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Tayag vs Benguet Consolidated

G.R. No. L-23145 Fernandez, 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
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
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.
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, 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."17As 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
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.
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.
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."23 Reconsideration 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.
GOOD EARTH EMPORIUM v CA
G.R. No. 82797 PARAS, J.:
This is a petition for review on certiorari of the December
29, 1987 decision * of the Court of Appeals in CA-G.R. No.

11960 entitled "ROCES-REYES REALTY, INC. vs. HONORABLE


JUDGE REGIONAL TRIAL COURT OF MANILA, BRANCH 44,
GOOD EARTH EMPORIUM, INC. and LIM KA PING" reversing
the decision of respondent Judge ** of the Regional Trial
Court of Manila, Branch 44 in Civil Case No. 85-30484, which
reversed the resolution of the Metropolitan Trial Court Of
Manila, Branch 28 in Civil Case No. 09639, *** denying
herein petitioners' motion to quash the alias writ of
execution issued against them.
As gathered from the records, the antecedent facts of this
case, are as follows:
A Lease Contract, dated October 16, 1981, was entered into
by and between ROCES-REYES REALTY, INC., as lessor, and
GOOD EARTH EMPORIUM, INC., as lessee, for a term of three
years beginning November 1, 1981 and ending October 31,
1984 at a monthly rental of P65,000.00 (Rollo, p. 32; Annex
"C" of Petition). The building which was the subject of the
contract of lease is a five-storey building located at the
corner of Rizal Avenue and Bustos Street in Sta. Cruz,
Manila.
From March 1983, up to the time the complaint was filed,
the lessee had defaulted in the payment of rentals, as a
consequence of which, private respondent ROCES-REYES
REALTY, INC., (hereinafter designated as ROCES for brevity)
filed on October 14, 1984, an ejectment case (Unlawful
Detainer) against herein petitioners, GOOD EARTH
EMPORIUM, INC. and LIM KA PING, hereinafter designated as
GEE, (Rollo, p. 21; Annex "B" of the Petition). After the latter
had tendered their responsive pleading, the lower court
(MTC, Manila) on motion of Roces rendered judgment on the
pleadings dated April 17, 1984, the dispositive portion of
which states:

Judgment is hereby rendered ordering defendants


(herein petitioners) and all persons claiming title
under him to vacate the premises and surrender the
same to the plaintiffs (herein respondents); ordering
the defendants to pay the plaintiffs the rental of
P65,000.00 a month beginning March 1983 up to the
time defendants actually vacate the premises and
deliver possession to the plaintiff; to pay attorney's
fees in the amount of P5,000.00 and to pay the costs
of this suit. (Rollo, p. 111; Memorandum of
Respondents)
On May 16, 1984, Roces filed a motion for execution which
was opposed by GEE on May 28, 1984 simultaneous with the
latter's filing of a Notice of Appeal (Rollo, p. 112, Ibid.). On
June 13, 1984, the trial court resolved such motion ruling:
After considering the motion for the issuance of a
writ of execution filed by counsel for the plaintiff
(herein respondents) and the opposition filed in
relation thereto and finding that the defendant failed
to file the necessary supersedeas bond, this court
resolved to grant the same for being meritorious.
(Rollo, p. 112)
On June 14, 1984, a writ of execution was issued by the
lower court. Meanwhile, the appeal was assigned to the
Regional Trial Court (Manila) Branch XLVI. However, on
August 15, 1984, GEE thru counsel filed with the Regional
Trial Court of Manila, a motion to withdraw appeal citing as
reason that they are satisfied with the decision of the
Metropolitan Trial Court of Manila, Branch XXVIII, which said
court granted in its Order of August 27, 1984 and the
records were remanded to the trial court (Rollo, p. 32; CA
Decision). Upon an ex-parte Motion of ROCES, the trial court

issued an Alias Writ of Execution dated February 25, 1985


(Rollo, p. 104; Annex "D" of Petitioner's Memorandum),
which was implemented on February 27, 1985. GEE thru
counsel filed a motion to quash the writ of execution and
notice of levy and an urgent Ex-parte Supplemental Motion
for the issuance of a restraining order, on March 7, and 20,
1985, respectively. On March 21, 1985, the lower court
issued a restraining order to the sheriff to hold the execution
of the judgment pending hearing on the motion to quash the
writ of execution (Rollo, p. 22; RTC Decision). While said
motion was pending resolution, GEE filed a Petition for Relief
from judgment before another court, Regional Trial Court of
Manila, Branch IX, which petition was docketed as Civil Case
No. 80-30019, but the petition was dismissed and the
injunctive writ issued in connection therewith set aside. Both
parties appealed to the Court of Appeals; GEE on the order
of dismissal and Roces on denial of his motion for indemnity,
both docketed as CA-G.R. No. 15873-CV. Going back to the
original case, the Metropolitan Trial Court after hearing and
disposing some other incidents, promulgated the questioned
Resolution, dated April 8, 1985, the dispositive portion of
which reads as follows:
Premises considered, the motion to quash the writ is
hereby denied for lack of merit.
The restraining orders issued on March 11 and 23,
1985 are hereby recalled, lifted and set aside. (Rollo,
p. 20, MTC Decision)
GEE appealed and by coincidence. was raffled to the same
Court, RTC Branch IX. Roces moved to dismiss the appeal
but the Court denied the motion. On certiorari, the Court of
Appeals dismissed Roces' petition and remanded the case to

the RTC. Meantime, Branch IX became vacant and the case


was re-raffled to Branch XLIV.
On April 6, 1987, the Regional Trial Court of Manila, finding
that the amount of P1 million evidenced by Exhibit "I" and
another P1 million evidenced by the pacto de retro sale
instrument (Exhibit "2") were in full satisfaction of the
judgment obligation, reversed the decision of the Municipal
Trial Court, the dispositive portion of which reads:
Premises considered, judgment is hereby rendered
reversing the Resolution appealed from quashing the
writ of execution and ordering the cancellation of the
notice of levy and declaring the judgment debt as
having been fully paid and/or Liquidated. (Rollo, p.
29).
On further appeal, the Court of Appeals reversed the
decision of the Regional Trial Court and reinstated the
Resolution of the Metropolitan Trial Court of Manila, the
dispositive portion of which is as follows:
WHEREFORE, the judgment appealed from is hereby
REVERSED and the Resolution dated April 8, 1985, of
the Metropolitan Trial Court of Manila Branch XXXIII is
hereby REINSTATED. No pronouncement as to costs.
(Rollo, p. 40).
GEE's Motion for Reconsideration of April 5, 1988 was
denied (Rollo, p. 43). Hence, this petition.
The main issue in this case is whether or not there was full
satisfaction of the judgment debt in favor of respondent

corporation which would justify the quashing of the Writ of


Execution.
A careful study of the common exhibits (Exhibits 1/A and
2/B) shows that nowhere in any of said exhibits was there
any writing alluding to or referring to any settlement
between the parties of petitioners' judgment obligation
(Rollo, pp. 45-48).
Moreover, there is no indication in the receipt, Exhibit "1",
that it was in payment, full or partial, of the judgment
obligation. Likewise, there is no indication in the pacto de
retro sale which was drawn in favor of Jesus Marcos Roces
and Marcos V. Roces and not the respondent corporation,
that the obligation embodied therein had something to do
with petitioners' judgment obligation with respondent
corporation.
Finding that the common exhibit, Exhibit 1/A had been
signed by persons other than judgment creditors (RocesReyes Realty, Inc.) coupled with the fact that said exhibit
was not even alleged by GEE and Lim Ka Ping in their
original motion to quash the alias writ of execution (Rollo, p.
37) but produced only during the hearing (Ibid.) which
production resulted in petitioners having to
claim belatedly that there was an "overpayment" of about
half a million pesos (Rollo, pp. 25-27) and remarking on the
utter absence of any writing in Exhibits "1/A" and "2/B" to
indicate payment of the judgment debt, respondent
Appellate Court correctly concluded that there was in
fact nopayment of the judgment debt. As aptly observed by
the said court:

What immediately catches one's attention is the total


absence of any writing alluding to or referring to any
settlement between the parties of private
respondents' (petitioners') judgment obligation. In
moving for the dismissal of the appeal Lim Ka Ping
who was then assisted by counsel simply stated that
defendants (herein petitioners) are satisfied with the
decision of the Metropolitan Trial Court (Records of
CA, p. 54).
Notably, in private respondents' (petitioners') Motion
to Quash the Writ of Execution and Notice of Levy
dated March 7, 1985, there is absolutely no reference
to the alleged payment of one million pesos as
evidenced by Exhibit 1 dated September 20, 1984.
As pointed out by petitioner (respondent corporation)
this was brought out by Linda Panutat, Manager of
Good Earth only in the course of the latter's
testimony. (Rollo, p. 37)
Article 1240 of the Civil Code of the Philippines provides
that:
Payment shall be made to the person in whose favor
the obligation has been constituted, or his successor
in interest, or any person authorized to receive it.
In the case at bar, the supposed payments were not made
to Roces-Reyes Realty, Inc. or to its successor in interest nor
is there positive evidence that the payment was made to a
person authorized to receive it. No such proof was
submitted but merely inferred by the Regional Trial Court
(Rollo, p. 25) from Marcos Roces having signed the Lease
Contract as President which was witnessed by Jesus Marcos

Roces. The latter, however, was no longer President or even


an officer of Roces-Reyes Realty, Inc. at the time he received
the money (Exhibit "1") and signed the sale with pacto de
retro (Exhibit "2"). He, in fact, denied being in possession of
authority to receive payment for the respondent corporation
nor does the receipt show that he signed in the same
capacity as he did in the Lease Contract at a time when he
was President for respondent corporation (Rollo, p. 20, MTC
decision).
On the other hand, Jesus Marcos Roces testified that the
amount of P1 million evidenced by the receipt (Exhibit "1")
is the payment for a loan extended by him and Marcos
Roces in favor of Lim Ka Ping. The assertion is home by the
receipt itself whereby they acknowledged payment of the
loan in their names and in no other capacity.
A corporation has a personality distinct and separate from
its individual stockholders or members. Being an officer or
stockholder of a corporation does not make one's property
also of the corporation, and vice-versa, for they are separate
entities (Traders Royal Bank v. CA-G.R. No. 78412,
September 26, 1989; Cruz v. Dalisay, 152 SCRA 482).
Shareowners are in no legal sense the owners of corporate
property (or credits) which is owned by the corporation as a
distinct legal person (Concepcion Magsaysay-Labrador v.
CA-G.R. No. 58168, December 19, 1989). As a consequence
of the separate juridical personality of a corporation, the
corporate debt or credit is not the debt or credit of the
stockholder, nor is the stockholder's debt or credit that of
the corporation (Prof. Jose Nolledo's "The Corporation Code
of the Philippines, p. 5, 1988 Edition, citing Professor
Ballantine).

The absence of a note to evidence the loan is explained by


Jesus Marcos Roces who testified that the IOU was
subsequently delivered to private respondents (Rollo, pp.
97-98). Contrary to the Regional Trial Court's premise that it
was incumbent upon respondent corporation to prove that
the amount was delivered to the Roces brothers in the
payment of the loan in the latter's favor, the delivery of the
amount to and the receipt thereof by the Roces brothers in
their names raises the presumption that the said amount
was due to them.1wphi1 There is a disputable presumption
that money paid by one to the other was due to the latter
(Sec. 5(f) Rule 131, Rules of Court). It is for GEE and Lim Ka
Ping to prove otherwise. In other words, it is for the latter to
prove that the payments made were for the satisfaction of
their judgment debt and not vice versa.
The fact that at the time payment was made to the two
Roces brothers, GEE was also indebted to respondent
corporation for a larger amount, is not supportive of the
Regional Trial Court's conclusions that the payment was in
favor of the latter, especially in the case at bar where the
amount was not receipted for by respondent corporation
and there is absolutely no indication in the receipt from
which it can be reasonably inferred, that said payment was
in satisfaction of the judgment debt. Likewise, no such
inference can be made from the execution of the pacto de
retro sale which was not made in favor of respondent
corporation but in favor of the two Roces brothers in their
individual capacities without any reference to the judgment
obligation in favor of respondent corporation.
In addition, the totality of the amount covered by the receipt
(Exhibit "1/A") and that of the sale with pacto de
retro(Exhibit "2/B") all in the sum of P2 million, far exceeds
petitioners' judgment obligation in favor of respondent

corporation in the sum of P1,560,000.00 by P440,000.00,


which militates against the claim of petitioner that the
aforesaid amount (P2M) was in full payment of the judgment
obligation.
Petitioners' explanation that the excess is interest and
advance rentals for an extension of the lease contract
(Rollo, pp. 25-28) is belied by the absence of any interest
awarded in the case and of any agreement as to the
extension of the lease nor was there any such pretense in
the Motion to Quash the Alias Writ of Execution.
Petitioners' averments that the respondent court had
gravely abused its discretion in arriving at the assailed
factual findings as contrary to the evidence and applicable
decisions of this Honorable Court are therefore, patently
unfounded. Respondent court was correct in stating that it
"cannot go beyond what appears in the documents
submitted by petitioners themselves (Exhibits "1" and "2")
in the absence of clear and convincing evidence" that would
support its claim that the judgment obligation has indeed
been fully satisfied which would warrant the quashal of
the Alias Writ of Execution.
It has been an established rule that when the existence of a
debt is fully established by the evidence (which has been
done in this case), the burden of proving that it has been
extinguished by payment devolves upon the debtor who
offers such a defense to the claim of the plaintiff creditor
(herein respondent corporation) (Chua Chienco v. Vargas, 11
Phil. 219; Ramos v. Ledesma, 12 Phil. 656; Pinon v. De
Osorio, 30 Phil. 365). For indeed, it is well-entrenched in Our
jurisprudence that each party in a case must prove his own
affirmative allegations by the degree of evidence required
by law (Stronghold Insurance Co. v. CA, G.R. No. 83376, May

29,1989; Tai Tong Chuache & Co. v. Insurance Commission,


158 SCRA 366).
The appellate court cannot, therefore, be said to have
gravely abused its discretion in finding lack of convincing
and reliable evidence to establish payment of the judgment
obligation as claimed by petitioner. The burden of evidence
resting on the petitioners to establish the facts upon which
their action is premised has not been satisfactorily
discharged and therefore, they have to bear the
consequences.
PREMISES CONSIDERED, the petition is hereby DENIED and
the Decision of the Respondent court is hereby AFFIRMED,
reinstating the April 8, 1985 Resolution of the Metropolitan
Trial Court of Manila.
SO ORDERED.
CRUZ v DALISAY
FERNAN, J.:
In a sworn complaint dated July 23, 1984, Adelio C. Cruz
charged Quiterio L. Dalisay, Senior Deputy Sheriff of Manila,
with "malfeasance in office, corrupt practices and serious
irregularities" allegedly committed as follows:
1. Respondent sheriff attached and/or levied the money
belonging to complainant Cruz when he was not himself the
judgment debtor in the final judgment of NLRC NCR Case
No. 8-12389-91 sought to be enforced but rather the
company known as "Qualitrans Limousine Service, Inc.," a
duly registered corporation; and,

2. Respondent likewise caused the service of the alias writ of


execution upon complainant who is a resident of Pasay City,
despite knowledge that his territorial jurisdiction covers
Manila only and does not extend to Pasay City.
In his Comments, respondent Dalisay explained that when
he garnished complainant's cash deposit at the Philtrust
bank, he was merely performing a ministerial duty. While it
is true that said writ was addressed to Qualitrans Limousine
Service, Inc., yet it is also a fact that complainant had
executed an affidavit before the Pasay City assistant fiscal
stating that he is the owner/president of said corporation
and, because of that declaration, the counsel for the plaintiff
in the labor case advised him to serve notice of garnishment
on the Philtrust bank.
On November 12, 1984, this case was referred to the
Executive Judge of the Regional Trial Court of Manila for
investigation, report and recommendation.
Prior to the termination of the proceedings, however,
complainant executed an affidavit of desistance stating that
he is no longer interested in prosecuting the case against
respondent Dalisay and that it was just a
"misunderstanding" between them. Upon respondent's
motion, the Executive Judge issued an order dated May 29,
1986 recommending the dismissal of the case.
It has been held that the desistance of complainant does not
preclude the taking of disciplinary action against
respondent. Neither does it dissuade the Court from
imposing the appropriate corrective sanction. One who holds
a public position, especially an office directly connected with
the administration of justice and the execution of

judgments, must at all times be free from the appearance of


impropriety.1
We hold that respondent's actuation in enforcing a judgment
against complainant who is not the judgment debtor in the
case calls for disciplinary action. Considering the ministerial
nature of his duty in enforcing writs of execution, what is
incumbent upon him is to ensure that only that portion of a
decision ordained or decreed in the dispositive part should
be the subject of execution.2 No more, no less. That the title
of the case specifically names complainant as one of the
respondents is of no moment as execution must conform to
that directed in the dispositive portion and not in the title of
the case.
The tenor of the NLRC judgment and the implementing writ
is clear enough. It directed Qualitrans Limousine Service,
Inc. to reinstate the discharged employees and pay them full
backwages. Respondent, however, chose to "pierce the veil
of corporate entity" usurping a power belonging to the court
and assumed improvidently that since the complainant is
the owner/president of Qualitrans Limousine Service, Inc.,
they are one and the same. It is a well-settled doctrine both
in law and in equity that as a legal entity, a corporation has
a personality distinct and separate from its individual
stockholders or members. The mere fact that one is
president of a corporation does not render the property he
owns or possesses the property of the corporation, since the
president, as individual, and the corporation are separate
entities.3
Anent the charge that respondent exceeded his territorial
jurisdiction, suffice it to say that the writ of execution sought
to be implemented was dated July 9, 1984, or prior to the
issuance of Administrative Circular No. 12 which restrains a

sheriff from enforcing a court writ outside his territorial


jurisdiction without first notifying in writing and seeking the
assistance of the sheriff of the place where execution shall
take place.
ACCORDINGLY, we find Respondent Deputy Sheriff Quiterio
L. Dalisay NEGLIGENT in the enforcement of the writ of
execution in NLRC Case-No. 8-12389-91, and a fine
equivalent to three [3] months salary is hereby imposed
with a stern warning that the commission of the same or
similar offense in the future will merit a heavier penalty. Let
a copy of this Resolution be filed in the personal record of
the respondent.
SO ORDERED.
RECREATION AND AMUSEMENT ASSOCIATION OF THE
PHILIPPINES, plaintiff-appellant,
vs.
THE CITY OF MANILA,
FELIX, J.:
On March 30, 1954, the Recreation and Amusement
Association of the Philippines, Inc., allegedly a non-stock
corporation organized and existing under the laws of the
Philippines, whose 35 members are licensed owner and
operators in the City of Manila, of Five-Ball-Flipper-ActionPinball machines (also known as slot machines), filed a
complaint in the Court of First Instance of said City praying
that a preliminary injunction be issued to restrain the City
Mayor and the City Treasurer from enforcing Ordinance No.
3628 passed by the Municipal Board of Manila on March 19,
1954, and approved by the City Mayor on the following day,
which reads as follows:

ORDINANCE NO. 3628.


