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FIRST DIVISION

[G.R. No. 106244. January 22, 1997]

REPUBLIC OF THE PHILIPPINES, petitioner, vs. HONORABLE


SANDIGANBAYAN, VICTOR AFRICA, LOURDES AFRICA,
NATHALIE AFRICA, JOSE ENRIQUE AFRICA, PAUL DELFIN
AFRICA, ROSARIO ARELLANO, RACQUEL DINGLASAN,
VICTORIA N. LEGARDA, ANGELA N. LOBREGAT, MANUEL V.
NIETO, BENITO NIETO, MA. RITA N. DE LOS REYES, EVELYN
ROMERO, ROSARIO SONGCO, CARMEN N. TUAZON and
RAFAEL V. VALDEZ, respondents.
D E C I S I O Ni
BELLOSILLO, J.:

GOVERNMENT calls upon us to issue a writ of certiorari declaring null and void the
26 November 1991 and 20 May 1992 Resolutions of respondent Sandiganbayan which
granted the Motion for Declaration of Non-Sequestration or Invalidity of Sequestration
over the shares of stock of private respondents Messrs. Victor Africa, et al., in Eastern
Telecommunications Philippines, Inc. (ETPI), and which subsequently denied
reconsideration thereof thereby lifting the writ of sequestration over the subject shares.
These facts are not disputed: On 22 July 1987 the Republic of the Philippines
through the Presidential Commission on Good Government (PCGG) and the Office of
the Solicitor General filed before respondent Sandiganbayan a complaint for
reconveyance, reversion, accounting, restitution and damages against Messrs. Jose L.
Africa, Manuel H. Nieto, Jr., Ferdinand E. Marcos, Imelda R. Marcos, Ferdinand R.
Marcos, Jr., Roberto S. Benedicto, Juan Ponce Enrile and Potenciano Ilusorio before
the Sandiganbayan. The complaint, docketed as Civil Case No. 0009, alleged that
defendants illegally manipulated, under the guise of expanding the operations of
Philippine Communications Satellite Corporation (PHILCOMSAT), the purchase of
major shareholdings of Cable and Wireless Limited, a London-based
telecommunications company, in ETPI which shareholdings defendants Roberto S.
Benedicto, Jose L. Africa and Manuel H. Nieto Jr., by themselves and through
corporations organized by them, namely, Polygon Investors and Managers, Inc.,
Aerocom Investors and Managers, Inc., and Universal Molasses Corporation,
beneficially held for themselves and for defendants Ferdinand E. Marcos and Imelda R.
Marcos. ii
Private respondents Victor Africa, Lourdes Africa, Nathalie Africa, Jose Enrique
Africa, Paul Delfin Africa, Rosario Arellano, Racquel Dinglasan, Victoria N. Legarda,

Angela N. Lobregat, Manuel V. Nieto, Ramon Nieto, Benito Nieto, Carlos Nieto, Ma. Rita
N. Delos Reyes, Evelyn Romero, Rosario Songco, Carmen N. Tuazon and Rafael V.
Valdez, who are registered stockholders of ETPI, were not impleaded in Civil Case No.
0009. Nonetheless, they were denied the dividends appertaining to their shares. Thus
on at least two (2) different occasions, i.e., on 8 November 1988 and 31 January 1991,
they had to file motions for leave of court to intervene in Civil Case No. 0009 to be able
to receive their cash dividends, which motions were both granted. iii On 4 October 1991
they filed a Motion for Declaration of Non-Sequestration or Invalidity of Sequestration.
Private respondents anchor their Motion for Declaration of Non-Sequestration or
Invalidity of Sequestration on the absence of a valid sequestration over their shares of
stock, and on the automatic lifting of the writ of sequestration, granting that their shares
were validly sequestered, pursuant to the second and third paragraphs of Sec. 26, Art.
XVIII, 1987 Constitution, which provide
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 the issuance thereof.
The sequestration or freeze order is deemed automatically lifted if no judicial
action or proceeding is commenced as herein provided.

In a Resolution dated 26 November 1991, the Sandiganbayan granted the Motion


for Declaration of Non-Sequestration or Invalidity of Sequestration filed by private
respondents on the ground that since no judicial proceeding was ever commenced
against them within the constitutionally-mandated six-month period, the writ of
sequestration issued over their shares of stock is deemed to have been automatically
lifted. In a Resolution dated 20 May 1992, which was promulgated 8 June 1992, the
motion for reconsideration was denied for lack of merit.
The Government through the PCGG is now before us on certiorari claiming grave
abuse of discretion amounting to lack or in excess of jurisdiction on the part of
respondent Sandiganbayan in granting private respondents' Motion for Declaration of
Non-Sequestration or Invalidity of Sequestration. In the main, the Government submits
that "although private respondents have neither been formally impleaded as parties nor
have duly been served with summons in Civil Case No. 0009, there being a finding that
the subject shares were being held merely on behalf of the already impleaded
defendants in Civil Case No. 0009, there is no doubt that there is a judicial action
involving private respondents."iv We are not persuaded.
It is elementary that before a person can be deprived of his right or property he
should first be informed of the claim against him and the theory on which such claim is
premised. He should be given an opportunity to defend himself and protect his interest.
Impleading him as a defendant in a complaint is just too basic to be disregarded. For,
how can he be expected to be informed of such claim, defend himself against it, protect
his interest and prepare for trial if he is not even impleaded as a defendant in a case
involving his right or property?

In the instant case, private respondents have in the past years been deprived of
their dividends which have now accrued and accumulated, without affording them an
opportunity to protect and defend their interests. Their shares of stock in ETPI have
been challenged by the Government without the latter instituting an action to recover the
same, and only on the mere allegation in a collateral proceeding, belatedly made, that
they are also part of ill-gotten wealth. The Government is thus seeking to recover the
shares of stock of private respondents through an action where the named defendants
are different from private respondents herein.
The procedure is highly irregular and seriously flawed. If the Government is really
interested in claiming the shares of stock of private respondents the proper procedure is
to implead them in a complaint for the recovery of those shares. Unfortunately, it has
allowed the period to lapse without impleading them. If the defendants in Civil Case No.
0009, who have been particularly identified as having manipulated the transfer of shares
of stock in ETPI to their names allegedly under unconscionable terms and conditions,
were impleaded to be able to defend themselves and their interests, with more reason
should private respondents herein, who have not even been shown to have participated
in the illicit transactions, be impleaded and given a chance to be heard. For, the
sanctified principle that no person shall be deprived of life, liberty or property without
due process of law requires that at the outset a person should first be named and
included in a suit before his very existence is disregarded and his freedom and property
taken away from him. Actions must be brought against the persons who are to be bound
by the judgment obtained therein.v
We are not unaware of the various PCGG sequestration cases decided by this
Court on 23 January 1995 where it was held that "corporations or business enterprises
alleged to be repositories of 'ill-gotten' wealth (need not) be actually and formally
impleaded in the actions for the recovery thereof, in order to maintain in effect existing
sequestration thereof."vi But those cases should be distinguished from the instant case.
In those 21 cases the companies as well as properties which former President and Mrs.
Ferdinand Marcos, their relatives, friends and business associates allegedly used as
depositaries or as instruments to illegally amass wealth, or which supposedly
constituted fruits of ill-gotten wealth, were sequestered. Complaints were thereafter filed
by the PCGG against individual persons believed to be the owners or holders of the
shares of stock of the aforesaid companies. The companies were not themselves
impleaded as defendants but merely enumerated in lists annexed to the complaints
against the named individuals.
The defendants therein banked on the omissions and sought the lifting of the orders
of sequestration on the ground that no proper judicial action had been filed within the
time and in the manner required by the Constitution against the corporations with which
they were associated. They argued that upon the expiration of the reglementary period
the sequestration of the corporations should be deemed automatically lifted. Under the
facts especially attendant in those cases we said it should not be so. There we held that
the Constitution did not describe nor specify the kind and character of the judicial action
or proceeding to be instituted but only required that the action or proceeding involved
the matter of sequestration, freezing or provisional takeover of specific properties,
having for its object the demonstration by competent evidence that the property

