G.R. No. 155683 February 16, 2007 On February 28, 1985, during the pendency of Civil Case No.

On February 28, 1985, during the pendency of Civil Case No. 83-16617, Enriques undivided
interest in the V. Mapa properties was levied on in execution of a judgment of the RTC of Makati (the
PETRON CORPORATION, Petitioner, Makati case)5 holding him liable to Petron (then known as Petrophil Corporation) on a 1972
vs. promissory note. On April 29, 1985, the V. Mapa properties were sold at public auction to satisfy the
NATIONAL COLLEGE OF BUSINESS AND ARTS, Respondent. judgments in the Manila and Makati cases. Petron, the highest bidder, acquired both Felipes and
Enriques undivided interests in the property. The final deeds of sale of Enriques and Felipes shares
in the V. Mapa properties were awarded to Petron in 1986. Sometime later, the Monserrats TCTs
DECISION were cancelled and new ones were issued to Petron. Thus it was that, towards the end of 1987,
Petron intervened in NCBAs suit against Felipe, Enrique and DBP (Civil Case No. 83-16617) to
CORONA, J.: assert its right to the V. Mapa properties.

The sole question raised in this petition for review on certiorari 1 is whether petitioner Petron The RTC rendered judgment on March 11, 1996.6 It ruled, among other things, that Petron never
Corporation (Petron) should be held liable to pay attorneys fees and exemplary damages to acquired valid title to the V. Mapa properties as the levy and sale thereof were void and that NCBA
respondent National College of Business and Arts (NCBA). was now the lawful owner of the properties. Moreover, the RTC held Petron, DBP, Felipe and
Enrique jointly and severally liable to NCBA for exemplary damages and attorneys fees for the
This case, however, is but part of a larger controversy over the lawful ownership of seven parcels of following reasons:
land2 in the V. Mapa area of Sta. Mesa, Manila (the V. Mapa properties) that arose out of a series of
events that began in 1969.3 FELIPE and ENRIQUE had no reason to renege on their undertaking in the Deed of Absolute Sale
"to secure the release of the titles to the properties xxx free from all the liens and encumbrances,
Sometime in 1969, the V. Mapa properties, then owned by Felipe and Enrique Monserrat, Jr., were and to cause the lifting of the levy on execution of Commercial Credit Corporation, Industrial Finance
mortgaged to the Development Bank of the Philippines (DBP) as part of the security for the P5.2 Corporation[,] and Filoil over the V. Mapa [p]roperty. Moreover, ENRIQUE had no reason to
million loan of Manila Yellow Taxicab Co., Inc. (MYTC) and Monserrat Enterprises Co. MYTC, for its repudiate FELIPE and disavow authority he had [given] the latter to sell his share in the V. Mapa
part, mortgaged four parcels of land located in Quiapo, Manila. property.

On March 31, 1975, however, Felipes undivided interest in the V. Mapa properties was levied On the other hand, the mortgage in favor of DBP had been fully extinguished thru dacion en pago as
upon in execution of a money judgment rendered by the Regional Trial Court (RTC) of Manila early as 18 June 1981 but it unjustifiably and whimsically refused to release the mortgage and to
in Filoil Marketing Corporation v. MYTC, Felipe Monserrat, and Rosario Vda. De Monserrat (the surrender to the buyer (NCBA) the owners duplicate copies of Transfer Certificates of Title No[s].
Manila case).4 DBP challenged the levy through a third-party claim asserting that the V. Mapa 83621 to 83627, thereby preventing NCBA from registering the sale in its favor.
properties were mortgaged to it and were, for that reason, exempt from levy or attachment. The RTC
quashed it. Similarly, [Petron] has absolutely no reason to claim the V. Mapa property. For, as shown above, the
levy in execution and sale of the shares of FELIPE and ENRIQUE in the V. Mapa property were null
On June 18, 1981, MYTC and the Monserrats got DBP to accept a dacion en pago arrangement and void.
whereby MYTC conveyed to the bank the four mortgaged Quiapo properties as full settlement of
their loan obligation. But despite this agreement, DBP did not release the V. Mapa properties from Finally, in their Memorandum of Agreement dated 25 September 1992 with Technical Institute of the
the mortgage. Philippines, [Petron] and DBP attempted to pre-empt this Courts power to adjudicate on the claim of
ownership stipulating that "to facilitate their defenses and cause of action in Civil Case No. 83-
On May 21, 1982, Felipe, acting for himself and as Enriques attorney-in-fact, sold the V. Mapa 16617," they agreed on the disposition of the V. Mapa property among themselves. For obvious
properties to respondent NCBA. Part of the agreement was that Felipe and Enrique would secure reasons, this Court refused to give its imprimatur and denied their prayer for dismissal of the
the release of the titles to the properties free of all liens and encumbrances including DBPs complaint against DBP.
mortgage lien and Filoils levy on or before July 31, 1982. But the Monserrats failed to comply with
this undertaking. Thus, on February 3, 1983, NCBA caused the annotation of an affidavit of adverse These acts of defendants and intervenor demonstrate their wanton, fraudulent, reckless, oppressive
claim on the TCTs covering the V. Mapa properties. and malevolent conduct in their dealings with NCBA. Furthermore, they acted with gross and evident
bad faith in refusing to satisfy NCBAs plainly valid and demandable claims. Assessment of
Shortly thereafter, NCBA filed a complaint against Felipe and Enrique for specific performance with exemplary damages and attorneys fees in the amounts of P100,000.00 and P150,000.00,
7
an alternative prayer for rescission and damages in the RTC of Manila. The case was raffled to respectively, is therefore in order (Arts. 2208 and 2232, Civil Code).
Branch 30 and docketed as Civil Case No. 83-16617. On March 30, 1983, NCBA had a notice of lis
pendens inscribed on the TCTs of the V. Mapa properties. A little over two years later, NCBA Enrique, DBP and Petron appealed to the Court of Appeals (CA). The appeal was docketed as CA
impleaded DBP as an additional defendant in order to compel it to release the V. Mapa properties G.R. CV No. 53466. In a decision dated June 21, 2002, 8 the CA affirmed the RTC decision in toto.
from mortgage. On motion for reconsideration, Petron and DBP tried to have the award of exemplary damages and
1
attorneys fees deleted for lack of legal and factual basis. The Philippine National Oil Company Article 2208(5) contemplates a situation where one refuses unjustifiably and in evident bad faith to
(PNOC), which had been allowed to intervene in the appeal as transferee pendente lite of Petrons satisfy anothers plainly valid, just and demandable claim, compelling the latter needlessly to seek
right to the V. Mapa properties, moved for reconsideration of the ruling on ownership. In a resolution redress from the courts.12 In such a case, the law allows recovery of money the plaintiff had to spend
dated October 16, 2002,9 the CA denied these motions for lack of merit. Thereupon, Petron and for a lawyers assistance in suing the defendant expenses the plaintiff would not have incurred if
PNOC took separate appeals to this Court. not for the defendants refusal to comply with the most basic rules of fair dealing. It does not mean,
however, that the losing party should be made to pay attorneys fees merely because the court finds
In this appeal, the only issue is Petrons liability for exemplary damages and attorneys fees. And on his legal position to be erroneous and upholds that of the other party, for that would be an intolerable
this matter, we reverse the rulings of the trial and appellate courts. transgression of the policy that no one should be penalized for exercising the right to have
contending claims settled by a court of law.13 In fact, even a clearly untenable defense does not
justify an award of attorneys fees unless it amounts to gross and evident bad faith. 14
Article 2208 lays down the rule that in the absence of stipulation, attorneys fees cannot be
recovered except in the following instances:
Petrons claim to the V. Mapa properties, founded as it was on final deeds of sale on execution, was
far from untenable. No gross and evident bad faith could be imputed to Petron merely for intervening
(1) When exemplary damages are awarded; in NCBAs suit against DBP and the Monserrats in order to assert what it believed (and had good
reason to believe) were its rights and to have the disputed ownership of the V. Mapa properties
(2) When the defendants act or omission has compelled the plaintiff to litigate with third settled decisively in a single lawsuit.
persons or to incur expense to protect his interest;
With respect to the award of exemplary damages, the rule in this jurisdiction is that the plaintiff must
(3) In criminal cases of malicious prosecution against the plaintiff; show that he is entitled to moral, temperate or compensatory damages before the court may even
consider the question of whether exemplary damages should be awarded. 15 In other words, no
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff; exemplary damages may be awarded without the plaintiffs right to moral, temperate, liquidated or
compensatory damages having first been established. Therefore, in view of our ruling that Petron
cannot be made liable to NCBA for compensatory damages (i.e., attorneys fees), Petron cannot be
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the held liable for exemplary damages either.
plaintiffs plainly valid, just and demandable claim;

WHEREFORE, the petition is hereby GRANTED. The imposition of liability on Petron Corporation for
(6) In actions for legal support; exemplary damages and attorneys fees is REVOKED. The June 21, 2002 decision and October 16,
2002 resolution of the Court of Appeals in CAG.R. CV No. 53466 and the March 11, 1996 decision
(7) In actions for the recovery of wages of household helpers, laborers and skilled of the Regional Trial Court of Manila in Civil Case No. 83-16617 are hereby MODIFIED accordingly.
workers;

(8) In actions for indemnity under workmens compensation and employers liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorneys fees and
expenses of litigation should be recovered.10

Here, the RTC held Petron liable to NCBA for attorneys fees under Article 2208(5), which allows
such an award "where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just, and demandable claim." However, the only justification given for this
verdict was that Petron had no reason to claim the V. Mapa properties because, in the RTCs
opinion, the levy and sale thereof were void.11 This was sorely inadequate and it was erroneous for
the CA to have upheld that ruling built on such a flimsy foundation.

2
 commitment form the DBP and/or other government financing institutions to subscribe in MMIC and
issue guarantee/s for foreign loans or deferred payment arrangements secured from the US
Eximbank, Asian Development Bank, Kobe Steel, of amount not exceeding US$100 Million. 2

DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were based on
the unutilized portion of the Government commitment. Thereafter, the Government extended
accommodations to MMIC in various amounts.

On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust Agreement 3 whereby MMIC, as
mortgagor, agreed to constitute a mortgage in favor or PNB and DBP as mortgagees, over all
MMIC's assets; subject of real estate and chattel mortgage executed by the mortgagor, and
additional assets described and identified, including assets of whatever kind, nature or description,
which the mortgagor may acquire whether in substitution of, in replenishment, or in addition thereto.

Article IV of the Mortgage Trust Agreement provides for Events of Default, which expressly includes
the event that the MORTGAGOR shall fail to pay any amount secured by this Mortgage Trust
G.R. No. 121171 December 29, 1998 Agreement when due. 4

ASSET PRIVATIZATION TRUST, petitioner, Article V of the Mortgage Trust Agreement prescribes in detail, and in addition to the enumerated
vs. events of defaults, circumstances by which the mortgagor may be declared in default, the procedure
COURT OF APPEALS, JESUS S. CABARRUS, SR., JESUS S. CABARRUS, JR., JAIME T. therefor, waiver of period to foreclose, authority of Trustee before, during and after foreclosure,
CABARRUS, JOSE MIGUEL CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO U. including taking possession of the mortgaged properties. 5
MIRANDA, and MIGUEL M. ANTONIO, as Minority Stock-Holders of Marinduque Mining and
Industrial Corporation, respondents. In various requests for advances/remittances of loans if huge amounts, Deeds of Undertaking,
Promissory Notes, Loan Documents, Deeds of Real Estate Mortgages, MMIC invariably committed
KAPUNAN, J.: to pay either on demand or under certain terms the loans and accommodations secured from or
guaranteed by both DBP and PNB.
The petition for review on certiorari before us seeks to reverse and set aside the decision of the
By 1984, DBP and PNB's financial both in loans and in equity in MMIC had reached tremendous
Court of Appeals which denied due course to the petition for certiorari filed by the Asset Privatization
Trust (APT) assailing the order of the Regional Trial Court (RTC) Branch 62, Makati City. The Makati proportions, and MMIC was having a difficult time meeting its financial obligations. MMIC had an
RTC's order upheld and confirmed the award made by the Arbitration Committee in favor of outstanding loan with DBP in the amount of P13,792,607,565.92 as of August 31, 1984 and with
Marinduque Mining and Industrial Corporation (MMIC) and against the Government, represented by PNB in the amount of P8,789,028,249.38 as July 15, 1984 or a total Government expose of Twenty
herein petitioner APT for damages in the amount of P2.5 BILLION (or approximately P4.5 BILLION, Two Billion Six Hundred Sixty-Eight Million Five Hundred Thirty-Seven Hundred Seventy and 05/100
including interest). (P22, 668,537,770.05), Philippine Currency. 6 Thus, a financial restructuring plan (FRP) designed to
reduce MMIC's interest expense through debt conversion to equity was drafted by the Sycip Gorres
Velayo accounting firm. 7 On April 30, 1984, the FRP was approved by the Board of Directors of the
Ironically, the staggering amount of damages was imposed on the Government for exercising its MMIC. 8 However, the proposed FRP had never been formally adopted, approved or ratified by either
legitimate right of foreclosure as creditor against the debtor MMIC as a consequence of the latter's PNB or DBP. 9
failure to pay its overdue and unpaid obligation of P22 billion to the Philippine National Bank (PNB)
and the Development Bank of the Philippines (DBP).
In August and September 1984, as the various loans and advances made by DBP and PNB to MMIC
had become overdue and since any restructuring program relative to the loans was no longer
The antecedent facts feasible, and in compliance with the directive of Presidential Decree No. 385, DBP and PNB as
of the case. mortgagees of MMIC assets, decided to exercise their right to extrajudicially foreclose the mortgages
in accordance with the Mortgage Trust Agreement. 10
The development, exploration and utilization of the mineral deposits in the Surigao Mineral
Reservation have been authorized by Republic Act No. 1528, as amended by Republic Acts Nos. The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly
2077 and 4167, by virtue of which laws, a Memorandum of Agreement was drawn on July 3, 1968, formed corporations, namely, Nonoc Mining Corporation, Maricalum Mining and Industrial
whereby the Republic of the Philippines thru the Surigao Mineral Reservation Board, granted MMIC Corporation, and Island Cement Corporation. In 1986, these assets were transferred to the Asset
the exclusive right to explore, develop and exploit nickel, cobalt and other minerals in the Surigao Privatization Trust (APT). 11
mineral reservation. 1 MMIC is a domestic corporation engaged in mining with respondent Jesus S.
Cabarrus, Sr. as President and among its original stockholders.
On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC, filed a
derivative suit against DBP and PNB before the RTC of Makati, Branch 62, for Annulment of
The Philippine Government undertook to support the financing of MMIC by purchase of MMIC Foreclosures, Specific Performance and Damages. 12 The suit, docketed as Civil Case No. 9900,
debenture bonds and extension of guarantees. Further, the Philippine Government obtained a firm prayed that the court: (1) annul the foreclosures, restore the foreclosed assets to MMIC, and require

3
the banks to account for their use and operation in the interim; (2) direct the banks to honor and 2. Approving the Compromise and Arbitration Agreement
perform their commitments under the alleged FRP; and (3) pay moral and exemplary damages, dated October 6, 1997, attached as Annex "C" of the
attorney's fees, litigation expenses and costs. Omnibus Motion.

In the course of the trial, private respondents and petitioner APT, as successor of the DBP and the 3. Approving the Transformation of the reliefs prayed for
PNB's interest in MMIC, mutually agreed to submit the case to arbitration by entering into a [by] the plaintiffs in this case into pure money claims; and
"Compromise and Arbitration Agreement," stipulating, inter alia:
4. The Complaint is hereby DISMISSED. 15
NOW THEREFORE, for and in consideration of the foregoing premises and the
mutual covenants contained herein the parties agree as follows:
The Arbitration Committee was composed of retired Supreme Court Justice Abraham Sarmiento as
Chairman, Atty. Jose C. Sison and former Court of Appeals Justice Magdangal Elma as Members.
1. Withdrawal and Compromise. The parties have agreed to withdraw their On November 24, 1993, after conducting several hearings, the Arbitration Committee rendered a
respective claims from the Trial Court and to resolve their dispute through majority decision in favor of MMIC, the pertinent portions of which read as follows:
arbitration by praying to the Trial Court to issue a Compromise Judgment based
on this Compromise and Arbitration Agreement.
Since, as this Committee finds, there is no foreclosure at all as it was not legally
and validly done, the Committee holds and so declares that the loans of PNB
In withdrawing their dispute from the court and in choosing to resolve it through and DBP to MMIC. for the payment and recovery of which the void foreclosure
arbitration, the parties have agreed that: sales were undertaken, continue to remain outstanding and unpaid. Defendant
APT as the successor-in-interest of PNB and DBP to the said loans is therefore
entitled and retains the right, to collect the same from MMIC pursuant to, and
(a) their respective money claims shall be reduced to purely money claims; and
based on the loan documents signed by MMIC, subject to the legal and valid
defenses that the latter may duly and seasonably interpose. Such loans shall,
(b) as successor and assignee of the PNB and DBP interests in MMIC and the however, be reduced by the amount which APT may have realized from the sale
MMIC accounts, APT shall likewise succeed to the rights and obligations of PNB of the seized assets of MMIC which by agreement should no longer be returned
and DBP in respect of the controversy subject of Civil Case No. 9900 to be even if the foreclosures were found to be null and void.
transferred to arbitration and any arbitral award/order against either PNB and/or
DBP shall be the responsibility be discharged by and be enforceable against
The documentary evidence submitted and adopted by the parties (Exhibits "3",
APT, the parties having agreed to drop PNB and DBP from the arbitration.
"3-B"; Exhibit "100"; and also Exhibit "ZZZ") as their exhibits would show that
the total outstanding obligation due to DBP and PNB as of the date of
2. Submission. The parties hereby agree that (a) the controversy in Civil Case foreclosure is P22,668,537,770.05, more or less.
No. 9900 shall be submitted instead to arbitration under RA 876 and (b) the
reliefs prayed for in Civil Case No. 9900 shall, with the approval of the Trial
Therefore defendant APT can, and is still entitled to, collect the outstanding
Court of this Compromise and Arbitration Agreement, be transferred and
obligations of MMIC to PNB and DBP amounting to P22,668,537,770.05, more
reduced to pure pecuniary/money claims with the parties waiving and foregoing
or less, with interest thereon as stipulated in the loan documents from the date
all other forms of reliefs which they prayed for or should have prayed for in Civil
13 of foreclosure up to the time they are fully paid less the proportionate liability of
Case No. 9900.
DBP as owner of 87% of the total capitalization of MMIC under the FRP. Simply
put, DBP shall share in the award of damages to, and in the obligations of,
The Compromise and Arbitration Agreement limited the issues to the following: MMIC in proportion to its 87% equity in tile total capital stock of MMIC.