AN ORDINANCE AMENDING SECTIONS SEVEN
HUNDRED SEVENTY THREE AND SEVEN HUNDRED
SEVENTY FOUR ORDINANCE NUMBERED ONE
THOUSAND SIX HUNDRED KNOWN AS "THE REVISED
ORDINANCES OF THE CITY OF MANILA", AS LASTLY
AMENDED BY HUNDRED FORTY SEVEN.
Be it ordained by the Municipal Board of the City of
Manila, that:
SECTION 1. Sections seven hundred seventy-three
and seven hundred seventy-four of Ordinance
Numbered One thousand six hundred, known as "The
Revised Ordinances of the City of Manila, as lastly
amended by Ordinance Numbered Three thousand
three hundred forty-seven, are hereby amended to
read as follows:
SEC. 773. Licenses. No person, entity or
corporation shall install or cause to be installed for
the use of the public for compensation any
mechanical contrivance or automatic apparatus
which functions through the introduction of money
not otherwise prohibited by law of weights and
measure and not a gambling device, for purposes of
amusement or of confronting the weight of persons
or things, or printing letters or numbers, or
displaying features inside the apparatus or
reproducing recorded music including other kinds of
machines or apparatus without having first obtained
a license therefor from the City Treasurer. Such
license must be posted on the apparatus concerned,

Provided, that the operation or maintenance of


pinball machines, not otherwise failing under the
category of gambling device, shall not be allowed
within a radius of two hundred (200) meters from any
church, hospital, institution of learning public market,
plaza, and government buildings.
SEC. 774. Fees. There shall be paid for every
license granted for the installation and use of an
apparatus provided in this chapter, an annual fee of
P300 which is payable in advance: Provided, that
person-coin operated weighing or scale machines
shall pay only an annual fee of P12, payable in
advance.
SEC. 2. This Ordinance shall take effect on its
approval.
Enacted, March 19, 1954.
Approved, March 20, 1954.
It is further prayed in the complaint that the City Mayor and
the Treasurer be compelled to issue permits and licenses to
the members of the said corporation upon compliance with
the provisions of the ordinance (No. 3347) enforced before
the enactment of Ordinance No. 3628; that after hearing,
said ordinance he declared null and void, the writ of
preliminary injunction be made permanent, and that plaintiff
be granted such other relief to which it may be entitled
under the law.
Acting upon this complaint, the lower court required plaintiff
to file, as it did file, a bond in the amount of P2,000 for the
issuance of a writ of preliminary injunction to restrain the
defendant City Officials from enforcing the ordinance in

question, and said writ was actually issued on April 1, 1954.


Thereupon, Assistant City Fiscal filed on April 14, 1954, a
motion to lift the writ of preliminary injunction issued as well
as a motion to dismiss on the ground that plaintiff has no
legal capacity to sue and that the complaint states no cause
of action. Defendants argue that the complaint does not
state that plaintiff is the owner of any pinball machine to be
affected by the ordinance in question; on the contrary, it
appears from the complaint that the real parties in interest
are the individual members of said organization whose
names are not given. Such being the case, plaintiff
association cannot be in any way adversely affected by the
enforcement of the questioned ordinance, from which it
follows that the complaint does not state a cause of action.
A supplement to the Motion to Dismiss and the Motion to lift
the Preliminary Injunction was subsequently filed on April
21, 1954, wherein defendants' counsel endeavors to
substantiate its previous contention by alleging, among
others, that the ordinance subject of litigation is a valid
legislation and within the power of the Municipal Board to
enact; that the power of the Board to regulate slot machines
is embodied in the Revised Charter of the City of Manila
(section 18-(1) of Republic Act No. 409); that the regulation
of the operation and maintenance of this kind of machine
which they alleged to be inimical to the general welfare of
the population especially the school children, is a lawful
exercise of the police power of the State (section 18-kk),
Republic Act No. 409); and that as it a discretionary function
of the Mayor to deny or issue permits and licenses, he
cannot be compelled by mandamus to issue the same.
Upon defendants' motion, the hearing of the motion to
dismiss was re-set for April 24, 1954, and on that date the
Court granted defendants' counsel a period of 5 days

from April 26, 1954, to file an answer to plaintiff's opposition


to the motions to dismiss and to lift the preliminary
injunction, and another 5 days to plaintiff's counsel to reply,
if necessary.
On May 7, 1954, plaintiff was served with a "Resolucion"
dated April 30, 1954, issued by the trial Judge, wherein the
Court dismissed the complaint and dissolved the injunction
issued thereby on the ground that the City Mayor has
discretionary power to issue or refuse the issuance of a
license or permit, declaring at the same time that Ordinance
No. 3628 is valid and within the power of the Municipal
Board to enact. The motion for reconsideration filed by
plaintiff having been denied, the case was brought to us on
appeal and in this instance plaintiff ascribes to the lower
Court the commission of the following errors:
1. In motu proprio resolving upon the constitutionality or
Ordinance No. 3628 at said stage of the proceeding (before
defendants' answer and hearing on the merits), and
consequently, in dissolving the writ of preliminary
injunction;
2. In finding the Mayor of Manila vested with discretionary
powers to grant or refuse to issue municipal licenses and
permits, and that the same cannot be controlled
by mandamus; and
3. In finding Ordinance No. 3628 valid and constitutional
assuming that it had the power to do so at such stage of the
proceeding.
There is no dispute that the Municipal Board of the City of
Manila passed Ordinance No. 3628 limiting the operation

and maintenance of a certain kind of slot machine to areas


not within the radius of 200 hundred meters from any
church, hospital, institution of learning, public market, plaza
and government buildings and that it increased the annual
fee from P55 to P300 payable in advance. It is likewise clear
that at the expiration of the period allowed the parties
within which to file certain pleadings in connection with
defendants' motion to dismiss, the Court issued a
"Resolucion" dated April 30, 1954, the dispositive part of
which, translated into English, reads as follows:
In view of the foregoing consideration the Court is of
the opinion and consequently declares Ordinance No.
3628 of the City of Manila valid and that the writ of
preliminary injunction issued by this Court shall be
dissolved with costs against plaintiff.
It is to be stated in this connection that defendants did not
file in time their answer to plaintiff's opposition to their two
motions, but on May 4, 1954, and that is undoubtedly the
reason why the Court prepared its Resolution before the
lapse of plaintiff's period to reply if necessary" (which was
conditioned on defendants' pleading which the latter failed
to submit in time), though it was released thereafter, or
on May 7, 1956. It is true that the trial Judge, instead of
ruling on the motion to dismiss on either of the two grounds
stated therein, namely, lack of legal capacity to sue and
failure to state a cause of action, elected to ignore the same
and dismissed the complaint upon its own findings.
However, it is to be remembered that it was only the motion
to dismiss that was set for hearing and that section 3, Rule 8
of the Rules of Court provides for the manner in which such
kind of motion may be resolved:

SEC. 3. Order. After hearing the Court may deny or


grant the motion or allow amendment of pleading, or
may defer the hearing and determination of the
motion until the trial if the ground alleged therein
does not appear to be indubitable.
By arriving at a conclusion upholding the constitutionality of
the ordinance and stating the reasons in support of such
declaration, the lower court though in effect it passed upon
the merits of the case, also assumed the lack of sufficient
cause of action on the part of the plaintiff. Moreover, the
question relative to the constitutionality of a statute or
ordinance is one of law which does not need to be supported
by evidence.
In the complaint filed with the lower court, plaintiff alleged
that it was a non-stock corporation duly organized and
existing in accordance with the laws of the Philippines.
Subsequent inquires from the Securities and Exchange
Commission and the Bureau of Commerce disclosed that the
Recreation and Amusement Association of the Philippines,
Inc., is not registered and does not appear in the files of said
Offices. Most probably, owners and operators of such pinball machines met, put up their set of officers and thus an
association was formed, after which they merely folded their
arms and exerted no further effort to effectuate the
necessary registration that would bestow juridicial
personality upon it. The right to be and to act as a
corporation is not a natural or civil right any person; such
right as well as the right to enjoy the immunities and
privileges resulting from incorporation constitute a franchise
and a corporation, therefore cannot be created except by or
under a special authority from the state (Vol. II, Tolentino's
Commentaries and Jurisprudence on the Commercial Law of
the Philippines, p. 734). When there is no legal organization

of a corporation, the association of a group of men for


business or other endeavors does not absorb the personality
of the group and merge it into the personality of another
separate and independent entity which is not given
corporate life by the mere formation of the group. Such
conglomeration of persons is incompetent to act as a
corporation, cannot create agents, or exercise by itself
authority in its behalf. (See Fay vs. Noble, 7 Cushing (Mass.)
188.)
Section 1-(c), Rule 8 of the Rules of Court provides for the
grounds upon which an action may be dismissed upon
motion of defendant and one of them is "that the plaintiff
has no legal capacity to sue." The City Fiscal rightly
capitalized on this basis because as far as the Court was
concerned, appellant herein, being an association not
organized as a juridicial entity, did not possess the
personality to conduct or maintain an action. The term "lack
of legal capacity to sue" means either that the plaintiff does
not have the necessary qualifications to appear in the case .
. . or when he does not have the character or representation
which he claims, as, when he is not a duly appointed
executor or administrator of the estate he purports to
represent, or that the plaintiff is not a corporation duly
registered in accordance with law. (I Moran's Comments on
the Rules of Court, p. 168, 1952 ed.)
It may be argued that under the law plaintiff could be
considered as a civil association, but in this case plaintiffappellant does not claim to be a civil association but a
corporation and as such it has no capacity to sue.
If from the records of the case We shall find, as We do: (1)
that plaintiff has no legal capacity to sue; (2) that the
complaint states no cause of action; and (3) that a proper

and adequate interpretation of section 18, paragraph (1)


and (kk) of Republic Act No. 409, would lead Us to conclude
that Ordinance No. 3628 of the City of Manila is valid, would
We be justified in annuling or setting aside the order of the
Court dismissing this case, just because it was issued before
the filing of defendants' answer and before hearing on the
merits but after defendants had submitted their motion to
dismiss and argued maintaining the constitutionality of said
ordinance? On the strenght of the foregoing considerations,
the answer is obviously in the negative.

1) In RTC Civil Case No. 802-84-C: Rebecca


Boyer-Roxas and all persons claiming under
her to:
a) Immediately vacate the residential house
near the Balugbugan pool located inside the
premises of the Hidden Valley Springs Resort
at Limao, Calauan, Laguna;

Wherefore, the order appealed from is hereby affirmed, with


costs against appellant. It is so ordered.

b) Pay the plaintiff the amount of P300.00 per


month from September 10, 1983, for her
occupancy of the residential house until the
same is vacated;

Montemayor, Reyes, A., Bautista Angelo, Labrador,


Concepcion and Endencia, JJ., concur.
Paras, C.J., Bengzon and Padilla, JJ., concur in the result.

c) Remove the unfinished building erected on


the land of the plaintiff within ninety (90) days
from receipt of this decision;

BOYER-ROXAS v CA

d) Pay the plaintiff the amount of P100.00 per


month from September 10, 1983, until the
said unfinished building is removed from the
land of the plaintiff; and

GUTIERREZ, JR., J.:


This is a petition to review the decision and resolution of the
Court of Appeals in CA-G.R. No. 14530 affirming the earlier
decision of the Regional Trial Court of Laguna, Branch 37, at
Calamba, in the consolidated RTC Civil Case Nos. 802-84-C
and 803-84-C entitled "Heirs of Eugenia V. Roxas, Inc. v.
Rebecca Boyer-Roxas" and Heirs of Eugenia V. Roxas, Inc. v.
Guillermo Roxas," the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is
hereby rendered in favor of the plaintiff and
against the defendants, by ordering as it is
hereby ordered that:

e) Pay the costs.


2) In RTC Civil Case No. 803-84-C: Guillermo
Roxas and all persons claiming under him to:
a) Immediately vacate the residential house
near the tennis court located within the
premises of the Hidden Valley Springs Resort
at Limao, Calauan, Laguna;

b) Pay the plaintiff the amount of P300.00 per


month from September 10, 1983, for his
occupancy of the said residential house until
the same is vacated; and

In both cases, the respondent corporation alleged that the


petitioners never paid rentals for the use of the buildings
and the lots and that they ignored the demand letters for
them to vacate the buildings.

c) Pay the costs. (Rollo, p. 36)

In their separate answers, the petitioners traversed the


allegations in the complaint by stating that they are heirs of
Eugenia V. Roxas and therefore, co-owners of the Hidden
Valley Springs Resort; and as co-owners of the property,
they have the right to stay within its premises.

In two (2) separate complaints for recovery of possession


filed with the Regional Trial Court of Laguna against
petitioners Rebecca Boyer-Roxas and Guillermo Roxas
respectively, respondent corporation, Heirs of Eugenia V.
Roxas, Inc., prayed for the ejectment of the petitioners from
buildings inside the Hidden Valley Springs Resort located at
Limao, Calauan, Laguna allegedly owned by the respondent
corporation.
In the case of petitioner Rebecca Boyer-Roxas (Civil Case
No-802-84-C), the respondent corporation alleged that
Rebecca is in possession of two (2) houses, one of which is
still under construction, built at the expense of the
respondent corporation; and that her occupancy on the two
(2) houses was only upon the tolerance of the respondent
corporation.
In the case of petitioner Guillermo Roxas (Civil Case No. 80384-C), the respondent corporation alleged that Guillermo
occupies a house which was built at the expense of the
former during the time when Guillermo's father, Eriberto
Roxas, was still living and was the general manager of the
respondent corporation; that the house was originally
intended as a recreation hall but was converted for the
residential use of Guillermo; and that Guillermo's possession
over the house and lot was only upon the tolerance of the
respondent corporation.

The cases were consolidated and tried jointly.


At the pre-trial, the parties limited the issues as follows:
1) whether plaintiff is entitled to recover the
questioned premises;
2) whether plaintiff is entitled to reasonable
rental for occupancy of the premises in
question;
3) whether the defendant is legally authorized
to pierce the veil of corporate fiction and
interpose the same as a defense in an accion
publiciana;
4) whether the defendants are truly builders
in good faith, entitled to occupy the
questioned premises;
5) whether plaintiff is entitled to damages and
reasonable compensation for the use of the
questioned premises;

6) whether the defendants are entitled to


their counterclaim to recover moral and
exemplary damages as well as attorney's fees
in the two cases;

To support the complaints, the plaintiff offered


the testimonies of Maria Milagros Roxas and
that of Victoria Roxas Villarta as well as
Exhibits "A" to "M-3".

