CORPO CASES

FIRST DIVISION
 
PETRON CORPORATION, G.R. No. 155683
Petitioner,
Present:
 
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and
GARCIA, JJ.
NATIONAL COLLEGE OF
BUSINESS AND ARTS,
Respondent. Promulgated:
 
February 16, 2007
 
x----------------------------------------------------x
 
DECISION
 
CORONA, J.:
 
 

The sole question raised in this petition for review on certiorari [1] is whether petitioner Petron Corporation

(Petron) should be held liable to pay attorneys 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

land[2] in the V. Mapa area of Sta. Mesa, Manila (the V. Mapaproperties) 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, Felipes 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 Quiapoproperties 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 Enriques 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 DBPs mortgage lien and Filoils levy on or before July 31,

1982. But the Monserrats failed to comply with this undertaking. Thus, on February 3, 1983, NCBA caused the

annotation of an affidavit of adverse claim on the TCTs covering the V. Mapaproperties.

 

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. Mapaproperties. 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, Enriques 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 Felipes and Enriques undivided interests in the property. The final deeds of sale of

Enriques and Felipes shares in the V. Mapa properties were awarded to Petron in 1986. Sometime later,

the Monserrats TCTs were cancelled and new ones were issued to Petron. Thus it was that, towards the end of

1987, Petron intervened in NCBAs suit against Felipe, Enrique and DBP (Civil Case No. 83-16617) to 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 attorneys 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, Industrial
Finance Corporation[,] and Filoil over the V. 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 owners 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 Courts 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 NCBAs plainly valid and demandable claims. Assessment
of exemplary damages and attorneys 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 CAG.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 attorneys 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 Petrons 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 Petrons liability for exemplary damages and attorneys 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, attorneys fees cannot be recovered except

in the following instances:

 
(1) When exemplary damages are awarded;
(2) When the defendants 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 plaintiffs
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 workmens compensation and employers liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorneys fees and expenses
of litigation should be recovered.[10]

Here, the RTC held Petron liable to NCBA for attorneys fees under Article 2208(5), which allows such an

award where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just,

and demandable claim. However, the only justification given for this verdict was that Petron had no reason to claim

the V. Mapaproperties because, in the RTCs opinion, the levy and sale thereof were void.[11] This was sorely

inadequate and it was erroneous for the CA to have upheld that ruling built on such a flimsy foundation.
 

Article 2208(5) contemplates a situation where one refuses unjustifiably and in evident bad faith to satisfy

anothers plainly valid, just and demandable claim, 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 lawyers assistance in suing the

defendant expenses the plaintiff would not have incurred if not for the defendants refusal to comply with the most

basic rules of fair dealing. It does not mean, however, that the losing party should be made to pay attorneys fees

merely because the court finds 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

attorneys fees unless it amounts to gross and evident bad faith.[14]

  

Petrons claim to the V. Mapa properties, founded as it was on final deeds of sale on execution, was far from

untenable. No gross and evident bad faith could be imputed to Petron merely for intervening in NCBAs suit against

DBP and the Monserrats in order to assert what it believed (and had good reason to believe) were its rights and to

have the disputed ownership of the V. Mapa properties 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 awarded. [15] In other words, no exemplary damages may be awarded without

the plaintiffs right to moral, temperate, liquidated or compensatory damages having first been established. Therefore,

in view of our ruling that Petron cannot be made liable to NCBA for compensatory damages (i.e., attorneys

fees), Petron cannot be held liable for exemplary damages either.

 

WHEREFORE, the petition is hereby GRANTED. The imposition of liability on Petron Corporation for

exemplary damages and attorneys fees is REVOKED. The June 21, 2002 decision and October 16, 2002 resolution

of the Court of Appeals in CAG.R. CV No. 53466 and the March 11, 1996 decision of the Regional Trial Court of

Manila in Civil Case No. 83-16617 are hereby MODIFIED accordingly.

 
SO ORDERED.

[G.R. No. 121171. December 29, 1998:

ASSET PRIVATIZATION TRUST, petitioner, vs., COURT OF APPEALS, JESUS S. CABARRUS,
SR., JESUS S. CABARRUS, JR., JAIME T. CABARRUS, JOSE MIGUEL CABARRUS, ALEJANDRO S.
PASTOR, JR., ANTONIO U. MIRANDA, and MIGUEL M. ANTONIO, as Minority Stock Holders of
Marinduque Mining and Industrial Corporation, respondents.

DECISION

KAPUNAN, J.:

The petition for review on certiorari before us seeks us to reverse and set aside the decision of the Court of
Appeals which denied due course to the petition for certiorari filed by the Asset Privatization Trust (APT) assailing
the order of the Regional Trial Court (RTC) Branch 62, Makati City. The Makati RTCs order upheld and confirmed
the award made by the Arbitration Committee in favor of Marinduque Mining and Industrial Corporation (MMIC)
and against the Government, represented by herein petitioner APT for damages in the amount of P2.5 BILLION (or
approximately P4.5 BILLION, including interest).

Ironically, the staggering amount of damages was imposed on the Government for exercising its legitimate
right of foreclosure as creditor against the debtor MMIC as a consequence of the latters failure to pay its overdue
and unpaid obligation of P22 billion to the Philippine National Bank (PNB) and the Development Bank of the
Philippines (DBP).

The antecedent facts of the case

The development, exploration and utilization of the mineral deposits in the Surigao Mineral Reservation have
been authorized by Republic Act No. 1828, as amended by Republic Acts No. 2077 and 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.[1] MMIC is a domestic corporation engaged in mining with
respondents 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 and
extension of guarantees. Further, the Philippine Government obtained a firm, commitment from the DBP and/or
other government financing institutions to subscribed in MMIC and issue guarantee/s for foreign loans or deferred
payment arrangements secured from the US Eximbank, Asian Development Bank, Kobe Steel, of amount not
exceeding US$100 Million.[2]

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

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

Article IV of the Mortgage Trust Agreement provides for Events of Default, which expressly includes the event
that the MORTGAGOR shall fail to pay any amount secured by this Mortgage Trust Agreement when due.[4]

Article V of the Mortgage Trust Agreement prescribes in detail, and in addition to the enumerated events of
defaults, circumstances by which the mortgagor may be declared in default, the procedure therefor, waiver of period
to foreclose, authority of Trustee before, during and after foreclosure, including taking possession of the mortgaged
properties.[5]

In various request for advances/remittances of loans of huge amounts, Deeds of Undertakings, Promissory
Notes, Loans Documents, Deeds of Real Estate Mortgages, MMIC invariably committed to pay either on demand or
under certain terms the loans and accommodations secured from or guaranteed by both DBP and PNB.

By 1984, DBP and PNBs financial exposure both in loans and in equity in MMIC had reached tremendous
proportions, and MMIC was having a difficult time meeting its financial obligations. MMIC had an outstanding loan
with DBP in the amount of P13,792,607,565.92 as of August 31, 1984 and in the amount of P8,789,028,249.38 as of
July 15, 1984 or a total Government exposure of Twenty Two Billion Six Hundred Sixty-Eight Million Five
Hundred Thirty-Seven Thousand Seven Hundred Seventy and 05/100 (P22,668,537,770.05), Philippine Currency.
[6]
 Thus, a financial restructuring plan (FRP) designed to reduce MMIC' interest expense through debt conversion to
equity was drafted by the Sycip Gorres Velayo accounting firm.[7] On April 30, 1984, the FRP was approved by the
Board of Directors of the MMIC.[8] However, the proposed FRP had never been formally adopted, approved or
ratified by either PNB or DBP.[9]
 In August and September 1984, as the various loans and advances made by DBP and PNB to MMIC had
become overdue and since any restructuring program relative to the loans was no longer feasible, and in compliance
with the directive of Presidential Decree No. 385, DBP and PNB as mortgagees of MMIC assets, decided to exercise
their right to extrajudicially foreclose the mortgages in accordance with the Mortgage Trust Agreement. [10]

The foreclosed assets were sold to PNB as the lone bidder and were assigned to three 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 (APT). [11]

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.[12] The suit, docketed as Civil Case No. 9900, prayed that the court: (1) annul the
foreclosure, 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; and (3) pay moral
and exemplary damages, attorneys fees, litigation expenses and costs.

In the course of the trial, private respondents and petitioner APT, as successor of the DBP and PNBs interest in
MMIC, mutually agreed to submit the case to arbitration by entering into a Compromise and Arbitration Agreement,
stipulating, inter alia:

NOW, THEREFORE, for and in consideration of the foregoing premises and the mutual covenants contain herein,
the parties agreed as follows:

1. Withdrawal and Compromise. The parties have agreed to withdraw their respective claims from the Trial Court
and to resolve their dispute through arbitration by praying to the Trial Court to issue a Compromise Judgment based
on this Compromise and Arbitration Agreement.

In withdrawing their dispute form the court and in choosing to resolve it through arbitration, the parties have agreed
that:

(a) their respective money claims shall be reduced to purely money claims; and

(b) as successor and assignee of the PNB and DBP interest in MMIC and the MMIC accounts, APT shall likewise
succeed to the rights and obligations of PNB and DBP in respect of the controversy subject of Civil Case No. 9900
to be transferred to arbitration and any arbitral award/order against either PNB and/or DBP shall be the
responsibility of, be discharged by and be enforceable against APT, the partied having agreed to drop PNB and DBP
from the arbitration.

2. Submission. The parties hereby agree that (a) the controversy in Civil Case No. 9900 shall be submitted instead to
arbitration under RA 876 and (b) the reliefs prayed for in Civil Case No. 9900 shall, with the approval of the Trial
Court of this Compromise and Arbitration Agreement, be transferred and reduced to pure pecuniary/money claims
with the parties waiving and foregoing all other forms of reliefs which they prayed for or should have payed for in
Civil Case No. 9900.[13]

The Compromise and Arbitration Agreement limited the issues to the following:

5. Issues. The issues to be submitted for the Committees resolution shall be: (a) Whether PLAINTIFFS have the
capacity or the personality to institute this derivative suit in behalf of the MMIC or its directors; (b) Whether or not
the actions leading to, and including, the PNB-DBP foreclosure of the MMIC assets were proper, valid and in good
faith.[14]

This agreement was presented for approval to the trial court. On October 14, 1992, the Makati RTC, Branch
62, issued an order, to wit:
WHEREFORE, this Court orders:

1. Substituting PNB and DBP with the Asset Privatization Trust as party defendant.

2. Approving the Compromise and Arbitration Agreement dated October 6, 1992, attached as Annex C of
the Omnibus Motion.

3. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in this case into pure money
claims; and

4. The Complaint is hereby DISMISSED.[15]

The Arbitration Committee was composed of retired Supreme Court Justice Abraham Sarmiento as Chairman,
Atty. Jose C. Sison and former Court of Appeals Justice Magdangal Elma as Members. On November 24, 1993, after
conducting several hearings, the Arbitration Committee rendered a majority decision in favor of MMIC, the
pertinent portions of which read as follows:

Since, as this Committee finds, there is no foreclosure at all was not legally and validly done, the Committee holds
and so declares that the loans of PNB and DBP to MMIC, for the payment and recovery of which the void
foreclosure sales were undertaken, continue to remain outstanding and unpaid. Defendant APT as the successor-in-
interest of PNB and DBP to the said loans is therefore entitled and retains the right, to collect the same from MMIC
pursuant to and based on the loan documents signed by MMIC, subject to the legal and valid defenses that the latter
may duly and seasonably interpose. Such loans shall, however, be reduced by the amount which APT may have
realized from the sale of the seized assets of MMIC which by agreement should no longer be returned even if the
foreclosure were found to be null and void.

The documentary evidence submitted and adopted by both parties (Exhibits 3, 3-B; Exhibits 100; and also Exhibit
ZZZ) as their exhibits would show that the total outstanding obligation due to DBP and PNB as of the date of
foreclosure is P22,668,537,770.05, more or less.

Therefore, defendant APT can, and is still entitled to, collect the outstanding obligations of MMIC to PNB and DBP
amounting to P22,668.537,770.05, more or less, with interest thereon as stipulated in the loan documents from the
date of foreclosure up to the time they are fully paid less the proportionate liability of DBP as owner of 87% of the
total capitalization of MMIC under the FRP. Simply put, DBP shall share in the award of damages to, and in
obligations of MMIC in proportion to its 87% equity in the total capital stock of MMIC.

x x x.

As this Committee holds that the FRP is valid, DBPs equity in MMIC is raised to 87%. So pursuant to the above
provision of the Compromise and Arbitration Agreement, the 87% equity of DBP is hereby deducted from the actual
damages of P19,486,118,654.00 resulting in the net actual damages of P2,531,635,425.02 plus interest.

DISPOSITION

WHEREFORE, premises considered, judgment is hereby rendered:

1. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum
of P2,531,635,425.02 with interest thereon at the legal rate of six per cent (6%) per annum reckoned from August 3,
9, and 24, 1984, pari passu, as and for actual damages. Payment of these actual damages shall be offset by APT
from the outstanding and unpaid loans of the MMIC with DBP and PNB, which have not been converted into
equity. Should there be any balance due to the MMIC after the offsetting, the same shall be satisfied from the funds
representing the purchase price of the sale of the shares of Island Cement Corporation in the amount
of P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and
Arbitration Agreement;
2. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum
of P13,000,000.00 as and for moral and exemplary damages. Payment of these moral and exemplary damages shall
be offset by APT from the outstanding and unpaid loans of MMIC with DBP and PNB, which have not been
converted into equity. Should there be any balance due to MMIC after the offsetting, the same shall be satisfied from
the funds representing the purchase price of the sale of the shares of Island Cement Corporation in the
of P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and
Arbitration Agreement;

3. Ordering the defendant to pay to the plaintiff, Jesus Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supercede it, pursuant to paragraph (9) of the Compromise and Arbitration
Agreement, as and for moral damages; and

4. Ordering the defendant to pay arbitration costs.

This Decision is FINAL and EXECUTORY.

IT IS SO ORDERED.[16]

Motions for reconsiderations were filed by both parties, but the same were denied.

On October 17, 1994, private respondents filed in the same Civil Case No. 9900 an Application/Motion for
Confirmation of Arbitration Award. Petitioner countered with an Opposition and Motion to Vacate Judgment raising
the following grounds:

1. The plaintiffs Application/Motion is improperly filed with this branch of the Court, considering that the said
motion is neither a part nor the continuation of the proceedings in Civil Case No. 9900 which was dismissed upon
motion of the parties. In fact, the defendants in the said Civil Case No. 9900 were the Development Bank of the
Philippines and the Philippine National Bank (PNB);

2. Under Section 22 of Rep. Act 876, an arbitration under a contract or submission shall be deemed a special
proceedings and a party to the controversy which was arbitrated may apply to the court having jurisdiction, (not
necessarily with this Honorable Court) for an order confirming the award;

3. The issues submitted for arbitration have been limited to two: (1) propriety of the plaintiffs filing the derivative
suit and (2) the regularity of the foreclosure proceedings. The arbitration award sought to be confirmed herein far
exceeded the issues submitted and even granted moral damages to one of the herein plaintiffs;

4. Under Section 24 of Rep. Act 876, the Court must make an order vacating the award where the arbitrators
exceeded their powers, or so imperfectly executed them, that a mutual final and definite award upon the subject
matter submitted to them was not made.[17]

Private respondents filed a REPLY AND OPPOSITION dated November 10, 1984, arguing that a dismissal of
Civil case No. 9900 was merely a qualified dismissal to pave the way for the submission of the controversy to
arbitration, and operated simply as a mere suspension of the proceedings. They denied that the Arbitration
Committee had exceeded its powers.

In an Order dated November 28, 1994, the trial court confirmed the award of the Arbitration Committee. The
dispositive portion of said order reads:

WHEREFORE, premises considered, and in the light of the parties [sic] Compromise and Arbitration Agreement
dated October 6, 1992, the Decision of the Arbitration Committee promulgated on November 24, 1993, as affirmed
in a Resolution dated July 26, 1994, and finally settled and clarified in the Separate Opinion dated September 2,
1994 of Committee Member Elma, and the pertinent provisions of RA 876,also known as the Arbitration Law, this
Court GRANTS PLAINTIFFS APPLICATION AND THUS CONFIRMS THE ARBITRATION AWARD, AND
JUDGMENT IS HEREBY RENDERED:

(a) Ordering the defendant APT to the Marinduque Mining and Industrial Corporation (MMIC, except the DBP, the
sum of P3,811,757,425.00, as and for actual damages, which shall be partially satisfied from the funds held under
escrow in the amount of P503,000,000.00 pursuant to the Escrow Agreement dated April 22, 1988. The Balance of
the award, after the escrow funds are fully applied, shall be executed against the APT;

(b) Ordering the defendant to pay to the MMIC, except the DBP, the sum of P13,000,000.00 as and moral and
exemplary damages;

(c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum of P10,000,000.00 as and for moral damages;
and

(d) Ordering the defendant to pay the herein plaintiffs/applicants/movants the sum of P1,705,410.22 as arbitration
costs.

In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8 paragraph 2 of the Compromise and
Arbitration Agreement, and the final edict of the Arbitration Committees decision, and with this Courts
Confirmation, the issuance of the Arbitration Committees Award shall henceforth be final and executory.

SO ORDERED.[18]

On December 27, 1994, petitioner filed its motion for reconsideration of the Order dated November 28,
1994. Private respondents, in turn, submitted their reply and opposition thereto.

On January 18, 1995, the trial court handed down its order denying APTs motion for reconsideration for lack of
merit and for having been filed out of time. The trial court declared that considering that the defendant APT through
counsel, officially and actually received a copy of the Order of this Court dated November 28, 1994 on December 6,
1994, the Motion for Reconsideration thereof filed by the defendant APT on December 27, 1994, or after the lapse
of 21 days, was clearly filed beyond the 15-day reglementary period prescribed or provided for by law for the filing
of an appeal from final orders, resolutions, awards, judgments or decisions of any court in all cases, and by
necessary implication for the filling of a motion for reconsideration thereof.

On February 7, 1995, petitioner received private respondents motion for Execution and Appointment of
Custodian of Proceeds of Execution dated February 6, 1995.

Petitioner thereafter filed with the Court of Appeals a special civil action for certiorari with temporary
restraining order and/or preliminary injunction dated February 13, 1996 to annul and declare as void the Orders of
the RTC-Makati dated November 28, 1994 and January 18, 1995 for having been issued without or in excess of
jurisdiction and/or with grave abuse of discretion.[19] As ground therefor, petitioner alleged that:

THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION MUCH LESS, HAS THE
COURT AUTHORITY, TO CONFIRM THE ARBITRAL AWARD CONSIDERING THAT THE ORIGINAL
CASE, CIVIL CASE NO. 9900, HAD PREVIOUSLY BEEN DISMISSED.

II

THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AND ACTED WITHOUT OR
IN EXCESS OF JURISDICTION, IN ISSUING THE QUESTIONED ORDERS CONFIRMING THE ARBITRAL
AWARD AND DENYING THE MOTION FOR RECONSIDERATION OF ORDER OF AWARD.
 III

THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION AND ACTED WITHOUT OR IN EXCESS
OF AND WITHOUT JURISDICTION IN RECKONING THE COUNTING OF THE PERIOD TO FILE MOTION
FOR RECONSIDERATION, NOT FROM THE DATE OF SERVICE OF THE COURTS COPY CONFIRMING
THE AWARD, BUT FROM RECEIPT OF A XEROX COPY OF WHAT PRESUMABLY IS THE OPPOSING
COUNSELS COPY THEREOF.[20]

On July 12, 1995, the Court of Appeals, through its fifth Division denied due course and dismissed the petition
for certiorari.

Hence, the instant petition for review on certiorari imputing to the Court of Appeals the following errors.

ASSIGNMENT OF ERRORS

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE MAKATI REGIONAL TRIAL
COURT, BRANCH 62 WHICH HAS PREVIOULSY DISMISSED CIVIL CASE NO. 9900 HAD LOST
JURISDICTION TO CONFIRM THE ARBITRAL AWARD UNDER THE SAME CIVIL CASE AND IN
NOT RULING THAT THE APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN FILED AS A
NEW CASE TO BE RAFFLED OFF AMONG THE DIFFERENT BRANCHES OF THE RTC.

II

THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT PETITIONER WAS ESTOPPED
FROM QUESTIONING THE ARBITRATION AWARD, WHEN PETITIONER QUESTIONED THE
JURISDICTION OF THE RTC-MAKATI, BRANCH 62 AND AT THE SAME TIME MOVED TO VACATE
THE ARBITRAL AWARD.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT TRIAL COURT
SHOULD HAVE EITHER DISMISSED/DENIED PRIVATE RESPONDENTS MOTION/PETITION FOR
CONFIRMATION OF ARBITRATION AWARD AND/OR SHOULD HAVE CONSIDERED THE MERITS
OF THE MOTION TO VACATE ARBITRAL AWARD.

IV

THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APTS PETITION

FOR CERTIORARI AS AN APPEAL TAKEN FROM THE ORDER CONFIRMING THE AWARD

THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL ISSUE OF WHEN TO RECKON
THE COUNTING OF THE PERIOD TO FILE A MOTION FOR RECONSIDERATION.[21]

The petition is impressed with merit.

l.

The RTC of Makati, Branch 62, did not have jurisdiction to confirm the arbitral award
 The use of the term dismissed is not a mere semantic imperfection. The dispositive portion of the Order of the
trial court dated October 14, 1992 stated in no uncertain terms:

4. The Complaint is hereby DISMISSED.[22]

The term dismiss has a precise definition in law. To dispose of an action suit, or motion without trial on the issues
involved. Conclude, discontinue, terminate, quash.[23]

Admittedly the correct procedure was for the parties to go back to the court where the case was pending to
have the award confirmed by said court. However, Branch 62 made the fatal mistake of issuing a final order
dismissing the case. While Branch 62 should have merely suspended the case and not dismissed it, [24] neither of the
parties questioned said dismissal. Thus, both parties as well as said court are bound by such error.

It is erroneous then to argue, as private respondents do, that petitioner APT was charged with the knowledge
that the case was merely stayed until arbitration finished, as again, the order of Branch 62 in very clear terms stated
that the complaint was dismissed. By its own action, Branch 62 had lost jurisdiction over the vase. It could not have
validly reacquired jurisdiction over the said case on mere motion of one of the parties. The Rules of Court is specific
on how a new case may be initiated and such is not done by mere motion in a particular branch of the
RTC. Consequently, as there was no pending action to speak of, the petition to confirm the arbitral award should
have been filed as a new case and raffled accordingly to one of the branches of the Regional Trial Court.

II

Petitioner was not estopped from questioning the jurisdiction of Branch 62 of the RTC of Makati.

The Court of Appeals ruled that APT was already estopped to question the jurisdiction of the RTC to confirm
the arbitral award because it sought affirmative relief in said court by asking that the arbitral award be vacated.

The rule is that Where the court itself clearly has no jurisdiction over the subject matter or the nature of the
action, the invocation of this defense may de done at any time. It is neither for the courts nor for the parties to violate
or disregard that rule, let alone to confer that jurisdiction, this matter being legislative in character. [25] As a rule the,
neither waiver nor estoppel shall apply to confer jurisdiction upon a court barring highly meritorious and
exceptional circumstances.[26] One such exception was enunciated in Tijam vs. Sibonghanoy,[27] where it was held
that after voluntarily submitting a cause and encountering an adverse decision on the merits, it is too late for the
loser to question the jurisdiction or power of the court."

Petitioners situation is different because from the outset, it has consistently held the position that the RTC,
Branch 62 had no jurisdiction to confirm the arbitral award; consequently, it cannot be said that it was estopped from
questioning the RTCs jurisdiction. Petitioners prayer for the setting aside of the arbitral award was not inconsistent
with its disavowal of the courts jurisdiction.

III

Appeal of petitioner to the Court of Appeals thru certiorari  under Rule 65 was proper.
 The Court of Appeals in dismissing APTs petition for certiorari upheld the trial courts denial of APTs motion
for reconsideration of the trial courts order confirming the arbitral award, on the ground that said motion was filed
beyond the 15-day reglementary period; consequently, the petition for certiorari could not be resorted to as
substitute to the lost right of appeal.

We do not agree.

Section 29 of Republic Act No. 876,[28] provides that:

x x x An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered
upon an award through certiorari proceedings, but such appeals shall be limited to question of law. x x x.

The aforequoted provision, however, does not preclude a party aggrieved by the arbitral award from resorting
to the extraordinary remedy of certiorari under Rule 65 of the Rules of Court where, as in this case, the Regional
Trial Court to which the award was submitted for confirmation has acted without jurisdiction, or with grave abuse of
discretion and there is no appeal, nor any plain, speedy remedy in the course of law.

Thus, Section 1 of Rule 65 provides:

SEC 1. Petition for Certiorari: - When any tribunal, board or officer exercising judicial functions, has acted without
or in excess of its or his jurisdiction, or with grave abuse of discretion and there is no appeal, nor any plain, speedy,
and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the
proper court alleging the facts with certainty and praying that judgment be rendered annulling or modifying the
proceedings, as the law requires, of such tribunal, board or officer.

In the instant case, the respondent court erred in dismissing the special civil action for certiorari, it being from
the pleadings and the evidence that the trial court lacked jurisdiction and/or committed grave abuse of discretion in
taking cognizance of private respondent motion to confirm the arbitral award and, worse, in confirming said award
which is grossly and patently not in accord with the arbitration agreement, as will be hereinafter demonstrated.

IV

The nature and limits of the Arbitrators powers.

As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to the law or as to
the facts.[29] Courts are without power to amend or overrule merely because of disagreement with matters of law or
facts determined by the arbitrators.[30] They will not review the findings of law and fact contained in an award, and
will not undertake to substitute their judgment for that of the arbitrators, since any other rule would make an award
the commencement, not the end, of litigation. [31] Errors of law and fact, or an erroneous decision of matters
submitted to the judgment of the arbitrators, are insufficient to invalidate an award fairly and honestly made.
[32]
 Judicial review of an arbitration is, thus, more limited than judicial review of a trial.[33]

Nonetheless, the arbitrators awards is not absolute and without exceptions. The arbitrators cannot resolve
issues beyond the scope of the submission agreement. [34] The parties to such an agreement are bound by the
arbitrators award only to the extent and in the manner prescribed by the contract and only if the award is rendered in
conformity thereto.[35] Thus, Sections 24 and 25 of the Arbitration Law provide grounds for vacating, rescinding or
modifying an arbitration award. Where the conditions described in Articles 2038, [36] 2039[37] and 2040[38] of the Civil
Code applicable to compromises and arbitration are attendant, the arbitration award may also be annulled.
 In Chung Fu Industries (Phils.) vs. Court of Appeals,[39] we held:

x x x. It is stated explicitly under Art. 2044 of the Civil Code that the finality of the arbitrators awards is not absolute
and without exceptions. Where the conditions described in Articles 2038, 2039, and 2040 applicable to both
compromises and arbitration are obtaining, the arbitrators' award may be annulled or rescinded. Additionally, under
Sections 24 and 25, of the Arbitration Law, there are grounds for vacating, modifying or rescinding an arbitrators
award. Thus, if and when the factual circumstances referred to in the above-cited provisions are present, judicial
review of the award is properly warranted.

Accordingly, Section 20 of R.A. 876 provides:

SEC. 20. Form and contents of award. The award must be made in writing and signed and acknowledged by a
majority of the arbitrators, if more than one; and by the sole arbitrator, if there is only one. Each party shall be
furnished with a copy of the award. The arbitrators in their award may grant any remedy or relief which they deem
just and equitable and within the scope of the agreement of the parties, which shall include, but not be limited to, the
specific performance of a contract.

xxx

The arbitrators shall have the power to decide only those matters which have been submitted to them.  The terms of
the award shall be confined to such disputes. (Underscoring ours).

xxx.

Section 24 of the same law enumerating the grounds for vacating an award states:

SEC. 24. Grounds for vacating award. In any one of the following cases, the court must make an order vacating the
award upon the petition of any party to the controversy when such party proves affirmatively that in the arbitration
proceedings:

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

(b) That there was evident partiality or corruption in arbitrators or any of them; or

(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown,
or in refusing to hear evidence pertinent and material to the controversy; that one or more of the arbitrators was
disqualified to act as such under section nine hereof, and willfully refrained from disclosing such disqualifications or
any other misbehavior by which the rights of any party have been materially prejudiced; or

(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite
award upon the subject matter submitted to them was not made. (Underscoring ours).

xxx.

Section 25 which enumerates the grounds for modifying the award provides:

SEC. 25. Grounds for modifying or correcting award In anyone of the following cases, the court must make an
order modifying or correcting the award, upon the application of any party to the controversy which was arbitrated:

(a) Where there was an evident miscalculation of figures, or an evident mistake in the description of any person,
thing or property referred to in the award; or

(b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits of the decision
upon the matter submitted; or
(c) Where the award is imperfect in a matter of form not affecting the merits of the controversy, and if it had been a
commissioners report, the defect could have been amended or disregarded by the court.

x x x.

Finally, it should be stressed that while a court is precluded from overturning an award for errors in
determination of factual issues, nevertheless, if an examination of the record reveals no support whatever for the
arbitrators determinations, their award must be vacated.[40] In the same manner, an award must be vacated if it was
made in manifest disregard of the law.[41]

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

There was no financial structuring program; foreclosure of mortgage was fully justified.

The point need not be belabored that PNB and DBP had the legitimate right to foreclose of the mortgages of
MMIC whose obligations were past due. The foreclosure was not a wrongful act of the banks and, therefore, could
not be the basis of any award of damages. There was no financial restructuring agreement to speak of that could
have constituted an impediment to the exercise of the banks right to foreclose.

As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who wrote a separate
opinion:

1. The various loans and advances made by DBP and PNB to MMIC have become overdue and remain unpaid. The
fact that a FRP was drawn up is enough to establish that MMIC has not been complying with the terms of the loan
agreement. Restructuring simply connotes that the obligations are past due that is why it is restructurable;

2. When MMIC thru its board and the stockholders agreed and adopted the FRP, it only means that MMIC had been
informed or notified that its obligations were past due and that foreclosure is forthcoming;

3. At that stage, MMIC also knew that PNB-DBP had the option of either approving the FRP or proceeding with the
foreclosure. Cabarrus, who filed this case supposedly in behalf of MMIC should have insisted on the FRP. Yet
Cabarrus himself opposed the FRP;

4. So when PNB-DBP proceeded with the foreclosure, it was done without bad faith but with honest and sincere
belief that foreclosure was the only alternative; a decision further explained by Dr. Placido Mapa who testified that
foreclosure was, in the judgment of PNB, the best move to save MMIC itself.

Q : Now in this portion of Exh. L which was marked as Exh. L-1, and we adopted as Exh. 37-A for the
respondent, may I know from you, Dr. Mapa what you meant by that the decision to foreclose was neither
precipitate nor arbitrary?

A : Well, it is not a whimsical decision but rather decision arrived at after weighty considerations of the
information that we have received, and listening to the prospects which reported to us that we had assumed
would be the premises of the financial rehabilitation plan was not materialized nor expected to
materialized.
 Q : And this statement that it was premised upon the known fact that means, it was referring to the decision to
foreclose, was premised upon the known fact that the rehabilitation plan earlier approved by the
stockholders was no longer feasible, just what is meant by no longer feasible?

A : Because the revenue that they were counting on to make the rehabilitation plan possible, was not anymore
expected to be forthcoming because it will result in a short fall compared to the prices that were actually
taking place in the market.

Q : And I supposed that was you were referring to when you stated that the production targets and assumed
prices of MMICs products, among other projections, used in the financial reorganization program that will
make it viable were not met nor expected to be met?

A : Yes.

xxx

Which brings me to my last point in this separate opinion. Was PNB and DBP absolutely unjustified in foreclosing
the mortgages?

In this connection, it can readily be seen and it cannot quite be denied that MMIC accounts in PNB-DBP were past
due. The drawing up of the FRP is the best proof of this. When MMIC adopted a restructuring program for its loan,
it only meant that these loans were already due and unpaid. If these loans were restructurable because they were
already due and unpaid, they are likewise forecloseable. The option is with the PNB-DBP on what steps to take.

The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost the option to foreclose. Neither does it
mean that the FRP is legally binding and implementable. It must be pointed that said FRP will, in effect, supersede
the existing and past due loans of MMIC with PNB-DBP. It will become the new loan agreement between the
lenders and the borrowers. As in all other contracts, there must therefore be a meeting of minds of the parties; the
PNB and DBP must have to validly adopt and ratify such FRP before they can be bound by it; before it can be
implemented. In this case, not an iota of proof has been presented by thePLAINTIFFS showing that PNB and DBP
ratified and adopted the FRP. PLAINTIFFS simply relied on a legal doctrine of promissory estoppel to support its
allegation in this regard.[42]

Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated by P.D. No. 385, which took
effect on January 31, 1974. The decree requires government financial institutions to foreclose collaterals for loans
where the arrearages amount to 20% of the total outstanding obligations. The pertinent provisions of said decree
read as follows:

SEC. 1. It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the
issuance of this Decree to foreclose the collaterals and/or securities for any loan, credit, accommodations, and/or
guarantees granted by them whenever the arrearages on such account, including accrued interest and other charges,
amount to at least twenty percent (20%) of the total outstanding obligations, including interest and other charges, as
appearing in the books of account and/or related records of the financial institutions concerned. This shall be without
prejudice to the exercise by the government financial institutions of such rights and/or remedies available to them
under their respective contracts with their debtor, including the right to foreclosure on loans, credits,
accommodations and/or guarantees on which the arrearages are less than twenty percent (20%).

SEC. 2. No restraining order, temporary or permanent injunction shall be issued by the court against any government
financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in
Section 1 hereof, whether such restraining order, temporary or permanent injunction is sought by the borrower(s) or
any third party or parties, except after due hearing in which it is established by the borrower and admitted by the
government financial institution concerned that twenty percent (20%) of the outstanding arrearages has been paid
after the filing of foreclosure proceedings. (Underscoring supplied.)
 Private respondents thesis that the foreclosure proceedings were null and void because of lack of publication in
the newspaper is nothing more than a mere unsubstantiated allegation not borne out by the evidence.  In any case, a
disputable presumption exists in favor of petitioner that official duty has been regularly performed and ordinary
course of business has been followed.[43]

VI

Not only was the foreclosure rightfully exercised by the PNB and DBP, but also, from the facts of the case, the
arbitrators in making the award went beyond the arbitration agreement.

In their complaint filed before the trial court, private respondent Cabarrus, et al. prayed for judgment in their
favor:

1. Declaring the foreclosure effected by the defendants DBP and PNB on the assets of MMIC null and void and
directing said defendants to restore the foreclosed assets to the possession of MMIC, to render an accounting of their
use and/or operation of said assets and to indemnify MMIC for the loss occasioned by its dispossession or the
deterioration thereof;

2. Directing the defendants DBP and PNB to honor and perform their commitments under the financial
reorganization plan which was approved at the annual stockholders meeting of MMIC on 30 April 1984;

3. Condemning the defendants DBP and PNB, jointly and severally to pay the plaintiffs actual damages consisting of
the loss of value of their investment amounting to not less than  P80,000,000.00, the damnum emerges and lucrum
cessans in such amount as may be establish during the trial, moral damages in such amount as this Honorable Court
may deem just and equitable in the premises, exemplary damages in such amount as this Honorable Court may
consider appropriate for the purpose of setting an example for the public good, attorneys fees and litigation expenses
in such amounts as may be proven during the trial, and the costs legally taxable in this litigation.

Further, Plaintiffs pray for such other reliefs as may be just and equitable in the premises. [44]

Upon submission for arbitration, the Compromise and Arbitration Agreement of the parties clearly and
explicitly defined and limited the issues to the following:

(a) whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of
the MMIC or its directors;

(b) whether or not the actions leading to, and including, the PNB-DBP foreclosure of the MMIC assets
were proper, valid and in good faith.[45]

Item No. 8 of the Agreement provides for the period by which the Committee was to render its decision, as
well as the nature thereof:

8. Decision. The committee shall issue a decision on the controversy not later than six (6) months from
the date of its constitution.

In the event the committee finds that PLAINTIFFS have the personality to file this suit and extra-judicial foreclosure
of the MMIC assets wrongful, it shall make an award in favor of the PLAINTIFFS (excluding DBP), in an amount
as may be established or warranted by the evidence which shall be payable in Philippine Pesos at the time of the
award. Such award shall be paid by the APT or its successor-in-interest within sixty (60) days from the date of the
award in accordance with the provisions of par. 9 hereunder. x x x. The PLAINTIFFS remedies under this Section
shall be in addition to other remedies that may be available to the PLAINTIFFS, all such remedies being cumulative
and not exclusive of each other.
On the other hand, in case the arbitration committee finds that PLAINTIFFS have no capacity to sue and/or that the
extra-judicial foreclosure is valid and legal, it shall also make an award in favor of APT based on the counterclaims
of DBP and PNB in an amount as may be established or warranted by the evidence. This decision of the arbitration
committee in favor of APT shall likewise finally settle all issues regarding the foreclosure of the MMIC assets so
that the funds held in escrow mentioned in par. 9 hereunder will thus be released in full in favor of APT.[46]

The clear and explicit terms of the submission notwithstanding, the Arbitration Committee clearly exceeded its
powers or so imperfectly executed them: (a) in ruling on and declaring valid the FRP; (b) in awarding damages to
MMIC which was not a party to the derivative suit; and (c) in awarding moral damages to Jesus S. Cabarrus, Sr.

The arbiters overstepped their powers by declaring as valid proposed Financial Restructuring Program.

The Arbitration Committee went beyond its mandate and thus acted in excess of its powers when it ruled on the
validity of, and gave effect to, the proposed FRP.

In submitting the case to arbitration, the parties had mutually agreed to limit the issue to the validity of the
foreclosure and to transform the reliefs prayed for therein into pure money claims.

There is absolutely no evidence that the DBP and PNB agreed, expressly or impliedly, to the proposed FRP. It
cannot be overemphasized that a FRP, as a contract, requires the consent of the parties thereto. [47] The contract must
bind both contracting parties.[48] Private respondents even by their own admission recognized that the FRP had yet
not been carried out and that the loans of MMIC had not yet been converted into equity.[49]

However, the arbitration Committee not only declared the FRP valid and effective, but also converted the loans
of MMIC into equity raising the equity of DBP to 87%.[50]

The Arbitration Committee ruled that there was a commitment to carry out the FRP [51] on the ground of
promissory estoppel.

Similarly, the principle of promissory estoppel applies in the present case considering as we observed, the fact that
the government (that is Alfredo Velayo) was the FRPs proponent. Although the plaintiffs are agreed that the
government executed no formal agreement, the fact remains that the DBP itself which made representations that the
FRP constituted a way out for MMIC. The Committee believes that although the DBP did not formally agree
(assuming that the board and stockholders approvals were not formal enough), it is bound nonetheless if only for its
conspicuous representations.

Although the DBP sat in the board in a dual capacity-as holder of 36% of MMICs equity (at that time) and as
MMICs creditor-the DBP can not validly renege on its commitments simply because at the same time, it held
interest against the MMIC.

The fact, of course, is that as APT itself asserted, the FRP was being carried out although apparently, it would
supposedly fall short of its targets. Assuming that the FRP would fail to meet its targets, the DBP-and so this
Committee holds-can not, in any event, brook any denial that it was bound to begin with, and the fact is that
adequate or not (the FRP), the government is still bound by virtue of its acts.

The FRP, of course, did not itself promise a resounding success, although it raised DBPs equity in MMIC to 87%. It
is not excuse, however, for the government to deny its commitments.[52]

Atty. Sison, however, did not agree and correctly observed that:
But the doctrine of promissory estoppel can hardly find application here. The nearest that there can be said of any
estoppel being present in this case is the fact that the board of MMIC was, at the time the FRP was adopted, mostly
composed of PNB and DBP representatives. But those representatives, singly or collectively, are not themselves
PNB or DBP. They are individuals with personalities separate and distinct from the banks they represent. PNB and
DBP have different boards with different members who may have different decisions. It is unfair to impose upon
them the decision of the board of another company and thus pin them down on the equitable principle of
estoppel. Estoppel is a principle based on equity and it is certainly not equitable to apply it in this particular
situation. Otherwise the rights of entirely separate, distinct and autonomous legal entities like PNB and DBP with
thousands of stockholders will be suppressed and rendered nugatory.[53]

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.

Further, how could the MMIC be entitled to a big amount of moral damages when its credit reputation was not
exactly something to be considered sound and wholesome. Under Article 2217 of the Civil Code, moral damages
include besmirched reputation which a corporation may possibly suffer. A corporation whose overdue and unpaid
debts to the Government alone reached a tremendous amount of P22 Billion Pesos cannot certainly have a solid
business reputation to brag about. As Atty. Sison in his separate opinion persuasively put it:

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, MMICs 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 besmirches by the act of foreclosure.[55]

The arbiters exceeded their authority in awarding damages to MMIC, which is not impleaded as a party to the derivative suit.

Civil Code No. 9900 filed before the RTC being a derivative suit, MMIC should have been impleaded as a
party. It was not joined as a party plaintiff or party defendant at any stage of the proceedings. As it is, the award of
damages to MMIC, which was not a 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 corporations behalf is only nominal party. The corporation should be included as 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 party in interest. x x x.[56]

It is a condition sine qua non that the corporation be impleaded as a party because-

x x x. Not only is the corporation an indispensible party, but it is also the present rule that it must be served with
process. The reason given is that the judgment must be made binding upon the corporation and 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 corporations must be joined as party because it is its cause of action that is
being litigated and because judgment must be a res ajudicata against it.[57]
 The reasons given for not allowing direct individual suit are:

(1) x x x 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;

(2) x x x that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in the case
of Evangelista v. 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 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 xxx;

(3) the filing of such suits would conflict with the duty of the management to sue for the protection of all concerned;

(4) it would produce wasteful multiplicity of suits; and

(5) it would involve confusion in a ascertaining the effect of partial recovery by an individual on the damages
recoverable by the corporation for the same act.[58]

If at all an award was due MMIC, which it was not, the same should have been given sans deduction,
regardless of whether or not the party liable had equity in the corporation, in view of the doctrine that a corporation
has a personality separate and distinct from its individual stockholders or members. DBPs alleged equity, even if it
were indeed 87%, did not give it ownership over any corporate property, including the monetary award, its right
over said corporate property being a mere expectancy or inchoate right. [59]Notably, the stipulation even had the effect
of prejudicing the other creditors of MMIC.

The arbiters, likewise, exceeded their authority in awarding moral damages to Jesus Cabarrus, Sr.

It is perplexing how the Arbitration Committee can in one breath rule that the case before it is a derivative suit,
in which the aggrieved party or the real party in interest is supposedly the MMIC, and at the same time award moral
damages to an individual stockholder, to wit:

WHEREFORE, premises considered, judgment is hereby rendered:

xxx.

3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supersede it, pursuant to paragraph (9), Compromise and Arbitration
Agreement, as and for moral damages; x x x[60]

The majority decision of the Arbitration Committee sought to justify its award of moral damages to Jesus S.
Cabarrus, Sr. by pointing to the fact that among the assets seized by the government were assets belonging to
Industrial Enterprise Inc. (IEI), of which Cabarrus is the majority stockholder. It then acknowledge that Cabarrus
had already recovered said assets in the RTC, but that he won no more than actual damages. While the Committee
cannot possibly speak for the RTC, there is no doubt that Jesus S. Cabarrus, Sr., suffered moral damages on account
of that specific foreclosure, damages the Committee believes and so holds, he Jesus S. Cabarrus, Sr., may be
awarded in this proceeding.[61]

Cabarrus cause of action for the seizure of the assets belonging to IEI, of which he is the majority stockholder,
having been ventilated in a complaint he previously filed with the RTC, from which he obtained actual damages, he
was barred res judicata from filing a similar case in another court, this time asking for moral damages which he
failed to get from the earlier case.[62] Worse, private respondents violated the rule against non-forum shopping.

It is a basic postulate that s corporation has a personality separate and distinct from its stockholders. [63] The
properties foreclosed belonged to MMIC, not to its stockholders. Hence, if wrong was committed in the foreclosure,
it was done against the corporation. Another reason is that Jesus S. Cabarrus, Sr. cannot directly claim those
damages for himself that would result in the appropriation by, and the distribution to, him part of the corporations
assets before the dissolution of the corporation and the liquidation of its debts and liabilities. The Arbitration
Committee, therefore, passed upon matters not submitted to it. Moreover, said cause of action had already been
decided in a separate case. It is thus quite patent that the arbitration committee exceeded the authority granted to it
by the parties Compromise and Arbitration Agreement by awarding moral damages to Jesus S. Cabarrus, Sr.

Atty. Sison, in his separate opinion, likewise expressed befuddlement to the award of moral damages to Jesus
S. Cabarrus, Sr.:

It is clear and it cannot be disputed therefore that based on these stipulated issues, the parties themselves
have agreed that the basic ingredient of the causes of action in this case is the wrong committed on the
corporation (MMIC) for the alleged illegal foreclosure of its assets. By agreeing to this
stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit that the cause of action pertains only to the
corporation (MMIC) and that they are filing this for and in behalf of MMIC.

Perforce this has to be so because it is the basic rule in Corporation Law that the shareholders have no title, legal or
equitable to the property which is owned by the corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In
Ganzon & Sons vs. Register of Deeds, 6 SCRA 373, the rule has been reiterated that a stockholder is not the co-
owner of corporate property. Since the property or assets foreclosed belongs [sic] to MMIC, the wrong committed, if
any, is done against the corporation. There is therefore no direct injury or direct violation of the rights of Cabarrus et
al. There is no way, legal or equitable, by which Cabarrus et al. could recover damages in their personal capacities
even assuming or just because the foreclosure is improper or invalid. The Compromise and Arbitration Agreement
itself and the elementary principles of Corporation Law say so.Therefore, I am constrained to dissent from the award
of moral damages to Cabarrus.[64]

From the foregoing discussions, it is evident that, not only did the arbitration committee exceed its powers or
so imperfectly execute them, but also, its findings and conclusions are palpably devoid of any factual basis and in
manifest disregard of the law.

We do not find it necessary to remand this case to the RTC for appropriate action. The pleadings and
memoranda filed with this Court, as well as in the Court of Appeals, raised and extensively discussed the issues on
the merits. Such being the case, there is sufficient basis for us to resolve the controversy between the parties
anchored on the records and the pleadings before us.[65]

WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as well as the Orders of the
Regional Trial Court of Makati, Branch 62, dated November 28, 1994 and January 19, 1995, is hereby REVERSED
and SET ASIDE, and the decision of the Arbitration Committee is hereby VACATED.

SO ORDERED

Republic of the Philippines

SUPREME COURT
Manila

EN BANC
G.R. No. L-22973           January 30, 1968

MAMBULAO LUMBER COMPANY, plaintiff-appellant, 

vs.
PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of Camarines
Norte,defendants-appellees.

Ernesto P. Vilar and Arthur Tordesillas for plaintiff-appellant. 

Tomas Besa and Jose B. Galang for defendants-appellees.

ANGELES, J.:

An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila in Civil Case No. 52089,
entitled "Mambulao Lumber Company, plaintiff, versus Philippine National Bank and Anacleto Heraldo,
defendants", dismissing the complaint against both defendants and sentencing the plaintiff to pay to defendant
Philippine National Bank (PNB for short) the sum of P3,582.52 with interest thereon at the rate of 6% per annum
from December 22, 1961 until fully paid, and the costs of suit.

In seeking the reversal of the decision, the plaintiff advances several propositions in its brief which may be restated
as follows:

1. That its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87 and not
P58,213.51 as concluded by the court a quo; hence, the proceeds of the foreclosure sale of its real property
alone in the amount of P56,908.00 on that date, added to the sum of P738.59 it remitted to the PNB
thereafter was more than sufficient to liquidate its obligation, thereby rendering the subsequent foreclosure
sale of its chattels unlawful;

2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees and the additional sum of
P298.54 as expenses of the foreclosure sale;

3. That the subsequent foreclosure sale of its chattels is null and void, not only because it had already
settled its indebtedness to the PNB at the time the sale was effected, but also for the reason that the said sale
was not conducted in accordance with the provisions of the Chattel Mortgage Law and the venue agreed
upon by the parties in the mortgage contract;

4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for its value; and

5. That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard of plaintiff's
vigorous opposition thereto, and in taking possession thereof after the sale thru force, intimidation,
coercion, and by detaining its "man-in-charge" of said properties, the PNB is liable to plaintiff for damages
and attorney's fees.

The antecedent facts of the case, as found by the trial court, are as follows:

On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the Naga Branch of defendant
PNB and the former offered real estate, machinery, logging and transportation equipments as collaterals.
The application, however, was approved for a loan of P100,000 only. To secure the payment of the loan, the
plaintiff mortgaged to defendant PNB a parcel of land, together with the buildings and improvements
existing thereon, situated in the poblacion of Jose Panganiban (formerly Mambulao), province of
Camarines Norte, and covered by Transfer Certificate of Title No. 381 of the land records of said province,
as well as various sawmill equipment, rolling unit and other fixed assets of the plaintiff, all situated in its
compound in the aforementioned municipality.

On August 2, 1956, the PNB released from the approved loan the sum of P27,500, for which the plaintiff
signed a promissory note wherein it promised to pay to the PNB the said sum in five equal yearly
installments at the rate of P6,528.40 beginning July 31, 1957, and every year thereafter, the last of which
would be on July 31, 1961.

On October 19, 1956, the PNB made another release of P15,500 as part of the approved loan granted to the
plaintiff and so on the said date, the latter executed another promissory note wherein it agreed to pay to the
former the said sum in five equal yearly installments at the rate of P3,679.64 beginning July 31, 1957, and
ending on July 31, 1961.

The plaintiff failed to pay the amortization on the amounts released to and received by it. Repeated
demands were made upon the plaintiff to pay its obligation but it failed or otherwise refused to do so. Upon
inspection and verification made by employees of the PNB, it was found that the plaintiff had already
stopped operation about the end of 1957 or early part of 1958.

On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him
to take possession of the parcel of land, together with the improvements existing thereon, covered by
Transfer Certificate of Title No. 381 of the land records of Camarines Norte, and to sell it at public auction
in accordance with the provisions of Act No. 3135, as amended, for the satisfaction of the unpaid obligation
of the plaintiff, which as of September 22, 1961, amounted to P57,646.59, excluding attorney's fees. In
compliance with the request, on October 16, 1961, the Provincial Sheriff of Camarines Norte issued the
corresponding notice of extra-judicial sale and sent a copy thereof to the plaintiff. According to the notice,
the mortgaged property would be sold at public auction at 10:00 a.m. on November 21, 1961, at the ground
floor of the Court House in Daet, Camarines Norte.

On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him to
take possession of the chattels mortgaged to it by the plaintiff and sell them at public auction also on
November 21, 1961, for the satisfaction of the sum of P57,646.59, plus 6% annual interest therefore from
September 23, 1961, attorney's fees equivalent to 10% of the amount due and the costs and expenses of the
sale. On the same day, the PNB sent notice to the plaintiff that the former was foreclosing extrajudicially
the chattels mortgaged by the latter and that the auction sale thereof would be held on November 21, 1961,
between 9:00 and 12:00 a.m., in Mambulao, Camarines Norte, where the mortgaged chattels were situated.

On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession of the chattels
mortgaged by the plaintiff and made an inventory thereof in the presence of a PC Sergeant and a policeman
of the municipality of Jose Panganiban. On November 9, 1961, the said Deputy Sheriff issued the
corresponding notice of public auction sale of the mortgaged chattels to be held on November 21, 1961, at
10:00 a.m., at the plaintiff's compound situated in the municipality of Jose Panganiban, Province of
Camarines Norte.

On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail matter, one to the
Naga Branch of the PNB and another to the Provincial Sheriff of Camarines Norte, protesting against the
foreclosure of the real estate and chattel mortgages on the grounds that they could not be effected unless a
Court's order was issued against it (plaintiff) for said purpose and that the foreclosure proceedings,
according to the terms of the mortgage contracts, should be made in Manila. In said letter to the Naga
Branch of the PNB, it was intimated that if the public auction sale would be suspended and the plaintiff
would be given an extension of ninety (90) days, its obligation would be settled satisfactorily because an
important negotiation was then going on for the sale of its "whole interest" for an amount more than
sufficient to liquidate said obligation.

The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as a request for
extension of the foreclosure sale of the mortgaged chattels and so it advised the Sheriff of Camarines Norte
to defer it to December 21, 1961, at the same time and place. A copy of said advice was sent to the plaintiff
for its information and guidance.

The foreclosure sale of the parcel of land, together with the buildings and improvements thereon, covered
by Transfer Certificate of Title No. 381, was, however, held on November 21, 1961, and the said property
was sold to the PNB for the sum of P56,908.00, subject to the right of the plaintiff to redeem the same
 within a period of one year. On the same date, Deputy Provincial Sheriff Heraldo executed a certificate of
sale in favor of the PNB and a copy thereof was sent to the plaintiff.

In a letter dated December 14, 1961 (but apparently posted several days later), the plaintiff sent a bank draft
for P738.59 to the Naga Branch of the PNB, allegedly in full settlement of the balance of the obligation of
the plaintiff after the application thereto of the sum of P56,908.00 representing the proceeds of the
foreclosure sale of parcel of land described in Transfer Certificate of Title No. 381. In the said letter, the
plaintiff reiterated its request that the foreclosure sale of the mortgaged chattels be discontinued on the
grounds that the mortgaged indebtedness had been fully paid and that it could not be legally effected at a
place other than the City of Manila.

In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of Camarines Norte that it
had fully paid its obligation to the PNB, and enclosed therewith a copy of its letter to the latter dated
December 14, 1961.

On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the plaintiff acknowledging
the remittance of P738.59 with the advice, however, that as of that date the balance of the account of the
plaintiff was P9,161.76, to which should be added the expenses of guarding the mortgaged chattels at the
rate of P4.00 a day beginning December 19, 1961. It was further explained in said letter that the sum of
P57,646.59, which was stated in the request for the foreclosure of the real estate mortgage, did not include
the 10% attorney's fees and expenses of the sale. Accordingly, the plaintiff was advised that the foreclosure
sale scheduled on the 21st of said month would be stopped if a remittance of P9,161.76, plus interest
thereon and guarding fees, would be made.

