[G.R. NO.
155683 : February 16, 2007] DBP's mortgage lien and Filoil's levy on or before July 31,
PETRON CORPORATION, Petitioner, v. NATIONAL
COLLEGE OF BUSINESS AND ARTS, Respondent.
The sole question raised in this Petition for Review
on Certiorari 1 is whether petitioner Petron Corporation
(Petron) should be held liable to pay attorney's fees and
exemplary damages to respondent National College of
Business and Arts (NCBA).
This case, however, is but part of a larger controversy
over the lawful ownership of seven parcels of land2 in the
V. Mapa area of Sta. Mesa, Manila (the V. Mapa
properties) that arose out of a series of events that began
in 1969.3
Sometime in 1969, the V. Mapa properties, then owned
by Felipe and Enrique Monserrat, Jr., were mortgaged to
the Development Bank of the Philippines (DBP) as part of
the security for the P5.2 million loan of Manila Yellow
Taxicab Co., Inc. (MYTC) and Monserrat Enterprises Co.
MYTC, for its part, mortgaged four parcels of land located
in Quiapo, Manila.
On March 31, 1975, however, Felipe's - undivided interest
in the V. Mapa properties was levied upon in execution of
a money judgment rendered by the Regional Trial Court
(RTC) of Manila in Filoil Marketing Corporation v. MYTC,
Felipe Monserrat, and Rosario Vda. De Monserrat (the
Manila case).4 DBP challenged the levy through a third-
party claim asserting that the V. Mapa properties were
mortgaged to it and were, for that reason, exempt from
levy or attachment. The RTC quashed it.
On June 18, 1981, MYTC and the Monserrats got DBP to
accept a dacion en pago arrangement whereby MYTC
conveyed to the bank the four mortgaged Quiapo
properties as full settlement of their loan obligation. But
despite this agreement, DBP did not release the V. Mapa
properties from the mortgage.
On May 21, 1982, Felipe, acting for himself and as
Enrique's attorney-in-fact, sold the V. Mapa properties to
respondent NCBA. Part of the agreement was that Felipe
and Enrique would secure the release of the titles to the
properties free of all liens and encumbrances including
Industrial Finance Corporation[,] and Filoil over the V.
1982. But the Monserrats failed to comply with this
undertaking. Thus, on February 3, 1983, NCBA caused
the annotation of an affidavit of adverse claim on the
TCTs covering the V. Mapa properties.
Shortly thereafter, NCBA filed a complaint against Felipe
and Enrique for specific performance with an alternative
prayer for rescission and damages in the RTC of Manila.
The case was raffled to Branch 30 and docketed as Civil
Case No. 83-16617. On March 30, 1983, NCBA had a
notice of lis pendens inscribed on the TCTs of the V. Mapa
properties. A little over two years later, NCBA impleaded
DBP as an additional defendant in order to compel it to
release the V. Mapa properties from mortgage.
On February 28, 1985, during the pendency of Civil Case
No. 83-16617, Enrique's - undivided interest in the V.
Mapa properties was levied on in execution of a judgment
of the RTC of Makati (the Makati case)5 holding him liable
to Petron (then known as Petrophil Corporation) on a
1972 promissory note. On April 29, 1985, the V. Mapa
properties were sold at public auction to satisfy the
judgments in the Manila and Makati cases. Petron, the
highest bidder, acquired both Felipe's and Enrique's
undivided interests in the property. The final deeds of
sale of Enrique's and Felipe's shares in the V. Mapa
properties were awarded to Petron in 1986. Sometime
later, the Monserrats' TCTs were cancelled and new ones
were issued to Petron. Thus it was that, towards the end
of 1987, Petron intervened in NCBA's suit against Felipe,
Enrique and DBP (Civil Case No. 83-16617) to assert its
right to the V. Mapa properties.
The RTC rendered judgment on March 11, 1996.6 It ruled,
among other things, that Petron never acquired valid title
to the V. Mapa properties as the levy and sale thereof
were void and that NCBA was now the lawful owner of the
properties. Moreover, the RTC held Petron, DBP, Felipe
and Enrique jointly and severally liable to NCBA for
exemplary damages and attorney's fees for the following
reasons:
FELIPE and ENRIQUE had no reason to renege on their
undertaking in the Deed of Absolute Sale "to secure the
release of the titles to the properties xxx free from all the
liens and encumbrances, and to cause the lifting of the
levy on execution of Commercial Credit Corporation,
Mapa [p]roperty. Moreover, ENRIQUE had no reason to
repudiate FELIPE and disavow authority he had [given]
the latter to sell his share in the V. Mapa property.
On the other hand, the mortgage in favor of DBP had
been fully extinguished thru dacion en pago as early as
18 June 1981 but it unjustifiably and whimsically refused
to release the mortgage and to surrender to the buyer
(NCBA) the owner's duplicate copies of Transfer
Certificates of Title No[s]. 83621 to 83627, thereby
preventing NCBA from registering the sale in its favor.
Similarly, [Petron] has absolutely no reason to claim the
V. Mapa property. For, as shown above, the levy in
execution and sale of the shares of FELIPE and ENRIQUE
in the V. Mapa property were null and void.
Finally, in their Memorandum of Agreement dated 25
September 1992 with Technical Institute of the
Philippines, [Petron] and DBP attempted to pre-empt this
Court's power to adjudicate on the claim of ownership
stipulating that "to facilitate their defenses and cause of
action in Civil Case No. 83-16617," they agreed on the
disposition of the V. Mapa property among themselves.
For obvious reasons, this Court refused to give its
imprimatur and denied their prayer for dismissal of the
complaint against DBP.
These acts of defendants and intervenor demonstrate
their wanton, fraudulent, reckless, oppressive and
malevolent conduct in their dealings with NCBA.
Furthermore, they acted with gross and evident bad faith
in refusing to satisfy NCBA's plainly valid and demandable
claims. Assessment of exemplary damages and attorney's
fees in the amounts of P100,000.00 and P150,000.00,
respectively, is therefore in order (Arts. 2208 and 2232,
Civil Code).7
Enrique, DBP and Petron appealed to the Court of Appeals
(CA). The appeal was docketed as CA G.R. CV No. 53466.
In a decision dated June 21, 2002,8 the CA affirmed the
RTC decision in toto. On motion for reconsideration,
Petron and DBP tried to have the award of exemplary
damages and attorney's fees deleted for lack of legal and
factual basis. The Philippine National Oil Company
(PNOC), which had been allowed to intervene in the
appeal as transferee pendente lite of Petron's right to the
V. Mapa properties, moved for reconsideration of the
ruling on ownership. In a resolution dated October 16,
2002,9 the CA denied these motions for lack of merit.
Thereupon, Petron and PNOC took separate appeals to
this Court.
In this appeal, the only issue is Petron's liability for
exemplary damages and attorney's fees. And on this
matter, we reverse the rulings of the trial and appellate
courts.
Article 2208 lays down the rule that in the absence of
stipulation, attorney's fees cannot be recovered except in
the following instances:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled
the plaintiff to litigate with third persons or to incur
expense to protect his interest;
(3) In criminal cases of malicious prosecution against the
plaintiff;
(4) In case of a clearly unfounded civil action or
proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad
faith in refusing to satisfy the plaintiff's plainly valid, just
and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household
helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's
compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability
arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and awarded.15 In other words, no exemplary damages may
equitable that attorney's fees and expenses of litigation be awarded without the plaintiff's right to moral,
should be recovered.10 temperate, liquidated or compensatory damages having
first been established. Therefore, in view of our ruling
Here, the RTC held Petron liable to NCBA for attorney's that Petron cannot be made liable to NCBA for
fees under Article 2208(5), which allows such an award compensatory damages (i.e., attorney's fees), Petron
"where the defendant acted in gross and evident bad faith cannot be held liable for exemplary damages either.
in refusing to satisfy the plaintiff's plainly valid, just, and
demandable claim." However, the only justification given WHEREFORE, the petition is hereby GRANTED. The
for this verdict was that Petron had no reason to claim imposition of liability on Petron Corporation for exemplary
the V. Mapa properties because, in the RTC's opinion, the damages and attorney's fees is REVOKED. The June 21,
levy and sale thereof were void.11 This was sorely 2002 decision and October 16, 2002 resolution of the
inadequate and it was erroneous for the CA to have Court of Appeals in CA G.R. CV No. 53466 and the March
upheld that ruling built on such a flimsy foundation. 11, 1996 decision of the Regional Trial Court of Manila in
Civil Case No. 83-16617 are
Article 2208(5) contemplates a situation where one hereby MODIFIED accordingly.
refuses unjustifiably and in evident bad faith to satisfy
another's plainly valid, just and demandable claim, SO ORDERED.
compelling the latter needlessly to seek redress from the
courts.12 In such a case, the law allows recovery of
money the plaintiff had to spend for a lawyer's assistance
in suing the defendant - expenses the plaintiff would not
have incurred if not for the defendant's refusal to comply
with the most basic rules of fair dealing. It does not
mean, however, that the losing party should be made to
pay attorney's fees merely because the court finds his
legal position to be erroneous and upholds that of the
other party, for that would be an intolerable transgression
of the policy that no one should be penalized for
exercising the right to have contending claims settled by
a court of law.13 In fact, even a clearly untenable defense
does not justify an award of attorney's fees unless it
amounts to gross and evident bad faith.14
Petron's claim to the V. Mapa properties, founded as it
was on final deeds of sale on execution, was far from
untenable. No gross and evident bad faith could be
imputed to Petron merely for intervening in NCBA's suit
against DBP and the Monserrats in order to assert what it
believed (and had good reason to believe) were its rights
and to have the disputed ownership of the V. Mapa
properties settled decisively in a single lawsuit.
With respect to the award of exemplary damages, the
rule in this jurisdiction is that the plaintiff must show that
he is entitled to moral, temperate or compensatory
damages before the court may even consider the
question of whether exemplary damages should be
Asset Privatization Trust vs Court of Appeals
300 SCRA 579 [GR No. 121171 December 29, 1998]
Facts: The development, exploration and utilization  of
the mineral deposits in the Surigao Mineral Reservation
have been authorized by the Republic Act No. 1528, as
amended by Republic Act No. 2077 and Republic Act No.
4167, by virtue of which laws, a memorandum of
agreement was drawn on July 3, 1968, whereby the
Republic of the Philippines thru the Surigao Mineral
Reservation Board, granted MMIC the exclusive right to
explore, develop and exploit nickel, cobalt, and other
minerals in the Surigao Mineral Reservation. MMIC is a
domestic corporation engaged in mining with respondent
Jesus S. Cabarrus Sr. as president and among its original
stockholders. The Philippine government undertook to
support the financing of MMIC by purchase of MMIC
debenture bonds and extension of guarantees. Further,
from the DBP and/or the government financing
institutions to subscribe in MMIC and issue guarantee/s of
foreign loans or deferred payment arrangements secured
from the US Eximbank, Asian  Development Bank (ADB),
Kobe steel of amount not exceeding US$100 million. On
July 13, 1981, MMIC, PNB, and DBP executed a mortgage
trust agreement whereby MMIC as mortgagor, agreed to
constitute a mortgage in favor of PNB and DBP as
mortgages, over all MMIC assets; subject of real estate
and chattel mortgage executed by the mortgagor, and
additional assets described and identified, including
assets of whatever kind, nature or description, which the
mortgagor may acquire whether in substitution of, in
replenishment or in addition thereto. Due to the unsettled
obligations, a financial restructuring plan (FRP) was
suggested, however not finalized. The obligations
matured and the mortgage was foreclosed. The
foreclosed assets were sold to PNB as the lone bidder and
were assigned to the  newly formed corporations namely
Nonoc Mining Corporation, Maricalum Mining and
Industrial Corporation and Island Cement Corporation. In
1986, these assets were transferred to the asset
privatization trust. On February  28, 1985, Jesus S.
Cabarrus Sr. together with the other stockholders of
MMIC, filed a derivative suit against DBP and PNB before
the RTC of Makati branch 62, for annulment of
foreclosures, specific performance and damages. The suit
docketed as civil case no. 9900, prayed that the court:
1.) Annul the foreclosures, restore the foreclosed assets
to MMIC, and require the banks to account for their use
and operation in the interim; 2.) Direct the banks to
honor and perform their commitments under the alleged
FRP; 3.) Pay moral and exemplary damages, attorney’s
fees, litigation expenses and costs. A compromise and
arbitration agreement was entered by the parties to
which committee awarded damages in favor of Cabarrus.
Issue: Whether or not the award granted to Cabarrus
was proper.
Held: No. Civil case no. 9900 filed before the RTC being a
derivative suit, MMIC should have been impleaded as a
party. It was not joined as a part plaintiff or party
defendant at any stage before of the proceedings as it is,
the award for damages to MMIC, which was not  party
before the arbitration committee is a complete nullity.
Settled is the doctrine that in a derivative suit, the
corporation is the real party in interest while the
stockholder filing suit for the corporation’s behalf is only a
nominal party. The corporation should be included s a
party in the suit.
An individual stockholder is permitted to institute a
derivative suit on behalf of the corporation wherein he
holds stock in order to protect or vindicate corporate
rights, whenever the officials of the corporation refuse to
sue, or are the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is
regarded as a nominal party, with the corporation as the
real part in interest.
It is a condition sine qua non that the corporation be
impleaded as a party because – not only is the
corporation an indispensable party, but it is also the
present rule that it must be served with process. The
reason given is that the judgement must be made binding
upon the corporation in order that the corporation may
get the benefit of the suit and may not bring a
subsequent suit against the same defendants for the
same cause of action. In other words the corporation
must be joined as a party because it is its cause of action
that is being litigated and because judgement must be a
res judicata against it.
The reasons given for not allowing direct individual suit
are:
1. That the prior rights of the creditors may be
prejudiced. Thus, our Supreme Court held in the
case of Evangelista vs Santos that the
“Stockholders may not directly claim those
damages for themselves for that would result in
the appropriation by, and the distribution among
them of part of the corporate assets before the
2. The universally recognized doctrine that a
stockholder in a corporation has no title legal or
equitable to the corporate property; that both of
these are in the corporation itself for the benefit
of the stockholders. In other words, to allow
shareholders to sue separately would conflict with
the separate corporate entity principle.
3. dissolution of the corporation and the liquidation
of its debts and liabilities, something which
cannot be legally done in view of section 16 of the
corporation law.
4. The filing of such suits would conflict with the
duty of the management to sue for the protection
of all concerned;
5. It would produce wasteful multiplicity of suits;
and
6. It would involve confusion in ascertaining the
effect of partial recovery by an individual on the
damages recoverable by the corporation for the
same act.
G.R. No. 121171 / December 29, 1998
FACTS:
Pursuant to a Mortgage Trust Agreement, the
Development Bank of the Philippines and the Philippine
National Bank foreclosed the assets of the Marinduque
Mining and Industrial Corporation. The assets were sold
to Philippine National Bank and later transferred to the
Asset Privatization Trust (APT).
In February 1985, Jesus Cabarrus, Sr., together with
other stockholders of Marinduque Mining and Industrial
Corporation, filed a derivative suit against Development
Bank of the Philippines and Philippine National Bank
before the Regional Trial Court of Makati for Annulment of
Foreclosures, Specific Performance and Damages. In the
course of the trial, Marinduque Mining and Industrial
Corporation and Asset Privatization Trust as successor in
interest of Development Bank of the Philippines and
Philippine National Bank, agreed to submit the case to
arbitration by entering into a Compromise and Arbitration
Agreement. This agreement was approved by the trial
court and the complaint was corollarily dismissed.
Thereafter, the Arbitration Committee rendered a decision
ordering Asset Privatization Trust to pay Marinduque
Mining and Industrial Corporation damages and
arbitration costs in the amount of P2.5
Billion, P13,000,000.00 of which is for moral and
exemplary damages.
On motion of Cabarrus and the other stockholders of
Marinduque Mining and Industrial Corporation, the trial
court confirmed the Arbitration Committee’s award. Its
motion for reconsideration having been denied, Asset
Privatization Trust filed a special civil action for certiorari
with the Court of Appeals. It was likewise denied.
Hence, this petition for review on certiorari.
ISSUE:
Whether or not the Marinduque Mining and Industrial
Corporation is entitled to moral damages?
HELD:
No. How could the MMIC be entitled to a big amount of
moral damages when its credit reputation was not exactly
something to be considered sound and wholesome. Under
Article 2217 of the Civil Code, moral damages include
besmirched reputation which a corporation may possibly
suffer. A corporation whose overdue and unpaid debts to
the Government alone reached a tremendous amount of
P22 Billion Pesos cannot certainly have a solid business
reputation to brag about.
Besides, it is not yet a well settled jurisprudence that
corporations are entitled to moral damages. While the
Supreme Court may have awarded moral damages to a
corporation for besmirched reputation in Mambulao vs.
PNB, 22 SCRA 359, such ruling cannot find application in
this case. It must be pointed out that when the supposed
wrongful act of foreclosure was done, MMIC’s credit
reputation was no longer a desirable one. The company
then was already suffering from serious financial crisis
which definitely projects an image not compatible with
good and wholesome reputation. So it could not be said
that there was a “reputation” besmirched by the act of
foreclosure.
As a rule, a corporation exercises its powers, including
the power to enter into contracts, through its board of
directors. While a corporation may appoint agents to
enter into a contract in its behalf, the agent should not
exceed his authority. 54 In the case at bar, there was no
showing that the representatives of PNB and DBP in MMIC
even had the requisite authority to enter into a debt-for-
equity swap. And if they had such authority, there was no
showing that the banks, through their board of directors,
had ratified the FRP.
WHEREFORE, the petition is GRANTED.
[G.R. No. L-22973. January 30, 1968.] contract of mortgage clearly stipulates that the of no less than twenty different items as shown in the bill
mortgagor agrees that in all cases (extra- judicial or of sale. This makes the sale of the chattels manifestly
MAMBULAO LUMBER COMPANY, Plaintiff-Appellant, judicial foreclosure), attorney’s fees is fixed at ten objectionable. And in the absence of any evidence to
v. PHILIPPINE NATIONAL BANK and ANACLETO percent (10%) of the total indebtedness then unpaid, show that the mortgagor had agreed or consented to
HERADO, ETC., Defendants-Appellees. which in no case shall be less than P100 exclusive of all such sale in gross, the same should be set aside.
fees allowed by law, and the expenses of collections shall
SYLLABUS be the obligation of the mortgagor and shall with priority, 6. ID.; ID.; CHATTEL MORTGAGE; SALE OF PROPERTY
be paid to the mortgagee out of any sums realized from NOT IN ACCORDANCE WITH TERMS OF CONTRACT;
the proceeds of the sale of said property — the said LIABILITY OF MORTGAGEE. — The mortgagee is guilty of
1. CONTRACTS; LOAN; INTEREST; COMPOUNDED; WHEN
stipulation to pay attorney’s fees is clear enough to cover conversion when he sells under the mortgage but not in
SHALL IT BE RECKONED. — In computing the interest on
both cases of foreclosure sale, i.e., judicially or accordance with its terms, or where the proceedings as to
any obligation, promissory note or other instrument or
extrajudicially. While the phrase "in all cases" appears to the sale or foreclosure do not comply with the statute.
contract, compound interest shall not be reckoned,
be part of the second sentence, a reading of the whole This rule applies squarely to the facts of this case where,
except by agreement, or in default thereof, whenever the
context of the stipulation would readily show that it as earlier shown, herein appellee bank insisted, and the
debt is judicially claimed. Interest due shall earn legal
logically refers to extra-judicial foreclosure found in the appellee deputy sheriff of Camarines Norte proceeds with
interest only from the time it is judicially demanded.
first sentence, and to judicial foreclosure mentioned in the sale of the mortgaged chattels at Jose Panganiban,
Interest due and unpaid shall not earn interest. The
the next sentence. The ambiguity by reason of faulty Camarines Norte, in utter disregard of the valid objection
parties may, by stipulation, capitalize the interest due
sentence construction should not be made to defeat the of the mortgagor thereto for the reason that it is not the
and unpaid, which as added principal, shall earn new
otherwise clear intention of the parties in the agreement. place of sale agreed upon in the mortgage contract; and
interest; but such stipulation is nowhere to be found in
the said deputy sheriff sold all the chattels (among which
terms of the promissory note involved in this case.
4. ID.; ID.; EXTENT OF AUTHORITY OF MORTGAGEE TO were a skagit with caterpillar engine, three GMC 6x6
Clearly, therefore, the trial court fell into error when it
SELL PROPERTY MORTGAGED. — While the law grants trucks, a Herring Hall Safe, and Sawmill equipment
awarded interest on accrued interests, without any
power and authority to the mortgagee to sell the consisting of a 150 HP Murply Engine, plainer, large
agreement to that effect and before they had been
mortgaged property at a public place in the municipality circular saws, etc.) as a single lot in violation of the
judicially demanded.
where the mortgagor resides, or where the property is requirement of the law to sell the same article by article.
situated, the sale of a mortgaged chattel may be made in The PNB has resold the chattels to another buyer with
2. ID.; MORTGAGE; EXTRA-JUDICIAL FORECLOSURE
a place other than that where it is found, provided that whom it appears to have actively cooperated in
SALE; EXPENSES. — The fees enumerated under
the owner thereof consents thereto; or that there is an subsequently taking possession of and removing the
paragraphs k and n, Section 7, of Rule 130 (now Rule
agreement to this effect between the mortgagor and the chattels from appellant’s compound by force, as shown by
141) are demandable only by a sheriff serving processes
mortgagee. But when the parties agreed to have the the circumstance that they had to take along PC soldiers
of the court in connection with judicial foreclosure of
property mortgaged sold at the residence of the and municipal policemen of Jose Panganiban who placed
mortgages, under Rule 68 of the new Rules, and not in
mortgagor, the mortgagee can not retain that power and the chief security officer of the premises in jail to deprive
cases of extra-judicial foreclosure of mortgages under Act
authority to select from among the places provided for in herein appellant of its possession thereof. To exonerate
3135. The law applicable is Section 4 of Act 3135 which
the law and place designated in their agreement, over the itself of any liability for the breach of peace thus
provides that the officer conducting the sale is entitled to
objection of the mortgagor. committed, the PNB would want us to believe that it was
collect a fee of P5.00 for each day of actual work
the subsequent buyer alone, who is not a party to this
performed in addition to his expenses in connection with
5. ID.; ID.; CHATTEL MORTGAGE; SALE OF PROPERTY; case, that was responsible for the forcible taking of the
foreclosure sale. The PNB failed to prove that it actually
DUTY OF SHERIFFS. — Section 14, of Act 1508, as property; but assuming this to be so, still PNB cannot
spent any amount in connection with the said foreclosure
amended, provides that the officer making the sale escape liability for the conversion of the mortgaged
sale. In the absence of evidence to show at least the
should make a return of his doings which shall chattels by parting with its interest in the property.
number of working days the sheriff concerned actually
particularly describe the articles sold and the amount Neither would its claim that it afterwards gave a chance
spent in connection with the extra-judicial foreclosure
received from each article. From this, it is clear that the to herein appellant to repurchase or redeem the chattels,
sale, the most that he may be entitled to, would be the
law requires that sale be made article by article, improve its position, for the mortgagor is not under
amount of P10.00 as a reasonable allowance for two
otherwise, it would be impossible for him to state the obligation to take affirmative steps to repossess the
day’s work. Obviously, therefore, the award of amount of
amount received for each item. This requirement was chattels that were converted by the mortgagee. As a
P298.54 as expenses of the sale should be set aside.
totally disregarded by the Deputy Sheriff of Camarines consequence of the said wrongful acts of the PNB and the
Norte when he sold the chattels in question in bulk, Deputy Sheriff of Camarines Norte, therefore, We have to
3. ID.; ID.; ID.; ATTORNEY’S FEES. — Where the
notwithstanding the fact that the said chattels consisted declare that herein appellant is entitled to collect from
them jointly and severally, the full value of the chattels in
question at the time they were illegally sold by them. To
this effect was the holding of this Court in a similar
situation.
7. ID.; ID.; CHATTEL MORTGAGE; SALE OF PROPERTY
NOT IN ACCORDANCE WITH CONTRACT; EXEMPLARY
DAMAGES AND ATTORNEY’S FEES. — But for the
wrongful acts of herein appellee bank and the deputy
sheriff of Camarines Norte in proceeding with the sale in
utter disregard of the agreement to have the chattels sold
in Manila as provided for in mortgage contract, to which
their attentions were timely called by herein appellant
and in disposing of the chattels in gross for the miserable
amount of P4,201.00, herein appellant should be awarded
exemplary damages in the sum of P10,000.00. The
circumstances of the case also warrant the award of
P3,000.00 as attorney’s fees for herein Appellant.
8. ATTORNEY’S FEES; RULE OF QUANTUM MERUIT. —
This Court has invariably fixed counsel fees on a quantum
meruit basis whenever the fees stipulated appear
excessive, unconscionable, or unreasonable, because a
lawyer is primarily a court officer charged with the duty of
assisting the court in administering impartial justice
between the parties. The fees should be subject to
judicial control. Sound public policy demands that courts
disregard stipulations for counsel fees, whenever they
appear to be a source of speculative profit at the expense
of the debtor or mortgagor.
9. ID.; CIRCUMSTANCES TO CONSIDER. — In
determining the compensation of an attorney, the
following circumstances should be considered: the
amount and character of the services rendered; the
responsibility imposed; the amount of money or the value
of the property affected by the controversy or involved in
the employment; the skill and experience called for in the
performance of the service; the professional standing of
the attorney; the results secured; and whether or not the
fee is contingent or absolute, it being a recognized rule
that an attorney may properly charge a much larger fee
when it is to be contingent than when it is not.
10. DAMAGES; MORAL DAMAGES; AWARD OF DAMAGE
TO JURIDICAL PERSONS. — Herein appellant’s claim for
moral damages however, seems to have no legal or
factual basis. Obviously, an artificial person like herein
appellant corporation cannot experience physical
sufferings, mental anguish, fright, serious anxiety,
wounded feelings, moral shock or social humiliation which