7) whether the presence and occupancy by


the defendants on the premises in questioned
(sic) hampers, deters or impairs plaintiff's
operation of Hidden Valley Springs Resort; and

The evidence of the plaintiff established the


following: that the plaintiff, Heirs of Eugenia V
Roxas, Incorporated, was incorporated on
December 4, 1962 (Exh. "C") with the primary
purpose of engaging in agriculture to develop
the properties inherited from Eugenia V. Roxas
and that of y Eufrocino Roxas; that the Articles
of Incorporation of the plaintiff, in 1971, was
amended to allow it to engage in the resort
business (Exh.
"C-1"); that the incorporators as original
members of the board of directors of the
plaintiff were all members of the same family,
with Eufrocino Roxas having the biggest
share; that accordingly, the plaintiff put up a
resort known as Hidden Valley Springs Resort
on a portion of its land located at Bo. Limao,
Calauan, Laguna, and covered by TCT No.
32639 (Exhs. "A" and "A-l"); that
improvements were introduced in the resort
by the plaintiff and among them were
cottages, houses or buildings, swimming
pools, tennis court, restaurant and open
pavilions; that the house near the Balugbugan
Pool (Exh. "B-l") being occupied by Rebecca B.
Roxas was originally intended as staff house
but later used as the residence of Eriberto
Roxas, deceased husband of the defendant
Rebecca Boyer-Roxas and father of Guillermo
Roxas; that this house presently being

8) whether or not a unilateral and sudden


withdrawal of plaintiffs tolerance allowing
defendants' occupancy of the premises in
questioned (sic) is unjust enrichment.
(Original Records, 486)
Upon motion of the plaintiff respondent corporation,
Presiding Judge Francisco Ma. Guerrero of Branch 34 issued
an Order dated April 25, 1986 inhibiting himself from further
trying the case. The cases were re-raffled to Branch 37
presided by Judge Odilon Bautista. Judge Bautista continued
the hearing of the cases.
For failure of the petitioners (defendants below) and their
counsel to attend the October 22, 1986 hearing despite
notice, and upon motion of the respondent corporation, the
court issued on the same day, October 22, 1986, an Order
considering the cases submitted for decision. At this stage
of the proceedings, the petitioners had not yet presented
their evidence while the respondent corporation had
completed the presentation of its evidence.
The evidence of the respondent corporation upon which the
lower court based its decision is as follows:

occupied by Rebecca B. Roxas was built from


corporate funds; that the construction of the
unfinished house (Exh. "B-2") was started by
the defendant Rebecca Boyer-Roxas and her
husband Eriberto Roxas; that the third
building (Exh. "B-3") presently being occupied
by Guillermo Roxas was originally intended as
a recreation hall but later converted as a
residential house; that this house was built
also from corporate funds; that the said house
occupied by Guillermo Roxas when it was
being built had nipa roofing but was later
changed to galvanized iron sheets; that at the
beginning, it had no partition downstairs and
the second floor was an open space; that the
conversion from a recreation hall to a
residential house was with the knowledge of
Eufrocino Roxas and was not objected to by
any of the Board of Directors of the plaintiff;
that most of the materials used in converting
the building into a residential house came
from the materials left by Coppola, a film
producer, who filmed the movie "Apocalypse
Now"; that Coppola left the materials as part
of his payment for rents of the rooms that he
occupied in the resort; that after the said
recreation hall was converted into a
residential house, defendant Guillermo Roxas
moved in and occupied the same together
with his family sometime in 1977 or 1978;
that during the time Eufrocino Roxas was still
alive, Eriberto Roxas was the general
manager of the corporation and there was
seldom any board meeting; that Eufrocino
Roxas together with Eriberto Roxas were (sic)

the ones who were running the corporation;


that during this time, Eriberto Roxas was the
restaurant and wine concessionaire of the
resort; that after the death of Eufrocino Roxas,
Eriberto Roxas continued as the general
manager until his death in 1980; that after
the death of Eriberto Roxas in 1980, the
defendants Rebecca B. Roxas and Guillermo
Roxas, committed acts that impeded the
plaintiff's expansion and normal operation of
the resort; that the plaintiff could not even
use its own pavilions, kitchen and other
facilities because of the acts of the
defendants which led to the filing of criminal
cases in court; that cases were even filed
before the Ministry of Tourism, Bureau of
Domestic Trade and the Office of the President
by the parties herein; that the defendants
violated the resolution and orders of the
Ministry of Tourism dated July 28, 1983,
August 3, 1983 and November 26, 1984
(Exhs. "G", "H" and "H-l") which ordered them
or the corporation they represent to desist
from and to turn over immediately to the
plaintiff the management and operation of the
restaurant and wine outlets of the said resort
(Exh. "G-l"); that the defendants also violated
the decision of the Bureau of Domestic Trade
dated October 23, 1983 (Exh. "C"); that on
August 27, 1983, because of the acts of the
defendants, the Board of Directors of the
plaintiff adopted Resolution No. 83-12 series
of 1983 (Exh. "F") authorizing the ejectment
of the defendants from the premises occupied
by them; that on September 1, 1983, demand

letters were sent to Rebecca Boyer-Roxas and


Guillermo Roxas (Exhs. "D" and "D-1")
demanding that they vacate the respective
premises they occupy; and that the dispute
between the plaintiff and the defendants was
brought before the barangay level and the
same was not settled (Exhs. "E" and "E-l").
(Original Records, pp. 454-456)
The petitioners appealed the decision to the Court of
Appeals. However, as stated earlier, the appellate court
affirmed the lower court's decision. The Petitioners' motion
for reconsideration was likewise denied.
Hence, this petition.
In a resolution dated February 5, 1992, we gave due course
to the petition.
The petitioners now contend:
I Respondent Court erred when it refused to pierce the veil
of corporate fiction over private respondent and maintain
the petitioners in their possession and/or occupancy of the
subject premises considering that petitioners are owners of
aliquot part of the properties of private respondent. Besides,
private respondent itself discarded the mantle of corporate
fiction by acts and/or omissions of its board of directors
and/or stockholders.
II The respondent Court erred in not holding that petitioners
were in fact denied due process or their day in court brought
about by the gross negligence of their former counsel.

III The respondent Court misapplied the law when it ordered


petitioner Rebecca Boyer-Roxas to remove the unfinished
building in RTC Case No. 802-84-C, when the trial court
opined that she spent her own funds for the construction
thereof. (CA Rollo, pp. 17-18)
Were the petitioners denied due process of law in the lower
court?
After the cases were re-raffled to the sala of Presiding Judge
Odilon Bautista of Branch 37 the following events
transpired:
On July 3, 1986, the lower court issued an Order setting the
hearing of the cases on July 21, 1986. Petitioner Rebecca V.
Roxas received a copy of the Order on July 15, 1986, while
petitioner Guillermo Roxas received his copy on July 18,
1986. Atty. Conrado Manicad, the petitioners' counsel
received another copy of the Order on July 11, 1986.
(Original Records, p. 260)
On motion of the respondent corporation's counsel, the
lower court issued an Order dated July 15, 1986 cancelling
the July 21, 1986 hearing and resetting the hearing to
August 11, 1986. (Original records, 262-263) Three separate
copies of the order were sent and received by the
petitioners and their counsel. (Original Records, pp. 268,
269, 271)
A motion to cancel and re-schedule the August 11, 1986
hearing filed by the respondent corporation's counsel was
denied in an Order dated August 8, 1986. Again separate
copies of the Order were sent and received by the

petitioners and their counsel. (Original Records, pp. 276279)

on August 26, 1986, and Atty. Conrado Manicad on


September 19, 1986. (Original Records, pp. 288-290)

At the hearing held on August 11, 1986, only Atty. Benito P.


Fabie, counsel for the respondent corporation appeared.
Neither the petitioners nor their counsel appeared despite
notice of hearing. The lower court then issued an Order on
the same date, to wit:

On September 1, 1986, the respondent corporation filed its


"Formal Offer of Evidence." In an Order dated September 29,
1986, the lower court issued an Order admitting exhibits "A"
to "M-3" submitted by the respondent corporation in its
"Formal Offer of Evidence . . . there being no objection . . ."
(Original Records, p. 418) Copies of this Order were sent and
received by the petitioners and their counsel on the
following dates: Rebecca Boyer-Roxas on October 9, 1986;
Guillermo Roxas on October 9, 1986 and Atty. Conrado
Manicad on October 4, 1986 (Original Records, pp. 420, 421,
428).

ORDER
When these cases were called for
continuation of trial, Atty. Benito P. Fabie
appeared before this Court, however, the
defendants and their lawyer despite receipt of
the Order setting the case for hearing today
failed to appear. On Motion of Atty. Fabie,
further cross examination of witness Victoria
Vallarta is hereby considered as having been
waived.
The plaintiff is hereby given twenty (20) days
from today within which to submit formal offer
of evidence and defendants are also given ten
(10) days from receipt of such formal offer of
evidence to file their objection thereto.
In the meantime, hearing in these cases is set
to September 29, 1986 at 10:00 o'clock in the
morning. (Original Records, p. 286)
Copies of the Order were sent and received by the
petitioners and their counsel on the following dates
Rebecca Boyer-Roxas on August 20, 1986, Guillermo Roxas

The scheduled hearing on September 29, 1986 did not push


through as the petitioners and their counsel were not
present prompting Atty. Benito Fabie, the respondent
corporation's counsel to move that the cases be submitted
for decision. The lower court denied the motion and set the
cases for hearing on October 22, 1986. However, in its Order
dated September 29, 1986, the court warned that in the
event the petitioners and their counsel failed to appear on
the next scheduled hearing, the court shall consider the
cases submitted for decision based on the evidence on
record. (Original Records, p. 429, 430 and 431)
Separate copies of this Order were sent and received by the
petitioners and their counsel on the following dates:
Rebecca Boyer-Roxas on October 9, 1986, Guillermo Roxas
on October 9, 1986; and Atty. Conrado Manicad on October
1, 1986. (Original Records, pp. 429-430)

Despite notice, the petitioners and their counsel again failed


to attend the scheduled October 22, 1986 hearing. Atty.
Fabie representing the respondent corporation was present.
Hence, in its Order dated October 22, 1986, on motion of
Atty. Fabie and pursuant to the order dated September 29,
1986, the Court considered the cases submitted for
decision. (Original Records, p. 436)
On November 14, 1986, the respondent corporation, filed a
"Manifestation", stating that ". . . it is submitting without
further argument its "Opposition to the Motion for
Reconsideration" for the consideration of the Honorable
Court in resolving subject incident." (Original Records, p.
442)
On December 16, 1986, the lower court issued an Order, to
wit:
ORDER
Considering that the Court up to this date has
not received any Motion for Reconsideration
filed by the defendants in the above-entitled
cases, the Court cannot act on the Opposition
to Motion for Reconsideration filed by the
plaintiff and received by the Court on
November 14, 1986. (Original Records, p.
446)
On January 15, 1987, the lower court rendered the
questioned decision in the two (2) cases. (Original Records,
pp. 453-459)

On January 20, 1987, Atty. Conrado Manicad, the petitioners'


counsel filed an Ex-Parte Manifestation and attached
thereto, a motion for reconsideration of the October 22,
1986 Order submitting the cases for decision. He prayed
that the Order be set aside and the cases be re-opened for
reception of evidence for the petitioners. He averred that: 1)
within the reglementary period he prepared the motion for
reconsideration and among other documents, the draft was
sent to his law office thru his messenger; after signing the
final copies, he caused the service of a copy to the
respondent corporation's counsel with the instruction that
the copy of the Court be filed; however, there was a
miscommunication between his secretary and messenger in
that the secretary mailed the copy for the respondent
corporation's counsel and placed the rest in an envelope for
the messenger to file the same in court but the messenger
thought that it was the secretary who would file it; it was
only later on when it was discovered that the copy for the
Court has not yet been filed and that such failure to file the
motion for reconsideration was due to excusable neglect
and/or accident. The motion for reconsideration contained
the following allegations: that on the date set for hearing
(October 22, 1986), he was on his way to Calamba to attend
the hearing but his car suffered transmission breakdown;
and that despite efforts to repair said transmission, the car
remained inoperative resulting in his absence at the said
hearing. (Original Records, pp. 460-469)
On February 3, 1987, Atty. Manicad filed a motion for
reconsideration of the January 15, 1987 decision. He
explained that he had to file the motion because the
receiving clerk refused to admit the motion for
reconsideration attached to the ex-partemanifestation
because there was no proof of service to the other party.
Included in the motion for reconsideration was a notice of

hearing of the motion on February 3, 1987. (Original


Records, p. 476-A)

records reveal that on March 13, 1987, the lower court


issued an Order denying the motion for reconsideration.

On February 4, 1987, the respondent corporation through its


counsel filed a Manifestation and Motion manifesting that
they received the copy of the motion for reconsideration
only today (February 4, 1987), hence they prayed for the
postponement of the hearing. (Original Records, pp. 478479)

The well-settled doctrine is that the client is bound by the


mistakes of his lawyer. (Aguila v. Court of First Instance of
Batangas, Branch I, 160 SCRA 352 [1988]; See also Vivero v.
Santos, et al., 98 Phil. 500 [1956]; Isaac v. Mendoza, 89 Phil.
279 [1951]; Montes v. Court of First Instance of Tayabas, 48
Phil. 640 [1926]; People v. Manzanilla, 43 Phil. 167 [1922];
United States v. Dungca, 27 Phil. 274 [1914]; and United
States v. Umali, 15 Phil. 33 [1910]) This rule, however, has
its exceptions. Thus, in several cases, we ruled that the
party is not bound by the actions of his counsel in case the
gross negligence of the counsel resulted in the client's
deprivation of his property without due process of law. In the
case of Legarda v. Court of Appeals (195 SCRA 418 [1991]),
we said:

On the same day, February 4, 1987, the lower court issued


an Order setting the hearing on February 13, 1987 on the
ground that it received the motion for reconsideration late.
Copies of this Order were sent separately to the petitioners
and their counsel. The records show that Atty. Manicad
received his copy on February 11, 1987. As regards the
petitioners, the records reveal that Rebecca Boyer-Roxas did
not receive her copy while as regards Guillermo Roxas,
somebody signed for him but did not indicate when the copy
was received. (Original Records, pp. 481-483)
At the scheduled February 13, 1987 hearing, the counsels
for the parties were present. However, the hearing was reset
for March 6, 1987 in order to allow the respondent
corporation to file its opposition to the motion for
reconsideration. (Order dated February 13, 1987, Original
Records, p. 486) Copies of the Order were sent and received
by the petitioners and their counsel on the following dates:
Rebecca Boyer-Roxas on February 23, 1987; Guillermo Roxas
on February 23, 1987 and Atty. Manicad on February 19,
1987. (Original Records, pp. 487, 489-490)
The records are not clear as to whether or not the scheduled
hearing on March 6, 1987 was held. Nevertheless, the

In People's Homesite & Housing Corp. v.


Tiongco and Escasa (12 SCRA 471 [1964]),
this Court ruled as follows:
Procedural technicality should
not be made a bar to the
vindication of a legitimate
grievance. When such
technicality deserts from being
an aid to Justice, the courts are
justified in excepting from its
operation a particular case.
Where there was something
fishy and suspicious about the
actuations of the former
counsel of petitioners in the
case at bar, in that he did not

give any significance at all to


the processes of the court,
which has proven prejudicial to
the rights of said clients, under
a lame and flimsy explanation
that the court's processes just
escaped his attention, it is held
that said lawyer deprived his
clients of their day in court,
thus entitling said clients to
petition for relief from judgment
despite the lapse of the
reglementary period for filing
said period for filing said
petition.

that, while as a rule, clients are


bound by the mistake of their
counsel, the rule should not be
applied automatically to their
case, as their trial counsel's
blunder in procedure and gross
ignorance of existing
jurisprudence changed their
cause of action and violated
their substantial rights.

In Escudero v. Judge Dulay (158 SCRA 69


[1988]), this Court, in holding that the
counsel's blunder in procedure is an exception
to the rule that the client is bound by the
mistakes of counsel, made the following
disquisition:

While this Court is cognizant of


the rule that, generally, a client
will suffer consequences of the
negligence, mistake or lack of
competence of his counsel, in
the interest of Justice and
equity, exceptions may be
made to such rule, in
accordance with the facts and
circumstances of each case.
Adherence to the general rule
would, in the instant case,
result in the outright
deprivation of their property
through a technicality.

