Bus Org 2 Cases 1st Set Prelim 1

[G.R. No. 142936. April 17, 2002]
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT CORPORATION, petitioners, vs. ANDRADA ELECTRIC & ENGINEERING
COMPANY, respondent.
DECISION
PANGANIBAN, J.:
Basic is the rule that a corporation has a legal personality distinct and separate from the persons and entities owning it. The
corporate veil may be lifted only if it has been used to shield fraud, defend crime, justify a wrong, defeat public convenience, insulate
bad faith or perpetuate injustice. Thus, the mere fact that the Philippine National Bank (PNB) acquired ownership or management of
some assets of the Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at the resulting public auction
by the Development Bank of the Philippines (DBP), will not make PNB liable for the PASUMILs contractual debts to respondent.
Statement of the Case
Before us is a Petition for Review assailing the April 17, 2000 Decision [1] of the Court of Appeals (CA) in CA-GR CV No. 57610. The
decretal portion of the challenged Decision reads as follows:
WHEREFORE, the judgment appealed from is hereby AFFIRMED.[2]
The Facts
The factual antecedents of the case are summarized by the Court of Appeals as follows:
In its complaint, the plaintiff [herein respondent] alleged that it is a partnership duly organized, existing, and operating under the
laws of the Philippines, with office and principal place of business at Nos. 794-812 Del Monte [A]venue, Quezon City, while the
defendant [herein petitioner] Philippine National Bank (herein referred to as PNB), is a semi-government corporation duly organized,
existing and operating under the laws of the Philippines, with office and principal place of business at Escolta Street, Sta. Cruz,
Manila; whereas, the other defendant, the National Sugar Development Corporation (NASUDECO in brief), is also a semi-government
corporation and the sugar arm of the PNB, with office and principal place of business at the 2 nd Floor, Sampaguita Building, Cubao,
Quezon City; and the defendant Pampanga Sugar Mills (PASUMIL in short), is a corporation organized, existing and operating under
the 1975 laws of the Philippines, and had its business office before 1975 at Del Carmen, Floridablanca, Pampanga; that the plaintiff is
engaged in the business of general construction for the repairs and/or construction of different kinds of machineries and buildings;
that on August 26, 1975, the defendant PNB acquired the assets of the defendant PASUMIL that were earlier foreclosed by the
Development Bank of the Philippines (DBP) under LOI No. 311; that the defendant PNB organized the defendant NASUDECO in
September, 1975, to take ownership and possession of the assets and ultimately to nationalize and consolidate its interest in other
PNB controlled sugar mills; that prior to October 29, 1971, the defendant PASUMIL engaged the services of plaintiff for electrical
rewinding and repair, most of which were partially paid by the defendant PASUMIL, leaving several unpaid accounts with the plaintiff;
that finally, on October 29, 1971, the plaintiff and the defendant PASUMIL entered into a contract for the plaintiff to perform the
following, to wit
(a) Construction of one (1) power house building;
(b) Construction of three (3) reinforced concrete foundation for three (3) units 350 KW diesel engine generating set[s];
(c) Construction of three (3) reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo generator sets;
(d) Complete overhauling and reconditioning tests sum for three (3) 350 KW diesel engine generating set[s];
(e) Installation of turbine and diesel generating sets including transformer, switchboard, electrical wirings and pipe provided those
stated units are completely supplied with their accessories;
(f) Relocating of 2,400 V transmission line, demolition of all existing concrete foundation and drainage canals, excavation, and earth
fillings all for the total amount of P543,500.00 as evidenced by a contract, [a] xerox copy of which is hereto attached as Annex A and
made an integral part of this complaint;
that aside from the work contract mentioned-above, the defendant PASUMIL required the plaintiff to perform extra work, and provide
electrical equipment and spare parts, such as:
(a) Supply of electrical devices;
(b) Extra mechanical works;
(c) Extra fabrication works;
(d) Supply of materials and consumable items;
(e) Electrical shop repair;
(f) Supply of parts and related works for turbine generator;
(g) Supply of electrical equipment for machinery;
(h) Supply of diesel engine parts and other related works including fabrication of parts.
that out of the total obligation of P777,263.80, the defendant PASUMIL had paid only P250,000.00, leaving an unpaid balance, as of
June 27, 1973, amounting to P527,263.80, as shown in the Certification of the chief accountant of the PNB, a machine copy of which
is appended as Annex C of the complaint; that out of said unpaid balance of P527,263.80, the defendant PASUMIL made a partial
payment to the plaintiff of P14,000.00, in broken amounts, covering the period from January 5, 1974 up to May 23, 1974, leaving an
unpaid balance of P513,263.80; that the defendant PASUMIL and the defendant PNB, and now the defendant NASUDECO, failed and
refused to pay the plaintiff their just, valid and demandable obligation; that the President of the NASUDECO is also the Vice-President
of the PNB, and this official holds office at the 10 th Floor of the PNB, Escolta, Manila, and plaintiff besought this official to pay the
outstanding obligation of the defendant PASUMIL, inasmuch as the defendant PNB and NASUDECO now owned and possessed the
assets of the defendant PASUMIL, and these defendants all benefited from the works, and the electrical, as well as the engineering
and repairs, performed by the plaintiff; that because of the failure and refusal of the defendants to pay their just, valid, and
demandable obligations, plaintiff suffered actual damages in the total amount of P513,263.80; and that in order to recover these
sums, the plaintiff was compelled to engage the professional services of counsel, to whom the plaintiff agreed to pay a sum
equivalent to 25% of the amount of the obligation due by way of attorneys fees.Accordingly, the plaintiff prayed that judgment be
rendered against the defendants PNB, NASUDECO, and PASUMIL, jointly and severally to wit:
(1) Sentencing the defendants to pay the plaintiffs the sum of P513,263.80, with annual interest of 14% from the time the obligation
falls due and demandable;
(2) Condemning the defendants to pay attorneys fees amounting to 25% of the amount claim;
(3) Ordering the defendants to pay the costs of the suit.
The defendants PNB and NASUDECO filed a joint motion to dismiss the complaint chiefly on the ground that the complaint failed to
state sufficient allegations to establish a cause of action against both defendants, inasmuch as there is lack or want of privity of
contract between the plaintiff and the two defendants, the PNB and NASUDECO, said defendants citing Article 1311 of the New Civil
Code, and the case law ruling in Salonga v. Warner Barnes & Co., 88 Phil. 125; and Manila Port Service, et al. v. Court of Appeals, et
al., 20 SCRA 1214.
The motion to dismiss was by the court a quo denied in its Order of November 27, 1980; in the same order, that court directed the
defendants to file their answer to the complaint within 15 days.
In their answer, the defendant NASUDECO reiterated the grounds of its motion to dismiss, to wit:
That the complaint does not state a sufficient cause of action against the defendant NASUDECO because: (a) NASUDECO is not x x x
privy to the various electrical construction jobs being sued upon by the plaintiff under the present complaint; (b) the taking over by
NASUDECO of the assets of defendant PASUMIL was solely for the purpose of reconditioning the sugar central of defendant PASUMIL
pursuant to martial law powers of the President under the Constitution; (c) nothing in the LOI No. 189-A (as well as in LOI No. 311)
authorized or commanded the PNB or its subsidiary corporation, the NASUDECO, to assume the corporate obligations of PASUMIL as
that being involved in the present case; and, (d) all that was mentioned by the said letter of instruction insofar as the PASUMIL
liabilities [were] concerned [was] for the PNB, or its subsidiary corporation the NASUDECO, to make a study of, and submit [a]
recommendation on the problems concerning the same.
By way of counterclaim, the NASUDECO averred that by reason of the filing by the plaintiff of the present suit, which it [labeled] as
unfounded or baseless, the defendant NASUDECO was constrained to litigate and incur litigation expenses in the amount
of P50,000.00, which plaintiff should be sentenced to pay. Accordingly, NASUDECO prayed that the complaint be dismissed and on its
counterclaim, that the plaintiff be condemned to pay P50,000.00 in concept of attorneys fees as well as exemplary damages.
In its answer, the defendant PNB likewise reiterated the grounds of its motion to dismiss, namely: (1) the complaint states no cause of
action against the defendant PNB; (2) that PNB is not a party to the contract alleged in par. 6 of the complaint and that the alleged

Bus Org 2 Cases 1st Set Prelim 2
services rendered by the plaintiff to the defendant PASUMIL upon which plaintiffs suit is erected, was rendered long before PNB took
possession of the assets of the defendant PASUMIL under LOI No. 189-A; (3) that the PNB take-over of the assets of the defendant
PASUMIL under LOI 189-A was solely for the purpose of reconditioning the sugar central so that PASUMIL may resume its operations in
time for the 1974-75 milling season, and that nothing in the said LOI No. 189-A, as well as in LOI No. 311, authorized or directed PNB
to assume the corporate obligation/s of PASUMIL, let alone that for which the present action is brought; (4) that PNBs management
and operation under LOI No. 311 did not refer to any asset of PASUMIL which the PNB had to acquire and thereafter [manage], but
only to those which were foreclosed by the DBP and were in turn redeemed by the PNB from the DBP; (5) that conformably to LOI No.
311, on August 15, 1975, the PNB and the Development Bank of the Philippines (DBP) entered into a Redemption Agreement whereby
DBP sold, transferred and conveyed in favor of the PNB, by way of redemption, all its (DBP) rights and interest in and over the
foreclosed real and/or personal properties of PASUMIL, as shown in Annex C which is made an integral part of the answer; (6) that
again, conformably with LOI No. 311, PNB pursuant to a Deed of Assignment dated October 21, 1975, conveyed, transferred, and
assigned for valuable consideration, in favor of NASUDECO, a distinct and independent corporation, all its (PNB) rights and interest in
and under the above Redemption Agreement. This is shown in Annex D which is also made an integral part of the answer; [7] that as
a consequence of the said Deed of Assignment, PNB on October 21, 1975 ceased to managed and operate the above-mentioned
assets of PASUMIL, which function was now actually transferred to NASUDECO. In other words, so asserted PNB, the complaint as to
PNB, had become moot and academic because of the execution of the said Deed of Assignment; [8] that moreover, LOI No. 311 did
not authorize or direct PNB to assume the corporate obligations of PASUMIL, including the alleged obligation upon which this present
suit was brought; and [9] that, at most, what was granted to PNB in this respect was the authority to make a study of and submit
recommendation on the problems concerning the claims of PASUMIL creditors, under sub-par. 5 LOI No. 311.
In its counterclaim, the PNB averred that it was unnecessarily constrained to litigate and to incur expenses in this case, hence it is
entitled to claim attorneys fees in the amount of at least P50,000.00. Accordingly, PNB prayed that the complaint be dismissed; and
that on its counterclaim, that the plaintiff be sentenced to pay defendant PNB the sum of P50,000.00 as attorneys fees, aside from
exemplary damages in such amount that the court may seem just and equitable in the premises.
Summons by publication was made via the Philippines Daily Express, a newspaper with editorial office at 371 Bonifacio Drive, Port
Area, Manila, against the defendant PASUMIL, which was thereafter declared in default as shown in the August 7, 1981 Order issued
by the Trial Court.
After due proceedings, the Trial Court rendered judgment, the decretal portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant Corporation, Philippine National Bank (PNB)
NATIONAL SUGAR DEVELOPMENT CORPORATION (NASUDECO) and PAMPANGA SUGAR MILLS (PASUMIL), ordering the latter to pay
jointly and severally the former the following:
1. The sum of P513,623.80 plus interest thereon at the rate of 14% per annum as claimed from September 25, 1980 until fully paid;
2. The sum of P102,724.76 as attorneys fees; and,
3. Costs.
SO ORDERED.
Manila, Philippines, September 4, 1986.
'(SGD) ERNESTO S. TENGCO
Judge[3]
Ruling of the Court of Appeals
Affirming the trial court, the CA held that it was offensive to the basic tenets of justice and equity for a corporation to take over and
operate the business of another corporation, while disavowing or repudiating any responsibility, obligation or liability arising
therefrom.[4]
Hence, this Petition.[5]
Issues
In their Memorandum, petitioners raise the following errors for the Courts consideration:
I
The Court of Appeals gravely erred in law in holding the herein petitioners liable for the unpaid corporate debts of PASUMIL, a
corporation whose corporate existence has not been legally extinguished or terminated, simply because of petitioners[] take-over of
the management and operation of PASUMIL pursuant to the mandates of LOI No. 189-A, as amended by LOI No. 311.
II
The Court of Appeals gravely erred in law in not applying [to] the case at bench the ruling enunciated in Edward J. Nell Co. v. Pacific
Farms, 15 SCRA 415.[6]
Succinctly put, the aforesaid errors boil down to the principal issue of whether PNB is liable for the unpaid debts of PASUMIL to
respondent.
This Courts Ruling
The Petition is meritorious.
Main Issue:
Liability for Corporate Debts
As a general rule, questions of fact may not be raised in a petition for review under Rule 45 of the Rules of Court. [7] To this rule,
however, there are some exceptions enumerated in Fuentes v. Court of Appeals.[8] After a careful scrutiny of the records and the
pleadings submitted by the parties, we find that the lower courts misappreciated the evidence presented. [9] Overlooked by the CA
were certain relevant facts that would justify a conclusion different from that reached in the assailed Decision. [10]
Petitioners posit that they should not be held liable for the corporate debts of PASUMIL, because their takeover of the latters
foreclosed assets did not make them assignees. On the other hand, respondent asserts that petitioners and PASUMIL should be
treated as one entity and, as such, jointly and severally held liable for PASUMILs unpaid obligation.
As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the
former acted in good faith and paid adequate consideration for such assets, except when any of the following circumstances is
present: (1) where the purchaser expressly or impliedly agrees to assume the debts, (2) where the transaction amounts to a
consolidation or merger of the corporations, (3) where the purchasing corporation is merely a continuation of the selling corporation,
and (4) where the transaction is fraudulently entered into in order to escape liability for those debts. [11]
Piercing the Corporate
Veil Not Warranted
A corporation is an artificial being created by operation of law. It possesses the right of succession and such powers, attributes, and
properties expressly authorized by law or incident to its existence. [12] It has a personality separate and distinct from the persons
composing it, as well as from any other legal entity to which it may be related. [13] This is basic.
Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is
just an alter ego of a person or of another corporation. [14] For reasons of public policy and in the interest of justice, the corporate veil
will justifiably be impaled[15] only when it becomes a shield for fraud, illegality or inequity committed against third persons. [16]
Hence, any application of the doctrine of piercing the corporate veil should be done with caution. [17] A court should be mindful of the
milieu where it is to be applied. [18] It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or
crime was committed against another, in disregard of its rights. [19] The wrongdoing must be clearly and convincingly established; it
cannot be presumed.[20] Otherwise, an injustice that was never unintended may result from an erroneous application. [21]
This Court has pierced the corporate veil to ward off a judgment credit, [22] to avoid inclusion of corporate assets as part of the estate
of the decedent,[23] to escape liability arising from a debt, [24] or to perpetuate fraud and/or confuse legitimate issues [25] either to
promote or to shield unfair objectives [26] or to cover up an otherwise blatant violation of the prohibition against forum-shopping.
[27]
Only in these and similar instances may the veil be pierced and disregarded. [28]
The question of whether a corporation is a mere alter ego is one of fact. [29] Piercing the veil of corporate fiction may be allowed only if
the following elements concur: (1) control -- not mere stock control, but complete domination -- not only of finances, but of policy and
business practice in respect to the transaction attacked, must have been such that the corporate entity as to this transaction had at
the time no separate mind, will or existence of its own; (2) such control must have been used by the defendant to commit a fraud or a
wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of

Bus Org 2 Cases 1st Set Prelim 3
plaintiffs legal right; and (3) the said control and breach of duty must have proximately caused the injury or unjust loss complained of.
[30]

We believe that the absence of the foregoing elements in the present case precludes the piercing of the corporate veil. First, other
than the fact that petitioners acquired the assets of PASUMIL, there is no showing that their control over it warrants the disregard of
corporate personalities.[31] Second, there is no evidence that their juridical personality was used to commit a fraud or to do a wrong;
or that the separate corporate entity was farcically used as a mere alter ego, business conduit or instrumentality of another entity or
person.[32] Third, respondent was not defrauded or injured when petitioners acquired the assets of PASUMIL. [33]
Being the party that asked for the piercing of the corporate veil, respondent had the burden of presenting clear and convincing
evidence to justify the setting aside of the separate corporate personality rule. [34] However, it utterly failed to discharge this burden;
[35]
it failed to establish by competent evidence that petitioners separate corporate veil had been used to conceal fraud, illegality or
inequity.[36]
While we agree with respondents claim that the assets of the National Sugar Development Corporation (NASUDECO) can be easily
traced to PASUMIL,[37] we are not convinced that the transfer of the latters assets to petitioners was fraudulently entered into in order
to escape liability for its debt to respondent.[38]
A careful review of the records reveals that DBP foreclosed the mortgage executed by PASUMIL and acquired the assets as the highest
bidder at the public auction conducted.[39] The bank was justified in foreclosing the mortgage, because the PASUMIL account had
incurred arrearages of more than 20 percent of the total outstanding obligation. [40] Thus, DBP had not only a right, but also a duty
under the law to foreclose the subject properties. [41]
Pursuant to LOI No. 189-A[42] as amended by LOI No. 311,[43] PNB acquired PASUMILs assets that DBP had foreclosed and purchased in
the normal course. Petitioner bank was likewise tasked to manage temporarily the operation of such assets either by itself or through
a subsidiary corporation.[44]
PNB, as the second mortgagee, redeemed from DBP the foreclosed PASUMIL assets pursuant to Section 6 of Act No. 3135. [45] These
assets were later conveyed to PNB for a consideration, the terms of which were embodied in the Redemption Agreement. [46] PNB, as
successor-in-interest, stepped into the shoes of DBP as PASUMILs creditor. [47] By way of a Deed of Assignment, [48] PNB then transferred
to NASUDECO all its rights under the Redemption Agreement.
In Development Bank of the Philippines v. Court of Appeals,[49] we had the occasion to resolve a similar issue. We ruled that PNB, DBP
and their transferees were not liable for Marinduque Minings unpaid obligations to Remington Industrial Sales Corporation
(Remington) after the two banks had foreclosed the assets of Marinduque Mining. We likewise held that Remington failed to discharge
its burden of proving bad faith on the part of Marinduque Mining to justify the piercing of the corporate veil.
In the instant case, the CA erred in affirming the trial courts lifting of the corporate mask. [50] The CA did not point to any fact
evidencing bad faith on the part of PNB and its transferee. [51] The corporate fiction was not used to defeat public convenience, justify
a wrong, protect fraud or defend crime. [52] None of the foregoing exceptions was shown to exist in the present case. [53] On the
contrary, the lifting of the corporate veil would result in manifest injustice. This we cannot allow.
No Merger or Consolidation
Respondent further claims that petitioners should be held liable for the unpaid obligations of PASUMIL by virtue of LOI Nos. 189-A and
311, which expressly authorized PASUMIL and PNB to merge or consolidate. On the other hand, petitioners contend that their
takeover of the operations of PASUMIL did not involve any corporate merger or consolidation, because the latter had never lost its
separate identity as a corporation.
A consolidation is the union of two or more existing entities to form a new entity called the consolidated corporation. A merger, on the
other hand, is a union whereby one or more existing corporations are absorbed by another corporation that survives and continues
the combined business.[54]
The merger, however, does not become effective upon the mere agreement of the constituent corporations. [55] Since a merger or
consolidation involves fundamental changes in the corporation, as well as in the rights of stockholders and creditors, there must be
an express provision of law authorizing them. [56] For a valid merger or consolidation, the approval by the Securities and Exchange
Commission (SEC) of the articles of merger or consolidation is required. [57] These articles must likewise be duly approved by a majority
of the respective stockholders of the constituent corporations.[58]
In the case at bar, we hold that there is no merger or consolidation with respect to PASUMIL and PNB. The procedure prescribed under
Title IX of the Corporation Code[59] was not followed.
In fact, PASUMILs corporate existence, as correctly found by the CA, had not been legally extinguished or terminated. [60] Further, prior
to PNBs acquisition of the foreclosed assets, PASUMIL had previously made partial payments to respondent for the formers obligation
in the amount of P777,263.80. As of June 27, 1973, PASUMIL had paid P250,000 to respondent and, from January 5, 1974 to May 23,
1974, another P14,000.
Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL to respondent. [61] LOI No. 11 explicitly provides that
PNB shall study and submit recommendations on the claims of PASUMILs creditors. [62] Clearly, the corporate separateness between
PASUMIL and PNB remains, despite respondents insistence to the contrary. [63]
WHEREFORE, the Petition is hereby GRANTED and the assailed Decision SET ASIDE. No pronouncement as to costs.
CECILIA CASTILLO, OSCAR DEL ROSARIO, ARTURO S. FLORES, XERXES NAVARRO, MARIA ANTONIA TEMPLO and MEDICAL
CENTER PARAAQUE, INC., petitioners, vs. ANGELES BALINGHASAY, RENATO BERNABE, ALODIA DEL ROSARIO, ROMEO FUNTILA,
TERESITA GAYANILO, RUSTICO JIMENEZ, ARACELI* JO, ESMERALDA MEDINA, CECILIA MONTALBAN, VIRGILIO OBLEPIAS, CARMENCITA
PARRENO, CESAR REYES, REYNALDO SAVET, SERAPIO TACCAD, VICENTE VALDEZ, SALVACION VILLAMORA, and HUMBERTO
VILLAREAL, respondents.
DECISION
QUISUMBING, J.:
For review on certiorari is the Partial Judgment[1] dated November 26, 2001 in Civil Case No. 01-0140, of the Regional Trial Court
(RTC) of Paraaque City, Branch 258. The trial court declared the February 9, 2001, election of the board of directors of the Medical
Center Paraaque, Inc. (MCPI) valid. The Partial Judgment dismissed petitioners first cause of action, specifically, to annul said election
for depriving petitioners their voting rights and to be voted on as members of the board.
The facts, as culled from records, are as follows:
Petitioners and the respondents are stockholders of MCPI, with the former holding Class B shares and the latter owning Class A
shares.
MCPI is a domestic corporation with offices at Dr. A. Santos Avenue, Sucat, Paraaque City. It was organized sometime in September
1977. At the time of its incorporation, Act No. 1459, the old Corporation Law was still in force and effect. Article VII of MCPIs original
Articles of Incorporation, as approved by the Securities and Exchange Commission (SEC) on October 26, 1977, reads as follows:
SEVENTH. That the authorized capital stock of the corporation is TWO MILLION (P2,000,000.00) PESOS, Philippine Currency, divided
into TWO THOUSAND (2,000) SHARES at a par value of P100 each share, whereby the ONE THOUSAND SHARES issued to, and
subscribed by, the incorporating stockholders shall be classified as Class A shares while the other ONE THOUSAND unissued shares
shall be considered as Class B shares. Only holders of Class A shares can have the right to vote and the right to be elected
as directors or as corporate officers.[2] (Stress supplied)
On July 31, 1981, Article VII of the Articles of Incorporation of MCPI was amended, to read thus:
SEVENTH. That the authorized capital stock of the corporation is FIVE MILLION (P5,000,000.00) PESOS, divided as follows:
CLASS NO. OF SHARES PAR VALUE
A 1,000 P1,000.00
B 4,000 P1,000.00
Only holders of Class A shares have the right to vote and the right to be elected as directors or as corporate officers .
[3]
(Emphasis supplied)
The foregoing amendment was approved by the SEC on June 7, 1983. While the amendment granted the right to vote and to be
elected as directors or corporate officers only to holders of Class A shares, holders of Class B stocks were granted the same rights and
privileges as holders of Class A stocks with respect to the payment of dividends.
On September 9, 1992, Article VII was again amended to provide as follows:
SEVENTH: That the authorized capital stock of the corporation is THIRTY TWO MILLION PESOS (P32,000,000.00) divided as follows:
CLASS NO. OF SHARES PAR VALUE

Bus Org 2 Cases 1st Set Prelim 4
A 1,000 P1,000.00
B 31,000 1,000.00
Except when otherwise provided by law, only holders of Class A shares have the right to vote and the right to be
elected as directors or as corporate officers [4] (Stress and underscoring supplied).
The SEC approved the foregoing amendment on September 22, 1993.
On February 9, 2001, the shareholders of MCPI held their annual stockholders meeting and election for directors. During the course of
the proceedings, respondent Rustico Jimenez, citing Article VII, as amended, and notwithstanding MCPIs history, declared over the
objections of herein petitioners, that no Class B shareholder was qualified to run or be voted upon as a director. In the past, MCPI had
seen holders of Class B shares voted for and serve as members of the corporate board and some Class B share owners were in fact
nominated for election as board members. Nonetheless, Jimenez went on to announce that the candidates holding Class A shares
were the winners of all seats in the corporate board. The petitioners protested, claiming that Article VII was null and void for depriving
them, as Class B shareholders, of their right to vote and to be voted upon, in violation of the Corporation Code (Batas Pambansa Blg.
68), as amended.
On March 22, 2001, after their protest was given short shrift, herein petitioners filed a Complaint for Injunction, Accounting and
Damages, docketed as Civil Case No. CV-01-0140 before the RTC of Paraaque City, Branch 258. Said complaint was founded on two
(2) principal causes of action, namely:
a. Annulment of the declaration of directors of the MCPI made during the February 9, 2001 Annual Stockholders Meeting, and for the
conduct of an election whereat all stockholders, irrespective of the classification of the shares they hold, should be afforded their right
to vote and be voted for; and
b. Stockholders derivative suit challenging the validity of a contract entered into by the Board of Directors of MCPI for the operation of
the ultrasound unit.[5]
Subsequently, the complaint was amended to implead MCPI as party-plaintiff for purposes only of the second cause of action.
Before the trial court, the herein petitioners alleged that they were deprived of their right to vote and to be voted on as directors at
the annual stockholders meeting held on February 9, 2001, because respondents had erroneously relied on Article VII of the Articles
of Incorporation of MCPI, despite Article VII being contrary to the Corporation Code, thus null and void. Additionally, respondents were
in estoppel, because in the past, petitioners were allowed to vote and to be elected as members of the board. They further claimed
that the privilege granted to the Class A shareholders was more in the nature of a right granted to founders shares.
In their Answer, the respondents averred that the provisions of Article VII clearly and categorically state that only holders of Class A
shares have the exclusive right to vote and be elected as directors and officers of the corporation. They denied that the exclusivity
was intended only as a privilege granted to founders shares, as no such proviso is found in the Articles of Incorporation. The
respondents further claimed that the exclusivity of the right granted to Class A holders cannot be defeated or impaired by any
subsequent legislative enactment, e.g. the New Corporation Code, as the Articles of Incorporation is an intra-corporate contract
between the corporation and its members; between the corporation and its stockholders; and among the stockholders. They submit
that to allow Class B shareholders to vote and be elected as directors would constitute a violation of MCPIs franchise or charter as
granted by the State.
At the pre-trial, the trial court ruled that a partial judgment could be rendered on the first cause of action and required the parties to
submit their respective position papers or memoranda.
On November 26, 2001, the RTC rendered the Partial Judgment, the dispositive portion of which reads:
WHEREFORE, viewed in the light of the foregoing, the election held on February 9, 2001 is VALID as the holders of CLASS B shares are
not entitled to vote and be voted for and this case based on the First Cause of Action is DISMISSED.
SO ORDERED.[6]
In finding for the respondents, the trial court ruled that corporations had the power to classify their shares of stocks, such as voting
and non-voting shares, conformably with Section 6 [7] of the Corporation Code of the Philippines. It pointed out that Article VII of both
the original and amended Articles of Incorporation clearly provided that only Class A shareholders could vote and be voted for to the
exclusion of Class B shareholders, the exception being in instances provided by law, such as those enumerated in Section 6,
paragraph 6 of the Corporation Code. The RTC found merit in the respondents theory that the Articles of Incorporation, which defines
the rights and limitations of all its shareholders, is a contract between MCPI and its shareholders. It is thus the law between the
parties and should be strictly enforced as to them. It brushed aside the petitioners claim that the Class A shareholders were in
estoppel, as the election of Class B shareholders to the corporate board may be deemed as a mere act of benevolence on the part of
the officers. Finally, the court brushed aside the founders shares theory of the petitioners for lack of factual basis.
Hence, this petition submitting the sole legal issue of whether or not the Court a quo, in rendering the Partial Judgment dated
November 26, 2001, has decided a question of substance in a way not in accord with law and jurisprudence considering that:
1. Under the Corporation Code, the exclusive voting right and right to be voted granted by the Articles of Incorporation of the MCPI to
Class A shareholders is null and void, or already extinguished;
2. Hence, the declaration of directors made during the February 9, 2001 Annual Stockholders Meeting on the basis of the purported
exclusive voting rights is null and void for having been done without the benefit of an election and in violation of the rights of
plaintiffs and Class B shareholders; and
3. Perforce, another election should be conducted to elect the directors of the MCPI, this time affording the holders of Class B shares
full voting right and the right to be voted.[8]
The issue for our resolution is whether or not holders of Class B shares of the MCPI may be deprived of the right to vote and be voted
for as directors in MCPI.
Before us, petitioners assert that Article VII of the Articles of Incorporation of MCPI, which denied them voting rights, is null and void
for being contrary to Section 6 of the Corporation Code. They point out that Section 6 prohibits the deprivation of voting rights except
as to preferred and redeemable shares only. Hence, under the present law on corporations, all shareholders, regardless of
classification, other than holders of preferred or redeemable shares, are entitled to vote and to be elected as corporate directors or
officers. Since the Class B shareholders are not classified as holders of either preferred or redeemable shares, then it necessarily
follows that they are entitled to vote and to be voted for as directors or officers.
The respondents, in turn, maintain that the grant of exclusive voting rights to Class A shares is clearly provided in the Articles of
Incorporation and is in accord with Section 5 [9] of the Corporation Law (Act No. 1459), which was the prevailing law when MCPI was
incorporated in 1977. They likewise submit that as the Articles of Incorporation of MCPI is in the nature of a contract between the
corporation and its shareholders and Section 6 of the Corporation Code could not retroactively apply to it without violating the nonimpairment clause[10] of the Constitution.
We find merit in the petition.
When Article VII of the Articles of Incorporation of MCPI was amended in 1992, the phrase except when otherwise provided by
law was inserted in the provision governing the grant of voting powers to Class A shareholders. This particular amendment is relevant
for it speaks of a law providing for exceptions to the exclusive grant of voting rights to Class A stockholders. Which law was the
amendment referring to? The determination of which law to apply is necessary. There are two laws being cited and relied upon by the
parties in this case. In this instance, the law in force at the time of the 1992 amendment was the Corporation Code (B.P. Blg. 68), not
the Corporation Law (Act No. 1459), which had been repealed by then.
We find and so hold that the law referred to in the amendment to Article VII refers to the Corporation Code and no other law. At the
time of the incorporation of MCPI in 1977, the right of a corporation to classify its shares of stock was sanctioned by Section 5 of Act
No. 1459. The law repealing Act No. 1459, B.P. Blg. 68, retained the same grant of right of classification of stock shares to
corporations, but with a significant change. Under Section 6 of B.P. Blg. 68, the requirements and restrictions on voting rights were
explicitly provided for, such that no share may be deprived of voting rights except those classified and issued as preferred or
redeemable shares, unless otherwise provided in this Code and that there shall always be a class or series of shares which have
complete voting rights. Section 6 of the Corporation Code being deemed written into Article VII of the Articles of Incorporation of
MCPI, it necessarily follows that unless Class B shares of MCPI stocks are clearly categorized to be preferred or redeemable shares,
the holders of said Class B shares may not be deprived of their voting rights. Note that there is nothing in the Articles of Incorporation
nor an iota of evidence on record to show that Class B shares were categorized as either preferred or redeemable shares. The only
possible conclusion is that Class B shares fall under neither category and thus, under the law, are allowed to exercise voting rights.

Bus Org 2 Cases 1st Set Prelim 5
One of the rights of a stockholder is the right to participate in the control and management of the corporation that is exercised
through his vote. The right to vote is a right inherent in and incidental to the ownership of corporate stock, and as such is a property
right. The stockholder cannot be deprived of the right to vote his stock nor may the right be essentially impaired, either by the
legislature or by the corporation, without his consent, through amending the charter, or the by-laws. [11]
Neither do we find merit in respondents position that Section 6 of the Corporation Code cannot apply to MCPI without running afoul of
the non-impairment clause of the Bill of Rights. Section 148 [12] of the Corporation Code expressly provides that it shall apply to
corporations in existence at the time of the effectivity of the Code. Hence, the non-impairment clause is inapplicable in this instance.
When Article VII of the Articles of Incorporation of MCPI were amended in 1992, the board of directors and stockholders must have
been aware of Section 6 of the Corporation Code and intended that Article VII be construed in harmony with the Code, which was then
already in force and effect. Since Section 6 of the Corporation Code expressly prohibits the deprivation of voting rights, except as to
preferred and redeemable shares, then Article VII of the Articles of Incorporation cannot be construed as granting exclusive voting
rights to Class A shareholders, to the prejudice of Class B shareholders, without running afoul of the letter and spirit of the
Corporation Code.
The respondents then take the tack that the phrase except when otherwise provided by law found in the amended Articles is only a
handwritten insertion and could have been inserted by anybody and that no board resolution was ever passed authorizing or
approving said amendment.
Said contention is not for this Court to pass upon, involving as it does a factual question, which is not proper in this petition. In an
appealvia certiorari, only questions of law may be reviewed. [13] Besides, respondents did not adduce persuasive evidence, but only
bare allegations, to support their suspicion. The presumption that in the amendment process, the ordinary course of business has
been followed[14] and that official duty has been regularly performed[15] on the part of the SEC, applies in this case.
WHEREFORE, the petition is GRANTED. The Partial Judgment dated November 26, 2001 of the Regional Trial Court of Paraaque City,
Branch 258, in Civil Case No. 01-0140 is REVERSED AND SET ASIDE. No pronouncement as to costs.
CONSTRUCTION & DEVELOPMENT CORPORATION OF THE PHILIPPINES (now PHILIPPINE NATIONAL CONSTRUCTION
CORPORATION), petitioner, vs. RODOLFO M. CUENCA and MALAYAN INSURANCE CO., INC., respondents.
DECISION
CALLEJO, SR., J.:
Before this Court is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 44660 and its
Resolution denying a motion for reconsideration thereof.
The Backdrop
Ultra International Trading Corporation (UITC) applied for a surety bond from Malayan Insurance Co., Inc. (MICI), to guarantee its
credits, indebtedness, obligations and liabilities of any kind to Goodyear Tire and Rubber Company of the Philippines (Goodyear). MICI
approved the application and issued MICO Bond No. 65734 [2] for an amount not exceeding P600,000.00. The surety bond was valid for
12 months, and was renewed several times, the last time being on May 15, 1983. [3]
To protect MICIs interests, UITC, Edilberto Cuenca, and Rodolfo Cuenca, herein respondent, executed an Indemnity Agreement [4] in
favor of MICI. Edilberto was then the President, while Rodolfo was a member of the Board of Directors of UITC. Edilberto signed the
indemnity agreement in his official and personal capacity, while Rodolfo signed in his personal capacity only. In the said agreement,
UITC, Edilberto and Rodolfo bound themselves jointly and severally to indemnify MICI of any payment it would make under the surety
bond.
On February 18, 1983, Goodyear sent a letter [5] to MICI informing it of UITCs default on its obligation. In the said letter, Goodyear
requested MICI to pay P600,000.00 under the surety bond. MICI sent several demand letters to UITC, Edilberto and Rodolfo, requiring
them to immediately settle Goodyears claim. [6] UITC, Edilberto and Rodolfo failed to settle the account with Goodyear. Thus, on April
25, 1983, MICI paid Goodyear P600,000.00.[7]
On May 3, 1983, MICI sent a demand letter to UITC, Edilberto and Rodolfo for reimbursement of the payment it made to Goodyear,
plus legal interest.[8] UITC replied that Construction & Development Corporation of the Philippines (CDCP), now Philippine National
Construction Corporation (PNCC), had initiated a complete review of UITCs financial plans to enable it to pay its creditors, like MICI.
[9]
UITC was a subsidiary of petitioner PNCC, [10] with the latter owning around 78% of the formers shares of stock. [11] UITC requested
MICI to delay the filing of any suit against it, to give it time to work out an acceptable repayment plan. [12] MICI agreed and gave UITC
until May 20, 1983 to come up with an offer. [13]
However, UITC, Edilberto and Rodolfo still failed to pay MICI. On July 1, 1983, MICI filed a Complaint [14] for sum of money against UITC,
Edilberto and Rodolfo, praying for indemnity of the amount it paid to Goodyear, plus interest per annum compounded quarterly from
April 25, 1983 until fully paid, and 20% of the amount involved as attorneys fees and costs of the suit.
On July 23, 1983, UITC wrote MICI proposing the following:
a. Immediate payment of P150,000.00.
b. Balance payable P50,000.00 per month until the obligation is fully liquidated.
c. Interest and penalty charges are to be waived.[15]
In the meantime, Rodolfo filed motion for leave to file a third-party complaint which the trial court granted. [16] The third-party
complaint[17] against CDCP alleged that it had assumed Rodolfos liability under the indemnity agreement as indicated in a board
resolution. In support of this allegation, he presented in evidence a certification of Antonio Roque, Assistant Corporate Secretary of
CDCP, attesting to the correctness of an excerpt from the minutes of the Board of Directors meeting of January 10, 1978, which reads:
GUARANTEE MADE BY CDCP REPRESENTATIVES IN OTHER CORPORATIONS
_______________________________________________________________
In fairness to the CDCP Board Members and/or Officers who represent the Corporation in other affiliated corporations and who are
made to sign jointly and severally guarantees for and in support of said affiliated corporations, the Board under Res. No. BD-5977/78 made of record CDCPs assumption of all said guarantees and the liabilities and responsibilities arising therefrom. In the same
vein, any guaranty fee that may be payable to said representatives shall accrue to CDCP. [18]
On August 26, 1983, UITC remitted to MICI P150,000.00 as partial payment of its obligation.[19] Nonetheless, the parties failed to reach
an amicable settlement of their respective claims.
On January 6, 1994, the Regional Trial Court (RTC) of Manila, Branch 51, rendered a decision holding UITC and PNCC, jointly and
solidarily liable to MICI under the indemnity agreement. The trial court ruled that UITC was bound by the indemnity agreement
entered into by its two officers, even though there was no board resolution specifically authorizing them to do so because it had, in
effect, ratified the acts of the said officers. Moreover, UITC has acknowledged its obligation to MICI in the letters it sent to the latter,
and when it had remitted P150,000.00 as partial payment. It also held PNCC solidarily liable with UITC on the basis of the board
resolution attesting to the fact that PNCC had assumed all liabilities arising from the guarantees made by its officers in other affiliated
corporations.[20] The trial court dismissed the complaint as against the Cuencas. The dispositive portion of the RTC decision reads:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of plaintiff Malayan Insurance Co., Inc. and against
defendant ULTRA and Third-Party defendant PNCC, ordering the latter to pay jointly and solidarily the former the following:
a) The sum of P600,000.00 but considering that defendant ULTRA had already advanced the amount of P150,000.00 to plaintiff, their
liability has then reduced to the sum of P450,000.00 with legal interest from the date of the filing of the complaint until fully paid;
b) The sum equivalent to 20% of all the amounts due and demandable as and for attorneys fees; and
c) The costs of suit.
The complaint against defendants Edilberto Cuenca and Rodolfo Cuenca and their counter-claims are hereby dismissed for lack of
merit.
SO ORDERED.[21]
UITC and PNCC appealed the decision to the CA, but MICI did not. On October 28, 2003, the CA affirmed in toto the appealed decision.
[22]
The appellate court held that UITC had impliedly authorized Edilberto and Rodolfo to procure the surety bond and the indemnity
agreement; hence, UITC was liable. Moreover, UITC was estopped from questioning Edilberto and Rodolfos authority to enter into the
indemnity agreement in its behalf, considering that it had already partially paid P150,000.00 to MICI. The appellate court added that
Edilberto and Rodolfo, having signed the indemnity agreement also in their personal capacity, would ordinarily be personally liable
under the said agreement; but because MICI failed to appeal the decision, it had effectively waived its right to hold them liable on its
claim.[23]

Bus Org 2 Cases 1st Set Prelim 6
The CA further affirmed the trial courts finding that PNCC was liable under the indemnity agreement. The appellate court noted that
UITC was a subsidiary company of PNCC because the latter holds almost 78% of UITCs stocks. As such, UITC would purchase materials
from suppliers such as Goodyear, in behalf of PNCC. Finally, the CA held that the award of attorneys fees was justified, considering
that payment of attorneys fees is specifically stated in the indemnity agreement.
On June 3, 2004, the CA denied PNCCs motion for reconsideration for lack of merit. [24] Hence, this petition for review, where the
petitioner assigns the following errors:
I.
THE COURT OF APPEALS GRAVELY ERRED IN FINDING PETITIONER PNCC, JOINTLY AND SEVERALLY, LIABLE WITH ULTRA FOR THE
INDEMNIFICATION AMOUNT REIMBURSABLE TO RESPONDENT MALAYAN AND IN EXEMPTING RESPONDENT RODOLFO CUENCA FROM
ANY LIABILITY THEREFOR.
II.
THE COURT OF APPEALS GRAVELY ERRED IN FINDING PETITIONER PNCC, JOINTLY AND SEVERALLY, LIABLE WITH ULTRA FOR THE
PAYMENT OF ATTORNEYS FEES AND COSTS OF SUIT.[25]
The sole issue in this petition is whether or not the petitioner is jointly and solidarily liable with UITC, a subsidiary corporation, to
respondent MICI under the indemnity agreement for reimbursement, attorneys fees and costs.
The petitioner maintains that it cannot be held liable under the indemnity agreement primarily because it was not a party to it.
Likewise, it cannot answer for UITCs liability under the indemnity agreement merely because it is the majority stockholder of UITC. It
maintains that it has a personality separate and distinct from that of UITC; hence, it cannot be held liable for the latters obligations.
The mere fact that the materials purchased from Goodyear were delivered to it does not warrant the piercing of the corporate veil so
as to treat the two corporations as one entity, absent sufficient and clear showing that it was purposely used as a shield to defraud
creditors.[26]
Further, the petitioner asserts that respondent Cuencas claim that it has assumed his personal liability under the indemnity
agreement is unfounded. It assails the reliability of Exhibit 5, the certification attesting to the existence of the board resolution,
wherein the petitioner allegedly assumed the personal guarantee of respondent Cuenca. The petitioner avers that the certification is
a mere excerpt of the alleged board resolution. It points out that even the CA did not rely on this certification when it held that the
Cuencas should be liable, but were absolved of their liabilities because MICI had waived the cause of action against them.
[27]
Assuming that it has assumed the liability of respondent Cuenca, such liability is now extinguished after MICI waived its claim
against the said respondent.[28]
Finally, the petitioner asserts that there is no basis for the payment of attorneys fees and costs of suit. It was not a party to the
indemnity agreement and the case does not fall under the instances enumerated under Article 2208 of the Civil Code when attorneys
fees are proper.[29]
For his part, respondent Cuenca reiterates that he is not liable because the petitioner has already assumed his personal liability under
the indemnity agreement, as evidenced by a certification issued by the Assistant Corporate Secretary attesting that CDCP Board
Resolution No. BD-59-77/78 exists. He points out that the petitioner has already admitted the due execution and authenticity of the
certification; hence, it cannot now impugn the existence of the board resolution referred to therein.
Respondent Cuenca further argues that PNCC should be liable because it was the one which benefited from the transaction, having
received the materials purchased from Goodyear; he did not derive any benefit from it. He emphasizes that the petitioners liability
arose out of its voluntary assumption of the liabilities of the guarantors under the indemnity agreement, and not from the fact that it
is the majority stockholder of UITC. Finally, he asserts that the CAs decision holding UITC and the petitioner solidarily liable for the
payment of attorneys fees had factual and legal basis. [30]
On the other hand, respondent MICI avers that the petition is fatally defective for failure to implead as co-respondent, UITC, an
indispensable party to the case. It, likewise, asserts that the petition raises no new issues of law, and that the CA and the trial court
have amply ruled upon the issues raised in the petition. Further, MICI contends that, since the petitioner has assumed the liability of
the UITC officers, it cannot now invoke the doctrine of separate personality. [31]
The petition is impressed with merit.
At the outset, we note that the petitioner became a party to this case only when respondent Cuenca, as defendant, filed a third-party
complaint against it on the allegation that it had assumed his liability. Section 11, Rule 6 of the Rules of Court defines a third-party
complaint as follows:
SEC. 11. Third (fourth, etc.)-party complaint. A third (fourth, etc.)-party complaint is a claim that a defending party may, with leave of
court, file against a person not a party to the action, called the third (fourth, etc.)-party defendant, for contribution, indemnity,
subrogation or any other relief, in respect of his opponents claim.
In Firestone Tire and Rubber Company of the Philippines v. Tempongko,[32] we emphasized the nature of a third-party complaint,
particularly its independence from the main case:
The third-party complaint is, therefore, a procedural device whereby a third party who is neither a party nor privy to the act or deed
complained of by the plaintiff, may be brought into the case with leave of court, by the defendant, who acts as third-party plaintiff to
enforce against such third-party defendant a right for contribution, indemnity, subrogation or any other relief, in respect of the
plaintiffs claim. The third-party complaint is actually independent of and separate and distinct from the plaintiffs complaint. Were it
not for this provision of the Rules of Court, it would have to be filed independently and separately from the original complaint by the
defendant against the third-party. But the Rules permit defendant to bring in a third-party defendant or so to speak, to litigate his
separate cause of action in respect of plaintiffs claim against a third party in the original and principal case with the object of avoiding
circuitry of action and unnecessary proliferation of lawsuits and of disposing expeditiously in one litigation the entire subject matter
arising from one particular set of facts. When leave to file the third-party complaint is properly granted, the Court renders in effect
two judgments in the same case, one on the plaintiffs complaint and the other on the third-party complaint. When he finds favorably
on both complaints, as in this case, he renders judgment on the principal complaint in favor of plaintiff against defendant and renders
another judgment on the third-party complaint in favor of defendant as third-party plaintiff, ordering the third-party defendant to
reimburse the defendant whatever amount said defendant is ordered to pay plaintiff in the case. Failure of any of said parties in such
a case to appeal the judgment as against him makes such judgment final and executory.[33]
It follows then that the plaintiff in the main action may not be regarded as a party to the third-party complaint; [34] nor may the thirdparty defendant be regarded as a party to the main action. As for the defendant, he is party to both the main action and the thirdparty complaint but in different capacities in the main action, he is the defendant; in the third-party complaint, he is the plaintiff.
In the present case, the petitioner PNCC which was the third-party defendant appealed before this Court from the decision of the CA.
Case law is that if only the third-party defendant files an appeal, the decision in the main case becomes final. [35] Therefore, the CAs
decision in the main action, holding UITC liable to MICI and dismissing the case as against the Cuencas, became final and executory
when none of the said parties filed an appeal with this Court.
We do not agree with the CA ruling that the petitioner is liable under the indemnity agreement. On this point, the CA ratiocinated that
the petitioner is liable, considering that it is the majority stockholder of UITC and the materials from Goodyear were purchased by
UITC for and in its behalf.
This is clearly erroneous. The petitioner cannot be made directly liable to MICI under the indemnity agreement on the ground that it is
UITCs majority stockholder. It bears stressing that the petitioner was not a party defendant in the main action. MICI did not assert any
claim against the petitioner, nor was the petitioner impleaded in the third-party complaint on the ground of its direct liability to MICI.
In the latter case, it would be as if the third-party defendant was itself directly impleaded by the plaintiff as a defendant. [36] In the
present case, petitioner PNCC was brought into the action by respondent Cuenca simply for a remedy over. [37] No cause of action was
asserted by MICI against it. The petitioners liability could only be based on its alleged assumption of respondent Cuencas liability
under the indemnity agreement.
In any case, petitioner PNCC, as majority stockholder, may not be held liable for UITCs obligation. A corporation, upon coming into
existence, is invested by law with a personality separate and distinct from those persons composing it as well as from any other legal
entity to which it may be related. [38] The veil of corporate fiction may only be disregarded in cases where the corporate vehicle is
being used to defeat public convenience, justify a wrong, protect fraud, or defend a crime. [39] Mere ownership by a single stockholder
or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the
separate corporate personality.[40] To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and
convincingly established.[41]

for a defendants remedy over. 1 to 13. is entitled to the payment of its claim covered by Progress Billing Nos. No. 14 to 19 and to the retention money corresponding to Progress Billing Nos. rendered judgment for BF. JJ. To reiterate. with interest in both instances. In its defense. Samaniego. TINGA. BRION.. the Court ruled in Samala v. Inc. et al. . . 1991 to June 30. [6] From May 1. 1996 RTC Decision. J. apart from setting aside an earlier Resolution [3] of August 13. No.versus . (ESHRI).x CYNTHIA ROXAS-DEL CASTILLO. BF submitted a total of 19 progress billings following the procedure agreed upon. After several futile attempts to collect the unpaid billings. Both petitions stemmed from a construction contract denominated as Agreement for the Execution of Builders Work for the EDSA Shangri-la Hotel Project[4] that ESHRI and BF executed for the construction of the EDSA Shangri-la Hotel starting May 1. including an evaluation of the work in accordance with the Project Managers Instructions (PMIs) and the detailed valuations contained in the Work Variation Orders (WVOs) for final re-measurement under the PMIs. Among other things. 145842 RESORT. 2008 x-----------------------------------------------------------------------------------------x DECISION VELASCO. 1993. premises considered. BF shall submit a monthly progress billing to ESHRI which would then re-measure the work accomplished and prepare a Progress Payment Certificate for that months progress billing. Colayco. Branch 162 in Pasig City in Civil Case No. 145873 Petitioner. ESHRI. 57399. Rufino L. and not as one directly liable to MICI. 1992.versus Promulgated: BF CORPORATION. In the first petition. BF claimed having been misled into working continuously on the project by ESHRI which gave the assurance about the Progress Payment Certificates already being processed. REYES.R. for Progress Billing Nos. the RTC. likewise. BF filed. and Kuok Khoon Tsen assail the Decision [1] dated November 12. docketed as G. submitting for the purpose the required Builders Work Summary. did not re-measure the work done. Kuok Khoon Chen. however. the monthly progress billings. on July 26. KUOK KHOON CHEN. on the main finding that BF. RUFO B.. No. They also assail the CA Resolution dated October 25. 1 to 13 and.: Before us are these two (2) consolidated petitions for review under Rule 45 to nullify certain issuances of the Court of Appeals (CA). The Court has. the contract stipulated for the payment of the contract price on the basis of the work accomplished as described in the monthly progress billings. 2000 which. The fallo of the RTC Decision reads: WHEREFORE. as precisely. COLAYCO. Based on Progress Billing Nos. June 27. VELASCO. to pay the monetary award decreed in the RTC Decision. it is imperative that the latter be first adjudged liable to MICI before the petitioner may be held liable. 63435 that ordered them to pay jointly and severally respondent BF Corporation (BF) a sum of money with interests and damages. affirmed the aforesaid September 23. who is directly liable to plaintiff. 145873. Ru[f]o B. Rufo B. are jointly and severally hereby ordered to: . Samaniego.[42] thus: It is not indispensable in the premises that the defendant be first adjudged liable to the plaintiff before the third-party defendant may be held liable to the plaintiff. the decision of the CA dismissing the case against respondent Cuenca has already become final and executory. ESHRI paid BF PhP 86. RUFINO L. 1996. The RTC found for BF On September 23. affirming the Decision[2] dated September 23.Bus Org 2 Cases 1st Set Prelim 7 Neither can the petitioner be made liable under the indemnity agreement on the ground that it had assumed the personal liability of respondent Cuenca. BF said that the values of the WVOs were contained in the progress billings under the section Change Orders. JR. 1999 of the CA in CA-G. JR. 1999 insofar at it adjudged her jointly and severally liable with ESHRI. [43] WHEREFORE. Colayco. The decision of the Court of Appeals is MODIFIED in that petitioner PNCC is absolved from any liability under the indemnity agreement. ESHRI claimed having overpaid BF for Progress Billing Nos. asked that BF be ordered to refund the excess payments.05. Indeed. 14 to 19. Kuok Khoon Chen. No. (2) following-up of the preparation of the Progress Payment Certificate with the Head of the Quantity Surveying Department. ESHRI laid out the collection procedure BF was to follow. INC. [5] In a memorandum-letter dated August 16. Since the petitioners liability is grounded on that of respondent Cuencas.834. BF adhered to the procedures agreed upon in all its billings for the period from May 1. 1992. BF CORPORATION. by way of counterclaim with damages. before the RTC a suit for a sum of money and damages.R. 1999 granting ESHRIs application for restitution and damages against bond.Acting Chairperson. docketed as G. and not he.501. SAMANIEGO. J.R. as plaintiff a quo. ESHRI also charged BF with incurring delay and turning up with inferior work accomplishment. did not prepare the Progress Payment Certificates. defendants [EHSRI]. let alone remit payment for the inclusive periods covered. The situation contemplated by appellants would properly pertain to situation (a) above wherein the third party defendant is being sued for contribution. 1991 to BF. indemnity or subrogation. The third-party complaint against the petitioner is DISMISSED for lack of merit.R.R. Victor. EDSA SHANGRI-LA HOTEL AND G. or simply stated. Rufino L. the petition is GRANTED. the theory of defendant is that it is the third party defendant.* and Respondent. and KUOK KHOON TSEN.. Cynthia del Castillo. 1991. to wit: (1) submission of the progress billing to ESHRIs Engineering Department. [7] According to BF.. 1 to 11. x ------------------------------------------. Under this arrangement. and (3) following-up of the release of the payment with one Evelyn San Pascual. 1996 of the Regional Trial Court (RTC). CV No. petitioners Edsa Shangri-la Hotel and Resort. In the second petition. Present: Petitioners. 1991 to June 30. CARPIO MORALES. In this regard. Respondent. 145842. pointed out that respondent Cuenca impleaded the petitioner as a remedy over. petitioner Cynthia Roxas-del Castillo also assails the aforementioned CA Decision of November 12. G. and Kuok Khoon Tsen.

Whether or not the [CA] erred in setting aside its Resolution dated August 13. it should be stressed that the second and third issues tendered relate to the correctness of the CAs factual determinations. premises considered. Return to plaintiff the retention sum of P5. raise the following issues for our consideration: I. In a supplemental resolution issued on the same day. 1999. No. ESHRIs refusal to pay BFs valid claims constituted evident bad faith entitling BF to moral damages and attorneys fees. 2000. BF filed before this Court a petition for review of the CA Decision.000. This Courts Resolution dated 13 August 1999 is reconsidered and set aside.80 representing the construction work accomplishments under Progress Billings Nos. the CA issued a writ of preliminary mandatory injunction directing the trial court judge and/or his branch sheriff acting under him (a) to lift all the garnishments and levy made under the enjoined order of execution pending appeal.R. 57399. the CA issued in CA-G. 3.R.[11] We denied the motions for reconsideration of ESHRI and BF. and in awarding moral and exemplary damages and attorneys fees to respondent. are final and conclusive on the Court and may not be reviewed on appeal. the Court affirmed the assailed decision of the CA with the modification that the recovery of ESHRIs garnished deposits shall be against BFs bond. CV No. inclusive of its award of damages and attorneys fees and the reasons underpinning the award. to file a separate recourse. 43187. Pending the resolution of CA-G. docketed as G. such as its allegation on the defective work accomplished by BF. CV No.000. for the most part. Thus. and defendants-appellants application for restitution is denied for lack of merit.[14] The petition has no merit. CV No. SP No. BF had sufficiently established its case by preponderance of evidence. per its Resolution [13] dated October 25.810.R. (3) By a Decision dated June 30. of their motion for reconsideration. factual and evidentiary. and the CA by Resolution of August 13. 43187 a writ of preliminary injunction enjoining the trial court from carrying out its January 21. the bonding company. P1. ESHRI subsequently moved for reconsideration. III. SP No. This November 12. 132655. Pay plaintiff the sum of P24. the CA rendered a Decision resolving (1) the aforesaid motions of BF and its surety and (2) herein petitioners appeal from the trial courts Decision dated September 23. and whether or not petitioners were guilty of malice and bad faith.Bus Org 2 Cases 1st Set Prelim 8 1. SO ORDERED. 14-19 and on the amount of P5. No. an application for restitution or damages against BFs bond.00 as moral damages.R. 57399. 2. hence.[10] OnAugust 11. the decision appealed from is AFFIRMED in toto.000. 57399.[9] Meanwhile.000. the CA set aside the trial courts January 21. ESHRI assailed this order before the CA via a petition for certiorari. IV.000.[15] Just as basic is the rule that factual findings of the CA.780. 1997 Order upon ESHRIs posting of a PhP 1 million bond. by Order dated January 21. On November 12. Whether or not the [CA] committed grave abuse of discretion in finding petitioners guilty of malice and evidence bad faith. Inc. PMIs and WVOs].. the latter shall return the same to ESHRIs deposit account. granted BFs motion for execution pending appeal. the branch sheriff garnished from ESHRIs bank account in the Philippine National Bank (PNB) the amount of PhP 35 million. and (c) if the garnished deposits have been delivered to BF.000. Pay legal interest on the amount of P24. On the other hand. (b) to immediately return the garnished deposits to PNB instead of delivering the same to ESHRI.00 as exemplary damages. Following the denial by the CA. but the motion was denied by the RTC. 1997 in CA-G. BF and Stronghold Insurance Co.[8] According to the RTC.R. (5) Forthwith. P1. however.R.780. petitioner del Castillo opting. Second. 2000. affirmatory of that of the trial court. a situation not obtaining in this case.[12] The CA predicated its ruling on the interplay of two main reasons. prompting ESHRI to appeal to the CA in CAG.R.490. there is no reason to disturb the case disposition of the RTC.00 representing the retention sum from date of demand until their full Payment. 1999Decision.810. No. Whether or not the [CA] committed grave abuse of discretion in not holding respondent guilty of delay in the performance of its obligations and. Prefatorily. SP No. 1997. (2) On March 7. docketed as CA-G. filed separate motions for reconsideration. Pay plaintiff P1. 1997 Order. 1998. the following events and/or incidents transpired: (1) The trial court. 145842. G. such as when: (1) the .R. dispositively reads: WHEREFORE. ESHRI filed. petitioners ESHRI. finding for BF and now assailed in these separate recourses. in CA-G. specifically on whether or not BF was in delay and had come up with defective works.00. petitioners are now before the Court. except for the most compelling of reasons.000. only questions of law may be presented by the parties and reviewed by the Court. Whether or not the [CA] committed grave abuse of discretion in disregarding issues of law raised by petitioners in their appeal [particularly in admitting in evidence photocopies of Progress Billing Nos. 14-19. 4. Part of what it had sufficiently proven relates to ESHRI being remiss in its obligation to re-measure BFs later work accomplishments and pay the same. 1997. First.00 as attorneys fees. (4) Aggrieved. The CA would later deny BFs motion for reconsideration. It is basic that in an appeal by certiorari under Rule 45. 145842 In G. Consequently.00 representing unpaid construction work accomplishments under plaintiffs Progress Billings Nos. et al. Apropos ESHRIs entitlement to the remedy of restitution or reparation arising from the execution of the RTC Decision pending appeal. ESHRI had failed to prove the basis of its disclaimer from liability. 1996. liable for liquidated damages [in view that respondent is guilty of delay and that its works were defective]. II. 43187.R. 1999 granted.490.000. the issues the parties raised in their respective briefs were. the CA held that such remedy may peremptorily be allowed only if the executed judgment is reversed.. and cost of the suit. 14 to 19.

(Emphasis added. your Honor. People. which reads: SEC. (3) there is grave abuse of discretion. secondary evidence may be presented as in the case of loss. Original document must be produced. These are: (1) there is proof of the original documents execution or existence. (4) the judgment is based on a misapprehension of facts. When such party has the original of the writing and does not voluntarily offer to produce it or refuses to produce it. If after such notice and after satisfactory proof of its existence. We agree with BF. he fails to produce the document. to wit: (1) the existence of the original documents which ESHRI had possession of. The stenographic notes of the following exchanges between Atty.) ATTY. if properly considered. the witness testified that certain exhibits namely. and (4) ESHRI was not inclined to produce them. and necessarily the trial court. the Progress Payment Certificates and the Progress Billings the originals of these documents were transmitted to ESHRI. and the latter fails to produce it after reasonable notice. on the matter of the admission in evidence of the photocopies of Progress Billing Nos. The notice may be in the form of a motion for the production of the original or made in open court in the presence of the adverse party or via a subpoena duces tecum. In our view. Your Honor. we find that none of the above exceptions obtains. the trial court correctly allowed the presentation of the photocopied documents in question as secondary evidence.Bus Org 2 Cases 1st Set Prelim 9 conclusion is grounded on speculations. provided that the party in custody of the original has sufficient time to produce the same. Andres and Atty. [16] In our review of this case.[18] A party may present secondary evidence of the contents of a writing not only when the original is lost or destroyed. and (3) the offeror is in good faith. as a general proposition. is very much apt. without bad faith on the part of the offeror. the factual findings of the trial court. surmises. likewise. but also when it is in the custody or under the control of the adverse party. certain explanations must be given before a party can resort to secondary evidence. ANDRES: During the previous hearing of this case. your Honor. that. In other words. [19] While perhaps not on all fours because it involved a check. (2) there is proof of the cause of the original documents unavailability. (Emphasis added. or conjectures. xxxx The mere fact that the original of the writing is in the custody or control of the party against whom it is offered does not warrant the admission of secondary evidence. avers having complied with the laying-the-basis requirement. According to petitioners. however. that he fails or refuses to produce the same in court and that the offeror offers satisfactory proof of its existence. they will try to check. absurd. Secondary evidence of the contents of a written instrument or document refers to evidence other than the original instrument or document itself. Your Honor. The offeror must prove that he has done all in his power to secure the best evidence by giving notice to the said party to produce the document. 14 to 19. that there was no proof that BFs work was defective. that opposing counsel first be given opportunity to present the originals which are in their possession . what the Court said in Magdayao v. except in the following cases: (a) When the original has been lost or destroyed. Respondent BF. and that petitioners were guilty of malice and bad faith. before being allowed to adduce in evidence the photocopies adverted to. May we know if they have brought the originals and whether they will present the originals in court. be produced [17] and secondary evidence of its contents is not admissible except where the original cannot be had. he must have reasonable notice to produce it. PMIs and WVOs Petitioners fault the CA. would justify a different conclusion. respectively. (5) the findings of fact are conflicting. 14 to 19 and the complementing PMIs and the WVOs. BF explained that it could not present the original of the documents since they were in the possession of ESHRI which refused to hand them over to BF despite requests. reveal that BF had complied with the requirements: ATTY. that it has been claimed by plaintiff that some of the originals are in their possession and our client assured that. secondary evidence may be admitted. If the document is in the custody or under control of the adverse party. (2) a request was made on ESHRI to produce the documents. the circumstances obtaining in this case fall under the exception under Sec. Autea. Rule 130. When the subject of inquiry is the contents of a document. the conditions sine qua non for the presentation and reception of the photocopies of the original document as secondary evidence have been met. Section 6 of Rule 130 provides that the adverse party must be given reasonable notice. 3(b) of Rule 130. Accordingly. (3) ESHRI was afforded sufficient time to produce them. no evidence shall be admissible other than the original document itself. exceptions. as affirmed by the CA. on the other hand.) Complementing the above provision is Sec. (2) the inference is manifestly mistaken. [20] (Emphasis supplied. all the originals are in the possession of ESHRI since these are internal documents and I am referring specifically to the Progress Payment Certificates.) On the Restitution of the Garnished Funds . 14 to 19 instead of their originals has to be dismissed. (6) such findings are contrary to the admissions of both parties. or impossible. 6 of Rule 130. When original document is in adverse partys custody or control. conformably to the best evidence rule. Defending the action of the courts below in admitting into evidence the photocopies of the documents aforementioned. Clearly. we have not heard from our client. that in order that plaintiff [BF] be allowed to present secondary original. The only actual rule that the term best evidence denotes is the rule requiring that the original of a writing must. thus: x x x To warrant the admissibility of secondary evidence when the original of a writing is in the custody or control of the adverse party. ought to have laid the basis for the presentation of the photocopies as secondary evidence. (b) When the original is in the custody or under the control of the party against whom the evidence is offered. ought to be affirmed. Admissibility of Photocopies of Progress Billing Nos. that there was delay on the part of ESHRI. AUTEA: We have already informed our client about the situation. BF. We requested your Honor. Four factual premises are readily deducible from the above exchanges. Unfortunately. or cannot be produced in court. Section 3 of the Rules of Court enunciates the best evidence rule: SEC. 6. In either instance. 3. Any suggestion that BF failed to lay the required basis for presenting the photocopies of Progress Billing Nos. counsel for BF and ESHRI. and (7) the CA manifestly overlooked certain relevant evidence and undisputed facts.

the main case. IV. 63435. No. on appeal or otherwise. jointly and severally liable with ESHRI for the judgment award.. For ease of reference. STRONGHOLD Insurance Co. Mandaluyong City. with the other individual petitioners in G. PETITIONER CANNOT BE HELD PERSONALLY LIABLE FOR ANY ALLEGED BREACH OF A CONTRACT ENTERED INTO BY THE CORPORATION. the CA. 132655. prevented restitution of ESHRIs improperly garnished funds when it nullified its own August 13. In this regard. 63435 having in fact been upheld in toto. without more. was still a director. implying that ESHRI should be restored to its own funds without awaiting the final outcome of the main case. the surety of [BF]. for. she no longer had any participation in ESHRIs corporate affairs when what basically is the ESHRI-BF dispute erupted. upon coming to existence. As petitioners maintain. 145873 Petitioner Roxas-del Castillo. testified that the submitted but unpaid billings were still being evaluated. 1999: BASED ON THE FOREGOING. 5. the RTC Decision of September 23. III. sufficient to disregard the fiction of separate corporate personality. 14. Not lost on the Court are some material dates. a reality BF does not appear to dispute. Otherwise. 1999 Resolution on the basis of Sec. The above conclusion would still hold even if petitioner Roxas-del Castillo. the execution pending appeal of which spawned another dispute between the parties. Directors or trustees who willfully or knowingly vote for or assent to patently unlawful acts of the corporation or acquire any pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation. which reads: Section 31. THE [CA] ERRED IN NOT RULING THAT RESPONDENT IS NOT ENTITLED TO ANY AWARD OF ATTORNEYS FEES. Under the circumstances of this case. No decision shall be rendered by any court without expressing therein clearly and distinctly the facts and the law on which it is based. II. THE [CA] ERRED IN HOLDING PETITIONER PERSONALLY LIABLE TO RESPONDENT FOR EXEMPLARY DAMAGES. She presently contends: I.R. as couched. affirmed.R. Allowing restitution at this point would not serve any purpose. Art. as may be recalled. or used as a vehicle to evade obligations. for. 1999 Decision. SP No. [23] Thus. the RTC Decision holding her. Accordingly. the trial court may. 1999 Resolution. V. SO ORDERED. As it were. Effect of reversal of executed judgment. No. No. being jointly and severally liable under the bond is ORDERED toRETURN the amount of [PhP 35 million] representing the garnished deposits of the bank account maintained by [ESHRI] with the [PNB] Shangri-la Plaza Branch. 132655 recognized the validity of the issuance of the desired restitution order.R.Bus Org 2 Cases 1st Set Prelim 10 We now come to the propriety of the restitution of the garnished funds. in the said testimony. in fact. before she could be held personally liable as corporate director. STRONGHOLD. on motion. x x x In the event that the bond shall turn out to be insufficient or the surety (STRONGHOLD) cannot be made liable under its bond. 5. the appellate court nullified its August 13. at the time ESHRI defaulted in paying BFs monthly progress bill. is ORDERED to PAY the sum of [PhP 35 million] to [ESHRI] under its SICI Bond. this Court shall cause the implementation of the Writ of Execution dated April 24. it must be shown that she acted in a manner and under the circumstances contemplated in Sec. 1999 filed by [ESHRI] is GRANTED. 1999 Resolution in CA-G. [BF].. only in the dispositive portion of the decision did her solidary liability crop up. the controversy between the principal parties started in July 1992 when Roxas-del Castillo no longer sat in the ESHRI Board. excepts from the CA Decision affirming. the CA effectively. 43187.) We do not find anything in the testimony of one Crispin Balingit to indicate that Roxas-del Castillo made any misrepresentation respecting the payment of the bills in question. does not provide the factual or legal basis for holding her personally liable under the premises. via its assailed November 12. 1998 in G. we cannot allow such application. Solidary liability on the part of corporate officers may at times attach. 1996. Rule 39. in her separate petition.R. (Emphasis ours. and/or its surety. [25] In this case. such as when they act with malice or in bad faith. Balingit. we reproduce what the appellate court pertinently wrote in its Resolution of August 13. 1311 of the Civil Code is clear on this point: . the veil of corporate fiction shall be disregarded when the separate juridical personality of a corporation is abused or used to commit fraud and perpetrate a social injustice. that the CA had since then decided CA-G. 1998 issued in Civil Case No. Inc. G. the RTC decision in question. but only prolong an already protracted litigation. but only under exceptional circumstances. no act of malice or like dishonest purpose is ascribed on petitioner Roxas-del Castillo as to warrant the lifting of the corporate veil.on the merits when it affirmed the underlying RTC Decision in Civil Case No. issue such orders of restitution or reparation of damages as equity and justice may warrant under the circumstances. the executed appealed RTC Decision in Civil Case No. or annulled. CV No. the Application (for Restitution/Damages against Bond for Execution Pending Appeal) dated May 12. but erroneously. petitioners invite attention to the fact that the restitution of the funds was in accordance with this Courts final and already executory decision in G. And save for her inclusion as party defendant in the underlying complaint. is invested by law with a personality separate and distinct from those of the persons composing it. It bears to emphasize. in its entirety. effectively recognized the applicability of the doctrine on piercing the veil of the separate corporate identity. no reference is made in other pleadings thus filed as to her liability. No. in case they should fail to comply with these directives. Further. the appellate court correctly dismissed ESHRIs claim for restitution of its garnished deposits. Article VII of the Constitution that states. THE [CA] ERRED IN NOT DECLARING THAT THE DECISION OF THE TRIAL COURT ADJUDGING PETITIONER PERSONALLY LIABLE TO RESPONDENT VOID FOR NOT STATING THE FACTUAL AND LEGAL BASIS FOR SUCH AWARD. who were members of the Board of Directors of ESHRI. A corporation. obligations incurred by corporate officers. The Court notes that the appellate court.R. [22] First off. 63435 against both [BF]. Indeed. THE [CA] ERRED IN NOT RULING THAT AS FORMER DIRECTOR. 145842. Where the executed judgment is reversed totally or partially. This CA Decision on the original and main case effectively rendered our decision on the incidental procedural matter on restitution moot and academic. its stockholders or members and other persons.[21] Petitioners contention on the restitution angle has no merit. acting as corporate agents. by its affirmatory ruling. in appropriate cases. Familiar and fundamental is the rule that contracts are binding only among parties to an agreement. however. 57399. Roxas-del Castillo submits that the RTC decision in question violated the requirements of due process and of Sec. And as may be recalled further. [24] Also. are not theirs but direct accountabilities of the corporation they represent. Ownership by a single or a small group of stockholders of nearly all of the capital stock of the corporation is not. On the strength of the aforequoted provision. which provides: Sec. In fact.R. simultaneously with the nullification and setting aside of its August 13. in no instance was bad faith imputed on Roxas-del Castillo. In fine. Roxas-del Castillos threshold posture is correct. THE [CA] ERRED IN NOT RULING THAT RESPONDENT IS NOT ENTITLED TO AN AWARD OF MORAL DAMAGES. It is true that the Courts Decision of August 11. 31 of the Corporation Code.

No. as its duly authorized representatives who may sign all papers. such authority to sign in behalf of the corporation. Accordingly. No. except in cases where the rights and obligations are not transmissible by their nature. 2000.[12] (Citations omitted. petitioner corporation filed the same only on MARCH 3. represented by DOMINGA MAGNO. CV No. 2000 with the CA. J. Thus. respondents alleged that petitioner claims ownership of the subject lots which they have openly. 2000 and August 8. Contracts take effect only between the parties. it is ordered that the claim of Pascual and Santos. over Lot 4087. 185. 98-G-8459. giving it a non-extendible period of fifteen days from February 16. As indicated in its Petition for Time. respondents. petitioner lodged an appeal before the Office of the Department of Environment and Natural Resources (DENR) Secretary. 183 and 184) shows that copies of the Manifestation and Petition for Review were served to private respondents (sic) counsel. Petitioner subsequently filed its Petition for Review [10] dated March 2. 2000. 2000 appointing Estela Lombos and Anita Pascual. 2000 within which to file its petition for review. Cad. Attached to the Motion was a Secretarys Certificate [14] dated June 14. petitioner. 2000. 2000 Resolution. Paraaque. the petition for review was filed a day after the period petitioner corporation expressly sought. and (3) declaring the subject lots as no longer forming part of the public domain and have been validly acquired by petitioner. it filed a Petition for Time[8] before the CA for an additional period of fifteen days or until March 2.R. the Certificate of Non-Forum Shopping. or by stipulation or by provision of law. as required by the rules. Cynthia Roxas-del Castillo. 145873. as hereby it is. and (2) declaring the subject lots as no longer forming part of the public domain and have been validly acquired by petitioner. on March 2. 2000. petitioner filed a Motion for Reconsideration [13] of the CA May 17. 2000. xxx Another perusal of the registry return receipts attached to the petition for review (Nos. Metro Manila be. execute all documents. 2000 OP Decision and the November 25. 186.P. and the Department of Environment and Natural Resources. which was likewise dismissed for lack of merit by Decision[6] of January 20. Petitioners Motion for Reconsideration of the decision having been denied by Order [5] of May 18. 2-96.R. represented by Dominga Magno (respondents). the Office of the President. 1996. In the instant case. 145842 is DISMISSED. INC. the appealed Decision dated November 12. 2000. Psu-118886. The individual members of TRAMO WAKAS NEIGHBORHOOD ASSOCIATION. which was granted by the Court per Resolution dated February 21. The registry return receipts (No. 2000. Given the foregoing perspective. Palad. (2) reversing and setting aside the aforementioned Decisions and Order of the OP and the DENR. 145842. For another. dismissed the appeal instituted by petitioner Pascual and Santos. No. 57274 which respectively. The petition was referred to the Land Management Bureau (LMB) where it was docketed as LMB Case No.R. Jr..: At bar is a petition for review on certiorari assailing the May 17. by itself. Inc. [7] following which or on February 16. 1998 Order. (1) allowing it to present additional evidence in support of its claim to the subject lots. 1999 of the CA in CA-G. while the petition in G.[3] Its Motion for Reconsideration having been denied by Order of June 26. must show sufficient proof thereof. the Verification and Certification of non-forum shopping was signed merely by Estela Lombos and Anita Pascual who allege that they are the duly authorized representatives of petitioner corporation. docketed as O. vs. [15] By Resolution of August 23. 145873 is GRANTED. the CA granted petitioners Petition for Time. despite the foregoing.. 1997. Petitioner received a copy of the OPs dismissal of its appeal on February 1. San Dionisio. 4088 and 5003. The dispositive portion of the decision reads. lodged before the Presidential Action Center a petition dated January 12. WHEREFORE. in behalf of another.[11] By Resolution of May 17. 2000. peacefully and continuously occupied since 1957.R. INC. No. is absolved from any liability decreed in the RTC Decision dated September 23. incumbent directors of the corporation.Bus Org 2 Cases 1st Set Prelim 11 Article 1311. for investigation and hearing. 187 and 188) being referred to by petitioner shows (sic) . 63435. For one.R. 1996 in Civil Case No. (petitioner) and denied its motion for reconsideration. SO ORDERED. 2000 or until March 2. 1997 DENR Decision and May 18. Paraaque. However. the other issues raised by Roxas-del Castillo as to her liability for moral and exemplary damages and attorneys fees are now moot and academic. By Decision[4] of November 25. PASCUAL AND SANTOS. docketed as DENR Case No. 1997 DENR decision was affirmed in toto. situated at Brgy. Ramos dismissed the appeal for lack of merit and affirmed in toto the decision of the Director of the LMB. 2000 as indicated by the date stamped on the envelope which contains the petition for review. the Court cannot accept at face value. 1994 praying that ownership over three (3) parcels of land situated in Barangay San Dionisio. within which to file its petition. and do such other acts as may be necessary to prosecute the petition for review that it would file with the CA assailing the decision rendered in OP Case No. Case No. 229 with an aggregate area of 35. Metro Manila. 98-F-8459. 7816. And her other arguments insofar they indirectly impact on the liability of ESHRI need not detain us any longer for we have sufficiently passed upon those concerns in our review of G. DECISION CARPIO MORALES. it does not indicate therein when the petition for review was filed with the Court. arguing that there was no showing that the persons acting on its behalf were not authorized to do so and that its petition was filed within the additional 15-day period granted by the CA. By Resolution[9] of February 21. the CA denied petitioners Motion for Reconsideration for lack of merit. of the LMB found for respondents. 2000 within which to file the petition. No. The Members of Tramo Wakas Neighborhood Association. identified as Lot Nos. xxx It must be stressed that any person who claims authority to sign. However. By Decision[2] of February 21. dismissed. 2000. underscoring supplied) On June 14. 2000 showing that petitioners Board of Directors approved a Resolution on February 11. Bare allegations are not proof. The November 25. 182. An individual survey shall be conducted on the land at their own expense and after approval of the said survey the same shall be given due course. now represented by Dominga Magno.195 square meters be awarded to them. 1996. quoted verbatim: WHEREFORE. or in the alternative. it filed an appeal before the Office of the President (OP). or until March 2. THE MEMBERS OF THE TRAMO WAKAS NEIGHBORHOOD ASSOCIATION. 2000 Resolutions [1] of the Court of Appeals (CA) in CA-G. Roxas-del Castillo could not plausibly be held liable for breaches of contract committed by ESHRI nor for the alleged wrongdoings of its governing board or corporate officers occurring after she severed official ties with the hotel management. without showing any proof whatsoever of such authority. their assigns and heirs. 57399 is AFFIRMED with MODIFICATION that the petitioner in G. and the representation of one who acts in behalf of another cannot. and importantly.R. 2000. if qualified may file appropriate public land applications over the land they actually possessed and occupied. praying that judgment be rendered (1) reversing and setting aside the January 20. Director Abelardo G. petitioner corporation asked for an additional fifteen (15) days. 1998. serve as proof of his authority to act as agent or of the extent of his authority as agent. 4087. the CA dismissed the appeal due to infirm Verification and Certification of non-forum shopping and belated filing. the petition in G. Lot 4088 and Lot 5003. absent such clear proof. then DENR Secretary Victor O. Inc. In their petition. as affirmed by the CA.

In fact. At all events. or any other papers or payments or deposits. 2000 of the Court of Appeals are SET ASIDE. The Resolutions dated May 17. It exercises its powers through its board of directors and/or its duly authorized officers and agents. with postage fully prepaid. . The date stamped on the envelope which contained the Manifestation and Petition for Review clearly shows that the same was filed on March 3. The envelope shall be attached to the record of the case. underscoring supplied) Petitioner thus filed on September 27. finding petitioners explanation satisfactory. In the second case.[23] Thus. said receipts do not even indicate which pertain to the copy filed with the Court. the Court of Appeals or different divisions thereof. If it is not in the record. pleadings. The failure of the petitioner to comply with any of the foregoing requirements regarding the payment of the docket and other lawful fees. 2000. petitioner filed a motion for reconsideration to which it attached a certificate issued by its board secretary stating that on February 11. shall be considered as the date of their filing. a corporation has no powers. Moreover. the petition is GRANTED. 3. motions. 2000. 2000 only on that numbered 188. Manner of filing. the Court of Appeals. 57274. is REMANDED to the appellate court which is hereby directed to give due course to the appeal of petitioner. orders. 2000. 2000. in Shipside Incorporated v. CA-G. The affidavit likewise states that on even date. or different divisions thereof. The filing of pleadings. Felicitas of the DAPO. the deposit for costs. as in this case. 2000 issued by Postmaster Cesar A. [17] By Resolution[18] of December 6. the petition was served on counsel for respondents. This could very well explain why the latter date was stamped on the envelope received by the CA containing the petition. he undertakes to promptly inform the aforesaid courts and other tribunal or agency thereof within five days therefrom. 7. Petitioner filed a Motion for Reconsideration. By Resolution[21] of March 7. as shown by the post office stamp on the envelope or the registry receipt. there is evidence showing that the appeal was filed on time. March 3. the same must prevail. containing a full statement of the date and place of depositing the mail in the post office in a sealed envelope addressed to the court. Section 7 of Rule 43 provides: SEC. but is claimed to have been filed personally. the clerk of court shall endorse on the pleading the date and hour of filing. the Court excused non-compliance with the requirement as to the certificate of non-forum shopping. this Court denied the Petition for Review in view of petitioners failure to submit a valid affidavit of service pursuant to Section 13 of Rule 13 and Sections 3 and 5 of Rule 45 in relation to Section 5 (d) of Rule 56 of the Rules of Court and attach to the petition a duplicate original or certified true copy of the assailed CA resolutions pursuant to Sections 4 (d) and 5 of Rule 45 in relation to Section 5 (d) of Rule 56 of the Rules of Court. judgments and all other papers shall be made by presenting the original copies thereof. and while it was the affidavit before the CA which was inadvertently attached to its petition before this Court. petitioner maintains in the affirmative. 2000. the DENR. [32] WHEREFORE. In the first case. Section 6 (d) of Rule 43 in relation to Section 2 of Rule 42 of the Rules of Court mandates that a petition for review shall contain a sworn certification against forum shopping in which the petitioner shall attest that he has not commenced any other action involving the same issues in this Court. and with instructions to the postmaster to return the mail to the sender after ten (10) days if not delivered. like the signing of documents. and if he should thereafter learn that a similar action or proceeding has been filed or is pending before this Court. by the registry receipt and by the affidavit of the person who did the mailing. appearances. the DENR and the OP by depositing copies of the same in sealed envelopes and mailing them to said parties respective addresses through the DAPO. Subsequent to the CAs dismissal of the petition. Except for the powers which are expressly conferred on it by the Corporation Code and those that are implied by or are incidental to its existence. The requirement that the petitioner should sign the certificate of non-forum shopping applies even to corporations. the date of the mailing of motions. And in the Certification[31] dated October 26. With more reason should we allow the instant petition since petitioner herein did submit a certification on non-forum shopping. he states that the registered mail matter covered by Registry Receipt Nos. this Court. or deposit in court. failed to show proof that they were authorized by petitioners board of directors to file such a petition. II WHETHER OR NOT PSIS MANIFESTATION/PETITION FOR REVIEW WAS FILED WITHIN THE REGLEMENTARY PERIOD. [22] In the case at bar. its power to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. proof of service of the petition. [24] Physical acts. [25] It is undisputed that when the petition for certiorari was filed with the CA. strict adherence to rules of procedure must give way to considerations of equity and substantial justice where. payment. 2000. Registry Receipt Nos. the filing shall be proved by the written or stamped acknowledgment of its filing by the clerk of court on a copy of the same. nonetheless the requirements must not be interpreted too literally and thus defeat the objective of preventing the undesirable practice of forum shopping. failing only to show proof that the signatory was authorized to do so. and does (sic) not show the dates on those numbered 185-187. SP No. now the subject of this Decision.[29] The Affidavit of Service[30] filed by the person who did the mailing of the petition in behalf of petitioner states that such petition was filed by registered mail by depositing seven copies thereof in four separate sealed envelopes and mailing the same to the Clerk of Court of the CA through the DAPO on March 2. the OP and the court a quo as evidenced by registry receipts and return cards [20] which it attached to its Motion for Reconsideration. Court of Appeals. 12. Sections 3 and 12 of Rule 13 of the Rules of Court provide: SEC. SEC. 2000 before this Court a Petition For Time to file its petition for review.[28] As for the timeliness of the filing of its petition for review before the CA.[27] this Court held: xxx Moreover. 185-188 addressed to the Clerk of Court of the CA was posted at their office for mailing on March 2. It must also be kept in mind that while the requirement of the certificate of non-forum shopping is mandatory. That petitioner subsequently submitted a secretarys certificate attesting that Balbin was authorized to file an action on behalf of petitioner likewise mitigates this oversight. 2000 or prior to the filing of the petition. or any other tribunal or agency. he must state the status of the same. notices. The case.[16] (Citations omitted.[19] averring that it had already attached certified true copies of the assailed resolutions of the CA in its Petition for Time filed before this Court on September 27. the signatories to the verification and certification on non-forum shopping. 2000 and August 23. Proof of filing. 2000. the Court cannot sustain petitioners supposition that a post office employee might have stamped the wrong date. On October 30. This Court has ruled that the subsequent submission of proof of authority to act on behalf of a petitioner corporation justifies the relaxation of the Rules for the purpose of allowing its petition to be given due course. in Loyola. and the contents of and the documents which should accompany the petition shall be sufficient ground for the dismissal thereof.Bus Org 2 Cases 1st Set Prelim 12 the date March 2. there was no proof attached thereto that Lombos and Pascual were authorized to sign the verification and non-forum shopping certification. considering that the mandatory directives of the Rules of Court make no distinction between natural and juridical persons. the messengerial staff of petitioners counsel did in fact serve copies of the petition on counsel for respondents. For failure to comply with this mandate. [26] Thus. plainly indicated as such. personally to the clerk of court or by sending them by registered mail. emphasis in the original. The petition is impressed with merit. the CA dismissed the petition before it on the ground that Lombos and Pascual. if filed by registered mail. or any other tribunal or agency. Lombos and Pascual had been authorized by petitioners board of directors to file the petition before the CA. 2001. granted the Motion for Reconsideration and reinstated the petition. The filing of a pleading or paper shall be proved by its existence in the record of the case. 2000 for proper disposition.R. without any proof whatsoever of such error. 2000. Effect of failure to comply with requirements. petitioner filed a Petition for Review on Certiorari raising the following issues: I WHETHER OR NOT THE PERSONS WHO EXECUTED THE VERIFICATION AND CERTIFICATION OF NON-FORUM SHOPPING ATTACHED TO PSIS MANIFESTATION/PETITION FOR REVIEW FILED WITH THE COURT OF APPEALS WERE AUTHORIZED TO DO SO. but that it was dispatched to the CMEC on March 3. and petitioner having failed to rebut the presumption of regularity in the performance of official functions. however. can be performed only by natural persons duly authorized for the purpose by corporate by-laws or by a specific act of the board of directors. Roadway and Uy. if there is such other action or proceeding. 185-188 covering the envelopes bearing the copies of the petition which were sent to the CA indicate that such copies were filed by registered mail at the Domestic Airport Post Office (DAPO) on March 2.

" 1 From such an order. then presided by the Honorable Arsenio Santos. not a partial but a well-nigh complete paralysis of judicial authority. 1960 in New York City. Thus did the lower court. L-23145 November 29. the corporation being domiciled [here]. that under the circumstances. 1. appellant opposed the petition of the ancillary administrator because the said stock certificates are in existence. the Court of First Instance of Manila ordered the domiciliary administrator. in an earlier case. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality of the challenged order. for ancillary administrator-appellee.2 Then came this portion of the appellant's brief: "On August 12. the certificates being in the possession of the County Trust Company of New York. the Court hereby (1) considers as lost for all purposes in connection with the administration and liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates covering the 33. how does appellant. insofar as this matter was concerned. TAYAG. the more so as deeper reflection would make clear its being buttressed by indisputable principles and supported by the strongest policy considerations. Our holding in Wells Fargo Bank and Union v. For appellant is a Philippine corporation owing full allegiance and subject to the unrestricted jurisdiction of local courts. The ancillary administration is proper. that the said stock certificates are in existence and are today in the possession of the domiciliary administrator in New York." 10 There may be an element of fiction in the above view of the lower court. Bito and Misa for oppositor-appellant. deceased. The domiciliary administrator did not comply with the order. propose to carry the extremely heavy burden of persuasion of precisely demonstrating the contrary? It would assign as the basic error allegedly committed by the lower court its "considering as lost the stock certificates covering 33.. 5 As Justice Tuason speaking for this Court made clear. 2. On January 27. dated February 11.002 shares . Since there is a refusal.Bus Org 2 Cases 1st Set Prelim 13 G. to "produce and deposit" them with the ancillary administrator or with the Clerk of Court. it would allege that there was a failure to observe certain requirements of its by-laws before new stock certificates could be issued. It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no less than that of the country.. Hence. vs. the appeal lacks merit. to paraphrase Frankfurter.. No. Its shares of stock cannot therefore be considered in any wise as immune from lawful court orders. What cannot be ignored is that conduct bordering on wilful defiance. and on January 22.. . impart vitality and effectiveness to what was decreed. the ancillary administrator petitioned the court to "issue an order declaring the certificate or certificates of stocks covering the 33. Through this challenged order. the County Trust Company of New York. now retired. Moreover. 1963. J. BENGUET CONSOLIDATED. the Benguet Consolidated.. can this order be stigmatized as illegal? As is true of many problems confronting the judiciary." be respected is equally beyond question. The appeal cannot possibly prosper. That which is granted in the jurisdiction of decedent's last domicile is termed the principal administration.A. such a response was called for by the realities of the situation. Collector of Internal Revenue 8 finds application. Jr. It does not dispute it. Nor could it successfully do so even if it were so minded. ancillary administrator-appellee.. set forth by Justice Malcolm. Marquez was appointed ancillary administrator.. Inc.. the County Trust Company of New York. not even appellant is insensible. arising out of a specific problem. but by the Philippine corporation. 1964. issued on May 18. certainly "extends to the assets of a decedent found within the state or country where it was granted."3 It is to be noted further that appellant Benguet Consolidated. there is thus dispelled the atmosphere of contingent frustration brought about by the persistence of the domiciliary administrator to hold on to the stock certificates after it had. 1968 TESTATE ESTATE OF IDONAH SLADE PERKINS. of the estate of the deceased Idonah Slade Perkins. his Honor the trial Judge knew. the actual situs of the shares of stock is in the Philippines. addressed to the attainment of specific ends by the use of specific remedies." To the force of the above undeniable proposition.002 shares of appellant. which as noted. A dispute arose between the domiciary administrator in New York and the ancillary administrator in the Philippines as to which of them was entitled to the possession of the stock certificates in question. and filing a petition for relief from a previous order of March 15.. therefore. and does know. Inc. "In the instant case. FERNANDO. Thereby. if it had not actually reached it.. of what was previously ordained by a court order could be thus remedied. who died in New York City on March 27. Hence. Lazaro A. oppositor-appellant. cannot without undue loss of judicial prestige. with residence abroad. there was nothing unreasonable or arbitrary in considering them as lost and requiring the appellant to issue new certificates in lieu thereof. it is a "general rule universally recognized" that administration. Inc. left among others. property to be administered in the nature of assets of the deceased liable for his individual debts or to be distributed among his heirs. 1963. Inc. 1964. As was made clear at the outset of this opinion. Del Rosario. as well as the opposition filed by the Benguet Consolidated.. (2) orders said certificates cancelled." 9 More specifically. Asperillo. 1964."6 It is to be noted that the scope of the power of the ancillary administrator was. Thus: "It is often necessary to have more than one administration of an estate. to deliver the shares of stocks of appellant corporation owned by the decedent to the ancillary administrator in the Philippines. leaving in a country other than that of his last domicile. to satisfy the legitimate claims of local creditors. did not dispute the power of the appellee ancillary administrator to gain control and possession of all assets of the decedent within the jurisdiction of the Philippines. an appeal was taken to this Court not by the domiciliary administrator. 1960. County Trust Company."4 It is its view. the County Trust Company. in the order now on appeal. Inc. whether principal or ancillary. in New York. The reason for the latter is because a grant of administration does not ex proprio vigore have any effect beyond the limits of the country in which it is granted. . then.. Inc. be declared [or] considered as lost. and (3) directs said corporation to issue new certificates in lieu thereof. it would have entailed. For without it.002 shares issued in the name of Idonah Slade Perkins by Benguet Consolidated.R. Benguet Consolidated. what it had been decided would be set at naught and nullified. Tayag. two stock certificates covering 33. Inc. appellant would stress that the "lower court could not "consider as lost" the stock certificates in question when. INC.S. they are today in the possession of the domiciliary administrator.: Confronted by an obstinate and adamant refusal of the domiciliary administrator.. The challenged order constitutes an emphatic affirmation of judicial authority sought to be emasculated by the wilful conduct of the domiciliary administrator in refusing to accord obedience to a court decree. 1963. as admitted. U..002 shares of Benguet belonging to the deceased Idonah Slade Perkins. 1960. As set forth in the brief of appellant Benguet Consolidated. 1964. admits that "it is immaterial" as far as it is concerned as to "who is entitled to the possession of the stock certificates in question." 7 It would follow then that the authority of the probate court to require that ancillary administrator's right to "the stock certificates covering the 33. while any other administration is termed the ancillary administration. Ross. Inc. the lower court. When a person dies intestate owning property in the country of his domicile as well as in a foreign country. That certainly does not suffice to call for the reversal of the appealed order.. whenever a person dies. the task incumbent under the law on the ancillary administrator could be discharged and his responsibility fulfilled." the corollary being "that an administrator appointed in one state or country has no power over property in another state or country.. is the domiciliary administrator of the estate of the deceased. Appellant Benguet Consolidated. How. RENATO D. Cirilo F. and it is admitted by the appellee. its appeal. be condoned or tolerated. administration is had in both countries. Unless such a blatant disregard by the domiciliary administrator. an order of this tenor: "After considering the motion of the ancillary administrator. to surrender to the ancillary administrator in the Philippines the stock certificates owned by her in a Philippine corporation. The facts will explain why. as a matter of fact. the stock certificates cannot be declared or considered as lost. he was substituted by the appellee Renato D. Benguet Consolidated. an administrator appointed in a foreign state has no authority in the [Philippines]. standing in her name in the books of [appellant] Benguet Consolidated. the same to be delivered by said corporation to either the incumbent ancillary administrator or to the Probate Division of this Court. and on February 11.. who died on March 27. The challenged order represents a response and expresses a policy. For the law is not so lacking in flexibility and resourcefulness as to preclude such a solution. Nor could it. voluntarily submitted itself to the jurisdiction of the lower court by entering its appearance through counsel on June 27. Salcedo. United States of America. with full and ample support from legal doctrines of weight and significance. Inc. Prospero Sanidad instituted ancillary administration proceedings in the Court of First Instance of Manila. Inc. persistently adhered to by the domiciliary administrator in New York.002 shares of stock standing in her name in the books of the Benguet Consolidated. Idonah Slade Perkins. Such a power is inherent in his duty to settle her estate and satisfy the claims of local creditors.

22 it was shown that in a guardianship proceedings then pending in a lower court. [even if] clumsy and at times offensive. It institutes the appropriate court action to enforce its right. That is what appellant will get. owing its existence through creation by a sovereign power. "a corporation is an artificial being created by operation of law. For through the appealed order. Veterans' Administrator final and conclusive when made on claims property submitted to him for resolution. we sustained the lower court. the issuance of a new certificate or certificates would await the "final decision by [a] court regarding the ownership [thereof]. there is likewise the express admission of appellant that as far as it is concerned. is the at times indispensable role that fictions as such played in the law. If ever an occasion did call for the employment of a legal fiction to put an end to the anomalous situation of a valid judicial order being disregarded with apparent impunity. the quality of truth may be lacking in such a conclusion arrived at. Inc. That is not decisive. following American law still of persuasive authority in our jurisdiction." 12 Some of them have persisted even to the present. It is understandable. resulting from an association of human beings granted legal personality by the state. It is always easy to conjure extreme and even oppressive possibilities.. We start with the undeniable premise that. What is more the view adopted by appellant Benguet Consolidated.. The motion was denied. Certainly we must at all pains see to it that it does not succeed. 5. It may be admitted of course that such alleged loss as found by the lower court did not correspond exactly with the facts. intangible. it seeks its reversal.. the just solution obtained. the source of its very existence."23 Reconsideration was denied. Gossamer possibilities of a future prejudice to appellant do not suffice to nullify the lawful exercise of judicial authority. conclusive on our courts. "that fictions which the law may rely upon in the pursuit of legitimate ends have played an important part in its development. Appellant Benguet Consolidated. the United States Veterans Administration filed a motion for the refund of a certain sum of money paid to the minor under guardianship. therefore. noting "the quasi contract. As a matter of fact. It does not settle the issue. It is an artificial person created by law for certain specific purposes. 20 There is thus a rejection of Gierke's genossenchaft theory. certainly not excluding the judiciary. a juristic person. In seeking a reconsideration of such order. It is logically inconceivable therefore that it will have rights and privileges of a higher priority than that of its creator. More than that. where a duty under the law as ascertained in an appropriate legal proceeding is cast upon it. Our attention has not been called to any law or treaty that would make the findings of the Veterans' Administrator. comes more often within the ken of the judiciary than the other two coordinate branches. it is not immune from judicial control in those instances. its birth being purely dependent on its will.. a corporation was conceived as an artificial person. Thus: "We are of the opinion that the appeal should be rejected. this is it. overrule the state. including the exclusive review by United States courts). Its obedience to a lawful court order certainly constitutes a valid defense. The fear of appellant of a contingent liability with which it could be saddled unless the appealed order be set aside for its inconsistency with one of its by-laws does not impress us. grounded in the soundest of legal doctrines and distinguished by its correspondence with what a sense of realism requires. but which at times hides itself from view till reflection and analysis have brought it to the light. powers and liberties is fixed by its charter.L. It is admitted that the foreign domiciliary administrator did not appeal from the order now in question. The deplorable consequences attendant on appellant prevailing attest to the necessity of negative response from us." It is bad enough as the Viloria decision made patent for our judiciary to accept as final and conclusive. It is obvious why the appeal cannot succeed. and those actions where the Veterans' Administrator seeks a remedy from our courts and submits to their jurisdiction by filing actions therein. where the Administrator is not acting as a judge but as a litigant. In Viloria v. Cardozo could state fictions "were devices to advance the ends of justice. In the first place. but they are not applicable to the present case. when so minded." Even if such were not the case. Thus far. the latter is to be followed. in actions where he is a party. In an opinion by Justice J.. What is thus most obvious is that this particular alleged error does not carry persuasion. It owes its existence to law. however.."18 The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in reality a person." 17As a matter of fact. the extent of whose existence. which thus far has shown the utmost persistence in refusing to yield obedience.. is fraught with implications at war with the basic postulates of corporate theory. the adopted child. make the decisions of the U. alleging that the lower court had previously granted its petition to consider the deceased father as not entitled to guerilla benefits according to a determination arrived at by its main office in the United States." 19 Dean Pound's terse summary. Reyes. There should be then on the part of the appellant a further refinement in the catholicity of its condemnation of such judicial technique. again to borrow from Frankfurter. the force and effectivity of their orders could be made to depend on the whim or caprice of alien entities. It is difficult to imagine of a situation more offensive to the dignity of the bench or the honor of the country.Bus Org 2 Cases 1st Set Prelim 14 Any other view would result in the compliance to a valid judicial order being made to depend on the uncontrolled discretion of the party or entity."15 Such reliance is misplaced. So extravagant a claim cannot possibly merit approval. Administrator of Veterans Affairs. determinations made by foreign governmental agencies. To be more blunt. that the Constitution overrides a statute. It would be most highly unorthodox. the court issuing it being powerless to remedy its flagrant disregard. What carries weight and conviction is the result arrived at. whenever called upon to do so. 3. a corporation once it comes into being. and the Administrator appealed. if a corporate by-law would be accorded such a high estate in the jural order that a court must not only take note of it but yield to its alleged controlling force. however. assuming that such apprehension of a possible court action against it could possibly materialize. to attest the empire of "as if" today. That." 16 It owes its life to the state. that eminent jurist. the judiciary must yield deference. Correlatively. the constructive trust. It is to be remembered however." 21 A corporation as known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the state according to law. "is the reality of the group as a social and legal entity. "except a judge or judges of the United States court. Moreover. .. There is a great difference between actions against the Administrator (which must be filed strictly in accordance with the conditions that are imposed by the Veterans' Act.. all of flourishing vitality. the Administrator relied on an American federal statute making his decisions "final and conclusive on all questions of law or fact" precluding any other American official to examine the matter anew. the fiction which is a working tool of thought. the statutory language employed owes much to Chief Justice Marshall. as Cardozo pointed out. As Berle so aptly stated: "Classically. it cannot legitimately refuse to yield obedience to acts of its state organs. Assuming that a contrariety exists between the above by-law and the command of a court decree. It is to argue that it may. even if unintended. it would stress that in the event of a contest or the pendency of an action regarding ownership of such certificate or certificates of stock allegedly lost. would seek to bolster the above contention by its invoking one of the provisions of its by-laws which would set forth the procedure to be followed in case of a lost. Yet that would be the effect. invisible. who is entitled to the possession of the stock certificates . stolen or destroyed. That is all then that this case presents. "it is immaterial . but the law treats it as though it were a person by process of fiction. The provisions of the U. it would be a legal absurdity to impart to such a provision conclusiveness and finality." 14 What cannot be disputed. independent of state recognition and concession. would deprive our tribunals of judicial discretion and render them mere subordinate instrumentalities of the Veterans' Administrator. nothing in the circumstances as they have developed gives substance to such a fear. puts the matter neatly.S. Inc. it is to contend that what any of its governmental organs may lawfully require could be ignored at will. appellant would not be heard to contend in all seriousness that a judicial decree could be treated as a mere scrap of paper. stolen or destroyed stock certificate. the imperative requirement of justice according to law is satisfied and national dignity and honor maintained. in effect. the basic theme of which to quote from Friedmann. to which. of the proposition to which appellant Benguet Consolidated seems to be firmly committed as shown by its failure to accept the validity of the order complained of. in this case domiciled abroad. and existing only in contemplation of law. there is no such occasion to apply such by-law. To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy which may be conceded but license which cannot be tolerated.B. 4."11 Speaking of the common law in its earlier period. when appropriately invoked and deemed applicable. Certainly. who in the Dartmouth College decision defined a corporation precisely as "an artificial being. invoked by the appellant. or by regarding it as an artificial person distinct and separate from its individual stockholders.. Code. One last point. It is infinitely worse if through the absence of any coercive power by our courts over juridical persons within our jurisdiction." 13 He likewise noted "a class of fictions of another order.S.

