to her left ovary,
necessitating the removal of certain portions of it. Thus, Dr. Ampil obtained the consent of Atty. Enrique Agana,
Natividads husband, to permit Dr. Juan Fuentes, respondent in G.R. No. 126467, to perform hysterectomy upon
Natividad.

Dr. Fuentes performed and completed the hysterectomy. Afterwards, Dr. Ampil took over, completed the operation and
closed the incision. However, the operation appeared to be flawed. In the corresponding Record of Operation dated April
11, 1984, the attending nurses entered these remarks:
sponge count lacking 2
announced to surgeon searched done (sic) but to no avail continue for closure.
After a couple of days, Natividad complained of excruciating pain in her anal region. She consulted both Dr. Ampil and
Dr. Fuentes about it. They told her that the pain was the natural consequence of the surgical operation performed upon
her. Dr. Ampil recommended that Natividad consult an oncologist to treat the cancerous nodes which were not removed
during the operation.
On May 9, 1984, Natividad, accompanied by her husband, went to the United States to seek further treatment. After four
(4) months of consultations and laboratory examinations, Natividad was told that she was free of cancer. Hence, she
was advised to return to the Philippines.
On August 31, 1984, Natividad flew back to the Philippines, still suffering from pains. Two (2) weeks thereafter, her
daughter found a piece of gauze protruding from her vagina. Dr. Ampil was immediately informed. He proceeded to
Natividads house where he managed to extract by hand a piece of gauze measuring 1.5 inches in width. Dr. Ampil then
assured Natividad that the pains would soon vanish.
Despite Dr. Ampils assurance, the pains intensified, prompting Natividad to seek treatment at the Polymedic General
Hospital. While confined thereat, Dr. Ramon Gutierrez detected the presence of a foreign object in her vagina -- a foulsmelling gauze measuring 1.5 inches in width. The gauze had badly infected her vaginal vault. A recto-vaginal fistula
had formed in her reproductive organ which forced stool to excrete through the vagina. Another surgical operation was
needed to remedy the situation. Thus, in October 1984, Natividad underwent another surgery.
On November 12, 1984, Natividad and her husband filed with the Regional Trial Court, Branch 96, Quezon City a
complaint for damages against PSI (owner of Medical City), Dr. Ampil and Dr. Fuentes.
On February 16, 1986, pending the outcome of the above case, Natividad died. She was duly substituted by her abovenamed children (the Aganas).
On March 17, 1993, the trial court rendered judgment in favor of spouses Agana finding PSI, Dr. Ampil and Dr. Fuentes
jointly and severally liable. On appeal, the Court of Appeals, in its Decision dated September 6, 1996, affirmed the
assailed judgment with modification in the sense that the complaint against Dr. Fuentes was dismissed.
PSI, Dr. Ampil and the Aganas filed with this Court separate petitions for review on certiorari. On January 31, 2007, the
Court, through its First Division, rendered a Decision holding that PSI is jointly and severally liable with Dr. Ampil for the
following reasons: first, there is an employer-employee relationship between Medical City and Dr. Ampil. The Court
relied on Ramos v. Court of Appeals,2 holding that for the purpose of apportioning responsibility in medical negligence
cases, an employer-employee relationship in effect exists between hospitals and their attending and visiting
physicians; second, PSIs act of publicly displaying in the lobby of the Medical City the names and specializations of its
accredited physicians, including Dr. Ampil, estopped it from denying the existence of an employer-employee relationship
between them under the doctrine of ostensible agency or agency by estoppel; and third, PSIs failure to supervise
Dr. Ampil and its resident physicians and nurses and to take an active step in order to remedy their negligence rendered
it directly liable under the doctrine of corporate negligence.
In its motion for reconsideration, PSI contends that the Court erred in finding it liable under Article 2180 of the Civil
Code, there being no employer-employee relationship between it and its consultant, Dr. Ampil. PSI stressed that the
Courts Decision in Ramos holding that "an employer-employee relationship in effect exists between hospitals and their

attending and visiting physicians for the purpose of apportioning responsibility" had been reversed in a subsequent
Resolution.3 Further, PSI argues that the doctrine of ostensible agency or agency by estoppel cannot apply
because spouses Agana failed to establish one requisite of the doctrine, i.e., that Natividad relied on the representation
of the hospital in engaging the services of Dr. Ampil. And lastly, PSI maintains that the doctrine of corporate
negligence is misplaced because the proximate cause of Natividads injury was Dr. Ampils negligence.
The motion lacks merit.
As earlier mentioned, the First Division, in its assailed Decision, ruled that an employer-employee relationship "in
effect" exists between the Medical City and Dr. Ampil. Consequently, both are jointly and severally liable to the Aganas.
This ruling proceeds from the following ratiocination in Ramos:
We now discuss the responsibility of the hospital in this particular incident. The unique practice (among
private hospitals) of filling up specialist staff with attending and visiting "consultants," who are allegedly not
hospital employees, presents problems in apportioning responsibility for negligence in medical malpractice
cases.However, the difficulty is only more apparent than real.
In the first place, hospitals exercise significant control in the hiring and firing of consultants and in
the conduct of their work within the hospital premises. Doctors who apply for "consultant" slots, visiting
or attending, are required to submit proof of completion of residency, their educational qualifications;
generally, evidence of accreditation by the appropriate board (diplomate), evidence of fellowship in most
cases, and references. These requirements are carefully scrutinized by members of the hospital
administration or by a review committee set up by the hospital who either accept or reject the application.
This is particularly true with respondent hospital.
After a physician is accepted, either as a visiting or attending consultant, he is normally required to
attend clinico-pathological conferences, conduct bedside rounds for clerks, interns and residents,
moderate grand rounds and patient audits and perform other tasks and responsibilities, for the
privilege of being able to maintain a clinic in the hospital, and/or for the privilege of admitting
patients into the hospital. In addition to these, the physicians performance as a specialist is
generally evaluated by a peer review committee on the basis of mortality and morbidity statistics,
and feedback from patients, nurses, interns and residents. A consultant remiss in his duties, or a
consultant who regularly falls short of the minimum standards acceptable to the hospital or its peer
review committee, is normally politely terminated.
In other words, private hospitals hire, fire and exercise real control over their attending and visiting
"consultant" staff. While "consultants" are not, technically employees, a point which respondent
hospital asserts in denying all responsibility for the patients condition, the control exercised, the
hiring, and the right to terminate consultants all fulfill the important hallmarks of an employeremployee relationship, with the exception of the payment of wages. In assessing whether such a
relationship in fact exists, the control test is determining. Accordingly, on the basis of the foregoing,
we rule that for the purpose of allocating responsibility in medical negligence cases, an employeremployee relationship in effect exists between hospitals and their attending and visiting
physicians. This being the case, the question now arises as to whether or not respondent hospital is
solidarily liable with respondent doctors for petitioners condition.
The basis for holding an employer solidarily responsible for the negligence of its employee is found in Article
2180 of the Civil Code which considers a person accountable not only for his own acts but also for those of
others based on the formers responsibility under a relationship of partia ptetas.
Clearly, in Ramos, the Court considered the peculiar relationship between a hospital and its consultants on the bases of
certain factors. One such factor is the "control test" wherein the hospital exercises control in the hiring and firing of
consultants, like Dr. Ampil, and in the conduct of their work.

Actually, contrary to PSIs contention, the Court did not reverse its ruling in Ramos. What it clarified was that the De Los
Santos Medical Clinic did not exercise control over its consultant, hence, there is no employer-employee relationship
between them. Thus, despite the granting of the said hospitals motion for reconsideration, the doctrine inRamos stays,
i.e., for the purpose of allocating responsibility in medical negligence cases, an employer-employee relationship exists
between hospitals and their consultants.
In the instant cases, PSI merely offered a general denial of responsibility, maintaining that consultants, like Dr. Ampil,
are "independent contractors," not employees of the hospital. Even assuming that Dr. Ampil is not an employee of
Medical City, but an independent contractor, still the said hospital is liable to the Aganas.
In Nograles, et al. v. Capitol Medical Center, et al.,4 through Mr. Justice Antonio T. Carpio, the Court held:
The question now is whether CMC is automatically exempt from liability considering that Dr. Estrada is an
independent contractor-physician.
In general, a hospital is not liable for the negligence of an independent contractor-physician. There is,
however, an exception to this principle. The hospital may be liable if the physician is the "ostensible" agent
of the hospital. (Jones v. Philpott, 702 F. Supp. 1210 [1988]) This exception is also known as the "doctrine of
apparent authority." (Sometimes referred to as the apparent or ostensible agency theory. [King v. Mitchell,
31 A.D.3rd958, 819 N.Y. S.2d 169 (2006)].

Atty. Agana categorically testified that one of the reasons why he chose Dr. Ampil was that he knew him to be a staff
member of Medical City, a prominent and known hospital.
Q

Will you tell us what transpired in your visit to Dr. Ampil?

A Well, I saw Dr. Ampil at the Medical City, I know him to be a staff member there, and I told him about
the case of my wife and he asked me to bring my wife over so she could be examined. Prior to that, I have
known Dr. Ampil, first, he was staying in front of our house, he was a neighbor, second, my daughter was
his student in the University of the East School of Medicine at Ramon Magsaysay; and when my daughter
opted to establish a hospital or a clinic, Dr. Ampil was one of our consultants on how to establish that
hospital. And from there, I have known that he was a specialist when it comes to that illness.
Atty. Agcaoili
On that particular occasion, April 2, 1984, what was your reason for choosing to contact Dr. Ampil in
connection with your wifes illness?
A First, before that, I have known him to be a specialist on that part of the body as a surgeon; second, I
have known him to be a staff member of the Medical City which is a prominent and known
hospital. And third, because he is a neighbor, I expect more than the usual medical service to be given to
us, than his ordinary patients.5

xxx
The doctrine of apparent authority essentially involves two factors to determine the liability of an
independent contractor-physician.
The first factor focuses on the hospitals manifestations and is sometimes described as an inquiry whether
the hospital acted in a manner which would lead a reasonable person to conclude that the individual who
was alleged to be negligent was an employee or agent of the hospital. (Diggs v. Novant Health, Inc., 628
S.E.2d 851 (2006) citing Hylton v. Koontz, 138 N.C. App. 629 (2000). In this regard, the hospital need not
make express representations to the patient that the treating physician is an employee of the
hospital; rather a representation may be general and implied. (Id.)
The doctrine of apparent authority is a specie of the doctrine of estoppel. Article 1431 of the Civil Code
provides that "[t]hrough estoppel, an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon." Estoppel rests on this
rule: "Whether a party has, by his own declaration, act, or omission, intentionally and deliberately led
another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out
of such declaration, act or omission, be permitted to falsify it. (De Castro v. Ginete, 137 Phil. 453 [1969],
citing Sec. 3, par. A, Rule 131 of the Rules of Court. See also King v. Mitchell, 31 A.D.3rd 958, 819 N.Y.S.2d
169 [2006]).

Clearly, PSI is estopped from passing the blame solely to Dr. Ampil. Its act of displaying his name and those of the other
physicians in the public directory at the lobby of the hospital amounts to holding out to the public that it offers quality
medical service through the listed physicians. This justifies Atty. Aganas belief that Dr. Ampil was a member of the
hospitals staff. It must be stressed that under the doctrine of apparent authority, the question in every case is
whether the principal has by his voluntary act placed the agent in such a situation that a person of ordinary
prudence, conversant with business usages and the nature of the particular business, is justified in presuming
that such agent has authority to perform the particular act in question.6 In these cases, the circumstances yield a
positive answer to the question.
The challenged Decision also anchors its ruling on the doctrine of corporate responsibility.7 The duty of providing
quality medical service is no longer the sole prerogative and responsibility of the physician. This is because the modern
hospital now tends to organize a highly-professional medical staff whose competence and performance need also to
be monitored by the hospital commensurate with its inherent responsibility to provide quality medical care.8 Such
responsibility includes the proper supervision of the members of its medical staff. Accordingly, the hospital has
the duty to make a reasonable effort to monitor and oversee the treatment prescribed and administered by the
physicians practicing in its premises.
Unfortunately, PSI had been remiss in its duty. It did not conduct an immediate investigation on the reported missing
gauzes to the great prejudice and agony of its patient. Dr. Jocson, a member of PSIs medical staff, who testified on
whether the hospital conducted an investigation, was evasive, thus:

xxx
The second factor focuses on the patients reliance. It is sometimes characterized as an inquiry on whether
the plaintiff acted in reliance upon the conduct of the hospital or its agent, consistent with ordinary care and
prudence. (Diggs v. Novant Health, Inc.)
PSI argues that the doctrine of apparent authority cannot apply to these cases because spouses Agana failed to
establish proof of their reliance on the representation of Medical City that Dr. Ampil is its employee.
The argument lacks merit.

Q We go back to the operative technique, this was signed by Dr. Puruganan, was this submitted
to the hospital?
A

Yes, sir, this was submitted to the hospital with the record of the patient.

Was the hospital immediately informed about the missing sponges?

That is the duty of the surgeon, sir.

Q As a witness to an untoward incident in the operating room, was it not your obligation, Dr., to
also report to the hospital because you are under the control and direction of the hospital?

Q You said you relied on the promise of Dr. Ampil and despite the promise you were not able to obtain
the said record. Did you go back to the record custodian?

The hospital already had the record of the two OS missing, sir.

I did not because I was talking to Dr. Ampil. He promised me.

If you place yourself in the position of the hospital, how will you recover.

After your talk to Dr. Ampil, you went to the record custodian?

You do not answer my question with another question.

Did the hospital do anything about the missing gauzes?

A I went to the record custodian to get the clinical record of my wife, and I was given a portion of
the records consisting of the findings, among them, the entries of the dates, but not the operating
procedure and operative report.10

The hospital left it up to the surgeon who was doing the operation, sir.

Did the hospital investigate the surgeon who did the operation?

I am not in the position to answer that, sir.

Q You never did hear the hospital investigating the doctors involved in this case of those missing
sponges, or did you hear something?
xxxxxx
A I think we already made a report by just saying that two sponges were missing, it is up to the
hospital to make the move.
Atty. Agana
Precisely, I am asking you if the hospital did a move, if the hospital did a move.
A

I cannot answer that.

Court
By that answer, would you mean to tell the Court that you were aware if there was such a move
done by the hospital?
A I cannot answer that, your honor, because I did not have any more follow-up of the case that
happened until now.9
The above testimony obviously shows Dr. Jocsons lack of concern for the patients. Such conduct is reflective of
the hospitals manner of supervision. Not only did PSI breach its duty to oversee or supervise all persons who
practice medicine within its walls, it also failed to take an active step in fixing the negligence committed.This
renders PSI, not only vicariously liable for the negligence of Dr. Ampil under Article 2180 of the Civil Code, but
also directly liable for its own negligence under Article 2176.
Moreover, there is merit in the trial courts finding that the failure of PSI to conduct an investigation "established PSIs
part in the dark conspiracy of silence and concealment about the gauzes." The following testimony of Atty. Agana
supports such findings, thus:

In sum, we find no merit in the motion for reconsideration.


WHEREFORE, we DENY PSIs motion for reconsideration with finality.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. 126297

February 2, 2010

PROFESSIONAL SERVICES, INC., Petitioner,


vs.
THE COURT OF APPEALS and NATIVIDAD and ENRIQUE AGANA, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 126467
NATIVIDAD [substituted by her children Marcelino Agana III, Enrique Agana, Jr., Emma Agana-Andaya, Jesus
Agana and Raymund Agana] and ENRIQUE AGANA, Petitioners,
vs.
THE COURT OF APPEALS and JUAN FUENTES, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 127590
MIGUEL AMPIL, Petitioner,
vs.
NATIVIDAD and ENRIQUE AGANA, Respondents.
RESOLUTION
CORONA, J.:
With prior leave of court,1 petitioner Professional Services, Inc. (PSI) filed a second motion for reconsideration2 urging
referral thereof to the Court en banc and seeking modification of the decision dated January 31, 2007 and resolution
dated February 11, 2008 which affirmed its vicarious and direct liability for damages to respondents Enrique Agana and
the heirs of Natividad Agana (Aganas).
Manila Medical Services, Inc. (MMSI),3 Asian Hospital, Inc. (AHI),4 and Private Hospital Association of the Philippines
(PHAP)5 all sought to intervene in these cases invoking the common ground that, unless modified, the assailed decision
and resolution will jeopardize the financial viability of private hospitals and jack up the cost of health care.
The Special First Division of the Court granted the motions for intervention of MMSI, AHI and PHAP (hereafter
intervenors),6 and referred en consulta to the Court en banc the motion for prior leave of court and the second motion for
reconsideration of PSI.7
Due to paramount public interest, the Court en banc accepted the referral8 and heard the parties on oral arguments on
one particular issue: whether a hospital may be held liable for the negligence of physicians-consultants allowed to
practice in its premises.9

To recall the salient facts, PSI, together with Dr. Miguel Ampil (Dr. Ampil) and Dr. Juan Fuentes (Dr. Fuentes), was
impleaded by Enrique Agana and Natividad Agana (later substituted by her heirs), in a complaint10 for damages filed in
the Regional Trial Court (RTC) of Quezon City, Branch 96, for the injuries suffered by Natividad when Dr. Ampil and Dr.
Fuentes neglected to remove from her body two gauzes11 which were used in the surgery they performed on her on April
11, 1984 at the Medical City General Hospital. PSI was impleaded as owner, operator and manager of the hospital.
In a decision12 dated March 17, 1993, the RTC held PSI solidarily liable with Dr. Ampil and Dr. Fuentes for
damages.13 On appeal, the Court of Appeals (CA), absolved Dr. Fuentes but affirmed the liability of Dr. Ampil and PSI,
subject to the right of PSI to claim reimbursement from Dr. Ampil.141avvphi1
On petition for review, this Court, in its January 31, 2007 decision, affirmed the CA decision. PSI filed a motion for
reconsideration16 but the Court denied it in a resolution dated February 11, 2008.17
15

The Court premised the direct liability of PSI to the Aganas on the following facts and law:
First, there existed between PSI and Dr. Ampil an employer-employee relationship as contemplated in the December 29,
1999 decision in Ramos v. Court of Appeals18 that "for purposes of allocating responsibility in medical negligence cases,
an employer-employee relationship exists between hospitals and their consultants."19 Although the Court inRamos later
issued a Resolution dated April 11, 200220 reversing its earlier finding on the existence of an employment relationship
between hospital and doctor, a similar reversal was not warranted in the present case because the defense raised by
PSI consisted of a mere general denial of control or responsibility over the actions of Dr. Ampil.21
Second, by accrediting Dr. Ampil and advertising his qualifications, PSI created the public impression that he was its
agent.22 Enrique testified that it was on account of Dr. Ampil's accreditation with PSI that he conferred with said doctor
about his wife's (Natividad's) condition.23 After his meeting with Dr. Ampil, Enrique asked Natividad to personally consult
Dr. Ampil.24 In effect, when Enrigue and Natividad engaged the services of Dr. Ampil, at the back of their minds was that
the latter was a staff member of a prestigious hospital. Thus, under the doctrine of apparent authority applied
in Nogales, et al. v. Capitol Medical Center, et al.,25 PSI was liable for the negligence of Dr. Ampil.
Finally, as owner and operator of Medical City General Hospital, PSI was bound by its duty to provide comprehensive
medical services to Natividad Agana, to exercise reasonable care to protect her from harm,26 to oversee or supervise all
persons who practiced medicine within its walls, and to take active steps in fixing any form of negligence committed
within its premises.27 PSI committed a serious breach of its corporate duty when it failed to conduct an immediate
investigation into the reported missing gauzes.28
PSI is now asking this Court to reconsider the foregoing rulings for these reasons:

Hospital (PSI) to provide medical care because of any apparent authority of Dr. Miguel Ampil as its agent since the latter
was chosen primarily and specifically based on his qualifications and being friend and neighbor.
III
PSI cannot be liable under doctrine of corporate negligence since the proximate cause of Mrs. Agana's injury was the
negligence of Dr. Ampil, which is an element of the principle of corporate negligence.29
In their respective memoranda, intervenors raise parallel arguments that the Court's ruling on the existence of an
employer-employee relationship between private hospitals and consultants will force a drastic and complex alteration in
the long-established and currently prevailing relationships among patient, physician and hospital, with burdensome
operational and financial consequences and adverse effects on all three parties. 30
The Aganas comment that the arguments of PSI need no longer be entertained for they have all been traversed in the
assailed decision and resolution.31
After gathering its thoughts on the issues, this Court holds that PSI is liable to the Aganas, not under the principle
ofrespondeat superior for lack of evidence of an employment relationship with Dr. Ampil but under the principle of
ostensible agency for the negligence of Dr. Ampil and, pro hac vice, under the principle of corporate negligence for its
failure to perform its duties as a hospital.
While in theory a hospital as a juridical entity cannot practice medicine,32 in reality it utilizes doctors, surgeons and
medical practitioners in the conduct of its business of facilitating medical and surgical treatment. 33 Within that reality,
three legal relationships crisscross: (1) between the hospital and the doctor practicing within its premises; (2) between
the hospital and the patient being treated or examined within its premises and (3) between the patient and the doctor.
The exact nature of each relationship determines the basis and extent of the liability of the hospital for the negligence of
the doctor.
Where an employment relationship exists, the hospital may be held vicariously liable under Article 217634 in relation to
Article 218035 of the Civil Code or the principle of respondeat superior. Even when no employment relationship exists but
it is shown that the hospital holds out to the patient that the doctor is its agent, the hospital may still be vicariously liable
under Article 2176 in relation to Article 143136 and Article 186937 of the Civil Code or the principle of apparent
authority.38 Moreover, regardless of its relationship with the doctor, the hospital may be held directly liable to the patient
for its own negligence or failure to follow established standard of conduct to which it should conform as a corporation.39
This Court still employs the "control test" to determine the existence of an employer-employee relationship between
hospital and doctor. In Calamba Medical Center, Inc. v. National Labor Relations Commission, et al.40 it held:

I
The declaration in the 31 January 2007 Decision vis-a-vis the 11 February 2009 Resolution that the ruling in Ramos vs.
Court of Appeals (G.R. No. 134354, December 29, 1999) that "an employer-employee relations exists between hospital
and their consultants" stays should be set aside for being inconsistent with or contrary to the import of the resolution
granting the hospital's motion for reconsideration in Ramos vs. Court of Appeals (G.R. No. 134354, April 11, 2002),
which is applicable to PSI since the Aganas failed to prove an employer-employee relationship between PSI and Dr.
Ampil and PSI proved that it has no control over Dr. Ampil. In fact, the trial court has found that there is no employeremployee relationship in this case and that the doctor's are independent contractors.

Under the "control test", an employment relationship exists between a physician and a hospital if the hospital controls
both the means and the details of the process by which the physician is to accomplish his task.
xxx

xxx

xxx

As priorly stated, private respondents maintained specific work-schedules, as determined by petitioner through its
medical director, which consisted of 24-hour shifts totaling forty-eight hours each week and which were strictly to be
observed under pain of administrative sanctions.

II
Respondents Aganas engaged Dr. Miguel Ampil as their doctor and did not primarily and specifically look to the Medical
City Hospital (PSI) for medical care and support; otherwise stated, respondents Aganas did not select Medical City

That petitioner exercised control over respondents gains light from the undisputed fact that in the emergency
room, the operating room, or any department or ward for that matter, respondents' work is monitored through
its nursing supervisors, charge nurses and orderlies. Without the approval or consent of petitioner or its
medical director, no operations can be undertaken in those areas. For control test to apply, it is not essential for

the employer to actually supervise the performance of duties of the employee, it being enough that it has the
right to wield the power. (emphasis supplied)
Even in its December 29, 1999 decision41 and April 11, 2002 resolution42 in Ramos, the Court found the control test
decisive.
In the present case, it appears to have escaped the Court's attention that both the RTC and the CA found no
employment relationship between PSI and Dr. Ampil, and that the Aganas did not question such finding. In its March
17, 1993 decision, the RTC found "that defendant doctors were not employees of PSI in its hospital, they being merely
consultants without any employer-employee relationship and in the capacity of independent contractors." 43 The Aganas
never questioned such finding.
PSI, Dr. Ampil and Dr. Fuentes appealed44 from the RTC decision but only on the issues of negligence, agency and
corporate liability. In its September 6, 1996 decision, the CA mistakenly referred to PSI and Dr. Ampil as employeremployee, but it was clear in its discussion on the matter that it viewed their relationship as one of mere apparent
agency.45

A. First, before that, I have known him to be a specialist on that part of the body as a surgeon, second, I have known
him to be a staff member of the Medical City which is a prominent and known hospital. And third, because he is a
neighbor, I expect more than the usual medical service to be given to us, than his ordinary patients. 52 (emphasis
supplied)
Clearly, the decision made by Enrique for Natividad to consult Dr. Ampil was significantly influenced by the impression
that Dr. Ampil was a staff member of Medical City General Hospital, and that said hospital was well known and
prominent. Enrique looked upon Dr. Ampil not as independent of but as integrally related to Medical City.
PSI's acts tended to confirm and reinforce, rather than negate, Enrique's view. It is of record that PSI required a
"consent for hospital care"53 to be signed preparatory to the surgery of Natividad. The form reads:
Permission is hereby given to the medical, nursing and laboratory staff of the Medical City General Hospital to perform
such diagnostic procedures and to administer such medications and treatments as may be deemed necessary or
advisable by the physicians of this hospital for and during the confinement of xxx. (emphasis supplied)

The Aganas appealed from the CA decision, but only to question the exoneration of Dr. Fuentes. 46 PSI also appealed
from the CA decision, and it was then that the issue of employment, though long settled, was unwittingly resurrected.

By such statement, PSI virtually reinforced the public impression that Dr. Ampil was a physician of its hospital, rather
than one independently practicing in it; that the medications and treatments he prescribed were necessary and
desirable; and that the hospital staff was prepared to carry them out.1avvphi1

In fine, as there was no dispute over the RTC finding that PSI and Dr. Ampil had no employer-employee relationship,
such finding became final and conclusive even to this Court.47 There was no reason for PSI to have raised it as an issue
in its petition. Thus, whatever discussion on the matter that may have ensued was purely academic.

PSI pointed out in its memorandum that Dr. Ampil's hospital affiliation was not the exclusive basis of the Aganas
decision to have Natividad treated in Medical City General Hospital, meaning that, had Dr. Ampil been affiliated with
another hospital, he would still have been chosen by the Aganas as Natividad's surgeon.54

Nonetheless, to allay the anxiety of the intervenors, the Court holds that, in this particular instance, the concurrent
finding of the RTC and the CA that PSI was not the employer of Dr. Ampil is correct. Control as a determinative factor in
testing the employer-employee relationship between doctor and hospital under which the hospital could be held
vicariously liable to a patient in medical negligence cases is a requisite fact to be established by preponderance of
evidence. Here, there was insufficient evidence that PSI exercised the power of control or wielded such power over the
means and the details of the specific process by which Dr. Ampil applied his skills in the treatment of Natividad.
Consequently, PSI cannot be held vicariously liable for the negligence of Dr. Ampil under the principle of respondeat
superior.

The Court cannot speculate on what could have been behind the Aganas decision but would rather adhere strictly to the
fact that, under the circumstances at that time, Enrique decided to consult Dr. Ampil for he believed him to be a staff
member of a prominent and known hospital. After his meeting with Dr. Ampil, Enrique advised his wife Natividad to go to
the Medical City General Hospital to be examined by said doctor, and the hospital acted in a way that fortified Enrique's
belief.

There is, however, ample evidence that the hospital (PSI) held out to the patient (Natividad)48 that the doctor (Dr. Ampil)
was its agent. Present are the two factors that determine apparent authority: first, the hospital's implied manifestation to
the patient which led the latter to conclude that the doctor was the hospital's agent; and second, the patients reliance
upon the conduct of the hospital and the doctor, consistent with ordinary care and prudence.49
Enrique testified that on April 2, 1984, he consulted Dr. Ampil regarding the condition of his wife; that after the meeting
and as advised by Dr. Ampil, he "asked [his] wife to go to Medical City to be examined by [Dr. Ampil]"; and that the next
day, April 3, he told his daughter to take her mother to Dr. Ampil.50 This timeline indicates that it was Enrique who
actually made the decision on whom Natividad should consult and where, and that the latter merely acceded to it. It
explains the testimony of Natividad that she consulted Dr. Ampil at the instigation of her daughter. 51
Moreover, when asked what impelled him to choose Dr. Ampil, Enrique testified:
Atty. Agcaoili
On that particular occasion, April 2, 1984, what was your reason for choosing Dr. Ampil to contact with in connection with
your wife's illness?

This Court must therefore maintain the ruling that PSI is vicariously liable for the negligence of Dr. Ampil as its ostensible
agent.
Moving on to the next issue, the Court notes that PSI made the following admission in its Motion for Reconsideration:
51. Clearly, not being an agent or employee of petitioner PSI, PSI [sic] is not liable for Dr. Ampil's acts during the
operation. Considering further that Dr. Ampil was personally engaged as a doctor by Mrs. Agana, it is incumbent upon
Dr. Ampil, as "Captain of the Ship", and as the Agana's doctor to advise her on what to do with her situation vis-a-vis the
two missing gauzes. In addition to noting the missing gauzes, regular check-ups were made and no signs of
complications were exhibited during her stay at the hospital, which could have alerted petitioner PSI's hospital
to render and provide post-operation services to and tread on Dr. Ampil's role as the doctor of Mrs. Agana. The
absence of negligence of PSI from the patient's admission up to her discharge is borne by the finding of facts
in this case. Likewise evident therefrom is the absence of any complaint from Mrs. Agana after her discharge
from the hospital which had she brought to the hospital's attention, could have alerted petitioner PSI to act
accordingly and bring the matter to Dr. Ampil's attention. But this was not the case. Ms. Agana complained
ONLY to Drs. Ampil and Fuentes, not the hospital. How then could PSI possibly do something to fix the
negligence committed by Dr. Ampil when it was not informed about it at all.55 (emphasis supplied)
PSI reiterated its admission when it stated that had Natividad Agana "informed the hospital of her discomfort and pain,
the hospital would have been obliged to act on it."56
The significance of the foregoing statements is critical.

First, they constitute judicial admission by PSI that while it had no power to control the means or method by which Dr.
Ampil conducted the surgery on Natividad Agana, it had the power to review or cause the review of what may have
irregularly transpired within its walls strictly for the purpose of determining whether some form of negligence may have
attended any procedure done inside its premises, with the ultimate end of protecting its patients.

As it happened, PSI took no heed of the record of operation and consequently did not initiate a review of what transpired
during Natividads operation. Rather, it shirked its responsibility and passed it on to others to Dr. Ampil whom it
expected to inform Natividad, and to Natividad herself to complain before it took any meaningful step. By its inaction,
therefore, PSI failed its own standard of hospital care. It committed corporate negligence.

Second, it is a judicial admission that, by virtue of the nature of its business as well as its prominence57 in the hospital
industry, it assumed a duty to "tread on" the "captain of the ship" role of any doctor rendering services within its
premises for the purpose of ensuring the safety of the patients availing themselves of its services and facilities.

It should be borne in mind that the corporate negligence ascribed to PSI is different from the medical negligence
attributed to Dr. Ampil. The duties of the hospital are distinct from those of the doctor-consultant practicing within its
premises in relation to the patient; hence, the failure of PSI to fulfill its duties as a hospital corporation gave rise to a
direct liability to the Aganas distinct from that of Dr. Ampil.

Third, by such admission, PSI defined the standards of its corporate conduct under the circumstances of this case,
specifically: (a) that it had a corporate duty to Natividad even after her operation to ensure her safety as a patient; (b)
that its corporate duty was not limited to having its nursing staff note or record the two missing gauzes and (c) that its
corporate duty extended to determining Dr. Ampil's role in it, bringing the matter to his attention, and correcting his
negligence.
And finally, by such admission, PSI barred itself from arguing in its second motion for reconsideration that the concept of
corporate responsibility was not yet in existence at the time Natividad underwent treatment;58 and that if it had any
corporate responsibility, the same was limited to reporting the missing gauzes and did not include "taking an active step
in fixing the negligence committed."59 An admission made in the pleading cannot be controverted by the party making
such admission and is conclusive as to him, and all proofs submitted by him contrary thereto or inconsistent therewith
should be ignored, whether or not objection is interposed by a party.60
Given the standard of conduct that PSI defined for itself, the next relevant inquiry is whether the hospital measured up to
it.
PSI excuses itself from fulfilling its corporate duty on the ground that Dr. Ampil assumed the personal responsibility of
informing Natividad about the two missing gauzes.61 Dr. Ricardo Jocson, who was part of the group of doctors that
attended to Natividad, testified that toward the end of the surgery, their group talked about the missing gauzes but Dr.
Ampil assured them that he would personally notify the patient about it.62 Furthermore, PSI claimed that there was no
reason for it to act on the report on the two missing gauzes because Natividad Agana showed no signs of complications.
She did not even inform the hospital about her discomfort.63
The excuses proffered by PSI are totally unacceptable.
To begin with, PSI could not simply wave off the problem and nonchalantly delegate to Dr. Ampil the duty to review what
transpired during the operation. The purpose of such review would have been to pinpoint when, how and by whom two
surgical gauzes were mislaid so that necessary remedial measures could be taken to avert any jeopardy to Natividads
recovery. Certainly, PSI could not have expected that purpose to be achieved by merely hoping that the person likely to
have mislaid the gauzes might be able to retrace his own steps. By its own standard of corporate conduct, PSI's duty to
initiate the review was non-delegable.
While Dr. Ampil may have had the primary responsibility of notifying Natividad about the missing gauzes, PSI imposed
upon itself the separate and independent responsibility of initiating the inquiry into the missing gauzes. The purpose of
the first would have been to apprise Natividad of what transpired during her surgery, while the purpose of the second
would have been to pinpoint any lapse in procedure that led to the gauze count discrepancy, so as to prevent a
recurrence thereof and to determine corrective measures that would ensure the safety of Natividad. That Dr. Ampil
negligently failed to notify Natividad did not release PSI from its self-imposed separate responsibility.
Corollary to its non-delegable undertaking to review potential incidents of negligence committed within its premises, PSI
had the duty to take notice of medical records prepared by its own staff and submitted to its custody, especially when
these bear earmarks of a surgery gone awry. Thus, the record taken during the operation of Natividad which reported a
gauze count discrepancy should have given PSI sufficient reason to initiate a review. It should not have waited for
Natividad to complain.

All this notwithstanding, we make it clear that PSIs hospital liability based on ostensible agency and corporate
negligence applies only to this case, pro hac vice. It is not intended to set a precedent and should not serve as a basis
to hold hospitals liable for every form of negligence of their doctors-consultants under any and all circumstances. The
ruling is unique to this case, for the liability of PSI arose from an implied agency with Dr. Ampil and an admitted
corporate duty to Natividad.64
Other circumstances peculiar to this case warrant this ruling,65 not the least of which being that the agony wrought upon
the Aganas has gone on for 26 long years, with Natividad coming to the end of her days racked in pain and agony. Such
wretchedness could have been avoided had PSI simply done what was logical: heed the report of a guaze count
discrepancy, initiate a review of what went wrong and take corrective measures to ensure the safety of Nativad. Rather,
for 26 years, PSI hemmed and hawed at every turn, disowning any such responsibility to its patient. Meanwhile, the
options left to the Aganas have all but dwindled, for the status of Dr. Ampil can no longer be ascertained.66
Therefore, taking all the equities of this case into consideration, this Court believes P15 million would be a fair and
reasonable liability of PSI, subject to 12% p.a. interest from the finality of this resolution to full satisfaction.
WHEREFORE, the second motion for reconsideration is DENIED and the motions for intervention are NOTED.
Professional Services, Inc. is ORDERED pro hac vice to pay Natividad (substituted by her children Marcelino Agana III,
Enrique Agana, Jr., Emma Agana-Andaya, Jesus Agana and Raymund Agana) and Enrique Agana the total amount
of P15 million, subject to 12% p.a. interest from the finality of this resolution to full satisfaction.
No further pleadings by any party shall be entertained in this case.
Let the long-delayed entry of judgment be made in this case upon receipt by all concerned parties of this resolution.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 131719

May 25, 2004

THE EXECUTIVE SECRETARY, THE SECRETARY OF JUSTICE, THE SECRETARY OF LABOR AND
EMPLOYMENT, AND THE SECRETARY OF FOREIGN AFFAIRS, OWWA PUNO, ADMINISTRATOR, and POEA
ADMINISTRATOR, petitioners,
vs.
THE HON. COURT OF APPEALS and ASIAN RECRUITMENT COUNCIL PHILIPPINE CHAPTER (ARCO-PHIL.),
INC., representing its members: Worldcare Services Internationale, Inc., Steadfast
International Recruitment Corporation, Dragon International Manpower Services Corporation, Verdant
Manpower Mobilization Corporation, Brent Overseas Personnel, Inc., ARL Manpower Services, Inc., Dahlzhen
International Services, Inc., Interworld Placement Center, Inc., Lakas Tao Contract Services, Ltd. Co., and SSC
Multiservices, respondents.
DECISION
CALLEJO, SR., J.:
In this petition for review on certiorari, the Executive Secretary of the President of the Philippines, the Secretary of
Justice, the Secretary of Foreign Affairs, the Secretary of Labor and Employment, the POEA Administrator and the
OWWA Administrator, through the Office of the Solicitor General, assail the Decision1 of the Court of Appeals in CA-G.R.
SP No. 38815 affirming the Order2 of the Regional Trial Court of Quezon City dated August 21, 1995 in Civil Case No.
Q-95-24401, granting the plea of the petitioners therein for a writ of preliminary injunction and of the writ of preliminary
injunction issued by the trial court on August 24, 1995.
The Antecedents
Republic Act No. 8042, otherwise known as the Migrant Workers and Overseas Filipinos Act of 1995, took effect on July
15, 1995. The Omnibus Rules and Regulations Implementing the Migrant Workers and Overseas Filipino Act of 1995
was, thereafter, published in the April 7, 1996 issue of the Manila Bulletin. However, even before the law took effect, the
Asian Recruitment Council Philippine Chapter, Inc. (ARCO-Phil.) filed, on July 17, 1995, a petition for declaratory relief
under Rule 63 of the Rules of Court with the Regional Trial Court of Quezon City to declare as unconstitutional Section
2, paragraph (g), Section 6, paragraphs (a) to (j), (l) and (m), Section 7, paragraphs (a) and (b), and Sections 9 and 10
of the law, with a plea for the issuance of a temporary restraining order and/or writ of preliminary injunction enjoining the
respondents therein from enforcing the assailed provisions of the law.
In a supplement to its petition, the ARCO-Phil. alleged that Rep. Act No. 8042 was self-executory and that no
implementing rules were needed. It prayed that the court issue a temporary restraining order to enjoin the enforcement
of Section 6, paragraphs (a) to (m) on illegal recruitment, Section 7 on penalties for illegal recruitment, and Section 9 on
venue of criminal actions for illegal recruitments, viz:
Viewed in the light of the foregoing discussions, there appears to be urgent an imperative need for this
Honorable Court to maintain the status quo by enjoining the implementation or effectivity of the questioned
provisions of RA 8042, by way of a restraining order otherwise, the member recruitment agencies of the
petitioner will suffer grave or irreparable damage or injury. With the effectivity of RA 8042, a great majority of

the duly licensed recruitment agencies have stopped or suspended their operations for fear of being
prosecuted under the provisions of a law that are unjust and unconstitutional. This Honorable Court may
take judicial notice of the fact that processing of deployment papers of overseas workers for the past weeks
have come to a standstill at the POEA and this has affected thousands of workers everyday just because of
the enactment of RA 8042. Indeed, this has far reaching effects not only to survival of the overseas
manpower supply industry and the active participating recruitment agencies, the countrys economy which
has survived mainly due to the dollar remittances of the overseas workers but more importantly, to the poor
and the needy who are in dire need of income-generating jobs which can only be obtained from abroad.
The loss or injury that the recruitment agencies will suffer will then be immeasurable and irreparable. As of
now, even foreign employers have already reduced their manpower requirements from the Philippines due
to their knowledge that RA 8042 prejudiced and adversely affected the local recruitment agencies. 3
On August 1, 1995, the trial court issued a temporary restraining order effective for a period of only twenty (20) days
therefrom.
After the petitioners filed their comment on the petition, the ARCO-Phil. filed an amended petition, the amendments
consisting in the inclusion in the caption thereof eleven (11) other corporations which it alleged were its members and
which it represented in the suit, and a plea for a temporary restraining order enjoining the respondents from enforcing
Section 6 subsection (i), Section 6 subsection (k) and paragraphs 15 and 16 thereof, Section 8, Section 10, paragraphs
1 and 2, and Sections 11 and 40 of Rep. Act No. 8042.
The respondent ARCO-Phil. assailed Section 2(g) and (i), Section 6 subsection (a) to (m), Section 7(a) to (b), and
Section 10 paragraphs (1) and (2), quoted as follows:
(g) THE STATE RECOGNIZES THAT THE ULTIMATE PROTECTION TO ALL MIGRANT WORKERS IS
THE POSSESSION OF SKILLS. PURSUANT TO THIS AND AS SOON AS PRACTICABLE, THE
GOVERNMENT SHALL DEPLOY AND/OR ALLOW THE DEPLOYMENT ONLY OF SKILLED FILIPINO
WORKERS.4
Sec. 2 subsection (i, 2nd par.)
Nonetheless, the deployment of Filipino overseas workers, whether land-based or sea-based, by local
service contractors and manning agents employing them shall be encourages (sic). Appropriate incentives
may be extended to them.

II. ILLEGAL RECRUITMENT


SEC. 6. Definition. For purposes of this Act, illegal recruitment shall mean any act of canvassing, enlisting,
contracting, transporting, utilizing, hiring, or procuring workers and includes referring, contract services,
promising or advertising for employment abroad, whether for profit or not, when undertaken by a nonlicensee or non-holder of authority contemplated under Article 13(f) of Presidential Decree No. 442, as
amended, otherwise known as the Labor Code of the Philippines: Provided, That any such non-licensee or
non-holder who, in any manner, offers or promises for a fee employment abroad to two or more persons
shall be deemed so engaged. It shall, likewise, include the following acts, whether committed by any
person, whether a non-licensee, non-holder, licensee or holder of authority:
(a) To charge or accept directly or indirectly any amount greater than that specified in the
schedule of allowable fees prescribed by the Secretary of Labor and Employment, or to make a
worker pay any amount greater than that actually received by him as a loan or advance;

(b) To furnish or publish any false notice or information or document in relation to recruitment or
employment;
(c) To give any false notice, testimony, information or document or commit any act of
misrepresentation for the purpose of securing a license or authority under the Labor Code;
(d) To induce or attempt to induce a worker already employed to quit his employment in order to
offer him another unless the transfer is designed to liberate a worker from oppressive terms
and conditions of employment;
(e) To influence or attempt to influence any person or entity not to employ any worker who has
not applied for employment through his agency;
(f) To engage in the recruitment or placement of workers in jobs harmful to public health or
morality or to the dignity of the Republic of the Philippines;
(g) To obstruct or attempt to obstruct inspection by the Secretary of Labor and Employment or
by his duly authorized representative;
(h) To fail to submit reports on the status of employment, placement vacancies, remittance of
foreign exchange earnings, separation from jobs, departures and such other matters or
information as may be required by the Secretary of Labor and Employment;
(i) To substitute or alter to the prejudice of the worker, employment contracts approved and
verified by the Department of Labor and Employment from the time of actual signing thereof by
the parties up to and including the period of the expiration of the same without the approval of
the Department of Labor and Employment;
(j) For an officer or agent of a recruitment or placement agency to become an officer or member
of the Board of any corporation engaged in travel agency or to be engaged directly or indirectly
in the management of a travel agency;
(k) To withhold or deny travel documents from applicant workers before departure for monetary
or financial considerations other than those authorized under the Labor Code and its
implementing rules and regulations;
(l) Failure to actually deploy without valid reason as determined by the Department of Labor
and Employment; and
(m) Failure to reimburse expenses incurred by the worker in connection with his documentation
and processing for purposes of deployment, in cases where the deployment does not actually
take place without the workers fault. Illegal recruitment when committed by a syndicate or in
large scale shall be considered an offense involving economic sabotage.
Illegal recruitment is deemed committed by a syndicate if carried out by a group of three (3) or more
persons conspiring or confederating with one another. It is deemed committed in large scale if committed
against three (3) or more persons individually or as a group.
The persons criminally liable for the above offenses are the principals, accomplices and accessories. In
case of juridical persons, the officers having control, management or direction of their business shall be
liable.