Petitioners contend, through


their new counsel, that the
judgment rendered against
them by the respondent court
was null and void, because they
were therein deprived of their
day in court and divested of
their property without due
process of law, through the
gross ignorance, mistake and
negligence of their previous
counsel. They acknowledge

We are impressed with


petitioner's contentions.
xxx xxx xxx

In its questioned decision dated November 19,


1989 the Court of Appeals found, in no

uncertain terms, the negligence of the then


counsel for petitioners when he failed to file
the proper motion to dismiss or to draw a
compromise agreement if it was true that
they agreed on a settlement of the case; or in
simply filing an answer; and that after having
been furnished a copy of the decision by the
court he failed to appeal therefrom or to file a
petition for relief from the order declaring
petitioners in default. In all these instances
the appellate court found said counsel
negligent but his acts were held to bind his
client, petitioners herein, nevertheless.
The Court disagrees and finds that the
negligence of counsel in this case appears to
be so gross and inexcusable. This was
compounded by the fact, that after petitioner
gave said counsel another chance to make up
for his omissions by asking him to file a
petition for annulment of the judgment in the
appellate court, again counsel abandoned the
case of petitioner in that after he received a
copy of the adverse judgment of the appellate
court, he did not do anything to save the
situation or inform his client of the judgment.
He allowed the judgment to lapse and
become final. Such reckless and gross
negligence should not be allowed to bind the
petitioner. Petitioner was thereby effectively
deprived of her day in court. (at pp. 426-427)
The herein petitioners, however, are not similarly situated as
the parties mentioned in the abovecited cases. We cannot

rule that they, too, were victims of the gross negligence of


their counsel.
The petitioners are to be blamed for the October 22, 1986
order issued by the lower court submitting the cases for
decision. They received notices of the scheduled hearings
and yet they did not do anything. More specifically, the
parties received notice of the Order dated September 29,
1986 with the warning that if they fail to attend the October
22, 1986 hearing, the cases would be submitted for decision
based on the evidence on record. Earlier, at the scheduled
hearing on September 29, 1986, the counsel for the
respondent corporation moved that the cases be submitted
for decision for failure of the petitioners and their counsel to
attend despite notice. The lower court denied the motion
and gave the petitioners and their counsel another chance
by rescheduling the October 22, 1986 hearing.
Indeed, the petitioners knew all along that their counsel was
not attending the scheduled hearings. They did not take
steps to change their counsel or make him attend to their
cases until it was too late. On the contrary, they continued
to retain the services of Atty. Manicad knowing fully well his
lapses vis-a-vis their cases. They, therefore, cannot raise the
alleged gross negligence of their counsel resulting in their
denial of due process to warrant the reversal of the lower
court's decision. In a similar case, Aguila v. Court of First
Instance of Batangas, Branch 1 (supra), we ruled:
In the instant case, the petitioner should have
noticed the succession of errors committed by
his counsel and taken appropriate steps for
his replacement before it was altogether too
late. He did not. On the contrary, he
continued to retain his counsel through the

series of proceedings that all resulted in the


rejection of his cause, obviously through such
counsel's "ineptitude" and, let it be added, the
clients' forbearance. The petitioner's reverses
should have cautioned him that his lawyer
was mishandling his case and moved him to
seek the help of other counsel, which he did
in the end but rather tardily.
Now petitioner wants us to nullify all of the
antecedent proceedings and recognize his
earlier claims to the disputed property on the
justification that his counsel was grossly inept.
Such a reason is hardly plausible as the
petitioner's new counsel should know.
Otherwise, all a defeated party would have to
do to salvage his case is claim neglect or
mistake on the part of his counsel as a ground
for reversing the adverse judgment. There
would be no end to litigation if these were
allowed as every shortcoming of counsel
could be the subject of challenge by his client
through another counsel who, if he is also
found wanting, would likewise be disowned by
the same client through another counsel, and
so on ad infinitum. This would render court
proceedings indefinite, tentative and subject
to reopening at any time by the mere
subterfuge of replacing counsel. (at pp. 357358)
We now discuss the merits of the cases.
In the first assignment of error, the petitioners maintain that
their possession of the questioned properties must be

respected in view of their ownership of an aliquot portion of


all the properties of the respondent corporation being
stockholders thereof. They propose that the veil of corporate
fiction be pierced, considering the circumstances under
which the respondent corporation was formed.
Originally, the questioned properties belonged to Eugenia V.
Roxas. After her death, the heirs of Eugenia V. Roxas, among
them the petitioners herein, decided to form a corporation
Heirs of Eugenia V. Roxas, Incorporated (private
respondent herein) with the inherited properties as capital of
the corporation. The corporation was incorporated on
December 4, 1962 with the primary purpose of engaging in
agriculture to develop the inherited properties. The Articles
of Incorporation of the respondent corporation were
amended in 1971 to allow it to engage in the resort
business. Accordingly, the corporation put up a resort known
as Hidden Valley Springs Resort where the questioned
properties are located.
These facts, however, do not justify the position taken by
the petitioners.
The respondent is a bona fide corporation. As such, it has a
juridical personality of its own separate from the members
composing it. (Western Agro Industrial Corporation v. Court
of Appeals, 188 SCRA 709 [1990]; Tan Boon Bee & Co., Inc.
v. Jarencio, 163 SCRA 205 [1988]; Yutivo Sons Hardware
Company v. Court of Tax Appeals, 1 SCRA 160 [1961]; Emilio
Cano Enterprises, Inc. v. Court of Industrial Relations, 13
SCRA 290 [1965]) There is no dispute that title over the
questioned land where the Hidden Valley Springs Resort is
located is registered in the name of the corporation. The
records also show that the staff house being occupied by
petitioner Rebecca Boyer-Roxas and the recreation hall

which was later on converted into a residential house


occupied by petitioner Guillermo Roxas are owned by the
respondent corporation. Regarding properties owned by a
corporation, we stated in the case of Stockholders of F.
Guanzon and Sons, Inc. v. Register of Deeds of Manila, (6
SCRA 373 [1962]):
xxx xxx xxx
. . . Properties registered in the name of the
corporation are owned by it as an entity
separate and distinct from its members. While
shares of stock constitute personal property,
they do not represent property of the
corporation. The corporation has property of
its own which consists chiefly of real estate
(Nelson v. Owen, 113 Ala., 372, 21 So. 75;
Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A
share of stock only typifies an aliquot part of
the corporation's property, or the right to
share in its proceeds to that extent when
distributed according to law and equity (Hall &
Faley v. Alabama Terminal, 173 Ala., 398, 56
So. 235), but its holder is not the owner of any
part of the capital of the corporation (Bradley
v. Bauder, 36 Ohio St., 28). Nor is he entitled
to the possession of any definite portion of its
property or assets (Gottfried V. Miller, 104
U.S., 521; Jones v. Davis, 35 Ohio St., 474).
The stockholder is not a co-owner or tenant in
common of the corporate property (Harton v.
Johnston, 166 Ala., 317, 51 So. 992). (at pp.
375-376)

The petitioners point out that their occupancy of the staff


house which was later used as the residence of Eriberto
Roxas, husband of petitioner Rebecca Boyer-Roxas and the
recreation hall which was converted into a residential house
were with the blessings of Eufrocino Roxas, the deceased
husband of Eugenia V. Roxas, who was the majority and
controlling stockholder of the corporation. In his lifetime,
Eufrocino Roxas together with Eriberto Roxas, the husband
of petitioner Rebecca Boyer-Roxas, and the father of
petitioner Guillermo Roxas managed the corporation. The
Board of Directors did not object to such an arrangement.
The petitioners argue that . . . the authority thus given by
Eufrocino Roxas for the conversion of the recreation hall into
a residential house can no longer be questioned by the
stockholders of the private respondent and/or its board of
directors for they impliedly but no leas explicitly delegated
such authority to said Eufrocino Roxas. (Rollo, p. 12)
Again, we must emphasize that the respondent corporation
has a distinct personality separate from its members. The
corporation transacts its business only through its officers or
agents. (Western Agro Industrial Corporation v. Court of
Appeals, supra). Whatever authority these officers or agents
may have is derived from the board of directors or other
governing body unless conferred by the charter of the
corporation. An officer's power as an agent of the
corporation must be sought from the statute, charter, the
by-laws or in a delegation of authority to such officer, from
the acts of the board of directors, formally expressed or
implied from a habit or custom of doing business. (Vicente v.
Geraldez, 52 SCRA 210 [1973])
In the present case, the record shows that Eufrocino V.
Roxas who then controlled the management of the
corporation, being the majority stockholder, consented to

the petitioners' stay within the questioned properties.


Specifically, Eufrocino Roxas gave his consent to the
conversion of the recreation hall to a residential house, now
occupied by petitioner Guillermo Roxas. The Board of
Directors did not object to the actions of Eufrocino Roxas.
The petitioners were allowed to stay within the questioned
properties until August 27, 1983, when the Board of
Directors approved a Resolution ejecting the petitioners, to
wit:
R E S O L U T I O N No. 83-12
RESOLVED, That Rebecca B. Roxas and
Guillermo Roxas, and all persons claiming
under them, be ejected from their occupancy
of the Hidden Valley Springs compound on
which their houses have been constructed
and/or are being constructed only on
tolerance of the Corporation and without any
contract therefor, in order to give way to the
Corporation's expansion and improvement
program and obviate prejudice to the
operation of the Hidden Valley Springs Resort
by their continued interference.
RESOLVED, Further that the services of Atty.
Benito P. Fabie be engaged and that he be
authorized as he is hereby authorized to
effect the ejectment, including the filing of the
corresponding suits, if necessary to do so.
(Original Records, p. 327)
We find nothing irregular in the adoption of the Resolution
by the Board of Directors. The petitioners' stay within the

questioned properties was merely by tolerance of the


respondent corporation in deference to the wishes of
Eufrocino Roxas, who during his lifetime, controlled and
managed the corporation. Eufrocino Roxas' actions could not
have bound the corporation forever. The petitioners have
not cited any provision of the corporation by-laws or any
resolution or act of the Board of Directors which authorized
Eufrocino Roxas to allow them to stay within the company
premises forever. We rule that in the absence of any existing
contract between the petitioners and the respondent
corporation, the corporation may elect to eject the
petitioners at any time it wishes for the benefit and interest
of the respondent corporation.
The petitioners' suggestion that the veil of the corporate
fiction should be pierced is untenable. The separate
personality of the corporation may be disregarded only
when the corporation is used "as a cloak or cover for fraud
or illegality, or to work injustice, or where necessary to
achieve equity or when necessary for the protection of the
creditors." (Sulong Bayan, Inc. v. Araneta, Inc., 72 SCRA 347
[1976] cited in Tan Boon Bee & Co., Inc., v.
Jarencio, supra and Western Agro Industrial Corporation v.
Court of Appeals, supra) The circumstances in the present
cases do not fall under any of the enumerated categories.
In the third assignment of error, the petitioners insist that as
regards the unfinished building, Rebecca Boyer-Roxas is a
builder in good faith.
The construction of the unfinished building started when
Eriberto Roxas, husband of Rebecca Boyer-Roxas, was still
alive and was the general manager of the respondent
corporation. The couple used their own funds to finance the
construction of the building. The Board of Directors of the

corporation, however, did not object to the construction.


They allowed the construction to continue despite the fact
that it was within the property of the corporation. Under
these circumstances, we agree with the petitioners that the
provision of Article 453 of the Civil Code should have been
applied by the lower courts.
Article 453 of the Civil Code provides:
If there was bad faith, not only on the part of
the person who built, planted or sown on the
land of another but also on the part of the
owner of such land, the rights of one and the
other shall be the same as though both had
acted in good faith.
In such a case, the provisions of Article 448 of the Civil
Code govern the relationship between petitioner RebeccaBoyer-Roxas and the respondent corporation, to wit:

proper indemnity. The parties shall agree


upon the terms of the lease and in case of
disagreement, the court shall fix the terms
thereof.
WHEREFORE, the present petition is partly GRANTED. The
questioned decision of the Court of Appeals affirming the
decision of the Regional Trial Court of Laguna, Branch 37, in
RTC Civil Case No. 802-84-C is MODIFIED in that
subparagraphs (c) and (d) of Paragraph 1 of the dispositive
portion of the decision are deleted. In their stead, the
petitioner Rebecca Boyer-Roxas and the respondent
corporation are ordered to follow the provisions of Article
448 of the Civil Code as regards the questioned unfinished
building in RTC Civil Case No. 802-84-C. The questioned
decision is affirmed in all other respects.
SO ORDERED.
REPUBLIC v COALBRINE INTERNATIONAL

Art. 448 The owner of the land on which


anything has been built, sown or planted in
good faith, shall have the right to appropriate
as his own the works, sowing or planting after
payment of the indemnity provided for in
articles 546 and 548, or to oblige the one who
built or planted to pay the price of the land,
and the one who sowed, the proper rent.
However, the builder or planter cannot be
obliged to buy the land if its value is
considerably more than that of the building or
trees. In such case, he shall pay reasonable
rent, if the owner of the land does not choose
to appropriate the buildings or trees after

PERALTA, J.:
Assailed in this petition for review on certiorari filed by
petitioner is the Decision[1] dated January 21, 2004 of the
Court of Appeals in CA-G.R. SP No 74667, which affirmed the
Order[2] dated September 24, 2002 of the Regional Trial
Court (RTC) of Balanga, Bataan, in Civil Case No. 548-ML,
denying petitioner's Motion to Dismiss.
The Export Processing Zone Authority (EPZA), predecessor
of the Philippine Economic Zone Authority (PEZA), is the
owner of the Bataan Hilltop Hotel and Country Club, located
at
the
Bataan
Export
Processing
Zone,
Mariveles, Bataan. Dante M. Quindoza is the Zone
Administrator of the Bataan Economic Zone.

On August 4, 1994, EPZA, now PEZA, and respondent


Coalbrine International Philippines, Inc. entered into a
contract in which the latter would rehabilitate and lease the
Bataan Hilltop Hotel, Golf Course and Clubhouse for twentyfive (25) years, which commenced on January 1, 1994, and
renewable for another twenty-five (25) years at the option
ofrespondent Coalbrine. Respondent Sheila F. Neri was the
Managing Director of the hotel.
On July 11, 1996, the PEZA Board passed Resolution No. 96231 rescinding the contract to rehabilitate and lease, on the
ground of respondent Coalbrine's repeated violations and
non-performance of its obligations as provided in the
contract. Subsequently, PEZA sent respondent Coalbrine a
notice to vacate the premises and to pay its outstanding
obligations to it.
On April 3, 1998, respondent Coalbrine filed with the RTC of
Manila a Complaint for specific performance with prayer for
the issuance of a temporary restraining order (TRO) and/or
writ of preliminary injunction with damages against PEZA
and/or Bataan Economic Zone wherein respondent Coalbrine
sought to declare that PEZA had no valid cause to rescind
the contract to rehabilitate and lease; and to enjoin PEZA
from taking over the hotel and country club and from
disconnecting the water and electric services to the hotel.
The complaint is pending with Branch 17 of the RTC
of Manila.
On April 24, 2002, respondents Coalbrine and Neri filed with
the RTC of Balanga, Bataan, a Complaint for damages with
prayer for the issuance of a TRO and/or writ of preliminary
prohibitory/mandatory injunction against Zone Administrator
Quindoza, docketed as Civil Case No. 548-ML. Respondent
alleged that: in October 2001, Quindoza started to harass
the hotel's operations by causing the excavation of the
entire width of a cross-section of the only road leading to
the hotel for the supposed project of putting up a one length
steel pipe; that such project had been stopped, which,
consequently, paralyzed the hotel's operations; respondent
Neri undertook the construction of a temporary narrow
access ramp in order that the hotel guests and their vehicles
could pass through the wide excavations; Quindoza had also

placed a big ROAD CLOSED sign near the hotel, which


effectively blocked all access to and from the hotel and
created an impression that the hotel had been closed; in the
last week of March 2002, Quindoza cut the pipelines that
supplied water to the hotel to the great inconvenience
of respondents and the hotel guests, and, subsequently, the
pipelines were reconnected. Respondents prayed for the
payment of damages, for the issuance of a TRO and a writ of
preliminary injunction to enjoin Quindoza from cutting or
disconnecting the reconnected water pipelines to the hotel
and from committing further acts of harassment; and to
cause the construction of a reasonable access road at
Quindoza's expense.
Administrator Quindoza, through the Solicitor General, filed
a Motion to Dismiss[3] on the following grounds:
1.
2.
3.
4.
5.

The Honorable Court has no


jurisdiction over the instant case;
The Honorable Court is an improper
venue for the instant case;
Plaintiff (respondent Coalbrine) is
guilty of forum shopping;
With respect to plaintiff (respondent)
Neri, the complaint states no cause of
action against defendant;
The complaint is fatally defective for
being unauthorized.