5. Issues The issues to be submitted for the Committee's resolution shall be (a) xxx xxx xxx
Whether PLAINTIFFS have the capacity or the personality to institute this
derivative suit in behalf of the MMIC or its directors, (b) Whether or not the
As this Committee holds that the FRP is valid, DBP's equity in MMIC is raised to
actions leading to, and including,. the PNB-DBP foreclosure of the MMIC assets
87%. So pursuant to the above provision of the Compromise and Arbitration
were proper, valid and in good
Agreement, the 87% equity of DBP is hereby deducted from the actual damages
faith. 14
of P19,486,118,654.00 resulting in the net actual damages of
P2,531,635,425.02 plus interest.
This agreement was presented for approval to the trial court. On October 14, 1992, the Makati RTC,
Branch 61, issued an order, to wit:
DISPOSITION

WHEREFORE, this Court orders:

WHEREFORE, premises considered, judgment is hereby rendered:

1. Substituting PNB and DBP with the Asset Privatization

Trust as party defendant.

4
 1. Ordering the defendant to pay to the Marinduque Mining and Industrial
Corporation, except the DBP, the sum of P2,531,635,425.02 with interest
thereon at the legal rate of six per cent (6%) per annum reckoned from August
3, 9, and 24, 1984, pari passu, as and for actual damages. Payment of these
actual damages shall be offset by APT from the outstanding and unpaid loans of
MMIC with DBP and PNB, which have not been converted into equity. Should
there be any balance due to MMIC after the offsetting, the same shall be
satisfied from the funds representing the purchase price of the sale of the
shares of Island Cement Corporation in the amount of P503,000,000.00 held
under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supercede [sic] it pursuant to
paragraph (9) of the Compromise and Arbitration Agreement;
2. Ordering the defendant to pay to the Marinduque Mining and Industrial
Corporation, except the DBP, the sum of P13,000.000.00, as and for moral and
exemplary damages. Payment of these moral and exemplary damages shall be
offset by APT from the outstanding and unpaid loans of MMIC with DBP and
PNB, which have not been converted into equity. Should there be any balance
due to MMIC after the offsetting, the same shall be satisfied from the funds
representing the purchase price of the sale of the shares of Island Cement
Corporation in the amount of P503,000,000.00 held under escrow pursuant to
the Escrow Agreement dated April 22, 1988 or to such subsequent escrow
agreement that would supercede [sic] it pursuant to paragraph (9) of the
Compromise and Arbitration Agreement;
3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum
of P10,000,000.00, to be satisfied likewise from the funds held under escrow
pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent
escrow agreement that would supersede it, pursuant to paragraph (9) of the
Compromise and Arbitration Agreement, as and for moral damages; and
4. Ordering the defendant to pay arbitration costs.
This Decision is FINAL and EXECUTORY.
3. The issues submitted for arbitration have been limited to two: (1) propriety of
the plaintiffs filing the derivative suit and (2) the regularity of the foreclosure
proceedings. The arbitration award sought to be confirmed herein, far exceeded
the issues submitted and even granted moral damages to one of the herein
plaintiffs;
4. Under Section 24 of Rep. Act 876, the Court must make an order vacating the
award where the arbitrators exceeded their powers, or so imperfectly executed
them, that a mutual, final and definite award upon the subject matter submitted
to them was not made. 17
Private respondents filed a "REPLY AND OPPOSITION" dated November 10, 1984, arguing that a
dismissal of Civil Case No. 9900 was merely a "qualified dismissal" to pave the way for the
submission of the controversy to arbitration and operated simply as "a mere suspension of the
proceedings" They denied that the Arbitration Committee had exceeded its powers.
In an Order dated November 28, 1993, the trial court confirmed the award of the Arbitration
Committee. The dispositive portion of said order reads:
WHEREFORE, premises considered, and in the light of the parties [sic]
Compromise and Arbitration Agreement dated October 6, 1992, the Decision of
the Arbitration Committee promulgated on November 24, 1993, as affirmed in a
Resolution dated July 26, 1994, and finally settled and clarified in the Separate
Opinion dated September 2, 1994 of Committee Member Elma, and the
pertinent provisions of RA 876, also known as the Arbitration Law, this Court
GRANTS PLAINTIFFS' APPLICATION AND THUS CONFIRMS THE
ARBITRATION AWARD, AND JUDGMENT IS HEREBY RENDERED:
(a) Ordering the defendant APT to the Marinduque Mining and Industrial
Corporation (MMIC), except the DBP, the sum of P3,811,757,425.00, as and for
actual damages, which shall be partially satisfied from the funds held under
escrow in the amount of P503,000,000.00 pursuant to the Escrow Agreement
dated April 22, 1988. The balance of the award, after the escrow funds are fully
applied, shall be executed against the APT;

IT IS SO ORDERED. 16
(b) Ordering the defendant to pay to the MMIC, except the DBP, the sum of
P13,000,000.00 as and for moral and exemplary damages;
Motions for reconsideration were filed by both parties, but the same were denied.
(c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum of
On October 17, 1993, private respondents filed in the same Civil Case No. 9900 an P10,000,000.00 as and for moral damages; and
"Application/Motion for Confirmation of Arbitration Award." Petitioner countered with an "Opposition
and Motion to Vacate Judgment" raising the following grounds.
(d) Ordering the defendant to pay the herein plaintiffs/applicants/movants the
sum of P1,705,410.23 as arbitration costs.
1. The plaintiffs Application/Motion is improperly filed with this branch of the
Court, considering that the said motion is neither a part nor the continuation of
In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8
the proceedings in Civil Case No. 9900 which was dismissed upon motion of the
paragraph 2 of the Compromise and Arbitration Agreement, and the final edict of
parties. In fact, the defendants in the said Civil Case No. 9900 were the
the Arbitration Committee's decision, and with this Court's Confirmation, the
Development Bank of the Philippines and the Philippine National Bank (PNB);
issuance of the Arbitration Committee's Award shall henceforth be final and
executory.
2. Under Section 71 of Rep. Act 876, an arbitration under a contract or
submission shall be deemed a special proceedings and a party to the
SO ORDERED. 18
controversy which was arbitrated may apply to the court having jurisdiction, (not
necessarily with this Honorable Court) for an order confirming the award;

5
On December 27, 1994, petitioner filed its motion for reconsideration of the Order dated November I
28, 1994. Private respondents, in turn, submitted their reply and opposition thereto.
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE MAKATI
On January 18, 1995, the trial court handed down its order denying APT's motion for reconsideration REGIONAL TRIAL COURT, BRANCH 62 WHICH HAS PREVIOUSLY
for lack of merit and for having been filed out of time. The trial court declared that "considering that DISMISSED CIVIL CASE NO. 9900 HAD LOST JURISDICTION TO CONFIRM
the defendant APT, through counsel, officially and actually received a copy of the Order of this Court THE ARBITRAL AWARD UNDER THE SAME CIVIL CASE AND NOT RULING
dated November 28, 1994 on December 6, 1994, the Motion for Reconsideration thereof filed by the THAT THE APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN FILED
defendant APT on December 27, 1994, or after the lapse of 21 days, was clearly filed beyond the AS A NEW CASE TO BE RAFFLED OFF AMONG THE DIFFERENT
15-day reglementary period prescribed or provided for by law for the filing of an appeal from final BRANCHES OF THE RTC.
orders, resolutions, awards, judgments or decisions of any court in all cases, and by necessary
implication for the filing of a motion for reconsideration thereof."
II

On February 7, 1995, petitioner received private respondents' Motion for Execution and Appointment
THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT
of Custodian of Proceeds of Execution dated February 6, 1995.
PETITIONER WAS ESTOPPED FROM QUESTIONING THE ARBITRATION
AWARD, WHEN PETITIONER QUESTIONED THE JURISDICTION OF THE
Petitioner thereafter filed with the Court of Appeals a special civil action for certiorari with temporary RTC-MAKATI, BRANCH 62 AND AT THE SAME TIME MOVED TO VACATE
restraining order and/or preliminary injunction dated February 13, 1996 to annul and declare as void THE ARBITRAL AWARD.
the Orders of the RTC-Makati dated November 28, 1994 and January 18, 1995 for having been
issued without or in excess of jurisdiction and/or with grave abuse of discretion. 19 As ground
III
therefor, petitioner alleged that:

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE

I
THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION
MUCH LESS, HAS THE COURT AUTHORITY, TO CONFIRM THE ARBITRAL
AWARD CONSIDERING THAT THE ORIGINAL CASE, CIVIL CASE NO. 9900,
HAD PREVIOUSLY BEEN DISMISSED.
RESPONDENT TRIAL COURT SHOULD HAVE EITHER DISMISSED/DENIED
PRIVATE RESPONDENTS' MOTION/PETITION FOR CONFIRMATION OF
ARBITRATION AWARD AND/OR SHOULD HAVE CONSIDERED THE MERITS
OF THE MOTION TO VACATE ARBITRAL AWARD.
IV

II
THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APT'S
PETITION FORCERTIORARI AS AN APPEAL TAKEN FROM THE ORDER
THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION CONFIRMING THE AWARD.
AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION, IN ISSUING THE
QUESTIONED ORDERS CONFIRMING THE ARBITRAL AWARD AND
V
DENYING THE MOTION FOR RECONSIDERATION OF ORDER OF AWARD.

THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL ISSUE

III
OF WHEN TO RECKON THE COUNTING OF THE PERIOD TO FILE A
MOTION FOR RECONSIDERATION. 21
THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION AND
ACTED WITHOUT OR IN EXCESS OF AND WITHOUT JURISDICTION IN
The petition is impressed with merit.
RECKONING THE COUNTING OF THE PERIOD TO FILE MOTION FOR
RECONSIDERATION, NOT FROM THE DATE OF SERVICE OF THE
COURT'S COPY CONFIRMING THE AWARD, BUT FROM RECEIPT OF A I
XEROX COPY OF WHAT PRESUMABLY IS THE OPPOSING COUNSEL'S
20
COPY THEREOF.
The RTC of Makati, Branch 62,

On July 12, 1995, he Court of Appeals, through its Fifth-Division, denied due course and dismissed
did not have jurisdiction to confirm
the petition forcertiorari.

the arbitral award.

Hence, the instant petition for review on certiorari imputing to the Court of Appeals the following
errors:
The use of the term "dismissed" is not "a mere semantic imperfection". The dispositive portion of the
Order of the trial court dated October 14, 1992 stated in no uncertain terms:
ASSIGNMENT OF ERRORS

6
 4. The Complaint is hereby DISMISSED. 22 under Rule 65 was proper.

The term "dismiss" has a precise definition in law. "To dispose of an action, suit, or motion The Court of Appeals in dismissing APT's petition for certiorari upheld the trial court's denial of APT's
without trial on the issues involved. Conclude, discontinue, terminate, quash." 23 motion for reconsideration of the trial court's order confirming the arbitral award, on the ground that
said motion was filed beyond the 15-day reglementary period; consequently, the petition
for certiorari could not be resorted to as substitute to the lost right of appeal.
Admittedly, the correct procedure was for the parties to go back to the court where the case was
pending to have the award confirmed by said court. However, Branch 62 made the fatal mistake of
issuing a final order dismissing the case. While Branch 62 should have merely suspended the case We do not agree.
and not dismissed it, 24 neither of the parties questioned said dismissal. Thus, both parties as well as
said court are bound by such error.
Section 99 of Republic Act No. 876, 28 provides that:

It is erroneous then to argue, as private respondents do, that petitioner APT was charged with the
. . . An appeal may be taken from an order made in a proceeding under this Act,
knowledge that the "case was merely stayed until arbitration finished," as again, the order of Branch
or from a judgment entered upon an award through certiorari proceedings, but
62 in very clear terms stated that the "complaint was dismissed." By its own action, Branch 62 had
such appeals shall be limited to questions of law. . . ..
lost jurisdiction over the case. It could not have validly reacquired jurisdiction over the said case on
mere motion of one of the parties. The Rules of Court is specific on how a new case may be initiated
and such is not done by mere motion in a particular branch of the RTC. Consequently, as there was The aforequoted provision, however, does not preclude a party aggrieved by the arbitral award from
no "pending action" to speak of, the petition to confirm the arbitral award should have been filed as a resorting to the extraordinary remedy of certiorari under Rule 65 of the Rules of Court where, as in
new case and raffled accordingly to one of the branches of the Regional Trial Court. this case, the Regional Trial Court to which the award was submitted for confirmation has acted
without jurisdiction or with grave abuse of discretion and there is no appeal, nor any plain, speedy
remedy in the course of law.
II

Thus, Section 1 of Rule 65 provides:

Petitioner was not estopped from

Sec 1. Petition for Certiorari: When any tribunal, board or officer exercising
questioning the jurisdiction of
judicial functions, has acted without or in excess of its or his jurisdiction, or with
grave abuse of discretion and there is no appeal, nor any plain, speed, and
Branch 62 of the RTC of Makati. adequate remedy in the ordinary course of law, a person aggrieved thereby may
file a verified petition in the proper court alleging the facts with certainty and
praying that judgment be rendered annulling or modifying the proceedings, as
The Court of Appeals ruled that APT was already estopped to question the jurisdiction of the RTC to
the law requires, of such tribunal, board or officer.
confirm the arbitral award because it sought affirmative relief in said court by asking that the arbitral
award be vacated.
In the instant case, the respondent court erred in dismissing the special civil action for certiorari, it
being clear from the pleadings and the evidence that the trial court lacked jurisdiction and/or
The rule is that "Where the court itself clearly has no jurisdiction over the subject matter or the
committed grave abuse of discretion in taking cognizance of private respondents' motion to confirm
nature of the action, the invocation of this defense may be done at any time. It is neither for the
the arbitral award and, worse, in confirming said award which is grossly and patently not in accord
courts nor for the parties to violate or disregard that rule, let alone to confer that jurisdiction this
25 with the arbitration agreement, as will be hereinafter demonstrated.
matter being legislative in character." As a rule then, neither waiver nor estoppel shall apply to
26
confer jurisdiction upon a court barring highly meritorious and exceptional circumstances. One
such exception was enunciated in Tijam vs. Sibonghanoy, 27 where it was held that "after voluntarily IV
submitting a cause and encountering an adverse decision on the merits, it is too late for the loser to
question the jurisdiction or power of the court."
The nature and limits of the

Petitioner's situation is different because from the outset, it has consistently held the position that the
RTC, Branch 62 had no jurisdiction to confirm the arbitral award; consequently, it cannot be said that
it was estopped from questioning the RTC's jurisdiction. Petitioner's prayer for the setting aside of
the arbitral award was not inconsistent with its disavowal of the court's jurisdiction.
III
Appeal of petitioner to the
Court of Appeals thru certiorari
Arbitrators' power.
As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to the
law or as to the facts. 29 Courts are without power to amend or overrule merely because of
disagreement with matters of law or facts determined by the arbitrators. 30 They will not review the
findings of law and fact contained in an award, and will not undertake to substitute their judgment for
that of the arbitrators, since any other rule would make an award the commencement, not the end, of
litigation. 31 Errors of law and fact, or an erroneous decision of matters submitted to the judgment of
the arbitrators, are insufficient to invalidate an award fairly and honestly made. 32 Judicial review of
an arbitration is thus, more limited than judicial review of a trial. 33

7
Nonetheless, the arbitrators' award is not absolute and without exceptions. The arbitrators cannot and material to the controversy; that one or more of the arbitrators was
resolve issues beyond the scope of the submission agreement. 34 The parties to such an agreement disqualified to act as such under section nine hereof, and willfully refrained from
are bound by the arbitrators' award only to the extent and in the manner prescribed by the contract disclosing such disqualifications or any other misbehavior by which the rights of
and only if the award is rendered in conformity thereto.35 Thus, Sections 24 and 25 of the Arbitration any party have been materially prejudiced; or
Law provide grounds for vacating, rescinding or modifying an arbitration award. Where the
conditions described in Articles 2038, 36
(d) That the arbitrators exceeded their powers, or so imperfectly executed them,
2039, 37 and 1040 38 of the Civil Code applicable to compromises and arbitration are attendant, the
that a mutual, final and definite award upon the subject matter submitted to
arbitration award may also be annulled.
them was not made. (Emphasis ours)
39
In Chung Fu Industries (Phils.) vs. Court of Appeals, we held:
xxx xxx xxx.

. . . . It is stated explicitly under Art. 2044 of the Civil Code that the finality of the
Section 25 which enumerates the grounds for modifying the award provides:
arbitrators' award is not absolute and without exceptions. Where the conditions
described in Articles 2038, 2039 and 2040 applicable to both compromises and
arbitrations are obtaining, the arbitrator's award may be annulled or rescended. Sec. 25. Grounds for modifying or correcting award In anyone of the following
Additionally, under Sections 24 and 25 of the Arbitration Law, there are grounds cases, the court must make an order modifying or correcting the award, upon
for vacating, modifying or rescinding an arbitrator's award. Thus, if and when the the application of any party to the controversy which was arbitrated:
factual circumstances referred to the above-cited provisions are present, judicial
review of the award is properly warranted.
(a) Where there was an evident miscalculation of figures, or an evident mistake
in the description of any person, thing or property referred to in the award; or
According, Section 20 of R.A. 876 provides:
(b) Where the arbitrators have awarded upon a matter not submitted to them,
Sec. 20. Form and contents of award. The award must be made in writing not affecting the merits of the decision upon the matter submitted; or
and signed and acknowledge by a majority of the arbitrators, if more than one;
and by the sole arbitrator, if there is only only. Each party shall be furnished with
(c) Where the award is imperfect in a matter of form not affecting the merits of
a copy of the award. The arbitrators in their award may grant any remedy or
the controversy, and if it had been a commissioner's report, the defect could
relief which they deem just and equitable and within the scope of the agreement
have been amended or disregarded by the court.
of the parties, which shall include, but not be limited to, the specific performance
of a contract.
xxx xxx xxx
xxx xxx xxx
Finally, it should be stressed that while a court is precluded from overturning an award for errors in
the determination of factual issues, nevertheless, if an examination of the record reveals no support
The arbitrators shall have the power to decide only those matters which have
whatever for the arbitrators determinations, their award must be vacated. 40 in the same manner, an
been submitted to them. The terms of the award shall be confined to such
award must be vacated if it was made in "manifest disregard of the law." 41
disputes. (Emphasis ours).