SEC. 7. Penalties.
(a) Any person found guilty of illegal recruitment shall suffer the penalty of imprisonment of not less than six
(6) years and one (1) day but not more than twelve (12) years and a fine of not less than two hundred
thousand pesos (P200,000.00) nor more than five hundred thousand pesos (P500,000.00).
(b) The penalty of life imprisonment and a fine of not less than five hundred thousand pesos (P500,000.00)
nor more than one million pesos (P1,000,000.00) shall be imposed if illegal recruitment constitutes
economic sabotage as defined herein.
Provided, however, That the maximum penalty shall be imposed if the person illegally recruited is less than
eighteen (18) years of age or committed by a non-licensee or non-holder of authority.
Sec. 8.
Prohibition on Officials and Employees. It shall be unlawful for any official or employee of the Department
of Labor and Employment, the Philippine Overseas Employment Administration (POEA), or the Overseas
Workers Welfare Administration (OWWA), or the Department of Foreign Affairs, or other government
agencies involved in the implementation of this Act, or their relatives within the fourth civil degree of
consanguinity or affinity, to engage, directly or indirectly, in the business of recruiting migrant workers as
defined in this Act. The penalties provided in the immediate preceding paragraph shall be imposed upon
them. (underscoring supplied)

Sec. 10, pars. 1 & 2.


Money Claims. Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National
Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and
decide, within ninety (90) calendar days after the filing of the complaint, the claims arising out of an
employer-employee relationship or by virtue of any law or contract involving Filipino workers for overseas
deployment including claims for actual, moral, exemplary and other forms of damages.
The liability of the principal/employer and the recruitment/placement agency for any and all claims under
this section shall be joint and several. This provision shall be incorporated in the contract for overseas
employment and shall be a condition precedent for its approval. The performance bond to be filed by the
recruitment/placement agency, as provided by law, shall be answerable for all money claims or damages
that may be awarded to the workers. If the recruitment/placement agency is a juridical being, the corporate
officers and directors and partners as the case may be, shall themselves be jointly and solidarily liable with
the corporation or partnership for the aforesaid claims and damages.

SEC. 11. Mandatory Periods for Resolution of Illegal Recruitment Cases. The preliminary investigations of
cases under this Act shall be terminated within a period of thirty (30) calendar days from the date of their
filing. Where the preliminary investigation is conducted by a prosecution officer and a prima facie case is
established, the corresponding information shall be filed in court within twenty-four (24) hours from the
termination of the investigation. If the preliminary investigation is conducted by a judge and a prima facie
case is found to exist, the corresponding information shall be filed by the proper prosecution officer within
forty-eight (48) hours from the date of receipt of the records of the case.

The respondent averred that the aforequoted provisions of Rep. Act No. 8042 violate Section 1, Article III of the
Constitution.5 According to the respondent, Section 6(g) and (i) discriminated against unskilled workers and their families
and, as such, violated the equal protection clause, as well as Article II, Section 126 and Article XV, Sections 17 and 3(3)
of the Constitution.8 As the law encouraged the deployment of skilled Filipino workers, only overseas skilled workers are
granted rights. The respondent stressed that unskilled workers also have the right to seek employment abroad.
According to the respondent, the right of unskilled workers to due process is violated because they are prevented from
finding employment and earning a living abroad. It cannot be argued that skilled workers are immune from abuses by
employers, while unskilled workers are merely prone to such abuses. It was pointed out that both skilled and unskilled
workers are subjected to abuses by foreign employers. Furthermore, the prohibition of the deployment of unskilled
workers abroad would only encourage fly-by-night illegal recruiters.
According to the respondent, the grant of incentives to service contractors and manning agencies to the exclusion of all
other licensed and authorized recruiters is an invalid classification. Licensed and authorized recruiters are thus deprived
of their right to property and due process and to the "equality of the person." It is understandable for the law to prohibit
illegal recruiters, but to discriminate against licensed and registered recruiters is unconstitutional.
The respondent, likewise, alleged that Section 6, subsections (a) to (m) is unconstitutional because licensed and
authorized recruitment agencies are placed on equal footing with illegal recruiters. It contended that while the Labor
Code distinguished between recruiters who are holders of licenses and non-holders thereof in the imposition of
penalties, Rep. Act No. 8042 does not make any distinction. The penalties in Section 7(a) and (b) being based on an
invalid classification are, therefore, repugnant to the equal protection clause, besides being excessive; hence, such
penalties are violative of Section 19(1), Article III of the Constitution.9 It was also pointed out that the penalty for
officers/officials/employees of recruitment agencies who are found guilty of economic sabotage or large-scale illegal
recruitment under Rep. Act No. 8042 is life imprisonment. Since recruitment agencies usually operate with a manpower
of more than three persons, such agencies are forced to shut down, lest their officers and/or employees be charged with
large scale illegal recruitment or economic sabotage and sentenced to life imprisonment. Thus, the penalty imposed by
law, being disproportionate to the prohibited acts, discourages the business of licensed and registered recruitment
agencies.
The respondent also posited that Section 6(m) and paragraphs (15) and (16), Sections 8, 9 and 10, paragraph 2 of the
law violate Section 22, Article III of the Constitution10 prohibiting ex-post facto laws and bills of attainder. This is because
the provisions presume that a licensed and registered recruitment agency is guilty of illegal recruitment involving
economic sabotage, upon a finding that it committed any of the prohibited acts under the law. Furthermore, officials,
employees and their relatives are presumed guilty of illegal recruitment involving economic sabotage upon such finding
that they committed any of the said prohibited acts.
The respondent further argued that the 90-day period in Section 10, paragraph (1) within which a labor arbiter should
decide a money claim is relatively short, and could deprive licensed and registered recruiters of their right to due
process. The period within which the summons and the complaint would be served on foreign employees and,
thereafter, the filing of the answer to the complaint would take more than 90 days. This would thereby shift on local
licensed and authorized recruiters the burden of proving the defense of foreign employers. Furthermore, the respondent
asserted, Section 10, paragraph 2 of the law, which provides for the joint and several liability of the officers and
employees, is a bill of attainder and a violation of the right of the said corporate officers and employees to due process.
Considering that such corporate officers and employees act with prior approval of the board of directors of such
corporation, they should not be liable, jointly and severally, for such corporate acts.
The respondent asserted that the following provisions of the law are unconstitutional:
SEC. 9. Venue. A criminal action arising from illegal recruitment as defined herein shall be filed with the
Regional Trial Court of the province or city where the offense was committed or where the offended party
actually resides at the time of the commission of the offense: Provided, That the court where the criminal
action is first filed shall acquire jurisdiction to the exclusion of other courts: Provided, however, That the
aforestated provisions shall also apply to those criminal actions that have already been filed in court at the
time of the effectivity of this Act.

Sec. 40.

The petitioners asserted that the respondent is not the real party-in-interest as petitioner in the trial court. It is
inconceivable how the respondent, a non-stock and non-profit corporation, could sustain direct injury as a result of the
enforcement of the law. They argued that if, at all, any damage would result in the implementation of the law, it is the
licensed and registered recruitment agencies and/or the unskilled Filipino migrant workers discriminated against who
would sustain the said injury or damage, not the respondent. The respondent, as petitioner in the trial court, was
burdened to adduce preponderant evidence of such irreparable injury, but failed to do so. The petitioners further insisted
that the petition a quo was premature since the rules and regulations implementing the law had yet to be promulgated
when such petition was filed. Finally, the petitioners averred that the respondent failed to establish the requisites for the
issuance of a writ of preliminary injunction against the enforcement of the law and the rules and regulations issued
implementing the same.

The departments and agencies charged with carrying out the provisions of this Act shall, within ninety (90)
days after the effectiviy of this Act, formulate the necessary rules and regulations for its effective
implementation.

On December 5, 1997, the appellate court came out with a four-page decision dismissing the petition and affirming the
assailed order and writ of preliminary injunction issued by the trial court. The appellate court, likewise, denied the
petitioners motion for reconsideration of the said decision.

SEC. 10. Money Claims. Notwithstanding any provision of law to the contrary, the Labor Arbiters of the
National Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and
decide, within ninety (90) calendar days after the filing of the complaint, the claims arising out of an
employer-employee relationship or by virtue of any law or contract involving Filipino workers for overseas
deployment including claims for actual, moral, exemplary and other forms of damages.

According to the respondent, the said provisions violate Section 5(5), Article VIII of the Constitution 11 because they
impair the power of the Supreme Court to promulgate rules of procedure.
In their answer to the petition, the petitioners alleged, inter alia, that (a) the respondent has no cause of action for a
declaratory relief; (b) the petition was premature as the rules implementing Rep. Act No. 8042 not having been released
as yet; (c) the assailed provisions do not violate any provisions of the Constitution; and, (d) the law was approved by
Congress in the exercise of the police power of the State. In opposition to the respondents plea for injunctive relief, the
petitioners averred that:
As earlier shown, the amended petition for declaratory relief is devoid of merit for failure of petitioner to demonstrate
convincingly that the assailed law is unconstitutional, apart from the defect and impropriety of the petition. One who
attacks a statute, alleging unconstitutionality must prove its invalidity beyond reasonable doubt (Caleon v. Agus
Development Corporation, 207 SCRA 748). All reasonable doubts should be resolved in favor of the constitutionality of a
statute (People v. Vera, 65 Phil. 56). This presumption of constitutionality is based on the doctrine of separation of
powers which enjoin upon each department a becoming respect for the acts of the other departments (Garcia vs.
Executive Secretary, 204 SCRA 516 [1991]). Necessarily, the ancillary remedy of a temporary restraining order and/or a
writ of preliminary injunction prayed for must fall. Besides, an act of legislature approved by the executive is presumed
to be within constitutional bounds (National Press Club v. Commission on Elections, 207 SCRA 1).12
After the respective counsels of the parties were heard on oral arguments, the trial court issued on August 21, 1995, an
order granting the petitioners plea for a writ of preliminary injunction upon a bond of P50,000. The petitioner posted the
requisite bond and on August 24, 1995, the trial court issued a writ of preliminary injunction enjoining the enforcement of
the following provisions of Rep. Act No. 8042 pending the termination of the proceedings:
Section 2, subsections (g) and (i, 2nd par.); Section 6, subsections (a) to (m), and pars. 15 & 16; Section
7, subsections (a) & (b); Section 8; Section 9; Section 10; pars. 1 & 2; Section 11; and Section 40 of
Republic Act No. 8042, otherwise known as the Migrant Workers and Overseas Filipinos Act of 1995. 13
The petitioners filed a petition for certiorari with the Court of Appeals assailing the order and the writ of preliminary
injunction issued by the trial court on the following grounds:
1. Respondent ARCO-PHIL. had utterly failed to show its clear right/s or that of its member-agencies to be
protected by the injunctive relief and/or violation of said rights by the enforcement of the assailed sections of
R.A. 8042;
2. Respondent Judge fixed a P50,000 injunction bond which is grossly inadequate to answer for the
damage which petitioner-officials may sustain, should respondent ARCO-PHIL. be finally adjudged as not
being entitled thereto.14

The petitioners now come to this Court in a petition for review on certiorari on the following grounds:
1. Private respondent ARCO-PHIL. had utterly failed to show its clear right/s or that of its member-agencies
to be protected by the injunctive relief and/or violation of said rights by the enforcement of the assailed
sections of R.A. 8042;
2. The P50,000 injunction bond fixed by the court a quo and sustained by the Court of Appeals is grossly
inadequate to answer for the damage which petitioners-officials may sustain, should private respondent
ARCO-PHIL. be finally adjudged as not being entitled thereto.15
On February 16, 1998, this Court issued a temporary restraining order enjoining the respondents from enforcing the
assailed order and writ of preliminary injunction.
The Issues
The core issue in this case is whether or not the trial court committed grave abuse of its discretion amounting to excess
or lack of jurisdiction in issuing the assailed order and the writ of preliminary injunction on a bond of onlyP50,000 and
whether or not the appellate court erred in affirming the trial courts order and the writ of preliminary injunction issued by
it.
The petitioners contend that the respondent has no locus standi. It is a non-stock, non-profit organization; hence, not the
real party-in-interest as petitioner in the action. Although the respondent filed the petition in the Regional Trial Court in
behalf of licensed and registered recruitment agencies, it failed to adduce in evidence a certified copy of its Articles of
Incorporation and the resolutions of the said members authorizing it to represent the said agencies in the proceedings.
Neither is the suit of the respondent a class suit so as to vest in it a personality to assail Rep. Act No. 8042; the
respondent is service-oriented while the recruitment agencies it purports to represent are profit-oriented. The petitioners
assert that the law is presumed constitutional and, as such, the respondent was burdened to make a case strong
enough to overcome such presumption and establish a clear right to injunctive relief.
The petitioners bewail the P50,000 bond fixed by the trial court for the issuance of a writ of preliminary injunction and
affirmed by the appellate court. They assert that the amount is grossly inadequate to answer for any damages that the
general public may suffer by reason of the non-enforcement of the assailed provisions of the law. The trial court
committed a grave abuse of its discretion in granting the respondents plea for injunctive relief, and the appellate court
erred in affirming the order and the writ of preliminary injunction issued by the trial court.
The respondent, for its part, asserts that it has duly established its locus standi and its right to injunctive relief as
gleaned from its pleadings and the appendages thereto. Under Section 5, Rule 58 of the Rules of Court, it was
incumbent on the petitioners, as respondents in the RTC, to show cause why no injunction should issue. It avers that the

injunction bond posted by the respondent was more than adequate to answer for any injury or damage the petitioners
may suffer, if any, by reason of the writ of preliminary injunction issued by the RTC. In any event, the assailed provisions
of Rep. Act No. 8042 exposed its members to the immediate and irreparable damage of being deprived of their right to a
livelihood without due process, a property right protected under the Constitution.
The respondent contends that the commendable purpose of the law to eradicate illegal recruiters should not be done at
the expense and to the prejudice of licensed and authorized recruitment agencies. The writ of preliminary injunction was
necessitated by the great number of duly licensed recruitment agencies that had stopped or suspended their business
operations for fear that their officers and employees would be indicted and prosecuted under the assailed oppressive
penal provisions of the law, and meted excessive penalties. The respondent, likewise, urges that the Court should take
judicial notice that the processing of deployment papers of overseas workers have come to a virtual standstill at the
POEA.
The Courts Ruling
The petition is meritorious.

The Assailed Order and Writ of


Preliminary Injunction Is Mooted
By Case Law
The respondent justified its plea for injunctive relief on the allegation in its amended petition that its members are
exposed to the immediate and irreparable danger of being deprived of their right to a livelihood and other constitutional
rights without due process, on its claim that a great number of duly licensed recruitment agencies have stopped or
suspended their operations for fear that (a) their officers and employees would be prosecuted under the unjust and
unconstitutional penal provisions of Rep. Act No. 8042 and meted equally unjust and excessive penalties, including life
imprisonment, for illegal recruitment and large scale illegal recruitment without regard to whether the recruitment
agencies involved are licensed and/or authorized; and, (b) if the members of the respondent, which are licensed and
authorized, decide to continue with their businesses, they face the stigma and the curse of being labeled "illegal
recruiters." In granting the respondents plea for a writ of preliminary injunction, the trial court held, without stating the
factual and legal basis therefor, that the enforcement of Rep. Act No. 8042, pendente lite, would cause grave and
irreparable injury to the respondent until the case is decided on its merits.

The Respondent Has Locus Standi


To File the Petition in the RTC in Representation of the Eleven Licensed and Registered Recruitment Agencies
Impleaded in the Amended Petition
The modern view is that an association has standing to complain of injuries to its members. This view fuses the legal
identity of an association with that of its members.16 An association has standing to file suit for its workers despite its
lack of direct interest if its members are affected by the action. An organization has standing to assert the concerns of its
constituents.17
In Telecommunications and Broadcast Attorneys of the Philippines v. Commission on Elections,18 we held that standing
jus tertii would be recognized only if it can be shown that the party suing has some substantial relation to the third party,
or that the right of the third party would be diluted unless the party in court is allowed to espouse the third partys
constitutional claims.
In this case, the respondent filed the petition for declaratory relief under Rule 64 of the Rules of Court for and in behalf
of its eleven (11) licensed and registered recruitment agencies which are its members, and which approved separate
resolutions expressly authorizing the respondent to file the said suit for and in their behalf. We note that, under its
Articles of Incorporation, the respondent was organized for the purposes inter alia of promoting and supporting the
growth and development of the manpower recruitment industry, both in the local and international levels; providing,
creating and exploring employment opportunities for the exclusive benefit of its general membership; enhancing and
promoting the general welfare and protection of Filipino workers; and, to act as the representative of any individual,
company, entity or association on matters related to the manpower recruitment industry, and to perform other acts and
activities necessary to accomplish the purposes embodied therein. The respondent is, thus, the appropriate party to
assert the rights of its members, because it and its members are in every practical sense identical. The respondent
asserts that the assailed provisions violate the constitutional rights of its members and the officers and employees
thereof. The respondent is but the medium through which its individual members seek to make more effective the
expression of their voices and the redress of their grievances.19
However, the respondent has no locus standi to file the petition for and in behalf of unskilled workers. We note that it
even failed to implead any unskilled workers in its petition. Furthermore, in failing to implead, as parties-petitioners, the
eleven licensed and registered recruitment agencies it claimed to represent, the respondent failed to comply with
Section 2 of Rule 6320 of the Rules of Court. Nevertheless, since the eleven licensed and registered recruitment
agencies for which the respondent filed the suit are specifically named in the petition, the amended petition is deemed
amended to avoid multiplicity of suits.21

We note, however, that since Rep. Act No. 8042 took effect on July 15, 1995, the Court had, in a catena of cases,
applied the penal provisions in Section 6, including paragraph (m) thereof, and the last two paragraphs therein defining
large scale illegal recruitment committed by officers and/or employees of recruitment agencies by themselves and in
connivance with private individuals, and imposed the penalties provided in Section 7 thereof, including the penalty of life
imprisonment.22 The Informations therein were filed after preliminary investigations as provided for in Section 11 of Rep.
Act No. 8042 and in venues as provided for in Section 9 of the said act. In People v. Chowdury,23 we held that illegal
recruitment is a crime of economic sabotage and must be enforced.
In People v. Diaz,24 we held that Rep. Act No. 8042 is but an amendment of the Labor Code of the Philippines and is not
an ex-post facto law because it is not applied retroactively. In JMM Promotion and Management, Inc. v. Court of
Appeals,25 the issue of the extent of the police power of the State to regulate a business, profession or calling vis--vis
the equal protection clause and the non-impairment clause of the Constitution were raised and we held, thus:
A profession, trade or calling is a property right within the meaning of our constitutional guarantees. One
cannot be deprived of the right to work and the right to make a living because these rights are property
rights, the arbitrary and unwarranted deprivation of which normally constitutes an actionable wrong.
Nevertheless, no right is absolute, and the proper regulation of a profession, calling, business or trade has
always been upheld as a legitimate subject of a valid exercise of the police power by the state particularly
when their conduct affects either the execution of legitimate governmental functions, the preservation of the
State, the public health and welfare and public morals. According to the maxim, sic utere tuo ut alienum non
laedas, it must of course be within the legitimate range of legislative action to define the mode and manner
in which every one may so use his own property so as not to pose injury to himself or others.
In any case, where the liberty curtailed affects at most the rights of property, the permissible scope of
regulatory measures is certainly much wider. To pretend that licensing or accreditation requirements
violates the due process clause is to ignore the settled practice, under the mantle of the police power, of
regulating entry to the practice of various trades or professions. Professionals leaving for abroad are
required to pass rigid written and practical exams before they are deemed fit to practice their trade. Seamen
are required to take tests determining their seamanship. Locally, the Professional Regulation Commission
has begun to require previously licensed doctors and other professionals to furnish documentary proof that
they had either re-trained or had undertaken continuing education courses as a requirement for renewal of
their licenses. It is not claimed that these requirements pose an unwarranted deprivation of a property right
under the due process clause. So long as professionals and other workers meet reasonable regulatory
standards no such deprivation exists.

Finally, it is a futile gesture on the part of petitioners to invoke the non-impairment clause of the Constitution
to support their argument that the government cannot enact the assailed regulatory measures because they
abridge the freedom to contract. In Philippine Association of Service Exporters, Inc. vs. Drilon, we held that
"[t]he non-impairment clause of the Constitution must yield to the loftier purposes targeted by the
government." Equally important, into every contract is read provisions of existing law, and always, a
reservation of the police power for so long as the agreement deals with a subject impressed with the public
welfare.
A last point. Petitioners suggest that the singling out of entertainers and performing artists under the
assailed department orders constitutes class legislation which violates the equal protection clause of the
Constitution. We do not agree.
The equal protection clause is directed principally against undue favor and individual or class privilege. It is
not intended to prohibit legislation which is limited to the object to which it is directed or by the territory in
which it is to operate. It does not require absolute equality, but merely that all persons be treated alike under
like conditions both as to privileges conferred and liabilities imposed. We have held, time and again, that the
equal protection clause of the Constitution does not forbid classification for so long as such classification is
based on real and substantial differences having a reasonable relation to the subject of the particular
legislation. If classification is germane to the purpose of the law, concerns all members of the class, and
applies equally to present and future conditions, the classification does not violate the equal protection
guarantee.26
The validity of Section 6 of R.A. No. 8042 which provides that employees of recruitment agencies may be criminally
liable for illegal recruitment has been upheld in People v. Chowdury:27
As stated in the first sentence of Section 6 of RA 8042, the persons who may be held liable for illegal
recruitment are the principals, accomplices and accessories. An employee of a company or corporation
engaged in illegal recruitment may be held liable as principal, together with his employer, if it is shown that
he actively and consciously participated in illegal recruitment. It has been held that the existence of the
corporate entity does not shield from prosecution the corporate agent who knowingly and intentionally
causes the corporation to commit a crime. The corporation obviously acts, and can act, only by and through
its human agents, and it is their conduct which the law must deter. The employee or agent of a corporation
engaged in unlawful business naturally aids and abets in the carrying on of such business and will be
prosecuted as principal if, with knowledge of the business, its purpose and effect, he consciously
contributes his efforts to its conduct and promotion, however slight his contribution may be. 28
By its rulings, the Court thereby affirmed the validity of the assailed penal and procedural provisions of Rep. Act No.
8042, including the imposable penalties therefor. Until the Court, by final judgment, declares that the said provisions are
unconstitutional, the enforcement of the said provisions cannot be enjoined.
The RTC Committed Grave Abuse of Its Discretion Amounting to Excess or Lack of Jurisdiction in Issuing the Assailed
Order and the Writ of Preliminary Injunction
The matter of whether to issue a writ of preliminary injunction or not is addressed to the sound discretion of the trial
court. However, if the court commits grave abuse of its discretion in issuing the said writ amounting to excess or lack of
jurisdiction, the same may be nullified via a writ of certiorari and prohibition.
In Social Security Commission v. Judge Bayona,29 we ruled that a law is presumed constitutional until otherwise
declared by judicial interpretation. The suspension of the operation of the law is a matter of extreme delicacy because it
is an interference with the official acts not only of the duly elected representatives of the people but also of the highest
magistrate of the land.
In Younger v. Harris, Jr.,30 the Supreme Court of the United States emphasized, thus:

Federal injunctions against state criminal statutes, either in their entirety or with respect to their separate
and distinct prohibitions, are not to be granted as a matter of course, even if such statutes are
unconstitutional. No citizen or member of the community is immune from prosecution, in good faith, for his
alleged criminal acts. The imminence of such a prosecution even though alleged to be unauthorized and,
hence, unlawful is not alone ground for relief in equity which exerts its extraordinary powers only to prevent
irreparable injury to the plaintiff who seeks its aid. 752 Beal v. Missouri Pacific Railroad Corp., 312 U.S. 45,
49, 61 S.Ct. 418, 420, 85 L.Ed. 577.
And similarly, in Douglas, supra, we made clear, after reaffirming this rule, that:
"It does not appear from the record that petitioners have been threatened with any injury other than that
incidental to every criminal proceeding brought lawfully and in good faith " 319 U.S., at 164, 63 S.Ct., at
881.31
The possible unconstitutionality of a statute, on its face, does not of itself justify an injunction against good faith attempts
to enforce it, unless there is a showing of bad faith, harassment, or any other unusual circumstance that would call for
equitable relief.32 The "on its face" invalidation of statutes has been described as "manifestly strong medicine," to be
employed "sparingly and only as a last resort," and is generally disfavored.33
To be entitled to a preliminary injunction to enjoin the enforcement of a law assailed to be unconstitutional, the party
must establish that it will suffer irreparable harm in the absence of injunctive relief and must demonstrate that it is likely
to succeed on the merits, or that there are sufficiently serious questions going to the merits and the balance of hardships
tips decidedly in its favor.34 The higher standard reflects judicial deference toward "legislation or regulations developed
through presumptively reasoned democratic processes." Moreover, an injunction will alter, rather than maintain, the
status quo, or will provide the movant with substantially all the relief sought and that relief cannot be undone even if the
defendant prevails at a trial on the merits.35 Considering that injunction is an exercise of equitable relief and authority, in
assessing whether to issue a preliminary injunction, the courts must sensitively assess all the equities of the situation,
including the public interest.36 In litigations between governmental and private parties, courts go much further both to
give and withhold relief in furtherance of public interest than they are accustomed to go when only private interests are
involved.37 Before the plaintiff may be entitled to injunction against future enforcement, he is burdened to show some
substantial hardship.38
The fear or chilling-effect of the assailed penal provisions of the law on the members of the respondent does not by itself
justify prohibiting the State from enforcing them against those whom the State believes in good faith to be punishable
under the laws:
Just as the incidental "chilling effect" of such statutes does not automatically render them
unconstitutional, so the chilling effect that admittedly can result from the very existence of certain laws on
the statute books does not in itself justify prohibiting the State from carrying out the important and
necessary task of enforcing these laws against socially harmful conduct that the State believes in good faith
to be punishable under its laws and the Constitution.39
It must be borne in mind that subject to constitutional limitations, Congress is empowered to define what acts or
omissions shall constitute a crime and to prescribe punishments therefor.40 The power is inherent in Congress and is
part of the sovereign power of the State to maintain peace and order. Whatever views may be entertained regarding the
severity of punishment, whether one believes in its efficiency or its futility, these are peculiarly questions of legislative
policy.41 The comparative gravity of crimes and whether their consequences are more or less injurious are matters for
the State and Congress itself to determine.42 Specification of penalties involves questions of legislative policy.43
Due process prohibits criminal stability from shifting the burden of proof to the accused, punishing wholly passive
conduct, defining crimes in vague or overbroad language and failing to grant fair warning of illegal conduct.44 Class
legislation is such legislation which denies rights to one which are accorded to others, or inflicts upon one individual a
more severe penalty than is imposed upon another in like case offending.45 Bills of attainder are legislative acts which
inflict punishment on individuals or members of a particular group without a judicial trial. Essential to a bill of attainder

are a specification of certain individuals or a group of individuals, the imposition of a punishment, penal or otherwise,
and the lack of judicial trial.46
Penalizing unlicensed and licensed recruitment agencies and their officers and employees and their relatives employed
in government agencies charged with the enforcement of the law for illegal recruitment and imposing life imprisonment
for those who commit large scale illegal recruitment is not offensive to the Constitution. The accused may be convicted
of illegal recruitment and large scale illegal recruitment only if, after trial, the prosecution is able to prove all the elements
of the crime charged.47
The possibility that the officers and employees of the recruitment agencies, which are members of the respondent, and
their relatives who are employed in the government agencies charged in the enforcement of the law, would be indicted
for illegal recruitment and, if convicted sentenced to life imprisonment for large scale illegal recruitment, absent proof of
irreparable injury, is not sufficient on which to base the issuance of a writ of preliminary injunction to suspend the
enforcement of the penal provisions of Rep. Act No. 8042 and avert any indictments under the law.48 The normal course
of criminal prosecutions cannot be blocked on the basis of allegations which amount to speculations about the future. 49
There is no allegation in the amended petition or evidence adduced by the respondent that the officers and/or
employees of its members had been threatened with any indictments for violations of the penal provisions of Rep. Act
No. 8042. Neither is there any allegation therein that any of its members and/or their officers and employees committed
any of the acts enumerated in Section 6(a) to (m) of the law for which they could be indicted. Neither did the respondent
adduce any evidence in the RTC that any or all of its members or a great number of other duly licensed and registered
recruitment agencies had to stop their business operations because of fear of indictments under Sections 6 and 7 of
Rep. Act No. 8042. The respondent merely speculated and surmised that licensed and registered recruitment agencies
would close shop and stop business operations because of the assailed penal provisions of the law. A writ of preliminary
injunction to enjoin the enforcement of penal laws cannot be based on such conjectures or speculations. The Court
cannot take judicial notice that the processing of deployment papers of overseas workers have come to a virtual
standstill at the POEA because of the assailed provisions of Rep. Act No. 8042. The respondent must adduce evidence
to prove its allegation, and the petitioners accorded a chance to adduce controverting evidence.
The respondent even failed to adduce any evidence to prove irreparable injury because of the enforcement of Section
10(1)(2) of Rep. Act No. 8042. Its fear or apprehension that, because of time constraints, its members would have to
defend foreign employees in cases before the Labor Arbiter is based on speculations. Even if true, such inconvenience
or difficulty is hardly irreparable injury.
The trial court even ignored the public interest involved in suspending the enforcement of Rep. Act No. 8042 vis--vis
the eleven licensed and registered recruitment agencies represented by the respondent. In People v. Gamboa,50 we
emphasized the primary aim of Rep. Act No. 8042:
Preliminarily, the proliferation of illegal job recruiters and syndicates preying on innocent people anxious to
obtain employment abroad is one of the primary considerations that led to the enactment of The Migrant
Workers and Overseas Filipinos Act of 1995. Aimed at affording greater protection to overseas Filipino
workers, it is a significant improvement on existing laws in the recruitment and placement of workers for
overseas employment. Otherwise known as the Magna Carta of OFWs, it broadened the concept of illegal
recruitment under the Labor Code and provided stiffer penalties thereto, especially those that constitute
economic sabotage, i.e., Illegal Recruitment in Large Scale and Illegal Recruitment Committed by a
Syndicate.51
By issuing the writ of preliminary injunction against the petitioners sans any evidence, the trial court frustrated, albeit
temporarily, the prosecution of illegal recruiters and allowed them to continue victimizing hapless and innocent people
desiring to obtain employment abroad as overseas workers, and blocked the attainment of the salutary
policies52embedded in Rep. Act No. 8042. It bears stressing that overseas workers, land-based and sea-based, had
been remitting to the Philippines billions of dollars which over the years had propped the economy.

In issuing the writ of preliminary injunction, the trial court considered paramount the interests of the eleven licensed and
registered recruitment agencies represented by the respondent, and capriciously overturned the presumption of the
constitutionality of the assailed provisions on the barefaced claim of the respondent that the assailed provisions of Rep.
Act No. 8042 are unconstitutional. The trial court committed a grave abuse of its discretion amounting to excess or lack
of jurisdiction in issuing the assailed order and writ of preliminary injunction. It is for this reason that the Court issued a
temporary restraining order enjoining the enforcement of the writ of preliminary injunction issued by the trial court.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed decision of the appellate court
isREVERSED AND SET ASIDE. The Order of the Regional Trial Court dated August 21, 1995 in Civil Case No. Q-9524401 and the Writ of Preliminary Injunction issued by it in the said case on August 24, 1995 are NULLIFIED. No costs.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-35262

March 15, 1930

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellant,


vs.
TAN BOON KONG, defendant-appellee.
Attorney-General Jaranilla for appellant.
Alejandro de Aboitiz Pinaga for appellee.
OSTRAND, J.:
This is an appeal from an order of the Judge of the Twenty-third Judicial District sustaining to demurrer to an information
charging the defendant Tan Boon Kong with the violation of section 1458 of Act No. 2711 as amended. The information
reads as follows:
That on and during the four quarters of the year 1924, in the municipality of Iloilo, Province of Iloilo,
Philippine Islands, the said accused, as corporation organized under the laws of the Philippine Islands and
engaged in the purchase and the sale of sugar, "bayon," coprax, and other native products and as such
object to the payment of internal-revenue taxes upon its sales, did then and there voluntarily, illegally, and
criminally declare in 1924 for the purpose of taxation only the sum of P2,352,761.94, when in truth and in
fact, and the accused well knew that the total gross sales of said corporation during that year amounted to
P2543,303.44, thereby failing to declare for the purpose of taxation the amount of P190,541.50, and
voluntarily and illegally not paying the Government as internal-revenue percentage taxes the sum of
P2,960.12, corresponding to 1 per cent of said undeclared sales.
The question to be decided is whether the information sets forth facts rendering the defendant, as manager of the
corporation liable criminally under section 2723 of Act No. 2711 for violation of section 1458 of the same act for the
benefit of said corporation. Section 1458 and 2723 read as follows:
SEC. 1458. Payment of percentage taxes Quarterly reports of earnings. The percentage taxes on
business shall be payable at the end of each calendar quarter in the amount lawfully due on the business
transacted during each quarter; and it shall be on the duty of every person conducting a business subject to
such tax, within the same period as is allowed for the payment of the quarterly installments of the fixed
taxes without penalty, to make a true and complete return of the amount of the receipts or earnings of his
business during the preceeding quarter and pay the tax due thereon. . . . (Act No. 2711.)
SEC. 2723. Failure to make true return of receipts and sales. Any person who, being required by law to
make a return of the amount of his receipts, sales, or business, shall fail or neglect to make such return
within the time required, shall be punished by a fine not exceeding two thousand pesos or by imprisonment
for a term not exceeding one year, or both.
And any such person who shall make a false or fraudulent return shall be punished by a fine not exceeding
ten thousand pesos or by imprisonment for a term not exceeding two years, or both. (Act No. 2711.)
Apparently, the court below based the appealed ruling on the ground that the offense charged must be regarded as
committed by the corporation and not by its officials or agents. This view is in direct conflict with the great weight of

authority. a corporation can act only through its officers and agent s, and where the business itself involves a violation of
the law, the correct rule is that all who participate in it are liable (Grall and Ostrand's Case, 103 Va., 855, and authorities
there cited.)
In case of State vs. Burnam (17 Wash., 199), the court went so far as to hold that the manager of a diary corporation
was criminally liable for the violation of a statute by the corporation through he was not present when the offense was
committed.
In the present case the information or complaint alleges that he defendant was the manager of a corporation which was
engaged in business as a merchant, and as such manager, he made a false return, for purposes of taxation, of the total
amount of sale made by said false return constitutes a violation of law, the defendant, as the author of the illegal act,
must necessarily answer for its consequences, provided that the allegation are proven.
The ruling of the court below sustaining the demurrer to the complaint is therefore reversed, and the case will be
returned to said court for further proceedings not inconsistent with our view as hereinafter stated. Without costs. So
ordered.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-30896 April 28, 1983
JOSE O. SIA, petitioner,
vs.
THE PEOPLE OF THE PHILIPPINES, respondent.

DE CASTRO, J.:
Petition for review of the decision of the Court of Appeals affirming the decision of the Court of First Instance of Manila
convicting the appellant of estafa, under an information which reads:
That in, about or during the period comprised' between July 24, 1963 and December 31, 1963,
both dates inclusive, in the City of Manila, Philippines, the said accused did then and there
willfully, unlawfully and feloniously defraud the Continental Bank, a banking institution duly
organized and doing business in the City of Manila, in the following manner, to wit: the said
accused, in his capacity as president and general manager of the Metal Manufacturing of the
Philippines, Inc. (MEMAP) and on behalf of said company, obtained delivery of 150 M/T Cold
Rolled Steel Sheets valued at P 71,023.60 under a trust receipt agreement under L/C No.
63/109, which cold rolled steel sheets were consigned to the Continental Bank, under the
express obligation on the part of said accused of holding the said steel sheets in trust and
selling them and turning over the proceeds of the sale to the Continental Bank; but the said
accused, once in possession of the said goods, far from complying with his aforesaid obligation
and despite demands made upon him to do so, with intent to defraud, failed and refused to
return the said cold rolled sheets or account for the proceeds thereof, if sold, which the said
accused willfully, unlawfully and feloniously misappropriated, misapplied and converted to his
own personal use and benefit, to the damage and prejudice of the said Continental Bank in the
total amount of P146,818.68, that is the balance including the interest after deducting the sum
of P28,736.47 deposited by the said accused with the bank as marginal deposit and forfeited
by the said from the value of the said goods, in the said sum of P71,023.60. (Original Records,
p. 1).
In reviewing the evidence, the Court of Appeals came up with the following findings of facts which the Solicitor General
alleges should be conclusive upon this Court:
There is no debate on certain antecedents: Accused Jose 0. Sia sometime prior to 24 May,
1963, was General Manager of the Metal Manufacturing Company of the Philippines, Inc.
engaged in the manufacture of steel office equipment; on 31 May, 1963, because his company
was in need of raw materials to be imported from abroad, he applied for a letter of credit to
import steel sheets from Mitsui Bussan Kaisha, Ltd. of Tokyo, Japan, the application being
directed to the Continental Bank, herein complainant, Exhibit B and his application having been
approved, the letter of credit was opened on 5 June, 1963 in the amount of $18,300, Exhibit D;
and the goods arrived sometime in July, 1963 according to accused himself, tsn. II:7; now from
here on there is some debate on the evidence; according to Complainant Bank, there was
permitted delivery of the steel sheets only upon execution of a trust receipt, Exhibit A; while
according to the accused, the goods were delivered to him sometime before he executed that
trust receipt in fact they had already been converted into steel office equipment by the time he

signed said trust receipt, tsn. II:8; but there is no question - and this is not debated - that the bill
of exchange issued for the purpose of collecting the unpaid account thereon having fallen due
(see Exh. B) neither accused nor his company having made payment thereon notwithstanding
demands, Exh. C and C-1, dated 17 and 27 December, 1963, and the accounts having reached
the sum in pesos of P46,818.68 after deducting his deposit valued at P28,736.47; that was the
reason why upon complaint by Continental Bank, the Fiscal filed the information after
preliminary investigation as has been said on 22 October, 1964. (Rollo [CA], pp. 103- 104).
The first issue raised, which in effect combines the first three errors assigned, is whether petitioner Jose O. Sia, having
only acted for and in behalf of the Metal Manufacturing Company of the Philippines (Metal Company, for short) as
President thereof in dealing with the complainant, the Continental Bank, (Bank for short) he may be liable for the crime
charged.
In discussing this question, petitioner proceeds, in the meantime, on the assumption that the acts imputed to him would
constitute the crime of estafa, which he also disputes, but seeks to avoid liability on his theory that the Bank knew all
along that petitioner was dealing with him only as an officer of the Metal Company which was the true and actual
applicant for the letter of credit (Exhibit B) and which, accordingly, assumed sole obligation under the trust receipt
(Exhibit A). In disputing the theory of petitioner, the Solicitor General relies on the general principle that when a
corporation commits an act which would constitute a punishable offense under the law, it is the responsible officers
thereof, acting for the corporation, who would be punished for the crime, The Court of Appeals has subscribed to this
view when it quoted approvingly from the decision of the trial court the following:
A corporation is an artificial person, an abstract being. If the defense theory is followed
unscrupulously legions would form corporations to commit swindle right and left where nobody
could be convicted, for it would be futile and ridiculous to convict an abstract being that can not
be pinched and confined in jail like a natural, living person, hence the result of the defense
theory would be hopeless chose in business and finance. It is completely untenable. (Rollo
[CA], p. 108.)
The above-quoted observation of the trial court would seem to be merely restating a general principle that for crimes
committed by a corporation, the responsible officers thereof would personally bear the criminal liability. (People vs. Tan
Boon Kong, 54 Phil. 607. See also Tolentino, Commercial Laws of the Philippines, p. 625, citing cases.)
The case cited by the Court of Appeals in support of its stand-Tan Boon Kong case, supra-may however not be squarely
applicable to the instant case in that the corporation was directly required by law to do an act in a given manner, and the
same law makes the person who fails to perform the act in the prescribed manner expressly liable criminally. The
performance of the act is an obligation directly imposed by the law on the corporation. Since it is a responsible officer or
officers of the corporation who actually perform the act for the corporation, they must of necessity be the ones to
assume the criminal liability; otherwise this liability as created by the law would be illusory, and the deterrent effect of the
law, negated.
In the present case, a distinction is to be found with the Tan Boon Kong case in that the act alleged to be a crime is not
in the performance of an act directly ordained by law to be performed by the corporation. The act is imposed by
agreement of parties, as a practice observed in the usual pursuit of a business or a commercial transaction. The offense
may arise, if at all, from the peculiar terms and condition agreed upon by the parties to the transaction, not by direct
provision of the law. The intention of the parties, therefore, is a factor determinant of whether a crime was committed or
whether a civil obligation alone intended by the parties. With this explanation, the distinction adverted to between the
Tan Boon Kong case and the case at bar should come out clear and meaningful. In the absence of an express provision
of law making the petitioner liable for the criminal offense committed by the corporation of which he is a president as in
fact there is no such provisions in the Revised Penal Code under which petitioner is being prosecuted, the existence of
a criminal liability on his part may not be said to be beyond any doubt. In all criminal prosecutions, the existence of
criminal liability for which the accused is made answerable must be clear and certain. The maxim that all doubts must be
resolved in favor of the accused is always of compelling force in the prosecution of offenses. This Court has thus far not
ruled on the criminal liability of an officer of a corporation signing in behalf of said corporation a trust receipt of the same

nature as that involved herein. In the case of Samo vs. People, L-17603-04, May 31, 1962, the accused was not clearly
shown to be acting other than in his own behalf, not in behalf of a corporation.
The next question is whether the violation of a trust receipt constitutes estafa under Art. 315 (1-[2]) of the Revised Penal
Code, as also raised by the petitioner. We now entertain grave doubts, in the light of the promulgation of P.D. 115
providing for the regulation of trust receipts transaction, which is a very comprehensive piece of legislation, and includes
an express provision that if the violation or offense is committed by a corporation, partnership, association or other
juridical entities the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other
officials or persons therein responsible for the offense, without prejudice to civil liabilities arising from the criminal
offense. The question that suggests itself is, therefore, whether the provisions of the Revised Penal Code, Article 315,
par. 1 (b) are not adequate to justify the punishment of the act made punishable by P.D. 115, that the necessity was felt
for the promulgation of the decree. To answer this question, it is imperative to make an indepth analysis of the conditions
usually embodied in a trust receipt to best their legal sufficiency to constitute the basis for holding the violation of said
conditions as estafa under Article 315 of the Revised Penal Code which P.D. 115 now seeks to punish expressly.
As executed, the trust receipt in question reads:
I/WE HEREBY AGREE TO HOLD SAID GOODS IN TRUST FOR THE SAID BANK as its
property with liberty to sell the same for its account but without authority to make any other
disposition whatsoever of the said goods or any part thereof (or the proceeds thereof) either
way of conditional sale, pledge or otherwise;
In case of sale I/we further agree to hand the proceeds as soon as received to the BANK to
apply against the relative acceptance (as described above) and for the payment of any other
indebtedness of mine/ours to CONTINENTAL BANK. (Original Records, p. 108)
One view is to consider the transaction as merely that of a security of a loan, and that the trust element is but and
inherent feature of the security aspect of the arrangement where the goods are placed in the possession of the
"entrustee," to use the term used in P.D. 115, violation of the element of trust not being intended to be in the same
concept as how it is understood in the criminal sense. The other view is that the bank as the owner and "entrustor"
delivers the goods to the "entrustee, " with the authority to sell the goods, but with the obligation to give the proceeds to
the "entrustor" or return the goods themselves if not sold, a trust being thus created in the full sense as contemplated by
Art. 315, par. 1 (b).
We consider the view that the trust receipt arrangement gives rise only to civil liability as the more feasible, before the
promulgation of P.D. 115. The transaction being contractual, the intent of the parties should govern. Since the trust
receipt has, by its nature, to be executed upon the arrival of the goods imported, and acquires legal standing as such
receipt only upon acceptance by the "entrustee," the trust receipt transaction itself, the antecedent acts consisting of the
application of the L/C, the approval of the L/C and the making of the marginal deposit and the effective importation of the
goods, all through the efforts of the importer who has to find his supplier, arrange for the payment and shipment of the
imported goods-all these circumstances would negate any intent of subjecting the importer to criminal prosecution,
which could possibly give rise to a case of imprisonment for non-payment of a debt. The parties, therefore, are deemed
to have consciously entered into a purely commercial transaction that could give rise only to civil liability, never to
subject the "entrustee" to criminal prosecution. Unlike, for instance, when several pieces of jewelry are received by a
person from the owner for sale on commission, and the former misappropriates for his personal use and benefit, either
the jewelries or the proceeds of the sale, instead of returning them to the owner as is his obligation, the bank is not in
the same concept as the jewelry owner with full power of disposition of the goods, which the bank does not have, for the
bank has previously extended a loan which the L/C represents to the importer, and by that loan, the importer should be
the real owner of the goods. If under the trust receipt the bank is made to appear as the owner, it was but an artificial
expedient, more of a legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it wants,
which it cannot do, just to give consistency with the purpose of the trust receipt of giving a stronger security for the loan
obtained by the importer. To consider the bank as the true owner from the inception of the transaction would be to
disregard the loan feature thereof, a feature totally absent in the case of the transaction between the jewel-owner and
his agent.