On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at 10:00 a.m. and they were
awarded to the PNB for the sum of P4,200 and the corresponding bill of sale was issued in its favor by
Deputy Provincial Sheriff Heraldo.

In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNB advised the plaintiff
giving it priority to repurchase the chattels acquired by the former at public auction. This offer was
reiterated in a letter dated January 3, 1962, of the Attorney of the Naga Branch of the PNB to the plaintiff,
with the suggestion that it exercise its right of redemption and that it apply for the condonation of the
attorney's fees. The plaintiff did not follow the advice but on the contrary it made known of its intention to
file appropriate action or actions for the protection of its interests.

On May 24, 1962, several employees of the PNB arrived in the compound of the plaintiff in Jose
Panganiban, Camarines Norte, and they informed Luis Salgado, Chief Security Guard of the premises, that
the properties therein had been auctioned and bought by the PNB, which in turn sold them to Mariano
Bundok. Upon being advised that the purchaser would take delivery of the things he bought, Salgado was at
first reluctant to allow any piece of property to be taken out of the compound of the plaintiff. The
employees of the PNB explained that should Salgado refuse, he would be exposing himself to a litigation
wherein he could be held liable to pay big sum of money by way of damages. Apprehensive of the risk that
he would take, Salgado immediately sent a wire to the President of the plaintiff in Manila, asking advice as
to what he should do. In the meantime, Mariano Bundok was able to take out from the plaintiff's compound
two truckloads of equipment.

In the afternoon of the same day, Salgado received a telegram from plaintiff's President directing him not to
deliver the "chattels" without court order, with the information that the company was then filing an action
for damages against the PNB. On the following day, May 25, 1962, two trucks and men of Mariano
Bundok arrived but Salgado did not permit them to take out any equipment from inside the compound of
the plaintiff. Thru the intervention, however, of the local police and PC soldiers, the trucks of Mariano
Bundok were able finally to haul the properties originally mortgaged by the plaintiff to the PNB, which
were bought by it at the foreclosure sale and subsequently sold to Mariano Bundok.

Upon the foregoing facts, the trial court rendered the decision appealed from which, as stated in the first paragraph
of this opinion, sentenced the Mambulao Lumber Company to pay to the defendant PNB the sum of P3,582.52 with
interest thereon at the rate of 6% per annum from December 22, 1961 (day following the date of the questioned
foreclosure of plaintiff's chattels) until fully paid, and the costs. Mambulao Lumber Company interposed the instant
appeal.

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 extra-judicially 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:

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.

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.  1It 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:

. . . 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. . . .

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 proceeding's 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:

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 if 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 court have power to fix the fee as between attorney and client, it must necessarily have the
right to say whether a stipulation like this, inserted in a mortgage contract, is valid.  6

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 extra-judicially, 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:1äwphï1.ñët
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 fee 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 P56,908.00
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 P 150.73

========
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, can not 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:

(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 abovequoted 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:
 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 Manila, 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 had 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.

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 held 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
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 right arising
thereunder, however, are personal to them; they do not affect either public policy or the rights of third persons. They
may validly be 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
when 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 of 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 6 x 6 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 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. . . .

This brings us to the problem of determining the value of the mortgaged chattels at the time of their sale in 1961.
The trial court did not make any finding on the value of the chattels in the decision appealed from and denied
altogether the right of the appellant to recover the same. We find enough 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 therefore, 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 re-inspection 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 re-inspection report in 1959 gave the appraised value as P19,400.00 and the market value
at P25,600.00. 19 The said official of the PNB who made the foregoing reports of inspection and re-inspections
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 re-inspection reports for the reason that when he went to herein appellant's premises at the time, he
found the chattels no longer in use with some of the heavier equipments dismantled with parts thereof kept in the
bodega; and finding it difficult to ascertain the value of the dismantled chattels in such condition, he did not give
them anymore any value in his reports. Noteworthy is the fact, however, that in the last re-inspection report he made
of the chattels in 1961, just a few months before the foreclosure sale, the same inspector of the PNB reported that the
heavy equipment of herein appellant were "lying idle and rusty" but were "with a shed free from rains" 20 showing
that although they were no longer in use at the time, they were kept in a proper place and not exposed to the
elements. The President of the appellant company, on the other hand, testified that its caterpillar (tractor) alone is
worth P35,000.00 in the market, and that the value of its two trucks acquired by it with part of the proceeds of the
loan and included as additional items in the mortgaged chattels were worth no less than P14,000.00. He likewise
appraised the worth of its Murphy engine at P16,000.00 which, according to him, when taken together with the
heavy equipments he mentioned, the sawmill itself and all other equipment forming part of the chattels under
consideration, and bearing in mind the current cost of equipments these days which he alleged to have increased by
about five (5) times, could safely be estimated at P120,000.00. This testimony, except for the appraised and market
values appearing in the inspection and re-inspection reports of the PNB official earlier mentioned, stand
uncontroverted in the record; but We are not inclined to accept such testimony at its par value, knowing that the
equipments of herein appellant had been idle and unused since it stopped operating its sawmill in 1958 up to the
time of the sale of the chattels in 1961. We have no doubt that the value of chattels was depreciated after all those
years of inoperation, although from the evidence aforementioned, We may also safely conclude that the amount of
P4,200.00 for which the chattels were sold in the foreclosure sale in question was grossly unfair to the mortgagor.
Considering, however, the facts that the appraised value of P42,850.00 and the market value of P85,700.00
originally given by the PNB official were admittedly conservative; that two 6 x 6 trucks subsequently bought by the
appellant company had thereafter been added to the chattels; and that the real value thereof, although depreciated
after several years of inoperation, was in a way maintained because the depreciation is off-set by the marked
increase in the cost of heavy equipment in the market, it is our opinion that the market value of the chattels at the
time of the sale should be fixed at the original appraised value of P42,850.00.

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

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

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. 113176. July 30, 2001] HANIL DEVELOPMENT CO., LTD., petitioner, vs. COURT OF APPEALS
AND M.R. ESCOBAR EXPLOSIVE ENGINEERS, INC., respondents.

[G.R. No. 113342. July 30, 2001]

M.R. ESCOBAR EXPLOSIVE ENGINEERS, INC., petitioner vs. COURT OF APPEALS AND HANIL

DEVELOPMENT CO., LTD., respondents.

D E C I S I O N**

PUNO, J.:

Before us are Petitions for Review on Certiorari under Rule 45 of the Decision rendered on August 23, 1993
and the Resolution promulgated on January 5, 1994, both by the Court of Appeals.[1]

In the early seventies, the Ministry of Public Works and Highways (MPWH for brevity) awarded petitioner
Hanil Development Co., Ltd. (Hanil for brevity) the contract to construct the 200-kilometer Iligan-Cagayan de Oro-
Butuan Highway Project. On November 14, 1976, Hanil sub-let the rock-blasting work portion of the contract to
private respondent M.R. Escobar Explosive Engineers, Inc. (Escobar for brevity). By express stipulation of the
parties, Escobar will be compensated thus:

x x x x x x x x x

9. For the services performed by Sub-Contractor (Escobar) in accordance with the terms and conditions herein
described, Hanil will pay twenty pesos (P20.00) per cubic meter on the following basis:

a. If the rocks are solid in nature, quantity will be assessed as shown on the cross-section.

b. If the nature of the rock is soft and can be removed by using ripper, quantity may be assessed on the actual blasted
amount surveyed by both Company and Sub-Contractors engineers.[2]

On January 3, 1977, Escobar commenced its blasting works. It continued its services until terminated by Hanil
on December 15, 1978. For the duration of the contract, it worked on the segments of the construction undertaking
designated in the agreement as A-2, B-2, B-3, B-4, and C-1. It was fully paid for the areas A-2 and B-4. It claimed,
however, that Hanil still partially owes it one million three hundred forty one thousand seven hundred twenty-seven
and 40/100 (P1,341,727.40) pesos for blastings done in the B-2, B-3 and C-1 areas. The claim was predicated on the
theory that the rocks it caused to explode in the contested areas were solid in nature, and therefore the volume
should be computed using the cross-section approach pursuant to the above-quoted paragraph 9(a). It appears that all
the payments it received were fixed based on the joint survey method under paragraph 9(b). Escobar stressed that
Hanil was always paid by the MPWH using the cross-section system. This was pursuant to the awarded 200-km.
highway project contract between the MPWH and Hanil, where the volumes of rocks to be blasted in specific areas
were already pre-estimated based on the cross-section approach. In fine, Escobars line of reasoning is that Hanil
should pay it the same amount of money Hanil received from the MPWH for the blastings it did in the contested
areas (B-2, B-3 and C-1). The figure P1,341,727.40 represents the difference between the two.

Consequently, Escobar instituted Civil Case No. 35966 for recovery of a sum of money with damages against
Hanil before the then Court of First Instance of Rizal (CFI for brevity). Hanil filed its answer with counterclaim for
damages. Trial thereafter ensued. On April 16, 1982, the CFI handed down a Decision ordering Hanil to
pay P1,341,727.40 for the value of rocks blasted by Escobar; 10% of the amount due for attorneys fees; and the
costs of suit.

On May 24, 1982, upon Escobars motion, the CFI garnished the bank accounts of Hanil and levied its
equipments. On June 29, 1982, it also granted Escobars Ex-parte Motion to Deposit Cash praying that the Finance
Manager of the National Power Corporation (NAPOCOR) be directed to withdraw Hanils funds from the
NAPOCOR and deposit the same with the Clerk of Court. Hanil challenged the issuance of the May 24 and June 29
Orders before the Court of Appeals in a Petition for Certiorari with prayer for Injunction and Preliminary
Restraining Order, docketed as CA-G.R. No. SP-14512. The appellate court, in a decision rendered on February 3,
1983, voided the challenged Orders.

While the above-mentioned petition was pending before the Court of Appeals and despite the writ of injunction
issued by it, other developments continued to unfold in the CFI. In an Order dated August 23, 1982, it disapproved
Hanils Amended Record on Appeal and dismissed its appeal. On October 19, 1982, it denied Hanils Motion for
Reconsideration of the August 23 Order and at the same time granted Escobars Motion for Execution of Judgment.
These two Orders were again contested by Hanil before the appellate court in a Petition for Certiorari and
Mandamus with prayer for Prohibition. The said Orders were again annulled and set aside. Hanils appeal was
reinstated and the CFI was ordered to elevate the entire records of the case to the Court of Appeals.

After transmittal of the records, the Court of Appeals notified Hanil on February 11, 1985 to file Appellants
Brief within forty-five days. On March 13, 1985, and within the reglementary period to submit its brief, Hanil filed
an Application for Judgment against Attachment Bond and Motion to Defer Filing of Appellants Brief, praying for a
hearing before the Court of Appeals so it could prove the damages it sustained as a result of the illegal writ of
attachment issued by the CFI. It wanted a judgment against the attachment bond posted by Escobar and its insurer
Sanpiro Insurance Corporation (Sanpiro for brevity) to be included in the appealed decision in the main case, Civil
Case No. 35966, then pending before the Court of Appeals. Escobar filed its Comment with a Motion to Dismiss
Appeal allegedly for Hanils failure to file its brief.

On April 30, 1985, the appellate court issued a Resolution denying Hanils Application for Judgment Against
the Attachment Bond together with its Motion to Defer Filing of Appellants Brief. It also dismissed Hanils appeal.
Hanils Motion for Reconsideration was denied on June 20, 1985. Hanil promptly sought relief from said April 30
and June 20 Resolutions by filing with this Court a Petition for Certiorari, Mandamus and Prohibition with
Mandatory Injunction. In a decision rendered on September 30, 1986, we reversed and set aside the assailed
Resolutions. We also directed the Court of Appeals to conduct hearings on the application for damages against the
bond filed by Hanil and to reinstate the appeal.

Upon reinstatement of the appeal, the appellate court conducted hearings on the application for judgment
against the attachment bond. On August 23, 1993, it promulgated the herein contested Decision, [3] the decretal
portion of which reads as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. REVERSING and SETTING ASIDE the appealed decision in Civil Case No. 35966;

2. DISMISSING the complaint in Civil Case No. 35966;

3. ORDERING the plaintiff-appellee (Escobar) to pay defendant-appellant under the counterclaim in Civil Case No.
35966 the following sums of money:

a. FIFTY THOUSAND (P50,000.00) PESOS, for and as attorneys fees;

b. TWENTY THOUSAND (P20,000.00) PESOS in the concept of nominal damages;

4. ORDERING plaintiff-appellee and bondsman Sanpiro to jointly and severally pay defendant-appellant under the
attachment bond the total sum of FIFTY-SEVEN THOUSAND FIVE HUNDRED SEVEN AND 90/100
(P57,507.90) PESOS as and for attorneys fees and litigation expenses; and

5. ORDERING plaintiff-appellee to pay bondsman Sanpiro by way of reimbursement under their Indemnity
Agreement the sum of FIFTY-SEVEN THOUSAND FIVE HUNDRED SEVEN AND 90/100 (P57,507.90) PESOS.

Costs against plaintiff-appellee.[4]

Hanil and Escobar filed their own respective Motions for Reconsideration, which were both denied in a
Resolution[5] dated January 5, 1994.

On February 15, 1994, Hanil filed before this court a Petition for Review on Certiorari under Rule 45 assailing
the amount of damages awarded to it. This was docketed as G.R. No. 113176, entitled Hanil Development Co.,
Ltd., Petitioner, vs. Court of Appeals and M.R. Escobar Explosive Engineers, Respondents. On February 24,
1994, Escobar likewise filed its own Petition for Review on Certiorari under Rule 45, docketed as G.R. No. 113342,
entitled M.R. Escobar Explosive Engineers, Inc., Petitioner, vs. Court of Appeals and Hanil Development Co.,
Ltd., Respondents.

In G.R. No. 113176, petitioner Hanil raises the following grounds:

I. THE U.S.$3,000.00 INCURRED AND SPENT BY PETITIONER IN TAKING THE DEPOSITION OF

ONE OF ITS WITNESSES SHOULD HAVE BEEN ADJUDGED TO BE PAID BY THE PRIVATE
RESPONDENT.
 II. THE PETITIONER SHOULD HAVE BEEN AWARDED WITH TEMPERATE DAMAGES
OF P5,000,000.00 IN LIEU OF ACTUAL DAMAGES, INSTEAD OF THE SMALLER SUM OF P20,000.00
IN NOMINAL DAMAGES.

III. THE PETITIONER SHOULD HAVE BEEN AWARDED MORAL DAMAGES IN THE AMOUNT
OF P1,000,000.00.

IV. THE PRIVATE RESPONDENT SHOULD BE MADE TO PAY THE PETITIONER EXEMPLARY

DAMAGES IN THE AMOUNT OF P5,000,000.00 IN ORDER TO BE AN EFFECTIVE DETERRENT TO
MALEVOLENT, FRAUDULENT AND MALICIOUS SUIT AND APPLICATION FOR ATTACHMENT
AND OTHER SIMILAR ACTS;

V. THE AWARDED ATTORNEYS FEES FOR THE PRINCIPAL ACTION SHOULD HAVE BEEN
INCREASED FROM P50,000.00 TO P500,000.00.[6]

In G. R. No. 113342, petitioner Escobar makes the following assignment of errors:

I.

THE COURT OF APPEALS ERRED GRAVELY IN NOT AFFIRMING THE TRIAL COURTS 16 APRIL
1982 DECISION IN PETITIONERS FAVOR.

II.

THE COURT OF APPEALS FURTHER ERRED GRAVELY IN AWARDING DAMAGES AND

ATTORNEYS FEES TO PRIVATE RESPONDENT, AS WELL AS IN AWARDING ADDITIONAL
ATTORNEYS FEES AND INJUNCTION BOND PREMIUM ON PRIVATE RESPONDENTS
APPLICATION FOR DAMAGES ON ATTACHMENT.

III.

THEREFORE THE COURT OF APPEALS ERRED IN NOT DISMISSING THE PETITION IN CA-G.R.
NO. 05055 OUTRIGHT FOR BEING UTTERLY DEVOID OF MERIT.[7]

We will jointly discuss the related issues forwarded by the parties, first, in respect of the appeal from the
Decision of the CFI in Civil Case No. 35966, before ruling on the issues advanced anent the application for
judgment on the attachment bond.

Re: Appeal from the Decision of the CFI 

in Civil Case No. 35966

In its petition in G.R. No. 113342, Escobar claims that the Court of Appeals erroneously relied on sub-
paragraph (b) of paragraph 9 of the Sub-Contract Agreement. It maintains that all the blasting works it performed in
areas B-2, B-3 and C-1 were for and on solid rock areas. It emphasizes that since Hanil was paid by the MPWH
based on the cross-section system in these areas, it should likewise be paid in the same manner.

The contention fails to impress. Just because the MPWH paid Hanil using the cross-section approach for the
blastings in the contested areas does not necessarily mean that Hanil should in turn compensate Escobar based on
the same technique of computation. Apropos is the observation made by Mr. N.A. Vaitialingam, the Project Manager
of the engineering consultants Sauti, Certeza & F.F. Cruz for the 200-kilometer Iligan-Butuan highway construction
project. In a letter[8] dated December 10, 1979 addressed to the Honorable Minister of the MPWH, he declared the
following:

These payments are made subject to the specification under Clause 105-3-2 Rock Material of the General
Specifications, copy attached. Therefore it is not possible to ascertain the exact volume of rock or boulders
blasted by the sub-contractor from the volume paid to the contractor because the rock blasted may be, for example,
60% or 65 % of the volume paid in the cross-section. Also very often boulders are pushed by the bull-dozers without
blasting.

Thus it is desired that the main contractor (Hanil) and the sub-contractor should come to a mutual agreement on the
subject. (emphasis supplied.)

The import of this observation was correctly interpreted by the Court of Appeals, thus:

What Mr. N.A. Vaitialingam simply means is that the cross-section computation for payment by the MPWH to
appellant (Hanil), as contractor, could not be in turn used as an accurate basis for payment by appellant to appellee
(Escobar), as sub-contractor, not only because the rock blasted in each cross-section might have been (sic) consisted
only of 60% or 65% solid rock but also because very often blasting was no longer necessary since boulders were just
removed by bulldozers. The truth of Mr. Vaitialingams statement is confirmed by appellees own documentary
evidence which show that rock blasting and boulders comprised a major portion of the work done in segment B-2
(Exh. B-3) and segment B-3 (Exh. B-2) and that the work in segment C-1 (Exh. B-1) consisted entirely of blasting
and dozing. Moreover, appellees Exhibits B-1, B-2 and B-3 clearly evince that In all cases there were overburden of
earth of varying depths on top of rock and boulders. In other words, payment to appellee as shown by cross-section
under Sub-paragraph (a) of Paragraph 9 of the questioned document was obviously inapplicable for not being based
on an actual and accurate method of measurement.[9]

This letter (Exhibit H) is part of the evidence of Escobar. It cannot impugn its own evidence.[10]

To be sure, what governs the contractual relation between Escobar and Hanil are the stipulations contained in
their Sub-contract Agreement. A contract is the law between the parties and where there is nothing in it which is
contrary to law, morals, good customs, public policy or public good, its validity must be sustained.

The express terms of the agreement are clear as day to necessitate any interpretation. For the cross-section
approach under paragraph 9(a) to apply, it is imperative to establish that the rocks blasted were solid in nature.
Otherwise, the joint survey procedure will be followed. Escobar failed to prove the nature of the rocks it blasted in
the disputed areas. It did not introduce in evidence object samples of the rocks in the area. Neither did it present
photographs, both wide and close-up angles of representative portions of the said areas that it worked on, let alone
photographs of typical clusters of the rock it blasted.[11]

That the cross-section system was not at all followed by the parties is further shown by Escobars act in the first
seven months of the two-year agreement when it received monthly payments computed on the basis of the joint
survey method. During the period from January to July 1977, its monthly billings were fixed after a joint survey of
the estimated quantity of rocks before blasting and another joint assessment of the actual volume of rocks blasted by
its own engineers and those of Hanil, which is in accordance with Paragraph 9(b), not 9(a), of their Sub-contract
Agreement. Its belated assertion that these monthly collections were understood to be mere partial compensation,
subject to adjustment after applying the cross-section approach, appears to be an afterthought. If the claim is true, it
could have easily indicated or annotated the condition in the billings that it sent Hanil and the receipts for the
payment. Since Escobar accepted payment for a considerable period of time under the joint survey method [par.
9(b)], it cannot later be allowed to assume an inconsistent position by invoking the cross-section approach [par.
9(a)].

We now discuss the merit of Hanils petition. For its part, it seeks an increase in the grant of nominal damages
and attorneys fees. It also prays for additional awards of moral and exemplary damages.
 Hanils plea for additional amount in the form of temperate damages in lieu of the nominal damages awarded to
it must be denied. We agree with the appellate courts ruling that the amount of twenty thousand pesos ( P20,000.00)
is just. Hanil failed to prove the actual value of pecuniary injury which it sustained as a consequence of Escobars
institution of an unfounded civil suit. The testimony of one of its witnesses presented in the CFI, to the effect that
the filing of the complaint affected Hanils reputation and that it affected the management and engineers working in
the site,[12]1 is not enough proof. The institution of the suit, unfounded though it may be, does not always lead to
pecuniary loss as to warrant an award of actual or temperate damages. The link between the cause (the suit) and  the
effect (the loss) must be established by the required proof.

So, too, must its demand for payment of moral damages fail. The rule is that moral damages can not be granted
in favor of a corporation. Being an artificial person and having existence only in legal contemplation, a
corporation has no feelings, no emotions, no senses. It cannot, therefore, experience physical suffering, mental
anguish, fright, serious anxiety, wounded feelings or moral shock or social humiliation, which can be suffered only
by one having a nervous system.[13]

Hanils prayer for exemplary damages must likewise be denied. It must be remembered that this kind of
damages cannot be recovered as a matter of right. Its allowance rests in the sound discretion of the court, and only
upon a showing of its legal foundation. Under the Civil Code, the claimant must first establish that he is entitled to
moral, temperate, compensatory or liquidated damages before it may be imposed in his favor. [14] Hanil failed to do
so, hence, it cannot claim exemplary damages.

We hold, however, that an increase in the grant of attorneys fees from fifty thousand pesos (P50,000.00) to one
hundred fifty thousand pesos (P150,000.00) is in order. Although the original complaint lodged with the CFI was
merely for collection of a sum of money with damages, involving as it did modest legal issues, that complaint had in
reality generated several incidents during the close to twenty years that this case was under litigation. Twice, Hanil
filed Petitions for Certiorari with the Court of Appeals. Once, it elevated the case to this Court questioning the
dismissal of the appeal by the appellate court. Then, after reinstatement of the appeal, it had to present and defend its
case not only for the appeal but also for its application on the attachment bond. And now, Hanil has to contend with
Escobars Petition in G.R. No. 113342, even as it concerns itself with its own Petition in G.R. No. 113176. In fine,
taking into account the over-all factual environment upon which this case proceeded, we find the award
of P50,000.00 insufficient and hereby augment it to P150,000.00.

Re: Application for Judgment on the Attachment Bond

Apropos the Application for Judgment on the Attachment Bond, Escobar claims in its petition that the award of
attorneys fees and injunction bond premium in favor of Hanil is to law and jurisprudence. It contends that no malice
or bad faith may be imputed to it in procuring the writ.

Escobars protestation is now too late in the day. The question of the illegality of the attachment and Escobars
bad faith in obtaining it has long been settled in one of the earlier incidents of this case. The Court of Appeals, in its
decision rendered on February 3, 1983 in C.A.-G.R. No. SP-14512, voided the challenged writ, having been issued
with grave abuse of discretion. Escobars bad faith in procuring the writ cannot be doubted. Its Petition for the
Issuance of Preliminary Attachment made such damning allegations that: Hanil was already able to secure a
complete release of its final collection from the MPWH; it has moved out some of its heavy equipments for
unknown destination, and it may leave the country anytime. Worse, its Ex Parte Motion to Resolve Petition alleged
that after personal verification by (Escobar) of (Hanils) equipment in Cagayan de Oro City, it appears that the
equipments were no longer existing from their compound. All these allegations of Escobar were found to be totally
baseless and untrue. So manifest was their baselessness that Escobar did not even submit a reply to refute the
assertions Hanil made in its Opposition to the Petition for the Issuance of Preliminary Attachment. Nor did it attempt
to negate the same assertions of Hanil in its Motion for Reconsideration.Instead, it advanced the evasive claim that
the Motion has become moot and academic on the ground that the writ of attachment has already been executed.

We therefore hold that on the basis of the evidence presented, Hanil is entitled to temperate damages in the
amount of five hundred thousand pesos (P500,000.00). As a consequence of the illegal writ, Hanil suffered the
following damages: (1) some of the checks it issued were dishonored after its bank accounts were garnished; (2) its
operation stopped temporarily for five days because it was prevented from using its equipments and machineries;
and (3) its goodwill, reputation and commercial standing as one of the top multi-national construction firms in Asia
was tarnished.

In light of Escobars bad faith in procuring the attachment and garnishment orders, we grant the additional
award of exemplary damages in the amount of one million pesos (P1,000,000.00) by way of example or correction
for public good. This should deter parties in litigations from resorting to baseless and preposterous allegations to
obtain writs of attachments from gullible judges. The misuse of our legal processes cannot be tolerated especially if
they victimize persons and institutions of foreign nationality doing legitimate business in our jurisdiction. While as a
general rule, the liability on the attachment bond is limited to actual (or in some cases, temperate or nominal)
damages, exemplary damages may be recovered where the attachment was established to be maliciously sued out. [15]

We, however, delete the award of attorneys fees for the litigation of the application for damages against the
bond since we have already included the same in our grant of attorneys fees in the main action concerning the
appeal.

In other aspects, we sustain the assailed Decision and Resolution of the Court of Appeals. The claim of Hanil
that as part of the cost of suit, Escobar should be made to pay three thousand U.S. dollars (U.S.$3,000.00) for the
money it spent in taking the deposition upon written interrogatories of one of its witnesses, Engr. Chan Woo Park, in
South Korea on November 18, 1988 is bereft of merit. The case law on this issue is now settled, viz.:

(T)he expenses of taking depositions are allowable as costs only if it appears to the court: (1) that they were
reasonably necessary; (2) the burden of so demonstrating is upon the party claiming such expenses as costs; (3)
whether that burden is met is within the sound discretion of the trial court; and (4) its ruling thereon is presumed
to be correct and will not be disturbed unless it is so unreasonable as to manifest a clear abuse of discretion.
[16]
 (emphasis supplied)

Whether the taking of a deposition was reasonably necessary to the protection of the partys interests as to
entitle it to reimbursement of expenses is a question primarily for the lower court to decide based on all the facts and
circumstances of the case. On this score, the Court of Appeals (which heard the Application for Damages)
disallowed Hanils claim since the deposition was merely corroborative in nature and, therefore, superfluous.
[17]
 We agree. A cursory reading of the transcript of deposition of Engr. Chan will readily reveal that his testimony
only corroborated that of Hanils earlier witness, Mr. Chang Yong Ahn, its Operations Manager, who took the stand
on February 26, 1988. The two testimonies dealt with the same topic: the illegal writ of attachment on Hanils
equipments and garnishment of its funds, and the pecuniary loss it suffered as a consequence thereof. In fact, despite
the Court of Appealss own conclusion about the superfluity of the deposition, it still decided in favor of Hanil based
on the other undisputed evidence on record.

In the same vein, we sustain the grant of seven thousand five hundred seven pesos and ninety centavos
(P7,507.90) as injunction bond premium for being reasonable under the premises.

Finally, we find and so hold that, as between Escobar and its bondsman Sanpiro, the former is liable to the
latter by virtue of their Indemnity Agreement [18]1 for the damages the subject attachment bond is herein made to
answer. However, since the extent of its liability will be determined only by the terms and conditions of the contract
of suretyship,[19] it can only be held answerable up to the amount of one million three hundred forty-one thousand,
seven hundred twenty-seven pesos and forty centavos (P1,341,727.40).
 IN VIEW WHEREOF, the assailed Decision and Resolution of the Court of Appeals are hereby modified as
follows:

1. ORDERING Escobar to pay Hanil under the counterclaim in Civil Case No. 35966 the following sums of
money:

a. TWENTY THOUSAND PESOS (P20,000.00) as nominal damages;

b. ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00) for and as attorneys fees.

2. ORDERING Escobar, and bondsman Sanpiro to jointly and severally pay with it up to the extent of one
million three hundred forty-one thousand seven hundred twenty-seven pesos and forty centavos (P1,341,727.40), to
pay Hanil under the attachment bond the following sums of money:

a. FIVE HUNDRED THOUSAND PESOS (P500,000.00) as temperate damages;

b. ONE MILLION PESOS (P1,000,000.00) as exemplary damages;

c. SEVEN THOUSAND FIVE HUNDRED SEVEN PESOS AND NINETY CENTAVOS (P7,507.90) for the
Injunction Bond Premium.

3. ORDERING Escobar to pay Hanil the remainder of the amount of temperate, exemplary and bond premium
damages - which cannot be fully covered by the attachment bond - in the sum of ONE HUNDRED SIXTY-FIVE
THOUSAND SEVEN HUNDRED EIGHTY PESOS AND FIFTY CENTAVOS (P165,780.50).

4. ORDERING Escobar to pay bondsman Sanpiro by way of reimbursement under their Indemnity Agreement
the sum of ONE MILLION THREE HUNDRED FORTY-ONE THOUSAND SEVEN HUNDRED TWENTY-
SEVEN PESOS AND FORTY CENTAVOS (P1,341,727.40).

Costs against Escobar.

SO ORDERED.
147 Phil. 794
BACHE and Co. Case

VILLAMOR, J.:
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 the record, are as follows:
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 Logroniosubscribed 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 signed 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 on
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:
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:
"(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:
"SR. ORENSE.  Vamos a dejar compañero, los piropos y vamos al grano.

En los casos de una necesidad de actuar inmediatamente para que no se frustren los fines de
la justicia mediante el registroinmediato y la incautacion del cuerpo del delito,
no cree Su Señoria que causaria cierta demora el procedimiento apuntado en suenmienda en tal forma que podria fru
strar los fines de la justicia o si Su Señoria encuentra un remedio para estos casos con el fin de compaginar los fines
de la justicia con los derechos del individuo en su persona, bienes etcetera, etcetera.

"SR. FRANCISCO.  No puedo ver en
la practica el caso hipotetico que Su Señoria pregunta por la sigutente razon:  el que solicitaun mandamiento de regis
tro tiene que hacerlo por escrito y ese escrito no aparecera en la Mesa
del Juez sin que alguien vaya al juez a presentar ese escrito o peticion de secuestro.  Esa persona que presenta el regi
stro puede ser
el mismo denunciante o alguna persona que solicita dicho mandamiento de registro.  Ahora toda la enmienda en esos 
casos consiste en que haya peticionde registro y el juez no
se atendra solamente a esa peticion sino que el juez examinara a ese denunciante y si tiene testigostambien examinar
a a los testigos.

"SR. ORENSE.  No cree Su Señoria que el tomar la declaracion de ese denunciante por escrito siempre requeriria al
gun tiempo?

"SR. FRANCISCO.  Seria cuestion de un par
de horas, pero por otro lado minimizamos en todo lo posible las vejaciones injustascon
la expedicion & arbitraria de los mandamientos de registro.  Creo que entre dos males debemos escoger el menor.

x        x          x          x          x

"MR. LAUREL.  x x x 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.  x x x."

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 x x x."
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:
"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."

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 reading 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 considered
as 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 already 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:
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 therefor, or who aids or abets in the conduct of illicit distilling,
rectifying, compounding, or illicit manufacture of any article subject to specific tax x x x," 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. vs. 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 is 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:
"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 by providing in its counterpart,
under the Revised 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:
"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."

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:
"The grave violation of the Constitution made in the application for the contested search warrants was compounded
by the description therein made of the effects to be searched for and seized, to wit:

'Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios, credit
journals, typewriters, and other documents and/or papers showing all business transactions including disbursement
receipts, balance sheets and related profit and loss statements.'
"Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of
petitioners herein, regardless of whether the transactions were legal or illegal.  The warrants sanctioned the seizure
of all records of the petitioners and the aforementioned corporations, whatever their nature, thus openly
contravening the explicit command of our Bill of Rights - that the things to be seized be particularly described - as
well as tending to defeat its major objective:  the elimination of general warrants."

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. vs. 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:
"x x x 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."

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 vs. 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 describes 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. vs. 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 vs. 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 vs. 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 vs. Court of Appeals, et al., supra.)
It is next contended by respondents that a corporation is not entitled to protection against unreasonable searches 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.  x xx." (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, on 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. vs. Diokno, et al., supra, this Court impliedly recognized the right of a corporation to object
against unreasonable searches and seizures, thus:
"As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the
contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have
their respective personalities, separate and distinct from the personality of herein petitioners, regardless of the
amount of shares of stock or of the interest of each of them in said corporations, and whatever the offices they hold
therein may be.  Indeed, it is well settled that the legality of a seizure can be contested only by the part whose rights
is 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.  x x x."

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.  These 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 of 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.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-31061 August 17, 1976

SULO NG BAYAN INC., plaintiff-appellant, 

vs.
GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL WATERWORKS & SEWERAGE
AUTHORITY, HACIENDA CARETAS, INC, and REGISTER OF DEEDS OF BULACAN, defendants-
appellees.

Hill & Associates Law Offices for appellant.

Araneta, Mendoza & Papa for appellee Gregorio Araneta, Inc.

Carlos, Madarang, Carballo & Valdez for Paradise Farms, Inc.

Leopoldo M. Abellera, Arsenio J. Magpale & Raul G. Bernardo, Office of the Government Corporate Counsel for
appellee National Waterworks & Sewerage Authority.

Candido G. del Rosario for appellee Hacienda Caretas, Inc.

ANTONIO, J.:

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.

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 either fraudelently or erroneously included, by direct or constructive
fraud, in Original Certificate of Title No. 466 of the Land of Records of the province of Bulacan", issued on May 11,
1916, which title is fictitious, non-existent and devoid of legal efficacy due to the fact that "no original survey nor
plan whatsoever" appears to have been submitted as a basis thereof and that the Court of First Instance of Bulacan
which issued the decree of registration did not acquire jurisdiction over the land registration case because no notice
of such proceeding was given to the members of the plaintiff corporation who were then in actual possession of said
properties; that as a consequence of the nullity of the original title, all subsequent titles derived therefrom, such as
Transfer Certificate of Title No. 4903 issued in favor of Gregorio Araneta and Carmen Zaragoza, which was
subsequently cancelled by Transfer Certificate of Title No. 7573 in the name of Gregorio Araneta, Inc., Transfer
Certificate of Title No. 4988 issued in the name of, the National Waterworks & Sewerage Authority (NWSA),
Transfer Certificate of Title No. 4986 issued in the name of Hacienda Caretas, Inc., and another transfer certificate
of title in the name of Paradise Farms, Inc., are therefore void. Plaintiff-appellant consequently prayed (1) that
Original Certificate of Title No. 466, as well as all transfer certificates of title issued and derived therefrom, be
nullified; (2) that "plaintiff's members" be declared as absolute owners in common of said property and that the
corresponding certificate of title be issued to plaintiff; and (3) that defendant-appellee Gregorio Araneta, Inc. be
ordered to pay to plaintiff the damages therein specified.

On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to dismiss the amended complaint
on the grounds that (1) the complaint states no cause of action; and (2) the cause of action, if any, is barred by
prescription and laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss based on the same
grounds. Appellee National Waterworks & Sewerage Authority did not file any motion to dismiss. However, it
pleaded in its answer as special and affirmative defenses lack of cause of action by the plaintiff-appellant and the
barring of such action by prescription and laches.

During the pendency of the motion to dismiss, plaintiff-appellant filed a motion, dated October 7, 1966, praying that
the case be transferred to another branch of the Court of First Instance sitting at Malolos, Bulacan, According to
defendants-appellees, they were not furnished a copy of said motion, hence, on October 14, 1966, the lower court
issued an Order requiring plaintiff-appellant to furnish the appellees copy of said motion, hence, on October 14,
1966, defendant-appellant's motion dated October 7, 1966 and, consequently, prayed that the said motion be denied
for lack of notice and for failure of the plaintiff-appellant to comply with the Order of October 14, 1966. Similarly,
defendant-appellee paradise Farms, Inc. filed, on December 2, 1966, a manifestation information the court that it
also did not receive a copy of the afore-mentioned of appellant. On January 24, 1967, the trial court issued an Order
dismissing the amended complaint.

On February 14, 1967, appellant filed a motion to reconsider the Order of dismissal on the grounds that the court
had no jurisdiction to issue the Order of dismissal, because its request for the transfer of the case from the
Valenzuela Branch of the Court of First Instance to the Malolos Branch of the said court has been approved by the
Department of Justice; that the complaint states a sufficient cause of action because the subject matter of the
controversy in one of common interest to the members of the corporation who are so numerous that the present
complaint should be treated as a class suit; and that the action is not barred by the statute of limitations because (a)
an action for the reconveyance of property registered through fraud does not prescribe, and (b) an action to impugn a
void judgment may be brought any time. This motion was denied by the trial court in its Order dated February 22,
1967. From the afore-mentioned Order of dismissal and the Order denying its motion for reconsideration, plaintiff-
appellant appealed to the Court of Appeals.

On September 3, 1969, the Court of Appeals, upon finding that no question of fact was involved in the appeal but
only questions of law and jurisdiction, certified this case to this Court for resolution of the legal issues involved in
the controversy.

Appellant contends, as a first assignment of error, that the trial court acted without authority and jurisdiction in
dismissing the amended complaint when the Secretary of Justice had already approved the transfer of the case to any
one of the two branches of the Court of First Instance of Malolos, Bulacan.

Appellant confuses the jurisdiction of a court and the venue of cases with the assignment of cases in the different
branches of the same Court of First Instance. Jurisdiction implies the power of the court to decide a case, while
venue the place of action. There is no question that respondent court has jurisdiction over the case. The venue of
actions in the Court of First Instance is prescribed in Section 2, Rule 4 of the Revised Rules of Court. The laying of
venue is not left to the caprice of plaintiff, but must be in accordance with the aforesaid provision of the rules. 2The
mere fact that a request for the transfer of a case to another branch of the same court has been approved by the
Secretary of Justice does not divest the court originally taking cognizance thereof of its jurisdiction, much less does
it change the venue of the action. As correctly observed by the trial court, the indorsement of the Undersecretary of
Justice did not order the transfer of the case to the Malolos Branch of the Bulacan Court of First Instance, but only
"authorized" it for the reason given by plaintiff's counsel that the transfer would be convenient for the parties. The
trial court is not without power to either grant or deny the motion, especially in the light of a strong opposition
thereto filed by the defendant. We hold that the court a quo acted within its authority in denying the motion for the
transfer the case to Malolos notwithstanding the authorization" of the same by the Secretary of Justice.

II

Let us now consider the substantive aspect of the Order of dismissal.

In dismissing the amended complaint, the court a quo said:

 The issue of lack of cause of action raised in the motions to dismiss refer to the lack of personality
of plaintiff to file the instant action. Essentially, the term 'cause of action' is composed of two
elements: (1) the right of the plaintiff and (2) the violation of such right by the defendant. (Moran,
Vol. 1, p. 111). For these reasons, the rules require that every action must be prosecuted and
defended in the name of the real party in interest and that all persons having an interest in the
subject of the action and in obtaining the relief demanded shall be joined as plaintiffs (Sec. 2, Rule
3). In the amended complaint, the people whose rights were alleged to have been violated by being
deprived and dispossessed of their land are the members of the corporation and not the corporation
itself. The corporation has a separate. and distinct personality from its members, and this is not a
mere technicality but a matter of substantive law. There is no allegation that the members have
assigned their rights to the corporation or any showing that the corporation has in any way or
manner succeeded to such rights. The corporation evidently did not have any rights violated by the
defendants for which it could seek redress. Even if the Court should find against the defendants,
therefore, the plaintiff corporation would not be entitled to the reliefs prayed for, which are
recoveries of ownership and possession of the land, issuance of the corresponding title in its name,
and payment of damages. Neither can such reliefs be awarded to the members allegedly deprived
of their land, since they are not parties to the suit. It appearing clearly that the action has not been
filed in the names of the real parties in interest, the complaint must be dismissed on the ground of
lack of cause of action. 3

Viewed in the light of existing law and jurisprudence, We find that the trial court correctly dismissed the amended
complaint.

It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be
considered as separate and apart from the individual stockholders or members who compose it, and is not affected
by the personal rights, obligations and transactions of its stockholders or members. 4 The property of the corporation
is its property and not that of the stockholders, as owners, although they have equities in it. Properties registered in
the name of the corporation are owned by it as an entity separate and distinct from its members. 5Conversely, a
corporation ordinarily has no interest in the individual property of its stockholders 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

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

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
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 showing of interest, therefore, a corporation, like plaintiff-appellant
herein, has no personality to bring an action for and in behalf of its stockholders or members for the purpose of
recovering property which belongs to said stockholders or members in their personal capacities.

It is fundamental that there cannot be a cause of action 'without an antecedent primary legal right conferred' by law
upon a person. 17 Evidently, there can be no wrong without a corresponding right, and no breach of duty by one
person without a corresponding right belonging to some other person. 18 Thus, the essential elements of a cause of
action are legal right of the plaintiff, correlative obligation of the defendant, an act or omission of the defendant in
violation of the aforesaid legal right. 19 Clearly, no right of action exists in favor of plaintiff corporation, for as
shown heretofore it does not 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 a real party in interest.

III

Appellant maintains, however, that the amended complaint may be treated as a class suit, pursuant to Section 12 of
Rule 3 of the Revised Rules of Court.

In order that a class suit may prosper, the following requisites must be present: (1) that the subject matter of the
controversy is one of common or general interest to many persons; and (2) that the parties are so numerous that it is
impracticable to bring them all before the court. 20

Under the first requisite, the person who sues must have an interest in the controversy, common with those for whom
he sues, and there must be that unity of interest between him and all such other persons which would entitle them to
maintain the action if suit was brought by them jointly. 21

As to what constitutes common interest in the subject matter of the controversy, it has been explained in Scott v.
Donald 22 thus:

The interest that will allow parties to join in a bill of complaint, or that will enable the court to
dispense with the presence of all the parties, when numerous, except a determinate number, is not
only an interest in the question, but one in common in the subject Matter of the suit; ... a
community of interest growing out of the nature and condition of the right in dispute; for, although
there may not be any privity between the numerous parties, there is a common title out of which
the question arises, and which lies at the foundation of the proceedings ... [here] the only matter in
common among the plaintiffs, or between them and the defendants, is an interest in the Question
involved which alone cannot lay a foundation for the joinder of parties. There is scarcely a suit at
law, or in equity which settles a Principle or applies a principle to a given state of facts, or in
which a general statute is interpreted, that does not involved a Question in which other parties are
interested. ... (Emphasis supplied )

Here, there is only one party plaintiff, and the plaintiff corporation does not even have an interest in the subject
matter of the controversy, and cannot, therefore, represent its members or stockholders who claim to own in their
individual capacities ownership of the said property. Moreover, as correctly stated by the appellees, a class suit does
not lie in actions for the recovery of property where several persons claim Partnership of their respective portions of
the property, as each one could alleged and prove his respective right in a different way for each portion of the land,
so that they cannot all be held to have Identical title through acquisition prescription. 23

Having shown that no cause of action in favor of the plaintiff exists and that the action in the lower court cannot be
considered as a class suit, it would be unnecessary and an Idle exercise for this Court to resolve the remaining issue
of whether or not the plaintiffs action for reconveyance of real property based upon constructive or implied trust had
already prescribed.

ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the plaintiff-appellant.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 131723             December 13, 2007

MANILA ELECTRIC COMPANY, petitioner, 

vs.
T.E.A.M. ELECTRONICS CORPORATION, TECHNOLOGY ELECTRONICS ASSEMBLY and
MANAGEMENT PACIFIC CORPORATION; and ULTRA ELECTRONICS INSTRUMENTS,
INC., respondents.

DECISION

NACHURA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision1of
the Court of Appeals (CA) dated June 18, 1997 and its Resolution2 dated December 3, 1997 in CA-G.R. CV No.
40282 denying the appeal filed by petitioner Manila Electric Company.

The facts of the case, as culled from the records, are as follows:

Respondent T.E.A.M. Electronics Corporation (TEC) was formerly known as NS Electronics (Philippines), Inc.
before 1982 and National Semi-Conductors (Phils.) before 1988. TEC is wholly owned by respondent Technology
Electronics Assembly and Management Pacific Corporation (TPC). On the other hand, petitioner Manila Electric
Company (Meralco) is a utility company supplying electricity in the Metro Manila area.

Petitioner and NS Electronics (Philippines), Inc., the predecessor-in-interest of respondent TEC, were parties to two
separate contracts denominated as Agreements for the Sale of Electric Energy under the following account numbers:
09341-1322-163 and 09341-1812-13.4 Under the aforesaid agreements, petitioner undertook to supply TEC's
building known as Dyna Craft International Manila (DCIM) located at Electronics Avenue, Food Terminal Complex,
Taguig, Metro Manila, with electric power. Another contract was entered into for the supply of electric power to
TEC's NS Building under Account No. 19389-0900-10.

In September 1986, TEC, under its former name National Semi-Conductors (Phils.) entered into a Contract of
Lease5 with respondent Ultra Electronics Industries, Inc. (Ultra) for the use of the former's DCIM building for a
period of five years or until September 1991. Ultra was, however, ejected from the premises on February 12, 1988
by virtue of a court order, for repeated violation of the terms and conditions of the lease contract.

On September 28, 1987, a team of petitioner's inspectors conducted a surprise inspection of the electric meters
installed at the DCIM building, witnessed by Ultra's6 representative, Mr. Willie Abangan. The two meters covered by
account numbers 09341-1322-16 and 09341-1812-13, were found to be allegedly tampered with and did not register
the actual power consumption in the building. The results of the inspection were reflected in the Service Inspection
Reports7 prepared by the team.

In a letter dated November 25, 1987, petitioner informed TEC of the results of the inspection and demanded from
the latter the payment of P7,040,401.01 representing its unregistered consumption from February 10, 1986 until
September 28, 1987, as a result of the alleged tampering of the meters. 8 TEC received the letters on January 7, 1988.
Since Ultra was in possession of the subject building during the covered period, TEC's Managing Director, Mr.
Bobby Tan, referred the demand letter to Ultra9 which, in turn, informed TEC that its Executive Vice-President had
met with petitioner's representative. Ultra further intimated that assuming that there was tampering of the meters,
petitioner's assessment was excessive.10 For failure of TEC to pay the differential billing, petitioner disconnected the
electricity supply to the DCIM building on April 29, 1988.
TEC demanded from petitioner the reconnection of electrical service, claiming that it had nothing to do with the
alleged tampering but the latter refused to heed the demand. Hence, TEC filed a complaint on May 27, 1988 before
the Energy Regulatory Board (ERB) praying that electric power be restored to the DCIM building.11 The ERB
immediately ordered the reconnection of the service but petitioner complied with it only on October 12, 1988 after
TEC paid P1,000,000.00, under protest. The complaint before the ERB was later withdrawn as the parties deemed it
best to have the issues threshed out in the regular courts. Prior to the reconnection, or on June 7, 1988, petitioner
conducted a scheduled inspection of the questioned meters and found them to have been tampered anew. 12

Meanwhile, on April 25, 1988, petitioner conducted another inspection, this time, in TEC's NS Building. The
inspection allegedly revealed that the electric meters were not registering the correct power consumption. Petitioner,
thus, sent a letter dated June 18, 1988 demanding payment of P280,813.72 representing the differential
billing.13 TEC denied petitioner's allegations and claim in a letter dated June 29, 1988.14 Petitioner, thus, sent TEC
another letter demanding payment of the aforesaid amount, with a warning that the electric service would be
disconnected in case of continued refusal to pay the differential billing.15 To avert the impending disconnection of
electrical service, TEC paid the above amount, under protest.16

On January 13, 1989, TEC and TPC filed a complaint for damages against petitioner and Ultra 17 before the Regional
Trial Court (RTC) of Pasig. The case was raffled to Branch 162 and was docketed as Civil Case No. 56851.18 Upon
the filing of the parties' answer to the complaint, pre-trial was scheduled.

At the pre-trial, the parties agreed to limit the issues, as follows:

1. Whether or not the defendant Meralco is liable for the plaintiffs' disconnection of electric service at
DCIM Building.

2. Whether or not the plaintiff is liable for (sic) the defendant for the differential billings in the amount
of P7,040,401.01.

3. Whether or not the plaintiff is liable to defendant for exemplary damages. 19

For failure of the parties to reach an amicable settlement, trial on the merits ensued. On June 17, 1992, the trial court
rendered a Decision in favor of respondents TEC and TPC, and against respondent Ultra and petitioner. The
pertinent portion of the decision reads:

WHEREFORE, judgment is hereby rendered in this case in favor of the plaintiffs and against the
defendants as follows:

(1) Ordering both defendants Meralco and ULTRA Electronics Instruments, Inc. to jointly and
severally reimburse plaintiff TEC actual damages in the amount of ONE MILLION PESOS with
legal rate of interest from the date of the filing of this case on January 19, 1989 until the said
amount shall have been fully paid;

(2) Ordering defendant Meralco to pay to plaintiff TEC the amount of P280,813.72 as actual
damages with legal rate of interest also from January 19, 1989;

(3) Ordering defendant Meralco to pay to plaintiff TPC the amount of P150,000.00 as actual
damages with interest at legal rate from January 19, 1989;

(4) Condemning defendant Meralco to pay both plaintiffs moral damages in the amount
pf P500,000.00;

(5) Condemning defendant Meralco to pay both plaintiffs corrective and/or exemplary damages in
the amount of P200,000.00;

(6) Ordering defendant Meralco to pay attorney's fees in the amount of P200,000.00
 Costs against defendant Meralco.

SO ORDERED.20

The trial court found the evidence of petitioner insufficient to prove that TEC was guilty of tampering the meter
installations. The deformed condition of the meter seal and the existence of an opening in the wire duct leading to
the transformer vault did not, in themselves, prove the alleged tampering, especially since access to the transformer
was given only to petitioner's employees.21 The sudden drop in TEC's (or Ultra's) electric consumption did not, per
se, show meter tampering. The delay in the sending of notice of the results of the inspection was likewise viewed by
the court as evidence of inefficiency and arbitrariness on the part of petitioner. More importantly, petitioner's act of
disconnecting the DCIM building's electric supply constituted bad faith and thus makes it liable for damages. 22 The
court further denied petitioner's claim of differential billing primarily on the ground of equitable
negligence.23 Considering that TEC and TPC paid P1,000,000.00 to avert the disconnection of electric power; and
because Ultra manifested to settle the claims of petitioner, the court imposed solidary liability on both Ultra and
petitioner for the payment of the P1,000,000.00.

Ultra and petitioner appealed to the CA which affirmed the RTC decision, with a modification of the amount of
actual damages and interest thereon. The dispositive portion of the CA decision dated June 18, 1997, states:

WHEREFORE, this Court renders judgment affirming in toto the Decision rendered by the trial court with
the slight modification that the interest at legal rate shall be computed from January 13, 1989 and that
Meralco shall pay plaintiff T.E.A.M. Electronics Corporation and Technology Electronics Assembly and
Management Pacific Corporation the sum of P150,000.00 per month for five (5) months for actual damages
incurred when it was compelled to lease a generator set with interest at the legal rate from the above-stated
date.

SO ORDERED.24

The appellate court agreed with the RTC's conclusion. In addition, it considered petitioner negligent for failing to
discover the alleged defects in the electric meters; in belatedly notifying TEC and TPC of the results of the
inspection; and in disconnecting the electric power without prior notice.

Petitioner now comes before this Court in this petition for review on certiorari contending that:

The Court of Appeals committed grievous errors and decided matters of substance contrary to law and the
rulings of this Honorable Court:

1. In finding that the issue in the case is whether there was deliberate tampering of the metering
installations at the building owned by TEC.

2. In not finding that the issue is: whether or not, based on the tampered meters, whether or not petitioner is
entitled to differential billing, and if so, how much.

3. In declaring that petitioner ME RALCO had the burden of proof to show by clear and convincing
evidence that with respect to the tampered meters that TEC and/or TPC authored their tampering.

4. In finding that petitioner Meralco should not have held TEC and/or TPC responsible for the acts of Ultra.

5. In finding that TEC should not be held liable for the tampering of this electric meter in its DCIM
Building.

6. In finding that there was no notice of disconnection.

7. In finding that petitioner MERALCO was negligent in informing TEC of the alleged tampering.

8. In making the finding that it is difficult to believe that when petitioner MERALCO inspected on June 7,
 1988 the meter installations, they were found to be tampered.

9. In declaring that petitioner MERALCO estopped from claiming any tampering of the meters.

10. In finding that "the method employed by MERALCO to as certain (sic) the 'correct' amount of
electricity consumed is questionable";

11. In declaring that MERALCO all throughout its dealings with TEC took on an "attitude" which is
oppressive, wanton and reckless.

12. In declaring that MERALCO acted arbitrarily in inspecting TEC's DCIM building and the NS building.

13. In declaring that respondents TEC and TPC are entitled to the damages which it awarded.

14. In not declaring that petitioner is entitled to the differential bill.

15. In not declaring that respondents are liable to petitioner for exemplary damages, attorney's fee and
expenses for litigation.25

The petition must fail.

The issues for resolution can be summarized as follows: 1) whether or not TEC tampered with the electric meters
installed at its DCIM and NS buildings; 2) If so, whether or not it is liable for the differential billing as computed by
petitioner; and 3) whether or not petitioner was justified in disconnecting the electric power supply in TEC's DCIM
building.

Petitioner insists that the tampering of the electric meters installed at the DCIM and NS buildings owned by
respondent TEC has been established by overwhelming evidence, as specifically shown by the shorting devices
found during the inspection. Thus, says petitioner, tampering of the meter is no longer an issue.