On September 24, 2002, the RTC issued an Order [4] denying


petitioner's motion to dismiss.

Administrator Quindoza filed a Motion for Reconsideration,


which the RTC denied in its Order [5] dated December 9,
2002.
On January 2, 2003, petitioner Republic of the Philippines,
represented by Dante Quindoza, in his capacity as Zone

Administrator of the Bataan Economic Zone, filed with the


CA a petition for certiorari under Rule 65 seeking to annul
the RTC Orders, reiterating the grounds raised by
Administrator Quindoza in the RTC.
On January 21, 2004, the CA issued its assailed Decision
denying petitioner's petition for certiorari for lack of merit.
Hence, petitioner is now before us in a petition for review
on certiorari raising the lone issue of respondent Neri's lack
of proof of authority to file the complaint in the RTC of
Balanga, Bataan, which was docketed as Civil Case No. 548ML.
In their Comment, respondents argue that the Republic of
the Philippines was not a party to the civil case subject of
this petition, hence, it has no personality to file the instant
petition for review; that the RTC Order denying the motion
to dismiss the complaint was a mere interlocutory order,
thus, the same is not appealable and not a proper subject of
a petition for certiorari unless it was shown that there was a
grave abuse of discretion in its issuance; that petitioner had
already filed an answer to the complaint incorporating the
grounds stated in their motion to dismiss; and that
respondents had already presented their evidence by way of
an opposition to the motion to dismiss and in support
of their application for the issuance of a writ of preliminary
mandatory injunction.
In its Reply, petitioner argues that it has the personality to
file this petition, since Administrator Quindoza is being sued
for damages for certain acts he performed in an official
capacity; that the denial of petitioner's motion to dismiss
was tainted with grave abuse of discretion, which justified
the filing of a petition for certiorari with the CA. The parties
filed their respective memoranda as required under the
Resolution dated January 26, 2005.
In its Memorandum, petitioner raises the following
arguments, to wit:
THE COMPLAINT IS FATALLY DEFECTIVE
FOR BEING UNAUTHORIZED.

PETITIONER REPUBLIC OF THE PHILIPPINES IS


THE REAL PARTY-IN-INTEREST IN THE CASE AT
BAR.
RESPONDENT JUDGE ACTED WITH GRAVE
ABUSE
OF
DISCRETION
IN
DENYING
PETITIONER'S
MOTION
TO
DISMISS,
NECESSITATING THE FILING OF A PETITION
FOR CERTIORARI UNDER RULE 65 BEFORE
THE HONORABLE COURT OF APPEALS.[6]
Petitioner claims that respondent Neri's signature in the
verification and certification against non-forum shopping
attached to the complaint filed by respondents in the RTC
was defective, since there was no proof of her authority to
institute the complaint on behalf of the corporation; and
that respondent Neri is not a real party-in-interest.
We agree.
The verification and certification against non-forum
shopping reads:
xxxx
That I am the Managing Director of Bataan
Hilltop Hotel and one of the plaintiffs in this
case.[7]
Notably, respondent Neri signed the verification/certification
as one of the plaintiffs. However, we find that respondent
Neri is not a real party-in- interest. Section 2, Rule 3 of the
Rules of Civil Procedure provides:
SEC. 2. Parties-in interest. A real party-ininterest is the party who stands to be benefited
or injured by the judgment in the suit, or the
party entitled to the avails of the suit. Unless
otherwise authorized by law or these Rules,
every action must be prosecuted or defended
in the name of the real party-in-interest.

And interest," within the meaning of the rule, means


material interest, an interest in issue and to be affected by
the decree, as distinguished from mere interest in the
question involved, or a mere incidental interest.[8] Cases
construing the real party-in-interest provision can be more
easily understood if it is borne in mind that the true
meaning of real party-in-interest may be summarized as
follows: An action shall be prosecuted in the name of the
party who, by the substantive law, has the right sought to
be enforced.[9]
The RTC based its conclusion that respondent Neri had a
cause of action against petitioner on the allegations in the
complaint. The CA, however, did not rule on the matter
despite the fact that it was raised in petitioner's petition
for certiorari filed before it and merely said that there was
no necessity to discuss such issue after deciding the other
grounds raised in the petition.
We find the RTC in error. A reading of the allegations
in the complaint shows that the acts complained of and said
to have been committed by petitioner against respondents
have solely affected the hotel's operations where
respondent Neri was the hotel's Managing Director and
whose interest in the suit was incidental. Thus, we find that
respondent Neri has no cause of action against petitioner.
Consequently, the plaintiff in this case would only be
respondent Coalbrine.
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. [10] 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.[11]

In
this
case,
respondent
Coalbrine
is
a
corporation. However, when respondent Neri filed the
complaint in the RTC, there was no proof that she was
authorized to sign the verification and the certification
against non-forum shopping.
The Court has consistently held that the requirement
regarding verification of a pleading is formal, not
jurisdictional. Such requirement is simply a condition
affecting the form of the pleading, non-compliance with
which does not necessarily render the pleading fatally
defective.[12] Verification is simply intended to secure an
assurance that the allegations in the pleading are true and
correct, and not the product of the imagination or a matter
of speculation, and that the pleading is filed in good faith.
The court may order the correction of the pleading if
verification is lacking or act on the pleading although it is
not verified, if the attending circumstances are such that
strict compliance with the rules may be dispensed with in
order that the ends of justice may thereby be served.[13]
On the other hand, the lack of certification against
non-forum shopping is generally not curable by mere
amendment of the complaint, but shall be a cause for the
dismissal of the case without prejudice. [14] The same rule
applies to certifications against non-forum shopping signed
by a person on behalf of a corporation which are
unaccompanied by proof that said signatory is authorized to
file the complaint on behalf of the corporation. [15]
In Philippine Airlines, Inc. v. Flight Attendants and Stewards
Association of the Philippines (FASAP),[16] we ruled that only
individuals vested with authority by a valid board resolution
may sign the certificate of non-forum shopping on behalf of
a corporation. We also required that proof of such authority
must be attached. Failure to provide a certificate of nonforum shopping is sufficient ground to dismiss the petition.
Likewise, the petition is subject to dismissal if a certification
was submitted unaccompanied by proof of signatory's
authority.

While there were instances where we have allowed the filing


of a certificate against non-forum shopping by someone on
behalf of a corporation without the accompanying proof of
authority at the time of its filing, we did so on the basis of a
special circumstance or compelling reason. Moreover, there
was a subsequent compliance by the submission of the
proof of authority attesting to the fact that the person who
signed the certification was duly authorized.
In China Banking Corporation v. Mondragon International
Philippines, Inc.,[17] the CA dismissed the petition filed by
China Bank, since the latter failed to show that its bank
manager who signed the certification against non-forum
shopping was authorized to do so. We reversed the CA and
said that the case be decided on the merits despite the
failure to attach the required proof of authority, since the
board resolution which was subsequently attached
recognized the pre-existing status of the bank manager as
an authorized signatory.
In Abaya
Investments
Corporation
v.
Merit
Philippines,[18] where the complaint before the Metropolitan
Trial Court of Manila was instituted by petitioner's Chairman
and President, Ofelia Abaya, who signed the verification and
certification against non-forum shopping without proof of
authority to sign for the corporation, we also relaxed the
rule. We did so taking into consideration the merits of the
case and to avoid a re-litigation of the issues and further
delay the administration of justice, since the case had
already been decided by the lower courts on the merits.
Moreover, Abaya's authority to sign the certification was
ratified by the Board.
In the present case, the RTC, in denying petitioner's motion
to dismiss the complaint when the latter raised respondent
Neri's lack of authority to sign the certification, found that
respondent Neri testified that she was the Managing
Director of the Bataan Hilltop Hotel which was being leased
by respondent Coalbrine, and that she was authorized by
the Corporate Secretary to file the case. Notably, while the
matter of lack of authority was raised by petitioner in its
petition for certiorari filed with the CA, it chose not to tackle
the issue after disposing of the other issues raised therein.

We cannot agree with the RTC's reasoning and find the


certification signed by respondent Neri to be defective. The
authority of respondent Neri to file the complaint in the RTC
had not been proven. First, the certification against nonforum shopping did not even contain a statement that she
was authorized by the corporate secretary to file the case
on behalf of Coalbrine as she claimed. More importantly,
while she testified that she was authorized by the corporate
secretary, there was no showing that there was a valid
board resolution authorizing the corporate secretary to file
the action, and to authorize respondent Neri to file the
action. In fact, such proof of authority had not been
submitted
even
belatedly
to
show
subsequent
compliance. Thus, there was no reason for the relaxation of
the rule.
As to respondents' claim that petitioner Republic of the
Philippines was not a party to the civil case subject of this
petition since Administrator Quindoza was the sole
defendant therein and, thus, has no personality to file this
petition, their claim is not persuasive.
Notably, Administrator Quindoza was sued for damages for
certain acts that he allegedly committed while he was the
Zone Administrator of the Bataan Export Processing
Zone.Therefore, the complaint is in the nature of suit
against the State, and the Republic has the personality to
file the petition.
Anent respondents' claim that the RTC Order denying a
motion to dismiss is a mere interlocutory order, thus, not
appealable and may not be a subject of a petition
for certiorarifiled by the petitioner before the CA, the same
is also not meritorious.
While indeed, the general rule is that the denial of a motion
to dismiss cannot be questioned in a special civil action
for certiorari, which is not intended to correct every
controversial
interlocutory
ruling,[19] and
that
the
appropriate recourse is to file an answer and to interpose as
defenses the objections raised in the motion, to proceed to
trial, and, in case of an adverse

decision, to elevate the entire case by appeal in due course,


[20]
this rule is not absolute.
Even when appeal is available and is the proper
remedy, the Supreme Court has allowed a writ
of certiorari (1) where the appeal does not constitute a
speedy and adequate remedy; (2) where the orders were
also issued either in excess of or without jurisdiction or with
grave abuse of discretion; (3) for certain special
considerations, as public welfare or public policy; (4) where
in criminal actions, the court rejects rebuttal evidence for
the prosecution as, in case of acquittal, there could be no
remedy; (5) where the order is a patent nullity; and (6)
where the decision in the certiorari case will avoid future
litigations. [21]
In this case, we find that the RTC committed grave abuse of
discretion amounting to lack of jurisdiction when it failed to
consider the lack of proof of authority of respondent Neri to
file the action on behalf of the corporation as we have
discussed above.
WHEREFORE, the petition for review is GRANTED. The
Decision dated January 21, 2004 of the Court of Appeals in
CA-G.R. SP No 74667 is REVERSED and SET ASIDE. The
Complaint in Civil Case No. 548-ML pending in the Regional
Trial
Court,
Branch
4,
Balanga, Bataan,
is
ordered DISMISSED.
SO ORDERED.

government power and individual liberty in tandem


with the archetypal tension between law and
morality.
In City of Manila v. Laguio, Jr.,[1] the Court affirmed the
nullification of a city ordinance barring the operation of
motels and inns, among other establishments, within the
Ermita-Malate area. The petition at bar assails a similarlymotivated city ordinance that prohibits those same
establishments from offering short-time admission, as well
as pro-rated or wash up rates for such abbreviated
stays. Our earlier decision tested the city ordinance against
our sacred constitutional rights to liberty, due process and
equal protection of law. The same parameters apply to the
present petition.
This Petition[2] under Rule 45 of the Revised Rules on Civil
Procedure, which seeks the reversal of the Decision [3] in
C.A.-G.R. S.P. No. 33316 of the Court of Appeals, challenges
the validity of Manila City Ordinance No. 7774 entitled, An
Ordinance Prohibiting Short-Time Admission, Short-Time
Admission Rates, and Wash-Up Rate Schemes in Hotels,
Motels, Inns, Lodging Houses, Pension Houses, and Similar
Establishments in the City of Manila (the Ordinance).

I.
The facts are as follows:
On December 3, 1992, City Mayor Alfredo S. Lim (Mayor
Lim) signed into law the Ordinance. [4] The Ordinance is
reproduced in full, hereunder:

WHITE LIGHT CORP V CITY OF MANILA


TINGA, J.:
With another city ordinance of Manila also principally
involving the tourist district as subject, the Court is
confronted anew with the incessant clash between

SECTION 1. Declaration of Policy. It


is hereby the declared policy of the City
Government to protect the best interest,
health and welfare, and the morality of its
constituents in general and the youth in
particular.

SEC. 2. Title. This ordinance shall


be known as An Ordinance prohibiting
short time admission in hotels, motels,
lodging houses, pension houses and
similar
establishments
in
the
City
of Manila.
SEC. 3. Pursuant to the above policy,
short-time admission and rate [sic], washup rate or other similarly concocted terms,
are hereby prohibited in hotels, motels,
inns, lodging houses, pension houses and
similar establishments in the City of
Manila.
SEC. 4. Definition of Term[s]. Short-time
admission shall mean admittance and
charging of room rate for less than twelve
(12) hours at any given time or the renting
out of rooms more than twice a day or any
other term that may be concocted by
owners
or
managers
of
said
establishments but would mean the same
or would bear the same meaning.
SEC. 5. Penalty Clause. Any person or
corporation who shall violate any provision
of this ordinance shall upon conviction
thereof be punished by a fine of Five
Thousand
(P5,000.00)
Pesos
or
imprisonment for a period of not
exceeding one (1) year or both such fine
and imprisonment at the discretion of the
court; Provided, That in case of [a] juridical
person, the president, the manager, or the
persons in charge of the operation thereof
shall be liable: Provided, further, That in
case of subsequent conviction for the
same offense, the business license of the

guilty party
cancelled.

shall

automatically

be

SEC. 6. Repealing Clause. Any or all


provisions
of
City
ordinances
not
consistent with or contrary to this
measure or any portion hereof are hereby
deemed repealed.
SEC. 7. Effectivity. This ordinance shall
take effect immediately upon approval.
Enacted by the city Council of Manila at its
regular session today, November 10,
1992.
Approved by His Honor,
on December 3, 1992.

the

Mayor

On December 15, 1992, the Malate Tourist and


Development Corporation (MTDC) filed a complaint for
declaratory relief with prayer for a writ of preliminary
injunction and/or temporary restraining order ( TRO)[5] with
the Regional Trial Court (RTC) of Manila, Branch 9 impleading
as defendant, herein respondent City of Manila (the City)
represented by Mayor Lim.[6] MTDC prayed that the
Ordinance, insofar as it includes motels and inns as among
its prohibited establishments, be declared invalid and
unconstitutional. MTDC claimed that as owner and operator
of the Victoria Court in Malate, Manila it was authorized by
Presidential Decree (P.D.) No. 259 to admit customers on a
short time basis as well as to charge customers wash up
rates for stays of only three hours.

On December 21, 1992, petitioners White Light


Corporation (WLC), Titanium Corporation (TC) and Sta. Mesa
Tourist and Development Corporation (STDC) filed a motion
to intervene and to admit attached complaint-inintervention[7] on the ground that the Ordinance directly
affects their business interests as operators of drive-inhotels and motels in Manila.[8] The three companies are
components of the Anito Group of Companies which owns
and operates several hotels and motels in Metro Manila.[9]
On December 23, 1992, the RTC granted the motion
to intervene.[10] The RTC also notified the Solicitor General of
the proceedings pursuant to then Rule 64, Section 4 of the
Rules of Court. On the same date, MTDC moved to withdraw
as plaintiff.[11]
On December 28, 1992, the RTC granted MTDC's motion to
withdraw.[12] The RTC issued a TRO on January 14, 1993,
directing the City to cease and desist from enforcing the
Ordinance.[13] The City filed an Answer dated January 22,
1993 alleging that the Ordinance is a legitimate exercise of
police power.[14]

Accordingly, the preliminary injunction


heretofor
issued
is
hereby
made
permanent.
SO ORDERED.[17]
The RTC noted that the ordinance strikes at the
personal liberty of the individual guaranteed and jealously
guarded by the Constitution.[18] Reference was made to the
provisions of the Constitution encouraging private
enterprises and the incentive to needed investment, as well
as the right to operate economic enterprises. Finally, from
the observation that the illicit relationships the Ordinance
sought to dissuade could nonetheless be consummated by
simply paying for a 12-hour stay, the RTC likened the law to
the ordinance annulled in Ynot v. Intermediate Appellate
Court,[19] where the legitimate purpose of preventing
indiscriminate slaughter of carabaos was sought to be
effected through an inter-province ban on the transport of
carabaos and carabeef.

On February 8, 1993, the RTC issued a writ of preliminary


injunction ordering the city to desist from the enforcement
of the Ordinance.[15] A month later, on March 8, 1993, the
Solicitor General filed his Comment arguing that the
Ordinance is constitutional.