are the basis of moral damages. A corporation may have
a good reputation which, if besmirched, may also be a
ground for the award of moral damages. The same
cannot be considered under the facts of this case,
however, not only because it is admitted that herein
appellant had already ceased in its business operation at
the time of the foreclosure sale of the chattels, but also
for the reason that whatever adverse effect the
foreclosure sale of the chattels, could have upon its
reputation or business standing would undoubtedly be the
same whether the sale was conducted at Jose
Panganiban, Camarines Norte, or in Manila which is the
place agreed upon by the parties in the mortgage
contract.
DECISION
An appeal from a decision, dated April 2, 1964, of the
Court of First Instance of Manila in Civil case No. 52089,
entitled "Mambulao Lumber Company, Plaintiff, v.
Philippine National Bank and Anacleto
Heraldo, Defendants," dismissing the complaint against
both defendants and sentencing the plaintiff to pay to
defendant Philippine National Bank (PNB for short) the
sum of P3,582.52 with interest thereon at the rate of 6%
per annum from December 22, 1961 until fully paid, and
the costs of suit.
In seeking the reversal of the decision, the plaintiff
advances several propositions in its brief which may be
restated as follows:chanrob1es virtual 1aw library
1. That its total indebtedness to the PNB as of November
21, 1961, was only P56,485.87 and not P58,213.51 as
concluded by the court a quo; hence, the proceeds of the
foreclosure sale of its real property alone in the amount
of P56,908.00 on that date, added to the sum of P738.59
it remitted to the PNB thereafter was more than sufficient
to liquidate its obligation, thereby rendering the
subsequent foreclosure sale of its chattels unlawful;
2. That it is not liable to pay PNB the amount of
P5,821.35 for attorney’s fees and the additional sum of
P298.54 as expenses of the foreclosure sale;
3. That the subsequent foreclosure sale of its chattels is
null and void, not only because it had already settled its
indebtedness to the PNB at the time the sale was
effected, but also for the reason that the said sale was
not conducted in accordance with the provisions of the
Chattel Mortgage Law and the venue agreed upon by the
parties in the mortgage contract;
4. That the PNB, having illegally sold the chattels, is liable
to the plaintiff for its value; and
5. That for the acts of the PNB in proceeding with the sale
of the chattels, in utter disregard of plaintiff’s vigorous
opposition thereto, and in taking possession thereof after
the sale thru force, intimidation, coercion, and by
detaining its "man-in-charge" of said properties, the PNB
is liable to plaintiff for damages and attorney’s fees.
The antecedent facts of the case, as found by the trial
court, are as follows:jgc:chanrobles.com.ph
"On May 5, 1956, the plaintiff applied for an industrial
loan of P155,000 with the Naga Branch of defendant PNB
and the former offered real estate, machinery, logging
and transportation equipments as collaterals. The
application, however, was approved for a loan of
P100,000 only. To secure the payment of the loan, the
plaintiff mortgaged to defendant PNB a parcel of land,
together with the buildings and improvements existing
thereon, situated in the poblacion of Jose Panganiban
(formerly Mambulao), province of Camarines Norte, and
covered by Transfer Certificate of Title No. 381 of the
land records of said province, as well as various sawmill
equipment, rolling unit and other fixed assets of the
plaintiff, all situated in its compound in the
aforementioned municipality.
"On August 2, 1956, the PNB released from the approved
loan the sum of P27,500, for which the plaintiff signed a
promissory note wherein it promised to pay to the PNB
the said sum in five equal yearly installments at the rate
of P6,528.40 beginning July 31, 1957, and every year
thereafter, the last of which would be on July 31, 1961.
"On October 19, 1956, the PNB made another release of
P15,500 as part of the approved loan granted to the
plaintiff and so on the said date, the latter executed
another promissory note wherein it agreed to pay to the
former the said sum in five equal yearly installments at
the rate of P3,679.64 beginning July 31, 1957, and
ending on July 31, 1961.
"The plaintiff failed to pay the amortizations on the
amounts released to and received by it. Repeated
demands were made upon the plaintiff to pay its
obligation but it failed or otherwise refused to do so.
Upon inspection and verification made by employees of
the PNB, it was found that the plaintiff had already
stopped operation about the end of 1957 or early part of
1958.
"On September 27, 1961, the PNB sent a letter to the
Provincial Sheriff of Camarines Norte requesting him to
take possession of the parcel of land, together with the
improvements existing thereon, covered by Transfer
Certificate of Title No. 381 of the land records of
Camarines Norte, and to sell it at public auction in
accordance with the provisions of Act No. 3135, as
amended, for the satisfaction of the unpaid obligation of
the plaintiff, which as of September 22, 1961, amounted
to P57,646.59, excluding attorney’s fees. In compliance
with the request, on October 16, 1961, the Provincial
Sheriff of Camarines Norte issued the corresponding
notice of extra-judicial foreclosure sale and sent a copy
thereof to the plaintiff. According to the notice, the
mortgaged property would be sold at public auction at
10:00 a.m. on November 21, 1961, at the ground floor of
the Court House in Daet, Camarines Norte.
"On November 6, 1961, the PNB sent a letter to the
Provincial Sheriff of Camarines Norte requesting him to
take possession of the chattels mortgaged to it by the
plaintiff and sell them at public auction also on November
21, 1961, for the satisfaction of the sum of P57,646.59,
plus 6% annual interest thereon from September 23,
1961, attorney’s fees equivalent to 10% of the amount
due and the costs and expenses of the sale. On the same
day, the PNB sent notice to the plaintiff that the former
was foreclosing extrajudicially the chattels mortgaged by
the latter and that the auction sale thereof would be held
on November 21, 1961, between 9:00 and 12:00 a.m., in
Mambulao, Camarines Norte, where the mortgaged
chattels were situated.
"On November 8, 1961, Deputy Provincial Sheriff
Anacleto Heraldo took possession of the chattels
mortgaged by the plaintiff and made an inventory thereof
in the presence of a PC Sergeant and a policeman of the
municipality of Jose Panganiban. On November 9, 1961,
the said Deputy Sheriff issued the corresponding notice of
public auction sale of the mortgaged chattels to be held
on November 21, 1961, at 10:00 a.m., at the plaintiffs
compound situated in the municipality of Jose
Panganiban, Province of Camarines Norte.
"On November 19, 1961, the plaintiff sent separate
letters, posted as registered air mail matter, one to the
Naga Branch of the PNB and another to the Provincial
Sheriff of Camarines Norte, protesting against the
foreclosure of the real estate and chattel mortgages on
the grounds that they could not be effected unless a
Court’s order was issued against it (plaintiff) for said
purpose and that the foreclosure proceedings, according
to the terms of the mortgage contracts, should be made
in Manila. In said letter to the Naga Branch of the PNB, it
was intimated that if the public auction sale would be
suspended and the plaintiff would be given an extension
of ninety (90) days, its obligation would be settled
satisfactorily because an important negotiation was then
going on for the sale of its "whole interest" for an amount
more than sufficient to liquidate said obligation.
"The letter of the plaintiff to the Naga Branch of the PNB
was construed by the latter as a request for extension of
the foreclosure sale of the mortgaged chattels and so it
advised the Sheriff of Camarines Norte to defer it to
December 21, 1961, at the same time and place. A copy
of said advice was sent to the plaintiff for its information
and guidance.
"The foreclosure sale of the parcel of land, together with
the buildings and improvements thereon, covered by
Transfer Certificate of Title No. 381, was, however, held
on November 21, 1961, and the said property was sold to
the PNB for the sum of P56,908.00, subject to the right of
the plaintiff to redeem the same within a period of one
year. On the same date, Deputy Provincial Sheriff Heraldo
executed a certificate of sale in favor of the PNB and a
copy thereof was sent to the plaintiff.
"In a letter dated December 14, 1961 (but apparently
posted several days later), the plaintiff sent a bank draft
for P738.59 to the Naga Branch of the PNB, allegedly in
full settlement of the balance of the obligation of the
plaintiff after the application thereto of the sum of
P56,908.00 representing the proceeds of the foreclosure
sale of parcel of land described in Transfer Certificate of
Title No. 881. In the said letter, the plaintiff reiterated its
request that the foreclosure sale of the mortgaged
chattels be discontinued on the grounds that the
mortgaged indebtedness had been fully paid and that it
could not be legally effected at a place other than the City
of Manila.
"In a letter dated December 16, 1961, the plaintiff
advised the Provincial Sheriff of Camarines Norte that it
had fully paid its obligation to the PNB, and enclosed
therewith a copy of its letter to the latter dated December
14, 1961.
"On December 18, 1961, the Attorney of the Naga Branch
of the PNB, wrote to the plaintiff acknowledging the
remittance of P738.59 with the advice, however, that as
of that date the balance of the account of the plaintiff was
P9,161.76, to which should be added the expenses of
guarding the mortgaged chattels at the rate of P4.00 a
day beginning December 19, 1961. It was further
explained in said letter that the sum of P57,646.59, which
was stated in the request for the foreclosure of the real
estate mortgage, did not include the 10% attorney’s fees
and expenses of the sale. Accordingly, the plaintiff was
advised that the foreclosure sale scheduled on the 21st of
said month would be stopped if a remittance of
P9,161.76, plus interest thereon and guarding fees,
would be made.
"On December 21, 1961, the foreclosure sale of the
mortgaged chattels was held at 10:00 a.m. and they
were awarded to the PNB for the sum of P4,200 and the
corresponding bill of sale was issued in its favor by
Deputy Provincial Sheriff Heraldo.
"In a letter dated December 26, 1961, the Manager of the
Naga Branch of the PNB advised the plaintiff giving it
priority to repurchase the chattels acquired by the former
at public auction. This offer was reiterated in a letter
dated January 3, 1962, of the Attorney of the Naga
Branch of the PNB to the plaintiff, with the suggestion
that it exercise its right of redemption and that it apply
for the condonation of the attorney’s fees. The plaintiff
did not follow the advice but on the contrary it made
known of its intention to file appropriate action or actions
for the protection of its interests.
"On May 24, 1962, several employees of the PNB arrived
in the compound of the plaintiff in Jose Panganiban,
Camarines Norte, and they informed Luis Salgado, Chief
Security Guard of the premises, that the properties
therein had been auctioned and bought by the PNB,
which in turn sold them to Mariano Bundok. Upon being
advised that the purchaser would take delivery of the
things he bought, Salgado was at first reluctant to allow
any piece of property to be taken out of the compound of
the plaintiff. The employees of the PNB explained that
should Salgado refuse, he would be exposing himself to a
litigation wherein he could be held liable to pay big sum
of money by way of damages. Apprehensive of the risk
that he would take, Salgado immediately sent a wire to
the President of the plaintiff in Manila, asking advice as to
what he should do. In the meantime, Mariano Bundok
was able to take out from the plaintiffs compound two
truck loads of equipment.
"In the afternoon of the same day, Salgado received a
telegram from plaintiffs President directing him not to
deliver the ‘chattels’ without court order, with the
information that the company was then filing an action
for damages against the PNB. On the following day, May
25, 1962, two trucks and men of Mariano Bundok arrived
but Salgado did not permit them to take out any
equipment from inside the compound of the plaintiff. Thru
the intervention, however, of the local police and PC
soldiers, the trucks of Mariano Bundok were able finally to
haul the properties originally mortgaged by the plaintiff to
the PNB, which were bought by it at the foreclosure sale
and subsequently sold to Mariano Bundok."cralaw
virtua1aw library
Upon the foregoing facts, the trial court rendered the
decision appealed from which, as stated in the first
paragraph of this opinion, sentenced the Mambulao
Lumber Company to pay to the defendant PNB the sum of
P3,582.52 with interest thereon at the rate of 6% per
annum from December 22, 1961 (day following the date
of the questioned foreclosure of plaintiff’s chattels) until
fully paid, and the costs. Mambulao Lumber Company
interposed the instant appeal.
We shall discuss the various points raised in appellant’s
brief in seriatim.
The first question Mambulao Lumber Company poses is
that which relates to the amount of its indebtedness to
the PNB arising out of the principal loans and the accrued
interest thereon. It is contended that its obligation under
the terms of the two promissory notes it had executed in
favor of the PNB amounts only to P56,485.87 as of
November 21, 1961, when the sale of real property was
effected, and not P58,213.51 as found by the trial court.
There is merit to this claim. Examining the terms of the
promissory note executed by the appellant in favor of the
PNB, we find that the agreed interest on the loan of
P43,000.00 — P27,500.00 released on August 2, 1956, as
per promissory note of even date (Exhibit C-3), and
P15,500.00 released on October 19, 1956, as per
promissory note of the same date (Exhibit C-4) — was six
per cent (6%) per annum from the respective date of said
notes "until paid." In the statement of account of the
appellant as of September 22, 1961, submitted by the
PNB, it appears that in arriving at the total indebtedness
of P57,646.59 as of that date, the PNB had compounded
the principal of the loan and the accrued 6% interest
thereon each time the yearly amortizations became due,
and on the basis of these compounded amounts charged
additional delinquency interest on them up to September
22, 1961; and to this erroneously computed total of
P57,646.59, the trial court added 6% interest per annum
from September 23, 1961 to November 21 of the same
year. In effect, the PNB has claimed, and the trial court
has adjudicated to it, interest on accrued interests from
the time the various amortizations of the loan became
due until the real estate mortgage executed to secure the
loan was extrajudicially foreclosed on November 21,
1961. This is an error. Section 5 of Act No. 2655
expressly provides that in computing the interest on any
obligation, promissory note or other instrument or
contract, compound interest shall not be reckoned,
except by agreement, or in default thereof, whenever the
debt is judicially claimed. This is also the clear mandate
of Article 2212 of the new Civil Code which provides that
interest due shall earn legal interest only from the time it
is judicially demanded, and of Article 1959 of the same
code which ordains that interest due and unpaid shall not
earn interest. Of course, the parties may, by stipulation,
capitalize the interest due and unpaid, which as added
principal shall earn new interest; but such stipulation is
nowhere to be found in the terms of the promissory notes
involved in this case. Clearly therefore, the trial court fell
into error when it awarded interest on accrued interests,
without any agreement to that effect and before they had
been judicially demanded.
Appellant next assails the award of attorney’s fees and
the expenses of the foreclosure sale in favor of the PNB.
With respect to the amount of P298.54 allowed as
expenses of the extra-judicial sale of the real property,
appellant maintains that the same has no basis, factual or
legal, and should not have been awarded. It likewise
decries the award of attorney’s fees which, according to
the appellant, should not be deducted from the proceeds
of the sale of the real property, not only because there is
no express agreement in the real estate mortgage
contract to pay attorney’s fees in case the same is extra-
judicially foreclosed, but also for the reason that the PNB
neither spent nor incurred any obligation to pay
attorney’s fees in connection with the said extra-judicial
foreclosure under consideration.
There is reason for the appellant to assail the award of
P298.54 as expenses of the sale. In this respect, the trial
court said:jgc:chanrobles.com.ph
"The parcel of land, together with the buildings and
improvements existing thereon covered by Transfer
Certificate of Title No. 381, was sold for P56,908. There
was, however, no evidence how much was the expenses
of the foreclosure sale although from the pertinent
provisions of the Rules of Court, the Sheriff’s fees would
be P1 for advertising the sale (par. k, Sec. 7, Rule 130 of
the Old Rules) and P297.54 as his commission for the
sale (par. n, Sec. 7, Rule 130 of the Old Rules) or a total
of P298.54."cralaw virtua1aw library
There is really no evidence of record to support the
conclusion that the PNB is entitled to the amount
awarded as expenses of the extra- judicial foreclosure
sale. The court below committed error in applying the
provisions of the Rules of Court for purposes of arriving at
the amount awarded. It is to be borne in mind that the
fees enumerated under paragraphs k and n, Section 7, of
Rule 130 (now Rule 141) are demandable only by a
sheriff serving processes of the court in connection with
judicial foreclosure of mortgages under Rule 68 of the
new Rules, and not in cases of extra-judicial foreclosure
of mortgages under Act 3135. The law applicable is
Section 4 of Act 3135 which provides that the officer
conducting the sale is entitled to collect a fee of P5.00 for
each day of actual work performed in addition to his
expenses in connection with the foreclosure sale.
Admittedly, the PNB failed to prove during the trial of the
case, that it actually spent any amount in connection with
the said foreclosure sale. Neither may expenses for
publication of the notice be legally allowed in the absence
of evidence on record to support it. 1 It is true, as
pointed out by the appellee bank, that courts should take
judicial notice of the fees provided for by law which need
not be proved; but in the absence of evidence to show at
least the number of working days the sheriff concerned
actually spent in connection with the extra-judicial
foreclosure sale, the most that he may be entitled to,
would be the amount of P10.00 as a reasonable
allowance for two day’s work — one for the preparation of
the necessary notices of sale, and the other for
conducting the auction sale and issuance of the
corresponding certificate of sale in favor of the buyer.
Obviously, therefore, the award of P298.54 as expenses
of the sale should be set aside.
But the claim of the appellant that the real estate
mortgage does not provide for attorney’s fees in case the
same is extra-judicially foreclosed, cannot be favorably
considered, as would readily be revealed by an
examination of the pertinent provision of the mortgage
contract. The parties to the mortgage appear to have
stipulated under paragraph (c) thereof, inter
alia:jgc:chanrobles.com.ph
". . . For the purpose of extra-judicial foreclosure, the
Mortgagor hereby appoints the Mortgagee his attorney-
in-fact to sell the property mortgaged under Act 3135, as
amended, to sign all documents and to perform all acts
requisite and necessary to accomplish said purpose and
to appoint its substitute as such attorney-in-fact with the
same powers as above specified. In case of judicial
foreclosure, the Mortgagor hereby consents to the
appointment of the Mortgagee or any of its employees as
receiver, without any bond, to take charge of the
mortgaged property at once, and to hold possession of
the same and the rents, benefits and profits derived from
the mortgaged property before the sale, less the costs
and expenses of the receivership; the Mortgagor hereby
agrees further that in all cases, attorney’s fees hereby
fixed at Ten Per Cent (10%) of the total indebtedness
then unpaid, which in no case shall be less than P100.00
exclusive of all fees allowed by law, and the expenses of
collection shall be the obligation of the Mortgagor and
shall with priority, be paid to the Mortgagee out of any
sums realized as rents and profits derived from the
mortgaged property or from the proceeds realized from
the sale of the said property and this mortgage shall
likewise stand as security therefor . . ."cralaw virtua1aw
library
We find the above stipulation to pay attorney’s fees clear
enough to cover both cases of foreclosure sale mentioned
thereunder, i.e., judicially or extra-judicially. While the
phrase "in all cases" appears to be part of the second
sentence, a reading of the whole context of the
stipulation would readily show that it logically refers to
extra-judicial foreclosure found in the first sentence and
to judicial foreclosure mentioned in the next sentence.
And the ambiguity in the stipulation suggested and
pointed out by the appellant by reason of the faulty
sentence construction should not be made to defeat the
otherwise clear intention of the parties in the agreement.
It is suggested by the appellant, however, that even if
the above stipulation to pay attorney’s fees were
applicable to the extra- judicial foreclosure sale of its real
properties, still, the award of P5,821.35 for attorney’s
fees has no legal justification, considering the
circumstance that the PNB did not actually spend
anything by way of attorney’s fees in connection with the
sale. In support of this proposition, appellant cites
authorities to the effect: (1) that when the mortgagee
has neither paid nor incurred any obligation to pay an
attorney in connection with the foreclosure sale, the claim
for such fees should be denied; 2 and (2) that attorney’s
fees will not be allowed when the attorney conducting the
foreclosure proceedings is an officer of the corporation
(mortgagee) who receives a salary for all the legal
services performed by him for the corporation. 3 These
authorities are indeed enlightening; but they should not
be applied in this case. The very same authority first cited
suggests that said principle is not absolute, for there is
authority to the contrary. As to the fact that the
foreclosure proceedings were handled by an attorney of
the legal staff of the PNB, we are reluctant to exonerate
herein appellant from the payment of the stipulated
attorney’s fees on this ground alone, considering the
express agreement between the parties in the mortgage
contract under which appellant became liable to pay the
same. At any rate, we find merit in the contention of the
appellant that the award of P5,821.35 in favor of the PNB
as attorney’s fees is unconscionable and unreasonable,
considering that all that the branch attorney of the said
bank did in connection with the foreclosure sale of the
real property was to file a petition with the provincial
sheriff of Camarines Norte requesting the latter to sell the
same in accordance with the provisions of Act 3135.
The principle that courts should reduce stipulated
attorney’s fees whenever it is found under the
circumstances of the case that the same is unreasonable,
is now deeply rooted in this jurisdiction to entertain any
serious objection to it. Thus, this Court has
explained:jgc:chanrobles.com.ph
"But the principle that it may be lawfully stipulated that
the legal expenses involved in the collection of a debt
shall be defrayed by the debtor does not imply that such
stipulations must be enforced in accordance with the
terms, no matter how injurious or oppressive they may
be. The lawful purpose to be accomplished by such a
stipulation is to permit the creditor to receive the amount
due him under his contract without a deduction of the
expenses caused by the delinquency of the debtor. It
should not be permitted for him to convert such a
stipulation into a source of speculative profit at the
expense of the debtor.
"Contracts for attorney’s services in this jurisdiction
stands upon an entirely different footing from contracts
for the payment of compensation for any other services.
By express provision of section 29 of the Code of Civil
Procedure, an attorney is not entitled in the absence of
express contract to recover more than a reasonable
compensation for his services; and even when an express
contract is made the court can ignore it and limit the
recovery to reasonable compensation of the amount of
the stipulated fee is found by the court to be
unreasonable. This is a very different rule from that
announced in section 1091 of the Civil Code with
reference to the obligation of contracts in general, where
it is said that such obligation has the force of law between
the contracting parties. Had the plaintiff herein made an
express contract to pay his attorney an uncontingent fee
of P2,115.25 for the services to be rendered in reducing
the note here in suit to judgment, it would not have been
enforced against him had he seen fit to oppose it, as such
a fee is obviously far greater than is necessary to
remunerate the attorney for the work involved and is
therefore unreasonable. In order to enable the court to
ignore an express contract for an attorney’s fees, it is not
necessary to show, as in other contracts, that it is
contrary to morality or public policy (Art. 1255, Civil
Code). It is enough that it is unreasonable or
unconscionable." 4
Since then this Court has invariably fixed counsel fees on
a quantum meruit basis whenever the fees stipulated
appear excessive, unconscionable, or unreasonable,
because a lawyer is primarily a court officer charged with
the duty of assisting the court in administering impartial
justice between the parties, and hence, the fees should
be subject to judicial control. Nor should it be ignored
that sound public policy demands that courts disregard
stipulations for counsel fees, whenever they appear to be
a source of speculative profit at the expense of the debtor
or mortgagor. 5 And it is not material that the present
action is between the debtor and the creditor, and not
between attorney and client. As courts have power to fix
the fee as between attorney and client, it must
necessarily have the right to say whether a stipulation
like this, inserted in a mortgage contract, is valid. 6
In determining the compensation of an attorney, the
following circumstances should be considered: the
amount and character of the services rendered, the
responsibility imposed: the amount of money or the value
of the property affected by the controversy, or involved in
the employment: the skill and experience called for in the
performance of the service, the professional standing of
the attorney; the results secured; and whether or not the
fee is contingent or absolute, it being a recognized rule
that an attorney may properly charge a much larger fee
when it is to be contingent than when it is not. 7 From
the stipulation in the mortgage contract earlier quoted, it
appears that the agreed fee is 10% of the total
indebtedness, irrespective of the manner the foreclosure
of the mortgage is to be effected. The agreement is
perhaps fair enough in case the foreclosure proceedings is
prosecuted judicially but, surely, it is unreasonable when,
as in this case, the mortgage was foreclosed
extrajudicially, and all that the attorney did was to file a
petition for foreclosure with the sheriff concerned. It is to
be assumed though, that the said branch attorney of the
PNB made a study of the case before deciding to file the
petition for foreclosure: but even with this in mind, we
believe the amount of P5,821.35 is far too excessive a fee
for such services. Considering the above circumstances
mentioned, it is our considered opinion that the amount
of P1,000.00 would be more than sufficient to
compensate the work aforementioned.
The next issue raised deals with the claim that the
proceeds of the sale of the real properties alone together
with the amount it remitted to the PNB later was more
than sufficient to liquidate its total obligation to herein
appellee bank. Again, we find merit in this claim. From
the foregoing discussion of the first two errors assigned,
and for purposes of determining the total obligation of
herein appellant to the PNB as of November 21, 1961
when the real estate mortgage was foreclosed, we have
the following illustration in support of this
conclusion:chanrob1es virtual 1aw library
A. —
I. Principal Loan
(a) Promissory note dated August 2, 1956 P27,500.00
(1) Interest at 6% per annum from
Aug. 2, 1956 to Nov. 21, 1961 8,751.78
(b) Promissory note dated October 19, 1956 P15,500.00
(1) Interest at 6% per annum from
Oct. 19, 1956 to Nov. 21, 1961 4,734.08
II. Sheriff’s fees [for two [2]day’s work] 10.00
III. Attorney’s fees 1,000.00
————
Total obligation as of Nov. 21, 1961 P57,495.86
B. —
I. Proceeds of the foreclosure sale of
the real estate mortgage on Nov. 21, 1961 56,908.00.
II. Additional amount remitted to the