It is obvious that petitioner wants this Court to revisit the factual findings of the lower courts. Well-established is the
doctrine that under Rule 45 of the Rules of Court, only questions of law, not of fact, may be raised before the Court.
We would like to stress that this Court is not a trier of facts and may not re-examine and weigh anew the respective
evidence of the parties. Factual findings of the trial court, especially those affirmed by the Court of Appeals, are
binding on this Court.26

Looking at the record, we note that petitioner claims to have discovered three incidences of meter-tampering; twice
in the DCIM building on September 28, 1987 and June 7, 1988; and once in the NS building on April 24, 1988.

The first instance was supposedly discovered on September 28, 1987. The inspector allegedly found the presence of
a short circuiting device and saw that the meter seal was deformed. In addition, petitioner, through the Supervising
Engineer of its Special Billing Analysis Department,27 claimed that there was a sudden and unexplainable drop in
TEC's electrical consumption starting February 10, 1986. On the basis of the foregoing, petitioner concluded that the
electric meters were tampered with.

However, contrary to petitioner's claim that there was a drastic and unexplainable drop in TEC's electric
consumption during the affected period, the Pattern of TEC's Electrical Consumption28 shows that the sudden drop is
not peculiar to the said period. Noteworthy is the observation of the RTC in this wise:

In fact, in Account No. 09341-1812-13 (heretofore referred as Account/Meter No. 2), as evidenced by
Exhibits "35" and "35-A," there was likewise a sudden drop of electrical consumption from the year 1984
which recorded an average 141,300 kwh/month to 1985 which recorded an average kwh/month at 87,600 or
a difference-drop of 53,700 kwh/month; from 1985's 87,600 recorded consumption, the same dropped to
18,600 kwh/month or a difference-drop of 69,000 kwh/month. Surely, a drop of 53,700 could be equally
categorized as a sudden drop amounting to 69,000 which, incidentally, the Meralco claimed as
"unexplainable. x x x.29
The witnesses for petitioner who testified on the alleged tampering of the electric meters, declared that tampering is
committed by consumers to prevent the meter from registering the correct amount of electric consumption, and
result in a reduced monthly electric bill, while continuing to enjoy the same power supply. Only the registration of
actual electric energy consumption, not the supply of electricity, is affected when a meter is tampered with. 30 The
witnesses claimed that after the inspection, the tampered electric meters were corrected, so that they would register
the correct consumption of TEC. Logically, then, after the correction of the allegedly tampered meters, the
customer's registered consumption would go up.

In this case, the period claimed to have been affected by the tampered electric meters is from February 1986 until
September 1987. Based on petitioner's Billing Record31 (for the DCIM building), TEC's monthly electric
consumption on Account No. 9341-1322-16 was between 4,500 and 27,000 kwh.32 Account No. 9341-1812-13
showed a monthly consumption between 9,600 and 34,200 kwh.33 It is interesting to note that, after correction of the
allegedly tampered meters, TEC's monthly electric consumption from October 1987 to February 1988 (the last
month that Ultra occupied the DCIM building) was between 8,700 and 24,300 kwh in its first account, and 16,200 to
46,800 kwh on the second account.

Even more revealing is the fact that TEC's meters registered 9,300 kwh and 19,200 kwh consumption on the first
and second accounts, respectively, a month prior to the inspection. On the first month after the meters were
corrected, TEC's electric consumption registered at 9,300 kwh and 22,200 kwh on the respective accounts. These
figures clearly show that there was no palpably drastic difference between the consumption before and after the
inspection, casting a cloud of doubt over petitioner's claim of meter-tampering. Indeed, Ultra's explanation that the
corporation was losing; thus, it had lesser consumption of electric power appear to be the more plausible reason for
the drop in electric consumption.

Petitioner likewise claimed that when the subject meters were again inspected on June 7, 1988, they were found to
have been tampered anew. The Court notes that prior to the inspection, TEC was informed about it; and months
before the inspection, there was an unsettled controversy between TEC and petitioner, brought about by the
disconnection of electric power and the non-payment of differential billing. We are more disposed to accept the trial
court's conclusion that it is hard to believe that a customer previously apprehended for tampered meters and
assessed P7 million would further jeopardize itself in the eyes of petitioner.34 If it is true that there was evidence of
tampering found on September 28, 1987 and again on June 7, 1988, the better view would be that the defective
meters were not actually corrected after the first inspection. If so, then Manila Electric Company v. Macro Textile
Mills Corporation35 would apply, where we said that we cannot sanction a situation wherein the defects in the
electric meter are allowed to continue indefinitely until suddenly, the public utilities demand payment for the
unrecorded electricity utilized when they could have remedied the situation immediately. Petitioner's failure to do so
may encourage neglect of public utilities to the detriment of the consuming public. Corollarily, it must be
underscored that petitioner has the imperative duty to make a reasonable and proper inspection of its apparatus and
equipment to ensure that they do not malfunction, and the due diligence to discover and repair defects therein.
Failure to perform such duties constitutes negligence.36 By reason of said negligence, public utilities run the risk of
forfeiting amounts originally due from their customers.37

As to the alleged tampering of the electric meter in TEC's NS building, suffice it to state that the allegation was not
proven, considering that the meters therein were enclosed in a metal cabinet the metal seal of which was unbroken,
with petitioner having sole access to the said meters.38

In view of the negative finding on the alleged tampering of electric meters on TEC's DCIM and NS buildings,
petitioner's claim of differential billing was correctly denied by the trial and appellate courts. With greater reason,
therefore, could petitioner not exercise the right of immediate disconnection.

The law in force at the time material to this controversy was Presidential Decree (P.D.) No. 401 39 issued on March 1,
1974.40 The decree penalized unauthorized installation of water, electrical or telephone connections and such acts as
the use of tampered electrical meters. It was issued in answer to the urgent need to put an end to illegal activities that
prejudice the economic well-being of both the companies concerned and the consuming public.41P.D. 401 granted
the electric companies the right to conduct inspections of electric meters and the criminal prosecution 42 of erring
consumers who were found to have tampered with their electric meters. It did not expressly provide for more
expedient remedies such as the charging of differential billing and immediate disconnection against erring
consumers. Thus, electric companies found a creative way of availing themselves of such remedies by inserting into
their service contracts (or agreements for the sale of electric energy) a provision for differential billing with the
option of disconnection upon non-payment by the erring consumer. The Court has recognized the validity of such
stipulations.43 However, recourse to differential billing with disconnection was subject to the prior requirement of a
48-hour written notice of disconnection.44

Petitioner, in the instant case, resorted to the remedy of disconnection without prior notice. While it is true that
petitioner sent a demand letter to TEC for the payment of differential billing, it did not include any notice that the
electric supply would be disconnected. In fine, petitioner abused the remedies granted to it under P.D. 401 and
Revised General Order No. 1 by outrightly depriving TEC of electrical services without first notifying it of the
impending disconnection. Accordingly, the CA did not err in affirming the RTC decision.

As to the damages awarded by the CA, we deem it proper to modify the same. Actual damages are compensation for
an injury that will put the injured party in the position where it was before the injury. They pertain to such injuries or
losses that are actually sustained and susceptible of measurement. Except as provided by law or by stipulation, a
party is entitled to adequate compensation only for such pecuniary loss as is duly proven. Basic is the rule that to
recover actual damages, not only must the amount of loss be capable of proof; it must also be actually proven with a
reasonable degree of certainty, premised upon competent proof or the best evidence obtainable.45

Respondent TEC sufficiently established, and petitioner in fact admitted, that the former paid P1,000,000.00
and P280,813.72 under protest, the amounts representing a portion of the latter's claim of differential billing. With
the finding that no tampering was committed and, thus, no differential billing due, the aforesaid amounts should be
returned by petitioner, with interest, as ordered by the Court of Appeals and pursuant to the guidelines set forth by
the Court.46

However, despite the appellate court's conclusion that no tampering was committed, it held Ultra solidarily liable
with petitioner for P1,000,000.00, only because the former, as occupant of the building, promised to settle the claims
of the latter. This ruling is erroneous. Ultra's promise was conditioned upon the finding of defect or tampering of the
meters. It did not acknowledge any culpability and liability, and absent any tampered meter, it is absurd to make the
lawful occupant liable. It was petitioner who received the P1 million; thus, it alone should be held liable for the
return of the amount.

TEC also sufficiently established its claim for the reimbursement of the amount paid as rentals for the generator set
it was constrained to rent by reason of the illegal disconnection of electrical service. The official receipts and
purchase orders submitted by TEC as evidence sufficiently show that such rentals were indeed made. However, the
amount of P150,000.00 per month for five months, awarded by the CA, is excessive. Instead, a total sum
of P150,000.00, as found by the RTC, is proper.

As to the payment of exemplary damages and attorney's fees, we find no cogent reason to disturb the same.
Exemplary damages are imposed by way of example or correction for the public good in addition to moral,
temperate, liquidated, or compensatory damages.47 In this case, to serve as an example – that before a disconnection
of electrical supply can be effected by a public utility, the requisites of law must be complied with – we affirm the
award of P200,000.00 as exemplary damages. With the award of exemplary damages, the award of attorney's fees is
likewise proper, pursuant to Article 220848 of the Civil Code. It is obvious that TEC needed the services of a lawyer
to argue its cause through three levels of the judicial hierarchy. Thus, the award of P200,000.00 is in order.49

We, however, deem it proper to delete the award of moral damages. TEC's claim was premised allegedly on the
damage to its goodwill and reputation.50 As a rule, a corporation is not entitled to moral damages because, not being
a natural person, it cannot experience physical suffering or sentiments like wounded feelings, serious anxiety, mental
anguish and moral shock. The only exception to this rule is when the corporation has a reputation that is debased,
resulting in its humiliation in the business realm.51 But in such a case, it is imperative for the claimant to present
proof to justify the award. It is essential to prove the existence of the factual basis of the damage and its causal
relation to petitioner's acts.52 In the present case, the records are bereft of any evidence that the name or reputation of
TEC/TPC has been debased as a result of petitioner's acts. Besides, the trial court simply awarded moral damages in
 the dispositive portion of its decision without stating the basis thereof.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 40282 dated
June 18, 1997 and its Resolution dated December 3, 1997 are AFFIRMED with the following MODIFICATIONS:
(1) the award of P150,000.00 per month for five months as reimbursement for the rentals of the generator set
is REDUCED to P150,000.00; and (2) the award of P500,000.00 as moral damages is hereby DELETED.

SO ORDERED.

EN BANC

WILSON P. GAMBOA, G.R. No. 176579

Petitioner,

Present:

- versus -  

  CORONA, C.J.,

FINANCE SECRETARY MARGARITO B. CARPIO,

TEVES, FINANCE UNDERSECRETARY JOHN
P. SEVILLA, AND COMMISSIONER RICARDO VELASCO, JR.,
ABCEDE OF THE PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT LEONARDO-DE CASTRO,
(PCGG) IN THEIR CAPACITIES AS CHAIR
BRION,
AND MEMBERS, RESPECTIVELY, OF THE
PRIVATIZATION COUNCIL, PERALTA,
CHAIRMAN ANTHONI SALIM OF FIRST BERSAMIN,
PACIFIC CO., LTD. IN HIS CAPACITY AS
DIRECTOR OF METRO PACIFIC ASSET DEL CASTILLO,
HOLDINGS INC., CHAIRMAN MANUEL V.
PANGILINAN OF PHILIPPINE LONG ABAD,
DISTANCE TELEPHONE COMPANY (PLDT)
IN HIS CAPACITY AS MANAGING VILLARAMA, JR.,
DIRECTOR OF FIRST PACIFIC CO., LTD.,
PRESIDENT NAPOLEON L. NAZARENO OF PEREZ,
PHILIPPINE LONG DISTANCE TELEPHONE
MENDOZA, and
COMPANY, CHAIR FE BARIN OF THE
SECURITIES EXCHANGE COMMISSION, and SERENO, JJ.
PRESIDENT FRANCIS LIM OF THE
PHILIPPINE STOCK EXCHANGE,  

Respondents.  

 
  

PABLITO V. SANIDAD and Promulgated:

ARNO V. SANIDAD,  

Petitioners-in-Intervention. June 28, 2011

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CARPIO, J.:

The Case

This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale of
shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the
Republic of the Philippines to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company
Limited (First Pacific).
 

The Antecedents

The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone
Company (PLDT), are as follows:1

On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the
right to engage in telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE), an
American company and a major PLDT stockholder, sold 26 percent of the outstanding common shares of PLDT to
PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and Jose
Campos, Jr. Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of
Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares
of stock of PTIC held by PHI were sequestered by the Presidential Commission on Good Government (PCGG). The
111,415 PTIC shares, which represent about 46.125 percent of the outstanding capital stock of PTIC, were later
declared by this Court to be owned by the Republic of the Philippines. 2

In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54 percent
of the outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the
Philippine Government announced that it would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding
capital stock of PTIC, through a public bidding to be conducted on 4 December 2006. Subsequently, the public
bidding was reset to 8 December 2006, and only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia
Presidio Capital, submitted their bids. Parallax won with a bid of P25.6 billion or US$510 million.

Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the
111,415 PTIC shares by matching the bid price of Parallax. However, First Pacific failed to do so by the 1 February
2007 deadline set by IPC and instead, yielded its right to PTIC itself which was then given by IPC until 2 March
2007 to buy the PTIC shares. On 14 February 2007, First Pacific, through its subsidiary, MPAH, entered into a
Conditional Sale and Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding capital
stock of PTIC, with the Philippine Government for the price of P25,217,556,000 or US$510,580,189. The sale was
completed on 28 February 2007.

Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is
actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares of PLDT. With
the sale, First Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby
increasing the common shareholdings of foreigners in PLDT to about 81.47 percent. This violates Section 11,
Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not
more than 40 percent.3

On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and
PCGG Commissioner Ricardo Abcede allege the following relevant facts:

 
On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment holdings. PTIC
held 26,034,263 PLDT common shares, or 13.847 percent of the total PLDT outstanding common shares. PHI, on
the other hand, was incorporated in 1977, and became the owner of 111,415 PTIC shares or 46.125 percent of the
outstanding capital stock of PTIC by virtue of three Deeds of Assignment executed by Ramon Cojuangco and
Luis Tirso Rivilla. In 1986, the 111,415 PTIC shares held by PHI were sequestered by the PCGG, and subsequently
declared by this Court as part of the ill-gotten wealth of former President Ferdinand Marcos. The sequestered PTIC
shares were reconveyed to the Republic of the Philippines in accordance with this Courts decision4 which became
final and executory on 8 August 2006.

The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of the outstanding
common shares of stock of PLDT, and designated the Inter-Agency Privatization Council (IPC), composed of the
Department of Finance and the PCGG, as the disposing entity. An invitation to bid was published in seven different
newspapers from 13 to 24 November 2006. On 20 November 2006, a pre-bid conference was held, and the original
deadline for bidding scheduled on 4 December 2006 was reset to 8 December 2006. The extension was published in
nine different newspapers.

During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with a bid
of P25,217,556,000. The government notified First Pacific, the majority owner of PTIC shares, of the bidding results
and gave First Pacific until 1 February 2007 to exercise its right of first refusal in accordance with PTICs Articles of
Incorporation. First Pacific announced its intention to match Parallaxs bid.

On 31 January 2007, the House of Representatives (HR) Committee on Good Government conducted a public
hearing on the particulars of the then impending sale of the 111,415 PTIC shares.
Respondents Teves and Sevilla were among those who attended the public hearing. The HR Committee Report No.
2270 concluded that: (a) the auction of the governments 111,415 PTIC shares bore due diligence, transparency and
conformity with existing legal procedures; and (b) First Pacifics intended acquisition of the governments 111,415
PTIC shares resulting in First Pacifics 100% ownership of PTIC will not violate the 40 percent constitutional
limit on foreign ownership of a public utility since PTIC holds only 13.847 percent of the total outstanding
common shares of PLDT.5 On 28 February 2007, First Pacific completed the acquisition of the 111,415 shares of
stock of PTIC.

Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the sale of
111,415 PTIC shares or 46 percent of the outstanding capital stock of PTIC (the remaining 54 percent of PTIC
shares was already owned by First Pacific and its affiliates); (b) Parallax offered the highest bid amounting
to P25,217,556,000; (c) pursuant to the right of first refusal in favor of PTIC and its shareholders granted in PTICs
Articles of Incorporation, MPAH, a First Pacific affiliate, exercised its right of first refusal by matching the highest
bid offered for PTIC shares on 13 February 2007; and (d) on 28 February 2007, the sale was consummated when
MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.
Respondent Pangilinan denies the other allegations of facts of petitioner.

On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and
declaration of nullity of sale of the 111,415 PTIC shares. Petitioner claims, among others, that the sale of the
111,415 PTIC shares would result in an increase in First Pacifics common shareholdings in PLDT from 30.7 percent
to 37 percent, and this, combined with Japanese NTT DoCoMos common shareholdings in PLDT, would result to a
total foreign common shareholdings in PLDT of 51.56 percent which is over the 40 percent constitutional
limit.6 Petitioner asserts:
 

If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7 percent to 37.0
percent of its common or voting- stockholdings, x x x. Hence, the consummation of the sale will put the
two largest foreign investors in PLDT First Pacific and Japans NTT DoCoMo, which is the worlds largest
wireless telecommunications firm, owning 51.56 percent of PLDT common equity. x x x With the
completion of the sale, data culled from the official website of the New York Stock Exchange
(www.nyse.com) showed that those foreign entities, which own at least five percent of common equity, will
collectively own 81.47 percent of PLDTs common equity. x x x

x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which
PLDT submitted to the New York Stock Exchange for the period 2003-2005, revealed
that First Pacific and several other foreign entities breached the constitutional limit of 40
percent ownership as early as 2003. x x x7

Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415 PTIC
shares to First Pacific violates the constitutional limit on foreign ownership of a public utility; (2) whether public
respondents committed grave abuse of discretion in allowing the sale of the 111,415 PTIC shares to First Pacific;
and (3) whether the sale of common shares to foreigners in excess of 40 percent of the entire subscribed common
capital stock violates the constitutional limit on foreign ownership of a public utility. 8

On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene and Admit
Attached Petition-in-Intervention. In the Resolution of 28 August 2007, the Court granted the motion and noted the
Petition-in-Intervention.

Petitioners-in-intervention join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin and/or nullify
the sale by respondents of the 111,415 PTIC shares to First Pacific or assignee. Petitioners-in-intervention claim
that, as PLDT subscribers, they have a stake in the outcome of the controversy x x x where the Philippine
Government is completing the sale of government owned assets in [PLDT], unquestionably a public utility, in
violation of the nationality restrictions of the Philippine Constitution.

The Issue

This Court is not a trier of facts. Factual questions such as those raised by petitioner,9 which indisputably demand a
thorough examination of the evidence of the parties, are generally beyond this Courts jurisdiction. Adhering to this
well-settled principle, the Court shall confine the resolution of the instant controversy solely on the threshold and
purely legal issue of whether the term capital in Section 11, Article XII of the Constitution refers to the total
common shares only or to the total outstanding capital stock (combined total of common and non-voting preferred
shares) of PLDT, a public utility.

 
 The Ruling of the Court

The petition is partly meritorious.

Petition for declaratory relief treated as petition for mandamus

At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks, only the petition for
prohibition is within the original jurisdiction of this court, which however is not exclusive but is concurrent with the
Regional Trial Court and the Court of Appeals. The actions for declaratory relief,10 injunction, and annulment of sale
are not embraced within the original jurisdiction of the Supreme Court. On this ground alone, the petition could have
been dismissed outright.

While direct resort to this Court may be justified in a petition for prohibition, 11 the Court shall nevertheless refrain
from discussing the grounds in support of the petition for prohibition since on 28 February 2007, the questioned sale
was consummated when MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the
111,415 PTIC shares.

However, since the threshold and purely legal issue on the definition of the term capital in Section 11, Article XII of
the Constitution has far-reaching implications to the national economy, the Court treats the petition for declaratory
relief as one for mandamus.12

In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory relief as one for
mandamus considering the grave injustice that would result in the interpretation of a banking law. In that case,
which involved the crime of rape committed by a foreign tourist against a Filipino minor and the execution of the
final judgment in the civil case for damages on the tourists dollar deposit with a local bank, the Court declared
Section 113 of Central Bank Circular No. 960, exempting foreign currency deposits from attachment, garnishment
or any other order or process of any court, inapplicable due to the peculiar circumstances of the case. The Court held
that injustice would result especially to a citizen aggrieved by a foreign guest like accused x x x that would negate
Article 10 of the Civil Code which provides that in case of doubt in the interpretation or application of laws, it is
presumed that the lawmaking body intended right and justice to prevail. The Court therefore required respondents
Central Bank of the Philippines, the local bank, and the accused to comply with the writ of execution issued in the
civil case for damages and to release the dollar deposit of the accused to satisfy the judgment.

In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the procedural infirmity
of the petition for declaratory relief and treated the same as one for mandamus. In Alliance, the issue was whether
the government unlawfully excluded petitioners, who were government employees, from the enjoyment of rights to
which they were entitled under the law. Specifically, the question was: Are the branches, agencies, subdivisions, and
instrumentalities of the Government, including government owned or controlled corporations included among the
four employers under Presidential Decree No. 851 which are required to pay their employees x x x a thirteenth
(13th) month pay x x x ? The Constitutional principle involved therein affected all government employees, clearly
justifying a relaxation of the technical rules of procedure, and certainly requiring the interpretation of the assailed
presidential decree.

In short, it is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the issue
involved has far-reaching implications. As this Court held in Salvacion:

The Court has no original and exclusive jurisdiction over a petition for declaratory relief. However,
exceptions to this rule have been recognized. Thus, where the petition has far-reaching implications
and raises questions that should be resolved, it may be treated as one for mandamus.15 (Emphasis
supplied)

In the present case, petitioner seeks primarily the interpretation of the term capital in Section 11, Article XII of the
Constitution. He prays that this Court declare that the term capital refers to common shares only, and that such
shares constitute the sole basis in determining foreign equity in a public utility. Petitioner further asks this Court to
declare any ruling inconsistent with such interpretation unconstitutional.

The interpretation of the term capital in Section 11, Article XII of the Constitution has far-reaching implications to
the national economy. In fact, a resolution of this issue will determine whether Filipinos are masters, or second class
citizens, in their own country. What is at stake here is whether Filipinos or foreigners will have effective control of
the national economy. Indeed, if ever there is a legal issue that has far-reaching implications to the entire nation, and
to future generations of Filipinos, it is the threshhold legal issue presented in this case.

The Court first encountered the issue on the definition of the term capital in Section 11, Article XII of the
Constitution in the case of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case involved the same
public utility (PLDT) and substantially the same private respondents. Despite the importance and novelty of the
constitutional issue raised therein and despite the fact that the petition involved a purely legal question, the Court
declined to resolve the case on the merits, and instead denied the same for disregarding the hierarchy of
courts.17 There, petitioner Fernandez assailed on a pure question of law the Regional Trial Courts Decision of 21
February 2003 via a petition for review under Rule 45. The Courts Resolution, denying the petition, became final on
21 December 2004.

The instant petition therefore presents the Court with another opportunity to finally settle this purely legal
issue which is of transcendental importance to the national economy and a fundamental requirement to a faithful
adherence to our Constitution. The Court must forthwith seize such opportunity, not only for the benefit of the
litigants, but more significantly for the benefit of the entire Filipino people, to ensure, in the words of the
Constitution, a self-reliant and independent national economy effectively controlled by Filipinos.18 Besides, in the
light of vague and confusing positions taken by government agencies on this purely legal issue, present and future
foreign investors in this country deserve, as a matter of basic fairness, a categorical ruling from this Court on the
extent of their participation in the capital of public utilities and other nationalized businesses.

Despite its far-reaching implications to the national economy, this purely legal issue has remained unresolved for
over 75 years since the 1935 Constitution. There is no reason for this Court to evade this ever recurring fundamental
issue and delay again defining the term capital, which appears not only in Section 11, Article XII of the Constitution,
but also in Section 2, Article XII on co-production and joint venture agreements for the development of our natural
resources,19 in Section 7, Article XII on ownership of private lands,20 in Section 10, Article XII on the reservation of
certain investments to Filipino citizens,21 in Section 4(2), Article XIV on the ownership of educational
institutions,22 and in Section 11(2), Article XVI on the ownership of advertising companies.23

Petitioner has locus standi

There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question the subject sale,
which he claims to violate the nationality requirement prescribed in Section 11, Article XII of the Constitution. If the
sale indeed violates the Constitution, then there is a possibility that PLDTs franchise could be revoked, a dire
consequence directly affecting petitioners interest as a stockholder.

More importantly, there is no question that the instant petition raises matters of transcendental importance to the
public. The fundamental and threshold legal issue in this case, involving the national economy and the economic
welfare of the Filipino people, far outweighs any perceived impediment in the legal personality of the petitioner to
bring this action.

In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of transcendental importance
to the public, thus:

 
In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and the object of mandamus
is to obtain the enforcement of a public duty, the people are regarded as the real parties in interest; and
because it is sufficient that petitioner is a citizen and as such is interested in the execution of the laws, he need
not show that he has any legal or special interest in the result of the action. In the aforesaid case, the petitioners
sought to enforce their right to be informed on matters of public concern, a right then recognized in Section 6,
Article IV of the 1973 Constitution, in connection with the rule that laws in order to be valid and enforceable must
be published in the Official Gazette or otherwise effectively promulgated. In ruling for the petitioners legal standing,
the Court declared that the right they sought to be enforced is a public right recognized by no less than the
fundamental law of the land.
Legaspi v. Civil Service Commission, while reiterating Taada, further declared that when a mandamus proceeding
involves the assertion of a public right, the requirement of personal interest is satisfied by the mere fact that
petitioner is a citizen and, therefore, part of the general public which possesses the right.
Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been involved under the
questioned contract for the development, management and operation of the Manila International Container
Terminal, public interest [was] definitely involved considering the important role [of the subject contract] . . .
in the economic development of the country and the magnitude of the financial consideration involved. We
concluded that, as a consequence, the disclosure provision in the Constitution would constitute sufficient authority
for upholding the petitioners standing. (Emphasis supplied)
 
Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance, the
petitioner has the requisite locus standi.

Definition of the Term Capital in

Section 11, Article XII of the 1987 Constitution

Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of
public utilities, to wit:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by
such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer
period than fifty years. Neither shall any such franchise or right be granted except under the condition that
it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires.
The State shall encourage equity participation in public utilities by the general public. The participation of
foreign investors in the governing body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines. (Emphasis supplied)

The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:

Section 5. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per centum of the capital of which is owned
by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a
longer period than fifty years. Neither shall any such franchise or right be granted except under the
condition that it shall be subject to amendment, alteration, or repeal by the National Assembly when the
public interest so requires. The State shall encourage equity participation in public utilities by the general
public. The participation of foreign investors in the governing body of any public utility enterprise shall be
limited to their proportionate share in the capital thereof. (Emphasis supplied)

The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935 Constitution, viz:

 
 Section 8. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or other entities
organized under the laws of the Philippines sixty per centum of the capital of which is owned by
citizens of the Philippines, nor shall such franchise, certificate, or authorization be exclusive in character
or for a longer period than fifty years. No franchise or right shall be granted to any individual, firm, or
corporation, except under the condition that it shall be subject to amendment, alteration, or repeal by the
Congress when the public interest so requires. (Emphasis supplied)

Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds us that
the Filipinization provision in the 1987 Constitution is one of the products of the spirit of nationalism which gripped
the 1935 Constitutional Convention.25 The 1987 Constitution provides for the Filipinization of public utilities by
requiring that any form of authorization for the operation of public utilities should be granted only to citizens of the
Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens. The provision is [an express] recognition of the sensitive and vital
position of public utilities both in the national economy and for national security. 26 The evident purpose of the
citizenship requirement is to prevent aliens from assuming control of public utilities, which may be inimical to the
national interest.27 This specific provision explicitly reserves to Filipino citizens control of public utilities, pursuant
to an overriding economic goal of the 1987 Constitution: to conserve and develop our patrimony28 and ensure a self-
reliant and independent national economy effectively controlled by Filipinos.29

Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationality
requirement prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation to be granted
authority to operate a public utility, at least 60 percent of its capital must be owned by Filipino citizens.

The crux of the controversy is the definition of the term capital. Does the term capital in Section 11, Article XII of
the Constitution refer to common shares or to the total outstanding capital stock (combined total of common and
non-voting preferred shares)?

Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to common
shares because such shares are entitled to vote and it is through voting that control over a corporation is exercised.
Petitioner posits that the term capital in Section 11, Article XII of the Constitution refers to the ownership of
common capital stock subscribed and outstanding, which class of shares alone, under the corporate set-up of PLDT,
can vote and elect members of the board of directors. It is undisputed that PLDTs non-voting preferred shares are
held mostly by Filipino citizens.30 This arose from Presidential Decree No. 217,31 issued on 16 June 1973 by then
President Ferdinand Marcos, requiring every applicant of a PLDT telephone line to subscribe to non-voting
preferred shares to pay for the investment cost of installing the telephone line.32

Petitioners-in-intervention basically reiterate petitioners arguments and adopt petitioners definition of the term
capital.33 Petitioners-in-intervention allege that the approximate foreign ownership of common capital stock of
PLDT x x x already amounts to at least 63.54% of the total outstanding common stock, which means that foreigners
exercise significant control over PLDT, patently violating the 40 percent foreign equity limitation in public utilities
prescribed by the Constitution.

 
Respondents, on the other hand, do not offer any definition of the term capital in Section 11, Article XII of the
Constitution. More importantly, private respondents Nazareno and Pangilinan of PLDT do not dispute that more
than 40 percent of the common shares of PLDT are held by foreigners.

In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on the procedural

infirmities of the petition and the supposed violation of the due process rights of the affected foreign common
shareholders. Respondent Nazareno does not deny petitioners allegation of foreigners dominating the common
shareholdings of PLDT. Nazarenostressed mainly that the petition seeks to divest foreign common shareholders
purportedly exceeding 40% of the total common shareholdings in PLDT of their ownership over their shares.
Thus, the foreign natural and juridical PLDT shareholders must be impleaded in this suit so that they can be
heard.34 Essentially, Nazareno invokes denial of due process on behalf of the foreign common shareholders.

While Nazareno does not introduce any definition of the term capital, he states that among the factual assertions
that need to be established to counter petitioners allegations is the uniform interpretation by government
agencies (such as the SEC), institutions and corporations (such as the Philippine National Oil Company-
Energy Development Corporation or PNOC-EDC) of including both preferred shares and common shares in
controlling interest in view of testing compliance with the 40% constitutional limitation on foreign ownership
in public utilities.35

Similarly, respondent Manuel V. Pangilinan does not define the term capital in Section 11, Article XII of the
Constitution. Neither does he refute petitioners claim of foreigners holding more than 40 percent of PLDTs common
shares. Instead, respondent Pangilinan focuses on the procedural flaws of the petition and the alleged violation of the
due process rights of foreigners. Respondent Pangilinan emphasizes in his Memorandum (1) the absence of this
Courts jurisdiction over the petition; (2) petitioners lack of standing; (3) mootness of the petition; (4) non-
availability of declaratory relief; and (5) the denial of due process rights. Moreover, respondent Pangilinan alleges
that the issue should be whether owners of shares in PLDT as well as owners of shares in companies holding shares
in PLDT may be required to relinquish their shares in PLDT and in those companies without any law requiring them
to surrender their shares and also without notice and trial.

Respondent Pangilinan further asserts that Section 11, [Article XII of the Constitution] imposes no nationality
requirement on the shareholders of the utility company as a condition for keeping their shares in the utility
company. According to him, Section 11 does not authorize taking one persons property (the shareholders stock in
the utility company) on the basis of another partys alleged failure to satisfy a requirement that is a condition only for
that other partys retention of another piece of property (the utility company being at least 60% Filipino-owned to
keep its franchise).36

The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla,

Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the definition of the term capital. In its
Memorandum37 dated 24 September 2007, the OSG also limits its discussion on the supposed procedural defects of
the petition, i.e. lack of standing, lack of jurisdiction, non-inclusion of interested parties, and lack of basis for
injunction. The OSG does not present any definition or interpretation of the term capital in Section 11, Article XII of
the Constitution. The OSG contends that the petition actually partakes of a collateral attack on PLDTs franchise as a
public utility, which in effect requires a full-blown trial where all the parties in interest are given their day in court. 38

 
Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine Stock
Exchange (PSE), does not also define the term capital and seeks the dismissal of the petition on the following
grounds: (1) failure to state a cause of action against Lim; (2) the PSE allegedly implemented its rules and required
all listed companies, including PLDT, to make proper and timely disclosures; and (3) the reliefs prayed for in the
petition would adversely impact the stock market.

In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a stockholder of record
of PLDT, contended that the term capital in the 1987 Constitution refers to shares entitled to vote or the common
shares. Fernandez explained thus:

The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to
ownership of shares of stock entitled to vote, i.e., common shares, considering that it is through voting that
control is being exercised. x x x

Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully
nationalized and partially nationalized activities is for Filipino nationals to be always in control of the
corporation undertaking said activities. Otherwise, if the Trial Courts ruling upholding respondents
arguments were to be given credence, it would be possible for the ownership structure of a public utility
corporation to be divided into one percent (1%) common stocks and ninety-nine percent (99%) preferred
stocks. Following the Trial Courts ruling adopting respondents arguments, the common shares can be
owned entirely by foreigners thus creating an absurd situation wherein foreigners, who are supposed to be
minority shareholders, control the public utility corporation.

x x x x

Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership
and the controlling interest.

x x x x

Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the
Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares. Furthermore,
ownership of record of shares will not suffice but it must be shown that the legal and beneficial ownership
rests in the hands of Filipino citizens. Consequently, in the case of petitioner PLDT, since it is already
admitted that the voting interests of foreigners which would gain entry to petitioner PLDT by the
acquisition of SMART shares through the Questioned Transactions is equivalent to 82.99%, and the
nominee arrangements between the foreign principals and the Filipino owners is likewise admitted, there is,
therefore, a violation of Section 11, Article XII of the Constitution.

Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to
support the proposition that the meaning of the word capital as used in Section 11, Article XII of the
Constitution allegedly refers to the sum total of the shares subscribed and paid-in by the shareholder and it
 allegedly is immaterial how the stock is classified, whether as common or preferred, cannot stand in the
face of a clear legislative policy as stated in the FIA which took effect in 1991 or way after said opinions
were rendered, and as clarified by the above-quoted Amendments. In this regard, suffice it to state that as
between the law and an opinion rendered by an administrative agency, the law indubitably prevails.
Moreover, said Opinions are merely advisory and cannot prevail over the clear intent of the framers of the
Constitution.

In the same vein, the SECs construction of Section 11, Article XII of the Constitution is at best merely
advisory for it is the courts that finally determine what a law means. 39

On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, Helen Y.
Dee, Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa, Napoleon
L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea, argued that the term capital in Section 11, Article XII of the
Constitution includes preferred shares since the Constitution does not distinguish among classes of stock, thus:

16.  The Constitution applies its foreign ownership limitation on the corporations capital, without distinction as
to classes of shares. x x x

In this connection, the Corporation Code which was already in force at the time the present (1987)
Constitution was drafted defined outstanding capital stock as follows:

Section 137. Outstanding capital stock defined. The term outstanding capital stock, as used in this Code,
means the total shares of stock issued under binding subscription agreements to subscribers or stockholders,
whether or not fully or partially paid, except treasury shares.

Section 137 of the Corporation Code also does not distinguish between common and preferred shares, nor
exclude either class of shares, in determining the outstanding capital stock (the capital) of a corporation.
Consequently, petitioners suggestion to reckon PLDTs foreign equity only on the basis of PLDTs
outstanding common shares is without legal basis. The language of the Constitution should be understood
in the sense it has in common use.

x x x x

17.  But even assuming that resort to the proceedings of the Constitutional Commission is necessary, there is
nothing in the Record of the Constitutional Commission (Vol. III) which petitioner misleadingly cited in the
Petition x x x which supports petitioners view that only common shares should form the basis for
computing a public utilitys foreign equity.

x x x x

 
 18.  In addition, the SEC the government agency primarily responsible for implementing the Corporation Code,
and which also has the responsibility of ensuring compliance with the Constitutions foreign equity
restrictions as regards nationalized activities x x x has categorically ruled that both common and preferred
shares are properly considered in determining outstanding capital stock and the nationality composition
thereof.40

We agree with petitioner and petitioners-in-intervention. The term capital in Section 11, Article XII of the
Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case
only to common shares,41 and not to the total outstanding capital stock comprising both common and non-voting
preferred shares.

The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:

Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into classes or
series of shares, or both, any of which classes or series of shares may have such rights, privileges or
restrictions as may be stated in the articles of incorporation: Provided, That no share may be deprived of
voting rights except those classified and issued as preferred or redeemable shares, unless otherwise
provided in this Code: Provided, further, That there shall always be a class or series of shares which have
complete voting rights. Any or all of the shares or series of shares may have a par value or have no par
value as may be provided for in the articles of incorporation: Provided, however, That banks, trust
companies, insurance companies, public utilities, and building and loan associations shall not be permitted
to issue no-par value shares of stock.

Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets
of the corporation in case of liquidation and in the distribution of dividends, or such other preferences as
may be stated in the articles of incorporation which are not violative of the provisions of this Code:
Provided, That preferred shares of stock may be issued only with a stated par value. The Board of
Directors, where authorized in the articles of incorporation, may fix the terms and conditions of preferred
shares of stock or any series thereof: Provided, That such terms and conditions shall be effective upon the
filing of a certificate thereof with the Securities and Exchange Commission.

Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the
holder of such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided;
That shares without par value may not be issued for a consideration less than the value of five (P5.00)
pesos per share: Provided, further, That the entire consideration received by the corporation for its no-par
value shares shall be treated as capital and shall not be available for distribution as dividends.

A corporation may, furthermore, classify its shares for the purpose of insuring compliance with
constitutional or legal requirements.

Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each
share shall be equal in all respects to every other share.

Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the
holders of such shares shall nevertheless be entitled to vote on the following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

 3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the
corporate property;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with another corporation or other corporations;

7. Investment of corporate funds in another corporation or business in accordance with this Code;
and

8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular
corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights.

Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the
corporation.43 This is exercised through his vote in the election of directors because it is the board of directors that
controls or manages the corporation.44 In the absence of provisions in the articles of incorporation denying voting
rights to preferred shares, preferred shares have the same voting rights as common shares. However, preferred
shareholders are often excluded from any control, that is, deprived of the right to vote in the election of directors and
on other matters, on the theory that the preferred shareholders are merely investors in the corporation for income in
the same manner as bondholders.45 In fact, under the Corporation Code only preferred or redeemable shares can be
deprived of the right to vote.46 Common shares cannot be deprived of the right to vote in any corporate meeting, and
any provision in the articles of incorporation restricting the right of common shareholders to vote is invalid. 47

Considering that common shares have voting rights which translate to control, as opposed to preferred shares which
usually have no voting rights, the term capital in Section 11, Article XII of the Constitution refers only to common
shares. However, if the preferred shares also have the right to vote in the election of directors, then the term capital
shall include such preferred shares because the right to participate in the control or management of the corporation is
exercised through the right to vote in the election of directors. In short, the term capital in Section 11, Article XII
of the Constitution refers only to shares of stock that can vote in the election of directors.

This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino
citizens the control and management of public utilities. As revealed in the deliberations of the Constitutional
Commission, capital refers to the voting stock or controlling interest of a corporation, to wit:

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity;
namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.

MR. VILLEGAS. That is right.

 
MR. NOLLEDO. In teaching law, we are always faced with this question: Where do we base the equity
requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital
stock of a corporation? Will the Committee please enlighten me on this?

MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law
Center who provided us a draft. The phrase that is contained here which we adopted from the UP draft
is 60 percent of voting stock.

MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent,
unpaid capital stock shall be entitled to vote.

MR. VILLEGAS. That is right.

MR. NOLLEDO. Thank you.

With respect to an investment by one corporation in another corporation, say, a corporation with 60-40
percent equity invests in another corporation which is permitted by the Corporation Code, does the
Committee adopt the grandfather rule?

MR. VILLEGAS. Yes, that is the understanding of the Committee.

MR. NOLLEDO. Therefore, we need additional Filipino capital?

MR. VILLEGAS. Yes.48

x x x x

MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.

MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase voting stock or
controlling interest.

MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: corporations or
associations at least sixty percent of whose CAPITAL is owned by such citizens.

 
 MR. VILLEGAS. Yes.

MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be
owned by citizens.

MR. VILLEGAS. That is right.

MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40
percent of the capital is owned by them, but it is the voting capital, whereas, the Filipinos own the
nonvoting shares. So we can have a situation where the corporation is controlled by foreigners
despite being the minority because they have the voting capital. That is the anomaly that would result
here.

MR. BENGZON. No, the reason we eliminated the word stock as stated in the 1973 and 1935
Constitutions is that according to Commissioner Rodrigo, there are associations that do not have
stocks. That is why we say CAPITAL.

MR. AZCUNA. We should not eliminate the phrase controlling interest.

MR. BENGZON. In the case of stock corporations, it is assumed.49 (Emphasis supplied)

Thus, 60 percent of the capital assumes, or should result in, controlling interest in the corporation. Reinforcing this
interpretation of the term capital, as referring to controlling interest or shares entitled to vote, is the definition of a
Philippine national in the Foreign Investments Act of 1991,50 to wit:

SEC. 3. Definitions. - As used in this Act:

a.  The term Philippine national shall mean a citizen of the Philippines; or a domestic partnership or
association wholly owned by citizens of the Philippines; or a corporation organized under the laws of
the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to
vote is owned and held by citizens of the Philippines; or a corporation organized abroad and registered as
doing business in the Philippines under the Corporation Code of which one hundred percent (100%) of the
capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension
or other employee retirement or separation benefits, where the trustee is a Philippine national and at least
sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC)
registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of
 each of both corporations must be owned and held by citizens of the Philippines and at least sixty percent
(60%) of the members of the Board of Directors of each of both corporations must be citizens of the
Philippines, in order that the corporation, shall be considered a Philippine national. (Emphasis supplied)

In explaining the definition of a Philippine national, the Implementing Rules and Regulations of the Foreign
Investments Act of 1991 provide:

b. Philippine national shall mean a citizen of the Philippines or a domestic partnership or association

wholly owned by the citizens of the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty percent [60%] of the capital stock outstanding and entitled to vote
is owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent [60%]
of the fund will accrue to the benefit of the Philippine nationals; Provided, that where a corporation its non-
Filipino stockholders own stocks in a Securities and Exchange Commission [SEC] registered enterprise, at
least sixty percent [60%] of the capital stock outstanding and entitled to vote of both corporations must be
owned and held by citizens of the Philippines and at least sixty percent [60%] of the members of the Board
of Directors of each of both corporation must be citizens of the Philippines, in order that the corporation
shall be considered a Philippine national. The control test shall be applied for this purpose.

Compliance with the required Filipino ownership of a corporation shall be determined on the basis of
outstanding capital stock whether fully paid or not, but only such stocks which are generally entitled
to vote are considered.

For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal
title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks,
coupled with appropriate voting rights is essential. Thus, stocks, the voting rights of which have been
assigned or transferred to aliens cannot be considered held by Philippine citizens or Philippine
nationals.

Individuals or juridical entities not meeting the aforementioned qualifications are considered as non-
Philippine nationals. (Emphasis supplied)

Mere legal title is insufficient to meet the 60 percent Filipino-owned capital required in the Constitution. Full
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is
required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of
Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is considered as non-
Philippine national[s].

Under Section 10, Article XII of the Constitution, Congress may reserve to citizens of the Philippines or to
corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher
percentage as Congress may prescribe, certain areas of investments. Thus, in numerous laws Congress has reserved
certain areas of investments to Filipino citizens or to corporations at least sixty percent of the capital of which is
owned by Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contracts or R.A. No.
5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and Medium
Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5) Domestic
Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No.
10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term capital in Section 11, Article XII of the
Constitution is also used in the same context in numerous lawsreserving certain areas of investments to Filipino
citizens.

To construe broadly the term capital as the total outstanding capital stock, including both common and non-
voting preferred shares, grossly contravenes the intent and letter of the Constitution that the State shall develop a
self-reliant and independent national economy effectively controlled by Filipinos. A broad definition unjustifiably
disregards who owns the all-important voting stock, which necessarily equates to control of the public utility.

We shall illustrate the glaring anomaly in giving a broad definition to the term capital. Let us assume that a
corporation has 100 common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by
Filipinos, with both classes of share having a par value of one peso (P1.00) per share. Under the broad definition of
the term capital, such corporation would be considered compliant with the 40 percent constitutional limit on foreign
equity of public utilities since the overwhelming majority, or more than 99.999 percent, of the total outstanding
capital stock is Filipino owned. This is obviously absurd.

In the example given, only the foreigners holding the common shares have voting rights in the election of directors,
even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent, exercise
control over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of the equity,
cannot vote in the election of directors and hence, have no control over the public utility. This starkly circumvents
the intent of the framers of the Constitution, as well as the clear language of the Constitution, to place the control of
public utilities in the hands of Filipinos. It also renders illusory the State policy of an independent national
economy effectively controlled by Filipinos.

The example given is not theoretical but can be found in the real world, and in fact exists in the present case.

Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDTs
Articles of Incorporation expressly state that the holders of Serial Preferred Stock shall not be entitled to vote at
any meeting of the stockholders for the election of directors or for any other purpose or otherwise participate in
any action taken by the corporation or its stockholders, or to receive notice of any meeting of stockholders. 51

 
On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors.
PLDTs Articles of Incorporation52 state that each holder of Common Capital Stock shall have one vote in respect of
each share of such stock held by him on all matters voted upon by the stockholders, and the holders of Common
Capital Stock shall have the exclusive right to vote for the election of directors and for all other purposes. 53

In short, only holders of common shares can vote in the election of directors, meaning only common shareholders
exercise control over PLDT. Conversely, holders of preferred shares, who have no voting rights in the election of
directors, do not have any control over PLDT. In fact, under PLDTs Articles of Incorporation, holders of common
shares have voting rights for all purposes, while holders of preferred shares have no voting right for any purpose
whatsoever.

It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of PLDT.
In fact, based on PLDTs 2010 General Information Sheet (GIS),54 which is a document required to be submitted
annually to the Securities and Exchange Commission,55 foreigners hold 120,046,690 common shares of PLDT
whereas Filipinos hold only 66,750,622 common shares.56 In other words, foreigners hold 64.27% of the total
number of PLDTs common shares, while Filipinos hold only 35.73%. Since holding a majority of the common
shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of control
unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated in
Section 11, Article XII of the Constitution.

Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to the SEC, shows that per share the
SIP58 preferred shares earn a pittance in dividends compared to the common shares. PLDT declared dividends for the
common shares at P70.00 per share, while the declared dividends for the preferred shares amounted to a
measly P1.00 per share.59So the preferred shares not only cannot vote in the election of directors, they also have very
little and obviously negligible dividend earning capacity compared to common shares.

As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares is P5.00 per share,
whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par
value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares.
Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of
the preferred shares.61 Worse, preferred shares constitute 77.85% of the authorized capital stock of PLDT while
common shares constitute only 22.15%.62 This undeniably shows that beneficial interest in PLDT is not with the
non-voting preferred shares but with the common shares, blatantly violating the constitutional requirement of 60
percent Filipino control and Filipino beneficial ownership in a public utility.

The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos
in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital
stock, coupled with 60 percent of the voting rights, is constitutionally required for the States grant of authority to
operate a public utility. The undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are non-
voting and earn only 1/70 of the dividends that PLDT common shares earn, grossly violates the constitutional
requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends,
of PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that [n]o
franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except
to x x xcorporations x x x organized under the laws of the Philippines, at least sixty per centum of whose capital is
owned by such citizens x x x.

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right
to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDTs
common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3)
preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the
dividends that common shares earn;63 (5) preferred shares have twice the par value of common shares; and (6)
preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This
kind of ownership and control of a public utility is a mockery of the Constitution.

Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock market value
of P2,328.00 per share,64 while PLDT preferred shares with a par value of P10.00 per share have a current stock
market value ranging from only P10.92 to P11.06 per share,65 is a glaring confirmation by the market that control
and beneficial ownership of PLDT rest with the common shares, not with the preferred shares.

Indisputably, construing the term capital in Section 11, Article XII of the Constitution to include both voting and
non-voting shares will result in the abject surrender of our telecommunications industry to foreigners, amounting to
a clear abdication of the States constitutional duty to limit control of public utilities to Filipino citizens. Such an
interpretation certainly runs counter to the constitutional provision reserving certain areas of investment to Filipino
citizens, such as the exploitation of natural resources as well as the ownership of land, educational institutions and
advertising businesses. The Court should never open to foreign control what the Constitution has expressly reserved
to Filipinos for that would be a betrayal of the Constitution and of the national interest. The Court must perform its
solemn duty to defend and uphold the intent and letter of the Constitution to ensure, in the words of the Constitution,
a self-reliant and independent national economy effectively controlled by Filipinos.

Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving to
Filipinos specific areas of investment, such as the development of natural resources and ownership of land,
educational institutions and advertising business, is self-executing. There is no need for legislation to implement
these self-executing provisions of the Constitution. The rationale why these constitutional provisions are self-
executing was explained in Manila Prince Hotel v. GSIS,66 thus:

x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a constitutional
mandate, the presumption now is that all provisions of the constitution are self-executing. If the
constitutional provisions are treated as requiring legislation instead of self-executing, the legislature would
have the power to ignore and practically nullify the mandate of the fundamental law. This can be
cataclysmic. That is why the prevailing view is, as it has always been, that

. . . in case of doubt, the Constitution should be considered self-executing rather than non-self-
executing. . . . Unless the contrary is clearly intended, the provisions of the Constitution should be
considered self-executing, as a contrary rule would give the legislature discretion to determine when,
or whether, they shall be effective. These provisions would be subordinated to the will of the lawmaking
body, which could make them entirely meaningless by simply refusing to pass the needed implementing
statute. (Emphasis supplied)

 
 

In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later Chief Justice,
agreed that constitutional provisions are presumed to be self-executing. Justice Puno stated:

Courts as a rule consider the provisions of the Constitution as self-executing, rather than as requiring future
legislation for their enforcement. The reason is not difficult to discern. For if they are not treated as self-
executing, the mandate of the fundamental law ratified by the sovereign people can be easily ignored
and nullified by Congress. Suffused with wisdom of the ages is the unyielding rule that legislative
actions may give breath to constitutional rights but congressional inaction should not suffocate them.

Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches and
seizures, the rights of a person under custodial investigation, the rights of an accused, and the privilege
against self-incrimination. It is recognized that legislation is unnecessary to enable courts to effectuate
constitutional provisions guaranteeing the fundamental rights of life, liberty and the protection of property.
The same treatment is accorded to constitutional provisions forbidding the taking or damaging of property
for public use without just compensation. (Emphasis supplied)

Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, applied directly the
provisions of the 1935, 1973 and 1987 Constitutions limiting land ownership to Filipinos. In Soriano
v. Ong Hoo,68 this Court ruled:

x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to an
alien, and as both the citizen and the alien have violated the law, none of them should have a recourse
against the other, and it should only be the State that should be allowed to intervene and determine what is
to be done with the property subject of the violation. We have said that what the State should do or could do
in such matters is a matter of public policy, entirely beyond the scope of judicial authority. (Dinglasan, et al.
vs. Lee Bun Ting, et al., 6 G. R. No. L-5996, June 27, 1956.) While the legislature has not definitely
decided what policy should be followed in cases of violations against the constitutional prohibition,
courts of justice cannot go beyond by declaring the disposition to be null and void as violative of the
Constitution. x x x (Emphasis supplied)

To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the 1935
Constitution, or over the last 75 years, not one of the constitutional provisions expressly reserving specific areas of
investments to corporations, at least 60 percent of the capital of which is owned by Filipinos, was enforceable. In
short, the framers of the 1935, 1973 and 1987 Constitutions miserably failed to effectively reserve to Filipinos
specific areas of investment, like the operation by corporations of public utilities, the exploitation by corporations of
mineral resources, the ownership by corporations of real estate, and the ownership of educational institutions. All the
legislatures that convened since 1935 also miserably failed to enact legislations to implement these vital
constitutional provisions that determine who will effectively control the national economy, Filipinos or foreigners.
This Court cannot allow such an absurd interpretation of the Constitution.

This Court has held that the SEC has both regulatory and adjudicative functions.69 Under its regulatory functions, the
SEC can be compelled by mandamus to perform its statutory duty when it unlawfully neglects to perform the same.
Under its adjudicative or quasi-judicial functions, the SEC can be also be compelled by mandamus to hear and
decide a possible violation of any law it administers or enforces when it is mandated by law to investigate such
violation.

Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or disapprove the
Articles of Incorporation of any corporation where the required percentage of ownership of the capital stock to
be owned by citizens of the Philippines has not been complied with as required by existing laws or the
Constitution. Thus, the SEC is the government agency tasked with the statutory duty to enforce the nationality
requirement prescribed in Section 11, Article XII of the Constitution on the ownership of public utilities. This Court,
in a petition for declaratory relief that is treated as a petition for mandamus as in the present case, can direct the SEC
to perform its statutory duty under the law, a duty that the SEC has apparently unlawfully neglected to do based on
the 2010 GIS that respondent PLDT submitted to the SEC.

Under Section 5(m) of the Securities Regulation Code,71 the SEC is vested with the power and function to suspend
or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations,
partnerships or associations, upon any of the grounds provided by law. The SEC is mandated under Section 5(d)
of the same Code with the power and function to investigate x x x the activities of persons to ensure
compliance with the laws and regulations that SEC administers or enforces. The GIS that all corporations are
required to submit to SEC annually should put the SEC on guard against violations of the nationality requirement
prescribed in the Constitution and existing laws. This Court can compel the SEC, in a petition for declaratory relief
that is treated as a petition for mandamus as in the present case, to hear and decide a possible violation of Section 11,
Article XII of the Constitution in view of the ownership structure of PLDTs voting shares, as admitted by
respondents and as stated in PLDTs 2010 GIS that PLDT submitted to SEC.

WHEREFORE, we PARTLY GRANT the petition and rule that the term capital in Section 11, Article XII of the
1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present
case only to common shares, and not to the total outstanding capital stock (common and non-voting preferred
shares). Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply this
definition of the term capital in determining the extent of allowable foreign ownership in respondent Philippine
Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to
impose the appropriate sanctions under the law.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
 SPECIAL THIRD DIVISION

G.R. No. 195580               January 28, 2015

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT,
INC., and McARTHUR MINING, INC., Petitioners, 
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.