sequestered, frozen or taken over was indeed "ill-gotten wealth" over which the
government had a legitimate claim for recovery and other reliefs. The supposed
omission was rationalized thus
A. Error Immaterial to Requirement to File Actions or Proceedings within
Constitutional Time Limits
Such a procedural defect, however, conceding its existence for the nonce, does
not contradict or adversely affect the actuality that judicial actions or proceedings had
been brought within the time limits laid down by the Constitution " for" them, i.e., with
regard or in relation to, in connection with, or involving or concerning the sequestration
or seizure by the PCGG of the assets or properties in question.
Other considerations bearing upon the matter should also be taken into account.
B. Impleading Unnecessary in Cases for Recovery of Shares of Stock or Bank
Deposits
As regards actions in which the complaints seek recovery of defendants' shares of
stock in existing corporations (e.g., San Miguel Corporation, Benguet Corporation,
Meralco, etc.) because (they were) allegedly purchased with misappropriated public
funds, in breach of fiduciary duty, or otherwise illicit or anomalous conditions, the
impleading of said firms would clearly appear to be unnecessary. If warranted by the
evidence, judgments may be handed down against the corresponding defendants
divesting them of ownership of their stock, the acquisition thereof being illegal and
consequently burdened with a constructive trust, and imposing on them the obligation
of surrendering them to the Government.
Quite the same thing may be said of illegally obtained funds deposited in banks.
The impleading of the banks would also appear unnecessary. Indeed, there would exist
no cause of action against them. Judgment may properly be rendered on the basis of
competent evidence, that said funds are ill-gotten wealth over which the defendants
have no right, and should consequently be surrendered to their rightful owner, the
Government. The judgment would constitute sufficient warrant for the bank to make the
corresponding transfer of the funds.
C. Impleading Unnecessary Re Firms Which Are the Res of the Actions
And as to corporations organized with ill-gotten wealth, but are not guilty of
misappropriation, fraud or other illicit conduct in other words, the companies
themselves are the object or thing involved in the action, the res thereof there is no
need to implead them either. Indeed, their impleading is not proper on the strength
alone of having been formed with ill-gotten funds, absent any other particular
wrongdoing on their part. The judgment may simply be directed against the shares of
stock shown to have been issued in consideration of ill-gotten wealth.
Such showing of having been formed with, or having received ill-gotten funds,
however strong or convincing, does not, without more, warrant identifying the
corporations in question with the persons who formed or made use of them to give the
color or appearance of lawful, innocent acquisition to illegally amassed wealth at the
least, not so as (to) place on the Government the onus of impleading the former
together with the latter in actions to recover such wealth. Distinguished, in terms of
juridical personality and legal culpability from their erring members or stockholders,
said corporations are not themselves guilty of the sins of the latter, of the

embezzlement, asportation, etc., that gave rise to the Government's cause of action for
recovery; their creation or organization was merely the result of their members' (or
stockholders') manipulations and maneuvers to conceal the illegal origins of the assets
or monies invested therein. In this light, they are simply the res in the actions for the
recovery of illegally acquired wealth, and there is, in principle, no cause of action
against them and no ground to implead them as defendants in said actions.
The Government is, thus, not to be faulted for not making such corporations
defendants in the actions referred to. It is even conceivable that had this been
attempted, motions to dismiss would have lain to frustrate such attempts.vii

Private respondents in the instant case, as already stated, are not even sued nor
impleaded as defendants in Civil Case No. 0009 before public respondent
Sandiganbayan. Neither are they mentioned in the complaint of the Government. Their
names only surfaced when they were forced to intervene in the case since all the cash
dividends declared by the Board of Directors of ETPI were being turned over to the
PCGG including the cash dividends due them. Thus, each time a cash dividend was
declared they had to file a motion to intervene in Civil Case No. 0009 to be able to
petition respondent court to order the PCGG to release to them their respective
dividends. Accordingly, private respondents had to file in Civil Case No. 0009 a Motion
for Declaration of Non-Sequestration or Invalidity of Sequestration, which respondent
court granted.
Clearly, there is a material variance between the factual circumstances in the 21
sequestration cases on one hand, and those in the instant case on the other. In the
former, court actions were instituted against natural persons suspected to be "dummies"
whose shares of stock in different corporations the Government has been trying to
recover. In the case before us, no court action has ever been instituted against private
respondents. In the former, the corporations which were supposedly used as
depositaries or as instruments to illegally amass wealth, or which allegedly constituted
fruits of ill-gotten wealth, were named in lists annexed to the complaints filed against the
natural persons who were suspected of being dummies. In the latter case, there was not
even a mention of private respondents' names in the complaints filed by the
Government. In the former, the Government was actually after the shares of stock of the
defendant-stockholders of the corporations who supposedly misappropriated public
funds or who entered into illicit or anomalous transactions prejudicial to the government,
not the corporations themselves. Thus it was held that the omission to implead the
corporations was not fatal. In the latter, it appears that the Government is after the
shares of stock in the name of private respondents. Consequently, the failure to implead
them is a serious procedural flaw. Indeed, the firms in the various PCGG sequestration
cases and private respondents in the present case stand on different grounds.
Thus, since only Jose L. Africa, Manuel H. Nieto Jr., Ferdinand E. Marcos, Imelda
R. Marcos, Ferdinand R. Marcos Jr., Roberto S. Benedicto, Juan Ponce Enrile, and
Potenciano Ilusorio were impleaded as defendants in Civil Case No. 0009 while private
respondents were not, only the shares of stock registered in the names of defendants
should be in issue. Those registered in the names of others, e.g., those of private
respondents, should be spared unless it can be shown in a proper proceeding that they
are likewise ill-gotten wealth or fruits of ill-gotten wealth. In this regard, if only to uphold

the rule of law, the minimum requirement is to implead the registered owners of those
shares in a formal complaint to recover them.
In the same sequestration cases, we also ruled that for lack of proof, even of the
specie prima facie, the writ of sequestration should be lifted
This Court is not unmindful of the fact that its Resolution of July 26, 1991, on the
petitioner's motion for reconsideration in G.R. No. 92755 (PCGG v. Interco) appears to
sustain the proposition that actual impleading in the recovery action of a corporation
under sequestration for being a repository of illegally-acquired wealth, is necessary and
requisite for such proposed or pending seizure to come under the protective umbrella
of the Constitution. But Interco is to be differentiated from the cases now under review
in that the former, as already elsewhere herein made clear, there was a lack of proof,
even of the prima facie kind, that Eduardo Cojuangco, Jr., owned any stock in Interco,
the evidence on record being in fact that said corporation had been organized as a
family corporation of the Luys.
So too, this Court's judgment in the so-called "PJI Case" (Republic of the
Philippines [PCGG] v. Sandiganbayan and Rosario Olivares) may not be ragarded as
on all fours with the cases under consideration. The PJI Case involved the shares of
stock in the name of eight (8) natural persons which had never been sequestered at all.
What happened was that the PCGG simply arrogated unto itself the right to vote
those unsequestered shares on the bare claim that the eight (8) registered owners
thereof were "dummies" of Benjamin Romualdez, the real owner of the shares; and all
that the PCGG had done as predicate for that act of appropriation of the stock, was to
include all the shares of PJI in a list (Annex A) appended to its complaint in
Sandiganbayan Case No. 0035, describing them as among the properties illegally
acquired by Romualdez. Unfortunately, as in Interco, the PCGG failed to substantiate
by competent evidence its theory of clandestine ownership of Romualdez; and since
moreover, there had been no sequestration of the alleged dummies' shares of stock, it
was undoubtedly correct for the Sandiganbayan to grant the latter's motion for them to
be recognized and declared as the true owners of the stock in question, which
judgment this Court absolutely pronounced to be free from grave abuse of discretion.viii

The Solicitor General explained the Interco ruling in the instant petition, ix as well as
in eight (8)x out of the twenty-one (21) petitions this Court resolved on 23 January 1995
thuswise
The reason for the correctness of the (Interco) exception is obviously the doctrine
of "piercing the veil of corporate fiction." Stated simply, this doctrine states that in an
action against a person, whether natural or a corporation, that wholly owns or controls
another corporation and uses this wholly owned or controlled corporation to evade his
or its obligation or liability x x x x to hide the ill-gotten wealth of any or all of the persons
impleaded therein, a judgment against any or all of the impleaded defendants may be
enforced against any or all of the said corporations even if these corporations have not
been formally impleaded as defendants in the case.