20. Petitioner filed a motion for reconsideration and as an alternative prayer pleaded that the Federation be held liable for the unpaid obligation. Henri Kahn issued a personal check in the amount of P50.The National sports associations shall have the following functions. For the tickets received. To purchase. is that neither the plaintiff nor the defendant Henri Kahn has adduced any evidence proving the corporate existence of the defendant Federation. grants similar functions to these sports associations: SEC. the Philippine Football Federation is not a party to this appeal and consequently. 8. J. and Duties of National Sports Association. . if it were a domestic corporation. xxx 13. THE HONORABLE COURT OF APPEALS ERRED IN NOT EXPRESSLY DECLARING IN ITS DECISION THAT THE PFF IS SOLELY LIABLE FOR THE OBLIGATION. petitioner International Express Travel and Tour Services." This has not been denied by defendant Henri Kahn in his Answer.33. the judgment appealed from is hereby REVERSED and SET ASIDE and another one is rendered dismissing the complaint against defendant Henri S.50. x x x[9] The dispositive portion of the trial court's decision reads: WHEREFORE. MADE A PARTIAL PAYMENT AND ASSURED PETITIONER OF FULLY SETTLING THE OBLIGATION. had already become final by virtue of the plaintiff's failure to appeal therefrom. Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased by the Federation on the ground that Henri Kahn allegedly guaranteed the said obligation. paid the amount of P31. plus the interest thereon at the legal rate computed from July 5. With the costs against defendant Henri Kahn. To perform such other acts as may be necessary for the proper accomplishment of their purposes and not inconsistent with this Act. however. To affiliate with international or regional sports' Associations after due consultation with the executive committee. petitioner. The complaint of the plaintiff against the Philippine Football Federation and the counterclaims of the defendant Henri Kahn are hereby dismissed.83. [1] The offer was accepted. He maintained that he did not guarantee payment but merely acted as an agent of the Federation which has a separate and distinct juridical personality. otherwise known as the Revised Charter of the Philippine Amateur Athletic Federation. through its president private respondent Henri Kahn. [10] Only Henri Kahn elevated the above decision to the Court of Appeals. and Presidential Decree No.524. and the plaintiff did not appeal from this decision. The total cost of the tickets amounted to P449. No. the appellate court recognized the existence of the Federation. The alternative prayer is therefore similarly DENIED. powers and duties of Associations. wherein the former offered its services as a travel agency to the latter. in the total amount of P176. sell. for the accomplishment of their purpose. 14. 3135 provides: SEC. The officers or agents are themselves personally liable. Inc. the appealed order of the Honorable Arsenio Santos. While not denying the allegation that the Federation owed the amount P207. benefits. the Federation failed to file its answer. the trial court rationalized: Defendant Henri Kahn would have been correct in his contentions had it been duly established that defendant Federation is a corporation. The resolution of the case at bar hinges on the determination of the existence of the Philippine Football Federation as a juridical person. COURT OF APPEALS. xxx A voluntary unincorporated association.000. Adopt a Constitution and By-Laws for their internal organization and government which shall be submitted to the Department and any amendment thereto shall take effect upon approval by the Department: Provided. HAVING NEGOTIATED WITH PETITIONER AND CONTRACTED THE OBLIGATION IN BEHALF OF THE PFF. and duties: 1.In paragraph 2 of its complaint. With costs against oppositor-appelant Benguet Consolidated. vs. judgment is rendered ordering defendant Henri Kahn to pay the plaintiff the principal sum of P207. or to ratify. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT HENRI KAHN PERSONALLY LIABLE FOR THE OBLIGATION OF THE UNINCORPORATED PFF. Section 8 of P. 2. or enforceable against it. the trial court rendered judgment and ruled in favor of the petitioner and declared Henri Kahn personally liable for the unpaid obligation of the Federation. Functions. Hence.[5] Thereafter. through the private respondent a demand letter requesting for the amount of P265. It rationalized that since petitioner failed to prove that Henri Kahn guaranteed the obligation of the Federation. 1964. the respondent court rendered a decision reversing the trial court.467. powers and duties: 1. But he did not. like defendant Federation has no power to enter into. the Court of Appeals recognized the juridical existence of the Federation. 3.524. lease or otherwise encumber property both real and personal. He could have easily denied specifically the assertion of the plaintiff that it is a mere sports association. In arriving at the said ruling.00. premises considered. [8] In due course. B.A. 4. 604 recognized the juridical existence of national sports associations. The trouble.603. dated May 18. is affirmed. both R. PHILIPPINE FOOTBALL FEDERATION.894. DECISION KAPUNAN. Inc. [4] On 27 December 1989. and other means for their purposes.A. hence. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAD DEALT WITH THE PHILIPPINE FOOTBALL FEDERATION (PFF) AS A CORPORATE ENTITY AND IN NOT HOLDING THAT PRIVATE RESPONDENT HENRI KAHN WAS THE ONE WHO REPRESENTED THE PFF AS HAVING A CORPORATE PERSONALITY.The National Sports' Association shall have the following functions.[12] Petitioner now seeks recourse to this Court and alleges that the respondent court committed the following assigned errors: [13] A. [7] On the other hand. This prompted petitioner to file a civil case before the Regional Trial Court of Manila. he should not be held liable for the same as said entity has a separate and distinct personality from its officers.000 as partial payment for the outstanding balance of the Federation. The contract entered into by its officers or agents on behalf of such association is not binding on. Being the President of defendant Federation.. To adopt a constitution and by-laws for their internal organization and government. Petitioner sued Henri Kahn in his personal capacity and as President of the Federation and impleaded the Federation as an alternative defendant. a contract. wrote a letter to the Philippine Football Federation (Federation). 1990. . was declared in default by the trial court.D.: On June 30 1989. respondents.In the assailed decision. the CA cited Republic Act 3135. 3135 and P. To raise funds by donations. petitioner wrote the Federation.[11] In finding for Henri Kahn. both in September of 1989. powers. it should be remembered that the trial court dismissed the complaint against the Philippine Football Federation. however. On 21 December 1994.. and another sum of P15. Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in Kuala Lumpur as well as various other trips to the People's Republic of China and Brisbane. where it stated that: As to the alternative prayer for the Modification of the Decision by expressly declaring in the dispositive portion thereof the Philippine Football Federation (PFF) as liable for the unpaid obligation.[2] On 4 October 1989. the decretal portion of said decision reads: WHEREFORE. no further payments were made despite repeated demands. Section 14 of R. Kahn. . its corporate existence is within the personal knowledge of defendant Henri Kahn.654. through its managing director. the Federation made two partial payments.00 for attorney's fees. INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES. HENRI KAHN. school. club. C. the Judge of the Court of First Instance. As correctly observed by the appellate court. 604. the date the complaint was filed.20.[3] On 30 October 1989. Functions. representing the unpaid balance for the plane tickets. no judgment may be pronounced by this Court against the PFF without violating the due process clause.D. let alone the fact that the judgment dismissing the complaint against it. the Federation. 604 as the laws from which said Federation derives its existence. until the principal obligation is fully liquidated. In support of this. Powers. INC. through the Project Gintong Alay. he averred that the petitioner has no cause of action against him either in his personal capacity or in his official capacity as president of the Federation. This may be gleaned from the powers and functions granted to these associations. The same was denied by the appellate court in its resolution of 8 February 1995. HON. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT PERSONALLY LIABLE.Bus Org 2 Cases 1st Set Prelim 15 WHEREFORE.[6] Henri Kahn filed his answer with counterclaim. plaintiff asserted that "Defendant Philippine Football Federation is a sports association xxx. That no team.

and international competitions. 3. vs. WHEREFORE. 2. J. (PALI). [15] The doctrine of corporation by estoppel is mistakenly applied by the respondent court to the petitioner.[14] As president of the Federation. in Civil Case No. who are grantees or primary franchise and/or a license or permit issued by the government to operate in the Philippines. 4. 3135 or P. and a filing fee of ten pesos. 7. effectively for his estate. club. We cannot subscribe to the position taken by the appellate court that even assuming that the Federation was defectively incorporated. the petitioner cannot deny the corporate existence of the Federation because it had contracted and dealt with the Federation in such a manner as to recognize and in effect admit its existence. The said executive committee shall be dissolved upon the organization of the executive committee herein provided: Provided. The above powers and functions granted to national sports associations clearly indicate that these entities may acquire a juridical personality. the reasons for such rejection shall be clearly stated in a written communication to the applicant. 604. This fact of recognition. 1996. 3135. On February 14. JR. recommended to the PSEs Board of Governors the approval of PALIs listing application. among others. The Puerto Azul Land.: The Securities and Exchange Commission is the government agency. To facilitate the trading of its shares among investors. In this Petition for Review of Certiorari. to be listed in its stock market.[16] In the case at bar. 11. 1996. Henri Kahn failed to substantiate. 3135 provides: SEC.. the State must give its consent either in the form of a special law or a general enabling act. Purchase. a copy of the constitution and by-laws and a list of the members of the proposed association. the petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract. The Executive Committee shall give the recognition applied for if it is satisfied that said association will promote the purposes of this Act and particularly section three thereof. the same does not prove that said Federation has indeed been recognized and accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and Sports Development. Inc. further. In attempting to prove the juridical existence of the Federation. Thus being said. Conduct local. it follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine Football Federation. dated June 27. Marcos.[1] with the immense task of enforcing the Revised Securities Act. xxx 13. PHILIPPINE STOCK EXCHANGE. SECURITIES AND EXCHANGE COMMISSION and PUERTO AZUL LAND. however. 90-53595 is hereby REINSTATED. Inc. school. petitioner. 5. which affirmed the decision of the Securities and Exchange Commission ordering the petitioner Philippine Stock Exchange. In January.A. PALI was issued a Permit to Sell its shares to the public by the Securities and Exchange Commission (SEC). No application shall be held pending for more than three months after the filing thereof without any action having been taken thereon by the executive committee. to allow the private respondent Puerto Azul Land. . We cannot agree with the view of the appellate court and the private respondent that the Philippine Football Federation came into existence upon the passage of these laws. partnerships or associations. and the Department of Youth and Sports Development under P. That the latter shall have exclusive technical control over the development and promotion of the particular sport for which they are organized.Application for accreditation or recognition as a national sports association for each individual sport in the Philippines shall be filed with the Department together with. benefits.A. The power to purchase. The application of the doctrine applies to a third party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective incorporation. Among its inumerable functions. while we agree with the appellate court that national sports associations may be accorded corporate status. Nowhere can it be found in R. Section 7 of P. The decision of the Regional Trial Court of Manila. we rule that the Philippine Football Federation is not a national sports association within the purview of the aforementioned laws and does not have corporate existence of its own. with regard to the Petitioner Philippine Stock Exchange.D. the Listing Committee of the PSE. for the promotion of their sport. the Philippine Amateur Athletic Federation under R. However. Unfortunately. National Sports Associations.D. upon a perusal of PALIs application.Bus Org 2 Cases 1st Set Prelim 16 organization. a copy of the Constitution and By-Laws and a list of the members of the proposed association. however. lease and encumber property are acts which may only be done by persons. Perform such other functions as may be provided by law. DECISION TORRES. 604 any provision creating the Philippine Football Federation. thus paving the way for the public offering of PALIs shares. 1995. and requested PALIs application to be deferred. Applications for recognition as a National Sports' Association shall be filed with the executive committee together with. [2] Just how far this regulatory authority extends. Should the application be rejected. It is a settled principal in corporation law that any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and becomes personally liable for contract entered into or for other acts performed as such agent. petitioner assails the resolution of the respondent Court of Appeals. The facts of the case are undisputed.. with supporting documents attached. lease. with juridical capacity. It is a basic postulate that before a corporation may acquire juridical personality. likewise appears to have been held and continue to be held in trust by one Rebecco Panlilio for then President Marcos and now. applications for recognition shall be passed upon by the duly elected members of the present executive committee of the Philippine Amateur Athletic Federation. organization. similarly provides: SEC. The Department shall supervise the national sports association: Provided. Affiliate with international or regional sports associations after due consultation with the Department. a domestic real estate corporation. among others. The Department shall give the recognition applied for if it is satisfied that the national sports association to be organized will promote the objectives of this Decree and has substantially complied with the rules and regulations of the Department: Provided. is the issue in the case at bar. under the direct general supervision of the Office of the President. whether natural or artificial. before it could act upon PALIs application. Clearly the above cited provisions require that before an entity may be considered as a national sports association. other than the Olympic and Asian Games. PALI sought to course the trading of its shares through the Philippine Stock Exchange. That the functioning executive committee is charged with the responsibility of seeing to it that the National Sports' Associations are formed and organized within six months from and after the passage of this Act. Henri Kahn attached to his motion for reconsideration before the trial court a copy of the constitution and by-laws of the Philippine Football Federation. Failure to specify the reasons for the rejection shall not affect the application which shall be considered as unacted upon: Provided. the resort is actually owned by Fantasia Filipina Resort. Inc. National Sports' Association. and are hereby restated in sum. which is among the stockholders of PALI. the Board of Governors of PSE received a letter from the heirs of Ferdinand E. THE HONORABLE COURT OF APPEALS. That the Department may withdraw accreditation or recognition for violation of this Decree and such rules and regulations formulated by it.A National Association shall be organized for each individual sports in the Philippines in the manner hereinafter provided to constitute the Philippine Amateur Athletic Federation. On February 8. INC. organization and recognition. both real and personal. . 604. 1996. for the accomplishment of their purpose. Inc. entities distinct . sell. Section 11 of R.. Henri Kahn is presumed to have known about the corporate existence or non-existence of the Federation. and one of the most important. (PSE). On the contrary. or entity shall be admitted as a voting member of an association unless 60 per cent of the athletes composing said team. or otherwise encumber property. claiming that the late President Marcos was the legal and beneficial owner of certain properties forming part of the Puerto Azul Beach Hotel and Resort Complex which PALI claims to be among its assets and that the Ternate Development Corporation. is the supervision of all corporations. and other means for their purpose subject to the approval of the Department. These laws merely recognized the existence of national sports associations and provided the manner by which these entities may acquire juridical personality. Accordingly. for which purpose it filed with the said stock exchange an application to list its shares. and all other duties assigned to it by pertinent laws. or entity are Filipino citizens. Inc. interport. had sought to offer its shares to the public in order to raise funds allegedly to develop its properties and pay its loans with several banking institutions.A. such entity must be recognized by the accrediting organization. INC. such does not automatically take place by the mere passage of these laws. and the Puerto Azul Country Club. Branch 35. Raise funds by donations. respondents. the decision appealed from is REVERSED and SET ASIDE. particularly. PALI was requested to comment upon the said letter. Inc. sell. PALIs answer stated that the properties forming part of Puerto Azul Beach Hotel and Resort Complex were not claimed by PALI as its assets. That until the executive committee herein provided shall have been formed.D.

then the law certainly granted to the public respondent the plenary authority over the petitioner. On February 25. the PSE filed with the Court of Appeals on May 17. 1996. OR AUTHORITY. Furthermore. the power to authorize the establishment of stock exchanges. On the same date. A property losses its public character the moment it is covered by a title. the PSE submitted a letter to the SEC containing its comments to the April 11. Lastly. PALI filed its Rejoinder to the said consolidated reply of PSE. Yet the import of PSEs decision in denying PALIs application is that it would be PALI. 1996. 1996) and the Solicitor General (December 26. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN FINDING THAT PSE ACTED IN AN ARBITRARY AND ABUSIVE MANNER IN DISAPPROVING PALIS LISTING APPLICATION. the determination of what standard to apply in allowing PALIs application for listing. In addition. whether the discretion method or the system of public disclosure adhered to by the SEC. the Ternate Development Corporation owns only 1. it being the government agency that exercises both supervisory and regulatory authority over all corporations. In connection with this. On the same date. In answer to the PCGGs motion for leave to file petition for intervention. the right to supervise and regulate the same. 1996. further impeding. 65561. PALI filed its Comment to the Petition for Review and subsequently. II. 1997. AND IV. bringing to the SECs attention the action taken by the PSE in the application of PALI for the listing of its shares with the PSE. The Marcoses responded that their claim is not confined to the facilities forming part of the Puerto Azul Hotel and Resort Complex. is hereby set aside. Inc. Yasay. PALI filed its Comment thereto on January 17. and Section 38(b) [5] of the Revised Securities Act. On may 16. and these do not include the power to reverse the decisions of the stock . enjoining the Marcoses from. SO ORDERED. Abuse is not remote if the public respondent is left without any system of control. On June 27. the PSE wrote Chairman Magtanggol Gunigundo of the Presidential Commission on Good Government (PCGG) requesting for comments on the letter of the PALI and the Marcoses. In its regular meeting held on March 27. 1996. the argument that the PALI properties belong to the Military/Naval Reservation does not inspire belief. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR ALLOWING FURTHER DISPOSITION OF PROPERTIES IN CUSTODIA LEGIS AND WHICH FORM PART OF NAVAL/MILITARY RESERVATION. The point is. Respondent PALI filed its Comment to the petition on October 17. Executive Judge of the RTC of Pasig City in Civil Case No. 1996. Villarama. 6(j) and 6(m) of the Presidential Decree No. 1997. On April 11. 1996. reversing the PSEs decision. 902-A. the SEC rendered its Order. the powers of the SEC over stock exchanges are more limited as compared to its authority over ordinary corporations. On April 24. processing and approval by the PSE of the initial public offering of PALI. likewise filed its Comment on December 26. or on April 11. obstructing. the powers of the SEC over stock exchanges under the Revised Securities Act are specifically enumerated. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY PROMULGATED AND ITS IMPLEMENTATION AND APPLICATION IN THIS CASE VIOLATES THE DUE PROCESS CLAUSE OF THE CONSTITUTION. PSE filed its Reply to Comment and Opposition to Motion to Dismiss. No. The TRO was issued by Judge Martin S. the petitioner is subject to public respondents jurisdiction. however denied by the Commission in its May 9. On June 4. In applying its clear and reasonable standards on the suitability for listing of shares. PSE submits that the Court of Appeals erred in ruling that the SEC had authority to order the PSE to list the shares of PALI in the stock exchange. should be addressed to the Securities Commission. without prejudice to its authority to require PALI to disclose such other material information it deems necessary for the protection of the investing public. This was followed up by the PCGGs Petition for Intervention on October 21. the court held that PALI complied with all the requirements for public listing. 1997. III. PSE has failed to justify why it acted differently on the application of PALI. PALI is hereby ordered to amend its registration statements filed with the Commission to incorporate the full disclosure of these material facts and information. the PCGG filed a Motion for Leave to file a Petition for Intervention. 1996 letter of PALI. The dispositive portion of the said order reads: WHEREFORE. 1996.D. 902-A. As a matter of fact. 1996). On March 4. premises considered. It appears that the claims and issues on the title to PALIs properties were even less serious than the claims against the assets of the other companies in that. this Petition by the PSE. PSE filed a motion for reconsideration of the said order on April 29. after it was granted an extension. would amount to serious consequences. representing the SEC and the Court of Appeals. issues and circumstances surrounding PALIs ownership over its assets that adversely affect the suitability of listing PALIs shares in the stock exchange. affirming the SECs ruling to the effect that: x x x the Philippine Stock Exchange has acted in an arbitrary and abusive manner in disapproving the application of PALI for listing of its shares in the face of the following considerations: 1. 902-A. premises considered. 1996. in the exercise of its supervisory and regulatory powers over stock exchanges under Section 6(j) of P. they can no longer be re-opened considering that the one year period has already passed. 1996. JURISDICTION. regulation and control. the decision of the Board of Governors of the Philippine Stock Exchange denying the listing of shares of Puerto Azul Land. This Order shall take effect immediately. A supplemental Comment was filed by PALI on October 25. 4. 1997. pending in Branch 69 thereof. the SEC wrote to the PSE. and in the light of recent developments on the adverse claim against the PALI properties. No. PSE should require PALI to submit full disclosure of material facts and information to protect the investing public.20% of PALI. the Commission finds no compelling reason to consider its order dated April 24. 902-A. the PSE was informed that the Marcoses received a Temporary Restraining Order on the same date. as compared to the IPOs of other companies similarly that were allowed listing in the Exchange. 1996. among others. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN ISSUING THE ASSAILED ORDERS WITHOUT POWER. the titles have long been settled by a final judgment. On February 20. 1996. In this regard. Perfecto R. whereas the PSE filed its own Comment on January 20. Hence. which was. filed an instant Petition for Review on Certiorari. and invoking the Commissioners authority and jurisdiction under Section 3 of the Revised Securities Act. Jr. No action has been filed in any court of competent jurisdiction seeking to nullify PALIs ownership over the disputed properties. and the PSE is hereby ordered to immediately cause the listing of the PALI shares in the Exchange. Dissatisfied with this ruling. Accepting the argument that the public respondent has the authority merely to supervise or regulate. The appellate court had ruled that the SEC had both jurisdiction and authority to look into the decision of the petitioner PSE. and the power of review necessarily comes within its authority. 1996. If the securities act vested the public respondent with jurisdiction and control over all corporations. 1996. On April 22. 3.D. the PSE. 1996 a Petition for Review (with application for Writ of Preliminary Injunction and Temporary Restraining Order). pursuant to Section 3[3] of the Revised Securities Act in relation to Section 6(j) and 6(m) [4] of P. citing the existence of serious claims. assailing the above mentioned orders of the SEC. the Court of Appeals promulgated its Resolution dismissing the PSEs Petition for Review. neither has the government instituted recovery proceedings against these properties... SEC HAS NO POWER TO ORDER THE LISTING AND SALE OF SHARES OF PALI WHOSE ASSETS ARE SEQUESTERED AND TO REVIEW AND SUBSTITUTE DECISIONS OF PSE ON LISTING APPLICATIONS. and for the purpose of ensuring fair administration of the exchange. the PSE filed its Consolidated Reply to the comments of respondent PALI (October 17. and requesting that the SEC. On August 15. taking exception to the rulings of the SEC and the Court of Appeals. attaching thereto the letter of PALI and directing the PSE to file its comments thereto within five days from its receipt and for its authorized representative to appear for an inquiry on the matter. 1996. The Office of the Solicitor General. PALI has clearly and admittedly complied with the Listing Rules and full disclosure requirements of the Exchange. the Board of Governors of the PSE reached its decision to reject PALIs application. thereby implying that they are also asserting legal and beneficial ownership of other properties titled under the name of PALI. a Comment and Motion to Dismiss. PALI wrote a letter to the SEC addressed to the then Acting Chairman.Bus Org 2 Cases 1st Set Prelim 17 from PALI. All in all. review the PSEs action on PALIs listing application and institute such measures as are just and proper and under the circumstances. and the power to alter and supplement rules of the exchange in the listing or delisting of securities. the assertions of the Marcoses that they are owners of the disputed properties were not substantiated enough to overcome the strength of a title to properties issued under the Torrens System as evidence of ownership thereof. 1996. 1996. considering that the petitioner is a stock exchange whose business is impressed with public interest. On June 10. submitting the following as errors of the SEC: I. 1996. Both as a corporation and as a stock exchange. in conjunction with Section 3. that must go to court to prove the legality of its ownership on these properties before its shares can be listed. Under presidential decree No. 1996 Order which states: WHEREFORE. and the final decree having been registered. the PALI properties are now titled. 2. not the Marcoses. delaying or interfering in any manner by or any means with the consideration.

it yields an immense influence upon the countrys economy. give the SEC the special mandate to be vigilant in the supervision of the affairs of stock exchanges so that the interests of the investing public may be fully safeguarded. Indeed. During the time for receiving objections to the application. brings to serious question the qualification of PALI to sell its shares to the public through the stock exchange. becomes subject to abuse. hence. This is in accord with the business judgment rule whereby the SEC and the courts are barred from intruding into business judgments of corporations. Due to this special nature of stock exchanges. By its economic power. from the TDC and MSDC to Rebecco Panlilio. allowed to transact under an assumed corporate name. may be traded or not in the stock exchange. Securities Act emphasized its avowed protection to acts detrimental to legitimate business. Questions of policy and of management are left to the honest decision of the officers and directors of a corporation. an order of sequestration has been issued covering the properties of PALI. such as the Revised Securities Act and to regulate the sale and disposition of securities in the country. Being a stock exchange. and right of supervision and control over all corporations under Sec. In reaching its decision to deny the application for listing of PALI. Thus. and as such. Moreover. are under sequestration by the PCGG. [12] Thus. who are the grantees of primary franchises and/or a license or permit issued by the government to operate in the Philippines The SECs regulatory authority over private corporations encompasses a wide margin of areas. after all. A reading of Republic of the Philippines vs. and so long as it acts in good faith. 902-A. The PSEs relevance to the continued operation and filtration of the securities transactions in the country gives it a distinct color of importance such that government intervention in its affairs becomes justified. a corporation authorized by its corporate franchise to engage in its proposed and duly approved business. As it is. often referred to as the truth in securities Act. was designed not only to provide investors with adequate information upon which to base their decisions to buy and sell securities. As a matter of fact. including shares of stock of a corporation. the PCGG confirmed this claim. thus: The Securities Act. and the resultant authority to reverse the PSEs decision in matters of application for listing in the market. It categorically declares that the assets of these corporations were sequestered by the PCGG on March 10.[7] It is. which in the general scheme. even if an issuer has complied with the PSE listing rules and requirements. The role of the SEC in our national economy cannot be minimized. Authorities are in abundance even in the United States. The SECs power to look into the subject ruling of the PSE. PSE retains the discretion to accept or reject the issuers listing application if the PSE determines that the listing shall not serve the interests of the investing public. when a title covers a forest reserve or a government reservation. the countrys lawmakers has seen it wise to give special treatment to the administration and regulation of stock exchanges. when the same are made in good faith. is enough authority to uphold the SECs challenged control authority over the petitioner PSE even as it provides that the Commission shall have absolute jurisdiction. unless accompanied by control. In fact. absent a showing a bad faith on the part of the PSE.Bus Org 2 Cases 1st Set Prelim 18 exchange. One of the PSEs main concerns. Presidential Decree No. to hold property in its own name. Kalaw. To repeat. The board is the business manager of the corporation. A corporation is but an association of individuals. and other pertinent laws. No. [11] As to its corporate and management decisions. The purpose of the Revised Securities Act.[14] It is to be observed that the U. The legislature. may be implied from or be considered as necessary or incidental to the carrying out of the SECs express power to insure fair dealing in securities traded upon a stock exchange or to ensure the fair administration of such exchange. from which the countrys security policies are patterned. 240 SCRA 376.[6] These provisions. for a contrary ruling was not to the best interest of the general public. intimidated that the Court of Appeals sanction that PALIs ownership over its properties can no longer be questioned. This ruling of the Court is the law of the case between the Republic and the TDC and MSDC. partaking of the nature of fraud. in only a short span of time. This authority springs from the fact that a corporation owes its existence to the concession of its corporate franchise from the state. to which PALI had previously agreed to comply. The PSE is. and the subject of forfeiture proceedings in the Sandiganbayan. its orders are not reviewable by the courts. the monopoly. and control over all corporations. 105205. Moreover. considering public interest. the PSE enjoys a monopoly of securities transactions. The SECs action was affirmed by the Court of Appeals. [10] This is not to say. and suit for reconveyance to the state has been filed in the Sandiganbayan Court. and the imposition of worthless ventures. despite the sequestration order. In time. likewise. to enter (or not to enter) into contracts with third persons. which were derived from the Ternate Development Corporation (TDC) and the Monte del Sol Development Corporation (MSDC). In fact. and their activities pursued for the promotion of economic development. in that although it is clothed with the marking of a corporate entity. observed that the principal function of the SEC is the supervision and control over corporations. through the Revised Securities Act. read together with the general grant of jurisdiction.R. assails the SECs and the Court of Appeals reliance on the alleged policy of full disclosure to uphold the listing of the PALIs shares with the PSE. 902-A. standing alone. It is fundamental that forest lands or military reservations are non-alienable. the PSE retains the discretion to accept or reject applications for listing. the PSE considered important facts. Sandiganbayan. and with a distinct legal personality. and to perform all other legal acts within its allocated express or implied powers. the petitioner performs a function that is vital to the national economy. It means a breach of a known duty through some motive or interest of ill will. however. after all. therefore. that the PSEs management prerogatives are under the absolute control of the SEC. supervision. Marcos and his family who claim the properties of the private respondent to be part of the Marcos estate. G. but it is clear that such circumstances give rise to serious doubt as to the integrity of PALI as a stock issuer. Petitioner can either allow or deny the entry to the market of securities. It is. How the properties were effectively transferred. 3 of P. the SEC may exercise such power only if the PSEs judgment is attended by bad faith. as the only operational stock exchange in the country today. In board of Liquidators vs. The petitioner was in the right when it refused application of PALI. is to give adequate and effective protection to the investing public against fraudulent representations. the state will generally not interfere with the same. the petitioner certainly can dictate which and how many users are allowed to sell securities thru the facilities of a stock exchange. the PSE heard from the representative of the late President Ferdinand E. but also to protect legitimate business seeking to obtain .D. and to the private respondent PALI. to the effect of giving the Securities Commission less control over stock exchanges.S. and the courts are without authority to substitute their judgment for the judgment of the board of directors. likewise. if not necessary. which in turn are given more lee-way in making the decision whether or not to allow corporations to offer their stock to the public through the stock exchange. partnerships and associations with the end in view that investment in these entities may be encouraged and protected. as the business is affected with public interest. 1986 and April 4. then it should be subject to government regulation. Section 3 of Presidential Decree 902-A. it has often been said that the economy moves on the basis of the rise and fall of stocks being traded. Under the listing rule of the PSE. it was in the alleged exercise of this authority that the SEC reversed the decision of the PSE to deny the application for listing in the stock exchange of the private respondent PALI. 1988. its functions as the primary channel through which the vessels of capital trade ply. It is undeniable that the petitioner PSE is not an ordinary corporation. It imports a dishonest purpose or some moral obliquity and conscious doing of wrong. therefore. such title is void. in the absence of a clear mandate for the effectivity of such policy. That a certificate of title issued under the Torrens System is a conclusive evidence of ownership is not an absolute rule and admits certain exceptions. touching nearly all of a corporations concerns. PALIs documents supporting its application contained misrepresentations and misleading statements. [9] As the appellate court explains: Paramount policy also supports the authority of the public respondent to review petitioners denial of the listing. since certificates of title have been issued to PALI and more than one year has since lapsed. PSE argues that the SEC has no jurisdiction over sequestered corporations. it waives no constitutional immunities and perquisites appropriate to such body. is still the generation of profit for its stockholders. are not yet explained to the Court. the PSE has all the rights pertaining to corporations. including the right to sue and be sued. The matter of sequestration of PALIs properties and the fact that the same form part of military/naval/forest reservations were not reflected in PALIs application. [8] Thus. In organizing itself as a collective body. likewise. if allowed to interpret its own rules liberally as it may please. the case records reveal the truth that PALI did not comply with the listing rules and disclosure requirements. PSE. Thus. notwithstanding the regulatory power of the SEC over the PSE. and concealed material information.[13] it was held that bad faith does not simply connote bad judgment or negligence. would reveal that the properties of PALI. as such. partnerships or associations. is erroneous and ignores well settled jurisprudence on land titles. nor with corporations whose properties are under sequestration. or false promises. has entrusted to it the serious responsibility of enforcing all laws affecting corporations and other forms of associations not otherwise vested in some other government office. We affirm that the SEC is the entity with the primary say as to whether or not securities. This is in line with the SECs mission to ensure proper compliance with the laws. The said rule precludes the reversal of the decision of the PSE to deny PALIs listing application.

for the purpose of determining whether PSE acted correctly in refusing the application of PALI. INC. nonetheless.. to Rebecco Panlilio and later on to PALI. and PHILIPPINE AMERICAN CAN DRUG COMPANY. on the other hand. 1996. the Commission may refuse to permit a registration statement to become effective if it appears on its face to be incomplete or inaccurate in any material respect. or (5) The issuer or registrant has not shown to the satisfaction of the Commission that the sale of its security would not work to the prejudice to the public interest or as a fraud upon the purchaser or investors. The absolute reliance on the full disclosure method in the registration of securities is. the Court hereby GRANTS the Petition for Review on Certiorari. In sum. the Court finds that the private respondent PALI. unless registered in accordance with the rules and regulations that shall be promulgated in the public interest and for the protection of investors by the Commission. gives the SEC the power to promulgate such rules and regulations as it may consider appropriate in the public interest for the enforcement of the said laws. and in performing its other functions under pertinent laws. which operating indirectly through investment services and expert investors. to exercise its judgment in the manner it deems appropriate for its business identity. has supervision and control over all corporations and over the securities market as a whole. Thus. thereby lending support to the conclusion that the PSE acted correctly in refusing the listing of PALI in its stock exchange. or should be relied upon in approving the registration and sale of securities in the SEC is not for the Court to determine. transferred or in any other manner conveyed to the public. or (2) The issuer or registrant . and public welfare is safeguarded.[15] While the employment of this policy is recognized and sanctioned by laws. petitioner. Its action in refusing to allow the listing of PALI in the stock exchange is justified by the law and by the circumstances attendant to this case. listed or applying for listing. as regulatory agency. in the exercise of its vested authority. endorsed. besides the claim of the Marcoses that such properties belong to Marcos estate. all material information about themselves and the securities they sell. provides that the SEC. member of the board of directors. the PSE has established its name and goodwill. INC. p. The decisions of the Court of Appeals and the Securities and Exchage Commission dated July 27. ACCORDINGLY. therefore. director or principal stockholder. 1 and 5) has failed to support the propriety of the issue of its shares with unfailing clarity. the SEC has manifested that it has adopted the policy of full material disclosure where all companies. (2) placing the market during the early stages of the offering of a security a body of information. shall be issued. (4) An officer. (3) The enterprise or the business of the issuer is not shown to be sound or to be based on sound business principles. on at least two points (nos. any imputation of arbitrariness and whimsical animation on its part. the true ownership of the properties of PALI need not be determined as an absolute fact.R. As has been pointed out. (ii) has violated or has not complied with the provisions of this Act. in the public interest and for the protection of investors. but is left to the sound discretion of the Securities and Exchange Commission. unless exempt by law. and were held only in trust by Rebecco Panlilio. American Drug Company.Bus Org 2 Cases 1st Set Prelim 19 capital through honest presentation against competition form crooked promoters and to prevent fraud in the sale of securities. (iv) had been engaged or is engaged or is about to engaged in fraudulent transactions. therefore. particularly the Revised Securities Act. (Emphasis Ours) A reading of the foregoing grounds reveals the intention of the lawmakers to make the registration and issuance of securities dependent. JARENCIO.(1) The registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue statement of a material fact or omits to state a material facts required to be stated therein or necessary to make the statements therein not misleading. the certificates of title over the subject properties now held by PALI may be disregarded. or principal stockholder of the issuer is disqualified to such officer. Inc. and therefore beyond private dominion. Section 9 of the Revised Securities Act sets forth the possible Grounds for the Rejection of the registration of a security: . At this juncture. and it has the right to protect such goodwill by maintaining a reasonable standard of propriety in the entities who choose to transact through its facilities. impose before the security can be registered. and as such. provides that no security. (Idem). This does not discount the effectivity of whatever method the SEC. respondents. the provisions of which cannot be amended or supplanted my mere administrative issuance. untenable. or (vi) does not conduct its business in accordance with law or is engaged in a business that is illegal or contrary or government rules and regulations. It was reasonable for PSE. respectively. The second paragraph of Section 4 of the said law. and should remain so. It is also alleged by the petitioner that these properties belong to naval and forest reserves. At it is. U. In mandating the SEC to administer the Revised Securities Act. L-41337 June 30. the SEC must recognize and implement the mandate of the law. will tend to produce a more accurate appraisal of a security. discounting. and this puts to question the qualification of PALIs public offering. Presidential Decree No. 14). G. vs. on the other hand. and of the issuer. are required to divulge truthfully and accurately. it is proper to observe that the concept of government absolutism in a thing of the past. Pursuant to this regulatory authority. to be determined by the Securities and Exchange Commission. chooses in setting the standard for public offerings of corporations wishing to do so.. the Revised Securities Act sets substantial and procedural standards which a proposed issuer of securities must satisfy. the Revised Securities Act. De Santos. (Tenth Annual Report. GRAPHIC PUBLISHING. and under pain of administrative.The Commission may reject a registration statement and refuse to issue a permit to sell the securities included in such registration statement if it finds that . Securities and Exchange Commission. a fact is deemed material if it tends to induce or otherwise effect the sale or purchase of its securities. Also. and empower the Commission to issue a stop order suspending the effectiveness of any registration statement which is found to include any untrue statement of a material fact or to omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. x x x. to be effective. as long as no rights are trampled upon. under Section 3 thereof. This measure was meant to protect the interest of the investing public against fraudulent and worthless securities. as the primary market for securities. If any of these claims is established to be true. in view of the foregoing considerations. THE HONORABLE HILARION U. affirming the decision of the Philippine Stock Exchange to deny the application for listing of the private respondent Puerto Azul Land. (v) is in any was dishonest of is not of good repute. The defense of indefeasibility of a Torrens Title does not extend to a transferee who takes the certificate of title with notice of a flaw. or any order of the Commission. or the rules promulgated pursuant thereto. the Court finds that the PSE has acted with justified circumspection.. 1988 TAN BOON BEE & CO. to a certain extent. since this is a matter addressed to the sound discretion of the PSE. [16] Pertinently. are hereby REVERSED and SET ASIDE. However. is given ample authority in determining appropriate policies. and a new Judgment is hereby ENTERED. What is material is that the uncertainty of the properties ownership and alienability exists. sold. In any case. whose business judgments are respected in the absence of bad faith. The observation that the title of PALI over its properties is absolute and can no longer be assailed is of no moment. The inscription in the registry. 902-A. In resum. therefore. (iii) has failed to comply with any of the applicable requirements and conditions that the Commission may. and the SEC is mandated by law to safeguard these interests. a corporate entity. as it is an established rule that a registration of a certificate of title does not confer ownership over the properties described therein to the person named as owner. In this connection. on the merits of the securities themselves. the effects of such an act are chiefly (1) prevention of excesses and fraudulent transactions. Araneta Mendoza & Papa Law Office for respondent Phil. the Court finds that the SEC had acted arbitrarily in arrogating unto itself the discretion of approving the application for listing in the PSE of the private respondent PALI.S. there is the claim that the properties were owned by the TDC and MSDC and were transferred in violation of sequestration orders. In connection with this. for the protection of the investing public.(i) is not solvent or not is sound financial condition. 1996 and April 24. following the policies and rules therefore provided. merely by requirement of that details be revealed. criminal and civil sanctions. Balgos & Perez Law Office for petitioner. must be made in good faith. . The question as to what policy is.. No. PRESIDING JUDGE OF BRANCH XVIII of the Court of First Instance of Manila.

this is true when the corporation is merely an adjunct. constitution. 1975. 109). the fiction of separate and distinct corporation entities should be disregarded (Commissioner of Internal Revenue vs.365. ruled in favor of PADCO. the Second Division of this Court resolved to require the respondents to comment. 1974. for failure of GRAPHIC to pay any installment. Araneta. or the veil of corporate fiction pierced.. herein private respondent Philippine American Drug Company. 1974. if not. vs. sold the property to the petitioner. 45). NR 78048.. However. pp. SSS. are also the same controlling stockholders of the Graphic Publishing. 1975 (Ibid. 275). and that PADCO holds 50% share of stock of GRAPHIC. as "intervention is more likely to inject confusion into the issues between the parties in the case . Hence. p. Pursuant to the said issued alias writ of execution. as well as the levy on the said property. In a Resolution dated September 12.. but in an independent civil proceeding.: This is a petition for certiorari. a promissory note was executed to cover the balance of P30. On September 6.. 1975 Order of the then Court of First Instance of Manila. Inc. The decretal portion of the said order. Inc.. . or where necessary to achieve equity or when necessary for the protection of creditors (Sulo ng Bayan. and ordering the sheriff to return the said machinery to its owner. or to work an injustice. CIR. 107 Phil. PADCO filed with the Court of First Instance of Manila. found in the premises of GRAPHIC. like the herein petitioner. advised the sheriff to cease and desist from carrying out the scheduled auction sale on July 26. the sheriff proceeded with the scheduled auction sale. presided over by herein respondent judge. 57 SCRA 408 (19741)... . cannot later on raise the issue of the court's lack of jurisdiction (Philippine National Bank vs. petitioner's evidence established that PADCO was never engaged in the printing business. Intermediate Appellate Court.. however.Bus Org 2 Cases 1st Set Prelim 20 PARAS. RULE 39 OF THE RULES OF COURT WAS NOT COMPLIED WITH. Petitioner. Petitioner likewise stressed that PADCO's own evidence shows that the printing machine in question had been in the premises of GRAPHIC since . 13 SCRA 290 [1965]). vs. reads: WHEREFORE. NOT ONLY BECAUSE SECTION 17. p. This contention cannot be sustained because the two corporations were duly incorporated under the Corporation Law and each of them has a juridical personality distinct and separate from the other and the properties of one cannot be levied upon to satisfy the obligation of the other... to annul and set aside the March 26. PADCO filed an "Affidavit of Third Party Claim" with the Office of the City Sheriff ( Ibid. 1972.. 91857 for a Sum of Money (Rollo. but in an Order dated August 13. the case was submitted for decision in the Resolution of November 28. Branch XXIII. More than five (5) hours after the auction sale and the issuance of the certificate of sale. and issued a Certificate of Sale in favor of petitioner (Rollo. and Emilio Cano Enterprises. Inc. in an Order dated March 26.. the trial court ordered GRAPHIC to pay the petitioner the sum of P30. However. As a matter of fact. 72 SCRA 347 [1976]). Respondent judge. pp. and on December 21..99. Notwithstanding the said letter. pp. sold on credit to herein private respondent Graphic Publishing. but more importantly because PADCO could not have litigated its claim in the same case. with which the third-party claimant has nothing to do and thereby retard instead of facilitate the prompt dispatch of the controversy which is the underlying objective of the rules of pleading and practice. 1974 (Ibid. Respondent judge declared GRAPHIC in default for failure to file its answer within the reglementary period and plaintiff (petitioner herein) was allowed to present its evidence ex parte. Court of Tax Appeals. Pamatian et al. plus the costs of suit. Agana (63 SCRA 355. 1974.. The Sheriff is ordered to return the said machinery to its owner.99 with 12% interest from March 30. Thereafter. p. Section 17 of Rule 39 of the Revised Rules of Court. the Philippine American Drug Co. the levy upon the said machinery which was found in the premises occupied by the Graphic Publishing. said printing machine was scheduled for auction sale on July 26. the same was denied for lack of merit (Ibid. vs. 1973 until fully paid. an alias writ of execution was issued on July 2. BUT ALSO BECAUSE THE CLAIMS OF PADCO WHICH WAS NOT A PARTY TO THE CASE COULD NOT BE VENTILATED IN THE CASE BEFORE HIM BUT IN INDEPENDENT PROCEEDING. bars it from questioning now the court's jurisdiction. a writ of execution was issued by respondent judge. In the case of Bayer Philippines. Ferrer. vs. is invested by law with a personality separate and distinct from that of the persons composing it as well as from any other legal entity to which it may be related (Yutivo & Sons Hardware Company vs. (GRAPHIC for short) paper products amounting to P55. business conduit or alter ego of another corporation. acted without jurisdiction. Hon. 1975. petitioner filed with the then Court of First Instance of Manila. Petitioner contends that respondent judge gravely exceeded. Inc.1974.. . and. In the said promissory note. 1974 at 10:00 o'clock at 14th St. and should a third party appeal. 1 SCRA 160 [1961].. but in the separate action instituted by the claimants. Inc. IF NOT ACTED WITHOUT JURISDICTION WHEN HE ACTED UPON THE MOTION OF PADCO. 366-367 [1975]). 5668). in cases where it is used as a cloak or cover for fraud or illegality. 11 SCRA 714 [1964]). raised two (2) issues. 36-38). 47).848. 1974. it was stipulated that the amount will be paid on monthly installments and that failure to pay any installment would make the amount immediately demandable with an interest of 12% per annum. Philippine American Drug Company (PADCO for short) had informed the sheriff that the printing machine is its property and not that of GRAPHIC. this separate and distinct personality is merely a fiction created by law for convenience and to promote justice (Laguna Transportation Company vs. to support its stand. xxx xxx xxx . In such case.to claim the property levied upon by the sheriff. therefore. and accordingly. et al. Branch XXIII. p. J. with prayer for preliminary injunction. and to issue a temporary restraining order (Rollo. 48). it being the highest bidder. Civil Case No. As to the second issue (the non-piercing of PADCO's corporate Identity) the decision of respondent judge is as follows: The plaintiff.365. pp.73. this separate personality of the corporation may be disregarded. Otherwise stated.. 111 ). the doctrine that a corporation is a legal entity distinct and separate from the members and stockholders who compose it is recognized and respected in all cases which are within reason and the law (Villa Rey Transit. the court issuing a writ of execution is supposed to enforce the authority only over properties of the judgment debtor. to wit: I THE RESPONDENT JUDGE GRAVELY EXCEEDED. pp. Norton & Harrison. Accordingly. Inc. II THE RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION WHEN HE REFUSED TO PIERCE THE PADCO'S (IDENTITY) AND DESPITE THE ABUNDANCE OF EVIDENCE CLEARLY SHOWING THAT PADCO WAS CONVENIENTLY SHIELDING UNDER THE THEORY OF CORPORATE PETITION. herein private respondent. Manila (lbid. After submission of the parties' Memoranda. 25 SCRA 845 [1968]). Inc. contends that the controlling stockholders of the Philippine American Drug Co. which was opposed by the petitioner (Ibid. the executing sheriff levied upon one (1) unit printing machine Identified as "Original Heidelberg Cylinder Press" Type H 222. the fact that petitioner questioned the jurisdiction of the court during the initial hearing of the case but nevertheless actively participated in the trial. 143 SCRA [1986])." Besides. GRAPHIC made partial payment by check to petitioner in the total amount of P24. the rights of third-party claimants over certain properties levied upon by the sheriff to satisfy the judgment should not be decided inthe action where the third-party claims have been presented. It is true that a corporation.74. 39-40). Port Area. Petitioner filed a Motion For Reconsideration (Ibid. Rule 39 of the Rules of Court was not complied with. the sale of the 'Heidelberg cylinder press executed by the Sheriff in favor of the plaintiff as well as the levy on the said property is hereby set aside and declared to be without any force and effect. Inc. 1973. intervention may not be permitted after trial has been concluded and a final judgment rendered in the case. but in a letter dated July 19. This contention is well-taken. on July 30.. doing business under the name and style of Anchor Supply Co. the instant petition. that the board of directors and the officers of GRAPHIC and PADCO were the same.. In a Decision dated January 18. 1972. This rule is dictated by reasons of convenience. Inc. pp. but the aforestated writ having expired without the sheriff finding any property of GRAPHIC. pp. 833 [1960]). In the instant case. vs. this Court categorically ruled as follows: In other words. In a Notice of Sale of Execution of Personal Property dated July 29. 7093) and an Addendum to Motion for Reconsideration (Ibid. Likewise. Branch XXIII. p. should be upheld. On motion of petitioner. 49-55). This legal preposition is elementary and fundamental. in nullifying the sheriffs sale not only because Section 17. Atlanta St. 64-69). Cor.. 1975 (Ibid. On December 20. 94-08). a Motion to Nullify Sale on Execution (With Injunction) (Ibid. p. Petitioner herein. Corporations are composed of natural persons and the legal fiction of a separate corporate personality is not a shield for the commission of injustice and inequity (Chenplex Philippines. upon coming into being. setting aside the sale of "Heidelberg" cylinder press executed by the sheriff in favor of the herein petitioner.214. the procedure laid down by the Rules is that such claim should be the subject of a separate and independent action. A party who voluntarily participated in the trial.

12 In the meantime.. No. as President and Chairman of Akron.000. Pacifico Dollario and petitioner with the then Court of First Instance of Rizal. Coprada informed private respondent anew that he had returned ten (10) trucks to Bagbag and that a resolution was passed by the board of directors confirming the deed of assignment to private respondent of P475. Jemina Coprada. 1978 which is P25. In the latter part of December. Feliciano Coprada. will merge them into one. long before PADCO even acquired its alleged title on July 11. 1965. 1984 seeking the reversal thereof and the reinstatement of its earlier decision dated June 30. Respondent PADCO argues that if respondent judge erred in not piercing the veil of its corporate fiction.000. 310 [1975]). Lucia Lacaste. Litigations should.. 83 SCRA 200. Dumlao & Sta. 1983 in AC-G. 1978. 216 [1978]). Akron paid rentals of P500. On June 17. 5 Feliciano Coprada.000 from the proceeds of a loan obtained by Akron from the State Investment House. 1978 demanding the return of the 13 trucks and the payment of P25. Coprada wrote private respondent begging for a grace period of until the end of the month to pay the balance of the purchase price. ordering them jointly and severally to pay.00 a month from August 1978 until the premises is cleared of the said trucks. Vicente Martinez. 1 983 setting aside the said decision as far as petitioner is concemed. a — the purchase price of the trucks in the amount of P525. Coprada wrote private respondent on August 8.000. 16 In due time. upon a motion for reconsideration filed by private respondent dent. JR. represented by APIFANIO B. Ernesto Bañares. Aniano Exhibit "T") and the remaining P25.B.000. the corporate fiction or the notion of legal entity may be disregarded when it "is used to defeat public convenience.Bus Org 2 Cases 1st Set Prelim 21 May. The sale was authorized by a board resolution made in a meeting held on March 15. then the balance shall constitute as a chattel mortgage lien covering said cargo trucks and the parties may allow an extension of 30 days and thereafter private respondent may ask for a revocation of the contract and the reconveyance of all said trucks. b — rentals of Bagbag property at P1. The P50. 6 In a side agreement of the same date. 343 [1973]). Orbos. however. 1977 the board of directors of Akron Customs Brokerage Corporation (hereinafter referred to as Akron). In the case of Rubio vs. the March 26." The corporate fiction may also be disregarded when it is the "mere alter ego or business conduit of a person. L-67626 April 18. Coprada reiterated that he was applying for a loan from the DBP from the proceeds of which payment of the obligation shall be made. respondent judge should have pierced PADCO's veil of corporate Identity. is ANNULLED and SET ASIDE. that he will update the rentals within the week. 9 In his reply to the said letter. Punzalan. It also appears that Akron amended its articles of incorporation thereby changing its name to Akron Transport International.00 and that the balance of P475.— did raise in their respective answers the issue as to the propriety of the instant petition for certiorari on the ground that the remedy should have been appeal within the reglementary period. the down payment of P50. 3 The herein petition for review of a. Jr. It is stated in the promissory note that the balance shall be paid from the proceeds of a loan obtained from the Development Bank of the Philippines (DBP) within sixty (60) days.000. Only petitioner answered the complaint denying any participation in the transaction and alleging that Akron has a distinct corporate personality. 1978 asking for another grace period of up to August 31. He was. PREMISES CONSIDERED. 1978 (the end of the 90day period to pay the balance) to May 31. through counsel. legal rate (of interest) from the filing of the complaint until the full amount is paid. 1966 from Capitol Publishing. only serves to show that PADCO's claim of ownership over the printing machine is not only farce and sham but also unbelievable. respondents. and that ten (10) trucks have been returned to Bagbag. 1 However. THE HON. After an ex parte reception of the evidence of the private respondent. 1978.: A corporation is an entity separate and distinct from its stockholders.1984. suffice it to say that the same is a mere technicality. Feliciano Coprada. c — attorneys fees of P10. 1966. The parties also agreed that until said balance is fully paid. 11 Upon inquiry. composed of petitioner Jose Remo. MARCHA TRANSPORT COMPANY." 2 There are many occasions when this Court pierced the corporate veil because of its use to protect fraud and to justify wrong.00 shall be from August 1. private respondent filed a compliant for the recovery of P525.000. While not in fact and in reality a person. No. 14 Again. the dispositive part of which reads as follows: Finding the evidence sufficient to prove the case of the plaintiff. free from the unacceptable plea of technicalities (Heirs of Ceferino Morales vs.1975 Order of the then Court of First Instance of Manila. 1978. 1978. 10 Meanwhile. the parties agreed on a downpayment in the amount of P50. then he will return the 13 units should private respondent elect to get back the same. Bais of the Perpetual Loans and Savings Bank at Baclaran.00 shall accrue as rentals of the 13 trucks. Wilfredo Layug. stating as well that he is expecting the approval of his loan application from a certain financing company.000.00 back rentals covering the period from June 1 to August 1. 1978 for and in consideration of P525. as much as possible.. 1989 JOSE REMO. or in case of two corporations. 15 On December 9. and Dario Punzalan with Lucia Lacaste as Secretary. private respondent found that no loan application was ever filed by Akron with DBP. MARCHA. the IAC. this Court ruled: While We recognize the fact that these movants — the MBTC. 68496-R 4 calls for the application of the foregoing principles. and that if Akron fails to pay the balance within the period of 60 days. Mariano (52 SCRA 338. which assumed the liability of Akron to private respondent. Private respondent sent Coprada a letter of demand dated May 10. adopted a resolution authorizing the purchase of thirteen (13) trucks for use in its business to be paid out of a loan the corporation may secure from any lending institution.000. Arcadio de la Cruz..00. Inc. 1980. the Phillips spouses. petitioner sold all his shares in Akron to Coprada. set aside the decision . purchased thirteen trucks from private respondent on January 25. 1966. wrote Akron on August 1. and the Temporary Restraining Order issued is hereby made permanent.00 shall be paid within sixty (60) days from the date of the execution of the agreement. justify wrong. judgment is hereby rendered in favor of the plaintiff and against the defendants. Thereafter.. vs. private respondent tried to collect from Coprada but the latter promised to pay only upon the release of the DBP loan. Jemina Coprada. two of the trucks were sold under a pacto de retro sale to a certain Mr. a decision was rendered on October 28. in a resolution dated February 8. J. Every party-litigant must be afforded the amplest opportunity for the proper and just determination of his cause. petitioner.00 with . In the meanwhile.00 a day pursuant to a subsequent agreement." 17 A motion for new trial filed by petitioner was denied so he appealed to the then Intermediate Appellate Court (IAC) wherein in due course a decision was rendered on June 30. G.. 13 Private respondent. 1978 to pay the balance. the error is merely an error of judgment and not an error of jurisdiction correctable by appeal and not by certiorari. GANCAYCO. resolution of the Intermediate Appellate Court dated February 8. protect fraud.R. Novaliches.000. Ana for petitioner. Inc. Dario D. and d — costs of suit. Court of Appeals.000. 8 After the lapse of 90 days. That the said machine was allegedly leased by PADCO to GRAPHIC on January 24. INC. the Phillips corporation and the Hacienda Benito. no more rental payments were made. from April 27. and in case he fails. the law treats a corporation as though it were a person by process of fiction or by regarding it as an artificial person distinct and separate from its individual stockholders.R. 1978.00 as evidenced by a deed of absolute sale. INTERMEDIATE APPELLATE COURT and E. even before PADCO purchased it from Capital Publishing on July 11. 1978. Considering the aforestated principles and the circumstances established in this case. or defend crime" in which instances "the law will regard the corporation as an association of persons. We considered such issue as a mere technicality which would have accomplished nothing substantial except to deny to the petitioner the right to litigate the matters he raised .. Francisco Clave. To this argument of respondent.00 given as down payment shall pertain as rentals of the trucks from June 1 to August 1. 67 SCRA 304.00 or the return of the 13 trucks with damages against Akron and its officers and directors. 1978 until the trucks are removed totally from the place. declared in default for his failure to attend the pre-trial. Cabusora. Court of Appeals. 7 The obligation is further secured by a promissory note executed by Coprada in favor of Akron. However. Inc.000. be decided on their merits and not on technicality (De las Alas vs.00 (see demand letter of Atty.000.

the Regional Trial Court of Quezon City. The mortgages were third party or accommodation mortgages on behalf of the spouses Bernardino and Carmelita Ibarra who were dealers of SMC products in Aparri. (c). Tango. 60460. and accordingly filed a Motion to Dismiss Appeal [5] dated March 8. and instead. February 22. it has not been clearly shown that petitioner had any part or participation in the perpetration of the same. Fortunately. the Brief does not contain a Subject Index nor a Table of Cases and Authorities. or on that of the appellee. SO ORDERED. Hence. 1983. on the following grounds: xxx xxx xxx (f) Absence of specific assignment of errors in the appellants brief. CV No. paragraphs (a). 1999.3. Moreover. In due time. it does not appear that said resolution was intended to defraud anyone and more particularly private respondent.G. 1992 and to cause the cancellation of the annotation of the same on plaintiffs [sic] TCT No. said mortgage is a prior lien as against the pacto de retro sale of the 2 units. Novaliches which to the mind of the Court does not prove fraud and instead appears to be an attempt on the part of Akron to attend to its obligations as regards the said trucks. HON. To pay the plaintiff the following sums: 3. ALBERTO O. who are senior executives of petitioner SMC. There is no indication of an attempt on the part of Akron to evade payment of its obligation to private respondent. despite having been notified of such defects. P100. the Supreme Court. 1996. premises considered. xxx xxx xxx Finally. G. WHEREFORE.1984 is hereby set aside and its decision dated June 30.Bus Org 2 Cases 1st Set Prelim 22 dated June 30.. Q-95-24332. As to the sale through pacto de retro of the two units to a third person by the corporation by virtue of a board resolution. 2000 which denied their motion for reconsideration. still failed to amend their Brief to conform to the Rules. with costs against petitioner. 1990 and February 17. Atty. An appeal may be dismissed by the Court of Appeals. 299551. President and Chairman of Akron.000. 3. defendant San Miguel Corporation is hereby ordered 1. The Court of Appeals held. ruled that: Long ingrained in our jurisprudence is the rule that the right to appeal is a statutory right and a party who seeks to avail of the right must faithfully comply with the rules. In brief. Petitioner did not sign the said promissory note so he cannot be personally bound thereby. it is Coprada who should account for the same and not petitioner. As to the amendment of the articles of incorporation of Akron thereby changing its name to Akron Transport International. Edgar B. with page references. 1978. The Intermediate Appellate Court (IAC) committed grave error of law in its decision by sanctioning the merger of the personality of the corporation with that of the petitioner when the latter was held liable for the corporate debts. SMC.: Before us is a petition for review on certiorari praying for the reversal of the Resolution [1] dated June 4. 3. It was Coprada who signed a promissory note to guarantee the payment of the unpaid balance of the purchase price out of the proceeds of a loan he supposedly sought from the DBP. Rule 44 of the Rules of Court. If the private respondent is the victim of fraud in this transaction. which reads: SECTION 1. The word "WE' in the said promissory note must refer to the corporation which Coprada represented in the execution of the note and not its stockholders or directors. There is the fact that petitioner sold his shares in Akron to Coprada during the pendency of the case. Jr. The questioned resolution of the Intermediate Appellate Court dated February 8. the President of Akron. The appellate court entered another decision affirming the appealed decision of the trial court. (d) and (f) of Rule 44. Inc. If at all. the case involved the cancellation of two (2) real estate mortgages in favor of petitioner San Miguel Corporation (SMC) executed by private respondent Benjamin A. it was stipulated that in case of default in payment to private respondent of the balance of the consideration. Villa-Abrille. Thus. The relevant facts are: On March 30. Branch 227 issued a Decision [2] in Civil Case No. 2. The Intermediate Appellate Court (IAC) erred in disregarding the corporate fiction and in holding the petitioner personally liable for the obligation of the Corporation which decision is patently contrary to law and the applicable decision thereon. FRANCISCO A. The environmental facts of this case show that there is no cogent basis to pierce the corporate veil of Akron and hold petitioner personally liable for its obligation to private respondent. While it is true that in December. 1999 issued by the former Fourteenth Division of the Court of Appeals in CA-G. petitioner alleges that the change of corporate name was in order to include trucking and container yard operations in its customs brokerage of which private respondent was duly informed in a letter.R. private respondent obtained a judgment against him from the trial court and the said judgment has long been final and executory.00 as and by way of moral damages. the new corporation confirmed and assumed the obligation of the old corporation. their counsel. as amended. DECISION DE LEON. 1977 petitioner was still a member of the board of directors of Akron and that he participated in the adoption of a resolution authorizing the purchase of 13 trucks for the use in the brokerage business of Akron to be paid out of a loan to be secured from a lending institution. 18 We reverse.R. 1999. respondents. vs. Since petitioner has no personal obligation to private respondent. Other defendants in the case were Francisco A. and Arguments in the Brief has no page reference to the record. the Statement of the Case.1983 setting aside the decision of the trial court dated October 28. the sale is not inherently fraudulent as the 13 units were sold through a deed of absolute sale to Akron so that the corporation is free to dispose of the same. TANGO. 299551 in the same [sic] of Benjamin A. or of page references to the record as required in section 13. and SAN MIGUEL CORPORATION. To release to plaintiff the originals of the REM contracts dated December 4. VILLA-ABRILLE.. The appellee (herein private respondent) was quick to notice these deficiencies. if there was any fraud or misrepresentation that was foisted on private respondent in that there was a forthcoming loan from the DBP when it fact there was none. the principal character on whom fault should be attributed is Feliciano Coprada. Nevertheless. They prayed for liberality in the application of technical rules.[6] the appellants averred that their brief had substantially complied with the contents as set forth in the rules. P50. 1980 insofar as petitioner is concemed is hereby reinstated and affirmed. Cagayan. Fraud must be established by clear and convincing evidence. II. 3. Court of Appeals. defendants-appellants. Rule 50 of the 1997 Rules of Civil Procedure. this petition for review wherein petitioner raises the following issues: I. On June 4.000.[3] the dispositive portion of which is hereunder quoted: WHEREFORE. as follows: xxx xxx xxx As pointed out by plaintiff-appellee. whom private respondent dealt with personally all through out. No. They proffered the excuse that the omissions were only the result of oversight or inadvertence and as such could be considered harmless errors. 113890. Statement of Facts. argues that these are mere harmless errors. Required to comment. it is his inherent right as a stockholder to dispose of his shares of stock anytime he so desires.2. adding that they have a meritorious defense. pursuant to Section 1 (f). Again petitioner has no part in this.1. in sustaining the dismissal of the petitioners appeal for non-compliance with the rule on the contents of the Appellants Brief. These procedural lapses justify the dismissal of the appeal. x x x These rules are designed to facilitate the orderly disposition of appealed cases. 19 Indeed. Mention is also made of the alleged "dumping" of 10 units in the premises of private respondent at Bagbag. without costs. JR. filed an Appellants Brief [4] which failed to comply with Section 13. It was Coprada. De Liano and Alberto O. Tango over his house and lot in Quezon City. COURT OF APPEALS and BENJAMIN A.. DE LIANO. Be that as it may. a chattel mortgage lien shag be constituted on the 13 units. the petition is GRANTED. To release to the plaintiff the owners duplicate copy of TCT No.G. who negotiated with said respondent for the purchase of 13 cargo trucks on January 25. petitioners. which dismissed the appeal of herein petitioners on procedural grounds as well as its Resolution of February 23. Of course.00 as and by way of attorneys fees. costs of suit. on its own motion. Afable. Grounds for dismissal of appeal. 241 SCRA 553 [1996]. J. petitioner asserts that he never signed said resolution.. De Liano and Abrille appealed the aforesaid decision to the Court of Appeals. JR. the appellate court issued the first assailed resolution [7] dismissing the appeal. 1998. In an age . In the case of Del Rosario v.

The danger of this is the very real possibility that the reviewing tribunal will be swamped with voluminous documents. in order to enable the reviewing court and the opposing party to see on what points appellant or plaintiff in error intends to ask a reversal of the judgment or decree. which errors shall be separately. Its importance cannot be underestimated. bill. providing material information regarding the nature of the controversy. but only to inform the appellate court that appellant assigns as erroneous certain named rulings. the orders and rulings elevated on appeal. The premise that underlies all appeals is that they are merely rights which arise from statute. the statement of facts comprises the very heart of the appellants brief. where only a pure question of law is involved. appeal would pertain to this Court. and the judgment itself.No error which does not affect the jurisdiction over the subject matter or the validity of the judgment appealed from or the proceedings therein will be considered unless stated in the assignment of errors. petitioner contends that: A THE COURT OF APPEALS ERRED IN DISMISSING SMCs APPEAL ON THE BASIS OF PURE TECHNICALITIES AND EVEN AFTER SMC HAS CORRECTED THE TECHNICAL DEFECT OF ITS APPEAL. This particular rule was instituted with reason. together with the substance of the proof relating thereto in sufficient detail to make it clearly intelligible. which is to present to the appellate court in the most helpful light. and by fair argument on the facts and law of the case to assist the court in arriving at a just and proper conclusion. (b) An assignment of errors intended to be urged. The subject index makes readily available at ones fingertips the subject of the contents of the brief so that the need to thumb through the brief page after page to locate a partys arguments. or declaration. and overall. Their observance cannot be left to the whims and caprices of appellants. distinctly and concisely stated without repetition and numbered consecutively. as all law students and lawyers know. they filed a Motion to Admit Amended Defendants-Appellants Brief. in the appellate court. the proceedings before the trial court. Unlike in other jurisdictions. B THE COURT OF APPEALS ERRED IN DISMISSING SMCs APPEAL WITHOUT CONSIDERING ITS MERITS. an appeal without an assignment of errors would be similar to a suit without a complaint. Justice Malcolm explained thus: xxx[L]et it be recalled that the word brief is derived from the Latin brevis. These data enable the appellate court to have a better grasp of the matter entrusted to it for its appraisal. It is to this end that rules governing pleadings and practice before appellate courts were imposed. The appeal involves a question of substance which should have been resolved by the Court of Appeals. or closely related to or dependent on an assigned error and properly argued in the brief. and consequently. This occurs even though the rules consistently urge the parties to be brief or concise in the drafting of pleadings. is obviated. In turn. and to limit discussion to those points. is to present to the court in concise form the points and questions in controversy. the appellants arguments on each assignment of error with page references to the record. The assignment is appellants declaration or complaint against the trial judge. for it is contrary to law and the weight of the evidence. the function of the assignment is to group and bring forward such of the exceptions previously noted in the case on appeal as appellant desires to preserve and present to the appellant. with page references to the record. a summary of the proceedings. a statement of the following tenor: that the Court of First Instance of this City incurred error in rendering the judgment appealed from. [13] The appellant has to specify in what aspect of the law or the facts that the trial court erred. It has its logic. The index is intended to facilitate the review of appeals by providing ready reference. The conclusion. The facts constitute the backbone of a legal argument. The first requirement of an appellants brief is a subject index. The award of damages has no basis in fact or in law. as Section 8. the appealed rulings and orders of the court. it is in the nature of a pleading. functioning much like a table of contents. Thus. and (h) In cases not brought up by record on appeal. (d) Under the heading Statement of Facts. or pleading. through the same counsel. The brief should be so prepared as to minimize the labor of the court in the examination of the record upon which the appeal is heard and determined. From the denial of their motion for reconsideration. and the French briefe. [8] The appellate court denied the consolidated motions in its Resolution[9] of February 23. the appellants brief shall contain. These rules were designed to assist the appellate court in the accomplishment of its tasks. will govern the appropriate relief. briefs. x x x Having ruled as such. the following: (a) A subject index of the matter in the brief with a digest of the arguments and page references. charging harmful error. they must be exercised in the manner prescribed by law. only petitioner SMC interposed the instant petition. was deemed insufficient. (c) Under the heading Statement of the Case. (g) Under the heading Relief. (e) A clear and concise statement of the issues of fact or law to be submitted to the court for its judgment. and performs in the appellate court the same office as a declaration or complaint in a court of original jurisdiction. and literally means a short or condensed statement. Simultaneously. should take care to state the facts accurately though it is permissible to present them in a manner favorable to one party. therefore. therefore. (f) Under the heading Argument. Appellants should remember that the Court of Appeals is empowered to review both questions of law and of facts. and other papers to be filed in court. as follows: Contents of appellants brief. xxx xxx xxx The object of such pleadings is to point out the specific errors claimed to have been committed by the court below. and proof vel non of assignment is within the record on appeal. the nature of the judgment and any other matters necessary to an understanding of the nature of the controversy. save as the court may pass upon plain errors and clerical errors. a copy of the judgment or final order appealed from. The brief must state the facts . Section 13. Rule 51 of the Rules of Court will attest: Questions that may be decided. 2000. and takes the place of a declaration or bill. The office of an assignment of errors is not to point out legal contentions. The rules then require that an appellants brief must contain both a statement of the case and a statement of facts. to wit: whether a third party mortgagor can unilaterally withdraw the mortgage without the consent of the debtor and creditor.[12] It has been held that a general assignment of errors is unacceptable under the rules. the Court need not resolve plaintiff-appellees contention that the issues raised in the appeal are mere questions of law. textbooks and statutes cited with references to the pages where they are cited. the factual and legal antecedents of a case on appeal. The appellants (herein petitioners) sought to have the foregoing resolution reconsidered. they are determinative of the law and jurisprudence applicable to the case. The authorities relied upon shall be cited by the page of the report at which the case begins and the page of the report on which the citation is found. Otherwise. Rule 44 of the Revised Rules of Court governs the format to be followed by the appellant in drafting his brief. [10] As grounds for allowance. a specification of the order or judgment which the appellant seeks. with page references to the record. there is no limit on the length of appeal briefs or appeal memoranda filed before appellate courts. therefore. or whatever else needs to be found and considered. 1. There are valid grounds to reverse the RTCs award of damages in favor of Tango. An appellant. In his definition of a brief. The petition has no merit.[11] [italics supplied] Relative thereto. as an appendix. and a table of cases alphabetically arranged. a clear and concise statement of the nature of the action. Such an assignment is appellants complaint. It is defined in this wise: An assignment of errors in appellate procedure is an enumeration by appellant or plaintiff in error of the errors alleged to have been committed by the court below in the trial of the case upon which he seeks to obtain a reversal of the judgment or decree. in the order herein indicated. A statement of the case gives the appellate tribunal an overview of the judicial antecedents of the case. to enhance the orderly administration of justice. and most certainly. it was not intended to become a custom more honored in the breach than in the observance.The appellants brief shall contain. or a particular citation. a clear and concise statement in a narrative form of the facts admitted by both parties and of those in controversy. An assignment of errors follows the subject index. The purpose of the brief.Bus Org 2 Cases 1st Set Prelim 23 where courts are bedeviled by clogged dockets. is that the appellant must carefully formulate his assignment of errors. 2. these rules need to be followed by appellants with greater fidelity.

Where the first brief lacked an assignment of errors but included a statement of issues. with few revisions. and page after page. counsel for petitioners had all the opportunity to comply with the above rules. If a statement of fact is unaccompanied by a page reference to the record. whereas facts in dispute must be backed by evidence. Lastly. and special cases. our discretion becomes nothing more than an exercise in frustration. The appellant has to show that he is entitled to the reversal of the judgment appealed. existence and relevancy of specific surrounding circumstances.1) Where no hearing on the merits of the main case is held. we held that deviations from the rules cannot be tolerated. for the former provide the justification supporting his contentions. brief. After completion. that is. it will help to explain why the former Fourteenth Division of the appellate court could not look into the merits of the appeal. when the error relates to something so elementary as to be inexcusable. or the expiration of the period for its filing. The Justice in-charge of completion exceeds his province should he examine the merits of the case since his function is to oversee completion only. these rules need to be followed by appellants with greater fidelity. not to seek exceptions. It becomes apparent that the merits of the appeal can only be looked into during the second stage. In the case at bar. from the time of filing until the remand of the cases to the courts or agencies of origin. The statement of issues is not to be confused with the assignment of errors: they are not one and the same. [24] Be it noted that all cases are under the supervision and control of the members of the Court of Appeals in all stages. of reports. We observed that petitioner submitted an Amended Appellants Brief to cure the infirmities of the one first filed on its behalf by its lawyer.Bus Org 2 Cases 1st Set Prelim 24 admitted by the parties. and. [17] In this regard. The mere elevation on appeal of a judgment does not create a presumption that it was rendered in error. it may be presumed to be without support in the record and may be stricken or disregarded altogether. the appellate court is left in no doubt as to the result desired by the appellant. Long ingrained in our jurisprudence is the rule that the right to appeal is a statutory right and a party who seeks to avail of the right must faithfully comply with the rules. until they were superseded by the present 1997 Rules of Civil Procedure. that these may be ignored with little risk in the smug certainty that liberality in the application of procedural rules can always be relied upon to remedy the infirmities. a deficiency symptomatic of the first. and need not consider the unsupported errors assigned. the mode of review is by an ordinary appeal in accordance with Section 2(a) of Rule 41. This rule is imposed for the convenience of the appellate court. We remind members of the bar that their first duty is to comply with the rules. Court of Appeals. We are not martinets. the errors and reasons assigned should be supported by a citation of authorities. The half-hearted attempt at submitting a supposedly amended brief only serves to harden our resolve to demand a strict observance of the rules. or the expiration of the period for its filing. as petitioner corporation is urging us to do now. a preliminary raffle is held at which time an appealed case is assigned to a Justice for completion. appealed criminal cases. The second stage is for study and report. Rule 44. The statement of facts lacked page references to the record. There is nothing arcane or novel about the provisions of Section 13. In People v. These rules are designed to facilitate the orderly disposition of appealed cases. [15] When the appellant has given an account of the case and of the facts. and he cannot do this unless he provides satisfactory reasons for doing so. upon its termination or upon the filing of the last pleading or memorandum as may be required or permitted to be filed by the court. and ordinarily will not give consideration to such errors and reasons unless it is apparent without further research that the assignments of errors presented are well taken. and act as the circumstances may warrant. the distinction may appear insubstantial. In so doing. we are prepared to listen to reason. where the assailed decision was rendered by the trial court in the exercise of its appellate jurisdiction. [18] which took effect on July 1. Relative thereto. under the appropriate heading. and to give relief as the circumstances may warrant. as well as the page of the report where the citation is found. he is required to state the issues to be considered by the appellate court. An appellants arguments go hand in hand with his assignment of errors. but may presume that counsel has found no case after diligent search or that the point has been waived or abandoned. the distinction between a question of fact and a question of law must be clear. upon the filing of the last pleading.[22] In contrast.The prerogative of determining the merits of an appeal pertains properly to the Justice to whom the case is raffled for study and report. In an age where courts are bedeviled by clogged dockets. No one could be expected to ignore such glaring errors. The rule governing the contents of appellants briefs has existed since the old Rules of Court. as in the case at bar. 1964. the rules would not require a separate statement for each. the appellant is required to present his arguments on each assigned error. Such obstinacy is incongruous with his late plea for liberality in construing the rules on appeal. An additional circumstance impels us to deny the reinstatement of petitioners appeal. He remained obstinate in his non-observance even when he sought reconsideration of the ruling of the respondent court dismissing his clients appeal. [14] Page references to the record are not an empty requirement. it may happen that the Justice to whom the case was initially raffled for completion may not be the same Justice who will write the decision thereon. the amended brief suffered a complete reversal: it had an assignment of errors but no statement of issues. [19] which took effect on January 1. the court is not required to search out authorities.Authorities were cited in an improper manner. as well as the Revised Rules of Court. for obvious reasons: since authorities relied upon by the parties are checked for accuracy and aptness. The failure to do so has been said to be inexcusable. in appropriate instances. as well as the facts in controversy. On closer scrutiny. when the case is deemed ripe for judgment. 1940. In so doing.[25] Ordinary appealed civil cases undergo two (2) stages. or when the query necessarily invites calibration of the whole evidence considering mainly the credibility of witnesses. or memorandum required by the Rules or by the court itself. The rationale for this strict attitude is not difficult to appreciate. As was expressed more recently in Del Rosario v. we would have been inclined to grant the petition until we realized that the attempt at compliance was. [italics supplied] Anent the second issue. which follows when an appealed case is deemed submitted for decision.[21] which was rightfully quoted by the appellate court. In ordinary appeals. [16] Thereafter. [27] Each stage is distinct. When the trial court decides a case in the exercise of its original jurisdiction. Facts which are admitted require no further proof. The statement of issues puts forth the questions of fact or law to be resolved by the appellate court. It is therefore essential that xxx [A]s far as possible. All things being equal. [23] We are more concerned here about the first mode since the case at bar involves a decision rendered by the Regional Trial Court exercising its original jurisdiction. the mode of appeal is via a petition for review pursuant to Rule 42.The first stage consists of completion of the records. What constitutes a question of fact or one of law should be clear by now: At this point. their relation to each other and to the whole and the probabilities of the situation. The provisions were substantially preserved. Thus. Some may argue that adherence to these formal requirements serves but a meaningless purpose. To laymen. the rules require that authorities should be cited by the page of the report at which the case begins. The Rules of Court prescribe two (2) modes of appeal from decisions of the Regional Trial Courts to the Court of Appeals. Cases elevated to the Court of Appeals are treated differently depending upon their classification into one of three (3) categories: appealed civil cases. It will not do to impute error on the part of the trial court without substantiation. the reliefs prayed for. This misses the point.A case shall be deemed submitted for judgment: A. although a point made in the brief is before the court even though no authorities are cited and may be considered and will be where a proposition of well established law is stated. It comes as an unpleasant shock to us that the contents of an appellants brief should still be raised as an issue now. However. for otherwise. disobedience therewith has been punished by dismissal of the appeal. the appellant is required to state. Their observance cannot be left to the whims and caprices of appellants. it was dismissed during completion stage . [20] The amended brief did not even follow the prescribed order: the assignment of errors came after the statement of the case and the statement of facts. the rule specifically requires that ones statement of facts should be supported by page references to the record. and in so doing resolves the issues. As distinguished from a question of law which exists when the doubt or difference arises as to what the law is on certain state of factsthere is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts. The aforesaid distinction has a bearing on the case at bar. the amended brief was as defective as the first. they are located more easily as the appellate court is not bound to peruse volume upon volume. [26] xxx xxx xxx At each stage. a separate raffle is held. Marong. at most. thus: When case deemed submitted for judgment. only a cosmetic procedure. 2) Where such a hearing is held. we ruled that: Petitioners plea for liberality in applying these rules in preparing Appellants Brief does not deserve any sympathy. but the difference is clear to the practitioner and the student of law. The case at bar did not reach the second stage. the exact page of the report where the citation was lifted went unspecified. it may prove useful to elucidate on the processing of appeals in the Court of Appeals. a second raffle is conducted to determine the Justice to whom the case will be assigned for study and report.Indeed.

155472: On April 10. [3] It also owns one unit of motor vehicle and two units of tractors. 1997. Pinanoag and Tinampa-an. ANTONIO B. On the other hand. On October 5. Atty. In G. the produce thereon and the motor vehicle and tractors. Salvatierra has no capacity to sue on behalf of the Corporation because the March 31. Salvatierra and/or Ramon H. it has been observed that the power of a corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. The motion for reconsideration filed by the group of Antonio Monfort III was denied. before the Municipal Trial Court of Cadiz City.R. nationalities and residences of the elected directors. Antonia M. 152542: On April 21. petitioner SMC must be held bound by the actuations of its counsel of record. A General Information Sheet shall be filed with this Commission within thirty (30) days following the date of the annual stockholders meeting. fishpond and sugar cane plantation known as Haciendas San Antonio II. trustees and officers of the Corporation. SP No. HON. a complaint [6] for delivery of motor vehicle.[17] The focal issue in these consolidated petitions is whether or not Ma.R. MONFORT HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION. PAYLADO.R. MONFORT III. and also such powers as. [8] The group of Antonio Monfort III filed a petition for certiorari with the Court of Appeals but the same was dismissed on June 7. they instituted a petition for review with this Court. Consequently. Antonia M. SP No. [29] That Atty. The group of Antonio Monfort III claims that the March 31. vs. assails the October 5. ENCARNACION CECILIA R. MONFORT III. CARLOS M. No. On May 4. 2002. MONFORT. CARLOS M. Antonia M.[15] The motion for reconsideration filed by the latter was denied by the appellate court. the SEC issued the following rules: xxxxxxxxx 2. vs. 2004] ANTONIO B. when authorized by resolution or its by-laws. [13] On appeal. Antonia M. MA. No. SALVATIERRA. 2004. ILDEFONSO B. EMILY FRANCISCA R. before the Municipal Trial Court (MTC) of Cadiz City. the MTC of Cadiz City rendered a decision dismissing the complaint.R. 506-C. except for very justifiable reasons stated in writing by the President. RODRIGUEZ and COURT OF APPEALS. No. in the usual course of the particular business. Salvatierra to represent the Corporation. Monfort to represent the Corporation is void because the purported Members of the Board who passed the same were not validly elected officers of the Corporation. filed against the group of Antonio Monfort III.R. In turn. in his personal capacity.R.: Before the Court are consolidated petitions for review of the decisions of the Court of Appeals in the complaints for forcible entry and replevin filed by Monfort Hermanos Agricultural Development Corporation (Corporation) and Ramon H. where it refused to address. A corporation has no power except those expressly conferred on it by the Corporation Code and those that are implied or incidental to its existence. No. is an artificial being whose juridical personality is only a fiction created by law. the Regional Trial Court of Negros Occidental. Thus. the Corporation filed a petition for review with this Court. JOSE MARTIN M. 1997. 506-C before the Regional Trial Court of Cadiz City. A corporation. Afable was clothed with sufficient authority to bind petitioner SMC is undisputable. 2001. with cost against petitioner San Miguel Corporation. as well as the fighting cocks of Ramon H. to breed and maintain fighting cocks in his personal capacity at Hacienda San Antonio. unlawfully took possession of the 4 Haciendas and deprived the Corporation of the produce thereon. 2001 Decision [1] of the Special Tenth Division of the Court of Appeals in CA-G. 2002 Decision [2] rendered by the Special Former Thirteenth Division of the Court of Appeals in CA-G. In order to keep stockholders and the public transacting business with domestic corporations properly informed of their organizational operational status. Salvatierra has no legal capacity to represent the Corporation in the forcible entry case docketed as Civil Case No.R. Generally. and through its officers and agents. ANTONIA M. before the Regional Trial Court of Negros Occidental. LUISA MONFORT ASCALON. In G. are incidental to. and nieces of its original incorporators (collectively known as the group of Antonio Monfort III). SALVATIERRA. 152542 which was consolidated with G. the powers intentionally conferred. RODRIGUEZ. 1997 Board Resolution authorizing Ma. 49251. Salvatierra to sue on behalf of the Corporation. 1997 Board Resolution and the election of the officers who signed it. DOLIQUEZ. its Executive Vice President. Salvatierra has the legal capacity to sue on behalf of the Corporation. which ruled that Ma.[9] The Special Former Thirteenth Division of the appellate court did not resolve the validity of the March 31. Antonia M. respondents. MONFORT. [28] Yet even this detail will not operate in petitioners favor. and RAMON H. x x x a corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that authority to do so has been conferred upon him. the group of Antonio Monfort III. J. ANTONIA M. and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred. WHEREFORE. it should be recalled. Salvatierra and/or Ramon H. ALFREDO B. Petitioner SMCs board resolution of May 5. is the registered owner of a farm. LUISA MONFORT ASCALON. Marapara. Antonia M. Branch 60. 155472 per Resolution dated January 21. tractors and 378 fighting cocks. through force and intimidation.[11] It contended that the latter through force and intimidation.R. Monfort. [10] Hence. MONFORT. can be performed only by natural persons duly authorized for the purpose by corporate by-laws or by a specific act of the board of directors. Antonia M. EMILY FRANCISCA R.R. They likewise raised the affirmative defense of lack of legal capacity of Ma. powers added by custom and usage. petitioners contention that the appellate court should have considered the substance of the appeal prior to dismissing it due to technicalities does not gain our favor. the trial court denied the motion to dismiss. Antonia M. the Special Tenth Division set aside the judgment of the RTC and dismissed the complaint for forcible entry for lack of capacity of Ma. like the signing of documents. as represented by MA. In turn.[30] a fortiori then. or may be implied from. Antonia M. and this includes powers which have been intentionally conferred. The group of Antonio Monfort III filed a motion to dismiss contending. the petition in G. the instant petition is hereby DENIED for lack of merit. Actually. Salvatierra. DOLIQUEZ. 155472. Monfort Hermanos Agricultural Development Corporation. preliminary mandatory injunction with temporary restraining order and damages against the group of Antonio Monfort III. [4] The same allowed Ramon H. [G. respondents. corporations are required under Section 26 of the Corporation Code to submit to the SEC within thirty (30) days after the election the names. 1998. Ma.Bus Org 2 Cases 1st Set Prelim 25 pursuant to Section 1(f) of Rule 50. 1997 Board Resolution[7] authorizing Ma. inter alia. . Salvatierra filed on behalf of the Corporation a complaint for forcible entry. a corporation exercises said powers through its board of directors and/or its duly authorized officers and agents. with prayer for injunction and damages. docketed as G. MONFORT. all situated in Cadiz City. No extension of said period shall be allowed. MONFORT HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION. and Ramon H. on jurisdictional considerations. DECISION YNARES-SANTIAGO. Antonia M. In their answer. upon which the Commission may grant an extension for not more than ten (10) days. the issue of Ma. ALFREDO B. Coupled with the provision of law that a lawyer has authority to bind his client in taking appeals and in all matters of ordinary judicial procedure. On February 18. MA. 534-C. Branch 60. Branch 60. JOSE MARTIN M. 1998. docketed as Civil Case No. Afable. 152542. Afable is also an employee of petitioner San Miguel Corporation. reversed the Decision of the MTCC and remanded the case for further proceedings. the group of Antonio Monfort III filed a petition for review with the Court of Appeals. COURT OF APPEALS. 155472. physical acts of the corporation. nephews. 1999 attests to that. ratiocinating that the determination of said question is within the competence of the trial court. July 8. [14] Aggrieved. xxx Moreover. a domestic private corporation. It can only exercise its powers and transact its business through the instrumentalities of its board of directors. docketed as G. 53652. the negligence of counsel binds his client. as usually pertaining to the particular officer or agent. Secretary. No. Salvatierras capacity to file a complaint for replevin on behalf of the Corporation in Civil Case No. No. Treasurer or other officers. No. [18] Corollary thereto. [5] In 1997. RODRIGUEZ. that Ma. Ma. Monfort. ILDEFONSO B. petitioners.R. 155472. allegedly took possession of the 4 Haciendas. Monfort. petitioner. Monfort to represent the Corporation is void as the purported Members of the Board who passed the same were not validly elected officers of the Corporation.[12] the group of Antonio Monfort III alleged that they are possessing and controlling the Haciendas and harvesting the produce therein on behalf of the corporation and not for themselves. Atty. No. seeks to set aside the June 7. MONFORT. the Corporation. [16] Unfazed. as represented by MA. ENCARNACION CECILIA R. Monfort against the children. RODRIGUEZ. PAYLADO. represented by its President. The petition in G.

Nograles President/Director Fernando D. and Ester S. of petitioners as represented by Atty. were: Alberto C. trustee or officer die. considering the premises. Jesus Antonio H. Monfort. If for any justifiable reason. but the SEC was informed thereof more than two years later. 5.A. the names of the elected directors and officers. Joaquin H. Lionel Pengson. Court of Appeals. Aguilar Director Saturnino G. are the incumbent officers of Premium has not been fully substantiated. Salvatierra and/or Ramon H. Antonia M. Should a director. President. Yvete M. 1981.Bus Org 2 Cases 1st Set Prelim 26 2. Jr. 1997 Board Resolution was issued. The power of the corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. the Corporation failed to prove that the same October 16. In the absence of an authority from the board of directors. xxx Evidently. Zavalla. trustee or officer if any of them died. resign or in any manner. Monfort (Member). the names. Antonio H. As previously stated. the fact that four of the six Members of the Board listed in the 1996 General Information Sheet [23] are already dead[24]at the time the March 31. 1996 meeting where the questioned officers were elected. the 1997 General Information Sheet[28] submitted by the Corporation does not reflect the names of the 4 Directors claimed to be elected on October 16. shall submit to the Securities and Exchange Commission. trustees and officers elected. 1979 with the following as Directors: Mario C. What further militates against the purported election of those who signed the March 31. The claim.R. Directors Paul M. were: Ma. were indeed duly elected Members of the Board legally constituted to bring suit in behalf of the Corporation. the officers and members of the board of directors of the Premium Marble Resources. presented the Minutes of the meeting of its Board of Directors held on April 1. (Member). Antonia M. Yusay. 1997 Board Resolution was held on October 16. 4. Monfort (Member) and 6. This is because it was not established that they were duly elected to replace the said deceased Board Members. Monfort to represent the Corporation. 2. We agree with the finding of public respondent Court of Appeals. nationalities and residences of the directors. through the first set of officers. viz. v. Monfort) to the said Board Resolution (whose name do not appear in the 1996 General Information Sheet) as among the incumbent Members of the Board.. Ramon H. petitioner submitted its Articles of Incorporation dated November 6. the present action must necessarily fail.[20] There is thus a doubt as to whether Paul M. Petitioner. nationalities and residences of the directors. Belen. The issue of legal capacity of Ma. it appears from the general information sheet and the Certification issued by the SEC on August 19. Monfort. The Court notes that the complaint in Civil Case No. can validly bind the corporation. Reyes. trustees and officers of the corporation. Benedicto. to show that Premium did not authorize the filing in its behalf of any suit against the private respondent International Corporate Bank. The General Information Sheet shall state. or 15 days after the death. therefore. the corporation shall report such fact to the Commission with fifteen (15) days after such death. In the said case. Monfort. the second set of officers.e. Hilario Vice President/Director Augusto I. 26 of the Corporation Code provides. or on November 11. On the other hand. Dumadag. as of 1986 appears to be the set of officers elected in March 1981. Oscar B. viz.. Mario Zavalla. 1982. 506-C. However. however.[27]Moreover. Antonia M. Monfort. Nograles and Jose L.. unlawful detention of the Corporations motor vehicle and tractors. Jr. To correct the alleged error in the General Information Sheet. Since Ramon sought redress of the latter cause of action in his personal capacity. Chairman of the Board. [26] but the records do not show if such demise was reported to the SEC. 1999 Comment before the Court of Appeals. for replevin before the Regional Trial Court of Negros Occidental. [19] However. 3. Yvete M. resignation or cessation of office of any of its director. that Zaballa. not even the officers of the corporation. as proof that the filing of the case against private respondent was authorized by the Board. Salvatierra failed to prove that four of those who authorized her to represent the Corporation were the lawfully elected Members of the Board of the Corporation. we find that Ma. Salvatierra. and Jose Ma. Antonia M. is a matter that is also addressed. the six signatories to the March 31. Monfort. Report of election of directors. no person. 1997 Board Resolution was the belated submission of the alleged Minutes of the October 16. 3. [21] In Premium Marble Resources. Ma. Gan. Sec. Salvatierra was raised before the lower court by the group of Antonio Monfort III as early as 1997. Silva. we sustained the dismissal of the complaint because it was not established that the Members of the Board who authorized the filing of the complaint were the lawfully elected officers of the corporation. did not erase the doubt as to whether an election was indeed held. 1998. the secretary. the annual meeting has to be postponed. together with their corresponding position title (Emphasis supplied) In the instant case. Within thirty (30) days after the election of the directors.. Antonia M. As such. petitioner failed to show proof that this election was reported to the SEC. et al. Lionel Pengson. and the unlawful detention of the of 387 fighting cocks of Ramon H. Monfort (Member). In fact. Mario Zavalla. Monfort. Oscar Gan. cease to hold office.. Aderito Yujuico and Rodolfo Millare. 26. Branch 60. Monfort. or any other officer of the corporation. Galace Treasurer Jose L. Thus. but the Minutes of said October 16. 1996. the last entry in their General Information Sheet with the SEC. trustees and officers. Yusay and Ester S.The alleged election of the directors and officers who signed the March 31. Secretary. Considering the foregoing. Ramon H. 1982 states that the newly elected officers for the year 1982 were Oscar Gan. all corporations duly organized pursuant thereto are required to submit within the period therein stated (30 days) to the Securities and Exchange Commission the names. they cannot confer valid authority for her to sue on behalf of the corporation. Alberto C. Paul M. financial condition and operational status of the company together with information on its key officers or managers so that those dealing with it and those who intend to do business with it may know or have the means of knowing facts concerning the corporations financial resources and business responsibility. the dismissal of the complaint for lack of capacity to sue on behalf of the corporation should be limited only to the corporations cause of . This. Belen. Aderito Yujuico and Rodolfo Millare. 1996. Yvete M. the Corporation failed to do.e. thus: Sec. Saturnino G. resigned or in any manner. that in the absence of any board resolution from its board of directors the [sic] authority to act for and in behalf of the corporation. presented a Resolution dated July 30. Jaqueline M. In the case at bar.R.[22] the Court was confronted with the similar issue of capacity to sue of the officers of the corporation who filed a complaint for damages. a corporation is mandated to inform the SEC of the names and the change in the composition of its officers and board of directors within 30 days after election if one was held. to the sound judgment of the Securities & Exchange Commission.Thus The only issue in this case is whether or not the filing of the case for damages against private respondent was authorized by a duly constituted Board of Directors of the petitioner corporation. The 4 Directors appearing in the 1996 General Information Sheet died between the years 1984 1987. the names of the last four (4) signatories to the said Board Resolution do not appear in the 1996 General Information Sheet submitted by the Corporation with the SEC. the retained accountant of the Corporation informed the SEC in its November 11. Yusay and Ester S. Benedicto and Jaqueline M. 1986 that as of March 4. 1998 letter that the non-inclusion of the lawfully elected directors in the 1996 General Information Sheet was attributable to its oversight and not the fault of the Corporation. 1997 Board Resolution authorizing Ma. In fact. Francisco H. 1986. By the express mandate of the Corporation Code (Section 26).. Silva. [25] This belated attempt.Under said General Information Sheet the composition of the Board is as follows: 1. Salvatierra (Chairman). Later on. under sanction of oath of responsible officers. Inc. Jr. 1996 Minutes was submitted to the SEC. the objective sought to be achieved by Section 26 is to give the public information. among others. Executive Vice President. Inc. Monfort (Member).. the company should notify the Commission in writing of such postponement. Jose Ma. Reyes Secretary/Director Pido E. Pedro C. 1996 meeting was presented by the Corporation only in its September 29. has 2 causes of action. of the nature of business. While the Minutes of the Meeting of the Board on April 1. Monfort. Celso. Jaqueline M. ceased to hold office. resignation or cessation of office. Benedicto. trustees and officers elected. the issue of authority and the invalidity of plaintiff-appellants subscription which is still pending. i. does not automatically make the four signatories (i.