Against the backdrop of the foregoing provisions and principles, we find that the arbitrators came out
xxx xxx xxx
with an award in excess of their powers and palpably devoid of factual and legal basis.

Sec. 24 of the same law enumerating the grounds for vacating an award states:
V

Sec. 24. Grounds for vacating award. In any one of the following cases, the
There was no financial
court must make an order vacating the award upon the petition of any party to
the controversy when such party proves affirmatively that in the arbitration
proceeding: structuring program:

(a) The award was procured by corruption, fraud, or other undue means; or foreclosure of mortgage

(b) That there was evident partiality or corruption in the arbitrators or any of was fully justified.
them; or
The point need not be belabored that PNB and DBP had the legitimate right to foreclose of the
(c) That the arbitrators were guilty of misconduct in refusing to postpone the mortgages of MMIC whose obligations were past due. The foreclosure was not a wrongful act of the
hearing upon sufficient cause shown, or in refusing to hear evidence pertinent banks and, therefore, could not be the basis of any award of damages. There was no financial

8
restructuring agreement to speak of that could have constituted an impediment to the exercise of the
banks' right to foreclose.
As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who wrote a
separate opinion:
1. The various loans and advances made by DBP and PNB to MMIC have
become overdue and remain unpaid. The fact that a FRP was drawn up is
enough to establish that MMIC has not been complying with the terms of the
loan agreement. Restructuring simply connotes that the obligations are past due
that is why it is "restructurable";
2. When MMIC thru its board and the stockholders agreed and adopted the
FRP, it only means that MMIC had been informed or notified that its obligations
were past due and that foreclosure is forthcoming;
3. At that stage, MMIC also knew that PNB-DBP had the option of either
approving the FRP or proceeding with the foreclosure. Cabarrus, who filed this
case supposedly in behalf of MMIC should have insisted on the FRP. Yet
Cabarrus himself opposed the FRP;
4. So when PNB-DBP proceeded with the foreclosure, it was done without bad
faith but with the honest and sincere belief that foreclosure was the only
alternative; a decision further explained by Dr. Placido Mapa who testified that
foreclosure was, in the judgment of PNB, the best move to save MMIC itself.
Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated by P.D. No. 385,
Q : Now in this portion of Exh. "L" which was marked as Exh. "L-1", and we
which took effect on January 31, 1974. The decree requires government financial institutions to
adopted as Exh. 37-A for the respondent, may I know from you, Dr. Mapa what
foreclose collaterals for loans where the arrearages amount to 20% of the total outstanding
you meant by "that the decision to foreclose was neither precipitate nor
obligations. The pertinent provisions of said decree read as follow:
arbitrary"?
A : Well, it is not a whimsical decision but rather decision arrived at after weighty
consideration of the information that we have received, and listening to the
prospects which reported to us that what we had assumed would be the
premises of the financial rehabilitation plan was not materialized nor expected to
materialize.
Q : And this statement that "it was premised upon the known fact" that means, it
was referring to the decision to foreclose, was premised upon the known fact
that the rehabilitation plan earlier approved by the stockholders was no longer
feasible, just what is meant "by no longer feasible"?
A : Because the revenue that they were counting on to make the rehabilitation
plan possible, was not anymore expected to be forthcoming because it will
result in a short fall compared to the prices that were actually taking place in the
market.
Q : And I suppose that was what you were referring to when you stated that the
production targets and assumed prices of MMIC's products, among other
projections, used in the financial reorganization program that will make it viable
were not met nor expected to be met?
A : Yes.
xxx xxx xxx
Which brings me to my last point in this separate opinion. Was PNB and DBP
absolutely unjustified in foreclosing the mortgages?
In this connection, it can readily be seen and it cannot quite be denied that
MMIC accounts in PNB-DBP were past due. The drawing up of the FRP is the
best proof of this. When MMIC adopted a restructuring program for its loan, it
only meant that these loans were already due and unpaid. If these loans were
restructurable because they were already due and unpaid, they are likewise
"forecloseable". The option is with the PNB-DBP on what steps to take.
The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost
the option to foreclose. Neither does it mean that the FRP is legally binding and
implementable. It must be pointed that said FRP will, in effect, supersede the
existing and past due loans of MMIC with PNB-DBP. It will become the new loan
agreement between the lenders and the borrowers. As in all other contracts,
there must therefore be a meeting of minds of the parties; the PNB and DBP
must have to validly adopt and ratify such FRP before they can be bound by it;
before it can be implemented. In this case, not an iota of proof has been
presented by the PLAINTIFFS showing that PNB and DBP ratified and adopted
the FRP. PLAINTIFFS simply relied on a legal doctrine of promissory estoppel to
support its allegations in this regard. 42
Sec. 1. It shall be mandatory for government financial institutions, after the lapse
of sixty (60) days from the issuance of this Decree, to foreclose the collaterals
and/or securities for any loan, credit, accommodation, and/or guarantees
granted by them whenever the arrearages on such account, including accrued
interest and other charges, amount to at least twenty percent (20%) of the total
outstanding obligations, including interest and other charges, as appearing in
the books of account and/or related records of the financial institutions
concerned. This shall be without prejudice to the exercise by the government
financial institutions of such rights and/or remedies available to them under their
respective contracts with their debtors, including the right to foreclosure on
loans, credits, accommodations and/or guarantees on which the arrearages are
less than twenty percent (20%).
Sec. 2. No restraining order temporary or permanent injunction shall be issued
by the court against any government financial institution in any action taken by
such institution in compliance with themandatory foreclosure provided in
Section 1 hereof, whether such restraining order, temporary or permanent
injunction is sought by the borrower(s) or any third party or parties, except after
due hearing in which it is established by the borrower and admitted by the
government financial institution concerned that twenty percent (20%) of the
outstanding arrearages has been paid after the filing of foreclosure proceedings.
(Emphasis supplied.)
9
Private respondents' thesis that the foreclosure proceedings were null and void because of lack of
publication in the newspaper is nothing more than a mere unsubstantiated aliegation not borne out
by the evidence. In any case, a disputable presumption exists in favor of petitioner that official duty
has been regularly performed and ordinary course of business has been followed. 43
VI
Not only was the foreclosure rightfully exercised by the PNB and DBP, but also, from the facts of the
case, the arbitrators in making the award went beyond the arbitration agreement.
In the event the committee finds that PLAINTIFFS have the personality to file
this suit and the extra-judicial foreclosure of the MMIC assets wrongful, it shall
make an award in favor of the PLAINTIFFS (excluding DBP), in an amount as
may be established or warranted by the evidence which shall be payable in
Philippine Pesos at the time of the award. Such award shall be paid by the APT
or its successor-in-interest within sixty (60) days from the date of the award in
accordance with the provisions of par. 9 hereunder. . . . . The PLAINTIFFS'
remedies under this Section shall be in addition to other remedies that may be
available to the PLAINTIFFS, all such remedies being cumulative and not
exclusive of each other.

In their complaint filed before the trial court, private respondent Cabarrus, et al. prayed for judgment On the other hand, in case the arbitration committee finds that PLAINTIFFS
in their favor: have no capacity to sue and/or that the extra-judicial foreclosure is valid and
legal, it shall also make an award in favor of APT based on the counterclaims of
DBP and PNB in an amount as may be established or warranted by the
1. Declaring the foreclosures effected by the defendants DBP and PNB on the evidence. This decision of the arbitration committee in favor of APT shall
assets of MMIC null and void and directing said defendants to restore the likewise finally settle all issues regarding the foreclosure of the MMIC assets so
foreclosed assets to the possession of MMIC, to render an accounting of their that the funds held in escrow mentioned in par. 9 hereunder will thus be
use and/or operation of said assets and to indemnify MMIC for the loss released in full in favor of
occasioned by its dispossession or the deterioration thereof; APT. 46

2. Directing the defendants DBP and PNB to honor and perform their The clear and explicit terms of the submission notwithstanding, the Arbitration Committee clearly
commitments under the financial reorganization plan which was approved at the exceeded its powers or so imperfectly executed them: (a) in ruling on and declaring valid the FRP;
annual stockholders' meeting of MMIC on 30 April 1984; (b) in awarding damages to MMIC which was not a party to the derivative suit; and (c) in awarding
moral damages to Jesus S. Cabarrus, Sr.
3. Condemning the defendants DBP and PNB, jointly and severally to pay the
plaintiffs actual damages consisting of the loss of value of their investments The arbiters overstepped
amounting to not less than P80,000,000, the damnum emergens and lucrum
cessans in such amount as may be established during the trial, moral damages
in such amount as this Honorable Court may deem just and equitable in the their powers by declaring as
premises, exemplary damages in such amount as this Honorable Court may
consider appropriate for the purpose of setting an example for the public good,
valid the proposed Financial
attorney's fees and litigation expenses in such amounts as may be proven
during the trial, and the costs legally taxable in this litigation.
Restructuring Program.
Further, plaintiffs pray for such other reliefs as may be just and equitable in the
premises. 44 The Arbitration Committee went beyond its mandate and thus acted in excess of its powers when it
ruled on the validity of, and gave effect to, the proposed FRP.
Upon submission for arbitration, the Compromise and Arbitration Agreement of the parties clearly
and explicitly defined and limited the issues to the following: In submitting the case to arbitration, the parties had mutually agreed to limit the issue to the "validity
of the foreclosure" and to transform the relief prayed for therein into pure money claims.
(a) whether PLAINTIFFS have the capacity or the personality to institute this
derivative suit in behalf of the MMIC or its directors; There is absolutely no evidence that the DBP and PNB agreed, expressly or impliedly, to the
proposed FRP. It cannot be overemphasized that a FRP, as a contract, requires the consent of the
parties thereto. 47 The contract must bind both contracting parties. 48 Private respondents even by
(b) whether or not the actions leading to, and including, the PNB-DBP
45 their own admission recognized that the FRP had yet not been carried out and that the loans of
foreclosure of the MMIC assets were proper, valid and in good faith.
MMIC had not yet been converted into equity. 49

Item No. 8 of the Agreement provides for the period by which the Committee was to render its
However, the Arbitration Committee not only declared the FRP valid and effective, but also converted
decision, as well as the nature thereof:
the loans of MMIC into equity raising the equity of DBP to 87%. 50

8. Decision. The committee shall issue a decision on the controversy not later 51
The Arbitration Committee ruled that there was "a commitment to carry out the FRP" on the
than six (6) months from the date of its constitution.
ground of promissory estoppel.

10
 Similarly, the principle of promissory estoppel applies in the present case
considering as we observed, the fact that the government (that is, Alfredo
Velayo) was the FRP's proponent. Although the plaintiffs are agreed that the
government executed no formal agreement, the fact remains that the DBP itself
which made representations that the FRP constituted a "way out" for MMIC. The
Committee believes that although the DBP did not formally agree (assuming
that the board and stockholders' approvals were not formal enough), it is bound
nonetheless if only for its conspicuous representations.
Although the DBP sat in the board in a dual capacity as holder of 36% of
MMIC's equity (at that time) and as MMIC's creditor the DBP can not validly
renege on its commitments simply because at the same time, it held interests
against the MMIC.
Besides, it is not yet a well settled jurisprudence that corporations are entitled to
moral damages. While the Supreme Court may have awarded moral damages
to a corporation for besmirched reputation in Mambulao vs. PNB, 22 SCRA 359,
such ruling cannot find application in this case. It must be pointed out that when
the supposed wrongful act of foreclosure was done, MMIC's credit reputation
was no longer a desirable one. The company then was already suffering from
serious financial crisis which definitely projects an image not compatible with
good and wholesome reputation. So it could not be said that there was a
"reputation" besmirched by the act of foreclosure. 55
The arbiters exceeded their
authority in awarding damages

The fact, of course, is that as APT itself asserted, the FRP was being "carried
to MMIC, which is not impleaded
out" although apparently, it would supposedly fall short of its targets. Assuming
that the FRP would fail to meet its targets, the DBP and so this Committee
holds can not, in any event, brook any denial that it was bound to begin with, as a party to the derivative suit.
and the fact is that adequate or not (the FRP), the government is still bound by
virtue of its acts.
Civil Case No. 9900 filed before the RTC being a derivative suit, MMIC should have been impleaded
as a party. It was not joined as a party plaintiff or party defendant at any stage of the proceedings. As
The FRP, of course, did not itself promise a resounding success, although it it is, the award of damages to MMIC, which was not a party before the Arbitration Committee, is a
raised DBP's equity in MMIC to 87%. It is not an excuse, however, for the complete nullity.
government to deny its commitments. 52
Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while the
Atty. Sison, however, did not agree and correctly observed that: stockholder filing suit for the corporation's behalf is only a nominal party. The corporation should be
included as a party in the suit.
But the doctrine of promissory estoppel can hardly find application here. The
nearest that there can be said of any estoppel being present in this case is the An individual stockholder is permitted to institute a derivative suit on behalf of
fact that the board of MMIC was, at the time the FRP was adopted, mostly the corporation wherein he holds stock in order to protect or vindicate corporate
composed of PNB and DBP representatives. But those representatives, singly rights, whenever the officials of the corporation refuse to sue, or are the ones to
or collectively, are not themselves PNB or DBP. They are individuals with be sued or hold the control of the corporation. In such actions, the suing
personalities separate and distinct from the banks they represent. PNB and stockholder is regarded as a nominal party, with the corporation as the real party
DBP have different boards with different members who may have different in interest. . . . . 56
decisions. It is unfair to impose upon them the decision of the board of another
company and thus pin them down on the equitable principle of estoppel.
Estoppel is a principle based on equity and it is certainly not equitable to apply it It is a condition sine qua non that the corporation be impleaded as a party because
in this particular situation. Otherwise the rights of entirely separate distinct and
autonomous legal entities like PNB and DBP with thousands of stockholders will . . . Not only is the corporation an indispensable party, but it is also the present
be suppressed and rendered nugatory. 53 rule that it must be served with process. The reason given is that the judgment
must be made binding upon the corporation in order that the corporation may
get the benefit of the suit and may not bring a subsequent suit against the same
As a rule, a corporation exercises its powers, including the power to enter into contracts, through its
defendants for the same cause of action. In other words the corporation must be
board of directors. While a corporation may appoint agents to enter into a contract in its behalf, the
joined as party because it is its cause of action that is being litigated and
agent should not exceed his authority. 54 In the case at bar, there was no showing that the
because judgment must be a res ajudicata against it. 57
representatives of PNB and DBP in MMIC even had the requisite authority to enter into a debt-for-
equity swap. And if they had such authority, there was no showing that the banks, through their
board of directors, had ratified the FRP. The reasons given for not allowing direct individual suit are:

Further, how could the MMIC be entitled to a big amount of moral damages when its credit
reputation was not exactly something to be considered sound and wholesome. Under Article 2217 of
the Civil Code, moral damages include besmirched reputation which a corporation may possibly
suffer. A corporation whose overdue and unpaid debts to the Government alone reached a
tremendous amount of P22 Billion Pesos cannot certainly have a solid business reputation to brag
about. As Atty. Sison in his separate opinion persuasively put it:
(1) . . . "the universally recognized doctrine that a stockholder in a corporation
has no title legal or equitable to the corporate property; that both of these are in
the corporation itself for the benefit of the stockholders." In other words, to allow
shareholders to sue separately would conflict with the separate corporate entity
principle;

11
 (2) . . . that the prior rights of the creditors may be prejudiced. Thus, our doubt that Jesus S. Cabarrus, Sr., suffered moral damages on account of that specific foreclosure,
Supreme Court held in the case of Evangelista v. Santos, that "the stockholders damages the Committee believes and so holds, he, Jesus S. Cabarrus, Sr., may be awarded in this
may not directly claim those damages for themselves for that would result in the proceeding." 61
appropriation by, and the distribution among them of part of the corporate assets
before the dissolution of the corporation and the liquidation of its debts and
Cabarrus cause of action for the seizure of the assets belonging to IEI, of which he is the majority
liabilities, something which cannot be legally done in view of section 16 of the
stockholder, having been ventilated in a complaint he previously filed with the RTC, from which he
Corporation Law . . .;
obtained actual damages, he was barred by res judicata from filing a similar case in another court,
this time asking for moral damages which he failed to get from the earlier case. 62 Worse, private
(3) the filing of such suits would conflict with the duty of the management to sue respondents violated the rule against non-forum shopping.
for the protection of all concerned;
It is a basic postulate that a corporation has a personality separate and distinct from its
(4) it would produce wasteful multiplicity of suits; and stockholders. 63 The properties foreclosed belonged to MMIC, not to its stockholders. Hence, if
wrong was committed in the foreclosure, it was done against the corporation. Another reason is that
Jesus S. Cabarrus, Sr. cannot directly claim those damages for himself that would result in the
(5) it would involve confusion in a ascertaining the effect of partial recovery by
appropriation by, and the distribution to, him part of the corporation's assets before the dissolution of
an individual on the damages recoverable by the corporation for the same act. 58
the corporation and the liquidation of its debts and liabilities. The Arbitration Committee, therefore,
passed upon matters nor submitted to it. Moreover, said cause of action had already been decided in
If at all an award was due MMIC, which it was not, the same should have been a separate case. It is thus quite patent that the arbitration committee exceeded the authority granted
given sans deduction, regardless of whether or not the party liable had equity in the corporation, in to it by the parties' Compromise and Arbitration Agreement by awarding moral damages to Jesus S.
view of the doctrine that a corporation has a personality separate and distinct from its individual Cabarrus, Sr.
stockholders or members. DBP's alleged equity, even if it were indeed 87%, did not give it ownership
over any corporate property, including the monetary award, its right over said corporate property
Atty. Sison, in his separate opinion, likewise expressed befuddlement to the award of moral
being a mere expectancy or inchoate right. 59 Notably, the stipulation even had the effect of
damages to Jesus S. Cabarrus, Sr.:
prejudicing the other creditors of MMIC.