But even if we disregard the corporate fiction of ETPI, still private respondents
cannot be divested of their shares of stock unless in a proper forum they have been
shown to have committed some wrongdoing in acquiring them. A corporation is a
collection of individuals and the idea of its being a legal entity apart from its members is
a mere fiction of, law introduced for convenience in conducting business. When this

fiction is used to justify wrong, protect fraud, or defend crime, the law will disregard the
existence of the corporation as a distinct legal entity and view the latter merely as an
association of persons. Accordingly, the equitable owners of the corporation shall be
personally liable and the acts of the real parties will be dealt with as though no
corporation had been formed. In the instant case, only the named defendants in Civil
Case No. 0009 are being accused of wrongdoing in acquiring their shares of stock in
ETPI. Thus only their identified shares of stock in ETPI should be subject to the claims
of the Government.
On the other hand, private respondents who were not charged nor impleaded as
defendants are innocent until found guilty by a court of competent jurisdiction. They
should be spared until found liable. Consequently, even if the corporate veil of ETPI is
pierced, they can never be divested of their shares of stock until shown to have
engaged in illicit activities in acquiring those shares. At the very least, they have to be
impleaded in a complaint for recovery thereof. For, how can their shares of stock be
considered ill-gotten and consequently the writ of sequestration of the said shares
upheld when not a single case has been filed against private respondents for the
purpose? How can the supposed prima facie case determined by the PCGG to be
existing be substantiated? To deny them their right to such shares on the much belated
allegation and merely on the basis thereof that they fronted for former President and
Mrs. Ferdinand Marcos and their cronies would simply be to unduly perpetuate the
assault on the rudimentary rules of fair play.
In Republic v. Sandiganbayan xi we said that "[w]e need only to recall at this juncture
that, as in 'INTERCO,' evidence of the PCGG is nil to even come up with a prima facie
case against SIPALAY (and ALLIED). This similitude is the decisive factor that draws the
instant case away from the "Final Dispositions" made by this Court in the 1995 Republic
v. Sandiganbayan case, thus making INTERCO, as supported by the Aetna and Seno
cases, the controlling precedent."xii In the case at hand, how can the PCGG establish its
supposed prima facie finding against private respondents when it has not even filed a
case against them?
The Concurring Opinion with Qualifications of Mme. Justice Melencio-Herrera in
Bataan Shipyard & Engineering Co., Inc. v. Presidential Commission an Good
Governmentxiii cannot escape our thoughts
I consider it imperative that sequestration measures be buttressed by judicial
proceedings the soonest possible in order to settle the matter of ownership of
sequestered shares and to determine whether or not they are legally owned by the
stockholders of record or are "ill-gotten wealth" subject to forfeiture in favor of the
State. Sequestration alone, being actually an ancillary remedy to a principal action,
should not be made the basis for the exercise of acts of dominion for an indefinite
period of time.
Sequestration is an extraordinary, harsh, and even severe remedy. It should be
confined to its lawful parameters and exercised, with due regard, in the words of its
enabling laws, to the requirements of fairness, due process, and Justice.

Also worth mentioning is the Dissent in those oft-repeated PCGG sequestration


cases where in strong and eloquent language it was said

While government efforts to recover illegally amassed wealth should have the
support from all its branches, eagerness and zeal should not be allowed to run berserk,
overriding in the process the very principles that it is sworn to uphold. In our legal
system, the ends do not justify the means. Wrongs are never corrected by committing
other wrongs, and as above discussed, the recovery of ill-gotten wealth does not and
should never justify unreasonable intrusions into constitutionally forbidden grounds.xiv

As we held in Republic v. Sandiganbayan,xv sequestration, etc., in order to be valid


must have factual basis and must accord due process to the parties thereby affected
that said remedies are not meant to create a permanent situation as regards the
property subject thereof, or divest ownership or rights, that they are in fact merely
provisional and temporary and subsist only until ownership is finally judicially
determined.
Thus, we add, sequestration if it is to adhere to constitutional due process cannot
be allowed to hang interminably and forever!
WHEREFORE, premises considered, the instant petition for
DISMISSED.

certiorari is

SO ORDERED.
Padilla, (Chairman), and Kapunan, JJ., concur.
Vitug, J., see dissenting opinion.
Hermosisima, Jr., J., took no part being a signatory to resolution appealed from.

ii

iii

SECOND DIVISION

[G. R. No. 93397. March 3,1997]

TRADERS ROYAL BANK, petitioner, vs. COURT OF APPEALS, FILRITERS


GUARANTY ASSURANCE CORPORATION and CENTAL BANK of the
PHILIPPINES, respondents.

DECISION
TORRES, JR., J.:

Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of
Appeals dated January 29, 1990, affirming the nullity of the transfer of Central Bank
Certificate of Indebtedness (CBCI) No. D891, with a face value of P500,000, from the
Philippine Underwriters Finance Corporation (Philfinance) to the petitioner Traders Royal
Bank (TRB), under a Repurchase Agreement dated February 4, 1981, and a Detached
Assignment dated April 27, 1981.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32,
the action was originally filed as a Petition for Mandamus under Rule 65 of the Rules of Court,
to compel the Central Bank of the Philippines to register the transfer of the subject CBCI to
petitioner Traders Royal Bank (TRB).
In the said petition, TRB stated that:
3. On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters) executed
a Detached Assignment xxx, whereby Filriters, as registered owner, sold, transferred,
assigned and delivered unto Philippine Underwriters Finance Corporation (Philfinance) all its
rights and title to Central Bank Certificates of Indebtedness (CBCI) Nos. D890 to D896,
inclusive, each in the denomination of PESOS: FIVE HUNDRED THOUSAND (P500,000)
and having an aggregate value of PESOS: THREE MILLION FIVE HUNDRED THOUSAND
(P3,500,000.00);
4. The aforesaid Detached Assignment (Annex A) contains an express authorization
executed by the transferor intended to complete the assignment through the registration of
the transfer in the name of PhilFinance, which authorization is specifically phrased as follows:
(Filriters) hereby irrevocably authorized the said issuer (Central Bank) to transfer the said
bond/certificates on the books of its fiscal agent;
5. On February 4, 1981, petitioner entered into a Repurchase Agreement with
PhilFinance xxx, whereby, for and in consideration of the sum of PESOS: FIVE HUNDRED
THOUSAND (P500,000.00), PhilFinance sold, transferred and delivered to petitioner CBCI 4year, 8th series, Serial No. D891 with a face value of P500,000.00 xxx, which CBCI was
among those previously acquired by PhilFinance from Filriters as averred in paragraph 3 of
the Petition;
6. Pursuant to the aforesaid Repurchase Agreement (Annex B), Philfinance agreed to
repurchase CBCI Serial No. D891 (Annex C), at the stipulated price of PESOS: FIVE
HUNDRED NINETEEN THOUSAND THREE HUNDRED SIXTY-ONE & 11/100
(P519,361.11) on April 27, 1981;
7. PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27,
1981, when the checks it issued in favor of petitioner were dishonored for insufficient funds;
8. Owing to the default of PhilFinance, it executed a Detached Assignment in favor of the
Petitioner to enable the latter to have its title completed and registered in the books of the
respondent. And by means of said Detachment Assignment, Philfinance transferred and
assigned all its rights and title in the said CBCI (Annex C) to petitioner and, furthermore, it did
thereby irrevocably authorize the said issuer (respondent herein) to transfer the said
bond/certificate on the books of its fiscal agent. xxx

9. Petitioner presented the CBCI (Annex C), together with the two (2) aforementioned
Detached Assignments (Annexes B and D), to the Securities Servicing Department of the
respondent, and requested the latter to effect the transfer of the CBCI on its books and to
issue a new certificate in the name of petitioner as absolute owner thereof;
10. Respondent failed and refused to register the transfer as requested, and continues to
do so notwithstanding petitioners valid and just title over the same and despite repeated
demands in writing, the latest of which is hereto attached as Annex E and made an integral
part hereof;
11. The express provisions governing the transfer of the CBCI were substantially
complied with in petitioners request for registration, to wit:
No transfer thereof shall be valid unless made at said office (where the
Certificate has been registered) by the registered owner hereof, in person or by his
attorney duly authorized in writing, and similarly noted hereon, and upon payment of
a nominal transfer fee which may be required, a new Certificate shall be issued to
the transferee of the registered holder thereof.
and, without a doubt, the Detached Assignments presented to respondent were sufficient
authorizations in writing executed by the registered owner, Filriters, and its transferee,
PhilFinance, as required by the above-quoted provision;
12. Upon such compliance with the aforesaid requirements, the ministerial duties of
registering a transfer of ownership over the CBCI and issuing a new certificate to the
transferee devolves upon the respondent;