. 1997. Mendez of the National Conciliation and Mediation Board..-x DECISION GARCIA.. xxx xxx xxx . 152542 is DENIED. Daniel v.versus . Promulgated: ERMITA. On this point. WHEREFORE. SP No. August 4.... and Cesario F. Monfort for the delivery of 387 fighting cocks. Chairperson. JJ. Region V.. Branch 60. it can be argued that since this is a case of one's word against another. No. as reiterated in its Resolution [3] of November 7. On January 18. stating that although the procedural requirements in the termination of an employee had been complied with. hereafter).. With respect to the action filed by Ramon H." This admission. Accordingly..R. who has been made to appear as a complainant in the proceedings which resulted in the termination letter.SANDOVAL-GUTIERREZ.R..Bus Org 2 Cases 1st Set Prelim 27 action for delivery of motor vehicle and tractors. as well as for unlawfully possessing a deadly weapon... the Regional Trial Court of Negros Occidental. it being alleged therein that Cesario inflicted bodily injuries on a co-employee. the petition in G.R. The spirit of prevailing jurisprudence as well as a liberal interpretation of the new Constitutional provision on labor. is AFFIRMED. Mendez. The position of [Cesario] appears to have been strengthened by the document jointly signed by [him] and Jerry Romero. however. Regional Branch No.. in view of all the foregoing. Having failed to reach a settlement thereat.. the matter was brought to the grievance machinery as mandated under the Collective Bargaining Agreement existing at that time between UPMC and the United Paragon Supervisors Union... the best that could be said of management's evidence is that it has achieved a level at an equi-poise with that of the Constitution. Explains the Voluntary Arbitrator: An analysis of the tenor of the termination letter would seem to indicate that Ceasario Ermita was separated from service simply because his explanation was not acceptable to the company. 1996 as well as in his written explanation (Annex 6. MURLY P.. is REVERSED and SET ASIDE. ATTY. 155472. As a result of the termination... 1996. UNITED PARAGON MINING G. 2001 of the Court of Appeals (CA). 150959 CORPORATION... the supposed victim of the assault charged.[29] substitution by his heirs is proper..." then it would necessarily follow that there could not have been a willful and voluntary assault by [Cesario] upon Romero. The October 5. private respondent Cesario F.R. CORONA. again in violation of company rules. 1998 Decision of the Regional Trial Court of Negros Occidental. Ermita (Cesario. Daniel... SP No. No... the same should be resolved in favor of labor. Atty. has admitted in this amicable settlement (Annex A. 2001... The facts: Prior to the instant controversy. Feliciano M. Murly P. MENDEZ and CESARIO[1] F. 822 before the Municipal Trial Court of Cadiz City is DISMISSED. dismissing the petition filed by the group of Antonio Monfort III.R.: Assailed and sought to be set aside in this petition for review under Rule 45 of the Rules of Court is the Decision [2] dated July 24... would mandate that where a doubt exists. dismissing the petition for certiorari with prayer for a temporary restraining order and preliminary injunction thereat filed by the herein petitioner in CA-G. Respondents. informing Cesario that his employment as foreman is terminated effective thirty days after his receipt of the letter. This situation is further rendered more puzzling by the fact that the suspected assailant was himself the bearer of the tell-tale marks of injury. of the demise of Ramon on June 25. In Civil Case No. RB5-657-04-002-96. 2002 Decision rendered by the Special Former Thirteenth Division of the Court of Appeals in CA-G. for brevity) was a regular employee working as a foreman of petitioner United Paragon Mining Corporation (UPMC. Ermita. Since it has been established that the supposed scuffle between [Cesario] and Romero was "hindi sinasadya. which set aside the August 14.. Murly P. xxx xxx xxx The evidence on record partakes of the uncorroborated statement of Jerry Romero claiming that he was assaulted by [Cesario]. Branch 60. and GARCIA. Branch 60 in Civil Case No. 2001 Decision of the Special Tenth Division of the Court of Appeals in CA-G. 44450. Voluntary Arbitrator Mendez rendered a decision [4] in Cesarios favor. Ermita was terminated not because there was a definite finding of fact relative to his supposed culpability. the parties agreed to submit the dispute to voluntary arbitration. This claim has been disputed and is denied by [Cesario] in the statement executed by him on January 2.. whereat the same was docketed as VA Case No. clearly establishes the fact that whatever may have happened between them on New Year's eve was something that neither of them willfully and voluntarily did. 1996 and signed by UPMCs Personnel Superintendent. Present: PUNO.. This amicable settlement would serve to negate the charge of physical injury against [Cesario] as a basis for termination.. Complainant's Position Paper) that "hindi naming sinasadya yon at itong ginawa naming sulat na ito ay siya ang magpapatunay na ayos kaming dalawa at walang problema sa isa't isa. Respondent's Position Paper). .... 53652.. it appearing that even [his] supposed victim. AZCUNA. 2006 x . entitled United Paragon Mining Corporation. As stated in the letter... Cesario received a termination letter bearing date January 16. but because his answer did not find favor with management. Stated more bluntly. that comes no less from the supposed accuser of [Cesario].. J.. the petition is GRANTED and the June 7.. the action for delivery of personal property filed by Monfort Hermanos Agricultural Development Corporation is likewise DISMISSED. No. SP No. the termination of Cesario was unjustified because it was arrived at through gross misapprehension of facts.. in his capacity as Accredited Voluntary Arbitrator. 506-C with the Regional Trial Court of Negros Occidental. J. 1999. former 12th DIVISION. COURT OF APPEALS. 49251... Jerry Romero. represented by Feliciano M. V..R. On February 28. a certain Jerry Romero. The complaint for forcible entry docketed as Civil Case No.. Petitioner. is ordered to effect the corresponding substitution of parties. a bolo. In view. In G. the complaint for illegal dismissal was referred to Voluntary Arbitrator Atty. the termination was on account of Cesarios violation of company rules against infliction of bodily injuries on a co-employee. 822. Legaspi City.

including such other fringe benefits as he would have been entitled to. In the herein assailed Decision[7] dated July 24. submitting for our consideration the following questions: I WHETHER OR NOT THE COURT OF APPEALS ERRED IN DISMISSING THE PETITION AFTER FINDING THAT THE PROPER REMEDY SHOULD HAVE BEEN A PETITION FOR REVIEW ON CERTIORARI AND NOT A PETITION FOR CERTIORARI. II WHETHER OR NOT THE PUBLIC RESPONDENT COURT OF APPEALS ERRED IN DISMISSING THE PETITION AFTER FINDING THAT THE VERIFICATION PORTION OF THE PETITION WAS INEFFECTIVE AND INSUFFICIENT IN THE ABSENCE OF ALLEGATION OR SHOWING THAT FELICIANO DANIEL. UPMC. erroneous interpretation of the law and denial of justice are actually dwelling on the appreciation of facts. and 2) reinstatement is no longer appropriate in view of the supposed strained relations between Cesario and UPMC. Plodding on. In time. that Ceasario Ermita was unjustifiably terminated. 2001. Daniel. 1997. In turn. AS PERSONNEL SUPERINTENDENT WAS DULY AUTHORIZED TO FILE THE PETITION. We start with the basic concept that a corporation. it follows that the proceedings before the Voluntary Arbitrator could only be binding as against Daniel because the company then could not have been duly represented in said proceedings. which he actually did. ordered Cesarios reinstatement. Attorney's fees are hereby granted equivalent to 10 per cent of such monetary award as the complainant is entitled to. the Voluntary Arbitrator denied the desired reconsideration stressing that UPMCs management misapprehended the facts when it caused Cesarios termination.R. 44450. With its motion for reconsideration having been denied by the CA in its Resolution of November 7. a corporation exercises said powers through its board of directors and/or its duly authorized officers and agents. UPMC moved for a reconsideration of the decision insofar as it ordered Cesarios reinstatement which UPMC sought to avert by offering separation pay instead. It appears obvious to us. xxx xxx xxx On these points. Yanto. UPMC argues that Daniel has all the right to answer the complaint and to appeal an unfavorable judgment therein. thru its Personnel Superintendent Feliciano M. can be performed only by natural persons duly authorized for the purpose by the corporate by-laws or by a specific act of the board of directors. asserting that the Voluntary Arbitrator committed grave abuse of discretion. the CA. On the basis of the above. For lack of merit. thereat docketed as CA-G. Daniel was made a co-respondent of the corporation.This statement by people who happened to be unbiased and disinterested remains uncontested and undisputed. no reversible error having been committed by the CA in its challenged decision. Upon this premise. petitioner contends that were the CA to insist that Daniel could not represent the corporation. in his aforementioned decision of February 28.[8] petitioner UPMC is now with this Court via the present recourse. In turn. erroneous interpretation of the law and denial of substantial justice. In his Order[6] of April 22. UPMC cites the following against the decreed reinstatement: 1) Cesarios position has already been filled up. 2) The verification in the petition is ineffective and insufficient because it was merely signed by the company's Personnel Superintendent without alleging or showing that he is authorized for the said purpose and that the verification was based on knowledge and information. from the date of his termination effective February 17. It is argued that in Cesarios complaint for illegal dismissal. the Voluntary Arbitrator. 1996 up to the time of actual reinstatement. It has thus been observed that the power of a corporation to sue and be sued in any court is lodged with its board of directors that exercises its corporate powers. dismissed the same on the following grounds: 1) The petition for certiorari was not the proper remedy in order to seek review or nullify decisions or final orders issued by the Labor Arbiter. as in fact he was impleaded thereat in his capacity as UPMCs Personnel Superintendent who signed the termination . judgment is hereby issued ordering respondent United Paragon Mining Corporation to immediately reinstate Ceasario F. the preponderance of evidence shows that it was not [Cesario] who used said bolo. physical acts of the corporation. without going into the merits of the petition. Feliciano M. elevated the case to the CA on a Petition for Certiorari with Prayer for Temporary Restraining Order and Injunction. 1997. SP No. to wit: WHEREFORE. however. all other claims for damages are hereby dismissed. Atty. and it is so ruled. that Daniel was merely a nominal party in that proceedings. Daniel. that is.R. Throughout the proceedings before the Voluntary Arbitrator. like the signing of documents.Bus Org 2 Cases 1st Set Prelim 28 It has been established to the satisfaction of this Arbitrator that the bolo seen that night was used to chop wood to be burnt in the bonfire. Further. Archimedes O. [5] (Words in brackets supplied). UPMC was duly represented by its counsel. Unsatisfied. SP No. like petitioner UPMC. 3) The petitioner's ground of grave abuse of discretion. has no power except those expressly conferred on it by the Corporation Code and those that are implied or incidental to its existence. The recourse must have to be DENIED. Ermita to his former position prior to the termination without loss of seniority nor interruption of service. from the filing of the position papers up to the filing of the motion for reconsideration. and to pay said Ceasario F. SO ORDERED.[9] It is petitioners posture that there is no necessity for a board resolution authorizing its Personnel Superintendent to file in its behalf the certiorari petition in CA-G. but his son. Ermita his back wages. 44450 because said petition arose out of the labor dispute filed against it and its Personnel Superintendent. which cannot be entertained in a petition for certiorari. III WHETHER OR NOT THE PUBLIC RESPONDENT COURT OF APPEALS ERRED IN DISMISSING THE PETITION AFTER FINDING THAT THE PETITION LACKS MERIT BECAUSE IT DWELLED ON THE APPRECIATION OF FACTS WHICH IS NOT PROPER IN PETITION FOR CERTIORARI. True it is that Cesarios complaint for illegal dismissal was filed against the corporation and Daniel. 2001. in his capacity as the corporations Personnel Superintendent and as its representative. it is the finding of this Arbitrator. which cannot support the claim of the existence of strained relations between him and the corporation.

we deem it unnecessary to address petitioners other grievances.Bus Org 2 Cases 1st Set Prelim 29 letter. the present action must necessary fail.00.. Promulgated: November 17. VELASCO. CEB-10104 that ruled in favor of petitioners. it merely persisted in its thesis that it was not necessary to show proof that its Personnel Superintendent was duly authorized to file that petition and to sign the verification thereof and the certification against forumshopping despite the absence of the necessary board authorization. no person. Robles entered into a mortgage contract[7] with DBP in order to secure a loan from the said bank in the amount of P500. Daniel has no right to file the petition in CA-G. CV No. that in the absence of any board resolution from its board of directors the [sic] authority to act for and in behalf of the corporation. J. the issue of authority and the invalidity of plaintiff-appellants subscription which is still pending.. the Court of Appeals admitted the Motion for Reconsideration [4] of herein respondents Development Bank of the Philippines (DBP). not even the officers of the corporation... the commercial building was named the State Theatre Building. v. married and resident of 173 Maria Cristina Ext. C. can validly bind the latter: We agree with the finding of public respondent Court of Appeals.-x DECISION LEONARDO DE CASTRO.... 2002.[10] we made it clear that in the absence of an authority from the board of directors. 44450 is merely a continuation of the proceedings before the Voluntary Arbitrator and that its Personnel Superintendent was impleaded as one of the respondents in Cesarios complaint for illegal dismissal. Chairperson. Said motion prayed for the reversal of the Court of Appeals Decision [5] dated February 14. the instant petition is DENIED and the assailed CA decision and resolution are AFFIRMED.[12] Here. JR..R. 2002 of the Court of Appeals in CA-G.* and PEREZ. the Court of Appeals reversed its previous Decision dated February 14. In Premium Marble Resources... a domestic corporation engaged in the construction business.... Talisay. The properties mortgaged were a parcel of land situated in Tabunoc.. The facts leading to the instant petition are as follows: On June 2. Cesarios complaint contains no allegation whatsoever for specific claim or charge against Daniel in whatever capacity. 154366 Present: CORONA. PATRICIO YAP and ROGER BALILA.. G. JR. hereinafter referred to as the LESSOR. 2002.R. INC. and Elizabeth R. petitioner must show reasonable cause justifying non-compliance with the rules and must convince the Court that the outright dismissal of the petition would defeat the administration of justice..... Given the reality that the petition in CA-G. notwithstanding the fact that the same was filed more than six months beyond the reglementary period. 2001 and dismissed the petitioners complaint for lack of merit. With the view we take of this case. 1981.. 2001. in Civil Case No. 44450 in behalf of the corporation without any authority from its board of directors.Upon completion. Cebu City. Respondents.. . petitioner has not adequately explained its failure to have the certification against forum shopping signed by its duly authorized officer. As it is. to the sound judgment of the Securities and Exchange Commission. SP No. the spouses Rudy R. [11] But to merit the Court's liberal consideration. inclusive of the verification and the certification of non-forum shopping executed by Daniel himself. Court of Appeals. that petition was fatally defective.. Being not a real party-in-interest. SP No.R. Thus.. JJ.... ample jurisprudence exists to the effect that subsequent and substantial compliance of a petitioner may call for the relaxation of the rules of procedure in the interest of justice. Daniel was not in anyway affected by the outcome of the illegal dismissal case because only the corporation was made liable therein to Cesario. PERALTA. True... For sure. Robles...47783 of the Register of Deeds of Cebu. JOSE TO CHIP. . Filipino. Inc.. 2010 x. as well as the sale of hardware materials. WHEREFORE. Patricio Yap and Roger Balila... Branch 8.. and the commercial building to be constructed thereon [8] (subject properties). Inc. by and between: RUDY ROBLES.... Rudy Robles executed a contract of lease in favor of petitioner Cebu Bionic Builders Supply.R. thereby repeating in the process its basic submission that CA-G. Cebu... which was then covered by Transfer Certificate of Title (TCT) No. considering the premises. Petitioners.: This Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court assails the Resolution [2] dated February 5. The contract pertinently provides: CONTRACT OF LEASE KNOW ALL MEN BY THESE PRESENTS: This Lease Contract made and entered into. Instead.. 2002 and the Amended Decision[3] dated July 5.000.versus DEVELOPMENT BANK OF THE PHILIPPINES. CEBU BIONIC BUILDERS SUPPLY.. of legal age. LEONARDO-DE CASTRO. 57216.... It is basic in law that a corporation has a legal personality entirely separate and distinct from that of its officers and the latter cannot act for and on its behalf without being so authorized by its governing board. SP No.. together with all the existing improvements.and - .. Jr. 44450 was filed by Daniel in behalf of and in representation of petitioner UPMC without an enabling resolution of the latters board of directors.. On October 28.R. 1997 of the Regional Trial Court (RTC) of Cebu.. The power of the corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. In the Resolution dated February 5.. and LYDIA SIA. is a matter that is also addressed.. Jose To Chip. T. (Cebu Bionic)... 1981. which affirmed the Decision[6] dated April 25. No. In the Amended Decision of July 5..J.

[10] On February 6. to wit: July 7. the lessor is given an option of first refusal. within the term. Cebu Sir: This refers to the commercial space you are occupying in the acquired property of the Bank. married and with address at 240 Magallanes St. 3. the counsel of Bonifacio Sia replied to the above letter. in writing. Talisay. of legal age. until such time when we will fix the amount accordingly.[11] On October 13. The LESSOR agrees to lease unto the LESSEE and the LESSEE accepts the lease from the LESSOR. My client is amenable to the terms contained in your letter except the following: 1. Please be guided accordingly. Cebu City hereinafter known as the LESSEE. which we require you to submit. consisting of one (1) unit/store space under the following terms and conditions: 1. REVILLAS Branch Head[13] (Emphases ours. Lucilo S. Jr. for a maximum period of one (1) year. Deposit equivalent to two (2) months rental and advance of one (1) month rental. Cebu. . it is construed that you are not interested in leasing the premises and will vacate within the said period. the husband of petitioner Lydia Sia who was then President of Cebu Bionic. Talisay.Bus Org 2 Cases 1st Set Prelim 30 CEBU BIONIC BUILDER SUPPLY. (3). 1988. Should the LESSOR decide to sell the property during the term of this lease contract or immediately after the expiration of the lease.. represented by LYDIA SIA. The latter was. without need of demand. provided however that this contract shall be automatically renewed on a month to month basis if no notice. (SGD)LUCILO S.. 1987. The rental is payable in advance within the first five (5) days of the month. the spouses Robles failed to settle their loan obligation with DBP. Filipino. as assigned time deposit. we request you to come to the Bank for the execution of a Contract of Lease. This has reference to your letter of 18 June 1987 which you sent to my client. prompted to effect extrajudicial foreclosure on the subject properties. a final Deed of Sale[12] was issued in favor of DBP. 1987. is sent to the other party to terminate this agreement after fifteen (15) days from receipt of said notice. notifying the latter of DBPs acquisition of the State Theatre Building. is too short. State Theatre Bldg. located at Tabunok. Bonifacio Sia of Cebu Bionic Builders Supply the lessee of a commercial space of the State Theatre Bldg. Revillas Branch Head Development Bank of the Philippines Dear Mr. Meanwhile. thus. formerly owned by Rudy Robles. DBP was the lone bidder in the foreclosure sale and thereby acquired ownership of the mortgaged subject properties. the current monthly rental based on the six-month receipts.000. otherwise he has to vacate the premises within thirty (30) days from date of notice.00. temporarily.) On July 7. and the remaining amount for one year period (equivalent to 9 months rental) shall be secured by either surety bond. 1987. cash bond or assigned time deposit. we require you to remit the rental due for June 1987. Please be informed that said property has been acquired through foreclosure on February 6.) The above contract was not registered by the parties thereto with the Registry of Deeds of Cebu. my client will deposit with your bank the amount of P10. If you wish to continue on leasing the property. In lieu of item no. [9] (Emphases ours. Talisay. Truly yours. known as the State Theatre Building. 2 thereof. 1987. Bonifacio Sia Bionic Builders Inc. If the contract of lease is not executed within thirty (30) days from date hereof. Considering thereat. 1981 and shall terminate on the last day of every month thereafter. Subsequently. Said letter reads: June 18. The 30 days notice you mentioned in your letter.00) Pesos. We consider. 1987 Mr.000. a portion of the ground floor thereof. DBP sent a letter to Bonifacio Sia. Philippine Currency. xxxx 9. WITNESSETH: The LESSOR is the owner of a commercial building along Tabunok. Cebu. the LESSEE shall have the first option to buy and shall match offers from outside parties . 2. Revillas. That the term of this agreement shall start on November 1. My client is requesting for at least 60 days notice. Mr. The lease will be on month to month basis. 1987 Mr. 2. That in case there is a better offer or if the property will be subject of a purchase offer. The LESSEE shall pay a monthly rental of One Thousand (P1. the salient conditions of which are as follows: 1. Tabunok. on June 18. 2.

On December 28. Pursuant thereto. on November 14. the counsel of respondents To Chip. Thank you.) TIMOTEO P. subsequent to the acquisition of the subject properties. 1990. He stated that he has instructed Cebu Bionic to verify first the ownership of the subject properties since it had the preferential right to purchase the same. however. m.100. informing the latter of the transfer of ownership of the subject properties. Acquired Asset in Charge (Tel. DBP published a series of invitations to bid on such properties. On December 17. Talisay. DBP offered the same for sale along with its other assets. insisting that he and his co-respondents Yap and Balila urgently needed the subject properties to pursue their business plans. representing 10% of the offered purchase price. no written contract of lease was executed between DBP and Cebu Bionic. Philippines. warning the latter to vacate the subject properties within seven (7) days from receipt of the letter.100. Yap and Balila.Bus Org 2 Cases 1st Set Prelim 31 I sincerely hope that you will give due course to this request. NOTE: If no offer is received during the above stated acceptance period. On even date. 1990. DBP acknowledged the receipt of and accepted their offer. Attached to the letteroffer was a copy of the Negotiated Sale Rules and Procedures issued by DBP and a managers check for the amount of P184. petitioners submitted through their representative.[19] As no interested bidder came forward. which were scheduled on January 19.00. MUNTUERTO. Said offer was accompanied by a downpayment of 10% of the offered purchase price. 1991 until the end of the said 30-day period. 1991.810. the relevant terms and conditions of which stated: INVITATION ON NEGOTIATED SALE/OFFER The DEVELOPMENT BANK OF THE PHILIPPINES. however. Cebu Branch. After the lapse of the above-mentioned 15-day acceptance period. 1991. including the commercial building thereon. 1990. 1990. Yap and Balila sent a letter [23] addressed to the proprietor of Cebu Bionic. the properties described above shall be sold to the first offeror who submits an acceptable proposal on a First-Come-First-Served basis. Description/Location Starting Price xxxx II Commercial land. 1990. [16] February 23. amounting to P183. 1991. 1991.[17] April 13.840. City of Cebu. the former requiring a deposit of 10% and the latter 20% of the starting price.. otherwise.00. having an area of 396 sq.000. For reasons unclear. 1990 up to 12:00 oclock noon of DECEMBER 3. 1989. the last day for the acceptance of negotiated offers. as the corresponding deposit therefor was allegedly insufficient. petitioners did not submit any other offer/proposal to purchase the subject properties.000. Shortly thereafter.) In the morning of December 3. Yap and Balila sent its final demand letter [26] to Cebu Bionic. Panal. Negotiated offers may be made in CASH or TERMS. No. JR.838.[18] and November 15. (SGD. Lot No. In the meantime.838. Cebu Bionic was ordered to vacate the premises within thirty (30) days from receipt of the letter and directed to pay the rentals from January 1. 1990. offering to purchase the subject properties for P1. Jr. OLARTE Branch Head[20] (Emphases ours. will receive SEALED NEGOTIATED OFFERS/PURCHASE PROPOSALS tendered at its Branch Office. in order to secure copies of the Letter-Offer form and Negotiated Sale Rules and Procedures. Item No. 1989. T-65199 (DBP). either in the form of cash or cashiers/managers check to be enclosed in the sealed offer. (SGD) ANASTACIO T. respondents To Chip. on February 27. P1. November 16. On January 11. He likewise requested that he be furnished a copy of the deed of sale executed by DBP in favor of respondents To Chip. [27] . respondent To Chip wrote a letter [25] to the counsel of Cebu Bionic. The counsel of Cebu Bionic replied [24] that his client received the above letter on January 11.00. DBP Building.64 was issued in the name of Bonifacio Sia and the same was allegedly remitted to DBP as advance rental deposit.00.395.. respondents To Chip. a letter-offer form. 1989. a case for ejectment with damages will be filed against it. DBP publicized an Invitation on Negotiated Sale/Offer. 9-63-25). Osmea Boulevard. situated in Tabunok. Yap and Balila paid the balance of the purchase price and DBP issued a Deed of Sale [22] over the subject properties in their favor. He also reiterated their demand for Cebu Bionic to vacate the premises.[14] Thereafter. Truly yours. Cebu City for the sale of its acquired assets mentioned hereinunder within the 15-Day-Acceptance-Period starting from NOVEMBER 19. Yap and Balila presented their letter-offer[21] to purchase the subject properties on a cash basis for P1. Cebu and covered by TCT No. 3681-C-3.00 xxxx A pre-numbered Acknowledgment Receipt duly signed by at least two (2) of the Committee members shall be issued to the offeror acknowledging receipt of such offer. Judy Garces. Sealed offers submitted shall be opened by the Committee on Negotiated Offers at exactly 2:00 oclock in the afternoon of the last day of the acceptance period in order to determine the highest and/or most advantageous offer. a Certificate of Time Deposit [15] for P11. This offer of petitioners was not accepted by DBP. Apolinar K. 1989. On February 15. the counsel of respondents To Chip. xxxx Interested negotiated offerors are requested to see Atty.

that Cebu Bionic was the lessee and occupant of a commercial space in the State Theatre Building from October 1981 up to the time of the filing of the complaint. 6. [respondent] DBP never gave [petitioners] the first option to buy or to match offers from outside parties. 1991. 1997. which therefore required a 20% deposit. Chief of the Acquired Assets of DBP. there was no urgency for the same and that [Cebu Bionic] also. DBP maintained that petitioners documents did not show that the same were received and approved by any approving authority of the bank. After ascertaining that there was no other offeror as of that time. 1987 to [petitioners] wrote in paragraph 3 thereof. [31] (Emphasis ours. the RTC rendered judgment in Civil Case No. To Chip. such that the deposit of P184. complete with [the required documents. by way of counterclaim. Yap and Balila]. DBP.000. H which is the negotiated offer to purchase form under the 15-day acceptance period accomplished by [petitioners] which shows clearly the written . under the 15-day acceptance period. the Lessee shall have the first option to buy and shall match offers from outside parties. [35] In an Order[36] dated July 31. CEB-10104. 1987. 1991. that in case there is better offer or if a property will be subject of purchase offer.) As regards the offer of petitioners to purchase the subject properties from DBP. the bidding was scheduled on November 15. And yet. By acquiring the subject properties. Explained the trial court: It is a fact on record that [petitioners] complied with the requirements of deposit and advance rental as conditions for constitution of lease between the parties.395. petitioners contended that DBP was deemed to have assumed the contract of lease executed between them and Rudy Robles.] x x x. [respondent] DBP never informed [petitioners] that there was an interested party to buy the property.2 Negotiated Sale Rules and Procedures. DBP countered that the letter-offer of petitioners was actually not accepted as their offer to purchase was on a term basis. [Cebu Bionic] submitted its offer. were unceremoniously returned by [respondent] bank with the assurance that since there was no other bidder of the said property. could not be given much credence as it is refuted by Exh. considering that the property will necessarily be sold to [Cebu Bionic] for the reasons that there was no other interested party and that [Cebu Bionic] was a preferred party being the lessee and present occupant of the property subject of the lease[. issued a time deposit in the amount of P11. insisted that petitioners occupancy of the unit in the State Theatre Building was merely upon its acquiescence. 1991. Petitioners also prayed for the issuance of a writ of preliminary injunction.100. Yap and Balila no longer filed a separate answer.000.00 was insufficient being only 10% of the offer. 1991. Jr. Yap and Balila from registering the Deed of Sale in the latters favor and from undertaking the ejectment of petitioners from the subject properties. In the prior invitation to bid. therefore.840. on December 3. in favor of the Development Bank of the Philippines. it is very clear that DBP opted to continue the old and previous contract including the terms thereon by accepting the requirements contained in paragraph 2 of its letter dated June 18. at about 10:00 a. the RTC granted the prayer of petitioners for the issuance of a writ of preliminary injunction. the RTC gave more credence to the petitioners version of the facts.[38] (Emphases ours.It is also a fact on record that [respondent] DBP in its letter dated June 18. while in the next. DBP was bound by the provision of the lease contract. Yet. the submission of proposals was to be made from November 19. is entitled to first option being the present lessee. as DBP still received rentals from petitioners until March 1991. [respondents To Chip. Yap and Balila.838. for the price of P1. x x x. 1990 up to 12:00 noon of December 3. The declaration of Atty. In addition. Cebu Bionic still paid [28] to DBP. As such. 1987.000. Likewise. without their knowledge. finding meritorious the complaint of the petitioners. thus. asked that petitioners be ordered to pay damages and attorneys fees. which was higher than the starting price of P1. adopting instead the answer of DBP. [30] The complaint was docketed as Civil Case No. Yap and Balila. which stated that: 9. duly signed by plaintiff. The 10% deposit accompanying the petitioners letter-offer was declared insufficient. prayed for the dismissal of the complaint and. on March 22.3 Managers check for the amount of P184. Petitioners claimed that. 1991 was supposedly made in bad faith as they were made to a mere teller who had no knowledge of the sale of the subject properties to respondents To Chip. was allegedly not the document shown to DBP. During the latter part of 1990.00 on cash basis. DBP allegedly advised petitioners that there was no urgent need for the same x x x. otherwise. petitioners entreated that DBP be ordered to execute a deed of sale covering the subject properties in their name and to pay damages and attorneys fees. he has to vacate the premises within thirty (30) days. injunction with a prayer for the issuance of a writ of preliminary injunction. Respondents To Chip. meaning. 1991. namely: 6. The petitioners payment of rentals on March 22. 1990. x x x. Petitioners alleged. within the term. x x x. restraining respondents To Chip. inter alia. DBP advertised for sale the State Theatre Building and the commercial lot on which the same was situated. to wit: It is also a fact on record that when [respondent] DBP offered the property for negotiated sale under the 15-day acceptance period[. which indicated that the mode of payment was on a cash basis. the following documents. DBP.1 Letter-offer form.000 representing 10% of the deposit dated December 3. which monthly rental was no longer accepted by the DBP. It is also a fact on record that under the lease contract continued by the DBP on the [petitioners]. Although there was no formal written contract executed between [respondent] DBP and the [petitioners]. DBP stated that the letter-offer form was not completely filled out as the Term and Mode of Payment fields were left blank. they duly submitted to Atty. 1990. On April 10. it is provided in paragraph 9 thereof that the lessee shall have the first option to buy and shall match offers from outside parties. 6.Bus Org 2 Cases 1st Set Prelim 32 Despite the foregoing notice. [Petitioners] in complying with the requirements. Yap and Balila. Apolinar Panal. which] ended at noon of December 3. the amount of P5. [37] On April 25. offering to purchase the property advertised. Lydia Sia allegedly summoned back her representative who did not leave a copy of the letter-offer and the attached documents.m. cancellation of deed of sale with damages. DBP then informed petitioner Lydia Sia of the inadequacy of her offer. the lessee is given the option of first refusal. DBP argued that there was no assumption of the lease contract between Rudy Robles and petitioners since it acquired the subject properties through the involuntary mode of extrajudicial foreclosure and its request to petitioners to sign a new lease contract was simply ignored.[34] DBP denied the existence of a contract of lease between itself and petitioners. In its answer. Balila and Yap. CEB-10104 in the RTC. [33] Petitioners sought the rescission of the contract of sale between DBP and respondents To Chip. in all events. x x x.00 as monthly rentals on the unit of the State Theatre Building it was occupying for period of November 1990 to March 1991. DBP sold the subject properties to respondents To Chip. however. The letter-offer attached to the complaint. Panal to the effect that Cebu Bionic wanted to buy the property on installment terms. more specifically [respondents] To Chip. 1990. xxxx These requirements. thus depriving [petitioners] of the opportunity of first refusal promised to them in its letter dated June 18.64 and remitted faithfully its monthly rentals until April.. The sale was claimed to be simulated and fictitious. 1990 and issued by Allied Banking Corp.) Petitioners asserted that the above documents were initially accepted but later returned.][32] Petitioners then related that. petitioners filed against respondents DBP. Yap and Balila a complaint[29] for specific performance. Should the Lessor decide to sell the property during the term of this lease contract or immediately after the expiration of the lease.

Bus Org 2 Cases 1st Set Prelim 33
word Cash after the printed words Term and Mode of Payment, Exhibit J, the Managers check issued by Allied Banking Corporation
dated December 3, 1990 in the amount of P184,000.00 representing 10% of the offer showing the mode of payment is for cash;
Exhibit K which is the application for Managers check in the amount of P184,000.00 dated December 3, 1990 showing the beneficiary
as DBP. If it is true that the offer of [petitioners] was for installment payments, then in the ordinary course of human
behavior, it would not have wasted effort in securing a Managers check in the amount of P184,000.00 which was
insufficient for 20% deposit as required for installment payments. More credible is the explanation [given by] witness
Judy Garces when she said that DBP through Atty. Panal returned the documents submitted by her, saying that there
was no urgency for the same as there was no other bidder of [the said] property and that Cebu Bionic was entitled to
a first option to buy being the present lessee. In the letter also of [respondent] bank dated June 18, 1987, it is important to note
that aside from requiring Cebu Bionic to comply with certain requirements of time deposit and advance rental, as condition for
constitution of lease between the parties and which was complied by Cebu Bionic[,] said letter further states in paragraph 3 thereof
that in case there is [a] better offer or if the property will be subject of a purchase offer, within the term, the lessee is given the option
of first refusal, otherwise, he has to vacate the premises within thirty days. In answer to the Courts question, however, Atty. Panal
admitted that he did not tell [petitioners] that there was another party who was willing to purchase the property, in violation of
[petitioners] right of first refusal.[39] (Emphasis ours.)
Likewise, the RTC found that respondents To Chip, Yap and Balila were aware of the lease contract involving the subject properties
before they purchased the same from DBP. Thus:
[Respondent] Jose To Chip lamely pretends ignorance that [petitioners] are lessees of the property, subject matter of this case. He
states that he and his partners, the other [respondents], were given assurances by Atty. Panal of the DBP that [Lydia Sia] is not a
lessee, although he knew that [petitioners] were presently occupying the property and that it was possessed by [petitioners] even
before it was owned by the DBP. x x x.
xxxx
[Respondent] Roger Balila, in his testimony, likewise pretended ignorance that he knew that [Lydia Sia] was a lessee of the property. x
x x.
xxxx
Upon further questioning by the Court, he admitted that [Lydia Sia] was not possessing the building freely; that she was a lessee of
Rudy Robles, the former owner, but cleverly insisted in disowning knowledge that [Lydia Sia] was a lessee, denying knowledge that
[Lydia Sia] was paying rentals to [respondent] bank. His pretended ignorance x x x was a way of evading [Cebu Bionics] right of first
priority to buy the property under the contract of lease. x x x The Court is convinced that [respondents To Chip, Yap and Balila] knew
that [Cebu Bionic] was the present lessee of the property before they bought the same from [respondent] bank. Common
observation, knowledge and experience dictates that as a prudent businessman, it was but natural that he ask Lydia Sia what her
status was in occupying the property when he went to talk to her, that he ask her if she was a lessee. But he said, all he asked her
was whether she was interested to buy the property. x x x.[40]
The trial court, therefore, concluded that:
From the foregoing facts on record, it is thus clear that [petitioner] Cebu Bionic is the present lessee of the property, the lease
contract having been continued by [respondent] DBP when it received rental payments up to March of 1991 as well as the advance
rental for one year represented by the assigned time deposit which is still in [respondent] banks possession. The provision, therefore,
in the lease contract, on the right of first option to buy and the right of first refusal contained in [respondent] banks letter dated June
18, 1987, are still subsisting and binding up to the present, not only on [respondent] bank but also on [respondents To Chip, Yap and
Balila]. x x x.
xxxx
WHEREFORE, THE FOREGOING PREMISES CONSIDERED, judgment is hereby rendered:
(1) Rescinding the Deed of Sale dated December 28, 1990 between [respondent] Development Bank of the Philippines and
[respondents] Roger Balila, Jose To Chip and Patricio Yap;
(2) Ordering the [respondent] Development Bank of the Philippines to execute a Deed of Sale over the property, subject matter of
this case upon payment by [petitioners] of the whole consideration involved and to complete all acts or documents necessary to have
the title over said property transferred to the name of [petitioners];
(3) Costs against [respondents].[41]
DBP forthwith filed a Notice of Appeal.[42] Respondents To Chip, Yap and Balila filed a Motion for Reconsideration [43] of the above
decision, but the RTC denied the same in an Order [44] dated July 4, 1997. Said respondents then filed their Notice of Appeal.[45]
On February 14, 2001, the Court of Appeals promulgated its Decision, [46] pronouncing that:
We find nothing erroneous with the judgment rendered by the trial court. Perforce, We sustain it and dismiss the [respondents]
submission.
The RTC determined, upon evidence on record after a careful evaluation of the witnesses and their testimonies during the trial that
indeed [petitioners] right of first option was violated and thus, rescission of the sale made by DBP to [respondents To Chip, Yap and
Balila] are in order.
xxxx
Apparently, DBP accepted [the documents submitted by petitioners] and thereafter, through Atty. Panal (of DBP), returned all of it to
the [petitioners] with the assurance that since there was no other bidder of the said property, there was no urgency for the same and
that [Cebu Bionic] also, in all events, is entitled to first option being the present lessee.
[DBP] maintains that the return of the documents [submitted by petitioners] was in order since the [petitioners] offered to buy the
property in question on installment basis requiring a higher 20% deposit. This, however, was correctly rejected by the trial court[.] x x
x
The binding effect of the lease agreement upon the [respondents To Chip, Yap and Balila] must be sustained since from existing
jurisprudence cited by the lower court, it was determined during trial that:
... [respondents To Chip, Yap and Balila] knew that [Cebu Bionic] was the present lessee of the property before they bought
the same from [respondent] bank. Common observation, knowledge and experience dictates that as a prudent

Bus Org 2 Cases 1st Set Prelim 34
businessman, it was but natural that he ask Lydia Sia what her status was in occupying the property when he went to
talk to her, that he ask her if she was a lessee. But he said, all he asked her was whether she was interested to buy
the property. x x x.
Moreover, We find that the submissions presented by the [respondents] in their respective briefs argue against questions of facts as
found and determined by the lower court. The respondents contentions consist of crude attempts to question the assessment and
evaluation of testimonies and other evidence gathered by the trial court.
It must be remembered that findings of fact as determined by the trial court are entitled to great weight and respect from appellate
courts and should not be disturbed on appeal unless for [strong] and cogent reasons. These findings generally, so long as supported
by evidence on record, are not to be disturbed unless there are some facts or evidence which the trial court has misappreciated or
overlooked, and which if considered would have altered the results of the entire case. Sad to say for the [respondents], We see no
reason to depart from this well-settled legal principle.
WHEREFORE, in view of the foregoing, the judgment of the Regional Trial Court of Cebu City, Branch 8, in Civil Case No. 10104 is
hereby AFFIRMED in toto.[47]
On October 1, 2001, petitioners filed a Motion for Issuance of Entry of Judgment. [48] Petitioners stressed that, based on the records of
the case, respondents were served a copy of the Court of Appeals Decision dated February 14, 2001 sometime on March 7,
2001. However, petitioners discovered that respondents have not filed any motion for reconsideration of the said decision within the
reglementary period therefor, nor was there any petition for certiorari or appeal filed before the Supreme Court.
In response to the above motion, respondents To Chip, Yap and Balila filed on October 8, 2001 a Motion to Admit Motion for
Reconsideration.[49] Atty. Francis M. Zosa, the counsel for respondents To Chip, Yap and Balila, explained that he sent copies of the
motion for reconsideration to petitioners and DBP via personal delivery. On the other hand, the copies of the motion to be filed with
the Court of Appeals were purportedly sent to Mr. Domingo Tan, a friend of Atty. Zosa in Quezon City, who agreed to file the same
personally with the appellate court in Manila. When Atty. Zosa inquired if the motion for reconsideration was accordingly filed, Mr. Tan
allegedly answered in the affirmative. To his surprise, Atty. Zosa received a copy of petitioners Motion for Issuance of Entry of
Judgment. Atty. Zosa, thus, attributed the failure of his clients to file a motion for reconsideration on the mistake, excusable
negligence and/or fraud committed by Mr. Tan.
In the assailed Resolution dated February 5, 2002, the Court of Appeals granted the motion of respondents To Chip, Yap and Balila and
admitted the motion for reconsideration attached therewith in the higher interest of substantial justice. [50]
On July 5, 2002, the Court of Appeals reversed its original Decision dated February 14, 2001, reasoning thus:
After a judicious review and reevaluation of the evidence and facts on record, we are convinced that DBP had terminated the Robles
lease contract. From its letter of June 18, 1987, DBP had expressly notified [petitioners] that (I)f they wish to continue on leasing the
property x x x to come to the Bank for the execution of a Contract of Lease, the salient conditions of which are as follows:
1. The lease will be on a month to month basis for a maximum period of one (1) year;
2. Deposit equivalent to two (2) months rental and advance of one (1) month rental, and the remaining amount for one
year (equivalent to 9 months rental) shall be secured by either surety bond, cash bond or assigned time deposit;
3. That in case there is a better offer or if the property will be subject of a purchase offer, within the term, the lessor is
given an option of first refusal, otherwise he has to vacate the premises within thirty (30) days from date of notice.
We consider, temporarily, the current monthly rental based on the six-month receipts, which we require you to submit, until such
time when we will fix the amount accordingly.
Evidently, except for the remittance of the monthly rentals up to March 1991, the conditions imposed by DBP have never been
complied with. [Petitioners] did not go to the Bank to sign any new written contract of lease with DBP. [Petitioners] also did not put up
a surety bond nor cash bond nor assign a time deposit to secure the payment of rental for nine (9) months, although the [petitioners]
opened a time deposit but did not assign it to DBP.
But even with the remittance and acceptance of the deposit made by [petitioners] equivalent to two (2) months rental and advance
of one (1) month rental it does not necessarily follow that DBP opted to continue with the Robles lease. This is because the Robles
contract provides:
That the term of the agreement shall start on November 1, 1981 and shall terminate on the last day of every month
thereafter, provided however, that this contract shall be automatically renewed on a month to month basis if no notice
in writing is sent to the other party to determine to terminate this agreement after fifteen (15) days from the receipt
of said notice.
Here, a notice was sent to [petitioners] on June 18, 1987, informing them that if they wish to continue on leasing the property, we
request you to come to the Bank for the execution of a Contract of Lease x x x.
[Petitioners] failed to enter into the contract of lease required by DBP for it to continue occupying the leased premises.
Because of [petitioners] failure to comply with the conditions embodied in the 18 June 1987 letter, it cannot be said that [petitioners]
entered into a new contract with DBP where they were given the first option to buy the leased property and to match offers from
outside parties.
xxxx
Be that as it may, DBP continued to accept the monthly rentals based on the old Robles contract despite the fact that the [petitioners]
failed to enter into a written lease contract with it. Corollarily, the relations between the parties is now governed by Article 1670 of
the New Civil Code, thus:
Art. 1670. If at the end of contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the
lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there is an implied new
lease, not for the period of the original contract, but for the time established in Articles 1682 and 1687. The other terms of the
original contract shall be revived.
xxxx
x x x [T]he acceptance by DBP of the monthly rentals does not mean that the terms of the Robles contract were revived. In the case
of Dizon vs. Court of Appeals, the Supreme Court declared that:

Bus Org 2 Cases 1st Set Prelim 35
The other terms of the original contract of lease which are revived in the implied new lease under Article 1670 of the New Civil Code
are only those terms which are germane to the lessees right [of] continued enjoyment of the property leased an implied new lease
does not ipso facto carry with it any implied revival of any option to purchase the leased premises.
In view of the foregoing, it is clear that [petitioners] had no right to file a case for rescission of the deed of sale executed by DBP
in favor of [respondents To Chip, Yap and Balila] because said deed of sale did not violate their alleged first option to buy or match
offers from outside parties which is legally non-existent and which was not impliedly renewed under Article 1670 of the Civil Code.
WHEREFORE, premises considered, the 14 February 2001 Decision is hereby RECONSIDERED and another one is issued
REVERSING the 25 April 1997 Decision of the Regional Trial Court, Branch 8, Cebu City in Civil Case No. CEB-10104 and the
complaint of [petitioners] is DISMISSED for lack of merit.[51]
Without seeking a reconsideration of the above decision, petitioners filed the instant petition. In their Comment, respondents opposed
the petition on both procedural and substantive grounds.
In petitioners Memorandum, they summarized the issues to be resolved in the present case as follows:
A) PRELIMINARY ISSUES:
I
WHETHER OR NOT THE VERIFICATION (AND CERTIFICATION OF NON-FORUM SHOPPING) IN THE INSTANT PETITION WAS PROPER AND
VALID DESPITE ITS BEING SIGNED BY ONLY ONE OF THE TWO PETITIONERS.
II
WHETHER OR NOT ONLY QUESTIONS OF LAW AND NOT OF FACT CAN BE RAISED IN THE INSTANT PETITION BEFORE THIS HON.
SUPREME COURT.
B) MAIN AND PRINCIPAL ISSUES IN THE INSTANT PETITION:
I
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED IN ADMITTING RESPONDENTS MOTION FOR RECONSIDERATION DESPITE ITS
BEING FILED OUT OF TIME

II
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED IN DECLARING THAT PETITIONERS DID NOT ENTER INTO CONTRACT WITH
RESPONDENT DBP CONTINUING THE TERMS OF THE ROBLES CONTRACT
III
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED WHEN IT DECLARED THAT THE CONTINUATION BY RESPONDENT DBP OF THE
LEASE CONTRACT DID NOT CONTAIN THE RIGHT OF FIRST REFUSAL
IV
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED WHEN IT DECLARED THAT THE LEASE CONTRACT IS GOVERNED BY ART. 1670
OF THE NEW CIVIL CODE
V
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED WHEN IT FAILED TO RECOGNIZE PETITIONERS RIGHT OF FIRST REFUSAL TO
WHICH RESPONDENTS WERE BOUND
VI
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED WHEN IT FAILED TO DECLARE THAT RESPONDENT DBP HAD VIOLATED
PETITIONERS RIGHTS
VII
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED IN REVERSING ITS OWN JUDGMENT AND DISMISSING PETITIONERS CLAIM
FOR RESCISSION[52]
We shall first resolve the preliminary issues.
Respondents To Chip, Yap and Balila argue that the instant petition should be dismissed outright as the verification and certification of
non-forum shopping was executed only by petitioner Lydia Sia in her personal capacity, without the participation of Cebu Bionic.
The Court is not persuaded.
Except for the powers which are expressly conferred on it by the Corporation Code and those that are implied by or are incidental to
its existence, a corporation has no powers. It exercises its powers through its board of directors and/or its duly authorized officers
and agents. Thus, its power to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers.
[53]
Physical acts, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by
corporate by-laws or by a specific act of the board of directors. [54]
In this case, respondents To Chip, Yap and Balila obviously overlooked the Secretarys Certificate [55] attached to the instant petition,
which was executed by the Corporate Secretary of Cebu Bionic. Unequivocally stated therein was the fact that the Board of Directors
of Cebu Bionic held a special meeting on July 26, 2002 and they thereby approved a Resolution authorizing Lydia Sia to elevate the
present case to this Court in behalf of Cebu Bionic, to wit:
Whereas, the board appointed LYDIA I. SIA to act and in behalf of the corporation to file the CERTIORARI with the Supreme Court in
relations to the decision of the Court of Appeals dated July 5, 2002 which reversed its own judgment earlier promulgated on February
14, 2001 entitled CEBU BIONIC BUILDERS SUPPLY, INC. and LYDIA SIA, (Petitioners- Appellants) versus THE DEVELOPMENT BANK OF
THE PHILIPPINES, JOSE TO CHIP, PATRICIO YAP and ROGER BALILA (Respondents- Appelles), docketed CA-G.R. NO. 57216.

Bus Org 2 Cases 1st Set Prelim 36
Whereas, on mass unanimously motion of all members of directors present hereby approved the appointment of LYDIA I. SIA to act
and sign all papers in connection of CA-G.R. NO. 57216.
Resolved and it is hereby resolve to appoint and authorized LYDIA I. SIA to sign and file with the SUPREME COURT in connection to
decision of the Court of Appeals as above mention.[56]
Respondents To Chip, Yap and Balila next argue that the instant petition raises questions of fact, which are not allowed in a petition
for review on certiorari. They, therefore, submit that the factual findings of the Court of Appeals are binding on this Court.
Section 1, Rule 45 of the Rules of Court categorically states that the petition filed thereunder shall raise only questions of law, which
must be distinctly set forth. A question of law arises when there is doubt as to what the law is on a certain state of facts, while there
is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to be one of law, the same
must not involve an examination of the probative value of the evidence presented by the litigants or any of them. The resolution of
the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a review
of the evidence presented, the question posed is one of fact. [57]
The above rule, however, admits of certain exceptions, [58] one of which is when the findings of the Court of Appeals are contrary to
those of the trial court. As will be discussed further, this exception is attendant in the case at bar.
We now determine the principal issues put forward by petitioners.
First off, petitioners fault the Court of Appeals for admitting the Motion for Reconsideration of its Decision dated February 14, 2001,
which was filed by respondents To Chip, Yap and Balila more than six months after receipt of the said decision. The motion was
eventually granted and the Court of Appeals issued its assailed Amended Decision, ruling in favor of respondents.
Indeed, the appellate courts Decision dated February 14, 2001 would have ordinarily attained finality for failure of respondents to
seasonably file their Motion for Reconsideration thereon. However, we agree with the Court of Appeals that the higher interest of
substantial justice will be better served if respondents procedural lapse will be excused.
Verily, we had occasion to apply this liberality in the application of procedural rules in Barnes v. Padilla[59] where we aptly declared
that
The failure of the petitioner to file his motion for reconsideration within the period fixed by law renders the decision final and
executory.Such failure carries with it the result that no court can exercise appellate jurisdiction to review the case. Phrased elsewise,
a final and executory judgment can no longer be attacked by any of the parties or be modified, directly or indirectly, even by the
highest court of the land.
However, this Court has relaxed this rule in order to serve substantial justice considering (a) matters of life, liberty, honor or property,
(b) the existence of special or compelling circumstances, (c) the merits of the case, (d) a cause not entirely attributable to the fault or
negligence of the party favored by the suspension of the rules, (e) a lack of any showing that the review sought is merely frivolous
and dilatory, and (f) the other party will not be unjustly prejudiced thereby. [60]
In this case, what are involved are the property rights of the parties given that, ultimately, the fundamental issue to be determined is
who among the petitioners and respondents To Chip, Yap and Balila has the better right to purchase the subject properties. More
importantly, the merits of the case sufficiently called for the suspension of the rules in order to settle conclusively the rights and
obligations of the parties herein.
In essence, the questions that must be resolved are: 1) whether or not there was a contract of lease between petitioners and DBP; 2)
if in the affirmative, whether or not this contract contained a right of first refusal in favor of petitioners; and 3) whether or not
respondents To Chip, Yap and Balila are likewise bound by such right of first refusal.
Petitioners contend that there was a contract of lease between them and DBP, considering that they had been allowed to occupy the
premises of the subject property from 1987 up to 1991 and DBP received their rental payments corresponding to the said
period. Petitioners claim that DBP were aware of their lease on the subject property when the latter foreclosed the same and the
acquisition of the subject properties through foreclosure did not terminate the lease. Petitioners subscribe to the ruling of the RTC that
even if there was no written contract of lease, DBP chose to continue the existing contract of lease between petitioners and Rudy
Robles by accepting the requirements set down by DBP on the letter dated June 18, 1987. Petitioners likewise posit that the contract
of lease between them and Rudy Robles never expired, inasmuch as the contract did not have a definite term and none of the parties
thereto terminated the same. In view of the continuation of the lease contract between petitioners and Rudy Robles, petitioners
submit that Article 1670 of the Civil Code on implied lease is not applicable on the instant case.
We are not persuaded.
In Uy v. Land Bank of the Philippines,[61] the Court held that [i]n respect of the lease on the foreclosed property, the buyer at the
foreclosure sale merely succeeds to the rights and obligations of the pledgor-mortgagor subject to the provisions of Article 1676 of
the Civil Code on its possible termination. This article provides that [t]he purchaser of a piece of land which is under a lease that is
not recorded in the Registry of Property may terminate the lease, save when there is a stipulation to the contrary in the contract of
sale, or when the purchaser knows of the existence of the lease. In short, the buyer at the foreclosure sale, as a rule, may terminate
an unregistered lease except when it knows of the existence of the lease.
In the instant case, the lease contract between petitioners and Rudy Robles was not registered. [62] During trial, DBP denied having any
knowledge of the said lease contract. [63] It asserted that the lease was merely presumed in view of the existence of tenants in the
subject property.[64] Nevertheless, DBP recognized and acknowledged this lease contract in its letter dated June 18, 1987, which was
addressed to Bonifacio Sia, then President of Cebu Bionic. DBP even required Sia to pay the monthly rental for the month of June
1987, thereby exercising the right of the previous lessor, Rudy Robles, to collect the rental payments from the lessee. In the same
letter, DBP extended an offer to Cebu Bionic to continue the lease on the subject property, outlining the provisions of the proposed
contract and specifically instructing the latter to come to the bank for the execution of the same. DBP likewise gave Cebu Bionic a 30day period within which to act on the said contract execution. Should Cebu Bionic fail to do so, it would be deemed uninterested in
continuing with the lease. In that eventuality, the letter states that Cebu Bionic should vacate the premises within the said period.
Instead of acceding to the terms of the aforementioned letter, the counsel of Cebu Bionic sent a counter-offer to DBP dated July 7,
1987, suggesting a different mode of payment for the rentals and requesting for a 60-day period within which time the parties will
execute a new contract of lease.
The parties, however, failed to execute a written contract of lease. Petitioners put the blame on DBP, asserting that no contract was
signed because DBP did not prepare it for them. DBP, on the other hand, counters that it was petitioners who did not positively act on
the conditions for the execution of the lease contract. In view of the counter-offer of petitioners, DBP and respondents To Chip, Yap

Bus Org 2 Cases 1st Set Prelim 37
and Balila argue that there was no meeting of minds between DBP and petitioners, which would have given rise to a new contract of
lease.
The Court rules that, indeed, no new contract of lease was ever perfected between petitioners and DBP.
In Metropolitan Manila Development Authority v. JANCOM Environmental Corporation,[65] we emphasized that:
Under Article 1305 of the Civil Code, [a] contract is a meeting of minds between two persons whereby one binds himself, with respect
to the other, to give something or to render some service. A contract undergoes three distinct stages preparation or negotiation, its
perfection, and finally, its consummation. Negotiation begins from the time the prospective contracting parties manifest their interest
in the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place when the
parties agree upon the essential elements of the contract. The last stage is the consummation of the contract wherein the parties
fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof ( Bugatti vs. CA, 343 SCRA 335
[2000]). Article 1315 of the Civil Code, provides that a contract is perfected by mere consent. Consent, on the other hand, is
manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract (See
Article 1319, Civil Code). x x x.[66]
In the case at bar, there was no concurrence of offer and acceptance vis--vis the terms of the proposed lease agreement. In fact, after
the reply of petitioners counsel dated July 7, 1987, there was no indication that the parties undertook any other action to pursue the
execution of the intended lease contract. Petitioners even admitted that they merely waited for DBP to present the contract to them,
despite being instructed to come to the bank for the execution of the same. [67]
Contrary to the ruling of the RTC, the Court is also not convinced that DBP opted to continue the existing lease contract between
petitioners and Rudy Robles.
The findings of the RTC that DBP supposedly accepted the requirements the latter set forth in its letter dated June 18, 1987 is not well
taken. To recapitulate, the third paragraph of the letter reads:
If you wish to continue on leasing the property, we request you to come to the Bank for the execution of a Contract of
Lease, the salient conditions of which are as follows:
1. The lease will be on month to month basis, for a maximum period of one (1) year;
2. Deposit equivalent to two (2) months rental and advance of one (1) month rental, and the remaining amount for one year period
(equivalent to 9 months rental) shall be secured by either surety bond, cash bond or assigned time deposit;
3.
That in case there is a better offer or if the property will be subject of a purchase offer, within the term, the lessor is
given an option of first refusal, otherwise he has to vacate the premises within thirty (30) days from date of notice. [68]
The so-called requirements enumerated in the above paragraph are not really requirements to be complied with by the petitioners for
the execution of the proposed lease contract, as apparently considered by the RTC and the petitioners. A close reading of the letter
reveals that the items enumerated therein were in fact the salient terms and conditions of the proposed contract of lease, which the
DBP and the petitioners were to execute if the latter were so willing. Also, the Certificate of Time Deposit in the amount
of P11,395.64, which was allegedly paid to DBP as advance rental deposit pursuant to the said requirements, was not even clearly
established as such since it was neither secured by a security bond or a cash bond, nor was it assigned to DBP.
The contention that the lease contract between petitioners and Rudy Robles did not expire, given that it did not have a definite term
and the parties thereto failed to terminate the same, deserves scant consideration. To recall, the second paragraph of the terms and
conditions of the contract of lease between petitioners and Rudy Robles reads:
2. That the term of this agreement shall start on November 1, 1981 and shall terminate on the last day of every month thereafter;
provided however that this contract shall be automatically renewed on a month to month basis if no notice, in writing, is
sent to the other party to terminate this agreement after fifteen (15) days from receipt of said notice.[69] (Emphases
ours.)
Crystal clear from the above provision is that the lease is on a month-to-month basis. Relevantly, the well-entrenched principle is that
a lease from month-to-month is with a definite period and expires at the end of each month upon the demand to vacate by the lessor.
[70]
As held by the Court of Appeals in the assailed Amended Decision, the above-mentioned lease contract was duly terminated by
DBP by virtue of its letter dated June 18, 1987. We reiterate that the letter explicitly directed the petitioners to come to the office of
the DBP if they wished to enter into a new lease agreement with the said bank. Otherwise, if no contract of lease was executed within
30 days from the date of the letter, petitioners were to be considered uninterested in entering into a new contract and were thereby
ordered to vacate the property. As no new contract was in fact executed between petitioners and DBP within the 30-day period, the
directive to vacate, thus, took effect. DBPs letter dated June 18, 1987, therefore, constituted the written notice that was required to
terminate the lease agreement between petitioners and Rudy Robles. From then on, the petitioners continued possession of the
subject property could be deemed to be without the consent of DBP.
Thusly, petitioners assertion that Article 1670 of the Civil Code is not applicable to the instant case is correct. The reason, however, is
not that the existing contract was continued by DBP, but because the lease was terminated by DBP, which termination was
accompanied by a demand to petitioners to vacate the premises of the subject property.
Article 1670 states that [i]f at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the
acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there
is an implied new lease, not for the period of the original contract, but for the time established in Articles 1682 and 1687. The other
terms of the original contract shall be revived. In view of the order to vacate embodied in the letter of DBP dated June 18, 1987 in the
event that no new lease contract is entered into, the petitioners continued possession of the subject properties was without the
acquiescence of DBP, thereby negating the constitution of an implied lease.
Contrary to the ruling of the RTC, DBPs acceptance of petitioners rental payments of P5,000.00 for the period of November 1990 to
March 1991 did not likewise give rise to an implied lease between petitioners and DBP. In Tagbilaran Integrated Settlers Association
(TISA) Incorporated v. Court of Appeals,[71] we held that the subsequent acceptance by the lessor of rental payments does not, absent
any circumstance that may dictate a contrary conclusion, legitimize the unlawful character of their possession. In the present case,
the petitioners rental payments to DBP were made in lump sum on March 22, 1991. Significantly, said payments were remitted
only after petitioners were notified of the sale of the subject properties to respondents To Chip, Yap and Balila and after the petitioners
were given a final demand to vacate the properties. These facts substantially weaken, if not controvert, the finding of the RTC and the
argument of petitioners that the latter were faithfully remitting their rental payments to DBP until the year 1991.
Thus, having determined that the petitioners and DBP neither executed a new lease agreement, nor entered into an implied lease
contract, it follows that petitioners claim of entitlement to a right of first refusal has no leg to stand on. Furthermore, even if we were

Bus Org 2 Cases 1st Set Prelim 38
to grant, for the sake of argument, that an implied lease was constituted between petitioners and the DBP, the right of first refusal
that was contained in the prior lease contract with Rudy Robles was not renewed therewith. This is in accordance with the ruling
in Dizon v. Magsaysay,[72] which involved the issue of whether a provision regarding a preferential right to purchase is revived in an
implied lease under Article 1670, to wit:
[T]he other terms of the original contract which are revived in the implied new lease under Article 1670 are only those terms which
are germane to the lessees right of continued enjoyment of the property leased. This is a reasonable construction of the provision,
which is based on the presumption that when the lessor allows the lessee to continue enjoying possession of the property for fifteen
days after the expiration of the contract he is willing that such enjoyment shall be for the entire period corresponding to the rent
which is customarily paid in this case up to the end of the month because the rent was paid monthly. Necessarily, if the presumed will
of the parties refers to the enjoyment of possession the presumption covers the other terms of the contract related to such
possession, such as the amount of rental, the date when it must be paid, the care of the property, the responsibility for repairs,
etc. But no such presumption may be indulged in with respect to special agreements which by nature are foreign to the right of
occupancy or enjoyment inherent in a contract of lease. [73]
DBP cannot, therefore, be accused of violating the rights of petitioners when it offered the subject properties for sale, and eventually
sold the same to respondents To Chip, Yap and Balila, without first notifying petitioners. Neither were the said respondents bound by
any right of first refusal in favor of petitioners. Consequently, the sale of the subject properties to respondents was valid. Petitioners
claim for rescission was properly dismissed.
WHEREFORE, the Petition for Review on Certiorari under Rule 45 of the Rules of Court is DENIED. The Resolution dated February 5,
2002 and the Amended Decision dated July 5, 2002 of the Court of Appeals in CA-G.R. CV No. 57216 are hereby AFFIRMED. No costs.
JOSE F. MANACOP, HARISH G.R. Nos. 162814-17
C. RAMNANI, CHANDRU P.
PESSUMAL and MAUREEN
M. RAMNANI, Present:
Petitioners,
Davide, Jr., C.J. (Chairman),
Quisumbing,
- versus - Ynares-Santiago,
Carpio, and
Azcuna, JJ.
EQUITABLE PCIBANK, LAVINE
LOUNGEWEAR MANUFACTURING
INC., PHILIPPINE FIRE AND MARINE
INSURANCE CORPORATION and
FIRST LEPANTO-TAISHO Promulgated:
INSURANCE CORPORATION,
Respondents. August 25, 2005
x ---------------------------------------------------------------------------------------- x
DECISION
YNARES-SANTIAGO, J.:
Respondent Lavine Loungewear Manufacturing, Inc. (Lavine) insured its buildings and supplies against fire with Philippine Fire and
Marine Insurance Corporation (PhilFire), Rizal Surety and Insurance Company (Rizal Surety), Tabacalera Insurance Company (TICO),
First Lepanto-Taisho Insurance Corporation (First Lepanto), Equitable Insurance Corporation (Equitable Insurance), and Reliance
Insurance Corporation (Reliance Insurance). Except for Policy No. 13798 issued by First Lepanto, all the policies provide that:
Loss, if any, under this policy is payable to Equitable Banking Corporation-Greenhills Branch, as their interest may appear subject to
the terms, conditions, clauses and warranties under this policy. (Underscoring supplied)
On August 1, 1998, a fire gutted Lavines buildings and their contents thus claims were made against the policies. As found by the
Office of the Insurance Commission, the insurance proceeds payable to Lavine is P112,245,324.34. [1]
Lavine was then represented by Harish C. Ramnani (Harish) but his authority was withdrawn on March 17, 2000 by the Board of
Directors due to his alleged failure to account for the insurance proceeds. Chandru C. Ramnani (Chandru) was appointed in his stead
and was designated, together with Atty. Mario A. Aguinaldo, as Lavines representatives in negotiating with the insurance companies.
Prior to the release of the proceeds, the insurance companies required Lavine to sign a Sworn Statement in Proof of Loss and
Subrogation Agreement[2] whereby the former would be absolved from their liabilities upon payment of the proceeds to Equitable
Bank. Only Harish signed the document while the rest of Lavines directors refused to sign.
Notwithstanding Chandrus request that payments be made first to Lavine who shall thereafter pay Equitable Bank as the latters
interest may appear, certain insurance companies released the proceeds directly to Equitable Bank thus Chandru filed, in behalf of
Lavine, a Petition for the Issuance of a Writ of Preliminary Injunction with Prayer for a Temporary Restraining Order [3] before the
Regional Trial Court (RTC) of Pasig City, against PhilFire, Rizal Surety, TICO, First Lepanto and Equitable Bank. The case was docketed
as Civil Case No. 68287 and raffled to Branch 71 presided by Judge Celso D. Lavia.
Harish, Jose F. Manacop, Chandru P. Pessumal, Maureen M. Ramnani and Salvador Cortez , moved to intervene[4] claiming they were
Lavines incumbent directors and that Harish was Lavines authorized representative. [5] They disclaimed Chandrus designation as
president of Lavine as well as his and Atty. Aguinaldos authority to file the action. They also denied having refused to sign the Sworn
Statement in Proof of Loss and Subrogation Agreement. [6]
On February 14, 2001, the trial court granted the motion for intervention [7] and thereafter denied Lavines motion for reconsideration.[8]
In their respective Answer with Compulsory Counterclaim, Rizal Surety stated its willingness to pay the insurance proceeds but only to
the rightful claimant,[9] while Equitable Bank alleged it had sufficiently established the amount of its claim and as beneficiary of the
insurance policies, it was entitled to collect the proceeds. [10]
The intervenors in their Amended Answer-in-Intervention [11] with cross-claim against the insurance companies alleged that as of
August 1, 1998, Lavines obligations to Equitable Bank amounted to P71,000,000.00 and since Equitable Insurance and Reliance
Insurance have already paid the bank more than this amount, respondent insurance companies should be ordered to immediately
deliver to Lavine the remaining insurance proceeds through the intervenors and to pay interests thereon from the time of submission
of proof of loss.
In its Answer[12] dated May 22, 2001 to Lavines complaint and the intervenors cross-claim, First Lepanto alleged that its share in the
combined proceeds was P16,145,760.11, of which P6,000,000.00 had already been paid to Equitable Bank. It withheld payment of the

[26] PhilFires Motion for Reconsideration and Motion to Dismiss were denied by the trial court on May 14. and averred that the loans were secured not only by the insurance policies and the real estate mortgages but also by several surety agreements executed by Harish and Maureen Ramnani. 70844. after it withdrew its Notice of Appeal. [13] On June 18.R. plaintiff through Intervenors the amount equivalent to ten (10%) per cent of the actual damages due and demandable as and by way of attorneys fees.[20] On April 2. 70298. PT-17871.Bus Org 2 Cases 1st Set Prelim 39 balance since it could not determine to whom it should be made. 2002.00 representing unpaid insurance proceeds as actual or compensatory damages. ORDERING all defendants to pay. and (c) any appeal from the trial courts judgment would be merely dilatory. SP No.690. SP No. Defendant Tabacalera Insurance Company to pay plaintiff through Intervenors the amount of P25. it was too late for First Lepanto to file an action for interpleader.00 representing unpaid insurance proceeds as actual or compensatory damages. Ramnani.819.) Incorporation (QBE Insurance). the real estate mortgages given as security therefor be released and the excess amount returned to Lavine. judgment is hereby rendered: 1. It allegedly did not file a motion for reconsideration of the . 1998 until full payment. TICO did not file an answer to Lavines complaint and was declared in default. Thus. Counterclaims filed by plaintiff against intervenors and cross-claims filed by all defendants against intervenors and counterclaims are hereby DISMISSED for lack of merit.608. ORDERING the defendant Bank to refund to plaintiff through the Intervenors the amount of P65. 2001.250. Personal properties of PhilFire and First Lepanto were seized. 70292. DISMISSING the Complaint dated January 22. Defendant Rizal Surety and Insurance Company to pay plaintiff through Intervenors the amount of P17. Meanwhile. of which P4. 1998 until full payment.000.288. for lack of merit. Equitable Bank filed on April 24.[15] After pre-trial. 3. The writ was not enforced against Rizal Surety because its corporate name and operations were transferred to QBE Insurance (Phils.48 representing unpaid insurance proceeds as actual or compensatory damages. Lavine also filed a Petition for Certiorari with Prayer for Temporary Restraining Order (TRO) and Writ of Preliminary Injunction [29] docketed as CA-G. (b) Lavine was in imminent danger of extinction. with twenty-nine (29%) per cent interest per annum from October 1. This was refuted by the intervenors who alleged that since Lavine and petitioners were already litigating. It further alleged that the intervenors had no personality to intervene and prayed for the outright dismissal of their cross-claim against the insurance companies.100. 6. 2002. 2002. jointly and severally.[17] In a Reply. 1998 until full payment. Defendant First Lepanto-Taisho Insurance Corporation to pay plaintiff through Intervenors the total amount of P18. PhilFire filed its Answer[14] admitting liability in the amount of P12. 23906. Costs of suit.05 representing the overpayment as actual or compensatory damages. First Lepanto. c.000. 2002 a Petition for Certiorari.R. the insurers and sureties to fully satisfy the loan obligations. CCT Nos.R. b. 1997 [19] and that the loan covered by PN No. (b) the spouses Harish and Maureen Ramnani be held solidarily liable for the payment of the outstanding obligations of Lavine.916. with twenty-nine (29%) per cent interest per annum from October 1. PT-17872 and PT-17873. In the meantime.329. [23] PhilFire likewise filed a Notice of Appeal. Judge Lavia granted intervenors motion for execution pending appeal [30] and issued a writ of execution on May 20. SO ORDERED. [27] Without filing a motion for reconsideration from the decision of the trial court and even before the latter could rule on the motion for execution pending appeal. Equitable Bank and Lavine separately filed a Notice of Appeal. TL-GH-97-0292 had been fully paid. SP No.52 had been paid to Equitable Bank but withheld paying the balance until the rightful claimant has been determined. and (c) the mortgaged properties be foreclosed in case of failure of Lavine. speedy and adequate remedy under the circumstances.936. They stressed that the latter must now deliver the balance of the insurance proceeds to either Equitable Bank or Lavine. The promissory notes allegedly pertaining to these loans were obtained prior to 1998 and the surety agreements signed by Harish and Maureen Ramnani were consolidated in a Surety Agreement dated January 27.[18] the intervenors denied that Lavine acquired further loans from the bank for the years 1998 and 1999. 2. with legal rate of interest at six (6%) per cent per annum from the date of this decision until full payment. 2001. The bank prayed that: (a) the insurance companies be ordered to deliver to it the proceeds of the policies and/or for Lavine to be directed to pay the outstanding loans.[24] a Motion for Reconsideration (Ad Cautelam).09. the intervenors filed a Second Amended Answer-in-Intervention [16] alleging that Lavines liabilities to Equitable Bank were extinguished since it received proceeds exceeding the amount of Lavines obligations.00 representing unpaid insurance proceeds as actual or compensatory damages. Rizal Surety. the trial court rendered a decision. Equitable Bank denied that Lavines obligations were fully paid. 1998 until full payment. the latters bank deposits garnished while real properties belonging to Equitable Bank were levied upon. 2002 [31]which was implemented the following day. d. with twenty-nine (29%) per cent interest per annum from October 1.[21] On April 3. through the intervenors. the dispositive part of which reads: WHEREFORE.111.670. with twenty-nine (29%) per cent interest per annum from October 1. CANCELLING the loan mortgage annotations and RETURNING to plaintiff through Intervenors TCT No. Prohibition and Mandamus (with Prayer for Temporary Restraining Order and Preliminary Injunction) [28] before the Court of Appeals docketed as CA-G. Equitable Bank and First Lepanto manifested in open court that another pre-trial should be conducted on the intervenors cross-claim under the Second Amended Answer-in-Intervention but the trial court denied the same and proceeded with the hearing of the case. Both claimed that appeal was not a plain. ORDERING: a. [25] and a Motion to Dismiss. the intervenors filed a Motion for Execution Pending Appeal [22] on the following grounds: (a) TICO was on the brink of insolvency. Defendant Philippine Fire and Marine Insurance Corporation to pay plaintiff through Intervenors the total amount of P15.000. 4. with costs against Chandru C. [32] First Lepanto assailed the trial courts order granting execution pending appeal and the writ of execution in a Petition for Certiorari[33] before the Court of Appeals docketed as CA-G. 5.

payment thereof should be withheld.) Inc. THE COURT OF APPEALS ERRED IN SETTING ASIDE THE DECISION OF THE TRIAL COURT AND FRUSTRATE THE FINDINGS THAT EQUITABLE PCIBANK IS NOT ENTITLED TO CLAIM THE INSURANCE PROCEEDS SINCE THE LOAN OF LAVINE TO IT HAD ALREADY BEEN FULLY PAID AS IN FACT THERE WAS AN OVERPAYMENT WHICH MUST BE RETURNED TO LAVINE. In fact. Nos. The existence and availability of the right of appeal proscribes resort to certiorari because one of the requirements for availment of the latter is precisely that there should be no appeal. CLARIFY paragraph 3 of the Consolidated Decision in the sense that the case is remanded to the lower court to enable to ( sic) the parties to amend their respective pleadings and issues.R. the requirement that there is no appeal. Judge Lavia issued an Order dated May 27.R. we agree that the Court of Appeals should have dismissed CA-G.R. IV. 2004. In due course. (3) remanding the case to the lower court for the conduct of pre-trial conference on the Second Amended Answer-in-Intervention and the subsequent pleadings filed in relation thereto. as the ongoing execution of the appealed judgment was threatening to paralyze its operations. the Court of Appeals promulgated a consolidated decision. 70298 AND THE PETITION FOR CERTIORARI OF LAVINE IN CA-G. [36] In view of the issuance of the writ of execution by the trial court.R. A perusal of these petitions show that Equitable Bank and Lavine inappropriately filed the petitions for certiorari when appeal was clearly a plain. 162842-45 assailing the appellate courts resolution insofar as it denied the banks motion to disqualify Judge Lavia. did not file a petition under Rule 65 of the Revised Rules of Civil Procedure but maintained its ordinary appeal from the April 2. the appellate court issued a resolution amending its earlier decision as follows: WHEREFORE.[39] Upon proper motion. II.[44] . On the first assigned error. Prohibition and Mandamus [37] in CA-G. Before long. 2002 FOR LACK OF PRE-TRIAL ON THE PETITIONERS AMENDED ANSWER-IN-INTERVENTION NOTWITHSTANDING THAT A PRE-TRIAL WAS ALREADY CONCLUDED AND THE PARTIES HAVE ALREADY ADDUCED THEIR RESPECTIVE EVIDENCES IN THE TRIAL. as may be necessary and conduct pre-trial anew and other proceedings to the exclusion of the intervenors in view of the ruling that the latter should not have been allowed to intervene in the case. 2. CORRECT paragraph 1 of the dispositive portion of the Consolidated Decision dated May 29. the Third Division of this Court denied the petition[40] and its subsequent motion for reconsideration. SP NO. 2002 and not April 2. [42] The petition is partly meritorious. the certiorari petitions were consolidated before the Tenth Division of the Court of Appeals. subject to the outcome of the decision on the issue on the rightful members of the Board of Directors of Lavine which is pending before the intra-corporate court. 2002 directing the implementation of the Writ of Execution against QBE Insurance.[38] On March 17. SP NO. the Court of Appeals also subsequently ordered the lifting of the order of levy and notice of garnishment on the real properties and bank deposits of First Lepanto in a resolution dated April 20.. 2001.[35] Subsequently. 70292 and 70298. SP No. 2002. However. both filed their respective notices of appeal from the trial courts decision.Bus Org 2 Cases 1st Set Prelim 40 trial courts order due to extreme urgency. Equitable Bank filed an Amended and/or Supplemental Petition for Certiorari. (2) declaring NULL and VOID the Special Order dated May 17. [34] Rizal Surety. and (4) in the event that the lower court decides that Lavine is the one entitled to the proceeds of the insurance policies. against the same order and writ of execution. for its part. b) LIFT the garnishment on the bank accounts of Philippine Fire and Marine Insurance Corporation which were made pursuant to the Special Order dated May 17. SO ORDERED. 2001. DENY Equitable PCIBanks motion to disqualify respondent Judge Celso Lavia from hearing the case upon its remand to the lower court. III. and 5. They therefore cannot be allowed to question the same decision on the merits and also invoke the extraordinary remedy of certiorari.[41] On the other hand. premises considered. assailing the trial courts order granting execution pending appeal as well as the issuance of the writ of execution. it is not enough that the trial court committed grave abuse of discretion amounting to lack or excess of jurisdiction. THE COURT OF APPEALS COMMITTED AN ERROR IN VOIDING THE DECISION OF THE TRIAL COURT DATED APRIL 2. judgment is hereby rendered: (1) SETTING ASIDE the decision dated April 2. 70292 NOTWITHSTANDING THAT THE ORDINARY MODE OF APPEAL UNDER SECTION 2. PhilFire also filed a Petition for Certiorari With Prayer for Temporary Restraining Order and Writ of Preliminary Injunction docketed as CA-G. THE COURT OF APPEALS COMMITTED AN ERROR IN VOIDING THE WRIT OF EXECUTION PENDING APPEAL NOTWITHSTANDING THAT THE JUDGMENT LIABILITY IS ADMITTED BUT ITS SATISFACTION IS WITHHELD BY VIRTUE OF THE FLIMSY APPEAL. 3. which thereupon granted Lavines prayer for the issuance of a writ of preliminary injunction upon posting a P50M bond.[43] It is elementary that for certiorari to prosper. SO ORDERED.R. speedy and adequate remedy in the ordinary course of law must likewise be satisfied. although Lavine later withdrew its notice of appeal. a) LIFT the order of levy and garnishment on the real and personal properties and bank deposits of Equitable PCIBank. the intervenors now petitioners took this recourse under Rule 45 alleging that: I. Simultaneous filing of a petition for certiorari under Rule 65 and an ordinary appeal under Rule 41 of the Revised Rules of Civil Procedure cannot be allowed since one remedy would necessarily cancel out the other. 2002 and the Writ of Execution dated May 20. the dispositive part of which reads: WHEREFORE.R. premises considered. 2004. speedy and adequate remedy from the decision of the trial court. 2002 and the Writ of Execution dated May 20. 2002 decision of the trial court. 70298 on June 11. THE COURT OF APPEALS ERRED IN GIVING DUE COURSE TO THE PETITION FOR CERTIORARI OF EQUITABLE PCIBANK IN CA-G. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT PETITIONERS WHO ARE THE RIGHTFUL MEMBERS OF THE BOARD OF DIRECTORS CANNOT INTERVENE TO PROSECUTE THE ACTION FILED BY LAVINE THROUGH A MINORITY STOCKHOLDER WHO HAS NO AUTHORITY THEREFOR. SP No. acting on the report that Rizal Surety was now re-organized as QBE Insurance (Phils. nor any plain. this Court hereby resolves to: 1. V. 2002 which were declared null and void in this Courts Consolidated Decision. RULE 41 OF THE REVISED RULES OF COURT HAD ALREADY BEEN AVAILED OF BY THEM. 2002. 2003 to reflect the correct date of the questioned decision of the court a quo which is April 2. However. SP Nos. 70799. Equitable Bank then filed a petition for review before this Court docketed as G.

as in this case. among others. Equitable Bank and the other respondents) dealing with the same subject matter. and parties. Equitable Banks reliance on Estate of Salud Jimenez v. the lack of pre-trial and the extent of Equitable Banks interests in the insurance proceeds. we find that the Court of Appeals did not err in giving due course and in granting the petitions in CA-G. Equitable Bank has not shown any valid or extraordinary circumstance that would justify immediate resort to certiorari. CA. [45]Thus. or one of the errors. that he also resolved the issue of corporate representation between the two groups of directors of Lavine when he had no jurisdiction over the subject matter.. such as where valid and compelling considerations would warrant the same or where rigid application of the rules would result in a manifest failure or miscarriage of justice. ascribed to the trial court rendering the judgment is its lack of jurisdiction over the subject matter. Judge Lavias partiality was evident in his refusal to issue and serve summons on Jethmal Inc. Hence. In contrast. 2002. If the court has jurisdiction over the subject matter and of the person. Anent petitioners fifth assigned error. Rule 41 of the Revised Rules of Civil Procedure.. and in conducting pre-trial on petitioners Second Amended Answer-in-Intervention. The proper recourse to be taken from these orders is a special civil action for certiorari under Rule 65. 2002 a judgment on the merits. Consequently. discretionary execution of appealed judgments may be allowed under Section 2 (a) of Rule 39 of the Revised Rules of Civil Procedure upon concurrence of the following requisites: (a) there must be a motion by the prevailing party with notice to the adverse party. the trial court had already rendered on April 2. and (c) the good reason must be stated in a special order.[48] In Chemphil. Nos. we find it no longer necessary to discuss petitioners second to fourth assigned errors. Although PCIBank did not join its co-parties in the latters appeal and instead separately filed its own petition under Rule 65. Both had notice of said final judgment as they even filed notices of appeal with the trial court. the Court nonetheless found PCIBanks acts as constituting forum-shopping: We view with skepticism PCIBs contention that it did not join the consortium because it honestly believed that certiorari was the more efficacious and speedy relief available under the circumstances. Rule 65 of the Revised Rules of Court is not difficult to understand. 70292 and 70298 is that Equitable Bank and Lavine actually engaged in forum-shopping. the merits of the main case are not to be determined in a petition questioning execution pending appeal and vice versa. pursuant to Section 1. this Court would be confronted with the spectacle of two (2) appellate court decisions (one on the special civil actions brought by Equitable Bank and Lavine. On the other hand. [53] The yardstick remains the presence or the absence of good reasons consisting of exceptional circumstances of such urgency as to outweigh the . 70799 and 70844. its rulings upon all questions involved are within its jurisdiction and may be corrected only by an appeal from the final decision.[47] Another compelling reason for dismissing CA-G. one of which is aptly demonstrated in the case at bench where we are confronted with two divisions of the Court of Appeals issuing contradictory decisions . In view of the preceding discussion. We cannot over-emphasize its illeffects. The questioned order of the trial court in that case was a patent nullity. After all. all the other respondents appealed the decision of the trial court under Rule 41. issues. v. even as its co-parties likewise brought an ordinary appeal from the same final orders. or grave abuse of discretion in the findings of fact or of law set out in the decision. certiorari may be allowed even with the availability of an appeal. Equitable Bank and Lavine assailed the trial courts decision through certiorari by alleging that Judge Lavia was biased. . Needless to say. if we allow the instant petitions of Equitable Bank and Lavine to prosper. The fact that the losing party had also appealed from the judgment does not bar the certiorari proceedings. It should be pointed out that when Equitable Bank and Lavine filed their respective petitions before the Court of Appeals on April 24. In that case. (b) there must be a good reason for execution pending appeal. [52] However. Except for Lavine which apparently withdrew its notice of appeal. as the appeal could not be an adequate remedy from such premature execution.R. As pointed out by petitioners. PCIB has deliberately resorted to forum-shopping. (Underscoring supplied) [49] Thus. the foregoing allegations are proper under Rule 41. of seeking another (and possibly favorable) opinion in another forum (other than by appeal or the special civil action of certiorari). . and another on the ordinary appeals taken by Rizal Surety. Forum-shopping or the act of a party against whom an adverse judgment has been rendered in one forum. in instituting a separate petition for certiorari. are issues that must properly be resolved in the ordinary appeals. or the exercise of power in excess thereof. the certiorari petitions of Equitable Bank and Lavine must be struck down for being anathema to the orderly administration of justice.R. It constitutes improper conduct which tends to degrade the administration of justice. however.[50] Certiorari lies against an order granting execution pending appeal where the same is not founded upon good reasons. or the institution of two (2) or more actions or proceedings grounded on the same cause on the supposition that one or the other court would make a favorable dispositionhas been characterized as an act of malpractice that is prohibited and condemned as trifling with the Courts and abusing their processes. However. According to Equitable Bank. posits that in certain exceptional cases. this is exactly the pernicious effect that the rules against forum-shopping seek to avoid. PCIBank filed a special civil action for certiorari against final orders of the trial court. This is true even if the error. while it may be true that a final order or judgment was rendered under circumstances that would otherwise justify resort to a special civil action under Rule 65. These certiorari petitions initiated by PhilFire and First Lepanto were directed against the trial courts orders granting execution pending appeal and the concomitant issuance of a writ of execution. It is well-settled that the remedy to obtain reversal or modification of the judgment on the merits is appeal. there is indeed parallelism between the instant case and Chemphil Export & Import Corp. These appeals must consequently be allowed to proceed. even as the reglementary period for the proper remedy of appeal had already lapsed. The propriety of the intervention. Equitable Bank. This only goes to show that Equitable Bank and Lavine unwittingly recognized ordinary appeal as the proper remedy in seeking reversal of the assailed decision. It alarms us to realize that we have to constantly repeat our warning against forum-shopping. Additionally. resort by the respondent to a special civil action was justified. The Court declared therein that the trial court clearly acted beyond its jurisdiction for it cannot modify a final and executory order. because the assailed order of the trial court set aside an expropriation order that had long become final and executory. speedy and adequate remedy in the ordinary course of law. SP Nos. Clearly. Philippine Export Processing Zone [46] is misplaced. these rulings may not be corrected by certiorari no matter how irregular or erroneous they might be. Lavine alleged that Judge Lavia disregarded mandatory provisions of the Rules of Court when he allowed petitioners to intervene.[51] The general rule is that only judgments which have become final and executory may be executed. the latter would nonetheless be unavailing if there is an appeal or any other plain.Bus Org 2 Cases 1st Set Prelim 41 In the instant case. there is no forum-shopping where in one petition a party questions the order granting the motion for execution pending appeal and at the same time questions the decision on the merits in a regular appeal before the appellate court. It simply alleged grave abuse of discretion on the part of the trial judge as purportedly shown by a pattern of questionable rulings in favor of petitioners. It has also been aptly described as deplorable because it adds to the congestion of the already heavily burdened dockets of the courts. Certiorari is available only if there is no appeal or other plain. speedy and adequate remedy in the ordinary course of law. .

That the VENDOR. [54] Since the execution of a judgment pending appeal is an exception to the general rule. Bukal Enterprises presented five witnesses. being a portion of the consolidation of Lots 41-B-2-A and 41-B-2-C. It should be noted that respondent insurance companies are questioning the amounts awarded by the trial court for being over and above the amount ascertained by the Office of the Insurance Commission. 67 deg. alleging that the Spouses Firme reneged on their agreement to sell the Property. 34. FIRME. at 76 years of age. to them in hand paid and receipt whereof is hereby acknowledged. On the contrary.. [57] Lastly. SP Nos. should the appealed judgment be reversed later. registration. petitioners assert that Lavines financial distress is sufficient reason to order execution pending appeal. to rule that the appeal is patently dilatory and rely on the same as basis for finding good reasons to grant the motion. hereinafter called the VENDEE. DE CASTRO VENDOR President xxx The Spouses Firme rejected this First Draft because of several objectionable conditions. DECISION CARPIO. 12 W. the existence of good reasons is essential. There is likewise no merit in petitioners contention that the appeals are merely dilatory because. thence N. TRANSFER and CONVEY unto the said VENDEE. namely.. In Borja. 23. from BLLM I. 4. 14 deg. ZENAIDA A. and Lavine as represented by the group of Chandru.. During their second meeting. 35E. Quezon City.. 4 deg. 2002 and the Writ of Execution dated May 20. removal and relocation of the squatters. hereinafter called the VENDOR. The First Draft of the deed of sale provides: DEED OF ABSOLUTE SALE KNOW ALL MEN BY THESE PRESENTS: This DEED OF ABSOLUTE SALE made and executed by and between the Spouses CONSTANTE FIRME and AZUCENA E. As held in BF Corporation v. 2002 of the Regional Trial Court-Pasig City. According to Aviles. Branch 71. its assigns. CONSTANTE FIRME BUKAL ENTERPRISES AND DEVELOPMENT CORP.80 m. which held that there was no perfected contract of sale since there was no consent on the part of the seller. and more particularly described as follows: A parcel of land (Lot 4. [55] In the case at bar. thence N. Filipino citizens and with postal address at No. to point 5. the matter of how much is owing from each of them and who is entitled to the same remain unsettled. Renato de Castro (De Castro).. DE CASTRO. 9288. transfer tax and other fees as may be required by law. thence N. There are also three parties claiming the insurance proceeds. Paco. free from all liens and encumbrances whatsoever. we have hereunto affixed our signatures this ____ day of February. do hereby SELL.00 m. it is not for the trial judge to determine the merit of a decision he rendered as this is the role of the appellate court. 70292 and 70298 are DISMISSED.35 m.: The Case This is a petition for review on certiorari of the Decision[1] dated 3 January 2001 of the Court of Appeals in CA-G. On 28 March 1995. including the payment of capital gains and other government taxes by the seller and the relocation of the squatters at the sellers expense. The assailed decision of the Court of Appeals dated May 29. notarization. to point 6.92 m. FIRME ZENAIDA A. Aviles testified that De Castro authorized him to negotiate on behalf of Bukal Enterprises for the purchase of the Property. Besides. Sheet No. Bukal Enterprises filed a complaint for specific performance and damages with the trial court. CA-G. 1037). containing an area of EIGHT HUNDRED AND SIX (806) SQUARE METERS. Avilespresented to the Spouses Firme another draft deed of sale [5] (Second Draft) dated March 1995. in resolving a motion for execution pending appeal. thence 3 deg. City of Manila. may no longer enjoy the fruit of the judgment before he finally passes away.224. Block 33 of the consolidation-subdivision plan (LRC) Pcs-8124. for and in consideration of the sum of THREE MILLION TWO HUNDRED TWENTY FOUR THOUSAND PESOS (P3. points 2 to 5 by Road Lot 24. Court of Appeals. documentation. Aviles. 2003 is AFFIRMED insofar as it declared null and void the Special Order dated May 17.39 m. charges and penalties if there are any.Bus Org 2 Cases 1st Set Prelim 42 injury or damage that the losing party may suffer. 22E.[58] they claim that execution pending appeal may be granted if the prevailing party is already of advanced age and in danger of extinction. while the insurance companies admitted their liabilities. BUKAL ENTERPRISES AND DEVELOPMENT CORPORATION. petitioners insist that execution pending appeal is justified because respondent insurance companies admitted their liabilities under the insurance contracts and thus have no reason to withhold payment. of the consolidation-subdivision plan. thence S. SPOUSES CONSTANTE FIRME AND AZUCENA E. The fact that the insurance companies admit their liabilities is not a compelling or superior circumstance that would warrant execution pending appeal. That the VENDOR shall pay the real estate tax for the current year and back real estate taxes. We are not persuaded. VENDORS title thereto being evidenced by Transfer Certificate of Title No. 17. [59] Lavine. Rizal. being S. to negotiate with the Spouses Firme for the purchase of the Property. respondent. 1995. WITNESSETH: That the VENDOR is the absolute and registered owner of a certain parcel of land located at Fairview Park. CV No. I.000. admission of their liabilities and willingness to deliver the proceeds to the proper party militate against execution pending appeal since there is little or no danger that the judgment will become illusory.38 m. 21E.[60] WHEREFORE. vs. transferees and successors in interest the above described property. 1450 Union. 23W. and BUKAL ENTERPRISES and DEVELOPMENT CORPORATION. Island of Luzon. to point 3.. Borja is not applicable to the case at bar because its factual milieu is different. the petition is PARTIALLY GRANTED. is a juridical entity whose existence cannot be likened to a natural person. FIRME. 54 deg.R. both of legal age. The Court of Appeals reversed the Decision[2] of the Regional Trial Court. 17. thence S. to the point of beginning. Only an appellate court can appreciate the dilatory intent of an appeal as an additional good reason in upholding an order for execution pending appeal. the prevailing party was a natural person who. Hence. documentary stamps.87 m. No. 55 W. 68287.. with business address at Dahlia Avenue. Citing Borja v. Branch 223.R. Quezon City.. a broker. Antonio Moreno. Bounded on the NE. It is hereby mutually agreed that the VENDEE shall bear all the expenses for the capital gains tax. The Facts Petitioner Spouses Constante and Azucena Firme (Spouses Firme) are the registered owners of a parcel of land [3] (Property) located on Dahlia Avenue. 85 deg. more or less. situated in Quezon City. 60747. Its precarious financial condition is not by itself a compelling circumstance warranting immediate execution and does not outweigh the long standing general policy of enforcing only final and executory judgments. he met with the Spouses Firme on 23 January 1995 and he presented them with a draft deed of sale [4] (First Draft) dated February 1995. Teodoro Aviles (Aviles). in Civil Case No. 264243 issued by the Register of Deeds of Quezon City. herein represented by its PRESIDENT. on the other hand. 56E. IN WITNESS WHEREOF. De Castro.00) Philippine Currency. The complaint asked the trial court to order the Spouses Firme to execute the deed of sale and to deliver the title to the Property to Bukal Enterprises upon payment of the agreed purchase price. Psd-1136 and Lot (LRC) Pcs-2665. Equitable Bank. petitioners. The Spouses Firme . namely: petitioners. During trial.. a corporation duly organized and registered in accordance with Philippine Laws. J... at Quezon City. (LRC) GLRO) Record. MRS. Philippines. that the appeal is merely dilatory is not a good reason for granting execution pending appeal. the vice president of Bukal Enterprises and Development Corporation (Bukal Enterprises) authorized his friend. Quezon City. Fairview Park.. 85 deg. 17. Quezon City (trial court). Beginning at a point marked 1 on plan. BY: AZUCENA E. it is not within competence of the trial court. Mp of Montalban. to point 4. Jocelyn Napa and Antonio Ancheta. Edsa Shangri-la Hotel:[56] . to point 2. Fairview Park.

Firme testified that on 30 January 1995. Manila.000. Furthermore. Dr. On 6 March 1995. the manager of FEBTC. The Spouses Firme sent a letter [13] dated 20 March 1995 to Bukal Enterprises demanding removal of the bunkers and vacation by the occupants of the Property. Ancheta informed Dr. by and between the Spouses CONSTANTE FIRME and AZUCENA E. FIRME BY: VENDOR ________________________ President & Chief Executive Officer xxx The Spouses Firme did not accept the Third Draft because they found its provisions one-sided. he and his wife met with Aviles at the Aristocrat Restaurant in Quezon City. containing an area of 806 Square Meters more or less. According to Aviles. they voluntarily demolished their houses and vacated the Property. and constructed posts and riprap. For this purpose. The Spouses Firme did not accept this offer but instead sent Bukal Enterprises a letter demanding that its workers vacate the Property. testified that he was present when one of the officers of Bukal Enterprises. 1995. 4. 6. reasonable and necessary expenses shall be charged to the VENDORS upon presentation of receipts and documents to support the act. Tax Declaration. Bukal Enterprises offered to pay the purchase price of P3.000 on the third week of February 1995 allegedly to buy a lot in Fairview. the sum of Five Hundred Thousand Pesos (P500. Quezon City. The said parcel of land shall remain in the name of the VENDORS until the Lending Bank of the VENDEE shall have issued a Letter Guaranty Payment in favor of the VENDORS. CORP. On 11 March 1995.000 to the Spouses Firme upon execution of the transfer documents and delivery of the owners duplicate copy of TCT No. at which time the VENDORS agree to execute a Deed of Absolute Sale in favor of the VENDEE and cause the issuance of the Certificate of Title in the name of the latter. both of legal age. payable in cash for a lump sum of P3. Philippine Currency. Padre Faura Branch. According to Ancheta. or such other place or Office as the VENDORS may designate within a period of sixty (60) days counted from the date of this Contract. concrete posts on another side and bunkers occupied by workers of a certain Florante de Castro. at Quezon City. On 6 February 1995.00). Constante Firme that he told the squatters to leave considering that they already received payment for their relocation. FEBTC approved the loan on the last week of February and released the proceeds on the first week of March. Thereafter. The Capital Gains Tax and Documentary Stamps shall be charged from the VENDORS in accordance with law.500 per square meter. together with a certified true copy of the TCT. The VENDEE shall be allowed for all legal purposes to take possession of the parcel of land after the execution of this Contract and payment of the downpayment. Bukal Enterprises then filed a complaint for specific performance and damages. the Spouses Firme visited their Property and discovered that there was a hollow block fence on one side. of which the VENDORS are the absolute registered owners in accordance with the Land Registration Act. a parcel of land situated at Dahlia Avenue corner Rolex Street. Philippine Currency.000 in the presence of De Castro and Aviles. The Spouses Firme did not accept the offer because they were reserving the Property for their children. Bukal Enterprises then relocated the four families squatting on the Property at a cost of P60. a certain Renato. hereinafter referred to as the VENDEE.Bus Org 2 Cases 1st Set Prelim 43 allegedly accepted the Second Draft in view of the deletion of the objectionable conditions contained in the First Draft. Dr.964. covered it with filling materials. Padre Faura Branch.000. the above-entitled case [is] hereby DISMISSED and plaintiff BUKAL ENTERPRISES DEVELOPMENT CORPORATION is hereby ordered to pay the defendants Spouses Constante and Azucena Firme: 1. Aviles arranged the meeting with the Spouses Firme involving their Property in Fairview. On 22 March 1995. more particularly described and bounded as follows: (DESCRIPTION AND BOUNDARIES OF PROPERTY) THE FURTHER TERMS AND CONDITIONS OF THE CONTRACT ARE AS FOLLOWS: 1. According to her. [15] On 7 August 1998. The VENDEE shall shoulder all expenses like the documentation.000 to P100.500. Fairview Park. a corporation duly organized and registered in accordance with Philippine Laws. Bukal Enterprises applied for a loan of P4. agreed to sell to the VENDEE and the VENDEE has agreed to buy from the VENDORS. and BUKAL ENTERPRISES and DEVELOPMENT CORPORATION. However. Dr.000 which FEBTC granted. Bukal Enterprises agreed to pay the taxes due and to undertake the relocation of the squatters on the Property. Quezon City. he was summoned together with the other squatters to a meeting with Aviles regarding their relocation.000 per square meter.[8] Antonio Moreno. as downpayment and agrees to pay the balance of TWO MILLION TWO HUNDRED TWENTY FOUR THOUSAND PESOS (P2. VENDOR VENDEE AZUCENA E. CONSTANTE E.224. executed this ___ day of February. with their Lending Bank. The VENDEE agrees to pay the VENDORS upon execution of this Contract the sum of ONE MILLION PESOS ( P1. on 6 March 1995.[6] De Castro testified that he authorized Aviles to negotiate for Bukal Enterprises the purchase of the Property owned by the Spouses Firme.000. Bukal Enterprises spent approximately P300. WITNESSETH: That for and in consideration of the sum of THREE MILLION TWO HUNDRED TWENTY FOUR THOUSAND PESOS ( P3. 7. Bukal Enterprises fenced the area. 2. FIRME BUKAL ENTERPRISES DEV. IN WITNESS WHEREOF. Aviles offered to buy the Property at P2.00 by the VENDEE to the VENDORS shall be within a period of sixty (60) days effective from the date of this Contract. The Spouses Firme later informed Aviles that they were no longer interested in selling the Property. After the squatters vacated the Property.224.000. Constante Firme must have misunderstood him and thought that the squatters left through Anchetas own efforts. Aviles informed him that the Spouses Firme agreed to sell the Property at P4. testified that he constructed his house on the Property sometime in 1982.500. The Property was located beside the Dahlia Commercial Complex owned by Bukal Enterprises.000 per family. Philippines. The Third Draft of the deed of sale provides: CONRACT OF SALE KNOW ALL MEN BY THESE PRESENTS: This AGREEMENT. 264243issued by the Register of Deeds of Quezon City. The proceeds of the VENDEES Loan shall directly be paid and remitted by the Bank to the VENDORS. the squatter families were each paid P60. 264243. The VENDEE shall remove and relocate the Squatters.00) at the post office address of the VENDORS in Quezon City. Constante Firme (Dr. Dr. . Bukal Enterprises applied for a loan of P4.224. The Spouses Firme repeatedly told Aviles that the Property was not for sale when Aviles called on 2 and 4 March 1995regarding the Property. one of the alleged squatters on the Property. barangay captain of Barangay Fairview. the Spouses Firme were willing to sell the Property at P4. Quezon City. we have hereunto affixed our signatures this ____ day of February. the trial court rendered judgment against Bukal Enterprises as follows: WHEREFORE. Firme talked with Ancheta who told him that the squatters had voluntarily demolished their shanties.000 for these improvements. Aviles showed the Spouses Firme a copy of a draft deed of sale[12] (Third Draft) which Aviles prepared.000. payable in the form hereinafter expressed. 3.000.224. however.000 per family. In a letter[7] dated 7 March 1995. Filipino citizen and with postal address at __________. testified that Bukal Enterprises has been their client since 1994. as evidenced by Transfer Certificate of Title No. registration. hereinafter referred to as the VENDORS.000 per square meter. The VENDORS have hereunto authorized the VENDEE to mortgage the property and submit this Contract.00). FIRME. paid each of the four squatter families around P60. Spouses Firme visited the Property again with a surveyor. the scheduled payment had to be postponed due to problems in the transfer of funds. such actual.90) as and by way of actual and compensatory damages.[9] Jocelyn Mapa. Firme) was the sole witness for the defendant spouses. They agreed to relocate provided they would be given financial assistance of P60.000. The payment of the balance of P2. herein represented by its President and Chief Executive Officer. the sum of Three Hundred Thirty Five Thousand Nine Hundred Sixty Four and 90/100 (P335. After the lapse of 60 days and the loan has not yet been released due to fortuitous events the VENDEE shall pay an interest of the balance a monthly interest based on existing bank rate until said fortuitous event is no longer present.On 26 February 1995. the Spouses Firme met again with Aviles upon the latters insistence. Tax Clearance and Vicinity/Lot Plan. the Spouses Firme received a letter[14] dated 7 March 1995 from Bukal Enterprises demanding that they sell the Property. in the light of the foregoing premises. 5. Thus. The Spouses Firme particularly opposed the provision on the delivery of the Propertys title to Bukal Enterprises for the latter to obtain a loan from the bank and use the proceeds to pay for the Property. 1995. They then agreed that payment would be made at the Far East Bank and Trust Company (FEBTC). transfer tax and relocation of the property. [11] On the other hand. [10] Antonio Ancheta (Ancheta). 2.000.224. with postal address at Fairview Park.00) as and by way of moral damages.