It is clear and it cannot be disputed therefore that based on these stipulated

The arbiters, likewise,
issues, the partiesthemselves have agreed that the basic ingredient of the
causes of action in this case is the wrong committed on the corporation
exceeded their authority (MMIC) for the alleged illegal foreclosure of its assets. By agreeing to this
stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit that the cause of
action pertains only to the corporation (MMIC) and that they are filing this for
in awarding moral damages and in behalf of MMIC.

to Jesus Cabarrus, Sr. Perforce this has to be so because it is the basic rule in Corporation Law that
"the shareholders have no title, legal or equitable to the property which is owned
It is perplexing how the Arbitration Committee can in one breath rule that the case before it is a by the corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon
derivative suit, in which the aggrieved party or the real party in interest is supposedly the MMIC, and & Sons vs. Register of Deeds, 6 SCRA 373, the rule has been reiterated that "a
at the same time award moral damages to an individual stockholder, to wit: stockholder is not the co-owner of corporate property." Since the property or
assets foreclosed belongs [sic] to MMIC, the wrong committed, if any, is done
against the corporation. There is therefore no direct injury or direct violation of
WHEREFORE, premises considered, judgment is hereby rendered: the rights of Cabarrus et al. There is no way, legal or equitable, by which
Cabarrus et al. could recover damages in their personal capacities even
xxx xxx xxx assuming or just because the foreclosure is improper or invalid. The
Compromise and Arbitration Agreement itself and the elementary principles of
Corporation Law say so. Therefore, I am constrained to dissent from the award
3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum of moral damages to Cabarrus. 64
of P10,000,000.00, to be satisfied likewise from the funds held under escrow
pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent
escrow agreement that would supersede it, pursuant to paragraph (9), From the foregoing discussions, it is evident that, not only did the arbitration committee exceed its
Compromise and Arbitration Agreement, as and for moral damages; . . . 60 powers or so imperfectly execute them, but also, its findings and conclusions are palpably devoid of
any factual basis, and in manifest disregard of the law.
The majority decision of the Arbitration Committee sought to justify its award of moral damages to
Jesus S. Cabarrus, Sr. by pointing to the fact that among the assets seized by the government were We do not find it necessary to remand this case to the RTC for appropriate action. The pleadings
assets belonging to Industrial Enterprise Inc. (IEI), of which Cabarrus is the majority stockholder. It and memoranda filed with this Court, as well as in the Court of Appeals, raised and extensively
then acknowledged that Cabarrus had already recovered said assets in the RTC, but that "he won discussed the issues on the merits. Such being the case, there is sufficient basis for us to resolve
no more than actual damages. While the Committee cannot possibly speak for the RTC, there is no the controversy between the parties anchored on the records and the pleadings before us. 65

12
WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as well as the Orders of
the Regional Trial Court of Makati, Branch 62, dated November 28, 1994 and January 19, 1995, is
hereby REVERSED and SET ASIDE, and the decision of the Arbitration Committee is hereby
VACATED.
The antecedent facts of the case, as found by the trial court, are as follows:
SO ORDERED.
G.R. No. L-22973 January 30, 1968
MAMBULAO LUMBER COMPANY, plaintiff-appellant,
vs.
PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of
Camarines Norte,defendants-appellees.
Ernesto P. Vilar and Arthur Tordesillas for plaintiff-appellant.
Tomas Besa and Jose B. Galang for defendants-appellees.
ANGELES, J.:
An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila in Civil Case
No. 52089, entitled "Mambulao Lumber Company, plaintiff, versus Philippine National Bank and
Anacleto Heraldo, defendants", dismissing the complaint against both defendants and sentencing
the plaintiff to pay to defendant Philippine National Bank (PNB for short) the sum of P3,582.52 with
interest thereon at the rate of 6% per annum from December 22, 1961 until fully paid, and the costs
of suit.
In seeking the reversal of the decision, the plaintiff advances several propositions in its brief which
may be restated as follows:
1. That its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87
and not P58,213.51 as concluded by the court a quo; hence, the proceeds of the
foreclosure sale of its real property alone in the amount of P56,908.00 on that date, added
to the sum of P738.59 it remitted to the PNB thereafter was more than sufficient to
liquidate its obligation, thereby rendering the subsequent foreclosure sale of its chattels
unlawful;
2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees and the
additional sum of P298.54 as expenses of the foreclosure sale;
3. That the subsequent foreclosure sale of its chattels is null and void, not only because it
had already settled its indebtedness to the PNB at the time the sale was effected, but also
for the reason that the said sale was not conducted in accordance with the provisions of
the Chattel Mortgage Law and the venue agreed upon by the parties in the mortgage
contract;
4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for its value; and
5. That for the acts of the PNB in proceeding with the sale of the chattels, in utter
disregard of plaintiff's vigorous opposition thereto, and in taking possession thereof after
the sale thru force, intimidation, coercion, and by detaining its "man-in-charge" of said
properties, the PNB is liable to plaintiff for damages and attorney's fees.
On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the Naga
Branch of defendant PNB and the former offered real estate, machinery, logging and
transportation equipments as collaterals. The application, however, was approved for a
loan of P100,000 only. To secure the payment of the loan, the plaintiff mortgaged to
defendant PNB a parcel of land, together with the buildings and improvements existing
thereon, situated in the poblacion of Jose Panganiban (formerly Mambulao), province of
Camarines Norte, and covered by Transfer Certificate of Title No. 381 of the land records
of said province, as well as various sawmill equipment, rolling unit and other fixed assets
of the plaintiff, all situated in its compound in the aforementioned municipality.
On August 2, 1956, the PNB released from the approved loan the sum of P27,500, for
which the plaintiff signed a promissory note wherein it promised to pay to the PNB the said
sum in five equal yearly installments at the rate of P6,528.40 beginning July 31, 1957, and
every year thereafter, the last of which would be on July 31, 1961.
On October 19, 1956, the PNB made another release of P15,500 as part of the approved
loan granted to the plaintiff and so on the said date, the latter executed another
promissory note wherein it agreed to pay to the former the said sum in five equal yearly
installments at the rate of P3,679.64 beginning July 31, 1957, and ending on July 31,
1961.
The plaintiff failed to pay the amortization on the amounts released to and received by it.
Repeated demands were made upon the plaintiff to pay its obligation but it failed or
otherwise refused to do so. Upon inspection and verification made by employees of the
PNB, it was found that the plaintiff had already stopped operation about the end of 1957 or
early part of 1958.
On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte
requesting him to take possession of the parcel of land, together with the improvements
existing thereon, covered by Transfer Certificate of Title No. 381 of the land records of
Camarines Norte, and to sell it at public auction in accordance with the provisions of Act
No. 3135, as amended, for the satisfaction of the unpaid obligation of the plaintiff, which
as of September 22, 1961, amounted to P57,646.59, excluding attorney's fees. In
compliance with the request, on October 16, 1961, the Provincial Sheriff of Camarines
Norte issued the corresponding notice of extra-judicial sale and sent a copy thereof to the
plaintiff. According to the notice, the mortgaged property would be sold at public auction at
10:00 a.m. on November 21, 1961, at the ground floor of the Court House in Daet,
Camarines Norte.
On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte
requesting him to take possession of the chattels mortgaged to it by the plaintiff and sell
them at public auction also on November 21, 1961, for the satisfaction of the sum of
P57,646.59, plus 6% annual interest therefore from September 23, 1961, attorney's fees
equivalent to 10% of the amount due and the costs and expenses of the sale. On the
same day, the PNB sent notice to the plaintiff that the former was foreclosing
extrajudicially the chattels mortgaged by the latter and that the auction sale thereof would
be held on November 21, 1961, between 9:00 and 12:00 a.m., in Mambulao, Camarines
Norte, where the mortgaged chattels were situated.
13
On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession of the
chattels mortgaged by the plaintiff and made an inventory thereof in the presence of a PC
Sergeant and a policeman of the municipality of Jose Panganiban. On November 9, 1961,
the said Deputy Sheriff issued the corresponding notice of public auction sale of the
mortgaged chattels to be held on November 21, 1961, at 10:00 a.m., at the plaintiff's
compound situated in the municipality of Jose Panganiban, Province of Camarines Norte.
On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail
matter, one to the Naga Branch of the PNB and another to the Provincial Sheriff of
Camarines Norte, protesting against the foreclosure of the real estate and chattel
mortgages on the grounds that they could not be effected unless a Court's order was
issued against it (plaintiff) for said purpose and that the foreclosure proceedings,
according to the terms of the mortgage contracts, should be made in Manila. In said letter
to the Naga Branch of the PNB, it was intimated that if the public auction sale would be
suspended and the plaintiff would be given an extension of ninety (90) days, its obligation
would be settled satisfactorily because an important negotiation was then going on for the
sale of its "whole interest" for an amount more than sufficient to liquidate said obligation.
The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as a
request for extension of the foreclosure sale of the mortgaged chattels and so it advised
the Sheriff of Camarines Norte to defer it to December 21, 1961, at the same time and
place. A copy of said advice was sent to the plaintiff for its information and guidance.
The foreclosure sale of the parcel of land, together with the buildings and improvements
thereon, covered by Transfer Certificate of Title No. 381, was, however, held on November
21, 1961, and the said property was sold to the PNB for the sum of P56,908.00, subject to
the right of the plaintiff to redeem the same within a period of one year. On the same date,
Deputy Provincial Sheriff Heraldo executed a certificate of sale in favor of the PNB and a
copy thereof was sent to the plaintiff.
In a letter dated December 14, 1961 (but apparently posted several days later), the
plaintiff sent a bank draft for P738.59 to the Naga Branch of the PNB, allegedly in full
settlement of the balance of the obligation of the plaintiff after the application thereto of the
sum of P56,908.00 representing the proceeds of the foreclosure sale of parcel of land
described in Transfer Certificate of Title No. 381. In the said letter, the plaintiff reiterated its
request that the foreclosure sale of the mortgaged chattels be discontinued on the
grounds that the mortgaged indebtedness had been fully paid and that it could not be
legally effected at a place other than the City of Manila.
In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of
Camarines Norte that it had fully paid its obligation to the PNB, and enclosed therewith a We shall discuss the various points raised in appellant's brief in seriatim.
copy of its letter to the latter dated December 14, 1961.
On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the plaintiff
acknowledging the remittance of P738.59 with the advice, however, that as of that date the
balance of the account of the plaintiff was P9,161.76, to which should be added the
expenses of guarding the mortgaged chattels at the rate of P4.00 a day beginning
December 19, 1961. It was further explained in said letter that the sum of P57,646.59,
which was stated in the request for the foreclosure of the real estate mortgage, did not
include the 10% attorney's fees and expenses of the sale. Accordingly, the plaintiff was
advised that the foreclosure sale scheduled on the 21st of said month would be stopped if
a remittance of P9,161.76, plus interest thereon and guarding fees, would be made.
On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at 10:00
a.m. and they were awarded to the PNB for the sum of P4,200 and the corresponding bill
of sale was issued in its favor by Deputy Provincial Sheriff Heraldo.
In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNB advised
the plaintiff giving it priority to repurchase the chattels acquired by the former at public
auction. This offer was reiterated in a letter dated January 3, 1962, of the Attorney of the
Naga Branch of the PNB to the plaintiff, with the suggestion that it exercise its right of
redemption and that it apply for the condonation of the attorney's fees. The plaintiff did not
follow the advice but on the contrary it made known of its intention to file appropriate
action or actions for the protection of its interests.
On May 24, 1962, several employees of the PNB arrived in the compound of the plaintiff in
Jose Panganiban, Camarines Norte, and they informed Luis Salgado, Chief Security
Guard of the premises, that the properties therein had been auctioned and bought by the
PNB, which in turn sold them to Mariano Bundok. Upon being advised that the purchaser
would take delivery of the things he bought, Salgado was at first reluctant to allow any
piece of property to be taken out of the compound of the plaintiff. The employees of the
PNB explained that should Salgado refuse, he would be exposing himself to a litigation
wherein he could be held liable to pay big sum of money by way of damages.
Apprehensive of the risk that he would take, Salgado immediately sent a wire to the
President of the plaintiff in Manila, asking advice as to what he should do. In the
meantime, Mariano Bundok was able to take out from the plaintiff's compound two
truckloads of equipment.
In the afternoon of the same day, Salgado received a telegram from plaintiff's President
directing him not to deliver the "chattels" without court order, with the information that the
company was then filing an action for damages against the PNB. On the following day,
May 25, 1962, two trucks and men of Mariano Bundok arrived but Salgado did not permit
them to take out any equipment from inside the compound of the plaintiff. Thru the
intervention, however, of the local police and PC soldiers, the trucks of Mariano Bundok
were able finally to haul the properties originally mortgaged by the plaintiff to the PNB,
which were bought by it at the foreclosure sale and subsequently sold to Mariano Bundok.
Upon the foregoing facts, the trial court rendered the decision appealed from which, as stated in the
first paragraph of this opinion, sentenced the Mambulao Lumber Company to pay to the defendant
PNB the sum of P3,582.52 with interest thereon at the rate of 6% per annum from December 22,
1961 (day following the date of the questioned foreclosure of plaintiff's chattels) until fully paid, and
the costs. Mambulao Lumber Company interposed the instant appeal.
The first question Mambulao Lumber Company poses is that which relates to the amount of its
indebtedness to the PNB arising out of the principal loans and the accrued interest thereon. It is
contended that its obligation under the terms of the two promissory notes it had executed in favor of
the PNB amounts only to P56,485.87 as of November 21, 1961, when the sale of real property was
effected, and not P58,213.51 as found by the trial court.
There is merit to this claim. Examining the terms of the promissory note executed by the appellant in
favor of the PNB, we find that the agreed interest on the loan of P43,000.00 P27,500.00 released
on August 2, 1956 as per promissory note of even date (Exhibit C-3), and P15,500.00 released on
October 19, 1956, as per promissory note of the same date (Exhibit C-4) was six per cent (6%)
per annum from the respective date of said notes "until paid". In the statement of account of the
appellant as of September 22, 1961, submitted by the PNB, it appears that in arriving at the total
indebtedness of P57,646.59 as of that date, the PNB had compounded the principal of the loan and
14
the accrued 6% interest thereon each time the yearly amortizations became due, and on the basis of issuance of the corresponding certificate of sale in favor of the buyer. Obviously, therefore, the
these compounded amounts charged additional delinquency interest on them up to September 22, award of P298.54 as expenses of the sale should be set aside.
1961; and to this erroneously computed total of P57,646.59, the trial court added 6% interest per
annum from September 23, 1961 to November 21 of the same year. In effect, the PNB has claimed,
But the claim of the appellant that the real estate mortgage does not provide for attorney's fees in
and the trial court has adjudicated to it, interest on accrued interests from the time the various
case the same is extra-judicially foreclosed, cannot be favorably considered, as would readily be
amortizations of the loan became due until the real estate mortgage executed to secure the loan was
revealed by an examination of the pertinent provision of the mortgage contract. The parties to the
extra-judicially foreclosed on November 21, 1961. This is an error. Section 5 of Act No. 2655
mortgage appear to have stipulated under paragraph (c) thereof, inter alia:
expressly provides that in computing the interest on any obligation, promissory note or other
instrument or contract, compound interest shall not be reckoned, except by agreement, or in default
thereof, whenever the debt is judicially claimed. This is also the clear mandate of Article 2212 of the . . . For the purpose of extra-judicial foreclosure, the Mortgagor hereby appoints the
new Civil Code which provides that interest due shall earn legal interest only from the time it is Mortgagee his attorney-in-fact to sell the property mortgaged under Act 3135, as
judicially demanded, and of Article 1959 of the same code which ordains that interest due and amended, to sign all documents and to perform all acts requisite and necessary to
unpaid shall not earn interest. Of course, the parties may, by stipulation, capitalize the interest due accomplish said purpose and to appoint its substitute as such attorney-in-fact with the
and unpaid, which as added principal shall earn new interest; but such stipulation is nowhere to be same powers as above specified. In case of judicial foreclosure, the Mortgagor hereby
found in the terms of the promissory notes involved in this case. Clearly therefore, the trial court fell consents to the appointment of the Mortgagee or any of its employees as receiver, without
into error when it awarded interest on accrued interests, without any agreement to that effect and any bond, to take charge of the mortgaged property at once, and to hold possession of the
before they had been judicially demanded. same and the rents, benefits and profits derived from the mortgaged property before the
sale, less the costs and expenses of the receivership; the Mortgagor hereby agrees further
that in all cases, attorney's fees hereby fixed at Ten Per cent (10%) of the total
Appellant next assails the award of attorney's fees and the expenses of the foreclosure sale in favor
indebtedness then unpaid which in no case shall be less than P100.00 exclusive of all
of the PNB. With respect to the amount of P298.54 allowed as expenses of the extra-judicial sale of
fees allowed by law, and the expenses of collection shall be the obligation of the
the real property, appellant maintains that the same has no basis, factual or legal, and should not
Mortgagor and shall with priority, be paid to the Mortgagee out of any sums realized as
have been awarded. It likewise decries the award of attorney's fees which, according to the
rents and profits derived from the mortgaged property or from the proceeds realized from
appellant, should not be deducted from the proceeds of the sale of the real property, not only
the sale of the said property and this mortgage shall likewise stand as security
because there is no express agreement in the real estate mortgage contract to pay attorney's fees in
therefor. . . .
case the same is extra-judicially foreclosed, but also for the reason that the PNB neither spent nor
incurred any obligation to pay attorney's fees in connection with the said extra-judicial foreclosure
under consideration. We find the above stipulation to pay attorney's fees clear enough to cover both cases of foreclosure
sale mentioned thereunder, i.e., judicially or extra-judicially. While the phrase "in all cases" appears
to be part of the second sentence, a reading of the whole context of the stipulation would readily
There is reason for the appellant to assail the award of P298.54 as expenses of the sale. In this
show that it logically refers to extra-judicial foreclosure found in the first sentence and to judicial
respect, the trial court said:
foreclosure mentioned in the next sentence. And the ambiguity in the stipulation suggested and
pointed out by the appellant by reason of the faulty sentence construction should not be made to
The parcel of land, together with the buildings and improvements existing thereon covered defeat the otherwise clear intention of the parties in the agreement.
by Transfer Certificate of Title No. 381, was sold for P56,908. There was, however, no
evidence how much was the expenses of the foreclosure sale although from the pertinent
It is suggested by the appellant, however, that even if the above stipulation to pay attorney's fees
provisions of the Rules of Court, the Sheriff's fees would be P1 for advertising the sale
were applicable to the extra-judicial foreclosure sale of its real properties, still, the award of
(par. k, Sec. 7, Rule 130 of the Old Rules) and P297.54 as his commission for the sale
P5,821.35 for attorney's fees has no legal justification, considering the circumstance that the PNB
(par. n, Sec. 7, Rule 130 of the Old Rules) or a total of P298.54.
did not actually spend anything by way of attorney's fees in connection with the sale. In support of
this proposition, appellant cites authorities to the effect: (1) that when the mortgagee has neither
There is really no evidence of record to support the conclusion that the PNB is entitled to the amount paid nor incurred any obligation to pay an attorney in connection with the foreclosure sale, the claim
awarded as expenses of the extra-judicial foreclosure sale. The court below committed error in for such fees should be denied; 2 and (2) that attorney's fees will not be allowed when the attorney
applying the provisions of the Rules of Court for purposes of arriving at the amount awarded. It is to conducting the foreclosure proceedings is an officer of the corporation (mortgagee) who receives a
be borne in mind that the fees enumerated under paragraphs k and n, Section 7, of Rule 130 (now salary for all the legal services performed by him for the corporation. 3 These authorities are indeed
Rule 141) are demandable, only by a sheriff serving processes of the court in connection with enlightening; but they should not be applied in this case. The very same authority first cited suggests
judicial foreclosure of mortgages under Rule 68 of the new Rules, and not in cases of extra-judicial that said principle is not absolute, for there is authority to the contrary. As to the fact that the
foreclosure of mortgages under Act 3135. The law applicable is Section 4 of Act 3135 which provides foreclosure proceeding's were handled by an attorney of the legal staff of the PNB, we are reluctant
that the officer conducting the sale is entitled to collect a fee of P5.00 for each day of actual work to exonerate herein appellant from the payment of the stipulated attorney's fees on this ground
performed in addition to his expenses in connection with the foreclosure sale. Admittedly, the PNB alone, considering the express agreement between the parties in the mortgage contract under which
failed to prove during the trial of the case, that it actually spent any amount in connection with the appellant became liable to pay the same. At any rate, we find merit in the contention of the appellant
said foreclosure sale. Neither may expenses for publication of the notice be legally allowed in the that the award of P5,821.35 in favor of the PNB as attorney's fees is unconscionable and
absence of evidence on record to support it. 1It is true, as pointed out by the appellee bank, that unreasonable, considering that all that the branch attorney of the said bank did in connection with
courts should take judicial notice of the fees provided for by law which need not be proved; but in the the foreclosure sale of the real property was to file a petition with the provincial sheriff of Camarines
absence of evidence to show at least the number of working days the sheriff concerned actually Norte requesting the latter to sell the same in accordance with the provisions of Act 3135.
spent in connection with the extra-judicial foreclosure sale, the most that he may be entitled to,
would be the amount of P10.00 as a reasonable allowance for two day's work one for the
The principle that courts should reduce stipulated attorney's fees whenever it is found under the
preparation of the necessary notices of sale, and the other for conducting the auction sale and
circumstances of the case that the same is unreasonable, is now deeply rooted in this jurisdiction to
entertain any serious objection to it. Thus, this Court has explained:
15
 But the principle that it may be lawfully stipulated that the legal expenses involved in the of the first two errors assigned, and for purposes of determining the total obligation of herein
collection of a debt shall be defrayed by the debtor does not imply that such stipulations appellant to the PNB as of November 21, 1961 when the real estate mortgage was foreclosed, we
must be enforced in accordance with the terms, no matter how injurious or oppressive have the following illustration in support of this conclusion:1wph1.t
they may be. The lawful purpose to be accomplished by such a stipulation is to permit the
creditor to receive the amount due him under his contract without a deduction of the
expenses caused by the delinquency of the debtor. It should not be permitted for him to A. -
convert such a stipulation into a source of speculative profit at the expense of the debtor.
I. Principal Loan