Upon these assertions, TRB prayed for the registration by the Central Bank of the subject
CBCI in its name.
On December 4, 1984, the Regional Trial Court trying the case took cognizance of the
defendant Central Bank of the Philippines Motion for Admission of Amended Answer with
Counter Claim for Interpleader, thereby calling to fore the respondent Filriters Guaranty
Assurance Corporation (Filriters), the registered owner of the subject CBCI as respondent.
For its part, Filriters interjected as Special Defenses the following:
11. Respondent is the registered owner of CBCI No. 891;
12. The CBCI constitutes part of the reserve investment against liabilities required of
respondent as an insurance company under the Insurance Code;
13. Without any consideration or benefit whatsoever to Filriters, in violation of law and
the trust fund doctrine and to the prejudice of policyholders and to all who have present or
future claim against policies issued by Filriters, Alfredo Banaria, then Senior Vice-PresidentTreasury of Filriters, without any board resolution, knowledge or consent of the board of
directors of Filriters and without any clearance or authorization from the Insurance
Commissioner, executed a detached assignment purportedly assigning CBCI No. 891 to
Philfinance;

xxx
14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller and Pilar Jacobe,
Vice-President-Treasury of Filriters (both of whom were holding the same positions in
Philfinance), without any consideration or benefit redounding to Filriters and to the grave
prejudice of Filriters, its policy holders and all who have present or future claims against its

policies, executed similar detached assignment forms transferring the CBCI to plaintiff;

xxx
15. The detached assignment is patently void and inoperative because the assignment is
without the knowledge and consent of directors of Filriters, and not duly authorized in writing
by the Board, as required by Article V, Section 3 of CB Circular No. 769;
16. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and
not the corporate act of Filriters and as such null and void;
a) The assignment was executed without consideration and for that reason, the
assignment is void from the beginning (Article 1409, Civil Code);
b) The assignment was executed without any knowledge and consent of the board of
directors of Filriters;
c) The CBCI constitutes reserve investment of Filriters against liabilities, which is a
requirement under the Insurance Code for its existence as an insurance company and the
pursuit of its business operations. The assignment of the CBCI is illegal act, in the sense of
malum in se or malum prohibitum, for anyone to make, either as corporate or personal act;
d) The transfer or diminution of reserve investments of Filriters is expressly prohibited by
law, is immoral and against public policy;
e) The assignment of the CBCI has resulted in the capital impairment and in the solvency
deficiency of Filriters (and has in fact helped in placing Filriters under conservatorship), an
inevitable result known to the officer who executed the detached assignment.
17. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the
assignment;
a) The CBCI No. 891 is not a negotiable instrument and as a certificate of indebtedness
is not payable to bearer but is registered in the name of Filriters;
b) The provision on transfer of the CBCIs, provides that the Central Bank shall treat the
registered owner as the absolute owner and that the value of the registered certificates shall
be payable only to the registered owner; a sufficient notice to plaintiff that the assignments do
not give them the registered owners right as absolute owner of the CBCIs;
c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides
that registered certificates are payable only to the registered owner (Article II, Section 1).
18. Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 by Filriters
is not a regular transaction made in the usual or ordinary course of business;
a) The CBCI constitutes part of the reserve investments of Filriters against liabilities
required by the Insurance Code and its assignment or transfer is expressly prohibited by law.
There was no attempt to get any clearance or authorization from the Insurance
Commissioner;
b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or
regular course of its business;
c) The CBCI involved substantial amount and its assignment clearly constitutes
disposition of all or substantially all of the assets of Filriters, which requires the affirmative
action of the stockholders (Section 40, Corporation [sic] Code).

In its Decision dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXII

found the assignment of CBCI No. D891 in favor of Philfinance, and the subsequent
assignment of the same CBCI by Philfinance in favor of Traders Royal Bank null and void and
of no force and effect. The dispositive portion of the decision reads:
ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters
Guaranty Assurance Corporation and against the plaintiff Traders Royal Bank:
(a) Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and the
subsequent assignment of CBCI by PhilFinance in favor of the plaintiff Traders
Royal Bank as null and void and of no force and effect;
(b) Ordering the respondent Central Bank of the Philippines to disregard the
said assignment and to pay the value of the proceeds of the CBCI No. D891 to the
Filtriters Guaranty Assurance Corporation;
(c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters
Guaranty Assurance Corp. The sum of P10,000 as attorneys fees; and
(d) to pay the costs.
SO ORDERED.

The petitioner assailed the decision of the trial court in the Court of Appeals, but their
appeal likewise failed. The findings of fact of the said court are hereby reproduced:
The records reveal that defendant Filriters is the registered owner of CBCI No. D891.
Under a deed of assignment dated November 27, 1971, Filriters transferred CBCI No. D891
to Philippine Underwriters Finance Corporation (Philfinance). Subsequently, Philfinance
transferred CBCI No. D891, which was still registered in the name of Filriters, to appellant
Traders Royal Bank (TRB). The transfer was made under a repurchase agreement dated
February 4, 1981, granting Philfinance the right to repurchase the instrument on or before
April 27, 1981. When Philfinance failed to buy back the note on maturity date, it executed a
deed of assignment, dated April 27, 1981, conveying to appellant TRB all its rights and title to
CBCI No. D891.
Armed with the deed of assignment, TRB then sought the transfer and registration of
CBCI No. D891 in its name before the Security and Servicing Department of the Central Bank
(CB). Central Bank, however, refused to effect the transfer and registration in view of an
adverse claim filed by defendant Filriters.
Left with no other recourse, TRB filed a special civil action for mandamus against the
Central Bank in the Regional Trial Court of Manila. The suit, however, was subsequently
treated by the lower court as a case of interpleader when CB prayed in its amended answer
that Filriters be impleaded as a respondent and the court adjudge which of them is entitled to
the ownership of CBCI No. D891. Failing to get a favorable judgment. TRB now comes to this
Court on appeal.

In the appellate court, petitioner argued that the subject CBCI was a negotiable
instrument, and having acquired the said certificate from Philfinance as a holder in due
course, its possession of the same is thus free from any defect of title of prior parties and from
any defense available to prior parties among themselves, and it may thus, enforce payment of
the instrument for the full amount thereof against all parties liable thereon.
In ignoring said argument, the appellate court said that the CBCI is not a negotiable
instrument, since the instrument clearly stated that it was payable to Filriters, the registered
owner, whose name was inscribed thereon, and that the certificate lacked the words of

negotiability which serve as an expression of consent that the instrument may be transferred
by negotiation.
Obviously, the assignment of the certificate from Filriters to Philfinance was fictitious,
having been made without consideration, and did not conform to Central Bank Circular No.
769, series of 1980, better known as the Rules and Regulations Governing Central Bank
Certificates of Indebtedness, which provided that any assignment of registered certificates
shall not be valid unless made xxx by the registered owner thereof in person or by his
representative duly authorized in writing.
Petitioners claimed interest has no basis, since it was derived from Philfinance, whose
interest was inexistent, having acquired the certificate through simulation. What happened
was Philfinance merely borrowed CBCI No. D891 from Filriters, a sister corporation, to
guarantee its financing operations.
Said the Court:
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for
and on behalf of Filriters, did not have the necessary written authorization from the Board of
Directors of Filriters to act for the latter. For lack of such authority, the assignment did not
therefore bind Filriters and violated at the same time Central Bank Circular No. 769 which has
the force and effect of a law, resulting in the nullity of the transfer (People v. Que Po Lay, 94
Phil 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign
or transfer to Traders Royal Bank and which the latter can register with the Central Bank.
WHEREFORE, the judgment appealed from is AFFIRMED, with costs against plaintiffappellant.
SO ORDERED.

Petitioners present position rests solely on the argument that Philfinance owns 90% of
Filriters equity and the two corporations have identical corporate officers, thus demanding the
application of the doctrine of piercing the veil of corporate fiction, as to give validity to the
transfer of the CBCI from the registered owner to petitioner TRB. This renders the payment by
TRB to Philfinance for CBCI, as actual payment to Filriters. Thus, there is no merit to the
lower courts ruling that the transfer of the CBCI from Filriters to Philfinance was null and void
for lack of consideration.
Admittedly, the subject CBCI is not a negotiable instrument in the absence of words of
negotiability within the meaning of the negotiable instruments law (Act 2031).
The pertinent portions of the subject CBCI read:
xxx
The Central Bank of the Philippines (the Bank) for value received, hereby promises to
pay to bearer, or if this Certificate of indebtedness be registered, to FILRITERS GUARANTY
ASSURANCE CORPORATION, the registered owner hereof, the principal sum of FIVE
HUNDRED THOUSAND PESOS.

xxx
Properly understood, a certificate of indebtedness pertains to certificates for the creation

and maintenance of a permanent improvement revolving fund, is similar to a bond, (82 Minn.
202). Being equivalent to a bond, it is properly understood as an acknowledgment of an
obligation to pay a fixed sum of money. It is usually used for the purpose of long term loans.
The appellate court ruled that the subject CBCI is not a negotiable instrument, stating
that:
As worded, the instrument provides a promise to pay Filriters Guaranty Assurance
Corporation, the registered owner hereof. Very clearly, the instrument is payable only to
Filriters, the registered owner, whose name is inscribed thereon. It lacks the words of
negotiability which should have served as an expression of consent that the instrument may
be transferred by negotiation.