Aviles testified that during his first meeting with the Spouses Firme on 30 January 1995. which was not acceptable to the latter. this Court may review findings of fact when the judgment of the Court of Appeals is premised on a misapprehension of facts. the one without notarial page and the other one with notarial page already. The Ruling of the Court of Appeals The Court of Appeals held that the lack of a board resolution authorizing Aviles to act on behalf of Bukal Enterprises in the purchase of the Property was cured by ratification. sir. THE COURT OF APPEALS ERRED IN RULING THAT THE AWARD BY THE TRIAL COURT OF MORAL AND COMPENSATORY DAMAGES TO PETITIONERS IS IMPROPER. upon further questioning by his counsel. constructing posts. Aviles did not present any draft deed of sale during his first meeting with the Spouses Firme on 30 January 1995. the sum of One Hundred Thousand Pesos (P100. The only difference is that the date of the First Draft is February 1995 while that of the Second Draft is March 1995. 264243 to appellant. 7) of the Corporation Code. he showed them the Third Draft. 3. you are referring now to Exhibit C and C-1 for the plaintiff? . Aviles showed the Spouses Firme the Second Draft. The Court of Appeals also held there was a perfected contract of sale. ATTY. Aviles could not validly finalize the purchase of the Property on behalf of Bukal Enterprises. the acts of Bukal Enterprises in fencing the Property. the Court of Appeals misapprehended the facts of the case in ruling otherwise. Whether there was a perfected contract of sale We agree with the finding of the trial court that there was no perfected contract of sale. [24] Aviles showed them only one draft deed of sale (Third Draft) during their second and last meeting on 6 February 1995. C-1) during their first or second meeting. Aviles on the second meeting? Is this different from the Contract of Sale that was marked as Exhibit 5-L? Q: May I see the document Exhibit 5 L?[31] INTERPRETER: Witness going over the record. 5. Firme? A: This is the same. He also stated that he prepared and presented to the Spouses Firme the First Draft (Exh. Aviles concurred with Dr.[21] Likewise.[16] Bukal Enterprises appealed to the Court of Appeals. When was this presented to Dr. the Spouses Firme no longer had any cause for refusing to sell the Property. When Aviles presented the Second Draft without the objectionable provisions. Witness. Aviles gave conflicting testimony as to what transpired during the two meetings with the Spouses Firme. L) to the Spouses Firme only during their second meeting. 2.[17] Hence.[20] However. Q: What about Exhibit C and C-1 [which] were identified by you. Aviles on the second meeting? The answer is On the first meeting(sic). Exh. Mr. The parties did not go beyond the negotiation stage and there was no evidence of meeting of the minds between the parties.00) as and by way of attorneys fees. 1997 a question was posed How did you find this draft the Contract of Sale which was presented to you by Mr. this Court has the authority to review the findings of fact. There is no basis to apply the Statute of Frauds since there was no perfected contract of sale. Appellant is directed to deliver the payment of the purchase price of the property within sixty days from the finality of this judgment. the records indubitably show that there was no consent on the part of the Spouses Firme. This was the draft. As a rule. so I prepared two documents but with the same contents both were dated February of 1995. The Spouses Firme rejected the First Draft because they considered the terms unacceptable. relocating the squatters and obtaining a loan to purchase the Property are circumstances supporting their claim that there was a perfected contract of sale. Dr.Bus Org 2 Cases 1st Set Prelim 44 3.000. Aviles had no valid authority to bind Bukal Enterprises in the sale transaction. WHETHER THE COURT OF APPEALS ERRED IN DISREGARDING THE FACT THAT IT WAS NOT LEGALLY AND FACTUALLY POSSIBLE FOR RESPONDENT TO PERFECT A CONTRACT OF SALE. Q: Exhibit C and C-1? A: Yes because I prepared two documents during our meeting. Furthermore.[23] Dr. he showed them the First Draft which the Spouses Firme rejected. This requires a review of the factual and legal issues of this case. [29] However. The Spouses Firme allowed Bukal Enterprises to exercise acts of ownership over the Property when the latter introduced improvements on the Property and evicted the squatters. Bukal Enterprises failed to establish that the Spouses Firme gave their consent to the sale of the Property.00 and to perform all such acts necessary and proper to effect the transfer of the property covered by TCT No. C) and the Second Draft (Exh. dated August 7. the Decision. the instant petition. we find it totally unacceptable. AND 4. Firme was consistent in his testimony that he and his wife rejected the provisions of the Third Draft presented by Aviles during their second meeting on 6 February 1995.[22] This is the situation in this case. SO ORDERED. One already with notarial. The fundamental question for resolution is whether there was a perfected contract of sale between the Spouses Firme and Bukal Enterprises.[25] When shown a copy of the First Draft. which reversed and set aside the decision of the trial court. Aviles testified that during his first meeting with the Spouses Firme on 23 January 1995. [28] On their second meeting. MARQUEDA: Q: Is that the same document that was presented by you to Mr. The Ruling of the Trial Court The trial court held there was no perfected contract of sale. He testified: ATTY. the corporate power to purchase a specific property is exercised by the Board of Directors of the corporation. Firme testified that it was not the deed of sale shown to them by Aviles during their second meeting [26] and that the Third Draft was completely different from the First Draft. These acts constitute partial performance of the contract of sale that takes the oral contract out of the scope of the Statute of Frauds. When Aviles testified again as rebuttal witness. That was February. The Spouses Firme found the terms and conditions unacceptable and told Aviles that they would not sell the property. Without an authorization from the Board of Directors. Firmes testimony that he presented the Third Draft (Exh. his testimony became more confusing. only questions of law are appealable to this Court under Rule 45[19] of the Rules of Civil Procedure.224. However. First. WHETHER THE COURT OF APPEALS ERRED IN FINDING THAT THERE WAS A PERFECTED CONTRACT OF SALE BETWEEN PETITIONERS AND RESPONDENT DESPITE THE ADDUCED EVIDENCE PATENTLY TO THE CONTRARY. [27] On the other hand. Clearly. The dispositive portion of the decision reads: WHEREFORE. Bukal Enterprises ratified the purchase when it filed the complaint for the enforcement of the sale. the costs of the suit. On the other hand. [30] What can you say on this?Before that. Firme on the second meeting or there is a different contract? A: This is the same document draft of the document that I submitted to them during our second meeting. WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE ALLEGED CONTRACT OF SALE IS ENFORCEABLE DESPITE THE FACT THAT THE SAME IS COVERED BY THE STATUTE OF FRAUDS. The complaint is granted and the appellees are directed to henceforth execute the Deed of Absolute Sale transferring the ownership of the subject property to the appellant immediately upon receipt of the purchase price of P3. [32] Q: So. is hereby REVERSED and SET ASIDE. The findings of fact by the Court of Appeals are generally conclusive and binding on the parties and are not reviewable by this Court. MARQUEDA: Q: On page 11 of the tsn dated August 5. In his direct examination. premises considered. which the Spouses Firme allegedly approved because the objectionable conditions contained in the First Draft were already deleted. what is this Contract of Sale that you presented to Mr.[18] The Ruling of the Court The petition is meritorious. The appellate court ruled that the Spouses Firme revealed their intent to sell the Property when they met with Aviles twice. 1998.000. Under Sections 23 and 36 (No. Costs against appellees. when the factual findings of the Court of Appeals are contrary to those of the trial court or when the inference made is manifestly mistaken. The Issues The Spouses Firme raise the following issues: 1. SO ORDERED. and 4. a perusal of the First Draft and the Second Draft would show that both deeds of sale contain exactly the same provisions.

Aviles did not have the proper authority to negotiate for Bukal Enterprises. That is true.000 per sq. who shall hold office for one (1) year and until their successors are elected and qualified. March 4 and my wife answered the telephone and told him that the property is not for sale. the Spouses Firme flatly rejected the offer of Aviles to buy the Property on behalf of Bukal Enterprises.[44] Under Article 1475 of the Civil Code.[39] (Emphasis supplied) Significantly. Firme. then the Spouses Firme could have simply affixed their signatures on the deed of sale. it was proper for the trial court to give more credence to the testimony of Dr.[49] It is the board of directors or trustees which exercises almost all the corporate powers in a corporation. Even after the two meetings with Aviles. Corporate powers and capacity. hold. Thus. there is no Board Resolution authorizing Aviles to negotiate and purchase the Property on behalf of Bukal Enterprises. The essence of consent is the conformity of the parties on the terms of the contract. is neither an officer of Bukal Enterprises nor a member of the Board of Directors of Bukal Enterprises. I do not know what was their reason. he again changed his answer and stated that he presented the Third Draft during their second meeting. According to him. They did not mention to me. the contract of sale is perfected at the moment there is a meeting of minds on the thing which is the object of the contract and on the price. (Emphasis supplied) In this case. The contract to sell is a bilateral contract. Cause of the obligation which is established. the contract is nonexistent.224.000 per square meter or a lump sum of P3. Q. If the Spouses Firme were already agreeable to the offer of Bukal Enterprises as embodied in the Second Draft. Absent such valid delegation/authorization. Aviles gave another version of what he presented to the Spouses Firme during the two meetings. [50] A corporation can only exercise its powers and transact its business through its board of directors and through its officers and agents when authorized by a board resolution or its by-laws.224. 1995. the final say will have to be with the board. 1995.[35] In his re-direct examination. Aviles could not have presented any of these draft deeds of sale to the Spouses Firme during their first meeting. he presented the Third Draft to the Spouses Firme during their first meeting. pledge. are held not binding on the corporation. v. who negotiated the purchase of the Property.Bus Org 2 Cases 1st Set Prelim 45 A: C-1 is already in the final form because we agreed already as to the date of the payment. contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. Even the existence of a signed document purporting to be a contract of sale does not preclude a finding that the contract is invalid when the evidence shows that there was no meeting of the minds between the seller and buyer. but not in the course of. without the acceptance of the other. De Castro. he presented the First and the Second Drafts to the Spouses Firme. subject to the limitations prescribed by the law and the Constitution. all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stock.m. When? A. had asked him to negotiate with the Spouses Firme to buy the Property. Co. [42] As held in Salonga.500 per square meter for the Property.000 (P4. sell. from among the members of the corporation.000) for the Property. so I scheduled already the payment of their property. Q. consideration and terms of payment as would result in a perfected contract of sale. Another piece of evidence which supports the contention of the Spouses Firme that they did not consent to the contract of sale is the fact they never signed any deed of sale. Farrales.[36] Furthermore. as the transaction of a lawful business of the corporation may reasonably and necessarily require. [34] However. Aviles admitted that the first proposal of Bukal Enterprises was at P2. sir. [46] Bukal Enterprises failed to show the existence of a perfected contract of sale by competent proof. [38] Aviles himself admitted this during his testimony. Firmes testimony that he and his wife never consented to sell the Property. Aviles. De Castro also admitted that he was aware of the Spouses Firmes refusal to sell the Property. What can you say on this? A. The board of directors or trustees. And then the next question which also states: What did you talked (sic) about over the telephone? The answer of Dr. Just as a natural person may authorize another to do certain acts in his behalf.m. Firme is He called up a month after. perhaps they would like a higher price of the property. I told him that the property is not for sale. the next question which states: But did you not have any occasion to talk to him after that second meeting? and the answer of Dr. there is no consent. the contract is non-existent. The Civil Code provides: Art. xxx Under these provisions. the corporate powers of all corporations formed under this Code shall be exercised. Unless otherwise provided in this Code. including securities and bonds of other corporations. [48] However. Firme told me during our conversation on the telephone that they are no longer interested to sell the property for obvious reason. and where it is wanting. I called him to inform him that the loan was already transferred from Makati to Padre Faura Branch of the Far East Bank. Dieselman Freight Services. Consent of the contracting parties. Where there is merely an offer by one party. [45] In this case. Second. While a corporation may appoint agents to negotiate for the purchase of real property needed by the corporation. mortgage and otherwise deal with such real and personal property. Q. or where there is no stock. thats March 2. your honor. Object certain which is the subject matter of the contract.:[43] It is elementary that consent is an essential element for the existence of a contract. et al. Second and Third Drafts of the deed of sale prepared by Aviles all indicated a purchase price of P4. There is no contract unless the following requisites concur: 1. 3. Aviles testified that his friend. There is no Board Resolution authorizing Aviles to negotiate and purchase the Property for Bukal Enterprises. Even .[40] The confusing testimony of Aviles taken together with De Castros admission that he was aware of the Spouses Firmes refusal to sell the Property reinforces Dr. 1318. et al. take or grant. the Corporation Code provides: SEC. where there is want of consent. [37] But the First. the Spouses Firme were firm in their decision not to sell the Property. Q. the acceptance by one of the offer made by the other. According to him. That is what Mrs. 1995. there was no approval from the Board of Directors of Bukal Enterprises as would finalize any transaction with the Spouses Firme. Consent is one of the essential elements of a valid contract. He mentioned that they are no longer interested to sell their property. thus: Q. [41] Thus. What can you say on this? A. Hence. when he went over the records. x 806 sq. what happened next? The answer is He called up two days later. [51] As held in AF Realty & Development. v. but they did not. convey. Inc.[47] De Castro. = P3. testified that he authorized Aviles to buy the Property. Aviles called the Spouses Firme twice after their last meeting. the president of Bukal Enterprises did not sign any of the deeds of sale presented to the Spouses Firme. Aviles again changed his testimony.:[52] Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors.[33] (Emphasis supplied) In his cross-examination. as Bukal Enterprises vice president. so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. the rule is that the declarations of an individual director relating to the affairs of the corporation. 2. When was that? A. On March 4. On their second meeting. Now. (Emphasis supplied) In this case. 36. whose approval will finalize the transaction. he presented the Third Draft during the first meeting. receive. x x x SEC. The next question So. lease. To purchase. The Spouses Firme informed Aviles that they were not selling the Property. Firme was When I found out that he was calling. so I prepared already another document which is dated March 1995. What can you say on this? A. the power to purchase real property is vested in the board of directors or trustees.In fact. 23. The absence of any of these essential elements will negate the existence of a perfected contract of sale. Thus. Considering the glaring inconsistencies in Aviles testimony. Every corporation incorporated under this Code has the power and capacity: xxx 7. There was therefore no concurrence of the offer and the acceptance on the subject matter. March 4. the performance of authorized duties of such director. what were offered in evidence were mere unsigned deeds of sale which have no probative value. or connected with. There is also no evidence to prove that Bukal Enterprises approved whatever transaction Aviles made with the Spouses Firme.

you learned that the Spouses Firme were no longer interested in selling the property before you spent allegedly all the sum of money for the relocation of squatters for all this construction that you are telling this Court now? WITNESS: A: The refusal to sell is not yet formal and the lawyer sent a letter tendering full payment of the purchase price. Dr. EJERCITO: Q: Was that before the squatters were relocated allegedly by Bukal Enterprises? A: Yes. unless the same. it is highly improbable for Aviles to finalize any contract of sale with the Spouses Firme. because Mr. planted or sowed. plants or sows in bad faith on the land of another. sir. Q: In your Complaint you said you find out on March 3. Despite the refusal of the Spouses Firme to sell the Property.[57] True. you found out on March 2. This conclusion arose from the appellate courts erroneous finding that there was a perfected contract of sale. Aviles testified that when he called the Spouses Firme on 2 March 1995.Bus Org 2 Cases 1st Set Prelim 46 De Castro admitted that he had never met the Spouses Firme. No deed of sale has been executed in this case.[55] The verification and certification of non-forum shopping was not accompanied by proof that Bukal Enterprises authorized Aviles to file the complaint on behalf of Bukal Enterprises. Aviles told me. It is not true. MARQUEDA: In the Complaint it does not state March 3. the Court notes that in the Complaint filed by Bukal Enterprises with the trial court. Is that correct? A: Yes. evidence.[56] The purpose of verification is to secure an assurance that the allegations in the pleading are true and correct and that it is filed in good faith. Q: And yet that time you believe Mr. Mr. Furthermore. There is therefore no basis for the application of the Statute of Frauds. EJERCITO: Q: When did you find out that the Spouses Firme did not want to sell the same? A: First week of March 1995. Is it not true? A: No. therefore. EJERCITO: Q: You mean to say that you did not believe Mr. planted or sown in bad faith may demand the demolition of the work. Bukal Enterprises still proceeded in relocating the squatters and constructing improvements on the Property. loses what is built. ATTY. unless they are ratified: (1) Those entered into in the name of another person by one who has been given no authority or legal representation. Whether the Statute of Frauds is applicable The Court of Appeals held that partial performance of the contract of sale takes the oral contract out of the scope of the Statute of Frauds. EJERCITO: Q: The truth of the matter. He who builds. it was the lawyer who advised you to relocate the squatters. sir. Art. [58] Article 1403 of the Civil Code provides: Art. 1995 that the defendants were no longer interested in selling to you the property. The owner of the land on which anything has been built. sir. EJERCITO: Q: So. ATTY. can be performed only by natural persons duly authorized for the purpose by corporate by-laws or by a specific act of the board of directors. 1995. sir. In the following cases an agreement hereafter made shall be unenforceable by action. 450. sir. Aviles when he told you that the Spouses Firme were no longer selling the property? A: No. Is that not correct? A: No. Q: In so many words. sir. Bukal Enterprises still proceeded to introduce improvements on the Property. Is that not correct? A: I cannot exactly remember. Mr. Q: Was there anything formal when you say the Spouses Firme agreed to sell the property? A: None. xxx. When the property was rid of the squatters on March 2. they advised the latter to desist from further acts of trespass on their Property. this requirement is procedural and not jurisdictional. Q: Mr. Witness. Bukal Enterprises introduced improvements on the Property without the knowledge and consent of the Spouses Firme. Q: When were the squatters removed? WITNESS: A: March 6 and 7 because there were four (4) squatters. is that the post was constructed sometime late 1994. planted or sown without right of indemnity. Q: In fact. of the agreement cannot be received without the writing. xxx Whether Bukal Enterprises is a builder in good faith Bukal Enterprises is not a builder in good faith. When the Spouses Firme learned about the unauthorized constructions made by Bukal Enterprises on the Property. 1995 for the documentation and payment of the sale. Aviles relayed to you that the Spouses Firme were no longer interested in selling to you the property in March 2.[53] Considering all these circumstances. ATTY. 449. The records show that there was no perfected contract of sale. Firme told him that they were not selling the Property.On 4 March 1995. However. and the owner the proper rent. The physical acts of the corporation. . sir. Aviles called again and this time Mrs. 1403. The application of the Statute of Frauds presupposes the existence of a perfected contract. ATTY. or he may compel the builder or planter to pay the price of the land. or who has acted beyond his powers. Firme informed him that they were no longer interested in selling the Property. The following contracts are unenforceable. Q: When in March? A: 1995.[59] (Emphasis supplied) Bukal Enterprises is obviously a builder in bad faith. Aviles relayed it to me. or some note or memorandum thereof. (2) Those that do not comply with the Statute of Frauds as set forth in this number. Is that correct? A: Yes. Aviles informed De Castro of the refusal of the Spouses Firme to sell the Property. in order to replace things in their former condition at the expense of the person who built. However. Witness. or for the sale of real property or of an interest therein. 1995. the trial court should have ordered the correction of the complaint since Aviles was neither an officer of Bukal Enterprises nor authorized by its Board of Directors to act on behalf of Bukal Enterprises. The Spouses Firme did not accept Aviles offer to purchase the Property. or a secondary evidence of its contents: xxx (e) An agreement for the leasing for a longer period than one year. Q: When in March 1995? A: From the period of March 2. ATTY. be in writing and subscribed by the party charged or by his agent. sir. Maybe counsel was thinking of this Paragraph 6 which states. or that the planting or sowing be removed. 1995 or two (2) weeks after the removal of the squatters. Aviles when he verbally told you that the Sps. Firme agreed to sell the property? At what point of the transaction with the Spouses Firme were you advised by your lawyer? WITNESS: A: At the time when they refused to sell the lot. Aviles signed[54] the verification and certification of non-forum shopping. The power of a corporation to sue and be sued is exercised by the board of directors. Mr.[60] The Civil Code provides: Art. like the signing of documents. De Castro testified: ATTY. Q: When was it constructed? A: That March.

plaintiff-appellant suffered moral and nominal damages which may be assessed against defendants-appellees in the sum of Five Hundred Thousand (500.] dismissing plaintiff-appellants complaint. who wrote the computation of the balance. that plaintiff knew this from the very beginning as it was presented a copy of the Transfer of Rights (Annex B of amended complaint) at the time the Agreement (Annex B of amended complaint) was signed. president of plaintiff-appellant corporation. The court may award nominal damages in every obligation arising from any source enumerated in article 1157. modified the July 18. is likewise impleaded as a necessary party in view of the fact that it is the transferor of right in favor of defendant-appellee Motorich Sales Corporation. assailing the March 18. ruling that: . plaintiff-appellant nonetheless failed to pay in legal tender within the stipulated period (up to March 2. Mr. Gruenberg of the alleged availability of the check. Reynaldo Gruenberg. Bukal Enterprises is not entitled to reimbursement for the expenses incurred in relocating the squatters. Art. The RTC dismissed both the Complaint and the Counterclaim filed by the parties. and not for the purpose of indemnifying the plaintiff for any loss suffered by him.000. the balance to be paid on or before March 2. 004223. Quezon City. we SET ASIDE the Decision of the Court of Appeals and RENDER a new one: 1. 1989. May a corporate treasurer. defendant ACL Development Corporation and Motorich Sales Corporation entered into a Deed of Absolute Sale whereby the former transferred to the latter the subject property. that Mrs. which has been violated or invaded by the defendant. De Castro testified that even though the Spouses Firme did not require them to remove the squatters.[4] The petition also challenges the June 10. 89-3511.000. by phone. MOTORICH SALES CORPORATION. Metro Manila. (2) to ask Bukal Enterprises to remove what it has built. Gruenbergs signature on the agreement (ref: par. thus they agreed that if the payment be in check. plaintiff-appellant paid the down payment in the sum of One Hundred Thousand ( P100.00 as earnest money. the expenses for the roundtrip tickets dated 1996-1997 could not be attributed solely for the attendance of hearings in the case. 2.[64] The Civil Code provides: Art. On the other hand. 1989). is impleaded as a necessary party since Transfer Certificate of Title No.000. wrote a letter to defendant-appellee Motorich Sales Corporation requesting for a computation of the balance to be paid. that by reason of said transfer. the Registry of Deeds of Quezon City issued a new title in the name of Motorich Sales Corporation. is required. validly sell a parcel of land owned by the corporation? May the veil of corporate fiction be pierced on the mere ground that almost all of the shares of stock of the corporation are owned by said treasurer and her husband? The Case These questions are answered in the negative by this Court in resolving the Petition for Review on Certiorari before us. 3 of the amended complaint. Nenita Lee Gruenberg. or (3) to compel Bukal Enterprises to pay the value of the land. Firme that they normally travel to the Philippines more than once a year to visit their children. the appealed decision is AFFIRMED WITH MODIFICATION ordering defendant-appellee Nenita Lee Gruenberg to REFUND or return to plaintiff-appellant the downpayment of P100. NENITA LEE GRUENBERG. only after banking hours. 1989. that plaintiff-appellant and defendant-appellee Motorich Sales Corporation were supposed to meet in the office of plaintiff-appellant but defendant-appellees treasurer. the trial court took into account the traveling expenses incurred by the Spouses Firme who are already residing in the United States. while defendant JNM Realty & Development Corp..[65] WHEREFORE.000. [62] Whether the Spouses Firme are entitled to compensatory and moral damages The Court agrees with the Court of Appeals to delete the award for compensatory and moral damages. defendants-appellees should be assessed exemplary damages in the sum of One Hundred Thousand (P100. 46801 which.[61] Since the Spouses Firme are undoubtedly not selling the Property to Bukal Enterprises. that on April 6. plaintiff-appellant informed Mrs. the Court of Appeals ruled: WHEREFORE. the trial court failed to consider the testimony of Dr. On the basis of the evidence. 3571. Gruenberg accept the P100. that as stipulated in the Agreement of 14 February 1989. They may appropriate what has been built without paying indemnity or they may ask Bukal Enterprises to remove what it has built at Bukal Enterprises own expense. 3 of Amended Complaint) is inadequate to bind Motorich.s amended complaint alleged that on 14 February 1989. petitioner. did not appear. or in every case where any property right has been invaded. that by reason of defendants-appellees bad faith in refusing to execute a Transfer of Rights/Deed of Assignment in favor of plaintiff-appellant. they chose to spend for the relocation of the squatters since they were interested in purchasing the Property. Bukal Enterprises spent for the relocation of the squatters even after learning that the Spouses Firme were no longer interested in selling the Property.00) Pesos. ACL DEVELOPMENT CORP. the enforceability of the agreement.00 which she received from plaintiffappellant. that as a result of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporations bad faith in refusing to execute a formal Transfer of Rights/Deed of Assignment. [63] Thus. [5] The Facts The facts as found by the Court of Appeals are as follows: Plaintiff-appellant San Juan Structural and Steel Fabricators. covered by TCT No. Andres T. Declaring that there was no perfected contract of sale. that of Mr.000 is warranted since Bukal Enterprises violated the property rights of the Spouses Firme. they may exercise any of the first two options. by herself and without any authorization from the board of directors. In awarding actual damages. There is no pronouncement as to costs. that plaintiff-appellant itself drafted the Agreement and insisted that Mrs. 1989. Metro Manila. without admitting. 1994 Decision of the Regional Trial Court of Makati. containing an area of Four Hundred Fourteen (414) square meters.00) Pesos. may be vindicated or recognized. respondents. Linda Aduca. that granting. vs. 1989. and that as a consequence of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporations bad faith in refusing to execute a deed of sale in favor of plaintiff-appellant. Block 1 of the Acropolis Greens Subdivision located in the District of Murphy. Inc. covered by Metrobank Cashiers Check No. J.00) Pesos. plaintiff-appellant was ready with the amount corresponding to the balance. SAN JUAN STRUCTURAL AND STEEL FABRICATORS. that it was the understanding between Mrs.However. However. payable to defendant-appellee Motorich Sales Corporation. premises considered. in turn.00) Pesos. (362909) 2876 is still in the name of said defendant. defendants-appellees Motorich Sales Corporation and Nenita Lee Gruenberg interposed as affirmative defense that the President and Chairman of Motorich did not sign the agreement adverted to in par. Co. represented by defendant-appellee Nenita Lee Gruenberg and Reynaldo L. Nominal damages are adjudicated in order that a right of the plaintiff. 1997 Decision[1] of the Court of Appeals[2] in CA GR CV No. President and Chairman of Motorich. 1997 CA Resolution denying reconsideration. it has been constrained to obtain the services of counsel at an agreed fee of One Hundred Thousand ( P100. that defendant ACL Development Corp. 2221. INC.Bus Org 2 Cases 1st Set Prelim 47 Under these provisions the Spouses Firme have the following options: (1) to appropriate what Bukal Enterprises has built without any obligation to pay indemnity. The award of damages is also in accordance with Article 451 of the Civil Code which states that the landowner is entitled to damages from the builder in bad faith.00) Pesos plus appearance fee for every appearance in court hearings. Ordering Bukal Enterprises to pay the Spouses Firme P30. the court a quo rendered the judgment appealed from[. The other signature. Nevertheless.000.000. that defendant-appellee Motorich Sales Corporation despite repeated demands and in utter disregard of its commitments had refused to execute the Transfer of Rights/Deed of Assignment which is necessary to transfer the certificate of title. (362909) 2876.000. that on March 1. Branch 63 [3] in Civil Case No. that said letter was coursed through defendant-appellees broker. plaintiffappellant entered into an agreement with defendant-appellee Motorich Sales Corporation for the transfer to it of a parcel of land identified as Lot 30. DECISION PANGANIBAN. Gruenberg and plaintiffappellant that the Transfer of Rights/Deed of Assignment will be signed only upon receipt of cash payment.. that as a result of defendantsappellees Nenita Lee Gruenberg and Motorich Sales Corporations unjustified and unwarranted failure to execute the required Transfer of Rights/Deed of Assignment or formal deed of sale in favor of plaintiff-appellant. under Transfer Certificate of Title No. an award of nominal damages of P30. 2222. In its answer. they will meet at a bank designated by plaintiff-appellant where they will encash the check and sign the Transfer of Rights/Deed. that on March 2.000 as nominal damages. COURT OF APPEALS. the latter lost the opportunity to construct a residential building in the sum of One Hundred Thousand (P100. Gruenberg. and JNM REALTY AND DEVELOPMENT CORP.

alleges that on February 14. made and entered into by and between: MOTORICH SALES CORPORATION. including its goodwill xxx when authorized by the vote of the stockholders representing at least two third (2/3) of the outstanding capital stock x x x. p. 1989.] [SGD. to wit: Sec. 34-35) For clarity. . We do not agree. b. ANDRES T. That the monthly amortization for the month of February 1989 shall be for the account of the Transferor. 7-8. lease. Pio del Pilar. Such contract. then its disposition should be governed by the requirement laid down in Sec. Sale or other disposition of assets. MOTORICH SALES CORPORATION SAN STRUCTURAL & TRANSFEROR STEEL FABRICATORS TRANSFEREE [SGD. (Decision. Metro Manila. does not find substantial evidence to hold defendant Nenita Lee Gruenberg liable considering that she did not in anyway misrepresent herself to be authorized by the corporation to sell the property to plaintiff (tsn dated September 27. hereinafter referred to as the TRANSFEREE. Is the alleged alteration of Gruenbergs testimony as recorded in the transcript of stenographic notes material to the disposition of this case? 4.Petitioner insists that [w]hen Gruenberg and Co affixed their signatures on the contract they both consented to be bound by the terms thereof. which was in turn allegedly represented by its treasurer. 1991. Plaintiff should have been on the look out under these circumstances. 1989.] _________________________ _____________________[6] In its recourse before the Court of Appeals. WITNESSETH. True. 8). Motorich Sales. Nenita Lee Gruenberg. exchange. it entered through its president. plaintiff himself [owns] several corporations (tsn dated August 16. Whether or not the appellate court may consider matters which the parties failed to raise in the lower court III. Hence. for and in consideration of the foregoing premises. THEREFORE. and if so. the Agreement dated February 14. however. Andres Co. as the Transferor and Motorich Sales Corp. Balance shall be payable on or before March 2. petitioner contends that the contract is binding on the two corporations. a corporation duly organized and existing under and by virtue of the laws of the Philippines. hereinafter referred to as the TRANSFEROR. Inc. 2. That the purchase price shall be at FIVE THOUSAND TWO HUNDRED PESOS (P5.Bus Org 2 Cases 1st Set Prelim 48 'The issue to be resolved is: whether plaintiff had the right to compel defendants to execute a deed of absolute sale in accordance with the agreement of February 14. More so. 3) which makes him knowledgeable on corporation matters. the Court of Appeals debunked petitioners arguments and affirmed the Decision of the RTC with the modification that Respondent Nenita Lee Gruenberg was ordered to refund P100. the Court hereby renders judgment DISMISSING the complaint at instance for lack of merit. Whether or not respondents are liable for damages and attorneys fees [9] The Court synthesized the foregoing and will thus discuss them seriatim as follows: 1. Defendants counterclaim is also DISMISSED for lack of basis. . 2. 1989. Subject to the provisions of existing laws on illegal combination and monopolies. That: WHEREAS. Quezon City. First Issue: Validity of Agreement Petitioner San Juan Structural and Steel Fabricators. mortgage.] [SGD. Balderama St. Whether or not there is a valid and enforceable contract between the petitioner and the respondent corporation IV.00).000. to dispose of that property covered by T. the parties have agreed as follows: 1.] By: NENITA LEE GRUENBERG By: ANDRES T.000 to petitioner. 1989. 1989. a corporation duly organized and existing under and by virtue of Philippine Laws. CO. the parties have hereunto set their hands this 14th day of February.200. San Juan. Appellant is entitled to compel the appellees to execute a Deed of Absolute Sale in accordance with the Agreement of February 14. Corp. with principal office address at Sumulong Highway. there is no evidence to show that defendant Nenita Lee Gruenberg was indeed authorized by defendant corporation. 1993. because it never authorized or ratified such sale. into the disputed Agreement with Respondent Motorich Sales Corporation. Ergo. petitioner raises the following issues: I. No such vote was obtained by defendant Nenita Lee Gruenberg for that proposed sale[. pp.and -SAN JUAN STRUCTURAL & STEEL FABRICATORS. Whether or not the Court of Appeals erred in holding that there is a valid correction/substitution of answer in the transcript of stenographic note[s] V. pp. will be paid upon the execution of this agreement and shall form part of the total purchase price.T. Rollo. and that the monthly amortization starting March 21. the Agreement according to which a lot owned by Motorich Sales Corporation was purportedly sold. Metro Manila. Regarding the question of damages. the TRANSFEROR agrees to execute a TRANSFER OF RIGHTS/DEED OF ASSIGNMENT in favor of the TRANSFEREE. whether plaintiff is entitled to damages. Rizal. p. NENITA LEE GRUENBERG. Earnest money amounting to ONE HUNDRED THOUSAND PESOS (P100. Since the property is clearly owned by the corporation. of the Corporation Code of the Philippines. Barrio Mambungan. 1989 is reproduced hereunder: AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This Agreement. covered by a TRANSFER OF RIGHTS between JNM Realty & Dev. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in the instant case II.. represented herein by its President. with principal office address at 5510 South Super Hi-way cor. Plaintiff is entitled to damages.00) per square meter. Are respondents liable for damages and attorneys fees? The Courts Ruling The petition is devoid of merit. a corporation may by a majority vote of its board of directors xxx sell. 1989 at Greenhills. represented herein by its Treasurer. Was there a valid contract of sale between petitioner and Motorich? 2. Metro Manila. In case of failure by the Transferee to pay the balance on the date specified on 1. NOW. Philippines. this petition before us.C. Motorich Sales. the earnest money shall be forfeited in favor of the Transferor. Antipolo. May the doctrine of piercing the veil of corporate fiction be applied to Motorich? 3.[8] The Issues Before this Court. As to the first question. cannot bind Motorich. petitioner insisted: 1.] neither was there evidence to show that the supposed transaction was ratified by the corporation. (b). as the Transferee. The transferor warrants that he [sic] is the lawful owner of the above-described property and that there [are] no existing liens and/or encumbrances of whatsoever nature. Makati. the Court likewise. the amount remitted as downpayment or earnest money. pledge or otherwise dispose of all or substantially all of its property and assets. 40. 1989 shall be for the account of the Transferee. CO Treasurer President Signed in the presence of: [SGD. the TRANSFEROR is the owner of a parcel of land identified as Lot 30 Block 1 of the ACROPOLIS GREENS SUBDIVISION located at the District of Murphy. containing an area of FOUR HUNDRED FOURTEEN (414) SQUARE METERS. That upon full payment of the balance. In the light of the foregoing.[7] As stated earlier. IN WITNESS WHEREOF. subject to the following terms: a. Gruenberg and Co signed on February 14. 40. No. (362909) 2876.

[19] Petitioner is clutching at straws. In the present case. petitioner argues that Gruenberg needed no authorization from the board to enter into the subject contract. [33] We stress that the corporate fiction should be set aside when it becomes a shield against liability for fraud. unless it has ratified such acts or is estopped from disclaiming them. this Court has held that a corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that the authority to do so has been conferred upon him. the contract. [18] Unmistakably. The Board of Directors or Trustees. are bound at their peril. agency or adjunct of another corporation. but only when it filed its surrejoinder before the Court of Appeals. as usually pertaining to the particular officer or agent. the achievement or perfection of a monopoly or generally the perpetration of knavery or crime. is to run roughshod over the basic principles of fair play. and in case either is controverted. even if the above-mentioned argument were to be addressed at this time. The general principles of agency govern the relation between the corporation and its officers or agents. the veil can be disregarded when it is utilized as a shield to commit fraud. to ascertain not only the fact of agency but also the nature and extent of authority. and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred. the Court finds no reason to pierce the corporate veil of Respondent Motorich. the acts of corporate officers within the scope of their authority are binding on the corporation. 23. then. or that the said contract was ratified by Motorich. because the latter is a close corporation. petitioner had the burden of proving that Nenita Gruenberg was in fact authorized to represent and bind Motorich in the transaction. But when these officers exceed their authority. of the subscribed capital stock[25] of Motorich. It is wellsettled that points of law. are incidental to. their actions cannot bind the corporation. was authorized to sell the property of the corporation. 1874. no contract to bind the obligor was perfected. to sell the subject parcel of land. the burden of proof is upon them to establish it (Harry Keeler v. for the purpose of shielding any alleged fraudulent or illegal activities of its officers or stockholders. 1878 Special powers of attorney are necessary in the following case: xxxxxxxxx (5) To enter any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration. being solely owned by the Spouses Gruenberg. as they cannot be raised for the first time on appeal. however. provides: SEC. That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the responsibility of ascertaining the extent of her authority to represent the corporation. Petitioner further contends that Respondent Motorich has ratified said contract of sale because of its acceptance of benefits. or made it appear to any third person that she had the authority. a corporation may act only through its board of directors. However. theories and arguments not brought to the attention of the trial court need not be.[17] Neither was such real estate sale shown to be a normal business activity of Motorich. as evidenced by the receipt issued by Respondent Gruenberg. [32] Thus. whether the assumed agency be a general or special one. if they would hold the principal liable. or may be implied from. Its offer of evidence before the trial court contained no proof of such authority. Article 1318 of the Civil Code lists the requisites of a valid and perfected contract: (1) consent of the contracting parties. and this includes powers which have been intentionally conferred. otherwise known as the Corporation Code of the Philippines. Rodriguez. when authorized either by its bylaws or by its board resolution. Indubitably. by virtue of her position. The document is a hand-written one.Petitioner failed to discharge this burden. expressly or impliedly. which. its treasurer. Second. When a sale of a piece of land or any interest therein is through an agent. the sale shall be void. all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks. [29] Allowing petitioner to change horses in midstream. petitioner itself concedes having raised the issue belatedly.[30] This feature flows from the legal theory that a corporate entity is separate and distinct from its stockholders. there is a clear absence of proof that Motorich ever authorized Nenita Gruenberg. [28] Thus. . 19). a treasurer. the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals. x x x x x x x x x. 1989 Agreement entered into by the latter with petitioner is void under Article 1874 of the Civil Code. powers added by custom and usage.[15] Consequently. 4 Phil. First. As found by the trial court [21] and affirmed by the Court of Appeals. [23] As the consent of the seller was not obtained. justice and due process. not a corporate receipt. or that it is operated. who shall hold office for one (1) year and until their successors are elected and qualified. this Court cannot entertain said issue at this late stage of the proceedings. Neither was there any proof that Motorich ratified. considered by a reviewing court. illegality or inequity. The Court is not persuaded. there can be no valid contract of sale between petitioner and Motorich. as it were. to sell its land or to receive the earnest money. the authority of the latter shall be in writing. Respondent Motorich categorically denies that it ever authorized Nenita Gruenberg. its treasurer is not cloaked with actual or apparent authority to buy or sell real property. we hold that the February 14. Since Spouses Reynaldo L. Gruenberg owned all or almost all or 99. however. and ordinarily will not be. bylaws. the property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporations board of directors.[16] It has not shown any provision of said respondents articles of incorporation. Accordingly. ART. Selling is obviously foreign to a corporate treasurers function. the circumvention of statutes.[14] In the case at bar. or serve as a mere alter ego or business conduit of a person or an instrumentality. whose powers are limited. Petitioner utterly failed to establish that said corporation was formed. the corporate powers of all corporations formed under this Code shall be exercised. Certainly. and also such powers as. [27] not having done so during the trial. The question of piercing the veil of corporate fiction is essentially. bylaws or board resolution to prove that Nenita Gruenberg possessed such power. -. [11] Thus. Petitioner rests its argument on the receipt.[22]there is no evidence that Gruenberg was authorized to enter into the contract of sale. [13] Unless duly authorized. in the usual course of the particular business. [12] Furthermore. and to disburse them in accordance with the authority given him by the board or the properly authorized officers. illegality or inequity committed on third persons.[20] In this case. subject to the articles of incorporation. the Court has also recognized the rule that persons dealing with an assumed agent. cannot bind the corporation in a sale of its assets. Because Motorich had never given a written authorization to Respondent Gruenberg to sell its parcel of land. does not prove the fact of ratification. Therefore. the Court still finds no reason to uphold it. and it bears only Nenita Gruenbergs signature. an activity which falls way beyond the scope of her general authority. otherwise.866% to be accurate. confuse legitimate issues. defeat public convenience. export and import in relation to a general merchandising business. [26] It adds that. or relevant provisions of law. this document alone does not prove that her acts were authorized or ratified by Motorich.Bus Org 2 Cases 1st Set Prelim 49 A corporation is a juridical person separate and distinct from its stockholders or members. Being inexistent and void from the beginning. the statutorily granted privilege of a corporate veil may be used only for legitimate purposes. the Court has consistently ruled that [w]hen the fiction is used as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation. or where there is no stock. from among the members of the corporation. [10] Section 23 of BP 68. Articles 1874 and 1878 of the Civil Code of the Philippines provides: ART. or. the company can be treated as a close corporation which can be bound by the acts of its principal stockholder who needs no specific authority. illegality or inequity at the expense of third persons. Petitioner cannot assume that she. a matter of proof. True.[24] Second Issue: Piercing the Corporate Veil Not Justified Petitioner also argues that the veil of corporate fiction of Motorich should be pierced. through its officers or agents in the normal course of business. the powers intentionally conferred. (2) object certain which is the subject matter of the contract. which generally has been described as to receive and keep the funds of the corporation. said contract cannot be ratified. This factual finding of the two courts is binding on this Court. (3) cause of the obligation which is established. one of the advantages of a corporate form of business organization is the limitation of an investors liability to the amount of the investment. Gruenberg and Nenita R. [31] On equitable considerations. like petitioner. As a general rule.Unless otherwise provided in this Code. The primary purpose of Motorich is marketing. distribution. or that the said veil was used to conceal fraud.

[38] But the factual milieu in Dulay is not on all fours with the present case. sir.[49] As already stated. her testimony demonstrates that the president of Petitioner Corporation. that was encashed. (2) All of the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title. Co was very interested to purchase the property and he offered to put up a P100. . their property relations would be governed by conjugal partnership of gains. Third Issue: Challenged Portion of TSN Immaterial Petitioner calls our attention to the following excerpt of the transcript of stenographic notes(TSN): Q Did you ever represent to Mr. sir. Granting arguendo that the corporate veil of Motorich is to be disregarded. and (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. make a close corporation. [39] In the present case. As stated by petitioner. because it was deposited with the account of Aren Commercial c/o Motorich Sales Corporation. within the meaning of this Code. however. 96. Petitioner cites Manuel R. Q You stated on direct examination that you did not represent that you were authorized to sell the property? A Yes. we note that Andres Co is not a neophyte in the world of corporate business. who singly is the controlling stockholder. Q In your account? A Yes. In Dulay. Q You did not say that you were not authorized nor did you say that you were authorized? A Mr. is one whose articles of incorporation provide that: (1) All of the corporations issued stock of all classes. [50] Respondent Gruenberg. We rule that it is not. petitioner maintains that Respondent Gruenberg should be held liable because she acted fraudulently and in bad faith [in] representing herself as duly authorized by [R]espondent [C]orporation. [43] Assuming further. Said excerpt should be understood in the context of her whole testimony. Definition and Applicability of Title. petitioner appears to be the victim of its own officers negligence in entering into a contract with and paying an unauthorized officer of another corporation. Hence. On the other hand. Co. who appear to have been married before the effectivity of the Family Code. Co that you were authorized by the corporation to sell the property? A Yes.000. From its articles. is not one of them. neither spouse can ask for a partition of the properties before the partnership has been legally dissolved. There being no indication that said spouses. [insofar] as it [was] concerned. Indubitably.866% of Respondent Motorich. alienation of community property must have the written consent of the other spouse or the authority of the court without which the disposition or encumbrance is void. or (2) a preemption of shares is restricted in favor of any stockholder or of the corporation. shall be held of record by not more than a specified number of persons. the sale of real property was contracted by the president of a close corporation with the knowledge and acquiescence of its board of directors. Gruenberg offered to return the amount to petitioner xxx since the sale did not push through. in its place was written a No with an initial scribbled above it. Spouses Reynaldo and Nenita Gruenberg own almost 99. [54] a principle embodied in Article 2154 of the .[42] As a consequence. neither spouse can alienate in favor of another his or her interest in the partnership or in any property belonging to it. . Inc. as previously discussed. is that correct? A That was not asked of me. the check was encashed. Dulay Enterprises. That was our first meeting.[47] Clearly then. During her cross-examination. by itself. however. Fourth Issue: Damages and Attorneys Fees Finally. however. threw caution to the wind by offering and paying the earnest money without first verifying Gruenbergs authority to sell the lot. As correctly ruled by the Court of Appeals. not exceeding twenty (20).00 earnest money at that time. A I just told them that I was the treasurer of the corporation and it [was] also the president who [was] also authorized to sign on behalf of the corporation. Q Yes. Motorich is not a close corporation.[44] Both requirements are manifestly absent in the instant case. Court of Appeals [37] wherein the Court ruled that xxx petitioner corporation is classified as a close corporation and. is insufficient to prove that Nenita Gruenberg was authorized to represent Respondent Motorich in the sale of its immovable property.A close corporation.[52] Moreover. Neither can he be oblivious to his duty to ascertain the scope of Gruenbergs authorization to enter into a contract to sell a parcel of land belonging to Motorich. sir. the check was paid in my name and I deposit[ed] it . as a matter of fact. sir. a corporation shall be deemed not a close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within the meaning of this Code. consequently. Nenita Gruenberg should be ordered to return to petitioner the amount she received as earnest money. for the sake of argument. however. petitioner prays for damages and attorneys fees. Nenita Gruenberg could not have effected a sale of the subject lot because [t]here is no co-ownership between the spouses in the properties of the conjugal partnership of gains. The Court is not unaware that there are exceptional cases where an action by a director. the subject parcel of land would then be treated as conjugal property of Spouses Gruenberg.000. Nenita Gruenberg did not testify that Motorich had authorized her to sell its property. that the spouses property regime is the absolute community of property. have agreed to a different property regime. alleging that [i]n an utter display of malice and bad faith.[36] So too. despite receipt and enjoyment of the proceeds of Gruenbergs act. just because Spouses Reynaldo and Nenita Gruenberg owned 99. [41] Since Nenita is not the sole controlling stockholder of Motorich. [51] In any event. v. Section 96 of the Corporation Code defines a close corporation as follows: SEC. in his great desire to buy the property. Indeed. Petitioner claims that said amount was deposited to the account of Respondent Motorich. or (3) listing its stocks in any stock exchange or making a public offering of such stocks is prohibited. Hence. Q Even then you kn[e]w all along that you [were] not authorized? A Yes. [46] This. A Yes. the aforementioned exception does not apply. -.00. Respondent Motorich likewise acted in bad faith when it claimed it did not authorize Respondent Gruenberg and that the contract [was] not binding. petitioners claim of fraud and bad faith is unsubstantiated and fails to persuade the Court. the sale would still be invalid. and the agreement was entered into by the corporate treasurer without the knowledge of the board of directors. [40] The present case. Respondent Gruenberg testified: Q So. disputes the allegations of petitioner. The amount paid as earnest money was not proven to have redounded to the benefit of Respondent Motorich. it is clear that Respondent Motorich is not a close corporation. a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its president. sir. He has been the president of Petitioner Corporation for more than ten years and has also served as chief executive of two other corporate entities. exclusive of treasury shares. She testified as follows: Q You voluntarily accepted the P100. a narrow distribution of ownership does not. The [m]ere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personalities. an award of damages or attorneys fees cannot be justified. as no one shall enrich himself at the expense of another. The articles of incorporation [34] of Motorich Sales Corporation does not contain any provision stating that (1) the number of stockholders shall not exceed 20. xxx. sir.866% of its subscribed capital stock. [r]espondents attempted and succeeded in impressing on the trial court and [the] Court of Appeals that Gruenberg did not represent herself as authorized by Respondent Motorich despite the receipt issued by the former specifically indicating that she was signing on behalf of Motorich Sales Corporation. because the same was acquired during their marriage. Q But you also did not say that you were not authorized to sell the property. just answer it. you did not tell that to Mr.[45] Petitioner claims that the answer Yes was crossed out. and. Notwithstanding the foregoing.[48] Assuming that Respondent Motorich was not a party to the alleged fraud. we sustain the findings of both the trial and the appellate courts that the foregoing allegations lack factual bases.Under this regime. [53] Co cannot feign ignorance of the scope of the authority of a corporate treasurer such as Gruenberg. [35] Motorich does not become one either. may be considered as a binding corporate act and a board action as nothing more than a mere formality. you signed in your capacity as the treasurer? [A] Yes.Bus Org 2 Cases 1st Set Prelim 50 Petitioner claims that Motorich is a close corporation.

456. 1982 as payment for the latters account. leaving the determination thereof at the sole will and control of petitioner. Moreover. the interests and other charges on the subject letter of credit should be computed only on the balance of P681. . WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE FLOATING OF INTEREST RATE IS VALID UNDER APPLICABLE JURISPRUDENCE AND THE RULES AND REGULATIONS OF THE CENTRAL BANK. respondent Lim) obtained from petitioner Consolidated Bank and Trust Corporation Letter of Credit No. An example of such a valid variable interest rate was found in Polotan.00 as attorneys fees. we note that the trial courts finding of overpayment is supported by evidence presented before it. insofar as it orders petitioner to reimburse respondent Continental Cement Corporation the amount of P490. but is also able to earn interest on the money loaned to respondent Corporation. was more than what was ordered reimbursed by the lower court. 1994 Resolution[2] of respondent Court of Appeals denying its Motion for Reconsideration. In a Supplemental Answer. we stress the time-honored rule that findings of fact by the Court of Appeals especially if they affirm factual findings of the trial court will not be disturbed by this Court.150. for practical reasons given the fluctuating economic conditions. WE jointly and severally agree to any increase or decrease in the interest rate which may occur after July 1. While such a computation may not have appeared in the Decision itself.070. and costs. 5. WHETHER OR NOT THE MANNER OF COMPUTATION OF THE MARGINAL DEPOSIT BY THE RESPONDENT APPELLATE COURT IS IN ACCORDANCE WITH BANKING PRACTICE. since respondents did not file an appeal in this case. vs. because at the same time it provides for the decrease in the interest rate in case the prevailing market rates dictate its reduction. which partially modified the Decision by deleting the award of attorneys fees in favor of respondents and. [6] The petition must be denied.228.228.[10] In that case. CV No. 1990.22 as and for attorneys fees and litigation expenses. Indeed. 3. Petitioner argues that the marginal deposit should be considered only after computing the principal plus accrued interests and other charges. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED INCORRECTLY OR COMMITTED REVERSIBLE ERROR IN HOLDING THAT THERE WAS OVERPAYMENT BY PRIVATE RESPONDENTS TO THE PETITIONER IN THE AMOUNT OF P490. respondents prayed for reimbursement of alleged overpayment to petitioner of the amount of P490. At any rate. DECISION YNARES-SANTIAGO. DOM-23277 in the amount of P1. GREGORY T. with respondent Lim as signatory. At the pre-trial conference. petitioners contention that the marginal deposit made by respondent Corporation should not be deducted outright from the amount of the letter of credit is untenable. which was the portion actually loaned by the bank to respondent Corporation. The pertinent provision in the trust receipt agreement of the parties fixing the interest rate states: I.[55] Although there was no binding relation between them. [9] We agree with respondent Court of Appeals that the foregoing stipulation is invalid.90 DESPITE THE ABSENCE OF ANY COMPUTATION MADE IN THE DECISION AND THE ERRONEOUS APPLICATION OF PAYMENTS WHICH IS IN VIOLATION OF THE NEW CIVIL CODE. 4. and to pay additionally the penalty of 1% per month until the amount/s or installment/s due and unpaid under the trust receipt on the reverse side hereof is/are fully paid.00 to petitioner. 1982.: The instant petition for review seeks to partially set aside the July 26.27 by the defendant corporation on July 13. 2) Whether or not the interest rates charged against the defendants by the plaintiff are proper under the letter of credit. the amount ordered reimbursed by the lower court should stand. P10. the bank is not only able to use the same for its own purposes.[8] Hence. However. Respondent Lim also denied any personal liability in the subject transactions. instead.075. i. However. with interest thereon at the legal rate from July 26. ordering respondent Corporation to pay petitioner P37.13. for banks to stipulate that interest rates on a loan not be fixed and instead be made dependent upon prevailing market conditions. 1988 until fully paid. On the first issue respecting the fact of overpayment found by both the lower court and respondent Court of Appeals. Court of Appeals.000. In other words. we painstakingly reviewed and computed the payments together with the interest and penalty charges due thereon and found that the amount of overpayment made by respondent Bank to petitioner.520. [7] Petitioner decries the lack of computation by the lower court as basis for its ruling that there was an overpayment made. a stipulation ostensibly signifying an agreement to any increase or decrease in the interest rate..445. Sr. The petition also seeks to set aside the March 8. Claiming that respondents failed to turn over the goods covered by the trust receipt or the proceeds thereof. Lim (hereinafter. CONTINENTAL CEMENT CORPORATION. Hence. 2. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN NOT HOLDING PRIVATE RESPONDENT SPOUSES LIABLE UNDER THE TRUST RECEIPT TRANSACTION. unless these findings are not supported by evidence.R. a trust receipt for the amount of P1. there being no reference rate set either by it or by the Central Bank. The letter of credit was used to purchase around five hundred thousand liters of bunker fuel oil from Petrophil Corporation. Compensation is proper and should take effect by operation of law because the requisites in Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent amount. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN NOT CONSIDERING THE TRANSACTION AT BAR AS A TRUST RECEIPT TRANSACTION ON THE BASIS OF THE JUDICIAL ADMISSIONS OF THE PRIVATE RESPONDENTS AND FOR WHICH RESPONDENTS ARE LIABLE THEREFOR. unlike the stipulation subject of the instant case. and 4) Whether or not the defendants are personally liable under the transaction sued for in this case. 3) Whether or not the plaintiff properly applied the previous payment of P300. [5] dismissing the Complaint and ordering petitioner to pay respondents the following amounts under their counterclaim: P490. v. the new interest rate shall be the guiding rate in computing the interest due on the outstanding obligation without need of serving notice to the Cardholder other than the required posting on the monthly statement served to the Cardholder [11] was considered valid.90.93 was executed by respondent Corporation. petitioner filed a complaint for sum of money with application for preliminary attachment [3] before the Regional Trial Court of Manila.e. While it may be acceptable. the trial court rendered its Decision. the contractual provision stating that if there occurs any change in the prevailing market rates. 1993 Decision [1] of respondent Court of Appeals in CA-G. J. WHEREFORE.228. petitioner. 29950. without first crediting or setting off the marginal deposit which the respondent Corporation paid to it. petitioner paid Gruenberg on the mistaken belief that she had the authority to sell the property of Motorich. 1981. trust receipt and under existing rules or regulations of the Central Bank. Neither do we find error when the lower court and the Court of Appeals set aside as invalid the floating rate of interest exhorted by petitioner to be applicable. In answer to the complaint. [4] On September 17. The facts are as follows: On July 13. respondents averred that the transaction between them was a simple loan and not a trust receipt transaction. respondent Corporation) and Gregory T. THE COURT OF APPEALS. and that the amount claimed by petitioner did not take into account payments already made by them.93.469.228. P563.068. Both parties appealed to the Court of Appeals. [56] Article 2155 of the Civil Code provides that [p]ayment by reason of a mistake in the construction or application of a difficult question of law may come within the scope of the preceding article. 1988 until fully paid. respondent Corporation paid a marginal deposit of P320. the interest rate involved in the Polotan case is designed to be based on the prevailing market rate. the instant petition raising the following issues: 1. which the latter delivered directly to respondent Corporation in its Bulacan plant. for while a marginal deposit earns no interest in favor of the debtor-depositor. it would be onerous to compute interest and other charges on the face value of the letter of credit which the petitioner issued. On the other hand. respondents.90 with interest thereon at the legal rate from July 26.90 representing overpayment of respondent Corporation. respondents Continental Cement Corporation (hereinafter.00 On the same date. there should always be a reference rate upon which to peg such variable interest rates. In relation to the same transaction. when the Central Bank floated the interest rate. the parties agreed on the following issues: 1) Whether or not the transaction involved is a loan transaction or a trust receipt transaction. interest-free.Bus Org 2 Cases 1st Set Prelim 51 Civil Code. THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK). LIM and SPOUSE. to sustain petitioner on this score would be to countenance a clear case of unjust enrichment. The aforequoted provision was upheld notwithstanding that it may partake of the nature of an escalation clause.001. the petition is hereby DENIED and the assailed Decision is AFFIRMED.

BAAGA: That is why I made a follow up question asking ownership of the bunker fuel oil. the oil was used up by respondent Corporation in its normal operations by August. Q . then.075. it is apparent that there was really no trust receipt transaction that took place. we found that inasmuch as the debtor received the goods subject of the trust receipt before the trust receipt itself was entered into..Upon purchase of the bunker fuel oil and upon the requests of the defendant possession of the bunker fuel oil were transferred to them. Lim and his spouse cannot be made personally liable since respondent Lim entered into and signed the contract clearly in his official capacity as Executive Vice President. as shown by the various receipts issued by petitioner acknowledging payment on the loan. VILLARAMA. it is crystal clear that on the part of Petitioners there was neither dishonesty nor abuse of confidence in the handling of money to the prejudice of PBC. or on September 2. in view of all the foregoing. Petitioner has also failed to convince us that its transaction with respondent Corporation is really a trust receipt transaction instead of merely a simple loan. [13] Further.Bus Org 2 Cases 1st Set Prelim 52 without more. The mala prohibita nature of the alleged offense notwithstanding. The Information charges Petitioners with intent to defraud and misappropriating the money for their personal use. CV No.832. The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under the threats of criminal prosecution should they be unable to pay it may be unjust and inequitable. but directly to the Petitioners from CM Builders Centre. BAAGA: Q . PBC showed its true colors and admitted that it was only after collection of the money. we agree that respondents Gregory T. contrary to the express provision embodied in the trust receipt. Evidently. we are not convinced that respondent Gregory T. Neither has it been shown that it has evaded payment of its obligations. at no time did title over the oil pass to petitioner. cannot be accepted by this Court as valid for it leaves solely to the creditor the determination of what interest rate to charge against an outstanding loan. Gregory Lim. respondent Corporation is not an importer which acquired the bunker fuel oil for re-sale. This situation is inconsistent with what normally obtains in a pure trust receipt transaction. which are the gravamen of a trust receipt violation. Lim and his spouse should be personally liable under the subject trust receipt. Petitioners continually endeavored to meet their obligations. This impresses upon the trust receipt in question vagueness and ambiguity. COURT: Give time to the other counsel to object..Who owns the bunker fuel oil after purchase from Petrophil Corp. COURT: Proceed. and is prone to misinterpretation. Petitioner.[16] WHEREFORE. More importantly.R. No. upon the execution of the trust receipt acknowledging the ownership of the bunker fuel oil this should be acceptable for whatever disposition he may make.[14] On the other hand. ATTY. The resort to this scheme leaves poor and hapless borrowers at the mercy of banks. ATTY. intent as a state of mind was not proved to be present in Petitioners situation. Petitioners employed no artifice in dealing with PBC and never did they evade payment of their obligation nor attempt to abscond. Q . through its President. as shown by several receipts issued by PBC acknowledging payment of the loan. for the account of the defendants thereby paying the value of the bunker fuel oil what transpired next after that? A . Instead. 1993 in CA-G. INC. Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale. which should not be the basis for criminal prosecution in the event of violation of its provisions. More specifically. The Decision of the Court of Appeals dated July 26. G. RACHON: Objection already answered. 1982.To the Continental Cement Corp. HALLEY. the delivery to respondent Corporation of the goods subject of the trust receipt occurred long before the trust receipt itself was executed. but directly to respondent Corporation to which the oil was directly delivered long before the trust receipt was executed. BERSAMIN.Furthermore. Court of Appeals [12] appears to be foursquare with the facts obtaining in the case at bar. the transaction in question was a simple loan and not a trust receipt agreement. if not reprehensible.R. The fact that ownership of the oil belonged to respondent Corporation. CARPIO MORALES. At no time did title over the construction materials pass to the bank.You mentioned them to whom are you referring to? A . abuse of confidence or mishandling of funds on the part of respondent Corporation.So by your statement who really owns the bunker fuel oil? ATTY. Chairperson. as manifested by its Affidavit of Desistance. it continually endeavored to meet the same. Petitioners argument that respondent Corporation and respondent Lim and his spouse are one and the same cannot be sustained. They are contractors who obtained the fungible goods for their construction project. Here. Q . delivery of the bunker fuel oil to respondent Corporations Bulacan plant commenced on July 7. 1982. respondent Corporation was required to sign the trust receipt simply to facilitate collection by petitioner of the loan it had extended to the former.After the bank opened a letter of credit in favor of Petrophil Corp. as had happened in this case.You mentioned about acknowledging ownership of the bunker fuel oil to whom by whom? A .[15] By all indications. RACHON: He has testified that ownership was acknowledged in favor of Continental Cement Corp. ATTY. Indeed.Gregory Lim. 29950 is AFFIRMED. 1982 and was completed by July 19. 1982. to wit: Q . Eventually.By the Continental Cement Corp. as in Colinares. the instant Petition for Review is DENIED.38 on a loan with a principal amount of only P681. and SERENO. the payment of the sum of P1. We stress the hornbook law that corporate personality is a shield against personal liability of its officers. as found by the lower court and the Court of Appeals. respondent Corporation cannot be said to have been dishonest in its dealings with petitioner. wherein the goods belong in ownership to the bank and are only released to the importer in trust after the loan is granted. The personality of the corporation is separate and distinct from the persons composing it.158. Similarly. it needed the oil for its own operations. so that question has already been answered.? A . 157549 Present: -versus- PRINTWELL. BRION. Prior to the date of execution of the trust receipt. JJ. The recent case of Colinares v. ownership over the goods was already transferred to the debtor. The transactions sued upon were clearly entered into by respondent Lim in his capacity as Executive Vice President of respondent Corporation. was acknowledged by petitioners own account officer on the witness stand. The danger in characterizing a simple loan as a trust receipt transaction was explained in Colinares. Petitioners sought favorable terms precisely to meet their obligation. Promulgated: . JR. Thus. rather it punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner.93 negates any badge of dishonesty. DONNINA C. There. Certainly. to wit: The Trust Receipts Law does not seek to enforce payment of the loan. Finally. Such agreements are contracts of adhesion which borrowers have no option but to sign lest their loan be disapproved. In the case at bar. the subject trust receipt was only executed nearly two months after full delivery of the oil was made to respondent Corporation.

00 P 20.000 2. 1987. In the period from October 11.Printwell suedBMPIon January 26. OR no. For that purpose.00 P 5. namely:(a) an audit report dated March 30.00 P135. viz: The claim of individual defendants that they have fully paid their subscriptions to defend[a]nt corporation.00 Printwellengaged in commercial and industrial printing. 2).00 In addition. 1990 for the collection of the unpaid balance of P291. 220. 1987.000 75.00 Amount paid P87.Printwell amended thecomplaint in order to implead as defendants all the original stockholders and incorporators to recover on theirunpaid subscriptions. Yu Albert T.00 P135. Antecedents The petitioner wasan incorporator and original director of Business Media Philippines.00 P 20. 1987 May 13. a receipt issued earlier must have serial . Inc.000 shares each with a par value of P10. 218.000. (together with wrappers and subscription cards) that BMPI published and sold. Inc.00. Vieza had assigned his fully-paid up sharesto a certain Gerardo R. They cannot invoke the veil of corporate identity as a shield from liability.00 P 45. Yu Zenaida V. Vieza TOTAL Unpaid Shares P 262.000. Branch 71.000.[4] On February 8. in Pasig City (RTC). Weaffirm with modification the decisionpromulgated on August 14. of shares 35. OR no.00 P 135. Halley Amount P 45. 1988 Name Albert T. 222 (Exh.00 P187. 1988 May 13.000 18. Zenaida V. as follows: [5] Name Donnina C.000. is covered by Official Receipt No.000 18. This is cogent proof that said receipts were belatedly issued just to suit their theory since in the ordinary course of business.Bus Org 2 Cases 1st Set Prelim 53 Respondent. Jacinto in 1989. Albert T. Cabrera.000. Jr. evidenced byinvoices and delivery receipts totalingP316. is not worthy of consideration. [1]whereby the Court of Appeals(CA) upheld thedecision of the Regional Trial Court. the stockholderssubmitted other documentsin evidence.500. Vineza TOTAL No.000. OR no. Yu Rizalino C.000 were initially subscribed. 3). whereas the alleged payment made earlier on November 5. 1989. 227. 217 218 220 221 222 223 227 Date November 5.000.342.000.000. because: a) in the case of defendants-spouses Albert and Zenaida Yu. that BMPI had a separate personality from those of its stockholders. Cabrera. Jr. (c) BMPI income tax return for the year 1988 (stamped received by the BIR).500. to wit: Subscriber Donnina C. andthat the directors and stockholders of BMPI had resolved to dissolve BMPI during the annual meetingheld on February 5.00. 1989 prepared by Ilagan.Considering that BMPI paidonlyP25. Yu Rizalino C. at its incorporation on November 12.76.342. Jr.500.000.[3]had an authorized capital stock of P3. J: Stockholders of a corporation are liable for the debts of the corporation up to the extent of their unpaid subscriptions.000 2. Yu Zenaida V. [6]averring that they all had paid their subscriptions in full.000.000.000 Total subscription P 350. Yu Zenaida V.00 P5. Cepillo & Associates (submitted to the SEC and the BIR).000.00 P750. Albert T.00. 2002. thatRizalino C. Yu Roberto V. 1988.000. (Printwell) the principal sum of P291.00 P5.00 P15. 1988 amounting to P135.76 in the RTC. 1987 November 5. Jr. is covered by Official Receipt No. [13] Ruling of the RTC On November 3. OR no.76 plus interest. Roberto V.00 P 180.00 P 562.to wit: Receipt No.000. [12] and(f)Bank of the Philippine Islands (BPI) savings account passbookin the name of BMPI. 1988 November 5. 1988 May 13. Halley Roberto V.342.BMPI commissioned Printwell for the printing of the magazine Philippines.00 divided into 300. 1988 until July 12. 1990. 217. rejecting the allegation of payment in full of the subscriptions in view of an irregularity in the issuance of the ORs and observingthat the defendants had used BMPIs corporate personality to evade payment and create injustice.00 P 262. Cabrera.500. Yu Donnina C. [2]ordering the defendants (including the petitioner)to pay to Printwell. [7](b) BMPIbalance sheet[8] and income statement[9]as of December 31. which.000.500. 1990. 221. because the veil may be lifted to avoid defrauding corporate creditors. 222.OR no.00 P 135. it will be noted that the alleged payment made on May 13. BMPI placedwith Printwell several orders on credit.00 P 180. 2011 x-----------------------------------------------------------------------------------------x DECISION BERSAMIN. Cabrera.00 P15. 1987 May 13. Halley Roberto V.[10](d) journal vouchers. Inc. (BMPI).000.00 P 15. 218 (Exh. Printwell extended 30-day credit accommodations to BMPI.00 P45. amounting to P5. andOR no.00 P45.00 The defendants filed a consolidated answer.00. 223.of which 75.000. May 30.000.000. the defendantstockholderssubmitted in evidenceBMPI official receipt (OR) no.000. To prove payment of their subscriptions.000. 1993.000.000.000.[11](e) cash deposit slips. the RTC rendereda decision in favor of Printwell.

from date of default.342. Inc. SO ORDERED. it was within their exclusive power to prevent the fulfillment of the condition. Spouses Albert and Zenaida Yu averred: I. Cabrera. until fully paid. NO SUCH UNPAID SUBSCRIPTIONS. in fact. Poizat. a corporation has no legal capacity to release a subscriber to its capital stock from the obligation to pay for his shares. the CA affirmed the RTC. INC. Their inaction should not work to their benefit and unjust enrichment at the expense of plaintiff. INC.00 Rizalino V. 2002. The liability of the individual stockholders in the instant case shall be pro-rated as follows: Names Amount Donnina C. Yu 15.000. appealed. Roberto V.000. II.00 Albert T. No. THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND WEIGHT TO DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YUS EXHIBITS 2 AND 3 DESPITE THE UNREBUTTED TESTIMONY THEREON BY APPELLANT ALBERT YU AND THE ABSENCE OF PROOF CONTROVERTING THEM. 77. individual defendants have the following unpaid subscriptions: Names Unpaid Subscription Donnina C. thusly: Defendant Business Media.65 Roberto V. Cabrera.00 -----------------Total P321. vs. On August 14. THE TRIAL COURT NONETHELESS ERRED IN NOT FINDING THAT APPELLANTS-STOCKHOLDERS HAVE.00 as attorneys fees.579. ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO THE EXTENT OF THEIR UNPAID SUBSCRIPTION OF SHARES OF STOCK. 30 June 1988). G. THE TRIAL COURT ERRED IN HOLDING APPELLANTS-STOCKHOLDERS LIABLE FOR THE LIABILITIES OF THE DEFENDANT CORPORATION. Cabrera. THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YU PERSONALLY LIABLE FOR THE CONTRACTUAL OBLIGATION OF BUSINESS MEDIA PHILS. 37 Phil.342. judgment is hereby rendered in favor of plaintiff and against defendants. NOTWITHSTANDING OVERWHELMING EVIDENCE SHOWING FULL SETTLEMENT OF SUBSCRIBED CAPITAL BY THE INDIVIDUAL DEFENDANTS. viz: .579. 135..55 Albert T. Spouses Donnina and Simon Halley. is a registered corporation (Exhibits A. Jr.00 -------------------Total P562.75[15] The RTC disposed as follows: WHEREFORE. b) The claim that since there was no call by the Board of Directors of defendant corporation for the payment of unpaid subscriptions will not be a valid excuse to free individual defendants from liability. Yu 135. still. Inc. Halley P149. and. DESPITE FULL PAYMENT BY SAID DEFENDANTS-APPELLANTS OF THEIR RESPECTIVE SUBSCRIPTIONS TO THE CAPITAL STOCK OF BUSINESS MEDIA PHILS.144.000. 23 SCRA 1366) and. andRizalinoVieza defined the following errors committed by the RTC.955. On their part. argued: I.Bus Org 2 Cases 1st Set Prelim 54 numbers lower than those issued on a later date. the alleged separate personality of defendant corporation should be disregarded (Tan Boon Bee & Co. IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO APPLY THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE PERSONALITY IN ABSENCE OF ANY SHOWING OF EXTRA-ORDINARY CIRCUMSTANCES THAT WOULD JUSTIFY RESORT THERETO.00 Zenaida V. Inc. as appearing from the Articles of Incorporation. ordering defendants to pay to plaintiff the amount of P291. plus P30. as principal. with interest thereon at 20% per annum. But in the case at bar. by simply not making a call for the payment of the unpaid subscriptions. Jr. Bitulok Sawmill. Vineza 15.00 Rizalino V. Judge Jarencio.R.55 Zenaida V. IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO RULE THAT INDIVIDUAL DEFENDANTS ARE LIABLE TO PAY THE PLAINTIFFAPPELLEES CLAIM BASED ON THEIR RESPECTIVE SUBSCRIPTION. 802).144. plus costs of suit. 1988). A-1 to A-9). AT THE TIME THE SUIT WAS FILED. 1987 has serial numbers (222) higher than those issued on a later date (May 13. Vineza 8. as follows: I. hence..76. the RTC declared the defendant stockholders liable to Printwell pro rata. Defendants counterclaims are ordered dismissed for lack of merit.500.[16] Ruling of the CA All the defendants. Jr.500.000. Halley P262.00 Roberto V.00 and it is an established doctrine that subscriptions to the capital stock of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims (Philippine National Bank vs. [14] Applying the trust fund doctrine. Yu 77.000. IF ANY. except BMPI.. II. Yu 8. Since the individual defendants are members of the Board of Directors of defendantcorporation. II. 41337. it is very apparent that individual defendants merely used the corporate fiction as a cloak or cover to create an injustice. the receipt issued on November 5.. Assuming arguendo that the individual defendants have paid their unpaid subscriptions. holding that the defendants resort to the corporate personality would createan injustice becausePrintwell would thereby be at a loss against whom it would assert the right to collect. and any agreement to this effect is invalid (Velasco vs.

the CA concurred with the RTC on theapplicability of thetrust fund doctrine. 1987 amounting to P5. because. To deny appellee from recovering from appellants would place appellee in a limbo on where to assert their right to collect from BMPI since the stockholders who are appellants herein are availing the defense of corporate fiction to evade payment of its obligations. Issues Only Donnina Halley has come to the Court to seek a further review. 1987 had a serial number (222) higher than those issued on May 13. 352). is where the creditors can claim monetary considerations for the satisfaction of their claims. to wit: Finally. Likewise. 198 SCRA 211). Bitulok Sawmill. COB Marketing. but the CA denied their motion for reconsideration. For it is a rule that a stockholder may be sued directly by creditors to the extent of their unpaid subscriptions to the corporation (Keller vs.000. which consists of the payment of subscriptions of the stockholders.00 allegedly representing full payment of balance subscriptions of stockholder Albert Yu. whereas the alleged payment made earlier on November 5. namely Exhibits 1. The reliance is misplaced. CIR. And even assuming arguendo that the individual appellants have paid their unpaid subscriptions. in the total amount of P291. 1987 amounting to P5. 218 dated May 13. 1988 amounting to P135. Court of Appeals.00 is covered by Official Receipt No. Premised on the above-doctrine. and as against creditors. to wit: Exh: 1 YU Official Receipt No. it is very apparent that the veil of corporate fiction may be pierced when made as a shield to perpetuate fraud and/or confuse legitimate issues. If these funds which ought to be fully subscribed by the stockholders were not paid or remain an unpaid subscription of the corporation then the creditors have no other recourse to collect from the corporation of its liability. YU. Annex A) which facts were never denied by appellants stockholders that they owe appellee the amount of P291. a receipt is issued earlier must have serial numbers lower than those issued on a later date. of of of of Based on the above exhibits.[17] Further. andheld that the veil of corporate fiction could be pierced when it was used as a shield to perpetrate a fraud or to confuse legitimate issues. argued that the fact of full payment for the unpaid subscriptions was incontrovertibly established by competent testimonial and documentary evidence. the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals ( First Philippine International Bank vs.342. to wit: I. at the rate of 20% per annum until fully paid. 1988 amounting to P15.342. 65 SCRA 613).[18] The CAdeclared thatthe inconsistency in the issuance of the ORs rendered the claim of full payment of the subscriptions to the capital stock unworthy of consideration. the receipt issued on November 5. Moreover. a corporation has no power to release a subscription or its capital stock. which left the creditors helpless in collecting their claim due to insufficiency of funds of the corporation.00 allegedly representing the full payment of balance subscriptions of stockholder Zenaida Yu. Court of Appeals. under which corporate debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate debts. The said goods were delivered to and received by BMPI but it failed to pay its overdue account to appellee as well as the interest thereon. 2. wrappers and subscription cards. Moreover. 23 SCRA 1366). without valuable consideration for such releases. there is an inconsistency regarding the issuance of the official receipt since the alleged payment made on May 13. 3 & 4. the achievements or perfection of monopoly or generally the perpetration of knavery or crime. 217 dated November 5. 141 SCRA 86). (Record p.00 allegedly representing the initial payment subscriptions of stockholder Albert Yu. the corporate existence may be disregarded where the entity is formed or used for non-legitimate purposes.000. (Record p. 353). which were never disputed by appellee. We are hereby reproducing the contents of the above-mentioned exhibits.[19] Spouses Halley and Vieza moved for a reconsideration. clearly shows that they should not be held liable for payment of the said unpaid subscriptions of BMPI. in the case of appellants SPS. stating thus: It is an established doctrine that subscription to the capital stock of a corporation constitute a fund to which creditors have a right to look up to for satisfaction of their claims. p. Exh: 2 YU Official Receipt No.00 was covered by Official Receipt No. the claim of appellants that they already paid the unpaid subscriptions could not be given weight because said payment did not reflect in the Articles of Incorporations of BMPI that the unpaid subscriptions were fully paid by the appellants stockholders. the circumvention of statutes. 252 SCRA 259). under this doctrine. 353). 222 dated November 5. 23 SCRA 1366). appellants SPS YU.000. hence appellee in order to protect its right can collect from the appellants stockholders regarding their unpaid subscriptions. 3-5. Exh: 4 YU Official Receipt No. BMPI failed to pay appellee of its liability. Such issuance is a clear indication that said receipts were belatedly issued just to suit their claim that they have fully paid the unpaid subscriptions since in the ordinary course of business. THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION THAT DID NOTSTATE THE FACTS AND THE LAW UPON WHICH THE JUDGMENT WAS BASED BUT MERELY COPIED THE CONTENTS OF RESPONDENTS MEMORANDUM ADOPTING THE SAME AS THE REASON FOR THE DECISION II. 352). p.76 (Record pp. 218 (Record.Bus Org 2 Cases 1st Set Prelim 55 Settled is the rule that when the veil of corporate fiction is used as a means of perpetrating fraud or an illegal act or as a vehicle for the evasion of an existing obligation. Such occurrence was evident in the case at bar wherein the appellants as stockholders failed to fully pay their unpaid subscriptions. THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT WHICH ESSENTIALLY ALLOWED THE PIERCING OF THE VEIL OF CORPORATE FICTION .000. 1987 amounting to P45.000. Exh: 3 YU Official Receipt No. It was also during this time that appellants stockholders were in charge of the operation of BMPI despite the fact that they were not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said transactions.00 allegedly representing the initial payment subscriptions of stockholder Zenaida Yu.76. a reduction of the capital stock can take place only in the manner and under the conditions prescribed by the statute or the charter or the Articles of Incorporation. 1988 (218). 1988 amounting to P135. But in the case at bar. and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts (PNB vs. 222 (Record. such as to evade a just and due obligations or to justify wrong (Claparols vs. (PNB vs. an inference could be made that the funds. Bitulok Sawmill. In the case at bench. In view of the unpaid subscriptions. it is undisputed that BMPI made several orders on credit from appellee PRINTWELL involving the printing of business magazines. 223 dated May 13. (Jacinto vs. positing the following for our consideration and resolution. we are in accord with the lower courts findings that the claim of the individual appellants that they fully paid their subscription to the defendant BMPI is not worthy of consideration.000. still.

. Hence. andthat a suspicion of partiality arose from the fact that the RTC decision was but a replica of Printwells memorandum. if the corporate entity is being used as a cloak or cover for fraud or illegality. On the first error. We rule against the petitioners submission. fully explaining why the defendants were being held liable to the plaintiff.The frequency of similarities in argumentation. that every decision should clearly and distinctly state the facts and the law on which it is based. [23]but fails to specify either the portions allegedly lifted verbatim from the memorandum. directors. thus denying her the opportunity to analyze the decision. the petitioner maintains that the CA and the RTC erroneously pierced the veil of corporate fiction despite the absence of cogent proof showing that she. considering that she was able to impute and assignerrors to the RTCthat she extensively discussed in her appeal in the CA. is to inform the reader of how the court has reached its decision and thereby give the losing party an opportunity to study and analyze the decision and enable such party to appropriately assign the errors committed therein on appeal. [29]It thus behooves the courts to be careful in assessing the milieu where the piercing of the corporate veil shall be done. as stockholder of BMPI. the reader was at once informed of the factual and legal reasons for the ultimate result. We also do not agree with the petitioner that the RTCs manner of writing the decisiondeprivedher ofthe opportunity to analyze its decisionas to be able to assign errors on appeal. [24] This isbecause ofthe avowed objective of the memorandum to contribute in the proper illumination and correct determination of the controversy.[22] in which the Court has stated that the reason underlying the constitutional requirement.[30] Although nowhere in Printwells amended complaint or in the testimonies Printwell offered can it be read or inferred from that the petitioner was instrumental in persuading BMPI to renege onits obligation to pay. andfor that reason accord prime importance to the separate personality of the corporation. considering that the mere similarityin language or thought between Printwells memorandum and the trial courts decisiondid not necessarily justify the conclusion that the RTC simply lifted verbatim or copied from thememorandum. As her submissions indicate. had any hand in transacting with Printwell. or that sheinduced Printwell to extend the credit accommodation by misrepresenting the solvency of BMPI toPrintwell. expression. the petitioner assails the decisions of the CA on: (a) the propriety of disregarding the separate personalities of BMPI and its stockholdersby piercing the thin veil that separated them. It is to be observed in this connection that a trial or appellate judge may occasionally viewa partys memorandum or brief as worthy of due consideration either entirely or partly. and the individuals composing the corporation will be treated as individuals. Thus. thereby manifesting a bias in favor of Printwell. she should not be personally liable.Rule 36 of the Rules of Court. or a business conduit for the sole benefit of the stockholders. Although a corporation has a personality separate and distinct from those of its stockholders. thatthe CA and the RTC failed to appreciate the evidence that she had fully paid her subscriptions. The decision of the RTC contained clear and distinct findings of facts. and that shehad no hand in persuading BMPI to renege on its obligation to pay.as a justification for a wrong. and (b) to avoid multiplicity of suits. It is noted that the petition for review merely generally alleges that starting from its page 5. and stated the applicablelaw and jurisprudence.and yet not be guilty of the accusation of lifting or copying from the memorandum.the courts always presume good faith.[21]to the effect that a judgment or final order of a court should state clearly and distinctly the facts and the law on which it is based. The omission renders thepetition for review insufficient to support her contention. a corporation is looked upon as a legal entity.Nor is there anything untoward in the congruence of ideas and views about the legal issues between himself and the party drafting the memorandum. namely: ( a) to reach the unpaid subscriptions because it appeared that such subscriptions were the remaining visible assets of BMPI. which may be great or small. The contrary appears. or officers. can be fairly attributable tothe adherence by our courts of law and the legal profession to widely knownor universally accepted precedents set in earlier judicial actions with identical factual milieus or posing related judicial dilemmas.that BMPI acted on its own. that the RTC merely copied the memorandum of Printwell in writing its decision. as if the Memorandum was the draft of the Decision of the Regional Trial Court of Pasig. and submits that the RTCthereby violatedthe requirement imposed in Section 14. When he does so. together with that of her co-defendants. I The RTC did not violate the Constitution and the Rules of Court The contention of the petitioner.[25] The petitionersubmits that she had no participation in the transaction between BMPI and Printwell. On the second and third errors. Our own readingof the trial courts decision persuasively shows that the RTC did comply with the requirements regarding the content and the manner of writing a decision prescribed in the Constitution and the Rules of Court. THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE TRUST FUND DOCTRINE WHEN THE GROUNDS THEREFOR HAVE NOT BEEN SATISFIED. and ( b) the application of the trust fund doctrine. her personal liability. The petitioner claims that the RTCs violation indicated that the RTC did not analyze the case before rendering its decision. [27]The corporate personality may be disregarded. as an alter ego. or why she regards the decision as copied. the petitioner contends that the RTC lifted verbatim from the memorandum of Printwell. and citation of authorities between the decisions of the courts and the memoranda of the parties. indicating her thorough analysis ofthe decision of the RTC. Permskul. Ruling The petition for review fails. II Corporate personality not to be used to foster injustice Printwell impleaded the petitioner and the other stockholders of BMPI for two reasons. and the CA and the RTCwrongly relied on the articles of incorporation in determining the current list of unpaid subscriptions despite the articles of incorporationbeing at best reflectiveonly of the pre-incorporation status of BMPI. the judgemay adopt and incorporatein his adjudicationthe memorandum or the parts of it he deems suitable. [28] As a general rule. [26]such separate and distinct personality is merely a fiction created by law for the sake of convenience and to promote the ends of justice.She cites Francisco v. In short. is unfounded. disregarding the corporate personality only after the wrongdoing is first clearly and convincingly established. Article VIII of the Constitution [20] as well as in Section 1. an adjunct. phraseology. unless and until sufficient reason to the contrary appears. the decision of the RTC copied verbatim the allegations of herein Respondents in its Memorandum before the said court. and did not analyze the records on its own.Bus Org 2 Cases 1st Set Prelim 56 III.

76 (Record pp. therefore. and whether or not she induced Printwell to transact with BMPI were not gooddefensesin the suit. that whether or not the petitioner persuaded BMPI to renege on its obligations to pay. The petitionerargues.[31] It follows. it is undisputed that BMPI made several orders on credit from appellee PRINTWELL involving the printing of business magazines.342. In view of the unpaid subscriptions. operate as payment.342. To establish their defense. Annex A) which facts were never denied by appellants stockholders that they owe(d) appellee the amount of P291. 227. income tax returns. and as between its creditors and stockholders its assets are in equity a fund for the payment of its debts. [40]To make out a prima facie case in a suit against stockholders of an insolvent corporation to compel them to contribute to the payment of its debts by making good unpaid balances upon their subscriptions. under the trust fund doctrine. the debtor bears the burden of showing with legal certainty that the obligation has been discharged by payment. [42] Apparently. 3-5. including the petitioner. not only that they delivered the checks to the petitioner. (Velasco vs. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized. but such property can be called a trust fund only by way of analogy or metaphor. Poizat. the general rule is that the burden rests on the defendant to prove payment. She thus insiststhat both lower courts erred in disregarding the evidence on the complete payment of the subscription. [41] The petitionerposits that the finding of irregularity attending the issuance of the receipts (ORs) issued to the other stockholders/subscribers should not affect her becauseher receipt did not suffer similar irregularity. thedebtor or thecreditor.we still cannot sustain the petitioners defense of full payment of her subscription. Notwithstanding that the RTC and the CA did not find any irregularity in the OR issued in her favor. Also. [44] The petitioners ORNo. to the prejudice of creditors.stockholders must prove full payment oftheir subscriptions Both the RTC and the CA applied the trust fund doctrineagainst the defendant stockholders. v. rather than on the plaintiff to prove nonpayment. Rivera.[39]The creditor is allowed to maintain an action upon any unpaid subscriptions and thereby steps into the shoes of the corporation for the satisfaction of its debt. cannot constitute a valid tender of payment. because a check is not money and only substitutes for money. 37 Phil.that the trust fund doctrinewas inapplicablebecause she had already fully paid her subscriptions to the capital stock of BMPI. hence appellee in order to protect its right can collect from the appellants stockholders regarding their unpaid subscriptions. the delivery of a check does not operate as payment and does not discharge the obligation under a judgment. Dummer. To deny appellee from recovering from appellants would place appellee in a limbo on where to assert their right to collect from BMPI since the stockholders who are appellants herein are availing the defense of corporate fiction to evade payment of its obligations. or theperson rendering services. The scope of the doctrine when the corporation is insolvent encompasses not only the capital stock. [45]Yet.[34]where thisCourt declared that: It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts.Bus Org 2 Cases 1st Set Prelim 57 remainedbecause the CA found her and the other defendant stockholders to be in charge of the operations of BMPI at the time the unpaid obligation was transacted and incurred. [37] without a valuable consideration.a corporation has no legal capacity to release an original subscriber to its capital stock from the obligation of paying for his shares. therefore. it isnot conclusive. III Unpaid creditor may satisfy its claim from unpaid subscriptions. 802) xxx [35] We clarify that the trust fund doctrineis not limited to reaching the stockholders unpaid subscriptions.[38] or fraudulently.[33]was adopted in our jurisdiction in Philippine Trust Co. but also that the checks were encashed. As between the corporation itself and its creditors it is a simple debtor. and theclient or thecustomer. A receipt is the written acknowledgment of the fact of payment in money or other settlement between the seller and the buyer of goods.[36]All assets and property belonging to the corporation held in trust for the benefit of creditors thatwere distributed or in the possession of the stockholders. theparty who pleads payment has the burden of proving it. The said goods were delivered to and received by BMPI but it failed to pay its overdue account to appellee as well as the interest thereon. [46] The delivery of a bill of exchange only produces the fact of payment when the bill has been encashed. but merely presumptive. may be reached by the creditor in satisfaction of its claim. however. in whole or in part. like receipts..considering thatparole evidence may also establishthe fact of payment. It was also during this time that appellants stockholders were in charge of the operation of BMPI despite the fact that they were not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said transactions. the delivery of such an instrument does not. Since a negotiable instrument is only a substitute for money and not money. at the rate of 20% per annum until fully paid. the respondents therefore had to present proof. she had to adduce evidence satisfactorily proving that her payment by check wasregardedas payment under the law. to wit: In the case at bench. Royeca [48]is enlightening: Settled is the rule that payment must be made in legal tender. The trust fund doctrineenunciates a xxx rule that the property of a corporation is a trust fund for the payment of creditors.76. regardless of full paymentof their subscriptions. the petitioner failed to discharge her burden. [43]Althougha receipt is the best evidence of the fact of payment. indicated that her supposed payment had beenmade by means of a check. but also other property and assets generally regarded in equity as a trust fund for the payment of corporate debts. it is only necessary to establish that thestockholders have not in good faith paid the par value of the stocks of the corporation. to discharge theburden to prove payment of her subscription. wrappers and subscription cards. [32] The trust fund doctrine. in the total amount of P291. The petitioners argumentis devoid of substance. In civil cases.presentedto prove the payment of the balance of her subscription. A check is not legal tender and. that even where the plaintiff must allege nonpayment. In other words. Had the checks been actually . Thus. BMPI failed to pay appellee of its liability.nor is it exclusive evidence. [47]The following passage fromBank of Philippine Islands v. first enunciated in the American case of Wood v. Paymentis defined as the delivery of money. Mere delivery of checks does not discharge the obligation under a judgment. and relevant financial statements. by itself. The respondents failed to do so.