Consequently, if only from the fact that the trust receipt transaction is susceptible to two reasonable interpretation, one
as giving rise only to civil liability for the violation of the condition thereof, and the other, as generating also criminal
liability, the former should be adopted as more favorable to the supposed offender. (Duran vs. CA, L-39758, May 7,
1976, 71 SCRA 68; People vs. Parayno, L-24804, July 5, 1968, 24 SCRA 3; People vs. Abendan, L-1481, January
28,1949,82 Phil. 711; People vs. Bautista, L-1502, May 24, 1948, 81 Phil. 78; People vs. Abana, L-39, February 1, 1946,
76 Phil. 1.)
There is, moreover, one circumstance appearing on record, the significance of which should be properly evaluated. As
stated in petitioner's brief (page 2), not denied by the People, "before the Continental Bank approved the application for
a letter of credit (Exhibit 'D'), subsequently covered by the trust receipt, the Continental Bank examined the financial
capabilities of the applicant, Metal Manufacturing Company of the Philippines because that was the bank's standard
procedure (Testimony of Mr. Ernesto Garlit, Asst. Manager of the Foreign Department, Continental Bank, t.s.n., August
30, 1965). The Continental Bank did not examine the financial capabilities of herein petitioner, Jose O. Sia, in
connection with the same letter of credit. (Ibid). " From this fact, it would appear as positively established that the
intention of the parties in entering into the "trust receipt" agreement is merely to afford a stronger security for the loan
evidenced by the letter of credit, may be not as an ordinary pledge as observed in P.N.B. vs. Viuda e Hijos de Angel
Jose, et al., 63 Phil. 814, citing In re Dunlap C (206 Fed. 726) but neither as a transaction falling under Article 315-1 (b)
of the Revised Penal Code giving rise to criminal liability, as previously explained and demonstrated.
It is worthy of note that the civil liability imposed by the trust receipt is exclusively on the Metal Company. Speaking of
such liability alone, as one arising from the contract, as distinguished from the civil liability arising out of a crime, the
petitioner was never intended to be equally liable as the corporation. Without being made so liable personally as the
corporation is, there would then be no basis for holding him criminally liable, for any violation of the trust receipt. This is
made clearly so upon consideration of the fact that in the violation of the trust agreement and in the absence of positive
evidence to the contrary, only the corporation benefited, not the petitioner personally, yet, the allegation of the
information is to effect that the misappropriation or conversion was for the personal use and benefit of the petitioner, with
respect to which there is variance between the allegation and the evidence.
It is also worthy of note that while the trust receipt speaks of authority to sell, the fact is undisputed that the imported
goods were to be manufactured into finished products first before they could be sold, as the Bank had full knowledge of.
This fact is, however, not embodied in the trust agreement, thus impressing on the trust receipt vagueness and
ambiguity which should not be the basis for criminal prosecution, in the event of a violation of the terms of the trust
receipt. Again, P.D. 115 has express provision relative to the "manufacture or process of the good with the purpose of
ultimate sale," as a distinct condition from that of "to sell the goods or procure their sale" (Section 4, (1). Note that what
is embodied in the receipt in question is the sale of imported goods, the manufacture thereof not having been
mentioned. The requirement in criminal prosecution, that there must be strict harmony, not variance, between the
allegation and the evidence, may therefore, not be said to have been satisfied in the instance case.
FOR ALL THE FOREGOING, We reverse the decision of the Court of Appeals and hereby acquit the petitioner, with
costs de oficio.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 119858

April 29, 2003

EDWARD C. ONG, petitioner,


vs.
THE COURT OF APPEALS AND THE PEOPLE OF THE PHILIPPINES, respondents.
CARPIO, J.:
The Case
Petitioner Edward C. Ong ("petitioner") filed this petition for review on certiorari 1 to nullify the Decision2 dated 27 October
1994 of the Court of Appeals in CA-G.R. C.R. No. 14031, and its Resolution3 dated 18 April 1995, denying petitioner's
motion for reconsideration. The assailed Decision affirmed in toto petitioner's conviction4 by the Regional Trial Court of
Manila, Branch 35,5 on two counts of estafa for violation of the Trust Receipts Law,6 as follows:
WHEREFORE, judgment is rendered: (1) pronouncing accused EDWARD C. ONG guilty beyond
reasonable doubt on two counts, as principal on both counts, of ESTAFA defined under No. 1 (b) of Article
315 of the Revised Penal Code in relation to Section 13 of Presidential Decree No. 115, and penalized
under the 1st paragraph of the same Article 315, and sentenced said accused in each count to TEN (10)
YEARS of prision mayor, as minimum, to TWENTY (20) YEARS of reclusion temporal, as maximum;
(2) ACQUITTING accused BENITO ONG of the crime charged against him, his guilt thereof not having been
established by the People beyond reasonable doubt;
(3) Ordering accused Edward C. Ong to pay private complainant Solid Bank Corporation the aggregate sum
of P2,976,576.37 as reparation for the damages said accused caused to the private complainant, plus the
interest thereon at the legal rate and the penalty of 1% per month, both interest and penalty computed from
July 15, 1991, until the principal obligation is fully paid;
(4) Ordering Benito Ong to pay, jointly and severally with Edward C. Ong, the private complainant the legal
interest and the penalty of 1% per month due and accruing on the unpaid amount of P1,449,395.71, still
owing to the private offended under the trust receipt Exhibit C, computed from July 15, 1991, until the said
unpaid obligation is fully paid;
(5) Ordering accused Edward C. Ong to pay the costs of these two actions.
SO ORDERED.7
The Charge
Assistant City Prosecutor Dina P. Teves of the City of Manila charged petitioner and Benito Ong with two counts
ofestafa under separate Informations dated 11 October 1991.

In Criminal Case No. 92-101989, the Information indicts petitioner and Benito Ong of the crime of estafa committed as
follows:
That on or about July 23, 1990, in the City of Manila, Philippines, the said accused, representing ARMAGRI
International Corporation, conspiring and confederating together did then and there willfully, unlawfully and
feloniously defraud the SOLIDBANK Corporation represented by its Accountant, DEMETRIO LAZARO, a
corporation duly organized and existing under the laws of the Philippines located at Juan Luna Street,
Binondo, this City, in the following manner, to wit: the said accused received in trust from said SOLIDBANK
Corporation the following, to wit:
10,000 bags of urea
valued at P2,050,000.00 specified in a Trust Receipt Agreement and covered by a Letter of Credit No. DOM
GD 90-009 in favor of the Fertiphil Corporation; under the express obligation on the part of the said accused
to account for said goods to Solidbank Corporation and/or remit the proceeds of the sale thereof within the
period specified in the Agreement or return the goods, if unsold immediately or upon demand; but said
accused, once in possession of said goods, far from complying with the aforesaid obligation failed and
refused and still fails and refuses to do so despite repeated demands made upon him to that effect and with
intent to defraud, willfully, unlawfully and feloniously misapplied, misappropriated and converted the same
or the value thereof to his own personal use and benefit, to the damage and prejudice of the said Solidbank
Corporation in the aforesaid amount of P2,050,000.00 Philippine Currency.
Contrary to law.
In Criminal Case No. 92-101990, the Information likewise charges petitioner of the crime of estafa committed as follows:
That on or about July 6, 1990, in the City of Manila, Philippines, the said accused, representing ARMAGRI
International Corporation, did then and there willfully, unlawfully and feloniously defraud the SOLIDBANK
Corporation represented by its Accountant, DEMETRIO LAZARO, a corporation duly organized and existing
under the laws of the Philippines located at Juan Luna Street, Binondo, this City, in the following manner, to
wit: the said accused received in trust from said SOLIDBANK Corporation the following goods, to wit:

With the assistance of counsel, petitioner and Benito Ong both pleaded not guilty when arraigned. Thereafter, trial
ensued.
Version of the Prosecution
The prosecution's evidence disclosed that on 22 June 1990, petitioner, representing ARMAGRI International
Corporation8 ("ARMAGRI"), applied for a letter of credit for P2,532,500.00 with SOLIDBANK Corporation ("Bank") to
finance the purchase of differential assemblies from Metropole Industrial Sales. On 6 July 1990, petitioner, representing
ARMAGRI, executed a trust receipt9 acknowledging receipt from the Bank of the goods valued at P2,532,500.00.
On 12 July 1990, petitioner and Benito Ong, representing ARMAGRI, applied for another letter of credit for
P2,050,000.00 to finance the purchase of merchandise from Fertiphil Corporation. The Bank approved the application,
opened the letter of credit and paid to Fertiphil Corporation the amount of P2,050,000.00. On 23 July 1990, petitioner,
signing for ARMAGRI, executed another trust receipt10 in favor of the Bank acknowledging receipt of the merchandise.
Both trust receipts contained the same stipulations. Under the trust receipts, ARMAGRI undertook to account for the
goods held in trust for the Bank, or if the goods are sold, to turn over the proceeds to the Bank. ARMAGRI also
undertook the obligation to keep the proceeds in the form of money, bills or receivables as the separate property of the
Bank or to return the goods upon demand by the Bank, if not sold. In addition, petitioner executed the following
additional undertaking stamped on the dorsal portion of both trust receipts:
I/We jointly and severally agreed to any increase or decrease in the interest rate which may occur after July
1, 1981, when the Central Bank floated the interest rates, and to pay additionally the penalty of 1% per
month until the amount/s or installment/s due and unpaid under the trust receipt on the reverse side hereof
is/are fully paid.11
Petitioner signed alone the foregoing additional undertaking in the Trust Receipt for P2,253,500.00, while both petitioner
and Benito Ong signed the additional undertaking in the Trust Receipt for P2,050,000.00.
When the trust receipts became due and demandable, ARMAGRI failed to pay or deliver the goods to the Bank despite
several demand letters.12 Consequently, as of 31 May 1991, the unpaid account under the first trust receipt amounted to
P1,527,180.66,13 while the unpaid account under the second trust receipt amounted to P1,449,395.71.14

125 pcs. Rear diff. assy RNZO 49"


Version of the Defense
50 pcs. Front & Rear diff assy. Isuzu Elof
85 units 1-Beam assy. Isuzu Spz
all valued at P2,532,500.00 specified in a Trust Receipt Agreement and covered by a Domestic Letter of
Credit No. DOM GD 90-006 in favor of the Metropole Industrial Sales with address at P.O. Box AC 219,
Quezon City; under the express obligation on the part of the said accused to account for said goods to
Solidbank Corporation and/or remit the proceeds of the sale thereof within the period specified in the
Agreement or return the goods, if unsold immediately or upon demand; but said accused, once in
possession of said goods, far from complying with the aforesaid obligation failed and refused and still fails
and refuses to do so despite repeated demands made upon him to that effect and with intent to defraud,
willfully, unlawfully and feloniously misapplied, misappropriated and converted the same or the value thereof
to his own personal use and benefit, to the damage and prejudice of the said Solidbank Corporation in the
aforesaid amount of P2,532,500.00 Philippine Currency.
Contrary to law.
Arraignment and Plea

After the prosecution rested its case, petitioner and Benito Ong, through counsel, manifested in open court that they
were waiving their right to present evidence. The trial court then considered the case submitted for decision. 15
The Ruling of the Court of Appeals
Petitioner appealed his conviction to the Court of Appeals. On 27 October 1994, the Court of Appeals affirmed the trial
court's decision in toto. Petitioner filed a motion for reconsideration but the same was denied by the Court of Appeals in
the Resolution dated 18 April 1995.
The Court of Appeals held that although petitioner is neither a director nor an officer of ARMAGRI, he certainly comes
within the term "employees or other x x x persons therein responsible for the offense" in Section 13 of the Trust Receipts
Law. The Court of Appeals explained as follows:
It is not disputed that appellant transacted with the Solid Bank on behalf of ARMAGRI. This is because the
Corporation cannot by itself transact business or sign documents it being an artificial person. It has to
accomplish these through its agents. A corporation has a personality distinct and separate from those acting

on its behalf. In the fulfillment of its purpose, the corporation by necessity has to employ persons to act on
its behalf.
Being a mere artificial person, the law (Section 13, P.D. 115) recognizes the impossibility of imposing the
penalty of imprisonment on the corporation itself. For this reason, it is the officers or employees or other
persons whom the law holds responsible.16
The Court of Appeals ruled that what made petitioner liable was his failure to account to the entruster Bank what he
undertook to perform under the trust receipts. The Court of Appeals held that ARMAGRI, which petitioner represented,
could not itself negotiate the execution of the trust receipts, go to the Bank to receive, return or account for the entrusted
goods. Based on the representations of petitioner, the Bank accepted the trust receipts and, consequently, expected
petitioner to return or account for the goods entrusted.17
The Court of Appeals also ruled that the prosecution need not prove that petitioner is occupying a position in ARMAGRI
in the nature of an officer or similar position to hold him the "person(s) therein responsible for the offense." The Court of
Appeals held that petitioner's admission that his participation was merely incidental still makes him fall within the
purview of the law as one of the corporation's "employees or other officials or persons therein responsible for the
offense." Incidental or not, petitioner was then acting on behalf of ARMAGRI, carrying out the corporation's decision
when he signed the trust receipts.
The Court of Appeals further ruled that the prosecution need not prove that petitioner personally received and
misappropriated the goods subject of the trust receipts. Evidence of misappropriation is not required under the Trust
Receipts Law. To establish the crime of estafa, it is sufficient to show failure by the entrustee to turn over the goods or
the proceeds of the sale of the goods covered by a trust receipt. Moreover, the bank is not obliged to determine if the
goods came into the actual possession of the entrustee. Trust receipts are issued to facilitate the purchase of
merchandise. To obligate the bank to examine the fact of actual possession by the entrustee of the goods subject of
every trust receipt will greatly impede commercial transactions.
Hence, this petition.
The Issues
Petitioner seeks to reverse his conviction by contending that the Court of Appeals erred:
1. IN RULING THAT, BY THE MERE CIRCUMSTANCE THAT PETITIONER ACTED AS AGENT AND
SIGNED FOR THE ENTRUSTEE CORPORATION, PETITIONER WAS NECESSARILY THE ONE
RESPONSIBLE FOR THE OFFENSE; AND
2. IN CONVICTING PETITIONER UNDER SPECIFICATIONS NOT ALLEGED IN THE INFORMATION.
The Ruling of the Court
The Court sustains the conviction of petitioner.
First Assigned Error: Petitioner comes
within the purview of Section 13 of the Trust Receipts Law.
Petitioner contends that the Court of Appeals erred in finding him liable for the default of ARMAGRI, arguing that in
signing the trust receipts, he merely acted as an agent of ARMAGRI. Petitioner asserts that nowhere in the trust receipts
did he assume personal responsibility for the undertakings of ARMAGRI which was the entrustee.

Petitioner's arguments fail to persuade us.


The pivotal issue for resolution is whether petitioner comes within the purview of Section 13 of the Trust Receipts Law
which provides:
x x x . If the violation is committed by a corporation, partnership, association or other juridical entities, the
penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials
orpersons therein responsible for the offense, without prejudice to the civil liabilities arising from the offense.
(Emphasis supplied)
We hold that petitioner is a person responsible for violation of the Trust Receipts Law.
The relevant penal provision of the Trust Receipts Law reads:
SEC. 13. Penalty Clause. - The failure of the entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or instruments if they were not sold or
disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable
under the provisions of Article Three Hundred and Fifteen, Paragraph One (b), of Act Numbered Three
Thousand Eight Hundred and Fifteen, as amended, otherwise known as the Revised Penal Code. If the
violation or offense iscommitted by a corporation, partnership, association or other juridical entities, the
penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials
or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the
criminal offense. (Emphasis supplied)
The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn over the proceeds of the sale of the goods,
or (2) return the goods covered by the trust receipts if the goods are not sold.18 The mere failure to account or return
gives rise to the crime which is malum prohibitum.19 There is no requirement to prove intent to defraud.20
The Trust Receipts Law recognizes the impossibility of imposing the penalty of imprisonment on a corporation. Hence, if
the entrustee is a corporation, the law makes the officers or employees or other persons responsible for the
offense liable to suffer the penalty of imprisonment. The reason is obvious: corporations, partnerships, associations and
other juridical entities cannot be put to jail. Hence, the criminal liability falls on the human agent responsible for the
violation of the Trust Receipts Law.
In the instant case, the Bank was the entruster while ARMAGRI was the entrustee. Being the entrustee, ARMAGRI was
the one responsible to account for the goods or its proceeds in case of sale. However, the criminal liability for violation of
the Trust Receipts Law falls on the human agent responsible for the violation. Petitioner, who admits being the agent of
ARMAGRI, is the person responsible for the offense for two reasons. First, petitioner is the signatory to the trust
receipts, the loan applications and the letters of credit. Second, despite being the signatory to the trust receipts and the
other documents, petitioner did not explain or show why he is not responsible for the failure to turn over the proceeds of
the sale or account for the goods covered by the trust receipts.
The Bank released the goods to ARMAGRI upon execution of the trust receipts and as part of the loan transactions of
ARMAGRI. The Bank had a right to demand from ARMAGRI payment or at least a return of the goods. ARMAGRI failed
to pay or return the goods despite repeated demands by the Bank.
It is a well-settled doctrine long before the enactment of the Trust Receipts Law, that the failure to account, upon
demand, for funds or property held in trust is evidence of conversion or misappropriation.21 Under the law, mere failure
by the entrustee to account for the goods received in trust constitutes estafa. The Trust Receipts Law punishes
dishonesty and abuse of confidence in the handling of money or goods to the prejudice of public order. 22 The mere
failure to deliver the proceeds of the sale or the goods if not sold constitutes a criminal offense that causes prejudice not

only to the creditor, but also to the public interest.23 Evidently, the Bank suffered prejudice for neither money nor the
goods were turned over to the Bank.
The Trust Receipts Law expressly makes the corporation's officers or employees or other persons therein responsible
for the offense liable to suffer the penalty of imprisonment. In the instant case, petitioner signed the two trust receipts on
behalf of ARMAGRI 24 as the latter could only act through its agents. When petitioner signed the trust receipts, he
acknowledged receipt of the goods covered by the trust receipts. In addition, petitioner was fully aware of the terms and
conditions stated in the trust receipts, including the obligation to turn over the proceeds of the sale or return the goods to
the Bank, to wit:
Received, upon the TRUST hereinafter mentioned from SOLIDBANK CORPORATION (hereafter referred to
as the BANK), the following goods and merchandise, the property of said BANK specified in the bill of
lading as follows: x x x and in consideration thereof, I/we hereby agree to hold said goods in Trust for the
said BANK and as its property with liberty to sell the same for its account but without authority to make any
other disposition whatsoever of the said goods or any part thereof (or the proceeds thereof) either by way of
conditional sale, pledge, or otherwise.
In case of sale I/we agree to hand the proceeds as soon as received to the BANK to apply against the
relative acceptance (as described above) and for the payment of any other indebtedness of mine/ours to
SOLIDBANK CORPORATION.
xxx

xxx

Petitioner argues that he cannot be convicted on a new set of facts not alleged in the Informations. Petitioner claims that
the trial court's decision found that it was ARMAGRI that transacted with the Bank, acting through petitioner as its agent.
Petitioner asserts that this contradicts the specific allegation in the Informations that it was petitioner who was
constituted as the entrustee and was thus obligated to account for the goods or its proceeds if sold. Petitioner maintains
that this absolves him from criminal liability.
We find no merit in petitioner's arguments.
Contrary to petitioner's assertions, the Informations explicitly allege that petitioner, representing ARMAGRI, defrauded
the Bank by failing to remit the proceeds of the sale or to return the goods despite demands by the Bank, to the latter's
prejudice. As an essential element of estafa with abuse of confidence, it is sufficient that the Informations specifically
allege that the entrustee received the goods. The Informations expressly state that ARMAGRI, represented by petitioner,
received the goods in trust for the Bank under the express obligation to remit the proceeds of the sale or to return the
goods upon demand by the Bank. There is no need to allege in the Informations in what capacity petitioner participated
to hold him responsible for the offense. Under the Trust Receipts Law, it is sufficient to allege and establish the failure of
ARMAGRI, whom petitioner represented, to remit the proceeds or to return the goods to the Bank.
When petitioner signed the trust receipts, he claimed he was representing ARMAGRI. The corporation obviously acts
only through its human agents and it is the conduct of such agents which the law must deter.29 The existence of the
corporate entity does not shield from prosecution the agent who knowingly and intentionally commits a crime at the
instance of a corporation.30

xxx.
Penalty for the crime of Estafa.

I/we agree to keep said goods, manufactured products, or proceeds thereof, whether in the form of money
or bills, receivables, or accounts, separate and capable of identification as the property of the BANK.
I/we further agree to return the goods, documents, or instruments in the event of their non-sale, upon
demand or within ____ days, at the option of the BANK.
xxx

xxx

xxx. (Emphasis supplied)25

True, petitioner acted on behalf of ARMAGRI. However, it is a well-settled rule that the law of agency governing civil
cases has no application in criminal cases. When a person participates in the commission of a crime, he cannot escape
punishment on the ground that he simply acted as an agent of another party.26 In the instant case, the Bank accepted
the trust receipts signed by petitioner based on petitioner's representations. It is the fact of being the signatory to the two
trust receipts, and thus a direct participant to the crime, which makes petitioner a person responsible for the offense.
Petitioner could have raised the defense that he had nothing to do with the failure to account for the proceeds or to
return the goods. Petitioner could have shown that he had severed his relationship with ARMAGRI prior to the loss of
the proceeds or the disappearance of the goods. Petitioner, however, waived his right to present any evidence, and thus
failed to show that he is not responsible for the violation of the Trust Receipts Law.
There is no dispute that on 6 July 1990 and on 23 July 1990, petitioner signed the two trust receipts27 on behalf of
ARMAGRI. Petitioner, acting on behalf of ARMAGRI, expressly acknowledged receipt of the goods in trust for the Bank.
ARMAGRI failed to comply with its undertakings under the trust receipts. On the other hand, petitioner failed to explain
and communicate to the Bank what happened to the goods despite repeated demands from the Bank. As of 13 May
1991, the unpaid account under the first and second trust receipts amounted to P1,527,180.60 and P1,449,395.71,
respectively.28
Second Assigned Error: Petitioner's conviction under the
allegations in the two Informations for Estafa.

The penalty for the crime of estafa is prescribed in Article 315 of the Revised Penal Code, as follows:
1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if the
amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if such amount exceeds
the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one
year for each additional 10,000 pesos; but the total penalty which may be imposed should not exceed
twenty years. x x x .
In the instant case, the amount of the fraud in Criminal Case No. 92-101989 is P1,527,180.66. In Criminal Case No. 92101990, the amount of the fraud is P1,449,395.71. Since the amounts of the fraud in each estafa exceeds P22,000.00,
the penalty of prision correccional maximum to prision mayor minimum should be imposed in its maximum period as
prescribed in Article 315 of the Revised Penal Code. The maximum indeterminate sentence should be taken from this
maximum period which has a duration of 6 years, 8 months and 21 days to 8 years. One year is then added for each
additional P10,000.00, but the total penalty should not exceed 20 years. Thus, the maximum penalty for each count
of estafa in this case should be 20 years.
Under the Indeterminate Sentence Law, the minimum indeterminate sentence can be anywhere within the range of the
penalty next lower in degree to the penalty prescribed by the Code for the offense. The minimum range of the penalty is
determined without first considering any modifying circumstance attendant to the commission of the crime and without
reference to the periods into which it may be subdivided.31 The modifying circumstances are considered only in the
imposition of the maximum term of the indeterminate sentence.32 Since the penalty prescribed in Article 315 isprision
correccional maximum to prision mayor minimum, the penalty next lower in degree would be prision
correccional minimum to medium. Thus, the minimum term of the indeterminate penalty should be anywhere within 6
months and 1 day to 4 years and 2 months.33
Accordingly, the Court finds a need to modify in part the penalties imposed by the trial court. The minimum penalty for
each count of estafa should be reduced to four (4) years and two (2) months of prision correccional.

As for the civil liability arising from the criminal offense, the question is whether as the signatory for ARMAGRI, petitioner
is personally liable pursuant to the provision of Section 13 of the Trust Receipts Law.

Republic of the Philippines


SUPREME COURT
Manila

In Prudential Bank v. Intermediate Appellate Court,34 the Court discussed the imposition of civil liability for violation of the
Trust Receipts Law in this wise:
It is clear that if the violation or offense is committed by a corporation, partnership, association or other
juridical entities, the penalty shall be imposed upon the directors, officers, employees or other officials or
persons responsible for the offense. The penalty referred to is imprisonment, the duration of which would
depend on the amount of the fraud as provided for in Article 315 of the Revised Penal Code. The reason for
this is obvious: corporation, partnership, association or other juridical entities cannot be put in jail. However,
it is these entities which are made liable for the civil liabilities arising from the criminal offense. This is the
import of the clause 'without prejudice to the civil liabilities arising from the criminal offense'. (Emphasis
supplied)
In Prudential Bank, the Court ruled that the person signing the trust receipt for the corporation is not solidarily liable with
the entrustee-corporation for the civil liability arising from the criminal offense. He may, however, be personally liable if
he bound himself to pay the debt of the corporation under a separate contract of surety or guaranty.
In the instant case, petitioner did not sign in his personal capacity the solidary guarantee clause 35 found on the dorsal
portion of the trust receipts. Petitioner placed his signature after the typewritten words "ARMCO INDUSTRIAL
CORPORATION" found at the end of the solidary guarantee clause. Evidently, petitioner did not undertake to guaranty
personally the payment of the principal and interest of ARMAGRI's debt under the two trust receipts.
In contrast, petitioner signed the stamped additional undertaking without any indication he was signing for ARMAGRI.
Petitioner merely placed his signature after the additional undertaking. Clearly, what petitioner signed in his personal
capacity was the stamped additional undertaking to pay a monthly penalty of 1% of the total obligation in case of
ARMAGRI's default.
In the additional undertaking, petitioner bound himself to pay "jointly and severally" a monthly penalty of 1% in case of
ARMAGRI's default. 35 Thus, petitioner is liable to the Bank for the stipulated monthly penalty of 1% on the outstanding
amount of each trust receipt. The penalty shall be computed from 15 July 1991, when petitioner received the demand
letter, 36 until the debt is fully paid.
WHEREFORE, the assailed Decision is AFFIRMED with MODIFICATION. In Criminal Case No. 92-101989 and in
Criminal Case No. 92-101990, for each count of estafa, petitioner EDWARD C. ONG is sentenced to an indeterminate
penalty of imprisonment from four (4) years and two (2) months of prision correctional as MINIMUM, to twenty (20) years
of reclusion temporal as MAXIMUM. Petitioner is ordered to pay SOLIDBANK CORPORATION the stipulated penalty of
1% per month on the outstanding balance of the two trust receipts to be computed from 15 July 1991 until the debt is
fully paid.

FIRST DIVISION
G. R. No. 164317

February 6, 2006

ALFREDO CHING, Petitioner,


vs.
THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOS-VILLAVERT, JUDGE EDGARDO
SUDIAM of the Regional Trial Court, Manila, Branch 52; RIZAL COMMERCIAL BANKING CORP. and THE
PEOPLE OF THE PHILIPPINES, Respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. SP No.
57169 dismissing the petition for certiorari, prohibition and mandamus filed by petitioner Alfredo Ching, and its
Resolution2 dated June 28, 2004 denying the motion for reconsideration thereof.
Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime in September to October
1980, PBMI, through petitioner, applied with the Rizal Commercial Banking Corporation (respondent bank) for the
issuance of commercial letters of credit to finance its importation of assorted goods. 3
Respondent bank approved the application, and irrevocable letters of credit were issued in favor of petitioner. The goods
were purchased and delivered in trust to PBMI. Petitioner signed 13 trust receipts4 as surety, acknowledging delivery of
the following goods:

T/R
Nos.

Date Granted

Maturity Date

Principal

Description of Goods

1845

12-05-80

03-05-81

P1,596,470.05

79.9425 M/T "SDK" Brand


Synthetic Graphite Electrode

1853

12-08-80

03-06-81

P198,150.67

3,000 pcs. (15 bundles)


Calorized Lance Pipes

1824

11-28-80

02-26-81

P707,879.71

One Lot High Fired Refractory

SO ORDERED.

Tundish Bricks

1798

11-21-80

02-19-81

P835,526.25

5 cases spare parts for CCM

1808

11-21-80

02-19-81

P370,332.52

200 pcs. ingot moulds

2042

1801

1857

1895

1911

2041

01-30-81

11-21-80

12-09-80

12-17-80

12-22-80

01-30-81

04-30-81

02-19-81

03-09-81

03-17-81

03-20-81

04-30-81

P469,669.29

P2,001,715.17

P197,843.61

P67,652.04

P91,497.85

P91,456.97

High Fired Refractory Nozzle


Bricks

Synthetic Graphite Electrode


[with] tapered pitch filed
nipples

2100

02-10-81

05-12-81

P210,748.00

Spare parts for


Lacolaboratory Equipment5

Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to sell but not by way of
conditional sale, pledge or otherwise; and in case such goods were sold, to turn over the proceeds thereof as soon as
received, to apply against the relative acceptances and payment of other indebtedness to respondent bank. In case the
goods remained unsold within the specified period, the goods were to be returned to respondent bank without any need
of demand. Thus, said "goods, manufactured products or proceeds thereof, whether in the form of money or bills,
receivables, or accounts separate and capable of identification" were respondent banks property.
When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to return their value
amounting to P6,940,280.66 despite demands. Thus, the bank filed a criminal complaint for estafa6 against petitioner in
the Office of the City Prosecutor of Manila.
After the requisite preliminary investigation, the City Prosecutor found probable cause estafa under Article 315,
paragraph 1(b) of the Revised Penal Code, in relation to Presidential Decree (P.D.) No. 115, otherwise known as the
Trust Receipts Law. Thirteen (13) Informations were filed against the petitioner before the Regional Trial Court (RTC) of
Manila. The cases were docketed as Criminal Cases No. 86-42169 to 86-42181, raffled to Branch 31 of said court.
Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The appeal was dismissed in a
Resolution7 dated March 17, 1987, and petitioner moved for its reconsideration. On December 23, 1987, the Minister of
Justice granted the motion, thus reversing the previous resolution finding probable cause against petitioner.8 The City
Prosecutor was ordered to move for the withdrawal of the Informations.

3,000 pcs. (15 bundles


calorized lance pipes [)]

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

Spare parts for


Spectrophotometer

In the meantime, the Court rendered judgment in Allied Banking Corporation v. Ordoez,11 holding that the penal
provision of P.D. No. 115 encompasses any act violative of an obligation covered by the trust receipt; it is not limited to
transactions involving goods which are to be sold (retailed), reshipped, stored or processed as a component of a
product ultimately sold. The Court also ruled that "the non-payment of the amount covered by a trust receipt is an act
violative of the obligation of the entrustee to pay."12

50 pcs. Ingot moulds

On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against petitioner before the Office of
the City Prosecutor of Manila. The case was docketed as I.S. No. 95B-07614.

50 pcs. Ingot moulds

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

2099

02-10-81

05-11-81

P66,162.26

8 pcs. Kubota Rolls for rolling


mills

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


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

On July 13, 1999, the Secretary of Justice issued Resolution No. 25015 granting the petition and reversing the assailed
resolution of the City Prosecutor. According to the Justice Secretary, the petitioner, as Senior Vice-President of PBMI,
executed the 13 trust receipts and as such, was the one responsible for the offense. Thus, the execution of said receipts
is enough to indict the petitioner as the official responsible for violation of P.D. No. 115. The Justice Secretary also
declared that petitioner could not contend that P.D. No. 115 covers only goods ultimately destined for sale, as this issue
had already been settled in Allied Banking Corporation v. Ordoez,16 where the Court ruled that P.D. No. 115 is "not
limited to transactions in goods which are to be sold (retailed), reshipped, stored or processed as a component of a
product ultimately sold but covers failure to turn over the proceeds of the sale of entrusted goods, or to return said
goods if unsold or not otherwise disposed of in accordance with the terms of the trust receipts."
The Justice Secretary further stated that the respondent bound himself under the terms of the trust receipts not only as
a corporate official of PBMI but also as its surety; hence, he could be proceeded against in two (2) ways: first, as surety
as determined by the Supreme Court in its decision in Rizal Commercial Banking Corporation v. Court of Appeals; 17 and
second, as the corporate official responsible for the offense under P.D. No. 115, via criminal prosecution. Moreover, P.D.
No. 115 explicitly allows the prosecution of corporate officers "without prejudice to the civil liabilities arising from the
criminal offense." Thus, according to the Justice Secretary, following Rizal Commercial Banking Corporation, the civil
liability imposed is clearly separate and distinct from the criminal liability of the accused under P.D. No. 115.
Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13 Informations against petitioner
for violation of P.D. No. 115 before the RTC of Manila. The cases were docketed as Criminal Cases No. 99-178596 to
99-178608 and consolidated for trial before Branch 52 of said court. Petitioner filed a motion for reconsideration, which
the Secretary of Justice denied in a Resolution18 dated January 17, 2000.
Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing the resolutions of the
Secretary of Justice on the following grounds:
1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE ACTING
OPPRESSIVELY AGAINST ALFREDO CHING WHEN THEY ALLOWED HIS PROSECUTION DESPITE
THE FACT THAT NO EVIDENCE HAD BEEN PRESENTED TO PROVE HIS PARTICIPATION IN THE
ALLEGED TRANSACTIONS.

PETITIONER FALL WITHIN THE AMBIT OF VIOLATION OF P.D. [No.] 115 IN RELATION TO ARTICLE
315, PAR. 1(B) OF THE REVISED PENAL CODE.
B.
THERE IS NO MERIT IN PETITIONERS CONTENTION THAT EXCESSIVE DELAY HAS MARRED THE
CONDUCT OF THE PRELIMINARY INVESTIGATION OF THE CASE, JUSTIFYING ITS DISMISSAL.
C.
THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORARI, PROHIBITION AND MANDAMUS IS NOT
THE PROPER MODE OF REVIEW FROM THE RESOLUTION OF THE DEPARTMENT OF JUSTICE. THE
PRESENT PETITION MUST THEREFORE BE DISMISSED.21
On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and on procedural grounds. On
the procedural issue, it ruled that (a) the certification of non-forum shopping executed by petitioner and incorporated in
the petition was defective for failure to comply with the first two of the three-fold undertakings prescribed in Rule 7,
Section 5 of the Revised Rules of Civil Procedure; and (b) the petition for certiorari, prohibition and mandamus was not
the proper remedy of the petitioner.
On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of Justice were correctly issued
for the following reasons: (a) petitioner, being the Senior Vice-President of PBMI and the signatory to the trust receipts,
is criminally liable for violation of P.D. No. 115; (b) the issue raised by the petitioner, on whether he violated P.D. No. 115
by his actuations, had already been resolved and laid to rest in Allied Bank Corporation v. Ordoez;22and (c) petitioner
was estopped from raising the
City Prosecutors delay in the final disposition of the preliminary investigation because he failed to do so in the DOJ.
Thus, petitioner filed the instant petition, alleging that:

2. THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN GRAVE ABUSE OF


DISCRETION AND IN EXCESS OF HIS JURISDICTION WHEN THEY CONTINUED PROSECUTION OF
THE PETITIONER DESPITE THE LENGTH OF TIME INCURRED IN THE TERMINATION OF THE
PRELIMINARY INVESTIGATION THAT SHOULD JUSTIFY THE DISMISSAL OF THE INSTANT CASE.
3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY PROSECUTOR ACTED IN
GRAVE ABUSE OF DISCRETION AMOUNTING TO AN EXCESS OF JURISDICTION WHEN THEY
CONTINUED THE PROSECUTION OF THE PETITIONER DESPITE LACK OF SUFFICIENT BASIS. 19
In his petition, petitioner incorporated a certification stating that "as far as this Petition is concerned, no action or
proceeding in the Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or agency. It is
finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending before the
Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it hereby undertakes
to notify this Honorable Court within five (5) days from such notice."20
In its Comment on the petition, the Office of the Solicitor General alleged that A.
THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT PETITIONER ALFREDO
CHING IS THE OFFICER RESPONSIBLE FOR THE OFFENSE CHARGED AND THAT THE ACTS OF

I
THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THE GROUND THAT THE
CERTIFICATION OF NON-FORUM SHOPPING INCORPORATED THEREIN WAS DEFECTIVE.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WAS COMMITTED BY THE SECRETARY OF
JUSTICE IN COMING OUT WITH THE ASSAILED RESOLUTIONS.23
The Court will delve into and resolve the issues seriatim.
The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He claims that the rules of
procedure should be used to promote, not frustrate, substantial justice. He insists that the Rules of Court should be
construed liberally especially when, as in this case, his substantial rights are adversely affected; hence, the deficiency in
his certification of non-forum shopping should not result in the dismissal of his petition.
The Office of the Solicitor General (OSG) takes the opposite view, and asserts that indubitably, the certificate of nonforum shopping incorporated in the petition before the CA is defective because it failed to disclose essential facts about

pending actions concerning similar issues and parties. It asserts that petitioners failure to comply with the Rules of
Court is fatal to his petition. The OSG cited Section 2, Rule 42, as well as the ruling of this Court in Melo v. Court of
Appeals.24
We agree with the ruling of the CA that the certification of non-forum shopping petitioner incorporated in his petition
before the appellate court is defective. The certification reads:
It is further certified that as far as this Petition is concerned, no action or proceeding in the Supreme Court, the Court of
Appeals or different divisions thereof, or any tribunal or agency.
It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending before
the Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it hereby
undertakes to notify this Honorable Court within five (5) days from such notice.25
Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition should be accompanied by a
sworn certification of non-forum shopping, as provided in the third paragraph of Section 3, Rule 46 of said Rules. The
latter provision reads in part:
SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. The petition shall contain the full
names and actual addresses of all the petitioners and respondents, a concise statement of the matters involved, the
factual background of the case and the grounds relied upon for the relief prayed for.
xxx
The petitioner shall also submit together with the petition a sworn certification that he has not theretofore commenced
any other action involving the same issues in the Supreme Court, the Court of Appeals or different divisions thereof, or
any other tribunal or agency; if there is such other action or proceeding, he must state the status of the same; and if he
should thereafter learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the
Court of Appeals, or different divisions thereof, or any other tribunal or agency, he undertakes to promptly inform the
aforesaid courts and other tribunal or agency thereof within five (5) days therefrom. xxx
Compliance with the certification against forum shopping is separate from and independent of the avoidance of forum
shopping itself. The requirement is mandatory. The failure of the petitioner to comply with the foregoing requirement
shall be sufficient ground for the dismissal of the petition without prejudice, unless otherwise provided. 26
Indubitably, the first paragraph of petitioners certification is incomplete and unintelligible. Petitioner failed to certify that
he "had not heretofore commenced any other action involving the same issues in the Supreme Court, the Court of
Appeals or the different divisions thereof or any other tribunal or agency" as required by paragraph 4, Section 3, Rule 46
of the Revised Rules of Court.
We agree with petitioners contention that the certification is designed to promote and facilitate the orderly administration
of justice, and therefore, should not be interpreted with absolute literalness. In his works on the Revised Rules of Civil
Procedure, former Supreme Court Justice Florenz Regalado states that, with respect to the contents of the certification
which the pleader may prepare, the rule of substantial compliance may be availed of.27 However, there must be a
special circumstance or compelling reason which makes the strict application of the requirement clearly unjustified. The
instant petition has not alleged any such extraneous circumstance. Moreover, as worded, the certification cannot even
be regarded as substantial compliance with the procedural requirement. Thus, the CA was not informed whether, aside
from the petition before it, petitioner had commenced any other action involving the same issues in other tribunals.
On the merits of the petition, the CA ruled that the petitioner failed to establish that the Secretary of Justice committed
grave abuse of discretion in finding probable cause against the petitioner for violation of estafa under Article 315,
paragraph 1(b) of the Revised Penal Code, in relation to P.D. No. 115. Thus, the appellate court ratiocinated:

Be that as it may, even on the merits, the arguments advanced in support of the petition are not persuasive enough to
justify the desired conclusion that respondent Secretary of Justice gravely abused its discretion in coming out with his
assailed Resolutions. Petitioner posits that, except for his being the Senior Vice-President of the PBMI, there is no iota
of evidence that he was a participes crimines in violating the trust receipts sued upon; and that his liability, if at all, is
purely civil because he signed the said trust receipts merely as a xxx surety and not as the entrustee. These assertions
are, however, too dull that they cannot even just dent the findings of the respondent Secretary, viz:
"x x x it is apropos to quote section 13 of PD 115 which states in part, viz:
xxx If the violation or offense is committed by a corporation, partnership, association or other judicial entities, the
penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons
therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense.
"There is no dispute that it was the respondent, who as senior vice-president of PBM, executed the thirteen (13) trust
receipts. As such, the law points to him as the official responsible for the offense. Since a corporation cannot be
proceeded against criminally because it cannot commit crime in which personal violence or malicious intent is required,
criminal action is limited to the corporate agents guilty of an act amounting to a crime and never against the corporation
itself (West Coast Life Ins. Co. vs. Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus, the execution by
respondent of said receipts is enough to indict him as the official responsible for violation of PD 115.
"Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which are ultimately destined for
sale and not goods, like those imported by PBM, for use in manufacture. This issue has already been settled in the
Allied Banking Corporation case, supra, where he was also a party, when the Supreme Court ruled that PD 115 is not
limited to transactions in goods which are to be sold (retailed), reshipped, stored or processed as a component or a
product ultimately sold but covers failure to turn over the proceeds of the sale of entrusted goods, or to return said
goods if unsold or disposed of in accordance with the terms of the trust receipts.
"In regard to the other assigned errors, we note that the respondent bound himself under the terms of the trust receipts
not only as a corporate official of PBM but also as its surety. It is evident that these are two (2) capacities which do not
exclude the other. Logically, he can be proceeded against in two (2) ways: first, as surety as determined by the Supreme
Court in its decision in RCBC vs. Court of Appeals, 178 SCRA 739; and, secondly, as the corporate official responsible
for the offense under PD 115, the present case is an appropriate remedy under our penal law.
"Moreover, PD 115 explicitly allows the prosecution of corporate officers without prejudice to the civil liabilities arising
from the criminal offense thus, the civil liability imposed on respondent in RCBC vs. Court of Appeals case is clearly
separate and distinct from his criminal liability under PD 115."28
Petitioner asserts that the appellate courts ruling is erroneous because (a) the transaction between PBMI and
respondent bank is not a trust receipt transaction; (b) he entered into the transaction and was sued in his capacity as
PBMI Senior Vice-President; (c) he never received the goods as an entrustee for PBMI, hence, could not have
committed any dishonesty or abused the confidence of respondent bank; and (d) PBMI acquired the goods and used
the same in operating its machineries and equipment and not for resale.
The OSG, for its part, submits a contrary view, to wit:
34. Petitioner further claims that he is not a person responsible for the offense allegedly because "[b]eing charged as
the Senior Vice-President of Philippine Blooming Mills (PBM), petitioner cannot be held criminally liable as the
transactions sued upon were clearly entered into in his capacity as an officer of the corporation" and that [h]e never
received the goods as an entrustee for PBM as he never had or took possession of the goods nor did he commit
dishonesty nor "abuse of confidence in transacting with RCBC." Such argument is bereft of merit.