RESOLUTION

VELASCO, JR., J.:

Before the Court is the Motion for Reconsideration of its April 21, 2014 Decision, which denied the Petition for
Review on Certiorari under Rule 45 jointly interposed by petitioners Narra Nickel and Mining Development Corp.
(Narra), Tesoro Mining and Development, Inc. (Tesoro), and McArthur Mining Inc. (McArthur), and affirmed the
October 1, 2010 Decision and February 15, 2011 Resolution of the Court of Appeals (CA) in CA-G.R. SP No.
109703.

Very simply, the challenged Decision sustained the appellate court's ruling that petitioners, being foreign
corporations, are not entitled to Mineral Production Sharing Agreements (MPSAs). In reaching its conclusion, this
Court upheld with approval the appellate court's finding that there was doubt as to petitioners' nationality since a
100% Canadian-owned firm, MBMI Resources, Inc. (MBMI), effectively owns 60% of the common stocks of the
petitioners by owning equity interest of petitioners' other majority corporate shareholders.

In a strongly worded Motion for Reconsideration dated June 5, 2014, petitioners-movants argued, in the main, that
the Court's Decision was not in accord with law and logic. In its September 2, 2014 Comment, on the other hand,
respondent Redmont Consolidated Mines Corp. (Redmont) countered that petitioners’ motion for reconsideration is
nothing but a rehash of their arguments and should, thus, be denied outright for being pro-forma. Petitioners have
interposed on September 30, 2014 their Reply to the respondent’s Comment.

After considering the parties’ positions, as articulated in their respective submissions, We resolve to deny the motion
for reconsideration.

I.

The case has not been rendered moot and academic

Petitioners have first off criticized the Court for resolving in its Decision a substantive issue, which,as argued, has
supposedly been rendered moot by the fact that petitioners’ applications for MPSAs had already been converted to
an application for a Financial Technical Assistance Agreement (FTAA), as petitioners have in fact been granted an
FTAA. Further, the nationality issue, so petitioners presently claim, had been rendered moribund by the fact that
MBMI had already divested itself and sold all its shareholdings in the petitioners, as well as in their corporate
stockholders, to a Filipino corporation—DMCI Mining Corporation (DMCI).

As a counterpoint, respondent Redmontavers that the present case has not been rendered moot by the supposed
issuance of an FTAA in petitioners’ favor as this FTAA was subsequently revoked by the Office of the President
(OP) and is currently a subject of a petition pending in the Court’s First Division. Redmont likewise contends that
the supposed sale of MBMI’s interest in the petitioners and in their "holding companies" is a question of fact that is
outside the Court’s province to verify in a Rule 45 certiorari proceedings. In any case, assuming that the controversy
has been rendered moot, Redmont claims that its resolution on the merits is still justified by the fact that petitioners
have violated a constitutional provision, the violation is capable of repetition yet evading review, and the present
case involves a matter of public concern.

Indeed, as the Court clarified in its Decision, the conversion of the MPSA application to one for FTAAs and the
issuance by the OP of an FTAA in petitioners’ favor are irrelevant. The OP itself has already cancelled and revoked
the FTAA thusissued to petitioners. Petitioners curiously have omitted this critical factin their motion for
reconsideration. Furthermore, the supposed sale by MBMI of its shares in the petition ercorporations and in their
holding companies is not only a question of fact that this Court is without authority toverify, it also does not negate
any violation of the Constitutional provisions previously committed before any such sale.

We can assume for the nonce that the controversy had indeed been rendered moot by these two events. Asthis Court
has time and again declared, the "moot and academic" principle is not a magical formula that automatically
dissuades courts in resolving a case.1 The Court may still take cognizance of an otherwise moot and academic case,
if it finds that (a) there is a grave violation of the Constitution;(b) the situation is of exceptional character and
paramount public interest is involved; (c) the constitutional issue raised requires formulation of controlling
principles to guide the bench, the bar, and the public; and (d) the case is capable of repetition yet evading
review.2The Court’s April 21, 2014 Decision explained in some detail that all four (4) of the foregoing circumstances
are present in the case. If only to stress a point, we will do so again. First, allowing the issuance of MPSAs to
applicants that are owned and controlled by a 100% foreign-owned corporation, albeit through an intricate web of
corporate layering involving alleged Filipino corporations, is tantamount to permitting a blatant violation of Section
2, Article XII of the Constitution. The Court simply cannot allow this breach and inhibit itself from resolving the
controversy on the facile pretext that the case had already been rendered academic.

Second, the elaborate corporate layering resorted to by petitioners so as to make it appear that there is compliance
with the minimum Filipino ownership in the Constitution is deftly exceptional in character. More importantly, the
case is of paramount public interest, as the corporate layering employed by petitioners was evidently designed to
circumvent the constitutional caveat allowing only Filipino citizens and corporations 60%-owned by Filipino
citizens to explore, develop, and use the country’s natural resources.

Third, the facts of the case, involving as they do a web of corporate layering intended to go around the Filipino
ownership requirement in the Constitution and pertinent laws, requirethe establishment of a definite principle that
will ensure that the Constitutional provision reserving to Filipino citizens or "corporations at least sixty per centum
of whose capital is owned by such citizens" be effectively enforced and complied with. The case, therefore, is an
opportunity to establish a controlling principle that will "guide the bench, the bar, and the public."

Lastly, the petitioners’ actions during the lifetime and existence of the instant case that gave rise to the present
controversy are capable of repetition yet evading review because, as shown by petitioners’ actions, foreign
corporations can easily utilize dummy Filipino corporations through various schemes and stratagems to skirt the
constitutional prohibition against foreign mining in Philippine soil.

II.

The application of the Grandfather Ruleis justified by the circumstances of the case to determine the nationality of
petitioners.

To petitioners, the Court’s application of the Grandfather Rule to determine their nationality is erroneous and
allegedly without basis in the Constitution, the Foreign Investments Act of 1991 (FIA), the Philippine Mining Act of
1995,3 and the Rules issued by the Securities and Exchange Commission (SEC). These laws and rules supposedly
espouse the application of the Control Test in verifying the Philippine nationality of corporate entities for purposes
of determining compliance withSec. 2, Art. XII of the Constitution that only "corporations or associations at least
sixty per centum of whose capital is owned by such [Filipino] citizens" may enjoy certain rights and privileges, like
the exploration and development of natural resources.

The application of the Grandfather Rule in the present case does not eschew the Control Test.

Clearly, petitioners have misread, and failed to appreciate the clear import of, the Court’s April 21, 2014 Decision.
Nowhere in that disposition did the Court foreclose the application of the Control Test in determining which
corporations may be considered as Philippine nationals. Instead, to borrow Justice Leonen’s term, the Court used the
Grandfather Rule as a "supplement" to the Control Test so that the intent underlying the averted Sec. 2, Art. XII of
the Constitution be given effect. The following excerpts of the April 21, 2014 Decision cannot be clearer:
In ending, the "control test" is still the prevailing mode of determining whether or not a corporation is a Filipino
corporation, within the ambit of Sec. 2, Art. XII of the 1987 Constitution, entitled to undertake the exploration,
development and utilization of the natural resources of the Philippines. When in the mind of the Court, there is
doubt, based on the attendant facts and circumstances of the case, in the 60-40 Filipino equity ownership in the
corporation, then it may apply the "grandfather rule." (emphasis supplied)

With that, the use of the Grandfather Rule as a "supplement" to the Control Test is not proscribed by the Constitution
or the Philippine Mining Act of 1995.

The Grandfather Rule implements the intent of the Filipinization provisions of the Constitution.

To reiterate, Sec. 2, Art. XII of the Constitution reserves the exploration, development, and utilization of natural
resources to Filipino citizens and "corporations or associations at least sixty per centum of whose capital is owned
by such citizens." Similarly, Section 3(aq) of the Philippine Mining Act of 1995 considers a "corporation x x x
registered in accordance with law at least sixty per cent of the capital of which is owned by citizens of the
Philippines" as a person qualified to undertake a mining operation. Consistent with this objective, the Grandfather
Rulewas originally conceived to look into the citizenshipof the individuals who ultimately own and control the
shares of stock of a corporation for purposes of determining compliance with the constitutional requirement of
Filipino ownership. It cannot, therefore, be denied that the framers of the Constitution have not foreclosed the
Grandfather Rule as a tool in verifying the nationality of corporations for purposes of ascertaining their right to
participate in nationalized or partly nationalized activities. The following excerpts from the Record of the 1986
Constitutional Commission suggest as much:

MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely,
60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.

MR. VILLEGAS: That is right.

xxxx

MR. NOLLEDO: Thank you.

With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent
equity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the
grandfather rule?

MR. VILLEGAS: Yes, that is the understanding of the Committee.

As further defined by Dean Cesar Villanueva, the Grandfather Rule is "the method by which the percentage of
Filipino equity in a corporation engaged in nationalized and/or partly nationalized areas of activities, provided for
under the Constitution and other nationalization laws, is computed, in cases where corporate shareholders are
present, by attributing the nationality of the second or even subsequent tier of ownership to determine the nationality
of the corporate shareholder."4 Thus, to arrive at the actual Filipino ownership and control in a corporation, both the
direct and indirect shareholdings in the corporation are determined.

This concept of stock attribution inherent in the Grandfather Rule to determine the ultimate ownership in a
corporation is observed by the Bureau of Internal Revenue (BIR) in applying Section 127 (B) 5 of the National
Internal Revenue Code on taxes imposed on closely held corporations, in relation to Section 96 of the Corporation
Code6 on close corporations. Thus, in BIR Ruling No. 148-10, Commissioner Kim Henares held:

In the case of a multi-tiered corporation, the stock attribution rule must be allowed to run continuously along the
chain of ownership until it finally reaches the individual stockholders. This is in consonance with the "grandfather
rule" adopted in the Philippines under Section 96 of the Corporation Code(Batas Pambansa Blg. 68) which provides
that notwithstanding the fact that all the issued stock of a corporation are held by not more than twenty persons,
among others, a corporation is nonetheless not to be deemed a close corporation when at least two thirds of its
voting stock or voting rights is owned or controlled by another corporation which is not a close corporation.7
In SEC-OGC Opinion No. 10-31 dated December 9, 2010 (SEC Opinion 10-31), the SEC applied the Grandfather
Rule even if the corporation engaged in mining operation passes the 60-40 requirement of the Control Test, viz:

You allege that the structure of MML’s ownership in PHILSAGA is as follows: (1) MML owns 40% equity in
MEDC, while the 60% is ostensibly owned by Philippine individual citizens who are actually MML’s controlled
nominees; (2) MEDC, in turn, owns 60% equity in MOHC, while MML owns the remaining 40%; (3) Lastly,
MOHC owns 60% of PHILSAGA, while MML owns the remaining 40%. You provide the following figure to
illustrate this structure:

xxxx

We note that the Constitution and the statute use the concept "Philippine citizens." Article III, Section 1 of the
Constitution provides who are Philippine citizens: x x x This enumeration is exhaustive. In other words, there can be
no other Philippine citizens other than those falling within the enumeration provided by the Constitution. Obviously,
only natural persons are susceptible of citizenship. Thus, for purposes of the Constitutional and statutory restrictions
on foreign participation in the exploitation of mineral resources, a corporation investing in a mining joint venture
can never be considered as a Philippine citizen.

The Supreme Court En Banc confirms this [in]… Pedro R. Palting, vs. San Jose Petroleum [Inc.]. The Court held
that a corporation investing in another corporation engaged ina nationalized activity cannot be considered as a
citizen for purposes of the Constitutional provision restricting foreign exploitation of natural resources:

xxxx

Accordingly, we opine that we must look into the citizenship of the individual stockholders, i.e. natural persons, of
that investor-corporation in order to determine if the Constitutional and statutory restrictions are complied with. If
the shares of stock of the immediate investor corporation is in turn held and controlled by another corporation, then
we must look into the citizenship of the individual stockholders of the latter corporation. In other words, if there are
layers of intervening corporations investing in a mining joint venture, we must delve into the citizenship of the
individual stockholders of each corporation. This is the strict application of the grandfather rule, which the
Commission has been consistently applying prior to the 1990s. Indeed, the framers of the Constitution intended for
the "grandfather rule" to apply in case a 60%-40% Filipino-Foreign equity corporation invests in another corporation
engaging in an activity where the Constitution restricts foreign participation.

xxxx

Accordingly, under the structure you represented, the joint mining venture is 87.04 % foreign owned, while it is only
12.96% owned by Philippine citizens. Thus, the constitutional requirement of 60% ownership by Philippine citizens
isviolated. (emphasis supplied)

Similarly, in the eponymous Redmont Consolidated Mines Corporation v. McArthur Mining Inc., et al., 8 the SEC en
bancapplied the Grandfather Rule despite the fact that the subject corporations ostensibly have satisfied the 60-40
Filipino equity requirement. The SEC en bancheld that to attain the Constitutional objective of reserving to Filipinos
the utilization of natural resources, one should not stop where the percentage of the capital stock is 60%.Thus:

[D]oubt, we believe, exists in the instant case because the foreign investor, MBMI, provided practically all the funds
of the remaining appellee-corporations. The records disclose that: (1) Olympic Mines and Development Corporation
("OMDC"), a domestic corporation, and MBMI subscribed to 6,663 and 3,331 shares, respectively, out of the
authorized capital stock of Madridejos; however, OMDC paid nothing for this subscription while MBMI paid
₱2,803,900.00 out of its total subscription cost of ₱3,331,000.00; (2) Palawan Alpha South Resource Development
Corp. ("Palawan Alpha"), also a domestic corporation, and MBMI subscribed to 6,596 and 3,996 shares,
respectively, out of the authorized capital stock of PatriciaLouise; however, Palawan Alpha paid nothing for this
subscription while MBMI paid ₱2,796,000.00 out of its total subscription cost of ₱3,996,000.00; (3) OMDC and
MBMI subscribed to 6,663 and 3,331 shares, respectively, out of the authorized capital stock of Sara Marie;
however, OMDC paid nothing for this subscription while MBMI paid ₱2,794,000.00 out of its total subscription
cost of ₱3,331,000.00; and (4) Falcon Ridge Resources Management Corp. ("Falcon Ridge"), another domestic
corporation, and MBMI subscribed to 5,997 and 3,998 shares, respectively, out of the authorized capital stock of San
Juanico; however, Falcon Ridge paid nothing for this subscription while MBMI paid ₱2,500,000.00 out of its total
subscription cost of ₱3,998,000.00. Thus, pursuant to the afore-quoted DOJ Opinion, the Grandfather Rule must be
used.

xxxx

The avowed purpose of the Constitution is to place in the hands of Filipinos the exploitation of our natural
resources. Necessarily, therefore, the Rule interpreting the constitutional provision should not diminish that right
through the legal fiction of corporate ownership and control. But the constitutional provision, as interpreted and
practicedvia the 1967 SEC Rules, has favored foreigners contrary to the command of the Constitution. Hence, the
Grandfather Rule must be applied to accurately determine the actual participation, both direct and indirect, of
foreigners in a corporation engaged in a nationalized activity or business.

The method employed in the Grandfather Rule of attributing the shareholdings of a given corporate shareholder to
the second or even the subsequent tier of ownership hews with the rule that the "beneficial ownership" of
corporations engaged in nationalized activities must reside in the hands of Filipino citizens. Thus, even if the 60-40
Filipino equity requirement appears to have been satisfied, the Department of Justice (DOJ), in its Opinion No. 144,
S. of 1977, stated that an agreement that may distort the actual economic or beneficial ownership of a mining
corporation may be struck down as violative of the constitutional requirement, viz:

In this connection, you raise the following specific questions:

1. Can a Philippine corporation with 30% equity owned by foreigners enter into a mining service contract with a
foreign company granting the latter a share of not morethan 40% from the proceeds of the operations?

xxxx

By law, a mining lease may be granted only to a Filipino citizen, or to a corporation or partnership registered with
the [SEC] at least 60% of the capital of which is owned by Filipino citizens and possessing x x x.The sixty percent
Philippine equity requirement in mineral resource exploitation x x xis intended to insure, among other purposes, the
conservation of indigenous natural resources, for Filipino posterityx x x. I think it is implicit in this provision, even
if it refers merely to ownership of stock in the corporation holding the mining concession, that beneficial ownership
of the right to dispose, exploit, utilize, and develop natural resources shall pertain to Filipino citizens, and that the
nationality requirementis not satisfied unless Filipinos are the principal beneficiaries in the exploitation of the
country’s natural resources. This criterion of beneficial ownership is tacitly adopted in Section 44 of P.D. No. 463,
above-quoted, which limits the service fee in service contracts to 40% of the proceeds of the operation, thereby
implying that the 60-40 benefit-sharing ration is derived from the 60-40 equity requirement in the Constitution.

xxxx

It is obvious that while payments to a service contractor may be justified as a service fee, and therefore, properly
deductible from gross proceeds, the service contract could be employed as a means of going about or circumventing
the constitutional limit on foreign equity participation and the obvious constitutional policy to insure that Filipinos
retain beneficial ownership of our mineral resources. Thus, every service contract scheme has to be evaluated in its
entirety, on a case to case basis, to determine reasonableness of the total "service fee" x x x like the options available
tothe contractor to become equity participant in the Philippine entity holding the concession, or to acquire rights in
the processing and marketing stages. x x x (emphasis supplied)

The "beneficial ownership" requirement was subsequently used in tandem with the "situs of control" todetermine the
nationality of a corporation in DOJ Opinion No. 84, S.of 1988, through the Grandfather Rule, despite the fact that
both the investee and investor corporations purportedly satisfy the 60-40 Filipino equity requirement: 9

This refers to your request for opinion on whether or not there may be an investment in real estate by a domestic
corporation (the investing corporation) seventy percent (70%) of the capital stock of which is owned by another
domestic corporation withat least 60%-40% Filipino-Foreign Equity, while the remaining thirty percent (30%) of the
capital stock is owned by a foreign corporation.

xxxx

This Department has had the occasion to rule in several opinions that it is implicit in the constitutional provisions,
even if it refers merely to ownership of stock in the corporation holding the land or natural resource concession, that
the nationality requirement is not satisfied unless it meets the criterion of beneficial ownership, i.e. Filipinos are the
principal beneficiaries in the exploration of natural resources(Op. No. 144, s. 1977; Op. No. 130, s. 1985), and that
in applying the same "the primordial consideration is situs of control, whether in a stock or nonstock
corporation"(Op. No. 178, s. 1974). As stated in the Register of Deeds vs. Ung Sui Si Temple (97 Phil. 58),
obviously toinsure that corporations and associations allowed to acquire agricultural land or to exploit natural
resources "shall be controlled by Filipinos." Accordingly, any arrangement which attempts to defeat the
constitutional purpose should be eschewed (Op. No 130, s. 1985).

We are informed that in the registration of corporations with the [SEC], compliance with the sixty per centum
requirement is being monitored by SEC under the "Grandfather Rule" a method by which the percentage of Filipino
equity in corporations engaged in nationalized and/or partly nationalized areas of activities provided for under the
Constitution and other national laws is accurately computed, and the diminution if said equity prevented (SEC
Memo, S. 1976). The "Grandfather Rule" is applied specifically in cases where the corporation has corporate
stockholders with alien stockholdings, otherwise, if the rule is not applied, the presence of such corporate
stockholders could diminish the effective control of Filipinos.

Applying the "Grandfather Rule" in the instant case, the result is as follows: x x x the total foreign equity in the
investing corporation is 58% while the Filipino equity is only 42%, in the investing corporation, subject of your
query, is disqualified from investing in real estate, which is a nationalized activity, as it does not meet the 60%-40%
Filipino-Foreign equity requirement under the Constitution.

This pairing of the concepts "beneficial ownership" and the "situs of control" in determining what
constitutes"capital" has been adopted by this Court in Heirs of Gamboa v. Teves.10 In its October 9, 2012 Resolution,
the Court clarified, thus:

This is consistent with Section 3 of the FIA which provides that where 100% of the capital stock is heldby "a trustee
of funds for pension or other employee retirement or separation benefits," the trustee is a Philippine national if "at
least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals." Likewise, Section 1(b) of the
Implementing Rules of the FIA provides that "for stocks to be deemed owned and held by Philippine citizens or
Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of
the stocks, coupled with appropriate voting rights, is essential." (emphasis supplied)

In emphasizing the twin requirements of "beneficial ownership" and "control" in determining compliance with the
required Filipino equity in Gamboa, the en bancCourt explicitly cited with approval the SEC en banc’s application in
Redmont Consolidated Mines, Corp. v. McArthur Mining, Inc., et al. of the Grandfather Rule, to wit:

Significantly, the SEC en banc, which is the collegial body statutorily empowered to issue rules and opinions on
behalf of SEC, has adopted the Grandfather Rulein determining compliance with the 60-40 ownership requirement
in favor of Filipino citizens mandated by the Constitution for certain economic activities. This prevailing SEC
ruling, which the SEC correctly adopted to thwart any circumvention of the required Filipino "ownership and
control," is laid down in the 25 March 2010 SEC en banc ruling in Redmont Consolidated Mines, Corp. v. McArthur
Mining, Inc., et al. x x x (emphasis supplied)

Applying Gamboa, the Court, in Express Investments III Private Ltd. v. Bayantel Communications, Inc., 11 denied the
foreign creditors’ proposal to convert part of Bayantel’s debts to common shares of the company at a rate of 77.7%.
Supposedly, the conversion of the debts to common shares by the foreign creditors would be done, both directly and
indirectly, in order to meet the control test principle under the FIA.Under the proposed structure, the foreign
creditors would own 40% of the outstanding capital stock of the telecommunications company on a direct basis,
while the remaining 40% of shares would be registered to a holding company that shall retain, on a direct basis, the
other 60% equity reserved for Filipino citizens. Nonetheless, the Court found the proposal non-compliant with the
Constitutional requirement of Filipino ownership as the proposed structure would give more than 60% of the
ownership of the common shares of Bayantel to the foreign corporations, viz:

In its Rehabilitation Plan, among the material financial commitments made by respondent Bayantelis that its
shareholders shall relinquish the agreed-upon amount of common stock[s] as payment to Unsecured Creditors as per
the Term Sheet. Evidently, the parties intend to convert the unsustainable portion of respondent’s debt into common
stocks, which have voting rights. If we indulge petitioners on their proposal, the Omnibus Creditors which are
foreign corporations, shall have control over 77.7% of Bayantel, a public utility company. This is precisely the
scenario proscribed by the Filipinization provision of the Constitution.Therefore, the Court of Appeals acted
correctly in sustaining the 40% debt-to-equity ceiling on conversion. (emphasis supplied) As shown by the quoted
legislative enactments, administrative rulings, opinions, and this Court’s decisions, the Grandfather Rule not only
finds basis, but more importantly, it implements the Filipino equity requirement, in the Constitution.

Application of the Grandfather

Rule with the Control Test.

Admittedly, an ongoing quandary obtains as to the role of the Grandfather Rule in determining compliance with the
minimum Filipino equity requirement vis-à-vis the Control Test. This confusion springs from the erroneous
assumption that the use of one method forecloses the use of the other.

As exemplified by the above rulings, opinions, decisions and this Court’s April 21, 2014 Decision, the Control Test
can be, as it has been, applied jointly withthe Grandfather Rule to determine the observance of foreign ownership
restriction in nationalized economic activities. The Control Test and the Grandfather Rule are not, as it were,
incompatible ownership-determinant methods that canonly be applied alternative to each other. Rather, these
methodscan, if appropriate, be used cumulatively in the determination of the ownership and control of corporations
engaged in fully or partly nationalized activities, as the mining operation involved in this case or the operation of
public utilities as in Gamboa or Bayantel.

The Grandfather Rule, standing alone, should not be used to determine the Filipino ownership and control in a
corporation, as it could result in an otherwise foreign corporation rendered qualified to perform nationalized or
partly nationalized activities. Hence, it is only when the Control Test is first complied with that the Grandfather Rule
may be applied. Put in another manner, if the subject corporation’s Filipino equity falls below the threshold 60%, the
corporation is immediately considered foreign-owned, in which case, the needto resort to the Grandfather Rule
disappears.

On the other hand, a corporation that complies with the 60-40 Filipino to foreign equity requirement can be
considered a Filipino corporation if there is no doubtas to who has the "beneficial ownership" and "control" of the
corporation. In that instance, there is no need fora dissection or further inquiry on the ownership of the corporate
shareholders in both the investing and investee corporation or the application of the Grandfather Rule.12 As a
corollary rule, even if the 60-40 Filipino to foreign equity ratio is apparently met by the subject or investee
corporation, a resort to the Grandfather Rule is necessary if doubt existsas to the locusof the "beneficial ownership"
and "control." In this case, a further investigation as to the nationality of the personalities with the beneficial
ownership and control of the corporate shareholders in both the investing and investee corporations is necessary.

As explained in the April 21,2012 Decision, the "doubt" that demands the application of the Grandfather Rule in
addition to or in tandem with the Control Test is not confined to, or more bluntly, does not refer to the fact that the
apparent Filipino ownership of the corporation’s equity falls below the 60% threshold. Rather, "doubt" refers to
various indicia that the "beneficial ownership" and "control" of the corporation do not in fact reside in Filipino
shareholders but in foreign stakeholders. As provided in DOJ Opinion No. 165, Series of 1984, which applied the
pertinent provisions of the Anti-DummyLaw in relation to the minimum Filipino equity requirement in the
Constitution, "significant indicators of the dummy status" have been recognized in view of reports "that some
Filipino investors or businessmen are being utilized or [are] allowing themselves to be used as dummies by foreign
investors" specifically in joint ventures for national resource exploitation. These indicators are:

1. That the foreign investors provide practically all the funds for the joint investment undertaken by these
Filipino businessmen and their foreign partner;

2. That the foreign investors undertake to provide practically all the technological support for the joint
venture;

3. That the foreign investors, while being minority stockholders, manage the company and prepare all
economic viability studies.

Thus, In the Matter of the Petition for Revocation of the Certificate of Registration of Linear Works Realty
Development Corporation,13 the SEC held that when foreigners contribute more capital to an enterprise, doubt exists
as to the actual control and ownership of the subject corporation even if the 60% Filipino equity threshold is met.
Hence, the SEC in that one ordered a further investigation, viz:

x x x The [SEC Enforcement and Prosecution Department (EPD)] maintained that the basis for determining the level
of foreign participation is the number of shares subscribed, regardless of the par value. Applying such an
interpretation, the EPD rules that the foreign equity participation in Linear works Realty Development Corporation
amounts to 26.41% of the corporation’s capital stock since the amount of shares subscribed by foreign nationals is
1,795 only out of the 6,795 shares. Thus, the subject corporation is compliant with the 40% limit on foreign equity
participation. Accordingly, the EPD dismissed the complaint, and did not pursue any investigation against the
subject corporation.

xxxx

x x x [I]n this respect we find no error in the assailed order made by the EPD. The EPD did not err when it did not
take into account the par value of shares in determining compliance with the constitutional and statutory
restrictionson foreign equity.

However, we are aware that some unscrupulous individuals employ schemes to circumvent the constitutional and
statutory restrictions on foreign equity. In the present case, the fact that the shares of the Japanese nationals have a
greater par value but only have similar rights to those held by Philippine citizens having much lower par value, is
highly suspicious. This is because a reasonable investor would expect to have greater control and economic rights
than other investors who invested less capital than him. Thus, it is reasonable to suspectthat there may be secret
arrangements between the corporation and the stockholders wherein the Japanese nationals who subscribed to the
shares with greater par value actually have greater control and economic rights contrary to the equality of shares
based on the articles of incorporation.

With this in mind, we find it proper for the EPD to investigate the subject corporation. The EPD is advised to avail
of the Commission’s subpoena powers in order to gather sufficient evidence, and file the necessary complaint.

As will be discussed, even if atfirst glance the petitioners comply with the 60-40 Filipino to foreign equity ratio,
doubt exists in the present case that gives rise to a reasonable suspicion that the Filipino shareholders do not actually
have the requisite number of control and beneficial ownership in petitioners Narra, Tesoro, and McArthur. Hence, a
further investigation and dissection of the extent of the ownership of the corporate shareholders through the
Grandfather Rule is justified.

Parenthetically, it is advanced that the application of the Grandfather Rule is impractical as tracing the shareholdings
to the point when natural persons hold rights to the stocks may very well lead to an investigation ad infinitum.
Suffice it to say in this regard that, while the Grandfather Rule was originally intended to trace the shareholdings to
the point where natural persons hold the shares, the SEC had already set up a limit as to the number of corporate
layers the attribution of the nationality of the corporate shareholders may be applied.

In a 1977 internal memorandum, the SEC suggested applying the Grandfather Rule on two (2) levels of corporate
relations for publicly-held corporations or where the shares are traded in the stock exchanges, and to three (3) levels
for closely held corporations or the shares of which are not traded in the stock exchanges.14 These limits comply
with the requirement in Palting v. San Jose Petroleum, Inc.15 that the application of the Grandfather Rule cannot go
beyond the level of what is reasonable.

A doubt exists as to the extent of control and beneficial ownership of MBMI over the petitioners and their investing
corporate stockholders.

In the Decision subject of this recourse, the Court applied the Grandfather Rule to determine the matter of true
ownership and control over the petitioners as doubt exists as to the actual extent of the participation of MBMI in the
equity of the petitioners and their investing corporations.

We considered the following membership and control structures and like nuances:

Tesoro

Supposedly Filipino corporation Sara Marie Mining, Inc. (Sara Marie) holds 59.97% of the 10,000 commonshares of
petitioner Tesoro while the Canadian-owned company, MBMI, holds 39.98% of its shares.
Name Nationality Number of Shares Amount Subscribed Amount Paid
Sara Marie Mining, Filipino 5,997 ₱5,997,000.00 ₱825,000.00
Inc.
MBMI Resources, Canadian 3,998 ₱3,998,000.00 ₱1,878,174.60
Inc.16
Lauro L. Salazar Filipino 1 ₱1,000.00 ₱1,000.00
Fernando B. Esguerra Filipino 1 ₱1,000.00 ₱1,000.00
Manuel A. Agcaoili Filipino 1 ₱1,000.00 ₱1,000.00
Michael T. Mason American 1 ₱1,000.00 ₱1,000.00
Kenneth Cawkel Canadian 1 ₱1,000.00 ₱1,000.00
  Total 10,000 ₱10,000,000.00 ₱2,708,174.60
In turn, the Filipino corporation Olympic Mines & Development Corp. (Olympic) holds 66.63% of Sara Marie’s
shares while the same Canadian company MBMI holds 33.31% of Sara Marie’s shares. Nonetheless, it is admitted
that Olympic did not pay a single peso for its shares. On the contrary, MBMI paid for 99% of the paid-up capital of
Sara Marie.
Name Nationality Number of Shares Amount Subscribed Amount Paid
Olympic Mines & Filipino 6,663 ₱6,663,000.00 P0.00
Development Corp.17
MBMI Resources, Canadian 3,331 ₱3,331,000.00 ₱2,794,000.00
Inc.
Amanti Limson Filipino 1 ₱1,000.00 ₱1,000.00
Fernando B. Esguerra Filipino 1 ₱1,000.00 ₱1,000.00
Lauro Salazar Filipino 1 ₱1,000.00 ₱1,000.00
Emmanuel G. Filipino 1 ₱1,000.00 ₱1,000.00
Hernando
Michael T. Mason American 1 ₱1,000.00 ₱1,000.00
Kenneth Cawkel Canadian 1 ₱1,000.00 ₱1,000.00
  Total 10,000 ₱10,000,000.00 ₱2,800,000.00
The fact that MBMI had practically provided all the funds in Sara Marie and Tesoro creates serious doubt as
to the true extent of its (MBMI) control and ownership over both Sara Marie and Tesoro since, as observed by
the SEC, "a reasonable investor would expect to have greater control and economic rights than other investors who
invested less capital than him." The application of the Grandfather Rule is clearly called for, and as shown below,
the Filipinos’ control and economic benefits in petitioner Tesoro (through Sara Marie) fallbelow the threshold 60%,
viz:

Filipino participation in petitioner Tesoro: 40.01%

66.67
(Filipino equity in Sara Marie) x 59.97 (Sara Marie’s share in Tesoro) = 39.98%
100
39.98% + .03% (shares of individual Filipino shareholders [SHs] in Tesoro)
=40.01%
Foreign participation in petitioner Tesoro: 59.99%
33.33
(Foreign equity in Sara Marie) x 59.97 (Sara Marie’s share in Tesoro) = 19.99%
100
19.99% + 39.98% (MBMI’s direct participation in Tesoro) + .02% (shares of foreign individual SHs in
Tesoro)
= 59.99%
With only 40.01% Filipino ownership in petitioner Tesoro, as compared to 59.99% foreign ownership of its shares, it
is clear that petitioner Tesoro does not comply with the minimum Filipino equity requirement imposed in Sec. 2, Art.
XII of the Constitution. Hence, the appellate court’s observation that Tesoro is a foreign corporation not entitled to
an MPSA is apt.

McArthur

Petitioner McArthur follows the corporate layering structure of Tesoro, as 59.97% of its 10, 000 common shares is
owned by supposedly Filipino Madridejos Mining Corporation (Madridejos), while 39.98% belonged to the
Canadian MBMI.
Name Nationality Number of Shares Amount Subscribed Amount Paid
Madridejos Mining Filipino 5,997 ₱5,997,000.00 ₱825,000.00
Corporation
MBMI Resources, Canadian 3,998 ₱3,998,000.0 ₱1,878,174.60
Inc.18
Lauro L. Salazar Filipino 1 ₱1,000.00 ₱1,000.00
Fernando B. Filipino 1 ₱1,000.00 ₱1,000.00
Manuel A. Agcaoili Filipino 1 ₱1,000.00 ₱1,000.00
Michael T. Mason American 1 ₱1,000.00 ₱1,000.00
Kenneth Cawkel Canadian 1 ₱1,000.00 ₱1,000.00
  Total 10,000 ₱10,000,000.00 ₱2,708,174.60
In turn, 66.63% of Madridejos’ shares were held by Olympic while 33.31% of its shares belonged to MBMI. Yet
again, Olympic did not contribute to the paid-up capital of Madridejos and it was MBMI that provided 99.79% of
the paid-up capital of Madridejos.
Name Nationality Number of Shares Amount Subscribed Amount Paid
Olympic Mines & Filipino 6,663 ₱6,663,000.00 P0.00
Development Corp.19
MBMI Resources, Canadian 3,331 ₱3,331,000.00 ₱2,803,900.00
Inc.
Amanti Limson Filipino 1 ₱1,000.00 ₱1,000.00
Fernando B. Esguerra Filipino 1 ₱1,000.00 ₱1,000.00
Lauro Salazar Filipino 1 ₱1,000.00 ₱1,000.00
Emmanuel G. Filipino 1 ₱1,000.00 ₱1,000.00
Hernando
Michael T. Mason American 1 ₱1,000.00 ₱1,000.00
 Kenneth Cawkel Canadian 1 ₱1,000.00 ₱1,000.00
  Total 10,000 ₱10,000,000.00 ₱2,809,900.00
Again, the fact that MBMI had practically provided all the funds in Madridejos and McArthur creates serious doubt
as to the true extent of its control and ownership of MBMI over both Madridejos and McArthur. The application of
the Grandfather Rule is clearly called for, and as will be shown below, MBMI, along with the other foreign
shareholders, breached the maximum limit of 40% ownership in petitioner McArthur, rendering the petitioner
disqualified to an MPSA:

Filipino participation in petitioner McArthur: 40.01%

66.67
(Filipino equity in Madridejos) x 59.97 (Madridejos’ share in McArthur) = 39.98%
100
39.98% + .03% (shares of individual Filipino SHs in McArthur)
=40.01%
Foreign participation in petitioner McArthur: 59.99%
33.33
(Foreign equity in Madridejos) x 59.97 (Madridejos’ share in McArthur) = 19.99%
19.99% + 39.98% (MBMI’s direct participation inMcArthur) + .02% (shares of foreign individual SHs in
McArthur)
= 59.99%
As with petitioner Tesoro, with only 40.01% Filipino ownership in petitioner McArthur, as compared to 59.99%
foreign ownership of its shares, it is clear that petitioner McArthur does not comply with the minimum Filipino
equity requirement imposed in Sec. 2, Art. XII of the Constitution. Thus, the appellate court did not err in holding
that petitioner McArthur is a foreign corporation not entitled to an MPSA.

Narra

As for petitioner Narra, 59.97% of its shares belonged to Patricia Louise Mining & Development Corporation
(PLMDC), while Canadian MBMI held 39.98% of its shares.
Name Nationality Number of Shares Amount Subscribed Amount Paid
Patricia Lousie Filipino 5,997 ₱5,997,000.00 ₱1,677,000.00
Mining and
Development Corp.
MBMI Resources, Canadian 3,996 ₱3,996,000.00 ₱1,116,000.00
Inc.20
Higinio C. Mendoza, Filipino 1 ₱1,000.00 ₱1,000.00
Henry E. Fernandez Filipino 1 ₱1,000.00 ₱1,000.00
Ma. Elena A. Bocalan Filipino 1 ₱1,000.00 ₱1,000.00
Michael T. Mason American 1 ₱1,000.00 ₱1,000.00
Robert L. McCurdy Canadian 1 ₱1,000.00 ₱1,000.00
Manuel A. Agcaoili Filipino 1 ₱1,000.00 ₱1,000.00
Bayani H. Agabin Filipino 1 ₱1,000.00 ₱1,000.00
  Total 10,000 ₱10,000,000.00 ₱2,800,000.00
PLMDC’s shares, in turn, were held by Palawan Alpha South Resources Development Corporation (PASRDC),
which subscribed to 65.96% of PLMDC’s shares, and the Canadian MBMI, which subscribed to 33.96% of
PLMDC’s shares.
Name Nationality Number of Shares Amount Subscribed Amount Paid
Palawan Alpha South Filipino 6,596 ₱6,596,000.00 P0
Resource
 Development Corp.
MBMI Resources, Canadian 3,396 ₱3,396,000.00 ₱2,796,000.00
Inc.21
Higinio C. Mendoza, Filipino 1 ₱1,000.00 ₱1,000.00
Jr.
Fernando B. Esguerra Filipino 1 ₱1,000.00 ₱1,000.00
Henry E. Fernandez Filipino 1 ₱1,000.00 ₱1,000.00
Ma. Elena A. Bocalan Filipino 1 ₱1,000.00 ₱1,000.00
Michael T. Mason American 1 ₱1,000.00 ₱1,000.00
Robert L. McCurdy Canadian 1 ₱1,000.00 ₱1,000.00
Manuel A. Agcaoili Filipino 1 ₱1,000.00 ₱1,000.00
Bayani H, Agabin Filipino 1 ₱1,000.00 ₱1,000.00
  Total 10,000 ₱10,000,000.00 ₱2,804,000.00
Yet again, PASRDC did not pay for any of its subscribed shares, while MBMI contributed 99.75% of PLMDC’s
paid-up capital. This fact creates serious doubt as to the true extent of MBMI’s control and ownership over both
PLMDC and Narra since "a reasonable investor would expect to have greater control and economic rights than other
investors who invested less capital than him." Thus, the application of the Grandfather Rule is justified. And as will
be shown, it is clear that the Filipino ownership in petitioner Narra falls below the limit prescribed in both the
Constitution and the Philippine Mining Act of 1995.

Filipino participation in petitioner Narra: 39.64%

66.02
(Filipino equity in PLMDC) x 59.97 (PLMDC’s share in Narra) = 39.59%
100
39.59% + .05% (shares of individual Filipino SHs in McArthur)
=39.64%
Foreign participation in petitioner Narra: 60.36%
33.98
(Foreign equity in PLMDC) x 59.97 (PLMDC’s share in Narra) = 20.38%
100
20.38% + 39.96% (MBMI’s direct participation in Narra) + .02% (shares of foreign individual SHs in
McArthur)
= 60.36%
With 60.36% foreign ownership in petitioner Narra, as compared to only 39.64% Filipino ownership of its shares, it
is clear that petitioner Narra does not comply with the minimum Filipino equity requirement imposed in Section 2,
Article XII of the Constitution. Hence, the appellate court did not err in holding that petitioner McArthur is a foreign
corporation not entitled to an MPSA.

It must be noted that the foregoing determination and computation of petitioners’ Filipino equity composition was
based on their common shareholdings, not preferred or redeemable shares. Section 6 of the Corporation Code of the
Philippines explicitly provides that "no share may be deprived of voting rights except those classified as ‘preferred’
or ‘redeemable’ shares." Further, as Justice Leonen puts it, there is "no indication that any of the shares x x x do not
have voting rights, [thus] it must be assumed that all such shares have voting rights." 22 It cannot therefore be gain
said that the foregoing computation hewed with the pronouncements of Gamboa, as implemented by SEC
Memorandum Circular No. 8, Series of 2013, (SEC Memo No. 8)23 Section 2 of which states:

Section 2. All covered corporations shall, at all times, observe the constitutional or statutory
requirement.1âwphi1 For purposes of determining compliance therewith, the required percentage of Filipino
ownership shall be applied to BOTH (a) the total outstanding shares of stock entitled to vote in the election of
directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of
directors.
In fact, there is no indication that herein petitioners issued any other class of shares besides the 10,000 common
shares. Neither is it suggested that the common shares were further divided into voting or non-voting common
shares. Hence, for purposes of this case, items a) and b) in SEC Memo No. 8 both refer to the 10,000 common
shares of each of the petitioners, and there is no need to separately apply the 60-40 ratio to any segment or part of
the said common shares.

III.

In mining disputes, the POA has jurisdiction to pass upon the nationality of applications for MPSAs

Petitioners also scoffed at this Court’s decision to uphold the jurisdiction of the Panel of Arbitrators (POA) of the
Department of Environment and Natural Resources (DENR) since the POA’s determination of petitioners’
nationalities is supposedly beyond its limited jurisdiction, as defined in Gonzales v. Climax Mining Ltd. 24 and Philex
Mining Corp. v. Zaldivia.25

The April 21, 2014 Decision did not dilute, much less overturn, this Court’s pronouncements in either Gonzales or
Philex Mining that POA’s jurisdiction "is limited only to mining disputes which raise questions of fact," and not
judicial questions cognizable by regular courts of justice. However, to properly recognize and give effect to the
jurisdiction vested in the POA by Section 77 of the Philippine Mining Act of 1995,26 and in parallel with this Court’s
ruling in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp.,27 the Court has recognized in its
Decision that in resolving disputes "involving rights to mining areas" and "involving mineral agreements or
permits," the POA has jurisdiction to make a preliminary finding of the required nationality of the corporate
applicant in order to determine its right to a mining area or a mineral agreement.

There is certainly nothing novel or aberrant in this approach. In ejectment and unlawful detainer cases, where the
subject of inquiry is possession de facto, the jurisdiction of the municipal trial courts to make a preliminary
adjudication regarding ownership of the real property involved is allowed, but only for purposes of ruling on the
determinative issue of material possession.

The present case arose from petitioners' MPSA applications, in which they asserted their respective rights to the
mining areas each applied for. Since respondent Redmont, itself an applicant for exploration permits over the same
mining areas, filed petitions for the denial of petitioners' applications, it should be clear that there exists a
controversy between the parties and it is POA's jurisdiction to resolve the said dispute. POA's ruling on Redmont's
assertion that petitioners are foreign corporations not entitled to MPSA is but a necessary incident of its disposition
of the mining dispute presented before it, which is whether the petitioners are entitled to MPSAs.

Indeed, as the POA has jurisdiction to entertain "disputes involving rights to mining areas," it necessarily follows
that the POA likewise wields the authority to pass upon the nationality issue involving petitioners, since the
resolution of this issue is essential and indispensable in the resolution of the main issue, i.e., the determination of the
petitioners' right to the mining areas through MPSAs.

WHEREFORE, We DENY the motion for reconsideration WITH FINALITY. No further pleadings shall be
entertained. Let entry of judgment be made in due course.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-8527             March 30, 1914

WEST COAST LIFE INSURANCE CO., plaintiff, 

vs.
GEO N. HURD, Judge of Court of First Instance, defendant.

Southworth, Hargis & Springer for plaintiff.

Haussermann, Cohn & Fisher for defendant.

MORELAND, J.:

This is an action for the issuance of a writ of prohibition against the defendant "commanding the defendant to desist
or refrain from further proceedings in a criminal action pending in that court."

The petitioner is a foreign life-insurance corporation, duly organized under and by virtue of the laws of the State of
California, doing business regularly and legally in the Philippine Islands pursuant to its laws.

On the 16th of December, 1912, the assistant prosecuting attorney of the city of Manila filed an information in a
criminal action in the Court of First Instance of that city against the plaintiff, said corporation, and also against John
Northcott and Manuel C. Grey, charging said corporation and said individuals with the crime of libel. On the 17th
day of December the defendant in his official capacity as judge of the court of First Instance signed and issued a
process directed to the plaintiff and the other accused in said criminal action, which said process reads as follows:

UNITED STATES OF AMERICA,

PHILIPPINE ISLANDS.

In the Court of First Instance of the Judicial District of Manila.

THE UNITED STATES No. 9661

versus Libel.

WEST COAST LIFE INSURANCE CO., JOHN NORTHCOTT, AND MANUEL C. GREY.

To West Coast Life Insurance Co., John Northcott, and Manuel C. Grey, Manila.

SUMMONS.

You are hereby summoned to appear before the Court of First Instance of the city of Manila P.I., on the 18th
day of December, 1912, at the hour of 8 a.m., to answer the charge made against you upon the information
of F. H. Nesmith, assistant prosecuting attorney of the city of Manila, for libel, as set forth in the said
information filed in this copurt on December 16, 1912, a copy of which is hereto attached and herewith
served upon you.

Dated at the city of Manila, P. I., this 17th day of December, 1912.

(Sgd.) GEO N. HURD,

Judge, Court of First Instance.

The information upon which said process was issued is as follows:

The undersigned accuses the West Coast Life Insurance Company, John Northcott, and Manuel C. Grey of
the crime of libel, committed as follows:

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

"First. For some time past various rumors are current to the effect that the Insular Life Insurance
Company is not in as good a condition as i should be at the present time, and that really it is in bad
shape. Nevertheless, the investigations made by the representative of the "Bulletin" have failed
fully to confirm these rumors. It is known that the Insular Auditor has examined the books of the
company and has found that its capital has diminished, and that by direction of said official the
company has decided to double the amount of its capital, and also to pay its reserve fund. All this
is true."

That the said circulars, and the matters therein contained hereinbefore set forth in this information, tend to
impeach and have impeached the honesty, virtue, and reputation of the said Insular Life Insurance
Company by exposing it to public hatred, contempt, and ridicule; that by the matters printed in said
circulars, and hereinbefore set forth in this information, the said defendants West Coast Life Insurance
Company, John Northcott, and Manuel C. Grey meant and intended to state and represent to those to whom
the said defendants delivered said circulars as aforesaid, that the said Insular Life Insurance Company was
then and there in a dangerous financial condition and on the point of going into insolvency, to the detriment
of the policy holders of the said Insular Life Insurance Company, and of those with whom the said Insular
Life Insurance Company have and have had business transactions, and each and all of said persons to
whom the said defendants delivered said circulars, and all persons as well who read said circulars
understood the said matters in said circulars to have said libelous sense and meaning. Contrary to law.

On the 20th day of December, 1912, the plaintiff, together with the other persons named as accused in said process
through their attorneys, served upon the prosecuting attorney and filed with the clerk of the court a motion to quash
said summons and the service thereof, on the ground that the court had no jurisdiction over the said company, there
being no authority in the court for the issuance of the process, Exhibit B, the order under which it was issued being
void. The court denied the motion and directed plaintiff to appear before it on the 28th day of December, 1912, and
to plead to the information, to which order the plaintiff then and there duly excepted.

It is alleged in the complaint that "unless restrained by this Court the respondent will proceed to carry out said void
order and compel your petitioner to appear before his court and plead and submit to criminal prosecution without
having acquired any jurisdiction whatever over your petitioner."

The prayer of the complaint is, "your petitioner prays judgment for the issuance of a writ of prohibition against the
respondent, commanding the respondent absolutely to desist or refrain from further proceedings against your
petitioner in the said criminal action."

The basis of the action is that the Court of First Instance has no power or authority, under the laws of the Philippine
Islands, to proceed against a corporation, as such, criminally, to bring it into court for the purpose of making it
amenable to the criminal laws. It is contended that the court had no jurisdiction to issue the process in evidence
against the plaintiff corporation; that the issuance and service thereof upon the plaintiff corporation were outside of
the authority and jurisdiction of the court, were authorized by no law, conferred no jurisdiction over said
corporation, and that they were absolutely void and without force or effect.
The plaintiff, further attacking said process, alleges that the process is a mixture of civil and criminal process, that it
is not properly signed, that it does not direct or require an arrest; that it s an order to appear and answer on a date
certain without restraint of the person, and that it is not in the form required by law.

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

The question remains as to whether or not he court may, of itself and on its own motion, create not only a process
but a procedure by which the process may be made effective.

We do not believe that the authority of the courts of the Philippine Islands extends so far. While having the inherent
powers which usually go with courts of general jurisdiction, we are of the opinion that, under the circumstances of
their creation, they have only such authority in criminal matters as is expressly conferred upon them by statute or
which it is necessary to imply from such authority in order to carry out fully and adequately the express authority
conferred. We do not feel that Courts of First Instance have authority to create new procedure and new processes in
criminal law. The exercise of such power verges too closely on legislation. Even though it be admitted, a question
we do not now decide, that there are various penal laws in the Philippine Islands which corporation as such may
violate, still we do not believe that the courts are authorized to go to the extent of creating special procedure and
special processes for the purpose of carrying out those penal statutes, when the legislature itself has neglected to do
so. To bring a corporation into court criminally requires many additions to the present criminal procedure. While it
may be said to be the duty of courts to see to it that criminals are punished, it is no less their duty to follow
prescribed forms of procedure and to go out upon unauthorized ways or act in an unauthorized manner.

There are many cases cited by counsel for the defendant which show that corporations have been proceeded against
criminally by indictment and otherwise and have been punished as malefactors by the courts. Of this, of course,
there can be no doubt; but it is clear that, in those cases, the statute, by express words or by necessary intendment,
included corporations within the persons who could offend against the criminal laws; and the legislature, at the same
time established a procedure applicable to corporations. No case has been cited to us where a corporation has been
proceeded against under a criminal statute where the court did not exercise its common law powers or where there
was not in force a special procedure applicable to corporations.

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

The case was submitted to this Court on an agreed statement of facts with a stipulation for a decision upon the
merits. We are of the opinion that the plaintiff is entitled, under that stipulation, to the remedy prayed for.

It is adjudged that the Court of First Instance of the city of Manila be and it is hereby enjoined and prohibited from
proceeding further in the criminal cause which is before us in this proceeding, entitled United States vs. West Coast
Life Insurance Company, a corporation, John Northcott and Manuel C. Grey, so far as said proceedings relate to the
said West Coast Life Insurance Company, a corporation, the plaintiff in the case.

Arellano, C.J. and Araullo, J., concur.

Carson, J., concurs in the result.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 102970 May 13, 1993

LUZAN SIA, petitioner, 
vs.
COURT OF APPEALS and SECURITY BANK and TRUST COMPANY, respondents.

Asuncion Law Offices for petitioner.

Cauton, Banares, Carpio & Associates for private respondent.

DAVIDE, JR., J.:

The Decision of public respondent Court of Appeals in CA-G.R. CV No. 26737, promulgated on 21 August
1991,1reversing and setting aside the Decision, dated 19 February 1990, 2 of Branch 47 of the Regional Trial Court
(RTC) of Manila in Civil Case No. 87-42601, entitled "LUZAN SIA vs. SECURITY BANK and TRUST CO.," is
challenged in this petition for review on certiorari under Rule 45 of the Rules Court.

Civil Case No. 87-42601 is an action for damages arising out of the destruction or loss of the stamp collection of the
plaintiff (petitioner herein) contained in Safety Deposit Box No. 54 which had been rented from the defendant
pursuant to a contract denominated as a Lease Agreement. 3 Judgment therein was rendered in favor of the
dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendant, Security Bank & Trust Company, ordering the defendant bank to pay the
plaintiff the sum of —

a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as actual damages;

b) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as moral damages; and

c) Five Thousand Pesos (P5,000.00), Philippine Currency, as attorney's fees and legal expenses.

The counterclaim set up by the defendant are hereby dismissed for lack of merit.
 No costs.

SO ORDERED.4

The antecedent facts of the present controversy are summarized by the public respondent in its challenged decision
as follows:

The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the defendant bank at its
Binondo Branch located at the Fookien Times Building, Soler St., Binondo, Manila wherein he
placed his collection of stamps. The said safety deposit box leased by the plaintiff was at the
bottom or at the lowest level of the safety deposit boxes of the defendant bank at its aforesaid
Binondo Branch.

During the floods that took place in 1985 and 1986, floodwater entered into the defendant bank's
premises, seeped into the safety deposit box leased by the plaintiff and caused, according to the
plaintiff, damage to his stamps collection. The defendant bank rejected the plaintiff's claim for
compensation for his damaged stamps collection, so, the plaintiff instituted an action for damages
against the defendant bank.

The defendant bank denied liability for the damaged stamps collection of the plaintiff on the basis
of the "Rules and Regulations Governing the Lease of Safe Deposit Boxes" (Exhs. "A-1", "1-A"),
particularly paragraphs 9 and 13, which reads (sic):

"9. The liability of the Bank by reason of the lease, is limited to the exercise of the diligence to
prevent the opening of the safe by any person other than the Renter, his authorized agent or legal
representative;

xxx xxx xxx

"13. The Bank is not a depository of the contents of the safe and it has neither the possession nor
the control of the same. The Bank has no interest whatsoever in said contents, except as herein
provided, and it assumes absolutely no liability in connection therewith."

The defendant bank also contended that its contract with the plaintiff over safety deposit box No.
54 was one of lease and not of deposit and, therefore, governed by the lease agreement (Exhs. "A",
"L") which should be the applicable law; that the destruction of the plaintiff's stamps collection
was due to a calamity beyond obligation on its part to notify the plaintiff about the floodwaters
that inundated its premises at Binondo branch which allegedly seeped into the safety deposit box
leased to the plaintiff.