The absence of the requisite findings from the RTC decision warrants the deletion of the attorneys fees. the respondents could have easily produced the cancelled checks as evidence to prove the same.500. To reiterate. 1990 until the obligation (i. vs. S. plus interest of 12% per annum to be computed from February 8. Theincome tax return (ITR) and statement of assets and liabilities of BMPI. Although the articles of incorporation may possibly reflect only the pre-incorporation status of a corporation. G. the sum of P262. Hence. Riatto International.. averredfull payment of their subscriptions as a defense. Ostensibly.65.[54] Lastly. Absent any stipulation. 142616 July 31. as well as their failure to counter the reliance on the recitals found in the articles of incorporation simply meant their failure or inability to satisfactorily prove their defense of full payment of the subscriptions. Their failure to substantiate their averment of full payment.[49]and about whether the check was cleared and its amount paid to BMPI. extended a letter of credit in favor of the respondents in the amount of US$300.140. PNB International Finance Ltd. we find no basis togrant attorneys fees. the lower courts reliance on that document to determine whether the original subscribersalready fully paid their subscriptions or not was neither unwarranted nor erroneous.Bus Org 2 Cases 1st Set Prelim 58 encashed.. Instead. On May 29. and DADASAN GENERAL MERCHANDISE. INC. Branch 147 dated June 30. shewas liable up to that amount.had a right to reachher unpaid subscription in satisfaction of its claim. Indeed. organized and doing business in Hong Kong. Because of this failure of the respondents to present sufficient proof of payment. and convenience because it provides the only certain and accurate method of establishing the various corporate acts and transactions and of showing the ownership of stock and like matters. we deny the petition for review on certiorari. but to the stockholders like the petitioner who. Lastly. The antecedents of this case are as follows: Petitioner Philippine National Bank is a domestic corporation organized and existing under Philippine law. Respondents made repayments of the loan incurred by remitting those amounts to their loan account with PNB-IFL in Hong Kong. a stock and transfer book is necessary as a measure of precaution. 1999.500. (PNB-IFL) a subsidiary company of PNB. it was no longer necessary for the petitioner to prove non-payment. The petitioner shall paycost of suit in this appeal.00 in November 1996. affirming the Order issuing a writ of preliminary injunction of the Regional Trial Court of Makati. particularly proof that the checks were dishonored. the petitionerwas liablepursuant to the trust fund doctrine for the corporate obligation of BMPI by virtue of her subscription being still unpaid.[53]In view ofthe petitioners unpaid subscription being worth P262. [51] Specifically. she could not even inform the trial court about the identity of her drawee bank.00. the petitioners mere submission of the receipt issued in exchange of the check did not satisfactorily establish her allegation of full payment of her subscription.000.R. to US$1. and held the petitionerpersonally liable onlyin the amount of P149.000. Inc. as the defendants. 1990 until full payment.421. the petitioner maintains that both lower courts erred in relying on the articles of incorporationas proof of the liabilities of the stockholders subscribing to BMPIs stocks. the burden of establishing the fact of full payment belonged not to Printwell even if it was the plaintiff. The lack of any explanation for the absence of a stock certificate in her favor likewise warrants an unfavorable inference on the issue of payment.290.00 secured by real estate mortgages constituted over four (4) parcels of land in Makati City. Meanwhile. Inc. This credit facility was later increased successively to US$1. We do not agree. The RTC lacked the legal and factual support for its prorating the liability.955. expediency. 2000. 2002by ordering the petitionerto pay to Printwell.00 in September 1996. the award for which must be supported by findings of fact and of law as provided under Article 2208 of the Civil Code[55]incorporated in the body of decision of the trial court. Interest is also imposable on the unpaid obligation.and affirm with modification the decision promulgated on August 14. KAPUNAN. petitioner.A. respondents Ritratto Group.000. to US$1.. interest is fixed at 12% per annum from the date the amended complaint was filed on February 8. As earlier explained. and Dadasan General Merchandise are domestic corporations. RITRATTO GROUP INC. and its Order dated October 4. that the petitioner and her co-stockholders did not support their allegation of complete payment of their respective subscriptions with the stock and transfer book of BMPI. [50]In fact. they merely averred that they believed in good faith that the checks were encashed because they were not notified of the dishonor of the checks and three years had already lapsed since they issued the checks. to the extent of the petitioners personal liability of P262. J. Inc. ACCORDINGLY. Indeed. organized and existing under Philippine law. No. likewise. 1996. The prevailing rule is that a stockholder is personally liable for the financial obligations of the corporation to the extent of his unpaid subscription. Such a certificate covering her subscription might have been a reliable evidence of full payment of the subscriptions.00. petitioner seeks to annul and set aside the Court of Appeals' decision in C. she did not present the check itself.R.00 in February 1997. albeit presented.000.316.: In a petition for review on certiorari under Rule 45 of the Revised Rules of Court. books and records of a corporation (including the stock and transfer book) are admissible in evidence in favor of or against the corporation and its members to prove the corporate acts. Nor did the petitioner present any certificate of stock issued by BMPI to her. 2001 PHILIPPINE NATIONAL BANK.18 in April 1998.425. considering that under Section 65 of the Corporation Codea certificate of stock issues only to a subscriber who has fully paid his subscription. In the same manner. The burden of evidence is shifted only if the party upon whom it is lodged was able to adduce preponderant evidence to prove its claim. It is notable. had no bearing on the issue of payment of the subscription because they did not by themselves prove payment. CV G. and decreased to US$1. RIATTO INTERNATIONAL. averring that the articles of incorporationdid not reflect the latest subscription status of BMPI. and are ordinarily the best evidence of corporate acts and proceedings.e. . No. Printwell.00) is fully paid. respondents.500. as BMPIs creditor. too. 1999. we need to modify the extent of the petitioners personal liability to Printwell.P. ITRsestablish ataxpayers liability for taxes or a taxpayers claim for refund. 55374 dated March 27. the deposit slips and entries in the passbook issued in the name of BMPI were hardly relevant due to their not reflecting the alleged payments. its financial status and other matters (like the status of the stockholders). IV Liability of stockholders for corporate debts isup to the extentof their unpaid subscription The RTC declared the stockholders pro rata liable for the debt(based on the proportion to their shares in the capital stock of BMPI). which denied petitioner's motion to dismiss.[52]That she tendered no explanation why the stock and transfer book was not presented warrants the inference that the book did not reflect the actual payment of her subscription.. therefore.

herein petitioner is an agent with limited authority and specific duties under a special power of attorney incorporated in the real estate mortgage. 101 SCRA 827. Respondents. as of April 30. Yet. 13The mere fact that a corporation owns all of the stocks of another corporation. however. Pursuant to the terms of the real estate mortgages. 10In justifying its ruling. which writ was correspondingly issued on July 14. We find. therefore. petitioner not being a part to the contract has no power to re-compute the interest rates set forth in the contract. If used to perform legitimate functions. The Tennessee Supreme Court stated that as a general rule the stock ownership alone by one corporation of the stock of another does not thereby render the dominant corporation liable for the torts of the subsidiary unless the separate corporate existence of the subsidiary is a mere sham. inter alia. the case was raffled to Branch 147 of the Regional Trial Court of Makati. THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT TO ISSUE IN EXCESS OR LACK OF JURISDICTION A WRIT OF PRELIMINARY INJUNCTION OVER AND BEYOND WHAT WAS PRAYED FOR IN THE COMPLAINT A QUO CONTRARY TO CHIEF OF STAFF.5 In addition. The trial judge then set a hearing on June 8. The issue of the validity of the loan contracts is a matter between PNB-IFL. in a petition for certiorari and prohibition assailed the issuance of the writ of preliminary injunction before the Court of Appeals. and is not affected by the personal rights. In said case. 1999. On May 28. In the impugned decision. petitioner is still the party-in-interest in the application for preliminary injunction because it is tasked to commit acts of foreclosing respondents' properties. The trial court. In their complaint. and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business. inter alia. 1999. On June 30. in its Order dated October 4. 1999. agency. or business conduit of a person or where the corporation is so organized and controlled and its affairs are so conducted.274. II THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF INTEREST AGREED UPON MAY BE UNILATERALLY MODIFIED BY DEFENDANT. petitioner filed an opposition to the application for a writ of preliminary injunction to which the respondents filed a reply. 2000 and the trial court's Orders dated June 30. (d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation. the respondents in their complaint prayed that the petitioner PNB be ordered to re-compute the rescheduling of the interest to be paid by them in accordance with the terms and conditions in the documents evidencing the credit facilities. as to make it merely an instrumentality. petitioner was given a period of seven days to file its written opposition to the application. THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE COMPLAINT A QUO. Plaintiff was employed by Lenoir Car Works and alleged that he sustained injuries while working for Lenoir. is a wholly owned subsidiary of defendant Philippine National Bank. some factors have been identified that will justify the application of the treatment of the doctrine of the piercing of the corporate veil.14is enlightening. 3 In their Comment. or unless the control of the subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation. He. filed a suit against Southern Railway Company on the ground that Southern had acquired the entire capital stock of Lenoir Car Works. Inc. Respondents. THERE WAS NO STIPULATION THAT THE RATE OF INTEREST SHALL BE REDUCED IN THE EVENT THAT THE APPLICABLE MAXIMUM RATE OF INTEREST IS REDUCED BY LAW OR BY THE MONETARY BOARD. petitioner filed a motion to dismiss on the grounds of failure to state a cause of action and the absence of any privity between the petitioner and respondents. a corporation has a personality distinct and separate from its individual stockholders or members. GUADIZ JR. the petitioner's principal and the party to the loan contracts. not PNB. respondents justified the act of the court a quo in applying the doctrine of "Piercing the Veil of Corporate Identity" by stating that petitioner is merely an alter ego or a business conduit of PNB-IFL. vs. conduit or adjunct of another corporation. respondents filed a complaint for injunction with prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order before the Regional Trial Court of Makati. anchor their prayer for injunction on alleged invalid provisions of the contract: GROUNDS I THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE DISCRETION OF THE DEFENDANT PNB CONTRAVENES THE PRINCIPAL OF MUTUALITY OF CONTRACTS. Petitioner thus seeks recourse to this Court and raises the following errors: 1. citing the case of Koppel Phil. are controlling.Bus Org 2 Cases 1st Set Prelim 59 However. taken alone is not sufficient to justify their being treated as one entity. On May 25. On October 4. respondents admit that petitioner is a mere attorney-in-fact for the PNB-IFL with full power and authority to. do not have any cause of action against petitioner.. 1999 be set aside and the dismissal of the complaint in the instant case. Yatco. the trial court. The case involved a suit against the Southern Railway Company. respondents fail to show any cogent reason why the separate entities of the PNB and PNB-IFL should be disregarded. their outstanding obligations stood at US$1. AFP VS. Southern Railway Co. respondents sought to enjoin and restrain PNB from the foreclosure and eventual sale of the property in order to protect their rights to said property by reason of void credit facilities as bases for the real estate mortgage over the said property. In the case at bar. The Executive Judge of the Regional Trial Court of Makati issued a 72-hour temporary restraining order. 2. The general rule is that as a legal entity. 1999.70. Petitioner. ruled that since PNB-IFL. On June 15.9 Clearly. At the hearing of the application for preliminary injunction. On June 25. WHICH IS NOT A REAL PARTY IN INTEREST BEING A MERE ATTORNEY-IN-FACT AUTHORIZED TO ENFORCE AN ANCILLARY CONTRACT.2 Petitioner prays. obligations and transactions of the latter. (c) The parent corporation finances the subsidiary. in their complaint. These are as follows: (a) The parent corporation owns all or most of the capital stock of the subsidiary. the suit against the defendant PNB is a suit against PNB-IFL. NO CAUSE OF ACTION EXISTS AGAINST PETITIONER. 1998. and the respondents. While there exists no definite test of general application in determining when a subsidiary may be treated as a mere instrumentality of the parent corporation. hence. In other words.6 The petition is impressed with merit. 1 the appellate court dismissed the petition. foreclose on the properties mortgaged to secure their loan obligations with PNB-IFL. however. The case of Garrett vs. this Court disregarded the separate existence of the parent and the subsidiary on the ground that the latter was formed merely for the purpose of evading the payment of higher taxes. that the Court of Appeals' Decision dated March 27. a subsidiary's separate existence may be respected. PNB-IFL. respondents argue that even assuming arguendo that petitioner and PNB-IFL are two separate entities. the trial court judge issued an Order for the issuance of a writ of preliminary injunction. that the ruling in Koppel finds no application in the case at bar.11 reasoned that the corporate entity may be disregarded where a corporation is the mere alter ego. 12 We disagree. the latter corporation was but a mere instrumentality of the former. notified the respondents of the foreclosure of all the real estate mortgages and that the properties subject thereof were to be sold at a public auction on May 27. (e) The subsidiary has grossly inadequate capital. The courts may in the exercise of judicial discretion step in to prevent the abuses of separate entity privilege and pierce the veil of corporate entity.4 Respondents maintain that the entire credit facility is void as it contains stipulations in violation of the principle of mutuality of contracts. 1999. 1999 at the Makati City Hall. thereafter.8 The contract questioned is one entered into between respondent and PNB-IFL. if present in the proper combination. 7 Based on the aforementioned grounds. CONSIDERING THAT BY THE ALLEGATIONS OF THE COMPLAINT. 1999 and October 4. 1999. 1999. despite the recognition that petitioner is a mere agent. (b) The parent and subsidiary corporations have common directors or officers. 1999. however. It is not privy to the loan contracts entered into by respondents and PNB-IFL. the motion to dismiss was denied by the trial court judge for lack of merit. 1994. .497. and crediting the amount previously paid to PNB by herein respondents. Said Court then outlined the circumstances which may be useful in the determination of whether the subsidiary is but a mere instrumentality of the parentcorporation: The Circumstance rendering the subsidiary an instrumentality. through its attorney-in-fact PNB. It is manifestly impossible to catalogue the infinite variations of fact that can arise but there are certain common circumstances which are important and which.

Thus. Rule 58. in this jurisdiction. Accordingly. Chairperson. must be lifted. A suit against an agent cannot without compelling reasons be considered a suit against the principal. unjust act in contravention of plaintiffs legal rights. The absence of any one of these elements prevents "piercing the corporate veil. Inescapably. the petitioner was sued because it acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. Similarly. All told.. 99-1037 are hereby ANNULLED and SET ASIDE and the complaint in said case DISMISSED. or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality. 22The Court is not unmindful of the findings of both the trial court and the appellate court that there may be serious grounds to nullify the provisions of the loan agreement. — A preliminary injunction may be granted when it is established: (a) That the applicant is entitled to the relief demanded.16 we have laid the test in determining the applicability of the doctrine of piercing the veil of corporate fiction. and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of. and WIN MULTI RICH BUILDERS. Branch 147 in Civil Case No. (j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corporation. as earlier discussed. namely. Further. of the 1997 Rules of Civil Procedure provides: SECTION 3. 175048 INC. The Tennessee Supreme Court thus ruled: In the case at bar only two of the eleven listed indicia occur. Promulgated: Respondent. In any case. (i) The parent corporation uses the property of the subsidiary as its own. or its business or financial responsibility is referred to as the parent corporation's own. The assailed decision of the Court of Appeals is hereby REVERSED. 3. Section 3. agency. or dishonest and. and. justify wrong. an action shall be joined either as plaintiffs or defendants. No.versus . 2. Petitioner. 18 In mandatory terms. thus. Grounds for issuance of preliminary injunction. (h) In the papers of the parent corporation or in the statements of its officers.21 Respondents do not deny their indebtedness. or in requiring the performance of an act or acts. the doctrine of piercing the corporate veil based on the alter ego or instrumentality doctrine finds no application in the case at bar. INC. Their properties are by their own choice encumbered by real estate mortgages. with how the corporation operated and the individual defendant's relationship to the operation. there is no showing of the indicative factors that the former corporation is a mere instrumentality of the latter are present. (k) The formal legal requirements of the subsidiary are not observed. . v." In applying the "instrumentality" or "alter ego" doctrine.: . to wit: 1. threatening. CHUA. Clearly. will or existence of its own. J. Under the Rules of Court. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. VELASCO.CARPIO MORALES TINGA. court. The complaint must be dismissed. (g) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation. WILSON G. J. which were secured by the mortgages sought to be foreclosed. the injunction suit is directed only against the agent.Bus Org 2 Cases 1st Set Prelim 60 (f) The parent corporation pays the salaries and other expenses or losses of the subsidiary. NLRC. the Rules require that "parties-in-interest without whom no final determination can be had. EXCELLENT QUALITY APPAREL. protect fraud or defend crime. the petition is hereby GRANTED. Neither is there a demonstration that any of the evils sought to be prevented by the doctrine of piercing the corporate veil exists. agency or a person is doing.. IN VIEW OF THE FOREGOING. 2009 x ---------------------------------------------------------------------------------x DECISION TINGA. Upon the non-payment of the loans. . 1999 and October 4. not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind. Inc. . The doctrine applies when the corporate fiction is used to defeat public convenience. The dismissal of the principal action thus results in the denial of the prayer for the issuance of the writ. the courts are concerned with reality and not form. respondents have failed to prove that they have a right protected and that the acts against which the writ is to be directed are violative of said right." 19 In the case at bar. therefore. conduit or adjunct of another corporation. Such control must have been used by the defendant to commit fraud or wrong. However.. an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard compensation. not mere majority or complete control. the mortgaged properties are properly subject to a foreclosure sale. the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved in this case since the petitioner was not sued because it is the parent company of PNB-IFL. JJ. the case before the Regional Trial Court must be dismissed and the preliminary injunction issued in connection therewith. (b) That the commission.R.. to perpetuate the violation of a statutory or other positive legal duty. unless otherwise authorized by law or these Rules. and possibly subscription to the capital stock of Lenoir. or when it is made as a shield to confuse the legitimate issues. but complete domination. Moreover. or (c) That a party. BRION. we have held that the doctrine of piercing the corporate veil is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. respondents committed the mistake of filing the case against the wrong party. Present: QUISUMBING. some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding.20 A writ of preliminary injunction is an ancillary or preventive remedy that may only be resorted to by a litigant to protect or preserve his rights or interests and for no other purpose during the pendency of the principal action. or where a corporation is the mere alter ego or business conduit of a person. February 10. Anent the issuance of the preliminary injunction. the ownership of most of the capital stock of Lenoir by Southern. Control. respondents do not have a cause of action against the petitioner as the latter is not privy to the contract the provisions of which respondents seek to declare void. the same must be lifted as it is a mere provisional remedy but adjunct to the main suit. and tending to render the judgment ineffectual. respondents questioned the alleged void stipulations in the contract only when petitioner initiated the foreclosure proceedings. every action must be prosecuted or defended in the name of the real party-in-interest. either for a limited period or perpetually. there is no showing that respondents are entitled to the issuance of the writ. Rather. they must suffer the consequences of their error. or is attempting to do. not the principal.17 Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB. The Orders dated June 30. 1999 of the Regional Trial Court of Makati.15 In Concept Builders. G. JR. continuance or non-performance of the acts or acts complained of during the litigation would probably work injustice to the applicant. the subsidiary is described as a department or division of the parent corporation. represented by its President. or is procuring or suffering to be done.

Summons [12] and the Complaint.A. Section 2. one (1) chosen by the CONTRACTOR. It further admitted that Multi-Rich was a sole proprietorship with a business permit issued by the Office of the Mayor of Manila. Vice-President for Productions. SP No.F. Court of Appeals.448. The sole proprietor is personally liable for all the debts and obligations of the business. Win obtained a surety bond [10] issued by Visayan Surety & Insurance Corporation.O. Rule 3 of the Rules of Court defines parties in interest in this manner: A real party in interest is the party who stands to be benefited or injured by the judgment in the suit. On 26 January 2004. It also ruled that the RTC had jurisdiction over the case since it is a suit for collection of sum of money. This case involves a claim for a sum of money which arose from a construction dispute. Win in its Rejoinder[17] did not oppose the allegations in the Reply. Win filed a complaint for a sum of money [9] against petitioner and Mr. it moved to dismiss the case since Win was not the contractor and neither a party to the contract.) No. In the Reply[15] filed by petitioner.634. Lastly. simplest. Inc. Win admitted that it was only incorporated on 20 February 1997 while the construction contract was executed on 26 March 1996. 84640. A sole proprietorship is the oldest. Included in the contract is an arbitration clause which is as follows: Article XIX : ARBITRATION CLAUSE Should there be any dispute. petitioner filed its Answer and prayed for the dismissal of the case. On 14 March 2006.[6] The duration of the project was for a maximum period of five (5) months or 150 consecutive calendar days. the counsel of Win moved that its name in the case be changed from Win Multi-Rich Builders. [7] The construction of the factory building was completed on 27 November 1996. Petitioner filed an Omnibus Motion [14] claiming that it was neither about to close. Likewise. Ying. On 16 February 2004. Ying was about to abscond and that petitioner was about to close. On 18 June 2004. Sheriff Salvador D. one (1) chosen by the OWNER. thus it cannot institute the case. of Manila in Civil Case No. dated 16 February 2004. In an Order[19] dated 12 April 2004.20.] 876).R. Branch 32. Dacumos of the RTC of Manila. to prevent the Sheriff from taking possession of its properties. Win filed a motion[24] to release the garnished amount to it. Petitioner raised the following issues to wit: (1) does Win have a legal personality to institute the present case. in the amount of P8. (Win) was incorporated with the Securities and Exchange Commission (SEC) on 20 February 1997[8] with Chua as its President and General Manager. Unless otherwise authorized by law or these Rules. Ying amounting to P8. the RTC denied the motion and stated that the issues can be answered in a full-blown trial. 160149. the matter shall be submitted to an Arbitration Committee of three (3) members. Is Win a real party in interest? We answer in the negative. its President and General Manager.On the same date. Orden. It was only then that petitioner apparently became aware of the variance in the name of the plaintiff. and (3) was the issuance of the writ of attachment and the subsequent garnishment proper. and Alfiero R. The RTC issued an Order[23] dated 20 April 2004.448. the Court of Appeals rendered its Decision [28] annulling the 12 April and 20 April 2004 orders of the RTC. it admitted that at the time of execution of the contract. petitioner filed a petition for review on certiorari [26] under Rule 65 before the Court of Appeals. In a Manifestation. Chua (Chua). It also denied owing anything to Win. [31] It is an unorganized business owned by one person.634. Multi-Rich was a registered sole proprietorship and was issued a business permit [18] by the Office of the Mayor of Manila. Inc.Bus Org 2 Cases 1st Set Prelim 61 Before us is a Rule 45 petition [1] seeking the reversal of the Decision [2] and Resolution[3] of the Court of Appeals in CA-G. [20] Win filed a Motion[21] to deposit the garnished amount to the court to protect its legal rights. (petitioner) then represented by Max L. The Arbitration shall be governed by the Arbitration Law (R. Petitioner obtained a Certificate of Non-Registration of Corporation/Partnership [16]from the SEC which certified that the latter did not have any records of a Multi-Rich Builders. Win admitted that the garnished amount had already been released to it. The cost of arbitration shall be borned [sic] jointly by both CONTRACTOR and OWNER on 50-50 basis. The Court of Appeals had annulled two orders [4] of the Regional Trial Court (RTC). Inc. controversy or difference between the parties arising out of this Contract that may not be resolved by them to their mutual satisfaction. [22] petitioner vehemently opposed the deposit of the garnished amount. which granted the motion to deposit the garnished amount.[33] we held that: . Petitioner pointed to the presence of the Arbitration Clause and it asserted that the case should be referred to the Construction Industry Arbitration Commission (CIAC) pursuant to Executive Order (E.[30] Hence this petition. which questioned the jurisdiction of the RTC and challenged the orders issued by the lower court with a prayer for the issuance of a temporary retraining order and a writ of preliminary injunction. as it had already paid all its obligations to it. [No. petitioner filed a Supplemental Manifestation and Motion [27] and alleged that the money deposited with the RTC was turned over to Win. On 26 March 1996. Treasurer. Petitioner filed its opposition [25] to the motion claiming that the release of the money does not have legal and factual basis. Win admitted that the contract was executed between Multi-Rich and petitioner. or the party entitled to the avails of the suit. to Multi-Rich Builders. The decision of the Arbitration Committee shall be final and binding on both the parties hereto. Petitioner issued Equitable PCIBank (PEZA Branch) Check No. went to the office of petitioner in CPEZ to serve the Writ of Attachment. A suit may only be instituted by the real party in interest.20. petitioner Excellent Quality Apparel. Inc. Moreover. Upon its denial. In the hearing held on 10 February 2004. it questioned the jurisdiction of the trial court from taking cognizance of the case. Petitioner filed a Motion for Reconsideration[29] which was subsequently denied in a resolution. Subsequently. [13]The check was made payable to the Office of the Clerk of Court of the RTC of Manila as a guarantee for whatever liability there may be against petitioner. Respondent Win Multi-Rich Builders. Branch 32. (2) does the RTC have jurisdiction over the case notwithstanding the presence of the arbitration clause. 1008. It also prayed for the issuance of a writ of attachment claiming that Mr. and the Chairman thereof to be chosen by two (2) members. for the construction of a garment factory within the Cavite Philippine Economic Zone Authority (CPEZ). On 10 February 2004. 04108940. [32] In the case of Mangila v. every action must be prosecuted or defended in the name of the real party in interest. Inc. the RTC issued the Writ of Attachment [11] against the properties of petitioner. entered into a contract [5] with Multi-Rich Builders (Multi-Rich) represented by Wilson G. and most prevalent form of business enterprise.

notes: x x x where an individual or sole trader organizes a corporation to take over his business and all his assets. is liable for the incorporator's preexisting debts and liabilities. Civil Case No.. we cannot allow Win to retain the garnished amount which was turned over by the RTC. The counsel of Win wanted to change the name of the plaintiff in the suit to Multi-Rich. a sole proprietorship.40). the petition will still be granted. the corporation. No. [37] The CIAC acquires jurisdiction over a construction contract by the mere fact that the parties agreed to submit to voluntary arbitration.[34] Petitioner had continuously contested the legal personality of Win to institute the case. either on the grounds of implied assumption of the debts or on the grounds that the business is the same and is merely being conducted under a new guise.[42] Based on the foregoing. No. The RTC does not have jurisdiction. or after the abandonment or breach thereof. is ORDERED to return the garnished amount of EIGHT MILLION SIX HUNDRED THIRTYFOUR THOUSAND FOUR HUNDRED FORTY-EIGHT PESOS AND FORTY CENTAVOS (P8. No. Win Multi-Rich Builders. SP No. THE FACTS Respondent Elpidio Rodriguez (Rodriguez) was previously employed as a bus conductor. we cannot presume that Multi-Rich is the predecessor-in-business of Win and hold that the latter has standing to institute the collection suit. 2013 ALPS TRANSPORTATION AND/OR ALFREDO E. Inc. interpretation and/or application of contractual time and delays. the petition is GRANTED. RODRIGUEZ. which was turned over by the Regional Trial Court.448. WHEREFORE. Win failed to use that opportunity. or where. and it becomes in effect merely an alter ego of the incorporator.Bus Org 2 Cases 1st Set Prelim 62 x x x In fact. Petitioners. Win could have easily presented or attached any document e. liabilities and receivables of Multi-Rich were acquired by Win. It failed to do so. register its business name. whether the disputes arises before or after the completion of the contract. The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship. a sole proprietorship is not vested with juridical personality to file or defend an action. commencement time and delays. June 13. Clearly. and they are expected to abide by it in good faith.J. although all the assets of the incorporator have been transferred. 1008[36] provides for the jurisdiction of the Construction Industry Arbitration Commission. [35] In order for a corporation to be able to file suit and claim the receivables of its predecessor in business.g. The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit by a single individual and requires its proprietor or owner to secure licenses and permits. The name cannot be changed to that of a sole proprietorship. or where none of his assets are transferred to the corporation.[40] The arbitration clause is a commitment on the part of the parties to submit to arbitration the disputes covered since that clause is binding. DECISION SERENO. C. 4 He entered into an employment contract . to petitioner with legal interest of 12 percent (12%) per annum upon finality of this Decision until payment. and pay taxes to the national government. 04-108940 is DISMISSED. deed of assignment which will show whether the assets. [38] The law does not preclude parties from stipulating a preferred forum or arbitral body but they may not divest the CIAC of jurisdiction as provided by law. 186732.634. The law does not vest a separate legal personality on the sole proprietorship or empower it to file or defend an action in court. Win was given ample opportunity to adduce evidence to show that it had legal personality. amount of damages and penalties. default of employer or contractor and changes in contract cost. 100163. A sole proprietorship does not possess a juridical personality separate and distinct from the personality of the owner of the enterprise. v. The original petition was instituted by Win. Again. there is no need to discuss the propriety of the issuance of the writ of attachment. [41] Clearly. The change cannot be countenanced. PEREZ. in this case a sole proprietorship. 1008 does not distinguish between claims involving payment of money or not. The presence of the arbitration clause vested jurisdiction to the CIAC over all construction disputes between Petitioner and Multi-Rich. For the Board to acquire jurisdiction. R.The CIAC shall have original and exclusive jurisdiction over disputes arising from. Corpus Juris Secundum. [39] Arbitration is an alternative method of dispute resolution which is highly encouraged. Thus. or connected with. the parties to a dispute must agree to submit the same to voluntary arbitration.: Before this Court is a Rule 45 Petition for Review1 assailing the Decision2 and Resolution3 of the Court of Appeals (CA) in CA-G. where the corporation assumes or accepts the debt of its predecessor in business it is liable and if the transfer of assets is in fraud of creditors it will be liable to the extent of the assets transferred. it must show proof that the corporation had acquired the assets and liabilities of the sole proprietorship. contracts entered into by parties involved in construction in the Philippines. there is a change in the persons carrying on the business and the corporation is not merely an alter ego of the person to whose business it succeeded. The corporation is not liable on an implied assumption of debts from the receipt of assets where the incorporator retains sufficient assets to pay the indebtedness. to wit: Section 4.O. Jurisdiction. which is a SEC-registered corporation. E. There is nothing in the law which limits the exercise of jurisdiction to complex or difficult cases. payment. Assuming arguendo that Win has legal personality. there is no law authorizing sole proprietorships to file a suit in court.Respondent. The Decision of the Court of Appeals is hereby MODIFIED. ELPIDIO M. However.O.R. Section 4 of E. The RTC did not have jurisdiction to issue the questioned writ of attachment and to order the release of the garnished funds. Excluded from the coverage of this law are disputes from employer-employee relationships which shall continue to be covered by the Labor Code of the Philippines. the RTC should not have taken cognizance of the collection suit. G. These disputes may involve government or private contracts. violation of the terms of agreement. Having been given the opportunity to rebut the allegations made by petitioner. The plaintiff in the collection suit is a corporation. maintenance and defects. It filed a collection of sum of money suit which involved a construction contract entered into by petitioner and Multi-Rich.

29 Here.14 In fact. as similar reports had been issued against him on 26 April 200339 and 12 October 2003. In lieu thereof. before the illegal dismissal complaint was filed. the rule is that the employer must comply with both substantive and procedural due process requirements. whether ALPS Transportation and/or Alfredo E. 283 or 284 of the Labor Code. On 28 February 2007. Rodriguez should be considered as a regular employee of ALPS Transportation. and not of ALPS Transportation. Perez is liable for the dismissal. and Assuming that respondent was illegally dismissed. accept the latter. the issues in this case are as follows:cralavvonlinelawlibrary Whether respondent Rodriguez was validly dismissed. The report was annotated with the word “Terminate. as the parties must bear the burden of their own loss.18 On 12 January 2006.27 Thus. and that it was in fact willing to reinstate him to his former position. based on their agreement with Contact Tours. 13 In response to the complaint. the CA found that ALPS Transportation failed to present convincing evidence that Rodriguez had indeed collected bus fares without issuing corresponding tickets to passengers. Rodriguez filed before the labor arbiter a complaint for illegal dismissal. 17However.42 For his part. during the mandatory conference. he did not receive any written notice of termination. we first discuss whether his employment was terminated for a just cause. 21 Thus. the labor arbiter concluded that Rodriguez had not been illegally dismissed. the assailed Decision dated January 12.8 and 26 January 2005. SO ORDERED. the NLRC found that Rodriguez failed to prove that his services were illegally terminated by petitioners. to determine the validity of Rodriguez’s dismissal. the CA concluded that the argument of the bus company was only an excuse to cover up the latter’s mistake in terminating him without due process of law. the proprietor of petitioner bus company. the company had lost trust and confidence in him. 30 Moreover. as he had committed serious misconduct by stealing company revenue.38 This was not the first irregularity report issued against respondent. However. it is the employer who bears the burden of proving that the employee was not illegally dismissed.41 Petitioners therefore submit that the dismissal was valid under Article 282 of the Labor Code. 31 The appellate court explained that. and that he was prevented from returning to work. 7 12 October 2003. the employer should order the employee to report back for work. the CA concluded that the NLRC acted with grave abuse of discretion in rendering the assailed decision. as he had not yet received any notice of termination. the labor arbiter dismissed the illegal dismissal complaint for lack of merit. citing previous rulings of this Court. mandates that the employer must observe the twin requirements of notice and hearing before a dismissal can be effected. nonpayment of 13th month pay. the petition is GRANTED. Alfredo Perez is ORDERED to pay Elpidio Rodriguez backwages computed from the time he was illegally dismissed until his actual reinstatement. 36Procedural due process. viz:cralavvonlinelawlibrary WHEREFORE. only the portions of the assailed dispositions ordering the reinstatement of Elpidio Rodriguez to his former position without loss of seniority rights is AFFIRMED and the phrase. or the day after the issuance of the last irregularity report. THE ISSUES As culled from the records and the submissions of the parties. the NLRC set aside the decision of the labor arbiter and entered a new one. Petitioners argue that the dismissal of Rodriguez was brought about by his act of collecting fare from a passenger without issuing the corresponding ticket. petitioners stated that they did not have any prerogative to dismiss Rodriguez.25 As regards the claim of illegal dismissal. THE COURT’S RULING We uphold the assailed Decision and Resolution and rule that respondent Rodriguez has been illegally dismissed. 2006 is hereby SET ASIDE and a new one is being entered. the bus company likewise failed to prove that he had abandoned his work. Accordingly.34 Aggrieved by the appellate court’s decision. However. ALPS Transportation. as he was not their employee. petitioners filed the instant Rule 45 Petition before this Court. 37 Thus. and reinstate the employee to the latter’s former position. but that of Contact Tours. Rodriguez filed a Rule 65 Petition for Certiorari with the CA. Rodriguez was found to have committed irregularities on 26 April 2003.32 Thus. in termination cases. directing the respondents to reinstate the complainant to his former position without loss of seniority rights and privileges but without backwages. they wrote to Contact Tours and recommended the termination of respondent’s assignment to them. Alfredo Perez is declared guilty of having committed illegal dismissal. The appellate court held that the irregularity reports were mere allegations. 22 Rodriguez appealed the dismissal to the National Labor Relations Commission (NLRC). Batangas. No costs. 33 The CA then ordered ALPS Transportation to reinstate Rodriguez and to pay him full backwages. The appellate court ruled that. SO ORDERED.40 Thus. but is . petitioners eventually filed an Affidavit of Desistance and withdrew the criminal charges against respondent. Rodriguez denies the contents of the irregularity report.23 In so concluding. more than six months had lapsed since respondent was last given a bus assignment by ALPS Transportation.” 10 Rodriguez alleged that he was dismissed from his employment on 27 January 2005. and was actually an employee of Contact Tours. 43 He states that the report consists of a mere charge. but it refused to readmit him. the CA gave no credence to ALPS Transportation’s argument that Rodriguez had not yet been terminated when he filed the illegal dismissal complaint. 12 On 11 August 2005. the representative of Contact Tours manifested that the company had not dismissed Rodriguez. ALPS Transportation charged Rodriguez with theft before the Office of the Provincial Prosecutor of Tanauan. For a dismissal to be valid.9 The latest irregularity report dated 26 January 2005 stated that he had collected bus fares without issuing corresponding tickets to passengers. an award for backwages is not warranted. and damages against ALPS Transportation and Alfredo Perez. 26 However. 6 During the course of his employment. 11 He went back to the bus company a number of times. it was supposedly the latter that had the obligation to inform respondent of the contents of the reports and to decide on the appropriate sanctions.Bus Org 2 Cases 1st Set Prelim 63 with Contact Tours Manpower5 (Contact Tours) and was assigned to work with petitioner bus company. the dispositive portion of which reads:cralavvonlinelawlibrary WHEREFORE. on the other hand. 20 Moreover. the truth of which had not been established by evidence.35 Substantive due process requires that the dismissal must be pursuant to either a just or an authorized cause under Articles 282. 15 Petitioners further explained that due to the issuance of the three irregularity reports against Rodriguez.28 Dissatisfied with the ruling of the NLRC. 24 Thus. 19 He explained that no evidence had been adduced to support the contention of Rodriguez that the latter had been terminated on 27 January 2005. “but without backwages” is ANNULLED and SET ASIDE. After a review of the records. 16 During the pendency of the illegal dismissal case before the labor arbiter. the NLRC held that in case the parties fail to prove either abandonment or termination. the NLRC ruled that Contact Tours was a labor-only contractor.

50 (Citations omitted) Thus. JR. we quote with favor the ruling of the appellate court:cralavvonlinelawlibrary [T]he nature of work of a bus conductor involves inherent or normal occupational risks of incurring money shortages and uncollected fares. from the time he was illegally dismissed until his actual reinstatement.Bus Org 2 Cases 1st Set Prelim 64 bereft of the necessary proof. JOSE T. As to who should bear the burden of satisfying respondent’s lawful claims. Emilio C. petitioners. tools. EPHRAIM TENDERO. the conclusion would be that the dismissal was unjustified and. FERNANDO. Having found that Rodriguez was illegally dismissed. which seeks to prohibit and restrain the implementation of the "Contract of Lease" executed by the Philippine Charity Sweepstakes .49 Here. FERNANDO SANTIAGO. Oscar Karaan and Jedideoh Sincero for intervenors. in which the bus company stated that “the incident arose out of [a] misunderstanding between them. DAVIDE.. the Kasunduan between Rodriguez and Contact Tours in evidence. petitioners submit that since Rodriguez was an employee of Contact Tours. As a labor-only contractor. and it is against him that a decision for illegal dismissal is to be enforced. Contact Tours is deemed to be an agent of ALPS Transportation. No. INCORPORATED. RAOUL V. Renato L. QUINTIN S. vs. we rule that petitioners have failed to prove that the termination of Rodriguez’s employment was due to a just cause. JOSE CUNANAN. Gozon for petitioners. 46 In any event.53 It is thus incumbent upon ALPS Transportation to present sufficient proof that tools in order to successfully impute liability to the latter. both parties are in agreement that Rodriguez was not given a written notice specifying the grounds for his termination and giving him a reasonable opportunity to explain his side. 100163 are hereby AFFIRMED. DOROMAL.R. J. A conductor’s job is to collect exact fares from the passengers and remit his collections to the company. and the like. and PHILIPPINE GAMING MANAGEMENT CORPORATION. An accusation that is not substantiated will not ripen into a holding that there is just cause for dismissal. FREDDIE WEBB. G. TEOFISTO GUINGONA. WIGBERTO TAÑADA. However. Reinstatement restores the employee who was unjustly dismissed to the position from which he was removed. and a written notice of termination indicating that after considering all the circumstances. SEN. investment. The Labor Code provides that the burden of proving that the termination of an employee was for a just or authorized cause lies with the employer.47 We find for respondent and rule that the employer failed to prove that the dismissal was due to a just cause. 59 WHEREFORE.. (Citations omitted) Thus. These twin remedies — reinstatement and payment of backwages — make the dismissed employee whole who can then look forward to continued employment. the contractor has not Contact Tours has substantial capital. ERME CAMBA. In Santos v. with a prayer for a temporary restraining order and preliminary injunction. Fernando Santiago. illegal. the latter is responsible to Contact Tours’ employees in the same manner and to the same extent as if they were directly employed by the bus company. which served as the basis of his dismissal. Turning to the issue of procedural due process. CHRISTINE TAN. PHILIPPINE CHARITY SWEEPSTAKES OFFICE. since it is invoking Contact Tours’ status as a legitimate job contractor in order to avoid liability.: This is a special civil action for prohibition and injunction. the failure of the [petitioners] to convincingly show that the [respondent] misappropriated the bus fares renders the dismissal to be without a valid cause. Clearly. Reyes for PGMC. 55 Thus. he contends that the company’s invocation of the 2003 irregularity reports to support his dismissal effected in 2005 was a mere afterthought. the instant Rule 45 Petition for Review is DENIED. CAPULONG. Bongco. be substantial and not based on mere surmises or conjectures for to allow an employer to terminate the employment of a worker based on mere allegations places the latter in an uncertain situation and at the sole mercy of the employer. management has concluded that his dismissal is warranted. the scales of justice must be tilted in favor of the latter. RIGOS. it bears the burden of proving that Contact Tours is an independent contractor.44 Moreover. that is. Office of the President. therefore. RAFAEL G. Thus. An illegally dismissed employee is entitled to the twin remedies of reinstatement and payment of full backwages. he submits that while the bus company filed a criminal complaint against him for the same act. 56 Finally. GOZON. the CA committed no reversible error in upholding the NLRC’s order to reinstate Rodriguez and in directing the payment of his full backwages. therefore. and Felipe L. SEN. jurisprudence dictates that [if] doubt exists between the evidence presented by the employer and the employee. Hence. JOKER P. the complaint was dismissed pursuant to an Affidavit of Desistance. 58 Thus. 113375 May 5. EMILIO C. a hearing which would have given him the opportunity to respond to the charge and present evidence in his favor. to his status quo ante dismissal. Capulong. CIRILO A. Jr.48 If the employer fails to meet this burden. the inescapable conclusion is that procedural due process is wanting in the case at bar. the latter is liable for the settlement of his claims. firstly. To add. SALONGA. and REP. Office of the President. the payment of backwages corresponding to the period from his illegal dismissal up to actual reinstatement. JR. 57 A sole proprietorship does not possess a juridical personality separate and distinct from that of the owner of the enterprise. JR. the CA correctly ruled that since ALPS Transportation is a sole proprietorship owned by petitioner Alfredo Perez. JOVITO R. we now rule on petitioners’ liabilities and respondent’s entitlements under the law.” 52 While ALPS Transportation is not the contractor itself. do these two remedies give meaning and substance to the constitutional right of labor to security of tenure.”45 Finally. therefore. may only be considered as an uncorroborated allegation if unsupported by substantial evidence. respondents.R. JOSE ABCEDE. The assailed Decision and Resolution of the Court of Appeals in CAG. ARROYO. in his capacity as Executive Secretary. We do not agree. Salonga. secondly. SP No. he maintains that even those alleged infractions were not duly supported by evidence. investment and aside from making bare assertions and offering Transportation has failed to present any proof to legal presumption that Contact Tours is a labor-only been overcome.51 we explained:cralavvonlinelawlibrary The normal consequences of a finding that an employee has been illegally dismissed are. it is he who must be held liable for the payment of backwages to Rodriguez. Jovito R. while the grant of backwages allows the same employee to recover from the employer that which he had lost by way of wages as a result of his dismissal. FELIPE L. On this matter. 1994 KILOSBAYAN. APOLO. VICTORINO. The statutory intent on this matter is clearly discernible. therefore. A mere accusation of wrongdoing or a mere pronouncement of lack of confidence is not sufficient cause for a valid dismissal of an employee.. that the employee becomes entitled to reinstatement to his former position without loss of seniority rights and. 54 ALPS substantiate the former’s status as a legitimate job contractor. RENATO CORONA. Thus. in his capacity as Assistant Executive Secretary and Chairman of the Presidential review Committee on the Lotto. Gamaliel G. Cayetano and Eleazar B. we agree with Rodriguez’s position that the 26 January 2005 irregularity report. the owner has unlimited personal liability for all the debts and obligations of the business. National Labor Relations Commission. Evidence must. “The presumption is that a contractor is a labor-only contractor unless he overcomes the burden of proving that it has substantial capital.

the Executive Secretary informed KILOSBAYAN that the requested documents would be duly transmitted before the end of the month. running both Lotto and Digit games. especially geared to Filipino gaming habits and preferences.5. including the personnel needed to operate the computers. xxx xxx xxx 1. all the facilities ('Facilities') needed to operate and maintain a nationwide on-line lottery system. and the National Bureau of Investigation shall be authorized to use the nationwide telecommunications system of the Facilities Free of Charge.2. except Senators Freddie Webb and Wigberto Tañada and Representative Joker P. hardware and software capability. the International Totalizator Systems. on that same date. . The rest of the petitioners. the Master Games Plan is expected to include a Product Plan for each game and explain how each will be introduced into the market. terminals. expansion and replacement costs. All receipts from ticket sales shall be turned over directly to PCSO. Upon expiration of the lease. OBJECTIVES The objectives of PCSO in leasing the Facilities from a private entity are as follows: xxx xxx xxx 2." the PCSO decided to establish an on. xxx xxx xxx The Proponent is expected to provide upgrades to modernize the entire gaming system over the life ofthe lease contract. the PCSO formally issued a Request for Proposal (RFP) for the Lease Contract of an on-line lottery system for the PCSO. an American public company engaged in the international sale or provision of computer systems. 6 Considering the above citizenship requirement. the Philippine National Police. training and other technical services to the gaming industry.Bus Org 2 Cases 1st Set Prelim 65 Office (PCSO) and the Philippine Gaming Management Corporation (PGMC) in connection with the on.7. security and insurance. 1. All capital. computers. Sports Toto Malaysia. the Berjaya Group Berhad. Berjaya Group Berhad (through its individual nominees) organized with some Filipino investors in March 1993 a Philippine corporation known as the Philippine Gaming Management Corporation (PGMC). Blg." long "engaged in. among others. . On 15 August 1993. with at least sixty percent (60%) of its shares owned by Filipino shareholders. also known as "lotto.P. PCSO shall lease the Facilities for a fixed percentage ofquarterly gross receipts.A. maintenance support. and financial resources. The lease shall be for a period not exceeding fifteen (15) years. EXECUTIVE SUMMARY xxx xxx xxx 1. and national renewal. 1. No. the National Disaster Control Coordinating Council. Philippine Daily Inquirer.4. The Proponent is expected to formulate and design consumer-oriented Master Games Plan suited to the marketplace. This will be an integral part of the Development Plan which PCSO will require from the Proponent.line lottery system. Dr. 4 7." Petitioner Kilosbayan. xxx xxx xxx 2. 8 The submission was preceded by complaints by the Committee's Chairperson. the marketing of the games. The printing of tickets shall be undertaken under the supervision and control of PCSO. and all other related expenses needed to operate nationwide on-line lottery system. DEFINITION OF TERMS Facilities: All capital equipment. furnishings. 13 On 19 November 1993. cost of salaries and wages. KILOSBAYAN requested copies of all documents pertaining to the lottery award from Executive Secretary Teofisto Guingona. which "was intended to be the medium through which the technical and management services required for the project would be offered and delivered to PCSO. nuns. 42) which grants it the authority to hold and conduct "charity sweepstakes races. nationwide telecommunication network. The pleadings of the parties disclose the factual antecedents which triggered off the filing of this petition. after learning that the PCSO was interested in operating an on-line lottery system. 2 Relevant provisions of the RFP are the following: 1. In his answer of 17 December 1993. 9 On 21 October 1993." with its "affiliate. priests. DUTIES AND RESPONSIBILITIES OF THE LESSOR xxx xxx xxx 2. However. the Office of the President announced that it had given the respondent PGMC the go-signal to operate the country's on-line lottery system and that the corresponding implementing contract would be submitted not later than 8 November 1993 "for final clearance and approval by the Chief Executive." by selling 35% out of the original 75% foreign stockholdings to local investors.2.line lottery system for the purpose of increasing its revenue base and diversifying its sources of funds. and fixtures. softwares. pastors. ticket sales offices.2. Sometime before March 1993. 11 On 4 November 1993." As an initial step. Pursuant to Section 1 of the charter of the PCSO (R. The Proponent is expected to provide technology transfer to PCSO technical personnel. xxx xxx xxx The Office of the President. Mita Pardo de Tavera. Enable PCSO to operate a nationwide on-line Lottery system at no expense or risk to the government.2. "a multinational company and one of the ten largest public companies in Malaysia.8. "Malacañang will push through with the operation of an online lottery system nationwide" and that it is actually the respondent PCSO which will operate the lottery while the winning corporate bidders are merely "lessors. and able to achieve PSCO's goal of formalizing an on-line lottery system to achieve its mandated objective. The Facilities shall enable PCSO to computerize the entire gaming system. the Proponent must be able to stand the acid test of proving that it is an entity able to take on the role of responsible maintainer of the on-line lottery system. 3 xxx xxx xxx 2. 7 The bids were evaluated by the Special Pre-Qualification Bids and Awards Committee (SPBAC) for the on-line lottery and its Bid Report was thereafter submitted to the Office of the President. Senators Webb and Tañada and Representative Arroyo are suing in their capacities as members of Congress and as taxpayers and concerned citizens of the Philippines. lotteries and other similar activities. GENERAL GUIDELINES FOR PROPONENTS xxx xxx xxx Finally. the communications network and sales offices under a build-lease basis. are suing in their capacities as members of the Board of Trustees of KILOSBAYAN and as taxpayers and concerned citizens. 5 xxx xxx xxx 16. PCSO is seeking a suitable contractor which shall build.2. . In addition. THE LESSOR The Proponent is expected to furnish and maintain the Facilities. successful lottery operations in Asia. The Lessor is expected to submit a comprehensive nationwide lottery development plan ("Development Plan") which will include the game. thru its subsidiary.4. Inc." "became interested to offer its services and resources to PCSO. software. an agreement denominated as . advertising and promotion expenses. as amended by B. 1169. maintenance costs. at its own expense." 14 On 1 December 1993. the Facilities shall be owned by PCSO without any additional consideration." 10 This announcement was published in the Manila Standard. and the logistics to introduce the games to all the cities and municipalities of the country within five (5) years. 12 At the meeting of the Committee on Games and Amusements of the Senate on 12 November 1993. justice. operating expenses and expansion expenses and risks shall be for the exclusive account of the Lessor.4. printing costs. Incorporated (KILOSBAYAN) avers that it is a non-stock domestic corporation composed of civic-spirited citizens." 1 Before August 1993. KILOSBAYAN reiterated its vigorous opposition to the on-line lottery on account of its immorality and illegality.. Jr. 15. the media reported that despite the opposition. xxx xxx xxx 1. The Development Plan shall have a substantial bearing on the choice of the Lessor. and the Manila Times on 29 October 1993. KILOSBAYAN sent an open letter to Presidential Fidel V. PGMC submitted its bid to the PCSO. The Lessor shall be selected based on its technical expertise. and lay leaders who are committed to the cause of truth. Arroyo. the PGMC claims that the Berjaya Group "undertook to reduce its equity stakes in PGMC to 40%. The Lessor shall be a domestic corporation. terminals. Ramos strongly opposing the setting up to the on-line lottery system on the basis of serious moral and ethical considerations.

on a semimonthly basis. including but not limited to the cost of the Facilities. rules and regulations. and conduct its business in an orderly. regional and area offices.9%) of gross receipts from ticket sales. xxx xxx xxx 1. commissions to agents and dealers.12 Comply with procedural and coordinating rules issued by PCSO. on an annualized basis.3 PCSO shall have exclusive control over the printing of tickets.7 PCSO shall promulgate procedural and coordinating rules governing all activities relating to the On-Line Lottery System. technology. The Master Games Plan included in Annex "A" hereof is hereby approved by PCSO. number of players. orders and directives. DEFINITIONS The following words and terms shall have the following respective meanings: 1. xxx xxx xxx 3. furnish and maintain at its own expense and risk the Facilities for the On-Line Lottery System of PCSO in the Territory on an exclusive basis. expansion and replacement. security and insurance. fully or partially. 5. in breach of this Contract and through no fault of the LESSOR.8 Undertake a positive advertising and promotions campaign for both institutional and product lines without engaging in negative advertising against other lessors. text. SUBJECT MATTER OF THE LEASE The LESSOR shall build. 6. in respect of equipment supplied by the LESSOR. 6. 5. including but not limited to the design. modified as necessary by the provisions of this Contract. Goodwill. salaries and wages.2 Approvals for importation of the Facilities. franchise and similar fees shall belong to PCSO.7 Upon effectivity of this Contract. obligations and duties by which it is legally bound. 6. and as may be required by PCSO shall not impose such requirements unreasonably nor arbitrarily. and furnishings and fixtures.9.1 Maintain and preserve its corporate existence. xxx xxx xxx 1. During the term of the lease. Consequently: 5.3 Approvals and consents for the On-Line Lottery System. manpower. all matters involving the operation of the On-Line Lottery System not otherwise provided in this Contract. After paying the Rental Fee to the LESSOR. No. 6. are insufficient to pay the entire prize money. authorized to collect and retain for its own account. and all other related expenses needed to operate an On-Line Lottery System. efficient. 5. the marketing thereof. attached hereto as Annex "A".5 PCSO shall designate the necessary personnel to monitor and audit the daily performance of the On-Line Lottery System. 5. Maintenance and Other Costs and: xxx xxx xxx 6. PCSO designees shall be given. PCSO shall have the sole responsibility to determine the time for introducing new games to the market. alternate site. a security deposit from dealers and retailers. 5. as amended. 6. PCSO shall appoint the dealers and retailers in a timely manner with due regard to the implementation timetable of the On-Line Lottery System.00) submitted by the LESSOR to PCSO pursuant to the requirements of the Request for Proposals.4 Business and premises licenses for all offices of the LESSOR and licenses for the telecommunications network. payable net of taxes required by law to be withheld. in all offices of the LESSOR.9. telecommunications and central systems).000. that the same shall be consistent with the requirement of R. and in any event not later than sixty (60) days. All expenses relating to the setting-up. PCSO shall have exclusive responsibility to determine the Revenue Allocation Plan. 5. we quote the following salient provisions of the Contract of Lease: 1. . software (including source codes for the On-Line Lottery application software for the terminals. statues. 5. 5. 1169. LEASE PERIOD The period of the lease shall commence ninety (90) days from the date of effectivity of this Contract and shall run for a period of eight (8) years thereafter. if necessary. For this purpose. DUTIES AND RESPONSIBILITIES OF THE LESSOR The LESSOR is one of not more than three (3) lessors of similar facilities for the nationwide On-Line Lottery System of PCSO. 6.5 Keep all the Facilities in fail safe condition and. all rights involving the business aspects of the use of the Facilities are within the jurisdiction of PCSO. which fixes a prize fund of fifty five percent (55%) on the average. PCSO's approval shall not be unreasonably withheld. value of winnings and the logistics required to introduce the games. PCSO shall promptly. PCSO shall pay LESSOR a fixed Rental Fee equal to four point nine percent (4. It is understood that the rights of the LESSOR are primarily those of a lessor of the Facilities. such that at the end of the term of this Contract. terminals. intellectual property rights. and is hereby.9.11 Be. commence the training of PCSO and other local personnel and the transfer of technology and expertise. but not limited to. PCSO will be able to effectively take-over the Facilities and efficiently operate the On-Line Lottery System.A. and consequently. 1. but not limited to the lease of the Facilities.4 Duly pay and discharge all taxes. per the press statement issued by the Office of the President. which shall be for the account of the LESSOR. 5. 6.8 Escrow Deposit — The proposal deposit in the sum of Three Hundred Million Pesos (P300. 17 In view of their materiality and relevance. and 5. Provided. and taxes and levies (if any) chargeable to the operator of the On-Line Lottery System. 6. including. assessments and government charges now and hereafter imposed of whatever nature that may be legally levied upon it.6 Provide PCSO with management terminals which will allow real-time monitoring of the On-Line Lottery System. and further compensate the LESSOR for loss of expected net profit after tax. 6.9. in an amount determined with the approval of PCSO. 16 The President. 5.3 Comply with all laws. 6. 2. telecommunications network. maintenance.10 In the event that PCSO shall pre-terminate this Contract or suspend the operation of the On-Line Lottery System.9 Bear all expenses and risks relating to the Facilities including. 4. approved it on 20 December 1993. 5. reimburse the LESSOR the amount of its total investment cost associated with the On-Line Lottery System. the Master Games Plan of the LESSOR. which shall act on said recommendation within forty-eight (48) hours. and exclusive jurisdiction over.5 Development Plan — The detailed plan of all games. Nothing herein shall preclude the LESSOR from recommending dealers or retailers for appointment by PCSO. rights and privileges. 6. the LESSOR shall. advertising and promotion. operation and maintenance of ticket sales offices of dealers and retailers shall be borne by PCSO's dealers and retailers.8 PCSO will be responsible for the payment of prize monies. The LESSOR shall bear all Maintenance and Other Costs as defined herein.000.Bus Org 2 Cases 1st Set Prelim 66 "Contract of Lease" was finally executed by respondent PCSO and respondent PGMC. free of charge.4 PCSO shall have sole responsibility over the appointment of dealers or retailers throughout the country. and contents thereof. including the Master Games Plan as approved by PCSO.1 Work permits for the LESSOR's staff.4. The LESSOR will bear all other Maintenance and Other Costs.2 PCSO shall have control over revenues and receipts of whatever nature from the On-Line Lottery System. replace and improve the Facilities from time to time as new technology develops.1 PCSO shall have sole responsibility to decide whether to implement. computers. suitable and adequate space.1 Rental Fee — Amount to be paid by PCSO to the LESSOR as compensation for the fulfillment of the obligations of the LESSOR under this Contract. 5.9 PCSO shall assist the LESSOR in the following: 5. computed over the unexpired term of the lease. RENTAL FEE For and in consideration of the performance by the LESSOR of its obligations herein.6 PCSO shall have the responsibility to resolve.10 Bear all risks if the revenues from ticket sales. except as provided in Section 1.3 Facilities — All capital equipment.2 Maintain insurance coverage with insurers acceptable to PCSO on all Facilities. upgrade. furniture and fixtures. in order to make the On-Line Lottery System more cost-effective and/or competitive.4 Maintenance and Other Costs — All costs and expenses relating to printing. RIGHTS AND OBLIGATIONS OF PCSO AS OPERATOR OF THE ON-LINE LOTTERY SYSTEM PCSO shall be the sole and individual operator of the On-Line Lottery System. and customary manner. including but not limited to its headquarters. xxx xxx xxx 6. unless sooner terminated in accordance with this Contract. 1.

000. . . caused by the LESSOR.2 The Performance Bond shall be in the initial amount of Three Hundred Million Pesos (P300. 15. and rectify the breach within thirty (30) days. TELECOMMUNICATIONS NETWORK The LESSOR shall establish a telecommunications network that will connect all municipalities and cities in the Territory in accordance with. . Provided. that the Performance Bond shall in no case be less than One Hundred Fifty Million Pesos (P150.3 Any material statement. the Facilities directly required for the On-Line Lottery System mentioned in Section 1.2 The LESSOR hereby covenants and agrees to indemnify and hold PCSO harmless from all liabilities. from written notice by PCSO of any wilfull or grossly negligent violation of the material terms and conditions of this Contract. claims. cancellation or termination of this Contract shall not relieve the LESSOR of any liability that may have already accrued hereunder. per city or municipality per every month of delay.1 Except as may be provided in Section 17. HOLD HARMLESS CLAUSE 15.3 The LESSOR shall at all times protect and defend. Provided.000. said termination to take effect upon receipt of written notice of termination by the LESSOR and failure to take remedial action within seven (7) days and cure or remedy the same within thirty (30) days from notice." and under the following PCSO schedule: xxx xxx xxx PCSO may.3 The LESSOR may at its option maintain its Escrow Deposit as the Performance Bond. xxx xxx xxx 20. xxx xxx xxx Considering the denial by the Office of the President of its protest and the statement of Assistant Executive Secretary Renato Corona that "only a court injunction can stop Malacañang. or damages to property of any kind whatsoever. disposition. .00).Bus Org 2 Cases 1st Set Prelim 67 7. The minimum required Filipino equity participation shall not be impaired through voluntary or involuntary transfer.000. whilst shall failure to comply persists. and shall be renewed to cover the duration of the Contract. its authorized agents or employees. 17. xxx xxx xxx 13.2.2 Should the LESSOR fail to comply with the terms of the Timetables provided in Section 9 and 10. that the Penalty shall increase. expenses (including reasonable counsel fees) and costs on account of or by reason of any such death or deaths. X X THE OFFICE OF THE PRESIDENT. its title to the facilities and PCSO's interest therein from and against any and all claims for the duration of the Contract until transfer to PCSO of ownership of the serviceable Facilities. or 21. TERMINATION OF THE LEASE PCSO may terminate this Contract for any breach of the material provisions of this Contract. 16. The voice facility will cover the four offices of the Office of the President. Philippine National Police and the National Bureau of Investigation. ESTABLISHMENT AND OPERATION OF THE ON-LINE LOTTERY AND TELECOMMUNICATION SYSTEMS REQUIRED AND/OR AUTHORIZED UNDER THE SAID CONTRACT.3 shall automatically belong in full ownership to PCSO without any further consideration other than the Rental Fees already paid during the effectivity of the lease. National Disaster Control Coordinating Council.00) per city or municipality per month. . should the LESSOR fail to take remedial measures within seven (7) days. suits or losses caused by the LESSOR's fault or negligence.S. stops or suspends or threatens to stop or suspend payment of all or a material part of its debts. or sale of shares of stock by the present stockholders.000. RESPONDENT PGMC FOR THE INSTALLATION. KILOSBAYAN. . either of the LESSOR's proposals (or a combinations of both such proposals) attached hereto as Annex "B. The facility shall be designed to handle four private conversations at any one time. all unencumbered Facilities shall automatically become the property of PCSO without consideration and without need for further notice or demand by PCSO. to its U. at the LESSOR's option. directly or indirectly. 14. and those cities and municipalities which have easy telephone access from these four offices. 15.1 The LESSOR shall at all times protect and defend. NON-COMPETITION The LESSOR shall not.2 The LESSOR and its Affiliates have the full corporate and legal power and authority to own and operate their properties and to carry on their business in the place where such properties are now or may be conducted. AND THE PCSO GRAVELY ABUSE[D] THEIR DISCRETION AND/OR FUNCTIONS TANTAMOUNT TO LACK OF JURISDICTION AND/OR AUTHORITY IN RESPECTIVELY: (A) APPROVING THE AWARD OF THE CONTRACT TO. at its own cost and expense. xxx xxx xxx 10.00). 15. its subcontractors. the Performance Bond shall be reduced proportionately to the percentage of unencumbered terminals installed. the petitioners claim that: . 21. at its cost and expense. The Performance Bond shall likewise be forfeited in favor of PCSO. . or 21. The penalty shall be deducted by PCSO from the rental fee.3 The LESSOR has or has access to all the financing and funding requirements to promptly and effectively carry out the terms of this Contract. . at least sixty percent (60%) of the outstanding capital stock of which is owned by Filipino shareholders. PENALTIES 17." and the imminent implementation of the Contract of Lease in February 1994. . Any suspension. Voice calls from the four offices shall be transmitted via radio or VSAT to the remote municipalities which will be connected to this voice facility through wired network or by radio. . In support of the petition. the LESSOR shall cause itself to be listed in the local stock exchange and offer at least twenty five percent (25%) of its equity to the public. PCSO from and against any and all liabilities and claims for damages and/or suits for or by reason of any deaths of. require the LESSOR to establish the telecommunications network in accordance with the above Timetable in provinces where the LESSOR has not yet installed terminals. or proposes or makes a general assignment or an arrangement or compositions with or for the benefit of its creditors. 7. from any cause or causes whatsoever. liabilities. and each city and municipality in the Territory except Metro Manila. filed on 28 January 1994 this petition. Once a municipality or city is serviced by land lines of a licensed public telephone company. ACTING THROUGH RESPONDENTS EXECUTIVE SECRETARY AND/OR ASSISTANT EXECUTIVE SECRETARY FOR LEGAL AFFAIRS. dollar equivalent.4 The LESSOR has or has access to all the managerial and technical expertise to promptly and effectively carry out the terms of this Contract. injury or injuries. by the amount of Twenty Thousand Pesos (P20.1 The LESSOR is corporation duly organized and existing under the laws of the Republic of the Philippines.00). then the obligation of the LESSOR to connect such municipality or city through a telecommunications network shall cease with respect to such municipality or city.1 To ensure faithful compliance by the LESSOR with the terms of the Contract. every ninety (90) days. it shall be subject to an initial Penalty of Twenty Thousand Pesos (P20. AND (B) ENTERING INTO THE SO-CALLED "CONTRACT OF LEASE" WITH. . REPRESENTATIONS AND WARRANTIES The LESSOR represents and warrants that: 7. 7. 16. including the following: 21. OWNERSHIP OF THE FACILITIES After expiration of the term of the lease as provided in Section 4. at its option. .000.2 An order is made or an effective resolution passed for the winding up or dissolution of the LESSOR or when it ceases or threatens to cease to carry on all or a material part of its operations or business. 16.000. the LESSOR shall secure a Performance Bond from a reputable insurance company or companies acceptable to PCSO. Provided. with its co-petitioners. CONSIDERING THAT: . STOCK DISPERSAL PLAN Within two (2) years from the effectivity of this Contract. representation or warranty made or furnished by the LESSOR proved to be materially false or misleading. charges. However. and such lines are connected to Metro Manila. SECURITY 16. 17. undertake any activity or business in competition with or adverse to the On-Line Lottery System of PCSO unless it obtains the latter's prior written consent thereto. 7. . . that such provinces have existing nodes. or any injury or injuries to any person or persons.1 The LESSOR is insolvent or bankrupt or unable to pay its debts.

No. and spirit of Republic Act 1169.Bus Org 2 Cases 1st Set Prelim 68 a) Under Section 1 of the Charter of the PCSO. On the second issue. In its Comment filed on 1 March 1994. In the meantime." 19 The petitioners also point out that paragraph 10 of the Contract of Lease requires or authorizes PGMC to establish a telecommunications network that will connect all the municipalities and cities in the territory. 25 "it can establish a telecommunications system even without a legislative franchise because not every public utility is required to secure a legislative franchise before it could establish. we heard the parties in oral arguments. which should be ventilated in another forum. 18 Petitioners submit that the PCSO cannot validly enter into the assailed Contract of Lease with the PGMC because it is an arrangement wherein the PCSO would hold and conduct the on-line lottery system in "collaboration" or "association" with the PGMC. John Osmeña." It further claims that as an independent contractor for a piece of work.A. that we render judgment declaring the Contract of Lease void and without effect and making the injunction permanent. which prohibits the PCSO from holding and conducting lotteries "in collaboration.R.. set aside in view of the importance of the issues raised. and that the "petitioners do not appear to have the legal standing or real interest in the subject contract and in obtaining the reliefs sought. seven Justices voted to sustain the locus standi of the petitioners. Vicente Sotto III. and is." With respect to the challenged Contract of Lease. 56 (1937)]. and operate the service"." it cannot lawfully enter into the contract in question because all forms of gambling — and lottery is one of them — are included in the so-called foreign investments negative list under the Foreign Investments Act (R. Thus: "The unchallenged rule is that the . to issue a temporary restraining order commanding the respondents or any person acting in their place or upon their instructions to cease and desist from implementing the challenged Contract of Lease. company or entity. we resolved to consider only these issues: (a) the locus standi of the petitioners. 7042) where only up to 40% foreign capital is allowed. however. has no bearing in this petition. No. or operate the network pursuant to Section 1 of Act No." a legislative franchise is not required before a certificate of public convenience can be granted. 32 this Court declared: 1. No. 24 Even granting arguendo that PGMC is a public utility. strained and utterly devoid of logic" for it "ignores the reality that PCSO. No. while six voted not to. 1169. Blg. 22 We required the respondents to comment on the petition. Vera [65 Phil. 21 Accordingly. indeed.P. the building and maintenance of a lottery system to be used by PCSO in the operation of its lottery franchise). company or entity. Furthermore. This case was then assigned to this ponente for the writing of the opinion of the Court. Arturo Tolentino. he certainly falls within the principle set forth in Justice Laurel's opinion in People vs. be resolved in their favor. 42. like the said telecommunications system." On the first issue." Finally. after hearing the merits of the petition.. and a mutual right of control. we resolved to consider the matter submitted for resolution and pending resolution of the major issues in this case. as amended by B. Blg. 1169." They further claim that the establishment of the telecommunications system stipulated in the Contract of Lease does not require a congressional franchise because PGMC will not operate a public utility. and (b) the legality and validity of the Contract of Lease in the light of Section 1 of R. "PGMC's establishment of the telecommunications system stipulated in its contract of lease with PCSO falls within the exceptions under Section 1 of Act No. On 11 April 1994.P. be granted a franchise for that purpose because of Section 11. Moreover. it states that the execution and implementation of the contract does not violate the Constitution and the laws. and the PCSO maintain that the contract of lease in question does not violate Section 1 of R. as amended by B." 23 In their Comment filed by the Office of the Solicitor General. the "role of PGMC is limited to that of a lessor of the facilities" for the on-line lottery system. 27 but only the motion of Senators Alberto Romulo. in violation of Section 1(B) of R." and that there are terms and conditions of the Contract "showing that respondent PGMC is the actual lotto operator and not respondent PCSO." and it has been held that where the facilities are operated "not for business purposes but for its own use. the petitioners filed with the Securities and Exchange Commission on 29 March 1994 a petition against PGMC for the nullification of the latter's General Information Sheets. 29 this Court brushed aside this technicality because "the transcendental importance to the public of these cases demands that they be settled promptly and definitely. in the exercise of its discretion. install. maintain.A. c) Under Section 11." Even granting arguendo that a lease of facilities is not within the contemplation of "collaboration" or "association. if we must. 3846 and established jurisprudence. As far as Judge de la Llana is concerned. and Jose Lina 28 was granted. G. the seven Justices were of the opinion that the Contract of Lease violates the exception to Section 1(B) of R. No. as shown by paragraph EIGHT of its Articles of Incorporation. association or joint venture with any person. However. The preliminary issue on the locus standi of the petitioners should. is disqualified from operating a public service.A. No. and (2) as such independent contractor." Insofar as taxpayers' suits are concerned. citing our resolution in Valmonte vs. moreover. Gloria Macapagal-Arroyo. in any case. Assistant Executive Secretary Renato Corona. whether domestic or foreign. a Congressional franchise is required before any person may be allowed to establish and operate said telecommunications system. 42. 'in collaboration. 1169. Cuenco. In the deliberation on this case on 26 April 1994. of the Contract of Lease clearly shows that there is a "collaboration. 1713 and 1644 of the Civil Code. 20 Finally." What the PCSO charter "seeks to prohibit is that arrangement akin to a "joint venture" or partnership where there is "community of interest in the business. Francisco Tatad.A. association. L-2821). 42. Alba. since "the subscribed foreign capital" of the PGMC "comes to about 75%.A. as amended by B. Philippine Charity Sweepstakes Office. as amended. like the PGMC. Blg." an analysis. and the respondents were required to comment on their petition in intervention. establish. this Court had declared that it "is not devoid of discretion as to whether or not it should be entertained. The six Justices stated that they wished to express no opinion thereon in view of their stand on the first issue.P. A party's standing before this Court is a procedural technicality which it may. Blg. lotteries. that the Articles of Incorporation of PGMC authorize it to enter into the Contract of Lease. morality and propriety of acts of the executive department are beyond the ambit of judicial review. nor is PCSO sharing its franchise. however. Article XII of the Constitution. pursuant to Albano S. b) Under Act No. the petitioners pray that we issue a temporary restraining order and a writ of preliminary injunction commanding the respondents or any person acting in their places or upon their instructions to cease and desist from implementing the challenged Contract of Lease and. PGMC is a 75% foreign-owned or controlled corporation and cannot. 26 Several parties filed motions to intervene as petitioners in this case. association or joint venture with any person. the public respondents allege that the petitioners have no standing to maintain the instant suit. invalid and contrary to law. In the landmark Emergency Powers Cases.A. No. PGMC cannot do that because it has no franchise from Congress to construct. Finally." 30 or that it "enjoys an open discretion to entertain the same or not. and. and that the petitioner's interpretation of the phrase "in collaboration. as a corporate entity. which prohibits the PCSO from holding and conducting charity sweepstakes races. therefore. in "strict technical and legal sense. Jr. association. or joint venture between respondents PCSO and PGMC in the holding of the On-Line Lottery System.e. The Chief Justice took no part because one of the Directors of the PCSO is his brother-in-law. Article XII of the 1987 Constitution. that the issue on the "morality" of the lottery franchise granted to the PCSO is political and not judicial or legal. 7042) to install. establish and operate the on-line lotto and telecommunications systems. the PCSO is prohibited from holding and conducting lotteries "in collaboration. a less than 60% Filipino-owned and/or controlled corporation. Reyes. is vested with the basic and essential prerogative to enter into all kinds of transactions or contracts as may be necessary for the attainment of its purposes and objectives. as amended by B. intent.P. foreign or domestic. and that the issues of "wisdom. and d) Respondent PGMC is not authorized by its charter and under the Foreign Investment Act (R. PGMC is not a co-operator of the lottery franchise with PCSO. (i." They also argue that the contract does not violate the Foreign Investment Act of 1991. which the public respondents and PGMC did. which the petitioners even consider as an "indispensable requirement" of an on-line lottery system. The argument as to the lack of standing of petitioners is easily resolved." said contract "can be categorized as a contract for a piece of work as defined in Articles 1467. 42. company or entity". association. and other similar activities "in collaboration. therefore." 31 In De La Llana vs. sharing of profits and losses. 3846." a characteristic which does not obtain in a contract of lease. (Avelino vs. association or joint venture with any person. association. as amended by Batas Pambansa 42. association or joint venture' with PGMC — as such statutory limitation is viewed from the context. That case. technicalities of procedure. 1169. brushing aside. the petitioners insist that the Articles of Incorporation of PGMC do not authorize it to establish and operate an on-line lottery and telecommunications systems. public respondents Executive Secretary Teofisto Guingona. private respondent PGMC asserts that "(1) [it] is merely an independent contractor for a piece of work. it is neither engaged in "gambling" nor in "public service" relative to the telecommunications network. Thereafter. association or joint venture" in Section 1 is "much too narrow. PGMC's "establishment of a telecommunications system is not intended to establish a telecommunications business. 3846 where a legislative franchise is not necessary for the establishment of radio stations. Ramon Revilla.

And now on the substantive issue. of the number of elective members of Sanggunians. Secretary of Agrarian Reform. even in the United States. vs. concerning as it does the political exercise of qualified voters affected by the apportionment. The issues it raised are of paramount public interest and of a category even higher than those involved in many of the aforecited cases. if we must. Commissioner of Internal Revenue. without a well-ordered state there could be no enforcement of private rights. 36 this Court once more said: . conversely. Among such cases were those assailing the constitutionality of (a) R. with their claim that what petitioners possess "is an interest which is shared in common by other people and is comparatively so minute and indeterminate as to afford any basis and assurance that the judicial process can act on it. In the first Emergency Powers Cases. In line with the liberal policy of this Court on locus standi. And even if. 1. which allowed members of the cabinet. The Philippine Charity Sweepstakes Office. .A. 42 and (f) R. prohibits the PCSO from holding and conducting lotteries "in collaboration. Section 1 of R. economic." Moreover. despite its unequivocal ruling that the petitioners therein had no personality to file the petition." The same policy has since then been consistently followed by the Court. their standing to sue has been amply demonstrated. In United States vs. Federal Power Commission. It would not further clarification of this complicated specialty of federal jurisdiction. We have since then applied this exception in many other cases.A.D.179 square meters of land at Roppongi. and order. their undersecretaries.Bus Org 2 Cases 1st Set Prelim 69 person who impugns the validity of a statute must have a personal and substantial interest in the case such that he has sustained." We find the instant petition to be of transcendental importance to the public. I do not think we are prepared to take that step. and assistant secretaries to hold other government offices or positions. as in Gonzales vs. technicalities of procedure. For as Chief Justice Warren clearly pointed out in the later case of Flast v. however. the solution of whose problems is in any event more or less determined by the specific circumstances of individual situations. association. and moral well-being of the people even in the remotest barangays of the country and the counter-productive and retrogressive effects of the envisioned on-line lottery system are as staggering as the billions in pesos it is expected to raise. 3452. or will sustain. 303 US 633]. in the exercise of its sound discretion. both in a substantive and procedural sense. Minato-ku. as amended. The Court dismissed the objective that they were not proper parties and ruled that the transcendental importance to the public of these cases demands that they be settled promptly and definitely. company or entity. medical assistance and services and charities of national character. COMELEC 54 where. We did no less in De Guia vs. 53 this Court. direct injury as a result of its enforcement [Ibid. brushing aside. Japan. 1169. No. 38 (b) Executive Order No. 62 SCRA 275]: "Then there is the attack on the standing of petitioners. January 31. or orders of various government agencies or instrumentalities. in such frequency and manner. 47 (e) the decisions. the barrier thus set up if not breached has definitely been lowered. v.A. There is relevance to this excerpt from a separate opinion in Aquino. No. decisions. Nos. and in Association of Small Landowners in the Philippines. 3836 insofar as it allows retirement gratuity and commutation of vacation and sick leave to Senators and Representatives and to elective officials of both Houses of Congress. Commission on Elections [21 SCRA 774] . hold. 34 this Court stated: Objections to taxpayers' suits for lack of sufficient personality standing or interest are. . if we must. 1031 insofar as it directed the COMELEC to supervise. 35 it declared: With particular regard to the requirement of proper party as applied in the cases before us. acts. The Federal Supreme Court of the United States of America has also expressed its discretionary power to liberalize the rule on locus standi. . — The Philippine Charity Sweepstakes Office." Section 1 provides: Sec. 37 it held: We hold that petitioners have standing. vs.05 per barrel of imported crude oil and P1. 39 (c) the automatic appropriation for debt service in the General Appropriations Act. technicalities of procedure. issued by President Corazon C. [Ex Parte Levitt. however. 40 (d) R. would hard back to the American Supreme Court doctrine in Mellon v. In Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas. Singson. No. and non-profit civic organizations were allowed to initiate and prosecute actions before this Court to question the constitutionality or validity of laws. Secretary of Finance. they are not covered by the definition. petitioners have convincingly shown that in their capacity as taxpayers. "The protection of private rights is an essential constituent of public interest and. Private and public interests are. This is to conjure the specter of the public right dogma as an inhibition to parties intent on keeping public officials staying on the path of constitutionalism. although we declared that De Guia "does not appear to have locus standi. public policy. a standing in law. 478 which levied a special duty of P0.P. as vindicating at most what they consider a public right and not protecting their rights as individuals. in the main procedural matters. brushing aside. 43 Other cases where we have followed a liberal policy regarding locus standi include those attacking the validity or legality of (a) an order allowing the importation of rice in the light of the prohibition imposed by R. it is still within the wide discretion of the Court to waive the requirement and so remove the impediment to its addressing and resolving the serious constitutional questions raised. There would be a retreat from the liberal approach followed in Pascual v. The legal standing then of the petitioners deserves recognition and. Commission on Elections [L-40004. As was so well put by Jaffe. whether domestic or foreign. 1975. and subject to such rules and regulations as shall be promulgated by the Board of Directors. Differences of view. Tan. establishing the Philippine National Police. Blg. control. rulings.A. we hold that the same is satisfied by the petitioners and intervenors because each of them has sustained or is in danger of sustaining an immediate injury as a result of the acts or measures complained of. Considering the importance to the public of the cases at bar.A. 42. 33 reiterated in Basco vs. ordinary taxpayers. . . 48 (f) the orders of the Energy Regulatory Board of 5 and 6 December 1990 on the ground that the hearings conducted on the second provisional increase in oil prices did not allow the petitioner substantial cross-examination. and resolutions of the Executive Secretary. and as such shall have the general powers conferred in section thirteen of Act Numbered One thousand four hundred fifty-nine.95 per liter or P151. 50 (h) resolutions of the Commission on Elections concerning the apportionment. as amending by B. strictly speaking. aspects of the totality of the legal order. To hold and conduct charity sweepstakes races. The ramifications of such issues immeasurably affect the social." we brushed aside the procedural infirmity "considering the importance of the issue involved.A. Frothingham.51 and (i) memorandum orders issued by a Mayor affecting the Chief of Police of Pasay City. and petitioner alleging abuse of discretion and violation of the Constitution by respondent. however. orders. 45 (c) the bidding for the sale of the 3. we have early as in the Emergency Powers Cases that where serious constitutional questions are involved. Vera where the doctrine was first fully discussed. to determine whether or not the other branches of government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them. and the Fiscal Incentives Review Board exempting the National Power Corporation from indirect tax and duties. "the transcendental importance to the public of these cases demands that they be settled promptly and definitely. if we act differently now. rulings. and in keeping with the Court's duty. this Court has brushed aside technicalities of procedure and has taken cognizance of these petitions. Secretary of Public Works. Jr. No. 44(b) P. (Emphasis supplied) In Daza vs. members of Congress. and conduct the referendum-plebiscite on 16 October 1976. For another. 7056 on the holding of desynchronized elections. Aquino on 25 July 1987. 89]. a personal or substantial interest. 284. 41 (d) R.00 per liter of imported oil products. The other petitioners as members of the bar and officers of the court cannot be considered as devoid of "any personal and substantial interest" on the matter. 46 (d) the approval without hearing by the Board of Investments of the amended application of the Bataan Petrochemical Corporation to transfer the site of its plant from Bataan to Batangas and the validity of such transfer and the shift of feedstock from naphtha only to naphtha and/or liquefied petroleum gas. preclude a single opinion of the Court as to both petitioners. 52 In the 1975 case of Aquino vs. ordinary citizens and taxpayers were allowed to question the constitutionality of several executive orders issued by President Quirino although they were invoking only an indirect and general interest shared in common with the public. No. to set out the divergent grounds in support of standing in these cases. under the 1987 Constitution. No. as shall be determined. No. Inc. association or joint venture with any person." That is to speak in the language of a bygone era. and shall have the authority: A. this Court hereby brushes aside the procedural barrier which the respondents tried to take advantage of. Respondents.D. shall be the principal government agency for raising and providing for funds for health programs. 991 and 1033 insofar as they proposed amendments to the Constitution and P. Cohen. 1869 (the charter of the Philippine Amusement and Gaming Corporation) on the ground that it is contrary to morals. Philippine Amusements and Gaming Corporation. Commission on Elections. foreshadowed by the very decision of People v. Tokyo. Federal Power Commission and Virginia Rea Association vs. 6975. lotteries and other similar activities. hereinafter designated the Office. and even association of planters. resolved nevertheless to pass upon the issues raised because of the far-reaching implications of the petition. Inc. by district. Commissioner of Customs. 49 (g) Executive Order No.

exclusively bear "all capital. which prohibits the PCSO from holding and conducting lotteries "in collaboration. Thereafter. is approved.. and that the operation of the on-line lottery system should be "at no expense or risk to the government" — meaning itself.. or other similar activities is a franchise granted by the legislature to the PCSO. DAVIDE. 42. a right to direct and govern the policy in connection therewith. MR." 60 It may also be pointed out that the franchise granted to the PCSO to hold and conduct lotteries allows it to hold and conduct a species of gambling. as amended. (emphasis supplied) The language of the section is indisputably clear that with respect to its franchise or privilege "to hold and conduct charity sweepstakes races. 622 reads as follows: To engage in any and all investments and related profit-oriented projects or programs and activities by itself or in collaboration. "charity sweepstakes races. it should read as follows: Subject to the approval of the Minister of Human Settlements. No. at its own expense. the building and maintenance of a lottery system to be used by the PCSO in the operation of its lottery franchise. DAVIDE. It has been said that "the rights and privileges conferred under a franchise may. association or joint venture with" another? We agree with the petitioners that it does. for the purpose of providing for permanent and continuing sources of funds for health programs. the new paragraph B was approved.P. Collaboration is defined as the acts of working together in a joint project. all the facilities needed to operate and maintain" the system. i. 64 Joint venture is defined as an association of persons or companies jointly undertaking some commercial enterprise. to engage in health and welfare-related investments. whether domestic or foreign. 62 And. projects and activities which may be profit. Blg. the Committee on Socio-Economic Planning and Development. Assemblyman Pelaez introduced other amendments. lotteries." Because of these serious constraints and unwillingness to bear expenses and assume risks. It is settled that "a statute which authorizes the carrying on of a gambling activity or business should be strictly construed and every reasonable doubt so resolved as to limit the powers and rights claimed under its authority. by itself or in collaboration. or be made subject to the approval of the grantor or a governmental agency. for the purpose of providing for permanent and continuing sources of funds for health programs. transfer. Zamora. We are neither convinced nor moved or fazed by the insistence and forceful arguments of the PGMC that it does not because in reality it is only an independent contractor for a piece of work. It requires a community of interest in the performance of the subject matter. lotteries and other similar activities. including the expansion of existing ones. it would have it "at no expense or risks to the government. notwithstanding its denomination or designation as a ( Contract of Lease). the marketing of the games. by itself or in collaboration. the PCSO cannot share its franchise with another by way of collaboration. When Assemblyman Zamora read the final text of paragraph B as further amended.A. programs. 1169. association. 55 During the period of committee amendments. THE SPEAKER. association or joint venture with any person. at the most.oriented. A careful analysis and evaluation of the provisions of the contract and a consideration of the contemporaneous acts of the PCSO and PGMC indubitably disclose that the contract is not in reality a contract of lease under which the PGMC is merely an independent contractor for a piece of work. Mr. exception that an existing right of assignment cannot be impaired by subsequent legislation.P. Nothing passes by mere implication. 63 Association means the act of a number of persons in uniting together for some special purpose or business.A. Animus hominis est anima scripti. When it is joint venture or in collaboration with any entity such collaboration or joint venture must not include activity activity letter (a) which is the holding and conducting of sweepstakes races. THE SPEAKER. operating expenses and expansion expenses and risks". 56 Before the motion of Assemblyman Zamora for the approval of the amendment could be acted upon. association or joint venture with any person. as amended. 1169.e. 57 Further amendments to paragraph B were introduced and approved. and the logistics to introduce the game to all the cities and municipalities of the country within five (5) years". The gentleman from Cebu is recognized. the right of transfer or assignment may be restricted by statute or the constitution. nationwide telecommunications . No. programs. for the main purpose of raising funds for health and medical assistance and services and charitable grants. which was covered by Committee Report No. software. it is essential to look to the intention of the individual who executed it. and that although it wished to have the system. such as a public utilities commission. no one should be deceived by the title or designation of a contract. . except for the activities mentioned in the preceding paragraph (A). since it is a government-owned and controlled agency. association or joint venture. and he cannot enlarge it by equivocal or doubtful provisions or by probable inferences. to engage in health-oriented investments. Whatever is not unequivocally granted is withheld. It is a settled rule that "in all grants by the government to individuals or corporations of rights. Subject to the approval of the Minister of Human Settlements. and/or charitable grants: Provided. Neither can it assign.Bus Org 2 Cases 1st Set Prelim 70 B. ZAMORA. without doubt. terminals. whether domestic or foreign. and by virtue of the amendment introduced by Assemblyman Emmanuel Pelaez." 59 In short then. company or entity." To put it more bluntly. but one where the statutorily proscribed collaboration or association. . medical assistance and services and/or charitable grants. be assigned or transferred when the grant is to the grantee and assigns. 103 as reported out by the Committee on Socio-Economic Planning and Development of the Interim Batasang Pambansa. including the expansion of existing ones. The original text of paragraph B. The intention of the party is the soul of the instrument. association. and submit "a comprehensive nationwide lottery development plan . medical assistance and services. or is authorized by statute. 42 originated from Parliamentary Bill No. or joint venture with any person. association. company or entity. Section 1 of R. lotteries and other similar acts. Speaker. Mr. generally all contribute assets and share risks. as amended by B.. and duty. introduced an amendment by substitution to the said paragraph B such that. through Assemblyman Ronaldo B. In order to give life or effect to an instrument." the PCSO cannot exercise it "in collaboration. association or joint venture" with any other party. May I introduce an amendment to the committee amendment? The amendment would be to insert after "foreign" in the amendment just read the following: EXCEPT FOR THE ACTIVITY IN LETTER (A) ABOVE. On the other hand. That such investment will not compete with the private sector in areas where investments are adequate as may be determined by the National Economic and Development Authority." B. The facilities referred to means "all capital equipment. the word PRECEDING was inserted before PARAGRAPH. MR. computers.P. 65 The contemporaneous acts of the PCSO and the PGMC reveal that the PCSO had neither funds of its own nor the expertise to operate and manage an on-line lottery system." 61 Does the challenged Contract of Lease violate or contravene the exception in Section 1 of R. Section 1 of Parliamentary Bill No. the earlier approved amendment of Assemblyman Davide became "EXCEPT FOR THE ACTIVITIES MENTIONED IN PARAGRAPH (A)". by the exception explicitly made in paragraph B. or joint venture. exists between the contracting parties. No interpretation of the said provision to relax or circumvent the prohibition can be allowed since the privilege to hold or conduct charity sweepstakes races.. Is there any objection to the amendment? (Silence) The amendment. Thank you. their contemporaneous and subsequent acts shall be principally considered. lotteries and other similar activities. in the least. Speaker. We accept the amendment. Assemblyman Davide introduced an amendment to the amendment: MR. which will include the game. whether domestic or foreign. 622. Section 1 of its charter. Blg. privileges and franchises. the words are to be taken most strongly against the grantee . as amended by B. or lease such franchise. 58 This is now paragraph B. 42." namely. Blg. MR. [o]ne who claims a franchise or privilege in derogation of the common rights of the public must prove his title thereto by a grant which is clearly and definitely expressed. the PCSO was candid enough to state in its RFP that it is seeking for "a suitable contractor which shall build. This is the unequivocal meaning and import of the phrase "except for the activities mentioned in the preceding paragraph (A). Speaker. which may be altered by agreement to share both in profit and losses. Mr. projects and activities which may be profit-oriented. "to determine the intention of the contracting parties. company or entity. which may be gathered from the provisions of the contract itself. association. pursuant to Article 1371 of the Civil Code. DAVIDE. Whether the contract in question is one of lease or whether the PGMC is merely an independent contractor should not be decided on the basis of the title or designation of the contract but by the intent of the parties.

as amended by B. They exhibit and demonstrate the parties' indivisible community of interest in the conception. expansion and replacement costs.P. technicians or employees of the PCSO. and could only be tied up to the fact that the PGMC will actually operate and manage the system. in reality. After eight years. All of the foregoing unmistakably confirm the indispensable role of the PGMC in the pursuit. Blg. advertising and promotions expenses. the PCSO and the PGMC mutually understood that any arrangement between them would necessarily leave to the PGMC the technical. and in any event not later than sixty (60) days. and to train PCSO and other local personnel and to effect the transfer of technology and other expertise. this imposition is unreasonable and whimsical. security and insurance. 68 And. Its denomination as such is a crafty device.R. ticket sales offices. which it solemnly guaranteed it had in the General Information of the RFP. but not limited to the lease of the Facilities. therefore. cause itself to be listed in the local stock exchange and offer at least 25% of its equity to the public. In a manner of speaking. makes it clear in its RFP that the proponent can propose a period of the contract which shall not exceed fifteen years. The words Gaming and Management in the corporate name of respondent Philippine Gaming Management Corporation could not have been conceived just for euphemistic purposes. (g) The PCSO may validly terminate the contract if the PGMC becomes insolvent or bankrupt or is unable to pay its debts. the PGMC is under obligation to keep all the Facilities in safe condition and if necessary. therefore. in the light of the PCSO's RFP and the above highlighted provisions. 67Howsoever viewed then. it organized the PGMC as "a medium through which the technical and management services required for the project would be offered and delivered to PCSO." If the PGMC is engaged in the business of leasing equipment and technology for an on-line lottery system. operations.000. such that at the end of the term of the contract. which it may. and management of the On-Line Lottery System. upon learning of the PCSO's decision. security and insurance. maintain as its initial performance bond required to ensure its faithful compliance with the terms of the contract." The PCSO. the PGMC has the initial prerogative to prepare the detailed plan of all games and the marketing thereof. and management aspects of the on-line lottery system while the PCSO would. recommend for appointment dealers and retailers which shall be acted upon by the PCSO within forty-eight hours and collect and retain. 42. and within two years from the effectivity of the contract. The acuity or skill of its draftsmen to accomplish that purpose easily manifests itself in the Contract of Lease. bear the salaries and related costs of skilled and qualified personnel for administrative and technical operations. the only contribution the PCSO would have is its franchise or authority to operate the on-line lottery system. with each having a right in the formulation and implementation of policies related to the business and sharing. 1169. and the PCSO the least. The second admits the coordinating and cooperative powers and functions of the parties. operation. technicians or employees who shall operate the on-line lottery system are not managers. then. maintenance. the PGMC which operates and manages the on-line lottery system for a period of eight years. the PCSO binds itself "to promptly. Nevertheless. woven therein are provisions which negate its title and betray the true intention of the parties to be in or to have a joint venture for a period of eight years in the operation and maintenance of the on-line lottery system. reimburse the Lessor the amount of its total investment cost associated with the On-Line Lottery System. Consistent with the above observations on the RFP. however. INC." In short. manpower. replace. The Temporary Restraining Order issued on 11 April 1994 is hereby MADE PERMANENT. It could be for this reason that it warned that "the proponent must be able to stand to the acid test of proving that it is an entity able to take on the role of responsible maintainer of the on-line lottery system. the Berjaya Group Berhad knew all along that in connection with an on-line lottery system. and promulgate procedural and coordinating rules governing all activities relating to the on-line lottery system. the managers. nothing may be due or demandable at all because the PGMC binds itself to "bear all risks if the revenue from the ticket sales. to provide a built-in defense in the event that the agreement is questioned as violative of the exception in Section 1 (B) of the PCSO's charter. birth and growth of the on-line lottery. on an annualized basis. as well as the "Hold Harmless Clause" of the Contract of Lease. And. primarily. being borne by the proponent or bidder. above all. No. (f) The PCSO shall designate the necessary personnel to monitor and audit the daily performance of the on-line lottery system. carefully conceived. advertising and promotion. provide the franchise. If the PGMC is merely a lessor. the PCSO had nothing but its franchise. but inherent in a joint venture. it may be drastically reduced or. payable net of taxes required by law to be withheld. Of course. the instant petition is hereby GRANTED and the challenged Contract of Lease executed on 17 December 1993 by respondent Philippine Charity Sweepstakes Office (PCSO) and respondent Philippine Gaming Management Corporation (PGMC) is hereby DECLARED contrary to law and invalid. 194795 .00 pursuant to the requirements of the RFP.. undertake a positive advertising and promotions campaign for both institutional and product lines without engaging in negative advertising against other lessors. increasing public participation in the corporation would enhance public interest. as well. including the Master Games Plan. nevertheless. including. costs of salaries and wages. G. The latter simply means that. conduct. however. with the rest. monitor and audit the daily performance of the system. As admitted by the PGMC. computed over the unexpired term of the lease. The first further confirms that it is the PGMC which will operate the system and the PCSO may. we fail to see any acceptable reason why it should allow a restriction on the pursuit of such business. EVER ELECTRICAL MANUFACTURING. This conclusion renders unnecessary further discussion on the other issues raised by the petitioners. or its suspension of operation of the on-line lottery system in breach of the contract and through no fault of the PGMC. for a period of eight years. and is. and determine the number of players. the PCSO would automatically become the owner of the Facilities without any other further consideration. upgrade. and all other related expenses needed to operate a nationwide on-line lottery system. WHEREFORE. because of its confessed unwillingness to bear expenses and risks. This joint venture is further established by the following: (a) Rent is defined in the lease contract as the amount to be paid to the PGMC as compensation for the fulfillment of its obligations under the contract. Although it is stated to be 4. wanted to offer its services and resources to the PCSO. in extreme cases. and the logistics required to introduce the games. for the protection of its interest. invalid for being contrary to law. The so-called Contract of Lease is not. while the PGMC represents and warrants that it has access to all managerial and technical expertise to promptly and effectively carry out the terms of the contract. the PCSO has only its franchise to offer. what it purports to be.A. Yet. and. Forthwith." If the contract were indeed one of lease. the Contract of Lease incorporates their intention and understanding. (c) The PGMC cannot "directly or indirectly undertake any activity or business in competition with or adverse to the On-Line Lottery System of PCSO unless it obtains the latter's prior written consent. We thus declare that the challenged Contract of Lease violates the exception provided for in paragraph B.9% of gross receipts from ticket sales. while the PCSO has the sole responsibility over the appointment of dealers and retailers throughout the country. the RFP cannot substitute for the Contract of Lease which was subsequently executed by the PCSO and the PGMC. indeed. value of winnings. salaries and wages. the payment of the expected profits or rentals for the unexpired portion of the term of the contract would be enough. (b) In the event of pre-termination of the contract by the PCSO. in its profits. Section 1 of R. (d) The PGMC shall provide the PCSO the audited Annual Report sent to its stockholders. For these reasons. this rent is not actually a fixed amount. each is wed to the other for better or for worse. too. expansion and replacement. No. In the final analysis." 66 Undoubtedly. including but not limited to the cost of the Facilities. for its own account. are insufficient to pay the entire prize money. printing costs. It is outstanding for its careful and meticulous drafting designed to give an immediate impression that it is a contract of lease. exclusively bear all costs and expenses relating to the printing. but of the PGMC and that it is only after the expiration of the contract that the PCSO will operate the system. maintenance costs.000. and improve them from time to time as new technology develops to make the on-line lottery system more cost-effective and competitive. Of course. in the losses — with the PGMC bearing the greatest burden because of its assumption of expenses and risks. furnishings and fixtures. with its affiliates. the PCSO has the reserved authority to disapprove them. from the very inception. during which time it is assured of a "rental" which shall not exceed 12% of gross receipts.Bus Org 2 Cases 1st Set Prelim 71 network. the PGMC may. comply with procedural and coordinating rules issued by the PCSO." This risk-bearing provision is unusual in a lessor-lessee relationship. including the risks of the business. or if it stops or suspends or threatens to stop or suspend payment of all or a material part of its debts. the Berjaya Group Berhad. a security deposit from dealers and retailers in respect of equipment supplied by it. the PCSO will be able to effectively take over the Facilities and efficiently operate the on-line lottery system. and further compensate the LESSOR for loss of expected net profit after tax. (e) The PGMC shall put up an Escrow Deposit of P300. hence. it is even safe to conclude that the actual lessor in this case is the PCSO and the subject matter thereof is its franchise to hold and conduct lotteries since it is. and all other related expenses needed to operate the on-line lottery system. at its option. However.