Contracts for attorney's services in this jurisdiction stands upon an entirely different footing (a) Promissory note dated August 2, 1956 P27,500.00
from contracts for the payment of compensation for any other services. By express
provision of section 29 of the Code of Civil Procedure, an attorney is not entitled in the (1) Interest at 6% per annum from Aug. 2, 1956 to Nov. 21, 1961 8,751.78
absence of express contract to recover more than a reasonable compensation for his
services; and even when an express contract is made the court can ignore it and limit the (b) Promissory note dated October 19, 1956 P15,500.00
recovery to reasonable compensation if the amount of the stipulated fee is found by the
(1) Interest at 6% per annum from Oct.19, 1956 to Nov. 21, 1961 4,734.08
court to be unreasonable. This is a very different rule from that announced in section 1091
of the Civil Code with reference to the obligation of contracts in general, where it is said II. Sheriff's fees [for two (2) day's work] 10.00
that such obligation has the force of law between the contracting parties. Had the plaintiff
herein made an express contract to pay his attorney an uncontingent fee of P2,115.25 for III. Attorney's fee 1,000.00
the services to be rendered in reducing the note here in suit to judgment, it would not have
been enforced against him had he seen fit to oppose it, as such a fee is obviously far
greater than is necessary to remunerate the attorney for the work involved and is therefore Total obligation as of Nov. 21, 1961 P57,495.86
unreasonable. In order to enable the court to ignore an express contract for an attorney's
fees, it is not necessary to show, as in other contracts, that it is contrary to morality or B. -
public policy (Art. 1255, Civil Code). It is enough that it is unreasonable or
unconscionable. 4 I. Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21, 1961 P56,908.00

II. Additional amount remitted to the PNB on Dec. 18, 1961 738.59
Since then this Court has invariably fixed counsel fees on a quantum meruit basis whenever the fees
stipulated appear excessive, unconscionable, or unreasonable, because a lawyer is primarily a court
officer charged with the duty of assisting the court in administering impartial justice between the Total amount of Payment made to PNB as of Dec. 18, 1961 P57,646.59
parties, and hence, the fees should be subject to judicial control. Nor should it be ignored that sound
public policy demands that courts disregard stipulations for counsel fees, whenever they appear to
be a source of speculative profit at the expense of the debtor or mortgagor. 5 And it is not material
Deduct: Total obligation to the PNB P57,495.86
that the present action is between the debtor and the creditor, and not between attorney and client.
As court have power to fix the fee as between attorney and client, it must necessarily have the right
to say whether a stipulation like this, inserted in a mortgage contract, is valid. 6
Excess Payment to the PNB P 150.73
========
In determining the compensation of an attorney, the following circumstances should be considered:
the amount and character of the services rendered; the responsibility imposed; the amount of money
or the value of the property affected by the controversy, or involved in the employment; the skill and From the foregoing illustration or computation, it is clear that there was no further necessity to
experience called for in the performance of the service; the professional standing of the attorney; the foreclose the mortgage of herein appellant's chattels on December 21, 1961; and on this ground
results secured; and whether or not the fee is contingent or absolute, it being a recognized rule that alone, we may declare the sale of appellant's chattels on the said date, illegal and void. But we take
an attorney may properly charge a much larger fee when it is to be contingent than when it is into consideration the fact that the PNB must have been led to believe that the stipulated 10% of the
not. 7 From the stipulation in the mortgage contract earlier quoted, it appears that the agreed fee is unpaid loan for attorney's fees in the real estate mortgage was legally maintainable, and in
10% of the total indebtedness, irrespective of the manner the foreclosure of the mortgage is to be accordance with such belief, herein appellee bank insisted that the proceeds of the sale of
effected. The agreement is perhaps fair enough in case the foreclosure proceedings is prosecuted appellant's real property was deficient to liquidate the latter's total indebtedness. Be that as it may,
judicially but, surely, it is unreasonable when, as in this case, the mortgage was foreclosed extra- however, we still find the subsequent sale of herein appellant's chattels illegal and objectionable on
judicially, and all that the attorney did was to file a petition for foreclosure with the sheriff concerned. other grounds.
It is to be assumed though, that the said branch attorney of the PNB made a study of the case
before deciding to file the petition for foreclosure; but even with this in mind, we believe the amount
of P5,821.35 is far too excessive a fee for such services. Considering the above circumstances That appellant vigorously objected to the foreclosure of its chattel mortgage after the foreclosure of
mentioned, it is our considered opinion that the amount of P1,000.00 would be more than sufficient its real estate mortgage on November 21, 1961, can not be doubted, as shown not only by its letter
to compensate the work aforementioned. to the PNB on November 19, 1961, but also in its letter to the provincial sheriff of Camarines Norte
on the same date. These letters were followed by another letter to the appellee bank on December
14, 1961, wherein herein appellant, in no uncertain terms, reiterated its objection to the scheduled
The next issue raised deals with the claim that the proceeds of the sale of the real properties alone sale of its chattels on December 21, 1961 at Jose Panganiban, Camarines Norte for the reasons
together with the amount it remitted to the PNB later was more than sufficient to liquidate its total therein stated that: (1) it had settled in full its total obligation to the PNB by the sale of the real estate
obligation to herein appellee bank. Again, we find merit in this claim. From the foregoing discussion and its subsequent remittance of the amount of P738.59; and (2) that the contemplated sale at Jose

16
Panganiban would violate their agreement embodied under paragraph (i) in the Chattel Mortgage On the other hand, if a place of sale is specified in the mortgage and statutory
which provides as follows: requirements in regard thereto are complied with, a sale is properly conducted in that
place. Indeed, in the absence of a statute to the contrary, a sale conducted at a place
other than that stipulated for in the mortgage is invalid, unless the mortgagor consents to
(i) In case of both judicial and extra-judicial foreclosure under Act 1508, as amended, the
such sale. 12
parties hereto agree that the corresponding complaint for foreclosure or the petition for
sale should be filed with the courts or the sheriff of the City of Manila, as the case may be;
and that the Mortgagor shall pay attorney's fees hereby fixed at ten per cent (10%) of the Moreover, Section 14 of Act 1508, as amended, provides that the officer making the sale should
total indebtedness then unpaid but in no case shall it be less than P100.00, exclusive of all make a return of his doings which shall particularly describe the articles sold and the amount
costs and fees allowed by law and of other expenses incurred in connection with the said received from each article. From this, it is clear that the law requires that sale be made article by
foreclosure. [Emphasis supplied] article, otherwise, it would be impossible for him to state the amount received for each item. This
requirement was totally disregarded by the Deputy Sheriff of Camarines Norte when he sold the
chattels in question in bulk, notwithstanding the fact that the said chattels consisted of no less than
Notwithstanding the abovequoted agreement in the chattel mortgage contract, and in utter disregard
twenty different items as shown in the bill of sale. 13 This makes the sale of the chattels manifestly
of the objection of herein appellant to the sale of its chattels at Jose Panganiban, Camarines Norte
objectionable. And in the absence of any evidence to show that the mortgagor had agreed or
and not in the City of Manila as agreed upon, the PNB proceeded with the foreclosure sale of said
consented to such sale in gross, the same should be set aside.
chattels. The trial court, however, justified said action of the PNB in the decision appealed from in
the following rationale:
It is said that the mortgagee is guilty of conversion when he sells under the mortgage but not in
accordance with its terms, or where the proceedings as to the sale of foreclosure do not comply with
While it is true that it was stipulated in the chattel mortgage contract that a petition for the
the statute. 14 This rule applies squarely to the facts of this case where, as earlier shown, herein
extra-judicial foreclosure thereof should be filed with the Sheriff of the City of Manila,
appellee bank insisted, and the appellee deputy sheriff of Camarines Norte proceeded with the sale
nevertheless, the effect thereof was merely to provide another place where the mortgage
of the mortgaged chattels at Jose Panganiban, Camarines Norte, in utter disregard of the valid
chattel could be sold in addition to those specified in the Chattel Mortgage Law. Indeed, a
objection of the mortgagor thereto for the reason that it is not the place of sale agreed upon in the
stipulation in a contract cannot abrogate much less impliedly repeal a specific provision of
mortgage contract; and the said deputy sheriff sold all the chattels (among which were a skagit with
the statute. Considering that Section 14 of Act No. 1508 vests in the mortgagee the choice
caterpillar engine, three GMC 6 x 6 trucks, a Herring Hall Safe, and Sawmill equipment consisting of
where the foreclosure sale should be held, hence, in the case under consideration, the
a 150 HP Murphy Engine, plainer, large circular saws etc.) as a single lot in violation of the
PNB had three places from which to select, namely: (1) the place of residence of the
requirement of the law to sell the same article by article. The PNB has resold the chattels to another
mortgagor; (2) the place of the mortgaged chattels were situated; and (3) the place
buyer with whom it appears to have actively cooperated in subsequently taking possession of and
stipulated in the contract. The PNB selected the second and, accordingly, the foreclosure
removing the chattels from appellant compound by force, as shown by the circumstance that they
sale held in Jose Panganiban, Camarines Norte, was legal and valid.
had to take along PC soldiers and municipal policemen of Jose Panganiban who placed the chief
security officer of the premises in jail to deprive herein appellant of its possession thereof. To
To the foregoing conclusion, We disagree. While the law grants power and authority to the exonerate itself of any liability for the breach of peace thus committed, the PNB would want us to
mortgagee to sell the mortgaged property at a public place in the municipality where the mortgagor believe that it was the subsequent buyer alone, who is not a party to this case, that was responsible
resides or where the property is situated, 8 this Court has held that the sale of a mortgaged chattel for the forcible taking of the property; but assuming this to be so, still the PNB cannot escape liability
may be made in a place other than that where it is found, provided that the owner thereof consents for the conversion of the mortgaged chattels by parting with its interest in the property. Neither would
thereto; or that there is an agreement to this effect between the mortgagor and the mortgagee. 9 But its claim that it afterwards gave a chance to herein appellant to repurchase or redeem the chattels,
when, as in this case, the parties agreed to have the sale of the mortgaged chattels in the City of improve its position, for the mortgagor is not under obligation to take affirmative steps to repossess
Manila, which, any way, is the residence of the mortgagor, it cannot be rightly said that mortgagee the chattels that were converted by the mortgagee. 15 As a consequence of the said wrongful acts of
still retained the power and authority to select from among the places provided for in the law and the the PNB and the Deputy Sheriff of Camarines Norte, therefore, We have to declare that herein
place designated in their agreement over the objection of the mortgagor. In providing that the appellant is entitled to collect from them, jointly and severally, the full value of the chattels in
mortgaged chattel may be sold at the place of residence of the mortgagor or the place where it is question at the time they were illegally sold by them. To this effect was the holding of this Court in a
situated, at the option of the mortgagee, the law clearly contemplated benefits not only to the similar situation. 16
mortgagor but to the mortgagee as well. Their right arising thereunder, however, are personal to
them; they do not affect either public policy or the rights of third persons. They may validly be
The effect of this irregularity was, in our opinion to make the plaintiff liable to the defendant
waived. So, when herein mortgagor and mortgagee agreed in the mortgage contract that in cases of
for the full value of the truck at the time the plaintiff thus carried it off to be sold; and of
both judicial and extra-judicial foreclosure under Act 1508, as amended, the corresponding
course, the burden is on the defendant to prove the damage to which he was thus
complaint for foreclosure or the petition for sale should be filed with the courts or the Sheriff of
subjected. . . .
Manila, as the case may be, they waived their corresponding rights under the law. The correlative
obligation arising from that agreement have the force of law between them and should be complied
with in good faith. 10 This brings us to the problem of determining the value of the mortgaged chattels at the time of their
sale in 1961. The trial court did not make any finding on the value of the chattels in the decision
appealed from and denied altogether the right of the appellant to recover the same. We find enough
By said agreement the parties waived the legal venue, and such waiver is valid and legally
evidence of record, however, which may be used as a guide to ascertain their value. The record
effective, because it, was merely a personal privilege they waived, which is not contrary, to
shows that at the time herein appellant applied for its loan with the PNB in 1956, for which the
public policy or to the prejudice of third persons. It is a general principle that a person may
chattels in question were mortgaged as part of the security therefore, herein appellant submitted a
renounce any right which the law gives unless such renunciation is expressly prohibited or
list of the chattels together with its application for the loan with a stated value of P107,115.85. An
the right conferred is of such nature that its renunciation would be against public policy. 11
official of the PNB made an inspection of the chattels in the same year giving it an appraised value
of P42,850.00 and a market value of P85,700.00. 17 The same chattels with some additional

17
equipment acquired by herein appellant with part of the proceeds of the loan were reappraised in a WHEREFORE AND CONSIDERING ALL THE FOREGOING, the decision appealed from should be,
re-inspection conducted by the same official in 1958, in the report of which he gave all the chattels as hereby, it is set aside. The Philippine National Bank and the Deputy Sheriff of the province of
an appraised value of P26,850.00 and a market value of P48,200.00. 18 Another re-inspection report Camarines Norte are ordered to pay, jointly and severally, to Mambulao Lumber Company the total
in 1959 gave the appraised value as P19,400.00 and the market value at P25,600.00. 19 The said amount of P56,000.73, broken as follows: P150.73 overpaid by the latter to the PNB, P42,850.00 the
official of the PNB who made the foregoing reports of inspection and re-inspections testified in court value of the chattels at the time of the sale with interest at the rate of 6% per annum from December
that in giving the values appearing in the reports, he used a conservative method of appraisal which, 21, 1961, until fully paid, P10,000.00 in exemplary damages, and P3,000.00 as attorney's fees.
of course, is to be expected of an official of the appellee bank. And it appears that the values were Costs against both appellees.
considerably reduced in all the re-inspection reports for the reason that when he went to herein
appellant's premises at the time, he found the chattels no longer in use with some of the heavier
equipments dismantled with parts thereof kept in the bodega; and finding it difficult to ascertain the
value of the dismantled chattels in such condition, he did not give them anymore any value in his
reports. Noteworthy is the fact, however, that in the last re-inspection report he made of the chattels
in 1961, just a few months before the foreclosure sale, the same inspector of the PNB reported that
the heavy equipment of herein appellant were "lying idle and rusty" but were "with a shed free from
rains" 20 showing that although they were no longer in use at the time, they were kept in a proper
place and not exposed to the elements. The President of the appellant company, on the other hand,
testified that its caterpillar (tractor) alone is worth P35,000.00 in the market, and that the value of its
two trucks acquired by it with part of the proceeds of the loan and included as additional items in the
mortgaged chattels were worth no less than P14,000.00. He likewise appraised the worth of its
Murphy engine at P16,000.00 which, according to him, when taken together with the heavy
equipments he mentioned, the sawmill itself and all other equipment forming part of the chattels
under consideration, and bearing in mind the current cost of equipments these days which he
alleged to have increased by about five (5) times, could safely be estimated at P120,000.00. This
testimony, except for the appraised and market values appearing in the inspection and re-inspection
reports of the PNB official earlier mentioned, stand uncontroverted in the record; but We are not
inclined to accept such testimony at its par value, knowing that the equipments of herein appellant
had been idle and unused since it stopped operating its sawmill in 1958 up to the time of the sale of
the chattels in 1961. We have no doubt that the value of chattels was depreciated after all those
years of inoperation, although from the evidence aforementioned, We may also safely conclude that
the amount of P4,200.00 for which the chattels were sold in the foreclosure sale in question was
grossly unfair to the mortgagor. Considering, however, the facts that the appraised value of
P42,850.00 and the market value of P85,700.00 originally given by the PNB official were admittedly
conservative; that two 6 x 6 trucks subsequently bought by the appellant company had thereafter
been added to the chattels; and that the real value thereof, although depreciated after several years
of inoperation, was in a way maintained because the depreciation is off-set by the marked increase
in the cost of heavy equipment in the market, it is our opinion that the market value of the chattels at
the time of the sale should be fixed at the original appraised value of P42,850.00.