35. Petitioners being a Senior Vice-President of the Philippine Blooming Mills does not exculpate him from any liability.
Petitioners responsibility as the corporate official of PBM who received the goods in trust is premised on Section 13 of
P.D. No. 115, which provides:
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or
instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust
receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three hundred
and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise
known as the Revised Penal Code. If the violation or offense is committed by a corporation, partnership, association or
other juridical entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or
other officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the
criminal offense. (Emphasis supplied)
36. Petitioner having participated in the negotiations for the trust receipts and having received the goods for PBM, it was
inevitable that the petitioner is the proper corporate officer to be proceeded against by virtue of the PBMs violation of
P.D. No. 115.29
The ruling of the CA is correct.
In Mendoza-Arce v. Office of the Ombudsman (Visayas),30 this Court held that the acts of a quasi-judicial officer may be
assailed by the aggrieved party via a petition for certiorari and enjoined (a) when necessary to afford adequate
protection to the constitutional rights of the accused; (b) when necessary for the orderly administration of justice; (c)
when the acts of the officer are without or in excess of authority; (d) where the charges are manifestly false and
motivated by the lust for vengeance; and (e) when there is clearly no prima facie case against the accused.31 The Court
also declared that, if the officer conducting a preliminary investigation (in that case, the Office of the Ombudsman) acts
without or in excess of his authority and resolves to file an Information despite the absence of probable cause, such act
may be nullified by a writ of certiorari.32
Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure,33 the Information shall be prepared by the
Investigating Prosecutor against the respondent only if he or she finds probable cause to hold such respondent for trial.
The Investigating Prosecutor acts without or in excess of his authority under the Rule if the Information is filed against
the respondent despite absence of evidence showing probable cause therefor. 34 If the Secretary of Justice reverses the
Resolution of the Investigating Prosecutor who found no probable cause to hold the respondent for trial, and orders such
prosecutor to file the Information despite the absence of probable cause, the Secretary of Justice acts contrary to law,
without authority and/or in excess of authority. Such resolution may likewise be nullified in a petition for certiorari under
Rule 65 of the Revised Rules of Civil Procedure.35
A preliminary investigation, designed to secure the respondent against hasty, malicious and oppressive prosecution, is
an inquiry to determine whether (a) a crime has been committed; and (b) whether there is probable cause to believe that
the accused is guilty thereof. It is a means of discovering the person or persons who may be reasonably charged with a
crime. Probable cause need not be based on clear and convincing evidence of guilt, as the investigating officer acts
upon probable cause of reasonable belief. Probable cause implies probability of guilt and requires more than bare
suspicion but less than evidence which would justify a conviction. A finding of probable cause needs only to rest on
evidence showing that more likely than not, a crime has been committed by the suspect.36
However, while probable cause should be determined in a summary manner, there is a need to examine the evidence
with care to prevent material damage to a potential accuseds constitutional right to liberty and the guarantees of
freedom and fair play37 and to protect the State from the burden of unnecessary expenses in prosecuting alleged
offenses and holding trials arising from false, fraudulent or groundless charges.38
In this case, petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion in issuing the
assailed resolutions. Indeed, he acted in accord with law and the evidence.

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


Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree, is
any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in
this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain
specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latters
execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself
to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the
goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of
the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves
if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt,
or for other purposes substantially equivalent to any of the following:
1. In case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or
process the goods with the purpose of ultimate sale; Provided, That, in the case of goods delivered under
trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall
retain its title over the goods whether in its original or processed form until the entrustee has complied fully
with his obligation under the trust receipt; or (c) to load, unload, ship or otherwise deal with them in a
manner preliminary or necessary to their sale; or
2. In the case of instruments a) to sell or procure their sale or exchange; or b) to deliver them to a principal;
or c) to effect the consummation of some transactions involving delivery to a depository or register; or d) to
effect their presentation, collection or renewal.
The sale of goods, documents or instruments by a person in the business of selling goods, documents or instruments for
profit who, at the outset of the transaction, has, as against the buyer, general property rights in such goods, documents
or instruments, or who sells the same to the buyer on credit, retaining title or other interest as security for the payment of
the purchase price, does not constitute a trust receipt transaction and is outside the purview and coverage of this
Decree.
An entrustee is one having or taking possession of goods, documents or instruments under a trust receipt transaction,
and any successor in interest of such person for the purpose of payment specified in the trust receipt agreement. 39The
entrustee is obliged to: (1) hold the goods, documents or instruments in trust for the entruster and shall dispose of them
strictly in accordance with the terms and conditions of the trust receipt; (2) receive the proceeds in trust for the entruster
and turn over the same to the entruster to the extent of the amount owing to the entruster or as appears on the trust
receipt; (3) insure the goods for their total value against loss from fire, theft, pilferage or other casualties; (4) keep said
goods or proceeds thereof whether in money or whatever form, separate and capable of identification as property of the
entruster; (5) return the goods, documents or instruments in the event of non-sale or upon demand of the entruster; and
(6) observe all other terms and conditions of the trust receipt not contrary to the provisions of the decree. 40
The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released under a
trust receipt to the entrustee to the extent of the amount owing to the entruster or as appears in the trust receipt, or to
the return of the goods, documents or instruments in case of non-sale, and to the enforcement of all other rights
conferred on him in the trust receipt; provided, such are not contrary to the provisions of the document. 41
In the case at bar, the transaction between petitioner and respondent bank falls under the trust receipt transactions
envisaged in P.D. No. 115. Respondent bank imported the goods and entrusted the same to PBMI under the trust
receipts signed by petitioner, as entrustee, with the bank as entruster. The agreement was as follows:
And in consideration thereof, I/we hereby agree to hold said goods in trust for the said BANK as its property with liberty
to sell the same within ____days from the date of the execution of this Trust Receipt and for the Banks account, but
without authority to make any other disposition whatsoever of the said goods or any part thereof (or the proceeds) either
by way of conditional sale, pledge or otherwise.

I/we agree to keep the said goods insured to their full value against loss from fire, theft, pilferage or other casualties as
directed by the BANK, the sum insured to be payable in case of loss to the BANK, with the understanding that the BANK
is, not to be chargeable with the storage premium or insurance or any other expenses incurred on said goods.
In case of sale, I/we further agree to turn over the proceeds thereof as soon as received to the BANK, to apply against
the relative acceptances (as described above) and for the payment of any other indebtedness of mine/ours to the BANK.
In case of non-sale within the period specified herein, I/we agree to return the goods under this Trust Receipt to the
BANK without any need of demand.
I/we agree to keep the said goods, manufactured products or proceeds thereof, whether in the form of money or bills,
receivables, or accounts separate and capable of identification as property of the BANK.42
It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of public policy, the failure
of person to turn over the proceeds of the sale of the goods covered by a trust receipt or to return said goods, if not sold,
is a public nuisance to be abated by the imposition of penal sanctions.43
The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions involving goods procured as
a component of a product ultimately sold has been resolved in the affirmative in Allied Banking Corporation v.
Ordoez.44 The law applies to goods used by the entrustee in the operation of its machineries and equipment. The nonpayment of the amount covered by the trust receipts or the non-return of the goods covered by the receipts, if not sold or
otherwise not disposed of, violate the entrustees obligation to pay the amount or to return the goods to the entruster.
In Colinares v. Court of Appeals,45 the Court declared that there are two possible situations in a trust receipt transaction.
The first is covered by the provision which refers to money received under the obligation involving the duty to deliver it
(entregarla) to the owner of the merchandise sold. The second is covered by the provision which refers to merchandise
received under the obligation to return it (devolvera) to the owner.46 Thus, failure of the entrustee to turn over the
proceeds of the sale of the goods covered by the trust receipts to the entruster or to return said goods if they were not
disposed of in accordance with the terms of the trust receipt is a crime under P.D. No. 115, without need of proving
intent to defraud. The law punishes dishonesty and abuse of confidence in the handling of money or goods to the
prejudice of the entruster, regardless of whether the latter is the owner or not. A mere failure to deliver the proceeds of
the sale of the goods, if not sold, constitutes a criminal offense that causes prejudice, not only to another, but more to
the public interest.47
The Court rules that although petitioner signed the trust receipts merely as Senior Vice-President of PBMI and had no
physical possession of the goods, he cannot avoid prosecution for violation of P.D. No. 115.
The penalty clause of the law, Section 13 of P.D. No. 115 reads:
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or
instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust
receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three hundred
and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise
known as the Revised Penal Code.1wphi1 If the violation or offense is committed by a corporation, partnership,
association or other juridical entities, the penalty provided for in this Decree shall be imposed upon the directors,
officers, employees or other officials or persons therein responsible for the offense, without prejudice to the civil liabilities
arising from the criminal offense.
The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b), Article 315 of
the Revised Penal Code, or estafa with abuse of confidence. It may be committed by a corporation or other juridical
entity or by natural persons. However, the penalty for the crime is imprisonment for the periods provided in said Article
315, which reads:

ARTICLE 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned hereinbelow
shall be punished by:
1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if the
amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if such amount exceeds
the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one
year for each additional 10,000 pesos; but the total penalty which may be imposed shall not exceed twenty
years. In such cases, and in connection with the accessory penalties which may be imposed and for the
purpose of the other provisions of this Code, the penalty shall be termed prision mayor or reclusion
temporal, as the case may be;
2nd. The penalty of prision correccional in its minimum and medium periods, if the amount of the fraud is
over 6,000 pesos but does not exceed 12,000 pesos;
3rd. The penalty of arresto mayor in its maximum period to prision correccional in its minimum period, if
such amount is over 200 pesos but does not exceed 6,000 pesos; and
4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed 200 pesos, provided that in
the four cases mentioned, the fraud be committed by any of the following means; xxx
Though the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees or other officers
or persons responsible for the offense, without prejudice to the civil liabilities of such corporation and/or board of
directors, officers, or other officials or employees responsible for the offense. The rationale is that such officers or
employees are vested with the authority and responsibility to devise means necessary to ensure compliance with the
law and, if they fail to do so, are held criminally accountable; thus, they have a responsible share in the violations of the
law.48
If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or other officers
thereof responsible for the offense shall be charged and penalized for the crime, precisely because of the nature of the
crime and the penalty therefor. A corporation cannot be arrested and imprisoned; hence, cannot be penalized for a crime
punishable by imprisonment.49 However, a corporation may be charged and prosecuted for a crime if the imposable
penalty is fine. Even if the statute prescribes both fine and imprisonment as penalty, a corporation may be prosecuted
and, if found guilty, may be fined.50
A crime is the doing of that which the penal code forbids to be done, or omitting to do what it commands. A necessary
part of the definition of every crime is the designation of the author of the crime upon whom the penalty is to be inflicted.
When a criminal statute designates an act of a corporation or a crime and prescribes punishment therefor, it creates a
criminal offense which, otherwise, would not exist and such can be committed only by the corporation. But when a penal
statute does not expressly apply to corporations, it does not create an offense for which a corporation may be punished.
On the other hand, if the State, by statute, defines a crime that may be committed by a corporation but prescribes the
penalty therefor to be suffered by the officers, directors, or employees of such corporation or other persons responsible
for the offense, only such individuals will suffer such penalty.51 Corporate officers or employees, through whose act,
default or omission the corporation commits a crime, are themselves individually guilty of the crime.52
The principle applies whether or not the crime requires the consciousness of wrongdoing. It applies to those corporate
agents who themselves commit the crime and to those, who, by virtue of their managerial positions or other similar
relation to the corporation, could be deemed responsible for its commission, if by virtue of their relationship to the
corporation, they had the power to prevent the act.53 Moreover, all parties active in promoting a crime, whether agents or
not, are principals.54 Whether such officers or employees are benefited by their delictual acts is not a touchstone of their
criminal liability. Benefit is not an operative fact.
In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the cloak of the separate
corporate personality of PBMI. In the words of Chief Justice Earl Warren, a corporate officer cannot protect himself
behind a corporation where he is the actual, present and efficient actor.55

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioner.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Baguio City
FIRST DIVISION
G.R. No. 114286

April 19, 2001

THE COSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), petitioner


vs.
THE COURT OF APPEALS, CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and
SPOUSE,respondents.

YNARES-SANTIAGO, J.:

ANY COMPUTATION MADE IN THE DECISION AND THE ERRONEOUS APPLICATION OF PAYMENTS
WHICH IS IN VIOLATION OF THE NEW CIVIL CODE.

The instant petition for review seeks to partially set aside the July 26, 1993 Decision1 of respondent Court of Appeals in
CA-GR. CV No. 29950, insofar as it orders petitioner to reimburse respondent Continental Cement Corporation the
amount of P490, 228.90 with interest thereon at the legal rate from July 26, 1988 until fully paid. The petition also seeks
to set aside the March 8, 1994 Resolution2 of respondent Court of Appeals denying its Motion for Reconsideration.

2. WHETHER OR NOT THE MANNER OF COMPUTATION OF THE MARGINAL DEPOSIT BY THE


RESPONDENT APPELLATE COURT IS IN ACCORDANCE WITH BANKING PRACTICE.

The facts are as follows:

3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE FLOATING OF INTEREST
RATE IS VALID UNDER APPLICABLE JURISPRUDENCE AND THE RULES AND REGULATIONS OF
THECENTRAL BANK.

On July 13, 1982, respondents Continental Cement Corporation (hereinafter, respondent Corporation) and Gregory T.
Lim (hereinafter, respondent Lim) obtained from petitioner Consolidated Bank and Trust Corporation Letter of Credit No.
DOM-23277 in the amount of P 1,068,150.00 On the same date, respondent Corporation paid a marginal deposit of
P320,445.00 to petitioner. The letter of credit was used to purchase around five hundred thousand liters of bunker fuel
oil from Petrophil Corporation, which the latter delivered directly to respondent Corporation in its Bulacan plant. In
relation to the same transaction, a trust receipt for the amount of P 1,001,520.93 was executed by respondent
Corporation, with respondent Lim as signatory.
Claiming that respondents failed to turn over the goods covered by the trust receipt or the proceeds thereof, petitioner
filed a complaint for sum of money with application for preliminary attachment 3 before the Regional Trial Court of Manila.
In answer to the complaint, respondents averred that the transaction between them was a simple loan and not a trust
receipt transaction, and that the amount claimed by petitioner did not take into account payments already made by
them. Respondent Lim also denied any personal liability in the subject transactions. In a Supplemental Answer,
respondents prayed for reimbursement of alleged overpayment to petitioner of the amount of P490,228.90.

4. WHETHER OR NO THE RESPONDENT APPELLATE COUR GRIEVOUSLY ERRED IN NOT


CONSIDERING THE TRANSACTION AT BAR AS A TRUST RECEIPT TRANSACTION ON THE BASIS OF
THE JUDICIAL ADMISSIONS OF THE PRIVATE RESPONDENTS AND FOR WHICH RESPONDENTS
ARE LIABLE THEREFOR.
5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN NOT
HOLDING PRIVATE RESPONDENT SPOUSES LIABLE UNDER THE TRUST RECEIPT TRANSACTION. 6
The petition must be denied.
On the first issue respecting the fact of overpayment found by both the lower court and respondent Court of Appeals, we
stress the time-honored rule that findings of fact by the Court of Appeals especially if they affirm factual findings of the
trial court will not be disturbed by this Court, unless these findings are not supported by evidence.7

At the pre-trial conference, the parties agreed on the following issues:


1) Whether or not the transaction involved is a loan transaction or a trust receipt transaction;
2) Whether or not the interest rates charged against the defendants by the plaintiff are proper under the
letter of credit, trust receipt and under existing rules or regulations of the Central Bank;
3) Whether or not the plaintiff properly applied the previous payment of P300,456.27 by the defendant
corporation on July 13, 1982 as payment for the latters account; and
4) Whether or not the defendants are personally liable under the transaction sued for in this case. 4
On September 17, 1990, the trial court rendered its Decision,5 dismissing the Complaint and ordering petitioner to pay
respondents the following amounts under their counterclaim: P490,228.90 representing overpayment of respondent
Corporation, with interest thereon at the legal rate from July 26, 1988 until fully paid; P10,000.00 as attorney's fees; and
costs.
Both parties appealed to the Court of Appeals, which partially modified the Decision by deleting the award of attorney's
fees in favor of respondents and, instead, ordering respondent Corporation to pay petitioner P37,469.22 as and for
attorney's fees and litigation expenses.
Hence, the instant petition raising the following issues:
1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED INCORRECTLY OR
COMMITTED REVERSIBLE ERROR IN HOLDING THAT THERE WAS OVERPAYMENT BY PRIVATE
RESPONDENTS TO THE PETITIONER IN THE AMOUNT OF P490,228.90 DESPITE THE ABSENCE OF

Petitioner decries the lack of computation by the lower court as basis for its ruling that there was an overpayment made.
While such a computation may not have appeared in the Decision itself, we note that the trial court's finding of
overpayment is supported by evidence presented before it. At any rate, we painstakingly reviewed and computed the
payments together with the interest and penalty charges due thereon and found that the amount of overpayment made
by respondent Bank to petitioner, i.e., P263,070.13, was more than what was ordered reimbursed by the lower court.
However, since respondents did not file an appeal in this case, the amount ordered reimbursed by the lower court
should stand.
Moreover, petitioner's contention that the marginal deposit made by respondent Corporation should not be deducted
outright from the amount of the letter of credit is untenable. Petitioner argues that the marginal deposit should be
considered only after computing the principal plus accrued interest and other charges. However, to sustain petitioner on
this score would be to countenance a clear case of unjust enrichment, for while a marginal deposit earns no interest in
favour of the debtor-depositor, the bank is not only able to use the same for its own purposes, interest-free, but is also
able to earn interest on the money loaned to respondent Corporation. Indeed, it would be onerous to compute interest
and other charges on the face value of the letter of credit which the petitioner issued, without first crediting or setting off
the marginal deposit which the respondent Corporation paid to it. Compensation is proper and should take effect by
operation of law because the requisites in Article 1279 of the Civil Code are present and should extinguish both debts to
the concurrent amount.8
Hence, the interests and other charges on the subject letter of credit should be computed only on the balance of
P681,075.93, which was the portion actually loaned by the bank to respondent Corporation.
Neither do we find error when the lower court and the Court of Appeals set aside as invalid the floating rate of interest
exhorted by petitioner to be applicable. The pertinent provision in the trust receipt agreement of the parties fixing the
interest rate states:
I, WE jointly and severally agree to any increase or decrease in the interest rate which may occur after July
1, 1981, when the Central Bank floated the interest rate, and to pay additionally the penalty of 1% per

month until the amount/s or instalments/s due and unpaid under the trust receipt on the reverse side hereof
is/are fully paid.9
We agree with respondent Court of Appeals that the foregoing stipulation is invalid, there being no reference rate set
either by it or by the Central Bank, leaving the determination thereof at the sole will and control of
petitioner. 1wphi1.nt
While it may be acceptable, for practical reasons given the fluctuating economic conditions, for banks to stipulate that
interest rates on a loan not be fixed and instead be made dependent upon prevailing market conditions, there should
always be a reference rate upon which to peg such variable interest rates. An example of such a valid variable interest
rate was found in Polotan, Sr. v. Court of Appeals. 10 In that case, the contractual provision stating that "if there occurs
any change in the prevailing market rates, the new interest rate shall be the guiding rate in computing the interest
due on the outstanding obligation without need of serving notice to the Cardholder other than the required posting on
the monthly statement served to the Cardholder"11 was considered valid. The aforequoted provision was upheld
notwithstanding that it may partake of the nature of an escalation clause, because at the same time it provides for the
decrease in the interest rate in case the prevailing market rates dictate its reduction. In other words, unlike the
stipulation subject of the instant case, the interest rate involved in the Polotan case is designed to be based on the
prevailing market rate. On the other hand, a stipulation ostensibly signifying an agreement to "any increase or decrease
in the interest rate," without more, cannot be accepted by this Court as valid for it leaves solely to the creditor the
determination of what interest rate to charge against an outstanding loan.
Petitioner has also failed to convince us that its transaction with respondent Corporation is really a trust receipt
transaction instead of merely a simple loan, as found by the lower court and the Court of Appeals.
The recent case of Colinares v. Court of Appeals 12 appears to be foursquare with the facts obtaining in the case at bar.
There, we found that inasmuch as the debtor received the goods subject of the trust receipt before the trust receipt itself
was entered into, the transaction in question was a simple loan and not a trust receipt agreement. Prior to the date of
execution of the trust receipt, ownership over the goods was already transferred to the debtor. This situation is
inconsistent with what normally obtains in a pure trust receipt transaction, wherein the goods belong in ownership to the
bank and are only released to the importer in trust after the loan is granted.
In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods subject of the trust receipt
occurred long before the trust receipt itself was executed. More specifically, delivery of the bunker fuel oil to respondent
Corporation's Bulacan plant commenced on July 7, 1982 and was completed by July 19, 1982.13 Further, the oil was
used up by respondent Corporation in its normal operations by August, 1982.14 On the other hand, the subject trust
receipt was only executed nearly two months after full delivery of the oil was made to respondent Corporation, or on
September 2, 1982.

Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale, contrary to the
express provision embodied in the trust receipt. They are contractors who obtained the fungible goods for
their construction project. At no time did title over the construction materials pass to the bank, but directly to
the Petitioners from CM Builders Centre. This impresses upon the trust receipt in question vagueness and
ambiguity, which should not be the basis for criminal prosecution in the event of violation of its provisions.
The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them
under the threats of criminal prosecution should they be unable to pay it may be unjust and inequitable if not
reprehensible. Such agreements are contracts of adhesion which borrowers have no option but to sign lest
their loan be disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy of
banks, and is prone to misinterpretation, as had happened in this case. Eventually, PBC showed its true
colors and admitted that it was only after collection of the money, as manifested by its Affidavit of
Desistance.
Similarly, respondent Corporation cannot be said to have been dishonest in its dealings with petitioner. Neither has it
been shown that it has evaded payment of its obligations. Indeed, it continually endeavored to meet the same, as shown
by the various receipts issued by petitioner acknowledging payment on the loan. Certainly, the payment of the sum of
P1,832,158.38 on a loan with a principal amount of only P681,075.93 negates any badge of dishonesty , abuse of
confidence or mishandling of funds on the part of respondent Corporation, which are the gravamen of a trust receipt
violation. Furthermore, Respondent Corporation is not an importer, which acquired the bunker fuel oil for re-sale; it
needed the oil for its own operations. More importantly, at no time did title over the oil pass to petitioner, but directly to
respondent Corporation to which the oil was directly delivered long before the trust receipt was executed. The fact that
ownership of the oil belonged to respondent Corporation, through its President, Gregory Lim, was acknowledged by
petitioner's own account officer on the witness stand, to wit:
Q -After the bank opened a letter of credit in favor of Petrophil Corp. for the account of the defendants
thereby paying the value of the bunker fuel oil what transpired next after that?
A -Upon purchase of the bunker fuel oil and upon the requests of the defendant possession of the bunker
fuel oil were transferred to them.
Q -You mentioned them to whom are you referring to?
A -To the Continental Cement Corp. upon the execution of the trust receipt acknowledging the ownership of
the bunker fuel oil this should be acceptable for whatever disposition he may make.
Q - You mentioned about acknowledging ownership of the bunker fuel oil to whom by whom?

The danger in characterizing a simple loan as a trust receipt transaction was explained in Colinares, to wit:
A - By the Continental Cement Corp.
The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the dishonesty and
abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether
the latter is the owner. Here, it is crystal clear that on the part of Petitioners there was neither dishonesty
nor abuse of confidence in the handling of money to the prejudice of PBC. Petitioners continually
endeavored to meet their obligations, as shown by several receipts issued by PBC acknowledging payment
of the loan.

Q So by your statement who really owns the bunker fuel oil?


A TTY. RACHON:
Objection already answered,

The Information charges Petitioners with intent to defraud and misappropriating the money for their
personal use. The mala prohibita nature of the alleged offense notwithstanding, intent as a state of mind
was not proved to be present in Petitioners' situation. Petitioners employed no artifice in dealing with PBC
and never did they evade payment of their obligation nor attempt to abscond. Instead, Petitioners sought
favorable terms precisely to meet their obligation.

COURT:
Give time to the other counsel to object.
A TTY. RACHON :

He has testified that ownership was acknowledged in favor of Continental Cement Corp. so that question
has already been answered.
A TTY. BANAGA:
That is why I made a follow up question asking ownership of the bunker fuel oil.
COURT:
Proceed.
A TTY .BANAGA:
Q - Who owns the bunker fuel oil after purchase from Petrophil Corp. ?
A - Gregory Lim.15
By all indications, then, it is apparent that there was really no trust receipt transaction that took place. Evidently,
respondent Corporation was required to sign the trust receipt simply to facilitate collection by petitioner of the loan it had
extended to the former.
Finally, we are not convinced that respondent Gregory T. Lim and his spouse should be personally liable under the
subject trust receipt. Petitioner's argument that respondent Corporation and respondent Lim and his spouse are one and
the same cannot be sustained. The transactions sued upon were clearly entered into by respondent Lim in his capacity
as Executive Vice President of respondent Corporation. We stress the hornbook law that corporate personality is a
shield against personal liability of its officers. Thus, we agree that respondents Gregory T. Lim and his spouse cannot be
made personally liable since respondent Lim entered into and signed the contract clearly in his official capacity as
Executive Vice President. The personality of the corporation is separate and distinct from the persons composing it. 16
WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The Decision of the Court of
Appeals dated July 26, 1993 in CA-G.R. CY No.29950 is AFFIRMED.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 124062 January 21, 1999


REYNALDO T. COMETA and STATE INVESTMENT TRUST, INC., petitioners,
vs.

COURT OF APPEALS, HON. GEORGE MACLI-ING, in his capacity as Presiding Judge, Regional Trial Court,
Quezon City, Branch 100, REYNALDO S. GUEVARA and HONEYCOMB BUILDERS, INC., respondents.

MENDOZA, J.:
This is a petition for review of the decision 1 of the Court of Appeals, dated, July 28, 1995, affirming the trial courts order
denying petitioners' Motion to Dismiss Civil Case No. Q-93-15691 for alleged failure of private respondents to state in
their complaint a cause of action against petitioners and the appellate court's resolution, dated March 1, 1996, denying
reconsideration of the same.
Petitioner State Investment Trust, Inc. (SITI), formerly State Investment House, Inc. (SIHI), is an investment house
engaged in quasi-banking activities. Petitioner Reynaldo Cometa is its president. Private correspondent Honeycomb
Builders, Inc. (HBI), on the other hand, is a corporation engaged in the business of developing, constructing, and selling
townhouses and condominium units, private respondent Reynaldo Guevara is president of HBI and chairman of the
board of directors of Guevent Industrial Development Corp., (GIDC).
Sometime in 1979, petitioner SITI extended loans in various amounts to GIDC which the latter failed to pay on the dates
they became due. For this reason, a rehabilitation plan was agreed upon for GIDC under which it mortgaged several
parcels of land to petitioner SITI. Among those mortgaged was a Mandaluyong lot covered by TCT No. 462855 (20510).
However, GIDC again defaulted. Hence, petitioner SITI foreclosed the mortgages and, in the foreclosure sale, acquired
the properties as highest bidder. 2
Alleging irregularities in the foreclosure of the mortgages and the sale of properties to petitioner SITI, GIDC filed a case
entitled "Guevent Industrial Development Corp., et. al., plaintiffs v. State Investment House Inc. et. al., defendants," in
the Regional Trial Court of Pasig. The case was eventually settled through a compromise agreement which became the
basis of the trial court's Judgment. A dispute later arose concerning the interpretation of the compromise agreement, as
respondent HBI offered to purchase from GIDC the lot covered by TCT No. 462855 (20510) and the latter agreed but
petitioner SITI (the mortgagee) refused to give its consent to the sale and release its lien on the property. 3 For this
reason, GIDC asked the trial court for a clarification of its decision. 4
Subsequently, the trial court directed petitioner SITI to accept the offer of respondent HBI to purchase the property
covered by TCT No. 462855 (20510). Petitioner SITI appealed the order to the Court of Appeals which affirmed the
same. On appeal to this Court, the decision of the Court of Appeals was affirmed. 5
Meanwhile, respondent HBI applied to the Housing and Land Use Regulatory Board for a permit to develop the property
in question. Its application was granted, on account of which respondent HBI built a condominium on the property called
"RSG Condominium Gueventville II." When respondent HBI applied for a license to sell the condominium units it was
required by the HLURB to submit an Affidavit of Undertaking which in effect stated that the mortgagee (SITI) of the said
property to be developed agrees to release the mortgage on the said property as soon as the full purchase price of the
same is paid by the buyer. Respondent HBI submitted the required affidavit purportedly executed by petitioner Cometa
as president of SITI (mortgagee).
Petitioner Cometa denied, however, that he ever executed the affidavit. He asked the National Bureau of Investigation
for assistance to determine the authenticity of the signature on the affidavit. The NBI found Cometa's signature on the
Affidavit of Undertaking to be forgery on the basis of which a complaint for falsification of public document was filed
against HBI president Guevara. 6 However, the Rizal Provincial Prosecutor's Office found no probable cause against
private respondent Guevara and accordingly dismissed the complaint in its resolution of September 25, 1989. 7
Petitioners appealed the matter to then Secretary of Justice Franklin Drilon who reversed the Provincial Prosecutor's
Office and ordered it to file an information against private respondent Guevara for falsification of public

document. 8Private respondent Guevara moved for a reconsideration of the aforesaid resolution, but his motion was
denied. 9
An information for Falsification of Public Document was thus filed against private respondent Guevara in the Regional
Trial Court of Makati where it was docketed as Criminal Case No. 90-3018. 10 After the prosecution presented its
evidence. Guevara filed a demurrer to evidence which the trial court, presided over by Judge Fernando V. Gorospe, Jr.,
granted. 11
Following the dismissal of the criminal case against him, private respondents Reynaldo S. Guevara and HBI filed a
complaint for malicious prosecution against petitioners Cometa and SITI in the Regional Trial Court of
Quezon City. 12
Petitioners SITI and Cometa filed their respective answers. After the pre-trial of the case, they filed a joint motion to
dismiss with alternative motion to drop respondent HBI as a party plaintiff, upon the following grounds: 13
1. The complaint states no cause of action.
2. Secretary Drilon, Undersecretary Bello and the prosecutor, not impleaded herein, are the
real parties in-interest-defendants, which again makes the complaint lack a cause of action. At
the least, the above public official are indispensable parties, and their non-inclusion renders this
court with jurisdiction over the case.
3. The action seeks to impose a penalty on the right to litigate and for that reason is
unconstitutional and against settled public policy.
On May 30, 1994, the trial court, through Judge George Macli-ing, denied petitioners' joint motion for the following
reasons:
Acting on the MOTION TO DISMISS With Alternative Motion to Drop Honeycomb Builders, Inc.
as Party Plaintiff filed by Defendants Reynaldo T. Cometa and State Investment House, Inc.
(SIHI) thru counsel, together with the OPPOSITION filed by Plaintiffs thru counsel, after a
thorough perusal of the contents embodied in said pleadings, the Court in the exercise of its
sound judicial discretion finds that there are sufficient allegations of cause of action in the
Complaint, and in the interest of justice, the Plaintiff thru counsel should be given an
opportunity to introduce proof in support of his allegations, which could at best be attained thru
a full blown hearing on the merits of the case. The defense of lack of cause of action, and that
defendants are not the real parties in interest, in the considered opinion of this Court, are
matters of defense, which will be considered, after the contending parties thru counsel shall
have rested their cases, and the case submitted for Decision.
As regards the Alternative Motion to Drop Honeycomb Builders, Inc. as Party Plaintiff, the
Complaint shows that Reynaldo Guevara, is the President, Chairman of the Board and Majority
Stockholder of HBI, the same will likewise be taken into consideration when proofs will be
introduced for or against this particular matter. At this point in time, let Honeycomb Builders,
Inc. remain as party plaintiff.
Petitioners, in separate motions, asked for a reconsideration but their motions were denied on August 12, 1994. 15They
then filed a petition for certiorari and prohibition. The Court of Appeals immediately issued a temporary restraining order
on September 22, 1994 and, on October 28, 1994, upon petitioners' posting of a P1,000.00 bond, issued a writ of
preliminary injunction enjoining the trial court from conducting further proceedings in the case. On July 28, 1995, the
Court of Appeals rendered its decision 16 denying the petition for certiorari and prohibition of petitioners. Petitioners filed
a motion for reconsideration but the appellate court denied their motion
in a resolution, 17 dated March 1, 1996.

Hence, this petition. The principal question for decision is whether the complaint filed by private respondents against
petitioners in the Regional Trial Court states a cause of action. First, petitioners maintain it does not as the allegations in
the complaint are insufficient and indispensable parties were not impleaded in the case. Secondly, they contend that
private respondent HBI should have been dropped as a party plaintiff upon petitioners' motion therefor.
Both contentions are without merit.

7) that SITI's appealed the order to the Court of Appeals and, when it lost, appealed the matter to the Supreme Court
which sustained both the appellate court and the lower court;
8) that while SITI's appeal was still pending, SITI and its president, Cometa, filed a criminal case, against Guevara; and
9) that petitioners filed the aforesaid case with the sole intent of harassing and pressuring (Guevara, in his capacity as
chairman of GIDC, to give in to their illicit and malicious desire to appropriate the remaining unsold properties of GIDC.

First. A complaint for malicious prosecution sates a cause of action if it alleges


1. that the defendant was himself the prosecutor or that at leas he instigated the prosecution;

The foregoing statements sufficiently allege malice. These allegations are averments of malice in accordance with Rule
6, 5 of the Rules of Civil Procedure which provides:

2. that the prosecution finally terminated in the plaintiff's acquittal;

Sec. 5. Fraud, mistake, condition of mind. In all averments of fraud or mistake, the
circumstances constituting fraud or mistake must be stated with particularity. Malice, intent,
knowledge or other condition of the mind of a person may be averred generally (emphasis
added).

3. that in bringing the action the prosecutor acted without probable cause; and
4. that the prosecutor was actuated by malice, i.e., by improper and sinister motives. 18
Thus, the question is; whether the facts pleaded and the substantive law entilte plaintiff to a judgment. 19 Otherwise
stated, can a judgment be rendered upon the facts alleged and deemed admitted, in accordance with the prayer in the
complaint? 20 To resolve this, the allegations of the complaint must be examined.
Paragraph 12 to 13 21 of the complaint allege that SITI and Cometa (petitioners herein) filed a complaint against
respondent Guevara which led to the filing by the provincial prosecutor of an information for falsification of public
documents against him (Guevara) in the RTC. It is thus alleged that petitioners instigated the prosecution of private
respondents. 22
Paragraph 17 23 of the complaint alleges that the trial court granted respondent Guevara's demurrer to the evidence and
ordered the dismissal of the criminal case against him as shown in the order of the trial court acquitting respondent
Guevara, a copy of which is made part of the complaint. 24 The second requisite, namely, that the criminal case
terminated in the plaintiff's (private respondent Guevara) acquittal is thus alleged.
With regard to the requirement of malice, paragraphs 7 to 12 and paragraph 18 25 of the complaint allege:
1) that a compromise agreement was entered into between GIDC and SITI in connection with contracts of loan;
2) that in the course of implementing the agreement, HBI offered to purchase from GIDC one of the mortgaged
properties.
3) that GIDC accepted the offer but despite tender of the purchase price, SITI refused to approve the sale and the
release of its mortgage lien on the property;
4) that a dispute arose between the parties regarding the interpretation and implementation of the compromise
agreement;
5) that GIDC filed a "Motion for Clarification and to Suspend Sales" in the Regional Trial Court (which had approved the
Compromise Agreement), while SITI filed a "Motion for Execution" praying for consolidation in its favor of the titles over
GIDC's remaining properties;
6) that the trial court granted GIDC's motion and ordered SITI to accept HBI's offer to purchase one of the mortgaged
properties;

Contrary to petitioners' contention, they are not mere conclusions.


As regards the requirement of lack of probable cause,
paragraph 18 26 of the complaint alleges that the criminal case filed had absolutely no basis in the fact and in law in light
of the factual allegations mentioned earlier and that a reading of the order 27 of the trial court in the criminal case, a copy
of which is annexed to the complaint and made an integral part thereof, will show that the prosecution failed to establish
even a prima facie case against Guevara. Clearly, the complaint alleges that there was no probable cause for
respondent Guevara's prosecution.
As held in Far East Marble (Phils.), Inc. v. Court of Appeals, 28 a complaint is sufficient if it contains sufficient notice of
the cause of action even though the allegations may be vague or indefinite, for, in such case, the recourse of the
defendant is to file a motion for a bill of particulars. Pleadings should be liberally construed so that litigants can have
ample opportunity to prove their claims and thus prevent a denial of justice due to legal technicalities.
It is nonetheless pointed out that the complaint itself alleges that a preliminary investigation was conducted, that the
Secretary of Justice ordered the filing of the information, and that the trial court issued a warrant of arrest against private
respondent Guevara. Such allegations in the complaint, petitioners claim, negate the existence of probable cause.
Petitioners cite the case of Martinez v. UFC 29 in which this Court sustained the dismissal of a complaint for malicious
prosecution for failure to state a cause of action on the basis of similar allegations in the complaint and the findings of
the criminal court in acquitting the plaintiff, which this Court ruled belied the allegations of malice and want of probable
cause in the complaint.
The mere allegation in a complaint for malicious prosecution that an information was filed after preliminary investigation
and that a warrant of arrest was there after issued does not by itself negate allegations in the same complaint that the
prosecution was malicious. All criminal prosecutions are by direction and control of the public prosecutor. 30 To sustain
petitionners' stand that an allegation in a complaint for malicious prosecution that the information in the criminal case
was filed after appropriate preliminary investigation negates a contrary allegation that the filing of the case was
malicious would result in the dismissal of every action for malicious prosecution.
What was decisive in Martinez was the finding in the criminal case that complainant had acted in good faith in bringing
the charge against accused. For the fact in that case was that accused was acquitted because, although it was true he
had disposed of properties, he did not do so prior to or simultaneously with the fraud. There was deceit, but it was not
the "efficient cause" of the defraudation. On this basis, this Court found that in bringing the case the complainant in that
case acted in good faith.
Said this Court: 31

The findings of fact made by the Court in its decision of acquittal bear materially on the
question of malice and want of probable cause. The evidence, said the court, showed that
when the plaintiff executed the chattel mortgage on the stock inventory in his store on
November 29, 1960 he was the owner the thereof, and therefore made no false representation
when he executed said mortgage to secure the loan of P58,381.13 he obtained from the
defendant; but that "some weeks or months after November 29, 1960, with intent to defraud the
complainant United Finance Corporation, the accused succeeded in disposing of the whole or a
part of said store and stock merchandise in favor of a third part, to the complainant's
prejudice. . ." The basis of the acquittal according to the court, was that "deceit, to constitute
estafa, should be the efficient cause of the defraudation and as such should either be prior to or
simultaneous with the act of fraud," citing People vs. Fortune, 73 Phil. 407.
The foregoing facts, alleged in the complaint for malicious prosecution either directly or by
reference to its annexes, show that in filing the criminal charge the defendant was not actuated
by malice, nor was there want of probable cause. It had been the victim or deceit committed by
the plaintiff, and whether or not such deceit constituted estafa was a legal question properly
submitted first to the City Fiscal and then to the court after the necessary preliminary
investigation was conducted. The very fact that the plaintiff's acquittal was based on
reasonable doubt as to his guilt demonstrates that the defendant was justified in submitting its
grievances to the said authorities for ruling and possible redress.
In contrast, the decision of the criminal court in the present case indicates that there was not even prima facieevidence
to prove the alleged guilt of the accused. Consequently, a trial was in fact unnecessary and the criminal court dismissed
the case against private respondent Guevara on the basis of a demurrer to evidence.
A court, dealing with a motion to dismiss an action for malicious prosecution, has only to determine whether the
allegation of the complaint, assuming to be true, entitle the plaintiff to a judgment. The trial court is not to inquire into the
truth of the allegations. Indeed, it cannot do so without depriving the plaintiff an opportunity to be heard on his
allegations. 32
The case of Martinez is exceptional. This is not the first time we are clarifying its scope. In Ventura v. Bernabe, 33 we
stated:
It is true that in that case of Martinez, this Court sustained the order of dismissal of the
complaint for malicious prosecution partly because a preliminary investigation had been
conducted by the fiscal who had found probable cause for the filing of an estafa case against
Martinez, but the main consideration for such action of this Court was the fact that from the
recitals in the judgment acquitting the plainliff, it appeared that although the court found that
said plaintiff had been guilty of deceit, the issue resolved by the court was that in law such
deceit did not constitute estafa, a matter which had been passed upon by the fiscal in a
different way, naturally, without any fault on the part of the defendant. In other words, in
Martinez case, the findings of the criminal court in the decision of acquittal negatved the
imputation of malice on the part of the defendant in charging plaintiff with estafa before the
fiscal.
xxx xxx xxx
For the rest, it might just as well be clarified here, lest some statements in Martinez and
Buenaventura relative to the materiality of the fiscal's having filed an information on the
question of malice of the accuser may be misunderstood, that such participation of the fiscal is
not decisive and that malice may still be shown, the holding of a preliminary investigation and
the finding of probable cause by the fiscal notwithstanding. The same may be said of cases
where preliminary investigations are conducted by judges. The determination of the issue of
malice must always be made to rest on all the attendant circumstances, including the possibility
of the fiscal or judge being somehow misled by the accuser's evidence. No doubt the very

purpose of preliminary investigations is to avoid baseless and malicious prosecutions, still,


whether or not in a particular case such an objective has been dully pursued is a matter of
proof . . . .
It is hardly necessary to say that to allow the present action to proceed is not to impose a penalty on the right to litigate.
For trial is still to be conducted and liability is not automatic. It is only to acknowledge the truism that
Just as it is bad to encourage the indiscriminate filing of actions for damages by accused
persons after they have been acquitted, whether correctly or incorrectly, a blanket clearance of
all who may be minded to charge others with offenses, fancied or otherwise, without any
chance of the aggrieved parties in the appropriate cases of false accusation to obtain relief, is
in Our Opinion short of being good law. 34
Second. Petitioners contend that the Secretary and the Undersecretary of the Department of Justice and the Assistant
Provincial Prosecutor should have been included in the case for malicious prosecution because it was they who found
probable cause against private respondents and under the law the prosecution of criminal actions is vested in the public
prosecutor. According to petitioners, they did not conduct the preliminary investigation or order the filing of an
information and their participation was limited to initiating the investigation in the NBI and testifying. 35 In support of their
contention, they cite the ruling in Lagman v. Intermiediate Appellate Court 36 which expounded on the ruling
inBuenaventura v. Sto. Domingo: 37
The mere act of submitting a case to the authorities for prosecution does not make one liable
for malicious prosecution for generally, it is the Government or representative of the State that
takes charge of the prosecution of the offense. There must be proof that the prosecution was
prompted by a sinister design to vex and humiliate a person for if the rule were otherwise,
every acquitted person can turn against the complainant in a civil action for damages.
There is no merit in this contention. The issue in those cases was not whether the complaint stated a cause of action
against defendants who were complainants in the criminal cases which led to the filing of civil cases for damages but
whether they were liable to the plaintifs. The Court merely ruled in those cases that the complainant in the criminal case
is not necessarily liable simply because he initiated the criminal case which eventually was dismissed. It is noteworthy
that, in the case at bar, private respondents do not allege that petitioners initiated the filing of the criminal case against
them but that because of the evidence they (petitioners) presented, the Department of Justice could have been induced
to order the filing of a criminal case in court. 38
Third. It is contended that HBI is not a real-party-interest, whatever interest it may have being purely speculative. 39On
this point, we think the Court of Appeals correctly ruled: 40
Sec. 11 of Rule 3 of the Rules of Court provides:
Misjoinder and non-joinder of parties. Misjoinder of parties is not a ground for dismissal of an
action. Parties may be dropped or added by order of the court or on motion of any party or on
its own initiative at any stage of the action and on such terms as are just.
xxx xxx xxx
Given (1) the foregoing rule, (2), the fact that Guevara, in his capacity as president of of HBI,
filed HBI's application to sell at the HLURB and it was in the same capacity and in connection
with the application that he was criminally charged, and (3) the allegations in the complaint
including that stating that by the filing of the criminal case against Guevara, "the application of
HBI with the HLURB for a regular license to sell the condominium units . . . had been delayed,"
resulting in the corresponding delay in the sale thereof on account of which "plaintiffs incurred
over runs in development, marketing and financial costs and charges, resulting in actual

damages," the deferral by public respondent of petitioners' motion to drop HBI as party plaintiff
cannot be said to have been attended with grave abuse of discretion. It bears emphasis that
the phraseology of Section 11 of Rule 3 is that "parties may be dropped . . . at any stage of the
action.
It is true that a criminal case can only be filed against the officers of a corporation and not against the corporation
itself. 41 It does not follow from this, however, that the corporation cannot be a real-party-in-interest for the purpose of
bringing a civil action for malicious prosecution.
Lastly, the statement of the judge in the assailed order of May 30, 1994 that "[t]he defense of lack of cause of action and
that the defendants are not the real parties in interest . . . . are matters of defense" was correctly held by the appellate
court as mere dictum, said judge having earlier stated in the same order that "there are sufficient allegations of causes
of action in the Complaint."
WHEREFORE, the dedcision of the Court of Appeals is AFFIRMED.1wphi1.nt
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 128690 January 21, 1999


ABS-CBN BROADCASTING CORPORATION, petitioner,
vs.

HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION, INC., and
VICENTE DEL ROSARIO, respondents.

because as you very well know that non-primetime advertising rates are very low. These are
the unaired titles in the first contract.
1. Kontra Persa [sic].

DAVIDE, JR., CJ.:

2. Raider Platoon.

In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter ABS-CBN) seeks to reverse
and set aside the decision 1 of 31 October 1996 and the resolution 2 of 10 March 1997 of the Court of Appeals in CAG.R. CV No. 44125. The former affirmed with modification the decision 3 of 28 April 1993 of the Regional Trial Court
(RTC) of Quezon City, Branch 80, in Civil Case No. Q-92-12309. The latter denied the motion to reconsider the decision
of 31 October 1996.

3. Underground guerillas
4. Tiger Command
5. Boy de Sabog

The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:
6. Lady Commando
In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement (Exh. "A") whereby Viva
gave ABS-CBN an exclusive right to exhibit some Viva films. Sometime in December 1991, in
accordance with paragraph 2.4 [sic] of said agreement stating that .
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV
telecast under such terms as may be agreed upon by the parties hereto, provided, however,
that such right shall be exercised by ABS-CBN from the actual offer in writing.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo
Santos-Concio, a list of three(3) film packages (36 title) from which ABS-CBN may exercise its
right of first refusal under the afore-said agreement (Exhs. "1" par, 2, "2," "2-A'' and "2-B"-Viva).
ABS-CBN, however through Mrs. Concio, "can tick off only ten (10) titles" (from the list) "we can
purchase" (Exh. "3" - Viva) and therefore did not accept said list (TSN, June 8, 1992, pp. 9-10).
The titles ticked off by Mrs. Concio are not the subject of the case at bar except the film
''Maging Sino Ka Man."
For further enlightenment, this rejection letter dated January 06, 1992 (Exh "3" - Viva) is hereby
quoted:
6 January 1992
Dear Vic,
This is not a very formal business letter I am writing to you as I would like to express my
difficulty in recommending the purchase of the three film packages you are offering ABS-CBN.
From among the three packages I can only tick off 10 titles we can purchase. Please see
attached. I hope you will understand my position. Most of the action pictures in the list do not
have big action stars in the cast. They are not for primetime. In line with this I wish to mention
that I have not scheduled for telecast several action pictures in out very first contract because
of the cheap production value of these movies as well as the lack of big action stars. As a film
producer, I am sure you understand what I am trying to say as Viva produces only big action
pictures.
In fact, I would like to request two (2) additional runs for these movies as I can only schedule
them in our non-primetime slots. We have to cover the amount that was paid for these movies

7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and have been rejected because of the
ruling of MTRCB to have them aired at 9:00 p.m. due to their very adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the
other Viva movies produced last year. I have quite an attractive offer to make.
Thanking you and with my warmest regards.(Signed)Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBN's Ms. Concio, with a list
consisting of 52 original movie titles (i.e. not yet aired on television) including the 14 titles
subject of the present case, as well as 104 re-runs (previously aired on television) from which
ABS-CBN may choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN
airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of which
P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots (Exh. "4" to "4-C"
Viva; "9" -Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBN general manager, Eugenio Lopez III,
met at the Tamarind Grill Restaurant in Quezon City to discuss the package proposal of Viva.
What transpired in that lunch meeting is the subject of conflicting versions. Mr. Lopez testified
that he and Mr. Del Rosario allegedly agreed that ABS-CRN was granted exclusive film rights
to fourteen (14) films for a total consideration of P36 million; that he allegedly put this
agreement as to the price and number of films in a "napkin'' and signed it and gave it to Mr. Del
Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand, Del Rosario denied
having made any agreement with Lopez regarding the 14 Viva films; denied the existence of a
napkin in which Lopez wrote something; and insisted that what he and Lopez discussed at the
lunch meeting was Viva's film package offer of 104 films (52 originals and 52 re-runs) for a total
price of P60 million. Mr. Lopez promising [sic]to make a counter proposal which came in the
form of a proposal contract Annex "C" of the complaint (Exh. "1"- Viva; Exh. "C" - ABS-CBN).

On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for
Finance discussed the terms and conditions of Viva's offer to sell the 104 films, after the
rejection of the same package by ABS-CBN.
On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten note
from Ms. Concio, (Exh. "5" - Viva), which reads: "Here's the draft of the contract. I hope you find
everything in order," to which was attached a draft exhibition agreement (Exh. "C''- ABS-CBN;
Exh. "9" - Viva, p. 3) a counter-proposal covering 53 films, 52 of which came from the list sent
by defendant Del Rosario and one film was added by Ms. Concio, for a consideration of P35
million. Exhibit "C" provides that ABS-CBN is granted films right to 53 films and contains a right
of first refusal to "1992 Viva Films." The said counter proposal was however rejected by Viva's
Board of Directors [in the] evening of the same day, April 7, 1992, as Viva would not sell
anything less than the package of 104 films for P60 million pesos (Exh. "9" - Viva), and such
rejection was relayed to Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and
meetings defendant Del Rosario and Viva's President Teresita Cruz, in consideration of P60
million, signed a letter of agreement dated April 24, 1992. granting RBS the exclusive right to
air 104 Viva-produced and/or acquired films (Exh. "7-A" - RBS; Exh. "4" - RBS) including the
fourteen (14) films subject of the present case. 4
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of
preliminary injunction and/or temporary restraining order against private respondents Republic Broadcasting
Corporation 5 (hereafter RBS ), Viva Production (hereafter VIVA), and Vicente Del Rosario. The complaint was docketed
as Civil Case No. Q-92-12309.
On 27 May 1992, RTC issued a temporary restraining order 6 enjoining private respondents from proceeding with the
airing, broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting with the film Maging
Sino Ka Man, which was scheduled to be shown on private respondents RBS' channel 7 at seven o'clock in the evening
of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an
order 7 directing the issuance of a writ of preliminary injunction upon ABS-CBN's posting of P35 million bond. ABS-CBN
moved for the reduction of the bond, 8 while private respondents moved for reconsideration of the order and offered to
put up a counterbound. 9

On 29 October 1992, the RTC conducted a pre-trial. 16


Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition 17 challenging the
RTC's Orders of 3 August and 15 October 1992 and praying for the issuance of a writ of preliminary injunction to enjoin
the RTC from enforcing said orders. The case was docketed as CA-G.R. SP No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary restraining order 18 to enjoin the airing, broadcasting,
and televising of any or all of the films involved in the controversy.
On 18 December 1992, the Court of Appeals promulgated a decision 19 dismissing the petition in CA -G.R. No. 29300 for
being premature. ABS-CBN challenged the dismissal in a petition for review filed with this Court on 19 January 1993,
which was docketed as G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-192-1209. Thereafter, on 28 April
1993, it rendered a decision 20 in favor of RBS and VIVA and against ABS-CBN disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing, judgments is
rendered in favor of defendants and against the plaintiff.
(1) The complaint is hereby dismissed;
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00, the amount of premium paid
by RBS to the surety which issued defendant
RBS's bond to lift the injunction;
b) P191,843.00 for the amount of print
advertisement for "Maging Sino Ka Man" in
various newspapers;
c) Attorney's fees in the amount of P1 million;

In the meantime, private respondents filed separate answers with counterclaim. 10 RBS also set up a cross-claim against
VIVA..

d) P5 million as and by way of moral


damages;

On 3 August 1992, the RTC issued an order 11 dissolving the writ of preliminary injunction upon the posting by RBS of a
P30 million counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such dissolution. However,
it reduced petitioner's injunction bond to P15 million as a condition precedent for the reinstatement of the writ of
preliminary injunction should private respondents be unable to post a counterbond.

e) P5 million as and by way of exemplary


damages;

At the pre-trial 12 on 6 August 1992, the parties, upon suggestion of the court, agreed to explore the possibility of an
amicable settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put up a P30
million counterbond in the event that no settlement would be reached.
As the parties failed to enter into an amicable settlement RBS posted on 1 October 1992 a counterbond, which the RTC
approved in its Order of 15 October 1992. 13
On 19 October 1992, ABS-CBN filed a motion for reconsideration 14 of the 3 August and 15 October 1992 Orders, which
RBS opposed. 15

(3) For defendant VIVA, plaintiff ABS-CBN is ordered to pay


P212,000.00 by way of reasonable attorney's fees.
(4) The cross-claim of defendant RBS against defendant VIVA is
dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged agreement
between Lopez III and Del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement was
disapproved during the meeting of the Board on 7 April 1992. Hence, there was no basis for ABS-CBN's demand that

VIVA signed the 1992 Film Exhibition Agreement. Furthermore, the right of first refusal under the 1990 Film Exhibition
Agreement had previously been exercised per Ms. Concio's letter to Del Rosario ticking off ten titles acceptable to them,
which would have made the 1992 agreement an entirely new contract.
On 21 June 1993, this Court denied 21 ABS-CBN's petition for review in G.R. No. 108363, as no reversible error was
committed by the Court of Appeals in its challenged decision and the case had "become moot and academic in view of
the dismissal of the main action by the court a quo in its decision" of 28 April 1993.
Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfected
contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private
respondents VIVA and Del Rosario also appealed seeking moral and exemplary damages and additional attorney's fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between ABS-CBN and
VIVA had not been perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario, it's agent,
might have agreed with Lopez III. The appellate court did not even believe ABS-CBN's evidence that Lopez III actually
wrote down such an agreement on a "napkin," as the same was never produced in court. It likewise rejected ABS-CBN's
insistence on its right of first refusal and ratiocinated as follows:
As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement
was entered into between Appellant ABS-CBN and appellant VIVA under Exhibit "A" in 1990,
and that parag. 1.4 thereof provides:
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four
(24) VIVA films for TV telecast under such terms as may be agreed
upon by the parties hereto, provided, however, that such right shall be
exercised by ABS-CBN within a period of fifteen (15) days from the
actual offer in writing (Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subject
to such terms as may be agreed upon by the parties thereto, and that the said right shall be
exercised by ABS-CBN within fifteen (15) days from the actual offer in writing.
Said parag. 1.4 of the agreement Exhibit "A" on the right of first refusal did not fix the price of
the film right to the twenty-four (24) films, nor did it specify the terms thereof. The same are still
left to be agreed upon by the parties.
In the instant case, ABS-CBN's letter of rejection Exhibit 3 (Records, p. 89) stated that it can
only tick off ten (10) films, and the draft contract Exhibit "C" accepted only fourteen (14) films,
while parag. 1.4 of Exhibit "A'' speaks of the next twenty-four (24) films.
The offer of V1VA was sometime in December 1991 (Exhibits 2, 2-A. 2-B; Records, pp. 86-88;
Decision, p. 11, Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario
to ABS-CBN. The Vice President of ABS-CBN, Ms. Charo Santos-Concio, sent a letter dated
January 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by
rejecting the offer of VIVA.. As aptly observed by the trial court, with the said letter of Mrs.
Concio of January 6, 1992, ABS-CBN had lost its right of first refusal. And even if We reckon
the fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C) when another list was sent
to ABS-CBN after the letter of Mrs. Concio, still the fifteen (15) day period within which ABSCBN shall exercise its right of first refusal has already expired. 22
Accordingly, respondent court sustained the award of actual damages consisting in the cost of print advertisements and
the premium payments for the counterbond, there being adequate proof of the pecuniary loss which RBS had suffered
as a result of the filing of the complaint by ABS-CBN. As to the award of moral damages, the Court of Appeals found

reasonable basis therefor, holding that RBS's reputation was debased by the filing of the complaint in Civil Case No. Q92-12309 and by the non-showing of the film "Maging Sino Ka Man." Respondent court also held that exemplary
damages were correctly imposed by way of example or correction for the public good in view of the filing of the
complaint despite petitioner's knowledge that the contract with VIVA had not been perfected, It also upheld the award of
attorney's fees, reasoning that with ABS-CBN's act of instituting Civil Case No, Q-92-1209, RBS was "unnecessarily
forced to litigate." The appellate court, however, reduced the awards of moral damages to P2 million, exemplary
damages to P2 million, and attorney's fees to P500, 000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal because it was "RBS and not
VIVA which was actually prejudiced when the complaint was filed by ABS-CBN."
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that the Court of
Appeals gravely erred in
I
. . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND
PRIVATE RESPONDENT VIVA NOTWITHSTANDING PREPONDERANCE OF EVIDENCE
ADDUCED BY PETITIONER TO THE CONTRARY.
II
. . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE
RESPONDENT RBS.
III
. . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE
RESPONDENT RBS.
IV
. . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990 Film
Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to Lopez's
testimony that he and Del Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions of the
second list (the 1992 Film Exhibition Agreement) and upon agreement thereon, wrote the same on a paper napkin. It
also asserts that the contract has already been effective, as the elements thereof, namely, consent, object, and
consideration were established. It then concludes that the Court of Appeals' pronouncements were not supported by law
and jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of Appeals, 23which
cited Toyota Shaw, Inc. v. Court of Appeals, 24 Ang Yu Asuncion v. Court of Appeals, 25 and Villonco Realty Company v.
Bormaheco. Inc. 26
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the premium on the
counterbond of its own volition in order to negate the injunction issued by the trial court after the parties had ventilated
their respective positions during the hearings for the purpose. The filing of the counterbond was an option available to
RBS, but it can hardly be argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS had another
available option, i.e., move for the dissolution or the injunction; or if it was determined to put up a counterbond, it could
have presented a cash bond. Furthermore under Article 2203 of the Civil Code, the party suffering loss or injury is also
required to exercise the diligence of a good father of a family to minimize the damages resulting from the act or
omission. As regards the cost of print advertisements, RBS had not convincingly established that this was a loss

attributable to the non showing "Maging Sino Ka Man"; on the contrary, it was brought out during trial that with or without
the case or the injunction, RBS would have spent such an amount to generate interest in the film.
ABS-CBN further contends that there was no clear basis for the awards of moral and exemplary damages. The
controversy involving ABS-CBN and RBS did not in any way originate from business transaction between them. The
claims for such damages did not arise from any contractual dealings or from specific acts committed by ABS-CBN
against RBS that may be characterized as wanton, fraudulent, or reckless; they arose by virtue only of the filing of the
complaint, An award of moral and exemplary damages is not warranted where the record is bereft of any proof that a
party acted maliciously or in bad faith in filing an action. 27 In any case, free resort to courts for redress of wrongs is a
matter of public policy. The law recognizes the right of every one to sue for that which he honestly believes to be his
right without fear of standing trial for damages where by lack of sufficient evidence, legal technicalities, or a different
interpretation of the laws on the matter, the case would lose ground. 28 One who makes use of his own legal right does
no injury. 29 If damage results front the filing of the complaint, it is damnum absque injuria. 30 Besides, moral damages
are generally not awarded in favor of a juridical person, unless it enjoys a good reputation that was debased by the
offending party resulting in social humiliation. 31
As regards the award of attorney's fees, ABS-CBN maintains that the same had no factual, legal, or equitable
justification. In sustaining the trial court's award, the Court of Appeals acted in clear disregard of the doctrines laid down
in Buan v. Camaganacan 32 that the text of the decision should state the reason why attorney's fees are being awarded;
otherwise, the award should be disallowed. Besides, no bad faith has been imputed on, much less proved as having
been committed by, ABS-CBN. It has been held that "where no sufficient showing of bad faith would be reflected in a
party' s persistence in a case other than an erroneous conviction of the righteousness of his cause, attorney's fees shall
not be recovered as cost." 33
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent any meeting
of minds between them regarding the object and consideration of the alleged contract. It affirms that the ABS-CBN's
claim of a right of first refusal was correctly rejected by the trial court. RBS insist the premium it had paid for the
counterbond constituted a pecuniary loss upon which it may recover. It was obliged to put up the counterbound due to
the injunction procured by ABS-CBN. Since the trial court found that ABS-CBN had no cause of action or valid claim
against RBS and, therefore not entitled to the writ of injunction, RBS could recover from ABS-CBN the premium paid on
the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to be more expensive, as the loss
would be equivalent to the cost of money RBS would forego in case the P30 million came from its funds or was
borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film "Maging Sino
Ka Man" because the print advertisements were put out to announce the showing on a particular day and hour on
Channel 7, i.e., in its entirety at one time, not a series to be shown on a periodic basis. Hence, the print advertisement
were good and relevant for the particular date showing, and since the film could not be shown on that particular date
and hour because of the injunction, the expenses for the advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions purely for
the purpose of harassing and prejudicing RBS. Pursuant then to Article 19 and 21 of the Civil Code, ABS-CBN must be
held liable for such damages. Citing Tolentino, 34 damages may be awarded in cases of abuse of rights even if the act
done is not illicit and there is abuse of rights were plaintiff institutes and action purely for the purpose of harassing or
prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and exemplary damages, private respondents RBS cited
People v. Manero, 35 where it was stated that such entity may recover moral and exemplary damages if it has a good
reputation that is debased resulting in social humiliation. it then ratiocinates; thus:
There can be no doubt that RBS' reputation has been debased by ABS-CBN's acts in this case.
When RBS was not able to fulfill its commitment to the viewing public to show the film "Maging
Sino Ka Man" on the scheduled dates and times (and on two occasions that RBS advertised), it
suffered serious embarrassment and social humiliation. When the showing was canceled, late
viewers called up RBS' offices and subjected RBS to verbal abuse ("Announce kayo nang

announce, hindi ninyo naman ilalabas," "nanloloko yata kayo") (Exh. 3-RBS, par. 3). This alone
was not something RBS brought upon itself. it was exactly what ABS-CBN had planned to
happen.
The amount of moral and exemplary damages cannot be said to be excessive. Two reasons
justify the amount of the award.
The first is that the humiliation suffered by RBS is national extent. RBS operations as a
broadcasting company is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of those
who own and watch television. It is not an exaggeration to state, and it is a matter of judicial
notice that almost every other person in the country watches television. The humiliation
suffered by RBS is multiplied by the number of televiewers who had anticipated the showing of
the film "Maging Sino Ka Man" on May 28 and November 3, 1992 but did not see it owing to the
cancellation. Added to this are the advertisers who had placed commercial spots for the
telecast and to whom RBS 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 RBS to suffer the humiliation. The humiliation
and injury are far greater in degree when caused by an entity whose ultimate business
objective is to lure customers (viewers in this case) away from the competition. 36
For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court of Appeals
do not support ABS-CBN's claim that there was a perfected contract. Such factual findings can no longer be disturbed in
this petition for review under Rule 45, as only questions of law can be raised, not questions of fact. On the issue of
damages and attorneys fees, they adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABS-CBN, and
(2) whether RBS is entitled to damages and attorney's fees. It may be noted that the award of attorney's fees of
P212,000 in favor of VIVA is not assigned as another error.
I.
The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons whereby
one binds himself to give something or to render some service to another 37 for a consideration. there is no contract
unless the following requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject of the
contract; and (3) cause of the obligation, which is established. 38 A contract undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and bargaining,
ending at the moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to agree on
the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in
the contract. 39
Contracts that are consensual in nature are perfected upon mere meeting of the minds, Once there is concurrence
between the offer and the acceptance upon the subject 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
qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the
proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of
the original offer. Consequently, when something is desired which is not exactly what is proposed in the offer, such

acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls
the offer. 40
When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss the
package of films, said package of 104 VIVA films was VIVA's offer to ABS-CBN to enter into a new Film Exhibition
Agreement. But ABS-CBN, sent, through Ms. Concio, a counter-proposal in the form of a draft contract proposing
exhibition of 53 films for a consideration of P35 million. This counter-proposal could be nothing less than the counteroffer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly, there was no acceptance
of VIVA's offer, for it was met by a counter-offer which substantially varied the terms of the offer.
ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of
Appeals 41 and Villonco Realty Company v. Bormaheco, Inc., 42 is misplaced. In these cases, it was held that an
acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance as long
as "it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such
request is granted or not." This ruling was, however, reversed in the resolution of 29 March 1996, 43 which ruled that the
acceptance of all offer must be unqualified and absolute, i.e., it "must be identical in all respects with that of the offer so
as to produce consent or meeting of the minds."
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not material but
merely clarificatory of what had previously been agreed upon. It cited the statement in Stuart v. Franklin Life Insurance
Co. 44 that "a vendor's change in a phrase of the offer to purchase, which change does not essentially change the terms
of the offer, does not amount to a rejection of the offer and the tender of a counter-offer." 45However, when any of the
elements of the contract is modified upon acceptance, such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's offer. Hence, they underwent a period of
bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft contract, VIVA through its Board of
Directors, rejected such counter-offer, Even if it be conceded arguendo that Del Rosario had accepted the counter-offer,
the acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the specific authority to do so.
Under Corporation Code, 46 unless otherwise provided by said Code, corporate powers, such as the power; to enter into
contracts; are exercised by the Board of Directors. However, the Board may delegate such powers to either an
executive committee or officials or contracted managers. The delegation, except for the executive committee, must be
for specific purposes, 47 Delegation to officers makes the latter agents of the corporation; accordingly, the general rules
of agency as to the bindings effects of their acts would
apply. 48 For such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must
specially authorize them to do so. That Del Rosario did not have the authority to accept ABS-CBN's counter-offer was
best evidenced by his submission of the draft contract to VIVA's Board of Directors for the latter's approval. In any event,
there was between Del Rosario and Lopez III no meeting of minds. The following findings of the trial court are
instructive:
A number of considerations militate against ABS-CBN's claim that a contract was perfected at
that lunch meeting on April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price
and the number of films, which he wrote on a napkin. However, Exhibit "C" contains numerous
provisions which, were not discussed at the Tamarind Grill, if Lopez 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 a cloth napkin. In short what were written in Exhibit "C'' were
not discussed, and therefore could not have been agreed upon, by the parties. How then could
this court compel the parties to sign Exhibit "C" when the provisions thereof were not previously
agreed upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract
was 14 films. The complaint in fact prays for delivery of 14 films. But Exhibit "C" mentions 53

films as its subject matter. Which is which If Exhibits "C" reflected the true intent of the parties,
then ABS-CBN's claim for 14 films in its complaint is false or if what it alleged in the complaint
is true, then Exhibit "C" did not reflect what was agreed upon by the parties. This underscores
the fact that there was no meeting of the minds as to the subject matter of the contracts, so as
to preclude perfection thereof. For settled is the rule that there can be no contract where there
is no object which is its subject matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. "D") states:
We were able to reach an agreement. VIVA gave us the exclusive
license to show these fourteen (14) films, and we agreed to pay Viva
the amount of P16,050,000.00 as well as grant Viva commercial slots
worth P19,950,000.00. We had already earmarked this P16,
050,000.00.
which gives a total consideration of P36 million (P19,950,000.00 plus P16,050,000.00. equals
P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q. What was written in this napkin?
A. The total price, the breakdown the known Viva movies, the 7
blockbuster movies and the other 7 Viva movies because the price
was broken down accordingly. The none [sic] Viva and the seven other
Viva movies and the sharing between the cash portion and the
concerned spot portion in the total amount of P35 million pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-CBN's claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit "C" to Mr.
Del Rosario with a handwritten note, describing said Exhibit "C" as a "draft." (Exh. "5" - Viva;
tsn pp. 23-24 June 08, 1992). The said draft has a well defined meaning.
Since Exhibit "C" is only a draft, or a tentative, provisional or preparatory writing prepared for
discussion, the terms and conditions thereof could not have been previously agreed upon by
ABS-CBN and Viva Exhibit "C'' could not therefore legally bind Viva, not having agreed thereto.
In fact, Ms. Concio admitted that the terms and conditions embodied in Exhibit "C" were
prepared by ABS-CBN's lawyers and there was no discussion on said terms and conditions. . . .
As the parties had not yet discussed the proposed terms and conditions in Exhibit "C," and
there was no evidence whatsoever that Viva agreed to the terms and conditions thereof, said
document cannot be a binding contract. The fact that Viva refused to sign Exhibit "C" reveals
only two [sic] well that it did not agree on its terms and conditions, and this court has no
authority to compel Viva to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the
Tamarind Grill was only provisional, in the sense that it was subject to approval by the Board of
Directors of Viva. He testified:

Q. Now, Mr. Witness, and after that Tamarind meeting ... the second
meeting wherein you claimed that you have the meeting of the minds
between you and Mr. Vic del Rosario, what happened?

has lost its rights of the first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992,
pp. 10-11) 50
II

A. Vic Del Rosario was supposed to call us up and tell us specifically


the result of the discussion with the Board of Directors.
Q. And you are referring to the so-called agreement which you wrote
in [sic] a piece of paper?
A. Yes, sir.
Q. So, he was going to forward that to the board of Directors for
approval?
A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992)
Q. Did Mr. Del Rosario tell you that he will submit it to his Board for
approval?
A. Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no
authority to bind Viva to a contract with ABS-CBN until and unless its Board of Directors
approved it. The complaint, in fact, alleges that Mr. Del Rosario "is the Executive Producer of
defendant Viva" which "is a corporation." (par. 2, complaint). As a mere agent of Viva, Del
Rosario could not bind Viva unless what he did is ratified by its Board of Directors. (Vicente
vs. Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere agent,
recognized as such by plaintiff, Del Rosario could not be held liable jointly and severally with
Viva and his inclusion as party defendant has no legal basis. (Salonga vs.Warner Barner [sic] ,
COLTA , 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what
was supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del
Rosario was not a binding agreement. It is as it should be because corporate power to enter
into a contract is lodged in the Board of Directors. (Sec. 23, Corporation Code). Without such
board approval by the Viva board, whatever agreement Lopez and Del Rosario arrived at could
not ripen into a valid contract binding upon Viva (Yao Ka Sin Trading vs. Court of Appeals, 209
SCRA 763). The evidence adduced shows that the Board of Directors of Viva rejected Exhibit
"C" and insisted that the film package for 140 films be maintained (Exh. "7-1" - Viva ). 49
The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under the 1990 Film
Exhibition Agreement and that the meeting between Lopez and Del Rosario was a continuation of said previous contract
is untenable. As observed by the trial court, ABS-CBN right of first refusal had already been exercised when Ms. Concio
wrote to VIVA ticking off ten films, Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for
an entirely different package. Ms. Concio herself admitted on cross-examination to having used
or exercised the right of first refusal. She stated that the list was not acceptable and was indeed
not accepted by ABS-CBN, (TSN, June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted
that the right of the first refusal may have been already exercised by Ms. Concio (as she had).
(TSN, June 8, 1992, pp. 71-75). Del Rosario himself knew and understand [sic] that ABS-CBN

However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII,
Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as provided by law or by
stipulation, one is entitled to compensation for actual damages only for such pecuniary loss suffered by him as he has
duly proved. 51 The indemnification shall comprehend not only the value of the loss suffered, but also that of the profits
that the obligee failed to obtain. 52 In contracts and quasi-contracts the damages which may be awarded are dependent
on whether the obligor acted with good faith or otherwise, It case of good faith, the damages recoverable are those
which are the natural and probable consequences of the breach of the obligation and which the parties have foreseen or
could have reasonably foreseen at the time of the constitution of the obligation. If the obligor acted with fraud, bad faith,
malice, or wanton attitude, he shall be responsible for all damages which may be reasonably attributed to the nonperformance of the obligation. 53 In crimes and quasi-delicts, the defendant shall be liable for all damages which are the
natural and probable consequences of the act or omission complained of, whether or not such damages has been
foreseen or could have reasonably been foreseen by the defendant. 54
Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or
permanent personal injury, or for injury to the plaintiff's business standing or commercial credit. 55
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from the
fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of action. Thus paragraph 12 of
RBS's Answer with Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action RBS. As a
result thereof, RBS suffered actual damages in the amount of P6,621,195.32. 56
Needless to state the award of actual damages cannot be comprehended under the above law on actual damages. RBS
could only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows:
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and good faith.
Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another,
shall indemnify the latter for tile same.
Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage.
It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the
defendant may suffer by reason of the writ are recoverable from the injunctive bond. 57 In this case, ABS-CBN had not
yet filed the required bond; as a matter of fact, it asked for reduction of the bond and even went to the Court of Appeals
to challenge the order on the matter, Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-CBN
cannot be held responsible for the premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for lack of sufficient legal basis.
The RTC issued a temporary restraining order and later, a writ of preliminary injunction on the basis of its determination
that there existed sufficient ground for the issuance thereof. Notably, the RTC did not dissolve the injunction on the
ground of lack of legal and factual basis, but because of the plea of RBS that it be allowed to put up a counterbond.

As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may be recovered as actual
or compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code. 58
The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium
should be placed on the right to litigate. 59 They are not to be awarded every time a party wins a suit. The power of the
court to award attorney's fees under Article 2208 demands factual, legal, and equitable justification. 60Even when
claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney's fees may not
be awarded where no sufficient showing of bad faith could be reflected in a party's persistence in a case other than
erroneous conviction of the righteousness of his cause. 61
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof defines
what are included in moral damages, while Article 2219 enumerates the cases where they may be recovered, Article
2220 provides that moral damages may be recovered in breaches of contract where the defendant acted fraudulently or
in bad faith. RBS's claim for moral damages could possibly fall only under item (10) of Article 2219, thereof which reads:

There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the merits of
its cause after it had undergone serious negotiations culminating 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 wrongful and subject the actor to damages,
for the law could not have meant to impose a penalty on the right to litigate. If damages result from a person's exercise
of a right, it is damnum absque injuria. 75
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No,
44125 is hereby REVERSED except as to unappealed award of attorney's fees in favor of VIVA Productions,
Inc.1wphi1.nt
No pronouncement as to costs.
SO ORDERED.

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered. and not
to impose a penalty on the wrongdoer. 62 The award is not meant to enrich the complainant at the expense of the
defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate then
moral suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status
quo ante, and should be proportionate to the suffering inflicted. 63 Trial courts must then guard against the award of
exorbitant damages; they should exercise balanced restrained and measured objectivity to avoid suspicion that it was
due to passion, prejudice, or corruption on the part of the trial court. 64
The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having
existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience
physical suffering and mental anguish, which call be experienced only by one having a nervous system. 65The statement
in People v. Manero 66 and Mambulao Lumber Co. v. PNB 67 that a corporation may recover moral damages if it "has a
good reputation that is debased, resulting in social humiliation" is an obiter dictum. On this score alone the award for
damages must be set aside, since RBS is a corporation.
The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed
by way of example or correction for the public good, in addition to moral, temperate, liquidated or compensatory
damages. 68 They are recoverable in criminal cases as part of the civil liability when the crime was committed with one
or more aggravating circumstances; 69 in quasi-contracts, if the defendant acted with gross negligence; 70 and in
contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner. 71
Republic of the Philippines
SUPREME COURT
Manila

It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasidelict, Hence, the claims for moral and exemplary damages can only be based on Articles 19, 20, and 21 of the Civil
Code.

SECOND DIVISION
The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty, (2) which is
exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general
sanction for all other provisions of law which do not especially provide for their own sanction; while Article 21 deals with
acts contra bonus mores, and has the following elements; (1) there is an act which is legal, (2) but which is contrary to
morals, good custom, public order, or public policy, and (3) and it is done with intent to injure. 72
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and
intentional design to do a wrongful act for a dishonest purpose or moral obliquity. 73 Such must be substantiated by
evidence. 74

G.R. No. 172428

November 28, 2008

HERMAN C. CRYSTAL, LAMBERTO C. CRYSTAL, ANN GEORGIA C. SOLANTE, and DORIS C. MAGLASANG, as
Heirs of Deceased SPOUSES RAYMUNDO I. CRYSTAL and DESAMPARADOS C. CRYSTAL, petitioners,
vs.
BANK OF THE PHILIPPINE ISLANDS, respondent.
DECISION

TINGA, J.:
Before us is a Petition for Review1 of the Decision2 and Resolution3 of the Court of Appeals dated 24 October 2005 and
31 March 2006, respectively, in CA G.R. CV No. 72886, which affirmed the 8 June 2001 decision of the Regional Trial
Court, Branch 5, of Cebu City.4

the loans; hence, BPI can validly foreclose the two real estate mortgages. Moreover, being guarantors-mortgagors, the
spouses are not entitled to the benefit of exhaustion. Anent the FCSA, the trial court found that CCCC originally had
FCDU SA No. 197 with BPI, Dewey Boulevard branch, which was transferred to BPI-Makati as FCDU SA 76/0035, at
the request of Desamparados Crystal. FCDU SA 76/0035 was thus closed, but Desamparados Crystal failed to
surrender the passbook because it was lost. The transferred FCSA in BPI-Makati was the one used as security for
CCCCs P450,000.00 loan from BPI-Makati. CCCC was no longer allowed to withdraw from FCDU SA No. 197 because
it was already closed.

The facts, as culled from the records, follow.


On 28 March 1978, spouses Raymundo and Desamparados Crystal obtained a P300,000.00 loan in behalf of the Cebu
Contractors Consortium Co. (CCCC) from the Bank of the Philippine Islands-Butuan branch (BPI-Butuan). The loan was
secured by a chattel mortgage on heavy equipment and machinery of CCCC. On the same date, the spouses executed
in favor of BPI-Butuan a Continuing Suretyship5where they bound themselves as surety of CCCC in the aggregate
principal sum of not exceedingP300,000.00. Thereafter, or on 29 March 1979, Raymundo Crystal executed a promissory
note6 for the amount of P300,000.00, also in favor of BPI-Butuan.
Sometime in August 1979, CCCC renewed a previous loan, this time from BPI, Cebu City branch (BPI-Cebu City). The
renewal was evidenced by a promissory note7 dated 13 August 1979, signed by the spouses in their personal capacities
and as managing partners of CCCC. The promissory note states that the spouses are jointly and severally liable with
CCCC. It appears that before the original loan could be granted, BPI-Cebu City required CCCC to put up a security.
However, CCCC had no real property to offer as security for the loan; hence, the spouses executed a real estate
mortgage8 over their own real property on 22 September 1977.9 On 3 October 1977, they executed another real estate
mortgage over the same lot in favor of BPI-Cebu City, to secure an additional loan of P20,000.00 of CCCC.10
CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu City when they became due. CCCC, as well as the
spouses, failed to pay their obligations despite demands. Thus, BPI resorted to the foreclosure of the chattel mortgage
and the real estate mortgage. The foreclosure sale on the chattel mortgage was initially stalled with the issuance of a
restraining order against BPI.11 However, following BPIs compliance with the necessary requisites of extrajudicial
foreclosure, the foreclosure sale on the chattel mortgage was consummated on 28 February 1988, with the proceeds
amounting toP240,000.00 applied to the loan from BPI-Butuan which had then reached P707,393.90.12 Meanwhile, on 7
July 1981, Insular Bank of Asia and America (IBAA), through its Vice-President for Legal and Corporate Affairs, offered
to buy the lot subject of the two (2) real
estate mortgages and to pay directly the spouses indebtedness in exchange for the release of the mortgages. BPI
rejected IBAAs offer to pay.13
BPI filed a complaint for sum of money against CCCC and the spouses before the Regional Trial Court of Butuan City
(RTC Butuan), seeking to recover the deficiency of the loan of CCCC and the spouses with BPI-Butuan. The trial court
ruled in favor of BPI. Pursuant to the decision, BPI instituted extrajudicial foreclosure of the spouses mortgaged
property.14
On 10 April 1985, the spouses filed an action for Injunction With Damages, With A Prayer For A Restraining Order and/
or Writ of Preliminary Injunction.15 The spouses claimed that the foreclosure of the real estate mortgages is illegal
because BPI should have exhausted CCCCs properties first, stressing that they are mere guarantors of the renewed
loans. They also prayed that they be awarded moral and exemplary damages, attorneys fees, litigation expenses and
cost of suit. Subsequently, the spouses filed an amended complaint,16 additionally alleging that CCCC had opened and
maintained a foreign currency savings account (FCSA-197) with bpi, Makati branch (BPI-Makati), and that said FCSA
was used as security for a P450,000.00 loan also extended by BPI-Makati. The P450,000.00 loan was allegedly paid,
and thereafter the spouses demanded the return of the FCSA passbook. BPI rejected the demand; thus, the spouses
were unable to withdraw from the said account to pay for their other obligations to BPI.
The trial court dismissed the spouses complaint and ordered them to pay moral and exemplary damages and attorneys
fees to BPI.17 It ruled that since the spouses agreed to bind themselves jointly and severally, they are solidarily liable for

The spouses appealed the decision of the trial court to the Court of Appeals, but their appeal was dismissed. 18 The
spouses moved for the reconsideration of the decision, but the Court of Appeals also denied their motion for
reconsideration.19 Hence, the present petition.
Before the Court, petitioners who are the heirs of the spouses argue that the failure of the spouses to pay the BPI-Cebu
City loan of P120,000.00 was due to BPIs illegal refusal to accept payment for the loan unless the P300,000.00 loan
from BPI-Butuan would also be paid. Consequently, in view of BPIs unjust refusal to accept payment of the BPI-Cebu
City loan, the loan obligation of the spouses was extinguished, petitioners contend.
The contention has no merit. Petitioners rely on IBAAs offer to purchase the mortgaged lot from them and to directly pay
BPI out of the proceeds thereof to settle the loan.20 BPIs refusal to agree to such payment scheme cannot extinguish
the spouses loan obligation. In the first place, IBAA is not privy to the loan agreement or the promissory note between
the spouses and BPI. Contracts, after all, take effect only between the parties, their successors in interest, heirs
and assigns.21 Besides, under Art. 1236 of the Civil Code, the creditor is not bound to accept payment or performance
by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. We
see no stipulation in the promissory note which states that a third person may fulfill the spouses obligation. Thus, it is
clear that the spouses alone bear responsibility for the same.
In any event, the promissory note is the controlling repository of the obligation of the spouses. Under the promissory
note, the spouses defined the parameters of their obligation as follows:
On or before June 29, 1980 on demand, for value received, I/we promise to pay, jointly and severally, to the
BANK OF THE PHILIPPINE ISLANDS, at its office in the city of Cebu Philippines, the sum of ONE
HUNDRED TWENTY THOUSAND PESOS (P120,0000.00), Philippine Currency, subject to periodic
installments on the principal as follows: P30,000.00 quarterly amortization starting September 28, 1979. x x
x 22
A solidary obligation is one in which each of the debtors is liable for the entire obligation, and each of the creditors is
entitled to demand the satisfaction of the whole obligation from any or all of the debtors. 23 A liability is solidary "only
when the obligation expressly so states, when the law so provides or when the nature of the
obligation so requires."24 Thus, when the obligor undertakes to be "jointly and severally" liable, it means that the
obligation is solidary,25 such as in this case. By stating "I/we promise to pay, jointly and severally, to the BANK OF THE
PHILIPPINE ISLANDS," the spouses agreed to be sought out and be demanded payment from, by BPI. BPI did demand
payment from them, but they failed to comply with their obligation, prompting BPIs valid resort to the foreclosure of the
chattel mortgage and the real estate mortgages.
More importantly, the promissory note, wherein the spouses undertook to be solidarily liable for the principal loan,
partakes the nature of a suretyship and therefore is an additional security for the loan. Thus we held in one case that if
solidary liability was instituted to "guarantee" a principal obligation, the law deems the contract to be one of
suretyship.26 And while a contract of a surety is in essence secondary only to a valid principal obligation, the suretys
liability to the creditor or promisee of the principal is said to be direct, primary, and absolute; in other words, the surety is
directly and equally bound with the principal. The surety therefore becomes liable for the debt or duty of another even if
he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom. 27

Petitioners contend that the Court of Appeals erred in not granting their counterclaims, considering that they suffered
moral damages in view of the unjust refusal of BPI to accept the payment scheme proposed by IBAA and the allegedly
unjust and illegal foreclosure of the real estate mortgages on their property.28 Conversely, they argue that the Court of
Appeals erred in awarding moral damages to BPI, which is a corporation, as well as exemplary damages, attorneys
fees and expenses of litigation.29
We do not agree. Moral damages are meant to compensate the claimant for any physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injuries
unjustly caused.30 Such damages, to be recoverable, must be the proximate result of a wrongful act or omission the
factual basis for which is satisfactorily established by the aggrieved party. 31 There being no wrongful or unjust act on the
part of BPI in demanding payment from them and in seeking the foreclosure of the chattel and real estate mortgages,
there is no lawful basis for award of damages in favor of the spouses.