The trial court then directed that an ocular inspection on (sic) the contents of the safety deposit
box be conducted, which was done on December 8, 1988 by its clerk of court in the presence of
the parties and their counsels. A report thereon was then submitted on December 12, 1988
(Records, p. 98-A) and confirmed in open court by both parties thru counsel during the hearing on
the same date (Ibid., p. 102) stating:

"That the Safety Box Deposit No. 54 was opened by both plaintiff Luzan Sia
and the Acting Branch Manager Jimmy B. Ynion in the presence of the
undersigned, plaintiff's and defendant's counsel. Said Safety Box when opened
contains two albums of different sizes and thickness, length and width and a tin
box with printed word 'Tai Ping Shiang Roast Pork in pieces with Chinese
designs and character."

Condition of the above-stated Items —

"Both albums are wet, moldy and badly damaged.

 1. The first album measures 10 1/8 inches in length, 8 inches in width and 3/4 in thick. The leaves
of the album are attached to every page and cannot be lifted without destroying it, hence the
stamps contained therein are no longer visible.

2. The second album measure 12 1/2 inches in length, 9 3/4 in width 1 inch thick. Some of its
pages can still be lifted. The stamps therein can still be distinguished but beyond restoration.
Others have lost its original form.

3. The tin box is rusty inside. It contains an album with several pieces of papers stuck up to the
cover of the box. The condition of the album is the second abovementioned album."5

The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as SBTC, appealed the trial court's
decision to the public respondent Court of Appeals. The appeal was docketed as CA-G.R. CV No. 26737.

In urging the public respondent to reverse the decision of the trial court, SBTC contended that the latter erred in (a)
holding that the lease agreement is a contract of adhesion; (b) finding that the defendant had failed to exercise the
required diligence expected of a bank in maintaining the safety deposit box; (c) awarding to the plaintiff actual
damages in the amount of P20,000.00, moral damages in the amount of P100,000.00 and attorney's fees and legal
expenses in the amount of P5,000.00; and (d) dismissing the counterclaim.

On 21 August 1991, the respondent promulgated its decision the dispositive portion of which reads:

WHEREFORE, the decision appealed from is hereby REVERSED and instead the appellee's
complaint is hereby DISMISSED. The appellant bank's counterclaim is likewise DISMISSED. No
costs.6

In reversing the trial court's decision and absolving SBTC from liability, the public respondent found and ruled that:

a) the fine print in the "Lease Agreement " (Exhibits "A" and "1" ) constitutes the terms and conditions of the
contract of lease which the appellee (now petitioner) had voluntarily and knowingly executed with SBTC;

b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a contract of deposit wherein
the bank became a depositary of the subject stamp collection; hence, as contended by SBTC, the provisions of Book
IV, Title XII of the Civil Code on deposits do not apply;

c) The following provisions of the questioned lease agreement of the safety deposit box limiting SBTC's liability:

9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to
prevent the opening of the Safe by any person other than the Renter, his authorized agent or legal
representative.

xxx xxx xxx

13. The bank is not a depository of the contents of the Safe and it has neither the possession nor
the control of the same. The Bank has no interest whatsoever in said contents, except as herein
provided, and it assumes absolutely no liability in connection therewith.

are valid since said stipulations are not contrary to law, morals, good customs, public order or public policy; and

d) there is no concrete evidence to show that SBTC failed to exercise the required diligence in maintaining the safety
deposit box; what was proven was that the floods of 1985 and 1986, which were beyond the control of SBTC,
caused the damage to the stamp collection; said floods were fortuitous events which SBTC should not be held liable
for since it was not shown to have participated in the aggravation of the damage to the stamp collection; on the
contrary, it offered its services to secure the assistance of an expert in order to save most of the stamps, but the
appellee refused; appellee must then bear the lose under the principle of "res perit domino."
Unsuccessful in his bid to have the above decision reconsidered by the public respondent, 7 petitioner filed the
instant petition wherein he contends that:

IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON THE PART OF THE

RESPONDENT COURT WHEN IT RULED THAT RESPONDENT SBTC DID NOT FAIL TO
EXERCISE THE REQUIRED DILIGENCE IN MAINTAINING THE SAFETY DEPOSIT BOX
OF THE PETITIONER CONSIDERING THAT SUBSTANTIAL EVIDENCE EXIST (sic)
PROVING THE CONTRARY.

II

THE RESPONDENT COURT SERIOUSLY ERRED IN EXCULPATING PRIVATE

RESPONDENT FROM ANY LIABILITY WHATSOEVER BY REASON OF THE
PROVISIONS OF PARAGRAPHS 9 AND 13 OF THE AGREEMENT (EXHS. "A" AND "A-1").

III

THE RESPONDENT COURT SERIOUSLY ERRED IN NOT UPHOLDING THE AWARDS OF

THE TRIAL COURT FOR ACTUAL AND MORAL DAMAGES, INCLUDING ATTORNEY'S
FEES AND LEGAL EXPENSES, IN FAVOR OF THE PETITIONER.8

We subsequently gave due course the petition and required both parties to submit their respective memoranda, which
they complied with.9

Petitioner insists that the trial court correctly ruled that SBTC had failed "to exercise the required diligence expected
of a bank maintaining such safety deposit box . . . in the light of the environmental circumstance of said safety
deposit box after the floods of 1985 and 1986." He argues that such a conclusion is supported by the evidence on
record, to wit: SBTC was fully cognizant of the exact location of the safety deposit box in question; it knew that the
premises were inundated by floodwaters in 1985 and 1986 and considering that the bank is guarded twenty-four (24)
hours a day , it is safe to conclude that it was also aware of the inundation of the premises where the safety deposit
box was located; despite such knowledge, however, it never bothered to inform the petitioner of the flooding or take
any appropriate measures to insure the safety and good maintenance of the safety deposit box in question.

SBTC does not squarely dispute these facts; rather, it relies on the rule that findings of facts of the Court of Appeals,
when supported by substantial exidence, are not reviewable on appeal by certiorari. 10

The foregoing rule is, of course, subject to certain exceptions such as when there exists a disparity between the
factual findings and conclusions of the Court of Appeals and the trial court. 11 Such a disparity obtains in the present
case.

As We see it, SBTC's theory, which was upheld by the public respondent, is that the "Lease Agreement " covering
Safe Deposit Box No. 54 (Exhibit "A and "1") is just that — a contract of lease — and not a contract of deposit, and
that paragraphs 9 and 13 thereof, which expressly limit the bank's liability as follows:

9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to
prevent the opening of the Safe by any person other than the Renter, his autliorized agent or legal
representative;

xxx xxx xxx

13. The bank is not a depository of the contents of the Safe and it has neither the possession nor
the control of the same. The Bank has no interest whatsoever said contents, except as herein
provided, and it assumes absolutely no liability in connection therewith. 12
are valid and binding upon the parties. In the challenged decision, the public respondent further avers that even
without such a limitation of liability, SBTC should still be absolved from any responsibility for the damage
sustained by the petitioner as it appears that such damage was occasioned by a fortuitous event and that the
respondent bank was free from any participation in the aggravation of the injury.

We cannot accept this theory and ratiocination. Consequently, this Court finds the petition to be impressed with
merit.

In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, 13 this Court explicitly rejected the
contention that a contract for the use of a safety deposit box is a contract of lease governed by Title VII, Book IV of
the Civil Code. Nor did We fully subscribe to the view that it is a contract of deposit to be strictly governed by the
Civil Code provision on deposit; 14 it is, as We declared, a special kind of deposit. The prevailing rule in American
jurisprudence — that the relation between a bank renting out safe deposit boxes and its customer with respect to the
contents of the box is that of a bailor and bailee, the bailment for hire and mutual benefit 15 — has been adopted in
this jurisdiction, thus:

In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it
is clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section
72 of the General Banking Act [R.A. 337, as amended] pertinently provides:

"Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking
institutions other than building and loan associations may perform the following services:

(a) Receive in custody funds, documents, and valuable objects, and rent safety
deposit boxes for the safequarding of such effects.

xxx xxx xxx

The banks shall perform the services permitted under subsections (a), (b) and (c) of this section
as depositories or as agents. . . ."(emphasis supplied)

Note that the primary function is still found within the parameters of a contract of deposit, i.e., the
receiving in custody of funds, documents and other valuable objects for safekeeping. The renting
out of the safety deposit boxes is not independent from, but related to or in conjunction with, this
principal function. A contract of deposit may be entered into orally or in writing (Art. 1969, Civil
Code] and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public policy. The depositary's
responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I,
Book IV of the Civil Code. Accordingly, the depositary would be liable if, in performing its
obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the
agreement [Art. 1170, id.]. In the absence of any stipulation prescribing the degree of diligence
required, that of a good father of a family is to be observed [Art. 1173, id.]. Hence, any stipulation
exempting the depositary from any liability arising from the loss of the thing deposited on account
of fraud, negligence or delay would be void for being contrary to law and public policy. In the
instant case, petitioner maintains that conditions 13 and l4 of the questioned contract of lease of
the safety deposit box, which read:

"13. The bank is a depositary of the contents of the safe and it has neither the possession nor
control of the same.

"14. The bank has no interest whatsoever in said contents, except as herein expressly provided,
and it assumes absolutely no liability in connection therewith."

are void as they are contrary to law and public policy. We find Ourselves in agreement with this
 proposition for indeed, said provisions are inconsistent with the respondent Bank's responsibility
as a depositary under Section 72 (a) of the General Banking Act. Both exempt the latter from any
liability except as contemplated in condition 8 thereof which limits its duty to exercise reasonable
diligence only with respect to who shall be admitted to any rented safe, to wit:

"8. The Bank shall use due diligence that no unauthorized person shall be
admitted to any rented safe and beyond this, the Bank will not be responsible for
the contents of any safe rented from it."

Furthermore condition 13 stands on a wrong premise and is contrary to the actual practice of the
Bank. It is not correct to assert that the Bank has neither the possession nor control of the contents
of the box since in fact, the safety deposit box itself is located in its premises and is under its
absolute control; moreover, the respondent Bank keeps the guard key to the said box. As stated
earlier, renters cannot open their respective boxes unless the Bank cooperates by presenting and
using this guard key. Clearly then, to the extent above stated, the foregoing conditions in the
contract in question are void and ineffective. It has been said:

"With respect to property deposited in a safe-deposit box by a customer of a

safe-deposit company, the parties, since the relation is a contractual one, may by
special contract define their respective duties or provide for increasing or
limiting the liability of the deposit company, provided such contract is not in
violation of law or public policy. It must clearly appear that there actually was
such a special contract, however, in order to vary the ordinary obligations
implied by law from the relationship of the parties; liability of the deposit
company will not be enlarged or restricted by words of doubtful meaning. The
company, in renting safe-deposit boxes, cannot exempt itself from liability for
loss of the contents by its own fraud or negligence or that, of its agents or
servants, and if a provision of the contract may be construed as an attempt to do
so, it will be held ineffective for the purpose. Although it has been held that the
lessor of a safe-deposit box cannot limit its liability for loss of the contents
thereof through its own negligence, the view has been taken that such a lessor
may limit its liability to some extent by agreement or stipulation ."[10 AM JUR
2d., 466]. (citations omitted) 16

It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box in CA Agro-
Industrial Development Corp. are strikingly similar to condition No. 13 in the instant case. On the other hand, both
condition No. 8 in CA Agro-Industrial Development Corp. and condition No. 9 in the present case limit the scope of
the exercise of due diligence by the banks involved to merely seeing to it that only the renter, his authorized agent or
his legal representative should open or have access to the safety deposit box. In short, in all other situations, it would
seem that SBTC is not bound to exercise diligence of any kind at all. Assayed in the light of Our aforementioned
pronouncements in CA Agro-lndustrial Development Corp., it is not at all difficult to conclude that both conditions
No. 9 and No. 13 of the "Lease Agreement" covering the safety deposit box in question (Exhibits "A" and "1") must
be stricken down for being contrary to law and public policy as they are meant to exempt SBTC from any liability
for damage, loss or destruction of the contents of the safety deposit box which may arise from its own or its agents'
fraud, negligence or delay. Accordingly, SBTC cannot take refuge under the said conditions.

Public respondent further postulates that SBTC cannot be held responsible for the destruction or loss of the stamp
collection because the flooding was a fortuitous event and there was no showing of SBTC's participation in the
aggravation of the loss or injury. It states:

Article 1174 of the Civil Code provides:

"Except in cases expressly specified by the law, or when it is otherwise declared

by stipulation, or when the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events which could not be
 foreseen, or which, though foreseen, were inevitable.'

In its dissertation of the phrase "caso fortuito" the Enciclopedia Jurisdicada Española  17 says: "In

a legal sense and, consequently, also in relation to contracts, a "caso fortuito" prevents (sic) 18 the
following essential characteristics: (1) the cause of the unforeseen ands unexpected occurrence, or
of the failure of the debtor to comply with his obligation, must be independent of the human will;
(2) it must be impossible to foresee the event which constitutes the "caso fortuito," or if it can be
foreseen, it must be impossible to avoid; (3) the occurrence must be such as to render it impossible
for one debtor to fulfill his obligation in a normal manner; and (4) the obligor must be free from
any participation in the aggravation of the injury resulting to the creditor." (cited in
Servando vs.Phil., Steam Navigation Co., supra). 19

Here, the unforeseen or unexpected inundating floods were independent of the will of the
appellant bank and the latter was not shown to have participated in aggravating damage (sic) to the
stamps collection of the appellee. In fact, the appellant bank offered its services to secure the
assistance of an expert to save most of the then good stamps but the appelle refused and let (sic)
these recoverable stamps inside the safety deposit box until they were ruined. 20

Both the law and authority cited are clear enough and require no further elucidation. Unfortunately, however, the
public respondent failed to consider that in the instant case, as correctly held by the trial court, SBTC was guilty of
negligence. The facts constituting negligence are enumerated in the petition and have been summarized in
thisponencia. SBTC's negligence aggravated the injury or damage to the stamp collection. SBTC was aware of the
floods of 1985 and 1986; it also knew that the floodwaters inundated the room where Safe Deposit Box No. 54 was
located. In view thereof, it should have lost no time in notifying the petitioner in order that the box could have been
opened to retrieve the stamps, thus saving the same from further deterioration and loss. In this respect, it failed to
exercise the reasonable care and prudence expected of a good father of a family, thereby becoming a party to the
aggravation of the injury or loss. Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent
Article 1170 of the Civil Code, which reads:

Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are liable for damages,

thus comes to the succor of the petitioner. The destruction or loss of the stamp collection which was, in the language
of the trial court, the "product of 27 years of patience and diligence" 21 caused the petitioner pecuniary loss; hence,
he must be compensated therefor.

We cannot, however, place Our imprimatur on the trial court's award of moral damages. Since the relationship
between the petitioner and SBTC is based on a contract, either of them may be held liable for moral damages for
breach thereof only if said party had acted fraudulently or in bad faith. 22 There is here no proof of fraud or bad faith
on the part of SBTC.

WHEREFORE, the instant petition is hereby GRANTED. The challenged Decision and Resolution of the public
respondent Court of Appeals of 21 August 1991 and 21 November 1991, respectively, in CA-G.R. CV No. 26737,
are hereby SET ASIDE and the Decision of 19 February 1990 of Branch 47 of the Regional Trial Court of Manila in
Civil Case No. 87-42601 is hereby REINSTATED in full, except as to the award of moral damages which is hereby
set aside.

Costs against the private respondent.

SO ORDERED.

SECOND DIVISION
 [G.R. No. 131719. May 25, 2004]

THE EXECUTIVE SECRETARY, THE SECRETARY OF JUSTICE, THE SECRETARY OF LABOR AND
EMPLOYMENT, AND THE SECRETARY OF FOREIGN AFFAIRS, OWWA ADMINISTRATOR,
and POEA ADMINISTRATOR, petitioners, vs. THE HON. COURT OF APPEALS and ASIAN
RECRUITMENT COUNCIL PHILIPPINE CHAPTER (ARCO-PHIL.), INC., representing its
members: Worldcare Services Internationale, Inc., Steadfast International Recruitment Corporation,
Dragon International Manpower Services Corporation, Verdant Manpower Mobilization
Corporation, Brent Overseas Personnel, Inc., ARL Manpower Services, Inc., Dahlzhen International
Services, Inc., Interworld Placement Center, Inc., Lakas Tao Contract Services, Ltd. Co., and SSC
Multiservices, respondents.

DECISION

CALLEJO, SR., J.:

In this petition for review on certiorari, the Executive Secretary of the President of the Philippines, the
Secretary of Justice, the Secretary of Foreign Affairs, the Secretary of Labor and Employment, the POEA
Administrator and the OWWA Administrator, through the Office of the Solicitor General, assail the Decision [1] of the
Court of Appeals in CA-G.R. SP No. 38815 affirming the Order [2] of the Regional Trial Court of Quezon City dated
August 21, 1995 in Civil Case No. Q-95-24401, granting the plea of the petitioners therein for a writ of preliminary
injunction and of the writ of preliminary injunction issued by the trial court on August 24, 1995.

The Antecedents

Republic Act No. 8042, otherwise known as the Migrant Workers and Overseas Filipinos Act of 1995, took
effect on July 15, 1995. The Omnibus Rules and Regulations Implementing the Migrant Workers and Overseas
Filipino Act of 1995 was, thereafter, published in the April 7, 1996 issue of the Manila Bulletin. However, even
before the law took effect, the Asian Recruitment Council Philippine Chapter, Inc. (ARCO-Phil.) filed, on July 17,
1995, a petition for declaratory relief under Rule 63 of the Rules of Court with the Regional Trial Court of Quezon
City to declare as unconstitutional Section 2, paragraph (g), Section 6, paragraphs (a) to (j), (l) and (m), Section 7,
paragraphs (a) and (b), and Sections 9 and 10 of the law, with a plea for the issuance of a temporary restraining order
and/or writ of preliminary injunction enjoining the respondents therein from enforcing the assailed provisions of the
law.

In a supplement to its petition, the ARCO-Phil. alleged that Rep. Act No. 8042 was self-executory and that no
implementing rules were needed. It prayed that the court issue a temporary restraining order to enjoin the
enforcement of Section 6, paragraphs (a) to (m) on illegal recruitment, Section 7 on penalties for illegal recruitment,
and Section 9 on venue of criminal actions for illegal recruitments, viz:

Viewed in the light of the foregoing discussions, there appears to be urgent an imperative need for this Honorable
Court to maintain the status quo by enjoining the implementation or effectivity of the questioned provisions of RA
8042, by way of a restraining order otherwise, the member recruitment agencies of the petitioner will suffer grave or
irreparable damage or injury. With the effectivity of RA 8042, a great majority of the duly licensed recruitment
agencies have stopped or suspended their operations for fear of being prosecuted under the provisions of a law that
are unjust and unconstitutional. This Honorable Court may take judicial notice of the fact that processing of
deployment papers of overseas workers for the past weeks have come to a standstill at the POEA and this has
affected thousands of workers everyday just because of the enactment of RA 8042. Indeed, this has far reaching
effects not only to survival of the overseas manpower supply industry and the active participating recruitment
agencies, the countrys economy which has survived mainly due to the dollar remittances of the overseas workers but
more importantly, to the poor and the needy who are in dire need of income-generating jobs which can only be
obtained from abroad. The loss or injury that the recruitment agencies will suffer will then be immeasurable and
irreparable. As of now, even foreign employers have already reduced their manpower requirements from the
Philippines due to their knowledge that RA 8042 prejudiced and adversely affected the local recruitment agencies. [3]

On August 1, 1995, the trial court issued a temporary restraining order effective for a period of only twenty
(20) days therefrom.

After the petitioners filed their comment on the petition, the ARCO-Phil. filed an amended petition, the
amendments consisting in the inclusion in the caption thereof eleven (11) other corporations which it alleged were
its members and which it represented in the suit, and a plea for a temporary restraining order enjoining the
respondents from enforcing Section 6 subsection (i), Section 6 subsection (k) and paragraphs 15 and 16 thereof,
Section 8, Section 10, paragraphs 1 and 2, and Sections 11 and 40 of Rep. Act No. 8042.

The respondent ARCO-Phil. assailed Section 2(g) and (i), Section 6 subsection (a) to (m), Section 7(a) to (b),
and Section 10 paragraphs (1) and (2), quoted as follows:

(g) THE STATE RECOGNIZES THAT THE ULTIMATE PROTECTION TO ALL MIGRANT WORKERS IS THE
POSSESSION OF SKILLS. PURSUANT TO THIS AND AS SOON AS PRACTICABLE, THE GOVERNMENT
SHALL DEPLOY AND/OR ALLOW THE DEPLOYMENT ONLY OF SKILLED FILIPINO WORKERS.[4]

Sec. 2 subsection (i, 2nd par.)

Nonetheless, the deployment of Filipino overseas workers, whether land-based or sea-based, by local service
contractors and manning agents employing them shall be encourages (sic). Appropriate incentives may be extended
to them.

II. ILLEGAL RECRUITMENT

SEC. 6. Definition. For purposes of this Act, illegal recruitment shall mean any act of canvassing, enlisting,
contracting, transporting, utilizing, hiring, or procuring workers and includes referring, contract services, promising
or advertising for employment abroad, whether for profit or not, when undertaken by a non-licensee or non-holder of
authority contemplated under Article 13(f) of Presidential Decree No. 442, as amended, otherwise known as the
Labor Code of the Philippines: Provided, That any such non-licensee or non-holder who, in any manner, offers or
promises for a fee employment abroad to two or more persons shall be deemed so engaged. It shall, likewise,
include the following acts, whether committed by any person, whether a non-licensee, non-holder, licensee or holder
of authority:

(a) To charge or accept directly or indirectly any amount greater than that specified in the schedule of allowable fees
prescribed by the Secretary of Labor and Employment, or to make a worker pay any amount greater than that
actually received by him as a loan or advance;

(b) To furnish or publish any false notice or information or document in relation to recruitment or employment;

(c) To give any false notice, testimony, information or document or commit any act of misrepresentation for the
purpose of securing a license or authority under the Labor Code;

(d) To induce or attempt to induce a worker already employed to quit his employment in order to offer him another
unless the transfer is designed to liberate a worker from oppressive terms and conditions of employment;
(e) To influence or attempt to influence any person or entity not to employ any worker who has not applied for
employment through his agency;

(f) To engage in the recruitment or placement of workers in jobs harmful to public health or morality or to the
dignity of the Republic of the Philippines;

(g) To obstruct or attempt to obstruct inspection by the Secretary of Labor and Employment or by his duly
authorized representative;

(h) To fail to submit reports on the status of employment, placement vacancies, remittance of foreign exchange
earnings, separation from jobs, departures and such other matters or information as may be required by the Secretary
of Labor and Employment;

(i) To substitute or alter to the prejudice of the worker, employment contracts approved and verified by the
Department of Labor and Employment from the time of actual signing thereof by the parties up to and including the
period of the expiration of the same without the approval of the Department of Labor and Employment;

(j) For an officer or agent of a recruitment or placement agency to become an officer or member of the Board of any
corporation engaged in travel agency or to be engaged directly or indirectly in the management of a travel agency;

(k) To withhold or deny travel documents from applicant workers before departure for monetary or financial
considerations other than those authorized under the Labor Code and its implementing rules and regulations;

(l) Failure to actually deploy without valid reason as determined by the Department of Labor and Employment; and

(m) Failure to reimburse expenses incurred by the worker in connection with his documentation and processing for
purposes of deployment, in cases where the deployment does not actually take place without the workers
fault. Illegal recruitment when committed by a syndicate or in large scale shall be considered an offense involving
economic sabotage.

Illegal recruitment is deemed committed by a syndicate if carried out by a group of three (3) or more persons
conspiring or confederating with one another. It is deemed committed in large scale if committed against three (3) or
more persons individually or as a group.

The persons criminally liable for the above offenses are the principals, accomplices and accessories. In case of
juridical persons, the officers having control, management or direction of their business shall be liable.

SEC. 7. Penalties.

(a) Any person found guilty of illegal recruitment shall suffer the penalty of imprisonment of not less than six (6)
years and one (1) day but not more than twelve (12) years and a fine of not less than two hundred thousand pesos
(P200,000.00) nor more than five hundred thousand pesos (P500,000.00).

(b) The penalty of life imprisonment and a fine of not less than five hundred thousand pesos (P500,000.00) nor more
than one million pesos (P1,000,000.00) shall be imposed if illegal recruitment constitutes economic sabotage as
defined herein.

Provided, however, That the maximum penalty shall be imposed if the person illegally recruited is less than eighteen
(18) years of age or committed by a non-licensee or non-holder of authority.

Sec. 8.

Prohibition on Officials and Employees. It shall be unlawful for any official or employee of the Department of Labor
and Employment, the Philippine Overseas Employment Administration (POEA), or the Overseas Workers Welfare
Administration (OWWA), or the Department of Foreign Affairs, or other government agencies involved in the
implementation of this Act, or their relatives within the fourth civil degree of consanguinity or affinity, to engage,
directly or indirectly, in the business of recruiting migrant workers as defined in this Act. The penalties provided in
the immediate preceding paragraph shall be imposed upon them. (underscoring supplied)

Sec. 10, pars. 1 & 2.

Money Claims. Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National Labor
Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and decide, within ninety
(90) calendar days after the filing of the complaint, the claims arising out of an employer-employee relationship or
by virtue of any law or contract involving Filipino workers for overseas deployment including claims for actual,
moral, exemplary and other forms of damages.

The liability of the principal/employer and the recruitment/placement agency for any and all claims under this
section shall be joint and several. This provision shall be incorporated in the contract for overseas employment and
shall be a condition precedent for its approval. The performance bond to be filed by the recruitment/placement
agency, as provided by law, shall be answerable for all money claims or damages that may be awarded to the
workers. If the recruitment/placement agency is a juridical being, the corporate officers and directors and partners as
the case may be, shall themselves be jointly and solidarily liable with the corporation or partnership for the aforesaid
claims and damages.

SEC. 11. Mandatory Periods for Resolution of Illegal Recruitment Cases. The preliminary investigations of cases
under this Act shall be terminated within a period of thirty (30) calendar days from the date of their filing.Where the
preliminary investigation is conducted by a prosecution officer and a prima facie case is established, the
corresponding information shall be filed in court within twenty-four (24) hours from the termination of the
investigation. If the preliminary investigation is conducted by a judge and a prima facie case is found to exist, the
corresponding information shall be filed by the proper prosecution officer within forty-eight (48) hours from the
date of receipt of the records of the case.

The respondent averred that the aforequoted provisions of Rep. Act No. 8042 violate Section 1, Article III of
the Constitution.[5] According to the respondent, Section 6(g) and (i) discriminated against unskilled workers and
their families and, as such, violated the equal protection clause, as well as Article II, Section 12 [6] and Article XV,
Sections 1[7] and 3(3) of the Constitution.[8] As the law encouraged the deployment of skilled Filipino workers, only
overseas skilled workers are granted rights. The respondent stressed that unskilled workers also have the right to
seek employment abroad. According to the respondent, the right of unskilled workers to due process is violated
because they are prevented from finding employment and earning a living abroad. It cannot be argued that skilled
workers are immune from abuses by employers, while unskilled workers are merely prone to such abuses.  It was
pointed out that both skilled and unskilled workers are subjected to abuses by foreign employers.  Furthermore, the
prohibition of the deployment of unskilled workers abroad would only encourage fly-by-night illegal recruiters.

According to the respondent, the grant of incentives to service contractors and manning agencies to the
exclusion of all other licensed and authorized recruiters is an invalid classification.Licensed and authorized
recruiters are thus deprived of their right to property and due process and to the equality of the person. It is
understandable for the law to prohibit illegal recruiters, but to discriminate against licensed and registered recruiters
is unconstitutional.

The respondent, likewise, alleged that Section 6, subsections (a) to (m) is unconstitutional because licensed and
authorized recruitment agencies are placed on equal footing with illegal recruiters. It contended that while the Labor
Code distinguished between recruiters who are holders of licenses and non-holders thereof in the imposition of
penalties, Rep. Act No. 8042 does not make any distinction. The penalties in Section 7(a) and (b) being based on an
invalid classification are, therefore, repugnant to the equal protection clause, besides being excessive; hence, such
penalties are violative of Section 19(1), Article III of the Constitution. [9] It was also pointed out that the penalty for
officers/officials/employees of recruitment agencies who are found guilty of economic sabotage or large-scale illegal
recruitment under Rep. Act No. 8042 is life imprisonment. Since recruitment agencies usually operate with a
manpower of more than three persons, such agencies are forced to shut down, lest their officers and/or employees be
charged with large scale illegal recruitment or economic sabotage and sentenced to life imprisonment. Thus, the
penalty imposed by law, being disproportionate to the prohibited acts, discourages the business of licensed and
registered recruitment agencies.

The respondent also posited that Section 6(m) and paragraphs (15) and (16), Sections 8, 9 and 10, paragraph 2
of the law violate Section 22, Article III of the Constitution [10] prohibiting ex-post facto laws and bills of
attainder. This is because the provisions presume that a licensed and registered recruitment agency is guilty of illegal
recruitment involving economic sabotage, upon a finding that it committed any of the prohibited acts under the
law. Furthermore, officials, employees and their relatives are presumed guilty of illegal recruitment involving
economic sabotage upon such finding that they committed any of the said prohibited acts.

The respondent further argued that the 90-day period in Section 10, paragraph (1) within which a labor arbiter
should decide a money claim is relatively short, and could deprive licensed and registered recruiters of their right to
due process. The period within which the summons and the complaint would be served on foreign employees and,
thereafter, the filing of the answer to the complaint would take more than 90 days.  This would thereby shift on local
licensed and authorized recruiters the burden of proving the defense of foreign employers.  Furthermore, the
respondent asserted, Section 10, paragraph 2 of the law, which provides for the joint and several liability of the
officers and employees, is a bill of attainder and a violation of the right of the said corporate officers and employees
to due process. Considering that such corporate officers and employees act with prior approval of the board of
directors of such corporation, they should not be liable, jointly and severally, for such corporate acts.

The respondent asserted that the following provisions of the law are unconstitutional:

SEC. 9. Venue. A criminal action arising from illegal recruitment as defined herein shall be filed with the Regional
Trial Court of the province or city where the offense was committed or where the offended party actually resides at
the time of the commission of the offense: Provided, That the court where the criminal action is first filed shall
acquire jurisdiction to the exclusion of other courts: Provided, however, That the aforestated provisions shall also
apply to those criminal actions that have already been filed in court at the time of the effectivity of this Act.

SEC. 10. Money Claims. Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National
Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and decide, within
ninety (90) calendar days after the filing of the complaint, the claims arising out of an employer-employee
relationship or by virtue of any law or contract involving Filipino workers for overseas deployment including claims
for actual, moral, exemplary and other forms of damages.

Sec. 40.

The departments and agencies charged with carrying out the provisions of this Act shall, within ninety (90) days
after the effectiviy of this Act, formulate the necessary rules and regulations for its effective implementation.

According to the respondent, the said provisions violate Section 5(5), Article VIII of the
Constitution[11] because they impair the power of the Supreme Court to promulgate rules of procedure.

In their answer to the petition, the petitioners alleged, inter alia, that (a) the respondent has no cause of action
for a declaratory relief; (b) the petition was premature as the rules implementing Rep. Act No. 8042 not having been
released as yet; (c) the assailed provisions do not violate any provisions of the Constitution; and, (d) the law was
approved by Congress in the exercise of the police power of the State. In opposition to the respondents plea for
injunctive relief, the petitioners averred that:

As earlier shown, the amended petition for declaratory relief is devoid of merit for failure of petitioner to
demonstrate convincingly that the assailed law is unconstitutional, apart from the defect and impropriety of the
petition.One who attacks a statute, alleging unconstitutionality must prove its invalidity beyond reasonable doubt
(Caleon v. Agus Development Corporation, 207 SCRA 748). All reasonable doubts should be resolved in favor of
the constitutionality of a statute (People v. Vera, 65 Phil. 56). This presumption of constitutionality is based on the
doctrine of separation of powers which enjoin upon each department a becoming respect for the acts of the other
departments (Garcia vs. Executive Secretary, 204 SCRA 516 [1991]). Necessarily, the ancillary remedy of a
temporary restraining order and/or a writ of preliminary injunction prayed for must fall. Besides, an act of legislature
approved by the executive is presumed to be within constitutional bounds (National Press Club v. Commission on
Elections, 207 SCRA 1).[12]

After the respective counsels of the parties were heard on oral arguments, the trial court issued on August 21,
1995, an order granting the petitioners plea for a writ of preliminary injunction upon a bond of P50,000. The
petitioner posted the requisite bond and on August 24, 1995, the trial court issued a writ of preliminary injunction
enjoining the enforcement of the following provisions of Rep. Act No. 8042 pending the termination of the
proceedings:

Section 2, subsections (g) and (i, 2nd par.); Section 6, subsections (a) to (m), and pars. 15 & 16; Section 7,
subsections (a) & (b); Section 8; Section 9; Section 10; pars. 1 & 2; Section 11; and Section 40 of Republic Act No.
8042, otherwise known as the Migrant Workers and Overseas Filipinos Act of 1995. [13]

The petitioners filed a petition for certiorari with the Court of Appeals assailing the order and the writ of
preliminary injunction issued by the trial court on the following grounds:

1. Respondent ARCO-PHIL. had utterly failed to show its clear right/s or that of its member-agencies to be protected
by the injunctive relief and/or violation of said rights by the enforcement of the assailed sections of R.A. 8042;

2. Respondent Judge fixed a P50,000 injunction bond which is grossly inadequate to answer for the damage which
petitioner-officials may sustain, should respondent ARCO-PHIL. be finally adjudged as not being entitled thereto. [14]

The petitioners asserted that the respondent is not the real party-in-interest as petitioner in the trial court.  It is
inconceivable how the respondent, a non-stock and non-profit corporation, could sustain direct injury as a result of
the enforcement of the law. They argued that if, at all, any damage would result in the implementation of the law, it
is the licensed and registered recruitment agencies and/or the unskilled Filipino migrant workers discriminated
against who would sustain the said injury or damage, not the respondent. The respondent, as petitioner in the trial
court, was burdened to adduce preponderant evidence of such irreparable injury, but failed to do so.  The petitioners
further insisted that the petition a quo was premature since the rules and regulations implementing the law had yet to
be promulgated when such petition was filed. Finally, the petitioners averred that the respondent failed to establish
the requisites for the issuance of a writ of preliminary injunction against the enforcement of the law and the rules
and regulations issued implementing the same.

On December 5, 1997, the appellate court came out with a four-page decision dismissing the petition and
affirming the assailed order and writ of preliminary injunction issued by the trial court. The appellate court,
likewise, denied the petitioners motion for reconsideration of the said decision.

The petitioners now come to this Court in a petition for review on certiorari on the following grounds:

1. Private respondent ARCO-PHIL. had utterly failed to show its clear right/s or that of its member-agencies to be
protected by the injunctive relief and/or violation of said rights by the enforcement of the assailed sections of R.A.
8042;

2. The P50,000 injunction bond fixed by the court a quo and sustained by the Court of Appeals is grossly inadequate
to answer for the damage which petitioners-officials may sustain, should private respondent ARCO-PHIL. be finally
adjudged as not being entitled thereto.[15]

On February 16, 1998, this Court issued a temporary restraining order enjoining the respondents from
enforcing the assailed order and writ of preliminary injunction.
 The Issues

The core issue in this case is whether or not the trial court committed grave abuse of its discretion amounting
to excess or lack of jurisdiction in issuing the assailed order and the writ of preliminary injunction on a bond of
only P50,000 and whether or not the appellate court erred in affirming the trial courts order and the writ of
preliminary injunction issued by it.

The petitioners contend that the respondent has no locus standi. It is a non-stock, non-profit organization;
hence, not the real party-in-interest as petitioner in the action. Although the respondent filed the petition in the
Regional Trial Court in behalf of licensed and registered recruitment agencies, it failed to adduce in evidence a
certified copy of its Articles of Incorporation and the resolutions of the said members authorizing it to represent the
said agencies in the proceedings. Neither is the suit of the respondent a class suit so as to vest in it a personality to
assail Rep. Act No. 8042; the respondent is service-oriented while the recruitment agencies it purports to represent
are profit-oriented. The petitioners assert that the law is presumed constitutional and, as such, the respondent was
burdened to make a case strong enough to overcome such presumption and establish a clear right to injunctive relief.

The petitioners bewail the P50,000 bond fixed by the trial court for the issuance of a writ of preliminary
injunction and affirmed by the appellate court. They assert that the amount is grossly inadequate to answer for any
damages that the general public may suffer by reason of the non-enforcement of the assailed provisions of the
law. The trial court committed a grave abuse of its discretion in granting the respondents plea for injunctive relief,
and the appellate court erred in affirming the order and the writ of preliminary injunction issued by the trial court.

The respondent, for its part, asserts that it has duly established its locus standi and its right to injunctive relief
as gleaned from its pleadings and the appendages thereto. Under Section 5, Rule 58 of the Rules of Court, it was
incumbent on the petitioners, as respondents in the RTC, to show cause why no injunction should issue. It avers that
the injunction bond posted by the respondent was more than adequate to answer for any injury or damage the
petitioners may suffer, if any, by reason of the writ of preliminary injunction issued by the RTC.  In any event, the
assailed provisions of Rep. Act No. 8042 exposed its members to the immediate and irreparable damage of being
deprived of their right to a livelihood without due process, a property right protected under the Constitution.

The respondent contends that the commendable purpose of the law to eradicate illegal recruiters should not be
done at the expense and to the prejudice of licensed and authorized recruitment agencies. The writ of preliminary
injunction was necessitated by the great number of duly licensed recruitment agencies that had stopped or suspended
their business operations for fear that their officers and employees would be indicted and prosecuted under the
assailed oppressive penal provisions of the law, and meted excessive penalties. The respondent, likewise, urges that
the Court should take judicial notice that the processing of deployment papers of overseas workers have come to a
virtual standstill at the POEA.

The Courts Ruling

The petition is meritorious.

The Respondent Has Locus Standi

To File the Petition in the RTC in
Representation of the Eleven
Licensed and Registered
Recruitment Agencies Impleaded
in the Amended Petition

The modern view is that an association has standing to complain of injuries to its members. This view fuses the
legal identity of an association with that of its members. [16] An association has standing to file suit for its workers
despite its lack of direct interest if its members are affected by the action. An organization has standing to assert the
concerns of its constituents.[17]

In Telecommunications and Broadcast Attorneys of the Philippines v. Commission on Elections,[18] we held that
standing jus tertii would be recognized only if it can be shown that the party suing has some substantial relation to
the third party, or that the right of the third party would be diluted unless the party in court is allowed to espouse the
third partys constitutional claims.

In this case, the respondent filed the petition for declaratory relief under Rule 64 of the Rules of Court for and
in behalf of its eleven (11) licensed and registered recruitment agencies which are its members, and which approved
separate resolutions expressly authorizing the respondent to file the said suit for and in their behalf. We note that,
under its Articles of Incorporation, the respondent was organized for the purposes inter alia of promoting and
supporting the growth and development of the manpower recruitment industry, both in the local and international
levels; providing, creating and exploring employment opportunities for the exclusive benefit of its general
membership; enhancing and promoting the general welfare and protection of Filipino workers; and, to act as the
representative of any individual, company, entity or association on matters related to the manpower recruitment
industry, and to perform other acts and activities necessary to accomplish the purposes embodied therein. The
respondent is, thus, the appropriate party to assert the rights of its members, because it and its members are in every
practical sense identical. The respondent asserts that the assailed provisions violate the constitutional rights of its
members and the officers and employees thereof. The respondent is but the medium through which its individual
members seek to make more effective the expression of their voices and the redress of their grievances. [19]

However, the respondent has no locus standi to file the petition for and in behalf of unskilled workers. We note
that it even failed to implead any unskilled workers in its petition. Furthermore, in failing to implead, as parties-
petitioners, the eleven licensed and registered recruitment agencies it claimed to represent, the respondent failed to
comply with Section 2 of Rule 63[20] of the Rules of Court. Nevertheless, since the eleven licensed and registered
recruitment agencies for which the respondent filed the suit are specifically named in the petition, the amended
petition is deemed amended to avoid multiplicity of suits.[21]

The Assailed Order and Writ of

Preliminary Injunction Is Mooted
By Case Law

The respondent justified its plea for injunctive relief on the allegation in its amended petition that its members
are exposed to the immediate and irreparable danger of being deprived of their right to a livelihood and other
constitutional rights without due process, on its claim that a great number of duly licensed recruitment agencies have
stopped or suspended their operations for fear that (a) their officers and employees would be prosecuted under the
unjust and unconstitutional penal provisions of Rep. Act No. 8042 and meted equally unjust and excessive penalties,
including life imprisonment, for illegal recruitment and large scale illegal recruitment without regard to whether the
recruitment agencies involved are licensed and/or authorized; and, (b) if the members of the respondent, which are
licensed and authorized, decide to continue with their businesses, they face the stigma and the curse of being labeled
illegal recruiters. In granting the respondents plea for a writ of preliminary injunction, the trial court held, without
stating the factual and legal basis therefor, that the enforcement of Rep. Act No. 8042, pendente lite, would cause
grave and irreparable injury to the respondent until the case is decided on its merits.

We note, however, that since Rep. Act No. 8042 took effect on July 15, 1995, the Court had, in a catena of
cases, applied the penal provisions in Section 6, including paragraph (m) thereof, and the last two paragraphs therein
defining large scale illegal recruitment committed by officers and/or employees of recruitment agencies by
themselves and in connivance with private individuals, and imposed the penalties provided in Section 7 thereof,
including the penalty of life imprisonment.[22] The Informations therein were filed after preliminary investigations as
provided for in Section 11 of Rep. Act No. 8042 and in venues as provided for in Section 9 of the said act. In People
v. Chowdury,[23] we held that illegal recruitment is a crime of economic sabotage and must be enforced.

In People v. Diaz,[24] we held that Rep. Act No. 8042 is but an amendment of the Labor Code of the Philippines
and is not an ex-post facto law because it is not applied retroactively. In JMM Promotion and Management, Inc. v.
Court of Appeals,[25] the issue of the extent of the police power of the State to regulate a business, profession or
calling vis--vis the equal protection clause and the non-impairment clause of the Constitution were raised and we
held, thus:

A profession, trade or calling is a property right within the meaning of our constitutional guarantees. One cannot be
deprived of the right to work and the right to make a living because these rights are property rights, the arbitrary and
unwarranted deprivation of which normally constitutes an actionable wrong.

Nevertheless, no right is absolute, and the proper regulation of a profession, calling, business or trade has always
been upheld as a legitimate subject of a valid exercise of the police power by the state particularly when their
conduct affects either the execution of legitimate governmental functions, the preservation of the State, the public
health and welfare and public morals. According to the maxim, sic utere tuo ut alienum non laedas, it must of course
be within the legitimate range of legislative action to define the mode and manner in which every one may so use his
own property so as not to pose injury to himself or others.

In any case, where the liberty curtailed affects at most the rights of property, the permissible scope of regulatory
measures is certainly much wider. To pretend that licensing or accreditation requirements violates the due process
clause is to ignore the settled practice, under the mantle of the police power, of regulating entry to the practice of
various trades or professions. Professionals leaving for abroad are required to pass rigid written and practical exams
before they are deemed fit to practice their trade. Seamen are required to take tests determining their
seamanship. Locally, the Professional Regulation Commission has begun to require previously licensed doctors and
other professionals to furnish documentary proof that they had either re-trained or had undertaken continuing
education courses as a requirement for renewal of their licenses. It is not claimed that these requirements pose an
unwarranted deprivation of a property right under the due process clause. So long as professionals and other workers
meet reasonable regulatory standards no such deprivation exists.

Finally, it is a futile gesture on the part of petitioners to invoke the non-impairment clause of the Constitution to
support their argument that the government cannot enact the assailed regulatory measures because they abridge the
freedom to contract. In Philippine Association of Service Exporters, Inc. vs. Drilon, we held that [t]he non-
impairment clause of the Constitution must yield to the loftier purposes targeted by the government. Equally
important, into every contract is read provisions of existing law, and always, a reservation of the police power for so
long as the agreement deals with a subject impressed with the public welfare.

A last point. Petitioners suggest that the singling out of entertainers and performing artists under the assailed
department orders constitutes class legislation which violates the equal protection clause of the Constitution. We do
not agree.

The equal protection clause is directed principally against undue favor and individual or class privilege. It is not
intended to prohibit legislation which is limited to the object to which it is directed or by the territory in which it is
to operate. It does not require absolute equality, but merely that all persons be treated alike under like conditions
both as to privileges conferred and liabilities imposed. We have held, time and again, that the equal protection clause
of the Constitution does not forbid classification for so long as such classification is based on real and substantial
differences having a reasonable relation to the subject of the particular legislation. If classification is germane to the
purpose of the law, concerns all members of the class, and applies equally to present and future conditions, the
classification does not violate the equal protection guarantee. [26]

The validity of Section 6 of R.A. No. 8042 which provides that employees of recruitment agencies may be
criminally liable for illegal recruitment has been upheld in People v. Chowdury:[27]

As stated in the first sentence of Section 6 of RA 8042, the persons who may be held liable for illegal recruitment
are the principals, accomplices and accessories. An employee of a company or corporation engaged in illegal
recruitment may be held liable as principal, together with his employer, if it is shown that he actively and
consciously participated in illegal recruitment. It has been held that the existence of the corporate entity does not
shield from prosecution the corporate agent who knowingly and intentionally causes the corporation to commit a
crime. The corporation obviously acts, and can act, only by and through its human agents, and it is their conduct
which the law must deter. The employee or agent of a corporation engaged in unlawful business naturally aids and
abets in the carrying on of such business and will be prosecuted as principal if, with knowledge of the business, its
purpose and effect, he consciously contributes his efforts to its conduct and promotion, however slight his
contribution may be. [28]

By its rulings, the Court thereby affirmed the validity of the assailed penal and procedural provisions of Rep.
Act No. 8042, including the imposable penalties therefor. Until the Court, by final judgment, declares that the said
provisions are unconstitutional, the enforcement of the said provisions cannot be enjoined.

The RTC Committed Grave Abuse

of Its Discretion Amounting to
Excess or Lack of Jurisdiction in
Issuing the Assailed Order and the
Writ of Preliminary Injunction

The matter of whether to issue a writ of preliminary injunction or not is addressed to the sound discretion of
the trial court. However, if the court commits grave abuse of its discretion in issuing the said writ amounting to
excess or lack of jurisdiction, the same may be nullified via a writ of certiorari and prohibition.

In Social Security Commission v. Judge Bayona,[29] we ruled that a law is presumed constitutional until
otherwise declared by judicial interpretation. The suspension of the operation of the law is a matter of extreme
delicacy because it is an interference with the official acts not only of the duly elected representatives of the people
but also of the highest magistrate of the land.

In Younger v. Harris, Jr.,[30] the Supreme Court of the United States emphasized, thus:

Federal injunctions against state criminal statutes, either in their entirety or with respect to their separate and distinct
prohibitions, are not to be granted as a matter of course, even if such statutes are unconstitutional. No citizen or
member of the community is immune from prosecution, in good faith, for his alleged criminal acts. The imminence
of such a prosecution even though alleged to be unauthorized and, hence, unlawful is not alone ground for relief in
equity which exerts its extraordinary powers only to prevent irreparable injury to the plaintiff who seeks its aid. 752
Beal v. Missouri Pacific Railroad Corp., 312 U.S. 45, 49, 61 S.Ct. 418, 420, 85 L.Ed. 577.

And similarly, in Douglas, supra, we made clear, after reaffirming this rule, that:

It does not appear from the record that petitioners have been threatened with any injury other than that incidental to
every criminal proceeding brought lawfully and in good faith 319 U.S., at 164, 63 S.Ct., at 881.[31]
 The possible unconstitutionality of a statute, on its face, does not of itself justify an injunction against good
faith attempts to enforce it, unless there is a showing of bad faith, harassment, or any other unusual circumstance
that would call for equitable relief. [32] The on its face invalidation of statutes has been described as manifestly strong
medicine, to be employed sparingly and only as a last resort, and is generally disfavored.[33]

To be entitled to a preliminary injunction to enjoin the enforcement of a law assailed to be unconstitutional, the
party must establish that it will suffer irreparable harm in the absence of injunctive relief and must demonstrate
that it is likely to succeed on the merits, or that there are sufficiently serious questions going to the merits and the
balance of hardships tips decidedly in its favor.[34] The higher standard reflects judicial deference toward legislation
or regulations developed through presumptively reasoned democratic processes. Moreover, an injunction will alter,
rather than maintain, the status quo, or will provide the movant with substantially all the relief sought and that relief
cannot be undone even if the defendant prevails at a trial on the merits. [35] Considering that injunction is an exercise
of equitable relief and authority, in assessing whether to issue a preliminary injunction, the courts must sensitively
assess all the equities of the situation, including the public interest.[36] In litigations between governmental and
private parties, courts go much further both to give and withhold relief in furtherance of public interest than they are
accustomed to go when only private interests are involved. [37] Before the plaintiff may be entitled to injunction
against future enforcement, he is burdened to show some substantial hardship. [38]

The fear or chilling effect of the assailed penal provisions of the law on the members of the respondent does
not by itself justify prohibiting the State from enforcing them against those whom the State believes in good faith to
be punishable under the laws:

Just as the incidental chilling effect of such statutes does not automatically render them unconstitutional, so the
chilling effect that admittedly can result from the very existence of certain laws on the statute books does not in
itself justify prohibiting the State from carrying out the important and necessary task of enforcing these laws against
socially harmful conduct that the State believes in good faith to be punishable under its laws and the Constitution. [39]

It must be borne in mind that subject to constitutional limitations, Congress is empowered to define what acts
or omissions shall constitute a crime and to prescribe punishments therefor. [40]The power is inherent in Congress and
is part of the sovereign power of the State to maintain peace and order. Whatever views may be entertained
regarding the severity of punishment, whether one believes in its efficiency or its futility, these are peculiarly
questions of legislative policy.[41] The comparative gravity of crimes and whether their consequences are more or
less injurious are matters for the State and Congress itself to determine. [42] Specification of penalties involves
questions of legislative policy.[43]

Due process prohibits criminal stability from shifting the burden of proof to the accused, punishing wholly
passive conduct, defining crimes in vague or overbroad language and failing to grant fair warning of illegal conduct.
[44]
 Class legislation is such legislation which denies rights to one which are accorded to others, or inflicts upon one
individual a more severe penalty than is imposed upon another in like case offending. [45] Bills of attainder are
legislative acts which inflict punishment on individuals or members of a particular group without a judicial
trial. Essential to a bill of attainder are a specification of certain individuals or a group of individuals, the imposition
of a punishment, penal or otherwise, and the lack of judicial trial.[46]

Penalizing unlicensed and licensed recruitment agencies and their officers and employees and their relatives
employed in government agencies charged with the enforcement of the law for illegal recruitment and imposing life
imprisonment for those who commit large scale illegal recruitment is not offensive to the Constitution. The accused
may be convicted of illegal recruitment and large scale illegal recruitment only if, after trial, the prosecution is able
to prove all the elements of the crime charged.[47]

The possibility that the officers and employees of the recruitment agencies, which are members of the
respondent, and their relatives who are employed in the government agencies charged in the enforcement of the law,
would be indicted for illegal recruitment and, if convicted sentenced to life imprisonment for large scale illegal
recruitment, absent proof of irreparable injury, is not sufficient on which to base the issuance of a writ of preliminary
injunction to suspend the enforcement of the penal provisions of Rep. Act No. 8042 and avert any indictments under
the law.[48] The normal course of criminal prosecutions cannot be blocked on the basis of allegations which amount
to speculations about the future.[49]

There is no allegation in the amended petition or evidence adduced by the respondent that the officers and/or
employees of its members had been threatened with any indictments for violations of the penal provisions of Rep.
Act No. 8042. Neither is there any allegation therein that any of its members and/or their officers and employees
committed any of the acts enumerated in Section 6(a) to (m) of the law for which they could be indicted. Neither did
the respondent adduce any evidence in the RTC that any or all of its members or a great number of other duly
licensed and registered recruitment agencies had to stop their business operations because of fear of indictments
under Sections 6 and 7 of Rep. Act No. 8042. The respondent merely speculated and surmised that licensed and
registered recruitment agencies would close shop and stop business operations because of the assailed penal
provisions of the law. A writ of preliminary injunction to enjoin the enforcement of penal laws cannot be based on
such conjectures or speculations. The Court cannot take judicial notice that the processing of deployment papers of
overseas workers have come to a virtual standstill at the POEA because of the assailed provisions of Rep. Act No.
8042. The respondent must adduce evidence to prove its allegation, and the petitioners accorded a chance to adduce
controverting evidence.

The respondent even failed to adduce any evidence to prove irreparable injury because of the enforcement of
Section 10(1)(2) of Rep. Act No. 8042. Its fear or apprehension that, because of time constraints, its members would
have to defend foreign employees in cases before the Labor Arbiter is based on speculations. Even if true, such
inconvenience or difficulty is hardly irreparable injury.

The trial court even ignored the public interest involved in suspending the enforcement of Rep. Act No.
8042 vis--vis the eleven licensed and registered recruitment agencies represented by the respondent. In People v.
Gamboa,[50] we emphasized the primary aim of Rep. Act No. 8042:

Preliminarily, the proliferation of illegal job recruiters and syndicates preying on innocent people anxious to obtain
employment abroad is one of the primary considerations that led to the enactment of The Migrant Workers and
Overseas Filipinos Act of 1995. Aimed at affording greater protection to overseas Filipino workers, it is a significant
improvement on existing laws in the recruitment and placement of workers for overseas employment. Otherwise
known as the Magna Carta of OFWs, it broadened the concept of illegal recruitment under the Labor Code and
provided stiffer penalties thereto, especially those that constitute economic sabotage, i.e., Illegal Recruitment in
Large Scale and Illegal Recruitment Committed by a Syndicate.[51]

By issuing the writ of preliminary injunction against the petitioners sans any evidence, the trial court
frustrated, albeit temporarily, the prosecution of illegal recruiters and allowed them to continue victimizing hapless
and innocent people desiring to obtain employment abroad as overseas workers, and blocked the attainment of the
salutary policies[52] embedded in Rep. Act No. 8042. It bears stressing that overseas workers, land-based and sea-
based, had been remitting to the Philippines billions of dollars which over the years had propped the economy.