A reading of the subject CBCI indicates that the same is payable to FILRITERS
GUARANTY ASSURANCE CORPORATION, and to no one else, thus, discounting the
petitioners submission that the same is a negotiable instrument, and that it is a holder in due
course of the certificate.
The language of negotiability which characterize a negotiable paper as a credit
instrument is its freedom to circulate as a substitute for money. Hence, freedom of
negotiability is the touchstone relating to the protection of holders in due course, and the
freedom of negotiability is the foundation for the protection which the law throws around a
holder in due course (11 Am. Jur. 2d, 32). This freedom in negotiability is totally absent in a
certificate of indebtedness as it merely acknowledges to pay a sum of money to a specified
person or entity for a period of time.
As held in Caltex (Philippines), Inc. vs. Court of Appeals:
The accepted rule is that the negotiability or non-negotiability of an instrument is
determined from the writing, that is, from the face of the instrument itself. In the construction
of a bill or note, the intention of the parties is to control, if it can be legally ascertained. While
the writing may be read in the light of surrounding circumstances in order to more perfectly
understand the intent and meaning of the parties, yet as they have constituted the writing to
be the only outward and visible expression of their meaning, no other words are to be added
to it or substituted in its stead. The duty of the court in such case is to ascertain, not what the
parties may have secretly intended as contradistinguished from what their words express, but
what is the meaning of the words they have used. What the parties meant must be
determined by what they said.

Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment,
and is not governed by the negotiable instruments law. The pertinent question then is, was
the transfer of the CBCI from Filriters to Philfinance and subsequently from Philfinance to
TRB, in accord with existing law, so as to entitle TRB to have the CBCI registered in its name
with the Central Bank?
The following are the appellate courts pronouncements on the matter:
Clearly shown in the record is the fact that Philfinances title over CBCI No. D891 is
defective since it acquired the instrument from Filriters fictitiously. Although the deed of
assignment stated that the transfer was for value received, there was really no consideration
involved. What happened was Philfinance merely borrowed CBCI No. D891 from Filriters, a
sister corporation. Thus, for lack of any consideration, the assignment made is a complete
nullity.

What is more, We find that the transfer made by Filriters to Philfinance did not conform
to Central Bank Circular No. 769, series of 1980, otherwise known as the Rules and
Regulations Governing Central Bank Certificates of Indebtedness, under which the note
was issued. Published in the Official Gazette on November 19, 1980, Section 3 thereof
provides that any assignment of registered certificates shall not be valid unless made xxx by
the registered owner thereof in person or by his representative duly authorized in writing.
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly
for and on behalf of Filriters, did not have the necessary written authorization from the
Board of Directors of Filriters to act for the latter. For lack of such authority, the assignment
did not therefore bind Filriters and violated at the same time Central Bank Circular No. 769
which has the force and effect of a law, resulting in the nullity of the transfer (People vs.
Que Po Lay, 94 Phil 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165
SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could
assign or transfer to Traders Royal Bank and which the latter can register with the Central
Bank.

Petitioner now argues that the transfer of the subject CBCI to TRB must be upheld, as the
respondent Filriters and Philfinance, though separate corporate entities on paper, have used
their corporate fiction to defraud TRB into purchasing the subject CBCI, which purchase now
is refused registration by the Central Bank.
Says the petitioner;
Since Philfinance owns about 90% of Filriters and the two companies have the same
corporate officers, if the principle of piercing the veil of corporate entity were to be applied in
this case, then TRBs payment to Philfinance for the CBCI purchased by it could just as well
be considered a payment to Filriters, the registered owner of the CBCI as to bar the latter
from claiming, as it has, that it never received any payment for that CBCI sold and that said
CBCI was sold without its authority.

xxx
We respectfully submit that, considering that the Court of Appeals has held that the
CBCI21 was merely borrowed by Philfinance from Filriters, a sister corporation, to guarantee
its (Philfinances) financing operations, if it were to be consistent therewith, on the issue
raised by TRB that there was a piercing a veil of corporate entity, the Court of Appeals should
have ruled that such veil of corporate entity was, in fact, pierced, and the payment by TRB to
Philfinance should be construed as payment to Filriters.

We disagree with the Petitioner.


Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this is
merely an equitable remedy, and may be awarded only in cases when the corporate fiction is
used to defeat public convenience, justify wrong, protect fraud or defend crime or where a
corporation is a mere alter ego or business conduit of a person.
Piercing the veil of corporate entity requires the court to see through the protective shroud
which exempts its stockholders from liabilities that ordinarily, they could be subject to, or
distinguishes one corporation from a seemingly separate one, were it not for the existing
corporate fiction. But to do this, the court must be sure that the corporate fiction was misused,
to such an extent that injustice, fraud, or crime was committed upon another, disregarding,
thus, his, her, or its rights. It is the protection of the interests of innocent third persons dealing

with the corporate entity which the law aims to protect by this doctrine.
The corporate separateness between Filriters and Philfinance remains, despite the
petitioners insistence on the contrary. For one, other than the allegation that Filriters is 90%
owned by Philfinance, and the identity of one shall be maintained as to the other, there is
nothing else which could lead the court under the circumstances to disregard their corporate
personalities.
Though it is true that when valid reasons exist, the legal fiction that a corporation is an
entity with a juridical personality separate from its stockholders and from other corporations
may be disregarded, in the absence of such grounds, the general rule must be upheld. The
fact that Philfinance owns majority shares in Filriters is not by itself a ground to disregard the
independent corporate status of Filriters. In Liddel & Co., Inc. vs. Collector of Internal
Revenue, the mere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself a sufficient reason for disregarding
the fiction of separate corporate personalities.
In the case at bar, there is sufficient showing that the petitioner was not defrauded at all
when it acquired the subject certificate of indebtedness from Philfinance.
On its face, the subject certificates states that it is registered in the name of Filriters. This
should have put the petitioner on notice, and prompted it to inquire from Filriters as to
Philfinances title over the same or its authority to assign the certificate. As it is, there is no
showing to the effect that petitioner had any dealings whatsoever with Filriters, nor did it make
inquiries as to the ownership of the certificate.
The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus:
TRANSFER: This Certificate shall pass by delivery unless it is registered in the owners
name at any office of the Bank or any agency duly authorized by the Bank, and such
registration is noted hereon. After such registration no transfer thereof shall be valid unless
made at said office (where the Certificate has been registered) by the registered owner
hereof, in person, or by his attorney, duly authorized in writing and similarly noted hereon and
upon payment of a nominal transfer fee which may be required, a new Certificate shall be
issued to the transferee of the registered owner thereof. The bank or any agency duly
authorized by the Bank may deem and treat the bearer of this Certificate, or if this Certificate
is registered as herein authorized, the person in whose name the same is registered as the
absolute owner of this Certificate, for the purpose of receiving payment hereof, or on account
hereof, and for all other purpose whether or not this Certificate shall be overdue.

This is notice to petitioner to secure from Filriters a written authorization for the transfer or
to require Philfinance to submit such an authorization from Filriters.
Petitioner knew that Philfinance is not the registered owner of CBCI No. D891. The fact
that a non-owner was disposing of the registered CBCI owned by another entity was a good
reason for petitioner to verify or inquire as to the title of Philfinance to dispose of the CBCI.
Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1980, known as
the Rules and Regulations Governing Central Bank Certificates of Indebtedness, Section 3,
Article V of which provides that:
SECTION 3. Assignment of Registered Certificates. - Assignment of registered
certificates shall not be valid unless made at the office where the same have been issued and

registered or at the Securities Servicing Department, Central Bank of the Philippines, and by
the registered owner thereof, in person or by his representative, duly authorized in writing.
For this purpose, the transferee may be designated as the representative of the registered
owner.

Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769,
and its requirements. An entity which deals with corporate agents within circumstances
showing that the agents are acting in excess of corporate authority, may not hold the
corporation liable. This is only fair, as everyone 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.
The transfer made by Filriters to Philfinance did not conform to the said Central Bank
Circular, which for all intents, is considered part of the law. As found by the courts a quo,
Alfredo O. Banaria, who had signed the deed of assignment from Filriters to Philfinance,
purportedly for and in favor of Filriters, did not have the necessary written authorization from
the Board of Directors of Filriters to act for the latter. As it is, the sale from Filriters to
Philfinance was fictitious, and therefore void and inexistent, as there was no consideration for
the same. This is fatal to the petitioners cause, for then, Philfinance had no title over the
subject certificate to convey to Traders Royal Bank. Nemo potest nisi quod de jure potest no man can do anything except what he can do lawfully.
Concededly, the subject CBCI was acquired by Filriters to form part of its legal and capital
reserves, which are required by law to be maintained at a mandated level. This was pointed
out by Elias Garcia, Manager-in-Charge of respondent Filriters, in his testimony given before
the court on May 30, 1986.
Q Do you know this Central Bank Certificate of Indebtedness, in short, CBCI No. D891 in the
face value of P500,000.00 subject of this case?
A Yes, sir.
Q Why do you know this?
A Well, this was the CBCI of the company sought to be examined by the Insurance
Commission sometime in early 1981 and this CBCI No. 891 was among the CBCIs that
were found to be missing.
Q Let me take you back further before 1981. Did you have the knowledge of this CBCI No.
891 before 1981?
A Yes, sir. This CBCI is an investment of Filriters required by the Insurance Commission as
legal reserve of the company.
Q Legal reserve for the purpose of what?
A Well, you see, the Insurance companies are required to put up legal reserves under Section
213 of the Insurance Code equivalent to 40 percent of the premiums receipt and further,
the Insurance Commission requires this reserve to be invested preferably in government
securities or government bonds. This is how this CBCI came to be purchased by the
company.