BPI was forced to litigate and defend its interest. For these reasons, BPI is entitled to the awards of exemplary damages
and attorneys fees.
WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals dated 24 October 2005
and 31 March 2006, respectively, are hereby AFFIRMED, with the MODIFICATION that the award of moral damages to
Bank of the Philippine Islands is DELETED.
Costs against the petitioners.
SO ORDERED.

Neither is BPI entitled to moral damages. A juridical person is generally not entitled to moral damages because, unlike a
natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental
anguish or moral shock.32 The Court of Appeals found BPI as "being famous and having gained its familiarity and
respect not only in the Philippines but also in the whole world because of its good will and good reputation must protect
and defend the same against any unwarranted suit such as the case at bench."33 In holding that BPI is entitled to moral
damages, the Court of Appeals relied on the case of People v. Manero,34 wherein the Court ruled that "[i]t is only when a
juridical person has a good reputation that is debased, resulting in social humiliation, that moral damages may be
awarded."35
We do not agree with the Court of Appeals. A statement similar to that made by the Court in Manerocan be found in the
case of Mambulao Lumber Co. v. PNB, et al.,36 thus:
x x x Obviously, an artificial person like herein appellant corporation cannot experience physical sufferings,
mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis
of moral damages. A corporation may have good reputation which, if besmirched may also be a
ground for the award of moral damages. x x x (Emphasis supplied)
Nevertheless, in the more recent cases of ABS-CBN Corp. v. Court of Appeals, et al.,37 and Filipinas Broadcasting
Network, Inc. v. Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM),38 the Court
held that the statements in Manero and Mambulao were mere obiter dicta, implying that the award of moral damages to
corporations is not a hard and fast rule. Indeed, while the Court may allow the grant of moral damages to corporations, it
is not automatically granted; there must still be proof of the existence of the factual basis of the damage and its causal
relation to the defendants acts. This is so because moral damages, though incapable of pecuniary estimation, are in the
category of an award designed to compensate the claimant for actual injurysuffered and not to impose a penalty on the
wrongdoer.39

Republic of the Philippines


SUPREME COURT
Manila

The spouses complaint against BPI proved to be unfounded, but it does not automatically entitle BPI to moral damages.
Although the institution of a clearly unfounded civil suit can at times be a legal
justification for an award of attorney's fees, such filing, however, has almost invariably been held not to be a ground for
an award of moral damages. The rationale for the rule is that the law could not have meant to impose a penalty on the
right to litigate. Otherwise, moral damages must every time be awarded in favor of the prevailing defendant against an
unsuccessful plaintiff.40 BPI may have been inconvenienced by the suit, but we do not see how it could have possibly
suffered besmirched reputation on account of the single suit alone. Hence, the award of moral damages should be
deleted.
The awards of exemplary damages and attorneys fees, however, are proper. Exemplary damages, on the other hand,
are imposed by way of example or correction for the public good, when the party to a contract acts in a wanton,
fraudulent, oppressive or malevolent manner, while attorneys fees are allowed when exemplary damages are awarded
and when the party to a suit is compelled to incur expenses to protect his interest.41 The spouses instituted their
complaint against BPI notwithstanding the fact that they were the ones who failed to pay their obligations. Consequently,

FIRST DIVISION
G.R. No. 141994

January 17, 2005

FILIPINAS BROADCASTING NETWORK, INC., petitioner,


vs.
AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and
ANGELITA F. AGO, respondents.
DECISION
CARPIO, J.:

The Case
This petition for review1 assails the 4 January 1999 Decision2 and 26 January 2000 Resolution of the Court of Appeals in
CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December 1992 Decision 3 of the
Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held Filipinas
Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel and ordered
them to solidarily pay Ago Medical and Educational Center-Bicol Christian College of Medicine moral damages,
attorneys fees and costs of suit.
The Antecedents

On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of
Mass Communication in their effort to minimize expenses in terms of salary are absorbing or continues to
accept "rejects". For example how many teachers in AMEC are former teachers of Aquinas University but were
removed because of immorality? Does it mean that the present administration of AMEC have the total definite moral
foundation from catholic administrator of Aquinas University. I will prove to you my friends, that AMEC is a dumping
ground, garbage, not merely of moral and physical misfits. Probably they only qualify in terms of intellect. The Dean
of Student Affairs of AMEC is Justita Lola, as the family name implies. She is too old to work, being an old woman. Is the
AMEC administration exploiting the very [e]nterprising or compromising and undemanding Lola? Could it be that AMEC
is just patiently making use of Dean Justita Lola were if she is very old. As in atmospheric situation zero visibility the
plane cannot land, meaning she is very old, low pay follows. By the way, Dean Justita Lola is also the chairman of the
committee on scholarship in AMEC. She had retired from Bicol University a long time ago but AMEC has patiently made
use of her.

"Expos" is a radio documentary4 program hosted by Carmelo Mel Rima ("Rima") and Hermogenes Jun Alegre
("Alegre").5 Expos is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc.
("FBNI"). "Expos" is heard over Legazpi City, the Albay municipalities and other Bicol areas. 6

xxx
MEL RIMA:

In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students,
teachers and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine ("AMEC") and its
administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago ("Ago"), as Dean of AMECs
College of Medicine, filed a complaint for damages7 against FBNI, Rima and Alegre on 27 February 1990. Quoted are
portions of the allegedly libelous broadcasts:

xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does this
mean? Immoral and physically misfits as teachers.
May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You are
too old. As an aviation, your case is zero visibility. Dont insist.

JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them to
pass all subjects because if they fail in any subject they will repeat their year level, taking up all subjects
including those they have passed already. Several students had approached me stating that they had consulted with
the DECS which told them that there is no such regulation. If [there] is no such regulation why is AMEC doing the same?

xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The reason
is practical cost saving in salaries, because an old person is not fastidious, so long as she has money to buy the
ingredient of beetle juice. The elderly can get by thats why she (Lola) was taken in as Dean.
xxx

xxx
Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS.
xxx
Third: Students are required to take and pay for the subject even if the subject does not have an instructor such greed for money on the part of AMECs administration. Take the subject Anatomy: students would pay for the
subject upon enrolment because it is offered by the school. However there would be no instructor for such subject.
Students would be informed that course would be moved to a later date because the school is still searching for the
appropriate instructor.
xxx
It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the past
few years since its inception because of funds support from foreign foundations. If you will take a look at the AMEC
premises youll find out that the names of the buildings there are foreign soundings. There is a McDonald Hall. Why not
Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence that the support of foreign foundations for
AMEC is substantial, isnt it? With the report which is the basis of the expose in DZRC today, it would be very easy for
detractors and enemies of the Ago family to stop the flow of support of foreign foundations who assist the medical
school on the basis of the latters purpose. But if the purpose of the institution (AMEC) is to deceive students at cross
purpose with its reason for being it is possible for these foreign foundations to lift or suspend their donations
temporarily.8
xxx

xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by
evil. When they become members of society outside of campus will be liabilities rather than assets. What do you
expect from a doctor who while studying at AMEC is so much burdened with unreasonable imposition? What do you
expect from a student who aside from peculiar problems because not all students are rich in their struggle to
improve their social status are even more burdened with false regulations. xxx9 (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI, Rima and
Alegre "transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation." AMEC and
Ago included FBNI as defendant for allegedly failing to exercise due diligence in the selection and supervision of its
employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer10 alleging that the broadcasts
against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a sense of public
duty to report the "goings-on in AMEC, [which is] an institution imbued with public interest."
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea, collaborating
counsel of Atty. Lozares, filed a Motion to Dismiss11 on FBNIs behalf. The trial court denied the motion to dismiss.
Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in the selection and supervision of
Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster should (1) file an application; (2) be
interviewed; and (3) undergo an apprenticeship and training program after passing the interview. FBNI likewise claimed
that it always reminds its broadcasters to "observe truth, fairness and objectivity in their broadcasts and to refrain from
using libelous and indecent language." Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga
Brodkaster sa Pilipinas ("KBP") accreditation test and to secure a KBP permit.

On 14 December 1992, the trial court rendered a Decision12 finding FBNI and Alegre liable for libel except Rima. The
trial court held that the broadcasts are libelous per se. The trial court rejected the broadcasters claim that their
utterances were the result of straight reporting because it had no factual basis. The broadcasters did not even verify
their reports before airing them to show good faith. In holding FBNI liable for libel, the trial court found that FBNI failed to
exercise diligence in the selection and supervision of its employees.

The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its employees for
allowing Rima and Alegre to make the radio broadcasts without the proper KBP accreditation. The Court of Appeals
denied Agos claim for damages and attorneys fees because the libelous remarks were directed against AMEC, and not
against her. The Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages,
attorneys fees and costs of suit.1awphi1.nt

In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he agreed with Alegres
expos. The trial court found Rimas statement within the "bounds of freedom of speech, expression, and of the press."
The dispositive portion of the decision reads:

Issues

WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused by
the controversial utterances, which are not found by this court to be really very serious and damaging, and
there being no showing that indeed the enrollment of plaintiff school dropped, defendants Hermogenes "Jun"
Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio station DZRC), are hereby jointly and severally
ordered to pay plaintiff Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the
amount of P300,000.00 moral damages, plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of suit.
SO ORDERED.

13

(Emphasis supplied)

Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision to
the Court of Appeals. The Court of Appeals affirmed the trial courts judgment with modification. The appellate court
made Rima solidarily liable with FBNI and Alegre. The appellate court denied Agos claim for damages and attorneys
fees because the broadcasts were directed against AMEC, and not against her. The dispositive portion of the Court of
Appeals decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel Rima
is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.14
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000
Resolution.

FBNI raises the following issues for resolution:


I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL
DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT.
The Courts Ruling
We deny the petition.
This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against
AMEC.17 While AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint reveals that
AMECs cause of action is based on Articles 30 and 33 of the Civil Code. Article 3018 authorizes a separate civil action to
recover civil liability arising from a criminal offense. On the other hand, Article 33 19 particularly provides that the injured
party may bring a separate civil action for damages in cases of defamation, fraud, and physical injuries. AMEC also
invokes Article 1920 of the Civil Code to justify its claim for damages. AMEC cites Articles 217621 and 218022 of the Civil
Code to hold FBNI solidarily liable with Rima and Alegre.
I.

Hence, FBNI filed this petition.15


The Ruling of the Court of Appeals
The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per se and that FBNI,
Rima and Alegre failed to overcome the legal presumption of malice. The Court of Appeals found Rima and Alegres
claim that they were actuated by their moral and social duty to inform the public of the students gripes as insufficient to
justify the utterance of the defamatory remarks.
Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled that the
broadcasts were made "with reckless disregard as to whether they were true or false." The appellate court pointed out
that FBNI, Rima and Alegre failed to present in court any of the students who allegedly complained against AMEC. Rima
and Alegre merely gave a single name when asked to identify the students. According to the Court of Appeals, these
circumstances cast doubt on the veracity of the broadcasters claim that they were "impelled by their moral and social
duty to inform the public about the students gripes."
The Court of Appeals found Rima also liable for libel since he remarked that "(1) AMEC-BCCM is a dumping ground for
morally and physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to minimize expenses on its
employees salaries; and (3) AMEC burdened the students with unreasonable imposition and false regulations."16

Whether the broadcasts are libelous


A libel23 is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or omission,
condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or juridical person, or
to blacken the memory of one who is dead.24
There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending to
cause it dishonor, discredit and contempt. Rima and Alegres remarks such as "greed for money on the part of AMECs
administrators"; "AMEC is a dumping ground, garbage of xxx moral and physical misfits"; and AMEC students who
graduate "will be liabilities rather than assets" of the society are libelous per se. Taken as a whole, the broadcasts
suggest that AMEC is a money-making institution where physically and morally unfit teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly impelled
by their civic duty to air the students gripes. FBNI alleges that there is no evidence that ill will or spite motivated Rima
and Alegre in making the broadcasts. FBNI further points out that Rima and Alegre exerted efforts to obtain AMECs side
and gave Ago the opportunity to defend AMEC and its administrators. FBNI concludes that since there is no malice,
there is no libel.

FBNIs contentions are untenable.


Every defamatory imputation is presumed malicious.25 Rima and Alegre failed to show adequately their good intention
and justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or public affairs program,
Rima and Alegre should have presented the public issues "free from inaccurate and misleading information."26 Hearing
the students alleged complaints a month before the expos,27 they had sufficient time to verify their sources and
information. However, Rima and Alegre hardly made a thorough investigation of the students alleged gripes. Neither did
they inquire about nor confirm the purported irregularities in AMEC from the Department of Education, Culture and
Sports. Alegre testified that he merely went to AMEC to verify his report from an alleged AMEC official who refused to
disclose any information. Alegre simply relied on the words of the students "because they were many and not because
there is proof that what they are saying is true."28 This plainly shows Rima and Alegres reckless disregard of whether
their report was true or not.
Contrary to FBNIs claim, the broadcasts were not "the result of straight reporting." Significantly, some courts in the
United States apply the privilege of "neutral reportage" in libel cases involving matters of public interest or public figures.
Under this privilege, a republisher who accurately and disinterestedly reports certain defamatory statements made
against public figures is shielded from liability, regardless of the republishers subjective awareness of the truth or falsity
of the accusation.29 Rima and Alegre cannot invoke the privilege of neutral reportage because unfounded comments
abound in the broadcasts. Moreover, there is no existing controversy involving AMEC when the broadcasts were made.
The privilege of neutral reportage applies where the defamed person is a public figure who is involved in an existing
controversy, and a party to that controversy makes the defamatory statement.30
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of
Appeals,31FBNI contends that the broadcasts "fall within the coverage of qualifiedly privileged communications" for
being commentaries on matters of public interest. Such being the case, AMEC should prove malice in fact or actual
malice. Since AMEC allegedly failed to prove actual malice, there is no libel.
FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the "doctrine of fair comment," thus:
[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or
slander. The doctrine of fair comment means that while in general every discreditable imputation publicly made is
deemed false, because every man is presumed innocent until his guilt is judicially proved, and every false imputation is
deemed malicious, nevertheless, when the discreditable imputation is directed against a public person in his public
capacity, it is not necessarily actionable. In order that such discreditable imputation to a public official may be
actionable, it must either be a false allegation of fact or a comment based on a false supposition. If the
comment is an expression of opinion, based on established facts, then it is immaterial that the opinion happens to
be mistaken, as long as it might reasonably be inferred from the facts.32 (Emphasis supplied)
True, AMEC is a private learning institution whose business of educating students is "genuinely imbued with public
interest." The welfare of the youth in general and AMECs students in particular is a matter which the public has the right
to know. Thus, similar to the newspaper articles in Borjal, the subject broadcasts dealt with matters of public interest.
However, unlike in Borjal, the questioned broadcasts are not based on established facts. The record supports the
following findings of the trial court:
xxx Although defendants claim that they were motivated by consistent reports of students and parents against plaintiff,
yet, defendants have not presented in court, nor even gave name of a single student who made the complaint to them,
much less present written complaint or petition to that effect. To accept this defense of defendants is too dangerous
because it could easily give license to the media to malign people and establishments based on flimsy excuses that
there were reports to them although they could not satisfactorily establish it. Such laxity would encourage careless and
irresponsible broadcasting which is inimical to public interests.
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties, did not
verify and analyze the truth of the reports before they aired it, in order to prove that they are in good faith.

Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet, plaintiff
produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years before the controversial
broadcast, accreditation to offer Physical Therapy course had already been given the plaintiff, which certificate is signed
by no less than the Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants
could have easily known this were they careful enough to verify. And yet, defendants were very categorical and sounded
too positive when they made the erroneous report that plaintiff had no permit to offer Physical Therapy courses which
they were offering.
The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove not to
be true also. The truth is there is no Mcdonald Foundation existing. Although a big building of plaintiff school was given
the name Mcdonald building, that was only in order to honor the first missionary in Bicol of plaintiffs religion, as
explained by Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single centavo appears to be received
by plaintiff school from the aforementioned McDonald Foundation which does not exist.
Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students fail in
one subject, they are made to repeat all the other subject[s], even those they have already passed, nor their claim that
the school charges laboratory fees even if there are no laboratories in the school. No evidence was presented to prove
the bases for these claims, at least in order to give semblance of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled out Dean
Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in court last Jan. 21, 1991, and was
found to be 75 years old. xxx Even older people prove to be effective teachers like Supreme Court Justices who are still
very much in demand as law professors in their late years. Counsel for defendants is past 75 but is found by this court to
be still very sharp and effective.l^vvphi1.net So is plaintiffs counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile.
The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere conclusion. Being
from the place himself, this court is aware that majority of the medical graduates of plaintiffs pass the board examination
easily and become prosperous and responsible professionals.33
Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion happens
to be mistaken, as long as it might reasonably be inferred from the facts.34 However, the comments of Rima and Alegre
were not backed up by facts. Therefore, the broadcasts are not privileged and remain libelous per se.
The broadcasts also violate the Radio Code35 of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. ("Radio Code").
Item I(B) of the Radio Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1. x x x
4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate
and misleading information. x x x Furthermore, the station shall strive to present balanced discussion of
issues. x x x.
xxx
7. The station shall be responsible at all times in the supervision of public affairs, public issues and
commentary programs so that they conform to the provisions and standards of this code.

8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public
interest, general welfare and good order in the presentation of public affairs and public issues.36 (Emphasis
supplied)
The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical conduct
governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code of conduct imposed by the
radio broadcast industry on its own members. The Radio Code is a public warranty by the radio broadcast industry that
radio broadcast practitioners are subject to a code by which their conduct are measured for lapses, liability and
sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of their
profession, just like other professionals. A professional code of conduct provides the standards for determining whether
a person has acted justly, honestly and with good faith in the exercise of his rights and performance of his duties as
required by Article 1937 of the Civil Code. A professional code of conduct also provides the standards for determining
whether a person who willfully causes loss or injury to another has acted in a manner contrary to morals or good
customs under Article 2138 of the Civil Code.

The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys fees.
AMEC did not adduce evidence to warrant the award of attorneys fees. Moreover, both the trial and appellate courts
failed to explicitly state in their respective decisions the rationale for the award of attorneys fees. 49 In Inter-Asia
Investment Industries, Inc. v. Court of Appeals ,50 we held that:
[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and
counsels fees are not to be awarded every time a party wins a suit. The power of the court to award attorneys fees
under Article 2208 of the Civil Code demands factual, legal and equitable justification, without which the award
is a conclusion without a premise, its basis being improperly left to speculation and conjecture. In all events, the
court must explicitly state in the text of the decision, and not only in the decretal portion thereof, the legal reason for the
award of attorneys fees.51 (Emphasis supplied)
While it mentioned about the award of attorneys fees by stating that it "lies within the discretion of the court and
depends upon the circumstances of each case," the Court of Appeals failed to point out any circumstance to justify the
award.
IV.

II.
Whether FBNI is solidarily liable with Rima and Alegre for moral damages, attorneys fees and costs of suit
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a corporation. 39
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.40 The Court
of Appeals cites Mambulao Lumber Co. v. PNB, et al.41 to justify the award of moral damages. However, the Courts
statement in Mambulao that "a corporation may have a good reputation which, if besmirched, may also be a ground for
the award of moral damages" is an obiter dictum.42
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 43 of the Civil Code. This provision
expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article
2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a
corporation can validly complain for libel or any other form of defamation and claim for moral damages. 44

FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorneys fees
because it exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI
maintains that its broadcasters, including Rima and Alegre, undergo a "very regimented process" before they are
allowed to go on air. "Those who apply for broadcaster are subjected to interviews, examinations and an apprenticeship
program."
FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a broadcaster. FBNI points
out that the "minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way prove that FBNI did not
exercise the diligence of a good father of a family in selecting and supervising them." Rimas accreditation lapsed due to
his non-payment of the KBP annual fees while Alegres accreditation card was delayed allegedly for reasons attributable
to the KBP Manila Office. FBNI claims that membership in the KBP is merely voluntary and not required by any law or
government regulation.
FBNIs arguments do not persuade us.

Moreover, where the broadcast is libelous per se, the law implies damages.45 In such a case, evidence of an honest
mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. 46 Neither in such a
case is the plaintiff required to introduce evidence of actual damages as a condition precedent to the recovery of some
damages.47 In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages.
However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the
broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its reputation. Therefore,
we reduce the award of moral damages from P300,000 to P150,000.
III.
Whether the award of attorneys fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorneys fees.
FBNI adds that the instant case does not fall under the enumeration in Article 220848 of the Civil Code.

The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they
commit.52 Joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance,
cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit. 53Thus,
AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the Civil Code.1a\^/phi1.net
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from the
libelous broadcasts. As stated by the Court of Appeals, "recovery for defamatory statements published by radio or
television may be had from the owner of the station, a licensee, the operator of the station, or a person who
procures, or participates in, the making of the defamatory statements."54 An employer and employee are solidarily liable
for a defamatory statement by the employee within the course and scope of his or her employment, at least when the
employer authorizes or ratifies the defamation.55 In this case, Rima and Alegre were clearly performing their official
duties as hosts of FBNIs radio program Expos when they aired the broadcasts. FBNI neither alleged nor proved that
Rima and Alegre went beyond the scope of their work at that time. There was likewise no showing that FBNI did not
authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in the selection and supervisionof
its employees, particularly Rima and Alegre. FBNI merely showed that it exercised diligence in the selection of its
broadcasters without introducing any evidence to prove that it observed the same diligence in the supervision of Rima

and Alegre. FBNI did not show how it exercised diligence in supervising its broadcasters. FBNIs alleged constant
reminder to its broadcasters to "observe truth, fairness and objectivity and to refrain from using libelous and indecent
language" is not enough to prove due diligence in the supervision of its broadcasters. Adequate training of the
broadcasters on the industrys code of conduct, sufficient information on libel laws, and continuous evaluation of the
broadcasters performance are but a few of the many ways of showing diligence in the supervision of broadcasters.
FBNI claims that it "has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in mind
their qualifications." However, no clear and convincing evidence shows that Rima and Alegre underwent FBNIs
"regimented process" of application. Furthermore, FBNI admits that Rima and Alegre had deficiencies in their KBP
accreditation,56 which is one of FBNIs requirements before it hires a broadcaster. Significantly, membership in the KBP,
while voluntary, indicates the broadcasters strong commitment to observe the broadcast industrys rules and
regulations. Clearly, these circumstances show FBNIs lack of diligence in selecting and supervising Rima and Alegre.
Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26 January
2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of moral damages is
reduced from P300,000 to P150,000 and the award of attorneys fees is deleted. Costs against petitioner.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-6776

May 21, 1955

THE REGISTER OF DEEDS OF RIZAL, petitioner-appellee,


vs.
UNG SIU SI TEMPLE, respondent-appellant.
Alejo F. Candido for appellant.
Office of the Solicitor General Querube C. Makalintal and Solicitor Felix V. Makasiar for appellee.
REYES, J.B.L., J.:
The Register of Deeds for the province of Rizal refused to accept for record a deed of donation executed in due form on
January 22, 1953, by Jesus Dy, a Filipino citizen, conveying a parcel of residential land, in Caloocan, Rizal, known as lot
No. 2, block 48-D, PSD-4212, G.L.R.O. Record No. 11267, in favor of the unregistered religious organization "Ung Siu

Si Temple", operating through three trustees all of Chinese nationality. The donation was duly accepted by Yu Juan, of
Chinese nationality, founder and deaconess of the Temple, acting in representation and in behalf of the latter and its
trustees.

To permit religious associations controlled by non-Filipinos to acquire agricultural lands would be to drive the opening
wedge to revive alien religious land holdings in this country. We can not ignore the historical fact that complaints against
land holdings of that kind were among the factors that sparked the revolution of 1896.

The refusal of the Registrar was elevated en Consultato the IVth Branch of the Court of First Instance of Manila. On
March 14, 1953, the Court upheld the action of the Rizal Register of Deeds, saying:

As to the complaint that the disqualification under article XIII is violative of the freedom of religion guaranteed by Article
III of the Constitution, we are by no means convinced (nor has it been shown) that land tenure is indispensable to the
free exercise and enjoyment of religious profession or worship; or that one may not worship the Deity according to the
dictates of his own conscience unless upon land held in fee simple.

The question raised by the Register of Deeds in the above transcribed consulta is whether a deed of
donation of a parcel of land executed in favor of a religious organization whose founder, trustees and
administrator are Chinese citizens should be registered or not.

The resolution appealed from is affirmed, with costs against appellant.

It appearing from the record of the Consulta that UNG SIU SI TEMPLE is a religious organization whose
deaconess, founder, trustees and administrator are all Chinese citizens, this Court is of the opinion and so
hold that in view of the provisions of the sections 1 and 5 of Article XIII of the Constitution of the Philippines
limiting the acquisition of land in the Philippines to its citizens, or to corporations or associations at least
sixty per centum of the capital stock of which is owned by such citizens adopted after the enactment of said
Act No. 271, and the decision of the Supreme Court in the case of Krivenko vs. the Register of Deeds of
Manila, the deed of donation in question should not be admitted for admitted for registration. (Printed Rec.
App. pp 17-18).
Not satisfied with the ruling of the Court of First Instance, counsel for the donee Uy Siu Si Temple has appealed to this
Court, claiming: (1) that the acquisition of the land in question, for religious purposes, is authorized and permitted by Act
No. 271 of the old Philippine Commission, providing as follows:
SECTION 1. It shall be lawful for all religious associations, of whatever sort or denomination, whether
incorporated in the Philippine Islands or in the name of other country, or not incorporated at all, to hold land
in the Philippine Islands upon which to build churches, parsonages, or educational or charitable institutions.
SEC. 2. Such religious institutions, if not incorporated, shall hold the land in the name of three Trustees for
the use of such associations; . . .. (Printed Rec. App. p. 5.)

Republic of the Philippines


SUPREME COURT
Manila

and (2) that the refusal of the Register of Deeds violates the freedom of religion clause of our Constitution [Art. III, Sec.
1(7)].
We are of the opinion that the Court below has correctly held that in view of the absolute terms of section 5, Title XIII, of
the Constitution, the provisions of Act No. 271 of the old Philippine Commission must be deemed repealed since the
Constitution was enacted, in so far as incompatible therewith. In providing that,
Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except
to individuals, corporations or associations qualified to acquire or hold lands of the public domain in the
Philippines,

EN BANC
G.R. No. L-8451

December 20, 1957

THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO, INC., petitioner,


vs.
THE LAND REGISTRATION COMMISSION and THE REGISTER OF DEEDS OF DAVAO CITY, respondents.

the Constitution makes no exception in favor of religious associations. Neither is there any such saving found in sections
1 and 2 of Article XIII, restricting the acquisition of public agricultural lands and other natural resources to "corporations
or associations at least sixty per centum of the capital of which is owned by such citizens" (of the Philippines).

Teodoro Padilla, for petitioner.


Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Jose G. Bautista and Troadio T. Quianzon,
Jr., for respondents.

The fact that the appellant religious organization has no capital stock does not suffice to escape the Constitutional
inhibition, since it is admitted that its members are of foreign nationality. The purpose of the sixty per centum
requirement is obviously to ensure that corporations or associations allowed to acquire agricultural land or to exploit
natural resources shall be controlled by Filipinos; and the spirit of the Constitution demands that in the absence of
capital stock, the controlling membership should be composed of Filipino citizens.

FELIX, J.:
This is a petition for mandamus filed by the Roman Catholic Apostolic Administrator of Davao seeking the reversal of a
resolution by the Land Registration Commissioner in L.R.C. Consulta No. 14. The facts of the case are as follows:

On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao, executed a deed of sale of a
parcel of land located in the same city covered by Transfer Certificate No. 2263, in favor of the Roman Catholic
Apostolic Administrator of Davao Inc., s corporation sole organized and existing in accordance with Philippine Laws, with
Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent. When the deed of sale was presented to Register of
Deeds of Davao for registration, the latter.
having in mind a previous resolution of the Fourth Branch of the Court of First Instance of Manila wherein
the Carmelite Nuns of Davao were made to prepare an affidavit to the effect that 60 per cent of the
members of their corporation were Filipino citizens when they sought to register in favor of their
congregation of deed of donation of a parcel of land
required said corporation sole to submit a similar affidavit declaring that 60 per cent of the members thereof were
Filipino citizens.
The vendee in the letter dated June 28, 1954, expressed willingness to submit an affidavit, both not in the same tenor as
that made the Progress of the Carmelite Nuns because the two cases were not similar, for whereas the congregation of
the Carmelite Nuns had five incorporators, the corporation sole has only one; that according to their articles of
incorporation, the organization of the Carmelite Nuns became the owner of properties donated to it, whereas the case at
bar, the totality of the Catholic population of Davao would become the owner of the property bought to be registered.
As the Register of Deeds entertained some doubts as to the registerability if the document, the matter was referred to
the Land Registration Commissioner en consulta for resolution in accordance with section 4 of Republic Act No. 1151.
Proper hearing on the matter was conducted by the Commissioner and after the petitioner corporation had filed its
memorandum, a resolution was rendered on September 21, 1954, holding that in view of the provisions of Section 1 and
5 of Article XIII of the Philippine Constitution, the vendee was not qualified to acquire private lands in the Philippines in
the absence of proof that at least 60 per centum of the capital, property, or assets of the Roman Catholic Apostolic
Administrator of Davao, Inc., was actually owned or controlled by Filipino citizens, there being no question that the
present incumbent of the corporation sole was a Canadian citizen. It was also the opinion of the Land Registration
Commissioner that section 159 of the corporation Law relied upon by the vendee was rendered operative by the
aforementioned provisions of the Constitution with respect to real estate, unless the precise condition set therein that
at least 60 per cent of its capital is owned by Filipino citizens be present, and, therefore, ordered the Registered
Deeds of Davao to deny registration of the deed of sale in the absence of proof of compliance with such condition.
After the motion to reconsider said resolution was denied, an action for mandamus was instituted with this Court by said
corporation sole, alleging that under the Corporation Law as well as the settled jurisprudence on the matter, the deed of
sale executed by Mateo L. Rodis in favor of petitioner is actually a deed of sale in favor of the Catholic Church which is
qualified to acquire private agricultural lands for the establishment and maintenance of places of worship, and prayed
that judgment be rendered reserving and setting aside the resolution of the Land Registration Commissioner in question.
In its resolution of November 15, 1954, this Court gave due course to this petition providing that the procedure
prescribed for appeals from the Public Service Commission of the Securities and Exchange Commissions (Rule 43), be
followed.
Section 5 of Article XIII of the Philippine Constitution reads as follows:
SEC. 5. Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned
except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain in
the Philippines.
Section 1 of the same Article also provides the following:
SECTION 1. All agricultural, timber, and mineral lands of the public domain, water, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, and other natural resources of the Philippines belong to the State, and their
disposition, exploitation, development, or utilization shall be limited to cititzens of the Philippines, or to corporations or
associations at least sixty per centum of the capital of which is owned by such citizens, SUBJECT TO ANY EXISTING

RIGHT, grant, lease, or concession AT THE TIME OF THE INAUGURATION OF THE GOVERNMENT ESTABLISHED
UNDER CONSTITUTION. Natural resources, with the exception of public agricultural land, shall not be alienated, and
no license, concession, or leases for the exploitation, development, or utilization of any of the natural resources shall be
granted for a period exceeding twenty-five years, renewable for another twenty-five years, except as to water rights for
irrigation, water supply, fisheries, or industrial uses other than the development of water power, in which cases other
than the development and limit of the grant.
In virtue of the foregoing mandates of the Constitution, who are considered "qualified" to acquire and hold agricultural
lands in the Philippines? What is the effect of these constitutional prohibition of the right of a religious corporation
recognized by our Corporation Law and registered as a corporation sole, to possess, acquire and register real estates in
its name when the Head, Manager, Administrator or actual incumbent is an alien?
Petitioner consistently maintained that a corporation sole, irrespective of the citizenship of its incumbent, is not
prohibited or disqualified to acquire and hold real properties. The Corporation Law and the Canon Law are explicit in
their provisions that a corporation sole or "ordinary" is not the owner of the of the properties that he may acquire but
merely the administrator thereof. The Canon Law also specified that church temporalities are owned by the Catholic
Church as a "moral person" or by the diocess as minor "moral persons" with the ordinary or bishop as administrator.
And elaborating on the composition of the Catholic Church in the Philippines, petitioner explained that as a religious
society or organization, it is made up of 2 elements or divisions the clergy or religious members and the faithful or lay
members. The 1948 figures of the Bureau of Census showed that there were 277,551 Catholics in Davao and aliens
residing therein numbered 3,465. Ever granting that all these foreigners are Catholics, petitioner contends that Filipino
citizens form more than 80 per cent of the entire Catholics population of that area. As to its clergy and religious
composition, counsel for petitioner presented the Catholic Directory of the Philippines for 1954 (Annex A) which revealed
that as of that year, Filipino clergy and women novices comprise already 60.5 per cent of the group. It was, therefore,
allowed that the constitutional requirement was fully met and satisfied.
Respondents, on the other hand, averred that although it might be true that petitioner is not the owner of the land
purchased, yet he has control over the same, with full power to administer, take possession of, alienate, transfer,
encumber, sell or dispose of any or all lands and their improvements registered in the name of the corporation sole and
can collect, receive, demand or sue for all money or values of any kind that may be kind that may become due or owing
to said corporation, and vested with authority to enter into agreements with any persons, concerns or entities in
connection with said real properties, or in other words, actually exercising all rights of ownership over the properties. It
was their stand that the theory that properties registered in the name of the corporation sole are held in true for the
benefit of the Catholic population of a place, as of Davao in the case at bar should be sustained because a
conglomeration of persons cannot just be pointed out as the cestui que trust or recipient of the benefits from the
property allegedly administered in their behalf. Neither can it be said that the mass of people referred to as such
beneficiary exercise ant right of ownership over the same. This set-up, respondents argued, falls short of a trust. The
respondents instead tried to prove that in reality, the beneficiary of ecclesiastical properties are not members or faithful
of the church but someone else, by quoting a portion a portion of the ought of fidelity subscribed by a bishop upon his
elevation to the episcopacy wherein he promises to render to the Pontificial Father or his successors an account of
his pastoral office and of all things appertaining to the state of this church.
Respondents likewise advanced the opinion that in construing the constitutional provision calling for 60 per cent of
Filipino citizenship, the criterion of the properties or assets thereof.
In solving the problem thus submitted to our consideration, We can say the following: A corporation sole is a special
form of corporation usually associated with the clergy. Conceived and introduced into the common law by sheer
necessity, this legal creation which was referred to as "that unhappy freak of English law" was designed to facilitate the
exercise of the functions of ownership carried on by the clerics for and on behalf of the church which was regarded as
the property owner (See I Couvier's Law Dictionary, p. 682-683).
A corporation sole consists of one person only, and his successors (who will always be one at a time), in some particular
station, who are incorporated by law in order to give them some legal capacities and advantages, particularly that of

perpetuity, which in their natural persons they could not have had. In this sense, the king is a sole corporation; so is a
bishop, or dens, distinct from their several chapters (Reid vs. Barry, 93 Fla. 849, 112 So. 846).
The provisions of our Corporation law on religious corporations are illuminating and sustain the stand of petitioner.
Section 154 thereof provides:
SEC. 154. For the administration of the temporalities of any religious denomination, society or church
and the management of the estates and the properties thereof, it shall be lawful for the bishop, chief priest,
or presiding either of any such religious denomination, society or church to become a corporation sole,
unless inconsistent wit the rules, regulations or discipline of his religious denomination, society or church or
forbidden by competent authority thereof.
See also the pertinent provisions of the succeeding sections of the same Corporation Law copied hereunder:
SEC. 155. In order to become a corporation sole the bishop, chief priest, or presiding elder of any religious
denomination, society or church must file with the Securities and Exchange Commissioner articles of
incorporation setting forth the following facts:
xxx xxx xxx.
(3) That as such bishop, chief priest, or presiding elder he is charged with the administration of the
temporalities and the management of the estates and properties of his religious denomination, society, or
church within its territorial jurisdiction, describing it;
xxx xxx xxx.
(As amended by Commonwealth Act No. 287).
SEC. 157. From and after the filing with the Securities and Exchange Commissioner of the said articles of
incorporation, which verified by affidavit or affirmation as aforesaid and accompanied by the copy of the
commission, certificate of election, or letters of appointment of the bishop, chief priest, or presiding elder,
duly certified as prescribed in the section immediately preceding such the bishop, chief priest, or presiding
elder, as the case may be, shall become a corporation sole and all temporalities, estates, and properties
the religious denomination, society, or church therefore administered or managed by him as such bishop,
chief priest, or presiding elder, shall be held in trust by him as a corporation sole, for the use, purpose,
behalf, and sole benefit of his religious denomination, society, or church, including hospitals, schools,
colleges, orphan, asylums, parsonages, and cemeteries thereof. For the filing of such articles of
incorporation, the Securities and Exchange Commissioner shall collect twenty-five pesos. (As amended by
Commonwealth Act. No. 287); and.
SEC. 163. The right to administer all temporalities and all property held or owned by a religious order or
society, or by the diocese, synod, or district organization of any religious denomination or church shall, on
its incorporation, pass to the corporation and shall be held in trust for the use, purpose behalf, and benefit of
the religious society, or order so incorporated or of the church of which the diocese, or district organization
is an organized and constituent part.
The Cannon Law contains similar provisions regarding the duties of the corporation sole or ordinary as administrator of
the church properties, as follows:
Al Ordinario local pertenence vigilar diligentemente sobre la administracion de todos los bienes
eclesiasticos que se hallan en su territorio y no estuvieren sustraidos de su jurisdiccion, salvs las
prescriciones legitimas que le concedan mas aamplios derechos.

Teniendo en cuenta los derechos y las legitimas costumbres y circunstancias, procuraran los Ordinarios
regular todo lo concerniente a la administracion de los bienes eclesciasticos, dando las oportunas
instucciones particularles dentro del narco del derecho comun. (Title XXVIII, Codigo de Derecho Canonico,
Lib. III, Canon 1519).1
That leaves no room for doubt that the bishops or archbishops, as the case may be, as corporation's sole are
merelyadministrators of the church properties that come to their possession, in which they hold in trust for the church. It
can also be said that while it is true that church properties could be administered by a natural persons, problems
regarding succession to said properties can not be avoided to rise upon his death. Through this legal fiction, however,
church properties acquired by the incumbent of a corporation sole pass, by operation of law, upon his death not his
personal heirs but to his successor in office. It could be seen, therefore, that a corporation sole is created not only to
administer the temporalities of the church or religious society where he belongs but also to hold and transmit the same
to his successor in said office. If the ownership or title to the properties do not pass to the administrators, who are the
owners of church properties?.
Bouscaren and Elis, S.J., authorities on cannon law, on their treatise comment:
In matters regarding property belonging to the Universal Church and to the Apostolic See, the Supreme
Pontiff exercises his office of supreme administrator through the Roman Curia; in matters regarding other
church property, through the administrators of the individual moral persons in the Church according to that
norms, laid down in the Code of Cannon Law. This does not mean, however, that the Roman Pontiff is the
owner of all the church property; but merely that he is the supreme guardian (Bouscaren and Ellis, Cannon
Law, A Text and Commentary, p. 764).
and this Court, citing Campes y Pulido, Legislacion y Jurisprudencia Canonica, ruled in the case of Trinidad vs. Roman
Catholic Archbishop of Manila, 63 Phil. 881, that:
The second question to be decided is in whom the ownership of the properties constituting the endowment
of the ecclesiastical or collative chaplaincies is vested.
Canonists entertain different opinions as to the persons in whom the ownership of the ecclesiastical
properties is vested, with respect to which we shall, for our purpose, confine ourselves to stating with
Donoso that, while many doctors cited by Fagnano believe that it resides in the Roman Pontiff as Head of
the Universal Church, it is more probable that ownership, strictly speaking, does not reside in the latter, and,
consequently, ecclesiastical properties are owned by the churches, institutions and canonically established
private corporations to which said properties have been donated.
Considering that nowhere can We find any provision conferring ownership of church properties on the Pope although he
appears to be the supreme administrator or guardian of his flock, nor on the corporation sole or heads of dioceses as
they are admittedly mere administrators of said properties, ownership of these temporalities logically fall and develop
upon the church, diocese or congregation acquiring the same. Although this question of ownership of ecclesiastical
properties has off and on been mentioned in several decisions of the Court yet in no instance was the subject of
citizenship of this religious society been passed upon.
We are not unaware of the opinion expressed by the late Justice Perfecto in his dissent in the case of Agustines vs.
Court of First Instance of Bulacan, 80 Phil. 565, to the effect that "the Roman Catholic Archbishop of Manila is only a
branch of a universal church by the Pope, with permanent residence in Rome, Italy". There is no question that the
Roman Catholic Church existing in the Philippines is a tributary and part of the international religious organization, for
the word "Roman" clearly expresses its unity with and recognizes the authority of the Pope in Rome. However, lest We
become hasty in drawing conclusions, We have to analyze and take note of the nature of the government established in
the Vatican City, of which it was said:
GOVERNMENT. In the Roman Catholic Church supreme authority and jurisdiction over clergy and laity
alike as held by the pope who (since the Middle Ages) is elected by the cardinals assembled in conclave,

and holds office until his death or legitimate abdication. . . While the pope is obviously independent of the
laws made, and the officials appointed, by himself or his predecessors, he usually exercises his
administrative authority according to the code of canon law and through the congregations, tribunals and
offices of the Curia Romana. In their respective territories (called generally dioceses) and over their
respective subjects, the patriarchs, metropolitans or archbishops and bishops exercise a jurisdiction which
is called ordinary (as attached by law to an office given to a person. . . (Collier's Encyclopedia, Vol. 17, p.
93).
While it is true and We have to concede that in the profession of their faith, the Roman Pontiff is the supreme head; that
in the religious matters, in the exercise of their belief, the Catholic congregation of the faithful throughout the world
seeks the guidance and direction of their Spiritual Father in the Vatican, yet it cannot be said that there is a merger of
personalities resultant therein. Neither can it be said that the political and civil rights of the faithful, inherent or acquired
under the laws of their country, are affected by that relationship with the Pope. The fact that the Roman Catholic Church
in almost every country springs from that society that saw its beginning in Europe and the fact that the clergy of this faith
derive their authorities and receive orders from the Holy See do not give or bestow the citizenship of the Pope upon
these branches. Citizenship is a political right which cannot be acquired by a sort of "radiation". We have to realize that
although there is a fraternity among all the catholic countries and the dioceses therein all over the globe, the universality
that the word "catholic" implies, merely characterize their faith, a uniformity in the practice and the interpretation of their
dogma and in the exercise of their belief, but certainly they are separate and independent from one another in
jurisdiction, governed by different laws under which they are incorporated, and entirely independent on the others in the
management and ownership of their temporalities. To allow theory that the Roman Catholic Churches all over the world
follow the citizenship of their Supreme Head, the Pontifical Father, would lead to the absurdity of finding the citizens of a
country who embrace the Catholic faith and become members of that religious society, likewise citizens of the Vatican or
of Italy. And this is more so if We consider that the Pope himself may be an Italian or national of any other country of the
world. The same thing be said with regard to the nationality or citizenship of the corporation sole created under the laws
of the Philippines, which is not altered by the change of citizenship of the incumbent bishops or head of said corporation
sole.
We must therefore, declare that although a branch of the Universal Roman Catholic Apostolic Church, every Roman
Catholic Church in different countries, if it exercises its mission and is lawfully incorporated in accordance with the laws
of the country where it is located, is considered an entity or person with all the rights and privileges granted to such
artificial being under the laws of that country, separate and distinct from the personality of the Roman Pontiff or the Holy
See, without prejudice to its religious relations with the latter which are governed by the Canon Law or their rules and
regulations.
We certainly are conscious of the fact that whatever conclusion We may draw on this matter will have a far reaching
influence, nor can We overlook the pages of history that arouse indignation and criticisms against church landholdings.
This nurtured feeling that snowbailed into a strong nationalistic sentiment manifested itself when the provisions on
natural to be embodied in the Philippine Constitution were framed, but all that has been said on this regard referred
more particularly to landholdings of religious corporations known as "Friar Estates" which have already bee acquired by
our government, and not to properties held by corporations sole which, We repeat, are properties held in trust for the
benefit of the faithful residing within its territorial jurisdiction. Though that same feeling probably precipitated and
influenced to a large extent the doctrine laid down in the celebrated Krivenco decision, We have to take this matter in
the light of legal provisions and jurisprudence actually obtaining, irrespective of sentiments.
The question now left for our determination is whether the Universal Roman Catholic Apostolic Church in the
Philippines, or better still, the corporation sole named the Roman Catholic Apostolic Administrator of Davao, Inc., is
qualified to acquire private agricultural lands in the Philippines pursuant to the provisions of Article XIII of the
Constitution.
We see from sections 1 and 5 of said Article quoted before, that only persons or corporations qualified to acquire hold
lands of the public domain in the Philippines may acquire or be assigned and hold private agricultural lands.
Consequently, the decisive factor in the present controversy hinges on the proposition or whether or not the petitioner in
this case can acquire agricultural lands of the public domain.