In issuing the writ of preliminary injunction, the trial court considered paramount the interests of the eleven
licensed and registered recruitment agencies represented by the respondent, and capriciously overturned the
presumption of the constitutionality of the assailed provisions on the barefaced claim of the respondent that the
assailed provisions of Rep. Act No. 8042 are unconstitutional. The trial court committed a grave abuse of its
discretion amounting to excess or lack of jurisdiction in issuing the assailed order and writ of preliminary
injunction. It is for this reason that the Court issued a temporary restraining order enjoining the enforcement of the
writ of preliminary injunction issued by the trial court.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed decision of the appellate
court is REVERSED AND SET ASIDE. The Order of the Regional Trial Court dated August 21, 1995 in Civil Case
No. Q-95-24401 and the Writ of Preliminary Injunction issued by it in the said case on August 24, 1995 are
NULLIFIED. No costs.

SO ORDERED.

EN BANC

[G.R. No. 32652. March 15, 1930.]

THE PEOPLE OF THE PHILIPPINE ISLANDS, Plaintiff-Appellant, v. TAN BOON KONG, Defendant-

Appellee. 

Attorney-General Jaranilla, for Appellant. 

Alejandro de Aboitiz Pinaga, for Appellee. 

SYLLABUS

1. CORPORATIONS; LIABILITY OF OFFICERS AND AGENTS. — A corporation can act only through its
officers and agents, and where the business itself involves a violation of the law, the correct rule is that all who
participate in it are liable. 

2. ID.; ID.; CRIMINAL LIABILITY. — The manager of a corporation who fails to make true return of the
corporation’s receipts and sales in violation of sections 1458 and 2723 of the Administrative Code, may be held
criminally liable.

DECISION

OSTRAND, J.:

This is an appeal from an order of the Judge of the Twenty-third Judicial District sustaining a demurrer to an
information charging the defendant Tan Boon Kong with the violation of section 1458 of Act No. 2711 as amended.
The information reads as follows:jgc:chanrobles.com.ph

"That on and during the four quarters of the year 1924, in the municipality of Iloilo, Province of Iloilo, Philippine
Islands, the said accused, as manager of the Visayan General Supply Co., Inc., a corporation organized under the
laws of the Philippine Islands and engaged in the purchase and sale of sugar, ’bayon,’ coprax, and other native
products and as such subject to the payment of internal-revenue taxes upon its sales, did then and there voluntarily,
illegally, and criminally declare in 1924 for the purpose of taxation only the sum of P2,352,761.94, when in truth
and in fact, and the accused well knew that the total gross sales of said corporation during that year amounted to
P2,543,303.44, thereby failing to declare for the purpose of taxation the amount of P190,541.50, and voluntarily and
illegally not paying the Government as internal-revenue percentage taxes the sum of P2,960.12, corresponding to 1½
per cent of said undeclared sales."cralaw virtua1aw library

The question to be decided is whether the information sets forth facts rendering the defendant, as manager of the
corporation liable criminally under section 2723 of the Act No. 2711 for violation of section 1458 of the same Act
for the benefit of said corporation. Sections 1458 and 2723 read as follows:jgc:chanrobles.com.ph

"SEC. 1458. Payment of percentage taxes — Quarterly report of earnings. — The percentage taxes on business shall
be payable at the end of each calendar quarter in the amount lawfully due on the business transacted during each
quarter; and it shall be the duty of every person conducting a business subject to such tax, within the same period as
is allowed for the payment of the quarterly installments of the fixed taxes without penalty, to make a true and
complete return of the amount of the receipts or earnings of his business during the preceding quarter and pay the
tax due thereon. . . ." (Act No. 2711.) 

"SEC. 2723. Failure to make true return of receipts and sales. — Any person who, being required by law to make a
return of the amount of his receipts, sales, or business, shall fail or neglect to make such return within the time
required, shall be punished by a fine not exceeding two thousand pesos or by imprisonment for a term not exceeding
one year, or both. 

"And any such person who shall make a false or fraudulent return shall be punished by a fine not exceeding ten
thousand pesos or by imprisonment for a term not exceeding two years, or both." (Act No. 2711.) 

Apparently, the court below based the appealed ruling on the ground that the offense charged must be regarded as
committed by the corporation and not by its officials or agents. This view is in direct conflict with the great weight
of authority. A corporation can act only through its officers and agents, and where the business itself involves a
violation of the law, the correct rule is that all who participate in it are liable (Grall and Ostrander’s Case, 103 Va.,
855, and authorities there cited). 

In case of State v. Burnam (71 Wash., 199), the court went so far as to hold that the manager of a dairy corporation
was criminally liable for the violation of a statute by the corporation though he was not present when the offense
was committed. 

In the present case the information or complaint alleges that the defendant was the manager of a corporation which
was engaged in business as a merchant, and as such manager, he made a false return, for purposes of taxation, of the
total amount of sales made by said corporation during the year 1924. As the filing of such false return constitutes a
violation of law, the defendant, as the author of the illegal act, must necessarily answer for its consequences,
provided that the allegations are proven. 

The ruling of the court below sustaining the demurrer to the complaint is therefore reversed, and the case will be
returned to said court for further proceedings not inconsistent with our view as hereinbefore stated. Without costs.
So ordered. 

Johnson, Malcolm, Villamor, Johns, Romualdez and Villa-Real, JJ., concur.

G. R. No. 164317             February 6, 2006

ALFREDO CHING, Petitioner, 
vs.
THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOS-VILLAVERT, JUDGE
EDGARDO SUDIAM of the Regional Trial Court, Manila, Branch 52; RIZAL COMMERCIAL BANKING
CORP. and THE PEOPLE OF THE PHILIPPINES, Respondents.

DECISION

CALLEJO, SR., J.:

Before the Court is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. SP
No. 57169 dismissing the petition for certiorari, prohibition and mandamus filed by petitioner Alfredo Ching, and its
Resolution2 dated June 28, 2004 denying the motion for reconsideration thereof.

Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime in September to
October 1980, PBMI, through petitioner, applied with the Rizal Commercial Banking Corporation (respondent bank)
for the issuance of commercial letters of credit to finance its importation of assorted goods. 3

Respondent bank approved the application, and irrevocable letters of credit were issued in favor of petitioner. The
goods were purchased and delivered in trust to PBMI. Petitioner signed 13 trust receipts4 as surety, acknowledging
delivery of the following goods:

T/R Nos. Date Granted Maturity Date Principal Description of Goods

1845 12-05-80 03-05-81 P1,596,470.05 79.9425 M/T "SDK" Brand

Synthetic Graphite Electrode

1853 12-08-80 03-06-81 P198,150.67 3,000 pcs. (15 bundles)

Calorized Lance Pipes

1824 11-28-80 02-26-81 P707,879.71 One Lot High Fired Refractory

Tundish Bricks

1798 11-21-80 02-19-81 P835,526.25 5 cases spare parts for CCM

1808 11-21-80 02-19-81 P370,332.52 200 pcs. ingot moulds

2042 01-30-81 04-30-81 P469,669.29 High Fired Refractory Nozzle

Bricks

1801 11-21-80 02-19-81 P2,001,715.17 Synthetic Graphite Electrode

[with] tapered pitch filed nipples

1857 12-09-80 03-09-81 P197,843.61 3,000 pcs. (15 bundles calorized

lance pipes [)]

1895 12-17-80 03-17-81 P67,652.04 Spare parts for

Spectrophotometer

1911 12-22-80 03-20-81 P91,497.85 50 pcs. Ingot moulds

2041 01-30-81 04-30-81 P91,456.97 50 pcs. Ingot moulds

2099 02-10-81 05-11-81 P66,162.26 8 pcs. Kubota Rolls for rolling

mills

2100 02-10-81 05-12-81 P210,748.00 Spare parts for Lacolaboratory

Equipment5

Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to sell but not by way
of conditional sale, pledge or otherwise; and in case such goods were sold, to turn over the proceeds thereof as soon
as received, to apply against the relative acceptances and payment of other indebtedness to respondent bank. In case
the goods remained unsold within the specified period, the goods were to be returned to respondent bank without
any need of demand. Thus, said "goods, manufactured products or proceeds thereof, whether in the form of money
or bills, receivables, or accounts separate and capable of identification" were respondent bank’s property.

When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to return their value
amounting to ₱6,940,280.66 despite demands. Thus, the bank filed a criminal complaint for estafa6 against
petitioner in the Office of the City Prosecutor of Manila.

After the requisite preliminary investigation, the City Prosecutor found probable cause estafa under Article 315,
paragraph 1(b) of the Revised Penal Code, in relation to Presidential Decree (P.D.) No. 115, otherwise known as the
Trust Receipts Law. Thirteen (13) Informations were filed against the petitioner before the Regional Trial Court
(RTC) of Manila. The cases were docketed as Criminal Cases No. 86-42169 to 86-42181, raffled to Branch 31 of
said court.

Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The appeal was dismissed in
a Resolution7 dated March 17, 1987, and petitioner moved for its reconsideration. On December 23, 1987, the
Minister of Justice granted the motion, thus reversing the previous resolution finding probable cause against
petitioner.8 The City Prosecutor was ordered to move for the withdrawal of the Informations.

This time, respondent bank filed a motion for reconsideration, which, however, was denied on February 24,
1988.9The RTC, for its part, granted the Motion to Quash the Informations filed by petitioner on the ground that the
material allegations therein did not amount to estafa.10

In the meantime, the Court rendered judgment in Allied Banking Corporation v. Ordoñez, 11 holding that the penal
provision of P.D. No. 115 encompasses any act violative of an obligation covered by the trust receipt; it is not
limited to transactions involving goods which are to be sold (retailed), reshipped, stored or processed as a
component of a product ultimately sold. The Court also ruled that "the non-payment of the amount covered by a
trust receipt is an act violative of the obligation of the entrustee to pay."12

On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against petitioner before the Office
of the City Prosecutor of Manila. The case was docketed as I.S. No. 95B-07614.

Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that there was no probable cause
to charge petitioner with violating P.D. No. 115, as petitioner’s liability was only civil, not criminal, having signed
the trust receipts as surety.13 Respondent bank appealed the resolution to the Department of Justice (DOJ) via
petition for review, alleging that the City Prosecutor erred in ruling:

1. That there is no evidence to show that respondent participated in the misappropriation of the goods
subject of the trust receipts;

2. That the respondent is a mere surety of the trust receipts; and

3. That the liability of the respondent is only civil in nature.14

On July 13, 1999, the Secretary of Justice issued Resolution No. 25015 granting the petition and reversing the
assailed resolution of the City Prosecutor. According to the Justice Secretary, the petitioner, as Senior Vice-President
of PBMI, executed the 13 trust receipts and as such, was the one responsible for the offense. Thus, the execution of
said receipts is enough to indict the petitioner as the official responsible for violation of P.D. No. 115. The Justice
Secretary also declared that petitioner could not contend that P.D. No. 115 covers only goods ultimately destined for
sale, as this issue had already been settled in Allied Banking Corporation v. Ordoñez,16where the Court ruled that
P.D. No. 115 is "not limited to transactions in goods which are to be sold (retailed), reshipped, stored or processed as
a component of a product ultimately sold but covers failure to turn over the proceeds of the sale of entrusted goods,
or to return said goods if unsold or not otherwise disposed of in accordance with the terms of the trust receipts."

The Justice Secretary further stated that the respondent bound himself under the terms of the trust receipts not only
as a corporate official of PBMI but also as its surety; hence, he could be proceeded against in two (2) ways: first, as
surety as determined by the Supreme Court in its decision in Rizal Commercial Banking Corporation v. Court of
Appeals;17 and second, as the corporate official responsible for the offense under P.D. No. 115, via criminal
prosecution. Moreover, P.D. No. 115 explicitly allows the prosecution of corporate officers "without prejudice to the
civil liabilities arising from the criminal offense." Thus, according to the Justice Secretary, following Rizal
Commercial Banking Corporation, the civil liability imposed is clearly separate and distinct from the criminal
liability of the accused under P.D. No. 115.

Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13 Informations against
petitioner for violation of P.D. No. 115 before the RTC of Manila. The cases were docketed as Criminal Cases No.
99-178596 to 99-178608 and consolidated for trial before Branch 52 of said court. Petitioner filed a motion for
reconsideration, which the Secretary of Justice denied in a Resolution18 dated January 17, 2000.

Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing the resolutions of the
Secretary of Justice on the following grounds:

1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE ACTING
OPPRESSIVELY AGAINST ALFREDO CHING WHEN THEY ALLOWED HIS PROSECUTION
DESPITE THE FACT THAT NO EVIDENCE HAD BEEN PRESENTED TO PROVE HIS
PARTICIPATION IN THE ALLEGED TRANSACTIONS.

2. THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN GRAVE ABUSE OF

DISCRETION AND IN EXCESS OF HIS JURISDICTION WHEN THEY CONTINUED
PROSECUTION OF THE PETITIONER DESPITE THE LENGTH OF TIME INCURRED IN THE
TERMINATION OF THE PRELIMINARY INVESTIGATION THAT SHOULD JUSTIFY THE
DISMISSAL OF THE INSTANT CASE.

3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY PROSECUTOR ACTED IN

GRAVE ABUSE OF DISCRETION AMOUNTING TO AN EXCESS OF JURISDICTION WHEN THEY
CONTINUED THE PROSECUTION OF THE PETITIONER DESPITE LACK OF SUFFICIENT
BASIS.19

In his petition, petitioner incorporated a certification stating that "as far as this Petition is concerned, no action or
proceeding in the Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or agency. It is
finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending before
the Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it hereby
undertakes to notify this Honorable Court within five (5) days from such notice."20

In its Comment on the petition, the Office of the Solicitor General alleged that -

A.

THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT PETITIONER ALFREDO

CHING IS THE OFFICER RESPONSIBLE FOR THE OFFENSE CHARGED AND THAT THE ACTS
OF PETITIONER FALL WITHIN THE AMBIT OF VIOLATION OF P.D. [No.] 115 IN RELATION TO
ARTICLE 315, PAR. 1(B) OF THE REVISED PENAL CODE.

B.

THERE IS NO MERIT IN 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

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 the Revised Rules of Civil Procedure; and (b) the petition for certiorari,
prohibition and mandamus was not the proper remedy of the petitioner.

On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of Justice were correctly
issued for the following reasons: (a) petitioner, being the Senior Vice-President of PBMI and the signatory to the
trust receipts, is criminally liable for violation of P.D. No. 115; (b) the issue raised by the petitioner, on whether he
violated P.D. No. 115 by his actuations, had already been resolved and laid to rest in Allied Bank Corporation v.
Ordoñez;22 and (c) petitioner was estopped from raising the

City Prosecutor’s delay in the final disposition of the preliminary investigation because he failed to do so in the
DOJ.

Thus, petitioner filed the instant petition, alleging that:

THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THE GROUND THAT
THE CERTIFICATION OF NON-FORUM SHOPPING INCORPORATED THEREIN WAS
DEFECTIVE.

II

THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WAS COMMITTED BY THE SECRETARY
OF JUSTICE IN COMING OUT WITH THE ASSAILED RESOLUTIONS.23

The Court will delve into and resolve the issues seriatim.

The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He claims that the rules of
procedure should be used to promote, not frustrate, substantial justice. He insists that the Rules of Court should be
construed liberally especially when, as in this case, his substantial rights are adversely affected; hence, the
deficiency in his certification of non-forum shopping should not result in the dismissal of his petition.

The Office of the Solicitor General (OSG) takes the opposite view, and asserts that indubitably, the certificate of
non-forum shopping incorporated in the petition before the CA is defective because it failed to disclose essential
facts about pending actions concerning similar issues and parties. It asserts that petitioner’s failure to comply with
the Rules of Court is fatal to his petition. The OSG cited Section 2, Rule 42, as well as the ruling of this Court in
Melo v. Court of Appeals.24

We agree with the ruling of the CA that the certification of non-forum shopping petitioner incorporated in his
petition before the appellate court is defective. The certification reads:

It is further certified that as far as this Petition is concerned, no action or proceeding in the Supreme Court, the Court
of Appeals or different divisions thereof, or any tribunal or agency.

It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending
before the Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it
hereby undertakes to notify this Honorable Court within five (5) days from such notice. 25

Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition should be accompanied by
a sworn certification of non-forum shopping, as provided in the third paragraph of Section 3, Rule 46 of said Rules.
The latter provision reads in part:

SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. — The petition shall contain
the full names and actual addresses of all the petitioners and respondents, a concise statement of the matters
involved, the factual background of the case and the grounds relied upon for the relief prayed for.
 xxx

The petitioner shall also submit together with the petition a sworn certification that he has not theretofore
commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or different
divisions thereof, or any other tribunal or agency; if there is such other action or proceeding, he must state the status
of the same; and if he should thereafter learn that a similar action or proceeding has been filed or is pending before
the Supreme Court, the Court of Appeals, or different divisions thereof, or any other tribunal or agency, he
undertakes to promptly inform the aforesaid courts and other tribunal or agency thereof within five (5) days
therefrom. xxx

Compliance with the certification against forum shopping is separate from and independent of the avoidance of
forum shopping itself. The requirement is mandatory. The failure of the petitioner to comply with the foregoing
requirement shall be sufficient ground for the dismissal of the petition without prejudice, unless otherwise
provided.26

Indubitably, the first paragraph of petitioner’s certification is incomplete and unintelligible. Petitioner failed to
certify that he "had not heretofore commenced any other action involving the same issues in the Supreme Court, the
Court of Appeals or the different divisions thereof or any other tribunal or agency" as required by paragraph 4,
Section 3, Rule 46 of the Revised Rules of Court.

We agree with petitioner’s contention that the certification is designed to promote and facilitate the orderly
administration of justice, and therefore, should not be interpreted with absolute literalness. In his works on the
Revised Rules of Civil Procedure, former Supreme Court Justice Florenz Regalado states that, with respect to the
contents of the certification which the pleader may prepare, the rule of substantial compliance may be availed
of.27 However, there must be a special circumstance or compelling reason which makes the strict application of the
requirement clearly unjustified. The instant petition has not alleged any such extraneous circumstance. Moreover, as
worded, the certification cannot even be regarded as substantial compliance with the procedural requirement. Thus,
the CA was not informed whether, aside from the petition before it, petitioner had commenced any other action
involving the same issues in other tribunals.

On the merits of the petition, the CA ruled that the petitioner failed to establish that the Secretary of Justice
committed grave abuse of discretion in finding probable cause against the petitioner for violation of estafa under
Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D. No. 115. Thus, the appellate court
ratiocinated:

Be that as it may, even on the merits, the arguments advanced in support of the petition are not persuasive enough to
justify the desired conclusion that respondent Secretary of Justice gravely abused its discretion in coming out with
his assailed Resolutions. Petitioner posits that, except for his being the Senior Vice-President of the PBMI, there is
no iota of evidence that he was a participes crimines in violating the trust receipts sued upon; and that his liability, if
at all, is purely civil because he signed the said trust receipts merely as a xxx surety and not as the entrustee. These
assertions are, however, too dull that they cannot even just dent the findings of the respondent Secretary, viz:

"x x x it is apropos to quote section 13 of PD 115 which states in part, viz:

‘xxx If the violation or offense is committed by a corporation, partnership, association or other judicial entities, the
penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or
persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal
offense.’

"There is no dispute that it was the respondent, who as senior vice-president of PBM, executed the thirteen (13) trust
receipts. As such, the law points to him as the official responsible for the offense. Since a corporation cannot be
proceeded against criminally because it cannot commit crime in which personal violence or malicious intent is
required, criminal action is limited to the corporate agents guilty of an act amounting to a crime and never against
the corporation itself (West Coast Life Ins. Co. vs. Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus,
the execution by respondent of said receipts is enough to indict him as the official responsible for violation of PD
115.

"Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which are ultimately destined
for sale and not goods, like those imported by PBM, for use in manufacture. This issue has already been settled in
the Allied Banking Corporation case, supra, where he was also a party, when the Supreme Court ruled that PD 115 is
‘not limited to transactions in goods which are to be sold (retailed), reshipped, stored or processed as a component or
a product ultimately sold’ but ‘covers failure to turn over the proceeds of the sale of entrusted goods, or to return
said goods if unsold or disposed of in accordance with the terms of the trust receipts.’

"In regard to the other assigned errors, we note that the respondent bound himself under the terms of the trust
receipts not only as a corporate official of PBM but also as its surety. It is evident that these are two (2) capacities
which do not exclude the other. Logically, he can be proceeded against in two (2) ways: first, as surety as determined
by the Supreme Court in its decision in RCBC vs. Court of Appeals, 178 SCRA 739; and, secondly, as the corporate
official responsible for the offense under PD 115, the present case is an appropriate remedy under our penal law.

"Moreover, PD 115 explicitly allows the prosecution of corporate officers ‘without prejudice to the civil liabilities
arising from the criminal offense’ thus, the civil liability imposed on respondent in RCBC vs. Court of Appeals case
is clearly separate and distinct from his criminal liability under PD 115.’" 28

Petitioner asserts that the appellate court’s ruling is erroneous because (a) the transaction between PBMI and
respondent bank is not a trust receipt transaction; (b) he entered into the transaction and was sued in his capacity as
PBMI Senior Vice-President; (c) he never received the goods as an entrustee for PBMI, hence, could not have
committed any dishonesty or abused the confidence of respondent bank; and (d) PBMI acquired the goods and used
the same in operating its machineries and equipment and not for resale.

The OSG, for its part, submits a contrary view, to wit:

34. Petitioner further claims that he is not a person responsible for the offense allegedly because "[b]eing charged as
the Senior Vice-President of Philippine Blooming Mills (PBM), petitioner cannot be held criminally liable as the
transactions sued upon were clearly entered into in his capacity as an officer of the corporation" and that [h]e never
received the goods as an entrustee for PBM as he never had or took possession of the goods nor did he commit
dishonesty nor "abuse of confidence in transacting with RCBC." Such argument is bereft of merit.

35. Petitioner’s being a Senior Vice-President of the Philippine Blooming Mills does not exculpate him from any
liability. Petitioner’s responsibility as the corporate official of PBM who received the goods in trust is premised on
Section 13 of P.D. No. 115, which provides:

Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods, documents
or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust
receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three
hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended,
otherwise known as the Revised Penal Code. If the violation or offense is committed by a corporation, partnership,
association or other juridical entities, the penalty provided for in this Decree shall be imposed upon the directors,
officers, employees or other officials or persons therein responsible for the offense, without prejudice to the civil
liabilities arising from the criminal offense. (Emphasis supplied)

36. Petitioner having participated in the negotiations for the trust receipts and having received the goods for PBM, it
was inevitable that the petitioner is the proper corporate officer to be proceeded against by virtue of the PBM’s
violation of P.D. No. 115.29

The ruling of the CA is correct.

In Mendoza-Arce v. Office of the Ombudsman (Visayas),30 this Court held that the acts of a quasi-judicial officer
may be assailed by the aggrieved party via a petition for certiorari and enjoined (a) when necessary to afford
adequate protection to the constitutional rights of the accused; (b) when necessary for the orderly administration of
justice; (c) when the acts of the officer are without or in excess of authority; (d) where the charges are manifestly
false and motivated by the lust for vengeance; and (e) when there is clearly no prima facie case against the
accused.31 The Court also declared that, if the officer conducting a preliminary investigation (in that case, the Office
of the Ombudsman) acts without or in excess of his authority and resolves to file an Information despite the absence
of probable cause, such act may be nullified by a writ of certiorari.32

Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure,33 the Information shall be prepared by
the Investigating Prosecutor against the respondent only if he or she finds probable cause to hold such respondent
for trial. The Investigating Prosecutor acts without or in excess of his authority under the Rule if the Information is
filed against the respondent despite absence of evidence showing probable cause therefor.34 If the Secretary of
Justice reverses the Resolution of the Investigating Prosecutor who found no probable cause to hold the respondent
for trial, and orders such prosecutor to file the Information despite the absence of probable cause, the Secretary of
Justice acts contrary to law, without authority and/or in excess of authority. Such resolution may likewise be
nullified in a petition for certiorari under Rule 65 of the Revised Rules of Civil Procedure. 35

A preliminary investigation, designed to secure the respondent against hasty, malicious and oppressive prosecution,
is an inquiry to determine whether (a) a crime has been committed; and (b) whether there is probable cause to
believe that the accused is guilty thereof. It is a means of discovering the person or persons who may be reasonably
charged with a crime. Probable cause need not be based on clear and convincing evidence of guilt, as the
investigating officer acts upon probable cause of reasonable belief. Probable cause implies probability of guilt and
requires more than bare suspicion but less than evidence which would justify a conviction. A finding of probable
cause needs only to rest on evidence showing that more likely than not, a crime has been committed by the suspect. 36

However, while probable cause should be determined in a summary manner, there is a need to examine the evidence
with care to prevent material damage to a potential accused’s constitutional right to liberty and the guarantees of
freedom and fair play37 and to protect the State from the burden of unnecessary expenses in prosecuting alleged
offenses and holding trials arising from false, fraudulent or groundless charges.38

In this case, petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion in issuing
the assailed resolutions. Indeed, he acted in accord with law and the evidence.

Section 4 of P.D. No. 115 defines a trust receipt transaction, thus:

Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree,
is any transaction by and between a person referred to in this Decree as the entruster, and another person referred to
in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain
specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter’s
execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds
himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise
dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof
to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or
instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions
specified in the trust receipt, or for other purposes substantially equivalent to any of the following:

1. In case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or
process the goods with the purpose of ultimate sale; Provided, That, in the case of goods delivered under
trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall
retain its title over the goods whether in its original or processed form until the entrustee has complied fully
with his obligation under the trust receipt; or (c) to load, unload, ship or otherwise deal with them in a
manner preliminary or necessary to their sale; or

2. In the case of instruments a) to sell or procure their sale or exchange; or b) to deliver them to a principal;
or c) to effect the consummation of some transactions involving delivery to a depository or register; or d) to
effect their presentation, collection or renewal.
The sale of goods, documents or instruments by a person in the business of selling goods, documents or instruments
for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such goods,
documents or instruments, or who sells the same to the buyer on credit, retaining title or other interest as security for
the payment of the purchase price, does not constitute a trust receipt transaction and is outside the purview and
coverage of this Decree.

An entrustee is one having or taking possession of goods, documents or instruments under a trust receipt transaction,
and any successor in interest of such person for the purpose of payment specified in the trust receipt
agreement.39 The entrustee is obliged to: (1) hold the goods, documents or instruments in trust for the entruster and
shall dispose of them strictly in accordance with the terms and conditions of the trust receipt; (2) receive the
proceeds in trust for the entruster and turn over the same to the entruster to the extent of the amount owing to the
entruster or as appears on the trust receipt; (3) insure the goods for their total value against loss from fire, theft,
pilferage or other casualties; (4) keep said goods or proceeds thereof whether in money or whatever form, separate
and capable of identification as property of the entruster; (5) return the goods, documents or instruments in the event
of non-sale or upon demand of the entruster; and (6) observe all other terms and conditions of the trust receipt not
contrary to the provisions of the decree.40

The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released under a
trust receipt to the entrustee to the extent of the amount owing to the entruster or as appears in the trust receipt, or to
the return of the goods, documents or instruments in case of non-sale, and to the enforcement of all other rights
conferred on him in the trust receipt; provided, such are not contrary to the provisions of the document. 41

In the case at bar, the transaction between petitioner and respondent bank falls under the trust receipt transactions
envisaged in P.D. No. 115. Respondent bank imported the goods and entrusted the same to PBMI under the trust
receipts signed by petitioner, as entrustee, with the bank as entruster. The agreement was as follows:

And in consideration thereof, I/we hereby agree to hold said goods in trust for the said BANK as its property with
liberty to sell the same within ____days from the date of the execution of this Trust Receipt and for the 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 premium or insurance or any other expenses incurred on said
goods.

In case of sale, I/we further agree to turn over the proceeds thereof as soon as received to the BANK, to apply
against the relative acceptances (as described above) and for the payment of any other indebtedness of mine/ours to
the BANK. In case of non-sale within the period specified herein, I/we agree to return the goods under this Trust
Receipt to the BANK without any need of demand.

I/we agree to keep the said goods, manufactured products or proceeds thereof, whether in the form of money or bills,
receivables, or accounts separate and capable of identification as property of the BANK.42

It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of public policy, the
failure of person to turn over the proceeds of the sale of the goods covered by a trust receipt or to return said goods,
if not sold, is a public nuisance to be abated by the imposition of penal sanctions.43

The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions involving goods procured
as a component of a product ultimately sold has been resolved in the affirmative in Allied Banking Corporation v.
Ordoñez.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 accordance with the terms of the trust receipt is a crime under P.D. No.
115, without need of proving intent to defraud. The law punishes dishonesty and abuse of confidence in the handling
of money or goods to the prejudice of the entruster, regardless of whether the latter is the owner or not. A mere
failure to deliver the proceeds of the sale of the goods, if not sold, constitutes a criminal offense that causes
prejudice, not only to another, but more to the public interest.47

The Court rules that although petitioner signed the trust receipts merely as Senior Vice-President of PBMI and had
no physical possession of the goods, he cannot avoid prosecution for violation of P.D. No. 115.

The penalty clause of the law, Section 13 of P.D. No. 115 reads:

Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods, documents
or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust
receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three
hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended,
otherwise known as the Revised Penal Code.1âwphi1 If the violation or offense is committed by a corporation,
partnership, association or other juridical entities, the penalty provided for in this Decree shall be imposed upon the
directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to
the civil liabilities arising from the criminal offense.

The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b), Article 315
of the Revised Penal Code, or estafa with abuse of confidence. It may be committed by a corporation or other
juridical entity or by natural persons. However, the penalty for the crime is imprisonment for the periods provided in
said Article 315, which reads:

ARTICLE 315. Swindling (estafa). – Any person who shall defraud another by any of the means mentioned
hereinbelow shall be punished by:

1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if
the amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if such amount exceeds
the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one
year for each additional 10,000 pesos; but the total penalty which may be imposed shall not exceed twenty
years. In such cases, and in connection with the accessory penalties which may be imposed and for the
purpose of the other provisions of this Code, the penalty shall be termed prision mayor or reclusion
temporal, as the case may be;

2nd. The penalty of prision correccional in its minimum and medium periods, if the amount of the fraud is
over 6,000 pesos but does not exceed 12,000 pesos;

3rd. The penalty of arresto mayor in its maximum period to prision correccional in its minimum period, if
such amount is over 200 pesos but does not exceed 6,000 pesos; and

4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed 200 pesos, provided that
in the four cases mentioned, the fraud be committed by any of the following means; xxx

Though the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees or other
officers or persons responsible for the offense, without prejudice to the civil liabilities of such corporation and/or
board of directors, officers, or other officials or employees responsible for the offense. The rationale is that such
officers or employees are vested with the authority and responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are held criminally accountable; thus, they have a responsible
share in the violations of the law.48

If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or other
officers thereof responsible for the offense shall be charged and penalized for the crime, precisely because of the
nature of the crime and the penalty therefor. A corporation cannot be arrested and imprisoned; hence, cannot be
penalized for a crime punishable by imprisonment.49 However, a corporation may be charged and prosecuted for a
crime if the imposable penalty is fine. Even if the statute prescribes both fine and imprisonment as penalty, a
corporation may be prosecuted and, if found guilty, may be fined.50

A crime is the doing of that which the penal code forbids to be done, or omitting to do what it commands. A
necessary part of the definition of every crime is the designation of the author of the crime upon whom the penalty is
to be inflicted. When a criminal statute designates an act of a corporation or a crime and prescribes punishment
therefor, it creates a criminal offense which, otherwise, would not exist and such can be committed only by the
corporation. But when a penal statute does not expressly apply to corporations, it does not create an offense for
which a corporation may be punished. On the other hand, if the State, by statute, defines a crime that may be
committed by a corporation but prescribes the penalty therefor to be suffered by the officers, directors, or employees
of such corporation or other persons responsible for the offense, only such individuals will suffer such
penalty.51 Corporate officers or employees, through whose act, default or omission the corporation commits a crime,
are themselves individually guilty of the crime.52

The principle applies whether or not the crime requires the consciousness of wrongdoing. It applies to those
corporate agents who themselves commit the crime and to those, who, by virtue of their managerial positions or
other similar relation to the corporation, could be deemed responsible for its commission, if by virtue of their
relationship to the corporation, they had the power to prevent the act.53 Moreover, all parties active in promoting a
crime, whether agents or not, are principals.54 Whether such officers or employees are benefited by their delictual
acts is not a touchstone of their criminal liability. Benefit is not an operative fact.

In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the cloak of the separate
corporate personality of PBMI. In the words of Chief Justice Earl Warren, a corporate officer cannot protect himself
behind a corporation where he is the actual, present and efficient actor.55

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioner.

SO ORDERED.

[G.R. No. 138569. September 11, 2003]

THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT OF APPEALS and
L.C. DIAZ and COMPANY, CPAs, respondents.

DECISION

CARPIO, J.:

The Case
 Before us is a petition for review of the Decision [1] of the Court of Appeals dated 27 October 1998 and its
Resolution dated 11 May 1999. The assailed decision reversed the Decision [2] of the Regional Trial Court of Manila,
Branch 8, absolving petitioner Consolidated Bank and Trust Corporation, now known as Solidbank Corporation
(Solidbank), of any liability. The questioned resolution of the appellate court denied the motion for reconsideration
of Solidbank but modified the decision by deleting the award of exemplary damages, attorneys fees, expenses of
litigation and cost of suit.

The Facts

Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private respondent
L.C. Diaz and Company, CPAs (L.C. Diaz), is a professional partnership engaged in the practice of accounting.

Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, designated as Savings Account
No. S/A 200-16872-6.

On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya (Macaraya), filled up a savings (cash)
deposit slip for P990 and a savings (checks) deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz,
Ismael Calapre (Calapre), to deposit the money with Solidbank. Macaraya also gave Calapre the Solidbank
passbook.

Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The teller
acknowledged receipt of the deposit by returning to Calapre the duplicate copies of the two deposit slips. Teller No.
6 stamped the deposit slips with the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD
OFFICE. Since the transaction took time and Calapre had to make another deposit for L.C. Diaz with Allied Bank,
he left the passbook with Solidbank. Calapre then went to Allied Bank. When Calapre returned to Solidbank to
retrieve the passbook, Teller No. 6 informed him that somebody got the passbook. [3] Calapre went back to L.C. Diaz
and reported the incident to Macaraya.

Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya,
together with Calapre, went to Solidbank and presented to Teller No. 6 the deposit slip and check. The teller stamped
the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate copy of the
deposit slip. When Macaraya asked for the passbook, Teller No. 6 told Macaraya that someone got the passbook but
she could not remember to whom she gave the passbook. When Macaraya asked Teller No. 6 if Calapre got the
passbook, Teller No. 6 answered that someone shorter than Calapre got the passbook. Calapre was then standing
beside Macaraya.

Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check for  P90,000
drawn on Philippine Banking Corporation (PBC). This PBC check of L.C. Diaz was a check that it had long closed.
[4]
 PBC subsequently dishonored the check because of insufficient funds and because the signature in the check
differed from PBCs specimen signature.Failing to get back the passbook, Macaraya went back to her office and
reported the matter to the Personnel Manager of L.C. Diaz, Emmanuel Alvarez.

The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz (Diaz), called
up Solidbank to stop any transaction using the same passbook until L.C. Diaz could open a new account. [5] On the
same day, Diaz formally wrote Solidbank to make the same request. It was also on the same day that L.C. Diaz
learned of the unauthorized withdrawal the day before, 14 August 1991, of P300,000 from its savings account. The
withdrawal slip for the P300,000 bore the signatures of the authorized signatories of L.C. Diaz, namely Diaz and
Rustico L. Murillo. The signatories, however, denied signing the withdrawal slip. A certain Noel Tamayo received
the P300,000.
 In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger, Emerano Ilagan (Ilagan) and
one Roscon Verdazola with Estafa through Falsification of Commercial Document. The Regional Trial Court of
Manila dismissed the criminal case after the City Prosecutor filed a Motion to Dismiss on 4 August 1992.

On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its
money. Solidbank refused.

On 25 August 1992, L.C. Diaz filed a Complaint [7] for Recovery of a Sum of Money against Solidbank with the
Regional Trial Court of Manila, Branch 8. After trial, the trial court rendered on 28 December 1994 a decision
absolving Solidbank and dismissing the complaint.

L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the Court of Appeals issued its
Decision reversing the decision of the trial court.

On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for reconsideration of
Solidbank. The appellate court, however, modified its decision by deleting the award of exemplary damages and
attorneys fees.

The Ruling of the Trial Court

In absolving Solidbank, the trial court applied the rules on savings account written on the passbook. The rules
state that possession of this book shall raise the presumption of ownership and any payment or payments made by
the bank upon the production of the said book and entry therein of the withdrawal shall have the same effect as if
made to the depositor personally.[9]

At the time of the withdrawal, a certain Noel Tamayo was not only in possession of the passbook, he also
presented a withdrawal slip with the signatures of the authorized signatories of L.C. Diaz. The specimen signatures
of these persons were in the signature cards. The teller stamped the withdrawal slip with the words Saving Teller No.
5. The teller then passed on the withdrawal slip to Genere Manuel (Manuel) for authentication. Manuel verified the
signatures on the withdrawal slip. The withdrawal slip was then given to another officer who compared the
signatures on the withdrawal slip with the specimen on the signature cards. The trial court concluded that Solidbank
acted with care and observed the rules on savings account when it allowed the withdrawal of P300,000 from the
savings account of L.C. Diaz.

The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove that the signatures on the
withdrawal slip were forged. The trial court admonished L.C. Diaz for not offering in evidence the National Bureau
of Investigation (NBI) report on the authenticity of the signatures on the withdrawal slip for P300,000. The trial
court believed that L.C. Diaz did not offer this evidence because it is derogatory to its action.

Another provision of the rules on savings account states that the depositor must keep the passbook under lock
and key.[10] When another person presents the passbook for withdrawal prior to Solidbanks receipt of the notice of
loss of the passbook, that person is considered as the owner of the passbook. The trial court ruled that the passbook
presented during the questioned transaction was now out of the lock and key and presumptively ready for a business
transaction.[11]

Solidbank did not have any participation in the custody and care of the passbook. The trial court believed that
Solidbanks act of allowing the withdrawal of P300,000 was not the direct and proximate cause of the loss. The trial
court held that L.C. Diazs negligence caused the unauthorized withdrawal. Three facts establish L.C. Diazs
negligence: (1) the possession of the passbook by a person other than the depositor L.C. Diaz; (2) the presentation of
a signed withdrawal receipt by an unauthorized person; and (3) the possession by an unauthorized person of a PBC
check long closed by L.C. Diaz, which check was deposited on the day of the fraudulent withdrawal.

The trial court debunked L.C. Diazs contention that Solidbank did not follow the precautionary procedures
observed by the two parties whenever L.C. Diaz withdrew significant amounts from its account. L.C. Diaz claimed
that a letter must accompany withdrawals of more than P20,000. The letter must request Solidbank to allow the
withdrawal and convert the amount to a managers check. The bearer must also have a letter authorizing him to
withdraw the same amount. Another person driving a car must accompany the bearer so that he would not walk from
Solidbank to the office in making the withdrawal. The trial court pointed out that L.C. Diaz disregarded these
precautions in its past withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554 without any separate letter of
authorization or any communication with Solidbank that the money be converted into a managers check.

The trial court further justified the dismissal of the complaint by holding that the case was a last ditch effort of
L.C. Diaz to recover P300,000 after the dismissal of the criminal case against Ilagan.

The dispositive portion of the decision of the trial court reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the complaint.

The Court further renders judgment in favor of defendant bank pursuant to its counterclaim the amount of Thirty
Thousand Pesos (P30,000.00) as attorneys fees.

With costs against plaintiff.

SO ORDERED.[12]

The Ruling of the Court of Appeals

The Court of Appeals ruled that Solidbanks negligence was the proximate cause of the unauthorized
withdrawal of P300,000 from the savings account of L.C. Diaz. The appellate court reached this conclusion after
applying the provision of the Civil Code on quasi-delict, to wit:

Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to
pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this chapter.

The appellate court held that the three elements of a quasi-delict are present in this case, namely: (a) damages
suffered by the plaintiff; (b) fault or negligence of the defendant, or some other person for whose acts he must
respond; and (c) the connection of cause and effect between the fault or negligence of the defendant and the damage
incurred by the plaintiff.

The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip for P300,000
allowed the withdrawal without making the necessary inquiry. The appellate court stated that the teller, who was not
presented by Solidbank during trial, should have called up the depositor because the money to be withdrawn was a
significant amount. Had the teller called up L.C. Diaz, Solidbank would have known that the withdrawal was
unauthorized. The teller did not even verify the identity of the impostor who made the withdrawal. Thus, the
appellate court found Solidbank liable for its negligence in the selection and supervision of its employees.

The appellate court ruled that while L.C. Diaz was also negligent in entrusting its deposits to its messenger and
its messenger in leaving the passbook with the teller, Solidbank could not escape liability because of the doctrine of
last clear chance. Solidbank could have averted the injury suffered by L.C. Diaz had it called up L.C. Diaz to verify
the withdrawal.

The appellate court ruled that the degree of diligence required from Solidbank is more than that of a good
father of a family. The business and functions of banks are affected with public interest. Banks are obligated to treat
the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their
relationship with their clients. The Court of Appeals found Solidbank remiss in its duty, violating its fiduciary
relationship with L.C. Diaz.

The dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and a new one entered.

1. Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay plaintiff-appellant the
sum of Three Hundred Thousand Pesos (P300,000.00), with interest thereon at the rate of 12% per
annum from the date of filing of the complaint until paid, the sum of P20,000.00 as exemplary
damages, and P20,000.00 as attorneys fees and expenses of litigation as well as the cost of suit;
and

2. Ordering the dismissal of defendant-appellees counterclaim in the amount of P30,000.00 as attorneys

fees.

SO ORDERED.[13]

Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its decision but modified the
award of damages. The appellate court deleted the award of exemplary damages and attorneys fees. Invoking Article
2231[14] of the Civil Code, the appellate court ruled that exemplary damages could be granted if the defendant acted
with gross negligence. Since Solidbank was guilty of simple negligence only, the award of exemplary damages was
not justified. Consequently, the award of attorneys fees was also disallowed pursuant to Article 2208 of the Civil
Code.The expenses of litigation and cost of suit were also not imposed on Solidbank.

The dispositive portion of the Resolution reads as follows:

WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with modification by
deleting the award of exemplary damages and attorneys fees, expenses of litigation and cost of suit.

SO ORDERED.[15]

Hence, this petition.

The Issues

Solidbank seeks the review of the decision and resolution of the Court of Appeals on these grounds:

I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD SUFFER
THE LOSS BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE
RESPONDENT BY TELEPHONE BEFORE IT ALLOWED THE WITHDRAWAL
OF P300,000.00 TO RESPONDENTS MESSENGER EMERANO ILAGAN, SINCE THERE IS
NO AGREEMENT BETWEEN THE PARTIES IN THE OPERATION OF THE SAVINGS
ACCOUNT, NOR IS THERE ANY BANKING LAW, WHICH MANDATES THAT A BANK
 TELLER SHOULD FIRST CALL UP THE DEPOSITOR BEFORE ALLOWING A
WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS ACCOUNT.

II. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR CHANCE
AND IN HOLDING THAT PETITIONER BANKS TELLER HAD THE LAST OPPORTUNITY
TO WITHHOLD THE WITHDRAWAL WHEN IT IS UNDISPUTED THAT THE TWO
SIGNATURES OF RESPONDENT ON THE WITHDRAWAL SLIP ARE GENUINE AND
PRIVATE RESPONDENTS PASSBOOK WAS DULY PRESENTED, AND CONTRARIWISE
RESPONDENT WAS NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS
MESSENGER EMERANO ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS AND
OTHER FINANCIAL DOCUMENTS.

III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS A LAST
DITCH EFFORT OF PRIVATE RESPONDENT TO RECOVER ITS P300,000.00 AFTER
FAILING IN ITS EFFORTS TO RECOVER THE SAME FROM ITS EMPLOYEE EMERANO
ILAGAN.

IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED

AGAINST PETITIONER UNDER ARTICLE 2197 OF THE CIVIL CODE,
NOTWITHSTANDING ITS FINDING THAT PETITIONER BANKS NEGLIGENCE WAS
ONLY CONTRIBUTORY.[16]

The Ruling of the Court

The petition is partly meritorious.

Solidbanks Fiduciary Duty under the Law

The rulings of the trial court and the Court of Appeals conflict on the application of the law.  The trial court
pinned the liability on L.C. Diaz based on the provisions of the rules on savings account, a recognition of the
contractual relationship between Solidbank and L.C. Diaz, the latter being a depositor of the former.  On the other
hand, the Court of Appeals applied the law on quasi-delict to determine who between the two parties was ultimately
negligent. The law on quasi-delict or culpa aquiliana is generally applicable when there is no pre-existing
contractual relationship between the parties.

We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual.

The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple
loan.[17] Article 1980 of the Civil Code expressly provides that x x x savings x x x deposits of money in banks and
similar institutions shall be governed by the provisions concerning simple loan. There is a debtor-creditor
relationship between the bank and its depositor. The bank is the debtor and the depositor is the creditor. The
depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit agreement
between the bank and the depositor is the contract that determines the rights and obligations of the parties.

The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act
No. 8791 (RA 8791),[18] which took effect on 13 June 2000, declares that the State recognizes the fiduciary nature of
banking that requires high standards of integrity and performance. [19] This new provision in the general banking law,
introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex
International v. Court of Appeals,[20] holding that the bank is under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of their relationship.[21]

This fiduciary relationship means that the banks obligation to observe high standards of integrity and
performance is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature
of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Article 1172
of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract, and
absent such stipulation then the diligence of a good father of a family. [22] Section 2 of RA 8791 prescribes the
statutory diligence required from banks that banks must observe high standards of integrity and performance in
servicing their depositors. Although RA 8791 took effect almost nine years after the unauthorized withdrawal of
the P300,000 from L.C. Diazs savings account, jurisprudence[23] at the time of the withdrawal already imposed on
banks the same high standard of diligence required under RA No. 8791.

However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank
and its depositors from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the
depositor is failure to pay a simple loan, and not a breach of trust. [24] The law simply imposes on the bank a higher
standard of integrity and performance in complying with its obligations under the contract of simple loan, beyond
those required of non-bank debtors under a similar contract of simple loan.

The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not
accept deposits to enrich depositors but to earn money for themselves. The law allows banks to offer the lowest
possible interest rate to depositors while charging the highest possible interest rate on their own borrowers. The
interest spread or differential belongs to the bank and not to the depositors who are not cestui que trust of banks. If
depositors are cestui que trust of banks, then the interest spread or income belongs to the depositors, a situation that
Congress certainly did not intend in enacting Section 2 of RA 8791.

Solidbanks Breach of its Contractual Obligation

Article 1172 of the Civil Code provides that responsibility arising from negligence in the performance of every
kind of obligation is demandable. For breach of the savings deposit agreement due to negligence, or culpa
contractual, the bank is liable to its depositor.

Calapre left the passbook with Solidbank because the transaction took time and he had to go to Allied Bank for
another transaction. The passbook was still in the hands of the employees of Solidbank for the processing of the
deposit when Calapre left Solidbank. Solidbanks rules on savings account require that the deposit book should be
carefully guarded by the depositor and kept under lock and key, if possible. When the passbook is in the possession
of Solidbanks tellers during withdrawals, the law imposes on Solidbank and its tellers an even higher degree of
diligence in safeguarding the passbook.

Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that they return the passbook
only to the depositor or his authorized representative. The tellers know, or should know, that the rules on savings
account provide that any person in possession of the passbook is presumptively its owner. If the tellers give the
passbook to the wrong person, they would be clothing that person presumptive ownership of the passbook,
facilitating unauthorized withdrawals by that person. For failing to return the passbook to Calapre, the authorized
representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high degree of
diligence in safeguarding the passbook, and in insuring its return to the party authorized to receive the same.

In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the defendant
was at fault or negligent. The burden is on the defendant to prove that he was not at fault or negligent. In contrast,
in culpa aquiliana the plaintiff has the burden of proving that the defendant was negligent. In the present case, L.C.
Diaz has established that Solidbank breached its contractual obligation to return the passbook only to the authorized
representative of L.C. Diaz. There is thus a presumption that Solidbank was at fault and its teller was negligent in
not returning the passbook to Calapre. The burden was on Solidbank to prove that there was no negligence on its
part or its employees.

Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6, the teller with
whom Calapre left the passbook and who was supposed to return the passbook to him. The record does not indicate
that Teller No. 6 verified the identity of the person who retrieved the passbook. Solidbank also failed to adduce in
evidence its standard procedure in verifying the identity of the person retrieving the passbook, if there is such a
procedure, and that Teller No. 6 implemented this procedure in the present case.

Solidbank is bound by the negligence of its employees under the principle of respondeat superior or command
responsibility. The defense of exercising the required diligence in the selection and supervision of employees is not a
complete defense in culpa contractual, unlike in culpa aquiliana.[25]

The bank must not only exercise high standards of integrity and performance, it must also insure that its
employees do likewise because this is the only way to insure that the bank will comply with its fiduciary
duty. Solidbank failed to present the teller who had the duty to return to Calapre the passbook, and thus failed to
prove that this teller exercised the high standards of integrity and performance required of Solidbanks employees.

Proximate Cause of the Unauthorized Withdrawal

Another point of disagreement between the trial and appellate courts is the proximate cause of the unauthorized
withdrawal. The trial court believed that L.C. Diazs negligence in not securing its passbook under lock and key was
the proximate cause that allowed the impostor to withdraw the P300,000. For the appellate court, the proximate
cause was the tellers negligence in processing the withdrawal without first verifying with L.C. Diaz.  We do not
agree with either court.

Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient intervening
cause, produces the injury and without which the result would not have occurred. [26] Proximate cause is determined
by the facts of each case upon mixed considerations of logic, common sense, policy and precedent. [27]

L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was in possession
of the passbook while it was processing the deposit. After completion of the transaction, Solidbank had the
contractual obligation to return the passbook only to Calapre, the authorized representative of L.C. Diaz.  Solidbank
failed to fulfill its contractual obligation because it gave the passbook to another person.

Solidbanks failure to return the passbook to Calapre made possible the withdrawal of the P300,000 by the
impostor who took possession of the passbook. Under Solidbanks rules on savings account, mere possession of the
passbook raises the presumption of ownership. It was the negligent act of Solidbanks Teller No. 6 that gave the
impostor presumptive ownership of the passbook. Had the passbook not fallen into the hands of the impostor, the
loss of P300,000 would not have happened. Thus, the proximate cause of the unauthorized withdrawal was
Solidbanks negligence in not returning the passbook to Calapre.

We do not subscribe to the appellate courts theory that the proximate cause of the unauthorized withdrawal was
the tellers failure to call up L.C. Diaz to verify the withdrawal. Solidbank did not have the duty to call up L.C. Diaz
to confirm the withdrawal. There is no arrangement between Solidbank and L.C. Diaz to this effect. Even the
agreement between Solidbank and L.C. Diaz pertaining to measures that the parties must observe whenever
withdrawals of large amounts are made does not direct Solidbank to call up L.C. Diaz.

There is no law mandating banks to call up their clients whenever their representatives withdraw significant
amounts from their accounts. L.C. Diaz therefore had the burden to prove that it is the usual practice of Solidbank to
call up its clients to verify a withdrawal of a large amount of money. L.C. Diaz failed to do so.

Teller No. 5 who processed the withdrawal could not have been put on guard to verify the withdrawal. Prior to
the withdrawal of P300,000, the impostor deposited with Teller No. 6 the P90,000 PBC check, which later
bounced. The impostor apparently deposited a large amount of money to deflect suspicion from the withdrawal of a
much bigger amount of money. The appellate court thus erred when it imposed on Solidbank the duty to call up L.C.
Diaz to confirm the withdrawal when no law requires this from banks and when the teller had no reason to be
suspicious of the transaction.

Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims that since Ilagan
was also a messenger of L.C. Diaz, he was familiar with its teller so that there was no more need for the teller to
verify the withdrawal. Solidbank relies on the following statements in the Booking and Information Sheet of
Emerano Ilagan:

xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount of P90,000
which he deposited in favor of L.C. Diaz and Company. After successfully withdrawing this large sum of money,
accused Ilagan gave alias Rey (Noel Tamayo) his share of the loot. Ilagan then hired a taxicab in the amount of
P1,000 to transport him (Ilagan) to his home province at Bauan, Batangas. Ilagan extravagantly and lavishly spent
his money but a big part of his loot was wasted in cockfight and horse racing. Ilagan was apprehended and meekly
admitted his guilt.[28] (Emphasis supplied.)

L.C. Diaz refutes Solidbanks contention by pointing out that the person who withdrew the P300,000 was a
certain Noel Tamayo. Both the trial and appellate courts stated that this Noel Tamayo presented the passbook with
the withdrawal slip.

We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew the  P300,000. The
Court is not a trier of facts. We find no justifiable reason to reverse the factual finding of the trial court and the Court
of Appeals. The tellers who processed the deposit of the P90,000 check and the withdrawal of the P300,000 were not
presented during trial to substantiate Solidbanks claim that Ilagan deposited the check and made the questioned
withdrawal. Moreover, the entry quoted by Solidbank does not categorically state that Ilagan presented the
withdrawal slip and the passbook.