The City later filed a petition


on certiorari with the Supreme Court.[20] The
docketed as G.R. No. 112471. However in
dated January 26, 1994, the Court treated the
petition for certiorari and referred the petition
of Appeals.[21]

During the pre-trial conference, the WLC, TC and STDC


agreed to submit the case for decision without trial as the
case involved a purely legal question. [16] On October 20,
1993, the RTC rendered a decision declaring the Ordinance
null and void. The dispositive portion of the decision reads:

Before the Court of Appeals, the City asserted that


the Ordinance is a valid exercise of police power pursuant to
Section 458 (4)(iv) of the Local Government Code which
confers on cities, among other local government units, the
power:

WHEREFORE, in view of all the foregoing,


[O]rdinance No. 7774 of the City
of Manila is hereby declared null and void.

for review
petition was
a resolution
petition as a
to the Court

[To] regulate the establishment,


operation and maintenance of cafes,
restaurants, beerhouses, hotels, motels,
inns, pension houses, lodging houses and

other similar establishments,


tourist guides and transports.[22]

including

The Ordinance, it is argued, is also a valid exercise of


the power of the City under Article III, Section 18(kk) of the
Revised Manila Charter, thus:
to enact all ordinances it may deem
necessary and proper for the sanitation
and safety, the furtherance of the
prosperity and the promotion of the
morality, peace, good order, comfort,
convenience and general welfare of the
city and its inhabitants, and such others as
be necessary to carry into effect and
discharge the powers and duties conferred
by this Chapter; and to fix penalties for the
violation of ordinances which shall not
exceed two hundred pesos fine or six
months imprisonment, or both such fine
and imprisonment for a single offense.[23]
Petitioners
argued
that
the
Ordinance
is
unconstitutional and void since it violates the right to
privacy and the freedom of movement; it is an invalid
exercise of police power; and it is an unreasonable and
oppressive interference in their business.
The Court of Appeals reversed the decision of the RTC and
affirmed the constitutionality of the Ordinance.[24] First, it
held that the Ordinance did not violate the right to privacy
or the freedom of movement, as it only penalizes the
owners or operators of establishments that admit
individuals for short time stays. Second, the virtually
limitless reach of police power is only constrained by having
a lawful object obtained through a lawful method. The lawful
objective of the Ordinance is satisfied since it aims to curb
immoral activities. There is a lawful method since the

establishments are still allowed to operate. Third, the


adverse effect on the establishments is justified by the wellbeing of its constituents in general. Finally, as held
in Ermita-Malate Motel Operators Association v. City Mayor
of Manila, liberty is regulated by law.
TC, WLC and STDC come to this Court via petition for review
on certiorari.[25] In
their
petition
and
Memorandum,
petitioners in essence repeat the assertions they made
before the Court of Appeals. They contend that the assailed
Ordinance is an invalid exercise of police power.
II.
We must address the threshold issue of petitioners standing.
Petitioners allege that as owners of establishments offering
wash-up rates, their business is being unlawfully interfered
with by the Ordinance. However, petitioners also allege that
the equal protection rights of their clients are also being
interfered with. Thus, the crux of the matter is whether or
not these establishments have the requisite standing to
plead for protection of their patrons' equal protection rights.
Standing or locus standi is the ability of a party to
demonstrate to the court sufficient connection to and harm
from the law or action challenged to support that party's
participation in the case. More importantly, the doctrine of
standing is built on the principle of separation of powers,
[26]
sparing as it does unnecessary interference or
invalidation by the judicial branch of the actions rendered
by its co-equal branches of government.
The requirement of standing is a core component of
the judicial system derived directly from the Constitution.
[27]
The constitutional component of standing doctrine
incorporates concepts which concededly are not susceptible
of precise definition.[28] In this jurisdiction, the extancy of a
direct and personal interest presents the most obvious
cause, as well as the standard test for a petitioner's
standing.[29] In a similar vein, the United States Supreme
Court reviewed and elaborated on the meaning of the three

constitutional standing requirements of injury, causation,


and redressability in Allen v. Wright.[30]
Nonetheless, the general rules on standing admit of several
exceptions such as the overbreadth doctrine, taxpayer suits,
third party standing and, especially in the Philippines, the
doctrine of transcendental importance.[31]
For this particular set of facts, the concept of third party
standing as an exception and the overbreadth doctrine are
appropriate. In Powers v. Ohio,[32] the United States Supreme
Court wrote that: We have recognized the right of litigants to
bring actions on behalf of third parties, provided three
important criteria are satisfied: the litigant must have
suffered an injury-in-fact, thus giving him or her a
"sufficiently concrete interest" in the outcome of the issue in
dispute; the litigant must have a close relation to the third
party; and there must exist some hindrance to the third
party's ability to protect his or her own interests." [33] Herein,
it is clear that the business interests of the petitioners are
likewise injured by the Ordinance. They rely on the
patronage of their customers for their continued viability
which appears to be threatened by the enforcement of the
Ordinance. The relative silence in constitutional litigation of
such special interest groups in our nation such as the
American Civil Liberties Union in the United States may also
be construed as a hindrance for customers to bring suit. [34]
American jurisprudence is replete with examples where
parties-in-interest were allowed standing to advocate or
invoke the fundamental due process or equal protection
claims of other persons or classes of persons injured by
state action. In Griswold v. Connecticut,[35] the United States
Supreme Court held that physicians had standing to
challenge a reproductive health statute that would penalize
them as accessories as well as to plead the constitutional
protections available to their patients. The Court held that:
The rights of husband and wife, pressed
here, are likely to be diluted or adversely

affected
unless
those
rights
are
considered in a suit involving those who
have this kind of confidential relation to
them."[36]

An even more analogous example may be found in Craig v.


Boren,[37] wherein the United States Supreme Court held that
a licensed beverage vendor has standing to raise the equal
protection claim of a male customer challenging a statutory
scheme prohibiting the sale of beer to males under the age
of 21 and to females under the age of 18. The United States
High Court explained that the vendors had standing "by
acting as advocates of the rights of third parties who seek
access to their market or function."[38]
Assuming arguendo that petitioners do not have a
relationship with their patrons for the former to assert the
rights of the latter, the overbreadth doctrine comes into
play. In overbreadth analysis, challengers to government
action are in effect permitted to raise the rights of third
parties. Generally applied to statutes infringing on the
freedom of speech, the overbreadth doctrine applies when a
statute
needlessly
restrains
even
constitutionally
guaranteed rights.[39] In this case, the petitioners claim that
the Ordinance makes a sweeping intrusion into the right to
liberty of their clients. We can see that based on the
allegations in the petition, the Ordinance suffers from
overbreadth.
We thus recognize that the petitioners have a right to assert
the constitutional rights of their clients to patronize their
establishments for a wash-rate time frame.
III.
To students of jurisprudence, the facts of this case will recall
to mind not only the recent City of Manila ruling, but our
1967 decision in Ermita-Malate Hotel and Motel Operations

Association, Inc., v. Hon. City Mayor of Manila.[40] ErmitaMalate concerned the City ordinance requiring patrons to fill
up a prescribed form stating personal information such as
name, gender, nationality, age, address and occupation
before they could be admitted to a motel, hotel or lodging
house. This earlier ordinance was precisely enacted to
minimize certain practices deemed harmful to public morals.
A purpose similar to the annulled ordinance in City
of Manila which sought a blanket ban on motels, inns and
similar establishments in the Ermita-Malate area. However,
the constitutionality of the ordinance in Ermita-Malate was
sustained by the Court.
The common thread that runs through those decisions and
the case at bar goes beyond the singularity of the localities
covered under the respective ordinances. All three
ordinances were enacted with a view of regulating public
morals including particular illicit activity in transient lodging
establishments. This could be described as the middle case,
wherein there is no wholesale ban on motels and hotels but
the services offered by these establishments have been
severely restricted. At its core, this is another case about the
extent to which the State can intrude into and regulate the
lives of its citizens.
The test of a valid ordinance is well established. A long line
of decisions including City of Manila has held that for an
ordinance to be valid, it must not only be within the
corporate powers of the local government unit to enact and
pass according to the procedure prescribed by law, it must
also conform to the following substantive requirements: (1)
must not contravene the Constitution or any statute; (2)
must not be unfair or oppressive; (3) must not be partial or
discriminatory; (4) must not prohibit but may regulate trade;
(5) must be general and consistent with public policy; and
(6) must not be unreasonable.[41]
The Ordinance prohibits two specific and distinct
business practices, namely wash rate admissions and

renting out a room more than twice a day. The ban is


evidently sought to be rooted in the police power as
conferred on local government units by the Local
Government Code through such implements as the general
welfare clause.
A.
Police power, while incapable of an exact definition,
has been purposely veiled in general terms to underscore its
comprehensiveness to meet all exigencies and provide
enough room for an efficient and flexible response as the
conditions warrant.[42] Police power is based upon the
concept of necessity of the State and its corresponding right
to protect itself and its people. [43] Police power has been
used as justification for numerous and varied actions by the
State. These range from the regulation of dance halls,
[44]
movie theaters,[45] gas stations[46] and cockpits.[47] The
awesome scope of police power is best demonstrated by the
fact that in its hundred or so years of presence in our
nations legal system, its use has rarely been denied.
The apparent goal of the Ordinance is to minimize if
not eliminate the use of the covered establishments for illicit
sex, prostitution, drug use and alike. These goals, by
themselves, are unimpeachable and certainly fall within the
ambit of the police power of the State. Yet the desirability of
these ends do not sanctify any and all means for their
achievement. Those means must align with the Constitution,
and our emerging sophisticated analysis of its guarantees to
the people. The Bill of Rights stands as a rebuke to the
seductive theory of Macchiavelli, and, sometimes even, the
political majorities animated by his cynicism.
Even as we design the precedents that establish the
framework for analysis of due process or equal protection
questions, the courts are naturally inhibited by a due
deference to the co-equal branches of government as they
exercise their political functions. But when we are compelled
to nullify executive or legislative actions, yet another form of
caution emerges. If the Court were animated by the same
passing fancies or turbulent emotions that motivate many

political decisions, judicial integrity is compromised by any


perception that the judiciary is merely the third political
branch of government. We derive our respect and good
standing in the annals of history by acting as judicious and
neutral arbiters of the rule of law, and there is no surer way
to that end than through the development of rigorous and
sophisticated legal standards through which the courts
analyze
the
most
fundamental
and
far-reaching
constitutional questions of the day.
B.
The primary constitutional question that confronts us
is one of due process, as guaranteed under Section 1, Article
III of the Constitution. Due process evades a precise
definition.[48] The purpose of the guaranty is to prevent
arbitrary governmental encroachment against the life,
liberty and property of individuals. The due process
guaranty serves as a protection against arbitrary regulation
or seizure. Even corporations and partnerships are protected
by the guaranty insofar as their property is concerned.
The due process guaranty has traditionally been interpreted
as imposing two related but distinct restrictions on
government, "procedural due process" and "substantive due
process." Procedural due process refers to the procedures
that the government must follow before it deprives a person
of life, liberty, or property.[49] Procedural due process
concerns itself with government action adhering to the
established process when it makes an intrusion into the
private sphere. Examples range from the form of notice
given to the level of formality of a hearing.
If due process were confined solely to its procedural aspects,
there would arise absurd situation of arbitrary government
action, provided the proper formalities are followed.
Substantive due process completes the protection
envisioned by the due process clause. It inquires whether
the government has sufficient justification for depriving a
person of life, liberty, or property.[50]

The question of substantive due process, moreso


than most other fields of law, has reflected dynamism in
progressive
legal
thought tied
with the expanded
acceptance of fundamental freedoms. Police power,
traditionally awesome as it may be, is now confronted with a
more rigorous level of analysis before it can be upheld. The
vitality though of constitutional due process has not been
predicated on the frequency with which it has been utilized
to achieve a liberal result for, after all, the libertarian ends
should sometimes yield to the prerogatives of the State.
Instead, the due process clause has acquired potency
because of the sophisticated methodology that has emerged
to determine the proper metes and bounds for its
application.
C.
The general test of the validity of an ordinance on
substantive due process grounds is best tested when
assessed with the evolved footnote 4 test laid down by the
U.S. Supreme Court in U.S. v. Carolene Products.[51] Footnote
4 of the Carolene Products case acknowledged that the
judiciary would defer to the legislature unless there is a
discrimination against a discrete and insular minority or
infringement of a fundamental right. [52] Consequently, two
standards of judicial review were established: strict scrutiny
for laws dealing with freedom of the mind or restricting the
political process, and the rational basis standard of review
for economic legislation.
A third standard, denominated as heightened or
immediate scrutiny, was later adopted by the U.S. Supreme
Court for evaluating classifications based on gender[53] and
legitimacy.[54] Immediate scrutiny was adopted by the U.S.
Supreme Court in Craig,[55] after the Court declined to do so
in Reed v. Reed.[56] While the test may have first been

articulated in equal protection analysis, it has in the United


States since been applied in all substantive due process
cases as well.
We ourselves have often applied the rational basis
test mainly in analysis of equal protection challenges.
[57]
Using the rational basis examination, laws or ordinances
are upheld if they rationally further a legitimate
governmental
interest.[58] Under
intermediate
review,
governmental interest is extensively examined and the
availability of less restrictive measures is considered.
[59]
Applying strict scrutiny, the focus is on the presence of
compelling, rather than substantial, governmental interest
and on the absence of less restrictive means for achieving
that interest.
In terms of judicial review of statutes or ordinances,
strict scrutiny refers to the standard for determining the
quality and the amount of governmental interest brought to
justify the regulation of fundamental freedoms. [60] Strict
scrutiny is used today to test the validity of laws dealing
with the regulation of speech, gender, or race as well as
other fundamental rights as expansion from its earlier
applications to equal protection.[61] The United States
Supreme Court has expanded the scope of strict scrutiny to
protect fundamental rights such as suffrage, [62] judicial
access[63] and interstate travel.[64]
If we were to take the myopic view that an Ordinance
should be analyzed strictly as to its effect only on the
petitioners at bar, then it would seem that the only restraint
imposed by the law which we are capacitated to act upon is
the injury to property sustained by the petitioners, an injury
that would warrant the application of the most deferential
standard the rational basis test. Yet as earlier stated, we
recognize the capacity of the petitioners to invoke as well
the constitutional rights of their patrons those persons who
would be deprived of availing short time access or wash-up
rates to the lodging establishments in question.

Viewed cynically, one might say that the infringed


rights of these customers were are trivial since they seem
shorn of political consequence. Concededly, these are not
the sort of cherished rights that, when proscribed, would
impel the people to tear up their cedulas. Still, the Bill of
Rights does not shelter gravitas alone. Indeed, it is those
trivial yet fundamental freedoms which the people
reflexively exercise any day without the impairing
awareness of their constitutional consequence that
accurately reflect the degree of liberty enjoyed by the
people. Liberty, as integrally incorporated as a fundamental
right in the Constitution, is not a Ten Commandments-style
enumeration of what may or what may not be done; but
rather an atmosphere of freedom where the people do not
feel labored under a Big Brother presence as they interact
with each other, their society and nature, in a manner
innately understood by them as inherent, without doing
harm or injury to others.
D.
The rights at stake herein fall within the same
fundamental rights to liberty which we upheld in City of
Manila v. Hon. Laguio, Jr. We expounded on that most
primordial of rights, thus:
Liberty as
guaranteed
by
the
Constitution was defined by Justice Malcolm to
include "the right to exist and the right to be
free from arbitrary restraint or servitude. The
term cannot be dwarfed into mere freedom
from physical restraint of the person of the
citizen, but is deemed to embrace the right of
man to enjoy the facilities with which he has
been endowed by his Creator, subject only to
such restraint as are necessary for the
common welfare."[[65]] In accordance with this
case, the rights of the citizen to be free to use
his faculties in all lawful ways; to live and

work where he will; to earn his livelihood by


any lawful calling; and to pursue any
avocation are all deemed embraced in the
concept of liberty.[[66]]
The U.S. Supreme Court in the case
of Roth v. Board of Regents, sought to clarify
the meaning of "liberty." It said:
While the Court has not
attempted
to
define
with
exactness the liberty . . .
guaranteed [by the Fifth and
Fourteenth Amendments], the
term
denotes
not
merely
freedom from bodily restraint
but also the right of the
individual
to
contract,
to
engage in any of the common
occupations of life, to acquire
useful knowledge, to marry,
establish a home and bring up
children,
to
worship
God
according to the dictates of his
own conscience, and generally
to enjoy those privileges long
recognized . . . as essential to
the orderly pursuit of happiness
by free men. In a Constitution
for a free people, there can be
no doubt that the meaning of
"liberty" must be broad indeed.
[67]
[Citations omitted]
It cannot be denied that the primary animus behind
the ordinance is the curtailment of sexual behavior. The City
asserts before this Court that the subject establishments
have gained notoriety as venue of prostitution, adultery and
fornications in Manila since they provide the necessary

atmosphere for clandestine entry, presence and exit and


thus became the ideal haven for prostitutes and thrillseekers.[68] Whether or not this depiction of a mise-enscene of vice is accurate, it cannot be denied that legitimate
sexual behavior among willing married or consenting single
adults which is constitutionally protected[69] will be curtailed
as well, as it was in the City of Manila case. Our holding
therein retains significance for our purposes:
The concept of liberty compels respect
for the individual whose claim to privacy and
interference demands respect. As the case
of Morfe v. Mutuc, borrowing the words of
Laski, so very aptly stated:
Man is one among many,
obstinately refusing reduction to
unity. His separateness, his
isolation,
are
indefeasible;
indeed, they are so fundamental
that they are the basis on which
his civic obligations are built. He
cannot
abandon
the
consequences of his isolation,
which are, broadly speaking,
that his experience is private,
and the will built out of that
experience personal to himself.
If he surrenders his will to
others, he surrenders himself. If
his will is set by the will of
others, he ceases to be a master
of himself. I cannot believe that
a man no longer a master of
himself is in any real sense free.
Indeed, the right to privacy as a
constitutional right was recognized in Morfe,
the invasion of which should be justified by a
compelling
state
interest. Morfe accorded

recognition
to
the
right
to
privacy
independently of its identification with liberty;
in itself it is fully deserving of constitutional
protection. Governmental powers should stop
short of certain intrusions into the personal life
of the citizen.[70]
We cannot discount other legitimate activities which
the Ordinance would proscribe or impair. There are very
legitimate uses for a wash rate or renting the room out for
more than twice a day. Entire families are known to choose
pass the time in a motel or hotel whilst the power is
momentarily out in their homes. In transit passengers who
wish to wash up and rest between trips have a legitimate
purpose for abbreviated stays in motels or hotels. Indeed
any person or groups of persons in need of comfortable
private spaces for a span of a few hours with purposes other
than having sex or using illegal drugs can legitimately look
to staying in a motel or hotel as a convenient alternative.