From the data secured from the Securities and Exchange Commission, We find that the Roman Catholic Bishop of
Zamboanga was incorporated (as a corporation sole) in September, 1912, principally to administer its temporalities and
manage its properties. Probably due to the ravages of the last war, its articles of incorporation werereconstructed in the
Securities and Exchange Commission on April 8, 1948. At first, this corporation sole administered all the temporalities of
the church existing or located in the island of Mindanao. Later on, however, new dioceses were formed and new
corporations sole were created to correspond with the territorial jurisdiction of the new dioceses, one of them being
petitioner herein, the Roman Catholic Apostolic Administrator of Davao, Inc., which was registered with the Securities
and Exchange Commission on September 12, 1950, and succeeded in the administrative for all the "temporalities" of
the Roman Catholic Church existing in Davao.
According to our Corporation Law, Public Act No. 1549, approved April 1, 1906, a corporation sole.
is organized and composed of a single individual, the head of any religious society or church, for the
ADMINISTRATION of the temporalities of such society or church. By "temporalities" is meant estate and
properties not used exclusively for religious worship. The successor in office of such religious head or chief
priest incorporated as a corporation sole shall become the corporation sole on ascension to office, and shall
be permitted to transact business as such on filing with the Securities and Exchange Commission a copy of
his commission, certificate of election or letter of appointment duly certified by any notary public or clerk of
court of record (Guevara's The Philippine Corporation Law, p. 223).
The Corporation Law also contains the following provisions:
SECTION 159. Any corporation sole may purchase and hold real estate and personal; property for its
church, charitable, benevolent, or educational purposes, and may receive bequests or gifts of such
purposes. Such corporation may mortgage or sell real property held by it upon obtaining an order for that
purpose from the Court of First Instance of the province in which the property is situated; but before making
the order proof must be made to the satisfaction of the Court that notice of the application for leave to
mortgage or sell has been given by publication or otherwise in such manner and for such time as said Court
or the Judge thereof may have directed, and that it is to the interest of the corporation that leave to
mortgage or sell must be made by petition, duly verified by the bishop, chief priest, or presiding elder acting
as corporation sole, and may be opposed by any member of the religious denomination, society or church
represented by the corporation sole: Provided, however, That in cases where the rules, regulations, and
discipline of the religious denomination, society or church concerned represented by such corporation sole
regulate the methods of acquiring, holding, selling and mortgaging real estate and personal property, such
rules, regulations, and discipline shall control and the intervention of the Courts shall not be necessary.
It can, therefore, be noticed that the power of a corporation sole to purchase real property, like the power exercised in
the case at bar, it is not restricted although the power to sell or mortgage sometimes is, depending upon the rules,
regulations, and discipline of the church concerned represented by said corporation sole. If corporations sole can
purchase and sell real estate for its church, charitable, benevolent, or educational purposes, can they register said real
properties? As provided by law, lands held in trust for specific purposes me be subject of registration (section 69, Act
496), and the capacity of a corporation sole, like petitioner herein, to register lands belonging to it is acknowledged, and
title thereto may be issued in its name (Bishop of Nueva Segovia vs. Insular Government, 26 Phil. 300-1913). Indeed it
is absurd that while the corporations sole that might be in need of acquiring lands for the erection of temples where the
faithful can pray, or schools and cemeteries which they are expressly authorized by law to acquire in connection with the
propagation of the Roman Catholic Apostolic faith or in furtherance of their freedom of religion they could not register
said properties in their name. As professor Javier J. Nepomuceno very well says "Man in his search for the immortal and
imponderable, has, even before the dawn of recorded history, erected temples to the Unknown God, and there is no
doubt that he will continue to do so for all time to come, as long as he continues 'imploring the aid of Divine Providence'"
(Nepomuceno's Corporation Sole, VI Ateneo Law Journal, No. 1, p. 41, September, 1956). Under the circumstances of
this case, We might safely state that even before the establishment of the Philippine Commonwealth and of the Republic
of the Philippines every corporation sole then organized and registered had by express provision of law the
necessary power and qualification to purchase in its name private lands located in the territory in which it exercised its
functions or ministry and for which it was created, independently of the nationality of its incumbent unique and single
member and head, the bishop of the dioceses. It can be also maintained without fear of being gainsaid that the Roman
Catholic Apostolic Church in the Philippines has no nationality and that the framers of the Constitution, as will be

hereunder explained, did not have in mind the religious corporations sole when they provided that 60 per centum of the
capital thereof be owned by Filipino citizens.
There could be no controversy as to the fact that a duly registered corporation sole is an artificial being having the right
of succession and the power, attributes, and properties expressly authorized by law or incident to its existence (section
1, Corporation Law). In outlining the general powers of a corporation. Public Act. No. 1459 provides among others:
SEC. 13. Every corporation has the power:
(5) To purchase, hold, convey, sell, lease, lot, mortgage, encumber, and otherwise deal with such real and
personal property as the purpose for which the corporation was formed may permit, and the transaction of
the lawful business of the corporation may reasonably and necessarily require, unless otherwise prescribed
in this Act: . . .
In implementation of the same and specially made applicable to a form of corporation recognized by the same law,
Section 159 aforequoted expressly allowed the corporation sole to purchase and hold real as well as personal properties
necessary for the promotion of the objects for which said corporation sole is created. Respondent Land Registration
Commissioner, however, maintained that since the Philippine Constitution is a later enactment than public Act No. 1459,
the provisions of Section 159 in amplification of Section 13 thereof, as regard real properties, should be considered
repealed by the former.
There is a reason to believe that when the specific provision of the Constitution invoked by respondent Commissioner
was under consideration, the framers of the same did not have in mind or overlooked this particular form of corporation.
It is undeniable that the naturalization and conservation of our national resources was one of the dominating objectives
of the Convention and in drafting the present Article XII of the Constitution, the delegates were goaded by the desire (1)
to insure their conservation for Filipino posterity; (2) to serve as an instrument of national defense, helping prevent the
extension into the country of foreign control through peaceful economic penetration; and (3) to prevent making the
Philippines a source of international conflicts with the consequent danger to its internal security and independence (See
The Framing of the Philippine Constitution by Professor Jose M. Aruego, a Delegate to the Constitutional Convention,
Vol. II. P. 592-604). In the same book Delegate Aruego, explaining the reason behind the first consideration, wrote:
At the time of the framing of Philippine Constitution, Filipino capital had been to be rather shy. Filipinos
hesitated s a general rule to invest a considerable sum of their capital for the development, exploitation and
utilization of the natural resources of the country. They had not as yet been so used to corporate as the
peoples of the west. This general apathy, the delegates knew, would mean the retardation of the
development of the natural resources, unless foreign capital would be encouraged to come and help in that
development. They knew that the naturalization of the natural resources would certainly not encourage
the INVESTMENT OF FOREIGN CAPITAL into them. But there was a general feeling in the Convention that
it was better to have such a development retarded or even postpone together until such time when the
Filipinos would be ready and willing to undertake it rather than permit the natural resources to be placed
under the ownership or control of foreigners in order that they might be immediately be developed, with the
Filipinos of the future serving not as owners but utmost as tenants or workers under foreign masters. By all
means, the delegates believed, the natural resources should be conserved for Filipino posterity.
It could be distilled from the foregoing that the farmers of the Constitution intended said provisions as barrier for
foreigners or corporations financed by such foreigners to acquire, exploit and develop our natural resources, saving
these undeveloped wealth for our people to clear and enrich when they are already prepared and capable of doing so.
But that is not the case of corporations sole in the Philippines, for, We repeat, they are mere administrators of the
"temporalities" or properties titled in their name and for the benefit of the members of their respective religion composed
of an overwhelming majority of Filipinos. No mention nor allusion whatsoever is made in the Constitution as to the
prohibition against or the liability of the Roman Catholic Church in the Philippines to acquire and hold agricultural lands.
Although there were some discussions on landholdings, they were mostly confined in the inclusion of the provision
allowing the Government to break big landed estates to put an end to absentee landlordism.

But let us suppose, for the sake of argument, that the above referred to inhibitory clause of Section 1 of Article XIII of the
constitution does have bearing on the petitioner's case; even so the clause requiring that at least 60 per centum of the
capital of the corporation be owned by Filipinos is subordinated to the petitioner's aforesaid right already existing at the
time of the inauguration of the Commonwealth and the Republic of the Philippines. In the language of Mr. Justice Jose
P. Laurel (a delegate to the Constitutional Convention), in his concurring opinion of the case of Gold Creek mining
Corporation, petitioner vs. Eulogio Rodriguez, Secretary of Agriculture and Commerce, and Quirico Abadilla, Director of
the Bureau of Mines, respondent, 66 Phil. 259:
The saving clause in the section involved of the Constitution was originally embodied in the report submitted
by the Committee on Naturalization and Preservation of Land and Other Natural Resources to the
Constitutional Convention on September 17, 1954. It was later inserted in the first draft of the Constitution
as section 13 of Article XIII thereof, and finally incorporated as we find it now. Slight have been the changes
undergone by the proviso from the time when it comes out of the committee until it was finally adopted.
When first submitted and as inserted to the first draft of the Constitution it reads: 'subject to any right, grant,
lease, or concession existing in respect thereto on the date of the adoption of the Constitution'. As finally
adopted, the proviso reads: 'subject to any existing right, grant, lease, or concession at the time of the
inauguration of the Government established under this Constitution'. This recognition is not mere
graciousness but springs form the just character of the government established. The framers of the
Constitution were not obscured by the rhetoric of democracy or swayed to hostility by an intense spirit of
nationalism. They well knew that conservation of our natural resources did not mean destruction or
annihilation of acquired property rights. Withal, they erected a government neither episodic nor stationary
but well-nigh conservative in the protection of property rights. This notwithstanding nationalistic and
socialistic traits discoverable upon even a sudden dip into a variety of the provisions embodied in the
instrument.
The writer of this decision wishes to state at this juncture that during the deliberation of this case he submitted to the
consideration of the Court the question that may be termed the "vested right saving clause" contained in Section 1,
Article XII of the Constitution, but some of the members of this Court either did not agree with the theory of the writer, or
were not ready to take a definite stand on the particular point I am now to discuss deferring our ruling on such debatable
question for a better occasion, inasmuch as the determination thereof is not absolutely necessary for the solution of the
problem involved in this case. In his desire to face the issues squarely, the writer will endeavor, at least as a disgression,
to explain and develop his theory, not as a lucubration of the Court, but of his own, for he deems it better and convenient
to go over the cycle of reasons that are linked to one another and that step by step lead Us to conclude as We do in the
dispositive part of this decision.
It will be noticed that Section 1 of Article XIII of the Constitution provides, among other things, that "all agricultural lands
of the public domain and their disposition shall be limited to citizens of the Philippines or to corporations at least 60 per
centum of the capital of which is owned by such citizens, SUBJECT TO ANY EXISTING RIGHT AT THE TIME OF THE
INAUGURATION OF THE GOVERNMENT ESTABLISHED UNDER THIS CONSTITUTION."
As recounted by Mr. Justice Laurel in the aforementioned case of Gold Creek Mining Corporation vs. Rodriguez et al.,
66 Phil. 259, "this recognition (in the clause already quoted), is not mere graciousness but springs from the just
character of the government established. The farmers of the Constitution were not obscured by the rhetoric of
democracy or swayed to hostility by an intense spirit of nationalism. They well knew that conservation of our natural
resources did not mean destruction or annihilation of ACQUIRED PROPERTY RIGHTS".
But respondents' counsel may argue that the preexisting right of acquisition of public or private lands by a corporation
which does not fulfill this 60 per cent requisite, refers to purchases of the Constitution and not to later transactions. This
argument would imply that even assuming that petitioner had at the time of the enactment of the Constitution the right to
purchase real property or right could not be exercised after the effectivity of our Constitution, because said power or
right of corporations sole, like the herein petitioner, conferred in virtue of the aforequoted provisions of the Corporation
Law, could no longer be exercised in view of the requisite therein prescribed that at least 60 per centum of the capital of
the corporation had to be Filipino. It has been shown before that: (1) the corporation sole, unlike the ordinary
corporations which are formed by no less than 5 incorporators, is composed of only one persons, usually the head or
bishop of the diocese, a unit which is not subject to expansion for the purpose of determining any percentage
whatsoever; (2) the corporation sole is only the administrator and not the owner of the temporalities located in the

territory comprised by said corporation sole; (3) such temporalities are administered for and on behalf of the faithful
residing in the diocese or territory of the corporation sole; and (4) the latter, as such, has no nationality and the
citizenship of the incumbent Ordinary has nothing to do with the operation, management or administration of the
corporation sole, nor effects the citizenship of the faithful connected with their respective dioceses or corporation sole.
In view of these peculiarities of the corporation sole, it would seem obvious that when the specific provision of the
Constitution invoked by respondent Commissioner (section 1, Art. XIII), was under consideration, the framers of the
same did not have in mind or overlooked this particular form of corporation. If this were so, as the facts and
circumstances already indicated tend to prove it to be so, then the inescapable conclusion would be that this
requirement of at least 60 per cent of Filipino capital was never intended to apply to corporations sole, and the existence
or not a vested right becomes unquestionably immaterial.
But let us assumed that the questioned proviso is material. yet We might say that a reading of said Section 1 will show
that it does not refer to any actual acquisition of land up to the right, qualification or power to acquire and hold private
real property. The population of the Philippines, Catholic to a high percentage, is ever increasing. In the practice of
religion of their faithful the corporation sole may be in need of more temples where to pray, more schools where the
children of the congregation could be taught in the principles of their religion, more hospitals where their sick could be
treated, more hallow or consecrated grounds or cemeteries where Catholics could be buried, many more than those
actually existing at the time of the enactment of our Constitution. This being the case, could it be logically maintained
that because the corporation sole which, by express provision of law, has the power to hold and acquire real estate and
personal property of its churches, charitable benevolent, or educational purposes (section 159, Corporation Law) it has
to stop its growth and restrain its necessities just because the corporation sole is a non-stock corporation composed of
only one person who in his unity does not admit of any percentage, especially when that person is not the owner but
merely an administrator of the temporalities of the corporation sole? The writer leaves the answer to whoever may read
and consider this portion of the decision.
Anyway, as stated before, this question is not a decisive factor in disposing the case, for even if We were to disregard
such saving clause of the Constitution, which reads: subject to any existing right, grant, etc., at the same time of the
inauguration of the Government established under this Constitution, yet We would have, under the evidence on record,
sufficient grounds to uphold petitioner's contention on this matter.
In this case of the Register of Deeds of Rizal vs. Ung Sui Si Temple, 2 G.R. No. L-6776, promulgated May 21, 1955,
wherein this question was considered from a different angle, this Court through Mr. Justice J.B.L. Reyes, said:
The fact that the appellant religious organization has no capital stock does not suffice to escape the
Constitutional inhibition, since it is admitted that its members are of foreign nationality. The purpose of the
sixty per centum requirement is obviously to ensure that corporation or associations allowed to acquire
agricultural land or to exploit natural resources shall be controlled by Filipinos; and the spirit of the
Constitution demands that in the absence of capital stock, the controlling membership should be composed
of Filipino citizens.
In that case respondent-appellant Ung Siu Si Temple was not a corporation sole but a corporation aggregate, i.e., an
unregistered organization operating through 3 trustees, all of Chinese nationality, and that is why this Court laid down
the doctrine just quoted. With regard to petitioner, which likewise is a non-stock corporation, the case is different,
because it is a registered corporation sole, evidently of no nationality and registered mainly to administer the
temporalities and manage the properties belonging to the faithful of said church residing in Davao. But even if we were
to go over the record to inquire into the composing membership to determine whether the citizenship requirement is
satisfied or not, we would find undeniable proof that the members of the Roman Catholic Apostolic faith within the
territory of Davao are predominantly Filipino citizens. As indicated before, petitioner has presented evidence to establish
that the clergy and lay members of this religion fully covers the percentage of Filipino citizens required by the
Constitution. These facts are not controverted by respondents and our conclusion in this point is sensibly obvious.
Dissenting OpinionDiscussed. After having developed our theory in the case and arrived at the findings and
conclusions already expressed in this decision. We now deem it proper to analyze and delve into the basic foundation
on which the dissenting opinion stands up. Being aware of the transcendental and far-reaching effects that Our ruling on

the matter might have, this case was thoroughly considered from all points of view, the Court sparing no effort to solve
the delicate problems involved herein.
At the deliberations had to attain this end, two ways were open to a prompt dispatch of the case: (1) the reversal of the
doctrine We laid down in the celebrated Krivenko case by excluding urban lots and properties from the group of the term
"private agricultural lands" use in this section 5, Article XIII of the Constitution; and (2) by driving Our reasons to a point
that might indirectly cause the appointment of Filipino bishops or Ordinary to head the corporations sole created to
administer the temporalities of the Roman Catholic Church in the Philippines. With regard to the first way, a great
majority of the members of this Court were not yet prepared nor agreeable to follow that course, for reasons that are
obvious. As to the second way, it seems to be misleading because the nationality of the head of a diocese constituted as
a corporation sole has no material bearing on the functions of the latter, which are limited to the administration of the
temporalities of the Roman Catholic Apostolic Church in the Philippines.
Upon going over the grounds on which the dissenting opinion is based, it may be noticed that its author lingered on the
outskirts of the issues, thus throwing the main points in controversy out of focus. Of course We fully agree, as stated by
Professor Aruego, that the framers of our Constitution had at heart to insure the conservation of the natural resources of
Our motherland of Filipino posterity; to serve them as an instrument of national defense, helping prevent the extension
into the country of foreign control through peaceful economic penetration; and to prevent making the Philippines a
source of international conflicts with the consequent danger to its internal security and independence. But all these
precautions adopted by the Delegates to Our Constitutional Assembly could have not been intended for or directed
against cases like the one at bar. The emphasis and wonderings on the statement that once the capacity of a
corporation sole to acquire private agricultural lands is admitted there will be no limit to the areas that it may hold and
that this will pave the way for the "revival or revitalization of religious landholdings that proved so troublesome in our
past", cannot even furnish the "penumbra" of a threat to the future of the Filipino people. In the first place, the right of
Filipino citizens, including those of foreign extraction, and Philippine corporations, to acquire private lands is not subject
to any restriction or limit as to quantity or area, and We certainly do not see any wrong in that. The right of Filipino
citizens and corporations to acquire public agricultural lands is already limited by law. In the second place, corporations
sole cannot be considered as aliens because they have no nationality at all. Corporations sole are, under the law, mere
administrators of the temporalities of the Roman Catholic Church in the Philippines. In the third place, every corporation,
be it aggregate or sole, is only entitled to purchase, convey, sell, lease, let, mortgage, encumber and otherwise deal with
real properties when it is pursuant to or in consonance with the purposes for which the corporation was formed, and
when the transactions of the lawful business of the corporation reasonably and necessarily require such dealing
section 13-(5) of the Corporation Law, Public Act No. 1459 and considering these provisions in conjunction with
Section 159 of the same law which provides that a corporation sole may only "purchase and hold real estate and
personal properties for its church, charitable, benevolent or educational purposes", the above mentioned fear of
revitalization of religious landholdings in the Philippines is absolutely dispelled. The fact that the law
thus expressly authorizes the corporations sole to receive bequests or gifts of real properties (which were the main
source that the friars had to acquire their big haciendas during the Spanish regime), is a clear indication that the
requisite that bequests or gifts of real estate be for charitable, benevolent, or educational purposes, was, in the opinion
of the legislators, considered sufficient and adequate protection against the revitalization of religious landholdings.
Finally, and as previously stated, We have reason to believe that when the Delegates to the Constitutional Convention
drafted and approved Article XIII of the Constitution they do not have in mind the corporation sole. We come to this
finding because the Constitutional Assembly, composed as it was by a great number of eminent lawyers and jurists, was
like any other legislative body empowered to enact either the Constitution of the country or any public statute, presumed
to know the conditions existing as to particular subject matter when it enacted a statute (Board of Commerce of Orange
Country vs. Bain, 92 S.E. 176; N. C. 377).
Immemorial customs are presumed to have been always in the mind of the Legislature in enacting
legislation. (In re Kruger's Estate, 121 A. 109; 277 P. 326).
The Legislative is presumed to have a knowledge of the state of the law on the subjects upon which it
legislates. (Clover Valley Land and Stock Co. vs. Lamb et al., 187, p. 723,726.)

The Court in construing a statute, will assume that the legislature acted with full knowledge of the prior
legislation on the subject and its construction by the courts. (Johns vs. Town of Sheridan, 89 N. E. 899, 44
Ind. App. 620.).
The Legislature is presumed to have been familiar with the subject with which it was dealing . . . . (Landers
vs. Commonwealth, 101 S. E. 778, 781.).
The Legislature is presumed to know principles of statutory construction. (People vs. Lowell, 230 N. W. 202,
250 Mich. 349, followed in P. vs. Woodworth, 230 N.W. 211, 250 Mich. 436.).
It is not to be presumed that a provision was inserted in a constitution or statute without reason, or that a
result was intended inconsistent with the judgment of men of common sense guided by reason" (Mitchell vs.
Lawden, 123 N.E. 566, 288 Ill. 326.) See City of Decatur vs. German, 142 N. E. 252, 310 Ill. 591, and may
other authorities that can be cited in support hereof.
Consequently, the Constitutional Assembly must have known:
1. That a corporation sole is organized by and composed of a single individual, the head of any religious
society or church operating within the zone, area or jurisdiction covered by said corporation sole (Article
155, Public Act No. 1459);
2. That a corporation sole is a non-stock corporation;
3. That the Ordinary ( the corporation sole proper) does not own the temporalities which he merely
administers;
4. That under the law the nationality of said Ordinary or of any administrator has absolutely no bearing on
the nationality of the person desiring to acquire real property in the Philippines by purchase or other lawful
means other than by hereditary succession, who according to the Constitution must be a Filipino (sections 1
and 5, Article XIII).
5. That section 159 of the Corporation Law expressly authorized the corporation sole to purchase and
hold real estate for its church, charitable, benevolent or educational purposes, and to receive bequests or
gifts for such purposes;
6. That in approving our Magna Carta the Delegates to the Constitutional Convention, almost all of whom
were Roman Catholics, could not have intended to curtail the propagation of the Roman Catholic faith or the
expansion of the activities of their church, knowing pretty well that with the growth of our population more
places of worship, more schools where our youth could be taught and trained; more hallow grounds where
to bury our dead would be needed in the course of time.
Long before the enactment of our Constitution the law authorized the corporations sole even to receive bequests or gifts
of real estates and this Court could not, without any clear and specific provision of the Constitution, declare that any real
property donated, let as say this year, could no longer be registered in the name of the corporation sole to which it was
conveyed. That would be an absurdity that should not receive our sanction on the pretext that corporations sole which
have no nationality and are non-stock corporations composed of only one person in the capacity of administrator, have
to establish first that at least sixty per centum of their capital belong to Filipino citizens. The new Civil Code even
provides:
ART. 10. In case of doubt in the interpretation or application of laws, it is presumed that the lawmaking
body intended right and justice to prevail.

Moreover, under the laws of the Philippines, the administrator of the properties of a Filipino can acquire, in the name of
the latter, private lands without any limitation whatsoever, and that is so because the properties thus acquired are not for
and would not belong to the administrator but to the Filipino whom he represents. But the dissenting Justice inquires: If
the Ordinary is only the administrator, for whom does he administer? And who can alter or overrule his acts? We will
forthwith proceed to answer these questions. The corporations sole by reason of their peculiar constitution and form of
operation have no designed owner of its temporalities, although by the terms of the law it can be safely implied that the
Ordinary holds them in trust for the benefit of the Roman Catholic faithful to their respective locality or diocese.
Borrowing the very words of the law, We may say that the temporalities of every corporation sole are held in trust for the
use, purpose, behalf and benefit of the religious society, or order so incorporated or of the church to which the diocese,
synod, or district organization is an organized and constituent part (section 163 of the Corporation Law).
In connection with the powers of the Ordinary over the temporalities of the corporation sole, let us see now what is the
meaning and scope of the word "control". According to the Merriam-Webster's New International Dictionary, 2nd ed., p.
580, on of the acceptations of the word "control" is:
4. To exercise restraining or directing influence over; to dominate; regulate; hence, to hold from action; to
curb; subject; also, Obs. to overpower.
SYN: restrain, rule, govern, guide, direct; check, subdue.
It is true that under section 159 of the Corporation Law, the intervention of the courts is not necessary, to mortgage or
sell real property held by the corporation sole where the rules, regulations and discipline of the religious denomination,
society or church concerned presented by such corporation sole regulates the methods of acquiring, holding, selling and
mortgaging real estate, and that the Roman Catholic faithful residing in the jurisdiction of the corporation sole has no say
either in the manner of acquiring or of selling real property. It may be also admitted that the faithful of the diocese cannot
govern or overrule the acts of the Ordinary, but all this does not mean that the latter can administer the temporalities of
the corporation sole without check or restraint. We must not forget that when a corporation sole is incorporated under
Philippine laws, the head and only member thereof subjects himself to the jurisdiction of the Philippine courts of justice
and these tribunals can thus entertain grievances arising out of or with respect to the temporalities of the church which
came into the possession of the corporation sole as administrator. It may be alleged that the courts cannot intervene as
to the matters of doctrine or teachings of the Roman Catholic Church. That is correct, but the courts may step in, at the
instance of the faithful for whom the temporalities are being held in trust, to check undue exercise by the corporation
sole of its power as administrator to insure that they are used for the purpose or purposes for which the corporation sole
was created.
American authorities have these to say:
It has been held that the courts have jurisdiction over an action brought by persons claiming to be members
of a church, who allege a wrongful and fraudulent diversion of the church property to uses foreign to the
purposes of the church, since no ecclesiastical question is involved and equity will protect from wrongful
diversion of the property (Hendryx vs. Peoples United Church, 42 Wash. 336, 4 L.R.A. n.s. 1154).
The courts of the State have no general jurisdiction and control over the officers of such corporations in
respect to the performance of their official duties; but as in respect to the property which they hold for the
corporation, they stand in position of TRUSTEES and the courts may exercise the same supervision as in
other cases of trust (Ramsey vs. Hicks, 174 Ind. 428, 91 N.E. 344, 92 N.E. 164, 30 L.R.A. n.s. 665;
Hendryx vs. Peoples United Church, supra.).
Courts of the state do not interfere with the administration of church rules or discipline unless civil rights
become involved and which must be protected (Morris St., Baptist Church vs. Dart, 67 S.C. 338, 45 S.E.
753, and others). (All cited in Vol. II, Cooley's Constitutional Limitations, p. 960-964.).
If the Constitutional Assembly was aware of all the facts above enumerated and of the provisions of law relative to
existing conditions as to management and operation of corporations sole in the Philippines, and if, on the other hand,

almost all of the Delegates thereto embraced the Roman Catholic faith, can it be imagined even for an instant that when
Article XIII of the Constitution was approved the framers thereof intended to prevent or curtail from then on the
acquisition sole, either by purchase or donation, of real properties that they might need for the propagation of the faith
and for there religious and Christian activities such as the moral education of the youth, the care, attention and
treatment of the sick and the burial of the dead of the Roman Catholic faithful residing in the jurisdiction of the respective
corporations sole? The mere indulgence in said thought would impress upon Us a feeling of apprehension and
absurdity. And that is precisely the leit motiv that permeates the whole fabric of the dissenting opinion.
It seems from the foregoing that the main problem We are confronted with in this appeal, hinges around the necessity of
a proper and adequate interpretation of sections 1 and 5 of Article XIII of the Constitution. Let Us then be guided by the
principles of statutory construction laid down by the authorities on the matter:
The most important single factor in determining the intention of the people from whom the constitution
emanated is the language in which it is expressed. The words employed are to be taken in their natural
sense, except that legal or technical terms are to be given their technical meaning. The imperfections of
language as a vehicle for conveying meanings result in ambiguities that must be resolved by result to
extraneous aids for discovering the intent of the framers. Among the more important of these are a
consideration of the history of the times when the provision was adopted and of the purposes aimed at in its
adoption. The debates of constitutional convention, contemporaneous construction, and practical
construction by the legislative and executive departments, especially if long continued, may be resorted to
resolve, but not to create, ambiguities. . . .Consideration of the consequences flowing from alternative
constructions of doubtful provisions constitutes an important interpretative device. . . . The purposes of
many of the broadly phrased constitutional limitations were the promotion of policies that do not lend
themselves to definite and specific formulation. The courts have had to define those policies and have often
drawn on natural law and natural rights theories in doing so. The interpretation of constitutions tends to
respond to changing conceptions of political and social values. The extent to which these extraneous aids
affect the judicial construction of constitutions cannot be formulated in precise rules, but their influence
cannot be ignored in describing the essentials of the process (Rottschaeffer on Constitutional Law, 1939
ed., p. 18-19).
There are times that when even the literal expression of legislation may be inconsistent with the general
objectives of policy behind it, and on the basis of equity or spirit of the statute the courts rationalize a
restricted meaning of the latter. A restricted interpretation is usually applied where the effect of literal
interpretation will make for injustice and absurdity or, in the words of one court, the language must be so
unreasonable 'as to shock general common sense'. (Vol. 3, Sutherland on Statutory Construction, 3rd ed.,
150.).
A constitution is not intended to be a limitation on the development of a country nor an obstruction to its
progress and foreign relations (Moscow Fire Ins. Co. of Moscow, Russia vs. Bank of New York and Trust
Co., 294 N. Y. S.648; 56 N.E. 2d. 745, 293 N.Y. 749).
Although the meaning or principles of a constitution remain fixed and unchanged from the time of its
adoption, a constitution must be construed as if intended to stand for a great length of time, and it is
progressive and not static. Accordingly, it should not receive too narrow or literal an interpretation but rather
the meaning given it should be applied in such manner as to meet new or changed conditions as they arise
(U.S. vs. Lassic, 313 U.S. 299, 85 L. Ed., 1368).

All these authorities uphold our conviction that the framers of the Constitution had not in mind the corporations sole, nor
intended to apply them the provisions of section 1 and 5 of said Article XIII when they passed and approved the same.
And if it were so as We think it is, herein petitioner, the Roman Catholic Apostolic Administrator of Davao, Inc., could not
be deprived of the right to acquire by purchase or donation real properties for charitable, benevolent and educational
purposes, nor of the right to register the same in its name with the Register of Deeds of Davao, an indispensable
requisite prescribed by the Land Registration Act for lands covered by the Torrens system.
We leave as the last theme for discussion the much debated question above referred to as "the vested right saving
clause" contained in section 1, Article XIII of the Constitution. The dissenting Justice hurls upon the personal opinion
expressed on the matter by the writer of the decision the most pointed darts of his severe criticism. We think, however,
that this strong dissent should have been spared, because as clearly indicated before, some members of this Court
either did not agree with the theory of the writer or were not ready to take a definite stand on that particular point, so that
there being no majority opinion thereon there was no need of any dissension therefrom. But as the criticism has been
made the writer deems it necessary to say a few words of explanation.
The writer fully agrees with the dissenting Justice that ordinarily "a capacity to acquire (property) in futuro, is not in itself
a vested or existing property right that the Constitution protects from impairment. For a property right to be vested (or
acquired) there must be a transition from the potential or contingent to the actual, and the proprietary interest must have
attached to a thing; it must have become 'fixed and established'" (Balboa vs. Farrales, 51 Phil. 498). But the case at bar
has to be considered as an exception to the rule because among the rights granted by section 159 of the Corporation
Law was the right to receive bequests or gifts of real properties for charitable, benevolent and educational purposes.
And this right to receive such bequests or gifts (which implies donations in futuro), is not a mere potentiality that could
be impaired without any specific provision in the Constitution to that effect, especially when the impairment would
disturbingly affect the propagation of the religious faith of the immense majority of the Filipino people and the curtailment
of the activities of their Church. That is why the writer gave us a basis of his contention what Professor Aruego said in
his book "The Framing of the Philippine Constitution" and the enlightening opinion of Mr. Justice Jose P. Laurel, another
Delegate to the Constitutional Convention, in his concurring opinion in the case of Goldcreek Mining Co. vs. Eulogio
Rodriguez et al., 66 Phil. 259. Anyway the majority of the Court did not deem necessary to pass upon said "vested right
saving clause" for the final determination of this case.
JUDGMENT
Wherefore, the resolution of the respondent Land Registration Commission of September 21, 1954, holding that in view
of the provisions of sections 1 and 5 of Article XIII of the Philippine Constitution the vendee (petitioner) is not qualified to
acquire lands in the Philippines in the absence of proof that at least 60 per centum of the capital, properties or assets of
the Roman Catholic Apostolic Administrator of Davao, Inc. is actually owned or controlled by Filipino citizens, and
denying the registration of the deed of sale in the absence of proof of compliance with such requisite, is hereby
reversed. Consequently, the respondent Register of Deeds of the City of Davao is ordered to register the deed of sale
executed by Mateo L. Rodis in favor of the Roman Catholic Apostolic Administrator of Davao, Inc., which is the subject
of the present litigation. No pronouncement is made as to costs. It is so ordered.
Bautista Angelo and Endencia, JJ., concur.
Paras, C.J., and Bengzon, J., concur in the result.
LABRADOR, J., concurring:

Effect should be given to the purpose indicated by a fair interpretation of the language used and that
construction which effectuates, rather than that which destroys a plain intent or purpose of a constitutional
provision, is not only favored but will be adopted (State ex rel. Randolph Country vs. Walden, 206 S.W. 2d
979).
It is quite generally held that in arriving at the intent and purpose the construction should be broad or liberal
or equitable, as the better method of ascertaining that intent, rather than technical (Great Southern Life Ins.
Co. vs. City of Austin, 243 S.W. 778).

The case at bar squarely present this important legal question: Has the bishop or ordinary of the Roman Catholic
Church who is not a Filipino citizen, as corporation sole, the right to register land, belonging to the Church over which he
presides, in view of the Krivenko decision? Mr. Justice Felix sustains the affirmative view while Mr. Justice J. B. L.
Reyes, the negative. As the undersigned understands it, the reason given for this last view is that the constitutional
provision prohibiting land ownership by foreigners also extends to control because this lies within the scope and purpose
of the prohibition.

To our way of thinking, the question at issue depends for its resolution upon another, namely, who is the owner of the
land or property of the Church sought to be registered? Under the Canon Law the parish and the diocese have the right
to acquire and own property.
SEC. 1. La Iglesia catolica y la Sede Apostolica, libre e independientemente de la potestad civil, tiene
derecho innato de adquirir, retener y administrar bienes temporales para el logro de sus propios fines.
SEC. 2. Tambien las iglesias particulares y demas personas morales erigidas por la autoridad eclesiastica
en persona juridica, tienen derecho, a tenor de los sagrados canones, de adquirir, retener y administrar
bienes temporales. (Canon 1495) (Codigo de Derecho Canonico por Miguelez-Alonzo-Cabreros, 4a ed., p.
562.).
The Canon Law further states that Church property belongs to the non-collegiate moral person called the parish, or to
the diocese.
In canon law the ownership of ecclesiastical goods belongs to each separate juridical person in the Church
(C. 1499). The property of St. John's Church does not belong to the Pope, the bishop, the pastor, or even to
the people of the parish. It belongs to the non-collegiate moral person called the parish, which has been
lawfully erected. It is not like a stock company. The civil law does not recognize this canonical principle; it
insists on an act of civil incorporation or some other legal device. (Ready Answers in Canon Law by Rev.
P.J. Lydon, DD., 3rd ed., 1948, p. 576.).
Parish. 3. A portion or subdivision of a diocese committed to the spiritual jurisdiction or care of a priest or
minister, called rector or pastor. In the Protestant Episcopal Church, it is a territorial division usually
following civil bounds, as those of a town. In the Roman Catholic Church, it is usually territorial, but
whenever, as in some parts of the United States there are different rites and languages, the boundaries and
jurisdiction are determined by right or language; as, a Ruthenian or Polish parish. "5. The inhabitants or
members of a parish, collectively.
Diocese. 3. Eccl. The circuit or extent of a bishop's jurisdiction; the district in which a bishop has authority.
(Webster's New International Dictionary).
We are aware of the fact that some writers believe that ownership of ecclesiastical properties resides in the Roman
Catholic Pontiff as Head of the Universal Church, but the better opinion seems to be that they do belong to the parishes
and diocese as above indicated.
Canonists entertain different opinions as to the person in whom the ownership of the ecclesiastical
properties is vested, with respect to which we shall, for our purpose, confine ourselves to stating with
Donoso that, while many doctors cited by Fagnano believe that it resides in the Roman Pontiff as Head of
the Universal Church, it is more probable that ownership, strictly speaking, does not reside in the latter and,
consequently, ecclesiastical properties are owned by the churches, institutions and canonically established
private corporations to which said properties have been donated. (3 Campos y Pulido, Legislacion y
Jurisprudencia Canonica, P. 420, cited in Trinidad vs. Roman Catholic Archbishop of Manila, 63 Phil., 881,
888-889.).
The property in question, therefore, appears to belong to the parish or the diocese of Davao. But the Roman Catholics
of Davao are not organized as a juridical person, either under the Canon law or under the Civil Law. Neither is there any
provision in either for their organization as a juridical person. Registration of the property in the name of the Roman
Catholics of Davao is, therefore, impossible.

It tolerates the corporation sole wherever and as long as the state law does not permit the legal
incorporation of the parish or diocese. The bishop officially is the legal owner. (Ready Answers in Canon
Law, supra, p. 577.) .
and authorizes it to purchase and hold real estate for the Church.
SEC. 159. Any corporation sole may purchase and hold real estate and personal property for its church,
charitable, benevolent, or educational purposes, and may receive bequests or gifts for such purposes. Such
corporation may mortgage or sell real property held by it upon obtaining an order for that purpose from the
Court of First Instance of the province in which the property is situated; but before making the order proof
must be made to the satisfaction of the court that notice of the application for leave to mortgage or sell has
been given by publication or otherwise in such manner and for such time as said court or the judge thereof
may have directed, and that it is to the interest of the corporation that leave to mortgage or sell should be
granted. The application for leave to mortgage or sell must be made by petition, duly verified by the bishop,
chief priest, or presiding elder, acting as corporation sole, and may be opposed by any member of the
religious denomination, society, or church represented by the corporation sole: Provided, however, That in
cases when the rules, regulations and discipline of the religious denomination, society or church concerned
represented by such corporation sole regulate the methods of acquiring, holding, selling, and mortgaging
real estate and personal property, such rules, regulations, and discipline shall control and the intervention of
the courts shall not be necessary. (The Corporation Law.)
And in accordance with the above section, temporalities of the Church or of parish or a diocese are allowed to be
registered in the name of the corporation sole for purposes of administration and in trust for the real owners.
The mere fact that the Corporation Law authorizes the corporation sole to acquire and hold real estate or other property
does not make the latter the real owner thereof, as his tenure of Church property is merely for the purposes of
administration. As stated above, the bishop is only the legal (technical) owner or trustee, the parish or diocese being the
beneficial owner, or cestui que trust.
Having arrived at the conclusion that the property in question belongs actually either to the parish or to the dioceses of
Davao, the next question that possess for solution is, In case of said property, whose nationality must be considered for
the purpose of determining the applicability of the constitutional provision limiting ownership of land to Filipinos, that of
the bishop or chief priest who registers as corporation sole, or that of the constituents of the parish or diocese who are
the beneficial owners of the land? We believe that of a latter must be considered, and not that of the priest clothed with
the corporate fiction and denominated as the corporation sole. The corporation sole is a mere contrivance to enable a
church to acquire, own and manage properties belonging to the church. It is only a means to an end. The constitutional
provision could not have been meant to apply to the means through which and by which property may be owned or
acquired, but to the ultimate owner of the property. Hence, the citizenship of the priest forming the corporation sole
should be no impediment if the parish or diocese which owns the property is qualified to own and possess the property.
We can take judicial notice of the fact that a great majority of the constituents of the parish or diocese of Davao are
Roman Catholics. The affidavit demanded is therefore, a mere formality.
The dissenting opinion sustains the proposition that control, not actual ownership, is the factor that determines whether
the constitutional prohibition against alien ownership of lands should or should not apply. We may assume the
correctness of the proposition that the Holy See exercises control cannot be real and actual but merely theoretical. In
any case, the constitutional prohibition is limited by its terms to ownership and ownership alone. And should the
corporation sole abuse its powers and authority in relation to the administration or disposal of the property contrary to
the wishes of the constituents of the parish or the diocese, the act may always be questioned as ultra vires.
We agree, therefore, with the reversal of the order.

As under the Civil Law, however, the organization of parishes and dioceses as juridical persons is not expressly
provided for, the corporation law has set up the fiction known as the "corporation sole."

Montemayor and Reyes, A., JJ., concur.

REYES, J.B.L., dissenting:


I regret not being able to assent to the opinion of Mr. Justice Felix. The decision of the Supreme Court in this case will
be of far reaching results, for once the capacity of corporations sole to acquire public and private agricultural lands is
admitted, there will be no limit to the areas they may hold until the Legislature implements section 3 of Article XIII of the
Constitution, empowering it to set a limit to the size of private agricultural land that may be held; and even then it can
only be done without prejudice to rights acquired prior to the enactment of such law. In other words, even if a limitative
law is adopted, it will not affect the landholdings acquired before the law become effective, no matter how vast the
estate should be.
The Constitutional restrictions to the acquisition of agricultural land are well known:
SECTION 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy, and other natural resources of the
Philippines belong to the State, and their disposition, exploitation, development, or utilization shall be limited
to citizens of the Philippines, or to corporations or associations at least sixty per centum of the capital of
which is owned by such citizens, subject to any existing right, grant, lease, or concession at the time of the
inauguration of the Government established under this Constitution. Natural resources, with the exception
of public agricultural land, shall not be alienated, and no license, concession, or lease for the exploitation,
development, or utilization of any of the natural resources shall be granted for a period exceeding twentyfive years, renewable for another twenty-five years, except as to water rights for irrigation, water supply
fisheries, or industrial uses other than the development of water power, in which cases beneficial use may
be the measure and the limit of the grant. (Article XII, Constitution of the Phil.).
SEC. 5. Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned
except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain in
the Philippines. (Art. XII, Constitution of the Phil.).
In requiring corporations or associations to have sixty per cent (60%) of their capital owned by Filipino citizens, the
constitution manifestly disregarded the corporate fiction, i.e., the juridical personality of such corporations or
associations. It went behind the corporate entity and looked at the natural persons that composed it, and demanded that
a clear majority in interest (60%) should be Filipino. To me this was done to ensure that the control of its properties (not
merely the beneficial ownership thereof) remained in Filipino hands. (Aruego, Framing of the Constitution, Vol. 2. pp.
604, 606.) .
The nationalization of the natural resources of the country was intended (1) to insure their conservation for
Filipino posterity; (2) to serve as an instrument of national defense, helping prevent the extension into the
country of foreign control through peaceful economic penetration; and (3) to prevent making the Philippines
a source of international conflicts with the consequent danger to its internal security and independence. . . .
The convention permitted aliens to acquire an interest in the natural resources of the country and in private
agricultural lands as component elements of corporations or associations. The maximum limit of interest
that they could hold in a corporation or association would be only forty per centum of the capital.
Accordingly the control of the corporation or association would remain in Filipino hands.
In its report the committee on nationalization and preservation of lands and other natural resources
recommended that the maximum limit of interest that aliens could hold in a corporation or association
should be only twenty-five per centum of the capital. The purpose of the committee was to enable Filipinocontrolled corporations or associations, if necessary, to interest aliens to join their technical or managerial
staff by giving them a part interest in the same. The sub-committee of seven embodied this
recommendation in the first draft of the Constitution; but in the revised article on General Provisions, it
raised the amount to forty per centum. (emphasis supplied.)