Doctrine of Last Clear Chance

The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is
appreciably later than that of the other, or where it is impossible to determine whose fault or negligence caused the
loss, the one who had the last clear opportunity to avoid the loss but failed to do so, is chargeable with the loss.
[29]
 Stated differently, the antecedent negligence of the plaintiff does not preclude him from recovering damages
caused by the supervening negligence of the defendant, who had the last fair chance to prevent the impending harm
by the exercise of due diligence.[30]

We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for breach of contract
due to negligence in the performance of its contractual obligation to L.C. Diaz. This is a case of  culpa contractual,
where neither the contributory negligence of the plaintiff nor his last clear chance to avoid the loss, would exonerate
the defendant from liability.[31] Such contributory negligence or last clear chance by the plaintiff merely serves to
reduce the recovery of damages by the plaintiff but does not exculpate the defendant from his breach of contract. [32]
 Mitigated Damages

Under Article 1172, liability (for culpa contractual) may be regulated by the courts, according to the
circumstances. This means that if the defendant exercised the proper diligence in the selection and supervision of its
employee, or if the plaintiff was guilty of contributory negligence, then the courts may reduce the award of
damages. In this case, L.C. Diaz was guilty of contributory negligence in allowing a withdrawal slip signed by its
authorized signatories to fall into the hands of an impostor. Thus, the liability of Solidbank should be reduced.

In Philippine Bank of Commerce v. Court of Appeals,[33] where the Court held the depositor guilty of
contributory negligence, we allocated the damages between the depositor and the bank on a 40-60 ratio.  Applying
the same ruling to this case, we hold that L.C. Diaz must shoulder 40% of the actual damages awarded by the
appellate court. Solidbank must pay the other 60% of the actual damages.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner

Solidbank Corporation shall pay private respondent L.C. Diaz and Company, CPAs only 60% of the actual damages
awarded by the Court of Appeals. The remaining 40% of the actual damages shall be borne by private respondent
L.C. Diaz and Company, CPAs. Proportionate costs.

SO ORDERED.

EN BANC
 
PROFESSIONAL SERVICES, G.R. No. 126297
INC.,
Petitioner, Present:
PUNO, C.J.,
CARPIO,
CORONA,
CARPIO MORALES,
VELASCO, JR.,
NACHURA,
- v e r s u s - LEONARDO-DE CASTRO,
BRION,
PERALTA,
BERSAMIN,*
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ and
MENDOZA, JJ.*
THE COURT OF APPEALS and NATIVIDAD and
ENRIQUE
AGANA,
Respondents.
 
x-------------------x
NATIVIDAD [substituted by her G.R. No. 126467
children Marcelino Agana III,
Enrique Agana, Jr.,
Emma Agana-Andaya,
Jesus Agana and Raymund
Agana] and ENRIQUE AGANA,
Petitioners,
 
 
-         v e r s u s -
 
THE COURT OF APPEALS and JUAN FUENTES,
Respondents.
 
x-------------------x
MIGUEL AMPIL, G.R. No. 127590
Petitioner,
 
 
- v e r s u s -
 
 
NATIVIDAD and ENRIQUE
AGANA,
Respondents.
Promulgated:
February 2, 2010
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
 
R ES OLUTION
CORONA, J.:
 

With prior leave of court, [1] petitioner Professional Services, Inc. (PSI) filed a second motion for

reconsideration[2] urging referral thereof to the Court en banc and seeking modification of the decision dated January

31, 2007 and resolution dated February 11, 2008 which affirmed its vicarious and direct liability for damages to

respondents Enrique Agana and the heirs of Natividad Agana (Aganas).

 

Manila Medical Services, Inc. (MMSI), [3] Asian Hospital, Inc. (AHI),[4] and Private Hospital Association of the

Philippines (PHAP)[5] all sought to intervene in these casesinvoking the common ground that, unless modified, the

assailed decision and resolution will jeopardize the financial viability of private hospitals and jack up the cost

of health care.
 

The Special First Division of the Court granted the motions for intervention of MMSI, AHI and PHAP
(hereafter intervenors),[6] and referred en consulta to the Court en banc the motion for prior leave of court and the

second motion for reconsideration of PSI.[7]

 

Due to paramount public interest, the Court en banc accepted the referral[8] and heard the parties on oral arguments

on one particular issue: whether a hospital may be held liable for the negligence of physicians-consultants allowed to

practice in its premises.[9]

 

To recall the salient facts, PSI, together with Dr. Miguel Ampil (Dr. Ampil) and Dr. Juan Fuentes (Dr.

Fuentes), was impleaded by Enrique Agana and Natividad Agana (later substituted by her heirs), in a

complaint[10] for damages filed in the Regional Trial Court (RTC) of Quezon City, Branch 96, for the injuries

suffered by Natividad when Dr. Ampil and Dr. Fuentes neglected to remove from her body two gauzes [11] which

were used in the surgery they performed on her on April 11, 1984 at the Medical City General Hospital. PSI was

impleaded as owner, operator and manager of the hospital.

In a decision[12] dated March 17, 1993, the RTC held PSI solidarily liable with Dr. Ampil and Dr. Fuentes for

damages.[13] On appeal, the Court of Appeals (CA), absolved Dr. Fuentes but affirmed the liability of Dr. Ampil and

PSI, subject to the right of PSI to claim reimbursement from Dr. Ampil.[14]
 

On petition for review, this Court, in its January 31, 2007 decision, affirmed the CA decision.[15] PSI filed a motion

for reconsideration[16] but the Court denied it in a resolution dated February 11, 2008.[17]

 

The Court premised the direct liability of PSI to the Aganas on the following facts and law:
 

First, there existed between PSI and Dr. Ampil an employer-employee relationship as contemplated in the December

29, 1999 decision in Ramos v. Court of Appeals[18] that for purposes of allocating responsibility in medical

negligence cases, an employer-employee relationship exists between hospitals and their consultants. [19] Although the

Court in Ramos later issued a Resolution dated April 11, 2002 [20] reversing its earlier finding on the existence of an

employment relationship between hospital and doctor, a similar reversal was not warranted in the present

case because the defense raised by PSI consisted of a mere general denial of control or responsibility over the
actions of Dr. Ampil.[21]
 

Second, by accrediting Dr. Ampil and advertising his qualifications, PSI created the public impression that

he was its agent.[22] Enrique testified that it was on account of Dr. Ampil's accreditation with PSI that he conferred

with said doctor about his wife's (Natividad's) condition. [23] After his meeting with Dr. Ampil, Enrique asked

Natividad to personally consult Dr. Ampil. [24] In effect, when Enrigue and Natividad engaged the services of Dr.

Ampil, at the back of their minds was that the latter was a staff member of a prestigious hospital. Thus, under the

doctrine of apparent authority applied in Nogales, et al. v. Capitol Medical Center, et al.,[25] PSI was liable for the

negligence of Dr. Ampil.

 

Finally, as owner and operator of Medical City General Hospital, PSI was bound by its duty to provide

comprehensive medical services to Natividad Agana, to exercise reasonable care to protect her from harm, [26] to

oversee or supervise all persons who practiced medicine within its walls, and to take active steps in fixing any form

of negligence committed within its premises. [27] PSI committed a serious breach of its corporate duty when it failed

to conduct an immediate investigation into the reported missing gauzes. [28]

 

PSI is now asking this Court to reconsider the foregoing rulings for these reasons:
I
 
The declaration in the 31 January 2007 Decision vis-a-vis the 11 February 2009 Resolution that the
ruling in Ramos vs. Court of Appeals (G.R. No. 134354, December 29, 1999) that an employer-
employee relations exists between hospital and their consultants stays should be set aside for being
inconsistent with or contrary to the import of the resolution granting the hospital's motion for
reconsideration in Ramos vs. Court of Appeals (G.R. No. 134354, April 11, 2002), which is
applicable to PSI since the Aganas failed to prove an employer-employee relationship between PSI
and Dr. Ampil and PSI proved that it has no control over Dr. Ampil. In fact, the trial court has found
that there is no employer-employee relationship in this case and that the doctor's are independent
contractors.
 
II
 
Respondents Aganas engaged Dr. Miguel Ampil as their doctor and did not primarily and
specifically look to the Medical City Hospital (PSI) for medical care and support; otherwise stated,
respondents Aganas did not select Medical City Hospital (PSI) to provide medical care because of
any apparent authority of Dr. Miguel Ampil as its agent since the latter was chosen primarily and
 specifically based on his qualifications and being friend and neighbor.
 
III
 
PSI cannot be liable under doctrine of corporate negligence since the proximate cause of Mrs.
Agana's injury was the negligence of Dr. Ampil, which is an element of the principle of corporate
negligence.[29]

In their respective memoranda, intervenors raise parallel arguments that the Court's ruling on the existence

of an employer-employee relationship between private hospitals and consultants will force a drastic and complex

alteration in the long-established and currently prevailing relationships among patient, physician and hospital, with

burdensome operational and financial consequences and adverse effects on all three parties.[30]
 

The Aganas comment that the arguments of PSI need no longer be entertained for they have all been

traversed in the assailed decision and resolution.[31]

 

After gathering its thoughts on the issues, this Court holds that PSI is liable to the Aganas, not under the principle

of respondeat superior for lack of evidence of an employment relationship with Dr. Ampil but under the principle of

ostensible agency for the negligence of Dr. Ampil and, pro hac vice, under the principle of corporate negligence for

its failure to perform its duties as a hospital.

While in theory a hospital as a juridical entity cannot practice medicine, [32] in reality it utilizes doctors,

surgeons and medical practitioners in the conduct of its business of facilitating medical and surgical treatment.

[33]
 Within that reality, three legal relationships crisscross: (1) between the hospital and the doctor practicing within

its premises; (2) between the hospital and the patient being treated or examined within its premises and (3) between

the patient and the doctor. The exact nature of each relationship determines the basis and extent of the liability of the

hospital for the negligence of the doctor.

 

Where an employment relationship exists, the hospital may be held vicariously liable under Article

2176[34] in relation to Article 2180[35] of the Civil Code or the principle of respondeat superior. Even when no

employment relationship exists but it is shown that the hospital holds out to the patient that the doctor is its agent,
the hospital may still be vicariously liable under Article 2176 in relation to Article 1431 [36] and Article 1869[37] of the

Civil Code or the principle of apparent authority. [38] Moreover, regardless of its relationship with the doctor, the

hospital may be held directly liable to the patient for its own negligence or failure to follow established standard of

conduct to which it should conform as a corporation.[39]

 

This Court still employs the control test to determine the existence of an employer-employee relationship

between hospital and doctor. In Calamba Medical Center, Inc. v. National Labor Relations Commission, et al.[40] it

held:
 
Under the "control test", an employment relationship exists between a physician and a hospital if
the hospital controls both the means and the details of the process by which the physician is to
accomplish his task.
 
xx xx xx
As priorly stated, private respondents maintained specific work-schedules, as determined by
petitioner through its medical director, which consisted of 24-hour shifts totaling forty-eight hours
each week and which were strictly to be observed under pain of administrative sanctions.
 
That petitioner exercised control over respondents gains light from the undisputed
fact that in the emergency room, the operating room, or any department or ward for that
matter, respondents' work is monitored through its nursing supervisors, charge nurses and
orderlies. Without the approval or consent of petitioner or its medical director, no operations
can be undertaken in those areas. For control test to apply, it is not essential for the employer
to actually supervise the performance of duties of the employee, it being enough that it has the
right to wield the power. (emphasis supplied)
 
 

Even in its December 29, 1999 decision[41] and April 11, 2002 resolution[42] in Ramos, the Court found the

control test decisive.

 

In the present case, it appears to have escaped the Court's attention that both the RTC and the CA found no

employment relationship between PSI and Dr. Ampil, and thatthe Aganas did not question such finding. In

its March 17, 1993 decision, the RTC found that defendant doctors were not employees of PSI in its hospital, they

being merely consultants without any employer-employee relationship and in the capacity of independent

contractors.[43] The Aganas never questioned such finding.

 

PSI, Dr. Ampil and Dr. Fuentes appealed [44] from the RTC decision but only on the issues of negligence,
agency and corporate liability. In its September 6, 1996 decision, the CA mistakenly referred to PSI and Dr. Ampil as

employer-employee, but it was clear in its discussion on the matter that it viewed their relationship as one of mere

apparent agency.[45]
 

The Aganas appealed from the CA decision, but only to question the exoneration of Dr. Fuentes. [46] PSI also appealed

from the CA decision, and it was then that the issue of employment, though long settled, was unwittingly

resurrected.
 

In fine, as there was no dispute over the RTC finding that PSI and Dr. Ampil had no employer-employee

relationship, such finding became final and conclusive even to this Court. [47] There was no reason for PSI to have

raised it as an issue in its petition. Thus, whatever discussion on the matter that may have ensued was purely

academic.
 

Nonetheless, to allay the anxiety of the intervenors, the Court holds that, in this particular instance, the concurrent

finding of the RTC and the CA that PSI was not the employer of Dr. Ampil is correct. Control as a determinative

factor in testing the employer-employee relationship between doctor and hospital under which the hospital could be

held vicariously liable to a patient in medical negligence cases is a requisite fact to be established by preponderance

of evidence. Here, there was insufficient evidence that PSI exercised the power of control or wielded such power

over the means and the details of the specific process by which Dr. Ampil applied his skills in the treatment of

Natividad.Consequently, PSI cannot be held vicariously liable for the negligence of Dr. Ampil under the principle

of respondeat superior.

There is, however, ample evidence that the hospital (PSI) held out to the patient (Natividad) [48] that the

doctor (Dr. Ampil) was its agent. Present are the two factors that determine apparent authority: first, the hospital's

implied manifestation to the patient which led the latter to conclude that the doctor was the hospital's agent; and

second, the patients reliance upon the conduct of the hospital and the doctor, consistent with ordinary care and

prudence.[49]
 

Enrique testified that on April 2, 1984, he consulted Dr. Ampil regarding the condition of his wife; that

after the meeting and as advised by Dr. Ampil, he asked [his] wife to go to Medical City to be examined by [Dr.
Ampil]; and that the next day, April 3, he told his daughter to take her mother to Dr. Ampil.[50] This timeline

indicates that it was Enrique who actually made the decision on whom Natividad should consult and where, and that

the latter merely acceded to it. It explains the testimony of Natividad that she consulted Dr. Ampil at the instigation

of her daughter.[51]
 

Moreover, when asked what impelled him to choose Dr. Ampil, Enrique testified:
Atty. Agcaoili
 
On that particular occasion, April 2, 1984, what was your reason for choosing Dr. Ampil to contact
with in connection with your wife's illness?
 
A. First, before that, I have known him to be a specialist on that part of the body as a surgeon,
second, I have known him to be a staff member of the Medical City which is a prominent and
knownhospital. And third, because he is a neighbor, I expect more than the usual medical service to
be given to us, than his ordinary patients.[52] (emphasis supplied)

Clearly, the decision made by Enrique for Natividad to consult Dr. Ampil was significantly influenced by

the impression that Dr. Ampil was a staff member of Medical CityGeneral Hospital, and that said hospital was well

known and prominent. Enrique looked upon Dr. Ampil not as independent of but as integrally related

to Medical City.
 

PSI's acts tended to confirm and reinforce, rather than negate, Enrique's view. It is of record that PSI required a

consent for hospital care[53] to be signed preparatory to the surgery of Natividad. The form reads:
 
Permission is hereby given to the medical, nursing and laboratory staff of
the Medical City General Hospital to perform such diagnostic procedures and to administer such
medications and treatments as may be deemed necessary or advisable by the physicians of this
hospital for and during the confinement of xxx. (emphasis supplied)

By such statement, PSI virtually reinforced the public impression that Dr. Ampil was a physician of its hospital,

rather than one independently practicing in it; that the medications and treatments he prescribed were necessary and

desirable; and that the hospital staff was prepared to carry them out.
 

PSI pointed out in its memorandum that Dr. Ampil's hospital affiliation was not the exclusive basis of the

Aganas decision to have Natividad treated in Medical City GeneralHospital, meaning that, had Dr. Ampil been

affiliated with another hospital, he would still have been chosen by the Aganas as Natividad's surgeon.[54]
The Court cannot speculate on what could have been behind the Aganas decision but would rather adhere strictly to

the fact that, under the circumstances at that time, Enriquedecided to consult Dr. Ampil for he believed him to be a

staff member of a prominent and known hospital. After his meeting with Dr. Ampil, Enrique advised his wife

Natividad to go to the Medical City General Hospital to be examined by said doctor, and the hospital acted in a way

that fortified Enrique's belief.

This Court must therefore maintain the ruling that PSI is vicariously liable for the negligence of Dr. Ampil

as its ostensible agent.

Moving on to the next issue, the Court notes that PSI made the following admission in its Motion for

Reconsideration:
51. Clearly, not being an agent or employee of petitioner PSI, PSI [sic] is not liable for Dr. Ampil's
acts during the operation. Considering further that Dr. Ampil was personally engaged as a doctor by
Mrs. Agana, it is incumbent upon Dr. Ampil, as Captain of the Ship, and as the Agana's doctor to
advise her on what to do with her situation vis-a-vis the two missing gauzes. In addition to noting
the missing gauzes, regular check-ups were made and no signs of complications were
exhibited during her stay at the hospital, which could have alerted petitioner PSI's hospital to
render and provide post-operation services to and tread on Dr. Ampil's role as the doctor of
Mrs. Agana. The absence of negligence of PSI from the patient's admission up to her
discharge is borne by the finding of facts in this case. Likewise evident therefrom is the
absence of any complaint from Mrs. Agana after her discharge from the hospital which had
she brought to the hospital's attention, could have alerted petitioner PSI to act accordingly
and bring the matter to Dr. Ampil's attention. But this was not the case. Ms. Agana
complained ONLY to Drs. Ampil and Fuentes, not the hospital. How then could PSI possibly
do something to fix the negligence committed by Dr. Ampil when it was not informed about it
at all.[55] (emphasis supplied)

PSI reiterated its admission when it stated that had Natividad Agana informed the hospital of her

discomfort and pain, the hospital would have been obliged to act on it.[56]
 

The significance of the foregoing statements is critical.

First, they constitute judicial admission by PSI that while it had no power to control the means or method

by which Dr. Ampil conducted the surgery on Natividad Agana, it had the power to review or cause the review of

what may have irregularly transpired within its walls strictly for the purpose of determining whether some form of

negligence may have attended any procedure done inside its premises, with the ultimate end of protecting its

patients.
 
 Second, it is a judicial admission that, by virtue of the nature of its business as well as its prominence [57] in

the hospital industry, it assumed a duty to tread on the captain of the ship role of any doctor rendering services

within its premises for the purpose of ensuring the safety of the patients availing themselves of its services and

facilities.
 

Third, by such admission, PSI defined the standards of its corporate conduct under the circumstances of

this case, specifically: (a) that it had a corporate duty to Natividad even after her operation to ensure her safety as a

patient; (b) that its corporate duty was not limited to having its nursing staff note or record the two missing gauzes

and (c) that its corporate duty extended to determining Dr. Ampil's role in it, bringing the matter to his attention,

and correcting his negligence.
 

And finally, by such admission, PSI barred itself from arguing in its second motion for reconsideration that

the concept of corporate responsibility was not yet in existence at the time Natividad underwent treatment; [58] and

that if it had any corporate responsibility, the same was limited to reporting the missing gauzes and did not include

taking an active step in fixing the negligence committed. [59] An admission made in the pleading cannot be

controverted by the party making such admission and is conclusive as to him, and all proofs submitted by him

contrary thereto or inconsistent therewith should be ignored, whether or not objection is interposed by a party. [60]
 

Given the standard of conduct that PSI defined for itself, the next relevant inquiry is whether the hospital

measured up to it.
 

PSI excuses itself from fulfilling its corporate duty on the ground that Dr. Ampil assumed the personal responsibility

of informing Natividad about the two missing gauzes. [61] Dr. Ricardo Jocson, who was part of the group of doctors

that attended to Natividad, testified that toward the end of the surgery, their group talked about the missing gauzes

but Dr. Ampil assured them that he would personally notify the patient about it. [62] Furthermore, PSI claimed that

there was no reason for it to act on the report on the two missing gauzes because Natividad Agana showed no signs

of complications. She did not even inform the hospital about her discomfort.[63]
 

The excuses proffered by PSI are totally unacceptable.

 
 To begin with, PSI could not simply wave off the problem and nonchalantly delegate to Dr. Ampil the duty

to review what transpired during the operation. The purpose of such review would have been to pinpoint when, how

and by whom two surgical gauzes were mislaid so that necessary remedial measures could be taken to avert any

jeopardy to Natividads recovery. Certainly, PSI could not have expected that purpose to be achieved by merely

hoping that the person likely to have mislaid the gauzes might be able to retrace his own steps. By its own standard

of corporate conduct, PSI's duty to initiate the review was non-delegable.

 

While Dr. Ampil may have had the primary responsibility of notifying Natividad about the missing gauzes, PSI

imposed upon itself the separate and independent responsibility of initiating the inquiry into the missing gauzes. The

purpose of the first would have been to apprise Natividad of what transpired during her surgery, while the purpose of

the second would have been to pinpoint any lapse in procedure that led to the gauze count discrepancy, so as to

prevent a recurrence thereof and to determine corrective measures that would ensure the safety of Natividad. That

Dr. Ampil negligently failed to notify Natividad did not release PSI from its self-imposed separate responsibility.
 

Corollary to its non-delegable undertaking to review potential incidents of negligence committed within its

premises, PSI had the duty to take notice of medical records prepared by its own staff and submitted to its custody,

especially when these bear earmarks of a surgery gone awry. Thus, the record taken during the operation of

Natividad which reported a gauze count discrepancy should have given PSI sufficient reason to initiate a review. It

should not have waited for Natividad to complain.

 

As it happened, PSI took no heed of the record of operation and consequently did not initiate a review of

what transpired during Natividads operation. Rather, it shirked its responsibility and passed it on to others to Dr.

Ampil whom it expected to inform Natividad, and to Natividad herself to complain before it took any meaningful

step. By its inaction, therefore, PSI failed its own standard of hospital care. It committed corporate negligence.
 

It should be borne in mind that the corporate negligence ascribed to PSI is different from the medical

negligence attributed to Dr. Ampil. The duties of the hospital are distinct from those of the doctor-consultant

practicing within its premises in relation to the patient; hence, the failure of PSI to fulfill its duties as a hospital

corporation gave rise to a direct liability to the Aganas distinct from that of Dr. Ampil.
  

All this notwithstanding, we make it clear that PSIs hospital liability based on ostensible agency and

corporate negligence applies only to this case, pro hac vice. It is not intended to set a precedent and should not serve

as a basis to hold hospitals liable for every form of negligence of their doctors-consultants under any and all

circumstances. The ruling is unique to this case, for the liability of PSI arose from an implied agency with Dr. Ampil

and an admitted corporate duty to Natividad.[64]

Other circumstances peculiar to this case warrant this ruling, [65] not the least of which being that the agony

wrought upon the Aganas has gone on for 26 long years, with Natividad coming to the end of her days racked in

pain and agony. Such wretchedness could have been avoided had PSI simply done what was logical: heed the report

of a guaze count discrepancy, initiate a review of what went wrong and take corrective measures to ensure the safety

of Nativad. Rather, for 26 years, PSI hemmed and hawed at every turn, disowning any such responsibility to its

patient. Meanwhile, the options left to the Aganas have all but dwindled, for the status of Dr. Ampil can no longer be

ascertained.[66]
 

Therefore, taking all the equities of this case into consideration, this Court believes P15 million would be a

fair and reasonable liability of PSI, subject to 12% p.a. interest from the finality of this resolution to full satisfaction.
 

WHEREFORE, the second motion for reconsideration is DENIED and the motions for intervention are NOTED.
 

Professional Services, Inc. is ORDERED pro hac vice to pay Natividad (substituted by her children Marcelino

Agana III, Enrique Agana, Jr., Emma Agana-Andaya, Jesus Agana and Raymund Agana) and Enrique Agana the

total amount of P15 million, subject to 12% p.a. interest from the finality of this resolution to full satisfaction.
 

No further pleadings by any party shall be entertained in this case.

 

Let the long-delayed entry of judgment be made in this case upon receipt by all concerned parties of this resolution.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
 EN BANC

G.R. No. 15574           September 17, 1919

SMITH, BELL & COMPANY (LTD.), petitioner, 

vs.
JOAQUIN NATIVIDAD, Collector of Customs of the port of Cebu, respondent.

Ross and Lawrence for petitioner. 

Attorney-General Paredes for respondent.

MALCOLM, J.:

A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin Natividad, Collector of Customs of
the port of Cebu, Philippine Islands, to compel him to issue a certificate of Philippine registry to the petitioner for its
motor vessel Bato. The Attorney-General, acting as counsel for respondent, demurs to the petition on the general
ground that it does not state facts sufficient to constitute a cause of action. While the facts are thus admitted, and
while, moreover, the pertinent provisions of law are clear and understandable, and interpretative American
jurisprudence is found in abundance, yet the issue submitted is not lightly to be resolved. The question, flatly
presented, is, whether Act. No. 2761 of the Philippine Legislature is valid — or, more directly stated, whether the
Government of the Philippine Islands, through its Legislature, can deny the registry of vessels in its coastwise trade
to corporations having alien stockholders.

FACTS.

Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands. A
majority of its stockholders are British subjects. It is the owner of a motor vessel known as the Bato built for it in the
Philippine Islands in 1916, of more than fifteen tons gross The Bato was brought to Cebu in the present year for the
purpose of transporting plaintiff's merchandise between ports in the Islands. Application was made at Cebu, the
home port of the vessel, to the Collector of Customs for a certificate of Philippine registry. The Collector refused to
issue the certificate, giving as his reason that all the stockholders of Smith, Bell & Co., Ltd., were not citizens either
of the United States or of the Philippine Islands. The instant action is the result.

LAW.

The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30, 1906 but reenacting a portion of
section 3 of this Law, and still in force, provides in its section 1:

That until Congress shall have authorized the registry as vessels of the United States of vessels owned in
the Philippine Islands, the Government of the Philippine Islands is hereby authorized to adopt, from time to
time, and enforce regulations governing the transportation of merchandise and passengers between ports or
places in the Philippine Archipelago. (35 Stat. at L., 70; Section 3912, U. S. Comp Stat. [1916]; 7 Pub.
Laws, 364.)

The Act of Congress of August 29, 1916, commonly known as the Jones Law, still in force, provides in section 3,
(first paragraph, first sentence), 6, 7, 8, 10, and 31, as follows.

SEC. 3. That no law shall be enacted in said Islands which shall deprive any person of life, liberty, or
property without due process of law, or deny to any person therein the equal protection of the laws. . . .

SEC. 6. That the laws now in force in the Philippines shall continue in force and effect, except as altered,
amended, or modified herein, until altered, amended, or repealed by the legislative authority herein
provided or by Act of Congress of the United States.

SEC. 7. That the legislative authority herein provided shall have power, when not inconsistent with this
Act, by due enactment to amend, alter modify, or repeal any law, civil or criminal, continued in force by
 this Act as it may from time to time see fit

This power shall specifically extend with the limitation herein provided as to the tariff to all laws relating to
revenue provided as to the tariff to all laws relating to revenue and taxation in effect in the Philippines.

SEC. 8. That general legislative power, except as otherwise herein provided, is hereby granted to the
Philippine Legislature, authorized by this Act.

SEC. 10. That while this Act provides that the Philippine government shall have the authority to enact a
tariff law the trade relations between the islands and the United States shall continue to be governed
exclusively by laws of the Congress of the United States: Provided, That tariff acts or acts amendatory to
the tariff of the Philippine Islands shall not become law until they shall receive the approval of the
President of the United States, nor shall any act of the Philippine Legislature affecting immigration or the
currency or coinage laws of the Philippines become a law until it has been approved by the President of the
United States: Provided further, That the President shall approve or disapprove any act mentioned in the
foregoing proviso within six months from and after its enactment and submission for his approval, and if
not disapproved within such time it shall become a law the same as if it had been specifically approved.

SEC. 31. That all laws or parts of laws applicable to the Philippines not in conflict with any of the
provisions of this Act are hereby continued in force and effect." (39 Stat at L., 546.)

On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first section of this law amended
section 1172 of the Administrative Code to read as follows:

SEC. 1172. Certificate of Philippine register. — Upon registration of a vessel of domestic ownership, and
of more than fifteen tons gross, a certificate of Philippine register shall be issued for it. If the vessel is of
domestic ownership and of fifteen tons gross or less, the taking of the certificate of Philippine register shall
be optional with the owner.

"Domestic ownership," as used in this section, means ownership vested in some one or more of the
following classes of persons: (a) Citizens or native inhabitants of the Philippine Islands; (b) citizens of the
United States residing in the Philippine Islands; (c) any corporation or company composed wholly of
citizens of the Philippine Islands or of the United States or of both, created under the laws of the United
States, or of any State thereof, or of thereof, or the managing agent or master of the vessel resides in the
Philippine Islands

Any vessel of more than fifteen gross tons which on February eighth, nineteen hundred and eighteen, had a
certificate of Philippine register under existing law, shall likewise be deemed a vessel of domestic
ownership so long as there shall not be any change in the ownership thereof nor any transfer of stock of the
companies or corporations owning such vessel to person not included under the last preceding paragraph.

Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the Administrative Code to read as follows:

SEC. 1176. Investigation into character of vessel. — No application for a certificate of Philippine register
shall be approved until the collector of customs is satisfied from an inspection of the vessel that it is
engaged or destined to be engaged in legitimate trade and that it is of domestic ownership as such
ownership is defined in section eleven hundred and seventy-two of this Code.

The collector of customs may at any time inspect a vessel or examine its owner, master, crew, or passengers
in order to ascertain whether the vessel is engaged in legitimate trade and is entitled to have or retain the
certificate of Philippine register.

SEC. 1202. Limiting number of foreign officers and engineers on board vessels. — No Philippine vessel
operating in the coastwise trade or on the high seas shall be permitted to have on board more than one
master or one mate and one engineer who are not citizens of the United States or of the Philippine Islands,
even if they hold licenses under section one thousand one hundred and ninety-nine hereof. No other person
 who is not a citizen of the United States or of the Philippine Islands shall be an officer or a member of the
crew of such vessel. Any such vessel which fails to comply with the terms of this section shall be required
to pay an additional tonnage tax of fifty centavos per net ton per month during the continuance of said
failure.

ISSUES.

Predicated on these facts and provisions of law, the issues as above stated recur, namely, whether Act No 2761 of the
Philippine Legislature is valid in whole or in part — whether the Government of the Philippine Islands, through its
Legislature, can deny the registry of vessel in its coastwise trade to corporations having alien stockholders .

OPINION.

1. Considered from a positive standpoint, there can exist no measure of doubt as to the power of the Philippine
Legislature to enact Act No. 2761. The Act of Congress of April 29, 1908, with its specific delegation of authority to
the Government of the Philippine Islands to regulate the transportation of merchandise and passengers between ports
or places therein, the liberal construction given to the provisions of the Philippine Bill, the Act of Congress of July 1,
1902, by the courts, and the grant by the Act of Congress of August 29, 1916, of general legislative power to the
Philippine Legislature, are certainly superabundant authority for such a law. While the Act of the local legislature
may in a way be inconsistent with the Act of Congress regulating the coasting trade of the Continental United States,
yet the general rule that only such laws of the United States have force in the Philippines as are expressly extended
thereto, and the abnegation of power by Congress in favor of the Philippine Islands would leave no starting point for
convincing argument. As a matter of fact, counsel for petitioner does not assail legislative action from this direction
(See U. S. vs. Bull [1910], 15 Phil., 7; Sinnot vs. Davenport [1859] 22 How., 227.)

2. It is from the negative, prohibitory standpoint that counsel argues against the constitutionality of Act No. 2761.
The first paragraph of the Philippine Bill of Rights of the Philippine Bill, repeated again in the first paragraph of the
Philippine Bill of Rights as set forth in the Jones Law, provides "That no law shall be enacted in said Islands which
shall deprive any person of life, liberty, or property without due process of law, or deny to any person therein the
equal protection of the laws." Counsel says that Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection
of the laws because it, in effect, prohibits the corporation from owning vessels, and because classification of
corporations based on the citizenship of one or more of their stockholders is capricious, and that Act No. 2761
deprives the corporation of its properly without due process of law because by the passage of the law company was
automatically deprived of every beneficial attribute of ownership in the Bato and left with the naked title to a boat it
could not use .

The guaranties extended by the Congress of the United States to the Philippine Islands have been used in the same
sense as like provisions found in the United States Constitution. While the "due process of law and equal protection
of the laws" clause of the Philippine Bill of Rights is couched in slightly different words than the corresponding
clause of the Fourteenth Amendment to the United States Constitution, the first should be interpreted and given the
same force and effect as the latter. (Kepner vs. U.S. [1904], 195 U. S., 100; Sierra vs. Mortiga [1907], 204 U.
S.,.470; U. S. vs. Bull [1910], 15 Phil., 7.) The meaning of the Fourteenth Amendment has been announced in classic
decisions of the United States Supreme Court. Even at the expense of restating what is so well known, these basic
principles must again be set down in order to serve as the basis of this decision.

The guaranties of the Fourteenth Amendment and so of the first paragraph of the Philippine Bill of Rights, are
universal in their application to all person within the territorial jurisdiction, without regard to any differences of race,
color, or nationality. The word "person" includes aliens. (Yick Wo vs. Hopkins [1886], 118 U. S., 356; Truax vs.
Raich [1915], 239 U. S., 33.) Private corporations, likewise, are "persons" within the scope of the guaranties in so
far as their property is concerned. (Santa Clara County vs. Southern Pac. R. R. Co. [1886], 118.U. S., 394; Pembina
Mining Co. vs. Pennsylvania [1888],.125 U. S., 181 Covington & L. Turnpike Road Co. vs. Sandford [1896], 164 U.
S., 578.) Classification with the end in view of providing diversity of treatment may be made among corporations,
but must be based upon some reasonable ground and not be a mere arbitrary selection (Gulf, Colorado & Santa Fe
Railway Co. vs. Ellis [1897],.165 U. S., 150.) Examples of laws held unconstitutional because of unlawful
discrimination against aliens could be cited. Generally, these decisions relate to statutes which had attempted
arbitrarily to forbid aliens to engage in ordinary kinds of business to earn their living. (State vs.Montgomery [1900],
94 Maine, 192, peddling — but see. Commonwealth vs. Hana [1907], 195 Mass., 262; Templar vs. Board of
Examiners of Barbers [1902], 131 Mich., 254, barbers; Yick Wo vs. Hopkins [1886], 118 U. S.,.356, discrimination
against Chinese; Truax vs. Raich [1915], 239 U. S., 33; In re Parrott [1880], 1 Fed , 481; Fraser vs.McConway &
Torley Co. [1897], 82 Fed , 257; Juniata Limestone Co. vs. Fagley [1898], 187 Penn., 193, all relating to the
employment of aliens by private corporations.)

A literal application of general principles to the facts before us would, of course, cause the inevitable deduction that
Act No. 2761 is unconstitutional by reason of its denial to a corporation, some of whole members are foreigners, of
the equal protection of the laws. Like all beneficient propositions, deeper research discloses provisos. Examples of a
denial of rights to aliens notwithstanding the provisions of the Fourteenth Amendment could be cited.
(Tragesser vs. Gray [1890], 73 Md., 250, licenses to sell spirituous liquors denied to persons not citizens of the
United States; Commonwealth vs. Hana [1907], 195 Mass , 262, excluding aliens from the right to peddle;
Patsone vs. Commonwealth of Pennsylvania [1914], 232 U. S. , 138, prohibiting the killing of any wild bird or
animal by any unnaturalized foreign-born resident; Ex parte Gilleti [1915], 70 Fla., 442, discriminating in favor of
citizens with reference to the taking for private use of the common property in fish and oysters found in the public
waters of the State; Heim vs. McCall [1915], 239 U. S.,.175, and Crane vs. New York [1915], 239 U. S., 195,
limiting employment on public works by, or for, the State or a municipality to citizens of the United States.)

One of the exceptions to the general rule, most persistent and far reaching in influence is, that neither the Fourteenth
Amendment to the United States Constitution, broad and comprehensive as it is, nor any other amendment, "was
designed to interfere with the power of the State, sometimes termed its `police power,' to prescribe regulations to
promote the health, peace, morals, education, and good order of the people, and legislate so as to increase the
industries of the State, develop its resources and add to its wealth and prosperity. From the very necessities of
society, legislation of a special character, having these objects in view, must often be had in certain districts."
(Barbier vs. Connolly [1884], 113 U.S., 27; New Orleans Gas Co. vs. Lousiana Light Co. [1885], 115 U.S., 650.)
This is the same police power which the United States Supreme Court say "extends to so dealing with the conditions
which exist in the state as to bring out of them the greatest welfare in of its people." (Bacon vs.Walker [1907], 204
U.S., 311.) For quite similar reasons, none of the provision of the Philippine Organic Law could could have had the
effect of denying to the Government of the Philippine Islands, acting through its Legislature, the right to exercise
that most essential, insistent, and illimitable of powers, the sovereign police power, in the promotion of the general
welfare and the public interest. (U. S. vs. Toribio [1910], 15 Phil., 85; Churchill and Tait vs.Rafferty [1915], 32 Phil.,
580; Rubi vs. Provincial Board of Mindoro [1919], 39 Phil., 660.) Another notable exception permits of the
regulation or distribution of the public domain or the common property or resources of the people of the State, so
that use may be limited to its citizens. (Ex parte Gilleti [1915], 70 Fla., 442; McCready vs.Virginia [1876], 94 U. S.,
391; Patsone vs. Commonwealth of Pennsylvania [1914], 232U. S., 138.) Still another exception permits of the
limitation of employment in the construction of public works by, or for, the State or a municipality to citizens of the
United States or of the State. (Atkin vs. Kansas [1903],191 U. S., 207; Heim vs.McCall [1915], 239 U.S., 175;
Crane vs. New York [1915], 239 U. S., 195.) Even as to classification, it is admitted that a State may classify with
reference to the evil to be prevented; the question is a practical one, dependent upon experience.
(Patsone vs. Commonwealth of Pennsylvania [1914], 232 U. S., 138.)

To justify that portion of Act no. 2761 which permits corporations or companies to obtain a certificate of Philippine
registry only on condition that they be composed wholly of citizens of the Philippine Islands or of the United States
or both, as not infringing Philippine Organic Law, it must be done under some one of the exceptions here mentioned
This must be done, moreover, having particularly in mind what is so often of controlling effect in this jurisdiction —
our local experience and our peculiar local conditions.

To recall a few facts in geography, within the confines of Philippine jurisdictional limits are found more than three
thousand islands. Literally, and absolutely, steamship lines are, for an Insular territory thus situated, the arteries of
commerce. If one be severed, the life-blood of the nation is lost. If on the other hand these arteries are protected,
then the security of the country and the promotion of the general welfare is sustained. Time and again, with such
conditions confronting it, has the executive branch of the Government of the Philippine Islands, always later with
the sanction of the judicial branch, taken a firm stand with reference to the presence of undesirable foreigners. The
Government has thus assumed to act for the all-sufficient and primitive reason of the benefit and protection of its
own citizens and of the self-preservation and integrity of its dominion. (In re Patterson [1902], 1 Phil., 93;
Forbes vs. Chuoco, Tiaco and Crossfield [1910], 16 Phil., 534;.228 U.S., 549; In re McCulloch Dick [1918], 38
Phil., 41.) Boats owned by foreigners, particularly by such solid and reputable firms as the instant claimant, might
indeed traverse the waters of the Philippines for ages without doing any particular harm. Again, some evilminded
foreigner might very easily take advantage of such lavish hospitality to chart Philippine waters, to obtain valuable
information for unfriendly foreign powers, to stir up insurrection, or to prejudice Filipino or American commerce.
Moreover, under the Spanish portion of Philippine law, the waters within the domestic jurisdiction are deemed part
of the national domain, open to public use. (Book II, Tit. IV, Ch. I, Civil Code; Spanish Law of Waters of August 3,
1866, arts 1, 2, 3.) Common carriers which in the Philippines as in the United States and other countries are, as Lord
Hale said, "affected with a public interest," can only be permitted to use these public waters as a privilege and under
such conditions as to the representatives of the people may seem wise. (See De Villata vs. Stanley [1915], 32 Phil.,
541.)

In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a case herein before mentioned, Justice
Holmes delivering the opinion of the United States Supreme Court said:

This statute makes it unlawful for any unnaturalized foreign-born resident to kill any wild bird or animal
except in defense of person or property, and `to that end' makes it unlawful for such foreign-born person to
own or be possessed of a shotgun or rifle; with a penalty of $25 and a forfeiture of the gun or guns. The
plaintiff in error was found guilty and was sentenced to pay the abovementioned fine. The judgment was
affirmed on successive appeals. (231 Pa., 46; 79 Atl., 928.) He brings the case to this court on the ground
that the statute is contrary to the 14th Amendment and also is in contravention of the treaty between the
United States and Italy, to which latter country the plaintiff in error belongs .

Under the 14th Amendment the objection is twofold; unjustifiably depriving the alien of property, and
discrimination against such aliens as a class. But the former really depends upon the latter, since it hardly
can be disputed that if the lawful object, the protection of wild life (Geer vs. Connecticut, 161 U.S., 519; 40
L. ed., 793; 16 Sup. Ct. Rep., 600), warrants the discrimination, the, means adopted for making it effective
also might be adopted. . . .

The discrimination undoubtedly presents a more difficult question. But we start with reference to the evil to
be prevented, and that if the class discriminated against is or reasonably might be considered to define
those from whom the evil mainly is to be feared, it properly may be picked out. A lack of abstract
symmetry does not matter. The question is a practical one, dependent upon experience. . . .

The question therefore narrows itself to whether this court can say that the legislature of Pennsylvania was
not warranted in assuming as its premise for the law that resident unnaturalized aliens were the peculiar
source of the evil that it desired to prevent. (Barrett vs. Indiana,. 229 U.S., 26, 29; 57 L. ed., 1050, 1052; 33
Sup. Ct. Rep., 692.)

Obviously the question, so stated, is one of local experience, on which this court ought to be very slow to
declare that the state legislature was wrong in its facts (Adams vs. Milwaukee, 228 U.S., 572, 583; 57 L.
ed., 971,.977; 33 Sup. Ct. Rep., 610.) If we might trust popular speech in some states it was right; but it is
enough that this court has no such knowledge of local conditions as to be able to say that it was manifestly
wrong. . . .

Judgment affirmed.

We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having alien stockholders, is entitled to
the protection afforded by the due-process of law and equal protection of the laws clause of the Philippine Bill of
Rights, nevertheless, Act No. 2761 of the Philippine Legislature, in denying to corporations such as Smith, Bell &.
Co. Ltd., the right to register vessels in the Philippines coastwise trade, does not belong to that vicious species of
class legislation which must always be condemned, but does fall within authorized exceptions, notably, within the
purview of the police power, and so does not offend against the constitutional provision.
This opinion might well be brought to a close at this point. It occurs to us, however, that the legislative history of the
United States and the Philippine Islands, and, probably, the legislative history of other countries, if we were to take
the time to search it out, might disclose similar attempts at restriction on the right to enter the coastwise trade, and
might thus furnish valuable aid by which to ascertain and, if possible, effectuate legislative intention.

3. The power to regulate commerce, expressly delegated to the Congress by the Constitution, includes the
power to nationalize ships built and owned in the United States by registries and enrollments, and the
recording of the muniments of title of American vessels. The Congress "may encourage or it may entirely
prohibit such commerce, and it may regulate in any way it may see fit between these two extremes."
(U.S. vs.Craig [1886], 28 Fed., 795; Gibbons vs. Ogden [1824], 9 Wheat., 1; The Passenger Cases [1849], 7
How., 283.)

Acting within the purview of such power, the first Congress of the United States had not been long convened before
it enacted on September 1, 1789, "An Act for Registering and Clearing Vessels, Regulating the Coasting Trade, and
for other purposes." Section 1 of this law provided that for any ship or vessel to obtain the benefits of American
registry, it must belong wholly to a citizen or citizens of the United States "and no other." (1 Stat. at L., 55.) That Act
was shortly after repealed, but the same idea was carried into the Acts of Congress of December 31, 1792 and
February 18, 1793. (1 Stat. at L., 287, 305.).Section 4 of the Act of 1792 provided that in order to obtain the registry
of any vessel, an oath shall be taken and subscribed by the owner, or by one of the owners thereof, before the officer
authorized to make such registry, declaring, "that there is no subject or citizen of any foreign prince or state, directly
or indirectly, by way of trust, confidence, or otherwise, interested in such vessel, or in the profits or issues thereof."
Section 32 of the Act of 1793 even went so far as to say "that if any licensed ship or vessel shall be transferred to
any person who is not at the time of such transfer a citizen of and resident within the United States, ... every such
vessel with her tackle, apparel, and furniture, and the cargo found on board her, shall be forefeited." In case of
alienation to a foreigner, Chief Justice Marshall said that all the privileges of an American bottom were ipso
facto forfeited. (U.S. vs. Willings and Francis [1807], 4 Cranch, 48.) Even as late as 1873, the Attorney-General of
the United States was of the opinion that under the provisions of the Act of December 31, 1792, no vessel in which a
foreigner is directly or indirectly interested can lawfully be registered as a vessel of the United. States. (14 Op. Atty.-
Gen. [U.S.], 340.)

These laws continued in force without contest, although possibly the Act of March 3, 1825, may have affected them,
until amended by the Act of May 28, 1896 (29 Stat. at L., 188) which extended the privileges of registry from
vessels wholly owned by a citizen or citizens of the United States to corporations created under the laws of any of
the states thereof. The law, as amended, made possible the deduction that a vessel belonging to a domestic
corporation was entitled to registry or enrollment even though some stock of the company be owned by aliens. The
right of ownership of stock in a corporation was thereafter distinct from the right to hold the property by the
corporation (Humphreys vs. McKissock [1890], 140 U.S., 304; Queen vs. Arnaud [1846], 9 Q. B., 806; 29 Op. Atty.-
Gen. [U.S.],188.)

On American occupation of the Philippines, the new government found a substantive law in operation in the Islands
with a civil law history which it wisely continued in force Article fifteen of the Spanish Code of Commerce
permitted any foreigner to engage in Philippine trade if he had legal capacity to do so under the laws of his nation.
When the Philippine Commission came to enact the Customs Administrative Act (No. 355) in 1902, it returned to
the old American policy of limiting the protection and flag of the United States to vessels owned by citizens of the
United States or by native inhabitants of the Philippine Islands (Sec. 117.) Two years later, the same body reverted to
the existing Congressional law by permitting certification to be issued to a citizen of the United States or to a
corporation or company created under the laws of the United States or of any state thereof or of the Philippine
Islands (Act No. 1235, sec. 3.) The two administration codes repeated the same provisions with the necessary
amplification of inclusion of citizens or native inhabitants of the Philippine Islands (Adm. Code of 1916, sec. 1345;
Adm. Code of 1917, sec. 1172). And now Act No. 2761 has returned to the restrictive idea of the original Customs
Administrative Act which in turn was merely a reflection of the statutory language of the first American Congress.

Provisions such as those in Act No. 2761, which deny to foreigners the right to a certificate of Philippine registry,
are thus found not to be as radical as a first reading would make them appear.
Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to be to enact an anti-alien
shipping act. The ultimate purpose of the Legislature is to encourage Philippine ship-building. This, without doubt,
has, likewise, been the intention of the United States Congress in passing navigation or tariff laws on different
occasions. The object of such a law, the United States Supreme Court once said, was to encourage American trade,
navigation, and ship-building by giving American ship-owners exclusive privileges. (Old Dominion Steamship
Co. vs. Virginia [1905], 198 U.S., 299; Kent's Commentaries, Vol. 3, p. 139.)

In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824], 9 Wheat., 1) is found the following:

Licensing acts, in fact, in legislation, are universally restraining acts; as, for example, acts licensing gaming
houses, retailers of spirituous liquors, etc. The act, in this instance, is distinctly of that character, and forms
part of an extensive system, the object of which is to encourage American shipping, and place them on an
equal footing with the shipping of other nations. Almost every commercial nation reserves to its own
subjects a monopoly of its coasting trade; and a countervailing privilege in favor of American shipping is
contemplated, in the whole legislation of the United States on this subject. It is not to give the vessel an
American character, that the license is granted; that effect has been correctly attributed to the act of her
enrollment. But it is to confer on her American privileges, as contradistinguished from foreign; and to
preserve the. Government from fraud by foreigners, in surreptitiously intruding themselves into the
American commercial marine, as well as frauds upon the revenue in the trade coastwise, that this whole
system is projected.

The United States Congress in assuming its grave responsibility of legislating wisely for a new country did so
imbued with a spirit of Americanism. Domestic navigation and trade, it decreed, could only be carried on by citizens
of the United States. If the representatives of the American people acted in this patriotic manner to advance the
national policy, and if their action was accepted without protest in the courts, who can say that they did not enact
such beneficial laws under the all-pervading police power, with the prime motive of safeguarding the country and of
promoting its prosperity? Quite similarly, the Philippine Legislature made up entirely of Filipinos, representing the
mandate of the Filipino people and the guardian of their rights, acting under practically autonomous powers, and
imbued with a strong sense of Philippinism, has desired for these Islands safety from foreign interlopers, the use of
the common property exclusively by its citizens and the citizens of the United States, and protection for the common
good of the people. Who can say, therefore, especially can a court, that with all the facts and circumstances affecting
the Filipino people before it, the Philippine Legislature has erred in the enactment of Act No. 2761?

Surely, the members of the judiciary are not expected to live apart from active life, in monastic seclusion amidst
dusty tomes and ancient records, but, as keen spectators of passing events and alive to the dictates of the general —
the national — welfare, can incline the scales of their decisions in favor of that solution which will most effectively
promote the public policy. All the presumption is in favor of the constitutionally of the law and without good and
strong reasons, courts should not attempt to nullify the action of the Legislature. "In construing a statute enacted by
the Philippine Commission (Legislature), we deem it our duty not to give it a construction which would be
repugnant to an Act of Congress, if the language of the statute is fairly susceptible of another construction not in
conflict with the higher law." (In re Guariña [1913], 24. Phil., 36; U.S. vs. Ten Yu [1912], 24 Phil., 1.) That is the
true construction which will best carry legislative intention into effect.

With full consciousness of the importance of the question, we nevertheless are clearly of the opinion that the
limitation of domestic ownership for purposes of obtaining a certificate of Philippine registry in the coastwise trade
to citizens of the Philippine Islands, and to citizens of the United States, does not violate the provisions of paragraph
1 of section 3 of the Act of Congress of August 29, 1916 No treaty right relied upon Act No. 2761 of the Philippine
Legislature is held valid and constitutional .

The petition for a writ of mandamus is denied, with costs against the petitioner. So ordered.

Arellano, C.J., Torres, Johnson, Araullo, Street, Avanceña and Moir, JJ., concur.

The Lawphil Project - Arellano Law Foundation

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 75885 May 27, 1987

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner, 

vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA,
COMMISSIONER MARY CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ,
COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B.
SIACUNCO, et al., respondents.

Apostol, Bernas, Gumaru, Ona and Associates for petitioner.

Vicente G. Sison for intervenor A.T. Abesamis.

NARVASA, J.:

Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan
Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by President Corazon
C. Aquino on February 28, 1986 and March 12, 1986, respectively, and (2) the sequestration, takeover, and other
orders issued, and acts done, in accordance with said executive orders by the Presidential Commission on Good
Government and/or its Commissioners and agents, affecting said corporation.

1. The Sequestration, Takeover, and Other Orders Complained of

a. The Basic Sequestration Order

The sequestration order which, in the view of the petitioner corporation, initiated all its misery was issued on April
14, 1986 by Commissioner Mary Concepcion Bautista. It was addressed to three of the agents of the Commission,
hereafter simply referred to as PCGG. It reads as follows:

RE: SEQUESTRATION ORDER

By virtue of the powers vested in the Presidential Commission on Good Government, by authority
of the President of the Philippines, you are hereby directed to sequester the following companies.

1. Bataan Shipyard and Engineering Co., Inc. (Engineering Island Shipyard and
Mariveles Shipyard)

2. Baseco Quarry

3. Philippine Jai-Alai Corporation

4. Fidelity Management Co., Inc.

5. Romson Realty, Inc.

6. Trident Management Co.

7. New Trident Management

 8. Bay Transport

9. And all affiliate companies of Alfredo "Bejo" Romualdez

You are hereby ordered:

1. To implement this sequestration order with a minimum disruption of these companies' business
activities.

2. To ensure the continuity of these companies as going concerns, the care and maintenance of
these assets until such time that the Office of the President through the Commission on Good
Government should decide otherwise.

3. To report to the Commission on Good Government periodically.

Further, you are authorized to request for Military/Security Support from the Military/Police
authorities, and such other acts essential to the achievement of this sequestration order. 1

b. Order for Production of Documents

On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated
April 18, 1986 to the President and other officers of petitioner firm, reiterating an earlier request for the production
of certain documents, to wit:

1. Stock Transfer Book

2. Legal documents, such as:

2.1. Articles of Incorporation

2.2. By-Laws

2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986

2.4. Minutes of the Regular and Special Meetings of the Board of Directors from
1973 to 1986

2.5. Minutes of the Executive Committee Meetings from 1973 to 1986

2.6. Existing contracts with suppliers/contractors/others.

3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to 1986 duly
certified by the Corporate Secretary.

4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from 1973 to
December 31, 1985.