PNB on Dec. 18, 1961 738.59
————
Total amount of Payment made to
PNB as of Dec. 18, 1961 P57,646.59
————
Deduct: Total obligation to the PNB P57,495.86
————
Excess Payment to the PNB P150.73
=======
From the foregoing illustration or computation, it is clear
that there was no further necessity to foreclose the
mortgage of herein appellant’s chattels on December 21,
1961; and on this ground alone, we may declare the sale
of appellant’s chattels on the said date, illegal and void.
But we take into consideration the fact that the PNB must
have been led to believe that the stipulated 10% of the
unpaid loan for attorney’s fees in the real estate
mortgage was legally maintainable, and in accordance
with such belief, herein appellee bank insisted that the
proceeds of the sale of appellant’s real property was
deficient to liquidate the latter’s total indebtedness. Be
that as it may, however, we still find the subsequent sale
of herein appellant’s chattels illegal and objectionable on
other grounds.
That appellant vigorously objected to the foreclosure of
its chattel mortgage after the foreclosure of its real estate
mortgage on November 21, 1961, cannot be doubted, as
shown not only by its letter to the PNB on November 19,
1961, but also in its letter to the provincial sheriff of
Camarines Norte on the same date. These letters were
followed by another letter to the appellee bank on
December 14, 1961, wherein herein appellant, in no
uncertain terms, reiterated its objection to the scheduled
sale of its chattels on December 21, 1961 at Jose
Panganiban, Camarines Norte for the reasons therein
stated that: (1) it had settled in full its total obligation to
the PNB by the sale of the real estate and its subsequent
remittance of the amount of P738.59; and (2) that the
contemplated sale at Jose Panganiban would violate their
agreement embodied under paragraph (i) in the Chattel
Mortgage which provides as
follows:jgc:chanrobles.com.ph
"(i) In case of both judicial and extra-judicial foreclosure
under Act 1508, as amended, the parties hereto agree
that the corresponding complaint for foreclosure or the
petition for sale should be filed with the courts or the
sheriff of the City of Manila, as the case may be; and that
the Mortgagor shall pay attorney’s fees hereby fixed at
ten per cent (10%) of the total indebtedness then unpaid
but in no case shall it be less than P100.00, exclusive of
all costs and fees allowed by law and of other expenses
incurred in connection with the said foreclosure."
[Emphasis supplied]
Notwithstanding the above-quoted agreement in the
chattel mortgage contract, and in utter disregard of the
objection of herein appellant to the sale of its chattels at
Jose Panganiban, Camarines Norte and not in the City of
Manila as agreed upon, the PNB proceeded with the
foreclosure sale of said chattels. The trial court, however
justified said action of the PNB in the decision appealed
from in the following rationale:jgc:chanrobles.com.ph
"While it is true that it was stipulated in the chattel
mortgage contract that a petition for the extra-judicial
foreclosure thereof should be filed with the Sheriff of the
City of Mania, nevertheless, the effect thereof was merely
to provide another place where the mortgage chattel
could be sold, in addition to those specified in the Chattel
Mortgage Law. Indeed, a stipulation in a contract cannot
abrogate much less impliedly repeal a specific provision of
the statute. Considering that Section 14 of Act No. 1508
vests in the mortgagee the choice where the foreclosure
sale should be held, hence, in the case under
consideration, the PNB has three places from which to
select, namely: (1) the place of residence of the
mortgagor; (2) the place of the mortgaged chattels were
situated; and (3) the place stipulated in the contract. The
PNB selected the second and, accordingly, the foreclosure
sale held in Jose Panganiban, Camarines Norte, was legal
and valid."cralaw virtua1aw library
To the foregoing conclusion, We disagree. While the law
grants power and authority to the mortgagee to sell the
mortgaged property at a public place in the municipality
where the mortgagor resides, or where the property is
situated, 8 this Court has said that the sale of a
mortgaged chattel may be made in a place other than
that where it is found, provided that the owner thereof
consents thereto; or that there is an agreement to this
effect between the mortgagor and the mortgagee. 9 But
when, as in this case, the parties agreed to have the sale
of the mortgaged chattels in the City of Manila, which,
any way, is the residence of the mortgagor, it cannot be
rightly said that the mortgagee still retained the power
and authority to select from among the places provided
for in the law and the place designated in their
agreement, over the objection of the mortgagor. In
providing that the mortgaged chattel may be sold at the
place of residence of the mortgagor or the place where it
is situated, at the option of the mortgagee, the law
clearly contemplated benefits not only to the mortgagor
but to the mortgagee as well. Their rights arising
thereunder, however, are personal to them; they do not
affect either public policy or the rights of third persons.
They may validly be waived. So, when herein mortgagor
and mortgagee agreed in the mortgage contract that in
cases of both judicial and extra-judicial foreclosure under
Act 1508, as amended, the corresponding complaint for
foreclosure or the petition for sale should be filed with the
courts or the Sheriff of Manila, as the case may be, they
waived their corresponding rights under the law. The
correlative obligation arising from that agreement have
the force of law between them and should be complied
with in good faith. 10
"By said agreement the parties waived the legal venue,
and such waiver is valid and legally effective, because it
was merely a personal privilege they waived, which is not
contrary to public policy or to the prejudice of third
persons. It is a general principle that a person may
renounce any right which the law gives unless such
renunciation is expressly prohibited or the right conferred
is of such nature that its renunciation would be against
public policy." 11
"On the other hand, if a place of sale is specified in the
mortgage and statutory requirements in regard thereto
are complied with, a sale is properly conducted in that
place. Indeed, in the absence of a statute to the contrary,
a sale conducted at a place other than that stipulated for
in the mortgage is invalid, unless the mortgagor consents
to such sale." 12
Moreover, Section 14 of Act 1508, as amended, provides
that the officer making the sale should make a return of
his doings which shall particularly describe the articles
sold and the amount received from each article. From
this, it is clear that the law requires that sale be made
article by article, otherwise, it would be impossible for
him to state the amount received for each item. This
requirement was totally disregarded by the Deputy
Sheriff of Camarines Norte which he sold the chattels in
question in bulk, notwithstanding the fact that the said
chattels consisted of no less than twenty different items
as shown in the bill of sale. 13 This makes the sale of the
chattels manifestly objectionable. And in the absence of
any evidence to show that the mortgagor had agreed or
consented to such sale in gross, the same should be set
aside.
It is said that the mortgagee is guilty of conversion when
he sells under the mortgage but not in accordance with
its terms, or where the proceedings as to the sale or
foreclosure do not comply with the statute. 14 This rule
applies squarely to the facts of this case where, as earlier
shown, herein appellee bank insisted, and the appellee
deputy sheriff of Camarines Norte proceeded with the
sale of the mortgaged chattels at Jose Panganiban,
Camarines Norte, in utter disregard of the valid objection
of the mortgagor thereto for the reason that it is not the
place of sale agreed upon in the mortgage contract; and
the said deputy sheriff sold all the chattels (among which
were a skagit with caterpillar engine, three GMC 6x6
trucks, a Herring Hall Safe, and Sawmill equipment
consisting of a 150 HP Murphy Engine, plainer, large
circular saws, etc.) as a single lot in violation of the
requirement of the law to sell the same article by article.
The PNB has resold the chattels to another buyer with
whom it appears to have actively cooperated in
subsequently taking possession of and removing the
chattels from appellant’s compound by force, as shown by
the circumstance that they had to take along PC soldiers
and municipal policemen of Jose Panganiban who placed
the chief security officer of the premises in jail to deprive
herein appellant of its possession thereof. To exonerate
itself of any liability for the breach of peace thus
committed, the PNB would want us to believe that it was
the subsequent buyer alone, who is not a party to this
case, that was responsible for the forcible taking of the
property; but assuming this to be so, still the PNB cannot
escape liability for the conversion of the mortgaged
chattels by parting with its interest in the property.
Neither would its claim that it afterwards gave a chance
to herein appellant to repurchase or redeem the chattels,
improve its position, for the mortgagor is not under
obligation to take affirmative steps to repossess the
chattels that were converted by the mortgagee. 15 As a
consequence of the said wrongful acts of the PNB and the
Deputy Sheriff of Camarines Norte, therefore, We have to
declare that herein appellant is entitled to collect from
them, jointly and severally, the full value of the chattels
in question at the time they were illegally sold by them.
To this effect was the holding of this Court in a similar
situation. 16
"The effect of this irregularity was in our opinion to make
the plaintiff liable to the defendant for the full value of
the truck at the time the plaintiff thus carried it off to be
sold; and of course, the burden is on the defendant to
prove the damage to which he was thus
subjected. . . ."cralaw virtua1aw library
This brings us to the problem of determining the value of
the mortgaged chattels at the time of their sale in 1961.
The that court did not make any finding on the value of
the chattels in the decision appealed from and denied
altogether the right of the appellant to recover the same.
We find enough evidence of record, however, which may
be used as a guide to ascertain their value. The record
shows that at the time herein appellant applied for its
loan with the PNB in 1956, for which the chattels in
question were mortgaged as part of the security therefor,
herein appellant submitted a list of the chattels together
with its application for the loan with a stated value of
P107,115.85. An official of the PNB made an inspection of
the chattels in the same year giving it an appraised value
of P42,850.00 and a market value of P85,700.00. 17 The
same chattels with some additional equipment acquired
by herein appellant with part of the proceeds of the loan
were reappraised in a reinspection conducted by the
same official in 1958, in the report of which he gave all
the chattels an appraised value of P26,850.00 and a
market value of P48,200.00. 18 Another reinspection
report in 1959 gave the appraised value as P19,400.00
and the market value of P25,600.00. 19 The said official
of the PNB who made the foregoing reports of inspection
and reinspections testified in court that in giving the
values appearing in the reports, he used a conservative
method of appraisal which, of course, is to be expected of
an official of the appellee bank. And it appears that the
values were considerably reduced in all the reinspection
reports for the reason that when he went to herein
appellant’s premises at the time, he found the chattels no
longer in use with some of the heavier equipment
dismantled with parts thereof kept in the bodega; and
finding it difficult to ascertain the value of the dismantled
chattels in such condition, he did not give them anymore
any value in his reports. Noteworthy is the fact, however,
that in the last reinspection report he made of the
chattels in 1961, just a few months before the foreclosure
sale, the same inspector of the PNB reported that the
heavy equipments of herein appellant were "lying idle and
rusty," but were "with a shed, free from rains," 20
showing that although they were no longer in use at the
time, they were kept in a proper place and not exposed
to the elements. The President of the appellant company,
on the other hand, testified that its caterpillar (tractor)
alone is worth P35,000.00 in the market, and that the
value of its two trucks acquired by it with part of the
proceeds of the loan and included as additional items in
the mortgaged chattels were worth no less than
P14,000.00. He likewise appraised the worth of its
Murphy engine at P16,000.00 which, according to him,
when taken together with the heavy equipment he
mentioned, the sawmill itself and all other equipment
forming part of the chattels under consideration, and
bearing in mind the current cost of equipment these days
which he alleged to have increased by about five (5)
times, could safely be estimated at P120,000.00. This
testimony, except for the appraised and market values
appearing in the inspection and reinspection reports of
the PNB official earlier mentioned, stand uncontroverted
in the record; but We are not inclined to accept such
testimony at its par value, knowing that the equipment of
herein appellant had been idle and unused since it
stopped operating its sawmill in 1958 up to the time of
the sale of the chattels in 1961. We have no doubt that
the value of the chattels was depreciated after all those
years of inoperation, although from the evidence
aforementioned, We may also safely conclude that the
amount of P4,200.00 for which the chattels were sold in
the foreclosure sale in question was grossly unfair to the
mortgagor. Considering, however, the facts that the
appraised value of P42,850.00 and the market value of
P85,700.00 originally given by the PNB official were
admittedly conservative; that two 6x6 trucks
subsequently bought by the appellant company had
thereafter been added to the chattels; and that the real
value thereof, although depreciated after several years of
inoperation, was in a way maintained because the
depreciation is off-set by the marked increase in the cost
of heavy equipment in the market, it is our opinion that
the market value of the chattels at the time of the sale
should be fixed at the original appraised value of
P42,850.00.
Herein appellant’s claim for moral damages, however,
seems to have no legal or factual basis. Obviously, an
artificial person like herein appellant corporation cannot
experience physical sufferings, mental anguish, fright,
serious anxiety, wounded feelings, moral shock or social
humiliation which are the basis of moral damages. 21 A
corporation may have a good reputation which, if
besmirched, may also be a ground for the award of moral
damages. The same cannot be considered under the facts
of this case, however, not only because it is admitted that
herein appellant had already ceased in its business
operation at the time of the foreclosure sale of the
chattels, but also for the reason that whatever adverse
effect the foreclosure sale of the chattels could have upon
its reputation or business standing would undoubtedly be
the same whether the sale was conducted at Jose
Panganiban. Camarines Norte, or in Manila which is the
place agreed upon by the parties in the mortgage
contract.
But for the wrongful acts of herein appellee bank and the
deputy sheriff of Camarines Norte in proceeding with the
sale in utter disregard of the agreement to have the
chattels sold in Manila as provided for in the mortgage
contract, to which their attentions were timely called by
herein appellant, and in disposing of the chattels in gross
for the miserable amount of P4,200.00, herein appellant
should be awarded exemplary damages in the sum of
P10,000.00. The circumstances of the case also warrant
the award of P3,000.00 as attorney’s fees for
herein Appellant.
Wherefore and considering all the foregoing, the decision
appealed from should be, as hereby, it is set aside. The
Philippine National Bank and the Deputy Sheriff of the
province of Camarines Norte are ordered to pay, jointly
and severally, to Mambulao Lumber Company the total
amount of P56,000.73, broken as follows: P150.73
overpaid by the latter to the PNB, P42,850.00 the value
of the chattels at the time of the sale with interest at the
rate of 6% per annum from December 21, 1961, until
fully paid, P10,000.00 in exemplary damages, and
P3,000.00 as attorney’s fees. Costs against both
appellees.
[G.R. No. L-32409. February 27, 1971.]
BACHE & CO. (PHIL.), INC. and FREDERICK E.
SEGGERMAN, Petitioners, v. HON. JUDGE VIVENCIO
M. RUIZ, MISAEL P. VERA, in his capacity as
Commissioner of Internal Revenue, ARTURO
LOGRONIO, RODOLFO DE LEON, GAVINO
VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO,
JOHN DOE, JOHN DOE, JOHN DOE, and JOHN
DOE, Respondents.
This is an original action of certiorari, prohibition and
mandamus, with prayer for a writ of preliminary
mandatory and prohibitory injunction. In their petition
Bache & Co. (Phil.), Inc., a corporation duly organized
and existing under the laws of the Philippines, and its
President, Frederick E. Seggerman, pray this Court to
declare null and void Search Warrant No. 2-M-70 issued
by respondent Judge on February 25, 1970; to order
respondents to desist from enforcing the same and/or
keeping the documents, papers and effects seized by
virtue thereof, as well as from enforcing the tax
assessments on petitioner corporation alleged by
petitioners to have been made on the basis of the said
documents, papers and effects, and to order the return of
the latter to petitioners. We gave due course to the
petition but did not issue the writ of preliminary
injunction prayed for therein.
The pertinent facts of this case, as gathered from record,
are as follows:chanrob1es virtual 1aw library
On February 24, 1970, respondent Misael P. Vera,
Commissioner of Internal Revenue, wrote a letter
addressed to respondent Judge Vivencio M. Ruiz
requesting the issuance of a search warrant against
petitioners for violation of Section 46(a) of the National
Internal Revenue Code, in relation to all other pertinent
provisions thereof, particularly Sections 53, 72, 73, 208
and 209, and authorizing Revenue Examiner Rodolfo de
Leon, one of herein respondents, to make and file the
application for search warrant which was attached to the
letter.
In the afternoon of the following day, February 25, 1970,
respondent De Leon and his witness, respondent Arturo
Logronio, went to the Court of First Instance of Rizal.
They brought with them the following papers: respondent
Vera’s aforesaid letter-request; an application for search
warrant already filled up but still unsigned by respondent
De Leon; an affidavit of respondent Logronio subscribed
before respondent De Leon; a deposition in printed form
of respondent Logronio already accomplished and signed
by him but not yet subscribed; and a search warrant
already accomplished but still unsigned by respondent
Judge.
At that time respondent Judge was hearing a certain
case; so, by means of a note, he instructed his Deputy
Clerk of Court to take the depositions of respondents De
Leon and Logronio. After the session had adjourned,
respondent Judge was informed that the depositions had
already been taken. The stenographer, upon request of
respondent Judge, read to him her stenographic notes;
and thereafter, respondent Judge asked respondent
Logronio to take the oath and warned him that if his
deposition was found to be false and without legal basis,
he could be charged for perjury. Respondent Judge
signed respondent de Leon’s application for search
warrant and respondent Logronio’s deposition, Search
Warrant No. 2-M-70 was then sign by respondent Judge
and accordingly issued.
Three days later, or on February 28, 1970, which was a
Saturday, the BIR agents served the search warrant
petitioners at the offices of petitioner corporation on
Ayala Avenue, Makati, Rizal. Petitioners’ lawyers
protested the search on the ground that no formal
complaint or transcript of testimony was attached to the
warrant. The agents nevertheless proceeded with their
search which yielded six boxes of documents.
On March 3, 1970, petitioners filed a petition with the
Court of First Instance of Rizal praying that the search
warrant be quashed, dissolved or recalled, that
preliminary prohibitory and mandatory writs of injunction
be issued, that the search warrant be declared null and
void, and that the respondents be ordered to pay
petitioners, jointly and severally, damages and attorney’s
fees. On March 18, 1970, the respondents, thru the
Solicitor General, filed an answer to the petition. After
hearing, the court, presided over by respondent Judge,
issued on July 29, 1970, an order dismissing the petition
for dissolution of the search warrant. In the meantime, or
on April 16, 1970, the Bureau of Internal Revenue made
tax assessments on petitioner corporation in the total
sum of P2,594,729.97, partly, if not entirely, based on
the documents thus seized. Petitioners came to this
Court.
The petition should be granted for the following
reasons:chanrob1es virtual 1aw library
1. Respondent Judge failed to personally examine the
complainant and his witness.
The pertinent provisions of the Constitution of the
Philippines and of the Revised Rules of Court
are:jgc:chanrobles.com.ph
"(3) The right of the people to be secure in their persons,
houses, papers and effects against unreasonable searches
and seizures shall not be violated, and no warrants shall
issue but upon probable cause, to be determined by the
judge after examination under oath or affirmation of the
complainant and the witnesses he may produce, and
particularly describing the place to be searched, and the
persons or things to be seized." (Art. III, Sec. 1,
Constitution.)
"SEC. 3. Requisites for issuing search warrant. — A
search warrant shall not issue but upon probable cause in
connection with one specific offense to be determined by
the judge or justice of the peace after examination under
oath or affirmation of the complainant and the witnesses
he may produce, and particularly describing the place to
be searched and the persons or things to be seized.
"No search warrant shall issue for more than one specific
offense.
"SEC. 4. Examination of the applicant. — The judge or
justice of the peace must, before issuing the warrant,
personally examine on oath or affirmation the
complainant and any witnesses he may produce and take
their depositions in writing, and attach them to the
record, in addition to any affidavits presented to him."
(Rule 126, Revised Rules of Court.)
The examination of the complainant and the witnesses he
may produce, required by Art. III, Sec. 1, par. 3, of the
Constitution, and by Secs. 3 and 4, Rule 126 of the
Revised Rules of Court, should be conducted by the judge
himself and not by others. The phrase "which shall be
determined by the judge after examination under oath or
affirmation of the complainant and the witnesses he may
produce," appearing in the said constitutional provision,
was introduced by Delegate Francisco as an amendment
to the draft submitted by the Sub-Committee of Seven.
The following discussion in the Constitutional Convention
(Laurel, Proceedings of the Philippine Constitutional
Convention, Vol. III, pp. 755-757) is enlightening:
"MR. LAUREL. . . . The reason why we are in favor of this
amendment is because we are incorporating in our
constitution something of a fundamental character. Now,
before a judge could issue a search warrant, he must be
under the obligation to examine personally under oath
the complainant and if he has any witness, the witnesses
that he may produce . . ."cralaw virtua1aw library
The implementing rule in the Revised Rules of Court, Sec.
4, Rule 126, is more emphatic and candid, for it requires
the judge, before issuing a search warrant, to "personally
examine on oath or affirmation the complainant and any
witnesses he may produce . . ."cralaw virtua1aw library
Personal examination by the judge of the complainant
and his witnesses is necessary to enable him to
determine the existence or non-existence of a probable
cause, pursuant to Art. III, Sec. 1, par. 3, of the
Constitution, and Sec. 3, Rule 126 of the Revised Rules of
Court, both of which prohibit the issuance of warrants
except "upon probable cause." The determination of
whether or not a probable cause exists calls for the
exercise of judgment after a judicial appraisal of facts and
should not be allowed to be delegated in the absence of
any rule to the contrary.
In the case at bar, no personal examination at all was
conducted by respondent Judge of the complainant
(respondent De Leon) and his witness (respondent
Logronio). While it is true that the complainant’s
application for search warrant and the witness’ printed-
form deposition were subscribed and sworn to before
respondent Judge, the latter did not ask either of the two
any question the answer to which could possibly be the
basis for determining whether or not there was probable
cause against herein petitioners. Indeed, the participants
seem to have attached so little significance to the matter
that notes of the proceedings before respondent Judge
were not even taken. At this juncture it may be well to
recall the salient facts. The transcript of stenographic
notes (pp. 61-76, April 1, 1970, Annex J-2 of the Petition)
taken at the hearing of this case in the court below shows
that per instruction of respondent Judge, Mr. Eleodoro V.
Gonzales, Special Deputy Clerk of Court, took the
depositions of the complainant and his witness, and that
stenographic notes thereof were taken by Mrs. Gaspar. At
that time respondent Judge was at the sala hearing a
case. After respondent Judge was through with the
hearing, Deputy Clerk Gonzales, stenographer Gaspar,
complainant De Leon and witness Logronio went to
respondent Judge’s chamber and informed the Judge that
they had finished the depositions. Respondent Judge then
requested the stenographer to read to him her
stenographic notes. Special Deputy Clerk Gonzales
testified as follows:jgc:chanrobles.com.ph
"A And after finishing reading the stenographic notes, the
Honorable Judge requested or instructed them, requested
Mr. Logronio to raise his hand and warned him if his
deposition will be found to be false and without legal
basis, he can be charged criminally for perjury. The
Honorable Court told Mr. Logronio whether he affirms the
facts contained in his deposition and the affidavit
executed before Mr. Rodolfo de Leon.
"Q And thereafter?
"A And thereafter, he signed the deposition of Mr.
Logronio.
"Q Who is this he?
"A The Honorable Judge.
"Q The deposition or the affidavit?
"A The affidavit, Your Honor."cralaw virtua1aw library
Thereafter, respondent Judge signed the search warrant.
The participation of respondent Judge in the proceedings
which led to the issuance of Search Warrant No. 2-M-70
was thus limited to listening to the stenographer’s
readings of her notes, to a few words of warning against
the commission of perjury, and to administering the oath
to the complainant and his witness. This cannot be
consider a personal examination. If there was an
examination at all of the complainant and his witness, it
was the one conducted by the Deputy Clerk of Court. But,
as stated, the Constitution and the rules require a
personal examination by the judge. It was precisely on
account of the intention of the delegates to the
Constitutional Convention to make it a duty of the issuing
judge to personally examine the complainant and his
witnesses that the question of how much time would be
consumed by the judge in examining them came up
before the Convention, as can be seen from the record of
the proceedings quoted above. The reading of the
stenographic notes to respondent Judge did not constitute
sufficient compliance with the constitutional mandate and
the rule; for by that manner respondent Judge did not
have the opportunity to observe the demeanor of the
complainant and his witness, and to propound initial and
follow-up questions which the judicial mind, on account of
its training, was in the best position to conceive. These
were important in arriving at a sound inference on the all-
important question of whether or not there was probable
cause.
2. The search warrant was issued for more than one
specific offense.
Search Warrant No. 2-M-70 was issued for" [v]iolation of
Sec. 46(a) of the National Internal Revenue Code in
relation to all other pertinent provisions thereof
particularly Secs. 53, 72, 73, 208 and 209." The question
is: Was the said search warrant issued "in connection
with one specific offense," as required by Sec. 3, Rule
126?
To arrive at the correct answer it is essential to examine
closely the provisions of the Tax Code referred to above.
Thus we find the following:chanrob1es virtual 1aw library
Sec. 46(a) requires the filing of income tax returns by
corporations.
Sec. 53 requires the withholding of income taxes at
source.
Sec. 72 imposes surcharges for failure to render income
tax returns and for rendering false and fraudulent
returns.
Sec. 73 provides the penalty for failure to pay the income
tax, to make a return or to supply the information
required under the Tax Code.