Herein appellant's claim for moral damages, however, seems to have no legal or factual basis.
Obviously, an artificial person like herein appellant corporation cannot experience physical
sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social
humiliation which are basis of moral damages. 21 A corporation may have a good reputation which, if
besmirched, may also be a ground for the award of moral damages. The same cannot be
considered under the facts of this case, however, not only because it is admitted that herein
appellant had already ceased in its business operation at the time of the foreclosure sale of the
chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the chattels
could have upon its reputation or business standing would undoubtedly be the same whether the
sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is the place agreed
upon by the parties in the mortgage contract.

But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in
proceeding with the sale in utter disregard of the agreement to have the chattels sold in Manila as
provided for in the mortgage contract, to which their attentions were timely called by herein
appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00, herein
appellant should be awarded exemplary damages in the sum of P10,000.00. The circumstances of
the case also warrant the award of P3,000.00 as attorney's fees for herein appellant.

18
 On May 26, 1982, the private respondent moved for the appointment of Deputy Sheriff Felix
Honoracion as special sheriff to serve the writ of attachment/garnishment.

Consequently, the order dated May 24, 1982 and the writ of attachment dated May 27, 1982 were
enforced by the respondents and the bank accounts of the petitioner were garnished and its
equipment attached.

The petitioner then filed a motion for reconsideration of the May 24, 1982 order. While this motion
was pending, the private respondent filed another motion, this time an "Ex-Parte Motion to Deposit
Cash" praying that an order be issued directing the Finance Manager of the National Power
Corporation (NAPOCOR) to withdraw available funds of the petitioner from the NAPOCOR and
deposit them with the clerk of court of the Court of First Instance of Rizal. This motion was granted in
G.R. No. 71229 September 30, 1986 an order dated June 29, 1982.

HANIL DEVELOPMENT CO., LTD., petitioner, In view of this development, the petitioner filed with the then Intermediate Appellate Court a petition
vs. for certiorari with prayer for prohibition, injunction and preliminary restraining order challenging the
HON. INTERMEDIATE APPELLATE COURT and M. R. ESCOBAR EXPLOSIVES ENGINEERS, orders dated May 24, 1982 and June 29, 1982 of the trial court. The case was docketed as CA-G.R.
INC., represented by its General Manager, MANUEL R. ESCOBAR, respondents. No. 14512.

M.A. Aguinaldo & Associates for petitioner. The appellate court temporarily restrained the enforcement of the challenged orders and after a
hearing issued a preliminary injunction enjoining the implementation of said orders upon the filing of
Ponciano H. Gupit for private respondent a P50,000.00 cash bond by the petitioner.

GUTIERREZ, JR., J.: In a decision dated February 3, 1983, the appellate court granted the petition and declared the
challenged orders null and void, having been issued with grave abuse of discretion.
This is a petition for certiorari, mandamus, and prohibition, with prayer for mandatory injunction and
restraining order from the resolutions of the then Intermediate Appellate Court dated April 30, 1985 While the above-mentioned petition was pending before the appellate court and despite the writ of
and June 20, 1985 in AC-G.R. No. 05055 entitled "Hanil Development Co., Ltd. v. M.R. Escobar injunction issued by it, other developments continued to unfold in the trial court.
Explosives Engineers, Inc., represented by its General Manager, Manuel R. Escobar."
In an order dated August 23, 1982, the trial court disapproved the petitioner's amended record on
The present controversy has its origins in a complaint for recovery of a sum of money with damages appeal on the ground that it was "filed beyond the reglementary period and the extension granted."
filed by private respondent Escobar Explosives Engineers, Inc., against petitioner Hanil The appeal was dismissed. The petitioner filed a motion for reconsideration of the dismissal while
Development Co., Ltd., before the then Court of First Instance of Rizal, Branch XXXI, Pasig, Metro the private respondent filed a motion for execution of judgment.
Manila. The petitioner is a foreign corporation organized under the laws of the Republic of Korea and
doing business in the Philippines pursuant to the Corporation Code and the Foreign Investment Act. On October 19, 1982, the trial court issued an order denying the petitioner's motion for
The complaint docketed as Civil Case No. 35966 sought to compel the petitioner to pay for the reconsideration and at the same time granting the private respondent's motion for execution of
blasting services rendered by the private respondent in connection with the former's contract with judgment.
the Ministry of Public Highways to construct the 200 Km. Oro-Butuan Road Project in Mindanao.

The petitioner filed a petition for certiorari and mandamus with prayer for prohibition with the
The trial court, on April 16, 1983, rendered a decision in favor of the private respondent. The Intermediate Appellate Court assailing the trial court's orders dated August 23, 1982 and October 19,
petitioner was ordered to pay the private respondent the sum of P1,341,727.40 corresponding to the 1982. The case was docketed as AC-G.R. No. 15050.
value of the rocks blasted by the private respondent; ten percent (10%) of said amount as attorney's
fees and costs.
The appellate court granted the petition. The challenged orders were set aside and declared null and
void. Hence, the petitioner's appeal in Civil Case No. 35966 was reinstated and the trial court was
On May 6, 1982, the private respondent filed a petition for the issuance of a preliminary attachment. ordered to elevate the entire records of the case to the appellate court.
The motion was set for hearing.

A petition for review of the decision in AC-G.R. No. 15050 was filed by the private respondent before
On May 13, 1982, the petitioner filed its notice of appeal and cash appeal bond with the trial court. this Court, but was denied for lack of merit.

On May 24, 1982, the trial court issued an order granting the petition for the issuance of preliminary After transmittal of the records, the appellate court on February 11, 1985, sent a notice to the
attachment. petitioner to file appellant's brief within forty-five (45) days from receipt. The petitioner received the
notice on February 25, 1985.

19
On March 13, 1985, and within the reglementary period to file appellant's brief, the petitioner filed an
"Application for Judgment against Attachment Bond" and "Motion to Defer Filing of Appellant's Brief"
praying for a hearing before the appellate court so it could prove the damages it sustained as a
result of the illegal writ of attachment issued by the trial court. It wanted a judgment against the
attachment bond posted by the private respondent and its insurer Sanpiro Insurance Corporation to
be included in the final decision in the main case, Civil Case No. 35966, now pending before the
appellate court.
Acting on the petitioner's motions, the appellate court issued a resolution directing the private
respondent to comment on these motions.
The private respondent filed its "Comment" with a "Motion to Dismiss Appeal" for the petitioner's
alleged failure to file its appellant's brief.
In a resolution dated April 30, 1985, the appellate court denied the petitioner's application for
judgment against the attachment bond and the motion to defer filing of appellant's brief, granted the
private respondent's motion to dismiss the appeal, and dismissed the appeal. The petitioner filed a
motion for reconsideration but this was denied in a resolution dated June 20, 1985.
Hence, this petition.
In a resolution dated July 17, 1985, we issued a temporary restraining order to enjoin the G.R. No. 15050.
respondents from proceeding with the execution of the decision in Civil Case No. 35966.
upon application and after proper hearing, and shall be included in the final
judgment. The application must be filed before the trial or before appeal is
perfected or before the judgment becomes executory, with notice to the
attaching creditor and his surety or sureties, setting forth the facts showing his
right to damages and the amount thereof.
If the judgment of the appellate court be favorable to the party against whom the
attachment was issued, he must claim damages sustained during the pendency
of the appeal by filing an application with notice to the party in whose favor the
attachment was issued or his surety or sureties, before the judgment of the
appellate court becomes executory. The appellate court may allow the
application to be heard and decided by the trial court.
In the instant case, the initial writ of attachment issued by the trial court in the main case Civil
Case No. 35966 which is the subject of appeal was declared null and void by the appellate court in
CA-G.R. No. 14512. This present writ of attachment was issued and subsequently enforced after the
trial court's decision in Civil Case No. 35966 had been rendered and after the petitioner had already
perfected its appeal. The petitioner, therefore, argues that the application for judgment against the
attachment bond was properly lodged with the appellate court pursuant to Section 9, of the Judiciary
Reorganization Act of 1980 (Batas Pambansa Blg. 129) which grants the Intermediate Appellate
Court "power to try cases and conduct hearings, receive evidence and perform any and all acts
necessary to resolve factual issues ... ." It contends that it is only in the appellate court that these
damages could well be ventilated because they occurred during the pendency of the appeal in AC-

The petitioner's arguments are well-taken.

The petitioner now asserts that the April 30, 1985 and June 20, 1985 resolutions were issued by the
appellate court with grave abuse of discretion.
The application for judgment against attachment bond was filed to prove the damages sustained by
the petitioner as a result of the illegal writ of attachment issued by the trial court so that the judgment
The questioned April 30, 1985 minute resolution of the appellate court states: against the attachment bond posted by the private respondent and its insurer could be included in
the final judgment of the main case. The assessment and award of such damages could not have
Acting upon (1) the application for judgment against attachment bond, etc. filed been made in CA-G.R. No. 14512 as alleged by the private respondent because the question therein
by counsel for defendant-appellant on March 13, 1985; (2) the comment thereto; was whether or not the writ of attachment in Civil Case No. 35966 should have been issued.
(3) the motion to dismiss appeal filed by counsel for plaintiff-appellee on April
24, 1985; and the docket report dated April 25, 1985, the COURT RESOLVED: The object was to set aside the preliminary attachment immediately. It was a preventive measure.
(a) to DENY the application for judgment against attachment bond and the
motion to defer filing of appellant's brief; and (b) to GRANT the motion to
dismiss appeal and to dismiss the instant appeal. The private respondent, in its petition for writ of attachment filed with the trial court, posted an
attachment bond issued by the Sanpiro Insurance Corporation in the amount of P1,341,727.40, the
relevant portion of which reads:
The issues to be resolved in the instant petition are: (1) whether or not the petitioner's application for
judgment against the attachment bond and its motion to defer filing of appellant's brief were correctly
denied by the appellate court and (2) whether or not the same court rightly dismissed the petitioner's WHEREFORE, WE, M.R. ESCOBAR EXPLOSIVE ENGINEERS as
appeal. PRINCIPAL, and the SANPIRO INSURANCE CORPORATION, a corporation
duly organized and existing under and by virtue of the laws of the Philippines, as
SURETY, in consideration of the above and of the levying of said attachment,
Anent the first issue, the petitioner contends that its application for judgment against the attachment hereby jointly and severally bind ourselves in the sum of PESOS: ONE MILLION
bond was pursuant to Section 20, Rule 57 of the Revised Rules of Court. THREE HUNDRED FORTY ONE THOUSAND SEVEN HUNDRED TWENTY
SEVEN & 40/100 (P1,341,727.40), Philippine Currency, under the condition that
Section 20, Rule 57 of the Revised Rules of Court provides for the claim of damages on account of we will pay all the costs which may be adjudged to said defendant/s and all
illegal attachment, to wit: damages which said defendant/s may sustain by reason of the attachment, if
the Court shall finally adjudge that plaintiff/s was/were not entitled thereto.
Claim for damages on account of illegal attachment. If the judgment on the
motion be in favor of the party against whom attachment was issued, he may Contrary to the claim of the private respondent, this writ of attachment issued by the trial court was
recover, upon the bond given or deposit made by the attaching creditor, any executed. The petitioner's equipment and bank accounts were garnished pursuant to the writ. In fact,
damages resulting from the attachment. Such damages may be awarded only the private respondent's opposition to the petitioner's motion for reconsideration of the trial court's

20
order which issued the writ of attachment stated that the same should be denied for being moot and
academic "because the writ of attachment and/or garnishment have already been executed."
Considering that the writ of attachment was declared null and void, the petitioner had the right to ask
for whatever damages it may have incurred as a result of its issuance pursuant to Section 20, Rule
57 of the Revised Rules of Court.
In the instant case, the application for judgment against the attachment bond was filed under the
following circumstances: (1) the writ of attachment was issued by the trial court after it had rendered
its decision and after the petitioner had already perfected its appeal; (2) the private respondent
posted a surety bond to answer for any damages that may be adjudged to the petitioner if the writ is
later found to be illegal; (3) the writ of attachment was declared illegal; and (4) the application for
judgment against the attachment bond was made with notice to the insurer, Sanpiro Insurance
Corporation.

Malayan Insurance Co., Inc. v. Salas (90 SCRA 252), lays down the procedure regarding claims for
Applying the principles laid down in the Malayan case to the circumstances surrounding the
damages against an illegal attachment. It states:
application for judgment against attachment bond in this case, the appellate court committed grave
abuse of discretion in denying the application for judgment against attachment bond. The appellate
Under section 20, in order to recover damages on a replevin bond (or on a bond court's error in this case is more pronounced considering that under Section 9 of the Judiciary
for preliminary attachment, injunction or receivership) it is necessary (1) that the Reorganization Act of 1980 (Batas Pambansa Blg. 129) the Intermediate Appellate Court is now
defendant-claimant has secured a favorable judgment in the main action, empowered to try cases and conduct hearings, receive evidence and perform acts necessary to
meaning that the plaintiff has no cause of action and was not, therefore, entitled resolve factual issues in cases falling within its original and appellate jurisdiction. Certainly, the
to the provisional remedy of replevin; (2) that the application for damages, amount of damages, if any, suffered by the petitioner as a result of the issuance of the illegal
showing claimant's right thereto and the amount thereof, be filed in the same attachment during the pendency of the appeal is a factual issue.
action before trial or before appeal is perfected or before the judgment becomes
executory; (3) that due notice be given to the other party and his surety or
Moreover, the application for judgment against the bond seasonably filed by the petitioner in the
sureties, notice to the principal not being sufficient and (4) that there should be a
appellate court would avoid multiplicity of suits. We have earlier ruled that "the explicit provision of
proper hearing and the award for damages should be included in the final
Section 20 of Rule 57, Revised Rules of Court that the judgment against the surety should be
judgment (Luneta Motor Co. v. Menendez, 117 Phil. 970, 974; 3 Moran's
included in the final judgment is to avoid additional proceedings. (Cruz v. Manila Surety & Fidelity
Comments on the Rules of Court, 1970 Ed., pp. 54-56. See Cruz v. Manila
Co., Inc. et al., 92 Phil. 699; (Japco v. City of Manila, 48 Phil. 851, 855 cited in Malayan insurance
Surety & Fidelity Co., Inc., 92 Phil. 699).
Corporation v. Salas, supra).

xxx xxx xxx

Consequently, the appellate court also committed a grave abuse of discretion in denying the motion
to defer filing of appellant's brief. The petitioner filed this motion for the purpose of first settling the
As may be gathered from section 20 of Rule 57, the application for damages issue on damages against the attachment bond so that such issue would be discussed and included
against the surety must be filed (with notice to the surety) in the Court of First in the appellant's brief and ultimately in the final judgment thereby avoiding multiplicity of suits.
Instance before the trial or before appeal is perfected or before the judgment
becomes executory.
Needless to say, the appellate court should not have dismissed the petitioner's appeal.

If an appeal is taken, the application must be filed in the appellate court but
We take notice of the circumstances under which the appellate court dismissed the appeal. Granting
always before the judgment of that court becomes executory so that the award
that the petitioner's application for judgment against attachment bond was not meritorious, the
may be included in its judgment (Luneta Motor Co. v. Menendez, supra).
appellate court's dismissal of the appeal would still be unwarranted.

But it is not always mandatory that the appellate court should include in its
The record shows that in response to the petitioner's application for judgment against the attachment
judgment the award of damages against the surety. Thus, it was held that where
bond and motion to defer filing of the appellant's brief which was filed on March 13, 1985 and within
the application for damages against the surety is seasonably made in the
the 45-day reglementary period to fife appellant's brief, the appellate court issued a resolution
appellate court, 'the latter must either proceed to hear and decide the
directing the private respondent to comment on the motion within ten (10) days from notice. Upon
application or refer 'it' to the trial court and allow it to hear and decide the same'
motion ' of the private respondent, the appellate court issued another resolution granting an
(Rivera v. Talavera, 112 Phil. 209, 219).
extension of ten (10) days from April 13, 1985 to file comment on the said motions of the petitioner.
The extension granted meant that the private respondent had until April 24, 1985 to file its comment.
xxx xxx xxx In addition to the comment, the private respondent filed on April 24, 1985 a motion to dismiss appeal
contending that the petitioner had not filed its appellant's brief within the 45-day reglementary period.
Upon verification from its docket decision that no appellant's brief was filed as of April 25, 1985, the
Note that under the second paragraph of section 20, Rule 57 of the present appellate court dismissed the appeal.
Rules of Court, the damages suffered during the pendency of an appeal in a
case where the writs of attachment, injunction and replevin or an order of
receivership were issued should be claimed in the appellate court. Under these circumstances, the dismissal of the appeal by the appellate court due to the failure to
file the appellant's brief within the 45-day reglementary period counted from February 25, 1985 to
April 25, 1985 without allowing any interruption gave undue advantage to the private respondent.
xxx xxx xxx This is so, because the private respondent after having been given ten (10) days from receipt of
notice to comment on the twin motions of the petitioner was again granted a ten-day extension or
until April 24, 1985 to file its comment thereto. This, in effect, removed a substantial number of days
from the 45-day period of the petitioner to file its brief, through no fault of its own.
21
The procedure adopted by the appellate court in interpreting the 45-day reglementary period to file
appellant's brief was unfair. When the appellate court issued the resolution requiring the private
respondent to comment on the petitioner's application for judgment against the attachment bond and
motion to defer appellant's brief the 45-day period should be deemed to have stopped, and the
period to commence again after denial of the motions.

The notice to "file appellant's brief within 45 days from receipt" was received by the petitioner on
February 25, 1985. The petitioner filed the application for judgment against the attachment bond and
motion to defer filing of appellant's brief on March 13, 1985. Thus, the petitioner filed its motions on
the 16th day after receipt of the notice to file appellant's brief and within the 45-day reglementary
period. On March 26, 1985, the appellate court issued its resolution directing the private respondent
to file its comment on the motions of the petitioner. At this point, counting from February 25, 1985 to
March 26, 1985, a total number of 29 days had lapsed. Hence, the petitioner still had 16 days within
the 45-day reglementary period to file its appellant's brief in the event that its motions were denied.