Lacking a concurrence of these requisites, the police


measure shall be struck down as an arbitrary intrusion into
private rights. As held in Morfe v. Mutuc, the exercise of
police power is subject to judicial review when life, liberty or
property is affected.[73] However, this is not in any way
meant to take it away from the vastness of State police
power whose exercise enjoys the presumption of validity.[74]
Similar to the Comelec resolution requiring
newspapers to donate advertising space to candidates, this
Ordinance is a blunt and heavy instrument. [75] The Ordinance
makes no distinction between places frequented by patrons
engaged in illicit activities and patrons engaged in
legitimate actions. Thus it prevents legitimate use of places
where illicit activities are rare or even unheard of. A plain
reading of section 3 of the Ordinance shows it makes no
classification of places of lodging, thus deems them all
susceptible to illicit patronage and subject them without
exception to the unjustified prohibition.

E.
That the Ordinance prevents the lawful uses of a
wash rate depriving patrons of a product and the petitioners
of lucrative business ties in with another constitutional
requisite for the legitimacy of the Ordinance as a police
power measure. It must appear that the interests of the
public generally, as distinguished from those of a particular
class, require an interference with private rights and the
means
must
be reasonably
necessary for
the
accomplishment of the purpose and not unduly oppressive
of private rights.[71] It must also be evident that no other
alternative for the accomplishment of the purpose less
intrusive of private rights can work. More importantly, a
reasonable relation must exist between the purposes of the
measure and the means employed for its accomplishment,
for even under the guise of protecting the public interest,
personal rights and those pertaining to private property will
not be permitted to be arbitrarily invaded. [72]

The Court has professed its deep sentiment and


tenderness of the Ermita-Malate area, its longtime home,
[76]
and it is skeptical of those who wish to depict our capital
city
the Pearl of
the
Orient
as
a
modernday Sodom or Gomorrah for the Third World set. Those still
steeped in Nick Joaquin-dreams of the grandeur of
Old Manila will have to accept that Manila like all evolving
big cities, will have its problems. Urban decay is a fact of
mega cities such as Manila, and vice is a common problem
confronted by the modern metropolis wherever in the world.
The solution to such perceived decay is not to prevent
legitimate businesses from offering a legitimate product.
Rather, cities revive themselves by offering incentives for
new businesses to sprout up thus attracting the dynamism
of individuals that would bring a new grandeur to Manila.

The behavior which the Ordinance seeks to curtail is


in fact already prohibited and could in fact be diminished
simply by applying existing laws. Less intrusive measures
such as curbing the proliferation of prostitutes and drug
dealers through active police work would be more effective
in easing the situation. So would the strict enforcement of
existing laws and regulations penalizing prostitution and
drug use. These measures would have minimal intrusion on
the businesses of the petitioners and other legitimate
merchants. Further, it is apparent that the Ordinance can
easily be circumvented by merely paying the whole day rate
without any hindrance to those engaged in illicit activities.
Moreover, drug dealers and prostitutes can in fact collect
wash rates from their clientele by charging their customers
a portion of the rent for motel rooms and even apartments.
IV.
We reiterate that individual rights may be adversely
affected only to the extent that may fairly be required by
the legitimate demands of public interest or public
welfare.The State is a leviathan that must be restrained
from needlessly intruding into the lives of its citizens.
However well-intentioned the Ordinance may be, it is in
effect an arbitrary and whimsical intrusion into the rights of
the establishments as well as their patrons. The Ordinance
needlessly restrains the operation of the businesses of the
petitioners as well as restricting the rights of their patrons
without sufficient justification. The Ordinance rashly equates
wash rates and renting out a room more than twice a day
with
immorality
without
accommodating
innocuous
intentions.
The promotion of public welfare and a sense of morality
among citizens deserves the full endorsement of the
judiciary provided that such measures do not trample rights
this Court is sworn to protect.[77] The notion that the
promotion of public morality is a function of the State is as
old as Aristotle.[78] The advancement of moral relativism as a
school of philosophy does not de-legitimize the role of
morality in law, even if it may foster wider debate on which

particular behavior to penalize. It is conceivable that a


society with relatively little shared morality among its
citizens could be functional so long as the pursuit of sharply
variant
moral
perspectives
yields
an
adequate
accommodation of different interests.[79]
To be candid about it, the oft-quoted American
maxim that you cannot legislate morality is ultimately
illegitimate as a matter of law, since as explained
by Calabresi, that phrase is more accurately interpreted as
meaning that efforts to legislate morality will fail if they are
widely at variance with public attitudes about right and
wrong.[80] Our penal laws, for one, are founded on age-old
moral traditions, and as long as there are widely accepted
distinctions between right and wrong, they will remain so
oriented.
Yet the continuing progression of the human story
has seen not only the acceptance of the right-wrong
distinction, but also the advent of fundamental liberties as
the key to the enjoyment of life to the fullest. Our
democracy is distinguished from non-free societies not with
any more extensive elaboration on our part of what is moral
and immoral, but from our recognition that the individual
liberty to make the choices in our lives is innate, and
protected by the State. Independent and fair-minded judges
themselves are under a moral duty to uphold the
Constitution as the embodiment of the rule of law, by reason
of their expression of consent to do so when they take the
oath of office, and because they are entrusted by the people
to uphold the law.[81]
Even as the implementation of moral norms remains
an indispensable complement to governance, that
prerogative is hardly absolute, especially in the face of the
norms of due process of liberty. And while the tension may
often be left to the courts to relieve, it is possible for the
government to avoid the constitutional conflict by
employing more judicious, less drastic means to promote
morality.

WHEREFORE, the Petition is GRANTED. The


Decision of the Court of Appeals is REVERSED, and the
Decision of the Regional Trial Court of Manila, Branch 9,
is REINSTATED. Ordinance No. 7774 is hereby declared
UNCONSTITUTIONAL. No pronouncement as to costs.
SO ORDERED.
SMITH, BELL & COMPANY (LTD.), petitioner,
vs.
JOAQUIN NATIVIDAD
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. 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.
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.
SEC. 8. That general legislative power, except as
otherwise herein provided, is hereby granted to the
Philippine Legislature, authorized by this Act.
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.
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 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.)
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 foreign-born 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."
(Barbier vs. 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 self-preservation 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?

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.

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

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:

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.
STONEHILL VS DIOKNO
CONCEPCION, C.J.:

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 not extend 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 13 provides:

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 but upon 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. 20After
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, notin 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.

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.
WEST COAST LIFE INSURANCE VS HURD
MORELAND, J.:

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

This is an action for the issuance of a writ of prohibition


against the defendant "commanding the defendant to desist
or refrain from further proceedings in a criminal action
pending in that court."
The petitioner is a foreign life-insurance corporation, duly
organized under and by virtue of the laws of the State of
California, doing business regularly and legally in the
Philippine Islands pursuant to its laws.
On the 16th of December, 1912, the assistant prosecuting
attorney of the city of Manila filed an information in a
criminal action in the Court of First Instance of that city
against the plaintiff, said corporation, and also against John
Northcott and Manuel C. Grey, charging said corporation and
said individuals with the crime of libel. On the 17th day of
December the defendant in his official capacity as judge of
the court of First Instance signed and issued a process
directed to the plaintiff and the other accused in said
criminal action, which said process reads as follows:

UNITED STATES OF AMERICA,


PHILIPPINE ISLANDS.
In the Court of First Instance of the Judicial District of
Manila.
THE UNITED STATES No. 9661
versus Libel.
WEST COAST LIFE INSURANCE CO., JOHN
NORTHCOTT, AND MANUEL C. GREY.
To West Coast Life Insurance Co., John Northcott, and
Manuel C. Grey, Manila.
SUMMONS.
You are hereby summoned to appear before the
Court of First Instance of the city of Manila P.I., on the
18th day of December, 1912, at the hour of 8 a.m.,
to answer the charge made against you upon the
information of F. H. Nesmith, assistant prosecuting
attorney of the city of Manila, for libel, as set forth in
the said information filed in this copurt on December
16, 1912, a copy of which is hereto attached and
herewith served upon you.
Dated at the city of Manila, P. I., this 17th day of
December, 1912.

(Sgd.) GEO N. HURD,


Judge, Court of First Instance.

The information upon which said process was issued is as


follows:
The undersigned accuses the West Coast Life
Insurance Company, John Northcott, and Manuel C.
Grey of the crime of libel, committed as follows:
That on or about the 14th day of September, 1912,
and continuously thereafter up to and including the
date of this complaint, in the city of Manila, P. I., the
said defendant West Coast Life Insurance Company
was and has been a foreign corporation duly
organized in the State of California, United States of
America, and registered and doing business in the
Philippine Islands; that the said defendant John
Nortcott then and there was and has been the
general agent and manager for the Philippine Islands
of the said defendant corporation West Coast Life
Insurance Company, and the said defendant Manuel
C. Grey was and has been an agent and employee of
the said defendant corporation West Coast Life
Insurance Company, acting in the capacity of
treasurer of the branch of the said defendant
corporation in the Philippine Islands; that on or about
the said 14th day of September, 1912, and for some
time thereafter, to wit, during the months of
September and October, 1912, in the city of Manila,
P.I., the said defendants West Coast Life Insurance
Company, John Northcott, and Manuel C. Grey,
conspiring and confederating together, did then and
there willfully, unlawfully, and maliciously, and to the
damage of the Insular Life Insurance Company, a
domestic corporation duly organized, registered, and
doing business in the Philippine Islands, and with
intent o cause such damage and to expose the said
Insular Life Insurance Company to public hatred,
contempt, and ridicule, compose and print, and
cause to be printed a large number of circulars, and,
in numerous printings in the form of said circulars,

did publish and distribute, and cause to be published


and distributed, among other persons, to policy
holders and prospective policy holders of the said
Insular Life Insurance Company, among other things,
a malicious defamation and libel in the Spanish
language, of the words and tenor following:
"First. For some time past various rumors are
current to the effect that the Insular Life
Insurance Company is not in as good a
condition as i should be at the present time,
and that really it is in bad shape.
Nevertheless, the investigations made by the
representative of the "Bulletin" have failed
fully to confirm these rumors. It is known that
the Insular Auditor has examined the books of
the company and has found that its capital
has diminished, and that by direction of said
official the company has decided to double
the amount of its capital, and also to pay its
reserve fund. All this is true."
That the said circulars, and the matters therein
contained hereinbefore set forth in this information,
tend to impeach and have impeached the honesty,
virtue, and reputation of the said Insular Life
Insurance Company by exposing it to public hatred,
contempt, and ridicule; that by the matters printed in
said circulars, and hereinbefore set forth in this
information, the said defendants West Coast Life
Insurance Company, John Northcott, and Manuel C.
Grey meant and intended to state and represent to
those to whom the said defendants delivered said
circulars as aforesaid, that the said Insular Life
Insurance Company was then and there in a
dangerous financial condition and on the point of
going into insolvency, to the detriment of the policy
holders of the said Insular Life Insurance Company,
and of those with whom the said Insular Life

Insurance Company have and have had business


transactions, and each and all of said persons to
whom the said defendants delivered said circulars,
and all persons as well who read said circulars
understood the said matters in said circulars to have
said libelous sense and meaning. Contrary to law.
On the 20th day of December, 1912, the plaintiff, together
with the other persons named as accused in said process
through their attorneys, served upon the prosecuting
attorney and filed with the clerk of the court a motion to
quash said summons and the service thereof, on the ground
that the court had no jurisdiction over the said company,
there being no authority in the court for the issuance of the
process, Exhibit B, the order under which it was issued being
void. The court denied the motion and directed plaintiff to
appear before it on the 28th day of December, 1912, and to
plead to the information, to which order the plaintiff then
and there duly excepted.
It is alleged in the complaint that "unless restrained by this
Court the respondent will proceed to carry out said void
order and compel your petitioner to appear before his court
and plead and submit to criminal prosecution without having
acquired any jurisdiction whatever over your petitioner."
The prayer of the complaint is, "your petitioner prays
judgment for the issuance of a writ of prohibition against the
respondent, commanding the respondent absolutely to
desist or refrain from further proceedings against your
petitioner in the said criminal action."
The basis of the action is that the Court of First Instance has
no power or authority, under the laws of the Philippine
Islands, to proceed against a corporation, as such,
criminally, to bring it into court for the purpose of making it
amenable to the criminal laws. It is contended that the court
had no jurisdiction to issue the process in evidence against
the plaintiff corporation; that the issuance and service

thereof upon the plaintiff corporation were outside of the


authority and jurisdiction of the court, were authorized by no
law, conferred no jurisdiction over said corporation, and that
they were absolutely void and without force or effect.
The plaintiff, further attacking said process, alleges that the
process is a mixture of civil and criminal process, that it is
not properly signed, that it does not direct or require an
arrest; that it s an order to appear and answer on a date
certain without restraint of the person, and that it is not in
the form required by law.
Section 5 of General Orders, No. 58, defines an information
as "accusation in writing charging a period with a public
offense." Section 6 provide that a complaint or information
is sufficient it if shows "the name of the defendant, or if his
name cannot be discovered, that he is described under a
fictitious name with a statement that his true name is
unknown to the informant or official signing the same. His
true name may be inserted at any stage of the proceedings
instituted against him, whenever ascertained." These
provisions, as well as those which relate to arraignment and
counsel, and to demurrers and pleas, indicate clearly that
the maker of the Code of Criminal Procedure had no
intention or expectation that corporations would be included
among those who would fall within the provisions thereof.
The only process known to the Code of Criminal Procedure,
or which any court is by that order authorized to issue, is an
order of arrest. The Code of Criminal Procedure provides that
"if the magistrate be satisfied from the investigation that the
crime complained of has been committed, and there is
reasonable ground to believe that the party charged has
committed it, he must issue an order for his arrest. If the
offense be bailable, and the defendant offer a sufficient
security, he shall be admitted to bail; otherwise he shall be
committed to prison." There is no authority for the issuance
of any other process than an order of arrest. As a necessary
consequence, the process issued in the case before us is
without express authorization of statute.