Sec. 208 penalizes" [a]ny person who distills, rectifies,
repacks, compounds, or manufactures any article subject
to a specific tax, without having paid the privilege tax
therefore, or who aids or abets in the conduct of illicit
distilling, rectifying, compounding, or illicit manufacture
of any article subject to specific tax . . .," and provides
that in the case of a corporation, partnership, or
association, the official and/or employee who caused the
violation shall be responsible.
Sec. 209 penalizes the failure to make a return of
receipts, sales, business, or gross value of output
removed, or to pay the tax due thereon.
The search warrant in question was issued for at least
four distinct offenses under the Tax Code. The first is the
violation of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of
income tax returns), which are interrelated. The second is
the violation of Sec. 53 (withholding of income taxes at
source). The third is the violation of Sec. 208 (unlawful
pursuit of business or occupation); and the fourth is the
violation of Sec. 209 (failure to make a return of receipts,
sales, business or gross value of output actually removed
or to pay the tax due thereon). Even in their classification
the six above-mentioned provisions are embraced in two
different titles: Secs. 46(a), 53, 72 and 73 are under Title
II (Income Tax); while Secs. 208 and 209 are under Title
V (Privilege Tax on Business and Occupation).
Respondents argue that Stonehill, Et. Al. v. Diokno, Et
Al., L-19550, June 19, 1967 (20 SCRA 383), is not
applicable, because there the search warrants were
issued for "violation of Central Bank Laws, Internal
Revenue (Code) and Revised Penal Code;" whereas, here
Search Warrant No 2-M-70 was issued for violation of
only one code, i.e., the National Internal Revenue Code.
The distinction more apparent than real, because it was
precisely on account of the Stonehill incident, which
occurred sometime before the present Rules of Court took
effect on January 1, 1964, that this Court amended the
former rule by inserting therein the phrase "in connection
with one specific offense," and adding the sentence "No
search warrant shall issue for more than one specific
offense," in what is now Sec. 3, Rule 126. Thus we said in
Stonehill:jgc:chanrobles.com.ph
"Such is the seriousness of the irregularities committed in
connection with the disputed search warrants, that this
Court deemed it fit to amend Section 3 of Rule 122 of the
former Rules of Court that ‘a search warrant shall not
issue but upon probable cause in connection with one
specific offense.’ Not satisfied with this qualification, the
Court added thereto a paragraph, directing that ‘no
search warrant shall issue for more than one specific
offense.’"
3. The search warrant does not particularly describe the
things to be seized.
The documents, papers and effects sought to be seized
are described in Search Warrant No. 2-M-70 in this
manner:jgc:chanrobles.com.ph
"Unregistered and private books of accounts (ledgers,
journals, columnars, receipts and disbursements books,
customers ledgers); receipts for payments received;
certificates of stocks and securities; contracts, promissory
notes and deeds of sale; telex and coded messages;
business communications, accounting and business
records; checks and check stubs; records of bank
deposits and withdrawals; and records of foreign
remittances, covering the years 1966 to 1970."cralaw
virtua1aw library
The description does not meet the requirement in Art III,
Sec. 1, of the Constitution, and of Sec. 3, Rule 126 of the
Revised Rules of Court, that the warrant should
particularly describe the things to be seized.
In Stonehill, this Court, speaking thru Mr. Chief Justice
Roberto Concepcion, said:jgc:chanrobles.com.ph
"The grave violation of the Constitution made in the
application for the contested search warrants was
compounded by the description therein made of the
effects to be searched for and seized, to wit:chanrob1es
virtual 1aw library
‘Books of accounts, financial records, vouchers, journals,
correspondence, receipts, ledgers, portfolios, credit
journals, typewriters, and other documents and/or paper
showing all business transactions including disbursement
receipts, balance sheets and related profit and loss
statements.’
"Thus, the warrants authorized the search for and seizure
of records pertaining to all business transactions of
petitioners herein, regardless of whether the transactions
were legal or illegal. The warrants sanctioned the seizure
of all records of the petitioners and the aforementioned
corporations, whatever their nature, thus openly
contravening the explicit command of our Bill of Rights —
that the things to be seized be particularly described —
as well as tending to defeat its major objective: the
elimination of general warrants."cralaw virtua1aw library
While the term "all business transactions" does not
appear in Search Warrant No. 2-M-70, the said warrant
nevertheless tends to defeat the major objective of the
Bill of Rights, i.e., the elimination of general warrants, for
the language used therein is so all-embracing as to
include all conceivable records of petitioner corporation,
which, if seized, could possibly render its business
inoperative.
In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil.
886, 896, this Court had occasion to explain the purpose
of the requirement that the warrant should particularly
describe the place to be searched and the things to be
seized, to wit:jgc:chanrobles.com.ph
". . . Both the Jones Law (sec. 3) and General Orders No.
58 (sec. 97) specifically require that a search warrant
should particularly describe the place to be searched and
the things to be seized. The evident purpose and intent of
this requirement is to limit the things to be seized to
those, and only those, particularly described in the search
warrant — to leave the officers of the law with no
discretion regarding what articles they shall seize, to the
end that ‘unreasonable searches and seizures’ may not be
made, — that abuses may not be committed. That this is
the correct interpretation of this constitutional provision is
borne out by American authorities."cralaw virtua1aw
library
The purpose as thus explained could, surely and
effectively, be defeated under the search warrant issued
in this case.
A search warrant may be said to particularly describe the
things to be seized when the description therein is as
specific as the circumstances will ordinarily allow (People
v. Rubio; 57 Phil. 384); or when the description
expresses a conclusion of fact — not of law — by which
the warrant officer may be guided in making the search
and seizure (idem., dissent of Abad Santos, J.,); or when
the things described are limited to those which bear
direct relation to the offense for which the warrant is
being issued (Sec. 2, Rule 126, Revised Rules of Court).
The herein search warrant does not conform to any of the
foregoing tests. If the articles desired to be seized have
any direct relation to an offense committed, the applicant
must necessarily have some evidence, other than those
articles, to prove the said offense; and the articles
subject of search and seizure should come in handy
merely to strengthen such evidence. In this event, the
description contained in the herein disputed warrant
should have mentioned, at least, the dates, amounts,
persons, and other pertinent data regarding the receipts
of payments, certificates of stocks and securities,
contracts, promissory notes, deeds of sale, messages and
communications, checks, bank deposits and withdrawals,
records of foreign remittances, among others,
enumerated in the warrant.
Respondents contend that certiorari does not lie because
petitioners failed to file a motion for reconsideration of
respondent Judge’s order of July 29, 1970. The
contention is without merit. In the first place, when the
questions raised before this Court are the same as those
which were squarely raised in and passed upon by the
court below, the filing of a motion for reconsideration in
said court before certiorari can be instituted in this Court
is no longer a prerequisite. (Pajo, etc., Et. Al. v. Ago, Et
Al., 108 Phil., 905). In the second place, the rule
requiring the filing of a motion for reconsideration before
an application for a writ of certiorari can be entertained
was never intended to be applied without considering the
circumstances. (Matutina v. Buslon, Et Al., 109 Phil.,
140.) In the case at bar time is of the essence in view of
the tax assessments sought to be enforced by respondent
officers of the Bureau of Internal Revenue against
petitioner corporation, On account of which immediate
and more direct action becomes necessary. (Matute v.
Court of Appeals, Et Al., 26 SCRA 768.) Lastly, the rule
does not apply where, as in this case, the deprivation of
petitioners’ fundamental right to due process taints the
proceeding against them in the court below not only with
irregularity but also with nullity. (Matute v. Court of
Appeals, Et Al., supra.)
It is next contended by respondents that a corporation is
not entitled to protection against unreasonable search
and seizures. Again, we find no merit in the contention.
"Although, for the reasons above stated, we are of the
opinion that an officer of a corporation which is charged
with a violation of a statute of the state of its creation, or
of an act of Congress passed in the exercise of its
constitutional powers, cannot refuse to produce the books
and papers of such corporation, we do not wish to be
understood as holding that a corporation is not entitled to
immunity, under the 4th Amendment, against
unreasonable searches and seizures. A corporation is,
after all, but an association of individuals under an
assumed name and with a distinct legal entity. In
organizing itself as a collective body it waives no
constitutional immunities appropriate to such body. Its
property cannot be taken without compensation. It can
only be proceeded against by due process of law, and is
protected, under the 14th Amendment, against unlawful
discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L.
ed. 652.)
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476,
480, it was thought that a different rule applied to a
corporation, the ground that it was not privileged from
producing its books and papers. But the rights of a
corporation against unlawful search and seizure are to be
protected even if the same result might have been
achieved in a lawful way." (Silverthorne Lumber
Company, Et. Al. v. United States of America, 251 U.S.
385, 64 L. ed. 319.)
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court
impliedly recognized the right of a corporation to object
against unreasonable searches and seizures,
thus:jgc:chanrobles.com.ph
"As regards the first group, we hold that petitioners
herein have no cause of action to assail the legality of the
contested warrants and of the seizures made in
pursuance thereof, for the simple reason that said
corporations have their respective personalities, separate
and distinct from the personality of herein petitioners,
regardless of the amount of shares of stock or the
interest of each of them in said corporations, whatever,
the offices they hold therein may be. Indeed, it is well
settled that the legality of a seizure can be contested only
by the party whose rights have been impaired thereby,
and that the objection to an unlawful search and seizure
is purely personal and cannot be availed of by third
parties. Consequently, petitioners herein may not validly
object to the use in evidence against them of the
documents, papers and things seized from the offices and
premises of the corporations adverted to above, since the
right to object to the admission of said papers in evidence
belongs exclusively to the corporations, to whom the
seized effects belong, and may not be invoked by the
corporate officers in proceedings against them in their
individual capacity . . ."cralaw virtua1aw library
In the Stonehill case only the officers of the various
corporations in whose offices documents, papers and
effects were searched and seized were the petitioners. In
the case at bar, the corporation to whom the seized
documents belong, and whose rights have thereby been
impaired, is itself a petitioner. On that score, petitioner
corporation here stands on a different footing from the
corporations in Stonehill.
The tax assessments referred to earlier in this opinion
were, if not entirely — as claimed by petitioners — at
least partly — as in effect admitted by respondents —
based on the documents seized by virtue of Search
Warrant No. 2-M-70. Furthermore, the fact that the
assessments were made some one and one-half months
after the search and seizure on February 25, 1970, is a
strong indication that the documents thus seized served
as basis for the assessments. Those assessments should
therefore not be enforced.
PREMISES CONSIDERED, the petition is granted.
Accordingly, Search Warrant No. 2-M-70 issued by
respondent Judge is declared null and void; respondents
are permanently enjoined from enforcing the said search
warrant; the documents, papers and effects seized
thereunder are ordered to be returned to petitioners; and
respondent officials the Bureau of Internal Revenue and
their representatives are permanently enjoined from
enforcing the assessments mentioned in Annex "G" of the
present petition, as well as other assessments based on
the documents, papers and effects seized under the
search warrant herein nullified, and from using the same
against petitioners in any criminal or other proceeding.
No pronouncement as to costs
 G.R. No. L-31061 August 17, 1976
SULO NG BAYAN INC., Plaintiff-
Appellant, v. GREGORIO ARANETA, INC., PARADISE
FARMS, INC., NATIONAL WATERWORKS &
SEWERAGE AUTHORITY, HACIENDA CARETAS, INC,
and REGISTER OF DEEDS OF BULACAN, defendants-
appellees.
The issue posed in this appeal is whether or not plaintiff
corporation (non- stock may institute an action in behalf
of its individual members for the recovery of certain
parcels of land allegedly owned by said members; for the
nullification of the transfer certificates of title issued in
favor of defendants appellees covering the aforesaid
parcels of land; for a declaration of "plaintiff's members
as absolute owners of the property" and the issuance of
the corresponding certificate of title; and for
damages.
chanroblesvirtualawlibrary chanrobles virtual law library
On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc.
filed an accion de revindicacion with the Court of First
Instance of Bulacan, Fifth Judicial District, Valenzuela,
Bulacan, against defendants-appellees to recover the
ownership and possession of a large tract of land in San
Jose del Monte, Bulacan, containing an area of
27,982,250 square meters, more or less, registered
under the Torrens System in the name of defendants-
appellees' predecessors-in-interest. 1 The complaint, as
amended on June 13, 1966, specifically alleged that
plaintiff is a corporation organized and existing under the
laws of the Philippines, with its principal office and place
of business at San Jose del Monte, Bulacan; that its
membership is composed of natural persons residing at
San Jose del Monte, Bulacan; that the members of the
plaintiff corporation, through themselves and their
predecessors-in-interest, had pioneered in the clearing of
the fore-mentioned tract of land, cultivated the same
since the Spanish regime and continuously possessed the
said property openly and public under concept of
ownership adverse against the whole world; that
defendant-appellee Gregorio Araneta, Inc., sometime in
the year 1958, through force and intimidation, ejected
the members of the plaintiff corporation fro their
possession of the aforementioned vast tract of land; that
upon investigation conducted by the members and
officers of plaintiff corporation, they found out for the first
time in the year 1961 that the land in question "had been During the pendency of the motion to dismiss, plaintiff-
either fraudelently or erroneously included, by direct or appellant filed a motion, dated October 7, 1966, praying
constructive fraud, in Original Certificate of Title No. 466 that the case be transferred to another branch of the
of the Land of Records of the province of Bulacan", issued Court of First Instance sitting at Malolos, Bulacan,
on May 11, 1916, which title is fictitious, non-existent According to defendants-appellees, they were not
and devoid of legal efficacy due to the fact that "no furnished a copy of said motion, hence, on October 14,
original survey nor plan whatsoever" appears to have 1966, the lower court issued an Order requiring plaintiff-
been submitted as a basis thereof and that the Court of appellant to furnish the appellees copy of said motion,
First Instance of Bulacan which issued the decree of hence, on October 14, 1966, defendant-appellant's
registration did not acquire jurisdiction over the land motion dated October 7, 1966 and, consequently, prayed
registration case because no notice of such proceeding that the said motion be denied for lack of notice and for
was given to the members of the plaintiff corporation who failure of the plaintiff-appellant to comply with the Order
were then in actual possession of said properties; that as of October 14, 1966. Similarly, defendant-appellee
a consequence of the nullity of the original title, all paradise Farms, Inc. filed, on December 2, 1966, a
subsequent titles derived therefrom, such as Transfer manifestation information the court that it also did not
Certificate of Title No. 4903 issued in favor of Gregorio receive a copy of the afore-mentioned of appellant. On
Araneta and Carmen Zaragoza, which was subsequently January 24, 1967, the trial court issued an Order
cancelled by Transfer Certificate of Title No. 7573 in the dismissing the amended complaint.
chanroblesvirtualawlibrary chanrobles virtual law library
name of Gregorio Araneta, Inc., Transfer Certificate of
Title No. 4988 issued in the name of, the National On February 14, 1967, appellant filed a motion to
Waterworks & Sewerage Authority (NWSA), Transfer reconsider the Order of dismissal on the grounds that the
Certificate of Title No. 4986 issued in the name of court had no jurisdiction to issue the Order of dismissal,
Hacienda Caretas, Inc., and another transfer certificate of because its request for the transfer of the case from the
title in the name of Paradise Farms, Inc., are therefore Valenzuela Branch of the Court of First Instance to the
void. Plaintiff-appellant consequently prayed (1) that Malolos Branch of the said court has been approved by
Original Certificate of Title No. 466, as well as all transfer the Department of Justice; that the complaint states a
certificates of title issued and derived therefrom, be sufficient cause of action because the subject matter of
nullified; (2) that "plaintiff's members" be declared as the controversy in one of common interest to the
absolute owners in common of said property and that the members of the corporation who are so numerous that
corresponding certificate of title be issued to plaintiff; and the present complaint should be treated as a class suit;
(3) that defendant-appellee Gregorio Araneta, Inc. be and that the action is not barred by the statute of
ordered to pay to plaintiff the damages therein limitations because (a) an action for the reconveyance of
specified.chanroblesvirtualawlibrary chanrobles virtual law library
property registered through fraud does not prescribe, and
(b) an action to impugn a void judgment may be brought
On September 2, 1966, defendant-appellee Gregorio any time. This motion was denied by the trial court in its
Araneta, Inc. filed a motion to dismiss the amended Order dated February 22, 1967. From the afore-
complaint on the grounds that (1) the complaint states no mentioned Order of dismissal and the Order denying its
cause of action; and (2) the cause of action, if any, is motion for reconsideration, plaintiff-appellant appealed to
barred by prescription and laches. Paradise Farms, Inc. the Court of Appeals.
chanroblesvirtualawlibrary chanrobles virtual law library
and Hacienda Caretas, Inc. filed motions to dismiss based
on the same grounds. Appellee National Waterworks & On September 3, 1969, the Court of Appeals, upon
Sewerage Authority did not file any motion to dismiss. finding that no question of fact was involved in the appeal
However, it pleaded in its answer as special and but only questions of law and jurisdiction, certified this
affirmative defenses lack of cause of action by the case to this Court for resolution of the legal issues
plaintiff-appellant and the barring of such action by involved in the controversy.
prescription and laches.
chanroblesvirtualawlibrary chanrobles virtual law library
chanroblesvirtualawlibrary chanrobles virtual law library
I chanrobles virtual law library
Appellant contends, as a first assignment of error, that is composed of two elements: (1) the right of the plaintiff
the trial court acted without authority and jurisdiction in and (2) the violation of such right by the defendant.
dismissing the amended complaint when the Secretary of (Moran, Vol. 1, p. 111). For these reasons, the rules
Justice had already approved the transfer of the case to require that every action must be prosecuted and
any one of the two branches of the Court of First Instance defended in the name of the real party in interest and
of Malolos, Bulacan. chanroblesvirtualawlibrary chanrobles virtual law library that all persons having an interest in the subject of the
action and in obtaining the relief demanded shall be
Appellant confuses the jurisdiction of a court and the joined as plaintiffs (Sec. 2, Rule 3). In the amended
venue of cases with the assignment of cases in the complaint, the people whose rights were alleged to have
different branches of the same Court of First Instance. been violated by being deprived and dispossessed of their
Jurisdiction implies the power of the court to decide a land are the members of the corporation and not the
case, while venue the place of action. There is no corporation itself. The corporation has a separate. and
question that respondent court has jurisdiction over the distinct personality from its members, and this is not a
case. The venue of actions in the Court of First Instance mere technicality but a matter of substantive law. There
is prescribed in Section 2, Rule 4 of the Revised Rules of is no allegation that the members have assigned their
Court. The laying of venue is not left to the caprice of rights to the corporation or any showing that the
plaintiff, but must be in accordance with the aforesaid corporation has in any way or manner succeeded to such
provision of the rules. 2 The mere fact that a request for rights. The corporation evidently did not have any rights
the transfer of a case to another branch of the same violated by the defendants for which it could seek
court has been approved by the Secretary of Justice does redress. Even if the Court should find against the
not divest the court originally taking cognizance thereof defendants, therefore, the plaintiff corporation would not
of its jurisdiction, much less does it change the venue of be entitled to the reliefs prayed for, which are recoveries
the action. As correctly observed by the trial court, the of ownership and possession of the land, issuance of the
corresponding title in its name, and payment of damages.
indorsement of the Undersecretary of Justice did not
order the transfer of the case to the Malolos Branch of the Neither can such reliefs be awarded to the members
Bulacan Court of First Instance, but only "authorized" it allegedly deprived of their land, since they are not parties
for the reason given by plaintiff's counsel that the to the suit. It appearing clearly that the action has not
transfer would be convenient for the parties. The trial been filed in the names of the real parties in interest, the
court is not without power to either grant or deny the complaint must be dismissed on the ground of lack of
motion, especially in the light of a strong opposition cause of action. 3
thereto filed by the defendant. We hold that the court a
quo acted within its authority in denying the motion for Viewed in the light of existing law and jurisprudence, We
the transfer the case to Malolos notwithstanding the find that the trial court correctly dismissed the amended
authorization" of the same by the Secretary of complaint. chanroblesvirtualawlibrary chanrobles virtual law library
Justice. chanroblesvirtualawlibrary chanrobles virtual law library
It is a doctrine well-established and obtains both at law
II  chanrobles virtual law library and in equity that a corporation is a distinct legal entity to
be considered as separate and apart from the individual
Let us now consider the substantive aspect of the Order stockholders or members who compose it, and is not
of dismissal. affected by the personal rights, obligations and
transactions of its stockholders or members. 4 The
chanroblesvirtualawlibrary chanrobles virtual law library
property of the corporation is its property and not that of
In dismissing the amended complaint, the court a
the stockholders, as owners, although they have equities
quo said:
in it. Properties registered in the name of the corporation
are owned by it as an entity separate and distinct from its
The issue of lack of cause of action raised in the motions members. 5 Conversely, a corporation ordinarily has no
to dismiss refer to the lack of personality of plaintiff to file interest in the individual property of its stockholders
the instant action. Essentially, the term 'cause of action' unless transferred to the corporation, "even in the case of
a one-man corporation. 6 The mere fact that one is
president of a corporation does not render the property
which he owns or possesses the property of the
corporation, since the president, as individual, and the
corporation are separate similarities. 7 Similarly,
stockholders in a corporation engaged in buying and
dealing in real estate whose certificates of stock entitled
the holder thereof to an allotment in the distribution of
the land of the corporation upon surrender of their stock
certificates were considered not to have such legal or
equitable title or interest in the land, as would support a
suit for title, especially against parties other than the
corporation. 8 
chanrobles virtual law library
It must be noted, however, that the juridical personality
of the corporation, as separate and distinct from the
persons composing it, is but a legal fiction introduced for
the purpose of convenience and to subserve the ends of
justice. 9 This separate personality of the corporation may
be disregarded, or the veil of corporate fiction pierced, in
cases where it is used as a cloak or cover for fraud or
illegality, or to work -an injustice, or where necessary to
achieve equity. 10 
chanrobles virtual law library
Thus, when "the notion of legal entity is used to defeat
public convenience, justify wrong, protect fraud, or
defend crime, ... the law will regard the corporation as an
association of persons, or in the case of two corporations,
merge them into one, the one being merely regarded as
part or instrumentality of the other. 11 The same is true
where a corporation is a dummy and serves no business
purpose and is intended only as a blind, or an alter ego or
business conduit for the sole benefit of the
stockholders. 12 This doctrine of disregarding the distinct
personality of the corporation has been applied by the
courts in those cases when the corporate entity is used
for the evasion of taxes 13 or when the veil of corporate
fiction is used to confuse legitimate issue of employer-
employee relationship, 14 or when necessary for the
protection of creditors, in which case the veil of corporate
fiction may be pierced and the funds of the corporation
may be garnished to satisfy the debts of a principal
stockholder. 15 The aforecited principle is resorted to by
the courts as a measure protection for third parties to
prevent fraud, illegality or injustice. 16  chanrobles virtual law library
It has not been claimed that the members have assigned
or transferred whatever rights they may have on the land
in question to the plaintiff corporation. Absent any The interest that will allow parties to join in a bill of
showing of interest, therefore, a corporation, like plaintiff- complaint, or that will enable the court to dispense with
appellant herein, has no personality to bring an action for the presence of all the parties, when numerous, except a
and in behalf of its stockholders or members for the determinate number, is not only an interest in the
purpose of recovering property which belongs to said question, but one in common in the subject Matter of the
stockholders or members in their personal capacities.
virtual law library
chanroblesvirtualawlibrary chanrobles suit; ... a community of interest growing out of the nature
and condition of the right in dispute; for, although there
It is fundamental that there cannot be a cause of action may not be any privity between the numerous parties,
'without an antecedent primary legal right conferred' by there is a common title out of which the question arises,
law upon a person. 17 Evidently, there can be no wrong and which lies at the foundation of the proceedings ...
without a corresponding right, and no breach of duty by [here] the only matter in common among the plaintiffs,
one person without a corresponding right belonging to or between them and the defendants, is an interest in the
some other person. 18 Thus, the essential elements of a Question involved which alone cannot lay a foundation for
cause of action are legal right of the plaintiff, correlative the joinder of parties. There is scarcely a suit at law, or in
obligation of the defendant, an act or omission of the equity which settles a Principle or applies a principle to a
defendant in violation of the aforesaid legal given state of facts, or in which a general statute is
right. 19 Clearly, no right of action exists in favor of interpreted, that does not involved a Question in which
plaintiff corporation, for as shown heretofore it does not other parties are interested. ... (Emphasis supplied )
have any interest in the subject matter of the case which
is material and, direct so as to entitle it to file the suit as Here, there is only one party plaintiff, and the plaintiff
a real party in interest. chanroblesvirtualawlibrary chanrobles virtual law library
corporation does not even have an interest in the subject
matter of the controversy, and cannot, therefore,
III represent its members or stockholders who claim to own
in their individual capacities ownership of the said
chanrobles virtual law library