It is likewise the practise in the Court of Appeals, after granting an initial period of 45 days,
to routinely grant a motion for extension of another 45 days for the filing of an appellant's brief.
Considering the amount involved in this litigation and the nature of the defenses raised by the
petitioner, the appellate court was unduly severe when it peremptorily dismissed the appeal.

Therefore, we have to set aside the appellate court's action in simultaneously denying the
application for judgment against the attachment bond and the motion to defer the filing of appellant's
brief and in dismissing the appeal. Since the petitioner's two motions were denied on April 30, 1985,
the petitioner still had 16 days from notice of the denial to file its appellant's brief. In short, the
petitioner's 45-day period within which to file its appellant's brief had not yet lapsed when the
appellate court dismissed the appeal. The brief could have been filed or a motion for extension of
time requested.

WHEREFORE, the instant petition is GRANTED. The questioned resolutions dated April 30, 1985
and June 20, 1985 of the then Intermediate Appellate Court are hereby REVERSED and SET
ASIDE. The Court of Appeals is directed to conduct hearings on the application for judgment against
attachment bond filed by the petitioner and to reinstate the appeal. The temporary restraining order
dated July 17, 1985 is made PERMANENT.

SO ORDERED.

22
 was attached to the letter.

In the afternoon of the following day, February 25, 1970, respondent De Leon and his
witness, respondent Arturo Logronio, went to the Court of First Instance of Rizal. They
brought with them the following papers: respondent Veras aforesaid letter-request; an
application for search warrant already filled up but still unsigned by respondent De
Leon; an affidavit of respondent Logronio subscribed before respondent De Leon; a
deposition in printed form of respondent Logronio already accomplished and signed by
him but not yet subscribed; and a search warrant already accomplished but still
unsigned by respondent Judge.
EN BANC
At that time respondent Judge was hearing a certain case; so, by means of a note, he
[G.R. No. L-32409. February 27,
1971.] instructed his Deputy Clerk of Court to take the depositions of respondents De Leon and
Logronio. After the session had adjourned, respondent Judge was informed that the
BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, v. depositions had already been taken. The stenographer, upon request of respondent
HON. JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA, in his capacity as Judge, read to him her stenographic notes; and thereafter, respondent Judge asked
Commissioner of Internal Revenue, ARTURO LOGRONIO, RODOLFO DE LEON, respondent Logronio to take the oath and warned him that if his deposition was found
GAVINO VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO, JOHN DOE, JOHN to be false and without legal basis, he could be charged for perjury. Respondent Judge
DOE, JOHN DOE, and JOHN DOE, Respondents. signed respondent de Leons application for search warrant and respondent Logronios
deposition, Search Warrant No. 2-M-70 was then sign by respondent Judge and
San Juan, Africa, Gonzales & San Agustin, for Petitioners. accordingly issued.

Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin V . Three days later, or on February 28, 1970, which was a Saturday, the BIR agents
Bautista, Solicitor Pedro A. Ramirez and Special Attorney Jaime M. Maza served the search warrant petitioners at the offices of petitioner corporation on Ayala
for Respondents. Avenue, Makati, Rizal. Petitioners lawyers protested the search on the ground that no
formal complaint or transcript of testimony was attached to the warrant. The agents
nevertheless proceeded with their search which yielded six boxes of documents.
DECISION
On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal
praying that the search warrant be quashed, dissolved or recalled, that preliminary
prohibitory and mandatory writs of injunction be issued, that the search warrant be
VILLAMOR, J.: declared null and void, and that the respondents be ordered to pay petitioners, jointly
and severally, damages and attorneys fees. On March 18, 1970, the respondents, thru
the Solicitor General, filed an answer to the petition. After hearing, the court, presided
This is an original action of certiorari, prohibition and mandamus, with prayer for a writ over by respondent Judge, issued on July 29, 1970, an order dismissing the petition for
of preliminary mandatory and prohibitory injunction. In their petition Bache & Co. dissolution of the search warrant. In the meantime, or on April 16, 1970, the Bureau of
(Phil.), Inc., a corporation duly organized and existing under the laws of the Philippines,Internal Revenue made tax assessments on petitioner corporation in the total sum of
and its President, Frederick E. Seggerman, pray this Court to declare null and void P2,594,729.97, partly, if not entirely, based on the documents thus seized. Petitioners
Search Warrant No. 2-M-70 issued by respondent Judge on February 25, 1970; to order came to this Court.
respondents to desist from enforcing the same and/or keeping the documents, papers
and effects seized by virtue thereof, as well as from enforcing the tax assessments on The petition should be granted for the following reasons:chanrob1es virtual 1aw library
petitioner corporation alleged by petitioners to have been made on the basis of the said
documents, papers and effects, and to order the return of the latter to petitioners. We 1. Respondent Judge failed to personally examine the complainant and his witness.
gave due course to the petition but did not issue the writ of preliminary injunction
prayed for therein. The pertinent provisions of the Constitution of the Philippines and of the Revised Rules
of Court are:jgc:chanrobles.com.ph
The pertinent facts of this case, as gathered from record, are as follows:chanrob1es
virtual 1aw library "(3) 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
On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, issue but upon probable cause, to be determined by the judge after examination under
wrote a letter addressed to respondent Judge Vivencio M. Ruiz requesting the issuance oath or affirmation of the complainant and the witnesses he may produce, and
of a search warrant against petitioners for violation of Section 46(a) of the National particularly describing the place to be searched, and the persons or things to be
Internal Revenue Code, in relation to all other pertinent provisions thereof, particularly seized." (Art. III, Sec. 1, Constitution.)
Sections 53, 72, 73, 208 and 209, and authorizing Revenue Examiner Rodolfo de Leon,
one of herein respondents, to make and file the application for search warrant which "SEC. 3. Requisites for issuing search warrant. A search warrant shall not issue but

23
upon probable cause in connection with one specific offense to be determined by the may produce . . ."cralaw virtua1aw library
judge or justice of the peace after examination under oath or affirmation of the
complainant and the witnesses he may produce, and particularly describing the place to The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is more
be searched and the persons or things to be seized. emphatic and candid, for it requires the judge, before issuing a search warrant, to
"personally examine on oath or affirmation the complainant and any witnesses he may
"No search warrant shall issue for more than one specific offense. produce . . ."cralaw virtua1aw library

"SEC. 4. Examination of the applicant. The judge or justice of the peace must, before Personal examination by the judge of the complainant and his witnesses is necessary to
issuing the warrant, personally examine on oath or affirmation the complainant and any enable him to determine the existence or non-existence of a probable cause, pursuant
witnesses he may produce and take their depositions in writing, and attach them to the to Art. III, Sec. 1, par. 3, of the Constitution, and Sec. 3, Rule 126 of the Revised Rules
record, in addition to any affidavits presented to him." (Rule 126, Revised Rules of of Court, both of which prohibit the issuance of warrants except "upon probable cause."
Court.) The determination of whether or not a probable cause exists calls for the exercise of
judgment after a judicial appraisal of facts and should not be allowed to be delegated in
The examination of the complainant and the witnesses he may produce, required by the absence of any rule to the contrary.
Art. III, Sec. 1, par. 3, of the Constitution, and by Secs. 3 and 4, Rule 126 of the
Revised Rules of Court, should be conducted by the judge himself and not by others. In the case at bar, no personal examination at all was conducted by respondent Judge
The phrase "which shall be determined by the judge after examination under oath or of the complainant (respondent De Leon) and his witness (respondent Logronio). While
affirmation of the complainant and the witnesses he may produce," appearing in the it is true that the complainants application for search warrant and the witness printed-
said constitutional provision, was introduced by Delegate Francisco as an amendment to form deposition were subscribed and sworn to before respondent Judge, the latter did
the draft submitted by the Sub-Committee of Seven. The following discussion in the not ask either of the two any question the answer to which could possibly be the basis
Constitutional Convention (Laurel, Proceedings of the Philippine Constitutional for determining whether or not there was probable cause against herein petitioners.
Convention, Vol. III, pp. 755-757) is enlightening:jgc:chanrobles.com.ph Indeed, the participants seem to have attached so little significance to the matter that
notes of the proceedings before respondent Judge were not even taken. At this juncture
"SR. ORENSE. Vamos a dejar compaero los piropos y vamos al grano. it may be well to recall the salient facts. The transcript of stenographic notes (pp. 61-
76, April 1, 1970, Annex J-2 of the Petition) taken at the hearing of this case in the
En los casos de una necesidad de actuar inmediatamente para que no se frusten los court below shows that per instruction of respondent Judge, Mr. Eleodoro V. Gonzales,
fines de la justicia mediante el registro inmediato y la incautacion del cuerpo del delito, Special Deputy Clerk of Court, took the depositions of the complainant and his witness,
no cree Su Seoria que causaria cierta demora el procedimiento apuntado en su and that stenographic notes thereof were taken by Mrs. Gaspar. At that time
enmienda en tal forma que podria frustrar los fines de la justicia o si Su Seoria respondent Judge was at the sala hearing a case. After respondent Judge was through
encuentra un remedio para esto casos con el fin de compaginar los fines de la justicia with the hearing, Deputy Clerk Gonzales, stenographer Gaspar, complainant De Leon
con los derechos del individuo en su persona, bienes etcetera, etcetera. and witness Logronio went to respondent Judges chamber and informed the Judge that
they had finished the depositions. Respondent Judge then requested the stenographer
"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su Seoria pregunta to read to him her stenographic notes. Special Deputy Clerk Gonzales testified as
por la siguiente razon: el que solicita un mandamiento de registro tiene que hacerlo por follows:jgc:chanrobles.com.ph
escrito y ese escrito no aparecer en la Mesa del Juez sin que alguien vaya el juez a
presentar ese escrito o peticion de sucuestro. Esa persona que presenta el registro "A And after finishing reading the stenographic notes, the Honorable Judge requested or
puede ser el mismo denunciante o alguna persona que solicita dicho mandamiento de instructed them, requested Mr. Logronio to raise his hand and warned him if his
registro. Ahora toda la enmienda en esos casos consiste en que haya peticion de deposition will be found to be false and without legal basis, he can be charged
registro y el juez no se atendra solamente a sea peticion sino que el juez examiner a criminally for perjury. The Honorable Court told Mr. Logronio whether he affirms the
ese denunciante y si tiene testigos tambin examiner a los testigos. facts contained in his deposition and the affidavit executed before Mr. Rodolfo de Leon.

"SR. ORENSE. No cree Su Seoria que el tomar le declaracion de ese denunciante por "Q And thereafter?
escrito siempre requeriria algun tiempo?.
"A And thereafter, he signed the deposition of Mr. Logronio.
"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado minimizamos en
todo lo posible las vejaciones injustas con la expedicion arbitraria de los mandamientos "Q Who is this he?
de registro. Creo que entre dos males debemos escoger. el menor.
"A The Honorable Judge.
x x x
"Q The deposition or the affidavit?

"MR. LAUREL. . . . The reason why we are in favor of this amendment is because we are "A The affidavit, Your Honor."cralaw virtua1aw library
incorporating in our constitution something of a fundamental character. Now, before a
judge could issue a search warrant, he must be under the obligation to examine Thereafter, respondent Judge signed the search warrant.
personally under oath the complainant and if he has any witness, the witnesses that he

24
The participation of respondent Judge in the proceedings which led to the issuance of to pay the tax due thereon). Even in their classification the six above-mentioned
Search Warrant No. 2-M-70 was thus limited to listening to the stenographers readings provisions are embraced in two different titles: Secs. 46(a), 53, 72 and 73 are under
of her notes, to a few words of warning against the commission of perjury, and to Title II (Income Tax); while Secs. 208 and 209 are under Title V (Privilege Tax on
administering the oath to the complainant and his witness. This cannot be consider a Business and Occupation).
personal examination. If there was an examination at all of the complainant and his
witness, it was the one conducted by the Deputy Clerk of Court. But, as stated, the Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550, June 19, 1967 (20
Constitution and the rules require a personal examination by the judge. It was precisely SCRA 383), is not applicable, because there the search warrants were issued for
on account of the intention of the delegates to the Constitutional Convention to make it "violation of Central Bank Laws, Internal Revenue (Code) and Revised Penal Code;"
a duty of the issuing judge to personally examine the complainant and his witnesses whereas, here Search Warrant No 2-M-70 was issued for violation of only one code, i.e.,
that the question of how much time would be consumed by the judge in examining the National Internal Revenue Code. The distinction more apparent than real, because it
them came up before the Convention, as can be seen from the record of the was precisely on account of the Stonehill incident, which occurred sometime before the
proceedings quoted above. The reading of the stenographic notes to respondent Judge present Rules of Court took effect on January 1, 1964, that this Court amended the
did not constitute sufficient compliance with the constitutional mandate and the rule; former rule by inserting therein the phrase "in connection with one specific offense,"
for by that manner respondent Judge did not have the opportunity to observe the and adding the sentence "No search warrant shall issue for more than one specific
demeanor of the complainant and his witness, and to propound initial and follow-up offense," in what is now Sec. 3, Rule 126. Thus we said in
questions which the judicial mind, on account of its training, was in the best position to Stonehill:jgc:chanrobles.com.ph
conceive. These were important in arriving at a sound inference on the all-important
question of whether or not there was probable cause."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
2. The search warrant was issued for more than one specific offense. former Rules of Court that a search warrant shall not issue but upon probable cause in
connection with one specific offense. Not satisfied with this qualification, the Court
Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of the National added thereto a paragraph, directing that no search warrant shall issue for more than
Internal Revenue Code in relation to all other pertinent provisions thereof particularly one specific offense."
Secs. 53, 72, 73, 208 and 209." The question is: Was the said search warrant issued "in
connection with one specific offense," as required by Sec. 3, Rule 126? 3. The search warrant does not particularly describe the things to be seized.

To arrive at the correct answer it is essential to examine closely the provisions of the The documents, papers and effects sought to be seized are described in Search Warrant
Tax Code referred to above. Thus we find the following:chanrob1es virtual 1aw library No. 2-M-70 in this manner:jgc:chanrobles.com.ph

Sec. 46(a) requires the filing of income tax returns by

corporations. "Unregistered and private books of accounts (ledgers, journals, columnars, receipts and
disbursements books, customers ledgers); receipts for payments received; certificates
Sec. 53 requires the withholding of income taxes at source. of stocks and securities; contracts, promissory notes and deeds of sale; telex and coded
messages; business communications, accounting and business records; checks and
Sec. 72 imposes surcharges for failure to render income tax returns and for rendering check stubs; records of bank deposits and withdrawals; and records of foreign
false and fraudulent returns. remittances, covering the years 1966 to 1970."cralaw virtua1aw library

Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to The description does not meet the requirement in Art III, Sec. 1, of the Constitution,
supply the information required under the Tax Code. and of Sec. 3, Rule 126 of the Revised Rules of Court, that the warrant should
particularly describe the things to be seized.
Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks, compounds, or
manufactures any article subject to a specific tax, without having paid the privilege tax In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto Concepcion,
therefore, or who aids or abets in the conduct of illicit distilling, rectifying, said:jgc:chanrobles.com.ph
compounding, or illicit manufacture of any article subject to specific tax . . .," and
provides that in the case of a corporation, partnership, or association, the official and/or "The grave violation of the Constitution made in the application for the contested search
employee who caused the violation shall be responsible. warrants was compounded by the description therein made of the effects to be
searched for and seized, to wit:chanrob1es virtual 1aw library
Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross
value of output removed, or to pay the tax due thereon. Books of accounts, financial records, vouchers, journals, correspondence, receipts,
ledgers, portfolios, credit journals, typewriters, and other documents and/or paper
The search warrant in question was issued for at least four distinct offenses under the showing all business transactions including disbursement receipts, balance sheets and
Tax Code. The first is the violation of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of related profit and loss statements.
income tax returns), which are interrelated. The second is the violation of Sec. 53
(withholding of income taxes at source). The third is the violation of Sec. 208 (unlawful "Thus, the warrants authorized the search for and seizure of records pertaining to all
pursuit of business or occupation); and the fourth is the violation of Sec. 209 (failure to business transactions of petitioners herein, regardless of whether the transactions were
make a return of receipts, sales, business or gross value of output actually removed or legal or illegal. The warrants sanctioned the seizure of all records of the petitioners and