It cannot, therefore, be taken out of the said fund, without violating the requirements of
the law. Thus, the unauthorized use or distribution of the same by a corporate officer of
Filriters cannot bind the said corporation, not without the approval of its Board of Directors,

and the maintenance of the required reserve fund.


Consequently, the title of Filriters over the subject certificate of indebtedness must be
upheld over the claimed interest of Traders Royal Bank.
ACCORDINGLY, the petition is DISMISSED and the decision appealed from dated
January 29, 1990 is hereby AFFIRMED.
SO ORDERED.
Regalado, (Chairman), Romero, Puno, and Mendoza, JJ., concur.
paragraph paragraph
paragraph
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 125788 June 5, 1998


THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG), petitioner,
vs.
HON. SANDIGANBAYAN and AEROCOM INVESTORS & MANAGERS, INC., respondents.

MARTINEZ, J.:
In its continuing search for "ill-gotten wealth", herein petitioner Presidential Commission on Good
Government (PCGG) filed in the Sandiganbayan on July 22, 1987 a case (Civil Case No. 0009) for
reconveyance, reversion, accounting, restitution and damages against Manuel H. Nieto, Jose L.
Africa, Roberto S. Benedicto, Potenciano Illusorio, Juan Ponce Enrile and Ferdinand E. Marcos, Jr.
alleging, in substance, that said defendants acted as "dummies" of the late strongman and devised
"schemes" and "strategems" to monopolize the telecommunications industry. Annexed to the
complaint is a listing of the assets of defendants Nieto and Africa, among which are their shares of
stock in private respondent Aerocom Investors and Managers, Inc. (Aerocom). 1
Almost a year later, the PCGG sought to sequester Aerocom under a writ of sequestration dated
June 15, 1988, 2 which was served on and received "under protest" by Aerocom's president on August
3, 1988. 3
Seven (7) days after receipt of the sequestration order, Aerocom on August 10, 1988 filed a
complaint against the PCGG (docketed as Civil Case No. 0044) 4 urging the Sandiganbayan to nullify
the same on the ground that it was served on Aerocom beyond the eighteen (18)-month period from the
ratification of the 1987 Constitution as provided for in Section 26, Article XVIII thereof which reads:
Sec. 26. The authority to issue sequestration or freeze orders under
Proclamation No. 3 dated March 25, 1986 in relation to the recovery of illgotten wealth shall remain operative for not more than eighteen months after

the ratification of this Constitution. However, in the national interest, as


certified by the President, the Congress may extend said period.
A sequestration or freeze order shall be issued only upon showing of a prima
facie case. The order and the list of the sequestered or frozen properties shall
forthwith be registered with the proper court. For orders issued before the
ratification of this Constitution, the corresponding judicial action or
proceeding shall be filed within six months from its ratification. For those
issued after such ratification, the judicial action or proceeding shall be
commenced within six months from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted if no judicial
action proceeding is commenced as herein provided.
In its amended answer dated May 19, 1992, 5 the PCGG specifically alleged that Aerocom has no cause
of action against it since the issuance of the writ of sequestration on June 15, 1988 was well-within the
18-month constitutional deadline counted from February 2, 1987, the date when the people, in a
plebiscite, overwhelmingly ratified the 1987 Constitution.
During the pendency of Civil Case No. 0044, Aerocom filed on July 5, 1995 a Manifestation and
Motion 6 praying that the Sandiganbayan direct the PCGG to release and distribute the dividends
pertaining to the shares of Aerocom in all corporations where it owns shares of stock. Commenting
thereon, 7 the PCGG opposed the release of the dividends on the argument that "the fact plaintiff
(Aerocom) is mentioned in Annex "A" of the complaint filed in Civil Case No. 0009 is a clear indication
that the shares thereof are likewise sequestered."
The Sandiganbayan in its Resolution promulgated on January 31, 1996 8 acted favorably on
Aerocom's Manifestation and Motion and thus ordered the PCGG to release the dividends pertaining to
Aerocom except the dividends on the sequestered shares of stock registered in the names of Manuel
Nieto and Jose Africa in POTC, ETPI and Aerocom, on the following findings:
A close scruitiny of Annex "A" of the complaint in Civil Case No. 0009, entitled
"Republic of the Philippines vs. Jose L. Africa, Manuel H. Nieto, Jr., and
Roberto S. Benedicto", does not show, that herein plaintiff Aerocom Investors
& Managers, Inc., as a corporation, was itself sequestered. What was
sequestered are the shares of stock of Manuel H. Nieto, Jr. and Jose L. Africa
in Aerocom Investors & Mangers, Inc.
Defendant PCGG is under estoppel from denying that it has in fact recognized
and confirmed the non-sequestration status of herein plaintiff, as a
corporation, by releasing the cash dividends due to the plaintiff from
Philippine Overseas Telecommunications Corporation (POTC for short) per its
Resolutions dated June 29, 1993 and May 6, 1994. The said PCGG Resolution,
dated June 29, 1993 (Annex "A", Manifestation and Motion, p. 330, record)
refers to its approval to release the POTC cash dividends declared in 1989
and 1991 pertaining to the shares of herein plaintiff Aerocom Investors &
Managers, Inc. in Philippine Overseas Telecommunications Corporation. On
the other hand, PCGG Resolution No. 94-066 dated May 6, 1994 refers to its
approval releasing the POTC cash dividends declared in 1993 and "accruing
to the shares of stocks in POTC, registered under the name of Aerocom
Investors & Managers, Inc., except cash dividends pertaining to the personal
shares of Mr. Manuel H. Nieto, Jr. in POTC and likewise his shares of stocks in
Aerocom Investors & Managers, Inc." (Annex "B", Manifestation and Motion,

p. 331, record).
There is no dispute that herein plaintiff, as a corporation, has a juridical
personality separate and distinct from its stockholders.
After a motion for reconsideration thereof was denied by the Sandigabayan per Resolution
promulgated on May 7, 1996, 9 the PCGG filed the present petition for certiorari on August 16, 1996
assailing the Sandiganbayan order for the release of the dividends as having been issued with grave
abuse of discretion. In compliance with the Resolution of this Court dated September 2, 1996 10 which
also granted the temporary restraining order prayed for by the PCGG, Aerocom filed its comment on the
petition on September 11, 1996 11 to which, the PCGG on November 21, 1996 filed a reply. 12
The petition must fail.
There is merit in the initial point amplified by Aerocom in its comment that the instant certiorari
proceedings brought by the PCGG is an improper remedy under the circumstances. From a reading
of its January 31, 1996 Resolution granting Aerocom's Manifestation and Motion, (as heretofore
quoted), as well as the May 7, 1996 Resolution denying the motion for reconsideration, the
Sandiganbayan has virtually passed upon the pivotal issue involved in Aerocom's complaint for the
declaration of nullity of the writ of sequestration (Civil Case No. 0044) i.e., whether or not
Aerocom's sequestration was in order. That court's finding to the effect that Aerocom was not
validly sequestered, clearly, was a final adjudication on the merits which is reviewable by the
appellate court only through an appeal under Rule 45 of the Rules of Court. The PCGG should have
availed of the remedy of appeal filed within the statutory fifteen (15)-day period and not a petition
for certiorari, as the arguments the PCGG propounds in support of its challenge on the
Sandiganbayan Resolutions would amount to a digging into the merits and unearthing of judgment.
13
At this juncture, "[i]t must emphatically be reiterated," to borrow the words of Mr. Justice Regalado in
Purefoods Corp. vs. NLRC, 14 "since so often is it overlooked, that the special civil action for certiorari is
a remedy designed for the correction of errors of jurisdiction and errors of judgment. The reason for the
rule is simple. When a court exercises its jurisdiction, an error committed while so engaged does not
deprive it of the jurisdiction being exercised when the error is committed. If it did, every error committed
by a court would deprive it of its jurisdiction and every erroneous judgment would be a void judgment.
This cannot be allowed. The administration of justice would not survive such a rule. Consequently, an
error of judgment that the court may commit in the exercise of its jurisdiction is not correctable through
the original civil action of certiorari."
Equally worth recalling is that certiorari is not and cannot be made a substitute for an appeal where
the latter remedy is available 15 but was lost thru the fault or negligence of petitioner, 16 as in this case.
Even if we disregard such procedure flaw, the substantial contentions of the PCGG fail to invite
judgment in its favor.
First. We cannot subscribe to the PCGG's theory that, as the first paragraph of Section 26, Article
XVIII of the Constitution speaks only of "The authority to issue . . .", then there is faithful
compliance with the 18-month constitutional deadline by the mere issuance of the writ of
sequestration within that time-frame (June 15, 1988) even if service thereof on Aerocom was
effected thereafter (August 3, 1988).
The obvious intendment behind the 18-month period, as well as the six (6)-month time-limit for the
filing of the corresponding judicial action, is to ensure the protection of property rights and to
serve as a necessary safeguard against an overzealous exercise by the State, acting as "bountyhunters" so to speak, of its power of sequestration which, as described by Justice Ameurfina
Melencio-Herrera in her concurring opinion in BASECO v. PCGG, 17 is an "extra-ordinary, harsh and