2010 Resolution[3] of the Court of Appeals (CA) in CA-G.. As security for the loan. Vicente Go (Go). declaring that when the employer corporation is no longer existing and unable to satisfy the judgment in favor of the employees. In November 1996.[5] On September 19. [4] The said lease came to a halt when UCPB instituted an unlawful detainer suit against EGO before the Metropolitan Trial Court. including the factory. The CA. Petitioner Ever Electrical Manufacturing.: This petition for review on certiorari [1] under Rule 45 of the 1997 Rules of Civil Procedure assails the August 31. In an attempt to save the company. 2006. [13] EEMI and Go filed a motion for reconsideration but it was denied in the CA Resolution dated December 16. Inc. EEMI explained that it had closed the business due to various factors. Petitioners. The controversy started when EEMI closed its business operations on October 11.473. it obtained a loan in the amount of P121. separation pay. J. EEMIs land and its improvements. The CA held that respondents were entitled to separation pay and 13 th month pay because the closure of EEMIs business operation was effected by the enforcement of a writ of execution and not by reason of business losses. JR. 2012 x -----------------------------------------------------------------------------------------------------x DECISION MENDOZA. EEMI was not able to meet its loan obligations with UCPB. 2002.400. Adding to EEMIs financial woes was the closure of Orient Bank where most of its resources were invested. reads: CONFORMABLY WITH THE FOREGOING. [11] It nullified the decision of the NLRC and reinstated the LA decision. J. On August 11. notice or memorandum and in full disregard of the requirements of the Labor Code.000. the NLRC reversed and set aside the decision of the LA. Inc.The dispositive portion of the CA decision reads: ACCORDINGLY. 2006. EEMI wanted to lease the premises to continue its business operation but under UCPBs policy. 108978. 2008 and Resolution dated March 23. EGO Electrical Supply Co. Promulgated: June 13. 88602. Thus. The Decision dated September 15.[14] Hence.* * MENDOZA. EEMI was one of those who suffered huge losses. Judgment is hereby rendered ordering the respondent[s] in solidum to pay the complainants their separation pay. The NLRC dismissed the complaint for lack of merit and ruled that since EEMIs cessation of business operation was due to serious business losses. a previous debtor who failed to settle its loan obligation was not eligible to lease its acquired assets. Respondents. the employees were not entitled to separation pay. the MeTC ruled in favor of UCPB and ordered EGO to vacate the leased premises and pay rentals to UCPB in the amount of P21. UCPB agreed to lease it to an affiliate corporation. and attorneys fees. It. this petition. (EGO). in effect. a lease agreement was entered into between UCPB and EGO. EEMI entered into a dacion en pago arrangement with UCPB which. On April 25. 2010. the Sheriff implemented the writ by closing the premises and. 13th month pay of the three (3) workers and the balance of their 13 th month pay as computed which computation is made a part of this disposition.[8] Respondents moved for reconsideration of the NLRC decision. transferred ownership of the companys property to UCPB as reflected in TCT No.[9] Unperturbed.000. respondents elevated the case before the CA via a petition for certiorari under Rule 65.. various economies in the South East Asian Region were hurt badly. On February 2. damages.versus SAMAHANG MANGGAGAWA NG EVER ELECTRICAL/ NAMAWU LOCAL 224 represented by FELIMON PANGANIBAN. and PERLAS-BERNABE. [6] Consequently. the CA granted the petition. On September 15. SP No. it invested in Orient Commercial Banking Corporation (Orient Bank) the sum of P500. as a result. on October 11. 2006 resulting in the termination of the services of its employees. Respondents alleged that the closure was made without any warning. the respondents are members of Samahang Manggagawa ng Ever Electrical/NAMAWU Local 224 (respondents) headed by Felimon Panganiban.00 and during the Asian Currency crises. EEMIs business suffered further losses due to the continued entry of cheaper goods from China and other Asian countries. were mortgaged to UCPB.65. 429159. As a result. the petition is GRANTED. 2007 of Labor Arbiter Melquiades Sol Del Rosario. 2010 Decision [2] and the December 16. respondents filed a complaint for illegal dismissal with prayer for payment of 13 th month pay. VILLARAMA. ordered EEMI and its President. In 1995. In its defense. On the other hand.[7] The decretal portion of the LA decision. Lydia Llego. citing Restaurante Las Conchas v. however. 2006.[15] Issues: . Makati City(MeTC) docketed as Civil Case No. 2009Resolution. but the NLRC denied the motion in its March 23. Bus Org 2 Cases 1st Set Prelim 72 .000.[12] upheld the solidary liability of EEMI and Go. EEMIs employees were prevented from entering the factory. Aggrieved.* ABAD. 2009 of the National Labor Relations Commission are NULLIFIED and the Decision dated April 25. a writ of execution was issued. (EEMI) is a corporation engaged in the business of manufacturing electrical parts and supplies.00 from United Coconut Planters Bank (UCPB). for and in behalf of EEMI.[10] On August 31. REINSTATED. Acting Chairperson. 2010. 2008. 2007. Branch 5. Present: PERALTA. JJ. the officers should be held liable for acting on behalf of the corporation.R.843.(EEMI) and VICENTE GO. to pay their employees separation pay and 13th month pay respectively. Originally. the Labor Arbiter (LA) ruled that respondents were not illegally dismissed.

e. the CA affirmed the LA decision citing the case of Restaurante Las Conchas v.[26] In Mandaue Dinghow Dimsum House. Moreover. We find the aforesaid decisions inapplicable to the instant case. in the recent cases Carag v. it partakes of the nature of fraud. For said reason. the Court agrees with the petitioner.[28] the Court explained that corporate directors and officers are solidarily liable with the corporation for the termination of employees done with malice or bad faith. In AC Ransom. there would be no one to pay its liability as the respondents therein claimed that the restaurant was owned by a different entity. The rationale is that. Whether the CA erred in finding that the closure of EEMIs operation was not due to business losses. the cessation of EEMIs business was not directly brought about by serious business losses or financial reverses. it means breach of a known duty through some motive or interest or ill will. since the corporation is an artificial person. the Court declined to apply the ruling in Restaurante Las Conchas because there was no evidence that the respondent therein. whichever is higher. EEMI should be required to pay separation pay to its affected employees. actively participated in the management of EEMIs corporate obligations. rendered judgment ordering EEMI and Go in solidum to pay the complainants [18] their due. the Courts ruling in Restaurante Las Conchas was invoked but the Court refused to consider it reasoning out that it was the exception rather than the rule. Although business reverses or losses are recognized by law as an authorized cause. In Pantranco Employees Association. however. who might be merely feigning business losses or reverses in their business ventures in order to ease out employees. It stressed that bad faith does not connote bad judgment or negligence. Co. and/or Henry Uytengsu v. loans.C.[23] The Court therein explained that it applied the exception because of the peculiar circumstances of the case. Similarly. in the said cases. Article 283 of the Labor Code identifies closure or cessation of operation of the establishment as an authorized cause for terminating an employee. Llego. being the President and the one actively representing respondent EEMI. Closure of establishment and reduction of personnel. Inc.. As to whether or not Go should be held solidarily liable with EEMI. has already ceased operations and there is no other way by which the judgment in favor of the employees can be satisfied. it is still essential that the alleged losses in the business operations be proven convincingly. the separation pay shall be equivalent to one (1) month pay or at least onehalf (1/2) month pay for every year of service.. A fraction of at least six months shall be considered one whole year. [17] The LA was of the view that Go. Thus. as a rule. PNEI.[22] A study of Restaurante Las Conchas case. retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title. this ground for termination of employment would be susceptible to abuse by conniving employers. made respondent Go as liable as respondent EEMI. being the person acting in the interest of the employer. Ransom Labor Union-CCLU v. As a general rule. it must have an officer who can be presumed to be the employer. petitioners want us to disregard their separate personalities. whichever is higher. Inc. National Labor Relations Commission[25] and Pantranco Employees Association (PEA-PTGWO) v. Real Estate Mortgage. Henry Uytrengsu. the employees would end up in an empty victory because as the restaurant had been closed for lack of venue. For one. corporate officers can be held jointly and severally liable with the company. The employer may also terminate the employment of any employee due to the installation of labor saving devices. respondent Go has to be liable in the case. [20] As earlier stated. not a party in the case. EEMI failed to establish that the main reason for its closure was business reverses. National Labor Relations Commission. This reliance fails to persuade. only in the technical sense.. In the instant case. the Court imputed liability to the officers of the corporation on the strength of the definition of an employer in Article 212(c) (now Article 212[e]) of the Labor Code. Petitioners rely on the pronouncement of this Court in A. Greenfield v. the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service. as President of the corporation. As aptly observed by the CA. Co. corporate officers should not be held solidarily liable with the corporation for separation pay for it is settled that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. Article 283 of the Labor Code provides: Art. The two cases were Mandaue Dinghow Dimsum House. The corporation. A fraction of at least six (6) months shall be considered one (1) whole year. the Court also rejected the invocation of Restaurante Las Conchas and refused to pierce the veil of corporate fiction. NLRC and subsequent cases.[21] where it was held that when the employer corporation is no longer existing and unable to satisfy the judgment in favor of the employees. acted in bad faith or in excess of his authority. otherwise. Inc. National Labor Relations Commission. If the rule would be applied. It stressed that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related.. whichever is higher. In case of termination due to the installation of labor saving devices or redundancy. where EEMI was operating and reimburse expenses of UCPB for real estate taxes and the like. dacion en pago. Under the said provision. prompted the bank to file an unlawful detainer case against the lessee. National Labor Relations Commission and McLeod v.[19] Added the LA. by serving a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. the Court explained the doctrine laid down in AC Ransom relative to the personal liability of the officers and agents of the employer for the debts of the latter. but by reason of the enforcement of a judgment against it. the officers should be held liable for acting on behalf of the corporation. The petition is partly meritorious. bares that it was an application of the exception rather than the general rule.Bus Org 2 Cases 1st Set Prelim 73 1. redundancy. This evasion of an existing obligation. and. the doctrine of piercing the veil of corporate fiction must be exercised with caution. what is being made liable is another corporation (PNB) which acquired the debtor corporation (PNEI). He explained that [r]espondent Gos negligence in not paying the lease rental of the plant in behalf of the lessee EGO Electrical Supply. the said provision mandates that employees who are laid off from work due to closures that are not due to business insolvency should be paid separation pay equivalent to one-month pay or to at least one-half month pay for every year of service. EGO Electrical Supply Co. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or under taking not due to serious business losses or financial reverses. As stated in the said case. for complainants money awards. It explained: As between PNB and PNEI. employer includes any person acting in . 283. and insist that because the company. and 2. accordingly.[16] In this case. it imports a dishonest purpose or some moral obliquity and conscious doing of wrong. Ramos. Whether the CA erred in finding Vicente Go solidarily liable with EEMI. in major contracts i. is the employer. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. the persons made liable after the companys cessation of operations were the officers and agents of the corporation. the officers and members of a corporation are not personally liable for acts done in the performance of their duties.[24] In two subsequent cases.[27] Citing Malayang Samahan ng mga Manggagawa sa M.

where a corporation is merely a farce since it is a mere alter ego or business conduit of a person. respondent-spouses Eugenio and Angelina Fajardo (Sps. warranted the refund of payments in favor of Sps. Fajardo filed before the Housing and Land Use Regulatory Board-Expanded National Capital Region Field Office (HLURBENCRFO) a complaint8 for specific performance or rescission of contract with damages against GPI and the members of its Board of Directors namely. the HLURB-ENCRFO issued a Decision 15 in favor of Sps. Petitioners. vs. petitioners thus argued that Article 1191 of the Civil Code (Code) – the provision on which Sps. The Facts On January 24.00 within a 10-year period. or 3) alter ego cases. the title to the subject lot was free from any liens or encumbrances. Under the contract. petitioners pointed out that BSP's adverse claim/levy which was annotated long after the execution of the contract had already been settled. the same was reversed 14 by the CA. Sps. GPI’s failure to meet the said obligation constituted a substantial breach of the contract which perforce warranted its rescission. which affirmed with modification the August 27. Jose C. agreed to execute a final deed of sale (deed) in favor of Sps. DECISION PERLAS-BERNABE. Sps. Fajardo anchor their right of rescission – remained inapplicable since they were actually willing to comply with their obligation but were only prevented from doing so due to circumstances beyond their control. IV of Evergreen Executive Village.6. a subdivision project owned and developed by GPI located at Deparo Road. George Go. or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality.7 GPI failed to execute the deed and to deliver the title and physical possession of the subject lot. (GPI) for the purchase of a 100-square meter lot identified as Lot No. the HLURB Board of Commissioners affirmed the above ruling in its August 3. JOSE C. LOURDES G. Go may have acted in behalf of EEMI but the companys failure to operate cannot be equated to bad faith. SP No. 2) fraud cases or when the corporate entity is used to justify a wrong. It was clarified in Carag and McLeod that Article 212(e) of the Labor Code. 13. EVELYN GO. including interest at the rate of nine percent (9%) per annum. lack of demand. 16finding that the failure to execute the deed and to deliver the title to Sps. Fajardo undertook to pay the purchase price of P126.[30] the Court absolved the corporations president from liability in the absence of bad faith or malice. For their part. Fajardo had fully paid the purchase price for the subject lot. 2011 Decision 1and February 29. Novaliches. petitioners maintained that at the time of the execution of the contract. Fajardo. 17 In so doing.Bus Org 2 Cases 1st Set Prelim 74 the interest of an employer. Sps. 2012 Resolution2 of the Court of Appeals (CA) in CA-G. 2009 Decision. plus legal interest reckoned from date of extrajudicial demand in September 2002 until fully paid. it imports a dishonest purpose or some moral obliquity and conscious doing of wrong. Separately. Cessation of business operation is brought about by various causes like mismanagement. It added that the governing law on personal liability of directors or officers for debts of the corporation is still Section 31 of the Corporation Code. 2006. No.[31] Bad faith does not connote bad judgment or negligence. such corporate officer cannot be made personally liable for corporate liabilities. 1995. agency. 2010 Decision of the Court of Appeals is AFFIRMED with MODIFICATION that Vicente Go is not solidarily liable with Ever Electrical Manufacturing. Unless it can be shown that the closure was deliberate. Fajardo. Respondents. Ortiga. and VICENTE GO. attorney's fees and the costs of suit. improvements. or in the alternative. 2007. 201167 February 27. foreseeing the possibility or probability of payment of backwages to its employees. More importantly. the Court sustained the piercing of the corporate veil and made the officers of Ransom personally liable for the debts of the latter. GPI. it partakes of the nature of fraud. despite its full payment of the purchase price on January 17. G. The August 31. Fajardo) entered into a Contract to Sell 4 (contract) with petitioner-corporation Gotesco Properties. Fajardo upon full payment of the stipulated consideration. Hence. The subject lot is a portion of a bigger lot covered by Transfer Certificate of Title (TCT) No. 957 10 (PD 957) due to its failure to construct and provide water facilities. In the absence of malice. Go. Sps. Branch 131 (RTC-Caloocan). 2007 Decision. and to develop Evergreen Executive Village. with the latter to be eventually phased out if the strikers win their case. on May 3. INC. In this regard. J. 244220 5 (mother title). and Vicente Go (individual petitioners).: Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of Court is the July 22. but does not include any labor organization or any of its officers or agents except when acting as employer. They also alleged that GPI failed to provide boundary marks for each lot and that the mother title including the subject lot had no technical description and was even levied upon by the Bangko Sentral ng Pilipinas (BSP) without their knowledge. the Court stated: In labor cases. The Ruling of the HLURB Board of Commissioners On appeal. GEORGE GO. The Ruling of the OP On further appeal. namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation. the records do not warrant an application of the exception. The execution could not be implemented against Ransom because of the disposition posthaste of its leviable assets evidently in order to evade its just and due obligations. by law. 4211) was favorably granted 13 by the Regional Trial Court of Caloocan City. this caused the delay in the subdivision of the property into individual lots with individual titles. corporate directors and officers may be held solidarily liable with the corporation for the termination of employment only if done with malice or in bad faith. Yung. Thus. Block No. holding that GPI’s obligation to execute the corresponding deed and to deliver the transfer certificate of title and possession of the subject lot arose and thus became due and demandable at the time Sps. it means breach of a known duty through some motive or interest or ill will.R. must still prevail. does not make a corporate officer personally liable for the debts of the corporation. or a specific provision of law making a corporate officer liable. Sps. docketed as HLURB Case No. negligence. They thus prayed that GPI be ordered to execute the deed.000. GO. acted maliciously or in bad faith in handling their business affairs and in eventually implementing the closure of its business. Evelyn Go. REM-050306-13319. in the case at bench. SPOUSES EUGENIO and ANGELINA FAJARDO. Phase No. Inc. conduit or adjunct of another corporation. In the recent case of Wensha Spa Center and/or Xu Zhi Jie v. 2000 6 and subsequent demands. as aptly observed by this Court in AC Ransom. by itself. . Fajardo were actually aware that GPI's certificate of title had no technical description inscribed on it. WHEREFORE. the petition is PARTIALLY GRANTED. to cancel and/or rescind the contract and refund the total payments made plus legal interest starting January 2000. bad faith. Fajardo was beyond their control 12 because while GPI's petition for inscription of technical description (LRC Case No. The rule. Fajardo averred that GPI violated Section 20 9 of Presidential Decree No. Clearly..83. the OP affirmed the HLURB rulings in its August 27. However.728. ORTIGA. 2013 GOTESCO PROPERTIES. Lourdes G. malicious and in bad faith. directly or indirectly. as EEMIs President. on the other hand. which requires the presence of malice or bad faith. organized Rosario to replace Ransom.[32] In the present case. As there is no evidence that Go. Nonetheless. Fajardo were given the option to recover the money they paid to GPI in the amount of P168. to deliver the corresponding certificate of title and the physical possession of the subject lot within a reasonable period. or lack of business foresight. protect fraud. 2009 Decision3 of the Office of the President (OP). or defend a crime. Fajardo amounted to a violation of Section 25 of PD 957 which therefore. The Ruling of the HLURB-ENCRFO On February 9. Given the foregoing incidents. Inc. 112981. In the said case. the Court must apply the general rule that a corporation has. it emphasized the mandatory tenor of Section 25 of PD 957 which requires the delivery of title to the buyer upon full payment and found that GPI unjustifiably failed to comply with the same.R.11 Petitioners claimed that the failure to deliver the title to Sps. Petitioners were likewise held jointly and solidarily liable for the payment of moral and exemplary damages. Consequently. it appears that Ransom. a personality separate and distinct from that of its owners. infrastructures and other forms of development including water supply and lighting facilities for the subdivision project. [29] [Emphasis supplied] Similarly. he cannot be held jointly and solidarily liable with EEMI. Caloocan City. what can be inferred from the earlier cases is that the doctrine of piercing the corporate veil applies only in three (3) basic areas.

1191. to wit: xxxx Mutual restitution is required in cases involving rescission under Article 1191 . The court shall decree the rescission claimed. shall be collected for the issuance of such title. Fajardo's full payment of the purchase price and prior demand for delivery of title. Fajardo remained prejudiced by the persisting non-delivery of the subject lot despite full payment. even after he has chosen fulfillment. considering the propriety of the rescission as earlier discussed." the Court finds no justification to sustain petitioners’ position that said Article 1385 does not apply to rescission under Article 1191. the Court finds that there is proper legal basis to accord moral and exemplary damages and attorney's fees. which regulates the subject transaction. unless there be just cause authorizing the fixing of a period. In this case. Inc. absent any substantial breach. 1992 through a Deed of Partition and Exchange23 executed between it and Andres Pacheco (Andres). courts have recognized with almost pedantic adherence that what is inconvenient or contrary to reason is not allowed in law. Moral and exemplary damages. Equity and justice dictate that the injured party should be paid the market value of the lot. 200021 as well as the latter’s demand for GPI to comply with the aforementioned obligations per the letter 22 dated September 16. which entails the return of the benefits that each party may have received as a result of the contract.. including costs of suit. respondents Solid Homes. Effects of rescission At this juncture. 28 there is no showing that the same had attained finality or that the approved technical description had in fact been annotated on TCT No. A perusal of the records shows that GPI acquired the subject property on March 10.19 The Petition Petitioners insist that Sps. C-5026) only on November 23. it cannot be denied that only GPI benefited from the contract. The power to rescind obligations is implied in reciprocal ones. GPI’s unjustified failure to comply with its obligations as above-discussed caused Sps. Fajardo at the prevailing market value of the property18 pursuant to the ruling in Solid Homes v. petitioners proffer that GPI could not have committed any breach of contract considering that its purported noncompliance was largely impelled by circumstances beyond its control i. there would be unjust enrichment if respondents Solid Homes. equity and justice dictate that the injured party should be afforded full recompense and as such. Fajardo on January 17. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. should not be held liable to refund the payments they had received. viz: ART. 2000. is thus required. and the price with its interest. The Court does not find merit in petitioners’ contention. (Emphasis supplied. notwithstanding the full payment of the purchase price made by Sps. it is noteworthy to point out that rescission does not merely terminate the contract and release the parties from further obligations to each other. A.) In this light. 2002. Branch 122 (docketed as LRC Case No.1âwphi1 This means bringing the parties back to their original status prior to the inception of the contract. Further. Fajardo have no right to rescind the contract considering that GPI's inability to comply therewith was due to reasons beyond its control and thus. 2002 was unreasonable and unjustified. it can be carried out only when he who demands rescission can return whatever he may be obligated to restore. having received full payment of the contract price plus interests as early as January 17. As a necessary consequence. Moreover. & Purita Soliven would enrich themselves at the expense of herein lot owners when they sell the same lot at the present market value. consequently. or even that the subdivision plan had already been approved. 32To be sure. 35 Thus. 2006 and the filing of the complaint on May 3. in case one of the obligors should not comply with what is incumbent upon him. Fajardo claim that GPI breached the contract due to its failure to execute the deed of sale and to deliver the title and possession over the subject lot. Rescission creates the obligation to return the things which were the object of the contract. if the latter should become impossible. This is understood to be without prejudice to the rights of third persons who have acquired the thing. together with their fruits. alternatively seeking refund of payments. be allowed to recover the prevailing market value of the undelivered lot which had been fully paid for. Sps. Fajardo which thereby accords the latter the right to rescind the same pursuant to Article 1191 of the Code. 20 In this relation. Fajardo serious anxiety. 25 was filed only after almost eight (8) years from the acquisition of the subject property. 2003 CA Decision which dismissed GPI’s earlier petition based on technical defects. 1385. indemnity for damages may be demanded from the person causing the loss. 244220 on March 16. with the payment of damages in either case. It is definite that the value of the subject property already escalated after almost two decades from the time the petitioner paid for it. Fajardo must be able to recover the price of the property pegged at its prevailing market value consistent with the Court’s pronouncement in Solid Homes. Fajardo had no right to rescind the contract.34 viz: Indeed. In the event a mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer. otherwise. the legal proceedings concerning the subdivision of the property into individual lots. For its part. since the individual petitioners never participated in the acts complained of nor found to have acted in bad faith. B. fixing the amount to be refunded to Sps. unconscionable. despite petitioners’ allegation 29 that the claim of BSP had been settled. there appears to be no cancellation of the annotations30 in GPI’s favor. the former registered owner of the property.Bus Org 2 Cases 1st Set Prelim 75 The Ruling of the CA On petition for review. such a situation should not be countenanced for to do so would be contrary to reason and therefore. Neither did petitioners sufficiently explain why GPI took no positive action to cause the immediate filing of a new petition for inscription within a reasonable time from notice of the July 15. x x x 33 (Emphasis supplied. 244220. attorney’s fees and costs of suit Furthermore. GPI was issued TCT No. Clearly. this notwithstanding Sps. it has been settled that the effects of rescission as provided for in Article 1385 of the Code are equally applicable to cases under Article 1191. mutual restitution. the owner or developer shall redeem the mortgage or the corresponding portion thereof within six months from such issuance in order that the title over any fully paid lot or unit may be secured and delivered to the buyer in accordance herewith. the CA affirmed the above rulings with modification. 25. while Sps. It cannot therefore be denied that GPI substantially breached its contract to sell with Sps. it is apt to mention that it is the intent of PD 957 to protect the buyer against unscrupulous developers.) In the present case. and the price with its interest. Sps. .e. imposes on the subdivision owner or developer the obligation to cause the transfer of the corresponding certificate of title to the buyer upon full payment. 1992 but the same did not bear any technical description. 31 Consequently. Hence. together with their fruits. the seller's obligation to deliver the corresponding certificates of title is simultaneous and reciprocal to the buyer's full payment of the purchase price. He may also seek rescission. 2006. except those required for the registration of the deed of sale in the Registry of Deeds. This Court has consistently ruled that this provision applies to rescission under Article 1191: Since Article 1385 of the Civil Code expressly and clearly states that "rescission creates the obligation to return the things which were the object of the contract. Article 1385 of the Civil Code provides. to wit: Sec.26 following receipt of the letter27 dated February 10. 4211) dated January 6. operators and/or sellers who reneged on their obligations. Surely. Fajardo’s right to rescind It is settled that in a contract to sell. thus: ART. Tan (Solid Homes). the long delay in the performance of GPI's obligation from date of demand on September 16. While the court a quo decided the latter petition for inscription in its favor. no plausible explanation was advanced by the petitioners as to why the petition for inscription (docketed as LRC Case No. Sps. citations omitted. The injured party may choose between the fulfillment and the rescission of the obligation. No fee. (Emphasis supplied. The owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the lot or unit. GPI filed the petition before the RTC-Caloocan. Inc. Issuance of Title. 24 However. Section 25 of PD 957. in accordance with articles 1385 and 1388 and the Mortgage Law. but abrogates the contract from its inception and restores the parties to their original positions as if no contract has been made.) On this score. The Court's Ruling The petition is partly meritorious. 2006. & Purita Soliven are made to pay only the purchase price plus interest. Over time. Sps. they should not be held liable to pay damages and attorney's fees. Verily. in order to achieve this purpose.1âwphi1 C. 2000.

27. this recourse. 1986 to December 5. Spouses GERONIMO GROSPE and HILARIA GROSPE. Before the Department of Agrarian Reform Adjudication Board (DARAB) in Cabanatuan City (Region III). However.[14] We agree with the well-reasoned CA ruling on this point:[15] "xxx We are not swayed by Petitioners incantations that his signature on the Waiver of Rights is a forgery. GAVINO CORPUZ. was it null and void for being contrary to agrarian laws? (3) Did the petitioner abandon his rights as a beneficiary under PD 27? (4) Did he. petitioner. [6] In his Complaint. Nueva Ecija. public officers are presumed to have performed their duties regularly and in accordance with law. Nueva Ecija. who were the "most qualified farmer[s]-beneficiaries. 7. D. (idem. It rejected his contention that all deeds relinquishing possession of the landholding by a beneficiary were unenforceable. DECISION PANGANIBAN. And finally. wife of Geronimo Grospe. Indeed. absolving individual petitioners Jose C. 112981 are hereby AFFIRMED WITH MODIFICATION. validly awarded it to private respondents. Sto. in the present case. It only means that the public prosecutor found probable cause against the respondents. When the contract period expired. The filing of an information for estafa does not by itself prove that the respondents forged his signature. Respondents. as a rule. We are not persuaded. respondents. The Petitioner is mandated to prove forgery with clear and convincing evidence. The decretal portion of the assailed Decision reads:[4] "IN THE LIGHT OF ALL THE FOREGOING. Settled 1s the rule that in the absence of malice and bad faith. the assailed July 22. In the same vein. 36 WHEREFORE. supra). the award of attorney’s fees must be likewise sustained. 16 and 27 recommending the reallocation of the said lots to the respondent spouses. 1991. 1989. In the present recourse. 1251. petitioners appeal was denied by the Court of Appeals. The waiver by petitioner of his rights and his conformity to the Samahang Nayon Resolutions reallocating the landholding to the respondents are immutable evidence of his abandonment and voluntary surrender of his rights as beneficiary under the land reform laws." The Facts Petitioner Gavino Corpuz was a farmer-beneficiary under the Operation Land Transfer (OLT) Program of the Department of Agrarian Reform (DAR)." [8] The Department of Agrarian Reform Adjudication Board (DARAB). "IV xxx [I]n failing to rule on the legality and/or validity of the waiver/transfer action.[11] As earlier stated. 2012 Resolution of the Court of Appeals in CA-G. Tabara ruled that petitioner abandoned and surrendered the landholding to the Samahang Nayon of Malaya. 1998 Decision [1] and the August 19. Lourdes G. Ruling of the Court of Appeals The appellate court ruled that petitioner had abandoned the landholding and forfeited his right as a beneficiary. The Decision appealed from is AFFIRMED. by legal fiction." [5] which allowed the respondents to use or cultivate the land during the duration of the mortgage. Go. forfeit his right as a beneficiary? The Courts Ruling The Petition is devoid of merit. he was issued a Certificate of Land Transfer (CLT) over two parcels of agricultural land (Lot Nos. Instead of paying his loan. Under Memorandum Circular No. the voluntary surrender or waiver of these rights in favor of the Samahang Nayon is valid because such action is deemed a legally permissible conveyance in favor of the government. and destroyed the palay that he had planted on the land. petitioner insists that his signature on the Waiver was forged. With costs against the Petitioner. surrendering his possession of the landholding to the Samahang Nayon. vs.R. First Issue: Factual Findings Alleging that an information for estafa through falsification was filed against the respondents. In the first place. The parties executed a contract denominated as "Kasunduan Sa Pagpapahiram Ng Lupang Sakahan. but such finding does not constitute binding evidence of forgery or fraud. the petitioner alleges in his Memorandum that the appellate court committed these reversible errors: [13] "I xxx [I]n relying on the findings of fact of the DARAB and PARAD as conclusive when the judgment is based on a misapprehension of facts and the inference taken is manifestly mistaken. Petitioner denied waiving his rights and interest over the landholding and alleged that his and his childrens signatures appearing on the Waiver were forgeries. which had passed Resolution Nos. Domingo. the Petition is denied due course and is hereby dismissed. 1982. in which the Court of Appeals (CA)[3] dismissed the petitioners appeal and denied reconsideration respectively. 1979 of the Secretary of Agrarian Reform. Ortiga. forgery is never presumed. as in this case. 27. SP No. [10] Petitioners Motion for Reconsideration was denied in the Resolution dated February 26. transfer or conveyance of land reform rights are. he again mortgaged it to Respondent Hilaria Grospe. he alleged that they had entered the disputed land by force and intimidation on January 10 and 11. the payment of exemplary damages remains in order so as to prevent similarly minded subdivision developers to commit the same transgression. in their Answer. the Waiver of Rights executed by the Petitioner was even with the written conformity of his four (4) sons (at page 11. Sto." . 1998. petitioner mortgaged the subject land on January 20. Domingo.500. Sto. Under Section 3(m). petitioner instituted against the respondents an action for recovery of possession. claimed that the "Kasunduan" between them and petitioner allowed the former to take over the possession and cultivation of the property until the latter paid his loan. and Vicente Go from personal liability towards respondent-spouses Eugenio and Angelina Fajardo. in turn. 2011 Decision and February 29. Liability of individual Petitioners However.[12] Issues Feeling aggrieved. dated April 23. The Petitioner failed to do so. and members. petitioner failed to prove with clear and convincing evidence the alleged forgery of his and his sons signatures. then. Evelyn Go.3 hectares situated in Salungat. officers of the corporation cannot be made personally liable for liabilities of the corporation which. thereby justifying the award of moral damages. 1997 in DARAB Case No. void in order to prevent a circumvention of agrarian reform laws. 1998 Resolution [2] in CA-GR SP No.394. the requisite investigation was conducted and the report thereon was submitted to and approved by the Regional Director. submits his report to the Regional Director who. Rollo). by voluntary surrender. 1990) to guarantee a loan of P32. The lots were formerly owned by a certain Florentino Chioco and registered under Title No. George Go. [9] in a Decision promulgated on October 8. acts on said report. 126638. stockholders. for a period of four years (December 5. Provincial Agrarian Reform Adjudicator (PARAD) Ernesto P." In short.Bus Org 2 Cases 1st Set Prelim 76 mental anguish and sleepless nights. has a personality separate and distinct from its officers. the focal issues are: (1) Was the appellate court correct in finding that the signatures of petitioner and his sons on the Waiver were not forged? (2) Assuming arguendo that the signatures in the Waiver were genuine. 3017 and 012) with a total area of 3. the Department of Agrarian Reform. 47176. considering that Sps. Section 9 of Republic Act (RA) 1199 and Section 28 of RA 6389 allow a tenant to voluntarily sever his tenancy status by voluntary surrender. in favor of Virginia de Leon. Rule 131 of the Rules of Evidence. transactions involving transfer of rights of possession and or cultivation of agricultural lands are first investigated by a team leader of the DAR District who then submits the results of his investigation to the District Officer who. Pursuant to Presidential Decree (PD) No. Fajardo were constrained to engage the services of counsel to file this suit. petitioner allegedly executed on June 29. Furthermore. a "Waiver of Rights"[7] over the landholding in favor of respondents in consideration of P54. the Court finds no basis to hold individual petitioners solidarily liable with petitioner GPI for the payment of damages in favor of Sps. The Petitioner himself signed the Resolution of the Board of Samahang Nayon of Malaya. Nueva Ecija. After the surrender or waiver of said land reform rights. Domingo. "II xxx [I]n disregarding and/or ignoring the claim of petitioner that the alleged waiver documents are all forgeries.: The sale. which took control of the property. affirmed the provincial adjudicators Decision. To pay for his wifes hospitalization. Fajardo since it was not shown that they acted maliciously or dealt with the latter in bad faith. "III xxx [I]n ruling that petitioner had forfeited his right to become a beneficiary under PD No. Hence. J. The Case Before the Court is a Petition for Review on Certiorari of the May 14.

petitioner concludes that the PARAD. the Philippine National Bank. This ruling is intended to prevent a reversion to the old feudal system in which the landowners reacquired vast tracts of land." Third Issue: Abandonment Based on the invalidity of the Waiver. these cooperatives are established to provide a strong social and economic organization to ensure that the tenant-farmers will enjoy on a lasting basis the benefits of agrarian reform. the private respondents were obligated to return possession of the landholding to the petitioner. Furthermore. They also cite his "Waiver of Rights" and abandonment of the farm. "xxx [T]he then Ministry of Agrarian Reform issued the following Memorandum Circular [No. Costs against petitioner. Abandonment[19] requires (a) a clear and absolute intention to renounce a right or claim or to desert a right or property. the mortgage expired after four years. The COA also denied petitioners request for COA to refund all auditing fees previously paid by LMWD. of his rights under the agrarian laws. The Regional Director referred petitioners reply to the COA Chairman on 18 October 1999. Second Issue: Validity of the "Waiver of Rights" Petitioner insists that agreements purportedly relinquishing possession of landholdings are invalid for being violative of the agrarian reform laws. To insure his continued possession and enjoyment of the property. and (b) an external act by which that intention is expressed or carried into effect. 6758 (RA 6758). DALMAN. His contention is untenable. however. there are reports that many farmer-beneficiaries of PD 27 have transferred the ownership. Voluntary surrender. Petitioner cited as basis for his action Sections 6 and 20 of Presidential Decree 198 (PD 198) [2]. as the rights of an OLT beneficiary are preserved even in case of transfer of legal possession over the subject property. absolute or irrevocable intent to abandon. through the DAR. Petitioner utterly failed to convince us that the appellate court had misapprehended the facts. His surrender of possession did not amount to an abandonment because there was an obligation on the part of private respondents to return possession upon full payment of the loan. COMMISSION ON AUDIT. the DAR and the DENR (Section 6. Petitioner misconstrued the Cocoma ruling because what was prohibited was the perpetration of the tenancy or leasehold relationship between the landlord and the farmer-beneficiary. Petitioner insists that his act of allowing another to possess and cultivate his land did not amount to abandonment or voluntary surrender. to Leyte Metropolitan Water District (LMWD). Felicianos request for COA to cease all audit services. to the government. All these transactions/surrenders are violative of PD 27 and therefore. in accordance with the provisions of existing laws and regulations. [21] The CA ruled that abandonment required (a) the tenants clear intention to sever the agricultural tenancy relationship. Besides. under the present circumstances. 10. FELICIANO.Bus Org 2 Cases 1st Set Prelim 77 As a rule.[17] In Torres v. and to stop charging auditing fees. district officers. petitioner. Ventura. 147402. the DARAB and the CA erroneously ruled on the basis of the said document that he had abandoned or voluntarily surrendered his landholding.: The Case This is a petition for certiorari[1] to annul the Commission on Audits (COA) Resolution dated 3 January 2000 and the Decision dated 30 January 2001 denying the Motion for Reconsideration. and (b) his failure to work on the landholding for no valid reason. The COA denied petitioner Ranulfo C. 1979]: "Despite the above prohibition. with the avowed intent of never returning. Tacloban City. Fourth Issue: Voluntary Surrender Contrary to the finding of the appellate court. RANULFO C. does not require court approval as long as it is convincingly and sufficiently proved by competent evidence. its findings were well-supported by the evidence. [23] Petitioners voluntary surrender to the Samahang Nayon qualifies as a surrender or transfer to the government because such action forms part of the mechanism for the disposition and the reallocation of farmholdings of tenant-farmers who refuse to become beneficiaries of PD 27. 8-80 of the then Ministry of Agrarian Reform." In this case. Antecedent Facts A Special Audit Team from COA Regional Office No. As earlier shown. DECISION CARPIO. which awarded the landholding to the private respondents who were declared as qualified beneficiaries under the agrarian laws. Series of 1979. the Waiver was void. the Central Bank. VIII audited the accounts of LMWD. GANGAN. Thus. not transferred to another private person. upon notice from the agrarian reform team leader. Those rights over that particular property were granted by the government to him and to no other. under the law. J. PD 175). team leaders and field personnel) to attain the goals of agrarian reform (DAR Memorandum Circular No. Series of 1977).R. the land was surrendered to the government. It was the government. The Samahan then recommended to the team leader of the DAR District that the private respondent be designated farmer-beneficiary of said landholding. null and void. . [22] The CA also deemed the following as formidable evidence of his intent to sever the tenancy relationship: (a) the mortgage and (b) his express approval and conformity to the Samahang Nayon Resolution installing the private respondents as tenants/farmers-beneficiaries of the landholding. No. the Petition is hereby DENIED and the assailed Decision and Resolution AFFIRMED insofar as it dismissed petitioners appeal. As General Manager of LMWD. if the factual findings of the Court of Appeals coincide with those of the DARAB -. vs. [20] The intention to abandon implies a departure. recommend other tenant-farmers who shall be substituted to all rights and obligations of the abandoning or surrendering tenant-farmer. To repeat. Chairman CELSO D.an administrative body which has acquired expertise on the matter such findings are accorded respect and will not be disturbed on appeal. LMWD received a letter from COA dated 19 July 1999 requesting payment of auditing fees. Quite the contrary. and/or possession of their farms/homelots to other persons or have surrendered the same to their former landowners. petitioners intention to surrender the landholding was clear and unequivocal. The nullity of the Waiver does not save the case for him because there is a clear showing that he voluntarily surrendered his landholding to the Samahang Nayon which. he contends that the transaction was a simple loan to enable him to pay the expenses incurred for his wifes hospitalization. WHEREFORE. Under Memorandum Circular No. Commissioners RAUL C. as a mode of extinguishment of tenancy relations. the Samahan shall. xxx. in his capacity as General Manager of the Leyte Metropolitan Water District (LMWD). he could not.[18] the Court clearly held: "xxx As such [the farmer-beneficiary] gained the rights to possess. petitioner sent a reply dated 12 October 1999 informing COAs Regional Director that the water district could not pay the auditing fees. April 23. Section 8 of RA 3844 also provides that "[t]he agricultural leasehold relation xxx shall be extinguished by: xxx (2) [v]oluntary surrender of the landholding by the agricultural lessee. to his successors. respondents. The Department of Local Government (now the Department of Interior and Local Government) regulates them through the Bureau of Cooperative Development (Section 8. At bottom. may qualify as a surrender or transfer. [G. Subsequently. They also have access to financial assistance through the Cooperative Development Fund. [24] We disagree. which is administered by a management committee composed of the representatives from the DILG. the petitioner also denies that he voluntarily surrendered his landholding. Denying that he abandoned the land. We agree. We disagree. PD 175). We have already ruled that the sale or transfer of rights over a property covered by a Certificate of Land Transfer is void except when the alienation is made in favor of the government or through hereditary succession. resuming or claiming the right and the interest that have been abandoned. rights. as well as Section 18 of Republic Act No. January 14. Private respondents contend that petitioner was no longer entitled to recognition as a farmer-beneficiary because of the series of mortgages he had taken out over the land. PD 27 provides that title to land acquired pursuant to the land reform program shall not be transferable except through hereditary succession or to the government. we see on the part of the petitioner no clear. and Regional Director of COA Region VIII. cultivate and enjoy the landholding for himself. The case did not rule out abandonment or voluntary surrender by the agricultural tenant or lessee in favor of the government. He signed his concurrence to the Samahang Nayon Resolutions surrendering his possession of the landholding. 2004] ENGR. The cooperatives work in close coordination with DAR officers (regional directors. FLORES and EMMANUEL M. 7. make any valid form of transfer except to the government or by hereditary succession. [16] The presence or the absence of forgery was an issue of fact that was convincingly settled by the agrarian and the appellate tribunals. Court of Appeals. as held in Coconut Cooperative Marketing Association (Cocoma) v. thus negating the governments program of freeing the tenant from the bondage of the soil.

a district shall exercise the powers. including temporary or special pre-audit. including government-owned and controlled corporations (GOCCs) with original charters. Petitioner claims that LWDs are created pursuant to and not created directly by PD 198. or any of its subdivisions. The Congress shall not. As such. LWDs are not registered with the Securities and Exchange Commission. The Constitution recognizes two classes of corporations. The Issues Petitioner contends that COA committed grave abuse of discretion amounting to lack or excess of jurisdiction by auditing LMWD and requiring it to pay auditing fees. In contrast. where the internal control system of the audited agencies is inadequate. authority and duty to examine. they were created pursuant to a special law and are governed primarily by its provision. but on the contrary. only corporations created under a general law can qualify as private corporations. We begin by explaining the general framework under the fundamental law. Whether Section 20 of PD 198. petitioner concludes that PD 198 is not an original charter that would place LWDs within the audit jurisdiction of COA as defined in Section 2(1). Since under the Constitution only government-owned or controlled corporations may have special charters. 16. Whether a Local Water District (LWD) created under PD 198. and (d) such non-governmental entities receiving subsidy or equity. [8] Petitioner adds that the operative act that creates an LWD is the approval of the Sanggunian Resolution as specified in PD 198. On 13 March 2001. Civil Service Commission and Commission on Audit. a district shall be considered as a quasi-public corporation performing public service and supplying public wants. It would not be amiss at this point to emphasize that a private corporation is created for the private purpose. Petitioner raises the following issues for resolution: 1. LWDs can validly exist only if they are government-owned or controlled. petitioner filed this instant petition. Necessarily. but also to government-owned and controlled corporations with original charters as well as other government-owned or controlled corporations without original charters. which would give a new perspective to the issue of the true character of water districts. organization. The Constitution and existing laws [4] mandate COA to audit all government agencies. is a government-owned or controlled corporation subject to the audit jurisdiction of COA. Section 2(1). LWDs derive their legal existence and power from PD 198. as are necessary and appropriate to correct the deficiencies. The local mayor or the provincial governor appoints the directors of LWDs for a fixed term of office. it follows that Congress can create corporations with special charters only if such corporations are government-owned or controlled. or regulation of private corporations.[3] as follows: The above-quoted provision [referring to Section 3(b) PD 198] definitely sets to naught petitioners contention that they are private corporations. Commission on Audit. Congress cannot enact a law creating a private corporation with a special charter. For purposes of this Act. and expenditures or uses of funds and property. and on a post-audit basis: (a) constitutional bodies. preserve the vouchers and other supporting papers pertaining thereto. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability. Petitioner even argues that LWDs are private corporations. Petitioner asks the Court to consider certain interpretations of the applicable laws. The Ruling of the Court The petition lacks merit. Since private corporations cannot have special charters. (Emphasis supplied) The COAs audit jurisdiction extends not only to government agencies or instrumentalities. which constitutes their special charter. (1) The Commission on Audit shall have the power. commissions and offices that have been granted fiscal autonomy under this Constitution.Petitioner filed a motion for reconsideration on 31 March 2000. The Ruling of the Commission on Audit The COA ruled that this Court has already settled COAs audit jurisdiction over local water districts in Davao City Water District v. and settle all accounts pertaining to the revenue and receipts of. [13] (Emphasis supplied) LWDs exist by virtue of PD 198. Whether Section 18 of RA 6758 prohibits the COA from charging government-owned and controlled corporations auditing fees. The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all citizens. Gangans Resolution dated 3 January 2000 denying his requests. as amended. LWDs are not private corporations because they are not created under the Corporation Code. audit. owned or held in trust by. [10] In short. The COA also denied petitioners request for COA to stop charging auditing fees as well as petitioners request for COA to refund all auditing fees already paid. which historically gave certain individuals. from or through the government. [11] except that the Cooperative Code governs the incorporation of cooperatives. thus: From the foregoing pronouncement. petitioner wrote COA through the Regional Director asking for refund of all auditing fees LMWD previously paid to COA. Section 14 of the Corporation Code states that [A]ll corporations organized under this code shall file with the Securities and Exchange Commission articles of incorporation x x x. This Court has ruled that LWDs are not created under the Corporation Code. If the corporation is private. Such legislation would be unconstitutional. On 16 March 2000. Stated differently. (b) autonomous state colleges and universities. aim and end of its members or stockholders. Obviously. The first refers to private corporations created under a general law. prohibits COAs certified public accountants from auditing local water districts. except by general law. petitioners are not created under the said code. families or groups special privileges denied to other citizens. benefit. It shall keep the general accounts of the Government and. as amended. Attached to the petition were resolutions of the Visayas Association of Water Districts (VAWD) and the Philippine Association of Water Districts (PAWD) supporting the petition. Article XII of the Constitution provides: Sec. However. and 3. (c) other government-owned or controlled corporations and their subsidiaries. Petitioner asks for a re-examination of a doctrine backed by a long line of cases culminating in Davao City Water District v. Unlike private corporations. Thus. but only provides for their formation on an optional or voluntary basis. or instrumentalities. the members of the Board of Directors or the trustees of a private corporation are elected from among members or stockholders thereof. [12] The Constitution authorizes Congress to create government-owned or controlled corporations through special charters. directly or indirectly.Private corporations may exist only under a general law. But this is not the case here and this clearly indicates that petitioners are not private corporations. Whether LWDs are Private or Government-Owned and Controlled Corporations with Original Charters Petitioner seeks to revive a well-settled issue.Bus Org 2 Cases 1st Set Prelim 78 On 19 October 1999. provide for the formation. for such period as may be provided by law. An LWD is a GOCC with an original charter. It is clear therefrom that the power to appoint the members who will comprise the members of the Board of Directors belong to the local executives of the local subdivision unit where such districts are located.[6] Petitioner maintains that LWDs are not government-owned and controlled corporations with original charters. Formation of District. The second refers to government-owned or controlled corporations created by special charters. Significantly. Under existing laws. Civil Service Commission [5] and just recently reiterated in De Jesus v. the Government. LWDs have no articles of incorporation. petitioner received COA Chairman Celso D. as follows: SECTION 2. said members or stockholders should be given a free hand to choose who will compose the governing body of their corporation. Section 16. which COA denied on 30 January 2001. including government-owned and controlled corporations with original charters. Sections 6 and 25 of PD 198[14] provide: Section 6. 2. This Act is the source of authorization and power to form and maintain a district. Petitioners contention deserves scant consideration. which are required by law or the granting institution to submit to such audit as a condition of subsidy or equity. agencies. There are no stockholders or members to elect the board directors of LWDs as in the case of all corporations registered with the Securities and Exchange Commission. Article IX-D of the Constitution. which derive their legal existence and power from the Corporation Code. [7] Petitioner theorizes that what PD 198 created was the Local Waters Utilities Administration (LWUA) and not the LWDs. it is clear that what has been excluded from the coverage of the CSC are those corporations created pursuant to the Corporation Code. rights and privileges given to private . that general law is the Corporation Code. it must necessarily exist under a general law. or pertaining to. To claim that LWDs are private corporations with a special charter is to admit that their existence is constitutionally infirm. [9] The purpose of this constitutional provision is to ban private corporations created by special charters. Petitioner elaborates that PD 198 does not create LWDs since it does not expressly direct the creation of such entities. Article IX-D of the Constitution provides for COAs audit jurisdiction. the Commission may adopt such measures. no incorporators and no stockholders or members.

a similar resolution shall be adopted in each city. The ineluctable conclusion is that LWDs are government-owned and controlled corporations with a special charter. regulate the construction. Mr. PD 198 constitutes the special enabling charter of LWDs. What does the Committee say? MR. Nothing in the resolution of formation shall state or infer that the local legislative body has the power to dissolve. By the term original charters. Trenas). what exactly do we mean? MR. Petitioner further contends that a law must create directly and explicitly a GOCC in order that it may have an original charter. ROMULO. Presiding Officer. a bank chartered by a special statute. thus: While it is true that a resolution of a local sanggunian is still necessary for the final creation of a district. We mean that they were created by law. which expressly confers on LWDs corporate powers. MR. (c) A statement completely transferring any and all waterworks and/or sewerage facilities managed. (b) A description of the boundary of the district. the Constitution prohibits one special law to create one private corporation. in effect held that government-owned and controlled corporations with original charter refer to corporations chartered by special law as distinguished from corporations organized under our general incorporation statute the Corporation Code. Just one question.[16] the Court reiterated the meaning of the phrase governmentowned and controlled corporations with original charters in this wise: By government-owned or controlled corporation with original charter. MR. use or wastage of water. Mr. Section 6 of PD 198 provides that LWDs shall exercise the powers. repair and use of hydrants. Authorization. be subject to review by the Administration. Civil Service Commission. or by special law. provide for the establishment. Thus. so those created by the general corporation law are out. In NASECO. except by general law. Thus. protect the purity and quantity of the water supply of the municipality and. The session is resumed. making the LWD a government-owned and controlled corporation with an original charter. (Emphasis supplied) The Sangguniang Bayan may establish a waterworks system only in accordance with the provisions of PD 198. 170 SCRA 79. And not under the general corporation law. or province. Presiding Officer. or region thereof. FOZ. LWDs exist as corporations only by virtue of PD 198. in addition to the powers granted in. xxx Sec. National Labor Relations Commission. and repair of an efficient waterworks system to supply water for the inhabitants. Thus. the Constitution permits Congress to create a GOCC with a special charter. (Emphasis supplied) Petitioners contention that the Sangguniang Bayan resolution creates the LWDs assumes that the Sangguniang Bayan has the power to create corporations. the same being intended only to implement the provisions of said decree. We mean government owned or controlled corporation created by a special law and not under the Corporation Code of the Philippines. Duties. For the purpose of carrying out the objectives of this Act. in the case of Lumanta v. No. In any event. 1989. MR. desire to form a single district. ROMULO. promulgated on 29 November 1988. FOZ. Commissioner Romulo is recognized. no prohibition on Congress to create several GOCCs of the same class under one special enabling charter. Functions and Compensation. the Sangguniang Bayan may avail of existing enabling laws. There is no difference between the term original charters and special charters. The phrase government-owned and controlled corporations with original charters means GOCCs created under special laws and not under the general incorporation law. approve resolutions and appropriate funds for the general welfare of the municipality and its inhabitants pursuant to Section 16 of this Code and in the proper exercise of the corporate powers of the municipality as provided for under Section 22 of this Code. maintenance. pumping station. THE PRESIDING OFFICER (Mr. quoting extensively from the deliberations of the 1986 Constitutional Commission in respect of the intent and meaning of the new phrase with original charter.R. however. This is a patently baseless assumption. under this Act. NATIVIDAD. The resolution of the Sangguniang Bayan would constitute an LWDs special charter. I am amending my original proposed amendment to now read as follows: including governmentowned or controlled corporations WITH ORIGINAL CHARTERS. requiring instead a general law to create private corporations. corporations which are subsidiaries of these chartered agencies such as the Philippine Airlines. or watershed used in connection with the water service. Trenas). Presiding Officer.Bus Org 2 Cases 1st Set Prelim 79 corporations under existing laws. municipalities or provinces. or any combination thereof. MR. The Court clarified this in National Service Corporation v. rights and obligations as set forth in Section 36 of this Title. as the legislative body of the municipality. Thus. (a) The name of the local water district. and shall: xxx (vii) Subject to existing laws. the Court has already ruled in Baguio Water District v. municipality. Article XII of the Constitution mandates that Congress shall not. municipality and province. rights and privileges given to private corporations under existing laws. served by said system. If two or more cities. (e) The names of the initial directors of the district with the date of expiration of term of office for each. 25. ROMULO. government-owned or controlled corporations like NASECO are effectively. Mr. Section 447(5)(vii) of the Local Government Code provides: SECTION 447. Presiding Officer. pumps. municipality or province to such district upon the filing of resolution forming the district. or portions thereof. Powers. (d) A statement identifying the purpose for which the district is formed. the same Section 16 states that Government-owned or controlled corporations may be created or established by special charters. (Emphasis supplied) Clearly. x x x. to form and incorporate a water district. and regulate the consumption. even assuming for the sake of argument that the Sangguniang Bayan has the power to create corporations. the company involved had been organized under the general incorporation statute and was a subsidiary of the National Investment Development Corporation (NIDC) which in turn was a subsidiary of the Philippine National Bank. extend the coverage of appropriate ordinances over all territory within the drainage area of said water supply and within one hundred (100) meters of the reservoir. We held: The Court. Thus. Trajano[19] that the Sangguniang Bayan resolution is not the special charter of LWDs. 69870.[20] provide for the creation of private corporations.Thus. Besides. and subject to such restrictions imposed. That is correct. as follows: THE PRESIDING OFFICER (Mr. With that understanding and clarification. LWDs would have no corporate powers. The purpose of this amendment is to indicate that government corporations such as the GSIS and SSS. however. No. in National Service Corporation (NASECO) v. cisterns and reservoirs. operation. which shall include those purposes outlined in Section 5 above. the LWDs would remain government-owned or controlled corporations subject to COAs audit jurisdiction. G. Mr. conduit. MR. this Court is of the opinion that said resolution cannot be considered as its charter. the Committee accepts the amendment. canal. There is. 82). [18] What the Local Government Code empowers the Sangguniang Bayan to do is to provide for the establishment of a waterworks system subject to existing laws. NLRC[15] by citing the deliberations in the Constitutional Commission. a district is hereby granted the power of eminent domain. In the case of a city or municipality. Manila Hotel and Hyatt are excluded from the coverage of the civil service. . excluded from the scope of the Civil Service. Without PD 198. cities or provinces. (g) A statement acknowledging the powers. petitioner argues that one special law cannot serve as enabling law for several GOCCs but only for one GOCC. February 8. However. Section 16. That is correct. (a) The sangguniang bayan. The Local Government Code[17] does not vest in the Sangguniang Bayan the power to create corporations. However. the exercise thereof shall.A district may include one or more municipalities. FOZ. shall enact ordinances. by an act of Congress. MR. like PD 198. maintenance.R. for this purpose. which have original charters. fall within the ambit of the civil service. NLRC (G. which shall include the name of the city. aqueduct. in Davao City Water District v. ROMULO. such boundary may include all lands within the city or municipality. alter or affect the district beyond that specifically provided for in this Act. operated by or under the control of such city. (Emphasis supplied) Again. 82819. The Sangguniang Bayan has no power to create a corporate entity that will operate its waterworks system. In short. The district may exercise all the powers which are expressly granted by this Title or which are necessarily implied from or incidental to the powers and purposes herein stated . (f) A statement that the district may only be dissolved on the grounds and under the conditions set forth in Section 44 of this Title. In contrast. followed by the words Water District.

[26] While Section 8 of PD 198 states that [N]o public official shall serve as director of an LWD. [34] Section 20 of PD 198 provides: Sec. No law shall be passed exempting any entity of the Government or its subsidiary in any guise whatever. which shall be patterned upon and conform to the standards established by the Administration. No. Petitioner also contends that LWDs are private corporations because Section 6 of PD 198 [21] declares that LWDs shall be considered quasi-public in nature. PD 198 is bereft of any indication that the transfer is to privatize the operation and control of water systems. I think. thus: This point is important because the Constitution provides in its Article IX-B. Its funds were not very impressive in quantity but underneath that shell there were billions of pesos in a multiplicity of companies.[35] (Emphasis supplied) Petitioner argues that PD 198 expressly prohibits COA auditors. Just prior to the creation of LWDs. And that was. however. Put differently. Petitioner asserts that this is the import of the second sentence of Section 20 of PD 198 when it states that [A]uditing shall be performed by a certified public accountant not in the government service. it being a private organization. and strictly on its own account. Section 3. Petitioner argues that upon the enactment of PD 198. As the Bank is not owned or controlled by the Government although it does have an original charter in the form of R. and agencies of the Government. Instead. The nature or purpose of the corporation is not material in determining COAs audit jurisdiction. subdivisions. 20. these funds attributed to the shares of 1. Article IX-D of the Constitution precisely to annul provisions of Presidential Decrees. one notable example of which is the Philippine National Oil Company which is really an empty shell. The government organizes LWDs in accordance with a specific law. or by one special enabling charter applicable to a class of GOCCs. The determining factor of COAs audit jurisdiction is government ownership or control of the corporation. System of Business Administration. Petitioners rationale is that only private corporations may be deemed quasi-public and not public corporations. through a presidential decree. and directors can receive no other compensation for their services to the LWD. prescribe and define by resolution a system of business administration and accounting for the district. conduct annual audits of the fiscal operations of the district to be performed by an auditor retained by the Administration. The nature of the corporation. FROM THE JURISDICTION OF THE COMMISSION ON AUDIT. while GOCCs without original charters are subject to COA post-audit. [32] The transfer of assets mandated by PD 198 is a transfer of the water systems facilities managed. instrumentalities. or one special enabling law creates several GOCCs. No amount of clever legislation can exclude GOCCs like LWDs from COAs audit jurisdiction.Petitioner concludes that the term quasi-public can only apply to private corporations. Auditing shall be performed by a certified public accountant not in the government service. Petitioners argument is inconsequential. that exempt GOCCs from COA audit. the basis of the PCGG in undertaking that last major sequestration of up to 94 percent of all the shares in the United Coconut Planters Bank. like PD 198 which applies only to LWDs. the Local Water Utilities Administration can require LWDs to merge or consolidate their facilities or operations. or any government auditor for that matter. exempted it from the jurisdiction of the Commission on Audit. The charter of the UCPB. It is a holding corporation by itself. any per diem of LWD directors in excess of P50 is subject to the approval of the Local Water Utilities Administration. under which in fact they have already been paid some of their claims. petitioner claims that even on the assumption that the government owns and controls LWDs. 3.000 coconut farmers are. [30] Third. families or groups if there is one special law creating each GOCC. or the provincial governor. Section 8 of PD 198 would contravene Section 2(1). petitioner advances the theory that the Water Districts owner is the District itself. The Constitution vests in the COA audit jurisdiction over government-owned and controlled corporations with original charters. Section 28 of the said law so provides.400.(Emphasis supplied) Certainly. [31] This element of government control subjects LWDs to COAs audit jurisdiction. Petitioner is grasping at straws. There is no private party involved as co-owner in the creation of an LWD. government officials appoint all LWD directors to a fixed term of office. The government controls LWDs because under PD 198 the municipal or city mayor. We know that a number of entities of the government took advantage of the absence of a legislature in the past to obtain presidential decrees exempting themselves from the jurisdiction of the Commission on Audit. then they would fall under the term agencies or instrumentalities of the government and thus still subject to COAs audit jurisdiction. Section 2(1) that the Civil Service embraces all branches. it only means that the appointees to the board of directors of LWDs shall come from the private sector. [24] The board directors of LWDs are not coowners of the LWDs. quasi-public. OPLE: I propose to add a new section on line 9. in effect. [29] as petitioner describes an LWD.[22] the Court even ruled that the criterion of ownership and control is more important than the issue of original charter. PD 198. the transfer is from one government entity to another government entity. The implication is clear that an LWD is a public and not a private entity.LWDs have no private stockholders or members. Section 45[27] of PD 198 recognizes government ownership of LWDs when Section 45 states that the board of directors may dissolve an LWD only on the condition that another public entity has acquired the assets of the district and has assumed all obligations and liabilities attached thereto. the government owns and controls LWDs. Petitioner forgets that the constitutional criterion on the exercise of COAs audit jurisdiction depends on the governments ownership or control of a corporation. as soon as practicable. Philippine Veterans Bank. like that of Section 20 of PD 198. thus: Sec.[23] it clearly does not fall under the Civil Service and should be regarded as an ordinary commercial corporation. petitioner rationalizes that a public corporation cannot be deemed quasi-public because such corporation is already public. LWDs became private entities through the transfer of ownership of water facilities from local government units to their respective water districts as mandated by PD 198. Another example is the United Coconut Planters Bank. The consequence is that the relations of the Bank with its employees should be governed by the labor laws. the stark and undeniable fact is that the government owns LWDs. but the billions of pesos invested in different corporations underneath it were exempted from the coverage of the Commission on Audit. The PNOC the empty shell under a presidential decree was covered by the jurisdiction of the Commission on Audit. First. operated by or under the control of such city. they become public officials governed by the civil service law and anti-graft laws. appoints all the board directors of an LWD for a fixed term of six years. May I explain my reasons on record. [28] Assuming for the sake of argument that an LWD is self-owned. Certainly.Bus Org 2 Cases 1st Set Prelim 80 The rationale behind the prohibition on private corporations having special charters does not apply to GOCCs. Finally. public funds. Neither is the manner of creation of a corporation. The following exchange in the deliberations of the Constitutional Commission elucidates this intent of the framers: MR.A. or any investment of public funds. 3518. Article IX-B of the Constitution declaring that the civil service includes government-owned or controlled corporations with original charters. whether under a general or special law. Petitioner concedes that the owner of the assets transferred under Section 6 (c) of PD 198 is no other than the LWD itself. and that. Privatization involves the transfer of government assets to a private entity. whether it is private. municipality or province to such (water) district. Expenses incurred in connection therewith shall be borne equally by the water district concerned and the Administration. Congress may create GOCCs either by special charters specific to each GOCC. The Commission on Audit has determined that the coconut levy is a form of taxation. Otherwise. the government in any event controls all LWDs. However. . [36] PD 198 cannot prevail over the Constitution. In Philippine Veterans Bank Employees Union-NUBE v. Second. The Board shall. Section 20 of PD 198 prevents COA from auditing LWDs. OR ANY INVESTMENTS OF PUBLIC FUNDS. or public is immaterial. Petitioner does not allege that some entity other than the government owns or controls LWDs. [33] In short. There is no danger of creating special privileges to certain individuals. from the jurisdiction of the Commission on Audit. Thus. Once such private sector representatives assume office as directors. therefore. including government-owned or controlled corporations with original charters. from auditing LWDs. If LWDs are neither GOCCs with original charters nor GOCCs without original charters. The board directors and other personnel of LWDs are government employees subject to civil service laws [25] and anti-graft laws. page 2 of the amended committee report which reads: NO LAW SHALL BE PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE WHATEVER. such danger will not exist whether one special law creates one GOCC. GOCCs with original charters are subject to COA pre-audit. The Administration may. as well as government-owned or controlled corporations without original charters. the national or local government owns and controls all their assets. Article IX-C of the Constitution outlaws any scheme or devise to escape COAs audit jurisdiction. GOCCs without original charters refer to corporations created under the Corporation Code but are owned or controlled by the government. (Emphasis supplied) The framers of the Constitution added Section 3.

Neither has petitioner alleged that the auditing fees are paid by LWDs directly to individual COA auditors. Under the first. Article IX-D of the Constitution. we would like to reply to the point raised by Commissioner de Castro. Respondents. Madam President. The second sentence of Section 20 of Presidential Decree No. [39] petitioner asks COA to discontinue its practice of charging auditing fees to LWDs since such practice allegedly violates the law. On the Legality of COAs Practice of Charging Auditing Fees Petitioner claims that the auditing fees COA charges LWDs for audit services violate the prohibition in Section 18 of RA 6758. May I just ask a few questions of Commissioner Ople. Additional Compensation of Commission on Audit Personnel and of other Agencies. Madam President. DE CASTRO: Madam President. MONSOD: Madam President. Petitioner in this case is the Veterans Federation of the Philippines (VFP). G. depreciation on capital and equipment and out-of-pocket expenses. J. except those compensation paid directly by COA out of its appropriations and contributions. as amended. Petitioner. bonuses. which allows COA to charge GOCCs the cost of its audit services: x x x the contributions from the GOCCs are limited to the cost of audit services which are based on the actual cost of the audit function in the corporation concerned plus a reasonable rate to cover overhead expenses.[40] the Court declared: There can be no question that Section 18 of Republic Act No. the Court explained the meaning of the word contributions in Section 18 of RA 6758. COA personnel assigned to auditing units of GOCCs or government financial institutions can receive only such salaries. petitioners contention must fail. and duly registered with the Securities and Exchange Commission. Domingo. OR ANY INVESTMENTS OF PUBLIC FUNDS.1 a statute approved on 18 June 1960. maintenance and other operating expenses. The COA is further barred from assessing or billing GOCCs and government financial institutions for services rendered by its personnel as part of their regular audit functions for purposes of paying additional compensation to such personnel. RA 6758 itself recognizes an exception to the statutory ban on COA personnel receiving compensation from GOCCs. 198 is declared VOID for being inconsistent with Sections 2 (1) and 3. In respect to the allowances and fringe benefits granted by the GOCCs to the COA personnel assigned to the formers auditing units. EDGARDO E. 2006 THE VETERANS FEDERATION OF THE PHILIPPINES represented by Esmeraldo R. No. REYES in his capacity as Secretary of National Defense. MR. Thus. JAMIR: If the honorable Commissioner will change the number of the section to 4. petitioner’s incumbent president received a letter dated 13 April 2002 which reads: Col. except such compensation paid directly by the COA out of its appropriations and contributions. 2640. MR. 18. and Hon. xxx The first aspect of the strategy is directed to the COA itself. its officials and employees are prohibited from receiving salaries. government financial institutions or local government units for services rendered by the latters officials and employees as part of their regular functions for purposes of paying additional compensation to said officials and employees. 155027 February 28. 6758 is designed to strengthen further the policy x x x to preserve the independence and integrity of the COA. while the second aspect is addressed directly against the GOCCs and government financial institutions. We are just reaffirming. local government unit. allowances or other emoluments from any government entity. No costs. Is that not included in Section 2 (1) where it states: (c) government-owned or controlled corporations and their subsidiaries? So that if these government-owned and controlled corporations and their subsidiaries are subjected to the audit of the COA. Emmanuel V. We rule that the second sentence of Section 20 of PD 198 is unconstitutional since it violates Sections 2(1) and 3. Respondent Edgardo E. Batenga was the DND Undersecretary for Civil Relations and Administration who was tasked by the respondent DND Secretary to conduct an extensive management audit of the records of petitioner. dated 10 June 2002. (Emphasis supplied) Claiming that Section 18 is absolute and leaves no doubt. Petitioner has not alleged that COA charges LWDs auditing fees in excess of COAs actual audit cost. 04. DECISION CHICO-NAZARIO. MONSOD: I think the Commissioner is trying to avoid the situation that happened in the past. May I repeat the amendment. allowances or fringe benefits paid directly by the COA out of its appropriations and contributions. (Emphasis supplied) In Tejada. dated 10 June 2002. MR. the Resolution of the Commission on Audit dated 3 January 2000 and the Decision dated 30 January 2001 denying petitioners Motion for Reconsideration are AFFIRMED. since this has been accepted. The contributions referred to are the cost of audit services earlier mentioned which cannot include the extra emoluments or benefits now claimed by petitioners. government-owned or controlled corporations. Thus. Acorda. So I believe. the same shall be directly defrayed by COA from its own appropriations x x x. local government unit. WHEREFORE. a corporate body organized under Republic Act No. x x x. Thank you. Section 18 of RA 6758 prohibits COA personnel from receiving any kind of compensation from any government entity except compensation paid directly by COA out of its appropriations and contributions. THE PRESIDENT: Commissioner Monsod will please proceed. and (2) government entities. 04 of the Department of National Defense (DND). because the same provision was in the 1973 Constitution and yet somehow a law or a decree was passed where certain institutions were exempted from audit. including government-owned or controlled corporations including financial institutions and local government units are hereby prohibited from assessing or billing other government entities. Reyes was the Secretary of National Defense (DND Secretary) who issued the assailed Department Circular No. ANGELO T.) President Veterans Federation of the Philippines Makati. Government entities. Madam President: NO LAW SHALL BE PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE WHATEVER. The factual and procedural antecedents of this case are as follows: Petitioner VFP was created under Rep. In Tejada v. [41] COA may charge GOCCs actual audit cost but GOCCs must pay the same directly to COA and not to COA auditors. DE CASTRO: Thank you. with a prayer to declare as void Department Circular No. THE PRESIDENT: Commissioner de Castro is recognized. GOCCs and government financial institutions. In order to preserve the independence and integrity of the Commission on Audit (COA). On 15 April 2002. Respondent Angelo T. any law exempting certain government corporations or subsidiaries will be already unconstitutional.: This is a Petition for Certiorari with Prohibition under Rule 65 of the 1997 Rules of Civil Procedure. that the proposed amendment is unnecessary. OPLE: Gladly.Bus Org 2 Cases 1st Set Prelim 81 So these are the fetuses of future abuse that we are slaying right here with this additional section. including GOCCs. R. the role of the Commission on Audit so that this problem will never arise in the future. by explicitly PROHIBITING: (1) COA officials and employees from receiving salaries. government financial institutions and local government units from assessing or billing other government entities. [37] There is an irreconcilable conflict between the second sentence of Section 20 of PD 198 prohibiting COA auditors from auditing LWDs and Sections 2(1) and 3. THE PRESIDENT: May we know the position of the Committee on the proposed amendment of Commissioner Ople? MR. Article IX-D of the Constitution. bonuses. [38] which states: Sec. BATENGA in his capacity as Undersecretary for Civil Relations and Administration of the Department of National Defense. honoraria. Petitioners claim has no basis. 2640. point of inquiry on the new amendment. vs. De Ocampo (Ret. Metro Manila . allowances or other emoluments from any government entity. including government-owned or controlled corporations including financial institutions or local government units for services rendered by its officials and employees as part of their regular functions for purposes of paying additional compensation to said officials and employees. Act No. Hon. honoraria. MR. The actual audit cost shall include personnel services. dated 18 June 1960. emphasizing. Article IX-D of the Constitution vesting in COA the power to audit all GOCCs. MR. we will accept the amendment. and government financial institutions. GOCCs. FROM THE JURISDICTION OF THE COMMISSION ON AUDIT.

complete and itemized report of receipts and expenditures of whatever kind. 3. De Ocampo: Please be informed that during the preparation of my briefing before the Cabinet and the President last March 9.. It is therefore in the context of clarification and rectification of what should have been done by the DND (Department of National Defense) for and about the VFP and PVB that I am requesting appropriate information and report about these two corporate bodies. 3. and such other transactions which may affect the interests of the veterans. stocks and bonds.. direct the performance of a duty. Republic Act 3518 dated 18 June 1963 (An Act Creating the Philippine Veterans Bank. or other self-governing board or commission of the government. unless the context indicates otherwise.1 Sec 1 of RA 3140 provides "." 3. require the submission of reports. Government Agency – as defined under PD 1445. and operations of the federation. enforced or reviewed. financial interests. where applicable as in the case of stock corporations. minutes of meetings of stockholders/members of the board of directors reflecting all details about such activity. Veteran – any person who rendered military service in the land. 1.e. "the affairs and business of the Philippine Veterans Bank shall be directed and its property managed.. Government Owned and Controlled Corporation (GOCC) – refer to any agency organized as a stock or non-stock corporation. benefits. 292 dated July 25. 2640 Executive Order No. restrain the commission of acts.. including its subsidiaries. 04 Subject: Further Implementing the Provisions of Sections 1 & 2 of Republic Act No. the terms. the Federation shall make and transmit to the President of the Philippines or to the Secretary of National Defense. the Vietnam campaign. a report of its proceedings for the past year. the conduct of elections. Supervision – means overseeing or the power of an officer to see to it that their subordinate officers perform their duties.2 To effectively supervise and control the corporate affairs of the Federation and to safeguard the interests and welfare of the veterans who are also wards of the State entrusted under the protection of the DND.. Section 4 – Records of the FEDERATION As a corporate body and in accordance with appropriate laws. determine priorities in the execution of plans and programs. approve. the acquisition. I refer to Republic Act 2640 creating the body corporate known as the VFP and Republic Act 3518 creating the Phil. Therefore it may become necessary that a conference with your staffs in these two bodies be set. . documents and other papers regarding any or all of the Federation’s business transactions particularly those relating to the VFP functions under Section 2 of RA 2640. unless otherwise provided in this Act. and other members for inspection and copies of which may be requested. It shall also have the responsibility of overseeing and ensuring the judicious and effective implementation of veterans assistance. style and title of "Veterans Federation of the Philippines . 2640 Authority: Republic Act No. the President of the Veteran’s Federation of the Philippines and the Secretary of National Defense x x x. mean or be understood as follows: Supervision and Control – it shall include authority to act directly whenever a specific function is entrusted by law or regulation to a subordinate. bureau or office of the national government. trust funds shall be available and may be spent only for the specific purpose for which the trust was created or the funds received. and utilization of VFP assets. RA 2640 Section 12 . the Korean campaign. fiscal and accounting entity. disbursements or dispositions of government funds or property shall invariably bear the approval of the proper officials. Power of Control – power to alter. under the name.. or other wars or military campaigns. the Secretary may personally or through a designated representative. it shall keep and carefully preserve records of all business transactions. under the control and supervision of the Secretary of National Defense. Very truly yours. but not limited to... corporate investments. Section 3 – Relationship Between the DND and the VFP 3. (SGD) ANGELO T. "hereby created a body corporate. including a full.. transactions. the accounting of funds." The Secretary of National Defense shall be charged with the duty of supervising the veterans and allied program under the jurisdiction of the Department. to the greatest extent. Government Fund – includes public monies of every sort and other resources pertaining to any agency of the government. directives and other orders governing vital government activities including. the following persons (heads of various veterans associations and organizations in the Philippines) and their associates and successors are hereby created a body corporate. or any of its branches or instrumentalities. 04 entitled. government funds shall be spent or used for public purposes. controlled and preserved. under the control and supervision of the Secretary of National Defense. 2002. Thank you and anticipating your action on this request. The Secretary or his representative may attend conferences of the supreme council of the VFP and such other activities he may deem relevant. we came across some legal bases which tended to show that there is an organizational and management relationship between Veterans Federation of the Philippines and the Philippine Veterans Bank which for many years have been inadvertently overlooked. respondent DND Secretary issued the assailed DND Department Circular No. trustees." the full text of which appears as follows: Department of National Defense Department Circular No.Bus Org 2 Cases 1st Set Prelim 82 Dear Col. of any political subdivision. and prescribe standards." 2. 2640. nullify or set aside what a subordinate officer had done in the performance of his duties and to substitute the judgment of the former to that of the latter. vested with functions relating to public needs whether governmental or proprietary in nature. REYES [DND] Secretary On 10 June 2002. RA 2640 dated 18 June 60 Section 1 . including Filipino citizens who served in Allied Forces in the Philippine territory and foreign nationals who served in Philippine forces. guidelines. etc.3 The Secretary shall from time to time issue guidelines.. and for Other Purposes) provides in Section 6 that . Administrative Process – embraces matter concerning the procedure in the disposition of both routine and contested matters.4 Financial transactions of the Federation shall follow the provisions of the government auditing code (PD 1445) i. reverse or modify acts and decisions of subordinate officials or units. stockholders. or who rendered military service in the Armed Forces of the Philippines and has been honorably discharged or separated after at least six (6) years total cumulative active service or sooner separated due to the death or disability arising from a wound or injury received or sickness or disease incurred in line of duty while in the active service. and the matter in which determinations are made. plans and programs. to the extent of at least 50% of its capital stock. 1987 Section 1 These rules shall govern and apply to the management and operations of the Veterans Federation of the Philippines (VFP) within the context provided by EO 292 s-1987. a government agency or agency of government or "agency" refers to any department. Vets [sic] Bank. "On or before the last day of the month following the end of each fiscal year. by a Board of Directors consisting of eleven (11) members to be composed of three ex officio members to wit: the Philippine Veterans Administrator. 3. "Further Implementing the Provisions of Sections 12 and 23 of Republic Act No. management and dispositions of properties. restrictions or limitations and constitutes an independent. as well as any government owned or controlled corporation. the Philippine American War. the Anti-dissidence campaign. Section 2 – DEFINITION OF TERMS – for the purpose of these rules. and owned by the government directly or through its instrumentalities wholly or. phrases or words used herein shall. All such records and minutes shall be open to directors. fiscal responsibility shall. it does not allow the superior to annul the acts of the subordinate. be shared by all those exercising authority over the financial affairs. World War II. sea or air forces of the Philippines during the revolution against Spain. modify. Fund – sum of money or other resources set aside for the purpose of carrying out specific activities or attaining certain objectives in accordance with special regulations.

statement of cash flows per year as certified by the accountant. c. the VFP and all its instrumentalities. Annual Report to be submitted not later than every January 31 of the following year. an essentially civilian organization. Leal. the urgency and substantive importance of the question on hand and the public interest attendant to the subject matter of the petition justify its being filed with this Court directly as an original action. in Commissioner of Internal Revenue v. This is the established policy to prevent inordinate demands upon the Court’s time and attention. Convert the writ of prohibition. A letter dated 28 August 2003 informed petitioner’s President that the Management Audit Group headed by the Undersecretary would be paying petitioner a visit on 30 August 2002 for an update on VFP’s different affiliates and the financial statement of the Federation. it was proper for petitioner to institute the special civil action for certiorari with the Court of Appeals assailing the RTC order denying his motion to dismiss based on lack of jurisdiction. denied by the Undersecretary in a letter dated 4 September 2002 on the ground that a specific timeframe had been set for the activity. within the ambit of statutes only applying to government entities? 3. Leal. 129 dated 23 August 2002 directed "the conduct of a Management Audit of the Veterans Federation of the Philippines. As we have held in numerous occasions. 11Petitioner further submits the following issues to this Court: 1. which are better devoted to matters within its exclusive jurisdiction. Current listing of officers and management of VFP. ongoing projects and petitioner’s financial condition. signed by the Treasurer General and Auditor General. Said report shall consist of the following: 1. Report on the proceedings of each Supreme Council Meeting to be submitted not later than one month after the meeting. such concurrence of original jurisdiction does not mean that the party seeking extraordinary writs has the absolute freedom to file his petition in the court of his choice.10 While we reiterate the policies set forth in Leal and allied cases and continue to abhor the propensity of a number of litigants to disregard the principle of hierarchy of courts in our judicial system. however. 8 Thus. report of operations together with financial statement of its assets and liabilities and fund balance per year. Petitioner thus filed this Petition for Certiorari with Prohibition under Rule 65 of the 1997 Rules of Civil Procedure. A direct invocation of this Court’s original jurisdiction to issue these writs should be allowed only where there are special and important reasons therefor. it shall submit the following: annual report. b. the following reports shall be submitted to the SND. complaining about the alleged broadness of the scope of the management audit and requesting the suspension thereof until such time that specific areas of the audit shall have been agreed upon. respondent DND Secretary reiterated his instructions in his earlier letter of 13 April 2002. does not mean that the party seeking any of the extraordinary writs has the absolute freedom to file his petition in the court of his choice. we hereby resolve to give due course to this petition. proceedings of council meetings. in this case. preliminary prohibitory and mandatory injunction into a permanent one. . and (b) continuing with the ongoing management audit of petitioner’s books of account. does not specifically and sufficiently set forth the special and important reasons why the Court should give due course to this petition in the first instance. with the Court of Appeals. Subsequently. 6 GIVING DUE COURSE TO THE PETITION Petitioner asserts that. resolve to take judicial notice of the fact that the persons who stand to lose in a possible protracted litigation in this case are war veterans. d. ISSUES Petitioner mainly alleges that the rules and guidelines laid down in the assailed Department Circular No. All these said. means "overseeing. praying for the following reliefs: 1. b. and advances this claim to prove that the issuance of DND Department Circular No. 2. CENTRAL ISSUE: IS THE VFP A PRIVATE CORPORATION? Petitioner claims that it is not a public nor a governmental entity but a private organization. Was the challenged department circular passed in the valid exercise of the respondent Secretary’s "control and supervision"? 2. Thereafter. the Secretary General of the VFP sent an undated letter to respondent DND Secretary. specifically and sufficiently set forth in the petition. The letter ended by stating that. while the other provisions of the assailed department circular are mere consequences of control and supervision as defined. unduly encroach on the prerogatives of VFP’s governing body? At the heart of all these issues and all of petitioner’s prayers and assertions in this case is petitioner’s claim that it is a private nongovernment corporation. rules and regulations applicable to the attached agencies of the government. or the power or authority of an officer to see that subordinate officers perform their duties. although cases which question the constitutionality or validity of administrative issuances are ordinarily filed with the lower courts. 04. we."4 The letter went on to state that respondent DND Secretary "believes that the mandate given by said law can be meaningfully exercised if this department can better appreciate the functions. After Operation/Activity Reports to be submitted not later than one month after such operation or activity. responsibilities and situation on the ground and this can be done by undertaking a thorough study of the organization.Bus Org 2 Cases 1st Set Prelim 83 As a body corporate. Does the department circular. Section 6 – Penal Sanctions As an attached agency to a regular department of the government. 3. Act No. petitioner’s President received a letter dated 23 August 2002 from respondent Undersecretary. however. and to prevent further over-crowding of the Court’s docket."14 These definitions are synonymous with the definitions in the assailed Department Circular No. Thus. officials and personnel shall be subject to the penal provisions of such laws. For this Court to issue a temporary restraining order and a writ of preliminary prohibitory and mandatory injunction to enjoin respondent Secretary and all those acting under his discretion and authority from: (a) implementing DND Department Circular No. Report of the VFP President as may be required by SND or as may be found necessary by the President of the Federation. Roster of Members of the Executive Board and National Officers.9 we held that: Such concurrence of original jurisdiction among the Regional Trial Court. the Court of Appeals and this Court." 5 Respondent Undersecretary also requested both for a briefing and for documents on personnel. e. the former may take such action or step as prescribed by law to make them perform their duties. and other documents/reports as may be necessary or required by the SND. The hierarchy of courts in our judicial system determines the appropriate forum for these petitions. 12 This Court has defined the power of control as "the power of an officer to alter or modify or nullify or set aside what a subordinate has done in the performance of his duties and to substitute the judgment of the former to that of the latter. 2. The petition itself. to wit: a. on the other hand. after the briefing. however. 04 as null and void for being ultra vires. Could the challenged department circular validly lay standards classifying the VFP. which grants respondent direct management control on the VFP. and 4. however. Declare DND Department Circular No." 13 The power of supervision. informing him that Department Order No. an entity created to represent and defend the interests of Filipino veterans. Roster of Members of the Supreme Council. After hearing the issues on notice – a. This bickering for the power over petitioner corporation. The request was. Section 5 – Submission of Annual and Periodic Report As mandated under appropriate laws. 7 It is settled that the Regional Trial Court and the Court of Appeals also exercise original jurisdiction over petitions for certiorari and prohibition. hereby failing to fulfill the conditions set forth in Commissioner of Internal Revenue v. 04 expanded the scope of "control and supervision" beyond what has been laid down in Rep. the support staff of the Audit Committee would begin their work to meet the one-month target within which to submit a report. Resolutions passed by the Executive Board and the Supreme Council for confirmation to be submitted not later than one month after the approval of the resolution. Thus. Financial Report of the Federation. statement of revenues and expenses per year. In a letter dated 6 August 2002 addressed to the President of petitioner. 2640. 04. petitions for the issuance of the said writs against the first level (inferior) courts must be filed with the Regional Trial Court and those against the latter. should be resolved as soon as possible in order for it to once and for all direct its resources to its rightful beneficiaries all over the country. If the latter fail or neglect to fulfill them. with notice to respondent Undersecretary for Civil Relations and Administration. 04 is an invalid exercise of respondent Secretary’s control and supervision. many of whom have precious little time left to enjoy the benefits that can be conferred by petitioner corporation.

it would be impermissible for the law to grant control of the VFP to a public official if it were neither a public corporation. we have dealt with the issue of whether certain specific activities can be classified as sovereign functions. Government-owned and controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability. Before responding to petitioner’s allegations one by one. to be exercised by him for the benefit of the public. but by the Labor Code and the SSS Law. its counterparts in the 1973 and 1987 constitutions are the following: Section 4. on the other hand. These cases. particularly the possession/delegation of a portion of sovereign power of government to be exercised for the benefit of the public. The areas which used to be left to private enterprise and initiative and which the government was called upon to enter optionally. 19 (3) The VFP is required to submit annual reports of its proceedings for the past year. either legislative. d. provide for the formation. and for Other Purposes. petitioners should be deemed to imply either of the following: (1) that it is unconstitutional/impermissible for the law (Rep. particularly the possession/delegation of a portion of sovereign power of government to be exercised for the benefit of the public. as it is merely an incarnation of the Veterans Federation of the Philippines. 21 this Court held in a minute resolution that the "VFP [Veterans Federation Party] is an adjunct of the government. therefore. 20 (4) Under Executive Order No. have rendered this traditional classification of the functions of government [into constituent and ministrant functions] quite unrealistic. nor a GOCC. we are constrained to rule that petitioner is in fact a public corporation. this development was envisioned. 27 that the compelling urgency with which the Constitution speaks of social justice does not leave any doubt that land reform is not an optional but a compulsory function of sovereignty.) It was. The VFP is governed. but is also intended to reward patriotism. indeed adopted as a national policy. A close analogy would be any Filipino citizen settling on government land and who tills the land for his livelihood and sustenance. organization. created and conferred by law. 37 dated 2 December 1992. The National Assembly shall not. not compulsory. either legislative. and artistic relations. 5. the functions of petitioner corporation enshrined in Section 4 of Rep. it is crystal clear that our constitutions explicitly prohibit the regulation by special laws of private corporations. Defining its Powers. Unless the powers conferred are of this nature." continue to lose their well-defined boundaries and to be absorbed within activities that the government must undertake in its sovereign capacity if it is to meet the increasing social challenges of the times. 18 Said constitutional provisions can even be read to prohibit the creation itself of the VFP if it were neither of the three mentioned above. 4. with the exception of government-owned or controlled corporations (GOCCs). 30 In Laurel. Unless the powers conferred are of this nature. Petitioner vigorously argues that the VFP is a private non-government organization. nor does it provide that it is an entity under the control and supervision of the DND in the context of the provisions of said code. the organic act controlling at the time of the creation of the VFP in 1960.Bus Org 2 Cases 1st Set Prelim 84 Thus. Hence. 15 On the other hand. civilian federation of veterans voluntarily formed by the veterans themselves to attain a unity of effort. upheld the public sovereign nature of operations needed either to promote social justice 25 or to stimulate patriotic sentiments and love of country. which deal with activities not immediately apparent to be sovereign functions. unless such corporations are owned and controlled by the Government or any subdivision or instrumentality thereof." (2) Any action or decision of the Federation or of the Supreme Council shall be subject to the approval of the Secretary of Defense. by the Constitution itself in its declaration of principle concerning the promotion of social justice. c) The lease rentals raised from the use of government lands reserved for the VFP are private in character and do not belong to the government.17 From the foregoing. of course. unless such corporations are owned or controlled by the government or any subdivision or instrumentality thereof. our countrymen . Act No. The Administrative Code of 1987 does not provide that the VFP is an attached agency. The members of the VFP are individual members and retirees from the public and military service.] the tendency is undoubtedly towards a greater socialization of economic forces. in order for petitioner’s premise to be able to support its conclusion. except by general law. 29 (Emphasis supplied. the Court then took its cue from a similar case in the United States involving a Fourth of July fireworks display." In the same case. purpose and objectives. – a. The VFP has its own Constitution and By-Laws and is governed by a Supreme Council who are elected from and by the members themselves. organization. The holding of the Centennial Celebrations was held to be an executive function. Here[. the individual is not a public officer. provide for the formation. These arguments of petitioner notwithstanding. but we cannot go into that in this case since there is no challenge to the creation of the VFP in the petition as to permit this Court from considering its nullity. Here. The protection of the interests of war veterans is not only meant to promote social justice. an unincorporated governmental entity. Desierto. Such fruits are not public funds. executive or judicial. The Congress shall not. an individual is invested with some portion of the sovereign functions of the government. organization. pressing on the following contentions: 1. And now to answer petitioner’s reasons for insisting that it is a private corporation: 1. to the President of the Philippines or to the Secretary of National Defense.g. The fruits of his labor belong to him and not to the owner of the land. b) VFP funds come from membership dues. to be exercised for the public benefit. 2640 31 should most certainly fall within the category of sovereign functions. 2. to be exercised for the public benefit. 2640) to grant control and/or supervision to the Secretary of National Defense over a private organization. or regulation of private corporations. authority and duty. complete and itemized report of receipts and expenditures of whatever kind. All of the functions in Section 4 concern the well-being of war veterans. either fixed by law or enduring at the pleasure of the creating power. 24 The issue. (5) In Ang Bagong Bayani – OFW Labor Party v. or regulation of private corporations. e. the individual is not a public officer.] as almost everywhere else[. 28 Highly significant here is the observation of former Chief Justice Querube Makalintal: The growing complexities of modern society. b. Act No. The VFP does not possess the elements which would qualify it as a public office. Desierto. The most important characteristic which distinguishes an office from an employment or contract is that the creation and conferring of an office involves a delegation to the individual of some of the sovereign functions of government. must attach to the office for the time being. c. the VFP was listed as among the government-owned and controlled corporations that will not be privatized. Membership in the VFP is voluntary. In the case at bar. The following provision of the 1935 Constitution. provide for the formation. by which. as it was intended to enforce Article XIV of the Constitution which provides for the conservation. Although the juridical personality of the VFP emanates from a statutory charter. 16 Sec. or (2) that the control and/or supervision that can be granted to the Secretary of National Defense over a private organization is limited. attaches. to be exercised by him for the benefit of the public.22 we adopted the definition of Mechem of a public office. however. we held in Agricultural Credit and Cooperative Financing Administration (ACCFA) v. 26 As regards the promotion of social justice as a sovereign function. Said rentals are fruits of VFP’s labor and efforts in managing and administering the lands for VFP purposes and objectives. we went on to adopt Mechem’s view that the delegation to the individual of some of the sovereign functions of government is "[t]he most important characteristic" in determining whether a position is a public office or not. 23 Such portion of the sovereignty of the country. 2640 is entitled "An Act to Create a Public Corporation to be Known as the Veterans Federation of the Philippines. that it is "the right. In several cases. not to say obsolete. Act No. to be exercised for the public benefit. is whether the VFA’s officers have been delegated some portion of the sovereignty of the country. and is not as strong as they are defined above. not by the Civil Service Law. or regulation of private corporations. – that some portion of the sovereignty of the country. VFP funds are not public funds because – a) No budgetary appropriations or government funds have been released to the VFP directly or indirectly from the Department of Budget and Management (DBM). executive or judicial. The same reason was used in our declaration that socialized housing is likewise a sovereign function. is relevant: Section 7. In Laurel v. Confederation of Unions in Government Corporations and Offices (CUGCO). here are the more evident reasons why the VFP is a public corporation: (1) Rep. the Articles of War nor the GSIS Law. except by general law. The Congress shall not. for the time being. 3. promotion and popularization of the nation’s historical and cultural heritage and resources. the VFP retains its essential character as a private. except by general law. The DBM declared that the VFP is a non-government organization and issued a certificate that the VFP has not been a direct recipient of any funds released by the DBM. for a given period. the fact that the National Centennial Celebrations was calculated to arouse and stimulate patriotic sentiments and love of country that it was considered as a sovereign function in Laurel v. Petitioner claims that the VFP does not possess the elements which would qualify it as a public office. including a full. COMELEC. 16. and only "because it was better equipped to administer for the public welfare than is any private individual or group of individuals.

The DBM indeed did not see it fit to propose budgetary appropriations to the VFP. only the money remitted by the affiliate organizations to the VFP partake in the public nature of the VFP funds. benefits and other forms of assistance to war veterans and veterans of military campaigns. Affiliate organizations of the VFP cannot complain of their contributions becoming public funds upon the receipt by the VFP. expenses. (6) Section 12 requires the submission of annual reports of VFP proceedings for the past year. No less public is the use for the VFP funds. but also provides for the regulation of such funds by the national government through the Secretary of National Defense. COCOFED. the membership of the VFP is not the individual membership of the affiliate organizations. Guingona. at all times. since they are presumed aware of the provisions of Rep. inter alia. and more importantly. It would be injustice of catastrophic proportions to say that it is beyond sovereignty’s power to reward the people who defended her. is mistaken as to its conclusion regarding the nature of VFP’s incorporation. 4. however.32 2. its previous assertions will not prevent future budgetary appropriations to the VFP. mileage or traveling expenses. In Republic v.40 3. But unlike the Court of Tax Appeals. the Constitutional mandate for the State to provide immediate and adequate care. (3) Section 4 provides that "the Federation shall exist solely for the purposes of a benevolent character. and nor does it provide that it is an entity under the control and supervision of the DND in the context of the provisions of said code. are derived from public funds. There is nothing wrong. The fact that no budgetary appropriations have been released to the VFP does not prove that it is a private corporation."1avvphil. 44 There being no such constitutional prohibition. 2640 is not rendered invalid by its being placed under the control and supervision of the Secretary of National Defense. and wages. it is still public in character. acknowledges that its enumeration is not exclusive. for the purposes stated in Section two of this Act. but merely the aggregation of the heads of such affiliate organizations. but merely the aggregation of the heads of the affiliate organizations. 2640) recognizes the public character of the funds as shown in the enumerated provisions above. and not for the pecuniary benefit of its members. branches. its occupant being an alter ego of the civilian Commander-in-Chief. the creation of a civilian public organization by Rep. as earlier stated.. Act No. the functions of the VFP are executive functions. against the grant of control and/or supervision to the Secretary of National Defense over a civilian organization. The erroneous application of the law by public officers does not bar a subsequent correct application of the law. "compensation" has been held to include allowance for personal expenses. as the contributions from affiliate organizations of the VFP can hardly be regarded as enforced contributions as to be considered taxes. (1) they were meant to be for the benefit of the coconut industry. custom. to the President of the Philippines or to the Secretary of National Defense. express or implied. The ruling of the BLGF has been considered in this case. The Office of the Secretary of National Defense is itself a civilian office.34 Nevertheless. Desierto 39 which was cited by Respondents. taken as they are from VFP funds under the term "operating expenses" in Section 6 of Rep. one of the major industries supporting the national economy.e. Like the holding of the National Centennial Celebrations. supreme over the military. Act No." (5) Section 10 provides that "(a)ny donation or contribution which from time to time may be made to the Federation by the Government of the Philippines or any of its subdivisions. As remarked by Justice Florentino Feliciano in his concurring opinion in Kilosbayan. 2640 reveals that what has been created as a body corporate is not the individual membership of the affiliate organizations. and can be used only for public purposes. The particular nomenclature of the compensation taken from VFP funds is not even of relevance here. Petitioner claims that among the reasons National Centennial Commission Chair Salvador Laurel was considered a public officer was the fact that his compensation was derived from public funds. 2640. We also observed in the same COCOFED case that "(e)ven if the money is allocated for a special purpose and raised by special means. They are more in the nature of donations which have always been recognized as a source of public funding. including a full. Act No. the BLGF was created merely to provide consultative services and technical assistance to local . This set-up is the manifestation of the constitutional principle that civilian authority is. The same is true with regard to the VFP funds. from raising revenues through non-traditional methods. or practice to the contrary. No. 45 of this public corporation. City of Davao 47 can be applied to DBM: In any case." 37 In the case at bar. Petitioner claims that the Secretary of National Defense "historically did not indulge in the direct or ‘micromanagement’ of the VFP precisely because it is essentially a civilian organization where membership is voluntary. payments for services. by giving definitions of the various entities covered by it. As we said in Laurel concerning compensation as an element of public office: Under particular circumstances. it is contended. whether legally or morally. Petitioner additionally harps on the inapplicability of the case of Laurel v. The Administrative Code could not be said to have repealed nor enormously modified Rep. thus: x x x [T]he more successful the government is in raising revenues by non-traditional methods such as PAGCOR operations and privatization measures. Petitioner claims that the Administrative Code of 1987 does not provide that the VFP is an attached agency." Hence. The Constitution does not contain any prohibition. offices. and because VFP funds come from membership dues and lease rentals earned from administering government lands reserved for the VFP. as the Supreme Council may authorize. and finally. 2640 which not only specifies the exclusive purposes for which VFP funds can be used. agencies or instrumentalities shall be expended by the Supreme Council only for the purposes mentioned in this Act. fees. commissions. 2640 by implication. but also. 42 Furthermore. the lesser will be the pressure upon the traditional sources of public revenues. we can safely conclude that the Supreme Council’s compensation. designed to implement not just the provisions of Rep." (2) Section 2 likewise provides that "(a)ny action or decision of the Federation or of the Supreme Council shall be subject to the approval of the Secretary of National Defense. Incorporated v. their surviving spouses and orphans. Act No." Respondents claim that the supposed declaration of the DBM that petitioner is a non-government organization is not persuasive. These heads forming the VFP then elect the Supreme Council and the other officers.33 If the DBM. Having ruled that VFP funds from whatever source are public funds. Act No. which is a special court created for the purpose of reviewing tax cases. Act No. A close reading of Section 1 35 of Rep." 41 This reliance of petitioner on what has "historically" been done is erroneous. since DBM is not a quasi-judicial agency. 2640: (1) Section 2 provides that the VFP can only "invest its funds for the exclusive benefit of the Veterans of the Philippines. Petitioner claims that its funds are not public funds because no budgetary appropriations or government funds have been released to the VFP directly or indirectly from the DBM. Petitioner argues that it is a civilian federation where membership is voluntary. the law governing VFP funds (Rep.". some of the funds were raised by even more special means. all activities of the VFP to which the Supreme Council can apply its funds are subject to the approval of the Secretary of National Defense. 46 5. as such repeal or enormous modification by implication is not favored in statutory construction. 38 where he explained that the funds raised by the On-line Lottery System were also public in nature. since laws are not repealed by disuse. Act No. As stated above. the erroneous application of the law by public officers does not bar a subsequent correct application of the law.Bus Org 2 Cases 1st Set Prelim 85 who risked their lives and lost their limbs in fighting for and defending our nation. This is mandated by the following provisions of Rep. 36 we held that the Coconut Levy Funds are public funds because. Thus. Likewise. It is important to note here that the membership dues collected from the individual members of VFP’s affiliate organizations do not become public funds while they are still funds of the affiliate organizations. having itself believed that the VFP is a private corporation. funds in the hands of the VFP from whatever source are public funds. The Administrative Code. is entitled to great weight. Petitioner’s stand that the VFP is a private corporation because membership thereto is voluntary is likewise erroneous. as such. 43 Neither is the civilian nature of VFP relevant in this case. and (2) the very laws governing coconut levies recognize their public character. Petitioner offers as evidence the DBM opinion that the VFP is a non-government organization in its certification that the VFP "has not been a direct recipient of any funds released by the DBM. restitution or a balancing of accounts.A. They aver that what we have said of the Bureau of Local Government Finance (BLGF) in Philippine Long Distance Telephone Company (PLDT) v. Petitioner claims that VFP funds are not public funds. complete and itemized report of receipts and expenditures of whatever kind. an honorarium. Jr. Act No. 2640. and its farmers. the pocket books of individual taxpayers and importers. the ruling of the Bureau of Local Government Finance (BLGF) that petitioner’s exemption from local taxes has been restored is a contemporaneous construction of Section 23 [of R. 7925 and. i. salary. as such use is limited to the purposes of the VFP which we have ruled to be sovereign functions.net (4) Section 6 provides that all funds of the VFP in excess of operating expenses are "reserved for disbursement.

disbursements or dispositions of government funds or property shall invariably bear the approval of the proper officials. Act No. merely state what the drafters of the circular perceived to be consequences of being an attached agency to a regular department of the government. x x x. and substitutes government discretion and decisions to that of the veterans’ own determination. there is likewise no reason to declare this provision invalid. Thus.4 Financial transactions of the Federation shall follow the provisions of the government auditing code (PD 1445) i. guidelines. The DND is clearly more of an expert with respect to the determination of the entities under it. which requires the preservation of the records of the Federation and the submission to the Secretary of National Defense of annual and periodic reports. 57 Respondents deny such non-publication. 3. transactions. thus not violating the settled rule that "all such (administrative) issuances must not override. by the very nature of its function. ."53 The power of supervision. means "overseeing. as closely as it desires. The DBM is indeed an expert on determining what the various government agencies and corporations are. stocks and bonds. Since we have also previously determined that VFP funds are public funds. financial interests. On this score. require the submission of reports. What the PLDT case points out is that. government funds shall be spent or used for public purposes. enumerating sanctions and remedies provided by law that may be availed of whenever desired. to the greatest extent. Petitioner then objects to the implementation of Sec. They add nothing to the law. for an administrative agency’s opinion to be persuasive. plans and programs. however. and such other transactions which may affect the interests of the veterans. . its validity is not affected by such non-publication for the reason that its provisions fall under two of the exceptions enumerated in Tañada. Tuvera:59 x x x Administrative rules and regulations must also be published if their purpose is to enforce or implement existing law pursuant also to a valid delegation. dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject. The DBM has not furnished." Having in their possession public funds. Section 6. Petitioner alleges that "(t)he equation of the meaning of `control’ and `supervision’ of the Administrative Code of 1987 as the same `control and supervision’ under Rep. management and dispositions of properties. trust funds shall be available and may be spent only for the specific purpose for which the trust was created or the funds received. Even assuming that the assailed circular was not published. The same is true with respect to Sections 4 and 5 of the assailed Department Circular No. must indeed share in the fiscal responsibility to the greatest extent. 2640 is not the individual membership of the affiliate organizations of the VFP. Consequently. despite its being the statutory governing body of the VFP.48 The persuasiveness of the DBM opinion has. are merely consequences of both the power of control and supervision granted by Rep.58 We have put forth both the rule and the exception on the publication of administrative rules and regulations in the case of Tañada v. 2640. reverse or modify acts and decisions of subordinate officials or units. and considering that petitioner is a public corporation. an explanation for its opinion that VFP is a nongovernment organization. the officers of the VFP. the rule that the "Court will not set aside conclusions rendered by the CTA. Act No. we disagree with respondents and hold that the DBM’s appraisal is considered persuasive. the administrative agency involved (whether it has quasi-judicial powers or not) must be an expert in the field they are giving their opinion on. neither to supplant nor to modify. are beyond the regulation of the circular. 2640. review. which is. Mandate. 04.4 of the assailed Department Circular. restrain the commission of acts. and hence void. 2. the law. As likewise discussed above. directives and other orders governing vital government activities including." as well as Section 3. or to see to it that subordinate officers perform their duties in accordance with law. Respondents misread the PLDT case in asserting that only quasi-judicial agencies’ determination can be considered persuasive. in the same vein. whether party to the case at bar or not.The Department shall be responsible for the formulation and implementation of the National Budget with the goal of attaining our national socio-economic plans and objectives. the conduct of elections. 04 on the ground that it expanded the scope of control and supervision beyond what has been laid down in Rep. the individual members of the affiliate organizations. 49 The DBM opinion furthermore suffers from its lack of explanation and justification in the "certification of non-receipt" where said opinion was given. approve. and operations of the federation.2 of the assailed department circular. Department Circular No. As we have ruled. which authorizes the Secretary of National Defense to "x x x personally or through a designated representative. They do not affect the substantial rights of any person. Petitioner likewise claims that the assailed DND Department Circular No. 04 was never published. THE FATE OF DEPARTMENT CIRCULAR NO." and that the assailed circular "pre-empts VFP’s original self-governance and autonomy (in) representing veterans organizations. what has been created as a body corporate by Rep. Section 3. corporate investments. In Sections 2 and 3. Act No. the provisions of the assailed Department Circular No. but without specifying the particular actions that shall be rendered to control and supervise the VFP. direct the performance of duty. The Department shall be responsible for the efficient and sound utilization of government funds and revenues to effectively achieve our country's development objectives. necessarily requires the ability of the superior officer to monitor. which provides that – 3. determine priorities in the execution of plans and programs. Act No. the accounting of funds. and prescribe standards. Sections 2. the acquisition. the acts of the subordinate. on the other hand. 04 Our ruling that petitioner is a public corporation is determinative of whether or not we should grant petitioner’s prayer to declare Department Circular No." 50 Petitioner claims that the VFP "was intended as a self-governing autonomous body with a Supreme Council as governing authority. Consequently. 2640. etc.e. that is. x x x The definition of the power of control and supervision under Section 2 of the assailed Department Circular are synonymous with the foregoing definitions. regulating only the personnel of the administrative agency and not the public." 56 Section 3. or the power or authority of an officer to see that subordinate officers perform their duties. mentioning actions that can be performed as consequences of such control and supervision. 04. fiscal responsibility shall. that of the Department of National Defense embodied in Department Circular No. 04 void. though. and its Administrative Rules and Regulations are entitled to great respect and have in their favor the presumption of legality. Interpretative regulations and those merely internal in nature. Petitioner assails Department Circular No. 3 and 6 of the assailed circular are additionally merely interpretative in nature. be shared by all those exercising authority over the financial affairs. documents and other papers regarding any or all of the Federation’s business functions. this Court has defined the power of control as "the power of an officer to alter or modify or nullify or set aside what a subordinate has done in the performance of his duties and to substitute the judgment of the former to that of the latter. This determination is necessary for the DBM to fulfill its mandate: Sec. but merely the aggregation of the heads of the affiliate organizations. been overcome by all the previous explanations we have laid so far.3 which allows the Secretary of DND to x x x [F]rom time to time issue guidelines. control and supervision are defined.4 is correct in requiring the VFP funds to be used for public purposes." 54 Under the Administrative Code of 1987:55 Supervision and control shall include the authority to act directly whenever a specific function is entrusted by law or regulation to a subordinate. 04 did not supplant nor modify the provisions of Republic Act No. unless there has been an abuse or improvident exercise of authority" cannot apply in the case of the BLGF. they are meant to regulate a public corporation under the control of DND.Bus Org 2 Cases 1st Set Prelim 86 governments and the general public on local taxation and other related matters. especially its fiscal officers. Neither is publication required of the so-called letters of instructions issued by administrative superiors concerning the rules on guidelines to be followed by their subordinates in the performance of their duties. but must remain consistent and in harmony with the law they seek to apply or implement. in said certification or elsewhere. takes out the context of the original legislative intent from the peculiar surrounding circumstances and conditions that brought about the creation of the VFP. and not the public in general. but not limited to. 04 is an internal regulation. need not be published. Administrative rules and regulations are intended to carry out. who are not public officers. 52 As previously mentioned. Act No. It has also been eclipsed by another similarly persuasive opinion. 2640. but only insofar the term "public purposes" is construed to mean "public purposes enumerated in Rep." 51 Petitioner says that the circular’s provisions practically render the Supreme Council inutile. The power to alter or modify or nullify or set aside what a subordinate has done in the performance of his duties. 2640.