The question remains as to whether or not he court may, of


itself and on its own motion, create not only a process but a
procedure by which the process may be made effective.
We do not believe that the authority of the courts of the
Philippine Islands extends so far. While having the inherent
powers which usually go with courts of general jurisdiction,
we are of the opinion that, under the circumstances of their
creation, they have only such authority in criminal matters
as is expressly conferred upon them by statute or which it is
necessary to imply from such authority in order to carry out
fully and adequately the express authority conferred. We do
not feel that Courts of First Instance have authority to create
new procedure and new processes in criminal law. The
exercise of such power verges too closely on legislation.
Even though it be admitted, a question we do not now
decide, that there are various penal laws in the Philippine
Islands which corporation as such may violate, still we do
not believe that the courts are authorized to go to the
extent of creating special procedure and special processes
for the purpose of carrying out those penal statutes, when
the legislature itself has neglected to do so. To bring a
corporation into court criminally requires many additions to
the present criminal procedure. While it may be said to be
the duty of courts to see to it that criminals are punished, it
is no less their duty to follow prescribed forms of procedure
and to go out upon unauthorized ways or act in an
unauthorized manner.
There are many cases cited by counsel for the defendant
which show that corporations have been proceeded against
criminally by indictment and otherwise and have been
punished as malefactors by the courts. Of this, of course,
there can be no doubt; but it is clear that, in those cases,
the statute, by express words or by necessary intendment,
included corporations within the persons who could offend
against the criminal laws; and the legislature, at the same
time established a procedure applicable to corporations. No
case has been cited to us where a corporation has been

proceeded against under a criminal statute where the court


did not exercise its common law powers or where there was
not in force a special procedure applicable to corporations.
The courts of the Philippine Islands are creatures of statute
and, as we have said, have only those powers conferred
upon them by statute and those which are required to
exercise that authority fully and adequately. The courts here
have no common law jurisdiction or powers. If they have any
powers not conferred by statute, expressly or impliedly, they
would naturally come from Spanish and not from common
law sources. It is undoubted that, under the Spanish criminal
law and procedure, a corporation could not have been
proceeded against criminally, as such, if such an entity as a
corporation in fact existed under the Spanish law, and as
such it could not have committed a crime in which a willful
purpose or a malicious intent was required. Criminal actions
would have been restricted or limited, under that system, to
the officials of such corporations and never would have been
directed against the corporation itself. This was the rule with
relation to associations or combinations of persons
approaching, more or less, the corporation as it is now
understood, and it would undoubtedly have been the rue
with corporations. From this source, then, the courts derive
no authority to bring corporations before them in criminal
actions, nor to issue processes for that purpose.
The case was submitted to this Court on an agreed
statement of facts with a stipulation for a decision upon the
merits. We are of the opinion that the plaintiff is entitled,
under that stipulation, to the remedy prayed for.

It is adjudged that the Court of First Instance of the city of


Manila be and it is hereby enjoined and prohibited from
proceeding further in the criminal cause which is before us
in this proceeding, entitled United States vs. West Coast Life
Insurance Company, a corporation, John Northcott and
Manuel C. Grey, so far as said proceedings relate to the said
West Coast Life Insurance Company, a corporation, the
plaintiff in the case.
SIA VS PEOPLE
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.
PEOPLE VS CHOWDURY
PUNO, J.:
In November 1995, Bulu Chowdury and Josephine Ong were
charged before the Regional Trial Court of Manila with the
crime of illegal recruitment in large scale committed as
follows:
"That sometime between the period from
August 1994 to October 1994 in the City of
Manila, Philippines and within the jurisdiction
of this Honorable Court, the above-named
accused, representing themselves to have the
capacity to contract, enlist and transport
workers for employment abroad, conspiring,
confederating and mutually helping one

another, did then and there willfully,


unlawfully and feloniously recruit the herein
complainants: Estrella B. Calleja, Melvin C.
Miranda and Aser S. Sasis, individually or as a
group for employment in Korea without first
obtaining the required license and/or
authority from the Philippine Overseas
Employment Administration."[1]
They were likewise charged with three counts of estafa
committed against private complainants.[2] The State
Prosecutor, however, later dismissed the estafa charges
against Chowdury[3]and filed an amended information
indicting only Ong for the offense.[4]
Chowdury was arraigned on April 16, 1996 while Ong
remained at large. He pleaded "not guilty" to the charge of
illegal recruitment in large scale.[5]
Trial ensued.
The prosecution presented four witnesses: private
complainants Aser Sasis, Estrella Calleja and Melvin
Miranda, and Labor Employment Officer Abbelyn Caguitla.
Sasis testified that he first met Chowdury in August 1994
when he applied with Craftrade Overseas Developers
(Craftrade) for employment as factory worker in South
Korea. Chowdury, a consultant of Craftrade, conducted the
interview. During the interview, Chowdury informed him
about the requirements for employment. He told him to
submit his passport, NBI clearance, passport size picture
and medical certificate. He also required him to undergo a
seminar. He advised him that placement would be on a first-

come-first-serve basis and urged him to complete the


requirements immediately. Sasis was also charged a
processing fee of P25,000.00. Sasis completed all the
requirements in September 1994. He also paid a total
amount of P16,000.00 to Craftrade as processing fee. All
payments were received by Ong for which she issued three
receipts.[6] Chowdury then processed his papers and
convinced him to complete his payment. [7]
Sasis further said that he went to the office of Craftrade
three times to follow up his application but he was always
told to return some other day. In one of his visits to
Craftrades office, he was informed that he would no longer
be deployed for employment abroad. This prompted him to
withdraw his payment but he could no longer find Chowdury.
After two unsuccessful attempts to contact him, he decided
to file with the Philippine Overseas Employment
Administration (POEA) a case for illegal recruitment against
Chowdury. Upon verification with the POEA, he learned that
Craftrade's license had already expired and has not been
renewed and that Chowdury, in his personal capacity, was
not a licensed recruiter.[8]
Calleja testified that in June 1994, she applied with
Craftrade for employment as factory worker in South Korea.
She was interviewed by Chowdury. During the interview, he
asked questions regarding her marital status, her age and
her province. Toward the end of the interview, Chowdury
told her that she would be working in a factory in Korea. He
required her to submit her passport, NBI clearance, ID
pictures, medical certificate and birth certificate. He also
obliged her to attend a seminar on overseas employment.
After she submitted all the documentary requirements,
Chowdury required her to pay P20,000.00 as placement fee.
Calleja made the payment on August 11, 1994 to Ong for

which she was issued a receipt.[9] Chowdury assured her that


she would be able to leave on the first week of September
but it proved to be an empty promise. Calleja was not able
to leave despite several follow-ups. Thus, she went to the
POEA where she discovered that Craftrade's license had
already expired. She tried to withdraw her money from
Craftrade to no avail. Calleja filed a complaint for illegal
recruitment against Chowdury upon advice of POEA's legal
counsel.[10]
Miranda testified that in September 1994, his cousin
accompanied him to the office of Craftrade in Ermita, Manila
and introduced him to Chowdury who presented himself as
consultant and interviewer. Chowdury required him to fill out
a bio-data sheet before conducting the interview. Chowdury
told Miranda during the interview that he would send him to
Korea for employment as factory worker. Then he asked him
to submit the following documents: passport, passport size
picture, NBI clearance and medical certificate. After he
complied with the requirements, he was advised to wait for
his visa and to pay P25,000.00 as processing fee. He paid
the amount of P25,000.00 to Ong who issued receipts
therefor.[11] Craftrade, however, failed to deploy him. Hence,
Miranda filed a complaint with the POEA against Chowdury
for illegal recruitment.[12]
Labor Employment Officer Abbelyn Caguitla of the
Licensing Branch of the POEA testified that she prepared a
certification on June 9, 1996 that Chowdury and his coaccused, Ong, were not, in their personal capacities,
licensed recruiters nor were they connected with any
licensed agency. She nonetheless stated that Craftrade was
previously licensed to recruit workers for abroad which
expired on December 15, 1993. It applied for renewal of its
license but was only granted a temporary license effective

December 16, 1993 until September 11, 1994. From


September 11, 1994, the POEA granted Craftrade another
temporary authority to process the expiring visas of
overseas workers who have already been deployed. The
POEA suspended Craftrade's temporary license on
December 6, 1994.[13]
For his defense, Chowdury testified that he worked as
interviewer at Craftrade from 1990 until 1994. His primary
duty was to interview job applicants for abroad. As a mere
employee, he only followed the instructions given by his
superiors, Mr. Emmanuel Geslani, the agencys President and
General Manager, and Mr. Utkal Chowdury, the agency's
Managing Director. Chowdury admitted that he interviewed
private complainants on different dates. Their office
secretary handed him their bio-data and thereafter he led
them to his room where he conducted the interviews. During
the interviews, he had with him a form containing the
qualifications for the job and he filled out this form based on
the applicant's responses to his questions. He then
submitted them to Mr. Utkal Chowdury who in turn
evaluated his findings. He never received money from the
applicants. He resigned from Craftrade on November 12,
1994.[14]
Another defense witness, Emelita Masangkay who worked
at the Accreditation Branch of the POEA presented a list of
the accredited principals of Craftrade Overseas
Developers[15] and a list of processed workers of Craftrade
Overseas Developers from 1988 to 1994.[16]
The trial court found Chowdury guilty beyond
reasonable doubt of the crime of illegal recruitment in large
scale. It sentenced him to life imprisonment and to pay a
fine of P100,000.00. It further ordered him to pay Aser Sasis

the amount of P16,000.00, Estrella Calleja, P20,000.00 and


Melvin Miranda, P25,000.00. The dispositive portion of the
decision reads:
"WHEREFORE, in view of the foregoing
considerations, the prosecution having proved
the guilt of the accused Bulu Chowdury
beyond reasonable doubt of the crime of
Illegal Recruitment in large scale, he is hereby
sentenced to suffer the penalty of life
imprisonment and a fine of P100,000.00
under Art. 39 (b) of the New Labor Code of the
Philippines. The accused is ordered to pay the
complainants Aser Sasis the amount
of P16,000.00; Estrella Calleja the amount
of P20,000.00; Melvin Miranda the amount
of P25,000.00."[17]
Chowdury appealed.
The elements of illegal recruitment in large scale are:
(1) The accused undertook any recruitment
activity defined under Article 13 (b) or any
prohibited practice enumerated under Article
34 of the Labor Code;
(2) He did not have the license or authority to
lawfully engage in the recruitment and
placement of workers; and
(3) He committed the same against three or
more persons, individually or as a group.[18]

The last paragraph of Section 6 of Republic Act (RA)


8042[19] states who shall be held liable for the offense, thus:
"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."
The Revised Penal Code which supplements the law on
illegal recruitment[20] defines who are the principals,
accomplices and accessories. The principals are: (1) those
who take a direct part in the execution of the act; (2) those
who directly force or induce others to commit it; and (3)
those who cooperate in the commission of the offense by
another act without which it would not have been
accomplished.[21] The accomplices are those persons who
may not be considered as principal as defined in Section 17
of the Revised Penal Code but cooperate in the execution of
the offense by previous or simultaneous act. [22] The
accessories are those who, having knowledge of the
commission of the crime, and without having participated
therein, either as principals or accomplices, take part
subsequent to its commission in any of the following
manner: (1) by profiting themselves or assisting the
offenders to profit by the effects of the crime; (2) by
concealing or destroying the body of the crime, or the
effects or instruments thereof, in order to prevent its
discovery; and (3) by harboring, concealing, or assisting in
the escape of the principal of the crime, provided the
accessory acts with abuse of his public functions or
whenever the author of the crime is guilty of treason,
parricide, murder, or an attempt at the life of the chief

executive, or is known to be habitually guilty of some other


crime.[23]
Citing the second sentence of the last paragraph of Section
6 of RA 8042, accused-appellant contends that he may not
be held liable for the offense as he was merely an employee
of Craftrade and he only performed the tasks assigned to
him by his superiors. He argues that the ones who should be
held liable for the offense are the officers having control,
management and direction of the agency.

commission. Where it is shown that the employee was


merely acting under the direction of his superiors and was
unaware that his acts constituted a crime, he may not be
held criminally liable for an act done for and in behalf of his
employer.[28]
The fundamental issue in this case, therefore, is whether
accused-appellant knowingly and intentionally participated
in the commission of the crime charged.
We find that he did not.

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,
[24]
if it is shown that he actively and consciously
participated in illegal recruitment.[25] 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.[26] The
law of agency, as applied in civil cases, has no application in
criminal cases, and no man can escape punishment when
he participates in the commission of a crime upon the
ground that he simply acted as an agent of any party. [27] The
culpability of the employee therefore hinges on his
knowledge of the offense and his active participation in its

Evidence shows that accused-appellant interviewed private


complainants in the months of June, August and September
in 1994 at Craftrade's office. At that time, he was employed
as interviewer of Craftrade which was then operating under
a temporary authority given by the POEA pending renewal of
its license.[29] The temporary license included the authority
to recruit workers.[30] He was convicted based on the fact
that he was not registered with the POEA as employee of
Craftrade. Neither was he, in his personal capacity, licensed
to recruit overseas workers. Section 10 Rule II Book II of the
Rules and Regulation Governing Overseas Employment
(1991) requires that every change, termination
or appointment of officers, representatives
and personnel of licensed agencies be registered with the
POEA. Agents or representatives appointed by a licensed
recruitment agency whose appointments are not previously
approved by the POEA are considered "non-licensee " or
"non-holder of authority" and therefore not authorized to
engage in recruitment activity.[31]
Upon examination of the records, however, we find that the
prosecution failed to prove that accused-appellant was

aware of Craftrade's failure to register his name with the


POEA and that he actively engaged in recruitment despite
this knowledge. The obligation to register its personnel with
the POEA belongs to the officers of the agency. [32] A mere
employee of the agency cannot be expected to know the
legal requirements for its operation. The evidence at hand
shows that accused-appellant carried out his duties as
interviewer of Craftrade believing that the agency was duly
licensed by the POEA and he, in turn, was duly authorized by
his agency to deal with the applicants in its behalf. Accusedappellant in fact confined his actions to his job description.
He merely interviewed the applicants and informed them of
the requirements for deployment but he never received
money from them. Their payments were received by the
agency's cashier, Josephine Ong. Furthermore, he performed
his tasks under the supervision of its president and
managing director. Hence, we hold that the prosecution
failed to prove beyond reasonable doubt accusedappellant's conscious and active participation in the
commission of the crime of illegal recruitment. His
conviction, therefore, is without basis.

IN VIEW WHEREOF, the assailed decision of the Regional


Trial Court is REVERSED and SET ASIDE. Accused-appellant
is hereby ACQUITTED. The Director of the Bureau of
Corrections is ordered to RELEASE accused-appellant unless
he is being held for some other cause, and to REPORT to this
Court compliance with this order within ten (10) days from
receipt of this decision. Let a copy of this Decision be
furnished the Secretary of the Department of Justice for his
information and appropriate action.

This is not to say that private complainants are left with no


remedy for the wrong committed against them. The
Department of Justice may still file a complaint against the
officers having control, management or direction of the
business of Craftrade Overseas Developers (Craftrade), so
long as the offense has not yet prescribed. Illegal
recruitment is a crime of economic sabotage which need to
be curbed by the strong arm of the law. It is important,
however, to stress that the government's action must be
directed to the real offenders, those who perpetrate the
crime and benefit from it.

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

SO ORDERED.
CHING VS SECRETARY OF JUSTICE
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.

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
Grante
d

Maturit
y Date

Principal

Description of
Goods

204
2

01-3081

04-3081

P469,669.2 High Fired


9
Refractory
Nozzle Bricks

184
5

12-0580

03-0581

P1,596,470 79.9425 M/T


.05
"SDK" Brand
Synthetic
Graphite
Electrode

180
1

11-2180

02-1981

P2,001,715 Synthetic
.17
Graphite
Electrode
[with] tapered
pitch filed
nipples

185
3

12-0880

03-0681

P198,150.6 3,000 pcs. (15


7
bundles)
Calorized
Lance Pipes

185
7

12-0980

03-0981

P197,843.6 3,000 pcs. (15


1
bundles
calorized lance
pipes [)]

182
4

11-2880

02-2681

P707,879.7 One Lot High


1
Fired
Refractory
Tundish Bricks

189
5

12-1780

03-1781

P67,652.04 Spare parts for


Spectrophotom
eter

179
8

11-2180

02-1981

P835,526.2 5 cases spare


5
parts for CCM

191
1

12-2280

03-2081

P91,497.85 50 pcs. Ingot


moulds

180
8

11-2180

02-1981

P370,332.5 200 pcs. ingot


2
moulds

204
1

01-3081

04-3081

P91,456.97 50 pcs. Ingot


moulds

209
9

02-1081

05-1181

P66,162.26 8 pcs. Kubota


Rolls for rolling
mills

210
0

02-1081

05-1281

P210,748.0 Spare parts for


0
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.
This time, respondent bank filed a motion for
reconsideration, which, however, was denied on February
24, 1988.9 The 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
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
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.
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;
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,16where 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 Resolution 18 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.
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 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 nonforum 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; 22 and
(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:
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 noncompliance 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.39 The
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.