severe remedy." For this reason, "(I)t should be confined", J. Herrera continues, "to its lawful parameters
and exercised, with due regard, in the words of its enabling laws, to the requirements of fairness, due
process, and Justice." The probable evil of governmental abuse is best avoided an the dictates of
"fairness", "due process" and "Justice" are truly heeded under an interpretation of Section 26, Article
XVIII as requiring both the issuance of the writ and notification to, or more precisely, the acquisition of
jurisdiction over the entity/entities to be sequestered via valid service thereof, to be effected within the
18-month period. A writ of sequestration, therefore, runs the risk of being struck down as invalid if and
when the twin requirements of issuance and service are not satisfied within the deadline.

Such is the fate of the subject writ of sequestration, unfortunately. Whether the 18-month period
expired on July 26, 1988 (as claimed by Aerocom, in line with the computation of time under Article
13 of the Civil Code and the ruling in "National Marketing Corp. v. Tecson," 29 SCRA 70) or on
August 2, 1988 (the PCGG's position), the fact remains that service of the writ on Aerocom on
August 3, 1988 was made beyond these dates. The PCGG's theory that the mere issuance of the
writ within the 18-month deadline will suffice, is just too dangerous to accept. Imagine a scenario
where the PCGG may have actually tarried in the issuance of the sequestration order to the
prejudice of the would-be sequestered entity, and all that the PCGG has to do to cover its mistake is
to conveniently ante-date the writ so as to feign timely compliance. That would, in effect, be
allowing the PCGG to employ a subterfuge to validate what may in fact be a purely whimsical,
unfounded and an "efterthought" takeover of corporate property. The Constitution does not and
can never tolerate such a deceptive maneuver. Service of the writ of sequestration within the 18month period, then, is an imperative measure to guard against this kind of mischief, for it will
certainly give the assurance that the writ was genuinely issued within that constitutional deadline.
Second. The PCGG cannot justify its failure, as found by the Sandiganbayan, 18 to file the
corresponding judicial action against Aerocom within the six (6)-month period as provided for under the
same constitutional provision in focus (Section 26, Article XVIII, second paragraph) by the fact that
Aerocom was mentioned in the complaint of the PCGG in Civil Case No. 0009 (the Nieto, Africa, et al.
case) and in Annex "A" thereof notwithstanding that Aerocom was not impleaded as party-defendant,
and on the argument that the filing of Civil Case No. 0009 against the "Nieto, Africa et al. group" is
enough compliance with the "judicial action" requirement. The case of Republic v. Sandiganbayan, 240
SCRA 376, January 23, 1995, relied upon by the PCGG, has no rightful application, inasmuch as this
Court's pronouncements therein, in answer to this crucial question:
DOES INCLUSION IN THE COMPLAINTS FILED BY THE PCGG BEFORE THE
SANDIGANBAYAN OF SPECIFIC ALLEGATIONS OF CORPORATIONS BEING
"DUMMIES" OR UNDER THE CONTROL OF ONE OR ANOTHER OF THE
DEFENDANTS NAMED THEREIN AND USED AS INSTRUMENTS FOR
ACQUISITION, OR AS BEING DEPOSITARIES OR PRODUCTS, OF ILLGOTTEN WEALTH; OR THE ANNEXING TO SAID COMPLAINTS OF A LIST OF
SAID FIRMS, BUT WITHOUT ACTUALLY IMPLEADING THEM AS
DEFENDANTS, SATISFY THE CONSTITUTIONAL REQUIREMENT THAT IN
ORDER TO MAINTAIN A SEIZURE EFFECTED IN ACCORDANCE WITH
EXECUTIVE ORDER NO. 1, s. 1986, THE CORRESPONDING "JUDICIAL
ACTION OR PROCEEDING" SHOULD BE FILED WITHIN THE SIX-MONTH
PERIOD PRESCRIBED IN SECTION 26, ARTICLE XVIII, OF THE (1987)
CONSTITUTION?
presupposed a valid and existing sequestration of the unimpleaded corporation/s
concerned. Thus
1) Sec. 26, Art. XVIII of the Constitution does not, by its terms or any fair
interpretation thereof, require that corporations or business enterprises
alleged to be repositories of "ill-gotten wealth," as the term is used in said

provision, be actually and formally impleaded in the actions for the recovery
thereof, in order to maintain in effect existing sequestrations thereof;
2) complaints for the recovery of ill-gotten wealth which merely identify and/or
allege said corporations or enterprises to be the instruments, repositories or
the fruits of ill-gotten wealth, without more, come within the meaning of the
phrase "corresponding judicial action or proceeding" contemplated by the
constitutional provision referred to; the more so, that normally, said
corporations, as distinguished from their stockholders or members, are not
generally suable for the latter's illegal or criminal actuations in the acquisition
of the assets invested by them in-the former;
3) even assuming the impleading of said corporations to be necessary and
proper so that judgment may comprehensively and effectively be rendered in
the actions, amendment of the complaints to implead them as defendants
may, under existing rules of procedure, be done at any time during the
pendency of the actions thereby initiated, and even during the pendency of an
appeal to the Supreme Court a procedure that, in any case, is not
inconsistent with or proscribed by the constitutional time limits to the filing of
the corresponding complaints "for" i.e., with regard or in relation to, in
respect of, or in connection with, or concerning orders of sequestration,
freezing, or provisional takeover. . . . (Emphasis supplied)
sThere is no existing sequestration to talk about in this case, as the writ issued against Aerocom,
to repeat, is invalid for reasons hereinbefore stated. Ergo, the suit in Civil Case No. 0009 against Mr.
Nieto and Mr. Africa as shareholders in aerocom is not and cannot ipso facto be a suit against the
unimpleaded Aerocom itself without violating the fundamental principle that a corporation has a
legal personality distinct and separate from its stockholders. Such is the ruling laid down in PCGG
v. Interco 19 reiterated anew in a case of more recent vintage Republic v. Sandiganbayan, Sipalay
Trading Corp. and Allied Banking Corp. 20 where this Court, speaking through Mr. Justice Ricardo J.
Francisco, 21 hewed to the lone dissent of Mr. Justice Teodoro R. Padilla 22 in the very same Republic v.
Sandiganbayan case herein invoked by the PCGG, to writ:
. . . failure to implead these corporations as defendants and merely annexing
a list of such corporations to the complaints is a violation of their right to due
process for it would in effect be disregarding their distinct and separate
personality without a hearing.
In cases where stocks of a corporation were allegedly the fruits of ill-gotten
wealth, it should be remembered that in most of these cases the stocks
involved constitute a substantial if not controlling interest in the corporations.
The basic tenets of fair play demand that these corporations be impleaded as
defendants since a judgment in favor of the government will undoubtedly
substantially and decisively affect the corporation as distinct entities. The
judgment could strip them of everything without being previously heard as
they are not parties to the action in which the judgment is rendered.
. . . . Holding that the "corresponding judicial action or proceeding"
contemplated by the Constitution is any action concerning or involving the
corporation under sequestration is oversimplifying the solution, the result of
which is antagonistic to the principles of justice and fair play.