VIARI. BERNARDO. the action should be commenced within one year after the cause of the public officers forfeiture of office. exercise discretion at the first instance. JJ. Rule 66 of the Rules of Civil Procedure.J.Bus Org 2 Cases 1st Set Prelim 87 As to petitioner’s allegation that VFP was intended as a self-governing autonomous body with a Supreme Council as governing authority. 13. Petitioners are officers of the Board of Directors of the Quezon City Red Cross Chapter while respondent is Chairman of the Philippine National Red Cross (PNRC) Board of Governors. or that public money is being diverted to any improper purpose. Respondent further insists that the PNRC is not a government-owned or controlled corporation and that the prohibition under Section 13. Petitioners cite Camporedondo v. In their Reply. taxpayers are allowed to sue only when there is a claim of illegal disbursement of public funds. LIBAN. pursuant to Flores v. No. CHICO-NAZARIO. Reynaldo M. DANTE V. In sum. . however. Liban. Article VI of the Constitution does not apply in the present case since volunteer service to the PNRC is neither an office nor an employment. Petitioner VFP is a public corporation.: The Case This is a petition to declare Senator Richard J. who consequently has the power to conduct an extensive management audit of petitioner corporation. J. Respondent.[3] which held that incumbent national legislators lose their elective posts upon their appointment to another government office. CARPIO. Surely. respondent has been working as a Red Cross volunteer for the past 40 years. Furthermore. Petitioners claim that in accepting and holding the position of Chairman of the PNRC Board of Governors. such as the executive offices under the control of the President. The validity of the Department of National Defense Department Circular No. on the contrary. QUISUMBING. we find that the provisions of Rep. considering that respondent . petitioners cannot be allowed to raise a constitutional question in the absence of any claim that they suffered some actual damage or threatened injury as a result of the allegedly illegal act of respondent. In this case. Under Section 5. we cannot say that the offices of all the Department Secretaries are worthless positions. these acts are effective and are deemed the acts of the superior until they are modified. Gordon as Having Forfeited His Seat in the Senate. it can be placed under the control and supervision of the Secretary of National Defense. Neither shall he be appointed to any office which may have been created or the emoluments thereof increased during the term for which he was elected. GORDON. perfectly in consonance with Rep. Petitioners maintain that the present petition is a taxpayers suit questioning the unlawful disbursement of funds. Respondent was already Chairman of the PNRC Board of Governors when he was elected Senator in May 2004. the Petition is hereby DISMISSED for lack of merit. and SALVADOR M. [1] he was elected Chairman of the PNRC during the 23 February 2006 meeting of the PNRC Board of Governors. 04 is AFFIRMED. since the petition alleges that respondent committed an act which. the assailed DND Department Circular No. and BERSAMIN. agency. WHEREFORE. NLRC. Act No. These subordinate offices. 175352 REYNALDO M. As such. or instrumentality thereof. during his term without forfeiting his seat. Article VI of the Constitution. JR. CARPIO MORALES. Present: Petitioners. CORONA. this Court would have no jurisdiction since original jurisdiction for declaratory relief lies with the Regional Trial Court. Viari (petitioners) filed with this Court a Petition to Declare Richard J. including government-owned or controlled corporations or their subsidiaries. Promulgated: July 15. C. Bernardo. Gordon (respondent) as having forfeited his seat in the Senate. During respondents incumbency as a member of the Senate of the Philippines. To say. 2640. BRION. NACHURA. or where petitioners seek to restrain respondent from enforcing an invalid law that results in wastage of public funds. In his Comment. respondent asserts that petitioners have no standing to file this petition which appears to be an action for quo warranto. that such provisions render the VFP inutile is an exaggeration. Rule 66 of the Rules of Civil Procedure. Petitioners do not claim to be entitled to the Senate office of respondent. Respondent contends that even if the present petition is treated as a taxpayers suit. respondent has ceased to be a member of the Senate as provided in Section 13. No Senator or Member of the House of Representatives may hold any other office or employment in the Government. 2640 concerning the control and supervision of the Secretary of National Defense clearly withholds from the VFP complete autonomy. If the petition is one for quo warranto. only a person claiming to be entitled to a public office usurped or unlawfully held by another may bring an action for quo warranto in his own name. LEONARDO-DE CASTRO. and Salvador M. Drilon. 2009 x--------------------------------------------------x DECISION CARPIO. Act No. or any subdivision. The Facts Petitioners Dante V. RICHARD J. An office is not rendered inutile by the fact that it is placed under the control of a higher office. While their acts can be altered or even set aside by the superior. PERALTA. respondent has automatically forfeited his seat in the Senate. having been elected Chairman in 2003 and re-elected in 2005. constitutes a ground for forfeiture of his public office.[2] which held that the PNRC is a government-owned or controlled corporation. PUNO. 04 does not supplant nor modify and is.versus VELASCO.R... Respondent also maintains that if the petition is treated as one for declaratory relief. by provision of law. Petitioners allege that by accepting the chairmanship of the PNRC Board of Governors. petitioners claim that their petition is neither an action for quo warranto nor an action for declaratory relief. G. it is already barred by prescription since under Section 11. which reads: SEC. YNARES-SANTIAGO.

x x x 11. Section 1. Whether the Philippine National Red Cross (PNRC) is a government. respondent has ceased to be a Member of the House of Senate as provided in Section 13. so far lies within their power.R. which position he duly accepted. 95. 2006. Whether Section 13. respondent has automatically forfeited his seat in the House of Senate and. DRILON AND GORDON. having been elected as such during the national elections last May 2004. An action for the usurpation of a public office. President Manuel A. ET AL. there was developed at Geneva. G. Clearly. However. In short. 1929 for the Amelioration of the Condition of the Wounded and Sick of Armies in the Field (referred to in this Charter as the Geneva Red Cross Convention). otherwise the action may be dismissed at any stage. Rule 66 of the Rules of Court provides: Section 1. [10] The Whereas clauses of the PNRC Charter read: WHEREAS. 2006. intrudes into. great and irreparable injury of the Government and the Filipino people. 3. has long ceased to be a Senator. Article VI of the Constitution. WHEREAS. namely the Convention of Geneva of July 29 [sic]. an individual may commence such an action if he claims to be entitled to the public office allegedly usurped by another. Whether respondent should be automatically removed as a Senator pursuant to Section 13. therefore. in which case he can bring the action in his own name. or political affiliation. 7. . therefore. respondent will continue to falsely act and represent himself as a senator or member of the House of Senate.[8] The PNRC provides six major services: Blood Services. respondent continues to act as such and still performs the powers. (b) A public officer who does or suffers an act which by provision of law. law and jurisprudence. petitioners are alleging that by accepting the position of Chairman of the PNRC Board of Governors. 2. Unless restrained. to the damage. pursuant to the ruling of this Honorable Court in the case of FLORES. race. Disaster Management. 1864. established the PNRC as a voluntary organization for the purpose contemplated in the Geneva Convention of 27 July 1929. PNRC is a Private Organization Performing Public Functions On 22 March 1947. Even if the Court disregards the infirmities of the petition and treats it as a taxpayers suit. The Issues Petitioners raise the following issues: 1. constitutes a ground for the forfeiture of his office. Social Services and Voluntary Service. Article VI of the Philippine Constitution. Article VI of the Philippine Constitution applies to the case of respondent who is Chairman of the PNRC and at the same time a Member of the Senate. gender. Safety Services. Switzerland. (Emphasis supplied) Petitioners allege in their petition that: 4. petitioners do not claim to be entitled to the Senate office of respondent. social status. a convention by which the nations of the world were invited to join together in diminishing. 6. position or franchise may be commenced by a verified petition brought in the name of the Republic of the Philippines against: (a) A person who usurps. The Courts Ruling We find the petition without merit.[9] The Republic of the Philippines. and 4. the petition would still fail on the merits. whose mission is to bring timely. donor-funded. effective. It is respectfully submitted that in accepting the position of Chairman of the Board of Governors of the PNRC on February 23. the evils inherent in war. Rule 66 of the Rules of Court. on August 22. x x x xxxx 10. 12. Quo warranto is generally commenced by the Government as the proper party plaintiff. despite the fact that he is still a senator. Article VI of the Philippine Constitution. voluntary. Action by Government against individuals. under Section 5. a public officer who allegedly committed an act which constitutes a ground for the forfeiture of his public office. Respondent became the Chairman of the PNRC when he was elected as such during the First Regular Luncheon-Meeting of the Board of Governors of the PNRC held on February 23. or (c) An association which acts as a corporation within the Philippines without being legally incorporated or without lawful authority so to act. more than sixty nations of the world have ratified or adhered to the subsequent revision of said convention. specifically under Section 1(b). 5. such an action is for quo warranto.owned or controlled corporation. respondent has been exercising the powers and discharging the functions and duties of said office. collecting the salaries. The PNRC is a nonprofit. respondent has automatically forfeited his seat in the Senate. Roxas signed Republic Act No. Community Health and Nursing. the minutes of which is hereto attached and made integral part hereof as Annex A. and compassionate humanitarian assistance for the most vulnerable without consideration of nationality. [5] (Emphasis supplied) Thus. petitioners filed an action for usurpation of public office against respondent. functions and duties of a senator. adhering to the Geneva Conventions. benefits and privileges appertaining and due only to the legitimate senators. petitioners have no standing to file the present petition.[7] otherwise known as the PNRC Charter. Petitioners point out that this Court has jurisdiction over this petition since it involves a legal or constitutional issue which is of transcendental importance.Bus Org 2 Cases 1st Set Prelim 88 has been drawing his salaries and other compensation as a Senator even if he is no longer entitled to his office. Clearly. during his incumbency as a Member of the House of Senate of the Congress of the Philippines. Since his election as Chairman of the PNRC Board of Governors. It is the respectful submission of the petitioner[s] that by accepting the chairmanship of the Board of Governors of the PNRC. VS. or unlawfully holds or exercises a public office. emoluments and other compensations. [4] The substantial issue boils down to whether the office of the PNRC Chairman is a government office or an office in a governmentowned or controlled corporation for purposes of the prohibition in Section 13. Whether petitioners may legally institute this petition against respondent. religion. Rule 66 of the Rules of Court. Despite the fact that he is no longer a senator. 104732. Respondent was elected as Chairman of the PNRC Board of Governors. [6] In the present case. contrary to the constitution. humanitarian organization. Petitioners Have No Standing to File this Petition A careful reading of the petition reveals that it is an action for quo warranto. position or franchise. No. The person instituting quo warranto proceedings in his own behalf must claim and be able to show that he is entitled to the office in dispute.

The Movement is united and guided by its seven Fundamental Principles: 1. It must be open to all. and the National Red Cross and Red Crescent Societies (National Societies). religious or ideological nature. WHEREAS. Article VII of the Constitution. provides: SECTION 6. the PNRC volunteers must not be seen as belonging to any side of the armed conflict. 4. neutral and independent in order to conduct its activities in accordance with the Fundamental Principles. as amended. to prevent and alleviate human suffering wherever it may be found. the PNRC must not only be. (Emphasis supplied) The government does not control the PNRC. ambassadors. respondent Senator Gordon. eighteen shall be elected by chapter delegates in biennial conventions and the remaining six shall be selected by the twenty-four members of the Board already chosen. 6. the insurgents or separatists will treat PNRC volunteers as enemies when the volunteers tend to the wounded in the battlefield or the displaced civilians in conflict areas. six of whom shall be appointed by the President of the Philippines. while auxiliaries in the humanitarian services of their governments and subject to the laws of their respective countries. The PNRC must not appear to be an instrument or agency that implements government policy. Thus. The governing powers and authority shall be vested in a Board of Governors composed of thirty members. the PNRC cannot be owned or controlled by the government. In order to be recognized as a National Society. [13] The PNRC is financed primarily by contributions from private individuals and private entities obtained through solicitation campaigns organized by its Board of Governors. the Republic of the Philippines became an independent nation on July 4. commissions or boards.Clearly. cooperation and lasting peace amongst all peoples. the PNRC cannot be seen as government-owned or controlled.[11] The reason for this autonomy is fundamental. [16] the Court explained appointments under Section 16 in this wise: Under Section 16. HUMANITY The International Red Cross and Red Crescent Movement. which exercises all corporate powers of the PNRC. in which all Societies have equal status and share equal responsibilities and duties in helping each other. Under this Section 16. 2. UNITY There can be only one Red Cross or one Red Crescent Society in any one country. Under the PNRC Charter. otherwise. the law may also authorize the heads of departments. officers of the armed forces from the rank of . and to give priority to the most urgent cases of distress. (Emphasis supplied) The PNRC is a member National Society of the International Red Cross and Red Crescent Movement (Movement). was elected. Otherwise. x x x. The PNRC Board of Governors. or boards to appoint officers lower in rank than such heads of departments. Indeed. has the duty to uphold the Fundamental Principles and ideals of the Movement. as amended. endeavors. the Philippine government does not own the PNRC. twenty-four members. [15] In Rufino v. and WHEREAS. NEUTRALITY In order to continue to enjoy the confidence of all. It promotes mutual understanding. the Geneva Red Cross Convention envisages the establishment in each country of a voluntary organization to assist in caring for the wounded and sick of the armed forces and to furnish supplies for that purpose. the President appoints three groups of officers. is worldwide. The National Societies. in its international and national capacity. [14] the President appoints all officials and employees in the Executive branch whose appointments are vested in the President by the Constitution or by law. it cannot merit the trust of all and cannot effectively carry out its mission as a National Red Cross Society. 1946 and proclaimed its adherence to the Geneva Red Cross Convention on February 14. (Emphasis supplied) The Fundamental Principles provide a universal standard of reference for all members of the Movement. neutral. the PNRC has to be autonomous and must operate in conformity with the Fundamental Principles of the Movement. Under Section 16. the International Federation of Red Cross and Red Crescent Societies (International Federation). eighteen are elected by the chapter delegates of the PNRC. In the Philippines where there is a communist insurgency and a Muslim separatist rebellion. 7. As a national voluntary organization. The PNRC does not have government assets and does not receive any appropriation from the Philippine Congress. other public ministers and consuls. or four-fifths (4/5). and neither can the PNRC volunteers be identified as government personnel or as instruments of government policy. The incumbent Chairman of PNRC. neutrality. To be accepted by warring belligerents as neutral workers during international or internal armed conflicts. as all PNRC Chairmen are elected. friendship. an overwhelming majority of four-fifths of the PNRC Board are elected or chosen by the private sector members of the PNRC. racial. of the PNRC Board of Governors are not appointed by the President. The President also appoints those whose appointments are not otherwise provided by law. of the twenty-four members of the PNRC Board. and through their mutual assistance and cooperation directly and through their international organizations promote better understanding and sympathy among the peoples of the world. agencies. class or political opinions. and independent in relation to the State. but must also be seen to be. These fund raising campaigns shall be conducted independently of other fund drives by other organizations. born of a desire to bring assistance without discrimination to the wounded on the battlefield. autonomous. It endeavors to relieve the suffering of individuals. Article VII of the 1987 Constitution. It must carry on its humanitarian work throughout its territory. must always maintain their autonomy so that they may be able at all times to act in accordance with the principles of the Movement. The first group refers to the heads of the Executive departments. as a member National Society of the Movement.[12] It is imperative that the PNRC must be autonomous. IMPARTIALITY It makes no discrimination as to nationality. Section 6 of the PNRC Charter. UNIVERSALITY The International Red Cross and Red Crescent Movement. agencies. and six are elected by the twenty-four members already chosen a select group where the private sector members have three-fourths majority. which is composed of the International Committee of the Red Cross (ICRC). and by that action indicated its desire to participate with the nations of the world in mitigating the suffering caused by war and to establish in the Philippines a voluntary organization for that purpose as contemplated by the Geneva Red Cross Convention. INDEPENDENCE The Movement is independent. race.Bus Org 2 Cases 1st Set Prelim 89 WHEREAS. by a private sector-controlled PNRC Board four-fifths of whom are private sector members of the PNRC. religious beliefs. The PNRC. Endriga. 5. only six of the thirty members of the PNRC Board of Governors are appointed by the President of the Philippines. Its purpose is to protect life and health and to ensure respect for the human being. 3. there existed in the Philippines since 1917 a Charter of the American National Red Cross which must be terminated in view of the independence of the Philippines. being guided solely by their needs. the Movement may not take sides in hostilities or engage at any time in controversies of a political. 1947. VOLUNTARY SERVICE It is a voluntary relief movement not prompted in any manner by desire for gain. elects the PNRC Chairman and all other officers of the PNRC. To ensure and maintain its autonomy. Thus. the Philippine National Red Cross shall be financed primarily by contributions obtained through solicitation campaigns throughout the year which shall be organized by the Board of Governors and conducted by the Chapters in their respective jurisdictions. as provided under Section 11 of the PNRC Charter: SECTION 11. commissions. Thus. The PNRC Chairman is not appointed by the President or by any subordinate government official. WHEREAS. the volunteer organizations established in the other countries which have ratified or adhered to the Geneva Red Cross Convention assist in promoting the health and welfare of their people in peace and in war. and independence.

Not being a government official or employee. acting as such Undersecretary. bureaus. the freely-elected representatives of a National Societys active members must remain in a large majority in a National Societys governing bodies. Certainly. Under the Revised Administrative Code of 1987. Under Section 17. In the last three situations. Thus. or quasi-judicial functions. In a board. Any office in the Executive branch that is not under the control of the President is a lost command whose existence is without any legal or constitutional basis. 5. The CCP does not fall under the Legislative or Judicial branches of government. However. there is a fourth group of lower-ranked officers whose appointments Congress may by law vest in the heads of departments. Endriga.[22] which ruled that the PNRC is a government-owned or controlled corporation. and exercises control of all the executive departments. agency. The word heads refers to the chairpersons of the commissions or boards and not to their members. or agency has no legal and constitutional basis for its existence. the power is vested in the head of the agency for it would be preposterous to vest it in the agency itself. Petitioners anchor their petition on the 1999 case of Camporedondo v. Article VII of the Constitution. does not hold a government office or employment. The Presidents power of control applies to the acts or decisions of all officers in the Executive branch. The President does not appoint the Chairman of the PNRC. commission or board appoint the PNRC Chairman. Thus. The PNRC is not a governmentowned or controlled corporation. the President sits at the apex of the Executive branch.000 for the year. In an agency. There can be no instance under the Constitution where an officer of the Executive branch is outside the control of the President. and in no other person. The PNRC Board exercises all corporate powers of the PNRC. The third group refers to all other officers of the Government whose appointments are not otherwise provided by law. or boards. and offices.[19] The PNRC is not government-owned but privately owned. or Judicial branches. The CCP is also not one of the independent constitutional bodies. The President cannot reverse or modify the decisions or actions of the PNRC Board. P500 or P1. or must be a quasi-judicial body or local government unit. P300. for several reasons. or boards. the Court then ruled that it is a government corporation. or must belong to one of the independent constitutional bodies. commissions. Section 17. The second group refers to those whom the President may be authorized by law to appoint. If an office is legally not under the control of the President. NLRC. In Rufino v. There is no dispute that the CCP performs executive. Section 5 of the PNRC Charter. agencies. the head is the chairperson of the commission. The vast majority of the thousands of PNRC members are private individuals. Since the President exercises control over all the executive departments. Any contribution to the Philippine National Red Cross Annual Fund Campaign shall entitle the contributor to membership for one year and said contribution shall be deductible in full for taxation purposes. the head is the Secretary. and other officers whose appointments are vested in the President by the Constitution. as such. The law may not authorize the Undersecretary. [17] the President exercises control over all government offices in the Executive branch. the PNRC Chairman. Membership in the Philippine National Red Cross shall be open to the entire population in the Philippines regardless of citizenship. Neither does the head of any department. x x x xxx In a department in the Executive branch. and offices. In mandating that the President shall have control of all executive . as amended by Presidential Decree No. commissions. P100. It is the PNRC Board that can review. Under the PNRC Charter. In ruling that the PNRC is a government-owned or controlled corporation. whether residents or not. this can be justified by the need for proper coordination with the public authorities. the PNRC Chairman is not an official or employee of the Executive branch since his appointment does not fall under Section 16. Neither is the CCP a quasi-judicial body nor a local government unit. judicial. reverse or modify the decisions or actions of the PNRC Chairman. This is true whether such officers are appointed by the President or by heads of departments. agencies. The power of control means the power to revise or reverse the acts or decisions of a subordinate officer involving the exercise of discretion. Under the same Section 16. the simple test used was whether the corporation was created by its own special charter for the exercise of a public function or by incorporation under the general corporation law. In short. the Camporedondo ruling failed to consider the definition of a government-owned or controlled corporation as provided under Section 2(13) of the Introductory Provisions of the Administrative Code of 1987: . . Article VII of the 1987 Constitution does not exempt any executive office one performing executive functions outside of the independent constitutional bodies from the Presidents power of control.Bus Org 2 Cases 1st Set Prelim 90 colonel or naval captain. any one between 6 and 65 years of age can be a PNRC member for one year upon contributing P35. the PNRC Chairman is not an official or employee of the Judiciary or Legislature. those who contribute to the annual fund campaign of the PNRC are entitled to membership in the PNRC for one year. privately funded. The PNRC is controlled by private sector individuals. entity.[18] the Court explained the Presidents power of control over all government offices as follows: Every government office. the CCP must fall under the Executive branch. and not legislative. However. to appoint lower-ranked officers in the Executive department. then such office is not part of the Executive branch. and the government representatives may take part in decision-making within a National Society. and privately run charitable organization. Thus. the President necessarily exercises control over the CCP which is an office in the Executive branch. the head is also the chairperson of the board. not a government office. can be members of the PNRC. such government office. This proves again that the office of the PNRC Chairman is a private office. Decisions or actions of the PNRC Board are not reviewable by the President. [21] reads: SEC. This leads us to the obvious conclusion that the PNRC Chairman is not an official or employee of the Philippine Government. including students.[20] Even foreigners. or board to appoint lower-ranked officers. the PNRC is a privately owned. Legislative. 1264. (Emphasis supplied) An overwhelming four-fifths majority of the PNRC Board are private sector individuals elected to the PNRC Board by the private sector members of the PNRC. bureaus. or agency must fall under the Executive. Although the State is often represented in the governing bodies of a National Society. The Executive branch is unitary since there is only one President vested with executive power exercising control over the entire Executive branch. . Otherwise. entity. In a commission. Neither can the President reverse or modify the decisions or actions of the PNRC Chairman. Since the PNRC was created under a special charter. Article VII of the Constitution. commission. any agency not placed by law or order creating them under any specific department falls under the Office of the President. offices. xxx The Constitution authorizes Congress to vest the power to appoint lower-ranked officers specifically in the heads of the specified offices. the law may not also authorize officers other than the heads of the agency. Thus.

reads: SEC. [35] 9. The national headquarters of this Corporation shall be located in Metropolitan Manila. it must necessarily exist under a general law. the board directors and other personnel of the Local Water Districts are government employees subject to civil service laws and anti-graft laws. which constitutes their special charter.[36] 10. and in the case of a stock corporation. and as discussed earlier. The purpose of this constitutional provision is to ban private corporations created by special charters. Commission on Audit. In creating the PNRC as a corporate entity. creates the PNRC as a body corporate and politic. The Constitution recognizes two classes of corporations.[33] 7. The PNRC Charter is Violative of the Constitutional Proscription against the Creation of Private Corporations by Special Law The 1935 Constitution. In the case of a non-stock corporation. only corporations created under a general law can qualify as private corporations. The subsequent 1973 and 1987 Constitutions contain similar provisions prohibiting Congress from creating private corporations except by general law. Article XIV of the 1935 Constitution. [27] is void for being unconstitutional. The Congress shall not. the general law is the Corporation Code. Since private corporations cannot have special charters. If the corporation is private. unlike the Local Water Districts. thus: SECTION 1.000. The Congress shall not. 2. That government-owned or controlled corporations may be further categorized by the Department of the Budget. The seed capital assets of the Local Water Districts. organization.[29] 3. municipality or province before the assets were transferred to the Local Water Districts. it follows that Congress can create corporations with special charters only if such corporations are government-owned or controlled. Thus. provide for the formation.[23] the Court explained the constitutional provision prohibiting Congress from creating private corporations in this wise: We begin by explaining the general framework under the fundamental law. Section 7. loans.(Boldfacing and underscoring supplied) A government-owned or controlled corporation must be owned by the government. to the extent of at least fifty-one (51) percent of its capital stock: Provided. the constitutional prohibition against the creation of private corporations by special charters provides no exception even for non-profit or charitable corporations. except by general law. it cannot be considered a government-owned or controlled corporation in the absence of the essential elements of ownership and control by the government.[34] 8. vested with functions relating to public needs whether governmental or proprietary in nature. or regulation of private corporations. operated by or under the control of the city. 7. The first refers to private corporations created under a general law.[28] 2. were public property which were managed. by analogy at least a majority of the members must be government officials holding such membership by appointment or designation by the government. the Civil Service Commission. There is hereby created in the Republic of the Philippines a body corporate and politic to be the voluntary organization officially designated to assist the Republic of the Philippines in discharging the obligations set forth in the Geneva Conventions and to perform such other duties as are inherent upon a National Red Cross Society. Private corporations may exist only under a general law. or regulation of private corporations. was in force when the PNRC was created by special charter on 22 March 1947. Such legislation would be unconstitutional. The Local Water Districts also receive subsidies and loans from the Local Water Utilities Administration (LWUA).[24] (Emphasis supplied) In Feliciano. Under existing laws. The Constitution authorizes Congress to create government-owned or controlled corporations through special charters. unless such corporations are owned or controlled by the Government or any subdivision or instrumentality thereof. although the PNRC is created by a special charter. Stated differently. [25]the LWUA has a budget amounting to P400. appoints all the board directors of the Local Water Districts. either through transfer of assets.000 for its subsidy requirements. 16. which historically gave certain individuals. under the 2009 General Appropriations Act. at least a majority of its capital stock must be owned by the government. organization. except by general law. [26] There is no private capital invested in the Local Water Districts.[32] 6. However. the elements of government ownership and control are clearly lacking in the PNRC. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability. In short. Furthermore. families or groups special privileges denied to other citizens.[37] 11. and owned by the Government directly or through its instrumentalities either wholly. Just like the Local Water Districts. as amended.[31]5. Clearly. and the Commission on Audit for purposes of the exercise and discharge of their respective powers. x x x (13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation. In fact.[30] 4(a). such as waterworks and sewerage facilities. the government does not own or control PNRC. Under this criterion. or the provincial governor. as amended. the PNRC was created through a special charter. The government also controls the Local Water Districts because the municipal or city mayor. functions and responsibilities with respect to such corporations. the PNRC Charter.Bus Org 2 Cases 1st Set Prelim 91 SEC. The Constitution emphatically prohibits the creation of private corporations except by general law applicable to all citizens. Congress cannot enact a law creating a private corporation with a special charter. insofar as it creates the PNRC as a private corporation and grants it corporate powers. Section 16. Sections 1. Consequently. 198. except that the Cooperative Code governs the incorporation of cooperatives. Thus. the Court held that the Local Water Districts are government-owned or controlled corporations since they exist by virtue of Presidential Decree No. the Local Water Districts are considered governmentowned or controlled corporations not only because of their creation by special charter but also because the government in fact owns and controls the Local Water Districts. Congress was in fact creating a private corporation.[39] and 13[40] of the PNRC Charter. or where applicable as in the case of stock corporations. Article XII of the Constitution provides: Sec. The second refers to government-owned or controlled corporations created by special charters. subsidies or the income from such assets or funds. . (Emphasis supplied) In Feliciano v. However. as amended. are void. The capital assets and operating funds of the Local Water Districts all come from the government.[38] 12. General Terms Defined. Section 1 of the PNRC Charter. as amended. provide for the formation.

10. SEC. shall likewise be deemed a vessel of domestic ownership so long as there shall not be any change in the ownership thereof nor any transfer of stock of the companies or corporations owning such vessel to person not included under the last preceding paragraph. (b) citizens of the United States residing in the Philippine Islands. and if not disapproved within such time it shall become a law the same as if it had been specifically approved. the PNRC should incorporate under the Corporation Code and register with the Securities and Exchange Commission if it wants to be a private corporation.Bus Org 2 Cases 1st Set Prelim 92 The other provisions[41] of the PNRC Charter remain valid as they can be considered as a recognition by the State that the unincorporated PNRC is the local National Society of the International Red Cross and Red Crescent Movement. 1172. 364. The other provisions of the PNRC Charter implement the Philippine Governments treaty obligations under Article 4(5) of the Statutes of the International Red Cross and Red Crescent Movement. are VOID because they create the PNRC as a private corporation or grant it corporate powers. 4(a). and still in force. 1264 and 1643. That tariff acts or acts amendatory to the tariff of the Philippine Islands shall not become law until they shall receive the approval of the President of the United States. as amended by Presidential Decree Nos. 8.. 2761.. While the facts are thus admitted. 2. or of any State thereof. — No application for a certificate of Philippine register shall be approved until the collector of customs is satisfied from an inspection of the vessel that it is engaged or destined to be engaged in legitimate trade and that it is of domestic ownership as such ownership is defined in section eleven hundred and seventy-two of this Code. 1916. when not inconsistent with this Act. by due enactment to amend. exemptions and privileges set forth in the PNRC Charter. . yet the issue submitted is not lightly to be resolved. SEC. 7. SEC.. from time to time. is hereby granted to the Philippine Legislature. amended. 3. That no law shall be enacted in said Islands which shall deprive any person of life. the taking of the certificate of Philippine register shall be optional with the owner. In sum. SEC. 3. SEC.) The Act of Congress of August 29. 95. to compel him to issue a certificate of Philippine registry to the petitioner for its motor vessel Bato. to the Collector of Customs for a certificate of Philippine registry. or Republic Act No. Limiting number of foreign officers and engineers on board vessels." (39 Stat at L. Sections 2 and 3 of Act No. 1906 but reenacting a portion of section 3 of this Law. or repeal any law. and of more than fifteen tons gross. That while this Act provides that the Philippine government shall have the authority to enact a tariff law the trade relations between the islands and the United States shall continue to be governed exclusively by laws of the Congress of the United States: Provided. amended. No. Certificate of Philippine register. or the managing agent or master of the vessel resides in the Philippine Islands Any vessel of more than fifteen gross tons which on February eighth. nineteen hundred and eighteen. vs. That the President shall approve or disapprove any act mentioned in the foregoing proviso within six months from and after its enactment and submission for his approval. or repealed by the legislative authority herein provided or by Act of Congress of the United States. Bell & Co. Article VI of the 1987 Constitution. repealing the Shipping Act of April 30. which provides that to be recognized as a National Society. 1908. demurs to the petition on the general ground that it does not state facts sufficient to constitute a cause of action. or property without due process of law. and thus entitled to the benefits. means ownership vested in some one or more of the following classes of persons: (a) Citizens or native inhabitants of the Philippine Islands. The AttorneyGeneral. 12. Collector of Customs of the port of Cebu. until altered.R. Bell & Co. the pertinent provisions of law are clear and understandable. Bell & Co. or passengers in order to ascertain whether the vessel is engaged in legitimate trade and is entitled to have or retain the certificate of Philippine register. is. alter modify. 31. Investigation into character of vessel. crew. of more than fifteen tons gross The Bato was brought to Cebu in the present year for the purpose of transporting plaintiff's merchandise between ports in the Islands. BELL & COMPANY (LTD. petitioner. created under the laws of the United States. 1202. That the legislative authority herein provided shall have power. and enforce regulations governing the transportation of merchandise and passengers between ports or places in the Philippine Archipelago. Ross and Lawrence for petitioner. 6. Ltd. WHEREFORE. the home port of the vessel. civil or criminal. 8. Application was made at Cebu. giving as his reason that all the stockholders of Smith. SEC. nor shall any act of the Philippine Legislature affecting immigration or the currency or coinage laws of the Philippines become a law until it has been approved by the President of the United States: Provided further. since the PNRC Charter is void insofar as it creates the PNRC as a private corporation. 7. 6. MALCOLM. 546. auxiliary to the public authorities in the humanitarian field. 9. whether the Government of the Philippine Islands. Philippine Islands. That general legislative power.). J. at L. — Upon registration of a vessel of domestic ownership. Section 3912. U. "Domestic ownership. Collector of Customs of the port of Cebu. and while. It is the owner of a motor vessel known as the Bato built for it in the Philippine Islands in 1916. We also declare that Sections 1. moreover. 2761 amended sections 1176 and 1202 of the Administrative Code to read as follows: SEC. against Joaquin Natividad. through its Legislature.. (Ltd. we hold that the office of the PNRC Chairman is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13. as follows. FACTS. 1919 SMITH. 7 Pub. Smith. [1916].. more directly stated." as used in this section. 1918. The question. first sentence). . flatly presented. still in force. 5. Attorney-General Paredes for respondent. SEC. . 15574 September 17. The Act of Congress of April 29. JOAQUIN NATIVIDAD. commonly known as the Jones Law. If the vessel is of domestic ownership and of fifteen tons gross or less. continued in force by this Act as it may from time to time see fit This power shall specifically extend with the limitation herein provided as to the tariff to all laws relating to revenue provided as to the tariff to all laws relating to revenue and taxation in effect in the Philippines. or modified herein. the Philippine Legislature enacted Act No. or deny to any person therein the equal protection of the laws. 6. is a corporation organized and existing under the laws of the Philippine Islands. The collector of customs may at any time inspect a vessel or examine its owner. the Society must be duly recognized by the legal government of its country on the basis of the Geneva Conventions and of the national legislation as a voluntary aid society. G. we declare that the office of the Chairman of the Philippine National Red Cross is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13. respondent. and 31. S. Laws. the Government of the Philippine Islands is hereby authorized to adopt. (35 Stat.). LAW. (Ltd. (c) any corporation or company composed wholly of citizens of the Philippine Islands or of the United States or of both . were not citizens either of the United States or of the Philippine Islands. a certificate of Philippine register shall be issued for it. (first paragraph. had a certificate of Philippine register under existing law. The first section of this law amended section 1172 of the Administrative Code to read as follows: SEC. 70. or of thereof. The instant action is the result. except as otherwise herein provided. Article VI of the 1987 Constitution. and interpretative American jurisprudence is found in abundance. acting as counsel for respondent. whether Act. and 13 of the Charter of the Philippine National Red Cross. No. provides in its section 1: That until Congress shall have authorized the registry as vessels of the United States of vessels owned in the Philippine Islands. 7. 1176. 2761 of the Philippine Legislature is valid — or.).) On February 23.: A writ of mandamus is prayed for by Smith. except as altered. However. 8. Comp Stat. — No Philippine vessel operating in the coastwise trade or on the high seas shall be permitted to have on board more than one master or one mate and one engineer who are not . 10. That the laws now in force in the Philippines shall continue in force and effect. authorized by this Act. A majority of its stockholders are British subjects. That all laws or parts of laws applicable to the Philippines not in conflict with any of the provisions of this Act are hereby continued in force and effect. provides in section 3. The Collector refused to issue the certificate. can deny the registry of vessels in its coastwise trade to corporations having alien stockholders. master. liberty. 10. 11.

. the State or a municipality to citizens of the United States or of the State. these decisions relate to statutes which had attempted arbitrarily to forbid aliens to engage in ordinary kinds of business to earn their living. Colorado & Santa Fe Railway Co. 391.. New Orleans Gas Co. McConway & Torley Co. Commonwealth of Pennsylvania [1914]. Commonwealth of Pennsylvania [1914]. While the Act of the local legislature may in a way be inconsistent with the Act of Congress regulating the coasting trade of the Continental United States. having particularly in mind what is so often of controlling effect in this jurisdiction — our local experience and our peculiar local conditions.. [1886]. the equal protection of the laws because it." Counsel says that Act No.191 U. Lousiana Light Co. some of whole members are foreigners. Hana [1907]. Gray [1890]. 1 Phil. In re Parrott [1880].. the right to exercise that most essential.. 27. 239 U. (State vs. (Atkin vs. (Santa Clara County vs. S. might indeed traverse the waters of the Philippines for ages without doing any particular harm. 239 U.S. Fraser vs. From the very necessities of society. whether Act No 2761 of the Philippine Legislature is valid in whole or in part — whether the Government of the Philippine Islands. always later with the sanction of the judicial branch. 1916. Hopkins [1886]. Ellis [1897]. S.356. must often be had in certain districts. S. are "persons" within the scope of the guaranties in so far as their property is concerned.175. (Tragesser vs. 15 Phil.. prohibits the corporation from owning vessels. the arteries of commerce.. S. of the equal protection of the laws. Patsone vs.. 195.. taken a firm stand with reference to the presence of undesirable foreigners. 193. color. As a matter of fact. S. No other person who is not a citizen of the United States or of the Philippine Islands shall be an officer or a member of the crew of such vessel.. 113 U. 1908. Walker [1907]. as not infringing Philippine Organic Law. Connolly [1884]. and absolutely. 164 U. Toribio [1910]. by the courts.) Another notable exception permits of the regulation or distribution of the public domain or the common property or resources of the people of the State. 239 U. 195 U.. Pembina Mining Co. discrimination against Chinese. that neither the Fourteenth Amendment to the United States Constitution. 138. it must be done under some one of the exceptions here mentioned This must be done.) One of the exceptions to the general rule. 2761 is unconstitutional by reason of its denial to a corporation. 262.' to prescribe regulations to promote the health. without regard to any differences of race. 195 Mass. S. and because classification of corporations based on the citizenship of one or more of their stockholders is capricious. are certainly superabundant authority for such a law. S. S. 232 U.) Private corporations. insistent. some evilminded foreigner might very easily take advantage of such . Considered from a positive standpoint. S. for an Insular territory thus situated.. or for. vs. 232 U. Commonwealth vs. Mortiga [1907]. the first should be interpreted and given the same force and effect as the latter. While the "due process of law and equal protection of the laws" clause of the Philippine Bill of Rights is couched in slightly different words than the corresponding clause of the Fourteenth Amendment to the United States Constitution. 534.U. and the abnegation of power by Congress in favor of the Philippine Islands would leave no starting point for convincing argument. 580. Bull [1910].) A literal application of general principles to the facts before us would. McCready vs. the State or a municipality to citizens of the United States. broad and comprehensive as it is. 39 Phil. 2761 deprives the corporation of its properly without due process of law because by the passage of the law company was automatically deprived of every beneficial attribute of ownership in the Bato and left with the naked title to a boat it could not use . and illimitable of powers. 650. liberty. vs. (U. Any such vessel which fails to comply with the terms of this section shall be required to pay an additional tonnage tax of fifty centavos per net ton per month during the continuance of said failure. (Patsone vs.. Commonwealth vs. 250. of general legislative power to the Philippine Legislature. Truax vs. 2761. 442. Co.) Boats owned by foreigners. has the executive branch of the Government of the Philippine Islands.. and Crane vs. peace. 204 U. 32 Phil.. 2761 which permits corporations or companies to obtain a certificate of Philippine registry only on condition that they be composed wholly of citizens of the Philippine Islands or of the United States or both. [1885]. (Kepner vs. within the confines of Philippine jurisdictional limits are found more than three thousand islands. and legislate so as to increase the industries of the State. The guaranties of the Fourteenth Amendment and so of the first paragraph of the Philippine Bill of Rights. New York [1915]. 239 U. 131 Mich. 195 Mass ... 33. these basic principles must again be set down in order to serve as the basis of this decision.. Truax vs. 578. 232U. prohibitory standpoint that counsel argues against the constitutionality of Act No. (Yick Wo vs. Churchill and Tait vs. Pennsylvania [1888]. Hana [1907]. having these objects in view.. Kansas [1903]. Heim vs... Heim vs. Like all beneficient propositions. 254. New York [1915]...165 U. or for. it is admitted that a State may classify with reference to the evil to be prevented.. Davenport [1859] 22 How. 227. so that use may be limited to its citizens. Provincial Board of Mindoro [1919]. sometimes termed its `police power. R.125 U. or nationality. S. It is from the negative.) Still another exception permits of the limitation of employment in the construction of public works by. S. Sierra vs.. vs. most persistent and far reaching in influence is. then the security of the country and the promotion of the general welfare is sustained.. 1902. Tiaco and Crossfield [1910].470. 7. vs. 118. Rafferty [1915]. S. McCall [1915]. 41. Chuoco. Even at the expense of restating what is so well known. Virginia [1876]. limiting employment on public works by. McCall [1915].) The meaning of the Fourteenth Amendment has been announced in classic decisions of the United States Supreme Court.. dependent upon experience. or deny to any person therein the equal protection of the laws. acting through its Legislature.) This is the same police power which the United States Supreme Court say "extends to so dealing with the conditions which exist in the state as to bring out of them the greatest welfare in of its people.. and good order of the people. even if they hold licenses under section one thousand one hundred and ninety-nine hereof. 70 Fla.. 262. "was designed to interfere with the power of the State. with its specific delegation of authority to the Government of the Philippine Islands to regulate the transportation of merchandise and passengers between ports or places therein. 82 Fed . ( In re Patterson [1902]. Again. 2761 denies to Smith.Bus Org 2 Cases 1st Set Prelim 93 citizens of the United States or of the Philippine Islands. 15 Phil. 33.) To justify that portion of Act no.. 481.. Rubi vs. 100. [1904]. To recall a few facts in geography. Ex parte Gilleti [1915]. Southern Pac. Literally. If on the other hand these arteries are protected. the Act of Congress of July 1." (Barbier vs. and that Act No. 150. with such conditions confronting it.. the issues as above stated recur. In re McCulloch Dick [1918]. 195. are universal in their application to all person within the territorial jurisdiction. nor any other amendment.) Even as to classification. all relating to the employment of aliens by private corporations. 181 Covington & L. Generally. 239 U. yet the general rule that only such laws of the United States have force in the Philippines as are expressly extended thereto. in the promotion of the general welfare and the public interest. 549.. 257. Turnpike Road Co. Hopkins [1886].. 1 Fed . Ltd. none of the provision of the Philippine Organic Law could could have had the effect of denying to the Government of the Philippine Islands. counsel for petitioner does not assail legislative action from this direction ( See U. U. morals. 442. Crane vs.228 U. 118 U. through its Legislature. 118 U. 207. 311.. OPINION. develop its resources and add to its wealth and prosperity. 394.. Bell & Co.S. prohibiting the killing of any wild bird or animal by any unnaturalized foreign-born resident.. (Ex parte Gilleti [1915]. licenses to sell spirituous liquors denied to persons not citizens of the United States. 15 Phil..) Classification with the end in view of providing diversity of treatment may be made among corporations. Yick Wo vs. 175. the life-blood of the nation is lost. 187 Penn. vs. 239 U. 16 Phil. likewise. [1897]. can deny the registry of vessel in its coastwise trade to corporations having alien stockholders . R. If one be severed. Fagley [1898]. Sinnot vs. Board of Examiners of Barbers [1902]. 356. vs. Forbes vs. namely. peddling — but see. excluding aliens from the right to peddle. 70 Fla. S. Raich [1915]. 38 Phil. of course. S. Raich [1915].. 138. Time and again. there can exist no measure of doubt as to the power of the Philippine Legislature to enact Act No. The guaranties extended by the Congress of the United States to the Philippine Islands have been used in the same sense as like provisions found in the United States Constitution. 73 Md. Commonwealth of Pennsylvania [1914]. S.S.. 1. S. repeated again in the first paragraph of the Philippine Bill of Rights as set forth in the Jones Law. S. S. 138. Examples of a denial of rights to aliens notwithstanding the provisions of the Fourteenth Amendment could be cited. 192. 94 U. 115 U. The first paragraph of the Philippine Bill of Rights of the Philippine Bill. The word "person" includes aliens.S..S. 94 Maine.) 2. moreover. 204 U. the liberal construction given to the provisions of the Philippine Bill. 660. the question is a practical one. or property without due process of law. particularly by such solid and reputable firms as the instant claimant. and the grant by the Act of Congress of August 29.. 7. in effect. provides "That no law shall be enacted in said Islands which shall deprive any person of life. legislation of a special character. Juniata Limestone Co. Sandford [1896]. S. but must be based upon some reasonable ground and not be a mere arbitrary selection (Gulf.. S. Patsone vs. vs. Predicated on these facts and provisions of law. Bull [1910]. the sovereign police power. ISSUES. cause the inevitable deduction that Act No.) For quite similar reasons.) Examples of laws held unconstitutional because of unlawful discrimination against aliens could be cited. education. The Government has thus assumed to act for the all-sufficient and primitive reason of the benefit and protection of its own citizens and of the self-preservation and integrity of its dominion. vs. Templar vs. 85. 93. 2761. Montgomery [1900]. . barbers. U. The Act of Congress of April 29.S." (Bacon vs... discriminating in favor of citizens with reference to the taking for private use of the common property in fish and oysters found in the public waters of the State. S. deeper research discloses provisos. steamship lines are.

are thus found not to be as radical as a first reading would make them appear. The power to regulate commerce. Commonwealth of Pennsylvania ([1913]. the United States Supreme Court once said. (Old Dominion Steamship Co. and furniture. 355) in 1902. or in the profits or issues thereof. Ogden [1824]. notably. or otherwise. the AttorneyGeneral of the United States was of the opinion that under the provisions of the Act of December 31. . as contradistinguished from foreign.) That Act was shortly after repealed. confidence. Chief Justice Marshall said that all the privileges of an American bottom were ipso facto forfeited. 9 Wheat.Gen. or to prejudice Filipino or American commerce. Ogden ([1824]. if possible.) On American occupation of the Philippines.S. States. unjustifiably depriving the alien of property. for example. navigation.) Even as late as 1873. 2. and that if the class discriminated against is or reasonably might be considered to define those from whom the evil mainly is to be feared. But the former really depends upon the latter. We are inclined to the view that while Smith.) These laws continued in force without contest.S. in the whole legislation of the United States on this subject. the new government found a substantive law in operation in the Islands with a civil law history which it wisely continued in force Article fifteen of the Spanish Code of Commerce permitted any foreigner to engage in Philippine trade if he had legal capacity to do so under the laws of his nation. Kent's Commentaries. 3. The judgment was affirmed on successive appeals. 1. A lack of abstract symmetry does not matter. and for other purposes. in fact. Willings and Francis [1807]. and the recording of the muniments of title of American vessels. and the cargo found on board her. 1792.-Gen. on which this court ought to be very slow to declare that the state legislature was wrong in its facts (Adams vs." Section 32 of the Act of 1793 even went so far as to say "that if any licensed ship or vessel shall be transferred to any person who is not at the time of such transfer a citizen of and resident within the United States. (14 Op. that effect has been correctly attributed to the act of her enrollment. Moreover. without doubt. but does fall within authorized exceptions. 1896 (29 Stat. 138). in this instance. interested in such vessel. that the license is granted. 3. probably. declaring. 161 U. Justice Holmes delivering the opinion of the United States Supreme Court said: This statute makes it unlawful for any unnaturalized foreign-born resident to kill any wild bird or animal except in defense of person or property. "that there is no subject or citizen of any foreign prince or state.. and ship-building by giving American ship-owners exclusive privileges..S... the protection of wild life (Geer vs. might disclose similar attempts at restriction on the right to enter the coastwise trade. 340. 3.) Acting within the purview of such power. This opinion might well be brought to a close at this point. 692.]. vs.. 229 U." In case of alienation to a foreigner. 299. .. means adopted for making it effective also might be adopted. 29.. Ct. Code of 1917. Indiana. directly or indirectly. 2761. 16 Sup... Ct. 46. 287. p. Bell &... no vessel in which a foreigner is directly or indirectly interested can lawfully be registered as a vessel of the United. Atty. before the officer authorized to make such registry. has. 1) is found the following: Licensing acts. The act. so stated. B. 79 Atl.Section 4 of the Act of 1792 provided that in order to obtain the registry of any vessel. When the Philippine Commission came to enact the Customs Administrative Act (No. sec. expressly delegated to the Congress by the Constitution. and it may regulate in any way it may see fit between these two extremes. 33 Sup. although possibly the Act of March 3. 519. "affected with a public interest. Craig [1886]. retailers of spirituous liquors. Ltd. the right to register vessels in the Philippines coastwise trade. acts licensing gaming houses.. as Lord Hale said. the waters within the domestic jurisdiction are deemed part of the national domain. This. arts 1. The plaintiff in error was found guilty and was sentenced to pay the abovementioned fine.188. etc. Bell & Co. IV. Tit.) He brings the case to this court on the ground that the statute is contrary to the 14th Amendment and also is in contravention of the treaty between the United States and Italy. 57 L. it must belong wholly to a citizen or citizens of the United States "and no other. effectuate legislative intention. made possible the deduction that a vessel belonging to a domestic corporation was entitled to registry or enrollment even though some stock of the company be owned by aliens.) In Patsone vs. may have affected them. The question therefore narrows itself to whether this court can say that the legislature of Pennsylvania was not warranted in assuming as its premise for the law that resident unnaturalized aliens were the peculiar source of the evil that it desired to prevent." (1 Stat. vs. ed. Code of 1916. 304.. And now Act No.. and `to that end' makes it unlawful for such foreign-born person to own or be possessed of a shotgun or rifle. Act No." (U. the apparent purpose of the Philippine Legislature is seen to be to enact an anti-alien shipping act. was to encourage American trade.S. and so does not offend against the constitutional provision. Vol. Stanley [1915]. and place them on an equal footing with the shipping of other nations. at L. are universally restraining acts. 1789. 32 Phil. 4 Cranch. which deny to foreigners the right to a certificate of Philippine registry. does not belong to that vicious species of class legislation which must always be condemned. 9 Wheat. . but the same idea was carried into the Acts of Congress of December 31. a corporation having alien stockholders. It occurs to us. [U. 928. dependent upon experience. 117. 28 Fed. Milwaukee. 55. is entitled to the protection afforded by the due-process of law and equal protection of the laws clause of the Philippine Bill of Rights. 7 How. . and discrimination against such aliens as a class. Government from fraud by foreigners. 610. if we were to take the time to search it out. I. The object of such a law. The Passenger Cases [1849]. and forms part of an extensive system. the first Congress of the United States had not been long convened before it enacted on September 1. 583.. 3.. Ltd. Under the 14th Amendment the objection is twofold. in legislation.. in denying to corporations such as Smith. 971. a case herein before mentioned..) In the concurring opinion of Justice Johnson in Gibbons vs. 793. Ct. and to preserve the. .Bus Org 2 Cases 1st Set Prelim 94 lavish hospitality to chart Philippine waters. 1792 and February 18. But it is to confer on her American privileges. Without any subterfuge. however.. 33 Sup. under the Spanish portion of Philippine law. Queen vs.. 228 U. in surreptitiously . warrants the discrimination. 541. 2761 of the Philippine Legislature. .. 2761 has returned to the restrictive idea of the original Customs Administrative Act which in turn was merely a reflection of the statutory language of the first American Congress. open to public use. likewise. apparel. sec. 9 Q.). sec. 1825. Connecticut. with a penalty of $25 and a forfeiture of the gun or guns. Spanish Law of Waters of August 3. the. 806. at L. Almost every commercial nation reserves to its own subjects a monopoly of its coasting trade. Provisions such as those in Act No. been the intention of the United States Congress in passing navigation or tariff laws on different occasions. 795." Section 1 of this law provided that for any ship or vessel to obtain the benefits of American registry. . is one of local experience. 1052.) Two years later.. Virginia [1905]. until amended by the Act of May 28. that the legislative history of the United States and the Philippine Islands. ed. 140 U. vs. to which latter country the plaintiff in error belongs . the object of which is to encourage American shipping. The right of ownership of stock in a corporation was thereafter distinct from the right to hold the property by the corporation (Humphreys vs.. (231 Pa.]. 232 U. The law. 1793. 572. Judgment affirmed. Rep.S. Rep. (Book II. and might thus furnish valuable aid by which to ascertain and. 1235." can only be permitted to use these public waters as a privilege and under such conditions as to the representatives of the people may seem wise. It is not to give the vessel an American character. (U. since it hardly can be disputed that if the lawful object. or by one of the owners thereof.. at L. to stir up insurrection.S. it properly may be picked out. shall be forefeited. by way of trust. (Barrett vs. Adm. 29 Op.S. 48. The question is a practical one. an oath shall be taken and subscribed by the owner. . . 1866.. McKissock [1890]. Atty. as. 57 L. 1345. . the legislative history of other countries. and a countervailing privilege in favor of American shipping is contemplated. The Congress "may encourage or it may entirely prohibit such commerce. it returned to the old American policy of limiting the protection and flag of the United States to vessels owned by citizens of the United States or by native inhabitants of the Philippine Islands (Sec. 40 L. 1172). Arnaud [1846].977. the same body reverted to the existing Congressional law by permitting certification to be issued to a citizen of the United States or to a corporation or company created under the laws of the United States or of any state thereof or of the Philippine Islands (Act No. (1 Stat. and.S. The ultimate purpose of the Legislature is to encourage Philippine ship-building. 26. Ch. [U. 1050. "An Act for Registering and Clearing Vessels. 283.) If we might trust popular speech in some states it was right.) Obviously the question. but it is enough that this court has no such knowledge of local conditions as to be able to say that it was manifestly wrong. 188) which extended the privileges of registry from vessels wholly owned by a citizen or citizens of the United States to corporations created under the laws of any of the states thereof. 305. Regulating the Coasting Trade. 139. to obtain valuable information for unfriendly foreign powers.) The two administration codes repeated the same provisions with the necessary amplification of inclusion of citizens or native inhabitants of the Philippine Islands (Adm. (See De Villata vs.. as amended. Gibbons vs. The discrimination undoubtedly presents a more difficult question. ed..S. within the purview of the police power...) Common carriers which in the Philippines as in the United States and other countries are. nevertheless. is distinctly of that character.S. every such vessel with her tackle. Civil Code. 198 U. But we start with reference to the evil to be prevented. includes the power to nationalize ships built and owned in the United States by registries and enrollments. 600). Rep. Co.

Minutes of the Executive Committee Meetings from 1973 to 1986 2. Domestic navigation and trade. Flordelino B. To ensure the continuity of these companies as going concerns. Inventory listings of assets up dated up to March 31. SIACUNCO. U. Fidelity Management Co.T. 1986 by a Capt. Existing contracts with suppliers/contractors/others. Consolidated Cash Position Reports from January to April 15. By-Laws 2. we deem it our duty not to give it a construction which would be repugnant to an Act of Congress. Who can say. If the representatives of the American people acted in this patriotic manner to advance the national policy. 1. 75885 May 27. Romson Realty. JORGE B. Bataan Shipyard and Engineering Co.5. Inc. And all affiliate companies of Alfredo "Bejo" Romualdez You are hereby ordered: 1. Baseco Quarry 3.1. Aquino on February 28. 1916 No treaty right relied upon Act No.R. Schedule of company investments and placements.. 10. Ten Yu [1912]. if the language of the statute is fairly susceptible of another construction not in conflict with the higher law. the care and maintenance of these assets until such time that the Office of the President through the Commission on Good Government should decide otherwise. and if their action was accepted without protest in the courts. CHAIRMAN JOVITO SALONGA. are: (1) Executive Orders Numbered 1 and 2. 2761 of the Philippine Legislature is held valid and constitutional . He sent a letter to BASECO's . 1987 BATAAN SHIPYARD & ENGINEERING CO. G.: Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan Shipyard and Engineering Co. COMMISSIONER RAMON DIAZ. 3.. Philippine Jai-Alai Corporation 4. initiated all its misery was issued on April 14.6. So ordered. but. the members of the judiciary are not expected to live apart from active life. 3. 24.. Apostol. 1986. With full consciousness of the importance of the question. vs. and other orders issued. 1985. vs. et al. Bernas. 4. 1986 to the President and other officers of petitioner firm. and protection for the common good of the people. 5. with costs against the petitioner. Mr.) That is the true construction which will best carry legislative intention into effect. is that issued on April 21. such as: 2. Profit & Loss and others from 1973 to December 31. petitioner. (BASECO). respectively. 6.4. It was addressed to three of the agents of the Commission. the Philippine Legislature made up entirely of Filipinos. you are hereby directed to sequester the following companies. J. Inc. does not violate the provisions of paragraph 1 of section 3 of the Act of Congress of August 29. 1 b. Monthly Financial Statements for the current year up to March 31. by authority of the President of the Philippines. to wit: 1. 1. 24 Phil. The Basic Sequestration Order The sequestration order which. Trident Management Co. can incline the scales of their decisions in favor of that solution which will most effectively promote the public policy. Audited Financial Statements such as Balance Sheet. representing the mandate of the Filipino people and the guardian of their rights. addressed a letter dated April 18. takeover. Balde. 2 The letter closed with the warning that if the documents were not submitted within five days. in accordance with said executive orders by the Presidential Commission on Good Government and/or its Commissioners and agents. The United States Congress in assuming its grave responsibility of legislating wisely for a new country did so imbued with a spirit of Americanism. Takeover. All the presumption is in favor of the constitutionally of the law and without good and strong reasons. in the view of the petitioner corporation. Zabala. Further." (In re Guariña [1913]. 2761? Surely. and to citizens of the United States.S. COMMISSIONER MARY CONCEPCION BAUTISTA. Complete list of depository banks for all funds with the authorized signatories for withdrawals thereof. and (2) the sequestration. reiterating an earlier request for the production of certain documents.. 1. especially can a court. 9. the use of the common property exclusively by its citizens and the citizens of the United States. and acts done. Orders Re Engineer Island (1) Termination of Contract for Security Services A third order assailed by petitioner corporation. respondents.. To report to the Commission on Good Government periodically. "In construing a statute enacted by the Philippine Commission (Legislature). (Engineering Island Shipyard and Mariveles Shipyard) 2. promulgated by President Corazon C. and Other Orders Complained of a. a member of the task force assigned to carry out the basic sequestration order. It reads as follows: RE: SEQUESTRATION ORDER By virtue of the powers vested in the Presidential Commission on Good Government. with the prime motive of safeguarding the country and of promoting its prosperity? Quite similarly. Minutes of the Annual Stockholders Meeting from 1973 to 1986 2. Jose M. has desired for these Islands safety from foreign interlopers. DOROMAL. Articles of Incorporation 2. 1986 and March 12. Vicente G. COMMISSIONER RAUL R. 5. Gumaru. 6." c. in monastic seclusion amidst dusty tomes and ancient records. could only be carried on by citizens of the United States. Stock Transfer Book 2. hereafter simply referred to as PCGG. 1986. therefore. 1986 by Commissioner Mary Concepcion Bautista. the officers would be cited for "contempt in pursuance with Presidential Executive Order Nos. CAPT. 8. Abesamis.. Minutes of the Regular and Special Meetings of the Board of Directors from 1973 to 1986 2. 7. courts should not attempt to nullify the action of the Legislature. Phil. 1986. and such other acts essential to the achievement of this sequestration order. INC. affecting said corporation. Sison for intervenor A. who can say that they did not enact such beneficial laws under the all-pervading police power. 1 and 2.Bus Org 2 Cases 1st Set Prelim 95 intruding themselves into the American commercial marine.. it decreed. we nevertheless are clearly of the opinion that the limitation of domestic ownership for purposes of obtaining a certificate of Philippine registry in the coastwise trade to citizens of the Philippine Islands. Order for Production of Documents On the strength of the above sequestration order. The petition for a writ of mandamus is denied. Inc. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT. and imbued with a strong sense of Philippinism. COMMISSIONER QUINTIN S. DAZA. the Philippine Legislature has erred in the enactment of Act No. Legal documents. as keen spectators of passing events and alive to the dictates of the general — the national — welfare. that this whole system is projected. 7.2. Inc. 36. 2. that with all the facts and circumstances affecting the Filipino people before it. To implement this sequestration order with a minimum disruption of these companies' business activities. No. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to 1986 duly certified by the Corporate Secretary. you are authorized to request for Military/Security Support from the Military/Police authorities. Ona and Associates for petitioner. Updated schedule of Accounts Receivable and Accounts Payable. 1986. The Sequestration. New Trident Management 8. as well as frauds upon the revenue in the trade coastwise. NARVASA. acting under practically autonomous powers.3. hereafter referred to simply as BASECO. Bay Transport 9. acting for the PCGG.

. EVP Manuel S. in virtue of which the latter undertook to introduce improvements costing approximately P210. 1986. equipment and machineries no longer usable. 1986. Ruiz. Proclamation No. and arguments tainted b sophistry or intellectual dishonesty be quickly exposed and discarded. to repeat. Order for Operation of Sesiman Rock Quarry. located at Mariveles. 15 2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine Integrated Port Services. giving the latter free use of BASECO premises. Valdez. Cuesta I. 1986. which it has apparently already complied with.T. headed by Capt. Legal Dept. Mgr. the same Capt. Inc. 10 2. 19 7) planning to elect its own Board of Directors. Moises M. petitioner BASECO would have this Court nullify. Mendoza. an agreement to this effect having been executed by them on September 17. 22 3. under the principle that the law promulgated by the ruler under a revolutionary regime is the law of the land. Gilberto Pasimanero. might be made within the context of Executive Orders Nos.Bus Org 2 Cases 1st Set Prelim 96 Vice-President for Finance. "to plan and implement progress towards maximizing the continuous operation of the BASECO Sesiman Rock Quarry * * by conventional methods. and was given the following powers: 1. Article IV (Bill of Rights) of the 1973 Constitution was adopted providing. "Head. (2) Change of Mode of Payment of Entry Charges On July 15. rests on four fundamental considerations: First. 4. Re PCGG's Exercise of Right of Ownership and Management BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of its business affairs by — 1) terminating its contract for security services with Fairways & Anchor. and all other orders subsequently issued and acts done on the basis thereof. BASECO prays that this Court1) declare unconstitutional and void Executive Orders Numbered 1 and 2. Jorge B. 5. 6) terminating the services of BASECO executives: President Hilario M.14. Misconceptions regarding Sequestration. Doubts. 1986 that "the new management is not in a position to honor the said contract" and thus "whatever improvements * * (may be introduced) shall be deemed unauthorized * * and shall be at * * (Deltamarine's) own risk. Freeze and Takeover Orders Many misconceptions and much doubt about the matter of sequestration. Bataan By Order dated June 20. and amending the mode of payment of entry fees stipulated in its Lease Contract with National Stevedoring & Lighterage Corporation. Cuesta I. Capt. these acts being in violation of the non-impairment clause of the constitution. advising of the termination of their services by the PCGG. Inc. 18 5) authorizing the takeover of BASECO. In the process many of the objections raised by BASECO will be dealt with. entered into a contract in behalf of BASECO with Deltamarine Integrated Port Services. process or remedy by which petitioner may expeditiously challenge the validity of the takeover after the same has been effected. 1986. 8 g. etc. 7 f. this opinion will essay an exposition of the law on the matter. business enterprises and properties taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos." in consideration of Deltamarine's being granted "priority in using the improved portion of the wharf ahead of anybody" and exemption "from the payment of any charges for the use of wharf including the area where it may install its bagging equipments" "until the improvement remains in a condition suitable for port operations. inclusive of the takeover order of July 14. authorized another party. It is needful that these misconceptions and doubts be dispelled so that uninformed and useless debates about them may be avoided. Mayor Buenaventura was also "authorized to clean and beautify the Company's compound. sent letters to Hilario M.00 on May 11. and Benito R." particularly a "Mr. machinery and other materials. being directed against specified persons. Mayor Melba O. 1 and 2. Siacunco. 3. Commissioner Bautista. Diaz decreed the provisional takeover by the PCGG of BASECO. 17 4) authorizing the same mayor to sell or dispose of its metal scrap. hires and terminates personnel as necessary." 5 It seems however that this contract was never consummated. the PCGG is not a court. Re Order to Produce Documents It argues that the order to produce corporate records from 1973 to 1986. Third. Ruiz. Art. Second. 14 c. Commissioner Ramon A. Capt. The Governing Law a. allegedly then in poor condition. no notice and hearing was accorded * * (it) before its properties and business were taken over. Ensures that the assets of the companies are not dissipated and used effectively and efficiently. until the transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities. steal. 1 and 2 before March 25. Does actions including among others.000. Siacunco. 21 9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have been buried therein. Aborted Contract for Improvement of Wharf at Engineer Island On July 9. liberty and property without due process of law. Berenguer. Gilberto Pasimanero. Sec. Petitioner's Plea and Postulates It is the foregoing specific orders and acts of the PCGG and its members and agents which.. Manuel S. or incomplete comprehension if not indeed downright ignorance of the law governing these remedies.. there is nothing in the issuances which envisions any proceeding. Buddy Ondivilla National Marine Corporation. "the Philippine Dockyard Corporation and all their affiliated companies." (Const. The TAKEOVER Order By letter dated July 14." 13 b. 1986 and the termination of the services of the BASECO executives. Mariveles. Enters into contracts related to management and operation of the companies." advising of the amendment in part of their contracts with BASECO in the sense that the stipulated charges for use of the BASECO road network were made payable "upon entry and not anymore subject to monthly billing as was originally agreed upon. revenues are duly accounted for. avowedly to "optimize its utilization and in return maximize the revenue which would flow into the government coffers. 11 a. A. and Fourthly. Benito R. and unreasonable search and seizure. that will ensure compliance to this order. 1986." and in this connection. 4. they constitute a Bill of Attainder. Philippine Dockyard Corporation." 4 d. 3 terminating the contract for security services within the Engineer Island compound between BASECO and "Anchor and FAIRWAYS" and "other civilian security agencies. Mendoza. Order to Dispose of Scrap. 2." 6 e. carry away from petitioner's premises at Mariveles * * rolls of cable wires. Towards this end. h.(PCGG) BASECO Management Team. A management team was designated to implement the order. empowering the Commission — * * To provisionally takeover in the public interest or to prevent its disposal or dissipation. Conducts all aspects of operation of the subject companies. Finance Mgr. 20 8) allowing willingly or unwillingly its personnel to take. Abesamis. Siacunco. Installs key officers. worth P600." 12 It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration Order * * and Takeover Order * * issued purportedly under the authority of said Executive Orders.00 on the BASECO wharf at Engineer Island. takeover and freeze orders have been engendered by misapprehension. equipment. 3 . and the Sequestration and Takeover Orders While BASECO concedes that "sequestration without resorting to judicial action. 1986 when the Freedom Constitution was promulgated. Termination of Services of BASECO Officers Thereafter. Commissioner Mary Bautista first directed a PCGG agent. to manage and operate its rock quarry at Sesiman. and in disregard of the constitutional presumption of innocence and general rules and procedures. 1." 9 Diaz invoked the provisions of Section 3 (c) of Executive Order No. By another Order of Commissioner Bautista. Mayor Melba Buenaventura. Bataan. 1986. I V." advised Deltamarine by letter dated July 30. was issued without court authority and infringed its constitutional right against self-incrimination." but afterwards. 1986. 1986. seeking of military support as may be necessary. 1986 wherein under Section I of the same. and disburses funds only as may be necessary. and all their affiliated companies. Holds itself fully accountable to the Presidential Commission on Good Government on all aspects related to this take-over order. among others. to operate the quarry. Valdez. to dispose of or sell "metal scraps" and other materials. Buenaventura. S. Mariveles.000. 1). subject to specified guidelines and safeguards including audit and verification. without the consent and against the will of the contracting parties. that "No person shall be deprived of life. GM Moises M. it ceased to be acceptable when the same ruler opted to promulgate the Freedom Constitution on March 25. More particularly. Re Executive Orders No. but a purely investigative agency and therefore not competent to act as prosecutor and judge in the same cause. a PCGG fiscal agent. in representation of the PCGG. 16 3) authorizing PCGG Agent. 6. Zabala issued a Memorandum addressed to "Truck Owners and Contractors. this time dated June 26. 2) annul the sequestration order dated April." CAPCOM military personnel having already been assigned to the area.

accounts. whether located in the Philippines or abroad. dummies. to make full disclosure of the same to the Commission on Good Government within thirty (30) days from publication of * (the) Executive Order. 2) prohibited former President Ferdinand Marcos and/or his wife * *. that "there are assets and properties purportedly pertaining to former President Ferdinand E. instrumentalities. business associates. instrumentalities. residences. enterprises. subordinates. 3. subordinates and close associates. 14. by taking undue advantage of their public office and/or using their powers. 41 6. subordinates and close associates. 2. his family and his dominions of the assets and properties involved. banks or financial institutions. subordinates. 3. 38 b) otherwise stated. Mrs. mansions. condominiums. dummies. Marcos. and close associates both here and abroad. authority. resulting in their unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines:" and 2) * * said assets and properties are in the form of bank accounts." 34 All such cases. influence. are to be filed "with the Sandiganbayan which shall have exclusive and original jurisdiction thereof. shares of stocks." It declares that: 1) * * the Government of the Philippines is in possession of evidence showing that there are assets and properties purportedly pertaining to former Ferdinand E. these being: 1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the previous regime". 29 It was given power also to promulgate such rules and regulations as may be necessary to carry out the purposes of * * (its creation). their close relatives. in connection with * * (said Executive Orders Numbered 1 and 2) may be filed separately from and proceed independently of any criminal proceedings and may be proved by a preponderance of evidence. encumbering. their close relatives. * * located in the Philippines or abroad. shopping centers. banks or financial institutions. whether located in the Philippines or abroad. authority. Imelda Romualdez Marcos. still a balance must be sought with the equally compelling necessity that a proper respect be accorded and adequate protection assured. business associates. Executive Order No. Contemplated Situations The situations envisaged and sought to be governed are self-evident. shares of stocks. banks or financial institutions. authority." 24 b. buildings. deposits. Executive Order No. his immediate family. 1 Executive Order No. 37 a) more particularly. business enterprises and properties taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos. agents. pending the outcome of appropriate proceedings in the Philippines to determine whether any such assets or properties were acquired by them through or as a result of improper or illegal use of or the conversion of funds belonging to the Government of the Philippines or any of its branches. subordinates. To provisionally take over in the public interest or to prevent the disposal or dissipation. 1 stresses the "urgent need to recover all ill-gotten wealth. their close relatives. and/or his wife Mrs. encumbering or otherwise depleting or concealing such assets and properties or from assisting or taking part in their transfer." and 4) required "all persons in the Philippines holding such assets or properties. and to which all members of that society may without exception lay claim." among others to (r)ecover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or freezing of assets or accounts. . or frustrate or otherwise make ineffectual the efforts of the Commission to carry out its task under this order. * * (and) business enterprises and entities (came to be) owned or controlled by them. or nominees from transferring. require submission of evidence by subpoenae ad testificandum and duces tecum. conveying. influence. to be demonstrable by competent evidence. business associates. shopping centers. the PCGG was granted "power and authority" to do the following particular acts. encumbrance. during his administration. duties. agents or trustees. or nominees have any interest or participation. buildings. instrumentalities. To sequester or place or cause to be placed under its control or possession any building or office wherein any ill-gotten wealth or properties may be found. concealment or dissipation under pain of such penalties as are prescribed by law. the recovery from Marcos. enterprises. ordained by Proclamation No. 27 In relation to the takeover or sequestration that it was authorized to undertake in the fulfillment of its mission. until the transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities. agents. the "technical rules of procedure and evidence shall not be strictly applied to* * (said)civil cases. relationship. 2 Executive Order No. his immediate family.Bus Org 2 Cases 1st Set Prelim 97 The impugned executive orders are avowedly meant to carry out the explicit command of the Provisional Constitution. 30 c." among which was precisely* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E. mansions." 25 Upon these premises. estates. his immediate family. Marcos. relatives. Imelda Romualdez Marcos. enterprises. the fundamental rights of private property and free enterprise which are deemed pillars of a free society such as ours. connections or relationship. punish for contempt. trust. or by taking undue advantage of their office. residences. connection or influence to unjustly enrich themselves at the expense and to the grave damage and prejudice of the Filipino people and the Republic of the Philippines. administer oaths. whether civil or criminal. 26 "charged with the task of assisting the President in regard to (certain specified) matters. relatives." Neither can there be any debate about the proposition that assuming the above described factual premises of the Executive Orders and Proclamation No. agents or nominees which had been or were acquired by them directly or indirectly. Executive Order No. But however plain and valid that right and duty may be. agents or nominees which had been or were acquired by them directly or indirectly. trust accounts. by taking undue advantage of their public office and/or using their powers. during * * (the Marcos) administration. it was granted power to conduct investigations. concealment or disappearance which would frustrate or hamper the investigation or otherwise prevent the Commission from accomplishing its task. through or as a result of the improper or illegal use of funds or properties owned by the Government of the Philippines or any of its branches. 14 A third executive order is relevant: Executive Order No." 35 Executive Order No. Marcos. influence. 39 c) that "said assets and properties are in the form of bank accounts. and other kinds of real and personal properties in the Philippines and in various countries of the world. 14 also pertinently provides that civil suits for restitution. 3 to be true. "with the assistance of the Office of the Solicitor General and other government agencies. Imelda Romualdez Marcos. that ill-gotten wealth (was) accumulated by former President Ferdinand E. 23 that the President-in the exercise of legislative power which she was authorized to continue to wield "(until a legislature is elected and convened under a new Constitution" — "shall give priority to measures to achieve the mandate of the people. influence. the President1) froze "all assets and properties in the Philippines in which former President Marcos and/or his wife." and postulates that "vast resources of the government have been amassed by former President Ferdinand E." 40 and 2) that certain "business enterprises and properties (were) taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos. dummies. estates. forfeiture proceedings provided for under Republic Act No. to wit: 1. 33 by which the PCGG is empowered. connections or relationship. or any other civil actions under the Civil Code or other existing laws." 31 Upon these premises. or indemnification for consequential damages. relatives. is not only a right but a duty on the part of Government. 32 d. Government's Right and Duty to Recover All Ill-gotten Wealth There can be no debate about the validity and eminent propriety of the Government's plan "to recover all ill-gotten wealth. in their names as nominees. or by taking undue advantage of their office. business associates. * * to file and prosecute all cases investigated by it * * as may be warranted by its findings. subordinates. 2 gives additional and more specific data and directions respecting "the recovery of ill-gotten properties amassed by the leaders and supporters of the previous regime. condominiums. conveying." and that. concealing or dissipating said assets or properties in the Philippines and abroad. and any records pertaining thereto. Marcos. in order to prevent their destruction. 3) prohibited "any person from transferring. the Presidential Commission on Good Government was created. resulting in their unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines". * *. Connections or relationship. and/or his wife Mrs. through or as a result of the improper or illegal use of funds or properties owned by the government of the Philippines or any of its branches. To enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic. moreover. and other kinds of real and personal properties in the Philippines and in various countries of the world. directly or through nominees. including the takeover or sequestration of all business enterprises and entities owned or controlled by them. Marcos. 1379. reparation of damages. authority. 28 So that it might ascertain the facts germane to its objectives. deposits. or by taking undue advantage of their official position. directly or through nominees. authority. their close relatives." 36 5. connections or relationship.

or to restrain or foil acts that may render moot and academic. transfer. Executive Order No. In this sense. These are: (1) sequestration." 48 Such a "provisional takeover" imports something more than sequestration or freezing. The Constitution realizes the indispensable role which property." 49 Executive Order No. connection or influence. "Freeze Order" A "freeze order" prohibits the person having possession or control of property alleged to constitute "ill-gotten wealth" "from transferring. The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is commenced as herein provided."-for the purpose of preventing the destruction." 43 a.e. concealment." i. 52 f. the judicial action or proceeding shall be commenced within six months from the issuance thereof. in a proper judicial proceeding. 1 declares that the sequestration of property the acquisition of which is suspect shall last "until the transactions leading to such acquisition * * can be disposed of by the appropriate authorities. and otherwise conserving and preserving. Kinship to Attachment Receivership . or negate efforts to recover the same. Sequestration By the clear terms of the law. that it is the device through which persons may be deprived of their property branded as "ill-gotten. In a "provisional takeover. Marcos.. or any building or office wherein any such property and any records pertaining thereto may be found. No Divestment of Title Over Property Seized It may perhaps be well at this point to stress once again the provisional. rather than a passing. "in the public interest or to prevent disposal or dissipation of the enterprises. 7. encumbering or otherwise depleting or concealing such property. or loss of the assets and properties subject of the suits. 47 c. generally. the Constitution distinctly recognizes the preferred position which real estate has occupied in law for ages. The authority to issue sequestration or freeze orders under Proclamation No. and "business enterprises which were taken over by the government government of the Marcos Administration or by entities or persons close to him. owned in reasonable quantities and used legitimately. as certified by the President. 45 b. contingent character of the remedies just described. conveying. Section 26 of its Transitory Provisions. That this is not so is quite explicitly declared by the governing rules." in particular. or dissipation. freedom of expression. 14 makes clear that judicial proceedings are essential for the resolution of the basic issue of whether or not particular assets are "ill-gotten. the language of the executive orders in question leaves no doubt. * * Evincing much concern for the protection of property. the Government or other person. 3 dated March 25. through appropriate judicial proceedings." d. in the national interest. transitional state of affairs." what is taken into custody is not only the physical assets of the business enterprise or entity. and thus becomes in a sense an involuntary depositary thereof.Bus Org 2 Cases 1st Set Prelim 98 * * Democracy. as to which a "provisional takeover" is authorized. concealment or dissipation of." 46 In other words. embraces as its necessary components freedom of conscience. authority relationship. the same-until it can be determined. Be this as it may." These remedies may be resorted to only for a particular exigency: to prevent in the public interest the disappearance or dissipation of property or business.gotten. (2) freeze orders. freeze or provisionally take over is to be understood and exercised. whether the property was in truth will. That this is the sense in which the power to sequester.going activities. However. The order and the list of the sequestered or frozen properties shall forthwith be registered with the proper court. but over operations or on. the law has prescribed three (3) provisional remedies. 1986 in relation to the recovery of ill-gotten wealth shag remain operative for not more than eighteen months after the ratification of this Constitution. to repeat." that it is intended to bring about a permanent. encumbrance. being of so extensive notoriety as to dispense with proof thereof. frozen or taken over and vest it in the sequestering agency. instrumentalities. in Executive Order No. Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten wealth. 51 lays down the relevant rule in plain terms. "provisional. freezing or provisional takeover is designed to be an end in itself. delay. 26. banks or financial institutions. 14. A sequestration or freeze order shall be issued only upon showing of a prima facie case. Property is bound up with every aspect of social life in a democracy as democracy is conceived in the Constitution. Be this as it may. This can be done only for the causes and by the processes laid down by law. destruction. apart from extending ratification or confirmation (although not really necessary) to the institution by presidential fiat of the remedy of sequestration and freeze orders: SEC. the 1987 Constitution should allay any lingering fears about the duration of these provisional remedies. For those issued after such ratification. 2 declares that the assets or properties therein mentioned shall remain frozen "pending the outcome of appropriate proceedings in the Philippines to determine whether any such assets or properties were acquired" by illegal means. is the sense in which the term is commonly understood in other jurisdictions. or from assisting or taking part in its transfer. relatives. b. plays in the stimulation to economic effort and the formation and growth of a solid social middle class that is said to be the bulwark of democracy and the backbone of every progressive and happy country. as a way of life enshrined in the Constitution. State of Seizure Not To Be Indefinitely Maintained. or by taking undue advantage of official position. including "business enterprises and entities. enterprises. disappearance. e. although there are some who maintain that the fact-that an immense fortune. For orders issued before the ratification of this Constitution. Provisional Remedies Prescribed by Law To answer this need. 42 a. albeit without or with the least possible interference with the management and carrying on of the business itself. or effectively hamper. but the business operation as well. provisional measures to prevent the concealment. resulting in unjust enrichment of the ostensible owner and grave damage and prejudice to the State. They will have to be duly established by adequate proof in each case." and resultant recovery thereof by the Government is warranted. the factual premises of the Executive Orders cannot simply be assumed. as to which the remedy of sequestration applies." and they have resorted to all sorts of clever schemes and manipulations to disguise and hide their illicit acquisitions-is within the realm of judicial notice. and (3) provisional takeover. and conserve it pending adjudgment in appropriate proceedings of the primary issue of whether or not the acquisition of title or other right thereto by the apparent owner was attended by some vitiating anomaly. it being necessarily inferred that the remedy entails no interference. more than the placing of the business under physical possession and control. and the procedure to be followed explicitly laid down. Need of Evidentiary Substantiation in Proper Suit Consequently. it is akin to a garnishment by which the possessor or ostensible owner of property is enjoined not to deliver. the power of the PCGG to sequester property claimed to be "ill-gotten" means to place or cause to be placed under its possession or control said property. or the least possible interference with the actual management and operations thereof." the law acknowledges the apparent distinction between "ill gotten" "business enterprises and entities" (going concerns. But. and close associates both here and abroad. businesses in actual operation). Executive Order No. the Congress may extend said period. his immediate family. the requirement of evidentiary substantiation has been expressly acknowledged. the corresponding judicial action or proceeding shall be filed within six months from its ratification. Indeed the law plainly qualifies the remedy of take-over by the adjective. so that the recovery of the ill-gotten wealth may be validly and properly adjudged and consummated. or otherwise dispose of any effects or credits in his possession or control. Along with these freedoms are included economic freedom and freedom of enterprise within reasonable bounds and under proper control." The remedy of "provisional takeover" is peculiar to cases where "business enterprises and properties (were) taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos. Need of Provisional Measures to Collect and Conserve Assets Pending Suits Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gotten wealth" as the evidence at hand may reveal. it commands the possessor to hold the property and conserve it subject to the orders and disposition of the authority decreeing such freezing. 44 And this. The Constitutional Command There is thus no cause for the apprehension voiced by BASECO 50 that sequestration. It is in fine the assumption of control not only over things. dissipation. there is an obvious and imperative need for preliminary. too. acquired through or as a result of improper or illegal use of or the conversion of funds belonging to the Government or any of its branches. such a "provisional takeover" is allowed only as regards "business enterprises * * taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos. Provisional Takeover In providing for the remedy of "provisional takeover. and "vast resources of the government have been amassed by former President Ferdinand E. None of the remedies is meant to deprive the owner or possessor of his title or any right to the property sequestered. and freedom in the pursuit of happiness.

-The person against whom a writ of sequestration or freeze or hold order is directed may request the lifting thereof in writing. there exist a prima facie factual foundation. regarded. either personally or through counsel within five (5) days from receipt of the writ or order. 74 The same articles Identify the incorporators. even if the requirement for a prima facie showing of "ill. or influence. 60 8. and on said subscription. freeze or takeover order. sequestration. or adjudicate with any character of finality or compulsion. Its general function is to conduct investigations in order to collect evidence establishing instances of "ill-gotten wealth. what it pronounces to be its "unyielding position. hereafter to be discussed. PCGG not a "Judge". 71 There can therefore be no serious regard accorded to the accusation. should conform to due process and the other prescriptions of the Bill of Rights of the Constitution. or the institution of a new one. takeover. attended by no character of permanency or finality." 69and said to be co-extensive with selfprotection and * * not inaptly termed (also) the'law of overruling necessity. disposition. or hear and determine. Rojas. viz: SECTION 5. no objection of any significance may be raised to the ex parte issuance of an order of sequestration. 1972) by a consortium of Filipino shipowners and shipping executives. 14 enjoins that there be "due regard to the requirements of fairness and due process.00 have been subscribed." 73 Its Articles of Incorporation disclose that its authorized capital stock is P60. ." 59 as well as the obvious need to avoid alerting suspected possessors of "ill-gotten wealth" and thereby cause that disappearance or loss of property precisely sought to be prevented. 1986. 64 A similar requirement is now found in Section 26.000. freeze and takeover orders. attachment and receivership — are provisional. The resolution of the commission may be appealed by the party concerned to the Office of the President of the Philippines within fifteen (15) days from receipt thereof. and delivery of personality.gotten wealth" were not expressly imposed by some rule or regulation as a condition to warrant the sequestration or freezing of property contemplated in the executive orders in question. which requires that a "sequestration or freeze order shall be issued only upon showing of a prima facie case. Procedure for review of writ or order. Opportunity to Contest And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a party may seek to set aside a writ of sequestration or freeze order. Facts Preclude Grant of Relief to Petitioner Upon these premises and reasoned conclusions. the Sandiganbayan. Prima Facie Evidence as Basis for Orders Executive Order No. and the fact. or dissipated." What it insists on. that BASECO had taken over the business and/or assets of the National Shipyard and Engineering Co. designed forparticular exigencies. concealment or disappearance of said assets and properties would frustrate. 56 BASECO itself declares that it has not manifested "a rigid insistence on sequestration as a purely judicial remedy * * (as it feels) that the law should not be ossified to a point that makes it insensitive to change. 72 that the PCGG plays the perfidious role of prosecutor and judge at the same time. based on the affirmation or complaint of an interested party. freezing. and upon the facts disclosed by the record." 65 b. 11.. real or personal. 3 dated March 25.00 has been paid by the incorporators. it would nevertheless be exigible in this jurisdiction in which the Rule of Law prevails and official acts which are devoid of rational basis in fact or law. and eventually file and prosecute in the proper court of competent jurisdiction all cases investigated by it as may be warranted by its findings. Lee. is that any change in procedure. Orders May Issue Ex Parte Like the remedy of preliminary attachment and receivership. General Functions It should also by now be reasonably evident from what has thus far been said that the PCGG is not. Constitutional Sanction of Remedies If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of sequestration. cases involving the essential issue of whether or not property should be forfeited and transferred to the State because "ill-gotten" within the meaning of the Constitution and the executive orders. by taking undue advantage of his public office and/or using his powers.. freezing or takeover. obstruct or hamper the efforts of the Government" at the just recovery thereof. and adequate and fair opportunity to contest it and endeavor to cause its negation or nullification.000. authority. Section 26. from date of knowledge thereof. in this case.000. leveled by BASECO. Article XVIII of the 1987 Constitution 67 treats of. given its fundamental character of temporariness or conditionality." 62Executive Order No. sequestration and provisional takeover writs may issue ex parte.035. through nominees. and taking account specially of the constitutionally expressed "mandate of the people to recover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people. XVIII of the 1987 Constitution." 68 and as "the most essential. Requisites for Validity What is indispensable is that.000. 66 9." issue sequestration. as t lie power of promoting the public welfare by restraining and regulating the use of liberty and property.000 shares. temporary. receivership. who shall conserve it pending final determination of the title or right of possession over it. where its Engineer Island Shipyard is housed. 61 Both are assured under the executive orders in question and the rules and regulations promulgated by the PCGG. 30. 55 All these remedies — sequestration. for the sequestration. and such orders as may be warranted by the evidence thus collected and as may be necessary to preserve and conserve the assets of which it takes custody and control and prevent their disappearance. " and that it was by and through the same means.000. and its main shipyard is located at Mariveles Bataan. or receivership. again as in the case of attachment and receivership. freezing and provisional takeover are akin to the provisional remedy of preliminary attachment. and was never intended to act as. and always subject to the control of the issuing court or agency. it should be dispelled by the fact that these particular remedies and the authority of the PCGG to issue them have received constitutional approbation and sanction. 53 By attachment. 54 By receivership. The facts show that the corporation known as BASECO was owned or controlled by President Marcos "during his administration. The writs of certiorari and prohibition prayed for will not be issued. is placed in the possession and control of a receiver appointed by the Court." The institution of these provisional remedies is also premised upon the State's inherent police power. SECTION 6. Art. Parenthetically." " 70 10. as follows: (1) Jose A." And as also already adverted to. This function is reserved to the designated court. the aggregate sum of P3. just as self-evident. which is subject of litigation.gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or freezing of assets or accounts. insistent and illimitable of powers * * in the promotion of general welfare and the public interest. the Provisional or "Freedom" Constitution recognizes the power and duty of the President to enact "measures to achieve the mandate of the people to * * * (recover ill. loss or dissipation. h. Non-Judicial Parenthetically. Port Area. Manila. "it is the position of the new democratic government that President Marcos * * (and other parties affected) be afforded fair opportunity to contest these claims before appropriate Philippine authorities. a sheriff seizes property of a defendant in a civil suit so that it may stand as security for the satisfaction of any judgment that may be obtained. 58 And as in preliminary attachment. 12. a proposition on which there can be no disagreement.000 shares with a value of P12. a. As already mentioned. Inc. the petition cannot succeed. that "any transfer. a judge. and other government-owned or controlled entities. provisional. and ratifies the "authority to issue sequestration or freeze orders under Proclamation No. as well as delivery of personal property in replevin suits.-After due hearing or motu proprio for good cause shown. are condemned and struck down. to be sure. pending the action. of which 12. at least. the Commission may lift the writ or order unconditionally or subject to such conditions as it may deem necessary. It does not try and decide. Who may contend. The Solicitor General draws attention to the writ of distraint and levy which since 1936 the Commissioner of Internal Revenue has been by law authorized to issue against property of a delinquent taxpayer. Organization and Stock Distribution of BASECO BASECO describes itself in its petition as "a shiprepair and shipbuilding company * * incorporated as a domestic private corporation * * (on Aug. g. or lost intentionally or otherwise. or are whimsical and capricious. Its main office is at Engineer Island. and not disposed of. or in the case of a hold order.00 divided into 60." 63 Section 7 of the Commission's Rules and Regulations provides that sequestration or freeze (and takeover) orders issue upon the authority of at least two commissioners. property. that writs of sequestration or freeze or takeover orders are not issued by a court is of no moment. (2) Anthony P. numbering fifteen (15). 2 declares that with respect to claims on allegedly "ill-gotten" assets and properties. or motu proprio when the Commission has reasonable grounds to believe that the issuance thereof is warranted. taking into consideration the evidence and the circumstance of the case. Remedies.Bus Org 2 Cases 1st Set Prelim 99 As thus described." 57 It is.