property. Moreover, as correctly stated by the appellees,

Appellant maintains, however, that the amended a class suit does not lie in actions for the recovery of
complaint may be treated as a class suit, pursuant to property where several persons claim Partnership of their
Section 12 of Rule 3 of the Revised Rules of Court. chanroblesvirtualawlibrary chanrobles virtual law library

respective portions of the property, as each one could

alleged and prove his respective right in a different way
In order that a class suit may prosper, the following for each portion of the land, so that they cannot all be
requisites must be present: (1) that the subject matter of held to have Identical title through acquisition
the controversy is one of common or general interest to prescription. 23 
chanrobles virtual law library

many persons; and (2) that the parties are so numerous

that it is impracticable to bring them all before the Having shown that no cause of action in favor of the
court. 20  chanrobles virtual law library

plaintiff exists and that the action in the lower court

cannot be considered as a class suit, it would be
Under the first requisite, the person who sues must have unnecessary and an Idle exercise for this Court to resolve
an interest in the controversy, common with those for the remaining issue of whether or not the plaintiffs action
whom he sues, and there must be that unity of interest for reconveyance of real property based upon
between him and all such other persons which would constructive or implied trust had already prescribed. chanroblesvirtualawlibrary chanrobles virtual law

entitle them to maintain the action if suit was brought by

library

them jointly. 21 
ACCORDINGLY, the instant appeal is hereby DISMISSED
chanrobles virtual law library

with costs against the plaintiff-appellant.

As to what constitutes common interest in the subject
matter of the controversy, it has been explained in Scott
v. Donald 22 thus:
ALFREDO CHING,cralawG. R. No. 164317 When the trust receipts matured, petitioner failed to
Petitioner, 1824 11-28-80 02-26-81 P707,879.71
v.   return the goods to respondent bank, or to return their
THE SECRETARY OF JUSTICE, value amounting to P6,940,280.66 despite demands.
ASST. CITY PROSECUTOR 1798 11-21-80 02-19-81 P835,526.25
Thus, the bank filed a criminal complaint
CECILYN BURGOS-VILLAVERT,
JUDGE EDGARDO SUDIAM ofcralawcralawPromulgated: 1808 11-21-80 02-19-81 P370,332.52 for estafa[6] against petitioner in the Office of the City
the Regional Trial Court, Manila, Prosecutor of Manila.
Branch 52; RIZAL COMMERCIALcralawFebruary 6, 2006 2042 01-30-81 04-30-81 P469,669.29  
BANKING CORP. and THE PEOPLE
After the requisite preliminary investigation, the City
OF THE PHILIPPINES, 1801 11-21-80 02-19-81 P2,001,715.17
Respondents.cralawcralawcralaw Prosecutor found probable cause estafa under Article
x--------------------------------------------------------------- 315, paragraph 1(b) of the Revised Penal Code, in
x
relation to Presidential Decree (P.D.) No. 115, otherwise
cralaw Before the Court is a petition for review 1857 12-09-80 03-09-81 P197,843.61
known as the Trust Receipts Law. Thirteen (13)
on certiorari of the Decision[1] of the Court of Appeals
Informations were filed against the petitioner before the
(CA) in CA-G.R. SP No. 57169 dismissing the petition 1895 12-17-80 03-17-81 P67,652.04 Regional Trial Court (RTC) of Manila. The cases were
for certiorari, prohibition and mandamus filed by 1911 12-22-80 03-20-81 P91,497.85
docketed as Criminal Cases No. 86-42169 to 86-42181,
petitioner Alfredo Ching, and its Resolution[2] dated June 2041 01-30-81 04-30-81 P91,456.97
2099 02-10-81 05-11-81 P66,162.26 raffled to Branch 31 of said court.
28, 2004 denying the motion for reconsideration thereof.  
  Petitioner appealed the resolution of the City
2100 02-10-81 05-12-81 P210,748.00 cralaw

cralaw Petitioner was the Senior Vice-President of Philippine Prosecutor to the then Minister of Justice. The appeal was
Blooming Mills, Inc. (PBMI). Sometime in September to dismissed in a Resolution[7] dated March 17, 1987, and
October 1980, PBMI, through petitioner, applied with the  
petitioner moved for its reconsideration. On December
 
Rizal Commercial Banking Corporation (respondent bank) 23, 1987, the Minister of Justice granted the motion, thus
cralaw Under the receipts, petitioner agreed to hold the
for the issuance of commercial letters of credit to finance reversing the
goods in trust for the said bank, with authority to sell but
its importation of assorted goods.[3]chanroblesvirtuallawlibrary previous resolution finding probable cause against
  not by way of conditional sale, pledge or otherwise; and
Respondent bank approved the application, and petitioner.[8] The City Prosecutor was ordered to move
in case such goods were sold, to turn over the proceeds
irrevocable letters of credit were issued in favor of for the withdrawal of the Informations.
thereof as soon as received, to apply against the relative
 
petitioner. The goods were purchased and delivered in acceptances and payment of other indebtedness to
This time, respondent bank filed a motion for
trust to PBMI. Petitioner signed 13 trust receipts[4] as respondent bank. In case the goods remained unsold
reconsideration, which, however, was denied on February
surety, acknowledging delivery of the following goods: within the specified period, the goods were to be returned
24, 1988.[9]The RTC, for its part, granted the Motion to
T/R Date Maturity to respondent bank without any need of demand. Thus,
Nos. Granted Date Principal Quash the Informations filed by petitioner on the ground
said 'goods, manufactured products or proceeds thereof,
that the material allegations therein did not amount
1845 12-05-80 03-05-81 P1,596,470.05 whether in the form of money or bills, receivables, or
to estafa.[10]chanroblesvirtuallawlibrary
accounts separate and capable of identification were  
1853 12-08-80 03-06-81 P198,150.67 respondent bank's property. In the meantime, the Court rendered judgment in Allied
 
Banking Corporation v. Ordoez,[11] holding that the penal
provision of P.D. No. 115 encompasses any act violative
of an obligation covered by the trust receipt; it is not the offense. Thus, the execution of said receipts is Branch 52 of said court. Petitioner filed a motion for
limited to transactions involving goods which are to be enough to indict the petitioner as the official responsible reconsideration, which the Secretary of Justice denied in
sold (retailed), reshipped, stored or processed as a for violation of P.D. No. 115. The Justice Secretary also a Resolution[18] dated January 17, 2000.
component of a product ultimately sold. The Court also declared that petitioner could not contend that P.D. No.  

ruled that 'the non-payment of the amount covered by a 115 covers only goods ultimately destined for sale, as this Petitioner then filed a petition for certiorari, prohibition

trust receipt is an act violative of the obligation of the issue had already been settled in Allied Banking and mandamus with the CA, assailing the resolutions of

entrustee to pay.[12] Corporation v. Ordoez,[16] where the Court ruled that the Secretary of Justice on the following grounds:
   
P.D. No. 115 is 'not limited to transactions in goods which 1. THE RESPONDENTS ARE ACTING WITH
On February 27, 1995, respondent bank re-filed the are to be sold (retailed), reshipped, stored or processed AN UNEVEN HAND AND IN FACT, ARE
criminal complaint for estafa against petitioner before the ACTING OPPRESSIVELY AGAINST
as a component of a product ultimately sold but covers
ALFREDO CHING WHEN THEY ALLOWED
Office of the City Prosecutor of Manila. The case was failure to turn over the proceeds of the sale of entrusted HIS PROSECUTION DESPITE THE FACT
docketed as I.S. No. 95B-07614. goods, or to return said goods if unsold or not otherwise THAT NO EVIDENCE HAD BEEN
  PRESENTED TO PROVE HIS
disposed of in accordance with the terms of the trust
cralaw Preliminary investigation ensued. On December 8, PARTICIPATION IN THE ALLEGED
receipts. TRANSACTIONS.
1995, the City Prosecutor ruled that there was no    
probable cause to charge petitioner with violating P.D. The Justice Secretary further stated that the respondent 2. THE RESPONDENT SECRETARY OF
No. 115, as petitioner's liability was only civil, not JUSTICE COMMITTED AN ACT IN GRAVE
bound himself under the terms of the trust receipts not ABUSE OF DISCRETION AND IN EXCESS
criminal, having signed the trust receipts as surety. only as a corporate official of PBMI but also as its surety; OF HIS JURISDICTION WHEN THEY
[13]Respondent bank appealed the resolution to the CONTINUED PROSECUTION OF THE
hence, he could be proceeded against in two (2)
PETITIONER DESPITE THE LENGTH OF
Department of Justice (DOJ) via petition for review, ways: first, as surety as determined by the Supreme TIME INCURRED IN THE TERMINATION
alleging that the City Prosecutor erred in ruling: Court in its decision in Rizal Commercial Banking OF THE PRELIMINARY INVESTIGATION
  THAT SHOULD JUSTIFY THE DISMISSAL
1. That there is no evidence to show that Corporation v. Court of Appeals;[17] and second, as the
OF THE INSTANT CASE.
respondent participated in the corporate official responsible for the offense under P.D.  
misappropriation of the goods subject of 3. THE RESPONDENT SECRETARY OF
No. 115, via criminal prosecution. Moreover, P.D. No. 115
the trust receipts; JUSTICE AND ASSISTANT CITY
2. That the respondent is a mere surety explicitly allows the prosecution of corporate officers PROSECUTOR ACTED IN GRAVE ABUSE
of the trust receipts; and 'without prejudice to the civil liabilities arising from the OF DISCRETION AMOUNTING TO AN
  EXCESS OF JURISDICTION WHEN THEY
criminal offense. Thus, according to the Justice Secretary,
3. That the liability of the respondent is CONTINUED THE PROSECUTION OF THE
only civil in nature.[14]chanroblesvirtuallawlibrary following Rizal Commercial Banking Corporation, the civil PETITIONER DESPITE LACK OF
  liability imposed is clearly separate and distinct from the SUFFICIENT BASIS.[19]chanroblesvirtuallawlibrary
 
criminal liability of the accused under P.D. No. 115.  
On July 13, 1999, the Secretary of Justice issued   cralaw In his petition, petitioner incorporated a certification
Resolution No. 250[15] granting the petition and Conformably with the Resolution of the Secretary of stating that 'as far as this Petition is concerned, no action
reversing the assailed resolution of the City Justice, the City Prosecutor filed 13 Informations against or proceeding in the Supreme Court, the Court of Appeals
Prosecutor.According to the Justice Secretary, the petitioner for violation of P.D. No. 115 before the RTC of or different divisions thereof, or any tribunal or agency. It
petitioner, as Senior Vice-President of PBMI, executed the Manila.The cases were docketed as Criminal Cases No. is finally certified that if the affiant should learn that a
13 trust receipts and as such, was the one responsible for 99-178596 to 99-178608 and consolidated for trial before similar action or proceeding has been filed or is pending
before the Supreme Court, the Court of Appeals, or
different divisions thereof, of any other tribunal or
agency, it hereby undertakes to notify this Honorable
Court within five (5) days from such notice.[20]
cralaw
In its Comment on the petition, the Office of the Solicitor
General alleged that -
A.
THE HONORABLE SECRETARY OF JUSTICE
CORRECTLY RULED THAT PETITIONER
ALFREDO CHING IS THE OFFICER
RESPONSIBLE FOR THE OFFENSE
CHARGED AND THAT THE ACTS OF
PETITIONER FALL WITHIN THE AMBIT OF
VIOLATION OF P.D. [No.] 115 IN
RELATION TO ARTICLE 315, PAR. 1(B) OF
THE REVISED PENAL CODE.
 
B.
THERE IS NO MERIT IN PETITIONER'S
CONTENTION THAT EXCESSIVE DELAY
HAS MARRED THE CONDUCT OF THE
PRELIMINARY INVESTIGATION OF THE
CASE, JUSTIFYING ITS DISMISSAL.
 
C.
 