. . . the actions contemplated by the Constitution should be those which


include the corporation not as a mere annex to the complaint but as
defendant. This is the minimum requirement of the due process guarantee.
Short of being impleaded, the corporation has no standing in the judicial
action. It cannot adequately defend itself. It may not even be heard.
On the . . . opinion that alternatively the corporations can be impleaded as
defendants by amendment of the complaint, Section 26, Article XVIII of the
Constitution would appear to preclude this procedure, for allowing
amendment of the complaint to implead theretofore unimpleaded
corporations would in effect allow complaints against the corporation to be
filed beyond the periods fixed by said Section 26.
xxx xxx xxx
While government efforts to recover illegally amassed wealth should have
support from all its branches, eagerness and zeal should not be allowed to
run berserk, overriding in the process the very principles that it is sworn to
uphold. In our legal system, the ends do not always justify the means.
Wrongs are never corrected by committing other wrongs, and as abovediscussed the recovery of ill-gotten wealth does not and should never justify
unreasonable intrusions into constitutionally forbidden
group. . . . .
The last area of discussion touches on the doctrine of estoppel. Let us rewind the events for a clear
understanding of the issue involved.
During the pendency of the Aerocom complaint against the PCGG, the latter approved the release
of the cash dividends declared in the years 1989, 1991 and 1993 accruing to the shares of stock of
Aerocom in the Philippine Overseas Telecommunications Co. (POTC) per PCGG Certification dated
June 29, 1993 23 and Resolution No. 94-066 dated May 6, 1994 which read, respectively:
OFFICE OF THE PRESIDENT
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT

CERTIFICATION

This is to certify that the following is an excerpt of the Minutes of the


Executive Committee Meeting held on June 18, 1993 at the PCGG
Commission Room, 6th Floor, Philcomcen Bldg., Pasig, Metro Manila:
03 POTC/AEROCOM INVESTORS, INC./MANUEL NIETO, JR.
After deliberation on the letter-request dated May 30, 1993 of Aerocom
Investors, Inc. and Mr. Manuel Nieto, Jr. thru counsel, the Commission has
resolved to approved the release of the POTC cash dividends declared in
1989 and 1991.

The Chairman further instructed Comm. Guiao to pursue the settlement with
Mr. Nieto on more favorable terms to the government.
Done on this 29th day of June, 1993 at Pasig, Metro Manila, Philippines.
CERTIFIED CORRECT:
(SGD.)
ELIZABETH J. TRINIDAD
Commission Secretary

REPUBLIC OF THE PHILIPPINES


OFFICE OF THE PRESIDENT
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT
RESOLUTION NO. 94-066
WHEREAS, the request of Polygon Investors, Inc. and Mr. Jose Africa and
Aerocom Investors & Managers, Inc. and Mr. Manuel H. Nieto, Jr. was taken up
in the Executive Committee Meeting of this Commission held on May 5, 1994;
WHEREAS, it appears that Mr. Jose Africa and Mr. Manuel H. Nieto, Jr. are
both defendants in Civil Case No. 009 before the Sandiganbayan, and
representation has been made that Aerocom Investors & Managers, Inc. is not
sequestered.
NOW, THEREFORE, RESOLVED, AS IT IS HEREBY RESOLVED, that the
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) hereby
interposes no objection to the release of the cash dividends declared in 1993
and accruing to the shares of stock in Philippine Overseas
Telecommunications Co. (POTC) registered under the name of Aerocom
Investors & Managers, Inc. except the cash dividends pertaining to the
personal shares of stock of Mr. Manuel Nieto, Jr. in POTC and likewise, his
shares of stock in Aerocom Investors & Managers, Inc.
On the other hand, the release of the cash dividends declared in 1993 and
previous years which are accruing to the shares of stock in POTC registered
in the name of Polygon Investors, Inc. and Mr. Jose Africa is hereby deferred.
DONE this 6th day of May, 1994 at Pasig, Metro Manila.

(SGD.)
MAGTANGGOL C. GUNIGUNDO
Chairman

(SGD.) (SGD.)
REYNALDO S. GUIAO HERMILO R. ROSAL
Commissioner Commissioner

(SGD.) (SGD.)
JULIET C. BERTUBEN HERMINIO A. MENDOZA
Commissioner Commissioner

The PCGG issued the aforequoted "Certification" and "Resolution 94-066" apparently
on the basis of a "Memorandum" 24 prepared by Atty. Ismael B. Sanchez, former legal
counsel of the PCGG, advising the latter not to interpose any objection to the release of
the POTC cash dividends. A portion of the "Memorandum" reads:
THE ISSUES:
1. Is there legal basis to withhold the release of the POTC cash dividends
declared in 1989 and 1991 in favor of Mr. Nieto and Aerocom?
2. Was the sequestration order Aercom issued validly?
As to the first issue.
As resolved by the Sandiganbayan in its Resolution of October 2, 1991 and
January 25, 1993, the PCGG has no authority to withhold satisfaction and
release of dividends to stockholders whose shares in POTC are not and have
never been sequestered. Thus, the Sandiganbayan ruled:
We have gone over the pleadings filed by the parties, and we
find that herein petitioners, whose stockholdings in the POTC
are not sequestered, have the right to the payment of their
respective dividends. Respondent PCGG has no authority to
withhold satisfaction and release of the same.
There is nothing in the records of the Commission to show that a
sequestration order issued against the shares of Mr. Nieto Jr. and Aerocom in

POTC. A distinction must be made in the matter of sequestration of the


corporation itself and the sequestration of corporate shareholdings in another
corporation. (Please see Note above regarding sequestration of Aerocom) The
sequestration refers to Aerocom as a corporation.
Being similarly situated as the petitioners in Sandiganbayan Civil Case No.
118 and considering the relevant facts stated above, it is the opinion of the
undersigned that the POTC dividends due Mr. Nieto and Aerocom may be
released to them.
As to the second issue.
With respect to the writ of sequestration issued on June 15, 1988 against
Aerocom and served on August 3, 1988, the following points are to be
considered:
(1) It may be argued that this writ is a "midnight" sequestration order
considering the date of its issuance and the date it was served on Aerocom,
that is, four (4) days before the expiration of the authority of PCGG to issue
sequestration or freeze order as provided under Section 26, Article XVIII of the
1987 Constitution.
(2) The sequestration order in question was issued after the effectivity of the
1987 Constitution exactly on June 15, 1988. As such, the sequestration order
can only be issued upon showing a prima facie case of ill-gotten wealth.
Nothing was mentioned in the writ against Aerocom of any ground or basis
for its issuance. It just stated that the company is placed under sequestration.
(3) Even assuming that it was valid when issued, the sequestration order was
never implemented. In fact, in Sandiganbayan Civil Case No. 044, the PCGG
through the Office of the Solicitor General agreed not to implement the
sequestration order as earlier discussed.
(4) PCGG has not filed any action against Aerocom. In the Interco case, the
Supreme Court, citing Section 26, Article VXIII of the Constitution, has ruled
and held "the sequestration or freeze order is deemed automatically lifted if
no judicial action or proceeding is commenced as herein provided." Any
action or proceeding against Aerocom should have been commenced or filed
within six (6) months from June 15, 1988.
CONCLUSION:
IN VIEW OF ALL THE FOREGOING, it our considered opinion and
recommendation that the Commission interpose no objection to the release of
the POTC cash dividends declared in 1989 and 1991 in favor of Mr. Nieto Jr.
and Aerocom Investors, Inc.
Furthermore, appropriate instruction be given to the assigned Asset Monitor
in POTC to approve the corresponding checks covering the cash dividends
due Mr. Nieto Jr. and Aerocom Investors, Inc.

(SGD.)
ISMAEL B. SANCHEZ

Taking into account these documents, the Sandiganbayan thus found the PCGG to be in estoppel
from denying the non-sequestered status of Aerocom and from refusing the release of cash
dividends in favor of the latter. The PCGG takes exception to this finding on the claim that the State
should not be held vulnerable to estoppel for the acts of past officials.
The PCGG's contention is not persuasive under the attendant circumstances. While we agree with
the statement that the State is immune from estoppel, this concept, as clarified by this Court thru
Mr. Justice Melo in Republic v. Sandiganbayan, et al. 25 "is understood to refer to acts and mistakes of
its officials especially those which are irregular." 26 Here, other than its bare assertion that Atty.
Sanchez's "Opinion" is "illegal and prejudicial," the PCGG has not presented convincing evidence to
prove irregularity or negligence on the part of Atty. Sanchez in rendering his "Opinion" favorable to
Aerocom. In fact, no less than PCGG Chairman Magtanggol Gunigundo and the rest of the
Commissioners clearly heeded the recommendation of Atty. Sanchez by affixing their signatures on
Resolution No. 94-066 allowing the release of the cash dividends declared in 1993 accruing to Aerocom's
shares of stock in POTC. Elementary notions of consistency and fair play call upon the PCGG to honor
the release of the cash dividends presently requested by Aerocom, after a similar commitment has been
collectively confirmed by its commissioners in black and white. "A ruling to the contrary", in the erudite
language of Justice Escareal of the Sandiganbayan as adopted in Republic v. Sandiganbayan, 226 SCRA
314, "is not only illogical and irrational, but inequitable and pernicious as well, for it may open the door
for capricious adventurism on the part of the policy-makers of the land, and disregard for the majesty of
the law, which could ultimately bring about the citizenry's loss faith and confidence in the sincerity of
the government in its dealings with the governed."
WHEREFORE, the instant petition is hereby DISMISSED. The assailed Resolutions of the
Sandiganbayan promulgated of January, 31, 1996 and May 7, 1996 are AFFIRMED in their entirety.
SO ORDERED.
Regalado, Puno and Mendoza, JJ., concur.
Melo, J., is on leave.

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