310. (6) Emilio T. 1975 BASECO obtained a loan from the NDC. David R. P2. Rojas 1.508 shares 4. Yap 2." to pay for "Japanese made heavy equipment (brand new). quarters. buildings.00 appears to have been made.00. 65. Severino G. shops. BASECO acquired from National Shipyard & Steel Corporation.000.00 of which. Jose A. (4) Octavio Posadas. together with the general manager. (2) Antonio Ezpeleta. buildings. de la Cruz 1. houses. Arturo Pacificador again signed for NASSCO.248 shares 8. As partial payment thereof.00. namely: (1) Generoso Tanseco. Acquisition of Other Assets of NASSCO. Yap. Anthony P. as Presiding Officer of the Board of Directors. and the balance stipulated to be payable in installments.000. 75 Their names and the number of shares respectively held by them are as follows: 1. consigned for future negotiation — all its structures.819 shares. (4) Jose P.000. NASSCO committed itself to cooperate with BASECO for the acquisition from the National Government or other appropriate Government entity of Engineer Island. 1973.047. known as the Bataan National Shipyard (BNS).248 shares 2.940.248 shares 5. Intervention of Marcos Some nine months afterwards. it got another loan also . known as the Engineer Island Shops. (14) Magiliw Torres. 17. The price was P52. Constante L. Metro Bay Drydock 136.240 shares 13. Fidelity Management. and the balance of P19. (5) Magiliw Torres. Inc.000. (3) Zacarias Amante. Manuel Jacela 1 share 17. Jose J.600.000.000. Consideration for the sale was set at P5. payment to commence after a grace period of two (2) years from date of turnover of the shipyard to BASECO. and David R. Loans Obtained It further appears that on May 27. to be precise.240. Renato M. Lu 1 share 18. 77 This agreement bore." 79which.Bus Org 2 Cases 1st Set Prelim 100 (3) Eduardo T. BASECO delivered to NASSCO a cash bond of P11.550. Marcelo 4 shares TOTAL 218. (9) Severino de la Cruz.000. the latter's shipyard at Mariveles. to P24.000. taken from "the last available Japanese war damage fund of $19. Lee 1. entitled "Memorandum Agreement.00. Ines. This was accomplished by a deed entitled "Contract of Purchase and Sale.000. with interest at 7% per annum. and (15) Rodolfo Torres. 1973.370 shares 16. (7) Antonio M. 1973. Jose Fernandez 1. Lines 1. 1975. as General Manager. "APPROVED.00. Mendoza.00 had been made by BASECO.311.412 shares 12. and — except for NASSCO's Engineer Island Shops and certain equipment of the BNS. Bataan. BASECO acquired three hundred (300) hectares of land in Mariveles from the Export Processing Zone Authority for the price of P10. a down payment of P1. a governmentowned or controlled corporation. Transferred to BASECO were NASSCO's "ownership and all its titles. and (6) Rodolfo Torres. Ruiz 32 shares 9. equipment and facilities. and the balance was stipulated to be paid at 7% interest per annum in equal semi annual installments over a term of nine (9) years. Intervention of Marcos Unaccountably. houses. about eight (8) months later. 13 Acquisition of NASSCO by BASECO Barely six months after its incorporation. The balance of P41. (12) Octavio Posadas. Fariñas 8 shares 10." and was signed for NASSCO by Arturo Pacificador.000. (5) Generoso Tanseco. Dioscoro Papa 128 shares 20. six (6) had ceased to be stockholders. of these fifteen (15) incorporators. Panganiban Smelting Plant. (10) Jose Francisco. Mr. or NASSCO. the word "APPROVED" in the handwriting of President Marcos. his usual full signature.000. again with the intervention of President Marcos. plants and expendable or semi-expendable assets. the price of P52." In the same deed.862. Mendoza 96 shares 7.000. acquired ownership of the rest of the assets of NASSCO which had not been included in the first two (2) purchase documents. (13) Manuel S.00 was reduced by more than one-half. A document to this effect was executed on October 9.882 shares 11. Trident Management 7. 76 14. to commence after a grace period of two (2) years. Emilio T. plants.248 shares 3. (11) Dioscoro Papa. United Phil. As of this year. 1973 supra also bore at the upper right-hand corner of its first page. 1986.000. Edward T. or on July 15. Jonathan G. Jose Francisco 128 shares 6.400. was stipulated to be paid in equal semi-annual installments over a term of nine (9) years. Acquisition of 300 Hectares from Export Processing Zone Authority On October 1. the handwritten notation of President Marcos reading. Fidel Ventura 8 shares 15. Fernandez. with interest at seven percent (7%) per annum. 1974. convertible into cash within twenty-four (24) hours from completion of the inventory undertaken pursuant to the contract. located at the Engineer Island." 80On September 3. 15. there were twenty (20) stockholders listed in BASECO's Stock and Transfer Book. Tanchanco 1 share 19.000. Hilario M.00. This it did in virtue of a "Contract of Purchase and Sale with Chattel Mortgage" executed on February 13.00 was payable in equal semi-annual installments over nine (9) years after a grace period of two (2) years. Subsequent Reduction of Price. (8) Zacarias Amante. at the top right corner of the first page. shops. Marcelo. compounded semi-annually. By 1986. quarters. Tanseco 8 shares 14. BASECO. rights and interests over all equipment and facilities including structures. like the Memorandum of Agreement dated October 9. 78 16. including all the equipment of the Bataan National Shipyards (BNS) which were excluded from the sale of NBS to BASECO but retained by BASECO and all other selected equipment and machineries of NASSCO at J.449. Manuel S. as set out in the document of sale. July 29.00. however." and underneath it. Ines. followed by his usual full signature. Ezpeleta.00 was paid upon its execution. in stock or in transit. Mr. The document recited that a down payment of P5. 1975.

to wit: * * (that) their replacements (be effected) so we can register their names in the stock book prior to the implementation of your instructions to pass a board resolution to legalize the transfers under SEC regulations. BASECO's loan obligation to NDC and REPACOM * * in the total amount of P83. 1974. now in the possession of BASECO and BSDI (Bay Shipyard & Drydocking. (2) Severino de la Cruz. Velasco. Contract dated July 16.). Romualdez wrote that BASECO faced great difficulties in meeting its loan obligations due chiefly to the fact that "orders to build ships as expected * * did not materialize.000. Loan Agreement dated September 3. Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only exercised control over BASECO. executed a PRE-INCORPORATION AGREEMENT dated October 20. as follows: * * 1) the shipbuilding equipment procured by BASECO through reparations be transferred to NDC subject to reimbursement by NDC to BASECO (of) the amount of s allegedly representing the handling and incidental expenses incurred by BASECO in the installation of said equipment (so instead of NDC getting paid on its loan to BASECO. he issued Letter of Instructions No. Equity participation of government shall be through LUSTEVECO and NDC in the amount of P115. 2) the shipbuilding equipment procured from reparations through EPZA. 95 20. A. the families cannot question us later on. 8. BASECO's loan from NDC of P30.00. And on January 28. 1975. the Luzon Stevedoring Company (LUSTEVECO).400. The first was contained in a letter dated September 5. We will owe no further favors from them. and the by-laws of BASECO.000. Equity participation of government shall be in the form of non. LUSTEVECO P32. and 3.T. 91 It is noteworthy that Capt. and his report demonstrates intimate familiarity with the firm's affairs and problems. By getting their replacements. in the context of the proceedings at bar. Romualdez' Report Capt. 1973. together with the report." these being: (1) Jose A. 7. through a simple letter of instruction and memorandum. the amended articles. Letter of Instructions No. Magiliw Torres * * is already dead and Mr. Ruiz. particularly as regards the "spin-off" and the "linkage scheme" relative to "BASECO's amortization payments.000. Ruiz. It opened with the following caption: MEMORANDUM: FOR : The President SUBJECT: An Evaluation and Re-assessment of a Performance of a Mission FROM: Capt.438M were wiped out and converted into non-voting preferred shares. 82 18. 1977. to "save the situation.365M and BSD's REPACOM loan of P32.285M). to wit: 1.165M loan & P52. 92 Mr. (4) Magiliw Torres. BASECO President's Report In his letter of September 5. 4. Manila. it got still another loan. 87 He also transmitted to Marcos. 90 Capt. Instructions re "Spin-Off" Under date of September 28. Contract dated October 9. Inc. Like Ruiz. Romualdez' recommendation for a letter of instructions. 11.. 5.000.) be transferred to LUSTEVECO through PNOC. NDC P83. in the sum of P12. covering "Engineer Island". Bataan.T. 84 They further disclose the fine hand of Marcos in the affairs of BASECO. LUSTEVECO will participate by absorbing and converting a portion of the REPACOM loan of Bay Shipyard and Drydock.Bus Org 2 Cases 1st Set Prelim 101 from the NDC in the amount of P30." there be a "spin-off (of their) shipbuilding activities which shall be handled exclusively by an entirely new corporation to be created. Romualdez also recommended that BASECO's loans be restructured "until such period when BASECO will have enough orders for ships in order for the company to meet loan obligations. the following documents: 88 1. 89 2. wherein NASSCO sold to BASECO four (4) parcels of land in "Engineer Island"." and towards this end. acting through PNOC and NDC. Rojas. A. he addressed a Memorandum to Secretary Geronimo Velasco of the Philippine National Oil Company and Chairman Constante Fariñas of the National Development Company.000.365M as NDC's equity contribution in the new corporation. with pithy and not inaccurate observations as to the effects thereof (in italics). 10. 124822 in the name of BASECO. Port Area.854. BASECO President Ruiz reported to Marcos that there had been "no orders or demands for ship construction" for some time and expressed the fear that if that state of affairs persisted.2M or a total of P83. BASECO would not be able to pay its debts to the Government. Fariñas and Geronimo Z. BASECO president." a." and that — An LOI may be issued to government agencies using floating equipment. On February 14. yet he has presented a report on BASECO to President Marcos. but also that he actually owns well nigh one hundred percent of its outstanding stock. (3) Rodolfo Torres.165M and assuming and converting a portion of BASECO's shipbuilding loans from REPACOM amounting to P52. . Jose A. in representation of their respective corporations. 2. 1977. this time from the GSIS. Messrs. between EPZA and BASECO re 300 hectares of land at Mariveles. that a linkage scheme be applied to a certain percent of BASECO's net profit as part of BASECO's amortization payments to make it justifiable for you. quite cynical and indurate recommendation. 1977 of Capt.400. the actuality of the control by President Marcos of BASECO has been sufficiently shown. Inc. Rojas had a major heart attack.00 (id. 3.voting shares. 670 Mr. Marcos' guidelines were promptly complied with by his subordinates." He advised that five stockholders had "waived and/or assigned their holdings inblank.00. 1978.538." he made the following quite revealing. 1976 of P12. 93 In it.000 consisting of the following obligations of BASECO which are hereby authorized to be converted to equity of the said new corporation. which at the time stood at the not inconsiderable amount of P165.00. 1977.865. and that of a Romualdez. What is commanded therein is summarized by the Solicitor General. Constante L. Romualdez' report to the President was submitted eleven (11) days later. 86 b.T. amounting to P32. Twenty-two (22) days after receiving their president's memorandum. Hilario M. Romualdez. 81 The claim has been made that not a single centavo has been paid on these loans. Lee. For immediate compliance. 19. Marcos did not forget Capt. Stock certificates indorsed and assigned in blank with assignments and waivers. List of BASECO's fixed assets. The articles of incorporation. Sir.538M.000. he informed Marcos that BASECO was — * * inviting NDC and LUSTEVECO to participate by converting the NDC shipbuilding loan to BASECO amounting to P341. 670 addressed to the Reparations Commission REPACOM the Philippine National Oil Company (PNOC). 1975.00 for the housing facilities for BASECO's rank-and-file employees. Port Area Manila. 1977. xxx xxx xxx And so. two (2) reports were submitted to President Marcos regarding BASECO. a relative by affinity. BASECO-REPACOM Agreement dated May 27." 94 b. 83 The second was embodied in a confidential memorandum dated September 16. Deed of Sales. they undertook to form a shipbuilding corporation to be known as "PHIL-ASIA SHIPBUILDING CORPORATION. 1976. 1975. It would seem that the new corporation ultimately formed was actually named "Philippine Dockyard Corporation (PDC). GSIS loan to BASECO dated January 28. and it may be added.000 (P31. Pointing out that "Mr.000 (Reparation) b. and the National Development Company (NDC). Marcos' Response to Reports President Marcos lost no time in acting on his subordinates' recommendations. Reports to President Marcos In September. and (5) Anthony P. Romualdez does not appear to be a stockholder or officer of BASECO." to bring to realization their president's instructions. and 3) the shipbuilding equipment (thus) transferred be invested by LUSTEVECO. directing them "to participate in the formation of a new corporation resulting from the spin-off of the shipbuilding component of BASECO along the following guidelines: a. 9. A. A.000.2M Reparation) 2. Bataan. it was made to pay BASECO instead the amount of P18.T. a. 1977 of Hilario M. Romualdez.903. between NASSCO and BASECO re-structure and equipment at Mariveles. Transfer Certificate of Title No. Contract dated October 1. between NASSCO and BASECO re-structure and equipment at Engineer Island. as the government's equity participation in a shipbuilding corporation to be established in partnership with the private sector. 6. Evidence of Marcos' Ownership of BASECO It cannot therefore be gainsaid that. 85 He suggested that.

3) the deeds of assignment of 800 outstanding shares of Trident Management Co. * * the certificates of stock issued to the stockholders of * * BASECO as of April 23. he declared inter alia that "said certificates of stock are in the possession of third parties. that they are no longer owners of any shares of stock in the corporation. as of April 23. found in Malacanang (and now in the custody of the PCGG) were: 1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc. this Court resolved on November 27. 1986 109 were mere "dummies. 110 "A bill of attainder is a legislative act which inflicts punishment without judicial trial. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute. among whom being the respondents themselves * * and petitioner is still endeavoring to secure copies thereof from them. together with deeds of assignment of practically all the outstanding shares of stock of the three (3) corporations above mentioned (which hold 95. to make full disclosure of the same * *. the stockholders and directors of BASECO as of April." 102 On the same day he filed another motion praying that he be allowed "to secure copies of the Certificates of Stock in the name of Metro Bay Drydock. recorded as holding 136. authority.725 out of the 218. as listed in Annex 'P' of the petition. this Court agrees that this assessment of the facts is correct.882 shares of BASECO stock. treating of the PCGG's power to "issue subpoenas requiring * * the production of such books. Inc. by taking advantage of * * (his) public office and/or using * * (his) powers. The first three corporations.664 shares of BASECO stock. was "that 95% of said shares * * have been endorsed in blank and found in Malacañang after the former President and his family fled the country. Inc.995 of the 2.. and to grant relief to BASECO. and its adjudication in favor of the Republic pursuant to Executive Order No. pronounces to be without merit the theory that said acts. (2) Fidelity Management. as prayed for in the petition. 97 More specifically." 112 In the first place. 104 the Solicitor General not unreasonably argued that counsel's aforestated motion to secure copies of the stock certificates "confirms the fact that stockholders of petitioner corporation are not in possession of * * (their) certificates of stock. 23. in this case. this Court granted BASECO's counsel a period of 10 days "to SUBMIT. As already earlier stated. In the second place. 1986. the Sandiganbayan. assuring this Court that the BASECO stockholders were still in possession of their respective stock certificates and had "never endorsed * * them in blank or to anyone else. at any rate. and in his motion dated October 2.. contracts. may refuse to show its hand when charged with an abuse ofsuchprivileges * * 113 ." and that NASSCO and other property of the government had been taken over by BASECO. (3) Trident Management. Stubbornly insisting that the firm's stockholders had not really assigned their stock. Executive Order No. or 95. vested with special privileges and franchises.240 shares. the facts herein stated at some length do indeed show that the private corporation known as BASECO was "owned or controlled by former President Ferdinand E.819 shares of stock outstanding. * * some of * * (them) claimed that they had delivered the certificates to third parties by way of pledge and/or to secure performance of obligations. statements of accounts and other documents as may be material to the investigation conducted by the Commission. make it perfectly clear that any judgment of guilt in the amassing or acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal. set aside or otherwise obtain relief therefrom. 65. the certificates referred to" but that "it needs a more sufficient time therefor" (sic). 1. 1986. or if he had done so.370 shares. prima facie at least. upon complaint filed and prosecuted by the PCGG." 100 that denial is exposed by his own prior and subsequent recorded statements as a mere gesture of defiance rather than a verifiable factual declaration. all but 5 % — all endorsed in blank." The order was issued upon the authority of Section 3 (e) of Executive Order No. 1986 which required it "to produce corporate records from 1973 to 1986 under pain of contempt of the Commission if it fails to do so. said stockholders in truth no longer have them in their possession.819 outstanding shares of BASECO stock. while others allegedly have entrusted them to third parties in view of last national emergency. 22. assigned in blank.882 shares. accordingly. there were 218. signed by the owners thereof although not notarized. By resolution dated September 25. and of all other Certificates. and.82% of all BASECO stock).Bus Org 2 Cases 1st Set Prelim 102 It will be recalled that according to petitioner. would in effect be to restore the assets. of Stock of petitioner's stockholders in possession of respondents. as the merest glance at their provisions will immediately make apparent. — which allegedly owns 7. 1986. or that the PCGG had acted as prosecutor and judge at the same time. and the executive orders pursuant to which they were done. in view of what has thus far been set out in this opinion. influence * *. as undertaken by him. (and other pleadings) * * within ten (10) days from notice. are fatally defective in not according to the parties affected prior notice and hearing. * * through nominees. endorsed in blank." To this manifestation BASECO's counsel replied on November 5. that "it will negotiate with the owners (of the BASECO stock in question) to allow petitioner to borrow from them.. papers. why the stockholders are unwilling to agree to some sort of arrangement so that the originals of their certificates might at the very least be exhibited to the Court. 1986 among other things "to require * * the petitioner * * to deposit upon proper receipt with Clerk of Court Juanito Ranjo the originals of the stock certificates alleged to be in its possession or accessible to it. 98 and 4) stock certificates corresponding to 207. Facts Justify Issuance of Sequestration and Takeover Orders In the light of the affirmative showing by the Government that.82% of the outstanding stock. records." and the reason. pending the filing of the requisite actions with the Sandiganbayan to cause divestment of title thereto from Marcos. On the contrary. as already mentioned. properties and business sequestered and taken over by the PCGG to persons who are "dummies.499. it does not follow that a corporation." nominees or alter egos of President Marcos. From the standpoint of the PCGG.000 outstanding shares of Metro Bay Drydock Corporation — which allegedly owns 136. BASECO's counsel however eventually had to confess inability to produce the originals of the stock certificates. Marcos * * during his administration. — which supposedly owns as aforesaid 65. It is elementary that the right against self-incrimination has no application to juridical persons. according to him. 1986. nor has he offered to give the details of the transactions adverted to by him. nothing in the executive orders can be reasonably construed as a determination or declaration of guilt. 2) the deeds of assignment of 2.412 shares. 7. or an adequate remedy to impugn. 1 and 2. 14. agents or trustees. among themselves. may the executive orders be regarded as a bill of attainder. 1986. putting up the feeble excuse that while he had "requested the stockholders to allow * * (him) to borrow said certificates.370 shares of BASECO stock." 108 He has conveniently omitted.500.. the Court can only conclude that he could not get the originals from the stockholders for the simple reason that. in their names as nominees. quite surprising in the premises.412 shares of BASECO stock. as the Solicitor General maintains. whether located in the Philippines or abroad. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures BASECO also contends that its right against self incrimination and unreasonable searches and seizures had been transgressed by the Order of April 18. 1986." nominees or alter egos of the former president. " and paragraph (3). in accordance with the terms of Executive Orders No. Under the circumstances. these having already been assigned in blank to then President Marcos.itself. In no sense. the conclusion cannot be avoided that said stockholders and directors have no basis and no standing whatever to cause the filing and prosecution of the instant proceeding. 107 BASECO's counsel made the statement. 105 In view of the parties' conflicting declarations. were certificates corresponding to more than ninety-five percent (95%) of all the outstanding shares of stock of BASECO. Now. 2 dealing with its power to "require all persons in the Philippines holding * * (alleged "ill-gotten") assets or properties. own an aggregate of 209. 14. if available. Lines. and the situation justified the sequestration as well as the provisional takeover of the corporation in the public interest. 1. 1986. Executive Orders Not a Bill of Attainder Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. the Solicitor General has drawn the Court's attention to the intriguing circumstance that found in Malacanang shortly after the sudden flight of President Marcos. 96 Four of these twenty are juridical persons: (1) Metro Bay Drydock. no punishment is inflicted by the executive orders. 99 While the petitioner's counsel was quick to dispute this asserted fact. inclusive of Executive Order No." The contention lacks merit. Inc. it sustains the acts of sequestration and takeover by the PCGG as being in accord with the law. ostensibly owned by twenty (20) stockholders. or to explain why he had not impressed on the supposed stockholders the primordial importance of convincing this Court of their present custody of the originals of the stock. mentioned and described in Annex 'P' of its petition." 111 "Its essence is the substitution of a legislative for a judicial determination of guilt. therefore. that is. the executive orders. 21. and (4) United Phil." 103 In a Manifestation dated October 10.' 101 Counsel thereafter moved for extension." 106 In a motion filed on December 5.

Walling. There has been no search undertaken by any agent or representative of the PCGG. But even in this special situation. Limitations Thereon Now. To state this proposition is to answer it. not ruined. it does not follow that a corporation. going concerns. something more than mere physical custody is connoted. which is "to prevent the disposal or dissipation" of the business enterprise. or otherwise failing to comply with the order. United States. "watchdog" or overseer. Its powers are limited by law. much like a court-appointed receiver. 186. b." (Oklahoma Press Publishing Co. the greatest prudence. It is presumed to be incorporated for the benefit of the public. businesses in current operation). 780 [emphasis. It is also settled that an officer of the company cannot refuse to produce its records in its possession upon the plea that they will either incriminate him or may incriminate it. much less an owner. . d. if they ever were at all. i. Its rights to act as a corporation are only preserved to it so long as it obeys the laws of its creation. 14 assures protection to individuals required to produce evidence before the PCGG against any possible violation of his right against self-incrimination." "to vote such shares of stock as it may have sequestered in corporations at all stockholders' meetings called for the election of directors. It can make no contract not authorized by its charter. once judicially established to be "ill-gotten. could not. Voting of Sequestered Stock. in its Resolution of October 28. in the exercise of sovereignty. or business enterprises in operation. and always in the context of the stated purposes of sequestration or provisional takeover.. program or practice of the corporation except for demonstrably weighty and defensible grounds. As amended. It is not that of manager. the Solicitor General's). 116 In the case of sequestered businesses generally (i. not driven to bankruptcy. In the case at bar. experienced and honest managers may be recruited. for example. to "provisionally take (it) over in the public interest or to prevent * * (its) disposal or dissipation. the PCGG is a conservator.e. The road to hell. is that of conservator." The Memorandum should be construed in such a manner as to be consistent with. Executive Order No. not fleeced. unlike cases of receivership. In this context. 1986. as in the case of sequestered objects. or otherwise bring about substantial changes in policy. said Section 4 now provides that — xxx xxx xxx The witness may not refuse to comply with the order on the basis of his privilege against self-incrimination. The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either. emphasis. or other information) may be used against the witness in any criminal case. and whether they had been abused. and seek and secure the assistance of any office. the Solicitor General's]) At any rate. and not contradictory of the Executive Orders earlier promulgated on the same matter. and generally do such other acts and things as may be necessary to fulfill its mission as conservator and administrator. in the special instance of a business enterprise shown by evidence to have been "taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos." Reason dictates that it is only under these conditions and circumstances that the supervision. Obviously. particularly in respect of viable establishments. In relation to the property sequestered. except a prosecution for perjury. "pending the outcome of proceedings to determine the ownership of * * (sequestered) shares of stock. 24. 1986. it may in addition enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic. that an officer of the corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a refusal to produce its books. and always under such circumstances as assure that the replacements are truly possessed of competence.e. 55 Law Ed. pay outstanding debts. or management of the business itself. although this court more than once has said that the privilege runs very closely with the 4th Amendment's Search and Seizure provisions. or innovator. circumspection. There should be no role to be played in this area by rank amateurs. And it goes without saying that where replacement of management officers may be called for. Substitution of directors is not to be done without reason or rhyme. granted to it by the President of the Philippines through a Memorandum dated June 26. etc. It received certain special privileges and franchises. It would be a strange anomaly to hold that a state. too. it may be returned to its rightful owner as far as possible in the same condition as it was at the time of sequestration. In fact. 1986. and should be stated at the outset: the PCGG cannot exercise acts of dominion over property sequestered. There is a reserve right in the legislature to investigate its contracts and find out whether it has exceeded its powers. no court exercises effective supervision or can upon due application and hearing. which is to turn over the business to the Republic. caretaker. and demand the production of the corporate books and papers for that purpose. and this is specially true in the situations contemplated by the sequestration rules where. not run into the ground. Sight should never be lost sight of the ultimate objective of the whole exercise. Directors are not to be voted out simply because the power to do so exists. frozen or provisionally taken over. Conditions Therefor So. having chartered a corporation to make use of certain franchises.S. inquire how these franchises had been employed. It gives them immunity from prosecution on the basis of testimony or information he is compelled to present. much less one which will suffice for every conceivable situation. * * They are not at all within the privilege against self-incrimination. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute. The stock is not to be voted to replace directors. (Wilson v. amending Section 4 of Executive Order No. it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the prerogative to vote sequestered stock of corporations. a.. * * The corporation is a creature of the state. PCGG May Not Exercise Acts of Ownership One thing is certain. 14-A. and undertaken only when justified by demonstrably tenable grounds and in line with the stated objectives of the PCGG. or because the stocks sequestered constitute the controlling or a substantial part of the corporate voting power. AS already earlier stressed with no little insistence. the act of sequestration. care and attention . its essential role." 117 the PCGG is given power and authority. 327 U. indiscriminate. 115 such as to bring and defend actions in its own name. agency or instrumentality of the government.should accompany that undertaking to the end that truly competent. there was adequate justification to vote the incumbent directors out of office and elect others in their stead because the evidence showed prima facie that the former were just tools of President Marcos and were no longer owners of any stock in the firm. administration and control of business enterprises provisionally taken over may legitimately be exercised. declaration of dividends. punish for direct or indirect contempt in accordance with the Rules of Court. no matter how wen meaning. receive rents. giving a false statement. does not make the PCGG the owner thereof. that respecting the scope and extent of the powers that may be wielded by the PCGG with regard to the properties or businesses placed under sequestration or provisionally taken over. The defense amounts to this. 118 this Court declared that — Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling and holding of a stockholders' meeting for the election of directors as authorized by the Memorandum of the President * * (to the PCGG) dated June 26. or frustrate or otherwise make ineffectual its efforts to carry out its task. is paved with good intentions. should indeed be shunned if at an possible. as already discussed. and undertaken only when essential to prevent disappearance or wastage of corporate property. c. That Memorandum authorizes the PCGG. collect debts due. This is why. Scope and Extent of Powers of the PCGG One other question remains to be disposed of. grant authority for the performance of acts of dominion. as already adverted to..Bus Org 2 Cases 1st Set Prelim 103 Relevant jurisprudence is also cited by the Solicitor General. running. frozen or provisionally taken over. 771. unreasoned replacement or substitution of management officials or change of policies. the intrusion into management should be restricted to the minimum degree necessary to accomplish the legislative will. not an owner. and holds them subject to the laws of the state and the limitations of its charter." and since the term is obviously employed in reference to going concerns. it is not a question to which an answer can be easily given. experience and probity. to prevent the dispersion or undue disposal of the corporate assets. freezing or provisional takeover of property does not import or bring about a divestment of title over said property. v. vested with special privileges and franchises may refuse to show its hand when charged with an abuse of such privileges. the PCGG may in this case exercise some measure of control in the operation. PCGG Has Only Powers of Administration The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over. The business is not to be experimented or played around with. amendment of the Articles of Incorporation. such a replacement or substitution should be avoided if at all possible. it has been said. it can not perform acts of strict ownership. Therefore. 114 * * corporations are not entitled to all of the constitutional protections which private individuals have. but no testimony or other information compelled under the order (or any information directly or indirectly derived from such testimony. in the event that the accusation of the business enterprise being "ill gotten" be not proven. There should be no exercise of the right to vote simply because the right exists. and of course no seizure on the occasion thereof. Equally evident is that the resort to the provisional remedies in question should entail the least possible interference with business operations or activities so that. There should be no hasty. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him. or revise the articles or by-laws.

respondent admits the fact of publication of said advertisement at its instance. Declaration of Absence. Annulment of Marriage. common sense would readily dictate that the same are essentially without substantial distinction. For who could deny that document search. obtaining documents like clearance. INC. 25. vs. ANNULMENT. and (6) Federacion International de Abogadas (FIDA) to submit their respective position papers on the controversy and. in the present state of the evidence on record. 1993 MAURICIO C.. US/Foreign Visa for Filipina Spouse/Children. not owners of the business. The impression created by the advertisements in question can be traced. thereafter. 429 UN Ave. Womens Lawyers' Circle (WILOCI).. Manila nr. which all the more reinforces the impression that it is being operated by members of the bar and that it offers legal services. passports. apparently because this (is) the effect that the advertisements have on the reading public. Before proceeding with an in-depth analysis of the merits of this case.00 for a valid marriage. DON PARKINSON an Attorney in Guam. the advertisements in question give the impression that respondent is offering legal services. in either case. we required the (1) Integrated Bar of the Philippines (IBP). to wit. J." gives the impression that respondent corporation is being operated by lawyers and that it renders legal services. & Special Retiree's Visa. 1. WHEREFORE. pass upon them. whether the same can properly be the subject of the advertisements herein complained of. Victoria Bldg. Integrated Bar of the Philippines: xxx xxx xxx Notwithstanding the subtle manner by which respondent endeavored to distinguish the two terms. Mla. LEGAL Ermita. the cancellation or revision.. inclusive of the termination of the employment of some of its executives. it will not normally substitute its judgment for that of the PCGG in these individual transactions. . 522-2041. Call Marivic. i. unethical. evidence gathering. or with grave abuse of discretion. Guam divorce. Investment in the Phil. Quota/Non-quota Res. ULEP. as a member of the legal profession. The Legal Clinic. Bar Matter No. or business registration." Such a name. just like a medical clinic connotes medical services for medical problems. 5222041 CLINIC. THE LEGAL CLINIC. Immigration Problems. they are fiduciaries. that as things now stand.. They should never for a moment allow themselves to forget that they are conservators. (5) Women Lawyers Association of the Philippines (WLAP). their memoranda. Considering the critical implications on the legal profession of the issues raised herein. the petition is dismissed. assistance to layman in need of basic institutional services from government or nongovernment agencies like birth. VISA. but claims that it is not engaged in the practice of law but in the rendering of "legal support services" through paralegals with the use of modern computers and electronic machines. R E SO L U T I O N REGALADO. INC. Inc. Furthermore. No Sufficient Showing of Other Irregularities As to the other irregularities complained of by BASECO. the advertisements in question appear with a picture and name of a person being represented as a lawyer from Guam. In its answer to the petition. US Embassy CLINIC. he is ashamed and offended by the said advertisements. The temporary restraining order issued on October 14. In addition. 1 Tel. 3 The said bar associations readily responded and extended their valuable services and cooperation of which this Court takes note with appreciation and gratitude. marriage. that it strongly opposes the view espoused by respondent (to the effect that today it is alright to advertise one's legal services). local or foreign visas.. and the execution of certain contracts. Adoption. first of all. to the very name being used by respondent — "The Legal Clinic. 8:30 am— 6:00 pm 7-Flr.P. the act of advertising these services should be allowed supposedly in the light of the case of John R. we deem it proper and enlightening to present hereunder excerpts from the respective position papers adopted by the aforementioned bar associations and the memoranda submitted by them on the issues involved in this bar matter.. 521-0767 It is the submission of petitioner that the advertisements above reproduced are champterous. INC. Suffice it to state that the IBP has made its position manifest. as the term medical clinic connotes doctors. is giving FREE BOOKS on Guam Divorce through The Legal Clinic beginning Monday to Friday during office hours. The IBP accordingly declares in no uncertain terms its opposition to respondent's act of establishing a "legal clinic" and of concomitantly advertising the same through newspaper publications. as advertised by it constitutes practice of law and. More importantly. hence the reliefs sought in his petition as hereinbefore quoted. (3) Philippine Lawyers' Association (PLA). 2 reportedly decided by the United States Supreme Court on June 7. THE 7F Victoria Bldg.Bus Org 2 Cases 1st Set Prelim 104 particularly. (2) Philippine Bar Association (PBA). UN Ave. appears with (the) scale(s) of justice. as earlier mentioned. petitioner. Annex B GUAM DIVORCE. The Petition in fact simply assumes this to be so. the respondent's name. It is not necessary to do so. i. through its designated directors. as published in the advertisements subject of the present case. Info on DIVORCE. 521-7251. While the respondent repeatedly denies that it offers legal services to the public. the government can. property." The advertisements complained of by herein petitioner are as follows: Annex A SECRET MARRIAGE? P560. Respondent further argues that assuming that the services advertised are legal services. ABSENCE. and this practically removes whatever doubt may still remain as to the nature of the service or services being offered. (4) U. 1977. 1986 is lifted. demeaning of the law profession. The main issues posed for resolution before the Court are whether or not the services offered by respondent. it is respectfully submitted connotes the rendering of legal services for legal problems. THE Please call: 521-0767 LEGAL 5217232. The use of the name "The Legal Clinic. the petitioner cannot be said to have established the correctness of its submission that the acts of the PCGG in question were done without or in excess of its powers. of whom the highest degree of diligence and rectitude is. The IBP would therefore invoke the administrative supervision of this Honorable Court to perpetually restrain respondent from undertaking highly unethical activities in the field of law practice as aforedescribed. Inc. properly exercise control and management over what appear to be properties and assets owned and belonging to the government itself and over which the persons who appear in this case on behalf of BASECO have failed to show any right or even any shareholding in said corporation. Bates and Van O'Steen vs. 119 this Court cannot. constitutes practice of law? xxx xxx xxx The Integrated Bar of the Philippines (IBP) does not wish to make issue with respondent's foreign citations. State Bar of Arizona. But the Court will state that absent any showing of any important cause therefor. in the premises. 553 June 17. "legal support services" vis-avis "legal services". It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management of the company's affairs should henceforth be guided and governed by the norms herein laid down. Inc.e. 521-7232.e. respondent.: Petitioner prays this Court "to order the respondent to cease and desist from issuing advertisements similar to or of the same tenor as that of annexes "A" and "B" (of said petition) and to perpetually prohibit persons or entities from making advertisements pertaining to the exercise of the law profession other than those allowed by law. the term "Legal Clinic" connotes lawyers. The issues arising therefrom may and will be left for initial determination in the appropriate action. 4 xxx xxx xxx A. where as in this case. It is clear however. Remarriage to Filipina Fiancees.. Visa Ext. trustees. required. and destructive of the confidence of the community in the integrity of the members of the bar and that.

morals." the inviolable social institution. which is suggestive of immoral publication of applications for a marriage license. many of the services involved in the case at bar can be better performed by specialists in other fields. It has been held that the practice of law is not limited to the conduct of cases in court. . or. By simply reading the questioned advertisements. this particular advertisement appears to encourage marriages celebrated in secrecy. and any law student ought to know that under the Family Code. or any other advertisements similar thereto. the only logical consequence is that. morals. Said advertisements. it is obvious that the message being conveyed is that Filipinos can avoid the legal consequences of a marriage celebrated in accordance with our law. however. except that marriage settlements may fix the property relation during the marriage within the limits provided by this Code. the persons and the lawyers who act for it are subject to court discipline. the advertisements in question are only meant to inform the general public of the services being offered by it. in the information given. whether true or not. such as acts which tend to suggest or induce celebration abroad of marriages which are bigamous or otherwise illegal and void under Philippine law. but encourages. or serves to induce. Revised Rules of Court) is to subject the members to the discipline of the Supreme Court. respondent's acts of holding out itself to the public under the trade name "The Legal Clinic." holds out itself to the public and solicits employment of its legal services. Unquestionably. and such limitation cannot be evaded by a corporation employing competent lawyers to practice for it. Precisely. Respondent would then be offering technical assistance. — A lawyer shall not counsel or abet activities aimed at defiance of the law or at lessening confidence in the legal system. Worse. a lawyer using a computer will be doing better than a lawyer using a typewriter. through experienced paralegals." is offering and rendering legal services through its reserve of lawyers. And it becomes unnecessary to make a distinction between "legal services" and "legal support services. It is also submitted that respondent should be prohibited from further performing or offering some of the services it presently offers. thereby destroying and demeaning the integrity of the Bar. From all indications. There might be nothing objectionable if respondent is allowed to perform all of its services. If the article "Rx for Legal Problems" is to be reviewed. . Respondent asserts that it "is not engaged in the practice of law but engaged in giving legal support services to lawyers and laymen. The Sharon Cuneta-Gabby Concepcion example alone confirms what the advertisements suggest. In addition. Although respondent uses its business name. 39). but before allowance of such practice may be considered. that a lawyer should be consulted before deciding on which course of action to take. p. Alternatively. with the use of modern computers and electronic machines" (pars. however. If respondent is allowed to advertise. and incidents are governed by law and not subject to stipulation. Admittedly. where certain defects in Philippine laws are exploited for the sake of profit. Don Parkinson to be handling the fields of law belies its pretense. there is only one instance when a foreign divorce is recognized. Inc. respondent "The Legal Clinic. 1984 ed. arguendo. it must be required to include. it may also be relevant to point out that advertisements such as that shown in Annex "A" of the Petition." if not suggesting a "secret marriage.Bus Org 2 Cases 1st Set Prelim 105 It thus becomes irrelevant whether respondent is merely offering "legal support services" as claimed by it. consequences. and that is: Article 26. Both the Bench and the Bar. it can readily be concluded that the above impressions one may gather from the advertisements in question are accurate. that some of respondent's services ought to be prohibited outright. that certain course of action may be illegal under Philippine law. Inc. It must not be forgotten. such as computer experts. which contains a cartoon of a motor vehicle with the words "Just Married" on its bumper and seems to address those planning a "secret marriage." and soliciting employment for its enumerated services fall within the realm of a practice which thus yields itself to the regulatory powers of the Supreme Court. as earlier discussed. the Filipino spouse shall have capacity to remarry under Philippine Law. Comment). good customs and the public good. Thus. Obviously. with a clear and unmistakable disclaimer that it is not authorized to practice law or perform legal services. too. Indeed. however. It is an odious vehicle for deception. The benefits of being assisted by paralegals cannot be ignored. electronic data gathering. Philippine Bar Association: xxx xxx xxx. rendering opinions. But nobody should be allowed to represent himself as a "paralegal" for profit. law practice in a corporate form may prove to be advantageous to the legal profession. To prohibit them from "encroaching" upon the legal profession will deny the profession of the great benefits and advantages of modern technology." makes light of the "special contract of permanent union. B. obviously to emphasize its sanctity and inviolability. While respondent may not be prohibited from simply disseminating information regarding such matters.. . The practice of law is not a profession open to all who wish to engage in it nor can it be assigned . and more importantly.. 5 2. investigators for gathering of evidence. a disclaimer that it is not authorized to practice law. not only for the protection of members of the Bar but also. It may be conceded that. Also.02. the more difficult task of carefully distinguishing between which service may be offered to the public in general and which should be made available exclusively to members of the Bar may be undertaken. Technological development in the profession may be encouraged without tolerating. emphasize to Guam divorce. that it is not authorized or capable of rendering a legal opinion. and like services will greatly benefit the legal profession and should not be stifled but instead encouraged. xxx xxx xxx It is respectfully submitted that respondent should be enjoined from causing the publication of the advertisements in question. by simply going to Guam for a divorce. the limitation of practice of law to persons who have been duly admitted as members of the Bar (Sec. but only if such services are made available exclusively to members of the Bench and Bar. The advertisements in question leave no room for doubt in the minds of the reading public that legal services are being offered by lawyers. This. 1. or whether it offers legal services as any lawyer actively engaged in law practice does. advertising should be directed exclusively at members of the Bar. (that) the "legal support services" respondent offers do not constitute legal services as commonly understood. at the very least. even if both are (equal) in skill. however. should be careful not to allow or tolerate the illegal practice of law in any form. this is outright malpractice. as the respondent claims. At worst. Marriage is special contract of permanent union between a man and woman entered into accordance with law for the establishment of conjugal and family life. may require further proceedings because of the factual considerations involved. Here it can be seen that criminal acts are being encouraged or committed (a bigamous marriage in Hong Kong or Las Vegas) with impunity simply because the jurisdiction of Philippine courts does not extend to the place where the crime is committed. especially so when the public cannot ventilate any grievance for malpractice against the business conduit. However. It must be emphasized. This is not only misleading. who by reason of their having devoted time and effort exclusively to such field cannot fulfill the exacting requirements for admission to the Bar. and advising clients as to their legal right and then take them to an attorney and ask the latter to look after their case in court See Martin. The advertisements in question are meant to induce the performance of acts contrary to law. For respondent to say that it is merely engaged in paralegal work is to stretch credulity. the corporation's Article of Incorporation and By-laws must conform to each and every provision of the Code of Professional Responsibility and the Rules of Court. public order and public policy. there can be no choice but to prohibit such business. Where a marriage between a Filipino citizen and a foreigner is validly celebrated and a divorce is thereafter validly obtained abroad by the alien spouse capacitating him or her to remarry. without such term being clearly defined by rule or regulation. This is absurd. in the eyes of an ordinary newspaper reader. and that it cannot recommend any particular lawyer without subjecting itself to possible sanctions for illegal practice of law. the advertisements in question give the impression that respondent corporation is being operated by lawyers and that it offers legal services." which is how the Family Code describes marriage. Respondent's own commercial advertisement which announces a certain Atty. Legal and Judicial Ethics. At the very least. incorporation. but includes drawing of deeds. not legal services. from offering such services to the public in general. Even if it be assumed." as the respondent would have it. standardized legal forms. that the Family Code (defines) a marriage as follows: Article 1. 2 and 3. and without any adequate and effective means of regulating his activities. The IBP is aware of the fact that providing computerized legal research. storage and retrieval. members of the bar themselves are encouraging or inducing the performance of acts which are contrary to law. Rule 138. this can be considered "the dark side" of legal practice. Inc. violation of Philippine law. this is the scheme or device by which respondent "The Legal Clinic. It is the foundation of the family and an inviolable social institution whose nature. Rule 1. when the conduct of such business by non-members of the Bar encroaches upon the practice of law. but instead ensuring prevention of illegal practice. for the protection of the public. It is apt to recall that only natural persons can engage in the practice of law.

. . Bankers. who gave an insight on the structure and main purpose of Respondent corporation in the aforementioned "Starweek" article. where in this country there is none. 2. then an architect who performed this function would probably be considered to be trespassing on territory reserved for licensed attorneys. Annex "A" of the petition is not only illegal in that it is an advertisement to solicit cases. the Supreme Court held that solicitation for clients by an attorney by circulars of advertisements. and who draws plans and specification in harmony with the law. visa extensions. annulment of marriage. It gives the impression again that Respondent will or can cure the legal problems brought to them.7 That entities admittedly not engaged in the practice of law. The Respondent's name — The Legal Clinic. A good example is the architect. it appears in the instant case that legal services are being advertised not by lawyers but by an entity staffed by "paralegals. knowledge and experience. as enumerated above. Are they practicing law? In my opinion. — does not help matters. whether run by lawyers or not. Women Lawyer's Association of the Philippines: Annexes "A" and "B" of the petition are clearly advertisements to solicit cases for the purpose of gain which. the fact that the business of respondent (assuming it can be engaged in independently of the practice of law) involves knowledge of the law does not necessarily make respondent guilty of unlawful practice of law. It seems . the legal advices based thereon and which activities call for legal training. provided no separate fee is charged for the legal advice or information. when in fact it is not so. But suppose the architect. It would encourage people to consult this clinic about how they could go about having a secret marriage here. Federacion Internacional de Abogados: xxx xxx xxx 1. . however. . asked by his client to omit a fire tower. While the use of a paralegal is sanctioned in many jurisdiction as an aid to the administration of justice. clearly and convincingly show that it is indeed engaged in law practice. staffed purely by paralegals. measures should be taken to protect the general public from falling prey to those who advertise legal services without being qualified to offer such services. factory and tenement house statutes. 8 A perusal of the questioned advertisements of Respondent. Women Lawyers' Circle: In resolving. except under the Code of Muslim Personal Laws in the Philippines. these do not exist in the Philippines. they are not. for one (cannot) justify an illegal act even by whatever merit the illegal act may serve." Clearly." 7 4. Likewise. Assuming that Respondent is. particularly regarding foreign divorces. the issues before this Honorable Court. Inc. The Honorable Supreme Court has the power to supress and punish the Legal Clinic and its corporate officers for its unauthorized practice of law and for its unethical. This is not practicing law. and 4. and the legal question is subordinate and incidental to a major non-legal problem. the activities of respondent fall squarely and are embraced in what lawyers and laymen equally term as "the practice of law. but when we are serving others. when only "paralegals" are involved in The Legal Clinic. No amount of reasoning that in the USA. .clear that (the consultant's) knowledge of the law. albeit outside of court. It is largely a matter of degree and of custom. if the industrial relations field had been pre-empted by lawyers. Inc. xxx xxx xxx Respondent posits that is it not engaged in the practice of law. 6 3. Or the industrial relations expert cites. which are in essence. absence and adoption. however. perform the services rendered by Respondent does not necessarily lead to the conclusion that Respondent is not unlawfully practicing law. Immigration Laws.. Atty. divorce. 10 6. Inc. But its advertised services. . the legal principles and procedures related thereto. But this is not the case. acting as a consultant can render effective service unless he is familiar with such statutes and regulations. . becoming a lawyer requires one to take a rigorous four-year course of study on top of a four-year bachelor of arts or sciences course and then to take and pass the bar examinations. The law has yet to be amended so that such act could become justifiable. courses of study and/or standards which would qualify these paralegals to deal with the general public as such. It is not only presumed that all men know the law. Jur. secret marriages. At present. such as management consultancy firms or travel agencies. Its advertised services unmistakably require the application of the aforesaid law. it has been . While it may now be the opportune time to establish these courses of study and/or standards. The advertisements complained of are not only unethical.P. it also gives the misleading impression that there are lawyers involved in The Legal Clinic. misleading and immoral advertising. the fact remains that at present. a decision of the National Labor Relations Board. in answer to the issues stated herein. Among the larger corporate employers. do not constitute the practice of law . the Investments Law of the Philippines and such other related laws. . While it is advertised that one has to go to said agency and pay P560 for a valid marriage it is certainly fooling the public for valid marriages in the Philippines are solemnized only by officers authorized to do so under the law. Only then. In the same vein. It is a personal right limited to persons who have qualified themselves under the law. In the meantime. . U. We submit further that these advertisements that seem to project that secret marriages and divorce are possible in this country for a fee. In the case (of) In re Taguda. this Honorable Court may decide to make measures to protect the general public from being exploited by those who may be dealing with the general public in the guise of being "paralegals" without being qualified to do so. ." 9 5. are wit: 1. adoption and foreign investment. paramount consideration should be given to the protection of the general public from the danger of being exploited by unqualified persons or entities who may be engaged in the practice of law. .. It claims that it merely renders "legal support services" to answers. 37. immigration problems. 270). and offenses of this character justify permanent elimination from the Bar. . and his use of that knowledge as a factor in determining what measures he shall recommend. While it appears that lawyers are prohibited under the present Code of Professional Responsibility from advertising. will be given to them if they avail of its services. . replies that it is required by the statute. litigants and the general public as enunciated in the Primary Purpose Clause of its Article(s) of Incorporation. It follows that not only respondent but also all the persons who are acting for respondent are the persons engaged in unethical law practice. legal matters . Of necessity. liquor dealers and laymen generally possess rather precise knowledge of the laws touching their particular business or profession. but it is illegal in that in bold letters it announces that the Legal Clinic. Our knowledge of the law — accurate or inaccurate — moulds our conduct not only when we are acting for ourselves. annulment of marriages. . but also misleading and patently immoral. no one . . Respondent's allegations are further belied by the very admissions of its President and majority stockholder. And to employ an agency for said purpose of contracting marriage is not necessary. He must be careful not to suggest a course of conduct which the law forbids. 53 Phil. Canada and other countries the trend is towards allowing lawyers to advertise their special skills to enable people to obtain from qualified practitioners legal services for their particular needs can justify the use of advertisements such as are the subject matter of the petition. As advertised. Nogales. who must be familiar with zoning. particularly on visa related problems. but it is a fact that most men have considerable acquaintance with broad features of the law . when it cannot nor should ever be attempted. the general public should also be protected from the dangers which may be brought about by advertising of legal services. Inc. in support of some measure that he recommends. are highly reprehensible. Applying the test laid down by the Court in the aforecited Agrava Case. It is also against good morals and is deceitful because it falsely represents to the public to be able to do that which by our laws cannot be done (and) by our Code of Morals should not be done. as there are doctors in any medical clinic. The Legal Clinic is engaged in the practice of law. In the same manner. seems to give the impression that information regarding validity of marriages. is unprofessional. as claimed. immigration. 3. as provided for under the above cited law. and seek advice on divorce. The most important body of the industrial relations experts are the officers and business agents of the labor unions and few of them are lawyers. there are in those jurisdictions. . building and fire prevention codes. or custom placed a lawyer always at the elbow of the lay personnel man. (See pages 2 to 5 of Respondent's Comment). (are) illegal and against the Code of Professional Responsibility of lawyers in this country. declaration of absence. Philippine Lawyers' Association: The Philippine Lawyers' Association's position. Such practice is unauthorized. If it were usual for one intending to erect a building on his land to engage a lawyer to advise him and the architect in respect to the building code and the like. could work out/cause the celebration of a secret marriage which is not only illegal but immoral in this country. is a lawyer qualified to practice law.Bus Org 2 Cases 1st Set Prelim 106 to another (See 5 Am. it offers the general public its advisory services on Persons and Family Relations Law.

et seq. If the person involved is both lawyer and non-lawyer. 1. knowledge. Wood. with or without a mediator. Defendant also appears to represent the employer before administrative agencies of the federal government. supra at p. Such would constitute unauthorized practice of law. and does not purport to give personal advice on a specific problem peculiar to a designated or readily identified person.. The law only provides the frame within which he must work. Apparently it is urged that the conjoining of these two. that if the services "involve giving legal advice or counselling.2). There being no legal impediment under the statute to the sale of the kit. straightforward marriages. Annex "B" may likewise be ethically objectionable. Here. 203. The handling of industrial relations is growing into a recognized profession for which appropriate courses are offered by our leading universities. absence. 2d 800. It is in this light that FIDA submits that a factual inquiry may be necessary for the judicious disposition of this case. Similarly the defendant's publication does not purport to give personal advice on a specific problem peculiar to a designated or readily identified person in a particular situation — in their publication and sale of the kits. But I need not reach a definite conclusion here. Rules and Regulations. like securing a marriage license. since the situation is not presented by the proofs. (State v. that aside from purely giving information. to practice law is to give advice or render any kind of service that involves legal knowledge or skill. Nor does there exist that relation of confidence and trust so necessary to the status of attorney and client. separation. may not constitute practice of law. .).08 — A lawyer who is engaged in another profession or occupation concurrently with the practice of law shall make clear to his client whether he is acting as a lawyer or in another capacity. NYS 2D 270 [1973]. of course. The Legal Clinic also appears to give information on divorce. or that the technical education given by our schools cannot be used by the graduates in their business. of course. The court should be very cautious about declaring [that] a widespread. It is not entirely improbable. he performed services which are customarily reserved to members of the bar.10. or that the considerable class of men who customarily perform a certain function have no right to do so. Practice of law means any activity. In the present case. it can be said that a person engaged in a lawful calling (which may involve knowledge of the law) is not engaged in the practice of law provided that: (a) The legal question is subordinate and incidental to a major non-legal problem. (c) No separate fee is charged for the legal advice or information. An agency of the federal government. 348. "It is not controverted. THIS IS THE ESSENTIAL OF LEGAL PRACTICE — THE REPRESENTATION AND ADVISING OF A PARTICULAR PERSON IN A PARTICULAR SITUATION. 1. Purely giving informational materials may not constitute of law. But such is not the fact in the case before me. However. 53 A. and making arrangements with a priest or a judge. if the problem is as complicated as that described in "Rx for Legal Problems" on the Sharon Cuneta-Gabby Concepcion-Richard Gomez case. or by other representative. the text and the forms. September 11th. Dacey's book is sold to the public at large. I can imagine defendant being engaged primarily to advise as to the law defining his client's obligations to his employees. The courts have laid down general principles and doctrines explaining the meaning and scope of the term. that is. there was no proper basis for the injunction against defendant maintaining an office for the purpose of selling to persons seeking a divorce. are available. which requires the application of law. we should consider his work for any particular client or customer. Most real estate sales are negotiated by brokers who are not lawyers. if as part of a welfare program. however. the defendant gave legal advice in the course of personal contacts concerning particular problems which might arise in the preparation and presentation of the purchaser's asserted matrimonial cause of action or pursuit of other legal remedies and assistance in the preparation of necessary documents (The injunction therefore sought to) enjoin conduct constituting the practice of law. and the person appointed is free to accept the employment whether or not he is a member of the bar. (b) The services performed are not customarily reserved to members of the bar. And the mere fact that the principles or rules stated in the text may be accepted by a particular reader as a solution to his problem does not affect this. This is not per se the practice of law. Winder. 101. no Philippine marriage can be secret. cited in Statsky. legal procedures. such as the Legal Clinic. he would be practicing law. at pp. with advice as to how the forms should be filled out. constitutes the unlawful practice of law. 12 . Let me add that if. With all the solemnities. In this phase of his work. 1946. and not legal services. Defendant's primarily efforts are along economic and psychological lines.). annulment of separation agreement sought and should be affirmed. Generally. cited in Statsky. Anyone may use an agent for negotiations and may select an agent particularly skilled in the subject under discussion. . There is no personal contact or relationship with a particular individual. states that its services are "strictly non-diagnostic. training and experience. and give legal advice. then it may be that only a lawyer can accept the assignment. formalities and other requisites of marriages (See Articles 2. annulment or separation agreement any printed material or writings relating to matrimonial law or the prohibition in the memorandum of modification of the judgment against defendant having an interest in any publishing house publishing his manuscript on divorce and against his having any personal contact with any prospective purchaser. 'Counsel' here means a licensed attorney. it is quite likely that defendant should not handle it. The rules of the National Labor Relations Board give to a party the right to appear in person. especially before trial examiners of the National Labor Relations Board. the Legal Clinic appears to render wedding services (See Annex "A" Petition). however. . To engage in the practice of law is to perform those acts which are characteristic of the profession. 6. The business is similar to that of a bookstore where the customer buys materials on the subject and determines on the subject and determines by himself what courses of action to take. Annex "A" may be ethically objectionable in that it can give the impression (or perpetuate the wrong notion) that there is a secret marriage. xxx xxx xxx 2. More recently. This. there may be an exception where the business turns on a question of law. 154-156. (Auerbacher v. to guide his client's obligations to his employees. 2. In determining whether a man is practicing law. as a whole . then what may be involved is actually the practice of law. or of a statute. On this score.12. does not transform his activities into the practice of law. Respondent. Family Code). . acting by virtue of an authority granted by the Congress. even as a minor feature of his work. But that is the situation with many approved and accepted texts. he drew employees' wills. The incidental legal advice or information defendant may give. renders such services then it is engaged in the unauthorized practice of law. If a non-lawyer. we note that the clause "practice of law" has long been the subject of judicial construction and interpretation. such publication and sale did not constitutes the unlawful practice of law . separation. 1. The record does fully support. and without regard to legal thinking or lack of it. Or if a controversy between an employer and his men grows from differing interpretations of a contract. defendant may lawfully do whatever the Labor Board allows. . some of which we now take into account. 1. At most the book assumes to offer general advice on common problems. would be the practice of the law." such would constitute practice of law (Comment. consultants like the defendants have the same service that the larger employers get from their own specialized staff. But if the value of the land depends on a disputed right-of-way and the principal role of the negotiator is to assess the probable outcome of the dispute and persuade the opposite party to the same opinion. in or out of court. just as the zoning code limits the kind of building the limits the kind of building the architect may plan. Introduction to Paralegalism [1974]. to guide his client along the path charted by law. 1. non-advisory. The State of New Jersey is without power to interfere with such determination or to forbid representation before the agency by one whom the agency admits. ." 11 A prefatory discussion on the meaning of the phrase "practice of law" becomes exigent for the proper determination of the issues raised by the petition at bar.Bus Org 2 Cases 1st Set Prelim 107 the practice for some years to delegate special responsibility in employee matters to a management group chosen for their practical knowledge and skill in such matter. however. . For instance.10. . or by counsel. Another branch of defendant's work is the representations of the employer in the adjustment of grievances and in collective bargaining. particularly with reference to the giving of advice and counsel by the defendant relating to specific problems of particular individuals in connection with a divorce. and ther representative' one not a lawyer. It cannot be claimed that the publication of a legal text which publication of a legal text which purports to say what the law is amount to legal practice. annulment of marriage and visas (See Annexes "A" and "B" Petition).8 From the foregoing.11. the Code of Professional Responsibility succintly states the rule of conduct: Rule 15. par. The second paragraph thereof (which is not necessarily related to the first paragraph) fails to state the limitation that only "paralegal services?" or "legal support services". even arguing questions purely legal. the Legal Clinic's paralegals may apply the law to the particular problem of the client. however. All these must be considered in relation to the work for any particular client as a whole. S. the finding that for the change of $75 or $100 for the kit. may regulate the representation of parties before such agency.9. Services on routine.11. well-established method of conducting business is unlawful.31..

It embraces conveyancing. medico-legal problems. who. 13 In the practice of his profession. advises them as to their legal rights and then takes the business to an attorney and asks the latter to look after the case in court. 23. transmission and reproduction of information and communication. a licensed attorney at law generally engages in three principal types of professional activity: legal advice and instructions to clients to inform them of their rights and obligations. we laid down the test to determine whether certain acts constitute "practice of law. It includes legal advice and counsel. it will necessarily have to explain to the client the intricacies of the law and advise him or her on the proper course of action to be taken as may be provided for by said law. 173. encoding and reproduction of documents and pleadings prepared by laymen or lawyers. A person is also considered to be in the practice of law when he: . we start by analyzing the problem. 15 One who confers with clients. 2d 895. for example. and appearance for clients before public tribunals which possess power and authority to determine rights of life. These specialist are backed up by a battery of paralegals. quoted in Rhode Is. in order to assist in proper interpretation and enforcement of law. Practice of law under modern conditions consists in no small part of work performed outside of any court and having no immediate relation to proceedings in court. to that extent. What is palpably clear is that respondent corporation gives out legal information to laymen and lawyers. Dudley and Co. E. Monsod. they observe you for the symptoms and so on. N. but embraces the preparation of pleadings. 263). C. v. and assistance to laymen in need of basic institutional services from government or non-government agencies. and family law. and other matters that do not involve representation of clients in court.] 197 A. 313. Vol. is. Rogelio P. (State ex. courts and other entities engaged in dispensing or administering legal services. referee. "when they come. These customary functions of an attorney or counselor at law bear an intimate relation to the administration of justice by the courts. W. E. he is in the practice of law. and conducting proceedings in attachment.I. Its contention that such function is non-advisory and non-diagnostic is more apparent than real. before any court. corporate legal departments. 20 While some of the services being offered by respondent corporation merely involve mechanical and technical knowhow. in a representative capacity. p. . 16 Giving advice for compensation regarding the legal status and rights of another and the conduct with respect thereto constitutes a practice of law. such as computerized legal research. Agrava (105 Phil. 340 Mo. in the case of Philippines Lawyers Association v. programs. the preparation of legal instruments of all kinds. 129 Ohio St. with offices on the seventh floor of the Victoria Building along U. Inspired by the trend in the medical field toward specialization. passports. and great capacity for adaptation to difficult and complex situations. or the computerization of research aids and materials. preparation for clients of documents requiring knowledge of legal principles not possessed by ordinary layman.]. main purpose and operations of respondent corporation was given by its own "proprietor. commissioner. property. it embraces the preparation of pleadings and other papers incident to actions and special proceedings. . storage. The practice of law. counsellors and attorneys. It is not limited to appearing in court. . associations or corporations as to their right under the law. non-advisory. the management of such actions and proceedings on behalf of clients before judges and courts. all advice to clients. or while so engaged performs any act or acts either in court or outside of court for that purpose. or advising and assisting in the conduct of litigation. Said proposition is belied by respondent's own description of the services it has been offering. and the giving of all legal advice to clients. giving information about laws of other countries that they may find useful. With its attorneys and so called paralegals. educational or employment records or certifications. Avenue in Manila. is not limited merely giving legal advice. The Legal Clinic. to wit: Legal support services basically consists of giving ready information by trained paralegals to laymen and lawyers. rel. firms. Applying the aforementioned criteria to the case at bar. too. then it's referred to one of our specialists. Although these transactions may have no direct connection with court proceedings. And once the problem has been categorized. these will not suffice to justify an exception to the general rule. 18 In the recent case of Cayetano vs. v. furnish a copy thereof to the client. assessment and condemnation services contemplating an appearance before a judicial body. as advertised. designing and installing computer systems. 665-666. evidence gathering. 17 One who renders an opinion as to the proper interpretation of a statute. That's how we operate. That activity falls squarely within the jurisprudential definition of "practice of law. as do the preparation and drafting of legal instruments. constitute "practice of law. divorce and adoption. contract drafting and so forth. 139. and acting at all times under the heavy trust obligations to clients which rests upon all attorneys. and receives pay for it. entitled "Rx for Legal Problems. in such representative capacity. This Court. one who. is also practicing law. 262." Atty. liberty. Nogales and his staff of lawyers.Bus Org 2 Cases 1st Set Prelim 108 The practice of law is not limited to the conduct of cases in court. or software for the efficient management of law offices. 194 N. marriage or adoption laws that they can avail of preparatory to emigration to the foreign country. 14 When a person participates in the a trial and advertises himself as a lawyer. where the work done involves the determination by the trained legal mind of the legal effect of facts and conditions. we agree with the perceptive findings and observations of the aforestated bar associations that the activities of respondent. pending or prospective. a wide experience with men and affairs. is engaged in the practice of law. Automobile Service Assoc. Atty.(Land Title Abstract and Trust Co. citing In Re Opinion of the Justices [Mass]. 1991 issue of the Starweek/The Sunday Magazine of the Philippines Star. and even if it is as complicated as the Cuneta-Concepcion domestic situation. like foreign divorce. and stop there as if it were merely a bookstore. No matter what the client's problem. 3 [1973 ed. 144).S. It is of importance to the welfare of the public that these manifold customary functions be performed by persons possessed of adequate learning and skill. Otherwise stated. they are always subject to become involved in litigation. Jr." Such a conclusion will not be altered by the fact that respondent corporation does not represent clients in court since law practice. The practice of law is not limited to the conduct of cases on court. or commission constituted by law or authorized to settle controversies and there. processing. committee. local or foreign visas." where an insight into the structure. as the weight of authority holds. or business registrations. and property according to law. 102 S. like birth." The contention of respondent that it merely offers legal support services can neither be seriously considered nor sustained. therefore.. covers a wide range of activities in and out of court. which are strictly non-diagnostic. performs any act or acts for the purpose of obtaining or defending the rights of their clients under the law. locating parties or witnesses to a case. (5 Am. can be drawn between that part of the work of the lawyer which involves appearance in court and that part which involves advice and drafting of instruments in his office. and the preparation of legal instruments and contract by which legal rights are secured. Inc. they take your temperature. That is what its advertisements represent and for the which services it will consequently charge and be paid. . (Moran. 176-177). 19 after citing the doctrines in several cases. enforcement of a creditor's claim in bankruptcy and insolvency proceedings. and all action taken for them in matters connected with the law incorporation services. it strains the credulity of this Court that all the respondent corporation will simply do is look for the law. Atty. conveyancing. of sound moral character. Comments on the Rules o Court. and other papers incident to actions and special proceedings. has specialists in taxation and criminal law. practicing law. Nogales: This is the kind of business that is transacted everyday at The Legal Clinic. the foreclosure of a mortgage. and in addition. Nogales set up The Legal Clinic in 1984. fact finding investigations. document search. it caters to clients who cannot afford the services of the big law firms. so far as concerns the question set forth in the order. 193N. like doctors are "specialists" in various fields can take care of it. labor. litigation. the giving of legal advice on a large variety of subjects and the preparation and execution of legal instruments covering an extensive field of business and trust relations and other affairs. They require in many aspects a high degree of legal skill. In providing information. for valuable consideration engages in the business of advising person. marriage. and in matters or estate and guardianship have been held to constitute law practice. through the extensive use of computers and modern information technology in the gathering. conveying. body. obtaining documentation like clearances.stated: The practice of law is not limited to the conduct of cases or litigation in court. although such matter may or may not be pending in a court. They ask you how you contracted what's bothering you." thus: Black defines "practice of law" as: The rendition of services requiring the knowledge and the application of legal principles and technique to serve the interest of another with his consent. Bar Assoc. pp. about foreign laws on marriage. board. engages in the business of advising clients as to their rights under the law. No valid distinction. It embraces all advice to clients and all actions taken for them in matters connected with the law. The aforesaid conclusion is further strengthened by an article published in the January 13. such as the installation of computer systems and programs for the efficient management of law offices. Mckittrick v. That's what doctors do also. 650). [R. or appears in a representative capacity as an advocate in proceedings. The Legal Clinic has regular and walk-in clients. Dworken . In general. 852).

Most of these services are undoubtedly beyond the domain of paralegals. Bayot 38 an advertisement. telephone numbers. the canon of the profession tell us that the best advertising possible for a lawyer is a well-merited reputation for professional capacity and fidelity to trust. 28 As the concept of the "paralegals" or "legal assistant" evolved in the United States. Only a person duly admitted as a member of the bar. a person who has not been admitted as an attorney cannot practice law for the proper administration of justice cannot be hindered by the unwarranted intrusion of an unauthorized and unskilled person into the practice of law. respondent cannot but be aware that this should first be a matter for judicial rules or legislative action. legal authorships. Code of Ethics. by reason of attainments previously acquired through education and study. Whatever may be its merits. is entitled to practice law. hindi kailangang ma-confine. self-laudatory or unfair statement or claim regarding his qualifications or legal services. .P. What is important is that it is engaged in the practice of law by virtue of the nature of the services it renders which thereby brings it within the ambit of the statutory prohibitions against the advertisements which it has caused to be published and are now assailed in this proceeding. or procuring his photograph to be published in connection with causes in which the lawyer has been or is engaged or concerning the manner of their conduct. the Code of Professional Responsibility provides that a lawyer in making known his legal services shall use only true. Good and efficient service to a client as well as to the community has a way of publicizing itself and catching public attention. As a member of the bar. we would refer you to a specialist in taxation. cable addresses. vs. addresses. This cannot be forced but must be the outcome of character and conduct. interpretation. Again. 22 It should be noted that in our jurisdiction the services being offered by private respondent which constitute practice of law cannot be performed by paralegals. which must be earned as the outcome of character and conduct. similar to those of respondent which are involved in the present proceeding. The exceptions are of two broad categories. schools attended with dates of graduation. 40 Of course. A lawyer cannot. We can take care of these matters on a while you wait basis. 27 We have to necessarily and definitely reject respondent's position that the concept in the United States of paralegals as an occupation separate from the law profession be adopted in this jurisdiction. honest. with respect to the construction. as correctly and appropriately pointed out by the U. The doctrines there also stress that the practice of law is limited to those who meet the requirements for. namely. "The most worthy and effective advertisement possible. "If you had a rich relative who died and named you her sole heir. 37 The prescription against advertising of legal services or solicitation of legal business rests on the fundamental postulate that the that the practice of law is a profession. We repeat. posts of honor. Section 25 of Rule 127 expressly provides among other things that "the practice of soliciting cases at law for the purpose of gain. 36 The standards of the legal profession condemn the lawyer's advertisement of his talents. 35 Prior to the adoption of the code of Professional Responsibility. we have adopted the American judicial policy that. 29 In the Philippines. . the importance of the lawyer's position. date and place of birth and admission to the bar." explains Atty. standards and guidelines also evolved to protect the general public. counsel with. but such allowable services are limited in scope and extent by the law. The permissive right conferred on the lawyers is an individual and limited privilege subject to withdrawal if he fails to maintain proper standards of moral and professional conduct. undignified. in the absence of constitutional or statutory authority. He easily sees the difference between a normal by-product of able service and the unwholesome result of propaganda. or defend the rights claims. There are also associations of paralegals in the United States with their own code of professional ethics. not all types of advertising or solicitation are prohibited. . even for a young lawyer. Only those persons are allowed to practice law who. if this were a hospital the residents or the interns. "Such data must not be misleading and may include only a statement of the lawyer's name and the names of his professional associates. dignified and objective information or statement of facts. kung baga sa hospital. such as furnishing or inspiring newspaper comments. the court. These The Legal Clinic disposes of in a matter of minutes. legal teaching positions. or in return for. advertise his talents or skill as in a manner similar to a merchant advertising his goods. either personally or thru paid agents or brokers. publicity to attract legal business. 34 Nor shall he pay or give something of value to representatives of the mass media in anticipation of. 39 was held to constitute improper advertising or solicitation. the bar. It's just like a common cold or diarrhea. fraudulent. and the American Paralegal Association. That publicity is a normal byproduct of effective service which is right and proper. and you stand to inherit millions of pesos of property. The canons of the profession enumerate exceptions to the rule against advertising or solicitation and define the extent to which they may be undertaken. the client and the bar from the incompetence or dishonesty of those unlicensed to practice law and not subject to the disciplinary control of the court. The pertinent part of the decision therein reads: It is undeniable that the advertisement in question was a flagrant violation by the respondent of the ethics of his profession. Legislation has even been proposed to certify legal assistants. have been recognized by the courts as possessing profound knowledge of legal science entitling them to advise. misleading. fair. One of the major standards or guidelines was developed by the American Bar Association which set up Guidelines for the Approval of Legal Assistant Education Programs (1973). membership and offices in bar . As pointed out by FIDA. the Canons of Professional Ethics had also warned that lawyers should not resort to indirect advertisements for professional employment. or liabilities of their clients. in medical terms. deceptive. and not of unilateral adoption as it has done. public or quasi-public offices. 25 The practice of law is not a lawful business except for members of the bar who have complied with all the conditions required by statute and the rules of court. and various statutes or rules specifically so provide. 24 The same rule is observed in the american jurisdiction wherefrom respondent would wish to draw support for his thesis. There would be real estate taxes and arrears which would need to be put in order. is the establishment of a well-merited reputation for professional capacity and fidelity to trust. protect. constitutes malpractice. and have been admitted to. operation and effect of law. and all other like self-laudation. it being a brazen solicitation of business from the public. The lawyer degrades himself and his profession who stoops to and adopts the practices of mercantilism by advertising his services or offering them to the public. 33 He is not supposed to use or permit the use of any false. said reported facts sufficiently establish that the main purpose of respondent is to serve as a one-stop-shop of sorts for various legal problems wherein a client may avail of legal services from simple documentation to complex litigation and corporate undertakings. but in the protection of the public from being advised and represented in legal matters by incompetent and unreliable persons over whom the judicial department can exercise little control. A good and reputable lawyer needs no artificial stimulus to generate it and to magnify his success. Further. while there are none in the Philippines. without violating the ethics of his profession. such as the National Association of Legal Assistants. but rather. of brief biographical and informative data. and your relative is even taxed by the state for the right to transfer her property. he defiles the temple of justice with mercenary activities as the money-changers of old defiled the temple of Jehovah. not in the protection of the bar from competition. there are schools and universities there which offer studies and degrees in paralegal education. in a manner consistent with the standards of conduct imposed by the canons. in the case of The Director of Religious Affairs. those which are expressly allowed and those which are necessarily implied from the restrictions. WILOCI. 23 Public policy requires that the practice of law be limited to those individuals found duly qualified in education and character. rules or regulations granting permission therefor. 30 Accordingly. outpatient.). Inc. 32 Anent the issue on the validity of the questioned advertisements. then you would need a litigator. the magnitude of the interest involved. require surgery or follow-up treatment. and only a specialist in taxation would be properly trained to deal with the problem. branches of law practiced.Bus Org 2 Cases 1st Set Prelim 109 There are cases which do not. Those cases which requires more extensive "treatment" are dealt with accordingly. Paralegals in the United States are trained professionals. degrees and other educational distinction. or hereafter admitted as such in accordance with the provisions of the Rules of Court. Now." It is highly unethical for an attorney to advertise his talents or skill as a merchant advertises his wares. who knows how to arrange the problem for presentation in court. The purpose is to protect the public. As admitted by respondent. "Things like preparing a simple deed of sale or an affidavit of loss can be taken care of by our staff or. ." (Canon 27. Estanislao R. 31 That policy should continue to be one of encouraging persons who are unsure of their legal rights and remedies to seek legal assistance only from persons licensed to practice law in the state. Law is a profession and not a trade. Thus. Nogales. and who is in good and regular standing. are exclusive functions of lawyers engaged in the practice of law. if there were other heirs contesting your rich relatives will. some persons not duly licensed to practice law are or have been allowed limited representation in behalf of another or to render legal services. and gather evidence to support the case. 26 The justification for excluding from the practice of law those not admitted to the bar is found. we still have a restricted concept and limited acceptance of what may be considered as paralegal service. 41 The first of such exceptions is the publication in reputable law lists. 21 That fact that the corporation employs paralegals to carry out its services is not controlling.

x x x [Private respondent] was ordered to close its establishment within ten (10) days from receipt of the order. vs. whether in our former Canons of Professional Ethics or the present Code of Professional Responsibility. from issuing or causing the publication or dissemination of any advertisement in any form which is of the same or similar tenor and purpose as Annexes "A" and "B" of this petition. 49 Considering that Atty. to advertise his services except in allowable instances 48 or to aid a layman in the unauthorized practice of law. the Office of the Bar Confidant and the Office of the Solicitor General for appropriate action in accordance herewith. The Legal Clinic. ACEBEDO INTERNATIONAL CORPORATION and the HON.. 1991. it is undoubtedly a misbehavior on the part of the lawyer. This interdiction. we find and so hold that the same definitely do not and conclusively cannot fall under any of the above-mentioned exceptions. magazine. telephone number and special branch of law practiced. the prohibition stands. just like the rule against unethical advertising. petitioners. expressly or impliedly. While we deem it necessary that the question as to the legality or illegality of the purpose/s for which the Legal Clinic. 1991. For that reason. such practice. Ilocos Sur." 42 The law list must be a reputable law list published primarily for that purpose. That spin-off from the instant bar matter is referred to the Solicitor General for such action as may be necessary under the circumstances. COURT OF APPEALS. but the optometrists employed by it. and from conducting. and to exert all efforts to regain the high esteem formerly accorded to the legal profession. it is our firm belief that with the present situation of our legal and judicial systems. State Bar of Arizona. even if unfair. however. according to petitioners. Jr. Petitioners understandably did not welcome the herein assailed decision because they have. 117097." 46 This goes to show that an exception to the general rule.) No. under the present state of our law and jurisprudence. The card may contain only a statement of his name. Let copies of this resolution be furnished the Integrated Bar of the Philippines. it was found that public opinion dropped significantly 47 with respect to these characteristics of lawyers: Trustworthy from 71% to 14% Professional from 71% to 14% Honest from 65% to 14% Dignified from 45% to 14% Secondly. associates. J. the names and addresses of references. criticisms at times." [4] The singular issue. with their written consent. usually optical shops and eyeware stores. questioning the decision of respondent committee. Its petition. of course. 1998. for the issuance of a permit for the opening and operation of a branch of the Acebedo Optical in that municipality.R SP No. supplies. Nor may a lawyer permit his name to be published in a law list the conduct. dismissed Acebedo's petition. operation or transaction proscribed by law or the Code of Professional Ethics as indicated herein. vs. as in the case at bar. 1992. even the disciplinary rule in the Bates case contains a proviso that the exceptions stated therein are "not applicable in any state unless and until it is implemented by such authority in that state. magazine. ruled that the operations of private respondent Acebedo International Corporation involves the practice of optometry which is precluded by RA.R. [G. who would be practicing optometry. substances and instruments but also by the members of the Senate during the deliberations respecting R A. 1998. Inc. are as follows: "On February 22. No. he is hereby reprimanded. March 21. composed of "public respondents Eduardo Ma. He may likewise have his name listed in a telephone directory but not under a designation of special branch of law. JR. directly or indirectly. which on December 16. any activity. The ruling in the case of Bates. is obviously not applicable to the case at bar. the name of the law firm which he is connected with. obtained a decision [3] favorable to them from the Regional Trial Court of Candon. 26782). On April 17. On December 9. The remedy for the apparent breach of this prohibition by respondent is the concern and province of the Solicitor General who can institute the corresponding quo warranto action. It is. Branch 23. DANTE G. The said judge had. a lawyer may not properly publish his brief biographical and informative data in a daily paper. Pacquing and Octavio de Peralta. major stockholder and proprietor of The Legal Clinic. since. ACCORDINGLY. Otherwise. PACQUING and OCTAVIO A. was referred to the court a quo. 44 Verily. GUIRNALDA. under Republic Act (RA.: Before us is a petition seeking the review and ultimately the reversal of the decision [1] of the Court of Appeals [2] which rejected what petitioners vehemently claim to be a prohibition. At this point in time. firm name or office address. taking into consideration the nature and contents of the advertisements for which respondent is being taken to task. x x x [private respondent] filed its answer. arguing it is not the corporation. albeit in a different proceeding and forum. is not objectionable. it cannot be a mere supplemental feature of a paper. 1991. address. It bears mention that in a survey conducted by the American Bar Association after the decision in Bates. being an indirect violation of the rule against corporations exercising professions reserved only to natural persons. DECISION HERMOSISIMA. x x x [private respondent] filed an application with the Office of the Mayor of Candon. in legal and scientific societies and legal fraternities. in light of the putative misuse thereof. otherwise known as Revised New Optometry Law. On March 6. x x x [private respondent] filed with the Court of Appeals a petition for certiorari (CA G. a corporation cannot be organized for or engage in the practice of law in this country. x x x [the] appeal [to the respondent Court of Appeals]. as an exception to the prohibition against advertisements by lawyers. 50 after due ascertainment of the factual background and basis for the grant of respondent's corporate charter. imperative that this matter be promptly determined. to publish a statement of legal fees for an initial consultation or the availability upon request of a written schedule of fees or an estimate of the fee to be charged for the specific services. we are constrained to refrain from lapsing into an obiter on that aspect since it is clearly not within the adjudicative parameters of the present proceeding which is merely administrative in nature. Nogales. such as that being invoked by herein respondent. In sum. or to lower the dignity or standing of the profession. subject to disciplinary action. management or contents of which are calculated or likely to deceive or injure the public or the bar. to allow the publication of advertisements of the kind used by respondent would only serve to aggravate what is already a deteriorating public opinion of the legal profession whose integrity has consistently been under attack lately by media and the community in general. who is the prime incorporator. Hence. 8050. 45 which is repeatedly invoked and constitutes the justification relied upon by respondent. with a warning that a repetition of the same or similar acts which are involved in this proceeding will be dealt with more severely. popularly known as the old Optometry Law. the fact of listings in other reputable law lists. The undisputed facts of the case. The application was opposed by the x x x [petitioner] Samahan ng Optometrists sa Pilipinas (SOP) which contended that x x x [private respondent] is a juridical entity not qualified to practice optometry. Inc. of optometrists. 1991. cannot be subverted by employing some so-called paralegals supposedly rendering the alleged support services. on the attitude of the public about lawyers after viewing television commercials. Acebedo moved for a reconsideration but its motion was denied on November 14. and. On September 26. earlier. Inc. is this: May corporations. it is of utmost importance in the face of such negative. the names of clients regularly represented. trade journal or society program. being for the convenience of the profession. which even includes a quotation of the fees charged by said respondent corporation for services rendered. 43 The use of an ordinary simple professional card is also permitted. is a member of the Philippine Bar. to adopt and maintain that level of professional conduct which is beyond reproach. engaged in . Dante G. Guirnalda. DE PERALTA. respondents. ILOCOS SUR-ABRA CHAPTER. 1991.. the Court Resolved to RESTRAIN and ENJOIN herein respondent. in the main. presided over by Judge Gabino Balbin. The publication of a simple announcement of the opening of a law firm or of changes in the partnership. against the employment by corporations. EDUARDO MA. Ilocos Sur. can be made only if and when the canons expressly provide for such an exception. 1991 the committee rendered a decision denying [private respondent's] application for a mayor's permit to operate a branch in Candon and ordering x x x [private respondent] to close its establishment within fifteen (15) days from receipt of the decision. Rogelio P. Foremost is the fact that the disciplinary rule involved in said case explicitly allows a lawyer. 1997] SAMAHAN NG OPTOMETRISTS SA PILIPINAS. admittedly extensively debated and intensely contested not only by the members of the optometry profession and the players in the business of selling optical ware. was created should be passed upon and determined. Besides. to pass on [private respondent's] application. et al. No such exception is provided for. trade journal or periodical which is published principally for other purposes. as found by the respondent Court of Appeals and quoted by petitioners. the Mayor of Candon created a committee.Bus Org 2 Cases 1st Set Prelim 110 associations and committees thereof. No.

and cannot be registered as Optometrist under RA 1998 [The Optometry Law]. who shall. the contested Decision was issued only after an ocular inspection was conducted and the parties have submitted their respective memorandum. however. Indeed. and in the course of the business.'" [6] Petitioners filed a Motion for Reconsideration of the aforegoing decision. it explained. Inc. there need be clear showing that RA. They are not. For petitioners' argument to hold water. private respondent is in effect itself practicing optometry. Petitioners' contentions are. who refused to give his name.' The Court is very much aware of the existence of several shops owned by Acebedo. either alone or in conjunction with other corporations. A. by legal mandate. the attainment of any of the objects. 5. It was. conduct. 3. The amended Articles of Incorporation of x x x [private respondent] in part states: PRIMARY PURPOSES 1. ophthalmic and scientific instrument. Quoted for the enlightenment of both parties is a portion of the contested Decision. would largely be composed of persons with defective vision and thus need the proper lenses to correct the same and enable them to gain normal vision. or in the exercise of any of the powers herein set forth. A. 2 of the law which provides: No person shall practice or attempt to practice optometry as defined in this Act. and. lens. as in this case. suitable or proper for the accomplishment of any of the purposes. Acebedo contends further that its employees have a personality separate and distinct from that of Acebedo which is a juridical entity. These facts. 1998) WHEN IT EMPLOYS OPTOMETRISTS TO ENGAGE IN THE PRACTICE OF OPTOMETRY UNDER ITS NAME AND FOR ITS BEHALF The herein petitioner most respectfully submits that the private respondent Acebedo International Corporation flagrantly violates R. store and otherwise use. without holding a valid certificate of registration as optometrist issued to him by the Board of Examiners in Optometry herein created and in accordance with the provisions hereof: Provided. maintain. and a laboratory technician. glass. If indeed Acebedo is engaged in the sale of optical products. There were benches where. . to wit: 'The visit revealed the following: 1. is the buying and importing of eyeglasses and lenses and other similar or allied instruments from suppliers thereof and selling the same to consumers. private respondent appealed therefrom and asked the respondent Court of Appeals to reverse the same on the ground that the court a quo erred in concluding that private respondent was engaged in the practice of optometry by operating an optical shop. and Acebedo International. 4. Private respondent does not deny that it employs optometrists whose role in the operations of its optical shops is to administer the proper eye examination in order to determine the correct type and grade of lenses to prescribe to persons purchasing the same from private respondent's optical shops. the Optometry Law (Rep. which x x x [petitioners] cite. . SECONDARY PURPOSES . is in violation of RA. as an incident to and in the ordinary course of the business hire optometrists. 3. the veil of corporate fiction cannot be used for the purpose of some illegal activity. speaking through Court of Appeals Presiding Justice. No."[7] We hold that the petition lacks merit. As noted by the members of the Commission. To own. may only be engaged in by natural persons possessed of specific legal qualifications? The trial court resolved this issue in the affirmative. like x x x [private respondent. incidental or appurtenant to or growing out of or connected with the abovementioned objects. does not translate into a practice of optometry by private respondent itself.. Nor is it but rather the optometrists employed by it who are engaged in the practice of optometry. No. thing or things. In fact. It argues that the hiring of optometrists by the petitioner is merely incidental to its main business which is the sale of optical products. the floor plan of the shop was even commented on as that of an optical shop. it must be noted at this juncture. Acebedo Optical Clinic. As the Professional Regulation Commission said. now Supreme Court Associate Justice Vicente V." [5] Disagreeing with the foregoing decision of the trial court. This is clear from Sec. The respondent court. The veil of corporate fiction can be pierced. be said to be practicing the profession of optometry which.. While it is also true that a corporation has a personality separate and distinct from that of its personnel. The fact that private respondent hires optometrists who practice their profession in the course of their employment in private respondent's optical shops. according to Miss Begonia. Miss Lilibeth Begonia. that valid certificates of registration as optometrists shall be issued to optometrists of good moral character now registered in accordance with the provisions of chapter thirty-three of the Revised Administrative Code. ratiocinated in this wise: "First.Bus Org 2 Cases 1st Set Prelim 111 the business of selling optical wares. 1998 prohibits a corporation from hiring optometrists. In so finding. Petitioners vehemently insist that in so employing said optometrists. optometrist. would-be clients can sit while waiting for their turn to be examined. from employing licensed optometrists. substances and instruments which. 1998). Inc. firms or individuals and either as principal or agents and to do every other act or acts. denied by respondent appellate court. untenable. petitioners conclude. supplies. To do all and everything necessary. the absence of sales clerks more than demonstrate its real business. x x x [Private respondent] maintains that it is not practicing optometry nor is it operating an optical clinic. to buy. But the Court has to rely in this case on the findings of the Commission created by the Mayor of Candon in the absence of proof that the same was arrived at hastily and without regard for the rights of the parties. sell. there was also a banner in front of the shop prominently display advertising free consultations (libreng consulta sa mata). The prohibition can have no application to x x x [private respondent] which is not itself engaged in the practice of optometry. Private respondent is a corporation created and organized for the purpose of conducting the business of selling optical lenses or eyeglasses. The prohibition is thus addressed to natural persons who are required to have a valid certificate of registration as optometrist' and who must be of 'good moral character'. however. What it prohibits is the practice of the profession without license by those engaged in it. The clientele of private respondent understably. Clearly. receptionist. An optical laboratory. In the contested Decision. 1998 and the Corporation Code of the Philippines when it employs optometrists to engage in the practice of optometry under its name and for its behalf. The establishment was manned by three personnel: Dr. They are operating up to the present. NO. Acebedo then is engaged in the practice of optometry. by application within a period of one year from the effectivity of this Act. purposes or powers. ship. The Court disagrees.. Act No. Salvador Pagarigan. The findings of the Commission reveal that the operation of Acebedo's local shop involves the practice of optometry. There were several shelves containing eyeglasses. twelve and twenty-three of this Act. Hence. denote that Acebedo was operating in Candon an optical shop contrary to law. Acebedo submits that the findings of the Commission have no basis both in law and in fact. The determination of the proper lenses to sell to private respondent's clientele entails the employment of optometrists who have been precisely trained for that purpose. Acebedo Optical Co. optical solutions or equipment necessary or convenient to the operation and conduct of the general business of dispensing opticians. 8050. acquire and dispose of every kind of optical. operate and carry on the business of dispensing opticians and optical establishments. The contention has merit. and it cannot therefore be considered as engaged in optometry. be exempt from the provisions of sections eleven. Respondent appellate court found that private respondent's contentions merited the reversal of the court a quo's decision. which. the corporation is not an optical clinic. Such practice. deal in. No. Petitioner-appellant simply dispenses optical and ophthalmic instruments and supplies. thus: "The denial of the application of Acebedo rested on the grounds that it is operating an optical shop and it is practicing optometry where its charter does not grant to it authority to practice the former. Private respondent's business. this petition anchored on the following sole ground: "ISSUE WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT PRIVATE RESPONDENT ACEBEDO INTERNATIONAL CORPORATION DOES NOT VIOLATE THE OPTOMETRY LAW (R. . rather. has been repealed and superseded by RA. are not natural persons who can take the Optometrist licensure examinations. Private respondent's business is not the determination itself of the proper lenses needed by persons with defective vision. for only then would it be undeniably evident that the intention of the legislature is to preclude the formation of the so- .. "Acebedo Optical. and the acts of the personnel of the corporation will be considered as those of the corporation. An examination room complete with an optical chair and optical charts. taken together. among others. Mendoza. 2. does not prohibit corporations. 1998.

as defined in 1(a) of Republic Act No. 8050. They contended that such acts of respondent were done in violation of the Optometry Law (R. representatives. [G. SUSIE CHAN. CARMEN MODESTO.. 8050. (c) and (d) of this section. [9] we find no prohibition against the hiring by corporations of optometrists. Petitioners are optometrists. in their own behalf and in behalf of 80 other optometrists. We have carefully reviewed RA. PRISCILLA NARVASA. b) The prescription and dispensing of ophthalmic lenses. vision to correct and improve the same in accordance with subsections (b). that during the opening of its new branches in Cebu. Branch 9.00 as attorneys fees. and announcements made in roving jeeps. e) The establishment of offices. frames and their accessories. and that the petitioners were guilty of forum-shopping. posters pasted on the walls. FELISA LIMKIMSO. respondent had been engaging in the practice of optometry by examining the human eye. however. including the use of specific topical diagnostic pharmaceutical agents or drugs and instruments. 1998) [3] and the Code of Ethics for Optometrists.R. of the Court of Appeals. it hired duly licensed optometrists who conducted eye examination. WHEREFORE. and the installation of prosthetic devices. dated May 10. they either have a prior prescription from an optometrist or had to be examined first by the branch optometrist. the case was an exception to the rule requiring exhaustion of administrative remedies as a condition for the filing of an injunctive suit. They further alleged that the Board of Optometry held itself to be without jurisdiction over the president of respondent Acebedo Company as he was not duly registered with the Professional Regulation Commission. In their complaint. Cebu City.. and the costs of the suit. FELIPE CINCO. reinstated the action and granted their prayer for a writ of preliminary injunction and/or restraining order. 4. No. and P100. and rendered other optometry services. further. 1993. No. . J. and that.000.00 each and free services by optometrists in such outlets. petitioners. and other similar means. That the examination of the human eye by duly registered physicians in connection with the physical examination of patients shall not be considered as practice of optometry: Provided. They sought payment to them of attorneys fees.. and/or employees from practicing optometry in the province of Cebu.Bus Org 2 Cases 1st Set Prelim 112 called optometry corporations because such is tantamount to the practice of the profession of optometry which is legally exercisable only by natural persons and professional partnerships. that respondent was selling optical products and ready-to-wear eyeglasses of limited grades. contact lenses and their accessories and solutions. CLARO CINCO. 1998. visual aids. that the petitioners were all members of the Samahan ng Optometrists ng Pilipinas (SOP)-Cebu Chapter. correction. for the purpose of determining the condition and acuity of human vision to correct and improve the same in accordance with subsections (b). the instant petition is hereby DISMISSED. there is no law that prohibits the hiring by corporations of optometrists or considers the hiring by corporations of optometrists as a practice by the corporation itself of the profession of optometry. 5. through the licensed optometrists under its employ. a national organization. respondent maintained that before the customers purchased the ready-to-wear eyeglasses on display. and contact lenses. they are not precluded from seeking other sources of income. known as the Revised Optometry Law.. on motion of petitioners. clinics. that respondent hired optometrists who conducted eye examinations. EMMA YBAEZ. an injunctive suit in the Regional Trial Court. P500. deficiencies and abnormalities of vision.[8] It is significant to note that even under RA. Inc. ocular exercises and related devices. A week later. SEC. who are members of the Samahan ng Optometrists sa Pilipinas-Cebu Chapter. which enjoined respondent Acebedo Optical Co.00 plus P6. and f) The collection of professional fees for the performance of any of the acts mentioned in paragraphs (a). are reproduced below for ready reference: "THE PRACTICE OF OPTOMETRY SEC.. that respondent was a corporation with several outlets in Cebu. 1998 however. through leaflets. That public health workers trained and involved in the government's blindness prevention program may conduct only visual acuity test and visual screening. DECISION MENDOZA. 2001. machines. 1983. (b). prescribing ophthalmic lenses. By way of special and affirmative defense. and/or employees from practicing optometry. regarding the practice of optometry. the parties entered into the following stipulation of facts: that the petitioners were duly licensed optometrists. An optometrist shall be required to indicate his professional license number and the date of its expiration in the documents he issues or signs in connection with the practice of his profession. in their own behalf and in behalf of all the other 80 optometrists-members of the SAMAHAN NG OPTOMETRISTS SA PILIPINAS-CEBU CHAPTER. in the province and cities of Cebu. MARIA TORRES. They brought. April 17. prescribed ophthalmic lenses. that it exercised neither control nor supervision over the optometrists under its employ. and other preventive or corrective measures for the aid. Petitioners thus sought to prove that the selling of ready-to-wear eyeglasses by respondent was detrimental to the public. and SUSAN YU.[5] During the pre-trial conference. respondent averred that the advertisements referred to by petitioner were part of its promotion to make known to the public the opening of its new branches in Cebu. apparatuses. prisms. and other forms of advertisement. as such. of the appeals court denying petitioners motion for reconsideration. VIVIAN DYHONGPO.e. they alleged that respondent opened several optical shops in Cebu and announced to the public. implements.[1] dated January 20. Prohibition Against the Unauthorized Practice of Optometry. representatives. that the trial court had no jurisdiction over the case. prescribed ophthalmic lenses. (c) and (d) hereof. Cebu City to enjoin respondent Acebedo Optical Co. Petitioners argued that the case involved a pure question of law. prosthetics. that the Sight Saving Month program was also a program of the SOP nationwide. and we find nothing therein that supports petitioner's insistent claims. That this prohibition shall not apply to regularly licensed and duly registered physicians who have received post-graduate training in the diagnosis and treatment of eye diseases: Provided. 2000. No. They claimed that. ACEBEDO OPTICAL. The pertinent provisions of RA. and rendered other services.000. ROSALINDA BONO.00 as exemplary damages. He shall also display his certificate of registration in a conspicuous area of his clinic or office. CO. Inc. and that the hired optometrists exercised neither control nor supervision in the sale of optical products and accessories by respondent. newspapers. 2002] DOCTORS ROSA P. tools. and conducting ocular exercises. i. No. promulgated by the Board of Examiners in Optometry on July 11.00 as moral damages. A witness testified that he purchased a pair of eyeglasses for P66. that petitioners SOP Sight Saving Month program provided free consultations. Customers thus had the option either to buy the ready-to-wear eyeglasses on display or to order a new pair of eyeglasses. Respondent sought the recovery of P100. 6 Disclosure of Authority to Practice. that the filing of the complaint was barred by res judicata as similar suits had been previously dismissed by the Court of First instance of Lucena City and the Securities and Exchange Commission. visual trainings. and similar places where optometric services are offered. No.00 (P60. Any of the following acts constitute the practice of optometry: a) The examination of the human eye through the employment of subjective and objective procedures. constituting the practice of optometry as setforth in Section 4 hereof.: This is a petition for review on certiorari of the decision.No person shall practice optometry as defined in Section 3 of this Act nor perform any of the acts. d) The counseling of patients with regard to vision and eye care and hygiene. [2] dated September 3. Acts Constituting the practice of Optometry. he had vision difficulty and consulted an optometrist who advised him to buy a pair of eyeglasses with the correct grade. 148384. prisms. respondent. INC.000. and its agents. whether or not respondents hiring of optometrists was violative of the applicable laws. litigation expenses. that SOP-Cebu Chapter was a chapter of SOP Incorporated. On the other hand. the availability of ready-to-wear eyeglasses for sale at P60." All told. c) The conduct of ocular exercises and vision training. respondent stated that the optometrists should be impleaded as party-defendants because they were indispensable parties. and the resolution. its agents. SEC. that incidental to its business of selling optical products. (c) and (d) hereof. REBECCA SANTIAGO. . or relief of the human eye. and supplies for the purpose of correcting and treating defects. ALFAFARA. equipment. analyzing the ocular functions. such as streamers and loudspeakers on board a vehicle. the provision of orthoptics and other devices and procedures to aid and correct abnormalities of human vision. setting aside the decision. and that while the hired optometrists received their salary from respondent. newspapers. In its answer. [4] The trial court at first dismissed the suit but. vs.00 for VAT) without any prior eye examination by an optometrist..A. without having been first admitted to the practice of this profession under the provisions of this Act and its implementing rules and regulations: Provided. orthoptics. that the SOP-Cebu Chapter had a program called Sight Saving Month. of the Regional Trial Court. ELSA CABARDO.[6] The evidence for the petitioners showed that respondent advertised its ready-to-wear eyeglasses in newspapers. ARLENE DORIO. the respondent advertised its products through leaflets. Branch 9.

No. No. or remain in the employ of. petitioners acted as tools of Acebedo so that the latter can offer the whole package of services to its clientele. petitioners could not be guilty of forum-shopping. The Court. petitioners Ma. And. 6. thus finds no error committed by the Court of Appeals. Professional Regulation Commission. What it prohibits is the practice of optometry by individuals who do not have a license to practice. The fact that .Acebedo simply dispensed optical and ophthalmic instruments and supplies. 1999. It was pointed out that R. [13] petitioners opposed respondent Acebedos application for a municipal permit to operate a branch in Candon. that being indispensable parties. after giving proper notice and hearing to the party concerned. this petition alleging that the Court of Appeals erred in holding that respondent Acebedo was not engaged in the practice of optometry. the trial court explained that since the issue involved the propriety of respondents hiring of optometrists to perform optometry services. They brought suit to enjoin respondent Acebedo from employing optometrists as this allegedly constituted an indirect violation of R.The optometrists in that case were found guilty of unprofessional conduct and their licenses were suspended for two (2) years for having participated. petition is denied due course. (2) To advertise a price or prices [of] spectacle frames. (11) To use Mobile Units for conducting refraction in any area within ten (10) kilometers of a Municipality. To use Mobile Units for conducting refraction in any area within ten (10) kilometers of a Municipality. Acebedo International Corporation. Petitioners cite the Tennessee Supreme Court statement in Lens Crafter. Sunquist. Petitioners contend that the ruling in Samahan ng Optometrists sa Pilipinas. 1989 in Tuguegarao. Respondent. Acts Constituting Unprofessional Conduct. 1998 and Art. It is noteworthy that. professional standards would be practically destroyed and professions requiring special training would be commercialized. which prohibits corporations from exercising professions reserved only to natural persons. WHEREFORE. hence. cannot take the licensure examinations for optometrist and. These provisions petitioners. Acebedo appealed but its appeal was dismissed by the trial court on the ground that it was practicing optometry. whatever decision the trial court would render would solely affect respondent since what was sought to be restrained was the employment of licensed optometrists. Acebedo International Corporation. 6 of the Code of Ethics for Optometrists for having participated in the promotional advertisement of Acebedo. to be unethical and are deemed to constitute unprofessional conduct: . Likewise.A. Republic Act No. 1998. therefore. the trial court ruled that petitioners failed to substantiate such claim. 8050 (Revised Optometry Law) there is no prohibition against the hiring by corporations of optometrists. or ophthalmic lenses and other ophthalmic devices used in the practice of Optometry and to be associated with. whether directly or indirectly. v. in the implementation of the promotional advertisement of Acebedo. First. [12] Thus. No. Consequently.. the appeals court found no cogent reason to reverse the findings of the trial court that the administrative case before the Professional Regulation Commission was not decided on the merits while the letters of petitioners sent to government officials did not constitute judicial proceedings. . which is not a natural person. Ilocos Sur. dated July 12.[11] stating that: The logical result would be that corporations and business partnerships might practice law. . it cannot be registered as an optometrist under R. entitled Libreng Konsulta sa Mata: Reading Glasses P60. The decision of the Professional Regulation Commission was affirmed by the Court of Appeals and later by this Court. only natural persons can engage in the practice of optometry and not corporations. u. the Court did not find Acebedo to be engaged in the practice of optometry. Petitioners filed a motion for reconsideration but their motion was denied.It shall be considered unprofessional for any registered optometrist: (1) To make optometric examinations outside of his regular clinic. although it employed licensed optometrists. The Court of Appeals reversed the decision of the trial court and dismissed the complaint of petitioners. held from July 5-14. were suspended from the practice of optometry for two (2) years by the Board of Optometry for violation of R. III. Citing the case of Samahan ng Optometrists sa Pilipinas. The Rules and Regulation[s] of the Board of Examiners for [O]ptometry are quite explicit. No. [9] In Apacionado. to the public detriment. Ilocos Sur-Abra Chapter v. The committee created by the Mayor of Candon to pass on Acebedos application denied the same and ordered the closure of Acebedo optical shops. Inc.The ethics of any profession is based upon personal or individual responsibility. or similar words and phrases which would tend to remove the spirit of professionalism. or for unprofessional conduct. the Court of Appeals held that Acebedo was not operating as an optical clinic nor engaged in the practice of optometry. Ilocos Sur-Abra Chapter v. Acebedo International Corporation[8]is no longer controlling because of the later case of Apacionado v. As to the second issue raised.Bus Org 2 Cases 1st Set Prelim 113 After hearing. among others. Corollarily. [7] the appeals court ruled that respondents hiring of licensed optometrists did not constitute practice of optometry nor violate any law. medicine. As to petitioners failure to implead the optometrists in the employ of respondent. Section 6 of the Code of Ethics for optometrists states: SEC. in Apacionado.00. 1998 pertinently provides: SEC. Ilocos Sur-Abra Chapter v. the optometrists were not indispensable parties. This Court affirmed the ruling of the appeals court and explained that even under R. were found to have violated. dentistry or any other profession by the simple expedient of employing licensed agents. Cristina Apacionado and Zenaida Robil. if this were permitted. consequently. the Professional Regulation Commission found that by rendering professional services to Acebedos clientele (free eye consultations and refractions). c.A. the licensed optometrists employed by respondent should have been impleaded as defendants. through its hired optometrists. As our resolution. No. . 1998 does not prohibit corporations from employing licensed optometrists. petitioners are clearly liable for unethical and unprofessional practice of their profession. by filing several harassment suits before various fora. In affirming the suspension of the optometrists. The following are deemed.The Board may. judgment was rendered in favor of petitioners. 1998. a juridical person. wholesale and retail. discounts. mountings. and Rule 56 provides: Rule 56. On appeal.As to whether respondents selling of ready-to-wear eyeglasses to customers without prior eye examination violated the applicable laws and was detrimental to the public. who were employed by Acebedo as optometrists. 20. In Samahan ng Optometrists sa Pilipinas. installments. The trial court found that the hiring of licensed optometrists by the respondent was unlawful because it resulted in the practice of the optometry profession by respondent. and that the trial court erred in not holding that petitioners. Hence. through Acebedo. not in the practice of optometry.A. In contrast. respondent is merely engaged in the business of selling optical products. Revocation or suspension of certificate. This was because the services of the two optometrists were the ones being offered to the public for free. Petitioners cannot deny that it was their skills as optometrists as well as their licenses which Acebedo used in order to enable itself to render optometric services to its clientele.A. their professional licenses as optometrists were suspended for two (2) years. Respondent appealed to the Court of Appeals contending that the trial court erred in holding that respondent was illegally engaged in the practice of Optometry. any person who does such advertising. Under such arrangement. were guilty of forum-shopping. the Court of Appeals stated that since the complaint was lodged solely against respondent for its hiring of optometrists.[10] stated in pertinent parts: Thus.A. The petition has no merit. in the case at bar. Anent the issue of forum-shopping. Having knowingly allowed themselves to be used as tools in furtherance of [the] unauthorized practice of optometry. unless he shall have received an unsolicited written request by the person or persons to be examined. the instant petition which must likewise fail. petitioners were guilty of unprofessional conduct. The Court finds the decision of the Court of Appeals to be in accordance with the law. It ruled that respondent could not raise the issue of res judicata as there was no decision on the merits of the case rendered by any court of competent jurisdiction and. unless he shall have received unsolicited request to make such an examination. examination included. Performing optometric examination outside of the regular office. revoke or suspend a certificate of registration for the causes mentioned in the next preceding section. The contention has no merit. Cagayan. the optometrists did not have to be impleaded as defendants. An optometrist is a person who has been certified by the Board of Optometry and registered with the Professional Regulation Commission as qualified to practice optometry in the Philippines. in their capacities as optometrists. . (4) To advertise free examination. The prohibition is addressed to natural persons who are required to have a valid certificate of registration as optometrist and who must be of good