It was in recognition of this basic rule that we held in Register of Deeds vs. Ung Siu Si Temple, 51 Off. Gaz. p. 2866, that
if the association had no capital, its controlling membership must be composed of Filipinos. Because ownership
divorced from control is not true ownership.
From these premises it can be deduced that the preliminary question to be decide by the court is the following: what and
who exercises the power of control in the corporation sole known as "The Roman Catholic Apostolic Administrator of
Davao, Inc."?.
Under section 155 of the Corporation Law, the bishop, or other religious head, as corporation sole, is "charged with
the administration of the temporalities of his church." It becomes then pertinent to inquire: if he is only an administrator,
for whom does he administer? And who can alter or overrule his acts?
If his acts as administrator can not be overridden, or altered, except by himself, then obviously the control of the
corporation and its temporalities is in the bishop himself, and he must be a Filipino citizen. If, on the other hand, the final
say as to management, exploitation, encumbrance or disposition of the temporalities resides in another individual or
body of individuals, then the control resides there. To possess constitutional capacity to acquire agricultural land or other
natural resources, that body making the final decision for the corporation must have at least 60 per cent Filipino
membership.
By this test, the body of members professing the Catholic faith in the diocese of Davao does not constitute the
controlling membership. For under the rules of the Roman Catholic Church the faithful can not control the acts of the
Ordinary; they cannot override his decision, just as they do not elect or remove him. Only his hierarchical superiors can
do that; the control is from above, not from below. Hence, the fact that 90 per cent (or even 100 per cent) of the faithful
in the diocese should be composed of Filipino citizens is totally devoid of significance from the standpoint of the
constitutional restrictions in question (see Codex, Canons 1518 and 1530, paragraph 1, No. 3).
Moreover, I do not think that the body of Catholic faithful in the Davao diocese can be taken, for the purpose here under
consideration, as the Church represented by the Ordinary of Davao. That body does not constitute an entity or unit
separate and apart from the rest of the faithful throughout the world that compose the Roman Catholic Church that has
always claimed ecumenical (universal) character. There is nom Catholic Church of Davao district and independent of the
Catholic Church of Manila, Lipa or Rome. All those professing Catholic faith are members of only one single church or
religious group. Thus the Iglesia Filipina Independiente is not part of the Catholic Church, precisely because of its
independence.
If, the, the Catholic Church of Davao is part and parcel of the universal Catholic Church, it can not be considered
separate and apart from it in this case. And if considered with it, obviously the condition of 60 per cent Filipino
membership is not satisfied when all the Catholic faithful in the world are taken into account.
The unity and singleness of the various diocese of the church appears expressly recognized in section 163 of the
Corporation Law, which provides that the corporation (sole) shall hold the temporalities, not for the diocese; but for the
benefit "of the church of which the diocese is an organized or constituent part."
SEC. 163. The right to administer all temporalities and all property held or owned by a religious order or
society, or by the diocese synod, or district organization of any religious denomination or church shall, on its
incorporation, pass to the corporation and shall be held in trust for the use purpose, behalf, and benefit of
the religious society or order so incorporated or of the church of which the diocese, synod, or district
organization is an organized and constituent part.
So that, even from the standpoint of beneficial ownership, the dioceses of Davao can not be viewed as a group legally
isolated from the Catholic Church as a whole.
Nor does court control over the acts of the corporation sole constitute a guarantee of Filipino control that would satisfy
the purposes of the constitution, for the reason that under section 159 (last proviso) of the Corporation law, the court

intervention is dispensed with where the rules and discipline of the church already regulate the acquisition and
disposition of real estate and personal property.
Provided however, that in cases where the rules, regulations and discipline of the religious denomination,
society, or church concerned represented by such corporation sole regulate the methods of acquiring,
holding, selling, and mortgaging real estate and personal property, such rules, regulations, and discipline
shall control and the intervention of the courts shall not be necessary. (emphasis supplied.)
It is argued that a distinction must be drawn between the lands to be devoted to purely religious purposes and the lands
held in ordinary ownership. But where in the Constitution is such a distinction drawn? Under it, capacity to acquire
agricultural land for the erection of a church is capacity to acquire agricultural lands for any lawful purpose, whether it be
for convents or schools or seminaries or haciendas for their support or land to be held solely for enjoyment of the
revenue. Once the capacity to acquire is granted, the way is paved for the revitalization of religious landholdings that
proved so troublesome in our past. I cannot conceive that the Constitution intended to revive them.
It is also argued that, before the Constitution was adopted, the corporations sole had, by express statute, the right to
acquire agricultural land; and that the Constitution was not intended to destroy such "acquired property rights." If
followed, the argument destroys the constitutional restrictions. All aliens had a capacity to acquire agricultural land
before the Constitution came into effect, because no prohibition existed previously. Must their right to acquire and hold
agricultural land be conceded in spite of the Constitution?.
That the law should have expressly conferred capacity to acquire land upon corporations sole was not due any special
predilection for them; it was exclusively due to the principle that corporation, as artificial entities, have no inherent rights,
but only those granted by the sovereign. Unless conferred, the corporate right would not exist.
Furthermore, a capacity to acquire in futuro, is not in itself a vested existing property right that the Constitution protects
from impairment. For a property right to be vested (or acquired) there must be a transition from the potential, or
contingent, to the actual, and the proprietary interest must have attached to a thing, it must have become "fixed or
established "(Balboa vs. Farrales, 51 Phil. 498). If mere potentialities cannot be impaired, then the law would become
unchangeable, for every variation in it will reduce some one's legal ability to do or not to do. Already in Benguet
Consolidated vs. Pineda, 3 52 Off. Gaz. 1961, we have ruled that no one has a vested right in statutory privileges or
exemptions. And in the concurring opinion in Gold Creek Mining Corp. vs. Rodriguez, 66 Phil. 259 (cited by Justice
Felix), Mr. Justice Laurel squarely declared that "contingency or expectation is neither property right." (cas. cit., p. 269.)
Finally, the point is also made that the Ordinary, as religious corporation sole, has no citizenship, and is not an alien.
The answer is that under the Constitution of the Republic, it is not enough that the acquirer of agricultural land be not an
alien; he must be a Filipino or controlled by Filipinos.
Wherefore, I am constrained to conclude:
(1) That the capacity of religious corporations sole to acquire agricultural land depends upon 60 per cent Filipino
membership of the group or body exercising control of the corporation;lawphi1.net
(2) That if control of any such corporation should be vested in a single person, then such person must be a Filipino
citizen;1awphi1.net
(3) That in the absence of evidence on these points, the order appealed from, denying registration of the conveyance,
should be affirmed.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-6055

June 12, 1953

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,


vs.
WILLIAM H. QUASHA, defendant-appellant.
Jose P. Laurel for appellant and William H. Quasha in his own behalf.
Office of the Solicitor General Juan R. Liwag and Assistant Solicitor General Francisco Carreon for appellee.
REYES, J.:
William H. Quasha, a member of the Philippine bar, was charged in the Court of First Instance of Manila with the crime
of falsification of a public and commercial document in that, having been entrusted with the preparation and registration
of the article of incorporation of the Pacific Airways Corporation, a domestic corporation organized for the purpose of
engaging in business as a common carrier, he caused it to appear in said article of incorporation that one Arsenio
Baylon, a Filipino citizen, had subscribed to and was the owner of 60.005 per cent of the subscribed capital stock of the
corporation when in reality, as the accused well knew, such was not the case, the truth being that the owner of the
portion of the capital stock subscribed to by Baylon and the money paid thereon were American citizen whose name did
not appear in the article of incorporation, and that the purpose for making this false statement was to circumvent the

constitutional mandate that no corporation shall be authorize to operate as a public utility in the Philippines unless 60
per cent of its capital stock is owned by Filipinos.

xxx

xxx

xxx

4. Making untruthful statements in a narration of facts.


Found guilty after trial and sentenced to a term of imprisonment and a fine, the accused has appealed to this Court.
The essential facts are not in dispute. On November 4,1946, the Pacific Airways Corporation registered its articles of
incorporation with the Securities and Exchanged Commission. The article were prepared and the registration was
effected by the accused, who was in fact the organizer of the corporation. The article stated that the primary purpose of
the corporation was to carry on the business of a common carrier by air, land or water; that its capital stock was
P1,000,000, represented by 9,000 preferred and 100,000 common shares, each preferred share being of the par value
of p100 and entitled to 1/3 vote and each common share, of the par value of P1 and entitled to one vote; that the
amount capital stock actually subscribed was P200,000, and the names of the subscribers were Arsenio Baylon, Eruin
E. Shannahan, Albert W. Onstott, James O'Bannon, Denzel J. Cavin, and William H. Quasha, the first being a Filipino
and the other five all Americans; that Baylon's subscription was for 1,145 preferred shares, of the total value of
P114,500, and for 6,500 common shares, of the total par value of P6,500, while the aggregate subscriptions of the
American subscribers were for 200 preferred shares, of the total par value of P20,000, and 59,000 common shares, of
the total par value of P59,000; and that Baylon and the American subscribers had already paid 25 per cent of their
respective subscriptions. Ostensibly the owner of, or subscriber to, 60.005 per cent of the subscribed capital stock of the
corporation, Baylon nevertheless did not have the controlling vote because of the difference in voting power between the
preferred shares and the common shares. Still, with the capital structure as it was, the article of incorporation were
accepted for registration and a certificate of incorporation was issued by the Securities and Exchange Commission.
There is no question that Baylon actually subscribed to 60.005 per cent of the subscribed capital stock of the
corporation. But it is admitted that the money paid on his subscription did not belong to him but to the Americans
subscribers to the corporate stock. In explanation, the accused testified, without contradiction, that in the process of
organization Baylon was made a trustee for the American incorporators, and that the reason for making Baylon such
trustee was as follows:
Q. According to this article of incorporation Arsenio Baylon subscribed to 1,135 preferred shares with a total
value of P1,135. Do you know how that came to be?
A. Yes.
The people who were desirous of forming the corporation, whose names are listed on page 7 of this certified copy came
to my house, Messrs. Shannahan, Onstott, O'Bannon, Caven, Perry and Anastasakas one evening. There was
considerable difficulty to get them all together at one time because they were pilots. They had difficulty in deciding what
their respective share holdings would be. Onstott had invested a certain amount of money in airplane surplus property
and they had obtained a considerable amount of money on those planes and as I recall they were desirous of getting a
corporation formed right away. And they wanted to have their respective shares holdings resolved at a latter date. They
stated that they could get together that they feel that they had no time to settle their respective share holdings. We
discussed the matter and finally it was decided that the best way to handle the things was not to put the shares in the
name of anyone of the interested parties and to have someone act as trustee for their respective shares holdings. So we
looked around for a trustee. And he said "There are a lot of people whom I trust." He said, "Is there someone around
whom we could get right away?" I said, "There is Arsenio. He was my boy during the liberation and he cared for me
when i was sick and i said i consider him my friend." I said. They all knew Arsenio. He is a very kind man and that was
what was done. That is how it came about.
Defendant is accused under article 172 paragraph 1, in connection with article 171, paragraph 4, of the Revised Penal
Code, which read:
ART. 171. Falsification by public officer, employee, or notary or ecclesiastic minister. The penalty
ofprision mayor and a fine not to exceed 5,000 pesos shall be imposed upon any public officer, employee,
or notary who, taking advantage of his official position, shall falsify a document by committing any of the
following acts:

ART. 172. Falsification by private individuals and use of falsified documents. The penalty of prision
correccional in its medium and maximum period and a fine of not more than 5,000 pesos shall be imposed
upon:
xxx

xxx

xxx

1. Any private individual who shall commit any of the falsifications enumerated in the next preceding article
in any public or official document or letter of exchange or any other kind of commercial document.
Commenting on the above provision, Justice Albert, in his well-known work on the Revised Penal Code ( new edition,
pp. 407-408), observes, on the authority of U.S. vs. Reyes, (1 Phil., 341), that the perversion of truth in the narration of
facts must be made with the wrongful intent of injuring a third person; and on the authority of U.S. vs. Lopez (15 Phil.,
515), the same author further maintains that even if such wrongful intent is proven, still the untruthful statement will not
constitute the crime of falsification if there is no legal obligation on the part of the narrator to disclose the truth. Wrongful
intent to injure a third person and obligation on the part of the narrator to disclose the truth are thus essential to a
conviction for a crime of falsification under the above article of the Revised Penal Code.
Now, as we see it, the falsification imputed in the accused in the present case consists in not disclosing in the articles of
incorporation that Baylon was a mere trustee ( or dummy as the prosecution chooses to call him) of his American coincorporators, thus giving the impression that Baylon was the owner of the shares subscribed to by him which, as above
stated, amount to 60.005 per cent of the sub-scribed capital stock. This, in the opinion of the trial court, is a malicious
perversion of the truth made with the wrongful intent circumventing section 8, Article XIV of the Constitution, which
provides that " no franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporation or other entities organized under the law of the Philippines,
sixty per centum of the capital of which is owned by citizens of the Philippines . . . ." Plausible though it may appear at
first glance, this opinion loses validity once it is noted that it is predicated on the erroneous assumption that the
constitutional provision just quoted was meant to prohibit the mere formation of a public utility corporation without 60 per
cent of its capital being owned by the Filipinos, a mistaken belief which has induced the lower court to that the accused
was under obligation to disclose the whole truth about the nationality of the subscribed capital stock of the corporation
by revealing that Baylon was a mere trustee or dummy of his American co-incorporators, and that in not making such
disclosure defendant's intention was to circumvent the Constitution to the detriment of the public interests. Contrary to
the lower court's assumption, the Constitution does not prohibit the mere formation of a public utility corporation without
the required formation of Filipino capital. What it does prohibit is the granting of a franchise or other form of authorization
for the operation of a public utility to a corporation already in existence but without the requisite proportion of Filipino
capital. This is obvious from the context, for the constitutional provision in question qualifies the terms " franchise",
"certificate", or "any other form of authorization" with the phrase "for the operation of a public utility," thereby making it
clear that the franchise meant is not the "primary franchise" that invest a body of men with corporate existence but the
"secondary franchise" or the privilege to operate as a public utility after the corporation has already come into being.
If the Constitution does not prohibit the mere formation of a public utility corporation with the alien capital, then how can
the accused be charged with having wrongfully intended to circumvent that fundamental law by not revealing in the
articles of incorporation that Baylon was a mere trustee of his American co-incorporation and that for that reason the
subscribed capital stock of the corporation was wholly American? For the mere formation of the corporation such
revelation was not essential, and the Corporation Law does not require it. Defendant was, therefore, under no obligation
to make it. In the absence of such obligation and of the allege wrongful intent, defendant cannot be legally convicted of
the crime with which he is charged.
It is urged, however, that the formation of the corporation with 60 per cent of its subscribed capital stock appearing in the
name of Baylon was an indispensable preparatory step to the subversion of the constitutional prohibition and the laws
implementing the policy expressed therein. This view is not correct. For a corporation to be entitled to operate a public

utility it is not necessary that it be organized with 60 per cent of its capital owned by Filipinos from the start. A
corporation formed with capital that is entirely alien may subsequently change the nationality of its capital through
transfer of shares to Filipino citizens. conversely, a corporation originally formed with Filipino capital may subsequently
change the national status of said capital through transfer of shares to foreigners. What need is there then for a
corporation that intends to operate a public utility to have, at the time of its formation, 60 per cent of its capital owned by
Filipinos alone? That condition may anytime be attained thru the necessary transfer of stocks. The moment for
determining whether a corporation is entitled to operate as a public utility is when it applies for a franchise, certificate, or
any other form of authorization for that purpose. And that can be done after the corporation has already come into being
and not while it is still being formed. And at that moment, the corporation must show that it has complied not only with
the requirement of the Constitution as to the nationality of its capital, but also with the requirements of the Civil Aviation
Law if it is a common carrier by air, the Revised Administrative Code if it is a common carrier by water, and the Public
Service Law if it is a common carrier by land or other kind of public service.
Equally untenable is the suggestion that defendant should at least be held guilty of an "impossible crime" under article
59 of the Revised Penal Code. It not being possible to suppose that defendant had intended to commit a crime for the
simple reason that the alleged constitutional prohibition which he is charged for having tried to circumvent does not
exist, conviction under that article is out of the question.
The foregoing consideration can not but lead to the conclusion that the defendant can not be held guilty of the crime
charged. The majority of the court, however, are also of the opinion that, even supposing that the act imputed to the
defendant constituted falsification at the time it was perpetrated, still with the approval of the Party Amendment to the
Constitution in March, 1947, which placed Americans on the same footing as Filipino citizens with respect to the right to
operate public utilities in the Philippines, thus doing away with the prohibition in section 8, Article XIV of the Constitution
in so far as American citizens are concerned, the said act has ceased to be an offense within the meaning of the law, so
that defendant can no longer be held criminally liable therefor.
In view of the foregoing, the judgment appealed from is reversed and the defendant William H. Quasha acquitted, with
costs de oficio.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 176579

June 28, 2011

WILSON P. GAMBOA, Petitioner,


vs.
FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN P. SEVILLA, AND
COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG)
IN THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION COUNCIL,
CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC
ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT
NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE
SECURITIES EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK
EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioners-in-Intervention.
DECISION
CARPIO, J.:

The Case
This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale of shares of
stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of the
Philippines to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific).
The Antecedents
The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone Company
(PLDT), are as follows:1
On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the right to
engage in telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE), an American
company and a major PLDT stockholder, sold 26 percent of the outstanding common shares of PLDT to PTIC. In 1977,
Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and Jose Campos, Jr.
Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of Assignment
executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC
held by PHI were sequestered by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC
shares, which represent about 46.125 percent of the outstanding capital stock of PTIC, were later declared by this Court
to be owned by the Republic of the Philippines.2

The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of the outstanding
common shares of stock of PLDT, and designated the Inter-Agency Privatization Council (IPC), composed of the
Department of Finance and the PCGG, as the disposing entity. An invitation to bid was published in seven different
newspapers from 13 to 24 November 2006. On 20 November 2006, a pre-bid conference was held, and the original
deadline for bidding scheduled on 4 December 2006 was reset to 8 December 2006. The extension was published in
nine different newspapers.
During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with a bid
ofP25,217,556,000. The government notified First Pacific, the majority owner of PTIC shares, of the bidding results and
gave First Pacific until 1 February 2007 to exercise its right of first refusal in accordance with PTICs Articles of
Incorporation. First Pacific announced its intention to match Parallaxs bid.
On 31 January 2007, the House of Representatives (HR) Committee on Good Government conducted a public hearing
on the particulars of the then impending sale of the 111,415 PTIC shares. Respondents Teves and Sevilla were among
those who attended the public hearing. The HR Committee Report No. 2270 concluded that: (a) the auction of the
governments 111,415 PTIC shares bore due diligence, transparency and conformity with existing legal procedures; and
(b) First Pacifics intended acquisition of the governments 111,415 PTIC shares resulting in First Pacifics 100%
ownership of PTIC will not violate the 40 percent constitutional limit on foreign ownership of a public utility
since PTIC holds only 13.847 percent of the total outstanding common shares of PLDT.5 On 28 February 2007,
First Pacific completed the acquisition of the 111,415 shares of stock of PTIC.

In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54 percent of
the outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the
Philippine Government announced that it would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding
capital stock of PTIC, through a public bidding to be conducted on 4 December 2006. Subsequently, the public bidding
was reset to 8 December 2006, and only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio
Capital, submitted their bids. Parallax won with a bid of P25.6 billion or US$510 million.

Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the sale of
111,415 PTIC shares or 46 percent of the outstanding capital stock of PTIC (the remaining 54 percent of PTIC shares
was already owned by First Pacific and its affiliates); (b) Parallax offered the highest bid amounting toP25,217,556,000;
(c) pursuant to the right of first refusal in favor of PTIC and its shareholders granted in PTICs Articles of Incorporation,
MPAH, a First Pacific affiliate, exercised its right of first refusal by matching the highest bid offered for PTIC shares on
13 February 2007; and (d) on 28 February 2007, the sale was consummated when MPAH paid IPC P25,217,556,000
and the government delivered the certificates for the 111,415 PTIC shares. Respondent Pangilinan denies the other
allegations of facts of petitioner.

Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the
111,415 PTIC shares by matching the bid price of Parallax. However, First Pacific failed to do so by the 1 February 2007
deadline set by IPC and instead, yielded its right to PTIC itself which was then given by IPC until 2 March 2007 to buy
the PTIC shares. On 14 February 2007, First Pacific, through its subsidiary, MPAH, entered into a Conditional Sale and
Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, with the
Philippine Government for the price of P25,217,556,000 or US$510,580,189. The sale was completed on 28 February
2007.

On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and declaration of
nullity of sale of the 111,415 PTIC shares. Petitioner claims, among others, that the sale of the 111,415 PTIC shares
would result in an increase in First Pacifics common shareholdings in PLDT from 30.7 percent to 37 percent, and this,
combined with Japanese NTT DoCoMos common shareholdings in PLDT, would result to a total foreign common
shareholdings in PLDT of 51.56 percent which is over the 40 percent constitutional limit. 6 Petitioner asserts:

Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is
actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares of PLDT. With the
sale, First Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby
increasing the common shareholdings of foreigners in PLDT to about 81.47 percent. This violates Section 11,
Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not more
than 40 percent.3
On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and
PCGG Commissioner Ricardo Abcede allege the following relevant facts:
On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment holdings. PTIC held
26,034,263 PLDT common shares, or 13.847 percent of the total PLDT outstanding common shares. PHI, on the other
hand, was incorporated in 1977, and became the owner of 111,415 PTIC shares or 46.125 percent of the outstanding
capital stock of PTIC by virtue of three Deeds of Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In
1986, the 111,415 PTIC shares held by PHI were sequestered by the PCGG, and subsequently declared by this Court
as part of the ill-gotten wealth of former President Ferdinand Marcos. The sequestered PTIC shares were reconveyed to
the Republic of the Philippines in accordance with this Courts decision4 which became final and executory on 8 August
2006.

If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7 percent to 37.0 percent of its
common or voting- stockholdings, x x x. Hence, the consummation of the sale will put the two largest foreign investors
in PLDT First Pacific and Japans NTT DoCoMo, which is the worlds largest wireless telecommunications firm, owning
51.56 percent of PLDT common equity. x x x With the completion of the sale, data culled from the official website of the
New York Stock Exchange (www.nyse.com) showed that those foreign entities, which own at least five percent of
common equity, will collectively own 81.47 percent of PLDTs common equity. x x x
x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT submitted to the New
York Stock Exchange for the period 2003-2005, revealed that First Pacific and several other foreign entities breached
the constitutional limit of 40 percent ownership as early as 2003. x x x"7
Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415 PTIC shares
to First Pacific violates the constitutional limit on foreign ownership of a public utility; (2) whether public respondents
committed grave abuse of discretion in allowing the sale of the 111,415 PTIC shares to First Pacific; and (3) whether the
sale of common shares to foreigners in excess of 40 percent of the entire subscribed common capital stock violates the
constitutional limit on foreign ownership of a public utility.8

On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene and Admit Attached
Petition-in-Intervention. In the Resolution of 28 August 2007, the Court granted the motion and noted the Petition-inIntervention.
Petitioners-in-intervention "join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin and/or nullify the sale
by respondents of the 111,415 PTIC shares to First Pacific or assignee." Petitioners-in-intervention claim that, as PLDT
subscribers, they have a "stake in the outcome of the controversy x x x where the Philippine Government is completing
the sale of government owned assets in [PLDT], unquestionably a public utility, in violation of the nationality restrictions
of the Philippine Constitution."
The Issue
This Court is not a trier of facts. Factual questions such as those raised by petitioner, 9 which indisputably demand a
thorough examination of the evidence of the parties, are generally beyond this Courts jurisdiction. Adhering to this wellsettled principle, the Court shall confine the resolution of the instant controversy solely on the threshold and purely
legal issue of whether the term "capital" in Section 11, Article XII of the Constitution refers to the total common shares
only or to the total outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a
public utility.
The Ruling of the Court
The petition is partly meritorious.
Petition for declaratory relief treated as petition for mandamus
At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks, only the petition for
prohibition is within the original jurisdiction of this court, which however is not exclusive but is concurrent with the
Regional Trial Court and the Court of Appeals. The actions for declaratory relief,10 injunction, and annulment of sale are
not embraced within the original jurisdiction of the Supreme Court. On this ground alone, the petition could have been
dismissed outright.
While direct resort to this Court may be justified in a petition for prohibition, 11 the Court shall nevertheless refrain from
discussing the grounds in support of the petition for prohibition since on 28 February 2007, the questioned sale was
consummated when MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415
PTIC shares.
However, since the threshold and purely legal issue on the definition of the term "capital" in Section 11, Article XII of the
Constitution has far-reaching implications to the national economy, the Court treats the petition for declaratory relief as
one for mandamus.12
In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory relief as one for
mandamus considering the grave injustice that would result in the interpretation of a banking law. In that case, which
involved the crime of rape committed by a foreign tourist against a Filipino minor and the execution of the final judgment
in the civil case for damages on the tourists dollar deposit with a local bank, the Court declared Section 113 of Central
Bank Circular No. 960, exempting foreign currency deposits from attachment, garnishment or any other order or process
of any court, inapplicable due to the peculiar circumstances of the case. The Court held that "injustice would result
especially to a citizen aggrieved by a foreign guest like accused x x x" that would "negate Article 10 of the Civil Code
which provides that in case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body
intended right and justice to prevail." The Court therefore required respondents Central Bank of the Philippines, the
local bank, and the accused to comply with the writ of execution issued in the civil case for damages and to release the
dollar deposit of the accused to satisfy the judgment.

In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the procedural infirmity of the
petition for declaratory relief and treated the same as one for mandamus. In Alliance, the issue was whether the
government unlawfully excluded petitioners, who were government employees, from the enjoyment of rights to which
they were entitled under the law. Specifically, the question was: "Are the branches, agencies, subdivisions, and
instrumentalities of the Government, including government owned or controlled corporations included among the four
employers under Presidential Decree No. 851 which are required to pay their employees x x x a thirteenth (13th) month
pay x x x ?" The Constitutional principle involved therein affected all government employees, clearly justifying a
relaxation of the technical rules of procedure, and certainly requiring the interpretation of the assailed presidential
decree.
In short, it is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the issue
involved has far-reaching implications. As this Court held in Salvacion:
The Court has no original and exclusive jurisdiction over a petition for declaratory relief. However, exceptions to this
rule have been recognized. Thus, where the petition has far-reaching implications and raises questions that
should be resolved, it may be treated as one for mandamus.15 (Emphasis supplied)
In the present case, petitioner seeks primarily the interpretation of the term "capital" in Section 11, Article XII of the
Constitution. He prays that this Court declare that the term "capital" refers to common shares only, and that such shares
constitute "the sole basis in determining foreign equity in a public utility." Petitioner further asks this Court to declare any
ruling inconsistent with such interpretation unconstitutional.
The interpretation of the term "capital" in Section 11, Article XII of the Constitution has far-reaching implications to the
national economy. In fact, a resolution of this issue will determine whether Filipinos are masters, or second class
citizens, in their own country. What is at stake here is whether Filipinos or foreigners will have effective control of the
national economy. Indeed, if ever there is a legal issue that has far-reaching implications to the entire nation, and to
future generations of Filipinos, it is the threshhold legal issue presented in this case.
The Court first encountered the issue on the definition of the term "capital" in Section 11, Article XII of the Constitution in
the case of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case involved the same public utility (PLDT)
and substantially the same private respondents. Despite the importance and novelty of the constitutional issue raised
therein and despite the fact that the petition involved a purely legal question, the Court declined to resolve the case on
the merits, and instead denied the same for disregarding the hierarchy of courts.17 There, petitioner Fernandez assailed
on a pure question of law the Regional Trial Courts Decision of 21 February 2003 via a petition for review under Rule
45. The Courts Resolution, denying the petition, became final on 21 December 2004.
The instant petition therefore presents the Court with another opportunity to finally settle this purely legal issue which is
of transcendental importance to the national economy and a fundamental requirement to a faithful adherence to our
Constitution. The Court must forthwith seize such opportunity, not only for the benefit of the litigants, but more
significantly for the benefit of the entire Filipino people, to ensure, in the words of the Constitution, "a self-reliant and
independent national economy effectively controlled by Filipinos."18 Besides, in the light of vague and confusing
positions taken by government agencies on this purely legal issue, present and future foreign investors in this country
deserve, as a matter of basic fairness, a categorical ruling from this Court on the extent of their participation in the
capital of public utilities and other nationalized businesses.
Despite its far-reaching implications to the national economy, this purely legal issue has remained unresolved for over
75 years since the 1935 Constitution. There is no reason for this Court to evade this ever recurring fundamental issue
and delay again defining the term "capital," which appears not only in Section 11, Article XII of the Constitution, but also
in Section 2, Article XII on co-production and joint venture agreements for the development of our natural resources, 19 in
Section 7, Article XII on ownership of private lands,20 in Section 10, Article XII on the reservation of certain investments
to Filipino citizens,21 in Section 4(2), Article XIV on the ownership of educational institutions,22 and in Section 11(2),
Article XVI on the ownership of advertising companies.23
Petitioner has locus standi

There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question the subject sale, which
he claims to violate the nationality requirement prescribed in Section 11, Article XII of the Constitution. If the sale indeed
violates the Constitution, then there is a possibility that PLDTs franchise could be revoked, a dire consequence directly
affecting petitioners interest as a stockholder.
More importantly, there is no question that the instant petition raises matters of transcendental importance to the public.
The fundamental and threshold legal issue in this case, involving the national economy and the economic welfare of the
Filipino people, far outweighs any perceived impediment in the legal personality of the petitioner to bring this action.
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of transcendental importance to
the public, thus:
In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and the object of mandamus is
to obtain the enforcement of a public duty, the people are regarded as the real parties in interest; and because it
is sufficient that petitioner is a citizen and as such is interested in the execution of the laws, he need not show
that he has any legal or special interest in the result of the action. In the aforesaid case, the petitioners sought to
enforce their right to be informed on matters of public concern, a right then recognized in Section 6, Article IV of the
1973 Constitution, in connection with the rule that laws in order to be valid and enforceable must be published in the
Official Gazette or otherwise effectively promulgated. In ruling for the petitioners legal standing, the Court declared that
the right they sought to be enforced is a public right recognized by no less than the fundamental law of the land.
Legaspi v. Civil Service Commission, while reiterating Taada, further declared that when a mandamus proceeding
involves the assertion of a public right, the requirement of personal interest is satisfied by the mere fact that
petitioner is a citizen and, therefore, part of the general public which possesses the right.
Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been involved under the
questioned contract for the development, management and operation of the Manila International Container Terminal,
public interest [was] definitely involved considering the important role [of the subject contract] . . . in the
economic development of the country and the magnitude of the financial consideration involved. We concluded
that, as a consequence, the disclosure provision in the Constitution would constitute sufficient authority for upholding the
petitioners standing. (Emphasis supplied)
Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance, the
petitioner has the requisite locus standi.
Definition of the Term "Capital" in
Section 11, Article XII of the 1987 Constitution
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of public
utilities, to wit:
Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall
be granted except to citizens of the Philippines or to corporations or associations organized under the laws of
the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such
franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by
the Congress when the common good so requires. The State shall encourage equity participation in public utilities by
the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be
limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines. (Emphasis supplied)
The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:

Section 5. No franchise, certificate, or any other form of authorization for the operation of a public utility shall
be granted except to citizens of the Philippines or to corporations or associations organized under the laws of
the Philippines at least sixty per centum of the capital of which is owned by such citizens, nor shall such
franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any
such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal
by the National Assembly when the public interest so requires. The State shall encourage equity participation in public
utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise
shall be limited to their proportionate share in the capital thereof. (Emphasis supplied)
The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935 Constitution, viz:
Section 8. No franchise, certificate, or any other form of authorization for the operation of a public utility shall
be granted except to citizens of the Philippines or to corporations or other entities organized under the laws of
the Philippines sixty per centum of the capital of which is owned by citizens of the Philippines, nor shall such
franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. No franchise or
right shall be granted to any individual, firm, or corporation, except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the public interest so requires. (Emphasis supplied)
Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds us that the
Filipinization provision in the 1987 Constitution is one of the products of the spirit of nationalism which gripped the 1935
Constitutional Convention.25 The 1987 Constitution "provides for the Filipinization of public utilities by requiring that any
form of authorization for the operation of public utilities should be granted only to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is
owned by such citizens. The provision is [an express] recognition of the sensitive and vital position of public
utilities both in the national economy and for national security."26 The evident purpose of the citizenship
requirement is to prevent aliens from assuming control of public utilities, which may be inimical to the national
interest.27 This specific provision explicitly reserves to Filipino citizens control of public utilities, pursuant to an overriding
economic goal of the 1987 Constitution: to "conserve and develop our patrimony" 28 and ensure "a self-reliant and
independent national economy effectively controlled by Filipinos."29
Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationality requirement
prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation to be granted authority to operate a
public utility, at least 60 percent of its "capital" must be owned by Filipino citizens.
The crux of the controversy is the definition of the term "capital." Does the term "capital" in Section 11, Article XII of the
Constitution refer to common shares or to the total outstanding capital stock (combined total of common and non-voting
preferred shares)?
Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to common shares
because such shares are entitled to vote and it is through voting that control over a corporation is exercised. Petitioner
posits that the term "capital" in Section 11, Article XII of the Constitution refers to "the ownership of common capital
stock subscribed and outstanding, which class of shares alone, under the corporate set-up of PLDT, can vote and elect
members of the board of directors." It is undisputed that PLDTs non-voting preferred shares are held mostly by Filipino
citizens.30 This arose from Presidential Decree No. 217,31 issued on 16 June 1973 by then President Ferdinand Marcos,
requiring every applicant of a PLDT telephone line to subscribe to non-voting preferred shares to pay for the investment
cost of installing the telephone line.32
Petitioners-in-intervention basically reiterate petitioners arguments and adopt petitioners definition of the term
"capital."33 Petitioners-in-intervention allege that "the approximate foreign ownership of common capital stock of PLDT x
x x already amounts to at least 63.54% of the total outstanding common stock," which means that foreigners exercise
significant control over PLDT, patently violating the 40 percent foreign equity limitation in public utilities prescribed by the
Constitution.

Respondents, on the other hand, do not offer any definition of the term "capital" in Section 11, Article XII of the
Constitution. More importantly, private respondents Nazareno and Pangilinan of PLDT do not dispute that more than 40
percent of the common shares of PLDT are held by foreigners.

The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to ownership of
shares of stock entitled to vote, i.e., common shares, considering that it is through voting that control is being exercised.
xxx

In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on the procedural infirmities of
the petition and the supposed violation of the due process rights of the "affected foreign common shareholders."
Respondent Nazareno does not deny petitioners allegation of foreigners dominating the common shareholdings of
PLDT. Nazareno stressed mainly that the petition "seeks to divest foreign common shareholders purportedly
exceeding 40% of the total common shareholdings in PLDT of their ownership over their shares." Thus, "the
foreign natural and juridical PLDT shareholders must be impleaded in this suit so that they can be heard."34Essentially,
Nazareno invokes denial of due process on behalf of the foreign common shareholders.

Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully nationalized and
partially nationalized activities is for Filipino nationals to be always in control of the corporation undertaking said
activities. Otherwise, if the Trial Courts ruling upholding respondents arguments were to be given credence, it would be
possible for the ownership structure of a public utility corporation to be divided into one percent (1%) common stocks
and ninety-nine percent (99%) preferred stocks. Following the Trial Courts ruling adopting respondents arguments, the
common shares can be owned entirely by foreigners thus creating an absurd situation wherein foreigners, who are
supposed to be minority shareholders, control the public utility corporation.

While Nazareno does not introduce any definition of the term "capital," he states that "among the factual assertions
that need to be established to counter petitioners allegations is the uniform interpretation by government
agencies (such as the SEC), institutions and corporations (such as the Philippine National Oil Company-Energy
Development Corporation or PNOC-EDC) of including both preferred shares and common shares in "controlling
interest" in view of testing compliance with the 40% constitutional limitation on foreign ownership in public
utilities."35

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Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership and the
controlling interest.
xxxx

Similarly, respondent Manuel V. Pangilinan does not define the term "capital" in Section 11, Article XII of the
Constitution. Neither does he refute petitioners claim of foreigners holding more than 40 percent of PLDTs common
shares. Instead, respondent Pangilinan focuses on the procedural flaws of the petition and the alleged violation of the
due process rights of foreigners. Respondent Pangilinan emphasizes in his Memorandum (1) the absence of this Courts
jurisdiction over the petition; (2) petitioners lack of standing; (3) mootness of the petition; (4) non-availability of
declaratory relief; and (5) the denial of due process rights. Moreover, respondent Pangilinan alleges that the issue
should be whether "owners of shares in PLDT as well as owners of shares in companies holding shares in PLDT may
be required to relinquish their shares in PLDT and in those companies without any law requiring them to surrender their
shares and also without notice and trial."

Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers
to ownership of shares of stock entitled to vote, i.e., common shares. Furthermore, ownership of record of shares will
not suffice but it must be shown that the legal and beneficial ownership rests in the hands of Filipino citizens.
Consequently, in the case of petitioner PLDT, since it is already admitted that the voting interests of foreigners which
would gain entry to petitioner PLDT by the acquisition of SMART shares through the Questioned Transactions is
equivalent to 82.99%, and the nominee arrangements between the foreign principals and the Filipino owners is likewise
admitted, there is, therefore, a violation of Section 11, Article XII of the Constitution.

Respondent Pangilinan further asserts that "Section 11, [Article XII of the Constitution] imposes no nationality
requirement on the shareholders of the utility company as a condition for keeping their shares in the utility
company." According to him, "Section 11 does not authorize taking one persons property (the shareholders stock in the
utility company) on the basis of another partys alleged failure to satisfy a requirement that is a condition only for that
other partys retention of another piece of property (the utility company being at least 60% Filipino-owned to keep its
franchise)."36

Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to support the
proposition that the meaning of the word "capital" as used in Section 11, Article XII of the Constitution allegedly refers to
the sum total of the shares subscribed and paid-in by the shareholder and it allegedly is immaterial how the stock is
classified, whether as common or preferred, cannot stand in the face of a clear legislative policy as stated in the FIA
which took effect in 1991 or way after said opinions were rendered, and as clarified by the above-quoted Amendments.
In this regard, suffice it to state that as between the law and an opinion rendered by an administrative agency, the law
indubitably prevails. Moreover, said Opinions are merely advisory and cannot prevail over the clear intent of the framers
of the Constitution.

The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla, Commissioner
Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the definition of the term "capital." In its
Memorandum37dated 24 September 2007, the OSG also limits its discussion on the supposed procedural defects of the
petition, i.e. lack of standing, lack of jurisdiction, non-inclusion of interested parties, and lack of basis for injunction. The
OSG does not present any definition or interpretation of the term "capital" in Section 11, Article XII of the Constitution.
The OSG contends that "the petition actually partakes of a collateral attack on PLDTs franchise as a public utility,"
which in effect requires a "full-blown trial where all the parties in interest are given their day in court."38
Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine Stock Exchange
(PSE), does not also define the term "capital" and seeks the dismissal of the petition on the following grounds: (1) failure
to state a cause of action against Lim; (2) the PSE allegedly implemented its rules and required all listed companies,
including PLDT, to make proper and timely disclosures; and (3) the reliefs prayed for in the petition would adversely
impact the stock market.
In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a stockholder of record of PLDT,
contended that the term "capital" in the 1987 Constitution refers to shares entitled to vote or the common shares.
Fernandez explained thus:

In the same vein, the SECs construction of Section 11, Article XII of the Constitution is at best merely advisory for it is
the courts that finally determine what a law means.39
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, Helen Y. Dee,
Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa, Napoleon L. Nazareno, Albert
F. Del Rosario, and Orlando B. Vea, argued that the term "capital" in Section 11, Article XII of the Constitution includes
preferred shares since the Constitution does not distinguish among classes of stock, thus:
16. The Constitution applies its foreign ownership limitation on the corporations "capital," without distinction as to
classes of shares. x x x
In this connection, the Corporation Code which was already in force at the time the present (1987) Constitution was
drafted defined outstanding capital stock as follows:

Section 137. Outstanding capital stock defined. The term "outstanding capital stock", as used in this Code, means the
total shares of stock issued under binding subscription agreements to subscribers or stockholders, whether or not fully
or partially paid, except treasury shares.
Section 137 of the Corporation Code also does not distinguish between common and preferred shares, nor exclude
either class of shares, in determining the outstanding capital stock (the "capital") of a corporation. Consequently,
petitioners suggestion to reckon PLDTs foreign equity only on the basis of PLDTs outstanding common shares is
without legal basis. The language of the Constitution should be understood in the sense it has in common use.

Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be
equal in all respects to every other share.
Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such
shares shall nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;

xxxx
17. But even assuming that resort to the proceedings of the Constitutional Commission is necessary, there is nothing in
the Record of the Constitutional Commission (Vol. III) which petitioner misleadingly cited in the Petition x x x which
supports petitioners view that only common shares should form the basis for computing a public utilitys foreign equity.

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate
property;
4. Incurring, creating or increasing bonded indebtedness;

xxxx
5. Increase or decrease of capital stock;
18. In addition, the SEC the government agency primarily responsible for implementing the Corporation Code, and
which also has the responsibility of ensuring compliance with the Constitutions foreign equity restrictions as regards
nationalized activities x x x has categorically ruled that both common and preferred shares are properly considered in
determining outstanding capital stock and the nationality composition thereof.40
We agree with petitioner and petitioners-in-intervention. The term "capital" in Section 11, Article XII of the Constitution
refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common
shares,41 and not to the total outstanding capital stock comprising both common and non-voting preferred shares.
The Corporation Code of the Philippines classifies shares as common or preferred, thus:
42

Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into classes or series of
shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be
stated in the articles of incorporation: Provided, That no share may be deprived of voting rights except those
classified and issued as "preferred" or "redeemable" shares, unless otherwise provided in this Code: Provided,
further, That there shall always be a class or series of shares which have complete voting rights. Any or all of the shares
or series of shares may have a par value or have no par value as may be provided for in the articles of incorporation:
Provided, however, That banks, trust companies, insurance companies, public utilities, and building and loan
associations shall not be permitted to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of the
corporation in case of liquidation and in the distribution of dividends, or such other preferences as may be stated in the
articles of incorporation whic