THE PRESENT SPECIAL CIVIL ACTION
FOR CERTIORARI, PROHIBITION AND
MANDAMUS IS NOT THE PROPER MODE
OF REVIEW FROM THE RESOLUTION OF
THE DEPARTMENT OF JUSTICE. THE
PRESENT PETITION MUST THEREFORE BE
DISMISSED.[21]chanroblesvirtuallawlibrary
On April 22, 2004, the CA rendered judgment dismissing
the petition for lack of merit, and on procedural
grounds.On the procedural issue, it ruled that (a) the
certification of non-forum shopping executed by petitioner
and incorporated in the petition was defective for failure
to comply with the first two of the three-fold undertakings
prescribed in Rule 7, Section 5 of theRevised Rules of
Civil Procedure; and (b) the petition for certiorari, The petitioner avers that the CA erred in dismissing his
prohibition and mandamus was not the proper remedy of petition on a mere technicality.He claims that the rules of
the petitioner. procedure should be used to promote, not frustrate,
  substantial justice. He insists that the Rules of Court
cralaw On the merits of the petition, the CA ruled that the should be construed liberally especially when, as in this
assailed resolutions of the Secretary of Justice were case, his substantial rights are adversely affected; hence,
correctly issued for the following reasons: (a) petitioner, the deficiency in his certification of non-forum shopping
being the Senior Vice-President of PBMI and the signatory
should not result in the dismissal of his petition.
to the trust receipts, is criminally liable for violation of  
P.D. No. 115; (b) the issue raised by the petitioner, on The Office of the Solicitor General (OSG) takes the
whether he violated P.D. No. 115 by his actuations, had opposite view, and asserts that indubitably, the certificate
already been resolved and laid to rest in Allied Bank of non-forum shopping incorporated in the petition before
Corporation v. Ordoez;[22] and (c) petitioner was the CA is defective because it failed to disclose essential
estopped from raising the facts about pending actions concerning similar issues and
  parties.It asserts that petitioner's failure to comply with
  the Rules of Court is fatal to his petition. The OSG cited
City Prosecutor's delay in the final disposition of the Section 2, Rule 42, as well as the ruling of this Court
preliminary investigation because he failed to do so in the in Melo v. Court of Appeals.[24]
DOJ.  
cralaw
cralaw We agree with the ruling of the CA that the
Thus, petitioner filed the instant petition, alleging that:
certification of non-forum shopping petitioner
 
incorporated in his petition before the appellate court is
I
THE COURT OF APPEALS ERRED WHEN IT defective.The certification reads:
DISMISSED THE PETITION ON THE  
GROUND THAT THE CERTIFICATION OF It is further certified that as far as this
NON-FORUM SHOPPING INCORPORATED Petition is concerned, no action or
THEREIN WAS DEFECTIVE. proceeding in the Supreme Court, the
  Court of Appeals or different divisions
II thereof, or any tribunal or agency.
THE COURT OF APPEALS ERRED WHEN IT It is finally certified that if the affiant
should learn that a similar action or
RULED THAT NO GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR proceeding has been filed or is pending
EXCESS OF JURISDICTION WAS before the Supreme Court, the Court of
COMMITTED BY THE SECRETARY OF Appeals, or different divisions thereof, of
JUSTICE IN COMING OUT WITH THE any other tribunal or agency, it hereby
ASSAILED RESOLUTIONS.[23] undertakes to notify this Honorable Court
  within five (5) days from such notice.[25]
The Court will delve into and resolve the issues seriatim. cralaw Under Section 1, second paragraph of Rule 65 of the
  Revised Rules of Court, the petition should be
accompanied by a sworn certification of non-forum cralaw Indubitably, the first paragraph of petitioner's Be that as it may, even on the merits, the
arguments advanced in support of the
shopping, as provided in the third paragraph of Section 3, certification is incomplete and unintelligible.Petitioner petition are not persuasive enough to
Rule 46 of said Rules. The latter provision reads in part: failed to certify that he 'had not heretofore commenced justify the desired conclusion that
  respondent Secretary of Justice gravely
any other action involving the same issues in the
cralawSEC. 3. Contents and filing of abused its discretion in coming out with
petition; effect of non-compliance with Supreme Court, the Court of Appeals or the different his assailed Resolutions. Petitioner posits
requirements. ' The petition shall contain divisions thereof or any other tribunal or agency as that, except for his being the Senior Vice-
the full names and actual addresses of all President of the PBMI, there is no iota of
required by paragraph 4, Section 3, Rule 46 of the
the petitioners and respondents, a evidence that he was a participes
concise statement of the matters Revised Rules of Court. crimines in violating the trust receipts
involved, the factual background of the   sued upon; and that his liability, if at all,
case and the grounds relied upon for the cralaw We agree with petitioner's contention that the is purely civil because he signed the said
relief prayed for. trust receipts merely as a xxx surety and
certification is designed to promote and facilitate the not as the entrustee.These assertions are,
 
xxx orderly administration of justice, and therefore, should however, too dull that they cannot even
  just dent the findings of the respondent
not be interpreted with absolute literalness. In his works
cralawThe petitioner shall also submit Secretary, viz:
together with the petition a sworn on the Revised Rules of Civil Procedure, former Supreme  
certification that he has not theretofore Court Justice Florenz Regalado states that, with respect  
commenced any other action involving x x x it is apropos to quote
to the contents of the certification which the pleader may
the same issues in the Supreme Court, section 13 of PD 115 which
the Court of Appeals or different divisions prepare, the rule of substantial compliance may be states in part, viz:
thereof, or any other tribunal or agency; availed of.[27] However, there must be a special  
if there is such other action or  
circumstance or compelling reason which makes the strict xxx If the violation or
proceeding, he must state the status of
the same; and if he should thereafter application of the requirement clearly unjustified. The offense is committed by a
learn that a similar action or proceeding instant petition has not alleged any such extraneous corporation, partnership,
has been filed or is pending before the association or other
Supreme Court, the Court of Appeals, or circumstance. Moreover, as worded, the certification judicial entities, the
different divisions thereof, or any other cannot even be regarded as substantial compliance with penalty provided for in
tribunal or agency, he undertakes to this Decree shall be
the procedural requirement. Thus, the CA was not
promptly inform the aforesaid courts and imposed upon the
other tribunal or agency thereof within informed whether, aside from the petition before it, directors, officers,
five (5) days therefrom. xxx petitioner had commenced any other action involving the employees or other
officials or persons therein
  same issues in other tribunals. responsible for the
Compliance with the certification against forum shopping   offense, without prejudice
is separate from and independent of the avoidance of cralaw On the merits of the petition, the CA ruled that the to the civil liabilities
petitioner failed to establish that the Secretary of Justice arising from the criminal
forum shopping itself. The requirement is mandatory.The offense.
failure of the petitioner to comply with the foregoing committed grave abuse of discretion in finding probable  
requirement shall be sufficient ground for the dismissal of cause against the petitioner for violation of estafa under There is no dispute that it was the
respondent, who as senior vice-president
the petition without prejudice, unless otherwise provided. Article 315, paragraph 1(b) of the Revised Penal Code,in
of PBM, executed the thirteen (13) trust
[26]chanroblesvirtuallawlibrary relation to P.D. No. 115. Thus, the appellate court receipts. As such, the law points to him as
  ratiocinated: the official responsible for the offense.
cralaw Since a corporation cannot be proceeded
against criminally because it cannot
commit crime in which personal violence
or malicious intent is required, criminal
action is limited to the corporate agents
guilty of an act amounting to a crime and
never against the corporation itself (West
Coast Life Ins. Co. vs. Hurd, 27 Phil. 401;
Times, [I]nc. v. Reyes, 39 SCRA 303).
Thus, the execution by respondent of said
receipts is enough to indict him as the
official responsible for violation of PD 115.
 
Parenthetically, respondent is estopped to
still contend that PD 115 covers only
goods which are ultimately destined for
sale and not goods, like those imported
by PBM, for use in manufacture. This
issue has already been settled in the
Allied Banking Corporation case, supra,
where he was also a party, when the
Supreme Court ruled that PD 115 is 'not
limited to transactions in goods which are
to be sold (retailed), reshipped, stored or
processed as a component or a product
ultimately sold but 'covers failure to turn
over the proceeds of the sale of entrusted
goods, or to return said goods if unsold or
disposed of in accordance with the terms
of the trust receipts.
 
In regard to the other assigned errors, we
note that the respondent bound himself
under the terms of the trust receipts not
only as a corporate official of PBM but
also as its surety.It is evident that these
are two (2) capacities which do not
exclude the other. Logically, he can be
proceeded against in two (2) ways: first,
as surety as determined by the Supreme
Court in its decision in RCBC vs. Court of
Appeals, 178 SCRA 739; and, secondly,
as the corporate official responsible for
the offense under PD 115, the present
case is an appropriate remedy under our
penal law.
 
Moreover, PD 115 explicitly allows the
prosecution of corporate officers 'without
prejudice to the civil liabilities arising
from the criminal offense thus, the civil
liability imposed on respondent in RCBC entrustee to turn over the
vs. Court of Appeals case is clearly proceeds of the sale of the
separate and distinct from his criminal goods, documents or
liability under PD 115. instruments covered by a trust
[28]chanroblesvirtuallawlibrary receipt to the extent of the
  amount owing to the entruster
or as appears in the trust
receipt or to return said goods,
documents or instruments if
cralaw Petitioner asserts that the appellate court's ruling is
they were not sold or disposed
erroneous because (a) the transaction between PBMI and of in accordance with the terms
respondent bank is not a trust receipt transaction; (b) he of the trust receipt shall
constitute the crime of estafa,
entered into the transaction and was sued in his capacity punishable under the provisions
as PBMI Senior Vice-President; (c) he never received the of Article Three hundred and
goods as an entrustee for PBMI, hence, could not have fifteen, paragraph one (b) of Act
Numbered Three thousand eight
committed any dishonesty or abused the confidence of hundred and fifteen, as
respondent bank; and (d) PBMI acquired the goods and amended, otherwise known as
the Revised Penal Code.If the
used the same in operating its machineries and
violation or offense is committed
equipment and not for resale. by a corporation, partnership,
  association or other juridical
The OSG, for its part, submits a contrary view, to wit: entities, the penalty provided for
  in this Decree shall be imposed
34. Petitioner further claims that he is not a upon the directors, officers,
person responsible for the offense allegedly employees or other officials or
because '[b]eing charged as the Senior persons therein responsible for
Vice-President of Philippine Blooming Mills the offense, without prejudice to
(PBM), petitioner cannot be held criminally the civil liabilities arising from
liable as the transactions sued upon were the criminal offense. (Emphasis
clearly entered into in his capacity as an supplied)
officer of the corporation and that [h]e  
never received the goods as an entrustee 36. Petitioner having participated in the
for PBM as he never had or took possession negotiations for the trust receipts and
of the goods nor did he commit dishonesty having received the goods for PBM, it was
nor 'abuse of confidence in transacting with inevitable that the
RCBC. Such argument is bereft of merit. petitioner is the proper corporate officer to
  be proceeded against by virtue of the PBM's
35. Petitioner's being a Senior Vice-President of the violation of P.D. No. 115.
Philippine Blooming Mills does not exculpate [29]chanroblesvirtuallawlibrary
him from any liability. Petitioner's  
responsibility as the corporate official of  
PBM who received the goods in trust is cralaw The ruling of the CA is correct.
premised on Section 13 of P.D. No. 115,  
which provides:  
  cralaw In Mendoza-Arce v. Office of the
Section 13. Penalty
Ombudsman  (Visayas),[30] this Court held that
Clause.  The failure of an
thecralawacts of a quasi-judicial  officer may be assailed by cralaw A preliminary investigation, designed to secure the Decree as the entruster, and another
person referred to in this Decree as
the aggrieved party viaa petition for certiorari and respondent against hasty, malicious and oppressive entrustee, whereby the entruster, who
enjoined (a) when necessary to afford adequate prosecution, is an inquiry to determine whether (a) a owns or holds absolute title or security
interests over certain specified goods,
protection to the constitutional rights of the accused; (b) crime has been committed; and (b) whether there is
documents or instruments, releases the
when necessary for the orderly administration of justice; probable cause to believe that the accused is guilty same to the possession of the entrustee
(c) when the acts of the officer are without or in excess of thereof.It is a means of discovering the person or persons upon the latter's execution and delivery to
the entruster of a signed document called
authority; (d) where the charges are manifestly false and who may be reasonably charged with a crime. Probable a 'trust receipt wherein the entrustee
motivated by the lust for vengeance; and (e) when there cause need not be based on clear and convincing binds himself to hold the designated
is clearly no prima facie case against the accused. evidence of guilt, as the investigating officer acts upon goods, documents or instruments in trust
for the entruster and to sell or otherwise
[31] The Court also declared that, if the officer conducting probable cause of reasonable belief.Probable cause dispose of the goods, documents or
a preliminary investigation (in that case, the Office of the implies probability of guilt and requires more than bare instruments with the obligation to turn
over to the entruster the proceeds thereof
Ombudsman) acts without or in excess of his authority suspicion but less than evidence which would justify a
to the extent of the amount owing to the
and resolves to file an Information despite the absence of conviction. A finding of probable cause needs only to rest entruster or as appears in the trust
probable cause, such act may be nullified by a writ on evidence showing that more likely than not, a crime receipt or the goods, documents or
instruments themselvesif they are unsold
of certiorari.[32] has been committed by the suspect.[36]chanroblesvirtuallawlibrary
or not otherwise disposed of, in
   
accordance with the terms and conditions
Indeed, under Section 4, Rule 112 of the 2000 Rules of cralaw However, while probable cause should be determined specified in the trust receipt, or for other
Criminal Procedure,[33] the Information shall be prepared in a summary manner, there is a need to examine the purposes substantially equivalent to any
of the following:
by the Investigating Prosecutor against the respondent evidence with care to prevent material damage to a  
only if he or she finds probable cause to hold such potential accused's constitutional right to liberty and the 1. In case of goods or documents, (a) to
respondent for trial.The Investigating Prosecutor acts guarantees of freedom and fair play[37] and to protect sell the goods or procure their sale; or (b)
to manufacture or process the goods with
without or in excess of his authority under the Rule if the the State from the burden of unnecessary expenses in the purpose of ultimate sale; Provided,
Information is filed against the respondent despite prosecuting alleged offenses and holding trials arising That, in the case of goods delivered under
trust receipt for the purpose of
absence of evidence showing probable cause therefor. from false, fraudulent or groundless charges.[38]
manufacturing or processing before its
[34] If the Secretary of Justice reverses the Resolution of
 
ultimate sale, the entruster shall retain its
the Investigating Prosecutor who found no probable cralaw In this case, petitioner failed to establish that the title over the goods whether in its original
Secretary of Justice committed grave abuse of discretion or processed form until the entrustee has
cause to hold the respondent for trial, and orders such complied fully with his obligation under
prosecutor to file the Information despite the absence of in issuing the assailed resolutions. Indeed, he acted in the trust receipt; or (c) to load, unload,
probable cause, the Secretary of Justice acts contrary to accord with law and the evidence. ship or otherwise deal with them in a
  manner preliminary or necessary to their
law, without authority and/or in excess of authority. Such sale; or
Section 4of P.D. No. 115 defines a trust receipt
resolution may  
transaction, thus: 2. In the case of instruments a) to sell or
likewise be nullified in a petition for certiorari under Rule   procure their sale or exchange; or b) to
65 of the Revised Rules of Civil Procedure. Section 4. What constitutes a trust deliver them to a principal; or c) to effect
receipt transaction.  A trust receipt the consummation of some transactions
[35]chanroblesvirtuallawlibrary
transaction, within the meaning of this involving delivery to a depository or
 
Decree, is any transaction by and register; ord) to effect their presentation,
between a person referred to in this collection or renewal.
  
The sale of goods, documents or
instruments by a person in the business
of selling goods, documents or
instruments for profit who, at the outset
of the transaction, has, as against the
buyer, general property rights in such
goods, documents or instruments, or who
sells the same to the buyer on credit,
retaining title or other interest as security
for the payment of the purchase price,
does not constitute a trust receipt
transaction and is outside the purview
and coverage of this Decree.
An entrustee is one having or taking possession of goods,
documents or instruments under a trust
transaction, and any successor in interest of such person
for the purpose of payment specified in the trust receipt
agreement.[39]The entrustee is obliged to: (1) hold the
goods, documents or instruments in trust
entruster and shall dispose of them strictly in accordance
with the terms and conditions of the trust receipt; (2)
receive the proceeds in trust for the entruster and turn
over the same to the entruster to the extent of the
amount owing to the entruster or as appears on the trust
receipt; (3) insure the goods for their total value against
loss from fire, theft, pilferage or other casualties; (4)
keep said goods or proceeds thereof whether in money or
whatever form, separate and capable of identification as
property of the entruster; (5) return the
documents or instruments in the event of non-sale or
upon demand of the entruster; and (6) observe all other
terms and conditions of the trust receipt not contrary to
the provisions of the decree.[40]chanroblesvirtuallawlibrary
 
The entruster shall be entitled to the proceeds from
cralaw
the sale of the goods, documents or instruments released
under a trust receipt to the entrustee to the extent of the
amount owing to the entruster or as appears in the trust
receipt, or to the return of the goods, documents or
instruments in case of non-sale, and to the enforcement
of all other rights conferred on him in the trust receipt;
provided, such are not contrary to the provisions of the
document.[41]
 
cralaw In the case at bar, the transaction between petitioner
and respondent bank falls under the trust
transactions envisaged in P.D. No. 115.Respondent bank
imported the goods and entrusted the same to PBMI
under the trust receipts signed by petitioner,
entrustee, with the bank as entruster.The agreement was
as follows:
receipt  
And in consideration thereof, I/we hereby
agree to hold said goods in trust for the
said BANK as its property with liberty to
sell the same within ____days from the
for the date of the execution of this Trust Receipt
and for the Bank's account, but without
authority to make any other disposition
whatsoever of the said goods or any part
thereof (or the proceeds) either by way of
conditional sale, pledge or otherwise.
I/we agree to keep the said goods insured
to their full value against loss from fire,
theft, pilferage or other casualties as
directed by the BANK, the sum insured to
be payable in case of loss to the BANK,
with the understanding that the BANK is,
not to be chargeable with the storage
goods, premium or insurance or any other
expenses incurred on said goods.
 
In case of sale, I/we further agree to turn
over the proceeds thereof as soon as
received to the BANK, to apply against
the relative acceptances (as described
above) and for the payment of any other
indebtedness of mine/ours to the BANK.
In case of non-sale within the period
specified herein, I/we agree to return the
goods under this Trust Receipt to the
BANK without any need of demand.
 
I/we agree to keep the said goods,
manufactured products or proceeds
thereof, whether in the form of money or
bills, receivables, or accounts separate
and capable of identification as property
of the BANK.[42]
receipt
It must be stressed that P.D. No. 115 is a declaration by
legislative authority that, as a matter of public policy, the
as failure of person to turn over the proceeds of the sale of
the goods covered by a trust receipt or to return said
goods, if not sold, is a public nuisance to be abated by
the imposition of penal sanctions.[43]chanroblesvirtuallawlibrary
cralaw
The Court likewise rules that the issue of whether P.D.
No. 115 encompasses transactions involving goods
procured as a component of a product ultimately sold has
been resolved in the affirmative in Allied Banking
Corporation v. Ordoez.[44]The law applies to goods used
by the entrustee in the operation of its machineries and
equipment. The non-payment of the amount covered by
the trust receipts or the non-return of the goods covered
by the receipts, if not sold or otherwise not disposed of,
violate the entrustee's obligation to pay the amount or to
return the goods to the entruster.
 
In Colinares v. Court of Appeals,[45]the Court declared
that there are two possible situations in a trust receipt
transaction. The first is covered by the provision which
refers to money received under the obligation involving
the duty to deliver it (entregarla) to the owner of the
merchandise sold. The second is covered by the provision
which refers to merchandise received under the obligation
to return it (devolvera) to the owner.[46]Thus, failure of
the entrustee to turn over the proceeds of the sale of the
goods covered by the trust receipts to the entruster or to
return said goods if they were not disposed of in without prejudice to the civil liabilities 4th. By arresto mayor in its medium and
arising from the criminal offense. maximum periods, if such amount does
accordance with the terms of the trust receipt is a crime   not exceed 200 pesos, provided that in
under P.D. No. 115, without need of proving intent to The crime defined in P.D. No. 115 is malum the four cases mentioned, the fraud be
committed by any of the following means;
defraud. The law punishes dishonesty and abuse of prohibitum but is classified as estafa under paragraph xxx
confidence in the handling of money or goods to the 1(b), Article 315 of the Revised Penal Code,  
prejudice of the entruster, regardless of whether the or estafa with abuse of confidence.It may be committed Though the entrustee is a corporation, nevertheless, the
latter is the owner or not.A mere failure to deliver the by a corporation or other juridical entity or by natural law specifically makes the officers, employees or other
proceeds of the sale of the goods, if not sold, constitutes persons. However, the penalty for the crime is officers or persons responsible for the offense, without
a criminal offense that causes prejudice, not only to imprisonment for the periods provided in said Article 315, prejudice to the civil liabilities of such corporation and/or
another, but more to the public interest. which reads: board of directors, officers, or other officials or
[47]chanroblesvirtuallawlibrary   employees responsible for the offense.The rationale is
  ARTICLE 315. Swindling (estafa). ' Any
person who shall defraud another by any that such officers or employees are vested with the
The Court rules that although petitioner signed the trust
of the means mentioned hereinbelow shall authority and responsibility to devise means necessary to
receipts merely as Senior Vice-President of PBMI and had be punished by: ensure compliance with the law and, if they fail to do so,
no physical possession of the goods, he cannot avoid  
1st. The penalty of prision correccional  in are held criminally accountable; thus, they have a
prosecution for violation of P.D. No. 115. its maximum period to prision mayor in responsible share in the violations of the law.
  its minimum period, if the amount of the
The penalty clause of the law, Section 13 of P.D. No. 115 [48]chanroblesvirtuallawlibrary
fraud is over 12,000 pesos but does not
reads:  
exceed 22,000 pesos; and if such amount
  If the crime is committed by a corporation or other
exceeds the latter sum, the penalty
Section 13. Penalty Clause. The failure of provided in this paragraph shall be juridical entity, the directors, officers, employees or other
an entrustee to turn over the proceeds of imposed in its maximum period, adding
the sale of the goods, documents or officers thereof responsible for the offense shall be
one year for each additional 10,000
instruments covered by a trust receipt to charged and penalized for the crime, precisely because of
pesos; but the total penalty which may be
the extent of the amount owing to the imposed shall not exceed twenty years. In the nature of the crime and the penalty therefor.A
entruster or as appears in the trust such cases, and in connection with the
receipt or to return said goods, corporation cannot be arrested and imprisoned; hence,
accessory penalties which may be
documents or instruments if they were imposed and for the purpose of the other cannot be penalized for a crime punishable by
not sold or disposed of in accordance with provisions of this Code, the penalty shall
the terms of the trust receipt shall imprisonment.[49] However, a corporation may be
be termed prision mayor or reclusion
constitute the crime of estafa, punishable charged and prosecuted for a crime if the imposable
temporal, as the case may be;
under the provisions of Article Three   penalty is fine. Even if the statute prescribes both fine
hundred and fifteen, paragraph one (b) of 2nd. The penalty of prision correccional  in
Act Numbered Three thousand eight and imprisonment as penalty, a corporation may be
its minimum and medium periods, if the
hundred and fifteen, as amended, prosecuted and, if found guilty, may be fined.
amount of the fraud is over 6,000 pesos
otherwise known as the Revised Penal but does not exceed 12,000 pesos; [50]chanroblesvirtuallawlibrary
Code.If the violation or offense is    
committed by a corporation, partnership, 3rd. The penalty of arresto mayor in its
association or other juridical entities, the A crime is the doing of that which the penal code forbids
maximum period to prision correccional in
penalty provided for in this Decree shall its minimum period, if such amount is to be done, or omitting to do what it commands.A
be imposed upon the directors, officers, over 200 pesos but does not exceed necessary part of the definition of every crime is the
employees or other officials or persons 6,000 pesos; and
therein responsible for the offense, designation of the author of the crime upon whom the
 
penalty is to be inflicted.When a criminal statute protect himself behind a corporation where he is the
designates an act of a corporation or a crime and actual, present and efficient actor.[55]
prescribes punishment therefor, it creates a criminal  

offense which, otherwise, would not exist and such can IN LIGHT OF ALL THE FOREGOING, the petition is DENIED

be for lack of merit.Costs against the petitioner.

committed only by the corporation. But when a penal

statute does not
expressly apply to corporations, it does not create an
offense for which a corporation may be punished.On the
other hand, if the State, by statute, defines a crime that
may be committed by a corporation but prescribes the
penalty therefor to be suffered by the officers, directors,
or employees of such corporation or other persons
responsible for the offense, only such individuals will
suffer such penalty.[51]Corporate officers or employees,
through whose act, default or omission the corporation
commits a crime, are themselves individually guilty of the
crime.[52]chanroblesvirtuallawlibrary
 
The principle applies whether or not the crime requires
the consciousness of wrongdoing. It applies to those
corporate agents who themselves commit the crime and
to those, who, by virtue of their managerial positions or
other similar relation to the corporation, could be deemed
responsible for its commission, if by virtue of their
relationship to the corporation, they had the power to
prevent the act.[53]Moreover, all parties active in
promoting a crime, whether agents or not, are principals.
[54]Whether such officers or employees are benefited by
their delictual acts is not a touchstone of their criminal
liability.Benefit is not an operative fact.
 