25
the aforementioned corporations, whatever their nature, thus openly contravening the be enforced by respondent officers of the Bureau of Internal Revenue against petitioner
explicit command of our Bill of Rights that the things to be seized be particularly corporation, On account of which immediate and more direct action becomes necessary.
described as well as tending to defeat its major objective: the elimination of general (Matute v. Court of Appeals, Et Al., 26 SCRA 768.) Lastly, the rule does not apply
warrants."cralaw virtua1aw library where, as in this case, the deprivation of petitioners fundamental right to due process
taints the proceeding against them in the court below not only with irregularity but also
While the term "all business transactions" does not appear in Search Warrant No. 2-M- with nullity. (Matute v. Court of Appeals, Et Al., supra.)
70, the said warrant nevertheless tends to defeat the major objective of the Bill of
Rights, i.e., the elimination of general warrants, for the language used therein is so all- It is next contended by respondents that a corporation is not entitled to protection
embracing as to include all conceivable records of petitioner corporation, which, if against unreasonable search and seizures. Again, we find no merit in the contention.
seized, could possibly render its business inoperative.
"Although, for the reasons above stated, we are of the opinion that an officer of a
In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court had occasion corporation which is charged with a violation of a statute of the state of its creation, or
to explain the purpose of the requirement that the warrant should particularly describe of an act of Congress passed in the exercise of its constitutional powers, cannot refuse
the place to be searched and the things to be seized, to wit:jgc:chanrobles.com.ph to produce the books and papers of such corporation, we do not wish to be understood
as holding that a corporation is not entitled to immunity, under the 4th Amendment,
". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) specifically against unreasonable searches and seizures. A corporation is, after all, but an
require that a search warrant should particularly describe the place to be searched and association of individuals under an assumed name and with a distinct legal entity. In
the things to be seized. The evident purpose and intent of this requirement is to limit organizing itself as a collective body it waives no constitutional immunities appropriate
the things to be seized to those, and only those, particularly described in the search to such body. Its property cannot be taken without compensation. It can only be
warrant to leave the officers of the law with no discretion regarding what articles proceeded against by due process of law, and is protected, under the 14th Amendment,
they shall seize, to the end that unreasonable searches and seizures may not be against unlawful discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.)
made, that abuses may not be committed. That this is the correct interpretation of
this constitutional provision is borne out by American authorities."cralaw virtua1aw "In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a
library different rule applied to a corporation, the ground that it was not privileged from
producing its books and papers. But the rights of a corporation against unlawful search
The purpose as thus explained could, surely and effectively, be defeated under the and seizure are to be protected even if the same result might have been achieved in a
search warrant issued in this case. lawful way." (Silverthorne Lumber Company, Et. Al. v. United States of America, 251
U.S. 385, 64 L. ed. 319.)
A search warrant may be said to particularly describe the things to be seized when the
description therein is as specific as the circumstances will ordinarily allow (People v. In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of
Rubio; 57 Phil. 384); or when the description expresses a conclusion of fact not of a corporation to object against unreasonable searches and seizures,
law by which the warrant officer may be guided in making the search and seizure thus:jgc:chanrobles.com.ph
(idem., dissent of Abad Santos, J.,); or when the things described are limited to those
which bear direct relation to the offense for which the warrant is being issued (Sec. 2, "As regards the first group, we hold that petitioners herein have no cause of action to
Rule 126, Revised Rules of Court). The herein search warrant does not conform to any assail the legality of the contested warrants and of the seizures made in pursuance
of the foregoing tests. If the articles desired to be seized have any direct relation to an thereof, for the simple reason that said corporations have their respective personalities,
offense committed, the applicant must necessarily have some evidence, other than separate and distinct from the personality of herein petitioners, regardless of the
those articles, to prove the said offense; and the articles subject of search and seizure amount of shares of stock or the interest of each of them in said corporations,
should come in handy merely to strengthen such evidence. In this event, the whatever, the offices they hold therein may be. Indeed, it is well settled that the
description contained in the herein disputed warrant should have mentioned, at least, legality of a seizure can be contested only by the party whose rights have been
the dates, amounts, persons, and other pertinent data regarding the receipts of impaired thereby, and that the objection to an unlawful search and seizure is purely
payments, certificates of stocks and securities, contracts, promissory notes, deeds of personal and cannot be availed of by third parties. Consequently, petitioners herein may
sale, messages and communications, checks, bank deposits and withdrawals, records of not validly object to the use in evidence against them of the documents, papers and
foreign remittances, among others, enumerated in the warrant. 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
Respondents contend that certiorari does not lie because petitioners failed to file a the corporations, to whom the seized effects belong, and may not be invoked by the
motion for reconsideration of respondent Judges order of July 29, 1970. The contention corporate officers in proceedings against them in their individual capacity . . ."cralaw
is without merit. In the first place, when the questions raised before this Court are the virtua1aw library
same as those which were squarely raised in and passed upon by the court below, the
filing of a motion for reconsideration in said court before certiorari can be instituted in In the Stonehill case only the officers of the various corporations in whose offices
this Court is no longer a prerequisite. (Pajo, etc., Et. Al. v. Ago, Et Al., 108 Phil., 905). documents, papers and effects were searched and seized were the petitioners. In the
In the second place, the rule requiring the filing of a motion for reconsideration before case at bar, the corporation to whom the seized documents belong, and whose rights
an application for a writ of certiorari can be entertained was never intended to be have thereby been impaired, is itself a petitioner. On that score, petitioner corporation
applied without considering the circumstances. (Matutina v. Buslon, Et Al., 109 Phil., here stands on a different footing from the corporations in Stonehill.
140.) In the case at bar time is of the essence in view of the tax assessments sought to

26
The tax assessments referred to earlier in this opinion were, if not entirely as claimed
by petitioners at least partly as in effect admitted by respondents based on the
documents seized by virtue of Search Warrant No. 2-M-70. Furthermore, the fact that
the assessments were made some one and one-half months after the search and
seizure on February 25, 1970, is a strong indication that the documents thus seized
served as basis for the assessments. Those assessments should therefore not be
enforced.

PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-
70 issued by respondent Judge is declared null and void; respondents are permanently
enjoined from enforcing the said search warrant; the documents, papers and effects
seized thereunder are ordered to be returned to petitioners; and respondent officials
the Bureau of Internal Revenue and their representatives are permanently enjoined
from enforcing the assessments mentioned in Annex "G" of the present petition, as well
as other assessments based on the documents, papers and effects seized under the
search warrant herein nullified, and from using the same against petitioners in any
criminal or other proceeding. No pronouncement as to costs.

27
 Monte, Bulacan; that the members of the plaintiff corporation, through themselves and their
predecessors-in-interest, had pioneered in the clearing of the fore-mentioned tract of land, cultivated
the same since the Spanish regime and continuously possessed the said property openly and public
under concept of ownership adverse against the whole world; that defendant-appellee Gregorio
Araneta, Inc., sometime in the year 1958, through force and intimidation, ejected the members of the
plaintiff corporation fro their possession of the aforementioned vast tract of land; that upon
investigation conducted by the members and officers of plaintiff corporation, they found out for the
first time in the year 1961 that the land in question "had been either fraudelently or erroneously
included, by direct or constructive fraud, in Original Certificate of Title No. 466 of the Land of
Records of the province of Bulacan", issued on May 11, 1916, which title is fictitious, non-existent
and devoid of legal efficacy due to the fact that "no original survey nor plan whatsoever" appears to
have been submitted as a basis thereof and that the Court of First Instance of Bulacan which issued
the decree of registration did not acquire jurisdiction over the land registration case because no
notice of such proceeding was given to the members of the plaintiff corporation who were then in
actual possession of said properties; that as a consequence of the nullity of the original title, all
subsequent titles derived therefrom, such as Transfer Certificate of Title No. 4903 issued in favor of
G.R. No. L-31061 August 17, 1976 Gregorio Araneta and Carmen Zaragoza, which was subsequently cancelled by Transfer Certificate
of Title No. 7573 in the name of Gregorio Araneta, Inc., Transfer Certificate of Title No. 4988 issued
in the name of, the National Waterworks & Sewerage Authority (NWSA), Transfer Certificate of Title
SULO NG BAYAN INC., plaintiff-appellant, No. 4986 issued in the name of Hacienda Caretas, Inc., and another transfer certificate of title in the
vs. name of Paradise Farms, Inc., are therefore void. Plaintiff-appellant consequently prayed (1) that
GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL WATERWORKS & Original Certificate of Title No. 466, as well as all transfer certificates of title issued and derived
SEWERAGE AUTHORITY, HACIENDA CARETAS, INC, and REGISTER OF DEEDS OF therefrom, be nullified; (2) that "plaintiff's members" be declared as absolute owners in common of
BULACAN, defendants-appellees. said property and that the corresponding certificate of title be issued to plaintiff; and (3) that
defendant-appellee Gregorio Araneta, Inc. be ordered to pay to plaintiff the damages therein
Hill & Associates Law Offices for appellant. specified.

Araneta, Mendoza & Papa for appellee Gregorio Araneta, Inc.
Carlos, Madarang, Carballo & Valdez for Paradise Farms, Inc.
Leopoldo M. Abellera, Arsenio J. Magpale & Raul G. Bernardo, Office of the Government Corporate
Counsel for appellee National Waterworks & Sewerage Authority.
On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to dismiss the
amended complaint on the grounds that (1) the complaint states no cause of action; and (2) the
cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and Hacienda
Caretas, Inc. filed motions to dismiss based on the same grounds. Appellee National Waterworks &
Sewerage Authority did not file any motion to dismiss. However, it pleaded in its answer as special
and affirmative defenses lack of cause of action by the plaintiff-appellant and the barring of such
action by prescription and laches.

Candido G. del Rosario for appellee Hacienda Caretas, Inc. During the pendency of the motion to dismiss, plaintiff-appellant filed a motion, dated October 7,
1966, praying that the case be transferred to another branch of the Court of First Instance sitting at
Malolos, Bulacan, According to defendants-appellees, they were not furnished a copy of said motion,
hence, on October 14, 1966, the lower court issued an Order requiring plaintiff-appellant to furnish
the appellees copy of said motion, hence, on October 14, 1966, defendant-appellant's motion dated
ANTONIO, J.: October 7, 1966 and, consequently, prayed that the said motion be denied for lack of notice and for
failure of the plaintiff-appellant to comply with the Order of October 14, 1966. Similarly, defendant-
appellee paradise Farms, Inc. filed, on December 2, 1966, a manifestation information the court that
The issue posed in this appeal is whether or not plaintiff corporation (non- stock may institute an it also did not receive a copy of the afore-mentioned of appellant. On January 24, 1967, the trial
action in behalf of its individual members for the recovery of certain parcels of land allegedly owned court issued an Order dismissing the amended complaint.
by said members; for the nullification of the transfer certificates of title issued in favor of defendants
appellees covering the aforesaid parcels of land; for a declaration of "plaintiff's members as absolute
owners of the property" and the issuance of the corresponding certificate of title; and for damages. On February 14, 1967, appellant filed a motion to reconsider the Order of dismissal on the grounds
that the court had no jurisdiction to issue the Order of dismissal, because its request for the transfer
of the case from the Valenzuela Branch of the Court of First Instance to the Malolos Branch of the
On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de revindicacion with the said court has been approved by the Department of Justice; that the complaint states a sufficient
Court of First Instance of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against defendants- cause of action because the subject matter of the controversy in one of common interest to the
appellees to recover the ownership and possession of a large tract of land in San Jose del Monte, members of the corporation who are so numerous that the present complaint should be treated as a
Bulacan, containing an area of 27,982,250 square meters, more or less, registered under the class suit; and that the action is not barred by the statute of limitations because (a) an action for the
Torrens System in the name of defendants-appellees' predecessors-in-interest. 1 The complaint, as reconveyance of property registered through fraud does not prescribe, and (b) an action to impugn a
amended on June 13, 1966, specifically alleged that plaintiff is a corporation organized and existing void judgment may be brought any time. This motion was denied by the trial court in its Order dated
under the laws of the Philippines, with its principal office and place of business at San Jose del February 22, 1967. From the afore-mentioned Order of dismissal and the Order denying its motion
Monte, Bulacan; that its membership is composed of natural persons residing at San Jose del for reconsideration, plaintiff-appellant appealed to the Court of Appeals.

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On September 3, 1969, the Court of Appeals, upon finding that no question of fact was involved in has not been filed in the names of the real parties in interest, the complaint must
the appeal but only questions of law and jurisdiction, certified this case to this Court for resolution of be dismissed on the ground of lack of cause of action. 3
the legal issues involved in the controversy.
Viewed in the light of existing law and jurisprudence, We find that the trial court correctly dismissed
I the amended complaint.

Appellant contends, as a first assignment of error, that the trial court acted without authority and It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct
jurisdiction in dismissing the amended complaint when the Secretary of Justice had already legal entity to be considered as separate and apart from the individual stockholders or members who
approved the transfer of the case to any one of the two branches of the Court of First Instance of compose it, and is not affected by the personal rights, obligations and transactions of its
Malolos, Bulacan. stockholders or members. 4 The property of the corporation is its property and not that of the
stockholders, as owners, although they have equities in it. Properties registered in the name of the
corporation are owned by it as an entity separate and distinct from its members. 5 Conversely, a
Appellant confuses the jurisdiction of a court and the venue of cases with the assignment of cases in
corporation ordinarily has no interest in the individual property of its stockholders unless transferred
the different branches of the same Court of First Instance. Jurisdiction implies the power of the court
to the corporation, "even in the case of a one-man corporation. 6 The mere fact that one is president
to decide a case, while venue the place of action. There is no question that respondent court has
of a corporation does not render the property which he owns or possesses the property of the
jurisdiction over the case. The venue of actions in the Court of First Instance is prescribed in Section
corporation, since the president, as individual, and the corporation are separate
2, Rule 4 of the Revised Rules of Court. The laying of venue is not left to the caprice of plaintiff, but
similarities. 7 Similarly, stockholders in a corporation engaged in buying and dealing in real estate
must be in accordance with the aforesaid provision of the rules. 2The mere fact that a request for the
whose certificates of stock entitled the holder thereof to an allotment in the distribution of the land of
transfer of a case to another branch of the same court has been approved by the Secretary of
the corporation upon surrender of their stock certificates were considered not to have such legal or
Justice does not divest the court originally taking cognizance thereof of its jurisdiction, much less
equitable title or interest in the land, as would support a suit for title, especially against parties other
does it change the venue of the action. As correctly observed by the trial court, the indorsement of
than the corporation. 8
the Undersecretary of Justice did not order the transfer of the case to the Malolos Branch of the
Bulacan Court of First Instance, but only "authorized" it for the reason given by plaintiff's counsel that
the transfer would be convenient for the parties. The trial court is not without power to either grant or It must be noted, however, that the juridical personality of the corporation, as separate and distinct
deny the motion, especially in the light of a strong opposition thereto filed by the defendant. We hold from the persons composing it, is but a legal fiction introduced for the purpose of convenience and to
that the court a quo acted within its authority in denying the motion for the transfer the case to subserve the ends of justice. 9 This separate personality of the corporation may be disregarded, or
Malolos notwithstanding the authorization" of the same by the Secretary of Justice. the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for fraud or
illegality, or to work -an injustice, or where necessary to achieve equity. 10
II
Thus, when "the notion of legal entity is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, ... the law will regard the corporation as an association of persons, or in the
Let us now consider the substantive aspect of the Order of dismissal.
case of two corporations, merge them into one, the one being merely regarded as part or
instrumentality of the other. 11 The same is true where a corporation is a dummy and serves no
In dismissing the amended complaint, the court a quo said: business purpose and is intended only as a blind, or an alter ego or business conduit for the sole
benefit of the stockholders. 12 This doctrine of disregarding the distinct personality of the corporation
has been applied by the courts in those cases when the corporate entity is used for the evasion of
The issue of lack of cause of action raised in the motions to dismiss refer to the taxes 13 or when the veil of corporate fiction is used to confuse legitimate issue of employer-
lack of personality of plaintiff to file the instant action. Essentially, the term employee relationship, 14 or when necessary for the protection of creditors, in which case the veil of
'cause of action' is composed of two elements: (1) the right of the plaintiff and corporate fiction may be pierced and the funds of the corporation may be garnished to satisfy the
(2) the violation of such right by the defendant. (Moran, Vol. 1, p. 111). For these debts of a principal stockholder. 15 The aforecited principle is resorted to by the courts as a measure
reasons, the rules require that every action must be prosecuted and defended in protection for third parties to prevent fraud, illegality or injustice. 16
the name of the real party in interest and that all persons having an interest in
the subject of the action and in obtaining the relief demanded shall be joined as
plaintiffs (Sec. 2, Rule 3). In the amended complaint, the people whose rights It has not been claimed that the members have assigned or transferred whatever rights they may
were alleged to have been violated by being deprived and dispossessed of their have on the land in question to the plaintiff corporation. Absent any showing of interest, therefore, a
land are the members of the corporation and not the corporation itself. The corporation, like plaintiff-appellant herein, has no personality to bring an action for and in behalf of its
corporation has a separate. and distinct personality from its members, and this stockholders or members for the purpose of recovering property which belongs to said stockholders
is not a mere technicality but a matter of substantive law. There is no allegation or members in their personal capacities.
that the members have assigned their rights to the corporation or any showing
that the corporation has in any way or manner succeeded to such rights. The
It is fundamental that there cannot be a cause of action 'without an antecedent primary legal right
corporation evidently did not have any rights violated by the defendants for
conferred' by law upon a person. 17 Evidently, there can be no wrong without a corresponding right,
which it could seek redress. Even if the Court should find against the
and no breach of duty by one person without a corresponding right belonging to some other
defendants, therefore, the plaintiff corporation would not be entitled to the reliefs
person. 18 Thus, the essential elements of a cause of action are legal right of the plaintiff, correlative
prayed for, which are recoveries of ownership and possession of the land,
obligation of the defendant, an act or omission of the defendant in violation of the aforesaid legal
issuance of the corresponding title in its name, and payment of damages.
right. 19 Clearly, no right of action exists in favor of plaintiff corporation, for as shown heretofore it
Neither can such reliefs be awarded to the members allegedly deprived of their
does not have any interest in the subject matter of the case which is material and, direct so as to
land, since they are not parties to the suit. It appearing clearly that the action
entitle it to file the suit as a real party in interest.

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III the only matter in common among the plaintiffs, or between them and the
defendants, is an interest in the Question involved which alone cannot lay a
foundation for the joinder of parties. There is scarcely a suit at law, or in equity
Appellant maintains, however, that the amended complaint may be treated as a class suit, pursuant
which settles a Principle or applies a principle to a given state of facts, or in
to Section 12 of Rule 3 of the Revised Rules of Court.
which a general statute is interpreted, that does not involved a Question in
which other parties are interested. ... (Emphasis supplied )
In order that a class suit may prosper, the following requisites must be present: (1) that the subject
matter of the controversy is one of common or general interest to many persons; and (2) that the
Here, there is only one party plaintiff, and the plaintiff corporation does not even have an interest in
parties are so numerous that it is impracticable to bring them all before the court. 20
the subject matter of the controversy, and cannot, therefore, represent its members or stockholders
who claim to own in their individual capacities ownership of the said property. Moreover, as correctly
Under the first requisite, the person who sues must have an interest in the controversy, common with stated by the appellees, a class suit does not lie in actions for the recovery of property where several
those for whom he sues, and there must be that unity of interest between him and all such other persons claim Partnership of their respective portions of the property, as each one could alleged and
persons which would entitle them to maintain the action if suit was brought by them jointly. 21 prove his respective right in a different way for each portion of the land, so that they cannot all be
held to have Identical title through acquisition prescription. 23
As to what constitutes common interest in the subject matter of the controversy, it has been
explained in Scott v. Donald 22 thus: Having shown that no cause of action in favor of the plaintiff exists and that the action in the lower
court cannot be considered as a class suit, it would be unnecessary and an Idle exercise for this
Court to resolve the remaining issue of whether or not the plaintiffs action for reconveyance of real
The interest that will allow parties to join in a bill of complaint, or that will enable property based upon constructive or implied trust had already prescribed.
the court to dispense with the presence of all the parties, when numerous,
except a determinate number, is not only an interest in the question, but one in
common in the subject Matter of the suit; ... a community of interest growing out ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the plaintiff-appellant.
of the nature and condition of the right in dispute; for, although there may not be
any privity between the numerous parties, there is a common title out of which
the question arises, and which lies at the foundation of the proceedings ... [here]

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