5. Monthly Financial Statements for the current year up to March 31, 1986.

6. Consolidated Cash Position Reports from January to April 15, 1986.

7. Inventory listings of assets up dated up to March 31, 1986.

8. Updated schedule of Accounts Receivable and Accounts Payable.

9. Complete list of depository banks for all funds with the authorized signatories for withdrawals
thereof.
 10. Schedule of company investments and placements. 2

The letter closed with the warning that if the documents were not submitted within five days, the officers would be
cited for "contempt in pursuance with Presidential Executive Order Nos. 1 and 2."

c. Orders Re Engineer Island

(1) Termination of Contract for Security Services

A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is that issued on April 21,
1986 by a Capt. Flordelino B. Zabala, a member of the task force assigned to carry out the basic sequestration order.
He sent a letter to BASECO's Vice-President for Finance, 3 terminating the contract for security services within the
Engineer Island compound between BASECO and "Anchor and FAIRWAYS" and "other civilian security agencies,"
CAPCOM military personnel having already been assigned to the area,

(2) Change of Mode of Payment of Entry Charges

On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners and Contractors,"
particularly a "Mr. Buddy Ondivilla National Marine Corporation," advising of the amendment in part of their
contracts with BASECO in the sense that the stipulated charges for use of the BASECO road network were made
payable "upon entry and not anymore subject to monthly billing as was originally agreed upon." 4

d. Aborted Contract for Improvement of Wharf at Engineer Island

On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of BASECO with Deltamarine
Integrated Port Services, Inc., in virtue of which the latter undertook to introduce improvements costing
approximately P210,000.00 on the BASECO wharf at Engineer Island, allegedly then in poor condition, avowedly to
"optimize its utilization and in return maximize the revenue which would flow into the government coffers," in
consideration of Deltamarine's being granted "priority in using the improved portion of the wharf ahead of anybody"
and exemption "from the payment of any charges for the use of wharf including the area where it may install its
bagging equipments" "until the improvement remains in a condition suitable for port operations." 5 It seems however
that this contract was never consummated. Capt. Jorge B. Siacunco, "Head- (PCGG) BASECO Management Team,"
advised Deltamarine by letter dated July 30, 1986 that "the new management is not in a position to honor the said
contract" and thus "whatever improvements * * (may be introduced) shall be deemed unauthorized * * and shall be
at * * (Deltamarine's) own risk." 6

e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan

By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent, Mayor Melba O.
Buenaventura, "to plan and implement progress towards maximizing the continuous operation of the BASECO
Sesiman Rock Quarry * * by conventional methods;" but afterwards, Commissioner Bautista, in representation of
the PCGG, authorized another party, A.T. Abesamis, to operate the quarry, located at Mariveles, Bataan, an
agreement to this effect having been executed by them on September 17, 1986. 7

f. Order to Dispose of Scrap, etc.

By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor Buenaventura was also
"authorized to clean and beautify the Company's compound," and in this connection, to dispose of or sell "metal
scraps" and other materials, equipment and machineries no longer usable, subject to specified guidelines and
safeguards including audit and verification. 8

g. The TAKEOVER Order

By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover by the PCGG of
BASECO, "the Philippine Dockyard Corporation and all their affiliated companies." 9 Diaz invoked the provisions
of Section 3 (c) of Executive Order No. 1, empowering the Commission —
 * * To provisionally takeover in the public interest or to prevent its disposal or dissipation,
business enterprises and properties taken over by the government of the Marcos Administration or
by entities or persons close to former President Marcos, until the transactions leading to such
acquisition by the latter can be disposed of by the appropriate authorities.

A management team was designated to implement the order, headed by Capt. Siacunco, and was given the following
powers:

1. Conducts all aspects of operation of the subject companies;

2. Installs key officers, hires and terminates personnel as necessary;

3. Enters into contracts related to management and operation of the companies;

4. Ensures that the assets of the companies are not dissipated and used effectively and efficiently;
revenues are duly accounted for; and disburses funds only as may be necessary;

5. Does actions including among others, seeking of military support as may be necessary, that will
ensure compliance to this order;

6. Holds itself fully accountable to the Presidential Commission on Good Government on all
aspects related to this take-over order.

h. Termination of Services of BASECO Officers

Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M. Valdez, Gilberto
Pasimanero, and Benito R. Cuesta I, advising of the termination of their services by the PCGG. 10

2. Petitioner's Plea and Postulates

It is the foregoing specific orders and acts of the PCGG and its members and agents which, to repeat, petitioner
BASECO would have this Court nullify. More particularly, BASECO prays that this Court-

1) declare unconstitutional and void Executive Orders Numbered 1 and 2;

2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts done on the
basis thereof, inclusive of the takeover order of July 14, 1986 and the termination of the services of the BASECO
executives. 11

a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders

While BASECO concedes that "sequestration without resorting to judicial action, might be made within the context
of Executive Orders Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was promulgated, under
the principle that the law promulgated by the ruler under a revolutionary regime is the law of the land, it ceased to
be acceptable when the same ruler opted to promulgate the Freedom Constitution on March 25, 1986 wherein under
Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was adopted providing, among others, that
"No person shall be deprived of life, liberty and property without due process of law." (Const., Art. I V, Sec. 1)." 12

It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration Order * *
and Takeover Order * * issued purportedly under the authority of said Executive Orders, rests on four fundamental
considerations: First, no notice and hearing was accorded * * (it) before its properties and business were taken
over; Second, the PCGG is not a court, but a purely investigative agency and therefore not competent to act as
prosecutor and judge in the same cause; Third, there is nothing in the issuances which envisions any proceeding,
process or remedy by which petitioner may expeditiously challenge the validity of the takeover after the same has
been effected; and Fourthly, being directed against specified persons, and in disregard of the constitutional
presumption of innocence and general rules and procedures, they constitute a Bill of Attainder." 13
 b. Re Order to Produce Documents

It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already complied
with, was issued without court authority and infringed its constitutional right against self-incrimination, and
unreasonable search and seizure. 14

c. Re PCGG's Exercise of Right of Ownership and Management

BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of its
business affairs by —

1) terminating its contract for security services with Fairways & Anchor, without the consent and against the will of
the contracting parties; and amending the mode of payment of entry fees stipulated in its Lease Contract with
National Stevedoring & Lighterage Corporation, these acts being in violation of the non-impairment clause of the
constitution; 15

2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine Integrated Port
Services, Inc., giving the latter free use of BASECO premises; 16

3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock quarry at Sesiman,
Mariveles; 17

4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and other materials; 18

5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliated companies;

6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S. Mendoza; GM
Moises M. Valdez; Finance Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19

7) planning to elect its own Board of Directors; 20

8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's premises at Mariveles *
* rolls of cable wires, worth P600,000.00 on May 11, 1986; 21

9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have been buried
therein. 22

3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders

Many misconceptions and much doubt about the matter of sequestration, takeover and freeze orders have been
engendered by misapprehension, or incomplete comprehension if not indeed downright ignorance of the law
governing these remedies. It is needful that these misconceptions and doubts be dispelled so that uninformed and
useless debates about them may be avoided, and arguments tainted b sophistry or intellectual dishonesty be quickly
exposed and discarded. Towards this end, this opinion will essay an exposition of the law on the matter. In the
process many of the objections raised by BASECO will be dealt with.

4. The Governing Law

a. Proclamation No. 3

The impugned executive orders are avowedly meant to carry out the explicit command of the Provisional
Constitution, ordained by Proclamation No. 3, 23 that the President-in the exercise of legislative power which she
was authorized to continue to wield "(until a legislature is elected and convened under a new Constitution" — "shall
give priority to measures to achieve the mandate of the people," among others to (r)ecover ill-gotten properties
amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders
of sequestration or freezing of assets or accounts."  24
 b. Executive Order No. 1

Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and postulates that "vast resources
of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives,
and close associates both here and abroad." 25 Upon these premises, the Presidential Commission on Good
Government was created, 26 "charged with the task of assisting the President in regard to (certain specified) matters,"
among which was precisely-

* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E. Marcos,
his immediate family, relatives, subordinates and close associates, whether located in the
Philippines or abroad, including the takeover or sequestration of all business enterprises and
entities owned or controlled by them, during his administration, directly or through nominees, by
taking undue advantage of their public office and/or using their powers, authority, influence,
connections or relationship. 27

In relation to the takeover or sequestration that it was authorized to undertake in the fulfillment of its mission, the
PCGG was granted "power and authority" to do the following particular acts, to wit:

1. To sequester or place or cause to be placed under its control or possession any building or
office wherein any ill-gotten wealth or properties may be found, and any records pertaining
thereto, in order to prevent their destruction, concealment or disappearance which would frustrate
or hamper the investigation or otherwise prevent the Commission from accomplishing its task.

2. To provisionally take over in the public interest or to prevent the disposal or dissipation,
business enterprises and properties taken over by the government of the Marcos Administration or
by entities or persons close to former President Marcos, until the transactions leading to such
acquisition by the latter can be disposed of by the appropriate authorities.

3. To enjoin or restrain any actual or threatened commission of acts by any person or entity that
may render moot and academic, or frustrate or otherwise make ineffectual the efforts of the
Commission to carry out its task under this order. 28

So that it might ascertain the facts germane to its objectives, it was granted power to conduct investigations; require
submission of evidence by subpoenae ad testificandum and duces tecum; administer oaths; punish for contempt. 29 It
was given power also to promulgate such rules and regulations as may be necessary to carry out the purposes of * *
(its creation). 30

c. Executive Order No. 2

Executive Order No. 2 gives additional and more specific data and directions respecting "the recovery of ill-gotten
properties amassed by the leaders and supporters of the previous regime." It declares that:

1) * * the Government of the Philippines is in possession of evidence showing that there are assets
and properties purportedly pertaining to former Ferdinand E. Marcos, and/or his wife Mrs. Imelda
Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or
nominees which had been or were acquired by them directly or indirectly, through or as a result of
the improper or illegal use of funds or properties owned by the government of the Philippines or
any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking
undue advantage of their office, authority, influence, connections or relationship, resulting in their
unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic
of the Philippines:" and

2) * * said assets and properties are in the form of bank accounts, deposits, trust accounts, shares
of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other
kinds of real and personal properties in the Philippines and in various countries of the world." 31
Upon these premises, the President-

1) froze "all assets and properties in the Philippines in which former President Marcos and/or his
wife, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates,
dummies, agents, or nominees have any interest or participation;

2) prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives,
subordinates, business associates, duties, agents, or nominees from transferring, conveying,
encumbering, concealing or dissipating said assets or properties in the Philippines and abroad,
pending the outcome of appropriate proceedings in the Philippines to determine whether any such
assets or properties were acquired by them through or as a result of improper or illegal use of or
the conversion of funds belonging to the Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their
official position, authority, relationship, connection or influence to unjustly enrich themselves at
the expense and to the grave damage and prejudice of the Filipino people and the Republic of the
Philippines;

3) prohibited "any person from transferring, conveying, encumbering or otherwise depleting or

concealing such assets and properties or from assisting or taking part in their transfer,
encumbrance, concealment or dissipation under pain of such penalties as are prescribed by law;"
and

4) required "all persons in the Philippines holding such assets or properties, whether located in the
Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the
same to the Commission on Good Government within thirty (30) days from publication of * (the)
Executive Order, * *. 32

d. Executive Order No. 14

A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG is empowered, "with the
assistance of the Office of the Solicitor General and other government agencies, * * to file and prosecute all cases
investigated by it * * as may be warranted by its findings." 34 All such cases, whether civil or criminal, are to be filed
"with the Sandiganbayan which shall have exclusive and original jurisdiction thereof." 35 Executive Order No. 14
also pertinently provides that civil suits for restitution, reparation of damages, or indemnification for consequential
damages, forfeiture proceedings provided for under Republic Act No. 1379, or any other civil actions under the Civil
Code or other existing laws, in connection with * * (said Executive Orders Numbered 1 and 2) may be filed
separately from and proceed independently of any criminal proceedings and may be proved by a preponderance of
evidence;" and that, moreover, the "technical rules of procedure and evidence shall not be strictly applied to* *
(said)civil cases." 36

5. Contemplated Situations

The situations envisaged and sought to be governed are self-evident, these being:

1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the previous
regime"; 37

a) more particularly, that ill-gotten wealth (was) accumulated by former President Ferdinand E.
Marcos, his immediate family, relatives, subordinates and close associates, * * located in the
Philippines or abroad, * * (and) business enterprises and entities (came to be) owned or controlled
by them, during * * (the Marcos) administration, directly or through nominees, by taking undue
advantage of their public office and/or using their powers, authority, influence, Connections or
relationship; 38

b) otherwise stated, that "there are assets and properties purportedly pertaining to former President
 Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives,
subordinates, business associates, dummies, agents or nominees which had been or were acquired
by them directly or indirectly, through or as a result of the improper or illegal use of funds or
properties owned by the Government of the Philippines or any of its branches, instrumentalities,
enterprises, banks or financial institutions, or by taking undue advantage of their office, authority,
influence, connections or relationship, resulting in their unjust enrichment and causing grave
damage and prejudice to the Filipino people and the Republic of the Philippines"; 39

c) that "said assets and properties are in the form of bank accounts. deposits, trust. accounts, shares
of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other
kinds of real and personal properties in the Philippines and in various countries of the
world;" 40 and

2) that certain "business enterprises and properties (were) taken over by the government of the
Marcos Administration or by entities or persons close to former President Marcos. 41

6. Government's Right and Duty to Recover All Ill-gotten Wealth

There can be no debate about the validity and eminent propriety of the Government's plan "to recover all ill-gotten
wealth."

Neither can there be any debate about the proposition that assuming the above described factual premises of the
Executive Orders and Proclamation No. 3 to be true, to be demonstrable by competent evidence, the recovery from
Marcos, his family and his dominions of the assets and properties involved, is not only a right but a duty on the part
of Government.

But however plain and valid that right and duty may be, still a balance must be sought with the equally compelling
necessity that a proper respect be accorded and adequate protection assured, the fundamental rights of private
property and free enterprise which are deemed pillars of a free society such as ours, and to which all members of
that society may without exception lay claim.

* * Democracy, as a way of life enshrined in the Constitution, embraces as its necessary

components freedom of conscience, freedom of expression, and freedom in the pursuit of
happiness. Along with these freedoms are included economic freedom and freedom of
enterprise within reasonable bounds and under proper control. * * Evincing much concern for the
protection of property, the Constitution distinctly recognizes the preferred position which real
estate has occupied in law for ages. Property is bound up with every aspect of social life in a
democracy as democracy is conceived in the Constitution. The Constitution realizes the
indispensable role which property, owned in reasonable quantities and used legitimately, plays in
the stimulation to economic effort and the formation and growth of a solid social middle class that
is said to be the bulwark of democracy and the backbone of every progressive and happy
country. 42

a. Need of Evidentiary Substantiation in Proper Suit

Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to be duly
established by adequate proof in each case, in a proper judicial proceeding, so that the recovery of the ill-gotten
wealth may be validly and properly adjudged and consummated; although there are some who maintain that the fact-
that an immense fortune, and "vast resources of the government have been amassed by former President Ferdinand
E. Marcos, his immediate family, relatives, and close associates both here and abroad," and they have resorted to all
sorts of clever schemes and manipulations to disguise and hide their illicit acquisitions-is within the realm of judicial
notice, being of so extensive notoriety as to dispense with proof thereof, Be this as it may, the requirement of
evidentiary substantiation has been expressly acknowledged, and the procedure to be followed explicitly laid down,
in Executive Order No. 14.
 b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits

Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gotten wealth" as the
evidence at hand may reveal, there is an obvious and imperative need for preliminary, provisional measures to
prevent the concealment, disappearance, destruction, dissipation, or loss of the assets and properties subject of the
suits, or to restrain or foil acts that may render moot and academic, or effectively hamper, delay, or negate efforts to
recover the same.

7. Provisional Remedies Prescribed by Law

To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration; (2) freeze
orders; and (3) provisional takeover.

Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten wealth." The
remedy of "provisional takeover" is peculiar to cases where "business enterprises and properties (were) taken over
by the government of the Marcos Administration or by entities or persons close to former President Marcos." 43

a. Sequestration

By the clear terms of the law, the power of the PCGG to sequester property claimed to be "ill-gotten" means to
place or cause to be placed under its possession or control said property, or any building or office wherein any such
property and any records pertaining thereto may be found, including "business enterprises and entities,"-for the
purpose of preventing the destruction, concealment or dissipation of, and otherwise conserving and preserving, the
same-until it can be determined, through appropriate judicial proceedings, whether the property was in truth will-
gotten," i.e., acquired through or as a result of improper or illegal use of or the conversion of funds belonging to the
Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue
advantage of official position, authority relationship, connection or influence, resulting in unjust enrichment of the
ostensible owner and grave damage and prejudice to the State. 44 And this, too, is the sense in which the term is
commonly understood in other jurisdictions. 45

b. "Freeze Order"

A "freeze order" prohibits the person having possession or control of property alleged to constitute "ill-gotten
wealth" "from transferring, conveying, encumbering or otherwise depleting or concealing such property, or from
assisting or taking part in its transfer, encumbrance, concealment, or dissipation." 46 In other words, it commands the
possessor to hold the property and conserve it subject to the orders and disposition of the authority decreeing such
freezing. In this sense, it is akin to a garnishment by which the possessor or ostensible owner of property is enjoined
not to deliver, transfer, or otherwise dispose of any effects or credits in his possession or control, and thus becomes
in a sense an involuntary depositary thereof. 47

c. Provisional Takeover

In providing for the remedy of "provisional takeover," the law acknowledges the apparent distinction between "ill
gotten" "business enterprises and entities" (going concerns, businesses in actual operation), generally, as to which
the remedy of sequestration applies, it being necessarily inferred that the remedy entails no interference, or the least
possible interference with the actual management and operations thereof; and "business enterprises which
were taken over by the government government of the Marcos Administration or by entities or persons close to
him," in particular, as to which a "provisional takeover" is authorized, "in the public interest or to prevent disposal or
dissipation of the enterprises." 48 Such a "provisional takeover" imports something more than sequestration or
freezing, more than the placing of the business under physical possession and control, albeit without or with the least
possible interference with the management and carrying on of the business itself. In a "provisional takeover," what is
taken into custody is not only the physical assets of the business enterprise or entity, but the business operation as
well. It is in fine the assumption of control not only over things, but over operations or on- going activities. But, to
repeat, such a "provisional takeover" is allowed only as regards "business enterprises * * taken over by the
government of the Marcos Administration or by entities or persons close to former President Marcos."
 d. No Divestment of Title Over Property Seized

It may perhaps be well at this point to stress once again the provisional, contingent character of the remedies just
described. Indeed the law plainly qualifies the remedy of take-over by the adjective, "provisional." These remedies
may be resorted to only for a particular exigency: to prevent in the public interest the disappearance or dissipation of
property or business, and conserve it pending adjudgment in appropriate proceedings of the primary issue of whether
or not the acquisition of title or other right thereto by the apparent owner was attended by some vitiating anomaly.
None of the remedies is meant to deprive the owner or possessor of his title or any right to the property sequestered,
frozen or taken over and vest it in the sequestering agency, the Government or other person. This can be done only
for the causes and by the processes laid down by law.

That this is the sense in which the power to sequester, freeze or provisionally take over is to be understood and
exercised, the language of the executive orders in question leaves no doubt. Executive Order No. 1 declares that the
sequestration of property the acquisition of which is suspect shall last "until the transactions leading to such
acquisition * * can be disposed of by the appropriate authorities."  49 Executive Order No. 2 declares that the assets
or properties therein mentioned shall remain frozen "pending the outcome of appropriate proceedings in the
Philippines to determine whether any such assets or properties were acquired" by illegal means. Executive Order
No. 14 makes clear that judicial proceedings are essential for the resolution of the basic issue of whether or not
particular assets are "ill-gotten," and resultant recovery thereof by the Government is warranted.

e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional Command

There is thus no cause for the apprehension voiced by BASECO 50 that sequestration, freezing or provisional
takeover is designed to be an end in itself, that it is the device through which persons may be deprived of their
property branded as "ill-gotten," that it is intended to bring about a permanent, rather than a passing, transitional
state of affairs. That this is not so is quite explicitly declared by the governing rules.

Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of these provisional
remedies. Section 26 of its Transitory Provisions, 51 lays down the relevant rule in plain terms, apart from extending
ratification or confirmation (although not really necessary) to the institution by presidential fiat of the remedy of
sequestration and freeze orders:

SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated
March 25, 1986 in relation to the recovery of ill-gotten wealth shag remain operative for not more
than eighteen months after the ratification of this Constitution. However, in the national interest, as
certified by the President, the Congress may extend said period.

A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order
and the list of the sequestered or frozen properties shall forthwith be registered with the proper
court. For orders issued before the ratification of this Constitution, the corresponding judicial
action or proceeding shall be filed within six months from its ratification. For those issued after
such ratification, the judicial action or proceeding shall be commenced within six months from the
issuance thereof.

The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding
is commenced as herein provided. 52

f. Kinship to Attachment Receivership

As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy of preliminary
attachment, or receivership. 53 By attachment, a sheriff seizes property of a defendant in a civil suit so that it may
stand as security for the satisfaction of any judgment that may be obtained, and not disposed of, or dissipated, or lost
intentionally or otherwise, pending the action. 54 By receivership, property, real or personal, which is subject of
litigation, is placed in the possession and control of a receiver appointed by the Court, who shall conserve it pending
final determination of the title or right of possession over it. 55 All these remedies — sequestration, freezing,
provisional, takeover, attachment and receivership — are provisional, temporary, designed for-particular exigencies,
attended by no character of permanency or finality, and always subject to the control of the issuing court or agency.

g. Remedies, Non-Judicial

Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a court is of no moment.
The Solicitor General draws attention to the writ of distraint and levy which since 1936 the Commissioner of
Internal Revenue has been by law authorized to issue against property of a delinquent taxpayer. 56 BASECO itself
declares that it has not manifested "a rigid insistence on sequestration as a purely judicial remedy * * (as it feels)
that the law should not be ossified to a point that makes it insensitive to change." What it insists on, what it
pronounces to be its "unyielding position, is that any change in procedure, or the institution of a new one, should
conform to due process and the other prescriptions of the Bill of Rights of the Constitution." 57 It is, to be sure, a
proposition on which there can be no disagreement.

h. Orders May Issue Ex Parte

Like the remedy of preliminary attachment and receivership, as well as delivery of personal property
in replevin suits, sequestration and provisional takeover writs may issue ex parte. 58 And as in preliminary
attachment, receivership, and delivery of personality, no objection of any significance may be raised to the ex
parte issuance of an order of sequestration, freezing or takeover, given its fundamental character of temporariness or
conditionality; and taking account specially of the constitutionally expressed "mandate of the people to recover ill-
gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the
people;" 59 as well as the obvious need to avoid alerting suspected possessors of "ill-gotten wealth" and thereby
cause that disappearance or loss of property precisely sought to be prevented, and the fact, just as self-evident, that
"any transfer, disposition, concealment or disappearance of said assets and properties would frustrate, obstruct or
hamper the efforts of the Government" at the just recovery thereof. 60

8. Requisites for Validity

What is indispensable is that, again as in the case of attachment and receivership, there exist a prima facie factual
foundation, at least, for the sequestration, freeze or takeover order, and adequate and fair opportunity to contest it
and endeavor to cause its negation or nullification. 61

Both are assured under the executive orders in question and the rules and regulations promulgated by the PCGG.

a. Prima Facie Evidence as Basis for Orders

Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and due
process." 62Executive Order No. 2 declares that with respect to claims on allegedly "ill-gotten" assets and properties,
"it is the position of the new democratic government that President Marcos * * (and other parties affected) be
afforded fair opportunity to contest these claims before appropriate Philippine authorities." 63 Section 7 of the
Commission's Rules and Regulations provides that sequestration or freeze (and takeover) orders issue upon the
authority of at least two commissioners, based on the affirmation or complaint of an interested party, or motu
proprio when the Commission has reasonable grounds to believe that the issuance thereof is warranted. 64 A similar
requirement is now found in Section 26, Art. XVIII of the 1987 Constitution, which requires that a "sequestration or
freeze order shall be issued only upon showing of a prima facie case." 65

b. Opportunity to Contest

And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a party may seek to set
aside a writ of sequestration or freeze order, viz:

SECTION 5. Who may contend.-The person against whom a writ of sequestration or freeze or hold
order is directed may request the lifting thereof in writing, either personally or through counsel
within five (5) days from receipt of the writ or order, or in the case of a hold order, from date of
knowledge thereof.
 SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio for good
cause shown, the Commission may lift the writ or order unconditionally or subject to such
conditions as it may deem necessary, taking into consideration the evidence and the circumstance
of the case. The resolution of the commission may be appealed by the party concerned to the
Office of the President of the Philippines within fifteen (15) days from receipt thereof.

Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth" were not expressly imposed
by some rule or regulation as a condition to warrant the sequestration or freezing of property contemplated in the
executive orders in question, it would nevertheless be exigible in this jurisdiction in which the Rule of Law prevails
and official acts which are devoid of rational basis in fact or law, or are whimsical and capricious, are condemned
and struck down. 66

9. Constitutional Sanction of Remedies

If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of
sequestration, freeze and takeover orders, it should be dispelled by the fact that these particular remedies and the
authority of the PCGG to issue them have received constitutional approbation and sanction. As already mentioned,
the Provisional or "Freedom" Constitution recognizes the power and duty of the President to enact "measures to
achieve the mandate of the people to * * * (recover ill- gotten properties amassed by the leaders and supporters of
the previous regime and protect the interest of the people through orders of sequestration or freezing of assets or
accounts." And as also already adverted to, Section 26, Article XVIII of the 1987 Constitution 67 treats of, and
ratifies the "authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986."

The institution of these provisional remedies is also premised upon the State's inherent police power, regarded, as t
lie power of promoting the public welfare by restraining and regulating the use of liberty and property," 68 and as
"the most essential, insistent and illimitable of powers * * in the promotion of general welfare and the public
interest," 69 and said to be co-extensive with self-protection and * * not inaptly termed (also) the'law of overruling
necessity." "70

10. PCGG not a "Judge"; General Functions

It should also by now be reasonably evident from what has thus far been said that the PCGG is not, and was never
intended to act as, a judge. Its general function is to conduct investigations in order to collect evidenceestablishing
instances of "ill-gotten wealth;" issue sequestration, and such orders as may be warranted by the evidence thus
collected and as may be necessary to preserve and conserve the assets of which it takes custody and control and
prevent their disappearance, loss or dissipation; and eventually file and prosecute in the proper court of competent
jurisdiction all cases investigated by it as may be warranted by its findings. It does not try and decide, or hear and
determine, or adjudicate with any character of finality or compulsion, cases involving the essential issue of whether
or not property should be forfeited and transferred to the State because "ill-gotten" within the meaning of the
Constitution and the executive orders. This function is reserved to the designated court, in this case, the
Sandiganbayan. 71 There can therefore be no serious regard accorded to the accusation, leveled by BASECO, 72 that
the PCGG plays the perfidious role of prosecutor and judge at the same time.

11. Facts Preclude Grant of Relief to Petitioner

Upon these premises and reasoned conclusions, and upon the facts disclosed by the record, hereafter to be discussed,
the petition cannot succeed. The writs of certiorari and prohibition prayed for will not be issued.

The facts show that the corporation known as BASECO was owned or controlled by President Marcos "during his
administration, through nominees, by taking undue advantage of his public office and/or using his powers, authority,
or influence, " and that it was by and through the same means, that BASECO had taken over the business and/or
assets of the National Shipyard and Engineering Co., Inc., and other government-owned or controlled entities.

12. Organization and Stock Distribution of BASECO

BASECO describes itself in its petition as "a shiprepair and shipbuilding company * * incorporated as a domestic
private corporation * * (on Aug. 30, 1972) by a consortium of Filipino shipowners and shipping executives. Its main
office is at Engineer Island, Port Area, Manila, where its Engineer Island Shipyard is housed, and its main shipyard
is located at Mariveles Bataan." 73 Its Articles of Incorporation disclose that its authorized capital stock is
P60,000,000.00 divided into 60,000 shares, of which 12,000 shares with a value of P12,000,000.00 have been
subscribed, and on said subscription, the aggregate sum of P3,035,000.00 has been paid by the incorporators. 74The
same articles Identify the incorporators, numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee,
(3) Eduardo T. Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio M. Ezpeleta,
(8) Zacarias Amante, (9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro Papa, (12) Octavio Posadas, (13)
Manuel S. Mendoza, (14) Magiliw Torres, and (15) Rodolfo Torres.

By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be stockholders, namely: (1) Generoso
Tanseco, (2) Antonio Ezpeleta, (3) Zacarias Amante, (4) Octavio Posadas, (5) Magiliw Torres, and (6) Rodolfo
Torres. As of this year, 1986, there were twenty (20) stockholders listed in BASECO's Stock and Transfer
Book. 75 Their names and the number of shares respectively held by them are as follows:

1. Jose A. Rojas 1,248 shares

2. Severino G. de la 1,248 shares

Cruz

3. Emilio T. Yap 2,508 shares

4. Jose Fernandez 1,248 shares

5. Jose Francisco 128 shares

6. Manuel S. Mendoza 96 shares

7. Anthony P. Lee 1,248 shares

8. Hilario M. Ruiz 32 shares

9. Constante L. Fariñas 8 shares

10. Fidelity 65,882 shares

Management, Inc.

11. Trident 7,412 shares

Management

12. United Phil. Lines 1,240 shares

13. Renato M. Tanseco 8 shares

14. Fidel Ventura 8 shares

15. Metro Bay Drydock 136,370 shares

16. Manuel Jacela 1 share

17. Jonathan G. Lu 1 share

18. Jose J. Tanchanco 1 share

19. Dioscoro Papa 128 shares

 20. Edward T. Marcelo 4 shares

TOTAL 218,819 shares.

13 Acquisition of NASSCO by BASECO

Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel Corporation, or
NASSCO, a government-owned or controlled corporation, the latter's shipyard at Mariveles, Bataan, known as the
Bataan National Shipyard (BNS), and — except for NASSCO's Engineer Island Shops and certain equipment of the
BNS, consigned for future negotiation — all its structures, buildings, shops, quarters, houses, plants, equipment and
facilities, in stock or in transit. This it did in virtue of a "Contract of Purchase and Sale with Chattel Mortgage"
executed on February 13, 1973. The price was P52,000,000.00. As partial payment thereof, BASECO delivered to
NASSCO a cash bond of P11,400,000.00, convertible into cash within twenty-four (24) hours from completion of
the inventory undertaken pursuant to the contract. The balance of P41,600,000.00, with interest at seven percent
(7%) per annum, compounded semi-annually, was stipulated to be paid in equal semi-annual installments over a
term of nine (9) years, payment to commence after a grace period of two (2) years from date of turnover of the
shipyard to BASECO. 76

14. Subsequent Reduction of Price; Intervention of Marcos

Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to P24,311,550.00, about eight (8)
months later. A document to this effect was executed on October 9, 1973, entitled "Memorandum Agreement," and
was signed for NASSCO by Arturo Pacificador, as Presiding Officer of the Board of Directors, and David R. Ines, as
General Manager. 77 This agreement bore, at the top right corner of the first page, the word "APPROVED" in the
handwriting of President Marcos, followed by his usual full signature. The document recited that a down payment of
P5,862,310.00 had been made by BASECO, and the balance of P19,449,240.00 was payable in equal semi-annual
installments over nine (9) years after a grace period of two (2) years, with interest at 7% per annum.

15. Acquisition of 300 Hectares from Export Processing Zone Authority

On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the Export
Processing Zone Authority for the price of P10,047,940.00 of which, as set out in the document of sale,
P2,000.000.00 was paid upon its execution, and the balance stipulated to be payable in installments. 78

16. Acquisition of Other Assets of NASSCO; Intervention of Marcos

Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the intervention of President
Marcos, acquired ownership of the rest of the assets of NASSCO which had not been included in the first two (2)
purchase documents. This was accomplished by a deed entitled "Contract of Purchase and Sale," 79which, like the
Memorandum of Agreement dated October 9, 1973 supra also bore at the upper right-hand corner of its first page,
the handwritten notation of President Marcos reading, "APPROVED, July 29, 1973," and underneath it, his usual
full signature. Transferred to BASECO were NASSCO's "ownership and all its titles, rights and interests over all
equipment and facilities including structures, buildings, shops, quarters, houses, plants and expendable or semi-
expendable assets, located at the Engineer Island, known as the Engineer Island Shops, including all the equipment
of the Bataan National Shipyards (BNS) which were excluded from the sale of NBS to BASECO but retained by
BASECO and all other selected equipment and machineries of NASSCO at J. Panganiban Smelting Plant." In the
same deed, NASSCO committed itself to cooperate with BASECO for the acquisition from the National
Government or other appropriate Government entity of Engineer Island. Consideration for the sale was set at
P5,000,000.00; a down payment of P1,000,000.00 appears to have been made, and the balance was stipulated to be
paid at 7% interest per annum in equal semi annual installments over a term of nine (9) years, to commence after a
grace period of two (2) years. Mr. Arturo Pacificador again signed for NASSCO, together with the general manager,
Mr. David R. Ines.
17. Loans Obtained

It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken from "the last available
Japanese war damage fund of $19,000,000.00," to pay for "Japanese made heavy equipment (brand new)." 80 On
September 3, 1975, it got another loan also from the NDC in the amount of P30,000,000.00 (id.). And on January
28, 1976, it got still another loan, this time from the GSIS, in the sum of P12,400,000.00. 81 The claim has been
made that not a single centavo has been paid on these loans. 82

18. Reports to President Marcos

In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO. The first was
contained in a letter dated September 5, 1977 of Hilario M. Ruiz, BASECO president. 83 The second was embodied
in a confidential memorandum dated September 16, 1977 of Capt. A.T. Romualdez. 84 They further disclose the fine
hand of Marcos in the affairs of BASECO, and that of a Romualdez, a relative by affinity.

a. BASECO President's Report

In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that there had been "no orders or
demands for ship construction" for some time and expressed the fear that if that state of affairs persisted, BASECO
would not be able to pay its debts to the Government, which at the time stood at the not inconsiderable amount of
P165,854,000.00. 85 He suggested that, to "save the situation," there be a "spin-off (of their) shipbuilding activities
which shall be handled exclusively by an entirely new corporation to be created;" and towards this end, he informed
Marcos that BASECO was —

* * inviting NDC and LUSTEVECO to participate by converting the NDC shipbuilding loan to

BASECO amounting to P341.165M and assuming and converting a portion of BASECO's
shipbuilding loans from REPACOM amounting to P52.2M or a total of P83.365M as NDC's
equity contribution in the new corporation. LUSTEVECO will participate by absorbing and
converting a portion of the REPACOM loan of Bay Shipyard and Drydock, Inc., amounting to
P32.538M.86

b. Romualdez' Report

Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It opened with the following
caption:

MEMORANDUM:

FOR : The President

SUBJECT: An Evaluation and Re-assessment of a Performance of a Mission

FROM: Capt. A.T. Romualdez.

Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan obligations due chiefly to the
fact that "orders to build ships as expected * * did not materialize."

He advised that five stockholders had "waived and/or assigned their holdings inblank," these being: (1) Jose A.
Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee. Pointing out that
"Mr. Magiliw Torres * * is already dead and Mr. Jose A. Rojas had a major heart attack," he made the following
quite revealing, and it may be added, quite cynical and indurate recommendation, to wit:

* * (that) their replacements (be effected) so we can register their names in the stock book prior to
the implementation of your instructions to pass a board resolution to legalize the transfers under
SEC regulations;
 2. By getting their replacements, the families cannot question us later on; and

3. We will owe no further favors from them. 87

He also transmitted to Marcos, together with the report, the following documents: 88

1. Stock certificates indorsed and assigned in blank with assignments and waivers;  89

2. The articles of incorporation, the amended articles, and the by-laws of BASECO;

3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in "Engineer
Island", Port Area, Manila;

4. Transfer Certificate of Title No. 124822 in the name of BASECO, covering "Engineer Island";

5. Contract dated October 9, 1973, between NASSCO and BASECO re-structure and equipment at
Mariveles, Bataan;

6. Contract dated July 16, 1975, between NASSCO and BASECO re-structure and equipment at
Engineer Island, Port Area Manila;

7. Contract dated October 1, 1974, between EPZA and BASECO re 300 hectares of land at
Mariveles, Bataan;

8. List of BASECO's fixed assets;

9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC of P30,000,000.00;

10. BASECO-REPACOM Agreement dated May 27, 1975;

11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for the housing facilities for
BASECO's rank-and-file employees. 90

Capt. Romualdez also recommended that BASECO's loans be restructured "until such period when BASECO will
have enough orders for ships in order for the company to meet loan obligations," and that —

An LOI may be issued to government agencies using floating equipment, that a linkage scheme be
applied to a certain percent of BASECO's net profit as part of BASECO's amortization payments
to make it justifiable for you, Sir. 91

It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer of BASECO, yet he has
presented a report on BASECO to President Marcos, and his report demonstrates intimate familiarity with the firm's
affairs and problems.

19. Marcos' Response to Reports

President Marcos lost no time in acting on his subordinates' recommendations, particularly as regards the "spin-off"
and the "linkage scheme" relative to "BASECO's amortization payments."

a. Instructions re "Spin-Off"

Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo Velasco of the Philippine
National Oil Company and Chairman Constante Fariñas of the National Development Company, directing them "to
participate in the formation of a new corporation resulting from the spin-off of the shipbuilding component
of BASECO along the following guidelines:

a. Equity participation of government shall be through LUSTEVECO and NDC in the amount of
 P115,903,000 consisting of the following obligations of BASECO which are hereby authorized to
be converted to equity of the said new corporation, to wit:

1. NDC P83,865,000 (P31.165M loan & P52.2M Reparation)

2. LUSTEVECO P32,538,000 (Reparation)

b. Equity participation of government shall be in the form of non- voting shares.

For immediate compliance. 92

Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22) days after receiving their
president's memorandum, Messrs. Hilario M. Ruiz, Constante L. Fariñas and Geronimo Z. Velasco, in representation
of their respective corporations, executed a PRE-INCORPORATION AGREEMENT dated October 20, 1977. 93 In
it, they undertook to form a shipbuilding corporation to be known as "PHIL-ASIA SHIPBUILDING
CORPORATION," to bring to realization their president's instructions. It would seem that the new corporation
ultimately formed was actually named "Philippine Dockyard Corporation (PDC)." 94

b. Letter of Instructions No. 670

Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On February 14, 1978, he
issued Letter of Instructions No. 670 addressed to the Reparations Commission REPACOM the Philippine National
Oil Company (PNOC), the Luzon Stevedoring Company (LUSTEVECO), and the National Development Company
(NDC). What is commanded therein is summarized by the Solicitor General, with pithy and not inaccurate
observations as to the effects thereof (in italics), as follows:

* * 1) the shipbuilding equipment procured by BASECO through reparations be transferred to

NDC subject to reimbursement by NDC to BASECO (of) the amount of s allegedly representing
the handling and incidental expenses incurred by BASECO in the installation of said
equipment (so instead of NDC getting paid on its loan to BASECO, it was made to pay BASECO
instead the amount of P18.285M); 2) the shipbuilding equipment procured from reparations
through EPZA, now in the possession of BASECO and BSDI (Bay Shipyard & Drydocking, Inc.)
be transferred to LUSTEVECO through PNOC; and 3) the shipbuilding equipment (thus)
transferred be invested by LUSTEVECO, acting through PNOC and NDC, as the government's
equity participation in a shipbuilding corporation to be established in partnership with the private
sector.

xxx xxx xxx

And so, through a simple letter of instruction and memorandum, BASECO's loan obligation to
NDC and REPACOM * * in the total amount of P83.365M and BSD's REPACOM loan of
P32.438M were wiped out and converted into non-voting preferred shares. 95

20. Evidence of Marcos'

Ownership of BASECO

It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the control by President
Marcos of BASECO has been sufficiently shown.

Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only exercised
control over BASECO, but also that he actually owns well nigh one hundred percent of its outstanding stock.

It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 shares of stock
outstanding, ostensibly owned by twenty (20) stockholders. 96 Four of these twenty are juridical persons: (1) Metro
Bay Drydock, recorded as holding 136,370 shares; (2) Fidelity Management, Inc., 65,882 shares; (3) Trident
Management, 7,412 shares; and (4) United Phil. Lines, 1,240 shares. The first three corporations, among
themselves, own an aggregate of 209,664 shares of BASECO stock, or 95.82% of the outstanding stock.

Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that found in Malacanang
shortly after the sudden flight of President Marcos, were certificates corresponding to more than ninety-five percent
(95%) of all the outstanding shares of stock of BASECO, endorsed in blank, together with deeds of assignment of
practically all the outstanding shares of stock of the three (3) corporations above mentioned (which hold 95.82% of
all BASECO stock), signed by the owners thereof although not notarized. 97

More specifically, found in Malacanang (and now in the custody of the PCGG) were:

1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc. — which
supposedly owns as aforesaid 65,882 shares of BASECO stock;

2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding shares of Metro Bay
Drydock Corporation — which allegedly owns 136,370 shares of BASECO stock;

3) the deeds of assignment of 800 outstanding shares of Trident Management Co., Inc. — which
allegedly owns 7,412 shares of BASECO stock, assigned in blank; 98 and

4) stock certificates corresponding to 207,725 out of the 218,819 outstanding shares of BASECO
stock; that is, all but 5 % — all endorsed in blank. 99

While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that the BASECO
stockholders were still in possession of their respective stock certificates and had "never endorsed * * them in blank
or to anyone else," 100 that denial is exposed by his own prior and subsequent recorded statements as a mere gesture
of defiance rather than a verifiable factual declaration.

By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of 10 days "to SUBMIT, as
undertaken by him, * * the certificates of stock issued to the stockholders of * * BASECO as of April 23, 1986, as
listed in Annex 'P' of the petition.' 101 Counsel thereafter moved for extension; and in his motion dated October 2,
1986, he declared inter alia that "said certificates of stock are in the possession of third parties, among whom being
the respondents themselves * * and petitioner is still endeavoring to secure copies thereof from them." 102 On the
same day he filed another motion praying that he be allowed "to secure copies of the Certificates of Stock in the
name of Metro Bay Drydock, Inc., and of all other Certificates, of Stock of petitioner's stockholders in possession of
respondents." 103

In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably argued that counsel's
aforestated motion to secure copies of the stock certificates "confirms the fact that stockholders of petitioner
corporation are not in possession of * * (their) certificates of stock," and the reason, according to him, was "that
95% of said shares * * have been endorsed in blank and found in Malacañang after the former President and his
family fled the country." To this manifestation BASECO's counsel replied on November 5, 1986, as already
mentioned, Stubbornly insisting that the firm's stockholders had not really assigned their stock. 105

In view of the parties' conflicting declarations, this Court resolved on November 27, 1986 among other things "to
require * * the petitioner * * to deposit upon proper receipt with Clerk of Court Juanito Ranjo the originals of the
stock certificates alleged to be in its possession or accessible to it, mentioned and described in Annex 'P' of its
petition, (and other pleadings) * * within ten (10) days from notice." 106 In a motion filed on December 5,
1986, 107BASECO's counsel made the statement, quite surprising in the premises, that "it will negotiate with the
owners (of the BASECO stock in question) to allow petitioner to borrow from them, if available, the certificates
referred to" but that "it needs a more sufficient time therefor" (sic). BASECO's counsel however eventually had to
confess inability to produce the originals of the stock certificates, putting up the feeble excuse that while he had
"requested the stockholders to allow * * (him) to borrow said certificates, * * some of * * (them) claimed that they
had delivered the certificates to third parties by way of pledge and/or to secure performance of obligations, while
others allegedly have entrusted them to third parties in view of last national emergency." 108 He has conveniently
omitted, nor has he offered to give the details of the transactions adverted to by him, or to explain why he had not
impressed on the supposed stockholders the primordial importance of convincing this Court of their present custody
of the originals of the stock, or if he had done so, why the stockholders are unwilling to agree to some sort of
arrangement so that the originals of their certificates might at the very least be exhibited to the Court. Under the
circumstances, the Court can only conclude that he could not get the originals from the stockholders for the simple
reason that, as the Solicitor General maintains, said stockholders in truth no longer have them in their possession,
these having already been assigned in blank to then President Marcos.

21. Facts Justify Issuance of Sequestration and Takeover Orders

In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and directors of
BASECO as of April, 1986 109 were mere "dummies," nominees or alter egos of President Marcos; at any rate, that
they are no longer owners of any shares of stock in the corporation, the conclusion cannot be avoided that said
stockholders and directors have no basis and no standing whatever to cause the filing and prosecution of the instant
proceeding; and to grant relief to BASECO, as prayed for in the petition, would in effect be to restore the assets,
properties and business sequestered and taken over by the PCGG to persons who are "dummies," nominees or alter
egos of the former president.

From the standpoint of the PCGG, the facts herein stated at some length do indeed show that the private corporation
known as BASECO was "owned or controlled by former President Ferdinand E. Marcos * * during his
administration, * * through nominees, by taking advantage of * * (his) public office and/or using * * (his) powers,
authority, influence * *," and that NASSCO and other property of the government had been taken over by BASECO;
and the situation justified the sequestration as well as the provisional takeover of the corporation in the public
interest, in accordance with the terms of Executive Orders No. 1 and 2, pending the filing of the requisite actions
with the Sandiganbayan to cause divestment of title thereto from Marcos, and its adjudication in favor of the
Republic pursuant to Executive Order No. 14.

As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, it sustains the acts
of sequestration and takeover by the PCGG as being in accord with the law, and, in view of what has thus far been
set out in this opinion, pronounces to be without merit the theory that said acts, and the executive orders pursuant to
which they were done, are fatally defective in not according to the parties affected prior notice and hearing, or an
adequate remedy to impugn, set aside or otherwise obtain relief therefrom, or that the PCGG had acted as prosecutor
and judge at the same time.

22. Executive Orders Not a Bill of Attainder

Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. 110 "A bill of
attainder is a legislative act which inflicts punishment without judicial trial." 111 "Its essence is the substitution of a
legislative for a judicial determination of guilt." 112

In the first place, nothing in the executive orders can be reasonably construed as a determination or declaration of
guilt. On the contrary, the executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any
judgment of guilt in the amassing or acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal, in
this case, the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In the second place, no
punishment is inflicted by the executive orders, as the merest glance at their provisions will immediately make
apparent. In no sense, therefore, may the executive orders be regarded as a bill of attainder.

23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures

BASECO also contends that its right against self incrimination and unreasonable searches and seizures had been
transgressed by the Order of April 18, 1986 which required it "to produce corporate records from 1973 to 1986
under pain of contempt of the Commission if it fails to do so." The order was issued upon the authority of Section 3
(e) of Executive Order No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the production of such
books, papers, contracts, records, statements of accounts and other documents as may be material to the
investigation conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing with its power to
"require all persons in the Philippines holding * * (alleged "ill-gotten") assets or properties, whether located in the
Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same * *." The
contention lacks merit.

It is elementary that the right against self-incrimination has no application to juridical persons.

While an individual may lawfully refuse to answer incriminating questions unless protected by an
immunity statute, it does not follow that a corporation, vested with special privileges and
franchises, may refuse to show its hand when charged with an abuse ofsuchprivileges * * 113

Relevant jurisprudence is also cited by the Solicitor General. 114

* * corporations are not entitled to all of the constitutional protections which private individuals
have. * * They are not at all within the privilege against self-incrimination, although this court
more than once has said that the privilege runs very closely with the 4th Amendment's Search and
Seizure provisions. It is also settled that an officer of the company cannot refuse to produce its
records in its possession upon the plea that they will either incriminate him or may incriminate
it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's).

* * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of
the public. It received certain special privileges and franchises, and holds them subject to the laws
of the state and the limitations of its charter. Its powers are limited by law. It can make no contract
not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it
obeys the laws of its creation. There is a reserve right in the legislature to investigate its contracts
and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state,
having chartered a corporation to make use of certain franchises, could not, in the exercise of
sovereignty, inquire how these franchises had been employed, and whether they had been abused,
and demand the production of the corporate books and papers for that purpose. The defense
amounts to this, that an officer of the corporation which is charged with a criminal violation of the
statute may plead the criminality of such corporation as a refusal to produce its books. To state this
proposition is to answer it. While an individual may lawfully refuse to answer incriminating
questions unless protected by an immunity statute, it does not follow that a corporation, vested
with special privileges and franchises may refuse to show its hand when charged with an abuse of
such privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the Solicitor
General's])

At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to
individuals required to produce evidence before the PCGG against any possible violation of his right against self-
incrimination. It gives them immunity from prosecution on the basis of testimony or information he is compelled to
present. As amended, said Section 4 now provides that —

xxx xxx xxx

The witness may not refuse to comply with the order on the basis of his privilege against self-
incrimination; but no testimony or other information compelled under the order (or any
information directly or indirectly derived from such testimony, or other information) may be used
against the witness in any criminal case, except a prosecution for perjury, giving a false statement,
or otherwise failing to comply with the order.

The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either.
There has been no search undertaken by any agent or representative of the PCGG, and of course no seizure on the
occasion thereof.

24. Scope and Extent of Powers of the PCGG

One other question remains to be disposed of, that respecting the scope and extent of the powers that may be
wielded by the PCGG with regard to the properties or businesses placed under sequestration or provisionally taken
over. Obviously, it is not a question to which an answer can be easily given, much less one which will suffice for
every conceivable situation.

a. PCGG May Not Exercise Acts of Ownership

One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property
sequestered, frozen or provisionally taken over. AS already earlier stressed with no little insistence, the act of
sequestration; freezing or provisional takeover of property does not import or bring about a divestment of title over
said property; does not make the PCGG the owner thereof. In relation to the property sequestered, frozen or
provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not perform acts of strict
ownership; and this is specially true in the situations contemplated by the sequestration rules where, unlike cases of
receivership, for example, no court exercises effective supervision or can upon due application and hearing, grant
authority for the performance of acts of dominion.

Equally evident is that the resort to the provisional remedies in question should entail the least possible interference
with business operations or activities so that, in the event that the accusation of the business enterprise being "ill
gotten" be not proven, it may be returned to its rightful owner as far as possible in the same condition as it was at the
time of sequestration.

b. PCGG Has Only Powers of Administration

The PCGG may thus exercise only powers of administration over the property or business sequestered or
provisionally taken over, much like a court-appointed receiver, 115 such as to bring and defend actions in its own
name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may be
necessary to fulfill its mission as conservator and administrator. In this context, it may in addition enjoin or restrain
any actual or threatened commission of acts by any person or entity that may render moot and academic, or frustrate
or otherwise make ineffectual its efforts to carry out its task; punish for direct or indirect contempt in accordance
with the Rules of Court; and seek and secure the assistance of any office, agency or instrumentality of the
government. 116 In the case of sequestered businesses generally (i.e., going concerns, businesses in current
operation), as in the case of sequestered objects, its essential role, as already discussed, is that of conservator,
caretaker, "watchdog" or overseer. It is not that of manager, or innovator, much less an owner.

c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him;
Limitations Thereon

Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the government
of the Marcos Administration or by entities or persons close to former President Marcos," 117 the PCGG is given
power and authority, as already adverted to, to "provisionally take (it) over in the public interest or to prevent * *
(its) disposal or dissipation;" and since the term is obviously employed in reference to going concerns, or business
enterprises in operation, something more than mere physical custody is connoted; the PCGG may in this case
exercise some measure of control in the operation, running, or management of the business itself. But even in this
special situation, the intrusion into management should be restricted to the minimum degree necessary to accomplish
the legislative will, which is "to prevent the disposal or dissipation" of the business enterprise. There should be no
hasty, indiscriminate, unreasoned replacement or substitution of management officials or change of policies,
particularly in respect of viable establishments. In fact, such a replacement or substitution should be avoided if at all
possible, and undertaken only when justified by demonstrably tenable grounds and in line with the stated objectives
of the PCGG. And it goes without saying that where replacement of management officers may be called for, the
greatest prudence, circumspection, care and attention - should accompany that undertaking to the end that truly
competent, experienced and honest managers may be recruited. There should be no role to be played in this area by
rank amateurs, no matter how wen meaning. The road to hell, it has been said, is paved with good intentions. The
business is not to be experimented or played around with, not run into the ground, not driven to bankruptcy, not
fleeced, not ruined. Sight should never be lost sight of the ultimate objective of the whole exercise, which is to turn
over the business to the Republic, once judicially established to be "ill-gotten." Reason dictates that it is only under
these conditions and circumstances that the supervision, administration and control of business enterprises
provisionally taken over may legitimately be exercised.

d. Voting of Sequestered Stock; Conditions Therefor

So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the
prerogative to vote sequestered stock of corporations, granted to it by the President of the Philippines through a
Memorandum dated June 26, 1986. That Memorandum authorizes the PCGG, "pending the outcome of proceedings
to determine the ownership of * * (sequestered) shares of stock," "to vote such shares of stock as it may have
sequestered in corporations at all stockholders' meetings called for the election of directors, declaration of dividends,
amendment of the Articles of Incorporation, etc." The Memorandum should be construed in such a manner as to be
consistent with, and not contradictory of the Executive Orders earlier promulgated on the same matter. There should
be no exercise of the right to vote simply because the right exists, or because the stocks sequestered constitute the
controlling or a substantial part of the corporate voting power. The stock is not to be voted to replace directors, or
revise the articles or by-laws, or otherwise bring about substantial changes in policy, program or practice of the
corporation except for demonstrably weighty and defensible grounds, and always in the context of the stated
purposes of sequestration or provisional takeover, i.e., to prevent the dispersion or undue disposal of the corporate
assets. Directors are not to be voted out simply because the power to do so exists. Substitution of directors is not to
be done without reason or rhyme, should indeed be shunned if at an possible, and undertaken only when essential to
prevent disappearance or wastage of corporate property, and always under such circumstances as assure that the
replacements are truly possessed of competence, experience and probity.

In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in
their stead because the evidence showed prima facie that the former were just tools of President Marcos and were no
longer owners of any stock in the firm, if they ever were at all. This is why, in its Resolution of October 28,
1986; 118 this Court declared that —

Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents'
calling and holding of a stockholders' meeting for the election of directors as authorized by the
Memorandum of the President * * (to the PCGG) dated June 26, 1986, particularly, where as in
this case, the government can, through its designated directors, properly exercise control and
management over what appear to be properties and assets owned and belonging to the government
itself and over which the persons who appear in this case on behalf of BASECO have failed to
show any right or even any shareholding in said corporation.

It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management
of the company's affairs should henceforth be guided and governed by the norms herein laid down. They should
never for a moment allow themselves to forget that they are conservators, not owners of the business; they are
fiduciaries, trustees, of whom the highest degree of diligence and rectitude is, in the premises, required.

25. No Sufficient Showing of Other Irregularities

As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the execution of
certain contracts, inclusive of the termination of the employment of some of its executives, 119 this Court cannot, in
the present state of the evidence on record, pass upon them. It is not necessary to do so. The issues arising therefrom
may and will be left for initial determination in the appropriate action. But the Court will state that absent any
showing of any important cause therefor, it will not normally substitute its judgment for that of the PCGG in these
individual transactions. It is clear however, that as things now stand, the petitioner cannot be said to have established
the correctness of its submission that the acts of the PCGG in question were done without or in excess of its powers,
or with grave abuse of discretion.

WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is lifted.

Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.