In this case, petitioner signed the trust receipts in
question.He cannot, thus, hide behind the cloak of the
separate corporate personality of PBMI.In the words of
Chief Justice Earl Warren, a corporate officer cannot
 [G.R. NO. 141994 - January 17, 2005]
FILIPINAS BROADCASTING NETWORK,
INC., Petitioner, v. AGO MEDICAL AND EDUCATIONAL
CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE,
(AMEC-BCCM) and ANGELITA F. AGO, Respondents.
This Petition for Review 1 assails the 4 January 1999
Decision2 and 26 January 2000 Resolution of the Court of
Appeals in CA-G.R. CV No. 40151. The Court of Appeals
affirmed with modification the 14 December 1992
Decision3 of the Regional Trial Court of Legazpi City,
Branch 10, in Civil Case No. 8236. The Court of Appeals
held Filipinas Broadcasting Network, Inc. and its
broadcasters Hermogenes Alegre and Carmelo Rima liable
for libel and ordered them to solidarily pay Ago Medical
and Educational Center-Bicol Christian College of Medicine
moral damages, attorney's fees and costs of suit.
The Antecedents
"Exposé" is a radio documentary4 program hosted by
Carmelo 'Mel' Rima ("Rima") and Hermogenes 'Jun'
Alegre ("Alegre").5 Exposé is aired every morning over
DZRC-AM which is owned by Filipinas Broadcasting
Network, Inc. ("FBNI"). "Exposé" is heard over Legazpi
City, the Albay municipalities and other Bicol areas.6
In the morning of 14 and 15 December 1989, Rima and
Alegre exposed various alleged complaints from students,
teachers and parents against Ago Medical and Educational
Center-Bicol Christian College of Medicine ("AMEC") and
its administrators. Claiming that the broadcasts were
defamatory, AMEC and Angelita Ago ("Ago"), as Dean of
AMEC's College of Medicine, filed a complaint for
damages7 against FBNI, Rima and Alegre on 27 February
1990. Quoted are portions of the allegedly libelous
broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have
children taking medical course at AMEC-BCCM,
advise them to pass all subjects because if they fail
in any subject they will repeat their year level,
taking up all subjects including those they have
passed already. Several students had approached me
stating that they had consulted with the DECS which told
them that there is no such regulation. If [there] is no
such regulation why is AMEC doing the same?
xxx
Second: Earlier AMEC students in Physical Therapy
had complained that the course is not recognized
by DECS. xxx
Third: Students are required to take and pay for the
subject even if the subject does not have an
instructor - such greed for money on the part of
AMEC's administration. Take the subject Anatomy:
students would pay for the subject upon enrolment
because it is offered by the school. However there would
be no instructor for such subject. Students would be
informed that course would be moved to a later date
because the school is still searching for the appropriate
instructor.
xxx
It is a public knowledge that the Ago Medical and
Educational Center has survived and has been surviving
for the past few years since its inception because of funds
support from foreign foundations. If you will take a look
at the AMEC premises you ll find out that the names of
the buildings there are foreign soundings. There is a
McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That
is a very concrete and undeniable evidence that the
support of foreign foundations for AMEC is substantial,
isn't it? With the report which is the basis of the expose in
DZRC today, it would be very easy for detractors and
enemies of the Ago family to stop the flow of support of
foreign foundations who assist the medical school on the
basis of the latter's purpose. But if the purpose of the
institution (AMEC) is to deceive students at cross purpose
with its reason for being it is possible for these foreign
foundations to lift or suspend their donations
temporarily.8
xxx
On the other hand, the administrators of AMEC-
BCCM, AMEC Science High School and the AMEC-
Institute of Mass Communication in their effort to
minimize expenses in terms of salary are absorbing
or continues to accept "rejects". For example how
many teachers in AMEC are former teachers of Aquinas
University but were removed because of immorality?
Does it mean that the present administration of AMEC
have the total definite moral foundation from catholic
administrator of Aquinas University. I will prove to you
my friends, that AMEC is a dumping ground, garbage,
not merely of moral and physical misfits. Probably
they only qualify in terms of intellect. The Dean of
Student Affairs of AMEC is Justita Lola, as the family
name implies. She is too old to work, being an old
woman. Is the AMEC administration exploiting the very
[e]nterprising or compromising and undemanding Lola?
Could it be that AMEC is just patiently making use of
Dean Justita Lola were if she is very old. As in
atmospheric situation - zero visibility - the plane cannot
land, meaning she is very old, low pay follows. By the
way, Dean Justita Lola is also the chairman of the
committee on scholarship in AMEC. She had retired from
Bicol University a long time ago but AMEC has patiently
made use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping
ground for moral and physically misfit people. What does
this mean? Immoral and physically misfits as teachers.
May I say I m sorry to Dean Justita Lola. But this is the
truth. The truth is this, that your are no longer fit to
teach. You are too old. As an aviation, your case is zero
visibility. Don't insist.
xxx Why did AMEC still absorb her as a teacher, a dean,
and chairman of the scholarship committee at that. The
reason is practical cost saving in salaries, because an old
person is not fastidious, so long as she has money to buy
the ingredient of beetle juice. The elderly can get by -
that's why she (Lola) was taken in as Dean.
 xxx
xxx On our end our task is to attend to the interests of
students. It is likely that the students would be influenced
by evil. When they become members of society
outside of campus will be liabilities rather than
assets. What do you expect from a doctor who while
studying at AMEC is so much burdened with unreasonable
imposition? What do you expect from a student who aside
from peculiar problems - because not all students are rich
- in their struggle to improve their social status are even
more burdened with false regulations. xxx9 (Emphasis
supplied)ςrαlαωlιbrαrÿ
The complaint further alleged that AMEC is a reputable
learning institution. With the supposed exposés, FBNI,
Rima and Alegre "transmitted malicious imputations, and
as such, destroyed plaintiffs' (AMEC and Ago) reputation."
AMEC and Ago included FBNI as defendant for allegedly
failing to exercise due diligence in the selection and
supervision of its employees, particularly Rima and
Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty.
Rozil Lozares, filed an Answer10 alleging that the
broadcasts against AMEC were fair and true. FBNI, Rima
and Alegre claimed that they were plainly impelled by a
sense of public duty to report the "goings-on in AMEC,
[which is] an institution imbued with public interest."
Thereafter, trial ensued. During the presentation of the
evidence for the defense, Atty. Edmundo Cea,
collaborating counsel of Atty. Lozares, filed a Motion to
Dismiss11 on FBNI's behalf. The trial court denied the
motion to dismiss. Consequently, FBNI filed a separate
Answer claiming that it exercised due diligence in the
selection and supervision of Rima and Alegre. FBNI
claimed that before hiring a broadcaster, the broadcaster
should (1) file an application; (2) be interviewed; and (3)
undergo an apprenticeship and training program after
passing the interview. FBNI likewise claimed that it
always reminds its broadcasters to "observe truth,
fairness and objectivity in their broadcasts and to refrain
from using libelous and indecent language." Moreover,
FBNI requires all broadcasters to pass the Kapisanan ng
mga Brodkaster sa Pilipinas ("KBP") accreditation test
and to secure a KBP permit.
On 14 December 1992, the trial court rendered a
Decision12 finding FBNI and Alegre liable for libel except
Rima. The trial court held that the broadcasts are
libelous per se. The trial court rejected the broadcasters'
claim that their utterances were the result of straight
reporting because it had no factual basis. The
broadcasters did not even verify their reports before
airing them to show good faith. In holding FBNI liable for
libel, the trial court found that FBNI failed to exercise
diligence in the selection and supervision of its
employees.
In absolving Rima from the charge, the trial court ruled
that Rima's only participation was when he agreed with
Alegre's exposé. The trial court found Rima's statement
within the "bounds of freedom of speech, expression, and
of the press." The dispositive portion of the decision
reads:
WHEREFORE, premises considered, this court finds for the
plaintiff. Considering the degree of damages caused
by the controversial utterances, which are not
found by this court to be really very serious and
damaging, and there being no showing that indeed
the enrollment of plaintiff school
dropped, defendants Hermogenes "Jun" Alegre, Jr. and
Filipinas Broadcasting Network (owner of the radio station
DZRC), are hereby jointly and severally ordered to pay
plaintiff Ago Medical and Educational Center-Bicol
Christian College of Medicine (AMEC-BCCM) the amount
of P300,000.00 moral damages, plus P30,000.00
reimbursement of attorney's fees, and to pay the costs of
suit.
SO ORDERED.13 (Emphasis supplied)
ςrαlαωlιbrαrÿ
Both parties, namely, FBNI, Rima and Alegre, on one
hand, and AMEC and Ago, on the other, appealed the
decision to the Court of Appeals. The Court of Appeals
affirmed the trial court's judgment with modification. The
appellate court made Rima solidarily liable with FBNI and
Alegre. The appellate court denied Ago's claim for
damages and attorney's fees because the broadcasts
were directed against AMEC, and not against her. The
dispositive portion of the Court of Appeals' decision
reads:
WHEREFORE, the decision appealed from is
hereby AFFIRMED, subject to the modification that
broadcaster Mel Rima is SOLIDARILY ADJUDGED liable
with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.14
FBNI, Rima and Alegre filed a motion for reconsideration
which the Court of Appeals denied in its 26 January 2000
Resolution.
Hence, FBNI filed this petition.15
The Ruling of the Court of Appeals
The Court of Appeals upheld the trial court's ruling that
the questioned broadcasts are libelous per se and that
FBNI, Rima and Alegre failed to overcome the legal
presumption of malice. The Court of Appeals found Rima
and Alegre's claim that they were actuated by their moral
and social duty to inform the public of the students'
gripes as insufficient to justify the utterance of the
defamatory remarks.
Finding no factual basis for the imputations against
AMEC's administrators, the Court of Appeals ruled that
the broadcasts were made "with reckless disregard as to
whether they were true or false." The appellate court
pointed out that FBNI, Rima and Alegre failed to present
in court any of the students who allegedly complained
against AMEC. Rima and Alegre merely gave a single
name when asked to identify the students. According to
the Court of Appeals, these circumstances cast doubt on
the veracity of the broadcasters' claim that they were
"impelled by their moral and social duty to inform the
public about the students' gripes."
The Court of Appeals found Rima also liable for libel since
he remarked that "(1) AMEC-BCCM is a dumping ground
for morally and physically misfit teachers; (2) AMEC
obtained the services of Dean Justita Lola to minimize
expenses on its employees' salaries; and (3) AMEC
burdened the students with unreasonable imposition and
false regulations."16
The Court of Appeals held that FBNI failed to exercise due
diligence in the selection and supervision of its employees
for allowing Rima and Alegre to make the radio
broadcasts without the proper KBP accreditation. The
Court of Appeals denied Ago's claim for damages and
attorney's fees because the libelous remarks were
directed against AMEC, and not against her. The Court of
Appeals adjudged FBNI, Rima and Alegre solidarily liable
to pay AMEC moral damages, attorney's fees and costs of
suit.
ςηαñrοblεš νιr†υαl  lαω lιbrαrÿ
Issues
FBNI raises the following issues for resolution:
I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEY'S FEES IS
PROPER; and cralawlibrary
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA
AND ALEGRE FOR PAYMENT OF MORAL DAMAGES,
ATTORNEY'S FEES AND COSTS OF SUIT.
The Court's Ruling
We deny the petition.
This is a civil action for damages as a result of the
allegedly defamatory remarks of Rima and Alegre against
AMEC.17 While AMEC did not point out clearly the legal
basis for its complaint, a reading of the complaint reveals
that AMEC's cause of action is based on Articles 30 and
33 of the Civil Code. Article 3018 authorizes a separate
civil action to recover civil liability arising from a criminal
offense. On the other hand, Article 3319 particularly
provides that the injured party may bring a separate civil
action for damages in cases of defamation, fraud, and
physical injuries. AMEC also invokes Article 1920 of the
Civil Code to justify its claim for damages. AMEC cites
Articles 217621 and 218022 of the Civil Code to hold FBNI
solidarily liable with Rima and Alegre.
I.
Whether the broadcasts are libelous
A libel23 is a public and malicious imputation of a crime, or
of a vice or defect, real or imaginary, or any act or
omission, condition, status, or circumstance tending to
cause the dishonor, discredit, or contempt of a natural or
juridical person, or to blacken the memory of one who is
dead.24
There is no question that the broadcasts were made
public and imputed to AMEC defects or circumstances
tending to cause it dishonor, discredit and contempt.
Rima and Alegre's remarks such as "greed for money on
the part of AMEC's administrators"; "AMEC is a dumping
ground, garbage of xxx moral and physical misfits"; and
AMEC students who graduate "will be liabilities rather
than assets" of the society are libelous per se. Taken as a
whole, the broadcasts suggest that AMEC is a money-
making institution where physically and morally unfit
teachers abound.
However, FBNI contends that the broadcasts are not
malicious. FBNI claims that Rima and Alegre were plainly
impelled by their civic duty to air the students' gripes.
FBNI alleges that there is no evidence that ill will or spite
motivated Rima and Alegre in making the broadcasts.
FBNI further points out that Rima and Alegre exerted
efforts to obtain AMEC's side and gave Ago the
opportunity to defend AMEC and its administrators. FBNI
concludes that since there is no malice, there is no libel.
FBNI's contentions are untenable.
Every defamatory imputation is presumed
malicious.25 Rima and Alegre failed to show adequately
their good intention and justifiable motive in airing the
supposed gripes of the students. As hosts of a
documentary or public affairs program, Rima and Alegre
should have presented the public issues "free
from inaccurate and misleading information."26 Hearing
the students' alleged complaints a month before the
exposé,27 they had sufficient time to verify their sources
and information. However, Rima and Alegre hardly made
a thorough investigation of the students' alleged gripes.
Neither did they inquire about nor confirm the purported
irregularities in AMEC from the Department of Education,
Culture and Sports. Alegre testified that he merely went
to AMEC to verify his report from an alleged AMEC official
who refused to disclose any information. Alegre simply
relied on the words of the students "because they were
many and not because there is proof that what they are
saying is true."28 This plainly shows Rima and Alegre's
reckless disregard of whether their report was true or
not.
Contrary to FBNI's claim, the broadcasts were not "the
result of straight reporting." Significantly, some courts in
the United States apply the privilege of "neutral
reportage" in libel cases involving matters of public
interest or public figures. Under this privilege, a
republisher who accurately and disinterestedly reports
certain defamatory statements made against public
figures is shielded from liability, regardless of the
republisher's subjective awareness of the truth or falsity
of the accusation.29 Rima and Alegre cannot invoke the
privilege of neutral reportage because unfounded
comments abound in the broadcasts. Moreover, there is
no existing controversy involving AMEC when the
broadcasts were made. The privilege of neutral reportage
applies where the defamed person is a public figure who
is involved in an existing controversy, and a party to that
controversy makes the defamatory statement.30
However, FBNI argues vigorously that malice in law does
not apply to this case. Citing Borjal v. Court of
Appeals,31 FBNI contends that the broadcasts "fall within
the coverage of qualifiedly privileged communications" for
being commentaries on matters of public interest. Such
being the case, AMEC should prove malice in fact or
actual malice. Since AMEC allegedly failed to prove actual
malice, there is no libel.
FBNI's reliance on Borjal is misplaced. In Borjal, the
Court elucidated on the "doctrine of fair comment," thus:
[F]air commentaries on matters of public interest are
privileged and constitute a valid defense in an action for
libel or slander. The doctrine of fair comment means that
while in general every discreditable imputation publicly
made is deemed false, because every man is presumed
innocent until his guilt is judicially proved, and every false
imputation is deemed malicious, nevertheless, when the
discreditable imputation is directed against a public
person in his public capacity, it is not necessarily
actionable. In order that such discreditable
imputation to a public official may be actionable, it
must either be a false allegation of fact or a
comment based on a false supposition. If the
comment is an expression of opinion, based on
established facts, then it is immaterial that the opinion
happens to be mistaken, as long as it might reasonably
be inferred from the facts.32 (Emphasis supplied) ςrαlαωlιbrαrÿ
True, AMEC is a private learning institution whose
business of educating students is "genuinely imbued with
public interest." The welfare of the youth in general and
AMEC's students in particular is a matter which the public
has the right to know. Thus, similar to the newspaper
articles in Borjal, the subject broadcasts dealt with
matters of public interest. However, unlike in Borjal, the
questioned broadcasts are not based on established
facts. The record supports the following findings of the
trial court:
xxx Although defendants claim that they were motivated
by consistent reports of students and parents against
plaintiff, yet, defendants have not presented in court, nor
even gave name of a single student who made the
complaint to them, much less present written complaint
or petition to that effect. To accept this defense of
defendants is too dangerous because it could easily give
license to the media to malign people and establishments
based on flimsy excuses that there were reports to them
although they could not satisfactorily establish it. Such
laxity would encourage careless and irresponsible
broadcasting which is inimical to public interests.
Secondly, there is reason to believe that defendant radio
broadcasters, contrary to the mandates of their duties,
did not verify and analyze the truth of the reports before
they aired it, in order to prove that they are in good faith.
Alegre contended that plaintiff school had no permit and
is not accredited to offer Physical Therapy courses. Yet,
plaintiff produced a certificate coming from DECS that as
of Sept. 22, 1987 or more than 2 years before the
controversial broadcast, accreditation to offer Physical
Therapy course had already been given the plaintiff,
which certificate is signed by no less than the Secretary
of Education and Culture herself, Lourdes R. Quisumbing
(Exh. C-rebuttal). Defendants could have easily known
this were they careful enough to verify. And yet,
defendants were very categorical and sounded too
positive when they made the erroneous report that
plaintiff had no permit to offer Physical Therapy courses
which they were offering.
The allegation that plaintiff was getting tremendous aids
from foreign foundations like Mcdonald Foundation prove
not to be true also. The truth is there is no Mcdonald
Foundation existing. Although a big building of plaintiff
school was given the name Mcdonald building, that was
only in order to honor the first missionary in Bicol of
plaintiffs' religion, as explained by Dr. Lita Ago. Contrary
to the claim of defendants over the air, not a single
centavo appears to be received by plaintiff school from
the aforementioned McDonald Foundation which does not
exist.
Defendants did not even also bother to prove their claim,
though denied by Dra. Ago, that when medical students
fail in one subject, they are made to repeat all the other
subject[s], even those they have already passed, nor
their claim that the school charges laboratory fees even if
there are no laboratories in the school. No evidence was
presented to prove the bases for these claims, at least in
order to give semblance of good faith.
As for the allegation that plaintiff is the dumping ground
for misfits, and immoral teachers, defendant[s] singled
out Dean Justita Lola who is said to be so old, with zero
visibility already. Dean Lola testified in court last Jan. 21,
1991, and was found to be 75 years old. xxx Even older
people prove to be effective teachers like Supreme Court
Justices who are still very much in demand as law
professors in their late years. Counsel for defendants is
past 75 but is found by this court to be still very sharp
and effective. ςηαñrοblεš νιr†υαl  lαω lιbrαrÿ
So is plaintiffs' counsel.
Dr. Lola was observed by this court not to be physically
decrepit yet, nor mentally infirmed, but is still alert and
docile.
The contention that plaintiffs' graduates become liabilities
rather than assets of our society is a mere conclusion.
Being from the place himself, this court is aware that
majority of the medical graduates of plaintiffs pass the
board examination easily and become prosperous and
responsible professionals.33
Had the comments been an expression of opinion based
on established facts, it is immaterial that the opinion
happens to be mistaken, as long as it might reasonably
be inferred from the facts.34 However, the comments of
Rima and Alegre were not backed up by facts. Therefore,
the broadcasts are not privileged and remain libelous per
se.
The broadcasts also violate the Radio Code35 of
the Kapisanan ng mga Brodkaster sa Pilipinas,
Ink. ("Radio Code"). Item I(B) of the Radio Code
provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND
COMMENTARIES
1. x x x
4. Public affairs program shall present public issues
free from personal bias, prejudice and inaccurate and
misleading information. x x x Furthermore, the station
shall strive to present balanced discussion of issues. x x
x.
xxx
7. The station shall be responsible at all times in the
supervision of public affairs, public issues and
commentary programs so that they conform to the
provisions and standards of this code.
8. It shall be the responsibility of the newscaster,
commentator, host and announcer to protect public
interest, general welfare and good order in the
presentation of public affairs and public
issues.36 (Emphasis supplied) ςrαlαωlιbrαrÿ
The broadcasts fail to meet the standards prescribed in
the Radio Code, which lays down the code of ethical
conduct governing practitioners in the radio broadcast
industry. The Radio Code is a voluntary code of conduct
imposed by the radio broadcast industry on its own
members. The Radio Code is a public warranty by the
radio broadcast industry that radio broadcast
practitioners are subject to a code by which their conduct
are measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio
broadcast practitioners live up to the code of conduct of
their profession, just like other professionals. A
professional code of conduct provides the standards for
determining whether a person has acted justly, honestly
and with good faith in the exercise of his rights and
performance of his duties as required by Article 1937 of
the Civil Code. A professional code of conduct also
provides the standards for determining whether a person
who willfully causes loss or injury to another has acted in
a manner contrary to morals or good customs under
Article 2138 of the Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral
damages because it is a corporation.39
A juridical person is generally not entitled to moral
damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as
wounded feelings, serious anxiety, mental anguish or
moral shock.40 The Court of Appeals cites Mambulao
Lumber Co. v. PNB, et al.41 to justify the award of
moral damages. However, the Court's statement
in Mambulao that "a corporation may have a good
reputation which, if besmirched, may also be a ground for
the award of moral damages" is an obiter dictum.42
Nevertheless, AMEC's claim for moral damages falls under
item 7 of Article 221943 of the Civil Code. This provision
expressly authorizes the recovery of moral damages in
cases of libel, slander or any other form of defamation.
Article 2219(7) does not qualify whether the plaintiff is a
natural or juridical person. Therefore, a juridical person
such as a corporation can validly complain for libel or any
other form of defamation and claim for moral damages.44
Moreover, where the broadcast is libelous per se, the law
implies damages.45 In such a case, evidence of an honest
mistake or the want of character or reputation of the
party libeled goes only in mitigation of damages.46 Neither
in such a case is the plaintiff required to introduce
evidence of actual damages as a condition precedent to
the recovery of some damages.47 In this case, the
broadcasts are libelous per se. Thus, AMEC is entitled to
moral damages.
However, we find the award of P300,000 moral damages
unreasonable. The record shows that even though the
broadcasts were libelous per se, AMEC has not suffered
any substantial or material damage to its reputation.
Therefore, we reduce the award of moral damages
from P300,000 to P150,000.
III.
Whether the award of attorney's fees is proper
FBNI contends that since AMEC is not entitled to moral
damages, there is no basis for the award of attorney's
fees. FBNI adds that the instant case does not fall under
the enumeration in Article 220848 of the Civil Code.
The award of attorney's fees is not proper because AMEC
failed to justify satisfactorily its claim for attorney's fees.
AMEC did not adduce evidence to warrant the award of
attorney's fees. Moreover, both the trial and appellate
courts failed to explicitly state in their respective
decisions the rationale for the award of attorney's
fees.49 In Inter-Asia Investment Industries, Inc. v.
Court of Appeals ,50 we held that:
[I]t is an accepted doctrine that the award thereof as an
item of damages is the exception rather than the rule,
and counsel's fees are not to be awarded every time a
party wins a suit. The power of the court to award
attorney's fees under Article 2208 of the Civil Code
demands factual, legal and equitable justification,
without which the award is a conclusion without a
premise, its basis being improperly left to
speculation and conjecture. In all events, the court
must explicitly state in the text of the decision, and not
only in the decretal portion thereof, the legal reason for
the award of attorney's fees.51 (Emphasis supplied) ςrαlαωlιbrαrÿ
While it mentioned about the award of attorney's fees by
stating that it "lies within the discretion of the court and
depends upon the circumstances of each case," the Court
of Appeals failed to point out any circumstance to justify
the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre for
moral damages, attorney's fees and costs of suit
FBNI contends that it is not solidarily liable with Rima and
Alegre for the payment of damages and attorney's fees
because it exercised due diligence in the selection and
supervision of its employees, particularly Rima and
Alegre. FBNI maintains that its broadcasters, including
Rima and Alegre, undergo a "very regimented process"
before they are allowed to go on air. "Those who apply
for broadcaster are subjected to interviews, examinations
and an apprenticeship program."
FBNI further argues that Alegre's age and lack of training
are irrelevant to his competence as a broadcaster. FBNI
points out that the "minor deficiencies in the KBP
accreditation of Rima and Alegre do not in any way prove
that FBNI did not exercise the diligence of a good father
of a family in selecting and supervising them." Rima's
accreditation lapsed due to his non-payment of the KBP
annual fees while Alegre's accreditation card was delayed
allegedly for reasons attributable to the KBP Manila
Office. FBNI claims that membership in the KBP is merely
voluntary and not required by any law or government
regulation.
FBNI's arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors
are jointly and severally liable for the tort which they
commit.52 Joint tort feasors are all the persons who
command, instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the commission of
a tort, or who approve of it after it is done, if done for
their benefit.53 Thus, AMEC correctly anchored its cause of
action against FBNI on Articles 2176 and 2180 of the Civil
Code. ςηαñrοblεš νιr†υαl  lαω lιbrαrÿ
As operator of DZRC-AM and employer of Rima and
Alegre, FBNI is solidarily liable to pay for damages arising
from the libelous broadcasts. As stated by the Court of
Appeals, "recovery for defamatory statements published
by radio or television may be had from the owner of the
station, a licensee, the operator of the station, or a
person who procures, or participates in, the making of
the defamatory statements."54 An employer and
employee are solidarily liable for a defamatory statement
by the employee within the course and scope of his or her
employment, at least when the employer authorizes or
ratifies the defamation.55 In this case, Rima and Alegre
were clearly performing their official duties as hosts of
FBNI's radio program Exposé when they aired the
broadcasts. FBNI neither alleged nor proved that Rima
and Alegre went beyond the scope of their work at that
time. There was likewise no showing that FBNI did not
authorize and ratify the defamatory broadcasts.
WHEREFORE, we DENY the instant petition. We AFFIRM
the Decision of 4 January 1999 and Resolution of 26
January 2000 of the Court of Appeals in CA-G.R. CV No.
40151 with the MODIFICATION that the award of moral
damages is reduced from P300,000 to P150,000 and the
award of attorney's fees is deleted. Costs against
petitioner.
SO ORDERED.

Moreover, there is insufficient evidence on record that

FBNI exercised due diligence in
the selection and supervision of its employees,
particularly Rima and Alegre. FBNI merely showed that it
exercised diligence in the selection of its broadcasters
without introducing any evidence to prove that it
observed the same diligence in the supervision of Rima
and Alegre. FBNI did not show how it exercised diligence
in supervising its broadcasters. FBNI's alleged constant
reminder to its broadcasters to "observe truth, fairness
and objectivity and to refrain from using libelous and
indecent language" is not enough to prove due diligence
in the supervision of its broadcasters. Adequate training
of the broadcasters on the industry's code of conduct,
sufficient information on libel laws, and continuous
evaluation of the broadcasters' performance are but a few
of the many ways of showing diligence in the supervision
of broadcasters.

FBNI claims that it "has taken all the precaution in

the selection of Rima and Alegre as broadcasters,
bearing in mind their qualifications." However, no clear
and convincing evidence shows that Rima and Alegre
underwent FBNI's "regimented process" of application.
Furthermore, FBNI admits that Rima and Alegre had
deficiencies in their KBP accreditation,56 which is one of
FBNI's requirements before it hires a broadcaster.
Significantly, membership in the KBP, while voluntary,
indicates the broadcaster's strong commitment to
observe the broadcast industry's rules and regulations.
Clearly, these circumstances show FBNI's lack of diligence
in selecting and supervising Rima and Alegre. Hence,
FBNI is solidarily liable to pay damages together with
Rima and Alegre.
CITIZENS UNITED V. FEDERAL ELECTION COMM'N
appeal from the united states district court for the district
of columbia
No. 08–205. Argued March 24, 2009—Reargued
September 9, 2009––Decided January 21, 2010
As amended by §203 of the Bipartisan Campaign Reform
Act of 2002 (BCRA), federal law prohibits corporations
and unions from using their general treasury funds to
make independent expenditures for speech that is an
“electioneering communication” or for speech that
expressly advocates the election or defeat of a candidate.
2 U. S. C. §441b. An electioneering communication is
“any broadcast, cable, or satellite communication” that
“refers to a clearly identified candidate for Federal office”
and is made within 30 days of a primary election, §434(f)
(3)(A), and that is “publicly distributed,” 11 CFR
§100.29(a)(2), which in “the case of a candidate for
nomination for President … means” that the
communication “[c]an be received by 50,000 or more
persons in a State where a primary election … is being
held within 30 days,” §100.29(b)(3)(ii). Corporations and
unions may establish a political action committee (PAC)
for express advocacy or electioneering communications
purposes. 2 U. S. C. §441b(b)(2).
In McConnell v. Federal Election Comm’n, 540 U. S. 93,
203–209, this Court upheld limits on electioneering
communications in a facial challenge, relying on the
holding in Austin v. Michigan Chamber of Commerce, 494
U. S. 652, that political speech may be banned based on
the speaker’s corporate identity.
      In January 2008, appellant Citizens United, a
nonprofit corporation, released a documentary
(hereinafter Hillary) critical of then-Senator Hillary
Clinton, a candidate for her party’s Presidential
nomination. Anticipating that it would
make Hillary available on cable television through video-
on-demand within 30 days of primary elections, Citizens
United produced television ads to run on broadcast and
cable television. Concerned about possible civil and
criminal penalties for violating §441b, it sought
declaratory and injunctive relief, arguing that (1) §441b
is unconstitutional as applied to Hillary; and (2) BCRA’s
disclaimer, disclosure, and reporting requirements, BCRA
§§201 and 311, were unconstitutional as applied
to Hillary  and the ads. The District Court denied Citizens
United a preliminary injunction and granted appellee
Federal Election Commission (FEC) summary judgment.
Held:
     1. Because the question whether §441b applies to
Hillary cannot be resolved on other, narrower grounds
without chilling political speech, this Court must consider
the continuing effect of the speech suppression upheld
in Austin. Pp. 5–20.
      (a) Citizen United’s narrower arguments—
that Hillary is not an “electioneering
communication”  covered by §441b because it is not
“publicly distributed” under 11 CFR §100.29(a)(2); that
§441b may not be applied to Hillary under Federal
Election Comm’n v. Wisconsin Right to Life, Inc., 551 U.
S. 449 (WRTL), which found §441b unconstitutional as
applied to speech that was not “express advocacy or its
functional equivalent,” id., at 481 (opinion of Roberts,
C. J.), determining that a communication “is the
functional equivalent of express advocacy only if [it] is
susceptible of no reasonable interpretation other than as
an appeal to vote for or against a specific candidate,” id.,
at 469–470; that §441b should be invalidated as applied
to movies shown through video-on-demand because this
delivery system has a lower risk of distorting the political
process than do television ads; and that there should be
an exception to §441b’s ban for nonprofit corporate
political speech funded overwhelming by individuals—are
not sustainable under a fair reading of the statute. Pp. 5–
12.
      (b) Thus, this case cannot be resolved on a narrower
ground without chilling political speech, speech that is
central to the First Amendment’s meaning and purpose.
Citizens United did not waive this challenge
to Austin  when it stipulated to dismissing the facial
challenge below, since (1) even if such a challenge could
be waived, this Court may reconsider Austin and §441b’s
facial validity here because the District Court “passed
upon” the issue, Lebron v. National Railroad Passenger
Corporation, 513 U. S. 374, 379; (2) throughout the
litigation, Citizens United has asserted a claim that the
FEC has violated its right to free speech; and (3) the
parties cannot enter into a stipulation that prevents the
Court from considering remedies necessary to resolve a
claim that has been preserved. Because Citizen United’s
narrower arguments are not sustainable, this Court must,
in an exercise of its judicial responsibility, consider
§441b’s facial validity. Any other course would prolong
the substantial, nationwide chilling effect caused by
§441b’s corporate expenditure ban. This conclusion is
further supported by the following: (1) the uncertainty
caused by the Government’s litigating position; (2)
substantial time would be required to clarify §441b’s
application on the points raised by the Government’s
position in order to avoid any chilling effect caused by an
improper interpretation; and (3) because speech itself is
of primary importance to the integrity of the election
process, any speech arguably within the reach of rules
created for regulating political speech is chilled. The
regulatory scheme at issue may not be a prior restraint in
the strict sense. However, given its complexity and the
deference courts show to administrative determinations,
a speaker wishing to avoid criminal liability threats and
the heavy costs of defending against FEC enforcement
must ask a governmental agency for prior permission to
speak. The restrictions thus function as the equivalent of
a prior restraint, giving the FEC power analogous to the
type of government practices that the First Amendment
was drawn to prohibit. The ongoing chill on speech makes
it necessary to invoke the earlier precedents that a
statute that chills speech can and must be invalidated
where its facial invalidity has been demonstrated. Pp. 12–
20.
   2. Austin is overruled, and thus provides no basis for
allowing the Government to limit corporate independent
expenditures. Hence, §441b’s restrictions on such
expenditures are invalid and cannot be applied
to Hillary. Given this conclusion, the part
of McConnell that upheld BCRA §203’s extension of
§441b’s restrictions on independent corporate
expenditures is also overruled. Pp. 20–51.
      (a) Although the First Amendment provides that
“Congress shall make no law … abridging the freedom of
speech,” §441b’s prohibition on corporate independent
expenditures is an outright ban on speech, backed by
criminal sanctions. It is a ban notwithstanding the fact
that a PAC created by a corporation can still speak, for a
PAC is a separate association from the corporation.
Because speech is an essential mechanism of democracy
—it is the means to hold officials accountable to the
people—political speech must prevail against laws that
would suppress it by design or inadvertence. Laws
burdening such speech are subject to strict scrutiny,
which requires the Government to prove that the
restriction “furthers a compelling interest and is narrowly
tailored to achieve that interest.” WRTL,  551 U. S.,  at
464. This language provides a sufficient framework for
protecting the interests in this case. Premised on mistrust
of governmental power, the First Amendment stands
against attempts to disfavor certain subjects or
viewpoints or to distinguish among different speakers,
which may be a means to control content. The
Government may also commit a constitutional wrong
when by law it identifies certain preferred speakers.
There is no basis for the proposition that, in the political
speech context, the Government may impose restrictions
on certain disfavored speakers. Both history and logic
lead to this conclusion. Pp. 20–25.
      (b) The Court has recognized that the First
Amendment applies to corporations, e.g., First Nat. Bank
of Boston v. Bellotti, 435 U. S. 765, 778, n. 14, and
extended this protection to the context of political speech,
see, e.g., NAACP v. Button, 371 U. S. 415, 428–429.
Addressing challenges to the Federal Election Campaign
Act of 1971, the Buckley Court upheld limits on direct
contributions to candidates, 18 U. S. C. §608(b),
recognizing a governmental interest in preventing quid
pro quo corruption. 424 U. S., at 25–26. However, the
Court invalidated §608(e)’s expenditure ban, which
applied to individuals, corporations, and unions, because
it “fail[ed] to serve any substantial governmental interest
in stemming the reality or appearance of corruption in the
electoral process,” id., at 47–48. While Buckley did not
consider a separate ban on corporate and union
independent expenditures found in §610, had that
provision been challenged in Buckley’s  wake, it could not
have been squared with the precedent’s reasoning and
analysis. The Buckley Court did not invoke the
overbreadth doctrine to suggest that §608(e)’s
expenditure ban would have been constitutional had it
applied to corporations and unions but not individuals.
Notwithstanding this precedent, Congress soon recodified
§610’s corporate and union expenditure ban at 2 U. S. C.
§441b, the provision at issue. Less than two years
after Buckley, Bellotti  reaffirmed the First Amendment
principle that the Government lacks the power to restrict
political speech based on the speaker’s corporate identity.
435 U.S., at 784–785. Thus the law stood
until Austin upheld a corporate independent expenditure
restriction, bypassing Buckley and Bellotti  by recognizing
a new governmental interest in preventing “the corrosive
and distorting effects of immense aggregations of
[corporate] wealth … that have little or no correlation to
the public’s support for the corporation’s political ideas.”
494 U. S., at 660. Pp. 25–32.
      (c) This Court is confronted with conflicting lines of
precedent: a pre-Austin line forbidding speech
restrictions based on the speaker’s corporate identity and
a post-Austin  line permitting them. Neither Austin’s
antidistortion rationale nor the Government’s other
justifications support §441b’s restrictions. Pp. 32–47.
         (1) The First Amendment prohibits Congress from
fining or jailing citizens, or associations of citizens, for
engaging in political speech, but Austin’s antidistortion
rationale would permit the Government to ban political
speech because the speaker is an association with a
corporate form. Political speech is “indispensable to
decisionmaking in a democracy, and this is no less true
because the speech comes from a corporation.” Bellotti,
supra, at 777 (footnote omitted). This protection is
inconsistent with Austin’s rationale, which is meant to
prevent corporations from obtaining “ ‘an unfair
advantage in the political marketplace’ ” by using
“ ‘resources amassed in the economic marketplace.’ ” 494
U. S., at 659. First Amendment protections do not
depend on the speaker’s “financial ability to engage in
public discussion.” Buckley, supra, at 49. These
conclusions were reaffirmed when the Court invalidated a
BCRA provision that increased the cap on contributions to
one candidate if the opponent made certain expenditures
from personal funds. Davis v. Federal Election Comm’n,
554 U. S. ___, ___. Distinguishing wealthy individuals
from corporations based on the latter’s special
advantages of, e.g.,  limited liability, does not suffice to
allow laws prohibiting speech. It is irrelevant for First
Amendment purposes that corporate funds may “have
little or no correlation to the public’s support for the
corporation’s political ideas.” Austin, supra, at 660. All
speakers, including individuals and the media, use money
amassed from the economic marketplace to fund their
speech, and the First Amendment protects the resulting
speech. Under the antidistortion rationale, Congress could
also ban political speech of media corporations. Although
currently exempt from §441b, they accumulate wealth
with the help of their corporate form, may have
aggregations of wealth, and may express views “hav[ing]
little or no correlation to the public’s support” for those
views. Differential treatment of media corporations and
other corporations cannot be squared with the First
Amendment, and there is no support for the view that the
Amendment’s original meaning would permit suppressing
media corporations’ political speech. Austin interferes
with the “open marketplace” of ideas protected by the
First Amendment. New York State Bd. of
Elections v. Lopez Torres, 552 U. S. 196, 208. Its
censorship is vast in its reach, suppressing the speech of
both for-profit and nonprofit, both small and large,
corporations. Pp. 32–40.
         (2) This reasoning also shows the invalidity of the
Government’s other arguments. It reasons that corporate
political speech can be banned to prevent corruption or
its appearance. The Buckley Court found this rationale
“sufficiently important” to allow contribution limits but
refused to extend that reasoning to expenditure limits,
424 U.S., at 25, and the Court does not do so here. While
a single Bellotti  footnote purported to leave the question
open, 435 U. S., at 788, n. 26, this Court now concludes
that independent expenditures, including those made by
corporations, do not give rise to corruption or the
appearance of corruption. That speakers may have
influence over or access to elected officials does not mean
that those officials are corrupt. And the appearance of
influence or access will not cause the electorate to lose
faith in this democracy. Caperton v. A. T. Massey Coal
Co., 556 U. S. ___, distinguished. Pp. 40–45.
         (3) The Government’s asserted interest in
protecting shareholders from being compelled to fund
corporate speech, like the antidistortion rationale, would
allow the Government to ban political speech even of
media corporations. The statute is underinclusive; it only
protects a dissenting shareholder’s interests in certain
media for 30 or 60 days before an election when such
interests would be implicated in any media at any time. It
is also overinclusive because it covers all corporations,
including those with one shareholder. P. 46.
            (4) Because §441b is not limited to corporations
or associations created in foreign countries or funded
predominately by foreign shareholders, it would be
overbroad even if the Court were to recognize a
compelling governmental interest in limiting foreign
influence over the Nation’s political process. Pp. 46–47.
      (d) The relevant factors in deciding whether to
adhere to stare decisis, beyond workability—the
precedent’s antiquity, the reliance interests at stake, and
whether the decision was well reasoned—counsel in favor
of abandoning Austin,  which itself contravened the
precedents of Buckley  and Bellotti. As already
explained, Austin was not well reasoned. It is also
undermined by experience since its announcement.
Political speech is so ingrained in this country’s culture
that speakers find ways around campaign finance laws.
Rapid changes in technology—and the creative dynamic
inherent in the concept of free expression—counsel
against upholding a law that restricts political speech in
certain media or by certain speakers. In addition, no
serious reliance issues are at stake. Thus, due
consideration leads to the conclusion that Austin should
be overruled. The Court returns to the principle
established in Buckley and Bellotti that the Government
may not suppress political speech based on the speaker’s
corporate identity. No sufficient governmental interest
justifies limits on the political speech of nonprofit or for-
profit corporations. Pp. 47–50.
   3. BCRA §§201 and 311 are valid as applied to the ads
for Hillary and to the movie itself. Pp. 50–57.
      (a) Disclaimer and disclosure requirements may
burden the ability to speak, but they “impose no ceiling
on campaign-related activities,” Buckley, 424 U. S., at
64, or “ ‘ “prevent anyone from
speaking,” ’ ” McConnell, supra, at 201.
The Buckley Court explained that disclosure can be
justified by a governmental interest in providing “the
electorate with information” about election-related
spending sources. The McConnell  Court applied this
interest in rejecting facial challenges to §§201 and 311.
540 U. S., at 196. However, the Court acknowledged that
as-applied challenges would be available if a group could
show a “ ‘reasonable probability’ ” that disclosing its
contributors’ names would “ ‘subject them to threats,
harassment, or reprisals from either Government officials
or private parties.’ ” Id., at 198. Pp. 50–52.
      (b) The disclaimer and disclosure requirements are
valid as applied to Citizens United’s ads. They fall within
BCRA’s “electioneering communication” definition: They
referred to then-Senator Clinton by name shortly before a
primary and contained pejorative references to her
candidacy. Section 311 disclaimers provide information to
the electorate, McConnell, supra,  at 196, and “insure that
the voters are fully informed” about who is
speaking, Buckley, supra, at 76. At the very least, they
avoid confusion by making clear that the ads are not
funded by a candidate or political party. Citizens United’s
arguments that §311 is underinclusive because it requires
disclaimers for broadcast advertisements but not for print
or Internet advertising and that §311 decreases the
quantity and effectiveness of the group’s speech were
rejected in McConnell. This Court also rejects their
contention that §201’s disclosure requirements must be
confined to speech that is the functional equivalent of
express advocacy under WRTL’s test for restrictions on
independent expenditures, 551 U. S., at 469–476
(opinion of Roberts, C.J.). Disclosure is the less-
restrictive alternative to more comprehensive speech
regulations. Such requirements have been upheld
in Buckley  and McConnell. Citizens United’s argument
that no informational interest justifies applying §201 to
its ads is similar to the argument this Court rejected with
regard to disclaimers. Citizens United finally claims that
disclosure requirements can chill donations by exposing
donors to retaliation, but offers no evidence that
its  members face the type of threats, harassment, or
reprisals that might make §201 unconstitutional as
applied. Pp. 52–55.
      (c) For these same reasons, this Court affirms the
application of the §§201 and 311 disclaimer and
disclosure requirements to Hillary. Pp. 55–56.
Reversed in part, affirmed in part, and remanded.